Continuing Series on Selling A Manufacturing Business and Will the Primary Business Survive
Continuing our series on Selling a Manufacturing Business, this month we’re looking at what may seem like a very simple subject, “Will The Primary Business Survive?” If not answered positively, you’ll never have a potential buyer ask you for a second date, try to get to third base, let alone hit a home run! I’ve written extensively about how new technology can wipe out an industry, and the importance of staying informed of emerging technology.
I’ve used the example often of what personal computers did to the typewriter industry or how the advent of internet marketing has negatively impacted those in the printing industry. But what if you are a manufacturer in the business of making parts that are not a product in themselves, but become part of your customer’s product. How can you possibly know when a product update might cause your part to become obsolete?
Don’t Get Blindsided
Okay, on the subject of “will the primary business survive,” here’s the deal. Part of my job, based on my experience, is to help you see the Danger that you might not. I recently read a story about military training (and I have seen this depicted in movies) that I think is appropriate here. Imagine being in a group of military trainees and your job is to protect your group from snipers. As they pop up in the distant field, you shoot them down. They pop up faster and faster, but you’re on your game and you get every last one of them in the “field.” The problem is you didn’t notice the threat that was closer. It caught you off guard and said “checkmate” and you and your team are now dead! This is about training yourself to see the wider scope of danger that might exist for your products and your business.
In doing research for this article concerning “will the primary business survive,” I discovered a ton of information on the web about “Obsolescence Management,” or proactive vs. reactive obsolescence management. My staff would actually call it a “megaton” of information! I was surprised that most of it related to the electronics industry. I’m sure that is because of the pace at which the technology in that industry changes.
Much of what I discovered on the subject discussed what to do if the parts you’re making are discontinued, (reactive obsolescence management).
Various articles talked about re-positioning your product for “after-market” sales primarily to avoid losing a “megaton” of money. OK … not a bad idea, and worth consideration. However, for manufacturing job shops not dealing with a product that would have an aftermarket audience, this is of no help.
Proactive Obsolescence Management
I began to focus my research on “Proactive Obsolescence Management” and having a plan B before you actually need one. What I discovered was very disturbing. OEMs (Original Equipment Manufacturers) publish PDNs (Product Discontinuance Notices) which their parts suppliers use to take a more proactive approach to the problem of part obsolescence. These reports are supposed to tell you in advance when a product is being discontinued so that you can plan appropriately.
In a survey conducted by NAVEA DamNeck in 2007, component manufacturers accurately predicted the obsolescence of their own products only 55% of the time. Call it “red tape” or the “right hand doesn’t know what the left hand is doing,” in some of these larger corporations; either way, this does not help small manufacturers who can be wiped out if the part being discontinued is their main product for their main customer.
The translation is that if you are relying on your customer to warn you in advance that the product you’re making for them might no longer be used, you may be in a “metric sh*t ton” of trouble.
Pulling it back to our original discussion. How much do you want to sell your business for? A million? Perhaps five million or more? I guarantee you that a potential purchaser will thoroughly investigate industry trends for the products you make and the products your parts go into. Reporting on trends is a multi-billion dollar industry. A company that can afford to buy yours, can certainly afford to spend $900 on a trend report from http://itreconomics.com, and trust me, they will!
Keep an Ear to the Ground
The larger message I want to bring is that you yourself can predict the future if you simply pay attention to what is happening around you. The idea is to predict, and take action to develop alternative plans BEFORE your primary industry is obliterated by new technology. Last month in my article “The Seven Irrefutable Laws of Manufacturing Business Growth – The Irrefutable Need To Remain Current With Technology,” I spoke about HOW to keep yourself informed on new trends so that you are not surprised by the shooter that got close enough to kill your business.
There are currently young technologies that have the potential of forever changing certain sectors of the manufacturing industry, (Like 3-D printing). Is your business in danger? Are you informed enough to know? If you want your business to be appealing to a buyer, you better know. You may have to re-invent yourself a bit to make up for lost income from a dying sector. That’s better than watching your entire business die.
It’s almost the end of the day as I write this. I was just interrupted by one of our team members who was out on sales calls today. He visited an old-time customer in the stamping industry. My old stamping customer, who had been watching his business decline, is now in an entirely new business. He saw a trend that he didn’t like and switched gears quickly enough to re-invent his entire business.
He is making Cremation Keepsakes that memorialize loved ones. The keepsakes are created by a patented process, which infuses cremated remains into crystal glass. The crystals are then put into a beautiful ring or necklace setting. As a fanatical dog lover who has had more than one dog cremated, I LOVE THIS! I also admire the drive of a manufacturer to dive into a new business that is now growing and thriving – way to go Mr. V.! When the time comes, his business will be ready and appealing to potential buyers! Will yours?
This is our final installment of Selling A Manufacturing Business – The Top Five Things Every Buyer Wants To Know and also Will Your Primary Business Survive. We hope you enjoyed the series and found it helpful. We continually try to provide relevant information to the manufacturing sector we serve. What would you like us to write about next? How to get more customers? How to get financing? What areas are of the most concern for you? Tell us by responding below, or fill in the form on our contact page. We appreciate your participation!