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.
Allowing founders to work full time on technology and giving them a public role in articulating the bigger company’s vision are some ways that smart leaders keep those hires around. Such roles can sound great to founder-engineers who’ve been stuck trying to manage human resources and accounting at a start-up with 20 employees. “If they’re carrying around a business card that has real meaning, and they’ve been given a healthy retention and compensation package,” says Polachi, “that gives them an enormous platform to go out and showcase and promote their ideas.”
At the same time, however, leaders from the acquiring firm should be careful not to oversell the benefits of a bigger company—perks like corporate career paths and executive mentoring can sound like H.R. mumbo-jumbo to many entrepreneurs-at-heart. “It’s almost a model of leadership that’s ‘first, do no more harm,’ ” says Wiseman. “A surefire way to de-motivate stars who have been part of a startup is to remind them they’re part of a big company.” Rather than look for ways to show them all the advantages a corporate parent offers, “downplay that,” Wiseman advises. “Remind them they’re a self-contained unit with a pretty long leash.”
That’s one reason Auren Hoffman, the CEO of San Francisco-based LiveRamp and a venture partner at Founders Fund, says the best scenario is to acquire a team with a specific knowledge type that complements your company’s needs but allows them to continue to work independently as a team. “Say you’re a great web site or e-commerce company, but you don’t have a mobile strategy,” says Hoffman, who has considered acqui-hire deals for LiveRamp but hasn’t done one, in part because the company is not yet large enough. “If you acquired a team of kick-butt mobile all-stars, that could work really well.”
Wiseman agrees. “The initial trend was integrate, integrate, integrate, and let business process rule the day,” she says of how technology companies would acquire startups in the past. “More and more they’re learning to isolate and treat them like a crack team. Their value is working together. If you disburse them they don’t have the critical mass to influence the organization. The culture could overpower them, and that will most likely push them out the door.”
The value of allowing the new team to operate on a stand-alone basis is one reason acqui-hires have increasingly been used when companies want to expand into new markets. Morgan Missen, who headed up recruiting and human resources at Foursquare before founding Main (a “tech talent agency” that represents engineers rather than companies), says she’s seeing more companies do acqui-hires when they expand into a new city. “You get a team of people in the new city who get along really well” and who can help with hiring because of their local expertise, says Missen. “For those remote [expansions], it’s proven to be a really great way to start.”
For Pat McCarthy—whose fantasy-sports startup, Fantuition, was acqui-hired by the New York-based AppNexus in August—maintaining their remote office in Portland, Ore., has helped both his team and the larger company. As AppNexus grows, they’re able to provide another geographic arm for recruiting and hiring new talent into the parent company. At the same time, his team is getting to stay in its original office space and retain their startup vibe.
McCarthy says that while it’s always “bittersweet” to shut down a product, the acqui-hire is going well so far, in part because he knew AppNexus CEO Brian O’Kelley, who was both an investor in Fantuition and a colleague in a former job, and that helped to ensure the two companies would be a good cultural fit. Still, he appreciates being able to continue working as a startup in a remote location—75 percent of his team’s time is spent working on new standalone projects while the rest is spent joining existing projects around the company. “We’re getting to work on things that we can have a lot of ownership in,” McCarthy says. “We’re not just being dictated to by someone else, and still get to feel like we have a startup culture.”
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