The $250 million sale to Yahoo: how Sean started, ran and sold Flurry
Sean Byrnes is the founder and ex-CEO of Flurry – a mobile analytics company that lives inside apps on billions of devices and as a result has the best understanding of mobile consumer behavior. Having held 90% of the market share, Flurry represented “mobile strategy in a box” for Yahoo during its acquisition in 2014.
On this episode of the Startup Exits Podcast, we chat with Sean about:
- Preparing for a paradigm shift
- Pivoting into a smartphone era
- Finding a real, painful problem to solve
- Going against Steve Jobs
- Signs of a product-market-fit
- Diversifying your customer acquisition strategy
- Competing in an early market that’s exploding
- Data privacy in 2019
- Interpreting data for startups
- Pros and cons of being a first-time founder
- Is fear of failure a motivator or paranoia?
- Factors that influence acquisitions
Sean now runs Outlier.ai – an automated business analysis platform that helps companies interpret their data to find hidden opportunities and problems.
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ANDREW VASYLYK: Hi everybody this is Andrew Vasylyk and you’re listening to the Startup Exits Podcast where we chat with founders that started, ran and sold the company to learn about how it all went down.
Today I’m joined by Sean Byrnes. Welcome to the show, Sean.
SEAN BYRNES: Thanks for having me. I’m glad to be here.
VASYLYK: You started Flurry – a company that’s not a household name but it lives within every household. It’s a mobile analytics company that at one point held over 90% of the market share; it’s installed literally on billions of devices around the world and it lives within 7 to 10 apps per device. In other words, Flurry has the best understanding of mobile consumer behavior out there.
But when you got started in 2005, you weren’t a mobile analytics company – what was the initial concept for Flurry like?
Preparing for a paradigm shift
BYRNES: I like to say that we launched Flurry back when mobile was a very bad idea, when your state-of-the-art mobile phone was a flip phone or a BlackBerry. Over the course of the company, mobile became a better idea and eventually it became the best idea anybody ever had, as today smartphones have changed the way we live our lives. So it was a fun arch.
But when we got started in 2005, imagine your state-of-the-art phone was the Motorola Razr, which was a very slim profile flip-phone. Instead of touch screens, these phones had the numeric keyboards.
The original impetus for Flurry was at the university where my friends and I enjoyed the idea that email could be immediately experienced and approachable wherever you were. In the real world at the time, unless you wanted to spend money on a Blackberry, which nobody would buy for personal use, there was no way to get your email wherever you went. So the idea for Flurry was to build apps, like mobile email, for these feature phones and in doing so to unlock that kind of BlackBerry experience for everybody else.
I had previously worked at Verizon so I understood the mobile ecosystem pretty well, and we knew that the carriers like Verizon at the time had a stranglehold on mobile. If you wanted to release an app you had to go through the Verizon app store or the AT&T app store to get listed and they just controlled the ecosystem with an iron fist.
But we believed there was a different way to go about it, so that was the goal – to build a new generation app company. Along the way in that first year, we hit upon a model that, in our opinion, was really innovative – which was a mobile app company that enables you to bypass these carrier stores, that did not sell through Verizon or AT&T or T-Mobile. So you actually went to Flurry.com to download our app, and then you got to use it on your phone. We went around the carriers.
This ended up becoming called “off-deck” or “direct-to-consumer mobile” in the coming years. But at the time it was really new as nobody had built a mobile company like that before. All existing mobile companies were focused on getting a deal with AT&T or Verizon to be on their app stores. In reality, not a lot of people were using those carrier app stores because the apps were expensive, they didn’t work very well. [But] being direct-to-consumer, where we didn’t have to go to the carriers, opened up a lot of opportunity for us.
It was an interesting time because it was pre-iPhone and pre-smartphone [era]. But even back then, we saw the potential for smartphones to really have a big impact later. It just would be a few years before it actually would kick in.
Pivoting into a smartphone era
VASYLYK: That’s a pretty interesting start. You started off as a mobile development company and eventually pivoted into a mobile analytics tool that developers use to create their mobile apps.
What made you guys want to pivot? And what made you want to pivot in the direction of mobile analytics?
BYRNES: As I mentioned, we were building things like mobile email for feature phones. Our original thesis was we would deliver it in the US and go around those carrier channels. That turned out to be a horrendous flop. Back in 2006 and 2005, people were not ready to use their phones to check their email or use apps; in fact, they were just] figuring out text messaging. But because we were direct-to-consumer and did not have to go through a carrier distribution channel, there was nothing that stopped anybody in the whole world from going to Flurry.com and downloading and using our apps on their phone. And in fact, that’s actually what happened.
Through a weird series of events, Furry Mail, which was our email app for feature phones, ended up being enormously widely adopted in the developing world, in places like Indonesia and India. Interestingly enough, we had set out to build these apps for people in the US in order to bring convenience to them and it turned out that wasn’t a good enough value proposition in 2005 and 2006.
But in the developing world, they had the same phones we had in the US, but what they lacked was reliable internet access at home. Very few people had Internet access in their homes and PCs and laptops were still very expensive, so a lot of these people would go to an Internet cafe and create an email account and if they wanted to check their email again, they had to go back to the internet cafe. Because Flurry was anywhere, and they had the same feature phones that we had, they could go to Flurry.com, install this app and all of a sudden they had access to email wherever they went.
So we inadvertently solved a very different problem than we set out to because of the approach that we had, and Flurry mail took off like wildfire. It was one of the most successful products of what people used to call the mobile 2.0 boom.
The interesting thing was that we were at the forefront of this new movement of direct-to-consumer mobile that was catching fire around the world and we didn’t have any infrastructure there. Nobody had done these kinds of things before so there were no tools – no analytic services, no ad tools and really no infrastructure at all. So, a lot of what we ended up building were tools to manage a very large consumer industry that was growing internationally. And those tools included things like analytics.
“Shut up and take my money” – developers to Flurry
So eventually, from 2007 to 2008, we realized that we weren’t the only ones anymore, a lot of other companies had popped up in the same vein, delivering consumer services to a worldwide audience, going direct-to-consumer, and they faced the same problems we did. That community was not huge but it was growing and I got to meet a lot of [the developers]. What amazed me is that the only metric they had for their business was the number of downloads – imagine running an app business and the only thing you know is how many people have downloaded your app, and you have no visibility into what happens after that – you don’t know if they ever opened it, you don’t know if they ever used it, you don’t know whether they opened it once and walked away or they use it every day or every hour.
[At that time at Flurry] we had built this sophisticated system to track our users to be able to optimize our experience. When people heard that I built this analytics tool, they would literally beg me for that tool. They offered to pay me literally whatever it costs to get access to the platform we’ve built. So I’m a pretty dense guy, but if people keep offering to pay me whatever it costs to get access to something – [I know that] there’s a lot of potential there.
It was in 2008 when we decided to make the pivot from being an app developer ourselves to selling the tools we developed as a platform for other app developers. An interesting side note to that was that the iPhone had been announced and released in late 2007. [At the time], we were still a feature phone oriented company. Now when the iPhone was launched and Steve Jobs famously said that it would never run apps and it was designed to run websites and web apps, so a lot of our investors had a lot of nervousness that Flurry was as a native app company pivoting to becoming a native app platform in a time when Steve Jobs was saying that the days of native apps were numbered and the future of mobile was web.
So when the app store launched in 2008, right around when we were finishing this pivot to becoming a platform, it was amazing timing. It meant that we were arriving at ground zero of the native app store for iOS and the Android Market (now called Google Play), with the platform for analytics that we have developed and refined over the years of running our own apps. That was really the beginning of an enormous period of hyper-growth for Flurry as a company.
Going against Steve Jobs paid off
VASYLYK: So you speak on your blog about product-market fit and you mentioned that for product market fit to happen there need to be three ingredients in place – a real problem, a real solution to that problem, and a way to distribute that solution to the people that have the problem.
Was there a particular point in the company history where you knew that you hit product-market fit?
BYRNES: Despite the fact that I believed that there was a lot of potential there, people on the Flurry team and even our investors didn’t necessarily believe in it. In fact, one of my investors told me that if we pivoted to becoming a platform we would never raise another dime of venture capital money again. So there was a lot of skepticism and it wasn’t ill-placed – it was at a time where experts like Steve Jobs were saying that the days of native apps were numbered – and here’s Sean showing our platform for native apps and saying that there’s a business there.
I think that the skepticism wasn’t totally wrong, especially if you just thought about it academically. But I just had a very strong feeling, by watching the absorption of these apps internationally, that there was an opportunity here. Of course, there’s no way I knew how big it would eventually get but I knew there was an opportunity. We knew there was potential so we knew we could build a product that was easy to adopt.
In fact, we realized we had to make the initial version of Flurry analytics free for a few reasons. The big one was that people weren’t sure how they were going to money in mobile, so if they don’t know how they’re going to make money, then we can’t charge them for a tool for which they don’t know what the relative costs are. So we had to make it free. Besides, analytics on the web was slowly going towards being free as it got commoditized, with Google Analytics and what not, so it was clear that being free made sense. So that was an easy way to make it easy to adopt.
The third point you brought up, which is the way to distribute [the product to customers]. The good news is that early on we knew everyone in the mobile ecosystem as we had been in it ourselves and it wasn’t that big. Reaching all the initial developers wasn’t hard. The interesting thing about developer communities is that it’s very build a tool for developers because they’re a very tight-knit organization who has very high standards, but once you do get in it grows very quickly because word-of-mouth is enormously strong. Being developers ourselves meant that our pitch could be “for developers by developers” and it worked very well.
Organic growth is a great signal of product-market-fit
We knew we had product-market-fit when it started to grow on its own. People started to sign up for Flurry Analytics without us promoting it, without us talking about it. And that started to grow pretty quickly – at first it was 10 developers a day, then 100 developers a day and it grew fairly quickly over time. And that’s what we saw happening – this organic lift. In the initial days, I would jump on a developer forum and answer questions and recommend Flurry as a solution. And when people started to promote Flurry without me being involved in the conversation that’s when you understand that it’s really started taking off. I also think nobody realized in the world of mobile how fast the market itself was going to grow. The minute the App Store launched, Flurry as a company started to double every six months for the next six years. It was amazing. And that was mirroring the growth of smartphones and the penetration worldwide and the adoption of them.
Actually, product-market-fit in that kind of hyper-growth market is harder to understand and identify. I know that sounds kind of oxymoronic but if things take off in a very difficult or small market, then you know that it’s because the product is working. But in a hyper-growth market where everything is exploding, it’s really hard to tell if it’s because your product is really good or if the market is just growing dramatically. And your market share [in a hyper-growth market] might be shrinking, but the market is growing so fast that you can’t tell by the numbers. With Flurry, we tried to focus on understanding how big the market was and how much of that market we had, which is why we were so familiar with the statistics you shared about how much we were penetrated.
We realized that this is a rocket ship, so let’s make sure that we are driving it instead of just sitting along for the ride.
Diversify your customer acquisition strategy
VASYLYK: You mentioned when the smartphone boom was just starting, you and your team participated in building the mobile infrastructure from the analytic side. At that time, there were some competitors out there.
Was Pinch Media, the company that you merged with in 2008, a competitor of yours at all?
BYRNES: Oh, absolutely. I think there weren’t many of us at the time, so Pinch Media was definitely one of the handful of companies out there. They actually got started earlier than we did at Flurry, so as a result they had a bit of a head start overall.
I believe there were probably not more than a half dozen companies that were trying to do something similar around that time. To be very contrarian and believe that native apps had a future wasn’t a popular prospectus, because, as I mentioned, everyone thought that their days were numbered. So there was never an army of competitors, but Pinch Media was definitely one of the competitors. Starting in 2008 and going into 2009, we both experienced enormous rapid growth. I think the difference between Pinch Media’s strategy and the Flurry’s strategy was interesting, and one of the reasons that Flurry ended up absorbing Pinch Media, instead of vice versa, was the way that we dealt with an enormously long tail of mobile developers out there.
Even today, a lot of two-person development shops don’t reach huge audiences, but they generate a lot of apps. And then you have a handful of the biggest app developers who commanded an enormous audience and a lot of revenue. Because we knew the market and knew these developers, we pursued a dual strategy – we went after the largest developers through a direct sales model and pursued the long tail through a self-service freemium business.
In a new market, you can do that because the small and the large players can use the same product – the same product can be sold to both of them until the market matures. Once the needs diversify and bifurcate, you have to sell a very different product to the enterprise than you sell to the small developer. But in the early days of a market, like in mobile apps, the same product can be sold to both. So we pursued that kind of dual strategy, whereas Pinch Media focused very much on the long tail, self-service strategy. The reason that it ends up becoming slower is that the smaller players become more and more difficult to roll up, whereas you can create a virtuous cycle if you go after the big players first.
So if you go after the big players in a market and you close a brand everybody’s heard of, like eBay, you can roll up a bunch of small players. As a result, you have two things going – you can roll up a hundred small developers and that can help you get a brand like eBay onboard, which enables you to get the next 500 developers, [so then] you’ll have 600 developers and a brand name, and of course that can help you get the next brand name and a thousand developers, and so on. In this way, the brand names and the numbers of developers become this virtuous cycle where you essentially can have this compounding rate of growth.
So, I think the reason why Flurry’s growth rate was a lot faster, despite Pinch Media having a head start, is this virtuous cycle we’ve created by going after two parts of the market simultaneously. We also had the advantage of having been around for a while. So we had the team in place while Pitch Media had started from scratch. There are lots of differences but it was interesting to watch that dynamic kind of erupt over that time.
In an early market, there’s no room for #2
Frankly speaking, both companies were very well positioned to grow. Fast forward to the end, we ended up merging at the end of 2009 because we acknowledged that we could keep competing and beating our heads against the wall trying to win. Or if we joined forces, essentially then we wouldn’t have to worry about competing anymore, we can focus on the bigger picture and aspects of really running the market. Having absorbed Pinch Media in 2009, we had become virtually the only player in that space, controlling over 90 percent of the mobile analytics market.
This was huge because in an early market, consolidation is so important, because whoever wins the race to market dominance – wins – there’s not enough for #2 to become very big. So it’s very important to win, and it requires a lot of humbleness on both sides to say “we can keep competing and feed our egos or we can join forces and really win in a much bigger way”. It’s difficult for a lot of founders but it’s often the right decision.
Data privacy in 2019
VASYLYK: As an analytics company, Flurry is essentially in the business of data and with data. And with data, you can’t avoid the topic of privacy.
What’s your stance on how tech companies should approach privacy in 2019?
BYRNES: That’s a hard question. Let me talk a little bit about the history of Flurry. In fact, Flurry has never collected very much detailed information about consumers. We knew what app you were opening and what kind of phone you had, and in some circumstances we knew where you were, but in most cases we didn’t know where you were in terms of GPS location.
But the phone is a more private device, much more so than a web browser on your computer. The idea that a company might watch you on the browser on your computer is less intimidating than somebody following you on your device on your phone.
I think that there was a surreal moment at one point where I was walking down the street in San Francisco realizing that Flurry software, the software that I had written, was in the pockets of every single person I passed on the street. Because they all had a smartphone or an Android or Apple device and all those devices had a Flurry software on them. It was a very surreal experience to think about having that kind of impact as a technologist. The flipside of that impact is that all these people now feel like there is something watching them on this device that goes with them everywhere they are.
So I think that the reaction of privacy around mobile is very warranted and very healthy. And you know, at Flurry we tried our best to set a good example in that space about having best of breed practices. I think that today, in 2019, you’re seeing the end of that first wave of reaction to it with GDPR in Europe, the Personal Privacy Protection Act and I think we are going to see a lot more of them internationally as more and more countries begin to regulate privacy to prevent abuse. And there were many cases of abuse in the early days, not by Flurry and the big players, but lots of very greedy and dangerous decisions were made during that time
Tech companies should be proactive and forward-thinking about privacy
I think that the most important thing you can be as a company in 2019 is proactive and hold yourself to a higher standard of privacy than the law might require of you. Not just because you should as a moral ethical human being not want to abuse things, but, frankly, the laws are going to get more strict over time and if you are proactive and are getting ahead of it, you won’t be caught flat-footed. There’s a long history of analytics companies that push the envelope for privacy, got swatted down and never really recovered.
A great example can be the scandal around the use of flash cookies, which are also called “persistent cookies on browsers”. Cookies in your browser are supposed to expire and you should be able to flush it, but a lot of analytics companies in the mid-2000s realized that they could create cookies using the flash that would never expire. It was a way to keep tracking the user even beyond the point which they would like, which was an enormous abuse of technology and they paid a very significant price for that. But I think that there’s always a temptation to push the envelope and it always ends up becoming a long term burden.
We are building a new data business intelligence company here called Outlier.ai. Fundamentally from day one, the belief was that we have a privacy approach that is going to be fully compliant with even the most restrictive privacy laws that could ever be passed. In this way, you essentially end up building businesses like Outlier which are designed to be PII (personal information free), where you know nothing about the users and there’s no way for you to possibly get the data about them, so that there’s no chance of running afoul of these kinds of laws.
Data is useless if you can’t interpret it
VASYLYK: Outlier.ai and Flurry are in quite similar spaces. Do you see Outlier as a continuation of Flurry in some ways or is it a completely separate entity?
BYRNES: Outlier did grow out of Flurry but not in the way you might expect. At the time that Flurry was acquired by Yahoo, Flurry was huge. We had nearly a half million customers around the world tracking millions of mobile apps on, as you said, over 98 percent of all the smartphones in the world.
The market dominance we had was enormous and I did end up traveling and trying to meet as many of those developers as I could, [but] I only really scratched the surface. But I noticed that everywhere I went, every developer I spoke to and every kind of business always told me the same thing – “Listen, I love Flurry, I love the data you give me, but what am I supposed to look for in all this data?”. What they were saying is that we gave them a lot of data and they cared about things like revenue and active users, but they really didn’t know where to look for all those hidden problems and hidden opportunities that were in the data. Once there are hundreds of metrics and thousands of dimensions – where do you look? How do you know what to look for? Technically it’s all there, if you go to the right page and in the right formulation of segment variables in your UI, then you’d see those things. But really, how do you know what to look for?
That question really stuck with me and I couldn’t let go of it. The problem with being a vertically integrated provider like Flurry was that it’s very hard to fundamentally rethink what you’re doing, in a lot of ways. This question that was being posted about what to look for in the data was a fundamental rethinking of what we did. So when Flurry was acquired and I took some time off, I looked at a lot of different ideas of what to start for my next company. But this question I couldn’t let go of.
So today, Outlier is what we call an “automated business analysis platform” which is a fancy way of saying that it uses artificial intelligence to tell you what to look for in your data and help you understand the questions you should be asking. It really is the answer to that question I kept getting that I wasn’t able to answer at Flurry but now in Outlier I have a great chance to do that. The good news is that even if Flurry had done it, it would be too early in the market, just like Flurry was early in the mobile market.
When I started Outlier in 2015, it also was early for people to trust an artificial intelligence system to analyze their data for them. Fast forward now to 2019, people are very receptive to the idea and actually actively looking for solutions like ours and our growth rate very rapid as a result.
So sometimes you have to be very early to be on time. You have to be early enough to be ready for the market for when it’s ready for you. This is what happened with Outlier.
Pros and cons of being a first-time founder
VASYLYK: After you had the experience of building Flurry from the ground up towards a very successful exit, was it easier to start a new company after that?
BYRNES: It depends on what you mean by easier. I knew more of what to expect. I think the first time around [while] starting Flurry I really had no idea what to expect. I learned a lot of lessons the hard way, especially dealing with the stress and the unknowns is very difficult. So I knew that coming in [with Outlier] and I knew why I wanted to do it, and so that was good. The downside is there’s only so much you can do to mitigate the stress, I think it’s just a hard process, it doesn’t matter how many times you’ve done it – starting a company is very very hard.
The way I like to tell people about the second time around is that first time is a lot like riding a new roller coaster for the first time. You don’t know when to be scared so you’re scared the whole time because you don’t know what’s coming next. You’re essentially white knuckling it the whole time. The second time you’re riding that same rollercoaster, you know when to be scared so most of the time you’re pretty relaxed. But if you know when to be scared, you’re more scared than you were the first time, because you know exactly how scary it will be.
The second time around you have some advantages you didn’t have the first time. [For instance] I had a network of people from Flurry who wanted to join my new company, which is always helpful. A lot of our early team here was from Flurry and Flurry alumni. You have a network of investors, and those sorts of things, as well. Unfortunately, those resources only go so far. Based on my observation, as a second-time founder, it’s a lot easier to get a first meeting with the venture investor but after that first meeting you’re on your own, you’re basically in the same boat as everybody else. I don’t want to undercut that getting that first meeting as hard as a founder so that advantage is not trivial. It’s not like people just write your checks for free off the bat. There are many second-time founders I know that have struggled to raise money for their companies.
So you do have some advantages, which is good. At the same time, you have some disadvantages. Being a first-time founder you have the advantage of not suffering from a lot of preconceived ideas – so you can reinvent the wheel. For example, in the world of Flurry, everybody who had any experience in mobile wouldn’t have even dared to cross the carriers. They wouldn’t even try to go around Verizon or AT&T.
But we were first-time founders and we didn’t know any better, so we just did it and it worked. A lot of the success was just luck, but we wouldn’t be in a position to get lucky if we’d followed conventional wisdom from experience. So one of the things you are constantly fighting as a second time founder is trying not just to do things the way you did them last time, which probably aren’t relevant anymore.
So it’s fun, obviously I enjoyed it enough to do it again. But at the same time, it’s just as hard as the first time just in different ways.
Fear of failure: motivation or paranoia?
VASYLYK: So you mentioned for founders that are starting their first company, there’s a lot of uncertainty and in many cases you simply don’t know what to expect. In the very early days of Flurry you used to work insanely long hours, as many founders do, and a lot of it had to do with the fact that you had a fear of failure.
On one hand, having this sense of mortality could be a great motivator for founders; but on the other hand, it could cripple them. Where do you draw the line between fear of failure as a motivator vs. paranoia?
BYRNES: It’s a great question. And you’re absolutely right, I used to work 12-hours-a-day seven-days-a-week at Flurry. I was afraid because my bank account was getting smaller instead of larger because I wasn’t getting paid and I was stressed. I thought that the more I work, the higher my chances of success. And the second time around with Outlier I have a much healthier approach where I make time for sleeping and exercise. The difference is not that the fear of failure is gone away and not that the paranoia is not there. Frankly, if you don’t have those it’s very hard to do the things you have to do and make your company successful. Something has to drive you to be irrationally persistent.
To be honest, there are a lot of founders who have rampant narcissism and other sorts of things that let them be persistent in the face of clear uncertainty. But I don’t have that, so what drives me to overcome these impossible challenges is a fear of failure and paranoia but also passion for winning. I think what changed for me is a realization I had that the number of hours you work is actually not directly related to your productivity and definitely not related to results.
It took me a long time to realize this fact. And when I did realize that, I started having a very different philosophical approach. So today, the reason I make time for exercise and sleep is I treat those as part of my job now. My job is to get a good night’s sleep because then I have a higher stress tolerance, I’m more creative and I can do better work. I need to exercise because if I’m exercising, my fitness is higher so I can again deal with stress better and I can be more productive. These things are part of my job because they improve my productivity, which means that I’m more successful.
So today, Outlier is an 18-person company. Most of the people in the team are parents. I think there’s a large misconception in the tech industry that parents are less productive. Parents are people, they drop their kids at school in the morning, they come to work and work all day, and then they leave to go pick their kids up from school and they have dinner with them, and then they sign on after the kids go to sleep at night. So you don’t have the luxury of working 12-hours-a-day, but at the same time, the same team at Outlier is more productive than Flurry would have been at the same size because of the acknowledgment of the disconnect between hours worked and productivity.
The other important thing is that we’re very passionately focused on what we’re doing. We have no foosball tables in the office and we don’t play around [while we’re at work]. Everybody here is working really hard, and when we’re not working [then] we’re relaxing; that ends up being a very good balance so that means that we’re more productive. It’s taking me probably too long to learn those lessons, but I’m glad I learned them before it’s too late.
Flurry represented “mobile strategy in a box” for Yahoo
VASYLYK: While this fear of failure was probably incredibly stressful at the time, it has obviously turned into a very positive outcome. Flurry was acquired by Yahoo in 2014 for somewhere north of $200 million.
Could you tell us about how the acquisition went down?
BYRNES: Firstly, I will start off by saying that while Flurry was a very good outcome, along the road it was insolvent twice. I think, of the 9 years I worked there I got paid 6 of them. So it was a very rocky road, it wasn’t just this constant march of success. It was a business that was up and down and on death’s door more than once. But it did have a very good outcome [in the end].
An interesting side note is that the reported acquisition price for large acquisitions is universally never correct – it’s always wrong. And that’s the case with Flurry’s acquisition price [as well]. The reason why it’s wrong is that acquisitions are very complicated. Often times, the acquisition price is leaked by an investor or an employee who sees part but not all of the deal. So it’s always very entertaining to me when people try to peg a price on these large acquisitions because there is the price paid for the equity, a price for the retention packages for employees, there are all sorts of interesting aspects such as liquidation preferences and so on. So the prices are always all over the place, hence you should never trust what you read in the paper about acquisitions.
But how did the acquisition of Flurry come about? By 2014, which is the year that Flurry was acquired, the world had changed a lot. We had been growing rapidly as a company, the analytics business had become the foundation of the advertising business. So Flurry was a very large, cash generating advertising business using the data from analytics to both target ads and publish ads for our app developers.
But the world was changing. People had woken up and realized that native apps were here to stay. It took longer than I would’ve guessed, and it was really not until 2011 and 2012 that Facebook and Google gave up on the hope that the mobile web was going to take over and [they] realized that mobile apps are here to stay.
At that point, Flurry was 9 years old. A regular venture capital (VC) fund has an expected lifespan of around 10 years. It can usually be extended to 12 or 13 years, but usually it’s around 10 years. So we’re coming up to the end of the lifecycle of the funds that invested in Flurry in the early days. So venture investors always have an algebra – “Do we want to invest another five years in growing the business and maybe even becoming a public company? Versus just taking the value earned off the table and move forward.” Personally, I was very burned and I actually had to take a step back from the company in early 2014 because after 9 years I’ve been working too hard without keeping up a good balance.
The third thing that happens is that mobile had become such a clear important strategic value. At that point in 2014 everyone had smartphones and they became the most important real estate. And there were a lot of businesses out there who did not identify that early enough and has fallen far behind. Yahoo, at the time when Marissa Meyer was a CEO, was doing well but Wall Street was beating them up as they did not have a clear mobile strategy. So Flurry represented a “mobile strategy in a box” for somebody like Yahoo. When this company came along I think the board was very receptive, for the reasons I mentioned before. It also made a lot of sense where you could come into a company and Flurry could become their mobile strategy and a very strategic asset. And it worked out very well for Yahoo and now Oath, Flurry has become an enormously powerful asset. Eventually, the Flurry manager team went on to become many of the executive leaders at Yahoo and Oath.
Overall it was an acquisition that has worked out very well on both sides.
For acquisitions to happen, stars need to align
VASYLYK: You mentioned on your blog that while getting acquired is a great outcome for any company, planning for an exit is a bad idea.
What did you mean by that? Why is planning for an exit not a good thing?
BYRNES: I think there’s a lot of founders who believe that they’ll just be able to sell their company when they want to. In reality, this is not how it works.
It’s very rare that an acquirer comes along who wants to buy your company for as much as you’re willing to sell it for. And that’s for a few reasons for it. For one, when you see the value of your own company, you see the potential of what it can do in the future, while the acquirer most often is looking at the value of what you already have because their goal is to extract that potential for themselves when they acquire you. For example, you may have a startup company that you think has a lot of potential and you want to sell it for 20 million dollars. Then acquirer comes along and they’re not willing to spend more than $5 million. Well that’s kind of difficult, right? Are you going to sell for substantially less than you wanted? Maybe your investors would take a lot of that and there isn’t enough left for the employees. So that’s part of it.
The second is that you know you need all of the players in your company to agree on an exit, usually, and venture investors are looking for 10-20x returns on their investment. That’s a big return. They’re not going to settle for doubling their money. In fact, doubling their money on an investment is a great way to not hit their returns in their fund because so many venture-backed companies fail, they need the ones that succeed to be huge successes. And so if you are a founder you raise venture capital financing, if an acquisition offer comes along then a lot of people have to buy into it. And it’s hard to get them all aligned in the same place.
The third part is the timing of it. The point at which you want to sell, there may not be a lot of companies out there that are looking to buy. Also do they have the cash to buy you? Because often you need to align with the strategic priorities of a large company. So for example, Flurry aligned very much with the priorities of Yahoo. But you can’t control that, you can’t control the priorities of a large acquirer.
And so there’s a lot of reasons why you can’t control [an exit] and so what ends up happening is the only sound approach you can have is to assume there are no acquirers and to focus on just building value and building a healthy business so that at the time when you get lucky and those stars do align you can take that advantage of that opportunity.
They say that companies are bought not sold, that’s so true because the buyer has so much more power because they decide when they’re ready, they decide how much they’re willing to pay, and as a seller you really just don’t have a large market to sell to.
VASYLYK: So founders should essentially focus on building the product and growing the company rather than laser focusing on having an exit.
Sean, I want to thank you very much for coming on the show and we wish you all the best with Outlier.
BYRNES: Thanks! You can find us at Outlier.ai – we’re an automated analysis platform for companies to help you find value in your data. We’d love to show it to you if you’re interested and you have a lot of data and you’re looking for hidden opportunities and hidden problems.
Thanks a lot for having me.