21 Sep 7 Signs Your Tech Merger is Doomed to Fail
The tech world is witnessing a bonanza of mergers and acquisitions. These activities can generate significant value, and a lucrative sale is the dream of most startup founders. But not all mergers are successful. Some mergers waste time, money, and energy. Here are seven signs that your merger is doomed to failure.
Incompatible Business Models
Companies that try to straddle multiple industries almost always fail. If your business models are incompatible with one another, you need to focus on just one. It’s fine to expand within your niche and grow your model, but straddling two industries is almost always a recipe for disaster, especially when you have the same managers overseeing operations in both sectors.
An Excessively High Purchase Price
If your purchase price is high enough to be newsworthy, that’s a bad sign. It creates significant pressure, and makes it very challenging to get the return on investment that successful mergers demand. Excessive payments also create demand to continue spending money to make the merger successful, i.e., throwing good money after bad.
Culture Clash
Cultural mismatches are a leading cause of merger failure because they alienate your team, potentially undermine brand identity, and can steadily erode confidence in your product. Make sure you have a clear vision for the end company’s culture, and that this culture is consistent with what your team and clients will tolerate.
Dead Management Weight
You generally want to retain the top management of both firms, since they have institutional knowledge that can keep the new entities running smoothly. But sometimes, your management team is just dead weight—people who draw a massive salary and contribute nothing. Especially within the acquired company, managers may be resistant to taking direction, subtly undermining the merger and the new company.
CEO Conflict
One of the worst things you can do is try to create equal co-CEOs. It just doesn’t work. A merger creates one company, and when you have two CEOs, conflict is inevitable. Indecisiveness destroys businesses. Decide on one leader and let them lead.
A Weak Integration
Integration begins well before you close the deal. Your integration plan must either involve a full separation of the two companies, or a path to total integration. Anything else is going to unravel in a mess of political infighting.
Poor Onboarding
Poor onboarding takes many forms: not communicating with employees in the newly acquired company, or dismissing them out of hand for no real reason. You need people from both companies to come together, and must devise a plan to quickly onboard people from the acquired entity. If you don’t, the lack of institutional knowledge can cost you dearly.
