Culture & Communication in Start-up Acquisitions

Anecdotal evidence from recent conversations with founders and early employees of two acquired start-ups, along with my own experience, has led me to believe that companies acquiring start-ups often overlook an important part of the process.

Most of the focus during acquisitions is on due diligence, understanding the technology, and evaluating the business. However, very little effort is typically spent on understanding the culture, beyond a few conversations to check for a "cultural fit."

From the acquirer’s perspective, there are four main reasons for an acquisition:

• Enter a new business area: The buyer wants to break into a new market or product segment?
• Acquire the technology: The buyer values the startup's technology or services
• Acquire the people: The buyer values the talent and expertise of the startup's team
• Eliminate a competitor: The buyer aims to remove a potential competitor from the market

Unless the goal is to eliminate a competitor, the acquirer likely wants to retain the team to help integrate the organizations and grow the new business. To achieve this, "golden handcuffs" are often used to retain founders and senior management.

However, if financial incentives are the only motivation, they may only work temporarily and could even slow down the consolidation process (Parkinson’s Law: “Work expands to fill the time available for its completion”).

For everyone else without financial incentives, the acquisition can feel like a threat to their job security. They may have to do familiar tasks in new, uncertain ways, leading to reluctance and fear. Most people dislike change.

If the acquisition is viewed positively by both the buyer and the start-up, here are some ways to make the transition smoother.

What can the start-up do before acquisition?

After the acquisition is announced, the start-up’s founders lose control over what happens next. Therefore, it’s crucial to lay as much groundwork as possible to prepare the team for what’s coming and address potential issues.

Reflecting on the Fortumo acquisition, here’s what we did to prepare the team:

Main messaging

• What are the key points to communicate to everyone involved?
• Why did people stick around before and why should they do it now?
• What do we know about what is going to happen (no empty promises)?

Key people mapping

• Who holds stock?
• Who are the team leaders?
• Who are people in other roles who everyone looks up to?
• Who are critical people who may decide to leave after the news breaks?

Discussion with key people

• Meeting with the first 3 groups and running the situation through with them
• If needed, separate 1:1 discussions with the potential leavers

Company-wide communication

• Content of initial notification to the team (background, all-hands invite)
• All-hands meetings?
• Post-meeting follow-ups

Customers & partners

• Overlapping customer & partner review with the buyer
• Customer & partner FAQ & outreach plan together with the buyer

Media plan

• Handling media inquiries and announcements as usual
• Aligned with buyer who realistically will want to take the driving role

Let people know who they can talk to and where to ask questions. Provide as much information as possible about the next steps, and avoid making empty promises. Depending on your team’s demographics, consider offering financial planning training to those receiving a windfall from the acquisition.

What can the buyer do after the acquisition?

Having experienced the acquisition process from the start-up side, here’s what I would include on my checklist for cultural integration if I were the buyer:

Overcommunicate

• People fear the unknown, so explain and communicate the process thoroughly - even when it feels excessive (and even then, you’re probably not doing enough)

Prioritize acquisition related activities & quick wins

• Assign individuals who are accountable for driving post-acquisition activities
• Identify and prioritize quick wins to bring the teams closer together
• Consider hiring temporary or external help if needed to manage the increased workload (especially if it’s the company’s first acquisition)

Integration roadmap

• Share it as soon as possible, with as much detail as possible
• Inform everyone about what’s being done, when, by whom, and the expected impact

Tooling access ASAP

• Ensure the acquired team has access to necessary tools immediately
• Shared communication channels are a quick and easy way to start building connections between the two organizations
• Create dedicated communication channels where people can ask questions and get answers quickly

Onboarding

• Treat everyone as a new employee who needs onboarding, even if they’re experienced; they’ll likely need to learn new ways of doing familiar tasks

Best practices should win

• Ensure that the "best practice wins" approach is genuinely followed when integrating workflows
• Avoid steamrolling if the two organizations are similar in size

Clear organizational chart

• Make sure everyone knows who does what on the other side of the acquisition

Successful acquisitions require careful planning and communication. The work doesn’t end when the legal and finance teams finish their tasks. The start-up can prepare its team, and the buyer can take steps to integrate the acquired team smoothly. Keep people informed if you want them to stay.