Every Company Has a Natural Owner.
A startup can get bought, die or go public. Most that succeed get bought. So ask early: who will own this?
The Creator's Journey · Chapter VIII, Capital and the Exit
A startup can only do three things. It can get bought. It can die. Or it can go public. Most of the companies that succeed get bought long before they go public.
If that is true, the most useful question at the beginning is not “How big can we get?” It is “Who will own this?” Every company has a natural owner: the larger player for whom your product is not a nice addition but a missing piece. Know who that is from day one, and you can build toward it on purpose.
WiseWire: the owner who needed us most
When I laid out the game board for WiseWire, the natural owners were obvious. Yahoo, Lycos or Excite. Yahoo already had a directory, so it needed us least. Lycos had no directory. Lycos needed us most. So I did not start by trying to sell the company. I structured a deal for Lycos to use our technology. It generated real revenue almost immediately.
If a company uses your technology, depends on it and makes money from it, that company will eventually want to own it.
Buying startups also solves another problem afflicting big companies: they can’t do product development.
Paul Graham described the buyer’s side of this in 2005. Large companies struggle to build new products, so they buy them, and buying lets them pay after the team has proven itself. A partnership already running inside their business is the strongest proof you can offer.
There was a second lesson. I first tried to bring Yahoo into the conversation. It did not work, because Yahoo already had what we offered. You have to find the bidder who truly needs you.
Affinnova: the owner on the board at the beginning
Before I started as founding CEO of Affinnova, I drew the board. Nielsen owned BASES, a well-built forecasting system that was linear. What we had was nonlinear and far more powerful. If we could prove it, Nielsen was the natural owner. I ran the company for five years and handed it to Waleed Atrachki, who grew it and sold it to Nielsen. The owner on the board at the beginning bought it at the end.
Become part of their business before you ask them to buy it.
Find your owner
- Map the ownersList every company that could plausibly own your business one day. For each, write what you would complete for them that they cannot easily build.
- Circle who needs you mostNot the biggest name. The one with the missing piece.
- Become part of their businessUsage and revenue first. Take one step this quarter. The offer follows.
- Keep your freedomNever sign away the right to talk to others.
- Let the right people hearWhen it is time, make sure the owner knows they are not alone.
Quick answers
What is a natural owner of a startup?
Rob Frasca defines the natural owner as the larger player for whom a startup’s product is not a nice addition but a missing piece. He argues founders should identify it from day one and build toward it on purpose.
How do you position a startup to be acquired?
Rob Frasca’s approach is to become part of the likely buyer’s business first, through a deal where it uses the technology and makes money from it, while keeping the freedom to talk to other buyers.
Sources
- Rob Frasca, The Creator’s Journey (forthcoming), Chapter VIII, Capital and the Exit.
- Paul Graham, “Hiring is Obsolete,” paulgraham.com, May 2005. Source