INTRODUCTION
For every successful SaaS company that has grown over 50% year over year — including such well-known companies as Zendesk, Box, Hubspot, and New Relic — there are thousands of startups that have failed.
In fact, according to a recent McKinsey study Grow Fast or Die Slow,
“IF A SOFTWARE COMPANY GROWS LESS THAN 20% ANNUALLY, THERE IS A 92% CHANCE OF FAILURE.”
— McKinsey, Grow Fast or Die Slow
When you’re a startup, it’s fairly easy to double revenues in a month (for example, going from $10K to $20K). As you start to grow, you can expect to double revenue in a quarter, then in a year. But as you get larger, it’s very, very difficult to double your revenues in these same time frames — after all, how many companies grow from $50M to $100M in one month?
So how can SaaS companies grow, grow fast, grow efficiently, and keep growing?
In working with hundreds of SaaS companies, we’ve learned that the solution to sustaining a high growth rate is to diversify your approach to growth and embrace multiple growth strategies.
We’ve boiled it down to the top 10 essential growth strategies: this article highlights the tenth – Strategic Acquisitions.
STRATEGIC ACQUISITIONS
STRATEGIC ACQUISITIONS ARE A NEXT-LEVEL GROWTH STRATEGY.
For those companies that have enough cash to fund an acquisition, it can be a smart move to reinvest that cash into future growth.
Access to capital is only one of many requirements for SaaS businesses contemplating strategic acquisition. In addition to cash, an acquiring company also needs a strategic plan that fits in with their business model and day-to-day operations.
They also need the infrastructure in place to support all product lines in one system so that upsells and cross-sells across product lines are workable and the customer experience across product lines is seamless.
Successful acquisitions can help a growing SaaS business increase their market visibility and market share while enhancing their offerings to build out a more comprehensive solution.
STAR EXAMPLE: SURVEYMONKEY
SURVEYMONKEY HAS SKILLFULLY USED STRATEGIC ACQUISITIONS TO MAKE THEM THE WORLD’S LEADING ONLINE SURVEY PLATFORM: BETWEEN 2010 AND 2015, THEY ACQUIRED SIX COMPANIES — ALL OF WHICH HELPED THEM INCREASE MARKET VISIBILITY AND MARKET SHARE WHILE ENHANCING THEIR OFFERINGS AND BUILDING OUT THEIR SOLUTION (WHILE FOLDING IN THE COMPETITION).
Even today, SurveyMonkey cross-sells a number of products that came from these acquisitions.
Their first acquisition in 2010 was Precision Polling which was, according to TechCrunch, “like SurveyMonkey for phones.” Just a few months after this comparison was published, SurveyMonkey took the hint, acquiring Precision Polling to expand their surveys from online to phone.
In 2011, they acquired WuFoo for $35M, expanding their product line with this easy-to-use solution for building online forms. And they acquired rival MarketTools, through a partnership with a private equity firm. This acquisition yielded them three new products, 1.7M survey users, 2.4M panel respondents, and some big name enterprise customers.
SurveyMonkey continued their push into the enterprise market in 2014 with the acquisition of Fluidware, a competitor from Canada, with deep-dive features that appeal to businesses.
And in 2015, SurveyMonkey expanded into app insights with the acquisition of Renzu, and took additional steps to expand their solution with the acquisition of TechValidate, an automated content-generation platform, intended to “help every customer now get more from their survey results,” according to SurveyMonkey’s then CEO, Bill Veghte.
All of this acquisition and growth was a prelude to the brass ring for any startup: their IPO in September 2018. SurveyMonkey’s initial public offering was priced above the expected range, giving them a market cap of $1.46 billion. Average revenue per user keeps climbing (as of their February 2020 earnings, average revenue was up 10% from the previous year). And the acquisitions keep coming: In March 2019, SurveyMonkey acquired Usabilla, an Amsterdam-based website and app survey company and in August 2019, SurveyMonkey acquired GetFeedback, a San Francisco-based customer experience management company.
KEY TAKEAWAYS
TO MAKE STRATEGIC ACQUISITIONS, SAAS BUSINESSES NEED:
1. The ability to migrate customers from acquired companies onto one main platform for improved accuracy and efficiency of back-office systems
2. Consistent invoicing and billing for seamless customer experience
