Entrepreneurs and startup CEOs, it’s time for a little perspective. Your revenue is meaningless. The efforts required to create it are a distraction. Your pricing is too low. You have undertaken excessive support obligations. If you start to scale, your processes and technologies will all fail, destroying the existing good will with your customers.


In fact, if you offered to give your company away for free to most acquirers, they would decline.


I made this point to a CEO recently and his response was, “No way; they would take my company for sure.” And I thought, “Oh boy, this is going to be a long meeting.”  So I tried another approach:

Mr. CEO, if you had a billion dollars to spend, would you buy a $5 million revenue company and spend another $10 million on R&D and distribution in order to scale it to $25 million?  Or would you by a $200 million revenue company and spend another $50 million to scale it to half a billion? Knowing that buying the small company is almost as hard as buying the big asset? 

In fact, it’s standard practice for many corporate development groups to play the “what if we could get it for free” game. This is a useful exercise because it forces the buyer to confront all of the overhead required to integrate, manage, scale and support an acquired business. It also helps them get past the initial excitement of a new team and technology, and to face reality.

For Apple in the 1990’s, it was a question of relevance with a capital “R.” Will the acquired business potentially impact millions of users? Google management follows the same line of thinking. Unless an acquired business can be part of something really big–truly game-changing–then it isn’t worth the trouble.

For a CEO who has battled to grow revenue from zero to $5 million, it’s difficult to accept that their hard-fought battles may have created a business that is more trouble than it’s worth.


Time to look at your business from the outside in:

  • That $5 million in revenue represents customers paying for products. It represents product validation. Is that revenue profitable? Does it reflect demand, or are the customers being bought?
  • Are the customers being served profitably?
  • How scalable is the technology?
  • Does the pipeline trend support the argument that the opportunity is much larger and growing?
  • Are the support agreements and terms aligned with the market, and did your sales staff stay within the bounds of standard SLAs and support agreements?
  • Is the team passionate enough to take the business onto a grand stage, where every flaw will be revealed?


Congratulations on your progress so far, Mr. CEO.  But if you really want to take it to the next level, you need to convince the buyer that this was not the grand performance; it was just a very successful rehearsal for a much bigger act.