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When is the Right Time for a Startup to Sell?

By Mark Evans in Startups 3 Comments Tags: , , ,

When is the right time for a start-up to be acquired?

It’s an interesting and complex question because, for one, a purchase offer is something many entrepreneurs dream about given getting rewarded for your entrepreneurial efforts is a very good thing.

But deciding when and if to be purchased can be difficult, challenging and heart-wrenching. If you sell too early, you can leave millions of dollars on the table. If you hold off too long, the offers could shrink or disappear. Just ask Friendster, which turned down a lucrative offer from Google before seeing its stronghold on the social networking market disappear.

The “when to sell” question struck me this week in reading about two high-profile companies. GroupOn, which turned down a $6-billion offer from Google last December, will complete its IPO this week. In many respects, it’s an event that has lost its lustre given how the company has stumbled and bumbled with how it does its books, and how the service is no longer a novelty.

As much as everyone likes to celebrate an IPO, it is hard not get the feeling it would have been better if GroupOn had accepted the Google offer.

The other example is DropBox, which apparently turned down a takeover offer from Steve Jobs. Drew Houston, Dropbox’s CEO, believed the company had the potential to become a bigger company, while Jobs thought Dropbox was a ”feature, not a product.”

Did GroupOn make a mistake by not accepting the Google offer? Did Houston blow it by turning down Jobs?

Truth be told, it is hard to tell because there are so many variables in play. The decision to sell or not to sell can come down to things such as a gut feel, the needs of the business, or the interests of your investors. This is why it can be so difficult to take a deal or walk away.

The Importance of “Yes, I Get It” for Start-Ups

By Mark Evans in Startups 2 Comments Tags: , ,

When talking to entrepreneurs, it can be difficult to wade through the bullishness and excitement that goes with starting a new business. Every start-up is going to conquer the world, blow away the competition and then sell itself for millions of dollars.

But if you push aside the entrepreneurial enthusiasm, a startup’s success prospects depend on a compelling idea and, as important, the ability to quickly get potential users to say “Yes, I get it”. This means being crystal clear what the service or product does, and the value propositions/benefits being delivered.

Of course, it is easier said than done to make “I get it” happen because there are lots of different things that need to happen. The product/service needs to fill a need or convince users it meets a need they didn’t know they had. Getting users on board has to be user-friendly and efficient. And the product/service has to delight. (Here’s a post I did on how startup need to focus on delighting users.)

The problem facing many startup entrepreneurs is they create something that doesn’t solve a problem or a need, it isn’t compelling enough or there’s already lots of competition, and/or it’s more of a feature than a standalone product. Mark MacLeod did a really good blog recently on just because a startup is easy to create doesn’t mean it should be created.

Another important consideration for a startup looking to achieve “I get it” is making sure the product/service isn’t too complicated or dependent on a number of things that have to happen to make it work. I worked with a startup recently with an interesting service but there were too many moving parts that made it complex as opposed to simple and delightful.

After doing some in-market research, they realized the service’s prospects weren’t good so they pivoted with a service that was simple, compelling and, hopefully, delightful. The upside is the new approach leveraged much of the work development work that had already been done.

Perhaps the best example of “I get it” is Dropbox, which has a simple value proposition that solves a straightforward need or problem that lets you save and share files online. Of course, there is a lot of technology behind the scenes but Dropbox does a great job of making it service seem accessible and user-friendly. For more on Dropbox’s success, check out this feature story in Forbes magazine.

Another good read is KissMetric’s post on nine metrics to consider to make wise decisions about your startup.

When Pulling the Trigger on Premium is a No-Brainer

By Mark Evans in Social Media 2 Comments Tags: , , , ,

For all the talk about the freemium business model, the key issue is how consumers can be convinced to upgrade from free to paid. For many companies, the free-to-paid gap is enormous because consumers are so enthralled with free that paying for an online service is difficult to justify, even if the service is useful and valuable.

Among the freemium advocates, their optimism is based on the belief the model can work because lots of users can be attracted to a free service, and that only a small percentage – 5% to 10% – need to upgrade to a paid service. Of course, this is easier said than done because 5% seems like such a small number, it should be do-able if the service is any good.

The problem is the vast majority consumers find that free meets all of their needs, so premium is an unnecessary move. This leaves a company with lots of users completely content to pay nothing forever.

So, how do companies bridge the gap between free and paid? How do they provide a great service that still leaves room for consumers to justify eventually paying for something more. The reality is there’s no easy answer, which is why freemium is just as much art as science.

I started thinking about freemium after upgrading to Dropbox Pro 50. The free service was terrific but having only 2GB of capacity quickly became unworkable after Dropbox became a key way to do business with clients and partners. There was simply no work to continue using the free version of Dropbox, which made it easy to upgrade to the 50GB package for $99/year.

To be honest, it was a decision that didn’t happen right away. My immediate response to hitting the 2GB capacity limit was to delete unnecessary files and folders. Of course, this was like to trying to stop in a leak in a dyke with a band-aid so I finally sucked it up and did the right thing by upgrading.

In hindsight, it was a no-brainer decision because ROI on paying $10/month for a premium service will be high. In the scheme of things, it’s a small line item within the ME Consulting empire.

It is interesting, however, that I had to think about it before pulling the trigger. In some respects, this epitomizes the freemium dilemma. Even when it’s completely obvious that upgrading to a premium service has to happen, it doesn’t automatically happen.

Why Do Some Online Services Thrive?

By Mark Evans in Web 2.0 12 Comments Tags: , , ,

Last week, TechCrunch reported that Dropbox had attracted two million users, just four months after it reached the one million active user mark. It got me thinking about why some online service become so popular, while the vast majority struggle to get any kind of traction no matter how hard they try.

Now, if anyone had the definitive answer, they’d be sitting on a pile of gold. But there are some fundamental things that wildly popular online service have in common.

1. They meet a basic need that quickly resonates with users. For Dropbox, it’s a simple proposition: the ability to synch files across multiple computers. For people who work in multiple places or have multiple computers, Dropbox is a service that quickly strikes a chord.

2. They’re user-friendly and easy to use. These kind of services do what they need to do without unnecessary frills or feature creep. There’s nothing that kills a good idea than developers who believe that more (features) is better. This only confuses users by giving them too many options. At the end of the day, KISS (Keep It Simple Stupid) is a much better approach.

3. The barriers to entry are low because the basic service is free, while premium services are available for people who want more features, data, etc. For all the talk about freemium, the most successful online services seem to thrive because they make it easy for users to join the fray.

4. They have a user-friendly, intuitive interfaces that are accessible. Services that feature this kind of interface make it easy to people to quickly climb on board. Once people start using the service, they tend not to leave. In other words, the “bounce rate” is pretty low.

5. They tell great stories. There’s so much competition that success can often hinge on how well their stories are crafted and delivered. The ability to tell a good story can make a huge difference compared with other services that may be as good but don’t tell their stories as well.

Any other things that help make online services successful?


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