4

Reversing
Stall-Out

How to Rediscover What Made
You Great When Growth Slows

At some point in their journey, we estimate that two-thirds of maturing companies will find themselves encountering the second predictable crisis of growth: stall-out (see figure 4-1). This is an incredibly frustrating place for leaders because none of the natural sources of propulsion of the past seem to generate the speed and momentum that they once did. The solution, you begin to realize, is to do something different. But what? How much of the solution requires a new outside course of action, a new strategy? How much of the solution requires internal changes, to your crew or even to your ship itself?

Let’s begin our discussion by returning to the story of The Home Depot in 2007. We left off with the company in deep trouble, having lost 55 percent of its market value in seven years. Greg Brenneman, the longest-serving member of the company’s board of directors, summed up the company’s situation for us recently. “A large crack had opened up in its foundation,” he told us. “That crack was growing, and the causes were internal and controllable, not external.”

Bringing Back the Founder’s Mentality

After its controversial CEO Robert Nardelli resigned in 2007, the board elevated Frank Blake to CEO. Blake recognized immediately that he had to deal with the deteriorating customer experience and disempowered employees at the front line that had undermined the company’s founder-inspired strengths. He therefore made repersonalizing the front-line experience for customers and employees his top priority.

Right from the start, Blake broadcast one message loud and clear: the founders’ mentality was back. On his very first day on the job, he spoke to all employees via The Home Depot’s internal television station, during which he quoted extensively from the founders’ book, Built from Scratch. In particular, he highlighted two of their charts. One highlighted their core values and another gave pride of place at the top of an inverted triangle to the company’s front line—its stores where customers and employees interact. Brenneman stressed the importance of this shift in emphasis. “The first thing Frank did,” he said, “was to embrace the founders, Bernie Marcus and Arthur Blank. When Frank showed up at the store manager meeting with the legendary Bernie Marcus at his side, everyone knew things were going to change.”

Many of Blake’s first initiatives focused on reempowering the Orange Apron Cult: the front-line store employees who advised customers. At Marcus’s suggestion, Blake also began anonymously visiting store after store on “undercover missions,” as he called them. These proved so valuable that he mandated that each of his senior executives work periodically in stores, something most had never done.

Blake then launched a series of coordinated rejuvenation initiatives. He restructured the businesses, closed a series of money-losing stores that had been opened as the crisis unfolded, sold The Home Depot supply business, and shut down another business of fancy appliances called Home Depot Expo, essentially shrinking to grow and to focus on the core stores. Blake also set in motion a massive overhaul of the company’s supply chain, creating a network of nineteen regional distribution centers to reduce out-of-stocks and simplify the inventory task at the stores—a move designed to allow store employees to focus more time again on customer service. He also increased the employee bonus pool by a factor of six, rehired some veterans, and asked store managers to return to the pre-Nardelli policy of giving out honor badges to employees who have been exceptionally attentive to customers.

Eight years ago, The Home Depot had stalled out and was facing the prospect of free fall. But today, thanks to Blake’s renewal of the founder’s mentality, the company has reenergized its employees and repersonalized its customer experience, an effective return to core principles that has made the company’s stock hot once again. It has risen from about $20 per share to more than $120 (see figure 4-2).

The Importance of the Inner Game of Strategy

Large-company stall-outs like that of The Home Depot are surprisingly common. The odds are that during the next fifteen years, two out of every three of the world’s multibillion-dollar companies will either stall out, go bankrupt, be acquired, or break into pieces. Furthermore, the success rate of renewal for those who stall out is small, less than one in seven (see figure 4-3, which is based on tracking the performance of the Fortune 500 from 1998 to 2013). These findings parallel those reported by others, such as the Corporate Executive Board, which looked at the 500 largest public companies for a fifty-year period from 1955 to 2005. The cost of stall-out translates quickly into economics; for instance, nearly nine in ten stall-out companies will lose over half of their market value.¹ Just imagine the ripple effects of this on the value of employee retirement plans, investor returns, and the career outlook of the most talented people.

Those companies that recovered generally did so by narrowing, simplifying, and rebuilding the core business, and renewing characteristics the company had when it was at its best. In over two-thirds of the stall-outs, the problem was not related to the emergence of a new business model that had burst onto the scene, as Amazon did to the traditional book sellers, or as Uber is trying to do to traditional taxi services. Nor was it that a huge new technology led to tectonic shifts in the industry rules of the game, as mobile phones are doing in markets like retail payments. Usually the problem was internal.

Complexity is the single most common cause of stall-out. This is a growing problem for incumbents, because fast young insurgents are acquiring market power faster than ever before. Well over half of executives now believe that their main competitor in the future will be a different company than the one they are competing with today—one that is simpler, younger, faster, and armed with fresh new technology. This reminds us of what the historian Niall Ferguson has written about the dissolution of empires that once seemed permanent and all-powerful. “When things go wrong in a complex system,” Ferguson has written, “the scale of disruption is nearly impossible to anticipate.” Entire economies, Ferguson has found, “move from stability to instability quite suddenly,” and as proof he cites the astonishingly rapid collapse of empire after empire (France in the 1700s, four years; the Ottoman Empire in the early 1900s, five years; the British Empire in the mid-1900s, less than ten years; the Soviet Union in the late 1900s, five years). Ferguson concludes that the collapse of complex systems accelerates when component parts on the inside begin to behave in ways that are increasingly uncoordinated and at odds, a finding that very neatly parallels our own about large, incumbent companies, which, of course, occupy their own imperial position.²

So how do large, complex companies avoid this fate? How do they keep their insurgency alive while moving from being the revolutionary in their industry, or at least the upstart, to now becoming an industry incumbent, if not its key representative? By constantly renewing the founder’s mentality on the inside, where the root causes of stall-out can be found.

When we examine the targeted actions that leaders have taken to reverse or prevent incipient stall-out, we find that they often involve a renewal of the founder’s mentality, usually with a primary focus on one element rather than all three at the same time. This is different from free fall, which we’ll cover in the next chapter, where all elements usually need to be attacked at once, under emergency conditions.

Reigniting the Insurgency

Companies in incredibly dynamic markets sometimes face stall-out because they have grown in complexity, slowed down, and lost a clear sense of their business insurgency along the way. Humans have difficulty keeping complexity under control; it is why our houses are filled with things we no longer need, and why calendars get filled with extraneous activities. Companies, especially those in dynamic industries, have the same problems. Projects, assets, activities, businesses, and processes accumulate but are seldom shed. The result is a loss of focus, a loss of energy, and a dilution of the clarity of what is really important. As counterintuitive as it might sound, the best way to renew focus and rekindle the sense of insurgency is not by starting with a newly crafted mission, but to first take bold action to liberate resources, to demonstrate commitment, and to narrow focus. Then you can use these resources to make your renewed mission real.

Launch an Assault on Complexity and Its Costs

Before doing anything else, a stalled-out incumbent should first simplify its portfolio, free up resources, and begin shutting down noncore projects. When we studied ten successful rescue-and- rebirth operations that we helped clients to engineer, we found that all of them involved reducing operating cost by at least 8 percent, and sometimes more than 25 percent. That sort of dramatic reduction of complexity does more than just improve financials and streamline operations. It also liberates resources that make it possible to fund a genuine transformation and to acquire business-redefining capabilities, both of which help incumbents prepare to confront new, insurgent competitors.

More broadly, we’ve learned through years of experience that the best way to attack complexity is from the top down. This requires several steps. First, you have to shed noncore assets and businesses in a portfolio. Then you have to develop a simpler strategy for the remaining businesses. Then you have to attack the complexity of the organization and the core processes. And finally you have to go after complexity in product offerings, suppliers, and product design. We’ve seen teams attempt transformation in the reverse order, only to get trapped in the weeds before getting to what really drives most transformations: the reduction of high-level complexity and cost, in concert with a renewal of the insurgency across the company.

For a sense of just how effective this approach can be, let’s consider the case of Cisco.

Few companies epitomize the rise of the Internet and Silicon Valley better than Cisco. Founded in 1984 by Leonard Bosack and Sandra Lerner, a husband-and-wife team working at Stanford University, the company became the first to market a router that let different computers communicate smoothly—the key to the World Wide Web and the Internet as we use them today. Cisco routers and switches became the industry standard, capturing and holding about 60 percent of the global market for an amazing three decades. The company, run since 1995 by John Chambers, grew at over 27 percent a year between 1995 and 2005, during which time its market value rose to over $550 billion, making it the most valuable company on the planet. Cisco literally powered through the crisis of overload without a hitch, growing a massive company, retaining its business position leadership, professionalizing management and its systems, and becoming the clear incumbent for well over a decade.

But, as is true in most technology markets, things have changed quickly. New founder-led companies—Huawei, Juniper Networks, Arista Networks—have emerged, and they are fast, focused, and flexible. Cheaper hardware and more-sophisticated software are now available, shifting the profit pool to new skills, equipment, and software. Mobile technologies are changing the nature of the game, too. As a result, since 2005, Cisco’s growth rate has dropped to 7 percent. Concerned, investors have steadily pushed the market value of the company down, and today it stands at about $140 billion, less than a third of its peak. Cisco’s former chief operating officer, Gary Moore, recently described the situation the company was confronting then:

Though we were highly profitable and still growing, we had some burning platforms inside and outside the company that motivated the transformation. Externally, our growth was slowing, falling short of our targets, and creating a decline in stock price that, if not stemmed, would have driven the public value of the company below its cash value.

In addition, because our investment portfolio had grown so complex, we were underfunding some key projects in our core business in order to fuel the growth of the fifty-six adjacencies we had moved into, like Flip Video, which we eventually exited. Though we were spending over $5 billion in R&D (over 10 percent of sales), it was not managed as a portfolio of bets. To make matters worse, we were making decisions in large boards and committees we called councils, often with no decision power to rationalize these initiatives. In fact, the past growth strategy had drawn so much energy into the many new adjacencies that some of the best engineers did not feel that the core business, the source of most of our cash flow, offered a great future, sometimes causing them to leave. It is one reason that [Silicon] Valley is filled with great Cisco engineers who left: we were not investing enough in the core of the company. Everyone was pursuing “bright shiny objects.” Customers were giving us feedback that we needed to be more responsive relative to competition, too. Though we were still a strong leader in our core, the internal and external indicators were crying out that we had to do something.

And so Moore and his team did. They simplified processes, identified noncore businesses and assets to shed, and zero-based their expense budgets, all as part of a program called ACT, short for Accelerated Cisco Transformation, which they insisted quickly become self-funding. Its goals? “Simplify, empower, and increase accountability”—goals not unlike the ones embodied in the founder’s mentality.

Here’s how they got things going. First, they created eight different initiatives focused on simplification, cost reduction, and speed, with a senior executive in charge of each. They reached out to the key players in their business at all levels—front-line salespeople, engineers, suppliers, and partners, along with leading-edge customers—and collected their diagnoses of the situation and ideas for improvement. These conversations are ongoing. In recent years, as Cisco has found itself increasingly under threat from fast, insurgent attackers, the conversations have focused on the best ways to reduce the cycle time for new products. Through the ACT program, which has emphasized the importance of connections between management and key players at the front line, the company has reengineered its product-development process, created new project-management software, and hired engineers with expertise in methods of fast cycle times. And it’s working: after implementing these plans, Moore told us, in some product areas Cisco has taken products that would have taken three to five years to develop and shortened this to eighteen months. Today, the company believes itself to have set the industry standard in this arena.

Since ACT began four years ago, Cisco is faster, leaner, and more focused. Employee- and customer-satisfaction scores are up. The company is 15 percent larger than it was four years ago, but has fewer employees. Its stock price has doubled; its margins have increased by four percentage points, generating nearly $3 billion of profit.

Rediscover the Insurgency of the Past

When companies shrink themselves to regroup, redeploy, and grow, they often rediscover the power of the original insurgency and develop a renewed commitment to pursuing it. That’s what happened with Perpetual, Australia’s oldest trust company, which achieved rebirth by reducing operating cost by 20 percent and stripping away noncore businesses. The result, one industry observer has noted, was “the largest transformation in Australian financial-services history.”

Perpetual was founded in 1886 to manage trust and estate activities for Australia’s wealthy elite, and it did this very well, quickly becoming the largest such firm in the country. For more than a century, the company remained the leader in the Australian market, but as it grew, it diversified into eleven new business areas, and by 2011, as it headed toward its 125th anniversary, the company was struggling. Its stock price had fallen from a high of $84 per share to $19—an 80 percent drop in only five years. Profits were down by 75 percent, with no bottom in sight. Shareholders were calling publicly for major overhaul, and the company was on its third CEO in twelve months, Geoff Lloyd.

Lloyd was deeply concerned at the state of the company when he arrived. He told us:

I found an organization that was internally competitive and externally cooperative, when it should have been the other way around. We were focused too much on internalizing the reasons we were not growing and assigning blame, instead of being out with clients helping them become more competitive. We had grown incredibly complex over time by entering more businesses, eleven in total, and were not the leader in most of them. We did not seem any longer to have a long-term strategy, and no one could agree on where we wanted to go. The unsuccessful diversifications had caused us to lose our confidence. We were awash in complexity and had become hesitant, internally focused, and uncertain as an organization. That made us slow to decide and slow to react. We had little time to right the ship after such a long period of underperformance. Moreover, there was the additional pressure of private equity firms zeroing in on the company. We had to be transformational and not incremental.

Lloyd undertook some initial fact-finding and concluded that to save Perpetual, he would have to return the company to its core mission, as defined more than a century ago by its founders: the protection of Australia’s wealth. To achieve that goal, he realized, he would have to make the company “faster, more confident, and, above all, simpler,” and to do that he would have to resort to immediate “open-heart surgery.”

Lloyd began by replacing ten of the eleven members of the management team with people who did not have a vested interest in the decisions of the past. With his new staff in place, he launched Transformation 2015, a set of five main initiatives overseen by a special program office, designed to bring about radical and swift complexity reduction at all levels. Among them was the “portfolio” initiative, which cut the number of businesses owned by the company from eleven to three (two of the eleven businesses earned about 95 percent of the economic profits), reduced real estate holdings by half, eliminated more than 100 legacy funding structures, and cut back the number of independent business entities by 60 percent. The “operating model” initiative, for its part, reduced the size of the corporate-center staff by more than 50 percent.

As part of Transformation 2015, Lloyd and his team also examined costs across the organization and found that 60 percent of total costs were focused on back-office support, staff functions, and redundant controls and checks. Think about that: the company was putting only 40 percent of its money toward sales, customer service, and investment, even though these were its core activities. Deeper down in the organization, Lloyd and his team found that Perpetual was relying on more than three thousand different computer systems and applications. Not surprisingly, the average company employee was making more than five help-desk calls per month, hardly a sign of efficiency.

Cutting back—on businesses, bureaucracy, staff, costs, computer systems, and more—was central to Lloyd’s transformation plan. But, critically, he and his team also focused at the same time on a positive plan to invest and gain market share in the company’s core, as when it used resources liberated by internal restructuring to acquire The Trust Company, a move designed to increase market share in its core wealth-management business. The transformation team also worked concertedly to engage employees, especially those at the front line. Lloyd convened many town-hall meetings, something that had never before happened at Perpetual, to discuss the company’s situation, its plan forward, and its core values. “We labored over the wording of our mission and strategy,” Lloyd told us. “Now people live and breathe our vision, which is to become Australia’s largest and most trusted independent wealth manager. We created a strategy on one page that we called One Perpetual, with one simpler set of measures and a focus on transparency. We held people accountable where they were not acting consistently with One Perpetual and our values, and we celebrated leaders who did, changing our compensation system to match.”

Collectively, Lloyd’s strategies brought about a stunning turnaround. Perpetual’s stock price has doubled from its low point, when Lloyd took over; employee engagement has increased from 40 to 60 percent; the company is gaining share in its core markets; and net profits have more than tripled. The lesson in this story is simple but critical: for a company in stall out, the key to rebirth is a radical and swift reduction of complexity and cost throughout the company, in order to renew the insurgency on all three of its dimensions.

Renewing a Front-Line Obsession

Another approach to reversing stall-out is to renew from the front line backward. We found this to be the preferred route in companies where customer intimacy is critical to how the business competes, or where deep front-line engagement is especially important in helping companies constantly improve and adapt. As we noted at the beginning of this chapter, The Home Depot has done this very well. So has the industrial giant 3M.

Rediscover Lost Practices of the Past

Sometimes the founders really did get it right in the first place. That’s what Sir George Buckley realized upon taking over 3M in 2005. He had to go back to the future.

At that point, 3M had been a leader in the adhesives-and-abrasives business for more than a century. Thanks to a steady investment in R&D, the company had consistently made innovation one of its core competitive advantages. Post-it Notes, Scotch Brand tape, optical films: these iconic products all emerged from the 3M labs during the company’s long incumbency.

By 2005, however, the company had begun to lose its way, its mojo, and even its confidence. Unsure of the continuing growth potential of its longtime abrasives-and-adhesives core, its executives had begun focusing their attention on two of the newer businesses in the portfolio—pharmaceuticals and optical films. In the process, Buckley told us, they had cut core R&D by 20 percent and capital spending by 65 percent. Prices in the core business had declined by 12 percent, and the percentage of new products in development had dropped to its lowest level ever. Employee morale was suffering, especially at the front lines and among the key product developers, who felt increasingly shackled by financial reporting requirements and a loss of flexibility.

Buckley, an Englishman who had spent most of his career running global firms, was brought in to revive the company, and almost immediately he diagnosed its problems as internal. “I found a company that had lost its moxie and its confidence in the core,” he told us. “The engineers and R&D people were feeling dejected and rejected. They had been the heroes of 3M but were no longer revered. In fact, they were blamed for the low growth. In the heyday, we had been making 30 percent of our revenues from products newer than five years old, but when I began, we were at only 8 percent. We were playing the cost game, not the innovation-and-differentiation game, which had always been our success. Our core markets were growing at an average of 3.5 percent, yet we were growing in those markets at only 1.5 percent. We were starving the company to death. Essentially, it was coming apart psychologically, operationally, and financially.”

Buckley acted quickly to return 3M to its core mission and practices—“to a world where innovation in the core mattered again,” as he put it to us. He sold off the pharmaceuticals business and focused on once again empowering the front-line bench engineer. He reopened shuttered labs and reinstated the policy of giving engineers one day per week to work on their own ideas. He encouraged self-organizing forums in which the technical people could discuss new ideas. He attended thousands of meetings, at all levels, and visited hundreds of plants. In everything he did, he strove to embed a sense of internal entrepreneurship, self-belief, and empowerment as deeply as possible in the company.

The results were impressive. By the time Buckley retired from 3M in 2012, he told us the company’s employee-engagement and employee-satisfaction numbers had more than doubled; growth in the core had climbed out of negative territory and reached 7 percent; and 34 percent of the company’s revenues were once again coming from products less than five years old. At the time of his retirement, Buckley received 3,200 letters from employees thanking him for restoring the elements that had made 3M great. And on his last day, he found more than 1,200 people waiting outside his door to shake his hand, a moving testament to the power of the founder’s original insights and, perhaps, also of the founder’s mentality in general.

What motivated Buckley more than anything, we sensed in our conversations with him, was a deep, almost spiritual feeling of responsibility for the great engineering legacy at 3M, and especially for the thousands of people working tirelessly in the trenches. These were the people who ultimately made everything possible. Great founders and leaders exude this sense of reverence and responsibility. As Buckley said to us about his time at 3M, and not dissimilar from what we have heard from other leaders, “I was just possessed by some deeper feeling about what was right and what was wrong. My sense of responsibility, looking back, was deep; I had complete devotion to the legacy of this great company.”

Recreating the Owner’s Mindset

Sometimes, especially in high-touch service businesses and businesses where the key employees are spread across lots of autonomous units, the best approach to begin to attack stall-out is to reempower, reenergize, and refocus the army of people at the front line. Recall the remarkable fact that we cited earlier in the book: that employees who feel engaged and empowered—who possess an owner’s mindset, in other words—will volunteer solutions to problems and come up with innovative ideas 3.5 times as often as those who don’t.

Reintroducing an owner’s mindset is a powerful technique for resisting the southward winds and avoiding stall-out. And there are several ways to do this. One is to foster entrepreneurs within the company itself, changing the mix of leadership, creating new role models, and engineering “mini-founder” experiences that create this sense of ownership. Another is to change the ownership of the company itself. At the extreme, this might involve going private, taking in professional private equity partners, or both.

Let’s look at each of these approaches, starting with the idea of going outside of the company to acquire young companies and engaging their founding team productively in the larger enterprise. Many companies, particularly those in technology-driven businesses such as Cisco and eBay, have done this successfully. To illustrate, we turn to the example of eBay.

Go Outside to Renew the Inside

When John Donahoe took over as CEO of eBay, he faced some enormous challenges. Initially a huge success story, and one of the first dot-com companies to scale to a large size, by 2008 eBay had stalled out, a victim of new online retail competitors and of its own attempts at diversification, including the purchase of the telecom company Skype. Its aging e-commerce auction model now seemed vulnerable to competitors, and its stock price was in steep decline, having dropped from $59 per share in 2004 to a low of $10.

Donahoe recognized what was necessary to get the company moving again. He had to divest from the noncore businesses the company had acquired, he had to revamp its e-commerce platform, and, most important, he had to shift its focus to one of the great hotbeds of innovation today: mobile commerce. He knew he needed to make a spiky investment in a new capability, and mobile, he understood, was the place to do it. To successfully enter the mobile space, however, he realized he would have to turbocharge eBay’s innovation pipeline and capabilities, and the only way he could manage that, he told us, was “to fill eBay with young entrepreneurs.” So he began to do just that, guided by what he knew about helping companies in stall-out: to succeed, sometimes you need to bring in outside forces to help.

Not long after he took over the helm, Donahoe began to acquire small, founder-led companies at a clip of about one every three months. He was especially interested in keeping these new founders and their teams within the company, often so that he could move them into core-business positions, where they could apply their insurgent skills at scale. “Many of these founders like our approach,” Donahoe told us, “because they can innovate at scale in eBay, and they get to expose their innovations to 130 million customers globally.”

That’s the approach Donahoe adopted with many of the founders he brought into the company, such as the then-twenty-five-year-old Jack Abraham, the founder of Milo.com, a company that searched stores for the best-priced merchandise. One day, at a regular Friday meeting that Donahoe held with company leaders under thirty, Abraham raised his hand and proposed a major innovation for the core business. Donahoe told him to go figure out what he needed to explore the idea. Immediately after the meeting, Abraham found six of the best developers at the company, went out for drinks with them that night, and convinced them to leave with him the next morning for two weeks in Australia to work on developing a prototype.

What they came back with blew Donahoe away. “It was the best innovation I had seen in years,” he told us. “Had we asked a normal product team, I would have gotten back hundreds of PowerPoints and a two-year time frame and a budget of $40 million. Yet these guys, with the ‘founder’s mentality,’ as you call it, went away, worked 24/7, and built a prototype. These guys see things most can’t see. They build. They do no PowerPoint. They just build.”

This strategy—bringing in outside help to revive the owner’s mindset—has paid off handsomely for many companies. It has been one element of eBay’s turnaround, along with other developments, among them the successful spin-off of PayPal, which has given eBay more independence—another example of how to enhance the founder’s mentality. In Donahoe’s seven-year tenure as eBay’s CEO (before stepping down to serve as the chairman of PayPal), the company’s stock price has increased five-fold. Obviously, this approach is most suited to companies in fast-moving markets where incumbents need to constantly add technologies and build new capabilities. But for those companies, it can be a very effective way of creating new entrepreneurial energy.

Sometimes you don’t even need to go outside for help. Instead, to dial up the founder’s mentality, you can create your own entrepreneurs by fostering new businesses and “mini-founder” experiences. We are not talking here about how companies can create the conditions for internal start-ups, a strategy that has been covered extensively in the business literature, and that has been adopted over the long term by a number of big companies with stall-out problems, including General Electric. As we’ve said, our approach in this book is to focus on solutions that companies can implement more quickly in order to produce meaningful results in the short term. Telenor Group is a case in point.

Create Internal Founders

The Telenor story starts in 2007, when a telecommunications engineer named Ronny Bakke Naevdal arrived at Telenor Pakistan as its new head of strategy. Telenor had grown to become the country’s leader in mobile communications—no small feat in a country with one of the highest penetrations in South Asia—but the company lacked the robustness necessary to stay on top in Pakistan’s highly complex and costly market. It was lacking in new growth opportunities. Naevdal’s mission was to reverse this trend, and not long after he arrived, he and his team decided that the best way to do so would be to develop an entirely new business in mobile banking.

“When we started to really study this in detail in Pakistan,” Naevdal told us, “we were struck by a few facts on the ground. First, we were the market leader in mobile subscriptions, had a known and well-trusted brand, and had an amazing geographical footprint, across 150,000 points of sale in small shops throughout the country. Virtually no one else had this kind of scale asset. Surely this could be leveraged somehow. Second, Pakistan had only 4,000 bank branches in this entire country of 180 million people, resulting in less than 40 percent geographical coverage of basic banking. Third, what people were often doing to transfer money was incredibly convoluted. We saw a big opportunity to build a new business to solve this fundamental problem.”

Naevdal’s goal was basic but ambitious: make mobile transfers standard, simple, blind, and inexpensive. In a large and complex country such as Pakistan, however, changing banking practices was a formidable task, the kind of job that the founders of a solo start-up would have almost no chance of succeeding at. Lacking any banking knowledge, Telenor quickly realized it needed a partner. Rather than selecting a large bank, as many other companies would have done, Telenor made the bold move of partnering with the small but agile Tameer Microfinance Bank. That association provided powerful advantages including large scale, national presence, and an international reputation. And the company was able to use those advantages to convince regulators to allow significant changes to the banking system that enabled more financial inclusion.

Only a company as large, credible, and powerful as Telenor could convince regulators to allow such changes. And only a company such as Telenor could at once leverage its national reputation and its local relationships with the thousands of mom-and-pop stores. At the same time, only a small, nimble, and high-energy start-up, of the sort Naevdal and his team were creating as mini-founders, could create thousands of points of sale in mom-and-pop stores without a single Telenor employee present. And only a start-up of that sort could partner with (and later buy) an indigenous bank with only six hundred employees.

The approach worked. Because it had adapted so well to local conditions, Naevdal’s business took off rapidly, and its success soon made Telenor the largest bank in Pakistan, as measured by transaction volume, with 50 percent market share of mobile banking and 10 percent of the total national cash flow moving through its system. Moreover, the company’s control of mobile banking helped reduce churn in Telenor’s mobile-phone business and expanded its reach to 200,000 mom-and-pop stores throughout the country. And all of this helped make Telenor a more robust incumbent, better able to resist the southward winds.

In this chapter, we’ve discussed three ways to attack stall-out, each of which involves a renewal of the founder’s mentality. The first renews the insurgency and increases the fundamental metabolism of a company by lowering cost and complexity, as in the cases of Perpetual and Cisco. The second reempowers and reinvests in the people and details at the front line of the business, as we saw in the cases of The Home Depot and 3M. The third revives the owner’s mindset by creating internal founders or by changing the ownership structure itself. All three are powerful fulcrums for change, but none is enough on its own to cope with the most dangerous crisis of growth: free fall.

USING THE FOUNDER’S MENTALITY IN YOUR ORGANIZATION

Launch a highly visible campaign against bureaucracy in which you:

–Kill at least one nonessential layer, process, or reporting requirement every month for a year.

–Single out as “the new heroes” those who do what it takes to get things done for customers.

–Create a strategy compass with your leadership team. Use it to guide you toward a set of required front-line routines and behaviors that will allow you to beat competitors every day.

–Routinely ask your people if they would recommend that a friend work at your company. Follow up with those who say no. What needs to change to make them say yes?

–Look at the degree to which power has shifted from the franchise players and the front line to corporate staff and functional departments. Use your Monday meetings to take one action a week to empower your franchise players and ensure that key functions support them more effectively.

–Benchmark cost and speed against your most successful insurgent competitors. Make “getting back in shape” your top priority in closing the gap.