Stephen Shu, PhD

Very coincidental that related to my prior posts on financial markets and "The Wisdom of Crowds" that venture capitalist Fred Wilson posts about the potential of Bubble 2.0 contrasted by the real promises of Web 2.0. Is Fred thin-slicing what he is seeing and applying tacit knowledge to hint about the dangers ahead? Are free markets always wise?

I really like Fred’s closing comments:

I don’t have any good answers to these problems, but I’ll say this:

If you were at the first party, then you should never forget how it felt when it was over. 

Drink responsibly this time.

I was planning on posting something I missed before (in a
managerial-decision making post) on forward thinking about regret to
assist with decisions. Fred’s comments are a good example forward thinking about regret to resolve a decision that can’t be rigorously reasoned out.

Steve Shu

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Update (3/29/05): I realize that I probably should not draw such a close parallel to the markets addressed in the hot hand fund post and Fred Wilson’s post. I suspect that Fred’s post has more focus on the venture capital markets as opposed to the overall market bubble burst we saw in Bubble 1.0. That said, the gist of my post was to provoke thought about when collective thought breaks down because of groupthink or other reasons.

Jeff Nolan (SAP Ventures) has an interesting post covering consolidation in the software industry. There are at least three key undercurrents to his post covering background of this sector of the economy, M&A philosophy from the perspective of platform vendors, and the importance and practicalities of post-merger integration within the software space.

Jeff’s pragmatism shines through in this part of his post:

… Probably the single biggest thing you can do with an
acquired company is know what members of the management team and rank-and-file
that will be leaving the combined companies no later than 12 months after the
acquisition. The fact is that when you have large companies buying small
companies most of the people won’t mesh together for the simple fact that
entrepreneurs and people attracted to startups don’t like big companies. So
knowledge transfer and integration becomes a critical success factor.

Although I’ve pointed out some general M&A studies done in the consulting industry here (not to mention another study by McKinsey here [free subscription required] that reveals "that 70 percent of mergers failed to achieve the predicted
revenue synergies, while cost synergies were overestimated by at least
25 percent in a quarter of the mergers"), Jeff’s post is great because it signals some experiences specific to software sector M&A. Clearly, not all M&A deals create an exitus of personnel. In the M&A scenarios that have  been closer to home for me (generally telecom space), one key aspect of many deals is that management typically goes out Day 0 to proactively "re-recruit" personnel – e.g., management assumes that M&A deals create tension that must be relieved. That said, from the people I know who have been involved in M&A in the software space, the day after the deal it is not uncommon for those in the acquired company to have looks on their faces like they are reporting to prison even though their pockets may have been lined with gold.

Steve Shu

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