Micro-acquisitions as a hiring advantage
The business case for one-to-many recruitment
Like many Ones, this one was inspired by a tweet:
Large companies like Adobe and Salesforce tend to mostly focus on acquisitions of companies with significant revenue (>$1-3 million), headcount (30-40 people), and client base, with an asking price range in the tens of millions of dollars, if not hundreds of millions. That’s the sweet spot for much of that brand of corporate business development, and it’s not much different in ad tech and mar tech.
On the other end of the spectrum are companies that get acquired because something has gone terribly wrong, leading to a fire sale in which the acquirer is buying a declining asset. The ad tech industry is littered with distressed-asset sales that turn into excellent opportunistic acquisitions for a few choice partners that are able to pick up large teams and a tech foundation sometimes quite literally for a song. The early online video ad-tech company Videology comes to mind: It raised more than $200 million in venture funding but seemingly abruptly went into bankruptcy, eventually selling to Amobee in 2018 for around $117 million. Another famous flameout is Sizmek, an independent ad server that collapsed into bankruptcy before its assets were broken apart and sold to Amazon, Zeta Global, and others.
These two acquisition extremes are now bookended by two powerful market forces: The Great Resignation on one side and an overall lack of available talent on the other.
The war for talent
It seems like every month we see a new record for the number of workers who have left for greener pastures. For example, a record 4.5 million people quit their jobs in November 2021, the most recent month for which data is available, as some workers exercised their stock options and others left less-than-ideal workplaces for other opportunities. At the same time, job openings have topped 10 million for six months in a row. The job listing site Indeed reported that US job postings as of Jan. 7, 2022 on the site were 61.9% higher than on Feb. 1, 2020, which it considers to be a pre-pandemic baseline. At ad tech and agency holding companies, there are thousands upon thousands of job openings:
It’s particularly hard to hire in ad tech and mar tech because they require a mix of both functional expertise — if you're a product manager, for instance, you need to be an expert in product management — and industry experience that fits the role. In other words, if you cut your teeth on the publisher side, it's not that easy to transfer your industry skillset to the buy side. This is a real challenge, although it may not be obvious to those looking in at the industry from the outside.
Think small — and big
One area of opportunity for anyone tasked with hiring more than a few employees — especially if they need to hire cross-functionally — is to look at smaller companies with teams of even just a few people. This type of acqui-hire can be done for relatively small amounts of money, especially compared to the usual price that corporate development departments aim for. The acquirer could give the founders and early team members life-changing exits but also bring their projects into the larger organization where there is a higher likelihood of long-term success.
Large companies know that it can take months on end to build a team of five to 10 people, even with all of their internal recruiting resources. If a company has approved headcount increases at the start of the year, it's likely that once it crunches the numbers — the recruiter bonuses and the time it takes to fill each role, not to mention the incalculable stress on a team that needs to fill an open role but can’t onboard people quickly enough — the math for an acqui-hire makes sense, especially if a team that already knows how to work with each other effectively can be plugged in immediately. The business case gets even stronger within some functional areas such as engineering or sales, but this approach can also be applied creatively across many areas.
This seems like a great opportunity for companies that are past the series A financing round, in growth mode, and need to increase headcount fast.
Three key hurdles
While this should be an option being considered by any company that must stretch quickly, there's no easy playbook on how to do it.
The challenges that most recruiting operations face, regardless of their size, is that while they can conduct good one-to-one interviews, they aren't equipped to interview an entire team. So if you are a hiring manager at any company pursuing this approach, the first hurdle to clear is to identify the logistics and paperwork needed to vet and make offers to multiple team members of an existing project or company.
The next hurdle is understanding what types of micro-acquisition targets are good for you. That may depend on whether you seek a single or cross-functional team. Are there general KPIs — revenue levels, headcount range, etc. — that make sense for you to target? And how much team can you afford?
Once you’ve identified administrative requirements and parameters, where do you find those types of companies? Luckily, we now have aggregator marketplaces with exactly those kinds of teams, including MicroAcquire, which lists companies of all stripes that want to get acquired, with pertinent KPIs and other information such as revenue or headcount. These marketplaces have emerged to serve a range of startups, from SaaS businesses to side projects that have gained traction but the founders don’t want to continue investment, making it a great candidate to hand off for the right price. We could see how an enterprising company might buy a tech startup that is gaining popularity but needs polish, nurture it to greater potential, and then flip it for a profit six to 12 months later, as is done in real estate.
A shift in mindset
Of the hurdles mentioned, shifting from a one-to-one hiring approach to a one-to-many strategy may be the most challenging to overcome — and this barrier extends beyond recruitment. Many of our processes today are one to one, but the reality of work today is changing from single player to multiplayer mode. Knowledge work today, especially in a location-agnostic, remote scenario, is all about effective long-term collaboration and less about the lone hero saving the day (a staple of previous eras and still popular among ineffective managers). But companies are starting to venture into more collaborative, multiplayer modes, as opposed to a single owner of a particular task, which is a massive transition with many implications for process design and the tools we use and manage across work and life.
That's the key here: Micro-acquisitions require a mindset shift from hiring individuals to bringing on five or more at a time. Rather than starting with a pool of 500 applicants, conducting interviews, and whittling down to five candidates, companies can theoretically interview 10 teams and narrow it down to one, which is a much better use of time.
That's the kind of thinking that companies in growth mode should be applying every day, because their time frame is different from firms that have been public for 30 years and content with just releasing dividends. If I'm a large media company or an advertising holding company, it's going to be very difficult for me to hire in this way, because my HR and recruiting teams know how to work within the processes that we've designed for hiring one to one for specific roles. Many are just not wired to pull off one-to-many hiring, but for a smaller, nimbler company, it could be a viable option if they can standardize the process.
That being said, it’s not impossible for large companies to pursue this approach. Twitter is very good at acqui-hires. It understands that hiring engineers, product managers, product marketers, and salespeople in bulk requires a certain amount of time and money. And once you add that all up, it makes more sense to acquire companies that are already working in a general area you want to extend into.
That’s why companies should be aware of the cool things that people are working on in their space or adjacent. They should opportunistically put processes in place that would enable them to potentially discuss mergers and acquisitions of equals, because at this point there is not enough talent to go around. If you need to grow aggressively, you'll run into trouble. The worst thing that can happen to a growing company is not being able to grow and reach its potential because it can’t hire fast enough, burning out existing staff because they're overburdened. That’s a recipe for operational disaster.
One question:
Which smaller companies or cool projects in your space could supercharge your growth plans if you were able to acquire them?
Dig deeper:
Follow Mark and Eric on Twitter
Mitigating the Great Resignation
Window-shopping for for micro-acquisitions
Thanks for reading,
Ana, Maja, and the Sparrow team
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