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 usually pays a excessive premium for a corporation that matches their company technique. Instagram is a paramount instance. It was offered for double the valuation a few week after the VC funding. Principally the flipping takes longer than every 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 achieved very properly for company patrons. Roughly 70% – 90% of company acquisitions are estimated to fail.
Enterprise constructing is constructing a enterprise with out contemplating it a short-term car for a quick sale. It’s the enterprise equal of the Dakar Rally. It rewards smarts, expertise, 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 will have chosen this technique if there was a do-over in enterprise improvement.
After which there are the unicorns, the uncommon ventures that develop into 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 technique that works with angel capital
· Launching the enterprise with enterprise capital
· Searching for an exit primarily through 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 – usually with VC in Silicon Valley and with out VC exterior it.
Which is Higher for Entrepreneurs?
Enterprise flipping works properly:
· 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. In order that they flip the ventures to strategic patrons who pay a excessive worth.
· In Silicon Valley the place VCs fund lots of promising ventures, enterprise flipping is commonly 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 business and the dominant unicorn desires to buyout potential rivals and keep away from future competitors. That’s one motive why Fb purchased WhatsApp.
· For entrepreneurs who’re searching for a quick return for growing a expertise and advancing it to the purpose the place a company purchaser pays a gorgeous premium.
The issues with enterprise flipping are the chances, 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 endure from dilution (100/100)
· The entrepreneurs might 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 amazing instance. Jan Koum and his associate have been constructing an amazing enterprise. When Fb paid billions, they took it.
Enterprise constructing works properly:
· 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 don’t need VC or don’t want VC – and don’t need or want a monitor trying over their shoulder.
MY TAKE: Enterprise flipping is to concentrate on the exit. Enterprise constructing is to concentrate on 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 expertise to develop a capital-smart technique for progress potential until take-off and management expertise to dominate after take-off.