'It was validation that our idea was right': After an acquisition, there's a sharp contrast between founders who are thrilled, and those with seller's remorse

Marla Beck

When a founding CEO sells their company, they might be thrilled from a financial and emotional perspective, or ... not.
There are a few different outcomes for CEOs after an acquisition: They might leave to start a new company, stay on in the same role, or stay on and take a new role within the combined company.
Research suggests taking on a new role within the combined company is the most productive, but the least common.
For founding CEOs in the acquisition process, it's important to set expectations beforehand — or risk running into conflict down the road.

"You'd think we would've been celebrating," said Marc Lore. "Like, 'Wow, we just made enough money that we never have to work again.'"

Lore is the CEO and president of Walmart eCommerce in the US. In an interview with Business Insider's Alyson Shontell, he remembered the moment he sold his first big startup, Quidsi, which sold diapers, to Amazon for $550 million in 2011.

But "it wasn't a celebration," Lore said. "It was sort of like mourning."

In retrospect, Lore said, he realized that the money he and his team made from the sale wasn't enough to compensate for the seeming loss of purpose. He told Shontell:

"I think a lot of entrepreneurship is about … having fun building something, being empowered to make decisions and run, build your own unique culture, hire the people you want to hire, watch them grow and develop, and go on to bigger and better things, and learn while they're there."

After the sale to Amazon, he said, it occurred to the Quidsi team that, "Hey, in this new structure, this new world, a lot of the things that made us happy are not going to exist anymore."

For many CEOs, especially founding CEOs, selling their company can bring up ambivalent feelings — not solely about whether it was the right move financially or logistically, but also about what it means for their personal careers. Others see the decision as tough, even if it was the right call.

The best — and least common — outcome for a CEO may be to take on a new role within the combined organization

The fate of a CEO post-acquisition depends not only on what they want, but also on how the acquiring firm sees them.

If the acquiring firm perceives the CEO as critical to their success, they might try to lock them down with "golden handcuffs," Noam Wasserman, founding director of the University of Southern California's Founder Central Initiative, told me. For example, the CEO and the acquiring firm might negotiate an earn-out agreement, meaning that the CEO would be compensated for hitting certain performance targets.

In other cases, Wasserman said, the acquiring firm might ask the CEO to sign a non-compete agreement, preventing them from starting a similar business, at least for a few years.

It's hard to find exact statistics on what happens to CEOs once they sell their companies. But Donald Hambrick, a professor of management and organization at Pennsylvania State University's Smeal College of Business, estimated that 40% stay on as the head of the acquired unit; 40% agree to leave within the first six months of the acquisition; and 20% take on another executive position in the acquiring firm.

While that third option is the least common, research suggests it can be the most productive.

Melissa Graebner, an associate professor of management at the University of Texas at Austin's McCombs School of Business, pointed me to a 2004 paper she published in the Strategic Management Journal, for which she interviewed the CEOs of multiple IT businesses that had been acquired.

Graebner found that "serendipitous value" — positive developments that the buyer didn't anticipate before the deal, such as new product development techniques — happened most often when the CEO took a cross-organizational role (i.e. a role in the new, combined company).

Graebner said that, although there are exceptions, when a CEO doesn't take on that cross-organizational role, "it's usually a missed opportunity."

Lore took that opportunity when he sold his second startup, Jet.com, to Walmart in 2016 for $3 billion and stock: He became the CEO of Walmart eCommerce in the US.

Lore told Business Insider's Shontell that when he and Doug McMillion, the CEO of Walmart, started talking about working together, "The one piece was I didn't want to go down this path that we did last time, which was, 'Hey, we're going to let you do your thing.' Because I learned that lesson before. And Doug said, 'No, we actually want to give you the keys, and have you, your team, take the best of both worlds and drive this thing forward.'"

Some founding CEOs are just itching to start another company after they sell one

Jyoti Bansal Many founder CEOs who sell their company are serial entrepreneurs, and wind up launching another successful business shortly after the acquisition.

In 2013, Bryan Goldberg sold Bleacher Report to Turner Media (owner of CNN) for roughly $200 million. "When the money hit the bank account, I was just relieved that this grueling eight-month process was over," Goldberg previously told Business Insider's Shontell. "Then you realize, I don't own this [startup] anymore, which is a very powerful feeling."

Goldberg went on to launch Bustle in 2013, which has raised $12 million, according to Crunchbase.

Ben Horowitz, meanwhile, told The New York Times that he had "total seller's remorse" after selling Opsware to Hewlett-Packard in 2007, for $1.6 billion. "I spent eight years, all day every day, trying to build this thing, and all of a sudden it's gone, it's just over," he said. "It's a little bit like something dies," he told The Times.

Horowitz subsequently cofounded Andreeseen-Horowitz with Marc Andreesen; it's now one of the most influential venture-capital firms in Silicon Valley.

And Jyoti Bansal sold his startup AppDynamics to Cisco for $3.7 billion in 2017. He made the decision just days before the company had planned to IPO, Business Insider's Zoë Bernard reported.

In the months following the sale, Bansal pondered what to do with himself. (He'd stepped down as AppDynamics CEO several years earlier, though at the time he was still chairman.) "I started with trying to retire," he told me, but "that didn't work for me. I got bored after a few months."

Since selling AppDynamics, Bansal has gone on to launch several other businesses, including a venture-capital firm. He realized that, like many entrepreneurs, he liked "the thrill of building companies" and "going through that hustle and struggle." Plus, he wanted to help newer entrepreneurs bring their ideas to fruition.

Bansal said that, at this point, he's not really involved in decision-making at AppDynamics.

Other founding CEOs can't imagine leaving their baby in someone else's hands

Marla Beck had a starkly different acquisition experience. In 2015, Beck sold Bluemercury, the company she'd cofounded with her husband, to Macy's for $210 million.

Bluemercury and Macy's agreed that Beck would stay on as CEO. Beck said that was a no-brainer for her, describing BlueMercury as her "first child." (She now has three human children.)

The decision to sell wasn't so difficult either, Beck said. She and her husband, Barry Beck, had been entertaining the idea and looking for a potential partner to help them scale the business.

When she finally signed her company over to Macy's, Beck said, "it was pretty much validation that our idea was right," after hearing over and over again that it wouldn't work. (Bluemercury started as an e-commerce beauty company.) It showed her "after all of the blood, sweat, and tears that went into the 19 years along with our team, that we had the right vision and we were being recognized for it."

It's crucial for founding CEOs and leaders at the acquiring firm to set expectations in advance

kevin systrom New entrepreneurs often call Beck for advice, especially around acquisitions. She always gives them the same piece of wisdom: Make sure to set expectations together with your new parent company.

Beck recommends getting into the nitty-gritty as much as possible. For example, she said, you should decide how often you're going to meet with leadership at your parent company: Weekly? Monthly? Quarterly?

If you meet once a month, for example, you'll spend several days preparing for the meeting, Beck said, "which takes your focus off the business."

Beck wanted to stay focused on growth, and didn't want to be distracted by having to prepare for a weekly or monthly meeting with Macy's. "It was really important for me to have the mind space to continue to be a creator as well as a CEO scaling a company," she said.

Recent examples of startup founders leaving their parent companies after high-profile acquisitions may serve as a warning for entrepreneurs considering selling.

In September, six years after selling to Facebook, the founders of Instagram, Kevin Systrom and Mike Krieger, left Facebook. As Business Insider's Sean Wolfe reported, it was rumored that their departure resulted from conflict with Facebook executive over what Instagram should be — and whether Instagram was competing with Facebook's user base.

Brian Acton, a cofounder of WhatsApp, which was acquired by Facebook in 2014, also left the company recently. As Business Insider's Shona Ghosh reported, there was tension over Facebook's desire to place ads on WhatsApp, and whether that meant Acton could leave and take his full allocation of stock.

When deciding whether to sell, entrepreneurs should consider how they'd handle the worst-case scenario

Oftentimes, there's no easy way to decide whether to sell your company. Wasserman suggested that, in order to minimize regret, founding CEOs should consider how they would handle the worst-case scenario in addition to the best-case — for example, if they no longer had any substantive say about the company's major decisions.

Wasserman also recommended considering the "competitive landscape," as in whether remaining small and independent will help or hurt them in the long run.

As for Bansal, he remembers when he realized that he'd do well either way (selling or going public), but his employees would fare better financially if he sold AppDynamics to Cisco. That was what ultimately pushed him to sell the company, and Bansal said that more than 400 people made more than $1 million.

Recently, one of Bansal's former AppDynamics employees texted him to say "thanks." He'd just bought a new house using the money he made from the AppDynamics acquisition.

Bansal said, "It's life-changing for a lot of people."

Join the conversation about this story »

NOW WATCH: Why most people refuse to sell their lottery tickets for twice what they paid