Equity Firms Should Leverage Innovation

On the strategy side of our business, we work with many private equity-backed companies.
We get called in when the growth trajectory and investment thesis arent being realized as
projected.
We complete a diagnosis, based on a holistic evaluation of the market, competition, culture,
marketing and operations of the firm. Applying a variety of in-depth primary and secondary
forms of research and analysis, we develop a roadmap of real, organic growth.
Given the left-brain methods, a lexicon used by the best business schools and the Harvard
Business Review, the analytic rigor and accurate modeling of probable growth, down to the
intoxicating bar graphs and spreadsheets filed with the right proxies, we earn the trust of the
companys board usually comprised of their biggest investors, associates in a private equity
firm founders and leaders.
They know these idioms, share a level of comfort with the form of the presentation, and find
solace in the fact that we use our mastery of this business school approach to management
consulting. Without fail, those who follow our advice perform better in the market.
Then, we mention the I word and it is as if we are insulted their mothers; the conversation
is over. Innovation, too often misunderstood, is not a disease, nor is it an airy-fairy notion. In
fact, private equity firms should place an imperative of genuine innovation on the companies
into which they invest, as it is a real, repeatable and cost-efficient lever of top-line revenue
generation.
Maybe it is because innovation started in the design and engineering fields, rather than part
of the core B-school business management or finance tracks that imprinted their thinking
about business?
Maybe it is a shared sense of risk-aversion that wards off anything outside of an industrialrevolution era sense of business practices that people prone to PE work may exemplify? Maybe
they just havent seen the real and tangible benefits of a disciplined innovation program and
its bounty firsthand?

Whatever the reasons for the blank stares and lack of interest in innovation by many PE firms
we have met around the globe, we predict that once one major PE firm retains an innovation
firm for its portfolio and sees the incremental, breakthrough and disruptive and massive
growth, that innovation will become a core engine of growth in this sector.
PE firms are slow to change behavior, given their cautious worldview and the gravity of their
investment; however, once they find something that works, the whole industry changes
course.
Given that several established innovation methodologies are now being taught in leading
business schools from MIT to Stanford to Rotman and others and that book after book about
market leaders who use these techniques are being digested, it is just a matter of time. Once
private equity groups understand how innovation works and how it can be used to inspire
transformative growth, innovation will be one of the foremost toolkits in a segment that
ignores its power.
Michael Graber, managing partner of the Southern Growth Studio, can be reached
at southerngrowthstudio.com.