SugarCRM has agreed to acquisition by Accel-KKR, a leading technology-focused private equity firm. Although Wednesday’s announcement calls the deal “a significant investment,” what typically happens when private equity moves in is that venture capital moves out.
Private equity likes to own everything and thus have greater control. Although venture capital is still the prevalent investment form, private equity, with a different time horizon and goals, has been becoming increasingly important.
In basketball terms, Sugar just got a big rebound and a new shot clock, 24 seconds to run another play with the ball already in scoring position.
The company has been preparing itself for this moment for a few years by bringing in more seasoned executives in key spots, cleaning up its balance sheet, and innovating within its product line to make itself more attractive to customers. All the results have been positive, and executives have told me the company will make its numbers and then some.
So what do you do with a new shot clock? Obviously, you want to score, but in the CRM business there are lots of ways to do that. Moreover, there are a few plays that your competition already has run that you’d best avoid, because the defense will be expecting you.
In the CRM story, bigger vendors like Salesforce, Oracle, Microsoft and some others have taken the obvious niches like integration with the back office, AI, platforms and developer communities. All these things and more will be essential to Sugar’s success.
The company has a good story to tell in most areas, but these areas are table stakes at this point. Sugar’s job now is to come up with a unique synthesis that will make buyers take another look at the company with fresh eyes.
SugarCRM for several years has been working to develop unique positioning by de-emphasizing its open source roots in favor of a model that has a more direct path to profits, something that has worked very well.
The other CRM vendors have become big by emphasizing an end-to-end solution set. In the process, they’ve become bloated, challenging to install and use, and somewhat expensive, so there’s a niche at that nexus. Is it profitable? Only time will tell.
Certainly, other vendors have done well starting out with a model that emphasized simplicity and low cost. It’s a grassroots strategy that works best when a category is relatively new, and it could work again.
Over the next year, you can expect to see Sugar leverage the deep pockets of Accel-KKR to expand its portfolio in ways that will highlight its new focus. Hopefully, that focus will reveal a new angle on CRM that Sugar can sustain.
One or two strategic acquisitions that materially add to revenue could catapult the business into new domains, so there’s a lot riding on the selection or fine-tuning of a new model.
The combination of new capital and a company with a mature management structure should be fun to watch. The next six months roughly equate to 24 seconds, and they will be critical. They may not show a final result, but they ought to put points on the board.