Creating an Acquisition Hook – Product View


As the product leader at a smaller company, whether it be a Venture or Private Equity-backed company, or even one just coming out of stealth, you should always have an eye on creating an acquisition hook. In previous posts, I have discussed the need to manage the whole product. In this blog, we will address another aspect of the whole product: the acquisition hook. We all like to build products that solve a credible and compelling problem for users. Further, we want our products to be both innovative and revenue generating for shareholders. Whether that revenue is an ongoing stream or a single, up-front purchase is immaterial. What the product leader has to plan for is the inevitable day when an exit is desired. Some exits, a.k.a. acquisition, IPO or buy outs, have a smooth, natural flow from the product and space that they are in. It could be a larger company in the same space buying market share, or a better capitalized, smaller competitor that wants to upgrade or add to their tech stack. In both of these examples, the natural acquirer of the company and technology stack is an obvious player from within the same space. These situations do not require much from the product leader with regard to creating a hook for an acquisition. The critical needs are the obvious ones: building the best technology stack, customer experience, go-to-market, and/or kick-ass sales team.

The harder and, perhaps, larger event requires a more creative approach. Creating that critical acquisition hook involves the ‘whole product’ experience. As you build out your product strategy and begin to execute the plans, you should be – no, you MUST be – thinking about that whole product experience and how your product touches many aspects of the customer, their technology stack, and the processes with which your product intersects. You should, therefore, envision the entire ecosystem into which your product fits with that customer. There is something called enterprise IT architecture – Zachman (back in the day) that has a model for describing the data, function (application), network, people (process), time, and motivation. While I am not a proponent of completely documenting all of this about your customer, with your product added, I do think it is a useful construct to analyze the situation.

From those “thought experiments”  you may discover some interesting and non-intuitive places where your product intersects with different technologies (and companies selling product) that might not be obvious choices for synergy. In my experience, the best example I have seen of this was witnessing Cisco’s valuation of an application and server based company (Tidal Software) with the application of automation-to-network provisioning, operations, and support. This would not have been on the product leader’s mind when considering how to create integration hooks in the product strategy or the product itself. However, setting up an informational meeting with the leading Network vendor was a stroke of genius.

The hook to build into your whole product experience should be one that targets potential acquirers. Additionally, it should be one that can target strong go-to-market synergies, so that you might be able to get your product on their price list.

So when considering what to build in your whole product, consider creating interesting hooks for both traditional and non-traditional acquirer targets. A few examples may include:

  • Choose a technology stack for your product based upon the linchpin player in that space might catch the eye of a prospective acquirer (i.e. use Azure, AWS or RedHat Openshift).
  • Ensure a particular integration is world class for a technology partner that might realize they need your core product on their price list.
  • Bank on a particular go-to-market model that aligns with a leading player in the industry. For example, you might design your dev-ops product to match the Atlassian go-to-market in their exchange [and be of such value that Atlassian might want to have this company in their suite of products].
  • Finally, your IP may be about integrations. Choose a few key players into which you can integrate your product. The key here, ultimately, is to make your product indispensable to one or more of those players, creating an interesting arbitrage play.

Lead your product teams towards considering product hooks as an overlay in your planning process [for creating the long-term strategy]. This is very helpful in keeping an eye on the endgame for your product. It does not involve obsolescence, but, rather, something much more rewarding.

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