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December 02, 2004
Build vs. Buy vs. Take
A frequent discussion within companies (and within VCs too) is whether, in attempting to get into a new business, to build what is needed or to buy it. Obvious pros and cons to each.
Building your own capabilities can help keep things integrated, it can help maintain your control, it may be cheaper, but it can take longer to create and generate customers. Buying into a business has the benefits of quickness, often bringing new customers along with it, injecting new talent or assets to stir up the mix in your company, but may have a lot of hidden costs in the digestion process and hidden gotchas you didn't find in due diligence.
In recently looking at a potential candidate for an acquistion (lots of interesting qualities: recent bad performer, trading below revenue, but filled with useful assets and solid customer base), we discussed all these pros and cons but also looked at an alternative. Don't buy, don't build totally from scratch - take.
Yeah, figure out how to simply target this weakened but larger player and take their business the old fashioned way - smart, direct competition. Some elements for making this work:
- make sure the target has customers worth taking
- make sure these customers recognize the dicey future of their current supplier
- use this issue to make them aware of your alternative
- device a specific switcher campaign
- create specific migration features in your product to make the shift easy
- create specific, attractive migration offerings for them to make it urgent for them to act now
- support them in the migration process with a clear set of steps, etc.
- monitor how well you're doing, their doing and of course how the ailing big guy is doing in response.
This kind of strategy worked really well in the Word/Excel vs. WordPerfect/123 dragraces of the past and it seems to be at least having some impact in the Gmail vs. Hotmail dragrace on now.
Even if you are currently stealth and want to avoid poking a really big player in the eye, maybe there is a more moderate size competitor who suffered badly from some bursting bubble and while on the decline has some business worth taking to help project you to the next level.
Posted by johnza at December 2, 2004 05:47 AM
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