Chapter 18

Come Together: Integrating Buyer and Seller

In This Chapter

Creating a plan to ensure a successful integration

Streamlining the parent and acquired company’s products and services

Bringing together operations, accounting, and technology

Handling cultural differences between Buyer and Seller

Instituting and enforcing new rules and accountability measures

Buying a company can be a time-consuming, complex, and frustrating process, but integrating that company with the Buyer’s existing company can be surprisingly time-consuming, complex, and frustrating, too.

Buyers often think that after the deal is closed, the two entities will somehow naturally fit together with little or no work. But going into the post-closing phase of the M&A process without proper preparation can be fatal to the company. Far too many M&A deals fail for wont of proper planning and realistic expectations.

In this chapter, I introduce you to the world of post-closing M&A integration. I cover some of the operational aspects deal-makers face (technology, products, accounting, and so on) as well as the far-too-often underreported area of personnel issues and personality conflicts. This may be the most important chapter of the book. Note: Although this chapter primarily offers advice for Buyers, I strongly encourage Sellers to read it as well. Regardless of what side you’re on, the information here can help smooth your integration process.

Don’t let your own worldview bias you. Don’t expect other people to work and think the same way you and your colleagues do; how would you feel if someone came in making such assumptions about you?

Planning the Integration

Two companies don’t integrate unless the managers of those companies work together in a coordinated fashion to figure out how, what, and even whether to integrate. Making the integration issue trickier is the fact that no two integrations are the same.

The following sections break down some of a Buyer’s integration considerations.

Assembling a Buyer’s transition team

In preparation to take over a company, you should have a dedicated transition team in place. I recommend assembling this team as early as the due diligence phase (see Chapter 14). This team generally includes the following members:

A financial person (often the CFO or another high-ranking financial executive) interfaces with the acquired company and answers questions pertaining to banking, payroll, working capital, and so on. The financial person also may or may not be able to handle questions regarding operations (order processing, customer service questions, vendor relations, and so on).

If the financial person isn’t the one to answer operations questions, a separate operations executive should be available.

A human resources (HR) person should be available to help the employees of the acquired firm with any paperwork they need to complete (401k, tax information, insurance documents, new hire paperwork, and the like). The HR person also distributes the employee handbook and is on hand to answer questions, which may involve some handholding for some of the employees. A change in ownership can be a shock for some people, and they may need a little extra attention to help them deal with the new situation.

You want an IT person available to help the employees of the acquired company with any technological issues (phone, Internet, computers, software, e-mail, and so on). This team member is especially important given the prevalence of computers and the Internet in almost every facet of almost every job today.

Determining the level of autonomy

One of the most basic questions you face as a Buyer after the deal closes is, “What the heck should I do with what I just bought?” On paper, combining two entities may seem easy, but in reality, that integration is much more complex. Further, the level of integration varies greatly from Buyer to Buyer.

Financial Buyers, such as private equity (PE) firms, usually allow the acquisition to maintain a level of autonomy, especially if they’re not integrating the acquired company into another firm but rather running it as a standalone business. These Buyers are in the business of buying and selling businesses and therefore aren’t in the same industry as their acquisition; although they may make some operational changes, financial Buyers typically let the acquired company run itself.

Strategic Buyers often institute quite a bit of operational integration and may combine some products and eliminate others. Strategic Buyers are often in the same (or a related) industry as their acquisition, thus the level of integration may be very high.

No matter what type of Buyer you are, after the deal closes, I recommend you do nothing! Let the acquired company operate as before. Take some time to understand the business and how it operates before instituting changes. Instituting huge changes before you fully understand the business can be a recipe for huge problems.

Covering the carve-out bases

If the acquisition is a carve-out (a divestiture from another company), you likely have quite a bit of work to make sure the carved-out company is able to operate as a stand-alone entity. Some of the areas of focus include the following:

Payroll and banking: Making sure employees continue to receive their paychecks is probably the most important immediate consideration of any Buyer. You need to make sure the carved-out company has a new bank account with enough cash to handle the next payroll.

Employment paperwork: In a carve-out situation, employees may actually be technically fired by the former owner and rehired by the new owner. Be ready on day one to process all the new employees who are being fired and rehired. Employees may need to bring in identification and will probably have to fill out paperwork as if they were new hires. Speak to your human resources manager about what paperwork will be necessary.

Accounting: Make sure all accounting issues are settled before you close the deal. What accounting package does the carved-out company use? Is it still using the former owner’s accounting package, or does it have its own package that’s part of the transaction? Are the records from the previous owner available to the carved-out company after the deal closes? Is accounts receivable information accurate and available to the new owner?

IT and phone systems: What software systems does the carve-out company need? Who handles the IT system? How about the phone system? If the carve-out is utilizing software from the prior owner, make sure you obtain all necessary software so that employees can conduct work. You may have to install new servers, buy software packages, and buy a new phone and voice mail system.

You may not find having replacement software, systems, and processes in place at the very moment the deal closes feasible; in that case, negotiate agreements with Seller to continue using certain systems and software after the closing. You’ll probably have to pay for those services, and Seller will want to place cut-off times for the services.

Applied overhead: Many overlook this aspect of M&A. What services did the prior owner perform? I’m talking human resource functions, accounting, legal work, marketing and design work, and so on. Have you fully accounted for these services and put personnel in place to make sure those services continue?

Management: Who’s going to run the carve-out? Does the company have suitable management in place, or do you need to bring in new management? In either case, you want to inform management at the carve-out of your plans prior to closing.

Communicating with Seller before the close

This area is one of the trickiest parts of the integration. Although you want (and need) to communicate closely with Seller (more specifically, Seller’s management) in the weeks and days leading up the close, take care to communicate only with Seller’s permission.

Focus your communication on the imperative issues (see the later section “Immediately” for a breakdown), but refrain from delving into post-acquisition planning, especially if that planning involves utilizing Seller’s employees.

Don’t act like you own the place until you actually own the place! You can plan and communicate with (as permitted) certain employees prior to closing to make sure the integration is smooth and seamless; just remember that Seller’s employees don’t work for you until you buy the company.

Transition process: Planning the first 90 days

Tasks as mundane as ordering supplies can get lost in the shuffle. The new owner may have different processes for ordering supplies and may utilize different vendors. This basic information needs to be communicated to employees.

Upon closing a transaction, you probably have some ideas, if not a plan, for making changes to the acquired company. But before you actually make those changes, you need to make sure the newly acquired employees are up to speed on the plan. You don’t need to (nor should you) dump everything on the employees at once; rather, I recommend rolling out the changes in multiple parts as I outline in the following sections.

The timing of the transition process I suggest here is rather general. Each situation is different, so keep your particular integration in mind as you time out the transition process.

Immediately

You should settle the following tasks and process prior to closing. The moment the deal closes, you need to communicate the following information to the new employees:

Company name, e-mail, phone, and Web site: Do the employees continue to use the old company name, use the name of the acquirer, or use something else? Will they be using the same contact info, or do they have new e-mail addresses and phone numbers? Will they have a new Web site and/or URL? Do they need to use a particular letterhead and/or e-mail signature? Even if the info stays the same, make sure to communicate the fact to the employees that their contact info is the same.

Payroll: Make sure the new employees continue to receive their paychecks (or direct deposits). Pay close attention to dates of the all-important day known as payday! People work to earn money, so this area is one you don’t want to screw up. If a payday is coming immediately after closing, make sure that payroll is set up ahead of time so you don’t miss a beat when paying employees. If you are unable to continue direct deposits for that first payroll due to changing banks (not an uncommon occurrence following a acquisition), you absolutely need to make sure checks are printed and ready to be delivered to the employees.

Contact info of the new owner: New employees need to know who to contact if they have a question. Following the announcement of the closed deal, make sure all the employees know who to contact at the new owner’s company in case they have a question.

Banking and paying bills: If you’re switching the acquired company to a new bank, that bank account needs to be set up prior to close so the financial people at the acquired company know exactly where to deposit checks and from where to pay the bills.

Purchasing: The new employees also need to know whether their suppliers are changing or whether they should continue to purchase raw materials from their old sources.

Sales team: In addition to needing to know the basic contact info, sales teams need to know which proposal templates and sales contracts they need to use. Should they continue to use the old documents, or do you have new sales documents?

Within 30 days of the close

You don’t need to inundate employees on the day the deal is announced with every single change on the horizon; let them digest the announcement before you begin to make the following changes:

Operational update: You may want to change purchasing guidelines, vendors, suppliers, and the like, and instituting those changes within the first month makes the most sense.

Human resources: New employee handbooks, new-hire paperwork, 401k documents, insurance documents, and so on should be filled out and completed within the first month, if not the first days, following the close.

Hiring and firing: Probably the most difficult of all post-acquisition integration is reducing staff. If cuts in staff are necessary, make those cuts as soon as possible after the deal is announced. It’s a painful process, but the sooner it’s over, the sooner the business can move forward. You don’t want employees wondering (and gossiping) if they’re going to be fired or not.

Within 90 days of the close

You can make some changes, such as the following, even later after the close:

Closing or moving operations: If you’ve made some decisions about combining or moving offices or shuttering operations, instituting those changes during the first few months of the acquisition probably makes the most sense. You don’t need to do this on the first day (remember, you want to give employees a little bit of time to digest the deal), but getting these sometimes difficult decisions over with sooner as opposed to later makes the most sense.

IT and software changes: IT and software changes are another area that you don’t need to deal with immediately. After you take care of other changes (such as payroll, HR, and purchasing), you can begin to update or change the IT and phone systems, if necessary.

Culling Products and Services

I can’t write a one-size-fits-all guide for combining or culling products and services. Buyers go through countless considerations when deciding whether and what to combine, cut, or keep. Instead, this section gives you some of the criteria you may use when making these integration decisions. For brevity, I’m just going to use the word product when referring to both products and services.

One of the first steps is often to compare the acquired products to the parent company’s products. Remember your rationale for making the acquisition: If you bought the company in order to pick up new products, you’ll likely keep integration of products to a minimum. However, if you bought the company to increase your market share or to obtain new customers or geographies, you may want to take a long, hard look at the product mix of the parent company and the acquired company and determine if all the products fit your go-forward plan. (Flip to Chapter 2 for more info on determining motivations for acquisition.)

Here are a few criteria you may use to compare and contrast the mix of products created by your acquisition:

Financial performance: Products that aren’t profitable enough or even lose money may be worth cutting. Depending on your situation, you may be better suited utilizing the resources (employees, money, time, office space, and so on) to sell a product that generates a higher profit.

Quality: You may choose to eliminate products (existing or acquired) deemed to be low quality. Now that you have the added revenue from the acquired company, you may be able to finally pull the trigger on getting rid of some of your product line’s dogs.

Market overlap: If the parent company’s and acquired company’s products compete against each other, you likely need to make some decisions about shutting down or integrating these products to avoid overlap. Some options here include slapping the acquired product’s brand name on the parent company’s product or vice versa if one product has good brand recognition (see the following bullet). Or maybe you keep the product with higher sales and/or profits.

Fame: Using the strongest brand name (be it from the acquired company or the parent company) for all of the products in the combined company may be a good strategy. A household name can go a long way to increase market share.

Strategy: Do all the acquired products fit with your strategy? If not, you may elect to shut down or sell off products that don’t fit the go-forward strategy of the parent company.

Housecleaning: This rationale may be rather simplistic, but after the deal is done you may simply have too many products, such that some of them have to go.

In addition to improving the product mix of the parent company and the acquired company, you may rationalize sourcing — that is, reduce the number of vendors supplying the acquired company and/or parent company. The idea behind rationalizing is that you expect better pricing, terms, and service by conducting more business with a vendor.

Combining Operations, Administration, and Finance

As with a company’s products and services, the level of integration with operations between acquired company and parent company largely depends on how much autonomy you as a Buyer grant to the acquired company (see the earlier section “Determining the level of autonomy”). In some cases, the level of operational integration may be high because you want to realize savings and streamline operations by eliminating duplicate positions and processes, closing extra offices, and moving employees to one office.

In other cases, you may grant the acquired company a lot of autonomy, sometimes out of necessity: Your executives may not be experts in the acquired company’s industry, so you have to rely on the expertise of the acquired company’s management team.

One of the reasons companies buy other companies is to realize the benefits of cost savings when the two entities are combined. Here are some of the common areas you as a Buyer may look to change and update:

Analyzing the technology and software: You may decide the parent company has more robust IT and software packages than the acquired company and that you want to go with the parent company’s system. Avoiding competing and conflicting technology and software helps streamline operations and should help wrangle out some extra savings.

Changing accountants and improving accounting controls: Parent companies are typically larger than the companies they acquire; as a result, your parent company probably works with a larger accounting firm than the acquired company does, and you’d probably institute stricter and tighter control over all sorts of accounting functions (paying bills, taking inventory, collecting past due accounts, and so on).

Eliminating duplicate staff positions: To cut to the chase, this term means firing people. It’s harsh, but it’s life; trimming excess staff and duplicate positions is probably one of the ways you expect to improve profitability. Head to “Firing people” later in this chapter for more on letting unnecessary employees go.

Switching up the management team: Immediately following the announcement of the deal, you should internally discuss the role of the acquired company’s management. To replace or not to replace the management team: That is the question. It’s a decision Buyers make on a case-by-case basis. You may find that you want to replace the Seller’s management team for any number of reasons: the old team isn’t up to snuff or constitutes duplicate positions after mixing in with your management, or you simply have another team you want to run the acquired company.

Banking and financing: Post-closing, the acquired company may find that its banking relationship changes. The acquired company begins to use the parent company’s bank (or a bank of the parent company’s choosing). The financing may also change because the parent may be able to negotiate better terms on short-term borrowing with the combined assets or cash flow of the parent company and the acquired company. Better terms is synonymous with lower interest rates.

Some PE firms partner with an experienced executive and acquire a company specifically for that executive. In these cases, Buyer may not want or need the management team of the acquired company to be a part of the company after the deal closes.

Handling Personnel: Successful First Steps for New Owners

M&A is a human activity, and people are involved more than ever after the deal closes. The biggest trick is getting the acquired employees’ assorted and disparate goals, aspirations, plans, and motivations in alignment with those of the new owner.

The single, biggest expense of most companies is personnel. If you as a Buyer don’t know how to successfully work with and intertwine the multitude of personalities between the two entities, you’re in serious danger of ending up with a failed business.

Luckily, the following sections present you with a guide to squaring away the personnel situation right out of the gate.

Addressing cultural differences

For most deals, culture is the biggest issue. No two companies have the same business culture, and geographic differences can exacerbate those cultural discrepancies.

Speaking in very broad terms, the cultures of U.S. companies can differ wildly from region to region. The culture of New York City varies from that of the South. Midwestern states have a different culture from Southern California. Heck, even the culture in eastern Washington State can differ drastically from the culture in the western part of the state.

But what are these cultural differences, and how do they manifest themselves in business and in the integration of combined companies? In my experience, cultural differences go far beyond the simple and obvious differences. Speech mannerisms, for example, are simply cosmetic; in the following sections, I address a few of the deeper cultural differences I’ve encountered while integrating companies.

Don’t assume the culture of the acquired company is the same as your culture. One of the biggest mistakes managers can make is to have what I call cultural myopia, where they fail to even consider cultural differences.

The boss as the all-knowing deity: Large versus small power difference

Geert Hofstede is a Dutch researcher who uses the term power distance to describe how members of a society interact with their bosses. (If you’re not familiar with Hofstede’s work, I recommend you check it out.)

In cultures with a small power distance, subordinates respect the boss but also voice their opinions, which often disagree with the boss’s. Subordinates in cultures with a large power distance tend to view the boss as unfaltering and all-knowing; as a result, underlings rarely if ever speak up and give their opinions, especially if those opinions contradict the boss’s opinion. They just assume the boss knows everything.

As Buyer, you have to be aware of both your and your new employees’ views of power difference; otherwise, you run the risk of creating confusion or misunderstanding. For example, in a previous life, I ran a bunch of retail stores, one of which had a problem with two employees who were frequently at odds.

I questioned the store manager; she told me the two employees in question “hated each other” and constantly fought. When I asked her why she scheduled them on the same shift, she answered, “You never said anything, so I thought it was okay.”

Her comment made our differing views of power distance readily apparent. I grew up and spent most of my adult life in Chicago, so I assumed my subordinate would tell me of a problem, or better still, take charge and make the executive decision to not schedule the fighters on the same shifts.

This store was located in rural Georgia. Due to her cultural upbringing, the manager viewed me, the boss, as an all-knowing entity who obviously knew of the problem; because I never said anything, “it was okay” to continue to schedule the fighters on the same shift.

Study the cultural biases and approaches of your new partner. You may have to ask exacting questions in order to get to the heart of the matter. Due to cultural differences, a subordinate may just assume you already know all about a situation and therefore may not tell you the full or accurate truth.

You can use power distance to your advantage. If you suspect a problem (and you don’t mind putting on a Machiavellian hat), you may be surprised at what comes out after you simply state, “I know what’s going on, so just tell me.”

Direct communication versus the bypass method

Another cultural difference that I’ve observed is in how management communicates with employees. In a very general sense, cultures in Latin America, Asia, and the southern United States tend to use the bypass method, which gets to a point in a roundabout way. Those who utilize this method often hear simple statements like “Clean up the wording in that contract” to mean something like “You’re worthless; that contract was terribly done.”

Instead, when speaking with a bypass method user, you need to say, “You did a great job with that contract. I know you worked really hard; I have just a couple of little things I need you take a look at, and maybe you and I can tweak the language a little bit.”

Northern U.S. culture and Western Europe tend to be more direct. Those cultures don’t mince words. And of course, New York City is in a league of its own — it’s possibly the most direct culture on the planet!

One of your primary objectives is to provide clarity, deepen understanding, and increase commitment. Take the time to determine how best to communicate with your newly acquired company, including employees, the management team, and customers and vendors. Failure to understand the differences of how cultures communicate can cause unwanted and unintended consequences. Do they communicate directly or use the bypass method? Direct communication with a culture used to the bypass method causes irritation, and worse, jumbled and misread communication.

For example, my company once acquired a number of local retail stores that I was charged with integrating into the company fold. I called a meeting with the dozen managers who reported to me, and I proceeded to give a rousing speech about how we were all going to work together and have the best stores in the company and how we were going to improve and operate even better than before my company bought their stores.

I thought I was giving the speech of my lifetime. Instead, I was met with awkward silence until one of the managers said, “You must think we’re all stupid.”

Here I was smacked in the face with a cultural difference between the northern states and the southern states. My approach to communicating was as I had learned up north. I was direct. I simply said what I wanted to say.

However, my southern colleagues heard something very different. In the South, directness is akin to rudeness. Their takeaway was that I was informing them, in a not-too-polite way, that they didn’t know how to run their stores. Because I was directly telling them what do, they viewed me as a rude Yankee know-it-all. So instead of directly telling people what to do, I learned to take the bypass. I got to the same location, but I didn’t drive straight through town.

Successful communication involved telling people all the wonderful things they were doing, asking them about their families, talking about fishing or the big football game, and then after a few minutes of polite chitchat, discreetly pointing out something I wanted them to take care of. I’m sure they still thought I was a know-it-all Yankee, but I was able to ingratiate myself and eventually get the result I sought.

Today versus tomorrow

Another culture difference that often pops up as two companies attempt to integrate is urgency — in other words, the speed at which people accomplish tasks. Large, urban areas tend to have a greater sense of urgency about completing tasks. They get things done today. Rural areas often have a slower pace and are more accustomed to taking care of jobs tomorrow; those people may greet your query about an uncompleted task with a befuddled “Oh, you were serious about that?”

Another element in the today-versus-tomorrow issue may lie outside geographical boundaries, in the difference between ownership styles. Owners of privately held companies often aren’t as forceful or assertive as owners or executives of larger, public companies. The laid-back culture of the pre-sale owner may be diametrically opposed to the high-charged, over-caffeinated culture of the new owner, and this difference can cause miscommunication and problems.

If faced with an acquired staff’s more laid-back view of urgency, don’t be surprised by an initial blasé attitude. But stick to your guns. Don’t change your expectations. People will figure out quickly that the new owner expects things done differently, namely today.

Resolving conflict

Conflict between the new owner and the acquired company’s employees is an occasional and unfortunate disease that pops up shortly after the announcement of the business sale. Initially, you meet with politeness and deference. However, because the employees are likely in shock and may not have yet digested the consequences of the sale, this politeness and deference may be more the result of the survival instinct than sincerity.

The clock is ticking. If you don’t communicate fully and accurately with your new employees, those good manners may disappear quickly as skepticism and perhaps hostility creep into your new employees’ relations with you.

Starting on the right foot is important, obviously. You want to win over the new employees as soon as possible, but if you’ve been unable to do that, you may encounter conflicts that need resolving. The following sections provide some tips on dealing with conflict.

Remember who’s in charge: You!

Don’t be afraid of letting people know there’s a new sheriff in town. The sooner you start to institute changes and new rules, and the more resolute you are in applying those changes, the sooner the company will adjust.

Inertia (the flow of how the employees are used to working) can be difficult to change, and your odds of breaking that cycle improve if you offer a better way for employees to do their jobs. Assuming your changes are actually improvements, the employees will quickly forget the old ways after they get used to the changes.

This immersion method can be painful, but you need to be determined and committed. If you waver, people will go back to the old way of doing their jobs.

Part of remembering that you’re in charge means stepping up and letting people go if they refuse to go along with the new standards. Although no one likes to fire people, you can’t be afraid to pull the trigger if a situation with an employee is untenable. The later section “Firing people” gives you further guidance on letting folks go.

Move forward. Don’t allow the employees to get wrapped up in past battles that may have flared during the sales process. Your mantra should be, “That’s over; the past is history. I’m here to work.”

Set a high bar and be consistent

The best lesson I can give to anyone about implementing new rules and methods is to set a high bar and be consistent with your own actions and expectations of others. When you say you’re going to do something, do it. Be on time; don’t change plans at the last minute.

People want to be led. Don’t afraid of changing the tone and applying fair discipline. Stay the course and demand excellence from others. They’ll follow. You’ll probably find that more people pull you aside and thank you for the changes than grouse and complain at being held accountable.

In one of my roughest integration processes, I took over a completely dysfunctional business with a culture of zero discipline and accountability (among other problems). I addressed the problems by giving the managers a pep talk and letting them know, in no uncertain terms, what I expected. Management and a number of employees quit en masse rather than abide by the new rules.

As I went about my work to fix the operations, a mother of one of the remaining employees (a high school senior), came to my office, obviously agitated and upset, and began to read me the riot act. Apparently, the daughter had informed Mom that the new boss was mean and cruel and was picking on everyone. The daughter, closely ensconced behind the mother, had a smug smile on her face.

I told the mother I expected my employees to show up for work on time and be ready to work. I expected them to be helpful to our customers and to be well groomed (asking them to tuck in their shirts seemed to cause a major problem). I wanted them to enjoy their jobs and work with their coworkers, and I wanted them to work in a clean environment (hence my insistence that they clean the restrooms and dust and vacuum).

I then asked the mother to tell me which of my rules she found objectionable. The mother’s demeanor immediately changed as she informed the daughter, “You’re not quitting,” and then pointing at me, added, “You’re working for him.”

Pick your battles

When dealing with conflicts, you may have to prioritize and deal with certain issues before delving into secondary problems. Any business has a certain ingrained inertia in the way it does things, and that inertia can be tough to overcome. Although instituting change throughout the entity may be important, your focus should not be taken away from the basic blocking and tackling of a business: taking care of the customers, sales, inventory, purchasing, and paying bills.

Improving punctuality, following often-ignored minor rules, cutting down on needless office chitchat, and the like may be part of your long-term plan to improve the company, but until the big issues are addressed and fixed, these smaller issues may have to go on the back burner.

Acting like a leader at all times

Getting off on the right foot is important for building any successful relationship, and this is especially the case for a new owner meeting the employees for the first time. Injecting a positive culture into an organization isn’t difficult; you simply need to be aware of the power of your words and actions before you step in to the new office. A truly effective leader is careful with every step, word, and action and presents an air of confidence, maturity, strictness, fairness, stability, decisiveness, and honesty, especially right after a deal closes.

Every leader is under a microscope, and the higher up the corporate ladder you are, the more powerful the observation of others becomes. Subordinates take their cue from their managers. As a result, the culture in any organization is directly tied to the actions of department managers, company executives, and ultimately the ownership of the company. Leadership is a double-edged sword: People follow your good examples but they also follow your bad ones.

You have a chance to shape how employees act, the way they think about their jobs, and most importantly, the way they interact with your clients. If you talk about clients and possible customers with an air of disdain, you infect your employees with that poisonous culture.

Be careful with your comments and jokes. Off-color jokes and rude comments can find their way to the employees. You can easily and unintentionally foster a negative culture through careless and ill-timed comments.

As long as your jokes are appropriate, though, you can also maintain a personality and sense of humor. In fact, reminding employees that laughing and smiling while on the clock isn’t a crime is a wise approach. Accomplishment should be the first and most important goal, but setting an environment where people actually enjoy their work is tantamount to success, too.

Making friends

Be a part of the culture of the acquired company. Be willing to partake in local customs, and be sensitive to special events and occurrences in the community. Nothing creates division as much as being (or appearing to be) oblivious and uncaring to someone else’s cherished rituals.

Being friendly with employees is important, of course, but don’t go overboard and act too familiar. You shouldn’t be standoffish or aloof, but employees are looking for a leader, not a best buddy.

To demonstrate the importance of considering local customs, consider this story. A Buyer I worked with years ago acquired a company whose custom was to pay a $100 Christmas bonus to all employees. When the Buyer gathered the employees for an announcement after the particularly difficult acquisition, the employees were worried that the new owner, a large PE firm, would cut that annual goodie.

Instead, the new owner announced the Christmas bonus would continue, and that each employee would also receive a special bonus of $500, paid immediately. Although paying people a bonus is no guarantee of making friends, continuing the annual bonus and adding a special bonus made talking about increasing the accountability of employees and discussing how employees would be compensated and rewarded for achieving goals much easier.

No matter what you do, you’re going to irritate someone. You can’t manage a business trying to please everyone. Don’t worry about it.

Instituting accountability

A new owner often has a challenge with increasing the accountability of the acquired staff. Many companies face a large shock when they go from being owned by a single owner to being part of a larger company or PE firm with increased and more-exacting standards. The following sections cover some areas in which you as a Buyer may need to address accountability in your acquired company.

Focus on the customer

Remember where your money comes from: your customers. As amazing as it sounds, employees can get so busy with the minutiae of their daily tasks that they can take their eyes off the reason why they have a job: the customer!

As a new owner, you may find you need to install a renewed focus on customer service and sales. Tying employees’ compensation to increased sales (or customer retention) may be necessary for a company to make sure it doesn’t lose sight of the most important part of the business.

A simple test for an executive or owner is to ask employees to explain what the company does. Far too often, employees don’t have a strong sense of the company’s core business. All employees need to know and understand that what they do and how they interact with clients directly impacts the buying decision of a customer.

Introducing cost-benefit analysis

The flip side to revenue is expense. The difference between revenue and expense is profit, and profit is the only reason we do what we do.

New owners commonly find that the former owner rarely said “no” to the staff. Every idea employees had — good, bad, or indifferent — got a shot. As the new owner, you need to communicate that the company can’t afford to take a risk on every single idea because the company needs to remain mindful of costs.

Instead, inform employees that the company is willing to take some chances and will reward employees when the chances pay off. But if that chance-taking results in a failed product or bad marketing program, the cost of that failure may come at the loss of a promotion, raise, annual bonus, or (if the failure is egregious enough) even someone’s job.

Communicating rules and responsibility

Part of the process of refining the operations of a company is to make sure the employees know exactly what is expected of them. Clearly communicating new rules, expectations, and goals and (preferably) tying clear rewards to achievement helps improve morale and goes a long way toward establishing the legitimacy of your authority.

Most employees will adjust to a manager who is strict as long as that person is also fair and impartial and holds all employees to the same high standards.

Recognizing hard work earns the right to play

The balance between the goals of a business and a rewarding personal life is important if the managers of the business want to achieve goals. Expecting employees to log long hours and sacrifice only works if you also encourage those employees to take some time for themselves. Count on employees to take vacations and take full advantage of paid holidays, especially if you’re demanding changes from the employees. Kick them out of the office and tell them to go home.

Delegate responsibility and authority

Instituting accountability means delegating authority and responsibility and then, ideally, getting out of the way. Don’t be afraid of other people’s ideas. Delegating responsibility only is a recipe for disaster. If you want results, make sure people have the authority to get the job done. If you’re going to hold people accountable, you must give them the leeway to execute their plan.

Firing people

Firing is an unfortunate side effect of business. Although I believe in giving people chances to perform and show they’re part of the team, sometimes employees just don’t buy in to the new way of operating. If you don’t have buy-in from your employees, especially your managers, you may need to ask certain people to do themselves a favor and leave; if they don’t leave on their own, you need to show them the door.

Firing people boils down into three basic camps: firing for cause, firing due to job performance, and firing due to redundancies. Firing for cause is pretty straightforward: You’re canning the employee because of an explicit bit of wrongdoing. Embezzlement, cooking the books, committing or abetting a crime, and so on are all reasons to fire someone for cause. Firing for cause is the least painful of all employee terminations. The person deserves to be fired.

Letting someone go due to poor job performance is a trickier affair. The person may have given her best efforts to do the job but fallen short of the job’s goals and expectations. This situation can be difficult, especially if you personally like the employee. But if you paid a person a base salary of $100,000 expecting her to generate $1 million in sales, and she generated only $10,000 even though you clearly laid out your expectations and gave her the tools to succeed, a change is necessary.

When letting someone go for cause or poor job performance, make the conversation short and to the point. Simply say, “It’s not working out; I’m letting you go.” Ideally, if you have the personnel resources, you can turn the process over to an HR person and leave the room after you’ve delivered the news. Don’t belabor the process. The HR person should make sure all necessary paperwork is in order, including a severance check if that was part of the fired person’s package or expectation.

The final part of the termination trifecta is the most difficult situation: laying off people due to job redundancies, which isn’t uncommon in the M&A business. Most managers prefer to avoid laying off otherwise-good employees strictly due to business reasons. Paying severance and/or assisting an affected employee with finding another job can help soften the blow, but firing is unpleasant business.

No one likes to get fired, but don’t let that prevent you from making a change when you need to.