by Scott Bushkie, CBI, M&AMI
Most first-time business buyers start the acquisition process with an ‘I’ll know it when I see it’ strategy. Both individuals and existing business owners come to us with this approach.
It won’t surprise you to hear, however, that it’s not a good use of our time to engage in a sales scenario destined to go like this: “How about this business?” No. “How about this?” No. “This?” No, that’s not right either.
It reminds me of a seasoned business advisor I know (he’s probably in his 80s) who works out on the east coast. Here’s what he tells the ‘I’ll know it when I see it’ buyers:
He says, “I’d like you to go to your local airport. Watch the people come and go. Look for your future wife or husband. Once you’ve picked them out of the crowd, take them down to the chapel, and get married. Once you’ve done that, come back to me and I’ll help you find a business.”
His point? The ‘I’ll know it when I see it’ approach wastes time and money and has little chance of success.
When we work with business buyers, we help them figure out what they want. But even more, we help them figure out what they need.
That means, we figure out what they’re good at and what they’re not, what they like and what they don’t. Certain companies will be benefited by certain types of owners. You can’t just buy something because the margins are awesome.
When I talk to UW-Green Bay business students about M&A, I ask them to choose a company and then find an acquisition for that company. And I ask them to look beyond the obvious big-fish-buys-smaller-fish scenarios. I push them to look for synergies.
For instance, they might ask themselves, “What’s that one advantage we have over our competition?” Then they find companies that aren’t good at that one thing. In other words, they find a company with a weakness that’s easy to fix.
By the same token, maybe they’ll target the one thing that’s holding them back, and then find an acquisition target that does that one thing particularly well.
It’s the same thing I tell business owners when I ask them to imagine their business is like an hourglass. What’s the middle part that’s squeezing things in and slowing you down? Now, imagine you could find a business acquisition that would open that middle part up, even a quarter of an inch.
Questions like that help move buyers past the ‘I’ll know it when I see it’ mentality. If it doesn’t, I suggest they hold off. If you don’t know what you want, don’t try to grow through acquisition. Grow organically until you have a plan.
Scott Bushkie is Principal of Cornerstone Business Services, an M&A Advisory firm. To request a book with advice on the exit planning process, or to discuss other confidential options, contact Scott at (920) 436.9890 or [email protected].