Don't let a badly chosen or implemented acquisition TKO your software company's success trajectory.
In Episode 66 of B2B SaaS Marketing Snacks, we tackle how to make sure a potential acquisition is the right move and, most importantly, how to get the most out of it.
Growth by acquisition can be a powerful way to accelerate your go to market approach. Acquisitions allow you to:
However, if done poorly or for the wrong reasons, an acquisition can stagnate revenue, increase costs, fracture your team culture, and stretch your team too thin to succeed!
If you're a marketer, SaaS founder, or executive wondering how to use AI effectively in your strategy, this discussion is full of practical insights whether you use ChatGPT, Perplexity or any other tool.
B2B SaaS Marketing Snacks is one of the most respected voices in the SaaS industry. It is hosted by two leading marketing and revenue growth experts for software:
B2B SaaS companies move through predictable stages of marketing focus, cost and size (as described in the popular T2D3 book). With people cost being a majority of the cost involved, every hire needs to be well worth the investment!
The best founders, CFOs and COOs in B2B SaaS work at getting the best balance of marketing leadership, strategy and execution to produce the customer and revenue growth they require. Staying flexible and nimble is a key asset in a hard-charging B2B world.
Resources shared in this episode:
Brian Graf: Hi there, and welcome to episode 66 of B2B SaaS Marketing Snacks. I'm Brian Graf, I'm the CEO of Kalungi, and I'm here again with Kalungi's co founder, Stijn Hendrikse, who's a serial SaaS marketing executive and ex Microsoft product marketing leader.
Today's episode is about growing your B2B SaaS company through acquisition.
So using your capital to purchase businesses. As a way to accelerate your go to market approach. This growth lever is used all the time by B2B SaaS companies, and it has some huge benefits like allowing you to quickly enter a new market, fill a team or product gap, or just allowing you to buy your way into a more of the market that you're currently servicing.
It's also a very quick way to generate revenue and balance sheet growth can be very attractive to investors, but it's not without its risks.
Acquiring a B2B SaaS company is a massive use of capital. And if it's done poorly or for the wrong reasons, it can lead to stagnating revenue with increased costs, fractured team cultures, or multiple competing go to market strategies that need to be serviced by a team that's stretched too far to support them all.
So we wanted to give you the tools you need to go into these investments, eyes wide open, and ensure that you can make the most out of your acquisition and maximize the impact it has on your go to market strategy. Let's get into it.
Okay, Stijn, we are back. A few episodes ago, we discussed Ansoff's Matrix and using that as a tool to identify and align behind growth levers that you can pull as a B2B SaaS company.
I wanted to take this episode and dive into one particular growth lever that I've seen used across quite a few different. And that is growth through acquisition. It's a huge topic. I think books and books have been written and many more will be written on it. And it spans just about every single business discipline that you can think of.
Finance, operations. strategy, et cetera. But there's also a ton of implications across the go to market field as well. And so since that seems to be our specialty I wanted to focus there. Why should you as a B2B SaaS company grow through acquisition? What are the benefits and why would it be worth considering?
Stijn Hendrikse: When you have a very strong presence in a certain part of the market, let's call it product market fit. And there's a lot of other providers that are servicing the same group of customers and you can have efficiencies because you have economies of scale on how you service them or how you do marketing etc.
Then it can just be an extremely good win-win. To acquire a B2B SaaS company that may not have the same capabilities and the infrastructure or the team, or they may do certain things much better than you. And because you're servicing the same part of the market, it will just allow you to bring down your cost, to increase the capability.
Penalties that you have to make your quality, the quality of your product or your service better. So that's one reason. And then the other could be that you actually have a strong position in a given market, but you want to expand into another part of the market where you prove what you provide your servers and your products seem to be a good fit as well, but you don't have access to that new market.
You don't have relationships there. You don't have the partnerships. You don't have the reputation in that market. Could also be a good way. to speed up your achievement of product market fit in that new market. But both would sort of start with a strong position of product market fit in your existing market with a great service that you're already providing and a great product that has product market fit for that known audience.
Brian Graf: So it's almost like a speed hack if you have the capital. That's a big if, but to basically start building a On top of the success that your current product has or the success that your B2B SaaS company has made right using acquisition to fuel that growth It just shortcuts, you know all of the time and effort that you would need to spend building it yourself.
Stijn Hendrikse: Most acquisitions are either a combination of these three or one of them.
You buy customers. You say, Hey, I have a value product. It's a great fit for these other customers. And now I don't have to go find them and do the marketing and selling, et cetera. I have this other B2B SaaS company that I can acquire. And that cost of acquisition, acquiring those customers is actually maybe cheaper than doing it yourself.
That could be one reason. Or you could basically buy a piece of technology, piece of software, product, services, et cetera, to complement your own service. Portfolio. That then allows you to increase your ACV to existing clients. Or the third reason sometimes is to just buy talent and people.
If you're in the healthcare business and you need more providers to provide a certain service. Sometimes the trade off is just, Hey, it's easier to acquire a B2B SaaS company than to recruit all these people. So, but it's usually a combination or one of those three. That leads you to acquire a B2B SaaS company, Brian.
Brian Graf: Yep. One of the things that I've thought of or seen in the past has been where you happen to have the larger market share and the larger revenue, but a new competitor has entered the game. They have a fresh new outlook and are starting to eat your lunch and a few sales calls.
It could be also a defensive maneuver as well, but of course you need to keep in mind antitrust regulations there as well. But I've seen that happen.
Stijn Hendrikse: And usually companies that we work with that are a little smaller, they don't have to worry too much about a very dominant market position.
But that's a good point.
Brian Graf: When do you think it would be just not advantageous for a B2B SaaS company to pursue this strategy? Do you think it is one of the things that you said: they lack product market fit, maybe it's just too soon, but is there anything else that you think companies should consider when evaluating this option.
Stijn Hendrikse: Well, it's a little bit like when you outsource something, you don't want to outsource things that you don't understand. And for an acquisition, it's a little bit similar. You want to be in command. You want to master your current business. And understanding your current client, understanding your value proposition, how to sort of run that and run that in a healthy way.
So that when you get a new team to join your team, a new group of customers that you need to service, a new type of product you need to sell, that you can do that by complementing an already strong foundation. If you have some weak parts of your business that you have to just be very thoughtful about, how do you integrate something that's maybe stronger from another B2B SaaS company without it also leading to The things that are actually working being overshadowed.
Or being disrupted or being just this confused. And so you gotta just be careful. So if you're in a strong position, you understand your business well. You're running it well. It's of course, much easier to integrate a new acquisition than if you have a ton of maybe mismanagement or your lack operational, like excellence it's just a little harder to do it then.
Brian Graf: Similar to Ansoff’s Matrix. If you're going too far out on a limb and going into a pivot situation with a new product and a new market. You might just be extending yourself too far. And it just becomes a riskier acquisition. So thinking through and maybe aligning acquisition to Ansoff’s Matrix again, it's interesting because in my mind, going through an acquisition can actually fall into quite a few of the quadrants.
All four actually. You can use it to penetrate your existing market. By consuming more market share, using it to access new customers. To make sure that you don't have to spend the time building your own audience in a new market. And even to plug gaps in product capability.
Have you seen any bits of success in either of those quadrants or any factors that you've seen make those acquisitions more successful in a particular quadrant?
Stijn Hendrikse: That's a great way to think about it, Brian. You can almost argue in the lower left quadrant, you're either buying probably talent or capacity.
Or you're buying customers that are exactly like the customers you're already servicing. How do you consolidate maybe with one of your competitors or potential competitors? In the upper left quadrant, you're entering a market that you may not know that well., but you have a great product for it.
Then, buying a B2B SaaS company that already services those types of clients is a great way to get the vertical and the industry expertise. So that's where you get a shortcut. And then the bottom right quadrant is a shortcut to not have to develop a service. Or having to fine tune it.
So I think you're right. It's nice to align it with those three. And that allows you then to define what success looks like for this acquisition to work. Were we able to turn, if you're thinking of the lower right quadrant, we were able to turn another product or capability into ACV growth.
And the upper left quadrant, were we able to turn a B2B SaaS company that is able to serve as another type of client, so we're able to turn that into those clients also buying our products. And so you can use that also to set the KPIs to give you a sense of what success looks like.
Brian Graf: You know, an acquisition is a massive use of capital.
That has an enormous opportunity cost associated with it. Is there a scenario where you would recommend that a B2B SaaS company, instead of acquiring another B2B SaaS company, just invest those pieces inwards. And just focus on building out their marketing team, entering the market themselves. And, and trying to.
Take out the competitor that they were going to buy. Is there, is there anything there that you would look for when making that decision?
Stijn Hendrikse: Probably not very different from when the B2B SaaS company starts to make a lot of profit and they're not sure how to use that capital internally. To drive growth at the level that shareholders expect.
If you think you can put that money to work better by acquiring a B2B SaaS company or just use that to do it faster. I think that's the trade off you make, but there's always going to be a list of things that your team internally would love to do, but that's where it helps if you understand your business and your unit economics.
If we have a certain like ACV, but with a certain cost of acquisition of a customer cost to service of a customer, then you have a benchmark and say, Hey, If we do an acquisition here, will the ACV over cost equation be healthy, healthier, or at least as healthy as we do with our existing business.
If not, then should we just put more in the existing way of going to market? But then of course there might be a limitation also in the ability for you to do that, given the size of the team, the capacity or so, that, but those are good trade offs to think about.
Brian Graf: And this brings us to a semi operational point. Once you've decided that is the right decision to, from a go to market perspective, to invest in a B2B SaaS company, to acquire a company, what from your perspective are some of the more operational factors that you would consider?
When acquiring a B2B SaaS company from a personnel standpoint, from even a marketing strategy standpoint, how do those play into that decision for you?
Stijn Hendrikse: I think what's often undervalued is the ability to execute. If a B2B SaaS company has an amazing machine of execution capability, that's very valuable to acquire. If you're, for example, on the verge of growing. Into a completely new stage of scale. If you're going from a four or 5 million business and you want to get to 10, 15, 20, a B2B SaaS company that's real, that has a real culture of like being data driven, having an ability to onboard people very fast, having an ability to do good, like a, a B testing of new ideas.
That's a great thing to add. Versus a bunch of creativity and how to do those things that are more typical for a smaller early stage B2B SaaS company. Maybe that's not as good to add to your company because you don't want more of that. You have plenty of that. You may have just outgrown that, so that would be an example, Brian.
Brian Graf: How would you look at something you've made the acquisition and you're merging the two teams together. There's inevitably redundancies. Even just focusing on go to market. How would you take a look at that? Through that and making those tough decisions on who to keep and who to let go.
Stijn Hendrikse: I go to one of my go to tools. It never fails. Implementing OKRs has always been a great way of also establishing what are the roles and responsibilities of everybody on the team? Do people know why they're here and what success looks like? If a B2B SaaS company has those, then look at those.
If they don't, see if you can implement them relatively fast. And people are able to articulate why their role is important to a good, clear objective. And then are able to articulate what success looks like for that role in the next three month period, which is the key result. I think that's a great way to get a very quick assessment of a team and the value and the dependency on specific roles.
Brian Graf: In particular, taking a look at those: our objectives and key results and seeing how they layer up to the B2B SaaS company's goal or your department or your B2B SaaS company's goals as well. Some may be very well articulated and very well organized, but they just don't contribute to the overall B2B SaaS company success.
And that makes your decision a little easier as well.
What would you say would be the most important things to consider from a marketing strategy, brand strategy perspective. If you are acquiring a new product. That if you're acquiring a new product and deciding how to go to market with basically two separate products. You could combine them.
You could think about how you combine the brands? Do you leave them separate? What channels do you execute against if you're executing both in the same channel? How do you handle that? What are the big picture strategy factors that you look at when combining two products in an acquisition that would be useful for listeners to know?
Stijn Hendrikse: The last thing you want with an acquisition is to confuse your audience more. I was at Microsoft for, if you know, for the first half of my career. And when we acquired, we acquired a lot of companies. And we acquired a B2B SaaS company that had a strong brand and a strong positioning, with a lot of positioning equity.
What comes to mind is Skype. Skype was a B2B SaaS company from the Baltic Republics that had a strong, especially in Europe, strong brand recognition for instant communication, both voice and some text messaging as well. And what was interesting is that Microsoft had multiple technologies that did similar things, but we quickly Like recognize Skype, of course, is a very important brand that we definitely wanted to incorporate.
Where in other cases, when you buy a B2B SaaS company, you don't want that brand to dilute your existing, like the Microsoft Office brand. We did a lot of acquisitions that of course were not going to be helpful if Microsoft would be confused that Microsoft Office was now suddenly Microsoft Office X or Office Y just because it had this new thing added to it.
So that's of course for a small B2B SaaS company a little harder to determine. If you have a very strong position and you have great brand equity, et cetera, it still could mean that something you're acquiring is even better. And you don't necessarily know right out again. It's hard to judge that based on the existing businesses, both in isolation, because some of those parts could give you a completely new dynamic.
But there's a couple of simple rules. Don't change things unless you know that you can make them significantly better. That's whether it's positioning, brand voice, brand visuals, et cetera, logo, a name. And when you do so, make sure you're going to be able to do a good job. Don't do things halfway.
The first startup I did after leaving Microsoft was a cloud ERP B2B SaaS company called Acumatica. And I started there running basically the commercialization of the B2B SaaS company. We had a product and we had a name, but the name wasn't great. I come out against five syllables. Nobody would tell you that that's a good name.
So when I arrived there and I was the chief revenue officer, I owned basically everything except the technology. Of course, a big question that the investors asked me was: we should probably change the name? I said, ah, that makes sense. There's a lot of logic behind assuming that that would be a good idea.
And we looked at that, and of course there are better names than a five syllable name. And especially at that point when Acumatica had literally no significant amount of customers. It was a early stage, so it wouldn't have been that risky either to change the name. But I looked at the resources we had and the amount of time we had and the amount of people and there were so many other things that for me had a bigger impact and more potential that we ended up not changing the name.
We did, of course, some brand work. We created the logo that Acumatica still has and simplified the branding a little bit from a visual and voice perspective. But we spent most of our calories on the real positioning from what Acumatica does? What are the key promises we make to customers? We ended up deciding to go with Acumatica.
For a partner only a channel only go to market. Those were much bigger decisions and they have far more impact than the name. And what happened to Acumatica's name today, I think it's fine because people get used to it. And like, there's many other brands that have long, complicated names that are not necessarily great in isolation, but, when people start to know them very well and the brand equity becomes the value that gets accrued over time, it's fine.
And that happened to Acumatica. That was a great example of where Acumatica also was, of course, part of multiple transactions and either partnering with other parties and at some point getting a large investment where people could have decided to, to paint over the name. And so they didn't.
It's a great example where I think you have to be very thoughtful of only changing things that you can make significantly better.
Brian Graf: I completely agree. On the flip side right there, I have seen some companies who have acquired a B2B SaaS company and have maybe glossed over some of the intricacies of merging the two teams, or had a little bit of hubris around the synergies that they That they could provide with the teams that they had in play and actually ended up having to service to go to markets with the same team that was used to service one.
Right? Then setting themselves up at a disadvantage there where their team couldn't handle going to market effectively for both products, which ended up biting them later. So it is something that you need to think through. I couldn't agree more in terms of just don't do something half right, it's much better to limit your scope and do it much better, much higher quality than spreading yourself too thin.
Okay, last question for you on this. What would you, now that we've gotten the theory behind it, and of course there's many scenarios that would change this, but what would be some of the general Buckets that you would look at to establish a 90 day plan after acquiring a B2B SaaS company from a go to market perspective. I'm sure that there would be some sort of an audit period and you'd have to get some strategy and in play But what what would you be looking at in those first 90 days?
Stijn Hendrikse: Let me ask you to give your version first Brian and I'll come up with mine.
Brian Graf: Of course, it always depends right on the scenario and why you acquire the B2B SaaS company, what the teams are, etc. I would be cautious about being too gung ho in the first 90 days in terms of big changes. If I were the go to market leader for a B2B SaaS company that just acquired another B2B SaaS company, I would probably, for the first month or three, depending on how complex it was, maintain my current go to market focuses just because, again, I don't want to change something unless I know that I can make it better.
I don't want to have any hubris about my knowledge of the B2B SaaS company, the new segment that we're entering, et cetera. So I would do a lot of learning and watching for the first few months. While I'm doing that, I would want to audit the new B2B SaaS company's product and marketing capability.
How good is the actual product market fit in the market? Does the B2B SaaS company have a good, solid marketing strategy? Are they solid executors, to your point. Do they have the right data in place? Do they have the right goal system in place? And then according to what I find there I would start to rebuild right and fill gaps with my team. We talked about the team redundancy thing there.
I probably want to make those decisions within 90 days and then I would start to work on how we can integrate these two? Products, brands do we leave them separate? Do we bring them in together? And I think from there, the go to market strategy naturally comes into play.
And it's much easier to make those decisions in an educated way that can have the most impact long term. I'm sure the temptation would be to move fast and make a bunch of changes right away. But I tend to like to gain a little bit more information, I guess, before making those decisions.
Stijn Hendrikse: In the 90 day plan, the people assessment and the customer assessment would be my main priorities. Because the product, assuming this is a successful business that they've had. Financial stability and a good reason to make an acquisition from, from that perspective, you can trust more of that assessment before you meet the team, but the team itself understands what actually is going to impact them based on the acquisition, having just happened.
And making sure you've retained talent because the first people to leave might be the best people. If they don't like what happened. Or they don't feel appreciated. That's spending a lot of time with that. And a lot of that can be combined with assessing a lot of other information because people want to feel useful and feel relevant. So that's a great way to both get a lot of work done and understand the business, but also make the most, the most important, maybe talent feel appreciated. So it would be one. And then the other, I would like to be at Kalungi as well. We love to talk with customers as early in an engagement as possible.
To turn it into testimonials to get, I would do the same thing. Get a customer list and see how many you can find that are willing to talk either because they have things that they like to change, or they're just happy and they'd love to voice that support. But those would be the two things I would add to what you just described.
Brian Graf: That's perfect. Combined that gives you a solid tactical plan that you can take into one of those acquisitions to make the most of it. I also think that from a personnel standpoint to your earlier point, I think that you can use something like an acquisition as an opportunity to highlight people who are high performers, but haven't gotten the recognition that they deserve, or especially high performers on the new team.
This is a nice opportunity to give them a exciting direction in the B2B SaaS company. And give them responsibility that they may not have been able to get, et cetera. And so it's a nice motivator, but to your point. You need to keep that the best talent happy or else you're in a world of hurt.
Okay, well, let's wrap it up there. Good stuff.
Thank you to Adriano Valerio for producing this episode and the Kalungi team for helping us make this whole thing work. And of course you for choosing to spend your time with us as a reminder, all the links we mentioned in this episode can be found in the show notes.
If you want to submit or vote on a question you'd like us to answer, you can do that at Kalungi.com/slash podcast.
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