The following is based on an interview with Catherine Clay, senior vice president and global head of information solutions at Cboe Global Markets
When you’re a startup, your resources are limited. In fintech, it’s an advantage to stay hyper-focused on what the company does best and add value to what it brings. Having too broad a scope can end your business if you spread yourself too thin.
Large organizations, in turn, struggle to keep up with the pace of changes. And a lot of times that reflects in talent acquisition. For example, a company that wants to introduce machine learning into its product suite needs to find data scientists and other key talent to make that initiative happen. At that point, it becomes a question of whether to build it or buy it.
Why Do They Buy?
Large companies invest more in some areas and less in others. When one area is left behind for a long time, it can be easier and cheaper to buy a startup that’s up and running than to invest in reinventing the wheel.
“When a large organization looks at a fintech company, one of the lenses they’re looking at a company through is what impact could this company have both internally and externally,” Clay says. “Are they doing something really well? [The focus] may be narrow, but their core should have broader implications and use cases.”
If the company decides to buy a solution, it should be easy to integrate and have the potential to bring more value as part of a bigger organization than in isolation. Also, it may be able to replace external vendors and provide more meaningful results for the company. The biggest advantage of a startup versus an external vendor is speed.
“The startup organization can probably move faster than a larger organization,” Clay says. “And that’s always going to be an advantage for the upstart. That nimble ability leads, oftentimes, to a decision by the larger acquiring organization to buy versus build.”
As technology and its applications change and the velocity of these changes increases, it’s very difficult to keep up that cadence without introducing some nimble partners or acquisitions along the way.
There’s another reason companies may choose to buy. Sometimes it’s easier to get talent by acquiring it than it is to compete with all of the other companies that are trying to get that same talent.