Friday, October 26, 2007

Define Your Acquisition Strategy

Normally I speak about integrating technology in business processes at an enterprise level, but today I thought I'd speak about startup companies and their acquisition strategy. I'm not necessarily talking about startup companies acquiring other companies or technology. I'm talking about the innovation or product the startup company creates being acquired by a much larger company like a Google or a Microsoft.

PinPoint Performance Solutions primarily focuses on the conceptual stage of product development linking the needs of the end-user to the product being developed. The end result is a usable product meeting their needs and expectations. I met with a colleague this past week who works with clients to identify whether or not their products are viable in the marketplace. In other words, he does the due diligence and research to make sure there is a marketplace for the product. I'll admit some failure on my part. My colleague helped opened my eyes to a crucial compenent of product development.

He told me a story of a client who invested a large sum of money into a custom software application for the construction industry. A well-known software company approached him about acquiring the application, but when the offer came in it was far below what he originally invested in the development of the application. He was in the market to inevitably sell the application, but he never thought he would lose money in the process.

The reason why the offer was low was the software company was unable to purchase the application and market it immediately due to how it was developed. The coding was not compatible with their coding and a lot of back engineering would have to be done in order to make the application compatible with their other applications.

The lesson - if you are in the business to generate revenue off of your work or to potentially sell your application to a larger company, plan for it. I'm not saying that you need to make your product the exactly the same way a potential buyer would make it, but you do need to know what they and the rest of the market will accept and what is valuable to them if the opportunity to sell presents itself. It needs to be usable to them in order for them to find any real value in it.

So, just as you would develop an exit strategy in your business plan you need to prepare for an acquisition strategy in your product's marketing plan to create value in your product when a potential suitor arrives.

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