Blog #2 – Internal Organizational Analysis and Developing Strategic Options

     The start-up I was working at before leaving for grad school (I’ll probably end up writing a lot of posts about that company) was very focused on inorganic growth through acquisitions, at a rate of one acquisition per year. In fact, just last week the company announced another purchase, raising the total acquisition count to six since 2013. For this reason, I was particularly interested in the Roll-Up “siren” from “Seven Ways to Fail Big.” The following quote resonated most strongly with me:

“Often roll-ups cannot sustain their fast rate of acquisition. In the beginning, all that matters is growth – buying a company or two or four a month, with all the cultural and operational issues that accompany a takeover. Investors know that profitability is hard to decipher at this point, so they focus on revenue, and executives know that they don’t have to worry about consistent profitability until the roll-up reaches a relatively steady state.”

Though the startup was not buying other companies at the same aggressive rate, it felt like we were continually trying to bridge cultural and operational gaps that resulted from the acquisitions. Since the startup was not yet profitable, it also occurred to me as I was reading the article that these purchases likely hid some of the company’s financial concerns by directing outside attention to revenue.

     To avoid any biased cynicism on my part, I worked through the major points brought up in “The Coherence Premium” as they related to my old employer and their most recent purchase of a “messaging platform for healthcare that connects payers, providers and people” (quoted from the acquisition’s website). Unfortunately, the company does appear to be falling into the trap of seeking out expansion instead of focusing on a set of core capabilities to differentiate itself. The startup’s primary market offering is a SaaS platform that connects users to employer-sponsored health care resources, so a messaging platform enhancement is outside of its core competencies. Instead, this purchase broadens the range of offerings even further, adding one more product to the mix and reducing attention spent on existing capabilities. If the startup went through the questions outlined in “The Coherence Premium” (such as “Do all our businesses draw on this superior set of capabilities?”), every answer would be no.

     Given that the company can’t be described coherent, it seems likely that it will continue to struggle for survival, and with this week’s reading in mind I can make an educated guess about how that struggle will look – a combination of “Roll-Ups” and “Pseudo-Adjacencies.” The number of acquisitions over the years caused many challenges due to an inability to integrate each acquisition properly (even over the course of years). Every new company amplified an existing catalogue of inconsistent, broken processes meant for a much smaller entity, and the culture deteriorated noticeably for each acquired group. Moreover, I think these roll-ups continue to be a problem because they are rooted in pseudo-adjacencies. The assumption was always that our existing customers would love another offering to bundle up with their existing services – for example, a messaging platform to go along with the SaaS platform – but I saw that plan break down time and again in real life because we were weaker in the new capabilities, and they didn’t interlock with our other products (rather, we stuck them together with duct tape).

     I hope these “sirens” aren’t the death of the startup, but I doubt the company will slow down on it’s inorganic growth strategy, and it certainly seems like they’re sailing closer and closer to a dangerous shore.