7 Tips For Getting Acquired

Written By on November 23rd, 2011 | Category: Money | 42 Comments

People say that companies don’t get sold, they get bought and I couldn’t agree more. On October 4th, 2011, my startup (Flowtown) got acquired and I wanted to share some thoughts on how things came together. First off I wanted to personally thank Steve Anderson, Tim Young, Alex Bard, Tony Conrad and Leonard Speiser for their time and advice throughout our process. It definitely takes a village. So, with that – I’ve taken some time to reflect on things that worked for us and compile a list of tips that might help you if you plan at some point to exit via an acquisition.

1. Don’t Expect It

Portrait of a seminar and one man confused.

Flowtown started as a scrappy bootstrapped self funded startup. In the beginning we were a product company disguised as a service company (for customer development) then decided on our first product; landing pages (a.ka. Flowtown V1) – which failed miserably. Luckily, we moved fast from failure, “pivoted”, and quickly launched the product that got us to profitability and a model to scale: Social Discovery (a.k.a Flowtown V2).

There’s definitely a longer story behind this but the reason I’m telling you this is because we never planned on getting acquired, or raise venture for that mater. We wanted to create a huge, meaningful company that made social media marketing easy for the small business owners and created a lot of value in the world. Along the way we nailed our model and decided to grow by raising money. That’s when things changed as our investors (and us) obviously wanted to deliver a 10x return on that capital. The key is to focus on growth and creating value for your users or customers, not building a company to get bought.

1. Start Early

Sunrise

Steve Blank talked about this last year at SXSW 11′. He “suggested” that for most startups – we’re essentially filling a white space in a larger companies trajectory. If you list out the potential companies that might find what you’re doing interesting, lets say 10, and assuming 3 people per company, you could potentially reach out and start a relationship with the 30+ people that would be involved in making this decision. That’s pretty interesting if you think about it. My suggestion is that you make the list of companies, and people at each, and reach out to them early. Find them at events, share interesting perspectives on the market or whatever to create a relationship early even if they you don’t plan on selling.

2. The Three Most Important People

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If you’re going to get acquired, there’s really three mail people at each company that will be involved in this process.

  • Product Manager
  • CEO / Founder
  • VP of Corp Dev

Depending on your size that might be one person but it’s more likely that it’s three people. In those situations it makes sense to list all three people per potential acquirer and figure out a ways to start a relationship with each.

3. Partnerships or Integrations

marina bay sands

When we started Flowtown, the social discovery product, we realized that we needed to get as many emails in our system – which meant create integration with as many CRM, Email and Form applications out there. We spent the first 8 months reaching out and building integrations with ConstantContact, Salesforce and Wufoo – in total we create 13 integrations. Even though we had no intentions in selling the company – we realized that it made sense to start building these relationships.

4. Focus on Creating Value

Renaissance Center (GM building)

The number one thing you can do to help optimize for getting acquired is creating a bunch of value for both your customers and everyone that you come into contact with. Maybe it’s just part of both Ethan and I’s nature, but we love helping others. Everyone from early customers who trusted us with your early prototypes to product managers at big companies that want to have coffee and talk about where the industry is going. We believe that the only way to succeed in life and business is to create value for everyone that you connect with. In hindsight, many of the relationships and introductions that enabled us to have this outcome were based on this core belief.

5. Surround Yourself With Those Whove Done It

Reid Hoffman

When we initially got inbound inquiries from companies looking to “talk”, the first thing we did was reach out to our lead investor Steve Anderson. Steve has been investing in seed stage companies longer than I’ve been an entrepreneur and has helped many portfolio companies over the year through the process (most recently – Heroku). His advice was invaluable and made us feel comfortable with the reality. We then reached out to friends in our network who had recently done similar. Talking with a half dozen entrepreneurs who within the last 6 months announced their acquisition and getting an understanding for the steps involved, how to negotiate, what to expect and what things to understand really helped bring clarity to the process. It was energizing and amazing. If you don’t have a network of people to call, don’t hesitate to cold email another entrepreneur who’s done it and just ask. Trust me, if you’ve built something worth buying – most entrepreneurs will spend 20-30 minutes on a call with you to give you advice. We realize how critical good advice can be at that stage.

6. Create Leverage

Read it in the yellow pages

The best situation is to create a competitive process. The only way to do this is to have multiple offers. Try and get all conversations moved forward and arriving at the same place, at the same time. Easier said then done – it’s definitely like herding cats. However, if you do this – something magical happens, you get leverage. You can also get leverage by first going out to raise a round from VC’s and getting a term-sheet. The process is definitely a huge time suck so manage it accordingly. Like any sales process it’s a funnel. Ideally you’ll want to start with a list of 9 companies in the top of the funnel to get 2-3 in a place to make offers and get leverage.

7. Find A Great Home

There is only one place i wan`t to be in everyday.......Home!

Having recently gone through this process it’s important to mention that you should really think hard about what kind of “home” you want to live in. We ended up choosing Demandforce because they aligned with our company, culture and product roadmap and they’re amazing people. I could easily see where a company might make a different choice based on the brand, price or terms of the acquirer. You startup is your baby and you should think hard about which family or “home” you want it to grow up in – it makes a HUGE impact to your happiness outside of the financial up side. Remember $$$ won’t make you happy.

All the best.

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Comments.

  • http://about.me/bradleyjoyce bradleyjoyce

    Dan, appreciate the insights into the process with the Flowtown acquisition. I especially like your last point here. So often you hear about founders really hating life after they sell and it’s probably because they didn’t put enough stock into finding the right home.

    • http://twitter.com/danmartell Dan Martell

      You got it … glad we had amazing investors that suggested we consider this as they knew it would effect or success post acquisition.

  • http://about.me/bradleyjoyce bradleyjoyce

    Dan, appreciate the insights into the process with the Flowtown acquisition. I especially like your last point here. So often you hear about founders really hating life after they sell and it’s probably because they didn’t put enough stock into finding the right home.

  • Jagerguy

    Suck it Dan

    • http://twitter.com/danmartell Dan Martell

      I’ll pass

  • http://twitter.com/howardvk Howard Kingston

    That ’3 most important’ people tip is so insightful – makes so much sense. Nice!

    • http://twitter.com/danmartell Dan Martell

      Glad you like that Mr. Photo Vino :)

    • http://twitter.com/danmartell Dan Martell

      Glad you like that Mr. Photo Vino :)

  • http://twitter.com/stefanrichter Stefan Richter

    Congratulations on the acquisition, it’s well deserved and your advice both here and at conferences is much appreciated.

    Not trying to be difficult, but if acquisition wasn’t in the plan then would you agree that an important part was missing from the plan? Isn’t that the most realistic exit strategy for a startup such as Flowtown? Given your previous successes, I don’t believe you haven’t planned for it :-)

    • http://twitter.com/danmartell Dan Martell

      We wanted to create a big / huge / meaningful company and create a lot of value to for our customers.
      If you do that, and you build some integrations with other companies, then opportunities to exit present themselves (like in our case) but it was definitely not the focus.
      Focus was 1000% on our customers and adding value for them.

    • http://twitter.com/danmartell Dan Martell

      We wanted to create a big / huge / meaningful company and create a lot of value to for our customers.
      If you do that, and you build some integrations with other companies, then opportunities to exit present themselves (like in our case) but it was definitely not the focus.
      Focus was 1000% on our customers and adding value for them.

  • Anonymous

    Excellent. Thank you. I shall pray to God to bless you.

    Regards,

    Khawar
     

    • http://twitter.com/danmartell Dan Martell

      Thank you.

    • http://twitter.com/danmartell Dan Martell

      Thank you.

  • http://www.instigatorblog.com Benjamin Yoskovitz

    Great post Dan. You can’t underestimate the importance of Product Managers. They’re not at the top of the totem pole, but they’re some of the most important people in this process. In large companies, you may need to get multiple Product Managers engaged and excited. When they tell management, “Hey! We NEED this stuff!” it’s going to resonate.

    • http://twitter.com/danmartell Dan Martell

      1000% … and wish someone would’ve told me this early in our startup .. we got lucky in the way we went after distribution (integrations with MailChimp, Constant  Contact, iContact, etc..) but that’s how we got to know the Product Mgrs, and CEO of each company.

    • http://twitter.com/danmartell Dan Martell

      1000% … and wish someone would’ve told me this early in our startup .. we got lucky in the way we went after distribution (integrations with MailChimp, Constant  Contact, iContact, etc..) but that’s how we got to know the Product Mgrs, and CEO of each company.

  • http://www.instigatorblog.com Benjamin Yoskovitz

    Great post Dan. You can’t underestimate the importance of Product Managers. They’re not at the top of the totem pole, but they’re some of the most important people in this process. In large companies, you may need to get multiple Product Managers engaged and excited. When they tell management, “Hey! We NEED this stuff!” it’s going to resonate.

  • http://www.Spidvid.com Jeremy Campbell

    Love this Dan, thanks! I definately need to build up my relationships with potential acquirer’s executives. Easier said than done when those companies are based in the US and I’m in Toronto though. 

    Not expecting it to happen is key, strive to build a lasting independent company for the long term! 

    • http://twitter.com/danmartell Dan Martell

      Jeremy, if you’ve created something that’s valuable or fills a white space for another company – then reaching out to share ideas early is possible, even from Toronto.
      Our early conversation were with MailChimp (Atlanta) and Constant Contact (Boston) and we were in San Francisco.

      Hope that helps give it perspective.

      • http://www.Spidvid.com Jeremy Campbell

        It does, location should never get in the way of success in this day in age, thanks Dan! 

    • http://twitter.com/danmartell Dan Martell

      Jeremy, if you’ve created something that’s valuable or fills a white space for another company – then reaching out to share ideas early is possible, even from Toronto.
      Our early conversation were with MailChimp (Atlanta) and Constant Contact (Boston) and we were in San Francisco.

      Hope that helps give it perspective.

  • http://www.facebook.com/DanSimerman Dan Simerman

    Great Article Dan.  Really enjoyed your interview on TWiST as well.  Added this advice to my newsletter (The Posthuman Startup) so my readers can get the benefit of your great thinking! http://eepurl.com/hgqIo

  • http://www.facebook.com/DanSimerman Dan Simerman

    Great Article Dan.  Really enjoyed your interview on TWiST as well.  Added this advice to my newsletter (The Posthuman Startup) so my readers can get the benefit of your great thinking! http://eepurl.com/hgqIo

    • http://twitter.com/danmartell Dan Martell

      Dan, more than appreciated – thanks!

  • http://twitter.com/andyjiang andy jiang

    thanks for sharing your insights. just curious, if your sole purpose was to not think about getting acquired and build a meaningful company that will add value, at what point did you begin forging relationships with the decision makers at the acquiring companies?

    • http://twitter.com/danmartell Dan Martell

      Andy, great question.

      Honestly we got lucky in many ways – hence looking back I wish someone had laid it out for me like this post.

      When we started Flowtown we focused on distribution by connecting with companies that had emails (i.e. MailChimp, Constant Contact, iContact, Salesforce, etc) – so that’s how we got to meet the Product Manager / CEO of each company.

      That’s why #3 is important and a strategy to start.

      Hope that helps.

  • http://www.fitnessreloaded.com Maria

    Good guide Dan! Thanks!

    • http://twitter.com/danmartell Dan Martell

      Much appreciated … hopefully it helps others understand the tactics involved if they choose to go down this route.

  • http://www.facebook.com/profile.php?id=100000320869508 Dave Ruel

    Awesome post Dan, congrats on the acquisition once again.

  • http://www.comunitee.com Don Daszkowski

    Just curious was Demandforce one of your 10 companies that you had on your radar that you believed would be a good candidate to buy your company?

    Congrats on the sale.

    • http://twitter.com/danmartell Dan Martell

      Don, actually they were not – however once we started the process – a good friend was talking to someone and the connection was made.  It’s all about relationships.

  • http://www.facebook.com/haroonm Haroon Mokhtarzada

    Nice article Dan.  Totally agree with everything you say here.  Congrats again.

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  • http://about.me/vnaylon Vanessa Naylon

    This is actually 8 tips (you have two #1s). Thanks for the bonus tip! :)

    • http://twitter.com/danmartell Dan Martell

      was on purpose .. made me smile – wanted to see who noticed, you’re on of a few – most didn’t :)

      • http://about.me/vnaylon Vanessa Naylon

        Trickery! Glad to be part of it.

        Congratulations on the acquisition, and thanks for sharing your advice.

      • http://blog.gleep.org/ andrewwatson

        I thought I was seeing things! 

  • http://blog.gleep.org/ andrewwatson

    Great article! Thanks for writing this.  Especially poignant for me…

    I did find a couple of typos though: “for that mater” “there’s really three mail people”

  • http://twitter.com/startupventures VentureArchetypes

    Hi Dan this is really good stuff.  You succinctly hit on two of the most important things for getting a deal done: building relationships far in advance + getting multiple bidders on the deal.  

    Any chance you would expand on what you did to gain more leverage?  I think this is always the most interesting part of an M&A deal. I might re-arrange the order of the “3 People” to be chronological to the buy-in process…e.g. first Product Mgr (“we need this”) then Corp Dev (“we can do this deal”) then CEO (“thumbs up- get my checkbook”).  To note, it’s good for founders to ask very early on who has ultimate decision making authority, and who else has influence; I’ve seen deals die because the champion or sponsor didn’t really have the clout to push it through. Nice work.  We’ll see you on the 19th for the next StartupExits.com, yes? Nathan

  • Julián Pérez (jcpmmx)

    Dan, there are two 1. items in the list, making it a ’8 tips’ list…

    • Julián Pérez (jcpmmx)

      but awesome tips!