“Disruption” is an overplayed expression. You can’t read an S-1 form, quarterly report or venture pitch deck today without a company talking about disrupting an industry or putting incumbent models out of business.
While every leader wants to believe they’re building something that will turn an industry on its head, let’s face it: If you’re not Google, Facebook, Microsoft, Amazon or any of the ambitious “big tech” companies, digital innovation is hard. That’s because these giants enjoy a scale, gross margin and profitability profile that allows them to take merger and acquisition risks and weaponize balance sheets to “acquire innovation” — and the talented people who come with it.
But as the co-founder and CEO of a talent search and recruitment firm, I believe well-established enterprises can learn from these giants and look to acquire startups not only for a product or revenue, but also for their talent pool and culture. Here’s why:
1. Innovation flows out of cultures built for it.
To illustrate the importance of ensuring your company is innovative and able to attract top talent, look at Google: In 2014, Quartz reported that Google receives around 3 million applications a year and only hires roughly 7,000 people. “That means only one in 428 applicants end up with a job, making it far more selective than institutions like Harvard, Yale, and Stanford,” the article said.
Despite these odds, the company draws in applicants, and I believe a major reason is that Google’s culture is built for growth, and its approach to talent reflects this. The company is also known for offering perks like dry-cleaning and free food, which Lazslo Bock, former Head of People Operations at Google, said creates “an opportunity for unguarded exploration and discovery.”
When you consider initiatives such as Waymo (formerly Google’s self-driving cars project) or Project Loon (Google’s approach to increasing internet access by creating a network via high-altitude balloons) it’s easy to see the benefits of creating a culture of innovation.
2. Digital (and spending) is changing the world — fast.
Most would agree that every company will need to be technology-enabled in some capacity to stay relevant. Just look where the money is going: In two short years, digital transformation spending in business is expected to approach the $2 trillion mark.
In parallel, there is more money available to startups and technology companies than before. In 2018, we saw $131 billion invested in venture capital and private equity in the U.S. alone, and North American startups raised 47.8% of worldwide venture dollar volume in the third quarter of 2019.
But acquiring tech startups or investing in consulting firms to run digital transformation strategies only solves part of the problem. Well-established companies have a more significant existential threat: They need to morph their culture to attract the next generation of digitally native leaders as their existing workforce rides.
3. Mergers and acquisitions for digitally native talent are rising.
The next generation of talent share values much different than generations before. They want transparency; they want their work to make an impact; they want the ability to use the tools and skills they’ve learned across various digital platforms to drive results.
A traditional corporate environment created decades years ago isn’t set up to attract, retain and foster them. The category rulers who are not rooted in technology must figure out how to build an environment for this next generation.
Getting the right talent and building a culture that can keep pace with the changes in today’s world should be a top priority for businesses. Established companies realize this, and I’ve observed many are making acquisitions not only for a product, but also for talent and culture.
A case study for this is Walmart’s acquisition of Jet.com for $3.3 billion in 2016. Walmart understood it needed to change its culture to stay competitive, so the company acquired Jet.com and chose to keep the business separate. Walmart’s e-commerce sales grew 40% in 2018, according to Business Insider.
From my perspective, the Jet.com acquisition was a launchpad for innovation. Walmart now has the ability to recruit the next generation of talent. It’s time for other traditional companies to step on the gas and follow in these footsteps.
To decide if acquiring a business is right for you, first think about if any parts of your business are outdated. For example, look at the candidate experience: What can you benefit from improving or modernizing in your approach to talent? Ultimately, ask yourself whether your culture is set up to survive the paradigm shift of attracting, retaining and empowering the next generation of digital leaders. Your people and culture are your biggest assets. If you find your company isn’t able to attract new talent, it might be time to consider acquiring an innovative startup that aligns with your company’s goals.
A great step in the acquisition process is to consider how your future employees can build a business into something that excites them and will contribute to the long-term successes of the organization. Employees who are excited and motivated are more productive — and you need that for the survival of any acquisition.
Transformational change can be scary. Focus on communicating the values of the business openly, fostering strong workplace relationships and reiterating the goals and milestones you are all working toward. Together, this will help foster a strong culture that will carry on in all times of change.
If you’re looking to acquire a startup in order to make your business more disruptive, know that you’re mixing two very distinct cultures with possibly different values. Don’t hold one above the other. Stay focused on the business value the merger brings.
This is a good starting point as you work toward improving your business with the power of tomorrow’s talent.