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."
Whichever (Score:3, Interesting)
I understand I'm not answering the question, and what I'm about to say isn't exactly "the truth", but more like one way to think about it: there's no way of knowing.
If your forego the Megacorp money, you might complete your product and end up making 100 times as much money. Or your whole project could fall apart in 3 months for reasons that you have no way of anticipating right now. Maybe one of your team will get hit by a car, or fall in love and move to Tokyo.
On the other hand, if you sell to Megacorp, you might end up being able to make your project into everything you envisioned and find fame and fortune through Megacorp's extensive resources. On the other hand, the corporate culture may strangle your soul to the point where you need to quit and check yourself into a mental institution.
There's no right answer here. Without knowing the particulars of what your project is and which Megacorp wants to buy it, the only real advice I can think to give is to think it over and then try to act from hope rather than fear. And keep in mind that if you're fresh out of college, you can probably afford to make a few mistakes, and still have time to start over. Instead of spending all your time afraid of making mistakes, remember that you want to make the best use of your successes and mistakes by learning as much as you can from them.
Everyone has a price (Score:5, Interesting)
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...
Be careful of spies and pretenders (Score:5, Interesting)
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.
Here's some suggestions (Score:4, Interesting)
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.
More info (Score:3, Interesting)
Good luck!
If You Sell, Plan To Leave (Score:5, Interesting)
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.
JM2C (Score:3, Interesting)
Hi,
Thanks for the interesting question. Hope this helps.
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.
I feel you, my friend. I have not been exactly there, but have been in very similar situations. While I don't know your exact situation, I can tell you how I would think about it. What follows is stream-of-consciousness, late on a Friday evening - take it for what it's worth. :)
If my main goal is to do independent development, I would look for paths that get me to that goal while satisfying my other important needs.
Supposing I were a young hot-shot with a belly full of fire, I would feel confident that I could succeed running my own company, working as a unit of a larger company, or trying something else. That last bit is important -- technology, and technology skills, are highly fluid. If you got to where you are, you can probably get there again, given the opportunity.
Mixing those two ideas together, I would start thinking about how to structure the deal with the big company. What would I want to get out of it? Well, if I want to be independent again, preferably while I still have a belly full of fire, I'd want to think about my exit strategy from the parent company. Do they want me to commit to them for some period of time? Are there golden handcuffs that are going to tempt me to stay after I'm ready to leave? A golden parachute if they take the technology and cut me out?
That would lead me to think about how the payout is structured. There will probably be some mix of cash, immediately vesting stock, and stock that vests over time. Suppose you want to leave in one year -- how much of the total payout would you have to sacrifice? Is the parent company willing to shift to more front-loading? How much back end do you have to give up to get more now?
But why go through all that thinking if your intent were to stay with the parent company and see the product through to maturity? It is entirely reasonable to want to see your product grow, and to guide its development. That is a very healthy way to view system engineering.
The reason to think that way anyway is this: If you can work out an exit strategy that you and your friends can agree on, you don't have to worry as much about whether the relationship with the parent company will remain healthy. That future is an unknown, and there are many examples of your sort of situation going well, and just as many of them going poorly. If it works out, that's great! If not, you and your friends can head off on a new adventure together. As long as you have some front-loading and/or short horizon payout, you have a safe way out. That safe path in case things go awry can give you the confidence to join the company.
Also consider it from the big company's perspective: If they are confident that they will be a healthy environment for you and your friends, they should not be too afraid of giving you some front loading to guarantee that you will come out reasonably whole.
At the same time, don't be rude. You don't have to tell them that you're looking for a reasonable exit strategy -- they will understand that. Just discuss the options of front versus back loading, and then talk with your friends in private to discuss whether the range of options includes something you are comfortable with.
And, honestly, I'd lean toward doing the knowledge transfer to the new company and moving on as soon as it was working for them. Make sure you have the right to work together on non-competing projects in the future. Make sure you have the right to develop independent ideas with
U can't predict the Future (Score:3, Interesting)
Swallow your principles
Principles aren't worth the paper they're written
Principles are external to the self.
Follow your convictions.
Convictions are internalized values
Convictions define you
Money just keeps score
Take it to win another day
This one's easy(-ish) (Score:2, Interesting)
Instead, they've made you a sensible offer. Are you at a sensible stage of your life? Do you have commitments and obligations that would suffer if you didn't act sensibly?
If not, don't be afraid to go yourself. Instead, take their interest as a vote for encouragement that your product has serious potential.
Try to raise capital instead of selling out. Offer them a cut as silent partners. Don't be scared if they don't agree initially. Practise your negotiation skills and see if you can't come to a mutually beneficial arrangement.
Perhaps they could take a cut of your business in exchange for funding, office space, access to HR, legal & Financial resources, etc...
The big change in these types of arrangements is that you will have to formalise your processes (read: boring, repetitive, bloated) and start sacrificing some of your product to suit the market. This is not such a bad thing in business and is necessary to allow growth, quality control and delegation.
good luck.
-fodi
Re:Make Decision Executive-style (Score:5, Interesting)
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.
Re:Make Decision Executive-style (Score:5, Interesting)
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.
Become a contractor (Score:3, Interesting)
If they don't take this offer or at least seriously consider this as a plan B, then their plan is evil.
Depends on the Megacorp and on you (Score:5, Interesting)
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.
Re:you may think you're gonna change the world... (Score:3, Interesting)
If there was a +6 Insightful I'd be happy to mod this one up. Just to add a bit, there can always be one paranoid crazy at MegaCorp who will think that your continued existence is a mortal threat to MegaCorp and that you should be eradicated at any cost (lets face it, Capitalism isn't immune to irrational nut jobs).
On the other side of a aisle is there any way you can protect your self in the event that a raider takes over MegaCorp if their stock plummets? By protect yourself I mean other than taking what cash you have, running and going into a completely different field because you are hog tied by NDAs?
Re:Could you be more vague? (Score:3, Interesting)
I also find it hard to believe your not really interested in the money, otherwise, why would you have started your own business in the first place?
Re:Could you be more vague? (Score:3, Interesting)
The first you will learn about money is that it lets you do exactly that.
Precisely. The obvious contradiction in his statement reveals naivety in this regard - he's perhaps just used to mom paying for everything, so hasn't quite learned this yet. Speaking as someone now in his 7th year of working his ass off at growing a small business, and still at least a few years of hard slog away from being able to "retire - precisely so that I will be able to do whatever I want" - I would strongly recommend taking this deal, especially if you can negotiate a bit of a higher price (if they offered X, they will probably accept a price of, say, X+15%). Getting a business going is really *tough* ... you might think right now that opportunities like this are going to come along a lot - but more likely than otherwise, this is just a fluke, you might *very* well struggle your ass off for another ten years before you ever get another opportunity like this. Unless the offer isn't that great (he's vague - e.g. is it "enough money to live for three years" or "enough money to live for 30 years", crucial difference) - take it, take it, take - even if you then just start a new venture, at least you will be starting that from a position of having some cash in the bank, which will really, really help in any new venture (as a.o. e.g. you can't invest in R&D when you need to do projects just to keep the cash flow going). If the money is good (as in "I could theoretically retire with this, if I manage it carefully"), then I would definitely take the money.
He says it's not about the money - but it always is, because living is expensive, nobody can get away from that. And so you never do quite "what you want" anyway, even if it's your own business; you gotta keep customers happy so you can pay the rent.
Unless you are super confident that your business is so amazing is going to hit the bigtime soon. It's 'tough out there', it really is.
Re:True, but... (Score:3, Interesting)
Right. There's poverty and there's poverty.
I've just got back from Ethiopia. I don't need to tell you what a poor country that is. Millions and millions of people there have fuck all, and in their eyes I'm rich beyond their wildest dreams. It pulled me up sharp when I realised that I could make in a day's freelancing what somebody in a reasonably good job - a junior teacher, say - could make in a year. I don't mean that to sound boastful - I can make a more than reasonable amount of money doing what I do, but the point is not how much I make, but how little they do.
Kebede was the caretaker-cum-security guard of the place where I was staying. His job basically consisted of hanging around and opening the gate when one of us went through it. He was there round the clock, every single day. He slept on a bed directly above a squat toilet in a shed made from shipping containers. No heating, and Addis Ababa can get much chillier than you'd probably imagine at night. I wouldn't have kept my fucking dog in the conditions this guy had to live in. I never got to ask him, because neither his English nor my Amharic was up to it, but I'd bet he counted himself relatively fortunate.
And you know what? In a way I'd rather be him, or a subsistence farmer scraping by on $100 per annum, than the aforementioned poor bastard who has to work three shifts on minimum wage, praying the car they drive to work doesn't break down because they can't afford to fix it, just to keep their kids in shoes.
There's a particularly insidious kind of poverty that's prevalent in the US and to a lesser extent in many other developed countries that would just make you want to cry. It really traps people, steals their time, steals their health, just so they can keep their heads barely above water. The many, many Ethiopian people I met who have literally nothing more than the shirt on their backs are in some ways more fortunate, because they never expect to have anything and live in a society which is geared up to cope under these circumstances. America's a very, very difficult place to be poor.
Re:Could you be more vague? (Score:3, Interesting)
I don't think of it that way. I love life, there are things I love to do....hang with friends, work out, travel, buy 'toys'....I like to play with computers, work with pgp and nym servers, etc.
Money allows me to live in a place and lifestyle I love...
If I won the power ball, I'd never 'work' again.
I can't understand why people way they'd acutally work after they were wealthy, unless just making money was an end to itself. If I had enough money to not work again...I'd not work again.
I was recently between contracts for 7 mos...every day, I woke up, went to the gym. If weather was nice, I rode my motorcycle around New Orleans all day....hit a couple bars for beer, and in the afternoons, met my working friends for a few.
I figured out then, that if I could do this for the rest of my life, I would. Do that, and occasionally take a vacation here and there to MX or Key West...to get away from it all.
I've never understood people who define themselves by their job. Me? I'd rather take the short time I have in life....and enjoy it in any fashion I'd like. I buy sports cars and stuff, not because what other people thign...because I like driving them and driving fast. I like to cook, I like to eat and drink well...I like to hang with friends...buy drinks...give to others...travle..etc.
If I didnt' have to work..I'd not , I'd do the things I said.
I cannnot really believe someone that had the means..would not do the same.