Factors leaders should consider when acquiring new business
“Entrepreneurs are simply those who understand that there is little difference between obstacle and opportunity and are able to turn both to their advantage”
Did you know that it took the ancient city of Rome less than 53 years (the average lifespan of the Kenyan man) to conquer the whole known world?
Did you know that this expansion was done one territory, one city, one war at a time? Did you know that it is to Rome that we owe our current counting system, theories on the development of infrastructure and system of government?
The Roman Empire, whose ancestors still live with us today, perfected the art of acquiring and assimilating territories to their empire; they are a worthy example for any family business that wishes to expand.
In 1967, Raymond Ackerman, recently out of work from a leading supermarket, put together some funds from colleagues and bought four unprofitable shops in Cape Town called Pick ‘n Pay.
Adopting a strategy similar to Wal-Mart in the USA, Ackerman offered everyday items at low prices; in a short while he turned these around and acquired more stores; Pick ‘n Pay now has more than 700 stores in Southern Africa and is one of the continent’s leading family businesses.
This strategy, however, doesn’t always work. A Nairobi-based entrepreneur who had been extremely successful in hair and personal care business decided to diversify by acquiring a family owned money transfer business.
Making the assumption that the numbers he was given by the owner were factual, that the business could run itself and that the owner’s son would hang on in the business to help him run it, he confidently bought the owner out and in the process, made a series of errors.
First – the entrepreneur entered a venture with whose operations he was not familiar. Every business has its language and customs; not all are alike.
Those within the same sectors can, like similar ethnic communities, understand each other. Outsiders cannot. He did not know the new businesses language and they did not know his.
Second mistake – he agreed to keep the owner’s son as part of the staff, creating two centres of power; the old and the new. Given that the young man was familiar with the business, he soon became the main point of reference.
To these he added the third and most debilitating; he managed the business by remote control. Had he immediately set up camp in its offices to keep an eye on matters he might have stood a chance.
As it was, he was already focused on his other business. By the time he got to know about the problems his new acquisition had it was making significant losses.
So how is it that expansion works in some cases and doesn’t in others? What can leaders of family business do to ensure that their attempts to expand their empires have increased chances of success?
Leaders of family trade must understand that while acquisition of other businesses is one of the quickest and surest way to grow an entrepreneurial venture, this process requires careful planning and extreme caution.
This is because existing businesses that have been running under a single leader for a long time while harder to acquire are much easier to keep for those who understand their nature.
Entrepreneurs who wish to expand should seek new acquisitions that speak the same language, that is, operate in the same industry. They are easier to operate, keep and tend to be more profitable; even then, care must be taken to extinguish the line of the former owners.
While new acquisitions in different industries may be easy to acquire, they are difficult to manage and usually require the new owner to set up camp in the business if it is to grow into an empire. Failure to do this often results in loss of both the new and the original businesses.
Expansion of businesses through strategic acquisitions is one of the safest, quickest way to grow a family business. However, leaders should be cautious about the first acquisitions – ensure that they are in the same sector and that they are in full charge of operations.
Author: Mr Mutua (firstname.lastname@example.org)
Courtesy of Business Daily