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February 19, 2024 | Tom Ballard

Who leaves or stays after a start-up is acquired?

An Assistant Professor of Management at the Wharton School examines the issue and offers advice to the acquirer.

A recent article J. Daniel Kim in the Harvard Business Review highlights the problem of retaining talent after a start-up is acquired by another company.

Using the nearly four-decade-old acquisition of Hybritech by pharmaceutical giant Lilly as his first example, the Assistant Professor of Management at the Wharton School at University of Pennsylvania wrote that “the majority of Hybritech’s senior managers departed soon after the acquisition due to the culture clash, thwarting Lilly’s aspiration” to enter the diagnostics testing market with this new technology and talent. “Leveraging their in-depth knowledge of Hybritech’s diagnostic technology, many of these former employees didn’t merely leave; they embarked on new entrepreneurial journeys, launching their own startups within the region. Names like Amylin, IDEC, and Nanogen may sound familiar; once part of Hybritech, they evolved into direct competitors to Lilly, contributing to the rise of the San Diego biotech cluster.”

To better understand the problem and its impact, Kim wrote that he analyzed U.S. Census Bureau data from 1990 to 2011, encompassing 1.6 million regular hires, 230,000 acquired workers, and 3,700 instances of start-up acquisitions. He discovered significantly higher turnover rates among acquired workers compared to regular hires.

“Regular hires meticulously assess job options before taking them, while acquired workers experience an abrupt shift without the chance to evaluate fit beforehand,” Kim concluded. “This lack of choice leads to challenging adjustments post-acquisition. Often, individuals are drawn to start-ups for autonomy, but when an acquisition happens, everything changes. People may feel they no longer align with the company culture and organizational structure. This abrupt change often leads to a difficult fit and higher turnover rates among the acquired workforce.”

Click here to read the article and his advice to those companies acquiring start-ups.

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