Topical research suggests that only one out of five firms still exists 10 years after start-up. Growth is rare in Canada. Only two new firms in 10,000 reach a level where they have 100 or more employees.
Every year, 10% of small businesses-a half million or so-shut down for good; a quarter of all businesses never make it past their second year; 60% close after six years.
Successful small business owners are realizing that if they are going to make it, they are going to need help, and one of the places they are finding help is through the formation of small business alliances.
Small- to medium-sized enterprises (SMEs) are faced with an increasingly challenging external environment due to rapid technological evolution, globalization, and progressively sophisticated competitors. For firms with minimum resources, the challenge of building competencies to survive and prosper in this new setting is difficult but attainable with suitable investment decisions.
However, many SMEs do not directly control sufficient resources to make the necessary investments, and so may find themselves at a competitive disadvantage relative to their larger rivals. In an effort to build competencies necessary to navigate a profitable course in this demanding environment, SMEs may investigate the possibility of leveraging strategic alliances.
SMEs comprise the largest proportion of businesses in most economies and offer often the greatest potential for job creation.
For example, in the United States, small businesses employing less than 20 people were the major source of new jobs during the late 1990’s, with a similar pattern here in Canada.
It is during the crucial stage of growth that is usually the most critical, subdivided into two sub-sets. In the first subset, the business is deemed to be economically strong and has sufficient size and product market penetration to sustain it in its current market place. At this time, the owner-manager makes the fateful decision to either grow or not – if not, it often results in the business being sold for profit.
If the decision is to grow, then often the business lacks the resources on its own to develop that growth, resulting in stagnation and complacency.
There are many reasons why owner-managers avoid decisions on growth, including concern of engaging debt and lost of personal control to professional managers. Other major barriers to SME growth are found inside the business, including lack of technical and managerial skill, inadequate organizational adaptability and ability to acquire or use technology.
This lack of perceived and real lack of resources for sustained growth by most SMEs leads to the thought that substantial benefits may be acquired through the development of partnerships or alliances with other businesses, sometimes in the same industry, available to provide these skills. A recent study suggested that high growth small firms allied with strategic alliances experienced growth rates of 20 percent higher than those without such alliances.
Strategic alliances enable founding owner/managers to gain competitive advantage through access to a partner’s resources that include markets, technologies, capital and people.
Furthermore, it is important for founding owner/managers to keep in mind that family ownership creates value only when the founder serves as the CEO of the family firm or as its chairman with a hired CEO. This point has been borne out by recent research conducted by the Wharton School of Business at the University of Pennsylvania.
Thus, creating partnerships and alliances while maintaining a direct link to management control is the preferred choice.
For most SME owner-managers, the task of identifying suitable partners or alliances can seem daunting. As these small businesses grow and the owner-managers realize the importance of accepting new professional managers and expertise, this realization now extends to the engagement of an expert to pursue this approach to growth.
As a skilled, experienced and knowledgeable mergers and acquisition intermediary, I work diligently to facilitate the search and acquisition, and to ensure that the new arrangements are a win-win situation for all parties and hopefully leading to entry in the global marketplace.
Ideally, I look for strategic partners and alliances that can provide extended markets, sales and distribution networks and financing capabilities without giving up ownership.
This strategic approach will lead to the development of more robust Canadian global market.
By: Mark Borkowski is president of Mercantile Mergers & Acquisitions Corporation. Mercantile is a mid market M&A brokerage company for the last quarter century. Mark can be reached at firstname.lastname@example.org or www.mercantilemergersacquisitions.com