Sometimes business gets painted as a showdown between the big guy and the little guy. But often, we have the big guys to thank for the little guys. Consider acquisitions: a big business trend that’s spurring innovation among startups.
Big mergers & acquisitions deals are usually associated with tech, and 2018 saw the sale of Ring, Github, and a variety of other smaller innovators to large tech conglomerates. It was also among the leading growth strategies for retail in 2018.
So how does an entrepreneur take advantage of this? There are a few key patterns that unify acquisition-worthy small businesses.
1. Don’t innovate to sell, innovate to last.
Starting a business to sell is a tricky thing. If you launch with an acquisition in mind, you’ll probably miss the mark. Big companies are looking for businesses that are built to last, not built to sell. So even if you’re hoping for an acquisition down the line, make sure your company can succeed with or without a buyer.
2. Early innovators of niche industries get the gold.
The prospect of big acquisitions is keeping innovators on the lookout for up and coming industries that will benefit from disruption.
You’re never going to recreate Twitter. They struck gold for being an early adopter of a new technology. But with the right timing, you can be an early adopter in another field. Find a niche, and don’t be afraid to make it very niche. Instead of taking social media, for example, focus on something like the family history industry.
There’s been an explosion of public interest in family history thanks to advances in consumer DNA testing. Ancestry and MyHeritage have both launched DNA services to compete with the likes of 23andMe. Their focus on DNA, however, means that little innovation has happened elsewhere, opening a gap for upstarts like Capsure, a privacy-focused app for sharing family photos, videos and audio. Capsure has attracted acquisition attention by giving people tools to document their family histories in real time as well as retroactively in order to preserve living history utilizing voice and collaborative memories.
Find a niche that needs a leader, and then lead. If your niche is taken or overblown, work to reposition yourself.
3. Stake a claim in intellectual property.
In addition to tech and retail, 2018 saw a blowup of major fintech companies buying up blockchain patents. Leading the pack was Bank of America, with over 50 blockchain patents as of mid-year, followed closely by IBM and MasterCard.
The feeding frenzy set the blockchain world abuzz with speculation about what legacy fintech would do with these patents and how that could shape the future of the world’s hottest new technology. It could spur innovation–or stifle it.
Turns out, innovation hasn’t shown any signs of slowing. Bank of America’s most recent blockchain patent acquisition was in late October. New patents are still hitting the books, like Pareto Network founder Eric Lamison-White’s Stablecoin patent–a hedge fund system that removes volatility from crypto accounts–which was approved just days ago.
Lamison-White filed for his patent in 2014, long before anyone knew there would be a blockchain patent acquisition craze. But that doesn’t mean it would’ve been impossible to predict: blockchain tech has been around for years now, and we’re sure to see similar feeding frenzies for patents in other emerging tech fields like the Internet of Things, artificial intelligence, and Big Data. Getting in on the action now could set you up for a lucrative reward when major players start looking for patents to acquire.
4. Don’t marry your product.
Instagram’s founders left the company earlier this fall. They departed amid rumors of disagreements with Mark Zuckerberg over the direction the app should take, after years of politely resisting “certain Facebook product initiatives that they felt went against their vision,” according to Bloomberg.
Whether that means Instagram will turn into another Facebook remains to be seen, but it’s a prescient reminder that when you sell your company, you lose control of the vision. As you’re growing your business, be careful not to get married to it. It won’t be yours forever.
5. Continue the innovation-acquisition symbiosis.
Through the reciprocal process of ground level innovation and big league acquisition, large and small businesses create a symbiosis that generates new ideas and stimulates industry growth.
But if you wait for the acquisitions to start happening, you’ve already missed the window. Play the long game and build a business to last in a niche industry that needs some disruption. Stake out some intellectual property in a domain that will be valuable years down the line, and be careful not to marry your product. Soon you’ll have a product that’s ripe for acquisition, and if you’re lucky, a bidding war that bumps up the decimal places on its price.