Analogies between Tuck-in M&A and portfolio investing returns

In portfolio investing like venture capital or private equity, you are balancing risk versus reward to obtain a portfolio or fund return.   Some deals may be a home run and some may be a single or worse a zero.   Similarly in M&A you are balancing risk versus reward.  Customer or book acquisition where you acquire only the customers that transition to your platform is low risk and accretive but not huge rewards from one transaction.  A tuck-in acquisition that dramatically improves your product or provides a best of breed adjacent solution to cross-sell maybe be higher risk but offers much higher reward. Auren Hoffman wrote a thought-provoking post called M&A is a Power Law .  He provides great commentary of grand slam home run acquisitions like Google buying YouTube, Facebook buying Instagram and Priceline buying   These are legendary acquisitions and the best of serial acquirers like Google, Facebook, and Priceline.  For example, according to CB insights Googl

Conducting Layoffs

Having been a leader through many layoffs in my career (not surprising since I spent the first part of my career at GE with "Neutron Jack" Welsh ) and they always suck.   At times I have felt like Ryan Bingham in the movie Up in the Air . (except unlike him layoffs had a high personal toll on me). The folks at Andreesen Horowitz put out a timely post on Planning and Managing Layoffs . It is an excellent resource and a great checklist for planning and conducting reductions.   However, the post doesn't fully communicate the amount that layoffs suck and the level of emotional impact both on the affected person and the manager forced to conduct the layoff.  During the crash of 2000 and 2001, I was a leader in a firm that went through more than five rounds of layoffs.   Yes, we could have cut deeper earlier but the downturn had repeated waves of economic impact with some geographies continuing to produce and while other geographies were negatively impacted early. 

Great list of B2B GTM metrics

Recently, Martin Casado from Andreessen Horowitz summarized his 11 key GTM metrics for B2B businesses . He starts with CARR (contracted annual recurring revenue) which is the single best metric for the health of the business.  This forward-looking metric leads to recognized recurring revenue and assuming a high retention rate can look like an annuity.  Frequently, the question is "if you sold nothing else this year what would your revenue be?"  One key assumption behind CARR is that the contract lengths should be one year or more in duration.   Many times folks will multiple CMRR (contract monthly recurring revenue) by 12 to obtain a CARR but this can be misleading.   In the B2B enterprise world CARR is predominately used. Martin's 4th and 5th metrics are Net Dollar Retention and Gross Dollar Retention.  Both are important and just getting one or the other of the metrics can obfuscate what is really happening with the business.  The measurement of retention is one o

Provocative Selling in the Covid-19 world

I watched a great video interview by DreamIT Ventures  of Geoffrey Moore the author of Crossing the Chasm .  Crossing the Chasm is a must-read for all SaaS entrepreneurs.  He has shaped my thinking about how to target and break into markets.  He co-authored a powerful HBR article on Provocative Selling  during the great recession. The HBR article is as relevant today as it was back then.  The video provided a great discussion of selling during the Covid-19 crisis and the need to provoke your customers that you can help with their most pressing challenges.   The provocative selling approach he outlined depends upon a very consultative approach that is based upon empathy for the customer's biggest pain points. Moore highlighted that social distancing is providing a "forecast" into the emerging digital world that will exist post-crisis.  Geoffrey's most stimulating observation was that the challenge in the new world will be "digital management".   He state

Types of Tuck-in Acquisitions

Tuck-ins are classified by their primary purpose or benefit.  In many cases a great acquisition fits multiple classifications. Product Expansion/Improvement We typically target smaller companies with unique technology, core expertise, and some reference customers.   An acquisition that acquires a best in class feature or module addition combined with the key people who built it and some great logos accelerates your product roadmap years with a higher probability of success. The real trade off in this acquisition type is build, partner or buy decision.   When you think of building, remember its not just an MVP version that is required.  You need to build the MVP, get customer feedback, and then sell and implement a group of reference customers.  When you think partner, its not just finding, negotiating, papering and announcing the partnership, it is also educating the partner and then selling and implementing a group of reference partners.  Lastly, the buy decision is not only so

Cross Border Tuck-ins

I have complete a number of cross-border deals both as an operator and investor (in Canada, Ireland, India, and China) and pursued deals in a number of other European countries.  Most were on the buy side but a few I was on the board of the selling entities. Some observations: More difficult to execute because of the added complexity Different laws and regulatory requirements GAAP does not equal U.S. GAAP Different nomenclature and jargon (for a trivial example, in the U.K. a term sheet is called the Head of Terms) Consume more time and transaction costs Cultural and geographic differences  Negotiating style differences (in a few cases blunter than in the U.S. but in many cases less blunt) Potentially language differences, if not in the deal documents but in the diligence materials Distance and time zone differences make it harder to deepen relationships quickly Typically you have two law firms (your incumbent M&A law firm and a local firm in the geography).  I

Tuck-in Acquisitions Success Patterns and Anti-Patterns

I have been involved as either an entrepreneur or investor in north of 20 tuck-in acquisitions. Some were transformative in terms of talent, Total Addressable Market, key product capabilities, key customer logos, or revenue growth (or all five).  Others have been modest to less than worth the deal.  Successful tuck-ins require blood, sweat and tears to work.  A former executive colleague at a company were we did seven acquisitions said "We did seven acquisitions none of them right".  Yet, two of the seven propelled the company to a very successful IPO. Some of my criteria and patterns for success are: strategic or financial fit  Strategic fit meaning directly on the Product Roadmap and not only accelerates the product development timeline but optimally the acquisition of reference customers Financial fit would mean very accretive without revenue synergies (for example, buying a book of business that could be converted to your platform right away) cultural fit Compa