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April 3, 2023

Acquiring startups is a common strategy employed by large companies to drive growth and innovation. However, preserving the unique qualities and strengths of startups within the framework of a larger corporation can prove challenging. Nadia Gil, Chief of Strategic Planning and Corporate Development at Brady Corporation, offers insight into how to effectively preserve startups during the acquisition process.

“Everything is negotiable in this life. So if there are things that you can negotiate early on or during the courting period, go for it.” – Nadia Gil

Buying startups

Most large companies do not innovate in a groundbreaking way, therefore, they focus on acquiring startups for innovation. However, preserving startups in a large company can be difficult. The two main reasons startups don’t thrive in a larger company are speed and culture clash. 

The pace at which startups operate, their willingness to pilot and iterate quickly, and their flexible cultural norms often conflict with the more structured and risk-averse environment of larger companies.

How to Preserve Startups

  1. Be transparent
    Acquirers must be transparent about their integration plan and its timetable. There might be a period of time when the startup will be operating as a standalone, but they need to understand that integration will happen at some point. 
  1. Identify the non-negotiables
    For every startup, there are certain things that allow them to be special which made them attractive in the first palace. Find out what they are and be open to adapting to those. Non-negotiables can heavily impact the deal, especially around talent retention, so it’s best to know and understand them early on to have a positive integration.
  1. Ensure Alignment  
    Corporate development must keep an eye on both the acquirer and the startup. Since startups depend heavily on their culture, it’s best to stay informed about how well the new processes run for them. Ensure to keep communication lines open. Apart from normal integration meetings, it’s ideal to have weekly or monthly reviews to understand what is going well and what isn’t.
  1. Create a system of onboarding buddies
    Mentoring is the best way to facilitate a smooth integration between the acquirer and the startup. One way to do this is the two-in-the-box approach, where people from the startup are paired with experienced people in the large company so they can freely and comfortably ask questions about processes.
  1. Avoid burnout
    Integration is a marathon. Achieving the target benchmark can be stressful, so be patient and have empathy. 
  1. Reliable senior leadership
    After the acquisition, everybody moves on with their jobs or the next acquisition, leaving the founders and even level two executives in the startup to feel abandoned. It would be best if senior leaders do not let them feel forsaken after the acquisition. Having regular touchpoints and one-on-one meetings just as they used to be before the acquisition is crucial.

Mitigating Risks of Destroying Startups

The key to mitigating the risk of destroying startups during the acquisition process is understanding their unique qualities, or "secret sauce." By knowing what makes them special, acquirers will now have a better understanding of what will break the business and how to integrate it effectively. 

Lastly, 80% of the startup's secret sauce depends on the founder. Break those secrets down and understand whether they can be replicated in-house. Usually, founders get retention packages during an acquisition that will force them to stay a couple of years. Use that time to be prepared once the founder leaves.

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