How the best companies decide their build-partner-buy programs

Steps to successfully manage these three growth strategies

In the minds of every CEO and their executive teams are strategies for achieving growth. Whether that’s expanding a business geographically, or addressing new markets through new offerings, every company has a choice about how to achieve that growth.

Regardless of what your growth goal is, the way forward boils down to three options: Build, Buy, Partner.

Let me explain what I mean by each of these:

Build — your first option when it comes to accelerating your growth strategy is to use your company’s talent and resources to expand your in-house capabilities. Building also involves learning, as there are certain things you don’t understand about the new space and you will be learning on the job. Building has several key advantages, including the ability to have total control of the project. There’s also the attraction that you, yourself, collect all the gains you accrue through your growth. That’s not to say that deciding to build is free of risk or downside. Generally, it takes longer than the other options, you can make big mistakes due to lack of knowledge, and as you have to invest all the capital yourself, it isn’t cheap.

Partner — another option for putting your growth strategy in motion is to join forces with another company that will help you reach your goal. The best partnerships also leverage the different strengths each partner brings to the table, such as resources, talent, or market access.
Examples of partnerships range from commercial alliances, licensing agreements, joint ventures, incubating a new business with a third party like an accelerator or venture capital firm, or doing minority equity investments in startups that belong to your ecosystem in which their success, brings you success.

Buy — this option is to acquire a business in the area you want to expand into, as explained in one of my previous corporate development essays, you can do that as a tuck-in or as an adjacent opportunity.

Primary drivers in tuck-in versus adjacent acquisitions, and the case for programmatic M&A

The upside of the buying approach is that it’s typically faster to enter new markets and acquire new expertise. But there is also a potential downside — many acquisitions fail to live up to their financial or performance expectations.

Many companies use all three strategies at different times to meet different needs. A decision to partner can often lead to an acquisition, a try before you buy approach.

At first sight, the question ‘Partner, build, or buy?’ seems to be a function of how, when what businesses should really be asking first is why. The why comes down to customer needs and the company’s existing value offering, resources and capabilities.

‘Would you tell me, please, which way I ought to go from here?’ ‘That depends a good deal on where you want to get to,’ said the Cat. ‘I don’t much care where -‘ said Alice. ‘Then it doesn’t matter which way you go,’ said the Cat

The second consideration is that the leadership team of the company must be the gymnasts of strategic possibilities. What is their attitude towards the growth options under consideration?. This group, like everyone, holds their own beliefs, and external events and constraints condition them.

Apart from the CEO, who needs to be involved in such strategic discussions? In Technology companies, they are usually the Chief Financial Officer (CFO), the Chief Technology Officer (CTO), and the Chief Revenue Officer (CRO). The head of Strategy or Corporate Development typically acts as a facilitator.

In team dynamics, knowledge has an additive effect, skills have a multiplier effect, but attitude is the one with exponential effects.

So, let’s start talking about attitude and culture — the way we do things around.

“Culture eats strategy for breakfast” Peter Drucker

As alluded to above, the cultural DNA and dynamics of executive teams are influenced by their worldviews — their identity, beliefs, fears — all will influence the strategic discussion around build, partner or buy , so you really need to understand those dynamics early on.

What are the team’s worldviews associated with each model out of the build, partner or buy option? The earlier you identify antagonisms, the better you will be able to develop a shared worldview, a common map of what can be done using the different options.

Do the leadership team share compatible worldviews? Can they work together based on those views? Are those views mixable? How does the leadership team adapt to others? What are the power dynamics? Is there a culture of consent or one of consensus? What is their position on diversity? How do they manage uncertainty? These and so many more!

All those cultural values of the leadership team are important because they drive the spectrum of opportunities from the options to consider.

I believe company culture drives the spectrum of growth strategies around ‘build, buy, and partner’. One way to understand culture is an organization’s ‘level of consciousness’ described in Laloux’s book ‘Reinventing organizations’, hence the color coding of this graphical representation.

Strategy is relative to the ‘truth’ held by the leaders and it’s situational based on external forces. For that reason, this assessment should be part of regular strategic reflections.

How one can identify the dynamics among this group of executives? How can we help them get a better understanding of others?

One exercise I’ve used in the past you may want to consider is the islander’s tour.

Imagine a world with three islands where each island represents the domain of the executive or function like the CFO, the CTO, and CRO. Assemble this group of people and go to a quiet open space with no desks or chairs. Draw three circles in the ground. One for each island.

Then, ask each islander to do a world tour by hopping island to island to learn what life is like out there.

For example, the CTO islander visiting the CRO island, will share what it is what makes them proud of their own land. What do they like about their CRO island? Then, ask them to share what they dislike about the other islands.

Same with the CFO island and so on and so forth.

Also, what does a CFO islander think about a CRO island after visiting it? What is the opinion of a CTO islander about a CRO island? and so on.

With that exercise, we want to identify prejudices that may need to be addressed to foster collaboration.

Let me know the outcome of this exercise when you use it.

Use frameworks as a tool to drive decision making

By evaluating a company’s business objectives, strategic driving force, market situation, competitive arena, financial needs, customer demands, and stage of the product lifecycle, a company can determine the most appropriate growth strategies — build, partner or buy.

Agree on the options you are going to activate and define at a high level the percentage each one will contribute to future growth. For example, state that the growth goal in three years time will come X% from ‘Buy’ programs, Y% from ‘Partner’ programs, and Z% from ‘Build’ programs.

Then, for every growth opportunity that is reviewed on a regular basis (monthly or quarterly depending on the pace of your business), evaluate time-to-market requirements, technology/product lifecycle innovation requirements and alignment to corporate strategy — to fully identify the cost/benefit of each decision option.

I suggest developing a framework build-partner-buy specific to your company. A framework like the one below could be a starter to help you customize to your company and industry:

• Are there target companies available? The fewer companies out there addressing the opportunity, the more reason for a build strategy. The more target companies available, the more options for a buy or partner approach.
• What is the degree of need for differentiation? The higher the need for differentiation, the more reason to build based on internal capabilities, or to buy if there are target companies available.
• What are the speed-to-market requirements? The more urgent the need is, the more likely you may prioritize a partner approach or a buy strategy
• What is the market uncertainty around such an opportunity? The higher the market uncertainty it is, the more prone one can be to partner rather than taking all the risks by building alone, or buying a company that may fail along the lines.
• What is the alignment with existing capabilities? The higher fit with existing capabilities, the more reason to use them in a build program.
• What is the degree of strategic or operational criticality? The more critical the opportunity it is, the more reason to go for a build or buy rather than partner.
• What are the limitations of capital available? The higher capital limitations, the more sense it may make to use the partner option.

Having such a framework can facilitate the fit of a particular need to the best options among build, partner, or buy.

Example of a growth options framework to be customized by the executive team

At some stage, after reviewing dozens of opportunities for some time, you may synthesize your overall thesis as something in the lines of:

BUILD — when the solution is important for differentiation, critical to strategy and aligns with existing capabilities.

PARTNER — when rapid speed-to-market is required, the solution is adjacent to the current strategy or capabilities, and market uncertainty is high.

BUY — when a solution creates synergies with existing capabilities, the market is understood, and control is paramount.

Such a thesis may help do quick “triage” but I’d still recommend fostering a healthy dialogue among the stakeholders involved in the build, partner, buy growth optionality.

Do let me know your experience when using this toolset for better prioritization of build-partner-buy options.

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A note from the author, Albert Vazquez-Agusti: Since I was a teenager working with my father at his engineering office, I’ve seen firsthand how technology and innovation impact our work. We have reached a crucial acceleration point where technological change, education, and inequality are involved in a kind of race. I’ve come to realize that the real bottleneck to taking advantage of innovation is the lack of relevant managerial skills to impact business models through new technologies. That’s why I promote the development of people and organizations to support technology adoption to solve small to big problems based on my experience in Fortune 500, SMBs, Private Equity, Start-ups and Venture Capital organizations.