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Advice on Business Acquisitions from a Voice of Experience

March 19, 2019

Business acquisitions

John Chambers, chairman emeritus of Cisco and CEO of JC2 Ventures, offered his insights into business acquisitions in a podcast with AMA. Chambers served at Cisco for 25-plus years, including two decades as CEO, and has done 180 acquisitions. He is the founder of JC2 Ventures, which helps disruptive start-ups grow and scale, and author of Connecting the Dots: Lessons for Leadership in a Startup World (Hachette Books, 2018). Among his keys to making acquisitions: Companies must stick to a playbook, have a shared vision, and protect what they’re acquiring:

AMA: What is the secret to a great business acquisition?

John Chambers: The secret is to have a replicate-able playbook and go in with the understanding that most acquisitions will fail. In technology, acquisitions, at least 80%, probably 90%, fail…. It doesn’t matter today if you’re in retail, manufacturing, healthcare, government—you will become a technology and digital organization, which means that speed of change [will be] just like technology companies.

So my rule of thumb to making an acquisition really work is to go in understanding, they are very difficult, high failure rate. You make them work where you have a vision of what the acquisition can do for your company, and the acquisition agrees that’s what they want to do—in other words, a shared vision of the role they will play.

Secondly, it’s got to really be material to you because it is hard, and it takes more time than you ever realize.

The third is, I would never acquire a company, no matter how good the financial hit was, if the cultures were not very similar.

And the fourth is [to] realize, at least in technology acquisitions, what you’re acquiring is people and next-generation products. That is going to change for all companies….

When I acquired a company, I was acquiring engineers, salespeople, and next-generation product. And my attrition rate out of my acquired companies ran between 4 and 5%. In high tech, it runs usually over 20% per year. I kept most all of the CEOs, the top leaders of the acquired companies, for many years—many of them for over 20. So I realized what I was acquiring and protected it.

You’ve got to have a culture that accepts outsiders and outside ideas. And don’t kid yourself, if your culture within your company doesn’t do that. You could come up with a number of companies that have tried to do acquisitions and it doesn’t work because they reject the outsiders or the ideas, and they failed.

Those are some of the secrets, and I tried to hit that pretty hard…. On acquisitions, having done 180 of them, and I think most people in the industry would say we do it better than anyone else, but it’s [having] that replicate-able playbook and then not violating the playbook.

Listen to the AMA interview with John Chambers.

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