How governance & operational efficiency drive sustainable value

For most of the past three decades, private equity performance was driven primarily by financial engineering: leverage optimization, multiple arbitrage, disciplined capital structuring, and selective M&A. That model generated strong returns in environments characterized by expanding multiples, cheap debt, and predictable growth.

The environment today is materially different.

• Capital is more expensive.

• Growth assumptions resemble guesswork.

• Exit windows are less predictable.

• Buyers are scrutinizing operational durability in ways that were previously secondary.

And Pitchbook’s reports over the past couple of decades still report private markets overperforming S&P 500, despite some turbulence and volatility over the past two years.

As a result, financial optimization alone is no longer sufficient to sustain premium returns. The firms consistently outperforming in 2025 and 2026 are those building operational resilience across their portfolios. In practical terms, that means treating governance and operating systems as value creation levers, not administrative overhead.

Why financial engineering doesn’t work without operational depth

A company can present clean financial statements while underlying operations remain misaligned. In stable markets, those weaknesses may not surface immediately. In volatile markets, they do.

We are seeing recurring patterns across mid-market portfolios:

• Post-close initiatives stall because decision rights are unclear.

• Revenue forecasts repeatedly require downward revisions due to inconsistent GTM execution.

• ERP or CRM transformations consume capital without materially improving throughput.

• Cost reduction programs generate short-term margin improvements but degrade long-term growth capacity.

In each case, the issue is not strategic intent. It is always execution architecture.

When operating systems are fragmented, even well-designed financial strategies become difficult to sustain. Conversely, companies with disciplined governance and well-aligned processes can absorb shocks, reallocate resources quickly, and maintain margin stability under pressure.

Treating capital structure as a main differentiator today is not enough. Operational durability is the real determinant of successful portfolio companies.

The evolving Value Creation equation

Enhanced enterprise value is increasingly driven by two interlocking components:

1. Strong governance structures

2. Agile, systematized operations

These elements are often discussed in abstract terms. In practice, they translate into concrete behaviors and structures inside portfolio companies.

What strong governance looks like in practice

Governance in a PE context is frequently reduced to reporting cadence and board oversight. That interpretation is incomplete.

Effective governance establishes:

• Clear and documented decision rights across functions

• Consistent KPI definitions across departments

• Transparent escalation pathways when targets are missed

• Alignment between investment thesis assumptions and operational metrics

• Regular review of leading indicators, not just financial outputs

In portfolios where governance is mature, operating partners and portfolio executives share a common understanding of what constitutes performance and risk. Variance is surfaced early. Accountability is explicit. Discussions at the board level are grounded in both financial outcomes and operational health indicators.

Where governance is weak, the opposite occurs. Financial metrics may appear acceptable while execution drift accumulates beneath the surface. Forecast variance increases. Cross-functional friction goes unaddressed. Accountability becomes diffuse.

Governance, when properly implemented, reduces execution ambiguity. That reduction directly affects performance stability and, ultimately, valuation.

Agile operations as a structural capability

Agility is often misinterpreted as speed. In operational terms, agility refers to the capacity to adapt without creating systemic disruption.

It’s one of the discipline traits I documented 6 years ago.

Agile operating models exhibit:

• Short feedback loops between insight and action

• Defined ownership for cross-functional processes

• Minimal redundant handoffs

• Continuous incremental improvements rather than episodic transformations

• Data systems that support decision-making in real time

This form of agility enables portfolio companies to adjust pricing, resource allocation, GTM focus, or cost structure without destabilizing the organization.

In contrast, organizations that rely on periodic transformation initiatives tend to experience cycles of disruption followed by regression. These cycles consume management bandwidth and delay value realization.

The portfolios delivering consistent EBITDA expansion tend to be those that treat operating agility as an embedded capability rather than an occasional initiative.

How to embedding operational discipline

Operational excellence does not emerge from isolated workshops or one-off improvement programs. It requires structural alignment and repetition.

A practical approach includes several foundational steps.

1. Mapping core value streams

Before improvement efforts can be prioritized, leadership teams need a clear view of how value flows through the organization.

This typically includes mapping:

• Lead generation to conversion

• Order to fulfillment

• Implementation to customer support

• Renewal and expansion processes

In many cases, visualizing these flows exposes redundant approvals, unclear ownership, and avoidable delays. These inefficiencies rarely appear in financial summaries but materially affect margin and customer experience.

Mapping is diagnostic groundwork laying the foundation for the next steps.

2. Redefining KPIs with an operational lens

Financial metrics remain essential, but they are lagging indicators.

Operational stability is better reflected in measures such as:

• Cycle times across key processes

• Escalation latency

• Forecast variance over time

• Conversion rate stability by cohort

• Rework frequency and process redundancy

These indicators provide early visibility into execution quality. When tracked consistently, they allow sponsors and portfolio executives to intervene before financial underperformance becomes entrenched.

3. Prioritizing incremental structural improvements

Large transformation programs often generate internal fatigue and uneven adoption.

A more durable approach focuses on targeted structural adjustments:

• Clarifying ownership in high-friction workflows

• Reducing approval layers where risk exposure is low

• Standardizing recurring processes

• Automating manual reconciliation steps

Incremental changes, consistently applied, tend to produce more sustainable performance gains than disruptive overhauls.

4. Aligning technology with execution, not reporting

Technology investments are frequently justified by reporting improvements. While visibility is important, it is not sufficient.

Systems should be evaluated based on whether they:

• Reduce manual effort

• Improve cross-functional coordination

• Decrease process variability

• Shorten feedback loops

When technology adds reporting layers without improving underlying workflows, complexity increases and operating leverage declines.

The expanding role of RevOps

Within portfolio companies, Revenue Operations leaders occupy a structurally important position.

When empowered appropriately, RevOps can:

• Harmonize GTM processes across departments

• Improve forecast accuracy and transparency

• Identify bottlenecks affecting revenue realization

• Align technology systems with execution requirements

This role becomes materially more valuable when viewed as execution infrastructure rather than reporting support. In mature portfolios, RevOps contributes directly to enterprise value by improving predictability and reducing volatility.

Board-level accountability for operational performance

If operational excellence is treated as an operational issue alone, it rarely achieves strategic impact.

Boards and investment committees should regularly review:

• Operational leading indicators alongside financial metrics

• Trends in execution latency and forecast variance

• Evidence of process standardization and accountability

• Resource allocation toward structural improvement initiatives

When operational health becomes a recurring agenda item rather than an occasional review, it signals internal prioritization and drives behavioral change.

A strategic rebalancing

Financial engineering remains a necessary component of private equity performance. However, its marginal advantage has declined relative to operational differentiation.

Sponsors who integrate governance discipline, operating system maturity, and incremental improvement into their value creation plans are better positioned to:

• Reduce execution risk

• Stabilize EBITDA growth

• Shorten time to value realization

• Improve buyer confidence at exit

Operational alpha is not a theoretical concept. It is the compound effect of disciplined governance and resilient systems over the hold period.

For sponsors, this requires explicit prioritization.
For portfolio executives, it requires structural clarity and sustained execution discipline.

The market is increasingly rewarding organizations that demonstrate both financial rigor and operational durability.

To building stronger portfolios,

Mario

✉️ LinkedIn’s ridiculous pressure in a tough job market. I’m sincerely disappointed in LinkedIn’s push for promoted jobs quoting a competitive market. Multiple records this year for the lowest number of open jobs, the longest average time to find a job, and plenty of ongoing layoffs in the real world.

💼 The $4B empire of W.L. Gore & Associates - in last week’s issue of Legacy Beyond Profits.

📗 Management efficiency and PE expectations in 2026. You’re welcome to participate in my latest LinkedIn post outlining the disparity between legacy management expectations and the realities of 2026 in mid-market companies operating online.

Agent-ready data stacks are a board-level decision now. SurrealDB’s $23M Series A extension alongside SurrealDB 3.0 GA is a signal that “agent memory” is moving down the stack - from app glue code into the database itself.

When agents touch the desktop, security becomes the product. OpenClaw’s rapid adoption is hitting a structural bottleneck as major tech firms block internal use. The friction stems from "agentic" risk, tools that execute real-world actions create unpredictable endpoint and access-control liabilities.

Auditability becomes the product in AI compliance. Sphinx’s $7.1M seed backs browser-native compliance agents that operate inside existing portals and workflows - automating AML/KYC/KYB with logged, explainable, regulator-ready decisions.

Autonomy with guardrails wins. Splunk Observability adds AI Agent Monitoring for performance/cost/quality + workflow visibility, integrating with Cisco AI Defense to manage risks like leakage and prompt injection.

Virtual Events Lead Gen Agency: A 1-year-old marketing agency leveraging virtual events to drive predictable top-of-funnel results for consulting and tech firms. Generating nearly $12K in monthly profit with 38% margins, it’s selling for $124,000.

Invitation Video SaaS: An AI-powered video invitation platform with automated rendering and global customers. Producing $3K in monthly profit at strong 85% margins with 8,000 subscribers, it’s listed at $300,000.

Digital Education SaaS: A 2-year-old SaaS and digital education platform enabling users to launch online products with resell licenses, funnels, and training. Generating $14K in monthly profit with 1,700 subscribers, it’s offered at $950,000.

Working with me

🌐 Scaling $30M - $100M+ mid-market companies with value creation through RevOps, data engineering, and WordPress. DevriX provides full RevOps consulting + delivery with GTM enablement for PE-backed portfolio companies, traditional tech, healthcare, finance, and professional service businesses pacing toward revenue growth initiatives. Our standard retainers between $10K and $60K include revenue lifecycle services for marketing and sales leaders, FP&A for financial teams, pipeline enrichment through websites and dozens of lead sources, automations and delivery integrations, CRO and ongoing testing, product delivery and platform integration solutions, and more through our consulting solutions.

🚀 1:1 Consulting. At Growth Shuttle, I run two popular plans: Async Advisory ($3,500/mo) for $3M - $30M founders and executive teams and the smaller Strategic Growth Circle ($997/mo) for $100K - $500K entrepreneurs, agency founders, scale ups. My fractional executive plan is also available here.

📈 Building US LLCs from Europe. I help European and Asian founders scale faster through doola and their “Business in a Box” model. Also suitable for US citizens (given their bookkeeping solution), but in very high demand across Europe.

📊 Post-Merger Integration. I support M&A initiatives through Flippa’s marketplace. Working closely on PMI initiatives for PE companies and fast-growing startups integrating new companies within their portfolios, enabling data pipelines, and securing more deals through my personal network.