Growth Strategies: Product Acquisitions

In the theater business there are people who specialize in finding off-Broadway productions with potential. They then tweak them for the big time by reworking the script, recruiting better actors, improving overall production values, providing better promotions, and then relaunching them on Broadway where they will rake in the money.

Back in 2002, Inc. magazine had a brief yet memorable article about a man with a very interesting system for doing basically the same with natural food brands. He finds small regional brands with potential for broader success, acquires them, makes a few production and branding improvements, and then turns them into national brands by running them through his distribution system.

The Producers

The man in our story is Irwin Simon, a small town Canadian boy from Nova Scotia, who runs public company Hain Celestial Group (NASDAQ: HAIN). The Inc. article can be found here. According to the article, “Simon doesn’t just acquire brands, he revs them up.”

Growth via acquisitions

Small businesses can often achieve higher growth rates via acquisitions.

It’s a brilliant business model for the highly-fragmented natural food industry. Simon has the expertise and capital needed to push small companies up the industry pyramid from the entry level into the middle-market.

“That’s Simon’s thing: taking the products of already profitable companies, improving their taste, extending the line, and then marketing the hell out of them as they begin the long migration from the shelves of the nation’s 18,000 health-food stores to its 100,000 grocers and 33,000 supermarkets.”

Another company that utilizes this same growth strategy is Cisco Systems. The company fuels much of its growth with the acquisition of small companies with interesting new products in networking for the home, small business, and corporate markets. Once a company has been acquired it’s guaranteed success since Cisco’s network of thousands of VARs, sales reps, and dealers can promote its products to a vast existing customer base.

A small company can use this same basic approach for expanding its product line if it can’t create new ones internally. A commitment to then build a team that can add value to acquired product lines will maximize the chances of success for all concerned.

Never let anyone tell you that you can’t borrow ideas from seemingly unrelated businesses.

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