Although founding a company is always a challenge, there has never been a better time than now for starting a business. The acquisition announced last month of WhatsApp by Facebook for $19 billion illustrates this opportunity. It is not the size of the deal; there have been huge deals that have made founders incredibly wealthy for decades. What is exciting is how WhatsApp achieved this huge exit.
What is amazing now is that you can build a $19 billion business quickly without a huge investment because of cloud computing. When you look at Microsoft and Google (and even Facebook), it took them thousands of engineers to build their businesses. WhatsApp has just 32 software engineers, which means that each one supported about 14 million users.
Another lesson from the WhatsApp acquisition is that you should focus on growing your core business, not investing in building infrastructure already available from third parties. Many young companies believe they will have greater value to potential acquirers if they own all their technology, analytics, etc., in house. The problem with this strategy is:
- You are not creating value if you are just building capability that other companies already have.
- It is virtually impossible for your home-built solutions to always be best of breed. Even if they are superior to third-party offerings when you build them, you do not have an ecosystem of innovators creating new solutions. The chances that you will always have the best solution even though it is not your core business are slim to none.
- It takes you away from focusing on your core competency. Focus is the key attribute for a successful entrepreneur. If you are spending time building a server farm or creating an in-house analytics solution, that is time you are not focusing on building your core offering.
It does not take much effort to counter the argument that building these skills in-house enhances your value. I can think of 19 billion reasons the argument is false. Seriously, the $19 billion is more than any venture-backed company was ever bought for and clearly would not have been more if they had a few hundred engineers and their own server farm. What probably would have happened was Jan Koum, WhatsApp’s founder, would have been diverted from making and growing a great app or Facebook would have paid less or bought a different app.
- Now is a fantastic time to start a company. With the ability to leverage cloud computing, you can scale quickly on a small budget.
- The WhatsApp acquisition shows you are better off leveraging third-party technology rather than building everything yourself.
- A key to success for a founder is to focus on the core value you are delivering, not unnecessary distractions.
2 thoughts on “The beauty of starting a company in this day and age”
Good analysis Lloyd. Where’s the discovery article?
What do you mean?