growth Tag All blog entries tagged as growth http://www.htgpeergroups.com/blog/latest.html Sat, 01 Nov 2014 08:02:12 +0000 Joomla! 1.5 - Open Source Content Management en-gb M&A as a Growth Strategy http://www.htgpeergroups.com/blog/entry/maa-as-a-growth-strategy.html http://www.htgpeergroups.com/blog/entry/maa-as-a-growth-strategy.html  

Without a doubt, one of the hottest growth tactics in the IT market right now is the use of M&A as a strategy.  Having done seven of these transactions during the time I owned an MSP, there is no doubt that I’m a believer in the tactic as a great approach to growth. 

But there are some things that you need to be aware of, and cautious about, before you run headlong into a series of M&A’s or even your first one, for that matter.  According to data collected by Service Leadership, Inc., almost 40% of solution provider companies were founded over 20 years ago.  That means a lot of owners are entering the time when exit or transition moves up on their priority scale, and they are looking for what comes next.  Opportunity is ripe in the channel.

In this blog post I want to walk you through several common challenges that I have faced or seen others face during a Merger or Acquisition.  I will also share several strategies that are helpful in navigating those challenges well.

One of the biggest challenges that occurs when engaging in M&A activity is allowing emotion to become part of the process.  Whether you are the buyer or seller, you need to take emotion out of the picture.  As a buyer you can become almost frenzied and obsessed with getting a deal done, particularly if it is your initial one. 

Over and over I hear owners make comments to the effect ‘I just have to get a deal done,’ like it is a mountain to climb or a game to win.  The same is true for sellers, who often can have seller’s remorse or back out a deal at close because they haven’t dealt with the emotion the comes with letting go of a business they have owned for many years. 

On either side of the transaction, emotion can be removed by planning.  Make a list of non-negotiable things that need to be in place for a transaction to be executed.  Take the feeling out of the deal, and execute based on a predetermined set of criteria.  If you don’t do that, the odds are much higher that you’ll make a decision that you may regret later.  And it is always easier to get into a deal, than to get out of one.

A second challenge that is prevalent for buy side acquisitions is the lack of leadership and management depth in the acquiring organization.  People almost always underestimate the challenge of doing an integration of an acquired organization.  It may look simple on paper, but it is anything but when you try to make it happen. 

Culture differences are the first hurdle post acquisition, but then there are differences in processes, tools, backend systems and a host of other things that can make it challenging.  The biggest problem, though, is the reality that adding more people to the organization requires leaders and managers that are capable of moving to that level.  Often they are at the peak of their capability where they are, and even if they can grow to the next level, time is the enemy and the only way you can truly grow people is over time.  

Understand that leaders and managers of the acquired company are also experiencing change on a personal level and need to be given time to adjust to the new company and ways of doing things before being expected to turn around and lead others.  When this doesn't happen, as is often typical in an acquisition, employees leave, customers get disgruntled, vendors are frustrated, and the chaos inside the organization goes to a new level. 

Believing that leaders and managers coming with the acquisition will solve all the problems is a mythThey have to become part of the culture and learn how to fit into the new company before they can begin to try and take on leadership or management roles.  Don’t let this one bite you. 

Statistics show that almost 80% of M&A activity results in failure or missed expectations. 

While M&A is a very solid strategy for growth, if done for the right reasons and with the right preparation, it can also be a huge blow to a company that was doing well before it happened.  

At our recent HTG meeting in Denver, we spent a day diving deeply into this very hot topic. 

  • We looked at the reasons M&A may be the right strategy to grow. 
  • We dove into the due diligence process which is where many people get burned because they don’t ask the right questions, or enough of them. 
  • We talked about how a deal can be structured, what current valuations look like, who you should have on your team both from within and as outside experts. 
  • And we ended the day talking about some very real examples of mistakes that we made doing deals over the last decade while leading our MSP organization. 

It seems with every deal, there is a surprise or two you aren’t looking for.  The kind of information we discussed at the workshop can save you from making a big mistake that can cost thousands or tens of thousands of dollars.   

If you have questions about M&A, feel free to reach out.  It's an area I feel passionate about, and having done both successful and not-as-successful mergers and acquisitions myself, is a conversation I enjoy having with people in the channel.  M&A can be a great strategy for growh and may be the right choice for you.  Just be sure before you dive in and discover it isn’t as simple as it may seem on the surface.

 

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asorensen@heartlandtechnologies.com (Arlin Sorensen) Peer Power Mon, 11 Aug 2014 13:27:32 +0000
The Two Most Important Lessons http://www.htgpeergroups.com/blog/entry/the-two-most-important-lessons.html http://www.htgpeergroups.com/blog/entry/the-two-most-important-lessons.html A lot of the strategy and management advice that business leaders turn to is unreliable or impractical. There are literally thousands of books that seem to give you theory on what to do in order to create a great company.  But when you boil it all down, there are only a couple truly important rules that you need to follow if you want to succeed over time.  And they really aren’t rocket science, or even economic genius as much as they are common sense.  It truly comes down to this:

1. Value over price —in other words, compete on something other than being the cheapest option.  If you focus only on price you will commoditize yourself right to unprofitability.  You need to find ways to create a differentiator that is not about the price.  That is usually done by offering a product or service that is better than the competitor.  People will pay for better.  You don’t differentiate by reducing what you sell it for.  You differentiate based on increasing value and giving the customer more than the competitors.  It is better over cheaper.  People will pay more for better value.  It is evident all over the marketplace.

2. Revenue before cost—that is, prioritize increasing revenue over reducing costs.  You will never cut yourself to sustainable profitability.  Cost cutting may be necessary in extreme cases where you have a cash flow disaster and have to reduce expenses to match available cash.  But reductions are not sustainable, and you can’t continue to cut unless you plan to go out of business.  The key is to drive revenue and increase the money that is coming into the business.  That is what allows growth, and ultimately sustained profitability over time.  The long term focus needs to be on revenue generation rather than cost cutting. 

There you have it.  Two key factors I see over and over in companies that are successful for the long haul.  They make a choice to increase value and focus on being better than their competitors.  And they are driven to increase revenue rather than being consumed by cutting costs.  When you are better and have revenue – you can grow, profit and live long and well.  Take that approach.  It will work every time!

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asorensen@heartlandtechnologies.com (Arlin Sorensen) Peer Power Mon, 12 Aug 2013 08:15:00 +0000