Book Reviews

How to Foretell a Company Crisis: Lego, Marvel Comics And Uber

Interview with  Chris Zook  author of The Founder’s Mentality: How to Overcome the Predictable Crises of Growth

More from BigThink Interview followed by video embed and more on book below

How did Lego survive a near-total financial ruin? Why is Lyft way more popular that Uber amongst drivers? And how did Marvel gain a second wind some 60 years after it was founded?

Y’know, overload – just think of all we see of Uber in the paper. We found four things that we called the “west winds” that hit rapidly growing companies and push them off track, and we called them the west winds. And one was having revenues growing much faster than you can grow talent. And just think of Uber, which has had as many as 13 of its top 20 positions unfilled and that has been having difficulty recruiting the most talented women because of some of the cultural issues. And when your talent is not growing at the same rate as your revenues breakdowns begin to happen.

A second element of the west winds is what we call lack of accountability. And you can look at the culture as it evolved in Uber, which has been well reported, and say, “who is really accountable for the norms and values—deep, soulful values—of a company?” And it’s very easy to neglect that in the context of growth and hype and excitement and celebrity. Or a third one, or a third of these winds is what we called lost voices from the frontline. And if you look at, for example, the loyalty numbers that you can find all over the internet of Lyft versus Uber drivers, what you find is that the loyalty of Uber drivers is going down, because they’re a little bit frustrated with a lot of the publicity and with some of the behaviors that they’ve observed, and they’re more disoriented about the company. And so these west winds hit rapidly growing companies. And what we found is that when we looked at these unicorns, we took 26 unicorns about 10 years ago, 10 to 12 years ago, and we traced them. And we found that virtually 100 percent of them—and two-thirds of them had slowed down dramatically and never hit what people wanted them to. Uber would be an example. And second, we found that in virtually all of the cases the deep inner root cause was not that it was a bad idea in the first place or the market had gone away; It was actually inner breakdowns like this case.

And all of these linked to the founder’s mentality, 1) of linkage to the frontline, 2) maintaining a clear purpose versus overcomplicating what you’re trying to do and becoming greedy and doing too much, and 3) creating mini founder experiences that make people really want to become part of it.

The second crisis is the more predominant crisis, and it’s what we call a stall-out. So if you think of a company, let’s say like Lego, which since the 1930s was a great founder company through three or four generations. The first did it in wooden blocks. The next brought it to plastic. The next created the business systems. And it was voted the toy of the year by the British toy industry. And yet the next generation began to say “No, what our core is is the brand. We’re not a toy company.” And so they went into many, many things that massively complicated the business from theme parks to joint ventures with Steven Spielberg in small theaters to retail endeavors to plastic watches to books, and on and on and on. And it sucked the energy out of the core and resulted in stall-out to a point where the company had 18 months of cash left. And the solution to that was to massively reduce complexity, exit all those businesses (by the CEO who courageously went in, Jorgen Vig Knudstorp, well reported in the press) and it gave the company 12 years. He brought technology into the bricks. He found out who the core customers were. They didn’t know there were 400,000 people who are obsessed with Lego, they brought them into the design process. And they did many, many things to actually go back to the essence of what made the company great in the first place, which was the mission of learning, and the customer desire for toy systems that would help children creatively. And they even did things like take the corporate headquarters (which was in a bright, gleaming new building) and brought it back into the factory and the distribution center. So that’s an example of stall-out, and that’s an example of a company that then had 12 years of very, very good growth as a result of, in a sense, finding the key to it—where the Founder’s Mentality elements were part of the playbook.

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From Amazon

Three Principles for Managing—and Avoiding—the Problems of Growth

Why is profitable growth so hard to achieve and sustain? Most executives manage their companies as if the solution to that problem lies in the external environment: find an attractive market, formulate the right strategy, win new customers.

But when Bain & Company’s Chris Zook and James Allen, authors of the bestselling Profit from the Core, researched this question, they found that when companies fail to achieve their growth targets, 90 percent of the time the root causes are internal, not external—increasing distance from the front lines, loss of accountability, proliferating processes and bureaucracy, to name only a few. What’s more, companies experience a set of predictable internal crises, at predictable stages, as they grow. Even for healthy companies, these crises, if not managed properly, stifle the ability to grow further—and can actively lead to decline.

The key insight from Zook and Allen’s research is that managing these choke points requires a “founder’s mentality”—behaviors typically embodied by a bold, ambitious founder—to restore speed, focus, and connection to customers:

• An insurgent’s clear mission and purpose
• An unambiguous owner mindset
• A relentless obsession with the front line

Based on the authors’ decade-long study of companies in more than forty countries, The Founder’s Mentality demonstrates the strong relationship between these three traits in companies of all kinds—not just start-ups—and their ability to sustain performance. Through rich analysis and inspiring examples, this book shows how any leader—not only a founder—can instill and leverage a founder’s mentality throughout their organization and find lasting, profitable growth.

Book here