Solving the leadership puzzle

It’s the dream of every entrepreneur to become a Bill Gates, a Warren Buffet or a Larry Page, each of whom founded a company, led it for many years and then stepped down to make way for an outside CEO. However, successful CEO-cum-founders are a rare breed. According to a study by World Management Survey, companies that are led by their founders are 9.4 per cent less productive with consistently low management scores. Both of these factors typically increase when the founder-CEO is replaced.

In the Indian startup ecosystem, more often than not, the founder is the CEO. So when an external CEO comes in, it makes a lot of noise. As it happened in the case of Flipkart when Kalyan Krishnamurthy replaced Flipkart founder Binny Bansal as CEO or when Zivame founder Richa Kar stepped down as CEO to make way for Shaleen Sinha to take over. Experts believe that founders often get too attached to their companies considering them as their own and so giving up control is difficult. But from the investors’ perspective, it is only natural that they expect the founder to step down to make way for an experienced and skilled CEO who is better equipped to handle day-to-day business processes.

So, what really is an ideal situation – founder heading a startup or CEO running the business? “Startups emerge out of a founder(s)’s deep desire to address certain problems. They reflect the founder’s personality in a lot of ways. So, at an early stage, it is virtually impossible for the company to be run by anyone other than the founder. Gradually, as the startup grows and receives further rounds of funding, the founder may think of bringing in a professional CEO,” says Sajith Pai, Director, Blume Ventures. He, however, adds that an ideal structure is when a visionary founder hires a nuts and bolts operator as a foil, like in the case of Facebook (Mark Zuckerberg + Sheryl Sandberg) or Swiggy (Sriharsha Majety + Vivek Sunder) or Zomato (Deepinder Goyal + Mohit Gupta).

Tim Draper, an American venture capitalist and founder of Draper Fisher Jurvetson, considers the founder to be the heartbeat of an organisation, and the CEO to be its brain. “Sometimes it is the same person. A startup can get by without a brain, but not without a heart. We tend not to want to back companies who don’t have their founder still involved,” he says. On what is the ideal time for a founder to bring in a professional CEO, Draper recommends teaming up at the outset. “If the founder is a technologist he/she can benefit from a business visionary joining him/her. The odds of success are much better if both the tech lead and the business lead are founders.”

But then why do some founders fail at being CEOs even when they have cracking ideas? One of the key reasons that experts point to is founders’ attitude towards investors. Many investors are reluctant to invest in companies that are heavily dependent on an individual. They want to invest in startups that can function just as well without the founders, which is why some investors insist on hiring an external CEO. Another issue is founders often find taking managerial decisions difficult. They want freedom to run their business the way they want but lack of managerial expertise sometimes gets the better of them. Most believe that only they can lead their startups to success, a myth that is sometimes understood very late.

Strategy to start a company is often very different from the strategy required to run it. In order to get the support of investors and the board, CEOs should have the ability to develop and explain their business strategy that can actually scale up. Plus, coming up with an idea that can actually attract customers and generate revenue is an immensely difficult task. But once founders get there, they do not want to let go. They sometimes forget the fact that the company is bigger than any one individual and must continue to grow, irrespective of who is heading it.

According to Vishesh Chandiok, CEO, Grant Thornton Bharat LLP, it’s all about getting the timing right – of alignment of decision-making authority in the initial years with an individual, but strong governance oversight over that individual. “Parting equity too early will destroy the ability to invest and thereby scale quickly. As the saying goes, ‘debt is cheaper than equity’. Facebook, Twitter and even Microsoft are good examples of founders remaining good CEOs for years in high-growth businesses,” he says. He adds that founders should work on their capabilities through a continuous learning mindset to stay relevant, and to not hesitate to hire people, who complement their behavioural alignment.

In most ecosystems globally, every business starts as an SME and with one of the founders being the leader. The succession question pops up with growth, external investment or with retirement of that founder. “There isn’t a one size fits all answer on when it is appropriate for a startup to consider that succession. However, most founders have a wonderful instinct, which has built their business, and whilst they should not listen to advisors like me, they should decide based on their instinct,” says Chandiok.

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