Engineering talent is in hot demand. So much so, in fact, that technology companies are increasingly buying web startups not for the products or sites they’ve built, but for the team of people who run them.
This trend, known as “acqui-hiring,” is being practiced perhaps most notably by Facebook but also by the likes of Twitter, Google and Zynga as a way of bringing in talented engineers by buying their startups and then shutting down the web sites, software or mobile apps the company had built. “Essentially, you’re buying a teardown house,” says Liz Wiseman, president of an eponymous leadership research and development firm in Silicon Valley and a former human resources executive at Oracle. “You’re getting the precious land, but you have to tear down the house.”
While the analogy is apt—in both cases, buyers pay a premium for a valuable (and scarce) resource before deconstructing something that’s already been built—an acqui-hire is a lot more than just a transaction. Rather, it’s a unique leadership challenge that involves managing the emotional turmoil of entrepreneurs watching their startups dissolve, the egos of existing employees and “acqui-hired” engineers who are trying to save face with the deal, and the challenge of getting the most out of people who likely cost more to hire than if they had been recruited traditionally.
For leaders, it seems, the first step of successfully managing an acqui-hire is to know what they’re getting. Because they are paying a premium, a thorough assessment of each of the people on the team is especially important, says Ravin Jesuthasan, the global head of talent management at human resources consultancy Towers Watson. “You may be thinking you’re buying a team when in fact you may be buying a couple of superstars whose aura makes everyone else look really good.” Meeting more than just the founder and his chief deputies is always a good idea.
The cultural fit between the new team and the larger organization is another critical part of due-diligence research. The incoming team should have values, work habits and priorities that are similar to the larger organization that’s buying them. And even if the new team seems like a perfect match for the bigger company’s vibe, there will be more work to do to bring them into the fold. Many CEOs “misfire on cultural alignment,” says Charley Polachi, a Boston-based headhunter who specializes in the technology industry, “failing to realize the reason people were in that smaller company was its nimbleness or lack of structure. They try to add on layers of bureaucracies. Trying to impose your will on the acquired company will send people running for the door faster than anything else.”
Often the leaders of these large companies find that, once a decision has been made to buy a startup primarily for its team of engineers, the biggest task is running a smooth transition. That’s a challenge with any acquisition, yet it’s especially so in an acqui-hire, as employees typically see their hard work come to an end. Finding the right role for the founder, in particular, is critical in order to keep him or her from using the retention bonus to fund another startup.