With the emphasis these days on the excitement of launching a dot.com or other new venture, it might seem that taking on already-existing businesses — buying them, grooming them, selling them — is a dreary, uninspiring backwater.
Not so, according to Franklin R. Anderson, MBA '71, a retired businessman and a panelist at the AASU conference discussion "Acquiring Existing Businesses: The Other Entrepreneurial Opportunity."
"You're the smart ones," Franklin told the audience, "because you want to take the shortcut to equity."
"To start a new business, you have do 118 things right," he said. "Any ten could bankrupt you. Acquisition, on the other hand, seemed to me to be the way to go, particularly if you are an inexperienced operator and you want a chance to score rather than trying a couple of swings to hit a home run."
Added Keven Cohee, chairman and CEO of the Boston Bank of Commerce, the only black-owned and operated bank in New England and Florida, "It's less risky to acquire an existing business. There is a known amount of money, known customers. With acquisitions you obtain skill quickly."
Acquisitions are hardly risk-free, though, they both agreed; the risks are just different.
Concurring with that notion were two other panelists: Rena Clark, MBA '90, founder and CEO of Orchard Holdings, Inc., and W. Don Cornwell, MBA '71, Chief Executive Officer of Granite Broadcasting Corporation.
Joe Williams, MBA '99, principal and co-founder of a private investment firm, The Wakefield James Management Group, moderated the panel.
Not A Level Playing Field
In their discussion, the group shared their own experiences, both positive and negative, in acquiring and selling businesses, and discussed as well the overlay of racial prejudice that sometimes dictated — or attempted to dictate — the conditions of their deals.
"The playing field is not level," said Anderson, referring to such prejudices. "It's not going to be level any time soon. The good-old-boy networks are alive and well, and you're not part of them."
Cornwell noted that when his company buys a television station (he currently owns ten), questions about race inevitably get into the mix of the usual trepidations on the part of any station's employees concerning change of management. "[Coping with change] requires some sensitivity, and some sense of what you say publicly," Cornwell said. "You must spend time getting to know the people at the station so they have some sense of what you're attempting to accomplish.
"You have to recognize that there are risks, but these risks can be overcome. You can't worry about them at the outset.
"We aren't part of the club," he said, echoing Anderson's view. "Cleverness and ingenuity can overcome a lot, and while you may not get your first pick of every 'A' list deal, by keeping your eyes open and being thoughtful, there are ways to find out about [potential deals] that are going on.
"You can do it, but Frank's right, the club is still pretty closed. But I don't want to leave people with the notion that it's impossible."
Clark acknowledged that race is something she as a businesswomen is confronted with, but said it is only one of the factors she grapples with in acquiring a new business. As an example, she described her experience assuaging the myriad anxieties of the employees of a chemical factory her firm bought in rural Tennessee. When her firm first bought the factory, Clark said, it appeared that the workforce — the majority of whom was white — was poised to unionize out of fear and uncertainty about the new ownership.
"We could have allowed that to paralyze us," she said. "But instead we moved forward, and shared the proceeds with those who had initially gone against us.
"This has led to the most rewarding series of relationships I have developed. These are lifelong friends," she said, and advised the audience: "Find the things that motivate people; find common ground. It's true I'm from a different place [than them], but that doesn't matter."
"The first nine months of any ownership is extremely important," she continued. "At first, people are afraid, they are afraid of losing their jobs. So it's important for you to go in and establish ground rules, so they have clear marching orders to do what they're good at."
The Transition to Dealmaker
All four panelists acknowledged that their own transition to a career of acquisitions hadn't been easy or clear-cut. Cornwell, for example, said his own advantage, before moving into acquisitions 12 years ago, had been his business experience forged over the course of 17 years on Wall Street, where he was vice president of the investment banking division of Goldman, Sachs & Co.
When Cornwell went into business on his own, then, he could call on the help and advice of a slew of colleagues and supporters, although he acknowledged that in the early days he found being an entrepreneur to be incredibly lonely. "Your first deal," he said, "is the real test of whether you have the stick-to-it-iveness and ability to fight through fire.
Deals for him, he said, "have gotten a lot easier."
Anderson had also worked for years in banking, as well as in civil rights, before enrolling at HBS in 1969; while a student at HBS he became the first African-American to own a McDonald's franchise. Upon graduating, Anderson said, he received a terrific job offer, but turned it down to be his own boss. "I decided I didn't want to work for very long," he related with a chuckle. He took a chance, he said, by leaving Cleveland — his hometown — and moving to Durham, North Carolina to become president of a plastics company, Custom Molders Corporation.
"It took a lot of nerve to abandon home — my turf, so to speak," Anderson said. "It was not an easy decision. But as soon as I left Cleveland it was easy: the road looked all downhill going to North Carolina."
As for coping with the loneliness of the entrepreneurial life, he said, "I took the real shortcut. I hired my wife as my lawyer."
Acquiring something significant, according to Cohee, means significant change. "It's not always a nice process," Cohee said. "When you're thinking about your deal," he told the audience, "think about: 'Do I have the ability to compel another person to do what I want then to do, or am I in a position to compromise?' Force makes people mad, but it's an inevitable part of the process."
Cohee sees leaving a business — the exit strategy — as the high point of reviving one. "A day does not go past when I'm not thinking about the exit," he said. "Seven days a week I'm thinking about the door. How can I create things in the company to make it more attractive to sell? I don't want to color it, make it black; I want to position it in a way that it's most attractive to the widest range of buyers."
Banks don't want to hear sob stories, Cohee said, while reminding the audience that businesses don't work according to a straight line, either. "Disappointments, challenges, changes are an inevitable part. You have to lose a lot of your ego because you're having to accommodate — if you're the CEO — everybody. Part of your job is keeping people happy, comfortable, informed with what you're trying to do."
Despite disappointments and uncertainties, being one's own boss, agreed Clark, is sometimes the only possible option.
"I have to create something better for myself than I can get from anyone else," she said. "At a closing, my hands were shaking, but then fear went away" because the deed was done.
"I have my best interests at heart," she said, "in a way that no one else can."