Startups Should Team Up to Grow

37 Comments

[qi:021] Earlier this week, MeeVee, an online television guide, decided to acquire Top Ten Sources, a Boston-based social news and information site. Last night, Next New Networks bought BarelyPolitical.com, the production company responsible for Obama Girl, for an undisclosed amount of money. And there is news that Automattic has acquired Gravatar, a small project that gives WordPress users the ability to add avatars to their profiles.

In isolation, these three deals are so marginal and unimportant that you might gloss over them. When taken together, however, they point to a trend that is starting to gather momentum. I have been hearing from many small startups that are looking to either acquire or merge with others in order to bulk up and stay competitive in a very crowded market.

“Time to market,” a phrase typically found in the vernacular of large companies, is making its way down the food chain as well. Acquiring users and boosting page views is a challenge, especially with hundreds of startups vying for attention (and usage). The low barriers to entry for building and deploying consumer web products has resulted in an abundance of companies, many of marginal utility.

Many are mere features makers that need to find a safer cocoon or else face a bleak future. Sure there are some buyers, including Google (GOOG), Yahoo (YHOO, Microsoft (MSFT), eBay (EBAY) and newly proliferate media companies from the East Coast. But they can’t buy everything — and that is why startups should start developing strategies to what is essentially the web equivalent of “marrying up.”

But the clock is ticking. Eternal optimist Tim O’Reilly, in an interview with The New York Times, today expressed concerns about the me-too, copycat startups and the generous amount of dollars they are snagging from venture capital funders. He said that when the bubble inevitably pops, “there are going to be a lot of people out of work again.”

And our good friend Scott Rafer, who has been on both the winning and losing side of the equation, is worried that we haven’t learned from our mistakes.

“Every single one of these [technology] cycles lasted between eight and 11 years. The eight-year anniversary of the last collapse is in March 2008. Now, if someone wants to stand up and tell me why this cycle is somehow going to be a longer one — I’m all ears,” he says. If Rafer is right, then it is prudent for startups to start coming up with Plan B. And maybe Plan B should stand for “buying or merging.”

Disclosure: GigaOM and Automattic share a common investor, True Ventures. Matt Mullenweg, founder of the company, is one of my close friends.

37 Comments

Reg Cure

I am often talking about producing high quality, education based content as way to draw leads to know, like and trust you. So, for example, I always advise small business owners to create and populate a blog because I happen to think it is one of the easiest and most effective ways to both create and optimize content.

Karen pink

Procrastination is the biggest offender and lack of knowledge/direction. Learn and then applying the skills to the correct target market always helps.

oyun

Do smaller companies have the resources needed to merge differing platforms without damaging customer loyalty? Just look at AuctionAds.

Eric Elliston

I am thinking about pulling together with a bunch of other technology consultants so I can keep turning over business. It is easy to get buried in work that you don’t have time to go win new business. You always have to be trying to replace yourself….and teaming up can certainly help that out.

Eric Elliston
President of Elliston Consulting
http://www.ellistonconuslting.com

Seamaster300m

Just don’t see it working. Too many cooks when they team up. People ‘start up’ startups because they want control over their own product. Merging together will just dilute the direciton.

cyclepromo

I think in this situation Gravatar wins out because of the huge WordPress userbase. Gravatar realized that they needed to make a move and I think the made the right one.

Scott Rafer

@Vin Turk Every cycle included improvements in bandwidth, software tools (both productivity and cost), and an increase in IT’s fraction of the world economy. Tech is now a huge fraction of the world’s production. How does that remove or delay business cycles? Given how quick we all operate, it might speed them up.

Robert MacEwan

Do smaller companies have the resources needed to merge differing platforms without damaging customer loyalty? Just look at AuctionAds.

Vin Turk

“Every single one of these [technology] cycles lasted between eight and 11 years. The eight-year anniversary of the last collapse is in March 2008. Now, if someone wants to stand up and tell me why this cycle is somehow going to be a longer one — I’m all ears,” he says.

Here’s why…
Broadband penetration
Speed to market
Development costs
Millions (if not tens of) more computers all around the world connected (more potential consumers/customers)
Mobile

till

Whenever I hear of synergies (because I guess that is what “teaming up” is all about), I try to leave the room.

I found that very rarely it works out for both parties. I can totally see why people are sceptical.

Symbian

What if rich startup with funding is searching for real technological basis for its proposals? Looks like bubble 2.0 is coming…

Biplab

In a way, this entire bubble is a product of the acquisition spree of the companies like Yahoo, Google, Microsoft etc. Taking the case of Google, just because they want to be omnipresent in the internet world, and now in the mobile world, they keep on acquiring companies irrespective of their profitability. Their process allures all these start-ups for the dream of quick money. I guess, when the bubble breaks, these big companies also will get their share of regret.

buckpost

Om,
I think you’ll start to see more teaming up as start-ups look for creative ways to operate more efficiently. I would argue that a more pragmatic approach to spending is the biggest difference between the last tech boom and the current one – something lost amid all the talk about a bust.

Srini

Widget makers CAN make a lot of money – look at shareware. There is no willingness-to-pay for Web 2.0, that’s the problem. I have said enough already, the solution is obvious.

allen stern

Teaming up is so critical these days – people fear it because they believe that a merger might be the end result but the truth is that both companies can walk away smarter than going it alone.

This is one of the benefits of co-working.

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