My daughter was all excited, in that way that only teens could be. She was making plans to bring her friends to Bangalore – next summer. And even before that she was keen to take them to not just Chennai and Goa but Benaras – as she calls it – and “Oh. But how can we not take them to Kerala.” If there’s one lesson that I’ve learned from my daughter, it’s to let her speak uninterrupted. At least till she pauses to catch her breath. Or if I can do it, wait till she asks, “Well. What do you think?”
The amazing and scary thing for me with this entire episode was how much of a chip off the old block my daughter is. I was exactly like she is today. Keen, maybe even overanxious, that my friends experience the things about India or my family that I had and that they ENJOY them. It’s surprising that I had any friends left. The truly scary part is why it was not evident sooner.
In many ways doing a startup is a journey of self-discovery.
As a founder, you are going to learn a whole lot about yourself that may not just surprise you but make you doubt yourself. All that stuff you’ve read about Steve Jobs or other self-confident (err arrogant) founders may make it sound successful founders make decisions and move on without much self-doubt. Reality is that any founder, worth their salt and with a pulse, will discover each day – many times a moment too late – that there are things that they could do way better. A lot of this is programming that’s happened before we became even remotely self-aware – our desire to please, or unwillingness to confront, avoidance or procrastination.
In many ways doing a startup is a journey of self-discovery. How costly or expensive this is depends on how fast you learn about yourself and most how soon you accept and forgive yourself.
In my own case, having a great team of folks around me helped me gain the self-awareness. But as they say, you can only bring the horse to the water. So it’s not enough to make or drink the kool-aid. As a founder you’ve got to be prepared to stare at the image that’s reflected in it!
One of the advantages of growing older (and startups can sometimes help you do that fast!) a certain degree of self-awareness grows (or is foisted on you by your team). So rather than berate myself I’ve learned to recognize that is who I am and to recognize the need, in most cases, to change.
My daughters don’t hesitate to tell me if it’s not for the better.
“Can I meet with you today?”Usually, when I get such a call, which I do about once in two weeks, the entrepreneur wants to meet immediately. In this instance, I suggested that we can meet the next Tuesday. The entrepreneur, let’s call him Jack, persisted, “If it’s okay can we meet today please?” So I agreed we’d meet at 530pm that evening and moved around a few meetings to make it happen.
At about 445pm I get a call. It’s Peter, Jack’s partner. He says “I’m going to be about 10 minutes late.” As I’m wrapping up a meeting, I tell him “Don’t worry about it. I will be at the coffee shop. See you there.” At that time, I didn’t pay attention whether Peter had said “we’d be late” or “I’d be late.”So at 530pm, I’m surprised to see only Peter show up with no sign of Jack.
“So what was so urgent that it couldn’t wait till next Tuesday?”
Peter was polite enough to apologize for Jack’s absence, “A major customer crisis has arisen. Jack had to go in person to placate the customer,” before jumping into why he’d asked for the meeting.
“BigCo has made us an offer. We’d approached them as a strategic investor. As we talked to one another, the discussions turned into an M&A one. They are interested in acquiring us. So we’re looking for advice on what we should do.”
Over the previous six years Jack, Peter, and another partner had at first bootstrapped their tech business and then raised both an angel round and a series A. They were on the verge of operational breakeven and had impressive Fortune 100 customers that any startup would kill for. They’d also dabbled in hardware and systems, pivoted a couple of times and overcome significant challenges in pulling together a fragmented supplier marketplace. In short, they were not just smart and hardworking but successful by any measure.
“What do you want?” I asked. “What does Jack want?”
Peter’s responses, many of which were questions rather than answers, sounded similar to ones that I’d faced more than a decade ago when my own startup was acquired. And one that I’ve heard from many entrepreneurs since. Most founders rarely stop during the madness that is doing a startup is, to ask, let alone answer these questions. So regardless of where you are in your own startup journey, here are some questions for you to ask yourself. I’d suggest revisiting these once a year, more frequently they’d be a distraction.
What do you want? Why are you running/doing a startup? To make a zillion dollars? Because people don’t have easy access to mental health? Because every kid should go to college? Whatever be your reason – only money, only greater good, some combination of both or yet another reason, knowing what it is, is important. This will help you figure out, are you close to it? And regardless of your distance from it, do you want to keep doing it?
How much money do you want? Despite startups being businesses, many entrepreneurs haven’t really put thought into how much money, specifically, they’d like to make or have. So when they are faced with a sudden offer to sell or particularly when they face a hostile or shall we say unwilling ejection, they are in no position to figure out what they want in any dispassionate manner. Surprisingly many entrepreneurs, starting with myself, find that they are uncomfortable talking about money for themselves. So this is a good question to answer if only to get comfortable talking about it.
What do your partners want? Usually your co-founders, especially at an early stage startup, much like you would also have not given this much thought. But in some cases may have greater clarity, which is usually a good thing, but you’d better know what it is and how different it is from your own answers to the question. Again, they may have thought of things only in terms of money or in terms of outcomes and not money. Knowing the answer to both and knowing your differences will be immensely useful.
What does your team want and what do you want for them? This may or may not matter to you, or you may even be unclear if this matters to you or not. Knowing this is critical at some many practical and even ethical reasons. For instance, what matters to them – that they work in a startup, the freedom or independence they get maybe very different than what they get from BigCo once they acquire you. What are they likely to get monetarily if you sell your company?
What will you do tomorrow, if you get what you want? If your company were to be acquired today, in an all cash deal, with no strings attached (and let me know if there are such deals out there 🙂 what will you do tomorrow or ninety days hence, after you take that well-deserved vacation. In many ways, this is similar to the first question around purpose? If you’d still do what you are doing today, what does that tell you? And if you’d do something totally different, what are you waiting for – what should you do differently today?
I believe if you ask and answer these questions both individually and collectively as a founding team, periodically, it would help you make better decisions when you are at crossroads in your startup.
As many companies that I’ve been involved with grow past their fifth or even seventh anniversary, they are facing new questions around exits – be the outright sales or mergers or in some case existential questions. I’m hoping to write about these questions in what I’d like to think of as “Selling your startup” series.
Much like the well-meaning father’s friend in the movie Graduate, almost everyone has advice for startup founders. Never mind that such advice ranges from “Unlike your brother, I hope you find a good job” to “Never give up, follow your passion.” I haven’t been averse to handing out such platitudes myself at times. And such advice, like a broken clock, will be occasionally true.
But is there advice, actionable and useful, that is applicable regardless of your startup’s life stage or your own for that matter. I’d argue yes!
That would be my one word advice to founders (and leaders) everywhere. It’s also a sneaky way of saying Take care of your mind which in turn will necessitate taking care of your body as well.
There’s a great deal of formal studies on the advantages of meditation – from how it can make you happier, make better decisions and how it helps the US Marines do better by bouncing back faster! More importantly there’s plenty of useful and actionable advice on what meditation is, how to start meditating, how long a session should be and when can you expect results.
Start today with 5 or 10 minutes set aside for meditation. Preferably first thing in the morning. Work up to doing 30 minutes of meditation a day, and once you get there, keep at it. I suspect, you will find it so much easier to handle, life and everything it throws at you.
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Just this last year, two founders in two different startups that I’ve invested in quit. Back in 2000, when one of the co-founders of my first startup quit (on religious grounds) we were quite taken aback and ill-prepared to handle it. However that parting was amicable and all the founders involved — there were five of us — are still on talking terms. Despite this first-hand experience, I did not foresee founders in either of these startups leaving. To make matters difficult interesting one of the founders left in a rather acrimonious manner, which proved quite a bit of challenge not just financially but emotionally. Sure, eventually things get to a new normal and while neither of these startups is still completely out of the woods, they’ve survived, evolved and even grown. Ever since this happened, I’ve been informally talking to folks, both boot-strapped as well as those with angel funding, about founders’ agreement. And usually I’m greeted with a blank stare, when I pose the question, do you have a founders’ agreement? Occasionally to keep things interesting I ask them “Do you know what an inter se agreement is? Do you have one?
Here are five reasons why you need a founders agreement
Self knowledge As I found in my second startup, even when you start a business with people you’ve worked with for a long time, your stated and unstated expectations can be very different. As each founder may be in a different stage of their lives – be it with parents, spouses or girlfriends, kids or even personal aspirations. Many times, we don’t know what we don’t know or or thing we’re making implicit assumptions about. A founders’ agreement helps flush these out – especially when your other partners state their own concerns, desires or expectations. This could be from the profound – of what happens if a founder dies to the mundane of how equity will be evaluated if a founder wants to cash out.
Relationships As my father used to say, businesses can fail and often do fail. Most young people enter into business with friends as co-founders and even in the case where a founder was not a friend before, the heat of a startup certainly will meld the relationships into one of friendship, if you are lucky. So when things begin to go south, the inter se agreement acts as an impartial or at least a mutually agreed manner to resolve differences. Founders can leave not just for professional reasons, but because their spouses want to go overseas, or they are going through a divorce or loss of a parent or child – all events that are traumatic enough without having to deal with a business relationship coming apart.
Values A founders’ agreement in many ways makes you confront your own stated values for your business and yourself. With multiple founders, the creation and negotiation of a founders’ agreement is fraught with unearthing people’s deepest fears and concerns. The disagreements and discussions in creating an inter se agreement at a time when the founders are in a good relationships at the beginning of the journey, are some of the surest ways of unearthing and cementing core values. So how you handle a senior employees restricted stock or options in the event of an exit or their early departure may tell more about your co-founders values than any amount of values workshops.
Reality check Whether you are a first time entrepreneur or working on your fourth startup, there is an inherent level of reality-distortion or self denial that’s needed to even get started let alone keep going. As one of my co-founders asked me two years into our latest startup “Have you retired or are you serious about this business?” An inter se agreement is a great way to remind and re-iterate to yourself that you are a realbusiness and not a fun (technology) project and that you have obligations to yourself and others
Success As Miguel Cervantes put it so eloquently (in Spanish) the secret to success is preparation. (He actually said “The man who is prepared has his battle half fought.” When you embark on a startup the only certainty is that everything is going to change. Knowing, or at least discussing what such change, especially in the founding team would mean for the company and other founders is a good way to make sure that you, at the very least don’t fail but improve the chances of success of your enterprise. Being prepared and the sanity of knowing your values, relationships and aspirations are all likely to be preserved will enhance the chances of your success.
Sure, all of us have run businesses, scaled them, sold them and in some cases buried them without inter se agreements. However if you can do it with greater peace of mind, sort of riding your Harley with a good helmet, why not!
Not too long ago I begun interacting with the young founder of a web 2.0 firm. He’d done an impressive number of things – identified a key market need based on his own work experience, built a prototype, gotten paying customers, hired—initially part-time—subsequently full time coder and even raised a small investment from an accelerator. After our first interaction, which was mostly spent learning what he’d done already, what had worked and what hadn’t, we begun discussing business models and his intent to raise angel money.
Somewhere in the discussion I raised the question of “Do you intend to find to find yourself a partner or two?” You’d have thought I had slapped him, in the way he reacted. Once he got over the initial shock of my question, he was genuinely puzzled. While he never came outright and said it, I could see that he continued to be befuddled by my seemingly dumb question. “Why would I need a partner?” – the unasked question hung over the rest of our meeting. It set me thinking as well and here are three reasons – better decisions, stronger company and emotional support – and that I believe having a partner (or two or three) can help your startup.
Two heads are better than one Your business and you will do better, if you have another set of eyes, ears and all the grey matter that hopefully lies between them, available to you. While perseverance is one of the most critical things for business success, it always helps to have someone tell you that you are being pig-headed or this is the time to let go of a customer or an employee. Do you sign up to a particular deal, should you build that product or abandon it, should you borrow or raise some more money – all these decisions are easier and most likely better when made with another set of inputs, that a co-founder can provide. Advisors, consultants and mentors can play this role some of the time and can be useful in not being so close to the decisions, but they rarely have to live with the consequences of these decisions the way a co-founder or partner would have to.
Successful businessesrequire teams Having co-founders, finding and persuading someone else, to embark on the insane journey that building a business can be, is the first step in making your business successful. It is not just investors who look for a team – one with complementary skills, but potential employees and prospective customers all care about the fact that your company is more than just you. Sure there have been single founder companies that have been successful, but why make it more difficult than it needs to be to build your business. Yes, teams and successful ones can be built with employees, but they will never be the same as having a co-founder or partner who has a same stake in the outcome.
Entrepreneurship is lonely business Entrepreneurship is hard enough without having to slog through it on your own. Sure if you are lucky, family, friends even advisors or mentors can help make it a little less lonely. However, none of them can give you the time that a good co-founder or partner can give you. Even if your co-founder is very different from you, they’ll be able to better understand and empathize than anyone else about the challenges you face, the frustrations you feel and help smooth out the highs and lows that are inevitable in any startup.
As with most sayings there’s a good deal of truth to the truism—history is written by the victors. And rarely do such histories dwell on the mistakes or, worse yet, atrocities committed by the victors. While modern historians have attempted people’s histories or stories of the subaltern, as academics are fond of calling it, it’s pretty certain most histories are not exactly balanced reporting.
Cover via Amazon
Stories of entrepreneurial journeys in many ways are not that different from histories written by the victors. Many of them are only slightly better than hagiographic biographies written by adoring admirers. Baskar Subramanian, one of the co-founders of my first start-up is fond of pointing out that once an entrepreneur is successful, he can write the story of his journey in any manner he deems fit. So if a start-up saga contains few mistakes, almost no accidents or lucky breaks, and where every major decision was the result of great strategic thought, you know you are reading a history by the victor. So a bucket of salt may be required when you read such a history or seek to learn from it.
Even when an entrepreneur is clearly successful and well thought of on matters of integrity, such as Sam Walton, the founder of Wal-Mart, or for someone closer to home, J.R.D. Tata, the matter of relevance, particularly to a fledgling start-up, becomes important. A reader is at best able to draw only general lessons about perseverance or passion. India and the world are a significantly different place today than when these men built their businesses. So, how practical are their insights for an entrepreneur to apply today? Inspiration is critical and these tomes offer them, certainly, but entrepreneurs need more than inspiration. They need practical and proven insights that can be both internalized and implemented with ease. Do books of even recent entrepreneurial success, pertain only to a market segment—modern retail or generic drugs—or can their lessons be applied to any entrepreneur starting up?
With the advent of blogs, particularly those professing advice for entrepreneurs, a number of interview series, and subsequently, books of interviews of entrepreneurs have emerged. These overcome the shortcomings of a single subject or company book and are often stories of recent or still-running businesses, which the readers not only relate to but also are likely to encounter in their lives. Yet, not each of these are written (or worse yet edited) in a manner that makes them as palatable and useful as one would like.
The first challenge when trying to learn from the lessons of others is figuring out which lessons are relevant to your own situation. Once you identify the problems that are similar, if not identical, to your own, you’d have to figure out whether the solution is germane to your own situation. Hiring for a software product start-up may be just as difficult in Bangalore as it is in Mountain View or New York—however, the solution may be altogether different.
Founders at Work: Stories of Startups’ Early Days by Jessica Livingston stands head and shoulders above most other compilations of founder stories. While largely confined to Silicon Valley founders (whose origins are as varied as Brazil, China, India and Russia—and more interestingly the lesser-heralded towns of US states such as Nebraska and Iowa) and what would be termed as “tech” start-ups in India, many of the lessons are broadly applicable to start-ups anywhere.
The 32 stories in Founders at Work are set in Q&A form, with mercifully short questions. The entrepreneurs’ answers are delivered in direct and often in an unflatteringly candid manner. The book, which I’d avoided reading for a long time, gripped me from the first page. The book works because it keeps its focus on the earliest days of the start-ups—whether they subsequently grew into today’s Apple or self-destructed like ArsDigita or were acquired like Hotmail or TripAdvisor. This is one book of start-up stories that you cannot do without, even if you never intend to start something on your own. You’ll do better at your job as will your company if you read this book and take its lessons to heart.
This evening I came across Richard Luck’s post on “5 Things I Wish Someone Had Told Me (about starting a company)” and it triggered thoughts about stuff I wish folks had told me about. Two things that popped up immediately in my head were, about the unstated emotions that surround the phrase founder and the matter of laying people off. In this post, I will confine myself to talk about founders and issues surrounding them and save the cheery matter of having to handle layoffs in your start-up for a future post.
Who’d have thought a simple word, such as founder, could be such a loaded word? Having founded two companies, been part of at least two other early-stage tech firms, and now as an advisor to several startups, I see this is an important matter to address head-on. Prior to my arriving in India, my rather simple view of the founder was a person who was there on day 1 or before day n. In an Indian context, this word has been imbued with so much more context, that it took me a while to recognize that they are there and to deconvolute them. I suspect, even at the end of this piece, there may be a few loose threads which I hope we can wrap up in discussions and comments.
Out of all of the stumbling, fumbling and plain screwing up that I have done, I have come to put down these four points to discuss with folks who join me in business or I see going into business. Rather than achieving alignment, I find that just raising these itself, is sufficient for people to get that “Oh!” expression and think about it some more.
These include their role as a
founder – a very influential role in vision and culture, with a huge emotional component, but little legal significance beyond what the other roles provide
shareholder as someone who holds a reasonable stake in the company. While usually, founders hold significant shares, others too may be large shareholders
board member legally recognized role as a member of the board of directors; may include executive officers and usually not all founders are members of the board,
operational or day-to-day functional roles as engineering or marketing heads or lead technology person or CEO – the job you are expected to play as a key team member of the startup. These may include founders and will usually be shareholders (or option)
Founder – anyone who joins the company prior to its formation or on its 1st day. This definition is the cleanest that I have found. However all too often, startups—certainly any that I have been involved in—tend to take a while to figure out what they are about. In this phase, which usually is some finite and arbitrary time frame, maybe three or six months, you end up bringing on board others who fill out the founding team. Hence these folks become (co-)founders. If that is all there was to it, I’d have wasted your time reading this far.
Being a founder, brings largely psychic benefits for the foreseeable future, a lot of real expectations (from other founders) and a whole lot of sacrifices when things don’t go well. Sure as a founder, if you own a significant stake in the business you stand to gain a whole lot when the business succeeds but that always seems so far away, that it is better to expect and settle for the psychic benefits. The media in India always like it if you are the founder and happen to be a C-level executive or the tech genius. If, like in many US startups, you are a principal engineer, despite being a founder, not a lot of media people want to talk to you.
Share-holder Prior to being in a startup I had never given this any thought. The Chairman of my previous startup used to often say “We leave our shareholding at home when we come into work,” and I think we all actually believed it. But then again this is easier said than done. I have seen founders and even those amongst the first 10 employees, who owned non-trivial amounts of company stock and were largely in senior individual contributor roles handle this very differently. The extremes, even in my limited experience ranged from the role of a deeply committed statesman to less-than-subtle mini-Carl Icahn in the making.
Board Member or Director – When there are multiple founders, who get to be on the board, what are people’s titles and functional roles become points of heartburn if not stated, discussed and handled up front. Of course, neither the government nor statutory bodies recognize anything called founder, they want to know and care about board members or (founder-) directors (as they are called in the UK or India).
Unlike a founder, a company director, is a recognized statutory role (with its legal repercussions) and often one or all of the founders may start as directors in the company (board). This will change as angels or others invest in the company and take board seats on. Contracts and other legal obligations of the company will be taken on by directors.
To compound matters, the Valley nomenclature has percolated into Indian tech firms so one can be a Director of Engineering or Marketing, and this has nothing to do with being a director in the company. The media seem to prefer talking to the latter and rarely to the former. Which brings us to the matter of functional roles.
Functional roles Startups, particularly ones that survive and thrive grow faster than the founders will necessarily grow. This means a founder who started as Director of Engineering, may end up being program manager or business development manager, whilst someone who has actually managed a 200 person engineering team may come on board as the VP or Director of Engineering. Only one or two of the founders may remain on the management team of the growing company, whilst other will have individual roles or functional manager roles. This whilst easily stated may not be palatable to all founders, who may only then realize they had different dreams or desires.
If all founders were aware of these four distinct roles that they can play, it would help matters a whole lot. If their identities and egos are excessively tied to their titles and functional roles, the decisions they make may not always serve the company, and therefore their own self-interest well.
Business is a whole lot more fun when done with others, especially with a good, strong founding team. The funny thing is that in the heady days when you start, all this seems so academic, distant and meaningless. And it matters little when you are cash-strapped, busting your rear to get the product out the door, finding customers and trying to keep your head above the water. But if you don’t think and more importantly talk and align with these roles and our own expectations, in those early days, this can at the very least cause some major heartache and at the worst cause things to implode, when you actually have a real business, money in the bank and prospective investors or buyers looming.
Share with me your own experiences as a founder or as a witness or participant in founder feuds!
“We’d like you to come on board as a founder.” After the first few seconds of excitement and dare I say, exhilaration, reality sets in. “Can you explain to me what being a founder means?” Does being a founder mean, like a parent, being present when conceived? And will it seem much like a parent, largely thankless, picking up things behind your offspring and acting as a source of funding for them? Sure you feel good about that first finger-painting up on the refrigerator, or the #1 Dad doodad on your office wall. But when you are up mopping their vomit or worse and staying up all night hoping the fever will subside is it worth the trouble?
My answer is a resounding yes!
And its always better to found a company with others than by yourself. With that said, it’s worth keeping in mind, your co-founders are likely where you will get grief when you least expect it. In almost every startup I have been part of, founders falling by the wayside has been a feature. Before you conclude the problem was me, I am in good company. When Paul Graham spoke at the recent Startup School 09 – he pointed that all the entrepreneurs he spoke to felt picking the right (or rather not picking the wrong) co-founder was the most important lesson they learned.
The toughest lessons I learnt about co-founders, was there can be so many unstated expectations, particularly when it comes to issues around your own evolving roles. Founder, partner, core team member, executive management – words that initially are used interchangeably and seem just so many words. Yet they have so many different meanings and nuances, as I learnt the hard way. Having been a part of five start ups, two as founder and three as early-to-late senior staff or management member, I have been at all ends of this expectation spectrum.
I’ve loved being a founder and will share the ways I have found to deal with the finding, keeping and savouring co-founders in my upcoming post. Share with me your experience with being a founder, what it meant to you and why you would or wouldn’t do it again!
We’ve all read of horror stories of VCs forcing actions leading founders to leave their companies. But are there reasons for a founder to leave voluntarily or being asked to leave by other founders or the management team? Many a times, the answer is yes.
When people set out to start a business, a few jump in with little planning. Most though, do so after much forethought. Even when a good deal of planning has gone into starting a company, it is the rare entrepreneur who has actually thought about a scenario in which the founder leaves.
I realise that the very thought may sound nihilistic to some readers — can there be a start-up without the founder or can start-ups that survive without the founder do well or at the very least exist meaningfully?
The answer to both questions fortunately is yes. Apple is probably the best illustration of this, with Steve Wozniak leaving to pursue other interests and Steve Jobs being ousted by John Sculley – so not one, but both founders left (or had to leave). Of course Jobs’ return and subsequent success is a matter for another article altogether.
So what should a founder or founding team consider about the possibility of one or more founders leaving, voluntarily or otherwise, the company they founded? Is this inevitable? Can this be avoided? Or should this be planned for and if so how?
Before we examine these questions, it’s worth reflecting that few companies — Microsoft under Bill Gates or Dell Computer under Michael Dell being the exceptions — survive, grow and actually thrive under the same helmsman from founding to widely acclaimed success. Change at the top is more the norm than the exception. However start-ups, particularly in their early days, are so closely identified with their founders — and founders with their companies — the change, of a founder leaving or being asked to leave, can be traumatic. So it is best planned for and, hopefully, never actually encountered.
I remember the day when one of my partners informed me that another of our founding team (there were five of us founders) wanted to quit. We had not been at it for a year and the fire of a new adventure still burned in our heart and flushed our cheeks — so it came as a shock!
In this instance, the issue was one of personal belief regarding religion in the workplace. I am not sure, to that day, we had even thought about religion (or its absence in my view and excessive presence in the departing partner’s view). This is an instance where a founder wanted to leave voluntarily as he felt there was an irreconcilable difference in personal beliefs.
There can be numerous reasons for a founder to leave voluntarily, many of which may have nothing to do with the business itself — family commitments (wife wants to relocate) or health reasons (allergies in Bangalore) are examples.
Of course, there could be several other reasons — loss of faith in business partners; the gradual realisation that a start-up is not for him or her; or the thought of a Web-based cobbler service no longer exciting them — there are as many reasons for a founder to leave as there are people.
Having an inter se — Latin for “between or amongst themselves” — agreement amongst the founding team members is the best way to prepare for this eventuality. While the heartache that follows the departure of a founder may take time to dissipate, such an agreement will minimise the business impact. Also, the fact that such an agreement is in place prepares the concerned parties to consider the possibility of a founder leaving and address the potential causes up-front.
A good inter se agreement would at the least cover issues pertaining to shareholding: Do insiders or the company get first right of refusal? Will the leaving partner be permitted to still hold some or all of his or her shares? If so, will he or she retain voting rights? If the company bought the shares, how would these be valued? What would the payment terms be? How would the death (strictly speaking this would be an involuntary departure) of a partner be handled?
A good corporate lawyer would be able to pull together a reasonably well thought out inter se agreement. Most people are comfortable having health insurance and don’t blame it as the cause when they fall sick. However, many folk balk at having an inter se agreement believing this may sow the seeds for the undesirable to happen.
As someone who’s been there more than once, I would say that you are better of thinking and planning for all eventualities and this will never be the cause of a partner leaving. And you will be glad it is in place, when they do actually leave.
Forced to Leave
There are primarily two different stakeholders — the Board of Directors and the management team — who may force a founder to leave.
In venture-funded companies — most of which have active boards — the board could be the primary driver for change, particularly if a founder is the CEO of the company. This could arise for good reason — if the company is growing faster than the CEO/founder is, someone else should be brought in as a replacement.
The founder, in this instance, could then focus on other areas such as key technology, marketing or other contributions.But if he is not prepared for the shift, he may be asked to leave.
Alternately, a founder may be asked to leave for not-so-good reasons such as having rubbed powerful board members the wrong way.
For such founder/CEOs of venture-backed companies, having an explicit employment agreement could avert dismissal under unfavourable terms or without cause.
The other founders or management team, particularly in closely held start-ups, can also force a founder to leave.
Again, the reasons could range from the appropriate, namely incompetence, unethical behaviour or sexual harassment, to the inappropriate — politicking with other members of the founding or senior team in the company.
The best way to address this is to have a clearly spelt out code of conduct, periodic performance reviews (including peer feedback) and open communication so that there are no surprises.
The inter se agreement is once again a good safety net for all parties in this instance.
Asked to leave
This is the hardest thing to both plan for and execute. While asking a founder to leave may not sound that different from forcing them to leave, it is not trivial and is the most likely of the three situations an entrepreneur will be faced with.
When a founder is caught stealing, for instance, the decision can be black-and-white and he can be terminated or forced to leave.
However, it is much harder to confront and tackle issues that have to do with cultural mismatch or personal behaviour that, while legal, show poor judgment or the more common issue of self aggrandisement at the cost of the company or its employees.
The best way to address this situation is to ask ourselves the question, if the person doing this was an employee or anyone other than a founder, would they be asked to leave. If the answer is ‘yes’ for an employee, it ought to be ‘yes’ for a founder.
This is, of course, easier said than done — for founders have great emotive appeal — to the rest of the company, the community and, of course, to themselves!
However, as our mothers taught us, a stitch in time, does indeed, save nine!
Here experience and my scuffed knees speak — all those start-ups that avoid confronting this sooner, end up regretting it later.
(This article was published in the Business Line print edition dated December 15, 2008)
Should I start my own business?” If you have ever found yourself asking this question, you are not alone. And rarely does this question arise by itself — on its heels, many more rush in. “How do I know it’s the right thing? What’s the first thing I should do?” A simple search on Amazon or Google with the words “Starting your own business” provides 738 books and over a million hits respectively — in a sense, this choice of plenty only seems to add more questions beginning with, ‘Where do I start?’ The best answer to this question is the simple one — start with yourself!
Before you try to figure out, “How do I raise money, or should I get a patent first or do I need partners?” the first step to answer the question should you even start your own business, is to better understand yourself. While some reflection is needed, this is not so much a philosophical or metaphysical exercise as much as answering three simple questions about yourself. You may have never taken the time to think about it and even if you have asked yourself one or more of these questions, never had the opportunity to step back and answer them. Certainly, once you start your own business, you will not have the luxury of time to answer these in any detail.
N.S. Raghavan, former joint managing director and one of the founders of Infosys, narrates a story about a young man who approached him seeking advice. “I have a job offer from Infosys and an option to start my own business — what do you think I should do?” When Raghavan responded, “Take the job with Infosys,” the youngster was taken aback. In Raghavan’s words, “If you are an entrepreneur, starting a business is not an option that you consider alongside taking a job — you’d just do it!” To dive in, or to ‘Just do it!’, as the ad exhorts us, is easy — staying the course, not drowning and not ruing it along the way — is the hard part. Let’s ask ourselves those three simple questions.
Passion Ask yourself, “Do I feel passionate about this? Will I feel as passionate about this a week from now? A year or five years from now?” If the answer is anything other than yes, you might want to keep that resume polished. When you ask yourself, “Do I feel passionate about this?” — ‘this’ could be a product — a low maintenance, low-cost, yet effective water purifier that four-fifths of the world needs; it could be a service — ball room dancing instruction for high-schoolers; it could be a concept — helping farmers in your hometown reach customers worldwide directly — or nearly evangelical — fresh water to every village in your state/country — it could be anything, as long as the fire of passion within you burns undiminished for long periods with little or no kindling. This is a good question to ask first and have answered in the affirmative before starting your own business. Do not confuse passion with being right or knowing something — passion is primarily believing and wanting. Once you start your business, you will learn more ways of being wrong than you’d thought possible.
Risk-taking Being an entrepreneur, which is what you’d be if you start a business, is a risky proposition — probably not as risky as skydiving or crossing a busy road in Bangalore during the evening commute. Most businesses last longer than a skydive and are fraught with challenges. So the next question to ask yourself is how risk averse you are.
Risk means many things to many people. Most people think primarily of financial risk — this, while certainly measurable, may be the least important. Often there will be others to bear the financial risk with you.
However, the time you personally invest, the emotional energy that would be required of you individually and most importantly, your self-worth, will be the bigger risks you will be taking.
These will be largely immeasurable but have far greater import on the rest of your life. So if you have never taken off for the weekend on a whim, usually get to the airport three hours ahead of schedule and have never run a yellow light, it is worth figuring out what your risk appetite is.
Perseverance Call it whatever you want — doggedness, perseverance or relentlessness — to be an entrepreneur means continuing in the face of constant discouragement by the world around you.
Often it would seem as though everyone but you feels it makes no sense to continue and yet you persist. Investment bankers who have yet to begin shaving will offer you advice. Your spouse, your engineering manager (and her spouse), that cheeky long-haired fellow in customer support not to mention your suppliers and even customers will question, critique and challenge you.
So if you haven’t been called pig-headed more than once in your life or find you cannot last through one session of working through the “simple” income-tax form or are discouraged by having to make the same presentation for the 17th time, some work may be needed in this area.
If you answered in the affirmative to the passion and perseverance questions, you are ready to start a business.
Should you actually start one, your chances of being successful at it or even enjoying the journey, will be determined by your answer to the risk-taking question. Luckily, for us, unlike the Prince of Denmark, it’s a little easier to answer the question, “To begin or not to begin?”
This article first appeared in the Hindu Business Line dated December 17, 2007
Over the last several years, I have written about startups, entrepreneurship and business in general in the Hindu BizLine and Wall St. Journal. I have compiled these for easy access in the column below.