The Highly Profitable Growth Strategy that Probably Isn't on Your Radar but Should Be
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Most company founders didn’t start a business to stay small. So assuming that you that founded your business with the intention of growing it, when you look at your growth plan one question you may not be asking yourself is, “What business can I go out and buy?”
There are a number of reasons entrepreneurs fail to ask that question. You may think of your business as your “baby,” and the idea of buying someone else’s business is like adopting a kid you don’t even know. You may think you can't finance an acquisition. Or you may think acquisitions are for the big players and their strategies don’t apply to you.
The truth is that growth through acquisition is a strategy that can be adapted to any size business. It just depends on what you want to do.
You want to gain market share.
The most obvious reason to consider an acquisition is to eliminate a competitor. One advantage to buying a direct competitor’s business is that you already know the industry. You’re better prepared to take over operations. You may also be able to meld their operation into your facility, or you may be able to expand your existing operation due to taking over their space. One caveat -- be sure the seller will support the transition, or at least stay out of the way. Seller’s remorse really is a thing, and it’s expensive. You may be able to build in an incentive for the seller to support you by negotiating seller financing. That can help you finance the deal, and makes the seller’s payout somewhat dependent on your success.
You want to expand into a new market.
No matter how well-recognized your brand may be in one region, getting a foothold in a new market can be tough. Whether you’re expanding to a different state or a different country, purchasing a recognized brand can catapult you into a competitive position. Purchasing two or more and consolidating them under a flagship brand can do that fairly quickly. That was the tactic used by Altice, originally based in the Netherlands, when they purchased Suddenlink in 2015, followed by Cablevision, which offered high-speed internet and cable services under the Optimum brand name, in 2016. They became the fourth-largest U.S. cable provider, went public in June 2017 with a $2.2 billion initial offering, and plan to consolidate the brands this year.
If you’re a smaller company or recent startup, chances are you aren’t looking at spending billions, going public or becoming the fourth largest player in a national market. But if you’re looking to take on a new geographic market, you can use this same approach by looking for acquisitions that, if consolidated, could catapult you into a top competitive spot immediately.
You want to diversify.
Perhaps the most newsworthy acquisition of 2017 was the Amazon acquisition of Whole Foods. A classic example of diversification into a related market, you can learn a lot from the rationale behind this deal. Amazon gained brick and mortar locations where they are now selling their popular tech products, plus entered into the fresh grocery market while also offering the Whole Foods 365 brand products online. Add to that the ability to lower prices and take aim at Walmart and Trader Joe’s, and you've got a real winner of a deal to study.
There is a clue to how you can profit from diversification -- by looking for related or complementary businesses that offer you something you don’t have, but also allow you to apply your competitive advantages to make your newly acquired business even more successful.
Whatever your company’s market position, size or age, a properly structured acquisition can yield a much higher return than any marketing campaign or efficiency study. And it will keep paying dividends for years to come.