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Jan Koum, co-founder and chief executive of WhatsApp, is taking a different approach for now after Facebook Inc. recently bought the messaging service. Koum and his team will be absorbed by Facebook and while Facebook's co-founder and chief executive Mark Zuckerberg will lead the show, Koum gets a board seat and will remain in charge of WhatsApp. Photo: AFP
"When a start-up gets acquired, its founders are expected to stay on for a while (sometimes years) with the acquiring entity in order for a smooth transition to happen—they are even incentivized to do it," Bajpai says.
However, he says, most founders prefer to minimize this "golden handcuffs" period for several reasons:-
1. They do not want to return to a culture they once abhorred.
2. There is an opportunity cost for their time—they can do something much more interesting and valuable (e.g. start another company or invest in other start-ups) since they are full of ideas and have many opportunities.
3. They have a limited future upside, and with no skin in the game left, they will hesitate to take risky bets to drive growth, and hence produce sub-optimal results, which can be frustrating.
Bajpai says the only cases where founders do at times stay on for long periods are: 1) Where the acquisition was made in a really early stage for the talent possessed by the start-up (better known as acqui-hire)
2) Where the culture of the acquiring entity is similar to the acquired entity and the founders are given space, independence and authority to take key decisions for driving resources towards growth with the same passion they had done before, essentially feeling that the start-up is still "their baby".
3) Where the companies function independently post-acquisition. This style of acquisitions is gaining ground in the US. In the new approach, the acquirers let the acquired company function as a completely independent business unit with relatively high management control for the founders. For example, Priceline.com Inc. of the US acquired booking.com and kayak.com but both continue functioning as independent businesses. In such cases only ownership structures change and some strategic realignment could happen, but everything else remains the same.
4) Where the founders end up holding sufficient stock (and board seats) in the acquiring entity to feel aligned with the big picture. This is the case with the Whatsapp founders.
As told to P.R. Sanjai
Moorthy K. Uppaluri, chief executive, Randstad, India and Sri Lanka
How the chief executive of a newly acquired firm behaves depends on several factors such as the goals of the acquired CEO, the nature of the acquisition and the cultural traits of the acquiring and the acquired firms.
If an acquisition has been made to fill the gaps in a company's product portfolio or for geographical expansion, chief executives of the target firm usually struggle and need to figure out how to add value.
Again, if the person is a serial entrepreneur and wants to cash out of the company, or is not able to adapt to the new culture of the acquiring firm, we have seen resignations.
On the contrary, if an acquisition has been driven by the idea to get talent and expertise on board, CEOs of the acquired firm contribute significantly in the decision-making process.
In my opinion, chief executive of an acquired firm should keep his eyes and ears open for any new opportunities, should try and adapt to the new culture, identify long-term synergies between the two firms and actively work towards harnessing them . An acquisition done with a myopic view is rarely sustainable.
as told to Malvika Joshi
L. Prasad, professor of organisational behaviour, Indian Institute of Management, Bangalore:
It is better for entrepreneurs to quit their organization after it gets acquired by a larger organization to become a bigger entity.
This is because most of them won't fit into the scheme of things of the bigger company as it is completely a different ball game. These entrepreneurs who are so used to calling the shots can't make the transition to a larger firm where organizational politics plays a major role in getting things done.
Most of these entrepreneurs, used to getting their jobs done by gut feel, would find it uncomfortable to work in an environment where decisions are taken after a lot of analysis.
In such a scenario, these entrepreneurs will find it hard to convince their teams to take a decision.
Many such entrepreneurs like the excitement of running start-ups, and their organizational instinct will be lost when they become a part of larger setup.
In larger firms there will be a constant battle between professional managers and entrepreneurs, and the former find it easier to fit in.
So it is sometimes better for entrepreneurs to quit and take the money and make productive use of it.
as told to Sunil B.S.
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