Essays

ОглавлениеДобавить в закладки К обложке

Often big companies buy startups before they're profitable. Obviously in such cases they're not after revenues. What they want is the development team and the software they've built so far. When a startup gets bought for 2 or 3 million six months in, it's really more of a hiring bonus than an acquisition.

I think this sort of thing will happen more and more, and that it will be better for everyone. It's obviously better for the people who start the startup, because they get a big chunk of money up front. But I think it will be better for the acquirers too. The central problem in big companies, and the main reason they're so much less productive than small companies, is the difficulty of valuing each person's work. Buying larval startups solves that problem for them: the acquirer doesn't pay till the developers have proven themselves. They're protected on the downside, and they still get most of the upside.

Product Development

Buying startups also solves another problem afflicting big companies: they can't do product development. Big companies are good at extracting the value from existing products, but bad at creating new ones.

Why? It's worth studying this phenomenon in detail, because this is the raison d'etre of startups.

To start with, most big companies have some kind of turf to protect, and this tends to warp their development decisions. For example, Web-based applications are hot now, but within Microsoft there must be a lot of ambivalence about them, because the very idea of Web-based software threatens the desktop. So any Web-based application that Microsoft ends up with, will probably, like Hotmail, be something developed outside the company.

Another reason big companies are bad at developing new products is that the kind of people who do that tend not to have much power in big companies (unless they happen to be the CEO). Disruptive technologies are developed by disruptive people. And they either don't work for the big company, or have been outmaneuvered by yes-men and have comparatively little influence.

Big companies also lose because they usually only build one of each thing. When you only have one Web browser, you can't do anything really risky with it. If ten different startups design ten different Web browsers and you take the best, you'll probably get something better.

The more general version of this problem is that there are too many new ideas for companies to explore them all. There might be 500 startups right now who think they're making something Microsoft might buy. Even Microsoft probably couldn't manage 500 development projects in-house.

Big companies also don't pay people the right way. People developing a new product at a big company get paid roughly the same whether it succeeds or fails. People at a startup expect to get rich if the product succeeds, and get nothing if it fails. [2] So naturally the people at the startup work a lot harder.

The mere bigness of big companies is an obstacle. In startups, developers are often forced to talk directly to users, whether they want to or not, because there is no one else to do sales and support. It's painful doing sales, but you learn much more from trying to sell people something than reading what they said in focus groups.

And then of course, big companies are bad at product development because they're bad at everything. Everything happens slower in big companies than small ones, and product development is something that has to happen fast, because you have to go through a lot of iterations to get something good.

Trend

I think the trend of big companies buying startups will only accelerate. One of the biggest remaining obstacles is pride. Most companies, at least unconsciously, feel they ought to be able to develop stuff in house, and that buying startups is to some degree an admission of failure. And so, as people generally do with admissions of failure, they put it off for as long as possible. That makes the acquisition very expensive when it finally happens.

What companies should do is go out and discover startups when they're young, before VCs have puffed them up into something that costs hundreds of millions to acquire. Much of what VCs add, the acquirer doesn't need anyway.

Why don't acquirers try to predict the companies they're going to have to buy for hundreds of millions, and grab them early for a tenth or a twentieth of that? Because they can't predict the winners in advance? If they're only paying a twentieth as much, they only have to predict a twentieth as well. Surely they can manage that.


-= 178 =-
Регистрация.
Забыли пароль?
Логин
Пароль
Запомнить меня