Just like human-beings every business goes through stages of life from birth to death (or rebirth)
An attempt to dispel negative narratives around M&As
“बिक गयी <company>” (‘<company> has been sold’), i heard one of my co-workers state rather condescendingly about an M&A of a mid-sized Indian company that was being discussed.
In developed economies like the US or UK, mergers and acquisitions are commonplace. In India however, the commonplace reaction on hearing of an acquisition of a company is exactly what i heard from my colleague.
The sale of a company is taken as a sign of something being wrong with the company and its business prospects. ‘Why else would founders sell their company?’ — is the operating point of a large number of people — across the board from people working as labourers in factories to people in high-income bracket corporate jobs.
The cricket-crazy nation however has no problem with MS Dhoni giving up captaincy of the Indian cricket team and eventually retiring from all formats of the game.
People forget that it’s the same with businesses as well as with founders.
“Every business goes through four phases of a life cycle: startup, growth, maturity and renewal/rebirth or decline”
Just like the lifecycle of a human being — birth, childhood, adolescence, maturity, old age and death— most businesses also go through similar cycles from startup to death.
This Forbes article speaks about four stages of a businesses ending with decline/death.
In 2020, 53% of business owners globally (and 57.5% in Europe) would have been 56 and 74 years in age and yet without any succession plan of their businesses according to this report prepared for 2020.
Most such businesses die or are sold in somewhat distress (or as a last resort) at the fag end of the promoters’ working careers. Such businesses are life-style businesses, which the promoters wished to run as their own until the end of their careers.
Decline & Death OR Renewal & Rebirth
Some businesses, however, last way beyond the life-years of their founders. This happens because the founders envisioned a continuity in the business they created by succession planning.
This is achieved in the following ways:
- Succession planning with the family
- Sale of the business to a larger entity (or a PE firm)
- An IPO on the stock exchange
It may be useful for my readers to also understand that while most small to mid-sized businesses are transferred from from one generation to the next, most large businesses would already have gone through PE investment and then an IPO as well. Examples of the latter are Reliance Industries, Hero Motors and HCL.
Most mid-sized companies who wish to hit an IPO almost necessarily have to go through investments or even full acquisitions by PE firms — for instance, ThoughtWorks.
But what about brands losing their identity as part of M&A?
In the process of such acquisitions, very often brands and businesses are dissolved and merged into the larger entity…and thus lose a distinct identity of their own.
Then where is the continuity in a business, you may ask?
Well, what would you prefer? That a business is run by the promoter(s) for his/her lifetime (ages 56 to 74!) and then eventually goes through decline and then gets sold, or worse dies?
Successful transitions at mature stages of a business OR a sports-team captaincy OR even (in medieval times) an empire — lead to successful outcomes. Whenever, a captain of a sports team has gone on holding such a position for too long without building a succession OR when a king went on to hold on to an empire until old age without a succession plan, those sports team just like empires, have historically gone into decline.
Businesses have a responsibility beyond their founders
Businesses are often run as private enterprises or as proprietorship firms of founders. These businesses certainly decline and often die or get sold in distress.
No one wins in this. Every stakeholder loses — the founder, the employees of the business, the customers and vendors of the business, and also the nation to which the business was positively contributing.
When i was early in my years of entrepreneurship, i never understood the the statement — “Entrepreneurs need to form businesses with an exit in mind”. I used to condescendingly judge business leaders who repeated this at every major business conference.
Then i grew up :-) … and realised that they were stating the obvious and trying to educate us young entrepreneurs early in our respective journey. But i guess we all learn only when we’re ready…just like the age-old saying in India — “When the disciple is ready, the Guru arrives!”