Blog Post

Startups Should Team Up to Grow

[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, 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 Responses to “Startups Should Team Up to Grow”

  1. 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.

  2. 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

  3. @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.

  4. “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)

  5. 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.

  6. 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.

  7. buckpost

    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.

  8. 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.