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Keep your friends close, but your enemies closer. The old adage seems particularly appropriate these days.

In a recent post, I referenced the idea of 'making nice with your competition'
that raised some questions, so here's more clarity. Regardless of your
industry, tech, medical, financial, you probably know most of the people you
compete with or even have grown to dislike.

In the not so distant past, the business model for many startup companies
used to be, first to market, acquire as much market share as possible,
squash the competition and get to an IPO (worrying about margins at some
later date). It was in many ways a binary win / lose environment. Winners
got to ring the bell as the market opens, losers had to rewrite their
resumes, embellishing on their internal successes.

Today, the idea of an IPO is almost silly for an early stage company to
consider. Instead, many investment firms are contemplating the distant
sale to a larger competitor, willing to pay that strategic premium for your
successful technology or customer list. Just think of how many companies set
out to destroy Cisco, got a taste of success and poof; got an offer they
couldn't refuse. Now they're workin' for the Man! (at least until their
employment agreement runs out).

This certainly isn't a new concept; just ask any of your buddies in the
banking industry. The strategic shift though seems to be filtering down to
the earlier stage, venture backed companies. We now see VC funds owning multiple
(nearly) competitive companies, looking to vertically integrate and package
the two at some later date as an even tastier acquisition target.

I do not mean to dilute the spirit of competition. It is, in fact, what makes
capitalism so successful. Moreover, if you do not beat the competition, you
will probably not give cause to be acquired (at least not at a price in
which your options are worth anything). This doesn't mean don't try to destroy the
competition either. The difference will determine whether or not your
competition works for you one day or you work for your competition. Either
way, make nice, you may be car pooling one day.

Category(s): Valuation Thoughts
Posted by Tom Miller at 10:16 PM | Permalink | Comments (0) | TrackBacks (0)