524: How to Acquire and Cross-Promo SAAS Apps

What It Covers

Steli Efti and Hiten Shah examine the strategy of acquiring smaller SaaS products for cross-promotion, revealing why most acquisitions fail and how to evaluate opportunities with conservative financial modeling before purchase.

Key Questions Answered

• •Conservative evaluation required: Most SaaS acquisition initiatives fail because founders enter optimistically rather than modeling expected outcomes. Define one clear reason for purchase, calculate conversion rates, and assess how it fits existing metrics before committing resources to integration.
• •Conversion rates kill cross-promotion: One founder acquired nine different SaaS products with complementary audiences but failed every time. With 5,000 quality signups monthly, only six users converted to the acquired product, demonstrating that cross-promotion conversion rates are typically far lower than anticipated.
• •Test before buying strategy: Companies like Amazon and Google historically compete directly with acquisition targets or establish partnerships first to validate adoption rates and channel viability. This approach solves the adoption problem before committing capital, reducing risk of post-purchase integration failures.
• •Built-in channels enable success: Acquisitions work best when distribution channels are inherent to the product, like Chrome extensions using browser notifications for cross-selling to marketers, or WordPress plugins consolidating users. Without natural distribution mechanisms, promotional friction prevents user adoption regardless of audience overlap.