When Should Entrepreneurs Transition to Next Generation of Leaders

Why do Entrepreneurs Exit ?

Entrepreneurs launch new ventures some of which go on to become successful and game changing businesses. When the ventures become hits in their own right, some entrepreneurs hand over the reins to others whereas some sell their ventures or their stakes to other investors and businesspersons. Think of Sabeer Bhatia who launched Hotmail which was subsequently bought over by Microsoft. Hotmail was indeed a game changer wherein Bhatia brought to fruition the world’s first free web based email service. This was a classic example of an entrepreneur who was impatient to launch other ideas and ventures though it needs to be mentioned that Bhatia did not taste the heady success that he had with Hotmail.

Entrepreneurs who do not Exit

Of course, this example cannot be generalized to all entrepreneurs as many of them manage their ventures well into decades. For instance, Bill Gates of Microsoft is an example of an entrepreneur who managed it for decades before transitioning to the next generation of leaders. The reason for choosing these two examples is because they show how some entrepreneurs look for other ideas and to start new ventures whereas other entrepreneurs are content with managing the ventures that they helped incubate and bring to market.

In other words, the question as to when should entrepreneurs exit their ventures if they do at all and the question as to when should they transition to new leaders and the next generation is something that depends on a combination of factors.

When is the Right Time to Exit ?

For instance, it was recently announced that the Indian IT (Information Technology) bellwether, Infosys, would no longer have any of the founders in executive positions and instead, the appointment of a non-founder as CEO (Chief Executive Officer) was supposed to mark the transition from the entrepreneurs to professionals from outside. Indeed, this decision was also accompanied by an announcement that the founders would no longer be called promoters and that henceforth; they would be treated as any other shareholders. The case of Infosys is an example of how the founders and promoters of successful ventures often face the dilemma of when to exit their ventures.

The need for Self Actualization

Indeed, except for family owned enterprises such as Fidelity, TATA group, and to a certain extent, the Reliance conglomerate, it is often the case that there comes a time in the evolution of businesses where the promoters and the founders feel that they have done their bit and hence, it is time to move on. In some cases such as Sabeer Bhatia, it is the thrill of launching new ventures again and again whereas in other cases, it is for the reason that many entrepreneurs would like to become angel investors and Sherpa’s for the younger generation. This desire corresponds to the Self Actualization phase of the Maslow Needs Hierarchy model wherein the entrepreneurs feel that they have to become social champions and visionaries wherein their ideals can be used for the benefit of society rather than only for the firms that they have founded.

Entrepreneurs being forced out

Having said that, it must also be noted that some entrepreneurs are literally forced out of their positions because the investors and other board members feel the need for new faces in addition to corporate intrigues which are done by stealth. Think of the late legendary Steve Jobs who in his first stint at Apple was forced to leave though what happened subsequently was that he was brought back to turnaround the firm. Indeed, Jobs had the last laugh (literally and figuratively) as he engineered the transformation of Apple into the world’s largest company by market capitalization.

Continuing the same point, there are other cases of entrepreneurs who have been edged out of their positions as promoters and founders. The reasons for this range from non-performance or simply the feeling that “he or she has lost their touch” and the aspect of the institutional investors insisting on professional management rather than family ownership. The lesson for us here is that it is better for entrepreneurs to quit or exit the firms when the going is good instead of clinging on to their positions and being forced out or realizing that they cannot add value anymore.

Divergence between Founders vision and Ground Realities

Another reason for such exits is that when the firms become too large or big, the vision of the founders and the ground realities in them become so divorced from each other that the founders realize that it is time for them to move on. This was the case with Infosys wherein it became a behemoth where ground realities were vastly different from what the founders wanted in recent years. Despite the best efforts of many stakeholders of Infosys, the realization that it was time to move on finally dawned on all concerned. This was driven by the fact that Infosys was widely perceived to have lost its Mojo because of this divergence.

Conclusion

Finally, some entrepreneurs plan the transition to the next generation well in advance and though this is an ideal that few can match, nonetheless, many experts believe that this is the best course of action for all concerned. Though examples of this kind of transition are rare, it has been known to happen in earlier decades wherein firms such as Unilever and Proctor and Gamble witnessed transitions from the founders to the next generation that was not a result of corporate battles but was instead driven by a conscious decision on part of the founders.