Tag Archives: business acquisition

What Happens if a Supplier Enters your Market?

Google-wireless-competitor-threatGoogle just announced plans to offer wireless service. What might this mean for AT&T, Verizon, Sprint and T-Mobile? How would you respond if one of your suppliers announced they are going “upstream” and will now offer the exact same product or service you offer?

I was amused when I read about this announcement, including the quotes provided by Google, and the reporter’s assessment, so I thought this might be a good topic to explore in greater depth.

To start, the words “Google is now entering your marketplace” are likely to bring considerable levels of concern to most business owners. It just isn’t good to have another competitor – especially if they are Google or Apple – given they often see the world quite differently. These types of companies have a history of being disruptive technology providers.

With regards to the impact of this announcement on the wireless Telecom industry, I suspect it is not all bad news. In order to help understand what this type of announcement might mean to your business, it is helpful to review the Porter’s Five Forces model, as referenced in this article.

Porter’s Model

According to the model, there are five “forces” that determine your competitive environment (the Google announcement clearly applies):

  1. Supplier Power: This force is more from a cost and control perspective … worst case scenario is if you have only one supplier; they can then charge you top dollar, and you have no negotiating ability to achieve better terms.
  2. Buyer Power: This force comes from your buyers – how effective can they pool purchase decisions across channels and geographies to drive down prices?
  3. Competitive Rivalry: This force speaks to your competition. If you face multiple competitors offering similar products, then you don’t have much negotiating strength to drive higher profits.
  4. Threat of Substitution: This force is similar to what competitors you face and how “generic” your product or service is; for example, if your service can be performed by your customers, then a price ceiling exists – above that price will result in zero sales, as your customers will simply do your service or build your product themselves.
  5. Threat of New Entry: This force is the threat of the unknown, so to speak. Worse case is if it costs little in time or money to enter your market and compete … if your profits suddenly increase and anyone can enter your market, then it won’t be long for profits to drop. Those seeking to create or sustain monopolies are trying to address this force.

 

So What’s Going on with the Google Announcement?

I would propose each of the above listed forces might be in play, with some more so than others. Google doesn’t have a monopoly in providing handsets. Samsung and Apple are viable competitors. Google admitted in the article that the last thing they want to do is to disrupt their current sales model selling Android phones to the carriers; Google must tread lightly.

Another key factor for Google is the last force – the cost of entry. The wireless Telecom industry has a significant barrier to entry … in the billions of dollars range. If you want to be a national carrier, then you will need to build out a nationwide footprint, and, you will then have to replace it every 7-10 years as new technology advances go mainstream. This is a big investment, and one that Google won’t take lightly. In the announcement, it was mentioned that Google has established wholesale agreements with the carriers, so is not looking to make that big investment today.

What Should the Carriers Do?

Right now, after perhaps losing a heartbeat or two, the best response is that of a calm business partner seeking to expand a mutually beneficial relationship. This strategy is quite common in the Telecom industry, primarily based on the fact that the cost of entry is so high. Revenues get allocated between the carriers, but, it is a big revenue “pie” to share from.

Google explained in this latest announcement that their intent is to test new technologies and to ascertain what innovations are possible from a Telecom or infrastructure provider‘s perspective.  For now, this is likely a true statement. The Public Relations team working at Google should be very careful what future announcements are publicized, as well as the specific wording of such future communications. Clearly it is in both parties interest to maintain a civil relationship. Should the Telecom provider’s relationships sour with Google in the years that follow, then that might not be taking the best long-term perspective, given the enormous buying power of Google – as a customer and as a supplier.

 

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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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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