How to Reduce Risk in Private Equity

Private equity firms face risks like poor market fit, execution failures, and competitive threats. The Jobs-to-be-Done (JTBD) framework helps mitigate these risks by focusing on customer needs and motivations.

Key Takeaways:

• JTBD Basics: Understand customer "jobs" (tasks they want to accomplish) and align solutions to meet these needs.

• Risk Reduction: Address market fit, execution, and competitive risks using tools like customer job mapping and opportunity scoring.

• Due Diligence: Apply JTBD to validate investment theses, discover unmet customer needs, and assess competitive positioning.

• Proven Results: Firms using JTBD report higher success rates, improved customer satisfaction, and better financial returns.

What is Jobs-to-be-Done?

Core JTBD Principles

At its heart, the JTBD framework views products as tools customers "hire" to complete specific tasks or achieve desired results. This mindset moves teams away from simply listing features and toward understanding deeper customer motivations.

By using these principles, product teams can uncover valuable insights to shape their development efforts.

JTBD Risk Reduction Methods for PE

Private equity investments come with their fair share of risks, but leveraging JTBD methods can help mitigate these challenges effectively. 

Common PE Investment Risks

PE investments typically encounter three primary risks that can be addressed:

• Market Fit Risk: The chance that a portfolio company's products or services don't meet customer needs.

• Execution Risk: The risk that a company fails to deliver on customer jobs effectively, often due to operational or alignment issues.

• Competitive Risk: The potential for losing market share to competitors who better address customer needs or to new entrants bringing disruptive offerings.

Customer Job Mapping

Customer job mapping is a valuable tool for aligning portfolio companies with market demands. This method helps PE firms reduce risks by focusing on specific customer jobs. Here's a breakdown of how thrv's platform approaches this:

By using job mapping, PE firms can identify market shifts that competitors overlook and gain market share quickly by solving unmet functional, emotional, and social customer needs.

Risk Measurement with JTBD

JTBD provides measurable insights to help firms assess and reduce risks. Tools like thrv's platform use the following metrics:

• Job Completion Rate: Tracks how well a solution helps customers achieve their goals. Higher rates typically mean lower market fit risk.

• Opportunity Score: Combines job importance with satisfaction levels to pinpoint areas where companies can add value while also lowering risk.

• Market Share by Job: Evaluates how well a company meets specific customer needs compared to competitors, uncovering potential vulnerabilities.

Firms incorporating JTBD can more effectively spot market opportunities, identify sound investments and shape post-acquisition strategies using measurable customer data.

JTBD Due Diligence Process

Investment Thesis and Job Alignment

Leveraging JTBD's approach to risk assessment, aligning investment theses with customer jobs can improve decision-making. This involves assessing whether target companies can consistently address important customer needs.

Market Competition Analysis

Using a JTBD framework for competitive analysis uncovers insights that might be overlooked by traditional methods. Instead of focusing on feature comparisons, the emphasis is on how well companies solve customer problems.

Key areas to examine include:

• How effective current solutions are

• High-value customer needs that remain underserved

• Emerging threats from unconventional competitors offering alternative solutions

This analysis helps pinpoint priority jobs for evaluation, directly tying into the due diligence templates below.

Due Diligence Templates

These templates address the primary risks faced by private equity firms, offering a structured way to evaluate target companies:

Incorporating Jobs-to-be-done into due diligence processes allows PE firms to blend quantitative data with qualitative insights from customer feedback to reduce market fit, execution, and competitive risk. This dual approach helps validate investment theses and uncovers opportunities that might be missed by traditional methods.