On August 1st 2010 Red Condor became part of St. Bernard Software. There was a significant integration effort for both sides given the size of the firms involved. At the time St. Bernard had around 100 Employees and Red Condor about 25. This was not the first integration for St. Bernard but the last significant one had been almost 10 years earlier.
Immediately the G&A functions were combined and the Red Condor folks stayed through a transition period. My only problem on that front was the loss of credit card purchases for the SaaS solution. We wanted to have a hand’s off approach to small deals. Customers could self-provision a trial and pay through PayPal. Given St. Bernards appliance background, this did not match with what they did. The problem was that it drove up our cost of sales for very small customers. It is also one of the challenges in integration. The business strategy work that is done generally looks at the market and customer synergy of products and services. The difference in billing was not considered an issue, but of course it was. SaaS products – especially for smaller businesses – often require a very low cost of sales. This is all a part of integration and people need to take more than a superficial look at all business processes when two companies combine.
We also dealt with integration in Customer Service and Network Operations. Let me start with Network Operations (NOC). NOC folks have a similar technical background as IT folks in a company like Red Condor. In fact, a secondary responsibility for the NOC team was IT support. Prior to the acquisition, I had look at outsourcing Desktop support and potentially a lot of other IT functions as part of the growth plan. The lack of funds stopped that, but I was hopeful that St. Bernard took that over. What really happened is that NOC and IT were combined. Suddenly, NOC was not Network Operations first but instead IT first. That meant customer programs suffered. Security Operations (SOC) was combined with St. Bernard Customer Service. For a long time they stayed separate, due to the 24/7 nature of SOC. The bigger challenge was the lack of understanding of SOC’s role in the performance of the service itself. SOC was responsible for updating the mail filters to catch new Spam Campaigns. Performance tracking, Training, and Tool Updates were all necessary to keep up with the work load. Again, it is all about the two teams and the business processes that they support.
The biggest issue with integration however was in Sales and Marketing. There was significant overlap in one area within Sales and that was Inside Sales to Small Business. Both companies used this technique to call potential customers as well as to close renewal business. Given that the combined company was selling (theoretically) to the same clientelle it made sense to combine the Sales Forces and streamline operations. The challenge here was different in that the Sales Teams had very different views on the state of the Products. The St. Bernard Team could already sell a product equivalent to Red Condor through a prior acquisition. However, they found that mail solutions were much harder for them to sell and generated lower commissions. So unless a prospect or a customer asked about the capability, the Sales Representatives never worked at it. This was missed during the combining of the Sales Teams and after a couple of months the Red Condor Sales Team was terminated to save money. Predictably – small busines sales of the Red Condor product abruptly stopped.
You can imagine that the consequences of these actions were not obvious to the people making the decisions. If there are to be changes at either the acquiring or acquired companies, these issues need to be thought through top to bottom. Ideally much of this would be done pre-acquisition, but the reality of all of this is that it is done post-acquisition. On top of that, there is normally a model of “Synergy Savings” built into the updated business plan before the acqusition. If this new plan is very aggressive in dropping people, processes are likely to fall through the cracks. This deep understanding of business processes is not found often in acquisitions and it is why many of them fail. I have sat in many a room where my new corporate owners ask “Why do you it that way?”. When they are answered, they don’t compare and contrast what might be good about the system. The answer is: “Well, we do it this way so change right now to our system.”
This is true even for companies in the same business. If you are part of either an acquirer or an acquiree, take your time to study the full system impact of change.
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