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Acquisition Machines

March 29, 2015 4 comments

This is off-topic from my usual technology geek focus, but it was prompted by reading a blog post Never Invent Here: the even-worse sibling of “Not Invented Here” by Michael O. Church, which reminded me of some things I’ve observed.

My experience of Never-Invent-Here has fortunately been brief and infrequent, and of a specific kind, but I know exactly why it happens and how to recognise it and what to do about it. It’s kind of inevitable.

When your exciting, innovation-happy employer has reached a kind of peak, and has a bunch of customers paying a steady revenue stream, and there’s no more inventing to do, they get acquired by what I call an Acquisition Machine (AM). These serve the opposite purpose to a VC, in that they get in at the top floor instead of the ground floor. They come in at the end of the story. They are 100% risk averse.

An AM has a large-ish technical staff, all former inventors from the mature companies they’ve gobbled up (having fired all the other staff). They never intentionally invent anything in-house. They almost never hire anyone new. The tech staff are only there to put out fires in old products for old customers (only the ones covered by maintenance contracts – that existing stream of revenue is the entire focus of the business).

So you may find yourself as one of those technical staff. You basically work in a museum now. The only projects that come up are “consolidation” efforts: making several old products look like one. In fact the management may just be inventing busy-work to keep you distracted during the down time. That’s cool! You can pitch approaches that involve the latest technologies, get skilled up. Play-act at inventing for a while.

Look at the world from the AM’s perspective. They’re terrified, risk-averse owners of shares that are never going to get back to what they were worth in 1999. They have a choice:

a) Bet on something invented in-house by one of these excitement-starved nerds we employ, and go to all the trouble of marketing it… OMG this sounds difficult and it probably won’t work… no way of estimating how much it will cost in total or how much we’ll ever make. Let’s not.

b) Buy an entire product-business-unit, something already proven, with customers already paying for it, something that is already clearly quantified with known cash inputs and outputs, whose outgoing management have already helpfully made a list of who you need to keep on and who you can safely lay off! Ready to plug into the machine and slowly drain down, generating cash to go on the pile, ready for the next acquisition.

Which are they going to go for? They are not in this for the excitement! It’s a slow way to grow, but it is a kind of growth. The target company’s old management are running out of exit routes, so they sell up cheap and so the AM does actually make a profit in the end. It just doesn’t do it by inventing anything. There’s no need.

I’m painting an extreme caricature of course – real companies may be somewhere on a spectrum from innovator to AM. Or they may be made up of parts with different degrees of maturity/stagnation. But the more stagnant it is, the worse it will be for anyone who wants to invent new stuff.

So if you are an inventor, and your employer gets bought, look for the signs that you’re stuck inside an AM. If you are, wait until you find a new opportunity elsewhere to start over, and then get the hell out. You can’t “fix” an AM. There’s nothing to fix. They’re just not the kind of business you want to be in. They have their own reason to exist.

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