Uhg… it happened again. A business I managed and sold to a much larger company just got taken apart. This time, I received calls from a few of my former teammates when a large part of the staff was laid off. They were looking for ideas on what to do next and help finding jobs.

A couple of them even said “Yeah, you called it a year ago.” Unfortunately, I suspected it was going to go this way before the sale even went through.

How did I know?

Well, today that’s what we’re talking about. My breakdown on how a big company destroyed an acquisition, the mistakes they made, and how not to do this should you buy a business.

Let’s dig in! ⛏️

PS. If you’re looking to be acquired or are acquiring a business, take a look at the free offer at the bottom!

It was a weird sale.

I had a strong suspicion that things weren’t going to go well during the sale process when no one from the acquiring team ever wanted to talk about strategy, and that’s odd no matter how you look at it. They moved through the entire sale process without so much as a conversation with leadership about integration or strategy. I was hopeful for the sake of the team that they had just done this so many times that they had a plan, that they knew what they were doing, that they had some cards up their sleeves that I just couldn’t see. But deep down, it felt off.

If you want to crush that new acquisition, here's your step by step:

Step 1: Deviate from a working sales strategy ♞

It was clear from the beginning that they wanted the product more than anything else in the business. Since they are heavily entrenched in the market, it seemed like they thought they could sell the product to their existing customer base. Of course, why not? They had tons of customers in this market who mostly liked or loved them. How could this go wrong?

What they didn’t understand

The problem was that the software is mission-critical, true enterprise B2B and most potential buyers are under contract on their existing systems. But more importantly, many potential buyers in the industry are not unhappy with the systems they currently have and the change cost is very high and very painful. So no one ever wants to change, and an incumbent has to really mess up to be replaced. In other words, it’s a very sticky customer base. One of the reasons is a great purchase, but also a reason that it’s very hard to grow. As an example, when we sold the business some of our customers had been with us for over 30 years!

Moving from easy mode to hard mode

When I was leading the company, our sales strategy targeted weaker players in the market. Fighting the big dogs was a waste of time. Only very disgruntled customers moved and it was hard to find them. So we focused on competitors that weren’t investing in growth and whose customers were either frustrated enough or almost frustrated enough to bail on those systems. We rarely targeted customers that were happy with what they had unless we had a clear way to overcome the change cost. We also focused heavily on a particular aspect of our system that others weren’t covering as well.

The buyers went wrong by abandoning just about all of the strategies above. They shifted the sales strategy to focus on customers that were using the most popular systems in the industry and were happy. For all the reasons above, it just didn’t work. They didn’t just target a few of the top systems, they targeted the biggest players and stopped targeting the little guys (from what I can tell). They wanted the big sales, but our brand wasn’t there yet and neither was theirs.

This wouldn’t have killed the business unit except they decided to…

Step 2: Abandon lead-generation systems 🤯

Most ‘big’ businesses generally don’t win solely through marketing tools like SEO and content marketing. But as a small business, we had to choose just a couple channels and focus hard on those. We recognized early on that no one in the industry understood SEO & content marketing or podcasting and with an integrated approach to both, over the course of a couple years we dominated the market in those areas. We went from zero new leads to ~12 per week on our best month.

Each of those leads was very valuable, and we spent a large amount of money and several years building our SEO, podcasting, and content marketing machine combined with a new kickass brand. At it’s height, the website produced more traffic than all the top industry publications combined AND beat companies like Capterra and Software Advice for the top keywords in the industry. What we did with that brand in just a few years was nothing short of miraculous in my opinion.

The End Is Neigh!

So I knew the end was neigh when I got a call from one of my former teammates letting me know that they were taking down the website that had over a thousand pages of content and replacing it with a handful of pages on their corporate website. I remember it clearly. I was at an airport about to get on a flight and he called me in a panic. He said, “The team they have on this has no idea what they are doing! They are going to destroy everything! They’re not listening to me, what should I do?” Sadly, I had to tell him to start looking for another job because I knew how this show was going to end.

With years of work and probably over a million dollars spent on brand, content, podcasting, and SEO gone, the traffic disappeared and the leads dried up.

You’re probably asking yourself why? Why would they do that?

Maybe they just wanted to buy the revenue and they thought that they didn’t need the expenses associated with it? But I think there is a more likely scenario…

Of course they didn’t understand! They were part of the group we had beaten!

They were a part of the industry group we had dominated in this area that didn’t understand SEO, content marketing, and many other areas of digital marketing. Because they didn’t understand how the leads were being produced, they likely saw the content and podcasting departments as unnecessary costs and killed their golden goose; a very, very expensive and time intensive goose to grow, but not to maintain. I estimate they probably flushed between $1.7M and $2.5M in man hours down the toilet when the did this. That was just man hours, the actual value of the system was much higher.

That was the end of the team’s ability to generate new leads, drive new sales, and definitely the beginning of the end. It was a system and a brand that took years to build with an expert team and there was no recovering what was lost at that point. Maybe they could have had a fresh start though?

Nah, that wasn’t happening because they…

Step 3: Let go of key people ⛓️‍💥

Even though I never got a call from them during the sales, I wanted to make sure that the new leadership took into account as much as possible of what we were doing so I reached out to them to get a call. The meeting ran a short 45 minutes, and I really felt like the person I was talking with wasn’t all that interested in hearing anything I had to say. During this meeting, I went over what we were working on, the top things I absolutely would and wouldn’t do if I were them, the top players in the company, and key employees not to let go of, no matter what.

It wasn’t clear to me right away that they didn’t understand the value of the sales machine they were buying or how it worked, but it became clear about a month later when they let two of the most valuable leaders on the team go, two people I reiterated multiple times to them not to let go of no matter what. These were two of the most highly regarded people in the company, teammates that maintained relationships with top customers, had great relationships across the industry, were seen as industry experts and regularly requested to give keynote speeches, and internally had built the lead machine and kept it running. They were a part of the beating heart of the company.

Massive Loss From Minor Costs

Big businesses have to make decisions that small businesses don’t. But in this case, what is crazy to me is that both of the people that were let go because the company didn’t want to compensate them appropriately. One person was let go because he knew he was going to be working 80 hours per week to do what they wanted done and he wanted a raise, just up to what he could get anywhere else.

Both of these teammates were let go over what was essentially a fraction of a rounding error on the balance sheet of the buyers. I can only assume it was because their pay didn’t fit into the bigger business’ pay structures. From my perspective, they let a few tens of thousands dollars per year break down a multi-million dollar per year system. 🤯

When those top players were let go, their teams either left with them, were dismantled, or were let go shortly afterward. It was also likely a huge blow to the morale of the team. That was the nail in the coffin.

But it didn’t end there. Even today it seems like they…

Step 4: Don't take advantage of existing strategies and growth opportunities 😕

The team had put a LOT of time into strategy and planning for the future of the business and had a number of angles for explosive growth, some of which had already received some investment. To my knowledge (which is not complete) all of this was abandoned.

They had the budget for these new systems, but being a large company they are risk averse and (I think) not particularly innovative. After all, why innovate yourself when you can just buy the innovation? After all, that’s the game for big businesses.

Broken promises don’t lead to new sales

Without this innovation, promises we had made to some customers were broken and the explosive growth we could have had was gone.

Finally, there was the obvious stuff like:

Step 4: Make a small business run like a big business

Sales, marketing, leadership, culture, budgets, policy, procedures, attire, location requirements, and so much more can be vastly different at small vs large businesses.

We ran a remote, agile, focused team that was constantly looking for the best ways to grow revenue while constantly pinching every penny. Every person knew everyone else and my door as CEO was always open to anyone who wanted to chat or ask questions about what was happening. Just like all of my businesses, I ran a ‘This Week’ meeting every week where I talked to the team about what was happening, how we were doing on goals, where we were going, and was as transparent as possible with the team.

Step 5: Silos Up!

When I came to the business it was full of silos, which we broke down. But the first thing that was done under the new leadership was to re-silo many aspects of the company. Additionally, I knew that at the buyer’s organization, there were some low performers from the industry. We had none of those. We couldn’t afford low performers. Ever. But that’s how big business vs little businesses are different.

What does high bureaucracy do to top performers?

When you take a high performing team and make it a part of a huge business with bureaucracy, slow-moving structures, process for the sake of process, and more, the highest performing teammates are often looking for the door or waiting for their golden handcuffs to be released. I am sure this was the case here as well.

Our little agile business became a part of the lumbering monster, speed was reduced, agility was removed, strategy was consolidated, silos were reintroduced, new players that were used to a different strategy and system started making decisions, and the team became a part of the machine, an outdated machine .

Don’t jump to conclusions just yet 🦘

What’s crazy to me is that in many ways the things that made the business worth buying they shut down. But that’s standard for the difference in how big organizations approach business vs small teams. It’s also the reason that acquisitions like this don’t often work out.

After reading this, you may think it came down to two things:

• Ignorance

• Arrogance

Don’t jump to conclusions too quickly though.

These are smart people who have grown an enormous organization, have been incredibly successful, and have helped millions of people. It’s easy to look back and see the issues, but a lot harder to look forward and predict the future.

I probably would have thought their initial premise would have worked as well and I am sure they had a well vetted value generation plan in place for the acquisition. I think the key problem was that they are very large and without the agility they couldn’t easily change directions when they realized that things weren’t working. It could also be the case that even though unit or division leaders saw the problems it was such a large company that the message never got up to the top. More than likely the function of their siloed system enabled many of the these key business-killing decisions to happen.

You can’t run a small business the way you run a big business and that has to be taken into consideration. No matter how you spin it, some things had to change. Maybe this was inevitable with any strategic buyer?

Or maybe it was arrogance and ignorance, I know what some team members think.

But other than the hardships of my former teammates, I’m not too upset. Eventually someone will buy it from them and need to turn it around again, and who do you think they’ll call?

That’s why these kinds of breakdowns are so valuable 💸

After you see enough of these failed acquisitions patterns arise, the reasons why are very much evident in the list above.

Also, just because it’s been trimmed doesn’t mean it’s dead. The organization who bought this company is big and powerful and likely has backup plans. So don’t count it out yet.

What did we learn?

1. Involve all the leaders and listen to them! Bring them to your location, meet with them for days, get as much information as possible from them, and have them take a look at your plans. Had I seen what they were planning, I probably would have warned them against it, or at least given them some backup ideas and recommended go/no-go gates to consider. As far as listening is concerned, had we talked and their team understood how our lead generation and sales processes worked, things may have gone differently.

2. Understand what drives sales and how the existing sales strategies and systems work. Changing a sales strategy that is working is risky. Changing a sales strategy that is working and not listening to team members when the new system isn’t working is, at best, not smart. I don’t think that a head on attack against top players with a much more powerful brand was necessarily a bad idea at the time, but when it wasn’t working I have a feeling they didn’t change. A good backup plan would probably have been to go back to targeting the smaller, less resourced competitors while they regrouped, which maybe they will do next. But without the lead gen systems in place it’s going to time consuming and expensive to do that.

3. Analyze existing lead generation systems and run the numbers on changing things. Had they spent a few months running the business as it had been running and gather data on what was and wasn’t working before starting to make changes they probably would have seen where the leads were coming from and perhaps would have understood it’s value.

4. Don’t let go of key people until you are absolutely sure they are the wrong fit for the new direction of the organization. This is a no-brainer in my opinion, but it seems to happen a lot in these kinds of situations. The new leadership wants ‘their people’ or to flex their power or to cut costs and those top performers and high earners get cut. Not valuing people is the first step toward mediocrity.

5. Don’t fire people just because they don’t fit your current pay-scale. The amount of money they are responsible for bringing in or retaining is worth TREMENDOUSLY MORE than what you are paying them. There are plenty of ways to incentivize people to stick around and make it worth their while if a pay structure needs to change. Your top performers can get new jobs easily and quickly. Holding on to them should be paramount.

6. Take advantage of growth opportunities. When you buy a company that has growth potential, run the numbers on what they were planning to do and really understand the potential.

7. Let your new business do what it’s good at and try your best to keep it agile. In big business, you need bureaucracy, you need complex systems, you need things to work. But there are ways to ensure your systems are set up internally to let the best people and the best ideas rise to the top. Don’t stymie your acquisitions by taking away their ability and passion to give you good ideas. Listen to them and when they tell you something isn’t going to work, pay attention!

Did you see something similar at one of your businesses? Please tell me about it!

I know some of you have been through similar things. If you could, please let me know how this lines up with your experiences in the comments on the web version - link should be at the top or bottom of the email.

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Free Resources & Other Cool Stuff

Deals To Check Out On AppSumo

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Growify - First off, I am NOT an ads specialist. I have done my fair share of ads management, but these days unless it’s a small job, I send it off to the specialists. But even still, I was looking for an omni-channel (ads specific) system to help with attribution and after playing around with Growify it looks pretty solid.

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Until next time!
Jason Long
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JHMG - SaaS Consultancy & Enterprise Software Dev Team