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 .,
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.