3 Lessons for Startups from Snapchat’s $3 Billion Rejection
Just in case you haven’t heard: The two 20-year-olds behind Snapchat turned down a $3 billion buyout deal offered to them by Facebook. And that’s after they rejected Facebook’s initial offer of $1 billion. What makes these young startup entrepreneurs so confident…and so successful?
23-year-old Evan Spiegel and 25-year-old Bobby Murphy founded Snapchat in 2011. The photo-sharing app has since become one of the most successful startups in the history of mobile media. Users can take pictures or videos, message the media to a friend, and the message automatically disappears after no more than 10 seconds. The big appeal here is that the photo doesn’t stay in the recipient’s phone, which has admittedly led to some issues with sexting in the past.
Regardless of your personal feelings about Snapchat, or the founders’ refusal to sell their toddler-aged startup, there are some definitive lessons here from which all startup entrepreneurs can learn:
1. Study Like-Minded Companies
One of the main reasons Spiegel and Murphy didn’t accept Facebook’s offer is their awareness of their industry and its value. Currently, Snapchat doesn’t make any money off of its app. The startup hasn’t yet used advertising within its product, which eliminates the major source of revenue used by social sharing sites. So what are Spiegel and Murphy holding out for?
Spiegel commented to Forbes that Tencent is a significant role model for Snapchat. He cited to Forbes that 90% of Tencent’s revenue comes from in-app purchases, suggesting that Snapchat is interested in generating revenue from native advertising in the near future. Aside from that, Tencent itself has valued Snapchat at roughly $4 billion, giving Siegel and Murphy reason to hold out for more money if they planned on selling at all.
Selling, however, seems unlikely. Spiegel has stated that effective in-app advertising needs to integrate ads in a way that won’t disrupt his users’ experiences. The cofounder has demonstrated that he not only knows what can work for his startup, but also that he knows what his users will accept most freely. Forbes reports that Snapchat users collectively send approximately 200 million photos each day, making it a valuable, yet untapped, outlet for advertisers. Snapchat’s owners know this, and will likely be pursuing possibilities for native advertising this coming year.
2. Be Passionate About Your Business
By refusing to sell their startup to Facebook, Snapchat’s founders have displayed their loyalty to their business. It’s passion like this that is often the lifeblood fueling many startups and a key component in startup success. Stefano Mosconi, CTO at the increasingly popular smartphone startup Jolla says, “Start with an idea and don’t change it. The moment you start to change, you’re going to lose – you’re going to lose the idea, lose the enthusiasm, even lose the money.” By refusing Facebook’s $3 billion offer, Siegel and Murphy have shown us the kind of dedication and enthusiasm that all startup entrepreneurs should strive for in their business ventures.
3. The Only Thing Better than Selling Your Startup is Not Selling
This last lesson is a bit of PR advice. Sure, Snapchat and Facebook would have both gotten some press coverage if Snapchat would have accepted Facebook’s offer. But what’s cooler than a startup being offered $3 billion? Being offered that $3 billion and turning it down.
By rejecting Facebook’s $3 billion deal, Snapchat has turned nearly all press coverage surrounding the online world toward itself. This is great PR for the company because the story coverage is not only making the company and its founders’ names more well-known, but it’s also doing some major damage control. Whereas Snapchat’s name used to be associated with “that app that teenagers use for sexing,” Snapchat is now known as “that company that turned down $3 billion from Facebook.” Needless to say, the latter is much better for the company than the former.
What do you think about Snapchat turning down $3 billion? What else do you think we can learn from this startup’s example? Tell me in the comments section below!