Enterprise flipping is enterprise launch-to-sell. It’s the enterprise equal of drag-car racing. The objective is to shortly promote the enterprise to a strategic purchaser who typically pays a excessive premium for a corporation that matches their company technique. Instagram is a paramount instance. It was sold for double the valuation about a week after the VC investment. Largely the flipping takes longer than per week, as within the case of YouTube (bought by Google), WhatsApp (acquired by Fb), and Paypal (purchased by eBay). Flipping to companies often affords a gorgeous exit for each the VC and the entrepreneur, however acquisitions haven’t carried out very nicely for company patrons. Approximately 70% – 90% of corporate acquisitions are estimated to fail.
Enterprise constructing is constructing a enterprise with out contemplating it a short-term automobile for a quick sale. It’s the enterprise equal of the Dakar Rally. It rewards smarts, abilities, and endurance. The objective is to construct an actual enterprise for the long run. The 99.9% of ventures that don’t obtain VC are on this class. And maybe the 80% of VC-funded failures ought to have been on this class – and will have chosen this technique if there was a do-over in enterprise growth.
After which there are the unicorns, the uncommon ventures that grow to be a house run. They’re the crowning glory of enterprise constructing. Billion-dollar entrepreneurs, i.e., entrepreneurs who construct a enterprise from thought to greater than $1 billion in gross sales and valuation, are enterprise builders.
The Steps: Flipping vs. Constructing
Enterprise flipping’s steps embody:
· Figuring out a chance, together with a Minimal Viable Product
· Discovering a method that works with angel capital
· Launching the enterprise with enterprise capital
· In search of an exit primarily by way of strategic sale or an IPO (if the enterprise is a hit).
Enterprise constructing’s steps embody:
· Figuring out a possible progress alternative
· Proving the technique for progress potential
· Financing with Reverse-VC to develop with management
· Taking off with out VC
· Scaling up after take-off – typically with VC in Silicon Valley and with out VC exterior it.
Which is Higher for Entrepreneurs?
Enterprise flipping works nicely:
· For the 19% of VC-funded ventures which are profitable however not unicorns. The VCs who funded these ventures after Aha wish to exit at a excessive valuation. So that they flip the ventures to strategic patrons who pay a excessive value.
· In Silicon Valley the place VCs fund a whole lot of promising ventures, enterprise flipping is usually for ventures that can’t or don’t wish to go public however have worth for an organization
· In ventures with restricted upside potential, which belong as divisions of companies
· When the enterprise addresses a distinct segment market, primarily in a scorching rising trade and the dominant unicorn desires to buyout potential opponents and keep away from future competitors. That’s one motive why Fb purchased WhatsApp.
· For entrepreneurs who’re searching for a quick return for creating a expertise and advancing it to the purpose the place a company purchaser pays a gorgeous premium.
The issues with enterprise flipping are the percentages, that are that:
· The enterprise won’t get VC (~99,900/100,000)
· The enterprise will fail with VC (~80/100)
· The entrepreneurs will undergo from dilution (100/100)
· The entrepreneurs shall be ousted (finest estimates are ~30/100)
Enterprise constructing focuses on strengthening the enterprise for long-term progress and domination. The objective is to construct an actual enterprise that may survive, succeed and dominate as an impartial company. If strategic patrons supply a king’s ransom, the entrepreneur accepts it. If not, they continue to grow. WhatsApp was a terrific instance. Jan Koum and his associate have been constructing a terrific enterprise. When Fb paid billions, they took it.
Enterprise constructing works nicely:
· For all ventures earlier than Aha as a result of VCs don’t fund earlier than Aha – they want proof of potential
· For the 99.98% of ventures who don’t get VC or who fail with VC
· For entrepreneurs who are not looking for VC or don’t want VC – and are not looking for or want a monitor wanting over their shoulder.
MY TAKE: Enterprise flipping is to deal with the exit. Enterprise constructing is to deal with progress. Enterprise constructing is healthier for 100% of ventures earlier than Aha, and for 99.981% of ventures after Aha. Developing with a minimal viable product and looking for enterprise capital to scale up works for only a few. Entrepreneurs want abilities to develop a capital-smart technique for progress potential until take-off and management abilities to dominate after take-off.