Startup Kit

Why do large companies prefer mergers and acquisitions

mergers and acquisitions

 

 

 

The majority of the entrepreneurs are starting a startup to get acquired by a big company at some stage. It is the trend in today’s startup world. Eventually, every founder is looking for potential advantages.

  1. Making big money will take a good amount of time and struggle in startups. Eventually, when you are in the growth stage, it would tempt you to go for acquisition to have quick customer base and revenue.
  2. Acquisition by big brands will take the startup business to next level within no time. Eventually, Company valuation will be double.

Why big brand acquire startups?:

Sometimes just one guy or a smaller team can build big things which corporate has to invest a lot of the budget and human resource to build the same. What is the difference?

For instance: Started with two members and build with not more than six members. It is Whatsapp which is acquired by Facebook for $19 billion.

Be the first or the best:

The secret of 50% startup’s success is ‘Be the first or the best’. Being first is picking up a niche area to crack business and customer base. ‘Being the best’ is to stand out from the crowd by providing right quality and customer need.

To my knowledge, an entrepreneur and founder can drive maximum one or two startups to success path, because turning a startup into success needs a lot of energy and motivation. Certainly, he can drive many big brands. Few points I would like to make here is

Great founders and CEOs of today’s corporate would prefer to take over a startup because

It is not employees cup of tea:

Turning an idea into a successful venture is not employee’s cup of coffee. I don’t like to criticize any employee here as it is the lifestyle they are happy with. Let me explain in simple words. A startup guy will stay back and fix the code to make the product live as soon as possible. An employee would stay back based on the release date; This is one of the important reasons for mergers and acquisitions.

Time =Money:

mergers and acquisitions

Building from scratch is much more expensive than acquiring a small business. Apparently, big companies can invest money. However, how can they buy time? Time to market is very much important in today’s world. Shaping an idea in shorter time need dedication, passion, and ownership. The combo of these three comes with startup guys. That is why big brands choose for mergers and acquisitions.

Reinventing the wheel:

When you need a product which is already available in the market, building from scratch is just reinventing the wheel. For instance, let’s assume we have two companies.

  1. A cash-rich company wants to build a similar product which is already available in the market as the product has high demand and customer base. Eventually, they look for mergers and acquisitions as a first option. Consequently, it saves a lot of time.
  2. A startup wants to build a product with more struggle by having right USP. When patience, dedication adds to execution eventually, it may turn into a successful venture. Again, a startup can only make this difference.

Extending wings with mergers and acquisitions:

Mergers and acquisitions help to extend an existing business. Otherwise, it helps to pitch into a new line of business. For instance, let me take a good example which everyone loves. 🙂

  1. If you have a wine store, adding liquor is expanding the existing one.
  2. Acquiring a hot chicken wings outlet in front the store is pitching in the new line of business. It helps to double the sales.

Because of these two cases, existing business will have a significant advantage to having huge footfall.

Minimizing risk:

mergers and acquisitions

As everyone knows a startup is a journey with a lot of uncertainty.  Considering mergers and acquisitions of an existing successful startup can minimize risk and maximize immediate revenues.

When a guy realized that he is working for him. Eventually, the energy level, motivation drives to think innovative and do hard work. It is called entrepreneur mindset, we can’t get it from an employee.

 Take Away:

  1. Mergers and acquisitions actually benefit for both corporate and startups.
  2. The majority of the times startups can make good money.
  3. Cash-rich companies have the advantage to extend their business easily.

Also Read: Do you want to be an entrepreneur then you must read this

 

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