Top Strategies for Middle-Market Private Equity CEOs

CEOs of middle-market private equity sponsored companies face unique challenges when it comes to delivering growth, profitability, and cash flow while managing operations with limited resources. An effective enterprise-wide business performance management system can significantly enhance their ability to plan better and more strategically, execute with greater operational discipline, and improve decision-making to foster sustainable success.

Challenges Faced by Middle-Market Private Equity CEOs

Leading a middle-market private equity-backed business requires CEOs to deliver improved business performance at an accelerated pace, often with less resources than larger organizations. This can make it difficult to implement best practices, develop state-of-the-art technology solutions, or recruit top talent.

In addition, these CEOs must contend with engaged boards and financial backers who expect them to possess in-depth knowledge of their company’s operational drivers and financial performance, on par with their CFOs. This heightened level of scrutiny can cause added pressure and stress for CEOs, who are responsible for demonstrating consistent progress and growth against set targets.

Some specific challenges faced by middle-market private equity CEOs include:

1. Limited resources and scale: Middle-market companies often lack the financial resources, human capital, and infrastructure of larger organizations, which can constrain their ability to scale quickly and efficiently.
2. Competitive pressures: Middle-market businesses operate in highly competitive environments with the need to outperform rivals in order to maintain market share, satisfy stakeholders, and drive value creation.
3. Access to capital: Securing financing for growth initiatives and working capital can be challenging, as middle-market companies may find it more difficult to access debt and equity markets compared to their larger counterparts.
4. Talent acquisition and retention: Attracting and retaining top talent is a critical issue for middle-market private equity-backed businesses. CEOs often face the challenge of competing against larger organizations that can offer higher compensation and benefits packages, as well as more opportunities for career growth and development.
5. Regulatory compliance: The ever-changing regulatory landscape may pose challenges for middle-market CEOs who need to ensure that their organizations are compliant with all relevant regulations while managing the risks and costs associated with compliance.
6. Geopolitical uncertainty: Middle-market companies expanding into international markets may face uncertainties and risks related to geopolitical events, trade policies, and currency fluctuations that can impact their operations and profitability.

Implementing an Effective Business Performance Management System

To achieve sustainable growth, profitability, and cash flow, CEOs should implement an effective enterprise-wide business performance management system. At its core, this system should accomplish three key objectives:

1. Enable stakeholders to plan better and more strategically: The planning process should align operational and financial goals, identify key performance indicators (KPIs), and establish clear targets and means of measuring performance. This will help stakeholders focus their efforts on high-impact activities that drive value creation.
2. Execute with more operational discipline: Robust execution relies on effective project management, resource allocation, and communication, as well as consistent monitoring of progress against goals. CEOs should instill a culture of accountability across the organization and ensure that teams have the necessary tools and information for successful execution.
3. Improve decision-making: Timely, accurate, and relevant data is essential for informed decision-making. CEOs should invest in appropriate technology and processes to collect, analyze, and share performance data across the organization, enabling key stakeholders to make data-driven decisions that optimize business performance.

We’ve developed a business guide that provides more information around implementing an effective business performance management system. You can download it here.

The Role of FP&A in Business Performance Management

In large corporations, the financial planning and analysis (FP&A) function is often central to the organization’s business performance management system. However, middle-market company leaders may not fully leverage the potential of this function in their organizations. By viewing FP&A as a set of enterprise capabilities from the CEO’s perspective, the implementation of an effective business performance management system becomes more straightforward and accessible. For middle-market private equity sponsored company CEOs, instituting a sound management system is crucial for delivering growth, profitability, and cash flow. By adopting a CEO-centric approach to FP&A and recognizing its role as a core component of an effective business performance management system, these leaders can better plan strategically, execute with discipline, and improve decision-making for the long-term success of their organizations. Learn more about how our FP&A team can help your organization.