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Why hire a CEO for your startup?

As the New Year began, Flipkart announced its first non-founder CEO hire. Co-founder and CEO Binny Bansal stepped down to hand over the reins to Kalyan Krishnamurthy, a top executive at Tiger Global – Flipkart’s largest shareholder. In fact last year in an interview Flipkart’s ex-CEO Punit Soni had raised concerns over the nature of Indian founders tightly holding on to CEO positions. A couple of days back newspapers carried an article stating Zivame’s founder Richa Kar pulling back from her role of CEO. A new person Shaleen Sinha was hired and she would no longer be looking at day-to-day operations. In this case, as news reports say, this was an investor led rejig.

The hiring of professional CEOs to take over the company has been a common trend in the U.S. startup scene. Google founders Larry Page and Sergey Brin hired Eric Schmidt as CEO. It was only under him that Google came to be known as a technology giant. In the Indian context however, the likelihood of this trend setting a precedent depends largely on the successes of these leading startups who have taken the first steps. Even Infosys continued to appoint its co-founders one after the other in top management positions. Hiring Vishal Sikka as a professional CEO after three decades of the company’s existence has turned in the company’s favor.

Here are some points that can be noted while understanding the need for founding CEO’s to step back and make space for professional ones:

A founder is a founder is a founder

A paper published in 2005 by Noam Wasserman, an assistant professor at HBS reveals a paradox that there is a higher likelihood of founder CEOs being replaced when they are performing well. This is especially the case when the startup is backed by external investors.  Ben Horowtiz’s essay on “Why We prefer Founding CEO’s” also talks in favor of the founders. He says that founders have comprehensive knowledge, moral authority and long term commitment than an outsider. On the other hand, a report by Suren Dutia, a Senior Fellow at the Kauffman Foundation says that studies have revealed that founders exhibit ‘Founder’s bias’ when evaluating the success of their startup. This makes it even more crucial for them to step back.

Is timing important?

When the team is small and operations are handful, it can be managed by one or two people. The challenges are fresh and the founders are enthusiastic to face the challenges head on. But when the start-up goes in high-growth mode, the focus of the founder shifts from managing everyday things to putting processes and work culture in place. As with Google, they did it when the company had just raised a round of investment and was on a high momentum growth path. Taking mature hiring decisions when the company is ready to enter the next stage is crucial.

Who should be hired?

A founder may be someone who is really good at entrepreneurship. But management and everyday execution may not be his forte. In such cases, it is in the best interest of the company to hire another (more?) talented person who can handle the area of business that he is not very good at. As seen with Flipkart, Kalyan Krishnamurthy is not a new face to the company. He has been working with Tiger Global, their top shareholders. There may be instances where the new CEO may require time to ramp up with help from the founder.

ceo founder

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Great CEO founder partnership

When Pierre Omidyar of eBay roped in Meg Whitman to run the company, he went on to pursue his philanthropic interests and continued to be involved as chairman of the board. However, the founder may not always take a complete backseat. The two can work hand in hand to scale the company and take it to newer heights. Taking important decisions can be very confusing especially so for the founder because they are emotionally attached to the company. This is when the “two heads are better than one” policy holds true. When the responsibility of running the business is divided, the founder can focus on other important activities like innovation, R&D, processes, work culture etc. This also gives the founder a good time to work on the future plans of his start-up. All said and done, no one else can envision a roadmap better than the founder.

What next?

The recent reshuffle in Indian companies is testimony to the fact that the Indian start-up system is set to evolve. Will the new Flipkart CEO be able to turn the table around and bring Flipkart’s valuation back on track?  There may be a complete transformation in the way a company runs when a professional CEO takes over. Or even slight but impactful changes may work for them. The founder has to remember that his role in the company has not reduced but only changed.

Have any of the Rodinhooders been faced with a similar dilemma? I would love to know how your experience has been.

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