Be Prepared

September 28, 2022
Doug Leyendecker

September 28, 2022

Be Prepared

One of the many things I’ve learned from working through numerous business cycles is that no one is taking the word “cycle” out of the dictionary any time soon.

Everything in the known universe operates in a cycle, including the planet and solar system in which we live. Of course, astronomy cycles occur over billions of years. The cycles most of us really care about are those through which we personally live. This is especially true for investors whose scorecard is always under review.

In times of economic weakness, it makes sense to remember the old Boy Scout motto: Be Prepared. So how do investors prepare for a potential economic downturn? A first order of business can be to evaluate your investment portfolio’s risks in the current market environment.

A list of current economic stress points for operating companies follows. (You may add or subtract to your liking.) Different companies and different industries will be influenced differently by these stress points, but each stress point may be worth considering for all of your portfolio companies.

Today’s operating companies must deal with one or more of the following:

  • Legacy supply chain disruption
  • Raw material cost inflation
  • Transportation cost inflation
  • Electricity cost inflation
  • Labor cost inflation
  • Decreased labor availability
  • The rising cost of capital
  • Debt agreement terms
  • Geopolitical risk
  • Slowing customer markets

Shepherding an operating company through a combination, or all, of the above can be extremely challenging. For each operating company, consider assigning a 0-10 score for each stress point, where 0 is of no risk to a company and 10 is of highest risk. Then calculate their totals. The higher the score, the more attention a company will need. Scoring will also allow you to prioritize your effort and understand the specific kind of attention each needs. In turn, you can manage your time and resources more productively and efficiently.

Remember: No one is taking the word “cycle” out of the dictionary any time soon.

Any looming downturn will also reach its cyclical end. What we don’t yet know is how long the current slowdown may last.

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When hiring portfolio company C-level leaders, there is much to consider and the stakes are high. It’s not an easy task but among the most consequential in terms of reaching your investment goals. 

Having successfully completed over 100 C-level searches, we have developed a highly productive search process and learned how to spot the talent that matches our client’s needs. Our placements have led their employers to over 40 successful liquidity events, earning billions of dollars for investors. That’s not hyperbole—it’s real. 

Keep the Leyendecker team in mind when you need to hire C-level talent. For more information, contact doug@leyendecker.com.

And stay tuned for future perspectives on how to get more liquidity events. Coming soon will be The Best Portfolio Company CFOs and Evaluating Portfolio Company CEOs and CFOs.

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