Increase Your Market Share By Buying Your Competition

I am always looking for opportunities to increase share of market for my clients, and certainly one way is by buying it. Buying a competitor can be a huge opportunity. What has a more positive impact? Mergers and acquisitions are an everyday part of big business strategies, we read about them daily in the newspapers. Why can’t small business owners follow the lead and seek out such opportunities as well? They can, it’s done every day.

Buying a competitor increases income immediately. It eliminates competitive bidding on the same jobs and duplicate marketing efforts aimed at the same customers that force lower pricing to be competitive. Additionally, there is always the advantage of being able to remove some duplicated overhead, as you probably already have the infrastructure required to run both businesses. A merger allows you to trim the excess overhead or duplicated staff, allowing more profit to fall to the newly combined bottom line. You can pick up key employees that will have a positive impact on both merged operations, and acquire additional equipment and other valuable assets.

In fact, it feels as though only good can come out of this strategy and this may be so. But what are the barriers? Usually cash and imagination. Small business owners seldom have huge cash reserves, large bank support or the ability to go public and raise equity capital like the big business players. Thus they cannot (or do not) imagine such a possibility. How does one pay a premium for a good company when stressed for working capital, let alone having adequate purchase money available or even having the ability to finance the acquisition by borrowing? There is always a way when there is a willing buyer and a willing seller.

The answer could be seller financing. Typically small businesses are difficult to purchase or sell due to the simple issue of financing the acquisition. Why not pay for the purchase out of the enormous efficiencies and savings experienced in the merger of two entities? The merger should throw off significant operational cash flow excess as the duplication is removed and the efficiencies are increased with more customers and less overhead. Pursue payout over time. There can be an ongoing weekly paycheck as the selling owner spends a little of his time helping to transfer the goodwill, customer relations and other areas of expertise. Simultaneously, the selling owner winds down, protects the integrity of the transfer and helps the new owner succeed, all the while understanding he will earn out of the success of the new entity. That’s the way to do it. It can be complicated, but sometimes its the only way a sale can occur and both sides win.

More often than not, however, the purchase overture is never made as the buyer does not believe it can possibly happen and does not even consider trying. Same goes for the selling side. Most frequently the selling owner is not really in the market to sell, just running his business without thinking about the future. Why not approach and ask your competitor if he would like to consider such a transaction? No brokers, no preconceived price or formula, something that two people can sit down and talk over and maybe, hammer out a win-win deal. I have done this before and with surprising success. Few business owners ever have an exit strategy, and even if they do have a vague desire to someday sell their business, that day frequently never comes until it is forced.

Be creative, identify potential opportunities and ask, “Would you consider selling?” You will be surprised how many will say yes if the deal is right. All that remains in that case is to work out the details of the right deal. Try it! Nothing ventured, nothing gained.