Why Cultivating the Right Leaders Helps Startups Succeed

For a startup to succeed, it’s not enough to have a good business idea. Resilience, passion, flexibility, focus, trust and people skills are just as important for success. But success should not only be measured in terms of numerical gains; an enterprise’s social and environmental contributions also should be considered, according to Shiv Khemka, executive chairman of The Global Education and Leadership Foundation (tGELF), an organization in India focused on bringing up leaders with ethical and altruistic values.

Khemka spoke to Knowledge@Wharton about the importance of cultivating good business leaders. He was joined by Shaima Hamidaddin, executive manager at the MiSK Foundation in Saudi Arabia, and Abdulrahman Al Suhaymi, who leads the global entrepreneurship and innovation initiatives there. MiSK is a nonprofit established by Saudi crown prince Mohammed bin Salman bin Abdulaziz to develop the next generation of innovative leaders among the Saudi youth. The Misk Foundation and tGELF are collaborating in a global business contest called the Entrepreneurship World Cup.

An edited transcript of the conversation follows.

Knowledge@Wharton: Shaima, which entrepreneurial leader do you admire most, and why?

Shaima Hamidaddin: That’s a tough one, because we have so many inspirational people available to us as role models. But I think for me, it’s Bill Gates. Not only did this man revolutionize the computer industry, but he also made philanthropy popular. And he is now known not just for what he did in the computer industry, but all his charitable and philanthropic activities. It’s a great example for someone who has been successful and now is dedicating time and resources to give back — not just to his local community but to the world.

Abdulrahman al Suhaymi: Of the two people who always inspired me with their entrepreneurial spirit, one would be Elon Musk. His passion drives and builds his resilience when he is building startups. He always starts with what’s good as a solution to our problem – what’s good for the human race – and he works backward from there. Luckily he has the capacity to follow through those tough missions that he puts for himself.

The second is the mayor of Dubai (Dawood Al Hajri, the director-general of the Dubai Municipality), for the way he approached developing Dubai from a small town to the great goal that he set for their government and the whole team. It took almost the same entrepreneurial spirit [as Musk], which is about being resilient, not giving up, constantly finding solutions, and being flexible. He definitely demonstrated these qualities.

“Entrepreneurial leaders must have a huge degree of flexibility in terms of solving problems of the future.” –Shiv Khemka

Shiv Khemka: I have admired two entrepreneurs. One is John Bogle, who created Vanguard. His family lost everything in the Great Depression. He came out of that and started Vanguard Funds. He came up with the idea of index funds and was able to create one of the world’s largest fund management businesses. He was a deeply humble man who wrote a beautiful book which I recommend to all young people called Enough: True Measures of Money, Business, and Life, talking about how you don’t need to acquire more and more in life. The question is, when do you draw the line and say, enough? He was deeply philanthropic and a deeply humble person.

In India, there are some great entrepreneurs who’ve started with nothing and have created very significant businesses. Look at Azim Premji, for example, and what he has created in terms of one of the largest IT services companies in the world — Wipro. His Premji Foundation has led philanthropic giving in India, and he [has committed most of his wealth to] The Giving Pledge, (an initiative of Bill Gates and Warren Buffett).

Knowledge@Wharton: What are some of the top attributes of these leaders, especially entrepreneurial leaders – in contrast to leaders of established companies or political leaders or military leaders? Why do you find these qualities or attributes significant?

Khemka: Entrepreneurial leaders must have a huge degree of flexibility in terms of solving problems of the future that they cannot envision today. They come up with those solutions without any structure or people around them – and have the boldness to bring together the resources to create that impact.

Political leaders and military leaders have big institutions around them, and tools they can use to do things. Entrepreneurial leaders often start with nothing – just an idea, a dream, a vision. Like a magnet, they have to [attract] people who believe in that vision, and go with them through thick and thin to solve problems that often seem insurmountable. They must have a deep capacity for human empathy and for creating a joint vision.

Hamidaddin: I agree with Shiv. Entrepreneurs have limited resources and need to be creative in their thinking and be problem solvers. But what is admirable [about] entrepreneurial leaders is they have an insatiable hunger to keep going to the next level and try to continuously push the status quo.

So, even if they set an objective and they meet it, it’s not enough. They want to go further and see how they can continue to break glass ceilings or come up with more innovative approaches or identify an opportunity maybe that they haven’t seen before. That hunger to keep going and to keep being innovative is something that truly separates entrepreneurial leaders from [political or other] leaders and corporations.

“Being flexible is essential and fundamental to being successful as an entrepreneur.”— Abdulrahman Al Suhaymi

Suhaymi: I couldn’t agree more. Being flexible is essential and fundamental to being successful as an entrepreneur, or an entrepreneurial leader, as the ability to innovate. What you’re going through [as an entrepreneur] is not the norm. Most of the challenges are those that others were not able to solve. You’ll find yourself having to constantly problem-solve. I would add the ability to have cross-functionality. When you’re faced with lots of challenges, you would need that ability to learn quickly to do multiple things at the same time.

Knowledge@Wharton: As all of you have pointed out, entrepreneurial leaders face special challenges that are not necessarily the same ones that leaders at existing companies or existing structures face. In fact, research shows that the mortality rate of startups is extremely high.

We recently interviewed John Chambers, former CEO of Cisco, for Knowledge@Wharton, and he told us that in some studies, the failure rate of startups is as high as 70%. What do you think are some of the main reasons for this high failure rate? And what role can leadership play — not just in prolonging the life of startups, but also in ensuring that they emerge as successful enterprises?

Suhaymi: Successful startups need a reason to be alive, to exist. And that reason is to solve a problem. So, when you’re often starting a new business, … at the top of the co-founder’s or the entrepreneur’s mind is, ‘what problem does it solve? What solution is it bringing to customers or to the market or to people?’ You have to start from that point and work backward, until you reach the point of designing and developing a product. This is what entrepreneurs would miss in some cases.

In the other cases, it goes back to what Shiv mentioned in terms of the need for flexibility. Sometimes you end up in markets where there might be bigger players than your company that you wouldn’t be able to compete with in terms of resources or in terms of capacity. You need to be flexible — predict the change before it happens, and pivot from that direction to another direction, should that be needed. Some of those traits are often overlooked by some of the startups. This unfortunately contributes to their high mortality rate.

Khemka: We run venture capital funds, and we’ve made lots of investments in startups over the last 30 years. There are three main buckets of reasons why companies fail. The first is the idea/strategy bucket, where the idea isn’t right — they are either too early or too late, or they haven’t thought through the issue carefully — and the strategic dimension of what they’re doing is not deep enough.

The second is funding. A lot of companies have a great idea, but they underestimate the funding [that is needed] or they raise a lot of money and burn through it, thinking it’s always going to be available.

Finally, and probably the most important reason why many companies have failed, is because the leaders often haven’t been able to build a really resilient institution of trust. They don’t have the people skills to [retain] people through the thick and thin of the entrepreneurial battle that’s going to happen. As companies change direction, it’s almost like going through the rapids. You need to be able to shift through those rapids as you build a company.

“What is admirable [about] entrepreneurial leaders is they have an insatiable hunger to keep going to the next level.” –Shaima Hamidaddin

In terms of what can prolong the life and make a company successful, it’s about the quality of leadership, and most importantly the quality of the team. The leader is nothing without a team, so it’s about who are on the team. Do they work together? Have they forged a bond of brotherhood and sisterhood to pick through the challenges of what it takes to build an entrepreneurial organization? If they can do that, they can build a company that may start off as one thing but end up as something totally different, but still be deeply successful.

Knowledge@Wharton: Shiv, the three reasons you gave for why startups can fail are spot on. Do you have any examples of those principles?

Khemka: Let’s take the electrical vehicle business, which — 10 or 15 years ago — was just too early. There were people coming up with [ideas for] electric batteries or electric charging, but their companies failed because they were just ahead of their time.

Funding, of course [is always an issue] – look at all of these tech companies that are out there. Many companies that think they’re growing, and they have a model [where] if they keep raising money, they’ll make it. Then the money runs out, and they fail. Obviously there are companies that succeed through that.

In terms of trust, people skills, etc., Wall Street and Silicon Valley are littered with examples. The most recent one is of Elizabeth Holmes and Theranos. Many people just aren’t able to build trust. They take people so far, and because they lack integrity, or they lack the ability to deliver on something that they promised, everything fails and dries up.

Knowledge@Wharton: Shaima, what’s your view on the mortality rate of startups and the roles leaders can play in helping startups be more successful?

Hamidaddin: I would like [talk about] the barriers to entry or intention with regard to entrepreneurs. The Global Youth Index, a tool for understanding the challenges and opportunities for youth in the future economy, [reveals how some aspects have] negative impacts on entrepreneurial action. One is education. We learned that young people who actually studied entrepreneurship are less inclined to start their own businesses. The other is the level of social capital. The more connected you are, the more people you know, the less likely it is that you would start a business, because you feel like you have a better chance of finding a job.

Knowledge@Wharton: Recently there has been this trend of large enterprises working with ecosystems of startups. I think the effort there is to absorb innovation from some of these start-ups. Could you share from your experience an example of a large company that has successfully used this approach?

Hamidaddin: There’s a lot to learn from the way startups operate. The key aspects are agility and flexibility, which allow individual contributors or your team to be creative and innovative. As teams become younger in age, they operate better and more efficiently when they have grown to be innovative and creative and not have so many rules, policies and layers.

“The most important reason why many companies have failed, is because the leaders often haven’t been able to build … trust.” –Shiv Khemka

So, a flatter organization is more efficient for your business than one that’s bureaucratic and with lots of hierarchy. Young people, specifically, feel suffocated in a way, where they’re not able to express themselves for the business or even personally. That limits their productivity.

Suhaymi: Large enterprises take different approaches [in gaining] access to innovation. Some of them literally acquire the innovation – which is by either hiring the people or acquiring the whole business. But it is important that they [retain] the environment that allowed them to succeed in the first place in order to not let that be absorbed by the culture or the matrix of the [acquiring] organization – and continue that innovation.

Khemka: Cisco is a great example of a company that grew through acquisitions of small companies — again and again. Integration is the most difficult piece. Big companies have a lot of organization, processes, systems and hierarchy, which enable them to perpetuate themselves regardless of any individual. When they acquire small companies that are often founder-led, it’s a real challenge for them to make enough space and room for the founder and the team to feel respected, valued, and given the freedom to create and build on what made them successful.

I was recently at Google talking to some people there, and the effort is to make Google into many small, entrepreneurial teams [working] and feeling like they’re small companies. If you can get that balance right, you can build the infrastructure that allows you to absorb innovation from small startups.

Knowledge@Wharton: Social entrepreneurship has been growing all over the world. Do you believe leaders of social enterprises need the same attributes and skills as entrepreneurs in conventional businesses? If not, how do you think social entrepreneurs should think and act differently than other entrepreneurial leaders?

Khemka: The formulation of the SDGs (the Sustainable Development Goals set by the United Nations) and more clarity about the tremendous challenges that the world faces have brought social entrepreneurship as a movement to the fore. The world is getting together and organizing its thinking about social challenges as part of the 17 SDGs.

Business leaders who have been entrepreneurs can be extremely effective social entrepreneurs — as long as they have the empathy to understand that social entrepreneurship is really about solving the problem in a sustainable manner, without the bells and whistles of entrepreneurship and financial results.

Choices become very important. You have to navigate through social choice and ethics, which often in the world of business you do in a different way and in a much more numerical manner. In the social entrepreneurship space, there are many ethical and other issues that one has to think about carefully. One is often dealing with a consumer base that really has a different type of bargaining power. And so, it’s extremely important for social entrepreneurs to be deeply empathetic and to have values of ethics and altruism embedded in their psyches. I think those are the ones that are deeply successful.

“Sometimes the key to success is speed and agility, especially when it comes to strategy and decision-making.” –Abdulrahman Al Suhaymi

Look at Bill Drayton who started the Ashoka foundation and the tremendous work it has been doing around the world, supporting social entrepreneurship. Other examples of great social entrepreneurs are Mohammad Yunus and his Grameen Bank [in Bangladesh], and Salman Khan with Khan Academy. The technology revolution is creating a unique opportunity for great and transformational social entrepreneurship. The next 20 years will see some great entrepreneurs emerge.

Knowledge@Wharton: Shaima, I was struck by what you said about Bill Gates. He went from being a leader of a technology company to lead a huge foundation – and a social entrepreneur in some ways. Do you think the skills that helped him succeed at Microsoft are the same as those he needs to lead the Bill & Melinda Gates Foundation? Or is there a difference?

Hamidaddin: Most of the traits are similar, whether you’re a social entrepreneur or a business-focused entrepreneur. The only difference is that the factors that a social entrepreneur takes into consideration are not just economical. They are environmental. They are social. They are behavioral. It has a much wider scope. You would want a successful startup, but you also want to make sure that the impact of the startup is positive in the community and has the potential [to drive] positive behavioral change within the community.

Suhaymi: A social enterprise requires specific attention or a specific level of passion. But in the end, it is an enterprise, and enterprises need to succeed, whether that is a business enterprise or a social one. In the case of Bill Gates, [consider] how Microsoft since its founding had gone through lots of changes. It started out as a software company, but then later it developed into more than that.

In many ways, it might seem from the outside like it was technology, and that it was his area. But within, there were lots of verticals that he wasn’t necessarily familiar with. Once he moved to the Gates Foundation, there were new areas [he had to learn about], but that required the same attributes and skills.

The more challenging and more exciting [aspect of being] social entrepreneurs is that the impact that you’re seeking is more than financial. As much as it feels rewarding, and it is multifaceted. You have to take into account what you want to achieve long-term, mid-term, and short-term.

Knowledge@Wharton: If the CEO of a startup were to ask you for one piece of advice so that she or he could build a successful venture, what would you tell that person?

Suhaymi: Patience and resilience would be at the top. Definitely the passion is needed, and successful entrepreneurs must have a great idea and resources — funding or otherwise. No matter how perfect the beginning is, it must face challenges at some point. Some of them might feel like mountains in front of you; only patience and resilience will get you to the other side.

“We learned that young people who actually studied entrepreneurship are less inclined to start their own businesses.” –Shaima Hamidaddin

Khemka: If someone asked me for advice, I would typically give two pieces of advice. The first one would be internal — focus on your integrity and ethics — because that will create trust and will allow you to be a leader of caliber. The second is, “It’s all about team, team, team, and the people you bring into the team.”

Hamidaddin: Passion and truly loving what you’re working on [is important], because oftentimes it gets very lonely being an entrepreneur. You have so many challenges, and you may have people saying, “This is not going to work,” or “It doesn’t make sense,” or “It’s too outrageous.”

Knowledge@Wharton: Are there any concluding thoughts you would like to share?

Hamidaddin: We have younger people becoming entrepreneurs. We see more developing countries leading the early entrepreneurship activity. And, you see this growing in size. But it’s important to match those entrepreneurial ambitions with developing that ecosystem and those tools that could help them succeed. Also, becoming more technologically savvy — it’s very easy for someone from one side of the world to support another person on the other side of the world and give them the tools to be successful.

Khemka: I’ll give two more pieces of advice. One is that many more startups die of indigestion, rather than starvation, because you can be too ambitious about all the things you’re trying to do and not focus enough. The second piece of advice I would give them is to participate in the Entrepreneurship World Cup. You’ll meet lots of interesting people, improve your caliber and capacity, and build a global community of friends and partners.

Suhaymi: Sometimes the key to success is speed and agility, especially when it comes to strategy and decision-making – whether you’re in the beginning, or if your startup is in the middle of its life cycle. Maybe it’s about all the features or trying to build the right product. Speed always wins over perfection, so this is something that most of the successful entrepreneurs share as advice all the time. Other than that, it’s a wonderful time to be an entrepreneur and to watch entrepreneurs grow.

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