ON THE CASE

A buy out of­fer will oc­cur at some point in the evolution of any suc­cess­ful startup. Some­times an of­fer will be made even if a com­pany isn’ t turn­ing a profit, espe­cially if it’ s rapidly grow­ing. For Tan ya Rie­mann, the founder of Platy pi De­signs Inc .,

National Post (Latest Edition) - Financial Post Magazine - - COLUMNS & DEPARTMENTS - This case study was pre­pared by Fi­nan­cial Post Magazine and the Pierre L. Mor­ris set te In­sti­tute for En­trepreneur­ship at the Richard Ivey School of Business( Western Univer­sity ). The case method is a key learn­ing tool int hec ross-en­ter­prise lead­er­ship

Web de­sign startup Platypi De­signs con­sid­ers a take-out of­fer.

Plat ypi’ s rapid growth had been bol­stered by Rie­mann’ s ef­forts to con­nect and fol­low up with small-business own­ers, star­tups and not-for-profit man­agers who were time-starved and did not have spare re­sources to com­mit to learn­ing the new so­cial me­dia tools that were emerg­ing. But fund­ing that growth had ne­ces­si­tated draw­downs on the real es­tate lines of credit of both Rie­mann and her business part­ner on a cou­ple of oc­ca­sions .“We’ re look­ing at re­fi­nanc­ing the house due to our need for work­ing cap­i­tal ,” Rie­mann said to her business part­ner .“Should I com­mit to at least ex­plor­ing

the of­fer to buy us out, or should I re­set our com­pany to re­flect the fact that we’re run­ning out of time?” What was left un­said was that Platy pi, at its cur­rent pace of growth, would run out of funds sooner rather than later due to a lack of at­ten­tion on the business’ fi­nances.

The early years of Platypi had gar­nered plenty of ac­co­lades for Rie­mann. She started Platy pi in 2002, right around the time so­cial me­dia was driv­ing a re­newed in­ter­est in on­line sites an db logs. Rie­mann reached out to men­tor sin the lo­cal com­mu­nity to help guide her com­pany’ s growth .“When I first started, I met the owner of a mar­ket­ing firm and I tried to mir­ror my business on that — ev­ery­thing from build­ing a strong cor­po­rate cul­ture to be­ing phil­an­thropic ,” she said. The same firm was now ex­tend­ing an of­fer to buy Platy pi.

Both firms were sim­i­lar cul­ture-wise, and the own­ers got along. “The idea is that I would be­come the web de­vel­op­ment arm of this mar­ket­ing firm ,” Rie­mann said .“I would head up their web de­vel­op­ment ef­forts, most of which will com­ple­ment what the firm al­ready does. And the price—we have not dis­cussed a num­ber—will goto ex­tin­guish­ing the debt we have, among other things .”

Platy pi had ben­e­fited from the men­tor ship ar­range­ment early on in ex­pand­ing to meet de­mand. By 2007, it had six em­ploy­ees, with Rie­mann tak­ing on business de­vel­op­ment as her key fo­cus .“We even had a full-time de­vel­oper work­ing on a con­tent man­age­ment soft­ware pack­age. Ten months after he started work on it, we were sell­ing the soft­ware to some of our clients .” The con­tracts in­creased in value to the low-to-mid-five-fig­ure range. These projects were more com­plex, and Platypi of­ten strug­gled with scope creep and keep­ing the time lines tight. The re­sult was that more work had to be done than orig­i­nally an­tic­i­pated and, be­cause salaries and rent had to be paid, the own­ers had top our in cap­i­tal.

“The core business is prof­itable ,” said Rie­mann, point­ing out the business has had sta­ble, grow­ing rev­enues for the past two years and this trend was ex­pected to con­tinue .“We’ re just learn­ing to do ev­ery­thing else a larger com­pany would al­ready know how to do, with re­gard to care­fully pro­ject-man­ag­ing larger and more com­plex con­tracts .” That was as kill set that nei­ther she nor her business part­ner had fully ac­quired be­fore they started tak­ing on such work.

Nev­er­the­less, Rie­mann was hes­i­tant to be­come part of a larger com­pany .“I would be the new man­ager ina larger or­ga­ni­za­tion. Be­cause they have ac­count man­agers, I would not be in­di­rect con­tact with my cus­tomers, which is un­set­tling tome. It has been my ex­pe­ri­ence that my suc­cess is driven off the in­ter­ac­tions that I have with my clients. I would, how­ever, have as ta­ble salary I could count on .”

The other vi­able op­tion was to re­size her com­pany im­me­di­ately: re­duc­ing the scope of her op­er­a­tions and, per­haps, re­turn­ing to a tightly knit one-or two-per­son con­sul­tancy .“This would put as top to the cash out flow ev­ery month ,” Rie­mann said .“It would al­low me to fo­cus on the con­tracts, speak to cus­tomers. But this would mean cur­tail­ing my am­bi­tion of grow­ing my business .”

But if noth­ing was done in the next while, Rie­mann would run out of cash be­fore the next cy­cle of con­tracts were to be ne­go­ti­ated.

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