How to Acquire for Capabilities

Hello, MA friends. This podcast is brought to you by Firm Room, an M and A science company. Twenty years ago, virtual data rooms would come to your office to scan documents to put on servers. That's why they charge per page. However, now in 2022, with everything in the cloud, it makes no sense to charge per page. That's why we created Firm Room, a virtual data room that's intuitive, built for public company security standards at a fair price. It's only $500 per month. Check it out with a free 14 day trial. Visit firmroom.com again. That's firmroom.com I'm Kisam Patel and you're listening to M and A Science, where we talk with deal professionals and learn valuable lessons from their experience. This podcast focuses on stories, strategies, and what actually happened during M and A deals. Hi. Joining me today is Henry Schuck, CEO and co founder at Zoom Info. ZoomInfo is a leading B2B database company.

That'S expanded to a suite of solutions.

To help organizations identify and connect with their next best customer. ZoomInfo trades on Nasdaq symbol ZI, currently trading at a 22 billion market cap. Today we're going to talk about how to acquire for capabilities. How are you doing today, Henry?

I'm doing well. Kassan, good to see you.

Can we kick things off with a.

Little about your background and M and A experience?

Yeah, absolutely. So I'm Henry Schuck. I'm the founder and CEO of Zoom Info. I founded the company in 2007 in my law school dorm room. I put $25,000 on my credit card. My co founder put $25,000 on his credit card. We went out to build a SaaS platform that helps sellers and marketers at the time just identify their next best customer. It was at that point really about giving them high quality data on the people they were trying to sell to. So who are the people who work in IT at Nike and what are their phone numbers and email addresses and their current titles and an org chart. So you understood who reported to who there. And that was really the genesis of the company. We grew the business in a bootstrap way through 2014, when we were about $25 million in ARR, took our first outside capital. A firm called TA Associates came in at that point and then we went out about a year later, did our first acquisition. It was actually of a company called I Profile, which was a company I had worked at in college where I kind of got the idea for ZoomInfo. Since then, we've done 12 acquisitions and so 12 total acquisitions between 2015 and today. And when we've gone out to do acquisitions, we've done them in a number of different ways. I'm happy to drill down into any of them but sometimes we're buying someone who was competitive with us and we thought we could bring customers together on one platform streamline the go to market motion for those companies. Sometimes we bought for additional capabilities where there was something that we weren't doing and hadn't invested in but fit directly into our platform and was something that our customers could use. Conversation Intelligence Chorus is an acquisition we did that fits that bill. We made a chat a B2B chat acquisition of a company called Incent that fits that too and a number of others. And so 12 acquisitions along the way to where we are now.

I love how you're a founder of the business. I'm curious to know how many founders are on the exchange. I don't know if anybody's pulled stats on that actually.

There's a ETF or just a fund that you can invest in that's just invest in founder led businesses. They outperform the market for what it's worth.

I may not look that up.

This is funny. My wife, I asked her what do you tell people that I do? What do I do when I think about what I do? I mainly think of myself as an operator. I'm a operator of a software company. She said you buy businesses. It's just very different to hear that. It is A real part of what I do in my day to day is trying to identify great businesses that provide a valuable software or service that our customers could be leveraging and that could become materially better with our data asset. But I still think I'm more an operator than just a business buyer.

She's reading the news. That's what makes the headline.

So would you say the main drivers.

For you doing M and A is primarily around customer acquisitions and around capabilities.

Are there any other drivers?

Let me tell you how I think about M and A today. Like a set of criteria that I think about when we do M and A transactions. The first is is it close to home? And so we sell to salespeople, marketing people, professionals and then recruiting professionals. If there's something that's really great for IT professionals or sells into an IT buyer, that's not our wheelhouse, not something we're particularly interested in. But if it sells to marketing or sells to recruiting, those are areas that we plan and pay attention to. The next criteria that I think a lot about is how broad a swath of our customer base can get value out of this service or this technology or this piece of software. Because ultimately we have 25,000 customers that we built one to one relationships with our account managers and our customer success teams who trust us and trust the product that we're delivering to them. And so we want to have an opportunity to leverage those relationships, to get them the next piece of their sales stack, the next piece of their marketing stack. We'd prefer they buy that from us especially. And this goes to our third criteria, especially when the data asset that we've accumulated can make that piece of software competitively differentiated. And so what that means is the core of what Zoom Info does is we've created an incredible company and professional data asset. And so at the company level, we profile about 100 million companies. Those are worldwide. And so you're getting firmographics, technographics, numbers of locations, how many IT employees or engineering employees do they have, how much funding have they received? We do that across 100 million companies within those companies. We also profile 150 million professionals at those companies. That data asset is best in class. It's the industry's best. And so when we make a software acquisition, what we're looking to do or understand is does that data asset make that product really differentiated in a way where it doesn't matter how much more software you build, you just never catch up to the competitive differentiation of the data asset embedded inside that software. For example, most companies want to take a piece of software and then orchestrate a go to market motion around it. They want to take an insight that they're getting from a website visitor. For example, someone comes to their website, they know which company it is, and then they want to create a go to market motion around that. They want to capture the people who work at that company that usually buy their products and services, and they want to call them, email them, put display ads against them, target them on social media. Just identifying which companies come to your website is not really good enough to run that motion. You need the rest of that professional data asset to run it. And so having a really tight integration from software layer to data layer is really important to us in creating that differentiation. I'll ask you a question, Kassam, and I don't know what you're going to answer, so I may have to move you in the right direction, but do you have AirPods?

I do have AirPods.

What's your favorite thing about AirPods?

They work. You just put it on your head. And they work, right?

Yep. They connect instantly. They work. They connect instantly. That's a really interesting thing to say that you like the most of when we're talking about headphones because you didn't say the sound is the best, the bass is the best, the microphone's the best. It's the most clear. Before AirPods, those are the things that differentiate headphones. But all of a sudden when Apple owns both sides of the equation, the they own the hardware in both sides and the software that does the connectivity, all of a sudden the differentiation is it connects quickly. It works. When we think about software that sellers are using and marketers are using and recruiters are using, they need data to make those pieces of software work well. And when we acquire them, we plug that data in in such a native way that the differentiation starts to become how closely integrated the data is. Similar to the AirPods analogy.

I like this. So other drivers is looking at the value to the customer objectively and then essentially making the product better.

And then finally, can we sell more of it? Can I leverage our go to market Motion? We built, in our opinion, and probably lots of analysts opinion, one of the most efficient go to market motions in the world. And so we have sub 30 day sales cycles. Our customer lifetime value is 10x the customer acquisition cost. And so can we leverage that go to market motion to bring whatever product that is to market in a much faster way? That's a key part of our analysis.

Do you ever get to the point when you have to make a consideration around buying versus building? What does that look like Totally.

And so before we buy anything, we always consider whether we should build it in house first. There are some things that you can build. And so we launched a recruiter platform. We'll launch a platform for marketers in 2022. Those are platforms where we're leveraging all of the core assets that we built along the years and then adding additional software to that and bringing it out to market. In those instances, we're not buying something because we can organically build it. But as a contrast to that, last year we acquired a company called Chorus AI, which is a conversation intelligence solution. What Conversation Intelligence does, it sits on a call and it records the call, the video, the text, the audio, it transcribes it and then it analyzes it for key moments. And then it's built a UI and UX layer around that. That makes it easy for sales managers or executives to go in, say, show me the five biggest deals this quarter and let me See the key moments in the call when the prospect happy, when they talked about next steps, when they brought up a competitor, when they talked about budget, how we handled the objections. In all of those calls, we get to hear really the customer's voice right during those sales calls in order to do transcription and then analysis really well to find those key moments using AI, you have to have thousands and thousands of hours of recorded calls, business calls with business conversations, to build your models around. So we could build conversation intelligence, we could build recording and transcribing and analyzing. But it won't be very good for a long time until we have the thousands of hours of calls to build our models around. And so you might be three years out before you have something that's of any real value. And meanwhile, you can make an acquisition today that has tens of thousands of hours of calls that they're building the models around. And you could just hit the ground running when there is some asset that has to get built up over time in order for the product that you're delivering to be really valuable, you just have to do M and A.

There that makes a lot of sense, is really looking at the big picture of it and the timeframe to get to that level of maturity that you used in the example.

How do you go about finding these.

Companies to acquire a good amount?

Come inbound companies now know that we're doing M and A, and since we went public in 2020, we've done five acquisitions. Companies that play in and around the sales and marketing space know that we are a potential strategic acquirer of theirs. And and so they'll come in inbound. We obviously pay attention to the space and we're listening to our customers. And so we're hearing about companies that they like, that they're using. And when we see a lot of that bubbling up, we're reaching out proactively. We have a strategic finance team with an SVP of strategic finance and M and A and then a number of analysts below them that help us source and do outbound outreach to companies to basically go out and say, hey, we'd love to have a conversation, understand what you're building. And potentially we could be investors in the future or have a commercial relationship from a perspective. And at some point we may be a good strategic acquirer too. Let me go through my head. The last five acquisitions, it was exactly like that. I got introduced to the CEO. He was in the middle of raising a round and I said, before you raise that round, maybe we should have a conversation about M And a here because I think we'd be an interesting buyer. Incent, which was the chat application. I actually knew the founder over the last four years and had gotten to know him and then he launched this new product, brought it to market, had a number of customers who were fanatic about it. Was about to go raise another round and I said, look, before you go raise another round, let's have a conversation about whether this makes sense for us and it makes sense for you. And so we had a relationship there. Everstring was an acquisition we did in late 2020. That acquisition. I knew the founder. We had stayed in contact for the for a number of years and he just reached out when they were looking for a strategic exit opportunity and said, would you guys be interested in this? We were. Clickogy was an acquisition that we did in late 2020 as well, where we actually went out looking for the best B2B intent data provider that existed. We found Clickogy and then Clickegy was actually so backed up with work and the demand that was coming in. They told us we get how you would use our data, but we just can't sell it to you because we have all this other demand in front of you. So then we bought the company. Cause we said this is the best B2B intent data and our customers really want great intent data. So. So we just made an acquisition of the company instead and integrated it in. And the last acquisition we did was a company called Ringlead where I knew the founder. But really what had happened? The founder was proactively building a great partnership channel with our enterprise business. And so we were going to market together in the enterprise and partnering with Ringlead was opening a bunch of enterprise doors for us. And our enterprise team came to me and said we should acquire Ringlead. It'll help us accelerate our motion in the enterprise and the upper mid market. That's how those have come together. And then I have a big tracking sheet. Probably 200 companies that we track and pay attention to and stay on top of.

You're not just handing it off to your M and A lead. You're actively tracking this stuff yourself and keeping Those relationships with CEOs of potential companies you could acquire.

Ultimately, for an M and A deal to get done, it needs internal sponsorship. And here that internal sponsorship will either come from myself or it'll come from Chris Hayes, our president and chief operating officer. One of us has to grab the acquisition and say, look, I'm going to sponsor it. I'm going to lay out the vision for it. I'm going to commit to a go to market number for it. And unless that happens, acquisitions don't really move forward.

When you acquire these companies, are you trying to keep the CEO? How do you incentivize them to stick around?

You can't give a blanket answer to that question because some CEOs don't want to stick around. We made an acquisition of Zoom Info. The CEO had been there. He's a great guy. He's a board advisor to me. His name is Derek Shuttle. He had been there for kind of eight months. He had been brought in by a private equity firm. He ran Zoom info for 8 months and then we made the acquisition. And he came from IBM where he ran the Watson unit. He doesn't want to like stick around and run like some small part of the organization. He wants to hand it off in a really good way and then go off and do something else. And I totally respect that in that business too, where the two companies are coming together and there's not going to be like a standalone unit that's running. It also becomes complicated for him in that situation. Derek wants to leave. I totally appreciate that. And so he doesn't stick around in an acquisition like Ringlead, the acquisition we did at the end of the year. One of the founders, the CEO of that business, is a guy named Russ Arts. Russ was the founder of CA Computer Associates and was there until 2000, I want to say 15, and then went off and rebuilt Ringley with the other founder, a guy named Ken Green. Ken was exiting the business. Russ came along. Now Russ runs a pretty meaningful piece of our product and he's still in the business and we're looking for more and more opportunities to give him. But it really depends when the CEO talent wants to stick around and we can build out enough for them to do. Absolutely. I hate when that doesn't work out. And I'm looking for opportunities to integrate the CEOs back into the business. And the incent CEO is now a senior VP of product that runs all of our marketing and chat solutions. You want to keep that innovative talent inside the company when you can. Sometimes the person on the other end is not at a place where they want to do that, and I'm respectful of that too.

Then from there, it's almost like the HR view of how do you create a comp incentive to make it worthwhile for them to stick around?

Totally. Every acquisition that we do, we create an option or stock pool for the employees who are coming on. And so Deal closes, there's obviously the money wires. People make money. And then we have an incentive pool that sits outside of that that keeps those employees at the company and has, like, clear benchmarks for them to hit to unlock that incentive pool. And so there's always additional stock or options pools that we put together for the employees who come over.

Make them happy.

Yep.

Let's talk about integration. The crux of value realization on these acquisitions, especially for capabilities. How early do you bring in your integration team into the deal?

They're there the whole, basically the whole time. The way the process works is let me just go through a process.

Maybe an example is like a timeline. Okay. Here's how I queue up the people throughout the process.

We identify a company that we want to acquire. That usually starts with me or someone in strategic finance who brings something to me. I go, okay. I meet with the founder. I get like a management deck. I can see the vision of the two companies coming together. And at that point I start bringing people from around the organization. So I'll bring in our chief financial officer, Cameron. I'll bring in Chris Hayes, our president coo. I'll bring in Nir Karen, our president and cto. I'll bring in our chief product officer, Hilla Nir. And then I have them meet with their counterparts on the other side. And once they meet with them, we come back together and I go, okay, so tell me, what did you think? Can you see this as an acquisition? Were you impressed? Were you disappointed? Are there challenges that you foresee? Like, for example, let's say they're using an old tech stack. Our CTO will go, hey, there's a really old tech stack. We're going to have to rebuild that tech stack. And that's going to take us, call it three months to rebuild. So just so you know, don't go build a big heavy forecast in those first three months, because the system as it exists today, if you bring another 500 customers on, it'll break. And so that gets shared. And so now Chris, our president, CEO, runs revenue, will go, okay, so I'm going to start picking up the forecast after the third month. And so he appreciates that our chief product officer is figuring out the product roadmap and the things that you want to do to integrate the products, which is also pushing it out three months to get the infrastructure in the right place.

What stage are we at right now? Are we still pre loi or.

We haven't written an alloy yet.

Okay.

We're just getting like, internal consensus. And so Once you have internal consensus, what we do internally is we write a, it's like a 16 page board memo, 16 to 20 page board memo, where we articulate why do we want to make the acquisition, what are the pros, what are the cons, how's it going to integrate? And then a pretty detailed model that goes out to. We made an acquisition today, it would go out to probably 2024 that says here's what we're committing to from a go to market perspective, what we're going to sell on this, how we're going to integrate it into the product, what we're going to pay for it, what that multiple is, where the business is going to be a year from now, two years from now, three years from now. Some history about the business and what our plans are for the staff, any synergies that we see from a growth or profitability perspective. And then that memo becomes like the guiding light for how we're going to do integration, how we're going to do diligence. Because then we're going to get like kind of 45 days of diligence from there, sometimes faster. And so we take that, we write an ally as we're writing the memo. Integrations. People come in and so we have an integrations, a PMO team.

We're still before loi.

We're still before loi. So integrations and PMO is involved in the, in the memo piece. So they're like getting up to speed, understanding the business, understanding what we need to do. They have a really detailed M and a playbook that they run that runs from it. HR benefits, facilities, sales, the whole gamut of what you do once you have an loi. And when you're, once you're through diligence and then we write the LOI, LOI gets signed. 45 days of diligence to close. I'm pretty much out of it at that point. And Chris, who, Chris Hayes, runs sort of the motion there, the integration motion, the go to market motion. He's sort of orchestrating that with our PMO head. And then acquisition day comes and you're just sort of like checking off the boxes at that point. But that's a.45 days of diligence is really like diligence plus all of the integration work. What are you going to do on day one? How are you going to communicate? Who are the employees who are coming over? What is their incentive plan look like? Who do they roll up into in the combined organization? What is that team going to work on in the first three months, what's the website going to look like? Press release, analyst conversation. Basically run through that M and A playbook over the 45 days and then the acquisition date. It's just orchestrating that full motion.

As CEO is your primary role oversight on all these activities that are happening? What other roles do you have?

My primary role historically has been oversight. Today more of that is Chris Hayes role than it is my role. So he's overseeing that motion. I'm basically making like checking in with the CEO of the other business regularly. So we're probably checking in two or three times a week, making sure things are on track. If there's some issue somewhere that I can unlock, I'm trying to unlock that. I'm giving attention to the things that he or she thinks are behind and making sure we're getting consensus on little issues come up. A tax issue or a rep and warranty issue. Our tax people dug their heels in bubbles up to the CEO of the other business. He comes to me and says, hey, there's this issue. I go, okay, let me go figure it out. Doing that throughout the process, there's a.

Big emphasis, especially in the last five or so years, around culture and M and A aligning around values and things of that sort. I'm curious at your perspective. Is that part of valuation? Is that something that gets figured out later? How do you think that through?

We've had acquisitions where the cultures just match up really well. And then we've had acquisitions where there's like a cultural mismatch. What ends up happening is if you have that mismatch, it just really slows you down. I'll give you an example. We acquired a business and every business we acquire is a little bit like this. We don't mind if a company doesn't have a great go to market motion because we're like, okay, that's just like opportunity for us because we have this great go to market motion. We're going to bring it into the company. And we talk about that during the diligence process, during the LOI in this specific company. We got in the team on the other side went, no, we don't really think that that go to market motion works for us. We're special, we're different. You don't understand us. That motion is not going to work. And we're like, no, no, no, it's going to work. It's worked 10 times before. And we've mapped this out. We have a good feel for your go to market motion. We know how it works, just trust us, come on board, and we can really accelerate the business. You give them an opportunity to appreciate that, see us in operation and come along. And if they don't, you kind of have 60 days where you can trip over yourself. But at the end of the 60 days, if the business is not accelerating and you're not getting the velocity you expected by combining those go to market programs, then you're making changes. And so you're moving people out of the business or into other areas of the business, and you're taking over that motion and running with it. And the cultural mismatch there is, if we get the right people in the room and they really believe in the motion and they're hungry and ambitious and they see how big of a company you can build together and how big the opportunity is, you never have this problem. I probably had this problem across 12 acquisitions. Maybe I've had it twice and maybe it's one and a half times. And the key for us is we've instrumented the business so that we can see anything coming, whether it's activity, pipeline, conversion rates, website leads. We can see everything every single day in real time. And every week, our finance team actually sends across a dashboard of all of our different businesses and tells us how everything is going, from leads to conversions to outbound leads, inbound leads, forecasted deals, closed deals, ASP on those deals, no show, rate of appointment set. And so you can start seeing right away whether it's meeting your expectations. Somewhere in those 60 days, it's got to either click or you're making changes to what you thought the integration motion was going to be like. And in this example that I was talking about, you got 60 days in, things weren't getting better. We made a bunch of changes, and then all of a sudden the business was flying even more than what we expected. And so the key is, are you instrumented in a way to see whether your model that you built as part of the board memo is coming to fruition? And if it's not, do you have the conviction to make changes quickly, to get it back on track? And I think like in our M and a process, those two things we're.

Really good at clear visibility into specific KPIs that allowed you to act fast when things aren't hitting the timelines that.

They should and act fast. Every metric has an excuse underneath it. Every underperforming metric, there's some, like, thing that's special or different or rained on Tuesday and Wednesday. So I heard that people weren't working that day. And that's why our leads are every metric has an excuse. You can rationalize not making a decision, but you have to be really good at going, look, we thought this was gonna happen. We're pretty good at these. And so if what we predicted is not happening, we need to start making changes to see if we can affect change there. And so we're pretty good at actually doing the harder part. It's easy to see if the numbers aren't going in the right direction. It's much more difficult to make personnel decisions and organizational design decisions that change the outcome. And I think we're really good at making those decisions quickly.

Do you ever get early indicators? There's a cultural mismatch that would actually deter you from doing a deal?

It depends on the deal. If there's an asset in the market that is very good and it's scarce, but there's a cultural mismatch, you may push through getting the deal done and know you're going to deal with that post deal, but if the asset's not scarce, then you will absolutely walk away from a deal because there's a cultural.

Mismatch that makes total sense. What about deal fever, where you want something so bad and you start getting these little indicators, blips, red flags. How do you keep yourself from not pursuing?

So at the beginning of every year, I write down, like, all of the areas where I think we should do M and A and my thoughts on all of the areas, and I prioritize them. Here are eight places where I think we should be looking at strategically from an M and a perspective in 2021 or 2022. If I see something that's deal fever across those eight, no problem. I've already articulated. These are the eight areas that I think are of strategic importance for us. But if I see other things that are outside of those eight, it's really hard to go, wow, I was totally wrong about those eight. There's actually this other thing over here that's much more interesting. That memo really articulates the places where we should be paying attention and at the same time, the places we don't need to be paying attention. I've got a year of that, right? It's 12 months, not an eternity, that I'm not like, married to that memo for all of the operating history of Zoom Info, but for a year, I'm pretty convicted.

Those are the things I want to chat about. Change management. The way you laid out your approach to integration is really good. And this is bringing the integration A lot of those considerations up early, continuing it through having your M and A lead take ownership of those results to the end. But one of the biggest things I always hear from, especially integration leaders, is the challenge is the whole change management component. The largest magnitude of change management organization could go through. How do you manage that change?

You get key leaders on the other side to drive it for you. For example, we're going to collapse two Salesforce systems together into one in the first 60 days. That's a major change management motion for the reps because account executives, account managers, CS people, they live out of their CRM instance and we're going to collapse it into a new CRM instance and then we're going to actually make you work out of our motion within that CRM instance too. This is where we do CPQ and write up an order form and get a docusign out. What you really need is buy in from leadership and then key stakeholders on the other side to drive that. Because no matter what change you do, there are people who will object to that change just because it's change. There's a great book called Our Iceberg is Melting that's worth reading. It's all about basically change management. And so the idea is, can you get key people on the other side, individual contributors and leaders to buy into that and then drive it forward for you from a strategic level? That's the alignment you need to push change through the organizations.

As a leader, how can you make change management smoother and more pleasant for people you're bringing in?

Communicate it right away early, and you just go, look, this is what we're marching towards. This is what we're going to do. Here are the people who are going to own it on our side. We're going to listen to you as we do it. I'm going to have feedback sessions to really understand where we mess things up and then commit to making them better and taking that feedback back. But the key in most of this stuff is really communicating with a lot of transparency what you're trying to accomplish and then sticking to that.

It seems like that's just a big part of your culture, the way it is, what you're responding to. A lot of these questions.

Yeah, totally.

Let's talk about failures. I want to hear about the deal that went south. What are some of the lessons Learned through these 12 acquisitions?

One is where you get culture wrong or culture doesn't come together. You can expect to be slow out of the gates and then you just really need to be able to act fast. One of these acquisitions we did, and we were slow out of the gates the first 60 days. And I was like literally questioning my identity. For years I've been saying, we are a company that does M and A and we have this great muscle and we take these companies and we integrate them and velocity speeds up and da, da, da, da, da. And then you're 30 days into this acquisition and you're not seeing that. I'm like, wait a second, was I wrong? Was I wrong about who we are? We're 10 acquisitions in and like now I'm questioning whether all of that was true or not. And having conviction about who you are. And when you see results that don't look like what you thought they would be, just knowing this is an iterative process. And so if you're not driving change as a result of those metrics or those early indicators, then you're really failing from an M and A perspective. There was one acquisition we did, we integrated the product, we took it out to market, we sold a lot of it, and then we didn't renew a lot of it. And we went, okay, wait a second, what did we do wrong here? And what actually turned out to be the issue for us is a couple of things. One, it was very hard to demo. And so it was very hard for our account managers and our account executives to actually articulate and demonstrate the value of that solution. Which goes back to one of the key things you have to be thinking about when you're doing acquisitions is what is my go to market motion on this going to be like post acquisition, how am I going to sell it? How much of it am I going to sell? How am I going to comp the sales team to sell it? Is it going to be an accelerator? Is it going to be part of their core quota? How many of our customers can buy it? What percentage of those are going to buy it in the first year, the second year, or the third year? How much capacity do our account managers and our sales teams have to be able to bring that to market? Our sales cycles are really fast up front. They're sub 30 days. Does introducing this thing actually slow down the sales cycle? Because you don't really want to do that. And so really thinking through how am I going to demo it? What's the talk track around the demo? How do I paint the vision for it? How do I enable a thousand people to take it to market in the simplest way possible? Thinking through all of the nuance that comes with the go to market motion is critically Important to not failing once you make the acquisition. So we made this acquisition, we integrated, it looked great. I was really proud of it. And we just didn't get the Go to Market Motion. And so it just never really got traction. It kind of fell on top of itself. And then we realized back to the Go to Market Motion, you actually had a mismatch on the buyer Persona. So we thought we would sell this thing to sales managers. And it turned out the people who really wanted it or the output of it were sales operations managers, revenue operations managers, highly technical people in the Go to Market Motion who have the most nuanced needs from a product perspective. We need that data over here like this. We need this data over here like that. We want to consolidate these three data fields into one field to run this thing. And we just didn't have a product that could do that. We had a product that could help sales managers understand how a deal was going or what communications you had with the customer. But we didn't have a great product for sales operations professionals at the time. That was our actual buyer, but we were trying to jam it into another area. Really understanding your Go to Market Motion can solve a lot of problems for you downstream.

You learn a lot from that deal.

Yeah, yeah, that was a painful deal.

Any other fails you want to talk about?

Sometimes it takes a little bit longer to see your vision come to fruition than what you had planned. We made an acquisition years ago of a company called Telwise that plays in the sales automation space. There was so much demand on the core Zoom info platform that we never put resources behind innovating or building that acquisition up into something that we could really take to market really until like three years post acquisition. And so the thing sat around, we made like little investments in it here and there. And then three years later, we got real conviction behind it and said, okay, we're going to put real resources on it, we're going to take it to market in a real way. And we made commitments behind it. And then that really took off. That's our Engage product today, which is one of the fastest growing products in the Zoom info suite. But it just came so much later than what we originally planned. Sometimes that's okay, but probably not so much when you're a public company, when you're a private company, you might be able to sit on something that long, but when you're a public company, getting consensus on the resources you're going to put behind something and modeling out what the future looks like is the most critical part of the pre acquisition motion.

I'm really curious about the difference between doing acquisitions of private company versus public.

You're just way more precise when you're a public company, everybody's all in. Nobody can shirk their responsibility. There has to be full consensus and people are making commitments that their bonuses are dependent on. So it's just different in that respect. You're doing something similar from a private company perspective. But your precision on the acquisition doesn't have to be as right on as in a public company.

Public company market's a little more forgiving where you have to own those financial results, where there's more around market perception and what that looks like as a public company.

Totally. And then messaging is much more important in a public company. In a private company, I can make an acquisition by talking to six people. I talk to my board, those six people, I go, hey, this is what we're thinking. This is the vision for it. And they either get behind it or not. In a public company, two things have to happen. First, the acquisition can't be a surprise. And so what I've told you I'm going to do here on this podcast from an M and a perspective, I can't veer away from that. I can't say, hey, I'm going to make acquisitions in sales, marketing and recruiter. I'm going to make acquisitions that cover the broadest swath of our customer base. I'm going to make acquisitions that I can grow faster. I can't go make an acquisition that doesn't fit those things because I pre set up all of our investors and all of our analysts to believe that those are the types of acquisitions that I'm going to do. And so then when we do them, I have to message back to those things. It has to be genuine. If I go make an acquisition of a company that sells to an IT decision maker, everybody's going to smell that from a mile away and go, wait a second, Henry's lost it. He's just out there doing crazy acquisitions now. This has nothing to do with what he told us he was going to do. We don't trust him anymore. I have to build that trust about what we're going to do. And then I can't really veer away from that without giving people a heads up before I do it.

And in a public way, investor relations is a thing.

Yep, investor relations is a thing.

Or do you prefer doing deals private or public?

I don't have a preference, actually. I like them both. Public makes you be a better version of yourself, because you have to communicate it. You have to get the vision right ahead of time. Pre being public, I wasn't like a big vision guy. I was particularly like, I wanted to be a great operator of a business, and so I wanted to build a best in class company. That's what I was focused on. When you go public, that's important, but you also need to be able to articulate a vision for the company's future. By the way, doing that is good for everybody. It's great for your employees because they understand what you're doing. You're much more crystallized in your explanation of why you're doing acquisitions, why you're doing that specific acquisition, how it fits into the overall strategy that's just better for everybody. And so really elevating your game in that way in the public market is. It's just more challenging, so more fun.

We didn't touch on this much, but what do you do when you run across an auction process? Because you walk through your process and it's not really conducive of running it through an auction process.

We played in auctions. And so if we see an asset that we think is really interesting, the motion for putting a number in front of the company is the same. Whether there's an auction or not. Doesn't really matter whether there's an auction or not.

Got compressed timelines. You got some?

Yeah, it's a compressed timeline, but we can operate pretty fast. The last couple acquisitions we've done, we're in the middle of a fundraise, so it's not that dissimilar to an auction and that they are like in the middle of a fundraise. They know the fundraise will close quickly. They have certainty there. I have to convince them that we're a better option and there's certainty to close with us as well. By the way, I've never signed an LOI that I haven't closed ever. I've never signed an LOI that I haven'T closed. So if you accept my LOI, in 12 out of 12 instances, we have closed that deal. Maybe you don't accept our LOI because you don't like the offer or you think there's a better option. We've never engaged on LOI that we haven't closed.

That's good. You work out any little hiccups or things that come along the way and make it happen. Get it done. I gotta ask Henry. What's the craziest thing you've seen in.

M and A I don't know if I can point to one crazy thing, but what I can tell you is bad advisors in the M and A process can cause all sorts of havoc. And I've seen in many instances, the company hires a bad lawyer, a bad tax lawyer, a bad investment banking advisor. They have a person on the board who steers them the wrong way. At a company once, tell me, yeah, we didn't think your offer was real because someone on our board told us that you just don't do acquisitions like this and you don't have enough cash on the balance sheet to close the acquisition. I have a ton of debt capacity. And so our plan on that acquisition was to fund it like partially off of the balance sheet and then partially with debt because debt is cheaper and we have a lot of capacity to get debt. And so this guy, like got into the CEO's head and then he passed on the opportunity with us when the close was certain. Absolutely certain. And so there are advisors along the way who give CEOs or board members really bad advice. The deals can go sideways as a result. The learning from that is go figure out who's actually making the decision at the company, not always the CEO, by the way, and make sure you have a tight relationship with those people where you have a direct line of communication to come to them where things go off. Now, in this other deal that I'm thinking about, the lawyer was particularly good in articulating our point of view back to the company. You had a board member who was giving really bad advice and when that would happen, we would actually go, can we get the lawyer on the phone? Because he, like, gets it. And so we'd go articulate our message to the lawyer who then got the company back on board. And so really understanding who the decision makers are listening to is super important in getting a deal.

To Clojure, it's all about relationships at the end of the day, especially in M and A.

Yes, absolutely.

Henry, thank you so much for the time. I enjoyed the conversation and learned a lot.

Thank you, Kisan. I appreciate being on. Thanks for taking the time with me.

Here's to the deal.

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