Startup founders can't be Batman, Superman, Mandrake combined: Shivakumar

What's changed in the past five to 10 years is the advent of consumer technology (tech), and today, consumers are using more digital services than physical ones, says Shivakumar

His just-released book, The CEO Mindset, focuses on leadership qualities in a complex world. Shiv Shivakumar, operating partner at Boston-based $500 billion private equity (PE) major Advent International — who has straddled various companies from Hindustan Lever to Aditya Birla group — talks to Surajeet Das Gupta about management challenges and business models. Edited excerpts:

 

What is your assessment of the impact of artificial intelligence (AI) on Corporate India? 

AI will take out aggregator jobs — for example, the executive who prepares the minutes of board meetings is gone. Most of these roles lie in middle and lower management, but decision-making roles held by senior management will remain, as AI cannot make those decisions. The challenge will span industries, and the jobs that will continue and grow are those requiring personal contact and human touch — like nursing, gym instructors, chefs, or hospitality workers.

 

So, one-to-one reporting will disappear, and companies will outsource much more. Will jobs be more fulfilling? I think not. Will they be more truncated? The answer is yes. What I fear AI will do is push people into roles one level below their pay grade. 

 

Will it impact the role of the chief executive officer (CEO)? 

CEOs will face severe challenges — they’ll be questioned more. Earlier, a CEO with 20 years of experience came to the table to make decisions based on that experience. In an AI world, experience is no longer a ticket to top management. What happened 20 years ago doesn’t matter — what’s important is what has happened in the last six months. And here, junior and mid-level management will know much more.

 

Do you see fast-moving consumer goods (FMCG) companies needing a big revamp in the digital and AI era? 

What’s changed in the past five to 10 years is the advent of consumer technology (tech), and today, consumers are using more digital services than physical ones. The old FMCG model was based on distribution and balancing wholesale, retail, and modern trade. But today, the number of channels has increased, and tech is central to the consumer’s purchasing process.

 

So, FMCG companies need a complete rethink of their capabilities and business model. Today, banks have more digital marketers than FMCG players. FMCG companies are making small acquisitions or launching concept innovations, but they’re not taking off. It’s also affecting talent. A Bain study on insurgent brands shows that direct-to-consumer brands are capturing 60 per cent of growth in most categories — so something is clearly wrong. FMCG companies must embrace consumer tech 200 per cent.

 

Quick commerce is the flavour of the day. But can the business model, as it exists today, become viable? 

The business model has to change if they want to make money. Nearly 40 per cent of FMCG sales are for products priced below ₹15, and the cost of delivery is anywhere between ₹60 and ₹100, even with the cheapest riders. The cost-to-bill ratio should be under 10 per cent to be viable, but the average bill today is ₹500–600 — it needs to reach ₹1,000–1,500 to make money.

 

Right now, you have lots of consumers, but you’re not making money. And the bigger you get, the more you lose. To be fair, they’re trying everything — from selling market research data to adding conveyance charges. Of course, it’s a delight for consumers, especially nuclear families.

 

Startups that grow big seem to struggle with managing their business and people. How does one deal with this challenge? 

Startups face two challenges: growth capital and growth capability. If you go for an initial public offering, you’ve sorted out the capital problem, but not the second one. If a startup founder thinks he can be Batman, Superman, and Mandrake combined, the answer is no. That’s why many fail — because of arrogance.

 

They need a strong board that challenges them. Even an advisory board helps, and they must listen. It’s capability that builds long-term successful companies. 

 

Do you think Indian family businesses will increasingly turn to PEs to grow their business? 

There are 5,200 listed companies, and two-thirds are family-owned. And Indian families fight. My assessment is that at least 1,000 of these companies will seek PE investment and guidance in the next 10 years — that’s about 100 per year.

 

When you go to a bank to borrow, you’re treated as a borrower. But when you approach a PE, it’s an investment — your value and prestige go up, unlike with debt. And many are going for it.

 

Despite legal mandates, companies have been reluctant to include women on their boards, claiming the right talent isn’t available. What’s your view? 

Eleven per cent of listed companies still don’t have the required number of women on their boards as mandated by law — the big culprit here is public sector undertakings.

 

Today, there’s a strong pipeline of women talent. The old excuse that there aren’t enough qualified women no longer holds. The only question boards may ask is whether they’re open to considering women with 10–15 years of experience, instead of demanding 25–30 years (as they do with men), and making a clear, deliberate decision to bring them in.