Why a Founder would want to Leave Post Takeover?

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“A founder can carry an institution only so far, and then others have to step in, even the alumni. That’s how an institution becomes one.” – Shiv Nadar


Introduction

Entrepreneurs are usually known to seek external capital and support to hasten their growth. This system is true especially in markets that are hotly contested and where fast growth can turn out to be the difference between success and failure. Yet these outside funding or cash inflows will most possibly come with strings attached, which can prove to be a pause for the entrepreneurs. Founders will possibly find their influence diluted, in terms of both financial equity and their control over the BOD. They may also find themselves out of a job if their investors decide to fire them and find a replacement.

It is every entrepreneur’s dream to make his company success and a profitable takeover could mean just that. The founders get huge mountains of money in some cases but grass always looks greener on the other side. A founder may find himself out of the company that he brought on his shoulder since its inception or the terms of the takeover barbaric.

Between 20% and 40% of founders are not found on the same position and are typically displaced by a more experienced executive who might have more experience and is better positioned to provide the company for the purchase or the IPO market.

There are several reasons due to which the founders either feel the need to leave the company or are pushed out. It can range from the fact that the originator is no longer excited to carry on to him being forced to renounce whatever control that is left with him after the completion of the takeover. It can be said that once a company has been taken over by another corporation the founders of the previous company find themselves in trouble. Mentioned below are some of the reasons why a founder might leave after a takeover:

They are not able to manage the transition

Entrepreneurs who are founders are intrinsically unique creatures. The best ones are ordinarily critical thinkers who have a balanced amount of fear coupled with unyielding optimism and an excellent work ethic. They are masters in their fields and are excellent leaders. They have it in themselves to sell their goods in the market and become its leaders as well. Founders of such nature and quality are more than capable to do it all on their own.

But it has to be noticed that they love their objectivity and often they don’t want to continue after their company has been taken over. The founders after struggling for so long in a particular field grow accustomed to it and most of the times only want to do the same kind of work in the future as well. It does not mean whether it is the technical side of the work or the amazing marketing skills that are being put to use. They have regularly grown accustomed to the work and mainly love doing so even after the takeover.

Due to these speculations founders who have lifted their ‘brain-child’ businesses on their shoulders for a substantial amount of time often find it difficult to fit in and step in the shoes as of the business matures. They principally want to remain as innovators and are reluctant to take on the role of a businessman. Due to this ground many a time they plan to opt out of the business and leave the company once it has been successfully taken over.

They are not able to adjust to not being in charge

The founder is almost always the obvious leader of his team. He is used to giving orders and having absolute power to make decisions as to how to move forward in the business and what is best for the company. But once a corporation is taken over by a larger company, this power goes away. The founder abruptly becomes a part of the company and loses its complete independence. He can no longer take decisions on his own and is abruptly answerable for whatever decisions that he does get to make.

The perfect illustration of the above-mentioned reason is the recent resignation of the Instagram co-founders CEO Kevin Systrom and CTO Mike Krieger. They have given a statement that they shall be dropping Facebook. In recent times, it has also come to light the Facebook CEO Mark Zuckerburg and Systrom have not been getting along as Instagram’ autonomy has diminished since the past few months. This explains that the founders as more often more than not able to adjust in someone else’s kingdom. The founders grow frequently frustrated by their sudden lack of influence. All they have thought of because the inception of their brainchild is its welfare. But the acquiring company’s agenda is bound to be different. They shall trouble the whole venture rather than the acquired company that only forms as a part of the whole. The acquiring company can’t single out the welfare of the company it has taken over and that can prove to be a point of clash amidst the founders and the owners of the new company.

The company is no longer interested in the founder

When a company is obtained by another company sometimes the acquiring company is no longer interested to retain one or more founders. The issue can range from ideological or structural clash or it may turn out that the acquiring company does not see any viability to hold on to one or more than one founder. In many circumstances, the company is only interested in acquiring another business and not the baggage in the form of the founders.

The identical can be seen in the case of the very recent Flipkart-Walmart merger. Once the deal was in its last leg one of the founders of the company i.e., Sachin Bansal had to leave his own corporation. Walmart has acquired a 77% stake in the company. This turned them the preponderance stakeholder in the company. Soon it became evident that the whole time Walmart was only interested in keeping one of the founders only i.e.Binny Bansal as till this sudden revelation there were no indications that Sachin Bansal had any plans or meant to quit the company he had raised from the ground after the completion of the said deal. Walmart had always backed Binny Bansal and the company’s CEO. It was also being told that Sachin Bansal was also thinking to increase his stake in the company by purchasing more shares and solidifying his position but rather he had to sell his complete share in the company and also quit his position.

This tells us that an acquiring company usually makes such fundamental changes after the takeover deal has gone through and hence can threaten the position of the founders which can, in the end, lead to the resignation or shunting out of the founder.

The founders like starting things, not running them

Entrepreneurs make, it is what they do. It does not take place to be a switch that they can easily turn it off, it is part of their DNA and a part of who they essentially are. Just so they had achieved with their startup and earn a lot of money through a takeover deal does not mean that their aim to create also goes away.  It doesn’t mean that the founder has to take himself out of his comfort zone. If anything, once their purpose to make their venture a success has completed it becomes accelerated as they suddenly have enough time to think about their next move. In many cases, people will ask you to stay on board and be secured in your current situation and may present opportunities and partnership ideas. One may be asked to sit and be a part of multiple boards, help in the running of the run industry organizations, or a host a number of other things.

Because of these reasons, many founders quit their companies during or after the completion of the deal to start something new. They aren’t interested in running or managing the new company but are ready to come up with some new ideas. They are happy with the way their company turned out to be and many also know when it is time to move on new things.


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