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.

Mobile top-up site FreeCharge was acquired by ecommerce marketplace Snapdeal in April of this year. “We kept the team informed and updated as the deal progressed; every small detail was shared with them from time to time. Leaders from Snapdeal met with our core team several times and addressed their questions candidly,” says FreeCharge founder and CEO Kunal Shah.

Shah believes communication and transparency is the key. “Under no circumstances should the team come to know of any news from outside. They should be hearing it first from their leaders. Addressing all team issues and being as candid as possible is best way to help. An M&A is not bad news for employees unless it’s done in distress.”

Verma opines that once the transaction is done, but before the announcement is made, a startup should organize a town-hall meeting to update its employees, answer their questions, and show them the way forward. Including and empowering them will make them feel part of it and help them take ownership of it.

The onus of handling employees doesn’t only lie with the acquired startup; the acquiring company is also responsible for handling these employees, as they will soon be a part of its workforce.

Recently, Bangalore-based Practo – which offers a web and mobile-based platform for finding doctors and seeking appointments – acquired Mumbai-based Genii, which is an outsourcing firm that focuses on product design and development for ecommerce, finance, and media firms. The 11-member team of Genii, along with its founders – Varun Vohra and Aditya Anand, moved to Bangalore to join Practo.

This was Practo’s second acquisition this year, after acquiring Delhi NCR-based wellness solution provider FitHo Wellness in April.

Talking about the ways by which an acquiree startup can help ease the anxiety of the acquired company’s employees, Practo CEO Shashank ND says: “The first and foremost thing to do is to make sure the employees don’t just understand the vision but also believe in it. We work really hard to achieve this and it’s also one of the key factors on which we base our decision to acquire a company or not.”

Practo also makes sure that the new team receives a warm welcome on joining them. It organizes a town-hall after each of its acquisitions in order to introduce the new team to its existing team.

“This is a great opportunity to ensure everyone at Practo and the new team understands the intent behind the integration and gains clarity about their roles. We also ensure that we provide a smooth transition and a quick integration into the Practo team. All of these are important roles to play for the acquirer,” he adds.

Shah believes it’s critical to retain and comfort the core team. This keeps the other teams intact, calm, and working toward the new combined goals.

Brace yourselves!

Startups can only do so much to ease the anxieties of employees. Employees also have a role to play in helping themselves. The idea is to understand the scenario, weigh the pros and cons, and make an informed decision. A panicked, hasty decision can prove detrimental for an employee’s career. It’s important for employees to be confident of their skills and see the bright side of an acquisition or merger as a platform for growth.

Karanth believes that most employees tend to forget how critical they are to the organization. They should understand that their capabilities and skills can help them sail choppy seas. “An organization, irrespective of its size and scale, would always want to retain its best talent. Employees need to introspect on the value they are adding to a startup; based on this, they can either be anxious or look forward to the merger. Capable employees will always look forward to mergers as growth and learning platforms.”

It’s imperative for employees to be aware and accepting of the impending changes and adapt to them as soon as possible, in order to safely navigate through an acquisition.

Employees typically have to move out of their comfort zone during such periods – the more rigid they are, the harder it will be for them to accept changes. They also must recognize the skills they need to fine-tune in order to survive during an M&A.

“It’s important for startup employees to follow their gut instincts while determining whether they culturally fit into the new organization. They should also clearly state their ambitions and growth plans to the management. This will help the management understand individual expectations to chart future plans in a better manner. The very fact that they are working with a startup should give them the confidence to handle mergers as well,” says Karanth.