The bigger company's advantages include lots of capital / resources / employees, lots of customer relationships, good distribution, pricing power/patience.

2. We at Blackhawk Partners advise a
number of companies in the path
to growth.
Some of the most awkward
situations we encounter on quite
a regular basis is a software or
other company about to be
bullied by a 800 pound gorilla
basically stating: "Sell to us or we
will apply all of our resources to
replicating your product and
crushing you.“
How do one go about fending off
such a threat?

3. In my opinion, the basic question
you have to ask is: How credible is
the threat?
In general, many early stage
companies competewith bigger
companies.
At the risk of oversimplifying the
competitive dynamic....
• The early stage company's
advantages include: its focus, its
product, and/or its team.

4. • The bigger company's
advantages include: lots of
capital / resources /
employees, lots of
customerrelationships,
good distribution, pricing
power/patience.
• So early stage companies
often face the threat of a
bigger company entering
their markets, and they
need to have the self-
confidenceto keep going.
Many companies have built great products that have successfully
competedwith Oracle, Microsoft, Google, and others

5. And many of such companies have succeeded, even after a big
company has made a "sell to us or we'll crush you" threat.
However....sometimessuch threat is credible. This question
makes me think of Diapers.com which was acquired by Amazon
for ~ $600mm. In that case, the threat of Amazon entering the
emerging company's market and winning seems pretty serious.
I mean, how hard is it to imagine Amazon building an awesome
diapers e-commercebusiness? Amazon's distribution,
consumerrelationships, and supply-chain capabilities seem
perfect for diapers.
In other situations... even if a big company is determined to
enter a market (i.e., it will build if it can't buy), it's still likely
that they will fail because they won't be able to match the
product capabilities of the best startup in the market.

6. But nothing is certain, and you are taking a number of risks in
walking away from the deal.......So you really need to carefully
assessyour own situation and competitive position.
So what do you do?
First of all, congratulations on your success. If your business is
making big players squeamish you're probably doing something
right.
I won't offer a yes/no answer - you're the only one who can say
for sure. There is going to be a lot of calculated risks moving
forward; but here are some things to consider:

7. Don't Sweat the Language. It's Not Even True. It's just Drama. If
this big company can crush you, they can crush you. No need to tell
you. Not a profound insight then. Just try to determine
if they are serious about entering the
space if you say No. Will they enter
directly? Or buy your #2
competitor? The second scenario
probably is one to fret about more if
you are post-Initial Scale or even post-
Initial Traction. And will they sustain
the interest past 6-12 months?
Don't Sweat the
Language

8. Be Aware of the Hidden Agenda. Sometimes the "credible
threat" isn't that the larger company will actually directly replicate
what you are doing, but rather buy someone else instead of you.
Be
Aware
of the
Hidden
Agenda
And then the bought company will
replicate your business, or close
enough that your Greenfield
opportunitynow looks like already
plowed territory. Cisco used to run
an M&A game where they found
two targets in a field and told
Target #1 "it's you or the other guy,
we prefer you, but if not you, then
them and them + us = you
becoming a footnote."

9. Bluntly Assess Your Situation: What are your advantages?
Can you compete? What do you have that they don't?
What is your strategy to deal with the threat?
How will you respond to
aggressive competition? How
strong is your brand? Will
customersbe easily usurped
for a cheaper alternative? If
you can't clearly define these
advantages, you're probably in
trouble.
Don't Sweat the
Language

10. How important is the business to you?
If you don't mind the idea of being bought out, the motivation to
persevere through threats like this might not be there. On the
other hand if you lie awake at night fuming at the idea, you might
have the energy to take this bull by the horns.
Competition has a way of strengtheningand honing your business.
This could be a crucial juncture for your biz if you decide to keep
pushing on.
Know your Best Alternative to Negotiated Agreement .
If it's a real offer, analyze what happens if you say yes or
no. Ignore the drama of the "crush you". Is passing better than
what's on the table?

11. Speak to your competitors You may wish to speak with the
other large players in the space as they may be hungrier to use
what you have to compete. Get them bidding on you.
Be open to Negotiate an Earn out .
You might be able to negotiate an
earn out beyond the "respectable"
offer, especially if your product can
be directly measured post
acquisition. For example,. you'll
take the deal at 10x the run rate,
but "If your product grows by x%
over the next 3 years,
Don't Sweat the
Language
you'll also get another 5x, proportional to that growth." It gives you
more skin in the game (you like), more reason to stay (they like),
and takes away some of the sense you left too much on the table
by selling now.
Speak to your
competitors
Be open to Negotiate
an Earn out

12. Play It To Your Advantage : The threat may be very real, but
just"replicating your product and undercutting your price"
is not a guaranteed formula for success.It really depends on
your product and industry. But if they come out with a similar
product at a lower price point, you
could even play this to your
advantage. Beef up your product,
outperform them in features, and
keep your price higher. You don't
always have to be the cheapest;
but you need to live up to the
reputation. You were the first one
there, now everyone else is
Don't Sweat the
Language
tagging along, keep that leadership position. They could effectively
even be expanding the market for you. But this is just looking at
another way the situation could play out.

13. This isn't to say, "of course you should sell." There is much to
weigh, including how well equipped you are financially to do
battle, how well you are acquiring new talent, how much of a lead
you think you have, how badly you want to stay independent, etc.
I leave you with the words of the great American financier Bernard
Baruch: "I made my money by selling too soon."
There is so much else I can say but I'll leave it at that.
Share your thoughts
Thank you,