Big Companies VS Small Companies on Innovation
A few months ago I posted a story on the Fleck.com blog about the acquisition or Flickr and Del.icio.us by Yahoo. A lot of people proposed that users revolt and publicly denounce the acquisitions. Feedburner has just been bought by Google and similar ideas are being expressed.
Entrepreneurs selling their companies for millions to large companies is apparently a sensitive issue. I reread my old post and figured I might as well replace ‘Flickr’ with ‘Feedburner’ and recycle my old story. I won’t do that but I will repost part of that original post here:
In 2003 I sold my small company (15 FTE) to a large company (18.000 FTE). They replaced me as the CEO and I worked as an advisor for a few months. One day I was on the phone with the new CEO and he sounded depressed. I ask what the problem was and he told me he needed 4 photo’s for a mock-up brochure for a pitch on wednesday. It was thursday when he told me this. He told me he asked for the 4 photo’s and was told it would take 10 weeks to produce them. I laughed and offered to get him the pictures by monday evening. ‘You could do that?’ he asked in disbelief. ‘Sure, no problem’ I replied. So I called a photographer and asked him if he could take the pictures for me on monday morning and what that would cost. He responded ‘For you, I’ll do them for free’ and I said ‘That is very kind but I’ll pay you €1000 anyway’. Then I called the best looking girl and guy I know and asked them if they would like to pose for me on monday. I’d give them €100 for their trouble. So on monday we did the photo-shoot, developed the photo’s, had them digitalized and I delivered them on monday evening. Then I send them an invoice for €2500 and kept the difference, about €1000.
So, the next week I had a meeting with the CEO of my old company and he kept thanking me for the photo’s. He pitched their product to the client and the client was really impressed with the brochure and the pitch and had signed the contract right away. The CEO was so happy I started feeling guilty about the €1000 I made on the deal. But then I asked him ‘So why did it took your company 10 weeks to get those photo’s’. He smiled and answered ‘They would have had to assign a project manager to it, he would have had to go find a photographer, set-dresser, make up artist, modeling agency and location scout and they would have hired a stylist too’. I was silent for a moment and then asked ‘Well, how much would that all have cost?’ and he answered ‘between €35.000 and €45.000′…
You can imagine I don’t feel sorry about the extra €1000 anymore. But besides being a funny story there is also a lesson to be learned here. While we were negotiating the price for our company they told us ‘This is a buy or build question for us. You do understand we have over 18.000 people working here so we could copy your concept within a day’. That sounded very real to us at that moment. In reality however a big company can’t do anything in 24 hours. It will take a week just to get a meeting with the first person of the 100 people you need to reach and convince if you want to do anything. And then there are budgets, targets and other projects that take up all resources or seem to be more important to the CEO or your manager.
So, back to Yahoo. What exactly did they buy? They bought Entrepreneurial Spirit. The spirit to think of something and just doing it. Even though it is a weekend, middle of the night or you haven’t checked with your boss yet. That is what they bought, and they admit it. Here is a quote from the December issue of Business 2.0 from an article titled ‘The Flickrization of Yahoo’. The quote is by Horowitz, Senior director of Yahoo’s technology development group:
‘”I met Stewart and Caterina and fell in love” Horowitz recalls. “It was beyond Flickr. I saw them as kindred spirits, entrepreneurs who could infect Yahoo with that small-company focus”‘
There you have it. I rest my case. This is the true reason Yahoo has bought Del.icio.us and Flickr and why Google buys Feedburner and why in general big companies buy small companies.
Filed under Business, Business Theory, Fun, Innovation, Inspiration, Money, Personal |
9 Responses to “Big Companies VS Small Companies on Innovation”
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yeah right! big companies buy small companies, eat(kill) them and get bigger.
Your statement at the end might prove to be an interesting hypothesis.
Hi Marc: tell me more! What is your opinion?
Again a powerful story Boris !
I agree completely. It resonates strongly with my work experiences inside big companies.
However, there is a flipside to this. In some cases (e.g., AltaVista bought by CMGI and Compaq) the acquisition of a small startup ends up badly as the bureaucratic mogol kills the entrepreneurial spirit. Sometimes there is a clash on vision, strategy or shared mental models, sometimes on having less speed and autonomy being the acquired startup, sometimes the budgetary processes inside a big company might focus on other topics besides the one acquired.
Yuri: completely true. It is very rare that a big company is influenced heavily by the start-up they acquire. Most of the time the novelty wears off after a few months and the start-up is simply assimilated.
But that doesn’t make this story less true.
Boris,
Agree.
Thinking constructively here are some ideas based on my experience on how a big company might cultivate and encourage the entrepreneurial spirit of the acquired startup while changing its own company culture.
- Continued support from higher management + Board sponsor (the most important one in my view)
- Continued internal communications from higher management (email, webcasts, offline events etc.) showing the benefits and values of the startup for the whole company)
- Autonomous structure for the startup in the whole company while merging it in the processes of the company over time. Later on, after a few years, it can be immersed into other departments or BUs.
- Increase informal sessions with the startup team
- Redesigning KPIs for departments and key people interacting with the startup focusing in cooperative and learning mindsets and behavior
- Integrate the founders of the startup in the recruitment practices of the company , particularly the related functional departments and BUs to the startups’ core business
- Increase the budget for the startup
- Integrate the founders of the startup in vision and strategy sessions within the company as a whole
- Reward change agents internally who embody the vision and culture of the startup and connect them to each other using social networking tools (online and offline)
- Follow an ‘olievlek methode’ or cascade model for internal change with the founders of the startup integrated in the project team for change management
Interesting points Yuri. I hope someone in a big company will read them, implement them and then report back here…
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