At VivaTech this year, we were fortunate to be joined in conversation by former Cisco CEO and Executive Chairman John Chambers, who now invests in early-stage tech start-ups around the world. Alongside former Accel partner Joe Schoendorf, John offered insights on the realities of leading a fast-growing company and handling issues of talent, culture, strategy, and scale.
In this second extract from our roundtable, John and Joe share their playbooks for managing acquisitions as you scale and handling crises.
What is your advice on when and how to make acquisitions?
Joe:Marc Benioff at Salesforce is very good at this. He has a very clear strategy and never makes an acquisition that doesn’t fit with it. The strategy needs to come first and you then find companies to align with it, not the other way around.
John: Having acquired 180 companies during my tenure at Cisco, I have developed a few rules when it comes to acquisition. The first thing to look for is a cultural match. Never acquire a company if you do not trust the CEO. You can normally tell within the first five minutes of talking to the CEO of a target whether there is a culture fit. If it turns out your cultures are not compatible, be willing to walk away no matter how strong the strategic fit is.
I have walked away from two major deals in my career, both at an advanced stage when the leader of a target company lost my trust. Trust is everything in these negotiations, and if your counterpart has leaked information or tried to downplay a piece of bad news, you will never be able to re-establish that trust.
The second rule is to always check with your customers before you acquire a business. Nothing beats customer references. You have to be extra careful with public companies, but still follow this step.
Third, be mindful of your management team and employees. Any acquisition creates uncertainty. Your people will quickly turn from thinking about what it means for the company to what it means for them personally. As a leader, you need to talk to people about the emotions they are likely to go through. Also, be transparent about the prospect of layoffs, either immediately or in the long-term.
Lastly, focus on acquisitions, not mergers. I believe mergers of equals almost never succeed in the tech industry. Rather, focus on acquiring companies that will create or accelerate your leadership in key markets.
Sooner or later all companies face a crisis. What are your top tips for managing the response?
John: A PR crisis is something you can and should prepare for. At Cisco, we regularly conducted role-playing exercises in management meetings to familiarize ourselves with potential scenarios.
When a crisis does occur, there are five rules to follow.
The first rule is “do not hide”. Instead, stay calm, face the situation head on, and investigate what’s going on.
Rule number two is to differentiate an external crisis from internal problems. Your response strategy must be different when the damage is self-inflicted versus market-driven.
Rule number three is to communicate with all stakeholders – customers, employees, regulators, suppliers, and social media followers. This process will help you understand the underlying cause of the situation and react accordingly. But remember that any statements you make, or actions you undertake in response, must be based on facts.
Rule number four is to determine a timeframe to address the issue. The nature of the situation may dictate the timing. For example, if something is already out on social media, you have 15 minutes before you need to go public and you need to make a quick judgment on whether the story is likely to be true or not. On the other hand, when the issue is related to a data breach or technical issue, it may take a bit longer to determine the cause and severity of the problem. But in all situations, be honest with your stakeholders.
Rule number five is to provide regular updates on your progress in addressing the issue. A crisis may happen in a moment, but your response needs to be sustained to address the underlying issue and rebuild trust with your stakeholders.
For John and Joe’s insights on building culture and managing talent, check out Part 1 of the conversation.
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