The always insightful Mark Suster recently tackled the subject of acquihires–the practice of large companies buying small startups simply to acquire their people. Mark lays out an excellent argument for why the acquiring companies are actually losing out when they make acquihires:
“You have been at Google, Salesforce.com, Yahoo! for years. You have worked faithfully. Evenings. Weekends. Year in, year out. You have shipped to hard deadlines. You’ve done the death-march projects. In the trenches. You got the t-shirt. And maybe got called out for valor at a big company gathering. They gave you an extra 2 days of vacation for your hard work.
And that prick sitting in the desk next to you who joined only last week now has $1 million because he built some fancy newsreader that got a lot of press but is going to be shut down anyways.
What kind of message does that send to the party faithful who slave away loyally to hit targets for BigCo?
I’ll tell you what is says.
It says if you want to make “real” money - quit.”
I couldn’t agree more. Acquihires create incentives for a host of undesirable behavior. It’s not just the fact that you’re encouraging people to quit–it’s also that you’re sending the message that the hard work of serving customers in a real business–what creates the actual value in the economy–is a job for unambitious suckers. Far better to focus on building sexy demo products and collecting an acquihire bounty.
But there’s an even worse problem–acquihires contribute to the startup industry’s problems with truthiness. Every time I see an acquisition announced on TechCrunch, it’s full of compliments and congratulations. Yet the simple fact is that unless a price is announced, the acquisition is just an easy way for investors and entrepreneur to sweep failure under the rug.
Many people would be amazed to learn how many “successful” people are actually failures, at least in terms of the return to their investors. But investors have no incentive to disrupt the game–investing in failures hurts your reputation and your fundraising. Better to keep quiet and play along.
The result is that our entire culture is built on evading the truth. We like to criticize the financial services industry for dishonesty, yet we’re guilty of much the same.
That being said, I’ve signed off on a number of acquihires of my portfolio companies–better to get something back, rather than lose all the money. I guess my honesty has a price too!
(Cross-posted @ Adventures in Capitalism)