Some years ago, Boss Equity created a marketing piece with an image, similar to the one above, asking:
“Do you have a restricted view of your market? If so, let Boss Equity open the door”
It was one of my personal favourite marketing pieces because it touched upon an important element of the acquisition process but was illustrated with a single image. It is a truism that many companies have a severely restricted view of the market, even within their own area of expertise. The image illustrated this idea very effectively. Making something simple from the complex is one of my recurring themes - Not sure what that says about me..?!
Meeting senior executives from the Software Tech sector is one of the most enjoyable aspects of my work and I know this is also true for the rest of the team here at Boss Equity. It is fascinating to hear how different executives and companies overcome hurdles and exploit opportunities as they arise - The battle stories, if you will, of our industry veterans.
One of the benefits I gain from such meetings is identifying the trends and common denominators. Most interesting to me, amongst these, is pinpointing the common elements among the numerous companies in our sector. Meetings also allow me to gain a ‘grass roots’ feel of the sub-sectors within our industry and how well they are performing, relative to other sectors.
View from the top of the hill
When defining your business strategy, you need to step back from your organisation in order to grasp the full panorama of your sector. I find the clearest definitions of the difference between strategy and tactics are expressed in terms of battle, which is where I believe the word 'strategy' originated, being the Greek word for “General”.
Strategy vs. Tactics in battle
The way a battle is fought is a matter of tactics. The terms that it is fought on and whether it should be fought at all is a matter of strategy. When I think about strategy or tactics, I think of the generals on a hill, looking down on the battlefield from a distance, evaluating the overall movement and the terrain and directing the battle strategy. The sergeants, meanwhile, are on the ground, leading the troops and applying the tactics. A definition of strategy is therefore, “the planning, coordination and general direction of operations to meet overall objectives”. Tactics execute strategy through short-term decisions via the movement of troops and deployment of weapons on the field of battle.
Knowledge and understanding is key to prevent keyhole strategy
The correlation between the above analogy and the business arena is clear: if you have a good vantage point and in-depth understanding of your sector, its competitors and drivers, then you are in a strong position to put in place a successful strategy, which will naturally lead to the creation of the most beneficial tactics.
However, in order to do this, it is essential that you have sound information and a good understanding of your business battleground. (Am I starting to sound like Sun Tzu?!) Ensure that you have a clear overview of your sector and the businesses that you compete against or which could become competitors. I am frequently surprised at the limited view companies have of even their own sub-sector within the Software Tech industry, often missing competitors and seeing competitors that, in reality, aren’t competitors at all..
NB: Just because you sell the same technology it does not mean that you are in competition. If you focus upon SME’s and the other company focuses on deals of $500k and above, you could potentially even become allies. Many such partner opportunities are missed in this sector due to lack of knowledge and skewed perception.
I am even more amazed about the limited evidence some business strategies are based upon. Having a keyhole view leads to a keyhole-based business strategy, which could cause significant problems if the business sets off in the wrong direction. Another mistake we frequently encounter, is companies focusing on what they see as their core, “unique” strength and completely missing their true value proposition. In such cases, it may not be actually setting off in the wrong direction that is the main problem, rather, it is a lack of market knowledge, which results in companies employing the wrong tactics because they are poorly informed about their sector. Either way, it’s very bad news for the future prosperity of the company.
Keyhole view leading to wrong fit
When acquiring, it is just as important to have a good understanding of the business sector - and this will be challenging if you intend to move into a neighbouring or even, unconnected sector. Many acquisitions set out in pursuit of a few known competitors and then try to shoehorn them into place to make them fit. You need to have a clear awareness of all the possibilities in order to achieve the “Right Fit.” - And this may not always be initially obvious, for a number of reasons.
Many large Software Tech companies have made acquisitions of Data Capture companies in recent years as they have regarded capture technology as the “on ramp” to their existing solutions. However, I think that they have, at times, demonstrated a pretty superficial understanding of this area and their acquisitions have consequently reflected this. Have they bought what they thought these companies would give them? I think many have, in fact discovered, further down the line, that the sought after capabilities fell considerably short of what they were anticipating.
Future acquisitions
Boss Equity has encountered a steady increase in M&A activity in the past six months and we anticipate ongoing acquisitions in the Software Tech sector as companies buy in talent and technology or look to expand their customer base and geographical reach. Will the same mistakes continue to be made - where the accountants rule and spreadsheets are their preferred tool? I really hope not. This sector has huge potential for continued growth and, with the previous focus on top level acquisitions from the largest companies in this sector now waning, the window is now wide open for new stars to make their appearance. Both vendors and clients are now better educated and many of the most important issues are more clearly understood. A robust knowledge and understanding of the sector is required to ensure the right acquisition fit and this is where a detailed and enlightened acquisition strategy is pivotal.
For the true business generals amongst you, who would like to sit up on the hill and look down on their sector rather than peeking through a keyhole, walk this way..………….
Key Points
1. Know your sector; competitors and market trends
2. Don’t base decisions upon a keyhole view of the market; ensure your business plan is based upon solid market knowledge
3. A competitor may not always be visible to your sales and marketing team
4. Don’t shoehorn your requirements to make them fit the opportunity
5. Create an M&A strategy that is based upon your business plan and objectives
