Posts Tagged ‘systems’

Buying A Company As Part Of A Growth Strategy

Tuesday, June 4th, 2013

Acquisitions fail far more often than they succeed. You can easily find statistics to prove that.Acquisitions fail far more often than they succeed.

If you’re not a numbers person, then you only have to think of AOL and Time Warner; and News Corp and MySpace.

Those are all big corporations, I know, but it’s nice to see the big guys get a bloody nose every now and then.

Buying another company, as part of a growth strategy, isn’t something that we see often.

It’s probably done most frequently when a client buys a smaller competitor in a Province, State or country they’re not already in. They’re quickly expanding their existing business by adding experienced sales, service and support staff where they had none.

What’s even less common is seeing a client buy a company whose products and services are “complimentary” to theirs.

There’s a lot for privately-owned businesses to worry about with acquisitions.

For a start, there’s getting a fair valuation for the target company and being thorough in due diligence to make sure nothing is missed. If a ‘biggie’ like Hewlett-Packard can make a mistake (with Autonomy), then anyone can.

Then, when the deal is done, there’s the whole challenge of integrating the people, who may be used to doing things in a completely different way. Not to mention different (and often incompatible) accounting and CRM systems.

When business owners buy a company for the first time, they often underestimate the lack of direct control they have over their new acquisition. And it seems to increase with the distance between the parent company and the new one. (Compare driving across a city to flying across the country to “sort something out”.)

So, why bother?

Because, like many things in life, it’s not what you do, it’s how you do it. Go back to the ‘biggies’ again for a moment and think about Google and YouTube or Best Buy and Geek Squad. Done well, acquisitions provide a great return on investment.

There’s research that says if a company is bought to expand the existing business, then it should be absorbed into the buyer as quickly as possible. Signage, letterhead and all other image stuff must be changed to that of the parent company. Duplicated or conflicting processes and systems must also be replaced. But if the acquisition is made to complement the buyer’s business, then the new subsidiary is best run separately and left with it’s own identity.

Which makes sense if you think about it this way. ABC company buys XYZ company.

If the XYZ is same business as ABC, the owner and management team at ABC already have been successful in that business and, hopefully, know why. XYZ should be folded into ABC.

If the XYZ is in a separate, but complimentary, business or industry, XYZ’s owner and management team have presumably been successful. Otherwise, ABC would have bought another company. So ABC should leave them alone.

All of which will make watching Yahoo’s acquisition of Tumblr interesting…..

 

If you enjoyed this post you’ll also enjoy Are Your Core Competencies Coming – Or Going?

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Pilot, Perfect, Scale Up

Tuesday, February 26th, 2013

You have to change what you’re doing now in order to grow your company.Change what you're doing to grow your business

That’s unavoidable – and it means taking risks.

But some changes are less risky than others.

For example, how much risk do you take selling a well-proven product or service to new customers? And how does that compare to, for example, investing in a new promotional campaign?

Let’s talk about that promotional campaign for a moment because lots of business owners have had a bad experience with one.

The challenge is that you have to spend money getting someone to create a new message which will get your prospective customers to do something you want.

The risk lies in the fact that the business owner has to pay for the new message and for getting it out there before they know if it will have the desired result.

But this is not entirely true.

You don’t have to pay for a full promotional campaign before you know if it will work. At the very least you can narrow the odds of failure and limit your investment.

How? By following a process called “pilot, perfect, scale up”.

For example, you can test as many variations of the message as it takes, on a small group of customers, until they see and hear what you want them to see and hear. That’s the piloting part.

Then, instead of emailing the message to everyone, you first send it to part of your database and check they are getting the message and, if necessary, make further changes. That’s the perfecting part.

Only when you’ve done that do you scale up and launch the campaign to everyone.

The same technique can be used for developing (or adding) new products. Pilot them by testing the concept and then the prototype with a few potential customers. Use their feedback to modify and develop your original idea.

Then roll it out locally. If there are unforeseen problems, you can perfect the new product/service by either shipping them back or getting support people out to customers relatively quickly and inexpensively.

Scale up by going for a regional or national launch only after managing the risks by taking the first 2 steps.

You can apply this process to almost any change or risk you have to take to grow. For example, want to:

•    Grow your retail business? Get one outlet running profitably by perfecting the systems and documenting the processes there. Then transfer them to other, remote locations. (Not exactly my idea, see Michael Gerber’s “The E-Myth”.)
•    Add new markets? Do it in increments rather than by put everything on the line by overstretching.
•    Hire a consultant? Give them a small project and see how they do with that before giving them the big one.

This seems so simple, so fundamental you may wonder why I’m even writing about it.

It’s because we continue to see situations where “pilot, perfect and scale up” should have been used and wasn’t.

 

If you enjoyed this post you’ll also enjoy Cop Out Or Common Sense?

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