SaaS Capital CEO Series: Julie Rieken from Trakstar Discusses Growing Through Acquisitions

In this conversation with Julie Rieken, CEO of SaaS Capital portfolio company Trakstar, we discuss the strategy of growing your SaaS business through acquisitions. The TL;DR (too-long;didn’t-read) version of the conversation is:

• Buy vs build is the classic M&A question, but when the product is tangential enough to your core business, then buying is almost always the more efficient option.
• No two deals are the same, and post-acquisition integration is different for every company.
• Good legal counsel is worth it – good lawyers can actually save you money in the long run by avoiding broken deals, wasted cycles of negotiation, and focus on the really important deal points. Specifically, use an M&A-experienced lawyer.
• The deal is the easy part, the integration is the hard part.
• Target company culture matters a lot. A strong culture will more likely result in a more successful acquisition and integration – employees will feel aligned and supported in the change. A weaker culture opens the door to significant employee attrition post-deal. That said, it’s always a change (and an “open enrollment” event) so you will always lose more people than you planned.
• This may seem obvious, but you want to be very thoughtful about the number of employees, target customer, annual contract value (ACV), retention and growth rates that you are acquiring. Any one of those criteria can create challenges. For instance, there needs to be other very important reasons for acquiring a company that is growing slower than you are.
• There is an appropriate pace to an acquisition integration: not too fast, but not too slow. And it’s really hard to get right, but really important for a smooth transition.
• A typical integration takes 18 months. The first 6 months is team changes, reorganizations, and communication. The following 12 months is the real work of integrating.
• Julie closes out the interview by summarizing that of all the deal characteristics, she thinks having a good cultural match is the most important.

You can view my previous conversation with Andre Lavoie, CEO of ClearCompany, about strategies for scaling from $3 million in ARR to $30 million in ARR. In future conversations, we will cover fundraising, developing channel partnerships, instituting a customer success organization, and more. The video and summary transcript are below.

Summary transcript:

Rob Belcher

Thanks for joining us today. I’m Rob Belcher managing director with SaaS Capital. We lend money to SaaS companies for growth, and that can be in lots of different ways. So, as an example of that, we have Julie Rieken, CEO of Trakstar, and a couple other brands here today, and have some great questions on M&A, which she used debt from SaaS Capital to acquire a couple of companies and grow her business with that strategy. I thought that that makes a great theme for a conversation today because I know a lot of existing portfolio companies and prospects we talked to are also interested in using debt to acquire companies and grow. So before sort of jumping into all that would love just a quick overview, we’d love to hear your background, if you don’t mind sharing and then a little bit of background on the company so we understand kind of the stage and scale it’s at, where you’re based, and anything else you’d like to share demographically so we have a good sense of, of what kind of business we’re talking about.

Julie Rieken 

Sure, thanks Rob It’s been super fun working with you guys at SaaS Capital, and we were very fortunate to be able to work with you to grow our business, Trakstar. As a part of our strategy, we acquired some companies to build ourselves out in the talent dev space. And when we initially started, we were just a performance management company but we knew from customers that they wanted more, they wanted some bookends on the front, on the front and back of performance management and so maybe just to set the stage the space that we’re in is we’re in the HR space, and specifically we’re not in like core payroll or benefits or time management. We’re inside the talent dev space so from hire to retire is where we like to think that we have a niche.

Rob Belcher

Just to give a sense of timeframe, when was the company founded and where did you get to before you started to look at expanding.

Julie Rieken 

All of the companies were founded at different times. Trakstar has been around since about 2000. My dad and brother actually founded the company out of my brother’s extremely hot, attic apartment, way back when. And my dad, working over Thanksgiving just being there. My brother was the coder and my dad was the sales engine. My brother has since moved on and my dad is retired. After that, I took the reins of Trakstar and partnered up with a private equity firm as Trakstar. We then developed a growth strategy together which included not just performance, but adding some pieces to the suite and the reason we did that, when we added pieces to the suite was because our customers would come in from for performance, but they wanted the thing that came before it, which was hiring, and they wanted the thing that came alongside it, which was training and development, and we didn’t know it was buy or build. We ended up coming to SaaS Capital because we had been talking about how to grow, and we found a company that we really liked. It was an applicant tracking system and we wanted to go ahead and acquire that company and we thought the best way to do that because we had such strong growth was to do it through some financing with you and that really helped us. We didn’t have to dilute our cap table we could grow, increase our revenue, and still be able to grow the business in the way that we had hoped. So we added applicant tracking and then later we added of course more to get developed.

Rob Belcher

I want to talk more because you’ve done a couple of acquisitions so there might be some interesting threads between them but first I want to hit on this because I think it’s really important is, which came first right the target, or the idea, it sounds like you had the idea. You’re hearing from customers you knew places that you could expand your offerings You found a target, is that fair for your first acquisition?

Julie Rieken 

I think that’s pretty fair although I would say almost in a way those two ideas collided that time so that maybe is a unique situation that we knew about recruiting, we knew about our the applicant tracking system, and that we were looking to acquire. And when we found it in the world, it just kind of collided. Yeah, that was more simultaneous in the second situation with the learning and development piece. We had been hearing about this for quite some time from our customers. Learning and development. Hey, if Julie is performing this way, let’s make sure that growth opportunities with some training courses and whatnot in delivering. That’s one that we thought about buying or building and we’d actually dabbled in the idea of building. When we saw a learning and development company we’re like, oh, that’s much bigger than we want to really endeavor. So, buying a company was a better match there and we found the right company for that.

Rob Belcher

Okay, so that was more, you had the idea first and went out and tried to find the right company. I think that’s interesting theme about M&A. I think you’ve done three transactions. Are all deals unique, is there anything that’s consistent between them? Of the three acquisitions you’ve made, are there any common themes? Are they all completely different animals, what does that look like?

Julie Rieken 

I think about this like every day – “Julie, what have you learned? What would you do the same or different?” I have by the way on my keyboard, just because I do obsess over that. Forgive. Forward motion. Optimism. It’s a reminder for me every single day with a little rainbow sticker underneath it, because the truth is, some of them went really well and some of them were harder.  They’re different. So when we say that there were three, I would say two out of the three were easy and one out of the three I would say was harder.

Rob Belcher

Another important distinction, I think there are two pieces of M&A. There’s the deal. Then there’s actually the business afterwards of the integration of team and personalities, product, and customers. So, when you say one’s harder or easy, is that the deal or the after the fact, or both?

Julie Rieken 

We have remarkable representation. None of the deals were complicated in my opinion now.

Rob Belcher

Oh, counsel legal counsel legal representation. Oh, that’s so that’s actually an important learning right? Having a good lawyer is worth it, right?

Julie Rieken 

Oh my gosh, yes, in the first deal the lawyer was phenomenal. I mean, I read through every one of the T’s and C’s marked it up had questions, and he was patient and kind. I said, Alright, let’s go through this thing together, and it was remarkably easy and we were able to come to a conclusion with the seller fairly easily because we both knew what was happening. I would go specifically for an M&A person, somebody who’s got the background and experience. So that was super beneficial for us.

Rob Belcher

You’ve never done this several times but they’ve probably done it hundreds of times or 50 times, you know, whatever it may be so just that, seeing the different plays as they as they happen, and being able to react to them is really important, right. Okay, so that’s good.

Julie Rieken 

By the time we got to the last one, I read through and could understand the structure. It was much easier. So the act of the deal to me wasn’t that complicated. He may have a different perspective. He may have worked some things that were more complicated but from my perspective it was fairly easy. The hard part for me was to figure out how do I integrate these and what does that look like in the first 100 day plan. What are the first things we’re going to do in terms of growing? The growth is a challenge. And did we communicate really well, I mean I think we did the best that we could but there’s always room we could have done better. You can’t over communicate but the two main learnings out of the three, two of them had really strong cultures that made it easy. They were tied together. The people were united so in the act of acquiring, I would definitively look for a strong culture and the reason is because I think you can get to that growth more quickly because when they feel really good about it, they will support each other and you won’t have much attrition in the initial act of the acquisition. In one of the groups, through no fault of their own, they had been through some rough spots. The culture was a little more fractured. Here’s a story of that company. We’re within like an hour of signing the deal, and I get a call from one of the lead people in the organization, he says, “hey Julie, stormy weather, we’re going lose everybody.” I was like, okay, we’re an hour in. Yeah, yeah. Um, thanks for the phone call let me think about what you’ve what you’ve just said. And, it was a result of some of the fracture things that happened. And so, in that organization, we did see quite a bit of attrition in the first couple of months. Was that us or was that the deal? No matter what you do, no matter how strong the closers are an acquisition, it is an open enrollment event for people.

Rob Belcher

That’s a great way to describe it, it’s open enrollment. You can get in now. You can stay in you can. You can opt out. What a great way to describe it.

Julie Rieken 

And in all cases, you’re going to lose more people than you think because it’s an open enrollment. Oh, do I stay or do I go this is a window that I hadn’t thought about before.

Rob Belcher

I don’t know anything about Julie, I don’t know what’s happening now, you know, it’s like, like you said, if the culture is not strong if you don’t have a strong manager, you don’t have a good relationship there, whatever it may be right?

Julie Rieken 

They’re scared about the vision. Did we articulate the vision well enough? I mean all of those components, and there’s a lot of rush to get to that.

Rob Belcher

On that, can I ask you a question on the culture side and the people on the communication, if you’re comfortable sharing the rough size, number of employees of these companies. Was it like five people that you were acquiring or like 500? Just so folks have an idea of what the challenge was and how important those folks were.

Julie Rieken 

Yeah, that’s a great question. So, with one of them they were they were smaller, they were probably 15. Another one was probably at the time 35 or 40. And the other one was probably around 40.

Rob Belcher

Okay, so good size, several layers of management. There’s real structure there. Okay, great, that’s helpful.

Julie Rieken 

I think that’s another good that’s another good question Rob because the sizes were somewhat similar. That was helpful. There were some things that we had matched up, we knew that our teams weren’t going to outweigh another. Our ACVs were in a similar space. There were a lot of similarities in the sizes of our organizations and so we knew that bringing them together was a possibility because one wouldn’t be the lion and the mouse or the elephant to the mouse.

Rob Belcher

You kind of went in a different direction which is important to highlight. I’m just giving an example, if you focus solely on SMB and you’re going to focus on somebody who only sells to Fortune 50, that might not be a great fit, even though the products are great. You’ve got your performance and then their applicant tracking, but if they’d have totally different customer bases, different a ACVs, or different sales cycles, that might not be a great fit. It sounds like you specifically targeted companies that had similar ACVs and similar target customers on purpose.

Julie Rieken 

We knew that we were talking to people at the right level so yes to what you said. And in fact, there was a space that recently we decided to explore because as you grow and you have enough margins and enough EBITDA leftover you want to make sure that you’re investing that in the growth of your company, and we were looking for a particular niche. We probably talked to 10 companies, but we didn’t find the right match. One reason is we did what you’ve just described. Some of them had very large customers like fortune 500 customers and we are more mid-market. So that’s going to be an issue. Do they pull us up, or do we bring them down? Their products were maybe a little bit more complex than the base of the kind of customer we were targeting which, again, those aren’t problems if you have a large enough team to shift your market focus and enough tolerance to have a little bit of a blip while you change who you are. At our size, we needed to have more continuity and just continued growth. So that is a risk if we were to go for a niche where they had a really large customers, meaning a very high ACV, and they only have a few customers, and we were being pulled up, that would slow us down. It’s those kinds of matches are not necessarily bad, but at the stage that we were in, it made more sense for us to align that

Rob Belcher

Yes, if you’ve built your sales orgs and your support orgs to serve a certain number of customers and certain size of ACV, and then all of a sudden you’re moving to a very white glove, two customers per CSM, million dollar contract situation, it’s just a very different approach. How do you integrate that and which way do you go, that’s a great point.

Julie Rieken 

So, in this in this last exploration we didn’t come to a match. We found a lot of different providers but their software was too complex. It was an area of expertise that was a little bit different for us. And there’s one other thing that I think in terms of bringing together company size that was really important for us, and maybe a learning of something I would do differently. Ensure that when you bring two companies together, do it under our own power.

Rob Belcher

I’m curious what you mean by that, under your own power.

Julie Rieken 

It was using our own set of expertise. We didn’t necessarily bring in a different kind of a manager or a different kind of a marketing expert or somebody to do this new task in terms of integrating the companies. We used our existing management structure and brought things in under our existing team.

I would add people as a part of this. I would say, I want a business intelligence person. I want a data person who can help integrate. We’re going to need a couple of engineers to bring these products together. We need a marketing person to help us with a brand’s transition. Our people were gracious and took on workloads underneath them, but I think there was more work than could humanly be done I think that’s a big learning. Yes you can acquire it, and you want to think about what you brought together two brands. You want to do a brand transition well so find somebody who’s an expert in that and bring that person in so that you can get it done quicker because one of the other learnings is, at least for me was, you can go too fast and you can go too slow and by the way, you’re never going to get it right.

Rob Belcher

Interesting. Wow. And you’re talking about after the fact, about implementation. You can go too fast or too slow and there’s never the right speed. Interesting, you’re going get it wrong.

Julie Rieken 

So you do your best. If you go if you go too slow, people are like, what are you doing, you brought these things together and this thing’s lingering.  Do you have a vision? And if you go too fast or there is too much change it leads back to the issue of open enrollment.

Rob Belcher

Fascinating.

Julie Rieken 

So, trying to find that balance is really complicated, and is there a right answer? It’s the very best you can do. You have to try and watch and find out Is this too fast or too slow, and plant your stake for okay what are the most important things I need to get done. Be willing to take a stand on those things. For example, with one of our companies they had a very complex set of customers with multiple plans.

Rob Belcher

Oh, like the pricing plans yeah okay.

Julie Rieken 

There must have been 900 of these things Rob.

Rob Belcher

So, one for each customer?

Julie Rieken 

You know, it kind of was. Okay maybe it wasn’t 900, but it sure felt like it. So, we’re like, what are we going do with this. Well, we knew that we had to transition to something simpler because under our existing infrastructure we could not manage that many different plans. So that was a that was a very big move and we knew whether we lose people or whether we move too fast or too slow, this is a move we’ve got to make, we need to do it right away. And that was one where that piece of simplifying the business was a priority for us.

Rob Belcher

I remember this I remember when this all happened. We were talking to you about this. The challenge for employees and for customers. There was a big change.

Julie Rieken 

It was a big change. We could have conversely said, you know, our biggest challenge is to integrate the products and we’re going to spend it on engineering, right, or we’re going to make these product improvements or these brand improvements or whatever. But in this case, the most important thing for us was to simplify because everything else, all the support structure, was an underpinning that we needed to tackle.

Rob Belcher

You can’t sell more, you can’t cross sell, you can’t support it with your existing business because it’s just not designed for that.

Julie Rieken 

Right, we’ll be running two silos of businesses and that was complicated. But anyway, so those are the things that we thought about – too fast too slow.

Rob Belcher

That’s a great point, that’s great one. That’s very challenging. I’m sure there’s never an actual end date when you’re fully integrated and you’re done, but roughly speaking, for the average of your three acquisitions, what is the time from acquisition until you feel pretty comfortable that it’s pretty much part of the company. Is that six months? Is that a year? Three months? What’s a general timeline or is every deal is different?

Julie Rieken 

Every deal is different but I would go a year to 18 months. I would probably put 18 months. The first three months, you’re going see some initial attrition and the next three months, you’ve still got the deciders. By that time you’ve hired some new people and it takes them about a year to sort of get in there. So really that first six months is sort of this space of a lot of hiring  and a lot of communication. Then you do the work. Cement can only dry so fast.

Rob Belcher

I’m trying to wrap up a little bit with the value of acquisition versus just invest in grow yourself. You did the buy versus build. You got access to products that you decided would be faster just to buy new and  customer bases to cross sell. It was a little bit of a portfolio approach.

Julie Rieken 

Yes. I would do this again, all day long. Okay, couple of reasons why, but I think mostly in our space, the act of building is a big deal and you’re always going to be playing catch up to somebody and I think acquiring developed software just gives you a little bit of an edge. It allows you to work on your branding and your cross selling a little more quickly. In this space, there was a gap in the market. It’s fragmented in the SMB space. There’s all these little points solutions and customers are struggling and then there’s the really big ones. So, for us moving into this space, it didn’t make sense to take the time to build. And it made sense for us to address something where we see a gap in the market. We could defragment and our customers told us they wanted that. So, the faster that we could bring that the better. The other thing about building, it gets delayed. We all have good intentions, nobody goes in and says, no, I’m going take six years to build this right.

Rob Belcher

An important thing that I thought of, there is that you weren’t just looking for revenue, although that helps. You increased your ARR, but you also got new products. As far as I know you haven’t done this, but would you consider just acquiring another applicant tracking system or another performance review system, just for the revenue?

Julie Rieken 

We’ve actually looked at a couple of them. And there have been some places where we thought there were matches and places where we didn’t think so. Because two of our products are performance management. we’ve consolidated those into one. The act of doing that is also an attrition event for your customer. They’re like, oh, you’re moving, is this a good value or isn’t it? We kept most of our customers but you also can deliberately choose to say, you know what, that customer, at that ACV or in that market space, isn’t really who were who were targeting anyway for whatever reason. Maybe they’re in an industry that we can’t adequately support going forward.

Back to your question, would we consider that, I think 100%. But we want to make sure the culture is right. Can we migrate those customers and offer them something of value, is there something of interest? For the portfolio group, is the juice worth the squeeze.

Rob Belcher

Sure, sure. Yeah, and it’s an open enrollment event for your customers and you have to be prepared for that. You can’t just buy $5 million of ARR and assume you’re going get $5 million at the end of the day.

Julie Rieken 

Exactly. They’re going look at it too and go, oh interesting you got acquired, what does that mean for me?

Rob Belcher

I don’t know if I have any other questions. We’ve gone through some good learnings on M&A. You would do it again. It’s challenging and every deal is a little bit different. It’s important to make sure it’s a fit all around, especially culture, ACV, and product. Anything else I’m missing?

Julie Rieken 

No, just that we have been grateful to work with you so that we could accelerate our growth.

Rob Belcher

I appreciate that. There are some confidentiality issues here so you were careful not to share too much, but I will say you’ve done a fantastic job. We’ve had the opportunity to watch the company grow. So, anybody listening should pay attention to what you said about M&A, because it’s been a very important force for the company to grow, even in a space a lot of people thought was hindered during the pandemic but you’ve done quite well for the last 18 months or so, so well done.

Julie Rieken 

Thanks, and we’re excited for the future as well.

Rob Belcher

Thank you so much for this, it’s always fun to talk to CEOs and hear everything that they’ve learned through time, so thank you for sharing a few minutes with us, we’ll talk to you soon.

Julie Rieken 

Thanks Rob. Take care.

Rob Belcher

Managing Director, SaaS Capital

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