Sunday, May 1, 2011

Friendship as the Foundation of a Firm: A Hypothesis of Enterprise Genesis and Growth

Some of the best firms in the industry have been set up by longstanding friends with complementary strengths and shared vision. Classic examples are Microsoft co-founded in 1975 by Paul Allen and Bill Gates, Google co-founded in 1998 by Larry Page and Sergey Brin and Facebook co-founded in 2004 by Mark Zuckerberg with Dustin Maskovitz, Eduardo Saverin and Chris Hughes. The founders in these and such other cases have been friends from college days or university days; in some cases with friendship starting from childhood. India has its own iconic models of friends coming together to establish great firms. Infosys, co-founded in 1981 by N R Narayana Murthy with Nandan Nilekani, Chris Gopalakrishnan, S D Shibulal, K Dinesh, Ashok Arora and N S Raghavan is one such great example. Orchid Chemicals & Pharmaceuticals founded in 1992 by K Raghavendra Rao with a team of close friends and Allsec Technologies co-founded in 1998 by Saravanan and Jagdish are two other examples where professional associates who were more of friends got together to launch new firms. In a different context, Larry Ellison, the CEO of Oracle hired his friend Mark Hurd as President and Director on the Board the moment Hurd exited from his CEO position at HP.

Clearly, in each case, quite apart from the technical and commercial brilliance of the founders, the friendship with which they have set up the enterprises has been a solid foundation for the firms’ establishment and growth. In recent weeks and months, however, there have been developments that throw up alternative insights into friendship as a foundation of corporate sustainability and growth. Paul Allen in his book, Idea Man, talks of how Microsoft has not been a completely exhilarating friendship journey for Paul despite the innovative ideas and concepts he thought he brought to the table, relative to a doubting Bill Gates. Infosys in India has recently been shaken by the departure of T V Mohandas Pai who rose to the ranks of top leadership despite not being a part of the original founder-friend group; the reason apparently is that founder-friends continued to hold sway over the chief executive positions by turns. It appears that friendship is yet to be studied either as a foundation of genesis and growth of a firm or as an important constituent of higher echelon organizational behavior.
Foundations of friendship
Most evidence points out that friendship is of utmost value in the establishment and growth of entrepreneurial enterprises. As the examples of Microsoft, Google and Facebook point out, friendship of likeminded students of brilliance provides the requisite reinforcement to test out technical and commercial ideas, create synergy from complementary skill-sets and make sacrifices in a spirit of sharing and caring.  Typically, likeminded friends share the same passion and concern and are driven by similar aspirations. Mark Zuckerberg’s vision was of an open world with free flow of information and complete freedom of social networking. Having computer scientist friends who shared the philosophy helped Mark convert his college level socializing concept at Harvard into a global mega corporation with the world’s largest socialization site. Page and Brin shared research experience as Ph D students at Stanford in search engine technologies, leading to the founding of Google with the objective of placing huge page-ranked quantities of information in the hands of users at the click of a mouse. Allen and Gates, the childhood friends, with their shared and complementary skills in microprocessors and software set up Microsoft to revolutionize personal computing with user friendly, path-breaking operating systems. 
As the anecdote goes, an affront suffered at the hands of an overseas client led Narayana Murthy and six other associate friends to launch Infosys to demonstrate to the world what India’s English speaking techno-analytical talent pool can deliver globally in terms of best-of-breed software solutions. K Raghavendra Rao, with his founding team, coincidentally sought to demonstrate to the world what Indian scientists and technologists can deliver in the highly patent protected field of pharmaceuticals. Allsec Technologies probably was one of the first entrepreneurial enterprises to lead the wave of business process outsourcing into India. As these and several other untold stories of such companies founded on friendship would reveal, simple selflessness, noble aspirations and resolute togetherness bonded the highly skilled founding teams to find winning solutions in each case. It is difficult to hypothesize whether, sans friendship as the key ingredient, any of the entrepreneurial recipes would have ended up with the same astonishing flavor of success each of the firms had in their respective arenas.
Fellowship is not friendship
The industrial world has also examples of professionals who with shared vision have taken charge of spinoffs of assets, divisions and businesses. For example, in the aftermath of scale-down or spinoff of drug discovery activities by global pharmaceutical multinational corporations, scientists working on discovery assets became stakeholders of such newly formed entities to take forward the incomplete vision. Several of them succeeded in further developing the assets and commercializing them. Basilea and Novoxel in Europe and Cerexa and Protez in USA are examples of significant scientific and professional affiliations cementing themselves in a friendly manner into new startup ventures. Several developments in the nascent biopharmaceutical field were also triggered by scientists with experience of fellowship in established companies or academic laboratories teaming up to explore new frontiers of science and commercialization. Similarly, when MNCs disposed off their non-core assets, professionals, who worked on such assets in their previous employment, embarked on a new entrepreneurial journey; they took charge of such new entities and successfully developed them.
Fellowship may lead to friendship but is not necessarily friendship. Fellowship influences sharing of vision with a common work ethic and business aspirations. Longstanding professional associations have succeeded in laying solid foundations of enterprises. Many enterprises founded on fellowship, however, seem to have none of the magic or mystique of friendship driven enterprises. Fellowship based associations even seem to dissolve themselves or morph themselves through sellouts once initial commercialization goals are fulfilled. Friendship founded enterprises, on the other hand, tend to have greater sense of purpose and possess a distinctive even if emotional permanence about them. Professional fellowship fortified with friendship or friendship reinforced with professional affiliation have proved to be much more effective in sustainable bonding and continued coexistence. Pai, for example, has had a great fellowship experience in Infosys but has perhaps not been able to stick together with patience as the founder-friends have been able to. It is not that friendships do not break apart or are not affected by personal vicissitudes or corporate volatility. The breakup that emerged out of Allan’s unfortunate affliction of cancer and the subsequent forging ahead of Bill Gates to build stakeholder value underlines the fact that business could cast a shadow on even the best of friendships. Perhaps, this is one reason why certain deeply drawn friendships try not to get entangled in what they perceive as materialistic business considerations; however, as I postulate herein, such diffidence is not well merited.
Value erosion with pseudo considerations 
Friendship is as much an enabler as a disabler. Competent professionals many times hesitate to join their friends in organizational endeavors on misplaced considerations that friendship sub-optimizes potential for growth. Similarly, needy leaders fail to induct their friends into positions of importance on the false perceptions that such moves could be seen to smack of nepotism. Both believe that friendship prevents questioning of each other for performance. Such erroneous perceptions prevent value that could otherwise have been built with great combinations of talents. Indeed, in colleges, institutions and universities many likeminded friendships emerge amongst the highly talented youngsters, and it is a pity that people prefer to remain as friends rather than launch enterprises with friendship as the foundation of enterprise. Friendship is also not one of equality; it is perfectly equitable for one of the friends who happens to be relatively better skilled or more charismatic to emerge as the first among equals or even as the clear leader.
Despite the virtues that go with friendship as a basis for business genesis and growth, some false positives sully the reputation of friendship. In a corporate or business setting personal loyalty to the leader friend is not a symbol of friendship; rather it is a reflection of pseudo-friendship that abdicates responsibility and advertises loyalty to the leader-friend rather than to his or her company. True friends work towards supporting their friend by better corporate performance than by keeping the friend emotionally or sentimentally happy. Pseudo-friendship typically occurs in models where a business leader hires his friends as his reporting functionaries controlling key domains and other functionaries are engaged in a race for sentimental dominance. The potential for pseudo-friendship is unfortunately multiplied when friends lose the values of friendship competing with the new professional associates or when colleagues who are bound by fellowship seek to position themselves as friends rather unnaturally. A conflict between fellowship and friendship with such false considerations would only damage the corporation.  
Sensitive friendship, aggressive business
Genuine friendship is a complex but a highly durable and reliable human emotion that defies expression. Friendship is recognizing each other’s needs and fulfilling them without expectations. True friendship does not seek recognition or reinforcement. Like a seed that is embedded in earth to grow in its own time, friendship lies embedded in one’s mind and heart to blossom into open and become expressive when the time comes. Once expressed, friendship is never expresses itself, for it seeks no assurance; in fact, friendship is often silently felt rather than openly expressed. Friendship is not always bilateral or reciprocal. It is indeed possible for an individual to develop deep friendship with the other even if the other appreciates or experiences only fellowship. Many times, friendship is a spontaneous resultant of human chemistry. Friendship tends to be so deeply imbedded that even after years of separation genuine friends reconnect as though they have been together all along. Given the above philosophical undertones, friendship is both sacrificial and sensitive. 
Business, on the other hand, is highly practical and often opportunistic. It is materialistic and never sentimental. Business can be, and needs to be, value driven and ethics driven but without acceptable financial results and investor returns business ceases to exist. While friendship is voluntary, spontaneous and multidimensional, business is deliberate, planned and focused. Business rests on accountability for success. In contrast, friendship seeks neither returns nor accountability. While friendship is at best an individual or small group experience, business requires ever-increasing organizational infrastructure to succeed. An inner circle of friendship tends to be a closed circle while a business organization needs to constantly integrate new individuals and talents into it. Individuals in friendship mode never compete; instances, in fact, are aplenty of genuine friends sharing their intellect and wealth with each other as required, without trying to retain such assets with themselves for individual advantage. In business people need to compete and contest with each other as much as they need to collaborate with each other. Prima facie, therefore, business seems to be hardly a place for friends to get together, but is in fact not true.
Superior business, friendship delivered
Despite the apparent contradictions between the emotional characteristics of friendship and objective requirements of business, friendship has an important place in business under certain circumstances. Firstly, there is no better foundation for setting up an entrepreneurial firm than a network of friends. The successful examples cited at the beginning of this post and many others not so prominent in public domain are proof enough of this. An entrepreneurial firm needs shared vision and values, unmitigated commitment and dedication and more importantly working, almost selflessly, for each other. On all these counts friendship endures as the strongest foundation for an entrepreneurial business that is subject to environmental volatility and vicissitudes. In cases where friends bring in complementary skills and strengths as Page and Brin of Google do, friendship remains the most potent driver even as such startups scale up as mega corporations. Even in the Indian context, Infosys has established that friendship of founders is not an impediment for business growth as long as the founder-friends are also highly talented in their own right.
It is not true that collaborative friendship does not support competitive business development. Given that true friendship is non-egoistic, no one in friendship circle feel it hurtful to question or be questioned. In addition, real leaders are expected to conform to McGregor’s Theory Y of self-motivated joyous performance than Theory X of externally driven paid performance. By collaboratively defining respective domains of activity and voluntarily setting aspirations of performance, professional friends can be as much performers as unconnected professionals could be. As an extension, even as business becomes challenging friends can assume responsibilities for new business units and add to business competitiveness without treading on each other’s toes. Neither is it true that friends cannot exist as subordinates. If friendship’s essential characteristic is selfless sacrifice from one or boundless caring from the other it is unclear as how one friend can be diffident about supporting the other. In fact, the considerations of reporting, authority and power are typically a product of independent professional moorings rather than dependent personal friendship. In contrast to fellowship which seeks security of acceptance, friendship enables the founders ideate openly and test out new concepts without any worries about non-acceptance. Friendship enables entrepreneurs and leaders stick together and venture boldly into unexplored areas and establish new paradigms of business. Simplicity of friendship enables them work offline on shared interests or burn midnight oil to come out with new improvisations. Superior business is truly delivered by simplicity of friendship.
Ripple effects of friendship
As people traverse in time through schools, colleges and universities and gain fellowship through organizations over several decades, relationships emerge that are tinged with genuine friendship. Such friends who have complementary skills and shared values are well suited to join together and start ventures that utilize their skills and fulfill their aspirations. A forward looking India set to become the third largest economy of the world offers innumerable opportunities for friendship-driven entrepreneurship. For example, software professionals who have expertise in different kinds of software languages and tools could join together to establish a boutique software firm. Engineers who have design and development as well as manufacturing experience could team up to establish niche engineering firms. Professionals in multiple industries and field could come together to create new products and services of convergence. Childhood friends who branched out into sunrise technologies abroad as they grew up could reconnect and return to their homeland to incubate high technology startups. Fellows of an organization who became genuine friends could move out to take parts of their organization’s value chain as low-cost high technology enterprises. The opportunities could be endless.
Friendship driven entrepreneurial activity certainly requires meritorious capabilities but does not necessarily require complementary skill-sets or professional alignment. It need not also require such friends working together in the same corporate format. For example, professionals who have done well in their careers can support their friends in different domains and fields to establish and grow their distinctive businesses. In such a paradigm, friends who have investible resources become business mentors and angel investors and let their friends become businessmen in their own domains, according to their own capabilities. On a different but an increasingly relevant plane, fellow professionals in business and organizations could reject the temptation of misplaced personal loyalty to leaders as part of commonplace organizational dynamics and instead exercise a transition to genuine friendship through which they can discover that additional magic and build sustainable value for the organizations.
India is widely recognized today for the great talent that graduates from its educational institutions and gains professional experience in the industry and business. Synergizing these skills through friendship, at any stage of life, would enable the great Indian talent discover its true potential with risks of novel enterprise insulated by the strengths of friendship. Friendship, spontaneous and ethereal in nature, would trigger challenging but enduring projects that they would all enjoy doing, which over time would grow these into meaningful and innovative enterprises that will leave behind something of value, an institutional stamp of friendship for the future, creating value for the society and the nation. The ripple effects of friendship driven entrepreneurism and organizational behavior would have a sustainable pan-economic surge impact for the New India. 
Posted by Dr CB Rao on May 1, 2011

1 comment:

Narayanan said...

This post provides value insights on friendship driven entrepreneurial ventures. While statistics on conception, growth and perhaps exit of friendship oriented firms are probably hard to come by, one wonders if there are cultural, industry specific and geographical differences likely to influence this trend one way or the other in future. While hunger for success and a shared vision serve as potent catalysts for inception of a firm, individuals evolve in all spheres (with friendship as one dimension)and at times a domineering friend leaves the other(s) nothing but a Hobson's choice. In addition, the complexities of human behavior is significantly magnified when a firm founded on friendship grows beyond the immediate span of control of founding friends. Perhaps one way to address this issue would be for founder-friends to be serial entrepreneurs with a highly disciplined approach to value creation and exit as opposed to a single-firm centric professional aspirations. Friendship as a form of relationship is a revered phenomenon and one would hope the aphorism attributed to J.D. Rockefeller "a friendship founded on business is better than a business founded on friendship" is proven wrong for a friendship dividend is a potent combination with the demographic dividend already in play for India in particular.