Why Deals Fail And How To Prevent Failure In Deals
Bill Flynn has collaborated with Alan Mulally, pitched Steve Jobs, accomplished much, failed often, and learned many valuable lessons from thirty years of studying the science of success. Creating efficient businesses is only one of many ways to make the world a better place. In this episode of the DealQuest Podcast, Bill Flynn shares some insightful ways to prevent deal failures.
Why Do Deals Fail?
While it seems like the deals fall through at the end, they usually start to fail from the beginning; you just didn’t know it. Most deal failures are traced back to poor preparation and the inability to remove prospective fail points - a fail point is any point within the deal process that has the potential to affect a satisfactory outcome or the quality of the deal.
Deal success is fundamentally about good integration planning and execution. Integration in an M&A deal refers to adopting one culture, one set of processes, and one long-term goal for two individual firms. Critical integration aspects are culture, management, talent acquisition, and goal setting.
A good integration plan outlines exactly how and when the acquiring and acquired companies’ significant resources, assets, and processes will be combined to achieve the deal’s goals. Appropriately done, integration starts at the deal-planning phase and kicks in after the deal is announced.
If executed well, you will see the structure of the deal put in place and integration already beginning. If the process looks challenging, it may be because the deal was ill-conceived - and deals can fall apart in this phase. However, several other factors contribute to deal failure, ranging from acquisition doubts to working with the wrong client and many more.
What Happens When Deals Fail?
History tells us that corporate marriages do not always last forever; even a deal that appears now to be very fitting may not be so in ten years, particularly as the world economy or new technologies develop in ways that dramatically change markets. A split–or corporate divorce–need not be a bad thing: divisions that their large corporate owners unloved can go on to be a massive success with different backers or even as independent companies. However, once a split does become inevitable, special attention is needed over issues such as staff and governance to ensure an amicable break-up.
How To Prevent Failure In Deals
Not all deals go how we want them to. It’s necessary to learn from past events and make daily improvements to your skillset. For Bill Flynn, there are some ways to prevent deal failures, including:
A high-quality communication plan is crucial to the success of a deal; this can be done in-house or by external parties - public relations advisers. Having a good communication plan can help build a good business relationship, negotiate effectively and increase your team’s morale and efficiency.
A PR Adviser creates a plan to bridge the trust gap between a business and its would-be clients or customers. The expert works on increasing the company’s credibility within its given industry and its overall reputation. The importance of a PR Adviser is underestimated in deals; they help prevent poor communication. Poorly handled communications during mergers and acquisitions can lead to disgruntled employees, distrustful customers, and a confusing brand message.
Effective communication is often a reflection of a well-prepared and well-aligned combined management team. The case for synergies should be clearly articulated in the due diligence phase, and the integration plan should be written by the time the deal is announced.
Overcoming Acquisition Doubts
Several research studies have shown that most deals fail on the merger level. The failures are almost always from the cultural level. You have to make sure there’s an excellent cultural fit. Find a way to do things gradually, and understand the cultural differences. People are already terrified when an acquisition is in process, so you can’t rush their decisions without understanding their perspective. Two critical points are:
- Get to know the other party. It would help to verify that the other party’s objectives align with yours.
- You don’t have to go out and market to a thousand people. Keep a few key partners happy, and they’ll keep coming back.
Finding The Right Customer
Working with the wrong set of clients is one factor that leads to failure, and no one wants that. Work hard to figure out who your customers are and how to recognize and find them. Do that due diligence upfront to identify your best customers, why they come back and what you’ll gain from them. Once you’ve figured these out, it’s straightforward to approach with a focused mindset. With a good outcome, you’d get access to another market.
Bill shares a self-experienced story where he joined a beneficial group filled with entrepreneurs with large businesses. He narrated his fruitful relationship with the group even after leaving. As mentioned in past episodes, NO GOOD RELATIONSHIP? NO DEAL. Only good relationships will help you keep customers and get referrals.
Overcome High Expectations
A successful deal is not easy to achieve, and it depends on the people, parties involved, and a relentless focus on the components that makes a deal work.
No deal is the same as the last or the next, which is what makes it so fascinating, but some themes are consistent across types, sizes, and geographies. Many failures can be avoided if company executives keep track of the three big mistakes of dealmaking: planning, communication, and people.
Growing A Healthy Company And Enterprise Value
All the business owners that have grown healthy companies in the past achieved that because they did some things right. If you are going to grow as a business, it costs money. You can certainly get money from outside, but depending on the size of your business, you’re better off receiving funds from your customers instead of someone else. In addition to having a system, the point is that you will earn money, but you will have to spend it too.
If you have investors, they will want their money back in a few years. Not just that, you need to do your research. Move with people that are better versed in an area than you to avoid repeatable mistakes.
Bill shares what he believes to be the core point of enterprise value growth. The things that get you to enterprise and exit value are the same. As the leader, you must build a management structure that makes your presence almost redundant. You don’t have to be essential to the day-to-day activities of your business. To Bill, you’re more effective when you rest your brain; you get the best ideas when you’re not actively fishing. So, REST YOUR BRAIN!
As a leader, you have to be necessary once in a while. You have to set your team in the right direction when needed. People often need reminding a lot more than they need instructing. You need to remind your team about the goal and help them grow to achieve it.
Corey Kupfer is an expert strategist, negotiator, and dealmaker. He has more than 35 years of professional deal-making and negotiating experience. Corey is a successful entrepreneur, attorney, consultant, author, and professional speaker. He is deeply passionate about deal-driven growth. He is also the creator and host of the DealQuest Podcast.
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