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Payday Loan Blog - Big Fish Small Fish

 Wednesday, 18 April 2007

The Internet continues its constant churning, with heightened deal-making over the past few weeks. What do you make of the following?
eBay acquiring StumbleUpon?
CLEAR CHANNEL in advertising deal with GOOGLE?
Google to Buy DoubleClick for $3.1 Billion Cash?

Now, not everything above is a done deal and is certainly subject to change, but it reminds me of a different time, one that looked like:
eBay acquiring Paypal?
Ask Jeeves in advertising deal with Google?
Google to buy Pyra Labs (Blogger)?

Every few years in business there is an expansion, followed by rampant consolidation and excess VC funding, and then ultimately digestion and contraction; these business cycles aren't really anything new, and because of that, it can be possible to use them to your advantage.

In years of expansion we see little fishes get their start, among a sea of bigger fishes that don't pay them much mind. Why not? The larger fishes are a battled scarred from previous cycles, not paying much heed to these new nuisances; the larger fish are really only concerned with the other larger fishes. Time passes and those little fish start to bulk up a bit, maybe swimming faster and further than some of the bigger fish…suddenly, one of them gets eaten. At that moment, one of the larger fish just got a bit larger than the other fish, which frightens the others, fueling a furry of ferocious fish feeding. After that frenzy finishes, the remaining fish are bloated and lumbering, barely able to move…many die. Time passes and new fish come along.

While a bit cynical, that analogy isn't far from the truth, where companies at some point begin to buy anything and everything remotely related to the buzz phrases of that particular business cycle. Just 8 years ago it was a search for more eyeballs, without concern for profits. After the consolidation and digestion period, purchases were slower and the companies of the time that launched were uninteresting (read: profitable). Now the cycle is in full swing again with bubble 2.0, with the bigger fish again snapping up a variety of unprofitable companies that have a large number of social eyeballs.

Okay, okay. How do you make money in all of this craziness?
Selectively adapt.

I don't advocate ignoring your core business because that business is likely the reason you are even in business (convoluted enough?). Instead, it might make sense to spend 10-20% of your time on a new buzz-related concept, building a tiny fish that looks like it might just be something a larger fish would eat…granted, the original larger fishes would likely sniff that venture and pass on for something more substantial, but the newly larger fishes that are on an eating binge generally don't taken into account true value - the logic seems to be that if it looks sort of like food, even if it isn't, chomp. Hook. Line. Sinker.

Just make sure your 2.0 clone is easily spun off from your core assets so you can go back to really growing your business in the wake of the feeding frenzy, and if you don't actually get eaten, don't worry. Why not? Most acquisitions have a negative combination value, meaning that your venture at some point very well could have a value greater than the originators of the concept; by the time the next business cycle is coming around, you could be one of the first to be eaten.


Wednesday, 18 April 2007 15:10:18 (US Mountain Standard Time, UTC-07:00)  #     
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