How to Make Your Startup's Acquisition a Beginning, Not an End
Here's how to ensure an acquisition becomes a positive partnership -- for both your enterprise, and your people.
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In 2006, I started a company called Kanjoya, with an ambitious challenge: Could we deliver empathy and understanding to people using technology? Our first product, Experience Project, was a social media website that connected people through shared life experiences. We clearly hit a need, as the site quickly grew to 15 million users per month, ultimately sharing over 35 million experiences, ranging from first days on the job to relationships.
Related: Why Prioritizing Company Culture Is the Key to a Successful Acquisition
With focus, Kanjoya grew and quickly ran into resource constraints across the board. It became clear that we ideally needed a larger partner to fully realize our vision, and Kanjoya was acquired in 2016 by Ultimate Software, a leading cloud human resources technology organization. The acquisition could have effectively marked the end of our startup's journey, trading a check for our technology, and a series of well wishes as our team moved on in new directions. Or, it could easily have resulted in partial layoffs and disillusioned employees: Roughly 30 percent of employees are considered redundant after a merger or acquisition, and when employees are no longer emotionally connected to their company's mission, they're more likely to be dissatisfied and leave.
But, an acquisition doesn't always have to follow that narrative, and we're glad our story didn't end there. Following our acquisition, 100 percent of our team and our product line was adopted into Ultimate Software, and employee retention actually increased. Two years later, my team and I are able to continue working toward our original mission of delivering empathy through technology, with the resources, stability and credibility of a successful parent company standing behind us.
Of course, every acquisition is different, with hundreds of variables to consider. But, there are key lessons I learned through this process that may help other entrepreneurs ensure an acquisition becomes a positive partnership -- for both your enterprise, and your people.
Know your strengths and opportunities.
I started considering acquisition as a next step for Kanjoya at a critical turning point for the company. We had reached an adolescent stage many growing startups will recognize: We were a predominantly research- and product-focused team, with the bare minimum of marketing, service and other supporting departments. Yet, we had pulled off an incredible feat: We had a great product, burgeoning recurring revenue and happy customers.
In order to get to that next stage of growth, I knew we would need to build out those teams -- and I also knew it wasn't in the DNA of our existing team. And that was OK! We were focused on exactly the right things: building and innovating on a great product that made our customers' lives better.
So, we had a choice to make. We could dedicate significant time and resources to build out those teams ourselves, likely misfiring along the way, or we could look for a partner that would complement us and fill in those expertise gaps, so we could keep doing what we did best. In my view, we had a responsibility to focus on developing our product as quickly as we could -- and finding the right partner would be the smartest path to get us there.
Related: How to Position Your Business for a Strategic Acquisition
Make culture match -- and connection between teams -- a priority.
Culture had always been incredibly important to me. From the moment I founded my company, I prioritized building a happy, thriving team that cared for and respected one another. As I considered potential partners for us, I was constantly applying this employee-centric lens: Wherever we go, will I be able to look my team in the eye and tell them that I believe it's the right direction? Will that direction ensure they continue to grow, succeed and enjoy the type of culture they worked so hard to build?
We found a partner that made it clear its priorities mirrored ours. From our very first conversation, Ultimate's team demonstrated a commitment to my team as a whole, regardless of title. Arranging for time with the most junior developer was as important as the conversations with our most senior leaders.
The real tipping point came when Ultimate demonstrated it was as interested in the story of our people as it was in our product. The entire Ultimate leadership team had flown across the country for a key diligence meeting at our offices. I was presenting to the group when Ultimate's CTO, Adam Rogers, stopped me early in my presentation to ask: Why did our employees seem so genuine? What had helped us to build a family feeling that is often lacking in venture capital-fueled startups?
Not only was this partnership a match in terms of the skills and resources we needed to continue our growth, but also in our cultural focus.
Related: These 9 Entrepreneurs Turned Down Acquisitions, and Their Businesses Are Doing Great
Communicate not just about the deal, but the reason behind it.
Entrepreneurs approaching an acquisition can make the mistake of getting caught up in the deal terms and lose sight of the reason behind it. I was used to working with an egalitarian leadership team, a group of people I hired precisely because they were smart, capable and caring. I trusted this team with building the business; as a result, they expected, and deserved, to be bought in on the acquisition process.
Those first moments of announcing an acquisition are crucial. Have leaders from the new company on hand to explain not just what is happening, but why it is a bridge to the future you originally imagined. Ultimate had made the effort to get to know Kanjoya and our people on a personal level, and it was clear to employees that they understood Kanjoya's mission and were going to be able to provide the very things we needed to grow.
If you are able to make the investment, have the teams meet in person, and explain not just the contract details of the deal, but also the real story behind it. It may be the single most important point to creating a healthy partnership. If an in-person meeting isn't feasible, put in the effort to digitally connect the teams. Invest in the legwork to align on and share the meaning behind the pending partnership, and what it will mean for both the company at large and employees on both sides.
Related: IPO vs. Getting Acquired: What You Can Learn From Snap and Instagram's Divergent Exit Strategies
Think far beyond the "exit."
The idea of an "exit" is a dominant one in the minds of many entrepreneurs -- and, most often, an exit means asking: What is the best financial outcome for my company, its investors and the employees? Or, what is the best "brand" outcome?
As an entrepreneur, you certainly want to show that you built something successful -- but you also want to land the plane successfully. If you're looking at a merger of product and technology, it's easy to make that combination. But, unless the people come along too, and are dedicated to making that partnership work, that landing won't be a smooth one -- if it happens at all!
Remember: It's not just about the transaction, it's what happens after that transaction. Can you demonstrate that same commitment to creating value within your new partner that you demonstrated to your early customers? Far from a conclusion, you will soon find that the work begins anew.