Why did Yahoo Acquisitions Fail?

Just a few years ago Yahoo was the hot place for startups to go. Their acquisitions, such as Flickr and Delicious were supposed to revitalize the company.

But then they started to fail. It peaked this past week when it was reported that Delicious was going to be shut down (which Yahoo later denied). So why did these companies fail?

This thread on Quora gives some interesting insight. Personally, I think it’s a combination of a few things:

  • You can’t expect a 10 person startup to come in and change the culture of a company with thousands of employees.

  • You especially can’t expect a startup to thrive when you place them under existing areas of the company. Kodak famously did this by putting their digital cameras division under film where it languished. People tend not to change their way of thinking about these “new” areas.

  • The startups never had a business model in the first place. It’s the trendy thing today to take a ton of VC money and “figure out how to make money later.” Well, this doesn’t work. The 37 Signals guys keep saying “You’re good at what you practice – if you practice not making money, you’ll do that.” Acquiring a startup that isn’t profitable is fine while a big company like Yahoo has plenty of money-generating assets. But when the company starts to rock the boat, they’re going to cut the areas that don’t make money. It’s simple.

I think the bigger lesson to be learned is that you have to build sustainable businesses. I understand that a founder wants a cash out. I probably would too, but don’t expect your business to thrive under a big company. You have to build it with the goal and ability to thrive from the start.

December 19, 2010