What’s A The Entrepreneur To Do? The Expand Vs. Be Acquired Quandary
The most common statistic associated with start-ups is that 9 out of 10 new businesses fail. It is unfortunately the case: odds are against the entrepreneurs. But if you’re one of the few whose jumped the hurdles most others could not, you often face yet another quandary- that is to raise capital and expand the business, or to sell the company to a larger business, usually in your vertical industry. This is a tough decision for most entrepeneurs, not the least of which is because they have an emotional connection with the company the founded.
However, a mistake some founders make is becoming too irrationally tied to their creation. A window of opportunity can close before the founder makes up his or her mind to part with their creation. One example of a company that sold at the right time was grayboxx, whose founder Bob Chandra recognized that there was strategic value to the company’s core technology and sold it to the highest bidder in the local search space.
Let’s begin with a few useful perspectives on the subject. In the area of tech, sometimes you don’t need a reveue stream to sell out for significant sums. In the words of YCombinator’s Paul Grahm, don’t “sweat the business model”. However, some would assert that the dream of an acquisition by Microsoft, Yahoo, or Google is hardly a substitute for a real business plan, as the Kiko team (www.kiko.com) can attest to.
Michael Arrington, who writes the popular Tech Crunch blog, describes a number of companies that he believes exited at the right time: Writely, Weblogs, Inc., Myspace, del.icio.us, Userplane, Flickr, Bloglines,Grouper, and Skype.
If you’re still undecided, here are some tips to consider when making the big decision.
Assess how much your company is worth. Most founders have an idea of what their business is worth and what they would settle for if they decided to sell. Before you employ an M&A firm, do some networking and you may find that you can get a preliminary valuation done for a minor fee.
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