Video Preview

 

Why YOU should read this book

Imagine you are a founder of a company that has a store, and your direct competitor opens their store across the street from you.   Would you feel happy about the new competition?  Most likely not, as that competitor would be hurting your business, and taking money out of your pocket.

Now imagine you are an employee at your store.  How would you feel if a competing store opened across the street?  Would you feel the same as you did when you were the owner?  At best you may feel indifferent, as the new store is potentially a good thing for you.  With more stores in the area, there is more competition for your employment.  

At the heart of this simple thought exercise is the basic truth that owners of a business feel and act differently than the common employee does. Owners (specifically Founders) are more likely to spend money differently, have a different level of customer engagement, and have a drive to constantly improve the business.  In fact, the continued engagement from a Founder has a significant impact on the performance of the business.  Since 1990, Bain consulting has analyzed the shareholder returns of public companies.  They found that companies that have a founder still involved in the daily business outperforms (by a factor of 3.1) companies who don’t have an engaged founder.

We recommend that all startup founders and leaders read “The Founder’s Mentality” by Chris Zook and James Allen.  The central idea of the book is that the mentality of a founder has a significant impact on a business, and by transmitting that mentality into all our employees we can achieve significant performance improvements.

 

Key Takeaways

There are 3 main takeaways from the Founder’s Mentality.

1) The Growth Paradox

Growing your company is great, but it is also a double edged sword.  Growth creates complexity, and complexity is the silent killer of growth.  Even most executives don’t understand the power that complexity has on profitability.  Surveys show that most executives believe that profitable growth is achieved by controlling the external environment (the market, customer relationships, competition, etc…).  But in reality, 90 % of the time when companies fail to achieve their growth targets the root causes are in internal problems (increased distance to the frontline, amplified bureaucracy, magnified complexity, etc…).  If you truly want to grow and scale up your company, then you need to fight this natural progression of copmplexity.

 

2) The 3 Core Attributes of the Founder’s Mentality

Zook and Allen found that some companies manage to achieve sustainable growth without falling victim to the growth paradox.  They argue that these Companies share three Core Attributes— a frontline obsession, an owner’s mindset, and an insurgent mission. Together these traits constitute “The Founder’s Mentality”.

• Frontline Obsession – With success comes growth. With growth comes organizational complexity and along with that, decision-making often shifts to employees that sit several layers away from the front line and have never made a product or served a customer.  Compare that to the beginning when the founder was the first sales person, customer service representative, product developer, and order fulfiller.  If leaders are far removed from the frontline, then critical customer information is lost.
• Owner’s Mindset – Surveys conducted by Gallup continually show that only 13% of employees have an emotional connection or engagement to their company.  And this is a problem, because companies with a higher level of engagement and emotional connection with their employees significantly outperform those who don’t.  This is where small companies have an inherent advantage over larger companies.  Employees of smaller companies tend to feel a sense of ownership over the company, and through that ownership mindset are more likely to be engaged with the company. 
• Insurgent Mission – In the startup phase of a business, sometimes it feels like war.  They imagine themselves as a tiny group of freedom fighters challenging the larger behemoths on behalf of their customers.  They believed in what they were doing, and they were hungry to grow.  In the long term profitable companies, this insurgent mission continues as a daily focus of everyone. Compare this to the average performing company, where only 40% of the employees say they understand the mission of the company.

 

3) The 3 Crises of Growth

If founders and leaders of startups want to succeed while scaling up, then they need to avoid 3 common pitfalls of high growth companies.  Unfortunately, these crises are difficult to detect, so it is important to stay alert and look for initial warning signs in order to initiate action.

1. Overload – A crisis of overload occurs due to increased internal complexity and loss of external momentum. This often happens to young, fast-growing companies as they rapidly scale their business As the company grows in size, their current systems to hire, decide, adapt, and stay in touch with the customer are all straining at the seams, threatening to kill momentum and degrade what made the business so successful in the first place. 
2. Stall-out – A Stall-out crisis occurs when a sudden slowdown of growth sets in. It happens as the rapid growth gives rise to layers of organizational complexity and dilutes the original agility and strong sense of mission that once gave the company its focus and energy. This is a crisis faced by more mature companies that discover that their growth formula of the past is reaching the limit. 
3. Free Fall – A company in free fall has completely stopped growing in its core markets. The management team often feels it has lost control. They can’t identify the root causes of the crisis and don’t know what levers to pull to escape it.

 

How YOU can apply the key takeaway

Unfortunately there is no simple questionnaire or checklist that you can take to assess the founder attributes in your company.  As each industry and each company is different, there is no one set of founder behaviors.  That being said, here are some key questions that you and your leadership team should reflect upon:

• Does your mission tug at the heart of your employees?  Is your company some place they are proud and excited to work for?
• What can your leaders do on their own, independent of an institutional response?  What are your employees empowered to do on their own guidance?
• Where does your company fall on the spectrum of bureaucracy / red tape versus fully localized freedom to decide?  What is the right balance between the two, while still being able to profitably grow?
• Do employees think like owners of the company?  When they are spending money, do they think of it as spending the company’s money, or do they think of it as spending their own money?
• How is your ability to respond to customers?  What is hindering you from building an even better customer experience?  
• How quickly are you responding to competitors?  Are you moving first, or are you always reacting?
• What capabilities are missing or are not strong enough to keep your company competitive in the future?  What actions can you take to acquire or strengthen them?

These are the kinds of questions that you should be taking into your strategic retreats.  They cannot be answered in 5 minutes, and benefit from an open discussion amongst the team.  In the end, there are no correct answers, but guidance can come from putting yourself in the mind of a founder.  If you were starting this company today, what would you be doing the same and what would you be doing differently?