Over the past few weeks and months, I have seen a recurring theme regarding startups and their exits. First, we saw the acquisition of FriendFeed by Facebook. During that time, FriendFeed lit up with comments and discussion about FriendFeed’s exit. First, some people were congratulating the FriendFeed team for finding a successful exit, which is difficult for most startups to do. Other people were disappointed that FriendFeed was purchased, but took a “wait and see” attitude to the process. There was another group, possibly louder than the other two groups combined, that were complaining that FriendFeed did not try to continue independent but also that they sold out to an “evil” company like Facebook. I use the term “evil” loosely and mean it as a company that does not have a great reputation in early adopter circles and has had some issues in the past.
Generally, I just figured that people were upset because their “home” was just thrown into disarray. However, the past week has seen some commentary on the state of startups and the acquisition of Mint by Intuit. This changed the way I am looking at these things, and I saw something interesting. First, the comments from Sarah Lacy were very interesting and the opening paragraph is really important:
I did interviews with most of the TechCrunch50 experts backstage and there was a common gripe about the companies launching there: Not enough passion, not enough swinging for the fences, not enough trying to change the world. There were too many people building safe businesses, too many companies just trying to make existing things slightly better, and too many people wanting to be the next Mint.com, not the next Google. Nothing against Mint, but Silicon Valley wasn’t built on $170 million exits.
Some of Sarah’s thoughts may be due to the desensitization we have experienced with startup success. Are we expecting startups to be acquired for $1 billion? Or are we expecting an equivalent figure in an IPO? The other side of the argument is that there is not enough passion or swinging for the fences. This is more difficult to talk about because what one person thinks is a grand plan may be just a “safe” business plan for someone in Silicon Valley.
We see another point of view on the Mint acquisition from 37Signals. They took the commentary a step farther, saying the Mint acquisition was “indicative of a VC-induced cancer that’s infecting our industry and killing off the next generation.” I think they are being rather harsh in their assessment, but they make an interesting point:
They were everything their main competitor, Intuit, was not. While Mint was inventing, Intuit was out of it. People used Quickbooks/Quicken out of habit and legacy. People used Mint because they loved it. Intuit was disgruntled, Mint was disruptive … Intuit, last decade’s leader in personal finance, just became the next decade’s leader in personal finance. Mint had their number, but they sold it for $170 million. A big payday for sure, and if that was their two-year goal then they nailed it, but I can’t believe that was the point behind Mint.
Maybe I am misguided because I am not yet independent, have a successful chain of startups and do not live in Silicon Valley. However, for most entrepreneurs, I would think that $170 million for a 2 year old company is a ridiculous success. Why do some people see the Mint sale as selling out or not thinking big enough?
This perception also extends to the user base, and this is where it gets downright confounding. Steven Hodson has a great quote from his post yesterday regarding FriendFeed:
At some point Facebook is going to pull the plug on Friendfeed – it’s inevitable in my opinion. If that is indeed what is in the cards for Friendfeed one has to ask the simple question – is it still worth spending all that time on a service we all know is going to go away at some point?
He has a valid question, but FriendFeed users have been asking this for a while. My recent post on the Mint acquisition received several comments and the general feeling was that Mint had abandoned its users. Most of the commentators mentioned that they already deleted their Mint accounts as well. There were similar sentiments when the FriendFeed acquisition was announced.
Why do people feel abandoned? In some cases, maybe there should be more communication regarding the direction of these sites, but what do we expect these startups to do? When a large majority of startups fail within 2 years, why do we get upset that startups take a purchase offer? Is that not the targeted exit for a startup?
I understand that users spend a lot of time and energy on some sites, especially socially oriented sites like FriendFeed. However, these sites are a business and should be looked at like businesses. Granted, many of them do not have any revenue or even published plans for revenue, but the long term goal will always be acquisition, IPO or long-term revenue, and probably in that order.
Am I missing something? Are we now expecting all startups to go the Google route, making billions of dollars? I highly doubt the industry could support that type of revenue for as many startups that get created every day. Sarah Lacy argues that Silicon Valley was not built on $170 million dollar exits. I highly doubt that, and I would say that Silicon Valley was built precisely by those companies that took a very good exit. Companies like Google may be legendary, but how many legends are there? You can not build an industry purely by attempting to be the next Google. There have to be several companies looking to be the next Mint, otherwise the industry will not be able to grow in a stable manner.