writes copy 24 Dec 2018

10 key lessons about tech mergers and acquisitions from Ciscos John Chambers

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John Chambers, chairman emeritus of Cisco (now founder of  JC2 Ventures), knows a thing or two about tech acquisitions: he bet his career on a first one in '93, and went on to complete  180 M&As during his 20 years tenure.

His latest message for large corporations is an  alarm  bell. In a fireside chat at the HAX M&A Masterclass that followed the publication of his book:  Connecting the Dots: Lessons for Leadership in a Startup World,  Chambers issued a clear warning: learn about tech M&As or the future might happen without you.

Here are the key lessons to take away (video and transcript are  here):

1. M&As Are A Vaccine Against Irrelevance

When stepping down from Cisco in 2015, John Chambers said that  40% of companies will be dead in 10 years. And 10 years might now be conservative.

It took about 20 years to Amazon to challenge WalMart, barely 10 to Airbnb with hotels and to Uber with taxis and car ownership.  The next wave might just take 4'“5 years.  Since no company can invent everything'Š'”'Ševen Apple or Google buy startups routinely'Š'”'Šyou'll need to either  buy  or  partner  seriously with startups (more on that later).

2. Tech Is Entering Every  Sector

'˜Every company you'll acquire over this next decade will probably be indirectly or directly a tech company', said Chambers.

Non-tech companies need to get up to speed on how to work with tech, and startups. Many of the corp dev executives who attended our last event were  not  from tech.

I met recently power tool companies from US and Europe  . They had just set up CVC arms. They were looking into acquisitions, saying  '˜we don't know software'. They'd better  tackle that M&A learning curve  quickly!

Where do you fit the software?

3. Your Customers Can Tell You What To  Buy

There was only one Steve Jobs, who just knew what to build. For others, your  customers  will might you what to buy. Listen to them and pay special attention to  market transitions  to buy  next generation products.

Like Chambers experienced early in his career at IBM with mainframes, and at Wang Laboratories with mini-computers, missing a critical shift might be the end of you! The corollary for startups is: do something cool for key customers of a corporate, and you'll get on their radar in no time!

4. Pick The Right  Match

'œWhen you buy a company, everything is negotiable except strategy and culture',  said Chambers.

Oracle has mastered takeovers but for most others, acquisitions can fail due to a poor alignment of  vision  for the industry and each company's role,  cultural  mismatch, geographic  distance  or lack of integration of  systems  (once you scale your number of acquisitions, having different divisions or subsidiaries use different software will make your CFO insane).

There is generally more than one possible M&A target, and Cisco often walked away from potential buys for the above reasons. It also developed  efficient  processes:  '˜I used to view process at bureaucracy, but process done right can give you speed that others cannot match', Chambers added.

Are they customer-focused and share their success with their employees?

5. Build Your Playbook(s)

Back in the 90's tech M&As were often failures. Chambers and his team researched why and built Cisco's playbook, then tweaked it for 2 decades. According to Chambers,  most of it can apply to other companies. So save yourself some time and costly attempts by getting his book  ;)

Interestingly, they approached the leadership transition in the same way: they studied what made them work or fail, and made it as smooth as could be when John stepped down in 2015.

6. Do Your  Homework

One common trait of experienced corp dev teams is the amount of work they put in before they approach a startup.

Not only are they aware of many through their own research, their customers, business units, CVC arms or the media, but also via extensive networks, including with VC firms.

Like investors,  you're only as good as your deal flow. Corp devs then  model the value  a startup might bring, and pay the right price for it (more on this below).

7. Pay For What The Value Is To  You

A hot startup can command a high price, but  is it worth it for you?

If it offers no complementarity or synergies, it might in fact be of  negative value. On the opposite, the current revenue of a startup might be irrelevant if you can  blow their product through your channels and make it 10x or 100x.

The company Chambers bought in '93 for close to US$100million only had US$10 million in revenue. It paid off in droves.

8. Keep The  Talent

When you buy a tech company, you must try and keep the talent'Š'”'Šespecially founders, emotional leaders and engineers.

Understand  '˜Leaders Currency': Track record, Trust and Relationships. So  involve your HR team  to answer key questions and help define attractive career paths within your organization for the acquired teams. If you fail to do so, people will  leave  or  underperform, and you will not get the new products you hope for.

At Cisco, about 1/3 of the top leadership came from internal promotions, 1/3 from recruiting and 1/3 from acquisitions. At peak it likely had about 100 former CEOs on payroll!

9. Expect Some  Failures

Despite its stellar track record, about 1/3 of Cisco's were failures. Reasons may vary, and some might be caused by market changes. When it decided to  shut down Flip Video within 2 years after its $590 million acquisition: Apple had just added cloud video capabilities, it was game over.

Expect them, learn from them, and  be ready to cut losses  and, ideally, redeploy people.

10. In The Future, M&As Might Not Be  Enough

As the pace of innovation accelerates, and top talent joins startups rather than large companies, startups might become threats faster than you can buy them.

Chambers suggested that the  next-level skill  to develop is the ability to  form strategic partnerships very early on with startups, such as this recent  JV between Boeing and the much smaller 5-year-old A.I. startup SparkCognitionfor urban aerial mobility.

Joint Ventures Between Startups And Corporates Might Become More  Common

Thanks to speakers, participants and supporters of this Masterclass series, in particular:  Natasha Ligai  (Logitech),  Todd Neville  (IBM),  Christina LaMontagne(Johnson & Johnson),  Anne Samak de la Cerda  (former CFO, Withings),  Dan Fairfax, (former CFO, Brocade),  Amanda Zamurs  and  Larry Chu  (Goodwin),  Kate Whitcomb  and  Ethan Haigh  (HAX).

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