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When 1+1 = 3. The quintessential formula to define a successful business merger. When that math works out, you know the time is right to merge. That’s what my math teacher always said, at least I think that’s what she said.
There are a lot of resources out there that talk about mergers and acquisitions. Lots of complicated jargon that caters to large scale businesses seeking to increase their overall value by partnering with another business, combining forces and increasing the long term value for all…in theory.
However, what does it look like for the small business?
The rules of the game, quite simply, aren’t the same. While the red tape processes such as legal and accounting fees should remain a whole lot less, the critical nature of combining team members, finances, and decision making is well…critical. Small businesses are much more sensitive to dramatic change, therefore the process should indeed reflect such sensitivity. Using a recent small business merger as an actual case study we can look at the good, bad, and ugly of two businesses coming together as one.
Backstory (names have been changed to protect the innocent 😉
Edward owned a small web design shop specializing in custom WordPress sites for small businesses. For almost 15 years, Edward applied his trade to dozens of clients, helping them to enhance their online presence with relative ease. Most of the time it was just him in the business, occasionally adding some full time or contractor help here and there. He loved helping people. He loved the satisfaction of launching a site and seeing his clients improve their business. Edward’s biggest struggle was his self admitted comfortability and aversion to risky growth moves. While quite successful as a 1-2 person business, he could never get motivated enough to risk adding more team members and investing more heavily in marketing and lead generation. The two critical steps he needed to grow to the next level.
Katrina owns a small branding agency that provided outstanding quality brochures, logos, stationary, and many other business design necessities. Having worked at a large agency before starting out on her own, Katrina is well known for her quality design expertise and being highly involved in the community. Not one to wait, she is a fast mover with a big vision and goals for her business. Because she does so well for her clients when it comes to branding, they also were interested in what other services she could provide. Having suffered through several lackluster web developers, she knew it was time to find a reputable, reliable company to partner with to help meet this new demand for her clients.
Ed and Katrina, introduced via a mutual friend, met over lunch one day to discuss how they might work together. A few ideas (and a tasty appetizer) later, and they had a rough plan for Ed to start working on the websites for Katrina’s clients. It was the start of a strategic partnership.
Phase One: The Strategic Partnership and Relationship
A partnership is a relationship. In an ideal sense, it is a relationship like any other relationship, less the intimacy. While a partnership’s ultimate parameters of success is specific to the individuals involved, it must contain these things at a minimum:
1. Trust
2. Communication
3. Meeting or Exceeding Expectations
Trust
When you enter into any type of relationship or partnership, for most people, trust is inherently given. Everyone starts with a $1M “trust account” and then every action, or lack thereof, from that point on adds to that trust account or makes a withdraw. If you don’t have some implicit (but not blind) trust in the beginning, its going to be real hard to take the partnership any further. Trust is the catalyst that makes everything else in the partnership work a whole lot smoother. In Stephen Covey’s book “The Speed of Trust, “he asserts that mistrust doubles the cost of doing business.” So in case the point isn’t obvious, taking the trust of a partnership seriously is probably the most important thing you can do. The next two components are really the actions that affect trust.
Communication
Quality communication is a foundation to not only establishing trust, but essential for two people to work together in a cohesive manner. It’s easy to provide direction, make decisions, and implement ideas when it is a single person. When you have one or more people involved, you now have to get on the same page on a consistent basis about a wide variety of topics. Things like how to approach a potential lead, providing quality service, and assigning roles and responsibilities all must be thoroughly discussed if you’re to have an effective partnership. Effective communication isn’t about relaying everything you’re doing all of the time, but it is about ensuring that the other person isn’t left surprised or wondering about what is happening. Since no one is perfect, great communication is about following up when you have a question or providing feedback when you feel there is information you are missing or would like to know more about.
Meeting or Exceeding Expectations
Relationships suffer when expectations aren’t met, improve when they are, and flourish when they’re exceeded. When a strategic partnership is formed both sides have expectations. The starting point is to share those expectations, but the real work begins when it comes to ensuring each person involved holds up to those expectations like the world depends upon it. Ideally, this would be how all business is conducted (and the world at large) but since we’re talking about strategic partnerships, we’ll leave the world saving idealism for another day. While you can evaluate whether expectations are fair, there is no right or wrong amount of expectations to have, in so much as they are communicated. This can be a great starting point to even know if the partnership can be successful before it even starts.
A Few Other Important Items
Crawl, Walk, Run
An important key is to start small and as things go well, find more ways to add to the partnership. If things don’t go so well or present some early warning signs, well then it’s not too difficult to untangle. Furthermore, some strategic partnerships can and should have certain limitations. This isn’t a bad thing. If you’re communicating well, each step whichever direction it goes, will be obvious to both parties. If you can, avoid the “honeymoon” phase of simply being relieved you’ve found someone to fill that missing void for your business and rushing too quickly before you both really know what you’ve got.
Listen to Intuition
If things feel like they are going well, then great! That probably means they are. While there should be data to backup your feelings such as increased revenue, margins, etc., your intuition is good enough to tell you whether or not you’ve got a good thing. Similarly, if you find yourselves wary or uncertain, listen to that as well. Ultimately you should follow the adage as you progress the partnership,”if it isn’t a hell yes, then it’s a hell no.”
Separate Matters
Always remember in this phase it is important to very much run separate the businesses with clear lines of distinction. Especially as it relates to customers, finances, and anything legal. While you don’t want to force a lot of administrative overhead, you also don’t want to leave yourself a mess to untangle down the road. A little due diligence up front is well worth offsetting a potential nightmare down the road.
A strategic partnership can be extremely beneficial for all parties involved. It allows for each business to contribute what it does best and potentially avoid what it doesn’t. Just like any relationship, strategic partnerships can take many forms in so much as it provides mutual benefit. Focus on building a quality partnership based upon trust and solid communication and you can create a lasting, profitable business relationship.
Here are a few action items to help ensure you’re setting your strategic partnership on the right track.
Action Items
1. Ensure you’re approaching the relationship with the right amount of mutual trust.
2. Outline a rough idea of how the strategic partnership will work. You know, the who, what, when, where, and why.
3. Establish a communication plan, especially for what to do when things don’t go as planned.
4. Determine approximately 2-3 goals you hope to accomplish with the strategic partnership.
5. Remember it is still a relationship minus the intimacy. Be sure to set time aside for conversations or meeting up for things other than business. This can help the trust factor and communication.
