As the global economy comes roaring back, more and more companies are discovering that their balance sheets are now loaded with cash. Their investors don’t really want them to be building up stockpiles of money, instead they want the company to be growing. The quickest way for your company to do this may be to buy another company and add their products to your portfolio (much simpler than having to follow that product development definition thing). If your company decides to do this, what four things do you have to know about the best way to do these types of deals in order for the purchase to be a success?
Know the Business And The Industry
Why is your company all of sudden interested in buying the firm that they are considering? Did your CEO read a magazine article that told him that this was the new “hot” market or product that your company just had to get involved in? If so, then your life as a product manager may be just about ready to become much more difficult and that’s not going to look good on your product manager resume.
What you need to do is to make sure that at least somebody in power at your company knows both the business and the industry that the firm that you are considering buying plays in. This means that your company has to either have, or at least obtain through the use of consultants, deep sector, industry, or geographic strong>expertise in regards to the deal that is being contemplated.
Be Skeptical About Any Growth Assumptions
Don’t we all just make up those projections about future growth? Or if not “make up”, then at least don’t we have a lot of doubt about one or more of the assumptions on which such projections are based even when we are the ones making the forecast?
In a study of executives that was done by Ernst & Young, they found that most believe that purchases of other companies fail because the top-line revenue projections didn’t pan out in the end. What this means is that the company that was doing the buying ended up overestimating the strategic value of the company that they were buying and they ended up paying too much for it. Make sure that your company looks at every forecast with a doubting eye.
Don’t Let Your Company Borrow Too Much
If your company wants to buy another company, then how is it going to pay for it? As a product manager you should be very nervous if your company is going to be borrowing a lot of money to make this deal happen.
When a company uses a lot of leverage (borrows a lot of money), then this is going to magnify any problems that show up if the company that you are buying doesn’t perform the way that everyone thought that it would. As a product manager, you need to make sure that your company does not take on too much financial risk in order to add to its product lines.
Make Sure That You Take Your Time After The Deal Is Done
Have you ever seen those amazing pictures of a snake just after it’s eaten an egg? What they don’t tell you is that the snake won’t eat for days afterwards because it’s going to be too busy digesting what it just ate.
When your company buys another company, you need to make sure that everyone realizes that it’s going to take some time to digest the new acquisition. Don’t allow people to be thinking in terms of months, instead insist that they think in terms of years. Integration of two firms is much more than just getting information systems to work together. It includes merging two cultures and people into one new firm. Make sure that you have the time that you’ll need to do this correctly.
What All Of This Means For You
When your company finds itself flush with cash and has stakeholders who are demanding that the company focus on growth, it may be tempted to go out and buy another company. As a product manager, this may have a very large impact on the set of products that you manage even if this was never covered in your product manager job description.
In order to make sure that any acquisition turns out well for your company, you need to make sure that your company follows 4 generally accepted principles for how such a purchase should be done. First you need to make sure that the company fully understands the business and the industry that they are buying into. Next, you need to be skeptical about any stated growth assumptions. Make sure that your company doesn’t borrow too much money to make the deal because that can cause a great deal of pressure on you later on. Finally, make sure that enough time is given to fully integrate both companies.
It turns out that buying another company and adding its staff and products to your company can result in fantastic growth. However, the details about how best to make this happen is where too many product managers fall down. The next time that your company is thinking about buying another company, make sure that you apply these four principles before the deal is done.
Question For You: What do you think is the best way to accurately estimate the growth of the firm that your company is thinking about buying?
P.S.: Free subscriptions to The Accidental Product Manager Newsletter are now available. It’s your product – it’s your career. Subscribe now: Click Here!
What We’ll Be Talking About Next Time
Why is it so hard to create new products both on time and under budget? Your management ignores the product development definition process and is always pushing you to get it done while at the same time they never seem to give you enough resources to make it happen. When they push, what do you do? If you are like most of us, you are probably reacting in the wrong way…