What marketing can learn from private equity


A couple of years ago, Bilal, a good friend of mine, asked me a thoughtful question. The question was, what do marketers really do?” In his own words, he said, “all I see is that marketers are always in meetings, but I cannot really tell what they do.” To be fair, the essence of Bilal’s question has been on most people’s lips in boardrooms, academia and management consulting for while. As an example, in year 2000, the late Peter Doyle, mentioned that “Marketing has not had the impact its importance merits¹.” Deloitte’s 2007 Marketing in 3D Report² mentioned amongst other things, the fact that; “Tense relations between CFO’s and marketers are dividing boardrooms over the value of marketing.”


In 2017, ten years since the Deloitte report was released, David Aaker dedicated web-space on CMO Failure ,  Harvard Business Review dedicated space on “Trouble with CMO’s, whilst Forbes also dedicated space on How to Prevent CMO Failure. In addition to the above, other reports discussed at length, the different ways in which companies were restructuring their marketing functions to cope with the changing operating landscape. The  introduction of  the Chief Growth Officer role, in lieu of or alongside the CMO role, is one case in point. Despite the restructuring programs, the age old problem about marketing value, accountability and effectiveness remains. As an example, Malcolm McDonald and Peter Mouncey dedicated a 280 page book on the topic, whilst Sarah Vizard  continues to write about it in Marketing Week. In the midst of this, some, not all marketing functions, wasted, at least in the past year, managerial bandwidth, time and shareholder funds on marketing assets that failed. For more details, see “From Pepsi to Nivea: Some of the worst advertising fails.

In response to the genuine question about the true value that marketing really adds, marketers have responded with a plethora of marketing metrics that do not really address the key issue. One such response is brand league tables, especially those geared towards determining the “financial value” of a brand. I always find them an interesting read and of course some are more insightful than others. I have some sympathy with those that attempt to apportion a brand’s contribution to financial results based on “the intrinsic brand strength.” Like anything in life however, brand valuation has its own critics. For some of the criticisms, see Where is the Value in Brand Valuation?

From where I sit though, brand valuations have their place. As an example, their role in mergers and acquisitions is noteworthy. Within organisations as well, they also come in handy in helping marketers, especially in non marketing oriented firms, build a business case to invest in building a brand. As a case in point, the author, used brand league tables to build a case for investment in a brand at a state owned utility in South Africa. In many other environments however, the role that intangible assets such as brands etc., is a “fait accompli.” The key issue though, is that as markets mature (get into repeat cycles) and as some categories lose their shine and in some cases, brands lose their relevance, growth is hard to come by. In other cases, categories and brands remain strong and relevant, but the cashflows generated are not commensurate with the health of brands and their categories.

When all is said and done though, Bilal’s question indicates that marketing needs to press a “reset” button. To be clear, the underlying marketing philosophy remains intact, but the marketing discipline and function can do with some “reboot.” There are three  levers that firms can pull to reboot their marketing. Firstly, the marketing discipline needs to go back to basics of marketing. Secondly, marketing needs to take a leaf from from private equity. Thirdly, marketing needs to adopt an entrepreneurial mindset.


For marketing, going back to basics means revisiting the timeless words of wisdom and counsel from Theodore Levitt in Marketing Myopia, where he said amongst other things that; The railroads did not stop growing because the need for passenger and freight transportation declined. That grew. The railroads are in trouble today not because that need was filled by others (cars, trucks, airplanes, and even telephones) but because it was not filled by the rail- roads themselves. They assumed themselves to be in the railroad business rather than in the transportation business. The reason they defined their industry incorrectly was that they were railroad oriented instead of transportation oriented; they were product oriented in- stead of customer oriented.

Like the railroads that Levitt referred to above, we are also of the view that the marketing discipline and its supporting ecosystem, is too product focused as opposed to being customer focused.  In other words, the marketing discipline worries a great deal about the things it produces, such as TV commercials, radio and print ads, content, sponsorships, events, etc., as well as exposing those to targeted audiences, than on their contribution to cashflows to the firm and to equity. To get back to basics, the marketing discipline must understand that its sole reason for existence, is to create value for the customer, the firm and stock owners. As Karl Van Clausewitz would put it, ” individually planning and engagements is called tactics, whilst joining the series (own emphasis) of engagements to achieve the objectives of the war is called strategy.

Put differently, getting back to basics for marketing means becoming more strategic than tactical. In practical terms, this means that marketing has three masters that it must serve with distinction. These are; 1) the customer, not the audience; 2) the firm and 3) the shareholders. If you focus on the customer alone, without paying attention to the firm or the shareholder, there is bound to be some misalignment. The marketing outputs/products in whatever form, are simply a means to an end, and not the end. Equally important as well, if you focus on the marketing products or outputs without paying attention to the “cycle” in which the firm is, there is bound to be some misalignment, in which case, something has to give.

The core metrics for measuring value to customers are pretty clear and need no embellishing and should answer the following questions; Is your output helping  customers to perform the jobs they want to or is it helping them solve the problems they have? Do they see the value you offer? If that is the case, do they buy from you, how much, how frequently, at what price and how much does it cost you to serve them and engage with them. Most importantly, at the current running rate, how much discounted cash flows will accrue to the brand or the firm over the projected shelf life of the firm’s relationship with the customers.


In addition to the above, we believe that for marketing to be effective and demonstrate its value add, marketing people must make time to understand the language of stocks and flows and the iteration between the two. To illustrate this point, using a marketing budget as an example. Typically, in any given FY, the marketing department or brand team starts off with “stocks of money” called a budget. The stocks of money then flow into any marketing inventory or asset that gets placed in front of consumers/customers or in their hands. For the system to be sustainable, something must flow back from the marketing assets or inventory into the original pool of money. As a principle, the new stock of money must be greater than the original pool of money after adjusting for the cost of capital.

To achieve the above, marketers need to think and behave like private equity firms. Firstly, marketers must see themselves as general partners who have been entrusted with funds in order invest in assets that will earn a return. As a starting point, GP’s understand that any funds entrusted to them have a cost. The cost is the expected return. As an example, if an investor entrusts you with say $1million and expect a 15% return, the 15% represents a cost to you. In other words, before anything else, you need to generate $150k more, to meet their expectations. Anything less represents destruction of value.  This is major mindset shift that marketing needs to make.

Private equity firms have grown in stature and influence over the years. Despite this, they also have their own critics. Regardless however, private equity firms can teach marketing a couple of things. These are:-

  1. They have a deep understanding of drivers of shareholder value and the levers that need to be pulled to create value, e.g., revenue growth coupled with operational efficiency, capital efficiency as well as cost of capital. Over and above this, GP’s only use few metrics aligned to value creation drivers.
  2. They are second to none in selecting investment opportunities and deploying capital, time and effort. Private equity firms target firms with strong upside potential, specifically, where “agency costs” are putting a “drag” on cash-flows. VC’s on the other hand, select “tides” that are big enough or have the potential to be big enough. For more detail, see Don Valentine – Target Big Markets
  3. They sweat their assets. Once they lay their hands on an asset, private equity firms ensure that they generate more from it. For marketers as well, the focus should not just be on building or buying marketing assets, but also commercialising and sweating them. This is a key area of improvement for most marketing teams.
  4. They are not shy to use leverage. Archimedes is rumoured to have said, “give me a lever long enough and I will move the world.” Leverage means to use somebody else’s soldiers to fight and your battle. Marketers should not be shy either. In the modern era, it is a lot easier for marketers to use leverage in order to increase the top-line whilst at the same time preserving cash. This is a subject on its own and we intend to dedicate an article on it.

To achieve 3 and 4 above, marketers need to adopt an entrepreneurial mindset, but also to act like entrepreneurs.


A lot has been written about entrepreneurship and many definitions of entrepreneurship have been advanced. In essence though, entrepreneurship is made up of four elements. Firstly, it is the people (entrepreneurs). Secondly, it is what they do. Thirdly, it is the instruments they use. Lastly, it is their outputs and the impact of their outputs. Although all four elements are important, I place more weight on the things they do and the instruments they use. A lot has been covered over the years about entrepreneurial outputs and their impact, think about Face-Book, Airbnb, Uber, Apple iPhone.

Firstly, what do entrepreneurs do? Entrepreneurs do three things. Firstly, entrepreneurs “search for changes and analyse the opportunities that such change might offer for economic and social innovation.” Secondly, according JB Say, entrepreneurs “shift economic resources out of an area of lower into an area of higher productivity and greater yield.” Thirdly, they change the yield of existing resources. Fourthly and lastly, they create new economic resources.

The questions you need to ask are as follows: 1) Do your marketing teams have a systematic process and methodologies to “search for change” and the potential opportunities that changes may bring to bear; 2) Do your marketing teams have an opportunity register where they record the opportunities; 3) Do they have tried and tested methodologies to select winners or potential opportunities with great upside potential, the same way VC and PE first do; 4) Do they have the ability and flexibility to shift resources; 5) Do they have the ability to change yield of existing resources and lastly, how big is the pipeline with ideas to “create new economic resources.”

As a rule of thumb, if your marketing team cannot answer the majority of the questions above affirmatively, indications are that you may need to press the reset button in this area. This may also imply that you may also need to sharpest knives in the drawer that entrepreneurs use to either create new economic resources or to change the yield of existing resources. These are, creativity and innovation. These two instruments are best defined in “When Sparks Fly” with an added twist from Tidd, Bessant and Pavitt, Managing Innovation.

Creativity is a “process of developing and novel ideas that are likely to be useful and Innovation is the embodiment, combination, and or synthesis of knowledge in novel, relevant, valued new products, processes or services.” To qualify as innovation, the ideas or concepts should not only result in relevant “new products, processes or services, but in products, processes and services that are adopted and put to widespread use.

The natural inclination however, in the marketing field is to think creativity only in so far as marketing communication is concerned. Creativity and innovation should be instruments that are used to change the yield of existing resources or create new economic resources. These could be on products or services or the shift from one to the other, especially in instances where one is commoditised. Creativity and innovation could also mean turning your product or service into a platform, supported by complementary products and services. Creativity and innovation could also be applied on “value capture” mechanisms. In other words, pricing/revenue models.


NB: The earlier version of this article was first posted on LinkedIn in June 2015. https://www.linkedin.com/pulse/what-marketers-can-learn-from-private-equity-kheepe-moremi/

  1. The text is sourced from; Doyle, P., (2000), Value Based Marketing: Marketing Strategies for Corporate Growth and Shareholder Value, Wiley, West Sussex
  2. The Deloitte Report is quoted in; McDonald, M., & Mouncey, P., (2009) Marketing Accountability: How to Measure Marketing Effectiveness, Kogan Page, London
  3. Damodaran, A. (2009) The Dark Side of Valuation: Valuing Young, Distressed, and Complex Businesses, FT Press, New Jersey
  4. Von Oetinger, B., Bassford, C., Von Ghyczy, T., (2001) Clausewitz on Strategy: Inspiration and Insight from a Master Strategist, Wiley, USA
  5. Leonard, D & Swap, W., (1999) When Sparks Fly: Harnessing the Power of Group Creativity, Harvard Business Press, Massachusetts.
  6. Drucker, P., (1985) Innovation and Entrepreneurship, Harper Collins
  7. McGrath, RT., & MacMillan, I., ( 2000) The Entrepreneurial Mindset, Harvard Business Press, Massachusetts.
  8. Levitt, T., (1975) Marketing Myopia, Harvard Business Review, October – November 1975.

Notes About the Author: Kheepe Lawrence Moremi

Seasoned strategy & market facing professional with strong business acumen, operating experience and entrepreneurial flair. Former founder board member of the Marketing Association of South Africa, former founder marketing director of Brand South Africa, executive lead of customer strategy at Deloitte Digital, Advisor to the Board Chair of Eskom, head of strategy, innovation and marketing at FNB (a division of First Rand Bank), marketing manager at Nedbank, brand manager at African Bank and Procter & Gamble.

  • https://www.linkedin.com/in/kheepe-moremi-337a03/
  • http://whoswho.co.za/kheepe-moremi-829354
  • https://www.marketingawards.co.za/council/
  • https://www.youtube.com/watch?v=kGd3ZdgA1yY
  • https://www.fin24.com/Finweek/Advertising-and-marketing/Brand-SA-focus-shifts-20050920
  • https://www.iol.co.za/business-report/economy/brand-sa-worth-r380bn-says-marketing-council-754643
  • https://mybroadband.co.za/news/cellular/4092-fnb-launches-cellphone-business-banking.html
  • http://allafrica.com/stories/201308270985.html
  • http://www.the-esa.org/news/articles/-/south-africa-saves-energy-with-49m-campaign
  • https://www.mediaupdate.co.za/marketing/6807/masa-announces-new-board-of-directors

Academic Profile

  • Beta Gamma Sigma Lifetime member,
  • Executive MBA From Brown & IE Business School
  • Strategy & Innovation from Oxford