Five Mistakes GPs Make on Operational Value Creation
And how LPs can spot them — guest post by Romain Bégramian
Back in October, Romain Bégramian wrote one of our most-loved guest posts on doing due diligence on PE managers. The thesis was simple: track record is a coin flip, and operational value creation is the only alpha left worth chasing.
That post told you what to look for. This one tells you what goes wrong.
Romain is back with five mistakes GPs make on operational value creation. These mistakes are often not caught until the marks deteriorate. But fear not, dear reader, Romain provides concrete takeaways on how to catch such mistakes earlier.
About the author
Romain is a managing director at GP-Score, which he co founded with a retired LP and two former seasoned buyout executives.
He brings 25 years of operational experience, both as a performance improvement consultant for portfolio companies (AT Kearney, Alvarez&Marsal, FTI, and others) and as a Comex member in a PE-backed SaaS group. His functional area of expertise is B-to-B Sales and Marketing. You can email him at romain@gp-score.com, or find him on LinkedIn.
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Let’s start with this: a GP who never makes mistakes is a GP who isn’t trying hard enough to improve the EBITDA of its portfolio companies. So mistakes are fine as long as you don’t repeat them and you actually learn something. I have picked out a handful of mistakes we have seen over the years. Beyond the obvious ones, I focused on five that aren’t necessarily easy for LPs to spot.
1. Too much confidence in sector knowledge or playbooks
How many times have we heard PE managers say “We’re sector experts, that lets us move faster and do better, it’s an edge over competitors” or “We have a great playbook for our portfolio companies in the [ ] sector”?
Unfortunately, sector expertise is a dangerous asset. It tends to blind the expert, convince them they already know enough, and hide what they actually don’t know. Case in point: did Thoma Bravo’s software expertise stop them from losing five billion on Medallia?
Operational value creation is a craft, not an industrial, standardized process. Sure, knowing a sector is never useless, whether it’s SaaS or medtech, but every portfolio company is different: different context, different market, different management, and the potential levers for action are so numerous that the GP really needs to take the time for a proper, thorough diagnostic.
The inconvenient truth is, an outside consultant is often sharper than an in-house “expert,” whose knowledge erodes fast and stays anchored to what they learned at four or five companies, while the consultant will have seen far more situations.
What should LPs take away?