One of the most important recent trends is the accelerated interest and involvement of private equity investors in wholesale distribution. Stuart Mechlin's blog on mdm.com focuses on thinking differently by using a Private Equity Investor Framework. He recommends distributors think more like investors to add value to their businesses.
This is the final installment in Mechlin’s series of blogs on the private equity investor framework.
Over the past two months I've had the privilege of sharing and discovering with you a valuable tool: looking at your business from a private equity investor’s framework.
The interest and response from MDM's readers has been positive.
For the last blog in this series, I wanted to share with you many of the comments from your fellow MDM readers. These comments are anecdotal and unscientific but not a bad gauge of our distributor and supplier communities’ thinking. I have taken the liberty of paraphrasing the collective comments under each topic below.
What resonated the most: The “business as a portfolio” concept, the “trend is your friend” concept and the “many voices, one message” approach were by far the most popular. I have been particularly pleased with comments about how these concepts will be used by distributor and supplier managers as a framework for subsequent planning and action.
Kudos from top operators: Distributor owners and managers who are among the most successful operators in our industry have been complimentary. In particular, many of these leaders have told me that they are currently engaged in inspiring, motivating and teaching their employees at all levels to think like investors. In fact I had numerous requests asking if it was OK to distribute the blogs (of course!) to their respective employees.
Readers liked the structure: Many operators were already experiencing and thinking about the pros and cons of these and other best practice concepts, but were finding it difficult to communicate them to their team. Helping to put these thoughts and best practices on paper, to be used by managers to improve team and individual performance, was an unanticipated benefit of our efforts.
Comments from private equity investors: Many practicing private equity investors felt that my series of blogs reinforced many of the concepts that they present to prospective and existing customers about private equity. Similar comments came from experienced distribution practitioners and those who currently operate with private equity investors.
Comments about private equity from distributors: From comments from both distributors and private equity principals it was also clear that the misperception, miscommunication and reluctance to engage by both sides were palpable. From speaking with a broad spectrum of folks on both sides I would argue that many private equity investors assume that their target audiences understand the “what’s in it for them.”
Not all private equity investors spend time getting into the heads of distributor owner-operators, which the best investors realize is critical to not only doing a deal but the successful long-term value creation of a deal. On the distributor side, way too many distributor owners and senior managers erect obstacles to even preliminary discussions with investors. In fact, one of the great rewards of writing this blog has been using it as a way to bridge some of their respective perception gaps.
Financial understanding: Comments range from “Thanks for making the connection from what I understand with my personal investments to my business” to “I'm not a financial wiz and it’s just not that important to me.” The blog was not intended to be a financial textbook – far better brains than mine have produced material for that. However I was gratified to hear on many occasions that folks understood that financial considerations have to be a part of their thinking and especially their senior management team’s thinking, and if possible the thinking of the folks on the warehouse floor.
Supplier reaction: The blog about why suppliers should care was my most popular blog in this series. I suspect that most readers were distributors. While there are many suppliers who work at trying to understand their distributors, the lack of response, comments and other feedback from suppliers was surprising. I believe it is just a reflection of what many of us have observed in our daily operations, that suppliers’ understanding of the distribution business can be greatly improved. For good or bad, many don’t see it as a top concern.
But our best minds on these pages believe the future will be driven by suppliers and distributors who create innovative ways to work together on growth and profitability processes, and not just products. This is only possible with a better understanding of each group’s respective financial drivers.
Long-term vs. short-term: I received many comments about not spending more time focusing on the differences of long-term and short-term thinking of owner-operators and the private equity investor. In my career was I’ve spent time with many distributors who have been in business for over 25, 50 or even 100 years., serving their customers and employees. I think that maybe the secret to their success is always being engaged in creating additional value no matter how the environment shifts.
Finally, thanks to the MDM staff and MDM readers for this opportunity to continue to contribute to the future growth and profitability of the one of the most dynamic disciplines – wholesale distribution – on the planet!
Stuart Mechlin is a partner with Real Results Marketing. After 18 years in the wholesale distribution industry, including the role of senior vice president of Affiliated Distributors’ Industrial Supply Division, Mechlin is actively engaged in working with distributors, suppliers and technology companies on growth, marketing and profitability strategy/tactics. He is a member of several wholesale distribution company boards of directors. He has worked in such varied management roles as sales, finance, international J-Vs, purchasing and distribution for several public and privately held best-practice companies. Mechlin is also a member of MDM's Editorial Advisory Board. Contact him at firstname.lastname@example.org or connect at www.linkedin.com/in/stuartmechlin.