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‘Become a Barnacle’ Mr. Marketing ™ / Stephen L. Bainton
Growing a business is never easy. Yet, growing a business with a small pot of cash can be downright foolish. Or is it? Today, more than ever, inventive entrepreneurs all over the country are employing what I call the Barnacle Principle. In short, what they’re doing is basing their entire business model on improving some small aspect of a large corporation’s operations. This is often seen in the business models of high-tech startups, but the mindset behind this strategy can be applied by many businesses, regardless of the industry. Here are some examples.
Most of us have never heard of a company called Oddpost. Founded by three ex-dotcommers, Oddpost was never meant to be a serious company. Instead, the founders simply wanted to make e-mail more user-friendly. They were not happy with the way Outlook worked, so they improved its functionality. In a brilliant article in the October issue of Business 2.0 entitled, “The New Road To Riches,” author Om Malik describes the ascent of a new breed of startups—a breed founded by people who understand the power both of large networks (and the corporations behind them) and how to tap into their hidden need for constant innovation. This highly targeted approach is why, after only 15 months, the founders of Oddpost were able to sell their company to Yahoo for $29 million. As the author notes, “Oddpost is part of an emerging breed of here-today, bought-tomorrow startups that are sprouting with minimal funding, flowering briefly, and being gobbled up by far bigger companies.” Another company that utilized this same technique was the high-tech firm, TurnTide. As a garage startup, TurnTide focused on developing technology for fighting spam. In July of this year, when it was acquired by one of the leading security software giants, Symantec, TurnTide had little (if any) revenue to speak of, and only several customers—the largest of which was Symantec itself. Nonetheless, the techies at Symantec knew that their product worked, so the company was acquired for $28 million. And what was the total capital investment in TurnTide before its acquisition? As the author writes, “The $28 million that Symantec paid works out to a 36-fold return on their startup’s total investment capital of about $775,000. TurnTide was less than six months old when it was sold.” Not a bad return for such a young company. The real beauty of the Barnacle Life is that you don’t need a lot of startup capital. In fact, if you’re going to flip your company anyway, you don’t even need to approach a venture capitalist; most of your operating capital can be gathered from family and friends. As Malik notes, “In many instances, these built-to-flip outfits forgo—or sometimes can’t get—money from venture capitalists. They instead create shoestring operations focused on the rapid development of narrow technologies to plug gaps in existing product lines or add useful features to existing products. Then they look to a deep-pocketed patron to scoop them up.” Interestingly, while many observers focus on the larger, more press-worthy acquisitions, the trend has been that most acquisitions occur in this small-to-midsize price range. In fact, according to Mergerstat, there have been close to 5,300 tech acquisitions in this year alone, most of them small. And, if you read the business headlines, you know that the IPO market for tech enterprises—except for a handful of companies like Google—is stagnant, to say the least. As the author writes, “Google has bought six small companies in the past 18 months. Hewlett-Packard, IBM, Intel, Symantec, Germany’s SAP—indeed, all of tech’s power elite—have made stepped-up acquisitions of small fry an integral part of their strategies.” Bottom Line: If you mimic the traits of the barnacle and attach your company’s fortunes to servicing the needs of the leaders in your industry, you can strike gold. There are striking opportunities in every industry. As Vivek Mehra, a venture capitalist in Silicon Valley, aptly put it: “Big companies stink at innovation, and they know it.”
Stephen Bainton is CEO of Mr. Marketing, Inc. and can be reached at:
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