Postmedia saves Sprouter in a quiet acquisition.
Aspiring local entrepreneurs let out a sigh of relief recently at the news that Toronto-based Sprouter, a web service that connected people with experts in business, marketing, and other helpful fields, won’t be shutting down after all—it has been acquired by Postmedia, the corporation behind National Post and Canada.com. The acquisition comes after a period of limbo for Sprouter; in late July, the two-year-old company preemptively announced it would close due to a lack of funding, before quickly backtracking a week later to state it would instead explore other funding options. This was a stunning turnaround for a company that claimed it “impacted” 250,000 entrepreneurs weekly and became a media darling—founder Canadian Sarah Prevette was named one of “America’s coolest young entrepreneurs“—even landing on popular tech blog Mashable.
Part of the difficulty may have been that Sprouter kept shifting its focus (“pivoting” in business-speak): first as a forum for entrepreneurs, then a Twitter-clone for entrepreneurs, and now settling on a Quora-clone for entrepreneurs. Each iteration cost Sprouter without providing a clear route for revenue.
The move by Postmedia isn’t entirely unexpected, given its coverage of Sprouter. Sprouter was a community-building exercise above all, with successful monthly meetups that drew hundreds and acted as a useful spotlight on local start-ups. Postmedia surely saw the benefits the Financial Post, for example, could gain from access to a community of small-business owners.
While Sprouter users can breathe a deep sigh, Postmedia will have to succeed where Sprouter couldn’t—in making money. (Comments on the Sprouter blog noted the irony in a startup that advised other startups on how to be successful going broke.) The company’s events were free (it never implemented a rumoured freemium model—where most services are offered for free, but customization and special services come with a fee). Staying free is a tactic that many services employ to help build a large enough client base to draw data for advertisers (Google and Facebook are notable for using it); Sprouter chose to sell advertising in its newsletter instead, which proved unsustainable for a four-person team.
Part of the benefit of having a large organization like Postmedia backing Sprouter will be access to resources, from financial to promotional to technical. The experience of the Postmedia team in selling advertising will also likely boost revenues for its new acquisition.
The partnership makes sense for both parties, although we can’t help but lament how the process played out: lacking the fanfare that normally accompanies acquisitions, and instead marked with the faintest whiff of an 11th hour fire-sale purchase. (The terms of the acquisition were not disclosed as the purchase was considered non-material, says Postmedia spokeswoman Phyllise Gelfand.) Startup hopefuls should pay close attention to what Prevette and company did right and wrong with Sprouter. In the end, the biggest lesson in how to run a startup didn’t come from one of the experts they list, but from the site itself.