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Ognjen Regoje

I make things that run on the web (mostly).
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An underappreciated lesson from The Innovator's Dilemma

Clayton Christensen’s recent passing made me revisit The Innovator’s Dilemma. The overarching lesson is true today as it was 20+ years ago.

I was reminded of a lesson that I noted that isn’t often brought up: the rules regarding acquisitions.

Mr. Christensen explained that companies are acquired for two reasons:

  1. For their resources
  2. For their processes and/or values

Depending on the objective the acquisition needs to be handled differently.

For the resources

Organizations are often acquired for their resources. For instances a hotel chain buying another. The primary purpose of the purchase is the real-estate.

If resources are acquired then the organization processes need to be integrated with the parent organization and resources pooled.

The acquiring companies processes are often dominant and the acquired organizations processes are mostly replaced.

Startups are sometimes acquired for their resources, mostly their people, commonly referred to as an acquihire.

For the processes and/or values

Disruptive organizations are acquired for their processes and/or values. Startups with novel ways of doing things are acquired for this reason.

If the processes are acquired the companies should not be integrated. Rather, the acquired organization should remain independent. The parent organization should put it’s superior resources at the disposal of the acquired and assist that way.

It should not try to make the acquired organization do things the established way.

Ignore at your own peril

There are countless examples of this being followed, and not.

Whatsapp team insisted on being kept separate from Facebook and survived. Yahoo tried to merge with Tumblr and killed it.

FAANG et. al. regularly acquire a startup for 7 or 8 figures purely for the team.

I recall seening this rule being broken twice, both times resulting in failures.

In one case the startup was acquired and the parent insisted on integration. The founders protested as much as they could. In the end though they had gotten paid and there wasn’t much they could do. Within a year the entire original team was gone. The product itself was kept running for about two years before being shut down.

In the other case, an established organization spun out a startup that would disrupt itself. But even though that was prudent, it didn’t allow enough freedom to the new company. Having to use existing processes (that they were trying to disrupt in the first place) eventually stranggled it.