As a CEO of private-equity-backed ZXP Technologies, Jason Sanchez says taking the business to the next level is about having a balance from a value-creation perspective, and working to meet the goals and objectives of all the stakeholders in the company.
"To me, value creation is ensuring that you're balancing all those objectives and goals, and trying to meet the objectives of each of those stakeholders that are seeing value in what they're investing their time or money or products into, and ensuring you're creating success for everybody there," Sanchez said during the Houston Smart Business Dealmakers Conference.
From his perspective, a PE-backed company is a high-paced environment with lots of conversations, lots of mistakes made, but lots of recovery and lots of good ideas flowing through. For CEOs or owners who are new to the private equity space, his advice is to be the sounding board and bring honesty to the conversations.
"Meaning don't over commit, don't under commit," he says. "Be very thoughtful, be very thorough in the discussions that are taking place with the board or your ownership group because typically, you're in the business from a day-to-day perspective. You know what's happening and you have to communicate that honestly. I think where things can fail is if there's an expectation set that isn't countered with a realistic expectation around what can actually be accomplished."
In his experience from an operator perspective in the private equity space, the conversations with the board typically are lively and aspirational with the aim of trying to get a business that was purchased with a value proposition in mind to think differently and bigger.
"It's up to me as the operator to ensure that we're incorporating all those ideas, and maybe challenging our own biases, while ensuring that we're not going to constantly fail from a quarter-to-quarter basis; that we're actually driving and getting wins for the business and for the ownership while we're continuing to think about different ways to get to the next level," he says.
Every business is different. From his experience, realizing that value proposition is all about the strategy of the business and what it’s trying to accomplish.
"It comes down to identifying, I guess for lack of better terms, what you want to be when you grow up, and where you're going to head and what that competitive landscape looks like," Sanchez says. "Doing the strategic work doesn't have to take that long. It's just got to be a little thoughtful, and ask some questions. And then identifying the key competencies and resources you need to accomplish that."
Those resources could be digital marketing for lead generation, or a good business development process, all of which also requires the right type of people to pull it off.
At ZXP, he says they revamped the commercial team to get the different elements they needed. It required an invigoration of the culture as well as the development of a general sales process. Once the timeline requirements for such initiatives is established, the business can go find the necessary talent.
He says anybody looking at buying a company wants to understand the risk associated with the purchase. And from a commercial perspective, anybody looking to take a business from one level to another needs to understand how much effort is going to be taken into that growth engine side.
"Customers don't just do business with you because you tell them to," he says. "You have to create a platform of success for them, from the order of the cash process, from the quality of the product or the service that you're delivering to them, and the repeatability of the communication and their interfacing with you."
With such investments, he says when a new owner comes in, they'll see that this business can scale from a customer perspective, handle those transactions and keep building.
"If a company is not showing that type of ability to acquire and maintain customers, that's a red flag in acquiring when you're doing a diligence process; not a red flag that it's a bad investment, but it will devalue the company," he says.