Three key trends define ‘operating resources 2.0’
A number of developments are defining the next phase of the model’s evolution.
- Firms are involving operating resources earlier in the deal cycle.
Traditionally, operating resources have focused on adding value during the hold period, with resources brought in post-close. However, many firms are now involving operating resources earlier in the process. As targets are identified, they’re being brought in during the diligence phase in order to help build the investment thesis and flag opportunities for value creation.
- Firms are increasingly using specialized operating resources.
While generalists remain an important part of the playbook, firms are increasingly involving specialist resources as well across a range of discipline
- Firms are increasingly using 1099 contractors — either in addition to or in place of full-time employees.
Two years ago, most operating resources were composed of full-time employees of the GP; today, many firms are now increasingly using contractors in their place, or sometimes using hybrid models that utilize both.
No ‘one-size-fits-all’ solution
It’s important to note that there’s no one-size-fits-all solution. For every model, there’s a firm out there that’s using it successfully.
As such, the question isn’t “What’s the right value creation model?” It’s “What’s the right model for your firm, for your strategy and for this particular portfolio company?” What’s important is that the model aligns with or complements a firm’s strategy, competencies and key differentiators.
Firms need to consider a number of questions to determine the approach that’s right for them:
- How are we going to add value and generate return?
- What resources are required to execute against our thesis?
- What’s the most effective and efficient way to get these resources?
- How do we recruit, motivate, compensate and retain our talent?
Careful consideration of these elements, and indeed of all aspects of the operating resource model, can help maximize the impact of these increasingly essential resources.