Atlassian’s Trello Acquisition and the Three Principles for SaaS Market Expansion
SaaS companies that expand from selling to IT to selling to business teams (or, vice versa) rely on 3 principles, which I call The Three Principles of SaaS Market Expansion. It requires these companies to take a resolute approach that is similar to the crossing of the Rubicon. “The phrase Crossing the Rubicon means to pass a point of no return, and refers to Julius Caeser’s army’s crossing of the Rubicon River in the north of Italy in 49 BC, which was considered an act of insurrection and treason. Julius Caesar uttered the famous phrase alea iacta est — the die is cast — as his army marched through the shallow river.” — Wikipedia.
Atlassian Buys Trello for $425 Million
This week, Atlassian broke the news that it was acquiring Trello, a simple list-making software company, for $425 million. It’s an amazing price for Trello, 15 times TTM (trailing twelve months revenue). Forbes wrote about why Atlassian bought Trello, and the primary reason was, as CEOs know, an adjacent market move. Adjacency thinking leads CEOs to consider how to expand to a different buying group within the kinds of companies they already sell to. Atlassian has now expanded from selling to IT to selling to business teams. As Forbes wrote:
“Atlassian’s existing products, including Jira, sell mostly to software developers and IT departments. Trello, on the other hand, is popular not just with coders, but with marketers, HR departments, sales teams, media companies, and other non-technical groups.”
As the CEO of Dossier, and having made 17 acquisitions previously, we know a thing or two about making acquisitions work. Every day we have thousands of teams using Dossier, an app for organizing customer conversations. Our team, like that of any startup, is small — and made powerful by the way we use software to automate how we can communicate with our customers. We use many self-service products to run our business — we wrote 20 Affordable Tools to Run Your Sales, Marketing and Service Stack for a total $1,000/mo. Also, many teams that use Dossier have also attached CRM tools like HubSpot and Salesforce, and task management tools like Asana and Trello, so we’ve learned much from our common customers. Atlassian’s purchase of Trello is a textbook example of market expansion — a playbook that large companies employ to grow their market share. How do you make such an acquisition work?
You’ve got to hand it to the Atlassian management team — they weren’t content doing what they always do, but have taken a bold move to enter an adjacent market. As I wrote in my previous article, Your Corporate Strategy is a Prisoner of History (or, Why CEOs Should Listen to Their Inner Revolutionary), at our previous company, which we sold for $395 million, “The thinking behind our corporate (expansion) strategy was that our sales teams were selling products to IT teams only, and that we needed to expand our brand to business teams at Internet and e-commerce companies like Facebook, Amazon, eBay, and brand managers at Chase and FedEx — all customers”. How do you make such a strategy work?
Selling to IT and Selling to Business
How easy is it to expand from selling to IT to selling to Business, or vice versa? On paper, the thesis sounds great. Start by selling a niche, but highly differentiated, product to your first audience. Start with a departmental sale, rather than to the enterprise. Expand capabilities so that federation occurs — i.e. you land in one team (say, to an IT buyer), and then expand to another team (still, another IT buyer). And then when you’ve established a strong brand with a specific buyer persona, then make an acquisition of a company that knows how to sell to the other side (this time, a business buyer), and then rinse and repeat. It’s been done in the technology industry.
Adobe started with multimedia and creativity products, then acquired Omniture to sell to marketing teams. Since then, it has added several more acquisitions to deepen its footprint for marketing automation. Oracle started with the database business, selling only to IT, then acquired Siebel Systems to enter the CRM market, changing its persona from IT to business rapidly. Autodesk, on the other hand, has stuck to its knitting — once glance at Autodesk’s list of acquisitions tells you that these apples don’t fall far from the tree (of CAD automation). Salesforce has tried to expand from selling to business teams (it’s core CRM business) to selling to IT (by the acquisition of Heroku) — but it is not yet working to dislodge entrenched competitors like Amazon Web Services.
So what is the secret to adjacent market expansion? The Harvard Business Review provides insights in its seminal article, Growth Outside the Core. It identified six ways to expand outside a business’ core, and provides nuggets such as this: “One was that most sustained, profitable growth comes when a company pushes out the boundaries of its core business into an adjacent space. We identified six types of adjacencies, ranging from adjacent links in the value chain to adjacent customers to adjacent geographies”.
Market expansion for SaaS businesses may follow these six strategies, and any MBA worth her $200,000 degree, will tell you — business expansion is a time-honored tradition. Yet, like any industry, the technology industry, and, in particular, software-as-a-service companies (I’ve worked for no other type since I left Oracle), have a different set of rules. To make such a market expansion work, consider these characteristics of the companies acquiring, and being acquired:
1. Transactional Sales
When two SaaS companies both have transactional sales, rather than expertise-driven consultative sales, market expansion is much easier. Atlassian sells ticketing software like JIRA, and it’s a transactional sale — i.e. it does not require a high degree of domain expertise for the sales team that is selling it. Prospective buyers sign up for or download the software, learn how to use it or get some general assistance in getting the software to work, and then they buy it for a per user price. Trello also has a transactional sale, marketing and HR teams that purchase its software also follow the same pattern as the JIRA sale. The synergies between the two businesses are all about operational effectiveness — making the sales process more efficient. Expect a lot of consolidation of IT infrastructure costs between the companies as they merge their teams. On the other hand, consider why Salesforce, which sells to business teams, isn’t able to effectively compete in the AWS market. Selling an enterprise-level CRM is a consultative sale, but selling cloud infrastructure services is a very transactional sale — hence, there are no sales synergies.
2. Inbound Marketing
SaaS companies thrive when marketing teams generate a large number of inbound leads. Companies like HubSpot have perfected this approach, practically writing the playbook for inbound lead generation that is then fulfilled by inside sales teams. As long as the combined marketing teams are able to use their expertise to generate relevant content, the success of market expansion is increased. On the other hand, if the acquired company’s marketing team is decimated under the false assumption that the acquiring company’s marketing team will be able to handle the marketing, then the acquisition has a high chance of failing. Inbound lead generation is an expertise-driven business — your marketers have to understand the content that generates interest, the experts to be interviewed, the guest blog authors to be invited, etc. If a marketing team understand how to sell to the business buyer, they are not likely to know how to sell to to the IT buyer, and vice versa. So, Atlassian, I imagine you’ll be sweetening the deal for the Trello CMO.
3. Internationalization
Traditional companies can expand in other markets if they expand the geographies in which they sell. The same happens for SaaS companies, virtually overnight, if they can internationalize their software. Think, for example, about the signup workflow of any transactional SaaS application. If it can be translated into a dozen languages, that’s another 30 countries it could sell in. Online advertising makes it a cinch to enter these markets. A caution, though — the product must not require telephone calls to sell or support the product. It must be done online, via email and chat, because then it can be done in countries which specialize in customer service — such as the Philippines, or Ireland.
When SaaS Market Expansion Fails
SaaS companies that require expertise-driven sales, rather than transactional sales, are not likely to be able to successfully expand markets when they cross the Rubicon with the buyer persona. We once acquired a company that sold primarily to business audiences, and the sale was highly consultative. When the COO of the acquired company decided to not come along with the acquisition, that caused a ripple effect in the sales organization and many of the expertise-holding salespeople left. And with it, went their customer relationships, and the acquisition we made failed to yield any market expansion results. Note that this is different from non-consultative salespeople leaving the company. It’s because the salespeople had expertise that the clients relied upon, such as presenting findings from quarterly reports to their management team, that the customers were happy. Take away these salespeople, and the customers walked as well.
However, if the above 3 characteristics match between companies as they acquire their way to market expansion, the acquisition has a high rate of success. We’re going to be watching Atlassian and Trello work this one during the integration — the signals look great because the 3 fundamental factors for successful SaaS mergers are present in both companies.
About Vik Chaudhary
Vik Chaudhary is the CEO of Dossier (http://www.dossier.work) in San Francisco. To business professionals and teams, Dossier is an app for organizing communications with customers. In his copious spare time, Vik — well — asks CEOs to not screw up large acquisitions.
Dossier is an app for organizing customer conversations, no matter where it happens, with zero disruption to the ways you already communicate. Based in San Francisco, Dossier is helping business owners, business professionals and teams around the globe intelligently sync their customer communication channels and organize documents, tasks and more. Welcome to a new way to build better customer relationships and a better business. Sign up for a free account today at http://www.dossier.work.
