How we identified strategic acquisitions & partnerships to increase our revenue

Companies acquire and partner with other companies for many reasons — for example, holding on to a premium position in the market, changing a growth trajectory, filling a gap in expected revenue, responding to competition, etc.

In this post, I share my experience as a CEO and CTO looking for strategic acquisitions and partnerships. Why did we need them, how did we identify them, what value did we add to our business, and most importantly, did we manage to get the 1+1>3?

Strategic partnership — responding to competition, the Social Listening partnership.

Between 2017 and 2021, I was the Chief Executive Officer (CEO) of a Social Media Management SaaS company. The company was acquired while we were at $52m ARR. How we reached this revenue is a story for another post. Here is how we identified and established a strategic partnership that helped us to increase our Average Contract Value (ACV) by 30%.

The story of this partnership started when we realized we were losing business to competition as our platform needed a set of features related to Social media listening. Our initial thinking about these losses was that it is not uncommon for your competitor to add features that you are missing. It does not mean that you must follow their product roadmap. You cannot win every deal. We operated under this assumption for some time. Later we learned that this assumption was wrong.

As I shared in Part-1 of this post about PLG, we experimented with different product value messages to learn about the value our user persona was interested in. As you can find on the chart below, Social listening appeared at the top of the chart regarding the value users were searching for in our product. This was the first time we learned about such a need at that level of magnitude. Unfortunately, our product was missing this functionality. What would you do with this fact?

We knew that we needed to respond quickly. Our competitors are getting traction and growing their business while we are losing.

We quickly met with the product and engineering teams to assess our next steps. What can we do, and when can that be ready for Sale? After all, our competitors have been developing these features for some time, so we cannot expect any quick product feature that can be sold from our side.

Given that, we started to look for alternative options. As acquiring and integrating another business into our product would take at least six months, we started looking for strategic partnership opportunities.

When considering a strategic partnership, you should consider scenarios where you make your customer base accessible to your partner. You should be prepared to train your marketing and sales team on how to sell your partner’s product. You need to set pricing for new clients and upsells. You should have business and commission plans across the sales organization, which is probably the most sensitive topic. A customer support process should also be in place. Co-marketing initiatives, customer success training … name it. These topics also apply to your partner; you should expect your partner to sell your product. No free meals, either way, you should expect to work hard to get things done.

The first step was to identify a potential partner. One that isn’t a direct competitor and is also interested in a strategic partnership and is willing to commit resources. One that is financially stable to support the business over time. Overall, we were looking for a partner to see value in our business operation to expand his business. Given all these constraints, that wasn’t a simple task to complete. After all, there were not too many options to meet all these terms. But we managed to find two candidates. Both were businesses smaller than us, and both were stand-alone social-listening vendors.

I met the CEOs of both companies. Very quickly, I realized that the CEO of the first company was not someone I would do business with; the CEO of the second company was more of my type. We met at an event in NY and very quickly identified synergies, and were ready to start rolling the process.

Evaluating a strategic partner differs greatly from evaluating technology or a sales partner. You need to understand if this partner is qualified to go to market together and do business. Business culture fit is essential here.

We quickly assigned resources to look into this opportunity — product, engineering, sales, support, finance, and legal. As we were short on time, we created training sessions, sales playbooks, marketing content, etc. We also set commission plans, lead registration, and support workflows. Despite the urgency, it took us six months to start rolling out the solution. A unified solution that embedded our preferred partner product in our main product.

Customers loved the idea. We started to stop the losses and celebrate wins. We also started seeing more deals where social listening contributed 30% to the ACV. This was great!

Given this traction, I started to think about acquisition plans. After all, if this product contributed so much to our ACV and helped us win more deals, we better own it than depend on a partner who may leave us or be acquired by someone else.

My Board was updated with this opportunity. We were ready to make an offer to acquire the partner. I reached out to the CEO of that partner to assess his appetite for acquisition. He was the co-founder of the business and had no external investors. I was hoping he would be thrilled. Despite my generous offer, he refused. Even after I improved my request, he declined it. He just liked the bootstrap concept with his other two co-founders.

Having this news, we had no other option but to develop our solution using our internal resources. “Thankfully,” COVID-19 began, and many of our priorities have changed. Having the new lockdown reality, the development and product teams were super productive. Luckily, we managed to roll out our first product version within five months. We started to offer it for sale within seven months. As our teams were already trained on selling our partner's social media listening product, we quickly switched and offered our product to maintain the 30% ACV contribution.

Understanding why your business is losing deals is a very important step in identifying the gap in your product offering. Once we discovered a gap, we evaluated whether we should partner, acquire or build it organically. As a strategic partnership has risks, we had to protect our business and decide whether to acquire or build the product. Eventually, we had to build it.

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Between 2009–2015 I was the Chief Technology Officer (CTO) of AVG, the famous free antivirus company for consumers. During that time, we made over ten acquisitions that helped us grow and secure our premium position in the market. Here are the stories of two acquisitions I initiated.

Strategic acquisition #1 — a market opportunity for a premium position, the Android antivirus acquisition.

From 2009 to 2010, millions of consumers worldwide purchased their first Android mobile phone and tablet. Unlike iPhone iOS, which was a walled-garden operating system, Android was an open one. This means that consumers can install apps from any source, which leads to malware and adware.

At that time, AVG held a premium position in the market for its consumer-free antivirus product for Windows. About 100 million users use our software globally.

As I was tracking the uber trends in the consumer operating systems market, I could not ignore the velocity with which consumers purchased Android phones in 2009. It was incredible. I knew that AVG must participate in this trend to maintain its premium position in the consumer security market. However, given the velocity of this trend, I also knew that we could not develop it internally with our organic resources and should look for an acquisition. We were missing the headcount and experience in mobile operating systems. However, I knew how well we could cross-offer such a product to our existing customer base.

Consumers’ experience with Windows viruses led them to use our software, so I was sure they would look for an antivirus for their new Android, as it had similar security risks to the open OS concept.

The race to find an antivirus company that supports Android started. However, the market was loaded with Symbian security products. As Android was new and had almost no viruses, identifying one was tough.

On April 1st, 2010, I received a message on my LinkedIn account. It wasn’t a fool-day message. It was one from an Android antivirus company. Here it is.

It is a small world; that message came from someone I knew and used to work with. He just founded an Android Antivirus company with almost 1 million users. Awesome! Perfect timing.

Eight months later. We announced the acquisition.

… and exactly three years later, we already had 100 million downloads of that product, leveraging the velocity in the Android market. While it took us ten years to get the first 100 million Windows users, it was just three years for our 100 million Android ones. Timing matters.

Thanks to the velocity with which we responded to an emerging trend in the market, we managed to keep our premium position.

Lessons learned: constantly watch for emerging and rapid trends in your broader market. Decide on the metrics and criteria you should track to identify opportunities. Some of them will happen once in a decade when you spot one and evaluate how to respond — organic development or acquisition. The opportunity will not wait and you may lose your market position to a competitor.

Strategic acquisition #2 — changing a growth trajectory, the PC performance optimization acquisition.

Following the great success of AVG’s acquisition of the Android antivirus company and the growth it contributed to our business in 2010, we started to develop an appetite to change the growth trajectory of our Windows business as well.

Over the years, AVG has offered its free antivirus to many users worldwide. However, as users started to spend their budgets on purchasing mobile devices instead of new Windows PCs, the growth of our Windows antivirus business also started to slow.

Having a new reality, back in 2011, we started looking at how we could drive growth despite the “static” number of Windows PCs in the market. We knew that we could cross-sell into our consumer business additional products. Our monetization teams are already used to selling different types of antivirus packages with special discounts. We knew that method would not help to change our business growth trajectory. We need something different.

When considering a strategic acquisition that needs to change the growth trajectory, you should look for a compelling product that goes well with your current product. It means the same buyer sees value in both products and is willing to pay for them. How do you find these products?

We tried many options. We partnered with some vendors, cross-offered different tools, and rebranded some; these tests had a minor impact on our growth — nothing material.

I love data, and more importantly, I love data-driven decisions. When I thought about what could help me discover a compelling product that should help our growth, I looked for a data source.

As an antivirus company, our product had to scan all the files it could find on the user’s PC. This was one of the basic features of our product. Some of our users, several million to be exact, agreed to allow us to collect data about the files we scanned on their PCs. They participated in a unique program to help us improve our product by sharing data. Having the size of the data we collected, we could look for the distribution of files to identify the ones with high usage.

After that analysis, we looked for the type of functionality these products provided to users. Very quickly, we discovered something exciting. We learned that many of our users were using PC performance improvement products. Windows is known to become slow over time, and as our users were spending their budget to purchase a new mobile device instead of a new Windows PC, these computers aged and became slow. Given the data size, this was a clear conclusion from our study.

Our new mission was to find the best PC performance improvement product on the market and offer it to users. We analyzed dozens of products and concluded that the Tuneup product was the best option for us. It wasn’t easy to engage with the team at Tuneup initially, but eventually, we acquired that business in September 2011.

Shortly after the acquisition and a quick rebranding work, we started to offer our users to offer the AVG Tuneup users. The results were outstanding. Very quickly, we managed to get traction and drive our growing up. Here is the rebranded product under the AVG logo from 2011.

This outstanding outcome confirmed that we analyzed the data we had from our antivirus users correctly. Data-driven decisions work even with acquisitions.

Lesson learned: You should always search for new ways to increase your revenue. Sometimes, just selling different versions of your own product can help, but sometimes, you need much more than that. You need to identify what other products your customers use next or with your product. That can be a great opportunity to cross-sell more products, as the traction is already there.

A simple analogy is the peanut butter business. You can sell different flavors of peanut butter, however, a customer will purchase a single jar. However, if you look at what else people add to peanut butter, you will find that jelly is the other product. If you can own both, you can start cross-selling a second product to drive your revenue up. This is what we did having an antivirus (peanut butter) and PC performance tool (jelly).