Year-end cautions for restless entrepreneurs

20th December 2018 BUSINESS STANDARDD Entrepreneurship is positive for economic development, but the process is at its infancy in India. Hence, a few symptoms of aberrant behavior among founders are natural. If they persist, they could signal an approaching problem.

20th December 2018 BUSINESS STANDARD

R. Gopalakrishnan*

(*The writer is a corporate advisor and Distinguished Professor of IIT Kharagpur. His new book titled “CRASH: lessons from the rise and exit of CEOs”, has just been published by Penguin Random House in December, 2018.

Email: rgopal@themindworks.me

Entrepreneurship is positive for economic development, but the process is at its infancy in India. Hence, a few symptoms of aberrant behavior among founders are natural. If they persist, they could signal an approaching problem. This article highlights five symptoms that bright, young founders should minimize, if not avoid.

The average age of founders in India is a decade younger than in the US. The relative inexperience of founders in India, despite their advantage of adaptability and intelligence, shows up in tacit areas like listening skills, human relationships, coping with setbacks, giving importance to governance etc. Young entrepreneurs should protect against these ‘bugs in the air that they breathe’. A startup director or funder should have the maturity and wisdom to guide the entrepreneur’s behavior.

Only one in ten thousand entrepreneurs becomes a Steve Jobs, so emulating Jobs in dress or behavior is counter-productive. No entrepreneur sets out to be fraudulent, but some may stray into such paths while intensely pursuing their ambitions. Entrepreneurs reveal signals called prodromal signals–just like dark clouds and gusty winds predict an approaching storm. If certain behavioral signals abound and persist, then fund providers and directors need to consider correction. Though the cases of Theranos and Juceiro are extreme, they demonstrate how events can cascade rapidly into disaster.

Theranos represents an unfortunate case of hubris, lying and opacity as narrated by John Carrerou in his book Bad Blood. Founder Elizabeth Holmes grew up in a wealthy family; she grew up being obsessive, constantly hearing stories about greatness. Early in life, she figured that she wanted to make lots of money. She displayed excessive competitiveness which manifested as tantrums with peers. She had a personal phobia of needles used to draw blood, so she diligently developed a distinctive idea that multiple tests could be done with just a pin prick of blood. Elizabeth dropped out of Stanford, an act that is associated with entrepreneurial brilliance by some! She wore turtle neck shirts, emulating Steve Jobs.

Being pushy and well-networked, she leveraged her family connections to raise initial funds. Later she interacted with VCs, with whom, she resented probing questions about her technology—she got up and left in a huff when searching questions were posed by MedVenture experts. As Theranos grew, she became unnaturally secretive—even casual visitors to the company had to sign non-disclosure agreements. Jeff Hunter, a technical specialist, on a Walgreens delegation, was literally accompanied to the toilet to prevent his eyes straying around! (Walgreens was being wooed as a potential ally and partner)

A few employees met the board Chairman to express concerns about the lack of ethics and presence of excessive bluster that was prevalent in the company. He had already heard some rumblings. He quickly met co-directors, who all reached a consensus that Elizabeth should step down from being CEO because she was too inexperienced. They even communicated the board’s decision to Elizabeth Holmes. Quite surprisingly and remarkably, she sweet-talked the directors to change their minds. The directors failed in the old adage that when you strike at the king, you must kill him without chances.

Theranos achieved a valuation of $ 11 billion before it fell on its own sword. Elizabeth Holmes controlled a board of marquee names like Henry Kissinger, Sam Nunn and William Perry. As events panned out, she was indicted for blatant lying even while her company attracted increasing valuations by frenzied investors. She was a charmer of an exceptional quality.

Juicero, a Silicon Valley startup, was founded by Doug Evans. The founder often compared himself to Steve Jobs. The company was launched in June 2016 and closed down in September 2017 after a flattering profile in New York Times and funding from the likes of Kleiner Perkins and Google Ventures. It had a self-obsessed, aggressive founder. It remains a symbol of the Valley startup culture that raises huge sums of money for solving non-problems.

Drawing from my own observations and anecdotal experiences, prodromal behaviors of large company CEOs and startup founders bear some resemblance. There are five debilitating signals to be watchful for: (i) unwillingness or inability to simplify, (ii) unwarranted confidence, (iii) slick-talking istead of listening, (iv) name dropping and, lastly, talking down to associates. Caveat emptor.

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