So you’ve bought a business. Congratulations, you’re just like the dog that caught the car — now what do you do? According to an (in)famous Harvard Business School report from way back in 2011, the failure rate for mergers and acquisitions is between 70% and 90%, running into the trillions of dollars. So you need some sort of plan or checklist for the business’s first 90 days. But how do you make sure that the car you just caught isn’t a lemon?
I’m mixing my metaphors here, but real talk: you’ve put your money and your reputation on the line — what’s the magic formula for success?
When you consider the Bezos framework of regret minimization, put it this way: don’t screw it up so much that you regret buying the company before you give yourself the chance to really succeed. I’d argue that the business’s first 90 days after you close the deal are the most critical period in the life of an acquisition. You’ve had time for the initial giddiness that you actually pulled it off to subside but not so much time has elapsed that you’re expecting windfall profits.
How do you get from the thrill of the chase to running a well-oiled machine in a short three months? Well, for starters, I’m done with the bad metaphors, so down to business. Let’s discuss what to do during your business’s first 90 days.
Why Do Acquisitions Fail?
First, let’s do a quick review of the two reasons that acquisitions fail — lack of strong due diligence and the clash of corporate cultures. If you haven’t done granular due diligence before you buy a company, you’re setting yourself up to fail. By “granular,” I mean digging deep into the intangibles of the business:
- What’s their reputation with customers and suppliers?
- Is the equipment up to date?
- Is a regulation coming down the pipe that could destroy the business model?
Second, the team you’re inheriting is waiting for the worst and digging in against the changes you’re trying to implement. Corporate culture used to mean a hierarchy flowchart, and casual Friday meant no tie. But there’s been a change in that concept lately. In the current environment, the employees have much more leverage to dictate the culture. Honestly, a deep dive into that culture should be part of your due diligence, but it’s not too late to figure it out and integrate it into your plans.
The idea here is to integrate a synergy of culture and value that translates into a fat bottom line. So start thinking about how to create that integration before your deal goes through. Forbes recommends getting started when you’re about 80% there.
Your Newly Acquired Business’s First 90 Days to Corporate Nirvana
Reality check: if the acquired company were hitting all the marks, you wouldn’t have made the investment. So clearly, there are gaps you need to fill, whether it’s revamping the business model, firing most of the staff, or renegotiating contracts with vendors. Here’s my advice for the first third of your ninety days to corporate Nirvana: don’t do anything.
The business was doing well enough before you bought it that you can get through this period. Trust me, having the patience to absorb everything before you make any changes will pay off in the long run. Yeah, it’s counter-intuitive, but consider this an extension of your due diligence into the business’s first 90 days.
Get to know your employees. They’re an invaluable source of information, and it’s also critical that you’re seen as a friendly ally. Poke around the manufacturing and operations processes, and learn the why and how of the numbers you’ve been crunching for months. Something that seemed ridiculous on paper may actually be the best process once you’ve dug into the whole pie.
Taking this time to just soak it all up isn’t just an exercise in the kumbaya of the corporate structure. It gives your leadership team the time to fine-tune your plans for integration going forward.
Establish a Merger Integration Team
Once your self-imposed period of sitting on the sidelines is up, it’s time for real action. You’ve had a month to really hone in on your business plans, and you have everything ready to roll. I like this way of rolling out any changes because it’s a one-time money shot where you get it all on the table at once.
By now, you have identified the core team from both companies that can lead the integration process. The people who are excited about the acquisition (that sounds so much nicer than buyout) are on the team. You need representatives from all the key departments — IT, HR, sales and marketing, purchasing, and R&D — to collaborate on an integration action plan to merge operations and encourage teamwork across the board at both companies. These are your cheerleaders who, with luck, can shepherd the legacy staff through to the other side of the merger.
What If It’s a Straight Acquisition?
Venture capitalists usually buy with an eye towards the end game, so you avoid the merger headaches that go along with combining companies. That said, you do owe your investors. There are fiduciary obligations that mean you still have to put a leadership team together and identify the right people to join the company board, either as full voting members or observers.
Be Transparent With Stakeholders, Especially During the Business’s First 90 Days
Your stakeholders range from investors to vendors — in other words, everyone who has any skin in your game. If you’ve done your homework properly, everyone knows at least the broad outlines of your plans and how you plan to implement them. While I’d argue that you can overcommunicate, you really can’t in these early stages. It’s better to bombard inboxes with irrelevant minutiae than to go radio silent and leave everyone wondering what nefarious deeds you’re up to.
Information is the currency that your stakeholders need to buy into your vision for the business. As you move through the real work of putting your stamp on things, keep everyone aware of what you’re doing, why you’re doing it, and the impact it will have on their roles. I can’t overstate the importance of this.
A certain level of comfort and security goes along with knowledge, even if you’re not wild about the information itself. This type of transparency goes a long way towards developing the synergy for the new way of doing business. Again, your leadership cheerleaders are invaluable in acting as sounding boards. Make sure the lines of communication are open and honest. (If your staff is scared they’ll get in trouble for honesty, you’ve got more problems than I can fix here.)
Communicate to the Entire Company
The faster you roll out the new organizational structure and communicate your vision and ideas, the better. Include the entire company in all your emails, meetings, and Zooms.
One of the dumbest things I’ve seen entrepreneurs do is silo communications with staff; VCs don’t make this mistake as they are professional communicators at this level. Legacy employees are worried about their jobs. Also, there’s always uncertainty and some level of fear that the new people will take over. This holds true whether it’s a full-on merger or an acquisition. You avoid misinformation at the water cooler when you copy everybody on everything.
Develop a Model for Integration
In the final sixty days of my ‘Ninety to Nirvana’ plan for the business’s first 90 days, you have plenty of time to initiate any changes because you have already spent so much time analyzing the weak spots and where you need to prioritize.
During your sit-back-and-watch period in action purgatory, your team has put together a detailed plan that does each of the following:
- Assess every aspect of the business.
- Identify objectives.
- Establish target dates for reaching those objectives.
- Establish methods for tracking KPIs.
- Identify the roles, responsibilities, and authority of the key staff.
If you’re leading a merger, add the extra layer of integrating systems within the business’s first 90 days to this list. Again, at this point, you should have researched existing software and apps and had your IT team design that process. As the lead VC or entrepreneur, it’s your call who leads this integration project.
I’ve saved the worst for last. It’s a fact of life that when you buy a company, some legacy staff will get fired. It’s a hard thing to do. Most VCs and entrepreneurs tie themselves in knots trying to figure out how to shift unnecessary or underperforming employees into new roles, only to have that backfire. They wind up firing that employee anyway.
Cold-hearted VCs are actually human beings and have mothers, too. They really hate telling someone they don’t have a job anymore. But it’s a necessary evil of the acquisitions game, especially as technology is expanding the worker pool so that you can hire from anywhere in the world; you can contract or hire top-notch Lithuanian developers at a fraction of the cost of some kid fresh out of Georgia Tech.
When your new business model requires you to cut staff or some people simply aren’t doing their jobs, it’s critical to your mission that you cut the deadwood as quickly as possible. You’re not really doing anybody any favors by prolonging what everyone knows is coming. Retraining someone whose head isn’t really in the game anymore just costs you more in the long run. So ignore the temptation to do it. One way to soften the blow is to offer some outplacement counseling (if you outsource HR, they have those resources) and a bit of severance if you can.
Analyzing Your First Quarter
Ninety days in, and what do you see? I’ll help you answer this. You see a team that’s integrating both systems and culture per your game plan. You also see vendors who have happily renegotiated contracts and are delivering on time. Your production is going strong, and the sales team is locking down existing contracts and bringing new customers along. Also, you’re getting a pony for Christmas.
Nothing’s perfect, and managing that first quarter is, to be honest, hell on earth for many VCs and entrepreneurs. The key here goes back to the minimization of regret — if you don’t regret this purchase after the first quarter, you’re heading in the right direction.