Setting aside CEO egos can make 1 + 1 = 3

I have spent much of my career running businesses in the startup phase of their lives. In my mind, the startup phase continues until you are confident that the business can survive any normal risk scenario. The definition of normal risk could be debated, but most CEOs know the feeling when they make the transition to a sustainable business that can continue without outside resources. What this means to me is that investors will get at least some return on their investment.

I have always felt that the best startup CEOs are able to de-risk the chance of striking out (bankruptcy) while maintaining the potential upside. It is easy to swing for the fences if you don’t care if you strike out. Often, I have seen opportunities for companies to de-risk their situation by combining with another company that has complementary offerings. Getting to scale where you can leverage your investments as quickly as possible is critical for small companies.

Unfortunately, most CEOs are so proud of their baby that they cannot imagine another one being as pretty as theirs. For this reason, it is well known in the investment community that similar size private-to-private transactions are very difficult to do even though they are often the most valuable deals for the investors. For it to happen, it takes two CEOs who are both willing to put the success of their company ahead of their own, since inevitably one will have to move aside.

Yesterday I read a perfect example of this when two Austin companies, Mass Relevance and Spredfast, announced their merger. I know both of these firms and their CEOs. Both companies were having great success in the market. They didn’t need to make a move. They made a move because two great CEOs saw that one plus one could equal three and didn’t let their egos get in the way. Look out, I predict that the combination will be a huge win for everyone involved. Disclaimer: I have no position in either company, unfortunately.

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