Marc works as an IT expert in a large corporation in Singapore. He buys always the latest gadgets and is the geek you ask for advice on anything from Linux to iTunes. Last weekend we went to a BBQ at his place and at some point we started talking about web services. When we came to the topic of acquisition, Marc brought up a statement I made in earlier discussions. “I was quite shocked”, he said, “when you told me you could imagine selling your start-up. If I started my own thing, I wanted it to be mine and would ensure it remained independent from big corporations.” This made me think. Are there entrepreneurs, who are just in for the money? Is the majority of them chasing its own ideas? Or are most of them repeaters hoping to hit the next big thing?
I think there are a lot of people who think like Marc. Jason Fried of 37signals for example dedicated a whole chapter in his book Getting Real on this. In his case, he writes, a lot of people supposedly have accused him of not wanting to take his successful company to the next level by taking in investments. Among other reasons, he wanted to remain small and independent. To this date, this strategy has not harmed his company and 37signal runs a successful global service for thousands of companies.
It will often be difficult for a start-up, though, to remain completely independent from investors. ‘Your own thing’ would need to run very lean, maybe make money from the beginning or at least hit break-even quite early. Most importantly, it must remain small or scale with reinvesting its profits. This is a very difficult task, especially when you get a lot of traction. Let’s assume you’re doing something at the right time, which nobody has thought of before and which nobody can offer in short-term. The whole world will turn to you. Your servers will heat up. In that very moment, it will take a lot of guts not to take VC money to scale ‘your own thing’ up to a global level while maintain to ensure high quality. In case you manage to cope with demand in that situation, you’ll join Mark, Sergei and Bill for lunch I suppose!
There are these beautiful unique global successes, which were not acquired by a Fortune 500 company. Facebook, Groupon and Twitter turned down large sums from Google and others. But even the one-and-only Facebook took in Microsoft’s money back in 2007, because they were burning too much cash. If your start-up rockets through the roof (and I hope it will), you will find yourself listening to a VC while Agent Smith mumbles back in your head: “You hear that Mr. Anderson?… That is the sound of inevitability…” You will partially give away independence. At the same time, this is a huge opportunity for ‘your own thing’.
Is it wrong to sell?
Marc’s point mainly addresses the fact that some entrepreneurs sell their start-ups to large corporations knowing that their services or products will suffer from these acquisitions. New processes and new decision-makers change it to the worse, Marc thinks. And he has a point. There are many cases that confirm this. Does this mean that it is irresponsible when an entrepreneur sells his company? Is it all about money?
I totally understand anyone who shares Marc’s view. It is definitely true that a lot of founders of start-ups dream about becoming as successful as Google, Skype, or Facebook. But that does not mean they do it just for the money. Surely everybody works towards a better standard of living. And becoming a billionaire is alluring, but also very, very unlikely. And they know that.
If it is not about money, then why is everybody in the start-up world talking about exits? Founders are drilled to know their exit strategy, because every angel investor, VC, and even other entrepreneurs will ask them about it. ‘Your exit’ is an incremental part of the company’s strategy and you have to think it through. One could not call himself a businessman if he did not consider probable business paths – for the well-being of the company, of course. Most likely your path will lead to an investment, maybe it will lead to an acquisition, and sometimes it is best to just continue to excel on your own. In a very competitive environment, the right partnership can help you to execute your strategy, too. But even that creates some dependency. Last but not least, it can happen that the company changes to the extent that the founder does not fit in anymore. What happens then? Acting responsibly does not necessarily mean to stick with your firm. If selling is the best thing for your company, I say do it.
Always chasing the next big thing
Once you sold your company, what happens next? Even if you have to stay with the large corporation for some time, you eventually will move on at some point. Is that a bad thing? Does that mean you have abandoned your baby? I cannot let go of the thought that most entrepreneurs walk through this world with open eyes, constantly thinking of new ways to solve their own or other people’s problems. Guy Kawasaki clearly advises entrepreneurs to undo something wrong. While brilliant people who haven’t tasted the world of entrepreneurship still think about ‘at what point do you start your own company?’ an entrepreneur would just go for it. Most likely a venture will not become the next Facebook. And many people know that. This might be a reason why a lot of people do not take the leap into the world of entrepreneurship. As far as a significant part of entrepreneurs is concerned (count me in here as well), many have understood that a company does not gain its one-billion-dollar valuation from the idea or its early-stage technology break-through. It derives from a smart execution over several years and with the help of internal and external resources, including customers, partners, and investors. These entrepreneurs are not in for fun, they will dedicate their all to assure that the start-up becomes a success.
When your baby is able to walk on its own, can you turn away from it and pursue your next endeavor? Is it curiosity for the next big thing that chases you?
Evan Williams, co-founder of Blogger (sold to Google) and co-founder of Twitter, published a blogpost last week, in which he announced that it is time for his next thing. He stayed with both companies for more than five years and I think he can proudly say that he shaped both start-ups long enough to move on. Contrary to Williams, Bill Gates remained with Microsoft all his life. Larry Ellison did not sell Oracle and has not turned to a new endeavor. But many others did. Some companies were not harmed (like Skype), some were (and we forgot about their names).
Only an insider can answer, if selling is good or at least not bad for a company. I can understand everybody who moves on, because he or she cannot stop trying to undo something wrong in this world. I doubt it is the money that propels these people. Salaries in the start-up world are just too low. Now, if you should read this and you have not only been working on your own thing for many years, but have also turned it into a profitable business, you have my full respect. Keep the good work up! Live up to your own dreams. Nevertheless, do not forget possible exit strategies and do not shut your eyes to the fact that investment and acquisition can, at some point, become a logical decision for you and your company.
April 4th, 2011 at 5:21 am
Sometimes you just don’t have the next big idea. Then you rather stay with your current Startup. And if you wanna grow like Facebook, you almost need to give up some control to an external investor. Facebook would not be Facebook if it stayed small like 37signals.
April 8th, 2011 at 9:30 pm
Good article, I feel honored that I made you think
One of my idols is Ingvar Kamprad, founder of IKEA, not because he’s the richest man living in Switzerland – ok, maybe a bit. No, because he was stubborn enough to believe in his dream, he never allowed anyone else to invest (and therefore to control) his company. And as per 2011 IKEA is still not traded at any stock market – he is aged 85 and still controlling the foundation which holds 100% of the IKEA shares!
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