Should I Build or Acquire Expertise?

Three business owners explain how they expanded their business by either building in-house expertise or acquiring it through a business acquisition.
December 28, 2016

As the New Year approaches, many business owners are considering how to take their enterprises to the next level. Some plan to grow strategically by offering new products and services, but may find they need to develop new competencies and expertise if they want to compete effectively.

There are two primary ways to procure skills that don't exist in your organization. The first, building expertise, refers to training current employees in the new areas. The second, acquiring expertise, involves either hiring new employees or partners or merging with another organization so that the requisite skills are instantly available. Understanding this distinction can be important to how you formulate your 2017 growth strategies.

I talked to three business owners—Robby Berthume, CEO of advertising agency Bull and Beard in Winston-Salem, North Carolina; Kayla Wagner Faires, CEO of digital marketing firm Revel Interactive in Denver; and Rahul Varshneya, CEO of mobile application developer Arkenea in Carrollton, Texas—who made the decision to train existing staff, hire new people with certain expertise or acquire another company.

How did you decide you needed to expand your business?

Rahul Varshneya: A service business is a people business. People buy from other people based on trust. Once you have a set of people that trust you, it's easier to upsell and cross sell and [that] opens up other channels of monetization. Our passion to add more value for our customers now and for a lifetime leads us to expand what we have to offer.

Kayla Wagner Faires: We take cues from our clients regarding what is most valuable to them and expand accordingly.

The best route to adding competencies if you don't have a budget to hire or acquire is to outsource or contract to partners that can help you meet your business objectives. Many times, this will achieve your goals at a fraction of the cost.

—Rahul Varshneya, CEO, Arkenea

Robby Berthume: First of all, we determine if the expansion is aligned with our brand, business model and growth strategy. If it meets that initial criteria, we validate [if] the market wants it, validate if the market is willing to pay for it and validate that it won't negatively impact other areas of our business or lead to opportunity cost.

Beyond this, we launch new products, services and competences using a Minimum Viable Product (MVP) style approach. Too many entrepreneurs and business owners lose their focus by going all-in too quickly. Tread carefully until you know you have a winning addition.

What has been your process so far for adding products, services or competencies to your existing offerings?

Berthume: I frankly don't pay much attention to competition, nor do I let my clients dictate whether or not I expand on my offerings. That client need could be an anomaly, and the competition generally follows a herd mentality.

I don't want to imitate, I want to innovate. I'm generally wary of spreading our brand and service offering too broadly and adding products or services too quickly.

Wagner Faires: We take a strategic approach with a few lenses as we consider adding services. Does it fit within our company's values? Can we provide the service at an exemplary level to our customers versus the competition? Is there a definite customer need for it? If we can say yes to all three, we consider bringing the service on, usually with a trial run first.

Varshneya: We continuously look to add products and services to our existing offering. The process is pretty simple and straightforward. We brainstorm internally and then survey our existing and potential clients on every product or service they have bought or intend to buy that complements our offering.

The next step is to assess what fits best within our core competencies and what our clients would trust to buy from us. We should be able to do it better than our competitors in that space, and it should add value to our customers.

What are the pros and cons of building in-house expertise versus acquiring another company?

Berthume: Building in-house expertise puts you in the position to develop your company organically and in line with your culture. I've often found in business, the more patient you are, the more sustainable you'll become—but it's a longer-term approach. Acquiring another company will certainly speed up the process, but presents far greater risk from a financial and cultural perspective. I've seen smart acquisitions and I've seen acquisitions that end up being quite painful. It's not always easy to merge two cultures seamlessly while retaining the talent you've acquired.

Varshneya: Rapid scaling up by entering a new business vertical or new geography is one of the biggest reasons for acquiring another company. However, when acquiring a company, you also inherit all its baggage, existing issues and current processes, all of which may not fit with your company. The integration of teams can throw up many challenges.

If a business owner doesn't have the budget to hire or acquire, what's the most cost-effective route to adding competencies?

Wagner Faires: If hiring or acquiring isn't possible but expansion is necessary, consider adding competencies through intrapreneurship. This involves finding key employees internally who are excited about taking on, learning and growing skills in a new space.

Varshneya: The best route to adding competencies if you don't have a budget to hire or acquire is to outsource or contract to partners that can help you meet your business objectives. Many times, this will achieve your goals at a fraction of the cost.

Berthume: As a B2B matchmaker, I would certainly advise businesses without the budget or desire to hire or acquire to understand the nature of our open economy. You don't have to be jack of all trades. Clients nowadays embrace partners that may not offer everything under one roof, but have the relationships to bring on the best of the best, on-demand. Cultivate relationships with vendors, freelancers and matchmakers. Lean into and learn from them until you get to the point where you have the dollars and desire to build internally. By going with this approach, you [may] take far less risk and put yourself in a much better position to add competencies when you do have the budget down the road.

Read more articles on planning for growth.

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