Previously published in The CEO Magazine
By Ed McLaughlin and Wyn Lydecker
Most entrepreneurial companies thrive on innovation, creativity, and speed as key ingredients for driving success. Entrepreneurs are willing to take risks to increase the probability of breakthrough achievement at the cost of possible failure. In many respects, these attributes get into the bloodstream of high-growth companies and define their behavior. On the other hand, big corporations emphasize strategy, structure, and process—institutionalizing corporate behavior patterns. They use chain-of-command management and consensus decision-making to reduce risk at the cost of timely action. Since the operating styles of an entrepreneurial company are so different from that of a large corporation, a marriage can be difficult.
The only way to improve the probability of a successful merger is for both parties to acknowledge the differences up front; clearly define goals and expectations; jointly devise the integration plan; provide adequate funding for growth; build in flexibility for unplanned surprises; and maintain a joint stake in the long-term success of the combination. In short, when a big corporation buys a small entrepreneurial company, both parties need to protect and incubate the unique ingredients that made the marriage so attractive in the first place. This is hard work that takes time, dedication, and investment.
Corporate and Entrepreneurial Experience
I bootstrapped my startup, United Systems Integrators Corporation (USI), into an Inc. 500 company and later sold it to a Fortune 100 company, Johnson Controls (JCI). Within two weeks of the close, JCI executive leadership asked me to take the helm as president & CEO of the newly combined $1.5 billion business unit for the Americas. Having spent my first 11 years in business with IBM, Hewlett-Packard, and Trammell Crow Company, I had the advantage of understanding the motivation, behavior, and control issues within a large corporation. This background softened my conversion from entrepreneur to corporate executive. Yet even with this experience, my transition from USI to JCI proved very challenging. Entrepreneurs should not underestimate the amount of change and loss of control they will be facing in the sale of their venture to a large corporation.
Some Marital Advice for Corporations
If you are planning to acquire an entrepreneurial venture to transform your business, you need to be prepared to accept, nurture, and adopt change. These changes can impact product innovation, technology applications, management practices, and financial performance. If you are not prepared to sponsor the transformation, then why make the acquisition? Let’s face it; integrating an entrepreneurial company into an established corporate culture requires dedicated leadership and a willingness to face the stiff wind of resistance.
Rules to consider for acquiring and successfully on-boarding an entrepreneurial venture:
- Clearly define your goals and objectives for the acquisition.
- Secure line management buy-in before pursuing the target.
- Only make the acquisition if you are committed to genuine change.
- Invest the time up front to create a fertile environment for incubation.
- Be prepared to sponsor the integration up and down the organization.
- Make a covenant to preserve the ingredients of the secret sauce.
- Recognize that legacy practices aren’t necessarily best practices.
- Study your acquisition for revolutionary methods and ideas.
- Nurture entrepreneurial leadership to foster change management.
- Recognize and reward a demonstrated commitment to transformation.
And above all, do not acquire an entrepreneurial company for a quick fix.
It just won’t work.
Some Marital Advice for Entrepreneurs
If you are considering the sale of your company to a large corporation, you will need to come to terms with the loss of control. This is a huge issue to digest. Just think about it: All of your success and behavior have been driven by your willingness to lead, to decide, and to take risks. You need to understand that your privileges and your autonomy will be affected by the new corporate owner. Coming to terms with this loss of freedom and empowerment can be very difficult and quite possibly insurmountable.
Beyond loss of control, your new corporate owner will hold you responsible to produce consistent results on a monthly, quarterly, and annual basis. You will also be responsible for facilitating a successful integration while achieving synergistic goals that bolster financial performance. Recognizing these new accountabilities should heighten your sensitivity to preserving your secret sauce—the key ingredients that make your company great.
Ed “Skip” McLaughlin is the author of The Purpose Is Profit: The Truth about Starting and Building Your Own Business, along with co-authors Wyn Lydecker and Paul McLaughlin. The Purpose Is Profit (Greenleaf Book Group) is available in bookstores now.
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