I have a friend, let’s call him Joe, who’s an entrepreneur. Joe’s company was acquired a couple of years ago by a larger company, and Joe was left in charge of a suite of products only he could run for this company. He was doing very well but had the usual corporate complaints: it was too rigid, it was too slow, he didn’t enjoy it. We shared some of our war stories.

Then, one day, Joe was walking by a conference room where his CEO was hosting a group of b-school students, talking about acquisitions. The CEO calls Joe in, introduces him to the class, and says: “do you know what is the first rule when acquiring a company? Fire the entrepreneur. They never fit in, and they give you bigger headaches than anyone else could”.

As Joe was telling me this, I think he agreed with his CEO. I did too. Entrepreneurs are often celebrated and applauded in the Bay area, hailed as business leaders and innovators. That’s often true. However, there’s another thing that’s true, that acquirers find out quite often: most of us are individualistic, unmanageable hotheads who can’t, or at least won’t, play well within the corporate culture. It makes sense, too: had most entrepreneurs been able to or interested in participating in the corporate power structure or dynamics, most of them wouldn’t have become entrepreneurs.

Since I first heard Joe’s story, it resonated in many stories I’ve subsequently come across. Entrepreneur meets CEO. They become business BFFs. CEO acquires entrepreneur, hoping for higher returns and synergies. The entrepreneur is exhilarated: finally, he’s able to super charge his strategy in a much bigger organization. Acquisition goals? We’ll get them in no time. I’ll just do what I always do. The time bomb starts ticking.

Fast forward 12 months and the situation is almost beyond repair. The CEO has an energy ball running around the building calling his middle managers lazy and their process folks idiots. Every second person in his company is irritated by this person sitting in meetings making everyone else feel stupid. Plus, the guy’s team has set up a barricade and is unwilling to integrate with corporate systems, come hell or high water, because theirs are better. In the meantime, the entrepreneur is plucking out hairs due to the slow pace. Everyone’s so slow! Everything requires permission! He’s being asked to provide status updates and someone can override his operational decisions! All hell is about to break loose.

Not an ideal scenario, is it? That’s the worst case, of course. The usual case is a much more tame version of the same problem, with the entrepreneur still being unhappy and looking to eject as soon as his vesting has crossed some major milestone. How do you prevent this from happening? Here’s some advice.

• Fire the entrepreneur. Joe’s CEO’s advice still holds. Hiring entrepreneurs to do what they did with their companies, only internally, seldom works. If you need a team, get the team. If you need the product, get #2 in the company to run it. Move the entrepreneur aside and let him work on something interesting and open ended, usually solving a really hard problem.
• Keep them self sustained. The best use for an acquired entrepreneur is as head of a business or functional unit, separated from others and hopefully with its own infrastructure. Let them run free. If you put an entrepreneur in a role that requires them to touch all parts of the organization – well, they will. Big time. That can prove successful in one use case only: when you put them at the top, like eBay did with David Marcus. Otherwise, be ready for some turmoil. Entrepreneurs didn’t get to where they did by setting up committees and inclusive communication, and there’s no reason to believe that they’ll start when you acquire them.
  
• Manage by KPIs/challenges. Once you have them overseeing a well defined area, give them concrete targets to hit. An unchallenged entrepreneur will get bored and either eject or try to redefine his mission, which often means stepping on other people’s toes. Set goals. If they’re met quickly, set more aggressive goals. Aggressive targets and the free hand to pursue them is what drives entrepreneurs. Give it to them and you’ll get an effective force. Let it slip and you’ll get mayhem.

Entrepreneurial people can be a positive force, if I may say so myself. Acquisitions happen because they, we, create value. However mismanaging an entrepreneur often results in both sides being less happy and successful than they could have been. Taking a few precautions can help your acquisition dollars do so much more for you.

My last year at the army was as a cadet instructor. This was the last step in the training of officers in my core, training young platoon commanders, and we all took pride in the structure of the course which – after having gone through it with several cadet groups – we felt like we almost perfected. When we finished our last course two months ahead of getting discharged, the team spent all this time to document and preserve the methods, drills and exercises we ran our cadets through.

One single month after most of us left, the course commander was promoted to a senior position within the core, and a replacement was pooled from within the ranks. His first move? Throwing all of the documentation out the window and declaring it obsolete. Now, were we the best instructors who ever lived? Probably not. Did he know a thing or two about cadet instruction? I should hope so. Was this move smart? No way.

The same thing happens every day in the business world, especially in medium and large companies. Lately I’ve been investigating a new industry and wondered why some very simple optimization steps haven’t been adopted. I kept wondering until I ran across an experienced advisor, who told me the story of how my suggestions were implemented in the early 90s. Wait, I asked, so why aren’t they doing it now?

They forgot, he said. They forgot. Spend a moment to realize how interesting this is.

People remember, organizations forget, and the vehicle of that forgetfulness is managers who are too short term focused to recognize that an aspect of the culture has to be maintained or improved. They tend to neglect knowledge transfer and maintenance until the loss of key employees leads to key knowledge having to be re-learned over and over again.

How do you make sure this doesn’t happen to you?

• You must have a work manual, your “bible” so to speak. The manual is where your methods and terms are kept and what new employees get trained on, repeatedly, until they speak your language. Organizational culture doesn’t evolve bottom up on its own, or rather it does when you don’t pay attention to it but not necessarily as you’d need it to. Anything from how you treat your customers to expense report ethics is impacted by what you instill.
• The manual must evolve. In my teams most of the new entrants were required to add to the training plan, based on material they were missing when they went through it, as close as possible to their start date. The “beginner’s mind” is priceless in challenging your status quo and your manual’s assumptions. Use that.
• No single points of failure. Code must be documented, responsibility must be shared or at least have some redundancy. Everybody should be replaceable – that doesn’t make them expendable or not important, just not single points of failure. If you need to contract a developer who left last month since he is the only one who knows his part of the code, you did something wrong.
• Have a succession plan. This is related to the previous point but very hard to implement in fast paced organizations and war-time. Still, as long as you’re growing, your team must be filled with people who are ready, and preparing, to step up. You will usually not enjoy the luxury of a transition period for any of your key hires, and being left without anyone to take a job will spread you thin and rattle the team.
• You don’t have to make a change. I’m not saying “If it ain’t broken, don’t fix it”. What I’m saying is that if it clearly works well, don’t change it. You don’t have to leave your mark on everything. Find what’s not working and fix that before going after the low hanging fruits of your comfort zone.
• Last, but maybe most important: Always understand the reason. Aristotle is attributed with the saying “Law is mind without reason”. Many senior managers never bother learning the details of the day to day work of their teams, and thus remain unqualified to make some very important decisions, that they take anyway. If you don’t understand why something was put in place, if the reason behind a norm or method is lost, investigate. Don’t assume it’s wrong. Understand your subject matter, then use your best judgement to decide.

The worst thing you can do as a succeeding manager is break something that works well. The best thing you can do is build on strong foundations to continue driving your team to success. Doing that is pretty straightforward, albeit not very easy.