The document discusses different personality types that companies exhibit when responding to disruptive technologies. It uses robo-advisors in financial services as an example. The types are: 1. Acquirers - acquire technology companies early in the hype cycle out of fear or greed without understanding the technology or market. This leads to poor acquisition choices. 2. Developers - build their own technology when seeing acquisitions, but also without proper understanding and often just cannibalize existing business. 3. Waiters - understand their business and wait for the hype to die down before carefully acquiring stronger remaining companies or technology with clear synergies. Waiters tend to have the highest returns. The document argues companies

1. Never Acquire Technology You Understand
Neil St. Clair Contributor
Entrepreneurs
I write about needle-moving marketing and the FinTech space.
Any mergers and acquisition professional will tell you the first principle of the M&A game is to
thoroughly misunderstand the technology and marketplace of the company you are intending to
acquire. This thorough misappreciation of integrating the culture and assets of the new firm is a
surefire methodology for success.
Oh? You're saying it's the exact opposite of that? That perhaps it behooves "old growth" firms to
press pause before buying (or for that matter building) disruptive technology firms? Well now I'm
thoroughly confused.
Sarcasm aside, the very fact that you clicked on this article means that you're either a) a wily
technology disruptor that gets the inherent dripping-with-click-bait-nature of my headline or b) a
50-something M&A investment banker that took my headline seriously. The good news is I've
got something for you both.
What we'll explore here are newly-developed behavioral profiles of tech acquirers as applied to
the buy v. build v. partner v. wait debate. These profiles are most intriguing when old-guard firms
(think Fortune 500,lots of bureaucracy) try to get tech-hip and enter what I call "The Valley of
Technology." This is no fertile valley, but rather a crescent between the mountains of ignorance
and greed. Entering the Valley leads to over-enthusiastic and ill-fated decisions to acquire or
build technology in order to grow. But in the end, due to a lack of market and technology insight,
these decisions turn into a white elephant--the corporate equivalent of the Bridge to Nowhere.
Through the example of FinTech's robo-advisors we'll apply a cross-industry logic that says it's
almost always better to learn to swim before crossing the English Channel.
“The Valley of Technology is no fertile valley, but
rather a crescent between the mountains of
ignorance and greed.”
The following profiles need to be understood by both supply and demand-siders, and by those on
either side of the corporate-disruptor chasm. For those of you non-millienials reading this, likely
breathless with fear at the "disruptive" upstart about to eat your corporate lunch, pay close
attention. And please also know that my tongue-in-cheek-headline portends the opposite of my
true thesis.

2. Robo-Advisors & The Epochal Supply-Side Cycle
What you'll see in the slideshow linked here is a diagram of a few executive buying personaes
that I’ve experienced when it comes to recent tech hype cycles. These are the personalities at the
“old-growth” firms that emerge when they’re in the “Valley of Technology.” That is to say, a
moment in time where their industry is threatened to be turned upside down by something truly
disruptive.
To paint this picture with a real-life example, we'll pull from my fintech experience and look at
the advent of "Robo-Advisors." Also known as digital portfolio advisors, "robos" have been the
buzz of the flesh-and-blood financial advice industry for the past severalyears. In short, what
they do is automate much of the work performed by human advisors (e.g. portfolio allocation,
rebalancing, tax-loss harvesting) for a fraction of the cost.
Robo-advisors, as with any hype cycle technology, are held to three disruptive epochs on the
supply-side—the Early Movers (e.g. Financial Engines); the Meat-of-the-Bell Curvers (e.g.
Betterment or Wealthfront); and the hyper-specific Late-Bloomers (TBD). At this moment, I’d
say we’re on the back-nine of the Meat-of-the-Bell-Curve or 2nd epoch. That is, we'll shortly
head to the 3rd epoch of hyper-specific Late-Bloomers.
As a perhaps more relatable analogue, let's look to social media—you have the Early Movers—
Friendster and MySpace that usually are ahead of their time and cannot sustain an audience.
However,one major early mover does end up dominating. In the case of social media this was
Facebook. The Meat-of-the-Bell Curvers are those that saw the Early Movers and said, "I can do
that better."They all get the spark of inspiration from the dominant Early Movers' success and
begin to build. As such, they cluster together and launch around the same time, fighting a fierce
battle for dollars and eyeballs. Think YouTube, Flickr, LinkedIn, Twitter, Google+, Pinterest, etc.
etc. They may do something general, perhaps with a twist (e.g. Facebook for Business
Professionals =LinkedIn), but typically play in the same ecosystem as the Early Movers. Then
you have the Late-Bloomers that say, "I can do what Facebook and others did, but for a specific
audience or use case."Think Instagram or Snapchat.
All players are potentially valid, but usually overstuff their marketplace so there’s no true initial
dominance or marketshare. And only a few actually survive. A certain type of beautiful
Darwinism played out in a digital Galapagos.
But during these various epochs, which can take years or decades,the old-growth firms get
agitated and/or excited. It’s usually during the Meat-of-the-Bell Curve 2nd Epoch that vanguard-
of-the-last-revolution firms take notice and realize they’re threatened.
Returning to our robo-advisor example, nobody really trembled when Financial Engines launched
in the late 1990s. It was either dismissed or reacted to with bemusement and a condescending pat
on the head (Good luck, kid). But when Betterment and its ilk came around, more than a decade
later, all hell broke lose. Something was palpably different this time. People seemed ready for
"digital" financial advice in a way they hadn't been in the past. You could literally feel the desire
of financial services CEOs to conceive a summit on Jekyll Island for a smoke-filled roundtable.
Something needed to be done to deal with these upstarts--and fast. But what? The reaction of
these FinServ executives to the robo advent begins our journey into the Valley.

3. Type 1: The Acquirers
The first personality types are the Acquirers. These are the executive folks that during this
2nd Epoch of tech hype see what’s going on and, either through fear or greed say, “I must have
this.” In our robo-advisor example, look to relationships developed with Fidelity-Betterment,
Blackrock-Future Advisor, LearnVest-Northwestern,etc. Sometimes these are pure-play
acquisitions and other times they are cash-laden partnerships that can be dissolved.
Rarely, however, do these early Acquirers make rational choices. Acquisition peaks when the
market is high and so are attendant valuations--then it crash and so do values, but the money is
already spent. On the way to this peak Acquirers horde, overspend and then realize they have no
idea what they bought or how it provides value to their clients.
In reaction to this, what do they do? They leap from being an Acquirer to a Developer. “This
technology doesn’t work for me, I don’t understand it because I didn’t build it. I’ll hire some
smart tech guys and build my own.” Sound familiar?
But the same problem remains—the Acquirers still don’t understand the tech or how it applies
to their audience, but now they’re doubling-down on the expense in an attempt to find a fix. Often
times what is built is simply a lower-cost model to a service the old-growth firm already provides.
Incapable of driving new business to their tired brand, they simply cannibalize their existing
audience who leap from the higher cost service to the new lower-cost option.
In the case of Fidelity-Betterment this was a partnership that eventually dissolved, ostensibly due
to Fidelity not finding any deep value in the Betterment robo model. However,not long after the
partnership dissolution, Fidelity built its own robo that, by many estimates, is merely
cannibalizing their own client base by offering a lower-cost solution—it’s not providing accretive
growth.
For Acquirers, whether they stay on the acquisition path or leap to build, the result is the same.
They were either too early or too uninformed and their return on investment is minimal.
Type 2: The Developers
The next personality type are the Developers. They see the tech landscape and say, "I want this,
but I don’t trust anyone else to do it." So, they build the thing themselves, usually at a high
internal cost. Not just a cost in time and treasure related to development, but often in terms of
creating a lower-cost solution that again cannibalizes their own client base. In our robo-advisor
example look to Schwab or Vanguard, two of the largest financial services firms. They built their
own robo-advisors, which, by most accounts,are not adding growth, but merely shifting assets
from a higher-cost human advisor or DIY platform to an automated robo-platform at a lower cost.
Developers see the Acquirers at the peak of the cycle making big moves and their fear of missing
out (FOMO) sets in, and this is usually when they begin their development. It gives them
something to defend to their board, "Don't worry about BlackRock buying FutureAdvisor, we’re
building our own thing."

4. Over time, the Developers usually balance out the front-loaded time and treasure cost of their tech
development with some long-term accretive growth. More often, however, their build is a matter
of loss avoidance--that is, avoiding losing marketshare to more nimble competitors. The
Developers leverage their known brand and sticky audience and force out smaller competition. In
the end, it’s a neutral proposition for them, but not an accretive one.
Down the road, via the knowledge gained from their build phase, the Developers become
Acquirers of tech that they now do understand. The acquisition targets are usually the strongest
players that survived the competitive furor of the 2nd Epoch. As a recent example, think of
Microsoft’s acquisition of LinkedIn--a major Developer player buying a strong 2nd Epoch
disruptive survivor. Microsoft leveraged its experience as a failed Developer to deeply understand
what it was getting in LinkedIn. In case you forgot, that failed Developer experience was a social
tool Microsoft launched in 2012, aptly named "Social."
Type 3: The Waiters
Finally, we come to the Waiters.
These are the folks that see a hyped-up tech bubble for what it is—they understand their business,
audience and technology. In short, they know what they know and what they're good at. They do
not give in to irrationality or emotions. Waiters chuckle a bit at the early Acquirers, knowing
what’s going to come. At the same time, Waiters are facing pressure from their boards: "Why
aren’t you doing anything? You need to buy or build one of these guys now!" And yet, still they
wait.
Waiters take a look at the Developers and consider building something. They receive the same
pressure from an incredulous board. But still, they wait.
In the end, once they’ve scoped the industry and performed due diligence on a variety of the
strongest remaining players. Once the fly-by-night players have been eliminated, they shift the
Acquisition and Development curves to their favor in a market that now favors buyers and not
sellers.
The Waiters get to decide if they will buy, build or do nothing. They miss the overhype and get to
understand the pitfalls and providence of the disruptive technology, and how it can fit into their
business model. In the robo space we haven’t yet seen the results of the Waiters as we’re still
mid-hype.
Often times the Waiter will pass through the 2nd Epoch without action, and focus on acquiring a
3rd Epoch firm that has a hyper specialization. This specialization speaks to a specific sleeve of
business development for the Waiter that they had been unable to fully unlock.
In social media terms, think of Facebook. It understood the social ecosystem deeply, because it
was the social ecosystem. It waited, and watched rivals like Google's Google+ wither. It could
have acquired Twitter or even LinkedIn or developed competitors to them. But Facebook knew
its model, and finally decided to acquire 3rd Epoch social tech in the form of Instagram. A visual-
first micro-content platform, Instagram has provided accretive value to the Facebook business
model by tapping into a younger set of millenials that were abandoning Facebook.

5. In the end, the Waiters tend to show the highest return on investment (sometimes just in the form
of blind cost avoidance relative to their overpaying Acquirer and Developer competitors)—
proving the maxim that patience is a virtue.
In Conclusion
The one form of personality type we have yet to discuss are the "Partners." This is to be most
stringently avoided. Partners are the indecisive personalities that can't make up their mind
whether to buy or build, and likely will do neither. They will demur and appear to be Waiters, but
will never make a meaningful move or even a decisive non-move. Instead, they will Partner with
every manner of disruptive technology that exists and put them on a "platform" for their
clients/internal business units believing they're providing value. In the end, they're providing
confusion and an over-abundance of options that freezes their clients or internal business units
from ever making a true choice.
In the end, hopefully my thesis is clear. Unless you truly and deeply understand the needs of your
audience, it's best to be patient and then apply a rational litmus test to determine the personality
you will present to the marketplace. If you are not a rational Waiter, you may end up in the
Valley of Technology as a loss-leading Acquirer and Developer.
Neil St. Clair
Follow me on Twitter or LinkedIn. Check out my website.