Traditionally, deciding whether to acquire a company comes down to a number of variables that often relate to finances — like revenue, cash flow and sales. For Google founder Larry Page however, his approach is actually quite simpler.
Using something called the “toothbrush” test, he poses the following question whenever he considers an acquisition: Is it something you will use once or twice a day, and does it make your life better?
Such an approach is quite unconventional as companies will typically hire bankers to analyze a potential acquisition, but Silicon Valley companies are relying on them less, according to the New York Times.
“Larry will look at potential deals at a very early stage,” Donald Harrison, Google’s vice president of corporate development, told the New York Times. “Bankers can be helpful, but they’re not necessarily core to the discussions.”
This logic most likely explains why Facebook bought Instagram for $1 Billion in 2012 even though they haven’t made any money yet. They saw it as a way to potentially get into a large new market, which could yield huge returns down the line.
Google has acquired over 180 companies to-date.