Action Plan
for Leaders
Infusing the Founder’s
Mentality at All Levels
of Your Organization
We return to our starting premise. To win consistently on the outside in business, you must also be set up to win on the inside. And the best way to do that is to embrace the founder’s mentality.
This is the job of the leader, as we’ve tried to make clear throughout this book, but by “leader” we don’t just mean the CEO. We mean all leaders. Imagine the power of an organization in which leaders at every level embraced the founder’s mentality. A company of insurgents is a powerful thing. It’s what Michael Dell had in mind when, in talking about reviving Dell, he said, “I want to create the conditions of the largest start-up in the world.”
This last chapter offers lessons for leaders at all levels in an organization—practical lessons about how to overcome the predictable crises of growth and how to get started on Monday morning.
We bring several strong biases to this discussion.
First, leadership is learnable. It can be mentored, measured, practiced, and improved.
Second, leadership is not just for the CEO. The companies that most successfully maintain the founder’s mentality behave as if they have an army of leaders, not one. The CEO of these companies leads by making his or her people better, as Sir George Buckley did with the engineering leaders at 3M, as John Donahoe did by dialing up the entrepreneurial culture at eBay, and as Carlos Brito has done at AB InBev by giving young, hungry employees large goals and lots of running room.
Third, the founder’s mentality is not just a luxury for companies that are already successful and now want to pay attention to their people. No, just the opposite. Companies that lose the hearts and minds of their employees, no matter what their size or type of business, will eventually lose to insurgent companies who attack them. Without the founder’s mentality, incumbents become bureaucrats, making them increasingly vulnerable to insurgents who are adapting and scaling faster than ever.
Finally, the attributes of scale insurgents are relevant for all business leaders. As we’ve emphasized throughout this book, scale insurgency should be the goal for businesses who hope to grow sustainably and profitably (see figure 6-1). Scale insurgents achieve an advantage from growing to large size (economies of scale, market power, and advantaged learning) and from maintaining the traits of the founder’s mentality (insurgency, front-line obsession, owner’s mindset). And that advantage is hugely significant: scale insurgents account for about two in three companies that achieve more than a decade of sustained and profitable growth. They also dominate the list of “best places for talent” in their respective industry.
FIGURE 6-1
Scale insurgency as an objective for leaders
This book is replete with examples of businesses renewed by leaders who saw potential that proved unattainable to their predecessors, and who harnessed the power of the founder’s mentality to achieve it:
- Kent Thiry and his team transformed DaVita from a decaying business near bankruptcy to the best-performing health-care company in America.
- Jørgen Vig Knudstorp took LEGO Group back to its core, creating more customer intimacy by transforming it with new technology and new ideas.
- The investors in NXP purchased a company whose parent had given up on it and then renewed it dramatically by simplifying it.
- Motivated by the power of an idea, the founders of AB InBev made an almost profitless Brazilian brewery into one of the great scale insurgents of our time.
- And Steve Jobs, of course, saw potential in Apple when others did not, and made it into the most valuable company in the world.
These leadership teams would all readily cite the many fortunate events that have helped them along their paths to scale insurgency. However, they weren’t just lucky. They all believed passionately that they had more potential than most observers recognized. They pursued their full potential relentlessly. As Brito, the CEO of AB InBev, told us, “We’re never happy with where we are. We always think we can do more.”
Our previous books on strategy have all made the search for full potential their point of departure: full potential in the core (Profit from the Core), full potential in surrounding adjacencies (Beyond the Core), full potential in businesses whose models are becoming obsolete but still have assets to build on (Unstoppable), and full potential in the adaptable, repeatable business model (Repeatability). At one level, this book is no different. It, too, makes the search for full potential its starting point. But the difference, as we’ve pointed out repeatedly, is that all of our previous books focused on the external game of strategy, and this one focuses on the internal game.
That’s a game that all leaders have to play well, and we’ve found that nothing teaches it better than lessons derived from the founder’s mentality. We’ve identified three important areas in which the founder’s mentality can teach leaders valuable lessons. Let’s explore them next.
Self-Awareness
Companies find it enormously difficult to maintain self-awareness as the crises of growth hit and to make a realistic assessment of their vulnerabilities. To maintain self-awareness, watch out for the following problems:
Fundamental measures are missing. Companies assess their health on the outside with lots of outcome measures (profit, revenues, customer counts, market share, average prices, and so on), but they don’t take good stock of the health of the core with nonfinancial, root-cause measures. These are essential. Such measures helped Dell set the world record for speed to scale. We like the idea of using customer and employee advocacy among these measures.
Listening to the wrong voices. What you hear depends on whom you listen to. Leaders who are strapped to their desks and surrounded by staff people who echo their ideas can easily fall into this trap. They have no connection to the fresh intelligence and dissenting ideas that arise at the front line. Consider the case of Ed Telling, the former CEO of Sears, Roebuck & Company, whose story Bernie Marcus, one of the founder’s of The Home Depot, holds up as a bad example and a motivator to all Home Depot executives. “Telling hated being in the stores,” Marcus and his cofounder Arthur Blank wrote, “and that was where the bread and butter was coming from. That was what paid his salary. He never understood that. In this company we do understand that. That is why we insist that every executive of this company works in the stores upon joining us. This policy even applies to our attorneys.”1 It’s obviously ironic that this is one of the principles that The Home Depot lost sight of when its founders left. It shows how easily it can happen.
The lesson for leaders: make sure you have access to voices from the front line. They are your best defense against self- deception. Get out to the front line, hold meetings in plants and warehouses, and insist that those reporting to you do the same thing. Well into his nineties, M. S. Oberoi was still commenting on customer cards. Jeff Bezos has a designated person at key meetings to represent the customer voice at Amazon. Kent Thiry of DaVita does weekly calls where any employee can phone in; the last one involved four thousand people. “The bigger Walmart gets,” Sam Walton said, “the more essential it is that we think small. Because that’s exactly how we have become a huge corporation—by not acting as one.”2 Ray Kroc, the founder of McDonald’s, had a great perspective on the power of a bottom-up perspective. “I work from the part to the whole,” he said, “and I don’t move on to the large-scale ideas until I have perfected the small details.”3
The tyranny of the short term. The way to lead is not to wait for crisis and then take action. Great leaders manage their time like a strategic resource, both to model the behavior for others and to shift attention to the things that matter most. “If you’re in a leadership position,” Andy Grove, the founder of Intel, once said, “how you spend your time has enormous symbolic value. It will communicate what’s important or what isn’t far more powerfully than all the speeches you can give.”4
Strategic change doesn’t just start at the top. It starts with your calendar. Ask yourself whether you are really in control of your own time, and when was the last time you and your team looked at how you spend your time (with customers, in front-line facilities, with high-potential young leaders). The answers might surprise you.
One more tool of self-awareness: use the founder’s mentality map and a founder’s mentality survey to define your current situation. You can find a simple version of this tool for your use at our website: www.foundersmentality.com. If you don’t know where you are in the present, it is hard to figure out the best route to the future.
Common Ambition
“If you don’t have a dream,” Les Wexner told us, “then it can’t come true.”
This idea seems obvious, but it can get lost. As companies grow and professionalize, their stated missions can devolve into generic, uninspirational statements of corporate ambition. Barnes & Noble: “to operate the best specialty retail business in America, regardless of the product we sell.” Avon: “to be the company that best understands and satisfies the product, services, and self-fulfillment needs of women globally.” Too often, mission statements leave employees with no clear idea of what their company strategy is, or what makes it special.
Three bad things happen when an organization’s ambition becomes diffuse and vague. It loses the ability to inspire; short-term financial targets and crises begin to dominate the agenda, because there is no concept of what is being built in the long term; and the key principles on which decisions are made become blurred. Great leaders leave no ambiguity about what is important. They simplify the message to its elements and they talk about it all the time. That’s what Kevin Sheehan did when he took over Norwegian Cruise Line: he reinvigorated his ground staff and onboard crew with a very personal sense of mission.
Several concrete ideas can help leaders to do this better and more often.
Manage the founder’s mentality like a key strategic asset. If you agree that the elements of the founder’s mentality are as important as we argue in this book, then you should manage that mentality like the strategic asset that it is. Ask yourself whether you are doing this. Go back and look at the agendas of your last five management meetings and last two strategy off-site meetings. Ask when was the last time that you really talked about the differentiation that propels your business model and how you are going to keep it fresh, about what your front-line employees are really saying and feeling, and about how quickly you decide and act relative to outside benchmarks. These simple questions target the strength of the founder’s mentality in an organization, and leaders who ask them often discover that the crush of day-to-day concerns has pushed out some of the things that matter the most. Try devoting a half day at your next management off-site meeting to exploring these questions, using data, not opinions. You might be surprised at what you find.
Reach directly down into the organization. The deep concerns of top front-line employees are the best source of raw, current information on customers and often foretell the advent of overload or stall-out. When Tex Gunning, a Dutch CEO who has made a career of leading companies out of difficult crises of growth, took the reins of TNT, a troubled express-package delivery company centered in Europe, he spent the first six weeks at the front lines of the business—in the depots, on the trucks, and with customers. He also sent all seventy thousand of his employees an e-mail soliciting issues, ideas, and concerns. He received over a thousand responses and answered all of them himself. Today, he feels that this was an essential first act: it helped him learn and allowed him to send a signal that the new leadership was going to start by focusing on the front line, not headquarters.
For more than a decade, our own company, Bain & Company, has won awards as the “best place to work” in America. We believe that part of this tracks to how we invest in front-line concerns. For instance, we survey every project team every single month using an online tool and insist that the manager of each team review and act on the results on the spot. The intervention is so valued that we are on the verge of doing this every two weeks and, for some teams, every week. It takes very little time but surfaces issues and concerns instantly, at the point where we can take action. This isn’t just a tactic for large companies. We recently shared our Bain survey with See Wai Hun, the founder and CEO of Juris Technologies, a young, fast-growing, financial-software company headquartered in Kuala Lumpur. The next day, she wrote to us to say that the company was already moving toward implementing it—the founder’s mentality in action.
No matter how large your company is, go back and look at how you get direct input from employees in the field, with customers, and at production facilities. Are you getting as much as you can from them? Are you using what they tell you? Would they agree with you?
Create a Compass
In 2009, when Paul Polman took over as the CEO of Unilever, he inherited a company in stall-out. Its revenues during the previous decade had declined in a market that was growing fast, its top-four consumer-goods rivals had significantly outperformed it in the stock market, and analysts were describing its previous decade of performance as “purgatory.” To turn things around, Polman took a very practical—and necessary—step. He and his top managers created a document called the “Compass,” which consisted of a new purpose for the company, a high-level goal, and twelve nonnegotiable principles designed to create more cohesion and reduce complexity. And he used the “Compass” to steer the company back onto the path to scale insurgency.
It wasn’t easy. At the time Polman took over, Unilever was huge. Not surprisingly, it was also complex—so much so that it is consistently cited as one of the world’s most complex companies. Taking the reins of Unilever in stall-out was therefore a daunting task for Polman, who was the company’s first CEO to be hired from the outside. But he took the challenge in stride. “Coming from outside in a very difficult economic environment,” he told us, “I had to find a way to be accepted in the company. I did two things. I spent a lot of time studying the values of the company, how it was built. And I had to find a purpose to grow for a company that was not growing. I put the two things together. The purpose of the company has always been to improve people’s lives, has always been to make communities in which you operate successful. I said, ‘We will create a model where we double our business. While doubling our business, we will reduce our environmental impact and increase societal impact.’ I created a strong purpose by putting the best of Unilever together. We changed the compensation system for the longer term and put out some clear signals to tell people that while there might be a crisis, we were investing for the long term.”5
With a draft version of the “Compass” in hand, Polman and his managers hit the road to hold forums to explain and refine it. When they were done, thousands of employees had participated in the process. They then converted their nonnegotiable principles into plans for action. For instance, they found that a barrier to growth in many regions of the world was talent, yet strategies were approved routinely without a human resource plan. As a result, one of the nonnegotiables stipulated that no strategy would be approved without a detailed human resource plan. Each nonnegotiable had similar measures tying it to the routines of daily life.
Polman has turned Unilever around with great skill. Since he took over, revenues have grown by 22 percent, profits by 60 percent, and the stock price has doubled. Employee engagement across managers is at 75 percent, an all-time high, and in 2014, Unilever was ranked by GlobeScan and SustainAbility as the company doing the most in the world to promote sustainability.6 Polman connects that achievement directly to a principle set out by William Lever, one of the company’s founders, whose core product line consisted of bars of soap designed to improve hygiene during the Victorian era.
Take the time to codify your key principles and use them as a compass to help chart your course. The practice leads to a strong sense of purpose and a powerful consistency of action, and it works for companies of all types and sizes—as we’ve observed in our studies of Marico, DaVita, Norwegian Cruise Line, IKEA, and LEGO Group.
Essential Decision Skills for the Inner Game of Strategy
Warren Bennis, perhaps the greatest student of leadership, observed that troubled organizations tend to be overmanaged but underled. “The distinction is crucial,” he wrote. “Managers are people who do things right, and leaders are people who do the right things. The difference may be summarized as activities of vision and judgment.”7 Bennis goes on to distinguish the efficiency of good managers from the effectiveness of good leaders, a distinction that we have focused on in our own work on the founder’s mentality. Here are a few techniques that make the leaders of scale insurgents so effective.
They Employ Janusian Thinking
Janusian thinking is a term coined by the psychiatrist Albert Rothenberg to denote the creative benefits that can emerge from considering opposites simultaneously. Janus was the Roman god of beginnings and transitions, usually depicted with two faces staring in opposite directions. Some of the world’s most creative thinkers, Rothenberg argues, developed their signature ideas in this two-faced way by conceiving of firmly held propositions as “simultaneously true and not true.” This can lead to some extraordinarily creative thinking. (Einstein devised his theory of relativity in part by imagining that a man falling from a roof could be at rest and in motion at the same time.)
Simultaneously pursuing the benefits of the founder’s mentality and the benefits of scale is a classic Janusian endeavor. To create a great insurgency, founders have to ignore industry boundaries and embrace the notion of limitless horizons, but to acquire the benefits of scale they also have to focus tenaciously on the core business and the hard, detailed work of continuous improvement. Both of those things are fundamental to a successful scale insurgency, and they are fundamentally at odds. Likewise, insurgents need to embrace chaos, so that they can mobilize and demobilize resources rapidly to win and maintain customers. But large incumbents derive much of their strength from fixed routines and behaviors, and from riding down the experience curve. The leaders of scale insurgents—companies such as LEGO Group, Yonghui Superstores, Olam International, Haier, Amazon, L Brands, Google, and IKEA—have adopted Janusian ways of thinking about these competing demands, and this allows them to become more than just the sum of their parts. They have managed to forge new amalgams of both scale and speed.
They Say No to Say Yes
One of the true scale insurgents of the finance industry is Vanguard, the investment company founded in 1974 by the legendary investor John Bogle. Bogle founded Vanguard with a simple idea in mind: he believed that small investors could not beat the market in the long term and so based his strategy on the power of indexed stock funds with very low fees. That strategy has propelled Vanguard to become the largest mutual fund company in the world, with $3 trillion of assets under management (making the company now larger than the entire hedge-fund industry). Nonetheless, despite massive temptations to diversify, the company has stayed focused on its core business and core smaller investor customers. We recently asked Bill McNabb, the current CEO, to explain the company’s decision-making philosophy to us, and his answer was simple. “Many of the most significant strategic decisions we have made,” he said, “have been the decisions to say no to things.” The company has turned down all sorts of private equity, real estate, and international ventures simply because they would have distracted Vanguard from its core mission. McNabb told us that the company has even turned down large checks from investors who did not meet their profile, something unheard of in the industry.
The most common strategic root cause of stall-out is the premature abandonment of the core business, or, to put it another way, the inability to say no to new opportunities that don’t fit with a company’s core mission. Just think of the fifty-six adjacencies in Cisco’s portfolio or the loss of focus at Perpetual. Great leaders, we’ve observed time and again, make clear what a company stands for (its nonnegotiables), because that helps them say no to tempting opportunities that will detract energy or resources from the core. They set the decision-making hurdle very high.
Companies can make it easier to say no in a variety of ways. One is to adopt a philosophy that requires you to kill projects or products at the same rate that you add them. Another is to do what AB InBev does: start the decision-making process by saying no to everything, through zero-based budgeting. One of the easiest ways a leader can get in trouble is to adopt the “let a thousand flowers bloom” approach to investing. It won’t work, and great founders know it. They know the power of saying no.
They Use the Power of 10X
A few years ago we studied a major European conglomerate with over fifty distinct businesses spread across dozens of markets. The company had experienced no organic growth in over a decade, the stock price had melted away, and it was seeking growth in all the wrong places. We soon realized why. First, the growth of most of its acquisitions (many of them founder-led companies) had actually slowed after being acquired, the opposite of the justification for their purchase, of course. Second, the company’s capital was spread uniformly across an extraordinary range of business types and competitive positions. The company was making big bets on its acquisitions, but it had many companies in the family, and it treated them all equally. It invested in its bad businesses hoping that they would become more like the good ones, and it didn’t invest hugely in the good ones, because they were doing fine. The result? Consistent mediocrity.
Scale insurgents reject that approach. They are spiky in how they allocate funds and use the power of 10X, by which we mean a willingness to commit ten times the normal resources to a project. For example, Amazon has learned that same-day delivery could increase revenues significantly, and it is also aware that new insurgent start-ups like Instacart and WunWun are focusing on the instant delivery of certain products. So it has invested in its own delivery fleet, drone technology, and more.
The larger a company gets, the smaller it often starts to think when it comes to investments. This process is insidious, and scale insurgents watch out for signs that it is setting in. They always look to make large investments that will best differentiate them in their core. That’s how Mukesh Ambani, the wealthiest man in India, has made Reliance Industries, the Mumbai-based industrial giant founded by his father, Dhirubhai Ambani, the most valuable company in India. Guided by a principle he calls the “owner’s mentality,” which he likens to the founder’s mentality, in 2000 Ambani thought big about critical capabilities for the future core of his business and built an integrated petrochemical complex designed to serve a full 25 percent of the giant Indian market, with technology and scale that gave it a 30 percent cost advantage over his regional competitors.8 Most companies would have backed off from such an investment.
The bottom line: great leaders fight entropy. Be willing to step up to a 10X decision, especially to invest in new assets and capabilities to renew the core.
They Pursue the “Hidden” Root Cause
Great scale insurgents use the founder’s mentality to identify problems at their roots and pull them out. Toyota does this with its production system. Whenever workers on the production line see a problem, they immediately set in motion a process of root-cause analysis, sometimes called the “five whys,” in which they drill down with a series of “why” questions until they arrive at the real root cause of the problem. We have found that the best leaders intuitively do the same not only for manufacturing problems but also for broader business issues.
Vikram Oberoi is a good example. He once told us how a guest complained on a comment card that her tea was delivered cold. The hotel manager wrote a gracious note of apology to her but didn’t investigate the details of the issue, as Vikram discovered when he read the manager’s note, called him, and began to probe. (Recall that he is the CEO and has thirty other hotels to worry about.) “The customer was English,” Vikram told us, “and I was confident she’d know her tea. So I asked the hotel manager to measure the temperature of the Oberoi hot water against that of a normal tea kettle. And there was a difference. So I asked why that was, and we found that the machines that produced hot water were perceptibly colder toward the end of the descaling cycle. We asked why that was and found that we didn’t have a standard maintenance program for the machines that took into account the changes in temperature over time. We checked with other Oberoi hotels and realized this was a common problem. We were all delivering slightly cool tea at a certain point in the maintenance cycle. So we solved it. This is how we try to raise our standards every day.”
The bottom line: take the extra time and energy to be an active listener. Use the five whys in your business meetings. It might drive those around you crazy, but it will raise the standard of dialogue and increase attention to detail.
They Invest Massively in Next-Generation Leaders
We have never met a leader who felt that he or she had overinvested in talent.
Sunny Verghese, the CEO of Olam, is directly involved in all promotions of his top eight hundred employees, each of whom he knows by name and has an opinion about. Until recently, he insisted on interviewing all hires from the outside—in a company of twenty-three thousand people. AB InBev applies this same level of attention to its hiring. “Talent management,” Jo Van Biesbroek told us, “is easily over a third of all executive time when you count it all. It is big.” He went on to describe that talent management is especially important because of the uncommonly large jobs and aggressive targets that AB InBev is willing to give to people very early in their careers. “The first time you come in,” he said, “you get a hugely difficult target, and we watch for the reaction. You get lots of coaching and guidance, but if you don’t embrace challenge, that is a sign. The key element in all of this is how to apply the meritocracy. Everyone talks about it, but our whole system is built on meritocracy. It is why our investment in young talent is so high.”
We could go on. The great leaders of scale insurgents invest a huge amount of their time in recruiting talent, mentoring talent, promoting talent, and trying to retain talent. They see clearly that the ability to grow as a company requires the ability to grow their people. Most of these companies have strong biases to promote internally and create lots of general manager and even mini-founder opportunities within the company, to foster responsibility and leadership experiences for their most talented people. The best scale insurgent companies are antibureaucratic and intensely meritocratic. That’s because without the right talent, and without a meritocracy to motivate it, companies stop growing.
Consider the following questions: Is the company as much of a meritocracy as it was in its younger days? When was the last time you overrode your human resources systems to reward a true hero of your business, or an extraordinary star? Companies build systems around the averages not the exceptions; sometimes large formal systems need to be overruled.
They Invest Preemptively in Building New Capabilities
Virtually all of the lasting success stories we’ve explored in this book required a major investment in one or more new capabilities to strengthen or adapt the business model. In the crush of changing the team, redefining and communicating the insurgency, stripping out complexity and cost, and refounding the company internally, it is easy to delay or underinvest in this step. But that would be a mistake. Early in the transformation process, you and your team must ask yourselves what capabilities you need to build or acquire to become fully competitive again.
In her book The End of Competitive Advantage, Rita Gunther McGrath argues that any individual advantage in the marketplace today is likely to be fleeting, and that companies therefore need to be constantly investing in their next-generation business model and new capabilities that will differentiate it. Let’s illustrate how this works at a company that we know well, and whose ascent to scale insurgency has been based on an ability to constantly build significant new capabilities to push the boundaries out and innovate around its business model. The company is Olam.
From its modest beginnings, in 1989, building a uniquely safe and corruption-proof supply chain to bring cashew nuts from Nigeria, Olam has expanded to forty-five commodities in sixty-five countries, reaching a level of $13.6 billion in annual revenues and more than $650 million in profits. The company’s success has made it one of the best-performing IPOs in Asia of the last decade and its CEO, Sunny Verghese, has won many awards, including CEO of the year in Southeast Asia. The company’s performance is all the more amazing given the low growth of its markets, the practical challenges of building secure supply chains in places like Nigeria, and the inherent complexity of the business.
Consider this. Before Olam, the typical cashew farmer would sell his crop to a local intermediary, who would then sell the shipment to a distributor, who would then hire someone else to transport the product to warehouses where large global companies would collect it. No one “owned” the full supply chain. As a result, it was leaky, unreliable, hard to trace, and rife with corruption. Farmers received only a tiny fraction of what they were entitled to. Verghese and his team believed that they could differentiate the company to global customers like Nestlé by focusing on the end-to-end supply chain, with the goal of managing the whole thing themselves. Olam succeeded and now has the only supply chain in its key markets that is completely controlled from the farm gate to the end user. Anyone who wants to be a manager at Olam must spend at least three years living in a rural community doing the ground-level work.
Olam is built around four capabilities that differentiate it. Twice a year Verghese takes a week to train personally key managers on what makes Olam special and differentiates its model (built around the most secure supply chains that allow every nut to be tracked back to its origin). The company calls it core process training, and it is a big deal. These sessions ensure that all key employees achieve deep understanding of the handful of capabilities that give Olam competitive advantage. The company is constantly asking itself and acting on this hierarchy of questions we suggest everyone consider for his or her business:
Only after that final question do you finally get to the fundamental capabilities at the center of Olam’s insurgency now and also in the future. This sequence of questions drives you toward the crown jewels of a business.
Olam’s profitable growth, which now spans decades, is a story of reapplying its repeatable model in product after product and country after country. As the company grew, it became expert at adding new capabilities that enabled it to enter new markets and attack nearby profit pools. For instance, the company recognized that secondary processing like sorting, blanching, roasting, packaging, and crushing could be great additions to its supply chain capabilities, doing more of the processing near the origin and delivering a more value-added product to customers. It therefore gained those capabilities, as well as the skill to acquire and integrate local businesses without the need for intermediaries.
We talked earlier about how the great insurgencies are built around the “spikiness” of a few exaggerated strengths. Great companies would rather invest an order of magnitude more than normal, committing the power of 10X to a few deep strengths. Being spiky, not average, is how to win.
We have developed a simple tool for readers to start this discussion. It is a matrix of fifteen basic capabilities and assets that emerged from our analysis of the key differentiators across two hundred businesses and their nine hundred sources of differentiation. You can use the matrix as the starting point to drill down several more levels, like the Olam questions, to the essence of its most important capabilities. (See figure 6-2, which first appeared in our book Repeatability.)
Every leadership team—especially those in free fall—should ask the following questions, because, at some point, they will prove to be central to survival:
- What were the strongest capabilities at the core of our past success?
- Are they still relevant and robust?
- What capabilities will we need to compete (“spikiness”) in the future?
- How and how much will we invest to acquire these capabilities?
They Shift More Focus to Long-Term Goals and Horizons
Investing preemptively in new capabilities is one of the toughest decisions for a business leader. Why? Because investing requires both cash and expense investments, because it seldom pays off right away, and because, especially in the glare of public market scrutiny, there is seemingly never a good time to do it. The result is a tendency always to be too slow to invest in a major capability, or to try to bootstrap it in a way that never builds the required level of skill fast enough.
But the good news is that there are tactics that leaders can adopt to shift the focus much more toward the long term, which also serve to reinforce the elements of the founder’s mentality. Let’s look at the example of one founder who has managed this effectively both internally and externally: Robert Keane.
In 1994, Keane founded his company, Cimpress, in a Paris apartment. The idea for the company came to him in the form of an insight that he developed in a class on entrepreneurial ventures at the business school INSEAD. He identified a huge need in micro-businesses for the high-quality printing of everything from business cards to signage, which, he realized, constituted half of the market for commercial printing but did not make much money for the high-volume print shops. Keane developed proprietary practices of what he calls “mass customization” that allowed him to gain economies of scale across the thousands of tiny print orders. His approach, he told us, amounted to “a classic disruptor strategy, starting at the low end of the market that the incumbents were not really pursuing.”
It took a while for Cimpress to move from start-up to insurgent, but by 2005, the company had found the formula for its first stage of growth: a repeatable model that allowed it to attack different print segments and different geographies using the Internet for orders, and regional printing facilities with special batching software that enabled mass customization. In 2005, the company hit $90 million in revenues, and by 2011, it had grown by a factor of nearly 10X to more than $800 million. But then overload hit: growth was slowing, margins were compressing, and investors were worrying. “We had a rocket in the right place and right time with a huge cost advantage,” Keane said. “We had grown from nothing to $800 million in eight years. But I was worried about signs of slowdown, and even a creeping cancer that stemmed from an insidious cockiness that we could walk on water. We were working very hard but getting physically worn down, and we wondered if we were getting fat and slow. We needed to invest in upgrading our capabilities and in simplifying our business internally, especially how we made decisions. We also decided to start to make some big investments for the long term.”
Keane made a number of changes. He wrote a letter to the Wall Street Journal announcing that Cimpress was investing for the long term, abandoning annual earnings guidance, and shifting to reward executives and set targets on a longer-term basis. “We clarified the objective to be the world leader in mass customization,” he told us, “and to subordinate all financial goals to measures of intrinsic value per share.” As part of that effort, Cimpress shifted its focus away from short-term earnings and toward a focus on longer-term return on capital in order to, as Keane put it, “resurrect the entrepreneurial culture, work in teams with long-term goals, and invest to make sure we were lowest cost and fastest in our industry.”
This took courage: Keane and his team had to shift their model. They created more business units with clear accountability, even for spending capital. They eliminated all situations where a committee made decisions, creating single decision makers in each unit. They established explicit rules to define the “guard rails” of things like brand management and then let the business operators make the next-level decisions. They shrank corporate functions dramatically and increased the focus of decisions on capital allocation and building long-term capabilities.
The strategy is working. Organic growth at Cimpress has increased in all markets; the company has nearly doubled in size, to $1.5 billion; the mix of investors has shifted to those holding stocks for the longer term. As a result, the stock price has tripled, from $26 in 2011, when these initiatives began, to over $80 in 2015.
The bottom line: recognize the tendency for business goals to become increasingly short term, and fight against that in your capital allocation, internal goals and targets, reward systems, and communications to investors.
They Become the Guardians of Speed and Agility
As organizations grow, they inevitably become more complex and less focused, and they stop growing. This is the paradox of growth. Assemble a thousand human minds in the same building, tell them to simplify something, and they will work hard to make it harder. So leaders must be guardians of speed and agility.
Speed has been a factor in almost every section of this book. Speed to decide. Speed to deliver. Speed to market. Speed to restock inventory. Speed to solve customer problems. Speed to get to the root cause. Speed to adapt. Speed to acquire and integrate. Speed to see crises coming. Speed to prepare. Speed to act. Speed to grow.
Speed wins in most markets today, and scale insurgents know it. Despite their size, the great scale insurgents are among the fastest-moving companies in the world. Research by our colleagues in the organizational practice at Bain & Company shows a tight relationship between company performance, speed of decision, and perceived quality of decisions. Leaders of scale insurgents are acutely aware, we have found, of how their companies can slow down as they grow large. They fight this at every turn by rooting out some or all of the hidden killers of speed on the following list:
Hidden Killers of Speed in Organizations
- Excess complexity
- Energy vampires
- Debates in committees where no person “has the D” (the right to decide)
- Excessive organizational layers and span breakers
- Ambiguity around core principles and objectives and a lack of common instincts for how to react to competitors
- Trapped resources in departments (hence, the power of zero basing)
- Balkanized customer experiences with no single owner
- Lack of Monday meetings to de-bottleneck decisions and actions, leaving conflict unresolved
- Failure to embrace the power of repeatable models so that each new growth opportunity demands new and different capabilities
- Large corporate staffs endlessly initiating new activities to better inform themselves
The bottom line: leaders should make speed a competitive advantage in everything they do. Every leader should work to reduce the speed killers, promote measures of speed, and encourage new ideas that increase it. In his twenty years as CEO of General Electric, Jack Welch grew the company from $26.8 billion of revenues to almost $130 billion. But he was most known for improving its performance and speed. “When the rate of change inside an institution becomes slower than the rate of change outside,” he famously said, “the end is in sight.”9
But speed isn’t enough. Leaders need to be the guardians of agility, too. Throughout the book, we’ve talked about how CEOs can build more-agile companies. Yonghui, the leading Chinese fresh-food grocer, improves its agility by building insurgent “green store” businesses alongside its incumbent “red store” businesses, figuring that if a new insurgent is going to disrupt its industryes, it should at least be its insurgent. The leaders of Mey, the leading spirits player in Turkey, maintain their agility through Monday meetings, which they use to unblock obstacles to innovation and force the sharing of resources—and accountability—across functions and sales territories. AB InBev, for its part, promotes agility by embedding the owner’s mindset everywhere in the business.
They Share the Burden of Leadership across the Organization
When we talk about rediscovering the founder’s mentality, we don’t want readers to conclude that all roads lead back to the CEO. Nor do we want them to conclude that if they want change, they must wait for the CEO to act. No! Our point is just the opposite. If you have embraced the founder’s mentality, no matter what your role in a company, you never dismiss a problem as somebody else’s. You—and everybody else in the company—own it.
This leads us to the remarkable story of Jabo Floyd.
Floyd, a twenty-five-year veteran of Walmart USA, is the general manager of Distribution Center 6094, in Bentonville, Arkansas. If you want to understand the awesome benefits of size in a company, a Walmart distribution center, or DC, is a good place to start. DCs are testimony to the extraordinary efficiencies that come from scale and from continuous learning that accumulates over decades. Think of a DC as a massive sorting machine. On one side, more than a hundred trucks arrive each day from suppliers, and DC staff people unload their goods. On the other side, nearly two hundred trucks arrive each day from Walmart stores to collect the precise amount of goods needed to restock the shelves in each store. DCs collect no revenue; their performance is measured in terms of efficiency. How fast and accurately are trucks unloaded and loaded at either end of the process? How fast and accurately are goods sorted for the right store? Walmart DCs carry some inventory, but a large volume of the merchandise simply flows from an inbound truck to an outbound truck in a matter of hours.
As one would expect from Walmart, a lot of these efficiencies are realized through the sheer size of the operation. The Bentonville DC runs twenty-four hours a day; trucks arrive and depart from more than three hundred separate dock doors; roughly half a million packages a day travel across 11 miles of conveyor belts; and the trucks leaving the stores travel 1.8 million miles a month to serve the DC’s 167 stores. The teams that manage all this movement are headed by tough-minded Walmart veterans with years of experience in leading people to perform at their best. In a business that turns on extraordinary selection and responsiveness to customers, Floyd and his team are franchise players.
Size has its benefits, but as we’ve discussed in these pages, it can also erode a company’s speed and agility. That’s a major challenge for Walmart DCs, where balancing the agility-efficiency equation requires continuous improvement. As Walmart broadens the product assortment flowing to DCs, increases the number of smaller-format stores, and builds the capability to deliver packages for both store pickup and home delivery, speed and agility are more important than ever. Growth creates complexity, and complexity kills growth.
Floyd was struggling with the growing complexity of his job when he saw one of our talks about the founder’s mentality. Many senior leaders of the company were following the lead of the new CEO, Doug McMillon, who has spoken often about Sam Walton’s legacy and the importance of the founder’s mentality since taking the job in 2014. The messages have struck a chord. “I’ve been in the company for twenty-six years,” he told us recently, “and I run a business with lots of other tenured veterans of Walmart. These are folks with the gold badges who grew up in the insurgent time of the company. And we’ve been part of Walmart’s incredible growth and movement from insurgent to incumbent. When I saw the presentation on founder’s mentality, I said to myself, ‘Let’s start from today to act as an insurgent. Let’s take risks. Let’s have fun again. I don’t need to wait for someone else to act differently. Let’s just start, let’s challenge each other, and let’s do things differently.’”
In a large company, Floyd observed, it’s true that almost everything has been tried before. “It can be stifling,” he said, “because anyone can stop a brainstorming session by saying, ‘Oh, we did that in 1998, and it didn’t work.’” Floyd banned that kind of talk. “The team recognized that we had hit a wall. We needed new ideas and we needed to experiment. We all know we have to do things differently. We’re insurgents and we need to experiment. I don’t care how we’ve always done it and I don’t care that we tried before and failed. I care about trying and experimenting.”
One of the first experiments was changing the way productivity was measured in the DC. “We are very good at measuring each individual to the last detail of performance,” Floyd said. “But if an individual gets a bad truck—one that is very hard to unload and sort—their day is ruined. They see the truck and they know they’ll never recover for that day. It is soul-destroying.” Floyd started to make team performance the prevailing measure. “That way, we all jump in together and deal with the bad trucks, and then we can get on and deal with the easier trucks.”
Floyd and his team recognize that they are at the start of a longer journey. The power of the founder’s mentality lies partly in the mindset that it fosters as it spreads through an organization. He said,
I do think there is something in the idea of asking forgiveness, not permission. But experimentation must go hand in hand with a clear understanding of the guard rails. Walmart has this. Our CEO led an effort recently on the Walmart “Way of Working.” He worked with a lot of us to pool our best thinking about what this means in terms of ethics, of legal standards, of putting the customer first. It is simple and clear. My view is that as long as you are trained on the Walmart “Way of Working” and agree to comply with it, you should be able to experiment within these guidelines. We need to experiment and shake things up.
For Floyd, the benefit of acting like an insurgent is that it unlocks the potential of hundreds of teams working on the front line. “Look, I was a basketball coach,” he said, “and for me, it is all about the team. You want everyone to do their best and feel part of winning.” As a coach, Floyd didn’t want his players looking over at the bench and asking for directions. “I want them to face the opponent and win. Walmart is a team of teams, and if we can unlock the energy of each one but learn from all of them, we’ll get the best of insurgency and scale. Sometimes, the muscles that made you famous start to be the ones you stop exercising when you get there. Walmart was built on the energy and teams, and we can get those old muscles back again, while developing the new ones needed to respond to a more complex retail world.”
This new team-based orientation has helped with newly recruited associates. “We had a grassroots meeting to talk to our people about how the new team concept was working,” Floyd said. “One thing they noted was that this was a big hit with new hires. They now feel they are part of something bigger. They love the idea of being part of a diverse team. They like being teamed with veterans, and the veterans like the energy of new recruits.”
Floyd has had one of the more extraordinary careers in business. He started out with one of the great founders in American business, Sam Walton—a true embodiment of the founder’s mentality as we’ve described in this book. And during his career he has become a senior leader at Walmart, helping to make it one of the largest and most successful businesses in American history. But he’s not resting on his laurels. Even today, during a time of great turbulence for American retail, he wants Walmart to write the next chapter as a great scale insurgent, and he isn’t waiting to start. “I don’t want to be the old-school guy,” he told us, “the veteran who says we’ve always done it one way. What keeps me up at night is I wake up and feel that I’m not relevant anymore to the challenges we face. And I don’t want the young guys looking at me and saying, ‘There’s old Jabo, who’s done a good job for Walmart for twenty-five years.’ I want them to look at me and say, ‘There’s Jabo who is always trying to shake things up. Jabo is the fresh blood.’ I don’t want to be the good old guy. I want to be the insurgent.”
Floyd’s story and his ambitions are profoundly inspiring and a good place to end this book. Floyd has embraced the founder’s mentality, as we all can, and now the sky’s the limit. Imagine if you were the leader in your core business. Imagine if you were faster to the ball than anyone in your industry. Imagine if you had employees as energized and as committed as Floyd. If you could make that happen, your company would be the best place for the best talent to work, and you would become your competitors’ worst nightmare.