Corporate America’s Billion Dollar Shopping Spree: A Lesson for Entrepreneurs

Last year, non-tech companies spent nearly $10 billion on venture capital-backed businesses. These days large companies are increasingly partnering with, investing in, and acquiring startups that disrupt their own core business -and doing so at a price premium. Here are several examples of corporate giants thinking outside of the box that provide a lesson to both startups as well as entrepreneurs looking to sell their businesses.
Wal-Mart’s Acquisition of Jet.com
At $3.3 billion, Wal-Mart’s acquisition of Jet.com in the largest deal to date for an online startup. Jet, despite its promised $1 billion run rate, is still burning cash and often not making a profit on sales.
What we miss when we focus just on the above is that Jet is a way for Wal-Mart to counter its greatest weakness and make a play against one of its strongest competitors—Amazon. Despite six decades of success as a brick-and-mortar retailer, Wal-Mart has consistently had issues competing online.
Jet is a real innovator, incorporating dynamic pricing based on warehouse location into its model and incorporating the best of AI to ensure that the client experience is exemplary—a very different selling point than Walmart has traditionally focused on.
The lesson for entrepreneurs: Pay attention to the weak spots of would-be acquirers. How would your strengths complement their weaknesses? If you can identify and demonstrate the ways you can help them patch those holes, you instantly become a more attractive acquisition candidate.
General Motors Acquisition of Cruise Automation
Last spring, automotive giant GM closed on its $1 billion acquisition of Cruise Automation, a startup that hadn’t even launched a product yet. The San Francisco-based startup develops software for self-driving vehicles, a technology that on the surface threatens GM’s core business as a legacy automobile manufacturer.
Some might say GM didn’t have much choice but claim a stake in the self-driving vehicle industry. Its competitors are working to develop new technology for autonomous cars—with Cruise, GM at least has a chance to compete against front-runners like Google and Tesla. GM has high hopes for its self-driving vehicle initiatives. Last January it entered into a partnership with ride-sharing service Lyft that it hopes will result in a fleet of robo-taxis—a pilot program for driverless non-taxi cars to come.
The lesson for entrepreneurs: Don’t be afraid to compete with the big names in your industry—even if they have a head start. When Cruise was founded, Google had already been working on self-driving cars for more than 5 years. But automakers are hungry to own the technology that they see as the future of their industry, and buying Waymo from Google is not an option. It’s no surprise that Cruise got such a high price even in a crowded field.
With over 25 years’ experience consulting with industry-leading companies, we understand the challenges facing entrepreneurs with generating and protecting income. Whether you’re looking to improve your profitability, build your brand through a business transaction or capital raise, Talley is the consulting and financial services firm dedicated to strategic business solutions that deliver meaningful results.
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