Corporate acquisitions of startups usually fail. Hereâ€™s why...
Gammy Dodger stashed this in Startups
For decades, largeÂ companies have gone shopping inÂ Silicon Valley for startups. Lately, the pressure of continuous disruption has forced them toÂ step up the pace.
More often than not, the results of these acquisitions are disappointing.
What can companies learn from othersâ€™ failed efforts to integrateÂ startups into large companies? The answer: There are two types of integration strategies, and they depend on where the startup is in its lifecycle.
Most large companies manage three types of innovation: process innovation (making existing products incrementally better),Â continuous innovation (building on the strength of the companyâ€™s current business model but creating new elements), and disruptive innovation (creating products or services that did not exist before.)
Companies manage these three types of innovation with an innovation portfolio. EitherÂ they build innovation internally, they buy it, or they partner with resources outside their company.
Five types of innovation to buy
If they decide to buy, large companies can:
- license/acquire intellectual property
- acquire startupsÂ for their teams (and discard the product)
- buy out another companyâ€™s product line for the product
- acquire a company for the product and its installed base of users
- buy out an entire company for its revenue and profits
A good integration strategy is key to making an acquisition work.
They forgot to mention, companies in the "searching" box have really low millions-per-engineer metrics including fractions.Â Companies in the "executing" box have really high millions-per-engineer metrics including multiples.Â
Good point, Greg.