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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