Simply belonging to a gym doesn’t mean I’m in shape any more than simply launching a lean initiative, hiring a speaker or consultant, and sending out a bunch of books equals continuous improvement.
We’ve learned creating value requires a commitment to continuous improvement, identifying it as a priority and asking all employees, regardless of their position how they are contributing to the program’s goals. Like most things, we can’t expect this passion to exist throughout the business simply because we seek it; it takes time for people to observe this commitment in leadership’s words and actions.
Faster, cheaper and better are the outcome of productivity improvements by the business and require a passion and value for continuous improvement by the leadership and the employees. Too often investors and operators neglect to value how critical that level of commitment is to sustain adoption.
For the most part, the initial platforms we invest in generate revenue less than $25 million and are led by founders or families. The leaders are passionate about the business and loyal to the business’ clients and employees. In return, the employees are loyal to the business, and the clients appreciate the value the business contributes, but client loyalty has deteriorated in today’s competitive environment where businesses seek to drive vendors to reduce prices, extend credit, improve quality, improve performance and innovate. If you’re asking yourself, how is this sustainable, you’re not alone. The competitive and challenging business environment will continue to strain the small businesses as they seek to not merely survive, but to grow organically. Appreciating the reality of the current business climate, these entrepreneurial businesses must (i) operate faster, cheaper and better than the past and (ii) expand into growing markets.
A critical dimension of continuous improvement is capturing the voice of current customers and potential customers. Rather than assuming they understand the customer’s priorities, uses and performance requirements, companies must expose various functions to the client to gather that information firsthand. This gives the company an opportunity to identify what the customers’ value is and focus their efforts on delivering what is valued faster, cheaper and better. Sure, it requires active listening on the company’s behalf, but it also allows for an opportunity to identify innovation and growth opportunities.
We at Driehaus Private Equity believe that simply saying clients are important, and that innovation and growth are critical, will not automatically result in wealth creation. Recognizing that the owners and management teams we invest in often do not have the resources to transform their businesses via adoption of process improvement solutions, we have invested in an internal team whose focus is to work as a partner coach with company leadership. Think about your gym membership. Do you go more often and work out more effectively with a trainer or solo? We will design a training program for you, one that gets you running faster so you win the race.