The Hindu Business Line : Scoring in the second innings

Most founders of small businesses tend to stay with their small scale of operations. They operate their corner store through their lifetimes, and are content to leave it to the next generation when they pass on. Those few who manage to build their business into an empire reveal a special ability to articulate a vision, and to implement it.

This requires an additional skill of being able to share the decision-making authority with a large number of people, whose help they need to carry out their vision. While they stick to vision and strategy, they leave operations to others to execute. As time passes on, with their vision well-grounded, the empire builders can truly retire.

Yet, for some founders, that sense of commitment to their vision can make them return for a second innings to ‘set things right.’ Steve Jobs is a successful case of a co-founder, of Apple Inc, who returned to create a glorious second innings at the company, that seeks to constantly redefine the possibilities of innovation at the intersection of entertainment, electronics, and communication.

The Nike run

Phil Knight made history when, as co-founder of Nike Inc, he created an athletic footwear company while leading a new specialised industry, and grew to dominate it globally.

His strategy of innovating high performance footwear to meet the needs of specialised sports, and then using high-profile athletes to endorse his products, made his footwear the one every one wanted to wear. Starting in 1964, the company grew to about $12 billion (Rs 51,000 crore) in 2004, when he felt confident enough to let go the reins and step down as CEO even while continuing as Chairman of the company. But his hand-picked successor could not stay for more than two years as CEO.

When the CEO left in 2006, he gave as his reasons that he and Knight ‘weren’t entirely aligned on some aspects of how to best lead the company.’ The continuance of the founder on the board still articulating a vision for the company can certainly place constraints on followers.

Howard Schultz began with a vision to reproduce, on a mass scale, the atmosphere of the friendly coffee shops he saw in Milan, Italy. These were not just places that sold coffee but places that created an atmosphere where people enjoyed consuming good coffee. When his employer did not appreciate the idea, Schulz went off on his own to start such coffee shops and built up the Starbucks empire of over 15,000 shops in 37 countries.

Along the way, his vision constantly made him restate that it was not just selling coffee but creating an ambience. Customers could linger and connect to the Internet while they drank coffee. Soft music did not just play in the background but could be purchased and stores provided facilities for patrons to record music.

The baristas were knowledgeable about the product. As the chain grew, Schulz decided to step down from the CEO position in 2000 while staying on as Chairman.

Then, storm clouds gathered. Sales slowed, with competition and over-expansion taking its toll. The share price fell, and Schulz began to be bothered that the smell of sandwiches that were being sold in the shops was overpowering that of coffee! He decided to jump back into the saddle as CEO in the beginning of 2008. He has slowed down the growth of the company, and is trying to re-focus the business to its core.

Meanwhile, a corporate raider is waiting at the door, having acquired stock in the company, and is putting pressure on Schulz to improve performance or lose control. Schulz’s second innings is not just going to be one of inspiring his executives to create an ambience for good coffee, but will also include satisfying external investor demands on corporate performance.

The Yang story

Another founder who, like Schulz, is trying to deal with stagnating performance in the face of external threat to his position, is Jerry Yang of Yahoo!. Yang, a co-founder who was a member of the board, was brought in as CEO in 2007 when the Board was not too happy with the leadership of Terry Semel and the direction he was taking the company. Semel, with a background in the entertainment industry, was betting that providing content was important for the company.

As the stock price continued to sink, the pressure to re-focus the company was becoming louder. Yang’s taking charge led to a lot of hope within the company that expected him to bring back the charm of innovation and creativity that the company was known for. Although he was a co-founder, he had not been a CEO previously, and so it is a different second innings.

With Google growing in leaps and bounds in meeting the needs for Internet search and related advertising revenue, Yang was now faced with new benchmarks, and a very different environment from when he founded the company. On top of it all, he was quickly faced with the unwanted advances of Microsoft that won’t go away. It first wanted to acquire Yahoo! and when rebuffed, it wants to build an alliance. Meanwhile, he is now faced with a corporate raider in the form of Carl Icahn who has taken an equity position in the company and wants to replace the board.

This second innings is not going to require technical or product innovation skills, but the creativity and cunning of corporate strategy, dealing with investors, and manoeuvring to position his creation in a turbulent market environment.

Founder leaders usually have a cult following within the organisation. Not only is it difficult for them to let go their creation, many employees are apprehensive whether others will be able to manage the same magic.

When the founders step down and remain as Chairman or perhaps stay on the board, there is a feeling of comfort that they are around to keep an eye. But since the separation is not clean, it also puts pressure on their successors and may often restrain them from bold decisions, with the founder watching from a position of power.

When things don’t go so well and the founder steps back into the driving seat, then the expectations of the founder are even higher. After all, they have taken on the mantle of the white knight, coming in to the rescue. They must now live up to the reverence. Employees hang onto their every word.

Criticisms and new ideas may dry up as people begin to think like the boss, and try to second-guess what it is he would want done. Perhaps Schulz, Knight, and Yang need to attend a seminar run by Jobs. The second innings is going to be tougher than the first but it can be done.

(The author is a professor of international business and strategic management at Suffolk University, Boston, US. He can be reached at cgopinat@suffolk.edu)

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