To adopt the right growth strategy, corporations must simultaneously evaluate the trajectory of an industry, forecast the potential of a target and chart the future course of their company. This already difficult process has become increasingly challenging as startups proliferate, creating more competition and more noise.
Given the complexity of the current landscape, it’s easy to see why deciding whether to compete via buy, build or partner is one of the hardest decisions corporations face—and why taking a structured, data-driven approach to the process can make it far less intimidating. Here are the top five factors to consider when making those tough strategic calls:
1. What’s the industry outlook?
Last year alone, 5,822 companies received first-time venture funding. In an environment where startups rise (and fall) quickly, it can be challenging to identify promising, high-growth industries.
Keep an eye on emerging areas by looking at deal volume across verticals and subsectors. Where are VCs focusing? How are companies in that space performing? Are your competitors already elbowing in? These signs indicate that an industry is trending up—and that you should act fast.
2. Are you pursuing the best target?
Since 2010, the number of venture-backed companies has more than doubled, making it harder for corporations to decide which targets to pursue.
Cut through the noise by zeroing in on companies that match your preferences (like industry, growth stage, revenue and more) and reviewing a company’s financing history, investors and executives. Does this target offer the tech—or talent—you need?
3. Is an acquisition your best move?
If you need to enter a market or gain expertise quickly, buying might be the best option. Keep in mind, however, that an estimated 60% to 90% of acquisitions fail to add value, often because the acquiring company hasn’t done its homework.
Look closely at a company’s financials to avoid making a costly mistake. Is it generating revenue? Is it backed by investors? What’s its valuation? In-depth due diligence can help you decide if an acquisition will be accretive or dilutive.
4. Should you opt for a partnership instead?
In 2017, the average M&A deal size was $149 million, up 42% from 2010. If a high valuation renders an acquisition cost-prohibitive, a partnership might bring exactly what you need—whether that’s resources, talent or market access—while simultaneously boosting your brand.
Use VC and PE fund data to identify financial sponsors who are successfully investing in your industry. Connect with them about co-investing (or exiting) opportunities, or find companies that align with your brand or audience to form strategic partnerships.
5. Can you build what you need in-house?
If you don’t need to move fast, don’t mind learning as you go and don’t want to give up control, building a solution in-house might be preferable to buying or partnering.
Although building new technology or processes can require a significant investment in terms of capital, time, resources and talent, the profits are yours to keep, and internal innovation can give your business a unique competitive advantage.
Whether it’s a startup building a new product to compete with your core offering or a large corporation suddenly pivoting to enter your space, competitors can pop up out of nowhere—and dominate the landscape fast. To thrive in this hyper-competitive environment, a thoughtful growth strategy is essential; any gaps or missteps in the decision-making process can negatively impact a company five, ten or even twenty years later.
With these higher stakes comes the need for better decisions backed by better data. See if your corporate development team has what it needs with our guide.
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