“Know thyself,” the ancient Greeks advised. And indeed that philosophy carries a lot of weight in the business world, all these years later.
A quick online scan will reveal ample entries regarding the ways in which a company might evaluate its employees, or how employees might examine themselves to better build upon their strengths and improve upon their weaknesses.
But how can companies — particularly private equity firms and finance companies — assess themselves?
It is a question that was raised in a conversation I had not all that long ago with a buddy in the business, and it is not easy to answer. He wanted a surefire method for assessing and quantifying the health of his investment firm’s business-development function. I gave that a lot of thought, and the result is the 20-question list you see below, which I believe would be useful to any investment professional.
The argument could be made that many companies focus too much on the bottom of the funnel (i.e., on deals closed) rather than at the top of the funnel, with deals received and term sheets issued. At Saratoga Investment Corp., for instance, we close only one or two percent of the deals we consider. It’s a very mathematical formula: If we source 1,000 deals, we might issue 80 term sheets and close 20 deals. I would argue, then, that you’re better off looking at all the stages of the funnel, not just the bottom.
That was my mindset in compiling this list of questions. Some of them involve subjective measures, some objective. They cover a wide variety of topics — deal flow and execution, marketing, technology, resources and networking. All of these things are pieces to the larger business-development puzzle, and combined they tell the tale of just how well a given investment firm is performing.
Particularly telling are the questions dealing with objective measures — the ranking that is used to determine who the team builds relationships with; the method of reviewing and executing NDAs; the means of tracking conversion rate in a company’s deal pipeline; the proprietary deal flow from non-traditional referral sources; and the effectiveness of marketing campaigns.
At Saratoga, we use two variables — relationship importance and relationship status — to track our referral sources, of which there are approximately 130. Our best referral sources are assigned A-1 rankings, with corresponding grades for those who are less so. These can all be tracked by your CRM.
The importance of self-assessment cannot be overstated. Our firm reviews its referral sources every month, and every quarter we do a broader business review, where we review strategy, determine upcoming city visits, conferences, etc (at least in non-COVID times). That is also when we review the aforementioned drivers — deals sourced, term sheets issued and deals closed.
The list I have compiled below offers further food for thought. These are things I have often taken into account, but never before put into writing. I think any investment firm that is looking to determine how they’re doing would find it a valuable resource.
Business Development & Deal Origination Assessment
Below are 20 questions to help you determine the effectiveness of your business development and deal origination efforts and if they are in alignment with your organization’s goals. Place an “x” in each column that corresponds to your answer. After answering all the questions, add each column by using the point value of each column (e.g., strongly agree = 5 points). Once complete, add the sum of all columns for a total score. Use the table below to determine your overall effectiveness.