Few forces in business are more powerful or do more to shape the dynamics of an industry than the energy, focus, and ability of the great founders of companies. That founder’s mentality can create enormous value for a company, and this can be true long after the actual founder is gone. But lose the founder’s mentality itself, and a company can see its value rapidly destroyed.
Take the ups and downs of three key companies in the computer industry—Dell, Hewlett-Packard and Apple—as examples.
Since its founding in 1984 in Michael Dell’s dorm room, Dell set the world record for the most rapid growth in a company’s first twenty years. Yet, after he stepped down from his CEO role and the company underwent several management transitions, Dell started to stall out. This led to the return of its founder, who ultimately made the dramatic move of taking the company private again (in partnership with Silver Lake Investors) in one of the largest public-to-private transactions in history.
Michael Dell’s desire to make the company again “the largest start-up in history” restored incredible energy at Dell and it is already performing better. Its customer satisfaction scores have rebounded, and its employee-satisfaction scores are the highest in the company’s history. The company has made one of the largest technology acquisitions in history (EMC). As Michael told us, “I resonate strongly with the themes of the founder’s mentality.”
Hewlett-Packard CEO Meg Whitman implied much the same in an HBR interview in which she described her efforts to turn around the company. What was especially notable was how often she mentioned her efforts to rediscover and renew the characteristics that HP had when it was at its best and that still lead many to view it as one of the founder-led companies responsible for the evolution of Silicon Valley. “So we went back to our core founding principles, and the company responded,” she told HBR. “It’s very hard to kill founder DNA and that’s a good thing for HP.”
Today, her team has separated HP into two separate companies, leaned out the structure by laying off 85,000 people and increased investment in core R&D. So far in 2016, the value of the two new companies has reversed the decline, giving investors hope that the founder’s mentality is back.
And, of course, everyone knows the story of Steve Jobs’s exit from Apple, the company’s unraveling, and its miraculous renewal when Jobs returned and led it to become the most valuable company on the planet. Today, observers debate and wait to see whether Apple has retained its founder’s mentality in the post-Jobs era.
It is no coincidence that three of the most defining companies in computing have, at the center of their ups and downs, a narrative that tracks back to the founder and the principles and behaviors and practices that were put in place when the company was at its best. Our research shows that the computer industry’s experience—namely, the waxing and waning of the founder’s mentality—is a deep theme in industry after industry.
We set out to examine the question of why some companies that seemed to have everything in their youth—including a huge market-leading position, a strong brand and an ability to attract talent—so often lose their youthful energy and momentum while others seem able to renew their energy (even at large scale), continuing to attract top young talent? Put another way, why is it that so many companies age and mature badly, bureaucratizing and becoming disoriented in the marketplace, while others of similar scale keep or regain their mojo? And what are the indicators of this along the way? What signs should a company look for to determine that it is aging suddenly, rapidly and prematurely?
During the past four years at Bain & Company, we have been studying why some companies bureaucratize, slow down, lose direction and lose momentum while others do not. Our conclusion, based on extensive research, is that about 85% of the time, the root causes are internal (as are the ultimate solutions) and that they track back to three major sets of internal norms and behaviors—what, collectively, we call the Founder’s Mentality—that are most often embodied by a bold, ambitious founder. The presence of these three traits is central to how young insurgent companies beat large well-funded incumbents. (Think of GoPro taking the small camera market from Sony or maybe Netflix, not the networks, creating the first real Internet television business.) Conversely, it is the loss of the Founder’s Mentality that is often the core reason why large companies such as HP seem to bureaucratize and lose their way despite great assets and enormous market opportunity.
The three elements of the founder’s mentality born of our research are (1) “an insurgent mission,” that defines how companies differentiate outside and inspire inside, (2) “a frontline obsession,” epitomized for us by Michael Dell’s personal ground-level instincts and by his continued moves to streamline the organization and empower its frontline employees, and (3) an “owner’s mindset,” which is epitomized in spades by private equity and by Dell’s shift back from public to private ownership.
We examined the traits of 200 companies in detail, using experts who knew those businesses well, and found that those that had maintained the elements of the founder’s mentality were more than five times as likely to have remained a top performer as those that did not. Large companies such as Google, AB InBev, Apple and IKEA are prime examples of what we call “scale insurgents.” These are companies that maintained these youthful traits as they grew to a larger size. Though scale insurgents represent only about 7% of companies, we found they account for more than half of the net value in the global stock market each year. These are the crown jewels of dynamic economies.
We believe that there are four sets of action implications of our research for leaders:
The founder’s mentality is a hard strategic asset that should be managed and discussed and fully valued as central to success.
If left untended, the founder’s mentality will erode over time—just like any valuable asset.
The founder’s mentality is critical to how companies stay young, energetic, fast-moving, open-minded, adaptable and, thus, attractive to the best talent.
The founder’s mentality can be used as a measure of how well or poorly a business is aging, and, at worst, becoming bureaucratic and vulnerable to the next wave of founder-led insurgent companies.
Some warning signs that your company is losing this important asset can sometimes be detected in the answers to a series of questions that we suggest posing to different levels of the organization and different departments across the company. Even the best-run companies, in doing this survey, discover issues below the surface.
Most companies age prematurely, lose their founder’s mentality, and don’t even know it is happening until their decisions and actions slow to a dangerous pace and their best talent starts to file out the door toward the next insurgent with better growth prospects.
But it doesn’t have to be this way. Companies that are aware of the founder’s mentality, that avoid the classic ways that companies drift into bureaucracy and that follow a few practical tips for preserving the very traits that made them successful in the first place don’t have to age. They can grow up and remain young.
Author: 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).
Article originally appeared on Harvard Business Review