Every startup founder has a goal in the back of their minds, even if that goal is retiring from and watching others carry on the company they've built.

Some want to stay private, others think IPO... and some hope to be acquired by another company.

If the latter describes you, here's an inside look at Buffer's acquisition of Respond.ly, a social media customer service product that raised $1.8m and is used by companies like Slack and Stripe. The goal of the acquisition is to reposition Buffer to fully serve the social media world with a customer service and branding monitoring solution along with their existing marketing solution.

Sounds great, right? But how does an acquisition like that actually happen?

Since Buffer is hugely focused on transparency (check out this and this and this) co-founders Joel and Leo were happy to provide a behind the scenes look.

I'll let them tell the story:

Respondly's awesome founder is Tim Haines, who reached out via email a while back. We happily agreed to a chat -- at that point we didn't quite know what the call might be about.

Tim said he was looking for a new home for the product and its customers, and that Buffer stood out as a great candidate. He mentioned that he believed we were experts in the domain, a great complementary strategic fit, and well known for transparency and integrity.

We began to realize that this could be a perfect fit -- Buffer has a strong brand and marketing, and also an existing large customer base with some likely overlap in this market.

Our hypothesis was that if the product was solid, then this could be a very successful acquisition. Our instinct was that we could grow the MRR (monthly recurring revenue) quite quickly. It's a market we've long thought about moving towards, and we knew eventually we would do it.

The Respondly product is very solid and feels pretty "Buffery" in its aesthetic and user experience. It also fits exactly how we would want to approach moving into this market: to have a separate product and ensure that both products remain simple.

We emailed several advisors for advice, and asked Time additional questions around traffic numbers and growth of MRR over time.

We also got advice from Sunil, our CTO, on the tech side and asked Carolyn, our Chief Happiness Officer, to experiment with using Respondly for Twitter-based customer service. We worked with Patrik, our UX Researcher, to do some quick customer development around whether our customers were already doing customer service and using a tool for that.

Build or Buy?

Everything was looking positive, so we thought about how we should approach things.

We worked with Sunil to do a "Build or Buy" analysis to calculate the difference in the outcome of either building a similar tool ourselves or buying Respondly.

We modeled reaching $100k MRR and the time it would take to grow the team we'd need to build this product ourselves. We also modeled how quickly we could start to generate revenue if we were to acquire Respondly compared to building ourselves and taking longer, as well as having a less feature-rich product and therefore probably having a slower growth rate.

We also took into account the opportunity cost of not having a product in the market and how much revenue we would generate during that time. Of course, we couldn't pay too much because we're growing fast as a team and need to have a good amount of cash in the bank as security.

Making an Offer

From there we made an offer to Tim that we felt was generous and fair and could truly be a win-win for both sides. (According to the terms of our contract we can't reveal the actual figure.) WE shared our focus on marketing and customer service and how we thought we could be a great home and next step for Respondly.

It was an exciting moment and when we really started to think, "Maybe this can happen!"

Tim said he'd get back to us in a few days and when he did he shared their situation:

  • They had received two offers from smaller companies they admired, ours being the higher offer, and were in conversations with some other companies about potential offers.
  • He said that if we were to be the new home, he would be rooting for us and following along.

After the call we chatted with Sunil. We felt that we should focus on and emphasize the fact we were in a position to move fast. Joel jumped on a call later that same day.

What We Shared With Tim

Here are the notes Joel made for that call; it's pretty much what he said:

  • First off, I want to say how awesome it is to hear that you'd like Buffer to be the company you move ahead with. It's humbling and exciting to hear that you appreciate our values and the way we run our company and would be rooting for us.
  • It's exciting for us to think about moving fast, and we definitely have the ability to do so.
  • At the same time we do have to be mindful of our spending since we raised relatively little money and that's a big part of the culture of Buffer and the type of company we've become. We're growing the team quickly and so with that growth we need to make sure we keep a solid amount of cash as security.
  • We plan to put a lot of manpower behind Respondly.
  • I really want to reach an agreement we can all be happy with, be super excited about moving forward... and to see what we can do with the product in the coming years.

Later that evening I was hanging out with Buffer Product Creators Jim Hitch, Marc Anthony Rosa, and Kyle Morrow. We were having a nice chat about how we had reached this point in our lives when email came through from Tim with the subject line, "Let's move ahead."

High fives and hugs all around!

What's Next

We're beyond excited for the new year and to give our customers the chance to fully manage their social media engagement with Respondly.

It has been incredible to work with Tim and the Respondly team, and we're so appreciative of their knowledge and expertise in the space. We've received so much help and support since the acquisition closed. It's been awesome.

And that's how it happened!

Published on: Dec 17, 2015
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