As small business owners and entrepreneurs, we've all been trained to focus on sales and business growth as important measures of success. However, it's necessary to manage and control your business growth rate or risk your business' future. As exciting as it can be to see sales take off (and in these challenging economic times we all want rocketing sales), there is a cost to fast growth. Remember to measure that cost and to focus more on achieving good profit targets; be aware of how much sales and fast growth costs your business - and build your strategy based on that awareness.
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.
Inorganic growth can be fast; if you buy a company the same size as you (or bigger), you've doubled your size. However, there is a cost to that growth in terms of resources, time and money. Buying another company often means that you are buying the bad along with the good. For example, you might end up buying the sales along with old inventory, a bad reputation, a bad product or unhappy employees. You need to weigh the pros and cons of the acquisitions; are the pros (sales, the customers, the staff, removing a competitor) of more value than the cons? Be sure to have a strong finance team to work with in your horizontal or vertical merger or acquisition. Also be sure that you have a good understanding of what is cash flow (because cash will be tight) and that you have a strong working capital formula.
When deciding whether or not to buy growth inorganically by merger or acquisition, you need to also consider the less tangible challenges. For example, if you expect to gain synergies through the merger - by improving production efficiencies and laying-off staff - how will you manage the impact on employee morale and on the culture of the new organization? Will the culture be divided by a 'winners' (the staff from the buying company) and 'losers' (the staff from the company being bought) mentality? If you don't manage this integration and transition effectively, it can be a significant long-term expense. Do you need human resource support to help you through this process?
The difference between acquiring a company and merging with another company is usually related to either a win-lose proposition (one company is the winner, the other the loser) or a win-win proposition (both companies are motivated to merge successfully for a number of business reasons). Horizontal and vertical mergers can consume a different resource focus: ensuring that both companies, their staff, their customers and all stakeholders feel that the end result was a win-win.
To be successful in managing growth you need to ensure that you have the right people in your organization; people who will help you lead the change management required. You also will need to ensure that you have a strong human resources plan to handle fast growth, and peaks and valleys in business activity. Ensure that you have job descriptions and an organizational structure for your business and, if applicable, that you have standard operating procedures for your business operations. Build an employee training development program to integrate new staff into the organization. Your customer service department and program needs to be strong so that customers are insulated, and supported, through the growth and change processes. Commit to a continuous improvement program and commit to maintaining, if not improving, your quality. Understand that you will need strong cash flow to sustain growth: for supplies, materials, labor, transportation, severance packages (if applicable), and more. Unplanned or rapid business growth can have a negative impact on liquidity.
When looking at mergers or acquisitions for growth, create a checklist approach to ensure that you carefully review all the pros and the cons and weigh the rationale carefully before you move forward on the merger or acquisition path. This is in addition to doing a careful analysis of the tangible costs and benefits of the business decision; and ensuring that you use business valuation methods to arrive at the best value for the business you are acquiring or merging with. Plan for sustainable growth and make sure that all your employees understand and commit to your plan. - 31960
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.
Inorganic growth can be fast; if you buy a company the same size as you (or bigger), you've doubled your size. However, there is a cost to that growth in terms of resources, time and money. Buying another company often means that you are buying the bad along with the good. For example, you might end up buying the sales along with old inventory, a bad reputation, a bad product or unhappy employees. You need to weigh the pros and cons of the acquisitions; are the pros (sales, the customers, the staff, removing a competitor) of more value than the cons? Be sure to have a strong finance team to work with in your horizontal or vertical merger or acquisition. Also be sure that you have a good understanding of what is cash flow (because cash will be tight) and that you have a strong working capital formula.
When deciding whether or not to buy growth inorganically by merger or acquisition, you need to also consider the less tangible challenges. For example, if you expect to gain synergies through the merger - by improving production efficiencies and laying-off staff - how will you manage the impact on employee morale and on the culture of the new organization? Will the culture be divided by a 'winners' (the staff from the buying company) and 'losers' (the staff from the company being bought) mentality? If you don't manage this integration and transition effectively, it can be a significant long-term expense. Do you need human resource support to help you through this process?
The difference between acquiring a company and merging with another company is usually related to either a win-lose proposition (one company is the winner, the other the loser) or a win-win proposition (both companies are motivated to merge successfully for a number of business reasons). Horizontal and vertical mergers can consume a different resource focus: ensuring that both companies, their staff, their customers and all stakeholders feel that the end result was a win-win.
To be successful in managing growth you need to ensure that you have the right people in your organization; people who will help you lead the change management required. You also will need to ensure that you have a strong human resources plan to handle fast growth, and peaks and valleys in business activity. Ensure that you have job descriptions and an organizational structure for your business and, if applicable, that you have standard operating procedures for your business operations. Build an employee training development program to integrate new staff into the organization. Your customer service department and program needs to be strong so that customers are insulated, and supported, through the growth and change processes. Commit to a continuous improvement program and commit to maintaining, if not improving, your quality. Understand that you will need strong cash flow to sustain growth: for supplies, materials, labor, transportation, severance packages (if applicable), and more. Unplanned or rapid business growth can have a negative impact on liquidity.
When looking at mergers or acquisitions for growth, create a checklist approach to ensure that you carefully review all the pros and the cons and weigh the rationale carefully before you move forward on the merger or acquisition path. This is in addition to doing a careful analysis of the tangible costs and benefits of the business decision; and ensuring that you use business valuation methods to arrive at the best value for the business you are acquiring or merging with. Plan for sustainable growth and make sure that all your employees understand and commit to your plan. - 31960
About the Author:
Vertical mergers and acquisitions are only one strategy for effectively growing inorganically your business; use more business tactics found at More For Small Business.
