Should You Build Or Acquire?

Editor’s note: Austin McChord is the founder of Datto, a backup and disaster recovery and business continuity company based in Norwalk, Conn. In 2015, McChord was named to the Forbes 30 Under 30 list.

“You could regret this decision for the rest of your life… from the beach of your own private island.” That was the advice my lawyer gave me when I was staring at a nine-figure acquisition offer as the sole shareholder of my five-year-old startup. The valuation was good, the terms were clean, but I just couldn’t say yes.

It was my employees and customers that gave me the confidence to turn the offer down. The potential acquirer didn’t see what I saw. Instead, they just saw the technology and the numbers. They were going to dismantle the team and take the tech. It’s not that they were wrong; they just didn’t share our vision.

While that decision to say no wasn’t easy, once it’s made, it sets you free in a way. Once I had turned down that offer, I knew I was beyond the stage of doing it for the money. I really was doing it because it’s what I love. Our team’s passion for the customer and the products is a big part of why we’ve been so successful.

A few years later, we were on the other side of the situation, considering making our first acquisition. In December 2014 we acquired Backupify, which was a great fit strategically, as our intent is to create a total data-protection platform that protects customers’ data no matter where it lives. Increasingly, organizations depend on cloud-based SaaS applications like Salesforce, Google apps and Office 365, which means they need assurance of recoverability that spans the cloud, as well as on-premise applications and data. Backupify was the leader in cloud-to-cloud backup, and when I got to know the CEO, Rob May, I saw we had a lot in common.

The buy-versus-build decision is always a tricky one. In this case it was the right choice because of the people of Backupify. They were executing well, and I could see they had a really strong team that would be a huge asset to our ongoing success.

We would get where we wanted to go faster together than apart. Philosophically, we treated the deal more like a merger than an acquisition, and we’re constantly looking to see how we can learn from each other and share good ideas across the company. I’m really happy that we’ve almost entirely retained that great team.

I learned a lot through this process. If your company is seeking to embark on an acquisition, here are some considerations to keep in mind.

Determine how it will impact your product, partners and people

If you’re stuck on the buy-versus-build question, first realize that while there are challenges to integrating technology built by someone else, building it yourself is always a bigger effort than the engineers think it will be. Ask yourself realistically: How long will it take us to get a product to where their product is today?

It’s also important to seek input from your current customers and partners. We took the time to speak with several of them under NDA before finalizing our decision, and their feedback was extremely helpful. We were able to address their concerns and answer their questions. Those conversations not only verified that we were on the right track, but they also helped us shape the message to effectively convey the customer and partner benefits of the acquisition. 

We didn’t always do a good enough job explaining the “why” behind certain decisions, which caused some unnecessary turbulence.

You also need to consider the logistics of the process and any potential delays in service or delivery that it may cause. Every acquisition is more complicated than it seems. Bringing new technology into an environment introduces unforeseen challenges, and just as the development of a product can incite issues that engineers hadn’t anticipated during their research stages, restoring “business as usual” after an acquisition can take longer than expected. Be straightforward about timelines, give your team leeway, and expect the unexpected in every area of business.

Communicate, communicate, communicate

As we worked through the process, some of the things we thought would be straightforward turned out to be harder than expected, and some things we thought would be difficult turned out to be relatively easy. Any integration will have its bumps in the road, and blending workforces is the biggest challenge.

One quarter later, we’re still working through it. Fortunately, both businesses are full of great, passionate people. We could have done a better job with internal communication. We didn’t always do a good enough job explaining the “why” behind certain decisions, which caused some unnecessary turbulence. We’re learning as we go, and things are settling down.

Get things done

Acquisitions aren’t as easy, or as hard, as you think. No matter how much you plan and run the numbers, certain aspects will surprise you. My best advice is to have a bias toward action. Get things done and continually evaluate and adjust.

You need to be prepared to ride out the emotional roller coaster, accepting victories and defeats as you work through the process, and focus on how your company can bring new value to the market once you reach that light at the end of the tunnel.