The acquisition of Club Penguin by Disney illustrates three great truths in a successful startup and exit.
- The law of fewer dollars.
Companies that are highly capital efficient, have the best exits. The amount of capital you raise and the size/success of your exit are inversely related. And while technology gives us entrepreneurs the tools to build stuff faster and cheaper, the capital market is always looking to put more money to work than we need. Club Penguin raised friends and family money and avoided any institutional capital. - Follow the money
The most successful startups are those who disintermediate existing dollars or re-direct them to their pocket. The announcement of CBS’s declining TV revenues seemed to align perfectly with the Club acquisition. Dollars are going to move ever faster to the digital side because thats where the consumers are — creating some of the same stress in broadcast that has already been felt in the print world. - Pay as You go or the 1 cent rule
Josh Koppelman wrote a brilliant post on the enormous hurdle companies must overcome to get their consumer customers to pay even 1 cent for their services. Club had at least 700,000 members each paying $30 or more per year for their service. They crossed that divide incredibly well, ensuring that their services were highly prized by their customers. Product managers should apply this rule to figure out how valuable and sticky is the service they are proposing to build and deliver. Of course there are lots of very successful companies that don’t require their customers to pay directly for their services or IP, but if you can get your consumer customers to pay, you know you have a product.