ENTREPRENEUR SPECIAL...The Founder’s Dilemma

The Founder’s Dilemma 

As the business grows, is the founder still the right person to run it?

Earlier this month, Andrew Mason, cofounder & CEO, Groupon Inc was unceremoniously fired by the board for failing to fix the company's falling share price and loss in business. The ever candid Mason said in a note that as the CEO, he was accountable for the erosion in business the daily deals site had seen in the last 18 months, and so, it was time to go. That he was one of the co-founders didn't get in the way of the board's decision to get rid of him. The first priority was the business. The situation Mason was in, was something every founder CEO finds himself facing as the business grows - is he still the right person to run it? In the early days of starting a new venture, the passion of the entrepreneur and his belief in the idea are enough to see it through. However, the person may or may not have the skills to be able to take it to the next level.
    Sanjeev Aggarwal, who was founder-CEO of BPO company Daksh before co-founding Helion Venture Partners, feels that it is detrimental to get rid of the founder CEO mid-stream. "Normally, we find that the founder is great at forming a vision and strategy, but may lack the skills to implement it. At times like this, we prefer to bring in a COO with complementary skills rather than disempower him," he says, likening this CEO-COO partnership to a Brahma-Vishnu alliance. But this line of thinking is more prevalent in India where the pride associated with starting a new venture is also higher.
    Anand Deshpande, founder, CEO & MD, Persistent Systems points out that while your being the founder is something no one can ever take away from you, at times, you simply may not have the skills required to grow the business further.
    About five years after starting the company, Deshpande realised that attrition was fairly high as employees felt that their growth prospects would get thwarted in a small set up. "It wasn't easy and I had an internal dialogue for months," he admits candidly. "The dilemma centered around trying to determine whether it was 'my company' or 'our company'. I realised that it was about defining my role as the CEO versus founder. It can be a headache to grow the business beyond a certain point, and I may say that as the founder, I'm content with where I am." Business grew rapidly after Deshpande realised that he needed to factor in the growth aspirations of his employees. He hired more senior managers and introduced ESOPs for the core team.
    While a founder's quandaries may come in various shapes and sizes, dig deeper and you'll find one common issue at the heart of it - growth versus control. This could manifest as a people issue, strategic challenge or be related to external investors. Harsh Mariwala, CMD, Marico has had the onerous task of running a family business at a time when corporate governance norms were lax to say the least. "The conflict comes in as a result of the multiple roles you play, a founder or promoter and a manager. If you are clear as to what comes first and what your priority is — the family or the business — then all your decisions become much simpler," he says.
    How a founder takes decisions like selecting business associates or employees will impact both corporate governance and the kind of talent he attracts. Ravi Pandit, who transitioned his father's accounting firm into a world class IT consultancy, KPIT Cummins, points out that wanting to retain control over your business is not necessarily a bad thing. "If you don't mind a slower growth curve, you can retain control and still grow, but we wanted to grow rapidly in a short period so in a sense, that decision was already made for us," says Pandit, who is Chairman & Group CEO. The first thing he did was bring in a group of professionals with whom he went on to set up KPIT Cummins. Getting in partners isn't easy as it means not only sharing the profits, but also the credit for its successes. "You have to ensure that the atmosphere is such that everyone feels comfortable, and there needs to be complete transparency," he says. Deep Kalra, who set up Make-MyTrip.com a year before the dot-com bust in 2001 recalls how the investor who was all set to fund him suddenly backed off. The company was low on cash and Kalra had a frank chat with the team on where they stood. Half of them left. "What was exciting then was the ones who stayed went on to form the core team as the business grew. However, a few years ago, I realised that one of the guys who was part of the founding team was no longer suited for his position. It was an extremely tough decision, but we had to move him to another role within the company and replace him with someone from outside," says Kalra. He tried to make it work for a year, but eventually quit. "I realise now that it's important to be careful when you are hiring your first few employees. If they stick around, they tend to become your core team as your business grows," says Kalra.
    This is a common predicament
most founders find themselves in, having to pick between loyalty and capability. Aggarwal recalls a similar situation at one of the Helion portfolio companies where the function being run by one of the founding team members wasn't scaling up. The founder CEO was blind to this and it resulted in a flashpoint between him and the investors. "The founder CEO valued the loyalty of the person, but he eventually realised what was happening and the person was eased out of his role," says Aggarwal.
    Pandit found himself in an unviable position when in the first quarter after going public, the firm's biggest client suddenly changed hands. The new management didn't require KPIT Cummins' services. "We had 100 people working on that client, and we spent a lot of time wondering what to do. Eventually it came down to picking between the future of the company vis-à-vis the future of a select group of people. We had to let them go and in retrospect, I feel it was the right decision," he says.
    Ashok Soota, executive chairman, Happiest Minds, has been a CEO for over half his life, and he's worn the founder's hat twice, at Happiest Minds and at MindTree. According to him, most founder CEOs find themselves in a predicament over three issues - strategy, funding and people. "As a founder CEO, it is very important to keep reassessing your strategy to see if it still holds in the current market conditions," he says. Many founder CEOs make the mistake of falling in love with their ideas, to the extent that it impairs their vision when the idea isn't quite working. Soota co-founded MindTree in 1999, and when the bust happened, realised that they were one of scores of companies doing the same thing globally. "I felt that we needed to change our strategy in keeping with the changed market conditions. There was opposition within the team that this isn't what we set out to do but I insisted that we develop new capabilities. It was tough because the people we'd hired keeping specific skill sets in mind were no longer relevant. However, you can't be locked in to your original strategy when the market has changed," he says. It's important to be able to recognise this and adapt.
    Rana Kapoor, founder, MD & CEO, Yes Bank says that a founder brings in the ability to visualise, strategise and actualise, while the CEO is responsible for making this vision it a reality. "While I wear both hats simultaneously, I tend to be more in favour of the CEO," he says. Besides, there are some distinct advantages that come with this dual responsibility. Kapoor took the audacious step of taking Yes Bank public within six months of it starting operations at a time when it had only one physical branch. "It was definitely easier given my position; many CEOs tend to be held back by the founders," he says.
    Dealing with external investors, especially when they've come in at different stages in the company's lifecycle is another cause for stress for most founders, says Helion's Aggarwal. "Depending on what stage they've invested at, their expectations from the business will vary greatly and it will be tough to get them to align on when to exit," he says. He faced this at Daksh when Actis, Citi and General Electric Partners all invested at different points of time. His advice? It's never going to be possible to meet everyone's aspiration, so remain focused on what is right for the company and not a single constituent or partner.
    The other area where most founders get it wrong is doing the same thing they did
    when they started out, even though the business has grown. Mariwala says that it's important for a founder CEO to constantly shift gears and let his role evolve as the business grows. "When you start off you tend to do things yourself and are actively involved in all aspects of the business. Once you are a mid-sized
    unit, it's important to recruit good people, delegate and build organisational structure. Finally, your role should change to that of an influencer, both within the company and outside. You must work towards making yourself redundant in your current role," he advises.
    Similarly once Persistent's Deshpande decided he wanted to grow the business, he decided to stop writing code, much as he enjoyed it, and started focusing on sales. To be able do to this though, it's important to be careful when hiring people. Kalra suggests looking for people who haven't peaked yet so that their career can grow with the firm. The most important thing is to find people you'll trust enough to be able to delegate to. That's one of the hardest things for a founder CEO to do.
    Once your priorities are in place though, the dilemmas are easy to tackle. Kapoor says that it's important to be able to find some convergence in the roles. "If you can make it tick, the two are complementary positions that the business will ultimately gain from," he says.

First time Founder CEO? This is what you do

• Pick your early employees with care. They'll probably go on to be your core team.

• Decide what's more important to you, having total control over a smaller business or being a part of, perhaps not heading, a larger company.

• Function as a meritocracy, it will help you attract top talent.

• Be prepared to let your role evolve as the business grows.

• It is okay to delegate.

• Bring in external advisors, their perspective can be valuable.

• Be realistic — know when it's time to let go

Priyanka Sangani CDET130315