Over the past few days I’ve been purposely invigorating discussion on the topic of building commercial critical mass by Small Medium Enterprises (SME’s) transitioning their mindset from “we have to go it alone”, to “I think it would be worthwhile talking with like-minded business owners to see what their appetite might be to combine forces”.

For those who haven’t read these earlier blogs, here they are:

Blog # 1

Blog # 2

Blog # 3

 

A “parent company” structure is one such “composite company structure” that I’m advocating that SME’s look at very closely, for it enables multiple businesses to join together under a single brand. In the process, scale of operation increases, so too does:

  • Access to greater HR expertise – more specialist HR capacity.
  • The opportunity to plug “weakness holes” in the business – with different strengths coming together.
  • The potential to develop better/ more “on edge” intellectual property.
  • The affordability of new state-of-the-art technology and/ or equipment.
  • The seamless way in which a client engages with “the” parent company – as opposed to multiple separate business units.
  • The opportunity to reduce certain operational costs (e.g. admin).

I suggest that a parent company structure could be readily formed between these clusters of businesses:

Parent Company # 1 – 

  • Architect agency
  • Building firm
  • Flooring business
  • Windows business

Parent Company # 2 –

  • Building firm
  • Electrical company
  • Roofing company

Parent Company # 3 – 

  • Retail jewellery company
  • Manufacturing jewellery company
  • Precious gems mining company

Parent Company # 4 –

  • Flooring company
  • Interior Design company
  • Furniture retailer
  • Painting company
  • Paint supplier company

Parent Company # 5 –

  • Farm supplies retailer
  • Farm supplies product development company 
  • Shearing company
  • Fencing company
  • Phosphate distribution company

Parent Company # 6 –

  • Marketing agency
  • Website design company
  • Copy writer company
  • SEO specialist company
  • IT hosting/ support/ development company

Parent Company # 7 –

  • Horticulture supplies company
  • Horticulture infrastructure installation company (e.g. posts/ wire configurations used for growing apples)

Parent Company # 8 –

  • A range of different consultants, each who offers a particular field of specialisation

 

The key is simply to determine (conclude) that a sufficient number of synergies are evident between all of the parties that are under consideration, before pressing the “go button”.

When we consolidate, we build “critical mass”. It is critical mass (scale) that delivers scale-related advantages; and it is these particular advantages that generally represent the most significant advantages that a business could hope to realise. Most importantly scale-related advantages often reflect material financial benefits (e.g. price discounts, volume-based discounts, Long-term Incentives (LTI’s) to encourage the attainment of volume goals, etc) and special trading terms forged with preferred suppliers (e.g. exclusivity in relation to particular product lines, first opportunity to trade with newly-released products, etc).

Knowing that growth development aspirations are commonplace throughout most businesses, I suggest that you (as an SME business owner) make the decision to hold conversations around using composite commercial structures to achieve significant growth with those people who you consider would be open to such a conversation…starting today. I think you’ll be surprised to learn the size of appetite for this conversation that exists…it just needs one person to start the dialogue.