Acquisition or Partnership? How to Decide

If you're thinking about forming a partnership or acquiring another business, these questions will make it easier to decide which option is best.

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Instagram and Facebook. Microsoft and Yammer. Is an acquisition or partnership a possibility in your future?

If your company is growing, first things first: CONGRATS! It's a tough economy and you're lucky to be on the upswing, no matter how big or small it might be.

One way companies try to grow quickly is to either partner with another company or acquire it. If you're thinking about forming a partnership or acquiring another business, you're in for quite the ride. I've been on both sides in the past 11 years of running my marketing technology company. It was unnerving, stressful, expensive, time consuming, amazing and exhilarating...just to name a few emotions.

So I thought to myself, there's got to be something to make it a little easier to decide what path is best. Here are three questions you should ask yourself:

1. Is your goal to acquire more customers, to own intellectual property I might not have, or both?

Partnerships come out of the need to grow a business. A marketing partnership might be as simple as a restaurant owner who advertises a neighboring wine bar in his email marketing campaigns, and the wine bar owner does the same for the restaurant. This could drive traffic into the local area where both businesses benefit from increased sales.

Another good example: a contact management software company that finds they get more business customers when they have email marketing companies integrated tightly into their software, so that their business customers can easily interact with their customers.

In both of these cases, either an acquisition or a partnership would be appropriate. In the former, the restaurant owner could benefit from the wine bar's customers. But taking it a step further, he could also get some major cost benefits from scaling when ordering food, wine and beer since he's already sourcing them for his current restaurant. He could also benefit from an administrative perspective, such as managing, menu planning and scheduling. In the latter example, the contact management company might hurt itself if it chose just one and could really benefit from the email marketing companies driving customers to use its software.

So you have to decide: Do you want to form a partnership to drive more customers cost-effectively, or do you need that business for more than just access to its customer base?

2. Is it core to what you do or where your business needs to go?

Here's a real-life example. My company, VerticalResponse, was known for our email marketing services, even though we've got pretty incredible online surveys and event marketing services, too. Why? Mostly because we just launched our event tool, and our online surveys have been around for just four of our 11 years in business. Recently, we started to talk to companies in the social media space, because many of our small business customers were using social media in their marketing.

We started having discussions with a company called Roost, a social media marketing technology platform for small businesses. At first, we approached the relationship as a partnership because we thought both companies could really benefit. As the conversations furthered, both sides realized that an acquisition of Roost could really give us, VerticalResponse, a competitive edge in our industry from a product, customer, people and valuation perspective. What could be a better acquisition candidate? It was clear to us that diving into social media wasn't really a "nice to have," it had turned into a requirement. So we welcomed the Roost team aboard, launched a very nice email-and-social integration and it's working--quite nicely, I might add.

If the company you're thinking of working with has a product or service that's a "nice to have" for your own business, you may want to start out with a partnership first, and prove it successful before you jump in.

3. Will it make you more valuable?

What makes a company valuable? Many years ago, a company was looking to acquire us because of our domain expertise in delivering email to inboxes. But we had so much more than that. We had tens of thousands of customers, pretty cool technology, great people and revenue that was climbing. They were only interested in the fact that we could send email. They wanted a "feature," not a company, and in the end it wouldn't have really added value to their bottom line.

So I walked away. Why? Because I wouldn't have gotten the value for everything we worked so hard for, and our investors wouldn't have been rewarded the way they deserved to be.

The lesson here? If you're thinking of an acquisition, make sure you want to acquire a company for all the right reasons, and that all of those reasons add value to what you've already got.

When I was faced with whether to partner or acquire, these three questions led to many conversations and pretty tough company-changing decisions, hopefully for the best. I'd love to hear any questions you think I'm leaving out!

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Janine Popick is the CEO and founder of VerticalResponse, a leading provider of self-service email and event marketing, online surveys, social media, and direct mail solutions. The company was ranked No. 2,802 on the 2012 Inc. 5000. @janinepopick