M&A, competition, pricing, and investing | Julia Schottenstein (dbt Labs)

Jul 13, 2023 1h 21 insights Episode Page ↗
Julia Schottenstein, Product Leader at DBT Labs, discusses M&A strategies, including how to get noticed by potential buyers and the importance of creating Plan Bs. She also shares insights into DBT's success, competition philosophy, product development, and pricing strategies.
Actionable Insights

1. M&A: Inflict Friendly Pain

Identify your competitive advantage and use it to inflict pain on potential buyers, making it impossible for them to ignore you. Do this in a friendly, open way to maintain optionality and avoid prematurely shutting down conversations.

2. M&A: Create Plan Bs

Always cultivate alternative paths for your company, aiming to build an enduring, independent business. This strong offense gives you the upper hand in M&A discussions, as you have the viable option to not sell.

3. Evaluate Early Stage Companies

When joining or investing, assess four pillars: People (trust in founder), Market (growth opportunity), Product (unique, user-loved), and Distribution (market access advantage). Your contribution can de-risk weaker dimensions.

4. Product: Solve Pain Manually

Work closely and hands-on with early users or clients to understand their pain points and manually solve challenges. This direct experience helps mature the product by addressing real-world friction before scaling.

5. Product: Look for User Enthusiasm

A strong sign of product-market fit is when users can’t stop talking about your product, sharing it with teammates and other companies. This “top of mind love” indicates genuine enthusiasm and helps drive organic growth.

6. Pricing: Discuss Early & Test

Engage in pricing and willingness-to-pay conversations early, ideally before building the product, to test price elasticity. This allows you to understand customer appetite while stakes are lower, as pricing is always evolving.

7. Pricing: Gauge Relative Value

When discussing pricing, focus on understanding the relative value customers perceive your product offers compared to alternatives. Ask what they consider inexpensive, fair, or too expensive to inform your strategy.

8. Competition: Strategic Philosophy

Adopt a competition philosophy that includes holding true to your vision, growing the overall market “pie” with partners, and leaning into your strengths while fostering an ecosystem. This long-term view prioritizes your journey over competitor distractions.

9. Product: Embrace “Worse is Better”

Combat perfectionism by embracing the mindset that “worse is better” and “tech debt is a champagne problem.” Ship good enough solutions quickly to learn from users, as you can’t anticipate all edge cases until the product is in their hands.

10. Product: Internalize Algorithm Changes

For complex new projects, create memorable, physical exercises (e.g., using rope and sticky notes to represent a graph) to ensure the entire team deeply understands and owns algorithm changes. This prevents a few people from running ahead and ensures collective understanding.

11. Open Source: Define Proprietary

Clearly distinguish between what remains open source (core business logic, ecosystem standards) and what becomes proprietary software. Reserve proprietary offerings for stateful interactions and cross-team/structural collaboration to supercharge the open-source experience.

12. M&A: Be Transparent in Dire Straits

If your company is in a “Hail Mary” situation and needs an exit, be transparent about seeking an acquisition. Cast a wider net by openly communicating your situation and interest in finding a home for your team and product.

13. M&A: Leverage Corp Dev Teams

Proactively engage with corporate development teams of active acquirers, even if not immediately interested in selling. Use them to get introductions to product leaders or GMs who could sponsor a deal or partnership.

14. M&A: Leverage Investor Network

Utilize your venture capitalist network to find connections at potential acquiring companies, especially if you’re in a challenging position. Don’t worry about disappointing investors, as they understand the risks and prioritize your long-term success.

15. M&A: Don’t Be Clever

Avoid overly clever or obfuscating language like “exploring strategic alternatives” when you’re looking to sell, as everyone understands these code words. If you have runway, focus on partnerships; if not, be direct.

16. M&A: Create Targeted Buyer Set

Develop a focused list of about a dozen potential acquirers who would find your company strategically relevant. Prioritize this list by criteria that might count companies out, then initiate conversations.

17. Product Leadership: Build Operator Network

Invest time in building a network of operators at successful companies similar to yours, especially those slightly ahead. Ask them about their experiences with challenges like open source, pricing, and M&A, then apply the best ideas to your own business.

18. Product Leadership: Be T-Shaped Generalist

Cultivate a “T-shaped generalist” skillset, possessing broad knowledge across various domains (finance, business, tech) and deep expertise in specific product areas. This diverse background enhances effectiveness and credibility within the organization.

19. Product Leadership: Think Uncapped Upside

Adopt an investor’s mindset by constantly considering risk and “power laws” in product development. Make strategic bets that have the potential for uncapped upside, aiming to bend the trajectory of your business.

20. Product Management: Do Fewer Things

Improve team focus and impact by doing fewer things and single-threading the team as much as possible. Align everyone towards one main priority or mission to ensure cohesive effort.

21. Company Values: Core Principles

Adopt core company values such as prioritizing value creation over capture, ensuring transparency, maintaining humility, and appreciating work done well as its own end. These principles drive culture and decision-making.