With venture capital and private equity playing an increasingly important role in developing British business, whether at the seed-stage or at second or later-stage, we recently commissioned research to investigate key skills strengths and weaknesses in UK firms backed by Private Equity (PE) houses. We wanted to find out which skills are least developed, and therefore most in need of enhancement, at the point of acquisition or funding.
The research, which asked UK Private Equity houses with assets under management of over £2 billion to rate a range of skills in companies they acquire or fund, revealed that the weakest capabilities are in Marketing and IT management. A range of critical skills were rated on a scale of 1-100%, where 100% is the optimal level and 0% is a complete absence. The key skills examined were: sales; new product development; financial/business management; HR; product/service distribution; IT management; and Marketing.
IT management was rated at just 48%, whilst professional, accountable and measurable marketing was judged at 44% overall. In contrast, skills such as new product development (71%) and sales (69%) were deemed much stronger in PE-backed firms. While sales performance might be high in these firms, they often reach a ceiling where inspired salespeople’s capabilities cannot be stretched further and need effective IT and Marketing to automate the process of reaching prospect audiences.
Poor performance in Marketing and IT management, in short, can significantly reduce a businesses’ ability to go to market, target the right audience with right messages, and support sales growth. A lack of IT management skills can result in failure when it comes to generating intelligent sales activity, whilst sub-par marketing results in ineffective lead generation, both of which are crucial to new business development.
It is perhaps unsurprising that stronger SME skills are found in sales and new product development (poor performance in this regard would stop a business getting off the ground). Particularly during the early stages of a company, much can be achieved through working face-to-face with clients and customers, and converting sales through the personal passion and in-depth knowledge of founders. As a company begins to grow, however, this is not scalable. Inspirational business founders only have so many hours in the day.
Whether through in-house personnel or an external supplier, ensuring high skill levels in Marketing and in IT are essential for rapid, scalable growth and a good sales performance. Particularly for firms wanting to tap into private equity as a source of investment capital, then they should take a long hard look at their capabilities and make sure they are strong all round.
For new businesses, it is therefore important to demonstrate strong skills in these areas of acknowledged weakness. Being able to do so will give them a market advantage over competitors, become a much more attractive investment proposition, and realise their sales potential on a scalable level.