So have you ever been called to an offsite meeting, only to realize that there are some new players in attendance that you haven’t met before? Not only that, they are the new owners of your division? Yes, I have.
Have you ever shown up to work and realized that there is a new HR team in the conference room with a printer to issue badges and talk benefits for your new parent firm? Yep, check that box, too.
Setting aside the emotional turbulence of those moments, the question remains: in this new era, what mindset do we as leaders, and in particular growth leaders, need to have to capture value during these kinds of changes to serve our stakeholders well?
I received a number of pieces of feedback to the previous piece (link here) that outlined the increasing interest on the part of larger firms to jump start their growth and build their talent base by working closely with/partnering with/acquiring start-up firms. Nearly everyone confirmed their interest in that strategy, and everyone had a horror story to share about the integration process.
These events are filled with possibility, both of fantastic value creation and (more often than not) value dissolution and confusion.
As I became more involved with these areas, both as an acquirer and acquiree, I started to keep a set of notes on the patterns that were working and not working. This does not preclude the important legal and financial work of creating a new entity. Rather, my notes here are focused on the retention of the strategic value that precipitated that transaction in the first place.
What are the first three things I tell a client when asked what they should focus on?
- Tell the real story
- Know that to retain value, you can only focus on a short list of elements
- Do your homework to understand where the friction will be, and have a strategy to quickly build trust and clarity.
Let’s take each of these into a bit of detail.
Tell The Real Story – Clearly
The first words spoken are so important – they need to be anchored in exactly how this new alignment creates significant value for the market that the new firm will participate in. This moment is the difference between unleashing a transformation or creating a slow decline.
One of the biggest fibs I see in this space is that the narrative and action don’t line up. The story to the press and to the team(s) needs to be coherent. If it’s an acquisition that is based on folding in the products and services, make that clear. If it’s an acquisition to get access to the go-to market resources of the acquired firm, be clear about that, too. But if the real story is that you want to integrate the top talent into the parent firm’s products and services – that’s a big difference.
Fear of missing out on capturing value (FOMO) kicks in and well-intentioned teams can have strategic drift and reframing that comes off as trust issues when everyone is hyper sensitive.
Principle: Prior to the announcement there are a set of relationships flying in formation, with everyone on the org chart reasonably sure of their position in the firm and their trajectory. The minute you announce the intention to acquire, all those relationships are thrown up for grabs. The members of the new team are moving from a trusted and clear environment into the unknown. Your job as a member of the integration team is to make the new environment as crystal clear as possible – as quickly as possible. Your first move must be high integrity and authentic, because the trust foundation is very weak at this point. Get the razor sharp benefits to customers and clients anchored first.
Focus on a short list
Speed is next to godliness when doing this kind of work. Once the value narrative is developed and communicated, be sure the team stays razor focused. So, if retention bonuses are part of the deal, be sure to align them with the value thesis.
From above, if the real value boost is the go-to market resources, then align the majority of your early identification work there. It is very common that the named leaders are not the real valuable subject matter experts once you get in and have a look around. High-quality resources move with lightening speed in the chaos of change, and value can be lost quickly.
Principle: Keep the main thing the main thing. It’s very common for the initial value thesis to suffer from scope creep. For example, we might also begin to think about a great supply chain expert and the HR VP as key resources, as well. While they may be important, the most urgent work is to develop relationships with the full go-to market group – all the way to the front lines.
Do your homework
When I work in this space, I work with firms to level set across the two unique cultures (that are in many cases becoming a third). In the honeymoon period, it is very common for the firms to think they are on the same page – when they are not even close.
The first friction usually develops around three areas: time, communications and viewpoint differences. In a small, highly entrepreneurial firm, their currency is speed, and they are used to pivoting on a dime. One of the first big issues usually begins with “you did what…”, when a member of the senior acquisition team was simply making a suggestion and the new team took it as directive for action. In a small firm the main communication path has been verbal and informal, while in the larger firm it’s hierarchical and written – and tensions of “cowboys” vs bureaucrats quickly start to fly. Lastly, when the small firm leader asks a simple strategic question, they are usually met with a very abstract and high-level response. This reinforces the small firm leader’s view that the leaders in the larger firm are too detached.
Principle: Within 90 days, the acquiring firm begins to become disillusioned with their acquisition for the precise reasons they acquired it. If they wanted to get more agile and faster processes, they soon find that those come with a corresponding reduction in oversight and forecasting. What from the outside can look like a fully buttoned down product line turns out to have serious issues with quality and consistency. The source code is not documented, and so forth.
There you have it. I find that these three areas are a great start. I suggest that teams are ready when they can pass the “sharpie” test. If you can use a blunt tip sharpie and a 4×6 note card to write out the main way that this transaction adds value to the client, you are well on your way. The magic of this is twofold: it gets you out of the usual internal focus and back on the client and because you can only write a few words in large font, it forces you to be concise and direct.
As you can tell, we’ve barely scratched the surface on how to improve strategic value retention in these transactions. If you’d like to have a confidential discussion of your situation, please give me a call at 847-651-1014 or use this link to set up a 20-minute consult.
For more insight about M&A integration, check out this post.
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