Startups synonymize Innovation. Does the desire to be nurtured by big houses kill their innovative charge-up?
Do businesses pick upon the law of jungle? Yes! Metaphorically though. The law of jungle supports the survival of the strongest. The strong also ‘devours’ the weak. One finds somewhat a parallel between this and the recent trend of startup acquisitions.
Startups are young companies characterized by the profound energy for innovation. When their going gets good, big businesses lure them to a buyout deal. Facebook thus bought WhatsApp, Amazon acquired Zappos (the list swells habitually). In the business parlance, this could be a natural snap of business evolution and such acquisitions pave way for greater efficiency and market consolidation.
The Devil in the Details
But the end result of all startup acquisition does not seem to be as good as it appears. There are downsides too, as these acquisitions:
- Weaken competition and drive the prices up: Consolidation leads to monopoly and weakens competition. This in turns leads to higher prices.
- Stifle innovation: Desire for acquisition stifles innovation in startups. Such startups create products similar to that of bigger firms so that a competitive threat is created and the acquisition is hastened.
- The Final World
Acquisition continues to be a major exit strategy for startups. This cannot be halted too. But to ensure a level playing field for all, experts have two suggestions:
- Controlled acquisition: If large firms are prevented from buying so many startups, smaller companies might strike out in more new directions.
- Retaining the product choices: The older firm could purchase the new one retaining the product-development choices of the latter.
Startups provide rich opportunities for the right talents so that they can learn and grow fast.
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“The Desire to Be Acquired Is Stifling Innovation at Startups” Agree? Why?
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Niko Matouschek-The Desire to Be Acquired …KelloggInsight-JUL 1, 2022