The key to determining the next steps for your business
As your business grows, it may make sense to combine forces with another business to enhance your competitive positioning in the marketplace. Doing so may take the form of acquiring one or more other businesses or selling your business to a bigger company. But how do you decide which option is right for you?
To find the answer, you need to first ask yourself several questions. Why are you considering such a bold move? Are you trying to gain a greater market share, minimize competition, or act on a personal motive, such as the desire for more money or a lifestyle change? What will happen after the sale? Would those results satisfy your goals? The answers will give you some insight into your motivations and objectives, which will help you be clearer about how each option will satisfy them.
Second, think about how this change will affect your employees, stakeholders, and customers. “You have to consider whether merging or partnering with another company will better service your clientele and provide a more streamlined solution for your clients,” advises Nellie Akalp, CEO of CorpNet.com. Akalp’s first business was acquired by Intuit in 2005.
Of course, you’ll need to assess financial components and analyze the potential ROI. The costs involved in mergers and acquisition are significant, but you may be giving up long-term financial opportunity by selling your business to someone else.
“It was very hard to let go of our first business after starting it from absolutely nothing with my husband and growing it into a wildly successful business. But the price was right for us, and the terms of the acquisition were such that our employees could still have jobs, all while still providing an excellent service to clients,” says Akalp.
Additionally, consider the reputation and vision of your potential new partner. It’s not just about the sales price but about the long-term potential and strategic implications for your company. To thoroughly analyze this, conduct a SWOT (strengths, weaknesses, opportunities, and threats) analysis for all potential outcomes.
Considerations—not excuses
But don’t use these factors as excuses. Alan Guinn, managing director of The Guinn Consultancy Group, Inc. in Bristol, Tennessee, helps clients all over the world navigate mergers and acquisitions. He’s observed that owners of private companies, especially first-generation companies, can be resistant to change. “We call this ‘Ostrich Love.’ The owner hides his or her head in the sand and thinks that the evolution occurring around them won’t have an impact on the business.”
Guinn has seen clients cling to the notion that a prodigious change would be too dramatic for their employees, or that they are simply the only ones who “know best.” Be pragmatic and thorough in your analysis—don’t let fear hold you back, he advises.
The acquirer’s perspective
Sandeep Kella, cofounder of Metric Collective, built a portfolio of companies through both acquisition and in-house development. When considering acquisition, you should analyze whether or not you’d be able to “develop something in-house that would accomplish the same goals or produce the same end product,” he suggests.
“An acquisition makes sense if speed and rapid development are important. We generally view acquisitions as allowing us to skip past the typical ‘growing pains’ of developing an equivalent in-house product,” Kella says. “Overall, you need to examine the economics of the situation, and determine whether the cost of an acquisition is justifiable in comparison to the total cost and risk associated with building something from scratch.”
No matter what side of the potential deal you’re on, seek outside perspectives—from business partners, mentors, paid advisors, or loved ones. This is a big decision with myriad considerations, from financial to personal factors, so keep your head out of the sand and welcome honest feedback.
