Seth Godin on “organizational momentum” acquisitions

Seth Godin left an insightful comment on my post yesterday (“Three types of acquisitions“) describing a type of technology acquisition you might call an “organization momentum” acquisition:

I think the most common form of tech acquisition is a variant of the [business acquisition], in which the acquirer wants to inject forward motion into the organization. It’s far more difficult for a public company to rally around a launch into what might seem like a small sector… it just doesn’t seem worthy of the biggest brains and bravest folks, so it gets shunted aside.

On the other hand, once a smart tech company acquires a smaller company with momentum, it gives the company permission to drive, perfect, polish and grow that business. I’d argue that this what actually happened with YouTube.

The logic underlying organizational momentum acquisitions can be found in Clay Christensen’s disruptive technology theory. Smart CEOs of large companies realize how hard it is to shift internal momentum away from developing sustaining technologies. As a way to avoid this trap, Christensen recommends that large companies set up internal startups that are as organizationally separate as possible. But, as Seth points out, acquiring startups with momentum is another way to get the same result.

http://www.alearningaday.com Rohan

Yup. That was a great comment.
http://www.the-makegood.com Matt Straz

Not only is acquiring startups another way to achieve the same result as compared to building something internally, often acquisitions are often the ONLY way to do it.

First, because companies are usually not rewarded in the public markets for hiring a bunch of people for a project when revenues are many years off. Second, because championing internal projects where the prospects for success are iffy is a good way to get yourself fired.

Clay’s recommendation sounds good on the surface but in the real world most companies rightly choose to innovate through M&A.

http://www.cdixon.org chris dixon

yes, agree. in particular the markets seem to pay less attention to capex vs opex.
http://twitter.com/andyidsinga andyidsinga

It might be true in some bigcos that working on iffy things gets you fired – but in my experience really good people never get fired – they get scooped up very quickly – usually with the help of their network.

Anonymous

I agree with what Seth has to say, however, I question whether or not these larger companies can’t spare the talent to work on something that may be “a small sector” or if, on the whole, larger companies are just more risk averse. My take is that they are scared. They let startups test the waters, then they hop in once someone says, “Hey the water is fine!”

The culture at these larger firms has a picket fence feel. You go there because you want a safe, smart job. Sure, these acquisitions might be about finding a way to gain momentum, but I also see them as a way to infuse youthful fresh thought, etc. into their “developing sustaining technologies” cubicle culture.

http://www.cdixon.org chris dixon

I basically agree, but I think the trick is even if top management agrees with you it is super hard to get the best people motivated on the “startup” projects. In other words, it’s a dysfunction of institutions, not individuals.

Anonymous

Agreed. Motivation. Such a difficult thing to do in someone other than yourself
http://www.the-makegood.com Matt Straz

Right. One thing that I have found is that a good acquisition can become a catalyst for change in the bigger company.

When AOL bought our startup a year ago we were just over a dozen people. Now the team is 4X that size and talented developers from across New York are flocking to the unit.

Buying, rather than building, helps cut through the politics and injects some energy behind an initiative.

http://arnoldwaldstein.com awaldstein

I agree Matt.

I did M & A for a public company in the 90s. My job was to acquire start-ups with technology and teams who were broadening the product offering of the parent company.

Parent was in the web analytics space.

Worked well sometimes sometimes not. It was a fight to get resouces and the culture clash was challenging.

But the net result was a success.

http://twitter.com/andyidsinga andyidsinga

i dont think large companies are scared at all and its not a matter of lack of talent.

Its all about resource allocation – they dont *want* to spend the resources and talent on things they believe fall waaaay below their ZBB line.

Christensen talks about new markets not being able to satisfy the growth needs of large organizations – that growth issue manifests itself in the resoure allocation process.
http://twitter.com/andyidsinga andyidsinga

I left a startup to go to a large company ( Intel ) not for security but because of the alure of a group that was making a game changing product back in 1998 – intel web tablet ( go figure eh ? )

http://twitter.com/andyidsinga andyidsinga

awesome subject ( yesterdays post too ).

its amazing how difficult it is for large successful companies to make internal startups..and have patience to nuture them to success. The subtle temptation to turn them into sustaining innovations is incredibly powerful and also destructive.

its still and awesome awesome job to work in a bigco incubator
FAKE GRIMLOCK

BIG CORP = RETIREMENT HOME FOR DEVS. TALENT ACQUISITION HAPPEN WHEN DEVS READ TO RETIRE.

OR TAKE VACATION FOR YEAR OR TWO IN SAFE PLACE. BUT THAT NOT SUCH GOOD DEAL FOR BIG CORP.

http://twitter.com/andyidsinga andyidsinga

no FG, i love you robot, but i disagree

I know many awesome and productive enginers at intel …and only a few really fucking lame ones.

so okay, i’ll concede that the ratio of awesome to f’ing lame is probably better at startups. but dont fool yourself – smart, fun, good, hard working people and projects can be found in bigcos too

FAKE GRIMLOCK

EVERY RULE HAVE EXCEPTION.

BIG CO. SOLVE DIFFERENT KIND OF PROBLEMS, IN DIFFERENT WAY. HAVE CONSTRAINTS, PRESSURES, PREVENT STARTUP THINKING.

IF DEVELOPER NOT READY GIVE UP STARTUP THINKING, BIG CO NOT WORK OUT LONG TERM. NOT MEAN NOT DO GOOD WORK, JUST VERY DIFFERENT WORK.

http://twitter.com/andyidsinga andyidsinga

agreed

http://www.eqentia.com William Mougayar

In theory that makes sense. But I’m scratching my head- can you name a recent example of a large company that set up an internal startup team that produced a heck of product?

The other problem with a large company is that they’ll always think in billion-dollar markets, whereas startups will think in million-dollar markets. So the bar is much higher for producing billion dollar products even with the best of startup teams.

http://twitter.com/andyidsinga andyidsinga

if i remember correctly one of Christensens examples was HP starting ink jets as its own org …outside influences of laserjet busines.

But your point is a very good one in any case.

http://www.eqentia.com William Mougayar

Yes & that was a very long time ago. I used to work for HP when that happened.

http://twitter.com/andyidsinga andyidsinga

doh, sorry for ignoring the part about ‘recent’

http://twitter.com/BrentHurley Brent Hurley

Roku, which was spun off by Netflix a few years ago, comes to mind…
http://www.cdixon.org chris dixon

I agree. I think your point supports Seth’s and is exactly why big companies tend to acquire to enter new areas.

Chris Dixon