By Kevin Uphill, Chairman of Avondale
It’s widely known that there are no immediate shortcuts to success. The best way to expand your business is through devotion and hard work. Although Marketing has proven itself as the most immediate route to growth, you could never claim that hard work isn’t the most productive way to drive profit, but for increased and more prolonged growth there are certainly ways to accelerate and create shortcuts to success.
But what is the best way to achieve this coveted acceleration? A business growth report from Avondale, a specialist mergers and acquisitions service provider, recently highlighted that whilst increased marketing and new product development were still prominent methods for driving growth for businesses with over £1m turnover, acquisitions and strategic alliances have become more commonplace, 25% of companies with a turnover between £1-5m said they currently make acquisitions and a further 50% with a turnover of £5-10M+ said acquisitions were a preferred route to growth.
Growth through acquisition can be seen as a ‘shortcut’ to growth, yet it is often considered to be an exclusive method reserved for larger companies, is it appropriate for small and midsize companies looking to achieve rapid expansion? or should they stick to more traditional expanded marketing methods?
The benefits of an acquisition
There are many benefits of an acquisition with the large majority of business leaders claiming growth procured through an acquisition is faster and more prolonged. An acquisition can also carry less risks than an expanded marketing and sales plan, it can be less expensive to buy an existing business than to expand internally if you’re struggling with regional and national growth.
If you are concerned that an acquisition will cause a spike in profits that will quickly plateau and sink, a business merger can actually lead to organic growth further down the road. Businesses in the same sector or location can combine resources to reduce costs, eliminate duplicated facilities or departments and increase revenue in the long term.
Of course one of the problems with investment in an acquisition is the immediate cost. It’s easier for a larger corporation, as they have more resources and staff to facilitate it. At a recent roundtable hosted by Avondale, Dominic field, Director of Temple Field property, pointed out diversity between large and small businesses and their rate of growth “There are particular hurdles that all businesses of all sizes face. The more money a company has means more staff you can hire which means more productivity and in turn this all means faster growth.”
Organic growth and marketing
The report also revealed that 67% of those in growth mode have launched a new product or service in the past year.
Marketing is always a useful area to invest in, as it not only drives growth it also promotes your company at the same time. Organic growth gives you a much more realistic perspective of how your company is performing.
Like all business investments expanded marketing plans can carry great risks, and there are downsides. Reaping the results of organic growth are often much slower than external growth and there can be issues, especially if you’re pushing your products into a new market, as you start to push up against larger companies they are more likely to push back. consider outsourcing, bringing in temporary executive experts in expansion, training your staff in new technology/methodology or starting a new company with new equity, rather than existing cash flow.
Can an acquisition benefit a small business?
The Avondale growth survey revealed that only 11% of companies with less than £1m turnover said they used acquisitions to grow.
Large publicly traded companies regularly buy other companies. Most SME’s associate mergers and acquisitions with these larger enterprises and small business owners tend to generally assume that an acquisition is above their means.
Some of the workings do differ, for instance there can be no hostile takeovers of privately held companies, and your acquisition probably won't be reported by top tier press, but the benefits are just as real for a small privately held company as for a large publicly held firm.
So which route is best for my business?
There’s no reason, if you have the budget, why you can’t incorporate both techniques into your business model. Marketing will always be relevant, as well as one of the fastest routes to growth. If you have found your business floundering of late an acquisition can give it a much needed boost, as well as offering the potential to promote increased organic growth in the long term, or alternatively if your business is flourishing it can further excel your growth in the short and long term. Using both techniques together could potentially see your company quickly expand status.