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The Risks of Not Making a Decision—and How to Avoid Them
In private equity today, many management teams and their financial sponsors have collaborative relationships: the management team brings their market knowledge, business acumen, and industry contacts, while the investor provides guidance, governance, and financial resources. While powerful, this relationship adds a level of complexity to the decision-making process. When differing perspectives fail to align, the result is commonly indecision—a paralyzing state of affairs that can quickly undermine a growth strategy.
Not making a decision is, in fact, a decision itself—and it carries incredible risks, including loss of time, loss of market visibility, and loss of competitive business agility. With that in mind, we will examine such risks and perhaps, more importantly, how to avoid them.
The Risks of Indecision
When facing major strategic issues, such as pricing challenges, channel conflict, or disruptive threats, organizations need to make transformational decisions to avoid losing shareholder value. An impasse between the portfolio company’s C-suite and the private equity firm can be detrimental to their relationship.
For example, take a growth-oriented financial sponsor who doesn’t see eye to eye with its portfolio company’s management team on which elements of the go-to-market strategy to focus on to improve growth.
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While the management team believes they had done a good job in the past and should continue using their time-tested strategies, the investor believes a new marketing strategy is needed. As a result, the project stalls and the company isn’t able to effectively position the next generation offering in a reasonable time frame—losing out on both market share and favorable competitive positioning.
Additionally, consider an organization whose CEO devised some out-of-the-box idea on new business models to drive growth and preempt new, disruptive entrants.
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The company’s board appreciates the creativity, but is skeptical and rejects a financing request. The board instead requires the management team to first execute on the approved plans and later present ideas that are laser-focused and prioritized before agreeing to provide the resources needed to move forward. In this case, the company’s strategic direction remains somewhat in flux and decision-makers lack a sufficient, future-forward plan to respond quickly and effectively to opportunities or threats.
Breaking the Impasse and Moving Projects Forward
Unfortunately, misunderstandings between owners and operators, misaligned goals, and gaps in management competencies are prevalent in today’s business world. To avoid decision bottlenecks and strategy stagnation, companies should have frameworks that enable them to make win-win decisions that remove emotion from the process and are based on objective market insights. As in every strong relationship, both partners must develop mutual respect for each other and approach difficult decisions with open minds and a shared commitment to agree on doing what it takes to find solutions and to prevent indecision whenever possible.
In situations of impasse, though, it can be valuable to bring in a knowledgeable, experienced third party who provides a new, unbiased, and unifying perspective. When partners in business fail to come to terms on a decision, real value can be lost as a result. Fact-based knowledge, up-to-date business insights, and proven best practices are usually the first steps required to move from indecision toward a state of action.
Moving from Opinions to Facts
Applying updated, thoughtful, and unbiased facts into the go-to-market strategy example would have helped the investor and management team successfully develop a series of action items to push the project ahead. By identifying marketplace trends and sharing deep insights into what fuels top market performers, management can change and update the way they communicate their value proposition and introduce new solutions to their customers.
In the previous example of the dismissed new business model proposal, the executive team should have prepared to deliver a cohesive and comprehensive business plan to the board. This plan should be based on a framework that allows all participants to understand, evaluate, and prioritize next steps in approving the new business model.