Why do (many) mergers fail? Loss of sales momentum.
I had lunch recently with a friend who does hunter (new accounts) sales for software companies. He talked about how his prior employer (small growing company) had been purchased by a much larger corporation. Good news, right?
Not for him. He’s not a manager or an exec. He didn’t care about long term strategy or “synergies.” He’s a sales guy. All he cared about was that in the first few weeks after the merger, sales motion came to a dead stop. Nobody knew for certain how to handle sales anymore. It wasn’t clear how the sales organization would change, which products to sell, what pricing to apply, which contract paperwork to use, what signing authority anybody had, or even if their old compensation plans were still valid.
My friend said, “I realized I could hang around for 6 to 12 months while they figured things out. Or I could quit and get a start on making my numbers someplace else. Within 2 months I was gone.”
Turns out this isn’t unusual. In a short article titled To Get Value from a Merger, Grow Sales in the May 2008 Harvard Business Review, Juergen Rothenbuecher and Joerg Schrottke of A.T.Kearney discuss the findings of their recent study of 270 mergers in various countries. The study showed that in most cases, the rate of sales growth “slowed dramatically” after the merger — resulting in a direct hit to earnings growth and subsequently to the merged firms’ market capitalization/stock price.
(Check out their white paper, All Mergers Are Not Alike: Seven merger types and approaches to master the integration, here. Thanks to A.T.Kearney for making it available online.)
The authors point out that cost savings are commonly believed to generate a major part of the value of a merger and therefore cost cutting initiatives often get priority post-merger. Instead the top priorities should be customers and sales.
Quoting from the authors: “Earnings growth, our data show, has a strong effect on value creation, and the effect becomes more pronounced over longer periods of time. Therefore, the postmerger firms must throw themselves into preventing or offsetting the customer attrition (often the result of diminished trust) that usually follows a merger. Managers must devote sufficient resources to retaining current customers and gaining new ones.”
This certainly fits with what I’ve observed in working with sales. Successful salespeople are good at quickly sizing up situations, identifying risks and predicting outcomes — that’s an essential skill for qualifying opportunities and managing their pipeline. So no surprise that salespeople will use those qualification skills on their own employer and jump ship when they decide they have better odds of making their number elsewhere.
Suggestions for managers/execs in the first 3 months post-merger (these suggestions assume that the acquired company already has good sales growth pre-merger):
- Make retaining the sales team a priority. Good salespeople are often the first to jump ship: they often have great networks, a willingness to take the risk of leaving, and hair-trigger decision skills. So reach out to salespeople first.
- Immediately communicate what is and is not changing in the sales process — and change as little as possible. You’ll have plenty of time later to mess around with the sales process — for now, don’t break what isn’t broken.
- Keep account and regional assignments stable. Playing musical chairs with your salespeople and account managers will just freak them out (not to mention your customers, who are already wondering if the merger will negatively impact them).
- Consider a retention incentive for salespeople. New salespeople often negotiate a draw (guaranteed commission) for their first few months/quarter with their new employer. You could offer a similar draw for the first few months post-merger (structured to be payable only to those salespeople who stick around the full time period — no prorated payout for early quitters). Enticing fence-sitters to stick around for a few months gives you more time to reduce the initial uncertainty and convince them that the new merged entity will provide them with a great sales environment.