The private markets are inefficient. Let's discuss why a leading indicator of value may be the missing link in maximizing private capital market efficiency. The Strategic Capacity score provides this leading indicator and is accelerating business growth and value creation. Strategic Capacity defines a business’ ability to predictably and sustainably grow free cash flow.
By George Sandmann | Forbes Author | Founder & CEO, Growth-Drive
Private equity has become remarkably sophisticated at measuring what businesses have accomplished. And even with all this sophistication, the private capital markets remain inefficient. We all know it (see the Asset Class white paper on point).
We have extraordinary financial models, increasingly powerful data platforms, sophisticated diligence processes, and now artificial intelligence capable of analyzing enormous volumes of information in moments. Yet there is a fundamental question that our industry still struggles to answer:
How confidently can we predict what a business is capable of accomplishing next?
That's a very different question from what the business earned last year, what comparable companies have sold for, or what management projects for the next five years. And this question goes directly to the heart of investment risk, value creation, and ultimately, the efficiency of private capital markets.
Every private equity investment begins with a thesis: a conviction about how a business can generate greater profits, grow sustainably, and create equity value.
Turning that thesis into reality generally falls to an operating partner, working independently or collaboratively with the portfolio company's CEO and senior leadership team. Together, they develop a value creation playbook—a set of strategic priorities, operational improvements, financial objectives, and execution initiatives through which they expect the investment thesis to play out successfully.
The quality of that playbook matters enormously. Even with Ai, developing a quality playbook can take weeks and months of discovery, analysis, planning, and alignment. And even the most experienced operating partners must make judgments about which initiatives will produce the greatest results, whether management has the capacity to execute, and where the greatest risks lie.
What if we could generate a more comprehensive, evidence-informed value creation playbook in a fraction of the time, while significantly improving the likelihood of success?
This is precisely the opportunity we are delivering with Growth-Drive's CLARITY software.
By combining our Strategic Capacity methodology, structured advisory process, CLARITY technology + CLAIRE AI we enable operating partners and leadership teams to collaboratively analyze the business, identify its most consequential growth-driving opportunities, and develop a prioritized, measurable playbook for increasing profits, sustainable growth, and transferable equity value. And this infrastructure goes on to track success.
“THE DATA is in. Growth-Drive powered businesses grow faster, with more durable revenue and at higher transferable value than their peers.
The human participants bring their judgment, experience, institutional knowledge, and strategic intent. CLARITY brings a disciplined analytical framework, structured data, quantification, and the ability to rapidly develop and refine an actionable plan.
And the collaboration doesn't end when the playbook is completed. The same system supports execution, accountability, performance measurement, and continuous improvement.
The objective is not simply to create the playbook faster. It is to maximize the probability that the investment thesis succeeds.
At ACG’s M&A East this week, I listened to experienced private equity investors, operating partners, and founders discuss what separates successful investments from disappointing ones. The themes were remarkably consistent: Strong leadership teams. Reliable financial information. Repeatable processes. A culture that supports execution. Management alignment. The ability to grow without everything depending on the founder.
One panelist emphasized that companies must build the operational foundation before accelerating growth. Another discussed the importance of generating sustainable organic revenue growth rather than relying exclusively on cost reduction. Others described the challenges of professionalizing founder-led companies without destroying the qualities that made them successful.
None of this should surprise anyone who has spent time building, buying, or advising privately held businesses. And here's what struck me: These experienced professionals were describing Strategic Capacity.
They were identifying the underlying capabilities that make future profits, growth, and equity value more predictable. Our opportunity as pros supporting the private capital markets is to move beyond recognizing those capabilities through experience and judgment—and begin measuring them systematically.
More importantly, once those capabilities are measured, we can build a playbook specifically designed to improve them.
At Growth-Drive, we define Strategic Capacity as a business's demonstrated ability to deliver predictable profits and cash flow, sustainable growth, and transferable equity value, with a high degree of confidence and comparatively low risk.
Our methodology examines three dimensions of business growth:
Together, these dimensions describe something more meaningful than a historical financial snapshot. They describe the business's capacity to perform... And this distinction matters enormously. Revenue growth is a lagging indicator. EBITDA is a lagging indicator. Enterprise value is a lagging indicator. And Strategic Capacity is the leading indicator of the business's ability to produce these outcomes.
This creates a powerful connection between the investment thesis and the value creation playbook. The Strategic Capacity analysis identifies where the business is capable, where it is vulnerable, and lists specific improvements proven to increase confidence in future performance. The playbook translates findings into priorities, initiatives, measurable results, and individual accountability. Instead of working ad-hoc hoping that the investment thesis plays out, investors and leadership can systematically build the capabilities proven to make it happen.
Consider how the private equity investment lifecycle works today.
Investment professionals evaluate opportunities, conduct diligence, underwrite future performance, negotiate transactions, and ultimately hand responsibility for value creation to operating partners and leadership teams. Those activities are increasingly sophisticated, but they are not always connected through a common, measurable framework. What if they were?
Power of Strategic Capacity scoring on pre-due diligence: Imagine an investment professional being able to evaluate a company's Strategic Capacity before committing significant diligence resources. By doing so, they are quantifying the business's ability to predictably and sustainably grow free cash flow. And the data is in, kids: Strategic Capacity drives growth and value.
Power of Strategic Capacity tracking post-transaction: Now imagine an operating partner team creating a financial model and a 100-day plan, with a quantified assessment of the organization's capacity to execute that plan. The plan + the score = confidence. The methodology makes the score actionable. And if the Strategic Capacity score is low, we can be proactive rather than waiting to see how our hand plays out.
Now take this a step further. Imagine the operating partner and senior leadership team collaborating with CLARITY software and CLAIRE AI when developing the actual value creation playbook, using the portco’s Strategic Capacity scores, financial performance, growth-driving objectives, and leadership priorities to generate a structured plan in a fraction of the traditional time.
Rather than starting with a blank page or imposing a generic operating playbook, we begin with a business-specific analysis and a collaboratively developed plan that connects directly to the investment thesis. The operating partner and leadership team retain control. They challenge assumptions, refine priorities, allocate accountabilities, and apply their professional judgment. AI accelerates analytical and planning work.
Imagine leadership teams, operating partners, and outside advisors working from the same set of growth-driving objectives, measurable key results, and execution priorities. As Emeril would say, BAM…
And imagine tracking improvements in Strategic Capacity across an entire portfolio—identifying which businesses are becoming more capable of producing future financial performance, and which are accumulating risk. In one growth command center we have insistent access to financial trends, Strategic Capacity trends, the business scorecard, and metrics on execution tempo.
This is the opportunity. Strategic Capacity will become the connective tissue between investment selection, the value creation playbook, operational execution, and transferable equity value.
Another discussion at the ACG event focused on artificial intelligence and the growing distinction between generic AI tools and systems built around proprietary knowledge, trusted data, and specialized workflows. The lessons are important. AI alone is not differentiation.
The real advantage comes from combining reliable data, specialized expertise, repeatable methodologies, and the ability to translate insights into action. We call this the integrated doctrine: The CEO, SLT, advisors, plus software, Ai and data all focusing on increasing Strategic Capacity (read: increasing the multiple).
This is precisely the direction we are taking with Growth-Drive's CLARITY software and CLAIRE AI. CLARITY is designed to quantify Strategic Capacity, connect those findings to business valuation and strategic planning, and support the execution of initiatives intended to improve performance. CLAIRE AI extends those capabilities by helping advisors and leadership teams interpret findings, develop plans, identify priorities, and manage execution.
Together, they create the foundation for something particularly valuable to private equity: a human-AI collaboration that can rapidly transform an investment thesis into a quantified, executable value creation playbook.
This is fundamentally different from asking a general-purpose AI tool to write a strategic plan. Our approach begins with a defined methodology for analyzing the business's capacity to generate profits, growth, and equity value. It incorporates structured findings, financial information, leadership intent, and growth-driving objectives. It then connects the resulting plan to execution, accountability, and measurable improvement.
The objective is not to replace professional judgment. It is to make that judgment more informed, more consistent, more scalable, and ultimately more valuable. As we continue developing our technology infrastructure, we see enormous potential to connect the work of investors, operating partners, leadership teams, and professional advisors around a common understanding of Strategic Capacity, the force that actually drives business performance.
The Association for Corporate Growth brings together an extraordinary community of professionals dedicated to building and realizing enterprise value. Investment bankers. Private equity investors. Lenders. Operating partners. Attorneys. Accountants. Business advisors. Corporate executives.
Historically, much of this community's activity has centered on transactions. Value is created long before a transaction occurs. And the professionals who help businesses become more profitable, grow sustainably, and reduce risk are essential participants in that process because they are acting ahead of the results. (Honestly, this is why I argue that value is mildly interesting: profits and value are lagging indicators. We have not had a leading indicator of growth and value until Strategic Capacity.)
Strategic Capacity creates the opportunity to connect our communities more effectively.
The potential extends beyond improving individual transactions. It creates an opportunity for the entire ACG community to participate more directly in building the businesses that will become tomorrow's Asset Class investments with Strategic Capacity scores of 85 or more. Our impact? The pre-middle and middle market are the backbone of our economy ~44% of US GDP, 46% of jobs, 64% of new jobs. $10 Trillion in AGR. It should be our sacred mission to ensure these businesses deliver wealth and prosperity.
Our ambition at Growth-Drive is substantial. Our vision is to help $1 Trillion of private businesses increase Strategic Capacity in the three dimensions of business growth. We are helping to establish Strategic Capacity measurement as a standard component of how privately held businesses are measured, improved, and valued.
And we want the value creation playbook to become more than a static document developed at the beginning of an investment.
We envision a continuously improving leadership system—one that connects the investment thesis to a quantified assessment of the business, translates that assessment into an executable plan, and measures whether the organization is developing the capacity required to deliver the expected results.
That does not mean replacing financial analysis, professional diligence, or valuation methodologies. Nor does a Strategic Capacity score, by itself, guarantee future performance. It means adding something those disciplines have historically lacked: a structured, quantifiable assessment of the underlying capabilities that drive future results, combined with a disciplined process for improving them.
The next step is to continue demonstrating how changes in Strategic Capacity relate to subsequent business performance, investment risk, and realized equity value. The implications are significant: Better investment screening. More focused diligence. Faster value creation. More effective execution. Greater alignment between investors and leadership. And, ultimately, a more efficient private capital market.
For too long, we've relied primarily on financial outcomes to tell us how well a business has performed.
It's time we become equally sophisticated at measuring its capacity to perform in the future—and dramatically better at building the playbook to make that future happen. This is the opportunity in front of the private capital community. And it's the future we're building at Growth-Drive.
George Sandmann is the founder and CEO of Growth-Drive and author of The Growth-Driving Advisor: Leading Businesses from Stuck to Best-in-Class (Forbes Books 2023). Growth-Drive's CLARITY + CLAIRE Ai tech infrastructure helps business advisors, CEOs, and institutional partners analyze, plan, and execute improvements in Strategic Capacity accelerating profits, growth, and transferable equity value. You can reach him at george@growth-drive.com.
Learn more at strategic-capacity.org.