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 THE B2B EDITION

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DAN CREMONS
Winning Moves: 105 Proven Ways to Create Value in Private Equity-Backed
Companies, by Dan Cremons

Copyright © 2022 Dan Cremons

All rights reserved. No portion of this book may be reproduced or copied
in any form without permission from the publisher.

To contact the author:

http://WinningMoves.co
http://AcceleraPartners.co

Cover design by Claire Lacy, Pithy Wordsmithery

Interior layout by Jonathan Sainsbury, Pithy Wordsmithery
Copyediting by Nils Kuehn, Pithy Wordsmithery
Proofreading by Brian Walls, Pithy Wordsmithery

First Edition

Paperback ISBN: 979-8-9858515-0-2

Ebook ISBN: 979-8-9858515-1-9
Hardcover ISBN: 979-8-9858515-2-6
 E N DO R S EM E NT S

In Winning Moves, Dan Cremons provides practical and sometimes counter-

intuitive advice about how to build valuable investor-backed companies.
Spoiler alert, it’s as much about getting the “who” right as it is the “what!”
—DR. GEOFF SMART, Chairman and Founder of ghSMART and
New York Times bestselling author of Who and Power Score

What an invaluable book for private equity investors and executives. Well
researched, practical, and actionable. Winning Moves is a must-read for pri-
vate equity leaders who aspire to build enduring businesses that generate
great returns.
—ADAM COFFEY, 6x Private Equity-Backed CEO, and Bestsell-
ing Author of The Private Equity Playbook and The Exit Strategy
Playbook

Dan Cremons has solidified, in a practical way, what truly makes a differ-
ence in value creation. I can see Winning Moves becoming the new go-to
guide to value creation for investors and operators who are seeking to up
their game.
—KIMBERLY R. POWELL, co-author of the New York Times
bestseller The CEO Next Door, founder of LeaderScale Advisors,
and Operating Partner at Resolve Growth

In Winning Moves, Dan Cremons successfully deconstructs value creation

into a step-by-step process that is destined to elevate the acquisition busi-
ness model forever.
—WALKER DEIBEL, Bestselling Author of Buy Then Build
In recent years, value creation has become a buzzword, complete with
obscure concepts and ambiguous frameworks. But in this book, Dan Cre-
mons brings definition and structure to the topic, and ideas that leaders
and investors can use to build tangible value in their businesses.
—John Carvalho, Founder of Divestopedia and AcquisitionPlaybook
 TA B L E O F CO N T E N T S

Preface 1

Introduction 9

PART 1 THE STATE OF PLAY

Chapter 1 The Value Creation Era of Private Equity 23
Chapter 2 How Value Gets Created 35

PART 2 HOW TO DRIVE VALUE CREATION

Chapter 3 Grow Your Revenue 45
Chapter 4 Keep Your Current Customers 51
Chapter 5 Sell More to Current Customers 75
Chapter 6 Find New Customers in Your Current Market 89
Chapter 7 Find New Customers in New Markets 135
Chapter 8 Sell New Products to New and Existing Customers 149
Chapter 9 Capture the Value Created for Your Customers 169
Chapter 10 Drive Margin Expansion 191
Chapter 11 Execute Strategic Acquisitions 215
Chapter 12 Pay Down Debt 241
Chapter 13 Drive Multiple Expansion 243

PART 3 THE META-LEVERS

Chapter 14 The Lever of All Levers 267
Chapter 15 A Talented, Fit-for-Purpose Team 271
Chapter 16 A Culture That Unleashes People’s Best 283

PART 4 INTO ACTION

Chapter 17 Putting Winning Moves into Action 295
Chapter 18 Wrapping Up and How to Get More Help 311

References 315

The Winning Moves 327

Acknowledgments 331

About the Author 333

 PR E FAC E

Over the years, people have accused me of being quick to ask provoca-
tive questions, so it’s only fitting that I live up to the reputation here.
For the private equity investor: What is your formula for achieving
long-term success in this increasingly competitive private equity market?
Pause and give it some thought. Like, really think about it. There’s not
a single right answer, but most private equity professionals recognize
that while such ingredients as “being a great partner” and “being sector-
focused” are valuable and important, they’re table stakes in a private
equity market that has 7,000+ other firms touting the same competitive
edge. It’s a bit like a chef touting salt and pepper as their food’s distin-
guishing feature. These ingredients are necessary to create a mouthwa-
tering dish, but they won’t in themselves land you a Michelin star.
And for the investor-backed executive: What’s your formula for reli-
ably, predictably delivering the win for your investors? For many executives,
even very skilled and accomplished ones, this question invariably draws a
flat-footed, glassy-eyed look.
For reasons we’ll get into, whether you’re an investor or an executive,
an increasingly important ingredient in the private equity success formula
is taking a deliberate, methodical approach to value creation. And one of
my goals in writing a book on this topic was for its content to become a
central part of how you might answer those two questions.
When I picked up my pen to begin writing this book months ago, I did
so with a simple guiding question of my own in mind: How can we tap into
the lessons we’ve learned from leading private equity firms and epic port-
folio company success stories to help other investors and executives more
methodically drive value creation in their companies?
 WINNING MOVES

As a private equiteer and someone with a zeal for learning, my motive

for answering this question is admittedly a smidge selfish. I’ve been in the
game as a private equity investor, board member, and executive for more
than a decade and a half, most of which was proudly spent working with a
unique and mighty successful (albeit modest) firm called Alpine Investors.
My career and our firm’s overall success have been directly dependent on
the amount of equity value our portfolio companies created during our
investment period. Fortunately for our firm and its investors, our port-
folio companies have generated a ton of value—as evidenced by consis-
tently top-quartile fund performance.
I share this not to toot my own horn (that’s not Alpine’s style, nor my
own), but to emphasize two points:
❖ When you have a well-defined and constantly improving play-
book for portfolio value creation—and amazing teams leading
the charge within those portfolio companies—great things tend
to happen, not the least of which is consistently strong returns.
❖ I wrote this book for private equity investors and investor-backed
executives from the vantage point of someone who has been in
their shoes—and learned some things along the way that I con-
sider too valuable not to share.
Throughout my 15+ years sitting in a front-row seat to some fantastic
growth stories—within the Alpine Investors portfolio and beyond—I’ve
learned a thing or two (okay, 105 to be specific) about ways to proactively
and methodically create value in investor-backed businesses. Drawing on
my own experience and the wisdom of other private equity leaders, I have
honed and proven-out an approach for doing so, which I share in this book.
There are countless things in life I don’t know much about (please
contact my wife for that list—she’d be delighted to share), but value cre-
ation in private equity-backed companies isn’t one of them. But it wasn’t
always this way.

❖ ❖ ❖

I came into the private equity space from a cold start, having begun my
career in operations management and institutional investment research—
miles away from the world of leveraged buyouts. So unlike my private
equity peers who landed in the industry by way of investment banking or
consulting, I was a total noob when it came to the particulars of the buy-
out business.
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 DAN CREMONS

Case in point: I could barely spell EBITDA (let alone had any idea it
stands for “earnings before interest, taxes, depreciation, and amorti-
zation”). It took me months to figure out which of the 135 “lines” on the
financial model my colleagues were talking about when they kept saying,
“Below the line.” And I thought mezz was an appetizer at a Greek restau-
rant—okay, I’m exaggerating a bit, but not by much.
So when I lucked my way into my first private equity job, I did what
any new private equiteer would do: I grabbed a copy of Bryan Burrough
and John Helyar’s Barbarians at the Gate and hurriedly studied how the
buyout industry worked. This 1989 classic—which you may have heard
of—chronicles the contentious and dramatic leveraged buyout of RJR
Nabisco. A gripping story of greed and double-dealings from the early
days of the leveraged buyout era, the book essentially portrays leveraged
buyouts as a way to line the pockets of rich investors at the expense of the
companies (and their employees) they take over.
To skinny it down considerably, the success formula depicted by the
book is straightforward: (1) buy mismanaged, bloated companies on the
cheap; (2) lever them up with debt; (3) slash a bunch of costs and head-
count; and (4) count the fat stacks of cash you made in your megamansion
as the investor returns flood in (which sounds nice if you’re into that sort
of thing).
In this way, early buyout investing was viewed as a zero-sum game.
When this financial engineering playbook was executed effectively, inves-
tors won big, while the companies they took over were left to wither
away, and their loyal employees were left out in the cold. Barbarians at
the Gate paints a far less glamorous and idealistic picture of the private
equity space than what I’d imagined when I accepted my job offer. At first,
I thought, “Eek! What have I signed up for?”
In and around the mid-2000s, when I arrived on the scene, private
equity had for years been fighting to cleanse itself of the bad breath it had
developed in the Barbarians at the Gate era of buyouts. In many ways,
it is still fighting. Certain modern-day Barbarian-esque stories still litter
the headlines, casting a dark shadow on the good that private equity has
done for companies, employees, and customers over the years:

“The Demise of Toys ‘R’ Us Is a Warning: The

private-equity companies swooping in to buy
floundering retailers may ultimately be hastening
their demise.” (The Atlantic, 2018)

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 WINNING MOVES

“How Private Equity Wrecked New York’s Favorite

Grocery: A firm with no retail food experience
expanded the company too quickly and loaded it
with debt.” (Bloomberg, 2020)

“What is private equity, and why is it killing every-

thing you love?” (Vox, 2020)

Right or wrong, the idea that private equity is economically and socially
destructive “Wall Street looting”—as one particularly outspoken senator
recently referred to it—has become mainstream. The space has become
an easy target for pundits who condemn private equity for choking Toys R
Us’s Geoffrey the Giraffe to death with its cold, capitalistic hands (among
other offenses). And although it is an overgeneralization to unfairly label
private equity with a broad brush as categorically “good” or “bad,”
well-publicized buyout deals in which acquired companies have been gut-
ted and left for dead have done little to help build the industry’s reputa-
tion as a platform for social and economic good.
But Alpine’s philosophy (and that of other firms like it) remains
focused on winning by helping businesses and the people who comprise
them to thrive. Despite my preconceptions, I quickly learned that buyouts
don’t have to be a zero-sum game in which investors win and everyone
else loses. I believe (and research I share later confirms) that we’re in the
midst of a private equity renaissance, one in which a greater focus on driv-
ing value creation in private equity-backed companies can mean:
❖ delivering stronger returns to our beloved Limited Partners
(LPs)—which, for many private equity groups, include endow-
ments, pension funds, foundations, and other institutions that
are doing good in the world;
❖ generating greater operating profits, which can be used to rein-
vest in jobs and expansion, create more financial and career
opportunities for employees, and get the growth flywheel spin-
ning faster; and
❖ building more valuable products and services that can make cus-
tomers’ lives better.
Having this kind of impact matters to me. And if you’re in the private
equity business, I’m guessing that, at some level, it matters to you, too.
And the cool thing is that these outcomes don’t have to be mutually exclu-
sive. Increasingly, private equity groups are waking up to the idea that
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 DAN CREMONS

investors can triumph when companies, their employees, and their cus-
tomers win. The success of one stakeholder group doesn’t always have to
come at the expense of another.
This may sound a tad pollyannaish and idealistic. And believe me,
having been a private equity-backed CEO, I understand firsthand that bal-
ancing stakeholder interests isn’t always as straightforward in practice.
But, at Alpine, we found that the key to generating top-quartile returns for
our investors was to build strong, enduring companies that:
❖ attract, retain, and unleash the best talent, not treat talent as
interchangeable or dispensable cogs in the money machine;
❖ endeavor to create jobs as a way to power growth, not indiscrim-
inately slash headcount to boost profits;
❖ are fueled by a powerful sense of purpose and a bold, compelling
long-term vision, not myopically focused on hitting next quar-
ter’s number; and
❖ grow revenue by focusing, first and foremost, on delivering tons
of value to customers—which it turns out is pretty darn import-
ant in getting them to stay with your company, buy more from
your company, and tell their friends about your company.
Above all, our goal at Alpine was to leave these companies better and
stronger than we found them. Doing so not only felt fulfilling—like the
type of work worth dedicating most of your waking hours to—but it was
also likely to make these companies considerably more valuable to even-
tual buyers and thus enhance our exit value and equity returns. We rea-
soned that by doing all this, we’d deliver in a big way on our most import-
ant responsibility:
Generating great results for the investors who have entrusted us with
their money.
I share this not to pontificate or self-glorify, but to highlight that an
approach to private equity that emphasizes methodically and intention-
ally building enduring businesses—not merely levering them to the hilt
with a crippling pile of debt or brazenly cutting costs to boost near-term
profit as a barbarian at the gates would—is a good thing for both compa-
nies and their employees. And as it turns out, when executed well, it’s also
a great thing for investors (as evidenced by Alpine’s track record).
Companies and their employees win.
Customers win.
And investors win.

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 WINNING MOVES

Today, private equity-backed companies account for a whopping $1.4

trillion of gross domestic product (GDP).1 To borrow a line from Stan Lee’s
Spiderman, “With great [economic] power comes great responsibility.” At
this scale, even if this book moves the needle only a few millimeters in the
direction of helping investors achieve this sort of triple win, the positive
impact of its ideas will be massive.
And here’s the important part, and the reason I wrote this book: The
key that unlocks this triple win is value creation, which can be achieved
by tapping into a proven arsenal of “winning moves” that can reliably
increase revenue, expand margins, and enhance exit value. For reasons
we’ll discuss in chapter 1, at no time in the history of the private equity
industry has value creation been more critical to achieving investment
success—which is why I invested my time to write this book, and likely
why you’re investing your time to read it.
The practical ideas about value creation and the vast repertoire of
winning moves that I share in this book weren’t gleaned from academic
textbooks. They weren’t conceived on a whiteboard in a fancy office far
away from the on-the-ground realities in growth-stage B2B businesses.
No one is interested in theories or ill-informed speculation about what
might work in driving value in private equity-backed businesses. Instead,
the raw material melded to create this book was harvested from real-life
private equity success stories—as told by the private equity leaders and
portfolio executives who were responsible for them.
During my time at Alpine, I co-authored our original approach to value
creation and spent years building and refining my stockpile of winning
moves in the trenches as an executive in several private equity-backed
businesses. I’ve spent 10,000 hours learning what works in driving value in
growth-stage companies by recognizing patterns among the companies
I’ve worked with, doing tons of research, testing ideas, and always trying
to tap into the wisdom of my network of private equity friends and leaders
(many of whom contributed their wisdom to this book).
These experiences not only shaped the content of this book but
formed the foundation for a firm I founded called Accelera Partners that
helps private equity investors and private equity-backed leaders like you
accelerate performance by helping you:
❖ get clear and aligned on your value creation plan so you can win
more deals, avoid overpaying, and generate better returns faster
(which this book and WinningMoves.co will help you do);

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 DAN CREMONS

❖ get the right leaders and talent into the most critical, value-gen-
erating roles faster so that this value creation plan can come true;
and
❖ get your team aligned behind and focused on that value creation
plan and in a position to win as one.
I think of these as the three essential ingredients to private equity invest-
ing success, whether you’re an investor or an operator. If any one of these
is missing, success is a pipe dream.

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 I NTRO D U C TI O N

“This book helped us create a boatload of value in our portfolio com-

panies! Millions of dollars’ worth.”
*Cue the cash register sound effect.*
This is what I hope you’ll be telling your friends and colleagues after
you read this book and capitalize on its ideas.
Drawing on the experiences I shared in the Preface, I wrote this book
to help fellow private equity leaders win more deals, avoid overpaying,
and generate better returns—and to help the leadership teams they back
more predictably deliver the win for their investors.
Using the lessons I teach in this book, private equity investors and
their executive teams can take their careers to new heights, line their
investors’ pockets with an abundance of returns (a claim my lawyers have
told me I can only presume, not guarantee), and propel their firm up the
private equity league tables. Good stuff all the way around!
The key to reaping these benefits is taking a more intentional
approach to what private equity firms refer to as “value creation” and exe-
cuting the right combination of proven, value-creating, return-generating
winning moves in the B2B companies you invest in. And that’s the topic of
this book.
As a preview of coming attractions, this book:
❖ deconstructs value creation—specifically within B2B compa-
nies—into its more actionable components, which will help you
think more clearly and systematically about how to create value
in your company (chapter 2);
❖ equips you with a vast arsenal of proven, actionable winning
moves—105 of them, to be exact—that B2B businesses can use to
 WINNING MOVES

make equity value creation happen more consistently and pre-

dictably (chapters 3–13);
❖ highlights the two foundational “meta-levers,” as I call them,
that are simply essential to value creation success (chapters
14–16); and
❖ arms you with a blueprint for taking everything we cover and
applying it throughout the deal life cycle to generate results
(chapter 17).
As a private equity investor, I’ve been fortunate to have a front-row seat
to some amazing growth stories—many of which I share throughout this
book. I’ve been lucky to learn from some extraordinary private equity
leaders and operators along the way. This includes an elite cadre of what
you will see me refer to as “10-Baggers,” which are middle-market CEOs
and senior executives who have delivered an impressive 10x+ return on
invested capital. More than a dozen 10-Baggers contributed their wisdom
to this book about how they did it.
As I got to thinking about how to be a good steward of all this learning,
I realized that it would be a total waste to keep the strategies I’ve learned
and used, the winning plays I’ve seen called successfully, and the heap of
lessons learned along the way stashed away in my own noggin, especially
if other private equity professionals and portfolio executives could bene-
fit from them.
I think I speak for all the private equity leaders and executives who
contributed to this book when I say it’s a privilege to share what we’ve
learned with you.
These 10-Baggers’ contributions and my own are all in service of the
overarching goal of this book: to help you be a more successful investor
or executive by equipping you to more consistently and predictably drive
value creation in the companies you invest in or the one you lead. When
you’re able to do this, all sorts of good things can happen—for your career,
your firm, your portfolio companies, and the world. Oh, and for your bank
account, too.
Every one of the hundreds of hours of research, interviews, and
self-reflection that went into this book was conducted—and every stroke
of the pen was made—with this guiding purpose in mind.
And in light of today’s market realities in the private equity space,
the things I cover in this book—and the whole notion of raising your value
creation game—are important to private equity leaders and executives
now more than ever.
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 DAN CREMONS

For reasons I cover in chapter 1, delivering above-market returns is

becoming tougher by the day in the private equity sphere. As new capital
flows into the space, private equity has become increasingly competitive
and arguably commoditized. The industry has become an intensely com-
petitive “red ocean,” a term for highly competitive and populous markets
coined by W. Chan Kim and Renee Mauborgne’s must-read book, Blue
Ocean Strategy. But amidst that red ocean, you can think of this book as a
lifeboat of sorts, one whose practical ideas can help you win more deals in
a hypercompetitive space, avoid overpaying in this frothy and capital-rich
market, and ultimately generate better returns.

Who Are You?

If you’re a private equity professional or an executive in an investor-backed
company, this book is for you. If your success depends on investing in
good companies at the right price and ensuring that those companies cre-
ate loads of value for investors while you own them, you’re in the right
spot. You’re my people, as I’ve stood squarely in your shoes—as both an
investor and a private equity-based CEO and executive.
More specifically, this book was written for a few select audiences
within the private equity ecosystem.

INVESTOR-BACKED EXECUTIVES
Your investors are counting on you to deliver the goods on equity value
creation—and your career success, financial success, and self-actualiza-
tion depend on it. Let’s face it: The stakes are high!
This book aims to make you the hero of your company’s value creation
story. Even if this is your first time working in a private equity-backed com-
pany, this book can help you not only understand more deeply how inves-
tors think about value creation but also expand your arsenal of proven
winning moves so you and your team can deliver for your investors, cus-
tomers, and employees.

PRIVATE EQUITY DEAL PARTNERS

Your reason for existence—and the #1 responsibility on your job descrip-
tion—is to get great deals done. And your success comes down to develop-
ing a clear and confident perspective on two questions:
1. What is the future value of the target company?
2. What are we willing to pay for that?

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 WINNING MOVES

By helping you think more clearly and comprehensively about the differ-
ent ways to drive value creation post-closing, this book will enable you
to sharpen your view on question #1 so that you can more confidently
answer question #2. Doing so will help you buy more intelligently, avoid
overpaying, and create value more quickly so you can drive better inves-
tor returns faster.

DEAL ANALYSTS
Your deal team is looking to you for a well-thought-out, well-supported
view on a potential investment’s valuation and return potential. But
unless you have a deep understanding and strong command of the value
drivers that directly drive your deal model, doing this will be a challenge.
This book will help you think more critically and expansively about these
value drivers and the impact they can have on a deal. It will also teach
you to look beyond the spreadsheet to the practical ways in which value
can be generated at the ground level in a target company and the winning
moves your company can call on to do so.
You’ll be able to stand up in front of your investment committee with
greater confidence in your view on where the value creation potential lies,
how it impacts the future value of the business and the proposed valua-
tion, and how to capture that value after you own the business.
Much of what I cover in this book falls squarely into the category of
“things I wish I knew when I started in private equity.”

OPER ATING PARTNERS, BOARD MEMBERS, and

VALUE CREATION PROFESSIONALS
Your job is to partner with portfolio company leadership to ensure that
value creation happens. In that light, you can think of this book as your
trusted sidekick.
Not everything in this book will be ground-breaking to a seasoned
operating partner or value creation professional like you—and you likely
have winning moves of your own that aren’t accounted for in our arsenal.
I expect that.
For you, the value in this book is in helping you pull out all the stops
in thinking through value creation opportunities and how to capitalize on
them. It will help you think clearly, broadly, deeply, and systematically
about driving returns in the portfolio companies you are responsible for—
which is key to your success as an operating partner, board member, or
value creation professional.

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 DAN CREMONS

SEARCH FUND CEOS

Your role as a search fund CEO is essentially a mash-up of all the previous
roles I just covered. To run a successful search fund, you must buy well,
devise a well-developed, high-confidence value creation plan, and then
execute on that plan as the CEO. Whiff on any one of those responsibilities,
and you can kiss your spot in the Search Fund Hall of Fame goodbye!
Although this breadth of responsibility can be exciting, it is a vast new
territory for most early-career search funders—and chances are you’re
far from a black belt in each of these disciplines at this stage. Maybe you
hail from private equity or consulting but have never led within a business
before. Or you’re a manager by training but don’t have much experience
investing or developing a growth strategy. For these reasons, the topics
I cover could very well be more valuable to you than to any of the other
target audiences. This book will help you make better investment deci-
sions while also helping you leverage decades’ worth of collective wisdom
from other successful private equity executives to make the right winning
moves more quickly and confidently within your company.

Firm size matters

How the ideas in this book will be used and applied by private equity lead-
ers will depend, in part, on the size and composition of their firm and how
efforts are divided within it.
Small firms generally do not have operating partners or value creation
teams. If that’s the case in your firm, the content in this book is bound
to be even more valuable than it would otherwise be to your investing
team—as that team owns the execution and post-closing success of deals
beginning to end.
But it is worth noting: The absence of a dedicated value creation
team specializing in this area can make it more difficult to predictably
drive value creation in your portfolio companies. I hate to break it to you,
but according to a 2020 McKinsey study, since the latest recession, firms
without dedicated value creation teams have underperformed relative to
those that have them by an average of five percentage points.¹ But I’ve got
your back. This book is your value creation wingman or wingwoman. (And
my firm, Accelera Partners, can support you further as a sort of “operating
partner in a box.”)
By contrast, larger private equity firms may have more value creation
resources, a more established playbook, a dedicated team, and a clearer

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division of responsibility. The deal team closes the deal, after which oper-
ating partners and value creation teams take the helm in steering the com-
pany to investment success post-closing. There’s greater specialization.
Regardless of your role and your firm’s model, the common thread
that binds each of the target readers I listed is: Their success—career,
business, and financial—is directly dependent on the amount of value cre-
ated in the deals they’re responsible for. And this is why all private equity
professionals and leaders—tall and short, small firm and large, near and
far—need to master the why, the what, and the how of value creation. It is
among the most important meta-skills in what I call the Value Creation
Era of private equity (which we’ll talk more about in chapter 1).
Whoever you are, the ultimate goal of this book is to help you be
wildly successful, build enduring companies you can be proud of, and
make gobs of money—for investors, for your firm, and your family. It is
about helping your firm be more successful and generate better results
by tapping into tried-and-true winning moves that simply work in building
great companies.

What’s Top of Mind for Investors?

In writing this book, I wanted to share how a more deliberate, methodical
approach to value creation can go a long way in addressing three of the
biggest challenges facing private equity investors today—challenges I’m
sure you can relate to:

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 DAN CREMONS

CHALLENGE #1
How can we win more deals?
Winning deals can be flat-out challenging at a time when so many
well-capitalized buyers are chasing after the same ones. The founder-CEO
of one of my clients’ portfolio companies told me, “I get two to three calls
every week from private equity firms wanting to buy my company.” Know-
ing what I know about the staggering number of mid-market firms and the
amount of competition that exists for deals, this comment wasn’t shock-
ing in itself—until I considered that his business has a mere $2 million of
EBITDA, is not growing, and occupies an obscure niche (one I assumed
wasn’t even on private equity’s radar screen).
This anecdote illuminated that private equity suitors seem to be
everywhere—in every segment of the market and every niche therein, like
water that has seeped into every last crack. And they come with overflow-
ing bags of cash in hand.
For private equity firms, the competitive forces are stronger than ever
before, which makes winning deals tougher.
How This Book Can Help: You can win more deals in part by devel-
oping a clear, well-validated, and high-confidence value creation plan
pre-closing to:
❖ Help make you the favored bidder in the eyes of continuing man-
agement. Most smart management teams will be far more inclined
to advocate for or select an investor who has a well-developed
point of view on driving value in a company. To them, partnering
with a firm that brings this perspective to the party means greater
odds of success and bigger paydays down the line.
❖ Give your deal team the confidence they need to pay up if you
have greater assurance that the value creation potential is there
to justify a higher valuation. This means a higher likelihood of
winning the deal.

“We use our perspective on value creation to establish rapport, build

credibility, and differentiate ourselves. We can oftentimes describe in a
more concrete way how we’ll help management achieve the things they
need to be successful. To the extent that they have a choice in which
buyer gets selected, this can tip the scales in our favor.”
—Operating Partner

15
 WINNING MOVES

CHALLENGE #2
How can we avoid overpaying?
At the time of this writing, valuations are higher than they’ve ever been—
with average purchase multiples having increased more than 30 percent
in the past five years (and in some sectors, even more).²

Over this same period, private equity fundraising has grown at nearly the
same rate and shows no signs of slowing. In 2021, the private equity asset
class set records for fundraising in a year. The pressure to put these grow-
ing funds to work quickly is mounting, and with it, the risk of overpaying
for deals has spiked to threat level red.
How This Book Can Help: Investors can manage and mitigate the
potentially costly risk of overpaying by having a clear and confident
value creation plan going into final bids. If, in due diligence, investors can
develop a well-validated path to exceeding their target returns by pulling
certain levers, it will be much easier for them to justify paying a higher,
market-competitive price.

CHALLENGE #3
How can we consistently generate alpha in this increasingly
competitive market?
On average, the private equity asset class has outperformed other asset
classes (though not by much) and experienced less volatility since 2008.³
But for various reasons—more capital, intensifying competition for deals,
greater seller bargaining power, growing price transparency—the long-

16
 DAN CREMONS

term trendline shows that this return advantage is narrowing as the pri-
vate equity market becomes increasingly competitive and efficient. And
the more competitive and efficient a market becomes, the more difficult
it is to generate alpha, or excess returns above the benchmark.
Going forward, investors who strive to consistently outperform—and
attract the riches and glory that come with doing so—must leverage a
modern playbook for value creation.
How This Book Can Help: This book equips you with an arsenal of
proven value-creating, return-generating, alpha-producing winning
moves. Making the right combination of winning moves in each of your
portfolio companies—and doing so with intentionality leveraging a
proven process—can help pave a more direct path toward hitting your
target returns.

A Flyover of What We’ll Cover

To deliver on the commitments I just shared, I’ve organized this book in
the following way:
Part 1 starts with a bit of a reality check. If we’re going to
talk about strategies to drive value creation in this private equity market,
we should be sure we’re grounded in a shared reality of what’s going on in
the market—the “outside-in view,” if you will.
We’ve hit on some of the key themes already, but it behooves us to go
a layer deeper into what’s going on out there to set the stage for our discus-
sion on how to win in an increasingly competitive private equity market.
As a preview, what you’ll find as we dig deeper into the market reali-
ties is that there’s never been a more critical time for private equity inves-
tors to earn their black belts in value creation. In this era of private equity
investing, their success—dare I say, survival—depends on it.
Next, we’ll deconstruct value creation into its more addressable
parts, or “levers.” Chapter 2 will give us a simple, shared mental model to
work from and a way to break down this sweeping, generic idea of “value
creation” into its more understandable and addressable components.
This sets the stage for part 2.
Part 2 is the main event. Here, we start to get into the meat and
potatoes—the X’s and O’s.
In this section, we’ll crack open the five levers, deconstruct their value
drivers, and start pinning proven, actionable, value-driving, return-generat-
ing “winning moves” to each.

17
 WINNING MOVES

Each of the 105 winning moves we’ll discuss is an arrow in your

quiver—and the goal of this book is to fill your quiver with a whole stock-
pile of them. For my fellow Hunger Games nerds out there, think of your-
self as private equity’s equivalent of the formidable Katniss Everdeen.
Like the expert markswoman from District 12, your mission is to take this
well-stocked arsenal into deal-making battle, know which value-creating
arrow to draw in which situation, and work with your management team
to fire them with precision and confidence.
Part 3 reveals two overarching but often overlooked
“meta-levers” that directly impact value creation.
SPOILER ALERT: They are team and culture.
These meta-levers sometimes get lost or neglected in discussions of
value creation because they are less tangible and spreadsheetable than
the ones we’ll go over in part 2. But as we’ll discuss in part 3, these two
meta-levers are not only essential but simply foundational to making any
value creation plan come to life. You can have the most sensible value cre-
ation plan in the world, but it is utterly useless if you don’t have a great, fit-
for-purpose, and well-aligned team on the field to make it happen and an
engaging, empowering, and purpose-driven culture that attracts talented
people and brings out their best.
Part 4 provides a blueprint for executing everything
we’ve covered. Think of this part as a “practitioner’s guide” when it
comes to how to take the ideas I share throughout this book and put them
into action throughout the deal lifecycle so that you can win more deals,
avoid overpaying, and generate better returns.

The Words We’ll Use

In the land of private equity, the term “value creation” gets thrown around
like a beanbag at a tailgate. So before we dive in, let’s get squared on our
working definition.
Value creation is the process of proactively, methodically creating
equity value during the life of an investment—which, as you know, this
book provides an approach and set of proven winning moves for doing.
While we’re at this little pitstop in Jargonville, I use three other terms
frequently and intentionally throughout this book: levers, value driv-
ers, and winning moves (a phrase I learned from Patrick Thean’s book,
Rhythm). To make sure we don’t get them twisted, let me clarify from the
get-go how these terms are used.

18
 DAN CREMONS

As I cover in part 2, there are five ways to create equity value in a pri-
vate equity deal:

Inside each of these five levers (revenue growth, margin expansion, stra-
tegic acquisition, debt paydown, and multiple expansion) are a series of
value drivers—more-specific factors that comprise each lever and can
enhance the worth of a portfolio company.
For example, there are six fundamental value drivers that fuel reve-
nue growth, one of the most foundational of which is retaining the cus-
tomers you already have (i.e., customer retention).

And here’s where winning moves come into play: To capture the rev-
enue gains that can come from this value driver—improving customer
retention—investors and their companies can call on any of a variety of
proven winning moves, including:
❖ Improving customer onboarding to help customers get the

19
 WINNING MOVES

expected value from the product faster (which we cover in Win-

ning Move #4)
❖ Making the product or service easier to use (which we cover in
Winning Move #5)
❖ Using “customer health scoring” as a way to identify customers
that are at risk of churning before they actually churn (which we
cover in Winning Move #8)
❖ Better engaging and educating customers through retention mar-
keting so that they get more value out of the product and develop
greater brand affinity (which we cover in Winning Move #12)
❖ Standing up a key account management program (which we
cover in Winning Move #14)
If retaining customers is important to your value creation agenda, then
winning moves such as these—and others I’ll discuss in part 2—are the
keys to making that value creation agenda come true. (And if it’s not,
you’re probably in the wrong business.)
Each of the 105 winning moves discussed in this book is proven,
actionable, and inherently value-generating, and directly links back to
one of the five levers (i.e., the economic drivers of a private equity deal).
Every last one of them.
Just as there are proven winning moves in chess—such as Grob’s
Attack, Dutch Defense, Bird’s Opening, Owen’s Defense, and others I’m far
too dreadful at chess to understand—so too are there proven winning
moves we can unleash to drive success in investor-backed B2B companies.
As chess great and the youngest grandmaster in history, Bobby Fisher,
said, “All that matters on the chessboard is good moves.” Chess and pri-
vate equity investing have this in common. In each, at the most elemental
level, success depends on the combination of moves you make. This book
will help you expand your repertoire of moves that work—moves learned
from some of the grandmasters of value creation.
Check. . . and mate.

20
 PART
1
TH E S TATE O F PL AY
 C H A P TE R 1

THE VALUE CREATION ERA

OF PRIVATE EQUITY

Before we dive into how to drive value creation in private equity-

backed companies, it is important that we first get grounded in what is
going on in the private equity market in which these companies are sit-
uated.
This refreshingly honest little anecdote gives us a glimpse:
An uber-successful private equity-backed CEO, a 10-Bagger who
donated his wisdom to this book, recently told me, “When we ran our
recent exit process, we had overwhelming buyer interest, and we met with
18 of them. And to be honest, many of them seemed the same. ‘We are great
partners. We add value. We have a great track record. We are long-term
focused,’ they’d say. There were tons of them. . . and after a while, they all
kind of started to blur together.”
His comment illustrates what has become the elephant in the private
equity boardroom and the market reality that private equity firms every-
where are forced to contend with: There are tons of private equity inves-
tors in the market today, and many of them kind of “seem the same.”
I’m not trying to deflate any of my private equity peers’ egos (in the
way a rather brash college interview panelist did when he reminded me,
“You’re not special. There are dozens of others like you.”), nor am I trying
to harsh your proverbial mellow, but we have to acknowledge the facts.
Even in just the last five years, hundreds of new private equity firms have
 WINNING MOVES

stormed into the market, each with its own claims of “value add” and
“great partnership.” Each with its own track record. Each touting an all-
star lineup of uber-smart deal professionals. And each with a war chest of
equity capital needing to be put to work.
But these firms are chasing a finite number of target companies.
Although the supply of private equity capital has grown at a roughly
15 percent compound annual growth rate (CAGR) since 2014, the invest-
able universe of small/mid-sized U.S.-based companies (20–500 employ-
ees) has grown at a paltry one percent CAGR over that same period.¹ Apply
a bit of basic economic theory to the staggering growth in the supply of
private equity capital and the more constrained demand for that same
capital, and the conclusion becomes self-evident:
As competition for this fixed pool of target companies
increases, so will purchase multiples. And as purchase
multiples rise, staying competitive in the private equity
space and achieving your target returns is becoming
more challenging.
These forces partly explain why the private equity asset class’s ten-
year internal rate of return (IRR) trendline has been sloping downward,
and its return advantage over public market returns is narrowing.²
Although many firms have posted some great exits amid the post-COVID
surge in valuations (bubblish as it may feel), your firm is likely feeling this
competitive pressure in its own way on the buy side. And as you rise above
the fray and see past the outstanding recent exits, you recognize the lon-
ger-term pressure that these competitive dynamics could logically pose
to investment returns.
As the private equity market becomes more competitive and effi-
cient, the value buys, arbitrage opportunities, and financial engineering
strategies investors could once rely on to juice returns simply aren’t as
juicy and reliable as they once were. The usual plays private equity firms
have called in eras past—slashing costs, levering up, and doing financial
engineering—no longer create the kind of alpha and comparative advan-
tage they once did.
This is because a comparative advantage is a comparative advan-
tage no more when everyone else has figured out how to do it. It’s like
how in professional basketball in the 1990s, teams with a three-point
sharpshooter, such as Glen Rice, had a major built-in advantage. But they
lost that advantage when everyone learned to shoot three-pointers and

24
 DAN CREMONS

attempted them nearly every possession. When that happened, achiev-

ing a comparative advantage on the court required the playbooks of win-
ning teams to evolve.
We’re experiencing a similar reckoning in the private equity space.
While the competition has grown and the market has become more effi-
cient, the return advantage the trusty old plays like financial engineering
once created has begun to wither away.
The bottom line is that if your experience is anything like the private
equity firms I work with, you’re finding that it’s tough being a private
equity buyer right now. And getting tougher. Consequently, yesterday’s
playbook for success needs to evolve for firms to stay competitive in the
Value Creation Era of private equity. At no time in the history of the private
equity industry have the ideas in this book been more important. We’re
living in an era of private equity investing unseen before.
Here are the facts:
1. Private equity dry powder has doubled since 2014. At the time
of this writing, more than $1 trillion of private equity capital was
ready to be put to work.³ And based on fundraising forecasts, the
stockpiles of dry powder are only likely to grow.

2. Between 7,000 and 10,000 private equity firms are battling for
deals in the market (depending on how you define “the market”),
and that number is increasing by the month. For comparison, not
that many years ago, private equity firms numbered only in the
hundreds.

25
 WINNING MOVES

3. As you might expect, given all the capital and competition, pur-
chase multiples have soared to record highs. In 2020, more than
two-thirds of all U.S. buyout deals traded for greater than 11 times
EBITDA, the highest prices on record.⁴ This puts greater pressure
on investors to find ways to generate more post-closing value to
offset higher purchase prices.
Tons o’ money. Tons o’ competition. Sky-high prices. Although this is
great if you’re selling a business, these dynamics combine to create a stiff
headwind for private equity buyers, and there are a few implications.

Finding Value Buys Is Becoming Tougher

It’s kind of like how it’s way easier to find a screaming deal when you’re one
of only a handful of people in a thrift store than it is when there are 7,000
other people—each of whom has a fat wad of hundreds burning a hole in
their pocket—packing the aisles and hunting for the same value buys.
Similarly, corporate and private equity buyers, and their armies of
brokers and business development people, are scouring the landscape
for acquisition targets, leaving no stone unturned. Like spilled water that
eventually finds unfilled cracks in a surface, capital is flooding into histor-
ically overlooked or underinvested industries, such as plumbing services
(see how I did that?), laboratory services, niche consumer discretionaries,
and even oilfield services—a space that many private equity players have
historically avoided due to its cyclicality.

High Purchase Multiples Leave Less Margin of Error

Nowadays, investors are having to pay 11x EBITDA for a deal that may have
cleared at 7x EBITDA five years ago. Yet, at the same time, limited partner
return expectations haven’t changed materially. So here’s the challenge:
Except in the economically impossible scenario where multiples keep ris-
ing into perpetuity, delivering on fixed target returns is simply harder—
and the margin of error smaller—in a world in which your cost basis is as
much as 50 percent higher than it was five years ago.
With that, the risk of overpaying is higher. Consequently, the risk of
underperforming LP return expectations is also higher.
The upshot: Nowadays, you better be darn sure you understand what
you’re buying, price the deal well, and have confidence that it can deliver

26
 DAN CREMONS

on your target returns before you stroke a big check. With valuations where
they are, the margin of error has become razor-thin.

The Pressure to Nail Value Creation Is High

This is the most relevant point. Higher prices and a thinner margin of error
mean investors need to lean more heavily than ever on post-closing value
creation to deliver the win. In their 2021 Global Private Equity Report,
Bain & Company said it well:
“The simple math says that [general partners] buying
companies at these prices will have to generate more
value if they are to make good on return expectations—
and they will have to do so in a highly volatile and
uncertain business environment.” ⁵
Nailing value creation is essential to both buying well and driving returns
post-closing.
When it comes to buying well, having clarity on where the value cre-
ation opportunities lie and confidence in your firm’s ability to capture
them will give you the confidence to pay up if the value creation potential
is there. At the same time, it also helps you be clear on your walkaway
price, which is key to avoiding the costly risk of overpaying for a company
in today’s frenzied market.
After the deal is done, private equity firms have to lean more heavily
on value creation to grow a company’s equity value because it’s tougher
to find a bargain nowadays, and there’s no guarantee that sky-high exit
multiples will be around when you go to sell.
For these reasons, it is more important than ever for private equity
investors to:
1. have a well-baked and high-confidence point of view on their
value creation plan, even before they close a deal (Good news:
This book will help.);
2. align on and then begin moving swiftly and nimbly on that value
creation plan in the critical first 100-day period (Even more good
news: This book will help, as can our firm.); and
3. ensure that their business is equipped with the leadership, tal-
ent, culture, and capabilities to make that value creation plan
happen (It’s raining good news today: Our firm can help here, too.)

27
 WINNING MOVES

We’re living in the Value Creation Era of private equity. And the thing is,
this era is not momentary, as the forces driving these trends are largely
secular. Although market multiples may ebb and flow from quarter to
quarter, and valuations may have cooled down from the recent highs at
the time you’re reading this book, investors will likely be forced to grap-
ple with these realities as the new normal. Investors can’t just wait it out,
especially those with big piles of investor money to put to work and a tick-
ing clock.
But as if this macro-picture weren’t challenging enough for private
equity firms, as we zoom into the micro-picture, here’s the real challenge:
Many firms aren’t great at this value creation stuff—by their own admission.

The Struggle Is Real

In a survey of private equity investors by PricewaterhouseCoopers (PwC),
four out of five respondents said they need to improve their value creation
planning.⁶ They recognize that in this Value Creation Era of private equity,
more-robust value creation planning is key to outperforming benchmarks
and peers.
Picture a spectrum such as the one below. Every private equity firm
in existence (represented by the little yellow triangles—yours included)
plots somewhere on this spectrum.

Only you can say where your firm’s triangle would sit, but let me help you
figure that out. Some firms have value creation totally dialed in. These are
the Leaders.

They have a proven value creation approach that they execute con-
sistently, and they have the resources and expertise to do so. They are

28
 DAN CREMONS

intentional about value creation planning. And in partnership with man-

agement, they are disciplined and relentless about the execution of that
value creation plan.
In the mid-market private equity sphere, Vista Equity Partners is
perhaps the best-known example of a Leader firm that takes a rigorous,
methodical approach to value creation as a pillar of its winning formula.
Famous for its software focus and sector-specific value creation play-
book, Vista has an army of operating executives, advisors, and consul-
tants whose job it is to apply the firm’s 100+ “Vista Best Practices” in its
portfolio companies.
Over time, I’ve learned a lot from the small set of Leader firms out
there. Luckily for all of us, operating partners and value creation lead-
ers from several notable Leader firms contributed their wisdom to this
book—and I’ve noticed remarkable similarities in their approaches.
Leader firms do the following:
❖ Get a head start on value creation planning pre-closing as a joint
effort between the deal team and the operating team
❖ Use that pre-closing view on value creation to inform their bid
and know how much room they have to pay up if competition for
the deal requires them to sharpen their pencil
❖ Begin to create alignment with management on the value cre-
ation plan pre-closing so they can come strong off the blocks
after the wires clear and the deal closes
❖ Use the critical first 100-day period to get both the board and the
leadership team aligned on the value creation plan—and start
generating quick wins
❖ Establish clear metrics to gauge progress on the plan and track
them closely
❖ Are intentional about linking critical leadership, talent, invest-
ment decisions, and investments back to the value creation plan
If this sounds like your firm, give me some knuckles. Way to go!
At the other end of the spectrum, we find the Laggards (a term we use
non-judgmentally). These firms categorically do not have things dialed in
as the Leaders do. Whatever the reason—lack of resources, lack of value
creation expertise, lack of discipline—laggards are at risk of leaving a lot
of lettuce on the table and falling behind in an unrelentingly competitive
asset class.

29
 WINNING MOVES

If your firm finds itself closer to the lagging end of the spectrum—or even
somewhere in the middle—trust me: You’re not alone. Remember, four out
of five private equity groups believe they need to improve their value cre-
ation planning—and I recently had lunch with one of them. As I munched
on my chopped salad with two deal makers from a lower-midmarket firm,
the conversation went something like this:
Me: So once you close a deal, talk me through your process
for driving value creation.

Partner A: Eh, we really don’t have one. We have our deal

memo that spells out our thesis, but we kind of leave the
execution to management.

Me: And when growth and value creation isn’t happening as

quickly as you need it to?

Partner B: We try to get more involved with the company. And

when things are really off-track, we dig in. But it can become a
major time suck. And there are only so many hours in the day.

Me: Got it. How’s that approach working?

Partner A: Well. . . it’s not. . . which is why we’re at lunch

right now.
For many firms lagging in this way, it isn’t really their fault. Often, an under-
cooked or undisciplined approach to value creation results from simply
not having the resources. Naturally, the smaller the firm, the fewer the
resources they have to dedicate to value creation. And when you consider
the pressure of putting a fund to work and getting deals done—which is
all-consuming for many deal makers in smaller shops—it’s no wonder
value creation becomes an afterthought.
Other times, firms in this zone simply don’t have built-in expertise in
this area. It isn’t in their DNA and wasn’t necessarily a part of their found-
ing charter.

30
 DAN CREMONS

Interestingly, the background of a firm’s founder has been shown

to have a significant bearing on how they approach—and the degree to
which they emphasize—value creation. According to a 2015 study by Paul
Gompers and Steven and Vladimir Mukharlyamov, “[T]he career histories of
firm founders have persistent effects on private equity firm strategy. Firms
founded by financial general partners appear more likely to favor financial
engineering and investing with current management—overlook[ing] operat-
ing improvements, chang[ing] the CEO after the deal, and reduc[ing] costs.” ⁷
This study demonstrates that despite its growing importance, value
creation strategy simply may not be the forte of less-operational, more-fi-
nancially minded private equity shops. Whatever the contributing factors,
in this era of private equity, firms lagging behind the esteemed Leaders in
the value creation department are at dire risk of falling even farther behind,
especially in light of the market realities I discussed earlier in this chapter.
To help you self-diagnose, here are common symptoms displayed by
firms in the Laggard category:
❖ No defined method for pre-closing value creation planning
❖ Failure to factor value creation challenges and opportunities
directly into deal pricing decisions
❖ Failure to link leadership and talent decisions to a clearly defined
value creation plan
❖ Undisciplined about fleshing out and aligning on the value cre-
ation plan during the critical first 100-day period
❖ No mechanism for consistently tracking the essential value driv-
ers over time and taking action where they get off track
❖ Calling the same limited set of plays (cost-cutting, add-ons, etc.)
in every game-time situation
Whatever the combination of symptoms, the cost of lagging can be sub-
stantial:
❖ Greater risk of overpaying
❖ Greater risk of not transacting
❖ Slow progress post-closing
❖ Confusion, frustration, and misalignment among the board and
management
❖ Lack of clarity and alignment among board and leadership
❖ Missed opportunity
❖ Sluggish growth
❖ Lagging returns
31
 WINNING MOVES

But there’s hope.

This book can help firms in what we’ll now encouragingly call the “Oppor-
tunity Zone” to seize the opportunity that a more deliberate and disci-
plined approach to driving value creation can offer. And the pot of gold
that can be found as you travel eastward on this spectrum could be mea-
sured in seven, eight, or even nine figures and might be the difference
between outperforming peers or not.
Despite the direct link between value creation and returns, investors
and operators looking at all this strictly from an economic point of view
can miss seeing value creation for what it really is.

What Drives Value Creation

Before we travel too far into the land of value creation, an important word
of caution on the topic, especially for financially minded investor types:
Looking at value creation strictly in economic terms can be comfortable
and tempting. After all, as investors, we’re trained to think about the
world in numbers and dollar signs.
Example: “If we improve revenue retention by 5 percent
in Year 1, it will create $10 million of incremental equity
value on exit.”
Although thinking about the impact of value drivers in hard-dollar terms
is, of course, good and useful (and make no mistake, it’s quite important
for success as investors), we need to avoid clinging to such a narrowly eco-
nomic view of value creation that we miss the underlying point:
Long-term value is created for investors only when
portfolio companies create value for customers,
suppliers, partners, and employees.
In this way, value creation—at its core—ought to be a stakeholder-centered
and customer-focused matter, not strictly a financial or transactional one.
Fundamentally, creating financial value within a company is the result that
happens when a company creates value for the stakeholders it serves.

32
 DAN CREMONS

Examples: “When our company creates more value for customers

by making better products, they’ll reward us by paying us more, staying
with us longer, and telling their friends about us. This, in turn, creates eco-
nomic value for our company and shareholders.”
“When our company creates more value for suppliers—giving them
more business, building longer-term relationships, etc.—they’ll reward us
by offering lower rates and better service levels. This, in turn, creates eco-
nomic value for our company and shareholders.”
“When our company creates more value for channel partners—help-
ing them sell our solutions better, and rewarding them fairly when they
do—they’re more likely to reward us in return by selling more of our prod-
uct through their channel. This, in turn, creates economic value for our
company and shareholders.”
This idea that sustainable value creation only happens when we create
value for others may seem kind of obvious when we consider these exam-
ples. But it is easy to forget this when our noses are pressed up against
spreadsheets in the comfort of our cushy private equity or executive
offices. We often lose sight of what value creation is about as we ponder
it far away from the products and services our companies sell to our cus-
tomers.
So as you get into heady discussions on value creation, don’t forget
that beneath the financial models and investment committee decks your
deal team is creating, there are real people: customers, suppliers, part-
ners, and employees.
The most fundamental and surefire way to create economic value—
the kind that makes your spreadsheets pretty and your investment com-
mittee happy—is to increase the value each stakeholder experiences from
working with your company. In chapter 2, we start to get into how to do
just that.

33
 C H A P TE R 2

HOW VALUE GETS CREATED

Value creation is the process of proactively and methodically cre-

ating equity value during the life of an investment. Simple and accurate
as this working definition is, it is unhelpfully broad, so let’s deconstruct
how to create equity value in an investor-backed company. At 50,000 feet,
there are five basic ways:

If you’re it is growth in equity value that you’re interested in, each of the
Fruitful Five—as we can lightheartedly call these levers—can play a role.
This breakdown may seem elementary to the seasoned private equity
pros out there, but starting here provides us a simple, approachable
mental model to work from. (Wasn’t it da Vinci who said, “Simplicity is
the ultimate sophistication”?)
 WINNING MOVES

This book is largely focused on how value is created after an invest-

ment is made—during the post-closing period. But there are indeed many
ways to enhance the ultimate value of a private equity investment simply
by “buying intelligently,” as represented by the left-most bar in the previ-
ous graph, including:
1. Market level: Investing in good, growing markets in the first
place provides a tailwind to your value creation engine. Driving
revenue growth—and in doing so, expanding margins, paying
down more debt, and selling for a higher multiple at exit—is con-
siderably easier in an industry growing at 15 percent compared
with one that’s growing at 5 percent.
2. Purchase price: The lower, the better, eh?
3. Deal structure: Structure can be architected to help investors
mitigate downside exposure and capture more of the upside.
4. Leverage: All else being equal (and ignoring for a moment the
potential adverse consequences of over-levering), the less equity
and the more debt, the greater the equity returns will be.
This book does not dive into these deal-related levers because the skilled
private equity investors in the audience likely already have plenty of expe-
rience pulling them in the right way to enhance a deal’s value. This is most
investors’ forte. Plus, generating excess returns from these sources is
becoming increasingly difficult given the market efficiency I discussed in
chapter 1.
Everything we’ll discuss in part 2 will tie back to this question: What
are proven ways investors and executives can create equity value by:
1. growing revenue (Lever #1 – chapters 3–9);
2. expanding margins (Lever #2 – chapter 10);
3. executing strategic acquisitions (Lever #3 – chapter 11);
4. accelerating debt paydown (Lever #4 – chapter 12); and
5. expanding the exit multiple (Lever #5 – chapter 13)?
We’ll approach these five levers independently but need to recognize that
they are very much intertwined. These levers are mutually dependent,
mutually reinforcing, and build on one another. For example, the greater
the revenue growth, the easier it is to achieve multiple expansion when a
company is sold. The higher the margins, for example, the more cash flow
will be available to pay down debt.

36
 DAN CREMONS

One 10-Bagger CEO I interviewed highlighted the importance of under-

standing this interplay:
“A big part of our success is that I understand how these
levers relate to each other and build on one another. For
example, I know that if we drive organic growth in the
companies we acquire, we can do more acquisitions off
our own balance sheet, which has made our subsequent
add-on acquisitions way more accretive.”
In part 2, I deconstruct each of the Fruitful Five, and:
❖ discuss the role each lever can play in your company’s value cre-
ation story;
❖ share keys to success in pulling each lever; and
❖ attach proven, executable, money-making winning moves to
each lever.
We’ll quickly descend from the 50,000-foot view of these levers and plunge
into an actionable, tactic-rich discussion on how to harvest juicy returns
from each one using this book’s arsenal of proven winning moves—which
are how value gets created.
Why get into the tactical details? Drilling down to this level and build-
ing out your arsenal of winning moves is vital to being an effective investor
or executive in modern private equity, and here’s why.

37
 WINNING MOVES

Descending from the Ivory Tower

When I began planning this book and started talking to fellow private
equity professionals and executives as part of my customer development
process, something quickly became clear: This audience doesn’t want
another boring textbook-esque compendium on business strategy. Nor
something with a fancy, high-level framework that would never actually
survive contact with the real world. Nor something that’s long on theory
and short on applicability. None of us need another book like that collect-
ing dust on our bookshelf.
But as you might expect, what many said they do want is a resource
that’s pragmatic and executable. Something that features proven steps
they can take to help ensure their companies deliver outstanding results
to investors. Something that impacts their success and returns from the
moment they finish it. Something that is, in a word, actionable.
This is precisely why we’re going to take this vague idea of value creation
out of the ether, chunk it down into its components as we just began to, and
make it applicable and executable in the trenches of private equity-backed
businesses. For this reason, a forewarning: the chapters that follow dip into
the weeds at times—especially as I get into the winning moves themselves.
But doing so is vital to helping leaders and executives combat what I call
the “Ivory Tower Syndrome”—an ailment that afflicts uber-smart but oper-
ationally-detached private equity professionals and executives everywhere.
I was afflicted with an acute case of Ivory Tower Syndrome early in my
private equity career (and look, I lived to tell about it!). Thanks to board
meetings, books, my daily subscription to the Wall Street Journal, and shop-
talk with other investor types from within the comfort of the proverbial ivory
tower, I had developed a firm grasp on the theory around how great busi-
nesses get built. I could wax intelligently about fancy topics, such as “oper-
ational excellence,” “barriers to entry,” and “high-performing teams,” with
the best of them—albeit from a pretty high cruising altitude.
But when it came to the levers to pull, the moves to make, and how
to work through a team to make those moves successfully, I simply hadn’t
had the exposure. I understood the “what” of value creation but didn’t
fully understand or appreciate the “how.” And the undeniable reality was
that this made me considerably less effective than I would have otherwise
been as an investor and advisor to our portfolio company leaders (which
is, in part, why I decided to go build up my operational experience).

38
 DAN CREMONS

Here’s a typical example of how the Ivory Tower Syndrome can present:
One of the most often cited—but grossly generalized and incom-
plete—value creation opportunities sketched into investment committee
decks far and wide is improving sales and marketing. “We think we can
grow revenue in this deal by improving sales and marketing,” said some
deal professional in some investment committee meeting somewhere.
If I had a nickel for every time I heard this sort of vague assertion in
an investment committee meeting, I could play more than a few games of
Pac-Man at the local arcade (assuming I can still find one of those).
To be fair, there often is an opportunity to “improve sales and market-
ing” (in the most general sense) within small, less operationally mature
target companies. And fortunately, it’s quite easy for an analytical private
equiteer to look at some data and spot this opportunity from the comfort
of the ivory tower.
For instance, you can look at the cost to acquire a customer (your
CAC) and compare it with the lifetime value of that customer (your LTV). If
the target company is earning less than 3x the cost to acquire a given cus-
tomer over the life of that customer, it’s a tip-off that something is prob-
ably out of whack in their customer acquisition funnel or customer jour-
ney. This can lead you to the well-founded conclusion that value can be
created by “improving” how the company acquires new customers. You
smell opportunity.
But the challenge is this: Although recognizing the opportunity is the
first step, doing so doesn’t generate results. Identifying the opportunity
to “improve sales and marketing” means nothing if we can’t drill down to
commercial and operational improvements that can boost your LTV/CAC
to 4x, 5x, and beyond. Capitalizing on this opportunity and, in doing so,
39
 WINNING MOVES

enhancing your returns requires you to have a perspective on which com-

bination of winning moves to make, like:
❖ Improvements to value messaging to attract more high-value
customers more easily (Winning Move #29: Translate your posi-
tioning into customer-centered messaging)
❖ Top-of-the-funnel conversion rate optimization (CRO) as a means
of reducing the overall cost of acquisition (Winning Move #34:
Optimize your conversion rates)
❖ Tuning the sales compensation model to focus the sales team on
pursuing higher value, more profitable prospects (Winning Move
#54: Align sales incentives with strategic objectives)
❖ Leveraging account-based marketing strategies to identify,
attract, and acquire higher-value customers (Winning Move #38:
Deploy account-based marketing)
❖ Taking actions that improve customer retention as a means
of improving lifetime value, your LTV (Winning Move #1–17; see
chapter 4: Keep Your Current Customers)
This book will equip private equity leaders and operators with an arse-
nal of specific, actionable winning moves that can be called on to, in this
case, actually improve sales and marketing. Think of it like this:
Winning moves = Inputs
Results (e.g., improving sales and marketing  generating more rev-
enue  improving equity returns) = Outputs

Sweating the Inputs

In his book, The Score Will Take Care of Itself, hall-of-famer and NFL coach-
ing legend Bill Walsh reminds us that whether on the gridiron or in the
boardroom, the path to success is the same:
Sweat the inputs (in this case, the winning moves)
and the outputs (in this case, the business results
and investor returns) will come.
But if you’re a private equity professional, you may still be wondering:
“Why do we private equity investors need to ‘sweat the inputs’? To get into
the details of how exactly value will be created? If a company needs to
improve sales and marketing, isn’t it management’s job to figure out how?”
I applaud you for wanting to empower management to make deci-
sions. And yes, they do ultimately need to figure out how. But unless your

40
 DAN CREMONS

investing style is passive by design, this doesn’t absolve you from devel-
oping a perspective not only on where value creation will come from but
also how it will happen.
Look at it this way: Although Coach Walsh himself wasn’t the one on
the football field throwing the pigskin or juking defenders, to succeed in
his role, he still needed to have a perspective on whether to run a pass
play or a running play on third and long. He didn’t just leave that to his
quarterback.
Although Walsh was too old to put on the shoulder pads and rush the
opposing quarterback himself on defense, he still needed to know which
defensive schemes to cook up for his team to defend against a run-pass
option. In the same way, private equity professionals ought to be bringing
a point of view to the sidelines when it comes to which winning moves to
make to ensure their portfolio company’s success.
Your job is not to do management’s job for them, but you need to
support them. By strengthening your command of the winning moves
that work in B2B growth-stage companies, you can better ally with and
support management such that, together, you’re running the right plays
needed to deliver the win. Your investments will be better for it.
Now, in the next section, I’ll stop short of detailing exactly how to
implement each of these winning moves—as doing so would make this
book longer than War and Peace. But you will walk away with:
❖ a mental model for thinking more clearly and systematically
about the levers you can pull in your companies;
❖ a more expansive repertoire of winning moves that you can draw
upon based on the situation; and
❖ some quick wins you can bag right away to start bending the
growth curve in your company(s).
Keep this in mind when you dive into part 2: The idea is not to pursue all
105 of these winning moves simultaneously. Making a little progress on
a bunch of different value creation opportunities is far less impactful than
making great strides on a small number of winning moves that matter most
to your company’s long-term success. And besides, not all these winning
moves will be relevant in a given deal or company. I’ll help you stock your
quiver with winning moves, and you’ll determine which of these to draw
and fire within your portfolio companies based on the needs of the business.
For more information beyond what’s covered in this book, visit Win-
ningMoves.co for access to:

41
 WINNING MOVES

❖ step-by-step tactical guidance on how to execute each of the

winning moves;
❖ interviews with successful operators who have made these
moves successfully; and
❖ a proven roadmap for taking everything you’ve learned and using
it at each stage of the deal lifecycle to more consistently, predict-
ably, and repeatably drive value creation in your companies.
Because the guiding purpose that underpins this book is to help you get
results, I’ll grant you access to the Winning Moves online platform free for
30 days.

Time to dive in. In the next part, we will break down the economic drivers
that create value in private equity deals even further and start building
your repertoire of winning moves in each area.

42
 PART
2
H OW TO D R I V E
VA LU E C R E ATI O N
 Revenue
Growth
C H A P TE R 3

GROW YOUR REVENUE

At the dawn of private eQuity in the 1980s—the decade of big hair-

styles, ripped jeans, and the most iconic (and notorious) leveraged buy-
out of all time in RJR Nabisco—revenue growth didn’t play as meaningful
a role in driving investment returns as it later would.
According to a 1989 study,industry-adjusted sales growth for a sam-
ple of U.S. leveraged buyouts in the 1980s was found, on average, to be
negative in the years immediately following those buyouts.¹ It’s no won-
der buyouts developed a bad rap. The go-to move in the early days of
LBO deal-making was to target large, mismanaged, bloated companies,
lever them up, and then slash a bunch of cost to boost profit and enhance
equity returns.
 WINNING MOVES

Fast-forward a few decades from the ’80s, and just as hairstyles have
evolved (thankfully), so too has the primary source of private equity value
creation. A 2016 study by INSEAD and Duff and Phelps shows that in more
recent years, “revenue growth [had been] far and away the main source of
enterprise value creation” across a large sample of private equity deals,
accounting for 62 percent of the average increase in enterprise value.²
Other studies differ in just how significant of a role revenue growth
plays in private equity returns nowadays. Still, most seem to agree: Rev-
enue growth (together with its resulting impact on multiple expansion) is
one of the most significant contributors—if not the most significant con-
tributor—to value creation in this era of private equity.
For this reason, a sizable chunk of part 2 is dedicated to revenue
growth. It is the meatiest and most expansive of our five levers because
it represents the most significant opportunity to create equity value. And
here’s the kicker: When you’re able to accelerate organic revenue growth,
it has a positive effect on the other four levers. Greater revenue growth:
❖ can produce natural margin expansion in businesses with low
variable costs (Lever #2);
❖ can enable companies to fund strategic acquisitions off their own
balance sheet, which can be highly accretive (Lever #3);
❖ means more free cash flow to pay down debt (Lever #4); and
❖ will cause eventual buyers to pay a higher exit multiple (Lever #5).
There are six primary drivers of revenue growth:
❖ Customer Retention
❖ Customer Expansion
❖ Market Penetration
❖ Market Expansion
❖ Product Expansion
❖ Pricing Optimization
These six revenue drivers are described briefly on the following pages,
with the subsequent six chapters each dedicated to a driver and its win-
ning moves.

46
 DAN CREMONS

Revenue
Growth
A. Keep your current customers (a.k.a. Customer Retention)
The most basic way to generate revenue is to simply keep the cus-
tomers you’ve already worked hard to earn. This is especially important
to the financial engine of companies that have a lot of recurring revenue or
repeat business. Technically, retaining current customers doesn’t directly
grow revenue, per se, but it does prevent revenue leakage and puts you in
a position to expand those customer relationships over time.

B. Sell more stuff to your current customers (a.k.a. Customer Expansion)

You can do this by cross-selling new products, add-on services, and
new features; or upselling additional seats, higher-priced packages, etc.
A few examples:
❖ Cross-Sell: Amazon’s “Frequently Bought Together” recommen-
dation engine
❖ Cross-Sell: Airtable’s (a hybrid spreadsheet/database platform)
promotion of premium paid features through in-app messaging
❖ Upsell: Dropbox’s Business Plan upgrade (with more storage and
expanded capabilities), which is promoted to individual users
❖ Upsell: Salesforce selling a customer more seats as that customer
grows

Your company’s existing customer base is its most

valuable asset—you’ve already paid to acquire them, and
they’ve already opened their wallet to you.
Companies can grow faster, more efficiently, and cost-effectively by
focusing on selling more to current customers before they invest in deep-
ening their market penetration.

47
 WINNING MOVES

C. Sell your product or service to new customers in your current market

(a.k.a. Market Penetration)
If a company has achieved product-market fit and its current market
is sufficiently attractive, penetrating that current market more deeply is
the lowest-risk and often the most economical way to grow its customer
base. This is especially true for businesses in big markets that are grow-
ing quickly, which becomes a bit like swimming with the current. Increas-
ing your share in a market with tons of headroom and booming growth in
adoption makes for a far easier path to revenue growth than battling the
rip current in a market without those characteristics.

D. Selling to new customers in new markets (a.k.a. Market Expansion)

This is about moving beyond your core market and finding new land:
❖ Walmart expanded its market by setting up its first store outside
its core Arkansas market in the late 1960s.
❖ RealNetworks, which develops and markets facial recognition
technology for commercial customers, expanded its market
when it began selling that same technology to the government
sector (for perimeter security at military bases).
❖ Private equity-backed Ydesign Group, an online retailer of high-
end lighting and home furnishings, expanded its market when it
began targeting trade customers (interior designers, architects,
etc.) instead of focusing solely on consumers.
These examples highlight that “new markets” can mean new geogra-
phies, end markets, or customer segments, respectively. Expanding into
new markets can be a bit riskier (new markets may be less proven) and
costlier (if you don’t have an existing brand or channel into that market)
than selling into your current market. But finding new territory in this way
can expand the total addressable market of buyers for your product or
service.

E. Sell new products to both new and existing customers (a.k.a. Product
Expansion)
At the time of this writing, customer relationship management (CRM)
software giant Salesforce continued its run of 20 percent+ year-over-year
revenue growth in its most recent quarter, driven in large part by the per-
formance of new products (e.g., Commerce Cloud, Marketing Cloud, and
Service Cloud) outside its flagship Sales Cloud platform.
Diversifying beyond its core sales software has been a major strategic
48
 DAN CREMONS

imperative for the company, enabling it to expand its market of potential

customers (e.g., selling to marketing and service organizations, not just

Revenue
Growth
sales organizations) and allowing it to achieve greater penetration with
current customers.

F. Sell the same stuff for more money (a.k.a. Pricing Optimization)
As they teach you in Business 101 (assuming you weren’t snoozing in
class like me), revenue is a function of quantity times price. The previous
five revenue drivers focus on selling more stuff—the “quantity” part. But
let’s not forget the importance of capturing your fair share of the value
that the stuff you sell creates for customers by pricing your product or
service optimally. As I’ll discuss later, although it’s often the most over-
looked revenue driver, it is the one that can generate the highest return
on investment (ROI).

❖ ❖ ❖

Each of these value drivers can play a role in your company’s revenue
growth story, and I drill into and start pinning winning moves to each in
the chapters that follow. But to make sure we don’t lose sight of the forest
through the trees, we have to remember something fundamental when it
comes to revenue growth:
Sustainable revenue growth only happens when
you focus on creating a boatload of value for your
customers and market.
At the most basic level, revenue is generated when a customer exchanges
their money for value. The more value you create for that customer, the
more money they’ll be willing to give you in return. But it can be easy to
lose sight of this simple truth in a heady discussion of revenue drivers.
This might remind you of my stump speech from chapter 1, where I
explained how value creation isn’t a strictly economic issue that’s solely a
matter of spreadsheets, sophisticated bridge analyses, and LTV/CAC cal-
culations. To reiterate, long-term economic value creation is inherently
human-focused and customer-centered; it’s a direct result of the amount of
value your product or service creates in your customers’ lives—a portion
of which they are willing to pay your company for in the form of revenue.
Skilled investors and executives look at value creation through both an
economic lens and a human-focused, customer-centered lens. When they
think about driving revenue growth, they nimbly toggle between the two.

49
 WINNING MOVES

In board meetings, instead of fixating strictly on “How can we opti-

mize our pricing?” they also ask, “How can we deliver way more value to our
customers than anyone else in the market can?”
Why? Because raising the price of a product is way easier if that prod-
uct is creating massive, measurable value for customers.
Instead of harping on “How can we reduce our customer acquisition
costs?” they also ask, “How can we make it way easier for prospects to find
and buy from us?”
Why? Because when your ideal customer can more easily find your
company, understand the value your product provides, and complete
a purchase, then the goal of reducing customer acquisition costs will
largely take care of itself.
Let’s now dive into each of the six value drivers that power revenue
growth.

50
 Retention
Customer
C H A P TE R 4

KEEP YOUR CURRENT

CUSTOMERS

“It never ceases to amaze me that companies

spend millions to attract new customers—people
they don’t know—and spend next to nothing to
keep the ones they’ve got!”
—TOM PETERS

❖ ❖ ❖
 WINNING MOVES

Acquiring new customers is sexy, right? Who doesn’t love slapping a hard-
earned new customer logo on the website or seeing that snazzy press
release hit the wire?
Finding and acquiring new customers is, of course, pretty darn
important to long-term growth. More customers equal more revenue.
Pretty simple. And because of this, I wasn’t especially surprised to learn
that among a few thousand software executives surveyed by Price Intelli-
gently, 70 percent said that if they had to focus on one piece of their busi-
ness, it would be driving net-new customer growth.
But here’s what these acquisition-obsessed leaders fail to grasp: The
most foundational and cost-effective way to grow a business and create
value is not to lose the business you already have.

“One thing that is consistent in many of the companies we invest in is that

they worry a lot about getting new customers aboard but then forget
about retaining them once they have them.”
—MARK PAPP, Value Creation Leader and
Private Equity Operating Executive

Think of your business as a bucket. Any ordinary bucket will do.

In almost any growing B2B business, there is (or should be) a flow of new
customers coming in, like water filling up that bucket. There’s also more
than likely some loss of existing customers (though hopefully not much),
as in water leaking through holes in the bottom. Sustainable growth
requires a dual focus on pouring more water into the top of the bucket
(driving revenue acquisition) and patching the holes at the bottom (maxi-
mizing customer retention/minimizing churn).

52
 DAN CREMONS

The leaky bucket analogy helps us visualize why retention is one of

the biggest differences between companies that grow and those that
don’t. Investing lots of time and expensive marketing and sales dollars
filling your company’s bucket—only to have that water leak out the bot-

Retention
Customer
tom of the bucket—is obviously not a winning formula.
Just ask short-form video streaming platform Quibi, one of the most
well-funded and hotly anticipated startups in recent years. Quibi seemed
to disappear nearly as quickly as it had arrived, thanks to an enormous
hole at the bottom of its user bucket. The company reportedly saw 90
percent of users churn after their free trials expired. Yikes! I know I sure
loved vegging out on free episodes of Agua Donkeys, but not enough to
sign up for the paid version. (RIP Quibi.)
Despite the indisputable economic importance of keeping your current
customers, you should know this: Only 16 percent of companies report being
more focused on keeping existing customers than acquiring new ones.¹
As glamorous as impressive new customer wins may feel, prioritiz-
ing customer acquisition over customer retention is backward for a few
important reasons:
❖ Retaining current customers is significantly less expensive than
getting new ones. Acquiring a new customer can be anywhere
from 5x to 25x more expensive than retaining an existing one.
After you’ve done the hard work and made the substantial invest-
ment to acquire a new customer, the cost of losing them—not to
mention having to replace them with an expensive-to-acquire
new customer—can be considerable.²
❖ Selling those customers more stuff is also way less expen-
sive and more likely. One of the benefits of keeping customers
is being able to sell them more stuff (which we’ll discuss in the
section on customer expansion). Loyal current customers are
already familiar with what you offer, so they’re both cheaper to
advertise to than new customers (about 4x so according to Bos-
ton Consulting Group) and more likely to purchase.
❖ Loyal repeat customers are more likely to refer you to their
friends. Loyal customers can be your most productive and
cost-effective sales channel. As Chip Bell, one of the founding
fathers of the customer journey movement, said, “Loyal custom-
ers, they don’t just come back, they don’t simply recommend
you, they insist that their friends do business with you.”

53
 WINNING MOVES

Even slight improvements in retention can mean

significant increases in profits.
Greater retention means greater revenue, more cost-effective marketing
and service, higher lifetime value, greater upsell opportunities, and more
referrals. Thanks to the combined effect of these factors, economically,
even a five percent increase in annualized retention rate can increase
profits by a whopping 25–95 percent over an investor’s hold period.³ It’s
just math. Model this out, and you’ll be amazed at how sensitive most
return models are to even small changes in retention over a private equity
hold period.
When we consider these facts and account for the second-order
consequences of losing customers—for example, the fact that every cus-
tomer lost to a competitor only strengthens that competitor’s position
in the market—it builds a pretty bulletproof case for the importance of
retaining customers.
At the end of the day, it is way less expensive and more valuable
to retain your current customers and sell them more stuff than it is to
acquire new ones.
For this reason, our deep dive into revenue growth starts here.
As Brian Balfour, CEO of Reforge and former VP of Growth at HubSpot,
said,
“If your retention is poor, then nothing else matters.”
So to understand how to plug those costly holes at the bottom of your
company’s leaky bucket, it is important to understand why churn hap-
pens. There are a handful of common causes of churn in B2B businesses:
❖ You’re targeting the wrong customers.
❖ Your customers aren’t achieving their desired outcomes or gener-
ating the expected ROI—whether because of onboarding issues,
product issues, changing business priorities, etc.
❖ You aren’t anticipating and getting ahead of customer issues
before they happen.
❖ Your customers experience poor service and support, leading
to frustration and weak ROI on the product or service they pur-
chased.
❖ Your marketing strategy is way more focused on getting new
customers (acquisition marketing) than keeping current ones
(through engagement and retention marketing).

54
 DAN CREMONS

❖ Your customers go out of business, get acquired, or churn due to

other natural causes beyond your control.
In the pages that follow, I share proven winning moves—pulled straight
from the playbooks of successful investor-backed companies—to help

Retention
Customer
you avoid these pitfalls and capture the riches and success that come by
way of strong customer retention. Think of these winning moves like Flex
Seal—that watertight wonder-sealant you’ve no doubt seen on late-night
infomercials—for your company’s leaky bucket.

Winning Moves: Keep Your Current Customers

Winning Move #1
Understand why churn happens in the first place
The most foundational stepping-stone toward improving customer reten-
tion is understanding the underlying issues causing churn. This puts you
in a position to fix the root cause instead of just bandaging its symptoms.
If you aren’t already, start by calculating and tracking customer
retention. It may seem basic, but according to a survey of 200+ B2B CEOs
by Koyne Marketing, a mere 26 percent of B2B companies track their
customer retention rates—even though managing and moving such an
important value driver is nearly impossible if you aren’t measuring it.
Measuring your customer retention rate puts you in a better position
to diagnose the issues causing churn. Three common issues account for
the lion’s share of churn in B2B businesses, each of which I address in
detail later in the book:
1. You’re targeting the wrong customers (see Winning Move #2).
2. Your customers aren’t achieving their desired outcomes or gen-
erating the expected ROI—because of onboarding issues, prod-
uct issues, changing business priorities, etc. (see Winning Move
#4–6).
3. Your customer service and support are weak or reactive, leading
to customer frustration and challenges in experiencing the full
benefits of your product or service (see Winning Move #7 and #11).

55
 WINNING MOVES

Winning Move #2
Target the right customers at the outset
Picture this storyline from any of a dozen 1990s romantic dramas: A mar-
ried couple has been together for years, but something just feels off.
They go to counseling, practice listening without interruption, start shar-
ing daily gratitudes, and even schedule weekly date nights. But nothing
seems to work.
Spoiler alert: It turns out that, as tough as it is for them to admit it,
they realize that maybe they weren’t right for each other from the begin-
ning. (Would someone please hand me a tissue?)
The moral of this heartbreaking story: Just because two people are
together doesn’t mean they’re compatible.
What does this retelling of sappy movies have to do with customer
retention? It reminds us of one of the most fundamental issues that cause
customer churn: Companies attract the wrong customers at the outset.
And no amount of daily gratitudes and date nights will fix it.
Despite the outdated adage that tells us, “Any business is good busi-
ness!” some customers just aren’t meant for you. And when companies
are unclear or misaligned on their ideal customer, have poor qualification
criteria, or are undisciplined about only pursuing customers they can best
serve, they sometimes attract the wrong customers. That’s why there’s
this saying in the software world: “90 percent of churn happens at the time
of sale.”
The costs of acquiring misfit customers can be massive, as they are:
❖ More expensive to win
❖ More expensive to serve
❖ Less likely to buy more
❖ More likely to leave you

TAKE ACTION!
Head over to WinningMoves.co for five actionable ways to ensure you’re
targeting the right customers. (Search targeting.)

Resources wasted on misfit customers are far better spent acquiring and
supporting customers you can help.

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Winning Move #3
Understand how to ace your customers’ exams
What’s the best way to learn how to retain more customers? Ask them
directly!

Retention
Customer
“What would have to be true for you to get so much value
from our product/service that you’d never leave?”

“What would cause you to leave us for another provider?

Have you ever considered doing that?”

“What is most important to you when you’re considering

whether or not to renew?”
The best companies are diligent and systematic about understand-
ing their customers’ needs by listening to them. Like, really listening to
them. That’s the secret to understanding how to “ace your customers’
exams,” as a mentor of mine used to say, so you can keep their business
for years to come.
To understand how to delight and retain your customers, you can use
formal channels, such as surveys, customer listening programs, customer
panels, advisory boards, or usage studies. But don’t discount the power
of less traditional methods. Some of the most important and illuminating
customer conversations I’ve had as a leader have been informal sit-downs
with customers—a beer or coffee in hand, ears open, and armed with spe-
cific questions like:
❖ What problem were you trying to solve when you originally
signed up with us? What was painful to you about that problem?
❖ What outcome did you expect to achieve with us?
❖ How well does our product or service solve that problem? And
deliver on that outcome?
❖ Where does it fall short? And what’s the cost of that to you?
Regularly having such conversations helps shed light on issues and gaps
that could create customer churn. They also help you identify the custom-
ers who are most at risk of leaving so you can proactively address their
specific issues.
For investors, gauging a target company’s level of customer under-
standing—and how diligent and programmatic the company is about
developing and maintaining a deep customer understanding—provides

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“The first step to exceeding your customers’ expectations is to know those

expectations.”
—ROY WILLIAMS, Author and Marketer

you a pretty reliable leading indicator of product quality, sales effective-

ness, and of course, customer retention.

Winning Move #4
Nail customer onboarding
“The seeds of churn are planted early.”
—LINCOLN MURPHY, Sixteen Ventures
For almost any business, two of the most critical milestones in the cus-
tomer’s journey are the moment a customer buys from you and the
moment they experience their first success with your product or service—
the “a-ha” moment, as some call it.
Frequently, costly churn happens between these two milestones, so
the goal of customer onboarding is to minimize the time between those
two steps and help customers achieve that “a-ha” success moment with
your product or service as quickly as possible.

A robust customer onboarding program can go a long way in address-

ing two of the most common reasons for churn: (1) customers not under-
standing how to use your product or service, and (2) customers not expe-
riencing the full value of your product or service quickly enough.

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Think about it from your own experience as a consumer of B2B solu-

tions: You pay vendors or service providers for an outcome, and the faster
you experience that outcome—or develop confidence that you’re on the
right path—the more inclined you are to keep using the product or ser-

Retention
Customer
vice, right? On the flip side, the longer it takes, or the more friction you
experience along the way, the more likely you’ll throw in the towel and
find another solution.

“The key to successful onboarding: Be prescriptive by setting very clear

expectations about what’s going to happen now and in the future. ‘To
get you launched, here’s what will happen, by when, and by whom.’
Then, after a successful onboarding, deliver on the future expectations
you set.”
—NILS VINJE, Founder and CEO of Glide Consulting and
Customer Success Expert

By architecting a well-choreographed, seamless, and value-acceler-

ating customer activation or onboarding program—one that takes your
customers by the hand and shows them exactly what they need to do to
get results from your solution—companies can shorten the time to value,
remove the friction, and reduce the risk of churn.

TAKE ACTION!
Head over to WinningMoves.co to learn how B2B companies can grease
their customers’ on-ramp and help them get value from your solution
quickly. (Search customer onboarding.)

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 WINNING MOVES

Winning Move #5
Make your product or service easier to use
Often, churn-inducing customer onboarding issues (of the sort we dis-
cussed in the last winning move) are usability issues in disguise. It’s tough
for new customers to get the hang of the product, not strictly because of a
failure in onboarding but because it’s simply difficult to use.
The best way to make onboarding fast and seamless, and shorten the
customer’s time-to-value, is to create a super-intuitive product or service.
At the most basic level, a more usable product or service leads to a better
customer experience and faster value, which weigh heavily in a customer
deciding to renew or repurchase.
Investors and operators alike can get an initial read on product
usability by looking at churn data and reason codes, reviewing customer
effort scores (where available) at key milestones in the customer journey,
and talking to and observing customers and users directly.
If you sense that your company’s product usability is getting in the
way of customers’ success and therefore weighing on your retention, try
these tips:
1. Start by mapping out the current-state user journey—the steps
a user of your product or service must take to achieve their tar-
geted goal. Identify the most critical milestones in that journey
from the user’s perspective.
2. Analyze usage data, user observations, and user interviews,
including from churned customers‚ to identify friction points in
the user journey.
3. Prioritize those friction points based on their impact on the over-
all customer experience versus cost-to-resolve. Put this priori-
tized list of enhancements into your product backlog and then
systematically remove those friction points over time.

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Winning Move #6
Make your product or service stickier
Want to boost retention? Think creatively about making your product or
service more difficult—or “stickier”—for customers to move away from

Retention
Customer
and live without.
Some products or services are inherently stickier and tougher to rip
and replace than others. Apple’s iPhone is stickier than superglue on a
treefrog’s toes.
But product stickiness is neither fixed nor static—and taking the nec-
essary steps to make your product or service stickier pays dividends. Here
are a few ways to do so:
1. Deploy new features or services your customers can’t live with-
out. Rolling out features that become core to how customers do
their job can go a long way toward increasing stickiness—ones
that become deeply embedded in their day-to-day.
2. Incorporate features that create a mounting loss. Coined by
Sarah Tavel at Benchmark Capital, “mounting loss” is when the
cost of leaving your solution rises the longer a customer uses
it. Think of airline rewards programs. These programs make it
nearly impossible to switch to a new airline the more miles you
have because you’ll lose the cushy benefits you’ve accumulated.
3. Deploy features that create escalating benefits. Netflix pro-
vides us with a tremendous everyday example of “escalating
benefits.” The longer you use Netflix, the more dialed-in their
recommendation engine gets. And the more dialed-in their rec-
ommendation engine gets, the better the platform is at serving
up content you just can’t live without. But this idea can apply to
B2B products and services, too. The more customer data fed into
a lead scoring platform, for example, the more accurate the lead
scoring and the greater the benefit to the customer.
4. Integrate with other products. Integration makes for a better user
experience and makes ripping out your solution more difficult.
5. Engineer network effects into your product. Slack is an excellent
example of a company that has done this well in the B2B sphere.
The more extensive and interconnected the network of Slack users
(both within a company and externally), the more indispensable
the platform becomes, and the more difficult it is to switch.

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Winning Move #7
Build a proactive customer success model
About five years ago, the company I led was using a piece of HR software
up for its first renewal. We weren’t getting great value from the software,
mainly because the learning curve was steep, and the user onboarding
and support weren’t very helpful. (If only the vendor had taken Winning
Move #4 and #5 to heart!) So I wrote off that year-one subscription as a
loss, told accounting to terminate our subscription, and planned to move
on. Lesson learned.
Almost immediately after we stopped sending the vendor our renewal
checks, however, I started getting desperate phone calls and emails from
them as they attempted to fix our issues so they could keep the business.
“Well, where were you the last 12 months while we were flailing
around trying to figure out your software?!” I wondered.
We see this sort of issue often in the land of small and midsize busi-
nesses. Companies are reactive to customer issues and non-renewals,
not proactive about ensuring their treasured customers are getting the
value they expect and deserve out of their solutions.
This highlights the important distinction between a traditional cus-
tomer service approach and a modern customer success approach.
Customer service and support—generally thought of as “break-fix”
functions—address customer issues and challenges whenever they sur-
face. But there’s a problem with this approach: As research⁴ shows, roughly
90 percent of dissatisfied customers don’t fully express or make known
the problems or challenges they experience with a company’s product or
service. And roughly 90 percent of those dissatisfied customers quietly
churn the same way I did. (It’s like the old Brown and Williamson Tobacco
Corp. ad that said, “I won’t complain. I just won’t come back.”) When this
happens, it leaves vendors scrambling to figure out why and what they
could have done to prevent the issue.
By contrast, the modern customer success approach leverages a
clear understanding of the customer journey, actual customer data and
feedback (e.g., usage data, customer satisfaction score [CSAT], etc.), and
regular customer touchpoints to proactively ensure customers are hav-
ing success with your solution. Doing so puts you in a far better position
to prevent the issues that end up leading to customer churn from arising.

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TAKE ACTION!
At WinningMoves.co, we share four ways to take a more proactive
approach to customer success in your business. (Search customer suc-
cess).

Retention
Customer
Embracing a proactive customer success mindset—and building cus-
tomer success capabilities to boot (many of which we’re discussing in this
Chapter)—can go a long way in boosting customer retention.

Winning Move #8
Monitor customer satisfaction continuously and
systematically
To be proactive about keeping customers happy, B2B companies need to
keep a finger on the pulse of customer satisfaction. This is a key tenet of a
proactive customer success approach.
Railroad operators rely on sensors—speed sensors, level sensors,
train detection sensors—to help ensure the safe, on-time, and unob-
structed movement of trains from origin to destination. Each sensor
transmits a piece of critical data that allows engineers and traff ic control-
lers to make sure trains are moving down the tracks at the proper speeds,
in the right directions, and without any roadblocks in the way.
We can think of the role customer satisfaction measures play in our
customers’ journey in the same way. They provide signals that help a
company ensure its customers are moving swiftly and obstruction-free
toward their destination (whatever business outcome or result that your
customers are trying to achieve).
Only after determining whether customers are zooming down the
tracks or barely sputtering along can we understand and take steps to
address the root issues preventing a smooth and frictionless journey for
dissatisfied customers or ask for referrals from satisfied customers.
Net promoter scores (a gauge of customer loyalty), customer satis-
faction scores (a gauge of customer contentment, usually after a specific
interaction), and customer effort scores (a gauge of the diff iculty or ease
of a customer’s experience and the effort exerted) can be used at differ-
ent points in the customer journey. Each provides a unique input, and
together, they paint an overall picture of customer satisfaction.

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A word of caution: For B2B businesses, you can’t always draw a direct
connection between user satisfaction measures, such as CSAT, and the
likelihood to renew. This is because user satisfaction may not always line
up with decision-maker satisfaction. Just because users are satisfied
doesn’t mean the decision-maker’s renewal or repurchase criteria have
been met. You need to have a gauge of satisfaction at both levels.

Winning Move #9
Implement customer health scoring
I’ve hopefully hammered home by now that the most surefire way to
reduce churn is to prevent it long before it is likely to happen.
Tracking customer satisfaction and acting on its results is, of course,
helpful to that end, but CSATs represent one pixel in the picture of your
customers’ overall health—and their likelihood of renewing or continuing
to purchase from you.
Recognizing this, best-in-class companies understand the range of ear-
ly-warning indicators of customer churn and monitor them closely to detect
retention risk so they can act on them proactively and methodically.
You can understand the early-warning indicators of churn by compar-
ing the behaviors of customers who have churned or lapsed to those of
loyal customers. Common predictors of churn include low CSATs or net
promoter scores (NPSs), usage declines, purchase declines, spikes in cus-
tomer support tickets, low user adoption, and low engagement in prod-
uct training and onboarding.
You can then use the indicators you’ve identified in two ways:
❖ Flag them as they’re happening and act immediately (automat-
ing your response where possible). For example, if a newly con-
tracted customer hasn’t logged in or made their first purchase
within a certain period after signing, send them an onboarding or
engagement email sequence to nudge them toward first sign-in
or first purchase. For scalability’s sake, automate wherever you
can by using marketing automation or customer engagement
software.
❖ Meld the most relevant leading indicators—the ones most pre-
dictive of retention—into an overall “customer health score.”
This score should be real-time and widely visible across your
company. A customer health score will help your account man-

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agers, customer success managers, and executive leaders mon-

itor their customers and enable them to take action proactively
when the warning sirens go off. You can find more on how to do
this at WinningMoves.co. (Search customer health score.)

Retention
Customer
Winning Move #10
Track, optimize, and communicate the customer ROI
Value-based selling (something we’ll talk more about in Winning Move #52
on “selling the sizzle, not the steak”) positions a B2B solution in this way:
“When you pay us $X, and we deliver Y outcome, the impact to your busi-
ness will be $Z.”
This puts your price ($X) into the context of clear and tangible busi-
ness outcomes that you’ve learned in discovery are important to the pros-
pect (Y) while highlighting concrete and measurable targeted ROI ($Z)
wherever possible. You’re anchoring the sales conversation not on your
solution’s features and functionality but on the outcomes it will deliver
and the ROI those outcomes will generate for a prospect’s business.
And here’s the thing: Not only does this way of positioning help com-
panies close more new business because it can help their prospect justify
the purchase decision, but it also establishes the metric(s) through which
they’ll measure the effectiveness and impact of their product or service
and gauge whether it’s delivering the results their customer expects.
Why do this? Well, if customers are shelling out their hard-earned
money but aren’t getting the results they expect, good luck keeping them
around.
Taking the following steps can go a long way in helping your com-
pany secure a repurchase or renewal and keep customers coming back
for more:
❖ Understand how customers are gauging the ROI on your solution
❖ Where possible, measure and monitor that customer ROI
❖ Proactively take action to get ROI back on track if it’s not meeting
customers’ expectations
❖ Promote to customers the measurable value your solution deliv-
ers (through your engagement marketing, annual customer
review meetings, product dashboard, etc.)

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Winning Move #11

Create a better customer service experience
“Customers don’t expect you to be perfect. They do
expect you to fix things when they go wrong.”
—DONALD PORTER
Research from U.S. SBA, Oracle, and Forum Corporation all come to the
same conclusion: Poor customer service is one of the leading contributors
to B2B churn. Some studies conclude that as much as 50–70 percent of
churn can be explained (in part or whole) by service and support issues.
According to a survey by TechSee, these are the top three service issues
that most commonly lead to customer churn:⁵
❖ Having to make multiple calls to resolve an issue
❖ Long waits or response times
❖ Poorly trained reps
It isn’t just the categorically “bad” customer experiences that can hurt a
company’s customer satisfaction. In a day and age when customer stan-
dards are exacting, and brand loyalty can be fleeting, the “meh” experi-
ences—“Well, the support person was pleasant, but I never really got my
question fully answered.”—no longer cut it.
What’s more, incidents of poor customer service are rarely isolated.
When customers become dissatisfied due to a poor service experience
and decide to leave, they often don’t go quietly. Various studies show that
the average dissatisfied customer will tell between 5 and 15 people about
their bad experience. This can tarnish a company’s brand in the eyes of
current and potential customers alike. Ultimately, it can exacerbate churn
and create customer acquisition issues—the double whammy.
At its most basic level, taking customer service and support to new heights
as a way of enhancing retention comes down to two things:
❖ Understanding where you are today. For many companies,
there’s a disconnect between how well their customers and they
themselves think they are doing in this area. Research from Bain
& Company shows that 80 percent of companies believe they
deliver great service, whereas only eight percent of customers
believe they have received great service. Use actual customer
data (e.g., measure CSAT, benchmark your call center’s key per-
formance indicators (KPIs), etc.) and qualitative feedback to
develop an objective view of how well your company is doing.
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 DAN CREMONS

❖ Rethinking and redesigning your customer service experience

with three simple guiding questions in mind:

❖ How do we make it easier for customers?

❖ How do we make it faster for customers?

Retention
Customer
❖ How do we make it more enjoyable for customers?

TAKE ACTION!
Head over to WinningMoves.co for five practices to help your company
raise your customer service game and boost retention. (Search cus-
tomer service.)

Winning Move #12

Engage and educate customers through retention marketing
Ever been ghosted by a vendor?
There’s no faster way to alienate a customer (and jeopardize their
renewal or repurchase) than to sell them something and then vanish into
the night, only to reemerge when you’re looking for their renewal check or
want to sell them something else.
You saw how this worked out for the HR technology vendor I men-
tioned in Winning Move #7 earlier.
In the way that your most loyal friends are the ones you are most
engaged with, your most loyal (and successful) customers tend to be the
ones with whom you’ve most invested in cultivating deep, strong, and val-
ue-packed relationships. And one effective way to do this is through reten-
tion marketing, which involves staying engaged and connected with your
customers throughout their journey and offering them value at every step.

“One of the keys to driving lifetime value is customer lifecycle marketing.

It’s about having an ongoing dialogue with customers after the initial
purchase. Deepening the relationship over time. When you do that well,
it will increase your LTV by keeping them coming back and buying more.”
—Private Equity-Backed CEO and Chairman

Building engaged, connected, and enduring relationships with custom-

ers is, of course, a valuable thing—85 percent of companies say that long-
term customer relationships are essential to their business. But only 20

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percent of companies surveyed said retention marketing is part of their

2021 marketing strategy.⁶
Good retention marketing builds the following:
❖ Value. Helps customers get maximum ROI from the product or
service they’re paying you for—it’s the most important factor
impacting retention
❖ Trust. Positions your company as the “trusted guide” that can
help the customer get to where they want to go (and we know
that 81 percent of customers say that trust is a crucial factor in
their decision to repurchase⁷)
❖ Connection. Invites your customers into a conversation with your
brand, which is key to creating a relationship and brand loyalty
And in case it wasn’t evident, retention marketing should not be about
pestering customers with advertisements or bumptious self-promotion.
(“Hey, did you see this Chamber of Commerce Award our company paid to
receive?!”)
Although it may not be the only channel you use in today’s multi-chan-
nel world, email is a great place to start a retention marketing program,
so it’s a good idea to set up automated post-sale email drip sequences.
These can include check-ins from an account manager, onboarding
resources, exclusive content relevant to a given customer’s business or
use case, and a company newsletter to keep customers tuned into prod-
uct or service enhancements.

Winning Move #13

Build community among customers
Since our ancestors were hunting and gathering, and saber-toothed tigers
roamed the plains, the human species has been wired to need social con-
nection and community. Back then, our very survival depended on being
a part of a community. The gatherers needed the hunters. The hunters
needed the gatherers. And they all needed each other anytime a pack of
ravenous predators approached.
Although the threat of a tiger attack is lower nowadays (for most of
us, I hope), humans still have an innate longing to be a part of a tribe—a
phenomenon that’s the basis for Seth Godin’s aptly named book, Tribes.
According to Godin, a “tribe” is a group of people loyally connected to one
another, a leader, and an idea. The bond is tight among members, and

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their loyalty toward the tribe is strong.

You don’t have to look far to find examples of B2C brands that have
built loyal tribes of their own—including CrossFit, Peloton, Apple, and
Patagonia, just to name a few. Although we have to look a bit closer to find

Retention
Customer
examples within the B2B world, brands such as EOS—which created the
Entrepreneurial Operating System and has built a nearly cult-like global
community of business builders who use it faithfully—remind us that
business buyers crave community the same way consumers do.
EOS hosts conferences, curates online forums, and facilitates meet-
ups that build community among its customers, deepen their affinity for
the EOS brand, and enhance the value customers experience from their
connection with it. The whole is greater than the sum of its parts.
B2B brands can boost customer loyalty and strengthen retention by
building their customer communities, which require:
❖ a meaningful unifying idea or cause;
❖ a platform(s) on which customers can assemble and connect
(in-person or virtual); and
❖ ways to derive value from the community and benefit from its
collective wisdom.
The kicker is that the benefits of building a customer tribe extend beyond
improving retention.
Building a customer community can be a strong contributor to reve-
nue growth. Brand affinity—which a customer community can help fos-
ter—creates opportunities to upsell and cross-sell. It allows you to breed
brand ambassadors who will spread the word about your company. And
it puts your company in a position to gather valuable feedback from the
community that can indirectly improve its revenue potential by helping
to shape its product roadmap, marketing strategy, customer enablement
content, and more.

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Winning Move #14

Build a key account management program
We’ve all heard the idea that 20 percent of customers produce 80 percent
of a company’s revenue—a rule of thumb that can be applied to many B2B
businesses. In this way, all customers are not created equal. Those 20 per-
cent are simply more valuable to your company than the others are, and
some are considerably more valuable.
This may feel like an inconvenient truth to well-meaning but indis-
criminate companies that cling to such outdated ideals as, “We treat all
our customers like they’re our most important,” and, “No customer is too
small for us.” Though well-intentioned, these relatively common ways of
thinking cause companies to spend a disproportionately small amount
of their time, attention, and resources on the most valuable or highest
potential customers—their “key accounts.”
And the challenge with these accounts is that your competitors value
and covet them as much as you do. Just as your company is fighting to
steal customers from competitors, you have to assume competitors are
knocking at your key accounts’ doors. And because they’re so, well, key,
you can’t afford to lose them.
A key account management program focused on keeping your most
valuable accounts and growing them profitably over time can go a long
way in solidifying and expanding these relationships. When executed
well, a key account management program has the dual benefit of increas-
ing the long-term profitable growth of these accounts and mitigating the
risk of costly customer losses.
Research published in the Harvard Business Review (HBR) helps build
the case. The study shows that key account management programs can
improve customer satisfaction by 20 percent or more within a few years of
their introduction and boost profits and revenues by 15 percent or more.⁸

TAKE ACTION!
Head over to WinningMoves.co to learn five keys to success for standing
up your own key account management program. (Search key account
management.)

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 DAN CREMONS

Winning Move #15

Reacquire lost customers
Losing customers stinks. And when it inevitably happens, many leaders
think, “Ugh. What a bummer! But they’re a goner, so I guess I need to go find

Retention
Customer
a new one to replace them.” So we chalk it up as a loss, gulp hard, collect
ourselves, and move on.
But not so fast: Not all customers who have left are lost!
Companies invest tons of energy—and considerable dollars—in
acquiring new customers but sometimes forget about the value of
already-churned customers. Most of these former customers have a need
that you had a solution for, which is why they bought from you. And then,
for one reason or another, the customer didn’t stick.
But there’s hope. Often, the reason a customer didn’t stick is address-
able (e.g., onboarding issues prevented them from fully figuring out how
to get value from your solution, or pricing was a touch higher than a com-
petitor’s). And for this reason, what’s gone may not be lost. A win-back
strategy can put you in a position to reacquire lost or at-risk customers.
In descending order of likelihood of reacquisition, here are the three lay-
ers to an effective win-back program:
❖ Pre-churn: Preventing customer churn before it happens. Many
of the winning moves in this section focus on this layer.
❖ 0–60 days post-churn: Moving quickly to win back customers
who have not renewed or repurchased. As a general rule, cus-
tomers are less likely to return the longer they’ve been away.
❖ 60+ days post-churn: Identifying high-value former customers,
staying engaged with them and delivering value, and giving them
an incentive to come back.

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Winning Move #16

Offer annual billing
If you’ve purchased a subscription recently, you probably had the option
to pay monthly or annually. Although annual billing options usually come
with a 15–30 percent discount, for B2B software and service vendors, as
a general guideline, the smaller the customer, the more appetizing the
monthly plan will be. Less budget equals lower willingness to commit.
By contrast, making a yearly commitment is often easier and more
advantageous for larger customers that run on more-formal annual bud-
geting cycles. Annual billing can help retention in a couple of ways:
❖ Being locked in for a year helps prevent customers from signing
up for a few months then killing the subscription mid-year.
❖ The higher the up-front investment, the greater a customer’s
motivation to achieve ROI as quickly as possible. I can’t count the
number of apps I’ve signed up for at $9.99 or $14.99 a month that
I’ve never actually figured out how to use. But if I’m shelling out
$129 upfront for an annual plan, I’m far more inclined to use the
app and squeeze value out of it.
The added benefit for companies that offer annual billing? Cash now is
better than cash later.
Companies make a revenue trade-off when offering a discount to cus-
tomers who bite on a discounted annual plan. You’re counting on a higher
retention rate and faster cash cycle to offset lower average revenue per
customer. As you consider using this winning move, be clear on your busi-
ness objectives and make sure these tradeoffs balance out in your favor.

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Winning Move #17

Implement auto-renewal and auto-ordering
Auto-renewal/auto-purchase programs are great ways to combat passive
churn—or churn that happens without any action on the part of the cus-

Retention
Customer
tomer. (Voluntary churn, by contrast, results from customers who actively
decide to stop using your product or service.)
When a product or service auto-renews, the vendor automatically
bills the customer weekly/monthly/annually, which requires no action
from the customer to continue using the product or service. Although
many software products have this feature, a surprising number (espe-
cially small, bootstrapped software vendors) do not.
You’ll also find B2B service providers with auto-renewal or auto-pur-
chase programs. For example, Culligan Water, whose weekly water deliv-
eries keep thirsty office workers everywhere quenched, auto-bills its cus-
tomers.
As you might expect, companies whose products or services renew
automatically enjoy higher—often significantly higher—customer retention
rates than products that require customers to take action to continue.

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Expansion
Customer
SELL MORE TO CURRENT
CUSTOMERS

So you’ve built a base of customers. And thanks in part to the winning

moves you’ve made from the last section, your solutions have delivered a
heap of customer value and a strong enough ROI to keep those customers
around.
Way to go!
As a result of your company’s outstanding retention, you’ve laid the
track to now expand your relationship with those customers by upselling
or cross-selling additional services, licenses, features, or modules. And
 WINNING MOVES

this is all in the spirit of helping your valued customers be even more suc-
cessful because that’s what we’re in this for, right?
Upselling and cross-selling are two means to the same end of expand-
ing your current customer relationships. But the two are sometimes con-
flated by business leaders and investors—and the distinction is import-
ant, so let’s park here for a moment.
Upselling happens when a company sells more of the same product
or service—more seats, more features, more expensive versions:
❖ Dropbox upsells its unpaying customers to a paid basic plan for
more space when they hit certain storage limits.
❖ Apple sells the newest, more expensive model of the iPhone to
loyal iPhone addicts who can’t imagine life without the latest
sleek, shiny new model.
❖ Salesforce sells more seats when growing companies run out of
licenses for their fast-growing sales and marketing staff.
Cross-selling is about selling a current customer a different but generally
complementary product or service:
❖ McDonald’s is cross-selling every time a friendly crew member
asks, “Do you want fries with that?” (To which the answer always
ought to be an enthusiastic, “Yes!”)
❖ J.M. Smucker, America’s favorite jelly company, acquired Jif pea-
nut butter from Procter & Gamble in 2001 so it could sell peanut
butter to its loyal jelly customers.
❖ Salesforce is cross-selling when it promotes its Marketing Cloud
product to loyal Salesforce CRM users who realize they need to
take their marketing game to new heights.
To cross-sell, you, of course, need to have products—such as fries, pea-
nut butter, or marketing software—to actually cross-sell, which I cover in
chapter 8 on product expansion.
Whatever combination of upselling and cross-selling makes up your
customer expansion strategy, there are four reasons why growing your
relationship with current customers can be such a powerful revenue
driver for a B2B or B2C business:
❖ Higher conversion: Existing customers have already opened
their wallets to you before, and research shows that the likeli-
hood of selling to an existing customer is 60 to 70 percent, com-
pared with 5 to 20 percent for a new prospect.¹

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❖ Lower cost: Current customers are already brand-aware and

familiar with what you offer, so they’re cheaper to advertise to—
about 4x cheaper, according to research from Boston Consulting
Group. What’s more, existing customers also cost less to serve.
❖ Higher margin: Higher revenue per customer and lower cost to
sell/service lead to higher margins among “expanded” customers.
❖ Greater retention: As a general rule, the more stuff a customer

Expansion
Customer
buys from you, the more dependent they are on your solutions,
and thus the stickier they become.

Customer expansion is like rocket fuel for a B2B company’s growth engine.
This is especially true in recurring revenue businesses, where achiev-
ing efficient, accelerated growth almost always requires a big focus on
driving expansion revenue. In fact, the Pacific Crest SaaS Survey tells us
that the fastest-growing software-as-a-service (SaaS) companies get dis-
proportionately more of their new revenue from upselling than do their
slower-growth peers.
Any growth-stage company has to acquire new customers to sustain
growth over time. But for companies that truly understand the power in
the 1-2 punch of retaining and expanding customers, acquiring a new cus-
tomer is just the starting point of a magical virtuous cycle of systemati-
cally expanding that customer relationship over time.

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When you sell a customer a product or service that delivers value to

their business, they’ll naturally want to buy more from you, making your
solutions stickier and more entrenched, deepening the customer’s commit-
ment, and allowing you to capture more revenue. This money can be used
to develop new products and services that can further boost the value you
are able to offer to those customers. And the virtuous cycle continues.

Get the customer expansion flywheel spinning in this way, and everyone
wins. Customers gain increasing value, and your company gains more and
more revenue.
Retention + expansion can be a powerful economic driver, so much
so that net revenue retention (NRR)—a measure of the percentage of recur-
ring revenue generated from existing customers during a given period
(including expansion revenue, downgrades, and churn)—is the holy grail
of all recurring revenue B2B business metrics. It paints a complete reve-
nue picture of what’s going on with existing customers.

An NRR rate of less than 100 percent means the revenue coming from your
current customer base is declining over time. Expansion revenue from
cross-selling and upselling is not offsetting the losses coming from cus-
tomer churn and downgrades.
But an NRR rate greater than 100 percent—the happy zone for any
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 DAN CREMONS

recurring revenue business—means, thanks to some combination of

strong retention and same-customer expansion, your business will grow
even without acquiring additional customers. Expansion revenue from
current customers exceeds the revenue you’re losing because of churn
and downgrades.
Achieving NRR greater than 100 percent is nirvana for growth-stage
companies, and getting there requires expanding your current customer

Expansion
Customer
relationships. The winning moves that follow will help you do this.

Winning Moves:
Customer Expansion

Winning Move #18

Segment your customer base and define the journey for each
Here’s a universal truth I’ll return to throughout this book: Not all cus-
tomers and prospects are created equal. Some are more profitable than
others. Some are a better fit with your product and solutions than others.
Some will have a higher lifetime value than others.
Best-in-class companies use data, market intel, and a deep under-
standing of their customers to:
❖ segment their markets and their customer base;
❖ get clear on who their ideal target customer(s) are; and
❖ use that understanding as the basis for deciding whom they’ll
target, how they’ll serve them, and (most relevant to this section)
how they can grow the relationship with that customer type over
time.
As you begin this work, you’ll start to see a few logical groupings or seg-
ments based on (a) vertical, (b) size, (c) department, and/or (d) persona.
And the way each of these segments uses the product or service is likely
to differ.
For example, let’s say your company is a provider of customer rewards
software. How your SMB customers use the product is likely to differ from
how larger corporations use the product. Likewise, how restaurants use
the platform may vary from how retailers use it.

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“You’d be surprised how many companies haven’t had the foresight or

experience to define their customer journey, and the impact moments
along the way. Many haven’t evolved their customer success operation
to take advantage of those moments to expand the relationship. We see
that often.”
—JAIRO ROMERO, Managing Director of GTM, LLR Partners

The customer journey—the sequence of experiences your customer

has using your product—is oftentimes different for each segment. And
because each segment’s customer journey is different, when, how, and
with which products you’ll seek to expand customer accounts is also
likely to differ. The last thing you want to do is try to upsell or cross-sell
something a specific customer doesn’t need.
So to capitalize on the winning moves that follow, you must get clear
on the segments that comprise your customer base and deeply under-
stand the customer journey for each. This puts you in a position to map
your upsell and cross-sell strategy to that unique customer journey, as
you’ll see in the upcoming winning moves.

TAKE ACTION!
Head over to WinningMoves.co to learn simple steps for getting clear
on your most valuable customer segments and mapping the customer
journey for each. (Search segmentation.)

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 DAN CREMONS

Winning Move #19

Find whitespace opportunities
After segmenting your customer base and getting clear on the customer
journey for each segment, it’s time to start finding the expansion oppor-
tunities.
Imagine your company sells software to several verticals within
healthcare and offers a core product (Product 1) and an add-on analytics

Expansion
Customer
module (Product 2). You’d do this by first mapping the products in your
portfolio to those segments (e.g., We know that our outpatient custom-
ers can get value from both Product 1 and Product 2), and then looking for
“whitespace” opportunities (e.g., 100 percent of outpatient customers have
purchased Product 1, but only 28 percent have purchased Product 2). The 72
percent that has not purchased are “whitespace”—and ripe for cross-sell-
ing Product 2.

Here’s a simple everyday example of how to think about finding whitespace

opportunities. Let’s say you own the only running store in town, Shoe Me
The Way.
One of your most attractive segments is the first-time marathoner,
whom you’ve brought to life with the “Frankie Firsttimemarathoner”
buyer persona. “Frankies” have big dreams of conquering 26.2 miles but
none of the gear.

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Cha-ching!
When a Frankie walks through the door, you know they probably
need new running shoes and insoles to get started—because you know
your ideal customers and their unique customer journeys. (Shout-out to
Winning Move #18!)
After about 30 days in, as training starts to ramp up and the muscle
soreness becomes bothersome, you also know Frankie will want a foam
roller and compression sleeves to help with achy muscles. And if a first-
timer has the grit to stick with it, you know that 60 days in, they’ll need
nutrition to stay fueled during long runs. Lucky for Frankie, you have a
wall full of energy-packed running gels of all flavors.
When you map your products—shoes, insoles, compression sleeves,
foam rollers, and energy gels—to the Frankie Firstimemarathoner cus-
tomer journey, and then use customer data to determine which products
each Frankie in your database has purchased (your “product penetra-
tion”), and which they haven’t (your “whitespace”), you can zero in on the
cross-sell opportunities.
In this example, you’d want to do two things:
1. Find all the Frankies in this upcoming marathon’s cohort who
have not bought the foam roller and compression sleeves—a
whitespace opportunity—and start promoting these items to
them. How much revenue potential does this represent, and how
much of this cross-sell opportunity do you think you can capture?
2. Moving forward, deploy very targeted promotions for foam roll-
ers at Day 30 or energy gels at Day 60 of their customer journey—
something we call “expansion triggers.”

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Winning Move #20

Identify and capitalize on the expansion triggers
When our first child was born—one of those turning-point moments in a
family’s financial journey—our trusted financial advisor reminded us, “If
there is ever a time to consider life insurance, it’s now.” And he was right.
If something happened to my wife and me, the financial stakes were so
much higher now that we had Baby Oliver to care for. So what did we do?

Expansion
Customer
We shelled out a thousand bucks for life insurance.
This little anecdote taught me the key for any customer expansion
strategy to be effective: For each of your segments, deeply understand
the customer journey—something hammered home in the previous two
winning moves—and identify the expansion triggers along the way.
Expansion triggers are moments in the journey when a customer is
likely to experience a distinct need that you can cross-sell or upsell into—
the same way our financial advisor did when Baby Ollie arrived.
For B2B companies, the following are common expansion triggers:
❖ The customer contract is up for renewal, or a specific contracted
phase has been completed.
❖ The customer has been a customer or subscriber for a predeter-
mined amount of time.
❖ The customer is reaching a utilization limit (e.g., “You have one
seat left in your plan. Would you like to upgrade to the Enterprise
plan?”).
❖ The customer has demonstrated a usage pattern that seems to
indicate the need for another product or feature (e.g., “We see
you exported your data to Excel. Would you like to try our Reporting
and Analytics module?”).
❖ The customer has contacted support with questions about a
product or service (e.g., “We see that you contacted support about
exporting your data to Excel. Would you like to try our Reporting
and Analytics module?”).
❖ The customer went through a major business change (e.g., IPO,
merger, or strategic shift), which can positively or negatively
impact the need for your product or services.
The goal is to understand when the customer is most likely to experience
additional needs that you can address via cross-selling and upselling and
strike when that iron is hottest.

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Winning Move #21

Personalized, targeted expansion marketing
Old school marketing used to focus heavily, if not solely, on acquiring
new customers. But the mandate for modern B2B marketers has changed
because, in the best-performing recurring revenue businesses, as much
as 80 percent of revenue is generated after the initial sale. Marketers now-
adays must zoom out and take responsibility for driving revenue through-
out the customer journey—including, perhaps most importantly, after the
initial purchase.

“This is where marketing can help sales increase account penetration—

aggressive marketing programs targeted at current customers. Too many
companies miss this tremendous revenue opportunity. How many times
have your customers said, ‘I wish I knew your company did that, I would
have purchased from you’? Marketing can change that.”
—SEAN GEEHAN, Founder and CEO of Geehan Group,
Author of B2B Executive Playbook

A successful expansion marketing program focused on existing custom-

ers is centered around the following:
❖ Helping drive customer success and value: It’s difficult—if not
impossible—to sell a customer more things if they haven’t gotten
value from the things they originally bought from you. Would you
be inclined to purchase the dessert if the entree was awful? As
discussed in Winning Move #12 (on engaging and educating cus-
tomers through retention marketing), marketing can play a valu-
able role in ensuring customers have success with and get value
from the solutions they’ve already bought from.
❖ Generating demand throughout the customer lifecycle: This
starts with identifying the whitespace opportunities and expan-
sion triggers discussed earlier and then running personalized,
targeted campaigns (email, calling campaigns, customer visits,
etc.) that bring current customers back into the buying cycle and
fill your expansion revenue pipeline.
❖ Charting out the role marketing, sales, and customer success
will play in closing expansion business: You’ve defined your cus-
tomer journeys and the critical moments, including churn risks
and expansion triggers, along the way. Where will marketing,

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sales, and customer success get involved along that journey to

find, create, and capitalize on expansion opportunities? In what
ways? How will you measure the effectiveness of each team’s
expansion efforts? When it comes to driving expansion revenue,
who owns what?

TAKE ACTION!

Expansion
Customer
Skip over to WinningMoves.co for the five keys to successfully defining
and executing your expansion marketing strategy. (Search expansion
marketing.)

Winning Move #22

Build expansion into your pricing model
To preview an idea that we address more squarely in chapter 9, pricing
can be a powerful driver of expansion revenue. The key to making it so
is to hitch your pricing to a value metric that will grow naturally as a cus-
tomer uses and gets value from your solution.
For example, email marketing platform MailChimp’s pricing is based
on the number of contacts to which a customer sends marketing emails.
So as their customers’ contact databases grow—which tends to happen
naturally among the growth-focused companies that MailChimp targets
as customers—MailChimp’s same-customer revenue increases. The cus-
tomer expansion occurs automatically.
Some service-based businesses have also adopted expansionary
pricing models. For example, a fee-based financial advisory firm’s reve-
nue grows as customers contribute more to investment plans and earn
greater returns from those plans. Likewise, some procurement outsourc-
ing service providers will bill on a share-of-savings basis. The more sav-
ings customers generate, which tends to grow as those customers scale
and spend more, the greater revenue the service provider earns.
There are a couple of common pricing models which aim to align
price with value in this way:
❖ Per-user pricing: Many software companies use the number of
users or seats as their value metric. This works well in situations
where users tend to grow over time and where more users gener-
ally equates to more value for the customer. For example, in the
case of CRM software, more sales and marketing professionals

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using the platform generally tends to create more value for the
customer company—which, in turn, means more revenue for the
CRM company.
❖ Per-usage pricing: Pricing is dependent on how much the prod-
uct or service is used—the number of transactions processed,
videos hosted, emails sent, amount of storage space used, etc.
This model best aligns pricing with customer value.
In either case, a company’s pricing model itself can help drive expan-
sion revenue. As the customer uses more, experiences greater value, and
grows, your revenue does, too.

Winning Move #23

Build expansion into your product
When is arguably the best time to upsell or cross-sell something? It’s
when your customers are using your product or service and experience
some “moment of need.”
Think of a hungry McDonald’s customer. If they don’t purchase a
drink when they’re standing at the point of sale, the second-best time
in their customer journey to sell them a thirst-quenching soda is at that
fated moment when they have a mouthful of salty fries and realize they
have nothing in front of them to drink. Oh no! That’s Ronald McDonald’s
cue to swoop in, with soft drink in hand, and save the thirsty customer’s
day—and pocket $1.39 in the process.
For digital businesses, one of the most effective winning moves
for driving customer expansion is to identify those expansion trigger
moments (see Winning Move #20 on identifying and capitalizing on the
expansion triggers) and then, in those moments, let your product itself do
the selling. It would be kind of like putting a “10% Off Soft Drinks!” coupon
at the bottom of the empty fry container.
Incorporating upsell and cross-sell offers into the product is espe-
cially feasible for software and tech-enabled service companies—those
with some sort of digital platform that allows them to introduce contex-
tual, timely offers in the moments of need.
Here are a few examples of how to do this:
❖ Show in-app upgrade prompts right when the users need those
features: For example, when Dropbox users are nearly out of
space, they’ll see an in-app upsell prompt that reminds them

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of their plan’s restrictions and offers them an opportunity to

upgrade.
❖ Lock or gate certain “premium” features in the app, but keep
them visible alongside commonly used features (instead of
hiding them): For example, email marketing platform Convert-
Kit keeps its locked premium features—such as deliverability
reporting—visible in the app. When users click to try them, it

Expansion
Customer
prompts them to upgrade.
As best you can, tailor your in-app expansion strategy to the segment-spe-
cific customer journey you defined in Winning Move #18 (Segment your
customer base and define the journey for each). Unless your customer
base is homogenous, a one-size-fits-all approach will not work optimally.
Offering an Enterprise tool to an Individual user, for example, would feel
misplaced and might leave the customer thinking, “Does this company
really understand me?” In the same way, offering an advanced feature
early in the user’s adoption—before they’ve mastered the basics—is
unlikely to be effective and might even confuse or overwhelm them.
This strategy will be most feasible and value-generating in cases
where the B2B user has the authority to make (or the ability to influence)
a follow-on purchase.

Winning Move #24

Start small and expand
The chances of someone you’ve never met agreeing to marry you before
you’ve even taken them on a first date are low (*ahem* not that I know
from personal experience *ahem*). The unofficial rules of the dating game
say that love-seekers should start small—a Thursday happy hour, a Satur-
day morning coffee, a weekday lunch—with a low-cost commitment.
Then, when the chemistry seems to feel right at the casual coffees
and weekday lunch dates—and as the trust builds—we gradually take
progressive steps to expand the relationship. That could mean going on
a weekend getaway, introducing our love interest to our parents, or buy-
ing a pet goldfish together.
Romantic courtship illustrates a fundamental human truth: There’s
a natural progression to how relationships (whether romantic or busi-
ness) are built and grown. Being too forward or moving too fast can be a
turnoff. So two unfamiliar people or parties typically start small, demon-

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strate their value to one another, build trust, and prove out the fit before
expanding the relationship over time.
In romance, we call this sort of approach “gentlemanly” or “lady-
like.” In business, we call it “landing and expanding.” In the world of soft-
ware, the land-and-expand model typically involves promoting a free or
low-cost “basic” plan, which lowers the hurdle to getting started, starts
giving the customer a taste of the value your product provides, and,
importantly, builds trust. While users start using the product and getting
value from it, we hope they will then want to add other users and access
premium features, and voilà—your revenue per customer starts to shoot
through the roof.
This approach can also work in services businesses. Take a tech-
nology consulting firm, for example. Many will get a foot in the door by
performing a low-cost IT audit or assessment. They’ll assess how secure
your data and network are, how scalable your infrastructure is, etc. After
they’ve “landed”—delivering value by identifying critical gaps or unex-
ploited opportunities in their audit and earning the customer’s trust—
they’re in a much stronger position to pitch follow-on work aimed at
helping customers fix those gaps or capitalize on those opportunities
(the “expand” part).
Some people think of “customer expansion” and “landing and
expanding” as the same. But the land-and-expand winning move is a
very specific way to drive expansion revenue by first starting small and
then methodically expanding the relationship over time.

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Penetration
Market
FIND NEW CUSTOMERS IN YOUR
CURRENT MARKET

“Go deep, and then go wide.”

Whether you’re a tree, a V-neck shirt, a football wide receiver, or a
company focused on growing, there’s some wisdom for you in this idea.
In its early days, Walmart—born in the same year and competing in the
same big-box retail space as longtime rival Kmart—was deliberate about
“going deep before going wide.” Walmart focused on building a beach-
head in its native Arkansas market before expanding geographically. In
doing so, it built up local economies of scale, which provided a huge com-
 WINNING MOVES

petitive advantage in the brick-and-mortar retail space, and proved out

its low-cost, big-box model in the process. Only after Walmart had built
a 25+ store stronghold in Arkansas (circa 1968) did it expand beyond the
Arkansas market.
Meanwhile, rival Kmart more quickly and aggressively expanded
nationwide, a decision that would create strategic disadvantage as the
company eschewed the benefits of local economies of scale that would
become important to Walmart’s long-term success.
Fast-forward several decades, and we all know how the story played
out from there. Walmart is now the world’s largest retailer, with revenue
comparable to the entire GDP of Sweden or Belgium. And Kmart has gone
the way of the dodo.
Now, there are many reasons Walmart has thrived while Kmart has all
but kicked the bucket (save 15 or so antiquated stores that still exist), but
this case study brings to light a simple but important guiding strategy for
business leaders: the power of staying focused on building advantage in
and dominating your current market—and expanding only after you have.
In a way that may feel counterintuitive, often the best way to acceler-
ate revenue growth is to narrow your focus on your current market. Focus
on “growing where you’re planted,” as Walmart did in Arkansas before
it started dropping pins in other states. Focus on finding and acquiring
more customers and building share within your current markets—includ-
ing your current geographies, verticals, product categories, or customer
segments.
John Harrison, former CCO of a tremendously successful private
equity-backed B2B software business, told me this about the merits of
growing where you’re planted:
“Too many growth leaders fall into the trap of believing that
the next phase of their growth needs to come from expanding
into new customer segments, new geographies, new markets.
But in many cases, provided the market size and market
opportunities are there, growth can be found most easily
right in your backyard.

Expanding prematurely or unnecessarily just waters down the

focus of the organization. Too many smaller businesses try to
expand beyond their current market too quickly. Then they
lose focus, and things can quickly start to unravel.”

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There’s a great line from Netflix CEO Reed Hastings that illustrates
this same idea, as told by tech CEO Alex Rampell:
“Many years ago, I was asking [Reed Hastings] why he wasn’t expand-
ing Netflix to Canada. And he said, ‘Because we can still grow 10x in the U.S.,
and until we don’t think we can grow [there] any more, it doesn’t make sense
for us to expand.”¹
Focusing on market penetration—going deeper in and capturing a
greater share of your current market—can be a more attractive path to
growth than moving into new markets for a few key reasons:
❖ Moving into new markets can come with a steep learning curve:

Penetration
Market
This can slow the time to value of investments in new markets
and increase the risk of failure.
❖ Moving into new markets can be costly: It can require substan-
tial product, marketing, and sales investments to be successful.
❖ Moving into new markets can dilute a company’s focus: Sticking
with the plant metaphor from earlier, a former partner at Bain &
Company, Chris Zook, said, “Just as plants often must be cut back
to concentrate their energy on fewer, stronger branches, so too
must businesses be pruned to counter their tendency to branch out
more than they should.”²
This assumes, of course, that the market you’re planted in is worth dou-
bling down on. Situations in which a market penetration strategy can be
especially fruitful include the following:
❖ Your current market is large, with enough headroom to grow
into (in the same way the Arkansas retail market in 1962 offered
plenty of headroom).
❖ Your current market is growing, with strong demand (in the same
way Walmart found strong demand for lower-priced goods in
less-affluent communities within Arkansas).
❖ Your current products are well suited to meet the needs of that
growing market (in the same way that Walmart’s discount strat-
egy was well suited to the needs of the lower-income rural com-
munities it served in Arkansas).
❖ Your company can develop an advantage in that market (in the
same way that Walmart created a buying advantage and local
economies of scale by building density in the Arkansas market).
In the pages that follow, I go deep (okay, and wide) on the proven winning

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moves—gleaned from the private equity-backed companies and leaders

who have grown substantially within their current markets—that can help
companies grow where they’re planted by acquiring new customers in
their existing markets.
You’ll find that many of these winning moves are applicable in ways
that extend beyond expanding share within your current market. For
instance, conversion rate optimization (see Winning Move #34) can be
applied to more successfully acquire new customers across current mar-
kets (market penetration) and new markets (market expansion) alike.
Because I focus this section on new customer acquisition broadly, it
is a beefy one—with a lineup of 31 winning moves, more than any other
chapter. To make it more manageable, I’ve organized the material that
follows based on the three primary stages of the B2B customer acquisi-
tion funnel:
❖ Attracting more leads happens at the top of the funnel (TOFU).
These winning moves create awareness, build trust, and fill the
funnel with qualified leads. The highest-performing B2B com-
panies are aggressively driving top-of-funnel activity. You can
liken this to fishing. In this stage, you’re dropping your line in the
water, letting the fish know you’re there.
❖ Aligning your solution to these prospects’ needs happens in
the middle of the funnel (MOFU). Mid-funnel winning moves pre-
dictably turn qualified leads into actionable prospects who want
what your company offers. The fish see your well-baited lures,
like what they see, and are starting to bite.
❖ Turning those prospects into paying customers happens at the
bottom of the funnel (BOFU). You’ve got prospects on the hook—
time to reel them in.

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Before we dive into the funnel and the winning moves that apply to
each of its three stages above, let’s start at an even higher level and cover
the winning moves (numbers 25–33) that apply to new customer acqui-
sition broadly. Sticking to our fishing metaphor, there are certain things
you have to do before you even drop a line into the water, such as decid-
ing what kind of fish you want to catch (who’s your customer?), figuring
out where to drop anchor (selecting the right segments to “fish” in), and
baiting your hooks (developing your messaging). These winning moves
are foundational to a successful go-to-market strategy, so logically, we
should start there.

Penetration
Market
Winning Moves: Market Penetration

Winning Move #25

Know your target customers cold
A theme is emerging here. The foundation for success upon which each
revenue driver sits—customer retention, customer expansion, market
penetration, and the others that follow—is some good old-fashioned KYC.
Know your customer.
To expand within a market, you have to know that market—and the
target customers who live within it. If you don’t deeply understand your
target customers, what their challenges are, and what they need, there’s
no way you will understand how to convince them to buy your stuff.
The importance of knowing your target customers isn’t a ground-
breaking idea, but it does beg the questions: How well does your company
know its target customers? Like, really know them? Their hopes, dreams,
fears, challenges, unmet needs, and goals?
For many companies, the answer is: Far less than you might think.
One of the biggest, most foundational mistakes companies make is
assuming they understand their target customers when, in reality, they’re
just guessing or speculating. This happens when we fail to do the work to
get to know our target customers. Get this:
❖ Roughly two-thirds of growth-stage companies have fewer than
ten customer development conversations per month.³
❖ Almost 50 percent of companies don’t survey their customers at
all.⁴

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How can you truly know your customers if you’re talking to them infre-
quently and never surveying them to gather feedback and intel?
To A. G. Lafley, the former CEO of Procter & Gamble, famous for spend-
ing several evenings per month in consumers’ homes observing how they
live, the most important ingredient to growing within your target market
is knowing your target market and the customers in it. And knowing them
cold.
“I believe everything starts with a deep understanding of who the cus-
tomer is, what he or she wants and needs, and then trying to give it to them.”⁵
At some level, achieving business success is that simple.
This “know your customers” bit probably seems obvious to smart
private equiteers and operators or anyone who has taken a marketing
course in college. But as the earlier surveys reveal, the “knowing/doing
gap”—the gap between knowing that customer understanding is import-
ant and actually doing the actions required to achieve it—is vast within
many growth-stage companies.

Why is closing this gap so foundational to everything else that follows?

It is impossible to know what to build for your target
customers, how to message and sell to them, and how
to exceed their expectations if you don’t deeply
understand their needs.
Much of what I’ve covered already, and nearly everything that follows,
requires that your company be grounded in a clear, high-fidelity under-
standing of your target customers. It requires that you use customer
development work and data to understand:

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❖ what their problems are;

❖ what outcomes they’re hoping to achieve; and
❖ what’s in the way of getting them from here to there.
Failing to understand your customers deeply is the surest way to under-
mine virtually everything else: your product development, messaging,
sales strategy, and more. But nail this winning move, and you could create
a comparative advantage over the scores of companies that don’t.

TAKE ACTION!
Skip over to WinningMoves.co to learn seven actionable steps for under-

Penetration
Market
standing your customers deeply. (Search know your customers.)

Winning Move #26

Segment, size, and select
Whether your company sells marketing software to marketers, or environ-
mental consulting services to commercial developers, the indisputable
truth is that not every buyer in your market is the same. A marketer is not a
marketer is not a marketer, the same as a developer is not a developer is
not a developer.
Picture this: Marketer A, Sally Startup, works for a smaller fast-
er-growth tech company. Meanwhile, Marketer B, Barry Bigcompany,
works for a large Fortune 1000 retail company. When it comes to market-
ing software, both need it. But Sally’s and Barry’s needs, expectations,
buying behaviors, and use cases are likely different. Consequently, so
might the amount and type of value they can get from your software,
too—and by extension, the revenue and profit potential that each rep-
resents for your company.
Without segmenting and bucketing Sally, Barry, and the thousands
of other potential buyers in your addressable market, your company risks
spending its finite budget and precious time targeting prospective buyers
who aren’t as strong of a fit for your solution as others.
Without identifying and then making clear choices about which market
segments it will focus on, a company risks:
❖ pursuing prospects that are less attractive or have a lower prob-
ability of closing or lower profitability;
❖ diluting its sales and marketing efforts and making ineff icient
use of its sales and marketing dollars; and

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❖ creating customer success issues (and eventually brand issues)

down the line by landing customers who aren’t a great fit for your
solutions—something discussed in Winning Move #2 on targeting
the right customers at the outset.
Don’t try to be all things to all potential prospects in your market. Instead,
segment, size, and select the customers you will focus on acquiring. Other-
wise, sales will chase opportunities wherever they please.
Segment your market based on (1) firmographics (size, geography,
etc.); (2) customer needs;(3) behavior; and/or (4) profitability. The goal is
to find the clusters or “segments” of buyers with common characteristics
based on some combination of these variables.
Size these segments based on both revenue and profitability. The
profit pools will be deeper in some segments than in others. Furthermore,
size up your company’s market share within each segment to know how
much additional headroom there is to grow into.
Select the segments your company is best positioned to win within.
Ask yourself and the data: “Which segments are most profitable? In which
segments are we most competitive? In which segments can we most suc-
cessfully serve customers?”
Using these questions to make clear and deliberate choices about
which segments you’ll focus on penetrating more deeply (and which you
won’t) will lead to better marketing results, higher close rates, and stron-
ger customer retention.

“Why don’t more companies segment their market? Mainly because it just
takes work. But at the end of the day, going through the effort to segment
and prioritize is way less work than trying to sell to prospects that aren’t
really a fit for your solution.”
—10-Bagger CEO

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Winning Move #27

Get clear on your ideal customer profile
Because your company has nailed the last winning move, you’ve zeroed
in on the target customer segments—as defined by size, geography, buyer
type, etc.—in which you can be most successful.
Take this a step further and clearly define the ideal customer pro-
file(s)—your ICPs—that live within each of those segments. This winning
move is essential to devising a successful go-to-market strategy.
As a simple example from the B2C realm, take Juicy Juice. Thanks to

Penetration
Winning Move #26 on segmenting, sizing, and selecting the markets you’ll

Market
go after, the company focused on the “mom” segment. But their ideal,
most valuable customer isn’t just a “mom.” Some moms out there buy no
juice, and some purchase a lot. Juicy Juice’s most valuable customer is “a
mom who wants her young children to get more nutrition.” And because
that mom cares about nutrition and is willing to spend on healthier drinks,
there is far more juice to squeeze (I couldn’t resist the pun) from that type
of mom buyer, whom we’ll call “Health-Conscious Helen.”
To make the most efficient and effective use of ad spend, Juicy Juice
doesn’t just want to blast all moms far and wide. It wants to get really
clear on what Health-Conscious Helen looks like—demographically and
psychographically—and target those with her attributes with messages
that will land with those like her.
Leverage the customer development work you’ve done (see Winning
Move #25 on knowing your target customers cold) to develop a high-reso-
lution picture of your ideal customer profile within your target segments.
For most B2B businesses, this should be the decision-maker with budget
authority, not the user.
Develop and document your “customer personas,” which spell out
what these ideal targets look like in vivid detail. Their mindset. Their chal-
lenges. Their care-abouts. Their buying criteria.
In most companies, 80 percent of revenue will be derived from three
to four personas. But too many companies fail to develop a clear picture
of these target customers. A study of 1,647 marketers within growth-stage
companies reveals the following:
❖ Roughly 60 percent of marketers have thought about their target
customers.
❖ Only 35 percent have any central document that profiles their
target customers.

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❖ Only 10 percent have defined and quantified their buyer perso-

nas (e.g., Health-Conscious Helen).
But when a company clearly defines its buyer personas, it can focus its
marketing and sales efforts on finding and speaking directly to these per-
sonas—and we know that persona-targeted ads tend to be nearly twice as
effective as non-targeted ads.⁶ It enables more targeted content and web-
site messaging. It allows the company to indoctrinate the sales team to
these personas to quickly disqualify prospects who don’t look like Helen
and focus on and relate to the unique needs of the Helens in the pipeline.

TAKE ACTION!
Head over to WinningMoves.co for steps to get clear on your ideal cus-
tomer profile. (Search ideal customer profile.)

Winning Move #28

Sharpen your positioning
Often, revenue challenges that show up on a company’s sales dashboard
and profit & loss statement (P&L) can be traced back to issues with posi-
tioning—which is the perception you’re trying to create about your prod-
uct or service in the minds of your target customers, relative to competing
options. But you’ll know you’ve nailed your positioning when your ideal
customers—like Health-Conscious Helen—discover your company and
immediately want to talk to you.

“Positioning shouldn’t be as tough as some companies make it. Here’s the

key: Be a problem-solver, not a seller. Ask questions to find the problem. In
your positioning, really string out that problem to make it feel painful. And
position your product as the thing that can cure that problem.”
—CHRIS STITES, Software Executive

To get there, our friends at B2B advisory firm Boutique Growth share a
simple but powerful three-step process for sharpening your positioning:
Step 1: Identify the problem your product or service solves. For each
of your ideal customer profiles, which of their problems can you solve,
and which of those is the most expensive or painful for the customer? Too
often, a B2B company’s positioning focuses too heavily on touting the fea-
tures and functionality of its solutions. But prospects aren’t interested in

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your solution until they feel a painful, expensive problem and then dis-
cover you can help them solve that problem with your solution.
For our marketer-friend-turned-ICP from earlier, Sally Startup, the
most painful, expensive problem we can help her solve might be a short-
age of qualified leads, which is costing her company revenue and jeopar-
dizing Sally’s professional success.
Step 2: Clarify the outcome you help your ICP achieve when solv-
ing that problem. When Sally becomes clear on her problem and aware
of your solution, and then eventually engages your company to help her,
how will it positively impact Sally’s business (e.g., more revenue, lower

Penetration
cost, or lower risk) and her life (e.g., less frustration, more professional

Market
success)? What are the specific outcomes you’ll help her achieve? And
how will it make her life better when she has achieved those outcomes?
Step 3: Determine how your solution will guide Sally from problem
to outcome. Here, we’re not providing a boring spec sheet of features
and functionality. Instead, we’re boiling down the customer journey into
the big stepping-stones that will take Sally from a bone-dry lead pipeline
today to one that is filled to the brim in the future. Boutique Growth calls
this your “results mechanism.”
Problem. Outcome. Solution.
These three pieces form the basis for your positioning, which you can
align your team and their efforts behind with a simple positioning state-
ment for each of your ICPs:
“We help [ICP] to [solve problem] and [achieve outcome]
by [solution’s results mechanism].”
Customer loyalty expert Kevin Stirtz summed it up nicely: “Know what
your customers want most and what your company does best. Focus your
positioning on where those two meet.”

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Winning Move #29

Translate your positioning into customer-centered messaging
Developing clarity on your problem-outcome-solution is only half the
story. Success in acquiring new customers and growing your market share
lives and dies by the strength of your messaging—taking this positioning
statement and translating it into words and messages that will cause your
ICP’s ears to perk up. Strong messaging is like the bait that allows you to
draw prospects to the hook and eventually reel them in, while weak mes-
saging feebly floats in the water as prospects swim by.
Understanding your ideal customer profiles, the problem you can
solve for each, and the outcome your solution can deliver (as we covered
in Winning Move #27 and #28) is all for naught if it doesn’t translate into
messaging that speaks your ICP’s language. Messaging that hooks your
ideal customer and reels them in. Messaging that is customer-centered
and makes your ICPs think, “Wow, this company really gets me!”
The problem (and the opportunity) is that too often, a company’s
messaging focuses on itself—its products and services, its reputation, its
accolades—and not its customers. In a 2019 study from Forester, a full 88
percent of B2B marketers admitted that their homepages (the most vis-
ible and central display of a company’s messaging) talk primarily about
their companies, products, and services, and NOT their customers’ prob-
lems, or the outcomes they can help them achieve when those problems
are addressed.

“The biggest gap I see in messaging? When companies talk about a feature
or benefit that isn’t actually relevant to a given prospect. This is where the
importance of discovery comes in. Understanding each prospect’s pain,
and tailoring your messaging to how your solution can address that pain.”
—10-Bagger CEO

Weak messaging on websites and elsewhere positions the company, not

the customer, as the story’s hero. “We are a market leading [blah blah
blah].” and, “Our product is the most cutting-edge [blah blah blah].”
How many times have you seen this before?
Businesses that broadcast company-focused messaging, not customer-
focused messaging, will find this costly when acquiring new customers.

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When prospects can’t quickly tell how well you

understand their problem and whether you can help
them get what they want, they’ll buy from
someone who does.
Hate to break it to you, but prospects don’t care about you or your com-
pany nearly as much as they care about themselves.
So develop and align your customer acquisition efforts—your con-
tent, collateral, sales presentations, website—around crisp, clear, consis-
tent, and customer-centered messaging. Don’t try to be flowery, jargony,
or cute. Be clear.

Penetration
Market
When it comes to how to do this, in addition to checking out the five
keys to success I share at WinningMoves.co, I strongly recommend check-
ing out the Storybrand framework.
How do you know when you’ve landed on clear, customer-centered
messaging that’s connecting with your target customers? You’ll start to
see it in your numbers throughout the funnel—from video view rates to
lead magnet download rates to marketing qualified lead (MQL) conver-
sion rates to close rates.

Winning Move #30

Lead with emotion, support with logic
In his 2014 book (of the same name as his quote below), businessman and
author Bryan Kramer shared a message that could be one of the most
important a B2B business builder can hear: “There is no B2B or B2C any-
more. It’s human to human.”
Before you write this off as another useless business platitude, B2B
investors and leaders take note: The target buyers who are considering
buying your solution—whether you’re going B2B or B2C—happen to be
human beings. Noses, ears, hearts, the whole bit. And contrary to the
popular belief that these people are perfectly rational beings that make
entirely logical and fact-based decisions, humans tend to be heavily influ-
enced by emotion in their buying decisions.

“Regardless of what you’re selling, you’re selling human to human, not

business to business. And humans make buying decisions based on emo-
tion and back it up with logic.”
—JENNIFER ZICK, Founder and CEO, Authentic Brands

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It doesn’t matter if yours is a business-to-business company, a busi-

ness-to-consumer company, a business-to-government company, or
any other conceivable variation. If you’re selling to a human being, then
appealing to the most fundamental human emotions in the way your
company markets and sells is essential to getting these people to pur-
chase your stuff.
Research from Les Binet and Peter Field from the B2B Institute shows
that marketing and sales messages that appeal to emotions are a stagger-
ing 7x more effective at driving sales than those containing strictly rational
messaging.⁷
Nevertheless, the power of emotion in influencing a buying decision
often gets lost in the B2B world, where “human emotion” is unfamiliar for
B2B marketers and sellers. Prevailing wisdom has taught us to emphasize
logical arguments—such as touting our “superior features” and speaking
in such terms as “hyperintelligence for enterprise analytics” and “sophis-
ticated application integration” (pulled directly from the homepage of
B2B companies—which shall remain nameless to protect the innocent).
But marketing and selling in ways that appeal to human emotion
represents a winning move that can be applied throughout your funnel
and your buyer’s journey. It will help your company generate more leads,
drive higher conversion of those leads into paying customers, and lead
to greater customer affinity and loyalty, the combined effect of which is
more revenue.
Harnessing the power of emotion-based selling comes down to a few
things:
 Developing fluency in the emotional motivators that drive buy-
ing behavior, such as loss aversion, security and safety, status,
pleasure, personal attainment, joy
 Determining which are most motivating to each of your buyer
personas (which we covered in Winning Move #27: Get clear
on your ideal customer profile) and identifying the ways your
solution can help your target buyer experience these positive
emotions
 Using stories to convey this and weaving those stories through-
out your buyer journey—from your content to your discovery
calls to your sales proposals

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TAKE ACTION!
Head over to WinningMoves.co for more on weaving emotion into your
company’s marketing and selling so you can hook more leads and close
more business. (Search emotion-based selling.)

Winning Move #31

Forge sales and marketing alignment
The longest-running war in the B2B sphere is the age-old battle between

Penetration
sales and marketing teams. When revenues are down, often, fingers start

Market
pointing:
Sales: “We’re not hitting our targets because marketing isn’t delivering
enough qualified leads!”
Marketing: “Well, sales isn’t following up on any of the leads we send
them, and they’re not using any of the collateral and resources we’re work-
ing so hard to create.”
If you’ve been investing in or leading within the B2B sphere for any
amount of time, chances are high you’ve seen this before.
The perils of this sort of sales/marketing misalignment have been
well documented for a good reason. Sales/marketing misalignment is
pervasive and can be extraordinarily costly. Misalignment leads to wasted
resources, higher acquisition costs, lower conversion, and ultimately,
lower growth. A study from business research firm Aberdeen Group
reports that B2B companies with objectively high sales/marketing align-
ment (as qualified in the study) enjoy a 31.6 percent revenue CAGR, while
their “less-aligned” peers experience only 6.7 percent growth.
The research also leaves us to conclude that the majority of growth-
stage companies are suffering from some degree of sales/marketing mis-
alignment (from “moderate” to “high”) and leaving revenue dollars on the
table as a result.
But when we consider how B2B buying is evolving, it is more import-
ant today than ever for sales and marketing teams to be tightly in sync.
Nowadays, much of the B2B buying process is happening online. Accord-
ing to CSO Insights’ 2018 Buyer Preferences Study, nearly half of all B2B
buyers make up their minds before even engaging with a sales rep. In
this era, the old sales-driven, Glengarry Glen Ross dial-for-dollars go-to-
market model is growing less effective. Sales’ role is pushed deeper into
the funnel, and marketing is having to play a much more central role

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throughout the funnel—a reality that underscores the importance of tight

sales/marketing alignment.
When companies get this right, it can pay big. According to the same
study from Aberdeen Group, by successfully aligning sales and marketing,
B2B companies can:
❖ generate 32 percent higher revenue;
❖ retain 36 percent more customers; and
❖ achieve 38 percent higher win rates.
But all this talk on the value of “alignment” begs an important question:
Alignment on what?
Here are five key things high-performing sales and marketing teams
need to be in sync on (several of which are covered in earlier winning
moves):
1. Align on the customer journey: Customers want a seamless cus-
tomer experience, for which sales and marketing teams need to
team up in order to deliver.
2. Align on your ideal customer profile and personas: Get every-
one onto the same page on who your ideal customer is and what
they look like (your customer personas) through a customer pro-
file document.
3. Align on lead qualification criteria: Agree on the definition of
a marketing qualified lead—and be specific. Without doing so,
marketing is bound to deliver leads that sales can’t close.
4. Align on messaging: Fractured messaging—hearing one thing in
marketing messaging and another from sales—can create confu-
sion, mistrust, and friction in the buying process.
5. Align on shared goals: Many marketing teams are measured on
lead volume, whereas sales teams are measured on quota attain-
ment. No wonder misalignment happens. Having shared goals
fosters sales and marketing alignment.

Winning Move #32

Accelerate new sales rep productivity
In most B2B businesses, accelerating net-new revenue growth requires
adding new sales reps. In fact, most bottom-up B2B revenue models that
private equity deals are underwritten to are driven by the number of reps

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added times the productivity per rep.

When it comes to helping these newly hired reps become maximally
productive as quickly as possible—which equates to a quicker and larger
boost to revenue, as your revenue model will show—B2B companies face
two big challenges:
❖ High sales turnover: The average tenure of a B2B sales rep is less
than two years.⁸ This can be especially costly given how tight the
sales talent market is.
❖ Slow time to revenue for new hires: Research from Xactly
Insights shows that sales reps hit their peak performance two to

Penetration
Market
three years in.
Take these unfortunate truths together, and the logical conclusion is that
most reps leave before they’ve reached max productivity. In many cases,
weak sales onboarding is to blame (in whole or part). A 2018 study from
the Sales Management Association finds that nearly 2 out of 3 companies
consider themselves ineffective at onboarding new sales hires.

“If you don’t have a strong sales leader, you need to fix that before you
hire new salespeople.”
—DAN WEINFURTER, 4x Private Equity CEO

Some reps are either pushed into the deep end before they’re ready,
or they only receive “informal” training that doesn’t prepare them to
succeed in the field. On the other end of the spectrum, for others, the
onboarding process takes longer and is less efficient than necessary,
which slows their time to value.
An intentional approach to sales onboarding—complete with a top-
notch, high-velocity training program and plan—can move the revenue
needle by reducing sales turnover, shortening the time to revenue for
newly hired reps, and increasing the revenue per head. As you’ll see in
your handy-dandy bottom-up revenue model, optimizing these three
variables can lead to significant revenue lift over time.

TAKE ACTION!
Head over to WinningMoves.co to learn five keys to success in nailing
sales onboarding, so your reps can start bringing in more bacon faster.
(Search sales onboarding.)

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Winning Move #33

Create a single source of customer truth
One of the Ten Commandments of Growth, chiseled into stone tablets on
Mount Revenue, reads:
Your go-to-market efforts will only be as successful as
your customer data is clean and centralized.
Frequently, in mid-market companies, we find that customer data is, well,
a mess. It is scattered across systems, scribbled onto handwritten notes
on account managers’ desks, and buried in spreadsheets stored deep on
the company’s file server. Until I operated a business whose customer
data was in this state of disarray, I didn’t fully appreciate how big of a
problem—a revenue problem—this can create.

“Having clean, accurate customer data is fundamental. It is impossible to

diagnose issues, find opportunities, and understand the general health of
the business objectively if you don’t have good data.”
—Private Equity Operating Partner

Like me, you’ve probably witnessed this cringeworthy scene before: Mary
from marketing is pulling lead data from Excel into a lead management
program and running campaigns. After those leads turn into opportu-
nities, Sylvester from sales gets an email from Mary and hurriedly keys
those opportunities into the CRM, skipping half the data fields and spell-
ing the customer’s name wrong along the way. After the prospect signs
and becomes a paying customer, Alvin from accounting sets up billing in
the accounting system—mixing up their first name and surname. And sep-
arately, Annie from account management sets up customers’ login cre-
dentials in the product platform.
Oy vey! This gives me anxiety just writing about it.
❖ Messy, decentralized, disjointed customer data will quickly sabo-
tage your customer acquisition efforts and make it tough to mar-
ket, sell, and manage accounts effectively. But on the flip side,
having a single source of truth for customer data is key to the fol-
lowing:
❖ A great customer experience: Having complete and centralized
context for a customer contact or account enables “personaliza-
tion at scale.” It is key to nailing other winning moves, like Win-

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ning Move #12 on retention marketing.

❖ Greater efficiency: Just imagine the productivity leakage—not
to mention risk-of-error—created when Mary, Sylvester, Alvin,
and Annie are moving data from one system to another.
❖ More revenue: Many of the winning moves in this section—from
conversion-rate optimization to personalized lead nurturing—
rely on having good, clean, accessible customer data. Having a
single master customer data set is vital to building an efficient,
high-velocity customer acquisition engine.

Penetration
Market
❖ ❖ ❖

Winning Move #25–33 come into play before we even get into the cus-
tomer acquisition funnel. They are foundational—each one a component
of what is classically referred to as your “go-to-market strategy.”
Just ahead, we’ll dive into the winning moves that sit within the cus-
tomer acquisition funnel, starting with a batch of winning moves (#34–41)
that can be applied throughout the funnel. Whereas there are specific
top-of-funnel (TOFU) winning moves, middle-of-funnel (MOFU) winning
moves, and bottom-of-funnel (BOFU) winning moves we’ll cover later, the
ones just ahead are what I call “WHOFU” winning moves—ones that are
less stage-specific, and can be brought to life through the whole funnel.

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Winning Move #34

Optimize your conversion rates
Conversion rate optimization, a blanket term, is anything that increases
the percentage of customers that will take the action you want them to
take in your customer acquisition funnel. It is about moving leads and
opportunities through your funnel quickly and efficiently, which is where
the revenue comes from.
But roughly two-thirds of small businesses lack a formal conversion
rate optimization strategy, and they’re leaving lots of shekels on the table
as a result.⁹ If your company falls into this category, it presents a major
growth barrier and a huge opportunity.
To tap into the power of conversion rate optimization, start by map-
ping out your buyers’ journey. Then use funnel data, benchmarking,
direct observation, and customer feedback to identify things that get in
the way of prospects taking the next action at each stage of that journey—
whether it’s clicking on a sales page, registering for a webinar, or complet-
ing a purchase. These choke points in your funnel represent potentially
costly sources of friction in the buying process—resulting in lost revenue.
A simple example: Let’s say your web analytics tell you that lots of
prospects are landing on your webinar landing page, but fewer than five
percent (below the industry target of ten percent) are registering for the
webinar. Something here is creating friction. It could be your messaging,
the webinar time or day, or any of a few other common culprits.
Mathematically, you know that if you could get that number to ten per-
cent—closer to the industry benchmark—and nothing else changed in your
funnel, it could mean six or maybe seven figures’ worth of new revenue.
So you get to work to pinpoint and remove the friction. In some cases,
the fix might be obvious. (“Oops! We scheduled the webinar at the same
time as the Superbowl!”) In others, develop a hypothesis using customer
data, direct customer feedback, and your own experience. Then test, test,
test. In this case, you’d probably try a few landing pages, measure the
sign-up rate from each, and redeploy the winner.
Applying this same simple process across your marketing channels
and strategies is like rubbing Teflon on your customer acquisition fun-
nel—and it’s the key to getting more leads through the funnel faster.

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Winning Move #35

Establish revenue attribution
Whereas the discussion on conversion rate optimization focuses on tun-
ing up what is not working, in many cases, the fastest way to acquire more
new customers is to find what is working and do more of it. As Frank-
lin Roosevelt famously said, “Do something. If it works, do more of it. If it
doesn’t, do something else.” Although he probably wasn’t referring to fun-
nel optimization, it’s brilliant advice from The Sphinx, nevertheless.
Following this timeless advice requires understanding what’s work-

Penetration
ing—and why it’s working. Good customer and funnel data (see Winning

Market
Move #33) and clear revenue attribution are the keys that help unlock this
understanding.
Revenue attribution is all about using data to determine which chan-
nels, actions, campaigns, and sales interactions are responsible for each
dollar of revenue your company is generating. Which marketing and sales
activities are leading to the sale? Attribution allows us to optimize mar-
keting spend and sales efforts by understanding and investing more in
what’s working and tuning up or cutting bait on what’s not.
In B2B, revenue attribution can be challenging. A B2B buyer’s journey
is often much longer and more complex than a consumer buyer’s journey,
with many touches and a whole cast of stakeholders involved along the
way. This can make it difficult to figure out which actions moved the nee-
dle the most in a customer’s decision to purchase. So we’ll have to accept
that achieving perfect attribution is near impossible in B2B.
But achieving perfection isn’t the goal. Using attribution models and
tools that are simple to implement, and show which things seem to be
most contributing to revenue, can help us infer what’s working and what’s
not. Determining the impact different channels, actions, campaigns, and
sales interactions are most contributing to the sale will lead to better
decision-making, greater marketing effectiveness, and, ultimately, more
revenue.
Sales Benchmarking Index hammered home the importance of rev-
enue attribution when the company revealed, “Let’s face it—if you don’t
have revenue attribution in place, you’re behind the curve. B2B companies
are realizing an average lift of 15% to 18% in revenue as a result of imple-
menting closed-loop revenue attribution.”

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Winning Move #36

Identify and double down on profitable paid acquisition
channels
The success of any customer acquisition effort can be boiled down to two
metrics: the cost to acquire a customer (your customer acquisition cost,
or CAC) and the lifetime value of that customer to your company (your
LTV; also referred to in the biz as CLV, CLTV or LCV—just to keep us all on
our toes). The higher the ratio of your LTV to CAC, the more profitable your
customer acquisition, and the faster and more cost-effectively your com-
pany can grow.
After you’ve implemented revenue attribution from Winning Move
#35 and can more clearly measure the cost to acquire an ideal customer
in a given segment through a given channel or from a given campaign—
along with the lifetime value of each of those customers—it guides you
toward where to spend your precious marketing dollars.
Invest more marketing dollars in the customer
acquisition strategies with the highest LTV/CAC.
What’s considered a strong LTV/CAC depends on the company, its indus-
try, its growth stage, its cost of capital, and its goals, but here’s a good
rule of thumb: In segments and channels in which the LTV/CAC is >3x (a
sufficiently attractive ROI), back the truck up! Double down. And keep
investing until the marginal return on the next ad dollar starts to near 3x
(or until you run out of marketing budget).
In cases where LTV/CAC is <3x, hit pause, look at both the LTV and
the CAC sides, and figure out why. Are you targeting the right buyers? Are
you doing so through the right channels? Is your messaging clear, compel-
ling, and customer-centered? Have you identified and removed the friction
points in the buying process? Once they purchase, are you onboarding them
quickly, retaining their business, and fully monetizing the relationship?
One caveat: LTV/CAC data is more useful the more customers you
have. So for B2B companies that rely on a small number of higher-ticket
deals, even though it will be tougher to get a clear picture of LTV/CAC by
segment, channel, and product, the same premise still applies: Think like
an investor. Where can we invest our precious sales and marketing dollars
to generate the highest ROI? What’s working that we can double down on?

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Winning Move #37

Do omnichannel marketing because it’s an omnichannel
world
In B2B-land, gone are the days of the one-channel, one-touch close—
where a B2B super-seller like The Office’s Dwight Schrute could waltz into
a cold prospect’s office, weasel his way past the secretary, dazzle the
unsuspecting prospect with his brilliant salesmanship, and bag an order
for a pallet of Dunder Mifflin’s premium copy paper on the spot.
Nowadays, we’re living in an omnichannel world. One where B2B buy-

Penetration
ers’ attention spans are shortening, and they’re interacting with brands

Market
and vendors through a growing number of channels: email, webchat, self-
serve, phone, content, marketplaces, online FAQs, social media.
In the omnichannel world, engaging prospects and moving them
through the buying process takes more touches (an average of eight just
to get an initial sales meeting¹⁰) through more channels. And B2B buyers
expect to seamlessly move from channel to channel—from social to land-
ing pages to email to webchat to face to face—and enjoy a frictionless,
unified experience as they cross.
One of the keys to thriving in an omnichannel world is to allow pros-
pects to engage with your company using the channel of their choice at
any stage of the buying process.
Why is that important? Mike Moynahan of B2B Insiders said it well: “It
comes down to simple math: You will lose sales opportunities if you are not
connecting with potential prospects on all of their preferred channels where
they hang out.”
Your company can do this by understanding how your target buyers
research and buy solutions like yours (for help, see Winning Move #18 on
segmenting your customer base and defining the journey for each). Under-
stand all the ways prospects want to interact with your brand during each
of those buying phases. Then align your sales and marketing strategy—
and digital capabilities therein—with your buyers’ channel preferences.

TAKE ACTION!
If your company is earlier in the omnichannel game, hop over to Win-
ningMoves.co to learn the steps for launching your omnichannel strat-
egy. (Search omnichannel marketing.)

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Winning Move #38

Deploy account-based marketing
“Account-based marketing programs have been shown
to result in significant improvements in pipeline growth.
These programs should remain a core element of [any]
marketing strategy.”
—TODD BERKOWITZ, Gartner
When it comes to pursuing new customers in a given market, going wider
is rarely better (remember Winning Move #26: Segment, size, and select?).
“Spray-and-pray marketing”—where we blast emails or show ads to any-
one whose email address we can get or eyeballs we can attract—is a terri-
bly inefficient use of resources.
On the flip side, the more targeted a company’s marketing is, the
better it performs. Using a sniper rifle to zero in on the biggest and best
targets is a way better strategy than firing a shotgun and hoping you hit
something.
One proven way to do this is by using an account-based marketing
strategy that focuses specifically on accounts your company has deemed
“high value.” These are your “dream customers”—an idea coined by sales
legend Chet Holmes. They’re the priority accounts that, if you land them,
could dramatically grow your market share and your business.
In a nutshell, account-based marketing (ABM, for short) comes down
to identifying these accounts and then using highly targeted and person-
alized communication to attract and close them.
In a study from ITSMA, 87 percent of B2B marketers that measure ROI
said that ABM outperforms every other marketing investment.
An important note: After you determine that an ABM strategy is right
for your company, stay with it. There’s a correlation between the length of
time ABM is in use and the ROI of that ABM program. Unlike performance
marketing strategies, ABM takes time to generate results. So stay at it,
keep iterating, and know that when it hits, it can hit big.

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Winning Move #39

Use marketing automation to grease your funnel
A few years back, my firm was considering acquiring a smaller, boot-
strapped software company. The owners were great people and had
a solid lifestyle business. But in commercial due diligence, as we were
digging into the company’s top-of-funnel practices with their CEO, I was
taken aback.
He said, “Every time a lead comes in—from Google AdWords, LinkedIn
paid ads, or affiliates—Barb types up a very nice email to the prospect. We

Penetration
pride ourselves on that personal touch.”

Market
Although I appreciated the sentiment, I wondered, “How much of
Barb’s precious time and talent was being wasted carefully typing out
thoughtful emails to leads? And do Barb and her higher-ups know that you
can actually automate this sort of thing (and plenty more) nowadays?”
I think of the powerful marketing automation technology that is avail-
able today as grease to a company’s growth engine:
❖ It reduces cost and increases efficiency by automating time-con-
suming, manual marketing tasks—such as sending personalized
emails, creating content, and executing and fine-tuning cam-
paigns. For these reasons, tech research firm Nucleus found that
marketing automation software can reduce marketing overhead
by double-digits.
❖ It improves conversion rates and customer experience by help-
ing companies more easily target the right prospects, with the
right messages, via the right channels, and at the right time in
the buyer’s journey.
❖ It enables some of the other winning moves I’ve covered, such
as executing personalized and targeted expansion marketing
campaigns (Winning Move #21), accelerating a customer’s time
to value by nailing the onboarding and activation (Winning Move
#4), and plenty more.

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Winning Move #40

Nurture leads to move them through the funnel
In the way most of the unacclimatized climbers on Mt. Everest at any point
aren’t yet ready to summit, roughly 3/4 of the leads in a B2B funnel at any
given time aren’t yet ready to buy. Each needs a trusted sherpa to provide
them the right thing at the right time to keep them moving toward the top
of the mountain—or the bottom of the funnel in the case of prospects.
Our job as B2B business builders is to nurture and deepen the rela-
tionships with prospects over time so that your company is top of mind
when they are ready to buy. But you want to do this in a low-cost/high-im-
pact way not to burn too much time and energy on prospects that aren’t
yet in a buying posture.
Enter: Lead nurturing, powered by the marketing automation tech-
nology of Winning Move #39.
Use automated lead nurturing campaigns to meet your prospects
where they are in the buying journey (Awareness? Interest? Consider-
ation?)—with valuable content in hand—and help shepherd them along
their journey to the point where they’re ready to buy.
For leads at the top of the funnel (the awareness phase), the goal of
your nurture campaigns should be to build trust by educating these pros-
pects. Offer content that helps them deepen their understanding of the
problem they may be experiencing and consider what life could look like
if they addressed that problem. At the top of the funnel, leads aren’t ready
to buy, so do not push for the sale.
Prospects in the middle of the funnel (the interest phase) recognize
that they have a problem or need and are ready to consider possible solu-
tions, although they are not prepared to make a decision. So the goal of
your nurturing is to demonstrate that your solution can uniquely bridge
the gap between this problem they’re experiencing and the outcome they
want. Offer ebooks, guides, webinars, and case studies—content that will
both deliver value and demonstrate how your solution is the answer to
their problems.
For prospects at the bottom of the funnel (the consideration phase),
you’ve built trust, demonstrated how you can help, and moved them
toward purchase. They’re ready to make a decision. You want to give
them the confidence that your solution is the one—and close the deal.
Use case studies, references, and testimonials that highlight your exper-
tise, de-risk their decision, and seal the deal.

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According to CMI’s 11th Annual Report, the quality that most distin-
guished the “Most Successful” versus “Least Successful” B2B companies
surveyed was “using content marketing to nurture leads.” Research from
Forrester seems to agree: Companies effective at lead nurturing generate
50 percent more sales at a 33 percent lower cost.¹¹

Winning Move #41

Embrace salesforce specialization
“A jack of all trades is a master of none.”

Penetration
Market
—Spanish proverb
Many sales and marketing professionals proudly wear many hats—espe-
cially in smaller businesses where budget constraints force them to do
so. From prospecting to lead qualification to discovery to negotiation to
account management, there’s nothing they don’t do.
But when we consider that each of these critical responsibilities
requires a distinct set of skills—and rarely is one person excellent at all
these skills— this “jack of all trades” model is a terribly inefficient use of
resources.
Imagine you are the coach of an NBA basketball team. You don’t want
your clumsy 6’11” center shooting 3-pointers, just like you don’t want your
tiny, undersized point guard posting up in the paint against defenders
twice his size, right?
High-performing sales organizations embrace the simple but power-
ful principle of specialization—putting each of their sales professionals in
a position to do what they can do best. This principle has been around for
eons since the ancient Sumerians discovered the benefits of specializa-
tion and division of labor, but it’s often forgotten by scrappy growth-stage
companies in which sales reps don the title “jack of all trades” with honor.
According to Aaron Ross and Marylou Tyler’s classic Predictable Rev-
enue, “The single most important thing [a company] can do to improve your
sales and lead generation results is to specialize your roles.”
Here’s a place to start:
❖ Separate inbound lead qualification, outbound prospecting,
closing, and account management into distinct and separate
roles. The lead qualifiers (market response reps) and outbound
prospectors (sales development reps or business development
reps) deliver qualified leads to your closers (account executives),

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who then hand off closed deals to account managers or customer

success managers.
❖ Clearly define the roles each will play in the buying process
and how handoffs will happen along the way (e.g., how market
response reps will deliver marketing qualified leads to account
executives). Doing so will help foster teamwork, create clarity on
what each person owns, and ensure that no balls are dropped
along the way.

❖ ❖ ❖

Attracting More Leads

Next, we’ll dive into the top-of-funnel winning moves (#42–49). Returning
to the fishing metaphor from earlier, these winning moves aim to drop a
sharp, well-baited hook into the right waters to attract your desired fish,
uh, customers.

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Winning Move #42

Beautify your “storefront”
A website is to a B2B company as a storefront is to a retailer. In the way an
ugly, rundown storefront is unlikely to help the local retailer attract more
foot traffic and sell more tchotchkes, a weak (or non-existent) website
certainly won’t help B2B vendors sell more solutions—especially when
we consider that most B2B purchase decisions today start with an online
search.¹²
This means, when done well, your website can be a big indirect rev-

Penetration
enue driver. A robust website becomes your best salesperson: It can

Market
work around the clock, capture the attention of your ideal customer and
empathize with them, allow them to engage with your company, and be a
resource they can turn back to throughout their buyer journey.
Most B2B websites, however, aren’t engaging prospects as effectively
as they could, based on findings from a Forrester report, B2B Websites Still
Fail Our Customer Engagement Test. One of the biggest reasons why, which
I highlighted earlier in the discussion on messaging in Winning Move #29,
is that the vast majority of websites talk primarily about the company, not
about their customers’ problems, or the outcomes they can help them
achieve when those problems are addressed.
Three other common website issues:
❖ Messaging: Branding is important, but ultimately, words sell.
Avoid too many words, vague language, and jargon.
❖ Navigation: It is too difficult for prospects to find what they need.
As with most things in marketing, simpler is better.
❖ Call to action: The site doesn’t promote a clear next step for the
prospect to take them further along their buyer journey.
Not sure if your company’s website is working for you or turning prospects
away? Look at your website engagement and conversion data and com-
pare it to benchmarks. Oh, and ask your target customers—the ones your
website is aimed at serving—what they think. Observe them interacting
with your site and get their feedback. Is it compelling? Does it appeal to
their most fundamental needs and make them want to engage further? Are
they clear what the specific next step is?
Need help? Building a StoryBrand by Donald Miller outlines a great
approach to making your website sing.

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Winning Move #43

Drop your line where the fish are
As discussed, we can think of customer acquisition like fishing.
The novice fisherman motors out, cracks open a cold one, throws
their lure, and hopes the fish will bite. When the fish don’t bite, they drop
a few more lines into the water, thinking the more lines they’ve cast, the
more likely they’ll be to catch something. Sometimes, however, the prob-
lem isn’t the number of lines in the water, but that you simply aren’t fish-
ing where the fish are.
Here’s the lesson for B2B business builders:
Instead of trying to draw prospects to you,
go where they are already hanging out, and
drop a line into those waters.
For example, if you sell software or training services to dentists, post-
ing content for dentists widely across all social media platforms or using
paid advertising can be useful ways to generate demand. A faster and
more efficient way to draw qualified leads into your funnel, however, is
to figure out where dentists are congregating—the internet communities,
the podcasts, the industry associations—and drop a well-baited hook
into those waters.
How do you find out where your ideal customers are congregating?
Here are some questions to ask yourself—pulled from the book Traffic
Secrets:
❖ What are the top websites my ideal customers visit?
❖ What forums or online communities do they frequent?
❖ Who are the business influencers they follow?
❖ What blogs do they read?
❖ What email lists are they subscribed to?
Answering these questions will help you determine where your compa-
ny’s target customers are already swimming. Go there and drop line.

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Winning Move #44

Join the conversation on LinkedIn
If you want to sell bibles, visit a church on Sunday.
If you want to sell margaritas, head to a Jimmy Buffet concert.
If you want to sell something to business buyers, start on LinkedIn.
Besides having nearly 175 million registered U.S. users and being
the most trusted social media platform in the U.S. among nine major
social platforms,¹³ when it comes to B2B lead generation, LinkedIn reigns
supreme, as roughly 80 percent of B2B leads generated through social

Penetration
media come from LinkedIn. And these leads tend to be higher quality and

Market
higher converting than those from other platforms.¹⁴
This isn’t altogether surprising considering LinkedIn’s audience is
massive and business-oriented, its user targeting tools are fantastic, and
its average registered user logs in at least weekly to connect, learn, and
share with other business leaders.
For these reasons, LinkedIn should be the centerpiece of any B2B
company’s lead generation strategy.
There are some essential keys to success when it comes to tapping
into the well of potential leads LinkedIn offers—too many to cover here,
but below are the most foundational:
❖ Identify, connect with, and engage with decision-makers in
your space: The most important part is engaging. Don’t be a
bystander. Reach out, start a conversation, and be helpful. As
growth strategist Jill Rowley said, “Before LinkedIn and the other
social networks, in sales, ABC stood for Always Be Closing. Now, it
stands for Always Be Connecting.”
❖ Get your company page working for you: Use an attention-grab-
bing header, a clear and audience-centered pitch in your com-
pany description, and relevant and valuable recent updates.
❖ Publish content every day: Heeding the advice I share in Winning
Move #45, you need to publish daily and test out content types to
see what performs. Share stuff that’s valuable, authoritative, and
authentic, but not salesy.

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Winning Move #45

Regularly publish expert positioning content
Your company’s primary goal at the top of the funnel should be to build
trust by educating prospects.
When you regularly publish and distribute valuable content that edu-
cates, informs, and entertains your ideal customers—all while demon-
strating your expertise in ways they find valuable—you begin to gain their
trust. And it’s far easier to convert leads into red-hot opportunities after
you’ve earned their confidence.
The two keywords above are regularly and valuable.
According to a study by HubSpot, companies that publish relevant
insights regularly—16+ blog posts per month—generate a jaw-dropping
4.5 times more leads than those that publish only 0–4 posts per month.
Content marketing should be a commitment, not a campaign, so one of
the golden rules of content marketing success is to keep showing up.
And still, both quantity and quality of the content you publish matter,
so your content must also be valuable—delivering value to your industry
and prospective buyers. Advertising legend Leo Burnett’s wisdom applies
here: “What helps people, helps business.” People find the most value in
content when it focuses on helping them. With their problems. With their
goals. Within their industry. As I said earlier, your prospects don’t care
about your company nearly as much as they care about themselves.
This is where a lot of companies go wrong. They view content mar-
keting as a chance to promote themselves and their solutions—not relate
to the buyers’ problems. Pull up your LinkedIn page, and you’re bound
to see examples of this bad habit left and right, especially among private
equity firms that clog LinkedIn feeds with self-promoting deal announce-
ments and press releases.
Marketer David Beebe said it well: “Content marketing is like a first
date. If you only talk about yourself, there won’t be a second one.” Instead,
if you focus on delivering value—not promoting yourself or your thing—
buyers will see you as someone who can solve their problem, begin to
trust you, and eventually buy. So don’t force it.
You want your content to convey to buyers that you deeply under-
stand their problem and are the only solution.

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“When I first started in B2B product marketing at Oracle, you needed to

have a huge budget for content. But fortunately for small and mid-size
companies, creating and distributing content has become cheaper than
ever. . . and is now more important than ever.”
—Private Equity-Backed CEO and Operating Partner

Winning Move #46

Attract leads with free, value-packed giveaways

Penetration
When my wife and I go wine tasting, we almost always end up bringing

Market
home a few bottles of vino, along with a complementary mouth full of
stained teeth. Tasting is a low-cost (sometimes free) way to try before
buying—and fill up on those addicting little crackers while we’re at it.
For B2B sellers, a lead magnet is like a taster of the value your com-
pany can provide in exchange for a prospect’s contact information (which
is the top-of-the-funnel currency).
Prospects need to be drawn toward your brand with something
“magnetic” and offered a value-packed, low-cost taste before they’ll
consider committing to buying a whole case. That taster could be a free
guide, a comprehensive how-to, or an interview with an expert. Anything
that your ideal customers would find valuable in an area of need. Other-
wise, the lead magnet won’t be so magnetic, will it?
A good lead magnet builds trust, establishes your expertise and
authority, delivers gobs of free value, and gets that first “yes” by enticing
buyers to take a small step toward solving a problem.
The key is targeting a single, costly problem your ICP is struggling
with and then delivering value (but not the whole enchilada), teasing at
a solution (the whole enchilada), and making qualified leads want to talk
with you (your call to action) to learn more about how you can take them
from problem to solution.
This winning move may seem a bit specific or maybe too tactical for
our private equity readers who prefer to fly at a higher altitude with their
portfolio companies. But we have to recognize that many revenue chal-
lenges originate at the top of the funnel where companies simply aren’t
attracting enough qualified leads.

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And companies struggling to fill their funnels with leads are often one or
two irresistible lead magnets away from drawing swarms of warm pros-
pects into their funnel.

Winning Move #47

Harness the power of customer referrals
As I’ve been reiterating, building trust with prospects is the name of the
game at the top of the funnel. And as we’ve covered in the last few winning
moves, trust can be earned by offering free giveaways, sharing valuable
and trust-generating content, and using authority-building expert posi-
tioning.
Alternatively, trust can be borrowed by aligning your company with
people and organizations your ideal customers already trust. Borrowing
trust in this way is especially powerful when we consider that 84 percent
of people say they completely or somewhat trust the recommendations
of people they know.¹⁵
Customer referrals often represent the cheapest and most effective
channel for lead generation. Qualified B2B referrals often close at a higher
rate than leads from other sources—and in most cases, are free!
But surprisingly, it turns out the referral channel is also among the
least exploited lead channels. As sales legend Dale Carnegie used to say,
“While 91% of customers say they’re open to giving referrals, just 11% of
salespeople are actively seeking referrals.” It’s a head-scratcher.
Many customer referrals are accidental. We kind of stumble into
them. You see Charlie Customer from Company A (a big fan of your com-
pany) at an industry luncheon. Charlie just so happens to be talking to
Bonnie Buyer from Company B, so you elbow your way into the conversa-
tion and piggyback off Charlie’s pre-existing trust with Bonnie to strike up
a conversation.
But given how low cost and high probability referrals can be, the best
B2B companies approach referrals far more intentionally and systemat-
ically—especially those companies with high NPS, those with high cus-
tomer retention, and those whose solutions have a high ROI. These fac-
tors prime a company well to capitalize on the referral channel.
Here are three easy, low-cost ways to tap into the wellspring of cus-
tomer referrals:
❖ Request referrals from “promoters” who respond to your Net

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Promoter Score surveys—who are, by their very definition, likely

to refer you to a friend. When a positive NPS survey is logged, trig-
ger an automated email follow-up or phone outreach to ask that
customer to recommend your company to their industry peers.
❖ Identify specific high-value prospects and find out which of your
current customers know them. LinkedIn’s “Connections” feature
is a great tool for this.
❖ Create and promote a formal customer referral program, com-
plete with referral incentives. Identify and invite your happiest,
most loyal, and most engaged customers. Sweeten the deal by

Penetration
offering an incentive—which could be something low cost/high

Market
touch (e.g., lunch at their favorite restaurant) or a free month of
service.

TAKE ACTION!
Head over to WinningMoves.co to learn five specific ways to generate
customer referrals. (Search customer referrals.)

Winning Move #48

Implement lead scoring
Ever seen the iconic 1992 cult classic Glengarry Glen Ross? If so, you’ll
remember the spirited argument between the underperforming sales
reps in the office, including the late Jack Lemmon’s character Shelley
“The Machine” Levene, and management, played by Alec Baldwin and
Kevin Spacey. The Machine accuses management of giving them stale,
weak leads—an allegation Baldwin’s character Blake doesn’t take lightly.
Blake: “The leads are weak?! F****** leads are weak?! You’re weak!”
The reality is, in many companies, the leads are weak. The Machine
had a point.
According to research from MarketingSherpa, in a typical company,
only about a quarter of leads turn out to be qualified. (My company tracks
this and is no different.) Yet, nearly 2/3 of B2B marketers still send all leads
to reps like The Machine without properly qualifying them.¹⁶ This can
result in tons of wasted time, lower conversion rates, and weaker sales-
force effectiveness overall.
The faster your company can determine whether a lead aligns with
your ideal client profile and has a problem that your company can, in fact,

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solve—essential criteria for an MQL—the more sales time and resources

you can spend on the leads with the highest chances of conversion.
Today, there is sophisticated lead scoring technology available to
B2B companies that can learn (using current customer data) the lead
characteristics most likely to result in a conversion. This helps marketing
teams more quickly and accurately qualify leads, determine which leads
to target, and push the rest into a nurture campaign to keep them warm
until they’re sales-ready.

Winning Move #49

Leverage sales development reps
B2B companies that want to close more deals and generate more revenue
need sales development reps (SDRs)—a role many smaller B2B compa-
nies haven’t yet carved out. We touched on this briefly in Winning Move
#41 on role specialization, but it deserves a deeper discussion given how
essential SDRs can be to top-of-funnel success.
SDRs focus on qualifying inbound leads (usually generated through
content-marketing/demand-generation efforts) or finding and engaging
leads through outbound prospecting.
In mature organizations, you generally don’t want to have a single
SDR managing both inbound and outbound leads, as these tend to be
different jobs requiring different skill sets. But whether they’re focused
on inbound or outbound, an SDR’s success is a function of the number of
sales-qualified leads they produce and hand off to sales reps. The good
ones help companies close more leads at a higher close rate.
According to research from TOPO, the close rate on sales develop-
ment-generated opportunities is 22 percent. That’s significantly higher
than the average close rate in sales cycles that don’t involve an SDR.
Carving out sales development as a defined role is one of the keys
to consistently generating top-of-the-funnel activity. And as discussed,
many revenue issues are just top-of-the-funnel lead generation issues at
their core.
Think about the value in having SDRs like this: If TV buyers aren’t
walking into Best Buy, the floor salespeople can’t do their job selling TVs.
But if Best Buy has one of those energetic sign spinners (which are kind of
like SDRs) standing in front of the store, luring interested and qualified TV
buyers through the sliding glass doors (and into the funnel), the opposite
is true.

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SDRs exist and can drive so much value because sales reps them-
selves generally don’t generate enough leads to hit quotas. I’ve found this
to be the case for a few reasons:
❖ Experienced salespeople are bad at prospecting
❖ Many don’t enjoy it
❖ Even if they do it well and enjoy it, they get distracted as soon as
they generate some pipeline
In a high-performance sales organization, your sales reps shouldn’t be
generating customer demand—they should be fulfilling the demand cre-

Penetration
ated by SDRs.

Market
❖ ❖ ❖

Still with me? I told you earlier that this would be a whopper of a chap-
ter. That’s because new customer acquisition (the focus of this chapter)
is a significant revenue driver for private equity-backed companies. As a
result, there’s a lot to say here—something the executives I interviewed
for this book would no doubt agree with.

Aligning Your Solution to Your Prospects’ Needs

The next handful of winning moves (#50–53) apply to the middle of the
funnel. The fish see your lure and like what they see. At this stage, your
leads have become qualified prospects who are clear on their problem
and are aware of and growing to trust your company. Time to introduce
your solution and how it can help solve their problem.

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Winning Move #50

Maximize time spent selling
Before we get into specific mid-funnel tactics, we need to hit on an idea
that can impact mid-funnel sales success, something that several suc-
cessful CEO/CXOs I interviewed brought up as a big issue—and opportu-
nity—for B2B companies.
Get this: Based on time studies, the average B2B salesperson spends
only about 1/3 of their time selling.¹⁷
In other words, during the average 40-hour workweek, reps are
spending a stunning 27 hours (roughly the amount of time it would take
to watch the first three seasons of The Office—every week) on things that
don’t directly generate revenue.
The exact number varies (plus or minus about ten percent) based on
which study you consult and which sales role you’re focused on, but they
all seem to agree: Activities that aren’t directly revenue-generating take up
the majority of sales reps’ time.
Yikes! For any B2B executive with a big revenue target to their name,
this is enough to make their hair stand on end. It’s no wonder only about
half of B2B sales reps hit their quota, and the average sales leader lasts
only 18 months in their role.¹⁸
This is a problem. We’re paying the average $100,000/year sales rep
roughly $65,000 a year to do things that don’t directly generate revenue.
A variety of contributing factors can explain the leakage: insufficient
lead flow, inefficient sales process or system, poor time-management,
administrative tasks, generating proposals, internal meetings, and so on.
Whatever the factors, the best B2B companies recognize that every min-
ute a rep isn’t selling is a lost opportunity and take these steps to maxi-
mize their sales team’s selling time:
1. Understand where they are today: A quick-n-dirty time study
with a few reps can help you understand how much of their time
is spent selling.
2. Separate their activities into (1) directly revenue-generating, (2)
indirectly revenue-generating, and (3) non-revenue generating.
3. Systematically eliminate, offload, or make more efficient any
indirect and non-revenue generating activities that detract from
selling time.

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TAKE ACTION!
Jump over to WinningMoves.co for a deeper dive into how to maximize
your reps’ time spent selling. Your reps and your bottom line will thank
you. (Search time spent selling.)

Winning Move #51

Always be qualifying
As highlighted in Winning Move #48 on implementing lead scoring, many

Penetration
B2B revenue pipelines get clogged by clumps of unqualified leads. And

Market
spending valuable selling time pursuing unqualified leads is one of the
biggest time wasters and revenue drains in a B2B company.
This happens because marketing and sales teams fail to qualify deals
effectively—due to a lack of clear qualification criteria or their not having
created an executable process to qualify and requalify leads throughout
the funnel. And if they do have qualification criteria, reps can get “happy
ears” and overlook the warning indicators that a prospect may not, in
fact, be qualified.
Qualifying a deal shouldn’t be a one-time event at the top of the fun-
nel. Lead qualification should be ongoing throughout the funnel because
sales teams should learn more about the prospect (including their bud-
get, authority, need, and timing) with each successive step in the buying
process. Additionally, a buyer’s world is constantly changing—and with
that, their needs, budget, and timing may also be changing throughout
the sales cycle.
As reps guide prospects through the buyers’ journey, they should be
using the new information they’re gathering to constantly requalify the
deal based on B-A-N-T:
❖ Budget: Can the prospect afford what you’re selling?
❖ Authority: Does the prospect have the authority to make a pur-
chase decision?
❖ Need: Does the prospect have a need your solution can address?
❖ Timeframe: Does the prospect have a timeframe for buying and
implementing?
Want to ensure your precious sales resources are being focused on the
highest-probability prospects? Then always be qualifying, my friends.

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Winning Move #52

Sell the sizzle, not the steak
One of the oldest sayings in the marketing world is, “People don’t want to
buy a quarter-inch drill; they want to buy a quarter-inch hole.”
It reminds us that buyers tend to care far more about achieving a cer-
tain outcome (i.e., the “hole”) than the features and functionality that will
get them there (i.e., the “drill”).
I’m not much of a drill guy (as evidenced by plenty of failed home
improvement projects), but in this same vein, I don’t care nearly as much
that my iPhone has the Apple A13 Bionic processor (huh?) and a Liquid
Retina display (a what?!) as I care that it will allow me to binge-watch
Breaking Bad reruns without issue. In the same way, I don’t care that Advil
has 200 mg of Ibuprofen (ibu- what?) and a sweet candy coating (okay,
that part is nice) nearly as much as I care that it will quickly get rid of this
pounding headache I got from staring at my screen and let me get back to
enjoying my Breaking Bad marathon.
This shift from selling products and services to selling outcomes isn’t
easy for some companies to make. It is natural to get excited about all
of the cool features you’ve built—and want to tell the whole world about
them. But research shows that selling the “hole,” not the “drill”—some-
thing we call value-based selling—makes for better sales conversations
and higher close rates.
A study of over a million sales-call recordings by Gong shows that star
sales reps—those that consistently exceed quota—spend over 50 percent
more time talking about value-related topics (e.g., ROI, business impact
and outcomes, etc.) and 39 percent less time talking about technical fea-
tures than average sales reps do. The lesson: Features tell, but benefits
sell.
This universal truth applies at all stages of the funnel, but it’s imper-
ative to embrace it in mid-funnel sales conversations when you start to
introduce your solution to qualified prospects.
So sell the sizzle, not the steak.

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Winning Move #53

Use mid-funnel content to convert prospects into
opportunities
Winning Move #40 on lead nurturing hammers home the importance
of using content marketing to guide leads into and through the funnel,
which can boost revenue and reduce the cost of acquisition. And you may
remember that research from Forrester shows that B2B companies that
are effective at lead nurturing generate up to 50 percent more sales at a
33 percent lower cost.

Penetration
As we climb down a few rungs to the middle of the funnel, it’s important

Market
to loop back to this idea and apply it more directly to this stage in the pros-
pect’s buying journey, where the qualified prospects in your funnel are clear
on the problem they have and are pondering how they will solve it.
At this stage, your job mid-funnel is to deepen the conversation with
your prospects and position your product or service as the only solution.
Great mid-funnel content can do much of the heavy lifting in convert-
ing these qualified prospects into red-hot opportunities by doing a few
things:
❖ Acknowledging your prospect’s problem and underlining the
pain that problem creates for them. It gets your prospects believ-
ing, “This problem sucks, and I need to solve it.”
❖ Educating on how your company’s product or service can solve
that problem and alleviate that pain. It gets your prospects
believing, “This solution is the answer I’ve been looking for.”
❖ Demonstrating how your solutions can do this better than the
other alternatives (product comparisons, testimonials, etc.). It
gets your prospects believing, “There’s no comparison.”
Great examples of MOFU content to weave into the buying journey at this
stage include whitepapers, case studies, webinars, videos, and buyer’s
guides.

❖ ❖ ❖

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Turning Prospects into Paying Customers

We’re finally moving into the bottom of the funnel (BOFU). You’ve got
prospects on the hook, and it’s time to reel them in—that is, position your
offering as the one-and-only solution to their problem, and help them to
make a decision.

Winning Move #54

Align sales incentives with strategic objectives
A while back, I was considering an investment in a software company
whose biggest strategic objective was to transition from a traditional per-
petual license pricing model to a subscription pricing model. This made
strategic sense and could dramatically enhance the value of the business,
given that the exit markets prefer recurring subscription revenue way
more than one-time license revenue.
During due diligence, we hit a snag when we learned that adoption
of the company’s subscription offering was alarmingly slow. This became
a potential show-stopper issue until we discovered why: Sales reps were
paid a flat percentage of bookings—a grossly simplified and horribly inef-
fective sales compensation model. Because license deals paid out con-
siderably more upfront than subscription deals (despite a subscription
deal being far more lucrative over the life of an average customer), reps
were understandably less inclined to promote the subscription offering.
This illustrates a common issue that can throw sand in a revenue
engine’s gears: misalignment between a company’s strategic objectives
and its sales compensation.

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Bad or misaligned sales incentives can quickly undercut an otherwise

good go-to-market strategy.
Mark Roberge, former head of sales of the hugely successful market-
ing software company HubSpot, highlighted just how important align-
ment between strategic objectives and sales compensation is:
“When I look back on the various strategies I used to grow our
sales force from zero to several hundred people, I realize that
one of the biggest lessons I’ve learned involves the power of
a compensation plan to motivate salespeople not only to sell
more but to act in ways that support [the company’s] overall

Penetration
Market
strategy. The sales compensation plan is probably the most
powerful strategic tool you have. Most of the critical strategic
shifts that HubSpot made as a business were executed
through changes to the sales compensation plan.”¹⁹
How do we do this? Big picture, you must start by having strategic clarity.
What are your company’s biggest strategic objectives? To gain share quickly?
To move customers from analog to more scalable digital solutions? To drive
margin expansion? To increase recurring revenue? To improve retention?
Whatever the answer, ensure that your sales compensation program
aligns with those objectives and drives the right sales behavior. As fabled
investor and one-liner-machine Charlie Munger famously said, “Show me
the incentive, and I’ll show you the outcome.”

Winning Move #55

Tune up your sales incentive program
Winning Move #54 talks about the importance of aligning your sales
incentives to your overall strategic objectives. But in this winning move,
I’m going a layer deeper into sales incentives themselves.
Provided your company has a solid product that addresses a need,
the sales compensation plan is among the most critical factors in whether
your dreams of blistering revenue growth will come true. The right sales
incentives can turbo-boost profitable revenue growth, whereas the wrong
sales incentives can sabotage even the most well-conceived growth strat-
egy. And shockingly, according to a survey by CSO Insights, only nine per-
cent of sales executives say their sales compensation plan “consistently
drives the desired selling behavior.” Eek!
The only universal truth in sales compensation is that there’s no
one-size-fits-all approach to developing a great B2B sales compensation
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program. But here are five well-tried design principles (which, thanks to
some clever rewording by yours truly, can be remembered by the acro-
nym M-U-S-I-C):
❖ Margin-based: Although there are cases in which sales compen-
sation should be revenue-based, gross-margin-based compen-
sation plans tend to better align incentives and get your reps
thinking in terms of the metric that ought to matter most to your
business—the bottom line. This reduces the risk that your reps
are signing new business that doesn’t meet your company’s mar-
gin targets.
❖ Uncapped: A capped commission plan disincentivizes reps from
overperforming and almost surely causes them to “mail it in”
after they achieve their quota in a given period.
❖ Simple: Complexity kills sales productivity. Salespeople should
not need a decoder ring to interpret the sales compensation plan
or a complicated spreadsheet to calculate their earnings. Keep
your sales plan simple and aligned to the company’s strategic
priorities. It should be extremely clear which outcomes you’re
rewarding.
❖ Immediate: Shorter payout periods enhance motivation. When
salespeople deliver, the reward should hit their wallets immedi-
ately; and when they don’t, they should also feel the pain right
away. Significant delay between good (or bad) behavior and the
related financial outcome decreases the effectiveness of a sales
compensation plan.
❖ Curved: Accelerators—which pay higher commission rates the
more business your reps close—are a great way to motivate your
top-performing sales reps to stretch, push, and keep selling
when they’re hot. Consider having two to three payout tiers (with
increasingly higher payout rates) above quota.

“I see ineffective sales compensation plans all the time in companies we

invest in. While comp plans should be bespoke and tailored to the com-
pany, there are some general things you just have to get right. One of the
most important is whether it is simple. A rule of thumb, I tell my compa-
nies: Can I explain it to my grandma and have her understand it easily?”
—MATT THARP, Director of Portfolio Operations,
Gemspring Capital

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Winning Move #56

Inject social proof at the bottom of the funnel
Ever check online reviews before booking a reservation at a new restau-
rant? Or look around the table at that business dinner to see when others
have started eating before you put fork to flesh on that hot, juicy filet sit-
ting in front of you?
Assuming you do, you’ll understand firsthand that social proof—tak-
ing cues from others like you to know what you should do in a situation—
is a powerful influencer of buying (or eating) decisions. Our subconscious

Penetration
tells us, “As long as others are doing it, I’m okay to do it, too.”

Market
If you’ve read the eponymous classic Influence by Robert Cialdini,
you’ll recognize social proof as one of his six principles of persuasion,
which can be used in a wide variety of contexts to powerfully influence
other peoples’ actions and behaviors. At the bottom of the funnel is no
exception.
As prospects approach a purchase decision, a B2B company’s success
in converting prospects into paying customers lives and dies by the ability
to persuade prospects to choose your solution over other alternatives.
More than anything else, what can persuade prospects to buy is convinc-
ing them that you have helped other customers just like them achieve the
very results they’re seeking or solved a problem just like theirs.
B2B buyers look for social proof to assure them that they’re making
the right decision. So injecting a double dose of social proof—especially
validation from other customers just like them—into the bottom of the
funnel can work wonders for improving your close rate and fueling new
revenue growth.
Tactically, there are different ways to do this: sharing customer
reviews, offering customer references, sharing case studies with customer
quotes. Our research shows that video testimonials can be an especially
effective, not to mention scalable and highly personal, way to help turn
prospects into customers.
Here’s the key: Focus your social proof on the outcome or result you’ve
helped other customers achieve. Prospects will see this and think, “I want
that outcome, too.” Knowing that a positive result is all but imminent after
they sign on the dotted line reduces the perceived risk of going with your
solution. It makes your solution the logical choice. It’s what seals the deal.

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FIND NEW CUSTOMERS

Expansion
Market
IN NEW MARKETS

In the previous chapter focusing on the virtues of “growing where

you’re planted,” I shared a boatload of proven winning moves that
growth-focused companies can make to scoop up more share in their core
market. But what if any of the following were true?
❖ Your core market doesn’t have enough headroom to hit your
long-term growth goals—something Google wrestled with as it
eclipsed 50 percent market share in its core search market in the
mid-2000s.
 WINNING MOVES

❖ Demand in your core market has declined—or, as in the case of

Hummer, totally cratered as demand in the gas-guzzling SUV
market crashed amid record gas prices in the late 2000s.
❖ You’ve spotted an opportunity in an adjacent market that plays
well to your strategy and leverages your core capabilities—as the
ride-hailing company Lyft did when it planted a big, pink, musta-
chioed flag in the bike-borrow and scooter-share markets.
A mid-2000s study by Bain & Company, in which they tracked 1,850 com-
panies over five years, finds that the most successful companies had
something in common: They were able to “consistently, profitably outgrow
their rivals by developing a formula for pushing out the boundaries of their
core businesses in predictable, repeatable ways.”¹ This included pushing
into adjacent new markets and new products (the latter of which I dive
into in chapter 8: Sell New Products to New and Existing Customers).
Pushing out the boundaries of a core business is different from drop-
ping anchor in completely foreign waters, which I generally wouldn’t recom-
mend. Just ask women’s magazine Cosmopolitan, whose failed expansion
into the unrelated yogurt space (you read that right—yogurt!) in the late
1990s landed the company a spot in the Strategic Blunder Hall of Shame.
Pushing the boundaries of your core business is about finding natural
adjacencies, which you look for after you’ve built a real, durable advan-
tage in your core market. Here are a few notable examples:
❖ Walmart expanded the boundaries of its then-core Arkansas
market when it moved next door to Oklahoma in the late 1960s.
❖ Google expanded the boundaries of its then-core search mar-
ket when it acquired YouTube—effectively a search engine for
video—in 2006.
❖ Charles Schwab expanded the boundaries of its then-core dis-
count brokerage business when it moved up-market and began
to target high-net-worth individuals.
Moves like these are known as market expansion (although loyalists of the
Ansoff Matrix will know this as “market development”). Geoffrey Moore,
author of the business classic Crossing the Chasm, compared effective
market expansion to bowling, where each pin represents an adjacent mar-
ket. Successful companies take a serial approach to market expansion in
that once they’ve hit that lead pin (i.e., they have discovered a winning
formula in their core market), they systematically knock over neighboring
pins (i.e., expanding into adjacent markets or segments) in succession.
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Expanding into new, adjacent markets can make sense if:

❖ your core market lacks the headroom needed to achieve your
growth goals;
❖ your core market is maturing or facing headwinds (e.g., slowing
demand, increasing regulatory risk);
❖ your business is too concentrated in a given geography or verti-
cal, which can create risk and weigh on exit valuation;
❖ your product is well suited for attractive adjacent markets with-
out significant investment; and
❖ you’ve identified opportunities in new markets that align with
your vision and exploit your core competencies.

"You have to know your market share in your current market. Any discus-

Expansion
Market
sion of expansion needs to start here. Where are we today in our core
market? Are we gaining or losing share, and why? It is tough to make any
decision about whether to expand until you know where you are today—
objectively and using data.”
—Head of Value Creation, Private Equity Firm

In this section, I define new markets to include anything that expands

the addressable market for your company’s existing products. That’s
pretty broad, so to slice it more finely, we can look at “new markets”
along six primary axes:

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❖ New geographies: Just as donut juggernaut Dunkin Donuts

brought its airy, irresistible donuts to the California market in
the early 2010s as it spotted a competitive opening (a wild story
that’s chronicled in the fascinating documentary, The Donut King)
❖ New verticals: Just as medical practice management company
Hero Management expanded from its core pediatric dental care
market to the adjacent pediatric vision care market in 2007
❖ New customer segments: Just as Charles Schwab expanded its
advisory services beyond its core discount brokerage customers
and began targeting high-net-worth individuals
❖ New use cases: Just as Zoom quickly positioned itself as a remote
learning platform as demand from teachers skyrocketed (nearly
overnight!) at the beginning of the COVID-19 pandemic
❖ New spots on the value chain: Just as Apple moved downstream
into retail when it broke ground on its first glassy Apple Store in
2001
❖ New distribution channels: Just as Apple successfully moved
into the enterprise market in the mid-2010s by partnering with
entrenched enterprise technology players, such as IBM, that had
existing channels.
Of course, you can also expand into new product categories, which I cover
separately in chapter 8.
Each of these six axes, in its own way, expands the market for a com-
pany’s solutions. When it comes to how to expand in these six directions,
there are five success factors the most successful expansionary compa-
nies have taught us.

The Overarching Keys to Success

in Market Expansion
Success Factor #1: The most powerful punches come from
a strong core. In boxing, the secret to a strong punch is a strong
core. When a boxer throws a punch, force travels from the foot to the fist
through the “kinetic chain.” And a strong core is the key link in that chain.
Likewise, the secret to a successful adjacency expansion is a strong
core business with a distinct advantage created by a unique set of capabil-
ities that can be leveraged in new geographies, segments, verticals, etc.
Success Factor #2: Swing at the right pitches. A strategic
decision to expand into a new market almost always comes with both
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 DAN CREMONS

hard-dollar and opportunity costs. So like a patient batter in baseball,

the most successful companies get clear on what the right pitch looks
like (their “expansion criteria”) by asking themselves, “Given our finite
resources, which market expansion opportunity can create the most value?”
And they’re disciplined about waiting for those pitches. When they
see it—the four-seam fastball right above the belt—they swing quickly and
forcefully.
Success Factor #3: One close move at a time. The more “new”
you introduce when pursuing new markets, the more risk. So be careful.
When you start mixing and matching the six market expansion vectors
above—like targeting new use cases through new channels in new geogra-
phies—you start stacking risk and increasing the chances of failure.
The key to managing and reducing the risk of market expansion is to

Expansion
Market
reduce complexity by minimizing the number of “new” variables. So pur-
sue one “new” at a time. Andy Grove, Intel’s former CEO and chairman,
referred to this idea as “The game of Go applied to business,” describ-
ing Intel’s recipe for expansion success as “[making] one close move at a
time.”² Too much “new”—or in Andy Grove’s metaphor, more than one
move at a time—can cause companies to stray too far from their core busi-
ness, which has been shown to reduce the odds of success.
Research from Chris Zook, author of Beyond the Core, concludes that
“most [market expansion] initiatives fail because companies move too far
beyond their core business too fast into areas where they were not skilled.” In
that same vein, a 2015 study by McKinsey & Company shows that the most
successful market expansion plays “[don’t] stray too far from the core.”
Success Factor #4: Start narrow, and find a foothold. As
Nike began to expand into new product categories, such as golf, it first estab-
lished a narrower position in golf shoes—its bread and butter. Nike then
used that as the foothold from which to jump (see what I did there?) into
new adjacent products—such as golf clubs, bags, and those telescoping ball
retrievers I always seem to need to shag my ball from the water hazard.
Success Factor #5: Build a repeatable process. According
to a survey of growth-focused executives by McKinsey & Company, respon-
dents whose companies are disciplined and systematic about following
proven practices for identifying, evaluating, and executing expansion oppor-
tunities—and constantly refining those practices—are twice as likely as oth-
ers to report significant value creation from those expansionary moves.
Nike was constantly honing its formula for moving into new sports
categories, such as golf, tennis, and soccer. Its recipe was to:
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❖ Identify sports with growing popularity

❖ Break into those categories by leading with shoes
❖ Get celebrity endorsements to build the brand
❖ Expand outward into high-margin apparel and hard goods
Meanwhile, rival Reebok was described as “veering from one adjacency
to the next without a clear plan.” As you probably know, over time, Nike
ended up cleaning Reebok’s clock in most categories.
Small companies tend to be more opportunistic, less rigorous, and
less programmatic about creating a repeatable process for expansion—for
identifying, evaluating, selecting, and executing on expansion opportuni-
ties—partly due to having fewer resources and a greater need for speed.

“Before we started moving into new verticals, we got really clear on our
winning formula—and documented it. We do a bunch of things as a busi-
ness, but these are the five things that are really working, and here’s how
they can be leveraged to have success in a new vertical. We kept iterating
on this formula over time.”
—SEAN CALL AHAN, Private Equity-Backed CEO and Chairman

But those who want to enjoy enduring long-term success shouldn’t wait
to start developing and refining their repeatable formula for moving into
new markets. Here’s a simple framework you can follow.

The Step-by-Step of Expanding into New Markets

STEP 1: IDENTIFYING OPPORTUNITIES: Start by asking yourself,

“What are the natural adjacencies to our core business?” Attractive geogra-
phies that are next door? New verticals that we understand well and can
leverage our current products or solutions to go after? New use cases that
are easily addressable? Opportunity spotting starts by looking around the
periphery of your business in this way.
But the richest opportunities often come into focus after you’ve devel-
oped a deep understanding of customers—not just a broad understand-

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ing of the market. Chris Zook’s research tells us that “nearly 80% of the
successful adjacency formulas we studied were built around insights about
consumer behavior.”³
When Procter and Gamble—famed for its focus on consumer
insights—recognized how fast its Chinese consumers were moving online
for everyday household purchases, it was able to quickly move into the
market by striking up a new distribution relationship with the country’s
largest online retailer: Alibaba.
Small companies can’t afford to hire large consumer insights teams
like Procter & Gamble’s, but they can call on some of the light-weight but
high-impact winning moves we’ve already covered (e.g., Winning Move
#25 on knowing your customers cold) to get to know adjacent customers
and markets more deeply.

Expansion
Market
STEP 2: EVALUATING OPPORTUNITIES: Look before you leap.
Applying the right filters and doing the right work before making a move
is the key to making sensible, well-calculated expansion decisions—and
avoiding random acts of market expansion.
Big picture, your evaluation process should be aimed at answering
three key questions:
❖ What is the size of the prize? Is the new market large enough? Is it
growing? Are the demand drivers there? Is there sufficient profit
potential to justify the investment?
❖ How much effort and cost will be required? How high are the
barriers to entry? What investment will be needed? And based on
your opportunity cost of capital, will this market expansion move
clear your IRR or payback hurdle?
❖ What’s the probability of success? The idea is to choose adja-
cent markets that are not only attractive but winnable by your
company. Is it “close to the core”? Does it leverage our existing
capabilities? Play to our strengths? Do we understand the cus-
tomers/the markets we’re considering? Have we identified a gap
or an opening in the competitive landscape that we can exploit?
STEP 3: SELECTING: Make the call. With perfect information, select-
ing the right new market opportunities ought to come down to math. “If I
can generate a 30% IRR on a $1 million investment in breaking into Verti-
cal A, but only a 20% IRR on a $1 million investment in Vertical B or C, I’m
going with Vertical A.”
Weighing your expansion alternatives based on IRR potential makes

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tons of sense, but unfortunately, rarely is the analysis so cut and dry. Your
evaluation will involve certain assumptions, which carry risk and intro-
duce uncertainty. Consider high-speed/low-cost ways to test these criti-
cal assumptions, such as running a pilot with new distributors or in new
geographies or surveying customers in a new segment to gauge demand
for your solution and their willingness to pay. Testing in this way can help
de-risk your selection decisions.
STEP 4: EXECUTING: So you’ve decided to pull the trigger on mov-
ing into Vertical A. When executing this expansionary move, you have
three choices: building, partnering, or buying.
You can (a) build a marketing and sales channel into Vertical A, (b)
strike up a distribution relationship with a partner company that can take
you into Vertical A, or (c) acquire a company that already has a distribu-
tion channel built in Vertical A.

Choosing among these three alternatives comes down to determining

what variables you’re trying to optimize for and evaluating these options—
and the trade-offs among them—accordingly.
So ask yourself, “When it comes to the expansionary move I’m consider-
ing, what matters most? Is it speed to market? Minimizing the cost of entry?
Reducing risk? Maximizing my profit capture?”
The particulars of the situation will dictate how you prioritize these
factors.
In landgrab situations—where demand quickly materializes, and first
movers gain the advantage—you’ll likely be solving for speed. By con-
trast, when trying to break into a competitive adjacent market with high
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barriers to entry that are costly to surmount, you may be most interested
in choosing the lowest-cost, most direct route to market.
What you’re solving will help dictate which of these three paths to
market makes the most sense. Let’s look at these market-entry strategies
a bit more closely.
Building: Going it alone. Building your way into a new market (e.g.,
standing up your own distribution) has several key advantages. It gives
you the greatest control and allows for the highest profit capture. On the
flip side, it can cost more and take longer. But in some cases, such as situ-
ations where your existing sales reps have the capacity and market under-
standing to start knocking on doors in Vertical A, the build can be easier.
Partnering: Teaming up. Author and growth guru David Thomson’s
analysis of companies that scaled to $1 billion and beyond—detailed in

Expansion
Market
his appropriately named book Blueprint to a Billion—reveals an interest-
ing and relevant finding. Almost all the companies he studied had what he
called a “big brother” partner—a larger, more established company that
guided them into new markets they couldn’t otherwise reach.
Partnering—in the way Apple teamed up with IBM to break into the
enterprise market—can mean faster speed, lower costs, and less risk. On the
flip side, you usually trade away lower control and less profit potential.
We talk a lot about partnering your way into new markets in the win-
ning moves that follow.
Buying: Acquiring your way in. Buying companies that already play in
the space you’re pursuing or already have the channel you want is typ-
ically a fast way to expand into new markets. The right acquisition will
bring expertise and capabilities you may not have today.
Acquiring his way into new markets is how Wayne Huizenga built
Waste Management and Blockbuster into multi-billion-dollar businesses
so quickly. “We made small acquisitions in different states around the
United States. It was just easier, faster, and cheaper to go in and buy out
a [company] who was already established in a market, even if [it] was very
small.”
We talk a lot about how to buy your way into new markets in chapter
11 on executing strategic acquisitions.

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Winning Moves: Market Expansion

Winning Move #57

Start small in maximum-density markets
When we were kids, my then-business partner Nathan and I spent most
summer weekend afternoons perched behind a rickety folding table on
a neighborhood street corner within Cincinnati’s sprawling Washington
Woods subdivision. We’d rely on boyish charm—or a bit of heckling and
guilt-tripping—to entice the occasional passersby to purchase a 50-cent
cup of our sugary lemonade.
After too many days of bagging just barely enough coin to cover our
cost—and nowhere near enough to buy that cool new Atari video game—
we considered how we could expand. In doing so, Nathan and I realized
something that applies as much to expansionary B2B businesses as it did
to our little lemonade operation: When you’re selecting new markets, go
where the densest demand is, and expand from there.
Washington Woods was not that market. Houses were 200 feet apart.
Cars hurriedly sped by. And no one walked the neighborhood. But the
sidewalk just outside the local rec center—a “new market” to us—turned
out to be as bountiful as a fly fisherman casting his line into the Yellow-
stone River. That ten-foot section of sidewalk was heavily trafficked and
densely packed with thirsty, price-insensitive gym-goers.
A 2019 HBR piece by growth strategists Eddie Yoon and Michelle Stacy
draws on this same idea:⁴ Instead of trying to expand into large, wide, mass
markets—where marketing dollars get diluted, and sales efforts are spread
too thin—find and drop anchor in maximum density markets (MDMs). Think
of MDMs as sub-markets, sub-verticals, or sub-segments within your expan-
sion market where demand is the greatest and most concentrated.
For example, instead of dropping its self-driving taxis into any old
metro market where taxis are today, autonomous vehicle company Voy-
age is focusing on building a beachhead in retirement communities near
metro markets—where the demand is high, the competition is low, and
the cost to operate is far lower than in a sprawling metropolis.
Building density in these communities can provide a launchpad to
expand into the neighboring metro areas. Focusing on MDMs is a faster,
cheaper way to gain traction in a new market than going wide, and over time,
these MDMs can provide a springboard from which to continue expanding.

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Winning Move #58

Strike up lightweight referral relationships
Partnerships can help a B2B company break into new markets. We can
think of these various types of partnerships along a spectrum.

Expansion
Market
At one end of that spectrum, you have light-weight, low-commitment
relationships—like referral partnerships. These tend to be easier to stand
up but can be less valuable than partnerships with a deeper level of com-
mitment. More on this in a moment.
At the other end of that spectrum, you have high-commitment, higher-
cost, and oftentimes higher impact partnerships—like integration part-
nerships, where Company A integrates its solution with Company B’s solu-
tion to enter into Company B’s market.
In the middle, you have a variety of distribution partnerships, which I’ll
discuss in Winning Move #59.

“Partnering with known quantities in new markets and borrowing their

credibility can help you gain traction quickly. But it has to be a win-
win. It has to be worth their time. They have to view your solution as
one of the two most valuable things in their bag.”
—CHRIS STITES, Software Executive

For B2B companies looking to break into new markets, building a strong
referral program—directed at non-competitive companies that are target-
ing or have an existing installed base of your ideal customers—can be a
great place to start. You offer some sort of currency, whether monetary or
non-monetary, and your referral partners serve up warm leads in exchange.

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Private equity-backed HR technology company Paylocity, for exam-

ple, has forged hundreds of successful referral relationships with benefits
brokers who have preexisting relationships with Paylocity’s target cus-
tomers in new geographies. Here’s what we can learn from the success of
Paylocity’s referral program:⁵
❖ Determine what’s most valuable to potential referral partners. In
Paylocity’s case, they learned that benefits brokers’ two biggest
care-abouts were growing their book of business and taking care
of their customers.
❖ Use this understanding to create a currency you can exchange
for referrals. This can be monetary but doesn’t have to be. After
Paylocity understood what benefits brokers care about, they
architected a referral program that focused on delivering incen-
tives—tools, connections, and other perks—that helped benefits
brokers grow their books of business faster and take care of their
customers better.
❖ Make it super-easy to sign up. This reduces the barrier to partici-
pation.
❖ Stay top of mind and make it easy for referral partners to promote
your solution. Regularly share valuable email and shareable social
content they can share with their customers.

Winning Move #59

Crack into new markets through distribution partnerships
Distribution partnerships can be a great way to expand your reach and
more quickly enter new markets—without having to hire, train, and man-
age an expensive salesforce.
Microsoft provides a classic example of the power of a channel-driven
go-to-market strategy—as roughly 95 percent of its revenue flows through
its partner channel today. Other successful tech companies, such as
Shopify and Monday.com, also derive the majority of their revenue from
channel partnerships.
Smaller companies don’t have to build a massive partner program like
Microsoft’s to move the needle. Such growth-stage companies are often
one or two strong partners away from a step-change in growth poten-
tial. Just ask Alex Rampell, CEO of payments company TrialPay, whose
company went from zero to 10,000 customers in just two years thanks to

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two-channel partner relationships.⁶ Or ask public-sector employee bene-

fits company MidAmerica, whose business was built on deep, long-stand-
ing relationships with a small number of benefits brokers.
Big picture, there are several benefits to striking up channel partner-
ships to break into new markets. Most notably, channel partnerships can
allow you to expand your reach more quickly and cost-effectively than by
going it alone.
Partnerships also enable a new entrant—frequently an unknown
quantity in a chosen new market—to borrow the trust and credibility an
established partner already has in that market. This can accelerate entry
into and traction within a new market. It’s the equivalent of a warm intro-
duction to a prospect at a networking lunch by a mutual friend, which
tends to be more effective than the awkward cold approach.

Expansion
Market
Conversely, companies that sell through channel partners fundamen-
tally have less control over the sales process—from messaging to sales
execution. And, of course, channel sales are lower margin, as partners get
a cut of the action. So weigh these factors in your cost-benefit analysis
when considering whether a distribution partnership is the right path to
market.

TAKE ACTION!
Head over to WinningMoves.co for more on setting up a successful,
mutually beneficial distribution partnership. (Search distribution part-
nership.)

Winning Move #60

Go deep with integration partnerships
I used to lead a niche employee benefits business. At the time, we had
about 400 customers—mostly small businesses—and were trying to grow
our average annual contract value by targeting larger accounts. This was
a new customer segment for us.
Attractive as it was, we knew this segment was competitive, and the
barriers to entry were high. So we asked ourselves, “What Trojan Horse
could we ride into large accounts?”
In talking with these large account prospects, we quickly learned
that the bigger the company, the greater the need they had for some-
thing called “certified payroll software,” a technology that turned out to

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be highly complementary to our benefits administration services. Payroll

and benefits were processed as part of the same workflow.
So we found the largest certified payroll software player, integrated
our benefit administration services seamlessly with their payroll soft-
ware, and instantly made the combined offering far more attractive to
prospects. A classic 1+1=3.
Everyone stood to gain from this partnership. Our partner won by
strengthening their payroll software’s value proposition and stickiness.
The customer won, as this integrated solution significantly streamlined
the biweekly processing of payroll and benefits. And our company won by
finding a more direct and lower cost entry point into this attractive cus-
tomer segment.
Dropbox’s integration partnership with Samsung—which pre-loaded
the storage app on its devices and made it the default storage option—
is a fantastic example of the power of integration partnerships. Dropbox
hitched its wagon to what was, at the time, the second-largest mobile
device company in the world. It rode Samsung’s devices into many new
geographic markets where the cloud storage company didn’t yet have a
significant presence.
Considering expanding into a new market? Ask yourself:
❖ Who out there already has the customers I’m targeting?
❖ Which of those have solutions that are complementary to mine?
❖ How could integrating our solutions create a win for customers—
and help our company gain faster entry into that new market?

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 C H A P TE R 8

SELL NEW PRODUCTS TO NEW

AND EXISTING CUSTOMERS

Expansion
Product

Chapter 7 covers ways to take a company’s current products and

services into new territory. Ways to “push out the boundaries of the core
business” and expand into attractive new markets. Examples of “knock-
ing down the neighboring pins” and going adjacent include:
❖ Payroll soft ware and services company Ultimate Soft ware went
adjacent when it successfully moved up-market, expanding
beyond its core SMB market and into the enterprise space (seg-
ment expansion).
 WINNING MOVES

❖ Payments company Complete Merchant Services went adjacent

when it moved beyond its core healthcare vertical and began tar-
geting direct sales companies (vertical expansion).
❖ Nearly every multinational firm on the face of the earth has tried
to go adjacent and break into the Chinese market in the last 15
years as Chinese GDP has grown at high-single-digit rates (geo-
graphic expansion).
Market expansion is undoubtedly a viable path to growing, but one study
from Bain & Company concludes that among the various expansion
opportunities a business has, the highest odds of success are actually
associated with product expansion—introducing new products or services
to your core market.¹
This might be why marketing and management expert Seth Godin
urged leaders, “Don’t find new customers for your products. . . find new
products for your customers.” In many cases, getting deeper with custom-
ers who already know, like, trust, and pay you can be a better bet than
pursuing brand new customers in a brand new market.
Fortunately, the decision of whether to pursue new customers for
your products (market penetration and market expansion) or new prod-
ucts for your customers (product expansion) is not an either/or choice.
Which combination of these growth levers—and others—your company
chooses to focus on pulling will depend on the context.
Some companies have enough runway with their current products—
and enough headroom in their current markets—to keep themselves busy
and hit their growth goals. In this case, focusing on finding new customers
for your products can be a perfectly sensible strategy. Pet insurance com-
pany Trupanion, for instance, has enough opportunity in the massively
underpenetrated North American market to keep its business growing
without needing to aggressively expand into new product categories or
geographies.
By contrast, some companies will need to create new products or
services to achieve their growth aspirations. Take, for example, the local
plumbing company I invested in years ago. We quickly realized the com-
pany would need to add new residential service lines, such as HVAC and
electrical repair, to achieve our goal of tripling EBITDA. Within the core
plumbing business, there were only so many leaky pipes and broken toi-
lets to fix in the company’s service area.
Other companies will take a “both/and” approach, pulling some

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combination of the market penetration, market expansion, and product

expansion levers—finding new customers for their products and finding
new products for their customers.
So the question isn’t, “Which one?” Instead, let’s ask ourselves, “In
what situations does pulling the product expansion lever make the most
sense for a company?” Here are three:
❖ The market for your current products is becoming saturated:
Take, for instance, Xerox. Is there a market more penetrated
than office printing and copying? Around the turn of the century,
Xerox—the Paragon of Printing, the King of Collating—teetered
on the brink of bankruptcy as its core printing business became
more saturated than a sponge in a monsoon.
But for the last 20 years, the company has been on an aggres-
sive campaign to transcend its legacy print business, successfully
expanding into content management, accounts payable technol-

Expansion
ogy, and a range of other product categories, saving the once-de-

Product
caying business along the way.

❖ Your current target customer has additional problems adjacent

to the one you’re currently solving: Here’s an everyday exam-
ple: Long ago, Starbucks’ loyal coffeeholic crowd were left hun-
gry until, in 2003, the coffee chain started selling breakfast sand-
wiches, a perfect complement to its core coffee offering. When
asked about the strategic rationale for expanding the product
lineup, one executive simply said, “Because our coffee drinkers
are hungry in the morning!”
Customers had an adjacent problem—“This coffee is making me
mighty hungry!”—and Starbucks addressed that problem: “Here’s
your hot, flaky breakfast croissant.” This product expansion move
created lots of satisfied customers and provided nearly instant
mid-single-digit, same-store-sales lifts. (Winning Move #62 on
hunting for customer problems can help you identify these
opportunities.)

❖ Your current target customers’ business or industry is quickly

changing, which can create new product opportunities:
Although many advertising agencies saw blinking red lights as ad
spending cratered in the early days of the COVID-19 pandemic,

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out-of-home advertising company Terraboost Media saw an

opportunity.
Recognizing how quickly the shopping experience was chang-
ing as COVID-19 restrictions set in, Terraboost rushed to create a
“hand-sanitizing billboard” solution for its retail customers—a
small kiosk that dispenses sanitizing wipes and advertiser mes-
sages. At the height of the pandemic, Terraboost estimates that
126 million people per day engaged with their hand-sanitizing bill-
boards, equating to a staggering 3.7 billion monthly impressions.
Each of these three situations is ripe for product expansion. And for many
established companies in growing markets, creating new products and
services isn’t just a matter of growing and thriving. It is increasingly essen-
tial to surviving.

Disruption Is All Around Us

As you’re probably seeing in your own company and industry, we’re liv-
ing in an era when markets are quickly changing, customer needs are
ever-evolving, and it’s becoming cheaper and faster for competitors to
deploy new technology to address those customer needs.
Consequently, we’re seeing disruptive innovation T-bone even the
most established industries—such as education, insurance, government,
and healthcare—at a pace not seen before. Small, progressive, well-capi-
talized challengers are introducing new solutions (and new business mod-
els) to take on larger, more entrenched players.
Barely a day goes by without a new report of an innovative new com-
pany making waves in an established industry. You see the headline about
some old market getting “Uberized.” Or some new “Stripe for [insert verti-
cal]” reinventing the way payments are handled in a legacy industry.
These new, disruptive products and services are being hatched and
gaining traction quicker than ever. For instance, it took then-15-year-old
Josh Browder just one summer to create DoNotPay, a disruptive robo-law-
yer that takes on municipalities headfirst, helping annoyed city dwellers
contest parking tickets digitally.
Elsewhere, insurance disruptor Lemonade is shaking up the histori-
cally sleepy insurance space. The company scaled to roughly $100 million
in revenue in a mere three years by offering consumers the ability to sign
up and get claims paid online far more quickly and painlessly than other

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insurance providers do, thanks to artificial intelligence.

In the B2B arena, Slack is taking on email. FreshBooks and Xero are
going after accounting heavyweights QuickBooks and Sage. Expensify
is challenging SAP Concur. And Airtable has put a target on the back of
spreadsheet behemoth Microsoft Excel.
History has shown that, over time, disruptors such as these have the
potential to take out large, established players at the knees—the way Net-
flix ate Blockbuster’s lunch. (And we thank them for it, or else we wouldn’t
have Bridgerton.)
To avoid going the way of a Blockbuster, a Blackberry, or a Borders
Books—each of which, in its own way, failed to keep up with customer
needs—B2B companies need to stay ahead. At the most basic level,
doing so requires companies to deeply understand their customers’ ever-
evolving needs and envision and create products, services, and solutions
that address those needs.
If your company doesn’t, it’s a safe assumption that some other com-

Expansion
Product
pany will. This is fundamentally what product expansion is all about: cre-
ating things that address customers’ unaddressed or emerging needs or
addressing existing needs in new and transformative ways.

The Hunt for Customer Problems

So how do we uncover and create things that address these needs? The sim-
ple answer is to listen to your customers and understand your market. This
may seem glaringly obvious, perhaps even a bit trite. And if you read some
of the earlier winning moves, you may find me to be somewhat of a broken
record by now when it comes to this “know your customers” business.
But the better attuned a company is to its customers’ needs and mar-
ket realities, the more readily it can spot emerging problems that can
translate into lucrative product opportunities. At the core, creating suc-
cessful new products for your market is about identifying and solving real
problems and addressing real pains experienced by real people.
An analysis of 100+ business failures by CB Insights reveals that the
most common reason an early-stage company fails is “no market need.”²
Companies create new products and services they think are cool or clever
but don’t actually address pain or solve a problem. Instead, they build a
“solution in search of a problem,” as they say in the biz. And this risk applies
to expansionary growth-stage companies as readily as it does early-
stage companies.

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Then we have counterexamples, such as HubSpot, one of the pio-

neers of the marketing software space. HubSpot grew to know the growth
marketer—its target user—better than almost anyone out there. In stay-
ing close to its growth marketer customers in the late 2010s, HubSpot
learned of a common annoyance.
WordPress, the world’s most-used website builder (powering 40 per-
cent of the internet’s websites), isn’t straightforward to use or manage
by non-techie users and wasn’t really created with inbound marketing
in mind. This made it difficult for growth marketers—who need to move
fast—to make simple edits and content changes or deploy new landing
pages quickly, not to mention integrating those landing pages with Hub-
Spot’s marketing automation platform.
It was a problem searching for a solution among HubSpot’s target
customers. So in 2020, the company launched CMS Hub to alleviate these
pains (and more) by making it easier for customers to deploy and manage
websites and landing pages.
Herein lies the simple secret to success in a product expansion strat-
egy. As Peter Drucker famously said, “Know and understand the customer
so well that the product or service [you create] sells itself.”
At the most basic level, knowing and deeply understanding the cus-
tomer is how product expansion opportunities are both discovered and
capitalized on, not by theorizing and speculating in front of a whiteboard
from the comfort of your own office. That’s how we end up with spec-
tacular product failures, such as Cheetos lip balm or Harley Davidson
perfume—each of which may have seemed promising in a vacuum. The
problem was that no consumer wanted to buy them, which their creators
realized ex post facto.
But here’s where the plot thickens a bit: In the B2B world, it’s not
enough to generically say, “You have to know your customer.” Given that
there are anywhere from six to more than ten people involved in the aver-
age B2B buying decision,³ B2B companies have a few distinct stakehold-
ers they need to understand deeply:
❖ The end-user (e.g., a business analyst for a data visualization
product)
❖ The decision-maker (e.g., the head of IT who sponsors the data
visualization initiative)
❖ The influencers (e.g., the CFO who reviews visualized data)
Successful new products are born when a company deeply understands

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both its buyers’ and users’ unique needs, problems, and pains and pro-
ceeds to create something that addresses those buyers’ and users’ pains.

Let’s bring this to life by looking at real B2B businesses.

Expansion
Product
Project management platform Trello, for example, simultaneously
addresses a genuine end-user pain (Project Manager: “I hate managing
my project using sticky notes!”) and pain for the more ROI-focused deci-
sion-maker (Head of Product: “I’m tired of not having centralized, real-time
visibility into the status of critical projects!”)
Expense management platform Expensify simultaneously addresses
a genuine end-user pain (Salesperson: “Copying receipts and manually
compiling my expense report each month is a total nightmare. I should be
out selling!”) and a real pain for the more ROI-focused decision-maker
(Chief Financial Officer: “I need a better way to monitor and tighten up our
travel and entertainment spending.”)
Finding needs alignment of this sort starts with understanding user
and buyer needs. How can our companies do this?
By tuning into formal and informal customer listening channels, and
doing so continuously and programmatically, not as a one-time pet proj-
ect or a whenever-we-get-to-it corporate initiative: “Hey, we haven’t run a
customer survey in a few years. Let’s go do one next month.”
Companies can leverage a wide array of channels and tactics to
understand customer needs, which I’ll discuss in Winning Move #61 and
at WinningMoves.co.

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Where Customer Problems Become Opportunities

When you listen to your customers, you’re able to gather valuable feed-
back about what they need (and what they don’t). Acting on this feedback
can help lead a company to three types of product opportunities:
1. Fixing existing products: From eliminating technical debt and
fixing bugs in B2B software businesses to addressing process
inefficiencies in B2B services companies.
Although this doesn’t qualify as “product expansion” per se,
these product opportunities are critical to long-term customer
success—and with that, customer retention—even though they
may not directly lead to additional revenue.
Customers of a tech business, for instance, are unlikely to
pay you to shore up broken or buggy software. To them, having a
functional product is table stakes. Think about it: Amidst the Y2K
pandemonium approaching the turn of the 21st century, Windows
users in all likelihood would not have been willing to shell out
more money for a patch that would correctly update their clock
to January 1, 2000. We expect our computers to handle a simple
date change without issue, and without spending more money.
2. Making existing products more valuable: Product enhance-
ments, new features, etc. As opposed to the fixes above, the right
new feature is more likely to entice customers to open their wal-
lets and pay more or upgrade to a more expensive plan.
When JW Marriott introduced its new-and-improved turn-
down service in 2013—complete with an organic granola bar,
essential oils, and more—I was indeed willing to pay a few extra
bucks to partake (but I’m a sucker for those little hotel chocolates).
3. Creating innovative new products or services: New modules. New
products. New service lines. Product opportunities in this bucket
solve new problems, create new value for customers, and capture
new revenue from doing so. This is true product expansion.
Software giant NetSuite recently launched its new Suite­
Projects module—an add-on to its core enterprise resource plan-
ning (ERP) product—to help its customers’ service delivery teams
manage complex projects.
As you consider opportunities across these three buckets in your own
business, know that they tend to compete for the same pool of money and

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resources. So how do you figure out how much of your finite resources to
spend on fixing versus enhancing versus innovating? It’s an age-old ques-
tion investors and business leaders regularly wrestle with—and it’s one of
the most difficult decisions an executive or product manager has to make.
Unfortunately, simple questions of this sort often don’t have simple
answers. In this case, how you allocate product investment will depend
on a multitude of factors:
❖ The condition of your product
❖ Its competitiveness in the market
❖ The market dynamics
❖ The customer needs
❖ Your business objectives
❖ Your timeframe
❖ Your risk profile
Here’s a starting point for thinking through this investment allocation

Expansion
decision (and others): Based on your long-term vision and strategy, which

Product
product investments will create the greatest long-term value?
Each product opportunity—whether it fixes, enhances, or innovates—
competing for a budget dollar has X long-term value and can be devel-
oped for Y cost. And though X and Y may not be precisely knowable and
will require some estimation and validation, thinking in terms of cost vs.
long-term value is a useful way to think through and prioritize product
investments.

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Companies can use other product prioritization models (e.g., RICE and
KANO) that you can learn more about on The Google, but the point isn’t to
get deep into methodology right now.
What’s important is that, in light of the budget constraints most
private equity-backed businesses face, after they’ve identified prod-
uct opportunities, investors and operators alike need to take a custom-
er-informed, ROI-driven approach to prioritizing product investments—
including product expansion opportunities. Lucky for you, the next slate
of winning moves can help you identify and capitalize on high-potential
product expansion opportunities while avoiding some of the common pit-
falls along the way.

Winning Moves: Product Expansion

Winning Move #61

Retire less-profitable products and services
The designer and architect Ludwig Mies van der Rohe used to say, “Less
is more.”
Adding more features, modules, and services is exciting and can be
value-creating, as I’ll discuss in the upcoming winning moves. But before
getting too far ahead of ourselves, we should heed van der Rohe’s wisdom
and talk product divestment: retiring less profitable or less strategically
valuable products and services. In certain cases, less can mean more—
profit, that is.
Think of product divestment as “addition by subtraction,” boosting
the bottom line by sunsetting products and services that are a drag on it.
In Winning Move #26, in which we talk about segmenting, sizing, and
selecting the right markets to go after, we discussed the idea that “not
all customers are created equal.” Some customers are more profitable
or strategically valuable than the rest, whereas other customers may be
altogether unprofitable. Similarly, in companies with multiple products or
service lines, not all products or services will be of equal value. Some may
actually be a drain on profits.
Identifying these money-losers and resource-drains requires we start
by determining product- or service-level profitability, an understanding of
which is surprisingly uncommon among B2B businesses. (To be fair, it can
sometimes be difficult to attribute cost to specific products, making this

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exercise challenging.) Doing this puts you in a position to identify and cut
bait on products and services that aren’t profitable, are too costly to con-
tinue offering, or are on the decline in their product lifecycle, which can:
❖ instantly boost profitability;
❖ free up resources to focus on higher-value product expansion
opportunities; and
❖ create greater focus in your business—an overarching key to suc-
cess I return to often in this book.
Note that not all low-profit products and services are bad, especially
those that can lead to the sale of a high-profit product, complete an oth-
erwise valuable product line, or are key to creating customer stickiness.
But unless unprofitable products and services play a strategic role like
this in your product portfolio, your company’s bottom line is often better
off when you show them to their final resting place.

Expansion
Product
Winning Move #62
Hunt for customer problems
As I mentioned earlier in this chapter, for a long time, consumer goods
colossus Procter & Gamble has been renowned for how well it under-
stands its target consumers. “Consumer insights,” they call this discipline.
Former CEO Bob McDonald said, “We don’t give lip service to consumer
understanding. We dig deep. We immerse ourselves in peoples’ day-to-day
lives. And we work hard to find the tensions that we can help resolve.”
The importance of “digging deep” to understand customer needs—
an idea simple in concept but one that can be surprisingly tough in prac-
tice—cannot be overstated. This is especially true in B2B businesses,
where we’re dealing with more complicated products serving multiple
stakeholders in often complex and dynamic organizations.
So how do we deeply understand customers as a means of discov-
ering valuable product expansion opportunities—something we’ll short-
hand as product discovery?
Focus heavily on what product folks refer to as the “problem space.”
The biggest product opportunities start as problems that are:
❖ widespread (which many companies in your target market expe-
rience);
❖ urgent (if they don’t solve it soon, something bad will happen); and
❖ valuable (your market is willing to pay to solve the problem).

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“The easiest way to uncover product opportunities is to really understand

your customers’ day-to-day. . . and where the friction is in their day.
Based on what you learn, play the ‘What If’ game with customers. ‘What
if a product could solve [that friction point]?’ Gauge their reaction to
know how much value there might be in that product/service/feature.”
—CHRIS STITES, Software Executive

Logically, it’s tough for a company like yours to fix these customer prob-
lems—and generate gobs of new revenue for doing so—if it doesn’t deeply
understand them. So while many product teams spend most of their time
in the “solution space,” the most effective ones devote ample time in the
“problem space.” Before conceiving solutions, they deeply understand
the problem they’re attempting to solve (known as discovery) and make
sure it is a problem worth solving (known as validation).

TAKE ACTION!
Head over to WinningMoves.co to learn the keys to discovering and vali-
dating customer problems, including ways to uncover hidden customer
pain points. (Search customer discovery.)

Winning Move #63

Consider the “before, during, and after”
Here’s an intuitive way to identify product expansion opportunities:
Understand what your target user does before, during, and after using
your product or service.
Suppose your company sells recruitment management software. HR
teams and hiring managers use your software to manage resumes, track
applicants, and coordinate interviews. The HR manager at Company ABC,
whom we’ll call Terri Talent, logs in when she’s posted the job and begins
receiving resumes, and logs out after the role has been filled.
But before the job gets posted, Terri is responsible for doing other
tasks related to hiring:
❖ Monitoring the performance of the person who previously filled
that role
❖ Partnering with the hiring manager to spec out the job descrip-
tion and scorecard for the position after it opens up

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❖ Identifying and tapping into the proper channels for sourcing

qualified candidates
And after the role gets filled, Terri also has other responsibilities:
❖ Onboarding the new hire
❖ Supporting the hiring manager in training and developing the
new hire
❖ Reviewing hiring analytics to constantly improve the hiring process
There’s value in Terri having software that helps facilitate and man-
age these workflows. Talent acquisition, performance management,
employee onboarding, and learning management point solutions cur-
rently on the market can help her. But like most business users, Terri
doesn’t like fragmentation—toggling between disjointed systems to man-
age the employee lifecycle.
This creates opportunities for your company to expand eastward and/
or westward in the user journey and address more of Terri’s needs. Terri

Expansion
Product
likes this idea because having a single system throughout the employee
lifecycle would make for a more seamless user experience. You like this
because it means greater revenue opportunity.
But here’s the key: Identifying product opportunities before, during,
and after requires that you clearly understand your user journey—a point
we introduced early on in Winning Move #5 and return to at several points
in this book. Your target user, Terri, has a certain overarching goal or out-
come she’s responsible for achieving in the role (in this case, maximizing
the return on talent throughout the employee lifecycle). Your product
plays an isolated role in that, but it may not get Terri all the way there.
A customer journey map will reveal opportunities to reduce fragmen-
tation, discover gaps, and extend your product to fill those gaps. When
you do this, you’ll create more value for your customers and capture more
of that value in the form of additional revenue.

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Winning Move #64

Embrace rapid prototyping
“If you are not embarrassed by the first version of your
product, you’ve launched too late.”
—REID HOFFMAN, Co-founder of LinkedIn
When Microsoft released its much-anticipated Windows Vista operating
system in 2007, it was touted as a game-changer, poised to revolutionize
personal computing. Microsoft had sunk five years and an estimated $10
billion into developing Vista and spent huge sums of money ​​promoting it.
But the product never took off in the way Microsoft had expected, mainly
because users didn’t actually like many of its features (especially its slow
speed).
As the Vista case study illustrates, developing new products can be
supremely expensive in terms of direct and opportunity costs. So the
faster you learn whether the solutions you’re creating will address users’
problems to their liking—something Microsoft wishes it had learned
before sinking billions into developing Vista—the higher the probability
that your product investments will pay off.
But as Microsoft learned, we can’t validate a product idea by abstrac-
tion or speculating whether users will like it. The only way to truly vali-
date that the solutions—the new products, features, modules, or service
lines—we’re creating will solve the target customers’ problem effectively
is to observe user behavior in the real world. And the only way to do this is
by getting a solution into the target users’ hands quickly.
Enter rapid prototyping.
Rapid prototyping involves quickly developing a simple, bare-bones
version (which you might find referred to as a “minimum viable product”)
of a potential solution to a customers’ problem. It could be a new product
or service line or a new feature. Fortunately, given the proliferation of dev
tools, crowdsourcing, and no-code platforms, doing this within technol-
ogy companies is becoming quicker and easier.
You then get these prototypes into the hands of users and observe
their interactions, allowing you to quickly learn, iterate, and re-release.
This sort of “build-measure-learn” cycle, as it’s referred to in the book The
Lean Startup, by Eric Ries, repeats until you land on a viable solution or
decide to cut bait. (Despite the book’s title, this idea doesn’t apply only
to startups.)

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The faster these cycles of learning, the faster you’ll discover what cus-
tomers want, and the greater the chances of landing on a new product
that sticks.

Winning Move #65

Embed fintech
In her presentation at an Andreesen Horowitz conference titled “Every
Company Will Be a Fintech Company,” General Partner Angela Strange built
the case that fintech is eating the world. And to stay ahead, she contended,
companies need to think about leveraging financial services to better serve
their customers, retain their customers, and drive more margin.
In recent years, we’ve seen more and more B2B companies incorpo-
rate three distinct types of financial technology into their products and
services—and many have reaped big rewards.
Payments: More B2B service and software companies are embed-

Expansion
Product
ding payment processing into their core offering to allow their business
users to accept payments from customers. A few examples: healthcare
patient engagement company Simplifeye, logistics technology provider
CloudTrucks, and materials procurement platform Agora. These compa-
nies added payments to their core vertical software product, which was
good for customers and great for profits.
Another good example is ServiceTitan, the largest all-in-one software
provider to residential services companies. In 2017, the company added a
payments feature, allowing service technicians like plumbers to process
homeowner payments in the field. It’s a move that was said to have gener-
ated significant revenue lift while simultaneously improving the customer
experience.
Financing: In 2019, restaurant software company Toast partnered
with WebBank to launch Toast Capital, which provides loans to restau-
rants that are underwritten using Toast’s transaction data. This inte-
grated model makes the underwriting process faster and simpler and
makes collections easier.
Insurance: Bundling or cross-selling insurance to B2B customers can
make sense for a variety of vertical software or service-based businesses.
Some software businesses can even leverage the data generated by their
core business—which provides an underwriting and risk assessment
advantage.

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We’ve seen plenty of examples of this in the B2C realm, with com-
panies such as Tesla bundling car insurance into its vehicle sales. In the
B2B space, you’ll find companies such as IT-managed service providers
Evergreen Services Group beginning to offer cyber liability insurance to its
SMB customers. Or SMB-focused CRM provider Thryv, which integrated
with digital business insurance provider Coterie to allow its small busi-
ness customers to quickly and easily buy business insurance in-app.
Research from a16z says that embedding payments, financing, insur-
ance, and other financial services into a platform can increase revenue
per user by an astounding 2x to 5x the cost of a standalone software sub-
scription.

Winning Move #66

Build a product viral loop
Albert Einstein famously said, “Compound interest is the eighth wonder of
the world. He who understands it, earns it. He who doesn’t, pays it.”
In growth-oriented businesses, engineering “viral loops” into your
product—which draws on the same principle of compounding—might just
be the ninth wonder of the world. It can allow a company to grow faster
and more profitably and deploy marketing spend far more efficiently.
A viral loop is a feature that encourages existing users to introduce
and promote your product to their colleagues, customers, and friends at
other companies.
If a product has a “viral coefficient” (or “K factor”) of 1.5, for every
new customer signed, its viral loop brings in 1.5 additional new customers
(similar to how compound interest works).
Viral loops are very common in the B2C realm. Here’s a simple, old-
school example: In 1996, email service provider Hotmail put a link in the
body of every message its users sent, offering the recipient a free webmail
account. The more emails Hotmail users sent, the more new users signed
up for Hotmail. Six months after dropping this simple little message into
all outgoing emails, Hotmail had its first million users. Five weeks later,
the user count doubled to two million users. And the exponential growth
continued.⁴
Although it’s a tad tougher to pull off in the B2B sphere, companies
can incorporate viral loops into B2B products (particularly those that are
digital) as well. The basic idea: Architect your product so that users spread
the product simply by using it.

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For example, take Basecamp, a provider of project management and

collaboration technology. Basecamp’s target customers are agencies. An
ad agency might use Basecamp to organize and manage its customer proj-
ects and collaborate with customers. Along the way, the agency exposes
the customer to the Basecamp platform, and some of those customer
companies then adopt Basecamp for their internal project management
and collaboration purposes—the viral loop.

Winning Move #67

From product to platform
Which would you rather own: an iOS app like Candy Crush or the Apple
App Store itself?
In the product world, there is an important distinction between prod-
ucts (e.g., Candy Crush) and platforms (e.g., the App Store). This may feel
like business mumbo jumbo, but here’s the essence: A product is some-

Expansion
Product
thing you sell for a particular use case, whereas a platform is a common
infrastructure on which other products and services can be built and dis-
tributed.
Salesforce CRM, for example, is a product. It allows salespeople and
other business users to log leads, manage opportunities, run reports, and
create sales dashboards. By contrast, the Salesforce Platform (formerly
known as Force.com) is a cloud app development platform that allows
developers to quickly create business apps that can easily integrate with
Salesforce’s other products, such as Salesforce CRM.
Not only does Salesforce Platform generate additional revenue for
Salesforce, but it also strengthens the value of the core Salesforce CRM
product by allowing developers and users to create new tools that enable
customers to get more out of the CRM.
Other category-leading companies such as Amazon, GitHub, Shopify,
and Buffer also offer both products and a platform. It’s a powerful 1-2
punch.
Building a platform alongside a traditional product in the way that Sales-
force did can have some significant benefits:
❖ Longevity: Apps such as Candy Crush will come and go, but the
App Store is far more likely to stick around.
❖ Mutually reinforcing: The Salesforce Platform helps make the
CRM itself more valuable and stickier to users. Conversely, the

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CRM drives demand for apps created on the Platform. Each one
scratches the other’s back.
❖ Network effects: The value of GitHub’s developer platform is
directly proportional to the number of developers who use the
platform. More users equal more value to those users.
It isn’t easy, but product companies can evolve into a platform, a move
that can create loads of value.
Take online design platform Canva, for example. Canva began as a
simple app that enabled schools to create yearbooks. Fast-forward ten
years and Canva is a robust digital design platform that allows designers
to collaborate, leverage other designers’ work as templates, and create
stunning designs quickly and cheaply. And they created a jaw-dropping
$40 billion worth of enterprise value along the way.

Winning Move #68

Turbo-boost your service workers with technology
This one relates most to service-based businesses where your people are
the product.
Think about a building security business—a number of which, inci-
dentally, are private equity owned. Security companies will deploy a guy
or gal to sit in a chair on premises to watch over your building at a cost of
nearly $100,000 per guard per year. Because each unit of growth requires
a security company to find, train, and deploy a new guard, it’s a pretty
unscalable business.
Ring (and other surveillance technology businesses) has tried to
make building security more scalable with “smart security cameras.” But
when a Ring camera detects an incident, the best the company can do
is flag it, record it, and allow you to watch people steal your company’s
stuff. Assuming the goal is to prevent incidents such as this from happen-
ing altogether and proactively address them the moment they do, these
pure-play technology solutions are insufficient.
A company called Deep Sentinel asked, “How do we keep the guards
but make them into super-guards using technology so they can be way
more efficient and way more effective at their jobs?”
Deep Sentinel created a platform that enables one guard to manage
100 properties remotely through cameras and sophisticated incident-de-
tection and response technology. This “human-in-the-loop” business

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model significantly expands each guard’s capacity by supplementing

them with technology that enables them to watch over more buildings
more efficiently and more effectively.
❖ Efficiency: Deep Sentinel’s ability to enable one guard to over-
see 100 properties, which is orders of magnitude more efficient
than the traditional one guard/one property model, reduces the
cost to serve—thus making the solution more affordable for busi-
nesses and residential customers.
❖ Effectiveness: The traditional model is prone to guards falling
asleep from boredom in the wee hours, which kind of defeats the
purpose of having a guard. Deep Sentinel’s AI technology helps
guards tune in when an incident occurs and quickly determine
how to respond based on the incident’s attributes.
This human-in-the-loop model is great for customers (it is cheaper and
more effective), guards (who experience less boredom and have more

Expansion
impact), and Deep Sentinel’s business (more profitable and scalable).

Product
This same idea of turbo-boosting your service workers with technology
can be applied to an array of people-intensive services businesses, like:
❖ Cybersecurity businesses, where AI technology can detect login
patterns that are anomalous and then tag in the human to use
their judgment and determine the correct response
❖ Radiology practices, where AI-driven medical imaging technol-
ogy can help radiologists review more medical images per hour
❖ Legal outsourcing, where the combination of human and arti-
ficial intelligence can enable lawyers to review more contracts,
faster, and with greater accuracy.

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 C H A P TE R 9

CAPTURE THE VALUE CREATED

FOR YOUR CUSTOMERS

Optimization
Pricing

“Poor pricing practices are insidious—they damage a

company’s economics but can go unnoticed for years.”
—RON KERMISCH and DAVID BURNS

❖ ❖ ❖

In our discussion of the value drivers that can propel your compa-
ny’s revenue growth, I’ve saved the biggest moneymaker for last: price
optimization.
 WINNING MOVES

As we know from Business 101, when we boil it down to the basics,

revenue is a product of quantity times price. (See, Professor Ricketts, I
wasn’t sleeping the whole semester!) The five value drivers discussed
previously impact the quantity part—finding more customers in new and
existing markets, selling them more things, etc. And it’s quite natural to
start our discussion of revenue drivers here because when we think about
revenue growth, the first place our brains tend to go is to customer acqui-
sition and retention—the quantity factors. One study of over 10,000 blog
posts shows that customer acquisition is discussed 7x more often than
monetization, highlighting this “quantity bias” that many growth-focused
companies have.¹
But after five chapters filled with winning moves that address the quan-
tity factor, it’s about time we shifted our attention to the price factor. Why?
Price optimization can be the highest ROI lever of all
and the quickest and easiest way to increase
revenue and profits.
Let me repeat that in case it snuck by you the first time: Price optimi-
zation can be the highest ROI lever of all and the quickest and easiest way to
increase revenue and profits.
Pricing is not only a very powerful value driver, but it is also a very effi-
cient one. To pull the pricing lever, companies generally don’t have to take
on any additional costs, which means all that incremental revenue drops
straight to a company’s bottom line.
According to a pricing study by McKinsey, for a typical mid-sized com-
pany, a one percent increase in pricing can yield a six percent increase in
EBITDA almost instantaneously.² In B2B software businesses, the EBITDA
impact can be even greater: up to 13 percent additional EBITDA for each
point of price increase.³

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What’s more, pricing optimization not only has a direct positive

impact on EBITDA, but it can also boost your exit multiple given that
higher margins, more attractive unit economics, and a track record of
successful pricing improvements will cause an eventual buyer to view the
business more favorably—and value it accordingly.
The pricing value driver creates the rare 4 for 1, a “four-fer,” as I like
to say. Changes to pricing, when executed well, can mean higher reve-
nue, higher EBITDA, higher exit multiple, and more free cash to pay down
debt—all in in one fell swoop.
Becoming adept at identifying pricing opportunities pre-closing (and
then capitalizing on them post-closing) can help a dealmaker achieve
greater confidence in an investment’s upside potential, which can help
them bid more competitively and improve their odds of winning the deal.
Especially in today’s red-hot, ultracompetitive M&A market, pricing savvy
can give investors a major leg up when it comes to winning deals.
An eye for pricing also helps investors better gauge the overall quality of
a target company. The Oracle of Omaha, Warren Buffett, famously said:
The single most important [factor] in evaluating a business is

Optimization
pricing power. If you’ve got the power to raise prices without

Pricing
losing business to a competitor, you’ve got a very good
business. And if you have to have a prayer session before raising
the price by ten percent, then you’ve got a terrible business.
But when it comes to actually pulling the pricing optimization lever,
there’s bad news and good news.
Here’s the bad news first: The vast majority of B2B companies are not
great at optimizing pricing—by their own admission. Bain & Company con-
ducted a global survey of executives at more than 1,700 B2B companies,
and roughly 85 percent of respondents believe their pricing decisions
could improve. What these executives might as well be saying is, “We’re
missing out on profits. Help!”

“Very rarely have I seen a founder-led business that is pricing correctly,

and is fully optimized.”
—Serial B2B CEO

But the good news is the same: Most B2B companies are not great at opti-
mizing pricing. This means opportunities to improve pricing are often
underexploited—or altogether unexploited.

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Translation: Become a monetization maven, and there is ample value

creation opportunity waiting for you in the B2B realm. By focusing on
pricing in your companies—using the winning moves and best practices
in this section—the pricing optimization juice in a B2B business is yours to
squeeze. So grab your glass.

When Good Pricing Opportunities Go Untouched

Despite the size of the pricing opportunity in many B2B businesses, a sur-
vey of 100 private equity professionals shows that the average investor’s
value creation plan places considerably less emphasis on pricing optimi-
zation than on other value drivers, such as cost optimization.⁴
This is backward. Thanks to a bit of basic math that even I can do, we
know that cost optimization tends to have far less impact on the bottom
line than pricing optimization does—with the average one percent reduc-
tion in fixed costs yielding just a 1–2 percent improvement in EBITDA.⁵
This isn’t to say that cost optimization and margin improvement aren’t
worthwhile value drivers to pursue. Quite the contrary, as I’ll get into in
chapter 10 on margin expansion. But it does underscore the fact that when
we consider the size of the pricing prize, many investors’ and their compa-
nies’ priorities are out of whack. The attention they give to these value driv-
ers is inversely related to the EBITDA impact that each can have.
But I’ve found several common reasons why investors and operators
are reluctant to pull the pricing lever.

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They fear losing customers: This is the #1 reason companies pump the
brakes on pricing changes. They worry that if they raise prices, custom-
ers will jump ship and run into the outstretched arms of competitors.
And they don’t want to risk throwing it all away over what they perceive
as some measly two percent price hike (despite that two percent price
increase having a disproportionate impact on EBITDA).
Having seen handfuls of successful pricing changes over time, I can
tell you that this fear tends to be irrational and wildly overblown—espe-
cially if you have a strong, sticky product or service that delivers lots of
value to customers. By that same token, it’s important to acknowledge
that pricing changes can indeed cause an uptick in churn. And strictly
financially speaking, that’s okay, as long as the revenue gains from a
price increase more than offset the revenue losses from customer churn,
thereby making the profit impact net positive.
But for execs who are still gun shy about pulling the pricing lever
for fear of losing customers, rest assured. Research shows that in most
cases, intelligent pricing improvements yield a strong net positive impact
on profit overall. In a study of B2B professionals by OpenView, the over-
whelming majority (98 percent) said that pricing changes had a neu-

Optimization
Pricing
tral-to-positive impact, and roughly 40 percent said that these pricing
changes alone accounted for at least 25 percent year-over-year growth!
The key, of course, is to execute these pricing improvements effec-
tively, which this section will help you do.
They fear losing new sales: “The market sets the price. Any increase,
and we’ll price ourselves right out of the market,” some leaders tell them-
selves as they halt the presses on their new price sheets. To those taking a
strictly market-based view of pricing and setting their price based primar-
ily on competitor pricing: Good luck in the race to the bottom.
Although competitor price is a very important data point to consider
in evaluating a pricing change, getting too caught up in the comparison
game can cause you to lose sight of and undersell your product’s true
value—and to leave revenue on the table. Market-based pricing fails to
fully account for the fact that no two products are exactly alike, and no
two customers are the same. This makes the whole concept of “market
pricing” a bit arbitrary, especially in the less competitive niche markets in
which your B2B company may play.
They lack confidence in their company’s ability to successfully exe-
cute a price increase: This could be a matter of lacking clean pricing data.
Or it could arise from having generally weak commercial capabilities (“Our
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reps will never be able to sell this to customers.”). Or it could result from
having some built-up scar tissue from a bungled price change some years
ago. The reasons for lacking the needed confidence to pull the pricing
lever can vary.
Make no mistake about it: The execution of pricing decisions is argu-
ably more important than the decision itself. But letting controllable exe-
cution risk get in the way of pursuing an otherwise well-founded, prof-
it-maximizing pricing change is a bit like letting the tail wag the dog.
They simply don’t have the expertise—or the playbook—to identify
and capitalize on pricing improvements: One B2B executive I worked
with skeptically referred to the process of devising pricing as “black
magic.” To people who aren’t versed in its best practices, pricing can feel
like an enigma. But it doesn’t have to. Smart pricing decisions don’t come
by way of sticking a thumb in the wind and hazarding a guess, but instead
come about when we use research that produces cold hard data, a tried-
and-true process (which I’ll step you through in a few pages) and this sec-
tion’s set of proven winning moves to guide you to your company’s ideal,
profit-maximizing price for your products.
Like many things in business, most of these limiting beliefs—like “But
our customers will leave us!”—can be traced back to mental glitches that
cloud our judgment. They stem from cognitive biases.
Being successful in pulling off a price increase (and almost everything
else in investing and business) is as much about becoming aware of and
overcoming the self-imposed limitations that these mental processing
errors create as it is about doing the tactical research and spreadsheet
work to figure out what number to put on your pricing page.
For example, sometimes leaders convince themselves not to pursue
a well-reasoned pricing change thanks to a little psychological phenom-
enon called loss aversion—a cognitive bias that explains why the pain of
losing something is psychologically twice as powerful as the pleasure of
gaining something. The irrational fear of losing customers can weigh far
more heavily in our decision than our excitement about gaining revenue.
So we opt to “not rock the boat” with a price change, even if it means leav-
ing well-deserved money on the table.
Another mental factor that can skunk our pricing decision is a misper-
ception about what price actually is.
Price is among the touchier topics in business. Anyone who has wit-
nessed an inexperienced sales rep (or has once been that inexperienced
sales rep themselves, such as yours truly) get sweaty palms and start to
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act squirrely when it comes to talking price will understand. This often
stems from an irrational fear of being perceived as greedy, a fear of getting
laughed out the door by the prospect, or worrying that you haven’t done
enough to earn their money.
To let the air out of this faulty way of thinking, let’s go back to what
price actually represents: It is really about an exchange of value. Your cus-
tomers get something they value and are willing to pay for (some busi-
ness outcome), and you get something you value in return (revenue). Ergo,
from the customer’s perspective, paying your price is simply a means to
get something that I want. As Warren Buffett said, “Price is what you pay.
Value is what you get.” A pretty straightforward exchange.
Looking at pricing through this value-focused lens makes it clear that a
pricing change isn’t about squeezing or shaking down customers. It’s about
knowing and having confidence in the value of your product or service and
ensuring you’re pricing that product or service commensurate with the
value you’re creating for your customer. I’ll discuss how to do this in Win-
ning Move #69 on tying price to customer value. But for now, the point is:
although the pricing opportunity in many businesses is significant, certain
mental or perceptual barriers can get in the way of pursuing it.

Optimization
Pricing
The Tactical Errors of Pricing
Likewise, companies can make any of a variety of common tactical mis-
takes when it comes to pricing:
❖ Underpricing: Underpricing is far more prevalent than overpric-
ing because it is considerably easier for a company to determine
its prices are too high than too low—as sales stall or custom-
ers start leaving in droves. Underpricing is especially common
among frugal bootstrapped businesses, many of which devel-
oped a habit of conceding on price to win business in the early
days.
❖ “Set it and forget it” pricing: Many companies don’t have a pro-
cess for continuously testing and iterating on pricing. They apply
Ron Popeil’s late-night infomercial advice a tad too liberally and
“Set it, and forget it!” But markets change, products change, and
customers change, so pricing should change, too. And conse-
quently, pricing optimization should be a process, not an event.
Holding price constant for too long becomes problematic

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because it creates a missed revenue opportunity and conditions

customers to expect no change. The more time customers are
anchored to a particular price, the more difficult it becomes to
change it.
❖ One-size-fits-all pricing: As we highlighted in Winning Move
#26, not all customers are the same—nor are their needs, care-
abouts, or willingness to pay. So failing to tailor pricing and pack-
aging to your distinct customer segments and personas would
be a bit like only having one model of car to sell to every guy or
gal who walks into your car dealership. Maybe Customer #1 is
the penny-pinching type looking for something economical. But
maybe Customer #2 is the top-down, wind-in-the-hair type look-
ing to splurge on a shiny new convertible. Getting each of them
behind the wheel of the right car for them—at a price they’re will-
ing to pay—requires you to understand what’s valuable to each
and tailor your offer accordingly.
❖ Inconsistent pricing: This is the polar opposite of one-size-fits-all
pricing. In some B2B businesses, pricing is all over the map. This
happens when a company fails to establish a simple, standard-
ized pricing program, essentially leaving sales reps to freewheel
and sign deals at that day’s price du jour—like hard shell lobster
at the upscale seafood place in town. In some project-based B2B
businesses—such as consulting services—each engagement
might look different and therefore need to be priced a bit differ-
ently. But for the rest, without a standardized pricing model, you
face the risk that reps will misprice or concede on price, some-
times offering unnecessary discounts to close the deal.
For anyone not interested in generating profits (I hope that’s not you),
getting stuck in these pricing potholes may not be a huge deal. But for
the rest of us, how can we get the pricing optimization opportunity right?
I suppose saying “just do the opposite of the mistakes we just covered”
probably isn’t going to cut it, is it?
Here’s a simple blueprint that can help show you the way.

Price Optimization in Five Steps

To help you pull the pricing lever effectively, I’ve broken the roadmap into
five steps: baseline, research, test, execute, and repeat. We won’t do a
deep dive into “The How” in this book (check out WinningMoves.co for

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more tactical advice on how to approach pricing optimization), but here’s

a quick flyover of each of these steps:

STEP 1. BASELINE: Don’t start blindly pulling pricing levers before

clearly understanding your company’s current state—and how you got
there. For investors, this is something you’ll want to do pre-closing as part
of due diligence. Questions like these can help paint a clear picture of the
current state:

Optimization
❖ What is the current pricing model?

Pricing
❖ How is pricing established today?
❖ What logic, competitive intelligence, and customer research
went into this?
❖ How has price trended over time?
❖ How does it compare with competitors?
❖ How does price vary by customer segment?
❖ What are the company’s general attitudes and beliefs toward
pricing?
When doing the work to understand the current state in a target company
during due diligence, I keep my antenna up for a certain set of reliable sig-
nals that there could be a pricing opportunity:
❖ High customer retention and no recent price updates
❖ History of releasing new features without monetizing them
❖ High close rate and little pushback on price
❖ Customers tell the company its product or service is cheap
❖ The company rationalizes its pricing decisions as “that’s how
competitors do it” or “that’s just the way it has always been”
❖ Inconsistent pricing or a pattern of frequent discounting

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STEP 2. RESEARCH: A full 50 percent of growth-stage companies say

they’ve done no research into pricing at all, and only eight percent claim
to have done significant research into pricing.⁶
If it’s pricing optimization and profit maximization you’re after, mak-
ing decisions on gut feel is not a great strategy. To identify monetization
opportunities and determine the best way to capitalize on them, research
is key. Two primary types of research underpin a profit-maximizing pricing
strategy:
❖ Competitive research: Although competitor pricing should not
be the only factor informing your pricing strategy, it is quite
important to understand how your pricing compares with com-
petitors’ pricing (which can shape customers’ expectations).
❖ Customer research: Customer research comes down to asking
the right questions and gathering the right data from customers
and prospective customers. Here, you’re using structured con-
versations to gauge the value that each of your target segments
sees in the product, the return on investment each expects from
your product, and what each views as a fair price.
There are different methods for conducting customer pricing
research. For instance, the Gabor-Granger and Van Westerndorp
methods help determine customers’ willingness to pay, whereas
a Feature/Value Analysis helps you determine which features
are most important to each customer segment. We’ll talk more
about this in the winning moves that follow.⁷
When done effectively, pricing research will help your company:
❖ gauge customers’ and prospects’ willingness to pay and price
sensitivity, which allows you to figure out the optimal price
points for each customer segment;
❖ understand what each of your customer segments values most,
which allows you to match the right combination of features to
that price point; and
❖ ultimately, determine what combination of price point and fea-
tures you’ll put on your pricing page or proposals, which should
be the output from this research.
STEP 3. TEST: After you have a clearer idea of what your target custom-
ers are willing to pay and have started to home in on your revised pric-
ing and packaging, it’s important to test and refine. As valuable as the

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research techniques are in guiding us, they’ll never perfectly reflect how
customers actually buy in real life.
So in the testing phase, you use customer interactions to help refine
your view of pricing—which is way more effective than trying to scheme
the perfect pricing model at a whiteboard. It helps you understand the
mix of features and price that most appeals to customers.
Here, you’re not seeking the perfect pricing model—just one that works.
Price testing is easier for some B2B companies than others, especially
those with high transaction volumes and web-based purchasing, such as
Calendly and ActiveCampaign. Companies that sell digitally can more eas-
ily A/B test different price points, promotions, packages, product pages,
and value messaging.
STEP 4. EXECUTE: Pricing optimization is, of course, utterly worthless
unless it is executed effectively. A handful of things need to come together
to land a price change smoothly:
Ownership: Who will be responsible for delivering on the price
change? Ensure you have a single point of accountability internally.
Timing: Timing is everything to a successful pricing rollout. Consider

Optimization
renewal cycles, seasonality, upcoming product releases, etc. Here are

Pricing
some general guidelines for getting the timing right:
❖ Price changes are always easier for a customer to swallow if they
happen in conjunction with some sort of give, such as a new fea-
ture, a product enhancement, etc.
❖ In seasonal businesses, consider announcing a pricing change
when a customer is likely to be experiencing “peak value.” Peo-
ple are likely willing to pay more when they’re getting more from
your product or service.
❖ Phased rollouts are always best whenever possible. A phased
approach gives you a chance to make adjustments in Phase 2
based on what you learned in Phase 1.
Internal buy-in: Internal buy-in to pricing changes is one of the most
important keys to success. Failing to get critical customer-facing teams—
such as the sales or account management teams responsible for commu-
nicating the message—onboard can quickly undermine your price change.

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“Every [customer-facing] person is emotional about

their customer. If I’m a salesperson and there is a
customer whom I onboarded, then they’re special to me.
Since I closed the deal, I have a special relationship
with the customer. Without myself knowing the reason
behind the price increase, how am I going
to communicate it to the customer?”
—VIPIN THOMAS, Customer Success Manager
at Freshworks
Discuss pricing early and often with your key internal stakeholders, espe-
cially your customer-facing teams: sales, marketing, customer success,
and product. Doing so will help you get to a better decision and create
buy-in along the way while also helping each team understand their
unique role in landing a price change.
Customer communication: Getting customers to bite on a new pric-
ing program depends on how effectively you communicate it to them—
including why you’ve changed the price, how it will impact them, and,
importantly, what’s in it for them.
Your communication plan should start well before you announce
a pricing change. You want to warm customers up. Remind them of the
value you’re delivering. Get them excited about a new feature you plan to
release alongside your revised pricing.
Here are a few keys to success in communicating a price change:
❖ Give plenty of notice: Want to tick off your customers? Blindside
them with an “effective immediately, prices will go up” notice out
of the blue. Instead, give customers plenty of time to understand
the changes and ask questions.
❖ Segment your communication: You’ll communicate a price
change differently to a $1,000/year account than you will to a $1
million account. So segment your customer base and find the
major groupings—based on size, package, customer tenure, cus-
tomer health, and the degree to which the price change affects
them. Then determine the best way to communicate the price
increase to each segment. Email may be fine for some, while an
in-person visit may be warranted for others.
❖ Be clear on why: To be clear is to be kind. Don’t tiptoe or apolo-
gize. Be direct about the change and why you’ve made it. “Prices
are going up, but here’s why, and here’s what’s in it for you.”

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Announcing a price change in conjunction with a new product or

feature release is always helpful, as it helps you justify the price
bump through increased customer value.
❖ Keep it human: You know that dry, impersonal email you got
from your local utility about a rate hike? Don’t do that. Make it
feel human and conversational. Show your appreciation. Offer to
answer customer questions.
❖ Align your messaging: Equip your sales reps and account man-
agers with the talking points to ensure the message is consistent
across all touchpoints with customers.
Measure and monitor: As they say, “If you can’t measure it, you can’t
manage it.” Before you press “go” on your pricing rollout, identify the
indicators (e.g., churn, customer sentiment, etc.) that will help you know
whether things are on track and determine how you’ll measure and monitor
them. Track these indicators closely during your rollout, and be prepared to
course-correct mid-flight based on what these indicators tell you.

STEP 5. REPEAT: Pricing optimization should be an ongoing process, not

a one-time event. As your customers, products, and market constantly

Optimization
Pricing
evolve, your pricing should, too. The frequency of pricing changes will
vary by stage, existing products versus new products, etc. But as a base-
line for mature companies, I recommend reviewing pricing every quarter
and considering adjustments every 9–12 months.

“Optimizing pricing should be a process, a rhythm. When you have this,

it will give an eventual acquirer confidence that your business is built to
capitalize on pricing opportunity.”
—Private Equity Operating Partner

❖ ❖ ❖

There are lots of different pricing models in B2B land (tiered pricing,
usage-based pricing, user-based pricing, freemium pricing, flat-rate pric-
ing, and more), and lots of different pricing strategies to boot.
The purpose of this chapter isn’t to explore all the different permuta-
tions of pricing models and strategies but to highlight some common and
universally applicable winning moves we see in private equity-backed
B2B companies. So without further ado. . .

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Winning Moves:
Pricing Optimization

Winning Move #69

Tie price to customer value
“Pricing is actually pretty simple. Customers will not pay
literally a penny more than the true value of the product.”
—RON JOHNSON, Former CEO, JCPenney
One of the most important questions an investor can ask in due diligence
is, How did you (target company) come up with your pricing? The answer
helps us begin to gauge how much pricing opportunity there is in the tar-
get company—among other things.
B2B companies use three basic models to establish their pricing:
Cost-plus pricing: Take the cost to produce your widget, mark it up by
your desired margin, and voilà, you’ve got your price.
Professional services companies—like management consultancies—
often use this model. They take their utilization-adjusted hourly labor
cost, apply some percentage markup, and charge customers that amount.
Cost-plus pricing is one of the oldest pricing models in the book. But
as global competition has grown over the years, cost-plus pricing has
grown increasingly outdated, as it ignores how competitors are pricing
and how much customers are actually willing to pay.
Competition-based pricing: Figure out where your closest competi-
tors are priced and peg your pricing near theirs.
This approach is sensible in competitive, efficient markets with lots of
alternatives. If your company is selling an undifferentiated product or ser-
vice—like Culligan sells jugs of water to office buildings—it is important
to be priced in line with competitors. But who’s to say your competitors’
pricing reflects what the market is willing to pay? And if your company is
trying to bring products and services to the market that are truly differen-
tiated—which should be one of the central tenets of any company’s win-
ning strategy—then competitors’ prices may not reflect the true value of
your solution, right?
Value-based pricing: Understand the value that your target custom-
ers find in your product, determine how much they’re willing to pay to
achieve that value, and price your solution accordingly.

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Value-based pricing is about setting your solution’s price based on

what your customers believe its benefits are worth. It best aligns interests
between a company and its customers and allows you to charge higher
prices the greater the customer value is. Establishing value-based pricing
requires understanding what buyers value and how much they value it
(see Winning Move #70).
With those three models in mind, here’s the upshot: A value-based
pricing strategy tends to be the most profit-maximizing pricing model
for B2B businesses. It often allows you to price higher than competitors
because you set your pricing based on customers’ perceived value and
what they say they’re willing to pay.

“Too many companies think about pricing as just the amount, and forget
about the structure. So I’m often asking my companies: Instead of just
raising the price, what could be possible when we change the pricing
structure to map it to the value the customer receives?”
—Operating Partner

Optimization
Winning Move #70

Pricing
Do your research to understand how customers think about
value
How do you know how much customers value your product and, there-
fore, how much they’re willing to pay?
As we discussed earlier in the chapter, guessing obviously isn’t a
good strategy. And yet, as I mentioned earlier, 50 percent of growth-stage
companies say they’ve done no research into pricing at all. But without
research, our pricing optimization decisions are about as reliable as a
blindfolded sharpshooter. This is especially true in B2B, where running
pricing tests and experiments isn’t as easy as it would be for high-volume
Amazon sellers, for example.
A B2B company can use a variety of pricing research methods (regres-
sion and conjoint analysis, the Gabor-Granger method, and more). I’d like
to highlight one of the most useful for B2B companies, the basis of which
is a thing called Van Westendorp’s Price Sensitivity Meter.
The name sounds fancy, but the basic principle that underpins Van
Westendorp’s method is simple: Buyers think of pricing on a spectrum.
At one end, the price is so low that a buyer would be concerned about the

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quality. At the other end, the price is so high that it’s unfair, out of reach, or
prohibitively expensive. Somewhere between these two extremes is the
sweet spot: your optimal pricing.
To find this optimal price point—the one that maximizes revenue—
you’ll survey customers from each of your customer segments to gauge
their willingness to pay, after which you’ll run the data you gather through
the magic number machine. (More on the step-by-step of how to do this
at WinningMoves.co.)
Like most, this method isn’t perfect. It may not perfectly predict how
customers will buy and behave in real life, and it’s unlikely to be highly
precise. But it can help you better understand each of your customer
segment’s willingness to pay and begin to guide your company toward its
revenue-maximizing pricing sweet spot.
While surveying customers, gather qualitative feedback about which
features and benefits they value most in your product, which is relevant
to the next couple of winning moves.
Commissioning a simple pricing study is something I recommend
investors do routinely and early in each new investment—if not during
due diligence. It is the groundwork for understanding how much pricing
opportunity there is in a company, which should inform your post-closing
plan and factor into your view on how to value that company.

TAKE ACTION!
Head over to WinningMoves.co for the step-by-step how-to on pricing
research, which will help you find the ideal, profit-maximizing price for
your solutions. (Search pricing research.)

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Winning Move #71

Pick the right value metric
In Winning Move #22 on using pricing as a customer expansion mecha-
nism, we discussed how picking the right pricing “value metric” can work
wonders in driving expansion revenue. A product’s value metric is the unit
in which pricing is denominated—whether per user, per usage, per trans-
action, per consumption, or some other variation.
Take email marketing software MailChimp, whose price is based on
the number of contacts to which a customer is sending marketing emails
(which we classify as a per-usage model). Per-usage pricing works great
for them because as their customers’ contact databases grow—which
tends to happen naturally among MailChimp’s growth-focused custom-
ers—so too does MailChimp’s revenue.
After you understand what customers most value based on the
research in Winning Move #70, it’s time to pick the right value metric.
Our friends at Price Intelligently tell us that your value metric should
do three things:
❖ Align with what your customers value: In the case of MailChimp,

Optimization
Pricing
customers care most about growing the number of contacts
in their email lists. So MailChimp’s pricing model aligns pric-
ing with the value a customer receives. On the flip side, the old
time-and-materials pricing that consultants and lawyers have
used for years does not actually align price with value. Most cus-
tomers don’t care how many hours something takes. They only
care about getting the desired result—and getting it as quickly
as possible.
❖ Grow with your customers: Pick a value metric that will grow as
your customers grow and get greater value out of your product
or service. MailChimp is a prime example from the B2B software
world. In B2B services, most 401(k) administrators bill based on a
percentage of plan assets, which allows these service providers’
revenue to grow as their customers’ plans grow.
❖ Be easy to understand: If your value metric doesn’t clarify for
customers the connection between the price they’re paying and
the value they’re receiving, it makes value-based selling (which
we covered in Winning Move #52) tough.

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Winning Move #72

Align pricing and packaging to your buyer personas
I discussed that in most B2B businesses, one-size-fits-all pricing actually
fits no one. This is why in Winning Move #70, I emphasized segmenting the
data from your pricing research by your buyer personas.
Here’s why: As we discussed in Winning Move #27 on developing your
ideal customer profiles, each buyer persona has different needs and care-
abouts. Customer A may put a premium on certain features and not value
others. Customer B might need a different set of features based on their
specific use case. And as a result of deriving varying amounts of value
from different things, Customer A’s and Customer B’s willingness to pay
is likely to be different.
This brings us to the interplay between pricing and packaging, the
ham-and-eggs of monetization. You can’t optimize pricing without con-
sidering packaging or how you group or bundle specific features to align
with the needs of your different buyer types.
After researching your customer, segment the data and qualitative
insights by persona and align the right features to the right personas (i.e.,
packaging) by understanding which features your personas value most
and least from a list of options (a technique called “relative preference”).
Then set your pricing based on what that specific persona is willing to pay
for the value those features create.
Do you see how the last three winning moves are all starting to tie
together here?
The ultimate goal of all this is to give your different customers what
they need at a price they’re willing to pay. For many B2B software busi-
nesses, you’ll often see this take shape in one of the following ways:
❖ Good-Better-Best packaging: Offering several tiers (e.g., Basic,
Plus, Enterprise) with increasing functionality and price at each
tier. Wordpress.com, for example, offers Personal, Premium, and
Business plans—a simple pricing scheme that meets each of their
personas where they are with the functionality they need and
creates a natural upsell path.
❖ Use case-based packaging: Bundling different features to align
with different use cases. Location data company HERE Technolo-
gies, for example, packages its mapping features based on whether
you’re buying to track a fleet of trucks (target buyer: trucking com-
panies) or manage urban traffic patterns (target buyer: cities). And

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as you might expect, they price these packages differently.

Winning Move #73

Lead with a low-cost, front-end offer
A confession: I am borderline addicted to O’Charley’s free yeast rolls. I’m
not proud of it, but it’s my truth. These sweet, pillowy gifts from heaven
exemplify an age-old pricing strategy that’s as applicable to B2B as it is to
casual dining: Getting customers like me in the door with a free/lost-cost
offer (the rolls) and then making money on higher-ticket follow-on sales
(the high-margin drinks, appetizers, and entrees). You see this virtually
everywhere in different variations of the same concept:
❖ In retail, when Costco advertises chemical-free floor cleaner at
or below cost (a loss leader), but then makes you realize you also
need a high-margin mop after you’re in the store
❖ In concert venues, which often only break even on ticket sales but
make their money on high-margin concession sales
❖ In vertical software companies that lead with a lower-cost or free

Optimization
offer upfront (a Free or Basic plan), then upsell you to the Plus or

Pricing
Enterprise packages after you’ve used the product and gotten value
❖ In consulting, when service providers offer a low-cost $10,000
assessment to get you in the door but then sell a $100,000 con-
sulting package that helps address the gap areas uncovered in
the assessment
❖ In commercial refrigeration repair, where a lost-cost inspection
upfront can lead to higher-ticket, higher-margin repair work over
time
Here’s why this pricing strategy can work so well in B2B: a low-cost, front-
end offer lowers the barrier to purchase. It gets customers in the door,
builds trust, delivers value, and puts you in a position to move customers
to higher-priced follow-on offers over time.
Want to improve your close rate and shorten your sales cycle? Get
customers in the door with the rolls, and then sell them the steak.

TAKE ACTION!
Jump over to WinningMoves.co for more on finding the right front-end
offer for your business—so you can improve your close rate and shorten
your sales cycle. (Search front-end offer.)

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Winning Move #74

Implement price escalators
We’re living in a world where price inflation is just a fact of life and some-
thing most consumers of B2B products and services have come to expect.
In this kind of inflationary environment, vendors that are not increasing
their prices put themselves at risk of getting squeezed. They’re missing
out on revenue opportunities and are subject to rising vendor costs in
their own business—the combined effect of which creates margin com-
pression.
Here’s a quick pricing win for B2B companies with contractually
recurring or reoccurring revenue: Include a price escalator in your cus-
tomer contracts, which automatically ratchets up your price over time.
This is an opportunity that surprisingly few B2B companies are taking
advantage of, although we’re seeing this practice more and more within
SaaS. It is not uncommon nowadays to see 5–7 percent price escalators
among more established SaaS products.
Salesforce, for example, has baked a seven percent price increase
into its customer contracts, which we’ve heard gets little pushback given
Salesforce’s strong competitive position and the stickiness of its prod-
uct. And this point is key: The ability to enact a price escalator is, in part,
dependent on your competitive position, the stickiness of your product,
and the availability of alternatives.
Pricing experts from Taylor Wells have highlighted four good reasons
to consider price escalators:⁸
❖ Small increases through price escalators compound over time.
❖ Small changes through price escalators are less likely to be
noticed by competitors than bigger but less-frequent pricing
changes.
❖ Small changes are less costly to correct if things do not go accord-
ing to plan.
❖ Built-in price increases—as a standard term in your customer
agreement—give you another negotiating chip to use to win a
deal.

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Winning Move #75

End excessive or non-strategic discounting
“Tell me about your discounting policy.”
This is one of the first and most value-generative questions I’ve
learned to ask target companies in commercial due diligence. I’ve found
that roughly 70 percent of the time, B2B companies lack a tightly defined
and clearly articulated discounting strategy. It’s a telltale sign they’re giv-
ing away money—in some cases, millions.
Research from BCG points us to other indicators that a company has
a discounting problem:⁹
❖ There are no discounting policies or controls whatsoever.
❖ The actual discounting practices don’t line up with the compa-
ny’s discounting policies.
❖ A large share of orders features “default” discounts—usually mul-
tiples of five percent.
❖ Huge variances in discounts exist across territories and sales
reps.

Optimization
❖ Sales managers don’t regularly discuss discounting with sales

Pricing
reps.
A quick way to recapture otherwise lost revenue is to rein in excessive,
unnecessary, or non-strategic discounting, which can have a direct and
immediate positive impact on your company’s financials. Here are five
ways to do this:
❖ Sales training: Often, the root issue underlying unnecessary dis-
counting is a sales team’s inability to sell a solution’s value.
❖ Establish a discounting policy: There should be clear and under-
standable guidelines for discounting, including which segments
are eligible, for which purpose, and what approvals are required
(typically above certain discount thresholds).
❖ Reframe the purpose of discounting: Help your team shift their
mindset from discounting as a standard cost of doing business to
discounting as a strategic tool to be used purposefully and selec-
tively.
❖ Value-based discounting: Offer discounts based on the value of
the customer—something BCG calls value-based discounting.
Be willing to offer higher discounts to customers that purchase

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more or provide greater strategic value and lower discounts for

those that buy less. “In our experience, companies that apply val-
ue-based discounting can increase EBITDA by between 1 and 4 per-
centage points within 18 months.”¹⁰
❖ Reciprocal concessions: Get something valuable in exchange for
offering a discount. Buyers tend to understand that to earn a dis-
count, providing something of value in exchange is appropriate.
A give-and-get. Examples of things you can ask for in exchange
for discounts include establishing a preferred-supplier relation-
ship, committing to a standing order, moving to a higher-priced
or higher-margin product, and signing a long-term commitment
to be paid upfront.

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 C H A P TE R 10

DRIVE MARGIN EXPANSION

Expansion
Margin

Look for companies with high profit margins.”

—WARREN BUFFETT
In the land of private eQuity metrics, EBITDA has reigned supreme
for years. It’s the basis for valuing businesses, a proxy for the overall health
of a company, and the subject of many useless debates over its pronuncia-
tion. (Is it EE-buh-duh? Ee-bit-DA? EH-buh-dah? The world may never know.)
As you might expect, the higher you drive your company’s EBITDA
margins—which happens through some combination of growing revenue
and reducing costs—the more profit you’ll make, and the more attractive
your business will be to potential buyers like Buffett. At the most rudi-
mentary level, private equity-backed companies can improve margins
 WINNING MOVES

in either of two ways: 1) reducing current costs (which I’ll shorthand as

“cost reduction”), or 2) minimizing future costs that need to be added as a
company grows (which I’ll shorthand as “scalability”—a grossly overused
term, but one that’s fitting for this purpose).

Reduce Current Costs

Cost reduction involves making your business a leaner, meaner, more
cost-efficient version of itself. Here are some quick examples:
❖ A software company I worked with expanded its EBITDA margin
by five percent within 12 months of acquisition by outsourcing
development and QA to a lower-cost offshore partner.
❖ A publishing company I led within eliminated nearly $1 million of
hosting spend by shifting from its own high-cost data center to
Amazon Web Services cloud hosting.
❖ A customer in the online space saved $100,000 virtually overnight
by cutting bait on unprofitable paid acquisition channels.
One of the oldest plays in the private equity playbook, cost reduction
worked so well in the bygone era of private equity investing because com-
panies with bloated cost structures weren’t difficult to come by. During
the “Greedy ’80s,” thanks to weak corporate governance, perverse man-
agement incentives, and the absence of regulation such as Sarbanes
Oxley, spending on fancy executive dining rooms, country club member-
ships, and cushy private jets littered corporate P&Ls. Must have been nice
(as I type this sentence scrunched into my undersized coach seat on an
oversold commercial flight).
Over the years, such factors as the growth in global competition, the
rising adoption of efficiency practices (such as lean manufacturing and
agile development), the rise in private equity ownership, and the grow-
ing stigma around management perks have flushed companies of the
most conspicuous excess. As this happened, it also robbed investors of
the low-hanging fruit and easy wins that once made cost-cutting such an
attractive value driver.
This is not to say that cost-cutting opportunities don’t exist any-
more. Quite the contrary. There’s still “fat to trim”—ways to operate more
cost-effectively—as I discuss in this lever. But it does mean that cost cut-
ting’s contribution to overall returns is, on average, less than it once was.
A recent Bain & Company analysis of hundreds of private equity funds

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shows that multiple expansion and revenue growth—not margin expan-

sion—are by far the biggest drivers of private equity returns today.¹

“Having sold our company a few times to different private equity buy-
ers, my view overall is that the market rewards growth more than it
does margin improvement, so we have focused more on accelerating
revenue growth than on maximizing margins.”
—10-Bagger CEO

When it comes to cost-cutting your way to value creation, it’s best to keep
a couple of inherent limitations and challenges in mind.
One challenge is that a business only has so much cost it can cut.
Although the value creation impact of the revenue growth lever can be
virtually infinite (though theoretically limited to the size of your address-
able market), the effect that cost reduction can have on a company’s
value is capped.
Another challenge with cost reduction is that, in some cases, value
gains achieved in cutting costs are offset by value deterioration from rev-
enue losses, the net effect of which can damage a company’s long-term
value. The margin and profit gains achieved by cutting marketing spend
or research and development investment, for example, will sometimes be
offset by a reduction in sales.

Expansion
Margin
Kraft-Heinz is a walking (or maybe limping) example of the fine line
between cutting costs and damaging revenue growth. 3G Capital, famous
for its relentless cost-cutting, teamed up with Berkshire Hathaway to
lead the 2015 merger of these two iconic food brands. And in the months
after the merger, following the first round of cost-cutting to harvest the
low-hanging fruit, this strategy appeared to be working, as evidenced by
a modest rise in share price.
But the subsequent rounds of cost-cutting began to hit bone. And
then, it became clear that although cost reduction may have worked as a
near-term tactic in the early days post-merger, it was failing miserably as
a sustainable long-term strategy.
The narrow focus on reducing costs became especially problematic
when the company began to find itself on the wrong side of shifting con-
sumer tastes toward healthier, natural foods. Kraft-Heinz needed to inno-
vate and grow into new categories to stay relevant but had barely enough
muscle tissue left to operate its core business. This set off a vicious cycle of
weakening fundamentals, and the company’s share price took a nosedive.
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Poorly executed cost reduction can also lead to customer and

employee dissatisfaction, arguably two of the most predictive leading
indicators of long-term revenue challenges. Here’s an everyday example
from the Cost Reduction Hall of Shame:
A few years back, one larger grocery chain (which shall remain name-
less to protect the guilty) was rumored to have enacted a cost-containment
policy in which they kept plastic grocery bag supplies locked inside each
grocery’s management office, doling them out to cashiers only one bundle
at a time as a means of minimizing waste and conserving cost. The result?
Cashiers constantly had to run back to the manager’s office to refill, which
brought productivity and throughput to a halt, left frustrated customers
waiting, and peeved employees as they had to run back and forth to fetch a
new bundle of bags every 30 minutes.
The point that this example makes is: Be wary of unintended conse-
quences of pulling the cost-reduction lever, which can counteract its ben-
efits. And it is for this reason that successful investors and operators must
be savvy in understanding and weighing trade-offs. Ahead, I’ll discuss
some of the guiding ideas that can help you do this. But first, let’s touch
on the second way to expand margins.

Reduce Future Costs as a Company Grows

Scalability, in this context, is about minimizing the amount of cost that
needs to be added to a business as revenue grows. Certain business mod-
els are inherently scalable—something many investors look for as they
evaluate deals. Cloud-based software is the most obvious example. For
every dollar of revenue a software company grows, it generally only has
to add a few pennies of cost. After the product is developed and a new
customer is acquired, most cloud-based software can be deployed to that
new customer at little or no additional cost to the business.
Meanwhile, other businesses have to work a bit harder to achieve
scalability—especially people-intensive service-based businesses that
need to hire new people to service new business. For example, a third-
party benefits administration company in which I served on the board
struggled for a while to expand its margins as its book of business grew.
For each new account it added, it had to bring on additional headcount
to service that account, including an account manager, a benefits admin-
istrator, and a participant support rep. But after it invested in a new ben-
efits administration software platform that allowed the company to do

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more with fewer people, the company was able to bring on additional cus-
tomers without having to add operational headcount.
And the cool thing was that this move ended up helping the company’s
margins from both the cost and the revenue side. Its customers liked the
enhanced customer experience—faster claims processing, easier benefits
administration, etc.—and consequently gave the company more business
(revenue ↑). And to service this new business, the company didn’t need to
take on much additional cost thanks to the efficiency created by the slick
new software (cost ↓).

❖ ❖ ❖

Despite the average company today being leaner than its ancestors from
the Greedy ’80s—and much of the most obvious margin expansion oppor-
tunities dissolving along the way—the pressure to both reduce costs and
achieve scalability remains high.
The market forces that drove companies to shed those extra pounds in
recent decades include growth in global competition; the prevalence of effi-
ciency practices, such as lean manufacturing and agile development; and
more companies coming under the thumb of private equity owners with
high profit expectations. Today, these same factors continue to put pressure
on companies to find new ways to sustain historically high margins.

Expansion
Fortunately, even though the average private equity target is likely

Margin
to be less bloated than before, the opportunity to create value by driving
sustainable, healthy margin improvement still exists. Yet, investors too
often fail to fully capitalize on that opportunity.
A 2019 study by Bain & Company finds that among a set of 65 buyout
deals, 71 percent of them fell short of projected margins—and not by a lit-
tle.² On average, margins at exit ended up 330 basis points below the deal
model forecast. The study concludes that it came down to equal parts
due diligence issues (i.e., not accurately sizing the cost-reduction and scal-
ability opportunities) and post-closing execution issues (i.e., not executing
on those opportunities effectively). The ideas I cover in the following sec-
tions can help your firm avoid becoming a statistic.

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The Overarching Keys to Success in

Driving Margin Expansion
Seizing this margin expansion opportunity—and avoiding becoming one
of the 71 percent of companies that don’t deliver on the expected mar-
gins—comes down to a few success factors:
Success Factor #1: Align spending and investing decisions to the over-
all strategic objectives. Like most matters in business, any discussion of
cost-cutting must start with the overall business strategy. Making cost
reduction or margin expansion decisions without a clear, guiding strate-
gic agenda is a bit like a driver making decisions about which turns to take
without a clear destination in mind.
Smart investors and operators frame cost decisions in the following
context: What is our winning long-term strategy? And how can we best align
our finite resources with that strategy?
When we look through this strategic lens at spending decisions, cer-
tain investments will appear mission-critical, whereas others may become
non-essential. A paper by PwC titled “More for Less” distinguishes the two
in simple terms as “good costs” and “bad costs.”³
Good costs are those that are strategically necessary and fuel profit-
able growth. They differentiate a business, bring it closer to its custom-
ers, and enable scalability. An example is the new benefits administration
software platform from the earlier example that both reduced the cost-to-
service customers and improved customer experience.
Conversely, bad costs are strategically irrelevant or non-essential. For
example, a client of mine had a team of five people responsible for set-
ting up new users in its system—a task that should be instantaneous and
automated if the right functionality existed in its platform. This inefficient
process led to wasted resources and cut against the company’s overar-
ching strategy of being the easiest provider in its category to do business
with. Most of its customers would probably agree that waiting 72 hours to
get access to the software you just paid for was hardly easy—making the
spend in this area a bad cost.
So the idea here is simple: After you have a clear winning strategy,
use your finite resources to invest in higher-value good costs (e.g., config-
uring the system to automate new user entitlements), and rationalize or
eliminate spend on bad costs (e.g., a staff of five inefficiently entitling new
users by hand).

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I talk more about what to do with good costs and bad costs in Win-
ning Move #76, but the point here is that as you might expect, compa-
nies that know their strategy and have a habit of dynamically reallocat-
ing their spend to higher-value, more strategically relevant activities or
investments—the good costs—tend to outperform, delivering on average
60 percent higher shareholder returns.⁴
Success Factor #2: Favor lasting cost efficiencies over short-term
cost-cutting. Despite the unrelenting pressure to deliver results, the most
successful investors and operators focus on operating decisions that drive
lasting cost efficiencies instead of cost-cutting that produces short-term
gain at the expense of long-term value creation. For example, investing in
a new enterprise resource planning system to make the company’s staff
more efficient and improve the customer experience rather than slashing
spending on product development or customer success to save a buck. I
call the latter self-defeating cost-cutting.
Think of this like canceling a gym membership because you tell your-
self, “It’s too expensive!” only to face piles of medical bills that are orders
of magnitude more expensive years down the line; or passing up that
long-overdue $39 oil change only to have your car’s engine seize in your
driveway a few months later.
Here’s a recent-day example: Nearly defunct retailer Sears slowly
wrote its own death certificate as it steadily reduced costs over the last

Expansion
Margin
ten years, gradually chiseling away at the parts of the business that drove
revenue: in-store experience, customer loyalty programs, and e-com-
merce. Cutting costs on these revenue drivers sent the company into a
decade-long tailspin. Google “Sears store memes,” and you’ll see what
self-defeating cost-cutting looks like in vivid color.
As the Sears example illustrates, self-defeating cost-cutting may
produce some nice profit lift in the near term, but it can erode long-term
enterprise value if it cuts into revenue-growth potential and/or makes a
business less attractive to an eventual buyer on the back end.
Not all cost levers are created equal, and private equity investors
must be increasingly savvy in distinguishing between actions that trim
today’s fat (cost reduction) or improve fat burning in the future (scalabil-
ity) and those that start burning muscle tissue, or risk cutting into bone.
Investors and their executive teams must distinguish between healthy,
sustainable cost efficiency and self-defeating cost-cutting. Improving
margins without crippling a company’s longer-term prospects is a fine,
delicate line the most successful business leaders know how to walk.⁵
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Success Factor #3: Invest early to drive long-term margin expansion.

Despite private equity’s steadfast focus on EBITDA—which we often cel-
ebrate with delicious clichés such as “EBITDA is king!”—smart investors
and portfolio executives are willing to make well-reasoned, NPV-positive
investments early in a deal’s life, even if those investments come at the
expense of near-term EBITDA. They aren’t penny-wise, pound-foolish.
They play the long game and are willing to make operational investments
and take on additional costs early in a hold period if it means generating
higher margins and achieving a stronger exit down the line.

“Sometimes, EBITDA-focused boards don’t fully appreciate that you usu-

ally have to spend money to make money. You may need to first decrease
your margin short term, so you can increase your margin long term. In
other words, you’ll have to add cost to create the structures (systems, pro-
cesses, etc.) that allow you to scale up.”
—MARK PAPP, Value Creation Leader and Private Equity
Operating Executive

In many cases, for investors early in a new deal, spending more money
now can save or generate a bunch of money at exit when it matters most.
An everyday example of this idea:
I consume water like a camel, and my wife and I used to burn through
those expensive, consumable Brita water filters like nobody’s business.
When we moved into our new home, we realized that if we invested $150
in an in-sink water filtration system now, we’d save multiples of that
investment on consumable filters over the five years we plan to live here.
It was a simple premise that checked out based on my back-of-the-en-
velope NPV calculation (cue the nerd jokes). What’s more, a convenient
source of crisp, refreshing drinking water will make the home even more
marketable and valuable to thirsty buyers, I reasoned, when we go to sell
down the line.
Success Factor #4: Think structurally, not just incrementally. Cost
actions like changing your printer’s default print settings to two-sided
B&W or moving the annual holiday party from Ruth’s Chris to Outback
Steakhouse are by all means valuable. (And let’s be real: Who doesn’t
love the Bloomin’ Onion?) The aggregate impact of small, incremental
cost improvements of the sort can add up. It is why Grandma used to say,
“Take care of your pennies, and your dollars will take care of themselves.”
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According to an HBR study on the topic,incremental cost-cutting—

such as limiting pay increases, controlling “miscellaneous” spend, and
reducing discretionary perks, such as event tickets or kombucha in the
breakroom—can help most departments see their way to nearly ten per-
cent cost reduction, generally without a material impact on output or pro-
ductivity.⁶
However, incremental cost reduction of this sort—saving a few bucks
here and a few bucks there—is unlikely to be a major needle mover in
overall returns. This flavor of cost-cutting tends to have considerably less
impact than cost improvements that arise from rethinking your business
structurally.
What do I mean by this? Such moves as redesigning departments;
eliminating low-value products, service lines, or programs; withdrawing
from less-profitable markets; or consolidating business functions or dis-
tribution channels—moves characterized as “structural”—can help pave
the way to more than 20 percent cost reduction.
“Sometimes, it is more difficult to achieve a 10% cost
reduction than it is to tell people they have to achieve
50%. Small, incremental steps block your view of doing
something fundamentally different.”
—ECKHARD PFEIFFER, Former President and

Expansion
CEO of Compaq

Margin
Success Factor #5: Teach managers throughout the organization to think
like investors. Identifying and capturing lasting cost efficiencies shouldn’t
be the sole and exclusive responsibility of the CFO. When the finance depart-
ment unilaterally makes cost-reduction decisions, it can often be counter-
productive to a company’s value creation agenda. In many organizations,
finance leaders are too far removed from the customers to understand the
impact certain cost-related decisions could have on customer experience,
and these customers are ultimately the ones who pay your bills.
This was one of the criticisms within our earlier Sears example. Insid-
ers have described the operationally detached, customer-removed,
financially minded executives—those making hardline cost-reduction
decisions from the corporate office—as not having a clear understanding
of the impact those decisions would have on customers.
But common sense tells us that decisions about where to spend (and
where not to spend) should be grounded in a clear understanding of cus-
tomer values. And it is often mid-level managers—those closest to the

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customers and best attuned to what customers value—who are in the

best position to make a call on the best uses of budget.
Therefore, decisions about how to deploy a company’s financial
resources at their point of highest strategic impact ideally should be
pushed to the parts of the business closest to the customer—not held
closely in the CFO’s office.
This will require a mindset shift for many middle managers in a
mid-market business: maintaining their customer focus while also
thinking more like an investor. This is a hat most mid-level managers in
mid-market companies haven’t been trained to wear. However, training
a company’s managers to closely consider spending decisions with their
investor hat on—and holding them responsible for doing so—reframes
spending decisions. Managers begin thinking far more strategically:
How will I invest the finite financial resources I have in ways that can
generate the greatest return to the business?
Managers make the leap from being capital consumers to becom-
ing capital allocators. And your company begins to create a shared,
cross-company responsibility for investing your limited resources at their
points of highest impact and maximizing margins.

❖ ❖ ❖

Before I jump into the winning moves for improving margins, I want to
frame how to look at margin expansion opportunities.
To reiterate, there are two ways to improve margins: cost reduction
(reducing current costs) and scalability (minimizing the amount of future
cost that needs to be added as a company grows). And we can bucket
most of a company’s expenses into a few cost categories:
❖ Cost of goods: The direct cost of producing your product or deliv-
ering your service (e.g., material costs, development costs, direct
labor costs, etc.)
❖ Cost to acquire: The cost to acquire new customers (e.g., ad
costs, marketing and sales expenses, partner-program payouts,
referral incentives, etc.)
❖ Cost to serve: The cost to serve existing customers (e.g., order
management, customer service, technical support, account
management, etc.)
❖ Cost to operate: The cost required to “keep the lights on” (e.g.,
rent, utilities, compliance, etc.)

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I like to break down this overarching idea of margin improvement along

these two dimensions to make it more approachable and enable us
to think through it more systematically. Almost every opportunity to
improve margin in your business will plot somewhere on this grid.
In the winning moves that follow, I step into each of these boxes. Draw-

Expansion
Margin
ing on the experience of been-there, done-that executives and investors
who have led successful margin improvement stories, I’ll tease out and
share the most impactful margin improvement opportunities available to
B2B businesses today.
It’s also worth noting that some of the winning moves covered in chap-
ter 3 on revenue growth can have a direct, positive impact on margins:
❖ Winning Move #2: Target the right customers at the outset.
Doing so can help mitigate churn and lead to lower cost to acquire
(it is often more expensive to acquire customers that aren’t a
good fit for your solution) and lower cost to serve (misfit custom-
ers tend to be more expensive to serve).
❖ Winning Move #32: Accelerate new sales rep productivity.
Accomplishing this through better onboarding and training can
lower the cost to acquire. The faster your expensive new sales
reps are productive, the lower your average customer acquisi-
tion cost.

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❖ Winning Move #68: Turbo-boost your service workers with

technology. Incorporating the “human in the loop” concept into
your service delivery model can reduce your cost to serve, as was
the case with Deep Sentinel.

Winning Moves:
Drive Margin Expansion

Winning Move #76

Identify and eliminate bad costs
Earlier, I introduced the idea of good costs and bad costs—a concept I
borrowed from PwC.⁷ Any effort to reduce costs and enhance margins
should start by:
❖ delineating between good costs and bad costs on your compa-
ny’s P&L
❖ eliminating or reducing bad costs
❖ using those freed-up resources to double-down on value-
generating good costs
Good costs are value-creating, drive profitable growth, and create com-
petitive advantage. They help propel your company’s winning strategy.
Spending on profitable paid acquisition is a good cost, as is investing in
a new application to improve customer service or new product features
that solve a customer pain point.
By contrast, bad costs might include poorly targeted marketing
spend, low-value transactional processes that can be automated, unused
office space, redundant personnel, or poorly structured/negotiated ven-
dor agreements.
Certain bad costs can be eliminated, such as those to service unprof-
itable customers, maintain unprofitable products, or retain unused office
space. And when we identify and do away with bad costs such as these,
most companies will barely skip a beat—because either the return on that
spend is so low or customers don’t actually value what’s being offered.
At my last company, we decided to sunset an old version of a product
that we’d been spending hundreds-of-thousands to maintain, and to our
surprise and delight, customers barely noticed. Most of the ones who did
simply opted into the more current, higher-priced version—a win for them

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(better product) and a win for us (higher revenue, lower costs).

Now, some costs won’t fit as cleanly into one bucket or another, such
as “keep the lights on” spend (e.g., rent or accounting staff) and “can’t
avoid” spend (e.g., compliance reviews, SOC audits). These costs may
not be value-creating per se, but they are necessary to running a busi-
ness. It may not be possible or prudent to eliminate these in-betweeners,
so the goal is to aim for best-in-class cost levels in these areas. This can
sometimes be achieved by increasing efficiency, outsourcing, or revisiting
existing vendor agreements.
When companies go through the exercise of segregating their costs in
this way, it’s not uncommon to see 10–20 percent of their current spend
end up in the bad-cost bucket. This is a great place to start your margin-
improvement crusade.

Winning Move #77

Clean-sheet your company’s cost structure
In Winning Move #76, you looked critically at your company’s current cost
structure and identified bad costs. As you know, reducing or eliminating
bad costs can boost margins or free up budget to be reallocated to more
value-generating activities. But focusing strictly on reducing or eliminat-
ing these costs after the fact would overlook what could be the underlying

Expansion
Margin
issue: a flawed budgeting process.
Ever seen “The Surplus” episode of The Office? The one where the
World’s Best Boss, Michael Scott, must spend a $4,300 surplus by the end
of the day, or else the Scranton branch will lose that amount in the next
year’s budget? This hilarious episode illustrates what’s wrong with how
many companies develop their budget. They take what was spent last
year, add a bit or subtract a bit, and arrive at this year’s number.
If this feels a bit arbitrary or unscientific, that’s because it is. But
there’s another lens to look through to identify cost-saving opportunities
besides putting your current cost structure under a microscope: Forget
about everything you’re currently spending, and clean-sheet your budget
from scratch each budgeting period.
The zero-based budgeting method, or ZBB, starts from zero—no bud-
get, no assumptions, no sacred cows. You begin with your company’s
strategy and financial goals and consider the value drivers needed to pro-
pel that strategy and achieve those financial goals. You then build up your
budget from scratch each period (usually each fiscal year) by aligning your

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financial resources directly to those value drivers.

“To be successful, ZBB needs to have sponsorship from the board level or
CEO. It has to be a top priority because it is intensive and could result in
significant structural change. If it is the ninth or tenth priority, don’t do it.
It will create more disruption than you want. And don’t choose a tiny func-
tion or division to pilot this in and roll it out.”
—DAVID FEIERSTEIN, Managing Partner, Ronin Equity Partners
and Former Head of ZBB, 3G Capital

And just because you spent on something last period doesn’t mean it’s a
shoo-in for this period’s budget. Every dollar of proposed spend must be
justified and re-justified each budgeting period.
The ZBB process can no doubt be intensive. The approach is polariz-
ing, given the well-publicized examples of ZBB being taken too far and ulti-
mately destroying value. But when applied in the right way to the correct
depth, ZBB can deliver here-and-now margin improvement. According to a
study by McKinsey, when properly implemented, ZBB can reduce SG&A by
10 to 25 percent—often within as little as six months.

TAKE ACTION!
Head over to WinningMoves.co for the step-by-step on applying the
principles of zero-based budgeting in your business. (Search zero-based
budgeting.)

Winning Move #78

Manage cost optimization like you manage a product
Companies committed to continuously improving margins by optimizing
costs can learn a lot from how modern B2B software products are devel-
oped.
Think for a moment about agile product development, a project
management methodology you may be familiar with in which products
are built iteratively using short cycles of work called sprints. Products
developed using agile methodology require executive sponsorship, have
clear ownership, and involve cross-functional collaboration. The work to
be done is prioritized and managed in a product backlog, and the primary
measure of progress on a product is delivering working software.

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These same tried-and-true principles and practices can be applied

to strategic cost optimization to ensure that your cost-reduction effort
isn’t haphazard. If your company is serious about margin expansion, you
should manage it with the same intensity and agility that you would any
other critical strategic priority in your business—like building a new prod-
uct. Drawing on the principles of agile development, here are some of the
keys to success in doing so:
❖ Make it a priority: Just as a new product won’t get funded and
built if it isn’t deemed a priority, cost reduction won’t happen if
it isn’t labeled one of the company’s most important strategic
initiatives. Like all other critical strategic initiatives in your busi-
ness, this one must have executive sponsorship.
❖ Establish clear ownership: Just as a new product should have a
product owner, so too should your cost optimization effort. This
is often someone in the finance organization who is operationally
minded—in which case, you may have to be explicit about rede-
fining the role of finance in your business. Finance isn’t just about
closing the books, delivering financial reporting, or publishing
KPIs; it is about creating value in the business in part by working
cross-functionally to deliver measurable margin improvement.
❖ Collaborate cross-functionally: Just as agile software develop-

Expansion
ment requires collaboration and interaction across teams, so

Margin
too does cost optimization. Create a cross-company culture that
rewards and incentivizes your teams to look for cost-improve-
ment opportunities and then empowers them to go capture
those opportunities.
❖ Create a backlog of cost-improvement opportunities: In the
way that product development work is guided by a backlog (a list
of work for the development team, prioritized by importance), so
too should your cost optimization efforts be guided by a “mar-
gin improvement backlog.” Identify all the opportunities in your
business to expand margins, and prioritize these opportunities
based on the “size of the prize” and the “cost to capture.” Dynam-
ically reprioritize this backlog based on new learnings about your
business.
❖ Measure and monitor: Just as working software is the primary
measure of progress in agile product development, actual cost
reduction is the primary measure of any cost-optimization effort.

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Therefore, measure the impact of your cost-reduction projects,

monitor their performance continuously, and adjust or reprior-
itize as needed.

“We made gross margin improvement an evergreen, continuous improve-

ment initiative. We knew this could be a big needle mover in our business,
so we kept hammering away at it, quarter after quarter. Like ongoing
product development, we kept it resourced, had clear improvement tar-
gets each quarter, and just kept at it.”
—10-Bagger CEO

❖ ❖ ❖

The winning moves we just covered get at how to approach cost-opti-

mization generally. Now, let’s dive into a few specific cost-containment
opportunities on a B2B company’s P&L that are often ripe for the picking.

Winning Move #79

Identify and act on opportunities to strategically outsource
“Do what you do best, and outsource the rest.”
—PETER DRUCKER
Outsourcing—hiring an outside party to perform services otherwise
performed in-house—is not a new idea. Heck, people have been outsourc-
ing ever since tribes of cave people outsourced cave security to the macho
neighboring tribe in exchange for animal pelts and berries.
Flash-forward to the post-industrial era, and the practice of outsourc-
ing is widespread—though still a polarizing and sometimes politically
charged idea. For every company for which outsourcing has been a major
boon, you’ll find another that is eager to share cautionary tales of epic
outsourcing failures—like that time in 2008 when I outsourced the admin-
istrative tasks that were cluttering my daily schedule. My recently-hired
offshore virtual assistant convinced me to buy him a brand new laptop
to work from home as he “allegedly” battled dengue fever. But after I hit
“purchase,” I never saw that guy (nor the laptop money—$1,500!) again.
#OutsourcingFail
Despite outsourcing not being a new or novel idea, and one that’s rife
with execution risk (and apparently, dengue fever-scam risk), companies
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that haven’t developed a habit of thinking critically about and acting on

outsourcing opportunities could be missing out. When executed well and
in the right areas, strategic outsourcing can help companies:
❖ Reduce operating costs: For example, software companies pay-
ing $30/hr. for testing and QA specialists can offshore software
QA to India for closer to $6/hr.—80 percent cheaper. One execu-
tive from Vista Equity’s value creation team said, “We find lots of
opportunity, especially in software businesses, to leverage cheaper
cost of labor elsewhere in the world. Labor arbitrage. This is one of
the levers we most often pull.”
❖ Improve focus and free up resources: Outsourcing allows your
team to free up resources and attention to focus on the core,
value-generating activities that are the best use of their efforts
and core competencies. When my last firm decided to outsource
NDA review—historically a significant drain on highly paid invest-
ment professionals’ time—we instantly recouped many hours
per month that could be refocused on the most value-generating
activity within our business: getting deals done.
❖ Access to best-in-class capabilities: In the early days of the out-
sourcing wave, cost reduction was the most common reason to
outsource. But increasingly, companies are recognizing that, in

Expansion
many cases, strategic outsourcing can allow you to save money

Margin
and access best-in-class capabilities at the same time. Bingo
bango!
What exactly do I mean by “strategic outsourcing”? Strategic outsourcing
is turning over an entire process (e.g., lead generation) to an outsourced
provider, unlike tactical outsourcing, wherein a specific component of
that broader process (e.g., the landing page copy part of lead generation)
is outsourced. Both can be valuable, but strategic outsourcing—when
executed effectively—has much greater potential to transform your cost
structure.

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Winning Move #80

Strengthen your vendor sourcing, selection, and
management
Upwards of 30–50 percent of a B2B company’s total spend is on outside
vendors and service providers. That’s big potatoes. But often, spending
on third-party service providers doesn’t generate the return it should or
could. We call it ”vendor leakage.”
When vendor leakage happens, it is easy to point the finger at the ven-
dor itself. But doing so does little to get these partnerships and their value
back on track. First, business leaders have to look in the mirror. And when
they do, many B2B companies that aren’t getting maximum value out of
their vendor relationships—and wasting money as a result—realize that
factors within their control such as poor vendor selection, weak vendor
management, and poorly structured vendor agreements are the culprit.
Here are five ways to lower cost and increase the ROI on vendor spend:
❖ Review vendor contracts periodically: Every year, at a minimum,
companies should review their vendor contracts, determine the
value they’re delivering, consider what has changed, and identify
areas to renegotiate to reduce spend or improve value.
❖ Source and select vendors more systematically: Develop objec-
tive criteria for selecting new vendors, solicit bids from multiple
vendors, and make a value-based decision.
❖ Reduce vendor fragmentation: Identify areas where your spend
is spread too thinly across too many vendors, and consolidate
your spending. The more business you do with a single vendor,
the greater your buying power and the more value you’ll be able
to secure from the relationship.
❖ Help vendors reduce their costs to serve you: The more you’re
able to help suppliers reduce their costs to serve you, the less
they’ll need to charge you for their services.
❖ Measure and monitor vendor performance: Get aligned with
your vendors upfront on what success looks like, develop a way
to measure that success, and hold vendors accountable.

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Winning Move #81

Part ways with unprofitable or misfit customers
In Winning Move #77 on clean-sheeting your company’s cost structure,
we discussed how there are no sacred cows within companies with solid
cost discipline. Every line item on a company’s budget needs justification.
(Yes, even the CEO’s pet projects.)
The same thought process should extend to how companies think
about their customers. There should be no sacred customers—especially
the unprofitable ones.
It’s not uncommon to find segments of a B2B company’s customer
list that are way less profitable than the others. Some may be altogether
unprofitable. And often, we find ourselves with low-/no-profit accounts
because we simply brought on the wrong customers—an issue you can
get ahead of by referring to Winning Move #2 on targeting the right cus-
tomers.
When companies do the work to measure customer-level profitability
and realize they have low/no-profit customers, they have three choices:
1. Continue to service unprofitable accounts. The only situations
in which this could make sense are when:

❖ there’s brand value to having a particular logo on your cus-

Expansion
tomer list;

Margin
❖ you expect the account’s long-term value to justify incurring
short-term losses; or
❖ you are allergic to earning profits

2. Make these customers or segments profitable. Do this by

increasing the revenue (e.g., raising or restructuring price, mov-
ing to a higher pricing tier) and/or reducing the cost to service
these accounts (e.g., applying a low-touch service model to lower-
value customer segments).
3. Cut them loose. Part ways with unprofitable customers—with
love and respect, of course. In the way retiring less-profitable
products and services can have an immediate positive impact on
profitability (see Winning Move #61), breaking from unprofitable
customers is “addition by subtraction.”

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“I won’t fire unprofitable customers outright. But I will raise their price to
the point where either it’s more economical for me to justify continuing
to serve them, or they go somewhere else. Either outcome is better than
losing money on an unprofitable customer.”
—CRO of Private Equity-Backed Services Company

When you have the courage to part ways with unprofitable customers—
love them as you may—it can instantly boost profitability and free up
valuable account management and customer success resources to focus
on better serving your higher-value customers.

Winning Move #82

Enable customers to serve themselves
On a weeklong drive through New England a few years ago, my wife and I
pulled up to a gas station in Weymouth, MA, a beautiful little seaside town
outside Boston. I got out of the car to grab the pump and fill up when I
heard a voice with a thick Northeastern accent yell, “I gotcha covahed! No
self-service here.”
Little did we know, apparently pumping your own gas was outlawed
in Weymouth, leaving me wondering whether we had time-warped back
to the 1970s. So we waited ten minutes for the attendant to finish up the
other cars and come “get us covahed.”
I’m not an especially patient person (a fact my wife gently reminds me
of often), and I don’t care to be waited on. Maybe it’s the Midwesterner in
me. So naturally, I would have much preferred doing it myself and getting
on our way than waiting my turn for this nice fella to fill us up. I’m sure that
most gas stations would prefer this, too, given it would mean a lower cost
to serve.
In today’s instantaneous age, it turns out that most B2B customers
have similar preferences. A survey shows that the most important attri-
bute of a good customer service experience, according to customers
themselves, is a fast response time.⁸ When customers have a question or
an issue, they want an answer—and they want it right away!
Letting customers serve themselves plays to their preferences, given
that 2 out of 3 customers prefer to use self-service options (web portal,
FAQs, live chat, knowledgebase) over speaking with a company represen-
tative.⁹ And the kicker is: it’s also way more cost-effective.

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Based on a survey of 1,400 companies, roughly ten percent of the aver-

age B2B company’s revenue is spent on customer service. This number
can be higher for more service-intensive businesses, such as outsourced
call centers.¹⁰ But a McKinsey study finds that self-service can reduce the
cost of service by up to 40 percent.¹¹ For the average middle-market pri-
vate equity business, this can translate to six or seven figures’ worth of
cost takeout. That’s no chump change.

TAKE ACTION!
Head over to WinningMoves.co for more on empowering customers to
serve themselves, so you can reduce cost and improve your customer
experience at the same time. (Search self-service.)

Winning Move #83

Control margin leakage from “scope/service creep”
When Denver International Airport (DIA) opened in February 1995, it was
16 months behind schedule and a jaw-dropping $2 billion over budget.
Ouch!
Although the well-publicized debacle is an extreme example, the
story of DIA illustrates how mid-stream changes, accommodations, and
fixes can become supremely costly to a project—an idea that can apply to

Expansion
Margin
both building an airport and running a B2B business.
Too often, we see B2B companies unnecessarily giving away too
much economic value after a deal has been inked and work begins. Com-
panies undisciplined about managing customer projects might throw
in free services that weren’t part of the original scope, fail to charge for
changes to the scope, or neglect to enforce important terms of a scope
of work or customer contract. When this happens, the project or service
commitment expands—as do your costs—often without any correspond-
ing schedule or pricing adjustments.
The result is costly margin leakage, and it happens most often in service-
based businesses, especially those that perform project-based work gov-
erned by a scope of work (e.g., agencies, consultancies, contractors, IT
service companies). However, margin leakage can also appear in software
businesses that are too lax about giving away valuable features, imple-
mentation services, etc.
A great place to start plugging margin leakage in your business is pin-

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pointing the holes. Ask yourself, Where are we giving away value that we’re
not getting paid for?
It could be giving away freebies or giving in to customers’ out-of-
scope demands. It could be underestimating project complexity and
incurring higher-than-expected costs to deliver the project. Whatever the
source, margin leakage arising from undisciplined project or scope man-
agement can be insidious and costly.

Winning Move #84

Optimize your customer acquisition spend
The average growth-stage B2B software company spends between 20
and 40 percent of revenue on customer acquisition (including marketing
and selling expenses), making this the largest spending category on most
software companies’ P&Ls.¹² Consequently, overspending or spending
ineffectively on customer acquisition can add up to big dollars.
My former jiujitsu teacher used to say that in a combat situation, you
want to go after and disable the biggest threat first. In the same way, if it
is cost efficiency you’re after, attack the biggest pot of money first: your
customer acquisition spend.
Many of the winning moves we covered in chapter 6 on market pen-
etration have the dual benefit of helping you acquire more customers
and reducing your cost of acquisition. Optimizing your customer acquisi-
tion spend can be such a valuable margin expansion opportunity that it’s
worth looping back around to it. Here are five actionable ways to reduce
your cost of acquisition:
1. Stop targeting the wrong prospects. We’ve beat this one up
pretty well by now, but don’t try to be all things to all potential
customers. Targeting a broad audience spreads your acquisi-
tion spend thinly, driving up your cost of acquisition and weigh-
ing on your conversion rate. Get clear on your ideal customer
(see Winning Move #27), and focus your spend on finding and
converting them.
2. Stop spending on unprofitable channels. By establishing rev-
enue attribution (refer back to Winning Move #35 on the topic),
you’ll be able to determine which customer acquisition channels
are performing and which aren’t. Identifying and weeding out
the low-performing channels—and reallocating that spend to

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higher-performing ones—can have an immediate positive impact

on margins.
3. Double down on the highest-returning channels. When B2B
companies can track performance by channel, they often find
that 20 percent of their customer acquisition spend produces 80
percent of the results. Identifying the 20 percent—it could be seg-
ments, channels, or markets in which your return-on-ad-spend
is the highest—puts companies in a position to double down on
what’s working. If your company has a great product and high
customer satisfaction, referrals tend to be an especially low-
cost/high-ROI channel (which we discussed in Winning Move #47
on customer referrals).
4. Utilize marketing automation. It is amazing how much leverage
marketing automation technology can give marketing and sales
teams nowadays. Using marketing automation tools—which
enable you to push automated nurture email sequences, execute
automated prospect follow-up, and plenty more—can increase
efficiency by automating time-consuming marketing tasks and
improve conversion rates by better targeting the right prospects
with the right messages at the right moment in the buyer journey.
5. Maximize time spent selling. The average B2B salesperson spends

Expansion
only about one-third of their time selling—which means tons of

Margin
wasted time and money. By helping your sales team maximize
their selling time (which we covered in Winning Move #50), com-
panies can reduce wasted time and lower their cost of acquisition.

Winning Move #85

Automate low-value, manual processes
In a survey of U.S. knowledge workers by MarketCube, almost 60 percent
said they could save six or more hours per week if their jobs’ repetitive
aspects were automated. If we apply this stat to the average $50 million
mid-market company with 200 employees, automating low-value, man-
ual processes could represent an up to seven-figure opportunity.
Case in point: At a company that I worked with a few years back, we
did a study across 100+ members of our operational staff and uncovered
over $2 million in efficiency gains by automating basic business processes:
order entry and fulfillment, customer support ticket handling, and AR/AP

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processing. These were real dollars.

Business process automation is about using technology to assist with
or take over manual, repetitive, and/or low-value tasks and processes.
It can involve assisting humans in being more efficient (not dissimilar to
Deep Sentinel’s “human-in-the-loop” model enables security guards to
be more efficient and effective; see Winning Move #68). Automation can
also do the work of humans, thereby freeing up human intelligence to be
utilized for higher-value tasks.
What’s more, not only can automation create significant efficiency
gains, but it can also reduce human errors and, in some cases, improve
customer experience at the same time.
Four types of processes are prime candidates for automation:
1. Processes with a high volume of repetitive tasks, such as granting
access to new users (an example I shared earlier) or answering
common customer support questions
2. High-touch processes involving multiple people, such as coor-
dinating calendars, onboarding employees, or scheduling
employees
3. Time-sensitive processes tied to a trigger event, such as issuing
an order confirmation after purchase or initiating a receivable
after a purchase was finalized
4. Processes that need audit trails, such as compliance reviews and
month-end closes
Oh, and here’s the kicker: Automation often allows employees to spend
time on the more interesting and rewarding aspects of their job, which
helps improve employee engagement. In fact, 78 percent of respondents
to the MarketCube survey said they would do just that. This is good for
them and great for your company’s bottom line.

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 C H A P TE R 11

EXECUTE STRATEGIC
ACQUISITIONS

Acquisitions
Strategic

They say that success compounds when you find what’s working
and do more of it.
Some years back, at my prior firm Alpine Investors, we noticed a pat-
tern emerging. In each of our most successful portfolio company exits
from the prior few years, we had made two or more strategic add-on
acquisitions during our hold period. As we saw this bright spot—the rela-
tionship between add-ons and returns—glowing increasingly brighter,
we thought, “How do we hit the ‘More!’ button on add-ons?” Completing
add-on acquisitions quickly became a key pillar of our value creation
strategy.
 WINNING MOVES

As it turns out, when it comes to recognizing the returns-enhancing

power of strategic acquisitions, Alpine isn’t alone. According to a survey
of private equity professionals by BCG, strategic acquisitions—executed
by 91 percent of the firms surveyed—have become the most common
approach to growing the value of portfolio companies.¹
The “buy-and-build strategy”—buying a company, then building on
that platform through add-on acquisitions—has steadily grown in popu-
larity since the early 2000s.² In 2004, add-on transactions accounted for
roughly 43 percent of private equity deal volume, whereas in 2020, 71 per-
cent of deals were add-ons.³ And at the time of this writing, 2021 has seen
a tsunami of add-on activity. U.S. M&A is poised to set records for add-on
acquisitions (both in the number of add-ons and their percentage of over-
all buyout activity), topping a banner year in 2020.⁴
Looking ahead, the surge in add-ons is showing no signs of slowing. In
a survey of CEOs by KPMG, 86 percent said that inorganic growth—acqui-
sitions—will be their main source of growth in the next three years.⁵

Why Strategic Acquisitions

Have Taken Center Stage
One reason stands out among a few other reasons for this growing tide
of add-on activity: When executed well, the buy-and-build strategy flat
out works, which I not only saw firsthand as an investor but also came to
really understand as I dug into the research.
A study by AT Kearney shows that the equity value growth rate of
“serial acquirers”—companies that make at least one acquisition per
year—is a full 25 percent higher than those that make no acquisitions.
Another study by BCG shows that the overall IRR of a buy-and-build deal
(one involving at least one add-on acquisition) is a staggering 8.5 percent
better than that of a standalone deal.
This flies in the face of a dated and generalized stat that’s often waved
around by M&A skeptics, which states that “70-90% of acquisitions fail.”
Surely, acquisition growth isn’t foolproof, and there’s no shortage of sto-
ries about botched acquisitions out there—like AOL/Time Warner, Nokia/
Microsoft, Kmart/Sears, to name a few. Executing acquisitions success-
fully is hard stuff and fraught with risks. But with each passing year, inves-
tors increasingly recognize just how powerful a return-driver add-ons can
be when executed well—and they seem to be getting better at doing so.

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When executed effectively, strategic acquisitions can positively

impact a company’s exit value in four distinct ways: (1) greater revenue
(via revenue synergies), (2) lower cost (via cost synergies), (3) lower cost of
capital, and (4) higher exit multiples.
Among those four, the biggest factor driving the superior perfor-
mance in buy-and-build deals is multiple expansion, which accounts for
most of the performance variance between standalone and buy-and-
build deals. A study of 121 buy-and-build deals by BCG shows:
Multiple expansion is the main engine of superior
performance in [buy-and-build] deals. Leverage reduction,
revenue growth, and widening margins, of course, contribute
to higher returns. The contribution of multiple expansion
to the IRRs of buy-and-build deals we studied was 15.3% on
average, compared with 7.5% in standalone deals.⁶
The researchers are right to point out that revenue growth and margin
expansion within successful buy-and-build deals help drive exit multiples
higher. As I highlighted early in the book, these different value drivers are
mutually dependent and reinforcing.
But one other reason why buy-and-build deals can fetch a higher mul-
tiple—beyond the revenue growth and margin expansion that can be gen-
erated in buy-and-build deals—is that buyers simply like these deals more
because they know they keep doing more add-ons (and capturing all the
benefits that accrue) on their watch.
Acquisitions
“Wall Street is willing to pay a premium for the cash flow of Strategic
frequent buyers and gives these companies a higher-valued
equity currency—which they can use to fund more deals.
Frequent buyers demonstrate an average 10.8x EV-to-EBITDA
multiple, whereas non-buyers demonstrate an average 8.3x
multiple.”⁷
Another contributing factor to the surge in add-on activity is the growing
pile of capital that investors need to put to work quickly. Because inves-
tors generally have a higher probability of winning and closing an add-on
than a platform (given they already have a business in the space, which
can create a buying advantage), a greater percentage of that capital is
being pointed at add-ons.
What’s more, investors are finding add-ons to be a good way to con-
tend with stratospheric platform deal multiples in today’s market. Jus-

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tifying the initial acquisition of a relatively expensive platform company

is easier for investors if they have confidence they’ll be able to tuck in
smaller add-ons that can be acquired at lower valuations later on.⁸
It’s a bit of the same logic that I used to rationalize my $650 purchase
of the Sonos Playbar speaker/receiver. I’m a tightwad, so sleek as the
Playbar is, I initially balked at the high price. But when I considered that
once I’m in the Sonos game, I could add on smaller, way more economical
$159 Play 1 speakers to my Sonos sound system down the line—and really
make that puppy sing—the decision to buy the expensive Playbar upfront
was justifiable. I assured my wife that I could buy down my overall cost of
ownership over time. (Shockingly, she didn’t really buy that logic.)
If we peel back the buy-and-build business case one layer further,
we find even more arguments in favor of pursuing add-ons, including the
benefits of diversification, reduction of risk, elimination of competition,
removal of excess capacity from the market, and more.
As strong as the merits are, before we get too drunk on the add-on
Kool-Aid, it’s important to acknowledge that, as with many strategies,
add-on acquisitions can be considerably more difficult to execute—and
reap the rewards of—in practice than it may seem on paper. Although the
median buy-and-build returns are indeed attractive, as we saw earlier,
it’s not uncommon to see even the most sensible acquisition thesis fail to
deliver the targeted results in the real world.

Easier Said Than Done

When a private equity firm is considering an add-on that is truly strategic
to the acquiring business, it is often quite easy to pencil out a scenario in
which the two businesses are worth way more together than they would
be apart. Take a little revenue synergy, sprinkle in a dash of cost synergy,
and lever that puppy up—and voilà, your IRR shoots through the ceiling.
One of the forefathers of management, Peter Drucker, said of acqui-
sitions, “Financial synergy is a will-o’-the-wisp. It looks good on paper but
often fails to work out in practice.”
Remember the discussion on Ivory Tower Syndrome from earlier in
the book? Just because a strategy or synergy opportunity seems like a
sure bet in theory —as we look at our financial model from the comfort of
our ivory tower—doesn’t mean that strategy will survive contact with the
real world. This can play a role in explaining why an investor-driven buy-
and-build strategy may not play out as modeled.

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To bridge from a good, sensible strategy to real, tangible results, buy

and builders must navigate and contend with a whole host of operat-
ing, cultural, organizational, and change-management challenges—and
ever-changing market dynamics. It all sounds plenty navigable in theory,
but in practice, making strategic acquisitions work is easier said than
done.
Let’s illustrate with a quick example. Achieving channel synergy (sell-
ing an acquired company’s product through the platform company’s
existing channel, or vice versa) looks pretty straightforward on a spread-
sheet and seems like a slam dunk from the comfort of the ivory tower.
We tell ourselves, “If we just have our reps sell the acquired product to our
existing market, it will rain revenue. It’s a sure bet!”
Seems like a bulletproof business case, in concept. But in reality,
there’s a bit more to it than sticking an acquired product in our reps’ bags,
sitting back, and watching the new orders flood in. To assess this synergy
opportunity, we have to look up from the spreadsheet and ask certain
second-order questions:
“Is the acquired product or service actually bought by the
same economic buyer as those that our current channel
targets?”

“Do those buyers actually have an appetite for the acquired

product or service? The budget? The authority to purchase?”

“Is the acquired product or service understandable enough Acquisitions

Strategic
for current reps to sell (without needing extensive, costly
training)?”

“Are the incentives designed such that your existing reps will
be motivated to promote the acquired product?”
Here’s another example of a time when “it look[ed] good on paper, but
[failed] to work out in practice,” as Drucker said:
Eliminating redundant customer service or account management
headcount (as a means of achieving profit-boosting cost synergy) seems
plenty sensible as we’re looking at headcount on a spreadsheet. That is
until we dig deeper and recognize that those seemingly expendable cus-
tomer service professionals have real, human relationships with critical cus-
tomers. And we also realize that those relationships may play a big role in
whether the customer will continue to do business with the target company.

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We sometimes fail to consider that when, say, Amy, the Account Man-
ager gets her pink slip as part of the post-acquisition “cost transforma-
tion,” she walks out the door with years of irreplaceable product knowl-
edge and tons of customer relationship equity built up in her personal
bank. And just like that, this cost-savings opportunity we modeled is
quickly offset by revenue risk.
Overestimating deal synergies in the ways these examples illustrate—
or underappreciating the complexities or execution required to achieve
them in the real world—can become problematic when we use synergy
expectations to justify doing a deal at a given price. Consequently, it’s not
uncommon to see ill-conceived or poorly executed add-on acquisitions
fail to recover their acquisition premiums.

One Plus One Equals Two Three

By that same token, underestimating synergy value can be as problematic
as overestimating synergy value. This happens when investors and execu-
tives fail to identify, let alone capture, potentially lucrative synergies.
Most investors and buy-and-build executives will nail the easy ones,
such as eliminating redundant back-office functions (most companies don’t
need two heads of HR), consolidating spend on hosting to secure lower ven-
dor pricing, or reducing real estate footprint and expense by consolidating
offices—just to name a few classic pieces of low-hanging fruit.
But sometimes, the meatiest, most valuable synergies aren’t the
obvious ones. Here’s a somewhat obscure example:
In its acquisition of Adams, the maker of Halls medicated confection-
ery and Dentyne chewing gum, Cadbury Schweppes exploited Dentyne’s
radical flavors and formats (e.g., its unique pellet shape) and spiced up
its own gum offering relatively quickly in the saturated Western European
markets.⁹ Who would have thought that Tango Mixed Fruit flavoring could
create significant revenue synergy?
In another case, simple, low-cost, informal idea-sharing across
acquired companies that were part of a local residential services (plumb-
ing, HVAC, electrical) consolidation ended up leading to considerably
more revenue lift than was modeled. And these synergies were only iden-
tified after we got the functional leads from the acquired companies into
a room together to talk shop.
When this happened, it turned out that Add-On A was great at online
customer acquisition, and its marketing manager was able to teach

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Add-On B a few quick conversion rate optimization hacks that went on to

reduce their cost of customer acquisition by nearly 20 percent. This trans-
lated into an immediate revenue lift at Add-On B.
Conversely, Add-On C had a “sewer cam” that allowed technicians to
identify plumbing and sewer issues visually while on service calls, which
better positioned them to sell repair work or perform preventative main-
tenance then and there. When Add-On A and Add-On B learned about this
and invested in these low-cost cameras, they immediately saw a ten per-
cent increase in average revenue per visit.
Although these synergies were difficult to foresee at the time of
acquisition, they arose simply by applying one acquired company’s best
practices to the other firms within the portfolio.

❖ ❖ ❖

The bottom line here is that when sized up accurately and executed well—
which the rest of this chapter is dedicated to helping you do—strategic
acquisitions can be significant contributors to an epic value creation story.
But the road to add-on success is littered with landmines. So before I jump
into the specific, actionable winning moves, let’s talk about a few overarch-
ing factors that can make or break your strategic acquisition success.

The Overarching Keys to Success

in Strategic Acquisitions
Acquisitions
Success Factor #1: Have a strategy, and stay true to it. Frankensteining Strategic

together a bunch of loosely-related businesses or reactively acquiring any

loosely-related company that comes to market without a clear guiding
strategy is at best haphazard and, at worst, disastrous.
One 10-Bagger CXO, whose company has done upwards of 20 acquisi-
tions over the past ten years, told me:
“When things can really go wrong is when you’re just doing
M&A because your board said you should, or because some
random deal just came to market. It isn’t in furtherance of a
bigger vision and isn’t aligned with a clear strategy. This can
lead to a dangerous lack of focus and a lack of discipline, and
can quickly lead you off-track from your overall vision and
strategy.”
This is a recurring theme I heard from the most successful buy-and-build

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investors and executives I interviewed. Every last one highlighted the

importance of having a well-developed business strategy, being clear on
the ways M&A will support that strategy, and knowing what they’re look-
ing for in an acquisition so that it aligns with that strategy.
I recommend that you think of strategic acquisitions not as the strat-
egy itself but as a means of achieving or accelerating your overall strat-
egy. This may seem like semantics, but the distinction is important. One
mega-successful M&A executive put it well when he said, “Our acquisitions
don’t dictate our strategy. Our strategy dictates what we acquire.”
So for starters, simply ask yourself, “What is our company’s winning
strategy? And what role can acquisitions play in enabling or accelerating
that strategy?”
If your board and leadership team is not clear and aligned on those
two questions, in that order, then don’t pass “go.” Close your checkbook
until you’ve squared this off.
You can slice this even more finely by asking yourself, “How could we use
M&A to”:
❖ make our existing customers stickier (customer retention);
❖ generate greater revenue per customer (customer expansion);
❖ build greater density in our existing market (market penetration);
❖ add new products to the bag (product expansion);
❖ launch into new markets (market expansion);
❖ grow our margins and achieve greater scale efficiencies (margin
expansion); or
❖ access new capabilities that can help us to do any of the above?
Success Factor #2: Better to go deeper, not wider. As dry foods conglomer-
ate Quaker Oats learned the hard way in its failed acquisition of beverage
company Snapple in the 1990s, and as the pioneering chip manufacturer
National Semiconductor Corporation learned in an ill-fated foray into
consumer electronics via acquisition in the 1970s, the farther an acquisi-
tion strays from your core business, the greater the risk of failure.
In the 1990s, private equity-backed Aurora Foods went on an acqui-
sition binge, purchasing various unrelated, orphaned food brands (e.g.,
Mrs. Butterworth syrup, Van de Kamp’s frozen foods, and others). But the
value they expected to generate by acquiring across the grocery’s aisles
never materialized. Aurora learned the hard way that premium boxed
food in the dry goods section and budget TV dinners in the frozen aisle are
very different businesses, requiring different operating and manufactur-

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ing capabilities and targeting different buyers.¹⁰ This case study and oth-
ers like them demonstrate the risk of acquiring your way into unrelated or
strategically dissimilar businesses.
By contrast, we know from research that the most successful acqui-
sition strategies are the ones that take a platform company deeper in its
core market rather than use acquisitions to expand into adjacent mar-
kets. According to a 2016 study by BCG,acquisitions that deepened an
acquirer’s penetration in a given space generated an average IRR of 43.5
percent, compared with 16.4 percent IRR for deals that moved an acquirer
into an entirely new market.¹¹
This isn’t to say that transformative add-ons don’t have a role in an
acquisition strategy, nor does it mean that being successful by acquiring
your way into new markets is impossible. But as a general rule,
when it comes to add-on acquisitions, the closer to the
core, the higher the likelihood of success.
A report on buying and building from Bain & Company reminds us, “Each
step away from the core creates distance between the acquisition and what
the company does best.”¹²
Success Factor #3: Buy and build in the right markets. When it comes
to the overall feasibility—and success potential—of an acquisition strat-
egy, the market you’re positioned within matters.
It’s a bit like playing poker. Successful players (present company not
included) recognize that what’s often more important to success than your
actual poker skills is which table in the casino you choose to sit at, includ- Acquisitions
Strategic
ing who’s playing there, how many competitors are playing there, and how
rationally or irrationally they’re playing. As the late Zappos founder turned
amateur poker player Tony Hsieh says in his book Delivering Happiness,
“Table selection is the most important decision you will make.”
The same idea applies to investing generally and the buy-and-build
strategy specifically. If you’re going to pursue add-on acquisitions, make
sure the table you’re sitting at—the market your company is planted in—
provides the right conditions for buy-and-build success.
According to the BCG study I mentioned earlier, several potentially
surprising industry characteristics correlate with add-on success:
❖ Add-ons in low-margin industries deliver considerably better
returns than add-ons in high-margin industries (46.1 percent vs.
18.3 percent).
❖ Add-ons in lower-growth industries (less than 11 percent CAGR)
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tend to produce considerably better returns than add-ons in

higher-growth industries (41.7 percent vs. 16.3 percent).
❖ Add-ons in highly fragmented industries (based on the Herfind-
ahl-Hirschman Index—a gauge of industry concentration) out-
performed those in highly concentrated industries (42.2 percent
vs. 25.3 percent).
Of course, other market-level factors impact the potential for success in
a buy-and-build strategy: the size of and adoption within the addressable
market, number of buyers in the space, cyclicality of the space (which can
impact the ability to finance add-on acquisitions), and more.
Success Factor #4: Ensure you have a strong, add-on-ready platform.
Bolting high-potential acquisitions onto a weak platform is like trying
to hang an expensive piece of art on a wall made of cotton. Doing so can
quickly be value destructive, and the whole thing can come tumbling down.
To maximize the chance of success, the acquiring platform needs to
be solid, stable, cash-flowing, and infrastructure-rich. You need a man-
agement team that’s both fit for purpose for a buy-and-build strategy and
capable of operating at the scale you’re building toward. Having a strong,
add-on-ready platform is important to the post-closing success of the
add-on and to ensuring a lender will actually underwrite the deal.
Success Factor #5: Develop a clear value creation plan (including syn-
ergies) upfront. A successful add-on acquisition is one in which the com-
bined business can create more value than either party could alone. Logi-
cally, you want to be clear on where that value will come from—and have
confidence that the juice is worth the squeeze—before stroking a big check.
In strategic add-ons, the bulk of the value creation comes by way
of synergy. Despite being the perennial winner of the “Annoying Private
Equity Buzzword of the Year” award, synergy is critically important to
add-on success. If you’re a seasoned investor or experienced buy-and-
build executive, you probably know this already; but for completeness,
let’s quickly spin through the four different types of synergies to help you
think broadly about where value creation opportunity can lie:
❖ Revenue synergies: Generally speaking, although revenue syn-
ergies can take longer to capture, they tend to generate greater
value than cost synergies, in part because you can only take out
so much cost from an acquired company.¹³ Possible revenue syn-
ergies depend on the acquisition profile and overarching strat-
egy but can include the following:

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Cross-selling each company’s product to the others’

customers
Selling each company’s products through the others’ channels
Bundling or packaging products together such that the
combined offering is more attractive to customers than the
components are
Gaining access to new markets not previously accessible to
the other company
Reducing or eliminating competition, which can make for
shorter sales cycles, higher close rates, and greater pricing
power

❖ Cost synergies: Bringing together two companies can create

cost-saving opportunities thanks to the following:
Reduction of overhead (e.g., in most cases, you won’t need
two CFOs)
Greater marketing and sales efficiency (e.g., pushing newly
acquired products through existing marketing channels
can increase lifetime value and potentially lower cost of
acquisition)
Elimination of redundant systems (e.g., no need to spend on
developing and maintaining two content-delivery platforms if
Acquisitions
they can be consolidated) Strategic

Greater purchasing power (e.g., the larger the employee base,

the greater the ability to negotiate lower medical premiums)

❖ Financial synergies: There can be big financial advantages to

bringing together two businesses:
Greater debt capacity in the combined business
Lower cost of capital, thanks to greater size and less business
risk
Potential tax benefits (e.g., deductibility of acquisition debt/
interest expense)
Higher exit multiple (the market tends to assign higher
valuations to larger companies)

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❖ Knowledge synergies: Although they can feel a bit squishier than

hard-dollar revenue and cost synergies, don’t underestimate the
value of what we’ll call knowledge synergies: exchanging know-
how, trading best practices, and sharing resources and capabili-
ties across acquired companies.
The M&A leader at one serial acquirer in the education space
told me, “Our best acquisitions have been the ones where each
company is bringing something unique— know-how, capabilities,
expertise—to the table that is distinct and valuable to the other
company. This creates an amazing give-and-take. And we’re very
deliberate about finding ways to share and leverage these things
across acquired companies for the good of the whole.”

❖ ❖ ❖

When we reduce the success formula down to its most basic ingredients,
strategic acquirers need to be good at four things:
❖ Knowing what they’re looking for
❖ Finding and selecting the right deals
❖ Getting those deals done at the right price
❖ Harvesting value from the combination
I’ve tapped into the wisdom of more than a dozen private equity leaders
and uber-successful buy-and-build CEOs and asked them to share their
keys to success in these areas. I then dumped their combined 200+ years’
worth of perspective into a big pot and boiled it all down into the handful
of winning moves that follow.

Winning Moves:
Execute Strategic Acquisitions

Winning Move #86

Place the right people for the job
There’s a universal idea that applies to all the winning moves I’ve covered:
If you want to make the winning move successfully, you need the right
person or people for the job. Spoiler Alert: this is something I really harp
on in chapter 16. Given the complexity, enterprise risk, and high stakes

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 DAN CREMONS

associated with strategic acquisitions—and the frequency with which our

buy-and-build gurus highlighted it—I thought it deserved special mention
in this section at the get-go.

“We always try to build the M&A muscle within the business. That business
will be more valuable if M&A capability is owned, not rented.”
—Head of Value Creation Team, Mid-market Private Equity Firm

If your company is serious about pulling the strategic

acquisition lever, start with the “who.”
First and foremost, is your CEO fit for an acquisition strategy? Have
they successfully led acquisitions before? Do they have the skills and pat-
tern recognition needed to spearhead the strategy successfully? Before
private equity ownership, most founder-CEOs focused largely on organic
growth and, as a result, generally lack experience in executing M&A.
Second, who will drive the execution of the acquisition strategy?
What skills do they need to drive it effectively? What supporting cast will
they need around them?
In the early days of a buy-and-build strategy, a company may choose
to leverage the resources their private equity partner can offer to source
and execute deals and support the integration. This is great to start out.
However, several of our experts agreed that, over time, as you begin to
gain traction, you want to build out these capabilities in-house within the
portfolio company. You want to own this critical M&A capability, not rent Acquisitions
Strategic
it from your private equity sponsor.
As one experienced private equity partner involved in several suc-
cessful buy and builds shared with me:
“If you are serious about doing add-ons and want to be
successful, you need someone at the company who is going
to wake up every morning thinking about this. You need
someone who knows what you’re after and is focused on
building the deal pipeline. You need someone whose job it
is to make sure you’re disciplined about doing due diligence
without cutting corners. You need someone who will make
sure that the acquired company gets integrated. Otherwise,
your acquisition effort will become an ‘extracurricular’ and
won’t get the focus it needs to make it successful.”

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Over time, this someone will evolve into several someones. At maturity,
a buy-and-build-focused company will often carve out specialized roles
responsible for finding and executing deals and leading integration—each
of which requires a distinct skill set to execute well.

Winning Move #87

Be clear on what you’re looking for upfront
In the same way that it’s tough to find the right engagement ring if you
have no idea what you’re looking for (*cough* or so I’ve heard *cough*),
it’s tough to find the right acquisitions if you’re not clear and aligned on
what you’re looking for upfront.
Knowing what to hunt for, as one successful private equity M&A
leader told me, must “start with the strategy,” as discussed previously in
Success Factor #1:
“Before we even talked about acquisitions, we spent the
time to get clear and aligned on a compelling vision for the
business—and a clear business strategy. With our board and
among our leadership team. This became our North Star.
Then, we worked backward and figured out the role that
acquisitions can play in that, and what we should be looking
for in those acquisitions.”
From this clarity should come an acquisition scorecard, a tool to help you
evaluate deals for strategic fit and separate the wheat from the chaff. By
and large, in fragmented industries in which buy and builds tend to be
most prevalent, there could be thousands of potential acquisition tar-
gets. The acquisition scorecard—which should specify your criteria for
size, margin profile, end market, geography, culture, and other character-
istics—will help you distinguish the good deals from the bad or strategi-
cally misaligned ones.
On that scorecard, distinguish between your “must-have” criteria and
your “nice-to-haves.” Identify “knockouts” or disqualifiers that should
cause you to put your pencil down and walk away when present in an
acquisition target.

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 DAN CREMONS

“One of the biggest reasons acquisitions go south: Seeing every deal as a

shiny penny, and not being clear and disciplined on what specifically you
want to buy.”
—ADAM COFFEY, Serial Private Equity-Backed CEO
and Bestselling Author

Why is creating and aligning on a deal scorecard important? Remember

Winning Move #27, which discusses how getting clear on your ideal cus-
tomer upfront—and focusing on acquiring only those customer types—
can help a company avoid a whole host of downstream issues (e.g., churn,
high cost to serve)? I suggested that when a company clearly defines its
ideal customer profile, it allows them to focus their marketing and sales
efforts on finding these customers specifically and avoiding the rest.
In the same way, getting clear on the ideal deal is important to ensur-
ing that acquisitions align with and support your strategy—instead of dis-
tracting from or derailing it. It can also help you avoid costly downstream
issues—such as the integration challenges that can arise when trying to
bring two companies together that don’t fit strategically or culturally.

TAKE ACTION!
Head over to WinningMoves.co for more on how to figure out what you’re
looking for and how to boil it down into a simple acquisition scorecard
that keeps your add-on efforts focused. (Search acquisition scorecard.)
Acquisitions
Strategic

Winning Move #88

Assemble and prioritize your target list
Good acquisition decisions come from having good alternatives.
The mos ment and prioritize it based on each segment’s fit, attrac-
tiveness, and feasibility. You may have your A list, B list, and C list, which
you can prioritize and target differently.

“If acquisition growth is part of our thesis, we mobilize on this quickly. We

start to create a list of targets with the CEO between sign and close and
start calling them on Day 1. In the first six months, it isn’t uncommon to
have one to two acquisitions done.”
—GILYANA LIDZHEEVA, Director of
Portfolio Operations, Frontenac

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 WINNING MOVES

Winning Move #89

Fill your PoT
As I write this, my wife and I are in the midst of a house hunt. In this crazy
housing market—where inventory is limited, and the seller has the upper
hand—we quickly realized that we can’t just wait around until houses
appear in the MLS listings. The good ones are unlisted and selling either
off-market or pre-market before they hit the online real estate sites. We’ve
had to get scrappy and be proactive about targeting houses we like before
they’re marketed widely and start knocking on doors.

“The key to our success [in completing 15 add-ons]: We were just able to
see a lot of opportunities. Good investment decisions come from having
good alternatives—and lots of them.”
—JOHN CARVALHO, Former PE-backed CXO, and Founder of
Divestopedia and Acquisition Playbook

Similarly, if M&A is a key part of your value creation plan, then opportunis-
tic buying—reactively waiting for deals to come to market before you take
a run at them—generally isn’t a winning strategy on its own. Companies
serious about growing through acquisition can’t expect to get good deals
done consistently without proactively “filling their PoT”—their Pipeline of
Targets.
In the way growth marketers need to keep their funnels chock-full
of qualified leads to keep a customer-acquisition engine humming, it
behooves serious acquirers to keep the pipeline full of acquisition targets
and constantly work that pipeline. And filling your pipeline and keeping it
full requires focus, consistency, and resources.
When you get clear on what you’re looking for and have mapped the
market, the question becomes, How do you go after these targets and fill
up your funnel with acquisition prospects?
What’s cool is that acquirers can draw on some of the same proven,
time-tested principles of outbound and inbound marketing successful
marketers use. Refer to the TOFU winning moves in chapter 6 (Winning
Move #42–49), and ask yourself, How could we adapt and apply this win-
ning move to build our acquisition pipeline?

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 DAN CREMONS

TAKE ACTION
Hop over to WinningMoves.co for five proven ways to drum up more
acquisition opportunities and fill up your PoT! (Search pipeline of tar-
gets)

Winning Move #90

Be deliberate about building a reputation as the acquirer of
choice
Want to know the best way to turn companies on your target list into red-
hot opportunities? Make your target companies excited to sell to you!
Becoming the buyer of choice in your space is easier said than done. When
you’ve achieved that unofficial designation, however, it can kick your
acquisition flywheel into high gear.
When it comes to how to do this, here’s a great place to start: Ask
yourself, “What matters most to the sellers we’re trying to attract? And how
can we reverse engineer our messaging, approach, and acquisition model
to appeal to that?” Here’s an even more expansive, thought-provoking
question: “What would need to be true to win over every seller we target?”
I talked to several CEOs and CXOs with experience building success-
ful acquisition engines—who, on average, will acquire four companies this
year alone. I asked them how they have been able to convert deals so con-
sistently. Here are the big themes that came from those discussions, each
of which will help you understand how to build a reputation as the buyer Acquisitions
Strategic
of choice in your space:
❖ Solve for the sellers’ needs: Great salespeople listen for and try
to solve their prospect’s needs. Likewise, effective acquirers tune
into what selling founders care about and try (best they can) to
solve for that. One executive shared:
“Instead of starting with our goals and needs, I always start
with the sellers.’ ‘Tell me your goals. What do you want to do
with your life? What are you looking to get out of this? What
is most important to you? What are you wanting to do on the
other side?’ We’re then going to structure our approach to a
deal around helping them achieve those goals the best we
can. And if we can’t, we’re probably not the right partner.”

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❖ Reputation is everything: It’s the most valuable tool you have to

source deals. As one CEO told me:
“We’ve become the clear buyer of choice in our space by doing
what we say we will do. This is the most important long-term
key to add-on success, and we’ve been focused on building
that kind of culture from Day 1. ‘Being a good partner’ is a
total cliche in M&A, but if you acquire companies and fail to
be a good partner—fail to live up to the commitments you’ve
made, fail to take care of the company and its people—word
will get out, and your add-on engine will come to a screeching
halt.
This is especially true in insular markets where all of the
companies you’re pursuing talk to one another. . . and word
will quickly spread that sellers should beware.”

❖ Build a track record: Becoming the “buyer of choice” is way easier

when you have a track record of acquiring companies and making
them better and more successful than you found them. Naturally,
sellers prefer being acquired by companies that accelerate their
success—not only because they want to see their company be suc-
cessful, but it especially matters for those who will have a finan-
cial interest in the combined company post-acquisition. Lucky for
you, this chapter and its winning moves were written to help you
be successful in strategic add-ons such that you can build a track
record.

“The easiest way to sell a founder on why they should sell to you: Have
a track record. This means multiple paydays for them. Show them the
money.”
—ADAM COFFEY, Serial Private Equity-Backed CEO and
Bestselling Author

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 DAN CREMONS

Winning Move #91

Stay disciplined, but be nimble
“Only when the tide goes out do
you know who’s swimming naked.”
—WARREN BUFFETT
We’re living in a time when private equity investors are swimming in cap-
ital, many corporate balance sheets are flush with cash, and the pres-
sure to put capital to work and get deals done is real. And with deal flow
and valuations at record highs, investors who get caught up in this deal
frenzy can easily slip into the trap of haphazardly making acquisitions
they shouldn’t. In doing so, they risk getting caught without the prover-
bial swimsuit when the tide lets out.
In this way, to draw on the wisdom of rapper Biggie Smalls, “Mo’
money, mo’ [risk of] problems”—IRR problems, that is.
For acquirers scrambling to put money to work, beware of the slip-
pery slope. In this environment, having the discipline to stick to your
acquisition scorecard is especially important. You should stay focused on
pulling the trigger only on deals that fit within your overall strategy at a
price that provides a sufficient margin of safety.
This may seem commonsensical to any experienced investor, but in
light of the pressure to put money to work, it’s easier said than done.
However, the successful serial acquirers I’ve interviewed consistently
emphasize the importance of staying disciplined in this way. As one suc- Acquisitions
cessful buy-and-build CEO said, “We’ve learned the hard way: One bad or Strategic

strategically misaligned deal wastes so much time and can be such a drag
on time and resources. We’re really disciplined about using our [acquisition
scorecard] to keep us honest and focused.”
Important as this is, there’s a caveat. Advising you to “stick rigidly to
your scorecard” doesn’t account for an important business reality: Mar-
kets, businesses, and their strategies change. Having a clear and strate-
gically aligned scorecard—and the discipline to stick to it—is important.
But it’s also important to stay nimble and evolve that scorecard as new
learnings roll in or as the inevitable strategic shifts happen.
One 10-Bagger M&A leader revealed:
“We’re clear about our strategy, what we’re looking for in
acquisition targets, and why. But as certain deals come up
that don’t fit our criteria, we may entertain them—primarily

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for learning, forming new perspectives, and avoiding getting

too narrow-minded. And we use that learning to revisit
both our business strategy and our [acquisition scorecard]
every quarter and say, ‘Should anything change about our
scorecard to account for our new learnings?’”
Contradictory as it may seem, this highlights the importance of both stay-
ing disciplined and remaining nimble so you can adapt as your learning
and thinking evolve.

Winning Move #92

Identify, size, and validate synergies early
So you’ve found an add-on acquisition that seems to fit your acquisition
scorecard like a glove. The founder also swiped right and is into you. But
now you have to decide whether to do the deal and at what price.
Making an intelligent add-on investment decision without identi-
fying, sizing, and validating synergies before pulling the trigger is not a
good idea. But doing this work pre-closing helps investors avoid overpay-
ing due to overestimating synergies or underbidding and losing the deal
because of underestimating synergies. It’s a fine line.
If you’re an investor, think of this process of identifying, sizing, and
validating synergies as an extension of your normal platform due dili-
gence. In this case, though, you’re doing due diligence on the combined
business, not just the to-be-acquired component. Here’s how:
❖ Identify: In what ways will these businesses be made more valu-
able together than they are apart? Examine the revenue syner-
gies, cost synergies, financial synergies, and knowledge syner-
gies (see Success Factor #5 earlier in this section).
❖ Size: Thanks to these synergies, what will revenue growth, mar-
gins, and multiples look like after these businesses are brought
together?
❖ Validate: How do we know those numbers are possible? And
what specifically needs to happen to achieve them?
Answering these questions pre-closing is a contrast to the “we’ll figure
it out after we close” strategy. This approach, if we can even call it one,
increases the risk of a bad investment decision and can cause you to lose
critical time post-closing.
By contrast, front-end loading this work makes for a smarter invest-

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 DAN CREMONS

ment and allows you to move faster on squeezing the juice from the com-
bination as soon as the deal closes (which I’ll discuss in the next winning
move). Time. Is. Money. Especially when it comes to synergy capture.
According to a Journal of Business Strategy study, successful acquirers
aim to capture roughly 70 percent of the targeted synergies in the first
year after the deal.

Winning Move #93

Develop your value creation plan pre-closing
You don’t get skinnier or fitter merely by looking at a diet plan. Likewise,
value creation and synergy capture don’t happen in an acquired com-
pany strictly by identifying, sizing, and validating your deal synergies on a
spreadsheet. Synergies, of course, don’t mean jack unless they’re realized.
So after you have a sense of where value will come from in the add-on
deal, you need to develop a clearly defined value creation plan that
answers the question, What actually needs to happen to make our acquisi-
tion thesis and its synergies come true?
Here’s the key: When it comes to your value creation plan, at the risk
of sounding like a 1980s American Express commercial, don’t go into a
deal closing without it.
One of the primary reasons add-ons fail to deliver the expected
results is poor preparation for the post-closing period. This happens when
investors focus too narrowly on getting the deal done and not enough on
making the deal pay off after they own the business. What actions they’re Acquisitions
Strategic
going to take. What priorities they’re going to focus on.
But successful acquisitions are ones in which you’re always working
a step ahead. You start with planning for and choreographing a glitchless
Day 1 well before closing. You know your post-closing value creation game
plan before you wire the funds. That sets the stage for a successful first
100 days, which is vital to building momentum to propel you to success
during the hold period.
In the case of an add-on, this value creation plan should certainly
include integration actions you’d typically find in an integration plan,
such as bringing employees onto the same benefits plan, showing those
employees where the bathrooms are in their new office, and communicat-
ing the acquisition to customers.
But a true value creation plan isn’t just about setting up laptops and
issuing new badges and shouldn’t be limited to the integration itself. Inte-

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 WINNING MOVES

gration is just one stepping-stone on the path toward the ultimate goal of
value creation. So really, your value creation plan should be about making
sure:
❖ you know where value creation will come from (including, but not
limited to, integration activities that will play a role in value cre-
ation);
❖ you identify the focused set of post-closing priorities needed to
make that value creation happen;
❖ everyone (including AcquiredCo, PlatformCo, and Board) is
aligned on those priorities;
❖ those priorities have clear ownership (including overall integra-
tion ownership), targets, and timelines; and
❖ you’ve allocated the needed resources to get the job done.
For more on how to approach value creation planning—whether for a
platform or add-on acquisition—check out chapter 17.

Winning Move #94

Win Day 1
“You never get a second chance
to make a first impression.”
— WILL ROGERS
First impressions can be lasting, and in no place is this truer (except
maybe speed dating) than strategic acquisitions. This is why I can’t over-
state the importance of nailing the first impression on Day 1 of a high-
stakes add-on acquisition.
Whether Day 1 is a smashing success or an utter belly flop can mean
the difference between winning the critical first 100 days and not. And by
extension, building momentum in the First 100 can mean the difference
between an acquisition that soars and one that sluggishly sputters along.
As a result, the Day 1 stakes are indeed high. According to M&A Partners’
The State of M&A Integration Effectiveness survey, companies that execute
Day 1 effectively outperform those that do not—by a wide margin.¹⁴
But winning Day 1 isn’t easy. Unfortunately for most acquirers, a psy-
chological phenomenon called “negativity bias,” in which people tend to
interpret new information or experiences (e.g., news of an acquisition)
negatively, means we have to work extra hard and against a strong cur-
rent to win Day 1 in the eyes of skeptical employees, customers, and other
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 DAN CREMONS

stakeholders. A change of this magnitude can be scary and met with resis-
tance, fear, uncertainty, and doubt.
How do you rise above the negativity bias and nail the first impres-
sion? Winning Day 1 comes down to three simple but important things
(which we get into how to execute in more detail at WinningMoves.co):
❖ Planning diligently: Day 1 sometimes gets overlooked as deal
teams are scrambling just to get the deal closed. Acquirers get
caught up in the deal, only to head into Day 1 flat-footed. And
they pay for it. The antidote? Have a Day 1 plan, create ownership
of the execution of that plan, and ensure clarity on who’s doing
what, when, and how within that plan.
❖ Communicating clearly, authentically, and empathetically: One
of the most harmful things you can do on Day 1 is nothing. Go
dark. Say nothing. So get clear on your key messages. Be trans-
parent and authentic. Meet people where they are. And have an
audience-centric communication plan to ensure the right mes-
sages are delivered through the right channels, proactively, and
on time.
❖ Creating direction: In Winning Move #92, I discussed the impor-
tance of creating clear post-closing priorities. On Day 1, you want
to be clear on these priorities, which creates a sense of direction.
Where do we go from here on the post-closing priorities? Who’s
involved? Who owns what? What does success look like? Over
what time period? What resources are being made available? Acquisitions
Strategic

TAKE ACTION
Jump over to WinningMoves.co for more on Day 1 planning, including
how to create a Day 1 communication plan that will help you nail the
first impression.

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 WINNING MOVES

Winning Move #95

Execute with speed and discipline post-closing
As anyone who has been in a race understands intuitively—and anyone
who has run an IRR calculation will understand mathematically—in cer-
tain things in life, speed wins. Generally speaking, post-closing value cre-
ation is no exception. The faster results happen, the better the returns,
right?
But often, strategic acquirers fail to heed this conventional wisdom
and pay for it greatly. Perhaps you’ve seen (or starred in) this movie before:
An acquirer has just closed a deal. And they’re exhausted! So they
slow-pedal the integration and put the post-closing priorities they estab-
lished in Winning Move #93 on ice while they catch their breath. They
get caught up on the things they had on the back burner and watch how
things play out at the acquired company.
And they rationalize this slow-rolled, laissez-faire approach by say-
ing, “Eh, it’s best just to wait and see what happens,” or, “Let’s give the
acquired company a chance to breathe, and we’ll pick things up at the next
QBR.” They encourage business as usual because the business is crushing
it, perhaps, and you don’t want to mess it up. Or maybe it is because they
fear rocking the boat with the changes they know need to happen.
In cases where there are gaps to address and opportunities to seize
in the acquired company, this lethargic approach to integration and value
creation can introduce two problems:
First, counterintuitive as it may feel, on Day 1 post-closing, a business
is its most change ready. Think of acquisition as a catalyst. Customers
often expect change due to a merger or acquisition, and they’re most apt
to accept change within a narrow window post-closing. Similarly, most
employees accept that acquisitions bring change and prefer that it hap-
pens right away instead of trickling in waves.
As one M&A leader of a successful serial acquirer—which had acquired
eight companies in 18 months—told me, “We learned that you have a nar-
row window in which an acquired company is most primed for change. So
move quickly. Time is the enemy of integrations.”
Second, you miss the opportunity to build momentum and start gen-
erating results. One successful buy-and-build CEO put it bluntly: “Quick
wins build momentum, and if you don’t build momentum early in an acqui-
sition, you’re dead.”

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So execute your value creation plan with speed and discipline by:
❖ Quickly mobilizing the troops on the post-closing priorities (the
ones you established in your value creation plan, thanks to Win-
ning Move #93). Get after these priorities with focus and disci-
pline.
❖ Making tough changes quickly when a newly acquired company
is most change-ready.
❖ Intentionally targeting and bagging some quick wins to get the
flywheel spinning at the acquired company.

Acquisitions
Strategic

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 C H A P TE R 12

PAY DOWN DEBT

Down Debt
Paying

In private eQuity-backed companies, all else being equal, a $1 reduc-

tion in debt equates to a corresponding $1 increase in equity value. Ergo,
generating cash—and using that cash to pay down debt (or “delever” as it
is referred to in the private equity sphere)—directly generates value.
This is a simple idea most private equity investors have understood
since Day 1 of investment banking training or since they got approved for
their first mortgage. It’s also the seed from which the original idea for the
leveraged buyout sprouted. What you may not know is that in the early days
of leveraged buyout investing (circa the 1980s), deleveraging accounted
for nearly 50 percent of the value created in buyout deals.¹ Nowadays, the
impact of deleveraging on overall return is considerably less.
 WINNING MOVES

Harnessing the return-enhancing power of deleveraging requires two

ingredients: (1) time and (2) consistent and growing free cash flow to pay
down debt and enhance equity value.
More time and/or more cash flow → less debt → greater equity value.
The value creation sources discussed in previous chapters—growing
revenue, improving margins, and executing strategic acquisitions—are the
primary means of generating and growing free cash flow. But there are also
non-P&L value drivers that can release cash and power deleveraging:
❖ Faster receivables collection through accelerated billing, making
it easier to pay, offering payment incentives
❖ Slower vendor payment by taking advantage of vendor credit
terms or payment-plan programs
❖ Stronger inventory controls, lower inventory requirements
❖ Capital equipment leased rather than purchased
For certain asset-intensive businesses, capitalizing on these cash-
enhancing opportunities can unlock a lot of value. However, less capi-
tal-intensive service and technology businesses (those without substan-
tial hard assets, inventory, or working capital) have less opportunity to
drive meaningful returns through these non-P&L value drivers. As a result,
I don’t spend time on these value drivers in this book—making Chapter 12
awkwardly but appropriately short—but would be negligent if I didn’t at
least call them out.

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 C H A P TE R 13

DRIVE MULTIPLE EXPANSION

“The value of a business is what someone

is willing to pay for it.”
—UNKNOWN
Expansion
Multiple

At the risk of sounding overly reductionist, the basic recipe for

success in a private equity deal has three key ingredients:
1. Buying well, which, as we have discussed, is getting tougher in a
maturing private equity market;
2. Growing EBITDA, which much of what we’ve covered in part 2 so
far is aimed at helping you do; and
3. Selling that EBITDA at a higher Enterprise Value/EBITDA multiple
 WINNING MOVES

(the conventional way buyout deals are priced) than you bought
it for—known in the biz as “multiple expansion.”
Chapter 11 stresses just how significant a return-driver multiple expan-
sion can be within buy-and-build deals. For example, buy ten $2 million
EBITDA companies for 5x EBITDA each ($100 million total purchase price),
smoosh them together successfully, and you might sell the combined $20
million EBITDA business for a much richer 10x EBITDA (which equates to
$200 million exit value). In this case, you’d be taking advantage of the
reality that larger companies generally command a higher multiple just
because they are larger.
Pulling this off isn’t as easy as just adding water, but in this simple
scenario, multiple expansion alone has the potential to create $100 mil-
lion worth of equity value ($200 million exit value minus $100 million pur-
chase price). That’s a lot of cheddar.
As this simple example illustrates, the reality is that multiple expan-
sion can indeed generate loads of value.
According to a 2019 Bain & Company study, multiple expansion
has been the largest contributor to value creation in the current eco-
nomic cycle, accounting for roughly half of all enterprise value creation.¹
Although various studies on value creation differ on which lever takes the
top spot, most seem to agree: A good chunk of equity value creation can
be attributed to multiple expansion.
Before we private equity investors and executives pat ourselves
proudly on the back for expanding all those multiples as a result of our
undeniable genius, we should acknowledge that we have systemic, mar-
ket-level factors to thank for much of this. To help explain this, we must
distinguish between market-driven multiple expansion and investor-driven
multiple expansion.
As I discussed in chapter 1, as equity capital has flooded the private equity

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asset class and debt has become cheaper and more abundant, private
market multiples have been driven up across all geographies and deal
sizes. That’s market-driven multiple expansion. Other market-level factors
beyond the glut of capital—improved business fundamentals, ballooning
public company valuations, greater private equity activity in fast-
er-growth and higher-multiple industries such as tech—have contributed
to the recent rise in multiples. This combination of factors has created a
rising multiple tide that has lifted many sellers’ boats.
Since 2010, the average market multiple for U.S. buyouts has
increased by almost five percent per year.² If you bought a business in
2015 for 8x with all else equal, at this multiple growth rate, you probably
could have sold it in 2020 for 10x. A business that you might have paid $100
million for in 2015 could have sold for $125 million in 2020, generating a
nice, levered equity return of almost 2x MOIC (Multiple on Invested Cap-
ital) and a nearly 15 percent IRR (assuming the amount of leverage typi-
cal in an average private equity deal) for doing basically nothing. Not too
shabby.
But the thing is, there’s no guarantee this market multiple tide will
continue to swell into perpetuity. Assuming history repeats itself, these
multiples will not remain this elevated forever. After all, what goes up
must come down.
So we can’t sit back and rely on systemic multiple growth to prop up
private equity returns forever. Private equity firms have to take multiple
expansion matters into their own hands—which I refer to as “investor-
driven multiple expansion.” Thinking back to our three key ingredients
from the beginning of this chapter, there are three ways to drive inves-
tor-driven multiple expansion:
First, buy cheaply. This isn’t a big focus of this book, partly because
achieving a true buying advantage has become tougher as the market
has matured and become more efficient. But hunting where others aren’t
Expansion

hunting, investing more aggressively in down markets, building a rep-

Multiple

utation as the “buyer of choice” in your market, or dropping anchor in

less-fashionable industries are all ways to buy more cheaply and thereby
lower your cost of entry.
Second, execute what I cover in chapters 3–12. The interesting thing
about achieving multiple expansion is that, in many ways, multiple expan-
sion is inevitable when investors and their portfolio companies success-
fully pull the levers we’ve already discussed.

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 WINNING MOVES

❖ The faster and more sustained the revenue growth and the
greater the scale, the higher the multiple a buyer will be willing
to pay. See chapters 3–9 on growing your revenue.
❖ The higher the margins, the higher the multiple a buyer will be
willing to pay. See chapter 10 on margin expansion.
❖ The stronger the track record of accretive add-on acquisitions,
the higher the multiple a buyer will be willing to pay. See chapter
11 on strategic acquisitions.
❖ The more capital-efficient a business is, the higher the multiple a
buyer will pay. See chapter 12 on paying down debt.

Regarding how to capitalize on these levers to expand your multiple,

I won’t retread the same ground we covered in the previous chapters. But
it’s important to draw the straight line between the ideas already dis-
cussed and the impact they can have on both growing your EBITDA and
expanding your exit multiple.
And third, layer on exit-specific winning moves to predictably
enhance your exit multiple—which this chapter covers. Because a private
equity seller’s levered equity returns are so sensitive to even the slightest
increase in exit multiple, the winning moves we’ll cover just ahead can be
some of the highest returning investments you can make. Let’s look at
this economically:
For a $20 million EBITDA business, getting an incremental half turn on
your exit multiple—like going from 10.0x to 10.5x—translates into $10 million
of incremental equity value, and by extension, $2 million of incremental car-
ried interest for general partners earning 20% carry. I don’t know about you,
but I wouldn’t mind having an extra $2 million lying around.

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In this scenario, if investing a few hundred thousand dollars (or a bit

of management time and brainpower) into actualizing one of the winning
moves we’ll discuss could translate into even a 0.5x higher exit multiple,
your ROI on that few-hundred-thousand-dollar investment could be 20x
or more!
So put your investor hat on for a moment. If you could invest one day of
management time each year in exit planning (as we’ll cover in Winning Move
#96) and know that it has the potential to generate even a 0.5x higher exit
multiple, would it be worth it? I hope your answer is, “Of course, it would.”
Or if you could invest $100,000 on a corporate development resource
to build a pipeline of actionable acquisition targets (as we’ll cover in Win-
ning Move #101), and know it has the potential to generate even 0.5x higher
exit multiple, would it be worth it? Again, you say, “Total no-brainer.”
In the process of writing this book, I interviewed many private equity
professionals, investment bankers, and certified exit planning advisors
and asked them, “What are the keys to success in driving multiple expan-
sion?” I then melded their answers with my own experience (I’ve been
involved in nearly $1 billion worth of exits myself), and some big themes
bubbled up.
Before we dive into the winning moves that can play the greatest
role in enhancing your exit value, let me share these themes so that we
don’t leave any valuable clips of expert wisdom on the cutting room floor.
Here’s a quick flyover of ten overarching success principles that are espe-
cially important to a strong exit and a beefy multiple:*

Ten Overarching Keys to Success in

Expanding Your Multiple
1. Build a great, attractive business. Let’s not overcomplicate this,
folks. The most direct way to enhance your exit value is to build an
Expansion
Multiple

amazing business that investors are lining up at the door to pay

up for. More attractive business = more buyer interest and com-
petition = higher multiple. This may feel like a blinding glimpse of
the obvious, but let’s not lose sight of this.

*This book isn’t intended to provide legal or financial advice, or answer all
conceivable questions about selling your business. Consult your attor-
neys, investment bankers, and accountants for expertise.
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 WINNING MOVES

2. Start planning early. One of the biggest mistakes I’ve seen—

which was echoed by other M&A and sell-side professionals—is
waiting until late in a hold period to plot your exit. Instead, begin
with the end in mind. Develop a clear (though still fluid and flex-
ible) vision for what a great exit will look like early in your hold
period; then work backward from there to determine what needs
to happen to maximize exit value between now and then. (We’ll
cover this in more detail in Winning Move #96 just ahead).
3. Keep a tight finger on the market’s pulse. Timing matters to exit
returns. Although it is extremely difficult to time the market per-
fectly, you want to keep a close ear to the ground for signals that
the exit environment is primed and the timing could be good.
Listen for indicators or trigger events that could suggest attrac-
tive exit conditions. For example, multiples might be at an all-
time high, a high-potential strategic buyer may have just lost a
big acquisition and is desperate to do something, or maybe a big
deal just happened in your space and has amplified buyer inter-
est in companies like yours.
4. Know your buyers. I hammered home the importance of know-
ing your target customers in Winning Move #25. As the seller of a
company, it’s essential to understand your target buyers for the
same reasons. What is their strategy? How could your company
accelerate its strategy? What are the gaps or holes in their busi-
ness your company could fill? Based on the answers, how can you
position your business as a must-have for each of those buyers?
5. Partner with the right investment banker. As you may have expe-
rienced firsthand (and as talent acquisition research confirms), a
great executive hire can create way more value than an average
hire for that same role. Likewise, great bankers can generate con-
siderably more value than the average ones can. When it comes
to finding the right banker—which I’d recommend you do early
in your hold period—approach the selection process with the
same level of rigor you would a critical executive hire. Create a
“banker scorecard.” Interview and assess them objectively using
the same interview best practices you’d use for an executive hire.
Check references.
6. Get your house in order. A smooth sale process is a key to max-
imizing exit value but is impossible to achieve if you go into the

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process underprepared. Taking the time to get your legal docs,

financial reporting, HR records and documentation, customer
contracts, etc., in good order before going to market is vital
to creating a fast and smooth process and presenting a well-
buttoned-up business worthy of a high price.
7. Adjust that EBITDA. The higher the EBITDA, the higher the selling
price. So normalizing EBITDA to account for one-time expenses,
the run-rate impact of new customers, the run-rate impact of
non-ongoing costs, etc., is key to presenting the business’s true
performance. But be careful to toe a fine line here: Getting too
cute or aggressive on EBITDA adjustments can backfire by raising
red flags for buyers and bringing integrity into question.
8. Get clear and aligned on your go-forward strategy. Buyers want to
know that your leadership team knows where they’re going (i.e.,
their vision) and how to get there (i.e., their strategy and plan).
To sell this to buyers with credibility and confidence, your lead-
ership team must be actually clear and aligned on these things.
Presenting a clear picture of your vision, strategy, and plan—and
doing so as a united front—is critical to inspiring a buyer’s confi-
dence in that future potential.
9. Momentum is key. The best time to sell is generally when the key
performance indicators in your business are on the upswing. You
want to go into a sale process with good momentum. With wind
at your back. So identify the key metrics that are most critical to
your exit story early (as we’ll discuss in Winning Move #104), and
focus on building and sustaining momentum in those areas.
10. Get ahead of buyer questions and issues. Anticipate buyer ques-
tions and issues, which reverse due diligence can help you do (as
we’ll talk about more in Winning Move #102). This allows you to
get ahead of buyers’ concerns and address them on your front
Expansion
Multiple

foot. Buyers discovering new, undisclosed issues at the 11th hour

can kill a deal.

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 WINNING MOVES

Winning Moves:
Drive Multiple Expansion
The winning moves that follow can be broken down into two batches:
(1) ways to position your company to achieve multiple expansion before
launching an exit process, and (2) ways to drive multiple expansion during
the exit process.

Winning Move #96

Begin planning your exit early—and refine the plan
continuously
If you’ve ever read Steven Covey’s game-changing book The 7 Habits of
Highly Effective People, you may remember this principle: highly effective
people “begin with the end in mind.”
“To begin with the end in mind means to start with a clear
understanding of your destination. It means to know where
you’re going so that you better understand where you are now
and so that the steps you take are always in the right direction.”
The same idea can be adapted and applied to a successful private equity
investment: begin your hold period with the exit in mind.
An uber-successful, value-maximizing exit isn’t something that just
magically happens to you. You must create it. To do so, investors and their
executive team should meet early in the investment’s life, look into their
crystal ball, and begin with the end in mind:
When do we expect to exit? What will the business need to look like
to command the highest multiple and achieve the best outcome? Who will
be the most likely buyers, and why will they just have to own us? And what
are the most exit-maximizing priorities we need to start getting after this
quarter to put us on that path?
You don’t have to be particularly precise with your answers about
timing, who is most likely to buy you, and so on. Predicting the future with
any certainty is impossible. Things will change. But asking and thought-
fully answering these questions early on creates a sense of direction. This,
in turn, helps ensure the steps you take—the value drivers you focus on,
the winning moves you deploy, the investments you make—are moving
you toward that desired exit outcome.

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 DAN CREMONS

“My advice to other CEOs: Start the exit-planning conversation with

your board early on. Sure, things will change and evolve, but devel-
oping a vision for what you’re building and over what time horizon is
essential to making the right investments, ensuring you have the right
capital structure in place, and more.”
—10-Bagger CEO

Revisit this exit-planning conversation periodically (at a minimum annu-

ally) and refine your exit plan. What new information are we learning about
the industry, the market, and our target buyers that might reshape our view
on the timing of the exit? What factors will maximize the multiple we can
achieve in that exit? And how might that change our business strategy and
priorities?

TAKE ACTION!
Head over to WinningMoves.co for the step-by-step of how to have a
high-impact exit-planning session, including the five key topics to
cover. (Search exit planning)

Winning Move #97

Systematically reduce or eliminate enterprise risks
At the end of your hold period, fetching a huge exit multiple for your busi-
ness comes down to two things: (1) the presence of upside opportunity
and (2) the absence of downside risk. Generally speaking, the higher the
ratio of upside opportunity to downside risk, the higher the multiple buy-
ers will be willing to pay.
Expansion
Multiple

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 WINNING MOVES

Much of this book is dedicated to cooking up and laying before you a buf-
fet of enticing, value-generating upside opportunities—whose impact
can outlast any single private equity firm’s hold period. Launching excit-
ing new products. Gaining traction in growthy new markets. Building a
well-oiled acquisition engine.
But when it comes to engineering a successful exit, it’s equally import-
ant to consider the risks that could get in the way of a great exit. Economic
value can be preserved by identifying enterprise risks early on and then
taking action during your hold period to minimize the value drain these
risks can create at exit. So ask yourself, “What risks could create a drag on
an otherwise full exit multiple?”
The following enterprise risks are almost sure to eat away at your exit
multiple:
❖ Customer concentration (can create revenue risk)
❖ Market risk (can also create revenue risk)
❖ Legal, regulatory, and compliance risk
❖ Cyber risk (can create legal, reputational, and business continu-
ity risk)
❖ Shoddy systems (can create operational risk)
❖ Business complexity (can create execution risk)
❖ Complex tax structures (can create financial risk)
❖ Single points of failure (can create key person risk)

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As you identify the vulnerabilities in your business, ask yourself, “What

needs to happen between now and exit to de-risk the business and ensure
these things don’t skunk an attractive, value-maximizing exit?”
Now is not the time to stick your head in the sand or look at your busi-
ness through rose-colored glasses. Be critical of your business today and
take action on the risks and gaps. You’ll be rewarded generously at exit.

Winning Move #98

Grow your recurring revenue
Private equity loves recurring revenue like Joan Jett loves rock-n-roll.
This much is widely known. And if my informal scan of a sampling of pri-
vate equity websites and criteria sheets is any indication, chances are
your firm is no exception.
Private equity buyers value a few things that recurring revenue offers:
❖ Visibility. There’s nothing like waking up on the first day of the
quarter and knowing that ~95 percent of your budgeted quar-
terly revenue is already in the bag.
❖ Stability. High-retention recurring revenue businesses are the
very definition of stable. The durability of recurring revenue
streams creates more operating flexibility, greater debt capacity,
and better insulation from business and economic cycles.
❖ Growth. Visibility and stability enable companies with lots of
recurring revenue to invest more aggressively in growth. Plus,
customers often love recurring revenue models because they
make budgeting more straightforward while reducing up-front
costs. And this can allow recurring revenue companies to convert
new business at higher rates than they otherwise might.
For these reasons, buyers will value the recurring and the non-recurring
revenue streams in your business vastly differently. A dollar of recurring
Expansion
Multiple

revenue is worth 4x–5x more to investors—sometimes greater—than a

dollar of non-recurring, transactional, or project-based revenue. So the
more recurring revenue you have, the higher the exit valuation buyers are
likely to offer. Plain and simple.
Want to expand your exit multiple? Grow your recurring revenue.
There are a variety of models for doing so in a B2B business: subscriptions,
razors/razor-blade models, leases, recurring transaction fees, retainers,
ongoing maintenance and support contracts, and more.

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 WINNING MOVES

If yours isn’t a recurring revenue business today, think critically and cre-
atively about how it can be. This could be one of the most value-creating
nuts for a non-recurring-revenue B2B business to crack.
The recurring revenue model has become ubiquitous in software,
but we don’t have to look far outside tech to find examples of old school,
monolithic B2B and industrial companies that are successfully turning
their core products and services into recurring revenue:
❖ Hewlett Packard now offers ink and toner subscriptions (Instant­
Ink) and managed IT services (SmartFriend).
❖ Otis Elevator keeps escalators, moving walkways, and elevators
in tip-top shape via monthly maintenance contracts and its sub-
scription-based elevator repair and management platform (Otis
One).
❖ Equipment manufacturer Caterpillar launched a pay-per-use
model and a subscription equipment analytics platform (Cat-
Connect).

Winning Move #99

Strategically reposition into higher-multiple markets
If you look at market multiples by sector, you’ll see a pretty wide disper-
sion—even among seemingly like businesses. Hospitals (SIC: 8062) trade
at nearly half the EV/EBITDA multiple as home health providers (SIC:
8082). Mortgage brokerages (SIC: 6162) are trading at a noticeably lower
multiple than insurance brokerages (SIC: 6411).
Logically, this is because different markets—even closely related
ones—have different characteristics: like different supply and demand
dynamics, different risks, and different growth rates. And it is important
to acknowledge that the market you’re in will have a bearing on the mul-
tiple you’ll earn.
In light of this reality, one way to increase your exit multiple is to repo-
sition your business in or expose your business to higher-multiple end
markets. We’ll call this strategic repositioning.
We talk extensively about the benefits (and risks) of market expan-
sion in chapter 7, so I won’t microwave the already-baked leftovers here.
Instead, I’ll simply highlight that not only is bridging into more attractive
new markets a way to grow your revenue—which was how we framed
market expansion in chapter 7—but it’s also a way to grow your multiple.

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A classic two-fer. You get the cake and the ice cream.
Here’s a simple example of the power in hitching your company’s
wagon to a faster, higher-multiple horse:
On the heels of the Great Recession of 2007–2009, one glass window
manufacturing company was reeling. Housing starts hit a record low as
new home construction had come to a screeching halt, which wiped out
the demand for building products such as windows. Median EV/EBITDA
multiples for building products companies cratered to less than 7x in
2009, virtually half the median valuation the year prior.³
But in that same year, a little thing called the iPhone (ever heard of it?)
was taking off. Adoption was soaring, with unit sales growing by double dig-
its year over year, even in the depths of a global recession. Because of this,
electronic-component companies were still trading in the double digits.
Lucky for the little old window company, it could turn the same glass
it was using for windows into glass for smartphone screens without mak-
ing a significant capital investment or manufacturing changes. And as it
shifted from an ailing market to a skyrocketing one, not only did revenue
jump, but its multiple did, too.

Winning Move #100

Unlock the digital premium
One company sold at 5x EBITDA. The other sold at 5x revenue.
If I put a traditional newspaper business and a digital media business
sending a simple daily newsletter to subscribers’ inboxes (both of which
serve up roughly similar headline news content to roughly the same audi-
ence) side-by-side, I bet you could pick which one sold for which multiple.
In media and beyond, both the public and private markets tend to
value digital businesses at way more attractive multiples than they value
their analog peers. The “digital premium,” I’ll call it. So for analog or digi-
tally unsavvy businesses, crossing over into the luxurious Land of the Dig-
Expansion
Multiple

ital—where the margins are high, the business models are scalable, and
the customers are oh so delighted—could be the key that unlocks that
juicy digital premium.
Just look at the before and after pictures for Home Depot. The com-
pany’s stock price has doubled since the beginning of 2018 when it began
spending billions of dollars on transforming the digital customer experi-
ence and creating a more frictionless omnichannel shopping experience.
Or have a look at private equity-backed professional education pro-

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 WINNING MOVES

vider McKissock Education, which, until the late 2000s, had earned the
majority of its revenue from live in-person seminars—a tough-to-scale
business that operated at a relatively low contribution margin. But when
McKissock built a digital delivery platform and began serving up this same
training online asynchronously, not only did it change the margin profile
of the business, but it also significantly boosted the valuation multiple
that buyers applied to those profits.
Using technology to transform old analog businesses—from brick-
and-mortar retail to live training and beyond—into digital-first businesses
is not a new idea. But for some private equity-backed businesses, it could
be the difference between selling at a paltry EBITDA multiple and a husky
revenue multiple. It’s the difference between selling a buggy horse and a
Lamborghini.

Winning Move #101

Build an M&A pipeline
Chapter 11 discusses how strategic acquisitions can be a powerful mul-
tiple enhancer. You may remember that “frequent buyers”—those that
average one or more acquisitions per year—command a valuation mul-
tiple that is, on average, 30 percent higher than their non-buyer peers.⁴
For reasons we discussed at length, completing add-on acquisitions
is, of course, a great way to unlock a higher exit multiple. But you can use
this acquisition advantage to your favor in a sale process by building a
pipeline of actionable acquisition targets that you can serve up to the
buyer on a silver platter.
Even if you can’t get these deals done prior to the exit, when pre-
sented with an actionable pipeline of targets, most buyers will be will-
ing to value your business at a higher multiple. They know that executing
these deals will accelerate their own value creation. This pipeline of acqui-
sition targets is an asset that enhances the value of the business you’re
selling to buyers, and most will be willing to pay you more for that.
Now, buyers won’t give you full credit for the EBITDA and the mul-
tiple arbitrage these deals can create under their ownership. There is,
of course, no guarantee that a buyer will be able to close these deals on
terms that work for them. Despite that, building and delivering an action-
able M&A pipeline is a great way to enhance your exit value—effectively
for free. Having used this tactic in several exit processes myself, I‘ve seen
firsthand the incremental exit value it can generate.

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To do this yourself, refer back to chapter 11 on strategic acquisitions.

Identify target companies that fit your strategy. Build relationships with the
owners. Sell them on your vision and why you’d be better together than
apart. Get them on the hook. And then present these acquisitions as action-
able targets (provided they are actionable), and include the strategic and
financial value of pursuing and closing them as part of your exit story.

❖ ❖ ❖

The previous winning moves are all about strategically positioning your
business in ways that are likely to lead to the highest multiples. The fol-
lowing winning moves get at more tactical ways to drive multiple expan-
sion during the sale process itself.

Winning Move #102

Do reverse due diligence
As I mentioned in an earlier winning move, my wife and I recently sold our
house. Early in the process, our newly retained real estate agent swung by
for her first walk-through, and I wasn’t prepared for what happened next.
“That accent wall is ugly and needs to be painted.”
“The furniture you have in your great room is clunky and makes the
space feel way smaller than it is.”
“Those wilted plants on your roof deck look hideous!”
After I breathed deeply and got past my “What? You’re calling my baby
ugly?!” reaction, it clicked. Walking through our place with her buyer hat
on—reacting as a buyer might—allowed her to identify the things that
could get in the way of our fetching top dollar for our house at a point
when we still had time to do something about them. (For the record, I still
disagree with her about my tasteful accent wall.)
In M&A, the idea of reverse due diligence (also known as “sell-side
Expansion

due diligence”) is the same. Reverse due diligence is about putting on

Multiple

your buyer hat and effectively doing due diligence on your own company.
Engaging in reverse due diligence well before you go to market helps you
gauge your company’s exit readiness and understand the weaknesses,
risks, and deficiencies that could weigh on your exit multiple before it
actually counts.
Reverse due diligence can help uncover an array of issues that could erode
valuation:

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❖ Big risk areas that need to be mitigated

❖ Key customer renewals that you need to have in the bag before
you go to market
❖ Unneeded overhead that’s weighing on EBITDA
❖ Low-ROI marketing spend you need to turn off right away
Seeing these valuation risk factors isn’t as easy for those internal to a
company as someone outside, so companies will often hire third parties
to help.
Understanding these issues clearly—as an eventual buyer inevitably
would in their due diligence—puts you in a position to proactively address
issues that could erode exit value.
In addition to helping you maximize your sale price, reverse due dili-
gence can also help you increase the speed and certainty of closing:
❖ Regarding speed: The more due diligence done on the business
and provided to buyers—market studies, sell-side quality of
earnings, etc.—the faster buyers will be able to complete their
due diligence and close.
❖ Regarding certainty: Few things turn off a seller more—and put a
deal at risk faster—than finding an issue in due diligence that you
didn’t tell them about up front. Address potential issues with sell-
ers on your front foot, which requires you to have a solid grasp of
your company’s issues, risks, and deficiencies in the first place.

Winning Move #103

Craft and then tell a compelling exit story
You may have heard the old saying, “Facts tell, but stories sell.”
Having been on the receiving end of hundreds of seller pitches, I’ve
learned that the most compelling pitches tell a story. They grab a buyer’s
hand and take them on a journey into the land of possibility. These stories
inspire, attract, and persuade far better than a fact-based argument or a
rote business case ever could.

“Buyers don’t buy a company; they buy a story. To exit well, you have to
be able to sell an exciting story. And no offense to my banker friends, but
most bankers aren’t great at this.”
—10-Bagger CEO

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To illustrate, let’s imagine you’re considering buying my company, and we

sit down in a management meeting. Which of these two hooks grabs you
more?
“We’re planning to double EBITDA over a five-year hold period.” (You:
“Okay, let me get out my calculator, boot up my prefrontal cortex, and follow
along.”)
Or. . .
“We’re on a mission to heal and transform 100,000 lives by 2025. And
when we do this, it will more than double EBITDA over the next five years.
Here’s how. . .” (You: “Oh, tell me more about that!”)
Both have the potential to double my EBITDA, but the latter is com-
pelling. It’s imbued with a sense of purpose. It appeals to emotion (a pow-
erful influencer of buying decisions, even among brainy private equity
folks). It invites your target buyers into something bigger. And it opens up
a powerful story loop that you can use to get a potential buyer leaning in.
An emerging body of research shows that memorable, emotionally
resonant stories have immense power to influence buyers’ choices—
whether they’re buying shampoo or businesses. This has been known for
a while in the consumer products world and is the basis for good market-
ing and selling. But the heady, left-brainish world of M&A has been a bit
slow to catch on to the power of storytelling.
Here’s the problem: Having been on the sell-side of several exit pro-
cesses, I’ve also learned that this isn’t many investment bankers’ forte.
They can help you get the financials buttoned up and the valuation anal-
yses tuned—the “facts” parts. But positioning and storytelling just aren’t
in many bankers’ wheelhouses.
If you’re looking to generate multiple expansion and achieve a wildly
successful exit, developing a compelling exit story is among the most
important things you’ll do. The good news is that you can leverage sto-
rytelling research (and a bit of understanding of human psychology) to
Expansion

develop an exit story that sings to your buyers.

Multiple

TAKE ACTION!
Head over to WinningMoves.co for the step by step of how to create a
compelling exit story so you can sell your business for top dollar.

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 WINNING MOVES

Winning Move #104

Show, don’t tell
As we’re reminded in the opening track off Rush’s 1989 album Presto,
“Show, don’t tell.” Who knew the Canadian prog rockers’ message could be
so valuable for private equity folk like us. A great, multiple-maximizing exit
story takes this to heart, aiming to “show,” not just “tell.” Let me explain.
Within your exit narrative, you want to distill down the strongest
parts of the investment case into its most powerful, sticky, and well-sup-
ported key selling points (typically 4-6, which you’ll keep returning to at
every turn in your marketing materials). But articulating them in generic
platitudes, such as “attractive market,” “strong value proposition,” and
“robust customer base,” is not enough. These cliches appear in every con-
fidential information memorandum on the planet, making it a near cer-
tainty that the buyers’ eyes will glaze over at the sight of them.
The key to making these selling points credible and compelling is to
bolster them with cold, hard data—market data, financial data, KPIs—that
make their legitimacy indisputable.
Here’s a short example if you were selling an employee benefits com-
pany, Benny’s Benefits:
❖ Benny’s Benefits play in a big, high-barrier market with lots of
headroom for growth. Large $500 million market + low pene-
tration (ten percent) + high regulatory barriers (over $3 million
for new vendors to secure regulatory approval) = a $450 million
whitespace opportunity for an entrenched niche player like Ben-
ny’s Benefits.
❖ Benny’s Benefits is the best positioned to grow into that
whitespace. Benny’s can save employers an average of ten per-
cent on their labor cost with our benefits solutions, which the
closest competitor cannot match. This puts Benny’s in pole posi-
tion to capture this massive $450 million opportunity.
This is a simplified example, but the point is: here, we’re “showing” how
our business is positioned to grow—complete with data and facts—
instead of just “telling” that it is. And as a result, your story becomes
highly credible.

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“Selling well really comes down to two things: Telling a compelling

growth story, and giving a buyer real reason to believe that the growth
story is achievable.”
—CHRIS HESSLER, Private Equity-Backed CEO
and Operating Partner

What’s more, identifying these key selling points early in your exit plan-
ning will help you get clear on the metrics that matter most to a credible,
attractive exit story; and enable you to focus your company’s efforts on
building momentum on those key indicators going into a sale process.
In the earlier example, if demonstrating momentum on penetrating
that $450 million whitespace opportunity is key to making the exit nar-
rative credible, then naturally, accelerating new customer acquisition
growth within that segment should be a critical operating priority in the
quarters leading up to the exit.

Winning Move #105

Quantify and sell the WIIFY
Expansion
Multiple

A study of investors and business owners who have sold their companies
shows that 84 percent believe they have room for improvement when
presenting upside opportunities to buyers.⁵ They recognize there’s more
they can do.
For the 84 percent out there, I’ve found that tearing a page out of the
old dusty sales playbook can help. If you’ve ever had any sales training,
you probably get that understanding and then selling to a prospect’s
unique needs tends to be way more effective than blasting every pros-
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pect with some generic, one-size-fits-all sales pitch, which may or may
not actually address their specific needs and care-abouts.
Applying this same idea to selling a company makes us think differ-
ently about the often generic and vague “growth opportunities” that we
indiscriminately hammer on in management meetings. They’re usually
a copy and paste of some combination of the same ten generic growth
opportunities you see in every management presentation.
“Expand into new markets”
“Develop new products”
. . .and so on.
But drawing on the lessons from solution selling, if you want to fetch
a higher multiple for your company, you need to know each of your tar-
get buyers and then take the time to custom fit your growth case to their
unique care-abouts, like a perfectly tailored dress or suit. Doing this
answers the all-powerful question that any effective seller must answer
in selling anything, “What’s in it for you?”—the WIIFY. You’ll answer this by:
❖ deeply understanding each target buyer’s firm (in the case of pri-
vate equity buyers) or company (in the case of strategic buyers)
and their strategy;
❖ finding the specific alignment between that buyer’s strategy and
what your business offers, like a tongue-and-groove joint where
the pieces fit together beautifully;
❖ Shining a big bright light on that strategic fit (within management
presentations, etc.), emphasizing the opportunities within your
key selling points that are most likely to resonate with and be val-
ue-generating for that target buyer; and
❖ quantifying the specific financial potential that those opportuni-
ties create for your target buyer (including synergies, in the case
of strategic buyers).
When you understand the financial value your business can create for an
individual buyer based on their unique growth strategy, it allows you to
present a more compelling, tailored story and enables you to push them
more on valuation.—hence its relevance to this chapter’s topic of multiple
expansion.
Good bankers will help you align your business with the unique needs
and care-abouts of each of your target buyers and quantify the value of
your business to each of them. The mediocre bankers will take a more
generic, one-size-fits-all approach to positioning your business.

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You want to serve up the growth and synergy opportunities that are
available to each buyer on a silver platter. Don’t make them burn calories
to understand how this can be a screaming deal for them. Make the invest-
ment case a no-brainer.

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3
TH E M E TA- L E V E R S
 C H A P TE R 14

THE LEVER OF ALL LEVERS

In part 2, we broke value creation apart and equipped you with

a vast arsenal of proven, actionable winning moves—105 of them, to be
exact—that you can use to make equity value creation happen more con-
sistently and predictably. We went deep into the nooks and crannies of
value creation, so let’s zoom back out while you catch your breath.
Imagine a fictional professional soccer team—the ValueCreationville
Vipers. (They sound formidable, right?) The Vipers have the league’s sav-
viest, most advanced playbook—filled front to back with proven winning
moves from past championship teams. This will position them perfectly
to make a run at the Cup, right?
Not so fast.
Here’s the thing: If the Vipers don’t have great position players on the
roster to execute that playbook, don’t play as a cohesive team, haven’t
fostered a winning culture that brings out the best in that team, and aren’t
led by a great coaching squad capable of calling the right play or substi-
tution at the right time, then no amount of winning moves will bring their
dream of a championship into reach.
Whether on the soccer pitch or in the boardroom, having the right play-
book isn’t, in itself, good for much if you don’t have two essential things:
❖ A team that is fit for purpose, well-aligned, and high performing,
and has the stuff to execute your winning moves with confidence
❖ A culture that is conducive to growth, attracts and retains the
best people, and empowers them to do their best work.
 WINNING MOVES

“The most important advice I would give my younger self when I was a
first-time CEO: Team and culture trump strategy. Give these the time and
attention they deserve from the beginning. If you don’t, any strategy is
doomed.”
—SEAN CALL AHAN, Private Equity-Backed CEO & Chairman

As critical as these non-financial factors are to the success of any value cre-
ation effort (something that will soon become apparent if it isn’t already),
the issue is that team and culture are too often overlooked or underem-
phasized in the value creation discussion. This is, in part, because they
are less tangible and “spreadsheetable” than the Fruitful Five value driv-
ers we discussed in part 2.
The right team and the right culture are essential to
making any value creation agenda come to life.

This is my firm’s sweet spot. We help private equity investors and their
companies not only develop their winning value creation plan (drawing in
the ideas of this book) but also ensure that:
❖ they have the right leaders at the helm and the right team on the
field to execute that value creation plan;
❖ those leaders are fostering the kind of empowering, engaging,
and purpose-driven culture that’s conducive to making that
value creation plan happen; and
❖ the entire team is aligned and united behind the value creation
plan and moving in the same direction.

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Here are my sincere and blunt two cents: If any of these foundational
pieces is missing in your company, good luck getting the win. Without
these critical inputs—a strong team and a strong culture—it will be nearly
impossible to get the output you desire: strong results.

If your goal is to achieve fantastic returns consistently, you can’t get away
with having a team that’s just okay. Or a culture that won’t attract amaz-
ing people and bring out their best stuff. Or an organization that isn’t on
the same page about where it’s going or how to get there. I’ve seen that
movie before, and you may have, too. If one of these key pieces is missing,
the outcome generally isn’t pretty, and the journey certainly isn’t as fun.
But as you’ll see in the upcoming chapters, team and culture gaps of
these sorts are alarmingly common in private equity-backed companies.
So in chapters 15 and 16, we’ll dip into each of these meta-levers, talk
about why they are the most important and overlooked success factors in
private equity-backed companies, and help you begin to get these dialed
in within your company.

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A TALENTED,
FIT-FOR-PURPOSE TEAM

“After exhaustively studying our databases of dozens

of deals across 20 years, we concluded that the keys
to success in private equity are buying right, having an
‘A’ management team, and selling right. Everything
else is just conversation.”
—STEVE SCHWARZMAN, CEO,
The Blackstone Group
A recent survey of private eQuity investors and portfolio execu-
tives reveals strong alignment between the two groups on what matters
most to investment success.¹ For the first time in the history of the sur-
vey—a watershed moment—the groups agreed that the #1 predictor of a
strong portfolio company exit is “a world-class management team.”
On the flip side of the same coin, the groups also agreed that the factors
that can most erode investment performance are leadership and talent.
The private equity people have spoken: The benefit of getting leader-
ship and talent right, and the cost of getting it wrong, are each substantial
Team

in their impact on value creation. Simply put: great teams accelerate value
creation, whereas weak teams create a drag on value creation.
 WINNING MOVES

People Drive Performance

This survey and others like it affirm that at long last, investors and execu-
tives alike recognize something that has too often gotten lost in the ana-
lytical, left-brainy world of private equity: Investment outcomes are more
sensitive to this difficult-to-quantify variable—team—than perhaps any
other in the private equity investing equation.
People are everything to the success of a portfolio company.
Everything.
Why? Because if we think about it, people are the only thing in a port-
folio company in today’s knowledge economy. Okay, and office space,
paperclips, coffee machines, computers, and the like, but you get the
point.
An old mentor of mine framed it well when he used to say, “A business is
nothing more than people working with other people to do stuff for people.”

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This is the indisputable truth about the companies you invest in or lead.
Until that point when robots rule the world, these companies that we’re
investing in and leading are simply collections of people. And these peo-
ple are the most important assets an investor or operator has at their dis-
posal to actualize value creation.
Fundamentally, people drive performance.
Not products. People conceive of and make those.
Not spreadsheets or models. People create those and are responsible
for driving the variables in them.
Not strategy decks. People develop those.
Although for most of us, our training as investors taught us to focus on
the “what”—products, financials, strategies, etc.—it is essential to recog-
nize that in private equity-backed businesses, the success of the “what”
depends almost entirely on the “who.”

“In our experience, the #1 most important key to success in driving value
creation—by a wide margin—is the team. Do we have amazing people
in place who are aligned behind the small set of value drivers that will
matter most in the deal?”
—DEVIN GROSS, Head of Portfolio Management at Primus Capital
Team

When Overconfidence Bias Strikes

As obvious as the importance of talent may seem, here’s the reality of the
matter: Getting the right leaders and talent into the right roles—such that
you can put your companies into a position to deliver on your value cre-
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ation plan and enjoy a fabulously successful exit—isn’t easy.

Human beings are complex. And a collection of complex human
beings working together in a system (which we have come to refer to as
a “business”) is even more complex. So making high-quality decisions
about whom to back in your companies, whom to hire, and how to get
them playing as a high-performing team can feel, well, complex.
In light of this complexity, it is not surprising that based on research
from Geoff Smart, who founded the leadership consulting firm ghSMART,
fewer than 15 percent of all leaders and private equity professionals excel
at getting the right people onto their team.² Many private equity pro-
fessionals and executives simply aren’t great at this. That’s not a knock
on their intelligence, but a testament to how tough this can be and how
deliberate one has to be about building the skill.
Perhaps you’re thinking, “Not me, Dan. I have a real eye for talent.”
Maybe so. I hear this from people in private equity often.
In fact, in the last hiring training workshop I put on for private equity
professionals, a full 95 percent of the attendees I polled scored them-
selves as “better than average among my peers” at building teams. The
math whizzes in the room quickly pointed out that these numbers don’t
exactly compute. (“95 percent believe they are in the top 50 percent of their
peer group? Huh?”)
But here’s the problem with the sense of confidence many private
equity leaders and executives have in their talent evaluation and deploy-
ment skills: It doesn’t actually foot to the facts. Get this: According to The
Corporate Council, nearly 50 percent of CEO and executive hiring deci-
sions fail within the first 12–18 months.³ Nearly 50 percent!
Turns out, making high-quality talent decisions is a bit like singing
karaoke. Everyone thinks they’re exceptional at it, but in reality, most
aren’t nearly as good as they think they are. So how do we explain this dis-
connect between investors’ and executives’ perceived level of skill in this
area—and a staggering 50 percent average failure rate?

“Hiring is the most important but least disciplined process in business.”

—10-Bagger CEO

The gap can be explained by something called illusory superiority, or

“overconfidence bias” for us laypeople. It’s the same cognitive trap that
led me to believe I was nailing it as I passionately belted Born in the USA
at our office party karaoke while my co-workers looked on in utter horror.
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Overconfidence bias can trick our brains into believing, “I’m a great
judge of people!” It creates the false impression that we’re better at
this than we actually are; that we’ve cracked the code for how to make
high-quality talent decisions consistently, even when the data and our
hiring hit rate tell us that maybe we have not.
Now, you might defy the average in this area and be awesome at this.
If so, good for you. Building high-performing teams is surely an area of
great strength for some private equity leaders and executives out there
(15 percent of them, according to a study by ghSMART) because they have
been intentional about building this skill and exercising it with discipline.
But for the rest of you, I hate to knock you down a few pegs, but I feel
compelled to caution you. Unless you become aware of your overconfi-
dence bias and recognize that you might not be as strong as you think in
this critical area, then you’ll continue to subject yourself, your firm, and
the companies you work with to two big risks.
First, you risk making too many costly decision errors about whom to
back and whom to hire.
Research shows that the cost of getting wrong the critical decision of
whom to back or hire can amount to as much as 5x–15x times the annual-
ized salary of that person. So when we make a decision error on a critical
executive hire, the cost to our company and its investors can be measured
in the millions (sometimes tens or even hundreds of millions). I call this
the “Mis-hire Tax.”

“If we just look at sales alone, the cost of getting a sales hire wrong is, on
average, $1 million to $3 million. We have data on this. What’s even more
costly is getting the sales leader wrong—yet this is one of the most often-
botched hires.”
—Former CEO of Private Equity-Backed Sales Training Company

If we ladder up and look at the Mis-hire Tax at a macro level, a study by

researchers Claudio Fernández-Aráoz, Gregory Nagel, and Carrie Greene
tells us that the amount of market value wiped out by badly managed
CEO and other executive transitions in the S&P 1500 is close to $1 trillion a
Team

year!⁴ At this scale, hiring errors create major economic leakage.

Second—and most relevant to this book’s core topic—you put your
value creation agenda at risk. Even the most well-conceived value cre-
ation plan is doomed from the beginning if a company doesn’t have the
right leadership and talent to make it happen.
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 WINNING MOVES

Early in my career, before my then firm adopted practices and enacted

measures to help ensure we got the right team onto the field quickly in a
new deal, we paid the hefty price of making poor or procrastinated talent
decisions. And those mistakes stung.
In one especially costly case, we were 18 months too slow to bring on
a new CEO who was a better fit with our value creation agenda than the
incumbent. By the time we found a great, fit-for-purpose CEO, got them
onboarded, and started seeing their impact, we were three years into a
five-year targeted hold period. And this lost time equated to lost money.

“Honestly, the most essential winning move is getting the right team in
place. Until you do this, everything else is irrelevant. But once you do
this, everything else becomes easier.”
—Head of Portfolio Operations, Middle-market Private Equity Firm

We learned through hard knocks that getting leadership and talent dialed
in at a portfolio company is the most important factor impacting the speed
and overall success of value creation—and, by extension, our returns. As it
turns out, we weren’t the only ones who’d learned this lesson the hard way.
In a survey of private equity firms by Bain & Company, an overwhelming
92 percent of survey respondents said that waiting too long to take action
on talent issues had resulted in portfolio-company underperformance over
the past five years.⁵ Almost 70 percent indicated this happening in at least
half of their deals, thereby subjecting these firms to a staggering Mis-hire
Tax bill.

“In any private equity-backed company, you need to move quickly on tal-
ent decisions. Stakes are high, and hold periods are short. So time is your
enemy.”
—10-Bagger CEO

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Raising Your Talent Game

To recap, despite the importance of making high-quality talent decisions,
the earlier stats show that doing so with the necessary discipline and con-
sistency simply isn’t a strong suit for many investors and executives. This
results in all-too-frequent mistakes when it comes to whom to back and
whom to hire. These mistakes can cost portfolio companies millions, put
their value creation plans at risk, and erode returns.
So what can we do about this? In the broadest sense, three things:
❖ Commitment: Commit to making talent excellence a top priority
❖ Capability building: Build the right talent capabilities at your
firm and in your companies
❖ Execution: Nail the execution of critical talent decisions
Start by committing to making talent excellence a top priority
To put my own spin on a line from the great business coach Brian
Tracy, anything less than a commitment to striving for talent excellence is
an acceptance of mediocrity.
A commitment to putting critical leadership and talent decisions—
whom to back, whom to hire, whom to fire, whom to promote—at the
forefront should be top-down and company-wide, both at a fund level and
within portfolio companies.
For investors, commit to the following:
❖ Being deliberate about assessing management pre-closing (I’m
not talking about the kind of cursory, gut-level, thumb-in-the-air
assessment that doesn’t produce a valid, high-fidelity read.)
❖ Making proactive, well-informed decisions about whether to
keep, repurpose, promote, or replace each of the executives on
the team you’re backing in a new deal
❖ Moving on these decisions quickly, as talent gaps don’t age well
❖ Making leadership and talent a regular, recurring topic of discus-
sion as an investment committee and as a board
❖ Being a vocal champion for the importance of having the right
leadership talent in place, both within your firm and in your inter-
Team

actions with portfolio companies

❖ Supporting, honoring, and celebrating the people who are grind-
ing day in and day out at your portfolio companies, who directly
impact whether you and your firm will be successful in your job
of achieving great returns

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For executives:
❖ Commit to evangelizing the supreme importance of attracting,
onboarding, engaging, investing in, rewarding, and developing
great people. Commit to talking about this until you’re blue in the
face, and walk that talk.
❖ Commit to making talent a regular topic of discussion with your
executive team, middle-managers, and board. (“Do we have top-
ten percent talent aligned with our most critical priorities? How do
we know? Are we putting them in a position to be successful?”)
❖ Commit to bringing the human resources function out of the back
office and elevating it to the same level of importance, stature,
and attention as the most strategic functions in your business.
❖ Commit to pushing talent discipline throughout your organiza-
tion by helping your managers learn how to hire, onboard, lead,
and manage talent effectively.

“Great boards spend tons of time talking about the team. Bad boards
spend tons of time talking about some immaterial expense variance.”
—10-Bagger CEO and Board Director

Build the right talent capabilities

Build the capabilities—within your firm and its portfolio companies—to
ensure your companies are putting a top-notch team onto the field. For
portfolio companies to reach their full potential, private equity profes-
sionals and executives—“capital allocators,” as we call them earlier—
need to be increasingly adept at human-capital allocation. As the authors
say in the book Talent Wins, “You must deploy talent as successfully as you
deploy capital.”
Firms and companies that do this well have built the capabilities (and
the culture) that allow them to do the following:
1. Assess the team: Develop a clear and fact-based point of view
regarding which areas you have the right talent in (vis-à-vis your
value creation plan)—and in which areas you don’t. Use that
assessment to establish your post-closing talent agenda (your
“People Plan,” as I call it).
2. Attract great people: Recognize that the most talented peo-
ple are picky, and the “war for talent” is fierce. Build a culture

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and brand that make you employer of choice, and offer roles of
choice that are compelling enough to attract the best. Keep the
talent pipeline full.
3. Select the right people: Have a structured process—executed
with discipline—for choosing the right people for the critical
roles (from among external and internal candidates).
4. Onboard those people effectively: Set newly hired employees up
for success quickly in their new roles, building their confidence,
accelerating their impact, and reducing their time to value.
5. Develop and grow those people: Invest in your team’s learning
and development, and create an environment where people are
learning, stretching, and growing.
6. Retain those people: Reward and recognize your people, and
build the kind of engaging, empowering culture great people
want to be a part of.
Whether you’re leading the charge in these areas yourself; leaning on an
experienced internal talent partner, operating partner, or chief people
officer; and/or tapping into the expertise of a firm such as mine, gearing
your businesses with the capabilities to attract, select, onboard, develop,
and retain great, diverse leadership and talent is essential.

“The most important thing I’ve learned is to pay attention to my tingly

sense when it is telling me we don’t have the right leader in the role. Far
more often than not, it’s right. And leadership issues usually don’t get
better with time.”
—Private Equity Operating Partner

Nail the execution

Evangelizing the importance of talent isn’t good for much if it doesn’t
translate into execution. It is kind of like that friend who sets a New Year’s
resolution to get into shape and likes to talk about doing so at dinner par-
ties—but never actually goes to the gym.
Team

Eighty-five percent of respondents to a recent survey of private

equity professionals by Entromy said that senior leadership at their firm
reinforces the importance of talent.⁶ However, only 41 percent said that
their firm has a standardized process, from diligence through exit, to nail
this all-important meta-lever.

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When it comes to executing—pulling the talent lever with full force in

your companies—here’s the key, which Bain & Company said well in its
2021 Global Private Equity Report:
“The [private equity] firms with the highest success rates
have something in common: they’re highly disciplined about
linking talent decisions to the explicit requirements laid out
in the value creation plan.”

Here’s a simple blueprint private equity firms and their companies can
use to do this:
❖ Step 1: Develop your value creation plan pre-closing. How will
we generate the targeted returns? What value creation opportuni-
ties will we pursue, and what specific winning moves will we make
to capitalize on those opportunities?

“It’s one thing to have alignment on your value creation plan. But it’s
another thing to have the skill sets needed to execute on that plan in the
business. There has to be a real, honest assessment of the team relative
to the capabilities your plan calls for.”
—Private Equity Managing Partner and Former 10-Bagger CXO

❖ Step 2: Get clear on “What must be true?” What must be true

about talent for this value creation plan to come true? We call
these the “critical talent assumptions.”

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For example, if one of your winning moves is to improve the close

rate on large enterprise deals, the following statements probably
need to be true (or be made true through post-closing actions)
for this to happen:
❖ Your company has a high-caliber sales leader who has
experience (and a track record) selling to enterprises.
❖ Your company has a CEO who is highly commercial, rela-
tional, and experienced in executive selling to large enter-
prise accounts.
❖ Your company has high-functioning sales enablement and
product marketing teams—which can help maximize your
sales team’s selling time and provide them with the sup-
port and tools they need to work and close large deals.

❖ Step 3: Understand the current state. Relative to these criti-

cal talent assumptions, how well suited is the team today? And
where are the gaps? Develop a clear picture of the current state
pre-closing so you can quickly move to shore up any gaps and get
the value creation train onto the tracks soon after closing.
❖ Step 4: Develop your post-closing talent agenda. Your “People
Plan,” I call it. What talent actions need to happen post-closing to
ensure the company is positioned to deliver on our value creation
plan?
This could involve making critical leadership changes, shoring up
talent and capability gaps, retaining key people essential to your
value creation agenda, and addressing managerial or cultural
issues that could hold the company back. Align on your People
Plan (among the board and management team), boil each action
on your People Plan down to its “What-Who-When,” start getting
after it with a sense of urgency in the critical first 100 days, and
track progress diligently.

“Ask yourself: ‘Are the people I have today the people I need to execute the
value creation plan going forward?’”
Team

—DAN WEINFURTER, 4x Private Equity CEO

Heads-up: We help private equity firms do this work through our Close
with Confidence program. Just reach out if you’d like to learn more.

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 C H A P TE R 16

A CULTURE THAT UNLEASHES

PEOPLE’S BEST

“You can have all the right strategies in the world, but if
you don’t have the right culture, you’re dead.”
—PATRICK WHITESELL
In 2018, USA Today studied employee-review/recruitment website
Glassdoor to uncover both the best and worst companies to work for
according to employees. At the time, the average employee rating for the
thousands of companies listed on Glassdoor was 3.4 out of 5.0. Connecti-
cut-based cable and internet supplier Frontier Communications had the
second-lowest score of any organization listed, coming in at a paltry 2.5
out of 5.0. Only The Fresh Market grocery store chain had a lower rating
of 2.4.
A mere 28 percent of Frontier employees said they would “recom-
mend Frontier to a friend as a place of employment,” and only 22 percent
approved of the then CEO (who stepped down in December 2019). The
newspaper’s probe into Glassdoor reviews of the company revealed that
employees commonly cited “a negative culture” as the reason for their
low rating. The reviews don’t make for happy reading:
❖ “Lack of management, average pay, if you have no seniority, you
Culture

aren’t going to have a good time.”

❖ “Unattainable numbers, untrained reps, outsourced, horrible
 WINNING MOVES

service all around, high school clique, HORRIBLE, extreme stress,

just horrible.”
❖ “Management were all hired through nepotism, so none of them
know the job at all, creating an environment where management
asks for the world.”
Uncoincidentally, Frontier’s share price had plummeted by more than 50
percent the prior year. Part of the decline can certainly be explained by
weak fundamentals. The company faced major challenges integrating
various assets acquired from Verizon and AT&T some years before, lead-
ing to unhappy customers and an exodus of broadband subscribers. On
top of this, the broader “cord-cutting” trend has weighed on the sector.
But when your employees tell you loud and clear that they don’t enjoy
working for the company, the root of the performance issues lie deeper
than strategic challenges or market conditions.
This example brings to life Patrick Whitesell’s point: If you don’t have
the right culture, you’re dead—or in Frontier’s case, on life support thanks
to chapter 11 bankruptcy protection.
When a great value creation plan meets a poor culture,
the poor culture will usually win.
A weak, misaligned, or outright dysfunctional culture will sabotage a
value creation plan faster than you can say, “Jack Robinson.” I’ll explain
why in a moment, but first, we should take a step back and square up on
a fundamental question.
What is culture?
The word gets tossed around willy-nilly and might be too squishy or
nebulous for a logical, analytical private equiteer’s tastes.
To answer the question, perhaps it’s best to start with what culture is
not. Culture is not about buying ping-pong tables for the break room, host-
ing a build-your-own-spring-rolls bar in the cafe, or having free kombucha
on tap 24/7. These things are cool (except if you routinely get embarrassed
in ping-pong as I do) but miss the point. Likewise, culture is not about plas-
tering motivational posters about leadership or teamwork on the office
walls and expecting them to magically fill the air with good juju.
Instead, I think about culture simply as the attitudes, beliefs, and
behaviors that are most prevalent in an organization.

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When it comes to culture, investors and executives must first get clear on
which attitudes, beliefs, and behaviors are most important to long-term
success. Executives’ next most important job is to embrace and model
those things, teach others in their organization how to live into them, and
hold everyone accountable for doing so.

“In companies, people look at what executives do, not what they say. Cul-
ture building happens through actions, not by posting core values on a
wall in your office.”
—10-Bagger CEO

When we think of culture like this, it frames it in a way that brings to light
the direct linkage between culture and long-term success. And there is a
large and growing body of research that is drawing this connection clearly.

The Link between Culture and Performance

A study from Queen’s University Center for Business, which tracked
employee engagement surveys and company performance over ten
years, found that organizations with an engaged culture (which they qual-
ify in their research) enjoyed:
❖ 15 percent greater employee productivity;
26 percent less employee turnover;
Culture

❖
❖ 100 percent more unsolicited employment applications;
❖ 20 percent less absenteeism;

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❖ 30 percent greater customer satisfaction levels; and

❖ a whopping 65 percent greater increase in share price—the real
kicker!
If such things as employee productivity, customer satisfaction, and hiring
and retaining great employees matter to the success of your value cre-
ation agenda (You: “Sure do!”), then the research says that your compa-
ny’s culture should too. Big time.
Although culture may not be as top of mind for deal makers as deal
structuring, debt raising, and financial reporting, private equity investors
seem to understand how important culture is to value creation—and by
extension, to long-term success and returns. Based on a survey by McK-
insey & Alix Partners, 87 percent of private equity investors believe align-
ing culture with a portfolio company’s strategy is critical to generating
returns.¹ This is an encouraging sign that we’ve come a long way since the
days when the Barbarians were storming the gates, and culture wasn’t
even in the conversation.
But here’s the problem: Per that same survey, only 30 percent of
investors intentionally evaluate their portfolio companies’ culture. That’s
problematic when we consider just how big an impact culture can have on
executing a value creation plan.

“The better you understand a target company’s culture upfront, the bet-
ter you’ll be able to navigate the challenges it could pose.”
—KISON PATEL, CEO of DealRoom and Host of M&A Science Podcast

This “knowing-doing gap” can be attributed to a few factors:

❖ Lack of expertise: Culture is less concrete and quantifiable than
numbers and spreadsheets. Evaluating culture simply isn’t an
area of expertise for many financially minded private equity folks.
❖ Lack of time: It’s crazy busy out there, and many private equity
professionals simply don’t have—or take—the time to dig in and
understand the culture of a target company or portfolio com-
pany as they scramble around trying to keep up with deal flow
and get deals closed.
❖ Lack of accountability: Private equity professionals abdicate
responsibility for culture to their CEOs. “We know it’s important,
but we entrust our CEOs to figure it out.” This works sometimes,
until it doesn’t, and investors end up paying the hefty price.

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Whatever the combination of factors, because of this gap between the

perceived importance of understanding a culture and the intentional eval-
uation of that culture, it’s not surprising that nearly two out of every three
dealmakers said that cultural issues ended up hampering value creation
post-closing.²
Anecdotally, I recently asked 15 of my private equity friends, “If you
look back at the deals in your portfolio that have struggled, what’s the most
common thing you’ve missed in due diligence?” One of the themes I heard
most consistently revolved around culture.
To illustrate, one friend said about one of his deals, “Only post-clos-
ing did we truly learn that the culture was a mess—misaligned, contentious,
and borderline tyrannical. They were losing good people because of it, and
it took the better part of the first year just to stabilize the business.” Not fully
understanding the culture they were buying into ended up hitting his firm
right in the wallet.
The cost of cultural issues in a portfolio company can become sub-
stantial: loss of key talent, stunted growth, slow time to value, and ulti-
mately, weak returns. It’s for these reasons that giving short shrift to
culture in your due diligence, value creation planning, and portfolio man-
agement is a grave mistake.

How Culture Impacts Value Creation

If the connection between culture and your value creation plan is still a
bit hazy, here’s a concrete example. Put your investor hat on and imag-
ine you’re considering investing in a software company. A big part of your
investment thesis centers around developing and selling new products
(which we discussed in chapter 8 on product expansion). You’ve deter-
mined this lever is important to hitting your target returns, but here’s the
thing:
If the organization that you’re investing in is risk-averse (which gener-
ally stems from unconscious, unspoken attitudes and beliefs that engen-
der fear of taking risk); tends to “water its weeds” (a behavior in which
teams are prone to doubling down on losing products because they have
trouble letting go of their own failed ideas); or gets easily distracted and
has a pattern of chasing shiny objects (which can quickly undermine new
product development efforts), don’t these cultural attributes create a
Culture

direct risk to your product expansion agenda? Aren’t these things you’d
want to be aware of before doing a deal whose success is predicated on

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product expansion? Isn’t it something you’d want to be intentional about

taking steps to address post-closing before these cultural issues undercut
your value creation plan?
Or imagine one of the biggest EBITDA drivers you’ve identified is to
reduce the cost to serve. However, the target company prides itself on
its high-touch, highly personalized (read: high-cost and unscalable) cus-
tomer experience. It believes that “all customers deserve white-glove
treatment”—and behaves accordingly.
❖ The account managers pride themselves on never missing a Mon-
day morning call to Carly Client to ask how her son’s soccer game
went over the weekend.
❖ The customer service reps spend 3x longer than competitors to
handle a ticket because they want to ensure they’ve answered
every last customer question.
❖ The customer success manager types personalized onboarding
emails to each new customer because they believe in welcoming
them personally.
Admirable and kind-hearted as these behaviors may be, doesn’t this cul-
tural value pose a risk to your plan to make customer service more effi-
cient and scalable. Couldn’t it undermine the margin expansion opportu-
nity you’re underwriting?
The bottom line is that even the smartest investment thesis or value
creation plan won’t prevail in a culture that’s misaligned or at odds with
that value creation plan, let alone altogether dysfunctional.

Attributes of a Strong Culture

You get it. Having a strong culture should be important to investors and
executives. But it begs the question: What does a strong culture look like?
For many, the answer is one of those “you know it when you see it”
kind of things. And the reality is, there’s no single right answer.
But some well-regarded organizations—such as Gallup, Harvard Busi-
ness Review, The Table Group, Entromy, and others—have studied this
question objectively. So I poured through their research, talked to some
of their people, and melded their perspectives with mine as a mid-market
investor and operator. There are six interrelated attributes that seem to
best define a strong culture:

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❖ Purpose-driven: Human beings yearn to do work that is signifi-

cant and meaningful. It’s innate. When leaders align their organi-
zations behind a soulful purpose or mission—the positive impact
the company is looking to have in its customers’ lives—it imbues
the work with a sense of meaning. And we know from research
that this sense of meaning can allow purpose-driven companies
to attract and retain better people, build a stronger and more
resonant brand, and ultimately deliver stronger performance.
❖ Values-aligned: A company’s values define “how we roll around
here.” They should be rooted in the answer to this question: What
attitudes and behaviors are most important to long-term success
in our business? If you want success, then logically, you need to be
clear about the attitudes and behaviors that are the most import-
ant to achieving it. In the way rails keep a train on the right track
and moving toward its destination, core values are the guiding
force that keeps a team on track toward its long-term vision.
Speaking of. . .
❖ Long-term-focused: Strong cultures are marked by a clear sense
of direction. Teams know where they’re going together—what the
company is trying to achieve over the long term. They are aligned
behind and are inspired by a shared vision. They know the moun-
tain they are trying to climb together. The hill they are trying to
take. They aren’t strictly playing to win next month or the follow-
ing quarter. They’re playing for something much bigger. Being
aligned behind a bold and compelling long-term vision creates
direction, fosters unity, ignites energy, and sparks creativity.
❖ Trust-based: Trust-based cultures are ones in which employees
can take risks, speak up to debate openly or admit their mistakes,
and try new things without fear of embarrassment or reprimand.
Employees feel a sense of safety within a trust-based culture.
Trust helps pump fear out of the room—and fear is perhaps the
greatest factor standing between a capable employee’s output
being just average and them doing their best work.
❖ Strengths-oriented: Fostering a strengths-based culture is one
of the most powerful performance-enhancing drugs available
to a company. By helping people understand what they can do
Culture

best and putting them in a position to do those things, strengths-

based cultures draw out way more of their peoples’ best stuff.

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 Results-motivated: The whole point of a business is to achieve

results. It is, of course, tough to remain in existence—let alone
do big things—if your company fails to do so. Strong cultures
are ones in which people are clear on what success looks like,
understand what results are needed, and carry a strong sense
of accountability for getting the job done.

Sizing Up Your Company’s Culture

So as investors and executives, how can we get this right? How can we
develop a clearer, higher-fidelity view of a company’s culture—and work
to foster the type of culture conducive to value creation success?
You can start by forming a perspective on the current state of culture in
due diligence. Use management meetings, one on ones, and employee
observation to begin to understand:
❖ What are the organization’s most prevalent attitudes, beliefs,
and behaviors?
❖ Which of those align with and support the value creation plan?
❖ Which of those could be at odds with or undermine the value cre-
ation plan?
So that you can keep your antennae up for them, here are ten warning signs
of underlying cultural issues that could put a company’s success at risk:
❖ Weak or declining employee engagement
❖ Difficulty attracting great talent
❖ Higher-than-benchmark employee turnover
❖ Insistence on following a chain of command
❖ Information is closely guarded; lack of transparency
❖ Infighting or finger-pointing among leadership
❖ Silos or competition among internal teams
❖ Slow decision-making or unclear decision rights
❖ Debate and challenge are not encouraged (and feared/avoided
by employees)
❖ Excessive negative customer feedback
And let’s not forget the most visible lagging indicator of cultural con-
cerns: business performance issues. I’ve learned over time that perfor-
mance issues are often the manifestation of root cultural issues, whether
in whole or in part. Culture ultimately affects outcomes. Some of these
indicators will be obvious, and others will appear subtly.

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You can look for clues by informally observing your team interacting
(in group meetings, walking the halls, etc.). But a more proper “cultural
assessment” will help you more-deeply understand cultural challenges
and opportunities early, after which you’ll be in a position to know what
needs to be done about them.
After developing a high-fidelity view of your company’s culture, use this
understanding as the basis for getting clear on what needs to change, shift,
and evolve culturally to ensure your company is positioned to achieve its
value creation plan. Evolving a culture takes awareness, intentionality, and
strong leadership. It doesn’t happen by accident or overnight. It requires
shifts in often deeply seated attitudes, beliefs, and behaviors of the people
who comprise the culture. Changing the way people act requires chang-
ing what they believe, think, and feel—and this takes time, demands per-
sistence, and often requires getting certain resistors off the bus.
Important sidenote: If you’re in the roughly 57 percent of private
equity investors who believe culture is important to generating returns
but aren’t intentional about evaluating their portfolio companies’ culture
today, reach out to me. Through our Close with Confidence program, we
help private equity firms develop a clear view of the culture of a target
company (among other things) and identify the risks that culture could
pose to their value creation plan. We then help these companies chart out
and navigate the cultural evolution needed to ensure a bright future and
a great exit.

❖ ❖ ❖

I’ve included a few extra resources on these two meta-levers—team and

culture—at WinningMoves.co. It’s part “thank you” and part “I didn’t have
enough room in the book but still wanted to share them with you.”
❖ [Free Guide] 3 Tried and True Practices for Getting the Right Lead-
ers Into the Critical Roles
❖ [Free On-Demand Workshop] How to Make Better Hiring Deci-
sions and Generate Value Faster
❖ [Free On-Demand Workshop] How to Avoid the 3 Most Common
Due Diligence Mistakes (which relate to Team and Culture)
Culture

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4
I N TO AC TI O N
 C H A P TE R 17

PUTTING WINNING MOVES

INTO ACTION

“Ideas are worth nothing unless executed. They are just a

multiplier. Execution is worth millions.”
—STEVE JOBS
A successful professional services CEO I know—a 10-Bagger whose
company has returned many multiples of its investors’ money during his
time in the saddle—shared a great piece of wisdom that has stuck with me
ever since I interviewed him:
“At the risk of belittling my own intelligence, the things that
have driven [our company’s] success really aren’t rocket
science. There are lots of smart investors and operators
out there who know what good marketing looks like, who
understand the value in digital transformation, and who
get that accretive acquisitions can create tons of value. The
challenge isn’t knowing these things. . . it is doing them.
Executing on them with commitment, discipline and resolve.”
In the way that the old Irish proverb tells us, “You’ll never plow a field by
turning it over in your mind,” you’ll never create more value in your compa-
nies by merely reading a book on the topic and intellectualizing its ideas.
Doing nothing gets you nothing.
This book is little more than a one-pound paperweight if you don’t
take action on the things we’ve covered.
 WINNING MOVES

So in this section, written as a “Practitioner’s Guide” of sorts, we’re

going to bridge the knowing-doing gap and get to the heart of how to take
the ideas I’ve shared in this book and put them into action throughout the
deal lifecycle so you can win more deals, avoid overpaying, and generate
better returns.

On The Shoulders of Giants

“If I have seen further, it is by standing
upon the shoulders of giants.”
—ISA AC NEWTON
Over the years of working with portfolio companies as a board member
and within private equity-backed companies as a leader, I constantly
refined my playbook to more consistently and methodically make value
creation happen throughout the investment lifecycle. Our portfolio com-
panies’ success and my job success depended on it.
Somewhere along the way, it occurred to me that we don’t need to
reinvent the wheel. Other private equiteers and operators have invested
tons of time and lots of brain cells—and made the expensive mistakes—
figuring out how to drive value creation. And some successful ones have
cracked the code on how to do so predictably.
I recognized that, as my old wrestling coach used to say, “To perform
like the best, we should learn from the best.” We should stand upon their
shoulders.
So I started asking the question: “When it comes to executing value
creation, what do the best firms and companies do that the others don’t?”

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To find answers, I began reaching out to friends and peers at firms

best known for taking an intentional, methodical approach to driving
value creation—our “Leader” firms from chapter 1.

I studied them. I bought them lunches and coffees and picked their brains.
I read their insights and dog-eared the pages. I executed what I learned to
figure out what worked (and, in some cases, what didn’t). And I did the
hard work to blend my in-the-trenches experience with their secret sauce
and boil it all down to its actionable essence in this section.
In the pages ahead, I distill the combined 200+ years of experience of
the value creation professionals, operating partners, and board directors
who contributed their wisdom to this book into the ten most talked about
success factors: the ideas, best practices, and keys to success.
Eighty-three percent of private equity leaders surveyed by PwC say
they need to improve their approach to value creation planning.¹ Hope-
fully, learning from the giants of value creation can help.
For a more actionable step-by-step guide on how to implement these
ideas throughout the deal lifecycle, check out the Value Creation Field
Guide at WinningMoves.co.

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The Overarching Keys to Success

in Value Creation Planning
Success Factor #1: Start value creation planning early. We touched on this
in Winning Move #93, but it bears repeating:
If you’re starting value creation planning
post-closing, you’re too late.
As competition for deals continues to heat up and purchase multiples rise,
the margin for error post-closing has shrunk proportionally, just as the
importance of value creation has increased proportionally. In light of this,
developing a clear and well-validated value creation plan early—starting
pre-closing—is becoming increasingly important for a couple of reasons.
First, going through deal underwriting with clarity and assurance on
the value creation opportunities, and an actual plan to boot, will give an
investor greater confidence in a deal’s upside opportunities. And it will
therefore allow them to bid more aggressively to win the deal where these
opportunities justify doing so.
And second, developing and beginning to align on your value creation
plan pre-closing puts investors and their leadership teams in a position to
hit the ground running on Day 1 and use the critical first 100-day period to
build momentum and generate some wins.
These two factors combine to create a performance advantage.
According to a study of private equity buyers by PwC,²
“[The research shows that] the most successful acquirers
are those with the most extensive and far-reaching pre-deal
[value creation planning] activity. This tells us that the most
accretive deals involve locking in a value creation approach
much earlier than is currently the case for most.”
Success Factor #2: Entwine due diligence and value creation planning.
Due diligence efforts (led by the deal team) and value creation planning
efforts (often led by the operating partner, portfolio operations team, or
value creation team) should be integrated. The workstreams should be
complementary, the work involved should be interlaced, and the teams
responsible for that work should be joined at the hip in identifying and
validating value drivers.
One value creation leader from a prominent Leader firm described
why to me this way:

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“Where I’ve seen value creation planning get off-track is when

the deal team develops an investment thesis pre-closing and
then tosses it over the wall to the operating partner or value
creation team at close. This kind of disjointed process is rife
with issues.

Sometimes, the deal team writes checks that the operating

team won’t be able to cash post-closing by being overly
optimistic about growth assumptions. Or the person
responsible for value creation doesn’t share valuable
information about opportunities to improve the expected
future value of the target; and as a result, the deal team
doesn’t know it has room to bid up to win the deal.

To avoid this, those running due diligence should be hip to

hip with those who are accountable for value creation post-
closing. Together, you’re developing and validating your
hypotheses on the biggest levers. You’re beginning to socialize
this with management. And you’re partnering to translate
your deal thesis into an actionable value creation plan.”
How This Book Can Help: Use this book to help you think systematically
and comprehensively about the different potential opportunities to drive
value creation post-closing.
Success Factor #3: Co-create the value creation plan among inves-
tors and management. Value creation planning should be a collabora-
tive, co-creative effort—between a deal team and their operations coun-
terparts, as we just discussed, and among this combined private equity
team and their portfolio company management team.
One private equity group I recently worked with retained my firm to
help them get value creation on the rails following a slower and more dis-
combobulated than expected First 100 in a new portfolio company. “We
need management to move more quickly on executing to our investment
thesis,” they said.
As I got under the hood, I learned that something got lost in transla-
tion between the deal thesis that investors had underwritten and the value
creation agenda that management was executing. The crux of the issue, I
found, was that the development of the value creation was approached as
a handoff (Investors: “Here’s the value creation plan. Good luck. We’ll check
in next board meeting.”), not a collaborative, jointly accountable effort.

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A few problems happen when investors independently develop and uni-

laterally assert the value creation blueprint in this way:
❖ It’s a waste of intelligence. If you’ve done your job in backing an
intelligent, market-attuned, and fit-for-purpose executive team
(or putting one in place quickly after closing), they should have a
well-developed perspective on where growth and value creation
should come from. (And if they don’t, you have a separate issue.)
❖ It’s disempowering. Strong management teams want clarity on
their investors’ expectations but don’t want to be told what to do.
❖ It undermines buy-in. It’s difficult for management to buy into a
plan if they haven’t had a chance to weigh in on that plan.
On the flip side, it’s also problematic when investors rely entirely on man-
agement to develop the value creation plan. This passive, deferential
approach doesn’t take advantage of investors’ experience, pattern recog-
nition, and smarts; and can set the stage for investor/management mis-
alignment issues down the line.
The best approach to value creation planning is co-creative and col-
laborative. Each party brings their best thinking on the levers to pull, the
winning moves to make. And they don’t break the huddle until investors
and management align on the plan.
How This Book Can Help: For investors, share a copy of this book with
management (especially those who haven’t worked with private equity
before) to establish a shared framework for approaching value creation
planning discussions. Without a shared mental model, value creation dis-
cussions can sometimes feel like you’re speaking different languages.
Success Factor #4: Align on a clear and unifying vision. Dropping a
bunch of value creation action items into a Gantt chart without a clear
and unifying vision of what you’re building toward would be like hammer-
ing together a bunch of 2x4s without knowing if you’re trying to construct
a home, a shed, a barn, or what.
In the way that a captain and her crew shouldn’t leave the safety of
land for a five-year voyage without having an idea where they’re heading,
investors and their companies shouldn’t shove off the dock without hav-
ing a clear destination in mind—a vision.
As we discussed in chapter 16 on culture, aligning on a bold and com-
pelling long-term vision for your company provides direction, creates
unity, ignites energy, and sets the context needed to make decisions
about which value-generating winning moves you’ll make en route to that

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destination. It is your value creation plan’s guiding light.

“For us, everything starts with having a shared vision for what we’re try-
ing to achieve together—our ‘desired superior outcome.’ Any conversa-
tion about value creation must be anchored to a shared vision.”
—LES BROWN, Managing Partner, Operational
Resources Group, HGGC

Here are a few simple questions to consider in developing your vision:

❖ What is our winning aspiration? Think boldly and purposefully.
In the case of an addiction treatment company I sat on the board
of, their winning aspiration was to “Heal and transform 100,000
lives by 2020.” For a professional education company I worked
with, their winning aspiration was to “Help 1 million profession-
als to accelerate their careers annually by 2020.” (In case you were
wondering, both got there and are amazing case studies in the
power of a bold and purposeful vision!)
❖ What will the world look like when we’ve achieved this? Look
outward and think about the impact that attaining this winning
aspiration can have on those you serve. This makes your vision
purposeful and meaningful and counterbalances the inward-fo-
cused ways of thinking (“Our company will have $X in EBITDA.” and
“We will build Y and Z new products.”) that many business leaders
default to when it comes to vision setting. For most, the pros-
pect of achieving $100 million of EBITDA is going to be way less
intrinsically motivating than the chance to “heal and transform
100,000 lives.”
❖ What will our business look like when we’ve achieved this? Turn
inward now. What will be true about the company 5–10 years from
now when we’ve achieved this vision? Where will we be playing?
How will we be winning? And what specific winning moves will
we have nailed to get there? (See how vision and value creation
planning start to connect?)
If you’re thinking, “That’s all great, but what about financial performance?
What about hitting my modeled returns?” it is important to recognize that
in nearly all cases, setting and achieving a bold and purposeful vision will
almost guarantee a smashingly successful outcome for investors. The
performance will take care of itself.

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Success Factor #5: Take a hypothesis-driven approach. Consulting

firms like McKinsey are famous for taking a hypothesis-driven approach
to problem-solving. Because some of the most influential value creation
leaders have management consulting in their background, unsurpris-
ingly, some of our Leader firms apply this method to value creation plan-
ning to great effect.
Being “hypothesis-driven” may feel like stuffy consultant speak,
but the approach is simple and pretty darn important to making sensi-
ble decisions about which value creation opportunities to pursue, and
here’s how: In due diligence, you want to use intuition, data, and patterns
you’ve seen in other companies to make observations and develop spe-
cific hypotheses about value creation opportunities. One value creation
leader at a mid-market firm explained it to me like this,
“In early due diligence, our investing and operating folks sit
around the table and mind-meld on these two questions:
(1) ‘What are our hypotheses about the value drivers in this
deal?’, and (2) ‘If true, what would be the value of each?’ We’re
conscious about using the word ‘hypothesis’ because we
want to stay intellectually honest and not presuppose that we
know the answer.”
As she alluded to, don’t chalk these observation or intuition-based hypoth-
eses up as facts just yet. Although your intuition can be a useful starting
point for identifying opportunities, following your intuition without vali-
dation will, over time, devolve into poor intuition—and by extension, poor
decision-making. So before inking these opportunities into your value cre-
ation plan and committing expensive resources to get after them, use data,
testing, and logic to validate (or disprove) your hypotheses.

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This kind of approach will help you streamline due diligence and make
fact-based decisions about which opportunities to pursue and which to
let lie.
Success Factor #6: Get focused on the “vital few.” Making a little prog-
ress on a bunch of different value creation initiatives is far less impact-
ful than making great strides on the small number of winning moves that
matter most to moving toward your long-term vision—the vital few.

“When we don’t see things happening quickly enough in new investments,

it is often because management is trying to do too much.”
—Head of Value Creation, Mid-market Private Equity Group

Money, capacity, and energy are limited for companies not named Google
or Amazon, which have seemingly unlimited budgets and resources. And
generally speaking, the more we try to accomplish with finite resources,
the less we get done. Ever heard of the Law of Diminishing Marginal Pro-
ductivity?

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Research from management professor and author Morten Hansen high-

lights the impact of focus on business performance.
“We found that [organizations which] chose a few key
priorities and channeled tremendous effort into doing
exceptional work in those areas greatly outperformed those
who pursued a wider range of priorities.”³
One friend, a value creation professional at a preeminent Leader firm, was
emphatic about the importance of focus in value creation planning and
execution:
“The biggest mistake I see our companies making is trying
to do too much. Ambition—trying to “do it all”—can be the
enemy of results. So I frame our value creation playbook not
as a checklist but as a menu. It is a big menu, and you don’t
have to order the whole menu. In fact, you really shouldn’t.
You only have so much stomach space.”

“So let’s pick the 4–6 things that will give us the most calories
per ounce of effort/spend, and let’s just focus on eating those
things. Let’s avoid the temptation to add on the chocolate
cake just because it looks good. We’ll fill ourselves up, feel like
crap, and put the rest of the meal at risk.”
The importance of focus and prioritization was a resounding theme
among the value creation leaders I’ve interviewed—although not all of
them put it in such delicious metaphorical terms.
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How This Book Can Help: Consider the winning moves in this book as
the “menu.” You may, of course, add some dishes of your own to it—win-
ning moves not included in this book that you’ve had success with.
When it comes to prioritizing the winning moves that you’ll pursue,
use the simple Value versus Cost approach I shared in chapter 8 to think
through and prioritize potential value creation initiatives based on the
size of the prize and the cost to capture.

Success Factor #7: Spot and prioritize the two-fers. In part 2, I flagged sev-
eral two-fers—value creation opportunities that positively impact more
than one economic lever in one fell swoop. For example:
❖ Value-based pricing and positioning (Winning Move #69) can
help you land new business at both a higher close rate and at a
higher price point.
❖ Enabling customers to serve themselves (Winning Move #82) can
improve customer satisfaction (which, of course, aids in both
retaining and expanding those customers) and reduce cost to
serve.
❖ Repositioning your business in high-growth markets (Winning
Move #99) can help you accelerate revenue growth and enhance
your exit multiple.
As you’re considering potential value creation initiatives, think systemati-
cally about the economic impact each can have across the levers, and pri-
oritize the two-fers that can give you the greatest bang for the buck—or the

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“most calories per ounce of effort/spend” as my friend said earlier. It’s like
ordering the dish that gives you the ice cream and the cake in a single bite.
Success Factor #8: Play offense in the first 100 days. According to a
study of private equity investors and executives by Alix Partners,speed of
execution was rated by both groups as the second most important factor
to value creation success.⁴
But inertial forces can work against the speed of execution on a value
creation plan. For one, investors and management are tired from the deal
process, and it is tempting to take a quarter to catch your breath and let
the dust settle in the first 100 days.
Some investors’ approaches to the First 100 emphasize stabilization.
They kind of wait and see how things play out, explaining this approach by
saying, “Our first priority is to do no harm.” But for some, a well-intentioned
policy of “doing no harm”—which results in taking little action during the
early days—is worn as a cloak to mask a deeper risk aversion. Instead of
playing offense, they sit back on defense for fear of upsetting the apple cart
or making mistakes so early in a deal’s life.
In cases where the newly acquired company is crushing it, this may
work just fine. But in general, this sort of slow-roll approach to value cre-
ation can result in missed opportunities. Investors serious about generat-
ing excess returns can’t afford to give away time—especially considering
certain winning moves’ long execution periods and private equity firms’
finite hold periods.
So after you’ve stacked hands on your value creation plan, remember:
❖ If you don’t establish the pace early on, you will have missed an
opportunity to build momentum and get the value creation fly-
wheel spinning.
❖ If you don’t make needed changes quickly, people will go back to
the way things were.
❖ If you don’t start to garner quick wins early, employees may lose
confidence in the new partnership.
You won’t get a second chance to get off to a strong start. So don’t wait
for any dust to settle. Move with a sense of urgency in the first 100 days.
Play offense.
How WinningMoves.co Can Help: Head over to WinningMoves.co to
check out the on-demand workshop, 5 Keys to Getting Off to a Fast Start in
the First 100. In the workshop, I’ll share:

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❖ Why a “fast start wins the race”—and why the First 100 period is
so important to deal success.
❖ The factors that get in the way of winning the first 100 days.
❖ Five actionable tips for getting off to a fast start in the First 100
Success Factor #9: Get the right team in place quickly. Among respondents
to a survey of private equity professionals, 92 percent said that waiting
too long to take action on talent gaps had contributed to portfolio com-
pany underperformance in the past five years.⁵ Yet despite recognizing
this, only half of all private equity firms have talent actions spelled out in
their first 100-day plans as a matter of practice.⁶

“Value creation doesn’t have to be that complicated. Figure out specifi-

cally how you’re going to grow the enterprise value in a business, and
make sure those things are resourced with great people. This can be
hard but isn’t complicated.”
—10-Bagger CXO

Even the most sophisticated value creation plan will fail to pay off with-
out the right, fit-for-purpose team in place to execute it. We hit this pretty
hard in chapter 15. For this reason, talent actions should be foundational
stepping-stones in a value creation plan.
In response to the question “What matters most—above all else—to
value creation success?” one value creation leader said:
“Building the right team at the company. That’s where we
invest a lot of our time. Our working assumption is that these
companies can really do big things; but we simply must
have the right team to get it done. So we’re really focused on
getting clear on the work to be done on our value creation
plan and making moves quickly to make sure we have the
needed talent in place to do those things with excellence.”
Leader firms are rigorous about evaluating executive leadership’s suit-
ability, proactive about identifying gaps, and quick to act on those gaps in
the first 100 days—and many have human capital leaders who are leading
the charge on this.
How Accelera Partners Can Help: Think of Accelera as an Outsourced
Human Capital Partner. We help private equity groups conduct in-depth
organizational and talent assessment pre-closing and quickly mobilize on
key talent priorities post-closing.
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Success Factor #10: Have a documented plan, and track to it rigor-

ously. With all this talk of value creation planning in the past dozen pages
or so, we should probably talk about the plan itself. The value creation
plan is the “linchpin” of value creation success, as one private equity
leader put it. It is the bridge that spans the vast thesis-results gap.

Developing a simple, actionable, and measurable value creation plan

does a few things:
❖ It creates clarity. “Here are the value drivers we’re pursuing. Here’s
the target we plan to achieve on each. Here’s what we’ll do to get
there. And here’s how we’ll know if we’re on track.”
❖ It ensures alignment. “Are we (board and management) all on the
same page that these are the six value creation objectives we will
be pursuing? Are we on the same page that this is how we’ll gauge
success? If not, speak now or forever hold your peace!”
❖ It keeps the discussion—and an organization’s effort—focused
on the right things. If you’ve established the right value creation
objectives upfront, 80 percent of the discussion at a board level
should relate to those objectives, and 80 percent of the effort in
the organization should be pointed at those objectives.
As one value creation leader said,
“For each of our companies, we have a simple 1–2 page
documented value creation plan that everyone is behind. It
is the one thing that I have printed out, sitting on my desk,
and at the ready for every interaction that I have with a given
company. It keeps my brain and our interactions focused on
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 DAN CREMONS

what is priority, and what [investors and management] have

agreed matters most to our success.”
An effective value creation plan should spell out a few important and
interrelated things, which may look familiar to disciples of Andy Grove’s
OKR process:
❖ Value drivers. What we’ll impact. Start top down with the overar-
ching economics driver you’re focused on moving (which we’ve
framed in the earlier sections in this book).
❖ Objectives. What we’ll deliver. The goal to be achieved in that
area. It should be clear, concrete, time-bound, and measur-
able—and tie directly to the economic value driver you’re aiming
to affect.
❖ Winning moves. What we’ll do. The small handful of actionable
initiatives you’ll execute—the winning moves you’ll make—to
ensure that the objective is achieved.
❖ Indicators. How we’ll know. The combination of leading and lag-
ging indicators that will help you gauge the progress on and suc-
cess of each winning move.

“Getting management teams to focus on a few things is way better than

having them focus on a lot of things. So we get aligned on the two to
four levers that will matter most to driving value creation early on, set
targets, and measure those at every turn.”
—LES BROWN, Managing Partner, Operational
Resources Group, HGGC

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So have a plan. Be sure everyone is aligned on that plan. Make that plan
the centerpiece of your board/company interaction. Gantt chart it out to
ensure each item on the plan is sequenced properly, has clear account-
ability, and has clear target dates. Track its progress rigorously, and mea-
sure the results it is delivering. And iterate on the plan or change course
when the business indicators or market signals warrant doing so.
Some execution discipline of this sort can go a long way toward ensur-
ing that you keep the value creation engine moving down the right set of
tracks.
“A goal without a plan is a daydream.”
—NATHANIEL BR ANDEN
How WinningMoves.co Can Help: Head over to WinningMoves.co to down-
load our value creation planning template.

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WRAPPING UP AND HOW TO

GET MORE HELP

Well, my friend, we’ve reached the end of our time together, but
we’ve covered much ground! To quickly recap:
In part 1, we got grounded in a shared reality of what’s going on in the
private equity market today and discussed why there isn’t a more import-
ant time than now for private equity investors and executives to earn their
black belts in value creation. Then, we began to deconstruct value cre-
ation into its more addressable parts—the “levers”—to give us a simple,
shared mental model to work from
In part 2, we cracked open each of the five levers, deconstructed their
value drivers, and then started pinning proven, actionable, value-driving,
return-generating “winning moves” to each. One hundred five of them, to
be exact.
In doing so, we’ve built up this vast arsenal of proven winning moves
that B2B executives and investors can use to more consistently and pre-
dictably make value creation happen.
In part 3, we dove into the two overarching but often-overlooked
“meta levers”—team and culture—that directly impact value creation.
We discussed how even the most well-conceived value creation plan is
doomed from the beginning if a company doesn’t have the right talent
and culture to make it happen.
In part 4’s chapter 17, I distilled the wisdom and experience of the
 WINNING MOVES

value creation leaders who contributed to this book into the ten most
salient value creation success factors. These ideas and practices will
help you take everything we covered in the earlier chapters and apply it
throughout the deal life cycle to generate results.
To bring this full circle and end this final chapter right where we
began, I hope that someday soon, you’ll be saying, “This book helped us
create a boatload of value in my companies! Millions of dollars’ worth.”
When I said that on the first page of the Introduction, it wasn’t some
hollow selling point or an empty, irrationally optimistic promise. I trust
you’ve gathered from the many stories, studies, and anecdotes I shared
along the way, B2B companies just like yours—ones whose success stories
I spent countless hours mining for value-creating gems—have themselves
generated “a boatload of value” from the ideas I’ve shared. “Millions of
dollars’ worth,” indeed.
Whether the winning moves I presented to you have the same kind of
impact on your career, your firm’s or company’s success, and your bank
account as I know they can—or if they just gather cobwebs in the bottom
corner of your bookshelf—is largely up to you.
As I said earlier, doing nothing will get you nothing.
But if you’re serious about raising your value creation game—and in
doing so, winning more deals, avoiding overpaying, and generating stron-
ger returns—the best thing you can do from here is this:
Pick just a few new ideas from among the many I shared, and take
action.
To that end, we created WinningMoves.co to support private equity
professionals and their portfolio company leaders with “The How”—tak-
ing action on these winning moves. Within the platform, you’ll find vid-
eos, how-to guides, templates, and tutorials that will help you make these
winning moves with confidence. And because I’m all about helping you
get results, you can access the Winning Moves online platform free for 30
days. http://winningmoves.co

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 DAN CREMONS

If you decide your firm or company could benefit from the more hands-on
help and expertise my firm (Accelera Partners) can offer, reach out to us
and let’s chat: http://winningmoves.co/call.
We help private equity investors and their companies generate better
returns by:
❖ developing a clear, compelling, and executable value creation
plan;
❖ ensuring they have the right leaders at the helm and the right
team on the field to execute that value creation plan;
❖ helping those leaders define and foster the kind of empowering,
engaging, and purpose-driven culture that’s necessary to make
that value creation plan happen; and
❖ getting the entire team aligned and united behind the value cre-
ation plan and rowing in the same direction.
For more, visit AcceleraPartners.co.
To your success,

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 R E FE R E N C E S

PREFACE
1. American Investment Council, Economic contribution of the
private equity sector in 2020, American Investment Council,
2021, https://www.investmentcouncil.org/wp-content/uploads/
ey-aic-pe-economic-contribution-report-final-05-13-2021.pdf.

INTRODUCTION
1. McKinsey and Company, A new decade for private markets,
McKinsey and Company, 2002, https://www.mckinsey.com/~/
media/mckinsey/industries/private%20equity%20and%20
principal%20inves tors/our %20insight s/mckinseys %20
private%20markets%20annual%20review/mckinsey-global-
private-markets-review-2020-v4.ashx.
2. McKinsey and Company, McKinsey’s Private Markets Annual
Review, McKinsey and Company, 2021, https://www.mckinsey.
com/industries/private-equity-and-principal-investors/our-
insights/mckinseys-private-markets-annual-review.
3. Bain & Company, Global Private Equity Report 2021, Bain & Company,
2021, https://www.bain.com/globalassets/noindex/2021/bain_
report_2021-global-private-equity-report.pdf.

CHAPTER 1
1. SBA Off ice of Advocacy, Census Bureau Statistics of U.S.
Businesses (SUSB), accessed 2022, https://www.census.gov/
programs-surveys/susb/data/tables.html.
 WINNING MOVES

2. Hugh MacArthur, Josh Lerner and State Street Global Markets &
State Street Private Equity Index, Public vs. Private Equity Returns:
Is PE Losing Its Advantage?, Bain & Company, 2020, https://www.
bain.com/insights/public-vs-private-markets-global-private-
equity-report-2020/.
3. Bain & Company, Global Private Equity Report 2021, Bain
& Company, 2021, https://www.bain.com/globalassets/
noindex/2021/bain_report_2021-global-private-equity-report.
pdf.
4. Ibid.
5. Ibid.
6. PWC, Creating Value Beyond the Deal, PWC, 2019, https://www.
pwc.com/it/it/services/deals/docs/Creating-value-beyond-the-
deal.pdf.
7. Paul Gompers, Steven, and Vladimir Mukharlyamov, What Private
Equity Investors Think They Do for the Companies They Buy,
Harvard Business Review, 2015, https://hbr.org/2015/06/what-
private-equity-investors-think-they-do-for-the-companies-
they-buy.

CHAPTER 3
1. Isaac Fox and Alfred Marcus, The Causes and Consequences of
Leveraged Management Buyouts, The Academy of Management
Review, Vol. 17, No. 1, pp. 62-85, https://www.jstor.org/
stable/258648.
2. Bowen White, Value Creation 2.0: A Framework For Measuring
Value Creation In Private Equity Investment, INSEAD, 2016, https://
www.insead.edu/sites/default/files/assets/dept/centres/emi/
docs/value-creation-2-0.pdf.

CHAPTER 4
1. Graham Charlton, Companies More Focused On Acquisition Than
Retention: Stats, Centaur Media, 2013, https://econsultancy.com/
companies-more-focused-on-acquisition-than-retention-stats/.
2. Amy Gallo, The Value of Keeping the Right Customers, Harvard
Business Review, 2014, https://hbr.org/2014/10/the-value-of-
keeping-the-right-customers.

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 DAN CREMONS

3. Ibid.
4. Dwayne George, Only 1 Out of 26 Unhappy Customers Complain.
The Rest Churn. Customer Experience Magazine, 2016, https://
cxm.co.uk/1-26-unhappy-customers-complain-rest-churn/.
5. Andrew Mort, A Customer Churn Survey Reveals Reasons for
Consumer Attrition, TechSee Augmented Vision Ltd, 2019, https://
techsee.me/blog/customer-churn/.
6. Steven MacDonald, Relationship Marketing: How to Put the
Spotlight on Relationships in Business, SuperOffice AS, 2021,
https://www.superoffice.com/blog/relationship-marketing/.
7. Ethan Jakob Craft, 5 Key Takeaways From The 2019 Edelman Brand
Trust Survey, ADAge, 2019, https://adage.com/article/digital/5-
key-takeaways-2019-edelman-brand-trust-survey/2178646.
8. George S. Yip and Audrey J.M. Bink, Managing Global Accounts,
Harvard Business Review, 2007, https://hbr.org/2007/09/
managing-global-accounts.

CHAPTER 5
1. Sunny Dhami, 5 Key Elements of a Cross-Selling and Upselling
Strategy for B2B Businesses, Leadfeeder, 2021, https://www.
leadfeeder.com/blog/cross-selling-upselling-tactics-b2b/.

CHAPTER 6
1. Alex Rampell, From Zero to 10,000 Clients in Two Years Using
Channel Partners, First Round Review, Date not provided, https://
review.firstround.com/From-Zero-to-10000-clients-in-Two-
Years-Using-Channel-Partners.
2. Chris Zook, Don’t Underestimate the Power of Focus, Harvard
Business Review, 2007, https://hbr.org/2007/08/dont-
underestimate-the-power-o.
3. Patrick Campbell, How Well Do You Really You’re Your Customers?,
ProfitWell, Updated 2022, https://www.priceintelligently.com/
blog/know-your-customer-with-quantified-buyer-personas.
4. Marcus Andrews, 42% Of Companies Don’t Listen to Their
Customers. Yikes., HubSpot, Updated 2021, https://blog.hubspot.
com/service/state-of-service-2019-customer-first.

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5. Big Think, The Real Secret to Success? Get To Know Your Customers.,
Big Think, 2019, https://www.bigthinkedge.com/the-real-secret-
to-success-get-to-know-your-customers/.
6. Meghan Deguire, The Science of Building Buyer Personas, HIPB2B,
2019, https://www.hipb2b.com/blog/infographic-science-
building-buyer-personas.
7. Jann Martin Schwarz, Why B2B Marketers Need To Get In Touch
With Their Feelings, LinkedIn, 2019, https://business.linkedin.com/
en-uk/marketing-solutions/blog/posts/B2B-Marketing/2019/
Why-B2B-marketers-need-to-get-in-touch-with-their-feelings.
8. Meg Prater, The Biggest Threat to Sales Teams in 2021 Isn't Losing
Clients, Date Unknown, https://blog.hubspot.com/sales/how-to-
manage-a-high-performing-sales-team
9. Andrew Gazdecki, The Acquisition Playbook: 10 Proven Post-
Acquisition Strategies to Increase Revenue 10% or More, Date
Unknown, https://drive.google.com/file/d/1s9SHMjZWqf5bqqW_
4Ajvn3Yy2LuqioMJ/view.
10. Mike Shultz, How Many Touches Does It Take To Make A Sale?, RAIN
Group, Date Unknown, https://www.rainsalestraining.com/blog/
how-many-touches-does-it-take-to-make-a-sale.
11. Lori Wizdo, The Forrester Wave™: Lead-To-Revenue Management
Platform Vendors, Q1 2014, Forrester Research, Inc., 2014,
https://w w w.forrester.com/repor t/ The -Forrester-Wave -
LeadToRevenue-Management-Platform-Vendors-Q1-2014/
RES95221.
12. Beth Caplow, Three Seismic Shifts in Buying Behavior from
Forrester’s 2021 B2B Buying Study, Forrester, 2021, https://www.
forrester.com/blogs/three-seismic-shifts-in-buying-behavior-
from-forresters-2021-b2b-buying-survey/.
13. Beth Caplow, Three Seismic Shifts in Buying Behavior from
Forrester’s 2021 B2B Buying Study, Forrester, 2021, https://www.
forrester.com/blogs/three-seismic-shifts-in-buying-behavior-
from-forresters-2021-b2b-buying-survey/.
14. Jerome Knyszewski, AMAZING STATS! LinkedIn Is KING Of B2B
Marketing, LinkedIn, 2015, https://www.linkedin.com/pulse/
linkedin-tips-what-you-must-know-b2b-marketing-jerome-
knyszewski/.

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15. Amy Saunders, 25 Things Every Small Business Should Automate,

Keap, Date Unknown, https://keap.com/resources/25-things-
every-small-business-should-automate.
16. Vikas Bhatt, Is Your Lead Really Sales Qualified? Here’s How to Tell,
Marketo, Date Unknown, https://blog.marketo.com/2018/07/
is-your-lead-sales-qualified-how-to-tell.html.
17. Gabe Larsen, Why Sales Reps Are Only Spending 35.2% Of Time
Selling, LinkedIn, 2018, https://www.linkedin.com/pulse/why-
sales-reps-only-spending-352-time-selling-gabe-larsen/.
18. Chris Orlob, The VP Sales’ Job Tenure Has Shrunk 7 Months – This
Trend Explains Why, Gong, 2018, https://www.gong.io/blog/
vp-sales-average-tenure/.
19. Mark Roberge, The Right Way to Use Compensation, Harvard
Business Review, 2015, https://hbr.org/2015/04/the-right-way-
to-use-compensation-2.

CHAPTER 7
1. Chris Zook and James Allen, Growth Outside the Core, Harvard
Business Review, 2003, https://hbr.org/2003/12/growth-outside-
the-core.
2. Chris Zook, The New Rules for Growing Outside Your Core Business,
Harvard Business Review, 2015, https://hbr.org/2015/05/the-
new-rules-for-growing-outside-your-core-business.
3. Chris Zook and James Allen, Growth Outside the Core, Harvard
Business Review, 2003, https://hbr.org/2003/12/growth-outside-
the-core.
4. Eddie Yoon and Michelle Stacy, Why Businesses Should Know
Where Their Densest Markets Are, Harvard Business Review, 2019,
https://hbr.org/2019/03/why-businesses-should-know-where-
their-densest-markets-are.
5. Chris Westfall: How To Build A Referral Program That Works,
Channel Journeys, 2020, https://channeljourneys.com/chris-
westfall-how-build-partner-referral-program-cj72/.
6. Alex Rampell, From Zero to 10,000 Clients in Two Years Using
Channel Partners, First Round Review, Date not provided, https://
review.firstround.com/From-Zero-to-10000-clients-in-Two-
Years-Using-Channel-Partners.

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 WINNING MOVES

CHAPTER 8
1. Chris Zook, The New Rules for Growing Outside Your Core Business,
Harvard Business Review, 2015, https://hbr.org/2015/05/the-
new-rules-for-growing-outside-your-core-business.
2. CB Insights, The Top 12 Reasons Startups Fail, CB Information
Services, 2021, https://www.cbinsights.com/research/startup-
failure-reasons-top/.
3. Gartner, New B2B Buying Journey & Its Implication For Sales,
Gartner, Date Unknown, https://www.gartner.com/en/sales/
insights/b2b-buying-journey#:~:text=The%20typical%20
buying%20group%20for,must%20deconflict%20with%20
the%20group.
4. Paul James, Viral Loops: Are They The Ninth Wonder of The World?,
Ardmore, 2020, https://www.lbbonline.com/news/viral-loops-
are-they-the-ninth-wonder-of-the-world.

CHAPTER 9
1. Patrick Campbell, Pricing Strategy Guide: Top Pricing Strategies
And How They Unlock Growth, ProfitWell, 2021, https://www.
priceintelligently.com/blog/bid/163986/a-complete-guide-to-
pricing-strategy.
2. Walter Baker, Manish Chopra, Alexandra Nee, and Shivanand
Sinha, Pricing: The Next Frontier Of Value Creation In Private
Equity, McKinsey & Company, 2019, https://www.mckinsey.com/
business-functions/marketing-and-sales/our-insights/pricing-
the-next-frontier-of-value-creation-in-private-equity#.
3. Price Intelligently, The Anatomy of SAAS Pricing Strategy,
ProfitWell, Date Unknown, https://www.priceintelligently.com/
hubfs/Price-Intelligently-SaaS-Pricing-Strategy.pdf.
4. Walter Baker, Manish Chopra, Alexandra Nee, and Shivanand
Sinha, Pricing: The Next Frontier Of Value Creation In Private
Equity, McKinsey & Company, 2019, https://www.mckinsey.com/
business-functions/marketing-and-sales/our-insights/pricing-
the-next-frontier-of-value-creation-in-private-equity#.
5. Ibid.

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 DAN CREMONS

6. Jared Boyer, Feature Value Analysis: The Supreme Growth Hack,

ProfitWell, 2021, https://www.priceintelligently.com/blog/
bid/191076/Feature-Value-Analysis-The-Supreme-Growth-Hack.
7. Ibid.
8. Taylor Wells, Price Escalators: The Part of Pricing Many People
Forget About, Taylor Wells Pty, 2020, https://taylorwells.com.au/
price-escalators/.
9. Just Schürmann, Simon Völler, Amadeus Petzke, and David
Langkamp, Three Steps To Creating Value From B2B Discounts,
Boston Consulting Group, 2015, https://www.bcg.com/en-us/
publications/2015/marketing-sales-pricing-three -steps-
creating-value-from-b2b-discounts.
10. Ibid.

CHAPTER 10
1. Bain & Company, Global Private Equity Report 2021, Bain
& Company, 2021, https://www.bain.com/globalassets/
noindex/2021/bain_report_2021-global-private-equity-report.
pdf.
2. Miles Cook, Emilio Domingo, Saleel Kulkarni, and Alexander
De Mol, Integrating Due Diligence to Build Lasting Value, Bain &
Company, 2019, https://www.bain.com/insights/integrating-
due-diligence-to-build-lasting-value/.
3. PWC, More For Less: Five Steps To Strategic Cost Reduction, PWC,
2016, https://www.pwc.com/gx/en/insurance/publications/
firing-on-all-cylinders-five-steps-to-strategic-cost-reduction.
pdf.
4. McKinsey & Company, How Nimble Resource Allocation Can Double
Your Company’s Value, McKinsey & Company, 2016, https://www.
mckinsey.com/business-functions/strategy-and-corporate-
finance/our-insights/how-nimble-resource-allocation-can-
double-your-companys-value.
5. Deloitte, Private Equity: A New Era For Value Creation, Deloitte
Development LLC, 2020, https://www2.deloitte.com/content/
dam/Deloitte/us/Documents/mergers-acqisitions/us-new-era-
for-value-creation.pdf.

321
 6. Kevin Coyne, Shawn T. Coyne, and Edward J. Coyne, Sr., When
You’ve Got to Cut Costs—Now, Harvard Business Review, 2010,
https://hbr.org/2010/05/when-youve-got-to-cut-costs-now.
7. PWC, More For Less: Five Steps To Strategic Cost Reduction, PWC,
2016, https://www.pwc.com/gx/en/insurance/publications/firing-
on-all-cylinders-five-steps-to-strategic-cost-reduction.pdf.
8. Toma Kulbytė, The Value of Customer Self-Service in The Digital
Age, SuperOffice AS, 2021, https://www.superoffice.com/blog/
customer-self-service/.
9. Zendesk, Searching For Self-Service: Improving The Way
Customers Help Themselves Online (Infographic), Zendesk, Date
Unknown, https://d16cvnquvjw7pr.cloudfront.net/images/blog/
Infographic/zd_search_customer_self_service_inforgraphic.jpg.
10. Nick Perry, Spending Benchmarks For Private B2B SaaS Companies,
SaaS Capital, 2021, https://www.saas-capital.com/blog-posts/
spending-benchmarks-for-private-b2b-saas-companies/.
11. Ralph Breuer, Harald Fanderl, Markus Hedwig, and Marcel
Meuer, Service Industries Can Fuel Growth By Making Digital
Customer Experiences A Priority, McKinsey & Company, 2020,
https://www.mckinsey.com/~/media/McKinsey/Business%20
Functions/McKinsey%20Digital/Our%20Insights/Service%20
industries%20can%20fuel%20growth%20by%20making%20
digital%20customer%20experiences%20a%20priority/service-
industries-can-fuel-growth-by-making-digital-customer-
experiences-a-priority.ashx.
12. Nick Perry, Spending Benchmarks For Private B2B SaaS Companies,
SaaS Capital, 2021, https://www.saas-capital.com/blog-posts/
spending-benchmarks-for-private-b2b-saas-companies/.

CHAPTER 11
1. Michael Brigl, Axel Jansen, Bernhard Schwetzler, Benjamin
Hammer, Heiko Hinrichs, and Wilhelm Schmundt, How Private
Equity Firms Fuel Next-Level Value Creation, Boston Consulting
Group, 2016, https://www.bcg.com/publications/2016/private-
equity-power-of-buy-build.
 DAN CREMONS

2. Michael Brigl, Axel Jansen, Bernhard Schwetzler, Benjamin

Hammer, and Heiko Hinrichs, The Power of Buy and Build: How
Private Equity Firms Fuel Next-Level Value Creation, Boston
Consulting Group, 2016, https://www.bcg.com/publications/2016/
private-equity-power-of-buy-build.
3. Rebecca Springer, Q2 2021 Analyst Note: Exploring Trends in Add-On
Acquisitions: US PE Sees the Buy-And-Build Escalate, Innovate, And
Sophisticate, Pitchbook Data, 2021, https://pitchbook.com/news/
reports/q2-2020-pitchbook-analyst-note-exploring-trends-in-
add-on-acquisitions.
4. Pensions & Investments, Firms Turn to Roll-Ups To Find Instant
Growth, Crain Communications, 2021, https://www.pionline.
com/private-equity/firms-turn-roll-ups-find-instant-growth.
5. Jonathan Holt, Global CEO Confidence Returns To Pre-Pandemic
Levels: KPMG Study, KPMG, 2021, https://home.kpmg/uk/en/
home/media/press-releases/2021/09/global-ceo-confidence-
returns-to-pre-pandemic-levels--kpmg-study.html.
6. Michael Brigl, Axel Jansen, Bernhard Schwetzler, Benjamin
Hammer, and Heiko Hinrichs, The Power of Buy and Build: How
Private Equity Firms Fuel Next-Level Value Creation, Boston
Consulting Group, 2016, https://www.bcg.com/publications/2016/
private-equity-power-of-buy-build.
7. Robert Haas, Build Your M&A Muscle: Why Serial Acquirers Win At
Value Creation, Kearney, Date Unknown, https://www.kearney.
com/mergers-acquisitions/article/?/a/build-your-m-a-muscle-
why-serial-acquirers-win-at-value-creation.
8. Hugh MacArthur, Rebecca Burack, Christophe De Vusser, Kiki
Yang, Tim O’Connor, and Brenda Rainey, Buy-And-Build: A
Powerful PE Strategy, But Hard To Pull Off, Bain & Company, 2019,
https://www.bain.com/insights/buy-and-build-global-private-
equity-report-2019/.
9. Kristin Ficery, Tom Herd and Bill Pursche, Where Has All the Synergy
Gone? The M&A Puzzle, Journal of Business Strategy, Vol. 28 No. 5
2007, pp. 29-35, Emerald Group Publishing Limited, https://www.
criticaleye.com/inspiring/insights-servfile.cfm?id=582.

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 WINNING MOVES

10. Hugh MacArthur, Rebecca Burack, Christophe De Vusser, Kiki

Yang, Tim O’Connor, and Brenda Rainey, Buy-And-Build: A
Powerful PE Strategy, But Hard To Pull Off, Bain & Company, 2019,
https://www.bain.com/insights/buy-and-build-global-private-
equity-report-2019/.
11. Michael Brigl, Axel Jansen, Bernhard Schwetzler, Benjamin
Hammer, and Heiko Hinrichs, The Power Of Buy And Build: How
Private Equity Firms Fuel Next-Level Value Creation, Boston
Consulting Group, 2016, https://www.bcg.com/publications/2016/
private-equity-power-of-buy-build.
12. Hugh MacArthur, Rebecca Burack, Christophe De Vusser, Kiki
Yang, Tim O’Connor, and Brenda Rainey, Buy-And-Build: A
Powerful PE Strategy, But Hard To Pull Off, Bain & Company, 2019,
https://www.bain.com/insights/buy-and-build-global-private-
equity-report-2019/.
13. John Chartier, Alex Liu, Nikolaus Raberger, and Rui Silva, Seven
Rules To Crack The Code On Revenue Synergies In M&A, McKinsey &
Company, 2018, https://www.mckinsey.com/business-functions/
marketing-and-sales/our-insights/seven-rules-to-crack-the-
code-on-revenue-synergies-in-ma#signin/print
14. Mark Herndon, Getting Day 1 Right, M&A Partners, 2016, https://
www.mapartners.net/insights/getting-day-1-right

CHAPTER 12
1. Michael Brigl, Axel Jansen, Bernhard Schwetzler, Benjamin
Hammer, and Heiko Hinrichs, The Power Of Buy And Build: How
Private Equity Firms Fuel Next-Level Value Creation, Boston
Consulting Group, 2016, https://www.bcg.com/publications/2016/
private-equity-power-of-buy-build.

CHAPTER 13
1. Miles Cook, Emilio Domingo, Saleel Kulkarni, and Alexander
De Mol, Integrating Due Diligence To Build Lasting Value, Bain &
Company, 2019, https://www.bain.com/insights/integrating-
due-diligence-to-build-lasting-value/.
2. Bain & Company, Global Private Equity Report 2021, Bain & Company,
2021, https://www.bain.com/globalassets/noindex/2021/bain_
report_2021-global-private-equity-report.pdf.

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 DAN CREMONS

3. TM Capital, TM Capital Building Products Report Continued Sector

Growth Attracting M&A Activity, TM Capital, Date Unknown,
https://www.tmcapital.com/wp-content/uploads/2017/11/
Building-Products-Industry-Spotlight.pdf.
4. Robert Haas, Build Your M&A Muscle: Why Serial Acquirers Win At
Value Creation, Kearney, Date Unknown, https://www.kearney.
com/mergers-acquisitions/article/?/a/build-your-m-a-muscle-
why-serial-acquirers-win-at-value-creation.
5. PWC, Creating Value Beyond the Deal, PWC, 2019, https://www.
pwc.com/it/it/services/deals/docs/Creating-value-beyond-the-
deal.pdf.

CHAPTER 15
1. Alix Partners, Corporate Culture Can Make—Or—Break PE
Investment Returns But The Right Leaders Are Required, Alix
Partners, 2020, https://www.alixpartners.com/media/14381/ap_
annual_pe_leadership_survey_2020.pdf.
2. Geoff Smart, Randy Street, and Alan Foster, Power Score: Your
Formula For Leadership Success (Kindle Edition), Ballantine
Books, 2015, https://www.amazon.com/dp/B00NRQLWPQ/
ref=dp-kindle-redirect?_encoding=UTF8&btkr=1.
3. Kim Allen, 50% Of New Hires Fail! 6 Ugly Numbers Revealing
Recruiting’s Dirty Little Secret, AllenVision, Date Unknown, https://
allenvisioninc.com/recruiting/.
4. Gregory Nagel and Carrie Green, The High Cost of Poor
Succession Planning, Harvard Business Review, 2021, https://hbr.
org/2021/05/the-high-cost-of-poor-succession-planning.
5. Bain & Company, Global Private Equity Report 2021, Bain & Company,
2021, https://www.bain.com/globalassets/noindex/2021/bain_
report_2021-global-private-equity-report.pdf.
6. Entromy + TalentScape, Private Equity & The Talent Function,
Entromy, 2021, https://www.entromy.com/private-equity-talent.

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 WINNING MOVES

CHAPTER 16
1. Alix Partners, Corporate Culture Can Make—Or—Break PE
Investment Returns But The Right Leaders Are Required, Alix
Partners, 2020, https://www.alixpartners.com/media/14381/ap_
annual_pe_leadership_survey_2020.pdf.
2. PWC, Creating Value Beyond the Deal, PWC, 2019, https://www.
pwc.com/it/it/services/deals/docs/Creating-value-beyond-the-
deal.pdf.

CHAPTER 17
1. PWC, Creating Value Beyond the Deal, PWC, 2019, https://www.
pwc.com/it/it/services/deals/docs/Creating-value-beyond-the-
deal.pdf.
2. Ibid.
3. Morten T. Hansen, Great at Work: How Top Performers Do
Less, Work Better, and Achieve More, Simon & Schuster,
2018, https://www.amazon.com/Great-Work-Performers-
Better-Achieve/dp/1476765626/ref=tmm_hrd_swatch_0?_
encoding=UTF8&qid=&sr=.
4. Alix Partners, Corporate Culture Can Make—Or—Break PE
Investment Returns But The Right Leaders Are Required, Alix
Partners, 2020, https://www.alixpartners.com/media/14381/ap_
annual_pe_leadership_survey_2020.pdf.
5. Bain & Company, Global Private Equity Report 2021, Bain & Company,
2021, https://www.bain.com/globalassets/noindex/2021/bain_
report_2021-global-private-equity-report.pdf.
6. Entromy + TalentScape, Private Equity & The Talent Function,
Entromy, 2021, https://www.entromy.com/private-equity-talent.

326
 T H E W I N N I N G M OV E S

Winning Move #1: Understand why churn happens in the first 55

place
Winning Move #2: Target the right customers at the outset 56
Winning Move #3: Understand how to ace your customers’ 57
exams
Winning Move #4: Nail customer onboarding 58
Winning Move #5: Make your product or service easier to use 60
Winning Move #6: Make your product or service stickier 61
Winning Move #7: Build a proactive customer success model 62
Winning Move #8: Monitor client satisfaction continuously and 63
systematically
Winning Move #9: Implement customer health scoring 64
Winning Move #10: Track, optimize, and communicate the 65
customer ROI
Winning Move #11: Create a better customer service experience 66
Winning Move #12: Engage and educate customers through 67
retention marketing
Winning Move #13: Build community among customers 68
Winning Move #14: Build a key account management program 70
Winning Move #15: Reacquire lost customers 71
Winning Move #16: Offer annual billing 72
Winning Move #17: Implement auto-renewal and auto-ordering 73
Winning Move #18: Segment your customer base and define the 79
journey for each
Winning Move #19: Find whitespace opportunities 81
Winning Move #20: Identify and capitalize on the expansion 83
triggers
 WINNING MOVES

Winning Move #21: Personalized, targeted expansion 84

marketing
Winning Move #22: Build expansion into your pricing model 85
Winning Move #23: Build expansion into your product 86
Winning Move #24: Start small and expand 87
Winning Move #25: Know your target customers cold 93
Winning Move #26: Segment, size, and select 95
Winning Move #27: Get clear on your ideal customer profile 97
Winning Move #28: Sharpen your positioning 98
Winning Move #29: Translate your positioning into customer- 100
centered messaging
Winning Move #30: Lead with emotion, support with logic 101
Winning Move #31: Forge sales and marketing alignment 103
Winning Move #32: Accelerate new sales rep productivity 104
Winning Move #33: Create a single source of customer truth 106
Winning Move #34: Optimize your conversion rates 108
Winning Move #35: Establish revenue attribution 109
Winning Move #36: Identify and double down on profitable paid 110
acquisition channels
Winning Move #37: Do omnichannel marketing because it’s an 111
omnichannel world
Winning Move #38: Deploy account-based marketing 112
Winning Move #39: Use marketing automation to grease your 113
funnel
Winning Move #40: Nurture leads to move them through the 114
funnel
Winning Move #41: Embrace salesforce specialization 115
Winning Move #42: Beautify your “storefront” 117
Winning Move #43: Drop your line where the fish are 118
Winning Move #44: Join the conversation on LinkedIn 119
Winning Move #45: Regularly publish expert positioning content 120
Winning Move #46: Attract leads with free, value-packed 121
giveaways
Winning Move #47: Harness the power of customer referrals 122
Winning Move #48: Implement lead scoring 123
Winning Move #49: Leverage sales development reps 124
Winning Move #50: Maximize time spent selling 126
Winning Move #51: Always be qualifying 127
Winning Move #52: Sell the sizzle, not the steak 128
328
 DAN CREMONS

Winning Move #53: Use mid-funnel content to convert prospects 129

into opportunities
Winning Move #54: Align sales incentives with strategic objectives 130
Winning Move #55: Tune up your sale incentive program 131
Winning Move #56: Inject social proof at the bottom of the funnel 133
Winning Move #57: Start small in maximum-density markets 144
Winning Move #58: Strike up lightweight referral relationships 145
Winning Move #59: Crack into new markets through distribution 146
partnerships
Winning Move #60: Go deep with integration partnerships 147
Winning Move #61: Retire less-profitable products and services 158
Winning Move #62: Hunt for customer problems 159
Winning Move #63: Consider the “before, during, and after” 160
Winning Move #64: Embrace rapid prototyping 162
Winning Move #65: Embed fintech 163
Winning Move #66: Build a product viral loop 164
Winning Move #67: From product to platform 165
Winning Move #68: Turbo-boost your service workers with 166
technology
Winning Move #69: Tie price to customer value 182
Winning Move #70: Do your research to understand how 183
customers think about value
Winning Move #71: Pick the right value metric 185
Winning Move #72: Align pricing and packaging to your buyer 186
personas
Winning Move #73: Lead with a low-cost, front-end offer 187
Winning Move #74: Implement price escalators 188
Winning Move #75: End excessive or non-strategic discounting 189
Winning Move #76: Identify and eliminate bad costs 202
Winning Move #77: Clean-sheet your company’s cost structure 203
Winning Move #78: Manage cost optimization like you manage a 204
product
Winning Move #79: Identify and act on opportunities to 206
strategically outsource
Winning Move 80: Strengthen your vendor sourcing, selection, 208
and management
Winning Move #81: Part ways with unprofitable or misfit 209
customers
Winning Move #82: Enable customers to serve themselves 210
329
 WINNING MOVES

Winning Move #83: Control margin leakage from “scope/ 211

service creep”
Winning Move #84: Optimize your customer acquisition spend 212
Winning Move #85: Automate low-value, manual processes 213
Winning Move #86: Place the right people for the job 226
Winning Move #87: Be clear on what you’re looking for upfront 228
Winning Move #88: Assemble and prioritize your target list 229
Winning Move #89: Fill your POT 230
Winning Move #90: Be deliberate about building a reputation as 231
the acquirer of choice
Winning Move #91: Stay disciplined, but be nimble 233
Winning Move #92: Identify, size, and validate synergies early 234
Winning Move #93: Develop your value creation plan pre-closing 235
Winning Move #94: Win Day 1 236
Winning Move #95: Execute with speed and discipline post- 238
closing
Winning Move #96: Begin planning your exit early—and refine the 250
plan continuously
Winning Move #97: Systematically reduce or eliminate enterprise 251
risks
Winning Move #98: Grow your recurring revenue 253
Winning Move #99: Strategically reposition into higher-multiple 254
markets
Winning Move #100: Unlock the digital premium 255
Winning Move #101: Build an M&A pipeline 256
Winning Move #102: Do reverse due diligence 257
Winning Move #103: Craft and then tell a compelling exit story 258
Winning Move #104: Show, don’t tell 260
Winning Move #105: Quantify and sell the WIIFY 261

330
 AC K N OW L E DG M E NT S

Even though my editor insisted that my name needs to go on the

book’s cover, a whole tribe of people is as deserving of that real estate.
First, I’m eternally grateful to the many private equity investors, exec-
utives, and service providers who were generous in donating their wis-
dom and perspective to this project. There are too many to list here, but
you know who you are.
As I began writing this book, I was eager to share what I know about
value creation in the hopes that it would be helpful to some private equity
leader somewhere. But as I got into it, I quickly realized that I had as much
to learn from other private equiteers as I had to teach. Isaac Newton said,
“If I have seen farther than others, it is because I stood on the shoulders
of giants.” And if there’s one thing I did right as I began writing this book,
it was enrolling dozens of the “Giants” of private equity in this book’s mis-
sion and standing on their shoulders.
Among these contributors are well-known value creation leaders at
prominent firms who eat and breathe this stuff, over a dozen “10-bag-
ger” CEOs and CXOs (whose companies have generated greater than
10x return-on-invested-capital), and specialist service providers whose
expertise runs a mile deep in specific areas essential to private equity
value creation.
I spent hundreds of hours pouring through these leaders’ writings,
picking their brains on Zoom calls, chewing on their insights, and packag-
ing them up into the book. Tapping into this crowd’s wisdom and drawing
on their 1,000+ years of combined private equity experience made for a
way better book and a supremely rich learning experience for me.
Speaking of private equity giants, thanks to my friends and mentors
at Alpine Investors. Working with you has been one of my life’s great bless-
 WINNING MOVES

ings and has given me much of the raw material foundational to this book.
I’m proud and grateful to work with and learn from this amazing and tal-
ented group of leaders and investors.
I also have to thank my awesome wife, Courtney. When I told you I
wanted to start writing my next book three months after we had a baby, I
was expecting you’d remind me of all the reasons why now wasn’t a great
time to take on an intensive project like this. But instead, you said, “How
cool! Let’s make it happen.” And sure enough, you have been supportive
at every step. Thank you so much for your encouragement and patience,
especially in many moments when my mind wandered to private equity
value creation while we sat at the dinner table.
A hearty “thank you” to everyone on my publishing team. At times,
I felt lost in the cold, dark woods of independent authoring, but then
quickly remembered I had a whole team by my side. And there you were
with a flashlight. Your support and guidance always seemed to arrive at
just the right time.
To Amelia Forczak at Pithy Wordsmithery, for your strategic guidance.
To Nicole Sholly, for your early developmental editing and for helping me
get this book to the finish line. To Nils Kuehn, for your hard work in mak-
ing sure the manuscript was in tip-top shape and for helping me learn the
difference between “further” and “farther.” To Claire Lucy, for the beauti-
ful cover design and patience with my design perfectionism. To Jonathan
Sainsbury for the awesome interior layout. To Brian Walls for proofread-
ing the final manuscript with a fine-toothed comb. And to the others who
worked behind the scenes to make this book possible. You all have been
great partners.

332
 A B O U T TH E AU TH O R

After starting his career in operations management and wealth

management, Dan Cremons—an author who detests writing about him-
self in the third person, but will try to make you think that someone else
wrote this—landed in the private equity space in 2007 thanks to a few
strokes of luck and a little elbow grease. Since the early days (the first
month of which he spent trying to figure out what EBITDA stood for),
Dan has led investments, served on numerous boards, built out portfolio
operations and human-capital capabilities, and led within several private
equity-backed companies as a CEO and CXO.
Perhaps most notably, he was the proud champion of his previous
firm’s 2011 and 2012 cornhole tournaments (though he has since lost his
touch) and took first prize in its 2015 plank competition.
Along the way, Dan realized that although there were investors far
better than him at the deal-making part of private equity investing, his
greatest contributions came, as he puts it, “after the wires cleared”—
during the value creation phase.
Recognizing this, Dan launched Accelera Partners to help ambitious
private equity firms accelerate what he calls “people-powered perfor-
mance” in their portfolio companies. Dan helps portfolio companies’ lead-
ership teams define their winning future, get clear on the stepping-stones
in that direction, and ensure they have the right team and culture in place
to get there.
When he’s not serving awesome private equity clients and their lead-
ership teams, Dan enjoys endurance sports, kicking back on the nearest
body of water, reading any non-fiction he can get his hands on, attempting
to homebrew, and spending time with his amazing wife Courtney, their fun
and happy little guy Ollie, and their sweet but lazy adopted (dog)son Wally.
 WINNING MOVES

All inquiries for podcast appearances, interviews, and speaking

engagements can be sent to support@accelerapartners.co.

334