Expect Your Company to Die, When You Sell It.

Broadcast.com, Dodgeball, LinkExchange. Countless others.

You may or may not have heard of these companies, but they were all sold to bigger companies (Yahoo, Google and Microsoft respectively), and then became defunct.

Entrepreneurs build companies for one reason and one big reason- to make money- lots of it. Yes- companies are built to fix problems, better the world, and to create jobs, but honestly, it’s all about money at the end of the day. 

So why do large companies acquire smaller ones? Many reasons.

• Talent acquisition- The acquirer wants the people making acquiree work. 
• Eliminate the competition (or future competition)- Large companies want there to be less competition, so they try to eliminate the largest competitor, sometimes even before they become competitor worthy. It’s common juggernauts just acquire so there’s less on the battlefield. Anti-trust issues anyone?
• Ignorance- “Lets buy ‘em, they are cool. We’ll figure out what to do with them later.” 6 months later- “that wasn’t such a bright idea.”
• For parts- It could be a large company is working on building a product that a startup does well in, or a piece of the startups technology can contribute to the product the large company is building, so they will use it for parts and scrap the rest. Some can argue this might not be the death of a startup, but instead rebranding.
• Good product, bright future- Most of the time companies are acquired if they have a rockstar product and the large company can “make it rain” after they acquire the startup, with their endless resources.

So how do companies die after acquisition?

• Lack of vision- “They” didn’t start the up start and nurture it until it succeeded. The entrepreneur did. Due to this, they probably don’t know where to take it. Many people can drive cars, but when you jump in someone else’s car, it takes awhile to learn the controls, by the time you learn, people are already passing you up.
• Money-  Even at a startup, money matters, but it matters more so when someone paid $1 billion to acquire something and then it doesn’t generate enough cash to justify it. If the money a startup brings in isn’t increasing with time passing, after being acquired, it will start being ignored. This happens when the acquirer has high hopes, but can’t make those hopes become a reality.
• Buying into a fad- This has probably happened a lot. MySpace anyone? It was cool for its users and “in” when it was acquired, but now it stinks- some may blame this on lack of innovation, but honestly, it was the model…too open, too much spam, Facebook is/was a better option.

The saying prepare for the worst and hope for the best might come in play here. And selling isn’t a bad thing, because the goal is to make a lot of money when someone starts a startup (unless it’s non-profit, but you still need cash).