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Why Cooperate With Startups (with bonus content: Why M&A of Startups Often Fail)

Why Cooperate With Startups (with bonus content: Why M&A of Startups Often Fail)

These were the slides for my talk "Why [corporations and SMEs] cooperate with startups?" in the Startup Week Düsseldorf program at Startplatz DUS on April 11th 2019. The talk aimed to offer an overview of the motivations for cooperating with startups, some real-life examples, and what actions you can take depending on your goals. For inquiries, contact [email protected] (This presentation also contains extra content with more information about why corporate M&As often fail and what to do about it.)

Vidar Andersen

April 11, 2019
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  1. COOPERATING
    WITH STARTUPS
    STARTUP WEEK
    DÜSSELDORF 04.11.2019
    IF, WHEN, & HOW

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  2. MORE
    VIDARANDERSEN.COM
    VIDAR ANDERSEN
    • STARTUP FOUNDER
    • EDUCATOR
    • INNOVATION ADVISOR
    FOUNDING PRINCIPAL
    +ANDERSEN & ASSOCIATES

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  3. +ANDERSEN 

    & ASSOCIATES
    tomorrow
    today
    plusandersen.com

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  4. We help you

    get ready for
    tomorrow
    today…
    plusandersen.com

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  5. …achieving a 

    50x speed-up
    of innovation
    the startup 

    way
    plusandersen.com

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  6. THE +A INNOVATION PIPELINE

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  7. MORE
    plusandersen.com
    • Education & Training
    • Programs & Processes
    • Innovation Metrics
    • Management Tools
    • Innovation Outposts
    • Human Assets

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  8. A DEFINITION
    WHAT THE
    HECK IS A
    STARTUP
    ANYWAY?

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  9. A CORPORATION
    IS A PERMANENT
    ORGANISATION DESIGNED
    TO EXECUTE A PROVEN
    REPEATABLE & SCALABLE
    BUSINESS MODEL IN A
    PREDICTABLE AND STABLE
    ENVIRONMENT

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  10. A STARTUP IS A
    TEMPORARY
    ORGANISATION IN
    SEARCH OF A SCALABLE
    & REPEATABLE BUSINESS
    MODEL OPERATING IN
    AN ENVIRONMENT OF 

    EXTREME UNCERTAINTY

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  11. THE TIMES ARE CHANGING
    WHY ALL
    THIS STARTUP
    HYPE NOW?

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  12. SHORTER

    LIFE EXPECTANCY FOR CORPORATIONS

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  13. EXPONENTIAL

    TECHNOLOGY DEVELOPMENT

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  14. AUTOMATION

    AFFECTING MOST VERTICALS

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  15. MACHINES

    LEARNING BY THEMSELVES

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  16. YOUR COMPETITION

    NO LONGER PEERS OR NEAR-PEERS
    THE
    AMOUNT OF
    VENTURE
    CAPITAL
    AVAILABLE
    TO
    STARTUPS
    HAVE
    NEVER BEEN
    BIGGER

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  17. YOU DON’T EVEN NEED VC

    IT DOESN’T MATTER WHERE
    THE
    AMOUNT OF
    LOCATION

    & CLASS
    FREE

    CAPITAL
    AVAILABLE
    TO
    STARTUPS
    HAVE
    NEVER BEEN
    BIGGER

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  18. STARTUP VALUATIONS

    RAPIDLY INCREASING

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  19. YOUR COMPANY

    BIG, SLOW & RIGID
    THIS IS YOU

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  20. YOUR NEW COMPETITORS

    ARE SMALL, FAST & AGILE
    YOUR COMPETITION

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  21. YOUR COMPANY

    COMPLIANT WITH LAWS & REG
    YOU

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  22. STARTUPS 

    ARE BREAKING THE RULES
    THE
    COMPETITION
    Breakin’ the law
    Breakin’ the law

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  23. LEAN METHOD
    HAS COME FULL CIRCLE
    2013
    2011
    THE
    LEAN
    STARTUP
    1940s
    AGILE & KANBAN
    2005
    LEAN INNOVATION
    MANAGEMENT
    2016
    KAIZEN

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  24. VEHICLE OPTIMISED FOR 

    INNOVATION & GROWTH
    “STARTUP
    EQUALS

    GROWTH”
    - Paul Graham
    INNOVATION
    IS THE KEY
    TO GROWTH

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  25. Uber, the world’s largest taxi company, owns no vehicles.
    Facebook, the world’s most popular media owner, 

    creates no content.
    Alibaba, the most valuable retailer, has no inventory.
    Airbnb, the world’s largest accommodation provider, 

    owns no real estate.
    Spotify, the world’s most popular music service,
    owns no music rights.
    - TOM GOODWIN

    SVP HAVAS MEDIA

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  26. THE FACTS VS THE MYTHS
    SPEEDBOATS 

    VS
    TANKERS

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  27. 10 FACTS
    CORPORATIONS DO GET IT
    1
    Traditional Venture Capital is no longer the
    only way to raise money for startups.
    DocuSign raised in the same round (Series E)
    exclusively from the following corporations:
    SalesForce, Google, Recruit, Mitsui & Co, BBVA,
    NTT DoCoMo, Telstra and MKI

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  28. 2
    The majority (61.7%) of the unicorns
    mentioned by the Wall-Street Journal under
    The Billion Dollar Startups Club have raised
    from at least one corporate. 

    (not including investment firms and banks)
    10 FACTS
    CORPORATIONS DO GET IT

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  29. 3
    Corporations do not invest only in their 

    own vertical: 

    The online music streaming service Spotify 

    raised money from Coca-Cola.
    10 FACTS
    CORPORATIONS DO GET IT

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  30. 4
    Inhouse R&D is giving way to collaboration
    with new ventures. 

    9 out of the 10 biggest R&D spenders worldwide
    are already working with startups.
    10 FACTS
    CORPORATIONS DO GET IT

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  31. 5
    Not only silicon valley tech companies like
    Google,but some of the traditional corporate
    players have explicit ways to invest in
    startups on a large scale. 

    Ping An Insurance Group has a venture arm: 

    Ping An Ventures.
    10 FACTS
    CORPORATIONS DO GET IT

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  32. 6
    When it comes to collaboration with startups,
    France (not USA) has the highest percentage
    of its top corporations engaging startups: 

    23 out of 25 top corporations are working 

    with startups.
    10 FACTS
    CORPORATIONS DO GET IT

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  33. 7
    Investing in startups 

    is not the only way to collaborate. 

    ProSieben Sat1 Media AG provides advertising
    time in return for revenues or equity shares
    through its venture arm (Seven Ventures).
    10 FACTS
    CORPORATIONS DO GET IT

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  34. 8
    Building accelerators, a popular way to help
    startups, is now done by “non-tech"
    corporations too.
    Diageo has an accelerator to create new 

    spirits brands: Distill Ventures.

    10 FACTS
    CORPORATIONS DO GET IT

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  35. 9
    Working alone with startups is not the only
    option: global corporations do it together as
    well. 

    The Ecomobility Ventures investment fund has
    been created by 5 corporations(Air Liquide,
    Michelin, Orange, SNCF and Total).
    10 FACTS
    CORPORATIONS DO GET IT

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  36. 10
    68%
    of the top 100 companies from the Forbes
    Global 500 are engaging with startups.
    10 FACTS
    CORPORATIONS DO GET IT

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  37. AND STARTUPS

    WITH CORPORATIONS
    WHY DO
    CORPS
    ENGAGE
    WITH
    STARTUPS?

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  38. SHIFT 

    HAPPENS
    “SCREWED IF YOU DON’T”

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  39. SPEED OF
    INNOVATION
    QUICK VS DEAD

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  40. "In the new world,
    it is not the big fish
    which eats
    the small fish,
    it's the fast fish
    which eats the 

    slow fish."
    - KLAUS SCHWAB

    WORLD ECONOMIC FORUM

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  41. "If you don't create the
    things that will kill
    Facebook, 

    someone else will."
    - MARK ZUCKERBERG 

    FOUNDER OF FACEBOOK

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  42. SOMETHING IN IT 

    FOR EVERYONE
    WIN-WIN
    OUTCOMES

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  43. CORPORATION ASSETS
    • CREDIBILITY
    • BRANDING & PR
    • DISTRIBUTION
    • SUPPLIERS
    • FUNDING

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  44. STARTUP ASSETS
    • SPEED OF INNOVATION
    • INNOVATIVE IMAGE
    • REAL INNOVATION
    • CULTURE TRANSFER

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  45. HUGE UPSIDE POTENTIAL
    FTW!

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  46. SHORT & LONG TERM

    VALUE DRIVERS
    TIMING RISK COST
    R&D Long Term High High
    Corporate Startup
    Engagement
    Medium Term Average Low
    M&A Short Term Low High

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  47. 5 EXAMPLES

    FROM THE REAL WORLD
    HOW
    CORPORATES
    ENGAGE WITH
    STARTUPS

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  48. 5 EXAMPLES
    HOW CORPORATIONS ENGAGE
    1
    Sprint, R/GA, Kaplan, Microsoft, Disney,
    Barclays, Qualcomm and METRO all have 

    an accelerator powered by Techstars.

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  49. 2 Johnson & Johnson has a co working space
    with research facility: Jlabs.
    JLABS
    5 EXAMPLES
    HOW CORPORATIONS ENGAGE

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  50. 3
    Monsanto and Syngenta have a venture arm:
    Monsanto Growth Ventures 

    & Syngenta Ventures.
    5 EXAMPLES
    HOW CORPORATIONS ENGAGE

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  51. 4
    Procter & Gamble has a fellowship program
    with the accelerator The Brandery in
    Cincinnati, sponsoring startups.
    5 EXAMPLES
    HOW CORPORATIONS ENGAGE

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  52. 5 Even the CIA has a venture capital arm: 

    In-Q-Tel, an early investor in Facebook.
    5 EXAMPLES
    HOW CORPORATIONS ENGAGE

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  53. MORE THAN ONE WAY TO DO IT
    BUT HOW DO
    YOU START
    ENGAGING?

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  54. HEURISTIC LOW TO HIGH 

    INVOLVEMENT
    8. Mergers & Acquisition
    7. Investment
    6. Spin-Off
    5. Accelerator / Incubator
    4. Co-Working Space
    3. Events
    2. Startup Program
    1. Support Services
    HIGH ENGAGEMENT
    LOW ENGAGEMENT

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  55. HEURISTIC LOW TO HIGH 

    COSTS
    8. Mergers & Acquisition
    7. Investment
    6. Accelerator / Incubator
    5. Co-Working Space
    4. Spin-Off
    3. Events
    2. Startup Program
    1. Support Services
    HIGH COSTS
    LOW COSTS

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  56. HEURISTIC LOW TO HIGH 

    RISK SEEKING
    8. Investment
    7. Mergers & Acquisition
    6. Accelerator / Incubator
    5. Spin-Off
    4. Co-Working Space
    3. Startup Program
    2. Support Services
    1. Events
    HIGH RISK SEEKING
    LOW RISK SEEKING

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  57. HEURISTIC SHORT TO LONG 

    STRATEGY
    8. Events
    7. Support Services
    6. Startup Program
    5. Co-Working Space
    4. Accelerator / Incubator
    3. Spin-Off
    2. Investment
    1. Mergers & Acquisition
    LONG TERM
    SHORT TERM

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  58. WHO DOES WHAT 

    262 OUT OF F500 CORPORATIONS

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  59. CORPORATE ENGAGEMENT 

    BY CHANNELS AND RANK

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  60. TOP INDUSTRIES 

    WHO ENGAGE WITH STARTUPS
    94.1%
    Pharmaceuticals
    85.2%
    Telcos
    68.8%
    Regional Banks
    64.5%
    Major Banks
    58.8%
    Diversified 

    Insurance

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  61. TOP INDUSTRIES 

    WHO ENGAGE WITH STARTUPS
    100% (7 of 7)
    Semiconductors
    100% (7 of 7)
    Computer Services
    87.5% (7 of 8)
    Beverages

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  62. TOP COUNTRIES 

    WHO ENGAGE WITH STARTUPS
    94.1%
    France
    71.4%
    Germany
    71.4%
    Switzerland
    56.8%
    Japan
    53.3%
    United
    Kingdom
    Orange
    EADS
    Credit Agricole
    Renault
    BNP Paribas
    VW Group
    SAP
    Allianz
    Siemens
    DTAG
    Nestle
    UBS
    ABB
    Syngenta
    Swisscom
    Nippon Tel
    Softbank
    Nissan Motor
    KDDI
    Seven & I Hld.
    Vodafone
    Standard Ch.
    SABMiller
    Diageno
    WPP

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  63. OTHER COUNTRIES 

    OF NOTE FOR COMPARISON
    45.5%
    U.S.A
    23.8%
    China
    Johnson & Johnson
    P & G
    Google
    Boeing
    Dow Chemical
    Ping An Insurance Group
    SAIC Motor
    Alibaba
    Tencent Holdings
    Lenovo Group

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  64. BETTER GET USED TO IT

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  65. JLABS accept high-potential
    companies from diverse
    healthcare sectors, including
    pharmaceuticals, medical
    devices, consumer and digital
    health.
    JLABS

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  66. Space Equipment Expertise Ecosystem Channels Funding
    JLABS

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  67. JLABS
    San Diego
    Flagship
    San Francisco
    South
    San Francisco
    California 

    Institute for 

    Quantitative 

    Biosciences
    Toronto
    Cambridge

    MA
    JLABS JLABS JLABS JLABS JLABS
    Houston

    Texas
    Medical
    Center

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  68. JLABS ALUMNI

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  69. JLABS
    • Started 2012
    • Over 100 companies in portfolio with a
    growing capacity to accommodate up to
    225 companies across the 6 sites
    • Does not take equity or IP 

    (identified JLABS as success criteria)

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  70. WHERE TO GO FROM HERE
    SO
    WHAT’S
    NEXT?

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  71. ENGAGEMENT

    EVOLVING IN PHASES
    STEP TOOLS
    1. Learn Research, Events
    2. Partner
    Support Services, Startup Programs, Co-
    Working Spaces, Spin-Offs, Accelerators &
    Incubators
    3. Own Investments, Mergers & Acquisition

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  72. DIFFERENT OBJECTIVES

    DIFFERENT ENGAGEMENT TOOLS
    Innovation Culture New Markets Platform Solving Problems
    Events
    Support Services
    Startup
    Programs
    Co-Working Space
    Accelerators &
    Incubators
    Spin-offs
    Investments
    M&A
    CORPORATE OBJECTIVES
    STARTUP ENGAGEMENT TOOLS
    MOST TO LEAST RECOMMENDED

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  73. 1
    Talk to a pool of startups about their
    needs as part of your design process.
    It's easy to assume 'they would love this'
    when the bar for competitive offerings
    is getting higher.
    START TODAY 

    ENGAGE WITH STARTUPS

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  74. 2
    There are many different ways
    to engage with startups.
    The key is to keep in mind your objectives,
    resources and time frame for expected
    results at all times.
    START TODAY 

    ENGAGE WITH STARTUPS

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  75. 3
    You can start small, choosing one channel of
    engagement at a time and iterate fast based
    on the results and buy-in. 

    However if you don't shoot for big enough wins
    from the get go, there may not be enough to
    show to get you more resources.
    START TODAY 

    ENGAGE WITH STARTUPS

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  76. 4
    Select the right partners to share the
    knowledge and minimise risks.
    Doing it alone can be scary. Feel free to talk
    to me if you want some help along the way.
    START TODAY 

    ENGAGE WITH STARTUPS

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  77. 5
    Whatever you choose to do, be prepared to
    work at the speed of startups
    Don't keep them waiting on you.
    You don't want the engagement to backfire.
    START TODAY 

    ENGAGE WITH STARTUPS

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  78. DO
    OR DO NOT
    THERE IS NO TRY

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  79. BONUS
    CONTENT

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  80. WHY
    CORPORATE
    ACQUISITIONS
    OF STARTUPS
    OFTEN FAIL

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  81. WHY CORPORATE ACQUISITION 

    OF STARTUPS FAIL
    Most large companies manage three types of innovation:
    • Process innovation 

    Making existing products incrementally better
    • Continuous Innovation

    Building on the strength of the company’s current business model but
    creating new elements
    • Disruptive Innovation 

    Creating products or services that did not exist before

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  82. Most large companies manage these three Types of
    innovation with an “Innovation Portfolio”:
    • They BUILD innovation internally
    • They BUY it
    • They PARTNER with resources outside the company

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  83. If the corporation decides to buy, there are five types of innovation to buy:
    1. License / Acquire intellectual property (IP)
    2. Acquire startups for their teams (and discard the product)
    3. Buy out another company’s product line for the product
    4. Acquire a company for the product and its installed base of users
    5. Buy out an entire company for its revenue and profits

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  84. WHAT CAN YOU ACQUIRE?
    INNOVATION PORTFOLIO
    WHY ACQUIRE?
    DISRUPTIVE
    INNOVATION
    CONTINUOUS
    INNOVATION
    PROCESS
    INNOVATION
    BUILD
    PARTNER
    BUY
    • REVENUE
    • PRODUCT LINE 

    + USERS

    • PRODUCT LINE
    • TEAMS
    • INTELLECTUAL

    PROPERTY

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  85. SEARCH VS EXECUTION
    • Common mistake to treat all acquisitions the same: 

    Not all ventures are at the same stage of maturity
    • Startups are companies still searching for a business model
    • Ventures that are further along actually executing their business
    model are no longer startups
    • Companies that acquire startups for their intellectual property,
    teams or product lines are acquiring startups that are still
    searching for a business model
    • If acquiring later stage companies who already have users /
    customers and / or a predictable revenue stream, they are
    acquiring companies which are executing

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  86. BUY
    PRODUCT
    + USERS
    BUY IP
    BUY TEAMS
    BUY
    PRODUCT LINE
    BUY
    REVENUE
    NEW VENTURE PHASE: SEARCH VS EXECUTION
    ACQUISITION INTENTION
    SEARCHING
    EXECUTING

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  87. SEARCH VS EXECUTION
    • What gets lost in acquisition (IP, team, product, users) rationale is that
    startups are run by founders Searching for a business model
    • The founding team is still testing for the right combination of product,
    market, revenue, cost, etc with continual customer discovery process,
    iterating building incremental MVPs
    • This phase of a new venture is chaotic and unpredictable with very few
    processes, procedures or formal hierarchy
    • Search driven by the startup culture of individual initiative and autonomy in
    passionate and relentless pursuit of opportunity - the very Antithesis of the
    process, procedures and rules of the large corporation
    • Early-stage companies that have found product-market fit are now in
    execution mode, scaling the company and user base- and scale and execution
    require repeatable processes and procedures

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  88. PREDICTING ACQUISITION
    FAILURE OR SUCCESS
    • Success of the acquisition depends on wether acquirer
    intends to keep new venture as standalone division or
    integrate and assimilate it into the corporation
    • Alignment & incentives - conflict of interest;

    Biz dev and strategic partner execs who find the
    startup and negotiate the deal are ironically not the
    executives who manage the integration or the
    acquisition (aka have to live with the consequences) -
    that is usually up to the CTO or operating executive of
    the acquirer who wanted the innovation acquired

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  89. PREDICTING ACQUISITION
    FAILURE OR SUCCESS
    Why is search or execution such an important question?

    A simple heuristic guide to predicting success:
    • If the startup is acquired for its intellectual property and/or team,
    integrate and assimilate it quickly
    • If the startup is still in search mode and you want to acquire product
    line and users to grow at its current pace or faster, keep the startup as
    an independent division and appoint the existing startup CEO as
    division head, give her a political savvy “corporate concierge” to access
    the acquiring company’s resources to further accelerate growth
    • If the target is in execution mode, integrate and assimilate, combine its
    emerging corporate KPIS, processes and procedures with your own,
    most likely transition target CEO to innovation or exit

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  90. BUY
    PRODUCT
    + USERS
    BUY IP
    BUY TEAMS
    BUY
    PRODUCT LINE
    BUY
    REVENUE
    ACQUIRER STRATEGY
    ACQUISITION INTENTION
    INTEGRATE
    INTEGRATE
    INDEPENDENT

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  91. CORPORATE
    ACQUISITIONS
    • 70-90% of corporate M&A fail
    • Corporate acquirers need to know what they are buying 

    - is the target searching or executing?
    • If the target is acquired for IP, talent or revenue, it should be rapidly
    integrated into acquirer
    • If the startup is acquired for products and/or users, preserve its startup
    culture by keeping it an independent unit
    • Give the acquired CTO a internal politics savvy “corporate Concierge” to help
    access your corporate resources to accelerate growth further
    • Incentives need to tie together the acquisition target’s continued success with
    the rest of your corporation
    • Acquires need a formal integration and on-boarding process

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  92. +ANDERSEN 

    & ASSOCIATES
    tomorrow
    today
    plusandersen.com

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