In order for your idea to win, you have to sell it to someone. This often involves some degree lying. Lying is in the form of either telling a customer something you know is not true (worst), or withholding information from a customer you think may break a deal (better but still a lie of sorts). With competition so fierce it doesn’t take much for many startups to lie to both their customers and investors. It sucks but that’s how it works.

Your investors trust you to some degree or they wouldn’t have invested. Your customers trust you or they wouldn’t have bought someting. So when they find the’ve been duped, there’s some sort of write-off and a burst.

My friend told me a story of his chip design company buying a startup in 1999. They soon found out what they bought was a scam and they wrote off $100 million and layed off almost everyone in the startup. They did their due dilligence (it’s a good company with good management all told) but still they were fleeced.

Though the bubble of the 90’s crashed, many companies survived and are profitable. Most actually sell things that have value for their customers. What you should ask is if these new startups are selling something that produces value for its customers. If you think they do, a bubble may not be a bad thing at all. If they don’t, slowly back away.

However, after the Internet Bubble, I would have thought there would be a lot more scrutiny of the ideas and business models behind these businesses. To my eyes, a lot of these RSS/blogging, social networking, and web-based email plays look a lot like the same content plays we saw a number of years ago. In some cases the déjà vu is overwhelming – just look at the story of webshots: they sold it in 1999 to Excite@Home for $82.5 million, bought the assets back later for $2.4 million, rebuilt the business, and just sold themselves to CNET for $70 million!

Is CNET detecting something different in the current environment that will allow it to avoid the fate of Excite@Home? That is the only possible explanation for this move, and the current Land Grab. That, or we haven’t learned our lessons as well as we claim.

Then again, we’re not privy to the plans of these companies – maybe they really have learned. Some of these companies have obvious value – the spam and content filtering space is certainly legitimate: regulatory drivers and liability risks are driving executives to pursue solutions in these spaces. However, the targets of the Symantec acquisitions did raise some eyebrows – consolidation for the purpose of consolidation doesn’t really serve a purpose for the acquirer. I’ll reserve judgment on all of these moves for now.

consolidation for the purpose of consolidation doesn’t really serve a purpose for the acquirer.

… Unless it provides synergy, or prevents synergy with a competitor…

Sometimes I wonder if there needs to be a business re-interpretation of Godwin’s Law. Something along the lines of “The first business to use ’synergy’ as justification for an acquisition loses their shirt.”

Sure, synergy’s a valid argument, especially in the case of blocking a competitor from gaining an advantage. Just look at Intel’s success when they purchased Trillium. However, I think synergy is overused as justification for acquisitions (and your company’s CEO will back me up on this one). Unless someone can enumerate the exact ways in which an acquisition will augment the value of the core business beyond the cost of the acquisition, “synergy” is just the business equivalent of an engineer hand-waving away the solution.