Dr. John D. Sanders • 843-491-6060john@johnsanders.com

"Growing Up and Getting Out"

It happens in government; it happens in industry-- consolidation. Is this good or bad? That question may not matter, since it’s a fact of life. And you’re going to see it happen soon more in such new industries as Internet, computer manufacturers, electronic publishing, etc.

We’re all used to consolidation in the "old line" industries such as autos, steel, airlines, and even utilities. It’s a result of the overall market reaching a degree of maturity where the growth does not allow for all those companies in that industry to continue growing at their necessary rate. If companies do not grow; then their stockholders get anxious, their aggressive employees leave, and their competitors become predatory. What happens in these industries is that they also become more "mature." They merge in order to "consolidate" operations for efficiency and lower costs. There are fewer and bigger players.

But, how about a technology-driven industry such as "the Internet"? It seems to be expanding at an ever increasing rate with more entrepreneurial companies entering the fray all the time. The cost of entry can be small and much can be accomplished quickly by smart, aggressive management. With new opportunities and business services being developed, there seems to be room for all and with sufficient capital available for investment.

As long as the rate of growth continues to increase then there is room for all the companies to grow; however, even if the industry is growing, there will soon come a time when that rate of growth slows. The capital available will begin to diminish and some of the companies will have to slow down. Consolidation will be forced in order to survive.

However, there are already forces at play other than "forced consolidation." Some companies will make bad management decisions or find that what they are doing requires more capital than available to them. These entities will either be forced out of business or become consolidated into another company to provide a stronger base. If there are too many companies chasing the same business, then some will have to step aside. And, of course, some guys just decide that they have made enough money and it’s time to "get out."

So when you are selling a technology or picking a partner for a new business venture, the people you make the deal with may not be there to implement it or there may be new management from the acquiring or merged company. This may turn out to be good for you, or bad. In any case, if your program will run over any extended period of time you should make a judgment about how your partner will fare during that time frame. Is the industry growing; is the company growing only because the industry is growing; are they financed such as to be a survivor; is the company owned such that the top guys will "take their money and go"; and what effect will these consolidation factors have on your deal?

I would appreciate comments; contact me at Technology Transfer Business magazine: phone: 703-610-8787; e-mail: john@johnsanders.com; internet: www.johnsanders.com.

prepared for the May, 1997 Issue of the FLC NewsLink