SpectatorBytes

One of the initiatives early-stage companies should seriously consider during this economic slowdown is venture mergers. Joining companies within your ecosystem of services of user offerings may put the resulting combined enterprise in a safer long-term position.

Advances in Web infrastructure and technology development has made it possible for many entrepreneurs to start highly specialized ventures in recent years. Having spent time evaluating the video, publishing, advertising, and gaming among others, it has become evident that there are many highly specialized players which are part of each ecosystem. For instance, in video, there are syndication services, production companies, video networks, ad optimizers, content management systems, etc. While many of these players have sound/compelling offerings, they will likely struggle to scale and unlock meaningful value. In many cases, these products are so specialized that no businesses can be built around them.

However, if best-in-class services where to come together, they would have a better chance to build larger and more sustainable businesses. The reason is because not only products/services portfolios will become better but also top talent will come together.

This is a big difference between today and previous eras on the Web. Web companies can now be started with very low capital. Sound products have been developed with little money. This has spread both product and talent pretty thin across many companies. Thus, making it increasingly difficult to break through the clutter with users and or customers.

As the economy tightens, scale of users or customers become increasingly important for long-term survival. Startups, which realize this quickly and move to complete their “ecosystem” puzzle, will be significantly better off than those that ignore the new reality. Don’t make your long-term strategy to be an acquisition “tuck-in”. There is a limited number of large players and they pursue only a limited number of acquisition “tuck-ins.”

This does not mean that you should pursue venture mergers at all costs. Cultural compatibility, strategic alignment and adequate allocation of incentives need to be there to make sure that you (as leader of your venture) are completing the right puzzle.