Most acquisitions and alliances severely underperform relative to expectations set at the time of their inception. No matter how great they look on paper, it is always a lot harder to make things come out anywhere near where they were meant to be than it seemed at the start. Fortunately, based on first-hand practical experience and learning from the experience of others, there are some things that can be done to raise the odds of success.
Why Acquire or Ally
The reason for one organization to acquire or ally with another almost always boils down to one or more of the following three:
To obtain new products and services to sell to existing customers.
To secure access to new customers for existing offerings.
To acquire needed new resources such as technical skills, leadership, or industry knowledge.
Why Not Acquire or Ally
There are also three basic reasons for one organization to decide NOT to acquire or ally with another:
Leadership teams that are on track to reach their potential to perform and growhave:
A written, board-approved financial plan that shows revenue, direct costs, gross margin, indirect costs by function (e.g., marketing, sales, HR, R&D, etc.), and operating profit (i.e., EBITDA), by month and quarter for the year. Approved financial plans tend to have the following characteristics:
Smooth (or otherwise rational) ramp-up (or down) of revenue and costs from the prior year closing month and quarter.
Generally upward-trending scale (i.e., ever bigger and better).
A 75% chance of being achieved by the in-place team with roughly 2/3 of planned revenue either booked or highly-probable (B&HP) and a highly-qualified pipeline of prospective, current year, revenue equal to three times the gap between B&HP and Plan (and not all in the last quarter or two!).
Identified upside-downside potential with mitigation strategies on the downside and what will be done to take full advantage of any upside.
Assumptions and triggers that explain what has to happen for planned results to occur and for planned expenses to be made.
You have a vision of what you want your organization to be but you do not know how to make it happen. The problem may be lack of capital, or you are consumed with the “every day”, or your team is not stepping up. The challenge is to find your organization’s constraint to growth and then to relieve that constraint.
Sometimes the solution is right in front of you but you need a fresh perspective from an experienced hand to see it, just as did Professor Nash in this scene from A Beautiful Mind:
An organization is a system of systems: the system of doing what it does (DO), the system of creating demand for what it does (SELL), and the system to get big (GROW). Odds are that one of these three systems holds your organization back from achieving its potential to perform and grow. Which system constrains your organization?
IntelliVen can help. We work best with organizations who sell products or services into the enterprise and government markets. You should be bigger than a startup and a small fraction of the size you will be when you get to the goal you are after.
Business school students have to decide their course of study from day-1 … and the choice makes all the difference. The first decision almost always comes down to: operations vs finance:
The allure of finance is working with money to buy and sell companies. Success is when a small stake in a large transaction generates a healthy payday in a short time.
The attraction of operations is working with people to build and run something of value that is eventually realized through a sale, financing, or public offering.
Finance looks like the fast track to great wealth and has attracted top MBA students students for decades. Operations looks like a long, hard road with a massive payday only for the few with enough dedication, talent, time, and luck to pull off a successful start-up from scratch.
While the economy needs both financiers and operators, the promise of quick and large returns has left the world short of the talent it needs to drive growth and scale of quality organizations.