Why did we not start this company?

Acquisitive companies are where innovations come to die. Innovation is hard work. It means getting out to the streets. It means talking to people (many people), making notes (lots of notes) and then making sense of all those (loads of thinking). It means stopping for a minute and try piercing the fog to understand the future. And most of all it means taking a leap of faith – a chance – that the thing that gets put out there after all this will work. On the other hand acquisitive companies have it easy. Someone’s doled out the money for the boys to go shopping so why on earth should someone bake a cake (messy) when there is money to just buy the pastry (classy)? Jim Collins in “Good to Great” hands out a fair amount of sarcasm for such companies who acquire out of habit. “When the going gets tough, the ‘tough’ goes shopping”, he says obliquely to the M&A boys in these companies

Assuming at some point the sarcasm will sink through the skin, it is likely such companies will wake up and want to kick start their innovation engine (it’s not easy though, but a start is required). There is one simple way for the top management to wake up managers to the reality that the mindless acquisition music has started to stutter and will finally stop. Ask this question. “Why did we not start this company?” 

Think of the power of this question. It hits at the very heart of a moribund system and behooves a diagnostic look inside rather than at the shopping list M&A catalog. This soul searching is what a lot of companies know they’ll not be subjected to and hence try to buy their way through the business. It doesn’t work in the long term. Spending multiples to makeup for structural inefficiencies cannot be a perpetual engine of growth or efficient deployment of capital. Acquisitions create cultural mismatches, raise integration problems and confusion in go-to-market tactics. And all it takes for the cultural needle to shift is the simple question – “why did we not start this company?”

Let this though not be a rhetoric question, a smart quip. The query must be answered (probably made a mandatory section in the investment proposal). The answer can very well be anything ranging from “didn’t have the guts to disrupt our own market” to “we didn’t have the talent to get this going”. Whatever be the reasons – and these reasons will buildup over time – a lot about the company’s bottleneck to innovation can be understood from these reasons. The ones that show up with greater ffrequency are the ones with fires burning below them and needs correction expeditiously. The intent here is not to put a complete stop to acquisitions, which when done judiciously is an important vehicle of adjacent and futuristic growth, but to put a healthy disincentive in how management gets lazy in executing the core

Perhaps the greatest benefit from this exercise is that it is a bit like yoga. It doesn’t promise quick visible results but over a period of time it cleanses up entire systems and returns a company to holistic health