Why Flipkart’s founders couldn’t become like Microsoft’s Bill Gates3 min read . Updated: 10 May 2018, 10:31 PM IST
There would be some fans and cheerleaders who are as, or more, disappointed than the founders, who have reached the end of their association with the start-up they created and nurtured
Acquisitions followed by founders moving on—immediately or after a lock-in period—have been a common occurrence for decades. But memories are short and it may be time for a refresh. The acquisition of Flipkart by Walmart, and the possible contours of the leadership structure post the deal, have sparked an unprecedented debate on the emotions surrounding this transition in particular, and similar transitions in general. The extent of interest is a clear reflection of the impact that Flipkart and its founders have had on the collective psyche and imagination of the Indian public.
There are some who believe that the founders of Flipkart, Sachin and Binny Bansal, should have continued to build a global business that could potentially rival the likes of Amazon and Alibaba. For many of them, the Flipkart success story was also a boost to their patriotic fervour. Other individuals recognized that after the Flipkart founders diluted as much as they did, loss of control was inevitable.
A 2008 article in the Harvard Business Review (HBR), “The Founder’s Dilemma" by Noam Wasserman, has become standard reading material that boards routinely prescribe to founder-CEOs of their portfolio companies. In this article, Wasserman points out that even though most entrepreneurs dream of becoming a Bill Gates or a Larry Ellison—building and running iconic institutions for as long as they please—the reality is that successful founder-CEOs are a truly rare breed. Barely a fourth of the founders led their start-ups into the IPO stage and 80% of founder-CEOs were forced to step down from the CEO role under investor pressure.
Very few start-ups sprout in spaces where all factors conducive for creating lasting institutions come together—being at the right place at the right time is a significant one. Most end up being acquired by larger companies where they fill strategic gaps.
If you take the Indian context, many information technology services companies quickly grew to a size and scale that made it inconceivable for even large foreign companies like IBM or Accenture to even dream of acquiring any of them. This privileged position was made possible by a chance confluence of several factors—Y2K, the increase in number of English-speaking youth, the opportunity for cost arbitrage, and the agility and maturity of the founders of some of these companies. However, the BPO services start-ups, despite coming up in almost similar conditions, could not stay independent for long. Start-ups like Daksh and Spectramind, founded by iconic entrepreneurs, were acquired in less than five years. And this was despite the founders holding significant, and often controlling, stakes.
Most Indian e-commerce start-ups have been in an unprecedented race for growth that requires founders to give up control for growth and personal wealth creation. By choosing profitable growth over blockbuster growth, Infibeam retained control and went all the way to the IPO stage. There are a few others too who have veered towards retaining control and have played the game well, but have come under tremendous pressure. Time will tell whether they will go for an IPO, or cede control along the way. In an industry where the leader gets a disproportionate advantage, and leadership comes through massive cash burn, the trade-off will always be in favour of growth. Dilution and loss of control is an inevitable consequence.
As long as the founders are clear about their abilities and motivations, walking away from the start-up is much easier. Some highly self-aware founders may actually be happy to walk away with their riches and experiment with new ideas or pursue other interests without the hassle of running a large and complex company.
Not many founders have a deep desire to build and run institutions. They may face the pangs of separation when it’s time to move on. For a short period, the pain will seem intense. The sudden emptiness and drift may hurt. But you can be reasonably sure this is temporary. From acceptance comes liberation!
There would be some fans and cheerleaders who are as, or more, disappointed than the founders, who have reached the end of their association with the start-up they created and nurtured. This too will pass, for this is the way of the start-up world.
T.N. Hari is the head, HR, at Bigbasket and co-author of Cut The Crap And Jargon: Lessons From The Start-up Trenches