Acquisition as a Business Model

In its initial stages, a startup is faced with two choices to make regarding its future:

  1. Materialize a business model with a valid plan for monetization or revenue.
  2. Pursue acquisition of your company or product.

Option 2 is still the prevailing choice for most. And it’s easy to see why. But is it wrong for a company to be formed purely with the goal of being acquired? If this is the ultimate objective, does it mean that the startup company values itself so little as to not continue building independently? And how about those that stay sovereign – were they just not promising enough to be scooped up?

To be… (acquired)

I’ve read arguments stating that if you truly believe in what you have, you would hang onto your business and grow it yourself. Building then flipping a startup meant that you no longer see potential under your control. I don’t agree with this. I think flipping your web property or social network is a completely viable strategy, even as the basis for your startup’s formation.

As a standalone product, MyBlogLog or Bix would be mediocre at best at generating revenue. Yahoo found value in them as an addition to their growing toolbox of novel, targeted web applications. MyBlogLog is nicely developed tool and has a strong user base. But how would they monetize that effectively? Getting acquired by Yahoo netted them $10 million.

Kiko made a stir a little while ago when they put themselves up for sale on eBay, ultimately selling for a little over $250,000. They made a nifty Ajax calendar, not unlike Google’s. Some noted this as Kiko throwing in the towel against competitors or not being able to live up to the PR buzz surrounding them. But in actuality, selling Kiko off was the right thing to do. The Kiko team may be great developers, but it’s not like they had a plan for revenue. Their calendar may be better off in the hands of someone else, integrated into another application such as 37Signal’s Basecamp.

A company’s product may just be better suited as an integrated feature in someone else’s product. Instead of independently growing and trying to monetize your offering, you can increase its potential by having Yahoo, Google, or News Corp. grow it.

Or not to be… (acquired)

Then there are the Facebooks and diggs among startups. Facebook had an internal valuation of $8 billion. They wouldn’t sell for whatever amount Yahoo had on the table at the last mention (or rumor) of negotiation. So when should a company not aim to be acquired? If the startup has a firm handle on its market and a true business plan, there is no reason to let someone else in on the fun. The “greedy” ones can become the next web mammoth. Or their move can become a new entry on the list of regretful company decisions.

Daniel on March 2nd 2007 in disqus

Viewing 6 Comments

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    Nice article..

    "But is it wrong for a company to be formed purely with the goal of being acquired?" No!

    "And how about those that stay sovereign – were they just not promising enough to be scooped up?" In most cases, yes. But a small percentage of these startups are the ones that become Google, Apple, etc. (truly ahead of their time).
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    and this question has to be asked ...

    I hooked up with MyBlogLog; and have used it continuously, before it was aquired by Yahoo but since that aquisition all we - the users - have seen is the forced changed to using a Yahoo signin. There have been no improvements or additions to the MBL service - if anything it has stagnated. Myself along with other bloggers who use MBL have asked the same thing - when are we going to see something more than just the avatars in our sidebars and a basically useless addition of Twitter integration. And we're still waiting.

    Now we have Disqus and again it is a service I really like and am banking on being a service that will bring something of value to my blog(s) even though you guys are still in school (finishing finals if I understand correctly) and working hard on your startup but are we looking at yet another company who will take the first hot aquisition offer - potentially leaving the users with yet another stagnating company.

    Or - do you both believe enough in your product that you are in it for the long haul which includes letting your users know what is happening product wise. I realize this might be hard having to juggle a hectic school year with running a startup and having a life in an amongst all of this .. but hey .. you brought the product to the table and I think it is only fair to know what is going to happen with something that a lot of users are investing their time into promoting.

    Like I said given your post the question had to be asked :)
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    Wow, there's a blast from the past. :)

    This was written way back in March (about 2 decades ago in Internet years). We are no longer in school and we are working on Disqus full time. I wrote this back then to think through some thoughts I had floating in my mind. In regards to Disqus, we really see a huge future for what we're doing. Disqus is taking its baby steps right now, I'd say.

    Thanks for reading our old stuff (this post was pre-Disqus) and I appreciate the thoughts. But no, we're not going anywhere and we're not doing anything else.
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    Cool.

    the post came up in my feed reader and I didn't pay much attention to the date stamp (if there was one) but in a way it did give me a chance to ask some questions that had been in the back of my mind.

    and I am glad you are going to be here for the long haul - regardless of how that equates to Internet time LOL :)
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    It could be a good choice for many startups since many products are just some features to add to other products, services
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    This is a comment trying out DisQUS
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