There are hundreds of startup businesses in the Silicon Valley that dream of being acquired for hundreds of thousands of dollars, yet are still far away from achieving this dream. So, how does a business enterprise with 13 people on its payroll and virtually no revenue be worth that much?
Regardless of whether Instagram is worth $1 million or $1 billion, there are a few lessons which budding entrepreneurs can learn. As an aspiring entrepreneur, there are a couple of things which you need to acquaint yourself with before you can position your startup business for acquisition by market leading corporations like Microsoft, Google, Apple and Facebook.
According to Instagram CEO, Kevin Systrom, founders of startup businesses need to jealously protect their ideas. If you cannot patent your idea, then other people will be inspired by it and eventually run away with it.
Listed herein, are entrepreneurial lessons from Instaram CEO, Kevin Systrom which technology companies need to learn before they start searching for acquisition:
- 1. Start Small but Think Globally
From the beginning, Kevin Systrom was not timid about thinking globally in spite of starting small. While being interviewed by Time Magazine in December 2011, Kevin Systrom, who is now believed to be worth more than $400 million, stated that his desire was to create a “social tool for social life”. By doing so, he believed that people could change the way in which they communicate with one another in addition to sharing things in the real world.
If you are not confident in your own abilities and talents, then there is no way through which you can manage a company which will one day be taken over by a leading corporate organization. Perhaps the only thing that Kevin Systrom was quite timid about was expanding his business operations.
In contrast to most aggressive startup businesses, Kevin Systrom ensured that his company was not only lean, but efficient. At the current market rate, it means that each employee at Instagram is worth roughly $77 million. Instead of hiring up to 45 people as engineers, marketers, web designers and marketers, Kevin opted to keep 13 people on his payroll.
Did the number of employees play a major role in the valuation of the company? Would Facebook have paid more had the company hired 45 people or more? The likelihoods that Instagram would have been acquired for more than $1 billion if it had hired more employees are less. The secret to success is focusing more on your core message rather than the workforce that you have.
- 2. Focus Less on Your Revenues and More on Your Users
This can be pretty difficult to imagine, especially if you do not have enough funds to manage your operations. Regardless of whether or not you have enough funds to manage your business operations, your goals and objective remain the same.
In spite of which type of business you are operating, you need to focus more on the number of users or followers that you have. Customer loyalty is of critical importance when building a business empire. You may have the best mobile sharing app in the world, but if you lack customer loyalty, you will not be able to achieve the kind of revenue you were initially hoping for.
Instagram had the opportunity to make millions of dollars by charging its subscribers for the download and use of its iPhone app. However, it chose not to do so. By focusing more on its customer base and less on its revenue collection, the company made the decision to give away its mobile app for free.
According to Kevin Systrom, the amount of revenue that the company lost cannot be compared to the incremental value it gained as a result of adding new subscribers with every download of its iPhone App. Without its 30 million subscribers base, Instagram would not have grabbed the attention of Facebook and as such would have missed on the $1 billion assessment.
Note that, corporate organizations are constantly looking for ways to expand their markets. But they cannot do so if there is competition. Therefore, rather than compete with the 30 million subscriber base that Instagram had, Facebook opted to buy it out.
- 3. Establish and Emotional Link with Your Customers
One of the reasons why Instagram managed to build a huge subscriber base in a short period of time is because it has an emotional connection with its customers. Facebook could afford to pay up to $1 billion for such a small startup business it lacked the emotional connection which Instagram has.
The only way through which you can gain an edge over your competitors is by building an emotional link with your customers. For example, millions of people visit Disneyland every year because they feel an emotional connection with the place. On the other hand, McDonald has not managed to lose its customer base in spite of increased competition because of the emotional connection it has with its customers.
- 4. Protect Your Invention
Corporate organizations like Facebook, Microsoft and Apple are only interested in startup businesses that have a unique product which has been tested and proven. However, you need to protect your invention. This is because an acquiring company will not want to invest in a business idea which can easily be copied.
Whereas not everyone has the ability and talent to grow a business from scratch to a point where it is valued for more than $1 billion as is the case with Instagram, there are a few things which you can learn from Kevin Systrom:
– Do not be afraid of being ambitious.
– Recognize the value of the product you are building.
– Keep a lean and productive workforce.
– Find a means of connecting with your consumers.
Kevin Systrom managed to accomplish all of these things. This is why in spite of what you may think in regards to the valuation of his company, he was able to achieve something that a majority of startup companies only dream of.