The founder’s curse

Is there a case for putting franchise founders out to pasture when the company has outgrown its humble origins?
The Steers steakhouse empire grew out of a single outlet in Jeppe, Johannesburg, into a multi-store chain that later morphed into Famous Brands, a group with nearly 3 000 stores and two dozen brands. Picture: Moneyweb

In his book The Founder’s Dilemmas, Professor Noam Wasserman of the University of Southern California warns of the tendency for company founders to outlive their usefulness. Strong, charismatic and focused leaders are essential in the early phase of growth, but their wilfulness and idiosyncrasies can later be their undoing. Wasserman argues that succession planning is often overlooked in such tightly-controlled and familial surroundings.

Several founders once regarded as the soul and very essence of the companies they founded have recently been shown the door by investors, says the Financial Times. Among them are Martin Sorrell, founder of WPP, the world’s largest advertising and PR group (for personal misconduct), John Schnatter, founder of Papa John’s, the third largest pizza chain in the world (for making a racial slur that contributed to a 15% drop in the share price in a week), and Uber founder Travis Kalanick, who stepped down as CEO after being deemed a liability for ignoring claims of sexual harassment at the company and other ethics breaches.

Many franchising operations start out as family businesses, where the founders’ vision is firmly stamped on the business culture and vision. The Steers steakhouse empire grew out of a single outlet in Jeppe, Johannesburg, into a multi-store chain by the 1980s, under the guiding hands of the Halamandaris cousins. It later morphed into Famous Brands, a group with nearly 3 000 stores and two dozen brands. Having nursed the group through its formative years, the Halamandaris family eventually stepped aside, making way for a team of professional managers to tend and grow the group’s increasingly complex and diverse assets.

“Family-owned franchises tend to have the founder’s vision and processes embedded into the culture of the group, and this rubs off on staff and customers,” says Manny Nichas, co-owner of the Mozambik franchise comprising 12 restaurants. “But as the system grows, inevitably you need systems and processes that can handle the increasing complexity of the business.”

This is the point that has been studied and argued in business circles for decades: at what point should the founder make way for a new executive capable of taking the business to the next level? Many founders stay on long past their sell-by dates, refusing to release the reins of control they have wielded from the birth of the company.

“This is the founder’s curse,” says Ocean Basket franchisee JJ Senekal. “From my experience, a family-owned franchise where the founder remains involved is a definite plus. But what happens when you get to 220 or 300 stores? As in any organisation, you are going to have to hand over some control to professional managers.”

This is where independent board directors are expected to earn their lunch. When a founder oversteps the mark, they have to be held to account. Succession planning is etched into corporate governance codes the world over, but these often present little obstacle to overbearing founding directors.

As Bloomberg reports, founders enjoy an exalted status in Silicon Valley. Apple once fired Steve Jobs, then he came back and led it to historic greatness. “The dismissal of a successful founder has been considered a cardinal sin ever since. Benchmark is very Silicon Valley: you’re either 100 percent behind a CEO or against them. There is no in-between.”

Brought to you by Nedbank Franchising.


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