Expansion scenarios
Serve to further the growth and/or extend the reach of the enterprise. They cover a wide
range of possible approaches, with different degrees of organisational impact. As such,
the following compilation does not claim to be complete, but gives some examples,
including observations on applicability.
Channel development
A major factor determining the volume of business is the way the company engages its
end customer base, the sum total of its channels to market. Most start-ups initially
interact directly, through a sales person, with interested parties, though lately many
firms embrace the e-commerce vehicle from the beginning. However, a single
downstream pipe often is an impediment to growth. Examples of additional vehicles
are: e-commerce, distributors, volume resellers, value-added resellers, system vendors,
system integrators and online service providers. Priorities may be manifold, e.g.
additional geographic coverage, addressable market, better logistics, support, higher
visibility or credibility. Major considerations in opting for this route are the absence of
financial exposure, inherent flexibility and non exclusivity.
Partnerships and alliances
They form the next level of commitment: again, no change of ownership, but a much
closer and further reaching cooperation. Typically they contain an element of
exclusivity. In most cases they are and are intended to be very visible, which
presupposes continuity and a high level of trust and commitment on both sides. Specific
examples include agency agreements, local representation and bundling.
Organic growth
The traditional scenario consists of a gradual increase in business through hiring,
(re)skilling and the successive establishment of new locations. Its attractiveness lies in
the high degree of company internal control and the direct justification in line with
acknowledged requirements. Typical disadvantages are the possible shortage of
available skills on the market, the inherent difficulties penetrating new environments or
accommodating new departures and the slow response to immediate challenges and
opportunities. Furthermore, especially in traditional industrialised countries this
strategy entails substantial long term liabilities. Nevertheless, many deciders still see
this as the "default" scenario, the "golden standard" to which alternatives need to
measure up.
Joint ventures
They leave the company structures, including legal framework and ownership,
unchanged, but allow independent players to pool resources and capabilities for a
specific purpose. The main advantages are that burden and risks related to the
exploration of new departures can be shared, and that possibly a head start can be
achieved. On the other hand, control is limited, decision finding may be cumbersome,
the way forward is not always obvious, adverse image impacts cannot be excluded, and
there are hurdles against devolution, should that become advisable. As a consequence
JVs are seen as the strategy of choice in well defined niches, like research an
development or individual large projects.
Participations
They provide immediate access to and utilisation of an existing operation and resource
set, thus avoiding some pitfalls of organic growth. This is accomplished by the purchase
of a minority stake in another enterprise (majority deals are subsumed in the topic:
mergers and acquisitions). They typically are appropriate when the targeted candidate
requires additional equity financing, whilst its ownership has a ongoing interest in the
company's future. Access to additional skills and/or capacity at a cost far below their
replacement value (leverage of financial instruments) is a strong argument in favour for
the acquirer. But this may be offset by the absence of effective control. The vehicle
therefore is most commonly used by companies focusing on financial, rather than
operational performance (e.g. venture capital providers), and/or in situations where
there are several significant minority shareholders without an entrenched power base.
Mergers and acquisitions
Acquisitions or take-overs can be defined as the purchase of a majority stake or similar
title entailing over- all control in a target company. Whereas in most cases both
participants maintain their legal structures, the term "merger" is used when one entity
is or both are dissolved in the process (e.g. asset deal). The term also loosely refers to
transactions where both participants are roughly comparable in size or perceived
significance. It could be said that, whereas in the organic scenario growth potential is
"made", this alternative is to "buy" it with immediate effect. As such it allows for a kick-
start, a rapid response and recourse to scarce, not readily accessible skills, but at a
substantial one-off cost that cannot be spread out or temporised and mostly is very
difficult to reverse.
Acquisitions have been with us since the beginning of the industrial revolution, but have
become a dominant phenomenon since the 60s of the last century. Especially in the IT-
industry (with a small dip at the end of the dot.com bubble) they are seen as the
prevalent vehicle of enterprise development. Much of my involvement in growth
scenarios has been in the facilitation of such deals.
