How startups can save their employees from the nasty side of M&As

Employees who decide to work for a startup are a different breed. They don’t work just to complete their targets, they work for their company’s growth. This growth in turn translates into their own growth, because at a startup the learning opportunities are immense and success comes quickly when grabbing such opportunities. However, uncertainty always looms large over their jobs – especially during mergers and acquisitions.

Major M&As are big news in the corporate world, but a far more frequent phenomenon in the startup ecosystem. We hear about a smaller startup being acquired by a bigger startup or a new corporate parent all the time. In case of MNCs, the shockwaves of acquisitions are generally absorbed by their well-defined human resources department, although some attrition tends to happen anyway. But most early-stage startups are not equipped with an HR department to cushion their employees, which can lead to a lot of fear and anxieties.

Merging fears and acquiring anxieties

News or even distant rumors about your current company considering a merger can cause severe anxiety. After a merger, the resultant firm often ends up with two people for each role in core teams like finance, HR, operations, and admin. The C-suite executives also get hit hard – a company can’t have two COOs or CFOs. This often leads to downsizing, something that terrifies employees. Even the acquisition of a small startup can lead to these sorts of problems, except in cases where the acquired company is free to operate as an independent entity.

“The fear of uncertainty and change is difficult to deal with. Most employees look at mergers as a period during which there is downsizing, employees getting shuffled, teams getting dissolved, newer managers to report to, and essentially a lot of discomfort to deal with,” says Kamal Karanth, managing director of Kelly Services and Kelly Outsourcing & Consulting Group.

According to Sumir Verma, job loss is the biggest worry a startup employee faces during mergers or acquisitions. Verma is the co-founder and managing director of Merisis Advisors, an investment banking firm that focuses on cross border M&As, private equity syndication, and structured finance. “[Employees] are also concerned about the merger’s impact on their overall career growth, changing reporting levels (for employees at higher levels), and the change in culture,” he adds.

Common HR mistakes during M&As

Even companies with an HR department can fall prey to the dark side of M&As. Certain mistakes on the HR team’s end can negatively affect employees’ morale. According to Verma, the three signs that show that the HR department has not taken the necessary steps during a merger or acquisition are:

1. When an acquisition comes as a surprise to all the employees
2. When the organizational structures affect employees adversely
3. When the acquirer is more focused on the process than the people

Kamal Karanth agrees: “We have worked with HR teams that are tactful and the ones that fumble during M&As. The most common mistakes that HR makes during M&As are not being transparent, making contradicting statements, not encouraging conversations around M&As when approached by employees, and acting indifferent or oblivious of what lies ahead,” he told Tech in Asia.

Karanth also believes that the HR team should be in constant touch with management to plan every employee-related move. Taking employees into confidence will help HR retain critical talent, and also allay ambiguity.

Manu Kumar, the founder of K9 Ventures says: “The consummation of the M&A transaction is only the beginning of the hard work. The hardest part of any M&A deal is the integration that must occur once the deal is closed. Therefore, not having a clearly thought-out integration plan is the biggest goof-up the HR team can make during this period. The integration plan must cover all aspects of the company, including product, customers, employees, finance, operations, and IT.”

How can startups help?

A startup doesn’t require a well-defined HR team to help its employees and dispel their fears. There are simple and proven ways to handle employees during M&As that can help them avoid anxiety. It’s not rocket science.

Karanth believes the best way to start is to make employees aware of these situations while hiring. “Change management is an important aspect that all organizations have to come to terms with. Startups operate in a very dynamic environment and it is important that their fundamental DNA – in terms of culture, identity, and value system – is intact and known to all employees.”

“Typically there exists a period of uncertainty during M&As. During that period it’s important for the key leadership to be transparent to their employees about the direction the startup will be taking. Regular communication with teams and gradually gearing them up for the road ahead will help them manage their employees’ anxieties better,” he added.

Brace yourselves!