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  • Mark Davis

Improving Your Portfolio Success Rate

How early-stage companies can be programmed to win


“Operational support for portfolio companies can be delegated and benefit from economies of scale.” -David Tenet, Founder: Versatile VC, HBS Alumni Angels

Ultimately, the majority of start-up companies are destined to fail. Unfortunately, this probably will always be the case, but this outcome was often preventable. How can you act to create more wins?


It is beneficial to describe the approach that will be the most predictive for success. Following are three of the best ways to improve portfolio success.


Portfolio Acceleration Portfolio acceleration should focus on basics: supporting companies with proven business process services while adding new layers of operational expertise. Some funders do this with internal teams and resources, while others source externally.


In either case, it is important to use a development methodology with the following objectives in mind:

  • Commitment to a long-term organizational development plan designed to provide consistent value and operational maturity to your portfolio companies;

  • Providing assistance to companies that helps them build-out sustainably cost-effective and highly scalable business ecosystems;

  • Ensuring that portfolio companies are matching services to stage-specific needs that have been fully validated;

  • Facilitating the identification of start-up business services specialists where the most value will be delivered to your portfolio companies.

Building Systems Business operations is a primary focal point for start-up growth. This is the ‘sweet spot’ where both funders and founders ensure that, in the end, the core business runs sustainably and scales efficiently.


While these business operations resources can be internally or externally sourced, the principles are still the same:

  • Automate what you can

  • Build systems for the rest

Unfortunately, automating and building systems often requires a high capital investment in people and technology. In addition, the critical domain expertise and proven processes needed to build out operations successfully may be difficult and very expensive to attain. The delivery of business operations solutions is being increasingly fulfilled by business process service providers who specialize in start-up growth and scaling.

Future-Proofing

Future-proofing is not only concerned with technology. Instead, it’s about finding and building out a sustainable business model supported by a robust business ecosystem that can evolve as companies grow and mature.


Following is a checklist of key points to remember when designing the future-proofing portion of your portfolio assistance platform:

STRATEGY

ADAPTABILITY

  • A strategic anchor will always value creation

  • Extract full value from each supplier and stakeholder relationship

  • Every value proposition evaluated in the context of value for the money

  • Scaling will always create instability

  • Building in adaptability provides additional stability

  • Adaptability must be systematized and purposefully integrated


PEOPLE

RISK

  • ​Domain/process expertise is highly valued

  • People resources secured from varied domain-specific service providers

  • People-based resources to be leveraged through processes and technology

  • Challenging capital environmental exacerbating start-up risk

  • Capital efficiency is the primary method for reducing start-up failure risk

  • Utilizing untested and unproven operational resources is very risky


While many factors put start-ups at risk, proactively addressing portfolio acceleration, system building, and business future-proofing is a sound methodology that will significantly improve your portfolio success rate.

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