Oftentimes the rationale behind an acquisitions-based growth strategy is the need to win more customers.
Buying up other businesses in order to grow usually falls under the strategic acquisitions category. These types of acquisitions have the goal of expanding the market for a product or service. In order to carry out this strategy a company will acquire businesses with similar products or customers to facilitate introduction of its own products into the new market.
Here’s one of the important distinctions between those who remain small business owners and those who go on to become tycoons. The former will typically work hard to grow their business to a level at which they feel well compensated and comfortable with the effort required to sustain it. After that point the impetus for fast growth often dissipates. This is the reason why most small businesses are referred to as “lifestyle businesses.” Their main purpose is to simply allow the owner to enjoy a certain level of income and autonomy.
Acquisitions-based growth.
In contrast, once a tycoon has a winning business formula refined at a single location, he swings into replicating it at as many locations as possible. Sometimes it makes sense to start each new location from scratch as Starbucks did. Other times it makes more sense to build on top of existing businesses. This approach entails acquisitions. Let’s take a look at an example. In the 1990s printer Lason embarked on an acquisitions strategy in order to expand the market for its three core services: document scanning, fast high-volume printing, and distribution of legal documents, such as proxy statements and collections letters. As a result of this the company focused on acquiring small local printers which only offered one of these three services. After the acquisition, the absorbed company would be able to offer its customers the expanded range of services made possible by Lason. This, in turn, enabled them to win over larger accounts that they could not have otherwise serviced before. It was a win-win for both parties and enabled Lason to expand rapidly.
By using the acquisitions option for growth instead of building from scratch the company can benefit from having a team in place on day one that understands the local market. The acquired company then serves as a platform from which to jump start the acquirer’s entry into its market.
If you have a winning formula which can be replicated the first decision becomes build or buy?
2 Responses to Growth Strategies: Acquire More Customers
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In order to finance the growth, doesn’t the platform company need to have a lot of “free” cashflow? How are the acquisitions being financed?
I left the financial issues out to keep the example as simple as possible. Of course the question over financing is an important one as not everyone will be able to do acquisitions.