CEOs of large public and private companies may not think they have much in common with private equity (PE) investors. After all, CEOs are beholden to their shareholders and boards. Their organizations have multiple layers of management and a conservative mindset that can make change ponderous. Meanwhile, PE investors thrive in a more free-wheeling environment, sizing up their targets and sometimes taking considerable risks in hopes of delivering exceptional financial results. Authors Orit Gadiesh and Hugh MacArthur believe that traditional companies can apply six successful principles from the PE firms' playbook. While adopting the PE philosophy isn't always easy, as the authors are quick to point out, the benefits can be significant. If you feel your company is not living up to its potential, then getAbstract believes this book points out some options you might want to consider. However, you might find that the idea inspires you more than the advice the authors bequeath.

I read this over the weekend, easy read and a MUST read for everyone in business

Two business experts from Bain & Company believe that successful practices adopted by PE players can be applied to different industries around the world. After having abundant consulting experience of working with PE players, they maintain that there are at least six deceptively simple rules in which PE players set a concrete and inescapable benchmark for corporate performance.

Like other non-PE players, the key objective of PE players is to keep generating attractive returns for their investments within a specified time. Nowadays Gadiesh and MacArthur conclude that top quartile PE players adopt six rules to build values in their investments instead of relying mainly on asset stripping and debt loading exercises. The six rules encompass every pre- and post-acquisition step from due diligence, business renovation, and performance management to talent retention, capital allocation, and corporate culture. At first blush, senior executives from non-PE players might argue that ownership and business models of PE players are not homogeneous so that their business practices cannot be fully applicable to non-PE players. However, the six rules, particularly performance acceleration, working capital management, and talent management, are all that non-PE players should learn from if they intends to build value for their investments.

This book is not too lengthy but covers many successful practices done by well-known PE players such as Bain Capital and Charles Bank Capital Partners, Centre Partners, Newbridge Capital, CVC Asia Pacific, Crown Castle, and Cerberus. It is highly recommended for senior executives who are not too familiar with business practices of PE players and for those who are getting lost in the clouds or being handcuffed by tradition-bound and antiquated systems while spearheading operational performance improvement for their firms.

This is one of the titles in the "Memo to the CEO" series published by Harvard Business Press, each less than 200 pages in length and superbly produced. In fact, none of them is a "memo" nor were any of them written only for CEOs. In this volume, Orit Gadiesh and Hugh MacArthur explain how to make any business more valuable while acknowledging that the lessons to be learned from the private equity (PE) industry are not rigorously and consistently applied by businesses around the world. Why? "We see two main reasons for this: first, the application of these lessons drives real change in many businesses, and, for better or worse, change brings risks, both real and imagined...Second, many leaders apply the lessons that we will discuss, but incompletely. It is easier to do "fine" than to the "best" a company can do. We call this [begin italics] satisfactory underperformance [end italics] - a pervasive disease in business that is the direct target of this memo."

Gadiesh and MacArthur are eminently well-qualified to identify and then examine the tools and techniques used by the best PE firms. She is chairman of Bain & Company, the first management consulting firm to develop a global PE practice that is now the largest of its kind. MacArthur heads it. Moreover, even a cursory review of their respective careers suggests a scope and depth of real-world business experience in all areas of operations with global companies in a variety of industries. They speak with unique authority when asserting that the smartest PE investors "have realized that the only way to reliably increase the value of their portfolios is to maximize the operating value of the underlying businesses in them. For this reason, the best PE firms have shifted many of the resources that they once poured into financial engineering to ward creating value - and they are doing it in a way that is more systematic, focused, and aggressive than the practices in most companies."

It should be noted that the lessons they discuss and the recommendations they provide with those lessons can be of substantial value to decision-makers in any organization, whatever its size and nature may be. For example, "to improve profits and stock price [or value if the company is privately owned], you need to make strategic choices with a clear picture of the full potential of your company in mind." Define that potential by answering, with rigor and accuracy, this question: "How high is up?" Next, develop as "blueprint" or "road map" for getting to that full-potential destination. That is, the "who, what, when, where, and how" while establishing and then sustaining strategy, resources, execution, and measurement in proper alignment. The next objective is to accelerate performance at all levels and in all areas of the given enterprise while harnessing the talent (i.e. hiring, "growing," and retaining only those who possess the talent, skills, experience, and character needed) because "the best-laid plans go nowhere without the right people to implement them."

Gadiesh and MacArthur also urge their reader "embrace LBO economics" which in part means getting comfortable with leverage. For
example, "eliminating unproductive or underperforming capital, often by cutting pieces out of the business. It also may mean finding new ways to convert traditionally fixed assets into sources of financing." A number of excellent books have been published in recent years in which their authors offer excellent advice on how an organization can become more agile. (Two of the best are Fast Strategy: How Strategic Agility Will Help You Stay Ahead of the Game and Corporate Agility: A Revolutionary New Model for Competing in a Flat World co-authored by Charles Grantham, Jim Ware, and Cory Williamson.) Meanwhile, the best PE firms "work their magic" by helping C-level executives in their portfolio companies foster a results-oriented mindset that ensures results-driven performance.

By devoting a separate chapter to each of these six core principles, Gadiesh and MacArthur are able examine all of them in much greater depth. "We use the best private equity practices as the benchmark, but in reality [lessons to be learned from them] have been around for a long time. They just haven't been codified as formally by most businesses. Whatever the ownership of your company, our advice is to look at how the best PE people operate, and to use their techniques to compete against them and everyone else."

None of the lessons to be learned from private equity that Gadiesh and MacArthur have identified is a head-snapper, nor do they make any such claim. Ultimately," winners" and "losers" will be determined by the results their people produce. However, it is at least as important (if not more important) for decision-makers to understand what not to do as it is to understand what must be done and how to do that. In 1963, Peter Drucker spoke to this point: "There is surely nothing quite so useless as doing with great efficiency what should not be done at all."

Frankly, I am surprised that so much valuable information and (especially) advice can be presented, and presented so well, within a narrative only 122 pages in length. Orit Gadiesh and Hugh MacArthur are to be commended on their brilliant achievement.

Those who share my high regard for this book are urged to check out the aforementioned Fast Strategy and Corporate Agility as well as Roger Martin's The Opposable Mind, Gary Hamel's The Future of Management, Henry Chesbrough's Open Business Models, Richard Ogle's Smart World, Frans Johansson's The Medici Effect, James Kilts's Doing What Matters, Dean Spitzer's Transforming Performance Measurement, and Enterprise Architecture As Strategy co-authored by Jeanne W. Ross, Peter Weill, and David Robertson.

When I ordered this book, I didn't realize how small and short it would be, so I was a bit caught off guard when it arrived. However, it was densely written and to the point, and chock full of good advice for executives looking to groom their company for a sale in 3-5 years at a multiple of its current value.

The authors state up front that there are 6 key principles or steps in maximizing the value of your company and proceed to do a short chapter on each of these principles, with 1 or 2 anecdotes to illustrate their points. Some of their ideas are probably easier said than done, such as defining the strategy or reshuffling the Board of Directors to be more useful. The overall message of relentless focus, goal-orientation and accountability, high rewards for the management teams who succeed all are spot on.

The only downside to the book, in my view, is that it is very focused on large companies rather than how to take those principles downward to a smaller scale. Saving $3 billion in G&A costs is impressive but not very relevant to most prospective readers of the book. Some examples from mid-market companies would have made it more relatable. Some parts are also quite technical, when they get into managing debt-equity ratios, structures of the Board, etc. so I don't think the book will really be relevant to middle management types either.

Overall I would recommend it for anyone in an executive position at a mid- to large-scale enterprise who is looking to turnaround a business and flip it, or who is anticipating getting private equity investments and wants to better understand in advance what the PE guys are probably thinking.

I borrowed this book. I could not put it down. Three times in my career, 30 yrs, I have worked for private equity and loved it. This was my favorite line from the book and one that I can verify from experience:
Private equity sees its employees as part of the solution, not part of the problem.