In the past two years, Danny Zappin has sold one company and bought 18 others.
After Disney purchased his online video company Maker Studios for $500 million last year, the 40-year-old Zappin co-founded digital media startup Zealot Networks and began an 18-company acquisition spree. Los Angeles-based Zealot closed its most recent acquisition in September, purchasing Mumbai-based video network Nirvana Digital.
While going on a mergers-and-acquisition tear is not a growth strategy many entrepreneurs can replicate, some of the lessons Zappin learned while running his previous company can be applied to almost any startup. Here are three of his tips for entrepreneurs.
1. Don't raise money to prove your model.
Many entrepreneurs raise investment capital before proving they have a sustainable business, but that doesn't mean you should. When Zappin was building Maker Studios, he put off raising outside money until his company had hit $1 million in revenue and reached the breakeven point.
"Use that money to double down on something that's working, versus experimenting with an idea that may or may not work," he says. "I would strongly advise that if you're not at breakeven yet, be close to breakeven--or have a clear path to it--before you take investment."
2. Avoid letting venture capitalists do your hiring.
You want to build a founding team with a diverse base of expertise from day one. Why? If you have too many people who do the same thing, or come from similar backgrounds, investors may start placing executives in your company to plug the holes. Because Zappin's founding team at Maker was composed primarily of creative types with experience in digital media, venture capitalists were quick to hire executives with business management experience.
"Those investors are going to place their own people, and you end up in a weird situation where you have executives who are really working for the investors, not the founders," Zappin says. "Had I had somebody who was on the business development, sales, or technology side early on, we would have had a much better result."
3. Give equity to as many of your employees as you can.
Sharing a small amount of equity with a large group of early employees is a great way to get your startup team focused on what's best for the company, rather than on their pay, Zappin says. At Maker, between 10 and 15 employees had small equity stakes, an ownership structure that Zappin says helped grow the startup fast early on.
"That really is what was able to get Maker off the ground," he says, adding that more than 200 Zealot employees own a small piece of the company. "I want to make sure everyone's aligned and incentivized for the company to do well, so it's not a select group that's getting rich off the backs of the rest of the people's work."