What To Do When a Megacorp Wants To Buy You? 412
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."
Comment removed (Score:3, Informative)
Re:When a company wants to buy you... (Score:4, Informative)
I'm curious. Do you have any experience in this matter? I do, and I can assure you that the absolutes you've defined are not absolutes by any means. It really depends on the deal. Some companies buy to simply increase market share. Some think they can move a new product through their channel cheaply. Some think they can incorporate unique features into their existing product easily. Others want sales relationships (not in this case, from the sound of it).
There's no hard and fast rules to this. In deals I worked on, typically we wanted to use an acquisition as a seed to enter a new business and leverage our brand to grow it. You better believe we were interested in keeping the entrepreneurs happy. The problem is, once you dump a stack of money in an entrepreneur's lap, it's hard to keep them from moving on or retiring, even with an ironclad non-compete.
As you say, though, the only thing that matters is getting a good lawyer who has experience in acquisitions. They won't let you do anything stupid, but it's gonna be expensive. Probably something along the lines of 5% of the value of the deal. If the deal falls through, then you eat that cost.
In my experience, most entrepreneurs are WAY out of whack with regards to the value of their company. Most are convinced that BUYER X is interested in their company because their product/service/whatever is the wave of the future and has no possible substitutes. Usually, BUYER X has the means to develop whatever you're doing, but simply wants to get there faster.
Re:Be sure you understand how risky going it alone (Score:3, Informative)
Getting sales, marketing, and operational execution right is both critical and very difficult.
I'm a business owner and what amazes me, is the amount of time I have to spend selling in order to make some money.
Every time I read about a great idea or a startup, my question is thus:"Sounds great. Who's going to do the sales?" Often followed by silence.
Someone has to go out and tell people how wonderful the product/service is. You're not going to cut it with some Google Adwords because everyone does that.
if your business is any good, don't do it (Score:3, Informative)
Happens to me every year - I own a 3-doctor medical practice in a "monopoly" location, Every so often a large corporate practice chain wants to buy us out.
Consider this: large corporates, as a rule, know how to handle money. If they offer you something, they expect to be able to make a lot more than they will spend. Unless you depend on their resources in order to realize your business plan, that's the money you will miss out on.
But that is only the money part. More important - far more important - is job satisfaction. I have seen many of my colleagues who sold out turn into miserable frustrated sourpots, when prior to the sellout they were happy and satisfied professionals.
My advice - if you seriously believe your business is any good, you like doing what you do, and you don't depend on corporate backing to finish what you started - DO NOT SELL OUT!
I sold my IT business in order to get through studying medicine, and I have seen what happened to those who remained in corporate employ thereafter - not worth it, never worth it.
However, if you realized that your business plans are unrealistic, you are not likely to finalize the project or match your own deadlines, competition is pulling ahead - then of course get rid of it to the highest bidder before they notice these problems too.
Thing to remember (Score:3, Informative)
You can sell and have a big pay off, however you don't get to walk away. Oh no, no no. You become an employee of Megacorp, and depending on the size of Megacorp, an employee with no power. Megacorp will most likely have a bunch of managers who will call the shots, and you'll have to follow them even if they are 100% wrong. You'll have to put up with that for the next three years while they have the golden handcuffs on you.
Plus everything they promise you will change. A change of direction, and suddenly everything they told you to get you sell is out the window. Megacorp will have all sorts of wonderful policies and procedures for you, like time tracking, horrid ticketing system, an IT department that will force locked down, Window desktops/laptop that belong to a domain (say goodbye to any Mac or Linux desktops), monitored internet, and tons of HR crap like employee ranking, personal development plans, blah, blah, blah. Also they might install badge security and cameras on all your door, so they can track you, if they don't make the entire company move. And if they don't move you, they will entice a few employees to move and grow a local branch and kill your branch via nutrition. Again, you're not sitting on a beach enjoying yourself .. you're writing a daily status report to your new boss that has no idea what you product or company does.
Been through two buy outs, and watched both companies torn to shreds. And watched two boss struggle watching it happen. It's pretty painful to watch people destroy what you spent time to create.
Simply, when you sell, you become their bitch for a few long years. Could you have made it without them?
binge for 5 years straight.... (Score:5, Informative)
You think a few million will cover that? I think not.
Of course it will. Get the money, transfer it out of the USA to the Caymans or Luxembourg, and move to a nice beautiful discrete villa on the outskirts of some major city in or near a cocaine-producing country where the blow is cheap. Like say, Lima Peru.
Marry a beautiful young proper landed old-family upper-class girl who likes to have sex and who's family is experiencing a cash flow problem. Learn Spanish, meet your neighbors, learn the local customs, go to local cultural events, have your wife's family and friends teach you all that you need to say and do to be treated respectfully in your newly-adopted country. Go to Mass once or twice a year. Make some noticeable donations to local respected charities. Make a few unnoticeable donations to local police department's widows and orphans fund. Keep up appearances and indulge your appetites discretely. Know your limits but keep expanding them.
Do this and your millions will last a long, long time. Party Hardy, dude.
Re:Could you be more vague? (Score:2, Informative)
like sleeping with girls a lot younger than yourself
Both of you, bad example. This does not require money. (Yes, even for the ones that are younger and more attractive than yourself.)
If you think it does, you're doing it wrong.
Re:Take the money. (Score:3, Informative)
Well you can negotiate.
Usually corporations think that way:
So in this case they think it would be more reasonable to buy an existing company/team.
"But" you are entrepreneurs, your motivation is essentially "big money". If you loose that appeal and if you receive just a salary instead, you will be less productive. Remember them that fact to negotiate significant shares.
Something else worth to remember, developing a product is the easiest part of the job (I'm a developer and entrepreneur as well). The real difficulty is to sell it.
Usually computer engineers have a very poor estimation on that part of the project.
Re:Michael Scott Paper (Score:5, Informative)
EMC purchased a small IT service management company and screwed the directors. And EMC are actually not to bad as a mega-corporation (except they are inefficient, and don't give very good service to their customers). Yes, the directors got a lot of money, but unfortunately for at least one of them, they had expected to stay on and help manage the company to greater heights. They all got shafted and soon left. If you want to continue to have a hand in managing your teams, then I would advise not selling the company. If you don't mind leaving and starting up another company, go for it. Just make very sure a competent lawyer reads the contracts so you can, in fact, start a similar company, or a company within the same field!
Oh, and I'm going to post this anonymously, though I suspect that I've said enough that I can be identified. But you have been warned!
Re:Could you be more vague? (Score:2, Informative)
like sleeping with girls a lot younger than yourself
Both of you, bad example. This does not require money. (Yes, even for the ones that are younger and more attractive than yourself.)
If you think it does, you're doing it wrong.
vote++.
Here's a little secret that a lot of men don't ever seem to catch on to: Many women are turned on by older men. Lots of them. Maybe even most of them.
When I turned 40, fresh off a divorce, I figured the old sex life was just about over. Seldom have I ever been so happy to be proven wrong. :)
Re:Make Decision Executive-style (Score:5, Informative)
Re:Could you be more vague? (Score:2, Informative)
I'll buy you a diamond ring my friend if it makes you feel alright. I'll get you anything my friend if it makes you feel alright. Because I don't care too much for money, money can't buy me love.