How do you maximize the opportunity for a "purchase from competitor" exit strategy?


7

In the development of a solid business plan -- whether written for a formal purpose or as an internal document to focus the activities of the leadership -- there is the identification of the potential exit strategies.

If in the process of developing the core value proposition for the business, it's prospective value to a large and well-established competitor has been identfieid. An attractive exit strategy for initial investors would be positioning the start-up to be purchased by this commpetitor.

For example -- if we were designing a
killer add-on for integration of
social media to web-based mail then
being acquired by Google could be very
desirable.
What issues in design, development, and business structure should be identified and "done differently" if this is the intended exit strategy?

Business Plan Exit Strategy

asked Jun 2 '11 at 04:22
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Joseph Barisonzi
12,141 points

3 Answers


3

in design: use the same design values as the would-be suitor (simplicity if they value simplicity most, formal if they are a long standing formal business, etc... basically showing the same values to the public)

development: use the same technology (not just underlying, but also if they are using web 20.0 ajax-y forms, you use them as well, etc...)

business structure: should be as simple as possible (and without (many) future promises and requirements)

--

having said all that, the #1 thing you need to do is to make sure you are SO DIFFERENT from anyone else that there are no just as likely candidates elsewhere OR that you dominate the market in user count (profitability not so important) so that you are THE company of choice.

all other things listed above do not matter much in this scenarios (except the business structure and future requirements)

answered Jun 7 '11 at 20:38
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B0x0rz
316 points

2

I am assuming the example of acquisition by Google (or on similar lines) is the one your business plan actually targets..

If we research a bit on such acquisitions we will realize that at times such addon companies are bought not for the reason of a cool addon but its more for buying the brains. Companies often require teams which have great technical knowledge but at the same time innovative enought to churn out new features.

You cant assume to make 1 killer add on which gets stagnant in development and still comes under acquire me list. Coming back to your question, I see following traits that will make your business "purchase from Competitor" worthy
You have a rock

  1. You have a solid team. At times what is getting acquired is not product or company but the team.
  2. Your addon actually adds value and somewhere down the line the biggies (Google) would have to as it is develop it. Like Friend Feed for facebook. Or DoubleClick for Google
  3. You have a clear vision on where you are going to take the add on. Be clear on which version will have what features. If 2.0 is about to go live have a vision till 10.0 Though be flexible
  4. Use the right technologies or make technology integration irrelevant. No one wants to acquire a company/product only later to change/re-code the whole stuff
  5. You have raving fans. Understand the YouTube acquisition. Google already had video site, Youtube never used any cutting edge technology that Google couldnt develop. The whole idea is aquiring user base. It will take ages for the biggy to convince everyone to try their new feature
  6. Be difficult to replicate. aka Actually add value. Lets take example of Twitter. They build their own URL shortner and now they will come up with their own photo sharing service. Why? Because it doesnt make sense buying a company for such a easy feature

Hope these pointers helped you.

answered Jun 7 '11 at 23:01
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Chanda
61 points

1

If you can see potential for a trade sale, you should be communicating with the potential purchasers from the earliest possible stage. Trade sales are typically built on established lines of communication.

If the only monetization route is held by the competitor then you have a simple, and obviously high risk, proposition. You're adding value, and your job is to sell before you run out of cash. You need to attract and retain users who acknowledge your value. And it obviously simplifies your business planning.

If there is a single prospective trade buyer then you will want to manage development of your proposition in such a way that you don't unnecessarily antagonise the partner, and within that one constraint to build a great business that earns money.

If there are several prospective trade buyers then you're essentially in the situation of most businesses. Job #1 is to create customer value. As you develop the business and establish lines of communication with potential future buyers, you are both getting to know the industry players and maximizing your chance of timing the exit right and achieving best value.

answered Jun 15 '11 at 21:47
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Jeremy Parsons
5,197 points

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