Carlo Pandian - Serious Startups

Businesses buy out other businesses. It’s a dog-eat-dog world out there, and acquisitions are part of the grand game of business baccarat. Amongst the main benefits of an acquisition are:

Increased plant capacity
Product diversification
Reduced financial risk
Bigger share of the market
Acquisition of research, development and market expertise

If all goes according to plan, the newly acquired company ought to increase in value as investors see cost savings and revenue increases ensue.

But it doesn’t always go according to plan. There are often problems that only become apparent after the deal has gone through. Integration plans can be demolished by white collar turf wars and culture clashes. Brand dilution, incompatible processes and systems and lack of knowledge about the acquired company’s business methodology can all have an impact in the successful marriage of two corporations. Such failings may have an irreversible impact on shareholder value and see the stock price of the acquiring organization plummet. The ship sinks with all hands, and there’s not a lifeboat to be seen.

It’s a particular problem in the world of dotcoms. Corporate quicksand lies in wait to suck even the most seemingly healthy companies to their doom. Here are just a few examples of the good tech companies that have gone bust following their acquisition.

sixdegrees.com

This was the original social networking site and granddaddy of them all. Andrew Weinreich founded the company in New York while the dotcom boom was rumbling on, and it was later taken over by Youthstream for over $130million in stock. Within six months it was shut down. The legacy of sixdegrees however was awareness of the vast potential of social networking, and the likes of Linkedin and other SN platforms took up the baton and ran with it.

Danger

Danger was the creator of the T-Mobile Sidekick. Microsoft acquired the company in 2008. They actually prototyped a new product but then completely scrapped the development and platform in favour of the Windows Phone 7, leaving the product team in, as they say, a right old mess amidst a flurry of contradictory goals. The Kin was eventually launched and proved a total flop, and the original development team was dispersed to the tech winds. Just to finish the demolition job off, Microsoft shortly afterwards lost just about all of its Sidekick customer data late in 1999.

Lala

Apple bought up Lala, an online music store, for over $80million in December 2009 and a few months later shut the site down. They seem to have done nothing with the acquired technology and nor have they replaced it.

Goowy Media

Goowy Media, a Californian-based widget software firm, was acquired by AOL/Time Warner in 2008 and everything was fine until AOL split off from TW, when everything went haywire. According to Goowy staff, the TW staff whose office they shared barely acknowledged their presence and they were not assigned work for long periods of time. About a year after the acquisition Goowy was shut down, despite having a basically good product.

Flawed system

It’s worth mentioning that acquisitions and mergers often fail because of a focus on short-term gains by the acquiring company. What they’re mainly interested in is seeing the acquisition run smoothly and after that they often don’t much care about how the acquired company performs. This attitude seems to be inherent in the business world and may often be the fault of no one in particular.

Author:
Carlo Pandian worked at Adzuna, a tech start-up based in London. He is currently writing a tutorial on QuickBooks (accounting software for entrepreneurs), and has previously published for Techli, Killer Startups and Under30CEO. Connect with him on Twitter @carlopandian.

Venture capital investors ask a lot of tough questions before they sign any checks. One of the hardest is when they start drilling down into your business model and ask “How will you acquire users?”

But in reality this is a difficult question, because even well-known companies like Dropbox might have been hard pressed to come up with a satisfactory answer if they were asked that particular question.

Common answers include such nebulous coveralls like ‘build up a community identity,’ ‘implement viral marketing,’ and ‘create incentive packages’. Maybe these will indeed be persuasive. But, many companies learn as they develop through real life challenges and don’t really have all the answers.

Here we take a look at a few of the particular issues involved in acquiring users which may be more persuasive in wooing VCs over to the cause than the usual stock responses.

Focus

VCs prefer hearing that you’re committed to focusing on a particular market sector rather than how you will target a much wider audience and then go viral. There’s never any guarantee you’ll ‘go viral,’ but narrow the target a little and you’ve got a better chance of hitting the bullseye.

Budget and resources are limiting factors for any startup. If you focus all your energies on one particular sector, you will almost certainly yield far better results because that target sector will see a superior value in your service.

Events that are sector specific are the norm, though there are exceptions to the rule such as targeting engaged couples and college students. With these, there are usually sector-targeted content platforms and/or distribution channels involved that make it easier to penetrate a small but ultimately profitable market, from which you can expand.

Scalability

If you can tell the VC that you have the scaling flexibility to go from a hundred to a hundred thousand subscribers and thereby transform into a sustainable business, this will be music to their ears. Promoting a product one-on-one is not scalability. If on the other hand, you’re able to say that you already have a partnership with Coles Group Ltd in place, this is real scalability built into your business plan, and they’ll be suitably impressed.

Get in early with validation

You need data to back you up. Look into several different types of acquisition strategy and decide which will suit your line of business best. For example, if you took out ads on Google and Facebook and found that SEO is more cost-effective than other methods, this sounds like you has done your homework. If you’ve worked out a conversion rate against costs to come up with a realistic ROI, that sounds even better.

All this is validated data, rather than just a bunch of assumptions tied together with a string of wishful thinking. When presented with such solid data investors can see how an injection of capital will help an early trend to scale up.

Author: Carlo Pandian worked at Adzuna, a tech start-up based in London. He is currently writing a tutorial on QuickBooks (accounting software for entrepreneurs), and has previously published for Techli, Killer Startups and Under30CEO. Connect with him on Twitter @carlopandian.

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