Moving Targets

One of the weekly readings for the UW class I’m co-teaching was about moving targets. At first, I thought about playing darts against my friends. The specific goal you are trying to achieve each turn will change quickly depending upon what is happening in the game. While you have your own goals each turn, you are also directly impacted by the moving targets your opponent selects. Turn by turn, your own targets are frequently changing from 20 to 16 to Bullseye and more.

When I thought about putting this into a work context, I considered the stories a friend of mine told me this year about selling one of the software companies he sold. He shared how his original goal changed over time as he engaged with a variety of potential acquirers – each with their own reasons for buying his company. Here are some examples of moving targets he learned more about during the process:

Market Penetration – this is the first of four perspectives that make up the Ansoff Matrix. This is typically how many acquirers will value a potential purchase – AND how many sellers initially view potential purchasers. There is an analysis of the current market (quantity and quality of potential targets) for the existing product (with current and near-term features) in terms of potential growth over a multi-year time frame. This is the most explicit of all four perspectives that make up the Ansoff Matrix.

Market Development – some acquirers are interested in taking a product to new markets. For example, if your current market is North America, what might it mean to expand the market for the product into other markets like the UK or Germany? The acquirer might have some (explicit) knowledge about working in other markets already and can speculate about how the acquired product might perform. But the seller who is only working in North America needs to rely up tacit knowledge to understand the value of this opportunity.

Product Expansion - another way to extend revenue opportunities for acquirers is to consider what other aligned capabilities might increase the value of the software company. In this case, the seller might have more explicit knowledge based upon what existing customers are already asking for in terms of future capabilities. Acquirers in the same industry might have some explicit knowledge about what new capabilities would be interesting for new targets but others might only have tacit knowledge in terms of understanding the potential upsides here.

Diversification – there are a variety of ways to diversify your product and potential markets. Let’s say you are operating across three main industries today. One might consider how to expand product capabilities to make it available to new industries and totally different markets. In this example, both the seller and the acquirers are using tacit knowledge to understand the impact of diversification.

People – beyond the four perspectives offered in the Ansoff Matrix, there were several other factors where the goals of potential acquirers provided additional moving targets. Some acquirers might be interested in hiring some of the people who architected and developed the product. Others might only consider a short-term transition to help their own teams get up to speed. These differences among acquirers provides additional moving targets.

Technology – another example might be the technology being used. An acquirer using older technologies in their own products might be interested in the lessons learned from architectural decisions and development processes. The acquisition might help to modernize their own software solutions. In other cases, beyond lessons learned, there may also be intellectual property that is part of the acquisition that has incredible value.

Product capabilities – beyond the technology, there are the basic capabilities of the product to consider and how difficult they might be to replicate. Consider an application that might take two people to develop over two months versus a different application with tens of thousands of architecture and development invested. The speed to get to a new market would be of value to potential acquirers without spending 1-2 years developing their own solution.

Partnership – several of the acquirers also realized there would be some longer-term synergies by partnering with the selling company. They considered how an acquisition, mixed with a longer-term partnership, might result in a true “win-win” situation where 1 + 1 = 3. The original goal of an immediate sale with 100% of the purchase price happening up front had to be compared to an offer that was 90% of the purchase price up front with another 30-40% upside later in the year.

Overall, as my friend negotiated with a variety of suitors, the original parameters he set for selling the company continually moved as he learned more about what was important to others. He remained flexible on these parameters and watched his original goal change subtly over time. Without even knowing it, he was very aligned with the concept introduced in our reading for this week – Management by Discovery (MBD).

MBD “says when we face complex conditions we should expect to revise and replace goals on the basis of what we learn”. My friend was dealing with a very complex situation of selling a portion of his overall company. He learned what was important to potential acquirers and revised his goal through the process. Ultimately, he sold his company for more than he originally envisioned – and with very different terms than he first planned for.

If your goal is explicit like walking one mile each day, you might not need to frequently revise your goal. But if you have a more challenging or ambiguous situation, consider how changing conditions along the way will impact your goal. Discover what is important to everyone involved in the process, move your targets accordingly and establish a new goal as often as needed. You will eventually figure out when to start shooting at that Bullseye!