Insights In Hindsight - Edition 6

How to Reduce Dependency on Founding Teams in Growing Organizations

Many may already know that since 2022, every year, January 16 is celebrated as “National Startup Day ” in India. As the third largest start-up ecosystem in the world, just behind US and China, India boasts around 80,152 start-ups , officially recognized by the Department for Promotion of Industry and Internal Trade (DPIIT), with around 107 companies in the class of unicorns (valuation of $1 billion+). ?

In the early years of the inception of a start-up, it is natural for the founding team to be involved in all aspects of the business. Whether it is developing the organization's values and culture, perfecting the products/ services/ operations, hiring and retaining talent, or nurturing customer relationships, this team performs innumerable roles to build the business from the ground up. Hence, it is fair to say that nobody else would know the business, the customers, the processes, or the organizational dynamics as much as the founding teams do.

While a strong and focused founding team is an essential element of high-growth start-up organizations, it is important to remember that without proactive interventions, many such companies could face the “founder dependence” challenge.?

Founder Dependence May be More Prevalent than We Realize ?

Founder dependence is a company’s inability to function successfully without constant inputs and supervision from its founding members. In the early years of a business, this is inevitable. Either because the founding team prefers to remain heavily involved in all areas of the business, or because they need to keep the initial costs and overheads low by not hiring additional personnel. However, if this continues to be an issue even after the business grows and matures, there may be other reasons at play. It could be due to a lack of talented employees, insufficient knowledge transfer or documentation, poor delegation, inability to reduce personal involvement or give up direct control, and more. In more severe cases, it could be the result of a weak business foundation that was over-reliant on the founding team’s ideas and vision. ?

A few years ago, US-based Pinnacle Equity Solutions, a leader in business transition planning studied 560 organizations with their proprietary tool, Owner Dependence IndexTM, and found that companies are 52% dependent on the individual efforts of their respective owners/ founders. Closer to home, we may not have specific data on founder dependence, but it is highly possible within a start-up ecosystem of our size.?

Is Your Business All About You and Your Co-founders??

As founding members of high-growth organizations, here are some scenarios to consider.

-???????Do you think nobody else knows your company as well as you and your co-founders?

-???????Is the founding team the key reason for the company’s ongoing growth?

-???????Do the processes that make your business tick reside solely in the minds of the founders?

-???????Is the founding team’s involvement absolutely imperative in completing day-to-day operations?

-???????Is the founding team’s presence or influence the sole reason for sustenance or deepening of customer relationships? ?

Answering “yes” to most of these questions would mean the business is over-reliant on its founding team, and likely to decline or fail in the event of a transition of ownership.?

Proactively De-Risk Founding Team Dependence?

In high-growth organizations, it is quite difficult for the founding team to extract themselves in a meaningful way, without impacting the business. But the below steps are absolutely imperative to de-risk founding team dependence.?????

• Build Your Management Team: Pick people who are better than you at building a robust management team! In addition to sharing your vision and passion for the business, you should be able to contribute ideas and hard work, take responsibility for long-term business growth, and be ready to lead in the event of the sudden demise or departure of a founding team member.
• Delegate-Delegate-Delegate! Acquiring the right talent is a critical first step, but there is nothing more important than delegation for addressing founder dependence in your business. Empower your teams, and decentralize decision-making, as we all problem-solving. Redirect customer interactions, even if things keep falling back into your lap initially.

Pick people who are better than you at building a robust management team! Acquiring the right talent is a critical first step but there is nothing more important than delegation for addressing founder dependence in your business.?

• Talk up the Team: Invest time and effort in mentoring, coaching, and developing your management team, ensuring active engagement with the business strategy. When they make good progress, talk them up in front of your clients and employees. Endorsing their knowledge, experience, and expertise will not only build up the team’s confidence and capabilities but also assure current and potential clients/investors that the future of your business is secure with or without your presence.
• Document Key Information and Insights: Do not underestimate the power of the learnings or insights that you and your co-founders gain through the actual business transactions and client interactions. You may understand what worked well or what did not in different situations, but it is equally important that you document such instances and pass on that knowledge and experience to your teams. Start-ups with a strong knowledge-sharing and learning mindset always tend to perform better than those where the founding teams hold all the answers close to their chest.?

Do not underestimate the power of the learnings or insights that you and your co-founders gain through actual business transactions and client interactions. Start-ups with a strong knowledge sharing and learning mindset always tend to perform better than those where the founding teams hold all the answers close to their chest.?

• Build for Transition: Although every start-up may not be aim for venture-funded growth or public listing, every founding team needs to build with exit in mind. It may not happen over the next several years, or never happen at all. But adopting a business continuity approach will ensure that you build effective teams, processes, and practices and effectively de-risk all aspects of founder dependence.?

#founderdependence #foundingteam #startupecosystem #deriskfoundingteamdependence #delegation

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Updates From Practus        

We Practusians recently gathered together for two and a half days, for our offsite, Shoonya. In Sanskrit, Shoonya implies the origination of possibilities and infinite opportunities! That is the outlook we wanted to imbibe in our thought process. Shoonya was largely structured as working sessions. It was enriching and fulfilling as we focused on ideation and collaboration, and debate and discussion.

That's all for this month! See you all next month!