5.20.16

 

You’re looking at adding a company to your portfolio. Its operating margin is good, and you identify several levers you can apply to improve it. The company has a great product road map, and it’s complementary to a company in your portfolio. Now it’s time to build the financial model, and this requires the pipeline. How do you know if you can count on it?

 

Like an engineer taking core samples before a project gets started, you need to inspect the pipeline, and look at the key opportunities to see if they are forecast correctly. An effective forecast and pipeline process is based on a buyer-driven sales process. An opportunity is forecast based on observable customer criteria, not a sales rep or manager’s gut feel. Communication must be geared to the correct stage, based on the buyer’s behavior.

 

Bad: “This opportunity is in Stage 5, and is committed. It will close in 30 days. Everyone is on board; we have a meeting with the CIO on the 10th of this month.”

 

Good: “This opportunity is in Stage 4 (of 5). Five of the six buyer personas have indicated they are on board with our solution. We are meeting with the VP of Network Security on the 10th of this month to resolve two remaining concerns. Our sponsor has the contract on our paper, which is already being reviewed by their legal team. We have a follow-up meeting with our sponsor on the 12th to review progress on the contract.”

 

Given the target company’s historical performance, you can assign a 65 percent win rate to this opportunity. Based on the same historical performance for opportunities of this size, signing contracts is a 60-day process. A good pipeline is too important to your investment thesis to be left to luck.

The 10 Best Companies to Sell For

ABOUT THE AUTHOR

Fred Penteado

Guides private equity portfolio companies in a variety of industries on how to make their number.
Learn more about Fred Penteado >

Prior to joining SBI, Fred held a variety of leadership positions with multinational Fortune 50 companies. He has worked in product/program/channel management, sales operations, and served as a Chief of Staff.

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