‘The Founder’s Mentality’: Leveraging Startup Thinking For Long-Term Growth by [email protected]
“The Founder’s Mentality” — Rekindling the Vision
When a company is struggling, one of the first reactions is to look at market forces to see whether they are a factor. When they are not, many companies are at a loss to explain the problems and find solutions. Chris Zook is a partner at Bain & Co., a management consultant firm, and served as co-head of its Global Strategy Practice for 20 years. In his new book with James Allen, The Founder’s Mentality: How to Overcome the Predictable Crises of Growth, he draws on his decades of experience to demystify the secrets of companies that push themselves past a slump. Zook spoke about his book on the [email protected] Show on Sirius XM channel 111.
An edited transcript of the conversation follows.
[email protected]: In the notes that come with the book, you wrote that “growth creates complexity, and complexity is the silent killer of growth.” What does that mean?
Chris Zook: The early years of a company, the founder years, are almost like a single-celled animal in biology. The founder has perfect information, maybe turns the lights on and off at night. But as the company grows successful over time and is proven in the marketplace, it naturally needs to begin to scale. As it begins to scale, it grows in complexity. It adds layers. It begins to maybe add other businesses. It goes into other geographies. Departments begin to become formed, each with their own expertise strategy.
And over time, senior management, if it’s not careful, can move farther and farther away from the frontlines. We found that what we called the founder’s mentality, which are the three great traits that great founders imbued into their companies, can often begin to wane. Companies can lose a sense of the frontlines. They can lose a sense of their mission, and companies at their worst begin to turn into bureaucracies. In fast-moving markets like today, when you become a bureaucracy, it’s all over. The next wave of insurgents begins to take you over.
[email protected]: The problem of companies being able to sustain their growth is a relatively new problem, correct?
Zook: In a database that we have of 8,000 companies, we found that right now only about one in nine companies in the world in the last 10 years has achieved more than a modest level of sustained and profitable growth. It is becoming more difficult, and the cycle times of businesses in many industries are becoming like the life cycles of fruit flies — shorter and shorter. Young companies scale ever faster, setting new records for doing that every decade, and older companies can collapse much faster than we have ever seen before.
“When you become a bureaucracy, it’s all over.”
One of the most amazing and powerful statistics from our five-year study, where we visited 40 countries in the course of it, is that for the largest of companies, 94% say that there are barriers to achieving their growth targets. But by my other statistic, 94% of the barriers are now internal. They are not lack of a market, market saturation, technologies they couldn’t possibly have, unbeatable competitors, government regulation, economic slowdown — none of that. They say in 94% of the time it is internal, and we found that many more than two-thirds of these primary reasons were related to complexity and how some companies age prematurely.
[email protected]: Are companies making it too hard on themselves with the way they operate and think right now?
Zook: I think that companies often encounter the curse of the matrix organization. In our study, we found that most companies that get to be over $5 billion in size have between nine and 14 layers between management and the front line. They encountered what we call the distortions of bureaucracy. Incentives become distorted, and you worry more about your department than the original founder.
You have information that you have distorted. What used to be customers known by name become averages manipulated by the staff functions all the way through. The worst of all is that more and more decisions in these companies begin to be made by people who have never served a customer and often never worked in a factory and never been involved in designing a product. That can really be the beginning of the end.
[email protected]: This founder’s mentality is more toward the thoughts of the company than the actual bottom line. Does the bottom line come as a byproduct of it?
Zook: Yes, it’s really about the inner health of companies. I remember reading that the best-selling sports book of all time was The Inner Game of Tennis. This is a little bit the inner game of business. We found three elements that we referred to as the elements of the founder’s mentality, which we felt were the best measures of health inside of a company. Boards of directors don’t typically ask as many questions or track these, although we found they are 85% to 94% of the reasons companies break down on the outside.
Number one is what we called an insurgent mission. Every founder is either at war against their industry standards because they are frustrated with it or trying to create something new, like Elon Musk is doing with SpaceX — creating a vehicle potentially to put people on Mars or Google is doing to organize information. Yet over time, companies can become just another company. We found that only 13% of people in the world now say they have any emotional commitment to the company that they spend probably half of their waking lives with.
The second element of the founder’s mentality is what we called frontline obsession. A great image for me was a description from Vikram Oberoi, the CEO of Oberoi Hotels, which were voted for a number of years as the best luxury hotels in the world. He would describe how on Sunday mornings he would visit his father, who was a poor villager who began this story in this incredible, humble beginning. Even at the age of 94, he would be holding customer comment cards in front of his eyes when he could barely see, scratching notes about the temperature of the tea for customer complaints. To me, that gets lost often in big companies.
The third is what we called the owner’s mindset, which is an aversion to bureaucracy and a desire to jump on problems, take responsibility right away, which often gets lost in big companies. It’s the essence of private equity’s success, in a way.
[email protected]: What are some examples of companies that are really following this path right now and being successful in the process?
Zook: I think AB InBev is quite a remarkable company, now having over 100,000 employees and capturing 30% of the beer market [growing] from what was essentially one single brewery in Brazil that was infused and basically re-founded by the group that is now 3G Capital. That is a great example of the owner’s mentality.
“More and more decisions in these companies begin to be made by people who have never served a customer…. That can really be the beginning of the end.”
L Brands’ Les Wexner [created] seven successful companies