Create from scratch or acquire a startup that is already formed? This is the dilemma facing anyone who wants to do Open Innovation in a company. There is no universally valid strategy, because many factors must be considered to define effective acquisition strategies and create dynamic, innovative management models, and they vary according to the characteristics and needs of the company that wants to innovate.
The three actions to solve the dilemma
Drawing the vision and defining the right corporate strategies are complex exercises.
In particular, in dynamic and immature markets, beyond the careful assessment of all exogenous and endogenous factors in the initial phases, the possible evolutions of the competitive context must be considered, and you must be ready for necessary, rapid scenario updates too.
Although conceptual exercises are the basis for defining the right objectives, execution capability and concreteness of action play a fundamental role in making the ideas, the storytelling and the slides real!
In the course of my experience, I have identified the three main actions that can help choose the best strategy for doing Open Innovation:
1. Consider the factors needed to reach the objectives
The first step is understanding which factors enable growth or, in general, which factors are needed to reach the objectives. Then you must assess whether they are already available in the company or whether they must be acquired. The make-or-buy choice must consider aspects of economy, complexity and above all timing coherent with the strategy as a whole.
You must therefore assess whether a make approach or the acquisition of an already formed startup can accelerate obtaining those factors, for example by increasing the presence in a geographical area that is new or not consolidated in the group, providing skills and know-how useful for accelerating specific business lines, helping the development of ancillary businesses, new products and/or processes, or presenting aggregation opportunities in mature markets or industries.
2. Carry out an internal analysis
After defining which factors are missing, a careful internal analysis must be carried out to understand the times and costs, but above all the capability and risks of implementing new technologies or of developing and evolving the current ones. Here an external scouting for possible acquisitions begins as well.
3. Analyse the target company
The acquisition of a new company obviously requires a full understanding of the target, its industrial fundamentals and the synergies that can be achieved. The team carrying out the acquisitions must be cross-functional and cover all the areas of expertise in order to identify every risk and opportunity.
An opportunistic acquisition style can be costly but above all it can represent a high risk in the subsequent execution. Financial discipline is therefore needed, and a careful preparatory phase of understanding and designing the M&A strategy.
The factors to consider in the acquisition phase
When you decide to go through the “buy” phase, assessments must be made that also depend heavily on the target’s size and the point of its life cycle.
The main factors to consider when acquiring the target are:
the breadth of the reference market
the products and services offered and their degree of obsolescence
the scalability of the solution/product
the positioning, the competitors and the accountability of the business model
the team in charge of developing and evolving the offering
the synergies and the integrability (if that is the strategy) of the new company, above all when a startup is acquired into a large Group.
The importance of training and of assessing human capital
In Italy, even though in recent years there seems to be more ferment and attention, what is missing is a structured activity of encounter between Corporates and startups that would allow, above all, an entrepreneurial fabric like ours, characterised by many small and mid-sized companies, to understand the advantage of growth through external lines, and that doing it alone does not always mean doing it better!
It is necessary to create structured encounters but above all training for entrepreneurs, managers and startuppers, to highlight how instruments such as venture building, open innovation and incubators, with their different characteristics for spinning up and developing ideas, can be a flywheel for the growth of companies and of our Country.
Training is the basis of this awareness and of the creation of new, open and innovative management styles.
Moreover, acquisitions, integrations or partnerships, above all in digital and intangible businesses where the physical components are less preponderant, depend on the correct assessment of human capital.
Having the right people in the right place and knowing how to motivate them is an exercise as complex as it is central. The joint definition of objectives and the sharing of results are effective tools for creating involvement, enthusiasm and transparency.
Human capital assessment, empowerment, sharing and delegation are the toolkit for a winning team!
Open Innovation as an answer to the need to innovate
When talking about innovation and technology, it is necessary to overcome the barriers that physiologically arise towards the “new” and towards the capacity to integrate. The integrability and the integration capacity of the “new” are strictly correlated to the will and ability to integrate of the acquirer. The alignment of interests and the sharing of the acquisition project among all the actors thus make concrete the ability to realise the synergies that underpin industrial projects and, often, the rationales that drive acquisitions. The value of a target company can be very different in one context compared to another.
Acquisition activity can serve to accelerate processes that would take longer if developed internally, to create competitive advantages in industries characterised by high dynamism, where arriving first can mean becoming the market leader.
Open innovation is a concrete answer to the need to innovate, to do it quickly and as much as possible in a way tailored to the needs of the acquiring company. This minimises the execution and integration risk.
Therefore, to build solid, sustainable competitive advantages and dynamic, innovative business models, M&A opportunities must be considered, with financial discipline, according to well-defined strategies, a clear vision and effective execution capability, remembering that human capital and training, as well as the ability to work in a team and the sharing of objectives, are crucial factors for success.
Startup Bakery is the Italian startup studio specialised in creating B2B SaaS companies with Artificial Intelligence. We offer aspiring Co-Founders the opportunity to develop a business idea. We create investment opportunities for Professional Investors. We help companies in their innovation process.