Taking a new approach to creating value in its portfolio, Los Angeles-based private equity firm Brentwood Associates added the role of operating partner to its top executive positions. Tom Davin, former chief operating officer of Taco Bell Corp., filled that slot last month.
As operating partner, Davin combines the responsibilities of a managing partner with the knowledge and experience of a CEO. Davin said 50% to 60% of his time will be spent working with existing portfolio companies, while approximately 30% of his time will be dedicated to new deals and 20% to helping manage the firm’s operations.
Presently, Brentwood Associates has nine portfolio companies – two in Brentwood Fund II and seven in Brentwood Fund III– of which Davin will be focusing on four or five.
Davin said the firm added the role of operating partner to take a step toward a stronger focus on operations, making the firm more hands-on. The partners have not yet determined whether other operating partners will be added in time.
“Brentwood Associates is very much a growth-oriented firm, whether that means doing aggressive acquisitions to build up portfolio companies, or being more creative and innovative around seeking growth opportunities,” Davin said.
He added that the firm has been working on a couple other new strategies, which will be implemented and become evident over the next few years.
So far, the CEOs at Brentwood’s portfolio companies have been supportive of the change. “There’s been a reaction that I’m someone who understands all that a CEO has to deal with,” said Davin. “And not that the guys at Brentwood don’t know this, but I’m someone who’s been in [a CEO’s] shoes.”
Additionally, Davin’s relationship with Brentwood dates back to 1997, when he became director of a Brentwood portfolio company, Cobblestone Golf. Through that experience and others at Taco Bell and PepsiCo, Davin was already familiar with some of the CEOs he is now working with in the Brentwood portfolio. That familiarity has made the transition easier for some of the CEOs, he said. “There were some who could say, We know Tom, he can come in and add value to the company,'” said Davin, adding, “I’m really trying to be not just someone who can be an expert on financial structuring, but to get involved in all of the issues of a CEO.”
Yo Quiero Better Sales
Indeed, Davin is one who’s been there. Prior to joining Brentwood, he was CEO and president of Entrepreneur.com, an Internet information provider for small business owners. But his claim to fame in the operating arena has to be an operational restructuring he led during his three-year stint as Taco Bell’s chief operating officer. Not only did he nearly double the company’s operating margins to 18%, but he’s the man behind the Chihuahua.
Davin joined Taco Bell in 1997, (“with a running start in 1996”), and was immediately faced with the company’s declining position in the fast food space. Taco Bell’s lower pricing advantage was being challenged by value menus at McDonald‘s and Burger King and the other leading fast food chains in the mid-90s. When Davin stepped up, he began by evaluating the company’s ownership within the chain at the time the company owned two-thirds of Taco Bell’s restaurants and what the role was of the various levels of management.
In the end, Davin and his colleagues decided to reduce the company-owned restaurants to one-third and have those units run like well-oiled machines. They then added more salaried managers, first-line supervisors and district managers to the restaurants, and cut back the senior management. “We put more money into research and development of new products to launch more effective new products and to create a better customer experience,” said Davin. “There was also some culture building – teaching first line management to be leaders. We wanted people to use their own initiative, have more fun, be more creative, rather than the more authoritative approach they had used previously.” The end result: gorditas, chalupas, a talking Chihuahua, and nearly doubled operating margins.