Like trying to buy a religion

By Francisco Dao , written on June 7, 2013

From The News Desk

You’ve all heard the stories. You may have even lived through one yourself -- the failed acquisition. The reasons are always the same: It was a poor fit. The team chafed under their new bosses. Visions weren’t aligned. Eventually, most of the acquired team departs in search of greener pastures, often finding themselves working together again on a new endeavor. The record of failed acquisitions is so common it’s become surprising when one actually works.

The reason why companies, especially startups, are so difficult to integrate after being acquired is a matter of sociology. Much like gangs, war, and religion, a large part of startup culture is based on in-group/out-group dynamics. You can even hear it in the language used: We're pirates fighting the good fight. It’s the struggle to make a difference. We’re going to disrupt the incumbents, and, as Chris Dixon said, “There are two kinds of people in this world.” If that isn’t a clear delineation of in-group/out-group, I don’t know what is.

For many, this culture is a large part of the entrepreneurial attraction. Instead of being a cog in the machine somewhere, at a startup you feel like you're part of a team, even a family. While a robust culture works to the benefit of a standalone company, trying to integrate a company with a strong team culture after an acquisition is almost impossible. Instead of looking at a close-knit culture as something to covet, acquiring companies should run from them as a sign that the acquired team will never accept their new roles in the larger organization.

There are two common outcomes when a big company acquires a hot startup or team.

In the first scenario, the startup team simply slacks off. By selling the company, they feel like their work is done, and they’ve accomplished their goal. The focused culture of “Us against the world” is replaced with, “We did it, time to enjoy the spoils.”  What looked like a gritty, take-no-prisoners, team of superstars pre-acquisition turns into a bunch of people who are only half engaged while they think about what they’re going to do after they complete their 24-month contracts. While this sounds like a bad outcome for the company that acquired them, it’s actually the lesser of two evils.

The second, and more detrimental, scenario plays out when the in-group dynamics of the acquired team don’t fade away. In this case, the “Us against them” mentality stays intact but the new “them” in that equation takes the form of their new owners. The acquiring company becomes viewed as the enemy, as much, or perhaps even more than, their competitors, and the close-knit culture that was considered a positive attribute gets used as a weapon against the new bosses.

Oddly, companies looking to make acquisitions may find it easier to integrate larger firms as opposed to startups. While big company acquisitions have their own set of challenges, culture is usually less of a problem, because most large companies don't have the same tight in-group culture as a startup. Employees and teams in big company mergers are essentially just moving from being a cog in one machine to being a cog in another machine. Who controls the big machine, or even what it does, doesn’t really matter.

A strong company culture, especially the kind you find in startup environments, is not unlike a religion. It is usually deeply personal and based on a desire to be part of something meaningful. It’s built on relationships and a shared system of beliefs. From the outside looking in, it seems like a valuable trait and one worth acquiring. But it can’t be bought. And, as the record of value destroying failed acquisitions shows, those who try, do so at their own peril.

The belief that a large company with a slow or calcified culture can simply purchase the mojo of a smaller company is as ridiculous as thinking you can buy a religion and convert the followers. You might be able to buy the church building but, assuming the people are true believers, you can't buy the congregation.

[Image Credit: maura on Flickr]