Should You "Build" or "Buy" for Growth?

We ought to start by noting that growth shouldn’t be a rock bed of your strategy. You aren’t likely aiming for a network effect on top of a solid product-market fit, and you can have a wonderful, solid business by just running it well and maximizing for a size that fits your own desired mix of “doing the work” and “managing the people who do the work.” Some of the biggest firms we work with don’t take as much money home for the principals as some of the smaller firms. It’s all a choice…as long as you’re in charge and the business isn’t dragging you around, it’s all good.

But say you do decide to grow; what’s the best way to achieve that? It obviously depends a lot on who you are as a person and your individual circumstances, but here’s a simple way to think about it.

Advantages of Growing by “Buying”

Here are a few of the typical advantages of buying some growth with an acquisition:

• It’s much faster. You’re adding bulk in chunks rather than one person at a time.
• You’re adding revenue while adding people. Individual hires don’t typically bring revenue with them.
• You’re getting a functioning culture where the people already know each other and have adapted to ways of working together. That doesn’t mean that it’ll match your existing culture exactly, but it will be a known quantity with fewer surprises.
• You’ll have a fresh set of client options to whom you can sell your existing services to, especially if the firm you’re buying isn’t an exact duplicate of your existing firm.
• There will be more rungs on the career ladder for the team—because you are a bigger firm, now—and this is one of the reasons they stay around.
• You’re borrowing an entire batch of new logos for your wall and client success stories that go with them.
• You’re going to end up with a big PR story. The marketplace is impressed with firms on the hunt, and it screams “this firm is successful.” This is why you don’t hear acquihires described as anything but acquisitions.

That’s a pretty powerful combination of advantages, but it’s not always the way to go. Slow and steady might make more sense, and it’s the default path outside of some other, pressing concern.

Advantages of Growing by “Building”

What if you decide to do this more slowly and in your own image, so to speak? Here are the reasons why someone might choose that route:

• You’re making a careful choice with each person. You aren’t inheriting a big block of people that were assembled for possibly different reasons. Yes, this is slower, but you’re looking at each building block as you construct another building on the property rather than having one assembled and then dropped off with a crane and a big trailer. You aren’t required to keep or even take each person in the transaction, but you typically will except for the clear overlaps (accounting, HR, support, etc.).
• There’s less financial risk. An individual hire could obviously go wrong, but that’s less traumatic than the purchase cost going bad. Especially if the cash at closing is funded with borrowed money.
• You’ll have lots of hiring to do, but there’s less risk of the distraction that comes from working with M/A advisors, tax accountants, and legal minds.
• You can change paths along the way as you learn what works and what doesn’t.

Finally

Here’s a good order to work through when you start looking at your options:

1. Do you want to grow? Stop right there if you’re fine where you’re at.
2. If you do want to grow, do you just need to add capacity? If so, either build with the right people or maybe acquihire a firm to save money and lower the risk.
3. If you need to add a specific capability (to round out your service offering design), maybe think about buying a small team that can hit the ground running. But they’ll either need to bring with them a set of decent clients to fund the purchase, or you’ll need to have work to throw their way quickly. Good acquisitions don’t usually happen that quick, though, unless you’re already in informal discussions with someone.
4.  If you want to grow quickly and you’re drawn to the marketplace splash that an acquisition will spark, even if it’s just adding more of the same, think about a real acquisition. As long as you’re working with a professional so that you don’t let it get too distracting to you personally, you’ll learn a lot and possibly create even more distance between your firm and the competition.

We can help with either of these. Contact me if you want to build and contact Jonathan if you want to buy (or sell).