Breaking Down Portfolio Monitoring Solutions

[MUSIC] Welcome to the Dashboard Effects. I'm Kate Ebrilly, WeMargians VP of Business Development and our Standin' Host for the day. Join by Greg Brown, my colleague and one of our sales executives. Greg, glad to have you here. Yeah, great to be here, Kate. So I'm excited today to talk about a topic that we do see a lot with a lot of our PE partners. We're most often working at the portfolio company level, but one of the very common pain points we see rolling up to the private equity firm level is portfolio monitoring. So I'm very eager to dig in with you. I'm curious, out of the gates, is that the stage what does portfolio monitoring mean to you? Well, I mean, to me, it means an effective solution to monitor the performance of our investment. Of course, for us working with private equity firms, that's going to mean their portfolio companies. And the key there for me is something that is effective, that is not time consuming, and that gets the firm, and that could be really the entire firm, the StratOps team, the IR team, the deal teams, the analysis they need quickly, so that time is not being spent organizing and putting data together and mashing it up. But really, that has all been done. We have the data and the analysis in front of us, and now we can start making decisions. Excuse me, and prioritizing our time and energy around those companies and those conversations we need to have. And so that's what it means to me. It is interesting to see different private equity firms and different solutions, and where there can be some challenges, getting to that sort of ideal end state. Yeah, and I think, as long as private equity has been around, I'm sure they've needed to do some sort of portfolio monitoring in some capacity. But I do think it's probably been in the last 10 to 15 years, that we've seen the level of automation that's available. Start to increase, getting out of PowerPoint, getting to something more consistent and timely. But we've seen a lot of different versions of what that can actually look like. So I'm curious in all of your conversations, what are different ways that firms have approached portfolio monitoring? Yeah, you know what I'd say, and this is just from my experience, but I'd say I've seen three broad approaches. The first one is not going to be surprising. It's the standard Excel approach. And what I mean by that is that all the portfolio companies are sending in their standard reporting package on a monthly basis, and it could come in Excel, maybe it's another format, but they're sending in manually. And then someone at the firm is taking all that data and collating it together into an Excel template that then is hopefully going to provide some analysis to the rest of the team. So it's obviously a manual approach. It's tried and tested. It's worked. We all know that finance professionals lean heavily on Excel, and their master's in the program. But it doesn't get away from the sort of errors and inconsistencies that can pop up entering data in the wrong cell. For example, can ruin things downstream. That's just one example. And then also just the manual time and the potential lag between everyone sending in reporting, getting the analysis actually ready in Excel, and then folks doing the critical thing, which is consuming those insights and taking action. So it can lengthen that process out. The second bucket that I've seen or approach has been we have a firm level data warehouse. And as we bring in portfolio companies, everyone's key systems, and it might just be the ERP, but it could be multiple systems, are connected to this centralized data warehouse. We have an automated data poll that comes right to us. And then from there, we can of course automate analytics, whether it be Excel reporting, Power BI reporting, or a different BI platform. But we have that flow of data automated, maybe even up to the point where we don't need to be reliant on a monthly reporting package. Because all that data is there, we apply the logic to extract the relevant fields and rows and tables, and then boom, we have everything. And of course, that automation can then combine and provide the sort of analytics we want, whether it be dashboards or otherwise. The downside or the potential challenge there can just be the time that it takes to develop that solution. And then having that in-house talent and resource at the private equity level, really what I'm talking about there is a data engineer, someone that can work with a wide variety of systems, and can always develop a resilient pipeline to bring that data together. So we've seen that approach. The third one, and where I think we might spend more time talking here today, is a portfolio monitoring solution. Something like an eye level, a chronograph, there are other platforms out there, of course. This solution, I think, has become more popular. But then as we'll get into today, there are some potential considerations for what that platform will do for you, and then what it will not do for you, that you may then need additional development to really get to that point of having modern business intelligence. But those are the three buckets that I think I've tended to see in my conversations with private equity firms. Yeah, and I'm curious to dig in more to that third option, the eye levels, the chronographs of the world. But just thinking through those first two, maybe momentarily, what are some of the pros and cons of each of those? And really, how does that tee up a solution like a true portfolio monitoring tool? Yeah, I mean, I think the big pro for me with the Excel approach, as I'll call it, is, Excel is pretty cheap. People know Excel. So it's not that much of a lift or burden on the portfolio can be management team, the FPN-18 to say, you know, here's our Excel workbook, our reporting package, you need to fill it out. That's going to be something that's probably pretty straightforward for them to do. The challenge might be more compliance and timeliness and getting all the reports at the right time to put them together. But there's a cleared manager in terms of cost and just being able to spend something up very quickly. There is a cost and something that you pay for on the other end of that though, in terms of, okay, we are going to have to have a manual process to be able to put all this together and then to really derive insights from it. It's going to essentially be a bunch of data until we then shape it and take the time to turn it inside. So I think that's done the big pros and cons there. On the centralized data warehouse approach, I think the biggest con is just the development, the time to develop, the potential risk that we have, let's say a great warehouse going, we have 10 companies hooked up, we make a company, the 11th that's coming into the portfolio, and now we can't connect to the system. So now we have to have a work around. So there's potential risk there. And then it'll also the need to preserve and maintain that talent at the firm level. It's not easy to hire data engineers and you could even potentially create a key person risk in terms of one person at the firm that only one understands how this infrastructure works. So the pro is the automation. If it all works as designed, then all of that data is brought together and then automatically synthesize and put into the analytics and the dashboard and the outputs that everyone wants to see to not only understand where things stand, but to be able to effectively explore data. And this is the exact comparison to what we tend to do at the portfolio company level in terms of bringing together the CRM, the ERP, HRIS system, and automating all that data coming together. So there's a huge potential benefit there, but then some risks and some things to be aware of as well. On the portfolio monitoring side, I'm actually curious, Kate, for your take on that or what you've seen because you and I both have had these conversations, but with firms that adopt that sort of solution, but then start realizing that it may not get them exactly where they were hoping to go or at least that final step that they were hoping to see. Yeah. Well, as I reflect on those answers and think about what you just caught out as the cons between something like an Excel based solution, highly manual multiple points at which error can creep into the process or on the other end of the spectrum, something that's highly automated, really hands off in terms of the folks that you need to be engaged in the process. I do see it portfolio monitoring solution is kind of the happy medium. You're getting some of that automation and streamlining. Maybe you're having your CFOs go directly to the solution to input their key metrics and results, but then that is then automated flowing through to a consolidation platform where you can see all of the metrics and results at an aggregated level. Typically, there may be some quality control checks there, so you do address some of the issues with Excel based reporting. So that can be a really nice intermediary in terms of you're not going through the whole process of building up a data warehouse, investing in the internal skill set that you need to maintain that, but you will probably need someone on the staff who is familiar with the back end of those systems and who can configure it to your own company's specific needs. From our side, well, that can be really effective in terms of automating just the data entry piece of things. One of the challenges is those tools are not really set up to be optimally designed for reporting, but that means is maybe you can go in and see performance on a company by company basis. One of the biggest pain points that we see is that you can't get your whole portfolio in one view with some of the native reporting in those solutions. I am more specific experience with I-level. I'm just curious, have you seen similar things with other solutions out there in your experience? Absolutely. I think it could be chronograph, could be I-level, could be other platforms, and I think the common through line there for me in talking to firms about it is definitely what you hit on there. It's a great data repository. We have all the data in one location, which is a big win. There's a huge benefit. As you touched on too, there can be help in those platforms with compliance, reminders, to catch errors, to make sure the data is relatively clean. Those are all extremely beneficial. So firms that I've talked to go through that implementation process, they roll it out to their companies, everyone's on a good cadence. But then there's almost that aha moment where they realize like, okay, now we've crossed that. We have all the data in one place. But now what can we do in terms of reporting on this data within this platform? That's where they felt that we just don't have the tools built in there to allow us to develop effective modern reporting. But also even to build in this sort of custom logic that applies to our firm and how we look at certain metrics to make sure this reporting is really going to ultimately be adopted and be relevant for our team. So I think that's something that we obviously run into a lot. with the portfolio companies we work with. And there's oftentimes very unique definitions for metrics. Private equity firms see that as well. But I think in general, they feel like, okay, we have all this data. But now we don't have a lot of great built-in tools that allow us to visualize it in different ways and tweak definitions so that we can get really good reporting in front of the rest of the firm that they're going to love and they're going to use and that we can all start using as a centerpiece for our conversations. That's I think, you know, and it makes sense in a way too because there is a long and probably challenging implementation period. So it's a big win to get that in place and to get all the data in one place. It's just that that's not the end of the journey and that's not the full way to derive value from that data. For that, we then would obviously see a customized business intelligent solution as the best way to take that and really develop the way to deliver insights and consume data. So the other thing, Kate, and this is a consideration with a portfolio monitoring solution is we have talked to some private equity firms that love the software, love the centralization of data and even love that it makes it a little easier for their management teams at the company level to enter data. However, they do find themselves a bit stuck because these solutions are typically going to provide them a monthly update on data. So we have had conversations with certain firms that love that solution but have more and more of a need for a weekly pulse of data or a daily pulse of data. And so I do think that's one consideration with the portfolio monitoring solutions. Granite, I'm sure there's options to allow companies to update more than once a month but you do have to consider what's doable for them. And so I do see that as a slight disadvantage potentially of some portfolio monitoring solutions versus that dedicated data warehouse, which as we discuss, you have the direct connections of systems, you can pull data as much as you want. And so a daily, even an hourly update could be feasible there. It's just that you have a tougher time potentially developing that solution and it requires more specialized talent to do. - Sure. Yeah, and I think one of the things you also mentioned is when it comes to actually consuming the reports, a lot of times what we see that adds the actual layer of value particularly for let's say the CFOC at a PE firm itself, is just that ability to see your whole portfolio on one page. Maybe to stack rank by different performance metrics. And what do things look like from an EBITDA perspective? What do things look like from a time trend perspective? I think it's truly that cross portfolio view that despite the role that these solutions serve which is to consolidate all that data, we've just found that out of the box they don't provide that visibility. And then the other piece is the time trending, being able to look back at how a company was performing in the period prior against budget, against any number of different dimensional time slices that's just really challenging to do actually within those tools. So what we found is adding reporting there on top of that improves the lives of not just the CFO, all the analysts that support them in terms of actually being able to spend their time and more value add activities. Never mind that I think they're huge implications and there's lots of potential to actually improve investor relations by consolidating all of this data and presenting it in a really highly consumable format. Which is just something that I think we continue to see firm struggle with right now. - Yeah, those are huge benefits. And you know, it's also that general benefit that we talk about a lot with a data warehouse, a central source of truth in that everyone is looking at the same reporting, the same definition of metrics. And so organization you don't have to worry about the potential that someone is developing their own reporting which is gonna conflict with someone else reporting and pretty soon if that happens, we're spending time reconciling that instead of analyzing the data and making decisions. And so you see a ton of benefits from that. I think one of the other benefits in talking to some of the private equity firms that we've developed for is that sense and you touched on this of highlighting where we need to spend time and where we don't. If you have that entire view of the portfolio and you have the right features built into that reporting, it's very quick to very easy and quick to see. These are the portfolio companies that we need to have more conversations with and spend more time on. And I think firms have an innate sense of that. I don't think they absolutely always need a dashboard to highlight that and bright flashing colors. But when you think about a bigger firm than need to align everyone around, these are the key priorities. I think that's where we see a lot of benefits and customized BI because you can have that with additional formatting. You can easily see just visually which companies do we need to help the most and which ones are doing quite well. We're still gonna need to spend as much time with them. And so I think those are the benefits we've seen but it all comes from exactly what you touched on. The ability to visualize it all on one screen and then determine where you wanna drill in. - Yeah, also for a firm who's maybe making the decision right now between maybe depends on their stage of growth but they've got Excel based reporting. They're considering investing in a tool that will help them consolidate all of this data or a full data warehouse approach. What advice would you give to a firm who's really looking to make that decision right now? - Well, I mean, the first bit of advice I give is maybe a bit obvious but it would be to look into alternatives and to have conversations. I don't want our conversation today to discourage any firm from looking into portfolio monitoring software. I think there's huge value there. Is it a perfect fit for every firm? Maybe not. I think that that's why it's important to talk to perhaps standalone business intelligence to development shops to talk to platform monitoring solution providers and to even talk to firms that could just help with the dedicated data warehouse. But I think in all of those cases an analysis seems to be reformed on what in house talent do we have that can carry and develop solutions going forward? How do we feel about that? Do we trust that? And then making sure that we're choosing a right size investment for our firm. I think for a smaller firm, maybe six to seven active portfolio companies, I'm not going to necessarily say you need a portfolio monitoring solution. Excel might work and the size of data you're working with may never really get to the point until the firm grows that you have too much of a challenge on your hands. When you start to get up into 10 and 20 and 30 portfolio companies, I think the portfolio monitoring solution really makes a ton of sense. But then a plan needs to be in place for, okay, the collection of this data is one thing, the centralization of it is great. But what is the ultimate value? It's not in collecting and centralizing data necessarily. It's in the analytics we can run off of that. So what is the plan? And let's make sure that we understand any sort of built in reporting options in that platform, a portfolio monitoring platform. And if there aren't any, let's have a plan for ultimately how we're going to leverage that data to consume insights and to share it amongst the firm. I would say that you could look into a dedicated data platform, a centralized data warehouse. I just think that that needs to probably be an option reserved for firms that have the in-house talent to maintain that solution going forward. Otherwise, I think firms could get in a position where an outside company stands up that sort of solution and it's working for a while when it starts breaking, they don't have anyone in-house to reconcile it. And that's something that you don't have to worry about as much on the platform, portfolio monitoring side, because you have a company that's supporting that software. And so I think I would urge the most caution around that route. I'd say look in options broadly, but then understand what is not just a roadmap for improving how we're centralizing and sending data, but then what is the ultimate endpoint we're trying to get at, which is not that. It is consuming analytics and sharing it. So let's have a solid plan there that makes sure we get to that final endpoint. Yeah. I think I would add to that that is, I think, about the firms that I've talked to who've wanted to pursue that type of solution. It really, from my seat, has always also made sense to just start at the portfolio company level. You're going to get so much value out of a pipeline that's directly connected to an ERP or a CRM. If that's actually helping you implement your value creation plan versus necessarily having that flow up to the P firm out of the gates. The beauty there is that you're adding value across the portfolio, just in terms of what those companies are able to do, how quickly they can get to answers and insight about maybe quality of earnings, increasing their valuation down the line. All the things that we see when we work with portfolio companies still hold, it's just that you could do that more iteratively and then start to pull that information up to the firm level. So really is more of a bottom up than a top down necessarily. So I think if firms are considering that route, I would certainly really think through the strategy of how best to do that. And then the other thing I would caution, I think you covered why a portfolio monitoring tool would be so effective. For those companies out there that are currently collecting data in Excel and are thinking to themselves, what if we just use that as our data collection tool, storing that on SharePoint, creating a pipeline or data flow into Power BI. That is the one area I would highly advise you not to go down. It's a highly brittle solution. Likely will need more work than it's worth to actually keep that solution up and running. Never mind the data capture that's required to actually build history. You would probably just need something similar to a lake anyway. So you know, won't call that a red flag. I'll call that a very firm beige flag. But if that is the solution that you find yourself starting to pursue in the spirit of automation, might be worth checking into a chronograph and I level is something that can truly give you a more robust interface just to avoid some of those issues down there. I think that's exactly right. You have to think into the future and say, well, we have a solution. It's working. Everyone gets used to it. They get used to being able to consume and access data. And then all of a sudden, it fails. And what are the trickle on effects of that? Folks aren't going to be able to have conversations. We're going to have to take time to fix it. It can really create kind of a jam or a bottleneck and information. So I think, you know, there's things that can happen with any solution when you really open up and say, well, anything is possible. But you want to look at those ones that offer more resiliency. And like you touched on, that's clearly not Excel files in a SharePoint site. That's just more risky than I think we would ever. advocate for. And I think that's definitely something that the portfolio monitoring solutions can provide in terms of being able to reliably say we're going to have a flow of data. And then it's just really the other component set solution in terms of how we're delivering it through a BI tool or through other reporting tools. Yeah, absolutely. All right Greg, any parting thoughts for today? No, I appreciate the conversation. It's great. Yeah, same. Thanks. Yeah, thanks. [BLANK_AUDIO]