Most founders imagine private equity as something that happens to other companies. Bigger ones. Companies with investment bankers on speed dial and revenue in nine figures. The assumption is understandable, and according to Paul Stansik, it is mostly wrong.
Paul is a partner at ParkerGale, a Chicago private equity firm, and author of Hello Operator. He recently spent an hour with our members explaining how these firms make money, what they value in a deal and what they look for when they evaluate a business. I came away with three ideas worth sharing, and I’d love to hear which ones stuck with you.
One: Private equity firms genuinely want to hear from you
The first is that private equity firms genuinely want to hear from small businesses. No matter how small or specialized your company is, there may be a firm built around your exact industry or business model. ParkerGale itself focuses on technology enabled services companies, which shows just how narrow a firm’s focus can be. The work for founders is simple. Find the firms that specialize in your field, reach out and ask direct questions. Which metrics do they value? What makes a business attractive to them? What do they look for in an acquisition?
Here is a Private Equity Funcast on the subject: What PE CEOs Should Ask About Their Business
Paul also walked us through the Rule of 40, which adds a company’s growth rate to its EBITDA margin. A company growing at 20 percent with a 20 percent margin scores 40. So does one growing at 30 percent with a 10 percent margin. I asked Paul which side of that equation matters more. His answer was that it depends, largely on size. Smaller companies generally need to emphasize growth, while larger companies tend to weigh profitability more heavily. Neither can be ignored, but understanding the balance lets you see your business the way a buyer will.
Two: Clean your data and do some introspection
The second idea was data hygiene and it may be the most underrated advantage a founder can build. Your financial statements, CRM, HR records and KPIs all tell a buyer something before anyone says a word. Clean, reliable data signals a disciplined operation, informed decisions and a leader who truly understands the business. Messy data signals the opposite, no matter how strong the underlying company is.
Data discipline pays off long before a buyer ever opens your books. The leader who already knows the critical numbers and can show they are reviewed and acted on is running exactly the kind of company private equity wants to see. Data hygiene is not a project you finish before a sale. It is how a well run company operates every week.
Paul’s advice for founders considering a sale was refreshingly plain: get your data in excellent shape, and think hard about what you want from a transaction, both on day one and in the years that follow. As he put it,
If all you did was clean up your data and do some introspection about what you want out of a transaction and after, you’ll be ahead of a lot of founders.
Three: The Customer Cube
The third idea was the customer cube, a tool private equity firms often use in due diligence. A customer cube maps who your customers are, why they buy from you, how they use what you sell and, most revealing of all, what they are not buying from you that they should be.
I saw this firsthand at gap intelligence. We covered 37 product categories. When a client bought two categories but made products that fit five others we tracked, those five represented growth hiding in plain sight. Private equity firms care about this because selling more to an existing customer is almost always easier than winning a new one. The distance between what customers buy and what they could buy is often where the real value sits.
For a B2B company, that means reviewing each account against your full menu of products and services. For a B2C company, it means studying your best repeat customers and asking what else would genuinely serve them. Either way, the exercise tends to reveal that your easiest path to growth is already on your customer list.
Those were my three takeaways. Private equity firms want to hear from you. Clean data and clear goals put you ahead. And your existing customers may hold more growth than any new market. One attendee summed it up perfectly in our survey after the webinar: “Get your data in order! And start thinking and operating like a PE firm.”
Paul also shared a number of fantastic resources that address:
- The Sales Metric Playbook: weekly sales analysis and data-driven decision making
- Artificial Intelligence 101: Hello Operator Blog
- How to turn Diligence into Value Creation
- Measuring Engineering Like You Measure Sales
What did you take away from Paul’s webinar?