If you had the chance to exit, would you sell your startup to a competitor?
Entrepreneurs are passionate by nature. They work hard to make their ideas come to life, and harder to make them survive. In a tough market like the Middle East, learning from failure is unavoidable for some startups. But whether a startup sinks or swims, the journey is filled with hard work and must be sustained by passion.
And as entrepreneurs watch their "baby" grow, they might become attached to the point where exiting- although a sign of success- could be as hard as a parent letting go of their child.
In a recent post on our Facebook page, we asked our audience whether they would sell their startup to their biggest competitor if they had the chance to exit. The majority of respondents- 5 out of 9- said they wouldn’t, while another three justified why exiting is a good option, and one didn't have a strong opinion.
From an audience’s perspective
Bash K. Osman, a computer engineer, had a strong opinion: “The fact that your competitor would be interested in acquiring your business means they see potential. Do NOT sell, you're worth a million!”
Ayah Soufan, an employee at C.E.O of my Life, an entrepreneurship program for disadvantaged youth, agreed. “Such a hard question! Can you sell your [son]? And create another one!” he asked.
Mohammed Toraif, the CEO and founder of Fishtransporter, a Bahraini seafood delivery startup that Wamda contributor Leena AlOlaimy recently wrote about, also agreed that it was a bad idea. “Selling to the competitor is a very hard thing. I would consider quitting my job and selling it to international investors instead!”
Pro-exiting respondents revealed that selling to a big competitor is not a bad option; as long as it’s “good for the industry the startup is trying to fix,” said Abed Agha, the founder of content company Vinelab, or, if a lot of cash comes out of the acquisition, said Abdulrahman Rafiq: “If the offer is too good to refuse, why yes. Cash is king!”
From a founder’s perspective
While most of the respondents perceived exiting as an inappropriate strategy given the time and effort an entrepreneur puts in their startup, Sohrab Jahanbani, co-founder of GoNabit (and now COO of MarkaVIP), Elie Habib, founder of Anghami, and Mudassir Sheikha, co-founder at Careem, looked at it from a different perspective.
Plan your exit
“Exit is not a focus [for entrepreneurs],” says Elie Habib of Anghami, “and should never be.”
Startups should attain a certain level of success before looking to exit, he says. “An entrepreneur has to work hard, on building a company, building a team, realizing the vision by creating the product, having fun while doing that, growing revenue and other critical metrics, and most importantly, serving customers,” he said. "Given enough time, potential acquirers will knock on the door - in a way or another.”
In Anghami’s case, a big potential acquirer would be Spotify, a global music streaming service which did not enter the region yet. When asked whether he’d sell to Spotify, Habib said that he is focusing now on building Anghami; however, with “the right combination of acquirer, [and a plan for] what will happen to the company and to the team, we would be interested to exit.” Which brings us to the next point: the outcome of an exit.
How will the exit affect your startup?
Many aspects should be taken into consideration when offered a chance to exit.
Sohrab Jahanbani, who co-founded daily deals site GoNabit along with Dan Stuart, experienced an exit when the duo sold the startup to global daily deals site LivingSocial in 2011, before LivingSocial closed down Middle East operations in mid-2012.
Founders should be careful before making their final decision, he says. “You need to be certain that the management team of the competitor can execute effectively enough to return sufficient shareholder value and to ensure customers continue to enjoy the same level of or an improved service.”
Also, startups critically need to “look at whether there is a cultural fit.” If the acquirer was a direct competitor, it can be a little “tricky,” he says. “There will naturally be some tension amongst staff that have been competing in the marketplace. This is where cultural fit is of key importance in determining whether the teams can work together? Is this going to [be] a win-win for stakeholders?”
Mudassir Sheikha, co-founder at Careem agrees. “If there is [an] alignment on value system and vision, we would consider it,” he said, “but if there is any doubt, we would continue building.”
Photo credit: smallbusinessbc.ca