Startup Firm Acquisitions as a Human Resource Strategy for Innovation: The Acqhire Phenomenon

Abstract

As acquiring and retaining talented human resources becomes increasingly challenging in the search for competitive advantage in many dynamic markets, firms are increasingly engaging in acquisitions of startups with the goal of acquiring talented employees that can help solve problems that need innovative solutions. High technology industries have become increasingly characterized by rapid change and shortages of talented human resources and we observe a growing phenomenon, particularly prevalent amongst Silicon Valley firms, called an ‘acqhire.’ A portmanteau of the words “hire” and “acquire,” this neologism describes a human resource strategy in which dominant firms acquire smaller startup companies in order to procure highly skilled personnel in lieu of traditional hiring practices. We seek to understand how this practice helps address competitive advantage from a resource-based view perspective as such acquisitions appear to be motivated by a desire to preserve the startup’s team as a cohesive resource bundle. Individuals that join the firm as part of an ‘acqhire’ situation rather than being hired directly may receive increased incentives to remain with their team at the new organization. We propose that three distinct benefits may be derived via this strategy: 1) the preservation of dynamic capabilities and tacit knowledge embedded in the startup’s team dynamics; 2) the prevention of knowledge leaks which might hasten the decay in value of the new human capital; and 3) the protection of the acquired firm’s innovation potential. As environmental and competitive pressures increase the regularity of hiring via acquisition, these findings may have significant implications for the understanding of how firms compete via human resources.