Business Strategy: Plans or Luck?
A successful CEO recently told me how several of his senior leaders presented potential acquisition targets to him in the past year that were “must do” deals. Funny, he thought, that after they were outbid or lost for some other reason, they became “no big deal” deals.
Only fools would completely ignore opportunities that they felt could dramatically improve their business. However, chasing shiny objects is dangerous, and leaders who fall prey to this almost always have one thing in common: There’s no clear strategy driving their behavior.
If your strategy is to cook eggplant parmesan but when you visit Whole Foods you buy littleneck clams and red licorice because they look good at the moment, you don’t have a clear strategy — just undisciplined shopping behavior.
When a clear strategy (Where do we play and how do we win?) drives behavior, there are few conversations that sound like, “Hey, look at this cool/hot/once-in-a-lifetime acquisition target that came up. We must do this!” Rather, a CEO might ask his or her team, “Given our strategy, what skills and assets are required that we don’t possess?” and then, “Should we buy or build?”
Looking for an acquisition that will fill a need that is identified in the strategy process (you have one, don’t you?) may make sense if you cannot effectively build it. That implies you are looking for it and have specific strategic and financial requirements. But if many of the deals come looking for you, you’re operating as a private equity firm, likely without the skill to do so. You may as well head to Las Vegas and bet it all on red.
Acquisitions should support strategy, not the other way around!