A fractional operating partner plays a critical role in driving growth for portfolio companies. These partners are highly experienced professionals who bring their expertise to help portfolio companies (Port Cos) achieve their growth objectives. For example, a report from McKinsey & Company found that companies that worked with external operating partners saw a 25% increase in revenue growth and a 20% increase in EBITDA margin. Similarly, a study by Bain & Company found that private equity firms that used operating partners achieved higher returns than those that did not. The study found that companies that leverage operating partners had a 4.4x higher likelihood of achieving a successful exit and a 2.5x higher likelihood of achieving top-quartile performance.
Overall, the role of a fractional operating partner is crucial for driving growth in portfolio companies. These professionals bring valuable expertise, insights, and relationships to help companies overcome challenges and achieve their growth objectives. For these reasons, large PE companies like KKR, Parthenon, and Cerberus have their own in-house revenue growth operating partners because it works. Unfortunately, small to mid-sized PE firms can’t or don’t invest in these capabilities.
With the best intentions of “partnering” with their Port Cos, the ability to scale the resources across a portfolio is simply unachievable. Additionally, many of these firms do not have the “operational” experience. At best they provide “direction” and allow Port Cos to execute, but their portfolio companies often do not have the revenue growth expertise internally. Alternatively, they will hire a management consulting firm, which will drop in with a team, give you an excellent strategy playbook, and leave it to the team to execute upon. Again, the in-house team is left trying to implement and execute the strategy.
Leveraging a fractional operating partner like MStreet Growth gives VC and PE firms a competitive advantage when attracting new portfolio companies. After all, a company wouldn’t take a VC or PE firm’s money if they didn’t need it to scale. It also ensures that their Port Co is aligned with the investment thesis and gives them the best opportunity to achieve the growth objective necessary to drive valuation and lead to a successful exit.
Another key advantage of fractional operating partners is that they work closely with portfolio company management teams to develop and execute growth strategies. Because fractional operating partners work on a part-time or project-based basis, they can provide an objective perspective on the company’s operations and identify areas where change is needed. This can be particularly valuable for companies that are struggling to grow or facing operational challenges, including revenue operations.
A recent article in Forbes highlights the importance of fractional operating partners in the private equity industry. According to the article, “operational expertise is increasingly seen as the most important factor in driving value creation in private equity, and the role of operating partners is becoming ever more crucial.” The article also notes that “operating partners are essential to driving growth and operational improvement in portfolio companies.”
Another key benefit of working with a fractional operating partner is that it allows portfolio companies to tap into a wealth of experience and expertise without having to hire a full-time executive. This can be particularly valuable for smaller companies that may not have the resources to attract or retain top talent on a full-time basis. By working with a fractional operating partner, these companies can access the skills and knowledge they need to drive growth and achieve their goals without the EBITDA hit of a full-time executive.
Another advantage of working with a fractional operating partner is that it provides a fresh perspective on the company’s operations and strategy. Because fractional operating partners work with multiple companies across different industries, they bring a broad range of experience and ideas to the table. This can be especially valuable for companies that are looking to innovate or disrupt their industry, as fractional operating partners can provide insights into best practices and emerging trends.
Overall, the role of a fractional operating partner is important because it helps portfolio companies to achieve their growth objectives in a cost-effective and efficient manner. By leveraging the expertise of experienced professionals, companies can improve their operational performance, streamline their processes, and drive innovation.
About MStreet Growth
At MStreet, our operating partners are experts at rapidly working through the confusion to deliver value creation for companies. From start-ups to VC and PE-backed organizations, MStreet delivers Insights and advice to drive enterprise value.