The formulas, tricks and trade secrets of Private Equity

Private Equity Business Model

Sample Chapter

Successful businesses are often celebrated for their innovative ideas. When we think of Google, we think of fast and relevant search results. When we think of Kiva, we think of catalysing entrepreneurship in developing countries. And, when we think of TripAdvisor, we think of an endless range of travel reviews.

Private Equity Business Model

But… in many cases, it’s the underlying business model, rather than the customer-facing concept, that creates real economic value. For example, a distributed ad network made Google profitable; co-operative field lenders made Kiva’s social concept viable; and affiliate advertising funded TripAdvisor’s rise to the top of the web.

While it may be easy to create traffic from a quirky idea (think Twitter), it takes business model innovation to make that quirkiness last. As the title suggests, the private equity business model is often the humble hero of successful businesses.

So what is a business model exactly? It’s simply the system or framework used to create economic value. A successful company’s competitive advantage must have a distinctive link to its private equity business model. The focus may be on generating revenue, saving on costs, optimising working capital, maximising cash flow or anything that creates economic value-add in a unique manner.

We tend to name our business models (the latest references being to the Freemium model), but generally, you have to do something outside of a cookie cutter approach to continue growth. I know I’m not saying anything overly profound; I just think it’s worth considering your current investees and asking yourself how could you alter their private equity business models in a way that creates unique economic value?

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Private Equity

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