Andrew Morbitzer knows a thing or two about M&A. Over the last 6 years as the VP of Corporate Development at GoDaddy, he’s been a big part of the team that has helped transform GoDaddy beyond their core to a leading platform for SMB’s. He’s always happy to hear about a new technology, or a promising new service that could be the next headline-making disruptor, but that’s not the focus of daily activities. Instead, he’s looking for companies that can deliver exceptional value to GoDaddy’s 18 million global SMB customers.
Morbitzer took a few moments out of his busy schedule to talk with us about how a huge company like GoDaddy approaches their M&A process, and what they’re looking for — and trying to avoid — when purchasing a company.
Josh Scherman: You have an extensive background in technology and marketing, going back to IMB in the early 1990s, as well as 7 years at Intuit prior to joining GoDaddy, but I’m more interested in talking about your current role in M&A at GoDaddy. Can you tell me a little about what makes the company special?
Andrew Morbitzer: I joined the team just as the private equity buyers were coming into GoDaddy. The thesis when the buyers came in was that there were a couple of magical things about the company. The biggest of those is that we acquire small business customers at a super-high volume, and for a very low customer acquisition cost (CAC). That’s special within our industry.
The second thing that they liked about GoDaddy was that we had thousands of people working on the phone. We’re always having conversations with small businesses. If we have a secret sauce, that’s it. Our first objective is to help our small-business customers with their problems.
At the same time, we also had a few things we needed to figure out. We were learning how to become a world-class products company, lead the world in small-business products, and go global in the process. But our primary mission, from day one, has been to provide tools for small business. We want them to be far more successful than they otherwise would have been, all because they chose to work with GoDaddy.
How does that customer philosophy inform GoDaddy’s M&A strategy?
We have a relatively small business development team, and that’s on purpose. It forces us to be very thoughtful about what kinds of purchases we look at. The choices we make need to have a big impact, and that means that we have less of a tolerance for wild swings. Everything we do has to be strategic, and really on mission.
This means that we focus on both strategic partnerships and acquisitions. Those acquisitions are either in product expansion, or on customer and market expansion. A good example of the latter would be the Host Europe Group, which we acquired last year.
The Host Europe purchase gave us the top presence, or close to the top, in a lot of key European markets. Europe is a market that is already very well developed, and by acquiring Host Europe, we were able to gain a strong position much faster than we would have been able to do it organically.
In a market like India, on the other hand, we’ve taken an organic approach. Four years ago, we were nowhere in India. Recently, we just passed our millionth customer there. We’ve got a great team on the ground in India, and they are very focused on understanding the needs of the market and producing specific products and services on the global GoDaddy platform, but tailored to local customers.
You mentioned having a relatively small team, Who are the other internal stakeholders, and who else is looped in as those M&A conversations develop?
The typical, ivory tower-type approach would be that Corp Dev team identifies a need, and then they go out and shop it to the various business units. We don’t do that way. Instead, our team works as an integral part of the business unit teams throughout GoDaddy. If we move forward with something, the business units are already onboard.
The business unit is ultimately where your M&A resources come from. They have to decide that any purchase is a big enough priority to merit the time of everyone involved. You want everyone to understand the value, from the GM to the Head of Engineering, because they have to carve out time for it. Presumably, all of these people were working 110% on other things, so they have to de-prioritize something else to focus on this acquisition.
This means that you get buy-in very early, and it also allows you to maintain alignment throughout the entire process. There are no surprises. Most of the time, it also means that we’re doing proactive M&A, and not reactive MA. Proactive M&A has a much higher long-term success rate.
Working closely with the business unit is how you scale across the entire company using a small team. More importantly, it’s how you get successful acquisitions in the door.
That sounds like an approach that is driven by a long-term strategy.
It is. There are many different styles of corporate development. One of the stories that inspired me is how Pitney Bowes changed their approach to M&A. They did a strategic assessment a few years ago, and in the process they figured out that their position was not limited to selling stamping machines. They had great relationships with all these large companies, and they went on a corporate transformation centered around acquisitions. Those acquisitions could provide even more fuel for their business.
As a result, they became very methodical about M&A. They even developed a playbook. When you go back and look at that playbook, which they update rigorously after each acquisition, of the very top things they look for is to partner with business units. They won’t proceed in an acquisition without the sponsorship of the business unit.
Is it more often the case that the GM or business leader identifies a gap, and they bring it to Corp Dev? How do these ideas come across your desk?
M&A ideas are coming to us all day, every day. There are four of us involved in the leadership side of the Corp Dev team, and on any given day we’re talking multiple times with the different business unit leaders, the product leaders, and the marketing leaders.
We have a written strategy detailing how we’re going to grow across the next couple of years. As the business unit driver, you can see that there’s a talent area, a product area, or a market area where we need acceleration. We then go do M&A in that area. That is a very methodical process, and we have longer-term projects in that area. We develop the longer-term strategy in that area, in most cases.
You also get things that pop up. Sometimes we learn something unique about a specific market. Or we may have a set of customers from a specific area or market come in, and we then need to get a lot of knowledge about a particular problem they face. That kind of thing happens.
Fairly recently, for instance, we closed a small, unannounced deal that originated from customer feedback. Three of the top five customer asks were in this problem category. There was enough volume that we needed to put a strategy together. We start asking ourselves “What would this product look like at GoDaddy? What would be our unique differentiator in favor of the customer?”
Then, we started looking for the right solution to buy. We talked to maybe 16 or 17 companies before we landed on the right one, and then we made the deal. This whole acquisition came from the needs of our customers, and it only happened because we were listening to them. Other times, we’re ahead of what the customers are asking for. That comes back to having a proactive strategy.
What role to inbounds play in your M&A process?
It’s less likely that we’re going to get excited about something that is inbound. Again, our M&A process is pretty methodical. I want to be careful to say that we’re not passing judgment on what other companies do, but instead talk about what works for us. What works for us is to be really methodical and proactive. It’s how we maintain forward momentum without getting thrown off base.
We do talk to plenty of inbounds. On average, I talk to at least one new company every day. There’s just not enough time to chase all of those down while focusing on the things we’ve already decided are important.
There are some pretty good statistics showing that the most successful M&A is proactive M&A. When you look at a three-year success rate, you can see it. This is for a wide-variety of reasons. It’s the emotional support and buy-in from the inside. It’s the clarity of thinking that comes through the process of getting feedback.
People should still bring topics to us. Even if we don’t act on those topics, it allows us to build a relationship. Across time, you may see fits that happen. With GoDaddy, some of those fits can happen quite a bit further out.
You mentioned the importance of sales tests in your M&A process. What are you looking for in those tests?
If we’re interested in going through M&A with a company, we like to do sales tests. In any of these tests, you have to be extremely careful in what you’re testing. You’re really testing for “customer love metrics.” Do customers love and need the concept of the solution?
What we’re not testing are things like closure rates or funnel steps. Those are things that require months of iteration, and need lots of feedback. To get anything close to an efficient sales funnel, you’re going to need at least 15 iterations of at each step. This early in the process, testing for those kinds of pure numbers is the wrong approach. What we’re really looking for are indicators of customer interest.
The other thing we do is survey the company’s customers. I’ve probably run five of these in the last few months with companies of different kinds. We’re looking for segmentation specifics, purchase behavior, product usage, and value. Did using this product provide life-changing value to the small business owner? If so, what is that company’s net promoter score? That helps us understand if the service or product that the company has built would be valued by our customers. If so, we may be able to build a big business out of it.
We genuinely look for companies that offer something that can change the small business owner’s life. If we can change it for the better, we’re in. But if it’s just a feature or an attribute, or if it’s a good invention that customers aren’t going to love it and isn’t going to change their life, then we’re probably not in. We’re OK passing on that.
What are some of the other big problems you run into when considering a company for acquisition?
A lack of traction. I would say that the vast majority of SMB product companies that approach us, like 9 out of 10, have a really good product. At the same time, almost none of them have found traction in the market.
If we can’t tell that customers, at scale, like the product, then even the most promising company is much less valuable to us. There are many different ways to value a company. In some cases, like Main Street Hub, it can be much more of a judgment call. We’re accepting the risk that this product is going to work for a large segment of customers, that it’s going to be cost efficient, and that the technology and architecture is going to be able to scale. The less confident we are in all that, the less a company is going to be worth to us.
One of the other things I see in a lot of startups is a reluctance by the founder to bring in a co-equal to help them grab market share. Instead of going out and finding someone who is amazing at sales and marketing, and paying them whatever it costs — a title as co-founder, equity in the company, whatever it is — they instead go and hire a Director of Marketing or a Director of Sales.
That hire might be a bright, up-and-coming expert, but if they are not a co-equal, they won’t be able to go toe-to-toe with that founder. You need someone who can do that, and who can push back over the direction of the company or how the resources or being used. You need someone who has the confidence and the authority to muscle through and do what it takes to grab customers. The end result is that you have a company that isn’t able to scale, and doesn’t have the level of success in the marketplace for the kind of exit they want.
I see this all the time. I’m not going to say that this reluctance is just about pride and being willing to give up equity, but I suspect that those are two of the bigger reasons.
That’s one of the reasons we liked Sucuri. Daniel brought in Tony Perez as Head of Security Products very early on, and give him full co-founder status. That allowed Tony to run everything on the go-get-customers side of the business, and to lead the culture as CEO. Tony was able to put together the investors and the board, and it freed Daniel up so that he could stay super-focused on the product.
Together, those two had a successful exit. They had their name in lights at the end. They built something that is great. That’s a model that few startups follow, but they should. It makes the company more attractive to buyers like us when you have a broader set of capabilities. Your company will be worth a lot more money when you’re able to prove that you can scale. It means that the acquirer doesn’t have to take on that risk.
Any advice for companies on how to best approach and prep for a meeting with Corp Dev at GoDaddy?
When we’re approached by a company, most of the time they want to tell us about why their product is great. I make a point of asking them not to do that. Instead, I ask them to tell us what their product is going to do for GoDaddy’s customers. What’s better, different, and more valuable about their product than what GoDaddy is doing on its own today?
I also tell them to spend some time understanding GoDaddy. Try our products. Look at our investor presentations so that you can talk our language. Then, put it into concept with us so that if it were to be at work at GoDaddy, it’s super clear to us how this idea changes our life. Do the hard work for us. That’s what sparks conversations.
That’s a lot of homework, so very few of them do it. When people don’t put in the effort, it makes it very easy for us to say “No thanks.” If you’re an entrepreneur, and every day you’re fighting against a world that is trying to crush you, getting through that “No” is where you want to apply your energy.