In 2021 the Software Equity Group reported that there were a record 3,400 software M&A deals. There are a lot of reasons companies do M&A. Increasing revenues, increasing market share, accelerating product roadmaps, and growing competitive differentiation are common drivers. A key aspect is the ability to cross-sell. Cross-selling the acquired company’s products into your existing customer base is one opportunity. So is selling your core products into the acquired company’s existing customer base. Revenue from cross-selling is an important factor in almost every M&A financial model, yet many companies struggle to achieve cross-selling objectives. Cross-selling is critical for SaaS revenue growth.
In this article we will talk about:
- SaaS Cross-Selling Scenarios
- SaaS Product Merger Integration Scenarios
- Company Merger Integration Scenarios
- SaaS Product Merger Integration Scenarios
- SaaS Cross-Selling Tactics
There are lots of examples of SaaS companies that succeeded with cross-selling. Salesforce is a great example. Salesforce has conducted over 60 acquisitions since it was founded Some notable acquisitions include ExactTarget (the foundation of Marketing Cloud), Pardot, Mulesoft, Tableau, and Slack. Salesforce has posted incredible revenue growth:
While Salesforce’s organic user growth has been outstanding, its ability to cross-sell acquired solutions like Pardot, Tableau and Slack have significantly contributed to its revenue growth. There are many other software firms like SAP, IBM, Oracle, Facebook, and Google that have used M&A and cross-selling to grow revenue. With over 3,400 SaaS acquisitions in 2021, many product managers are facing the challenge of hitting cross-selling revenue targets.
There are two main cross-selling scenarios – selling an acquired company’s products to your existing customer base and selling your products to an acquired company’s existing customer base. Each scenario presents its own opportunities and challenges.
The first scenario is selling a newly acquired company’s products to your existing customer base. For example, in 2019 Salesforce acquired Tableau. Tableau was the #1 provider of analytics technology for large enterprises. Salesforce quickly integrated Tableau with its CRM and other applications. Tableau was positioned as an add-on product for many Salesforce offerings. It introduced three packages that ranged from $75/month/user to $150/month/user.
The second scenario is selling your company’s products to an acquired company’s existing customer base. Prior to the acquisition Tableau had over 86,000 customers. While some of those enterprises already had Salesforce, many did not. Post-acquisition Salesforce became the logical first choice for Tableau customers looking for CRM or SSFA solutions.
When it comes to cross-selling acquired SaaS products you need to understand the various scenarios for integrating acquired products. First, you should understand the various scenarios for integrating the entire acquired company into the acquirer’s company. Second, you should understand how a specific product will be integrated into your product portfolio. Both scenarios will impact how you approach the SaaS cross-selling process.
There are three main scenarios for integrating an acquired SaaS company: Strategic Business Unit, Hybrid Business Unit, and Full Company Integration.
In this scenario, the acquired company continues to operate as a standalone entity. By definition, the acquired company’s stockholders are retired through some type of payout (cash/stock). The board of directors is also retired, although in some deals one or more members of the board may join the board of directors for the acquiring company. The CEO, executive team, and employees are largely left intact. Some positions may be eliminated at the closing of the deal for housekeeping purposes – these employees would have been terminated anyway – the acquisition just provided an opportunity to do it now instead of later.
In some cases, the CEO and one or more members of the executive team may decide to leave at the closing of the acquisition and be replaced by individuals from the acquiring company. This is done sometimes to ensure that there is “an adult in the room” for the new business unit. Depending on the structure of their employment agreements executives of the acquired firm may have to commit to staying with the new business unit for a specific period of time to maximize their compensation from the transaction.
n this scenario portions of the acquired company are consolidated into the acquiring company, while the remaining parts continue on as a business unit. Typically, overhead functions such as accounting, legal, tax, human resources, IT, and data center operations are consolidated into their equivalents in the acquiring organization. Core functions like sales, marketing, product management, development, customer service, and professional services stay in the business unit. The primary driver of this strategy is to maximize efficiency and productivity while preserving the unique aspects of the acquired company’s talent, capabilities, and culture.
This is the most common scenario. In this case, the operations of the acquired company are fully incorporated into the operations of the acquired company. The various departments of the acquired enterprise are rolled into their equivalents in the parent organization. For example, product managers would report to the VP of product management or the Chief Product Officer. Product Marketers join the acquiring company’s Product Marketing Team, salespeople join the sales team, etc. Middle and upper management positions are often eliminated. Depending on the potential the acquiring company sees, investment in development and customer support can be reduced, sometimes significantly.
If you would lke to learn more about the M&A process and acquisition integration scenarios check out Product Managers: How to Survive an Acquisition.
Depending on the acquire’s strategy, SaaS products may have different product integration scenarios.
To begin with, most acquired SaaS products go through a brand integration process. Brand integration involves updating company names, websites, collateral, and even email signatures and voicemail greetings. Recently, two companies I was studying were involved in acquisitions. On the day the acquisitions were announced, their new branding was launched. Positioning an acquired company as a strategic business unit is most often used.
When it comes o product names, often the original product name is retained, like Salesforce did with Tableau. When serial consolidator Broadcom acquired CA (fka Computer Associates)), they kept all of CA’s product names. You can check them out here. In the 1990s I was a senior M&A executive for Stering Software, another serial consolidator of software companies. They had a policy of renaming all acquired products. This involved not only brand items like websites and collateral, but updates to the product software and documentation. To this day I’m still ashamed to be an accomplice in renamiing Texas Instruments Software’s Information Engineering Facility to COOL:Gen.
The next step is to launch some initial product integration. This usually involves some ancillary product functions like single sign-on. Single sign-on enables users to readily access the acquired product from within the acquired company’s core products without having to exit and sign in again using different user credentials. Another common integration involves billing systems. Often one of the first integrations built is to the parent company’s existing billing and collection systems.
The common aspect of all initial integrations is that they focus on ancillary not core product features. These integrations can often be accomplished in weeks, not months.
Many companies stop after completing brand and initial integrations. Those types of integrations meet the needs and objectives of the acquiring enterprise. Many SaaS companies go much further and completely integrate acquired products. This process can often take months, if not years to complete.
One example involves user interfaces. If an acquired product, like an analytics package, is integrated with a core product, like a customer relationship system, the two systems will often have different user interfaces. Things like fonts, colors, menu structures, navigation look and feel operate differently. A common integration task is to unify the user interfaces so there is one, consistent paradigm used across all of the products. This minimizes confusion and training needs for users. It can also minimize longer-term product development maintenance activities.
Another example involves functional integration. Recently I studied a company in the sales enablement space. Their core product was a content management solution for salespeople. It is very sophisticated, designed to support the needs of all types of sales teams in high tech, pharma, and financial services. It provided comprehensive functionality to create, store, catalog, and distribute content internally to sales teams and externally to partners and prospects. Recently they acquired a company that specialized in engagement. The solution empowered customer-facing teams to engage buyers remotely or in-person and measure their responses in real-time.
A challenge they face is that the acquired product had its own content management engine. Unfortunately, it only had about 25% of the capabilities of the acquirer’s existing solution. While they completed the branding level integration quickly, they still face months of work to replace the engagement’s CMS.
The degree of functional integration will impact the ability to cross-sell the solutions to the large installed base of existing users.
Here are six tactics you should use when approaching cross-selling SaaS products.
Cros-selling is different than selling to net new customers. The universe of potential buyers is known – your customer base and the acquired company’s customer base. However, the potential buyers of the cross-sold solution may be different than the buyers of your original solutions.
As Gartner has pointed out, the buying process in 2022 has become complex. In 2021 research from Forrester, the number of meaningful interactions on average for a buyer increased from 17 in 2019 to 27 in 2021. 47% of B2B purchases involved four or more people. In 2021 that number had grown to over 60%.
The journey to cross-sales starts by identifying who is a customer organization would be involved in the buying decision.. The marketing and sales team of the acquired company are obviously an excellent source of knowledge. While the economic buyer might be the same as for your cor products, the user buyers, technical buyers, and coaches are likely to be different.
Understanding how your cross-selling solution is positioned against the competition is critical. Just because your company now owns a solution does not mean that existing customers will automatically buy it. If your company acquires a product that would be considered ‘niche’ you will face challenges when competing against ‘leaders’. You need to adapt your SaaS cross-selling tactics to reflect the reality of the marketplace. If the acquired product you are cross-selling to your customer was considered to be the #5 solution in the market, and the majority of your existing customers have solutions from the #1 to #3 competitors you face a difficult cross-selling scenario. Your customers are not going to ditch their existing solutions without a compelling reason to buy. Many acquisitions have stumbled when it comes to cross-selling acquired solutions. You always need a compelling reason for customers to buy cross-sold solutions.
You need to determine and then exploit the compelling reasons why an existing customer should buy your cross-selling solution. Can you offer superior functionality because of how you integrated your solution? Can you offer significantly lower costs and total cost of ownership? Does the prospective customer perceive value in having just ‘one throat to choke”? The definition of the critical reasons to buy is a very important marketing and sales task before starting cross-selling efforts.
Nx, build a list of your existing customers who may be prospects to buy your acquired solution. Identify who the candidate buyers could be. Unlike traditional SaaS sales where you have to rely on demand generation techniques like Google ads or cold calling to build a suspect list, you already know the universe of potential buyers – your existing customers.
Rank the target customers to attack first. Do they already have a competitive solution? If yes, when is the contract up for renewal? Are there some verticals, company sizes, or geographies where the acquired company’s products have been more successful than others? Prioritize those targets first. Are there situations where the acquired company’s products have struggled significantly in the past? If your compelling reason to buy cannot overcome those factors, assign a low priority to those opportunities.
Build a formal marketing/sales campaign to attack the targets in priority order. This is where you can leverage your compelling reason to buy. Create a compelling offer – for example discounted prices and commercial terms. If appropriate, create a free trial program like you offer for your core products. Create marketing materials like web pages, blog articles, webinars, email sequences, customer success stories, evaluation guides, etc. Add specific plays in your sales playbook based on the successful experiences of the acquired company’s sales team.
Track and regularly report on your cross-sell campaigns. Focus on outcomes, not vanity metrics. How much revenue has been generated? What percentage of eligible customers have purchased the cross-sold product? What is the win/loss percentage? What lessons can be learned from the lost opportunities?
Software sales executives are ruthlessly efficient. Sales compensation plans are the ultimate expression of what is important to a company. Sales execs will invest their time to get the most commission/bonus possible with the least amount of effort. Sales compensation for cross-sold products should reflect the objectives of your company.
Most sales teams do not have product-specific quotas. In my career, I have been responsible for several professional services organizations. We did not have our own sales team, the product sales team sold our services along with the product. Unfortunately, the commissions on professional services were about one-third of what software product sales paid. This made business sense for the company, the gross margin of professional services was 25% of what product sales generated.
While professional services were critical for customer success, account execs focused on getting more dollars allocated to products than services – this maximized their commission payments. The resulting misalignment caused professional services revenue to suffer as well as long-term customer success. Salespeople would get fired if they consistently missed their quota. No salesperson who made their overall quota was ever fired for missing their professional services quota.
Misalignment between cross-selling incentives and regular incentives will cause problems. Many companies use sales SPIFFs to drive initial cross-selling programs. A SPIFF provides a real incentive for the sales team to invest in learning how to effectively cross-sell acquired products.
Many companies offer incentives to non-sales personnel for cross-selling acquired products. Customer success and professional services people can identify and develop qualified cross-selling opportunities. These individuals should receive training in the same sales playbook as your regular sales team. CS and consultants should be tasked with developing cross-selling opportunities. Companies that have relied on these non-sales resources exclusively for cross-selling, however, rarely achieve their cross-selling revenue targets. Once an opportunity has been qualified, the regular sales team should take over.
Cross-selling acquired products is a critical success factor for many acquisitions. Cross-selling acquired products to your existing customer base can drive significant revenues and profits. To be successful, your organization needs to understand the product integration strategy for the acquired products, and the compelling reasons an existing customer should buy the acquired products. There are six common tactics you can use to maximize cross-selling success.
If you would like more information or help on cross-selling acquired SaaS products, drop me an email at firstname.lastname@example.org.
Also published on Medium.