A company built to be sold sells for less

Joe Kraus said this in an interview in November 2006, a few weeks after Google bought JotSpot, the wiki company he had co-founded. He had also co-founded Excite in the 1990s. The timing gives the line credibility: he was describing a sale from the seller’s side, while it was fresh.

His reasoning was about negotiation. In the fuller answer he explained that a company designed to be sold reduces its own options, and a buyer who knows the seller has no options has no reason to pay much. A company that could plausibly continue alone forces the buyer to pay for that alternative. In negotiation terms, the independent path is the seller’s fallback, and the price can never rise far above what the fallback is worth.

It also affects how the company is built. A startup aimed at a particular buyer shapes its product around that buyer’s gaps, which usually makes it a feature. A startup aimed at independence builds a business with its own customers and revenue, which is both more valuable and easier to sell if the moment comes. The difference shows in daily choices: whether to spend a month on an integration a likely acquirer would value, or on something the company’s own customers keep asking for. Kraus’s point is that the second choice tends to win both ways.

There are cases where building for a buyer is reasonable. Some products only make sense as part of a larger platform, and founders who know this can build quickly, sell early and move on with less risk. Talent acquisitions, where a large company mainly wants the team, rarely depend on the business at all.

And independence has its own risks. Excite merged with @Home in 1999 at a very high price and the combined company went bankrupt in 2001. Staying independent too long can cost as much as selling too early.