Build, Partner, or Acquire? The Billion-Dollar Question

For established businesses aiming to explore new realms beyond their core competencies, choosing an effective entry strategy is crucial. While building new capabilities internally has its advantages, strategically acquiring companies with the desired competencies can offer a more efficient pathway, particularly when facing a significant skillset gap and rapid market evolution.

Businesses venturing into unfamiliar areas often find themselves at a strategic crossroads: should they develop new competencies from scratch or acquire them? Internal development can be time-consuming and challenging, especially in areas with steep learning curves and for companies with limited expertise in these new fields. This was the case with Weedmaps, a company primarily operating as a marketplace. Its attempt to internally develop a range of SaaS products, using existing resources, faced considerable challenges. The lack of requisite skillsets, mindsets, and expertise meant that Weedmaps' efforts were less effective and slower than those of smaller, more specialized competitors in the SaaS domain.

A more effective approach involves hiring subject matter experts (SMEs) in the relevant fields and forming dedicated teams that operate independently from the core business. This can foster new competencies in a focused environment, reducing the risk of diluting the company’s primary focus while promoting growth in new areas. However, Weedmaps' implementation of this strategy didn't go far enough. The company's efforts were mostly confined to integrating SMEs within EPD teams, overlooking the need for a comprehensive approach that included sales, marketing, and other support functions. Additionally, the full potential of these SMEs was not realized due to insufficient integration into the decision-making process.

Seeking partnerships could act as a nice middle-ground and way to test out a market before jumping fully in - but this application often has limitations. There are simply instances where the partnership route is not feasible; in others, the answer may be more obvious. When I launched the first Point-of-sale orders integration partnership with a leading POS, it was undoubtedly the most viable option. In a fragmented POS market, the 'go it alone' approach made little sense, and the acquisition path would have been lengthy and expensive. In other cases, however, a partnership made more sense. Instead of building an internal delivery logistics platform (where Weedmaps had zero expertise, see preceding paragraph), it would have made more sense to partner with the leading logistics provider, which had more than 80% market share. Weedmaps could have leveraged this partnership to learn about the logistics business, and then use those learnings to build or acquire its way at a later date, when it made stratetgic sense; instead, it simply acted as a distraction.

The strategic acquisition of companies that already have the desired capabilities is an alternative path. This approach can bypass the lengthy and resource-intensive stages of developing skills internally, allowing established companies to quickly tap into new markets and competencies by leveraging the acquired company's existing market position and strengths. And if these companies appear to have Disruptive business models, they should be pursued aggressively. However, acquisition alone is not enough. Effective integration of the acquired entity is essential, especially if it is intended to become a core part of the company's value proposition. Weedmaps’ later acquisition strategy, while promising, faltered in effectively integrating the new teams. This highlights a key lesson: being prepared for comprehensive integration is as important as the acquisition itself, especially if the new entity is to be a central element of the company’s future.

In conclusion, for established businesses expanding into new domains, the decision between building internally and acquiring existing competencies is vital. Internal development offers valuable learning and growth, but strategic acquisitions can provide a quicker and more effective entry into new markets. Striking the right balance, based on the company's goals, resources, and market conditions, is essential for successful expansion - and could be the difference between building a billion dollar business or significantly missing expectations.