Thursday, May 30, 2013

Adeo Ressi talking his book?

I don't mind it if people talk their book. As John Doer once said, "no conflict, no interest." But whenever someone is explaining to you why you should spend your money or give away your labor, particularly if it benefits them, reach for your wallet to make sure it's still there.

It's no secret that the explosion in early-stage funding, plus the continuing drought of IPOs (and poor performance of the few tech companies which did go public), has changed the landscape in Silicon Valley. Now, the way to exit is to be bought by Google, Facebook, Yahoo!, Apple, and Amazon. According to Adeo Ressi, those companies aren't being acquisitive enough and they should buy more startups. This would, quite incidentally, help him cash out, but that's not the reason he's giving this advice. The reason is, because if they don't, the startup eco-system "will implode."
“Look at the facts,” he says. “You’ve got a ton of small companies that have consumer and business mind share. And you have a ton of large companies seeking relevance that have a ton of cash.” If the big companies would shift a “little bit” more of that cash toward acquiring more of those small companies, it would “create more liquidity and a more sustainable growth pattern.”
As for the obvious argument that enterprises like Google, Apple, and the like aren’t in the charity business, Ressi says that while there “may be some truth to that,” spending too conservatively is short-sighted and could prove crippling.
“If the gravy train stops, if the startup movement derails, those big companies will get hurt alongside the small companies and their investors,” he says. “I don’t know if it’s 5% or 10% or 20% [of large companies’ revenue], but the reality is that a lot of [the large companies’ business] comes from [small- to medium-size businesses], including startups. If they collapse, everyone will suffer. There will be blood in the water.”
I wonder if this article was published as a joke : )

Compare and contrast with this excellent insight from Asymco re: Apple (who, famously, hardly ever buys anyone):
Whereas there is a constant clamoring for Apple’s to use its cash to “acquire” or “buy” something, anything, maybe people not looking hard enough. If you need the satisfaction that comes from knowing that money is being spent, a glance at the Cash Flow statement and Balance Sheet shows that Apple buys the equivalent of one Yahoo! every three years[3].
The main difference with this type of acquisition is that there is less value destruction. Using the capital to ensure access to capacity, differentiation and hence a high margin is better than writing off the goodwill after a few years.
Pretty brilliant, and a smarter way to use cash strategically than bid in an open market. Very very strategic sourcing, I'm impressed.


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