'Growth Hacking' for Mid-size Companies: Why M&A is the Real Key

'Growth Hacking' for Mid-size Companies: Why M&A is the Real Key

 

As data-driven insights become strong drivers of competitive advantage, mid-market companies are seeking out new strategies for rapid success.

The startup world provides plenty of inspiration. “Growth hacking” is one example: The strategy is to lead with a “growth hacker” mindset—maintaining an absolute commitment to growth at all costs.

But the answer, especially for mid-market companies, depends on what kind of growth really matters. If a business’ long-term success depends on growing (and sustaining) stronger profits, then the short-term benefits of hyper-focused strategies like growth hacking may not create as much advantage down the line.

Mid-markets aiming to increase revenue through new products, service lines, markets, and user demographics might consider another option for their way to big wins: mergers and acquisitions.

Growth hacking? What is that?

Born from entrepreneur Sean Ellis’ 2010 advice that startups look beyond traditional talent to hire the kind of person “whose true north is growth," the growth-hacking ethos upends the traditional way companies market to customers.

Don’t map activities to different parts of the marketing funnel, the thinking goes; just focus on the growth metrics you want to move. Don’t plot slow-scaling strategies; test and iterate on inexpensive, creative tactics for rapid surges in targeted KPIs.

The focus of growth hacking is on high-scale user acquisition—often via tactics like social media advertising, free trials/freemium subscriptions, customer referral promotions, and so on. Conversions and sales, however, are not a main focal point. That’s why the strategy tends to “click” well for consumer-driven applications (in which use is not necessarily tied to a purchase). It’s also why growth-hacked metrics are hard to sustain: Spiking KPIs create volatility, which can challenge companies’ ability to gauge long-term viability or plan for the future.

Companies aiming to scale sustainably, then, need to support growth-hacking efforts with more concerted strategies designed to help win them the long game. Outperforming both traditional and disruptive competitors requires assessing market forces with a wide-scale lens, and then zooming into the focus areas where growth makes the greatest difference.

Using dealmaking to earn long-term results

M&A is a smart way for middle-market companies to invest in their most important areas (provided their deal motivations extend well beyond costs on the balance sheet).

M&A decisions can be motivated by business synergies, expansion plans, pivots into new product lines, or talent. By working with the right partners—in commercial banking, custodianship, consulting, and more—mid-size companies can use M&A to gain valuable new intellectual property, business infrastructure, channel relationships or market share.

And when two smaller companies combine, they can merge resources and expertise—helping them better compete against big multinationals and agile startups. Acquiring channel relationships and on-the-ground sales talent can drive fast ROI for the business engine, as well.

That said, great deals are hard to come by. Research shows 1 in 5 middle market companies makes an acquisition every year, but only 1 in 20 sells outright or divests a portion of the company.

The same study finds that 'industry changes'—things like insurgent competitors, new regulations, or changing consumer preferences edge out ‘favorable economic conditions’ as a top reason for mid-market M&A. But today’s strong economy means stakeholders may face even more competition from peers than usual: One study found an uptick in mid-market execs who were 100% certain they would pursue deals, up from 17% in 2017 to 22% in 2018.

Those executives aren’t their only competition, either. Favorable economic conditions mean stakeholders face new pressure—even for smaller deals—from international companies, PE firms, and strategic investors. Sectors like energy, financial services, and real estate are proving especially active this year.

Making the most of mid-market M&A

The competitive landscape combined with the risks and challenges of M&A means the help of experts is crucial to success.

For example, getting a company’s books (and overall business) in “deal ready” shape can be a years-long process. But if they hope to seize a high-growth M&A opportunity, stakeholders need to be capable of striking while the iron’s hot. The right commercial bank relationship can help ensure businesses are ready when it counts.

Mid-market stakeholders also must keep both strategic reasoning and cultural alignment top-of-mind as they consider opportunities. The most successful mergers tend to enable both companies to help address each others’ challenges or conquer limited room for organic growth in their markets.

Aligning incentives is important. Acquisitive mid-markets are wise to consider if they can enhance the competitiveness of an M&A target’s offerings, as that’s a factor found to make deals more successful. (Hardware-bound technology companies acquiring software-as-a-service businesses—with a mind for evolving solutions into new areas—is one example.)

And as deals happen, communication becomes crucial. Leaders should be able to explain the aligned incentives and growth opportunities being seized via M&A to their teams. From that understanding, they can better equip employees with insights into how to work together, and how to help realize the goals of the deal. In fact, stakeholders are wise to consider how combining resources via M&A can help them improve the employee experience.

Partnering to accelerate growth potential

Ultimately, companies are wise to borrow some ideas from Silicon Valley—rapidly iterating marketing strategies, for example, can help companies accelerate KPIs continuously. And setting highly defined, achievable growth goals, targeted to specific outcomes, is a great best practice across all departments.

But “hacking” metrics can’t replace the need to invest in big, growth-driving change. With valuations rising and competition growing for deals of all sizes, companies should find smart deal partners now if they want to enjoy the growth benefits of M&A down the line.

The views expressed by the author are not necessarily those of Fifth Third Bank and are solely the opinions of the author. This article is for informational purposes only. It does not constitute the rendering of legal, accounting, or other professional services by Fifth Third Bank or any of their subsidiaries or affiliates, and are provided without any warranty whatsoever.