Twitter   RSS   Email  
 
Home
Admin

 How the Global Economy is Dependent on Christianity


 Why America May Never Recover From the Recession


 Save Money Homeschooling


It’s Cheaper to Buy Another Company

By: Steve Johnson

2/27/2008 - 37 Comments

Have you ever wondered why companies buy other companies? The reason is that it's the cheapest way to gain new customers.

New customers are the driving force behind company acquisitions.  In competitive markets, throwing more money at marketing and sales, just doesn’t bring in customers fast enough to hit growth targets.

The acquisition strategy is a fast-track for gaining customers and growing a business.  It’s not, however, without risk, particularly when it comes to successfully integrating the two organizations and migrating the customer base into the new company without losing any customers in the process.

The high profile acquisition of Yahoo by Microsoft is all about extending Microsoft’s customer base in a very competitive market.  At this point, it is next to impossible for Microsoft to grow its Internet market without buying the loyal customers of a competitor. 

Buying up the competitors is also a strategic to increase profits by increasing prices. Fewer competitors allow the industry leaders to increase prices, resulting in higher profits.  So, just by buying Yahoo, Microsoft will be able to increase its prices on its own products.

Lots of Money

Acquisitions take money, and lots of it, which is why low interest rates usually trigger a stampede of acquisitions.  If your company is planning to grow with acquisitions, now is a good time, because you can borrow money at 7-8 percent.  This is historically low and will most likely be higher as the economy slips into a recession, and inflation becomes a problem.  Higher interest rates make it a lot harder for businesses to justify long-term loans. 

The Startup

Most of the time, it is nearly impossible for a startup to directly compete in an existing market, because the competing businesses have far too much leverage over a startup. That’s why new businesses attack new markets. New markets have few competitors but they also have few customers, which leads to a business model heavily focused on direct customer relationship building. The entire staff of a startup is usually focused on direct sales for the first few years, focusing on converting non-consumers into new customers. 

After a startup creates a large enough customers base to produce a profitable revenue stream, they are a prime target for a larger business to acquire.  The hard work of building a customer base has been done.  Building a customer base is one of the hardest tasks in business, which is why successful startups are paid very well when acquired.

Copyright © 2017 PennyJobs.com. All rights reserved.

A Good Hard Kick in the Ass

Rob Adams help entrepreneurs find true markets for their products, design solid business models, and hire great teams – because that’s what it takes to build a successful company. The first thing to realize is that ideas are a dime a dozen. “Successful businesses don’t depend on unique ideas. Instead, they rely on a team’s ability to execute – to build, market, and sell a product that’s better, fasters, or cheaper, and to do so to near-superhuman perfection.”

Crossing the Chasm

This book is primary about moving from high tech products from early market success to mainstream market leadership. But, this book explains many of the concepts of moving a business from the starting gate into the marketplace. If you are trying to start a new business, this book will be very useful. This book talks about, attacking a niche market, creating competition, start locally – then globally, building relationships and many others aspects of getting started.

Blue Ocean Strategy: How to Create Uncontested Market Space and Make Competition Irrelevant

Blue Oceans are markets of non-consumers with no other competing products – unlike Red Oceans that are bloody full of competitors. This is a must read book for anyone considering starting a new business. This book provides a practical framework and analysis for the systematic pursuit and capture of new markets.

The Innovators Solution: Creating and Sustaining Sucessful Growth

Creating growth is a challenge for every company. This book is a study of the keys to creating sustainable growth. The results indicate that the companies that target their products at the circumstances in which customers find themselves, rather than at the customers themselves, are those that can launch predictably successful products. Much more in this book.