Talking about my experiences building a pre-IPO cybersecurity business often brings to mind the key development stages and milestones the company has gone through. Like embarking on any other meaningful endeavor, building a business requires making choices, and some are easier to make than others. Looking back, we faced several dilemmas where the implications of making the wrong decision could have a profound impact on our business.
For instance, many innovative companies and their leaders reach a crossroads on their growth and development journey where they need to choose their next direction. The options usually split out as ‘Build, Buy or Partner.’ This represents a critical — and often make or break — strategic choice on the road to success.
When businesses are young and small, it’s all about ‘build.’ Proving that a product, service and business model are viable depends heavily on innovation from inside the company, and in the software development context, dev teams need to be really focused on the core mission. Founders act as the driving innovative force as they develop the business to reach early growth and development milestones.
Building Velocity and Harnessing Talent
In these early growth stages, successful innovation often depends on creating and exploiting velocity. In many markets, there is a finite window for innovators to build a compelling proposition and market share. Competitive pressure can be intense, and there’s rarely a situation where a start-up can truly own its space for long.
Businesses focus on the ‘build’ stage of development to demonstrate that they’re viable and hitting a solid market niche where demand is growing — but what next? How do you build for the velocity of today AND the future opportunity of tomorrow? One approach, in the software development context, is to spin out separate dev teams to pursue new opportunities.
This approach comes with challenges but has the potential to be extremely effective. On the plus side, it can harness the creative development talent of a tight, focused team to enhance existing products or services. Similarly, spinning out a dev team can even allow businesses to take calculated development risks in order to sharpen their competitive edge or react effectively to wider market developments or trends. The bottom line is that ring-fenced development investment can help maintain that vital velocity and momentum businesses look for.
The reference to ‘ring-fenced’ investment is important, because spinning out dev teams is also a resource overhead, and taking this route requires discipline to ensure the focused team doesn’t entangle the wider organization. For dev projects that are more speculative, some organizations find that the risks outweigh the potential benefits. Business leaders who see potential growth from allocating resources to new dev activities must remember that the core mission can’t be allowed to suffer under pressure from dev teams that aren’t revenue generating.
Here’s one of the dilemmas. As they grow and opportunities increase, many businesses come to the realization that they have a set of core competencies, and there are certain things they can’t or shouldn’t do because they’re not within their existing experience or skillset. The question becomes, do they stick or twist? Do they act on this insight and change strategy or push ahead using their own resources?
Proactive Partnerships
A growing company can set out innovative development plans, but at the same time recognize (either from the outset or as a result of experience) that achieving them is not in their DNA. For business leaders, this requires a certain level of honesty and maturity — reaching this conclusion demonstrates they have a really good understanding of their organization, colleagues, skillsets and the risk/reward dynamic of pursuing non-core opportunities in an attempt to maintain velocity.
The answer can lie in partnership. Finding committed partners with specific experience, complementary products, services or customers can bridge competence, experience and resource gaps. For many, partnerships provide a way to move forward with a deep level of cooperation and integration. Then the problem becomes who to partner with, how deep to take the cooperation and how much you might give up in the process.
In an ideal world and with sound decision making, partners can provide impetus to each other that might be lacking by working alone, and at their best, partnerships can provide the ideal foundation for acquisition.
Flexing Acquisition Muscles
Strategic acquisition activity is happening on a daily basis. In 2018, there were over 17,500 acquisitions in North America alone, according to the Institute for Mergers, Acquisitions and Alliances (IMAA). Some companies are so well-versed in the process, they effectively become acquisition machines, identifying and absorbing their targets with ease.
For everyone else, it’s a muscle they need to flex. And it’s different for every company — they all have to go through their first acquisition to really understand the opportunities and pitfalls. Therein lies another fork in the road: when to take the leap. For leaders making an acquisition for the first time, it can feel a lot like launching into the dark, and some businesses miss opportunities because they incorrectly assume they are too small to acquire another company. Nothing could be further from the truth. Opportunity is everywhere, and businesses with innovation at their core should be mindful of the options acquisition can offer to accelerate growth.
Laying the Cultural Foundation
An acquisition can sometimes be the next logical step for business partners to take. The advantages of acquiring a partner lie in the familiarity — experience and trust that’s already been created in the course of working together. Culturally, there can also be advantages in companies and their teams already knowing and working with each other. However, even when that is the case, leaders (especially the ones doing the acquiring) need to take great care to make sure the cultural fit is sustainable. That’s equally true for an acquisition target where’s there’s no joint track record or shared experience.
By spending time with key figures (not just the leadership team) in the company being acquired, it’s possible to communicate a vision for a shared future and assess the commitment of the wider team. In my own experience, spending time getting to know and understand people that might soon become close colleagues is never time wasted. Building relationships, listening and addressing soon-to-be employee concerns before an acquisition goes a long way in making teams feel welcome in the new organization. You also have the potential to earn trust currency — resulting in a general willingness of people to work through any transition bumps that may occur.
In leadership roles, finding yourself at an innovation crossroads is an inevitable and necessary part of the journey. Leaders who can honestly appraise where their organization’s skills are — and aren’t — focused are in a much better position to make informed and effective decisions on which of the build, buy or partner paths to take. Keep your eyes open for innovation opportunities at any stage of growth and be ready to flex new muscles.
