Most acquisitions, especially in the hi-tech sector, are about revenue synergies. Examples are incremental revenue from cross-selling each other products, or joint development of a new product integrating the acquiree's technology into an existing product of the acquiror. Typically, revenue synergies take much longer to realize than cost synergies and it's not unusual for them to take years to realize their full potential.
While generating incremental revenue takes time, planning and execution should start early. Obviously, the highest-value synergies should be prioritized and acted upon, but this doesn't happen often. Why, and what can you do about it?
Head Winds
The sales function is not properly incentivized or enabled to drive incremental revenue synergies. Sales is driven by annual/quarterly targets of the core business and the Sales teams from both companies have existing sales quotas and commission plans that motivate them to achieve their current revenue targets. Organizationally, realizing revenue synergies falls squarely into the business units with P&L responsibility. This will require the sales teams for those business units to make an additional investment of their valuable time and effort to achieve the desired incremental sales (e.g. cross sale). Unfortunately, more often than not, the sales reps are not properly enabled, nor incentivized, to achieve the revenue synergies that were baked into the financial plan that was used to justify the deal.
Steps to Success
Following are five key steps you can take to achieve your revenue synergies:
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Treat the attainment of the desired revenue synergies as you would any new sales program. Sales Operations needs to own the roll-out of the revenue synergy program. The sales motion, promotion, pricing, sales presentations, collateral, contracts, fulfillment, and support should be thought out in advance and ideally tested with a subset of the targeted customers to determine what is most effective in closing deals and servicing your customers after the sale. Based on the results of this testing, adjustments and improvements can be made to the program before rolling it out to the entire sales team to avoid making issues much larger problems that are more costly to recover from as you scale up the program.
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Make sure that the customer experience, pre- and post-closing, is a great one. We would argue that the post-close experience is even more important than getting a deal done. Make sure the sales program covers the complete customer journey end to end: from lead generation through contracting, fulfillment, training, billing, and customer support. If not, you dramatically increase the risk of churning your customer. Many of our clients put metrics in place to measure customer revenue retention alongside the incremental revenue targets. For example, you could hit your revenue synergy targets in the short/near term. However, customer revenue could churn in the future because of a poor post-sales experience. To capture these kinds of issues, we found that a customer satisfaction metric like Net Promoter Score ('NPS') can be very useful.
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Enable the Sales teams (Sales Managers, Sales Reps, and customer-facing employees) to easily close deals. This means providing them the collateral (e.g. presentations, battle cards, talking points, etc.), tools and processes (e.g. CRM – lead-opportunity management/quoting/contracting), and training on the sales program to achieve the objectives of the revenue synergy program. Sales Reps will take the path of least resistance to achieving their sales quotas. If you want them to drive incremental sales, you must make the effort as easy as possible. If not, they'll spend little, to no, effort on the program.
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The head of sales for a large tech company once told us: "Sales Reps are coin operated, they will do what you pay (incentivize) them to do." In our experience, we generally find this to be true. To get the Sales Reps time and attention to the incremental revenue sales program, you must make it worth their while. In the year you acquire a company, amend the existing sales commission plans with additional quotas and meaningful commissions/kickers to incentivize the Sales Reps to drive the incremental sales results you're looking for. Be careful not to pay double commissions across the sales teams from the two companies; however, this may be a necessary cost in the short term to ensure the sales reps across both companies cooperate. Once you start to plan for a new sales year, you can develop a sales compensation plan which takes into consideration the full portfolio of the products being sold and the level of integration of the sales teams.
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Celebrate early wins! Once you get the incremental revenue sales program underway, make sure to identify, communicate, and celebrate early wins with the entire sales team and the company at large. People are looking for successes (and failures) for why (or, why not) this acquisition makes sense. It's very important to call out and celebrate the early wins. This not only energizes the Sales Teams, but the entire company. After all, we all work for Sales, or should I say the customer.
Project Management and Tool Tips
Here are a few suggestions for the Integration Project Manager to consider to facilitate the achievement of synergies:
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Mark synergy tasks in the work plans. There is a risk that too many tasks are being marked, and the project manager loses focus. You may just want to mark the one or two top revenue synergies, or all revenue synergies getting you to about 80% of total revenue potential.
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Ensure planning / execution around revenue synergies are a top agenda item in the Integration Management Office ('IMO').
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Use workstream leads or steering committee meetings to highlight planning and progress on revenue synergies. This motivates the synergy owner and workstream leads to demonstrate progress.