“We are a small alternative advertising company that has had year-over-year growth, but still feel we haven’t come close to realizing our revenue potential.
I am considering adding partners in exchange for equity; only I’m not sure where to find a suitable team. Should we merge with another small company? If so, how should we start this process?”
Lisa Kamerling, DATALIST – The People Professionals:
For an excellent exploration of the pros and cons of merging or adding partners in exchange for equity, read the book Lessons from the Edge: Survival Skills for Starting & Growing a Company, co-written by one of PROFIT’s columnists Jeff Dennis (and Jana Matthews). There are two sections, Partnerships and Money, which deal with these issues in the form of case studies. The information therein is a goldmine for any entrepreneur considering this route.
Aimee Lavallee, SBLR Chartered Accountants:
The company that I work for is actually the product of two smaller accounting firms that merged almost two years ago. It has been a challenging process, but definitely worth the effort. If you are considering a merger, first look within any industry associations to which you belong. Are there any other small firms that you respect, and with whom you share similar philosophies? Be sure to do your due diligence before going any further. Then, request a meeting to discuss opportunities that may exist with your shortlist of companies.
Because a merger is very much like a marriage between two companies, you have to think of this stage as the courting process. Get to know each other as much as possible before finalizing any decisions. (Our predecessor firms were in discussions for several months before the decision was made to go ahead with the merger.) As you progress, discuss openly what each firm brings to the table in terms of financials, organizational structure, internal systems including IT, customers and clients, and of course, your employees. And don’t forget to discuss any shortcomings as well!
Confidentiality is key, but when the decision has been made, open communication is absolutely essential — not only with the other firm, but with your employees and clients too. Remember that the grapevine can be a very harmful thing if people are making assumptions or jumping to conclusions. Choose a time to discuss the situation with your team and explain the benefits of the merger. And, of course, notify your clients and the general public with a well-designed campaign, including a press release if applicable. Understand that questions and concerns will arise from those who will be affected by the merger, but if you address these openly and honestly, you will ensure a smoother transition in the end.
For her answer, Aimee Lavallee will receive a copy of Breakthrough: Stories and Strategies of Radical Innovation by Mark and Barbara Stefik.
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Watch for another Peer-to-Peer Poll in the next PROFIT-Xtra.