When established companies see digital competitors as a threat, or just see that their future must be a digital one, buying a startup is often floated as a promising strategic move. However, ensuring success is very difficult. Defining success is also difficult.
Success criteria following a startup acquisition might be one of a variety of things. It might be to continue to grow the startup, so that its success (revenue) is fed into the corporate parent. It might be that its products and services are incorporated into the parent’s products and services. It might be to bring the startup’s digital culture into the parent’s, or just to teach the parent’s board what it means to operate digitally. You can probably think of others.
But there are innumerable pitfalls along the way. Chief of these is culture shock. The startup will have thrived in a particular business environment—freedom to innovate; fast decision-making; a subtle, successful mix of a small number of personalities in the company that generated the essential day-to-day chemistry. Bringing all that into a corporate changes the startup’s context radically and utterly transforms its chances of success. The original employees find the company they joined is not the company they’re in; if the founders enjoyed entrepreneurship they’re likely to leave (with any payout) to repeat the experience.
In the end any successful startup—whether acquired or not—ends up with corporate problems. Once it’s established a viable business model it settles into a pattern of routine processes, creeping fat, more nimble competitors. A digital company may be able to respond faster than older rivals, but it’s very difficult to sustain that.
Startup acquisition is fraught with danger and it’s very, very difficult to make it successful in the medium to long term.