How to Avoid the Deadly Outcomes of an Acqui-hire
They’re multiplying. Founders of startups about to be acquired. Ready to secure an influx of cash as their earn-out is paid, most likely planning to leave the purchasing company shortly thereafter, wealthier and ready to found their next venture.
But what does this mean for the acquiring company’s?
Unfortunately, this is the employee retention issue faced by big businesses who acqui-hire. As more and more startups are purchased for their talent, the question is not “how are we going to integrate the new talent?” but instead “how are we going to keep them around for the long run?”
The Reality of Acqui-hires
Big or small, most Silicon Valley companies know that people are their primary assets and competition for the best talent is stiff; demand has never been higher especially if you’re a sought after engineer. As a result, companies are relying less on their HR departments to find the best people and depending more on acqui-hiring as a more efficient solution to gaining talent.
But the reality of acqui-hires is that the workers don’t always stick around. Employee retention is abysmal; the buyouts often leave the startup founders with millions in their pockets, who have no problem sticking around for their earn-out, before saying “adios” and moving on to found another startup.
Additionally, when companies acquire startups purely for their engineering talent, they don’t always offer jobs to the original founders behind the startup. If those founders move on to start a new venture and ask their old engineering buddies to come along, many may consider it.
Psychological Need to Create
Acqui-hiring entrepreneurs is a tricky business.
Entrepreneurs (and in many cases intrapreneurs) by nature are trail blazers. They are creatively wired and boast a daring mindset in comparison to others and most especially in comparison to those who would never be brave enough to try a startup life. They don’t see a problem and tip-toe around it; they take on the challenge to fix it.
Comfortable isn’t in their nature. Because of an entrepreneurs’ desire to be around chaos, they thrive on making decisions in a pressing and constantly changing environment. And when they can’t make these decisions anymore, they become restless.
That’s why some do, in fact, turn down multi-million dollar deals. As Alyson Shontell wrote in a Business Insider article, “Part of the reason founders turn down jaw-dropping sums is their desire to build world-changing companies. Sometimes they feel the acquirer isn’t a good fit, or they aren’t ready to give up control.” Obviously, it’s not all about the money to them. There is a larger purpose to what they want to build that may not be supported within the context of their new role.
If these so-called trail blazers or crazy ones, need to create, manage, and be around chaos to stay engaged, this could be a key to helping big businesses improve acqui-hire employee retention if they recognize its value.
How to Commit an Acqui-hire
In an interview with the Washington Post, Charley Polachi said that many companies “misfire on cultural alignment,” which results in the acquiring company being overbearing. “Trying to impose your will on the acquired company will send people running for the door faster than anything else.”
This means it’s crucial to keep communication lines open and honest as soon as you start talking to the potential new team member(s). Do this, preferably, during the purchasing process. Figure out early-on what kind of contract terms they’d be happy with and what kinds of opportunities you could offer them that they won’t easily find elsewhere. How will you continue to stimulate their need to create? Can you mimic the chaos they’re accustomed to in a way that’s beneficial to your company?
Digg founder Kevin Rose had one of his startups, Milk, acquired by Google, and then became a venture capitalist for Google Ventures. He decided to stick with Google, not just because of his share of the profits, but because they gave him the opportunity to grow personally while being a part of their team. The more he invests profitably for Google, the more chances he has of managing these larger venture capital options in the future.
If entrepreneurs have an inclination towards creativity, that penchant should be harnessed by the big business, if it wants to avoid employee retention issues. Caring about the incoming talents’ accomplishments, dreams, and skills beyond the immediate benefits to the acquiring company is important. “Intrapreneurship” is especially potent when combined with giving them opportunities to implement those desires within your company.
So far only a handful of companies have done this successfully. One example was Yahoo’s acquisition of 17-year-old Nick D’Aloisio’s mobile app Summly, which the internet giant purchased for $30 million. Instead of running the other way, D’Aloisio’s said he wants to “be there” for Yahoo’s mobile developments:
“The fact is that they have massive leverage in the industry, they have hundreds of millions of people coming to their content every month, and it’s really exciting to be building for that scale. That’s the exciting thing: it’s the scale that Yahoo brings—and that user base — that I really want to build products for.” (Business Week)
And guess what? Yahoo’s not saying “no” to this young man’s experience (or lack of) and enthusiasm. They’re welcoming the compatible talent he brings as an entrepreneur with open arms, a decision which should benefit the company in the long run.
Will other companies follow Yahoo’s suit? Hopefully they do. Because if big businesses really hope to keep those founders and workers around after their startup is bought, they’d do well to ask, “We truly value you as a creative mind and entrepreneur – how can we work with that?”
How have you survived and succeeded after an acqui-hire? Let us know your thoughts in the comments below.