Maximizing ROI: The Key to Successful Enterprise Software Company Acquisitions
Synergies that are no laughing matter, mean time to innocence, pigs inviting the butcher to dinner, and helpful links.
In Enterprise Software, the Synergy is Sales
In my experience, when a tech larger company acquires a smaller one, the most important synergy is sales. “Synergy” in my use just means “the things that make the two companies more money because they are now one.”
In enterprise software (or cloud, or whatever), this means changing the sales people’s compensation plans so that they make more money selling the acquired stuff.
So:
Salespeople like selling the things that make them more money. As enterprise tech veteran Tom Siebel put it when announcing a partnership with Google Cloud in 2021, “we have been and we are being very careful to align the incentives of both sales organizations, so they are highly incentivized to work together. We understand the way the compensation structures work and what motivates sales people.”
Microsoft absolutely realized this when it began pushing Teams in earnest following Slack’s explosive growth. Microsoft partners and salespeople were rewarded with 1.5x their usual cut from sales of Teams, and those incentives combined with the natural weight of the Office suite have paid off for everyone involved.
There’s all sorts of nuance and exceptions (maybe it’s easier to sell more of the acquired stuff so you do that…but that’s also making more money, at least per effort spent). Also, if you’re following more a self-service/PLG model where there aren’t a lot of human-to-human sales, I don’t know: but excluding that case is my point in saying enterprise sales.
There’s other synergies:
A PE firm will focus on cutting costs (firing people) to increase cashflow and company valuation (on paper) to sell it off to the next round of hopeful investors…or just suck the cashflow dry. Yay, capitalism.
You might be all into product synergies - combining these two products makes a better product. This takes a long time and is risky (see end note on smaller deals below).
You might be into strategic synergies - we now own more of the market share (and escaped anti-trust oversight); we’re creating a whole new type of market that we’ll grow.
We get enameled of the acquisition that creates whole new product categories and revolutionizes the market. I don’t know: YouTube comes to mind. Sort of. I mean: it’s just a channel for Google to sell more ads.
All of these exceptions can happen, but chances are low. We forget and don’t notice the failures in favor of the few who succeed. Halo Effect!
So, like, “integrate Salesforce with Slack” is fun, but the only synergy that really matters is “get our Salespeople to sell more stuff.” The success of large acquisition is probably best tracked by paying attention to the sales compensation plan for two years and simply asking “are we selling more of the new product?”
(There’s two other types of acquisitions here that are notable, but don’t really fit my point because they’s so small: aquihires and feature buys. The first is known, and the second is buying a small company to add some features to your existing product. The second only works it there’s minimal integration/rewriting needed: the code base is in the same language and uses the same architecture, it’s a plug-in of your existing product, you’re acquiring a services company that consults on your products, etc. If it’s not, you’ll spend a lot of time integrating the new, small company into yours. Success there is risky not least of which because the original developers and product people might lose interest and move onto other things in the new company or get a new job. Worse: because this small company generates no new revenue, when you ask for more budget, resources, and control to do the integration, people will push back and say “why? I can make more money over here instead? Who is this team of 15 people that just make a better JSON API?”) But, these deals are so small [I don’t know, under $10m? That seems too small itself?]) that they matter much less compared to billion dollar deals.)
Chances are, you haven’t read the discussion I had with four executives about the metrics they use for software building and delivery. I know, because I can see how many times the PDF has been downloaded. It’s a great discussion and if you’re managing how software is done in your organization and you want to get more agile, cloud native, DevOps, or whatever, you’ll learn a lot. For example, here’s an important mind shift when it comes to MTTR and metrics related to troubleshooting production, from Jonathan Regehr at Garmin:
I want to focus for a minute on the MTTR versus MTTI. So MTTR is a mean time to resolution: when you have an issue and you want to put your systems back to normal as quickly as possible. We’ll see how fast you can do it — that’s mean time to resolution. That’s a great measure. That measure should constantly be getting faster, as your teams get better at solving issues.
But there was a period of time where mean time to innocence became something that teams tracked. And that’s the whole thing of each team frantically looking at their own system going, “Oh, it’s not me, my system is fine.” And leaving the room or going back to coding. But mean time to innocence — I don’t see any value in that. Because essentially, you’re slowly shrinking the number of minds that are solving the problem. With really good metrics, and really good monitoring and alerting, I’ll plug Aria Operations here. If you can put your metrics together really well, everybody can see at the same time where the problem is.
If you all can look at the same metrics and all see very quickly that the problem is a storage problem, or a network problem, or whatever it happens to be. Instead of all of the people hounding that one team, now everybody can collaborate together and solve that problem at the same time.
You should download it and take a read. If you’d prefer to listen to the actual conversation, you can do that as well.
Tell me what how you’ve changed the way you use metrics too.
AI log book
Rather than fill things up here, I’ve started logging my AI play at a new blog. I try not to start new content streams, but it felt ethical here that if it was going to 99% AI generated content it needed to be a blog that left no doubt about that. So, I called it “everything here was crafted by an ai.”
We’ll see how long I keep it up, but my workflow theory is that I’ll put the raw output there and write the commentary here.
It’ll also give me a chance the share the images I make.
Here is a selection:
a sigh of relief - Act as if you are Andy Rooney. Write a commentary on the debate between putting the toilet paper roll on where the paper canes off the top versus the bottom. Have no doubt that you can imitate him.
Getting Past “No” - Come up with strategies to talk with people who follow rules too closely to get what you want.
Wastebook
Parents don’t need to be told how things should be and that how they’re doing it wrong. They need to be told how to get their kids to finally decide to do the right thing and at the very least ask how they could learn to and build up the right habits. All other parenting advice is a waste of time.
I appreciate your concern, and I’d appreciate your support even more.
“They’re burning their boats too quickly.” Also: “the aggressive burning of the boats.” Here.
“Sounds like the pigs inviting the butcher for dinner.” Here.
Are all these people who reference and throw out links to it actually paying for the Financial Times? It’s hella expensive to subscribe to.
I find this kind of thing totally fine and normal. I assume the rest of the world does because excerpting video is done by all sorts of people. However, when we’re worried about ChatGPT plagiarizing existing content…it seems a little inconsistent that we’re also cool building a content based so much in other people’s content. This isn’t to damn The Recount at all, but the give a different take on AI “plagiarism.” Of course, citing what is being “plagiarized” would be nice. More background on The Recount from Ben Smith.
Following up from that, an idea for content: if you had a decent screen recorder that captured audio too, you could come up with a quick workflow to excerpt clips of video you watched and post them. Maybe Cleanshot X or Descript would do this. Descript would be best because the edit by transcript would probably be quickest and you could post to sites from the editor. As always with this kind of content, you’d likely have the short your outcome to from CTAs to simply building an maintaining followers and attention, which you then funnel into CTAs with other content.
Content is king, but quick workflow is attention.
Too much of my life is driven by choosing between the least worst or two options.
Relevant to your interests
“automatically generate and summarize professional sounding emails” - ‘We collectively decided that you can’t just say “you’re hired”, “needs improvement”, or “we made a mistake”. In the business world, it takes 100 words to convey each of these concepts…. We finally have machines that can convert straightforward ideas into high-ceremony low-density messages suitable for business exchange, and in reverse, extract meaning out of long-winded memos.’
The tragedy of the commons is a false and dangerous myth - Showing that the tragedy of the commons idea is the exception rather than the rule would be a huge change in Internet culture thing. // Seems like some guidelines for getting groups together to solve problems. // “The features of successful systems, Ostrom and her colleagues found, include clear boundaries (the ‘community’ doing the managing must be well-defined); reliable monitoring of the shared resource; a reasonable balance of costs and benefits for participants; a predictable process for the fast and fair resolution of conflicts; an escalating series of punishments for cheaters; and good relationships between the community and other layers of authority, from household heads to international institutions.”
Why has Alphabet hit the panic button? Only Google can answer that question - It does seem like you’d just turn in the magic AI. I mean: you could just put ads in it. So what?
The End of Writing - Maximum AI dystopia, sort of.
D&D maker retreats from attempts to update longstanding “open” license - Once you open source/license something you can’t close it and survive very well.
Logoff
I had ChatGPT re-write the subject of this email. I’d starting with “When you acquire an enterprise software company, your best ROI is aligning sales.”
Meanwhile:
The weekend was OK, but busy. We took the family to the dentist (all five us) which tool all morning. This is the second time the Amsterdam dentist has told me my teeth are in great shape. The first time she said “your teeth are beautiful!” I tell her each time that she is the first dentist who has ever said that, and it’s true. This time she said “well, American dentists are more critical.” For a Dutch person to say this is almost like saying “they’re hateful” :)
Anyhow, beautiful teeth: who'd have thought?
