Many businesses with high valuations grow through a blend of organic growth and inorganic growth. The key is to find the right balance for your business and the markets that you serve and the right synergies with your acquisition targets.
The approach you use for organic growth can also apply to inorganic growth. Start with the market problem and market definition, which are the same regardless of growth type. Make sure to gain a clear definition of market segmentation and an understanding of buyer personas, including the business value these buyer personas will achieve by solving their problems.
It’s also important to understand the distinctive competencies of your company and those of your acquisition target. This information will be crucial in determining how to address post-close business integration.
The acquisition will bring customers, products, intellectual property and talent. You’ll need to evaluate each area separately.
You need a good sense of your cost to acquire a customer (CAC) and then compare the acquisition cost to the cost of winning these customers in the market and retaining those customers. The target company’s relationship with its customers is critical and tends to also reflect the level of talent.
It’s important to assess how well the products solve market problems. Many target companies are not aware of the Pragmatic Institute model and don’t have anything like marketecture, which maps up problems to features. But if you plan to continue selling a product, you’ll need to quickly build out the marketecture as a prerequisite for marketing and sales planning.
Intellectual property acquisition—such as patents, copyrights and access to relationships that facilitate sales—tends to be pretty straightforward, but you’ll want to be clear about what you’re getting and the implications.
Talent is the acquisition wild card. People do business with people, and key industry and customer relationships are often dependent on individuals. Assessing the right people to retain is a combination of science and art that needs its own book. But it is essential to retain industry, domain, customer and product knowledge.
While all acquisitions at their core involve one business taking over another, there are often distinctly different strategic reasons behind the transition. To learn more, read the full article by Frank Tait in the latest edition of Pragmatic Marketer.