“Once your company is no longer small it tends to accumulate bureaucracy and you begin to lose the founder’s mentality,” says Chris Zook, author of “The Founders Mentality.” “That is the paradox of growth. Growth creates complexity and complexity is the silent killer of profitable growth. Complexity is also the silent killer of our lives in some ways. The solution is that every business should go through a sort of housecleaning to get to the core of the core of the core.”
Chris Zook, the Best-selling author of “The Founder’s Mentality” and an Advisory Partner at Bain & Company, recently spoke at ONE: The Alltech Ideas Conference (ONE19) in Lexington, Kentucky:
Massive Change Coming As We Shift to a Digital Economy
What are the most predictable barriers to sustaining profitable growth for organizations today? Why is it that some companies age prematurely? Why do others continue to grow? As the global economy has shifted from an industrial economy to a digital economy people see massive change coming. Nearly two out of three people believe their main competition in five years will be a different company and have a different business model than it does today.
Right now will be the slowest pace of change that you will experience going forward. Interestingly, it is also the fastest pace of change that you have ever experienced. The major barriers to growth are internal. Your company’s fate is in your hands.
Starbucks Refocused On the Customer Experience
Anybody could open a coffee shop. So how did Starbucks rise above all the rest to create a massively successful business in the coffee shop industry? For years the company’s trajectory looked like a high tech business. Then the founder Howard Schultz left and he turned the running of the business over to a management team. Then to the surprise of many loyalty scores from customers started going down. Same-store sales went down and this, in turn, caused their stock price to go down.
Starbucks founder Howard Schultz needed to come back as CEO to figure out what went wrong and right the ship. Were people simply sick of Starbucks? Actually, Schultz found that the company was inflicting self-inflicted wounds. It wasn’t any single big decision, it was many decisions made inch by inch that were creating the issue. The stores became cookie cutter and cluttered with big aluminum machines that ruined the experience. Customers didn’t love Starbucks anymore. That changed when Schultz focused the company on the customer experience again.
Maintaining the Founder’s Mentality
This is an example of how even successful companies can lose the founders mentality. The founder’s mentality dies when everyone aspires to be in the front office. Strategic problems outside often reveal deeper challenges and root courses of a breakdown inside companies. Businesses should look at the indicators of internal health. The first of those factors is Insurgency. What are we really about? Are we building something for the long term and not quarterly earnings? What is our core? For example, what is the core of Nike? It’s not the sole of the shoe. It’s Nike’s bold mission of uniqueness.
The second element of the founder’s mentality is what we call Frontline Obsession. When leaders move far from the frontline you lose the innovation engine and you lose talent. You also lose experimentation, frontline empowerment, and customers advocacy. Engagement levels are often lowest for those not interacting with customers. Generally, functions further down in the organization have lower engagement. Many companies erode from the frontline up.
The third element of the founder’s mentality is the Owner Mindset. The founder is the owner. They feel that their company is their baby. But as the years go people move to the main office, away from operations and the customer. Sometimes, as with Michael Dell, this prompts the founder to come back to the company.
Michael Dell Restored the Owner’s Mindset
When Michael Dell of Dell Computers noticed that PCs and company owned and managed servers started to not be as powerful as they once were. At one time they ubiquitous with business. Then AWS and the cloud started replacing servers and this impacted Dell’s business model. By this time Michael had left day to day management of Dell. But just like Starbuck’s founder, Dell brought Michael back to restore the owner’s mindset.
Michael Dell made a lot of bold changes including acquiring EMC, which at the time (2015) was the largest deal in tech history. Many people were openly skeptical. However, Michael Dell had a plan to simplify the company. He was actually going through the founder’s mentality playbook.
He really rebuilt the insurgency from scratch. At one point, he notably said that he wanted to make Dell the largest startup in the history of business. Dell is now wildly successful again, having significantly changed its business model while empowering an entrepreneurial spirit once again.
When I came to Lexington, Kentucky to speak today I asked about the early years of Alltech. Alltech’s founder, Dr. Pearse Lyons story is incredible. It is as incredible as Michale Dell’s. Dr. Pierce Lyons was way ahead of his time. He is is the quintessential expeller of these elements of the founder’s mentality.
Every Business Should Get to the Core of the Core of the Core
It is a fact that founder-led companies consistently outperform. A study by Bain showed that founder-run companies performed over 3.1 times more than others in the S&P 500. But organizations are just like humans in their life cycle. Initially, all founders of successful companies went up against established big companies. These companies often don’t immediately notice or care about your small startup. However, they eventually fight back. This forces you to raise capital and grow and become large yourself.
Once your company is no longer small it tends to accumulate bureaucracy and you begin to lose the founder’s mentality. That is the paradox of growth. Growth creates complexity and complexity is the silent killer of profitable growth. Complexity is also the silent killer of our lives in some ways. The solution is that every business should go through a sort of housecleaning to get to the core of the core of the core.
Renewing the Founder’s Mentality
An example of this is LEGO. Over time, LEGO moved away from being a toy company and created other things like theme parks, watches, retail stores, and much more. At one point this diversification almost caused the company to go bankrupt. All of these ventures sucked out their ability to execute the core. Now realize that there are 71 lego bricks for every person on the planet. LEGO as a brand and a toy product is engrained in people. But LEGO had a serious problem to solve.
They decided to go back to their core. They decided to simplify and they turned the company around. It’s a great example of how companies can over complicate things when they go after bright shiny objects.
A question I’m often asked is can you renew the founder’s mentality? One company that did renew it is Domino’s. The company eventually stalled out when they didn’t invest in the next wave of differentiation. An investment company bought Domino’s and they started to make each franchisee like a mini founder. Their stated goal was to create a company of many founders. They also doubled down on technology and delivery. This strategy worked big time. Their trajectory of growth is like a high tech firm now.