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An acquisition is always a failure

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Re: An acquisition is always a failure

#21

Post by mindcrime »

sliverstorm wrote: post #19
mindcrime wrote: post #14

Earlier quoted context omitted.

In reality it is an option, but given the artificially constrained "world" we're dealing with in this article, it made sense to skip that to make a point. Also, depending on what you are trying to accomplish, it might not make sense, depending on your liquidity needs. It's one thing to own a big chunk of a company which is actually very valuable, but quite another when you do not have access to that money in order to…

It's one thing to own a big chunk of a company which is actually very valuable, but quite another when you do not have access to that money in order to actually, ya know, do stuff Further illustration of exactly the sort of strange mindset I'm talking about. This mindset where a business does not exist to make a profit, oh no, but to be sold to others for a profit. The origin of business is to turn profits for the in…

Absolutely, and I didn't say anything to contradict that. But there are limits to the availability of the value you have created with your business. Outside of paying yourself a salary equal to the entire profit of the company (or more, for a limited period of time), what do you do if you need a chunk of cash for some specific purpose at a point-in-time? The most obvious, straightforward and common means is to sell equity in the company to others, up to or including selling the entire company.

I, for one, am not advocating the idea of "build to flip" as a generally good thing. But still... the goals of the founders have to be kept in mind, and if selling the company is the best path for them to accomplish their goals, who are we to tell them otherwise?

Re: An acquisition is always a failure

#22

Post by phillmv »

sliverstorm wrote: post #10
mindcrime wrote: post #3

No, no, a thousand times no. This is complete bullshit. I'm sorry, but you lost me at: The proper ambition for a tech entrepreneur should be to join the ranks of the great tech companies, or, at least, to create a profitable, independent company beloved by employees, customers, and shareholders. Nobody, not you, not my mom or dad, not "God", not Linus Torvalds, not Bill Gates, not the Queen of England, not the Dali L…

Say I build a company to a point where I could sell for enough that I could walk away with, I don't know, let's call it $10,000,000 USD. The other option is to stay independent and maybe, maybe eventually IPO. This is the part that rankles with me. Why is, "stay privately held and continue to turn a profit year over year" never considered an option? Why is it only "sell" or "IPO"?

Well, it's not an option if you've taken VC.

A VC is only looking at time frames of 3-5 years, given the limitations of their business model. If you don't look poised to grow 5-10x within that time frame then it's not worth their time, given they could be throwing money at the next potentially huge company instead.

If you run out of time you might get turfed by your investors when they call in their convertible note, and they'll either aim to liquidate the place or put in someone they think can turn it around.

If you run out of money, it's likely you're screwed because you were encouraged to trade growth for profitability. By this point it's often obvious whether you've run out of time.

Something like that.

Re: An acquisition is always a failure

#23

Post by zem »

sliverstorm wrote: post #10
mindcrime wrote: post #3

No, no, a thousand times no. This is complete bullshit. I'm sorry, but you lost me at: The proper ambition for a tech entrepreneur should be to join the ranks of the great tech companies, or, at least, to create a profitable, independent company beloved by employees, customers, and shareholders. Nobody, not you, not my mom or dad, not "God", not Linus Torvalds, not Bill Gates, not the Queen of England, not the Dali L…

Say I build a company to a point where I could sell for enough that I could walk away with, I don't know, let's call it $10,000,000 USD. The other option is to stay independent and maybe, maybe eventually IPO. This is the part that rankles with me. Why is, "stay privately held and continue to turn a profit year over year" never considered an option? Why is it only "sell" or "IPO"?

spolsky's "ben & jerry's versus amazon" post is relevant. http://www.joelonsoftware.com/articles/fog0000000056.html

as someone whose psychology is more aligned with the organic growth model, i fully agree with you, but if you lean the other way staying privately owned is just passing up the opportunity to get big fast.

Re: An acquisition is always a failure

#24

Post by [deleted] »

alxbrun wrote: post #17

I recently sold my company and I agree with Jake. What most commenters don't understand, in my opinion, is that real entrepreneurs don't start their company to get rich. If getting rich is your priority, become an investment banker (If you really want to code, make some automatic trading algorithms and financial models for investment bankers.) In that regard, selling your company is, very often, a failure. In my expe…

[deleted]

Re: An acquisition is always a failure

#26

Post by mbell »

sliverstorm wrote: post #10
mindcrime wrote: post #3

No, no, a thousand times no. This is complete bullshit. I'm sorry, but you lost me at: The proper ambition for a tech entrepreneur should be to join the ranks of the great tech companies, or, at least, to create a profitable, independent company beloved by employees, customers, and shareholders. Nobody, not you, not my mom or dad, not "God", not Linus Torvalds, not Bill Gates, not the Queen of England, not the Dali L…

Say I build a company to a point where I could sell for enough that I could walk away with, I don't know, let's call it $10,000,000 USD. The other option is to stay independent and maybe, maybe eventually IPO. This is the part that rankles with me. Why is, "stay privately held and continue to turn a profit year over year" never considered an option? Why is it only "sell" or "IPO"?

It depends on your goal. Even companies that stay privately held and turn a profit year over year end up in many ways being a lifestyle company; Often resulting in stagnation and then slowly erode from the inside. It can work, you can avoid stagnation, but only for a few types of companies / founders.

For example Valve can pull this off, they are a game company, always building the next great game, they always have something new to work on and have gone to great lengths to keep their employees involved and attract top talent. They have avoided stagnation.

On the other hand, many of the companies you see get acquired built one or two focused products, they don't have 'the next big game' to work on, that is boring for many people, particularly the 'founder type'. Boredom -> stagnation -> erosion.

You could say that company X could just define themselves as e.g. a 'mobile app' company the way that Valve is a 'game company', but in reality, 'mobile app' is way too broad. How is a 'mobile app' company any different than startup? The difference is that instead of investors taking the risk on the new product, the company takes the risk, which doesn't bode well for the constant year over year profit ideal.

The 'company taking the risk' model can work, e.g. Google, but you have to be wildly profitable to pull it off, that is hard, really hard, so hard that only a hand full of companies have ever pulled it off.

tl;dr Privately held long term companies can get boring quickly. It takes a very particular type of market, a founder who really wants a lifestyle company, or a company that is wildly profitable to avoid stagnation. All three options are relatively rare.

Re: An acquisition is always a failure

#27

Post by mikeg8 »

alxbrun wrote: post #17

I recently sold my company and I agree with Jake. What most commenters don't understand, in my opinion, is that real entrepreneurs don't start their company to get rich. If getting rich is your priority, become an investment banker (If you really want to code, make some automatic trading algorithms and financial models for investment bankers.) In that regard, selling your company is, very often, a failure. In my expe…

You didn't describe failure, you described Regret. As a young entrepreneur trying to do the same thing you did in the past (establish a company that is strong, independent, has great values) I can see how "abandoning" those values feels like failure. But it really depends on your definition of success and also what you do after. An acquisition could provide someone with the financial freedom, knowledge, and business network to execute an idea with even greater ambitions, values and impact on the world. That's why I don't think it's always a failure. It's only a failure if it was the best thing you could ever do. But to me, the best entrepreneurs are incapable of thinking like that. You can always do better, be better, make something better.

Re: An acquisition is always a failure

#29

Post by prostoalex »

pekk wrote: post #15
michaelpinto wrote: post #2

Jake is brilliant, but this isn't always the case: What about Google's acquisition of Android? What about Apple's acquisition of NeXT? What about Microsoft buying 86-DOS from Seattle Computer Products? What about Lenovo's acquisition of the ThinkPad?

These are wins for the buyer, not as clearly for the seller. Of course, if the seller sold voluntarily then it seems silly to argue that it wasn't what they wanted.

Seller has a product, buyer has distribution. For each Android, NeXT and QDOS there's a bunch of similar companies that went nowhere.

Re: An acquisition is always a failure

#30

Post by EGreg »

This is a great article! I would say that first-time entrepreneurs should try to get a success even if it means they have to give away equity / get acquired. You can own 100% of your next business if you like, after you have millions in the bank and a track record with investors.
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