Working With High Growth Companies

Working With High Growth Companies

A lot of the companies Lantern Capital Advisors works with could be labeled as high growth companies. We define a high growth company as a business that can grow at a rate of 20% or more and do that for multiple years in a row. Lantern likes working with companies like that because the energy of entrepreneurs is fun, and helping them along the journey that they’re on is intellectually rewarding, and great.

There are a lots of aspects of growth companies as well as financial planning that really when you get under the hood, expose a lot of things that defy conventional wisdom. For example, most people tend to think high growth companies are dominated in sexy industries like biotech, tech or industries making nightly news headlines.

However, a study was done by the National Commission on Entrepreneurship around the year 2000 looking specifically at the composition of these gazelles (or high growth companies.) And what they found was, and quoting their own words, “flying in the face of conventional wisdom, it turns out there were more high growth companies in established mature industries than there were in these kind of sexier, newer industries.”  What that insight tells me, and I’ve experienced this in my practice, is a lot of what drives the growth of a company has more to do with internal factors like management, and things that they’re working on then. Maybe the external factors of what market that they’re in. However business planning for a company, is really a topic that a lot of entrepreneurs don’t really think about very much.

They don’t really focus on business planning necessarily. Business planning is a topic where I have had plenty of companies tell me, “Hey, we’ve probably succeeded in spite of financial planning, not because of it.” They don’t necessarily see that there’s really a tremendous amount of value to it. Maybe it’s something they should be doing, but they don’t see it necessarily as a game changer.

I’d also like to challenge that conventional wisdom as well. And the evidence that I point to, to try to make that point is if we looked at the success of what private equity firms have done in the two decades is that out of 20 out of the last 22 years, the typical private equity firm has outperformed the stock market, whether that’s the S&P, or small caps. And in the last 15 years, private equity has outperformed every investment class that there is. It’s why they have so much freaking money. And you ever get cold calls from private equity firms, it’s because they’ve been so successful, and they’re trying to continue doing it!

When you really think about what private equity firms are doing, they’re going out there buying private companies from entrepreneurs who are willing to sell their business and then in five, six, seven years, they’re selling those businesses at a big gain to provide a return to their investors and enrich themselves along the way. The thing about private equity, though, is that their financial planning playbook is a lot deeper than just buy low and sell high.

There’s lots of different things private equity firms do along the way to ensure successful returns, and thankfully many of those things they focus on are the same things entrepreneurs can also do for the benefit of their own company without having to buy another business or take on an outside equity partner.