For those of you already in PE (ideally growth stage or where companies are growing high double digits per year) based on your experience, which is usually easier/harder for a management to achieve (in the medium to long run so say 3-5 years): a revenue target or a margin target?
So if a management team is trying to sell you on a $100m topline in 5 years with 20% EBITDA margin, and you build a model to sensitize both, which of the two metrics will you sensitize a wider range on?
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As someone on the PortCo side of the type of company you're talking about, happy to chime in.
From my experience, it's exponentially easier to grow topline than EBITDA. Obviously there are measure you can take to increase EBITDA % of revenue through G&A cost cutting, people rationalization, etc. but at the end of the day it will only take you so far. I'd argue that growing revenue has a couple more levers... pricing, discounting, assortment, strategic partnerships, to name a few.
From an investing perspective, I'd focus more on the EBITDA target because there is more than one way to get there.
Can you elaborate on that last sentence? Are you referring to Ebitda being easier to fudge / “adjust”?
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