“If you're only measuring a few basic pipeline stages, you're missing so much of the nuance needed to succeed,” shares Dan Herr, Deal Sourcing Engineer. In this Inside the Source conversation, Dan dives into how firms can improve pipeline management by breaking it down into granular stages to pinpoint exactly where they’re getting stuck and refine their strategies.
Dan highlights a missed opportunity in pipeline productivity. Many firms are expecting their portfolio companies to utilize sales and marketing best practices while failing to implement them in their own sourcing. “We’re okay with not measuring our sourcing teams the way we do our portfolio companies — but why?” he asks. He goes on to question why private equity firms that meticulously track KPIs and OKRs for sales teams at their portfolio companies settle for vague metrics and outdated processes within their own teams. But Dan also presents an opportunity to troubleshoot this by redefining success metrics, introducing more detailed pipeline management, leveraging tools to identify bottlenecks, and prioritizing authentic, long-term relationships — using traditional tactics like in-person meetings and unconventional methods like text messaging.
Dan’s perspective and experience as an engineer reveal an uncharted roadmap for sourcing teams looking to stay ahead in this tech-driven yet relationship-focused market. Whether you aim to optimize your pipeline or cultivate deeper connections, his insights offer actionable takeaways to thrive in today’s environment. Watch the full video to learn more.
Transcription:
Sourcescrub (S): What does a typical day in the life of a deal sourcing team look like?
Dan Herr (DH): To me, there's 100 odd things you kind of kind of do. Well, obviously, that includes everything from dealing with that banker coverage stuff, the internal stuff that comes in. But like doing your thematic research, right? Building your list, doing new discovery, doing the list review and then importing records, managing your records inside your CRM or your database, doing your conference outreach or city trip outreach or whatever it is, or just kind of generic around the clock sort of outreach. Your travel, your phone calls, your face-to-face meetings or follow up. I mean, there's never ending list, right? Of all these different things that we've got to do. As I've been working with a lot of recruiters, like one of the things we've been finding, we do these surveys and we talk to people and say, like, where are you spending your time? You know, across your BD organization, whatever. The thing that's been most interesting to me is out of firms that have dedicated BD and sourcing professionals, right? And like our at least our latest count of that is there's 400 odd firms that employ about 800 plus kind of dedicated BD and sourcing professionals, right? Of those 400 firms, when you talk to the sourcing professionals there, approximately 75% of them say at least the majority of their job is banker coverage. You know, we talk about sourcing and we I think immediately jump to proprietary and say like, well, that's the reason you build a team. And it's like, well, sure. Yeah. I mean, we all we all want to have proprietary deals. We know that's the source of greater returns, etc. but the reality is the majority of the market where they're spending time is actually more on banker coverage.
S: Can you talk a little bit about how you view the deal pipeline or funnel?
DH: I actually studied engineering in undergrad, and I actually started in civil engineering of all things, so I spent a lot of time on earthwork, right? And so this might sound like the funniest kind of metaphor. So looking at these things, but like I always saw like when you're looking at like mining sort of activities or measuring aggregate, right? You kind of always had to add dirt to the top of the pile and kind of sift it down through these different sieves to measure, like where the soil falls out at these different levels of. It's the tiny, fine grained stuff that ends up at the bottom. If it's the big rocks and chunks that are at the top. But the point being, in order for this entire funnel to work, you have to do two things really well. One is you have to constantly add stuff to the top of the funnel, right? So you got to be shoveling in and add in something to the top. And two is, you have to massage the funnel and you have to massage the entire funnel, not just one part of the funnel. And if you fail at either of those two things, either adding new stuff to the top or massaging that funnel as you go, you're fundamentally going to fail, and you're going to have something, you know, kinked or clogged up in the works, and you're not going to get the result that you're looking for. And to me, that's one of the best kind of analogies when I think about this is like, you got to constantly add stuff to the top, like new opportunities to the top of your funnel, right? And you've got to constantly massage not just one part of the funnel, but the entire funnel to make sure that you're getting something to move through.
S: How do you recommend teams structure their days to be truly successful at moving deals through the pipeline?
DH: When I think about like, what does it day to day look like? And the set of things that have to happen every single day? I firmly believe in time boxing. Like to me, that's a really important thing. You've got to do to help ensure that you never drop a ball along the way. Whenever I'm building a team and to everybody that I've ever mentored or coach to work with as it relates to sourcing to me, I kind of break the day, a given day, average day into three things. And in particular, the first thing every single day is outreach 100% of the time. Here's the tough part of what we do. We live in this universe that is important but never urgent, right? When you look at an Eisenhower matrix. Sourcing right and proprietary sourcing in particular, we all know it's important. We all know we can get superior returns. It kind of falls into like, well, if we got execution work or I've got something else or there's I gotta get ready for IC or I got whatever. Like there's always something else that can come and trumpet. The first thing to go, oftentimes, as it relates to sourcing, the first thing that we all drop is we all drop our outreach because, oh, you make an excuse for it. I didn't have time to send emails. I didn't have time to do cold calls. I didn't have time to like whatever. So to me, that's like, you got to have that. We're talking about the funnel always and stuff to the top, always moving it through every single day. My ask is always, you got to get your cold calls in, you got to get your outreaches in and whatever that number is for your firm, whether that's 20 in the morning every day, 20 emails, 20 cold calls, whatever it is. So you get 100 for the week. But like hands down every day, you're not going to miss that mark. That's the first thing. And so block off, to me, block off those two hours in the morning of this is when I'm knocking out my outreach. This is what I'm sending my emails, doing my cold calls, and nothing can distract me. I don't care if I have an email from the partner telling me I need to do something. I don't care if it's a top prospect that's emailing me. Like those two hours, there's no excuses. I'm getting that done. Then to me now, given I've been on the Pacific Coast most of my career, right, and on the West Coast and so like to me, there's a little bit that changes here depending upon what time zone you're in. But the second thing when you're on the Pacific Coast is you've got to have your scheduled calls between the time when you finish your cold calls and 2 p.m. Pacific, because at that point, the majority of the US is now off the clock. That to me was like, okay, until 2:00, there's nothing else you're doing other than having your scheduled calls. And that's going to be some banker calls. That's going to be some prospect calls. But like those are your scheduled calls. Then after that. So we've done thing one was outreach. Thing two is like doing your follow up, not just like email follow ups or like your phone calls. And then thing number three is this is where you do the I had an email I need to send, or I have a recap from one of those phone calls for the day, some sort of other follow up activity that I have that's sitting in my inbox or whatever, that's kind of the back half of your schedule daytime. Those are the first three buckets and then the fourth one to me, and this to me was always your homework and your after hours activity, was doing the research and the planning for the next day. And so to me then the ask is like, who are the next 20 folks you're going to reach out to tomorrow and why? And whether that's I'm reaching out for the first time, whether that's I'm going on Sourcescrub, I'm downloading the list and I'm finding someone new to reach out to you that don't even know about. Whether that's following up with somebody that's, you know, my top prospect list. And I'm planning for, like, here's the 20 top prospects I need to reach out to tomorrow. That's the way that I break it down.
S: Of those daily activities, what are the best and highest use of sourcing teams’ time?
DH: Even though it was a proprietary source and the job of sourcing is to, like build these relationships with founders, CEOs, entrepreneurs, right to like, catalyze proprietary transactions. I think the unfortunate reality that most of us face, and I don't know if you hear this from other folks, is that that time of what I would consider best and highest use, and at least the way that I think about best and highest use is that in-person, face to face at a conference or on the phone or anywhere where I'm just like having this human-to-human interaction and like actively building the relationship. If you look at your time and you break down your calendar and you say, how much time I spending there, it only ends up being like 3 to 5% of your time that you're doing that like that best and highest use in person, face to face relationship building. And I've had a lot of people that quote to people when they go, well, that's best case, you know, like 3 to 5% like best case, right? It's crazy to me that like, that's where our success lives to me is in that 3 to 5% of our time. And I think the thing that we're all hopefully rounding the corner on, starting to realize is like there's a lot more efficiencies for us to all gain still in this, you know, world of deal sourcing. There's still a lot of wood for us to chop in terms of like, how do we get really efficient and effective at consistently, repeatably, and scalably deploying capital? Frankly, I think I mean, the only way we're going to do that is hopefully to the extent of this conversation a little bit, too, is like by leveraging data and by implementing, you know, tech, right, to help us to get that 3 to 5%, to become 6 to 10%. And as I look at all the different activities that we talked about, all the different things you need to do in sourcing in a given day, to me, the that most valuable thing is like when I'm with another founder and I'm being vulnerable, I'm being genuine. I'm talking about my interests and their interests and things that are interesting to them and like building that connection and not just connection, but conviction with them, that we're the right partner for them, right? Because this is the way I tend to talk about this these days, which is the proprietary sourcing is not too dissimilar from getting married or building a deep trust field, human-to-human relationship. Because ultimately, if you're actually going to catalyze a proprietary transaction, you have to develop such strong conviction with that other human being that you were the only one for them, that they're willing to forego an investment banking process and or other conversations that they might be having, because they have such strong conviction that you're the one for them, and that doesn't happen absent human connection and absent that deep trust field, human-to-human relationship. And so I would argue with that in mind, that humans should spend time on anything that is catalyzing a transaction, nurturing a transaction, qualifying that relationship like the in-person time, the face-to-face time, even like the Zoom and phone call time. But like, to me, that's in the near and medium term, like the best and highest use of the human.
S: What activities can teams offload to technology that will have the biggest impact and help them achieve the highest efficiency gains?
DH: When I broke down my time and my team's time, when I've looked at it as like 3 to 5%, was that face-to-face, in-person relationship building sort of time, 95% of it was all these other things. And that includes manually reviewing lists. That includes managing stale CRM data. That includes coming up with oftentimes even like, what's the compelling angle or the thing that I could comment on or send them a note about, right? Now, I'm not even getting into all the internal, you know, meetings and all these other things that you got to manage. But like all of those to me, are fundamentally things that need to be automated or need to be tech-enabled such that I can now spend more of my time over here. The biggest one, and this is what we're working on today, is this manual and menial like grinding process that we all kind of go through today of trying to figure out outside in if a business is interesting. Nuance to that, in terms of determining if we should be reaching out to a business or not, and if it's interesting for us or not. And the process today, like I'd talk to sourcing people every day, the majority of them will tell you, you don't feel like you've done your job until you've looked at the website of a business. You might think, if I grab one list, I've got a couple hundred companies, but next thing you know, I've got a couple thousand companies, and how do I programmatically go through there and identify all the ones that have all the attributes that I actually am looking for out of a business? And that is one of the biggest grinds that we all deal with today, is in this world of imperfect information. And now that the Sourcescrubs of the world exists, how do we now call that down into the companies that are the best, most interesting and most relevant for us, for whatever that search is without that being just a highly manual process? Because I think the unfortunate reality of what a lot of us are coming to realize is that we have what we think of as business development teams today, but in a lot of ways, what we have is an inefficient research organization. And that, to me is kind of the low hanging fruit.
S: What metrics are most important and helpful for managing business development teams toward the outcomes you want?
DH: It doesn't start with pipeline, right? It starts with the objectives of the firm, because the question is how do you measure what you measure and what should you be measuring, right? For a firm that's more of a buy and hold sort of strategy, like there might be a different set of things that you're going to measure and different importance to the pipeline versus fast capital deployment, growth equity shop or somebody that's purely doing portfolio company add-on acquisitions and doing a corp dev role, right? Like each of those, they're going to have different things you're gonna want to measure. For most, my argument would be it's it's often cap like capital deployment per year, right. Is kind of the thing that you want to measure at the bottom of funnel. But again, like if it's just buy and hold and like you only want to do a couple of deals per year, or if it's portfolio company add ons, it might only be just count of transactions versus like capital deployment. None of all that being like, okay, the most important thing is obviously like what the results on the outcome are at the bottom of the funnel. Everything else above that is, from my perspective, just finding ways to measure your process, a process that works or can work such that you have the ability to kind of quickly diagnose and dive into and solve problems for where you're failing in that process, and where the opportunities are for improvement in that process, both for firm-wide diagnostics and like process-wise, what do we need to be doing differently and where are we dropping the ball as well as like these are the things that I use for weekly coaching sessions of let's look at your pipeline and let's see where you're getting stuck. And like, let me help you out, right? Like, how do we get through this?
S: Where are firms dropping the ball measuring and optimizing their deal pipeline and surrounding activities?
DH: In my experience, when you try to measure this sort of process, most firms today have 4 or 5 pipeline stages. Kind of best case, right? And it's oftentimes like new prospect engaging or like outreaching engaging, you know, active deal tracking. Right? It's your close like whatever you got like some some combination of just a few of these. And in my experience like that misses so much of the nuance you need in there. And like if we just focus on the top of the funnel for a minute and you look at if you only have new company versus outreaching, does outreaching mean like I reached out to them once and they never responded? Does that mean that like they're part of a sequence that's ongoing right now? Does that mean that they've responded and say, I never want to talk to you? There's a lot of things that could be in that kind of outreach category. To me, that the important thing is to say, well, where like, where are we really getting stuck in there? And where do I need to dive in? Because like, it's a completely different thing. If it's like, oh yeah, everybody's doing outreach and it's moving straight past that to the end of it, where I'm getting response and they say they don't want to talk to us versus like all of my team sending outreach and they're never engaging or never responding or never doing anything, right? Like those are two very different things. And so what I believe in doing is having at least 10, probably more, pipeline stages. And that's things like new account has received zero outreach, right? I think you got to have that. Like I just imported it from Sourcescrub like it hasn't gone anywhere yet to started outreach, but no reply to reply received. And actually you could take reply received and bucket that in a couple different ways of like reply says never reply says not right now. Reply says you know, sure, let's meet. There's a lot of little nuance you can kind of get into there, but then after there's a reply sort of received, again, now you jump into this next area, which is like a lot of people have like engaged as a category, right? And like, does engaged mean they responded to one email? Does engaged mean I've had five conversations with them in-person and they're about to send me financials? Those are very different things. And so to add in there, that level of granularity where now I can go and say, well, gosh, like the place we're getting stuck is like everybody's saying, I want to meet, but we're just not getting calls on the calendar. And it's like, that's a lot easier one to solve than like, hey, we're getting a bunch of replies, but like, nobody wants to meet with us. And so that's why I believe in breaking this all down into these chunks. And I think part of the problem is sourcing has been evolving. Like you flashback 20 years ago, even ten years ago, very minuscule number of people that were actually doing direct proprietary deal sourcing. And so the pipeline that existed was actually just the investment pipeline. It was the team that came over from investment banking or started this private equity firm or whatever. It's like it was really about like, hey, do we have something that we're sending an LOI out to? Like, did that LOI sign or not sign? Did the deal close or not close, right? And like those were the things you really needed to know. And especially if you're primarily getting stuff from bankers like the rest of it doesn't really matter. But now when you work, you build up the funnel from there. And it's not just like, do we have an NDA in financials and everything below that, but everything above that. That's, I think, from a pipeline perspective, from a granularity perspective, from an ability to be data-driven and what you need to measure, those are the things to measure that, from my experience, most firms are not measuring yet.
S: Where can sourcing teams learn from other industries?
DH: In private equity and in sourcing, one of the biggest problems and biggest opportunities we have at the moment is that we're not actually leveraging most sales and marketing best practices. It's funny to me, right? Because like, we sit here with all these portfolio companies, with these operations teams, with these consultants that we bring in, measuring every OKR and KPI on every one of our team members, and there's a budget and a target for each one of our sales team members at every portfolio company. And meanwhile, at our private equity firms, for some reason, were okay with not having those things and not measuring those things and not adopting or dog fooding any of the best practices that we're putting on our portfolio companies.
S: In addition to time boxing, what other low/no tech tactics should sourcing teams utilize?
DH: Let's start at the top of the funnel. Obviously, the job at the top of the funnel is identify new, interesting businesses. Obviously have a Sourcescrub, Grata, Pitchbook or CapIQ here. You do sort of license right. They got to have data that you're ingesting like we know these things. But one of the things that's probably undervalued today is still leveraging people to help you identify your holes in your market and your market map and the companies that you're identifying. There's a lot of different approaches to doing that. Obviously, the historical way is like you keep in touch with the bankers that might know a sector, especially if you're thematically driven, right? And if they know the sector, like hopefully they'll trade some ideas with you somewhere along the line. I think that always makes sense. You got to do that. Let's just kind of table stakes. But I think one of the things is building the deep relationships with people that have been there and done that, that can help you understand the sector without you having to necessarily understand and have all those pieces and have all the answers yourself. And it's, you know, again, I might sound basic, especially like if you've been doing, you know, marketing or sales for a couple decades, but like I think it's something that often gets missed, I think today, which is we just try to subscribe to databases and just have databases give us every answer that we want. And the reality is these mushy, wet computer brains of ours, if you build enough of a social network, can get some really interesting other nuances and ideas that you might not, you know, grab otherwise. So that's I, me kind of top of funnel like build the list. Move down from that, engage folks. Interesting to think about like what we would consider low tech or no tech here. But you know, a couple ideas. One is I'll say this to anybody that any fun that I'm talking to you with for the first time, let's just get into sourcing, trying to build it up and whatever. The lowest-hanging fruit, hands down still, for deal sourcing today, is "happening-to-be" places. "Happening-to-be" in the middle of nowhere Kansas that your company is based for God knows what reason. That's still hands down the lowest-hanging fruit. Now, given I think a lot of what I've heard from folks that are dedicated sourcing professionals is they might not have the travel budget or the willingness on the part of the partners or the rest of the team to actually get on the road and get in front of people. But I will tell you, if you do do that and you are willing to do that, that's still, to me, one of the best ways to engage and build relationships with founders. I'm not pitching this as a gimmick, like I'm pitching this as like building long-term deep trust, human-to-human relationships. Like this is the way you do it. You get out of the building and you get in front of people. And I think it feels comfortable today to sit behind the screen a lot of times, as opposed to like putting in that legwork and getting out on the road. The second piece, I'll kind of add in there. And again, I don't know if you want to call this low tech or no tech, and it's not necessarily right, maybe at the top of just engaging, but I think perhaps just below that of kind of nurturing and relationship building. I can call this low tech or low tech if you want, but like to me, text messaging. I think we're also email happy. And I think there's also a lot of reasons for that too. I mean, all the SEC rule compliance stuff that a lot of firms are being, people are being stringent on it today. There's not a lot you have to do in order to really be compliant there. But I know text messaging is not usually covered by any sort of compliance monitoring tools today. And so most firms kind of shy away from that, which I understand. But I'll also say that that's still, to me, one of the best ways to build a relationship. I mean, if you've got a buddy, a friend or somebody that's far away, long distance, like what's the way you maintain that relationship? And I'd argue most of the time that that's via a funny text message here and there, and, you know, a picture of your family doing something fun or just, you know, hey, was just thinking of you, like, whatever right? To me, the deals you get done proprietary, the deals you catalyze, are the ones where you're on a text messaging, relationship building standpoint with those founders. Proprietary, you have to be at that level of conviction where they're like, Mike, you're the one for me. And if you're not there, you need to find a way to get there. And gosh, I'd be surprised if you can do that just over email.
