In business, there are many industries. No matter the industry, small businesses are somehow behaving in a similar pattern – this results in an opportunity to grow your small business into a winning champion.
It does not matter whether your small business is in healthcare, finance, or any other industry. From my observation there are usually three types of small businesses:
Note: Let’s define a small business as a business with fewer than 50 employees and a turnover of less than 10M€.
- Type 1: Profitable businesses which already exist for a long time. They have their own product which a strong base of regular customers rely on. Therefore, they often enjoy a good reputation in the industry and among their clients. Their customers usually stay loyal even though they may dislike old processes and the lack of digitalization.
- Type 2: Small businesses who don’t have their own products but who have mastered the reselling in a specific industry. They are a trusted supplier for many businesses in the industry. They are extremely strong in distributing products to the actual customer.
- Type 3: Startups who bring innovation and technology into the market. Usually startups start from scratch: with zero revenue, zero customers, and no distribution channel. However, their technology and digital approach usually have the power to breathe the much needed new life into an industry.
Acquiring and/or Merging for Success
Now you might have identified yourself as a small business of type 1, 2 or 3. No matter which category you fall into, in order to cancel out the weaknesses of your type of business and profit from the advantages of the other types, I suggest you to think about acquiring or merging with the other two types of small businesses. Let’s look at it briefly from all three perspectives.
Type 1: Skyrocket your sales and adopt the technology of the future
If you are an established small business with a loyal customer base and a good product, you could skyrocket your sales and update your product to the state of the art technology. Usually this would require you to grow your sales team and make high-risk investments in developing new technologies in-house. This is risky and does not promise by definition success. By merging or acquiring with one business with a superb distribution channel to your potential customers, you get immediate access to a large number of trusting customers. The acquisition or mergers of a technology startup will upgrade your products with new innovations to ensure your leadership role in the long-term.
Type 2: Stop relying on other-people’s products and distribute your own
As a trusted supplier you are already in a strong position to become a market leader in your industry. However, what you are lacking is an innovative product which you can directly sell to your existing and potential customers. By acquiring or merging with one of your suppliers, you can multiply your profit in an instance. Add the technological leadership and know-how of a startup and you just created a future-proof and winning business.
Type 3: Skip Venture Capital, buy revenue, and get customers immediately
If you are a startup, you are in the worst starting position. You developed a winning technology, a new product or simply a better way of doing things. However, you start with zero capital, a small or non-existent team, and no customers. As a result, your startup either grows extremely slow by bootstrapping (which will most likely kill it) or it must rely on large amounts of venture capital to become a market leader in the future. The chances of failure are high. Too high. But I suggest they don’t need to be. As a startup you can use small business loans – which are available in most western countries – to acquire an existing small business. This existing business already has customers and is profitable. By acquiring this business you get immediate access to all their customers in your industry. You can then use the free cashflow to acquire a strong distributor and, from there on, have enough free cashflow to refine and ship your technology to your customers.
Acquiring or merging with existing businesses puts you in a position to win. You can improve your product, grow your customer base, or sky-rocket your profit margin with only a few transactions. Trying to achieve all this internally and organically is a high risk an entrepreneur shouldn’t take if other options are available.