Acquiring the Same Problems

Companies grow through organic growth or acquisition (including mergers). Once organic growth slows down or stagnates, many companies turn towards mergers and acquisitions to bolster their businesses. Acquisitions provide an attractive way to add clients, or strategic skills, but many companies end up acquiring more of the same problems which stunted their growth in the first place.

There are MSPs which still thrive (or think they're thriving) on cold-calling and word of mouth. While these methods can be useful, they aren't the easiest way to maintain growth. Word of mouth falls off with scale, and cold-calling is best left in the 90s (without a better strategy behind it).

Let's imagine your company has been growing, but slower than you would like. If you buy a company (which is struggling to grow so they're selling) for $1,000,000, you expect some fixed amount of profitability from them each year. We'll ignore all the specifics and pretend everything in the deal looks good. They have consistently pulled in $200,000 a year profit (and grows with inflation) with low maintenance clients, and they have technical expertise you're lacking. You get a new skill set which can make your other clients potentially more profitable, and you inherit the clients seemingly fanning growth.

The problem with this growth is that you bought the company primarily for the client base, and (most of the time) this implies your client-base has gotten a bit stagnant. You've targeted the symptoms but not the underlying problem. You've become a farmer buying produce to bolster their sales at a different market and claiming success as a farmer.

When you target an acquisition, you want to target your strengths to grow, but you also want to shore up your weaknesses.

When you target an acquisition, you want to target your strengths to grow, but you also want to shore up your weaknesses. As your company grows, the weaknesses impact your standard operations more and more. A company that can't grow stagnates and eventually becomes obsolete from attrition. If a company can sell but lacks the expertise for what they're selling, they'll disappear fast.

A business requires a balancing of different skills. When you're small, these skills can usually be overcompensated for. But, as you add layer and layer to your company, you reach a point large discrepancies become deal-breakers. This is where the growing pains kick in as a company attempts to grow to scale.

When you target an acquisition, look at what you're missing, what they provide, and how that can balance your model to match the level of growth you'll reach. Most people look at the first two but skip the latter. If you're buying growth, are you going to be able to maintain it or is your process just acquiring more of the same problems?

Buying growth works up to a point, but if your sales and marketing fall behind, all you've done is buy a new plateau.

Buying growth works up to a point, but if your sales and marketing fall behind, all you've done is buy a new plateau. The underlying problem behind your growth won't magically fix itself. To add to this, many companies end up throwing away soft skills and crushing the culture when they make their acquisition (the same tends to happen with mergers). It can seem natural to continue doing the things you're done to succeed so far, but a medium sized company has different needs and limitations than a smaller company.

If your hurdle is growth, and your target has a better sales department, how can you preserve it? The other piece to consider is what market are they tapping? Even if the sales program is just okay, are they better for another market slice than you? Don't let your ego get the best of you, you're trying to make an acquisition to better your company, not perform an exercise of conquest.

They have to have something of value to be worth acquiring, otherwise, you're just throwing away money. That something can be the fact they're a market competitor or you just want their client list. Ideally though, you want to really look at what they do better and take it and adapt it.

Consider how to merge in the more successful pieces to retain the original company's strengths while throwing out the weaknesses where possible. If your weaknesses are on the technical side, and how to structure it, look for a company which is going stagnant from lack of growth, but which excels at the technical side. You can always throw out the less desirable pieces later. Bolster yourself rather than just acquiring the same problems over and over.