Paul Graham: “Don't Talk with Corporate Development Specialists”

Original author: Paul Graham
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Perhaps every Paul Graham essay can safely be considered a must read for an it-person. Especially for a startup or business owner. We at Alconost translated a new note from this famous entrepreneur, investor, programmer and writer.

Corporate development departments within companies purchase other companies. And if you are talking to someone from there - that’s what this is all about, whether you realize it or not.

As a rule, you make a mistake by entering into a conversation with corporate development specialists, unless you: a) intend to sell your company right now and b) are confident that you will receive a reasonable price offer. In practice, this means that startups should only communicate with corporate development departments when they are doing really well or really badly. If your company is dying, talk calmly, because you have nothing to lose. If everything is fine with you, you can also talk to them calmly: everyone understands that the price will be high, and if you think that these guys are wasting your time, you will have enough self-confidence to simply kick them out.

Corporate development specialists are a danger to middle-sized companies. Especially for young companies - fast growing, but still not mature enough. Communication with them will be a mistake for a promising company that has not existed for a year.

Translated to Alconost

This is a mistake the founders of the companies make again and again. When someone from the corporate development department tries to meet with them, they believe that it is worth at least figuring out what he wants. In addition, a refusal to meet with the Big Company may be regarded as disrespectful.

“A mixture of denial and wishful thinking lies at the heart of most of the founders' mistakes”

I will tell you what corporate development specialists want. They want to discuss the purchase of your company. This means "corporate development." So before you agree to meet someone from the corporate development department, ask yourself: “Do we want to sell the company right now?” And if your answer is no, tell corporate development specialists: “Sorry, but now we are focused on the development of the company.” This will not offend them. And, of course, this will not offend the owners of the Big Company either. You can only grow in their eyes, reminding them of themselves. They also did not sell, and therefore are now buying other companies [1] .

Most company founders are aware of why the corporate development department is contacting them. But even though they know what this department is doing, they also know that they don’t want to sell the company, they agree to a meeting. What for? This is the result of the same mixture of denial and habit of wishful thinking, which underlies most of the founders' mistakes. Talking with someone who wants to buy you is always flattering. And who knows - what if their offer is surprisingly high. It’s worth at least familiarizing yourself with it, right?

Not. If they sent you an offer by email, you would of course open it. But communication with the corporate development department does not work like that. If you get an offer at all, it will arrive at the very end of a long and incredibly exhausting process. And if it surprises you with something, then it will only be unexpectedly low.

“It is as if a piece of the genetic material of an outdated gangster business has been implanted into the world of startups”

To be distracted is an inadmissible luxury in a startup. And talking with corporate development representatives is the worst thing that can distract you, because they not only absorb your attention , but also undermine morale. If you want to go through this exhausting process, do not stop to understand how tired you are. On the contrary: you need to join the stream. [2] Imagine what will happen to you if someone runs up to you at the 32nd kilometer of the marathon and says: “You must be very tired. Would you like to stop and relax? ” Communication with the corporate development department is just that, only worse, because their offer to stay is combined in your head with the high price, the offer of which you expect to receive from them.

And here you are in real trouble. If they succeed, corporate development specialists turn your weapon against you. They love to drive you to the point of convincing them to buy you, rather than having to persuade you to sell. And they manage to do it surprisingly often.

This is a very slippery path, watered with powerful factors of influence on the positions of the founders. And experienced professionals bring you to it, whose job is directly to push you onto this path.

The methods they encounter with you are usually pretty brutal. All the work of people from corporate development departments is to buy companies, they don’t even need to choose which ones. The only measure of their effectiveness is how cheap they can buy you, and the most ambitious of them will stop at nothing to achieve a minimum price. For example, they almost always start with an understated offer - just to check if you agree to it. Even if you do not go for it, a low starting price will demoralize you, making it easier for them to further manipulate.

And this is the most innocent of their tactics. Sometimes they wait until you agree on the price and consider the transaction completed, after which they return and report that their boss canceled the transaction and does not agree to give more than half the price previously agreed. This happens all the time. If you think that investors can behave badly, this is nothing compared to what corporate development specialists are capable of. Even from the corporate development departments of companies that are benevolent in everything else. I remember how I once complained to a friend from Google about some dirty trick that their corporate development department applied to YC startup. “But what about the motto“ Do not do evil ”?” I asked. “I don’t think the corporate development department knows about him,” he replied. [3]

The tactics used in the discussion of mergers and acquisitions can be completely opposed to everything else in the relatively honest world of Silicon Valley. It is as if a fragment of the genetic material of an outdated gangster business were implanted in the world of startups.

“If you only remember the title of this article, you already know most of what you need to know about mergers and acquisitions during the first year.”

The easiest way to protect yourself is to use the technique of John D. Rockefeller, which he practiced so as not to become an alcoholic (such as his grandfather). One day he asked a class at a Sunday school: “ Guys, do you know why I did not become an alcoholic? Because I never drank the first glass . " Want to sell a company right now? Not once, but now? If not, just don’t go to the first meeting. They will not be offended. And your reward will be a guaranteed deliverance from experience, worse for which there is no startup.

If you are really going to sell the company now, there’s a different set of techniques for this.. But the biggest mistake that the founders of companies make when dealing with corporate development departments is not a bad conversation with corporate development specialists when they are ready to buy you, but an untimely conversation when they are not ready. In general, if you only remember the title of this article, you already know most of what you need to know about mergers and acquisitions during your first year.


[1] I am not saying that you should never sell a company. I mean, you must clearly understand whether you want to sell it or not, and if not, you must stop any attempts to force you to sell it earlier than you planned, by manipulation or because of the substitution of the actual with the desired.

[2] In a startup, as in the most competitive sports, this task almost fulfills itself: you are too busy to get tired. But as soon as you lose this defense, that is, with the final whistle, exhaustion will hit you in a wave. Communicating with corporate development departments is tantamount to such a wave in the middle of the game.

[3] To be completely honest, the obvious unacceptability of the actions of people from corporate development departments is reinforced by the fact that they represent large organizations that often themselves do not know what they want. Buyers can be surprisingly indecisive about their acquisitions, and by the time it comes to you, their non-obligation becomes indistinguishable from deception.

About the translator

Translation of the article was done in Alconost.

Alconost localizes applications, games and sites in 60 languages. Native-language translators, linguistic testing, cloud platform with API, continuous localization, project managers 24/7, any format of string resources.

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