By Ted Rubin, Return On Relationship, #RonR
I recently had a conversation with someone about how investors who are looking for companies to acquire, primarily look for “the next coolest thing,” something that looks like it will turn a quick ROI. There are lots of articles out there on how to build a company that will attract buyers, but I’m of the firm belief that acquisition shouldn’t be your major goal when starting a company. It should be producing the best product or service possible—something you deliver with passion and integrity.
Is being acquired a bad thing? Of course not. In today’s market, it might even seem that acquisition should be a top goal. Who wouldn’t like to get paid mega-bucks for something they just created (Instagram anyone)? However, fairytale stories of striking it rich this way usually begin with a passionate start-up—not one whose main focus is selling off.
Why? Because if you start out with the idea that you’re building it to sell, it colors everything you do and every decision you make. In my experience if your heart isn’t in it and you’re just out to make a quick buck, three things can happen pretty quickly that get you off on the wrong track:
- Your team senses it (and acts accordingly)
- Your customers get a less-than-exemplary experience (and don’t come back)
- You build an awesome experience that never has a chance of being profitable, and will die a quick death as soon as financing dries up.
That’s not the way to build something of real value. Customers flock to companies that have solid processes that are sustainable long-term, and offer something that’s value driven and has them coming back again and again. Those are also the kinds of companies that bring top dollar from investors. Building that kind of organization requires a focus on creating success with a team of “A” players that are all on the same page and dedicated to service. Not the typical qualities of a start-up created for a quick sale.
An article in Venture Beat last year illustrates my point exactly. Author Jeff Thermond, a Venture Partner at XSeed Capital who has both bought and sold startups, states that buyers know when someone is desperate for acquisition, and it weakens their position considerably. He says, “The deals for which we paid a lot of money were always people for whom we had to go looking. They didn’t come after us because they were too busy building great businesses.”
Too many entrepreneurs start at the wrong end of the spectrum, thinking they’re going to build this cool start-up that will attract a big acquisition payout, and end up failing because they didn’t focus on the right thing—building something that will attract customers and sustain itself long-term. Make your focus to concentrate on the inner-workings and building great relationships that help you deliver value—not external packaging. And… make sure you have a road to profitability. Starting there will help you build something that will last whether it’s acquired or not.
Stop worrying about what’s next and concentrate on delivering what is now!