Selling Out MikeT 21 Jan 2006

16 comments Latest by hatedigits

Jason’s earlier post on “Building to Flip…” got me thinking about some of the emails and calls I get on a regular basis from people ready to flip their flop. These offers seem to be eerily familiar lately, with something like: “Since launching our site x-months ago, we have been featured on a number of blogs and we are: a. almost as big as HotorNot.com (according to Alexa); or b. growing faster than Flickr did during its first 6-months. We thought your company might be interested, as we have already fielded offers in the single-digit millions from other large companies. We would be interested in speaking with you, but need to speak this week as things are moving quickly on our end.”

I swear that I have searched to see if there is some blog or “how-to” site somewhere where they find this repulsive language for their pitch because it is so familiar. So here’s the deal, I bet I’m a lot like other corporate development folks in the industry. We love getting contacted by entrepreneurs who are interested in combining with our company because they like what we do, and they see selling to us as the best way to grow their business and keep their users happy. They contact us because they see that the combination will enable them to have more resources and help overall, therefore the combination enables us to build something great together. But launching into a “hot pick-up line” basically kills the conversation before it starts. Seems obvious, but I guess not so much when you’re blinded by the $$. To be clear, I don’t think starting a business to increase your personal wealth is a bad thing. Whether staying independent or selling out, your going to have to make money somehow- so it had better be a motivating factor. It’s just that having a real passion for your product and users is far more attractive to a potential buyer.

In my experience, these are the things that motivate me to take interest in young or “pre-profitable” companies:

  • Small, talented teams where each member can do “a little of everything”. Essentially entrepreneurs where the team are more “doers” than “managers”.

  • Talented engineers that are great product people. These people blow me away.

  • A feature (which is often the whole product of the company), that combined with one of our products, can immediately increase usage and revenue for both entities.

  • A product with tremendous growth potential in need of resources and a business team to increase revenue.

  • Users: You need them, and they need to LOVE your product.

  • A team who sees combining with our company as the best path to achieving their bigger company, personal or product goals.

Trust me, it is hard to fake these traits. Eventually your flip strategy will be seen through, and it will either blow up the deal or significantly decrease the value of your company in the eyes of the acquirer.

16 comments so far (Jump to latest)

Jake 21 Jan 06

I love reading the stuff you guys post on here. It always ends up being stuff I’ve thought about vaguely, but never with the clarity (or expertise) you say it with. Thanks so much for writing in this blog.

In fact, I love it so much, that I’d like to make you an offer. See, I’m the head of this really fast-growing site…

Mr Bo 21 Jan 06


A feature (which is often the whole product of the company), that combined with one of our products, can immediately increase usage and revenue for both entities.

So, you’ll be integrating Campaign Monitor into Sunrise! - Great move! *_*

Mike T 21 Jan 06

Hey guys, I’m just a guest poster. I work for CNET Networks, so I have NO idea what 37Signals is going to acquire as they take over the world. ;-)

SC 21 Jan 06

I would think that any team that has the traits you described would probably be reluctant to sell out in the first place…. oh wait, unless that was your point. Seriously, good post.

Nollind Whachell 21 Jan 06

“But launching into a ‘hot pick-up line’ basically kills the conversation before it starts.”

Hehe, your blog or mine baby?!

“Small, talented teams where each member can do ‘a little of everything’.”

Wish more companies felt the same way you do. From what I’ve seen over the past few years though, most companies equate “a little of everything” as a very unfocused person who is “all over the place”.

Here’s a couple of interesting quotes from the Cluetrain Manifesto that I think relate to this talented ‘little of everything’ person that most companies still aren’t understanding yet.

“Increasingly, a useful expert is not someone with (containing) all the answers but someone who knows where to find answers. The new experts have value not by centralizing information and control but by being great “pointers” to other people and to useful, current information.”

“And how do you compensate people fairly if their value depends upon their participation in a shifting set of hyperlinked associations? How do you hire great hyperlinked people? How could this ever be expressed on a resume?”

David Thompson 21 Jan 06

Excellent points!

I completely agree with the importance of having a team of talented engineers who can do a little of everything. At the beginning stages of a startup this is even more important as time, energy, and sweat equity have to be flexibly moved around to each team member.

The well-roundedness of that sort of team provides a tremendous ability for ingenuity and well thought through suggestions. Individuals who can understand the implications of new implimentations/changes allow for a tremendous growth potential at a stage when ever step counts and can and will make or break a new venture.

Please keep up the great thoughts and work.

A. 21 Jan 06

What are “product people”?

RyanA 22 Jan 06

A.: He said ‘Talented engineers that are great product people’, so I imagine he means an engineer who is good at seeing beyond the technical and theoretical aspects of their industry.

I think that’s what an engineer is supposed to be anyway, a person who can take theory and technology and create something useful but often engineers that I meet seem more like scientists than engineers, if you follow.

Maybe Matt T you could clarify what you mean by these types of ‘engineers that are product people’?

Don Wilson 22 Jan 06

I think I heard this over at digg.com, but it’s a pretty good quote…

Engineers are people who learn to build.
Scientists are people who build to learn.

Bill P 22 Jan 06

Hey Nollind - I agree 100% with your Cluetrain Manifesto quote.

I’ve worked with great “Pointer people” like that - they have different titles at different organizations - “Integrator”, “Coordinator”, “Servant Leader.” I’ve never been able to spot them on a resume, but they always shine through in the references of others.

With promising employee, my time has never been wasted with checking references. I suppose the same falls true for a promising startup.

Mike T 22 Jan 06

A. and Ryan A,

In my definition of “engineers who are product people”, I’m talking about folks who have a real knack for making something that could be complicated, awkward or complex accessible to lots of people. Ex: The people who work at Apple Computer. Over the years I’ve worked with people who were very technically talented, but never really had a “feel” for consumer products. These folks tend to build the products that are really cool, but take a 20-minute demonstration to show you how to use them.

Having people who can tackle really technically difficult problems through the lense of “how does this impact the user experience” changes the ballgame- less people, quicker to market, shorter channel between user and product.

Hope that explains it.

Dhrumil 22 Jan 06

The worst is affiliate opportunities.

Dhrumil 22 Jan 06

Correction….the worst is affiliate opportunities from people that consider you a “close contact” and you think of them as an acquaintance.

jeff 23 Jan 06

I co-founded a company which, a few years ago (whoa — I just counted, it was *eight* years ago. Damn) we allowed to be acquired. At the time, we were a small, tight team with little marketing budget (read: under $200/month) and yet we stomped our very-well-funded competition in terms of marketshare.

One element of our success was exactly one of those engineers. He was a young kid (nineteen years old) with an intiutive sense of what worked both from a technical and user perspective. When he said, “I was thinking that we should add XYZ feature” he was usually right. He was underpaid.

We also had more than a few other engineers — senior guys with decades experience — who consistently had lousy ideas. My biggest fights were to convince them that their ideas, though technically sound, were a bad fit for the product. My job was to run interference and keep those guys behind the curtain.

We were no flippers, that’s for sure. But when the cash ran out we were very glad to have someone recognize our hard work and buy us out. When it became clear that it was a lousy fit (and that the acquirer was tanking) we bought it back and my little company continues, independent again and now profitable (without me, alas), chugging down the long path of sustained viability.

Shanti 23 Jan 06

As someone who’s “flipped” a few websites, I can definitely agree with your points, Mike.

On the other hand, there’s a market for just about everything out there.

There are many entrepreneurs who are working on projects, that they, at some point, realize are not going to be ‘the next big thing.’ Maybe they’re just small, fun little side projects that eventually generate a little cash-flow.

These entrepreneurs (like myself) might be working on them in their spare time, and eventually just want to move on to greener pastures, so selling might be the right decision at the time. (later, maybe not, who knows)

In defense of flipping your side projects to pay off student loans / credit cards,

Shanti

hatedigits 25 Mar 06

…We would be interested in speaking with you, but need to speak this week as things are moving quickly on our end.

Maybe they get this line from dealing with venture capitalists with their exploding termsheets.

-hatedigits (nowhere near the west coast, never dealt with a VC)

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