Why It’s Sad When Startups Don’t Get to Grow Up

startupsI’ve been an enthusiastic user of Sparrow for the past few months. Since discovering and purchasing the Mac-based email client a few months, I have used it extensively and even interviewed one of its co-founders, Dominique Leca, for a Globe & Mail column.

So it was with mixed emotions to hear Sparrow had been snapped up by Google. On one hand, it’s exciting to see a startup become successful enough to attract a buyer, but there was also disappointment that a fast-growing company had decided to take the money and run rather than build a bigger, even more successful business.

On the Elezea blog, Rian suggests the “real reason” we’re disappointed about Sparrow’s acquisition is the idea that if consumers pay for a service or software, they’re supporting a company so it can grow and become more “awesome”. In a world dominated by free services seemingly created to be acquired, startups that actually charge for their products are placed in a different category.

My take on the letdown about Sparrow’s purchase is it reflects an impatience or frustration with the short-term vision of startup entrepreneurs. Sure, it’s great to start a business and be successful but many entrepreneurs seem more than content to accept an acquisition rather than stick to a long-term vision that would see their startup become a large company employing lots of people.

I can certainly appreciate the startup entrepreneurs’ situation: If a large company offers $5-million to $10-million, why not take the money because it will set up you and your family for life, and provide the freedom to pursue new and different opportunities. It sounds like a no-brainer. As well, you don’t want to look a gift horse in the mouth. While your startup may be hot and valuable now, the competitive landscape can quickly shift (e.g. Digg, Friendster).

On the flip-side, successful startups are like fast racehorses. They’re rare so you don’t want to let some “claim” racehorse or sell it at a discount because finding another one can be difficult, if not impossible. When a startup entrepreneur sells their baby, they get the money but they may never get another opportunity to own and grow a hot startup.

In other words, entrepreneurs face extremely difficult choices when deciding whether to select door #1 (the money) or door #2 (the long-term growth strategy).

The key question is why don’t more successful entrepreneurs focus on growing large businesses. What is the urgency to cash out when the good times seem to be just beginning? Are entrepreneurs too conservative? Are they too hungry for instant wealth? Are they scared their “golden ticket” will disappear? Is it pressure from investors?

It would be interesting to hear from people such as HootSuite’s Ryan Holmes, 37Signals’ Jason Fried, InstaPaper’s Marco Arment or Freshbooks’ Mike McDerment, whose startups have grown and stayed independent. Why have they resisted the charms of acquirers? Why wouldn’t they simply take the money, and indulge their interests and passions? How are they different from other successful entrepreneurs who decide to sell out?

To sell or not to sell is a fascinating question. It puts into the spotlight the reason why entrepreneurs start businesses in the first place. Some do it to build something substantial, some do it to create something that would some day become interesting enough to be acquired, while others do it because starting companies is just what they do.

Unless you have grown a successful business, it is impossible to appreciate or understand the sell vs. not sell dilemma. For Sparrow, maybe the opportunity and fit was right given Google’s plans for GMail, or perhaps Google threw enough money at Sparrow that saying “Thanks for no thanks” was impossible.

In any event, I wish Sparrow well but my fear is it will be swallowed into the bowels of Google like many other startups it has acquired.

More: Arment has a post about why he has rejected offers, which he describes as “talent acquisitions”. If you’re looking for alternatives to Sparrow, Lifehack has some suggestions. GigaOm’s Bobbie Johnson wonders if the “backlash” to Sparrow’s acquisition is justified.

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  • John

    That involve a possible long term strategy. I am not sure an email client enters in this category.

  • Cedric

    If we had a stronger back up from Investors in Canada (i.e easier access to money ) things will change. Because too often being “Hot” and not taking the money does not guarantee you are going to be able successful at raising enough money to take your company to the next step. Google has larger pockets and a different philosophy than most VCs… that’s the reality.

  • ilias

    Que ce soit les startups, les sportifs, acteurs et autres artistes qui peuvent dédier une bonne partie de leur vie à leurs projets, fermet le rideau, sans spotlights, ni articles de journaux, est effectivement la voie de sortie généralement empruntée.

    Cependant, je suis pas tout à fait d’accord avec Mark quand il parle de la rareté d’une start-up à succès: on dit souvent que c’est l’entreprneur plus que le produit qui fait le succès, et ça peut se repeter quand il y a le bon équibilibre entre recette et cuistot.
    De même, l’entrepreneur peut vendre pour aller plus loin encore grâce au levier financier. Je pense a Elon Musk qui a utilisée les proceeds de la vente de Paypal pour nous faire rêver avec Tesla et le SpaceX program… destruction créative comme dirait l’autre…