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 The Old Rules: The private equity industry has matured considerably since its formation in the early 1980’s. The old rules were relatively simple:
- Find a promising deal
- Fund it
- Empower management by providing them with ownership incentives Primarily cut payroll costs and squeeze supplier costs
- Liquidate the investment to lock in the returns
The old rules were so successful and so widely adopted throughout corporate
America that they no longer work. Companies empowered their own management teams
with incentives to a point where this device is no longer a point of differentiation
or leverage. With everybody empowered, the effect is that nobody is empowered.
Performance improvement opportunities continue unabated today.
The New Rules: With a considerably larger private equity industry, success
is now centered around value creation ability. The new rules are more stringent:
- Know thy industry
- Find a promising deal
- Use due diligence to prove out the pre-established road map
- Fund it
- Develop and apply your own talent
- Calibrate the strategic processes of the company
- Value vigorous execution over sophisticated planning
- Know thy industry, again
- Lock in the gains while exiting
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