Startups Craving to be Acquired… A Big Mistake?

While skimming through the news, I came across “Are Silicon Valley Startups More likely to be Acquired” on TechCrunch. I took my time, read through the article as well as some of the many comments listed beneath it, and to my surprise, I was stunned to come up with some vital points of argument that were not even touched upon!

A Google Acquisitions Department Comic (click to enlarge)

A Google Acquisitions Department Comic (click to enlarge) - by Oliver Widder

Now, as the article clearly states, if you are a Silicon Valley startup, you have a better chance of being bought out. But why is being acquired such a good thing? Doesn’t it mean that you have created something that someone else can utilize, operate and master better than you? Doesn’t this mean that you gave up on your own creation? Is acquisition always the best deal for startups?

Granted, there are factors to consider and reconsider here:

  • The Financial Benefits: I can’t possibly deny the financial benefits startup owners would gain if their was to be acquired but the way I see it, a company can, on a long-term basis, make even more sustainable and continuous profits if it is able to maintain its image and grow its user base or community. Notice Zuckerberg’s bold refusal to be acquired by Yahoo for $1 billion – now it is evaluated at $15 billion!
  • The Potential Growth: Yes, being acquired by a giant such as Google for example, will probably allow for the startup to gain more recognition and in return attract more customers yet, the question remains to be: “who is getting the credit?”, not those who worked hard to grow an idea into a company on its road to a possible success!
  • The Employment Opportunities: It is highly possible that an acquired Silicon Valley startup will provide employment opportunities to its previous owners but I’d have to argue against that as well! Why work for others in a company that you have launched? Take GrandCentral for example, which was acquired in 2007,  and whose founders, Craig Walker and Vincent Paquet, are now employees at Google with high level salaries. Why not be the owners of GrandCentral and keep all the profit?

Finally, here’s something I’d like you to consider, Google started as a startup and was not acquired but look where it is now. So are new startups starting off on the wrong foot when building their “vision” around being acquired? And why run to be acquired, if ex-googlers are going backwards and opening up their own startups?

Comments and Reactions

  • http://autom.x.iabc.com/ autom

    Why? The reason is almost always about that “thing that makes the world go round” $$$ (Cabaret reference there). But various start-ups are likely to have different objectives for both their short- and long-term strategies. In addition, they are also highly influenced by their investors. So, my sense is that for the majority, most start-ups do end up on the M&A block. Whether they are created with that sole goal in mind really depends on what the nature of the start-up and what market need it's trying to address/leverage.

  • http://blog.thoughtpick.com/ FadiPick

    I don't think that this is a black and white situation. I mean people usually come up with new ideas and work on their startup companies with different visions in their minds. Sometimes they get a very valuable offer that would make selling it out a wise choice, and sometimes it is not. Sometimes a company would work better after acquisition and sometimes not.

    The other day I read this nice quote in the idea book I have next to my bed. It says “Ideas grow better in the heads of other people than in the ones they sprang up”. I find it so true. Some people are better at coming up with ideas and some other people are better in making them work.

  • http://autom.x.iabc.com/ autom

    Hey Fadi – I see where you are coming from with your point. And I am not suggesting that start-ups are ever a black and white scenario. However, based on what I've seen and experiences from colleagues who've done start-ups, I've noticed that their beginnings are conceptually leading-edge and certainly worthy of perservance. And depending on how one manages the start-up (especially on how investor relations are managed) the ideal goal is certainly to see it through be that “little engine that could and now hordes” like Google [sorry, couldn't resist but that's a phrase I coined on another blog post re: fostering healthy competition in the search engine market] But to get back on point, yes, it's never a black and white scenario and all the power to the SU who succeeds. Is it a mistake for eager ones to want to be acquired? I dont know if it can be called a mistake, if that's what they intended to do in the first place.

    Whoa. Nice dialogue. Haven't ranted like this in a while. Trust you're well. – A

  • http://blog.thoughtpick.com/ FadiPick

    Hey atuom, good to see you here :)

    The mistake would be if they couldn't estimate the potential of what they have in hand and sold it out for some easy money. I think that is where Beirut is coming from. That would have been the case if Mark Zuckerberg sold facebook as she mentioned, but I am sure that not everyone is lucky as him – or maybe to rephrase it better, not everyone has the same product with such potential as facebook.

  • http://blog.thoughtpick.com Amer Kawar

    Autom, Fadi, I agree. Things are nearly never just black or white, especially in the ideas business we're in. You are never 100% sure that this idea is a gold mine, until it is.

    While ideas developing better in other peoples minds might be true, as Fadi mentioned, I do not think that the only way to have that is by being acquired! What's wrong with having a creative department? Or having an Ex-Googler/ Ex-Yahooer as a partner? From my point of view, it's even enough to have a good partner working with you in an open-source development environment to come up with great new ideas and directions.

  • http://blog.thoughtpick.com Amer Kawar

    Autom, I think the mistake is being eager to be acquired from the start. I think this blind-sights the business owners from the true potential of their ideas.

  • http://blog.thoughtpick.com/ FadiPick

    Amer, while there is nothing wrong with parntering with anyone, and yes a creative department is essential these days, the idea being able to grow better in other peoples mind here can be taken on a bigger scale i.e. corporate one. Every corporate have its own identity, procedures and way of working. Sometime ideas can work better in other corporations than the one it came out in.

  • http://twitter.com/JohnLusher JohnLusher

    Very good post and good comments. If you have an idea and start a company because you believe so strongly in the idea or the product; why would you want to sell it? The easy answer is money of course; but does that mean you do not believe in the idea? Not necessarily, but I am not sure it is the the best focus. If a start up is only focused on the money, are the producing the best product?

    I think most people that develop a start up do it because they believe so strongly in the product or the idea or the money.

  • http://afrinnovator.com/2010/01/great-reading-for-startup-foundersentrepreneurs/ Great Reading for Startup Founders/Entrepreneurs | Afrinnovator.com

    [...] reaching Facebook-level success or being acquired by a company like Google – which can be a misconception); well grand dreams are all well and good, but what really gets you there? In between founding and [...]

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