With global trade policies in flux and the stock market following suit, the anxiety that private equity and portfolio companies are experiencing today is only natural. During times of uncertainty, many company leaders are likely to lower costs as the first strategy to navigate volatile markets — which could mean streamlining internal operations or passing on sweeping price hikes.
But what many operators overlook is revenue and how to quickly reboot growth strategies despite the economic pressures. There are two simple, tried-and-true methods to deploy:
- Review the six sources of revenue and answer questions quickly to direct focus on growth drivers most relevant to achieving revenue budget.
- Evaluate and potentially rebalance the growth portfolio to double down on the core without cutting medium-term bets in the face of short-term noise.
1. Answer Questions Around Sources of Revenue
It’s crucial to assess revenue mix in the context of today’s uncertainties. For instance, a company should already know the breakdown of its customers and revenues across different vertical markets. But it is vital to also know how each market would be uniquely impacted by tariffs, and how that might necessitate a shift in the prioritized verticals.
Business leaders can also ask:
- How could different customers react to rising prices?
- How should that reaction inform a rollout strategy for any price increases, the way changes are communicated or any supplemental value that can be provided to foster loyalty?
Figure One: A ‘Sources of Revenue’ view of questions that operators need to answer (and quickly).
Figure One offers an extensive list of questions — many of which are likely already top of mind — and all of which are important to answer quickly to triage growth during uncertainty. The optimal avenues for growth will vary business to business, but instability can also bring opportunity for disruption across revenue sources.
Dissatisfaction with competitors’ responses could provide new inroads to acquire customers or expand share of wallet with existing customers. Identifying a better way to meet a market’s needs in today’s climate could help fast-track entrance into adjacencies. The first step is simply asking and reflecting on these questions.
2. Evaluate and Rebalance Growth Initiatives
Another key step to optimize growth during economic uncertainty is to evaluate the number of a portfolio company’s initiatives. The “textbook theory” states it is best practice to cultivate a mix of initiatives that span core, adjacent and transformational innovation. Core initiatives optimize existing offerings for existing customers, while adjacent initiatives focus on expanding into markets that are new to the company. Transformational efforts concentrate on developing breakthroughs that are ‘new to the world.’
While most initiatives should concentrate on the core offerings, adjacent and transformational opportunities are critical to seed medium-term growth, so long as they are in line with the investment horizon.
Figure Two: Volatility presents an opportunity to rethink and rebalance your growth portfolio.
Balancing growth initiatives becomes all the more critical to maintain during potential slowdowns. Robust core initiatives enable companies to enact the strategies resulting from the sources of revenue questions, such as better retention of their base or finding opportunistic ways to win new customers.
Commitment to adjacent and transformational initiatives during times of uncertainty sets companies up for continued success. One of the most common pitfalls is for businesses to abandon more disruptive projects when the results start to turn negative, deterred by the longer development timelines and higher resource requirements.
While it can feel uncomfortable and counterintuitive from a cost perspective, businesses that thrive after downturns are those that continue investing in medium-term growth in spite of short-term noise.
How We Can Help: Cherry Bekaert Strategy & Transactions
Cherry Bekaert is currently working on these two steps with several businesses, each bringing its own unique challenges and market positioning but all of which can benefit from the exercise of evaluating sources of revenue and growth portfolio initiatives.
Figure Three: Stories From the Market
Take, for instance, a leading consumer goods company that provides premium household products, including kitchen and food storage. A diagnostic of its revenue sources revealed that the company is under threat from consumers being increasingly price-conscious and shifting to private label.
Rather than letting cost dominate the conversation, which could easily lead down a rabbit hole of trying to compete as another low-cost player, the company is instead identifying angles to innovate on performance and improve perceived price-to-value. Consumers’ price sensitivity also means they are cooking at home more and may be more hesitant to invest in other household goods — creating opportunities to focus on new usage occasions for storage bags and containers in, and potentially outside of, the kitchen.
Let Us Guide You Forward
At Cherry Bekaert, we are committed to helping businesses navigate through difficult times and achieve their desired growth and profitability. Our professionals can offer proven strategies and industry-specific guidance to help you thrive throughout the business lifecycle. Contact us to learn more about how our Strategy & Transactions team can help your investments adapt in volatile market conditions.
