HEADLINES TODAY in Ad Age:
The story sorts through the strategic reasoning for Disney to buy Maker Studios and for the founders to cash in with Disney.
Disney you know about. Maker Studios is one of the largest, most watched YouTube channels.
Sounds great, doesn't it? Wow! $500 million paid by revered Disney for your startup!
How would you do that? Let's quickly sort through the "Why?" so you can apply that to your startup plans.
- BOOMING NEW MARKET: The new name for the category is "short-form online video".
- PROVED VIEWER AUDIENCE: Maker Studios has around 25 million viewers. Disney online around 1% of that.
- NO GORILLA YET: Maker Studios is neck and neck in the race to become the Number One, dominating leader of the new category. With around 25 million viewers, Maker Studios stands out, but music video service Vevo has 10 million more. And lots of competitors are eagerly in pursuit.
- SAGGING MARKET: Disney's Ideal Customers (kids) are increasingly watching entertainment on parents' iPads rather than tvs.
- FAILED ATTEMPTS TO COMPETE: Disney's attempts to use YouTube are a flop, leading to recent layoffs of 700 employees. "Disney has had a hard time finding the success online that it has historically enjoyed in film and television."
- FAILED ATTEMPTS TO ATTAIN PROFITABILITY: "At the same time upstarts like Maker Studios have attracted the young audience Disney craves, while struggling with tough online-ad economics."
- BUSINESS MODEL FROZEN AND DEPENDANT: Maker Studios pays YouTube 45% of its advertising revenue. The company hopes giant Disney can negotiate better terms.
- HOPE: Can the combination figure out the recipe and deliver Grandma's secret sauce? The killer app? That something that crushes the competition?
FIRST-TO-GET-IT-RIGHT STILL OPEN OPPORTUNITY:
Some combination of "what it takes" remains unknown. That amazing "WOW!" is not yet obvious. Will entertainment expert Disney plus online technology creative Maker Studios figure it out? That is the prime question? Stay tuned, it will be exciting! Your lesson here: Quite obviously, your startup is worth more before a gorilla exists.
WHAT SECRET SAUCE DOES MAKER STUDIOS HAVE?
To get to 25 million viewers in a fresh category, the startup must have something with WOW! in it. The leaders have proved themselves as a harmonious team that executes well. That is worth a great deal (if Disney can keep them on the job).
The specialness is more than technology. Take a look at the channels offered by Maker Studios. They include real actors, real characters. They are delivered in creative ways that appeal to targeted market segments (Ideal Customers). Your startup has to have that in order to attract the attention of a giant potential buyer.
All of the above points to the success to date of the ability of the founders to build an unfair competitive advantage. In its current status, I find the articulation of the WOW! of Maker Studios to be rather weak. Perhaps clever Disney people can figure that out in brainstorming sessions with Maker Studios. Your lesson here: You are worth a lot more to a buyer when you can point to and quicky articulate that special combination that spells unfair advantage.
WILL DISNEY RUIN THE STARTUP?
Giants have a knack for messing up an acquired business (recall what happened to MySpace). Disney avoided that dread result after acquiring Pixar. Their track record is not filled with many acquistion failures (no one is perfect). This deal could also be successful in that manner.
BOTTOM LINE: When a giant needs a startup, it might be your opportunity to sell your business to them. When you need a giant, it might be time to sell. The resulting combination must deliver something that individually the participants could not. Consider the fundamental need (of each party), the size of the potential (together), and the people doing both the buying and selling (how will your startup work after acquistion).
Then test your startup's condition (or plan) to see if you could attract a giant (pick one) and convince it to write a very large check for your tiny new enterprise. When you can figure that out, you'll demonstrate that you (like serial entrepreneurs) know how to build an unfair advantage, put a high monetary value on it, and find the ideal buyer for it. Your predecessors did that successfully, you can too!
I wish you The Best on your Adventure!