Growth Options, Am I Limiting Myself?

Your business is doing ok but you want more….  You feel there is more potential and you want to capitalize on your energy and drive while you can…  Are you in that position?  What are your options?

Each situation is unique as it varies by products or services, large or small products, your target market, maturity of the business, profitability, infrastructure and many more factors.  Let’s look at some potential options.  The most obvious step is continue to do what you are doing as it works and just be more aggressive in defining your market, segment wise or geographically.  Ramping up the marketing and sales effort is generally the one thing that is tried first as it can be done with least additional expense and is just an expansion of the existing strategy.  In geographical expansion it may work with sales people working from their home until a customer base is established enough to justify some infrastructure.  This can be applied to an international expansion as well.  However, on the international side of things many more factors come into the equation and it is less comfortable and familiar combined with higher costs and additional paperwork associated with it. For example if you have need to maintain inventory in your target market, this leads to a relation with some form of storage facility either directly or most likely via a third party vendor and then you have to address all the control, documentation and paperwork issues for those products in that country.  Again depending on the nature of your product, you may be able to drop ship to your customers.

There are also other options via independent sales representation companies or agents in various locales, especially internationally.  However, caution needs to be exercised as they are generally very independent and performance oriented so agreements need to be constructed to provide the guidelines encouraging them to represent your company they way you envision.

Another area often overlooked is a merger or acquisition with a vertical or horizontal competitor or supplier.  It gets written off early on because of the higher cost associated with these transactions.  True, however, what is the return.  Before it is ruled out, analyze it with an eye toward the addition of their margin and what economies of scale on the expense side and potential cross selling on the marketing side. Where does this position your company? Now consider how I might pay for it and when I am paying for it?  How confident am I that it will work?  What am I willing to risk?  What if your business brings benefit the the other company as well, a synergy if you will, then it becomes a matter of finding the common ground where you both win.  Maybe the owners are older and looking to slow down or semi-retire or retire.  Then the focus becomes one of security and return to them.  Mostly they will be looking to cash out on their efforts and will need assurances that you can deliver and what are you willing to risk to bring it to fruition? In the past, I have seen these transactions work through some cash and a note.  The note was actually a convertible preferred debenture that was convertible into controlling ownership of the common stock with very clear performance provisions and rights to cure time frames.  This can be established for a potential succession plan as well.  In that there is a rate and payment plan structured in the debenture.  As long as the performance criteria are met then everyone is happy.  Yes, I know Murphy’s Law always comes up.  Thus the right to cure provisions allowing you time to fix issues that may be just temporary.

The point here is that you never know if you do not open the dialog.  What if they have no family to succeed them and are looking for a strategy over say 5 years to cash out.  Can you capitalize on their customers and/or expertise to exponentially grow the combined business? What if you are acquiring a supplier and you can not only absorb their margin but improve upon it through efficiencies through combinations or cheaper locations?  The possibilities are endless.  The question to ask yourself is have I explored all my options?

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