Photo: Bonobos
Andy Dunn’s departure from Walmart indicative of a broader problem
In a LinkedIn post Friday, “A Love Letter to Walmart,” Andy Dunn, founder of menswear site Bonobos, praised Walmart’s digital transformation as he announced plans to leave in 2020.
He wrote, “I watched our strategy evolve as we uncorked our unique advantages on a new omni playing field — and began to identify where we aren’t just catching up, but where we are winning.”
Walmart wrote in an internal memo, “As an entrepreneur at heart, Andy Dunn has decided now is the right time to take the next steps in his career. During the last two and a half years, Andy’s contributions to the organization have been invaluable.”
Bonobos was bought by Walmart in 2017, and Mr. Dunn became SVP of digital consumer brands, which includes Bonobos, Moosejaw, ShoeBuy, Hayneedle, Allswell and Eloquii. Along with Jet.com, those startups supported Walmart’s digital push.
News of his pending exit arrives after reports in July that some of Walmart’s leaders have become frustrated by the slow path to profitability of the retailer’s online operations. Yet his exit appears smoother than some others. WhatsApp’s co-founder, Brian Acton, left Facebook in 2018 over privacy disagreements, and he’s still calling for Facebook accounts to be deleted.
The exits of founders and key personnel from acquired tech startups is common. Reasons cited include misalignment of values and vision, personal ambition or interest in other opportunities.
Other high-profile cases include the exit of Shipt’s founder from Target this past March, two years after the sale; Chewy.com’s co-founder and CEO’s exit in March 2018, 14 months after Petsmart’s purchase; and the exit of Instagram’s founders in September 2018, six years post-sale.
Purdue University researchers found last year that when startups lose their founder CEOs, they become more risk-averse, and that makes it harder to attract talent.
Recent research from Wharton found startup employees across levels acquired through acquisitions leave their newly merged companies at twice the rate of regular hires with nearly identical profiles. Despite the allure of stock options, the study similarly found the cause to be a mismatch between the organizational structure of the acquirer and the entrepreneurial spirit of the startup.
- A Love Letter to Walmart – LinkedIn
- Is Walmart at an online crossroads? – RetailWire
- Bonobos Founder Andy Dunn Is Leaving Walmart – Business Of Fashion
- Bonobos founder Andy Dunn to depart Walmart in 2020 – CNBC
- Mismatch: Why Workers Don’t Stay After an Acquisition – Wharton
- Why Innovation May Suffer When a Company’s Founder Leaves – Wall Street Journal
Discussion Questions
DISCUSSION QUESTIONS: How important is it to retain startup founders, co-founders and other key personnel after an acquisition, and for how long? What’s the key to retaining employees that have become accustomed to a more entrepreneurial structure?
Poll
BrainTrust
Carol Spieckerman
President, Spieckerman Retail
Zel Bianco
President, founder and CEO Interactive Edge
There are good reasons that founders are often retained for a set period post acquisition – it’s also not surprising that many leave after the initial tie-up period. In many ways, the things that make entrepreneurs great is what can make them less effective in larger corporate structures. The formality of plans, reporting structures and protocols can frustrate entrepreneurs who are more accustomed to calling their own shots. I think that the secret to retaining key employees is to figure out exactly how these employees add value and then to focus them these efforts vs. forcing them into a strict corporate structure.
Well said, Mark! I’ve been on both ends of acquisitions, and it’s most important to identify who/what is essential to success and do your very best to keep them moving forward.
This does not seem like a big surprise – what used to be their blood, sweat, and tears is no longer theirs and while all seems good at the beginning of a new relationship, you eventually find that the vision and objectives change over time. I believe many of the founders stay to transition, but eventually I believe that they believe that the world is calling them to create the next big thing. I have always liked the Bonobos brand and their clothes, and I hope they continue to be the innovative brand they were when they started.
Not everything is meant to last forever. If anything, founder departures in this era of retail exemplify agility and retailer confidence to “take it from here.” Walmart is tightening the ship and pulling in a few tentacles in order to maintain focus. Whether or not Mr. Dunn was the best choice to preside over a multi-brand digital portfolio, further integration into the mothership makes sense at this stage. Leadership consolidation is a natural outgrowth of brand integration as Walmart migrates away from innovation-through-acquisition.
In the private equity world, investments are made primarily based on the management team’s strengths. For acquisitions such as Walmart and Bonobos, the interest is more in the processes and products, and less in the founder beyond transition. Few entrepreneurs are willing to tow a company line for long post-acquisition, and a clear timeline for founder departures should be agreed on early in the process.
The acquirer always thinks they can run the acquisition but the reality is they literally always destroy it. I have personal experience here!
What makes a brand unique is its people and values. When you remove the brain and heart will the patient survive? When you sell you can NEVER trust what the future will hold, you are no longer in control.
Unfortunately, this remains true in so many cases, and yes, I also have personal experience in this situation. Those who acquire and those that are acquired must find a balance between monitoring how things are going and being left alone to be able to do the things and take the risks that made you successful in the first place. Too many reporting layers and corporate BS tends to slow down innovation and vision.
Entrepreneurs typically do not like reporting to anyone. Once their payouts are completed, there is less of a compelling reason to stay unless the founder of the acquired company is given fairly free rein (which s/he typically is not). You add up these factors with the entrepreneurial itch to create another new concept or company, and you have the reasons for the separation. The problem for the acquirer is the complete transfer of knowledge before the founder’s departure.
Given Walmart’s plethora of expertise in this matter, I’d think they got what they need and are ready to go. Key leadership, by the way, is still in place with Micky Onvural so they should be in good shape going forward.
As part of the due diligence following the merger and acquisition process, it’s always wise to keep on the founders during the period of transition. This is a normal way to do business, and not indicative of any broader problems. It’s not unexpected that Andy Dunn is departing Walmart, as entrepreneurs are always on the hunt to create and cultivate the next best thing.
This is all part of the process that is in motion at Walmart. While the digital native acquisitions were run autonomously for a while, their assets and leadership teams are being assimilated into the broader Walmart business value proposition.
As a founder and serial entrepreneur myself, the glory of acquisition is followed by the thud of corporate-think and politics. Corporations acquire startups to boost their brand. Corporations do not experience passion nor the emotional thirst to innovate. Both Walmart and Andy Dunn flew on the velocity of individual and mutual advantage until, as with most acquisitions, the bromance was over. Walmart got on the Richter scale of relevance and Andy Dunn earned a brilliant future ahead as an entrepreneur with a “historical” retail exit from one of the world’s largest retailers. Up next, two years from now, will Bonobos still be around?
This is really a two-part answer. First, acquired companies accelerate execution of strategic direction that the acquiring company could not achieve on its own in terms of time or capabilities. Second, the acquiring company may be looking to infuse its corporate DNA with new genes to help it fundamentally transform and to do so at a much faster speed.
For Walmart, digital transformation is a strategic underpinning to its growth strategy and to remaining relevant and impactful with its customers. Bonobos is symbolic of these changes but the real outstanding question here is whether or not the body has rejected the new genes or if they have been accepted and will be broadly reflected in future strategies and business decisions. Time will tell.
So … let me see … are we surprised that someone who flourished outside a traditional corporate environment doesn’t stay long when they find themselves stuck in a non-entrepreneurial setting? If we are, shame on us. There is a very big secret hidden deep in the bowels of corporate America — not everyone is good at innovation and innovators aren’t necessarily content to be high-paid managers of non-innovative people. So other than a non-compete and enough time to allow for as seamless a transition as possible, I take the heretical view that for most — not all, but most — companies, the right answer is to not try to retain founders or co-founders very long at all. It’s akin to inviting a tiger to join a happy domestic cat family — it rarely ends well. There are ways to retain creative, innovative, and entrepreneurial folks, but most organizations aren’t willing to pay the cost or deal with the consequences. Too often we look at this as “right” versus “wrong” issue when the real truth is that it is “different” versus “same.” Andy Dunn’s departure doesn’t speak to a fatal flaw at Walmart, it speaks to what makes Andy Dunn Andy Dunn. And for all companies prattle on about encouraging diversity of opinion, creativity, innovation, amplifying the power of dissonant voices, etc., the simple truth is that creative people are a real pain to manage who — more often than not — start knocking over cultural apple carts when they get bored … which is all of the time they aren’t given free rein.
Startup founders usually end up in uncomfortable positions inside large companies when the skills which led them to succeed as a startup aren’t the skills needed to integrate. So I’m not at all surprised that he’s leaving.
And, I’m not at all surprised that Walmart’s online efforts aren’t finding profit as easy as all the pundits told them it would be. There’s a lot of evidence that profits from online sales are more difficult to grow and/or sustain.
Amazon is no exception they just never talk about any need for profits from pure online retailing — mostly because they don’t appear to have ever had any. (Their profits aren’t being found in our margins, they’re being found in the cloud high margin business of AWS.)
Fortunately for Walmart, it sounds like they are building reasonable expectations for online business and delivering on it. If that’s true and they stay on the path, they’ll build the strength they need.
I saw Mr. Dunn speak at RetailX earlier this year. I was skeptical; the dude from Bonobos was now at Walmart and he’s the keynote? How substantive could this be?
I was pleasantly surprised by his transparency and candor. Of course, I am sure his public remarks were approved by corporate communications. And that is my point. His description of how Walmart is (was) organizing management around the digital acquisitions, and the goals to learn from them and influence the rest of the organization was refreshing. Ultimately, a drop in the ocean? Perhaps.
Later in the year, I got to hear the leaders of Eloquii tell their story. If you are not familiar, it’s worth learning about. While they were reticent to talk about Walmart, but they told a very entrepreneurial story that included what sounded like a lot of freedom to innovate, fail and learn.
Now, these are highly skilled retail professionals, which is worth noting in this context. The folks who start bright shiny “digitally native” stores are good at startups, not necessarily retail fundamentals and operations — which still matter.
I hope the new, fresh thinking the Mr. Dunn and his cohorts bring to the retail landscape is embraced. After all, hasn’t retail always been about the fresh and new?
Yes. Walmart is still a giant retailer trying to be a small, nimble, one. Growth through acquisition will not necessarily give Walmart the ability to better position itself in new and broader categories and markets. Instead, Walmart must configure itself as a company that will adapt and grow in new models and categories. If it does not, it will simply perish. Like a dinosaur, it will take time, but adapt or perish should be at the core of Walmart’s growth mantra.
There are good reasons to retain start up founders after an acquisition. There are also challenges to keeping those founders happy over the long-term. The challenges are that what made the start up successful in the early growth phases may not be the same set of skills that are necessary to operationalize and scale the business going forward.
Yet the innovation and creativity of the start up founders is an essential ingredient that often is lost in larger corporations.
The challenge is to funnel the skill set of the start up founders into the areas where they can have the greatest benefit. That benefit tends to be in incubating new ideas and challenging the status quo. For that to succeed, the contributions of the founders must not be standardized or worn down by the processes of the large organization.
If you look at the rapid departure of startup founders, you can see that this is easy to say and relatively hard to do.