- How to identify a company with a marketing problem, a staffing problem, or a vision and leadership problem.
- How to correct each of these issues.
- How to pivot these issues to help grow your business and improve the lives of those who work there.
There’s no such thing as a perfect company when it comes to acquisitions.
Whether you’re looking to expand your operations by buying a similar business to your own, or you’re looking to diversify your core offering, it’s almost guaranteed that whatever you find won’t be a perfect fit.
So how do we go about approaching potential acquisition targets? Given that the scientific study of M&A strategies is hardly exhaustive, there is no right or wrong answer. A strategy that closes one deal may be ineffective for another. This makes evaluating prospective deals rather difficult.
These archetypes are a way to create a scorecard for each company and determine what's missing from their operations so that we may make improvements.
When assessing a business beyond just its financials, it helps to break them into different archetypes. It’s a way to create a scorecard for each company and determine what’s missing from their operations so that we may make improvements.
For example, one company could have ample employees but not enough work to keep them busy. Or they may have turnover if the nature of the business is seasonal. This indicates a marketing problem. They don’t have the marketing to support keeping their employees busy.
Conversely, we may encounter a company with a staffing problem. The company is booked far into the future, forcing them to turn down jobs or stop bidding on new work. That company would need to recruit and train more people in order to do more work.
Another company may lack any sort of grand vision at all. These businesses are in want for strategy and purpose beyond just surviving the coming year. They have a vision and leadership problem.
Marketing Problem
The best way to look at whether a company has a marketing problem or not is to look at how busy the employees are.
If there’s a period of time where the workers are visibly not busy, or if there’s a large amount of seasonal turnover, it’s likely that the business doesn’t have the marketing to support its employees.
Some key questions you can ask are:
- How fully booked is the company into the future?
- What’s your booking rate?
- How often do you turn down jobs?
- What jobs do you turn down?
If a company isn’t booked well into the future, they likely have a marketing problem.
In order to address this issue, owners will need to make some investments. This will come in the form of branding and marketing efforts. Efficient marketing will help build awareness of your service or product and increase your bookings.
Peter Drucker, the leading expert on management theory, posits that “Marketing is not only much broader than selling; it is not a specialized activity at all. It encompasses the entire business. It is the whole business seen from the point of view of its final result, that is from the customer’s point of view. Concern and responsibility for marketing must therefore permeate all areas of the enterprise.”
Typically, an initial investment in marketing involves creating a new website with an emphasis on SEO (search engine optimization). Once you can start marketing your business more efficiently, you should see an increase in bookings and a decrease in the downtime of your workers.
Marketing is also the fastest problem to fix, especially if you’re using paid channels. Direct mail, Yelp, and Google My Business can all be optimized to help you solve your marketing problem quickly and efficiently.
Staffing Issues
The opposite of a marketing problem is a staffing problem. This is actually more difficult to correct than a marketing problem.
The telltale sign of a staffing problem is an overworked employee. It can also be identified by a propensity of jobs being turned down. You may notice the company has even stopped looking for or bidding on new jobs.
These issues normally indicate that the company needs staff.
In order to correct this issue, you’ll need to concentrate on your recruitment and training efforts, as well as your employee retention programs. You also need to ensure that someone in the company is fully in charge of the recruiting process and someone is solely leading the onboarding and training process. This creates ownership of the processes and establishes accountability.
To ensure that your company is holding on to the right people, a few key questions to ask might include:
- When was the last time X employee took a vacation?
- How much overtime is being paid each month?
- How do you bid on jobs (if commercial)?
- How booked out in advance is the company?
Another way to begin correcting this problem is to start thinking about your employer brand proposition. Here are some questions you can ask to help you develop one:
- Who are you?
- How do you create a strong workforce compared to other companies?
- Why would someone want to work for you and not your competitor?
This usually comes down to creating a strong work culture. How you conduct meetings, how you have fun, how you take vacations, and celebrate birthdays. These are all ways that you can define your employer brand proposition and company culture.
A company without a culture moves more slowly. That’s because culture can serve as a framework that impacts how decisions are made. Companies without a strong sense of culture or identity are lacking a consistent framework for decision-making. Resulting in a less-efficient workforce.
Leadership Issues
The third archetype you’ll encounter is a company with a leadership issue.
You can identify these firms by looking at their organization chart. If the chart resembles a crepe more than a stack of waffles, you’ve got a problem. A flat chart typically indicates that someone within the organization is taking on too much work or wearing too many hats. And that means that there are too few leaders in the organization, which can actually inhibit your growth.
Ideally, you should have squads of five-to-ten people with one leader at the top. That leader can communicate to their superiors and ease communication between groups. This way, even organizations with a million employees can evolve.
Many small businesses won’t be able to grow past 15 people because they simply don’t have the leadership to take them beyond that point.
If you believe you may have found a company with a leadership issue, there are a few steps you can take to address the problem.
Begin by creating your own organization chart for the business, assuming it doesn’t already have one. Take that chart to the seller to ensure that it’s accurate. Then you can expand by asking a few questions:
- Who’s responsible for X task?
- Who are the leaders in the organization?
- Who directly manages other people?
- Who reports to you (the owner) directly?
- Who reports to the people who report directly to you?
This will help you develop a thorough understanding of the organization and find potential holes that you can fill. The higher the stack of waffles, the more room there is for maple syrup, and the more delicious the meal is for everyone at the table.
Next, start thinking about leadership training. If a company has 15 people and hasn’t started developing new leaders, it’s already behind. The best time to start developing talent is when your company reaches around eight people.
Many companies will just promote people internally into a management position, and those people will have no idea how to manage others. A training program can help ease this transition.
As the company grows, so should the leadership team. When you have more than 15-or-so people, there should be a layer of management. Once the number of managers reaches critical mass, they will have senior managers and directors above them. Above that is the C-level.
The reality is, if you’re the CEO of a company with 28 employees, you’re usually a director. The CEO position doesn’t really become meaningful until you have a few directors working beneath you, coaching your managers.
You’ll often find companies that lack vision because these organizations simply aren’t large enough to support a CEO. It should be the CEO’s job to define the company’s trajectory, but if they’re too busy handling director-level tasks, they’re unable to truly envision a path forward.
This can be true for companies of any size. If a CEO is too preoccupied with the day-to-day tasks of running the business, if they’re wearing multiple hats, then they’re not being an effective CEO. This is usually because the organization chart isn’t sufficiently deep.
Conclusion
At the end of the day, these archetypes are just one factor in what makes for an attractive acquisition.
It’s incredibly rare to find any business that avoids falling into one or more of the above archetypes. But by identifying the issues, improving them, and maintaining them, you’ll be able to make that business more effective and profitable for years to come.
What would attract you to acquiring a company? What would you consider a red flag? Let us know in the comments. And if you think this article could be useful to others, please feel free to share it.
You can also check out our Acceleration Gauntlet if you’re interested in buying a company for yourself.
Key Takeaways
- If a company isn’t booked well into the future, they likely have a marketing problem.
- The telltale sign of a staffing problem is an overworked employee.
- A flat organization chart typically indicates a leadership issue.
Acquira specializes in seamless business succession and acquisition. We guide entrepreneurs in acquiring businesses and investing in their growth and success. Our focus is on creating a lasting, positive impact for owners, employees, and the community through each transition.
