Amazon and the “insurance policy” acquisition

In This Internet Millionaire Has a New Deal For You, Tim Rogers describes a breakfast meeting between Jeff Bezos and Woot founder Matt Rutledge soon after Amazon acquired Woot:

At length, after a bit of business talk that maybe resembled a cousin of an actual breakfast meeting, Rutledge blurted out a question that had been troubling him: “Why did you buy Woot?”

So there sat Bezos at the breakfast table, faced with a question for which he was apparently unprepared. Many painful seconds passed without an answer. Rutledge let the pause lengthen as long as he could bear it and was just about to tell his host to forget it, when Bezos finally spoke.

He looked down at his plate. Bezos had ordered a dish called Tom’s Big Breakfast, a preparation of Mediterranean octopus that includes potatoes, bacon, green garlic yogurt, and a poached egg. “You’re the octopus that I’m having for breakfast,” Rutledge remembers Bezos saying. “When I look at the menu, you’re the thing I don’t understand, the thing I’ve never had. I must have the breakfast octopus.”

…In 2012, two years into his three-year deal with Amazon, Rutledge walked.

(1) What’s the breakfast octopus analogy? Perhaps Bezos meant this: “Woot has an approach that’s completely different to the way we think, and it seems to be working. That’s potentially threatening to us. So we bought you to understand what you’re doing. It’s an insurance policy.”
(2) If you’re happy to sell only for the money, fine. If you want your company to survive and thrive, perhaps “insurance policy acquisitions” aren’t great.

If you sell your company, use an investment banker

Excerpts from If You Sell Your Company, Use a Banker by Jason Lemkin:

You don’t get THAT much from a banker for their seemingly huge fees:
— They don’t get you another offer.
— They don’t get you a better price just by hiring them.
— They don’t do much work for you.

So why hire a banker?
— They create the illusion you have another offer, and a real sense of scarcity.
— They end up getting you a better price by “accident” — by just being there and part of the process.
— They don’t do the grind work, but they buffer some of it out.
— The entire process changes — for the better. Corporate development, CFOs, etc. just treat the process with more respect if there’s a banker.

When to sell your company — Ev Williams

From When to Sell Your Company by Blogger, Twitter and Medium founder Ev Williams:

It seems to me, there are three reasons to sell a company. Any of them will suffice:

1. The offer captures the upside
Every business has natural growth limits. If someone offered you $10 million for your coffee shop that does $250,000 a year in sales, it’s pretty clear you should sell—from a purely financial perspective. Finances are only one perspective, but if you have many shareholders, it’s one you are obligated to take seriously.

2. Imminent threat
There’s potential, and then there’s risk. And there’s always risk, even in the best situations. But there are cases in which your chances of reaching your potential are slimmer than normal and maybe even totally out of your control.

3. Personal choice
Sometimes the founders or other key people may just be done. This is actually quite common and drives a lot of small acquisitions. It doesn’t apply as much as companies get larger, because everyone is (eventually) replaceable—especially if the company is doing well.

Personal note: None of these applies to Seeking Alpha. Yet :-)

Are most acquisitions a failure?

Jake Lodwick, founder of CollegeHumor, in An acquisition is always a failure:

The party ended in 2006, when we sold our company to IAC, a conglomerate owned by media mogul Barry Diller. Bit by bit, the youthful energy that created so much value was siphoned off. Whereas we’d once been free to work on whatever seemed interesting, we now found ourselves in vaguely defined middle-management roles, sitting through pointless meetings where older doofuses who didn’t understand the Web challenged our intuitions and trivialized our ambitions…

With a fat bank account, I was pretty set to do whatever I wanted for a long time. The sale afforded me the ability to make art, invest in other companies, and unwind. But it didn’t take long to realize that my new life was a hell of a lot less exciting than running an independent company had been.

I typically refer to the IAC sale as “the worst business decision of my life.” I’m not sure IAC is worse than any other large company in this regard…

An acquisition, or an aqui-hire, is always a failure.

Many internet acquisitions have failed, but some have succeeded. What determines the outcome?