I bootstrapped Contentstack for years before leading three funding rounds that raised $169 million. This allowed me to maintain control and validate the business model before focusing on scaling.
Our first acquisition wasn’t a traditional one. We acquired a group of technical experts from a company I founded because we needed an internal enablement organization to help customers through their digital transformations. Essentially, we got the band back together. I guess I developed a reputation for building in-house?
Until now.
In January, we announced the acquisition of a real-time customer data platform. Could we have built that technology ourselves? Yes, because we have what I consider the best engineering organization worldwide, including a large arm in India.
But we chose not to. These are the five non-techie criteria my leadership team and I used to lead us down that path.
5 Factors to Consider When Deciding Whether to Buy or Build
- Urgency vs. time-to-market.
- Company reputation.
- Capital investment.
- Target company size.
- Culture alignment.
Urgency vs. Time-to-Market
Everyone knows that personalization is the future of brand relevance. McKinsey research showed that companies that get personalization right generate 40 percent more revenue from those activities than those that are just average at it.
Yet personalization is the Achilles heel of most marketing departments. Every tech vendor is racing to find solutions. The marketplace is noisy, there are many incomplete offerings and brands are trying to make sense of it all.
So, acquiring this company filled a gap for us. We needed a data platform that fulfilled the promise of our personalization tool. How can brands personalize their content experiences without real-time data?
It would have taken us two to four years to build this data solution in our CMS. If we bought, though, we could integrate it within six months.
Ask whether the potential acquisition fills a critical gap in your offerings? What ground would competitors gain in the time if you chose to build? How could you recover from the lost time?
Company Reputation
The company we acquired built up expertise in enterprise data over 12 years. During that time, we were going deep on the content management lifecycle. So, the merger is a marriage of expertise from different POVs built over time. The combined organization will be stronger because of it.
Their longevity also means there’s an established customer base with built-in loyalty and trust. It proves the company has a track record of anticipating demands and meeting customer needs, even as an industry morphs around them. This is a sign of a good partner to bring in-house.
Ask yourself if the target company’s customer base aligns with your organization’s ideal customer profile. What is their customer retention rate? How have they weathered industry storms?
Capital Investment
An established company also comes with immediate revenue. Yes, there’s a higher cost because you’re buying the revenue, product, and all the talent (at least in our case) quickly. There’s a trade-off, and you need to justify the upfront cost in order to capitalize on the opportunity in the short term.
It was worth it for us because our new partner complements our offering and helps us fulfill market demands. All the financial models looking at the market opportunity told us this was a case of one plus one equals three.
You need to know whether the company is profitable. Is there potential to grow business with all customers due to the acquisition? What are the hidden costs like integration of systems, teams and operations?
Target Company Size
Our new partner was appealing because they were smaller than us but their technology and track record could have an outsized impact on our customers. Their size means it’ll be a less complex integration — on both the tech and people sides — with the ability to bring something to market quicker.
In this case, “small” also means niche expertise. But it’s a niche that fills a big hole in the industry, and that’s worth a lot.
Ask if the target company’s size is a strength or weakness? How long will it take to bring a combined offering to market the right way?
Culture Alignment
Well-intentioned acquisitions fail because they lack a proactive culture strategy. EY reports that culture is often a primary factor in the 70 to 90 percent of acquisitions that underperform. They also showed that organizations that use a human-centered approach to M&A are almost three times more likely to succeed.
So, don’t just rely on what’s written on a website. Just like you would assess a target company’s profits and losses, get close to its culture practices. Find out how it models, incentivizes and lives out its day-to-day. This means talking with a lot of people at all levels of the organization.
For us, working with good humans is table stakes. We wouldn’t consider acquiring any company if we couldn’t see ourselves working side-by-side with them every day. But we also really wanted to understand their values tied to customer obsession and innovation.
Decide what your non-negotiables are regarding culture alignment. Is the target company currently meeting them? If not, could you adequately address them post-acquisition? Do you have the right cross-functional team on board to assess culture alignment before the acquisition?
Acquiring another company is a big deal, and it’s also more difficult than it looks. It means bringing together two workforces, building trust with new team members, and uniting everyone under a shared vision. It’s no small task, but it’s also one of the fastest ways to scale in a competitive market. Sometimes, making that leap is necessary to position your organization — and your customers — for lasting success.
