Strategy & Operations » Buy and Build: How CFOs can manage the rapid expansion maturity gap

Buy and Build: How CFOs can manage the rapid expansion maturity gap

Karen Thomas-Bland, founder and director at management consultancy Seven Transformation, outlines how finance leaders should map their buy and build strategies to avoid a maturity gap too wide to close

Buy and Build: How CFOs can manage the rapid expansion maturity gap

Rapid buy and build strategies can be highly effective in growing businesses quickly by harnessing “the whole is greater than the sum of its parts” concept. Revenue growth can be achieved from improved market positioning and shared go to market strategies, as well as expansion into new markets and an increased product or service base.

Buy and build means growth can be achieved at a faster rate than through organic growth alone, but success requires a business to quickly scale up, maturing functions and processes to adjust to the increased size and complexity. We have all seen the consequences when internal operations don’t keep pace with business growth, for example, accounts not being published in line with market expectations, synergies not being achieved, and the entrepreneurial culture built with a small team not scaling with subsequent acquisitions.

So how should an organisation go about sequencing a buy and build expansion, so it is not left with a maturity gap that becomes difficult to close?

Consider the strategic rationale

Before you embark on a buy and build strategy, it’s worth thinking through why you’re undertaking it and what benefits you hope to achieve.

One reason for pursuing a buy and-build strategy is if your sector or market does not allow the possibility for organic growth at scale, for example, you are close to the productivity frontier. Once you have an idea of what you want to achieve, it’s time to start scanning the market for potential options, whilst building a plan for what the new expanded operations looks like.

Find the synergies

The outcome of a successful buy-and-build strategy is a combined business worth more than the sum of its parts. Some common ways to achieve synergies include greater efficiency or scale, the benefits of combining talent, cross-selling opportunities, and cost reduction.

Operational improvements are of course not the only way in which a combined business can come to be worth more than the component parts. It’s important to watch out for negative synergies, where two or more businesses are worth less in combination than they were separate.

Be clear on the strategic logic

While vetting the right targets for buy-and-build involves all the normal M&A due diligence the key question to consider is how does an add-on or group of add-ons increase your value?

An acquisition must fit into a strategic logic that assumes the whole is worth more than the sum of its parts. For this reason, successful buy-and-build strategies target acquisitions that are close to the core business, rolling up a set of highly related companies to achieve the benefits of scale.

Mature your internal processes to cope

To pursue an effective acquisition strategy, the buyer needs the right infrastructure—robust IT systems, strong balance sheet, repeatable financial and operational models, and assets like distribution, supply chain and sales networks that are set up to scale.

To mature your processes, think about what you want the processes to achieve, how easy they are to understand and how quickly they can be further scaled up.

Build leadership capacity and capability before you need it

Getting bigger means that you need to get more organised than you did when the business was smaller. As you grow, positions once filled by individuals transform into teams of people.

Starting with a strong existing management team that has already demonstrated its ability to pull off acquisitions is the best position to be in. You may need to think about your current finance director and wider finance team. Do they have the skill set to lead finance for a bigger and more complex business? It’s worth planning succession early on before you need it.

Scale your operations

The company might already have made acquisitions that have not been properly integrated. IT systems can look like spaghetti, go-to-market strategies may be at odds and supply chains may have become entangled.

Fixing issues like these takes investment, which may pay off if the opportunity is big enough. The key, however, is to identify what the up-front issues and costs really are. An expensive transformation can cut deeply into Return on Investment.

Adjust technology and data

Your business needs to have the right data and tools in place to ensure all systems are running efficiently and effectively. The technological requirements of a business vary greatly based on sector, size, and structure of the company. You’ll need to have a clear vision of what the business needs before scaling it forward, both in terms of functionality and cost.

Don’t lose your most valuable asset

All rapidly growing businesses experience growing pains, but a common fear is growing so fast, they’ll lose their most irreplaceable asset – people.

Often you know you have to expand the team quickly but deep-down suspect it could spoil the “secret sauce” that has been built. It’s safe to say that each person you bring on board has a different way of thinking, working, and a new set of expectations.

When new people are having trouble integrating new hires are heard saying “this isn’t what I signed up for when I started.” When you’re growing fast, take the time to think about why you care about aspects of your culture and how those aspects show up in day-to-day work.

There is a common myth that implementing process instils a fear of slowing down or businesses becoming more bureaucratic and less agile. The opposite is in fact true. Processes enable scale and help avoid a maturity gap emerging that can bring significant damage to the business if not addressed.

Karen Thomas-Bland is a global board advisor, management consultant, and founder of Seven Transformation


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