What factors matter in decisions related to Product portfolio growth and expansion?

To find the context of this blog, please do read this one I published recently. To summarize, this is a part of knowledge sharing of my panel talk at GHCI. Just as a note of caution, please do not expect the below answers to be elaborate as these were conveyed in a time limit of 3-4 minutes. I have tried to recollect these to the best of my knowledge.

Question: You have a portfolio and you have a strategy to grow into a new space. You have a choice of expanding your portfolio by organic growth or inorganic growth. How do you decide?

There are three ways that I can think of-

     #1. Build:

Every company is once a start-up. They come up with an idea, build it from ground-up, test the waters, release it to customers, market it, improve on the offerings and either achieve success or has to change the course of action. Building in-house remains one of the most fundamental ways to grow the portfolio. Not only start-ups, even the more established and successful organizations also invest a lot of time and energy to build products after achieving initial success. Most companies have set R&D budget that is spent on building the products that helps meet the needs of today or the perceived wants of tomorrow. Established organizations also drive the internal innovation to build in-house by means of the programs such as Innovators program, Start-up accelerators programs or “Spin-in” (where a sub team is asked to work on independent workplace on a particular idea to further give it shape and productize it).

    #2. Acquisitions:

Talking of Mergers and Acquisitions, I am reminded of a term- “Toothbrush test”. You may be wondering how toothbrush is related to this topic. A while ago, I learned about this statement from Larry Page, (former CEO of Google), which he asks before any acquisition and the answer to which drives the decision to acquire a company or not-

"Is this something you will use once or twice per day, and does it make your life better?"

Interesting to note that he doesn’t mention about financial gains (yet) from the acquisition. It is interesting to observe that the companies make acquisitions for unique reasons and along with the reasons, the parameters they gauge the acquisition’s success with also varies. So we will be limiting ourselves if we just look at financial success to qualify the acquisition as a success or a failure. When I was growing up, the key products that I used to deal with were things like TVs and Fridges. Our interactions with these products were limited to the number of times that we used them i.e. in case of TV and Fridge, only 2-3 times a day. If you compare that to today’s times, we probably see our Smart Phones 150-200 times according to some estimates. So the currency in today’s product world is not just how much dollars it gets to the companies but also today’s currency is user’s data, time and attention- which once captured is then looked to be monetized. Larry Page’s Tooth brush test validates this hypothesis of mine.

If we look at the high profile Facebook’s acquisition of WhatsApp for a whopping $21 billion or so, it follows the same pattern. If we just look at financials, it (WhatsApp’s acquisition) probably does not still get Facebook any greater tractions in terms of dollars. But if we try and look broadly, WhatsApp acquisition probably helped Facebook stay relevant. Facebook was fast observing that it was losing the user’s attention especially for the young people, who were finding value in alternate services like WhatApp, SnapChat and Instagram. WhatsApp, in the first 4 years or so, reached around 400 million + users whereas during the same time, Facebook had far less users. To think of it, the traditional products like telephone took 75 years to reach even 50 million users and the Radio around 38 years. So, we are talking about a massively different scale here. So, Mark Zuckerberg seem to be patient in making WhatsApp a paid service or finding ways to monetize it but he has been smart enough to consider the billions as he paid for WhatsApp as a price for staying relevant.

    #3. Partnerships:

We live in a competitive world and in this professional era, no two companies neither are permanent friends nor permanent enemies. We are seeing the emergence of terms called as “Frenemy”, which means that the same companies partner in some aspects of their charter and they compete in other areas. The case in point is Apple’s partnership with IBM last year. This partnership is helping Apple gain ground in the Enterprises (using IBM’s expertise) and helping IBM build world class enterprise apps. Apple and IBM compete in the other areas at the same time.

So to wind-up- three ways companies (these days) decide to grow portfolio- Build, Acquire and Partner.