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Crawl, Walk, Run: How to Acquire a New Company in the Subscription Economy

Tien Tzuo

According to the Harvard Business Review, 70% to 90% of corporate mergers are abysmal failures. And it’s only gotten worse in recent years. You’re probably not surprised, you’ve likely heard similar stats.

Why is that? Well, corporate acquisitions used to be pretty straightforward — you just changed the stationery. Everyone got new email addresses and business cards, some guys in overalls came in to change the sign, and that was about it.

Companies were bought strictly for their bottom line. Invoices were sent, accounts were received, books were closed. The only difference was that the numbers were reported up, instead of out. That was life in the product economy; acquisitions were simply about adding another unit sale revenue stream.

But everything changed with the shift to subscriptions. When you orient yourself around customers as opposed to products, you can’t just onboard a brand new cohort of subscribers without putting some hard thinking into how this group of folks is going to enhance and integrate with your current subscriber base, as well as augment your overall service offering.

As that same HBR article notes, “Companies that focus on what they are going to get from an acquisition are less likely to succeed than those that focus on what they have to give it.”

In fact, that’s exactly how subscription companies think about acquisitions, because they have no other choice. They don’t just acquire new sources of revenue; they acquire new communities.

Aura knows this well. Founded in 2019, Aura handles identity theft and fraud protection for your finances, personal info, and family. Despite being a young company, it’s already a unicorn valued over $1 billion – Aura was built out of M&A, with five companies that have been merged together over the last year and a half.

It’s safe to say that Aura’s CTO Ryan Toohill is an expert on acquisitions. At his previous company Endurance, he supervised over 50 of them! Ryan recently sat down with Zuora’s Senior Director of Customer Strategy, JJ Xia, to discuss the methodology to onboarding new business lines and acquisitions.

I’ve summarized the conversation, which you can view on-demand here, and included some relevant color commentary from Ryan.

Crawl, walk, run – onboard one cohort at a time. This might sound counterintuitive, but when it comes to acquisitions, be careful about too much operational efficiency. Onboarding everyone at once might sound great on paper, but it’s an absolute disaster in terms of all the things that you cannot possibly predict going wrong.

The benefit of starting with a small cohort, and graduating to larger ones, is that you can test whether the rest of your organization can operationalize and truly support these new customers. Ryan talks about how Customer Support teams are often not prepared for the influx of new tickets, emails, and phone calls that come with thousands of new subscribers – so it’s better to test out a small cohort and estimate the resourcing impact first. Do a measured roll-out. It doesn’t have to take months.

“You have all these weird nuances that come up. Descriptors change, and that can wind up blocking transactions. Humans are humans. Start small, get some stuff working, get it bigger, move more data through, and then you can start to speed up. If you try to do it all at once, you’re going to not be able to recover from the mistakes that you don’t anticipate making.”

You need a single billing platform. The thing with subscription businesses is that you already have an ongoing billing relationship with your customer, and you do not want an acquisition to mess with that. Billing mistakes, payment errors, or general confusion are the fastest ways to lose an existing customer. As Ryan put it, “You cannot mess up someone’s billing – you cannot get wrong what someone owes you, what you’re going to charge them, or what credit card to bill them on. Those are non-starters. Those things have to be right from day one.”

If you’re going to onboard a brand new cohort with a seamless subscriber experience, you need to do it with a single platform to ensure that processes are standardized. And that’s not something you want to build yourself; it’s the job of your engineers to improve your product and create great customer experiences, not to build a billing platform that can support all the possibilities of how you plan to charge your customers.

“It’s way too much brain damage to be spread across multiple platforms, trying to report on financials, trying to report on growth and churn, trying to identify hotspots …Every friction point is a churn opportunity. So how do you build one billing platform that is flexible enough to support all the possible eventualities that you’re going to need?”

Standardize your data. In the old days, newly acquired companies didn’t have to worry about data symmetry, because the other business units reported their own metrics anyway. That’s a recipe for failure. Especially with big acquisitions, ensuring uniformity across your data layer is the key to maintaining sanity and avoiding future problems. For Aura, this usually entails writing scripts to avoid formatting issues.

“If you’re constantly chasing bad data and bad formatting…. then you just have a bunch of future problems. Because you’ll end up with this mishmash of who’s live, and who’s not live. Or you’ll have problems like, ‘Well, we ingested the customer but their state says this and their country says this so the tax calculation won’t work. Now, we’ve got a bunch of customers we can’t bill.’”

Delegate authority. On a big acquisition project, you need to distribute ownership, without evaporating it entirely. Of course you need a centralized command, but how many acquisitions fail because of bottlenecks created by the parent company? Avoid having to have your leadership team weigh in on every decision, because as Ryan notes, no meaningful work actually gets done by senior executives. They just have meetings.

“It’s easy for people to do their part, turn their crank, and then walk away…In the past, I can name a number of times that our acquisitions have gone less than smoothly because it wasn’t anybody’s first priority, nobody cared, and so therefore it’s always somebody else’s problem to go solve that. When nobody owns the outcome, then you don’t get a good outcome.”

Surface opportunity. Never forget that an acquisition is an opportunity, not just a liability. Ideally, your IT and data teams are adding a new super power to your arsenal, a new gear to your business. Make sure those opportunities get surfaced to your executive team. Make sure you’re seen as a business partner with real agency. That’s how true synergy happens.

“We want to empower our go-to-market teams to be as agile and responsive to changing business needs. If someone comes to us and says ‘Hey, we just saw this new opportunity open up in the market and we think we can capitalize on it and it requires us to do some new trials and intro pricing.’ We want to be able to say, ‘No problem, all of that is possible.’ We want our tooling to fade out of the way and we just want to expose the business to the new levers they can pull to move things forward.”

Thanks again to Ryan and JJ! Again, you can listen to their entire discussion here.

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