Not all small businesses are destined to stay small forever. Some will evolve into bigger entities through mergers and acquisitions. I spoke with David Gomberg, president and publisher of New York-headquartered Seven Footer Press, a four-person company, about how to go about expanding a small business effectively.
Gomberg grew his company after discovering Lazoo, a small business based in Japan, that creates imaginative coloring and activity books. He and his partners licensed the intellectual property rights for resale of Lazoo’s works in the United States and Europe.
So how can you look into widening the reach and increasing the financial success of your company?
Think outside the box.
Can you create more types of products within the new company? With the Lazoo license, Gomberg and his partners took the popular Japanese products and brought them to the United States and Europe while also inspiring a Lazoo clothing and plush line. (They begin selling in Babies R Us stores on Nov. 15, 2010.)
“You have to have an eye for things and then say, ‘Well, what else could this be’?” says Gomberg. “When you are a small company, you get vested in specific things and you can get limited in the vision. Someone from the outside can’t always recognize a goldmine. That’s what we did with Lazoo. We saw so much more product-wise that they hadn’t realized. We said, ‘Is this all it is? Can it be much more than this? A toy? A game? A TV show’?”
Build personal in-person relationships.
What has made the collaboration of Seven Footer Press and Lazoo so harmonious is the level of in-person nurturing Gomberg devotes.
“Japan is very relationship-focused so I go there to sit down with them face-to-face because that is how they like to do business. In the end, it’s been an effective way to communicate trust and dedication,” says Gomberg. “You can’t do business American-style in Japan. You have to be very willing to be slow, honor pride and work without written contracts. Because I know relationships are what matters to them, business-wise, I know I am dealing with honest partners that I can trust.”
Illustrate how their business couldn’t do it without yours.
One of Gomberg’s partners already had years of experience in children’s retail production behind him. So they have a slew of other resources that also created capital to support the expansion.
“We showed them that we had something beyond what they could do themselves,” says Gomberg. “We have a team to call upon that far exceeds what they could do by just taking the idea and doing it on their own. Many small businesses don’t have the resources to take their product globally. You get to be creative with your structuring. Also, doing all of this is very capital intensive.”
Look for niche products.
Gomberg is attracted to products that are different and have some creative element – something unlike anything else on the market in terms of brand identity. In the same breath, he also realizes some niche markets can only grow so big if the market is small.
“In that case, make sure you are creating what is also most competitive,” says Gomberg.
Do your homework!
See what else is out there. You might find your idea isn’t that different after researching everyone else and their version of a million dollar idea. Make sure there is really a spin on things that is different enough to stand out from everything else out there.
Add an excellent and knowledgeable lawyer to your team.
Because Gomberg’s partnership is without contract, things can be tricky. It is important to be fair while letting the other company know how much time, energy, and capital you are putting into the new relationship.
“Don’t look at this partnership as short-term,” says Gomberg. “We licensed categories we aren’t even developing yet.”
Think like the to-be acquired company.
Reversing the role will help you better anticipate the other company’s potential concerns. So evaluate whether what they are offering is something you could do on your own. Look to see if there are other partners out there better suited for the relationship. Evaluate what the cross benefits are. Will they want the rights to everything? Is that ok? What will you be giving up? Are they asking for too much?
“When you're two small businesses, you have to be a partner,” says Gomberg. “The sum of the two parts equals more than the whole.”
Be prepared to take some asymmetrical risk.
If you invest X mount of money, time and energy into a business, then the worst case scenario is that you lose what you put in, but the best case brings huge results.
“A $1 million investment could either be lost or a $100 million profit,” says Gomberg. “I like working with that kind of risk.”
Stay away from difficult partners.
You want to work with ethical people. If you can tell something is shady, even though it’s a great idea, stay away.
“I avoid overly demanding people,” says Gomberg. “Small companies don’t have time and energy to dedicate to that. You only have so much time to apply to dealing with a relationship. It’s a waste of your time and not worth it if someone is difficult.”