“Digital transformation” is a phrase we hear and read about constantly. It’s in countless articles and thought leadership pieces targeted at marketers, CEOs, investors, and other business leaders. It’s a topic that’s brought up in almost every meeting we have with private equity firms as well as at most PE-focused events. It gets used so much that it has become one of those omnipresent buzzwords in danger of losing its meaning, like “Big Data” and “The Cloud”. 

The interest in Digital Transformation is understandable, as the digital revolution has changed so much of our daily personal and work lives - even more so with the explosion of work-from-home, entertain-from-home, and socialize-from-home driven by the COVID-19 pandemic. Even before the pandemic, private equity investors spent plenty of time and money on digitally transforming their portfolio companies, especially in the areas of digital marketing. In fact, research has shown that most private equity firms agree that digitization is critical when it comes to their investments and can create sustainable value for a company. As a result, most build it into their investment process. 

Despite this, however, our own experience tells us that few PE firms in the middle-market are spending much time on digital when it comes to their own go-to-market efforts. As a result, they risk damaging their firm’s brand in comparison to their brethren who have digital better figured out, which can have negative consequences for such important areas as fundraising, deal sourcing, and recruitment. Falling behind in these areas will ultimately impact fund performance.

What is digital transformation

While at its core, digital transformation involves shifting “analog” processes to “digital” ones, it’s much more than that. It really entails a fundamental shift in how firms do business. From a go-to-market perspective (what GPs often refer to “Commercial Activity" in their portcos), it involves rethinking the construction of their core - their value proposition, communication with key stakeholders, business development activities that lead to deal origination, and recruitment. For the purposes of this article, we’ll place these elements together under the “Digital Marketing” umbrella.

The benefits of digital transformation on GP’s go-to-market efforts

There are many benefits to GPs in leveraging digital marketing in their own go-to-market activities. They include:

Brand and Value Proposition

First and foremost is the impact on the firm’s brand and value proposition.  With fundraising activities and deal making at all-time highs, it’s more important than ever that PE firms differentiate themselves to stand out in a crowded field- both with potential investors as well as with acquisition targets.  A strong digital effort in the firm’s own marketing can help tell an important story.  Just as demonstrated expertise in a certain sector can be a differentiator, so can demonstrated expertise in digital marketing.  It’s easy for both investors and potential investment targets to see, and it can greatly enhance the value of the sponsor to those target CEOs/management teams struggling with their own digital marketing efforts. 

Here are some questions to get you started:

• How well are our core competencies communicated in a way that’s different and “own-able” compared to other, similar firms?
• Is digital expertise integrated into the firm’s core part of its competency mix?
• Is thought leadership used to demonstrate our value to portfolio companies in all areas of the value creation effort

Data-driven digital marketing can be a boon to PE firms.  Segmentation and personalization can have a positive impact on lead generation for traditional commercial enterprises.  They can have a similar impact for GP’s efforts to provide specific and targeted information to potential and current investors in their funds.  By building their digital marketing toolsets, GPs can ensure LPs receive relevant information at the right time and through the right channels based on individual LP characteristics including previous activities, level of engagement, investor profiles, and communications style.

Questions to get you started:

• Our we segmenting our database to send content & messaging tied to the various interests of investor and potential investor prospect pools?
• Does our communication act to inform only or to trigger other actions: more investment, surveying needs of information mix, sharing, cadence of communication?
• Is there an on-going marketing campaign to enhance and reinforce why we are unique in the marketplace so investors can easily engage and ultimately provide referrals?

Business Development and deal origination

Most business development activities are conducted face-to-face (at least before the virus) with PE professionals interacting with investment bankers, and other intermediaries.  Each event or meeting attended generates follow-up activity and the need to continue to nurture the relationship.  Done right, digital marketing can play a huge role in this process by delivering value through content and automated touches to enhance face-to-face activities.  When combined with good BD habits, digital marketing will not only make deal hunters more effective and efficient, it will improve timeliness of follow-up and move activity through the funnel more quickly.

Digital marketing will also significantly enhance the ability to reach potential sellers directly and efficiently, with a targeted message.  Utilizing best practices such as segmentation, targeting, personalization, lead scoring, and nurturing will allow GPs to find, attract, and engage with potential acquisition targets early in the process.  GPs who do this well will get their message in front of sellers before the competition, delivering their messages first and setting the agenda for the sales process.

Questions to get you started:

• How well does our on-line presence and digital engine drive lead generation and deals?
• Do we have an ecosystem whereby digital channels are used to enhance and reinforce our outreach, and brand positioning (reason for being, competitive advantage, track record etc.) leading to more in-coming “sweet spot” deal opportunities?
• Does our digital strategy and plan achieve an above average number of higher quality attractive investment opportunities?

Recruiting

Like many other industries, private equity has been fighting a war for top talent.  Middle market firms in particular sometimes struggle to attract the best and brightest in competition with bigger shops, other investor classes, and consultancies.  A strong digital presence will help differentiate PE firms as forward-thinking, progressive, and relevant in today’s world in the eyes of potential recruits.  A strong digital presence should also extend to the tools PE firms use to recruit and communicate with candidates, such as mobile-first websites and apps, video conferencing, and team collaboration tools like Slack and Microsoft Teams.

Questions to get you started:

• How well do we embrace technology to attract high-quality candidates versus the more costly analog routes?
• Do we have the data and analytics we need to develop and track the characteristics of successful recruits, then use that information to find more with that profile? What is the right academic, tribal experience and behavioral mix?
• Do our website, social media assets, direct mail/brochures effectively communicate our growth vision, culture, and DNA in a way that provides a competitive advantage versus other firms in our space?
• Have our tools been pressure tested by those in the funnel?

A final thought

Assessing the areas above can be hard for any business to do on their own, and let’s face it, most investors and fund managers are not digital marketing experts.  In addition, organization bias often takes hold along with a certain level of defensiveness.  While it may be relatively easy tell what “bad” looks like, it’s a lot harder to know what’s “good”, and even tougher to know what’s “effective”.  We’ve found it can be very beneficial to include outside points of view to provide a more neutral assessment.  In addition, an experienced digital marketing professional can be the critical piece to ensuring that digital transformation efforts are specific, targeted at best growth opportunities, and ultimately, deliver on return on the investment.  Those are elements any private equity investor can get behind.

Authors:

Slade Kobran Managing Partner Chief Outsiders

Ian Gomar Partner & CMO Chief Outsiders