The picture is getting clearer by the day.Entrepreneurs and family businesses are increasingly understanding the importance of professional competence.They are either assimilating experts from outside or are ensuring that their successors have professional qualifications.
At the roundtable discussion, organised by The Economic Times, Hema Ravichandar, Strategy and HR consultant and former HR head of Infosys; Kanwaljit Singh, MD of Helion Advisors;Vijay Angadi, MD of Novastar Funds; and Jacob Kurien, Partner, New Silk Route Ventures,say the entrepreneurs and family businesses are increasingly welcoming management professionals.Excerpts from the second in a series of discussions being organised to celebrate ETs 25 years in Indias Silicon Valley.
How crucial is passion as an element in building a company
The entrepreneurfounder has the passion,vision and charisma to engage a young team.Professional managers, on the other hand,bring in the vision and objectiveness.While the issue cannot be completely generalised, there is a social context that has to be considered as well. Not being the chief executive of ones own start-up is often seen as a negative. Chances are that the entrepreneur will largely adopt a defensive posture, and it will be quite apparent what will I do and how will I justify my role within the company now In India, this is a major challenge for us.
For example, Helion will not invest in a company where we do not see the entrepreneur moving onto a different role after some time. Ideally, we look at a five-toseven-year licence. This also acts as a filter, as it provides us with the opportunity to start developing leadership skills. However, we can get it wrong also, as it is largely an evolving model.Inversely, all first-time entrepreneurs, while having no history, also have to take judgement calls, because they have the passion. While it is the minimum requirement, passion is not everything either.
We have actually backed professional managers to start as entrepreneurs. It is an interesting crossover. But we have also invested in many family businesses. I think the reason we are all employees is a testament of the fact that there is something missing; that we probably didnt have the chance that an entrepreneur has.We may have lacked the ability to go there, grind it out, start, fall and build something. That passion, drive and the ability to grind may not be taught at the top schools.
Many entrepreneurs recognise on time that their companies have matured and
maybe their services are not required. But some guys dont get it. For instance, we
had a pharmaceutical company built by its promoter to a point, and now has a guy
from IIM Ahmedabad to run it. So, I asked the promoters son how did he have the
confidence to let go. You have this 80-year-old guy and a 45-year-old IIM-A guy
working together. His father is the sitting chairman. Therefore, it was easier for
the son to get in. How do these guys manage. The son said: I am not ready and I
dont want to screw up my fathers creation by jumping in too soon. While some do
have that maturity, others dont. Therefore, as investors,you could struggle with
whoever you get.
The key issue is the ability and passion of the entrepreneur. Does he or she have the bifocal vision of being both strategic and operational So, it is important to assess a leader/entrepreneur from that perspective.
How difficult is it to maintain a balancing act between managing and retaining
talent,especially in India
Every organisation really goes through 3-4 different stages. There are different models. One thinker talks about it as childhood to growth conception, infancy, adolescence and the prime.At each stage, you need different sets of competencies.
The other issue that I want to touch upon is the people around the founder. The family also becomes important because they have been very much in the game in a start-up. Those people can really become bottlenecks.
At that point, the CEO must be able to tell them: You can still walk in,you can share coffee with me, but there are professionals I have set into play. The role must be defined and the leader must have the ability to stay with it. That distinction is not clear in many entrepreneur-CEOs today.
You have a deep talent pool in the US,with varying experience.So you have people who have joined as CEOs for month 6 to month 24 to month 36.If there is a CEO to build a company from $0- $20 million,you need a different guy to build it from $20 million to $200 million.In $0- $20 million,you need to work in a small room,making your own bookings.To build it from $20 million to $100 million,you need some institutional contacts,which you do not have in India.
What is the role of professionals then What role will they play in an emerging
Change is not always necessary at the top.Get professional people to perform other critical roles someone like a chief operating officer.A hazard of bringing in professionals is losing the vision while aiming for operational excellence.
Execution knowledge is extremely critical.In India,the traditional businesses attracts a lot of first-time entrepreneurs.Therefore,we will look at someone within the median age of 40-45 years to run the company.However,in the e-commerce industry,we will look at someone younger.
As entrepreneurship grows,venture capital grows.We have seen a whole new set of companies emerging,which are not family-owned and get support from the venture capital and private equity ecosystem.Then we have the family-owned business entrepreneurs.So who can run the business best Is there a different managerial approach The challenge is to get the talent like in US to leave secure companies and go to a start-up.And again go through the grind process,not too many guys have that appetite.
As the entrepreneur has no other competence,he slogs through the initial tough period,while we always worry that the highly-employable top guys whom we hired are going to get another job when it is going to be tough.Whenever the job market goes up,there is always a debate on whether he is going to walk out now.You dont find professional CEOs in industries that are license-led,because a large part of it is managing the system.
There is always a thing (corruption) that leads to their success,which all of us pretend not to exist.
In an ideal situation, I would prefer if the people and the management are combined with ownership.If there is high-quality management,they will plug in all the gaps and know when to get in people and so on.The investing community will love that. For us, plug-in managers are important if the family is doing it for the first time. For the promoter, it is beyond money. His reputation in the market and in the press is being built for the first time.Our entire job is to differentiate between the good and the bad entrepreneurs.
On the flipside, entry of professionals is not happening in India much. For example, take MTR, a well-known eatery in Bangalore. It was a great, well-run brand, but no longer so.If you cannot run your firm, let it go and be run by a set of VCbacked guys,who will scale it up and also retain the core values.
VC-backed companies are also few and far between.When we look at business and entrepreneurs in the country, we cannot look through the point of the VCs.They represent 0.1%.So if you ask me at what stage should a professional come in, I would say that at post-IPO stage,all experimentation should be behind me.I will not invest in a company where the CEO comes and goes in one year. I am not going to take risks.I want that one guy who is passionate.
How do you convince an entrepreneur /chief executive to step down Is this
particularly an Indian problem that also hinders investors from investing in
If you are going with a premise of passion/ownership,then it is completely counter-intuitive.While you move the CEO,you must remember that its not just an executive his/her roots run deep.You invite the displeasure of several key decision-makers and influences.With this whole entrepreneurial boom and capital coming in,it is really an emerging issue.
When we say professional,we tend to assume that the owner is not one.There are some who are very professional.Then there are some who continue run their business as familyowned and cant accept anyone asking them where the money is going.Our job is to make those judgement calls.
What is the best sort of model for emerging companies in India Does the model
depend on the type of sector
The most critical thing is that the entrepreneur should either intrinsically,or be trained or mentored to,understand the nuances of the business as it moves through the different stages.That probably is one of the best models.It provides for a win-win situation.
If he or she is not able to do that,then you buffer the team with somebody so that the person with the idea and the passion stays on.If either is not possible,then you move to a situation where you have to look for new outside talent.
Who is in the best position to take the responsibility of a smooth transition
In most of the cases,there will be suspicion in the minds of the entrepreneurs about the agenda of later investors or venture capital.Changing the CEO should be for the right reasons.The best model,in my opinion,is the appointment of independent directors.It is the most practical solution and is the best and most respected way of running things.You start with the assumption that you will work with the same person, and then change when required.Also,in some businesses you do not know who the best CEO is.
It could be an independent director,somebody who comes in from another place as a chairman or the venture capital fund.He might or might not bring funds. However,it has to someone who is able to hear both sides of the story and take an independent view. I think that the whole issue of mentorship becomes critical somebody who advises,and not just a formal mechanism.
How do you see the role of the second-generation entrepreneurs playing out in
todays scenario in
I am actually bullish on the second-generation that has gone abroad and come
back.Firstly,they are much more broad-minded than their parents.Secondly,they
want to run the companies and they have fewer stakes from the family.The next
generation has got very bright guys from top-notch schools.Even if their
parents have made the money,they want to be seen as professionals who have
established the businesses on their own.
Yes,but there are many nuances to that.We are seeing that mostly in the technology side.It is happening across the age spectrum.Prospective entrepreneurs are asking the question Why cant we The money is certainly available.However,starting a business just because they have funds is not the right way.In India,the stigma of doing business is going away,which is a huge positive.Being a failed entrepreneur is now,in fact,being seen as a positive in a number of quarters.It is being seen as a badge.
I think it is all across.Look at Biocon.There is this one strong lady.For me,the longevity comes from the core set of owner-managers who have passion,ethics and values and ability to take on business.
To conclude,are we seeing a unique Indian model emerging
The real and unique Indian model emerging today is to be prepared to back entrepreneurs,but also facilitate the transition when it is required to do so.