Build-or-Buy? Why M&A exists

Build-or-Buy? Why M&A exists

Introduction

EMC (now Dell EMC) has evolved from a company that sold office furniture to a successful collection of strategically aligned technology businesses selling a variety of information solutions. If we look in the rearview mirror, we find many companies that were successful selling one product, like Prime or selling into one market, like Wang. Both of those companies and many others faltered and disappeared when the market for their product was disrupted by better technology or when business requirements changed. So what’s different at Dell EMC you ask?

 

Dell EMC’s stamina, growth and success result from a combination of home-grown ‘organic’ development in combination with strategic investments, and ‘inorganic’ key acquisitions. Deciding whether to build or buy is a complex decision, but like all good decisions it begins with a challenging question.

 

“What do we have and what do we need?”

Gap analysis – What do we need?

The build or buy journey starts by taking an objective look at your current products and their trajectories. Dell EMC has teams of very bright folks that look at existing markets and new evolving markets.  We analyze where our solutions win and where they do not. Where are we strongest and where do we need help?  Can we morph existing products to fill the gaps?  How long will it take to move into a new or adjacent market, and what resources are required?

 

We can’t fill every gap organically <Dell EMC employees rant here>, so we invest in and sometimes acquire external companies. Our M&A teams target adjacent growth markets and disruptive technologies. When in doubt, disrupt thyself.  Obvious examples of disruptions and evolutions in the last 10 years include meeting the requirements of large file applications such as media, genome sequencing and mapping. Equally challenging are extreme databases and analytic performance addressing 1000’s of VDI users and hundreds of stock analysts. Future posts will look at two of Dell EMC’s most successful acquisitions. But first let’s examine organic development:

 

“Why does Dell EMC spend so much to buy new companies? Couldn’t we build it better and at lower cost?”

 

If you build it, they will come.

 

Time to market is a key component of a winning strategy. Lean and agile, startups forge ahead into new fields and technologies with great enthusiasm, vigor and laser focus.  They seek to become bleeding-edge adopters of new technology.  They seek to go where no company has gone before. Often, startups are created by teams who don’t know that what they’re doing is impossible. It’s important to look at the differences between a young startup and an existing market provider.

 

If you are an existing provider you must answer:

 

“How can we staff this new project without impacting existing revenue and growth rates?”

“How and where should we invest in cutting edge technology?“

“How can we grow new teams with new skills while maintaining our edge in current products?“

 

If you are a startup, you simply GET TO WORK!

 

Startups don’t have existing products or customers and thus have no legacy products to service or support. Startups don’t need to maintain existing product lines while they invent new ones. Startups have the freedom to focus 100% of their investment in disruptive or future technologies in order to succeed. Here is a good article from the Harvard Business Review on innovation budget. Startup CEO’s attract the brightest and most motivated people by dangling potential Multi-Millionaire status and offering them rides in their Tesla.

 

Industry secret: (Please don’t tell) Startups are held to a lower standard than existing enterprise companies. Startup concepts are expected to be full of holes if you look closely enough.  If their idea or prototypes are remarkable and differentiated, a unique and valuable startup will often get away with being ‘good enough.’ This is also why companies like Dell EMC must invest huge amounts of money in startups after they are purchased.

 

Mergers and acquisitions are part of life in a successful, long-lasting company. M&A cannot replace internal innovation, but neither can any company expect to survive purely based on organic investment.  M&A is just as strategic and innovative as anything else in Dell EMC, and we take it just as seriously.

 

Stay Tuned: Build-or-Buy Part 2: How to turn investments and acquisitions into billions in incremental revenue. Just kidding  competitors, nothing to see here.

Real Part 2: How to be a startup that gets Dell EMC’s attention yet protects itself from the shark-infested waters of big companies.

~Mike Fishman @mike_fishman