I find it interesting when the same conversation happens with two different people in the span of just a few days.
In the past week, I had almost the exact same conversation twice, with two different people at two different companies, about culture and acquisitions. In both cases, they had initiated the topic of conversation.
The following is a common pattern:
- Company Small is founded to bring a product to the market.
- Small goes through multiple iterations and pivots, succeeds. (searching for a sustainable business model, in Steve Blank’s terminology)
- Small’s revenues grow, company stabilizes into market. (optimizing to execute on a known business model)
- Small changes its name to Big!
- After years, changes in market and technology threaten Big’s model.
- Big tries to respond by tweaking product, changing VP Sales, perhaps CEO, but struggles to respond despite heavy investment.
- Big decides to acquire several smaller, nimbler companies.
- Big still fails to return to stability, let alone growth.
- Big deteriorates.
- Big eventually collapses or is sold for a pittance.
Why does Big engage in the acquisitions? Sometimes the target is a direct competitor, acquired with the goal of reducing competition in the marketplace (at least temporarily). Sometimes the target has unique technology or other intellectual property, acquired for its valuable asset.
But in most cases, the acquisition is neither large-scale competition nor does it have unique IP. Instead, it is a much smaller, growing nimble company.
So why the acquisition? Why not develop the competitive product internally? Big usually has far more capital to invest in the product (viz. Hooli and Pied Piper), along with existing deep sales pipelines and far more direct connections to real customers.
Big already has tried to compete, and failed. For reasons executives at Big cannot grasp, at least initially, little Nimble with a tiny war chest appears to be cleaning up. Soon it will be a direct threat.
What could it be? CMO of Big concludes it is brand and asks for another few million dollars to spend. Usually she gets the funding, which leads to a small but unsustainable bump in revenues and market share, hardly enough to justify the spend. The VP R&D concludes it must be product engineering, asks for another few million in hires. They get it, they spend it, same story. So it goes around again and again.
Eventually, the CEO of Big concludes – correctly – that it is all of the above together. What do you call the mindset in a company that does more with less, brings product to market quickly because it rewards people for risk and gives them the space to do so?
Concludes the CEO, “if you can’t beat them… buy them.” So Big acquires Nimble.
Therein, however, lie the very roots of the future failure, a key reason why many acquisitions fail.
You cannot buy culture if you smother it.
What happens once the acquisition closes? Certainly some key people leave, due to a combination of a desire to work only at a small, nimble company with a mission and having gotten their “exit”, stay bonuses notwithstanding.
However, for the most part, the people at Nimble remain the same, with the same culture and the same drive to succeed. In nearly every acquisition I have seen, the drive of the acquired people increases. They know why Big bought their beloved Nimble, why Big is failing, and what they can do to help. They want to bring the bounty of Nimble to the larger entity, and are excited to do so.
Shortly after the acquisition, it starts. Quoth Big VP HR:
You all are employees of Big now. We are excited to have you here. As a Big company, we have longstanding policies that we worked out over the years, and work really well, so let’s get them over to you right away. We know you had a flexible vacation policy and remote work whenever needed, but we have policies we need to follow. Here are the new employee contracts (“only” 15 pages longer than the old ones), and the annual policy agreement you must sign. We are so excited for the mindset you will bring to us. My door is open for any questions.
Employees not only have reduced flexibility to do what they really want – get the job done! – but they now need to spend time reviewing contracts, figuring out benefits, understanding vacation, everything about their job except the job itself.
Only one or two go talk to the VP HR. Most sigh, some send complaints up the chain of command. These filter through to Big CEO, who responds, “well, it is just HR policy, it isn’t the core of what we do, and we have to comply with ____.”
Next comes legal.
We really appreciate how much you have gotten done on so little. You engineers, operators, salespeople, marketers, finance staff are amazing. Of course, we want you to continue, help make us as nimble as you. We are all one big company now, so here are our standard procedures for vendor contracts. I know you are used to the five-pagers you have done, but these will protect all of us.
Everyone at Nimble is pretty sure that the best use of their time is not redoing contracts and upsetting longstanding vendors who have helped them succeed. The head of R&D is certain that the reason he got the new dashboard out so quickly was because he negotiated a mutually beneficial deal under a fair contract with the software vendor, thanks to dedicated help from purchasing and legal, in 3 days flat. With the new template, it would take a month to negotiate, if Big’s lawyers and purchasing are available, and if the vendor even agreed to anything so onerous. But so be it.
Once again, a few complaints go up the chain, making it to the CEO of Big. The response? “It is just legal, one of those administrative things we have to do. Go along with it for the good of the company and all of its employees. Don’t let it worry you. Just do it and focus on your jobs.”
Next is IT. But I think the point has been made.
What the CEO fails to understand, what every executive from Big fails to understand, is that culture isn’t just if you write in Node vs Java vs C#, or run on AWS or Google or your own hardware. Those all help, but those are the results of a nimble culture, not the drivers of a nimble culture.
A nimble culture:
- Rewards risks people take, whether or not they succeed, without making them jump through hoops.
- Asks people to pick the best tools that they need, not that someone else has decided.
- Asks people to do their job the best way they can, as they determine it.
- Removes roadblocks, every single one, instead of adding them.
The CEO of Big realized that Nimble was cleaning up because they were, well, nimble. What CEO fails to realize is that nimbleness isn’t just some marketing-fu or engineering-fu or sales-magic. Nimbleness is everything about your culture, something you easily can tend to or kill with HR and Legal and IT.
CEO, you cannot buy a nimble culture; it is impossible. You can decide to become a nimble company by changing your culture, and use a great acquisition to seed the process. It only will succeed if you, personally and actively, protect the acquisition from everything that makes you un-nimble, and push those elements into your company.
Everything else is doomed to failure.