Acqui-hire Is Just Another Way to Spell Failure

http://www.jacquesmattheij.com/acqui-hire-is-just-another-way-to-spell-failure

by ZeroMinx • 14 years ago

62 49 14 years ago

tzaman• 14 years ago

I'm not sure if it fits the story 100%, but this is exactly how I felt when Sparrow got acquired by Google. I use Sparrow on iOS daily and I hate the fact that there's a possibility we'll never get push notifications.

dexen• 14 years ago

Business owners seem to enjoy being acqui-hired -- not as much as selling company for a couple millions, but it's still quite good nonetheless. On the other hand, investors may get little, if any, of return on an acqui-hire. See article in which Michael Arrington admits openly that http://uncrunched.com/2012/08/26/investors-dont-like-acqui-h...

If an acqui-hire is failure for anybody, then it's a failure first and foremost for the investors.

In his `About', Jacques states openly that he represents investors' point of view:

>I do this [[verifying that what a company says it sells and owns is actually true]] work for several renowned Venture Capital firms in Europe(...)

zafriedman2• 14 years ago

Investors shouldn't like acqui-hires unless it is an agreed upon goal in the first place. In fact, I guess that investors wouldn't appreciate any misunderstanding of goals on any level, and it seems to be an oft-cited reason for entrepreneurs losing their jobs at the behest of venture capitalists. But if I had $1 million to invest into a business, and from my experience I had a reasonable expectation that a company I'm investing in could be acqui-hired for $50 million, and we agreed upon that from the outset, then I could see myself making that deal and being happy when the result came to fruition.

Retric2• 14 years ago

A lot of Acqui-hires are a choice between 98% chance of total failure vs. x% of their initial investment back. It's not a goal it's simply a way to cut their losses when the company is on their last legs.

zafriedman2• 14 years ago

One observation. I posit that in certain situations, when from the outset a startup sets out to attract a microsegment which is the subset of an existing market that is owned by a major competitor, and furthermore has the explicit goal of being acquired for somewhere between $5 to $50 million by one of those major competitors, that this is valid. Being that in select situations this is a valid undertaking, it must follow from this that the actualization of this explicit goal represents success, and not failure, neither on the part of the founding team nor in terms of product development. Perhaps the dollar amount I cited here is what the OP would consider to be a "buy-out offer [that] is spectacular", but to the extent that it isn't, it's ostensibly wise to consider the opposing viewpoint.

praptak• 14 years ago

"What happens is that instead of going bust on a failed idea all parties agree that it is better to put a positive spin on things so they present this fantastic acquisition story instead of folding the company and going bust."

This does not hold water. What's in it for the party that puts the cash on the table? Why are they paying the cash for the supposed failure?

001sky3• 14 years ago

Fair question. If you are an engineer or a startup person, its possible that you don't have insight into the dynamics of corporate BigCos. There is a lot of potential for under-the-radar turf wars. This creates potential conflicts of interest (http://en.wikipedia.org/wiki/Principal%E2%80%93agent_problem). This is not every case, but this is a real problem. This leads to the ultimate circle-jerk scenario. "What's in it for the party that puts the cash on the table?" The answer is often the same - hiding failure. Where the agents collude to enrich themselves at the expense of their professional/fiduciary duties. Of course, "in reality" there is enough plausible deniability to let things run their course. There's no real business, so no one will know they overpaid (for 2-4years) The M&A bankers earn their fees, The M&A exec at Big-Co gets his promotion, etc. No harm no-foul, its "on the house". Heck, the VC and the CEO get to put "Exit" on their resume. But yeah. Not really.

Non-Acquihire datapoints:

BBC NEWS | Business | News Corp in $580m internet buy

News Corporation Sells MySpace for $35 Million -

Microsoft Wraps Up $6B aQuantive Buy

Microsoft Writing Down $6.2 Billion Over AQuantive Deal

In the "Aquihire" case, the prices are just lower. This may be hiding failure of the Purchaser to lead, innovate, or hire efficiently (HR/culture failure) or to execute on a product launch (internal team failure). Sometimes, its "better" to just patch over that with a "bolt-on", and pretend to protect the career of a "B" player at BigCo. Again, in an Aquihire there is no actual business (ie, measureable profits) so the valuation is just a game of wave a finger in the air. Because of the delayed/opaque consequnces (ie, the 2-4 year period before anyone figures it out), its more subject to manipulation than any normal (ie, cash-flow positive) transaction.

So, to summarize. Not every acquihire is bad/evil. Sometimes, its a good, fair deal for all. But, by its very nature, the acquihire "process" is opaque and subject to manipulation. Furhtermore, its riddled with potential conflicts of interest. For these reasons, one must not be Naive when thinking about these matters.

ChuckMcM• 14 years ago

The acquiring company is paying for the team. In the Bay Area at least its really hard to get those 10x employees that Paul talks about to voluntarily come to work for BigCorp sometimes.

In an acquihire situation it is common that the incentive given to the team members to come to work for BigCorp are time locked such that the team members have to put in anywhere from 2 to 4 years at BigCorp to collect that reward. Amongst people who have done this it is sometimes referred to as 'doing time' since leaving to do another startup isn't an option unless you want to get none of the incentive.

As Jacques hints at there are lots and lots of different deals, from the guy who is up to his eyeballs in credit card debt to a company that has gone through a couple of rounds of VC funding.

flyosity• 14 years ago

I think there's a spectrum of failure, and an acqui-hire is not at the lowest end of the spectrum, not even close. Here are a few ways to fail that are worse than an acqui-hire:

- Your startup fails and you maxed out your credit cards trying to keep the business/servers afloat and end up ruining your credit

- Your startup fails and you spent all the money you borrowed from your family/friends to start your company, never make any revenue, then ruin those relationships when you never pay it back

- Your startup fails and you spend a few months looking for a full-time job

Now contrast those scenarios with this acqui-hire scenario:

- Your startup has not failed or succeeded yet (it may be on the path to failure or success, too early to tell) and you are offered a nice salary (say $150k) plus a one-time stock grant (say $200-500k of RSUs) or a one-time cash bonus (say $100-200k) to work for a company you respect.

In nearly all these scenarios your startup ceases to exist, or lives on in another form separate from how you envisioned it, but only in the acqui-hire scenario are you quasi-successful. To me, an acqui-hire means that 1) a company noticed your product or service, 2) saw that you were doing excellent things with it, 3) thought that you could make an outsized contribution to their company, 4) gave you a cherry on top of a regular employment offer.

Yes, an entrepreneur's startup dream has failed, but on an individual level there are lots of positives.

(Note: I have not been acqui-hired but I have ran 2 startups that fizzled and were sold at low amounts, far below what we wanted. I don't consider them failures because, at the end, there was a monetary payment, but they were nowhere near as successful as we wanted them to be. And I ended up getting a real job after the exit.)

BCM43• 14 years ago

I suppose it depends on what you want out of the startup. If you want to change the world, an acqui-hire is a failure. If you want to make money, it can sometimes be a success.

adgar• 14 years ago

On these forums, that means an acqui-hire is a success.

duaneb• 14 years ago

Even most successful startups don't really change the world.

shawnz• 14 years ago

> If you want to change the world, an acqui-hire is a failure.

Why? Let's assume that's Google's intention -- changing the world. If Google spends their resources acquiring a company, regardless of whether it's for their tech or their employees, is it not likely that they're doing it to further such goals?

Personally, I'd surely feel better able to change the world with the resources of a company like that at my disposal -- especially if they're receiving me through an acqui-hire, rather than out of college by resume or similar.

mibbitier2• 14 years ago

I always assumed most people 'do' a startup because they find it fun and love the freedom it gives them.

So personally, it's neither about changing the world, or about the money primarily. It's about doing what you love.

tlogan• 14 years ago

If founders got the same deal as other employees hired via regular channels then that might be the same level of "failure" as ones you described (depends on how much they got in debt or similar).

So the main question is: what is percentage of acquihires that got better deal on employment than via regular channels? Is that common?

dllthomas2• 14 years ago

Strictly, the question is "what deal would you have gotten otherwise?" but "what are other people getting?" is a good proxy and would be an interesting statistic.

endersshadow• 14 years ago

I'm not entirely sure this is true. Especially for service-based businesses. If we're talking about the web/mobile app world, then sure, agreed. There's a product or tangible service being provided that's getting shut down.

However, for service-based businesses, like architectural/engineering firms or consultancies, there's really no other form of purchase, other than to just funnel the profits to a different place. When you buy one of those businesses, you can only buy the people, as there is little to no IP. If the name has enough cache, you can continue on with that name, but if it's a competitor, you're better off just folding them into the main brand.

As an example, my dad's an engineer. He sold his fairly successful business that he had run for 15+ years (it was a lifestyle business) because he was just sick of the bookkeeping--all he wanted to do was be an engineer after 15+ years. So he sold, and went to work running the engineering department specific to his practice of the place that bought him. Now, he gets a predictable income, no bookkeeping, and more reasonable hours. I don't consider him a failure in the least.

Retric2• 14 years ago

One of the most valuable assets of a service based company is there reputation, Rolodex and their phone number. Someone calls a plumber to come out and the guy at the other end says, "we changed our name to X" most people don't hang up and they don't actually care they just don't want to look for another plumber.

debacle• 14 years ago

ChuckMcM made a post recently that was the most profound thing I've ever read on HN. I'm going to post the link here so you can shower Internet Points on him:

http://news.ycombinator.com/item?id=4425364

MengYuanLong• 14 years ago

Really interesting read. Thank you for posting the link. I certainly would have missed this otherwise.

igorgue• 14 years ago

The funny thing is that 'acquisition' is, most of the time, also a failure. Here we get spoiled all the time with the big time acquisitions, but, in reality, acquisitions happen more often at a lower scale, I can tell you that because my company is getting acquired, not for a price I'd like to sell it but just to get it out of my way to attempt other endeavors.

I know of espectacular failures that end in acquisitions, I'm talking about companies raising tens of millions of dollars and sell for six figures.

anovikov• 14 years ago

That is true, but even so, acqui-hires are good for all of us, because they make investors less cautious.

PaulHoule• 14 years ago

What counts as failure for an investor can be a big win for a founder.

Suppose a founder is in a dead-end job, but doing a startup for a year and a half leads to a much better job with more pay. That's a BIG win.

dave_sullivan• 14 years ago

Spelling an acquihire as failure reminds me of "If you're not first, you're last!" I don't know that it's a good way to look at things.

First, if you get out of your startup for what amounts to a signing bonus and a job at a cool company, life could be worse. Much worse, in fact.

If you set out to change the world and didn't-- c'mon, VERY few people are "changing the world" with a startup. The world, and your customers, will go on if you go to work for someone else.

Building a business is not for everyone. If you realize after you've started a business that you suck at it, there's no shame in saving face and getting out with what you can!

But yes, it's certainly not as exciting as a lot of these companies make it sound in their press release, and it's certainly not something anyone will remember a few days later. It's not placing first, but it's not last either.

buro9• 14 years ago

This matches my view on the acqui-hire. A view that I didn't feel was reflected elsewhere, let alone by a top HN poster. This lack of validation of the view surprisingly mattered to me, it made me uncertain of the strength of my own opinion.

My current position is that last year I was just shy of a 6-figure salary, but also had a "lifestyle business" (read: number of websites) that are successful as projects (but exist as a stable and growing business).

Late year I made the decision to quit the comfort of the salaried position, to use the projects as the bread and butter and to build a technology based product and company.

I've now been approached with a serious offer from a large company in my sector, and a somewhat serious approach from a medium sized company in this area (sports related online communities).

During discussions it's become obvious that they're willing to somewhat inflate the offer for the community to acquire me fully too. That is they're not interested in an offer that doesn't include me and the offer is inflated to make that attractive.

Discussing this with non-startup friends, not one of them can fully comprehend why I wouldn't accept a swollen bank account and an envious salary.

For me, the thing that I deeply believe is that the technology startup hasn't even shown its' potential, and nor has it yet failed... in fact, I've barely started.

I quickly came to the conclusion that an acqui-hire is (right now) the worst possible thing that could happen. The end result would be the same as failure, and were I to have failed then not taking the money would be foolish. But right now it's so premature that I feel that to allow myself to be purchased is tantamount to seppuku.

It's really good to see that opinion shared. Most seem to celebrate the big earnings for founders and the cash-out for investors... but all I see is the wasted potential.

ScottBurson• 14 years ago

This is a great point. If you're not to the point of running out of money, and you don't yet have substantial evidence that the niche you've targeted is severely limited, considering an acqui-hire seems silly -- unless that was really your goal to begin with.

This makes me wonder at what point in the life of the startup most of these acqui-hires are occurring.

EDITED TO ADD: Further reading (e.g.: http://news.ycombinator.com/item?id=4425364) suggests that indeed, the usual point at which an acqui-hire becomes relevant is when the business is on the verge of failure.

pg• 14 years ago

Actually HR acquisitions vary a lot. At one extreme they're indistinguishable from failure, but not at the other.

They're equivalent to failure if the acquirer doesn't give the the founders any more than they'd give equivalent people recruited through ordinary channels. But there are some HR acquisitions where the acquirer gives them much more. It's twisting the meaning of the word "fail" to call those failures. The startup may not have hit the the proverbial home run (yet) but they've done well enough to convince someone to give them a lot of money. While founders may have other goals for their startups, that's usually the economic goal. For some (to be honest, probably most) the economic goal is the main one. And if you achieve your main goal, that's not failure.

mibbitier2• 14 years ago

It'd be interesting to know how many people do startups "for the money" - 'economic goals'.

I always assumed pretty much everyone did a startup because it's fun and gives you the freedom to do what you love.

There seems to be a line of thought that says "a) do a startup, b) solve the money problem, c) do what you love"... Why not just do what you love to start with? If you don't love doing a startup, don't do it. Do something else.

brudgers• 14 years ago

The money is still a way of keeping score.

jusben1369• 14 years ago

Another way to think of it (failure) is not in monetary compensation but rather whether the technology, or even at the very least the concepts, are utilized in the go forward scenario. So HR acquisitions where everything is shuttered may just be opportunistic hiring opportunities with nice signing bonuses. However, if the technology or applied knowledge live on then those can't be failures. If they were the logical extension of the author's current definition is that the only way a company can avoid being termed a "failure" is to go public. Any acquisition prior to that is a failure.

sampsonjs• 14 years ago

As Mattheij pointed out, that's possible, just not very likely.

tptacek5• 14 years ago

Pedantic point: to be a success, the financial outcome from an acqui-hire probably needs to account for the financial sacrifices taken during the building of the company. You can get a much better deal from an acquirer than you would have from their HR process and still come out behind for having landed there via a startup buyout.

It obviously goes without saying that that outcome needs to be shared across the whole team, too.

Technically, wouldn't you also want the financial outcome to capture the risk that the startup was all going to come to nothing?

Finally, most importantly, and (admittedly) orthogonally: even with acqui-hires, what we're hearing are the "success" cases. Even those cases where the backbiting HN threads are tearing the company down for "obvious" failures, those are, relatively speaking, successes. We don't hear about the majority of seed-funded startups, which don't get any offers at all.

viscanti5• 14 years ago

Prior opportunity cost is a sunk cost. The "exit" needs to be evaluated based on realistic alternatives at that point (i.e. keep going or shut it down). The fact that you may have left money on the table to join a startup no-longer factors into the equation. It comes down to making the best choice given all the current alternatives, not all the possible past alternatives that could have been taken.

veritas9• 14 years ago

Beyond the obvious rationale behind acquihires... they're good for the startup ecosystem because the reality is that not everyone can be an Instagram.

They're usually a great deal for the founders and the company so it's win-win situation unless of course your definition of success is a billion dollar exit. Not to mention the learning curve and challenges that entrepreneur experience and overcome which in my opinion is priceless.

koenbok• 14 years ago

Even if some people have HR acquisitions aligned with their definition of failure, I don't really see why that's so important. Because of the stamp or stigma they can put on someone maybe? I thought only Europe had that problem (being from there).

Startups fail all the time. It means people are trying. That is way more important to me.

The only thing I don't like to see is that good entrepreneurs get comfy at big companies with mediocre output. But in my experience that doesn't happen often.

j_baker• 14 years ago

This has been my experience. I think people tend to read too much into acqui-hires. The reality is that acqui-hires seem to typically be a means of salvaging something from a failing company.

davmar• 14 years ago

ice cube said "life ain't a track meet, it's a marathon".

you take risks. you build something. you learn to build and manage a company. you learn to raise capital. you learn to negotiate a buyout. you learn to ship products and support customers.

for business, personal or any variety of reasons, the founders decide that being acqui-hired is their best option, and have an entirely new set of skills to apply to their next business iteration.

but you're labeled as "failures" by this jacques mattheij.

i don't agree with him. not at all.

teddy roosevelt said:

It is not the critic who counts; not the man who points out how the strong man stumbles, or where the doer of deeds could have done them better. The credit belongs to the man who is actually in the arena, whose face is marred by dust and sweat and blood; who strives valiantly; who errs, who comes short again and again, because there is no effort without error and shortcoming; but who does actually strive to do the deeds; who knows great enthusiasms, the great devotions; who spends himself in a worthy cause; who at the best knows in the end the triumph of high achievement, and who at the worst, if he fails, at least fails while daring greatly, so that his place shall never be with those cold and timid souls who neither know victory nor defeat.

Acqui-hire Is Just Another Way to Spell Failure

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