37. Acquisitions are a Necessary Evil – Tech Field Day Podcast

Acquisitions happen constantly in the IT industry. And it seems sort of like, uh, just part of the fabric, but have you ever questioned whether they're good or bad? That's the question.

On this episode of the Tech Field Day podcast. Are acquisitions a necessary evil or are acquisitions just evil? Welcome to the Tech Field Day podcast, where we discuss a single topic or premise.

In each episode, we record these in association with our tech field day events, and we're actually on site here in Santa Clara for Cloud Field Day 21. Each episode is brought to you by the Futurum Group, which is now the owner of Tech Field Day. But these are not sponsored episodes.

These are general discussions about, among our delegates this week we're talking about acquisitions. Yes, that's right. Corporate acquisitions and the fact that basically, uh, so much of the progress that our industry makes is based on acquisitions.

You know, we don't, we love to hate 'em, but they're practically not a bad idea. So, before we get started, let's meet who's on the panel today. I am Ray Lucchesi.

I am, uh, gray Beard on Storage podcast co-host. I am, uh, rayon Storage Blogger, and I am the one and only person at Silverton Consulting. Right.

And I'm John Hildebrand. Uh, currently an independent contractor, which is fancy words for partially unemployed, and I can be found on LinkedIn under that particular name. John Hildebrand.

And I am Ken Naone. I do private cloud solutions development and go to market at a large enterprise IT consultancy and solutions provider. And I'm pretty sure I'm the only Ken Naone on LinkedIn.

Pretty Sure. Well, I'm Steven Foskett and, uh, I think I'm the only Steven FoST in the world. In the universe now.

Probably not. There's probably others. But, uh, I am, uh, the president of the Tech Field Day Business unit, and I organize the Tech Field day events.

And of course, you can find me on LinkedIn as well. So this was something that, uh, has been sort of percolating, I think, in all of our minds, but probably the entire industry, uh, for a long time. It does seem like acquisitions are sort of part of the circle of life, doesn't it?

You know, a new company will come up with a new idea, a new product. They, they work on it, they try to bring it to market, and then they get acquired. Sometimes they get acquired real early before they have many customers.

Sometimes it happens much, much later. But, um, you know, it, it's funny, once those acquisitions happen, it does seem like it breathes a new bit of life into the acquiring company or they just get lost entirely. Ken, I'm gonna start with you.

Uh, talk to me about, a little bit about this. What's your impression of corporate acquisitions in the IT space? There Are various styles, and there's the one you just talked about, somebody with a great pedigree working in a lot of, no well-known enterprise company says, I want to do this new thing.

Uh, they feel they can't do it with a current employer. This may be a passion project. They're like, they're probably gonna tell 'em no, keep your head down.

So they leave, start something new, and then I'm getting acquired by that company or somebody else. Familiar with them in the industry. And in, in that way, yes, it does fuel innovation, uh, because the new cool thing they're doing, everybody's like, why didn't we do that before?

This is great. Yes, let's bring it into the fold of our portfolio. Every once in a while though, you get some huge corporation that's been around for a while, it gets sold up by a huger corporation.

Uh, and usually that comes across as being nothing more than a cash grab. They got a lot of customers we can get them. We can milk them for into perpetuity until, you know, it's just not a viable product anymore.

Everybody walks away from it. So it kind of depends on the style of acquisition. In my opinion, the startup acquisition is the part that's necessary, but the behemoth acquisition is not really beneficial to much of anybody other than an investor.

I think most acquisitions are toxic. The challenge is there's a mix of cultures that go on, whether it's a small company being bought by a large company, I think those are more successful, but in, in the end, the small company's functionality may actually occur and, and, and survive this, this transition. But for the most time, they're bringing people in and they have to reacclimate to a whole new culture.

If they're both big companies and one's huge and one's not so huge, the cultural clash is intense and it lasts for a decade until people die off or they retire or, or the organization spun back out, which has happened. Right? And these things, it's, it's, I think acquisitions.

I don't think they push technology and in essence, they actually stifle technology. Well, how do those little guys get a leg up though? Right?

They Get a leg up by buying, by getting customers, by expanding organically, by getting into the market and, and, and engaging. What an old fashioned idea. You mean a company that would develop a product, bring it to market, find customers, sell it for profit and make money?

What a strange Concept. And if they don't, then they, they go away. And that's the way of, of startups.

That's the way of capitalism. That's the way resources get better allocated to other organizations, I guess so, but you see plenty of cases where the right technology, best technology doesn't win course. 'cause course big co competitors stifled them.

It's, It's not just technology, it's marketing, it's sales, it's, it's the organization, it's everything. It's a business. You gotta be successful as a business.

Technology is a part of it. Oh, absolutely. Don't get Me wrong.

Yeah. And, and a lot of times these small companies, they start up to think our technology will win out and ignore the marketing and the sales and everything that's required to actually bring it to market properly. That's a mistake.

Yeah. And that's a mistake. Uh, and maybe they're suffering until they get acquired because they couldn't make it again.

And if they get acquired by a bigger company and they've got great technology, maybe maybe some of that technology will show up in a product in 20 years or 10 years. Well, we just saw VMware here at Cloud Field Day, and for the last, what, 10, 15 years, they've been basically a company of acquisition, right? So NSX, formerly Sera, that was, that was brought in.

Um, and we saw how now they're just now getting to the point of being able to cross pollinate and integrate those things together Because they got acquired, right? Yeah. It was Like they, they had no focus.

Six, seven Years later. Maybe it shows up, maybe it's actually similar. Maybe it's, maybe it's innovative at that point in time, and maybe it's not, But they, they're like a company, like to your point though, that like, they kind of weren't really innovating for a really long time.

They were just acquiring and integrating all those different things in their portfolio. Everything that was automation operations focused in what was formerly Alize and who knows what its name now, all the NSX stuff, everything. And they said, we're gonna create a great go to market for private cloud around this.

And what they had was just a ton of point solutions. And then it took a huge company to acquire the, the also huge company to say, no, we're actually just gonna make you integrate it now, and it's gonna be a real thing. And time will tell if it's that, if that's successful.

You know? But the whole go-to market that VMware had around all these comp innovative companies they acquired wasn't working. Yeah, that's, that's an interesting point.

I think that, you know, if we can see patterns in the industry, there certainly is a pattern of big companies being less innovative. Mm-hmm. There's a pattern of small companies, like very small companies being incredibly innovative and trying new ideas.

There's a pattern of the big companies buying the small companies in order to basically inject some of that DNA to reinvigorate themselves to Ray's point as well. There's also a, a pattern of small companies that really aren't the, the whole picture, right? They're just the hamburger patty.

Mm-hmm. They don't have a, they're not a whole meal because they don't intend to be because they basically are just waiting around to get acquired. Right.

I mean, you've certainly seen that before, Ray. Yeah. It's stupid.

I mean, you know, if, if they've got technology, they can, they can bring on board the technical talent or, or the marketing talent, the sales talent, the business talent, the strategic talent. They can hire damn consultants being a consultant of course, that to do all this stuff they want. The thing is, if they're gonna be in this game, it's a business.

They gotta understand how to run the business successfully. They gotta understand how to acquire customers successfully, and they gotta understand how they grow. If they don't wanna do that, then why are they doing this?

Why don't they go join Cisco or Dell EMC or whomever, right? Yep. Well, I think a lot of them do intend to do that.

I mean, yeah. Well, a lot of them do end up being bought by some of those big companies, and we may never hear from them again. Uh, we were just discussing beforehand not to pick on HPE or Cisco, but at the same time, there's plenty in their portfolio over the last decade or so of companies that they acquired.

Yeah. That, uh, basically went nowhere. We haven't even seen the IP from those companies injected into anything else.

They've just fallen by the wayside And, and other examples of companies acquiring very good technology and, and taking 10 years to, to integrate it and, and effectively move forward. But it's never as good as it was outside. Mm-hmm.

And, and there's certainly a lot of examples of companies, uh, some of these big guys buying an a successful small company and just sort of surfing on the, the technology, the products that they had developed. Yeah. Not investing in it.

And eventually the product just goes away. It just vaporizes. Uh, once there's no more there.

I mean, I lived through that several times as a customer before I do did what I do do now. I was just, you know, a cis admin and IT manager. I'd buy the exciting new thing and it would get acquired by Dell or HPE and I'd be like, okay, how long do I have to sit on this before I get it out of my environment?

Because it hasn't been updated in six years or whatever the case may be, which happened multiple times to me. Right. But back to the premise here, that this is a necessary evil, I think you could make a case that it's a necessary evil because it's driving, um, advancement for the big companies where the impact happens.

Uh, frankly, let's imagine a scenario where there was no acquisitions where co where smaller companies either had to Organically grow, Organically grow or die or die. Think about that for a minute. If there was no acquisitions, if there was no exit possible, uh, would there be, as many small companies started, would people take a chance on a small company that may die instead of grow?

Maybe they would, maybe they would be more excited about, uh, working with a smaller company if they thought that it had a, had a future. So, so let's, let's do that. Let's set our, our alternate universe here to where there are no acquisitions.

What does that mean? I think that's true to a limited degree, but I work with a lot of enterprise customers and risk is a huge thing to them. And you just pointed out a lot of risks in working with a small company.

So they might have the attitude of, I'm gonna try this thing out, but I'm not going to deploy it enterprise wide until I know it's real for the foreseeable future, because I need something in my data center or the cloud that's, uh, rock solid and, uh, predictable, uh, until I decide to move on from it or, or whatever the case may be. Uh, and so if they don't have the pedigree of that huge company behind it that they know is gonna be there, uh, you know, a a a year or two from now, and not just over their doors because they weren't profitable, that's an incentive for a lot Of customers. So what that environment would look like is that there's no acquisition exit.

There's either go public or, you know, organic growth or die. Those are the three choices. And acquisition is off the table.

I think in that environment, there'd be more startups. I think there'd be more successful startups. 'cause they, the successful startups today are getting bought and getting absorbed and stuff like that.

Mm-hmm. And I think to some extent, the enterprise is gonna start seeing where the functionality is being innovated is not in these big companies. And it's rather being innovated in the small companies and in that environment, if they've got the functionality that these guys need, they'll buy it.

Well, I, and I think a lot of that comes back when we start to think about past statements. Like, nobody gets fired for buying IBM or in some cases the adoption curves and where's where, you know, the Early adopter or later adopter. Yeah, yeah.

Whether they're early adopters crossing the chasm, so to speak. And I think in that particular regard, um, you're, I think you're kind of right in the regards of the new companies. There'd be more of them, but I don't necessarily believe that there would be too many that are super successful.

There'd still be a lot that would be existing, but I don't necessarily know if you talk about the VC money and things like that, that gets injected into these companies, whether or not, whether or not they're gonna see the return on investments that They're, well, I, I think the promise of that acquisition fuels innovation in that you can recruit the best people and give them those shares and say, you're in this ride with us, and if we do really well, then you'll be rewarded. Right. Otherwise, they're probably just gonna languish and never really go anywhere.

I think, here's the thing from my perspective, you take, take a look at somebody like Google. They are, they are acquiring companies in their, in their, you know, adjacencies to try to block startups, to try to block innovation, to try to bring that innovation in and hopefully surf on that. If that option wasn't available, there'd be a lot more big startups coming out in existence over time.

Google was a startup. They did great on search. And look what they made, they made this thing.

Meta was a startup. Social media, these guys can get there, but Meta allows them to buy WhatsApp. What?

And then, and all these other YouTube and you know, these are all acquisitions that block those companies that were very, very successful. Yeah. From going after the big guys.

That's, that's actually, I mean, think about Google. I mean, what is, you know, Google's cash cow is their advertising business, which was an acquisition. Yes.

Their, um, you know, continued relevance in many ways relies on YouTube. Mm-hmm. Which was an acquisition.

Mm-hmm. Um, you know, I, I think that that there's, that's a great example of a company that's actually done pretty well by acquisitions. But, but, but in the, in the, in the alternate universe, what would it look like?

You know? Yeah. YouTube would be a separate company Exactly.

And, and be doing really well. And, and, and, you know, the AdWords would be doing real, real well as well, you know, so it's, it's, it's, you know, I, I understand that acquisitions to some extent are necessary evil, but I don't think they're good for industry. They're good for capitalism, they're good for tech.

But I do think, as Ken said, that one of the reasons we have so many acquisitions comes down to VCs and private equity. And I think that, you know, in many ways, the, the allure of that money is one of the things that drives this whole, um, startup acquisition cycle and concentration of companies into these giant, you know, IT providers. You know, that that's, that's what the, uh, that's what the VCs want.

They want to put some money in and get their money out at a, with a return. That's what, you know. And, and then on the flip side, there's private equity, which is the engine that's driving a lot of these acquisitions.

And I think we should talk about that too. So, you know, those of you who know something about it, tell us a little bit like, what is private equity? What does that mean and what happens in the tech space when those companies get acquired?

I gotta be careful because I work for a company that's funded by private equity right now, actually. But I mean, essentially they're just looking for constant growth. They wanna return on their investment.

They're putting some money into your company so they can have an, an exit at some point. And during that time, you have to show growth. And I've seen that where I work, you know, where I'm not talking about a vendor, we don't make anything.

We're a solutions provider, but we have been acquiring other companies as part of our growth strategy pretty much nonstop since I started working there. Almost tenfold increase in about five years in terms of staff. Um, it's very chaotic internally at times.

Right? As soon as one acquisition's done, everybody's integrated and used to it, you're starting over on the next one. And that's to essentially keep the growth momentum going so that we can see that next exit from one VC to, to another or not, no, sorry, not vc.

Private, private equity to another. And, um, you have to be careful that you don't allow to get toxic and erode mor morale inside the company, essentially, when they think that, you know, the, the decision makers here are really only interested in cashing out rather than being an innovative company. Right.

If, if they feel like the focus, the only focus at a leadership level is like, how can we make more money so that we can continue to move this strain forward? It, it probably doesn't keep the employees who are responsible for that innovation excited. Yeah.

It, it, it is, it is interesting though, because, you know, IIII will say that it seems like some private equity companies do it better, and some do it much, much, much worse, Like VCs to some extent. Yeah, That's true. It's, it is true.

Because some of the VCs do a nice job too. I have to say. Some of them really are looking for, looking to build, uh, productive companies.

They're not looking just for a quick flip. And they're looking, and some of the VCs actually provide what I think a lot of the founders wish they would provide, which is open doors and contacts and coaching and support and other VC companies Absolutely do not. They really are hands off and they're just looking for return on their investment.

Yeah. I, I guess that's what it comes down to is how good is the private equity firm? Are they actually making an investment or are they looking to cut costs so they can turn around and sell for profit?

There's two approaches there. Yeah. Uh, and one of them is actually going to fuel growth and innovation within the company.

And the other is just, you know, all about cash Extract cash. Yeah. Yeah.

But that, that being said, I am a bit cynical and feel like, uh, in a way it's the old, uh, you know, everybody has a plan until they get punched in the face. Yeah. I think every, every VC would love to be the nice kind of VC that coaches the founders and helps them to grow a, a meaningful business.

But unfortunately, uh, many of them end up, uh, just doing a cash grab because they need to meet their numbers. So I guess let's get, let's finish up with the, the core question with the premise, uh, is, are acquisitions a necessary evil? Are they an A, something we have to have to maintain the IT industry or not?

Uh, Ray, No. And I, I believe I've stated my position, I think organic growth is a better solution to, to create more innovative companies and create more competition in the IT marketplace, which, and create more functionality. Well, Ray's trying to convince me over here of, of the, the answer that he wants me to say, but I will say that I believe that acquisitions are a little bit of a necessary evil.

Um, I'm not gonna completely jump full in on that particular pool in that regard, but I do see where Ray, you're, where you're coming from in, in your stance on this premise, Right? And I understand Ray's stance as well, but I'm of the mindset that they're always gonna exist, that we're never gonna get away from 'em. So we may as well look for the kinder, gentler acquisitions, I suppose, right?

The ones that actually do feel innovation, that are, uh, looking to, you know, make the whole industry better for everybody in, in, in one way or another. Uh, and those are the ones that we should probably be more optimistic about. But absolutely not every single acquisition is good.

Yeah. And I, I, I would say that it depends, is always the answer that we, uh, that we end up with on, on the podcast. But I would say that, um, in a, in a, in an ideal world, uh, we wouldn't need acquisitions and we would have companies that are organically growing and building viable products.

But unfortunately we live in a very flawed world where, um, in many cases, I think a lot of these companies just would fail. If, if it weren't for acquisitions, I think we would see a lot of small startups, uh, rise and fail, and that would stifle continued investment. And that would be that, um, you know, I'm gonna come out on the, on the, they are a necessary evil, um, with, with, with an emphasis on the evil.

Because unfortunately too, the flip side of that is that we see a lot of negative come out of acquisitions, especially as you said, when, uh, when the monsters eat each other. Mm-hmm. That ends up being a really challenging time for a lot of people.

Um, a lot of the customers, uh, certainly a lot of the employees. And, um, and it's not at all clear that those end up benefiting anyone in the end, whereas, you know, maybe some of these smaller ones, maybe they are a benefit for the smaller ones. We'll see.

But, um, it, it is an interesting question. Uh, I will pose it to the audience as well. Uh, do you agree that, uh, acquisitions are a necessary evil or do you agree that acquisitions are just evil and we should find a different way to grow the IT industry?

Uh, thanks for listening to the Tech Field Day podcast. If you enjoyed this episode, please do give us a sub subscription and, uh, we would look forward to seeing you again. Before we go, um, let me hear from each of you on the, on the panel, uh, where can we connect with you and continue this conversation?

Uh, Ray Lui at Twitter, uh, like I said, gray Beard's on storage podcast and Ray on storage blog post. Yeah, and I pretty much switched to LinkedIn for most things, so I'm Also on LinkedIn, sorry, So searching for me on LinkedIn, John Hildebrand, and we can connect there. And you can find me on LinkedIn as well, Ken Albo.

Uh, I am still on the ex, formerly known as Twitter, but not very active. You can find me there and maybe it'll take you to my LinkedIn or something along those lines. Yep.

And you'll find me on, uh, most social media networks as s Foskett. So once again, thanks for listening. Uh, if you enjoyed this conversation, you'll find more.

com/podcast. This podcast is also broadcast on Textron tv. So look for us there.

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