There’s a myth that acquisitions are only executed by huge, publicly-traded, Fortune 500 companies, but that’s simply not the true. In reality, there are many acquisitions conducted by small and middle market firms that are private transactions and are not reported to the media.

There are many reasons to consider acquisitions, regardless of the size of your business. A smaller, highly focused acquisition can grow your company and be incredibly profitable. In fact, small transactions allow you to execute your strategy covertly and avoid alerting your competition to your growth strategy. With a small, strategic acquisition there is less of a risk of integration issues and acquisition failure because the deal is not transformative for the organization. At the same time, a small, strategic acquisition can fulfill a targeted growth need and positively impact a company’s long-term growth.

Another reason people don’t consider acquisitions is because they think they are too expensive. While acquisitions do require a significant amount of financial resources to execute, the cost of organic growth or doing nothing may be higher than the cost of M&A. When looking at the bigger picture, it may be more expensive to develop a new product on your own or take too much time. Companies often use acquisitions to move quickly and implement a ready-made solution. If you are concerned about cost, keep in mind there are ways to mitigate the price of a deal. Only you can determine if acquiring or building your own solution is best, but you should consider both options simultaneously.

Whether or not you decide to grow through external or organic growth, you should consider both as tools, regardless of the size of your company. For every company, unintentionally falling into the trap of doing nothing is dangerous. Innovation, either from external growth or through in-house development, is key to long-term success. Think about companies that lost their edge do to failure to innovate. Blockbuster didn’t adapt from DVD to streaming and lost out to Netflix and Redbox and the once dominant BlackBerry, which failed to compete with iPhone. The cost of unintentionally doing nothing can mean your services and products become obsolete, so make sure you consider your next steps with the future in mind.

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As a leader, it can be difficult to determine the best way to grow your business. Some leaders find themselves stuck in the same rut and struggle to generate new ideas to spur growth. They realize business as usual or what worked 10 years ago will no longer work in today’s market. On the other hand, other leaders have too many, rather than too few new opportunities. With so many exciting options, they may find it difficult to determine which path is best for the company’s future.

Whatever position you may find yourself in, a useful way to explore your opportunities of growth is the 5 Options for Growth Tool. This tool helps you organize the various pathways for growth that are available to your company:

  1. Organic Growth
  2. Minimizing Costs
  3. Exiting the Market
  4. Doing Nothing
  5. External Growth

Each of the pathways listed are valid ways to grow a business. But which one is the right one for you? First, start by listing all of the opportunities that come to mind in each of the categories, no matter how crazy they may seem. Brainstorming in this fashion will help you organize the ideas you already have and help develop new ones. By considering all of the possibilities listed above you can thoroughly explore your options, organize your thoughts and make an informed decision.

Learn more about growing your business in our upcoming webinar “5 Options for Growth” on January 21. CPE credit is available.

5 Options for Growth Webinar
Date: Thursday, January 21, 2016
Time: 1:00 PM ET

Photo credit: Barn Images via cc

Most companies are seeking growth outside of their core business through organic means or mergers and acquisitions, according to a new survey by McKinsey.

What’s interesting is that although many companies want to expand beyond their mainstay business, most do not have the capabilities to do so. Here are three best practice steps noted for successfully growing in new categories:

  1. Scanning for expansion opportunities
  2. Evaluating expansion opportunities
  3. Integrating new activities into core business

By following these best practices, companies are two times as likely to be successful; however, McKinsey reports that only between 27% and 33% of those that they surveyed did so.

When it comes to exploring new opportunities, business leaders are often too caught up in day-to-day activities to think about the bigger picture. Many are overly concerned with their competitors or simply are at a loss when it comes to generating new ideas for growth. This also means that once an opportunity is identified, it’s often the only one considered – so of course, the company has trouble properly evaluating the single opportunity and determining whether it is a good fit. And if an opportunity is not the right fit, there will be difficulties in integrating it into the core business.

If you find yourself in a similar situation, or simply wish to improve your capabilities, here’s some advice to help with your growth efforts.

  • Start with strategy – It should go without saying, but strategy is key to success. The survey emphasized the importance of having a clear, long-term strategy: “When executives say their companies have a clear strategy for expanding into new activities, for example, they are four times more likely than those whose companies have no such strategy to report significant value creation.”
  • Consider all your growth options – Did you know there are FIVE options for growth? They are: organic, external, minimize costs, exit, and do nothing. While you may be leaning toward one of these pathways, it’s best to consider it in the context of the others. This gives you a chance to seriously evaluate all of possibilities and provides a more complete picture. By considering all five options, you will either gain confidence about the decision you’ve already made or uncover a new path for growth.
  • Use tools to generate ideas – We use tools like the Adjacency Map and the Opportunity Matrix to generate, organize and evaluate new opportunities. We find that a brainstorming session using these tools gets the ideas flowing. No idea should be off the table, no matter how remote or crazy it may seem.
  • Evaluate opportunities with criteria – Develop criteria that match your ideal opportunity. Which aspects are most important to you? Market size, demographics, technological capabilities or something else? For example, if your overall strategy is to expand into Latin America, location is clearly important. Those opportunities that allow you to expand south of the border will be evaluated more favorably that those that don’t. Once your criteria are established, compare all options against the same criteria. This will help you remain objective and strategic.
  • Develop an action plan – You need a clear plan for executing and integrating the newly acquired business (or new product or capability) with the rest of your current business. For M&A, especially, integration is the number one reason for failure – so start planning early. Your plan should, of course, be guided by your long-term growth strategy.

If you’d like to continue exploring your options for growth, download your free copy of “Finding Opportunities for Growth: The Opportunity Matrix.”

 

Robust mergers and acquisitions activity is often an indicator of economic growth, but the recent flurry of deals do not reflect a confidence in the economy, Andrew Ross Sorkin writes in Dealbook.

Revenue growth of US companies has declined from 11.2% in 2010 to 5% to 2020, a Citigroup report indicates.  “Strategic actions such as M&A…have become a key priority to generate growth in the current environment. The lack of an organic impetus to growth is apparent in the outlook for capital expenditures.”

For many companies, acquisition is a powerful tool for growth when organic growth stalls. In today’s market, strategic acquirers are pursuing acquisitions in order to grow their business in the future.

If you’re facing a similar situation, proactively considering strategic acquisitions is a wise move. You may be growing this year, but what do your growth prospects look like down the road in five or ten years? Being proactive, rather than reactive, will put you a position that allows you to choose what you want. You will have more flexibility in considering the best acquisition prospects that meet your criteria and have more time to develop and execute your plan. Waiting until the last minute typically makes the process more difficult and limits your options.

Another trend to watch out for is cost cutting, which remains one of the main reason for executing deals in today’s market. While cost savings can be a legitimate reason for acquisition, I will raise a cautionary flag. Cost cutting is rarely a long-term growth strategy. You can only reap the benefits from cost saving synergies one time. Once you’ve trimmed the excess – closed a plant, realized tax savings, consolidated general overhead expenses – you have to ask yourself, “What’s next?” Strategic acquirers should remember to consider acquisitions in context of their overall growth strategy.

When thinking about the best market for acquisition, many tend to focus on the market (or markets) in which they already operate.

People feel very confident about what they know, for good reason– experience, past success, existing relationships, etc., but sometimes focusing on only one market means your perspective is myopic.

There is little harm, other than perhaps some time and money, in exploring adjacent markets. Taking a look at neighboring markets can validate your assumptions and give you confidence to move from planning to action.

The worst case scenario would be that researching adjacent markets yields no new information and you’ve wasted your time. However, in my over twenty years of experience, clients have always gained some new and different insight from considering adjacencies. They have never walked away empty-handed.

Most likely you will find new opportunities for acquisition or even for organic growth. I encourage you to open your business to innovation by exploring adjacent markets.

Have you considered all your options for growth?

I have found that some leaders are limiting their potential for company growth because they fail to examine all the possible ways to achieve it.

Some are stuck in copycat mode, constantly mimicking the strategies of their competitors and playing catch-up. Others struggle to come up with new ideas. Even leaders of companies that are growing may be missing out on key opportunities.

Five key options to consider when it comes to company growth are organic growth, minimizing costs, external growth, exiting the market and doing nothing.

Even if you think you know which option is best, I recommend you consider them all to create a complete picture of the possibilities that lie before you. This equips you to make an informed decision about the best way to grow your company.

Capstone will be exploring the five options for growth in our upcoming webinar on December 11.

You will learn to:

  • Define the five growth options as they apply to your company
  • Understand why external growth (acquisitions, joint ventures, etc.) can be the best option for your company
  • Gauge the current state of the M&A market using relevant statistics and indicators
  • Begin to develop a step-by-step M&A process for your company

Don’t let opportunities pass you by. Learn how to best position your company for success by joining us for this foundational webinar.

Date:  Thursday, December 11, 2014
Time:  1:00 PM ET
CPE Credit available.

Register: http://attendee.gotowebinar.com/register/3419240731938664450

The polyolefins industry, like so many others, is evolving significantly. Growth in emerging markets and Asia has skyrocketed while European and North American markets have matured.

Last week I was invited to speak at the Future of Polyolefins Conference 2014 in Dusseldorf, Germany, where top executives from key industry players such as Borealis AG and Clariant gathered to discuss industry dynamics and trends.

A resounding theme throughout the conference was the seismic shifts in demand and production the polyolefin industry. In the near future Europe will move from a net exporter to a net importer as it closes several polyolefins facilities and reduces capacity.

If regulations change, the U.S. will export more polyolefins to fill part of this gap in production. China is also ramping up its polyolefins production to match growing demand in Asia, but even with additional capacity demand will soon outstrip production over the next ten years.

Several speakers also stressed the need for diversification in order to smooth over volatility in the industry.

In this new paradigm leaders are reassessing their growth strategies and are considering external moves like strategic alliances, joint ventures and acquisitions.

In my presentation, “Strategic Alliances, Joint Ventures and M&A – the Route to Success,?” I encouraged conference attendees to consider their five options in building their growth strategy:

  1. Grow Organically
  2. Exit the Market
  3. Be the Low-Cost Provider
  4. Do Nothing
  5. Pursue External Growth

It’s important to realize you have a choice when it comes to planning your growth strategy. By evaluating all five options, you are better equipped to make the right decision and confidently execute your plan.

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Many leaders take a reactive rather than proactive approach when it comes to M&A. They often realize that their organic growth is stagnant and they’ve got some money they can leverage, so they decide to make an acquisition. What do they do? They go find for-sale companies or respond to those that have found them. While this reactive approach may quickly yield “opportunities,” they may not be the right ones for your company’s strategy.

It’s best to first figure out what you want to achieve and what you want your company to look like 10 years from now. What capabilities would you like to add? It could be location, technology, brand recognition, etc. After you’ve determined this, then go find the right companies – whether they are for sale or not for sale – to help you achieve your vision. It’s better to spend time finding a great strategic fit than to hit the “easy” button and rush into a for-sale acquisition. Acquiring the right company that matches your overall strategy is worth the wait.

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Apple’s growth has slowed significantly. USA Today reports that its gross margin dropped for the fifth straight quarter to 36.8% of sales and that iPad sales are down by 16%.

Apple CEO Tim Cook has recognized Apple is in a mature, slow-growth market.  If a company that grew steadily through the recession and whose stock price peaked at $700 in September 2012 can go through slow growth, your company can, too!

Even an extremely successful company like Apple is vulnerable to changes in demand, customers, markets and disruptive technologies. It’s not enough to create a good business plan once – you must remain strategic and reinvent your plan every day. Always ask, “What happens next? What’s the next big thing for my company?”  The “next big thing” for Apple may be the iWatch.

Change is the very nature of business, and those who stand still lose out big time. Two companies that come to mind are Montgomery Ward and Kmart. History is not always a guarantee of future success.

So what do you do if you’re in a mature market or if growth has slowed? You can focus on both organic growth and external growth, which includes acquisition. But before you select a specific path, return to your business strategy. Consider these questions: “Where are we now?” and “Where do we want to be?”

Be sure that any plan is strategic, and always look for opportunities for growth.  This way, when there are changes in demand or changes in the industry, market or competition, you will be prepared, having already anticipated them as best you can.

 

 

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In my previous post, I mentioned the five pathways to growth. The first pathway is organic growth.  Organic growth is business as usual. It is growth through acquiring more customers or selling more products. You may be reading this blog because on some level your organic growth has stalled. But before you rush to adopt another strategy, consider some creative ways to re-energize your organic growth.

For example, one of our clients produced galvanized steel for railings and protective barriers. One of their main competitors was concrete – a viable alternative for building barriers – which has one simple advantage. You can paint concrete, which makes for a wider choice of looks than galvanized steel. This company needed to rethink who they were. They had become so identified with zinc that they neglected to realize they were in the business of providing solutions for railings and barriers. After this realization, they launched a new product line: paint for steel. Now they could add color to their product and provide a choice of looks to fend off the competition.

When organic growth stagnates, be prepared to go back to the fundamentals. At the same time, be prepared to think outside the box and search for less-than-obvious solutions.

The five pathways to growth are:

  1. Grow Organically
  2. Exit the Market
  3. Be the Low-Cost Provider
  4. Do Nothing
  5. Pursue External Growth