Enterprise flipping is enterprise launch-to-sell. It’s the enterprise equal of drag-car racing. The aim is to rapidly promote the enterprise to a strategic purchaser who typically pays a excessive premium for an organization that matches their company technique. Instagram is a paramount instance. It was sold for double the valuation about a week after the VC investment. Principally 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 presents a gorgeous exit for each the VC and the entrepreneur, however acquisitions haven’t achieved very effectively 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 aim 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 should 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 concept to greater than $1 billion in gross sales and valuation, are enterprise builders.
The Steps: Flipping vs. Constructing
Enterprise flipping’s steps embrace:
· Figuring out a possibility, together with a Minimal Viable Product
· Discovering a technique that works with angel capital
· Launching the enterprise with enterprise capital
· Searching for an exit primarily by way of strategic sale or an IPO (if the enterprise is successful).
Enterprise constructing’s steps embrace:
· 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 effectively:
· For the 19% of VC-funded ventures which can be profitable however not unicorns. The VCs who funded these ventures after Aha need to exit at a excessive valuation. In order that they flip the ventures to strategic patrons who pay a excessive worth.
· In Silicon Valley the place VCs fund a number of promising ventures, enterprise flipping is usually for ventures that can’t or don’t need 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 sizzling rising trade and the dominant unicorn desires to buyout potential rivals and keep away from future competitors. That’s one cause 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 is not going to get VC (~99,900/100,000)
· The enterprise will fail with VC (~80/100)
· The entrepreneurs will undergo from dilution (100/100)
· The entrepreneurs will likely be ousted (finest estimates are ~30/100)
Enterprise constructing focuses on strengthening the enterprise for long-term progress and domination. The aim is to construct an actual enterprise that may survive, succeed and dominate as an unbiased company. If strategic patrons provide a king’s ransom, the entrepreneur accepts it. If not, they continue to grow. WhatsApp was an excellent instance. Jan Koum and his associate had been constructing an excellent enterprise. When Fb paid billions, they took it.
Enterprise constructing works effectively:
· 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 trying over their shoulder.
MY TAKE: Enterprise flipping is to give attention to the exit. Enterprise constructing is to give attention to 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.