What KKR Looks for in a Consumer Brand (And How to Build for It)
When KKR invested in Sleepme — the parent company of ChiliPad and the business Todd and I built over more than a decade — we went through one of the most rigorous due diligence processes either of us had ever experienced.
What they were looking for wasn't what most founders expect.
It's Not About the Product
The first thing most founders assume is that institutional investors are evaluating the product. They're not — or at least, not primarily. By the time a PE firm like KKR is in the room, the product has already passed the market test. What they're evaluating is the system around the product.
Specifically, they want to know: can this business grow without the founders? Is the revenue repeatable? Are the margins defensible? Is the customer acquisition system scalable? Is the operational infrastructure built to handle 3× the current volume without breaking?
These are not product questions. They're business architecture questions.
The Five Things KKR Actually Evaluated
1. Revenue quality. Not just the top line — the composition of it. What percentage is recurring? What's the customer lifetime value? What's the churn rate? What's the net revenue retention? A business with $10M in revenue and 85% gross retention is worth dramatically more than a business with $10M in revenue and 60% gross retention.
2. Customer acquisition efficiency. How much does it cost to acquire a customer, and how long does it take to recover that cost? A business with a 6-month payback period is a very different investment than one with an 18-month payback period. We had built our acquisition systems over years to be highly efficient — that showed up directly in the valuation.
3. Operational leverage. Can the business grow revenue faster than it grows costs? This is the definition of a scalable business. Most product companies in the $5M–$20M range have not yet built the operational infrastructure to achieve this. We had — and it was one of the most important factors in the investment thesis.
4. Defensibility. What makes this business hard to replicate? For us, it was a combination of patents (50+), proprietary technology, brand equity built over a decade, and a customer base with unusually high loyalty. Defensibility is what justifies a premium multiple.
5. Management depth. Can the business run without the founders in every room? This is the question most founder-led businesses fail. We had built a leadership team that could operate independently — which gave KKR confidence that the business could scale post-investment without losing momentum.
How to Build for It (Even If You're Not Planning to Sell)
Here's the counterintuitive insight: building for institutional investment makes you a better business even if you never plan to sell.
The metrics that matter to KKR are the metrics that matter to a healthy, durable business. Revenue quality, customer acquisition efficiency, operational leverage, defensibility, management depth — these are not exit metrics. They're growth metrics.
The businesses that build these systems early are the ones that have options. They can raise capital on favorable terms. They can attract the best talent. They can weather downturns. And if they do decide to sell, they sell on their terms — not because they have to.
The T2 CROWTH Method was built around exactly these principles. If you want to know where your business stands on the dimensions that matter most to institutional investors — and to your own long-term growth — the Free Growth Scorecard is the place to start.
