The formulas, tricks and trade secrets of Private Equity

Private Equity Consulting

Sample Chapter

There’s a fine line between advising investees and doing their work for them. And, this fine line is easily crossed as private equity teams try to add their own unique value to portfolio companies through private equity consulting.

The typical scenario starts with witnessing something that could be done better. It may be related to sales, costs, relationships, inventory or whatever. You first discuss the issue with one of your C-level execs, you make a few suggestions, you query how your suggestions fared, you make the same suggestions again, etc. Depending on your level of patience, there comes a time when you finally think to yourself “if I want it done properly, I’ll have to do it myself”. That’s the problem with private equity consulting.

This is dangerous… for many reasons:

  • You have an entire portfolio of companies, and playing CFO or CTO or COO or private equity consultant to all of them is untenable; you’ll sacrifice your performance as a private equiteer to become, at best, a mediocre manager spread thinly
  • You’re setting a precedent; the next time you call for something drastic, they’ll expect you to oblige
  • You’re creating a dependency; if you’re out to build great companies, you’ll be doing them a disservice by not allowing them to make mistakes, learn from those mistakes and refine their skills
  • You may be wrong; yes, as a private equity consultant, it’s possible; while a fresh eye often provides new insight, a weathered eye often has the benefit of previous experience and a more informed visceral intuition

With all of that said, it can be helpful to get your hands dirty in an investee to really understand how it ticks through private equity consulting. You are the owner (or part owner) of the business, so it’s clearly in your best interest to help where you can. But there’s helping and then there’s helping; one involves keeping a safe distance (see picture).

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