Established businesses in the technology sector are facing a talent scarcity. Whilst the sector provides an ideal environment for startups to thrive, larger businesses are struggling to bring enough top talent on board and are developing elaborate perks to lure them in. In an industry where creativity and potential are valued as highly as career experience, today’s generation of highly skilled technologists are looking to become founders as much as they are employees.
However, a new trend has been gaining traction in the USA over the past couple of years. It’s called ‘acq-hiring’ – where a small tech start-up is acquired by large firms for its talent, usually its engineers, rather than for its IP or technology.
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Whether you view them as partnerships or sell-outs, the proliferation of acq-hires in the tech sector can hardly be considered surprising. The startups receive payment – in the form of stock – which is distributed among the start-up’s founders, employees and investors.
In addition, acquired employees receive an attractive salary and additional stock options. For technology giants, it offers a rich source of talent they would otherwise struggle to entice. Indeed, large tech companies such as Google, Facebook and Yahoo! have already been employing the strategy to help fill their ever expanding talent quotas.
Recent high-profile examples include Facebook’s acq-hiring of long-form blogging platform Storyline in March 2013, and Yahoo’s takeover of consumer frequent flyer miles service, MileWise, shortly after this in May. Yahoo has since acquired Blink, the mobile messaging app that allows users to share messages that self-destruct, to poach the talent behind it. Recently, HP has bought cloud start-up Eucalyptus to poach its 100-strong workforce.
Whilst many are headquartered in Silicon Valley, still the undisputed epicenter of the technology industry, many firms are beginning to view the UK as a new source of untapped technology talent. Google made the decisive move, snapping up many UK startups including Spider.io and Dividein May of this year.
Divide are makers of a mobile app that offers a secure means of separating personal and work-related data on company-owned devices. Co-founders Andrew Toy, Alexander Trewby and David Zhu dreamt up the idea at a kitchen table in London. Given that Google is reportedly working on new business-specific features for the next version of Android, the acquisition of Divide’s team can be considered timely.
As the UK Government has been incredibly supportive of tech start-ups, allocating significant resources, expertise and investment to the sector, instances of acq-hiring in the UK are unlikely to stop. Between March 2012 and March 2013 alone, a staggering 15,720 new businesses were established in the Tech City/Silicon Roundabout area.
However, the harsh reality is that around 90% will fail. One of the reasons is that funding is by no means the key to a tech firm’s success. Great ideas can be poorly implemented. Great apps riddled with programming bugs will quickly lose users. In some cases, the technology just doesn’t strike the right chord with consumers. There are many instances of companies failing to gear technology towards a specific customer base, or failing to keep up with evolving social media practices.
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It boils down to the fact that despite a great pedigree and beyond generous investors, companies can still fail. With numerous examples of this kind of slow painful decline, acq-hiring can be an attractive option for a small tech company in a difficult situation, in fact data shows that, on average, an acq-hired start-up has not received funding for around 15 months.
Whether employees see being ‘acq-hired’ as a rescue mission in the absence of funding or an opportunity to get a brang on their CV, the on-boarding process is crucial to the success of the takeover and is far more complicated than offering a generous salary and stock options.
Unsurprisingly, acq-hiring deals often come with their fair share of controversy. Employees working in early-stage start-ups have generally been involved from the very beginning. They are often heavily invested in both the project and the culture that they have helped develop. If they have been used to a certain amount of creative freedom and influence, it can be difficult for them to adapt to an environment in which they cannot control the direction the company is moving forward in.
While the purchasing corporation cannot force the start-up’s employees into a new contract, some may feel under a certain level of duress to work for an organisation that they did not originally choose. Moving to a large tech firm could result in them having less input and feel undervalued.
It is therefore vital that organisations offer plenty of opportunities for immediate and long-term development, ensuring that enthusiasm doesn’t diminish over time. Employee benefits also play a crucial role. Well-implemented and successfully communicated flexible benefits schemes can validate the organisation’s appreciation of their employees as individuals, acknowledging their varying needs, and demonstrating a desire to accommodate these. Ultimately, it’s about taking the energy and creativity of a start-up and combining it with the capacity and funding of a global tech firm.
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Of course, at first glance, ‘acq-hires’ appear to be David and Goliath situations, where the larger firm pressures the start-up into a contract they have no choice but to accept. In reality, they’re really far more nuanced than this. If larger corporations can provide an environment which nurtures talented individuals, if they can engage with them and foster their creativity to mutual advantage, then surely this presents an opportunity that, when managed carefully, can be beneficial to both parties.
Sourced from Pete Craghill, CTO at Thomsons Online Benefits