Thursday, 14 January 2010

Keeping the entrepreneurial flame alive

I had mentioned in an earlier column how it is very hard for a large company to be entrepreneurial. And how start ups usually lose much of their entrepreneurial spirit and agility as they scale – the founders usually get involved in other stuff – managing investors, putting in processes, being the public face of the company, managing conflict, hard coding the business model and rolling it out – doing stuff that is supposed to build the organisation and take it to the so called next level.

So while the organisation is getting built – the founders often take their eye off the entrepreneurial ball. This may not happen immediately however over time as the organisation gets larger and more complex to manage it usually happens.

After a few years what was a mission for the small focussed team that started the company becomes merely a job. You are no longer trying to change the world, you are simply going for more mundane things like sales growth, maintaining EBITDA margins, ensuring you meet investors’ quarterly result expectations, employee retention and so on. Things that are traditional and managerial rather than entrepreneurial.

Somewhere when transitioning from a start up to a big organisation – companies run the risk of losing their entrepreneurial soul.

While being a bigger company has many advantages it is important that companies try to also retain the entrepreneurial culture while becoming big.

Basically the problem is that the founding entrepreneurs usually create a cadre of managers under them and not entrepreneurs. There is massive capacity building of people who will execute and not enough of those who will create and build.

Retention of the entrepreneurial spirit has to be driven from the top. The founders have to recognise the problem and be committed to solving it. Although many pay lip service to this very few actually walk the talk.

The first and most important thing to do is to ensure that you hire the right kind of people. You need a rare breed – entrepreneurial managers. People who have the experience of having worked in a large organisation and despite having performed well there are dissatisfied with excessive controls and have a yearning for far greater independence than what they were ever offered. People who are somewhat irreverent but at same time understand the need for organisation building and the right kind of controls for ensuring performance and governance without stifling creativity. All this without compromising on the competencies required to actually do the job.

Such managers are rare to find but if you don’t recognise that these are the kind of people you need you will get them only by accident and then you would not know what to do with them.

Once you have a few of these on board what you need to do is agree with them on expectations and then empower them. If you don’t, you will be wasting a precious resource and chances are they will leave in some time anyway. So give them all the assistance they need and ensure you don’t get in their way.

Of course the risk here is that if you make a wrong hire and then empower that person you could have a serious problem on your hands. However after a couple of mistakes you will soon figure out who the right persons are and what to look for.

You are now no longer an entrepreneur alone – you have to assume the role of creating other entrepreneurs internally.

Close the loop by ensuring you have a generous wealth sharing plan – these are the people who will take the organisation to the next level. Ensure that they are rewarded well for their performance – way beyond market, usually through ESOPs. A performer must never even think of looking elsewhere.

In any company there will be people who will resist the empowerment of others – most notably the people under them. Get rid of the control freaks no matter how good they are technically – in the long run they will ensure that the organisation remains small.

Break up operating units into small teams. Large teams usually create more ground for conflict and creating alignment among a larger number of people is more difficult. Smaller teams work faster. What this means is that you need to get the same output from a smaller team as you would have from a larger team – so you need to raise the bar for hiring and recruit only very high quality people – at all levels in the company.

Finally you need to ensure that everyone has the freedom to speak his or her mind. Encourage a culture of independent thinking with a high tolerance of dissent.
Build an argumentative company.

Building a Good Board

Putting together the right Board of Directors for your company is an important but frequently postponed task when you are trying to scale up your company.

But if you have received an investment from a venture capital fund chances are you will need to put together a decent Board sooner rather than later if for no other reason than because it is a requirement in the investor agreement.

While there is no one definition of a good Board or a high quality Board member, in general what you need are a set of people who have high levels of integrity and commitment and who collectively bring to the table enough of the right kind of experience in business, finance, corporate governance, marketing and other relevant areas.

Boards can add real value. Many early or mid stage Indian entrepreneurs have a black and white view of a Board – either it should be totally pliable and simply sign off on what the promoter wants or else it will become a pain in the butt putting up obstacles along the way. Therefore they are cagey about Board expansion, restricting it only to family members and very close associates. The right Board however adds value in several ways – it brings together the collective wisdom and networks of a number of very good people leading to better governance of the company and hopefully better strategic choices being made. So seek out and appoint high quality Directors who are genuinely independent.

Appoint Board members carefully. It can be awkward to ask someone to step off your Board. Therefore a wrong appointment can create serious difficulties given the influence a Director wields in the company. Also no really good Director would wish to serve on the Board of a company which has one or two poor quality people. So recruit a Board member carefully – even if it takes more time than you had anticipated. Get to know him or her really well and do a thorough reference check before taking the decision. And set the bar high.

Don’t appoint a Director for name value alone. This is a trap that entrepreneurs in India often fall into. They go after big names assuming that this will add credibility to the company. While that is true, well known people usually have many demands on their time. Also they often have a halo around them which makes their reputation larger than life – their real ability to contribute may be a little less than your expectations. You need Directors who will be able to give you time and mindspace when you need them.

Do it at the right time – not too early and not too late. Putting together a good Board is something you will need to do at some point of time as you grow your company. It is important to do it at the right time. If you do it too early you will end up spending too much of your time managing the Board and too little building the business. If you leave it till too late you may have ended up building the wrong kind of company.

Invest time in working with the Board. Managing a Board and working with it does take time and it consumes your bandwidth. Any Board member worth his salt expects to be given an opportunity to contribute and that’s good for the company. What it means is that you will have to spend time engaging with Board members both during and outside Board meetings.

Choose the right mix of skills and experience. You need to get people with the right blend of diverse skills and experiences onto your board. At Naukri we got onto the Board people who collectively had experience in marketing, sales, engineering, product, venture investing and finance. At least two have been entrepreneurs in the past and have built companies. Several are independent directors in companies that are bigger and perhaps better than ours. Two have over thirty years experience of different kinds.

The chemistry must be right. It is important that you get along with your Board members and that you feel comfortable enough to level with them especially when there is bad news to give. At the same time they must not be your buddies or your cronies.

Remember a good Board is your ally and not someone whose only job is to police you. Often your Board of Directors can save you from yourself.