Private Equity's Impact on B2B Marketing

B2B firms are no strangers to private equity and the immense financing opportunities it provides. Many start-ups and small companies — especially those in the high-tech space with high growth potential and little access to traditional means of financing — resort to private-equity firms to fuel their growth. But these high-leverage scenarios can mean significant cost cutting and fewer long-term investments. Whether your company is private-equity-owned, looking for private-equity funding or competing with private-equity-managed companies, read on for some insight into how marketing departments can be affected and how they can respond.

Agreements with private-equity firms require that private-equity executives take an active management role in the acquired company, at least at the board level, by setting targets and budget allocations. Because these deals are usually highly leveraged, private-equity managers’ number-one goal is to start generating a swift return on investment (ROI). They typically focus on improving financial performance by slashing operational costs and improving efficiencies. Marketing budgets do not escape these drastic cost cuts. Our benchmarks show that marketing budgets for private-equity-owned companies are usually underfunded compared to companies with similar products and go-to-market strategies that are financed through other vehicles. The reason is that marketing is often a large expense category and has a hard time demonstrating ROI.

While branding and advertising programs are likely to be slashed first, marketing still has an opportunity to play a measurable role in boosting revenues through field marketing and demand creation initiatives. Some of the key performance indicators we recommend tracking are:

• Marketing sourced pipeline. The percentage of the total pipeline that marketing has uniquely created.
• Marketing influenced pipeline. The percentage of the total pipeline that marketing has touched during a set time period.
• Investment-to-pipeline ratio. The amount of sales pipeline sourced for every program dollar invested in demand creation.
• Investment-to-revenue ratio. The amount of revenue sourced for every program dollar invested in demand creation.
• Investment-to-influence ratio. The amount of sales pipeline “touched” for every $1 invested in all marketing activities designed to influence opportunities in the sales pipeline.

Because private-equity managers tend to be metrics- and results-oriented, they are likely to take a short-term approach to evaluating results, emphasizing detailed quarterly reports even for small companies (below $50 million), which is not typical for private companies when other financing means are in place. Field marketing should position these reports as periodic monitoring tools to determine whether campaigns are on track to achieve targets, not as conclusive performance indicators. For correct evaluation of results, we recommend a 12-month view that covers campaign planning, execution and at least one sales cycle; this ensures that all leads generated from campaigns are accounted for and that the investment is properly matched with the returns. Maximizing efficiencies in the process of handing off leads from marketing to sales, as well as establishing recycling and nurturing programs for leads that didn’t immediately convert to completed deals, will enhance these measurements and demonstrate that marketing can directly impact the pipeline and deliver ROI.

Effective implementation of demand creation programs can be challenging when funding for other marketing activities (e.g., branding and awareness, marketing communications) is reduced, because these investments are important for seeding demand. To mitigate the impact of marketing budget cuts, one way to make the most of field marketing's potential is by establishing tactic alignment with specific stages of the buying cycle. Segmenting and targeting buying phases can make each interaction with a lead more meaningful and result in fewer touches needed to qualify that lead.

Cutting costs can improve a company’s financial performance; however, maintaining adequate investment in field marketing, in particular, can boost sustainable long-term growth while providing private-equity managers with the sought-after ROI that makes their portfolio stand out.