MERGERS ARE TRICKY BUSINESS, fraught with potential mistakes. Learning from mistakes, though, can make you a savvier business owner and provide the opportunity to create the 2.0 version of your company. For Ken-Kor Consulting, a merger gone awry a decade ago enabled us to refocus on maximizing business from current customers, bring in tools that better fit our business model, and successfully acquire another IT company.
Back in 2008, I made the decision to merge with two other IT business owners, creating a new entity. One partner never brought his client base to our new company, and we eventually parted ways. My other partner and I soon realized our philosophies regarding the business model were incompatible. Even though “managed services” wasn’t a buzz word at that time, that’s how I’d been operating Ken-Kor. All my customers were under contract and being managed remotely, plus any service calls they required. My partner was focused on obtaining break-fix customers.
Despite these differences, we decided to try to accelerate our growth by taking on three additional partners, all IT owners who brought their customers to the new company. We kicked off operations of our merged companies—with five equal partners—on July 1, 2009. On July 27, just 26 days later, they had a meeting and voted me out.
That’s right, just like on CBS’ long-running Survivor show, I was “voted off the island.” Fortunately, while there are a lot of competitors in our business who all seemingly do the same thing, it’s exceptional service and understanding a customer’s needs that keep clients loyal. Restarting Ken-Kor—with some painfully acquired wisdom under my belt—proved that satisfied customers never vote against you.
My Hard Lessons
So here are some lessons I learned from that misadventure.
Do your due diligence. Don’t get so locked into the concept of merging that you fail to drill down deep into financials, business model, and the customer base of your potential partner, or ignore red flags that your cultures may not mesh.
Figure out why you want to merge. What is it you want from the transaction? Do you want your time back? Or instead, are you looking to grow and strengthen your business? Do you want to make more money? Determine the answers to these questions before you proceed.
Get your own lawyer. Even though you have an attorney draw up all the proper legal paperwork for a merged entity, you still need your own lawyer who looks out for your interests.
Find out if the principals complement (or conflict with) each other. Talk about work habits and style, as well as strengths and weaknesses. Figure out who may be stronger in sales and marketing versus operations, for example, and agree on everyone’s responsibilities. If one partner doesn’t respect the other partner’s skill set you will have problems.
Remember, you can always buy talent. If you really don’t want to cede control of your business and you have the money, acquiring a company may be preferable to a merger.
My 2.0 Company
I put all that hard-earned knowledge to work, starting with refocusing my strategy for Ken-Kor. Rather than trying to maximize the number of clients I served, I started to maximize the services I provide them—in other words, doing more business with existing customers. That enables me to learn each customer’s business more deeply and provide consultative advice that helps them advance their strategic goals, achieve business continuity, and keep their data safe from cyberthreats.
At the same time, I looked for tools and services that billed me as I grew, rather than requiring a big up-front investment. That led me to a remote management tool from HoundDog (which is now part of SolarWinds MSP) and the Autotask PSA (now owned by Datto).
Fast forward to the present, in which I recently completed a successful acquisition. Here’s what I did right:
I personally met with all the clients before I did the deal. Since then, I’ve been spending time getting to know them and their needs, and they’ve gotten to know me as well.
I ensured that the current owner wanted to move on, but would be willing to consult when necessary. I wanted to find a business that did not include taking on a partner who would stay involved in the day-to-day operations.
The moral of my story? Tread carefully during a merger, but know that you can recover from a misstep by using that experience to make your company stronger. Today Ken-Kor is thriving, and the only people who can vote me out are my customers.
Photography: Jorge Gera