Talked to a bootstrap startup CEO this morning and heard he had a buyout offer. Let's see if you would take the deal. His situation is common for such startups. I hear of several each year. So look at the deal and make your decision.
Situation: Startup sells games to play on cell phones. Was born in the founder's condo. Everything is outsourced. The only employee is the founder. The titles are growing in number. Some are beginning to sell. The company has $NN,NNN ("five figures") of sales per month, double last year's sales. Cash flow is difficult to manage because the giant American carriers (cell phone companies) pay several months after the sale occurs.
Offer: An Asian company has offered to purchase the business. For this exercise, let's pretend the offer is for cash, for $1.5 million. It is payable over two years. The contract does not guarantee the cash will be paid. The board of directors of the purchasing company must approve each monthly payment to the founder.
Decision: The founder has more new products arriving monthly. He finds support of Java and BREW for new products to be a drain on his cash flow. He believes he has a good chance of selling $300,000 of product over the next twelve months. He wonders if he should decline the offer, grow the business and seek a more lucrative offer next year.
What would you do? Accept or decline the offer from the Asian company?
BOTTOM LINE: Bootstraps are difficult to do. A few rare ones become giants (Dell). Most struggle and remain small, or go out of business. Buyers of such companies normally do not get rich. Think about it before you start off to do a bootstrap. The romance can quickly become a diet of stress and just plain hard work. They rarely can build an unfair advantage that converts them into amazing successes.
sell. It sounds like the founder has already made up his mind.
Posted by: AyeCee | Monday, 27 November 2006 at 01:37 PM