Becker Private Equity & Business Podcast
The Increasing Complexity of Business & What it Means for Investors with Matt Wolf of RSM 2-12-25
Wed, 12 Feb 2025
In this episode, Matt Wolf, Health Care Senior Analyst and National Health Care Business Valuation Leader at RSM shares key insights from recent research on the increasing complexity of business operations, the impact on private equity and middle-market companies, and strategies leaders can use to navigate today’s challenging deal environment.
Chapter 1: What is the focus of Matt Wolf's current research?
This is Scott Becker with the Becker Private Equity and Business Podcast. I'm thrilled today to be joined by your brilliant leader at RSM, Matt Wolfe. Matt lives sort of in the valuation space in the private equity world, just a brilliant person. Matt, take a second and tell us what you're focused on currently. What trends? What are you watching? What's going on in the P.E. deal world?
Chapter 2: How has business complexity changed over the last decade?
Happy to, Scott. Actually, a colleague of mine put together some really interesting research that we're still kind of tweaking and iterating on, but looking at sort of the growing complexity of business operations over the past decade.
15 plus years or so uh and i wanted to share a little bit about that because i think it's very relevant especially as we look at you know private equity operators uh middle market large companies small companies doesn't matter just i found these numbers to be fascinating and i wanted to share them and so for example we look at um the top 50 and it doesn't really matter what we look at look the top 50 bottom 50 of the s p 500 excluding financials and real estate
Chapter 3: What does the increase in suppliers and customers mean for businesses?
So the top 50 of the S&P 500, excluding financials and real estate, the number of total suppliers those companies have now compared to 2009 has almost tripled. The number of customers those companies have now, compared to 2009, has increased over five times. And on the bottom end of the bottom 50 S&P 500, it's increases of four times and nine times really for number of customers.
And what that tells me, again, just by looking at the sort of subset of the top and bottom of the S&P 500, excluding financials and real estate, is just this explosion in the complexity of managing businesses that sort of evolved during the era of zero interest rates and now
Chapter 4: How can companies navigate complex operating environments?
you know, we're all kind of coming to terms with either as advisors or investors or as management teams of how do we actually navigate these incredibly complex business environments now that the cost of capital is higher? How do we do that in a way that makes returns? And, you know, we talk about that and we've talked about it on the podcast. I think people
Some people, at least leaders, sort of intuitively understand this. But just to see this absolute explosion in the number of suppliers and customers that companies are working with now compared to 2005, again, as much as a nine times increase, depending on how you want to slice it. I think really kind of drives home this incredibly complex operating environment that we're all working to navigate.
And that's what we're watching.
Chapter 5: Why is simplification important in today's business landscape?
No, I think that's so fascinating. You know, so many of the mantras I've had in founding and running businesses, and as I serve on boards and invest is, you know, how do you keep it simple and try and simplify amongst the complexity? And it strikes me as, at one time,
That seemed just easier than it is today because it seems like the amount of variables coming at you, the changes in tech, where to pick up tech, how to meet your customers where they're at and be useful to your customers, how to grow and scale. It all seems to be more complex than it used to be. And in some ways, we used to think about the legal business as a very simple business.
Chapter 6: What challenges do businesses face with technology and competition?
I'd have great clients on one side and great people on the other side. And all it was about was keeping those two things relatively in tandem. So I had enough great people serving enough great clients. And it was a relatively simple business.
Chapter 7: How has the definition of a 'simple business' evolved?
Hired really smart people, cultivated them, developed really close relationships, really close clients, and cultivated them, and just kept on moving them together. And then over the years, as you go up market, the clients are more complicated, the people are more complicated, the competition for both is more complicated, the changes in how people are using technology are more complicated.
And this is just to talk about the professional services business, the simple business, compared to the media business or software companies and a lot of digital health companies I've invested in, and the complexity there of both getting through to the right person. You know, in the old days, I'll give you something that brings this home to me, what you're saying, Matt, so well.
In the old days, so many companies were built around point solutions. This company did this point solution better than anybody else. And it goes to your thought that you're talking about, about companies running 1,000 different technologies, health systems running 1,000 different apps to go with their 5 to 10 enterprise programs.
And what's really happened in terms of simplicity, nobody wants to be running 1,000, 2,000 apps Thus, consequently, less and less people want a point solution. You know, one person wants a point solution, but a system wants something that serves multiple goals so they don't have to have and manage a thousand different relationships.
And this complexity and the need to try and trim away the complexity is, you know, when you see great leaders, they're really, really, really, really good at doing this. And that skill has become harder and harder. And so I think this operations survey that your team has put together could not be more right on. Tell us more, Matt, before I just talk and talk and talk. Tell us more.
Yeah, I mean, it's fascinating. I completely agree. And the other element of this is now business decisions change. We're seeing clients, we're seeing operating teams, operating partners, management executives more closely manage those solutions, their technology stack, their vendor relationships. Can we trim the number of vendors, the number of solutions? How does that streamline our operations?
But there's so many second and third order or second and third sort of derivative almost decisions that are impacts that go along with that, right? So, okay, if we reduce the number of vendors we're using in our technology stack, that probably has positive implications for our risk management, internal audit, our risk management framework, right? We're, you know, we're
fewer entrance points to kind of manage. Maybe on the supply side, hey, we're reducing our number of vendors, reducing number of SKUs, but what if one of them goes bankrupt or one of them has supply issues? Where do we want to pay for redundancies? Where do we want to accept additional risk and have additional point solutions and have additional suppliers? What does that look like?
It's made that analysis more complex. And then on the customer side, I think everybody would say, every operator, every CEO, every leader would say, oh, yeah, we have some difficult customers. We have some difficult clients that just don't make sense for us. They're off strategy. We really shouldn't devote resources there. But you know, push comes to shove.
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