Acquisitions are overrated (in most cases)

I think acquisitions are overrated, in most cases.

Sure, some acquisitions are life-changing. Very much so.

Some, despite being proper ones, well… aren’t really life changing -. But that depends on the life. E.g. Peter Rahal, who sold RxBar for $600 million.

But I’m talking about something else here. In 80% to 90% of the cases, this happens.

To explain this in plain English, with an example:

• Headline will be “Sold my company for 7 figures. Exciting times ahead!”
• “7 figures” means low 7 figures. If it was otherwise, that number would’ve been the headline. Still…
• 7 figures refers to the maximum possible outcome of the acquisition
• Founder got some 6 figures today. Say $500,000. They know it deep within their bones that, worst case scenario, they should consider that the amount they got for the acquisition, as that’s the most tangible thing they have right now.
• They have exit clauses, performance clauses and a couple of future scenarios mapped out, e.g.
• Stick with the parent company for X years
• 10% YoY growth in Year 1 – this payout
• 20% YoY growth in Year 2 – this payout
• Leave the company – lose this much
• etc
• Now they’re between a rock and a hard place:
• “Stick with the company, but the baby isn’t yours. And you’re making someone else richer “— I’m not saying that’s correct or incorrect, but I’ve talked to founders who have this recurring thought
• Leave, but leave all that money on the table
• Stick with the company for 6-12 months, then switch into bullet point 1 (baby isn’t yours → motivation goes down → “My palms were itching for the NEXT thing where I will really << make it >> this time”

Rarely (only when they have leverage), people stick for the stated number of years without doing anything. Stewart Butterfield did that – almost exactly 2 years after Salesforce bought Slack, he announced he’s leaving.

Bottom line is: the headline is usually way more flashy than the actual scenario.

I even acquired a company myself at one point (very small one, don’t imagine anything big) and I saw the process/thinking of an acquirer (plus the whole ordeal). There’s so much risk on the table and you want to mitigate as much as possible, without making the other party flee.

As they say: “Companies are acquired, not sold” – and that is 100% true. When companies are acquired and not sold, the acquirer can come up with the “breaking news” that the purchasing price went down 15% (a few million, maybe) mid-negotiation. Either that, or they will buy “another competitor which, although is smaller, has a better price. But we really want you, it’s just that we want you for this 15% lower price”

Ok, so… what now?

The VC-funded playbook is different. It’s a game where you become a lottery ticket.

Yep, you can do stats on that lottery ticket so that you don’t fall into the classic mistakes. But it’s still a ticket.

The narrative started to change a few years back, and only now do we realise how much we’ve been fed by VCs. It was a nice ride for them! Having a monopoly/oligopoly on startup advice makes people… follow your advice on how to build startups! Who would’ve thought!

I truly hope we’re going to look back at quotes like these in the same way we were looking at smoking ads in the past that made it look/feel healthy.

“Startups are like jumping off a cliff and assembling a plane on your way down”

Why jump off a fucking cliff in the first place?

I’m not saying bootstrapped is the way to go – it has its flaws, drawbacks, etc.

But what I’m rather saying is this: I think it’s really really important to know whether you’re playing the game of startups or the game of business-building.

Because if you’re looking to have a nice lifestyle for you and your family (regardless of whether you want to make $100k/yr with a side-project or $100M+/yr like Andrew Wilkinson), it’s business you want, not startups.

Agh, yes, bad word alert! Business. “NoOoOOo, VCs told me to not build a business, rather follow my passion.”

Get over it, it’s startups are businesses too. Just another breed of businesses.

If you want to play the game of startups, do that. I’ve seen people do it time and time again and be very happy with it. They knew what it entailed. And they didn’t care about the difference between the public perception of an acquisition and the truth (15% cash upfront – or all-cash, if they’ve done it well). They were happy anyway, because they knew what game they were playing.

But much like the acquisitions, where 90%+ go like this — 90%+ of people reading this will probably just want to have a better lifestyle augmented by tech business building. Not one that is “moving fast and breaking things”.