Beermat Club:
Ask Mike
Is it best to acquire or to expand organically?
Q. I run a young fast-growing PR business, based in London. I am thinking about expanding into other UK cities, but is it best to acquire or to expand organically? Jim Hawker, Threepipe Communications
A. It is always better to expand organically than to acquire.
When you acquire a company the main assets are their people and their client list. Both are at risk, post-acquisition. The staff will be worried about the new ownership and may be thinking of moving on. Their clients may have loyalty primarily to the owner of the acquired company, who is probably planning a swift exit.
Also, the general culture of the acquired company may be radically different to your own, which would cause problems. People in the regions can be very suspicious of “those London people and their London ways which don’t work here.”, plus your people in London will be bemused by how people behave “out in the sticks”. The last thing you want is an us-and-them culture emerging, which can be very destructive.
The best way to expand is to grow one location at a time, based on having a first customer in each place already identified, with actual revenue on the table. The new customer may also be able to identify a local PR person it likes, perhaps already working for one of the companies who were on your potential takeover list.
Have this person work first from your London office, so they fully understand and take on board your culture, as well as developing good communications channels with your staff. When the time is right they can move back to their region and begin to hire local people. But these new staff must also all first spend time at your office to learn your ways.
In this way you can grow incrementally, replicating your success in London. But do not grow too quickly. Make sure each new office is fully integrated before doing the next one. The mathematical model of outlet expansion shows that your problems will grow exponentially with each new location, and this will be very time consuming.
Most problems are caused by poor communication, so make sure you have all your offices meet each other, both formally and socially, at least twice a year. This is a great excuse for regular parties.
Mike Southon, co-author of The Beermat Entrepreneur
First published in the Financial Times: 25th November 2006