When starting a company, business owners create a list ofgoals they want to accomplish. Some are heftier than others, but the biggest milestone a company can achieve is consistent growth combined with healthy profits. There are many ways to do this including doing it organically, but one option we chose was to acquire a company in a different geographic market or be purchased by an outside organization.
A year ago, my company, San Diego-based Red Door Interactive, acquired Breckenridge Communications, which was headquartered in Denver. Both firms felt that the timing was right, and I believe we’ve set up this new growth initiative for long-term success. However, history tells us that most acquisitions end up failing to achieve their original goals. So before other companies integrate, here are five critical points I feel organizations must consider before signing the next term sheet that crosses their desk.
1. Determine your value proposition
When deciding where to expand, companies need to find out if their services are unique and valuable within the prospective markets. Denver was an attractive prospect for Red Door Interactive because no other Internet Presence Management firm existed in the area. While there were several interactive agencies in town building Web sites for clients, we felt Red Door’s comprehensive online strategies that focus on ensuring that organizations will profit from their Web initiatives was a compelling competitive advantage.
2. How to replicate the business model
Attempting to take a formula and transfer it to a new city can be a daunting, but necessary, task to ensuring a successful acquisition. It’s essential for an established, successful model to be secured and a new destination be selected where it has the ability to flourish.
In our case, we spent almost seven years fine tuning the Red Door Interactive business model in San Diego with the intent on expanding it into new markets. Breckenridge Communications saw the benefits of increased efficiencies and profitability by adopting the processes for the Denver market, so integration was not only possible, but welcomed by all parties.
3. What to look for in a partner
When searching for a company to acquire, we had to closely examine the team, even more so than its client base. Finding people who could embrace and foster the company culture was a necessity in order for the acquisition to succeed.
To that end, we needed to focus on the experience of team members to ensure their skills and personal philosophies were compatible with Red Door’s mission and core values. We found Breckenridge Communications and Red Door Interactive’s team members held complimentary skill sets while possessing very similar work ethics. I feel that acquisitions tend to fail more often because of the incompatibility of both organizations’ cultures. We had to make sure that was not the case with us.
4. Build versus buy – what makes more sense
When considering an acquisition, both parties involved may wonder if it’s better to simply grow organically than to integrate into another firm. In our case, we had a variety of reasons why acquisition was the best approach.
Among those reasons was local knowledge. Breckenridge Communications’ experienced team of five had been working together for years and possessed extensive current market knowledge that Red Door Interactive found much more beneficial than to simply uproot a team well-versed in the San Diego market to the Mountain West. At the same time, Breckenridge believed that Red Door’s added financial and operational support positioned them well in meeting their own expansion plans.
5. Commit to the end result
Growing a company in a new market can be a challenging – yet exciting – process with many benefits to offer.The negotiation phase was not one of them for us. When going through the acquisition process, I learned that it’s important to believe it will work and commit to it. There were certainly bumps along the way, but we react to those challenges and respond to them as we naturally do: We keep focus on the end state and work toward the vision By maintaining a focus on the desired outcome, we were able to, rather than write something off, make it work.