Interview with Stefan Fountain, Founder and “Chief Monkey,” Soocial (acquired by Viadeo in France)
December 1st, 2011What if you gave us your company?
November 9th, 2011Entrepreneurs and startup CEOs, it is time for a little perspective. Your revenue is meaningless. The efforts required to create it are a distraction. Your pricing is too low. You have undertaken excessive support obligations. If you start to scale, your processes and technologies will all fail, destroying the existing good will with your customers. In fact, if you offered to give your company away for free to most acquirers, they would decline.
I made this point to a CEO recently and his response was, “oh no, they would take my company for sure.” And I thought, “oh boy, this is going to be a long meeting.” So I tried another approach:
Mr. CEO, if you had a billion dollars to spend, would you buy a $5 million revenue company and spend another $10 million on R&D and distribution in order to scale it to $25 million? Or would you by a $200 million revenue company and spend another $50 million to scale it to half a billion? Knowing that buying the small company is almost as hard as buying the big asset?
In fact, it is standard practice for many corp dev groups to play the “what if we could get it for free” game. This is a useful exercise, because it forces the buyer to confront all of the overhead required to integrate, manage, scale and support an acquired business. It also helps them get past the initial excitement of a new team and technology, and to face reality.
For Apple in the 1990’s, it was a question of relevance with a capital “R”. Will the acquired business potentially impact millions of users? Google management follows the same line of thinking. Unless an acquired business can be part of something really big, truly game-changing, then it itsn’t worth the trouble.
For a CEO who has battled to grow revenue from zero to $5 million, it is hard to accept that their hard-fought battles may have created a business that is more trouble than it is worth.
Time to rethink.
- That $5 million in revenue represents customers paying for product. It represents product validation. Is it profitable revenue? Does it reflect demand, or are the customers being bought?
- Are the customers being served profitably?
- How scalable is the technology?
- Does the pipeline trend support the argument that the opportunity is much larger, and growing?
- Are the support agreements and terms “market”, and did your sales staff stay within the bounds of standard SLAs and support agreements?
- Does the team have a passion to take it onto a grand stage, where every flaw will be revealed?
- Congratulations on your progress so far, Mr. CEO. But if you really want to take it to the next level, you need to convince the buyer that this was not the grand performance – it was just a very successful rehearsal for a much bigger act.
Predicting the future on CNCB – interview on Ellison (links to CNBC)
October 7th, 2011Casual Connect Seattle, 2011
August 5th, 2011
Monitoring the M&A Panel at Casual Connect Seattle, 2011
Here I am either a) holding an invisible basketball or b) moderating the M&A panel at Casual Connect. (OK, the caption gives it away). Congratulations Jessica and team on the best Casual Connect ever, and one of the best industry conferences I have attended. Thousands of participants, great speakers (including the Rovio CEO, Mr. Peter “Angry Birds” Vesterback, and an opportunity to network with people from literally dozens of countries. (Photo courtesy of Eugene Hsu @HEUGE at twitter).
Adding my 2 cents on CNBC Power Lunch, with Herb Greenberg – “The Tech Dating Game.”
June 24th, 20112011 E3 Report – Back to the future of gaming
June 9th, 2011I worked for Activision in the mid-’90s, when the Internet got fast enough to support multi-player gaming. Mech-Warrior 3 over the net played a little slower than Doom over Dwango, but it was good enough. 15 years later, the state of the art in games is mind-blowing (as are the budgets – often in the tens of millions). My agenda at E3 is to look for up-and-comers on the periphery; smaller companies that have a shot at doing something big, outside of the control of the publishers. This is how we found Demonware, the matchmaking and lobby services company that we sold to Activision. Not to mention one of our bigger deals in the ’90s – the sale of Duke Nukem 3D.
This year’s E3 started out with a strange encounter on the 405. Through the left side rear view mirror a car approached in the HOV lane with. . . a mannequin in the passenger seat. I then parked a half mile away in a lot that looked like the place where stolen cars are taken to be dismantled – not the place where one would leave one’s car. Fortunately, it was a rental. Finally I entered the Convention Center and the perimeter booth models, got my badge, and hit the main hall.
The big budget hits were everywhere. Tanks of War had models and giveaways galore. It looks like a great game – addictive, innovative, and fun. Time passed quickly for the people waiting in line, because the publishers had plenty of contract employees striking up conversations with the guests. Almost every big budget game raised the bar and redefined what is possible on a 2D screen – but where was my upstart company – the entrepreneur who had created something big on very little capital?
I found him in the back corner, behind Konami. A scrappy Seattle startup called GAEMS was showing a case for consoles with a built in screen. Basically, it turns an X-Box or Playstation into a portable gaming unit. Simple, ingeneous, and fun. Look for it in an upcoming movie sponsored by Microsoft, on shelves everywhere next Christmas, and in our M&A report early next year when they get bought out.
Brinksmanship in public, horse trading in private
April 12th, 2011I have five transactions in the final stages. Every deal dies 3 times, and that adds up to a lot of near-death experience in a highly compressed time frame. Proximity to Easter notwithstanding, one of the deals will not rise again (the acquirer is being acquired) Touch wood and don’t dare the devil – the others are on track.
Interview with four software entrepreneurs who recently sold
February 14th, 2011I had a chance to interview four entrepreneurs who recent sold their companies (with our help, of course). This is basically a 30 minute podcast that includes some excellent tips for CEOs going down this path. The CEOs are Mike Taylor from Instantiations (sold to Google), David Geller from WhatCounts (sold to Mansell Group), Laurent Othecehe from 360 Scheduling (sold to IFS), and Rui Domingos from Altitude (recapitalization with new investors).
Software M&A Discussion with 3 Recent Sellers from Nat Burgess on Vimeo.
Here is a clip from my appearance on CNBC today
August 30th, 2010I will be on CNBC at 1:15 Pacific today with Trish Regan. . .
August 30th, 2010Closing Bell is profiling the recent high-profile tech M&A deals. I am trying to guide the dialog away from quick hits (“which company will get bought next?”), and toward the broader evolution of the tech landscape – along with a reminder that sometimes the little deal, rather than the blockbuster, makes all the difference.