Constant evolution of new age digital product and service companies is the need of the hour. It becomes more relevant and challenging if a private equity firm is running the firm.
From a private equity perspective, investing in a late stage company can bring core challenges that need immediate attention to grow the acquired company to the next level. Product viability and vulnerability factors come to mind as key areas that private equity firms should be concentrating on but often are overlooked while the focus is instead placed on improving both the top and bottom lines of the financial statements.
If one expands the focus to look at the product viability and vulnerability, private equity firms may quickly identify a major source of the company’s problem for sustaining growth and profitability. Many products might have had a lead in the market at one time, only to lose that lead to competitors. The primary reason is often due to lack on continual investment and transformation in the product. A classic example are on-premise software products that have been displaced by cloud software offerings.
Here are the key questions investors should ask their portfolio companies which could indicate a product transformation is mandatory:
1. Are your competitors launching cloud offerings and you don't have a competitive alternative?
2. Are you getting customer feedback that they are fed up with having to pay for licenses rather than usage and they don't have extra IT budget for servers and staff?
3. Are your customers impatient waiting weeks or months for software to be deployed and configured on their own servers, instead of immediately accessing the apps in the cloud?
4. Are your products lagging because developers can't keep up with the ever-changing market demands?
5. Does marketing have analysis to indicate who uses the software and is product development “tuned” into the customer to understand how customers are using it (or not using it) and what features matter to them?
6. Are the company sales are flat or declining. Is the company having a hard time “selling up” and reaching broader audiences and geographies?
Hitachi can help: Hitachi has decades of hands-on experience working with some of the world’s largest software providers. We understand both the business and technical aspects of product modernization and digital transformation efforts. We offer hands-on solutions and expertise to solve these challenges. Our clients trust Hitachi for good reason — our expertise will help you accelerate time to market and reduce risk. Learn More about Hitachi's Product Modernization expertise.
In an era of rising PE investments, software deals stand out as an area of increasing activity