Article summary:  See why Private Equity succeeds—and how you can use that knowledge to your company’s advantage.

In some business circles it’s called “The Earthquake Strategy,” and it takes its name from a remarkable game of golf. 

The year was 1932, the place Mexico City. The golfer’s name has been lost to history, but his story remains. It was a fine June morning when our intrepid hero teed up his shot and smacked that golf ball—but good—down the fairway. To his delight, it bounced onto the green and rolled until it gently stopped right at the edge of the cup. 

Moments later, he prepared to sink his “gimme” shot when something made him pause. There was a rumbling sound, then the ground beneath him rattled to life. A massive earthquake 500 miles away in Manzanillo, Mexico, trembled its shockwaves through the golf course where he stood. “It jostled the ball just enough to make it shudder, teeter, and then fall into the cup—earning its owner a truly miraculous hole in one.”

A fantastic story? Yes—unless it is the strategy a mid-market company uses for success. Fact is, too many executives unintentionally employ “The Earthquake Strategy” in business: They formulate a strategy, take a shot from a distance, and hope their ball makes it all the way to the goal. Unknowingly, relying on an earthquake miracle rather than precise measurement and management. When they miss the mark, they repeat the process. 

Private Equity, on the other hand, doesn’t have the luxury of leaving business success to chance. Instead, PE partners are increasingly using data intelligence to turn growth strategies into predictable results. 

Adam Coffey and the Private Equity Playbook | Blue Margin

The Data-is-Money Philosophy – Data Should be a Strategic Managed Asset

Steven Schwarzman is CEO and cofounder of The Blackstone Group, one of the largest private equity firms in the world. An advisor to US presidents, both Democrat and Republican, his economic influence over the last four decades is hard to overestimate. Not surprisingly, he sees corporate data as fundamental to success. 

“Information is the most important asset in business,” Schwarzman says. “The more you know, the more perspectives you have, and the more likely you are to spot patterns and anomalies before your competition.”

Operating in Schwarzman’s shadow, it’s no surprise that implementing data intelligence in the form of dashboards is becoming a top priority for every PE firm investing in new enterprises. Dun & Bradstreet’s emphasis on “enhancing technology and data” immediately after acquisition is testament to that, but they aren’t alone. Consider: 

  • Ford used data from their own 2015 study of “twenty-five global experiments” to identify new opportunities to expand their business. The study has since prompted the company’s forays into “mobility” markets which have significantly higher profit potential than automating as a stand-alone industry. 
  • When PE firm, Kinzie Capital Partners, bought custom fixture company, Colony Display, previously ignored data on company demographics brought to light cultural disparities that were hampering growth. Colony tackled those disparities head-on and watched their EBITDA value double in just twelve months’ time.
  • NASA employs a fleet of data management professionals who, according to NASA data scientist Brian Thomas, are aiming to “unleash the power of data to reach new heights, reveal the unknown, for the benefit of all humankind.”
  • After Amazon’s Jeff Bezos bought the Washington Post newspaper, his data-driven innovations tripled online traffic and profitability in just two short years. 

And the list goes on. 

The truth is, in today’s competitive marketplace, data certainly equates to money, and more. Private equity firms that understand this can create value because they know that optimizing a company’s existing data is the most direct path to both short-term and long-term profitability. Thus, one of the ground-floor strategies of a PE firm should be to translate a portco’s existing data stores into easily accessible, ready-to-use tools that prompt real-time, real-impact decision-making to produce better outcomes. 

Josh Sullivan and Angela Zutavern are executives at the tech consulting firm Booz Allen Hamilton, where they pioneered the application of machine intelligence for business leadership and strategy. They explain: 

“The power of data preparation and analysis tools becomes obvious only when you add another software element, that of visualization. This includes dashboards with pie charts, line charts, geocharts, heat maps, histograms, tree maps, and so on, for spotting trends, signaling alerts, distinguishing networks, and seeing customer behaviors. The image on the screen triggers insights. This is not just because an image conveys a thousand words. Nor is it just an image conveying what words cannot. The image presents interactive results for “what if” and other exploratory questions.”

Understanding that private equity is at the forefront of the strategies and tactics for increasing company value, any mid-market company, sponsored or otherwise, would do well to follow in their footsteps by using data as a strategic pillar and catalyst for growth.

RATIONALIZING PRIVATE EQUITY THROUGH DATA

With over 3,000 Private Equity firms in the US alone, competition is fierce.

Leading firms are increasingly looking to data as a means of outperforming the market.

Our PE reporting solutions are customized to your value-creation model, making it easy to stay on top of portfolio and fund performance, industry benchmarks, covenants, and every aspect of a PE firm's operations.

If you’d like to discuss turning your data into a managed asset that automates and operationalizes your growth strategy, we’d love to learn more about your company and how we can point you in the right direction.

If you’d like to see an example of fund-level analytics at work, check out our Private Equity HQ dashboards for a demo. 

Private Equity HQ View Demo | Blue Margin


For Further Reading: 

Power BI Dashboard Case Studies for Private Equity Companies: See how Private Equity uses data intelligence and Power BI dashboards to drive performance and profit.

Private Equity Turns to Business Intelligence to Maximize Investments: Private Equity is turning to data intelligence to maximize investments. See how.

How To Implement Portfolio Analytics To Manage Your PE Portfolio: Learn four steps portfolio companies can take to immediately shape strategy and improve outcomes using the data they already have. 


Sources:

“Greatest Golf on Earth,” Destination, Volume 1, Issue 1, March-April 2008, page 20.

“The ‘tsunami earthquake’ of 1932 June 22 in Manzanillo, Mexico: seismological study and tsunami simulations,” Geophysical Journal International, Volume 187, Issue 3, December 2011, Pages 1443–1459, https://doi.org/10.1111/j.1365-246X.2011.05199.x

“Our History,” Dun & Bradstreet, https://www.dnb.com/about-us/company/history.html

Pitchbook. 2020. “US PE Breakdown, Q3 2020.” White Paper, page 11. https://pitchbook.com

Stephen A. Schwarzman, What it Takes (New York: Avid Reader Press, 2019) 351-352.

Josh Sullivan and Angela Zutavern, The Mathematical Corporation (New York: PublicAffairs, 2017) 9, 47, 137.

Kevin Dowd, “The Weekend Pitch,” Pitchbook, October 18, 2020, https://my.pitchbook.com/viewnewsletter/BBZGK-3ELlc/pevc

Mike Nappa

Written by Mike Nappa

Mike Nappa is the former publications director at Blue Margin Inc. He's also a bestselling and award-winning author with more than a million copies of his books sold worldwide.