The following is a guest post by John LoGioco, Chief Commercial Officer at Zebra Medical Vision Ltd and former EVP at Outbrain.

Acquisitions are important milestones for many successful startups that grow rapidly. Having been personally involved in 4 deals during my time at Outbrain, here are some insights to consider to help make your first (or next) deal go more smoothly. 

1. Focus on Repeatability.
A startup will normally make several acquisitions as it grows, so the first value to focus on is repeatability. Develop and document a strategy/plan for how you will execute every step of the acquisition. If you focus on repeatability from the start, you will inadvertently create a framework that can be modified and referred to in the future.

Repeatability means that you can focus on the skills necessary to make an acquisition successful, which often starts with a process-minded approach that can lead to a framework through which all future deals can flow. Before you even start, establish upfront that you will conduct post-deal interviews and internal reviews of what went right and wrong. If you approach each deal as a stepping stone towards your next deal, the skills and lessons learned will be repeatable.

The ability to make successful acquisitions can be one of the most strategic advantages in your quest to become a category leader or to dominate a market, and the task becomes easier when you’re able to recycle the most successful aspects of the process in future acquisitions, so from your very first deal, think about what can be made repeatable at every step.

2. Define the deal.
Early on in the deal, define it, so that others approach it with the correct mindset. To keep it simple, define the deal as either a scale or scope deal:

Scale means that it’s a deal that fits well within your current structure and business plan. For example, if Uber acquired Lyft – that’s a scale deal. In a scale deal, there are clear redundancies and operating efficiencies that can be gained by integrating the two businesses as fast as possible.

In contrast, a scope deal is one where the acquirer wishes to extend their reach into something that is outside of their current core business. A good example of this would be Facebook acquiring WhatsApp, as messaging was not Facebook’s core business. Often with scope deals, it’s better to keep the companies separate until the right fit is identified. Integrating a scope deal too quickly can lead to confusion and if left unaddressed, it can also lead to alienation.

The benefit of defining the acquisition upfront will help your internal teams align and plan the integration process more effectively, so it’s also important to identify who the customer base is at the outset. If the acquisition will serve your existing customer base, it’s most likely a scale deal. If the acquisition will result in a new customer base, or a new type of customer within your existing customer base, it’s likely to be a scope deal. Be mindful of how difficult it can be to serve a new type of customer in addition to your existing customer-base, since misplaced assumptions here can lead to significant problems later on.

3. Look “between the lines” on due diligence.
Standard due diligence procedures work well, however there are important areas to cover that are “between the lines” of a traditional due diligence framework that are worth considering. In addition to senior executives, consider interviewing acquirees at several levels such as middle management and front-line support personnel. Gaining a perspective from multiple layers of a company can lead to important insights into the culture, gaps in the product and the basic health of the company. If an acquiree balks at the request to be interviewed, it’s likely a negative signal that should be noted.

When interviewing engineers, ask and review what toolsets are being used. The culture of the engineering team is supported by the toolsets they are using to build the product. As an acquirer, you should seek to understand this area well. Once you have a good handle on the toolsets, compare them to your own. The end goal here is to be prepared for what a change in toolsets might mean for the engineers. For example, if an incoming engineer is forced to use a toolset that is less efficient than their previous toolset, this can have a meaningful impact on how that engineer performs. If you forecast large gaps with toolsets, incorporate this into your plan and address it directly.

4. Watch for the Stack Fallacy effect.
On scope deals, watch for the stack fallacy effect when it comes to different code bases. For example, if your company has an engineering code base and DNA that is different from the acquiree, ensure you understand and plan for the differences. Do not assume that the two disparate code bases and teams can integrate on a timeline that has not been vetted from a bottom’s up perspective. Some of the biggest mistakes that companies make during acquisitions are the result of assuming that they can move into a new area and integrate a different code base with disparate engineers without forecasting the potential for how difficult this can be.

5. Appoint an Executive Sponsor to manage the deal.
An acquisition can literally “suck the life” from your management team on both scope and scale deals, especially if your management team is small (less than 20 people). Scale deals often ignite fears that redundancies will lead to layoffs or personnel changes, or that territories will be threatened. Scope deals that are complex in terms of go-to-market plans can easily overtake and drain a management team’s time and attention, so the best solution here is to appoint a lead (an “Executive Sponsor”) to manage the acquisition and work with various teams on the tasks at hand.

When appointing an Executive Sponsor, be mindful that they are –
From the acquiring company, and that they have plenty of time to focus on the acquisition, including the ability to commit at least one year to the process if it’s a significant deal.
Not be the champion who closed the deal.
Not remote and physically removed from both the Acquirer and Acquiree. They have to be able to be hands-on when necessary.

6. Don’t rush to integrate.
Do not rush an integration just because you made an acquisition. Oftentimes it’s best to hold off until you better understand the right way to integrate, especially on scope deals where you are entering new territory, new business models, a new customer base or new types of users in your core customer base. If you rush integration, you risk choking the momentum of the Acquiree. Post-acquisition, if you are seeing an unwanted drop-off in sales, that’s probably a sign that you made a mistake here. Jim Price put it quite well in his Business Insider article:

…The worst thing you can do is have a sales drop-off immediately after the acquisition – which is all too common given confusion among the newly-merged team and the customer base – because you can never make up those lost sales. Knowing the paramount importance of uninterrupted revenue – read: sales momentum – the first thing the parent company ought to do in concert with the acquired-company team is get out in front of customers, tell them what’s going on, and reassure them. Yet it’s amazing how rarely that happens. As with the acquired company’s staff, with their customers, in the absence of clear communication, rumors and negative assumptions will fill the void.  So get out in front of your newly-acquired customers, tell them they’re still loved, and provide them with a clear, comfortable, consistent and honest story. And when you think you’re done communicating with your new customers… you’re probably one-quarter of the way there.



7. It’s personal, so ask and listen.
This was perhaps my biggest lesson while leading the acquisition process. Acquisitions are highly personal. Do not take blanket statements about how a deal is going (especially from the Acquiree’s senior leads) and apply them across the board. Instead, schedule one-on-one interviews with Acquirees at all levels to keep updated as to the real status. A great side benefit of doing one-on-one interviews is that Acquirees are delighted to have a voice and be heard even if it has little influence on the plan. In many cases attitude and performance of Acquirees increased after the interviews without any actionable follow up.

8. Think beyond standard financial modeling.
Aside from the standard financial modeling of the acquisition, contemplate potential scenarios that can be costly, such as; What is the cost of scaling the new technology from test phase into wider rollout? How does scale effect capex, security, hosting, disaster recovery and account management? If code needs to be rewritten, what is the timeline and downtime estimation? It’s common to underestimate time and cost in these areas and big misses here can damage the internal perception of the deal.

9. Little details can have a big impact.
When a small incoming team joins a larger team, it’s like school all over again, much like a child feels when he moves to a new town and walks onto the playground for the first time. In these scenarios, even small details can have a big impact. Having business cards on the desks of new employees on day #1 can speak volumes, for example. One of the most common phrases from unhappy Acquirees is “I haven’t even got my business cards yet”, which is another way of saying that the company “doesn’t care about me”. Other small things like impromptu Happy Hours near the desks of new employees, buddy systems for lunch and coffee breaks, birthday celebrations from day #1 and senior leadership making an effort to say hello and introduce themselves – all make a big difference. When Acquirees move in, the first 3 days is absolutely critical, so HR should have a plan for the first 3 days ready to go. Once alienation sets in, it’s very difficult to reverse.

10. Focus on the desired outcome and concentrate on the clients.
Stay focused on the desired outcome of the acquisition by concentrating on the customer. Often acquisitions create territoriality issues within teams, egos conflicts, confusion of roles, unsettled ownership issues and more. Resist these internal forces when it comes to making hard decisions on various stages of the deal, like deciding whether or not to integrate (and if so, when), and how to shape the go-to-market plan. Focus on the customer, and if they are happier as a result of your acquisition, the internal forces will fall into place naturally.