Blog Post

Inside Word: An Entrepreneur Warns Of The Dangers Of Acquisition Talks

The Inside Word is a weekly feature that looks at compelling industry debates and discussions unfolding on the blogs of employees at digital-media companies.

Blogger: Greg Linden

Position: Linden founded Findory, a news aggregator that adjusted its listings of stories to match a visitor’s behavior on the site; it shut down nearly two years ago. Most of it was later sold to Microsoft (NSDQ: MSFT). More recently, Linden has worked as a key engineer at Microsoft’s Live Labs, which is trying to speed up innovation in the company’s online businesses.

Blog name: Geeking With Greg

Backstory: Both Microsoft and Google (NSDQ: GOOG) have said recently that they’re interested (once again) in buying startups. Google CEO Eric Schmidt, for instance, said last week that the company would be making about one acquisition a month.

Blog post: In a blog post, Linden uses his own experience at Findory to warn startups not to get bogged down in acquisition talks. “It is time away from building features for customers. It creates legal bills that increase burn rate. It distracts the startup with nervous flutters over uncertainty over the future, potential distant payouts, and the complexity of a move. Acquisition talks also can be dangerous for a startup. Some companies might start due diligence, extract all the information they can, then decided to try to build (it) themselves.

“At big companies, acquisitions of small startups often are channeled into the same slow, bureaucratic process as an acquisition of a 300-person company. Individual incentives at large firms often reward lack of failure more than success, creating a bias toward doing nothing over doing something. In fact, acquiring companies usually feel little sense of urgency until an executive is spooked by an immediate competitive threat, at which point they panic like a wounded beast, suddenly motivated by fear.”

Post-script: In a follow-up exchange, I asked Linden when startups should consider selling out. “I intended my post to suggest that startups might want to focus on product and try to minimize the time they spend on competition. I think the best way to build value is to build something customers clearly want,” he told me. “At Findory, I might have succumbed a bit too much to the temptation to talk to people I might not want to be acquired by — perhaps hoping it would strengthen my position if others were interested — but I now think that time would have been better spent on customers and product.”

Know of an insightful employee blog? Please e-mail the URL to [email protected], so that I can include it in a future edition of the Inside Word.