Hudson Hill identifies high potential companies operating in large markets with attractive business models that require investment in people, processes, and systems to continue their growth. As the Hudson Hill portfolio grew, we noticed patterns of need from our businesses as they built scalable foundations across key functional areas. Over time, we’ve codified these areas of need into the Hudson Hill Playbook comprising the following categories: Finance & Business Intelligence, Go-To-Market, Human Capital, and Digital Transformation. In 2023, we launched the Portfolio Transformation Group (PTG) to offer our portfolio companies experienced executives with expertise across these functional areas. Within the PTG, we’ve also launched an Executive-in-Residence (EIR) program, recruiting high potential executives from top business schools directly into senior positions in our portfolio companies to further catalyze change. The Hudson Hill Playbook, PTG, and EIR underscore our commitment to building an investment platform built by founders, for founders, to help them achieve their goals.

Finance and Business Intelligence

Finance and business intelligence form the foundation of the Hudson Hill Playbook, as visibility into financial performance leads to better decision making across the entire organization. We call this process Measuring the Machine. Each business is, in essence, a machine built to deliver goods and services to customers, thereby generating free cash flow to reinvest in the business, pay down debt, or return capital to shareholders. Measuring and analyzing each aspect of the business allows management teams to optimize the output of free cash flow. We approach every decision within our portfolio companies as a capital allocation decision. While most capital allocation decisions at a board level involve capital expenditures, new debt or equity, and acquisitions, the smallest decisions inside of businesses impact returns on invested capital. For example, underperforming salespeople reduce revenue growth, which impacts free cash flow. Procurement inefficiency reduces gross margins, which impacts free cash flow. Low labor productivity reduces operating margins, which impacts free cash flow. Inefficient accounts receivable management expands cash conversion cycles, which impacts free cash flow. Hundreds of seemingly everyday decisions compound overtime and determine the overall efficiency of the machine. As a result, financial reporting and business intelligence tools enable better visibility into these decisions and create the foundation to implement the rest of the Hudson Hill Playbook.

Go-to-Market

Effective go-to-market organizations enable one of the most reliable means of creating equity value in companies – organic growth. Despite its importance, most companies do not approach their go-to-market function methodically. According to a 2023 leading management consultant survey, 90% of companies do not actively manage their pricing strategy, 60% do not align value propositions to target customer segments, 65% do not have appropriate sales coverage models, and 70% do not believe their sales reps demonstrate the behaviors required for success. Within B2B businesses, best-in-class sales practices start at the top of the funnel with target customer profiles and rigorous inside sales. Top of funnel activities are complemented by experienced account executives who generate new logo growth through proactive outbound activities. Once new logos onboard, account management teams provide regular touch points to drive retention, upsell and cross-sell opportunities, and incorporate customer feedback. Hudson Hill’s rigorous go-to-market approach generates consistent, durable growth across the portfolio.

Human Capital

Human capital represents a significant driver of the Hudson Hill Playbook. Building a complete and high-quality leadership team is foundational to scaling a high quality business. The leadership team must also create an environment that rewards high-functioning behaviors through effective talent management. Talent management means much more than simply providing regular performance reviews, it means driving constant learning and professional development to ensure that organizations are producing effective managers and high functioning individual contributors in every layer of the organization. Conversely, poor organizational design can lead to inconspicuous long-term performance issues. In these situations, the organizational structure creates a misallocation of resources relative to the demands of the operations, driving poor financial performance over time. Aligning business objectives with the focus of the leadership team through thoughtful compensation incentive programs ensures Hudson Hill portfolio companies maximize their opportunity for success.

Digital Transformation

Digital transformation of enterprise technology represents a tremendous opportunity to drive strategic initiatives and operational efficiencies within Hudson Hill’s portfolio companies. Over time, artificial intelligence will become deeply entwined with the goods and services that businesses and consumers utilize. Companies must assemble immense amounts of data to offer artificial intelligence enabled products and services. Businesses that utilize aging enterprise technology will not win against companies that deploy modern infrastructure, which captures vast quantities of data in a usable format. The most successful companies over the coming decade will include enterprise IT discussions in the boardroom. Digital transformation needs to be rooted in company strategy and operations to compete effectively. Digital transformation can improve the financial profile of companies by automating manual processes, and thereby enhancing productivity and profitability. Hudson Hill is working to develop a foundation of modern enterprise technology within its portfolio companies that will enable them to compete effectively in an AI dominated landscape.

The Future

The goal of Hudson Hill’s investment approach is to build world-class organizations that will continue to grow well beyond the firm’s investment period. We believe the firm’s approach to investing differentiates Hudson Hill within the private equity ecosystem. Building companies with scalable foundations while focusing on organic growth as the primary driver of equity appreciation is a unique approach coming out of an environment of low interest rates. That said, the rise in the cost of debt and equity will only enhance the relevance of this form of investing. Leveraging the infrastructure we’ve created over the last five years, Hudson Hill expects to lead in this new era of investing.

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Alexander Stacy

The Hudson Hill Playbook

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