When you’re looking to acquire businesses, you can go vertical or horizontal, or you can even acquire intellectual property. Everything’s for sale if you know where to look.
In this week’s snackable episode, host Roland Frasier talks about the differences between vertical and horizontal integrations and how both of those can be the ticket to higher profit margins. You can also acquire intellectual property in creative ways to help breathe new life into your company. Once you start making these unconventional acquisitions, the whole world is going to open up to you.
Listen in as he shares some acquisition ideas that have worked well for him.
Vertical and Horizontal Integration
How can I get a higher profit margin? How can I make more profit off the customer relationship that I’ve got right now? These are great questions. The easiest way to do that is what business schools call vertical integration.
A horizontal integration is for when you’re interested in acquiring more market share. You sell microphones, and you go out and acquire a company, a competitor, that also sells microphones. If they sell the same amount as you, you’ve just doubled your sales overnight.
A vertical integration is going up your supply chain to acquire whoever is supplying you with a product or service you’re offering. You manufacture microphones by acquiring several components from other manufacturers that you assemble into microphones. So you do an acquisition of those parts manufacturers.
During this pandemic, it’s been really difficult to get supplies. There are over 100 container ships backed up in the LA/Long Beach port area. Millions of dollars’ worth of supplies are stuck. Maybe you could diversify the risk of your supply chain by acquiring some domestic manufacturers or suppliers of the products you want.
That’s up the supply chain. You can also go down the distribution chain. If you’re not selling directly to the consumer, then any company between you and your consumer is one you could acquire. What if you acquired a website that’s selling your microphones? Or you acquired a music store that’s selling your microphones? Owning your distribution chain will increase your profits.
What About Services?
What if you don’t have a physical product? What if you sell an intellectual product like a course? It gets more complicated when you think of a service. Maybe you have affiliates or you’re paying affiliate or referral fees. You can acquire your affiliates.
Let’s say you have a digital marketing agency. There’s a decent chance that you are outsourcing some of the services you provide. Most of the time, there’s either outsourced SEO or content or media buying. Maybe you buy the ads agency that’s doing your Facebook or YouTube ads.
How to Smooth Out Erratic Income
Maybe you sell ice cream, and winter is slow. Or you sell pool toys or sleds or skis or some other product people use seasonally. If you want to smooth out the peaks and valleys in your revenue, how could you acquire something people are paying for on a recurring basis? This can be either MRR (monthly recurring revenue) or ARR (annual recurring revenue). What can you sell that people need to replace on a recurring basis?
What about a flower subscription? Or a beauty product someone uses regularly and will run out of? How can you recurrify the things you offer right now? Or what other consumable products or services could you acquire that people want on a monthly basis?
Acquiring Intellectual Property
Intellectual property is one of the easiest types of businesses to buy. Maybe you have products or services that are a little long in the tooth. Competitors are coming along and doing things a little differently, and people are starting to take notice, and it’s eating away at your business.
One of the things you can do is acquire that intellectual property. Intellectual property can be copyrights, trademarks, patents, trade dress, logos, brand names, URLs, trade secrets, recipes, an algorithm, or software. These are all things you can bring in to reduce your competition and breathe new life into your business. It can get people excited and help you retain customers longer, because you have this amazing innovation to talk about. You’re fresh, the hot thing on the block, and they already know, like, and trust you. You have a reputation of always looking forward, always evolving, improving.
One of the easiest ways to find intellectual properties is going to trade shows or keeping an eye on new start-ups in your industry, looking at angel lists. You can also listen to presenters, read blogs, look for ads, and stay plugged into new and innovative things.