Why big companies are keen to buy start-ups

Lead: From the point of view of the acquirer, they are to integrate the start-up with their existing business, after integration, you can calculate the potential impact of the start-up, and then look for innovation.

In the past decades, there have been large companies in Silicon Valley to buy start-ups. And lately, the pressure of sustained disruption has forced them to step up the pace of acquisitions.

But the results of these deals are often disappointing.

So what can those companies learn from these failed mergers and acquisitions? The answer is that mergers and acquisitions typically involve two kinds of integration strategies, and depending on which strategy to take, it should be seen at what stage of the lifecycle the acquired start-up is in.

Innovation Portfolio

Most large companies manage three of innovations, namely, Continuous innovation ( Innovation Company's existing business model, and create new elements), process innovation (make existing products more outstanding) and Breakthrough Innovation (striving to develop products or services that did not exist before).

Those companies use a combination of innovations to manage these three innovations, either in-house innovation, acquisitions, or collaboration with resources outside the company.

Five types of innovations involving acquisitions

If they decide to buy, big companies can: 1. Purchase of intellectual property rights; 2. Acquire a start-up to acquire the latter's research and development team and give up the latter's products; 3. Acquire a product for another company; 4, buy a company for the sake of the product and the user; 5, buy a company for the sake of performance.

Silicon Valley-the cradle of enterprise innovation

Business development and strategic cooperation executives are rushing to the Silicon Valley to find the 5 types of innovation. For this reason, many venture capital companies such as Sequoia Capital and Anderson Horowitz are also constantly recruiting new partners to work with start-ups they invest in. They organize their activities every year and quarterly, bringing together policymakers from Fortune 500 companies to invest or buy start-ups directly.

Venture-capital firms are happy to make acquisitions, just as they would like to see IPOs of companies they invest in, because buying a company usually pays more than the current value of the acquired company. This also makes sense for acquirers, as they integrate start-ups with their existing businesses and can take into account the potential impact of start-ups. However, these valuations will make it more important to properly integrate the acquired companies. One mistake that the acquirer usually makes is to treat all the acquisitions in the same way.

is a potential acquisition intended for search or execution?

Not all startups are at the same ripe stage. Remember, startups are defined as the temporary institutions that are used to search for repeatable and adjustable business models. (The business model is the strategy itself to deliver products to customers and make them profitable.) This includes products, customers, distribution channels, revenue models, how to get, keep and develop customers, the resources and activities needed to build a business, and the costs. )

Startups are companies that are still in the process of looking for business models. If a company has developed for a long time and is implementing its business model, it is no longer a start-up, but a company in the early stages of development. Big companies are flocking to Silicon Valley to look for acquisitions that target both start-ups and companies already in early stages of development.

Large companies often forget that start-ups are run by founders looking for business models when assessing the reasonableness of a takeover. Founders are trying to find the right mix of products, markets, revenues, and costs. They achieve this through a persistent customer discovery mechanism.

This phase of a new company is chaotic and unpredictable. At this stage, the ultimate goal of the start-up management is to identify the product/market point and the business model that can be adjusted. The search phase was driven by a start-up culture that encouraged individual initiative and autonomy and created a team spirit characterized by sharing. The latter leads to a passionate and tireless search for opportunities in the company's management. This is the process, procurement and rules that make up a large company.

In contrast, companies that are already in the early stages of development are in the process of implementing the organizational structure and customer base of the company. While they still have the enthusiasm of startups, the goal is scale. Because of the need for repeatable processes and procurement patterns in both sizing and execution, these companies have begun to use organizational charts, human resources manuals, revenue plans, budgets, and key performance indicators to rectify early chaos.

As part of the takeover, founders may also join the buy-out group, which usually assigns an operational expert as chief executive.

Predict the success of a takeover deal

So what? Who cares if potential acquirers are looking for business models or implementing their strategy?

Ironically, business development and strategic partnership executives are not executives responsible for consolidation or acquisitions. Usually its fate is determined by the acquirer's chief technology officer or management executive.

The success of the deal depends on whether the acquirer intends to allow the newly acquired company to operate independently or to integrate the newly acquired company into its own business.

In fact, there is a simple standard of judgement before making this decision. If a start-up is acquired because of its intellectual property and team, the right strategy is to quickly integrate and absorb it. All that remains is indirect spending around the company's core business.

However, if a start-up is in the search phase, and you want to get its products and users so that it can grow at the current speed or even higher, treat it as an independent department, and then appoint the former CEO of the start-up company as the head of the independent department. Since start-ups at this stage are chaotic, the pace of innovation depends on preserving their culture, which is driven by corporate autonomy.

Provide policy advice to existing CEOs and leverage the assets of the acquired companies to speed up development. The point is that for startups that are still looking for the right business model, their business processes and policies will stifle innovation and allow innovative employees to leave the company before the value of their startups is realized.

If acquisitions are carried out in a way that is done, the right thing to do is to integrate and absorb it. Integrate key performance metrics, processes, and processes from two companies. Unless the founder of the acquired company is particularly fond of the original craft and process, he can be transferred to the corporate Innovation team.

Summary

1. Corporate acquirers must understand what they are acquiring, and their acquisitions are in the process of finding a business model or executing a business model.

2. If a start-up is acquired because of its intellectual property, talent or income, it should be quickly integrated into the purchaser's company.

3. If a start-up is acquired because of its product or user, it can be retained as an independent department, which helps preserve the culture of the start-up company. Assign an enterprise generalist to acquire the resources of the acquirer; the incentive plan needs to be bundled with the newly acquired company.

4. The buyer needs to have a formal integration.