Layer by Layer: Building Community and Coopetition in Private Equity through BSM Data and Collective Intelligence
Private equity has undergone significant shifts thanks to ongoing pandemic pressures — and the change isn't over. As noted by research firm McKinsey, "The pandemic is more than an epidemiological event; it is a complex of profound disruptions." For private equity (PE) firms, these disruptions can take the form of everything from expanding client expectations to evolving remote work scenarios. And, like many other industries forced to adapt under the stressors of COVID-19, there's a growing recognition across private equity C-suites that more community-minded efforts are now critical for sustained success.
Put simply, a rising tide lifts all boats — but in an industry driven by equal parts competition and cooperation, what does this sea change look like for CFOs? A recent Coupa analysis of current market forces reveals a layered PE effort that starts with new operational approaches, broadens with the development of shared best practices, and delivers maximum value with anonymized data and intelligent business spend management. Here's what you need to know.
Forging collective intelligence
As noted by the Harvard Business Review (HBR), PE firms must find their investment "sweet spot" to maximize returns and deliver value to clients. Operating on all cylinders, private equity firms are forces to be reckoned with. In fact, the HBR piece points out that "Private Equity. The very term continues to evoke admiration, envy and — in the hearts of many public company CEOs — fear." But in a world turned upside down by shifts to remote work and rapidly fluctuating market values, many firms are having trouble finding and staying in their sweet spots. In this new investment normal, enterprises must find ways to think outside the box — and it starts with collective intelligence.
In their recent PEI presentation, "Unlocking the strategic power of spend," CPO of Coupa Michael van Keulen and WestView Capital General Partner Greg Thomas spoke to the importance of community insight and the value of analytics in helping firms uncover key insights and identify ideal investments.
The challenge? Sourcing intelligence at scale. While many firms are familiar with market trend analysis provided by popular research companies and have invested substantial capital into technologies such as customer relationship management (CRM) and enterprise resource planning (ERP) tools, many are unfamiliar with the advantages of anonymized spend data at scale. This is the value of Coupa's Business Spend Index (BSI), generated from the Coupa Business Spend Management (BSM) platform, which analyzes trillions of dollars of aggregated and anonymized spend data to showcase key trends in Business Spend Management to provide an early indication of economic growth over the next three-to-six months.
Recognizing the role of procurement as a foundation for digital transformation, in 2020 WestView Capital made a strategic investment in The Shelby Group, a Coupa implementation partner that specializes in procurement optimization. Thomas commented that as a result of this investment, he has seen first-hand how companies can go beyond cost savings to increase visibility, manage risk, and increase supply chain resiliency to improve top- and bottom-line performance.
Applied at scale, BSI data can help PE firms streamline the spend management initiatives necessary to survive — and thrive — in a post-pandemic world. This is made possible thanks to three key Coupa data characteristics:
- Anonymity — Growing concerns around personal and corporate data privacy mean anonymity is critical to ensure PE firms can make unbiased strategic decisions. Coupa's anonymized data collection provides enterprises a critical strategic advantage by reporting spend sentiment without getting bogged down in unnecessary specificity.
- Aggregation — Small data sets make for poor strategies since they're just as likely to be outliers as actionable trends. Coupa's massive data aggregation means improved confidence for PE firms when making critical investment and spend decisions.
- Application — Spend data is only valuable if it can be applied immediately and at scale. Coupa's BSI provides both current insights and three-to-six month spend sentiment data to help PE firms make data-driven decisions that deliver over time.
Fielding capital suggestions
While markets will recover over the long term, current predictions suggest a significant slowdown in PE investment. According to recent data from Standard & Poor, almost 35% of North American private equity firms surveyed say that investment activity will fall by 25–50% in the coming months. As a result, firms must find new ways to survive over the short term until long-term market lifts occur.
This is evidenced by the recent Private Equity International (PEI) Operating Partners Forum Virtual Experience 2020. Streamed live on December 1st and 2nd, 2020, the forum focused on "plans and actions at a crucial time in history to deal with this year's downturn and reset strategies for growth through technology." With a host of sessions tackling everything from tech due diligence to advanced analytics and activating digital leaders, the PEI presentations made it clear: Private equity firms need new ways to approach market challenges.
In practice, operationally effective suggestions encompass:
- Maximizing talent — As noted by global consulting firm Korn Ferry, increasing PE competition means "firms are focusing on talent to drive returns." And with top talent rapidly becoming more scarce in the industry, it's critical for companies to find in-house opportunities for talented executives to take on more portfolio potential whenever possible.
- Becoming more than capital — While capital remains the value cornerstone for private equity companies, moving beyond capital to deliver client-first, value-added services can help PE firms stand out.
- Improving sales and marketing integration — Sales and marketing initiatives are critical to improving overall market share but have historically been one (or more) steps removed from more direct investment actions. However, with consumer expectations increasing, there's a growing need for tighter integration between sales, marketing, and investment teams to ensure any campaigns effectively target ideal market segments.
- Creating preferred vendor programming — Preferred vendor programming can help lower costs and streamline operations for PE firms. Here, it's critical for enterprises to assess current vendor value, identify top performers, and create programs that support deployment at scale.
Finding common ground
The next layer in finding private equity equilibrium? Common ground. This has historically been challenging for private equity firms given the competitive nature of the investment market, since finding and securing key stakes in private or public firms before the competition forms the foundation of operational success. However, current conditions open the door to "coopetition" — a portmanteau of "cooperation" and "competition" — that helps all companies succeed.
In practice, this means developing more standardized processes and policies that benefit the industry as a whole. Potential common ground conditions include:
- Carbon copies — Consistent revenue requires replication — process and procedures that help define key operational boundaries and client interactions to deliver ongoing success. And while each client is unique, requiring specialized advice to investors across different market verticals, PE firms must establish replicable processes that make it possible to start strong no matter what space their client occupies. Here, establishing industry-wide best practices helps set up success at scale by providing a solid starting ground.
- Candid conversations — Historically, PE firms have erred on the side of caution when it comes to communicating candidly with clients. Given current crisis conditions, however, this kind of standoffish strategy won't pay dividends at scale. In effect, firms aren't well-served by pretending PE is business as usual — because it's anything but business as usual. Instead, firms need to find common ground regarding being up-front with clients about potential market downturns or short-term losses, both to temper expectations and create a critical measure of trust. As part of a larger PE strategy to speak plainly about potential pitfalls, this approach can help level the playing field and give all private equity firms a fighting chance.
- Corporate collaborations — In PE, as in life, nothing is free — at least, that's the familiar framework. Contacts simply looking for advice are often put on the back burner in favor of more immediate revenue-generating relationships, but it's that word — relationship — that suggests a new path forward for PE firms. In a world now driven by the certain knowledge that nothing is certain, relationships matter more than ever. Organizations looking to leverage the expertise of PE firms could be outliers one day and offer massive opportunities the next — but if firms apply a "quid pro quo" model to every interaction, chances are they'll miss out on critical connections over time. By confirming collaboration as common ground, private equity enterprises can set the stage for long-term, reciprocal relationships.
Forming a united front
While the nature of private equity investment relies on competition — firms are always looking to find the best talent, make the best deal, and be the first to find financial "sweet spots" — pandemic pressures have shored up the need for a market model that trends toward cooperation.
In fact, community building offers a way for firms to explore the potential benefits of coopetition: New frameworks, best practices, and business intelligence initiatives that help PE organizations make the best use of the resources at their disposal. But this shift toward cooperation doesn't just level the immediate playing field — it offers a way for firms to stand out from the crowd based on service, specificity, and market savvy.
By harnessing the power of Community Intelligence on platforms like Coupa, private equity firms can move toward coopetition while also optimizing and setting up their own businesses for success.
Bottom line? Pressure drives progress. And while it may be uncomfortable, the best way forward for private equity firms is forming a united front. And when pandemic pressures finally ebb, these newly agile enterprises will be better equipped to capture greater — and more sustainable — market share.