One of the tricky questions VCs ask entrepreneurs before funding them is:
‘So what will happen to the business if you get run over by a Truck’?
This week, as I recover from one of the most nasty flu infections I have ever experienced, I feel like I almost did get run over….
So, what happens to business in such situations?
– At a very early stage of starting up, the entrepreneur is the sole value creator of the business. Losing him or her can create value destruction. Having a co-founder helps, but usually people with complimentary skills become partners, so its a nightmare to even imagine losing either the right hand or left hand of a just born baby.
– As businesses mature, lots more ‘co-owners’ take over and begin to share in the value creation cycle. So, its a situation more manageable to live with, but there is no simple replacement formula of the founder.
– In ‘asset heavy’ businesses – think power plants and dams and textile factories, a lot of the value remains embedded in the physical investments put in place and more predictable revenue that acrrues from it. So suddenly losing the original founder may not be that damaging.
DONT LET THIS RUN OVER YOU
And, there are always exceptions to the rules:
Look at Apple. Steve Jobs clearly remains the SOLE shining diamond in an enterprise worth 300 Billion!!! This week as he excuses himself from the company for sick leave, there is a nervous flutter in the markets.
Why?
Is it because no one ON THE PLANET other than him who can think of an iPod, iTunes, iPhone and iPad?
Consider Google – The co-founders even today are central to the value creation and perseverance of that business (worth 200 billion)! If the twins stop inventing, their business will decline.
In businesses that are all about IP, idea creation, thinking of innovations and making them multi billion dollar product lines – the inventor has to be around. Like musicians and actors and poets.
Hmmm…. I wonder what Yoda would say to the VCs if they asked him this question?
Hardik Khanna
But Alok…dont you think that its the culture that the entrepreneur instills becomes driver for the organization.
Steve Jobs, Larry and Sergey and likes (I would like to believe) are not the only ones who would have thought of the products rolled out by their resp. companies. But surely they have created that culture, systems and processes which would help them role out such wonderful products.
So even if Jobs in not there in Apple in future, business could still work the same way. I see them ones who soon start coordinating the musicians rather than being musicians themselves. Surely they should have a good ear for music 🙂
-Hardik Khanna
Nayana Somaratna
@Alok – I’m very interested in knowing what you’d say !
satish v iyer
I think VC do invest in the IDEAS RATHER THAN THE PERSON.
Once business is funded and starts scaling up the Founder entrepreneur should start bringing in more people who can assist him properly in various departments and cultivate more entrepreneurs to derisk everything on himself.
If the IDEA and PRODUCT is successful and taken over then it will run irrespective of the Founder. If there are more entrepreneurs cultivated into the system they will keep the business running as a going concern.
Read about a local business called komli receiving additional funding.
The adnetwork product is running fine, more products relating to FB ads being developed by them.
God keep hem in good health but if something happens to the founders i think the business will run well. Investors may bring other people to run it.
Reem Saied
Hardik,
To know what happened to Apple without Steve, go back to 1985.
While it is true that Steve Jobs is not the ONLY “thinker or new ideas” in his company, he has another role, which is exclusively his. This role is that of choosing amongst 10 GREAT IDEAS, the ONE which Apple’s entire resources can be directed at. For ex: Apple TV and iPod are 2 ideas which according to Apple insiders cropped up simultaneously. BOTH were not Steve Jobs ideas. But ONLY Steve had the “gut feel” that Apple Tv was ahead of its time and iPod was the gadget to start manufacturing.
Decision making is not just about knowing WHAT TO DO, but also What to NEVER DO & What to DO LATER, but NOT NOW.
There may not be enough market research or data which helps this decision making. Its a lot about “intuition” and many qualitative aspects… (How can consumers know if they like a product when that product hasn’t even been invented yet!).
A product which was created AFTER a lot of consumer research was Google Wave. We all know how that ended.
Google ignores “intuition” and believes in “algorithms”. Human consumers unfortunately are not rational and consumers are not mere numbers on a spreadsheet or powerpoint slide. No wonder Google doesn’t get “Social”.
Google created a whole system in 2001 after Eric Schmidt came in for “adult supervision”. They added 25000 employees and STILL have only ONE PRODUCT bringing them 99% revenues. 99% OF THAT 99% didn’t need those 25000 additional employees nor Eric Schmidt at all! Ad Words was a self-service system!!!
25000 people and a “enterprise system” couldn’t add anything to what 2 geniuses and a handful of early engineers created!!!
You can never make “systems” to replace that human intuition. No system can replace Steve Jobs “gut feel” just as no keyboard can replicate A. R. Rahman’s mind.
Hardik Khanna said:
Anand
First job of an entrepreneur is once he is clear with his goal, is to create a shared vision.. Then he creates a team which is mutually exclusive and collectively exhaustive so that in the event of an an ugly turn in life the business continues..
His passion to create that new ideas should be shared by all alike (atleast the senior folks). The big risk one runs here is to give away all the plans among the team but that is a necessary evil in order to further the cause of the business. If one is passionate about a business you would put it ahead of yourself and that is the key. This would mean that you have a succession plan not only in terms of who’s next but also in terms of what’s next for the business..
You can have a horse (entrepreneur) and a cart (business) but the most important thing to have is the road ahead..
Ashwin C Parulkar
Alok was there any one during your sickness who kept on the interesting posts the same way you did on Rodinhood?
Googles and Apples do have the innovation ecosystems which they equally nurture within , yet the business cannto do without the innovators/enterprenures..they go dry..no one other thn Ratan Tata in Tata group thought about Nano I guess..but once he thought about the $2500 car every thing spinned off.
.so he has to keep thinking even at 75.. may be Rahman would have created the ecosystem and like minded musicians who are as good as him that keep producing those tunes which gets sold under Brand Rahman..CWGames anthom ‘yaro bula liya’ was disliked by the ppl BTW
Ashwin C Parulkar
Yoda takes them to the secret chamber where there are 1000 such Yoda Clones working and 1000 more clones that will replace them….the VC faints away!
Ashwin C Parulkar
Some times in a Idea specific business such as entertainment we see eg around ..Disney is such eg Walt disney ws a power house tht fired the imagination of 1000 artists working in his studios who produced such timeless classics…
yet he is no more bt thy still repeat the magic Toy story 3 still can generate $400 mill on BOfiice…infact such growing co should never relie ever on there enterprenuer starters so tht it should get run over by the truck if he is not around.
Dreamworks has three founders eqully great Speilberg,Geffen and Katzenberg..against Lucas films Jorge lucas…which jst kept producing Star wars triology..
Yashraj films and Dharma prod..again innovator driven.
Vipul Rawal
Would be interesting to get/see some stats around how many investors have invested in such single entrepreneur dependent businesses versus businesses with CoFounders/Assets and that may throw some light on the topic.
Personally, I agree if the entrepreneur gets run over by a truck is quite a risk for the investor, but dont think that has deterred any investor from investing. Look at Facebook, Amazon.com, eBay, Groupon, etc. Some of them might not have been single founder companies, but sure they were dependent heavily on single entrepreneurs!
Abey John
Yoda: “Worry about the truck, you shoud” 🙂
Reem Saied
Interesting to note the 2nd coming of Disney is linked to Steve Job’s Pixar 🙂
Ashwin C Parulkar said: