Lessons from acquisitions

Welcome to another edition of the Product in Public newsletter!

Giving you an inside look at how I help companies go from ideation → validation → launch → scale.

Before we get to today's newsletter, here’s some of the content I’m consuming that you might find interesting.

Four lessons from acquisitions

I’ve been fortunate in my career to have been involved in multiple acquisitions. In most instances, my role has been to perform due diligence on the product(s) of the company being acquired. There have also been instances where my role was less product-related and more finance-related, where I was helping an entrepreneur figure out how to finance the acquisition of a business.

What I want to do today is share with you some of the things I’ve learned in participating in the due diligence process during an acquisition.

Things that matter in acquisitions

Culture

The single most important factor in a successful acquisition is culture.

Whether you are acquiring a business and merging it with an existing business or simply acquiring a business as a new owner, you must merge cultures.

The keyword there is merge. I have never seen an acquisition work where either the acquirer or the acquiree gets to maintain 100% of their pre-acquisition culture.

You have to find a balance, which means that both parties will have to concede on some points.

Architecture

I’m not referring to how you structure your management or leadership team.

I’m talking about the underlying architecture of technology companies. When you acquire one, you want the software to be built on a strong foundation. It doesn’t matter how good of a product the company built if the foundation is weak. That leads to all kinds of problems down the road.

Things that don’t matter in acquisitions, as much

Valuations

Sellers always think their business is worth more and buyers always want a better deal. That’s the nature of an acquisition.

Here’s one way I think about valuations.

If I am not willing to pay a premium to acquire the business then it isn’t worth acquiring.

I want the business to be so important to me that I’m willing to pay more for it.

Experience

Here I’m focused on entrepreneurs who are looking to acquire a small business. Not larger companies acquiring competitors, etc.

Good entrepreneurs know how to run businesses, regardless of whether or not they have experience in that particular industry. As long as you have strong foundational knowledge about operating a business then you should be fine. That would include understanding accounting, finance, managing people, and other skills. Keep in mind that whatever skills you may like you can outsource to the team or contractors.

A quick side note - if you are interested in entrepreneurship, there are two paths to owning a business. When starting a business from scratch, which is exceptionally difficult, or buying an existing one, which is easier than you might think. The number of “boomers” who own businesses and who are at retirement age continues to grow.

The great thing about acquiring one of these businesses is that there are all kinds of ways to finance the acquisition with little to no money down. One way includes leveraging a mixture of seller financing and SBA loans, and another is going the search fund path.

If you are looking to acquire a business and need financing, you can apply to access my network of over 200+ capital allocators here.