Startups · Acquisitions

Should a new start-up aim for acquisition or niche?

Rene Joergensen Looking to build an interesting start up

March 15th, 2016

My co-founder and I are getting ready to disrupt the beauty salon industry ($400bn+ globally) through a new on-demand platform. It will be a spin-off of my co-founders $50m online service business. I originally wanted to focus in on a niche segment of the market, where no one else has gone yet.

But my co-founder is thinking broad land grab for acquisition. We have partners in four countries, and while some markets are consolidating, the space is open in many markets. I like to think big too, but with early exit as your goal, developing a unique value proposition doesn’t seem to make sense.

How do you choose the right strategy (e.g. two phases)? And what is driving the focus on early exit?

Joe Barrett President & Co-Founder at OMNI Retail Group

March 15th, 2016

I agree wholeheartedly with Ema and Tim. Having a goal of early exit will almost certainly derail your business, and if outside funding is required likely come through as your goal and deter investors as well.

Tim Kilroy Analytics - LTV - Boosting Profits - Digital Marketing

March 15th, 2016

I don't think that you start something with a goal of early acquisition. If you build for that, you will make choices that will honor the sense that this is a short term endeavor. You need to focus on making a business that is a success - and if you get acquired along the way, then hooray, but you can't start with that as a short term goal. And I am not sure how you can build any business without a USP. If you are "ready to disrupt" the industry, you already think you have a unique value...

Doug Singer Executive Board Member at BioAccel

March 18th, 2016

Exit strategy is the key and especially so with entrepreneurs. I have heard from numerous speakers and attorneys that you never start an enterprise without knowing how you want to get out. I know of very few true entrepreneurs who want to spend the time, energy, and have the patience to run a business for the long haul. They invariably look for "blue ocean" fill a need that others don't see, get in, build quickly, and then look for an early exit so they can then focus on the next big thing. Are you and your partner both entrepreneurs ? Are you possibly more of a CEO than an entrepreneur and enjoy the challenges of running and growing a company ? Having a heartfelt discussion to make certain you both see this the same way and are in it for the same reasons will go a long way to prevent disaster down the road and a miserable breakup.

Rob G

March 15th, 2016

pretty broad question and I'm not sure there's one right answer, but in general my preference is to focus narrowly first, build expertise in 1 narrow market so i can minimize the inertia and break/fix/pivot quickly then expand to the broader market. this assumes the narrow market is a subset and reasonable facsimile of the broader market such that phase 2 is focused primarily on scaling issues (people, tech, marketing/sales budget, etc.) rather than feature/function or product/market fit issues. I think the deciding factor is what is the shortest path to traction/revenue? The shorter the path to revenue the more options you have. Options are a good thing and increase valuation, the converse is also true. It sounds like you are predicating your 'attractiveness' to an acquirer on the size of your footprint. If you know your potential acquirers well then i'd look at their acquisition history to see if any patterns appear. One could certainly argue that an acquirer that already has a broad footprint doesn't need to acquire another company with a similar broad footprint. Their preference may be to acquire new, niche capabilities/markets that they can then leverage with their existing footprint or, more importantly, prevent a competitor from making the acquisition and doing the same. In general, i tend to think as a young company you are more vulnerable (to getting run over) if your footprint is broad and shallow than you are if your footprint is narrow and deep. Another benefit of starting narrow is that your CAC can be substantially lower due to word of mouth and reference marketing - it's just more cost effective to market to a narrow market than a broad one. You may also run into localization issues such as taxation, regulation, language, personnel, etc. in the broader market. you may also be able to fly under the radar of larger competitors/acquirers longer with a narrow and deep footprint. 

Barak Cohen Co-founder at

March 15th, 2016

Becoming a monopoly in a niche market is the way to start an get momentum and build value. 

Matthew Stroul IT Business Analyst & Support Engineer helping people, processes and tools be more awesome versions of themselves.

March 15th, 2016

It is PERFECTLY normal to have a solution for something and be dispassionate about wanting to maintain it. To the body of those who have replied you may have missed the key phrasing of "SPIN OFF". 

Many business solutions can be shrink wrapped and white labeled for consumption by a major brand. In fact, there is an OCEAN of quick turn, non-activist investors ready to flood your concept ESPECIALLY if it is a proven solution in one silo with immediate application to another. 

I would call this SMEaaS - you are subject matter experts and want to sell your system as a service to another brand or market segment. 

Your strategy of an early exit MUST BE TEMPERED with a "we will stay on as a consulting group for X months, and on the advisory board for additional Y months) all for a % of course. 

Do both. Be the masters of the solution AND sell responsibility for the solution to another brand who can use it for $$$. 

Good luck!

Ema Chuku Product Developer. Founder.

March 15th, 2016

I want to understand this correctly, your goal is to create something (startup in this case) with a goal of early exit? Perhaps that explains the uniqueness of this/your startup? That's the problem right there with the startup industry..
And I think you should reconsider what is it you really want to do.

Dean Harris Chief Marketing Officer- Fractional CMO-

March 15th, 2016

The short answer has to do with your capitalization as well as your success with the current business. If you have the track record or the capital to go big that will help inform that strategy. If not, you will have to raise capital that will be impacted on how you have done to date as well as the size and profitability of the larger, global market. Dean

Chris Hoffmann Chief Executive Officer/ Entrepreneur/ Vehicle Design

March 15th, 2016

Focus on creating some small pilot program to test customer engagement. Do it in a way that will scale. Then talk to investors about how many customers there are and how your pilot can reach them. Sent while riding on one wheel.

Oliver Mitchell Member Board of Advisors

March 15th, 2016

Being a professional investor is about exiting. This is not to say there are not good businesses created everyday that provide people (and families) with livelihoods, but the minute you take outside capital in the form of equity is the minute that you need to think about making your shareholders the maximum return on their investment. An IRR (Internal Rate of Return) is calculated by the net present value of cash, therefore if you have a short term exit opportunity that could be lower in dollars than the estimated long term potential, it could be significantly better for your shareholders (outside of tax considerations).