10/11/2016 12:00:00 AM
A15: No Story Is Without Lessons
In my last blog post, I shared with you the history of what made A15 the organization it is today. In this blog post, I will share with you what we learned on that journey. Those lessons are what guide us today and they are one of the ways A15 adds value to its portfolio companies. We share these lessons with you in the hope that you can find benefit in not only our successes but also our failures.
The Concept of Coevolution:
The concept of “Coevolution” in corporate strategy originated from the study of biology. The essence of the concept is the state of occurrence of consecutive changes among two or more ecologically interdependent but distinctive species or in our case companies, which lead to their evolutional paths becoming linked and connected closely over time. These companies adapt to their environment or market, they adapt to one another as well. These dynamics lead to an ecosystem – holding company – which leads to interdependent companies that adapt together. This kind of interdependence is usually symbiotic as each company helps others. But, at the same time can be commensalist as one company uses and relies on the other when it comes to its existence and growth.
Centralization And Synergies
One of the key forces driving the consolidation that was OTVentures was the expected cost savings of creating a holding company and the fact that having one finance department, one legal department etc. across all companies would save us money. The other key driving force, was synergies. Synergies as a term is difficult to assess, in the same way that spillover effects in a cluster are hard to measure. However, we believed that building a portfolio of interrelated companies would allow each company to leverage on the success of the others to grow further than it could grow on its own.
Make no mistake about it. The centralization of certain core business functions saved us quite a bit of money and helped CEOs of our portfolio companies focus on growing their businesses. And grow they did. That being said, as new smaller companies entered our portfolio, it became clear to us that the centralization of our core functions meant that the smaller start-ups that needed to be lean and agile often got lost in the cracks of this mammoth system as priority was always given to the larger entities. In time, we also started to see some lethargy evolve within some of our companies. These companies counted on the redistribution of wealth from more successful companies and relied on the fact that no matter what, the holding company will always keep them afloat. This sense of lethargy lead some of our companies to become what we all know as zombies. An unhealthy state of affairs where a company remains alive by consuming wealth generated by other more successful companies.
Decentralization And Synergies
Both these outcomes meant that we needed to evolve. Something had to change and so we embarked on a massive decentralization process that would allow each company to be “master of its own domain.” Giving the CEOs of those portfolio companies full responsibility for their business and creating an environment where accountability reigned supreme. Today, we continue to push in that direction and our legacy companies are becoming fully independent. This also means that any new start-ups that join the A15 family can focus on doing what they do best. Be young and nimble. This became increasingly easier to achieve as we changed our investment strategy from that of an acquisition or majority shareholder of interesting companies to that of a minority investor in companies with great growth potential that we believe we can support through our ecosystem.
While we decentralize to entrench more accountability within our organization, we are trying very hard not to lose the cooperation culture that led to synergies that created giants like Connect Ads and giants in the making like TPAY. As we move forward in our decentralization plans we are keeping our eye on the things that helped us grow companies – Synergies. We are slowly working to institutionalize collaboration and create systems and processes that will help us give our new portfolio companies the benefit of working closely with some of our larger more experienced portfolio companies. We are also institutionalizing the sharing of our best practices through our strategy of offering more than just financing to our portfolio companies. We are building a venture development team that has the responsibility for sharing these best practices, be them in HR, Finance, Legal or Accounting, with all our new portfolio companies.
In a nutshell
When you’re responsible for the growth of a cross-section of companies and the people that make these companies move and breath try not to lose sight of the bigger picture:
Always revisit your web of synergies and linkages:
In companies with multi-businesses, the web of collaboration and synergy eventually becomes rigged and static; managers adopt the same patterns and do not challenge the status quo. Once patterns are established in “shared services” such as finance, marketing, etc., managers do not revisit these linkages. It’s actually imperative that companies revisit and review these links and decide which links should be kept, which should be changed and which should be dropped.
Encourage internal competition:
Progressive managers should encourage the notion that competition and collaboration can co-exist. Companies need to challenge their technologies and business models and that of other portfolio companies while still working together – that’s okay and it’s actually healthy. As the good folks at Facebook always say, “if we don’t create the thing that kills Facebook someone else will”.
When it comes to synergies better quality than quantity:
Collaboration and synergy initiatives make sense when a market is stable. In the tech industry things are slightly different; agility is what matters most. Portfolio companies need fewer more impactful synergies in order to have room to adapt to the fast paced environment. The tech industry is not a friendly place. Products and businesses who do not stay relevant just disappear. Always remember that in tech industry the fast fish eats the slow fish.
Empower your leaders:
The backbone to laying the foundation for coevolution strategy; is to empower the entrepreneurs or in some cases with us, the business heads, to make decisions around when and how to collaborate. If senior corporate managers take the lead, they may roll out naïve synergies as they overestimate the advantages of synergies and underestimate its costs. On the other hand, if junior managers take the lead they may have operational power but lack strategic perspective. The best decision makers in this situation are the leaders of each entity. They know what’s best for their companies and how collaboration can help them move forward.
This is our story. Our history and the lessons we learned on our journey. We will continue to change and continue to learn as a team and as an organization. More importantly, we will continue to adapt to work better with our portfolio companies and help them grow. This is what we do best and we will never stop trying to do it better.