Build vs. Buy: What is the Best Path to Grow Your Business?

As a business owner (or an aspiring one), an important consideration is the quest for future growth. From a strategic perspective, there are really only two choices: grow organically or by acquisition. By “organic,” I simply mean to grow by closing more deals, through efforts such as expanding your sales force or introducing a new product line.

When writing a business plan, it is important to consider each of these growth strategies – whether you are starting a new business, or expanding an existing one.

This decision is actually quite important, with big repercussions as to what your company will ultimately become. Given the significance of this choice, it is smart to carefully consider both options.

Grow Organically

If you are starting a business, then the biggest challenge is what I’ll call “finding your way.” Starting from scratch means you don’t have any processes in place. Everything is a variable, so picking it all right the first time is highly unlikely. Instead, you will pick an initial path to pursue. Then, you will spend a lot of time adjusting and evaluating that decision. This process will then continue until you start getting traction and find the right path for growth.

Having a long “runway” with sufficient funds to make a few changes is critical for long term success. Early mistakes can be costly – a big one could sink the company. So, it is necessary to plan for some setbacks. Other suggestions are to surround yourself with as many experts as you can, and to have a well thought through business plan.

Grow by Merger or Acquisition

This option, in many ways is the exact opposite of organic growth. First, existing processes, employees and a business plan are already in place. If you are seriously considering the purchase of an existing business, you must see something desirable – enough to buy it! So, your challenge is how to integrate the new business into your existing company – from a people and process perspective, as well as from an IT systems and go-to-market strategy.

Alternatively, if you are considering starting a business through acquisition, then the one integration challenge is that of acclimating yourself to being the new owner or manager. Process “integration” is not really an issue … it is more your evaluation of the existing processes. What makes sense and what doesn’t?

business plan writing helps M&A strategy

In many ways, an M&A strategy is similar to the decision to have a dog. This is a picture of my own dog, Rusty.

In many ways, I see the success of a business acquisition to be akin to getting a new dog as a pet. Here are three ways I see these two activities to be in close alignment:

  1. There are many different types of dogs, and there are many different types of companies – you need to research the strengths and weaknesses of each if you want a good fit with your existing lifestyle, and/or the culture of your business. For example, if you live in an apartment in NYC and don’t have many “jobs” for a dog to do, then getting an Australian Sheep dog might not be a good fit. Similarly, if your company has rigid processes and procedures, then purchasing a startup out of the Silicon Valley with a young management team might not be a good fit either. It is really important to match the culture and temperament of an acquisition to your existing company or family to achieve a good fit.
  2. If you don’t spend time with your new acquisition, then the relationship will sour – this holds especially true with a puppy. Young dogs have a lot of energy, so they will either play games with you, or chew up your clothing, furniture and anything else they can find if you are not around. In the same way, employees at a newly acquired company will be looking to see their new role. If you don’t quickly give them guidance and a compelling reason to be part of the newly combined entity, they might lose interest and leave. The amount of time you need to invest in this task is going to be more than you thought. And, this requirement doesn’t go away after the first 60 days. If you are not ready to invest the time, re-think this acquisition decision.
  3. New dogs and new companies need clear lines of demarcation to know what behaviors are acceptable – for those of you who are parents, you know this analogy applies with young children too. We all need clear direction on what is expected and how we are to perform to achieve success recognition. Without this communication, pets, employees and children will come to their own decisions, likely pushing boundaries to new levels in search of a definitive line.

 

A careful evaluation of “build vs. buy” will help avoid surprises before you have made an investment in either a new company, or a new member of your family. Once the decision has been made, it is usually quite difficult to undo … and will cost you a lot of time, effort and resources. Plan ahead to avoid the pain and achieve the gain, and go into these transactions with eyes wide open.

 

Gordon Benzie is a marketing communications professional and business plan adviser that specializes in preparing and executing upon business plans and marketing strategies. Gordon can be found on Google+

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