General Musings

This section is where you'll find my thoughts on life from the eyes of an entrepreneur.  The biggest challenge is balancing the success and obligations that success brings as the more successful one becomes, it seems the more obligations they have to the world.  Feel free to comment as you follow my journey and general musings regarding that journey. 


General Musings on Life & Entreprenuership

Snapchat’s Rebuff of Facebook’s $3 Billion Buyout Was Logical

(11/14/2013) Mark A. Cenicola

What happens when a corporate giant offers you $3 billion to sell your little startup?  You say, “heck no, we won’t go.”  Well that’s at least what Snapchat just did.

Was it a smart move? I would say that it was brilliant, but it wasn’t really brilliant.  It was logical.  Why was it logical?  First off, the founder of Snapchat is 23.  He’s already grown a company that investors are valuing in the billions so he has little to lose.  Should Snapchat falter, he’ll be able to start another venture and get investors to pour capital into it without much trouble.  Once you have a certain amount of money, more isn’t necessarily going to change your life.

Secondly, Facebook's Lack of cool is another reason for a logical buyout turndown.  The demographic of Snapchat’s users skews much younger than Facebook’s as the latter starts to see itself mature.  The last thing Snapchat’s users want is the association with adults.  They are on Snapchat to avoid the more mature Facebook user base.  Should Facebook have succeeded with acquiring Snapchat, there may be a user revolt.

Thirdly, Snapchat is growing like crazy.  Instagram already made the mistake of selling too early.  When you’re growing that fast, regardless of profit, there’s always going to be a suitor with deep pockets or more investors willing to pump capital into that growth.  They have plenty of ammo left to search for a business model and are in talks to raise even more capital.

Anyone who thinks Snapchat’s rebuff is like Groupon making the mistake of not selling to Google for $6 billion is wrong on two levels.  1)  Groupon’s marketing cap (as of this writing) is over $7 billion and 2) Snapchat isn’t Groupon.  The fact that they don’t make any money means sky is the limit.  Anybody pay attention to the recent Twitter IPO?  

It’s Déjà vu.  Anyone remember Google wanting to sell to Yahoo! for $1 million?  Anyone remember Facebook declining Yahoo!’s offer of $800 million when they wanted $1 billion?  Anyone remember Youtube selling out for $1.65 billion and Instagram for only $1 billion?  

Is Snapchat worth $3 billion?  I don’t have billions sitting on my balance sheet with which to play so it’s not to me, but it’s all relative.  Just like Instagram, Snapchat is worth it to Facebook.

Mark A. Cenicola November 14, 2013 ~ 12:39 PM
Groupon was definitely different
The situation with Groupon would have been cleaner if they simply sold out to Google. All insiders could have cashed out in one fell swoop. Actually the best thing that could have happened is if they took the deal in Google stock. We all know where Google's trading now - north of $1,000/share. However, the story with Groupon isn't over. They still have a chance to grow their market value and insiders can diversify their holdings over time.
Todd Miller November 14, 2013 ~ 12:36 PM
You are absolutely right. I think SnapChat is going to be worth even more in a year or two. Of course, I thought Groupon was crazy for not taking the offer they were given. I thought that was way above what it was worth.

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