Many software companies pursue acquisitions to advance their products. All too often, the solution to integrating acquired products is to do a little UI work (lipstick on the pig), and some single-sign-on magic, and call it good to go. In other words, fake it instead of actually creating the product that was imagined. Nobody wants to acknowledge that sooner or later the tech from the company just acquired will need to be completely rebuilt in order to make the overall platform consistent and usable. The leadership, the board, and the investors just made a buy versus build decision, and they landed on ‘buy,’ but now you have to build after all. Not an easy discussion to have, but all too often, it is the right one.
A huge component of creating a product is defining the capability set and battle testing the product/market fit in the competitive market with real customers. The product you just bought has presumably already covered this ground. It is a comprehensive ‘spec’ for what you need, but often it was not built to be a natural fit in your existing platform. The right, hard discussion is to decide if slapping the products together with some lipstick will deliver the best competitive solution, or will it open the door to a competitor that builds the right product from the start.
This product conversation should be a part of the diligence process. It needs to factor into the buy versus build equation, and all of the internal constituents need to have an honest conversation about the potential timing and need to rebuild the acquired tech. The team has to understand the long-term strategy and the path to success. Too often, the business metrics and financials of the target drive the acquisition discussion, and the tech evaluation is done in a silo that only considers the quality of the tech being acquired, and not the reality of what it will take to create the ideal combined product. In tech company after tech company, if you look back a few years after they acquired a product, you will find that they ultimately rebuilt the product. Rarely was that the plan going in, but maybe it should have been.
The problem is that too much energy and angst goes into trying to make it work before some bold soul declares it is time to rebuild. The market and reputational damage of having an inferior product in the market for too long is done, and now future success hinges on successfully building Version 2.
This is not an argument to avoid M&A. A good deal can bring clients and expertise and market penetration and a host of other advantages. Even the existing acquired product may be highly valuable as a bridge to gain market share while you create V2.0 as long as that is the understanding and strategy at the onset. However, if nobody is willing to talk about the elephant in the room that the tech may need to be rebuilt, then there is a pretty good chance the shiny new acquisition is headed for product trouble in the future. It is important to have the discussion and set the strategy up front, and factor it into the buy versus build decision.