Tuesday, November 20, 2012

Assessing New Business Opportunities

In the course of doing business, new concepts surface that may either be related to core services, or products, or be completely different.   The discussion usually centers on investment opportunities in an attempt to grow the business.   Naturally, when ever the word investment is used along with it comes the risk involved in the deal.   So, if company management decides to enter into a new venture requiring investment, or more important borrowing funds to do an acquisition, the real question is how likely is there going to be a return on investment and in what time frame. 

Short term thinkers in business are always looking for the quick hit to the bottom line in a few years.   Long term thinkers may be looking out 10 years or more in terms of return on investment.   This Blogger CEO is some where in between.   If we invest money in a new venture, I surely would like to see a reasonable return on investment in 5 years or less.  If that does not happen, it probably means that the concept was not well founded.  And, as they say in cards, you have to know when to hold them and when to fold them.   At some point, new concepts that don't work out and remain a drag on the company need to be ended.   Pulling the plug is often the right decision; though no doubt there will be emotional arguments, especially from those directly involved, to stay the course. 

Staying the course is fine for a time as long as it is not a road to nowhere.  Assessing New Business Opportunities is often about synergies and always about return on investment when all is said and done.  Some new concepts and acquisitions work out, while others do not pan out.   That is the reason why after much hoopla about an acquisition, within five years or less, companies often bail out and sell to the highest bidder.  It usually happens because the numbers that were the basis for the deal just were not there.  CEO's should always be open to new concepts, or acquisitions; but they should not pursue them without very careful due diligence.  What looks good on the surface often turns out to be an ugly duckling, which is the reason many acquisitions and mergers fail. 

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