What Every Company Can Learn From This Big Company’s Big Purchase

Consider the following real-life case study:

Upstart observes that the companies dominating the shaving market are charging too much for their product. They find a way to make razors that are just about as good and cost a lot less. And, they outmarket and outsell the incumbents by making smart use of social media, developing and strategically promoting and delivering content and building unique relationships with customers.

Watching all this, Big Company decides to buy Upstart for $1 billion — about 5 times its current year’s expected revenue.

It may be true, as has been suggested in at least one article, that Big Company bought Upstart because it wanted to learn its methods of developing customer intimacy — the “authentic-sounding conversations” they have with customers on social media. But is this really the kind of sustainable business asset worth that kind of price? Customers eventually catch on to attempts to “buddy-up” by anyone with products to sell, whether it’s online or in-home, person-to-person selling. And when they do, they usually run away — fast.

It might simply be a signal that Big Company would rather let small companies like Upstart take all the risks of innovating so they can swoop in later and pick off the winners rather than spend the time, creativity, energy and resources to develop their own unique plan for tomorrow’s marketplace . But in today’s fast-paced environment, making a big bet on an idea that’s already 5 years old is a high risk move.

And what will be the impact of Upstart’s backing by its huge multinational new parent on the fortunes of the two shaving products giants whose pricing practices sparked the “cheaper, friendlier” approach in the first place? What should they have done? How will they mobilize their considerable resources to regain momentum in this industry they’ve dominated for decades?

Commentators have been cautioning other creative new businesses not to expect to be purchased for 5 times earnings, and to have a lower, more realistic multiple in mind. But that may not turn out to be the most important lesson from this transaction.

Every company must be relentlessly curious about potential next new frontiers in the manufacture and sale of consumer products, and take responsibility for making their own bold moves. The biggest risk may be to sit back and watch.

Here are some things companies of all sizes should be doing right now:

• Get frequent reality checks on the price of products. Learn new ways to cut out some of the expense of making them without sacrificing quality, and pass the savings along to customers.
• Observe the marketing — no brick-and-mortar — aspect of Upstart’s (or any new company’s) success, and determine what it says about changes in customer buying habits, and develop in-house skills in marketing and selling to respond to the new patterns.
• Analyze alternative delivery systems, such as Upstart’s subscriptions plus free content customers seem to value, for potential application to other businesses and products.

As with every real-life business story, sometimes it takes awhile for the entire saga to play out. But meanwhile there are lessons here for everyone.