“The entrepreneur always searches for change, responds to it, and exploits it as an opportunity.” – Peter Drucker
Every week it seems like we see more stories of big companies paying big bucks to scoop up little firms with interesting technologies. And then the big companies kill, in one fashion or another, what they just bought, seemingly squandering whatever initially made the acquisition so attractive. What’s this all about? How is it that big companies can’t help killing the things they love? An injection of entrepreneurial spirit is just what most companies say they want, to drive innovation, to stay ahead of the market and, truthfully, to improve their hipness quotient. But the only spirit that most big companies seem to appreciate is that of Hannibal Lecter. When it comes to entrepreneurs and acquisitions, big business is all about eating companies and murdering dreams. Can we please just stop the slaughter?
“Entrepreneurs are simply those who understand that there is little difference between obstacle and opportunity, and are able to turn both to their advantage.” – Victor Kiam
The most notorious example of killing a golden goose? Easy: the AOL Time Warner merger, which finally unwound itself last year after destroying something like $150 billion in shareholder value. Of course, figuring out who killed whom in that epic mess is a little complex, so we’ll call it a murder-suicide pact. But there are plenty of other examples. News Corp. bought MySpace for $580 million while Chris and Tom became friends with 100 million people. But MySpace couldn’t fend off Facebook and Twitter in the hearts and status updates of the world, and News Corp. already has replaced Chris and Tom’s replacements in a desperate search for relevance. And then there was eBay’s acquisition of Skype for what ultimately became $3.1 billion. Within a couple of years, eBay had already written off about half the purchase and then got into a legal fight with Skype’s founders because it had only bought a license for Skype’s technology, not the tech itself. (Oh, and the eBay CEO during that original deal, Meg Whitman, is now running for California governor. Her qualifications for office: her business skills. Like California needs that kind of help).
“The secret of business is to know something that nobody else knows.”– Aristotle Onassis
Sometimes, of course, companies aren’t buying a business, they’re buying some tech, or a team. That’s the presumption behind Apple’s purchase of Lala, the nifty streaming music company it bought last year and is shutting down (Apple, of course, isn’t talking). Similarly, Google scooped up and shut down Bumptop, an equally nifty 3-D desktop interface. At least with Apple and Google, you have two endlessly innovative companies acquiring tech and talent that are likely to re-emerge later with interesting products. And for so many entrepreneurs, getting bought out is the exit strategy: Work your butt off, sell big, pop some champagne, pack up the office and go figure out your next big idea.
But the list of failed acquisitions in so many other sectors is so dishearteningly long that it’s a wonder any halfway sentient CEO ever dares do a deal. And yet, dare they do, to the destruction of so much that could be cool and great.
“Entrepreneurs are risk takers, willing to roll the dice with their money or reputation on the line in support of an idea or enterprise. They willingly assume responsibility for the success or failure of a venture and are answerable for all its facets. The buck not only stops at their desks, it starts there too.” – Victor Kiam
Given that track record, it’s interesting to ponder if there might be a better way, that feeds a big company’s need for talent acquisition, revenue growth and product innovation, while preserving an entrepreneur’s ideas and spirit. Fortune magazine just ran an excerpt from a new book about the rise of Facebook, written by David Kirkpatrick. In it, Kirkpatrick talks about the constant efforts by company after company to buy or control Facebook, beginning just four months after it launched and continuing to Microsoft’s $15 billion offer. Through it all, founder Mark Zuckerberg stubbornly kept control of his company, taking as little investment capital as he could to keep growing Facebook. Facebook is now closing in on 500 million users, its books in the black and Zuckerberg still in control. Microsoft, meanwhile, took a tiny stake and signed a big advertising deal that valued Facebook at, yes, $15 billion.
Will Poole has been on both sides of the equation, co-founding early e-commerce company eShop, which Microsoft bought. He then spent 12 years as a senior Microsoft executive before leaving in 2008. Will quips: “As an entrepreneur who’s staring into the gullet of a big acquirer, be sure you really know why you’re being gobbled up,” Poole says. Is it “for your business, your team, or your intellectual property? If it’s for the business, plan to move on after a well-crafted transition process. If it’s for your team, be sure you focus on how to lead and grow your team from inside a big new beast, becoming an ‘intra-preneur.’ And if it’s for your IP, buy your beach house and plan your next startup.”
“No one can possibly achieve any real and lasting success or get rich in business by being a conformist.” – J. Paul Getty
Something needs to be done for big companies too. The New York Times’ David Pogue, for instance, details the “tragically” bad implementation of the first product from Sony’s first non-Japanese product-development unit. The Japanese giant set up a “skunkworks” design unit here in California with a bunch of young execs. The idea was to create a more entrepreneurial mindset and get beyond the committee-driven kludgery that has characterized most recent Sony “innovation.” Unfortunately, Pogue writes, the Dash mostly dashes hopes that Sony will ever reclaim the mantle as home for game-changing products. It’s time for Sony to head back to the drawing board. So why can’t big companies figure out how to do small? Why do they have to buy and kill entrepreneurial companies, either outright or by ham-handed inattention?
“Innovation is the specific tool of entrepreneurs, the means by which they exploit change as an opportunity for a different business or a different service.”– Peter Drucker
I think the problem is one of organizational DNA, reflecting the personal DNA of the folks who run, or create, companies. A decade ago, I was involved in a company called Work Revolution that helped organizations figure out what kind of employees they had, and how best to use those people in the organization. So, without getting too detailed, our software classified several psychographic personality types. There were Conceptuals, Linears, Maintainers and Adopters, among others. And we always taught our clients to keep the Innovators away from the Refiners.
“The entrepreneur is essentially a visualizer and an actualizer. He can visualize something, and when he visualizes it, he sees exactly how to make it happen.”– James L. Hayes
Why? Because one personality type was about bold strokes and obsessive drive, the other about tweaking and fiddling with and perfecting something that already was largely in place. One was about the Will to Create. The other was about the Need to Sustain. So it is with companies. Entrepreneurs create companies like themselves. They have the heedless courage and vision to will an idea into reality, and to build a business around it. But then many of them sell their creations to companies that have a very different genotype. Sooner or later, having sold their creations, the entrepreneurs will leave the big company, frustrated they can’t keep growing their creation into something cool without some schmuck in corporate strat planning or finance or legal screwing it up. This pattern happens so often that I’ve taken to calling big companies merde-preneurs, because every time they buy an entrepreneurial company, they turn it into poop.
“The problem with the French is they don’t have a word for ‘entrepreneur.’”– George W. Bush
So what’s the solution? Maybe Zuckerberg stumbled into it with his response to Microsoft and all his other suitors. He let Microsoft buy a (tiny) stake, and create a business relationship (which generated more money to keep the doors open), but he also kept himself in charge, growing his creation into something special. Respect the entrepreneur. Leave ‘em alone. Let ‘em build something that makes the world better, instead of throwing money at ‘em just long enough to kill their baby. Maybe that’s the way big companies can avoid creating just another big pile of merde.
“Entrepreneurs and their small enterprises are responsible for almost all the economic growth in the United States.”– Ronald Reagan