If you’re trying to grow your company primarily through marketing (or, what I call organic marketing), you’ll be pleased to learn there’s another tried and true way to accelerate the growth process, especially if you have the right stuff in place.
That way is to acquire other companies. In other words, you buy your way to growth.
Why acquisition? Acquisition is about instantly acquiring a lot of customers who are already trained to buy from that company where organic marketing is just a wish and hope that they’ll see it and respond to it.
Note: This doesn’t mean you can stop your other marketing! You still need what I call the three rights of marketing:
- The right amount of calls
- From the right customers
- At the right time
Acquisition, though, will rapidly increase that pool of right customers, so you have a larger base. But that’s not all. You could also acquire the company’s good will and sometimes their assets like trucks and inventory or even their building and key talented people many times.
But wait, Al. I’m not a giant company. Can I still do acquisition? The answer is… yes, absolutely.
Remember, you’re not competing with companies paying high dollar because they’re not interested in the smaller owner-operated contracting businesses you’re after. Even up to 5-7 trucks is typically too small for them to bother with.
From your perspective, however, adding 7 trucks could increase your revenue by $2 million a year or more, depending on how good a job you do.
The other thing that happens is economies of scales rise and so you’ll make more money that way. For example, you won’t need two sets of CSRs.
But, there is a catch. Being successful with acquisition hinges on your ability to take on new people and train them your way. Success leans heavily on documented systems, processes, and procedures so you can add staff and have them do things your way.
Here’s a funny story. I was on a podcast once talking about systems and procedures where the hosts laughingly told me that they once opened another office right next door to the original office and said it may as well have been across the country for how different it operated!
Another reason to acquire is when your ideal customer lives in a place that is an hour or more away. In that case your main office becomes the hub and the acquired company becomes the spoke. It’s like a beachhead you can market around.
Acquisition also allows you to take competitors out and gain expertise in trades you don’t do (know that you’ll have to expand your training program to accommodate the new offering).
With documented processes and the right training (and a well-trained field supervisor) the spoke will run just like the hub.
Your ability to play will be dependent on:
- How much money do you have?
- How documented are systems and procedures?
- How well can you train and retrain people to scale?
So, how would you buy someone else’s company?
As I said, the first step to being able to do Acquisition in the best way is to make sure you have systems in place so you can grow as fast as you want. If you don’t have systems, you won’t be able to retrain staff and get them working your way. No systems? Start putting some in place that can allow for potentially explosive growth today.
If you already have systems, you’re ready for Acquisition. It’s a spectrum that goes from mild to wild so see which one of these seems most doable to you. You can always get wilder in subsequent deals.
- Acquire inactive phone numbers that contractors who went out of business never disconnected and get those abandoned phone numbers to ring at your office. (That’s pretty mild. But still great.)
- Offer to buy the phone number from a contractor who is going out of business and closing the doors for a low flat price.
- Offer the owner/operator of whose business you want “Mailbox Money,” a term coined by my fellow business consultant, Ellen Rohr. In this model, the owner stays home, and when a call converts to a sale at your shop, they get a percentage dropped into their bank account or, less frequently now, a check for the percentage in their mailbox. You pay the contractor you’re acquiring a percentage of sales from calls that originate from their designated phone number that end up as a sale. This deal typically remains in effect for just one year.
- There’s also “Hybrid Mailbox Money” where you offer to get their phone to ring at your office and pay them a small flat upfront fee for that and a percentage of the call when it closes with a set timeframe like one year.
- There’s also “Balloon Mailbox Money.” That’s where you offer to get their phone to ring at your office and pay them a small flat upfront fee for that and a percentage of the call when it closes with a bump (aka a balloon) if sales exceed what you both agreed the minimum annual sales would be. That would happen only once and usually after you tally up sales for the first year.
- Getting wilder, you can buy a company outright and shut their office down and put it all under your roof. You typically pay the outgoing owner a percentage of gross sales over 3 to 5 years. They keep the assets (trucks, building), and you acquire the phone and the customer list. Their staff can apply for a position with the company without a guarantee of employment.
- You can also do what most people think of when they think acquisition, which is to buy the company outright and operate in their location. There are three ways to do this:
- Lease their property and building.
- Lease the property and building with first right of refusal, i.e., you get first dibs to purchase everything if they ever want to sell.
- Outright purchase the property and building. In this scenario, you pay the seller/contractor a percentage of gross sales over 3 to 5 years. You also keep all the assets (trucks, stock, etc.) and acquire their customer list. You might also add a non-compete agreement tied to a level and length of employment for the owner but with no guarantee of long-term employment.
Many successful contractors I’ve worked for originally worked at the company they ended up owning. Usually, it was because the prior owner had no one in their family who wanted to run it or that they trusted to run it the right way. They had a goal to sell it and not have to come back to rescue it. When a sale of the company to an employee is done right, it can be a win-win.
You might think that it’s not a good time to buy a company with a recession on the way.
Here’s the thing: You may find that now, more than ever, some owner operators would be glad to sell rather than go through the slower times and face going out of business and end up with nothing. In this case, depending on the size of the company, you may offer to do one of the “Mailbox Money” type acquisitions and then see what happens.
Do check with your own trusted advisors as there are a lot of things to do, but in my personal experience, done right, it’s well worth the effort.