Start-ups and digital transformation – A big business IS TRYING TO SWALLOW ME!

@Cyril Bladier
12 April 2019
  • How much do you want for your start-up?
  • My start-up isn’t for sale!
  • You know nothing!

Start-ups and big businesses: A marriage made in heaven?

Selling your start-up to a big business is not the goal of every entrepreneur. Some do dream of it, others want to create a history-making unicorn. Nevertheless, whether by choice or by force, it is a situation that does arise. Beyond the purely financial inducement that can end up seducing even the most reticent, the long-term durability of the company and the management of egos that go with the territory are often at the forefront of an entrepreneur’s thoughts.

Start-ups and digital transformation

It’s just for show

Indeed, these takeovers are accompanied by press announcements with mind-boggling figures despite there being no guarantee of success:

  • Yahoo! Valuation of $43 billion at the beginning of the 2000s… but just $5 billion by 2016
  • Lycos: Star start-up of the late 1990s … which disappeared completely in 2009 after takeovers by two major businesses
  • Netscape: dissolved by AOL
  • More recently: the ownership merry-go-round between. Withings and Nokia Health with what is reported to be a substantial loss for Nokia.

These are just a few examples, but the list is long. Success stories like Instagram or WhatsApp are quite rare. Strangely, the successes are much less reported on and neither are the positive impacts of successful integrations.

End of the communications impact

Many large companies have created in-house innovation teams, labs, incubators … to get closer to the mindset of the start-up ecosystem. Often, the initial driver of these initiatives was a PR team trying to make the company look more innovative. However, there are a lot of successful innovation units in big businesses. As Wired contributor, Steven Johnson observed “innovation doesn’t come just from giving people incentives; it comes from creating environments where their ideas can connect”.

Steven Johnson

 

Innovation and big businesses – a real antithesis?

One of the big difficulties in business is that innovation is not really part of the DNA of large companies. We are not talking here about the American behemoths of the web who were born of innovation and have it in their genes. We are talking about traditional industrial companies, and in these instances, American businesses have fewer lessons to give us.

Back to basics

In fact, start-up takeovers are like any other transformation project – the new economy is not immune to the fundamental rules of business. Digital marketing? It’s primarily marketing. Social selling? It’s still sales. Crisis management? Social networks may accelerate the spreading of information, but it remains just a crisis to manage. The assumption that when we add the word “digital” to a term, it somehow changes its meaning is clearly wrong. It seems all too often that, as soon as you put digital in a sentence, some professionals lose all sense of reason. Digital is a word that has an unnerving power to destabilize.

The same applies to start-up takeovers. It is a form of transformation which has to be managed. Regardless of which IT program you put in place or the tools you invest in, success lies in coaching the relevant teams. No matter the start-up bought, the job, its level of notoriety nor its perceived power, success or failure lies in carefully managing the process. Any buyout is not always a success and start-ups are no different.

How to avoid failure?

We have to start with the basics: the Why? Why is a big company planning to acquire a start-up. Often it is at this basic level that we find the source of trouble – and we know that you cannot build a solid building on unstable foundations. In this sense, buying a start-up is often a bad answer to a real problem. A few years ago, the classic knee-jerk responses in these situations were process optimization or cost reduction programs, now it’s purchasing a start-up. What is surprising is that this acquisition approach is often the only option considered with more appropriate responses, such as the creation of a spin off structure, not even finding its way on to the brainstorming whiteboard.

Frequent pitfall: culture shock.

Once again, the word “digital” can appear and everyone loses their grip on reality. Any leader or executive head hunter will tell you that their role is to assess the compatibility between a future collaborator and the culture of the host organization. When I think that some wrote that LinkedIn was going to kill the recruitment business!

On the other hand, when it comes to buying start-ups, this point does not seem to be important anymore. We forget that cultures are intrinsically different and that with any buyout, the start-up is going to lose some of its DNA (flexibility, rapid decision-making, business focus, organizational politics…) – and that leads to failure.

Do it for all the right reasons

The start-up is the forest that hides the treasure – its value lies in his team. Many business angels or venture capitalists focus on the team that makes up the start-ups they are thinking of investing in.

A purchase is not the only option. There are other ways that start-ups and big businesses can collaborate. Most notably, there is the POC (Proof Of Concept). The idea is sound: in a deal between a large company and a start-up, a POC allows the big company to allocate a budget to test initiatives. The budget is defined by the POC, with the start-up doing the work on the project. But both parties need to be aware that these arrangements can kill a start-up if not properly managed. The key routes to failure include unpaid POCs, POCs without deployment plans, POC that go unimplemented. Worse still is the spectacle of the start-up working for free – that has to be avoided at all costs. While POCs can be a great way forward for businesses, they can also be really destructive for the start-up if they don’t keep their eyes on the prize.

Which road to take?

Just to make things more complicated, the keys to success are not at all the same. If you are looking at it from the viewpoint of the large companies, it’s all about:

  • clarity
  • common vision and culture
  • conviction, responsiveness and respect

…or from the viewpoint of the start-ups:

  • clearly identifying the company’s role and strategy, perseverance and competence
  • respecting the work and the journey

How long before we need to get our hands on a “start-up / big company” phrasebook so that we can all learn to speak the same language?

 

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