The question posed by the title of this blog post is not an empty question. In fact it is a very big controversy in the technology world and can make or break companies. If you are like Microsoft that generates billions of dollars every quarter and basically has a huge digital bank account, you can take a lot of shots in the dark and be satisfied even if you hit one target in ten. You have so much money rolling in that you can afford to take those risks. However, if you are a smaller company or worse declining company like AOL or Yahoo, you better be a better marksman than Microsoft. You can’t spend your precious billions shooting duds or else your company might go belly up. This is the main drawback to the main strategy of buying your way into innovation.
In the minds of many critics, the whole concept of buying your way into innovation is quite offensive. To them, the whole idea behind innovation is in-house development or startup passion. The whole concept of one company just buying the technology of another company is so bureaucratic and so laden with inefficiencies that according to the views of many critics, it’s doomed to fail. In fact, there’s a lot to support that assertion. For every one merger in acquisition that actually succeeds in the tech industry, there are many others that result in failure. Either the acquired technology gets put up on a pedestal and is looked upon as a white elephant or the merger of the acquired company and the buying company is so bad that the acquired company actually loses a lot of its value and vitality. In those cases the company would end up selling the acquired company back to its original owners for a fraction of the price the acquiring company paid for their acquired company. Need any proof? Look up eBay’s purchase of StumbleUpon. That’s a classic example and there are many others similar to it.
It’s really important that buying a company bent on buying its way into innovation must keep the following issues in mind.
1. Organizational Integration
Not only should the buying company have the organizational infrastructure a fast-rising startup and its technology, it should also have the right culture that would allow for a fast, efficient and effective transmission of communications from one department to another. If not, this would just result in the waste of new technology and will not add much to the bottom line of the acquiring company.
2. Incentivizing Passion
Part of the reason why smaller and leaner companies become so successful and become such threats to larger and slower companies is because there’s a lot of passion behind the business. Unfortunately, once people start making money they start getting slower, more corporate and more bureaucratic. This is no surprise because that’s basic human nature. The hunger is gone. Unfortunately, for the acquiring company this can result in the once high-flying and red hot company that they bought becoming like a cold and slow-moving company that could drain on their resources. There has to be some sort of incentive structure that ensures that the same level of passion is present for the acquired company once it becomes a solid member of the acquiring company’s portfolio.
3. Strategic Picks
If you’re just going to shoot randomly at a crowd, chances are you’re not really going to hit the person that you wanted to take out. This is definitely the case with buying your way into innovation. You just can’t shoot into a random and anonymous pool of high-flying startups and emerge a solid and fast-rising company. It doesn’t work that way. The company being acquired must be in a technology space that complements whatever it is that you are doing. There must be enough synergies in there for the sum to be worth more than the parts or else you’re just going to be put in the position where you’re just buying traffic and you’re just biding your time until your company crashes.