Now we know what people mean when they say merger integration is torture. Former staff at Autonomy, the UK software company bought by Hewlett-Packard less than a year ago, say submitting to the US company’s “stifling” bureaucratic procedures felt “like being water-boarded”.
In turn, Meg Whitman, HP’s chief executive, has blamed “classic entrepreneurial company scaling challenges” for Autonomy’s “very disappointing” latest quarter. She has ditched Mike Lynch, the British group’s outspoken founder, often lauded in the UK as a hero of the homegrown technology sector.
The $800m Mr Lynch received for his stake will help salve his bruises. But when the new ventures he funds with those gains attract buyers, he will think twice before signing away their future. Bidders should also study HP and Autonomy’s scars for lessons about bringing entrepreneurial companies under new management.
Autonomy: the clue was in the name. Independence is the asset most highly prized by many entrepreneurs and inventors. As I’ve written, finding ways to grant sufficient independence to such creative spirits, while still harnessing the returns from their innovations, is one of the most important challenges for their managers.
I recently met a 23-year-old chief executive, Patrick Collison. His team at Stripe, an online payments company, includes a number of young Silicon Valley engineers whose early ventures were sold for millions. They are easy to manage, he says, “because everyone is extremely autonomous and knows how to get things done by themselves. I wouldn’t want an army of people marching in lockstep to my orders. [Stripe is] much more entrepreneurial.”
It is hard to imagine a bunch of free-thinking millionaires being that malleable. But Mr Collison’s conviction – echoed by people at other companies in a start-up or early growth phase – is that such combinations succeed because team members are strongly committed to a common goal.
Starry-eyed buyers of such companies often discover, though, that new employees’ entrepreneurial passion is diluted, or even poisoned, when it is mixed with the more workaday goals and processes of a larger business.
The founder of Green & Black’s has complained he had to sign a “Faustian contract” that led to the organic chocolate maker being taken over by Cadbury (now part of Kraft) in 2005. Sarah Lacy, a senior writer at TechCrunch, the technology blog, described tensions with its new corporate parent AOL as “gut-wrenching” in her final post before following TechCrunch’s chief executive out of the door last year.
As AOL itself discovered when it merged with Time Warner in 2000, dynamic, start-up cultures often clash with those of longer-established buyers. To pursue Mr Collison’s military metaphor, a guerrilla unit and a battalion require different command structures and techniques.
Large companies can limit the friction by trying to guarantee a modicum of continuing independence to smaller acquisitions, while setting ground-rules about the limits of that freedom (from business cards to business operations). Cisco, the US networking group once known as a homogenising merger-machine, has lately tried to maintain the identity of new members of the group.
Second, try to be patient about integrating a new purchase. As the chief operating officer of a multinational told me last week: “Allow it to run for a while as you understand what makes the [acquired] company tick.”
Third, don’t hide the fact that, eventually, more thorough integration may be necessary. The need to achieve cost savings and scale benefits often wins out in the end, as my multinational COO concedes. That’s when founders often find themselves at odds with their new parents. But they have fewer options once the deal is done than they may imagine.
Even if the Autonomy takeover’s champion, Léo Apotheker, had remained as HP’s chief executive (he was ousted within weeks of the bid’s announcement), it would have been hard for him to treat the UK group as a standalone entity for long. There is no excuse for making a sometimes unavoidably painful integration process more agonising. But I suspect HP, having spent so much on Mr Lynch’s creation, simply could not afford to grant it the autonomy the founder desired.
Andrew Hill blogs at www.ft.com/businessblog