In acquisitions, it pays to remember the little guys

If you’re in the market for acquisitions, consider maximizing your opportunity for transformation by making a set of small acquisitions that can be rapidly integrated, add growth power to your core business, and – for a bit of downside protection – be spun out or written off if unsuccessful.

Are you ready to acquire ahead of economic recovery?

Billion dollar mergers have laced the headlines recently, giving hope for a revitalized M&A market and indicating corporate growth expectations have indicated now is an opportune time to empty company treasuries while prices are low and growth is imminent.  Some of the largest acquisitions announced or publicly acknowledged include:

Dell desires Perot Systems for $3.9B

Xerox to buy Affiliated Computer Services (ACS) for $6.4B

Cisco buying Tandberg for $3B

These mega-deals are a boon to the economy, providing motivation for corporate activity and jobs for skilled practitioners in acquisition strategy and integration.  Deals of this size can certainly transform a company, but many mega-deals represent the purchase of an adjacency growth sector – not a growth of a core business.  Because of the specific difficulties of integrating a massive adjacency, these types of acquisitions are enormously challenging and fraught with failure.  Purchases of this type are likely to take two to ten years to fully integrate and reap the growth prospects of the combined firm, all while drawing key resources away from growth investments specific to each party’s core business.

If you’re in the market for acquisitions, consider maximizing your opportunity for transformation by making a set of small acquisitions that can be rapidly integrated, add growth power to your core business, and – for a bit of downside protection – be spun out or written off if unsuccessful.

IPO momentum building on OpenTable

Despite a broader market skid yesterday, OpenTable entered the public markets with a very respectable IPO that’s giving hope to the dozens of venture-backed companies hankering for an exit.  Good coverage by the San Francisco Chronicle points out that this is no flood-gate event, but it certainly wasn’t a failure.  Watch to see if OpenTable holds onto its 60% gains from yesterday; it closed at $31.89 and trades on the Nasdaq under symbol OPEN. The company will likely face difficulties growing revenue since it appeals largely to mid- and up-scale restaurants and diners – a market that is prone to heavy recession pullbacks.  (UPDATE 5/26: On a day when the tech markets were bullish, OPEN has stabilized and shed its value down to $26.80 or so.  While this is still a 30%+ return for IPO investors at $20, it’s a substantial decline off the opening day hype.)

The impetus for innovation at OpenTable has never been larger now; their revenue potential in servicing restaurant reservations is not the making of a billion dollar company.  As the company develops trusted relationships with restaurants however, look for OpenTable to extend online and mobile marketing services for its clients.  If management sees its core capabilities in the online reservation space, look for it to expand to golf courses, boutique hotels and villas, and private events to consolidate market share in those niches as well.

If other pre-IPO companies (and their VC investors) like what they see, there could be a sizable increase in IPO registrations as companies compete with new secondary offerings for investment dollars still sitting on the sidelines.

OpenTable IPO lifts hopes on stock exchange – San Francisco Chronicle

OpenTable IPO rises 59%; Critics sneer – Wall Street Journal

Holiday Price Discounts Reveal Shopping Psychology

With so many retailers ostensibly competing on price during the holiday season of 2008, it’s hard to avoid seeing the 20%, 40%, even 70% off discount signs and commercials designed to bring your holiday spending to some store’s cash register.  But some retailers are being awfully creative in their price promotions to capture a pair of psychological effects: the buyer’s pride in finding a great bargain and the desire to give a high quality gift.

Advertising bargain discounts, not prices, should drive holiday sales

Most people aren’t hoping to give worse presents to their loved ones this year – they want to give the same high quality, aspirational items they’d give in a good economy.  Shoppers accustomed to shopping at mid-range and high-end retailers may not know the location of the nearest Marshall’s, Filene’s Basement, HomeGoods, Sierra Trading Post, or other quality discount retailer.  Here are some examples of premier retailers using holiday discounts to attract holiday spending.

Anatomy of the Economic Crisis

Much fuss has been made about the nature of the current economic crisis and the potential beneficiaries of a very likely federally-sponsored buyout (I don’t call it a bailout) of unmarketable assets.  Whether folks are pitting Wall Street against Main Street or lamenting the private profits and socialized losses suggested by the federal plan, I don’t think the average American going to work this morning yet understands how the situation came about and could get MUCH worse without intervention.

So I’ve diagrammed out this little sketch of how the money flows – and where it stopped.  Hopefully this is a simple way to wow your friends at this week’s happy hour.

Capital is needed to purchase large assets and finance regular business operations

To put a size on the increased demand for housing, I’ve heard that during the past five to eight years, the number of Americans owning their home (or at least owning the mortgage liability for it) grew from the long run average 50% to 60% of households – an increase of over 10 million families.

The constriction of lending isn’t just a Wall Street problem.  Businesses are going to have trouble when accounts receivable don’t get paid, inventory can’t get financed, and employees can’t get paid.  Main Street people are going to get shocked by rising unemployment, tighter credit standards, and no available cash to help make ends meet at the end of a month.  Folks will have greater difficulty financing car or home purchases and students (as well as those newly-unemployed seeking to advance their education in the downturn) may have trouble finding lenders to finance their tuition bills.  Drops in income – or even fear of future unemployment – will constrict charitable giving, putting essential non-profit services at risk as well.

This isn’t a problem just for Wall Street, and they’re certainly not the only ones who shared in the gains of home ownership.  I lament the transaction profits predatious mortgage brokers earned in the heat of the housing market and I hope for a better system (and better educated and protected buyers).  But let’s fix the liquidity problem that will affect everyone and not spend our breath pitting Americans against each other.

Innovation Value is in Business Models, Not Products

BusinessWeek has some data in this week’s issue on revenue and profit growth for companies named to its Most Innovative Companies list, with some clear dominance from companies seen as innovating business models (in yellow below) – as opposed to customer experiences (green), business processes (purple), or products (blue).

Source: BusinessWeek

This is in line with research from innovation consultancy Doblin, which finds a bit of an 80-20 rule about innovation: ~80% of innovation is in products that account 20% of the value growth, while ~20% of innovation is in business models and other more lucrative areas that generate 80% of the growth.  Doblin’s reasoning: product innovation is often needed just to keep up, while business models can revolutionize value creation.

Business model innovation has led to a host of recent developments, including software-as-a-service (SaaS), fractional ownership, pay per use/rental/subscription services in music and movies, and even advertising (witness Microsoft’s cashback Search).

New Energy Markets Set for Long Term Boom

Two new articles piqued my interest today for their bullishness on cleantech, renewable energy, and alternative fuels.  In the first, Michael Butler of Cascadia Capital lends a macroscopic overview of the economic opportunity for new energy technology from an excerpt of an upcoming book Financing the Future and the Next Wave of 21st Century Innovation. Butler brings organization and a seasoned investor’s perspective to the cleantech sector – breaking down the separate needs and opportunities of the solar, wind, bio-energy, energy storage, clean water, energy efficiency, green building, and smart grid sub-sectors.

Private Equity HUB – Energy Markets Confront the Post-Petroleum Era

An Appeal for Universal Preventive Care

It’s campaign time and no matter who you’re voting for, you’re bound to see some change in Washington following this November’s election. I’ve never delved too deeply into public policy, but I’d like to suggest a public policy for universal health care. Not the uber-expensive, tax-you-50%-of-your-income version that guarantees full health care at any health facility (as in Germany, where they spare no expense to make sure you get the absolute best treatment but tax income heavily).

Rather, I suggest a universal PREVENTIVE CARE plan that guarantees every citizen will be afforded a personal regimen of preventive care treatment. Preventive care has a whole host of benefits, not least of which is reducing the ultimate cost of health care by eliminating high-cost failures before they happen. Preventive care is essential to providing individuals with the regular health guidance they need to make more accountable health choices and achieve early identification of potentially dangerous conditions. A national preventive care program could also push individuals to augment the national preventive care program with private emergency care insurance that could more accurately reflect the costs of riskier health choices – further encouraging individuals to recognize the high cost of smoking, overeating, and other dangerous health habits.

Growth Leaders | Jeanne Liedtka on WSJ.com

I studied with Jeanne Liedtka in Darden’s full-time MBA program while we successfully proposed a new design-oriented Strategy Lab and executed a “blue ocean” consulting engagement with a major international architecture firm. Here, Jeanne discusses some of the bigger points from a forthcoming study on “growth leaders,” the individuals who consistently lead innovating organizations to better serve customer needs and deliver market-leading performance.

Jeanne and her co-authors, including Sean Carr, director of corporate innovation programs at Darden’s Batten Institute, recently produced an article in the Sloan Management Review detailing some of their findings on growth leaders as well.  Follow the link for the article:

In Search of Growth Leaders

Transforming business with open source models | Why Nokia Bought Symbian

A couple weeks ago, Nokia surprised the world when it announced it would buy out the other partners in mobile operating system company Symbian for $410 million, repackage the software, then release it to the world under a business-friendly Eclipse Public License.  Why would this leading handset maker turn loose the market-leading mobile operating system, installed on roughly two-thirds of the world’s handsets?  And what does it mean for the LiMo Foundation and Open Handset Alliance, both of which are developing open source operating systems for mobile devices as well?

Scott Anthony, the President of Innosight and a Discussion Leader at Harvard Business Publishing, has offered one of the best analyses of Nokia’s business case for turning Symbian open.

Why Nokia Bought Symbian, Then Gave It Away – Scott Anthony

Essentially, the folks at Innosight reckon that consumers don’t purchase cell phones for the operating system – they purchase for the looks and, increasingly, the capabilities.  With new SDKs for the iPhone and the buzz around other open development platforms for mobile devices, Nokia could see its handset business threatened should a “killer application” be developed for a different platform.  Now Nokia is opening up the largest mobile development platform in the world, seeking to attract the best developers to Symbian so that Nokia’s handsets will be the most capable devices in the world.

I wonder if Nokia is also stepping down a path similar to IBM’s transformation into a services organization.  Could Nokia become a consultant and deployer of services when the platform is open?  Might Nokia become the preferred enterprise partner for mobile applications, given its expertise in handsets and operating systems?

What Nokia lacks is an integrated service tier, like that of Google’s mobile services, to make a concerted effort at becoming a leading mobile services organization.  Google, which is leading the charge on Android, has the potential to be the leader in mobile ad services for advertisers and publishers targeting Android devices as well as extend its reach of ad-supported services like GMail and Blogger to a world of mobile devices.

Google Mobile Services

Google competes on the basis of choice every day, so it’s not likely to require use of its services in an Android deployment, but it is particularly well situated to benefit from wider mobile access to its web and ad services.

Stunning 3D navigation of photo and video | PicLens

I’ve just begun exploring the immersive experience PicLens is creating for photos and videos on the web. This nifty plugin for various web browsers will add an unobtrusive, gray play button to images or previews of videos on sites like YouTube, Flickr, SmugMug, Google Images, Facebook, and more.

more about this “PicLens preview“, posted with vodpod

The developer, a Menlo Park, Ca., firm named Cooliris, was founded in January 2006 with support from Kleiner Perkins Caufield and Byers. Cooliris is part of a momentous upcoming trend that will redefine searching and browsing by eliminating heavy textual references and instead providing previews and rich media directly – allowing for a more consumer-oriented, user-friendly experience that engages rather than befuddles.