A conglomerate is the combination of two or more different and unrelated business entities that function as a single group. Each of these businesses may offer different products or services and are run independently. Although most businesses are content with managing themselves, there are huge benefits to becoming part of a conglomerate. A primary benefit is that businesses are often profitable in any economic environment by diversifying their portfolio.
Some of the most well-known conglomerates are Virgin, Amazon, Meta, and Warner Media—all of which own several subsidiaries. Lesser-known businesses composed of retail outlets, factories, building firms, and haulage businesses, for example, can also be considered conglomerates—assuming there is a single trademark for every business entity involved.
The choice between diversification or a new enterprise
Expanding a business from a start-up to a conglomerate can be achieved in two fundamental ways. You can choose to diversify your current business plan, so you offer more products and services under the same umbrella organization. You can also find other companies that want to merge, so your business has the majority stake in the smaller businesses. Creating subsidiaries is a long process, which includes various legal and financial procedures. With the right planning, however, it can be extremely profitable.
Managing risk and maximizing revenue streams
The most common objectives when forming a conglomerate are diversifying revenue streams and engaging with diverse markets, both of which help mitigate the risk of loss. Added benefits include the potential for increased efficiency and reduced operating costs, as the business now has access to more resources. Whether an organization only operates in the United States or expands into other countries, the subsidiaries will usually remain in the control of the parent company.
Can any business develop into a conglomerate?
Successful start-ups often move into the next phase of their business plan relatively quickly, and with expert entrepreneurship, businesses progress even more rapidly. Assuming the business is profitable and there is enough capital, building a conglomerate from a start-up is a wise business decision. Here is a look at the steps needed to make it happen.
Stay on top of market trends
Staying aware of trends in business consulting keeps you ahead of the curve when planning a new acquisition. This knowledge allows you to spot new growth opportunities and adapt your business strategy as required. Learn about what is currently driving business performance and ensure that your plans will future proof your organization. If you already follow consulting trends and plan to move into a senior business position, the MBA program at Spring Arbor University offers an excellent starting point. Designed to meet the needs of busy working professionals, the program is 100% online with graduation possible after only one year. Students who complete the MBA program at Spring Arbor University not only learn the foundations of running a business but enter the business world with significantly enhanced leadership skills.
Know your business
To grow a business and keep it running successfully, you will need a deep understanding of what is and is not working. Part of this involves understanding the market in which you work—or intend to work—after your business expands. You will need to consider what customers in your business sector want and how the products or services you provide will meet this need. Market research, surveys, and feedback will help you improve your business and ensure that your subsidiaries are also going to be successful. Additionally, by understanding what your competitors have to offer, you can design new services or products that give your business the edge.
Name your conglomerate
Forming the conglomerate is just half of the story, as a corporation’s success depends on several factors, many of which can be planned in advance. One of the first tasks you will need to complete is choosing a unique name that is available and will appeal to your customers. Once you have thought of a few names, you can search online to find out if it is available and not similar to other business names. Your conglomerate may eventually operate nationally or internationally, so originality and individuality are crucial. You will then need to register your businesses name within your local jurisdiction, and this will confirm it is available.
Rewrite your corporate bylaws
Corporate bylaws are the internal rules of your business; you will need a lawyer to help you write these, or you can find resources online to write them yourself. Your bylaws should state that the business is allowed to acquire other companies and form them into subsidiaries. If you have other senior leaders in your company, you will need to create a procedure for agreeing on possible acquisitions. This might include a vote, in which case you will need to decide who will have the casting vote, should there be a draw. Finally, your bylaws should cover how the corporation will manage its subsidiaries from the headquarters you have or will have established.
Do not fear failure
Although fear occasionally motivates us, it can also be a debilitating emotion. Fear of failure translates into a lack of confidence in your ability. Losing money, having to restructure your business, and reputational damage are factors to worry about, but without risk, there is no reward. To achieve greatness, you need to accept that failure is often necessary for growth. When you experience failure, you learn important lessons about what did and did not work. After the experience, you can take some time for reflection and make plans on how to avoid the same issues in the future. You will emerge more experienced, determined, and resilient.
Be committed to the road ahead
Once you have expanded your company and decide to buy another, there is no return. You need to be fully committed to running a business, as this is a full-time occupation. There will be times when you feel unsure, but having the courage to persevere is what separates great businesspeople from those who enjoy minimal success. Commitment will help you through difficult times. Entrepreneurs choose to go into business for themselves, requiring high levels of commitment to be successful.
Know how to manage your acquisitions
When acquiring businesses, you want to look for those that will complement yours or will help you expand into a new market. Occasionally, a badly performing company will offer excellent value—but only if you have the knowledge and skills to turn it around within budget. Always establish what you can afford to spend in advance and be sure of your calculations. If you have an accountant, share your budget with them at an early stage. Once a company has been merged with its parent company, there are many ways in which the new venture can be managed. Initially, the company’s registration needs to be changed and the ownership needs to be legally transferred. Once this is completed, your corporation can be called a conglomerate. You can now move forward with your objectives and ensure the subsidiary creates value as soon as possible.
Take a borderless approach
As well as diversifying your products and services, you can also expand geographically into other states or nations. You will immediately enjoy a much larger market reach, with the opportunity to acquire a new customer base. The same company selling the same product can often get a very different reaction in a new location. There may also be tax benefits available in the new location that allow you to optimize your acquisition. Finally, your list of contacts will grow exponentially. You will meet new suppliers and providers, as well as discover small businesses that are ideal for your next acquisition.
Prioritize diversification
One of the main reasons to turn a start-up into a conglomerate is to be a more diverse business. In the early stages, steps toward diversification can be quite radical, such as purchasing a new subsidiary business. In addition, exploring smaller types of diversification can be very beneficial. When you look at the business with a fresh eye, you may see new opportunities and become more resilient as a result. You might think about how one of your established products or services can evolve into something new or come up with new ideas that appeal to a different demographic. You might also consider how you can achieve this without impacting your current customer base, especially if the product or service represents a significant change.
Find a state with a favorable business environment
If you have the resources and the opportunity to relocate, search for a state with a good business climate. For example, look for business-friendly legislation, business loans with favorable rates, and low taxes. States with a prime workforce, good standard of living, and high business survival rate will give your conglomerate a better chance of success in the early days. You can also filter your search by factors such as the percentage of people with a college education—if, for example, that is criteria for your organization’s workforce.
Redesign your business plan
To achieve your business goals, you must have a sound business plan. The desire for growth is universal when it comes to owning a company or conglomerate. To minimize the risks involved in expansion, you will need to create a detailed plan on your growth strategy and viability. Will you be hoping to develop more products, explore more markets, or diversify with new products and new markets when you have subsidiary companies? Develop a strategy in advance, then bring it to fruition using the resources at your disposal.
Explore outside of your comfort zone
Business leaders who are unwilling to leave their comfort zone risk missing opportunities. Taking a risk on something new brings insight and confidence. By setting aside your fears, you will also learn new skills and act with determination in the future. Start by participating in a nearby event, such as a conference or community function. You might make connections that are helpful to your fledgling conglomerate in the future. In combination with a sound business plan, your actions will likely inspire others in your business.
Keep searching for new opportunities
Opportunities arise in many ways. You might learn that a state has recently passed new legislation that will benefit conglomerates; a contact might introduce you to a business owner who wants to sell; or you discover a new piece of equipment that will lower your costs. No matter how these opportunities present themselves, they can give you an advantage over your competitors if you act on them. Relying on luck is not enough; you need to pursue and recognize profitable opportunities. Learn more about your own industry, explore unrelated markets, and network with other business leaders. Making contacts in your industry—as well as others—is one of the best ways to seek out emerging markets and new opportunities for your company.
Making your mark in the business world
With a clear business plan, established long-term goals, and the right targets, expanding your start-up into a conglomerate can be a reality. Many young, successful businesses have a potential for growth, but a lack of direction can be a hurdle for even an experienced entrepreneur. By contributing additional capacity, personnel, and supply chains or equipment, smaller companies can help yours grow and become a thriving conglomerate.
