My sources tell me that the association technology market is attractive because it’s viewed by private equity investors and executives as 1. Highly fragmented; 2. In need of a different management style as companies grow; 3. Entrepreneur-led.

Let’s talk about the fragmented market first. There are dozens of AMS products, each with hundreds of customers. The theory is that if a private equity firm can merge two equally sized AMS platforms and decommission one of them, they can support twice the customers on one product, and reduce expenses associated with running a business. They need only to hold on to a fraction of the resources (office space, infrastructure, employees) from the non-surviving product. There are at least two recent examples of something like this happening in the association market.

But that’s just the AMS market. You’ve got LMS, event registration, online communities, email marketing, and a bunch of other technologies too. Think back to the previous point about creating a suite of products from sister companies, and you’ll see that this makes even more sense. If a company can get its customers using more of its products, it becomes more difficult for the customer to move to another platform.

Second, what about management? Management for startup and early growth businesses is — by necessity — different than management at a more mature company. Whereas startups are typified by a turn on a dime mentality, allowing them to capture as much business as possible as quickly as possible, mature companies need more stability, sustainability and purposeful direction. This is manifested in more elaborate human resources, technology, marketing, and legal processes — all of which require a different approach to management. The saying “what got you here won’t get you there” rings true.

This point dovetails into the next, which is that many association technology companies are led by their founders, the very entrepreneurs who built the business. Entrepreneurs aren’t typically great managers. They’re visionaries and are often bored by the minutiae of managing a business. Almost every entrepreneur I’ve met has proclaimed to be savvy managers… until they sell. Then they brag about how bad they were as a manager and express relief that they don’t have to masquerade as a management guru anymore.

Lastly — and this should be obvious — entrepreneurs build businesses to sell businesses, so founder-led companies are ripe for the picking by private equity investors.

There are also cases when an investment is made as a rescue. Imagine a company with 100 customers that has seen competition start to overtake them. The founder may decide to take a merger deal to bring in the money needed to address the competition. The private equity firm may add that product to an existing suite and try to sell other products to these new 100 prospects. If the founder refuses private equity money, the company may just have to shut their doors, which would be bad for those 100 customers.

Ultimately it’s a good thing when private equity companies are interested in your association technology partner. It’s a sign that the technology is deemed to be valuable and has lots of room for growth. Up next: What happens after a merger or investment where we’ll explore what happens in the short term and long term. And don’t forget that you can ask your own questions to a panel of self-funded and private equity backed CEOs at AMS Fest later this week. Still room to join us.

Special thanks to the author of this series: Ben Martin, CAE, Online Community Results.