If You Want A Big Exit A La Tumblr, Make People Love Your Story

Entrepreneurs seeking larger exits should put slightly less faith in superlative technology and pay more attention to the story of why they matter.

Change the world. Keep your soul. Still get stinking rich. That’s the sparkle in the eye of many entrepreneurs.

Today, companies on the fast track to top value see themselves as marketing a movement, not building a machine. Collectively held emotions have fueled some of the decade’s biggest acquisitions, and companies like Tumblr and Pardot can serve as models for super-charging valuation without sacrificing soul.

Culture As a Competitive Advantage

David Cummings is an Atlanta entrepreneur whose company B2B marketing automation company, Pardot, was acquired by ExactTarget for $95 million this year. ExactTarget’s ownership of Pardot fueled its subsequent acquisition by Salesforce for $2.5 billion.

Great deals like this don’t simply fall out of the sky. Every market has dozens of companies competing to solve the same problem. And according to Cummings, Pardot’s clear cultural alignment with ExactTarget was a primary factor in its purchase.

"Corporate culture is the only sustainable competitive advantage that is completely within the control of the entrepreneur," says Cummings.

But it’s not merely about developing great cultural values and hoping potential buyers will bang down your door; it’s also about amplifying that message to the outside world and capitalizing on culture with a solid communications strategy.

In Pardot’s case, the company applied to almost every relevant award to communicate the message that Pardot is a company that puts people first. It won the title of Atlanta’s Best Places to Work, among others, and touted these awards on high-traffic billboards in Atlanta to attract more great talent. This active pursuit of cultural notoriety is a perfect model for how entrepreneurs can communicate their companies’ vision.

Cashing in on Social Capital

Social capital can generate big returns for companies that are truly committed to great cultural values. Pardot is not an isolated example; famous acquisitions made by Google and Yahoo were driven by culture as well.

Yahoo! bought Tumblr for $1.1 billion because the firm had gained significant traction and still had the things Yahoo had lost: a raving, committed fan base, a growing number of users, and strong cultural values such as "no disruptive advertising."

Google bought YouTube for $1.65 billion from founders Chad Hurley and Steven Chen. Eric Schmidt, Google’s then-CEO, said the duo reminded him of Google’s founders, Larry Page and Sergey Brin.

Translation? The companies shared cultural alignment, and while YouTube wasn’t the most sophisticated video platform, its culture and market appeal meant it could be immediately monetized by Google.

Communicating Culture to Create Social Proof

Many entrepreneurs today focus too much on features and operations and forget about creating social proof. Value for emerging businesses is not just derived from superior technical operations anymore. Increasingly, value comes from your brand’s cultural capital.

You can’t sit back and wait to be discovered; you must engineer your reputation by underscoring traditional valuation advantages and culture.

Part of the equation to unlock the capital in social proof is found in great marketing communications. The valuation of your company will not just be determined by what you are committed to and why; it will be based on how you showcase that commitment. Successfully communicating the blend of what you do and why you do it leads to bigger exit opportunities for emerging businesses.

This isn’t a new idea, but it is new for smaller, privately held firms. Share price has long been understood to include a "public perception" value for publicly held companies—which is why stock prices plummet when bad news hits, even if the company’s basic operating principles and technologies are unaffected. These same principles of social license and social value are at work in the privately held sphere, but instead of impacting "stock price," they can affect valuation.

Solving for Social Proof

Today’s smartest entrepreneurs keep one eye on operations and the other on perception. Proper publicity becomes critical in highlighting a company’s corporate culture, as well as the traction the company is building.

Social capital has proven to be a denominator in some of this decade’s biggest acquisitions. Great blogs, articles, social media posts, awards, and conference contributions that communicate a company’s mission are within every entrepreneur’s reach, and communicating culture and core values must become a top priority to position a company for maximum value.

Businesses need to invest even more in the story of why they matter. This means entrepreneurs seeking larger exits should perhaps put slightly less faith in superlative technology and pay more attention to the larger social story behind their businesses. The special sauce for higher-than-average valuations is a spicy blend of good operations and a decent product, mixed with a generous handful of culture capital.

Lisa Calhoun is the CEO of Write2Market, an industry leadership consultancy that changes the world by helping tech and energy companies gain the reputations they deserve. Connect with Lisa on Twitter or LinkedIn or at her personal blog.

[Image: Flickr user Amanda Bowman]

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  • Anthony Reardon

    I have to challenge this one Lisa. Several years ago one of my favorite CEOs went on Charlie Rose to do just what you are talking about. She and her innovative perspective on technology were so impressive that I really bought into the vision and possibilities. Shortly thereafter she got her exit. No problem, I stuck with the product, but over time it became clear the new corporate interests were not going to support the people that had made the platform a success- not really. They were going to PR the same lines, but the actual steps they were taking literally contradicted the original value and cultural propositions. So after some years, in the back of my head, I started to wonder if I had been intentionally mislead. You know, just told what I wanted to hear, when the CEO didn't really care, believe, or feel that kind of passion for the subject.

    Fast forward to this year where I caught the Tumblr CEO on Charlie Rose talking about his exit. I would have to go back and do a literal comparison, but I could swear he was spewing out the same lines my old favorite CEO used to spin. Was I suckered? Do you really believe the politician has their "baby" moment by accident- ever? Do you really believe the tears of the actress who wins the big award and gets her trophy speech moment? I think on Charlie Rose, there must be an exit moment founders dream about where he sums up a question about the ultimate meaning of technology and the founder just smiles, pauses, and says "Absolutely".

    Shoot, now even I am imagining myself getting my "Absolutely" moment, lol! I think that you have to own your messaging and be careful not to mislead people. When people vest into a platform, and I'm talking about all those "wonderful and amazing" end-users, there are possibly emotional, social, and risk commitments they can make that can have deep impacts on their lives if not their businesses. You have to take some responsibility for that, and as soon as you hand off your company to some conglomerate, no matter if you stay on for a year to smooth the public perception of the transition, the real impacts on people can be tremendously negative. You didn't seem to mention any of that in your article.

    I don't mind someone getting rich off my participation on a platform. I would prefer they did it without selling out though. If it's worth it for some buyer to come in, then there ought to be good enough justification to stick with it, even perhaps get more capital investment to pursue those "greater opportunities" usually suggested can happen in mergers. Otherwise, be transparent in your goals. If exit is what you are aiming for, then be up front about it. Don't pretend that you are so in love with your project that circumstances can't change either. That storyline always ends up sounding like a founder was playing hard to get in order to drive up their final buy out price.  

    Do what you have to do but be upfront and genuine about it. Whatever you do, don't betray confidence, and don't insult intelligence. You might be advocating playing games with peoples' minds in order to increase valuations- and if so, that's a mistake. There is no question in my mind, however, that your suggestions are powerfully effective.

    Best, Anthony

  • Lisa Calhoun

    Anthony, what a beautifully written and authentic response--I appreciate the value you're adding to the article with your own experience. I work with many tech CEOs, and like all other types of people, they come in different levels of commitment. The ones I actually have the privilege of working with are all truly out to change the world.  I am advocating telling the bigger picture, higher story, always. It's wrong to mislead--we agree. Even if the approach is effective, it's not authentic and my hope is inauthenticity won't last, and people will get found out. I wonder about your favorite CEO--the one whose product was essentially butchered in the acquisition. Did she know that was coming? Certainly once the company was sold, it was out of her control... Most founders are tightly bound not to interfere past an exit point as we both know. 
    Some CEOs of course DO put their financial goals front and center, ahead of the bigger picture story, and are quite frank about it. Look at Alyson Shontel's (@AJS) recent interview of the Bustle CEO Bryan Goldberg (http://www.businessinsider.com.... I don't know about how you find it, but Bryan comes across as completely oblivious to the real story behind the brand Bustle COULD be. He seems to ignore digital brands like HuffPost which have  already done what he wants to do... I mean, wow. I was HOPING to hear more of a dream from him!
      From the tone of your comment,  I bet you'd appreciate (and may even have read) Simon Sinek's START WITH WHY. That 
    book and his TED talk put a lot of clarity around why it's so important to talk about and address the real WHY behind a business....because in the early adoption curve, to get to critical majority in the diffusion of a new concept or technology, you want people to do more than just use, you want believers... who reach LOTS of people with their new found religion.  And we totally agree, pretenders who are using these powerful storytelling techniques under false pretenses are a special kind of poisonous... THANK YOU for your comment.

  • Anthony Reardon

    My pleasure Lisa.Thank you for the intelligent responsiveness. We are on the same page then!
    I also liked what I saw on Write2Market and look forward to exploring more. -A