Acquisition or sell-up? Rob Walling shares his insights from the sale of Drip

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The announcement that LeadPages had acquired Drip came as a surprise to most of us. Yet knowing that LeadPages was able to raise $27 million in its Series B round of financing, it shouldn’t have been a surprise, given its desire to expand its portfolio of tools to optimize for conversions.

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To LeadPages, Drip’s ability to provide “lightweight marketing automation” for small and medium-sized businesses, centered around email, would seem like a good fit.

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But what would Drip stand to gain?

Our previous posts have covered Rob’s thoughts on how to create your first software product and how he bootstrapped Drip into a 7 figure SaaS company. On seeing the announcement, our initial thought was – Having come this far, what could have possibly made Rob open to the possibility of letting Drip be acquired?

We figured the best way to answer this question would be to ask him.

Here are his thoughts on being acquired and some of the issues that entrepreneurs should be aware of as they approach a possible merger, acquisition or sale.

How to grow beyond 7 figures

On the Drip blog, Rob announced that the company was acquired by LeadPages. In the post, Rob said that the company has been able to accomplish a lot within 3.5 years because they are constantly asking themselves –

What’s the next feature we can build to push this industry forward and make our customers’ lives easier?

Rob had initially been resistant to an acquisition, but as Drip grew, he began to realize that they would need a significant amount of capital to grow in the way they had envisioned. This first and foremost meant that they needed a business case for growth and expansion. To be able to grow there were 2 choices –

  1. Raise capital, or
  2. Be acquired by a business that is closely aligned to theirs.

What would the capital be required for?

Rob says they needed a few things to be able to grow significantly.

  • They needed to tap into a marketing machine. In other words, a business that had a big audience and was continuing to engage them across different platforms.
  • They needed people, to continue to provide the level of support that Drip customers were used to as they improved and added more functions to Drip.
  • They needed additional servers to be able to sustain growth and demand.
  • Most importantly, they needed a strategic fit with another company that operated in a similar space and that had a similar vision for their future.

Deciding on deal breakers

In approaching the decision to possibly be acquired, Rob had ongoing discussions with his business partner Derrick Reimer. Through those discussions, they drew up a list of deal breakers. If any one of these were met, it would mean that the deal would not be right for Drip. They included the following:

  • Drip would not be shut down.
  • Any merger or acquisition would not disadvantage customers in any way.
  • The roadmap that Drip had set out would not be changed.
  • Employees would remain, continue to be employed and not be disadvantaged.
  • The deal would really need to make sense for Drip, which was a fast growing bootstrapped company.
  • It would offer the ability to tap into a bigger audience pool.

These paid off for Drip in a few ways.

Take the following for example. Not long after the acquisition of Drip, they announced a $1 plan for those who had 100 subscribers or less.

drip-pricing

This was not something that Drip was able to support prior to being acquired simply because they did not have the staff and resources to service that segment adequately. This option did however become a conversation point with LeadPages co-founder Clay Collins in the negotiations. Both Rob and Clay knew that justifying the drop in revenue would be hard in the short term, but the gains in the long term would make it worth it.

Not long after being acquired, Drip offered the $1 plan for 100 subscribers or less.

In terms of being able to leverage a marketing machine, Clay, with his podcast, blog and conferences, was a good fit for Drip. Especially given Clay’s desire to keep building on his successes with those platforms.

How to negotiate like a seasoned pro

To further support the journey into potential acquisition, Rob brought FE International to help with the negotiations.

Why?

Rob had read books on the subject of selling a business like Built to Sell and Finish Big. Through the advice of these books and from those who had gone through the process, he realized that most businesses that had been acquired or sold fell into 1 of 2 camps.

  1. They had an advisor to take them through the process of selling a business.
  2. They regretted not having someone on their side during the negotiations.

The fact is that most businesses that initiate an acquisition tend to have a few under their belt and are therefore way more experienced. Rob knew that if he approached an acquisition on his own, he would be at a distinct disadvantage.

Pitfalls that founders need to avoid

The process of a business sale or acquisition is often fraught with pitfalls for founders.

What pitfalls?

  • The danger of bringing your team into the chaos. The fact remains that your team needs to keep producing if business is to continue in the interim. For Drip, the acquisition process took 13 months, 6 months of which were really intensive. Rob only let the team know 5 weeks before sale.
  • It is easy to take your eye off the ball as the process and negotiations can consume a lot of your attention. It needs to be business as usual until the sale is complete.
  • The danger of making business decisions in the interim based on the possibility of a sale which may or may not come to fruition.

To avoid the pitfalls and help him keep his focus on the business, Rob decided to enlist help.

Rob had used FE international during the sale of his former business Hittail and had referred others to them in the past. While this deal was smaller than what FE International usually handles, they did have the skills that Rob required in the negotiations. So he asked them to help with the process.

For any founder or entrepreneur considering a sale or acquisition of their business, Rob offers this advice:

  • It will take longer than you expect. For example, first contact with a buyer alone can take a year or more. It is not a quick process.
  • Startups are bought not sold. When someone looks at acquiring your business, that is when you get the best terms. When selling, you are on your back foot and unlikely to get close to what you could potentially get when being acquired.
  • It makes the most sense to sell when you are not looking to sell. This sounds counter-intuitive, but essentially it means that you will get the best terms when being sought out for acquisition as opposed to putting your business up for sale.

Integrating Drip into LeadPages?

It has now been a few months since the acquisition. What does it mean for the future of Drip and LeadPages?

Both Rob and Clay share an open marketing stack philosophy. A marketing stack refers to a group of technologies that marketers can utilize to execute, analyze and improve their marketing activities. This includes technologies that assist with everything from marketing automation to data enrichment and analytics.

An open marketing stack means that the technologies utilized do not have to be tied to one particular platform for them to integrate and pass information or data.

Another LeadPages product called Center lies at the core of this by allowing for integration with other services. Drip currently attaches to Center and so is an obvious choice for its many LeadPages users.

center

From a branding point of view, Rob says that there may be a convergence over time. But branding integration aside, the code base for LeadPages and Drip is vastly different so will remain separate. There are, however, plans for ongoing technical integration to allow for tighter passing of data.

Rob and Clay also share a belief that smaller teams make for better products and as such are not going to be looking to form a large team or company. However, based on the open marketing stack philosophy, both platforms will continue to integrate with the others’ competitors.

To help with your business growth, download the 8 lessons on growing WP Curve from $0 to 1 million in revenue, below.

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About

Vinay is the content marketing manager for WP Curve. Follow him @wpcurve

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