Chasm: a deep fissure in the earth’s surface

In the startup world ‘Chasm’ is frequently a reference to the book Crossing the Chasm by Geoffrey Moore, a book that wonderfully articulates how startups can establish early success and embark on a path of sustained growth.

Acqui-hiring is a phenomenon that recently took roots in the Indian startup ecosystem with Google’s acquisition of Halli Labs. Many people heard about it for the first time, but true to form, it fast became part of the lexicon and is now presented as another way for exits to get realised in India.

But, it begs the questions: What perpetuates an acquihire?

The biggest motivation, for sure, is access to talent. This talent – typically a very smart group of engineers – has expertise and knowhow that few others in the world have. They build bleeding edge products, but often — and this is bit of a case of ‘adverse selection’ — are unable to market their products well.

Along with Technology, they frequently have patents and other defensive moats that prevents bigger players from building what they have, at least not quickly.  And time, indeed, is of ultimate essence in the startup industry — where a few month lead often translates into thousands of customers (who consequently get locked in), first-mover advantages, faster investor interest and lots more.

So, why not just hire these engineers one may ask — that is wean them away from their dream startup and into your corporate fold?

I think I answered that. But in case the sarcasm was lost, there is no way they will give up pursuit of their dreams unless they are being accorded with commensurate reward. Often the acquihires become product leads/owners inside the acquiring company and get to be intrapreneurs, and this is also a decent outcome for them.

Corporations should think of this as a large sign-on bonus that needs to be paid out to ensure that they get their hands on the best talent — talent that is not available elsewhere on the planet and talent that they sorely need to build differentiated products.

So, what are the lessons for a startup?

In a previous article, I articulated why getting bought is better than selling, and acquihire is a classical case where a startup can subtly position itself for sale without showing desperation.

Also read: Building a successful exit strategy in SEA; why pre-revenue models are bad for listings

These startups are, by definition, brilliant at developing bleeding edge products. But, they are poor at marketing their offerings and realise soon enough that their product of idea will survive only under a bigger corporate umbrella. In the absence of such, it would meander towards a slow and painful death.

They should start engaging with potential buyers by showing off their technical horsepower at every conceivable occasion — conferences, website, blogs, technical white papers LinkedIn articles, industry publications and even patent applications. They should showcase their pedigree by creating an aura of a company where the greatest technologies are being built, where only the brightest graduates from the world’s elite engineering colleges are hired, where a casual, caffeine-heavy and collegial culture is the underpinning for renowned growth hacking and challenging the frontiers of computer science.

While it sounds like something that is done as a final resort, getting acquihired can actually be a favourable outcome for startups — something that is done with grudging acceptance and realisation of one’s limitations in marketing technology products.

They get to develop their technology under the umbrella for a much bigger, and typically entrepreneurially minded, technology organisation. Bigger technology organisations have much larger budgets that, while not ‘evergreen’, are not subject to the ‘8+2’ structures that bedevils typical VC firms. I say bedevils, because it subjects VC firms to look for exits within a certain timeframe — and this time frame might not be fully aligned with the product roadmaps and aspirations of the founding team.

A bigger organisation frequently offers the best of three worlds:

  • Bigger marketing budgets and seemingly endless channels through which to push a product;
  • Significantly larger budgets through to avail of for R&D and other corporate needs; and,
  • A culture that encourages entrepreneurial activity within the ambit of a bigger org.

Getting acquihired could be the veritable bridge to cross the chasm.

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