The Two Most Common Execution Mistakes in Tech Acquisitions

A blueprint for a successful integration of a tech acquisition.

I’ve been through many acquisitions in different roles, both on the buyer and on the seller side. Common for all have been that the acquisitions have been about acquiring talent as well as great products and technology. I have been at a loss over why the acquiring company seems to forget about the people and/or the product and technology strategy. Even Cisco Systems, the giant of acquisition-based strategy, has deep gaps in its integration execution.

Later, at Cisco, we acquired Acano for $700 million, a company that was started by former TANDBERG and Cisco employees to compete with Cisco. At the time, I was Principal Engineer for the TelePresence Server products (i.e. leading the technical work). This was one of the product groups where Acano had a competing product. The other Acano product was a video endpoint (the device in the meeting room with a camera), a competing product to the video endpoints developed out of Oslo, Norway. With the Acano team in Oslo and London, myself based in Oslo and my team in London, and the Telepresence Server engineering director in San Jose, California, a lot of the day to day interactions fell on me. I was part of the acquisition team from day 0 (where day 0 is the end of due diligence and signing of the agreement, day 1 is the day the deal goes into effect), including having a so-called “clean room” status where confidential information between the companies was shared before the acquisition deal went into effect.

As CTO at Cxense, a publicly listed company, we were approached by a US private company that wanted to buy the company and delist it. We went through a 6+ months process of secret talks before the deal could be announced. As part of the Cxense leadership team and with approximately 60 engineers reporting to me, I had to navigate a very windy and challenging process to ensure that the two companies could be merged together in a way that would create value. At the end of the transitioning, I chose to leave the company.

At Cisco, and in both acquisitions, the Cisco acquisition group did a very professional job on the mechanics of the integration. The work streams on finance, HR and on-boarding, pricing and sales alignment, and other activities that can easily be codified and planned across acquisitions were efficiently executed. Retainment of employees through financial incentives, mapping of role levels to Cisco’s grade system, facilitating visits across sites, and other basics were well taken care of. The work stream I was a member of in both cases was the Product work stream. The main focus, at least in the beginning, was the product roadmap and the initial product story to tell the market.

Through the initial product story to the market the big questions had to be tackled, directly or indirectly: which products to continue and which ones to kill, and which of the technology approaches, designs, and plans should be the newly combined organisation’s strategy?

Of course, the story on a high level was simple: customers from both companies would continue to get upgrades and be supported and then at some point in the future, there would an integrated product portfolio. But as always, the devil is in the details. What to sell to new customers? And could existing customers just start buying the products from the other organisation? Given that the products overlapped in functionality, sales strategy, and were more or less incompatible, the immediate practical answer was no. However, what to say when a large customer of Cisco says that it wants to buy the newly acquired products? We tried to instil the discipline to communicate an efficient and rationale migration path, but we had internal conflicts of interest and to our competitors’ delight, the answer to that customer (and others), was yes, of course you can buy and yes, they will work together. As a consequence, we had the work cut out for us with no choice to make the current portfolios work together, despite the insanity of focusing on status quo instead of building a future, unified portfolio.

We were given very little methodology and support from Cisco’s acquisition organisation while having these difficult conversations. Even worse, products and technology designs are tightly coupled with people, so the product work stream was also the place to battle out who was going to be in a leading position, not only from a management point of view, but also from a team, group, and location point of view (TANDBERG R&D in Oslo, Cisco TelePresence Business Unit in San Jose). The TANDBERG acquisition was big, a $3.4 billion deal, and the organisational, product, and strategy resolution approach that was taken ended up being what we called “two-in-a-box”. The former Executive Vice President of Products (R&D) in TANDBERG was put together side by side with the Cisco Telepresence business unit Vice President. This pattern was repeated throughout the organisation, “to secure value in both portfolios”, even in some cases putting two directors in the same physical office, each heading their pre-acquisition products and teams.

This was a “ 3–2–1, fight…” strategy that was exhausting, and the results were more based on personalities and stamina of individuals than rationale business evaluations. Again to our competitors delight.

We are here at the crux of the problem: You cannot untie people and product strategy in a technology acquisition. And it’s extremely hard to establish a central methodology or process that can be applied across acquisitions. In the Acano acquisition, through pure luck both I and the engineering director of the TelePresence Server team had experienced the TANDBERG acquisition and shared similar views on what could be done better. Also, many from the Acano team were former TANDBERG people and had been part of the acquisition process. We were thus able to choose a different integration strategy. We were early on very pro-active and communicated to both teams that the Acano product would be the lead product going forward, while the TelePresence Server would be discontinued. This wasn’t a pain-free process, but it allowed a much quicker and, in sum, less painful process as we could establish a joint path forward and then create a plan for how people would get new opportunities in the new product portfolio instead of battling it out. It was also more honest as there obviously was a reason for paying that much money for Acano.

I later personally learned the consequences as I got a new manager from Acano, and I also got a new peer in a very competent architect from Acano. When Cisco after a while announced one of its “limited restructurings” (i.e. people cut), we were basically two people having the same role, and I was offered a deal to resign. I don’t regret the choices I made during the integration, it was the right thing to do. However, my experience confirms how the worries people have during an acquisition integration are quite real.

So, the two most common execution mistakes in tech acquisitions is in many cases just one: if you ignore people’s emotions and feelings of insecurity, they will not be able to make the right business, product, and technology decisions. They will be too focused navigating the uncertainties. Do not underestimate the effort that needs to go into establishing that foundation of security and trust. All outspoken, likely and unlikable uncertainties can be bumps in the road. As all the truths that people used to predict outcomes can now be questioned, you have to go back all the way to the fundamentals and draw up everything from scratch and be very explicit. Even for the things that may seem obvious. The uncertainties are both on the side of the acquired and on the acquiring organisation, so it can be a tricky balancing act.

As I described in the case of Cisco, the “two in a box” approach was taken to avoid value destruction when two product lines are combined. This is rooted in the belief that both sides will defend their own products and that this is the only way to ensure that the wrong product decisions are made. I have seen this over and over again. The acquiring company is uncertain about how to treat the newly acquired employees. Of course, a positive thing with “two in a box” is that people keep their manager, which creates comfort and the certainty needed to have good conversations. Well, turns out that it’s hard to expose people to the views of the other side without also at the same time introduce the feeling of competition between competing product groups. But in order to get to a unified product and technology strategy, you need to expose each team to the views of the other and shape a new unified understanding.

So, if teams need to be merged in order to make the right product and technology decisions, but they need their manager in order to feel the safety necessary to have good conversations, how do you then plan and execute a technology acquisition?!

Trust

First of all, you need to understand that in all your communications and actions, you are establishing or breaking down trust; especially with your newly acquired organisation. When all cards are to be dealt again, people will trust nothing and interpret a lot into the tiniest things. Your best bet is to ally yourself with the leadership team of the acquired company as early in the process as legally possible. This is where the “golden handcuffs” come in. People look to the leaders of the company to try to figure out what is going on, and you want the leaders to feel safe and be on the side of the new, combined company. Also, together you should identify key individuals, both technical leaders and other networked individuals, and offer them stay-on bonuses and/or shares.

From Day 1 Role to New Role

Secondly, you need to establish a shared change methodology that will be cascaded down: each leader, starting from the top of the acquired company and the impacted teams from the acquirer, should have a day 1 role with exactly the same responsibility and same team as before the acquisitions. Also, for predictability, you need to make a decision on the role each leader should transition into some time into the future, e.g. 3–6 months, and communicate it. This means that for each function in your company, you will have two leaders day 1, and only one leader at the end of a transitioning process. Each leader will then be responsible for transitioning his or her organisation in a similar manner. With this approach you ensure that people will continue to report to somebody they know on day 1, but also know the expectations for how the organisation is going to transition. Start at the top, communicate the methodology, and then subsequently communicate the decisions on team levels as this strategy is cascaded down.

The biggest risk here is that everybody’s eager to get going and that they will too quickly start taking on their new role, thus forgetting the dialogs and the transitions from day 1 to new roles that need to be set up and coached through. There is a tendency to start making decisions without taking time to learn to know the new product portfolio, technology, people, and culture. This must be resisted and followed up from the top with clear expectations and with coaching help. If not, you risk getting rushed decisions as well as introducing exactly the uncertainties in the organisation that you are trying to avoid.

Now, Medium Term, and Long Term

People understand that there are going to be changes. Don’t lie. People will have to do new things, some people are doing exactly the same things in each entity and there is only room for one when combined. By establishing clear communications on what is happening now (who is doing what today), and where the organisation is going (who is transitioning into a new role), you are establishing a predictable transitioning process where people know what they are supposed to do and where they are supposed to make decisions. However, this medium-term target organisation is still going to be just a step towards the final organisation, but what the final organisation should look like is impossible to know up front. Along the way there will be important strategy, product, and technology decisions, and the long-term organisation, roles, and people cannot be foreseen at the outset of an integration process.

People are able to both understand and adapt to this. What they need is a predictable process, be able to trust what they hear, and the feeling that the process will be fair. It is crucial to communicate what you know (i.e. decisions made), but also what you don’t know or where you only have a hypothesis that needs to be evaluated. It is ok to discuss strategy and important long-term decisions in a closed group with people who feel safe in the new company and who understand what is expected of them long-term. Hence, it may be wise to make decisions on the top leadership level beyond the medium-term. E.g. if you have acquired a company for its tech, you may still get on board a brilliant sales executive. Not being clear on who is going to be EVP of Sales in the long run may lead to loosing both the old and new executive.

So, while the clarity of a medium-term role is important to people, they may not fully satisfied with what they are offered. It is thus important to recognise this and communicate and show by action that there will be opportunities for growth and new responsibilities also in the long-term.

Job Cuts

Now to the elephant in the room: will some people loose their jobs? Here, the rule is the same: don’t lie. Don’t say there will be no job cuts and then fire people. Even if the fired people were underperforming before the acquisition, nothing you say or do can prevent the rumours from claiming that they were made redundant as a result of the acquisition.

Job cuts create fear, fear creates paralysis, and leads to bad decisions that are made to mitigate fear. Even if you believe you are not going to fire any people because you are growing and “you need everybody”, there will be positions where you simply just need one person with a specific profile, not two or more. The best honest statement you can make is the following (if you can be behind it): “We believe all our employees in this new combined organisation are the right people for this exciting next phase that is ahead of us. In the integration phase the next (…x…) months, nobody will loose their job while we will explore how to best leverage your talent for the best both to you and to the organisation. Although we really want to find something to all of you that you will thrive doing, it is normal in all acquisitions that some people will not be entirely happy. That is natural and ok, but we want to make sure that we at least have tried. If we end up in a situation where we cannot offer somebody the right role, we will make sure there is fair treatment and help to find something outside the company.”

Unfortunately, if you know there will be job cuts, you cannot be honest about it. It will create chaos and fuel fear-driven behaviour. You should keep it tight, work quickly to try to identify where you need to cut, make a plan, and announce it as quickly as possible. But once again, don’t lie. You need to say that you cannot tell yet, however, you are working quickly to resolve it. Once you have decided, make the necessary announcements and talk about the process: “now we start individual conversations, we expect to have done all conversations with individuals affected by end of week X”, and then “we have now concluded all conversations in site A. There are no further plans for job cuts.”

While having the conversations with impacted individuals, also have conversations with key people and their day 1 role and new role (as described above). Repeat the message about the process and help these key people calm their teams.

Product and Technology Strategy

This post started out describing the two most common execution mistakes in tech acquisitions, but I have here only focused on people and how to reduce anxiety and fear. The reason is that unless you address people’s emotional needs first, your product and technology discussions will go awry. The idea that you can acquire a company and not miss a beat in your execution is a fallacy. There will be a minimum of 3–6 months of transitioning (and the bigger the acquisition, the longer the time). If you don’t focus on the people first, the pains will continue for longer. Luckily, as you have to start securing people’s emotions from the leadership and down, you can start having the higher-level strategy discussions fairly quickly, you just need to make sure that the discussions don’t trickle down the organisation until each layer or team have been through the transitioning from day 1 to new roles.

Once your entire organisation is through the transitioning, you have a new organisation where people know what and who they are responsible for, what is expected of them, who they need to talk to in order to get things done, and which decisions that are theirs to make. Good luck with your next acquisition!

Originally published at https://stuff.greger.io on February 20, 2021.

Tech product executive with a love for building great teams that deliver amazing products

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