So this morning we announced that Twitter Counter has acquired Twitaholic. I’ll be the first to admit that this was not a multi-billion dollar acquisition but it was substantial enough for us as a young company to cause some sleepless nights. The complete PressDoc is here and you can get Techrunch’s story on the acquisition here. I thought it would be more interesting to talk a bit about how we decided to spend our hard earned dollars on this and how we came to that decision.
I first contacted Twitterholic (as they were named at the time) in early 2009. We kept talking since then and recently were able to make an offer that was interesting enough for them to accept. The reason I contacted them at first is because they seemed to have a loyal following but didn’t innovate as fast as we did and didn’t seem to have an obvious businessmodel besides displaying some Google ads. I figured they might be interested in selling the whole thing to me for, well, a few dollars. At the time we were generating some money with Twitter Counter but we had also just hired 2 full time developers and although we were profitable we didn’t have enough money yet to spend some on an acquisition.
Since then I emailed the Twitaholic guys (Alexander Rudloff and Gavin Hall) every other month and asked them if they were interested in lowering their asking price. Over the next year and a half we starting to generate some serious revenue in Twitter Counter so were able to up our offer a bit and Alexander and Gavin sold their main company (Emurse.com) to AOL. Twitaholic was always a sideproject for them and not included in the sale to AOL. As they started to focus more on their work at AOL Twitaholic got less attention. That meant they were able to slowly lower their asking price.
A few months ago we took another good look at our traffic and revenue and Twitter Counter and applied our conversion rates to the traffic numbers we knew from Twitaholic. We calculated that if we would acquire them at their asking price we would earn back the investment within a year. That is when we decided to make a serious offer which they ended up accepting.
As a small company you count every cent twice and never spend a dollar unless you really have to. When you are in that position it is very hard to imagine paying millions, or even billions, for a company. The only thing that counts, of course, is if you can make more money with what you are buying. I know a company that sells chap tickets that found out that for every $1 they spent on Google Ads they earned 2 dollars. They are now spending more than a million a month on Google ads.
Similarly I once negotiated the sale of one of my companies to a mobile operator. Halfway during the negotiations one of the managers told me he just couldn’t live with the fact that he would be making a few young entrepreneurs a few million. He couldn’t look past the numbers and consider what the acquisition would bring him and his company. I understood his sentiment but also tried to explain to him how unprofessional and illogical his thinking was. I had something to gain there as I was one of the young entrepreneurs about to earn a few million.
I once had a talk with a few entrepreneurs about doing business. We were trying to define ‘good business’ and what it meant to be an entrepreneur. At one point one of the older guys cut in and said ‘That is all bullshit. The only thing that counts is this: if you can buy it for a dollar today and sell it with a profit tomorrow only then are you doing good business.’
If you own a company and are doing business and spending some money now, making some entrepreneurs some money in the process, when you know you can make a good profit on it in the long term is good business. And that is why we decided to buy Twitaholic.