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STRATEGY

Why You Should Broaden Your Investment Choices

Big, nonsensical blunders such as a bad acquisition can happen when you don't consider a broad enough set of growth paths.

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Do you ever wonder why businesses make big, nonsensical, blunders like a bad acquisition or selling an unprofitable product? In our experience, these mistakes typically occur because the management team had not considered a broad enough set of growth paths or investment choices.

You’ve seen it before: An acquisition opportunity presents itself, everybody gets excited, the deal closes, and before long people start whispering, “That was a bad deal from day one.”

Or a smaller competitor with an innovative new product experiences astronomical growth while your me-too product languishes. People start whispering, “We could have bought that company three years ago when it was cheap!”

It’s dangerous to jump into the first acquisition or major investment that presents itself–even after you’ve created a growth agenda that identifies the top three to five opportunities for your business. Each item on the management agenda has an investment choice or set of choices. For some, the choice may be simple–e.g., if expanding geographically is a high-value agenda item, you need to determine which market to invest in. For others, such as improving sales force productivity, achieving the goal may require “investing” in a process or a technology.

Management can greatly improve this type of decision-making by establishing a simple but disciplined process to identify (and analyze) a broader list of potential investment options.

Begin by framing the goal in the proper context. Actions like “make an acquisition” or “hire more salespeople” are not goals–they are investment choices that will help you to reach those goals. By framing the objective differently–e.g., “capture market share in Europe” or “improve our offering to X customer segment”–you’ll have more success identifying the best investment choices. You’ll find that your management team will start to think outside the box, and realize new ways to achieve the strategic opportunity. As a result, your team will be more confident in the alternative chosen for investment. You can then conduct a simple analysis of each investment option before jumping into one too quickly, overpaying for an acquisition, or worse, avoiding action on a high-value opportunity.

There are almost always multiple ways to “skin the cat.” Identifying various investment options to achieve your growth goals ensures that you are pursuing the best investment for maximizing growth at the lowest cost.

Do you have examples of ill-informed decisions that lead a management team down the wrong path?  Share your comments below, or write us at karlandbill@avondalestrategicpartners.com.


 

Last updated: Jan 17, 2012

KARL STARK AND BILL STEWART are managing directors and co-founders of Avondale, a strategic advisory firm focused on growing companies. Avondale, based in Chicago, is a high-growth company itself and is a two-time Inc. 500 honoree.
@karlstark




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