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Stampeding Through the
Business Lifecycle
New Tech Companies Tackle the Next Challenge for Growth—M&As—But What About the Brand?
New York, October 12, 1999
Just when the IPO frenzy among Internet companies appears to be leveling off, another phase in the business lifecycle is ramping up: mergers and acquisitions. But unlike companies that carefully deliberated such strategic activities in the past, the new "cyberpreneurs" are taking on the M&A challenge at a pace and volume unimaginable only a few years ago.
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Stampeding Through the Business LifeCycle
Internet companies reach merger and acquisition activity* 12 times (1,200 percent) faster, on average, than their more "traditional" business counterparts.
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Citing recent research, Lippincott & Margulies, the corporate and brand identity management firm, observes that Internet companies, in particular, are going through the traditional business lifecycle model, one element of which includes mergers and acquisitions, at a greatly accelerated pace—12 times faster—than their more "traditional" Fortune 500 business counterparts (see chart). Whereas it has taken the top 50 Fortune 500 company an average of 72 years to enter into a merger/acquisition, it has taken the top 25 Internet companies only 6 years on average.
New Urgency for Branding
With this surge has come an upswing in branding among the "dot coms," according to Lippincott & Margulies.
"In the Internet and IT industries, 'long-term' really means about six months, and that may be stretching it," says Suzanne Hogan, senior partner of Lippincott & Margulies. "In that environment, you would expect essential business components like brand management and strategy to be low on the priority list. However, these companies, many of which are still in their infancy in terms of length of existence, keep branding and identity issues top of mind as they continue to generate revenues."
Lippincott & Margulies found that the volume of M&A activity in a broader category including IT, media and communications companies has skyrocketed as well. From 1989 to 1998, 1,049 mergers and acquisitions were reported worldwide among companies valued over $500 million. By contrast, in just the first six months of 1999, over 1,800 M&A transactions among IT, media and communications-related companies occurred in the United States alone, with another 1,100 occurring worldwide.
A New Breed, A New Approach
Hogan reports that Lippincott & Margulies has experienced a 25 percent increase in inquiries from new Internet and technology companies seeking to develop "strong brands." These companies also have a keener understanding of the importance of brands at a much earlier stage of development than the traditional Fortune 500 corporations did in their "infancy."
"The lack of market entry barriers and strong presence of venture capital dollars have led to an unbelievable level of competition in anything ‘e' related," she says. "These extreme levels of competition result in heightened difficulties related to differentiating brands and the management of these companies seem to understand this."
Hogan adds, "Technology-based companies are speaking to us before entering an M&A situation because they want to position themselves properly for the future. The traditional strategy has been to acquire several brands over many years, then decide how to manage them. This ‘new breed,' in facing a very tight competitive timeframe, recognizes the need to determine a brand strategy and architecture at the beginning of the process so they can hit the ground running."
The Drivers
What drives these companies to speed through the traditional business lifecycle pattern? In addition to the lack of entry obstacles, and the preponderance of venture capital, companies are driven through the traditional business lifecycle pattern by the breakneck pace of technological invention, streamlined organizational structures, and the youth culture of the Internet industry.
The relatively small size of the Internet companies eliminates many of the political, time-consuming internal issues often related to mergers, allowing more focus on external customer issues, she says. Add a healthy dose of capitalism and impetuousness of youth, and the result is an accelerated lifecycle.
"For the most part, small, entrepreneurial technology-based companies understand that it is impossible and impractical to attempt to keep up with every aspect of evolving technology," says Hogan. "If their company has one piece of the puzzle and sees that another company has the other piece, they won't hesitate to try to connect them. With such a preponderance of ‘dot coms,' they can't all survive and partnership is an essential growth and survival step," she adds.
Hogan describes this mindset as a mix of altruism and capitalism. "Most of the line management is young and open to change. If a merger or acquisition is in the best interest of the company and the best way to improve the product for the marketplace, they are willing to dive in," she says.
Lessons From the Past
While the rise of Internet start-up and IT companies has significantly affected business and society as a whole, they are not the only dramatic business-altering events Lippincott & Margulies has observed since its founding in 1945, according to Kenneth J. Roberts, chairman and CEO.
"Every 20 years, there is a revolution in the branding industry," Roberts observes. "In the 40's and 50's, prosperity among a growing middle class brought a new demand for consumer goods, and the introduction of television provided a means to reach millions at a time. The 60's and 70's brought a new movement to the marketplace abroad and a boom of multi-unit retail outlets at home." In the 80's and 90's, Roberts notes, "companies operated in an increasingly efficient, technology-oriented, global economy and recognized the advantages of pooling talents and resources."
For any Internet start-up or IT company interested in strengthening brands that are evolving through IPO, mergers and acquisitions, or marketing initiative in the marketplace, Roberts offers some key pointers for brand management.
- Get hands-on commitment from the top. No brand has ever made it to prominence without it. Top management must be zealous in protecting the company's brand, as it is their most valuable asset. There should be no facet of brand management too incidental for chief executives.
- Have a clearly defined brand message. Whether it is Mercedes Benz or Snap.com, brand image has a direct influence over customers' decisions. It is a short cut in processing information needed for a customer to choose a product or service.
- Stay focused yet adaptable to changing conditions. Changes in the Internet marketplace and growth opportunities are inevitable, but they must not be seen as impediments or threats to a company's values.
- Cultivate passion in building a brand. Coca-Cola and Starbucks have built loyal followings as they have grown because customers share their passions for their brands.
- Make design a strategic brand tool. A successful reputation can only be achieved by having all elements of a new or recently merged company's corporate image—from its logo and signage to its Web site—shaped properly from the start.
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