When used correctly, service providers can meaningfully improve the efficiency and productivity of your business and can dramatically help increase value. In a perfect world, your service providers work autonomously and efficiently to make universal improvements to your business.
But that’s not often the case. Service providers not only need the right capabilities, but also ongoing guidance to perform their tasks to maximum effect.
When done well, choosing and using the right service provider can profoundly impact due diligence and value creation.
Unfortunately, you’ve probably been doing it wrong.
We don’t mean it as an insult – it’s a common occurrence. There are so many service providers who simply aren’t the right fit for improving your business and increasing its value. Private equity (PE) funds, their portfolio companies, and independent companies need to critically examine service providers before hiring them, then carefully manage them to meet with success.
But how do you take that first step toward finding and choosing the right service provider? You learn about the problems or opportunities in the process, scope your needs, then purposefully move forward with the solutions.
The Fragmented and Fluid World of Service Providers
There are two ubiquitous problems when searching for and using service providers:
- It’s hard to know who is really good for the task at hand – No matter the industry, finding and vetting a qualified service provider is exponentially harder than finding just any service provider, and it’s going to take some time to get it right.
- Once you find out who can deliver, they change – Even the most well-qualified and experienced service provider is vulnerable to change; they may move upmarket, ask for higher fees, get acquired and clean house, or sell out of capacity right when you need them.
The service provider ecosystem is a complex web. Within this web are great groups that can help you accelerate business growth and development. But to achieve your goals, you have to accept no less than a grade-A fit for your business.
Calibrating Service Providers Around Capabilities
There are three essential baseline questions to ask about service providers when assessing:
- Do they do what I need? (Capability)
- Have they worked in this industry before? (Expertise)
- Can I afford them? (Budget)
If the answer to any of those questions is “no,” then you haven’t found the right fit. It’s essential to make sure the answer is “yes” before proceeding.
Capability
Dig around to find out if the service provider has done and has success with doing the job for which you plan to hire them – and be specific. Learn if they have handled tasks that match or closely match those that you expect them to handle, and get two sides of the story; ask them about their experience, and learn about the real-world result of that experience by speaking with their past and current customers of your choosing.
Expertise
It may not seem terribly important initially, but industry expertise helps your service provider skip many steps in the learning process (and avoids the expensive proposition of a service provider having to learn while they’re on the clock for you). The ability to tailor decision-making to the needs of a particular industry is invaluable, and you’ll need both the set of skills necessary to do so and the time and resources it would have taken to gain those skills.
Budget
Calibrate your budget with your choice of service provider. There are different service providers that are capable of executing well at different price points. Beware of pushing a service provider at a higher price point to do work much below their typical rates as you’ll likely get sub-par focus and attention. Instead, choose the best in class provider within your price range. While there are of course tradeoffs that will be made between such price points, with a reasonable budget, you should be able to get and should expect an excellent outcome.
Getting a great result starts with answering “yes” to all 3 baseline questions around Capability, Expertise, and Budget. Accept no substitutes.
Managing Your Service Providers
Service providers need real-time management if you want to get a great return on your investment. Try these tips for getting the most out of your service provider
- Create a system of consequences – Holding providers accountable means making sure they know what is expected of them and that their actions have a direct effect on your and their companies. You should track how they are performing over time, provide direct feedback, and only work with groups that consistently serve you and your peers well over time.
- Manage them like a full-time equivalent (FTE) – It’s okay to check up on your service providers to ensure they are working diligently. Maintain reporting lines, communicate regularly, and treat them with mutual respect as you would a full-time employee.
- Work as if they are part of the same company – Consider your outsourced service provider as another hire or set of hires that are in charge of a selection of your business’ process Keep them informed on issues they need to know about and include them as part of your company work ethic and culture.
When you trust a service provider, they should also be able to trust you to help guide them toward the tasks necessary to meet your goals. Related to guidance, there are two common mistakes that many PE funds, portfolio companies, and independent companies make when choosing and working with service providers:
- Broad mandates – If you’re not specific about what you want, service providers have to guess both your goals and how you would like tasks to be executed, which can lead to quite a bit of wasted time and money.
- Poor management – We can’t say this enough; service providers need to be actively managed as if they were employees of the company to truly shine
Growth and development is never a guarantee, but by carefully selecting your service providers, giving clear guidance, and holding them accountable, you will drive value creation with more speed and certainty.
Sound like a lot of work? We think so, too –we’re uniquely equipped and excited to handle much of this for you. BluWave team members utilize our extensive PE-tested network of comprehensively qualified service providers to analyze and help select the perfect fit for growing your companies. We then hold them accountable for delivering excellent results for all of our private equity fund, portfolio company, and independent company customers. Contact us today for help with finding the best fit for your next service provider needs.
