Image: playupl.com
From time to time people would say that here in Singapore or Southeast Asia we needed a big money exit – you know, like X acquires Y for $100 million. That would inspire folks to step out and build businesses, because let’s face it, who wouldn’t want to get out with bags of money.
But the idea of building a business to sell kind of sucks [1]. While there’s nothing wrong selling a business, the mentality of starting a business and gearing it up to get acquired one day isn’t quite right. There’s no way to guess who your acquirers might be and there’s no tried and true way to ensure you’ll get acquired. You can’t force your potential acquirers to sign any cheque. Instead, your time should really be spent thinking about building a solid product that serves a real need, and at the same time able to pay your bills.
Entrepreneurs in the tech circle can probably pick up one good lesson from the traditional brick-and-mortar businesses. Entrepreneurs who are running cafes, eateries, or milkshake stalls are very focused on making their milkshake taste right and very focused on breaking even as soon as possible. There isn’t any hint of thought that one day their businesses would get acquired. I had a rough ride building a educational center for five years so I understand what it is like to run a traditional business. The fixed costs are unbearable, especially for businesses which are constrained by space. Just the rental fee alone would probably dominate up to 40 percent of your total cost. So everyday our team was trying our best to make full use of the rental space to drive revenue, and at the same time provide great value to the customers.
On the other hand, entrepreneurs building digital products often don’t incur such lofty fixed costs. It is also relatively easier to receive investment which allows entrepreneurs more time to get their product right and spend less time wondering how to make money. We all read the headlines that say this startup gets acquired or that gets acquired which make young entrepreneurs millionaires in a matter of years or sometimes even months.
Such external influence might have led some people to have a sort of misguided motivation to build a business. Perhaps we all can pick up a lesson or two from entrepreneurs who run traditional business. They may not be cool in your eyes but their focus on getting the product right and the urgency of reaching their break-even point as soon as possible is admirable. At the end of the day, revenue and profit is the common standard people use to judge your business. And to generate profits, entrepreneurs have to build something that people want to use and are willing to pay for. Your customers pay your bills, not your potential acquirers (I mean they could but what are the chances?). So the mindset should be to solve a problem with your product, serve your customers well, and build a sustainable business. Only then will your company have value and you can be in a more comfortable position to decide whether to continue building your empire or cash in and move on to your next venture.
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After writing this, my colleagues pointed me towards Sarah Lacy’s recent post in which she explores some of these ideas as well. Readers might drop over and check out her post as well. ↩