In a recent Q&A email, one member of the InnoLead network asked the following question about working with startups:
“I’m looking for insights into how to work with a startup when they are bought out. We have a number of contracts with companies around a variety of projects. The majority of them have been bought out recently. … We’re starting to see a pattern of challenges emerge and wonder if someone has insights they would be willing to share.”
Below are a few of the best responses — and we invite you to post your answer in the comments below.
Have a question that you’d like to ask our community? Send it to email@example.com, or see if it’s already been answered on our Q&A Page.
Use Lean Innovation
“Apply Lean Innovation to the integration. Ideally, this starts prior to integration. Often integration is an ‘execution’ exercise and often the value which drove the acquisition in the first place, is lost. The acquisition/integration needs should act ‘entrepreneurially’ by applying empathy, experiments, and evidence-informed decision making.
Empathy might look like [the following]:
- Internally: What is the reason for the acquisition? What is the fundamental value that drove the acquisition?
- Externally: What are your cultural sacred cows? What are the primary benefits you hope to achieve through integration with acquirer?
Experiments should be focused on validating (or invalidating) the riskiest assumptions, answering this question: What must be true for this acquisition to succeed?
Evidence, based on empathy work and experiments, drives how the team performs integration tasks.
The crux is to be able to identify where the uncertainty is and to operate differently in the face of the unknown.”
Submitted by Brant Cooper, CEO of Moves the Needle, one of InnoLead’s Strategic Partners.
Make a Playbook
“I recently have had the opportunity to own the Post Merger Integration function within our company. There are many challenges when acquiring or being acquired. Whether it is a startup or not, the challenges exist. If a startup is purchased by another startup, the issues are different then when a startup is acquired by a bigger, more established company.
The biggest challenge in the latter case is trying to keep the identity of the startup while introducing the governance and policies of the larger company…
What is very important is that there is a playbook established, which highlights the key areas that need to be addressed, and the timing in doing so. Items like compliance need to be addressed quickly, such as GAAP, IFRS, or SOX, due to federal regulations. And new laws such as GDPR and the California Privacy Law must also be addressed to ensure that there will be no future lawsuits or litigation brought against either entities.”
Find Alignment & Wear Many Hats
“Be prepared to wear many ‘hats’ in terms of roles and resources. Many startups consist of very few employees to support the various needs in the area of sales, marketing, and operations in order to gain scale.
Another area of opportunity is to be aligned with how you want to balance patience with persistence. Once a startup is acquired there are sometimes expectations on when and how much ROI will be realized, and depending on who acquired them will depict the integration with the acquiring company.”
Define Challenges Early
- “Define what those challenges are so they can be addressed. What are they?
- Make sure that these concerns are addressed in the contracts before you sign them, realizing that many small concerns will be acquired (exit and likely change hands). How would you protect your stakeholders?
- Express and negotiate your concerns with your stakeholders directly — communicate.”