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We can’t guarantee a blog post for every question, but we’ll try to respond to the ones we can. This set of questions came in last week from a reader.
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Questions
If you acquire a company that has multiple products and there is overlap with your own, then how do you manage the result?
What if there is no clear winner? (that is, the products overlap say 30% or more)
What issues are faced in “merging” them, or how to decide upon which product to use (and end-of-life the other).
What if one product is embedded in a platform that others build upon, etc.
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Answer
This is a really meaty topic and these are not trivial questions. I’ve been involved in a couple of smaller acquisitions, but to get more insight, I spoke to a friend of mine who has been on the buy side of almost a dozen acquisitions, and he had a number of things to say that I’ve summarized and included below.
Acquisition Strategy
Overall, the answers to these questions depend on why the company made the acquisition. Was it for the technology, time to market, the customers, the people or leadership, the IP, to silence an upstart competitor, or another reason altogether? The reason — i.e. the acquisition strategy — is key and will form the basis of how to proceed.
First, for the sake of simplicity, let’s call the acquiring company BigCo, and the acquired company SmallCo.
Acquisitions are always political even when they are not
Let’s assume the acquisition was to fill a gap in BigCo’s portfolio. BigCo has products in that space, but a buy vs. build decision was made to accelerate expansion in that market. SmallCo has a good product and a good (but smaller) customer base than BigCo. Over time, SmallCo’s technology will be integrated into BigCo’s existing products and SmallCo’s customer base will have to be migrated over as well.
If that is the case, then clearly decisions have to be made about how to proceed, and it can get very political.
BigCo needs to think about SmallCo’s customers. What will the transition plan be? They will be the first ones who will be concerned about the acquisition. Will BigCo continue to enhance and support SmallCo’s product, and if so for how long? What is the roadmap for the new combined products and what impact will that have on SmallCo’s customers. SmallCo’s competitors will certainly start spreading FUD to SmallCo’s customers about the perils of the acquisition.
I once worked for a company whose main competitor was bought by an industry heavyweight. That was the best thing that could have happened for us. And while we did spread our share of FUD, it took about 2 years for the big company to get it’s act together around the acquisition. Those were 2 great years for our company.
Who’s the Daddy?
Aside from the external communication, SmallCo employees are also feeling concern about their future and have similar questions. Although BigCo is acquiring SmallCo, internally the teams tied to the overlapping products will need to know “Who’s the Daddy?”. i.e. which product, and which team members will take charge of the roadmap and future product decisions.
If there is already a strong team at BigCo, then BigCo’s team will likely be put in charge. They are well known and trusted. The folks at SmallCo may not be too happy about that, nor too cooperative once the acquisition occurs. People at SmallCo will need to know what their future looks like, and until they know and find a clear path for themselves in BigCo, there can be a lot of political infighting and jockeying for position with Sr. Management.
Lack of clear and timely communication about the future, political infighting, and lack of a clear integration strategy in advance of the acquisition can really hamper progress once the acquisition is made. This is the case with a lot of acquisitions – fast moving, nimble smaller companies get acquired and then fall into limbo as the larger company moves sluggishly to change course around the acquired product.
And with products, integration of the acquired products more often than not turns into a rearchitecture or a rewrite of products, causing delays, lost potential and ultimately lost revenue.
There is no easy answer to these questions because of how different every acquisition is, but working early on to eliminate any political infighting and getting teams aligned and moving forward as quickly as possible are keys to successful acquisitions.
Saeed
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