Five Lessons for a Successful Acquisition

Business & Entrepreneurship

Five Lessons for a Successful Acquisition

Mar 10, 2023

For many companies, the ability to accelerate growth and scale the business will involve mergers and acquisitions. There are nuances to every acquisition and a one-size-fits-all approach to integration rarely works, but there are definitely best practices that can be applied consistently. Over the course of my 44 years at Whole Foods Market, we did over 20 acquisitions. I’m proud to say that all but one of them (Amrion) were successful. There was definitely a learning curve, but over time we learned the “dos” and the “don’ts” of navigating a successful acquisition from both an operational and cultural standpoint. Here are the five most important things to consider:

Make Important Decisions Up-front

Acquisitions can be difficult because they go against the way entrepreneurs are naturally wired. As an entrepreneur myself, I can say that most entrepreneurs have a problem with authority to some degree. We struggle with other people telling us what to do – that’s a big reason why many of us started our own businesses in the first place! Acquisitions involve entrepreneurs giving up control of their business in exchange for compensation or the opportunity to become a part of a bigger dream. Most entrepreneurs also have a lot of confidence in themselves and their ideas, which makes it difficult for them to follow someone else’s way of doing things. This is especially true when the acquirer is less experienced in the sector of business than the entrepreneur.    

That’s why it’s so important that you handle acquisitions carefully and make all important decisions upfront. The first thing you have to decide is whether or not you want to keep the entrepreneur as part of your team. Sometimes they don’t want to stay and other times they do. If they choose to stay, you as the leader need to want them as part of your team. If you both agree it is in your mutual best interest for them to stay, then you have to make important decisions. For example, how do you want them to run the business? How much decision-making power do they have? What rules must they follow? What can’t they do or decide? Maintaining transparency and answering these questions before the acquisition is finalized is crucial and will help avoid future stress and unhappiness.

Pull, Don’t Push

Here’s what I can tell you – with one or two exceptions, the entrepreneurs from every company that Whole Foods acquired had trouble adjusting to not being in charge anymore. That was true even if they were still in charge of running their business in some capacity. I have learned that if you want to keep the entrepreneur as part of the business, you must give them a lot of room to run. Micromanaging an entrepreneur is the absolute worst thing you can do – trust me! Instead, you have to recognize that they are passionate people with their own ideas. I have found that adopting what I call the “pull strategy” can be helpful. Instead of pushing everything on entrepreneurs, let them pull things they like from the larger company and integrate them into their own systems on their own terms over time. Make sure to find a balance between allowing entrepreneurial freedom while also establishing upfront the rules and practices they must follow. If done successfully, this approach can create such positive synergies and make for a much smoother integration.

Be Mindful of Bureaucratic Pressure

If you want the acquisition to succeed and you want the entrepreneur to stay, then you also need to be open to change. In most medium and large-sized companies, there’s an established bureaucracy that is going to resist the influence of new ideas because they want to maintain control, have more power, and have more people working for them. As a leader, you have to work very hard to withstand bureaucratic pressure and prevent the bureaucracy from swallowing up the entrepreneur, forcing assimilation, and smothering the unique entrepreneurial fire that drives him or her. Autonomy is so important as it enables the special attributes of the company you’re acquiring to flourish and change the greater organization for the better!

Let Culture Evolve Naturally

One of the most important things about any acquisition is how to best integrate cultures. Cultures come from the higher purpose of the organization, the values, the leadership principles, and the way people do things. Every company has a unique culture, and rather than dissolve one culture into another during an acquisition, you need to leave space for cultures to evolve naturally.

To explain this, I like to reference the “20 – 20 – 60” model:

20% of people will think that the acquisition is amazing. They become your enthusiasts and are crucial for a successful integration to occur. Then you’ll have another 20% of people that hate the acquisition – they’re strongly opposed to it, resist it, and will always remember the old days as “the better days.” It doesn’t matter what you do to try and change their minds (increase pay, increase benefits, etc.), it won’t work. That leaves 60% of the people who have a “wait and see” attitude about forming an opinion. The key to a successful acquisition is to empower the 20% of enthusiasts to help convert the 60%. This will take time, but it’s so important that you give everyone the opportunity to make the change.  

Unfortunately, there will still be the remaining 20% of people who will never change their minds – and that’s okay! As the culture evolves to one that supports the acquisition, many will choose to leave on their own accord. Others will need to be gently encouraged and offered incentives to leave voluntarily. And some will need to be forced to leave. If handled fairly and respectfully, this process will benefit all parties involved.

Create Growth Opportunities

At the same time you allow for cultural shifts to naturally occur over time, you also need to demonstrate clear growth paths. You should promote the people who love your company and have earned the right to contribute at a higher level, while also allowing for cross-promotions from the company you acquire. This demonstrates that the company is committed to promoting the best people.

It’s also important to promote people who are not only doing their job well but are also outwardly enthusiastic about the acquisition and see growth and change as a positive thing. As people start to notice that those who are very excited about the acquisition are the ones being promoted, they’ll begin to become excited as well. A successful acquisition cross-promotes and this enthusiasm will spread throughout the company.