Lateral Capital Management, LLC

Will a Big Company Buy Us

In our experience, Early Stage companies greatly overestimate the number of very large strategic players which will swoop in to bid for their company, eventually paying a huge price. This key reason: There are just so many new and different ways to address every conceivable need. Whatever you do, you are not likely to be the only one doing it. This isn’t to say that no big company will buy your business. Just that the idea of multiple companies “bidding” for your company is not as likely as you would think. Here’s some perspective on how the big company acquisition process really works.

Big companies make technology decisions in an odd way.. Only after this “one best problem” is identified does BigCo go about looking for technology options in small companies which look like they can turn a profitable problem into a salable solution. They do this by scanning the planet for technology that they can buy or license (Options A-E in the illustration), often benchmarking those solutions to the best internally developed option. This process of comparing make vs. buy goes on in every industry. But where technology is concerned, this process tends to take a long time. The guardians of “Not Invented Here” – otherwise known as the internal engineering team – have a huge leg up. Remember, they helped to refine the problem into something they thought they could solve! And they are great at begging for more time. They spend most of that time trying to persuade top management that “we can do it better” than whatever can be “bought in” from Early Stage companies (ESCs).

Now let’s look at the same process from the standpoint of the Early Stage Company.. As shown on the right side of the chart above, the ESC has a great technology which can do several different things. What they need is to find the “one best problem” to solve – a match known as the perfect technology/market fit. So, Early Stage Companies are very excited to get a call from Novartis, 3M, P and G or Google asking to learn more about solving “BigCo’s” one best problem. Remember that ESCs who wait to be called by big strategic players (or who trot their technology around the circuit at industry events) are blind to what is actually going on inside BigCo. Not only are they competing with other companies who promise to solve the same problem, but they are up against an internal team which has had the inside

track from the beginning. The worst possible outcome of meetings with any one potential BigCo buyer is what we call “Nine Meetings To No™.” In fact, there are at least three reasons for BigCos not to make any decision at all, or at least not for a long time:

  • BigCo believes there is something proprietary about the problem
  • They don’t really, deeply understand what the problem is – This is often the case when big companies wander around trade shows or design elaborate online portals so that ESCs can pitch their solutions to very vague expression of customer need. If BigCo doesn’t really “get” whether or not they need your solution to solve it. This is in part human nature. It’s amazing how many times you can’t really define a problem – until you see a solution for it.
  • BigCo lacks internal strategic alignment. This happens all the time. The issue is typically in middle management. The CEO knows what the shareholders want and the frontline Technology/Business Development/Sales people know what the customer/consumer/patient needs. But the middle management has a different customer entirely: Their own careers. Preserving their own jobs, power and influence is always the silent purpose at every meeting.And the Sales Department? They just want something they can sell now, easily and with huge commissions. This is one reason that “going in through the sales department can be a successful entry point for Early Stage companies.

You can see from this that it is unlikely for your company’s broad-based technological breakthrough to fit to BigCo’s “one best problem.” And most of the time, BigCo can’t (or won’t) tell you exactly how their decision process is going. This quickly becomes another episode of what we call “bowling through a sheet.”

What’s The Alternative? – We advise Early Stage companies to adopt a very different strategic approach to selling technology to big companies – businesses with the money and distribution muscle to commercialize your innovation. Rather than trying to sell you technology as a solution to the one problem which seems like it should be most easy to solve, we recommend putting your solution with as many potential problem owners (and solvers) as possible. Truth be told, most big companies don’t understand what the highest and best use of any innovation really is; they don’t know their customers well enough. So they need to fool around with it for a while.

True, it’s hard for ESCs to test their technology against multiple problems because they don’t have the knowledge base or the money to run all the tests. But there are multiple problems out there for which every technology might be highly effective. What ESCs should do is to “sample” their technology (with the appropriate legal safeguards, of course) to as many Nodes of Discovery™ as possible – as many players who might have a “good problem” as you can think of. If you do it right, strategics will tell you about problems you didn’t even know about. And don’t focus only on the BigCos of the world. Think instead about MidCo. Most of the time, medium-sized companies have many of the same resource constraints faced in the Early Stage world. But you tend to be welcomed with open arms rather than being put through the eye of a needle.

No solution solves all problems. Taking this alternate approach to commercializing technology requires skills and resources that many Early Stage companies don’t have. So, you may not be able to put development relationships in place with ten players; you may have to limit it to three. But based on our experience, this approach is often more satisfying than trying to “bowl through a sheet” with the world’s largest companies.