How an Acquisition is Like a Romance
When Facebook announced it was acquiring Instagram for a hefty billion dollars recently, a ripple of excitement went through the entrepreneurial community at the thought of the incredible amount of money founder Kevin Systrom's made in just 18 months. But behind these get-rich quick dreams, what's it really like to go through a Silicon Valley acquisition and trade start-up life for a role at a bigger company? And what do young entrepreneurs dreaming of becoming the next Systrom need to know about the realities of successfully negotiating the sale of their start-up? We spoke to acquisition veterans to find out. Turns out, many of them feel it's a lot like dating.
Going on Those First Dates
"Before you get married—and marriage in the context of a tech company is either an acquisition or an IPO—you need to date around and figure out what you like," explains Chuck Dietrich, who is the former CEO of online presentation tool SlideRocket, and now serves as a VP at VMWare following the company's acquisition of his business. This "dating" process is key, according to Dietrich, because just like when you're starting a romantic relationship, shared goals and compatible personalities are essential.
Your networking and discussions should "give you a flavor of how the company works, what the culture's like, how your product could fit into their product mix," says Dietrich. And like in dating, doing actual activities (think of the always-stressful first couple's vacation) that bring out your true character is helpful.
"You want to get to know the people and you want to do it in the context of actually doing something real. For example, doing events together or a product integration. That gives you insight into the culture. Are your people going to get along with their employees and is their going to be a cultural fit?" Amit Kulkarni, co-founder of productivity app Do.com, now part of Salesforce, also cites the primacy of cultural fit. "Salesforce was a great match for us as they had a similar transparent and collaborative culture."
David Stein, co-founder of social performance management company Rypple, also now acquired by Salesforce, opts for a dating metaphor as well but takes the analogy a step further. Just as the excitement of a sexy new relationship can sweep daters off their feet and into less than successful partnerships, entrepreneurs being approached by acquirers need to keep their emotions in check, Stein feels.
"People can get really excited they're being courted. I've got this guy calling me for prom! That guy wants to go to prom! Wow, this is exciting! You don't stop and think, do I really want to go to prom and do I want to go with any of these people? A big part of it is flattery," he says. "People sometimes get emotional and then all of a sudden they're in a deal and they haven't thought through what it really means. So they have to sit in a room and say, is this what I want to do?"
Stein suggests a cold, hard list of pros and cons to keep your feelings at arms length and ensure you're thinking rationally.
Aside from a cultural fit, what other considerations do you need to weigh? Your mission and your people are paramount. "You really want to make sure you structure a deal that's good for the employees," says Dietrich, warning that, "I've seen people do deals where they look like they were good on the surface, but when you got down to the rank and file employees it didn't work out well. Then you get attrition and the acquisition is not a success, so make sure you take care of the employees."
Both Dietrich and Stein stress compatible missions as well. "When you speak to the people that are interested in buying your business, do you feel like they have a clear vision of what's going to happen and what they're going to do with the business once this thing closes?" Stein asks, while Dietrich recommends startups, "have a written mission and broadcast and share that with the acquiring company and make sure that's agreed upon." Completely shift your mission and you're likely to lose your employees who signed on for a different project, he warns.
Planning the Wedding
So after many anxious dates you've decided you're a match. Great! What's next? Obviously the lawyers will be hard at negotiating, but after the deal is nailed down there's still plenty of work to do to prepare for the big merge. Much of this boils down to conditioning your employees for change.
"Once you join a company, things are going to move at a slightly different speed, there's going to be a new set of processes, so you have to plan for change. If you have the expectation that everything is going to stay the same, you're going to be disappointed," says Stein.
Dietrich agrees: "Undoubtedly things will change and you have to embrace those changes," he says, noting that this attitude needs to flow from the top-down.
Also, for Stein, there really isn't such a thing as over-communication.
"Once it's known that you're going to do something, you want to be very transparent. We put out an FAQ. We would ask our employees using our own system, what are you excited about? What's the one thing you're concerned about? We would aggregate all that feedback and then share it and discuss it. We would have weekly all hands meetings to talk about what was going on. Over-communicate, because in a void of information people get concerned," he advises.
Setting some metrics for what you hope to accomplish also helps according to Dietrich. "Have some real clear and simple metrics which speak to whether you're successful at [your] mission or not. That's a tool that people at the acquiring company can wrap their heads around and say, 'yes, this is working well.' And it's also something to keep the employees well tuned to where they should be putting their efforts," he says. Kulkarni, also a fan of metrics, stresses they need to be ambitious. "Keep setting aggressive (or, seemingly impossible) goals for your business," he urges.
Life After the Honeymoon
You may have sealed the deal, but both partners still have lots to learn about each other, the veteran entrepreneurs stress. Actively engage in the process of learning how each side of the acquisition does business.
"You really want to cross-pollinate, i.e. you want to add into our team veterans from the core company. That way you start to get a feel for how things run, what the culture looks like and you feel like you're more part of one business," says Stein.
Dietrich has also exchanged talent with the company that acquired his business, but he feels, like in any relationship, the right balance between closeness and space is important.
"The great thing about VMWare is they intentionally wanted us to stay in San Francisco and work some of our time in Palo Alto, but also bring some of the people from Palo Alto into our office in San Francisco," he says.
Stein likewise appreciates the room his acquirer has given Rypple to continue to express unique aspects of their company culture.
"We have a lot of developers. They like to play video games, so we converted one of the rooms, put PlayStations and Wiis in, and now we have a gaming room. That was part of our culture. That was not in their culture here. That's now been implemented," he says, offering other examples of how Salesforce has let Rypple continue to be Rypple. "We were very big on T-shirts, things that identified the business, sweatshirts, so we went and designed new ones. People still feel like they're part of their start-up identity but they're also part of a new entity. There are some small things that you do that may be unique and also things that operationally you think were advantageous, you want to promote and continue to do those things because that's part of why they wanted to buy your business in the first place."