Marco’s recent decision to sell its office furniture division was necessary to complete our transition to a technology services company. It made sense strategically; however, it was still not easy. We had been in the office furniture business for over 30 years and it had been a profitable business for us. Likewise, our office furniture team members were among our company’s most veteran employees – and our friends.
So, when do you sell, close or divest a business unit? We have sold a number of divisions over the years. I’ve found that divesting is just as hard as buying and the impact on the company can be as significant. The same principles apply. We use these three principles to guide our decisions:
1. If you weren’t in this business, would you get in it? If not, get out.
2. If it is not making any money and doesn’t fit your strategy, exit it.
3. If it is not making any money, but does fit your strategy, fix it.
Here are a few examples of how we have applied those principles over the years:
- If you weren’t in this business, would you get in it? If not, get out.
This was the case for selling our office furniture division in 2011, and our office supply division in 1996. Both were core parts of our business and made up the largest portion of our revenue back in the ‘90’s. Both were marginally profitable, but ultimately never fit our technology strategy. So when we asked ourselves, ‘if we weren’t in these businesses, would we get in them,’ the answer was clearly ‘no.’ We determined that neither fit our technology strategy.
- If it is not making any money and doesn’t fit your strategy, exit it.
Structured cabling was a multi-million dollar part of our business. When the recession hit with a slowdown in construction and increased competition, we had an opportunity to evaluate the performance and future of that business unit. The margins eroded to almost nothing and we saw little opportunity to add value. So, we made the decision to exit.
We sold our struggling Great Plains software business after we recognized that the decision maker for accounting software was different than that of IT networking. On the surface, it looked like it fit our strategy, but we were not targeting the same decision maker. So, ultimately we sold it.
- If it is not making any money, but does fit your strategy, fix it.
Some things are worth fixing. Our telecommunications division is a good example. We knew telecom was an essential part of our networking services strategy, so we invested the dollars needed to turn it around. We even brought in a third party consultant who asked the hard questions – and challenged us with a series of recommendations. We felt these were doable and implemented the suggested changes to make it a more profitable part of our business.
It’s human nature to justify a struggling business unit, especially if it affects your personal paycheck or if you’re in charge of it. But after we exit – and we all know hindsight’s 20/20, – almost without question, we say ‘we should have done that sooner.’ We’re always concerned about how our clients will respond to the sale of a business unit; however, almost without exception, the outcome has been positive. In fact, often times they’ll comment in support of the decision.
In the technology industry and the dynamics that go with it, it can be difficult to build a long-term strategy around a product category. What we see as our core products and services today (i.e. TelePresence and virtualization) weren’t necessarily here three years ago, and it’s possible they may not be here three years from now. We have to be comfortable selling, exiting or fixing a business unit based on performance and client demand. It is critical to our success and sustainability.
If you are questioning a business unit, don’t sit on it. Complete the due diligence and make a decision. You will be better off for it – and probably wished you had done it sooner.