17/02/2022
Scaling your business [Part 1, for the ]
__Would you consider merging your business with that of another entrepreneur?
A merger is when you combine your business with one created by another entrepreneur. Most people think that Mergers only happen between large businesses, but that is not true.
I have done some really cool mergers in the past, and our business would not be as big as it is if I had not mastered the power of merging. Mergers have always given me an opportunity to make my business bigger, faster. We call this getting .
It is still about the two key formulas of the entrepreneurial playbook: INNOVATION PLUS MARKETING-COST=PROFIT.
A business [that has identified and reaches out and solves a human need] as a result of the “3Ps”, and nothing else!
.
You might have a good [that solves a customer problem in an way], but you don’t have the who can drive the other pieces—Marketing, Process, Cost Management.
If you hear an announcement that so and so companies are merging, would you be able to break down the benefits using the Entrepreneur’s Playbook, without waffling?
__Will the merger create a better company? Will it produce "profitable solutions to problems of people and planet”? [Prof Colin Mayer~Oxford University]
When you “merge” two companies, you are not looking for 1+1=2, but rather 1+1=4 or even 5!
If you are considering a merger, you must look at:
1. The Products
2. The Market [customers] and the Marketing
3. Innovations going forward to create better and more Products
4. The People
# Who is going to be doing what in the new company?
# What is their caliber?
# What is our ability to get access to the best people out there?
# Who are the top specialists that drive this business going forward?
# Leadership and management—Who will run it?
# How do you accommodate the founders, if they are still around?—Tough one!
# What about the board of directors?
5. The Processes
A bigger company requires more sophisticated management processes, from IT, to distribution, to HR, to financing!
6. The Costs
By combining the two companies, we must be more efficient. This means some people will probably have to leave, whilst new ones come on board.
7. Finance
This is a !
I know some of you don’t like to hear that, but I’m not here to make you happy, or join a self-pity party. Many people don’t access money because they lack skills to raise capital, and it might be a good way to solve this problem by merging with someone else who has that skill.
In a merger there is usually no exchange of money. The owners of each company must agree on a valuation procedure to be followed. These are quite straightforward for a qualified Accountant to execute.
Let’s say business A is valued to be worth $25,000 and business B is worth 30,000, then business C [the merged company] is worth $55,000.
The owners of A own 25/55=45%, and those of B own 30/55=55%, of the new company. The owners of the merged company must agree in advance who will be CEO, and who will be chairman of the board of directors.
This is captured in a proper agreement called a Shareholders Agreement.
Once signed, the courts will enforce that agreement if there is a dispute between the parties. The new owners must agree in advance how the company will be organized after the merger, including who initially occupies key positions.
Mergers can be easily destroyed if the founders have big egos, as they require an acceptance that no one can now make decisions about the company on their own.
On , can you remember some really famous mergers?
There are many benefits of doing a business merger. For your , I would like you to research these benefits and add them by way of comment.
Image caption: Last week a lot of you made comments about the photo of the lion, completely losing focus on the matters at hand! I am glad you liked it, but if you want to comment on photos, as an entrepreneur, what do you SEE here?