5 Reasons Why Acquisition Should Be Considered For Your Startup

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If there’s one figure that hangs over most founders’ heads, it’s the fact that nine out of 10 startups will fail.

The surprisingly low success rate of new businesses shows that most are not launching with the right tools to generate and sustain growth. However, I have seen that most teams continue to overlook crucial business activities like shopping.

Of all the possible failure points, I am convinced that supply chain issues can drag a startup down faster than most. Recent events like the pandemic have shown that redundancy is crucial when facing drastic and unexpected supply chain disruptions. But product availability is not the only concern strategic acquisition can remedy.

Why do we need acquisitions?

Historically, companies source products and services with one goal in mind: to find the best product at the lowest possible price. But startups that don’t take into account the complexities of today’s market will have a hard time gaining a foothold.

If you doubt its importance, remember that acquisitions directly influence your startup’s profitability, ethics, and sustainability, and can directly support (or limit) your ability to scale. Here are five reasons why shopping should be a priority for your team.

Related: Five tips for startups that want to improve their procurement processes

1. Avoid unnecessary dependencies

The less time you spend managing procurement processes, the fewer options you have. Starting early gives you the opportunity to create redundancy and avoid lock-in to a specific vendor, without compromising cost.

This leads to flexibility, which is exactly what a startup needs to scale at the rate they have based their valuations on. Vendor lock-in is the last thing a startup needs, especially if it’s the first big problem it faces.

When tied to a single partner, your entire supply chain ends up depending on their availability and speed of production. If they go out of business or face delays for whatever reason, your startup will go back to square one and rush to create redundancy where it should have existed all along.

2. Comply with legal policies

I’ve noticed that many startup founders don’t talk to their legal counsel about the procurement process, but making sure vendors comply with company and industry policies is a crucial step in starting a business.

If you’re outsourcing a service, you need to make sure the providers handle data properly or you could end up in trouble from privacy regulations. The same goes for manufacturing, as it is your responsibility to ensure safe sourcing and handling for everything from raw materials to packaging.

3. Align with consumer values

Every founder understands the importance of building a brand, but goes beyond marketing jargon. Today’s consumers want to know as much as they can about your company, including where your supplies come from and how your workforce is treated.

The conversation around environment, society and governance (ESG) is driving consumer decisions, so it should be a key consideration in companies’ hiring policies. The sooner you start thinking about these values, the more time you have to develop terms of engagement and find suppliers that align with your ethics.

Related: Is sustainability part of the DNA of your business?

4. Minimize supply chain uncertainty

Simply getting to the profitability baseline is hard enough for today’s startups, and it only gets harder when a business hasn’t created a solid foundation on which to grow.

As companies continue to face enormous disruption in the global supply chain, a greater emphasis is being placed on control. While there is a cost trade-off to control, taking steps to reduce risk, such as moving production closer to shore, can minimize the impact of global events on your company’s operations.

Ultimately, negotiating the best cost is not as important as ensuring your business can continue to operate during uncertain times. What counts is that you start early, making sure you have more time to compare options and build relationships.

Related: 3 Ways Small Businesses Can Survive the Supply Chain Crisis

5. Create sustainable success

Scaling your business isn’t just about protecting your supply, it’s also about protecting your intellectual property rights (IPR). Before seeking suppliers for important components, you need to have a critical conversation about how your procurement practices may expose proprietary concepts and what you need to do to protect them.

Taking a step back and evaluating what you need to buy versus what you can afford will help you protect and control your IPR to a greater extent. If something needs to be protected, it’s up to your team to decide whether a third party should be involved in its production or whether to keep it in-house.

Informed procurement decisions will help your company protect its IPR and preserve the value it has created in the marketplace. The sooner you start purchasing, the more time you have to evaluate your options.

The acquisition is worth the initial investment

There is no doubt that leading a startup is a huge task. Founders work with limited capital while facing a myriad of financial responsibilities and opportunities. If you don’t understand its benefits, it’s easy to put acquisitions on the back burner while you deal with seemingly more urgent activities.

While most teams probably don’t plan on getting involved in the acquisition discussion, it’s crucial that companies integrate it into their strategy from the start. By paying more attention to this valuable asset, your business can start off on the right foot and have firmer ground on which to grow as you execute your business plan.

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