The 3 Things That Keep Companies Growing

Posted on: June 29th, 2016 by bobmorris

The3Things

Here is an excerpt from an article written by Chris Zook and James Allen for Harvard Business Review and the HBR Blog Network. To read the complete article, check out the wealth of free resources, obtain subscription information, and receive HBR email alerts, please click here.

* * *

Growth creates complexity, and complexity is the silent killer of growth. This paradox explains why only about one company in nine has sustained more than a minimum level of profitable growth during the past decade, and why 85 percent of executives blame internal factors for their shortfall, not external ones beyond their control. The roots of sustained performance start deep inside.

Our research shows that, despite their many differences, most companies that achieve sustainable growth share a common set of motivating attitudes and behaviors that can usually be traced back to a bold, ambitious founder who got it right the first time around. The companies that have grown profitably to scale, while maintaining the internal traits that got them there in the first place, often consider themselves insurgents, waging war on their industry and its standards on behalf of an underserved customer, or creating an entirely new industry altogether. Such companies possess a clear sense of mission and focus that everyone in the company can understand and relate to (in contrast with the average company, where only two employees in five say they have any idea what the company stands for). Companies run in this way have the special ability to foster employees’ deep feelings of personal responsibility (in contrast with the average company, where a recent Gallup survey shows that only 13 percent of employees say they are emotionally engaged with their company). They abhor complexity, bureaucracy, and anything that gets in the way of the clean execution of strategy. They are obsessed with the details of the business and celebrate the employees at the front line, who deal directly with customers. Together, these attitudes and behaviors constitute a frame of mind that is one of the great and most undervalued secrets of business success.

We call it the founder’s mentality.

In our analyses, surveys, and interviews, we’ve found a consistently strong relationship between the traits of the founder’s mentality in companies of all kinds—not just start-ups—and their ability to sustain performance in the marketplace, in the stock market, and against their peers. Since 1990, we’ve found that the returns to shareholders in public companies where the founder is still involved are three times higher than in other companies. The most consistent high performers exhibit the attributes of the founder’s mentality four to five times more than the worst performers (see chart below). Furthermore, we’ve determined that of the roughly one in ten companies that achieve a decade of sustained and profitable growth, nearly two in three are governed by the founder’s mentality. These are all remarkable numbers.

All too often, however, companies lose the founder’s mentality as they become larger. The pursuit of growth and scale adds organizational complexity, piles on processes and systems, dilutes the sense of insurgency, and creates challenges in maintaining the original level of talent. These sorts of deep, subtle internal problems, in turn, lead to deterioration on the outside. The chart below, based on a global survey we have conducted of 325 executives, shows the decreasing degree to which company leaders perceive the founder’s mentality at work in their own company, depending on its size.

W160509_ZOOK_TOPPERFORMING700x421

* * *

Here is a direct link to the complete article.

Chris Zook is a partner in Bain & Company’s Boston office and has been a co-head of the firm’s global strategy practice for twenty years. He is a co-author of a number of bestselling books including Profit from the Core and The Founder’s Mentality: How to Overcome the Predictable Crises of Growth (Harvard Business Review Press, June 2016).

James Allen is a partner in Bain & Company’s London office and a co-head of the firm’s global strategy practice. He also leads Bain’s Developing Market 100 initiative. He is a co-author of a number of bestselling books including aforementioned Profit from the Core and The Founder’s Mentality (Harvard Business Review Press, June 2016).

Tags: , , , , , , , , , ,

Leave a Reply

bobmorris