Getting involved early
I know the sort of excitement of the game is the front end of the process. It is the sourcing, the negotiating, all the power play, but the end is not closing on a deal. The end is making sure that you're achieving the success of why you bought the company. So that's very much where an integration operational background comes into play.
Our role with our Corp Dev and our business leaders is right up there up front. Early NDA around what's the sourcing strategy. What targets are we looking at? How do we take our past experience on what we are good at and what we're not?
And to bring it forward in how we define the risks and mitigations for addressing those risks.
I'll give you an example of how we go through a typical commitment process that most companies do with our CFO when we want to invest in a company or make an acquisition.
The first thing he'll go to is the risks and mitigation plans. He's already taken a look at the deal model, but the conversation that's across all the functions he wants to talk about is the risks that we're seeing even before diligence.
What are the potential mitigations that we need to plan for? What are we going to validate during diligence? And then coming out of diligence is really saying, can we achieve these mitigations to deliver on the value of why we're buying the company?
So I would say that the number one thing I poured over is my relationships with engineering and the business leaders that were partners in this, you can't just throw it over and expect us to go deliver on what you want.
Having a role very early in the process, we could be perceived as naysayers, but we're testing the thesis and really probing hard. Why do you think you could do that? We've never been able to do that before. What is making this time different?
And we're there in the game with them to make sure it happens, but it's really being very thoughtful around knowing ourselves, what we're good at, and what we're not good at.
The deal model for us is really based on revenue synergies. So when you're looking at a product or a larger product, they're all driven by the revenue synergies.
It starts with building realism into that deal model. And our historical experience informs the realism. With all the data we've been collecting, we also obviously track the performance of all of our acquisitions, including the financial performance and revenue synergies.
So we're able to go back and look at similar deals and say:
- What did we do in the past?
- Why do you think it's going to be different this time?
- What do we need to do differently to achieve a higher level of synergies?
There are also some standards in the market that we start to bring forward and say when you're looking at across companies, what is the success rate on the go-to-market synergies?
We start to incorporate that into there and then probe it. A big part of realism is being clear on:
- What is the offer?
- What are we going to sell?
- What is our customer going to buy?
- Which customers are we going to sell to?
- What are we going to sell to these customers?
- Who is going to sell it?
We have a pretty complicated route to market. We have
- our own sales team
- an overlay sales team
- channel partners
It's not all of those people are going to sell the same thing to all the customers. It's starting to get clarity on what your offer is. So starting to build out all of those sales plays that really tie to that deal model.
When you think about the deal model, we're starting to build out the integration plan from a go-to-market because the deal bottle is built up from the bottom up.
We go through our own internal milestones around a commitment process. Before an LOI, we go through our internal validation to have a pretty good sense of what we will achieve and how we will get it so that our CFO will say yes.
Our deal team very much leads it, but we're running side by side with them while they're doing the internal or the negotiations with the target. Then, once we get into a post-LOI or term sheet, we conduct diligence. And we're validating without disclosing too much at that point.
We'll start asking questions, knowing, what our thesis is, and what we want to validate. We must do that validation before we even get into, a definitive agreement. Can we realize these synergies? Or will it be a year out, two years out, because we don't have the operational infrastructure and backbone built to do this yet?
And that gets all incorporated back into our financial modeling because it's not only what but when, the timeline, which is typically less earlier, more later.
We look at the infrastructure early because we know ourselves well enough that, we can take it and shove it into what already exists today.
But if that's going to break the model, that doesn't make any sense. So when will we have things that we don't have today? So that for us is number one.
Because you could have the best sales team in the world, but if the customer is never going to get the product, you're not going to be able to rinse and repeat.
Having that backbone for us, that whole infrastructure and the architecture and how we're actually going to operationalize it comes first. Then, once we validate that, we start to get into understanding the customer segmentation.
Typically, when you do an acquisition, it's the bright, shiny object. And everyone wants to sell it to everyone. And so, how do we really prioritize who we sell it to and who sells it, so it's successful and we manage that.
Managing products and customer base
We've seen everything from what we're buying is going to cannibalize an existing Cisco product. So you need to manage that transition because you don't want to lose customers.
We're going to keep the product so we keep the attachment to the customers but we want to transition those customers to the integrated offer we will have.
It always go back to the go-to-market and drives a lot of it because, especially, certainly, on a product deal is,
- What is our strategy around go-to-market? I
- Is our strategy to sell an integrated offer that will be a new product together?
- Is it going to be retain the product and integrate it into our portfolio?
- Is it going to be to exit the product and move the customers?
YouClarity on your strategy and into execution. You can have a strategy, you need a strategic plan that is then executable, which then you build your integration plan and execute based on. A lot of work that we do upfront is really honing that strategy.
That alignment across the company, Cisco, and then the alignment with the target is really key. So that day one, we all know what we want to achieve. More often than not, it changes. It's not like it's locked in stone. But as we both learn more, we're going to have to make changes.
Optimistic, informed by realism. You can't go achieve something that you have never done before. It's getting that alignment about everyone understanding if we're going to move, what is it going to take to make that happen?
What is it going to take to make that happen and be realistic around it and then track it and make sure that we're performing to that.
How to approach deals
I break it down into two pieces, you've got to get the deal done, everything from sourcing to closing the deal. Then you've got your integration piece of it, your second, third.
So how do you really make sure that we're continuing to invest and then make sure to deliver? So I break it up into third, third, and third. And so, what you're saying is oh, you're successful as a deal guy if you get the deal closed, it's like that's only a third of the work. And I would beg to differ that that's probably, it's honestly the easier part of the work.
I've had to go present to the board, and our board acquisition committee twice where they've asked me about deal performance. They wanted to understand what are we doing differently on the next deals.
The last part of it, we're out of it at that point because we're moving on to the next one and it's the business leader, but again, working for the CFO, he cares of how this is continuing to perform.
So like I've got a big role in the governance. The monitoring and the governance of the performance of the acquisition. And how do we incorporate that into our normal cadence of business reviews? You can't just go and say, Oh, my business is doing great. What about that acquisition you did three years ago? Is that still performing?
You can't blend it into the overall portfolio and try to forget about it. Because that was a specific investment that the company made. So holding leaders accountable, it does have a big overhang the next time.
One of the things we started doing is as we start to do new deals, we're starting to look at not only the historical performance of the right deals but how this leader performed on past acquisitions that they've sponsored and how has this business been performing with the past acquisitions that they've done?
So those are analytics that we'll bring to the table with our CFO to say, Hey, you might want to take a look at this leader. Doesn't really have a good track record, what has happened? And really hone in on these areas as they're looking to do a new acquisition,
The corporate development scorecard
Every deal has value drivers. It can be
- An aspect of financial performance or
- market position
- the technology in terms of the product roadmap
- the technical deliverables or product integration
- something around the talent
Cisco always acquires to grow. So a big part of the growth is talent. Without the talent, we're not going to have the technology.
The end result is retention, but we back off of retention and look at how engaged are the employees. We do a series of checkpoints or surveying with the acquired employees. You're going to have some talent that leaves early on, but our goal is to retain as much of the talent as we can.
It would be red, yellow, green, like traffic type of colors because we'll have a key that will say, okay, if it hits, we'll build if it hits.
So I use a lever of reviews with our CFO to trigger action by our business leaders to make sure they know that this is being looked at. It's a lot of work on our part to get them ready, to make sure that they have their story and their act together. But they're accountable to our CFO.
I believe it's hard because it's very emotional. It is steeped in people. It's all about people and people are hard and you've got emotion on the acquired side. Obviously, we're only buying very successful companies, so they did something right.
But there's a lot of egos and it's hard to tell an acquired leader they won't be retaining that. They've got to do it our way. It's hard because it's confrontational.
What we're trying to do is set expectations very early. The longer it goes, the more you are reinforcing that, 'Oh, what you do is great so just keep doing it. But that may not be what Cisco needs.'
That gets very emotional things that you would never imagine gets back down to culture.
Culture is how you connect as people. So it's really hard to get to the root of what really is that culture and how do we continue that what's inside of a larger company? I believe it's hard because it's all people and there's a lot of emotion.
The go-to-market side of it is just harder. Because that's the crux of why you bought the company, that's at the core. The attrition of the sellers is what tends to happen for us pretty quickly.
How to realize revenue synergies
Part of it is you got to be realistic, first of all. You can't say I'm going to achieve a revenue synergy; that just no way you're going to get there and prove what you're going to sell.
Is the offer similar to something that we're already selling? The more similar it is, the more likely our sellers will sell it. And their success rate is going to be higher. So similarity to something that we're already doing is vital for us.
Compensating the sellers, paying them for the acquired team is similar to how they were compensated before or at least the total compensation looks similar to what they got before.
Enabling the Cisco sellers to sell the technology. If it's something new, how are we really creating the training, the guiding, enabling the sellers is a big part of it. A big part of what we do is really tracking our wins, early wins, early successes, and using that to feed additional successes.
Everyone wants to work on new things. How do we make sure that that new thing is managed? It's coveted, it's targeted, we know what we're going to sell to whom, who's going to sell it.
It's not that everyone gets a chance to sell it. And then if you can't sell it, and then you're like, forget it. I want nothing to do with it. You don't want to create that. You want to manage that.
And then it's just early monitoring for us. It's really staying on this very, and this is us, my team, staying on this really closely watching the sales numbers.
Ensure that the sales team is delivering on what the sales leader is committed to. Because if you start going off early on, you're going to keep going off. You'll keep going and it's really hard to recover from early misses.
Best tip for a successful go-to-market
One thing that we've learned, and companies do it differently, is we previously had a business leader committing to the acquisition. They were speaking on behalf of everyone else in the company that they needed to make it successful.
Everyone that has skin in the game is part of that commitment. So this is pre, this is pre-diligence, we have an early commit. Post diligence, we have the last commit that we make before we honestly get into a definitive agreement. We have all the players, the cross-functional stakeholders. We have their most senior leaders at the table committing to this.
It does make a big difference because you're not going back after a business leader who is pointing fingers at my sales leader didn't make the number well. Everyone has to be aligned. That makes our job not easy, but more manageable if we have everyone at the table committing to the same thing, and then we can move and get the plan in place and hold people accountable to it.
Going away from the core
When you're doing something separated from the core or adjacent or proximate in some way to the core but different, you really have to understand what those differences are, and where you can vector from the core and where you can't.
We don't have a bunch of subsidiaries, so our acquisitions are all integrated to some extent. However, we do have some that weren't part of the core that are running some aspects of it differently. But over time, they do get more integrated.
You have to think through it from scratch. So we have a model of what end-state integration looks like for basically all of our key business processes that very senior leaders own.
When we do an acquisition, we're always saying the default is you're going to integrate. You're going to get to that end-state for those key business processes. And if not, we need to have a business conversation to understand why. You've got to have a foundation that you can flex from. You can't do anything you want.
We were acquiring companies that looked just like us. It was easy; you lift and shift, you bring it in and you integrate it, and it's done. But, as we've started acquiring companies over the last 6+ years that don't look necessarily like us, they're where we want to get to; you can't lift and shift it because you don't have the business processes to move it into.
Look at each business process and define what the end state for integration look like as a standard and then overlay it with the acquisition you're doing to make sense of what we want to achieve.
It can't be this CEO wants to keep X, Y, and Z that they had before. Why? What is preventing us from integrating it?
The hybrid world is changing a lot of integration. It's interesting because companies now hire talent, wherever it is. So there's not as much attachment to some of the physical things that used to people used to identify as their culture.
Validating the go-to-market
We're human and tend to go in pretty optimistic to say, we're going to be able to bring these two pieces together and it's going to be, one plus one is three.
Part of it is that some of the things we've done more recently is to bring in an external view. So to bring in a third-party blind customer survey and go out there and have customers be surveyed on our behalf, would they buy this? How much would they pay for it? Would they transition from their existing vendor to Cisco if we offered X, Y, and Z?
We drink the Kool-Aid, and it's easy to build that momentum of optimism. But it's also important to realize that there's an outside perspective on this. So if you bring an outside view in, it could be very enlightening to what you're thinking about internally.
And that's something that private equities do all the time. So that's something that we've started looking at.
It's going out there and talking to people who aren't even our customers today. Where do they think this target ranks relative to other competitors? Would they buy from them? It's a blind survey, so they wouldn't know it was for us and just getting some of that data.
It's expensive; depending on the size of the deal you're doing, it's peanuts. But, it's well worth it. It's worse to make a mistake.
If you think about it, you have your internal view. You have the target. The company you're acquiring you have its view. You have a market view because we do market analysis, but you don't have that specific customer.