The Rational Acquirers
Net@Work has grown rapidly by making smart acquisitions and digesting them carefully
by Lee Lusardi Connor for The New York Enterprise Report
New York (November, 2007) - When brothers Edward and Alex Solomon decided to get into the information technology field in 1996, they knew next to nothing about computers.
However, they did know about running a business. In their teen and college years, they created a successful catering-and waitering service, which in turn spawned sidelines in paper goods, janitorial supplies and kitchen equipment.
“But we didn’t want to be caterers any more, so we got out of that business,” recounts Alex, now 33. Alex was earning a degree from New York University’s business school while working on the side as a catering consultant; Ed, who is four years older, was working at NatWest while getting his M.B.A. at night from Baruch. “The dotcom era was coming, Y2K was coming. We knew technology was the place to be, but the problem was that we weren’t technical at all,” says Alex.
So the brothers worked out a deal with NYU whereby business students would, under the Solomons’ direction — in return for academic credit — research the technology needs of small and midsize companies. That was in June of 1996. For the brothers, the next few months amounted to an intensive crash course in networks, business applications and all that was hot in business technology.
Too Many Cooks What the brothers also learned from their interns’ research was that small to midsize businesses were going crazy dealing with multiple technology vendors. There were vendors for hardware and vendors for software, as well as different vendors for different types of hardware and software, and when implementation ran into problems, the vendors invariably responded by pointing the finger at each other.
Ed and Alex decided that their business would provide both software and hardware support; the buck would stop with them. They would hire hard-core technical types to do the hands-on fieldwork, and they would focus on an area they knew well from their catering days: client care. By February of 1997, Net@Work had incorporated and signed its first client.
Fast-forward to 2007. Net@Work has evolved from a firm focused primarily on network infrastructure and support issues into a provider of comprehensive business solutions, including planning, analysis and services such as Web development, e-commerce, document management and information security. The company now employs more than 100 people to service nearly 1,400 clients. In 2003, the company’s revenues were $6.3 million; in 2006, they were $12.3 million. Net@work is regularly cited as a top New York–area company by industry publications, and was recently named to the firstever Inc. 5000, a list of the fastest-growing privately-owned companies in the country.
How have they come so far, so fast? They’ve done so in large part through acquisitions — six in total, four of them between August 2006 and August 2007. And they are on the lookout for more. Though various studies have estimated that anywhere from 50% to 80% of acquisitions fail, Net@Work is betting that it has found the key to successful integration of new companies. What the Solomons say they have learned:
Buy with a purpose. “As a growing business, we’re looking for acquisitions that strengthen specific departments,” Alex explains. In a way, the company’s growth is organic, according to Alex, because “the products and services we are adding are ones our clients need or will soon need.” One recent acquisition was made specifically to strengthen the CRM group; another was made to add to the company’s depth in network infrastructure support.
At the start, Net@Work had carved out a niche as a one-stop shop through partnerships with leading technology companies (including Sage Software, Microsoft, Cisco, Symantec and HP/Compaq) and affiliations with other small, entrepreneurial companies that specialized in different areas of IT.
“Once we tested the water with these affiliations, our objective became to go out and find our best competitors in different areas of the business, then roll them in,” Ed explains. For example, the company already had a relationship with American European Consulting Company (AECC), a leading provider of ACCPAC software. In 2005, Net@ Work acquired AECC.
To keep in touch with the pulse of the marketplace, Net@Work managers do quarterly “road-mapping” sessions with their clients. “We ask them, ‘What have we done for you? Where is your business going? What new strategy do you need to implement?’” Alex explains. “When we started getting feedback that storage and security were becoming huge issues, we created groups that specialized in solutions for each of these areas.”
Approach your target with care. The Solomon brothers prefer to approach a potential new acquisition indirectly. “We try to find someone we’re both friendly with to make a nice introduction,” says Ed. “Often with an owner, there’s a lot of ego involved. It’s his or her baby, and you can’t just walk up to someone and say, ‘Want to sell your baby?’ If you have somebody who knows you both, you can kind of probe the idea.” (As the company’s reputation grows, potential acquirees are now beginning to approach Net@Work on their own.)
“Sometimes a deal is a good strategic fit, and you get so involved you become almost like a cheerleader for it,” says Alex. “You can’t do that. The numbers may not fit or it may not turn out to be a good cultural fit.
“You have to spend a lot of time talking to the owners. You don’t have to agree on everything, but you have to understand each other’s philosophies so you can become one company with the same philosophy.” In Net@Work’s case, that means determining whether the company it’s acquiring can get past the notion of specializing in just one thing and get with the Net@Work program.
Go slow with the new customer base. “After our first acquisition, we actually lost a number of customers because of culture shock,” says Alex. “Instead of acclimating them slowly, we sort of said, ‘Here’s how we do it, trust us, it works.’ Now we make changes much more thoughtfully and try to accommodate the way they’ve been used to doing business.”
“We’ve learned that, at times, retaining the right customer is more important than retaining every customer,” says Ed. “A customer may have been a good fit somewhere else but isn’t a good fit for us now.” While Net@Work offers itself as a one-stop shop and tells customers, “We want to be your trusted advisor,” some newly acquired customers are uneasy with the idea of putting all their eggs in one basket.
Therefore, Net@Work has learned to take extra care to show new customers the value of its services. But after an initial gettingto- know-us period, the company strongly pushes the purchase of its services in blocks of prepaid hours. This arrangement gets the customer a reduced per-hour fee and also guarantees a response time of less than four hours for any service request. “When you buy a prepaid block, you’re committing to us. That allows us — and forces us — to hire more people to better service you. Otherwise, we’re just guessing,” Alex says. Having those funds in hand up front, of course, also enables the company to go shopping for more acquisitions.
Motivate the new talent. Net@Work takes proactive steps to keep talented people who are working in the companies it acquires. “We interview all the employees and make sure they understand that, though there’s a spot available for them, they do have to perform to our standards,” says Alex. “We want to keep them, but we want them to feel that they’ve earned it — that they’ve joined a team, not been forced into a team. And that on our team, everyone’s accomplishments are rewarded.”
Net@Work hosts a welcome party complete with champagne toast for the new employees. They also team each newbie up with a current employee mentor. “Joining a new organization is a big deal and we can’t take anything for granted,” says Alex. “People need to know everything, from where people have lunch to what time they leave to how to get into the building on the weekend.” To further get everyone on the same page, the company also gives each new employee a copy of Raving Fans: A Revolutionary Approach to Customer Service, by Ken Blanchard and Sheldon Bowles (William Morrow).
Keep the senior people if you can. “Ideally, it’s always part of our plan to have the owner stay with us — though sometimes he or she may have other ideas, such as retirement,” Ed explains. “We really like to have them stay because we have so many things going on, we want to delegate responsibility. They’re on a senior level with regard to P&L and performance and we expect them to run their own shows.” For example, Sandy Needham, founder and principal of AE CC, has stayed on with Net@Work as director of client care. And Christina Strack, the founder and president of Werkflow, acquired this past June, joined the company as director of sales for the infrastructure business.
What’s next for Net@Work? “Ultimately, we’ll go national, but not for a while,” Alex says. “Right now we have so much to do.” One focus is to expand into New England; the company has put a toe in the water by acquiring a company in Connecticut, which the brothers consider the first of many “remote acquisitions.”
Geographical expansion will proceed at a deliberate pace as the company figures out how to keep its customer service focus front and center. After all, that’s the common thread that links every business. “What you learn in catering is that anything a customer asks for is possible,” Ed says. “If you can’t do it yourself, you find other companies or vendors who can.”
“The only difference,” adds Alex, “is that once the wedding is done, you move on. In this business, the job for our customers never ends — especially if we’re providing everything they need or want.”