Why Facebook Buying WhatsApp is Bad for Entrepreneurs by Barry Moltz

Two entrepreneurs got a $16B payday when Facebook bought their popular app. But their good news can spell trouble for other business owners.

February 21, 2014

On Wednesday, Facebook announced it’s buying popular texting app WhatsApp for $16 billion (that’s $4 billion in cash and $12 billion in stock). For many small-business owners, this is a feel-good story on two levels. First, it’s a sort of business revenge. Co-founders Jan Koum (originally from the Ukraine) and Brian Acton applied to work at Facebook five years ago, but were turned down. They decided to start their own company, and now Mark Zuckerberg is paying a heavy price for the app used to send 19 billion messages per day. Secondly, it’s a dream for every entrepreneur to sell his or her small company (WhatsApp has 55 employees) for billions after five years.

But seeing these dreams realized for a select few is bad for entrepreneurs everywhere. It’s a big disservice to small-business owners who read the story, because they think that it can happen to them. Unfortunately, they have more of a chance to win the Powerball lottery than to sell their company for billions of dollars. Nonetheless, after this type of news, entrepreneurs everywhere start to measure their success against this new metric. People quit their jobs to chase the WhatsApp dream. They justify not getting the job at their favorite company by saying, “That’s okay. The founders of WhatsApp got rejected at Facebook. I’ll just start my own business and show them!”

What’s worse, many small-business owners start to run their company by looking for home runs instead of the successful singles they’ve been hitting. They start to take bigger risks in an effort to speed up their progress and only focus on a major payday as their measure of success. They reason that the greater the risk, the bigger the reward. This becomes common wisdom when a success story like WhatsApp gets publicized.

Forget the giant risks. It’s much safer and ultimately more effective to make a small decision, examine its result and learn what you can from it. Based on the outcome, make another decision. Think of each small decision as another piece in completing a complicated jigsaw puzzle that lasts for years. Never pin the future of a company on one decision, move or resource. “Playing for all the marbles” may make a good motivational slogan to put on a T-shirt, but it has no real place in business.

These are the small steps business owners should take to find big success:

On the next huge customer: Downsize expectations. Start with small sales goals. No matter how big the opportunity or how famous the brand, keep the excitement in check. While you may not want to treat them like just another customer, assume sales will build very slowly over a longer period of time.

On the next product line: What have the initial customers said about the product? How can it be rolled out in a small release to ensure it works as expected? Most products take time to be adapted by the marketplace, which usually only happens when supported by a substantial marketing budget. Test, test and test. Do this before making a large investment in project development or marketing. Can the people who feel the void in the market also pay to have it filled? This is only demonstrated by repeat paying customers (and referrals), and not with what prospects say when you survey them. Many people will say yes when surveyed, but few will say yes when you actually ask them for money.

While there’s nothing wrong with winning the lottery, most of us won’t. We have to smile at this type of success, but then go back to the painstaking daily steps of building a company.

For more information on Barry Moltz, visit http://www.speakernow.com/espeakers/10491/Barry-Moltz.html

 

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