What do you get when you buy a startup?

SAP acquired my startup in 2002. It was SAP’s first meaningful move to the SMB space and the expectations were high. SAP achieved its goal as our product, now called SAP Business One, became the leading SMB product for SAP, competing and winning against Microsoft, Sage and other market leaders.  Since then I acquired two startups, spent some time in a VC, started a company and now I am experiencing it all over again as I help a startup integrate into a much larger company. Doing it, I feel that the first order of business for the acquiring company is to realize what is it that you acquire.  Often, it will be bunch of hacks, knowhow and a group of passionate individuals.  Once you align your expectations, the chances of getting more out of the deal are much higher. 

  • Bunch of hacks-  I know we should keep it a secret, but you  did you really think that we developed “a state of the art architecture”? and that our product was developed based on years of research according to a 5 years roadmap? No, a startup product is a child of intense trial and error,  on the job training and constant hacks to make it more desired by its users. While it works, you have to remember that what you bought is a combination of a product and a roadmap and it needs to either be rebuilt or updated, taking into account all the experienced and user feedback. Google does it right by taking the core team, adding smart google engineers and rebuilding everything it acquire. While it might be an extreme approach, setting an agressive feature roadmap for the acquired team is just as extreme  and is likely to lead to a “house of cards” product, littered with technical debt, product that will be hard to maintain and support.
  • Knowhow– this is by far the most important asset one can buy. Years of working 20 hours days trying to understand what your customers want and how to make it work for them are something no big company can replicate. Often times, this knowhow stays locked in the team’s brains as the large company insist on teaching the heathens how things work in the real world, rather than trying to learn from them. Another problematic strategy is reorganizing the team and let managers report to the respective departments (i.e. marketing, product…) of the large company. While it sounds like a way to transfer knowledge, it often ends up in frustration on both sides, as the new manager focuses on integrating the new team, rather than embracing it.
  • Group of passionate individuals- when you bought them they were a company. Now they are a group of individuals that has different interests and goals.  Joe wants few calm years in the big company, Jane wants to get back to work on a new startup and Julian can’t work in a large company bureaucracy and thinks of the fastest way to quit. They no longer have a common cause and common goal, and often develop an “us vs. them” approach towards the large company.

So what to do? I need to write another post on that. The one line preview is: embrace, empower and elevate the new team. Let them teach you and let them have an unfair vote and influence as they have to fight inertia and momentum in order to be successful.

What do you get when you buy a startup?

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