I recently wrote a piece for Entrepreneur.com, “How to Acquire a Small Business (and Keep Employees Happy)” to offer some framework for the purchase of a small business — a move that requires a different strategy.
Small companies are difficult to buy, but they can have tremendous benefits to the acquirer over the long term — an argument that has been proven over and over again in Silicon Valley. Having bought a number of small companies and frankly having sold my companies to bigger companies a number of times, I have learned that these 8 steps help make this a smoother process — on both ends.
Steps number two and five included below were updated for this post. You can read about the other 6 steps here: How to Acquire a Small Business (and Keep Employees Happy) | Entrepreneur
2. Respect the existing products and the customer relationships. Whether or not you plan to keep the existing business, you must respect what that team built in terms of product and customer relationships. This is what they sold their soul to for two or maybe three years.
When Facebook announced in 2012 they were acquiring two-year-old Instagram for $1 billion, some investors felt the valuation was high. At the time, Zuckerberg said that Facebook planned to build on Instagram’s features and grow the app independently. Now two years later, Instagram remains completely separate from Facebook and the valuation is now in the $5-$15 billion range. Had Facebook disrupted the existing products and customer relationships, Instagram would likely be less favorable today.
If you upset their customers or dismiss their product through a lack of respect, you are going to end up with a lot of very frustrated engineers on your hands. Even if you only wanted the team, there is a chance they will want to leave because they are embarrassed about what was done to their product.
5. Put a short-term material retention program into place. It will indeed be a tough period for current employees, as there will be change. To help reduce employee fears, put into place a short-term material retention program. It is important to remember the retention program needs to be material and at least be as big, or double, as the expected bonus. This will help for a smoother transition period and hopefully retain the newly acquired talent.
Look at Facebook’s purchase of WhatsApp for $16 billion in cash and stock. Facebook set aside an additional $3 billion in restricted stock units to be granted to WhatsApp founders and employees that will vest over the next four years. With the corporate landscape changing almost daily and a liquid labor market that allows workers to job-hop easily, retention bonuses are a great way for companies to keep valuable employees.
Many believe that such methods add value to the business as well, as they reflect well on company’s management and promote loyalty on both sides. Remember these employees just lost hope of changing the world a little bit, so it is critical to get them through that period and to convince them of the new leadership.
Read about the other 6 steps here: How to Acquire a Small Business (and Keep Employees Happy) | Entrepreneur