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What To Do When a Megacorp Wants To Buy You?
Anonymous Entrepreneur writes "I run a small technology startup company; so small that our offices are still located in a room in my home. We are just some young friends, fresh from college, and we haven't started having regular sales, as 99% of our time is invested in development. A large corporation has just approached us, trying to persuade us to sell our company. The money is fair enough, and the employment conditions would seem excellent, since they would enable us to manage good-sized motivated teams, but we are very emotionally attached to our development and we place great importance to being independent. We founded our company because we didn't want to follow rules. We wanted to be the ones who make the rules instead. Money really doesn't mean much to us as long as we can do whatever we want while excelling at our passions. We feel that by accepting the offer, we couldn't achieve the maximum of our potential, and one of us joked that if we get in contact with the corporate environment and accept their money, we risk becoming lazy. Another member is more pragmatic, saying that accepting some money now is better than waiting for the development to go gold, even though all of us agree that if we finished our thing, we'd earn more than what the corporation has offered us. We would be very interested to know your thoughts and viewpoints, especially if you have ever faced a similar dilemma."
I think they are not offering you enough money.
Think about it. If they were offering you one billion dollars, would you still be asking this question?
If your answer is "yes, I may still be in two minds about selling", then don't sell.
If your answer is "no, I would sell in a heartbeat", then lower that limit, i.e. would you sell for a hundred million? 10 million? 5 million?
Put a price on what you would be willing to sell for without hesitation. Then evaluate the difference between that amount and the offer. If it is less than 25%, sell. If it is over 50%, don't. In between 25% and 50%, I don't know - but may you don't even fall in that window.
And, lastly, do not sell unless you personally stand to make at least $2 million after taxes. Anything less is hardly worth it. Given the fact you have received a buyout offer with no real sales, you obviously have something of value and hence will easily make at least that much on your own.
My 2 cents...
Sometimes a big business or somebody posing as one comes along offering to buy up a small startup company, when in reality they only want to get inside information so they can copy the ideas and technology.
So you really need to find out if these people are actually capable of buying your company for millions (anything less, and by the time you split it up between all of you and take out taxes it won't be worth it), and that they are genuinely interested in buying the company, before you even think about selling it to them. Then if you think they're real, get a lawyer ASAP with experience in these type of deals, and be very careful of how much information you reveal to the buyer.
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There is inferior bacteria on the interior of your posterior.
The first thing to note is that the company has put some effort into making the decision. If they don't get the purchase, that effort will be wasted. ...which means you can make a counteroffer for 10% more and they will probably take it.
(The same thing is true with job offers. The company doesn't want to go back to the interview process, so once they've made an offer to hire you, ask to "think about it" for a day. On the next day, come in and ask for 10% more.)
Next, you should decide what your goals are, and whether it's more important to "feel good" or "be successful".
If your goals are to make tons of money, and you think your project has a good shot at that, then don't take the offer (politely) and keep working.
Otherwise, decide whether it's more important to "feel good" or "be successful".
As an example, people who show up at traffic court wearing jeans and a T-shirt with long unkempt hair usually get short shrift. If asked, they would complain something like "it shouldn't matter how I dress - they should see me for who I really am".
Those people have unclear goals.
If it's important to not get the ticket, then you should do everything you can to make it more likely that the ticket goes away, even if it means getting dressed up in a costume and acting as if you are someone you aren't (read: suit and tie). Dressing to your personal philosophy makes you feel good, but it doesn't accomplish your goals.
So for your situation, you must ask the question: "what are our goals"?
If you are well and truly into "not following rules" and other things, then that's your answer right there.
But remember it's easy, even trivial to start another project and get excited about it, and you can even have your existing dev group together to do it.
If your goals are to have fun and go your own way, selling out now could be a stepping stone to that end.
When the situation is framed clearly, as the traffic court example, most people realize that the fleeting "feel goodness" really isn't all that important to them, compared to the value of achieving their goals.
Have a group meeting, decide what your goals are as a group, and write that down. Your decision will flow naturally from there.
I've worked at two small technology companies (video games, actually) that got bought out by larger corporations.
The wise owner/managers in both cases did this: Work up until required by their contract (1 year in both cases), and leave the next day. The not-so-wise programmers (including me) tried to stick around, make it work, become frustrated, etc.
I now see there's a standard protocol for company buyouts. Step #1 is where big company sends spokesperson on site to give a boilerplate spiel, "We're not changing your working practices; your culture is great, we don't want to change that; etc. etc.". All bullshit. They say that to forestall mass departures, and proceed to make whatever changes they wish, at whatever pace is desirable for them. Now I know: When your small company is bought out, leave ASAP. It's over.
I actually do recommend that you sell and leave ASAP.
We know where leadership by an anti-intellectual "strongman" who scapegoats minorities and likes boisterous rallies goes
If you decide against, let Magacorp know immediately. Then get back to work, pronto. Looking back, second thoughts and re-negotiations are distractions, too. Let Megacorp know that your decision is final.
And get working on market share fast. If megacorp is Google, they have a history of copying what they don't buy.
If the OP hasn't even started getting sales, now might be an excellent time to accept the offer. He is spared the pain of getting one startup off the ground, and the sale should provide him with useful collateral to pursue some other opportunity if he so chooses.
Anyone who is able to get a venture to the point where people are queuing up to buy it (especially in this economic climate) should have no trouble coming up with an equally interesting idea to pursue.
I Am Not An MBA, but it seems intuitive that knowing when to get out of a business must be a large part of the strategy. To harvest a good offer while having had to put in a relatively small amount of work sounds like a winner to me.
I've lived at Big Fortune-10-types, small mom-and-pop-places, and the medium companies in between. I've worked for myself, I've started companies, and I've closed companies down. Here is what you should consider.
Have you worked in a big corporation before? And for a few years where you're well past the 'new kid on the block, not a threat to anyone, we don't know if he's a maverick or a loyalist but we're worried he might be a slacker yet we don't know' time? Big corporations are populated by people who don't know what to do with mavericks.
Starting your own company is a very big act of non-conformism. You might do it again, they will fear. So you're time there will only be short or you'll be locked into a 'certain level' and promotions (aka bigger money) will be difficult. You'll yearn for the simple days in a small office.
So TAKE THE MONEY, agree to work to transition the new team to the project over 12 to 18 months, set up and train a traditional manager-leader and then gracefully exit. You'll want to get stock options that vest when you exit.
Your responsibility, assuming you did get the big cash, is to put a portion of that money toward starting someone else's startup - just a little seed money to get it going, not so much they get drunk on it, but also enough that you're going to stay interested in their success. Help them along. Teach them what you know.
The next portion of your cash you need to shoe-string your next venture. You should be thinking about what that needs to be while you're transitioning that big company in your old project. And it's old already. Big companies are slow, they think they are fast, but they are not. And if they think your idea is great enough to acquire then you've slipped away from the front of the wave already.
The last part of your cash should be put into a diversified portfolio outside of the companies and markets you work in. Seek a professional wealth manager on how to place those bets relative to your age and needs horizon. This is your safety net.
Then focus on that next idea and the next startup. You did what you did because you couldn't take the boredom of a typical large company. You shouldn't stay in one. I had an early mentor once tell me "When it's not fun anymore, get out of the business" if you've lost your passion you're done.
So negotiate a reasonable price, take the money, get them set up for a smooth transition, and get working hard on that next business startup.