| How to Grow Your Business Quickly? Consider Horizontal or Vertical Mergers and Acquisitions |
| Invention Development Advice - Marketing | |||
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As small business owners and entrepreneurs, most of us are focused on growing our businesses through increasing sales revenues; and the faster the growth, the better. Ramping up sales through special offers, or the addition of new products or services, or discounting prices has a cost attached to that strategy; fast growth comes at a price. Make sure that you focus on making a profit from your sales (and building your business strategy on that focus); if you're increasing sales but losing money on those sales you will not be in business for long.
As small business owners and entrepreneurs, most of us are focused on growing our businesses through increasing sales revenues; and the faster the growth, the better. Ramping up sales through special offers, or the addition of new products or services, or discounting prices has a cost attached to that strategy; fast growth comes at a price. Make sure that you focus on making a profit from your sales (and building your business strategy on that focus); if you're increasing sales but losing money on those sales you will not be in business for long. Fast sales growth can come from either organic or inorganic activities. Organic growth is from activities internal to the business, such as geographic growth, new branch or location openings, and/or addition of new products or services. Growing a business organically is often not as fast as inorganic growth but, if well managed, it will provide a lower cost, lower risk growth curve. Inorganic growth is from activities that are external to the business, such as a competitor going out of business, or mergers or acquisitions of other competing businesses. Inorganic growth can be expensive (both to acquire the business and then to integrate it with your own organization), yet it can provide fast growth opportunities. While inorganic growth is often very fast growth - if you buy a company that's bigger than you, you've more than doubled your size - it is often expensive growth in terms of money, time and resources. Buying growth by buying a company means that you may also purchase the bad, along with the good. For example, the bad can be the total cost of the acquisition: purchasing old equipment and/or inventory along with new; acquiring unhappy or high priced labor; a bad reputation; and more. The good can be acquiring the sales book (which is the company's list of customers); the opportunity to add new products or services; a larger territory; more staff, taking out a competitor; and more. Be sure to have a good understanding of what is cash flow (cash will be tight), a working capital formula, and work with a strong finance team in any horizontal or vertical merger or acquisition. The additional considerations to buy, or not to buy, growth need to be focused on how challenging it is to merge the two companies and the two cultures. What synergies can be gained? For example, if the acquisition results in an over-staffing, who will be laid off, how will the lay-offs be decided, who will do the lay-offs, what will be the outcome on morale and the environment after lay-offs? Do you have enough in-house human resources support to handle the necessary re-structure and change management? If not, can you outsource to a competent individual or firm? Acquisitions are often based on the concept that one company loses, and the other one wins. Horizontal and vertical mergers appear to be more of a win-win proposition however that is only if the merger is extremely well-managed; this is unfortunately not always the case and many stakeholders from one side or the other of the merger feel like they are on the 'losing' end. Make sure that you develop the structure and the environment that will support a win-win result for your merger or acquisition; it will be better for your business and your bottom-line. Successful growth management means that you need good people in your organization. You will need people who will support, and lead, in the required change management. Your human resources plan needs to include work force requirements for both the peaks and valleys of your growth curve. The plan also needs to ensure that job descriptions are written and up-to-date; that there are personal development plans for your employees in place; that your benefits and salary program is competitive and that it works for your evolving business; and that you've written standard operating procedures for your business operations. Build an employee training development program to integrate employees from both organizations into the newly developed business. Your organization's culture, mission and vision needs to be aligned and able to support growth. You need to ensure that your customer service group is strong enough to handle the stress of strong growth. You also need to be committed to continuous improvement of all aspects of your business; invest in quality improvement. Understand that your successful management of growth needs strong cash flow management; and that other financial measures and ratios will be impacted by growth. On the surface, mergers or acquisitions seem to be a fast way to achieve business growth; and they can be, if well managed. Develop a checklist approach to ensure that you have covered all the pros and cons of the decision. Also perform a careful analysis of the tangible benefits and costs of the decision; including using acceptable business valuation methods for assessing value of the business you want to merge with or acquire. With careful planning, and with the involvement and support of your employees, you can enjoy sustainable growth. More information: Vertical mergers and acquisitions are only one strategy for effectively growing inorganically your business; use more business strategies found at More For Small Business.
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