A few days following his talk at the inaugural Ted x Forbes Park, serial industrialist Martin Lorenzo talks to Philippine Tatler to expound on his chosen topic of transitioning from successor to entrepreneur, and to also shed light on his current work as managing partner of private equity firm Sierra Madre. The group has recently closed its small-to-medium enterprise (SME)-focused fund at USD 50 million in committed capital.
Philippine Tatler: As managing partner of Sierra Madre, what general characteristics do you look for in entrepreneurs and businesses you work with?
Martin Lorenzo: As a private equity group, Sierra Madre invests in SMEs in the Philippines that can become leaders in their sector, actively engaging with them to deliver significant change in their trajectory through strategy development, upgraded governance and operational improvement. We look for businesses with a scalable business model where we can invest at least USD 5 million. We are sector agnostic, focusing more on the investment situation and our ability to add value. Having said that, most opportunities we see reflect the rapid growth industries that are driving the Philippine economy: retail, consumer goods, consumer service, business service, transportation and logistics, leisure, education, and healthcare. We look to partner with entrepreneurs where we can help shape the growth plan for their business and support them in developing outright leadership in their industry.
PT: How has the SME landscape in the Philippines changed over the years and how do you see it going from here?
ML: In Sierra Madre, we see a lot of SMEs continue to transition from the first generation founders to the second or third generation. These second or third generation typically study abroad and come back to help in their family business, equipped with knowledge from the top schools in the US or UK. They tend to be more familiar with private equity and are excited to partner with groups such as Sierra Madre to take their companies to the next level of growth. We expect this trend to continue and are excited about the opportunities ahead.
PT: As an experienced restaurateur, how did this special interest in working with SMEs begin?
ML: During my time as Chairman and CEO of Pancake House, I partnered with Danny Lizares, a private equity investor who was with the Abraaj Group at that time. Danny supported organic expansion of Pancake House and helped in our acquisitions of Teriyaki Boy, Le Coeur de France and Yellow Cab Pizza. He also assisted in the sale of Pancake House to Max’s Group. After the sale, Danny and I, along with Alasdair Thomson, formed Sierra Madre to provide the same strategic and operational guidance and expertise to other SMEs in the Philippines and help them become leaders in their sector.
PT: What does it take to be a serial entrepreneur? Could you share some advice?
ML: During my TEDxForbesPark talk, I shared the lessons I learned from my journey from a successor to an entrepreneur. These lessons hold true regardless of what industry or sector our business may be in.
First, always have a strategy and develop the discipline to maintain it as well as the flexibility to redirect it when the environment changes. Consumers want to be constantly surprised, so our offerings have to be more creative and unique. We succeed when we anticipate and create something new ahead of the curve. Also, what is new right now will not be new for long. We have to continuously innovate and create new value propositions.
The second lesson is that every good strategy needs resources to put it to work, and the right professional resources are critical. When interviewing potential recruits, we concentrate on character rather than competence. A candidate who has character provides a solid foundation we can build on; however, a weak character falters and crumbles no matter how competent the person may be. We’re always on the lookout for talent and leadership – for “the X factor” – because they will be our partners in propelling the company toward success.
The next step after attracting the right people is keeping them. For the business to grow, we need to nurture a team that is motivated, well-compensated, and constantly challenged to be their best. A good leader knows that the best employees are those who rise to challenges and who value career paths that clearly point to an inspiring future. They want to know how their work contributes to the over-all business goals and how their contribution paves a better life for themselves.
Ultimately, after developing a strategy, harnessing the proper resources, and building up the business to the next level… be prepared to exit. I have learned to not get attached to companies or investments. I see my role from beginning to end, and I know when it’s time to pass it on to the next leader who can carry it further or add new value that is beyond me.