those that successfully specialize
around sectors follow several best
practices in defining their approach
upfront.
They first identify sectors in play,
aiming to define them clearly but
keeping them broad enough to
ensure they will yield a healthy
number of potential investments
within a reasonable timeframe.
Then, they select sectors by weighing
their inherent attractiveness, looking
at such characteristics as their
size and rate of growth, ease of
entry, competitive dynamics, and
availability of targets. In parallel, they
take a cold-eyed look at their firm’s
ability to win in each of those sectors.
Here, a firm must consider its deal
experience and track record; too
many firms create specialization out
of thin layers of experience. The firm
should also evaluate whether the
opportunities in each sector really
suit it.
It greatly helps if the professionals
involved have a genuine interest in
the sector. Many professional firms
shy away from certain types of work,
such as ones in businesses with
fast-changing technology or high
cyclicality.
pressures of getting a deal done, they
give sector teams time to build deep
expertise and bring deals to fruition.
They offer team members
compensation guarantees in case the
right deal doesn’t come up or a sector
falls out of favor over a two-year or
three-year period. Recognizing that
sectors are cyclical and work flow can
be uneven, some firms assign partners
to oversee two sectors, one a primary
focus of their efforts, the second, a
back-up.
Master the Right Skills
With the cornerstone of their sector
approach in place, professional firms
that execute best cultivate these six
key disciplines through good times
and bad:
Zero in on the right sub-sectors:
They create sector “heat maps” that
enable their teams to concentrate on
the most promising segments and
geographies within their sector where
they can add value.
Develop a point
of view on target
subsectors:
into themes and flesh out concrete
added-value theses/concepts to offer
clients.
Once they’ve worked through their
choices, professional firms make a
multi-year commitment to the
sectors that pass scrutiny and
do not allow their teams
to invest outside
them. To guard
against the
Exploit opportunities: They build
a network of industry insiders that
they work aggressively to source and
screen targets compatible with their
themes. They then devise plans to
approach those targets and cultivate
relationships.
They build deep proprietary insights
about impending shifts in the market
and other industry-shaping trends.
Identify themes: They translate
observed sector trends and dynamics
36 MAL 11/16 APRIL
‘‘They gather
unbiased information
from the field
by interviewing
customers, suppliers,
competitors and
creditors to build
a deep enough
understanding of a
sector that can point
them to concrete,
counterintuitive
themes and different
types of added
value.’’
Define what makes you different:
They don’t dabble. They determine
which activities along the value
chain are proprietary, and they
select ones where they will want to
develop distinctive capabilities. They
outsource the activities that are either
too expensive to replicate or are
commoditized.