Salesforce: Merging and Acquiring in the Cloud

On our 3rd day of Villanova In the Valley, we visited Salesforce, a cloud computing company that provides on-demand custom relationship management software services. Acquisitions are a core element in their growth strategy. We met with Sam Allen, Vice President of Mergers and Acquisitions and Head of Integration at Salesforce.com. With a military background, Mr. Allen told us that his experience in the military has made him grateful and helps him to put his life in perspective in the chaotic environment of the workplace because he always remembers that it could be worse. Salesforce was the first company to take the concept of the cloud to market. The product they provide is very convenient because of its multitenancy– all customers reside on the same software so they can just log in, no installation necessary. Everyone gets the same level of security from the US Government, to Fitbit. Trust is a very important aspect of Salesforce because security is important in the custom relationship management industry of cloud computing. Salesforce has been voted the world’s most trusted enterprise cloud with data centers all over the world.

Salesforce made 234 billion transactions over 3 months with 99.98% availability to its customers. Their business model includes subscription pricing: flat fee per person with the option to upgrade and expand. They are the 4th largest software company in the world today and the salesforce tower will be the largest building west of Chicago. With 1.6 billion dollars in revenue and about 19,000 employees, Salesforce is rapidly growing. In fact, it is the fastest company to reach this revenue. About 70% of this revenue comes from North America and the remainder is global. Salesforce was built on a philanthropic model known as 1:1:1 (1% of time, 1% of equity, and 1% of product). Employees receive paid time off to volunteer for nonprofits which employees tell us really facilitates team-building. If an employee hits 48 hours/year, the company donates money to the non-profit of that employee’s choice.

Salesforce has given over 100 million dollars in grants to nonprofits. They also give product away for free or at large discount price to organizations such as the Girl Scouts of America. Salesforce’s platform is built around the customer. They plan to remain innovative by keeping a startup mindset and to buy and invest in companies that will bring new ideas. For example, an analytic cloud was built from edgespring, a startup that was acquired. Most of Salesforce’s growth is from buying, incubating, and growing startups. M&A is critical at Salesforce.

Mr. Allen spoke about Salesforce’s changing approach to customer service. Instead of customers buying multiple generalized products, they should first ask the business what problems exist and ask themselves how salesforce can fix these problems. They will be launching an educational campaign to teach employees this strategy. Salesforce is unlike other similar companies in its market because it is up to the customers to turn on any upgrade– which are free and released three times a year. They also have in-house banking. Most of their in-house legal talent have worked at a firm. Mr. Allen stresses the importance of the family atmosphere in their workplace culture. Salesforce addresses the fact that if employees are happy and content they will perform better. As a benefit, directors and above receive unlimited vacation time.

When asked about their reaction to the every growing cyber security industry, Mr. Allen explained that they have a “red team” whose job it is to catch Salesforce employees who have left their laptops open and insecure so that employees learn to anticipate hacking events. They hire some of the world’s best hackers to fill this position and try attacking their own system which then tells them how to fix anything that allowed them to hack the system. We also asked Mr. Allen how fast the transition is after an M&A and he told us that the employee part is fast, it is just a matter of giving each new employee a badge, computer, phone, etc., but the acquisition process as a whole depends on how mature the acquired company was. Another time frame is productivity. A new product often needs time to incubate and will generate more revenue years down the road. Mr. Allen advised us that in order to excel in an M&A position, you have to be able to effectively communicate, keep a level head and never give up. For example, for every deal he closes, he gets close to about 50 and is casually looking at about 1,000 deals.

Finally, Mr. Allen explained a simplified version of the acquisition process:

  1. Identify gaps in the portfolio
  2. Build, buy, or partner?
  3. Buy incubate or instant revenue company?
  4. Interview company’s customers and evaluate company’s ethical values
  5. Real estate team checks cost
  6. HR checks the people
  7. Calculate expected economic return
  8. Get approval (ultimately it is the board’s decision)
  9. Close the deal

We are very grateful to have the opportunity to learn from an expert in merging and acquisitions and would like to thank Sam Allen for taking the time to speak with us about Salesforce.

To learn more about Salesforce click here.