Random Thoughts – Randosity!

How not to run a business (Part 9): Culture Clash and Acquisitions

Posted in best practices, business by commorancy on April 18, 2015

Okay, so now your business is big enough (and making enough revenue) to consider acquisitions. But, making acquisitions can be tough. Part of what makes acquisitions tough is making the tough decisions to ensure the success of the acquisition. Yet, some companies haven’t the first clue about how to make these tough decisions, especially when involving company culture.

Don’t let the company you are acquiring dictate any company culture demands

In other words, walk away from any acquisition deal where the owners demand (as part of the deal) to be allowed to continue their current company culture. No, no, NO! Do not allow this! Never concede this by allowing the acquired company culture to remain as part of the acquisition. If you do, it will tie your hands when it comes time to merge the the acquired company into yours. It all must become a single company culture or you will never make the acquisition a success.

At some point, you must merge the people and the cultures. If you don’t nip having two cultures in the bud, you’ll end up with part of the company doing things one way and another doing things entirely different. You can’t have your company culture fractured across the boundary of an acquired entity or you will never get rid of culture problems. Basically, don’t tie your hands before the deal is done.

Don’t let the acquired company executives dictate how their section will continue to operate

This goes hand in hand with company culture, but is distinctly different. Executives of the company being acquired do not want to lose their tenure, authority, position or compensation after having been acquired. Ultimately, this is not possible. And, ultimately, it can’t be allowed. You can concede this for a short time during a transition period, but you cannot allow it to remain after the transition period. If the acquired company executives don’t like it, they can leave. If you concede this point, you will never successfully merge the two entities.

This is one of the hard choices you must make. For companies being acquired, you have to lay down the law. If the person can have a role in the new company and can accept your company culture, give it to them. If they don’t have a role, lay them off. If that person can’t accept the company culture, lay them off. If they are unwilling to work within the current constraints of your company’s goals and processes, lay them off. This is a hard decision, but a decision that must be made. You cannot keep the acquired company structure and processes around in your business. If a process you’ve inherited from the company makes sense, then yes, you can integrate it. But, typically this never happens. The company being acquired almost never has more mature processes than yours.

Don’t allow an acquired company to remain located in a separate city from your business

Another hard choice, but one that is entirely necessary. You cannot leave the office open in the city where the acquired entity was located. You should dictate as part of the acquisition terms that you will close it and relocate staff who choose to relocate to your headquarter offices. While you can leave the office open during the transition period, you cannot leave that office open. If you do, you will never integrate the staff into your business. They will forever retain their culture in that office. Acquired staff must move to your headquarters or leave the company. If that’s a deal breaker, walk away from the deal.

The only exclusion to this rule is acquiring foreign entities. If you are a US entity and acquire a Japanese office, this is the only time where you will want to keep that entity in its entirety. However, in the domestic US, the rule is close the office. You can re-open and restaff an office in that same city later, but the acquired entity office must be closed as soon as possible to set the tone that your company is one culture and one team.

Don’t make the staff of the company the most important piece of the acquisition

Unless you are a staffing firm acquiring another staffing firm, you typically acquire a company for its customer base or its technology, rarely ever for its staff. You will need to keep in perspective exactly why you are buying a company… and it’s rarely ever for staff. However, if you are buying a software company, it’s probably a good idea to keep certain few key developers for at least a short period of transition time. But, do not keep them on staff forever. Once they have turned over their braintrust and code to your engineers, usher them out of the building. I’ll reiterate, you buy a company for its technology or customer base, never for employees. However, if those key employees are willing to relocate and willing to accept your culture (usually not), then you can invite them to stay. Otherwise, you should put that key staff on a 6 month contract to transition the software and documentation to your team, then usher them out.

Don’t hire executives for more than a 1 year contract on acquisitions

When you buy a company, you’re technically hiring these employees and execs blind. Sure, you could assume that the employees there did something right to get the company to the point where you considered buying it, but you may be making the wrong assumption. It’s entirely possible that the people (or person) who created the product or service has long since walked and you’re buying a shell in maintenance mode. Based on this fact alone, you should be prepared to walk everyone in the acquired company to the door. If you aren’t prepared to do this, you’ll have no hope of successfully merging two entirely different cultures. If you’re not prepared to fire every single acquired employee, you shouldn’t be in the business of making acquisitions.

If the acquired employees are not acutely aware and accept that your culture is the dominant culture, they will not fit in nor follow your company’s processes. Even if they are aware of this fact, they may still choose not to follow your company’s processes (see allegiances below). You should be prepared to let any acquired employee go quickly. In fact, you should plan to let these employees go after the transition period is over. This prevents culture issues entirely.

Don’t get lulled into thinking that a technology acquisition will save your business

It won’t. Plain and simple. If your own product or service isn’t cutting it, any company you purchase will not typically be any more successful than yours. In fact, you may find that it may make no money at all and you’ll end up (best case) giving it away for free or (worst case) shutting it all down and dumping it.

You should understand that, like any business, ideas come and ideas go. Some work, some don’t. Buying a company for software, hardware or specific technologies isn’t without risk. Sometimes you gamble and win, some times you lose. There is no crystal ball for this. But, you must willing and prepared to throw away everything from an acquisition. This is yet another tough decision, but it’s one that needs to be clearly understood. If you are unwilling to acknowledge the failure of an acquisition, then you shouldn’t be in the business of acquiring companies.

Don’t create new positions for acquired executive staff

If there isn’t a position already open, do not create fake titles for executive staff. You should explain that there is no position available for their skills within your company, at the bargaining table, and make it perfectly clear that they won’t have a role in the new merged company. Of course, you can compensate them, but they will have no job. If they won’t accept that, walk away from the deal. Additionally, don’t create co-presidents or co-CEOs or co-anything. Dual roles in your business generally do not work. Not only will your staff be confused over to whom they report, double decision makers lead to decision problems, never solutions. Additionally, you likely don’t know any of these acquired executive staff. Sure, they might appear knowledgable, but they didn’t go through your official interview processes. They bypassed that process and became your employee through acquisition. There is no accounting for their knowledge, skills, background or abilities.

One other point I should make here is about allegiance. Keeping executives from an acquisition in a position of power, especially co-leader positions, enables acquired employees to retain their allegiances to their former leaders rather forming new allegiances with your leaders. These fractured allegiances are likely to lead to more problems in the future. This goes back to company culture above. If you keep acquired staff and executives on board, you are asking for culture clash problems. This can be eliminated by eliminating acquired staff after the transition period is over, including executives.

Don’t skip the interview process for acquired staff

If you want to hire on any employee from an acquisition, force them to go through your same hiring processes as any candidate. Have your teams interview them and determine if they fit with the position based on their skills. If the staff like and accept them, hire them. If they don’t, walk them to the door. Do not blanketly accept staff from an acquisition simply because the company was acquired. Follow your standard hiring practices when considering bringing staff on from an acquisition. Make sure that that the acquired company is fully aware that every staff member will need to go through a rehire process by your hiring managers. If they don’t fit the skills needed for an open position, don’t hire them.

Don’t avoid reviewing your acquisition progress yearly

Company technologies and staff don’t always integrate nicely, especially over time. You need to review the progress of any acquisition regularly. Don’t just assume that the acquisition is working perfectly simply because you hear nothing about it. Instead, you need to go digging for information. Ask people on your team what they think of the acquisition and if it was successful. Get opinions from your team members and understand what they are saying. If your team members won’t give candid information, then ask for them to fill out a survey and offer a notes section at the end for freeform comments. Assuming the survey is truly anonymous, the employees will be open and candid with you. You need to know when company culture clashes exist. These cannot be swept under the rug.

Part 8 | Part 10Chapter Index Page

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