Photo: Jet.com
Are post-merger culture clashes inevitable?
Adam Blair, Executive Editor, Retail TouchPoints
Through a special arrangement, presented here for discussion is a summary of a current article from the Retail TouchPoints website.
The very nature of a successful startup is that it offers something different from the status quo. That difference can be in the products it makes, the technology it uses — even the way it advertises and sells a boring commodity item. The cheeky advertising campaigns used to promote Dollar Shave Club were a big factor in Unilever’s billion dollar acquisition.
But the very things that made the company attractive to bidders can be crushed by corporate conformity. It’s a particular problem in the retail industry, where brands operate very much in the public eye, and where customer loyalty can hinge upon the startup company’s sometimes expensive commitment to customer care, or its offbeat sense of humor.
Walmart’s acquisition of Jet.com in August 2016 has been seen as a win-win for both entities overall, but apparently a few rough spots were faced on the road. The Wall Street Journal recently reported that one of Walmart’s changes was the removal of liquor from Jet.com’s offices in Hoboken, NJ. The startup’s regular Thursday evening happy hour was also moved out of the office to local bars.
“People were not thrilled,” Liza Landsman, Jet.com’s president, told the Journal.
The potential for a culture clash was talked about by both sides prior to the acquisition and has been continually monitored. After noting that the off-site happy hours were not attracting many employees, Walmart reversed course, reinstating the Thursday happy hours with beer, wine and food.
Of course, some startup cultures can contain toxic business practices in their success cocktail. This seems to be the case at Uber, where a series of scandals forced out CEO Travis Kalanick in June 2017.
But the strangling of a startup culture is a real problem, according to Zach Ware, managing partner, VTF Capital. In a 2016 Q&A, Mr. Ware said: “Simply buying a company and bolting the brand to your own doesn’t work anymore. There’s innovation at play at the startup company that you want to allow to thrive, and if you suck them into your existing machines, you’ll kill it. That happens a lot, and it’s unfortunate.”
Discussion Questions
DISCUSSION QUESTIONS: What advice do you have for retailers and brands trying to avoid culture clashes after acquiring dot.com and digital startups? Is working with today’s digital startups much different than working with entrepreneurs in the past?
Poll
BrainTrust
Gene Detroyer
Professor, International Business, Guizhou University of Finance & Economics and University of Sanya, China.
Celeste C. Giampetro
VP Marketing, PebblePost
All businesses suffer from a learning curve after an acquisition. Even good changes are met with resistance. My advice is if it’s not broken then don’t fix it. Keep quiet and don’t make promises to employees you can’t keep.
M&A fails 55 percent to 80 percent of the time, depending on the study. The single biggest reason is poor strategy in determining what companies to combine (often management hubris). The number two reason is culture clash, which most companies ignore. And those that see that it is going to be a problem do nothing about it. (Some great examples are Daimler/Chrysler and HP/Compaq.)
What to do? Understand that there will be clashes and the lower one goes in the organization the harder to change the culture. Conduct culture assessment during the due diligence period. Be clear on what culture you want to see in the end. Be open and transparent. Focus on people’s emotions.
“If you suck them into your existing machines, you’ll kill it. That happens a lot, and it’s unfortunate.” I don’t know if I’ve ever seen a RetailWire article with which I agree more. Adam is totally on target here. In my forty years of organizational consulting I’ve seen exactly the scenario Adam describes more times than I can count. Organizations are acquired and then destroyed for exactly the same reason. Usually that reason is a lack of blind obedience to bureaucracy, an abundance of creativity and innovation and innate cultural energy.
This is overly simplistic but there are two dimensions that need to be considered in any blend of culture: TASK and MAINTENANCE. Task is all the financial stuff, equipment, space, head-count, brand – anything that can be decided in a board room by the suits. Maintenance is about maintaining cultural spirit. This includes the energy, relationships, understanding and communication between the two parties. The American way is to focus entirely on task and only then if there is a problem do leaders try to deal with maintenance or cultural breakdown. That is usually too much trouble and it’s easier to kill off the annoying newcomers.
What works is to do it in exactly the opposite way: maintenance first then task. Bring the two parties together to interact, get to know each other, get a sense of the energy, have people explore and hopefully get excited about what might be possible if we were to all work together, etc. Live together before marriage in other words. Start with a happy hour.
BOTH cultures will need to adapt to the other, there is no way around that. But to think that the group being acquired will abandon their culture and way of thinking in favor of their new masters’ is plain foolish.
Although cultural differences are inevitable, in cases where a startup built their fame on a unique corporate culture and catchy turns of phrase it may be risky for the company which acquires them to tone down the unique culture that made the startup desirable in the first place.
Walmart is quickly building quite a portfolio of famous Millennial brands. Their success depends upon their ability to allow the companies under their management to be themselves.
Culture clashes are inevitable if the strategy behind the acquisition isn’t crystal clear and transparent to all those involved. In most cases, keeping that startup separate is the least disruptive route for both companies. As others have said, if it isn’t broke, don’t fix it. The success of that acquisition was built on people and process working together seamlessly. Learn from that success rather than trying to impose a different cultural norm.
“Grow up” seems to be today’s theme — at least judging by the examples — but it makes me think that this isn’t so much an issue of “culture clashes” as it is an issue of companies transitioning from small, loosely run companies to (for want of a better term) “real” ones. In one way, I think most of the issues (similar to those illustrated) that arise after an acquisition would arise eventually, regardless.
OTOH, it’s possible there are real and fundamental differences in how companies operate — one might have a “customer first” mentality, whereas the other values efficiency — that may be hard to iron out. Of course those are the kinds of things that need to be considered before a merger takes place … or doesn’t.
Yes, I think these clashes are essentially inevitable. Even companies that don’t merge, but simply grow at a rapid rate, will experience cultural growing pains.
If you purchase a company, however, you need to take stock of what makes them so good at what they do. If their culture is an important component to their success, which it most likely is, the less tinkering you do, the better the results are going to be. The only cultural impact you should be making is with efficiency.