We all know that building a successful business can be hard, daunting and exhausting. Most of the start-ups fail. But it doesn’t seem that maintaining profitable growth for established businesses is easily done either. More and more stories pop up about disrupted businesses. Some of them transform themselves, whereas others do not and eventually fail.
So, how do you maintain successful growth once so much work has been put in to building your great business empire? Chris Zook and James Allen explore this question in their book “The Founder’s Mentality”.
The founder’s mentality is not about the actual personality of a founder. It is all about a set of behaviors embodied by an organization. Having an insurgent mission, being obsessed with the front-line and holding the owner’s mindset are key elements, all of which proven to have a positive impact on sustainable growth.
So, let’s dive a bit deeper in the founder’s mentality concept and understand how to apply it in your own business environment.
The predictable crises of growth
When small problems are ignored, they turn into crises. This is also true for businesses that don’t have or have lost their founder mentality. According to the research done by Chris Zook and James Allen, 85% of failures come from internal organizational problems, rather than the external business environment.
The authors described three types of growth crises, which are usually sudden and uncomfortable. The good news it that they often can be quite easily predicted and prevented.
The first crisis is called Overload. Overload refers to hyper growth and occurs when you rapidly scale your business e.g. from 100$ million to 1$ billion in a short period of time. This type of growth requires a completely different way of structuring your business. Imagine managing your financial statements in Excel while the business is ten-folding its revenue. A disaster waiting to happen. A potential solution however is also not easy to implement (think new IT infrastructure and accompanying way of working).
The second crisis refers to Stall-out. This happens when a company is losing momentum and goes from accelerated growth to a sudden slow-down. The company is losing momentum due to the complexity of how it’s structured internally. It lost its agility and flexibility to make fast decisions for its customers.
The third crisis Free-fall is probably the scariest. Why? Well, a company in free-fall has stopped growing in its core markets and its business model is challenged by its competitors. It feels like the company lost complete control and the signs towards potential recovery are bleak. This is an extremely stressful situation for any company’s leadership team, as it often feels like the business is in a downwards spiral.
Reflection is often a good idea, especially when it comes to how the founder’s mentality is functioning within your organization. Not only to recognize if these crises potentially already have been faced within your organization, but even more so recognize the signs if one is heading your way. To do so, let’s dive a bit deeper by looking at each of the elements that form the founder’s mentality.
As millennials (me included) would say; ‘it’s all about purpose!’. We want to work for companies with a bold mission, which is beyond being number One or the most profitable. Once we feel a deeper connection with the company’s WHY, we are more eager to go the extra mile for our customers, company and peers.
The authors therefore too emphasize on the importance of developing a sharp insurgent mission, which makes it clear for everyone what the company’s strategy is and why they are special. A good test to know whether your employees are connected with your mission is to ask whether they would recommend your company to their friends. If not, deep dive by asking Why not.
Leaders need to set aside enough time to communicate the company’s purpose, until it’s ingrained into everyone’s head and heart. This will ensure that hands are working at the right place.
Obsession with the front line
In LEAN world we call it going to gemba (i.e. an actual place where value is created). It’s about listening to your customer concerns, taking feedback from front line employees and being obsessed with the details of your business. It’s like a deep curiosity of what is going on around you.
It’s relatively easy for small companies to be front line obsessed, but as you grow, the organizational complexity makes it harder. You are further away from the customers and details of your business, so try and ensure that you always keep that access.
For example, Obama had a habit of reading at least ten emails per day from American citizens who were talking about their concerns. He said it helped him to stay in touch with what was going in his citizens’ mind.
In your business you could think of holding meetings in plants, warehouses or customer locations to ensure you are closer to the value added activities. It’s important for leaders to role-model front line obsession behaviors and recognize people who get things done for their customers. You want to reward people who prevent problems instead of continuously act like firefighters.
Small companies are often seen as more agile and flexible compared to bigger ones. They also have another advantage, known as the owner’s mindset. It consists of three elements.
Strong cost focus is about treating company’s expenses and investments the same as your own money. It’s about constantly looking to your business processes and activities and evaluating them with a fresh perspective. Is it really the best way to spend our money? Would I invest in this if it was coming from my personal account? These are the types of questions being asked by people holding the owner’s mindset.
The second one is about bias to action – important decisions are made fast and actions are taken immediately. This means that an organization has an open no-blame culture, where problems are highlighted instead of hidden. Employees are not afraid of conflict, mostly because more often that it is the only way to get things done fast.
The third advantage talks about aversion to bureaucracy, which is a mindset of continuously reducing complexity. Typically these types of organizations have small headquarters and most of the decision power is with front line employees. Routinely they benchmark themselves against the competitors and get rid of at least one non-essential organization layer. This is all to ensure that you can make decisions fast and it’s a short route to gemba.
In the end we should strive to have an organization where each employee acts like an owner of his/her own company.
Founder’s mentality might appear as common sense, but as often the case; it is hard to execute these in practice, especially when complexity grows. If your organization is tired and facing lots of stress, don’t be afraid to inject new energy into it. But…do it carefully. You need people who are eager to build the future rather than fight the past. Good luck in reinventing or building the founder’s mentality in your organization and please let me know about your experiences with these laid-out principles.