Every business wants to deliver strong, sustainable growth. But some are much better at it than others. Worldwide analysis suggests that certain key characteristics can keep companies on the right track and reinvigorate them if they fall by the wayside. These characteristics have one thing in common: they all relate to the founder’s mindset – that combination of entrepreneurial flair; rigorous focus on sales and internal culture; an ability to be bold when it counts, and a recognition of when change might be necessary.​

MANAGEMENT

 

MANAGEMENT

Founding fathers

Every company has two stories. The first is well known to the public and told through quantifiable metrics: quarterly earnings, shareholder returns, projected growth. The second story may be less immediately clear. It is the internal plot of how a company develops its core values from the start, and how those founding values are maintained and nurtured as a company grows.

At a time when only one company in nine is able to maintain minimal levels of profitable growth over a decade, the first story is the one through which success or failure is most often judged. But for major international companies – earning above $5 billion a year – another perspective emerges. When these businesses experience growing pains, more than 90 per cent of their CEOs cite internal factors as the cause. And with founder-driven, internal culture increasingly trumping strategy as the new predictor of business success, companies and investors are homing in on the values adopted by successful founders and their successors.

Follow the founder

According to management consultants Chris Zook and James Allen, this makes sound commercial sense. After a decade-long study of businesses across 40 countries, they discovered that 90 per cent of business failures are due to internal factors and that, while every expanding business faces inevitable growing pains, the companies that are best able to weather these challenges share certain basic philosophies. 

These centre on “the founder’s mentality,” described by Zook and Allen as: “A common set of motivating attitudes and behaviours that can usually be traced back to a bold, ambitious founder who got it right the first time around.” A survey of 325 executives also reveals that, no matter what industry, businesses that adopt and maintain specific values are more likely to adapt to market changes in optimal ways and flourish in the long run.

Assessing their findings in The Founder’s Mentality, Zook and Allen track three basic issues that can arise as a company develops: “overload” (a young company begins to struggle under the weight of growth); “stall-out” (growth leads to reliance on a series of increasingly complex internal systems, which effectively dilute internal culture); and “freefall” (a company stops growing altogether and its original business model no longer seems viable).

Break the rules

Against these challenges, there are three key values for success: an “insurgent mindset” (the willingness to break with convention and disrupt accepted practices, as necessary); constant attention to the frontline (keeping attuned to the small experiences of everyday customers); and developing an “owner’s mindset” (empowering each employee with a sense that their decisions directly affect the company, and that they can operate as a line of mini-CEOs.) 

These points are echoed by business strategists and data studies around the world. Michael Birshan, London-based partner at McKinsey, recently analysed the major moves that nearly 600 CEOs took during their first two years in office, to assess how their choices influence a company’s returns.​

The formula for CEO success

Birshan found that there is a science to CEO success, which includes an intrinsically bold approach to business. How willing is a company to disrupt its respect­ive industry, and how strongly will a CEO insist on sticking to the founding mission, even if that means going against market trends? Zook and Allen refer to this as an “insurgent mindset.” Birshan calls it an “outsider’s mindset.”

While many companies are founded on radical ideas that challenge the status quo, the paradox of growth is that as companies evolve, they tend to drift away from the original mission and eventually slide into free fall.

One company that started with a radical mindset, and has successfully managed to keep it over time, is Swedish furniture giant IKEA. Ingvar Kamprad started IKEA as a furniture retailer in 1948, with a simple mission: to make furniture that anyone in his small town could afford. Kamprad is famous for saying, “To design a desk which may cost $1,000 is easy for a furniture designer but to design a functional and good desk which shall cost $50 can only be done by the very best.”

Even after over 70 years, during which the company has expanded to more than 300 stores worldwide, IKEA has remained focused on its founding principles, largely due to Kamprad’s continuous leadership and uncompromising dedication to his original, insurgent vision. IKEA’s low price points and commitment to accessibility remain the soul of the company. As a result, the group still stands out from the rest of the market, enjoying more than 1.9 billion visits from customers last year.

Of course, most companies do not have the same founder at the helm for decades. They have to manage the transition to new leadership. In cases where this leads to corporate drift, Birshan recommends a bold re-engineering of the company, or ‘refounding’ from the ground up by the current CEO.

Hungry for risk

Based on his research of under-performing companies that have lost their original sense of mission, Birshan advises that new leadership take risks, as if the company is being started all over again. A new CEO must be willing to re-examine the company from the ground up or, as Birshan puts it: “pull multiple levers at once.” He explains: “If you’re in an underperforming situation, use the whole playbook, throw the kitchen sink at it. The data shows that chief executives inheriting poorly- performing companies who made four or more strategic moves in the first two years achieved, on average, annual total shareholder return growth 3.6 percentage points ahead of peers. But their less bold counterparts who used one or two or three moves were only 0.4 per cent ahead. So there’s a real difference if you’re behind in going bold and going hard.”

When Arkansas-based US engineer Douglas Hutchings started his company Picasolar in 2012, he was a team of one, working to develop a new type of solar lighting panel that is three times more conductive than anything else on the market. It is an extraordinarily ambitious project – one that promises to be the largest step towards significantly upping solar power efficiency in the past 30 years.

With outside grants and equity investment, Hutchings was able to grow his team from one in 2012 to nine today. Now he’s looking towards a goal of 15 employees over the next 12 months and, ultimately, 55 employees. As Picasolar grows, Hutchings says that it’s important to hire employees who share the insurgent mentality that inspired him to innovate in the first place.

“Starting out, we’ve had mostly technical hires,” says Hutchings. “It’s important to have the right technical skills, but we also believe that the right skills come with the right attitude. As CEO, it’s in a way my duty to keep the company focused on the mission through open dialogue and transparency.”

Harvard Business School professor, Noam Wasserman, author of The Founder’s Dilemmas, believes that the ability to make changes quickly and efficiently is another key component of successful growth. 

As he explains: “Oftentimes the founder-CEO may be attached to his or her original idea for the start-up, while the start-up itself has reached the point at which the original idea may have to be adjusted.”​

Frontline focus

Frequently, these moves need to be made at the front line, where the company interacts with its customers.

Bridgepoint-backed BigHand, a UK-based software company that creates digital dictation, document creation and workflow tools, exemplifies this approach.

“We’re deeply engaged with our clients and we’ve become a trusted partner,” says CEO Ian Churchill. “We believe it’s a process of consistently reaching out to your clients, hearing their feedback and tweaking the front line to make sure they are satisfied.”

This focus on the front line has the added benefit of improving internal culture, and imbuing employees with a sense of purpose and ownership. “When you deliver good service you get good feedback and good feedback is something that energises everyone who works here,” says Churchill.

Customer service also depends on hiring the right employees and making sure they understand and engage with the company culture. According to Wasserman, 65 per cent of the problems he sees in companies are “people problems” – tension between the founding team and new recruits, who may not appreciate what the company is trying to do or why.​

The paradox of growth is that as companies evolve, they tend to drift away from the original mission and eventually slide into freefall”​

When you deliver good service you get good feedback and good feedback is something that energises everyone who works here”​

Chief executives inheriting poorly-performing companies who made four or more strategic moves in the first two years achieved, on average, annual total shareholder return growth 3.6 percentage points ahead of peers”​

The formula for CEO success

Birshan found that there is a science to CEO success, which includes an intrinsically bold approach to business. How willing is a company to disrupt its respect­ive industry, and how strongly will a CEO insist on sticking to the founding mission, even if that means going against market trends? Zook and Allen refer to this as an “insurgent mindset.” Birshan calls it an “outsider’s mindset.”

While many companies are founded on radical ideas that challenge the status quo, the paradox of growth is that as companies evolve, they tend to drift away from the original mission and eventually slide into free fall.

One company that started with a radical mindset, and has successfully managed to keep it over time, is Swedish furniture giant IKEA. Ingvar Kamprad started IKEA as a furniture retailer in 1948, with a simple mission: to make furniture that anyone in his small town could afford. Kamprad is famous for saying, “To design a desk which may cost $1,000 is easy for a furniture designer but to design a functional and good desk which shall cost $50 can only be done by the very best.”

Even after over 70 years, during which the company has expanded to more than 300 stores worldwide, IKEA has remained focused on its founding principles, largely due to Kamprad’s continuous leadership and uncompromising dedication to his original, insurgent vision. IKEA’s low price points and commitment to accessibility remain the soul of the company. As a result, the group still stands out from the rest of the market, enjoying more than 1.9 billion visits from customers last year.

Of course, most companies do not have the same founder at the helm for decades. They have to manage the transition to new leadership. In cases where this leads to corporate drift, Birshan recommends a bold re-engineering of the company, or ‘refounding’ from the ground up by the current CEO.

There are three key values for success: an “insurgent mindset”; constant attention to the front line; and an ‘owner’s mindset’”​​

Chief executives inheriting poorly-performing companies who made four or more strategic moves in the first two years achieved, on average, annual total shareholder return growth 3.6 percentage points ahead of peers”​​

When you deliver good service you get good feedback and good feedback is something that energises everyone who works here”​​

Frontline focus

Frequently, these moves need to be made at the front line, where the company interacts with its customers.

Bridgepoint-backed BigHand, a UK-based software company that creates digital dictation, document creation and workflow tools, exemplifies this approach.

“We’re deeply engaged with our clients and we’ve become a trusted partner,” says CEO Ian Churchill. “We believe it’s a process of consistently reaching out to your clients, hearing their feedback and tweaking the front line to make sure they are satisfied.”

This focus on the front line has the added benefit of improving internal culture, and imbuing employees with a sense of purpose and ownership. “When you deliver good service you get good feedback and good feedback is something that energises everyone who works here,” says Churchill.

Customer service also depends on hiring the right employees and making sure they understand and engage with the company culture. According to Wasserman, 65 per cent of the problems he sees in companies are “people problems” – tension between the founding team and new recruits, who may not appreciate what the company is trying to do or why.​

The paradox of growth is that as companies evolve, they tend to drift away from the original mission and eventually slide into freefall”​​

Prioritising company values

Reserve, a hospitality tech company based in New York, believes it is imperative that all employees understand the basic company values. Reserve connects customers with restaurants, allowing diners to discover new restaurants, make reservations and pay the bill through one seamless platform. The company even provides restaurants with a way of tracking customer preferences, such as food allergies or preferred tables. 

As Reserve has expanded across seven cities, the founders have made it a priority to codify company values and instil each new employee with a sense of ownership.

Head of operations and strategy Anneke Jong explains that Reserve’s core company values are 10 simple company ideals, which hang on a poster at the New York headquarters. These include “Start with why,” challenging employees to question accepted ideas and processes, and “Roll up your sleeves,” designed to promote an egalitarian culture. 

“At Reserve, the best employees aren’t too proud to take out the trash, literally or metaphorically. There’s no room at a start-up for a ‘not-my-job-not-my-problem’. Everyone is accountable for the success of the entire business,” says Jong. 

Start-ups are clearly at an early stage in their evolution. But Zook and Allen suggest that many later- stage founder-led companies can benefit from taking on private investment. By bringing in a new mix of investors, they say, there is an opportunity for a company that has lost its core mission to reorganise like a new start-up.

The strategy worked for computer company Dell, which suffered a 74 per cent loss in market value from 1999 to 2013. The following year it took on private investors and essentially “refounded” itself, focusing on a bold, start-up mentality and empowering employees. As Zook and Allen explain, this encouraged “a bias to speed of decision, a deeper sense of accountability and a focus on cash flow.”

Ultimately, complacency and convention can be hard to avoid once a company reaches a certain stage, but keeping in mind the founder’s original mission and mindset can help a company to stay energised, enthused and focused on growth 

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There are three key values for success: an “insurgent mindset”; constant attention to the front line; and an ‘owner’s mindset’”​

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Bridgepoint  |  The Point  |  November 2016  |  Issue 30