Is it time for founders of Indian unicorns to step down?

I’ll take it from here.
I’ll take it from here.
Image: Reuters/Kai Pfaffenbach
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The current season of HBO’s Silicon Valley begins with investors of Pied Piper, the fictional startup at the heart of the show, replacing the company’s founder with an external CEO. They believe the founder should focus on technology since that’s his strength, and leave the company’s day-to-day functioning to someone who’s run businesses earlier.

It’s like being “pushed out of my own company,” says Richard Hendricks, the founder of Pied Piper, in the series. But he eventually goes along with what the majority stakeholders think is right for the company and becomes the chief technology officer of his startup.

But is something like this likely at an Indian startup?

According to Punit Soni, Flipkart’s former chief product officer, leaders of Indian unicorns (startups valued at over $1 billion) are unwilling to hire professional CEOs, even though their businesses are struggling. “In the US, you’re either taught to become a great CEO or you’re asked to step out to get a professional chief on board. Tell me: In all the Indian unicorns, do you have any situation where the founder is not the CEO?” Soni told The Times of India last week.

Several Indian unicorns are grappling with a slowing growth and management problems, and they all have founding CEOs.

“It’s a cultural thing for us Indians. Letting go doesn’t come easily to us,” said Yugal Joshi, practice director at Texas-headquartered management consulting firm Everest Group. “Look at cricket, we keep our players until their personal milestones are met, instead of dropping them from the team when they stop performing.”

Infosys—one of India’s most successful technology company—is a classic example of founders struggling with separation anxiety. The Bengaluru-headquartered company was led by one co-founder after another for over 30 years even though its growth started declining drastically. In 2014, Infosys finally brought in Vishal Sikka as its CEO, who has turned around the IT major’s fortunes.

Bengaluru is not the Valley

The job of a CEO at Indian startups is typically very different from what the heads of American companies do.

“The model in the Silicon Valley is to hire five rockstar guys who will handle various operations such as sales, technology, marketing, etc. These rockstars are completely empowered to take the decisions independently. The CEO is more of an enabler and he focuses on raising funds and acts as an evangelist. He does not get involved in the day-to-day functioning,” said Sanat Rao, partner at Indian software industry think-tank iSPIRT.

On the other hand, in India, the CEO is usually involved with every facet of the startup. There has historically been a “top-down approach” at Indian companies, where the CEO takes decisions and passes them down to all others, said Rao, who is also a partner at venture capital firm IDG Ventures India.

In January this year, Indian e-commerce major Flipkart attempted to replicate a US-style leadership structure. Flipkart’s founding CEO Sachin Bansal was moved to a more hands-off role as the executive chairman who would “provide strategic direction” to the company.

But Flipkart replaced Sachin Bansal with his partner Binny Bansal, keeping the leadership within the founding team.

After the restructuring, several top-level executives of Flipkart quit the company. Besides Soni, Flipkart has seen the exit of Mukesh Bansal, a former senior executive who was once touted to be Flipkart’s CEO-in-waiting.

Pros and cons

A seasoned external CEO can bring in new ideas and perspectives to a startup, which the founders—who are often young and inexperienced—may lack.

In 2001, Google’s investors insisted that founders Larry Page and Sergey Brin hire an experienced outsider for the top job. After some reluctance, the two founders finally recruited Eric Schmidt, under whose leadership Google became the third-largest technology company in the world.

While it is hard for an external CEO to match the fervour of the founder, “passion is only one element in making a venture succeed and grow,” said Anil K Gupta, professor of entrepreneurship at the University of Maryland’s Smith School of Business.

“Ideally, what the venture needs is a combination of the founders’ passion and the professional’s experience and savvy,” Gupta said. ”While he (Schmidt of Google) could not be as passionate about Google as the founders, he brought with him the critical skills needed to scale up the company from an infant to a global giant.”

In business interest

When should a startup look for an external CEO? After all, there are many technology giants—like Facebook and Amazon—which are run by founders.

“Whether or not the founder should give way to a professional really depends on whether or not he/she is able to learn and grow at the same pace as the venture,” Gupta said.

Given the fact that several Indian unicorns are struggling to raise fresh funds and justify their valuations, considering outside help may not be a bad idea.

“Investors bet on the best leaders and replace them when needed. The fact that none of the Indian founding CEOs have been replaced means that investors think these are the best people we have. But if these are our best bets, it’s really scary,” Everest Group’s Joshi said.