What Are 100 Day Plans
Private Equity firms have to generate value, that's why people hand over large amounts of money to them. As soon as the investment is made, the IRR (Internal Rate of Return) clock starts ticking.
When a private equity firm invests in a business, there's going to be a change in the way things are done – unless they're holding a small minority, passive stake.
And people generally have a limit for the amount of change they can handle. So in order to get ahead, many professional firms implement a 100 Day Plan on day one after closing the deal.
The 100 Day Plan is like a playbook which keeps the team moving forward – focused on one goal – creating value, not just for shareholders but also for customers. There's a balance that needs to be achieved. It's “The Plan” to make those projections a reality.
In the larger schemes of things, where private equity firms invest for three to five years, 100 days is just 5% to 10% of the investment horizon. That doesn't seem like much, but it's very important.
While everyone is excited, and before the deal euphoria wears off – you have a short window of opportunity to keep the momentum going and take advantage of the velocity. After the first 100 days, people generally settle into the ‘business-as-usual' mode.
Management is efficiency in climbing the ladder of success; leadership determines whether the ladder is leaning against the right wall.Stephen Covey
So make sure you have the ladder leaning against the right wall, and towards the right window before it's too late…
Why 100 Day Plans Are Critical
When a company is being acquired, there can be a change in style of leadership or the leadership itself. Remember the leader brings with him key relationships – both internal and external – those are things that cannot be easily replaced.
Business stability is the name of the game…
It's important for your 100 day plan to cover every aspect of the business, from strengthening systems, reducing costs with proper financial control & reporting, all the way to building human capital, retaining intellectual property, to even exploring how you can double, triple or 10x the company's growth.
It's also external, remember when there's change – the change also affects your external stakeholders – customers, suppliers even competitors. Such change is often critical especially when you've invested in that company.
How Can 100 Day Plans Succeed
Depending on whether you're acquiring a company completely and the owner is stepping aside for a professional manager, or whether you're going to collaborate with the owner going forward as he retains a stake – you will need an appropriate 100 Day Plan altogether.
But before you jump right in and try to dictate terms, think about the implication of what you're trying to achieve – think strategically and not tactically. Bringing everyone on board, is as much about change management as it is about managing your investment.
Communicating clearly and communicating often as well as in a non-threatening, open manner in the early days can make or break the progress of the company and create value for everyone.
Set expectations early on, way before the ink is dry on the deal, well before the pre-closing. Having that conversation to set the stage and pre-plan for the future is crucial to the success of the 100 Day Plan. What were the key drivers that got you interested in the deal, focus on them.
Have the right team in place to drive the change. But understand that everyone has to feel like they're part of a bigger team. Do an assessment of the dream team to be formed, as to whether they're going to be up for the challenge of private equity ownership.
When 100 Day Plans Don't Go As Planned
Sometimes things just don't go as planned. Sometimes, people think that things magically happen – they don't.
I understand that there are acts of God that can affect the business – both internal as well as external.
But you can't just jump in and think that the entire business is on a new trajectory and you will experience growth like you've never seen before. You could, but that would destroy the company.
When a private equity firm acquires a stake, and the owner or entrepreneur is given the impression that nothing would change – this spells disaster.
This is the hard truth I tell everyone…
When you take money from someone, the DNA of your company changes.
In the past, the owner may have had the final say on things, but it would be foolish for him to think that once he takes money from someone, he can do as he wishes.
Also, when the owner sees the 100 day plan, the last thing on his or her mind should be the feeling that the private equity firm has taken over the company and made him or her more like an employee. Nothing like buzzkill.
If you ever reach this stage, you jeopardize the stability of the organization and may end up having to search for a new executive – and these things take time.
Where would you want to spend your time and energy – scrambling around for a few months to find an untested executive or cheering an engaged and energized owner who built the business in the first place?
What does that do to growth… it slows it down.
Plans generally break down not because of the asset or contracts that you have, but because of the people involved. Execution is based on people, things won't happen by themselves.
Where Should 100 Day Plans Focus On
If there's one thing you can take away from this, it's that you should respect the CFO or controller – that's because pre and post closing, the level of stress is high as the ownership changes.
With private equity ownership, the level of financial reporting is significant – we follow the adage, “if it cannot be measured, it cannot be managed”.
So if there's one thing you can do to make it a successful, it's to focus on helping finance department make the transition. It's often an under-appreciated department – but truly valuable one for your business to succeed.