Are You Building Just a Product?

Entrepreneurs set goals, take action, innovate products and build companies. Throughout the process, they naturally develop strong feelings of ownership, thinking of the product and company as their baby. Even as the team grows and the number of stakeholders increases, these feelings guide decision making.

Growth oriented entrepreneurs  have dreams of making it big (who doesn't?), scaling fast, selling to millions of eager customers and getting acquired for big bucks or even attaining the “holy grail” of an IPO. Unfortunately, the dream of an IPO is actually much closer to “tilting at windmills” than “holy grail“. Entrepreneurs should keep the dream alive; a big vision drives us to set goals, reach beyond ourselves and attain the impossible.

Startup Reality

“Only 2% of
companies sell
for more than
$2 million”

 
Challenging the dream of making it big is the reality that only a small percentage of companies enjoy success enough to pursue an IPO. For entrepreneurs fortunate enough to sell their companies, the numbers are not encouraging: 67% of businesses sell for less than $250,000, 18% sell for $250,000 – $500,000 and 9% sell for between $500,000 and $1,000,000.

That's 94% of businesses selling for less than $1 million. Only 2% of companies command a price greater than $2 million*.

These are sobering numbers for entrepreneurs seeking to raise funds and forecasting big exits for their baby. These are figures investors know all too well and one of the reasons it is hard to raise funds to fuel a startup in the very early stages. What keeps entrepreneurs going is exemplified in the recent sale of Instagram and Facebook's IPO. Exciting, dream-inducing potential for all entrepreneurial leaders.

Acquisition Ready

For most entrepreneurs, innovating the product and building the company is their dream. There is however, another way to look at startups. What if you begin with a great idea and just as you are gaining market success and perhaps making some minor business model pivots, you get an offer? What if that offer is not about your baby, but about the team nurturing the baby?

“Make sure your
team is positioned
and prepared to be
absorbed into an
acquiring company”

That's exactly what happened to Glancee, a company with an app that “helps you discover and connect with new interesting people around you”** In a May 5th, 2012 VentureBeat article, Jolie O'Dell gives us some insight into Facebook buying the company and killing the product. Glancee was acquired for its talent; their baby is gone from the App Store and Google Play’s Android apps.

Entrepreneurs generally do not consider themselves and their teams to be the company's most valuable asset. Their attention is focused on executing on the vision: meeting goals, moving the product and company forward, raising funds, creating partnerships, growing sales etc. If we're serious about growing companies and selling big, that focus must include our teams and the potential for an acqui-hire.

Your Team is the Product

Your team just might be the real product and you must be certain that as you are building a product, you are also leading and building your team. Invest in your employees to the point they constitute the absolute best team you can bring together. Accept nothing less than excellence in team capability; do everything you can so that your team is positioned and prepared to be absorbed into an acquiring company – with or without the product.

Finally, ensure your vision and goals include multiple success scenarios that your team understands; if your team is acquired, they'll need to let go of their baby.

..Rick Coplin

 

 

 

*Source: Inc Magazine, page 30 of the April 2012 issue. Based on data provided by Bizcomps.
**Source: quote is from the VentureBeat article.

I work alongside emerging companies on business formation, commercialization strategies, and capital planning. My passion is to find, support, mentor, coach, incubate, & fund start-ups engaged in innovative technology businesses.

Connect with Rick on
Google+

Please note: I reserve the right to delete comments that are offensive or off-topic.

  • Rick Coplin

    Thanks for the compliment! Thanks also for the link to the post on legal considersationsto trigger incorporating. It is good advice for entreperenuers to consider in the formative stages of starting a company.