Becoming an Acquisition Target
Dare posts on what it takes to become a target for acquisition:
If you are building a Web startup with the intention of flipping it to one of the majors, only three things matter; technology/IP, users and
the quality of your technical team.
I think there’s another aspect, that Dare isn’t considering, and that isn’t directly addressed by these three. Momentum.
Technology / IP is only really an issue if there’s patents involved. Other than that, creating technology isn’t really very difficult. If Microsoft wanted to create Flickr, it shouldn’t take them a year to do it. I wrote a site that did a lot of what Flickr did (which is unfortunately no longer online) in about two months. Put a team of a dozen good developers on it for 6 months and you’d have a great site.
Technical team? Good developers aren’t that hard to find.
And like Dare says, users aren’t really a consideration to the big guys.
Momentum is, I think, a more relevant measure of how marketable your startup company is. Momentum is a little harder to define, but basically I think it boils down to something like this: If you’re gaining users at a rate of 50% per month or more, and have been doing so for more than 6 months (after hitting 100 users), then you’ve got momentum.
del.icio.us is a cool site, but it’s hardly a technological wonder. But it filled a need, and it took off. Same with blo.gs. Same with Flickr.
If Microsoft or Yahoo or Google decided within themselves “We need to get into photo sharing”, then it would have been at least 6 months before they were ready to roll something out. (Google would have rolled out a Beta earlier, of course). During that 6 months, Flickr would have continued to grow. And as it grew, it would have remained an acquisition target for your competition.
If any of the big 3 decides that a particular area of the market is somewhere they want to compete, then all of them are going to get into it. Whoever gets there first has an advantage. This means that once you recognize that photo sharing is a competitive space, the 6 months it takes to develop something in-house becomes important. Flickr has momentum. Whoever buys Flickr becomes the company that has the advantage in photo sharing.
Of course if nobody buys Flickr then nobody gets this advantage; but it seems like whenever innovation starts to gain momentum, an acquisition is not far away.
Momentum requires all three of Dare’s listed requirements: Technology, Users, and a Technical Team. Gaining momentum is proof of your ability to execute, proof of the relevance of your technology and the competence of your technical team.
But it all comes back to users. Users are my metric for momentum, because users are what it’s all about. If Flickr didn’t have any users, they wouldn’t have been acquired. Same with del.icio.us. It’s the users that prove that prove the value of the site – so while a company isn’t being acquired for it’s user base, it’s user base is what’s making the company an acquisition target. Get it?