Verge connects founders, developers, and investors with resources and tools to grow their startups.

Alec Synnestvedt

Case Study: Digital Relevance on Navigating Startup Acquisitions

Digital Relevance Startup StoryWhen an entrepreneur takes to the stage or the web to tell their story, it’s often because they have  achieved a major milestone or recently had a big win. This is, of course, fitting–we can learn a lot about what it takes to succeed by studying each other’s successes. By sharing what works at conferences, online and in communities like Verge, we both enable others to reach for higher goals and inspire others to achieve them.

But as they say, the best lessons are often the hardest ones learned. And as entrepreneurs, it’s often difficult for us to share our most significant insights because they are our hardest earned–and are the most humbling to talk about. So when Jeremy Dearringer and Kevin Bailey, two of the co-founders of Digital Relevance, joined me on stage to share some of their most significant insights, I knew we were in for a special night.

Case Study: Digital Relevance Founders on Navigating Startup Acquisition Offers

Passion and Youthful Enthusiasm Fuel Growth

Digital Relevance Post

Jeremy Dearringer and Kevin Bailey, Co-Founders of Digital Relevance, share their insights on how to navigate startup acquisition offers.

Bailey and Dearringer developed interests in the internet and marketing from an early age. They loved learning about it simply for the sake of learning, and pursued SEO as a passion and hobby throughout high school. They split paths for college, but Derringer’s early experience helping his dad’s company with SEO led the friends to realize that their shared interests could turn into a business.

The business plan was born out of their passion, and as they say, was created with the kind of unbridled optimism that so often comes with youth.

Dearringer and Bailey owe much of their early success to a few key things:

  • Their mantra: “Make clients successful, make clients successful, and never forget to make clients successful.”
  • An excellent partnership program
  • Tried to ensure that every client referred them three new clients

They grew fast, hitting the Inc 500 list for three consecutive years.

“In a nutshell,” said Bailey, their recipe for success “Was a lot of passion and confidence. Granted, it was our first time doing any of this. We didn’t know what an acquisition process was like, we didn’t understand a lot of the stuff the wiser business people knew.”

“We were just really passionate and enthusiastic. You need that to keep you going in the beginning,” said Dearringer.

How to Navigate an Acquisition Offer: What to do When Someone Wants to Buy Your Baby

“We ran into some challenges in the last year and a half. Some people may have associated those challenges with changes in the [SEO] market and space–but something else was going on that people may not know about,” said Dearringer.

“FedEx was one of our enterprise clients, and I was invited to speak on a panel in front of 300 global marketers at FedEx. I didn’t even feel like I belonged there, to be honest,” Dearringer chuckled. “I was sitting there with executives from Facebook and Omnicom, and it went really well. And afterwards, people kept coming up to talk to me.”

Those panelists Jeremy spoke with at the event continued to speak with him afterwards.

“I think they were surprised that [Digital Relevance] had worked our own way in with FedEx. He kept following us and talking to us for weeks after that, and it ended up leading to a $30 million offer for our business,” he said.

Suddenly, that youthful enthusiasm that fueled Dearringer and Bailey’s startup had propelled them into completely foreign territory.

“I think some of the people that are working on startups think about it a lot–it’s a big decision to sell your baby,” Dearringer said. “You have employees, it’s like a family you’ve built up, and it’s a big decision to think about what [an acquisition] means for everybody.”

“We immediately started going into what I would call ‘Cover Your Ass’ mode: how do we not let this slip through our hands, and capitalize on this?”

Founder Lessons Learned

Here are a few key decisions and milestones Dearringer, Bailey, and the Digital Relevance (then Slingshot SEO) executive team reached while working on the acquisition that didn’t end up coming together:

Reward the people that helped you get there.

They couldn’t tell everybody what was going on as negotiations were ongoing, but they gave 16 employees phantom shares anyway.

Follow the advice of mentors, but don’t take your eyes off the prize.

They worked with an investment banker, and then decided to hire a CEO, then a COO. In foreign territory, they thought, best to have people that have been there before on your team.

There is a lot of risk to taking on acquisition offers as a founder. It takes a lot of time, effort, and attention away from the machine the business runs on. Though the Digital Relevance executive team tried valiantly to divvy up responsibilities, with some working on the business and others working on the sale, the process affected a starkly different day-to-day from the youthful, optimistic culture they had started with.

The acquisition process is private, they pointed out. You can’t talk to a lot of people about it. You have to work through that process relatively alone. The buyer wants to watch you for six months, maybe more, to ensure that you and your sales projections and maintain EBITDA profitability.

“They were putting a lot of pressure on our sales team to hit our numbers, and at the same time couldn’t make hires the way we wanted to–we weren’t as agile as we wanted to be with the business at that time,” said Dearringer. “We introduced a lot of change to the business during that time, so the cover your ass mode–as opposed to being optimistic and excited and focusing on our business–was one of the biggest changes that occurred.”

“We learned a lot from them. We honestly did, even when we were in CYA mode,” said Dearringer.

Don’t let big numbers get under your skin.

digital-relevance-acquisition

Their hard work had paid off. Big time. Digital Relevance had competing offers to buy the business, and they wound up with a top offer for $60 million.

“So that was even more material and more significant–which sent us into even more of a C.Y.A. mode,” Dearringer said.

There is a strong possibility that your business can get in a really bad spot if the acquisition doesn’t happen. I thought, ‘How do we manage that risk?’ So we hired a CEO and hired a COO.

Key Insight: The real lesson there is this: If you ever get to that goal, get to that spot, make sure that you stay fixated and positive and optimistic–the same stuff you built the business on must continue through the acquisition process. Don’t take on the protectionist mentality. Your energy needs to be focused.

And as Kevin said, “It means you will work 24/7, but that’s just part of the deal.”

Watch Jeremy Dearringer at Verge when the negotiations were ongoing:

How it turned out

After a year of over 100% growth, Digital Relevance projected 50% growth for the year as they entered the acquisition process.

“We thought that was conservative,” Bailey chuckled. “We started coming in a little short of that–but the whole point of a long process is so that you don’t it your forecasts so they can keep negotiating with you.”

The process kept getting delayed, and ended up lasting almost a year. And that, my friends, is a lesson to learn from.

Key Insight: “If you ever get in a competitive bid process, get it done in a quarter, and take the second best bid. It’s still a lot of money, you know?” -Kevin Bailey

Bailey elaborated, “If you take your eye off your business for that long, you can really put a hurt on your clients, your team, and your own sanity.”

On Hiring C-Level Executives.

“Another thing: Kevin and I just had kids during this time, too,” Said Dearringer. “This will change your life. It changes everything. You need to figure out how to manage your workload and balance your personal and professional life.”

Kevin added, “Another lesson to think about: some entrepreneurs talk about the concept of ‘Working your way out of your job.’ That can happen on an exit, but I think as a founder, you bring something key and very important. It’s actually VERY hard to work yoruself out of your job.

In a lot of ways, it’s harder to watch someone else run your business than to run it yourself.

Digital Relevance Today

Digital Relevance still has clients like Qualcom, Sears, and more. They still do what most would think of as traditional SEO services, but today, their sites are laser-focused on content promotion.

“What happens when your content marketing efforts aren’t doing enough for you? What happens when your content falls in the woods?” Dearringer asked. “We create badass content and then we promote it.”

As Digital Relevance VP of Marketing Chad Pollitt recently pointed out, “Content is King, but Promotion is Queen…and she wears the pants.”

So how did the Digital Relevance team weather the storm? See for yourself. (hint: they’re still on the INC 500)

As Jeremy Dearenger and Kevin Bailey said:

If you have questions about the acquisition process, if you think something like their situation is coming up for you, if you’re working on balancing your startup baby with your new baby, or something else, please get in touch. As straight-talking, active contributors to the entrepreneurial community, they’re happy to share even more of what they’ve learned from experience with you.

Go ahead and leave your questions or comments below and we’ll monitor them for response.

Email Address

About Alec Synnestvedt

Executive Director at Verge. Circle city enthusiast. Connector of dots and people. Writer of songs, non/fiction and, I hope, the future.
Email Address
Email Address

Verge Twitter Stream