Business Acquisitions – To Build or To Buy?

Written by Dr. Nolan Duck

Dr. Nolan Duck is a Board Certified Broker with the Texas Association of Business Brokers (TABB) and a licensed Commercial Real Estate Broker with the Texas Real Estate Commission. Nolan is also a Certified Value Builder, Certified Exit Planning Advisor and member of the Alliance of Merger & Acquisition Advisors. As a business coach, author and public speaker, Nolan enjoys sharing advice and consulting with business owners seeking to grow, expand or exit.

Business Acquisitions – To Build or To Buy?

Oct 31, 2019 | Mergers and Acquisitions

Business Acquisitions  |  To Build or Buy ?

A common characteristic of nearly every potential business acquirer is to calculate how much your business would cost if they were to create one much like yours.  Should an acquirer determine they could buy your business at a lower price point than it would cost them in hard and soft costs to have their employees build a competitive product to yours, then the buyer could be more expected to acquire your business.  If the buyer thinks it would cost less to create your business themselves, they are likely to choose to go competitive rather than purchase your company.Business Acquisitions

It would be wise to concentrate your efforts on a service or product that has a striking difference to that of your competitors.  Your business would then be hard to recreate and you will be on the path towards creating your own competitive stronghold.  You will find that then you have the control of terms when you pool all your capabilities into continuously being different than others since re-creating your business will be more difficult the more you focus on one part.

We have seen this many times–

A company offers such a wide variety of products and services that are not all that different than others on the market.  When your business does not stand out in the herd a buyer could then make the assumption that they can create their own business by modeling your business.   This is often done by undercharging from your price points and ultimately taking away your business indirectly.

Mini Case Study – C-Labs and Building a Unicorn of an Product

C-Labs began in 2008 after Chris Muench sought to go after the increasing possibilities of the Internet-Of-Things (IOT.)  In the beginning, Muench wrote specialized software for machines to talk to one another.   Muench had an industrial giant that then acquired 30% of C-Labs in 2014.   This provided the money needed to modify his service offering into a single product.

Stress points began to show when C-Lab’s was loosing money in late 2016.

A seven-figure deal was the result of the C-Labs acquisition, yet it could have been up to eight figures had Muench made his goal numbers.  What would make a big company buy into an fledging new business as C-Labs?  It comes down to the technology.   It would have cost that big company so much more to create it themselves rather than paying the seven-figures to simply buy C-Labs.

Essentially, C-Labs was a better deal to the acquirers than to re-make a company like it for an IOT.

The real way to make your company different from others like yours is to make it hard for anyone to re-create it.  A business is likely not very sellable if you have too many unrelated services or product offerings.

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