Multi-level organisational structures that exist in large companies impede innovation.

At least, that is the viewpoint currently touted in business schools and boardrooms across the globe. But is it true? And if so, how can start-ups take advantage of the innovation shortfall in large companies?

There will always be advantages to size and scope: Nokia and Google are examples of companies that continually innovate despite their size. But some argue that the industrial company was built for optimization, not innovation.

Very large companies erect any number of barriers to innovation. They often allocate resources based on what has worked in the past, instead of looking forward to what could determine the future. And established hierarchies tend to play down new threats to the existing order.  

One of the preferred ways that large companies perpetually renew and innovate is through acquisition of smaller, more innovative firms. For example, large technology companies in search of new ideas, new products, trained knowledge workers, strategic relationships and additional market share have a great deal to benefit from ‘strategic’ acquisitions of small firms.

So how can start-ups position themselves as an attractive target for acquisition?

 Founders of a start-up need to realistically explore a possible acquisition from the perspective of the buyer. Important purchase criteria will include IP licensing, business ownership, financial position, growth opportunities, market reputation and customer and supplier contracts. Any shortfalls or liabilities in these areas will make the proposition less attractive.

There are risks for small companies with any acquisition proposal. Many small business owners have been ‘courted’ by a larger company, investing hundreds of hours in preparing and sharing information, only to be ‘jilted’ by the prospective acquirer at the 11th hour.

And if the acquisition does go ahead, many large deals do not deliver on promised synergies. What may appear on paper to be a beneficial deal may end up ‘pear-shaped’ due to a lack of adequate planning, an overly-aggressive timetable to close the deal, a failure to realistically look at post-closing integration or assumed synergies that don’t materialise.

But that’s not to say that acquisition is not a winning strategy for start-up companies, and many founders have achieved positive outcomes by successfully attracting and executing on an advantageous acquisition. The key criteria is sharing business records and proactively addressing any issues in advance of attracting a buyer.