Merging two startups can be an effective way to gain market share and create a successful and impactful company. However, successful mergers require careful planning and guidance.
At NorthStar Venture Partners, we know what it’s like to be on the startup side of the negotiating table because our founder, Julien Meyer, sold three startups of his own. He knows first-hand the frustrations that can come up during startup mergers and acquisitions.
With that in mind, here are the best strategies we know for successful mergers between two startups.
Keep an Open Mind
The first strategy is one to implement before you choose a company for your merger. When you recognize that a merger is your best option, it’s essential not to jump the gun and get into bed with the first potential merger partner you see.
Why? Because the merger that’s most likely to lead to your long-term success may not be the first opportunity that comes your way. Instead, keep an open mind and explore all your options.
Remember that each potential merger partner will likely have pros and cons. One might have a high market share while another has the best raw talent. You’ll need to weigh your options before you proceed.
Choose the Right Business Objective
What is the objective of the merged companies? If you can’t answer that question, then you’re not ready to merge yet.
We suggest mapping out the road forward before you proceed with a merger. Here are some questions to ask:
- What goals do you think the companies should meet once merged?
- Will the merger give you the tools and resources you need to meet those goals?
- If the answer to #2 is no, will you have the ability to acquire what you need?
Defining your goals and ensuring you have what you need to meet them is an essential pre-merger and post-merger strategy that can help to ensure your success.
Make Coordination a Priority
Carrying out a successful merger isn’t a matter of chance. It requires careful planning and clear communication -- and if you’re missing one of these things, it can be a recipe for disaster.
Make communication a priority, and whenever possible, communicate face-to-face -- even if that means setting up a Zoom conference. It’s easy to misunderstand things when you rely on email and other forms of written communication because many of us aren’t good at conveying what we mean in writing.
Along the same lines, don’t speak with individuals when a group conversation is in order. It’s too easy for communication to get jumbled when it’s passed from one person to another. Your best bet is to make a list of questions you need answered and issues that need to be addressed, and then get everybody together to go over them.
Mergers can be exciting, but they can also be a source of stress and anxiety, especially for employees who aren’t involved in the day-to-day negotiations and talks about the merger.
Just as it’s essential to communicate with the other company about the merger, it’s equally as important to talk to your employees and prioritize their morale. The founder(s) and HR team should spend time with employees to answer their questions and ensure they understand what’s happening to the company -- and to their jobs.
If you don’t plan to bring employees with you -- or if you may lay off some employees -- it’s best to be up-front about it. That way, employees can make their own decisions armed with the facts.
One of the biggest questions that looms during a merger is who will lead the newly-merged entity once the merger is complete. If this question is not addressed as part of your merger strategy, it can lead to significant issues that can sink your company.
Some of the leadership issues to address include:
- Who will take charge of the company
- Whether those in current leadership roles will continue with the company
- How to reorganize departments and/or personnel after the merger
- How to phase out technology and train employees on new tech as needed
Clearly identifying leadership roles and mapping out a transition plan will help everybody to navigate the merger with a minimum of stress. And while having a transition and leadership plan in place may not eliminate every potential problem, it can certainly make it easier to address issues as they arise.
Keep in mind, too, that consistency of leadership can help employees deal with the transition, easing their anxieties and making it easier for them to do their jobs. Even if a leader doesn’t intend to stay on permanently, having them there for a while can make a big difference.
Carrying out a successful merger is far more likely if you implement the strategies we’ve outlined here. Clear communication and careful planning can go a long way toward ensuring that your new company achieves its post-merger goals.
Need help negotiating your next merger? Click here to work with NorthStar Venture Partners!