As a business owner, you’re looking at two main strategies to grow your business: innovate or acquire.

You could dive into innovation – creating a new revenue stream within your existing business or tweaking, improving, and scaling what you already do. Or, you could acquire other businesses in your industry, whether it’s a vertical leap or a horizontal expansion.

 

Source: DealRoom

 

The benefit of acquisitions is the potential to not just unlock growth but accelerate it. In fact, acquisitions have been shown to be more effective for large companies pursuing ambitious growth agendas than internal innovation and organic growth.

It’s been shown that digital disruptors have accelerated their growth by acquiring companies – not strictly from innovating from within. When we think of “disruptors,” we think of scientists in the lab coming up with new inventions the world has yet to see, but surprisingly, many of these successful companies scale rapidly through deliberate use of M&A.

But the real question is:

When do you know it’s time to shift gears and grow through acquisitions? 

If you’ve been asking yourself this, you’re in the right place. Today, I’m here to help you answer that question.

Whether you built your business from scratch or took the acquisition route already, innovation will always be necessary to grow. But there comes a point when acquiring a new business could be the secret sauce to next-level growth. And that’s when both your business – and you as the visionary entrepreneur – will reach your full potential.

Ready to find out if it’s time for you to grow through acquisitions? Let’s dive in. Here are six clear signs that it’s time to start thinking about buying your way to the top.

 

1. You’re Generating Over $1M in Revenue, but Growth is Stalling

In 1979, in his book The Job Generation Process, David Birch introduced the term “gazelles” to describe the small percentage of businesses responsible for 70% of new job creation. These companies – often referred to as the “gold medalists” of entrepreneurship – achieve outsized gains in wealth creation and impact.

Gazelles aren’t defined by size but by rapid growth, whether they’re large or small businesses. They typically operate in the middle market, with revenues between $25 million and $250 million.

If your business is bringing in over $1 million in revenue, but it’s not growing at least 20% year over year, it’s time to consider an acquisition strategy. 

Acquiring a business can allow you to increase market share, create new relationships between your business and the acquisition, and boost eyes on your products or services.

 

Source: McKinsey

 

2. You’re Not Leveraging Debt in Your Business

As an entrepreneur, you may be in a position where your business is profitable, you’re debt-free, and you may have even sent your kids to college on your business’s earnings. This is undoubtedly an admirable and stable place to be, and it’s one of the wonderful opportunities that can come with business ownership.

However, if you’re running a profitable, debt-free business and feeling comfortable, it might be time to step outside your comfort zone.

There’s still an opportunity to build even more wealth, and debt is a powerful way to do just that. 

If you already own your business outright, acquiring another company with up to 90% leverage (through SBA loans or other financing) allows you to dramatically increase the value of your business. If the idea of going from zero debt to 90% debt feels too high, you can use a lower level of leverage, which still enables you to acquire new equity at an accelerated rate.

Depending on the purchase, the cost of capital can be as low as 25-35%, meaning you could pay off your debt in three to four years while expanding your business’s value and impact.

Strategic use of debt not only helps you grow faster but also increases the overall value of your company.

 

3. A Strategic or Opportunistic Event Arises

Sometimes, success and opportunity simply comes down to being in the right place at the right time.

 

Strategic Opportunity Meets Right Timing

For example, you might come to realize that your business lacks a specific capability or infrastructure to scale, such as a key customer base, geographic reach, or specialized technology. Instead of building these elements from scratch, you can acquire a company that already has what you need.

 

Source: FasterCapital

 

By doing this, you can address a problem in the market, expand your business quickly, and tap into existing cash flow and operations without taking on the risk of a new business or new market.

 

Unexpected Life Events Can Create Opportunities

Additionally, you might come across opportunities that arise from unexpected life events. For example, you might get a call out of the blue one day from a widow or widower who’s unsure how to proceed with their late spouse’s business. The four D’s can present a mutually beneficial opportunity, where you can acquire a company at a favorable valuation or terms while taking the stress and burden off someone’s shoulders (while paying them to do so).

Whether strategic or opportunistic, these acquisitions can provide significant value and growth for your business.

 

4. Complementary Expansion

Acquiring a business isn’t just about growth – it’s also about expansion. One way to do that is to consider acquiring a business vertically, not just horizontally.

 

Source: FourWeekMBA

 

What I mean by that is entrepreneurs typically think they need to acquire other businesses just like theirs, a la Walmart buying out mom and pop stores. However, you can also acquire businesses that are complementary to yours, ones that provide services or products that are related but different to what you offer or ones that are part of your supply chain.

For example, if you owned an e-commerce company selling supplements, you might consider acquiring a supplement manufacturing plant to help minimize costs for you but also open up new lines of business. Now, instead of just direct to consumer supplement sales, you’re now working with other supplement brand business owners who need products to sell. However, by acquiring an existing manufacturing plant, you have immediate access to existing customers and cash flow.

Another example is if you have a marketing agency specializing in web design services, you might have a lot of clients asking if you also offer other services such as content marketing, social media management, and more. You can find different, but related, marketing agencies to acquire in order to broaden the services you offer.

This strategy allows you to cross-sell to your current customer base or expand into an entirely new customer base, creating new revenue streams either way. Alternatively, you could pursue an “acqui-hire,” acquiring a company to bring skilled professionals – like attorneys or software developers – into your business, expanding your capabilities without the long process of hiring and training from scratch.

 

5. The Side Hustle

Many successful entrepreneurs, like Elon Musk, operate more than one business, and the reason why is because new side hustles can become profitable assets. While top entrepreneurs don’t necessarily focus on side projects, an acquisition side hustle can offer you the opportunity to work on something on the side, grow your wealth, and diversify your revenue streams.

In 2016, while I was running two businesses, I decided to take on an additional venture. Thanks to changes in the lending space, I was able to acquire a $1-2 million e-commerce business that required only about four hours of my time each week. Over the years, I’ve nearly doubled its revenue.

This type of acquisition is similar to real estate investing – you’re part-time, but the returns can be far higher than in real estate. If you’re looking for a way to add value without consuming too much time, a side-hustle acquisition can be a smart move.

 

6. Rolling Up Companies in Your Industry

The final, and perhaps most ambitious, strategy is executing a roll-up. If you have a business and are considering consolidating companies in your industry, a roll-up strategy can be powerful – but it requires careful planning.

There’s a big difference between acquiring one business and rolling up multiple companies in the same industry. A successful roll-up depends on understanding unit economics and market dynamics in your industry, as well as having a clear strategy in place.

 

Source: Midaxo

 

Rolling up companies moves you from simply running or growing a business into the realm of capital allocation, similar to how private equity firms operate. This strategic shift means you’re not just thinking about growing one company, but taking a broader, industry-wide approach to growth.

Some benefits of a roll-up include:

• Economies of scale: Creating more efficient sales and purchasing channels, unlocking new opportunities for cost savings.
• Capacity utilization: Centralizing key operations like sales and manufacturing, boosting efficiency and maximizing resources available.
• Increased exposure: Expanding market presence, customer bases, and industry authority can all help boost business exposure, positioning the business as a leading player in its industry.

 

Some industries are prime for a roll-up, and you may be in one of those sectors. These industries tend to be large but highly fragmented without a dominant player.

Take my first acquisition, for example: In 2006, I entered the book printing industry, at a time where electronic publishing was starting to take off. By the time I acquired my company, consolidation had already begun because the conditions were right for a roll-up. If your industry has similar characteristics, a roll-up could be the next step in taking your business to a higher level.

 

Every Entrepreneur Should Know Acquisitions

Acquisition isn’t just a growth strategy, it’s a skill.

A McKinsey article on scaling growth through acquisitions advises business owners to “develop buy and scale as a strategic muscle.”

“Successful acquirers build their M&A muscle by constantly identifying, pursuing, and integrating high-potential targets and embedding this capability in their business strategy.”

Like muscle, you need to build it up by putting in the reps over time. Learning how to effectively grow through acquisition requires learning, practice, and eventually scaling once you’ve mastered the basics.

The reason why is that acquiring business isn’t different from innovation – it IS innovation. Acquiring new business is a way to differentiate your business from your competitors in the marketplace.

Acquisition is just as invaluable to the long-term success of your business as innovation is, and it shouldn’t be treated as an afterthought or something that only M&A professionals or private equity firms do.

If you’re serious about growth as an entrepreneur, acquisition needs to be a tool in your entrepreneurial toolbox. Develop the right team, resources, frameworks, and strategies at your disposal now to evaluate opportunities, so when the time comes, you’ll be ready to scale effectively and efficiently through acquisitions.

Ready to acquire a business in the next 12 months? The Acquisition Lab is your first stop. Reach out to us today and get on the fast track to becoming an acquisition entrepreneur.