Entrepreneur 2 Entrepreneur: Justin Kaufenberg on acquisitions



Justin-KaufenbergTech entrepreneur Justin Kaufenberg co founded TST Media with Carson Kipfer circa 2008 after the spinning out what is now their flagship product, NGIN, from a service-oriented web business they originally formed in 2005 while attending college.

In 2009, the company raised an initial $1m round of funding from Twin Cities Angels and more recently, landed $3.5m series B led by El Dorado Ventures.

Throughout the fundraising, customer and employee growth — the firm has made two acquisitions, the latest of which was WSN from TDS earlier this month.   We’ve since caught up with him to learn more about these maneuvers and hear what it’s been like from an entrepreneurial point of view.

All M&A is strategic in some sense — so how does the initial Pond Hockey Tournament buy and WSN fit into the bigger picture for TST Media?

The US Pond Hockey acquisition was an attractive target for two primary reasons: first, it provided a world class marketing and PR opportunity that can make thousands of potential clients from all over the country and even all over the world aware of who TST Media is and what we do. Second, it provided an amazing portfolio example for our NGIN technology platform.

We felt strongly that the “event” market was a perfect fit for our NGIN platform, but when first entering the space, it is immensely helpful to have a real live event portfolio example available to use during the sales process. We run every single facet of the world’s largest hockey tournament on our NGIN platform, proving that it is the best tool in the market today for event directors and managers. Additionally, the event is a blast to run and a blast to participate in and at TST Media we work and play with extreme passion…this is just another example of that.

WSN was also classified as a strategic acquisition, but for different reasons. In the case of WSN, we felt that there was the chance to be opportunistic and roll their operations onto the NGIN platform, in order to better extract value from the data. WSN is a great, great company with hundreds of thousands of loyal users, 10 years worth of WI prep sports scores, stats, standings, photos, videos and data, and hundreds of happy advertising partners. Like many small to medium sized media and technology companies, they faced challenges that come along with advancing and iterating on technology platforms and expanding operations without additional capital infusions. By rolling their operations and all of their data and users onto the NGIN platform, we can put them in a position to deliver their content more cost effectively and to more people.

Additionally, we can create new streams of revenue around mobile and many other turn key NGIN functions that WSN was previously unable to offer to its users. In short, we feel that there is the opportunity to aggressively grow WSN in its existing lines of business, while simultaneously working to create significant additional “pin action” around them.

Would you anticipate more to come?

Absolutely. We are very confident in our ability to organically grow our business, but we also recognize that there are many unique opportunities in the sports technology industry, which is an industry that has yet to go through a significant consolidation. Like WSN, there are a number of companies that have created excellent traction, yet could expand much more rapidly with the right company or on the right platform.

What has been the hardest part of completing deals like these and also your biggest learning experience(s)?

We’re learning every single day right now and we are working to institutionalize our processes and our integration and evaluation methods. We are working hard right now to ensure that our processes are in place to not just complete the transaction but to truly measure its effectiveness in order to provide enough data to help us fine tune our go forward strategies.

We’ve classified the challenges into two primary categories, those tangible tasks such as technology migration or data migration or payroll transfer etc…and then on the flip side, there are those softer objectives such as culture transfer and talent retention. These can be especially challenging when the company is not local. In both cases, we’ve learned that the execution will only be as effective as our organization around the effort.

For that reason, we’ve formed internal committees and teams who know exactly what they are responsible for in any transaction and have the autonomy to execute on those mandates immediately. This organized and shared effort is our way of ensuring that nothing ever falls through the cracks or lacks attention.

TST Media is still very much a startup.  Why don’t you think more startups make acquisitions?

I think that many startups don’t make acquisitions for very good reasons…which can include misallocation of resources or loss of focus. It would be very easy to spend cash that could be better used for product development or organic growth, just as it could be very easy to become entwined in a transaction and lose focus of core company activities.

That said, we feel that if a startup can vet that a transaction truly fits into its core objectives and that it is the most economically effective way to add revenue or technology….then it can be great way to accelerate growth.

Is there a framework that you use in assessing a potential target?

Our internal M&A committee is empowered to consider opportunities that fit into any one of three primary categories — strategic, technology and competitive — with respect to our underlying NGIN platform. We carefully classify each of our potential opportunities based on how many of our “hot buttons” it pushes. We have a list of about 10 hot buttons, which are company attributes that we feel are most important and core to TST for a number of different reasons. These include users, content/data, recurring revenue, regionally specific market penetration, etc.

When an opportunity both falls into a focus bucket and also pushes a high percentage of our hot buttons, then we move the company into a select group that deserves further due diligence. From there, we make case by case determinations on whether or not to proceed. We’ve worked hard to create a framework for assessment, but more importantly, we’ve worked hard to organize teams of people clearly responsible for every task and every stage.

Any general advice for the entrepreneur considering acquiring another company or strategic assets?

I’d suggest that any start up considering an acquisition should view it as a purely incremental growth activity. No different than that large, game changing sale, it needs to be viewed as gravy above and beyond the current operations. To ensure that we keep sight of that thought, we create a base level annual budget that includes the company’s organic growth exclusively, and we work to ensure that we are achieving organic numbers that we are pleased with in a vacuum.

We also hold all acquisition committee meetings after hours and do as much of that work as possible in the evenings and early mornings to again reinforce the directive to keep the organic trains running effectively at all costs. At some point, we hope to grow the business to a point where the M&A activity is a constant and regular part of the business, but as a startup, we prefer to embody the “whatever it takes” attitude until we’ve earned the right to bring the activity into the company’s daily core.