The possibilities may be endless, but your resources are not. For many business owners with limited time and money, deciding which ideas to pursue can be a challenge. Here are three ways to prioritize your options for growth:

1. Start with your company vision

The best way to make sure you’re moving in the right direction is to take a step back from all of your ideas and begin by looking at your vision for your company. Who do you want to be as a company? When you have a clear picture of your goal in mind, it will be easier to visualize what steps you need to take in order to achieve it. Without a clear vision you could end up pursuing options that actually drag you in an opposite direction.

2. Use tools to stay objective

While it’s natural to be somewhat subjective, after all business growth is exciting, you don’t want to make decisions based on emotions alone. Try bringing objectivity into your decision-making process by using tools to evaluate and compare your options. When it comes to external, growth, we typically use the Market Criteria Matrix to evaluate the best markets for growth and the Prospect Criteria Matrix to evaluate acquisition prospects. This tool can be adapted to evaluate any opportunity for growth.

Keeping your vision in mind, develop about six key criteria of your ideal opportunity. Next, you develop metrics to quantify the criteria. For example, if one of your goals is to expand your operations to the West Coast, one of your criterion would be location and the metric could be located on the West Coast. Give each option a rating using a 1-10 scale and see how well the options compare to each other and to the criteria you’ve established.

3. Gather data

Making a decision without the proper information can be a big mistake. Conduct research to validate (or invalidate) your assumptions. You don’t have to uncover every granular detail, but it will be helpful to have an understanding of trends and how they will impact your market in the future. One of the best sources of information about the marketplace is your customers. Try identifying the needs and wants of current and future customers. It may even be as simple as conducting a customer survey or asking your sales department for input.

While it can be overwhelming to process through all your options for growth, the good news is that you have many options! Hopefully these three suggestions will help you organize your thoughts as you plan your next steps.

Photo Credit: Bs0u10e0 via Flickr cc

How can you tell a good company from a bad company?

A lot of CEOs say that they trust their gut when it comes to acquisition targets, but unfortunately instincts and opinions aren’t enough. We need facts and metrics. We need real tools to generate quantifiable data about the companies we’re considering. M&A is a massive undertaking and relying on instinct alone to guide you is a mistake.

The Prospect Criteria Matrix

One tool we use to help objectively evaluate potential companies for acquisition is the Prospect Criteria Matrix. It starts by defining the key characteristics of a good acquisition for your strategic objectives. In each case, you want to determine a way to quantify the criterion on some kind of scoring system.

For example, “good financials” may be one criteria and your metrics may be a revenue between $25 and $35 million, and a strong balance sheet. Other criteria could include customers or geographic location.

Typically we recommend clients limit to no more than six criteria. With more than six criteria, it’s easy to lose focus on meaningful strategic aspects of the company. Each individual criterion should have multiple, measurable metrics.

Weighting Criteria

But simply scoring the criteria is not sufficient. The information you gather needs to be weighted because not all criteria are created equal. Some factors will be more critical than others. You need to sit down with your team and identify the things that are most and least important to your organization. For example, financials might be a very high priority for your acquisition strategy, so you might weight that one at 30 percent. If location might be less important, and you’d give that 20 percent.  You juggle your criteria to add up to 100 percent.

So how do you use this tool? Let’s say you have 20 companies you’re evaluating. Get everyone on your acquisition team together and ask them to rate each company based on the criteria you’ve chosen. It usually works best to use a scale of one to ten. One company might get an eight in a particular category while another gets a three. Once you’ve established the average for each category for each company, you multiply by the weighting percentages to find the weighted average.

The Prospect Criteria Matrix helps you objectively evaluate potential acquisition candidates.

The Prospect Criteria Matrix helps you objectively evaluate potential acquisition candidates.

What’s even more important than the areas where everyone agrees are those where there is dissent. If you give a company an 8 on financials and someone else gives it a 2, then that should be the start of a conversation. And because you’ve chosen measurable criteria, you can compare the data rather argue about whose “gut feeling” is right.

The tool allows you to easily prioritize companies, and it also helps to confront some of the warning signs we’ve looked at above. For instance, if your CEO is pushing a “Brother-In-Law” company, instead of having an awkward conversation about why you think he’s wrong to be so enthusiastic, you can show him the data and insights generated by the Prospect Criteria Matrix.

Sometimes an acquisition that looked promising turns out to be less than ideal as you get closer to finalizing the deal. The question becomes: Should we proceed or should we back out?

Join me for our new M&A Express videocast, “When to Walk Away,” on May 13th. M&A Express is new, complimentary resource for middle market executives that teaches essentials of mergers and acquisitions in 20 minutes or less.

When to Walk Away

May 13th, 1:00 PM – 1:20 PM ET

Register here — it’s free

In this important videocast, you’ll learn clear criteria for abandoning an acquisition before it’s too late. The information here can save your company millions of dollars and years of heartache.

After the videocast I will be answering questions, so please have your questions ready. In the meantime you can contact or submit questions at any time by commenting on this post or using the contact form.

Learn more about M&A Express.

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Entrepreneurs rarely face the challenge of having too few ideas. In fact, like most entrepreneurs and business leaders you probably have a multitude of great ideas for growing your own business.

Your biggest challenge may be figuring out which of all the alternatives is the best way to get from where you are now to where you want to be.

We recommend using a systematic process to sort through all your ideas and create an action plan. Here are some steps in that process:

1. Think about your vision.

Where do you want your company to be in a year and in ten years?  All your initiatives should help you move toward this goal. If an idea isn’t helping you achieve your vision, then maybe you shouldn’t spend time on it.

2. Prioritize your ideas.

While all your ideas may seem wonderful, upon closer inspection you’ll likely find that some are more worthwhile than others. For example, if you envision taking your business national in the next five years, you may rate ideas that help expand your geographical presence more highly than those that do not. Use tools such as the Opportunity Matrix or Weighted Criteria or even a simple pro-con list to help you objectively sort through the possibilities and organize your thoughts. These tools will also give you the confidence that you are selecting the best and most important ideas for growing your business.

3. Get focused.

Without clear focus it’s difficult to move forward. If you’re all over the map, you won’t apply the time and resources needed to grow. Rather than diluting your efforts develop a plan focused on one goal and concentrate mostly on that. You can always modify your plan as time passes and your goals change.

4. Execute your plan.

As Nike puts it, “Just do it!” There comes a time when you need to move from thought to action. If you’ve done the upfront work on planning your growth strategy, don’t be afraid to pull the trigger.

By following these steps you’ll identify the ideas that will help you create a pathway for growth.

Pursuing M&A is a passionate process. Emotions run the gambit from excitement in finding a new deal to anxiety about risks uncovered during the acquisition.

I’ve found due diligence and negotiations to be among the most stressful times during mergers and acquisitions. Here are six ways to help everyone keep their cool during these critical stages.

  1. Write everything down – I cannot stress this enough! Nothing is more frustrating than coming to an agreement only to forget the exact terms. By recording your agreements, you can avoid renegotiating key elements of the deal. It’s hard enough to come to one agreement in the first place, much less two.
  2. Get organized – Have a member of your acquisition team act as the “librarian.” This extremely detail-oriented person will keep track of the large amount of data you receive and carefully organize and catalogue it so that it’s readily accessible when needed.
  3. Gather your questions – There is no need to call or send emails with every question; you don’t want to kill the seller with paper cuts. Collect all your questions together and present them at one time. This will also help your librarian manage all the information gathered during due diligence.
  4. Apply your criteria – Go back to the basics. Use your strategic criteria and objective metrics to calm emotions, help resolve any differences of opinion on your own team and promote meaningful analysis rather than heated debate.
  5. Use a third-party advisor – Your advisor can act as a “lightning rod” when communication between you and the seller is strained. The seller will likely feel more comfortable sharing their concerns with the advisor rather than with someone who might be their future boss. Your advisor can help ease any fears and clear the air while protecting your relationship with the seller.
  6. Have options – Last but not least, have more than one option. We recommend our clients be in serious talks with at least three other acquisition prospects and have many more in the pipeline. This way you won’t feel trapped or pressured into making a deal if you uncover any red flags.

While these tips won’t eliminate all stress from due diligence, hopefully they will help you and the seller through to a successful conclusion.

Photo Credit: Amy McTigue via Compfight cc

Buying the right company is essential, but it is difficult.  It may be easier to eliminate the “wrong” companies – prospects with glaring due diligence issues such as theft or lawsuits, or even more subjective issues like a poor cultural fit. However, the decision is not always so black and white.

How can you know if you’re targeting the wrong company? If you find yourself agreeing with most of these signs it may be time to reevaluate the acquisition:

You’re pursuing the deal to justify the time and effort you have invested in it.

The resources you have spent on the deal are sunk costs whether or not you move forward with the deal. Although lost time pursuing a prospect is disappointing, it makes no sense to continue down a bad road just because you’ve been on it for some time.

If your time and effort invested so far are the only reasons to move this deal forward, stop! These are not good enough reasons. It’s better to accept the sunk costs and move on than to buy the wrong company.

You feel like you need to get this deal done, or else.

It’s easy to get a little obsessed with completing a deal. Take a minute to slow down and ask yourself, “What about this specific deal is so important? Why must it go through?”

Panicked, rash decision-making can lead to disastrous results. Go back to your strategic foundations and calmly and objectively make a decision. After you’ve taken a minute to refocus you may find you have more options than you think.

Maybe you do really want the deal because the target company has a specific capability or technology central to your strategic plan and you think this is your last and only chance to achieve that plan. You may be right, but be careful. Remember, buying the wrong company is an expensive mistake. There are likely other prospects and other ways to fulfill your strategic criteria.

Only the CEO likes the prospect company.

Is the CEO in love with the prospect while the rest of the acquisition team has reservations? While the CEO’s opinions are important, so are the opinions of others. Each team member must have a say, even when that means disagreeing with the boss.

Open and honest discussion among members of the A-Team may shed light on new issues. Should you acquire the prospect it won’t just be the CEO working with the new company – members of both workforces will need to work together. Make sure it’s the right deal for the entire company.

These signs are key indications that you may be pursuing the wrong prospect. I challenge you to take some time to consider your current acquisition prospect. If you find it’s the wrong company, you can always walk away from the deal! Remember, buying the wrong company is an expensive mistake you’ll want to avoid.

 

 Photo Credit: Rusty Clark via Compfight cc

As a consultant, I frequently hear the question, “How do I find good acquisition prospects?” Executives can be overwhelmed by the number and variety of potential companies.  It can be challenging to prioritize your search.

This month, I will be leading a webinar “Discovering Prospects” on Thursday, March 21 at 1:00 pm EDT.  I will cover how to effectively set criteria and conduct research to discover acquisition prospects that fit with your acquisition strategy.

When we speak about discovering prospects, we need to remember the importance of first defining the appropriate market. The “markets first” approach sets the optimum context for reviewing and selecting viable prospect companies.

You can register for the webinar here.

I’ll speak for about an hour, followed by a question-and-answer session. Come prepared with questions to ask. You can also submit questions in advance when you register for the webinar.

 

 

Photo Credit: buba69 via Compfight cc

When you’re on the path of acquisition, there’s a shift that happens when you turn from the bigger strategic questions to looking at individual prospects.  Now you’re dealing with real companies and real people.

At this point, I have noticed that acquisition teams tend to become much more emotionally involved—sometimes to the detriment of the process. The solution as always is a strong system, because only a system enables you to take the emotion out of your decision making.

To be clear, I am not saying that the pursuit of prospects should be undertaken without a measure of excitement or passion. To ‘‘take the emotion out’’ means to conduct your search using a structured process and objective tools, and returning to those tools at the key decision points.

The basis of the system I recommend is what I call the Prospect Funnel. Anyone familiar with the traditional sales funnel will recognize the principle at play here: a progressive narrowing of focus from the many to the few. This is achieved by grounding all your activities in clearly defined criteria. The end result will be a short, organized list of companies with whom you can initiate negotiations, confident that they are the most appropriate candidates for a successful acquisition.

*This post was adapted from David Braun’s Successful Acquisition, available at Amazon.com

Photo Credit: Highways Agency via Compfight cc

As I’ve stressed  in an earlier post, I recommend including not-for-sale companies in your acquisition search. This will significantly expand your universe of potential acquisition prospects. However, with such a large pool, you must develop criteria through which to filter the prospects in order to narrow your options.

The first step in establishing your criteria for prospects is to review your long-term strategy, taking into consideration each fundamental aspect of your business: marketing, production, distribution, management, sales, accounting, etc. Your acquisition criteria should take each of these core functions into account.

Criteria become an objective touch point for you throughout the entire acquisition process. When you reach an impasse in the decision-making process, you should return to your criteria. There are no ‘‘right’’ or ‘‘wrong’’ criteria. They are simply whatever you value in a market or company to address your one reason for growth.

Taking time to identify and prioritize your criteria is one of the key tasks of your acquisition team, and this must be completed thoroughly early in your growth process.

*This post was adapted from David Braun’s Successful Acquisition, available at Amazon.com

When our new clients inquire about how we make prioritization decisions with limited data in the world of M&A, our answer is simple and straight-forward – you don’t need all the information as long as you have the CRITICAL information.  Consider this process:

•         Step #1 – You need “screening” criteria that will help you (and your group) make a decision.

•         Step #2 – Find a trial acquisition prospect.

•         Step #3 – Gather prospect specific data for the priority criteria.

•         Step #4 – Test and refine your criteria.

•         Step #5 – Add acquisition prospects and benchmark how they “fit” versus the criteria (and against each other).

Use screening criteria and acknowledge you are not in due diligence so you don’t need everything at this phase of the prospecting process.  Evaluate acquisition prospects and SAVE resources by focusing on only gathering the RIGHT information.

This Friday, February 20, I will be holding a free webinar on “Finding the Right Markets for Growth” at 1:00 PM ET.   You can register by clicking here.

In these tough economic times, market research and selection are vitally important to position yourself for growth now and in the future.

Capstone Program Manager Gretchen Johnson will be joining me to present on the following topics:

– Current State of the M&A Market
– How to Determine Where the Opportunity Lies
– Why to Research Markets First
– Developing and Implementing Market Criteria
– Market Segmentation
– How to Conduct Effective Market Research

    The webinar is free and open to the public.  Gretchen and I will speak for approximately 45 minutes followed by a 15 minute question and answer session.

    Here, again, are the details.  Please join us!

    Date: Friday, February 20, 2009

    Time: 1:00 PM ET/ Noon CT/ 11:00 AM MT/ 10:00 AM PT

    Registration:  https://www2.gotomeeting.com/register/460174264