How Process and Attendant Detail Matters in the End.
Watching a congressional hearing recently, it reminded me of when I faced potential buyers of our company for “quality of earnings” meetings. Truly, it was me, with my trusty CRM system by my side, squared off against a team from the would-be acquiring company whose sole objective was to uncover ARR vulnerabilities that would result in them being able to lower their offer for our company.
From their perspective, they didn’t fully believe the revenue and customer retention numbers presented to them (too good), so they wanted to find revenue that they could successfully challenge, which could translate into adjusting their offer downward.
Every deal, every renewal, every pricing decision comes into question during these meetings, as well as the processes behind the setting of those prices and renewals. This is where my CRM and Sales Engine Process gave me the data to withstand the interrogations and, frankly, frustrate the buyer’s prosecutors.
At its most basic level, our objectives were totally in conflict; the buyer wanted ammunition to support offering a lower price and I wanted to show a bulletproof sales process that demonstrated that every penny of our past revenues was legitimate and that future forecasts were likely to be accurate. We wanted to use the process to elicit a higher offer, while the buyer was committed to trying to buy at a lower price.
What are these interrogators looking to find? Two possible examples might include adoption patterns that might suggest that the ARR might decline upon renewal, or renewal terms that are shortening from three to one. Other examples might include user pricing trends — as the company grows, is user pricing increasing or decreasing? Is the average deal value and contract term increasing or decreasing? Is pricing consistent across customers with similar user counts and contract terms? What is the percentage of net new ARR versus expansion ARR? What is the ratio of software revenues versus revenues derived from Professional Services? What is the net retention rate (churn) of the customer base?
In the end, these "quality of earnings" meetings should be embraced, not feared, so long as your company has a sales process, pricing processes and renewal processes that can withstand extreme scrutiny (and which should be in place anyway). The offers our company received during our exits increased — not decreased — after these meetings, largely due to the bulletproof processes we had in place just to run our business in the most efficient way.
If you want to learn how to bulletproof your ARR, reach out to us at maximize@MOICPartners.com
