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Looking for synergy

  • Date: Saturday 21st November 2009
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Looking for synergy

It’s very interesting to think about HP taking over 3Com.  Any entrepreneur knows that when they are buying companies they are looking for a good fit between the two companies.  HP finds a product, market and strategic fit with 3Com.  It will double its presence in the network equipment market, expand its international market in China and strategically take the war to Cisco in this market. It also expands its business into more profitable areas than its massive PC business.


This search for synergies works too for small businesses as well.  In order to buy the right businesses into their portfolio of companies, entrepreneurs look around for companies that fit.  Perhaps they use the same suppliers, sell to the same market or even the same customers.  Perhaps you offer each other a new channel to market.  For example, would a click through from your web site direct to theirs increase sales and vice versa?  Would it work to virtually combine the two web sites? 

Perhaps it’s something about having the expertise you already have on board that makes an opportunity seem right.  Suppose you have built up skills in, for example, Web selling and viral marketing. That could make a target business look attractive if once you had bought it you could increase its rate of growth by putting your people with those skills in to help the new business partner forward.

How do you find out where this synergies lie?  Well, you read the papers and technical journals and eventually you talk to the managing director and owner of the business of course: you research their web site and perhaps talk to one or more of their customers. 

But don’t forget the front line troops.  Speak to the people who really know at the sharp end what the opportunities in the business are.  Talk to the salespeople, for example, they’ll almost certainly say things like, “If we only had product B as well as product A we could do a lot more business.”  Speak to the people doing the purchasing and you’ll hear something like, “We could almost certainly get a better deal on a number of items if we worked with a new supplier; but we are very tied into our current supplier and senior management don’t want to change.” 





Tip from Shaf – supplier loyalty

The worst answer to the question “Why are we doing business with these people” is “Because we have been doing so for years and we have a good relationship with their people.” People have a huge inertia caused by their relationships with their current suppliers.  Two lessons here:

  1. Don’t let it happen to you.  Make sure that all your suppliers are aware that you are consistently looking for cheaper ways of buying the products or getting the service.
  2. Look for opportunities to shake people out of their inertia by offering better terms.  A taxi operator I know offered a perfectly good service from a town about 15 miles away from Heathrow taking business people to the airport.  He got an appointment at a big company in the area and offered to undercut their current supplier.  They were nice but used the ‘long time… good relationship…’ argument to turn him down.  He went back as the credit crunch started to bite and got the business.



The right business to buy next is the one where you can get it to quickly take a giant step forward in sales and profits through its synergy with your other businesses.

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