When one talks of the evolution of a startup, getting acquired figures pretty prominently in the scheme of things. There are instances aplenty of startups being bought by large organizations. And most of them have had a positive outcome for the founding members. But how should a startup prepare and position itself for a possible acquisition? While thereis no magic formula, some aspects should be taken care of if the deal is to be sealed.
• Focus on the team and product
The primary focus of every business should be to build a product or service that is excellent, solves a problem, makes money or has the potential to make money. Getting acquired should never be the sole objective. The only thing that an entrepreneur should focus on is to get the best product or service and find ways to ensure consumers use it. The rest will follow.
When Facebook recently acquired Tel Aviv-based mobile analytics company, Onavo, it primarily did that for its team. The reported buyout price was up to $200 million, which made Onavo’s office the first for Facebook in Israel. It also ensured that all 30 employees of the company would join Facebook’s team there.
Acqui-hires are a reality in the tech world where big corporations pay a premium to acquire the team at a smaller, more frugal startup. If you are in the tech domain, your technology development team will be noticed if it does great work.
What works for a startup is that teams tend to be small and if the product does well, the team automatically comes into focus.
• Market your company
It is important to promote your company. You may have a great product or service and a great
team, but everything will come to naught if you cannot sell it.
Marketing is vital not just for sales but also to be noticed by both customers and potential acquirers alike.
While it is true that below-the-radar firms sometimes surprise us with plump deals, it is still not the norm.
It is equally important to reach out to local and national media and get some public relations for the brand.
One of the most inexpensive ways to promote and market your company and the brand is to have
a good website that reflects the kind of work you do.
Another route to take is to be active on social media. It is a very easy way to market, brand and promote your company. Since the internet has no boundaries, social media allows you to reach out to audience far beyond the shores of a country.
Good social media traction can go a long way in building a strong case for an acquisition.
• Build a reputation or patents
A good reputation is a must. From good consumer service to quality of products and services, a company’s reputation hinges on what it can do for its customers. It also serves an organization well to have a clean image among its peers. A good environmental reputation is crucial to garner carbon credits. Also, bear in mind that no acquirer likes to get his hands dirty.
In the midst of many controversies, mostly involving the big boys of technology, patents have become an important factor when it comes to acquisitions.
Patents showcase the technological and intellectual prowess of a startup and may be a game changer for a bigger corporate.
In the tech world especially, it pays to have some patents to your credit that can get larger companies excited by you.
• Find a partner or a rival
For a startup, getting a partner on board makes good business sense. A partnership maybe inked to get access to technology, market or improve credibility amongst others.
However, it is often seen that in a partnership which lasts for a period of time, the dominant partner ends up acquiring the startup.
When inking a partnership, it is vital to keep in mind if an acquisition may be on the cards in the near future.
Big companies do not like competition. Unlike them, startups are nimble, think on their feet and can bring in disruptive practices.
In such cases, it is easier for larger companies to acquire such startups to keep the market conditions favorable for them.
A great example of this is of Amazon when it acquired Stanza in 2009. Stanza was a rival eBook reader to Amazon’s Kindle and operated on the Apple platform. Amazon acquired it for a hefty amount to kill the competition.
For a large organization, that plans to expand to a new country or geography, the easier route to take would be to acquire a relevant and successful startup in that country. Amazon did this when it acquired Joyo.com, a Chinese e-commerce website to gain insights and a foothold into the lucrative Chinese market.
This article first appeared in Entrepreneur India magazine.