Yahoo and Tumblr: The Three Lies of Acquiring CEOs

Rob Enderle

I’ve been thinking a lot about the Yahoo-Tumblr acquisition. Unfortunately, I’ve been through and observed a rather impressive number of painful acquisitions and mergers over the years. About 80 to 90 percent fail outright or fail to meet the expectations that justified the purchase. But that is a worry on the acquiring side; on the acquired side, there is only one rule and that is that the CEO providing all of the love is lying to you.

Three lies are most prevalent: We will let you remain independent, we won’t change your culture and we value your contribution. There are a number of reasons for the lies and why the CEOs act as if they don’t know they are lying, but if you are on the receiving end of one of these things, you’d best recognize that, until you are fully merged, the only way you have to tell whether an acquiring CEO is telling the truth is to look for those moments when their lips aren’t moving or they aren’t talking about the acquisition process.


This is the most obvious and most immediate lie. You were acquired. You aren’t independent. You have swapped out your board of VCs and experts for an executive who works for the acquiring company and that executive has an agenda. That agenda has nothing to do with you being independent and has to do with how they will be measured running your company. In the case of Tumblr, a $1.1 billion acquisition cost means that company has to, in a very short period of time, demonstrate it can take its 100 million users and get about $55 million in profit annually out of them. That doesn’t sound like much, but it is starting with a number that is below zero and Tumblr is reasonably aggressive with non-invasive advertising.

If you are taking a company from less than $0 profit to $55 million, you aren’t going to be able to afford to leave the company independent. This takes us to the first test. If the firm made a good buy -- in other words, your profit is around 5 percent of the acquisition price -- then the firm is motivated not to break anything and its involvement will likely be in the areas of policy, benefits, common services (accounting) and compliance (you’re part of a public company). If it isn’t, expect to have the dark angels of change descend upon you. Within two years, you won’t even have the semblance of independence.


This is the most traumatic if you have been a startup with a closely coupled group of folks who define the company’s “culture.” During an acquisition, some people get a ton of money from their stock and retention bonuses, but most don’t share in that instant wealth. Wealth changes people; it changes them a lot. You’ll see relationships shatter. You’ll have an upswing in substance abuse. You’ll have employees decide they no longer need to work and leave or, worse, stay.  You’ll have HR oversight to make sure you are in line with laws you probably, up until now, weren’t even aware of and you’ll likely have reporting requirements and metrics you’ve only heard about in stories told to scare children.

Expect any regular parties (Christmas/birthday) to eventually be a thing of the past and the way things are currently done today to look very little like the way things will get done in the future. This could actually be a good thing but it generally doesn’t feel that way when it is going on. In my own case, within two years of my first big acquisition, after being told our culture wouldn’t be touched, we had an entirely new executive team, the weekly parties where employees and executives mingled were killed, and the department that was unique to the company and focused on quality of work had been shut down. It can take from 12 to 24 months to kill a unique startup culture.

We Value Your Contributions

At the time of the acquisition, the buying company generally has no real idea what your contribution is. Hands-off rules during the acquisition process generally keep the company from learning just where their human assets are and while your firm’s executive management may make the retention bonus distributions, these often have more to do with relationships than contributions. The acquiring company bought an asset in which people work. It is focused like a laser on top and bottom-line performance and, by law, is kept away from the plumbing. Even after the acquisition, it is relatively rare for a firm to do a skills audit and build up a file of which people are actually critical to the firm. Be aware that the company likely doesn’t have a file of its own people in this regard.

I recall one of the big initial layoffs at IBM where virtually everyone who knew how to build one of our most successful products was laid off, shutting down the line until they could be rehired as consultants at a substantial premium (this doesn’t always work out badly). This does suggest that a process where you make executive management aware of the critical nature of your job and contribution would be wise if you intend to retain your job. If you aren’t sure of your contribution, you may want to either get your resume ready or move to something more critical to avoid an unplanned unemployment moment.

Wrapping Up: Knowing When to Get Out

My general rule is that if you have been acquired and are given a retention bonus, the company has a good history of managing acquisitions with minimal change, and your company is providing a profit in line with its purchase cost, then it is worth riding out the acquisition. If any of these conditions aren’t met, then the decision to stay or leave should be based objectively on your risks of being laid off, having major painful disruptions to your life and work process, and how easily you can find a similar job in another company that is more stable. If none of the conditions are met, get another job as fast as you can get the heck out of there because it is very likely the lucky employee will be the ex-employee.

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