Acquisitions are notoriously hard to manage and many result in a net loss for the buying business, so what things should you keep in mind if an opportunity arrives that's too good to miss?
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The first time you turn on the lights at your office, chances are you aren’t thinking about acquisitions. Truth is, most entrepreneurs don’t think about them until the opportunity presents itself. We want our businesses to be successful but, more often than not, that success doesn’t obviously involve purchasing another business.
There is however a time in the life cycle of a successful company that integrating a complimentary technology, or technologists becomes not only feasible, but could be extremely beneficial to the long term growth and success of the business.
Acquisitions themselves can throw up new and tricky dynamics for a start-up company. Not only is there a shift in the daily status quo of operations, but acquisitions force employees to examine both their value to the current company, and how they will integrate with new individuals coming in.
Successfully navigating and integrating an acquisition isn’t just about embedding new technology and new staff, it’s about making sure the current staff understand the implications, benefits and the risks.
The Opportunity Cost
Within what can be a delicate environment, the consequences of actions taken in a start-up can become highly magnified. Anticipated gains that could be made through making an acquisition can be rapidly undone through misunderstanding the wider implications associated with joining teams and technologies.
In the short-term, it may be beneficial to acquire a complimentary piece of technology that will act to immediately accelerate a start-up through tech advancement, bringing in users, or delivering immediate revenue.
The question that should be weighed carefully is whether a short-term gain is worth any potential long-term detriment. As an example, a well funded start-up might be tempted to acquire directly competitive entities in its industry.
In the short term, the energy spent in scrapping for new customers and market share might be diminished yet, if the two companies fundamentally existed with differing cultures and long term aspirations, forcing those companies together to create one, has the potential to hamstring, and potentially sink both down the road.
The Integration Risks
There are two primary areas that represent the biggest risks for a business looking to develop through integration: Maintaining personnel, and defining the transition.
Maintaining personnel is not as simple as writing up new employment terms. Often, and especially in the start-up world, people work for a company for a very specific reason. For owners looking to manage employee expectations during an acquisition, having some clear understanding of employees sentiment will help indicate how many are likely to stay and work through integration or bolt at the first sign of change.
Defining positions and the scope of the transition is important, not just for the new employees, but for the original team. Without a clear understanding of how all employees fit into the bigger picture and what they are expected to deliver, the likelihood of achieving a smooth and beneficial integration is greatly reduced.
Real Versus Perceived Value
The right acquisition can undoubtedly offer a very significant boost to a start-up’s path to success, and should be viewed as a unique opportunity. That being said, as an entrepreneur, it is essential to dig deep into the reasoning behind an acquisition.
One of the toughest questions to answer is the ‘real’ value i.e. what exact value one specific start-up has to another. There is always an attached monetary value, what a company is worth on the open market, but what is harder to determine for any entrepreneur is what a new company will bring to their organization – the exact value to them.
Was WhatsApp worth $19B to anyone but Facebook? Determining whether a company represents enough real value through its technology, users, revenue, talent or even simply the optics it presents to customers or investors, is exceptionally difficult yet, is essential when choosing the right opportunities over ones that might simply appear ‘unmissable’.