In the race to a successful exit, chasing your competitors isn’t an option. Looking to best-in-class benchmarks, regardless of industry, can help spur growth for portfolio companies. Operating partners looking to improve valuation metrics need to look outside of industry benchmarks to drive higher multiples.

Download our Cross-Industry Benchmark Assessment Tool to help identify areas that need to be strengthened in your own company, to isolate what industries you should look to for cross-industry benchmarks, and for a step-by-step guide of who to engage at what time as you look for those benchmarks.


Racing to a Profitable Exit


In distance running events, there is always a point where the champions break from the pack. Those that stay with the pack end up watching the podium ceremony with the spectators. For Operating Partners who want their portfolio companies to outpace competitors, benchmarking in their vertical is like running with the pack. This approach ensures that you will only ever follow competitors, but never beat them. That is why savvy operating partners avoid benchmarking to industry verticals. Instead, they look to cross-industry benchmarks as the key to outpacing average returns.


Picking the Right Benchmarks


Portfolio companies are expected to outperform in the years immediately after an acquisition. After all, that’s why a PE firm purchases the company in the first place; they see opportunity to increase the company’s value and leave with a handsome ROI upon exit. But you won’t get any love from the partners by only bringing the company up to industry standards. The pressure on operating partners to accelerate growth is immense. That’s why looking across industries to implement best practices can be a game changer for a portfolio company. It gives you the opportunity to avoid implementation of hum-drum “best practices” within the industry. And it allows you to jump-start growth with best practices that other firms have not adopted yet. If done correctly, the portfolio company will accelerate its growth rate and increase its valuation multiple. And that is something any PE firm would be happy to see.


Breaking Away From the Pack


The challenges facing each company are unique. And breaking away from the pack and looking outside of industry benchmarks can be intimidating. But the benefits of cross-industry benchmarking are much greater than the risk.


The examples of successful company actions are many:


All of these companies have used cross industry innovation to distance themselves from competitors. Along the way, they have also posted better than average returns within their industries. This was done by applying the best practices to their business, regardless of where they come from. But where do you even start to look for cross-industry benchmarks?


Six Steps to Discovering Cross Industry Benchmarks


It can be difficult to know where to start when comparing companies that are not in your vertical.


The following steps will help you tackle the challenge of how to look for cross-industry best practices:


  1. Outline Your Priorities


    You need to know where you want to go before you can get there. Outlining priorities requires the leadership team to do the following: identify gaps in capability, establish goals to improve, and build out timelines to accomplish those goals. Knowing you need to improve is one thing but knowing where to improve is another. This exploratory step should diagnose the focus of best practice research.


  1. Look for The Best Practices


    After identifying where you want to improve, look for the best-in-class company for that capability. It’s fine to identify two or three, but make sure you’re not casting your net too wide. You want to research exceptional operating procedures, and tailor them to your business. This will tighten your research objectives and give you clear objectives for next steps.


  1. Perform Targeted Due Diligence


    This is where you dedicate a team to find out the “why” behind the “what”. Understanding why these companies do what they do will help you identify their core principles. You can then apply these principles to your portfolio company. Also, take the opportunity to identify the KPIs and metrics used to track performance. There will never be an off-the-shelf solution to the problems your company is facing. But you can apply cross-industry best practices to your business and tailor them to fit your needs.


  1. Report to the Executive Leadership Team (ELT)


    Once the research and recommendations have been complied, get together again with the ELT. Being directionally aligned will help with messaging and create accountability. Stacking hands and moving forward with the best approach is the key to successful implementation.


  1. Execute


    Enough talk. Transforming your portfolio company into a revenue growth machine takes action. The application of cross-industry best practices will be a change for the organization as a whole, but the best way to strengthen a new muscle is to use it. 


  1. Refine and Calibrate


    It’s unlikely that the adoption of cross-industry best practices will be seamless out of the gate. Make sure you have room to adjust and modify to the unique circumstances of your company. This is where measurements and data are key. Establish KPIs and metrics that will give you insight into how effective the new initiative is. No need to reinvent the wheel completely, but tweaks and changes should be expected.


There is an old adage that states, “insanity is doing the same thing over and over again and expecting different results”. If you use industry benchmarks on your portfolio company, don’t expect above average returns. Cross-industry benchmarks can be the spark which ignites growth (and higher multiples) for your company.


Download our Cross-Industry Benchmark Assessment Tool to help identify areas that need to be strengthened in your own company, to isolate what industries you should look to for cross-industry benchmarks, and for a step-by-step guide of who to engage at what time as you look for those benchmarks.


With the Cross-Industry Benchmark Assessment Tool, you’ll be on your way to identifying the next big innovation for your portfolio company.



Additional Resources


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