Return of the entrepreneurs

When Jerry Yang – founder of struggling internet giant Yahoo! – took over as chief executive from Terry Semel last week, there was one question that wouldn’t go away. Could this knight in shining armour revive the performance of a search engine long since surpassed by Google? 

Yang is the latest IT entrepreneur taking back the reins of the company that he founded. In his case he faces a huge challenge to prove he is more than just an ideas man who can cope with the day-to-day running of the internet search engine and advertising group.

His appointment puts him in the same club as Michael Dell of Dell Computers and Steve Jobs at Apple who have also returned as chief executives of the companies that they created.

For the past ten years Yang has held the title of Chief Yahoo! – a largely ambassadorial role but one that has allowed him to remain involved with the company behind the scenes.

Salt in the wound
He started the company in 1994 with David Filo and still retains a 4% stake worth $1.5bn (£750m).But questions have been raised whether he is the right person to take on the might of Google, which reported profits of $1bn (£500m) in the first quarter of 2007 against Yahoo!’s $142m (£720m).

Its rival is now valued at $115bn (£58bn) – salt in the wound for Yahoo! which missed out on buying Google five years ago.

Semel, a former Warner Bros executive, had no internet experience when he joined Yahoo! in 2001. But he managed to virtually treble the number of users from 170 million to 500 million and increase revenue ninefold to $6.4bn (£3.2bn) in the six years he was at the helm. Yet this did little to comfort investors who were forced to watch Google eat further into the market created by Yang.

Grant Duncan, managing partner at headhunters Grace Blue, says/ “In life generally, personally or professionally, it’s hard for most people to go back.

“Specifically in Jerry’s case he created this thing that grew into something he didn’t understand and had no affinity with any more.

“He will find that the company has changed tremendously since he left but Yahoo! is in such a competitive market that it needs a re-injection of inspiration.”

Reinstating a founder often sends out warning signals to a market that may already be jittery on account of rumours of problems. Ruth Saunders, a partner at branding and marketing consultancy Prophet, often has to act as a bridge between chief executives and chief marketing officers of big businesses. She says: “It sends a negative sign that something has gone wrong. People probably feel that the company can’t cope.

Steve Jobs, Apple’s chief executive and co-founder, returned to the Silicon Valley-based company’s top job in 1997 after Gil Amelia, chairman and chief executive for 17 months, failed to make inroads into the fiercely competitive PC market.

Jobs, often dubbed Apple’s “spiritual leader”, has since turned the business round. He is credited with revitalising the brand that he began in 1976, not least by introducing the hugely popular iPod music player which has sold more than 100 million units.

Like Jobs, Michael Dell too has enjoyed an illustrious career at the company he started in 1984, becoming the youngest chief executive to earn a ranking on the Fortune 500 in 1992. He made way for Kevin Rollins in 2004 but returned as chief executive earlier this year.

However, appointing a founder is not always the smoothest course of action. Louise Wall, a headhunter at The Talent People, cautions that a returning founder can cause resentment from employees – especially if they have had to deal with some harsh times.

“So it’s important,” she says, “that the team is behind the appointment. And this means shape up or ship out.”

At Yahoo! Susan Decker, head of the company’s advertising operations and the former chief financial officer, had been widely tipped as Semel’s successor. She is now president following the recent reshuffle.

There can be benefits to returning after a period away. “People can put things into context and learn new attributes which they can bring back into the business,” says Duncan. “Steve Jobs is a very good case. The iPod happened and it rejuvenated the company. You have to attribute it to him on some level.”

Wall believes that returning founders can be a stabilising force. This is because they will understand the culture of the organisation, she points out.

“They know the strengths of the company and are therefore able to maximise the benefits.”

Saunders maintains that they also know what makes money. “They know what works and doesn’t work,” she says. “They get it. They get the brand, they get the customers and what makes a profit in the business.”

But the 38-year-old Yang faces an uphill challenge to prove that he is the right man for the job. Although he ran the company in its early days, that was before the business went public in 1996 and grew into a corporation, employing 11,700 people.

Additionally, unlike Jobs and Dell, Yang has yet to work outside the organisation that he put on the map. By comparison, in his time away from Apple, Jobs co-founded Pixar Animation Studios, while Dell formed MSD Capital in 1998 and later the Michael & Susan Foundation to manage philanthropic projects.

Too emotionally connected?
One former Yahoo! insider questions whether Yang, who started the company as a Stanford University PhD student, is right for the role. “You have to wonder why he is doing it,” he says. “If he was the right person for the job, why spend a fortune getting Terry in?” 

He adds: “Jerry was well regarded within the company but I think he’s too entrenched in it and too emotionally connected to it. Can he make the ruthless decisions that need to be made? Is Jerry too involved in the politics of it all? 

“I think they need someone who may give a better perspective. Jerry has never been away. And that can’t be really good for a company.”

Duncan makes the point that though it will be quite energising for Jerry, people within the organisation may feel uneasy. It’s like Richard the Lionheart coming back home. People may feel a little threatened and destabilised. I think there will be a bit of turbulence.”

In Yang’s first week Yahoo! announced an agreement to buy Rivals.com, an online college sports site. Also a potential deal with Rupert Murdoch’s News Corporation could result in a swapping of social networking site MySpace for a 25% stake in Yahoo!.

Steve Jobs has clearly proved that a returning founder can effectively turn things round. “Whether Yang can do the same,” says a former IT industry expert, ” only time will tell.”