Selling Out

Originally published on Signal vs. Noise on January 21st, 2006

Jason’s earlier post on “Building to Flip…” got me thinking about some of the emails and calls I get on a regular basis from people ready to flip their flop. These offers seem to be eerily familiar lately, with something like: “Since launching our site x-months ago, we have been featured on a number of blogs and we are: a. almost as big as HotorNot.com (according to Alexa); or b. growing faster than Flickr did during its first 6-months. We thought your company might be interested, as we have already fielded offers in the single-digit millions from other large companies. We would be interested in speaking with you, but need to speak this week as things are moving quickly on our end.”

I swear that I have searched to see if there is some blog or “how-to” site somewhere where they find this repulsive language for their pitch because it is so familiar. So here’s the deal, I bet I’m a lot like other corporate development folks in the industry. We love getting contacted by entrepreneurs who are interested in combining with our company because they like what we do, and they see selling to us as the best way to grow their business and keep their users happy. They contact us because they see that the combination will enable them to have more resources and help overall, therefore the combination enables us to build something great together. But launching into a “hot pick-up line” basically kills the conversation before it starts. Seems obvious, but I guess not so much when you’re blinded by the $$. To be clear, I don’t think starting a business to increase your personal wealth is a bad thing. Whether staying independent or selling out, your going to have to make money somehow- so it had better be a motivating factor. It’s just that having a real passion for your product and users is far more attractive to a potential buyer.

In my experience, these are the things that motivate me to take interest in young or “pre-profitable” companies:

  • Small, talented teams where each member can do “a little of everything”. Essentially entrepreneurs where the team are more “doers” than “managers”.
  • Talented engineers that are great product people. These people blow me away.
  • A feature (which is often the whole product of the company), that combined with one of our products, can immediately increase usage and revenue for both entities.
  • A product with tremendous growth potential in need of resources and a business team to increase revenue.
  • Users: You need them, and they need to LOVE your product.
  • A team who sees combining with our company as the best path to achieving their bigger company, personal or product goals.

Trust me, it is hard to fake these traits. Eventually your flip strategy will be seen through, and it will either blow up the deal or significantly decrease the value of your company in the eyes of the acquirer.

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