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In a small way, every talent acquisition poisons the well for future, bootstrapped startups. It erodes the confidence of users and potential customers. People

In a small way, every talent acquisition poisons the well for future, bootstrapped startups. It erodes the confidence of users and potential customers. People put their company blog on Posterous, they add their business to GoWalla, they gave AdGrok a few hours of their time, etcetera, etcetera. I'm not saying I would turn down the offer. But I fear the long-term effect of all these acqui-hires is my potential customers saying "No thanks. I doubt you geeks will be around in 18 months" when I market to them.

larrys 15y ago
I agree with you but this is really a business issue not a startup issue. Apple killed newton, clones, xserve and other products. I'm sure you can think of more. Sun killed cobalt servers. GM killed Oldsmobile, Pontiac etc. Survival of the fittest. All the warm fuzzy folksy stuff (that you don't see in traditional business - you know things like a dog at the office or free food) means very little in the end. They will do what they need to do to survive.
- callmeed 15y ago
  The difference is (a) most hardware is owned on premises and Sun can't simply walk in your server closet and yank it out, and (b) these companies usually provide support for hardware for a few years after the product is shelved. If I'm not mistaken, auto manufacturers are required to have certain parts/service available for a few years after the production of each model. With web startups, you get (at best) an email with 90 days notice.
  - larrys 15y ago
    You're right with hardware there are end of life notices that extend for several years. And even third parties that support the equipment. (Of course the software or OS might be a different story.) But more importantly there is an ongoing concern that has a reputation (not the same with an entire company folding) and the product killed is just a part of many products that are offered. And of course they are charging for something whereas in the case of web startups what they are giving you is free. So there is no "consideration" and as a result I would think they are not subject to any class action lawsuits. How can you sue for something you didn't pay for?
phil 15y ago
It's endemic to the web. Just look at GeoCities. Or, maybe you entrusted all your medical records to Google Health? The web is built for innovation, not longevity.
harryh 15y ago
What do you think would happen most of the time if these acquihires didn't happen? The companies would just go out of business and the services would be shut down anyway.
- aiscott 15y ago
  Wait, why do you say that? Is there an assumption that startups don't have a workable business model?
  - harryh 15y ago
    Sure (some) startups have workable business models. Even posterous had a workable business model (if they had been able to beat tumblr). The problem for the companies getting acqui-hired isn't (generally) a lack of business model. It's a failure to succeed in executing on that model so acqui-hire is all they have left.
- ghshephard 15y ago
  One alternative would be for these startups to scrimp and struggle for a long time on Ramen Profitability, maintaining their services while they sought to expand, find a business model, open up new veins while continuing the old, perhaps providing a graceful upgrade into the new portfolio. I'm with the GP poster -while I probably would do the same thing in an acquihire situation, it does start to (somewhat) poison the well over time for newer startups. While I love Path to bits - I have zero clue what their business model will be, and wonder what will happen to all my carefully journaled "moments" if Path gets acquhired sometime in the future. Somebody needs to come up with a good Diaspora like solution for personal journaling where _i_ control the data, and store it on something that is likely to be persistent (S3 is the only thing that I can think of that has a greater than 90% chance of being around in 10+ years. Dropbox, if they have good public offering, will likely be the second candidate) I'd pay money for that - $10 for a Dropbox/S3 storage social network akin to what we get with Path today.
  - sbierwagen 15y ago
    S3 is the only thing that I can think of that has a greater than 90% chance of being around in 10+ years. How about rsync.net? Or just FTP it to any of a thousand cheap webhosts?
shingen 15y ago
It provides that much greater of an opportunity for startups that stick around.
- chc 15y ago
  How long are you going to be able to stick around without funding and no customers?
  - shingen 15y ago
    Why would the remainders be lacking funding or customers? The startups that stick around will have access to more of both all things being equal (ie assuming the same economy). Posterous is apparently about to create a lot of orphans. Those are customers now available for a lot of other remaining startups etc. If you're a bootstrapped startup in the Posterous space, you should be licking your chops, Christmas is coming early.
    - chc 15y ago
      I feel like you're not paying attention here. The original comment that you replied to said, essentially, "The bad thing about these sorts of acquisitions is that orphaned customers will be gun-shy about relying on another startup like this, even if that startup is aiming for a sustainable business rather than a liquidity event." Our fear is that bootstrapped companies aiming for long-term reliability will have trouble finding customers because the customers have been burned before by a company that, from their perspective, looked very much like yours but turned out not to be reliable at all. That's where the difficulty finding customers comes in. Imagine setting up a plumbing business in a world where 75% of plumbers were actually armed robbers. Sure, you have the nominal advantage of actually being a real plumber, but how many people do you think will take a chance on you after the last three plumbers cleaned them out? And bootstrapped companies by definition don't take a lot of funding. Once you get into the VC game, a reliable business with steady income income is no longer enough, because that isn't how investors make money. Once you take venture capital, your goal is some sort of liquidity event, like this sale.
pestaa 15y ago
I think you're right, but aren't these acqusitions transparent to most of these customers? Posterous stays the same brand for a huge portion of its userbase.
- callmeed 15y ago
  I'm assuming (possibly incorrectly) that Posterous shuts down their blog system within a year. That's the context I'm referring to (acquire -> integrate engineering talent -> shut down original product). When that happens, it's the users who get the short end of the stick (VCs may lose $ or break even, but that's an expectation in their world). Software–however niche, crappy, or "beta"–gets used for a lot longer than developers realize. Somewhere out there, a secretary is using a Word macro that's older than my teenage daughter and she'll stab you with her letter opener you if you try and take it away. But, in a Web-app/SaaS world, we developers can shut things down with a simple keystroke. That doesn't mean it has no consequences.
Lambent_Cactus 15y ago
It also has to have some effect on lowering the costs to launching a new startup by limiting the downside risk, particularly to technical talent. Surely some people have though "Sure, I have a good job now, but if it doesn't work out we'll just get acqui-hired by the big guys in 18 months, so why not?"
deleted 15y ago
[deleted]
geofflewis 15y ago
Out of all the issues bootstrapped startups face, I really don't think "other startups may be acqui-hired and poison our well." should be a concern. The vast majority of startups that fail do so because they poison their own well
dasil003 15y ago
Early adopters are always jumping to the next thing anyway. What are the chances you will still want to use a given web service 5 years down the line? All in all I think this concern is more than outweighed by the fact that startups offer tighter and more inspired new products than established players. What are you gonna do, just not use any products?
- justincormack 15y ago
  Early adopters yeah. But consumers used Kodak for 100 years or so before changing. Average people hate data migrations.
freshhawk 15y ago
I don't think it's just a long term effect. I've already experienced this attitude from potential customers: "So what happens when you guys get aquired and shut this product down" "We don't plan to, it makes money and we're growing" "If you keep growing one of the big players will get worried or interested or both and make you an offer you'd have to be stupid not to take" It makes sense, the aqui-hire doesn't just get you a proven team with known talent, it removes a potential competitor that might disrupt the status quo. There's a reason it's happening so often and it's because it's great business. But as a trend it's certainly going to make it harder to get customers for startups that aren't based on creating a fad-ish service for consumers but are providing services people consider important.
- geofflewis 15y ago
  If this is ever a customer objection that actually prevents a deal, the prospect probably just does not want your service that badly and is reaching for an excuse to not sign.
  - freshhawk 15y ago
    I certainly think that's a possibility but I think you're overstating how much they are rationalizing in your analysis. There is certainly an extra lack of confidence in startups because of the "find a big exit!" culture and the growing trend for aqui-hiring. As if it wasn't hard enough as a startup to attract customers, this perception is certainly not helping.
joshuamerrill 15y ago
Agreed. I keep referring back to Maciej Ceglowski's fabulous post, Don't Be A Free User: http://blog.pinboard.in/2011/12/don_t_be_a_free_user http://blog.pinboard.in/2011/12/don_t_be_a_free_user Posterous had a good four year run, but the strong hint from the press release is that they'll be shutting the service down.
mmaunder 15y ago
It also has the profoundly sad impact of occupying entrepreneurs and investors who could be inventing job creation machines.
fleitz 15y ago
No it doesn't errode confidence, most customers are not part of the startup ecosystem. (unless your target demo is other startups) To be frank, I'm not sure what Posterous being acquired by Twitter has anything to do with most of your points. First of all, Posterous is not bootstrapped, it's received $10M in VC funding. Second Posterous has few customers compared to users, but well paying ones like Coca-Cola, I'm sure they will be taken care of. If you have a product worth buying your customers will not question how long you've been around. Some will but there are enough that won't. If you're really worried about it, buy an off the shelf company with updated filings, it's not very difficult to find a company 3 or 4 years old. If you've got the cash you could even buy a publicly listed shell. Even NYSE shells come up now and then but those are very pricey. But honestly, unless you're selling items in the thousands of dollars per month range no one is going to pull your corporate charter. As an aside, do you offer Cilantro in bulk / whitelabel or do you have an affiliate program?
tptacek 15y ago
Not really. Most startups simply fail. Only a small fraction of them make a good enough name for themselves that the team has value. And the ones that accept those deals tend overwhelmingly to be companies that would have failed anyways. Startups all start with a confidence liability; this is just a fact of life. It's even worse if you're selling to enterprises, and was worse long before anyone ever thought of the term "acquihire". You can trounce your competitors on every axis, come in at half the price, charge a flat-rate site license instead of a metered seat license, and buy the purchasing team 52-day aged ribeyes every week for 6 months and still lose if you're the one who looks like you might be out of business 2 years from now.
- callmeed 15y ago
  It's still another data point that gets in people's heads IMO (it's in mine FWIW). A good analogy might be the crappy customer service provided by AT&T, Comcast and [insert most utility cos] over the past 20 years. Most consumers now expect poor service and I'd wager that has, to some degree, had an influence on purchasing decisions.
  - tptacek 15y ago
    I totally understand where you're coming from, but I suspect that what's happening here is that team acquisitions provide vivid examples (and, in particular, long agonizing will-they won't-they suspenses about killing off the service) that create an easy narrative for something that is always happening all the time anyways. It just is risky to do business with startups.
    - ricardobeat 15y ago
      You don't "do business with startups". You do business with other businesses, and expect them to be serious about their propositions.
      - tptacek 15y ago
        You can't will away the extra risks carried by immature businesses. This isn't a moral issue. Some companies mature and stabilize around viable businesses; most don't.
aufreak3 15y ago
Totally agree. I liked posterous. I've also wondered out loud whether a similar thing will happen to workflowy as well, which I also love. Nothing against the guys, they're just optimizing, but it sucks to be on the receiving end. Is web 4.0 going to be a DIY world where vps-es are the only "services" you'll need and other products will have to plug in to what you host on your own vps just like normal purchased desktop software?
athst 15y ago
I agree. You can't really criticize someone for selling, maybe they had to do it. But it really does make you pause the next time you decide to commit to a new company. Today I got reminders in my email about how SimpleGeo and IndexTank will "sunset" their services within the next month after their acquisitions last year. I knew it was coming, but after having to spend all this time removing them from my app, I'll be a little more wary going forward of using third parties in the things that I do.
bambax 15y ago
You're right, but there's not much that can be done about it. It's just a fact of life that we have to deal with... and prepare for. For instance, my blog is on Posterous, but with my own domain, so I can migrate to some other service with no visible disruption.
pron 15y ago
As for the effect this has on other start-ups, I think there are two interconnected issues here, one on the buyer side and one on the seller side. On the seller side, VC investments are to blame, I think, because of their ROI expectations. We are missing a good investment model for successful tech/web businesses that aren't the huge windfalls VCs want, like most businesses in other fields. You could say that angel investment is that model - the problem is that VCs want to invest in many companies, and it's sometimes hard to reject their offer. Once you do take their money, it's hard justifying slow growth and good though less-than-stellar success, and in that case, both the company and its users are "doomed". And why do VCs want to invest in so many companies? This has to do with the buyer side (see http://news.ycombinator.com/item?id=3546629 http://news.ycombinator.com/item?id=3546629 for an interesting discussion about acquihires from the buyer's perspective). I think they have to invest because they have so much money, they can't accurately identify the stellar companies (well, obviously), and acquisitions give them a good enough ROI to continue doing what they're doing.
tomg 15y ago
Nothing on the web should be construed as permanent. Even GOOG, MSFT, and YHOO drop products, change features, etc. It's a risk everyone has to analyse when choosing third-party vendors (GOOG now charges for Maps, for example, and look how many people are revamping their apps to not use them). Both web and brick/mortar companies can suddenly close shop for a huge amount of reasons, and I have my doubts that "being so talented at what you do that you get bought out" is at the top of too many peoples' worry lists, IMO.

larrys 15y ago

I agree with you but this is really a business issue not a startup issue. Apple killed newton, clones, xserve and other products. I'm sure you can think of more. Sun killed cobalt servers. GM killed Oldsmobile, Pontiac etc. Survival of the fittest. All the warm fuzzy folksy stuff (that you don't see in traditional business - you know things like a dog at the office or free food) means very little in the end. They will do what they need to do to survive.

callmeed 15y ago
The difference is (a) most hardware is owned on premises and Sun can't simply walk in your server closet and yank it out, and (b) these companies usually provide support for hardware for a few years after the product is shelved. If I'm not mistaken, auto manufacturers are required to have certain parts/service available for a few years after the production of each model. With web startups, you get (at best) an email with 90 days notice.
- larrys 15y ago
  You're right with hardware there are end of life notices that extend for several years. And even third parties that support the equipment. (Of course the software or OS might be a different story.) But more importantly there is an ongoing concern that has a reputation (not the same with an entire company folding) and the product killed is just a part of many products that are offered. And of course they are charging for something whereas in the case of web startups what they are giving you is free. So there is no "consideration" and as a result I would think they are not subject to any class action lawsuits. How can you sue for something you didn't pay for?

phil 15y ago

It's endemic to the web. Just look at GeoCities. Or, maybe you entrusted all your medical records to Google Health? The web is built for innovation, not longevity.

harryh 15y ago

What do you think would happen most of the time if these acquihires didn't happen? The companies would just go out of business and the services would be shut down anyway.

aiscott 15y ago
Wait, why do you say that? Is there an assumption that startups don't have a workable business model?
- harryh 15y ago
  Sure (some) startups have workable business models. Even posterous had a workable business model (if they had been able to beat tumblr). The problem for the companies getting acqui-hired isn't (generally) a lack of business model. It's a failure to succeed in executing on that model so acqui-hire is all they have left.
ghshephard 15y ago
One alternative would be for these startups to scrimp and struggle for a long time on Ramen Profitability, maintaining their services while they sought to expand, find a business model, open up new veins while continuing the old, perhaps providing a graceful upgrade into the new portfolio. I'm with the GP poster -while I probably would do the same thing in an acquihire situation, it does start to (somewhat) poison the well over time for newer startups. While I love Path to bits - I have zero clue what their business model will be, and wonder what will happen to all my carefully journaled "moments" if Path gets acquhired sometime in the future. Somebody needs to come up with a good Diaspora like solution for personal journaling where _i_ control the data, and store it on something that is likely to be persistent (S3 is the only thing that I can think of that has a greater than 90% chance of being around in 10+ years. Dropbox, if they have good public offering, will likely be the second candidate) I'd pay money for that - $10 for a Dropbox/S3 storage social network akin to what we get with Path today.
- sbierwagen 15y ago
  S3 is the only thing that I can think of that has a greater than 90% chance of being around in 10+ years. How about rsync.net? Or just FTP it to any of a thousand cheap webhosts?

shingen 15y ago

It provides that much greater of an opportunity for startups that stick around.

chc 15y ago
How long are you going to be able to stick around without funding and no customers?
- shingen 15y ago
  Why would the remainders be lacking funding or customers? The startups that stick around will have access to more of both all things being equal (ie assuming the same economy). Posterous is apparently about to create a lot of orphans. Those are customers now available for a lot of other remaining startups etc. If you're a bootstrapped startup in the Posterous space, you should be licking your chops, Christmas is coming early.
  - chc 15y ago
    I feel like you're not paying attention here. The original comment that you replied to said, essentially, "The bad thing about these sorts of acquisitions is that orphaned customers will be gun-shy about relying on another startup like this, even if that startup is aiming for a sustainable business rather than a liquidity event." Our fear is that bootstrapped companies aiming for long-term reliability will have trouble finding customers because the customers have been burned before by a company that, from their perspective, looked very much like yours but turned out not to be reliable at all. That's where the difficulty finding customers comes in. Imagine setting up a plumbing business in a world where 75% of plumbers were actually armed robbers. Sure, you have the nominal advantage of actually being a real plumber, but how many people do you think will take a chance on you after the last three plumbers cleaned them out? And bootstrapped companies by definition don't take a lot of funding. Once you get into the VC game, a reliable business with steady income income is no longer enough, because that isn't how investors make money. Once you take venture capital, your goal is some sort of liquidity event, like this sale.

pestaa 15y ago

I think you're right, but aren't these acqusitions transparent to most of these customers? Posterous stays the same brand for a huge portion of its userbase.

callmeed 15y ago
I'm assuming (possibly incorrectly) that Posterous shuts down their blog system within a year. That's the context I'm referring to (acquire -> integrate engineering talent -> shut down original product). When that happens, it's the users who get the short end of the stick (VCs may lose $ or break even, but that's an expectation in their world). Software–however niche, crappy, or "beta"–gets used for a lot longer than developers realize. Somewhere out there, a secretary is using a Word macro that's older than my teenage daughter and she'll stab you with her letter opener you if you try and take it away. But, in a Web-app/SaaS world, we developers can shut things down with a simple keystroke. That doesn't mean it has no consequences.

Lambent_Cactus 15y ago

It also has to have some effect on lowering the costs to launching a new startup by limiting the downside risk, particularly to technical talent. Surely some people have though "Sure, I have a good job now, but if it doesn't work out we'll just get acqui-hired by the big guys in 18 months, so why not?"

deleted 15y ago

[deleted]

geofflewis 15y ago

Out of all the issues bootstrapped startups face, I really don't think "other startups may be acqui-hired and poison our well." should be a concern. The vast majority of startups that fail do so because they poison their own well

dasil003 15y ago

Early adopters are always jumping to the next thing anyway. What are the chances you will still want to use a given web service 5 years down the line? All in all I think this concern is more than outweighed by the fact that startups offer tighter and more inspired new products than established players. What are you gonna do, just not use any products?

justincormack 15y ago
Early adopters yeah. But consumers used Kodak for 100 years or so before changing. Average people hate data migrations.

freshhawk 15y ago

I don't think it's just a long term effect. I've already experienced this attitude from potential customers: "So what happens when you guys get aquired and shut this product down" "We don't plan to, it makes money and we're growing" "If you keep growing one of the big players will get worried or interested or both and make you an offer you'd have to be stupid not to take" It makes sense, the aqui-hire doesn't just get you a proven team with known talent, it removes a potential competitor that might disrupt the status quo. There's a reason it's happening so often and it's because it's great business. But as a trend it's certainly going to make it harder to get customers for startups that aren't based on creating a fad-ish service for consumers but are providing services people consider important.

geofflewis 15y ago
If this is ever a customer objection that actually prevents a deal, the prospect probably just does not want your service that badly and is reaching for an excuse to not sign.
- freshhawk 15y ago
  I certainly think that's a possibility but I think you're overstating how much they are rationalizing in your analysis. There is certainly an extra lack of confidence in startups because of the "find a big exit!" culture and the growing trend for aqui-hiring. As if it wasn't hard enough as a startup to attract customers, this perception is certainly not helping.

joshuamerrill 15y ago

Agreed. I keep referring back to Maciej Ceglowski's fabulous post, Don't Be A Free User: http://blog.pinboard.in/2011/12/don_t_be_a_free_user http://blog.pinboard.in/2011/12/don_t_be_a_free_user Posterous had a good four year run, but the strong hint from the press release is that they'll be shutting the service down.

mmaunder 15y ago

It also has the profoundly sad impact of occupying entrepreneurs and investors who could be inventing job creation machines.

fleitz 15y ago

No it doesn't errode confidence, most customers are not part of the startup ecosystem. (unless your target demo is other startups) To be frank, I'm not sure what Posterous being acquired by Twitter has anything to do with most of your points. First of all, Posterous is not bootstrapped, it's received $10M in VC funding. Second Posterous has few customers compared to users, but well paying ones like Coca-Cola, I'm sure they will be taken care of. If you have a product worth buying your customers will not question how long you've been around. Some will but there are enough that won't. If you're really worried about it, buy an off the shelf company with updated filings, it's not very difficult to find a company 3 or 4 years old. If you've got the cash you could even buy a publicly listed shell. Even NYSE shells come up now and then but those are very pricey. But honestly, unless you're selling items in the thousands of dollars per month range no one is going to pull your corporate charter. As an aside, do you offer Cilantro in bulk / whitelabel or do you have an affiliate program?

tptacek 15y ago

Not really. Most startups simply fail. Only a small fraction of them make a good enough name for themselves that the team has value. And the ones that accept those deals tend overwhelmingly to be companies that would have failed anyways. Startups all start with a confidence liability; this is just a fact of life. It's even worse if you're selling to enterprises, and was worse long before anyone ever thought of the term "acquihire". You can trounce your competitors on every axis, come in at half the price, charge a flat-rate site license instead of a metered seat license, and buy the purchasing team 52-day aged ribeyes every week for 6 months and still lose if you're the one who looks like you might be out of business 2 years from now.

callmeed 15y ago
It's still another data point that gets in people's heads IMO (it's in mine FWIW). A good analogy might be the crappy customer service provided by AT&T, Comcast and [insert most utility cos] over the past 20 years. Most consumers now expect poor service and I'd wager that has, to some degree, had an influence on purchasing decisions.
- tptacek 15y ago
  I totally understand where you're coming from, but I suspect that what's happening here is that team acquisitions provide vivid examples (and, in particular, long agonizing will-they won't-they suspenses about killing off the service) that create an easy narrative for something that is always happening all the time anyways. It just is risky to do business with startups.
  - ricardobeat 15y ago
    You don't "do business with startups". You do business with other businesses, and expect them to be serious about their propositions.
    - tptacek 15y ago
      You can't will away the extra risks carried by immature businesses. This isn't a moral issue. Some companies mature and stabilize around viable businesses; most don't.

aufreak3 15y ago

Totally agree. I liked posterous. I've also wondered out loud whether a similar thing will happen to workflowy as well, which I also love. Nothing against the guys, they're just optimizing, but it sucks to be on the receiving end. Is web 4.0 going to be a DIY world where vps-es are the only "services" you'll need and other products will have to plug in to what you host on your own vps just like normal purchased desktop software?

athst 15y ago

I agree. You can't really criticize someone for selling, maybe they had to do it. But it really does make you pause the next time you decide to commit to a new company. Today I got reminders in my email about how SimpleGeo and IndexTank will "sunset" their services within the next month after their acquisitions last year. I knew it was coming, but after having to spend all this time removing them from my app, I'll be a little more wary going forward of using third parties in the things that I do.

bambax 15y ago

You're right, but there's not much that can be done about it. It's just a fact of life that we have to deal with... and prepare for. For instance, my blog is on Posterous, but with my own domain, so I can migrate to some other service with no visible disruption.

pron 15y ago

As for the effect this has on other start-ups, I think there are two interconnected issues here, one on the buyer side and one on the seller side. On the seller side, VC investments are to blame, I think, because of their ROI expectations. We are missing a good investment model for successful tech/web businesses that aren't the huge windfalls VCs want, like most businesses in other fields. You could say that angel investment is that model - the problem is that VCs want to invest in many companies, and it's sometimes hard to reject their offer. Once you do take their money, it's hard justifying slow growth and good though less-than-stellar success, and in that case, both the company and its users are "doomed". And why do VCs want to invest in so many companies? This has to do with the buyer side (see http://news.ycombinator.com/item?id=3546629 http://news.ycombinator.com/item?id=3546629 for an interesting discussion about acquihires from the buyer's perspective). I think they have to invest because they have so much money, they can't accurately identify the stellar companies (well, obviously), and acquisitions give them a good enough ROI to continue doing what they're doing.

tomg 15y ago

Nothing on the web should be construed as permanent. Even GOOG, MSFT, and YHOO drop products, change features, etc. It's a risk everyone has to analyse when choosing third-party vendors (GOOG now charges for Maps, for example, and look how many people are revamping their apps to not use them). Both web and brick/mortar companies can suddenly close shop for a huge amount of reasons, and I have my doubts that "being so talented at what you do that you get bought out" is at the top of too many peoples' worry lists, IMO.