It’s all about Discovery

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I read the blog post on e27 describing the war between Facebook and Google shortly after it came out and while there are a lot of interesting points, describing the difference as being “social vs utility” just did not seem to capture what I believe is the essence of competition between the two companies.

I always thought that Google vs. Facebook – and Yahoo! vs. Google before that, is really all about who owns Discovery on the web. I’ll define discovery as simply finding new content, whether you are looking for it or not. It could be new articles, new sites, new products to buy, new entertainment such as music or video or viral jokes. But in the end it is all about discovering something new and how you go about “discovering” it.

Being the best discovery product means that you get the most traffic. If you have the most traffic you have the largest audience, which means that you are very appealing to advertisers. As an added bonus, being the top discovery site means that other sites want to leverage your success to reach your audience and so are willing to pay (money or other value) to be on your platform and be associated with you. They will even distribute your product for free. This is what the battle between the giants, like Google and Facebook is about – advertising dollars and free distribution. Win the battle and you become the dominant platform for advertising and launching new products.

This is what these battles are all about, they are over utility – discovery utility.

Let’s look at a few examples of these discovery platforms:

Yahoo!: The original discovery platform used an editorial approach. I actually remember using Yahoo! when the URL was something along the lines of Why did I use it at that time? It had the best directory of websites around. If you wanted to find a site, or later content, you went to Yahoo! to find it. They had editors, officially called surfers, who manually edited the Yahoo! site directory. When you wanted to launch a new site during the dotcom boom, there was only one “must buy” place to advertise and one directory you had to be in. If you had new content, there was only one place to have it showcased – on Yahoo!

Google: What more to say? Algorithmic, especially when you have a good algorithm, scales so much better than human editors. At a time when everyone was focused on being a media site and selling display ads against articles (contextual advertising – discovery based on what you read), Google remembered the reason why most people had been going to Yahoo!, AOL and Excite in the first place. It was not for news but to discover new sites and content (and get email). By emphasizing the best search results (discovery) and placing ads that matched what they were looking for to the side, Google soon displaced Yahoo! and became the top discovery platform. And everyone was placing Google search boxes on their websites.

Facebook: It started off as a site for discovering people, then for reconnecting with old friends, which led to people sharing photos, life info and eventually to share links. At the same time, algorithmic was reaching its limits – too much spam and too many SEO masters. So Google became less relevant and people began to discover more and more enjoyable content through Facebook. Then Facebook hired a lot of people from Google, introduced CPC ads (from what I hear it may not be the first time they copied from others), developed a platform for others to build on and a freely distributable product (the like buttons). And soon they too are now challenging Google to become the top Discovery throne and advertising platform.

Personally, I think all of these companies have all focused on utility. The utility they have focused on is discovery. Yahoo! did so via editorial, Google via algorithms and Facebook via social…

So keep that in mind as you build your business, there is true value in discovery – especially if you want to build a platform.

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Business Model Innovation

Hey guys, an interesting presentation on business model innovation throughout last year.

A bit of overkill and you could argue that some of it is a variation on the same theme, but it gives you some ideas on what can be done and new models you might not have considered.


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How to get acquired by Yahoo! or any of the other Valley Giants

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When the guys at e27 asked me if I would write a few posts for them and the first suggestion was that I write on how to be acquired by Yahoo! it seems like a great idea and a great way to kick start my blogging. I have been considering setting up a blog for a while now and this was a great reason to get started. Hopefully I can maintain a blog and get a few interesting posts out, although admittedly this was a lot more effort than I originally anticipated. Lesson #1 is to write less…

Partnering and working with other companies, which is generally the precursor to acquisition, is something I have a bit of experience in and so something I feel comfortable writing about. Of course, I am by no means an expert, but I have worked in partnership business development at Yahoo! Southeast Asia here in Singapore, as a global product manager for online partnerships with the Symantec Consumer team and developed products licensed from partners to take to market for Cogeco, a Canadian Cable TV company.

As such, I have had some experience working inside multi-national tech companies and I understand what the product team’s needs are when acquiring a company and the business development process and its challenges. Being acquired by Yahoo! or any other Silicon valley giant such as Google though is not easy, but there are some steps you can to increase the likelihood of it happening.

So I have put together a three part post for those of you with little exposure to these valley giants but who dream of building a company and selling it to them. The first post covers how these companies work and some of the internal challenges they face. You are going to have to sell your company to these guys so it always pays to know your customer. The second post covers the easiest way to start working with these companies and what is often the easiest lead-in to an acquisition: partnering. The final post covers some strategies that I have seen used to actually get acquired.

A couple of disclaimers: I have far more experience partnering with companies than acquiring them and I am by no means an expert in this area and writing based on my own personal experience and opinions…. 🙂

Finally, I am trying to write this from a non-US and more of an emerging market perspective.

I hope enjoy and looking forward to your comments and feedback.

Part 1: Getting to know your customer

Part 2: Partner First

Part 3: The acquisition

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Getting acquired by Yahoo! – Part 1: Getting to know your customer

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So you’ve made it – you had the great startup idea, you pulled together a team, boot strapped your way into being, gained some traction and maybe even raised some funding. Now you want to grow customers and revenue and are thinking of partnering with one of the valley giants (Yahoo!, Symantec, Microsoft, Google etc.) or maybe you have aspirations to sell to one of them.

Where do you start?

Getting a contact at a valley giant can be done by networking or LinkedIn, but what are these companies looking for, how do you pitch and what do you deliver?

First, it helps to understand a bit about them and how they operate. You are after all going to have to sell yourself to them so it is always best to “know your customer”.  I should point out that this post assumes you have an innovative product that is growing fast and you want to sell and one of the valley giants is or could be interested – after all, you have to have the goods…..

With that in mind, here are four key characteristics of valley giants:

  1. Resource constrained: in terms of people and money to invest internally in new products, projects and businesses (and some would argue overstaffed in support and admin areas). As such they have difficulty getting any major new products or innovation done internally;
  2. A strong sales focus and a big sales force with established customer relationships (and a big sales quota to meet);
  3. A great currency for buying other companies with their public stock.
  4. They have huge reach – the number of customers and consumers they have relationships is much deeper and significantly larger than others.

In other words, the valley giants have great distribution but they are really bad at coming up with new products internally to keep their sales channels full of product to sell and their sales teams busy. They need to hit their sales quotas they often end up buying products to resell as their own or creating platforms (Facebook Ads/apps, Amazon marketplace, Google AdWords/AdSense) allowing others to leverage their reach in exchange for a cut of sales revenue on the platform.

What do I mean that these giants cannot innovative? But were they not all founded on the back of some great innovation? How could they lose the ability to innovate?

The short version is that they just got big.

The road from great innovator to managing to Wall Street expectations

These companies started out as startups just like many others, but their vision was different (think bigger) and they happened to stumble upon a product with immediate global demand – they had a product that everyone immediately loved and wanted to use –in the process inspiring us to all become entrepreneurs.

Hitting the jackpot like this generally leads to the following chain of events – or something similar.

  1. Infrastructure costs scale, which then creates pressure to find a business model and revenue that can scale even faster to cover costs. With a business model that scales these companies then set out to conquer the world and target billion dollar plus revenues. Conquering the world though requires a large sales force and maintaining multiple business relationships through people, adding to the costs.
  2. If you make it big and successfully survive the initial high growth phase, your initial investors then clamor for an exit and want your company to go public, creating pressure from Wall Street and introducing a focus on financial results and KPIs that is publically analyzed to death every quarter.
  3. As a public company, you then become a slave to quarterly reporting and your KPIs. Your management team changes from entrepreneurs to managers, from risk takers to risk averse as this is what it generally takes to reliably hit your quarterly numbers.
  4. You are then in effect constrained in what you can do and a prisoner of your financial ratios. People bought your stock based on your historical revenue growth and your expenses as a function of revenue. These need to be maintained as otherwise you lose the confidence of your shareholders, as their expectations when buying your stock are based on a combination past performance and future hopes, with hopes for the future largely influenced by past performance. If they sell, your stock price drops, which impacts you and your employees wealth and put pressure on your Board to replace you.

It all boils down to your needing to generate consistent revenue growth. If you don’t achieve it, then your job will likely be on the line come next time the company is pressured by Wall Street.

The straightjacket of being a public company

Keep in mind that for a company like Yahoo! today, achieving 1% revenue growth on $6.46 Billion in annual revenue means an adding an additional $64 Million in revenue (of course they actually need to generate more than 1% – more likely closer to 10% to 20%). This is what each business manager needs to plan for and propose during the annual planning cycle. Of course, they are submitting these plans 18 months in advance for a business environment that will likely be different, which encourages conservativeness.

If you are Google then you have real scale problems – how do you drive 10% revenue growth when you have $23 billion in revenue?

So what everybody does is pick the safe option, the one that will keep their job secure.

Follow the easy and safe route to hitting your targets

Squeeze the increase it from your existing customer base and sales channels through new product features, line extensions, tactical marketing campaigns or extending to a new market. These approaches will likely get 85% of the available new investment from the less than 1% increase in the expense budget (more like a 0.6% increase) which you are being assigned to generate the 1% increase in revenue.

The riskiest and hardest way, especially for someone in a corporation that has lots of politics and who has a job and livelihood on the line, is to take a chance and invest in a completely new business or product and hit a home run that generates much greater than 1% revenue growth. As a result, these approaches will likely get 5% of the expense budget increase. As you can guess, investment in true innovation is rare and most of these companies are still making the vast majority of their revenue from a single product line or, in the case of Microsoft, two products line.

As such, innovation in the valley giants is driven through acquisitions or partnerships. It is generally much easier to actually get I done this way than it is to get something done internally – both in terms of time to market (getting approval and hiring new resources) and in terms of getting internal buy-in and approval.

So what does it all mean?

So getting back to our initial question after all that rambling, what does this mean for someone who wants to partner with or be acquired by one of the global heavyweights?

They need you.

They need to maintain market leadership, a competitive product and their customer’s interest. They need to maintain prices (hard to raise them) with new features and they need to have new products to sell.  Most importantly, they need to have something to tell their stakeholders (shareholders, internal teams, sales people and others) to keep them excited and believing in the company.

But they don’t need everyone, just a few of you. So how does it become you that gets acquired?

The key thing to remember is that acquisitions rarely payoff and are very risky with typically low returns and it is hard to get an acquisition through without very senior (CEO level) backing (unless it is really small as a percentage of the valley giants revenue). There going to be lots of people inside the company who will try to scuttle or kill the deal. You are going to need to have a good strategy and a great sales pitch tailored to the valley giant’s business needs. After all, why your company now and not one of the many others out there in your space or in another space of interest to the valley giant?

That is why becoming an acquisition target is equal parts luck as it is preparation; one of the senior executives at the valley giant is going to have to decide to sponsor the acquisition and put their name to the deal – the stars will need to align…

You can however reduce this to the point that the deal is 2 parts luck and 8 parts preparation by partnering first. Partnering enables many people at the valley giant to get to know you well, which greatly reduces the risk that some of the execs are going to have to bear in sponsoring the deal. You may actually get to the point where senior execs feel obliged to sponsor the deal if your product and the revenue they generate from it becomes important (remember that need for revenue growth).

See Part 2 of this post for strategies for partnering.

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Getting acquired by Yahoo! – Part 2: Partner first


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As discussed in Part 1, which I recommend you read first, actually getting acquired by a valley giant is tough and involves a combination of luck and preparation. For an acquisition to happen, someone, the acquisition sponsor, is going to have to really go to bat and put their neck on the line for you, unless you are Groupon in which case someone may be in trouble for not having already identified and approached their boss much earlier…

By partnering first, you make it much easier to gain sponsorship and support for your company and the risk for the person who is going to sponsor the acquisition is greatly reduced. Several people within the valley giant and (hopefully) across multiple functional groups will now know you, your company and what you can deliver. The risk for the sponsor is now greatly reduced as he/she does not need to sell as hard internally and has several other people who can back them up and attest to the quality of your company and your ability to deliver and execute.

As such, it goes without saying of course that during all of your contact with the valley giant and during the partnership you need to put your best foot forward and always over-deliver. Everything you do is being judged and observed and will be remembered when it comes time to enter into acquisition discussions.

How to get a partnership started

There are many different ways and motivations of partnering and I cannot profess to know them all. However, the first thing that you need to figure out is what you have to offer and what your partner is interested in at this point in time. It is really important to understand that despite having a huge business with multiple products, the valley giant will only be focusing on a couple of initiatives at any given time. In all likelihood, the objectives of the people that you are working with and the number of available resources they have at their disposal are linked to these initiatives. And it also goes without saying that the easiest way to partner or close a deal is to help someone accomplish their objectives.

Of course, you can always get a deal closed that is not tied to a valley giant’s strategic initiatives – their BD people are always looking for deals to close as this is how they are measured. But if your proposed partnership is not aligned with their current objectives and you it does not have the support of their product people it is going to be a lot tougher and a much longer close…

That said, how to partner? There are two aspects to this, first you have to know what the model for partnering is going to be, and second you need to then figure out how best to sell yourself to the valley giant. The lists below provides a list of the most common models for partnering and how to make it easy for a valley giant to partner with you – based on my 5 years experience working on partnering roles within these companies.

Potential partnering models:

  1. Product: You have engineered technology or built a product that is of high quality and hard for the valley giant to develop internally in the timeframe they require. They may need a component of your technology, your product available as an SDK or accessible as a web service to plug into theirs or they may need a white label version of your product to rebrand. There are a lot of these deals, but you generally do not know about them as the brand of the licensee is generally not visible in the products – you can sometimes see them mentioned in a EULA though.
  2. Distribution: This is about leveraging reach of a partner or valley giant to get your product and brand in front as many people as you can or vice versa. Your brand might appear with a “powered by” attribution, but the key objective is to get people to engage with your product and brand and leverage someone else’s reach to do so. When Google first launched for example, they powered AOL and Yahoo! search. Facebook enables people to distribute Facebook Connect and its “like” buttons as well.
  3. Sales: This, as it implies, is all about getting your product sold through others. It is of course the standard in the offline world with the chain of manufacturers, wholesalers and retailers, but also applies to the online world. The partnership structure is generally pretty straightforward but you need to find a fit within A valley giant’s current product implementation. The general model is that you are promoting or advertising your products through another company’s sales channels and pay for the promotion through a commission on sales.
  4. Marketing Promotion: Marketing promotion can be viewed as an agreement to promote each other’s brands without integrating products. Companies may do joint PR, activities or representation to build awareness of an industry or market. Normally there is a marketing component to most partnership models, but there are also stand alone marketing agreements with no products involved where the companies agree to promote each other’s brands – sometimes through barter of advertising inventory.
  5. Purchasing/licensing: This is perhaps the most basic form of partnering, but involves your selling or licensing content or a part of your product to the valley giant. For example, in Indonesia Kompas licenses content to appear in Yahoo! News, to do this Yahoo! has to establish a contractual relationship with Kompas, get to know people and work with Kompas. Other companies may provide technical consulting or infrastructure for certain products. In either case, if the product you are selling or licensing to the valley giant becomes core to their business the valley giant may need to acquire you.

Becoming a partner of choice

Once you have figured out on what basis you will be partnering, you then need to sell yourself as the partner of choice. Here is a list of 5 points to think about when building your position – if you can meet them all and the valley giant has an objective aligned with the model you are proposing, then your chances of establishing a partnership are quite good:

  1. You need to be one of the leaders in your vertical, ideally top 2: valley giant is partnering with you because they have decided that they don’t want to build a product in your vertical or because it is cheaper to partner than to build (think Yahoo! in Travel bookings, jobs and dating). No one at the valley giant wants to put their career on the line or at risk by recommending that they work with a small company or an up and coming but unproven technology (unless they are being told to by a senior exec). So you need to be known in your vertical and ideally top two.
  2. Good product and depth of content: The minimum requirement to play. Your product needs to be good, meet all of valley giant’s performance and security standards and you need to have enough depth of content to meet the needs of a diverse user base. In other words don’t be too specialized in a country or a niche – and if you are, make sure it is easy to expand your product to other countries. The valley giant has a global market and needs products that can cover a vertical and be rolled out across multiple markets and not just the niche you targeted to get your company off the ground (this is more important in emerging markets and less important in established markets like the US, China, Japan and Korea).
  3. Your infrastructure and code need to be able to scale and handle the volume: There was a story I was told once about Google having agreed to put a link to a charity off their homepage (a big charity like UNICEF). After having checked several times with the charity that they could handle the traffic coming from Google they launched the link. The charity’s servers were of course overloaded and their site went down shortly after the link went live. A valley giant’s monthly pageviews are measured in the billions, if they are sending you traffic you better be able to meet it as they have a low tolerance for downtime.
  4. You need to make it really easy: The valley giant will have very limited resources to invest in any given deal and will be looking to leverage its own product and implementation templates where ever possible. Which means, if there is any work to be done you will generally need to do it and pay for it yourself. Be prepared to do so and think ahead as to how to make this easy for the valley giant. Also, if you do work, make sure you can profit from the partnership (can be revenue or can be PR).
  5. You need to know your business and how to profit from the deal: The valley giant knows their core business really well and how to profit from a partnership, but knows very little about your business. Then it comes to a partnership, as far as they are concerned all they need to do is turn on the switch and money is being printed (or benefits roll in depending on the model). So they are not going to put a lot of thought into how to make the deal work for you or set it up to be successful for you. If the deal is not successful then the likely revenue shortfall is not going to be that significant to them, whereas for you the cost of meeting their requirements might represent a significant lost opportunity and lead to potential layoffs. So you had better understand how to make your business successful, as they won’t and they are not going to try to figure it out. Mmake sure that the deal is structured so that you will get what you need out of the deal. Once the deal is signed, it is going to be difficult to get any improvements to the terms without a business case for the valley giant…

Now that you have established a successful partnership, time to prepare to pitch your company for sale…. In part 3.

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Getting acquired by Yahoo! – Part 3: The acquisition.

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I assume this is the meat that everyone wants to hear about :). Hopefully you have read part 1 and part 2 first and if not you should, but please do keep in mind that I am not an expert at these matters, this is my opinion and I have written this with a Southeast Asian audience in mind. There are people with much more experience than I who have written on this subject.

Unfortunately there is no magic bullet to making an acquisition happen and ensuring it happens. There are many pitfalls and hurdles on the way to closing a successful acquisition and selling your company is definitely an art. While there are a few people who are really good at it, for most success is going to be due as much as anything to lots of luck, hard work and perseverance.

Gain an acquisition sponsor

First, for an acquisition to happen at a valley giant, someone within the company, the acquisition sponsor, is going to have to really go to bat and put their neck on the line and tell their CEO that your company should be acquired. As discussed, this is going to be much easier to do if you have already partnered with the valley giant, but courting and securing this sponsorship is critical.

You need to assess and evaluate your company and its fit with the valley giant and determine the best way to position yourself to potential acquisition sponsors. You also need to minimize the risk and potential hurdles that the sponsor may encounter when evaluating your company – anyone of which can trip things up and kill an acquisition. When evaluating your company and positioning, here are 5 topics that need to be considered and evaluated – note some of these may seem to be quite obvious, but these are still going to be reviewed and assessed and so you need to make sure your company’s position is as strong as possible:

  1. Be in the same business: Most of the valley giant’s resources (sales, marketing, product and engineering) are focused on their core market, the company knows these markets and most people in the company will have an understanding of the companies weaknesses and gaps. Being in the same business and filling a real gap for the valley giant for a very strong argument internally.
  2. Fill a market gap: Most valley giants have a list of adjacent markets they want to expand in to but have not had the resources to do so. They also have existing markets where they feel they have weaknesses and where they need a stronger presence to protect themselves. Offering a solution to filling either of these gaps is a very compelling and, to an MBA trained executive, very logical and justifiable. Keep in mind that these gaps may be technology, products, verticals and geographies.
  3. Make the business really easy to integrate: This should go without saying, but it needs to be easy to understand how to integrate your business into theirs. The main challenges usually come down to technology/product and sales models, but the revenue part of the acquisition business case will be based on incremental revenue from integrating your business and product into theirs. Generally this is based on selling your product through their existing global sales force, but whatever the case, the integration needs to be simple to understand and with as few risks as possible – the better you can structure your business for this the higher the likelihood of an acquisition happening.
  4. Have good code: You are in the same business, are filling a gap and have an easy to integrate business, but if someone “lifts up the hood” and finds spaghetti code, duct tape and next to no infrastructure, there is a very high risk that the deal is dead in the water. The valley giant engineering team is going to need to take on the code and responsibility for supporting it, if they don’t think it is good then the first thing that they are going to say is that the product and code are throw away and need to be rebuilt. The next question is then going to be why buy the company if you need to rebuild the product? All of these engineering teams have coding, security, uptime and scalability standards that must be adhered to – your code needs to be up to scratch. Note, if you are Friendfeed or Octazen and Facebook wants your engineering team and not your product this does not matter, but then again in this case your code is probably exceptional.
  5. Know and minimize your skeletons: Everybody has liabilities, in the US it might be patents you don’t have access to, in Southeast Asia you may not have a license to the content you use and may have “borrowed” it. For the legitimate rights holder, it is not worth legally pursuing a small company for damages, but once a valley giant takes ownership with their large balance sheets the incentives change…  Know your skeletons – list them up front and don’t be shy about sharing them, most of these can be worked through before the deal is closed. But if the valley giant gets 2 months into the process and a sponsor has backed the deal and then finds a major skeleton that you should have known about and may have been hiding, there is an immediate loss of trust and a feeling of lost time and money. So get your paperwork in order ahead of time because Sarbanes-Oxley generally requires everything to be in order….

Starting the acquisition discussions

Assuming that you have now successfully partnered or at least developed a good working relationship and secure an acquisition sponsor, you need to get those acquisition discussions going. Again, I have not actually sold a company, but I can share the key rationales and perspectives the valley giant is going to take into consideration when doing acquisitions. Basically you need to position yourself as being essential to the future success of the valley giant, and make them understand that not acquiring your business will put them somehow at risk. Here are some key justifications for this:

  1. You are a critical component in their product, service, technology or some other part of their business and the loss of that component will put their business unnecessarily at risk
  2. A competitor acquisition of your business or not owning your business (think Yahoo! not acquiring Google or Facebook) will put the valley giant at too much of a disadvantage due to scarcity of comparable businesses or the partnerships you have
  3. Acquiring your business will lead to a large increase in sales or a user base that cannot easily be gained elsewhere
  4. Your company has assets, such as people, intellectual property or physical assets that are scarce or of great value to the valley giant

Again, there are other ways to position yourself as an acquisition target and I am sure that there are many examples, but these are the ones that I am most familiar with.

Let’s take a look at a couple of real examples, Maktoob and Citizen Sports, both of whom were acquired by Yahoo! many years after they were founded. I was not personally involved in either of these acquisitions nor did I have access to confidential information so the following comments are based on information I knew from blogs and other external sites.

Maktoob was the Middle East portal, providing email and content services for people in the Middle East. Both Yahoo! and Maktoob had gaps in their sales coverage; Yahoo! did not have a sales force or a product for the Middle East and Maktoob likely did not have much of a sales force outside of the Middle East. This made it a natural fit for a market/sales gap that Yahoo! had. I am assuming the checks on Maktoob product confirmed that it was well engineered and as a portal had a similar design, sales model and operations to Yahoo!’s and that there were no major skeletons. This made the deal very easy to justify.

Citizen Sports was a leading social sports product that complemented Yahoo!’s existing fantasy sports and sports news sites (same business) but helped Yahoo! in social, an area that Yahoo! has still not really figured out. This was a product gap and the deal was likely a product driven acquisition. It helped to cover social and the apps space and confirm Yahoo! has a leading online sports destination. Yahoo!’s sales team had the relationships to sell any newly generated inventory and it is a fair assumption that Citizen Sports had good code and no skeletons. Another easy deal to justify.

Of course, valley giant do acquire early stage companies for their technologies and products, but these are harder to manage and make successful as a valley giant is not setup to shepherd and grow small companies into success within their organization. The risks are higher and the likelihood of failure is higher (think Dodgeball and However, if the acquisition price is low enough these deals can fall within the 5% of incremental budget that companies invest internally on new initiatives each year so you never know…

Final word:

Good luck!!!

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