Why Pendo Buys Startups (And It's Not for Revenue) with Todd Olson

23:10What was the strategic driver for this receptive acquisition in 2019? That one was an area where we do have what we call market maps or slides with different adjacent spaces. We're always asking ourselves, if you look at our core buyer, what else are they using around us in conjunction with us? One of our core personas is a product manager at a product. And nearly every product manager has to deal with customer feedback. There's been solutions for years around either having customers vote them up or subscribe to them or co-leading by customers, but you want some way to manage customer feedback because it's painful.

23:45The thesis was, all of our buyers have this problem in pain. All of them are going to need a solution in this area. It'll be a great part of our overall platform story. That was the thesis. We looked at a few companies. Yeah, it's a great one because, again, I won't go into names, but there was another company that we looked at that felt like the more obvious choice. It was bigger, had more revenue. A lot of their team was actually in Raleigh, our hometown. How many tech companies are in Raleigh? It's not in New York City or San Francisco. So the fact that they were there, I was like, whoa, this is like a match made in heaven.

24:15But no, we ended up buying a company in Sheffield, UK, another place I'd yet to ever visit in my life. Sometimes the most obvious decision isn't like the right one. Wait, why though? Why? It doesn't seem like it's a product, but is it more like the culture of the team type of thing? Bigger isn't always better. The company had a long history, a lot more complexity to it. Some of the customer contracts and situations were just, I don't want to inherit it. I want something cleaner. They had some actually very large customers that I thought could have been churn risks. And you'll see us avoid buying something where I'm going to churn a bunch of their customers.

24:50In general, you don't want to buy churn. Because one, you're probably paying for the revenue. And then you're going to lose it or your team's scrambling to save it. So we tend to be much more careful around those situations. So this is a situation where bigger was not better. Bigger were just more challenges. We opted to go with a simpler, lighter approach. While they weren't from our hometown of Raleigh, the founders, we really clicked with them. Good, scrappy, entrepreneurial people that were just passionate about what they're doing. And just frankly, really good people. Smaller is easier to consume.

25:24So it was like a four or five person company. yeah, it ended up being really just a good fit. And now to this day, the Sheffield office is one where great office, great vibes. And interestingly, both founders actually since departed. They stayed probably four-ish years. One's, I think, a professor at a university and one I think is probably dabbling in some startups. But they left a culture that really still embodies this entrepreneurial spirit. Interesting fact, post-COVID, we were trying to get people back to the office. And that team just without really any like top down push, just started coming back every day.

25:59We want people in the office three days a week. At some point they were coming back five days a week. They just like being together. They liked being together, like building together, like collaborating. They like talking about things. I mean, just feel this good vibes when you're in that office. Yeah. That's when you know it's a good acquisition. When you say that you go through this exercise of market mapping, is it centered around, here's your ICP, our ideal customer, and then map the universe of other products or things that they would do, product leader example. Is that how you look at it or is it more just broad category segments?

26:31Yes. I'm usually starting with our buyer, our personas, and what else they use on a day-to-day basis. If I'm trying to build a solution that's a single pane of glass for a role at a company, what are the things I need to have in that single pane? That's a big way about it. We build our own market maps. We don't really leverage any third parties or analysts. Sometimes our VCs will help us with diligence or looking at companies. Sometimes, but not always. Not always. We often like to do our own work. Now we have obviously things like Chachibichi, deep research and things like that, which like actually pretty powerful for work like this.

27:05So that's a new part of our process. We just started using more recently. But yeah, it's kind of how we think about it. And look, I like to use these products. We have to play around with them. Would we use this product? Does it make sense to go with ours? That's always a good proxy. The most recent acquisitions, since we're getting on the stories of all the deals he's done. Yeah, yeah, yeah. Zelta. Can you tell me a little bit about that one? What was the strategic driver there? It's actually almost a continuation of receptive, the Sheffield-based acquisition. So that product started to bring us into its more qualitative data about what people want in products.

27:36Specifically, users are asking for these features. Now, by the way, it's a great solution. But there are products, requests, and signals all over the enterprise. They're in support tickets. They're in call recordings for your go-to-market teams. They're all over the organization. The right solution, the right long-term solution isn't just a form where people go and specifically ask. It's you should be harvesting this data from all these different systems. So that's kind of the backdrop of the problem domain. Large language models obviously are amazing at certain things. One of the things that they're very amazing at is looking at large quantities of text and pulling out certain insights based on prompts.

28:19They are amazing at it. What was a hard problem maybe five years ago to ingest an entire company's Zendesk tickets and tell you what their customers want. With LLMs, it becomes a much more practical solution. And we also realized we just didn't have people at Pendo that had huge LLMs for this application. So we went out and started looking for companies that can add this capability to our stack. Look, if the future of software and technology is going to be AI or agentic, it is going to be. That's a pretty safe bet. A lot of smart people believe that. We just didn't have all that skill set and experience on staff.

29:00And look, it's one thing for us to build up a prototype to do it. The bigger question there is, how do you scale it? What are some of the challenges with this technology? There's this concept, and I'm pretty confident, is in Lean Startup. Yes, in Lean Startup, where they talk about validated learnings. A large part of my thesis around acquisitions is, what are you paying for? Especially if you're not paying for revenue. And by the way, most of these small companies, revenue multiples are never the ending deal price. Like revenue multiples are companies like Pendo. like established companies that have been around for a while that have pretty durable.

29:31There is no revenue multiple you can apply to a sub-million dollar ARR business. It's a strategic purchase. So the question is, how do you think about valuing it? What are the validated learnings I'm buying? Because that is what I'm buying. I'm buying validated learnings and maybe some customers, some tech, and some human beings. That's sort of how I think about all this is that they've made a bunch of mistakes. And if we buy this company, we will make different mistakes, but not those elementary ones. And that's worth it to me. That's actually really interesting to you. Yeah, they're already gone on this learning journey.

30:05It's like a form of equity you're acquiring there. Exactly. I have to go through that again. Exactly. That's actually really interesting. What about the devaluation? As soon as you slap AI to a company, it's like... I always joke, what's the re-evaluation of companies? Where the two parties agree it is. That's really what it comes down to. It's really as most basic as that. The question is, what are each party's alternatives? And each party won't share those alternatives because that'd be bad negotiation. But it really comes down to what those alternatives are. When I think about AI companies, if you're a B2B AI company and you get to any level of product maturity, at some point you're probably thinking, do I need to build a go to market team or not?

30:46That is what you're probably thinking. Because guess what? But if it's a B2B company, you probably will need to build a go-to-market team. If you're a technical founder who's an AI expert, the question you have to ask yourself is, do you want to build a go-to-market team? And some will. Some will. I did. I'm a technical founder. I built a go-to-market team. Don't regret that decision at all. But if you just are really passionate about solving hard technical problems, sales is kind of scary and don't want to go out and hire a bunch of people. By the way, the quickest way to burn capital is go out and hire a bunch of salespeople and have them not sell anything for a period of time.

31:20That will burn cash. I learned that. We all learned that. So that's just the way that life works. So for those people who want to keep building, really passionate around AI, we actually could be a really nice destination for them because you can build here. We've proven that we've kept people from previous acquisitions as builders. And they get plenty of autonomy. And guess what? We have a huge go-to-market team. We have 150-ish quota carrying reps, 150 global. Like you need to build that. You just take your product, integrate it in, maybe it's rebuild the backend to be in our data center, which we did.

31:55Zelta. Zelta was one where, again, we did two mistakes. We were not going to make a third. That would have been. So you're a lot more practical. Oh yeah. We just stopped selling it. We fully wrote the backend in our data center. Like everything's totally native and fully integrated in. And then we launched it subsequently. That was the right call. I feel really good about it. And we're off to the races now. So now it's looking pretty awesome. There's no hacking necessarily building a go-to-market team. Yeah, you can do PLG, but PLG just depends on the product domain. And that's usually more B2C-like use cases.

32:27But if you're B2B, yeah, it's still a decision to make. Do I want to build this or do I want to not? What are the structure of these deals that you put together? There's always cash as a lever to pull, earnouts if there's a valuation gap, rollover equity. Have you found a combination that works well? We tend to like equity-based deals. We do have cash. Historically, sometimes had cash part of the deal. It just depends on the situation, but not a lot. So if cash is part of a deal, it's very small and or tied to some sort of milestone or something like that. We've had conversations. We haven't actually transacted one where cash has been a more significant component, but actually I'll be candid.

33:09We had a very significant deal that I spent a lot of time on that ultimately didn't transact for that very, very reason. I just couldn't see a world where we load someone up on cash and they had any incentive to continue working. The question my board's going to ask me is, how do you know they're locked in? How do you know they're going to stay there? You're going to acquire them, they show up and three weeks later, they're piecing out, taking their money and starting the next thing. They're entrepreneurs. They like starting things. How do you know you're going to keep them there and retain them?

33:35Retention is something we spend a lot of time on in these deal constructs. What's going to keep them here? and how do we know we're going to get a return on this investment? That's only what it comes down to. Are we going to get an ROI and can we retain people? Because there's a natural belief that if you're an entrepreneur, you won't want to be at a bigger company. As good as we are, as cool of a culture, as much as autonomy, it is a bigger company. It is bigger. There are going to be some hoops to go through. You're going to buy something. We've got a professional procurement system that will take a few steps.

34:04You can't just go put on your credit card, potentially, and that'll piss off a few entrepreneurs. It has pissed off entrepreneurs. There's nothing I can do about that. There's some trade-off in transition for these incoming entrepreneurs. 100%. Regardless, you can't paint the golden road for them. So there's no magic in it. Look, earnouts need to be very carefully constructed. Simpler is always better. Shorter is always better. I have, throughout my career, seen games played with earnouts on both sides. I don't like games. I've done simple earnouts or just retention-based bonuses. Be here for six months, one year, two years.

34:36Show up and I'll pay you the vote. Yeah, I like those. I'll use those. The goal there is retention. But then where an earn out becomes more interesting is when there is a disconnect on the valuation of the business. And the disconnect is predicated on what maybe the seller thinks are going to contribute to your business. Oh, we're going to contribute in future revenue$10 million. Great. Okay. Are you willing to bank an earn out on it? Because I'm totally comfortable not holding you accountable to that number. But we're not going to gross up a deal to that either. So when you can't come to an alignment, but you still want to proceed, earn out could be a way to bridge that gap.

35:12There's some financial considerations to keep them in, be it earn out, rolling over equity. It sounds like this is a big part of just thinking about unlocking value post-close is you already talked about you like the product, you like the team. But keeping that team around, keeping them incentivized, you got some great examples where people continue to thrive post-deal. any other things that contribute to that, that you're making this a good transition for them to, and this is to me like the magic because people don't think about this and where deals go south is everything after a close. Yeah, so we start doing integration planning pre-close.

35:47We have an internal owner of the integration, always pre-close. Because three of the five acquisitions have been product level, we always have a team in the US assigned to help that technical team on board. Because this is the other big failure pattern we realized. If you don't have a team on the core engineering team working with them, they don't know how to integrate in your product. They don't know your stack. It's not like just hiring one person or two people or three people. When you're putting them on existing teams, you're hiring teams of people and you're saying, go at it. So we always have a team that is a shadow team or the integration team, like the conduit between the core product architecture and the new product.

36:28That's something we've done in every single case. We're the kind of company, I already mentioned, discipline and cadence. We like running with some set number of either initiatives or OKRs on quarterly and annual basis. So this integration always becomes an OKR. So by definition, that means regular check-ins, specific key results and data being measured, readouts at every town hall, which is biweekly. So we're going to bring a lot of visibility to it if it's an acquisition. That's generally worked. The only thing we didn't talk about, we talked about all the product acquisitions. We did buy a community, which is kind of a different, actually about two communities.

37:04I'd be interested to talk about that. Yeah, it's a pretty fascinating story. As I said earlier, we started this concept of community. And the vision behind community was, I always thought one of our barriers to long-term growth was the number of qualified product managers who could use our product. If there were an infinite number of product managers who used a product like Pendo, we'd have a much bigger TAM. But the truth is there aren't. We need to go educate more. We need to help do the change management of teaching people how to be product managers in the long term. Like long-term, TAM, we need more people that can take advantage and use our product in a meaningful way.

37:36And so we need to grow these people and we need to invest in these people. So community was a way to get people together, share best practices, educate others on how to leverage these sorts of technologies. It's particularly relevant for our business today. We work with now companies like traditional business, like banks and retail companies. And they're taking people who've been subject matter experts or business analysts at their companies for years and trying to teach them how to be product managers. And the cool thing is they're buying a lot of that education from Pendo now. And we're actually helping partner with them to help transform business.

38:10So it's not just that you buy product from us. We're also going to give you tools, certifications, and training in order to like... Was that part of that? These community acquisitions? They already had certifications and things like that? yes and no. We had product craft. It was working, but it was small. We got approached by Mind the Product and they asked if we were interested. The way about that strategy is there's a great... It's part of one of the Jim Collins books. He talks about firing bullets before firing cannonballs. And if that whole concept is run little experiments, seize what's worked before you send the cannonball in.

38:44Product craft, all our other work was like little bullets. We knew it was working, but we wanted to go on the strategy, we bought Mind the Product. Mind the Product came with a ton of content, came with training, came with trainers. I came with multiple large conferences. So it's like taking what we're doing and like growing it by 5, 10x. And I also brought a whole team that were experts in doing that. Once we did that, we saw the opportunity to add the certifications and we challenged that team with creating the certifications. Then that's the team that formed all the certifications and that drove another level of growth for us within the community.

39:19So yeah, it's kind of all part of one strategy. The vision was, it's pretty simple. We want the community to grow. Of course, if I had to think about it from an ROI perspective, it is a lead gen engine for the companies. You do look at the future of how you generate leads, specifically in a world of declining web traffic because of AI and other things. And you've got to find other sources that's creative. This group not only has large conferences, they also run meetups globally. So it gave us global reach. just kind of think creatively about how do I grow my business? And this felt like a pretty good alignment.

39:51It's so true. This is the trend as a tech company. You need a media component to it. Exactly. We've seen the same thing firsthand. Web traffic, even paid ads, all declining. And this reason, this podcast generates a lot of leads for our business. So it's absolutely true. Yeah, you need to be creative. It's been a really good one. And then we doubled down the strategy when we bought Product Collective, which was a US-based community. They ran the industry conference in Cleveland. last year. And that was also, again, it comes down to people and talent. We've known the leaders of that for well over five years.

40:23We've been sponsoring that conference and we're just really good humans. And we thought they'd be great marrying with Mind the Product. And at the time, we needed probably leadership for Mind the Product. So we acquired Product Collective. The leader of Product Collective now leads Mind the Product. So it's like one big happy team. And we have now a pretty solid presence there and they're doing really great work. So that's scenario, we're really happy with that strategy. This is interesting because it's, if you think about what you described for strategy, ICP, but now it's almost like you're flipping around to the go-to-market and it's, this is a strategy of the go-to-market that you're actually accelerating with this community play.

41:00Cause it's not a traditional market map where here's a, that's not a traditional market map. That is when we look at our business and look at what's special about Pendo, like how do we differentiate? I've long said that we're more than just a software company. We want to help transform and change businesses. And if you're looking at some of these traditional companies like the banks, like the other ones, they need our help in transforming. Step back. I kind of described Pendo the way I described it was like every company is becoming a software company. We need to help them, teach them how you run a software company and what roles you need.

41:33And that's part of this vision here. We realized early on that we needed to help companies transform. So it's all part of that strategy. Yeah, you definitely help them optimize running a tech company, basically. Yeah. That's the vision. I still don't get how you stick through like mapping it. Think of it this way. We'd already been doing this, but doing it at a smaller scale. We had a few people on it and we started modeling out like what would make this attractive for us. You start looking at the numbers and you start understanding what it would do for adjusting some of our essentially marketing programs.

42:06Then also our international reach. When we made this acquisition, we were still primarily a North American business. and they have meetups in, I don't know, probably 30 to 40 outside the United States. So it's also just trying to get more global reach. Do you run independently or did you end up holding them in? The brand is owned by Pendo, so we own it. Volunteers actually run the individual meetups in different cities. Pendo will probably sponsor food at some of them. We'll send speakers to them. That's the other thing. If we have customers in regions that want professional development around speaking in front of audiences and other things, We now have an outlet that we can say, hey, would you like to speak at a meetup in your local community?

42:46We'd be happy to have you do the July meetup, which is a win-win for everyone. One, you get to hear this person's great insights. Two, they get good professional development and experience. Three, maybe they're recruiting for folks and they can meet people. I just think it's an ultimate win-win-win. This has been good. I can tell you, coming from M &A background, I'm deal happy. We're at that stage you mentioned pretty early. We're about, well, just under 50 people, 10 million ARR. I'm just like, want to go do a deal, want to do a deal. But most of my drivers around revenue for some legacy tech that you got to take apart, try to migrate the customers over, dealing with churn risk.

43:21Everything you just discussed is like the driver is having this strategy for a brighter future as opposed to fixing crap. I feel like it's a good challenge for me. I think there's a little deal DNA coming from the M &A advisory that you just want to do deals. And these are, oh, we can turn this thing profitable. Well, I want to do deals. And that's... You're sticking to strategy. That's the thing that I'm learning is easier said than done. I am maybe not as much of a deal junkie as you, but I like doing deals. And look, I like doing customer deals too. So I'd probably prefer those over M &A deals.

43:53But I like these things. I get excited by them. It's just my personality, I get excited about them. One of the interesting rubrics is, but I have two co-founders that are just very cynical people. So one of the things that the three of us can agree, we always feel better about doing a deal. And guess what? We've only agreed a handful of times, hence the number of deals we've actually done. But generally, it's sort of easy to be a deal person. It feels like winning when you get something done. It does. It's gratifying. The other interesting fact is we've never had a corp dev person, like ever, in the company history.

44:23So all these deals means that it's ticking away from something in our day jobs. And that is very time consuming. And we do look at a lot of things. At any given time, we're probably looking at two to three things. And not like full-time active, like in a real cycle. But we're having exploratory conversations. We're learning more. I never want to miss out on something and be like, why didn't we get the call on that? That's not fair. I've made a point. If you even read our press releases, I've been very, very clear in all the language that we are open for business. Call us. If I'm going to be, we're open for business.

44:57I have to actually then answer the call, respond and engage. And so we do do that. Despite the fact we've only done a handful of deals, we'll look at a lot of things. We'll talk to a lot of people. And we put good relationships through these things. There was a company we spent a lot of time with, didn't end up working out. Boy, I like those people though. Good people. Could they be part of Pendo one day? Maybe. You just never know. But I don't regret a minute I spent with that team because they're just such good human beings. And I learned something. And as you know, it's actually pretty hard to get deals done.

45:28Like you described, you want to be rewarding at the end of the day when you get the deal done. They didn't put yourself out there. No CorpDev team. You guys were just under 1 ,000 employees. no corp dev use bankers on your deals never no never no we definitely don't we have interacted with bankers on the other side one very memorable process but probably a couple others as well but honestly i've never enjoyed it and why is that the bankers are always trying to control the process and i guess it's their job so they're being very cagey on what information is being shared and And I just think it's honestly, I know that they're trying to do a good job for their clients, but I never get raw with the entrepreneur to understand who is this person?

46:10What are they all about? They never let me. I always get some shield. And I like to know what I'm partnering up with. So I like to know who they are, what makes them tick. It's just a lot harder to get to the truth. So yeah, it hasn't worked. I'm not opposed to it. My friends are bankers. Love you all. You're all great people. But it's been a little more challenging. Yeah, a little more challenging. Yeah. The control of the timelines, just being able to work with that party, the element that you go through to build trust. That's what will give you data. You get a lot more data from the company if they don't have a banker involved.

46:39Yeah. So once a banker is involved, some analyst has to prove their worth by cleansing something or removing something or doing something. So it's just, to me, and then you have a lack of transparency, just slows everything down. I got to go fast. You got to be proactive. What's your approach to getting ahead of these opportunities before they turn into an auction process? you always gotta be meeting people and talking to people i don't go to a ton of trade shows anymore but i block time i just gotta walk the floor talk try to talk to as many startups as i can obviously i'm focusing on ones in our market or adjacencies things like that but i'm walking around and i get ideas all the time from that that's helpful but even on the internet i'll have entrepreneurs reach out to me hey i want to chat even if someone who looks like a competitor i'll take a meeting with anyone and entrepreneurs who know me know i'll take a meeting with anyone It may turn into something, it may not.

47:27But I'll certainly take the meeting. And I'm transparent. You can probably tell I am, even on this podcast. I don't think there's much I'm going to share with some of these entrepreneurs. It's going to be dangerous for a vendor or dangerous for them. At the end of the day, we all have to just execute. I agree. Execution is what separates winning and not. Yeah, I'm not going to divulge my entire pipeline to a competitor, but I'll share a roadmap. You could probably get it if you worked hard enough anyway. So I'm not going to hide anything that you couldn't get publicly anyway for us. We do meet with a ton of people.

47:55I do it. I co-founder and chief product officer. He does it a ton. We're always meeting companies. You're just constantly meeting with companies. That's our job. Our job is to know the market. Exactly. You got to be experts. Totally get that. You can't get around it. You got to go meet folks, understand the market, know who's who. When you get to that point, when you found something that's interesting, that you can see potential in, how do you turn that actionable? Do you convince people to sell their business? Yeah, of course. Teach me how. There's no magic. I get them. Here's a better together story is what I'm concluding.

48:27Yeah. And look at first, I do believe it's got to be authentic. Just like when I sell a customer, like, I authentically believe our product is going to be great for all of our customers, or I would probably lose a lot more than I don't. Like I really believe it because I know it, because I've seen it and I know that we're going to stand behind it. So I believe in this. And so when I talk to entrepreneurs, one, you go back to my past, like I've sold companies before to other companies. I've been part of M &A before I've seen good and I've seen probably bad and ugly Pendo treats its acquisitions really well If you do reference checks on a site I'll get people go talk to this on Even if they're not here I'm totally comfortable with you going and calling people I have every confidence that I know what they're going to say And it may not be all perfect Which I'm fine with If people think any path is perfect They're probably kidding themselves And I'm like look if you want to go to battle me and go win Let's go do this That's what we're selling We're selling that.

49:19I think we're selling our culture. One of the great things about joining a company like this is we do have a huge customer base that you could sell into immediately. And it's pretty attractive if you're an entrepreneur. That's positive. I like to think that the people we're acquiring in maybe see me and some of the other members of our leadership teams as mentors and people that they can learn from. Some of the things I'll say to some of the entrepreneurs that join Penn is, look, I have no delusion that this will be the last job you ever take in your life. It will not be. Certainly depending on their age, but generally speaking, they will not be.

49:51So given this is probably not your last job and you have a now history and track record of being an entrepreneur, how can you leverage your tenure here? Whatever you start next is just a little bit better, bigger, more significant. How can we get to the end of this sort of like tour of duty of you being at Pendo and you go start something and I write a check as an angel into it? I'd love to have that as the scenarios. I want to be an incubator for future startups and future entrepreneurs. So you bring entrepreneurs in, you help them build some more skills. Hopefully it's wildly successful for everyone.

50:25And they go off and they do it again. And if they do that, I'm happy. I will not be upset. I will not go to you and try to force you to stay or what have you. I am totally cool with you coming in, contributing, us work together on this, and then you go out and do something else. That's kind of what I think is a pretty compelling story to an entrepreneur and in a handful of cases, I guess it's worked. No, it says it right there. That's truly fostering the entrepreneurial culture. It sounds like two big elements. There's sort of the business case. Hey, we're going to grow better together in terms of business and revenue with more customers.

50:58But then there's the reputational slash culture component, which is why we're actually going to work well together. It seems like those are the two big elements to convince somebody to sell their company. Yeah, a really proud moment for me happened earlier this year. We mentioned this Mind the Product community. We bought this. It was postcode 2021. And look, it was a very different community. It wasn't a software product company. So I will say of all the acquisitions, we had some changes in leadership. We had some folks to part, unfortunately. Then we acquired Product Collective. That team is now working collaboratively and now leading the Mind the Product.

51:33And they just hosted their first big conference, their signature conference called Mind the Product in London. earlier this year. And I had several founders of that, of Mind the Product, walk up to me and just congratulate me on successful integration. The conference was great, as good as it could be. It felt culturally as it was before. The great news is like, we bought something and didn't fuck it up. Pardon my language. I don't know if I could say that on your podcast. But knowing that we took something, it's bigger, it's still going well, and it still maintained the essence of what it was.

52:08says we're doing something right. We had a vision for how it could all integrate. It could both be Pendo and Mind the Product. And actually the thing that when it comes to culture, you don't actually want to eradicate a culture of a company you're acquiring. They'll feel sad and they'll be bad. You want to blend it and you want to enhance both cultures. We have generally done a good job on it and you can see it in Sheffield. You can see it in Israel and you can see it in Mind the Product. We've done a good job with that piece. That felt really good. So I got to ask you about these hidden nuggets that you discover post-close.

52:40I feel like you go through this exercise, you find opportunities, you build a business case, and it's the financial picture. A lot of what you describe are very intangible things. You're using your brand, which now all of a sudden customers have expectations around it. But then you found some gems and people that continue to thrive and accelerate and grow in roles. Can you talk to me about what are those like hidden sort of golden nuggets that you discover post-close? It is really, really funny because you spend so much time when you're formulating a deal and your finance team is going to be involved.

53:10A lot of spreadsheets on assumptions and Lyft and like ROI. And this is why I'm willing to pay this much and blah, blah, blah, blah, blah. I'd be shocked if we hit any of those assumptions. Shocked. We're an optimistic bunch. I'm sure we've been wildly optimistic on a number of those things. We'd still rate pretty much all of them as a success. I don't know if we'd all mark them as A +, but certainly B, B pluses. And being good in M &A is hard. Most stats you hear is more than half fail. Hard as I'm not fail. So I feel good about that. Look at the nuggets thing. It's how you approach these things.

53:44And maybe it comes back to this last story. I don't think we come into acquisitions saying, oh, we're big pendo. We know better than all you people. You got to do things our way. There's certain things that we know and we understand around our customer base that you probably should do. But we acquired you because we want to learn from you. We want to add you to our culture. We want something new and something different out of this event. Being curious and open-minded and searching for positives at every juncture is great. I'd never been to Israel. I'd never been to Sheffield. And look, we had a lot of questions around Sheffield.

54:19How big of an office can we grow there? What's the overall talent density look like in that region? If you told me to say, Todd, I want you to open a remote office, probably would not be in the top 100 companies that list, especially given I hadn't heard of it. But yet we're there. We've been pretty open-minded over, let's try to win. Okay, we're going to do this. Let's try to win. What do they need to win? We need to invest in a certain town. We need certain people here. We need to do this sort of investment in hosting certain events. Real estate. A lot of the startups we acquire have pretty terrible offices.

54:49The last thing you want to do is they come to visit headquarters in Raleigh. It's gorgeous. And then they go back to their town. It's like, why is my office so sad? So we have upgraded everyone's real estate nearly right after the acquisition because we want them to be in a space that sort of feels like Pendo. So our office experience team is part of these things. But that unlocks new ideas because then some offices do things slightly different because their culture was like this. That may then come back into our culture. So being open-minded and not trying to like pinkwash a company when you acquire them.

55:17Pink's our color, folks. So like pinkwash would just be like coming in and making them all exactly like us. We've done a pretty good job of not doing that. and because of it, we've had little nuggets, little surprises, things that we weren't anticipating come as a byproduct of each and every one of these acquisitions. That all sends mindset to unlock value. Curiosity and open-minded. Yeah, that's not rocket science, but I guess it's worked for us. It's a funny thing. It's common sense, but then we forget. So there's a deficiency of common sense. Oh, look, I didn't be arrogant. If you're buying something, you want to sell this company, you're excited about it.

55:52Oh, the stories I hear about this gold draw. Yeah, I mean, look, I was acquired early in my career by a company that was incredibly arrogant. I'm not going to name the company, but our company, this goes back a few years, was selling software downloadable on the internet. Just not a shocking concept, but this was pre-cloud. But this company had only ever sold software in physical boxes. The amount of time I spent with a team designing a box, designing a CD, and then we could only ship this damn thing only so often because it's physical. Yet our whole business had been downloaded from the internet.

56:23Guess what the world became only a few years ago? Everything was downloaded to the internet, but they basically tried to stop us from doing it. Wow. It wasn't being open-minded. It wasn't being curious. No, this is what we do. We do it this way. Even though it's patently stupid, yes, we're going to do it that way. So I learned from that. We can learn something from these small companies. And actually, the AI one's a really good one, where this most recent one, they've been using AI more than we as a company had. This isn't just like building AI for our customers. They've been using it more. So they've been changing the way we develop software.

56:57Their sort of CTO, I was in a meeting with him and a bunch of other engineering leadership. And engineering leadership was saying, AI is bad at this. AI is bad at that. It can't handle this algorithm. And look, all correct. AI can generate cool prototypes. It can do things. But huge production code base. And I don't think there's tons of use cases where it's working on massive production code base. At least not today. And who knows? It's changing every day. So maybe tomorrow there will be. but that's at least what we've seen. But the CTO was in this meeting and he like said, well, hold on. I can spend two hours typing or 30 minutes reviewing what AI generated for me.

57:34What's actually faster? What's faster? It's the question that no one in the room was asking. But for a startup that didn't have like teams of engineers like Pendo did, had to find a way to move faster. He had developed a process that was different than what our engineering team because he was out of necessity. But imagine if we take that process and then have all of our engineers do it, think of the amount of efficiency we're going to gain for our business. But that's something where you want that creativity and newness in your business. That's what I'm talking about. This is unlocking that hidden value.

58:09Yeah. Little details like that, they add up and they stack up and they are how we got here to today. Like these companies change us a little bit if you let them in good ways and it makes us all better for it. That's the craziest thing you've seen in M &A. In 2021, a lot of deals were getting bid up at like exorbitant multiples and things were just like literally nuts then. That's probably one of the craziest things I've seen. I saw a 20X term sheet in that period. I don't know if you... Oh, I think we put down probably a 25 to 30X term sheet. So I wasn't just like deal. I mean, I was in the middle of it and then those were just really crazy times.

58:46A lot of people are underwater in their options. That's for sure. Yeah. We were really hot on this one space, really hot in this one space. We looked at a bunch of companies and these numbers were very large numbers. These were eight, nine figure deals. So these are not small, like high multiples, eight, nine figure deals. And we didn't transact one. So that's like the long story. We ended up build, not buy. And it ended up being a really good decision. It's really funny. We spent so much time in the buy case and we were so just hell bent, we're going to do this. We really hadn't spent much time in the build case.

59:19The deals fell apart because they were just frankly madness in terms of valuation. Madness. I just couldn't justify it. We backed out of both. And it was also cultural. There's a million issues. The reason we backed out, but they fell out. They fell apart. We're left with what to do. We went back and challenged our teams. It turns out that product, we had the skill sets in-house. It was pretty adjacent to what we already do. It turns out we know how to build that kind of stuff. like really well. It's like actually what our whole product does. It's just, you know, it's a different use case, blah, blah, blah.

59:49There's truth to that. There's times when organic can be more rewarding than doing an acquisition. And then we launched that product and it's doing very well and contributing a good amount of revenue. And guess what? It's fully integrated into our core product because we built it that way from day one. So there's no integration. I was talking to my wife about it, who I can find in all sorts of things. And she's like, aren't you going to be like nine figures for something like that? And aren't you glad you didn't do that? Yeah. That doesn't seem like a bad decision. That's the old saying. Some of the best deals are the deals you don't do.

1:00:18Yeah. But you'll never know. Yeah. You'll never know. We could have gotten some nugget from those that I didn't realize then. Yeah. I don't look at it quite like that. And look, even those companies, I like people. I spend a lot of time with them. Really good people. So sometimes deals work. Sometimes they don't. Well, they always say don't get attached to any one deal too much. That's probably really good. Thankfully, I don't think I do. Yeah. I want some of these things to work out. but you can't get too attached because there's a lot of factors. This has been a great conversation. Yeah. You've helped me become a much better M &A scientist today.

1:00:50Hopefully. Well, hopefully there's something in there. Those of you still listening all the way to the end, fellow M &A scientists, I appreciate you. Love hearing your thoughts on what you thought of this interview. Any feedback, ideas for other topics I haven't covered, reach out to me on LinkedIn. Until next time, here's to the deal.

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1:02:03Again, that's mascience.com. Here's to the deal. Thank you.