Episode 21: Don’t Fall into the Trap of “build vs buy” instead think “build AND buy”!
On this week’s episode, I respond to a question I’m getting more and more from all of you:
How does each of these different techniques highlighted in Agile Giants fit into a company’s overall growth strategy?
(Or if not that exact question a version of it)
I try to provide some context, but the biggest point is there are synergies across these tactics so it isn’t build vs buy but instead build AND buy!
Transcript
Sean Ammirati: 00:08 Welcome to Agile Giants: Lessons from Corporate Innovators. I’m Sean Ammirati, your host, co-founder and director of the Carnegie Mellon Corporate Startup Lab and partner at the early stage venture capital fund, Birchmere Ventures. Each week, I’m going to talk to guests who are experts at creating startups inside large corporations. I believe, fundamentally, a startup within a company is the same as one inside the proverbial garage: a group of entrepreneurs trying to make the world a better place using new ideas and inventions. However, I also believe some of the techniques and processes are just inherently different. This podcast is going to explore those similarities and differences.
Sean Ammirati: 00:58 This is the 21st episode of Agile Giants. One of the things that I’ve realized as I’ve been getting more and more feedback from you on different social channels and via email, and please keep that coming, is that I think across the first 20 episodes, we’ve done a really good job exposing you to lots of different techniques that companies are using. Different techniques certainly, I think, are resonating with different groups of you. Some of you are really into this outside-in approach where you’re partnering with companies and startups like what Bayer and Moody’s talked about. Some of you are really interested in a similar outside-in approach where you’re actually looking for partnership plus and doing these kind of strategic corporate venture activities. Last week’s episode with Rich Grant at Touchdown Ventures I think excited a lot of people who fit into that category.
Sean Ammirati: 01:55 Some of you are much more interested in the inside-out approach. Thinking about things like Safety IO that MSA created I think are particularly interesting to you as you think about, how can my legacy business start building and leveraging some of its unfair competitive advantages to accelerate its growth? Even as I was probably walking through that, I imagined different people in the audience kind of leaned in and out at different parts in that conversation. This is honestly something I’m still trying to come up with a complete holistic framework for, but what I realized is we haven’t necessarily done a great job setting the context for how all this stuff fits in together. I think there’s been a number of different questions that have come in, especially since the first Q&A episode I did a few episodes ago around, how does this all fit together? What should I start with? How should I think about these different approaches? What would you encourage me to do first?
Sean Ammirati: 03:05 Unfortunately, I’m not sure that there is a one-size-fits-all answer to that. I mean, there certainly are some principles that you can’t avoid. We talk about some of those on the Corporate Startup Lab research tab right now with the first research report that we’ve done. Ultimately, I anticipate that site changing where that’s the first of a number of reports that we start to come out as we have some more reports coming out later this year. But in that first chunk of research that we did with our grad students, one of the “dimensions of differentiation” that we talked about, we talked about five things where there’s no right or wrong answer. We’ve seen people have success both ways, but we talk about different companies leaning towards buying, building, and partnering when they’re approaching this topic.
Sean Ammirati: 03:52 Even more since that came out, part of what I’ve come to appreciate is that this buy or build or partner “choice” that executives are feeling like they’re staring down is not really a choice at all. That the real answer is AND not OR. I think if you remember one thing from this week’s episode, and this will be a little shorter than usual, but I think it’s just an important thing that I wanted to get out there as we continue to explore this topic of creating startups and creating transformational growth inside large companies. But if you remember one thing from this shorter week’s episode, what I’d encourage you to remember is that the answer is AND not OR when thinking about buy, build, and partner.
Sean Ammirati: 04:42 What you really want to do is you want to do multiple of these different techniques because there really are synergies across the activities. There’s a number of good examples from Agile Giants that I think point to this. Certainly, a few weeks ago when Keith was talking about the Moody’s Analytics Accelerator and how given the insights that were going on inside that grew, they made a decision and were able to act quickly to jump into an acquisition to actually accelerate some of the things that they were doing. I think that was just good business fundamentals, but I think also the other work that they were doing in this kind of partnership ecosystem they were building out and the startups they were talking to really gave them unique insights to do that.
Sean Ammirati: 05:32 Similarly, and this was not actually public at the time that we did the episode with Gustavo, but since we recorded the episode with Gustavo on Safety IO, they’ve gone out and bought another company called Sierra Monitor. You can see the press releases on that and understand how that fits in if you go back and listen to episode seven of Agile Giants, and then think about how Sierra Monitor fits in. But in both those cases, those are both companies that I think buy would have been low on the mandate when you think about what both of them were starting out to do, MSA and Moody’s. But buy activities are merged kind of serendipitously, and they became very additive to the other transformational growth things that they were working on.
Sean Ammirati: 06:25 When I think about it, I think that it’s important when you start thinking about your overall thesis that you’re building to think about not like, “Okay, I’m going to pick this one tool up and I’m going to use it as the only tool that I bring to accomplish the goals I’m setting out to accomplish. But I’m going to try to look across this buy, build, and partner opportunities to try to do the right one and the right mix of them based on my strategic objectives.” When you think about those different strategic objectives, it’s also important to point out that within each of those categories: buy, build, and partner, there isn’t really just only one approach to any of those three categories, but there’s actually multiple approaches or multiple tactics that you can use against any of those strategies. It’s not, do you buy or not? But it’s like, “Well, what’s the right type of buy activity to fit in?”
Sean Ammirati: 07:20 I talked a minute ago about Moody’s and Safety IO doing strategic acquisitions. But another type of buying activity is the type of buying activity that Rich was talking about at Touchdown Ventures. Which is in many ways when you’re doing corporate venture capital, part of what you’re doing is buying a small percentage of these high growth companies and obviously doing it using and leveraging portfolio economics for it to make sense. There’s a lot behind that, but corporate venture capital is a different type of buying tactic that can be used relative to what I think people quickly jump to when they think about buying which is buying 100% of the company. You’re buying part of it. As discussed last week, there are different terms that you can add in to make that make sense.
Sean Ammirati: 08:11 Similarly, when you come to the build or the sort of going inside-out and trying to create these companies from within, there are multiple different build approaches as well. I don’t have good terms for these unlike strategic acquisitions and CVC on the buy side where I think people know generally what we’re talking about. But as I was thinking about how to frame this out today, I decided to kind of frame them out as two categories: studio work and startup platform work. I can elaborate on both of those.
Sean Ammirati: 08:43 On the studio side, my idea behind the studio side is it’s a discrete entity within the organization that is completely focused on building these new corporate startups. On the startup platform side, my concept there is that these are groups within a company that empower anybody in the organization to create a startup platform. If you think about the interview that we did with Tanya at GS Accelerate, the Goldman Sachs accelerator, that is very much a startup platform. Any group of people can come together who work for Goldman Sachs and propose their participation in the GS Accelerate program. That’s very different than having 15, 20, 30 people whose job it is to be the corporate entrepreneurs within the entity. Certainly, on the partnering side, you can again have lots of people open to it or groups of people responsible for it.
Sean Ammirati: 09:47 Again, just like the right answer is that you should definitely do buy and then partner or partner and then buy, there’s not one-size-fits-all in terms of this is the right approach. I think in some of these larger companies, we’re seeing them do multiple approaches where they’re doing, again, my terms here, but studio work and startup platform work together. But again, I think that there are synergies there. Coming back to the one main point from this episode, the answer is not an or here, but I think often is an and. Is there a way to do multiple of these things and have synergies across them?
Sean Ammirati: 10:26 Stepping up a level, and I need to think about how this folds into Agile Giants moving forward, but as we talk about these different activities in the next 20 some episodes that we do… The reaction’s been positive. We plan to continue to release these episodes as long as you guys continue to consume them and enjoy them. … I really want to try to be more intentional about framing out the type of corporate innovation that the people we’re talking to are experts on. It won’t often be just one of these boxes, but it’ll be really framing out like, how much of the stuff they’re doing is focused on this inside-out building and creating versus how much of it is outside-in? Where they’re buying things, either entire entities or making strategic investments or strategic partnerships. We’re going to try to give you more of that framework going forward because I do think all of these activities are cool. I think all of these activities are compelling to subsets of you.
Sean Ammirati: 11:30 I think there are strategic reasons why some of these resonate with some of you more than others. But if you come back to the mission of Agile Giants and a lot of the work that I’ve been doing at Carnegie Mellon over the last few years, the real mission here is to help people in many of your organizations think about themselves as entrepreneurs. That entrepreneur is not a relegated thing to a subset of the economy or a subset of social classes. We want everybody to think about themselves as an entrepreneur. Even those working and putting their energy into large enterprises because large enterprises need to be entrepreneurial as well. That doesn’t mean that every large enterprise needs to start a studio program, for example. I don’t think that’s the case, but I do think in general, they should be doing some of these activities and the mix of them is a little unique.
Sean Ammirati: 12:25 I’m going to continue to try to drive at this theoretical framework, but hopefully, this at least gives better context as we move forward with the next 20 episodes on Agile Giants. It’s also helpful clarifying some of the questions that have come in so far around how to think about the pros and cons of each of these different approaches.
Sean Ammirati: 12:45 Next week, we’ll be back with a more normal Agile Giants episode, but hopefully, this was helpful context for everybody.
Sean Ammirati: 13:01 I hope you enjoyed this episode of Agile Giants. If so, consider sharing it with a friend. If you think it’s worth five stars, which I hope you do, please go to iTunes and rate it so that others can find this content as well.
