How many business models can you think of for a startup?
I won’t go into all the details and specifics of the various business models that startups can go after but a few them include selling adverting, charging a subscription fee, licensing software, etc. There is one business model that appears to be somewhat popular yet I don’t hear anyone addressing it…acquisition. As we begin to hear about startups such as socialthing get acquired by large companies such as AOL, one can only wonder if acquisition is indeed a viable business model that should be the end goal of a business.
Companies such as twitter and seesmic have not had a revenue generating business model since they have been created, yet they keep receiving funding…why? Because if you are a VC it makes a bit more sense to invest in the companies. A VC will invest in several companies, many will fail, but only one needs to succeed in order for the VC to make money. So essentially a VC is hedging the risk by diversifying their portfolio. But back to the company, is acquisition a business model or it a bit of luck? When Socialthing started off did they sit around a table together and say, “we are going to build something that is going to get acquired and that is how we are going to make our money.” Do you think seesmic and twitter are just stalling waiting for someone to come around and snag them up too?
In my opinion a successful business is able to generate revenue prior to acquisition and although I am not a big fan of advertising, it is still a business model (that every startup in the world seems to be going after). The only other post I was able to find that directly addresses acquisition as a business model comes from the Disqus blog. Now keep in mind that there is a difference between a company already generating revenue on its own and then getting acquired vs a company that is not generating any revenue (except for vs funding) and is waiting to get acquired. If a company is not able to sustain itself by generating revenue then it has no business being a “business.”
We hear a lot about the successful startups that get acquired yet for every 1 that makes it, 10 fail. Check out the web 2.0 directory and you will see that a handful of new companies are added every single day.
So I ask all of you, is acquisition a business model that startups should build their businesses off of? Why or why not?
thanks for reading
Interesting, I do feel the same way too about some startups.
The whole start a business and get acquired seems to becoming very fashionable at the moment. I still don't get why people are investing in companies with no idea of income. Like Twitter for example great service but how and where is the cash going to come from. Maybe I'm just slow and can't see the massive untapped cash flow for them. I wonder if they know, they must do to get VC's to part with cash. Otherwise it would be an interesting pitch to see.
Startup ” we are going to have millions using our service everyday, we are going to change the way people live”
VC ” oh thats great news”
Start up ” yep it's going to become massive, we are going to be huge and famous, online everyone will talk about us”
VC “and people will pay for this service how much?”
Startup ” ahhh pay? no no no it's free”
VC ” ohh great count me in, where do I sign!”
WTF! What is the pitch these companies are making?
@Sam
yep that's all very true. but from a vc's point of view if you already have millions of people using your platform then you can either think of a revenue model down the road (aka advertising) or can possibly get acquired. It is a bit “fashionable” to get acquired though, but unfortunately most of them just die off.
thanks for commenting
Interesting, I do feel the same way too about some startups.
The whole start a business and get acquired seems to becoming very fashionable at the moment. I still don’t get why people are investing in companies with no idea of income. Like Twitter for example great service but how and where is the cash going to come from. Maybe I’m just slow and can’t see the massive untapped cash flow for them. I wonder if they know, they must do to get VC’s to part with cash. Otherwise it would be an interesting pitch to see.
Startup ” we are going to have millions using our service everyday, we are going to change the way people live”
VC ” oh thats great news”
Start up ” yep it’s going to become massive, we are going to be huge and famous, online everyone will talk about us”
VC “and people will pay for this service how much?”
Startup ” ahhh pay? no no no it’s free”
VC ” ohh great count me in, where do I sign!”
WTF! What is the pitch these companies are making?
@Sam
yep that’s all very true. but from a vc’s point of view if you already have millions of people using your platform then you can either think of a revenue model down the road (aka advertising) or can possibly get acquired. It is a bit “fashionable” to get acquired though, but unfortunately most of them just die off.
thanks for commenting
Now keep in mind that there is a difference between a company already generating revenue on its own and then getting acquired vs a company that is not generating any revenue