Case Study: How Figma Survived Adobe’s $20 Billion Buyout

In September 2022, Adobe agreed to buy Figma for $20 billion. Figma, founded in 2012, made design software that ran in a web browser, in a category Adobe had dominated for decades with tools like Photoshop and Illustrator. Bloomberg noted that it would have been one of the largest takeovers of a private software company ever.

The story people usually tell about deals like this is one of a scrappy challenger the giant failed to see. This one does not fit. According to a merger filing reported by Bloomberg, Adobe had tried to buy Figma in 2020 and again in 2021, and it eventually agreed to a price double what Figma had been valued at. Wall Street was lukewarm, and some analysts read the price as a sign of how much competitive pressure Adobe felt.

The deal never closed. Competition regulators in the United Kingdom and the European Union raised serious objections. In November 2023 the European Commission issued a Statement of Objections, its preliminary view that the deal could significantly reduce competition, and Britain’s Competition and Markets Authority provisionally found that it would likely reduce innovation, in part by removing Figma as a threat to Photoshop and Illustrator. In December 2023 the two companies said there was “no clear path” to approval and called it off, and Adobe paid Figma a $1 billion termination fee.

Figma went public in July 2025, pricing its shares at $33, an implied valuation of roughly $19 billion, just under Adobe’s offer. By the close of its first trading day the stock had risen 250 percent, giving the company a market value of nearly $68 billion, according to Reuters, more than three times the price Adobe had agreed to pay. A first-day market value is a snapshot, not a verdict. But it shows how differently the same company can be priced once it is free to stay independent.

So the giant was not asleep. It had the money, the customers and the motive, and it still ended up bidding for a company that had grown up in its own backyard. The question worth asking is not why big companies fail to notice small ones. It is why noticing so often is not enough. This article argues that startups often gain a temporary advantage from the economic and organizational constraints that make certain opportunities unattractive, or difficult, for incumbents to pursue, and that those constraints eventually loosen. That is the idea behind the title: the crack is rented, not owned.

Why Large Companies Ignore Small Markets: The Incumbent’s Dilemma

The most influential explanation comes from Clayton Christensen, the Harvard Business School professor who introduced the idea of disruptive innovation in a 1995 Harvard Business Review article with Joseph Bower and refined it in a 2015 follow-up. The logic is simple. Incumbents keep improving their products for their most demanding and usually most profitable customers. In doing so, they overshoot what some customers need and neglect others. Entrants begin in those overlooked segments, often with something simpler or cheaper, and incumbents chasing higher profits further upmarket tend not to respond vigorously. Only when the entrant has improved enough that mainstream customers start switching in volume has disruption actually occurred.

The important word in that account is rational. A manager who ignores a low-margin segment is doing what the company’s customers, investors and budgets reward. Gillette offers an example. After years of steering shoppers toward more sophisticated and more expensive razors, it lost U.S. market share for six consecutive years as subscription upstarts such as Dollar Shave Club and Harry’s gained ground, before announcing price cuts of as much as 20 percent. One analysis at the time argued that the trade-up strategy had worked so well that it opened a gap between price and value that newcomers could exploit.

This is the intellectual center of the story. The incumbent’s problem is not blindness. It is allocation. A large company has to decide where to put capital, engineers, salespeople and management attention, and every choice has a cost. The interesting question is not why Adobe failed to build something like Figma. It is why Adobe would have rationally built it before Figma proved the market. A startup does not need an opportunity to look attractive to Adobe. It only needs the opportunity to look attractive compared with the startup’s own alternatives.

There is a second layer, and it concerns how big companies are built rather than what they earn. In a 1990 study of established firms in the semiconductor equipment industry, Rebecca Henderson and Kim Clark identified a different vulnerability. Innovations that change how a product’s parts fit together, without changing the parts themselves, can badly hurt incumbents. A firm’s knowledge of its product’s architecture becomes embedded in its structure and procedures, they argued, which makes the loss of that knowledge hard to recognize and hard to correct. They were explaining how established firms fail, not offering a strategy for startups. Applying their idea to startups is this article’s inference.

Adobe’s position against Figma is consistent with that idea, though it is best read as an illustration rather than proof. Bloomberg observed that while Adobe had introduced cheaper, streamlined products for web audiences, most of its offerings were still desktop programs aimed at specialists. Figma’s product ran in the browser and let several people work in the same file at once, much like a shared document. Matching that would arguably have been less a matter of adding a feature than of rethinking how a product is built and used, which is the kind of change large organizations find hardest.

Size adds a third filter. A market that might someday be worth a few hundred million dollars is thrilling to a startup and easy to dismiss for a company with tens of billions in revenue. That is a tendency, not a rule, and some giants do chase small markets. But it helps explain why the earliest years of a new category are often lightly contested.

4 Types of Market Gaps Startups Use to Beat Incumbents

It helps to be precise about what the edge is, because agility and hunger are not it. Small companies are not inherently smarter or harder working than large ones. What they have is the absence of things a giant must protect: existing revenue, existing customers’ expectations, established sales channels and an organization designed around all three. The edge is what those absences make possible.

Christensen’s framework names two openings. A low-end foothold serves customers who are overserved by the incumbent’s product and will accept something good enough at a lower price. A new-market foothold serves people who were not being served at all, because existing products were too expensive or too complicated for them. A third, the architectural crack, rests on the Henderson and Clark research: a change that leaves familiar components in place but connects them in a way the incumbent’s organization struggles to follow. T

he fourth, the business-model crack, is this article’s own synthesis, not an established academic category. Dollar Shave Club, founded in 2012, sold razors by subscription directly to consumers and had 3.2 million members when Unilever agreed to buy it in 2016 for a reported $1 billion. The razors were not new. The way they were sold was. It is best read as a business-model example, not a textbook case of Christensen-style disruption.

Precision matters here, because the theory is often stretched. In their 2015 revisit, Christensen and his co-authors argued that Uber, widely called a disruptor, does not fit the definition, since it began by serving mainstream taxi customers better rather than by starting in a neglected segment. That is not a knock on Uber’s success. It is a reminder that startups can win by several routes and only some of them run through the cracks described here. For founders and investors, the useful discipline is knowing which route a company is actually on.

How to Find a Market Gap: The Founder Crack Test

What follows is a working method, not a theorem. It draws on the research above, but the framing is this article’s own synthesis. It comes down to six questions, and the last one matters most.

Demand. Who wants something the incumbent does not serve well? Look for customers paying for performance they never use, and for people who want the product but cannot buy it at current prices, complexity or terms. The signal is often a complaint that has become background noise in the industry.

Economics. Why is this customer unattractive to the incumbent but attractive to you? A product that looks worse on the incumbent’s own measures, earns thinner margins or competes with a profitable existing line will struggle for internal approval, and that is why the space stays open. If a smart executive would fund the idea tomorrow, the crack is probably not real.

Architecture. What would the incumbent have to change internally to compete? Channel conflicts, pricing structures and an org chart arranged around the old product all raise the cost of following. The harder and costlier the change, the longer the window.

Distribution. What advantage does the incumbent hold that you cannot easily reproduce? Be honest here. Installed customers, sales channels and capital are what giants tend to bring when they finally respond.

Defensibility. What are you building before the incumbent notices? A crack protected only by inertia ends when someone senior decides it should. A crack protected by economics, and by advantages you are accumulating in the meantime, lasts longer.

Closure. What happens when the incumbent decides the market finally matters? This is the question most founders skip. It has three plausible answers, buy, copy or bundle, and a founder should know which is most likely and what the counter is.

There is an uncomfortable caveat. Many cracks are empty because there is nothing in them. In one U.S. Bureau of Labor Statistics analysis of newly opened establishments, 66 percent were still operating after two years and 44 percent after four. Those figures describe new establishments broadly, not venture-backed startups specifically. But the lesson carries: founders drawn to overlooked niches sometimes discover that the neglect was well founded.

The test is whether the customers are real, whether they will pay, and whether the incumbent’s neglect reflects its own economics rather than an absence of demand. It is also worth remembering that the cases in this article are survivors. The many startups that aimed at cracks and disappeared rarely make headlines.

The goal is not to find a market the giant cannot enter. It is to build enough advantage before the giant decides the market is worth entering.

How Big Companies Respond: Buyouts, Copycat Products, and Bundling

Neglect ends when a startup becomes visible enough, or large enough, to threaten something the incumbent cares about. Giants then reach for a short list of tools, and the recent record shows all of them.

The first is to buy. Adobe went after Figma. Facebook reportedly offered Snapchat $3 billion in 2013, according to contemporary reports, and Snapchat rejected the offer. Amazon agreed to buy Quidsi, the parent of Diapers.com, for about $545 million in November 2010. Two months earlier, Amazon had launched Amazon Mom, a program offering three months of free two-day shipping and a 30 percent discount on diapers through its Subscribe & Save service. Quidsi had been running at a revenue rate of roughly $300 million. In 2017, Amazon shut down Diapers.com and the other Quidsi sites, citing a lack of profitability. The record on Amazon’s intentions is contested, and this article does not try to settle it. The competitive pattern is still worth noting: an incumbent’s response can include pricing and product moves on the way to an offer.

The second is to copy. Having failed to buy Snapchat, Facebook, which owned Instagram, launched Instagram Stories in August 2016, a feature modeled closely on Snapchat’s format. Instagram’s chief executive, Kevin Systrom, acknowledged as much to The New York Times, saying other companies deserved credit for popularizing disappearing photos and videos. By January 2017 Stories had 150 million daily users, and by April Facebook reported 200 million, compared with roughly 160 million for Snapchat, according to Inverse. The copy worked not merely because Instagram reproduced the feature, but because it could distribute that feature through an enormous existing network of some 500 million users.

The third is to bundle. In July 2020, Slack complained to the European Commission that Microsoft was tying its Teams product to its dominant Office suite. The Commission opened a formal investigation in 2023, concerned that the bundling gave Teams a distribution advantage. In September 2025, after Microsoft offered legally binding commitments, including selling its suites without Teams at a reduced price and improving interoperability with rivals, the Commission closed the case without a fine. Slack, by then owned by Salesforce, had seen its complaint pending for roughly five years by the time the Commission accepted those commitments.

The outcomes differ. Figma and Snapchat stayed independent. Quidsi was sold and later closed. Slack was sold. What the cases share is that the incumbent could eventually bring advantages the startup could not easily reproduce: distribution, capital, an installed customer base or the ability to bundle. That suggests a founder’s defense has to be something those advantages cannot easily buy: a product architecture that is expensive to copy, a customer relationship that is hard to bundle around, or a pace of improvement that keeps the incumbent chasing. Regulators helped Figma and Slack, but after fifteen months of review in Figma’s case and roughly five years in Slack’s, that is not a plan any founder can count on.

Why Startup Competitive Advantages Are Always Temporary

Everything above points to a conclusion that is easy to forget inside a good underdog story. The crack exists because of economic and organizational facts about someone else’s company, and those facts change. A niche grows, a product improves, a giant’s priorities shift, or a regulator stops the giant from simply buying its way out.

For founders, that reframes the central question. It is less “is there a gap?” than “what am I building while the gap stays open that will still matter when it closes?” For investors, it poses a harder problem: how to value a company whose edge depends partly on an incumbent’s inaction, and how to sense the moment that inaction is about to end. And in industries where the giants are now reorganizing around new technology, which of today’s neglected corners will look, a few years from now, like the obvious opening?

The startup’s advantage is rarely that the giant cannot see the opportunity. It is that, for a while, the opportunity makes more sense for the startup than it does for the giant. The clock starts the moment that changes.

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