Why do big companies buy startups when they could do it themselves from the ground up?

echojason@gmail.com'

JASON LEMKIN

Usually because it is too late.

Of course, any big tech co. can write any piece of software they want. They can eventually clone Facebook, Box, Whatever — circa 2016. Of course they can. They have tons of pretty good engineers and a handful of great ones. Give them 10–12 months they can ship a nice 1.0 and give them 24–30 months and they can totally catch up to where any product is — today. And that will be too late. If the start-up already is #1, at scale, and growing quickly.

Time and market share aside, buy never ever makes sense over build.

But it’s too late, at least, if you want to be #1 in a space.

Brands with high CSAT + strong customer loyalty build on themselves. It may be too late to catch a true Brand.

Recurring revenue with happy customers builds on itself. By the time even a $50b company wants to enter a new space, if the leading “start-up” in the space is already at $30m+ ARR, growing 100%+ YoY …in SaaS at least … it may be too late to catch up. By the time BigCo gets to $10m in ARR, the Startup will be at $100m+ ARR. And adding more ARR every week than the BigCo’s new venture adds in 6 months.

The SVP will never hit her plan in time. Even if you could catch up, which you can’t … it won’t happen in the 12–24 months the SVP in charge of that division has to hit her plan for this year or next year. So she won’t really care.

The very best companies can easily afford it. Power law. Facebook, Google, Salesforce, etc. are so huge … even if they “overpay” … it doesn’t matter. They are worth $50 billion, $200 billion, $500 billion. Better to overpay to warp time and derisk a key strategic area. It doesn’t matter.

View original question on quora

Published on June 5, 2016
Share This