Acquisition, or start from scratch?
I run a media recruitment agency and am considering diversifying into providing employee training to both the companies we currently serve and the individuals on our books. I think it’s a good fit, but can’t decide between starting from scratch or acquiring one of several companies successfully operating in our area. How should I decide on the best strategy?
A. Jim Rogers of Grant Thornton writes:
In any strategic decision there are some key questions you need to ask yourself:
? Why are you doing it? Consider your goals and objectives to ensure your plans to diversify into training are not in conflict with them.
? Where do you choose to compete? How attractive is the recruitment market to others? How secure is your position? And what is the training market like that you plan to enter? Look at the competition, sellers’ bargaining power, buyers’ bargaining power, threat from substitutes and alternatives, and barriers to entry.
? What is your sustainable advantage? Do you have the skills and technologies to succeed? Look at your people and database in comparison to others. Don’t simply list your strengths and weaknesses, but compare them to others operating in that market. How is employee training linked to your core competence?
? Which products and markets should you concentrate on? Look at your products and services, comparing your market share with the market attractiveness, how will breaking into this new market affect your existing recruitment offering? Are you spreading the business too thinly?
You will also need to do some market research. Talk to some of your customers and see if they would buy a training service from you, look into whether other recruitment agencies offer employee training services. You should know what skills and attributes people need to have within the media sector, but whether or not you can transfer that into a training function will be important to its success.
If you do decide to proceed, your question of ‘how?’ is a valid one. The answer will depend on a number of issues: How much time can you justify outside your current business? How quickly do you want to grow? How would you finance an acquisition? What is available to purchase? And, do any of your current staff have transferable skills? A successful training business will be dependent on its key people, so if you do decide to make an acquisition it will be important that those key people are identified and appropriately tied in.
Finally, you should proceed cautiously and seek independent advice, exploring all the risks, to ensure that you do not damage your current business. Investing time in forecasting and business modelling is essential and will provide you, and any other stakeholders, with significant comfort.