STARTUP CEO: My Biggest Competitor Just Told Me 'Sell To Us Or We'll Crush You'
The anonymous CEO runs "a small successful" software startup that has recently seen "explosive growth" thanks to its new scalable solution.
Now, the biggest player in the space is telling the company that unless it sells, it will simply copy the product and sell it for less.
The offer: 7 - 12x the run rate on this month's revenue, the CEO writes on Quora.
Here's what the CEO should do, according to the Quora community:
For starters, the CEO needs to think about how credible the threat actually is, Marc Bodnick, co-founder and former managing director at Elevation Partners, wrote in response.
"In other words, startups often face the threat of a bigger company entering their markets, and they need to have the self-confidence to keep going," Bodnick writes. "Many companies have built great products that have successfully competed with Oracle, Microsoft, Google, and others."
The advantages of a startup are its focus, product and team, Bodnick writes. But larger companies typically have tons of capital, a bevy of customers and relationships, and more resources. That's why it's important for a startup to assess its situation and competitive position.
He points to the example of Diapers.com selling to Amazon. In that case, the threat was very credible, as Amazon already had the means to distribute products at a speedy rate.
"In other situations... even if a big company is determined to enter a market (i.e., it will build if it can't buy), it's still likely that they will fail because they won't be able to match the product capabilities of the best startup in the market," Bodnick writes.
But Bodnick notes how there's a lot of uncertainty the CEO will have to deal with if he or she walks away from the deal.
Another Quora user, Jason M. Lemkin, wrote that he went through a very similar situation.
Lemkin's advice:
"Know your BATNA (best alternative to negotiated agreement), plain and simple." It's also important not to get too caught up in the language, Lemkin writes.
"Just try to determine if they are serious about entering the space if you say No," Lemkin writes. "Will they enter directly? Or buy your #2 competitor? The second scenario probably is one to fret about more if you are post-Initial Scale or even post-Initial Traction. And will they sustain the interest past 6-12 months?"
Other users suggested selling, and joining the acquiring company as a vice president. But another user recommended speaking with some of the other big players in the space and getting them to bid on the company.
Head on over to Quora to read more.