Acquisitions are like trying to grow mushrooms and the results are seldom worth it! Businesses have a personality—a unique culture. Even though a merger of two companies may appear to make financial success, the clash of cultures often damages both organizations. There is a long-standing joke about being acquired. It is like being a mushroom. First, they put you in the dark. Then they dump manure on you, and finally they can you. Unfortunately, there is a truth to the joke. Because eliminating people is the easiest way to cure the clash of cultures.

Even if an acquisition could be limited to acquiring a customer base, the square-peg-round-hole problem will still exist. The acquiring company finds that its efforts are redirected to assimilating clients who have chosen the acquired company’s products or services for reasons that probably differ from the reasons your customer chose you. Their customers have different expectations and have relationships with the team of the acquired company that will be disturbed. More than likely, terms and prices will be different and must be blended together. It is likely that promises or expectations will complicate assimilation. Any way you cut it, resources and energy become redirected.

The Encore expectation of the public often drives companies to play the acquisition game. The encore expected, if not demanded, is for companies to achieve successively higher results. Acquisitions usually follow a repeated pattern. The acquiring company consolidates operations by shedding people, which pushes profits up; however, over time the square-peg-round-hole disruption results in client/customer loses and declining profits. The acquirer makes another acquisition to achieve its expected successively higher results. Eventually the house of cards collapses.

One of the problems with “going public” is that the now-public company has a lot of cash and shareholders who expect that cash to be put to profitable use. The now-public company has little choice other than using its war chest to grow through acquisition. That in turn changes the nature of the business that attracted the new shareholders in the first place. Not all acquisitions are bad. Some are necessities. But generally speaking, they are high-risk low-return alternatives for growth. The only advantage they offer is immediacy but that immediacy comes with speed bumps that, in the long run, slow you down.

# # #

On June 7th I will be in Fort Lauderdale at the BIG Breakfast event discussing my in-process book on Business Management and Leadership. The title is still up in the air, but I’m leaning toward Business Journey or Managing @ the Speed of Sight! Input is welcome. I will be signing copies of The Claret Murders and previous Mark Rollins adventure mysteries at the Vanderbilt Barnes and Noble in Nashville Tennessee on June 22nd ... more details to follow.

Mysteries by Tom Collins include Mark Rollins’ New Career, Mark Rollins and the Rainmaker, Mark Rollins and the Puppeteer and the newest, The Claret Murders. For signed copies go to http://store.markrollinsadventures.com. Print and ebook editions are available from Amazon, Barnes & Noble and other online bookstores. The ebook edition for the iPad is available through Apple iTunes' iBookstore.

Russell Conwell, a minister and the founder of Temple University, may be most famous for this “Acres of Diamonds” story—the retelling of an old fable similar to the American folk saying, “The grass always looks greener on the other side of the fence.”

Conwell tells of a man who wanted to find diamonds so badly that he
sold his property and went off in futile search for them. The new owner of his home discovered that a rich diamond mine was located right there on the property. The moral of the story is “dig in your own backyard” for opportunities.

Until you have learned the hard way, the things you have to do to succeed in your current endeavor always look harder than something else you might do. If you are in the hamburger business, the pizza business looks easier and more profitable. If you are in the home cleaning business, someone in your group is going to tell you you should change to commercial because it’s easier and the money is better. If you sell to lawyers, you know the problems and difficulties of doing so. It is hard to get passed the gatekeeper, and once you do, getting a decision is a challenge of monumental proportions. “Surely, it would be easier to modify our product or service for the CPA market. Lawyers are hard to please; CPAs would be easier. It’s easier to get an appointment, and they make decisions.”—You think? Wherever you are, where you aren’t looks better. At least it looks better to those who haven’t learned the lesson “you don’t know what you don’t know.” Don’t go looking for diamonds elsewhere until you first dig in your own backyard. As for grass looking greener on the other side of the fence, don’t fall for it. The grass may look greener, but it usually isn’t—it is riskier!

Igor Ansoff (1918-2002), considered by some as the father of modern strategic thinking, developed a graphic matrix that visually explains the basic strategies for business growth which at the same time provides an easy explanation as to why the grass is seldom greener. Rather than greener, it is riskier!

The matrix illustrates the four basic strategies for business growth:

Market Penetration – selling more existing products into existing markets, usually by increased sales staff, promotion, pricing changes, or new routes to market, e.g., online
Product Development – developing new products or services for the existing markets
Market Development – taking existing products or services to new markets.
Diversification – developing new products and putting them into new markets

Risk increases as you move from 1 to 2 to 3 and then to Diversification, considered the riskiest.

Market penetration is digging in your own backyard. You have to avoid taking on the weakness inherent in becoming a market leader—as illustrated by Management Judo. Risk increases when you embark on developing new products to sell to your existing market, but the risk of failure really shoots up when you begin digging in someone else’s backyard, attempting to transition your existing products to new markets, or to diversify with new markets and new products. Success in doing so depends largely on the organization possessing a Core Competency upon which its strategy is based.

One of the important tasks in strategic planning is to identify your organization’s (or segment’s) strengths. Opportunities are derived from capitalizing on one’s strengths. Core Competency is a special kind of strength. If you have one, it can provide you with growth opportunities far greater than that of an organization without it.

Most enterprises will not have a Core Competency, and it isn’t a requirement for success. Businesses with one simply have avenues of growth that are not available to others. Examples of Core Competency include 3M for adhesives and coating and Black & Decker for small electric motors. Core Competencies enable an organization to launch a variety of end products often appealing to different markets with different needs to be satisfied.

Prahalad and Gary Hamel coined the term “Core Competencies” in the 1990s and set out the following test for identifying a core competency:

It must provide access to a wide variety of markets, and
Contribute significantly to the end-product benefits, and
Be difficult for competitors to imitate.

Core Competencies are rare, and, in their absence, growth through exploiting new markets and developing new product markets are high-risk ventures. Capitalizing on the organization’s strengths to expand penetration of its existing market—digging in your own backyard—offers the high value-to-risk ratio.

# # #