3 ms·

BigCorp is rarely a rational actor. When someone inside wants to buy you, they may justify it this way to sell it to decision-makers, but this is not how compan

BigCorp is rarely a rational actor. When someone inside wants to buy you, they may justify it this way to sell it to decision-makers, but this is not how companies really approach the market in my (admittedly limited and non-US centric) experience. I would strongly advise against anyone launching a company if a successful outcome is contingent on a potential purchaser knowing what is best for them....

ChuckMcM 14y ago
I think 'rarely' is too strong a characterization. My experience is that in the absence of malfeasance BigCorp is locally rational. They have convinced themselves, either for or against, about how they should proceed. We rarely get to see their reasoning though so its hard to evaluate. I've worked with M&A teams at a couple of places and have seen deals that looked irrational until the reasoning was uncovered but I certainly accept the claim that not all of them would past muster, even when all the information was known.
- trevelyan 14y ago
  Hi Chuck, I agree that inside any company, purchases are rationalized and the process you describe is probably spot on. The reason I posted was that I've seen several cases where acquisition behavior in multiple industries was profoundly illogical in terms of what the same money would buy: either companies didn't pull the trigger on offers when they should have and a product would have been ridiculously cheap, or (more often with unprofitable companies) a sale was engineered by investors, and/or the purchasers did not explore the market and only considered narrow options before them. Not intended as a complaint. I just really wouldn't advise anyone to do a startup that required any BigCorp to purchase them in order to have a successful exit, that's all. You could have a way to print people money and still have a hard time forcing it down their throat.
  - ChuckMcM 14y ago
    I think we're in agreement, I think anyone who creates a start-up with the intent to sell it to a larger corporation is making a sucker bet. Worse their company generally suffers as they pivot from fad to fad once they get somewhat long in the tooth and the chance of acquisition becomes more and more remote. But just because you and I see that, doesn't mean some starry eyed CEO wannabe won't. They use the fact that Apple, Facebook, Google and even Microsoft have billions in their bank accounts and have stated a desire to acquire "key technologies" as validation of their own efforts to be a "key technology." Most people learn in High School (or at worst College) that trying to be something you aren't in order to win friends is a losing bet. The only thing I disagree with is characterizing BigCorp as strictly irrational. It makes sense to someone, and generally if you find them they can reason to their choice which is the very definition of rational behavior.

ChuckMcM 14y ago

I think 'rarely' is too strong a characterization. My experience is that in the absence of malfeasance BigCorp is locally rational. They have convinced themselves, either for or against, about how they should proceed. We rarely get to see their reasoning though so its hard to evaluate. I've worked with M&A teams at a couple of places and have seen deals that looked irrational until the reasoning was uncovered but I certainly accept the claim that not all of them would past muster, even when all the information was known.

trevelyan 14y ago
Hi Chuck, I agree that inside any company, purchases are rationalized and the process you describe is probably spot on. The reason I posted was that I've seen several cases where acquisition behavior in multiple industries was profoundly illogical in terms of what the same money would buy: either companies didn't pull the trigger on offers when they should have and a product would have been ridiculously cheap, or (more often with unprofitable companies) a sale was engineered by investors, and/or the purchasers did not explore the market and only considered narrow options before them. Not intended as a complaint. I just really wouldn't advise anyone to do a startup that required any BigCorp to purchase them in order to have a successful exit, that's all. You could have a way to print people money and still have a hard time forcing it down their throat.
- ChuckMcM 14y ago
  I think we're in agreement, I think anyone who creates a start-up with the intent to sell it to a larger corporation is making a sucker bet. Worse their company generally suffers as they pivot from fad to fad once they get somewhat long in the tooth and the chance of acquisition becomes more and more remote. But just because you and I see that, doesn't mean some starry eyed CEO wannabe won't. They use the fact that Apple, Facebook, Google and even Microsoft have billions in their bank accounts and have stated a desire to acquire "key technologies" as validation of their own efforts to be a "key technology." Most people learn in High School (or at worst College) that trying to be something you aren't in order to win friends is a losing bet. The only thing I disagree with is characterizing BigCorp as strictly irrational. It makes sense to someone, and generally if you find them they can reason to their choice which is the very definition of rational behavior.