Growth creates complexity, and complexity is the silent killer of growth. The few companies that avoid this internal dilemma and sustain long-term growth are those that maintain a Founder’s Mentality®. Whether you work at a founder-led start-up or a founder-less multinational, The Founder’s Mentality: How to Overcome the Predictable Crises of Growth (Harvard Business Review Press; June 7, 2016) by Bain Partners Chris Zook and James Allen empowers executives with the necessary mindset to safely steer their company through every stage of growth and past the inevitable crises of internal complexity.
Read the transcript below.
Growing a company is hard. And it is even harder to keep growing. Only one out of nine companies sustain profitable growth for 10 years or more. If you ask the others why they stopped growing, they don't usually blame external market forces. 85% of the problems they cite are internal. This is the growth paradox. Growth creates complexity, and complexity kills growth. Bain believes that this is predictable and preventable, wherever companies are on their growth journey, if they understand what goes wrong and how to respond.
Most fast-growing companies are at war with their industry on behalf of underserved customers. They are insurgents, with a bold mission to serve those customers better than anyone else. For that reason, they are obsessed with the front line. And these companies have a strong owner's mindset. They hate complexity and watch every dollar. These are the elements of what we call the "Founder's Mentality."
And research by Bain & Company shows that the most sustainably profitable companies are those that nurture and maintain these traits. All insurgents start with a strong Founder's Mentality. Their goal is to grow and also gain the benefits of size, to become scale insurgents. Bain research shows that only about 7% of companies achieve scale insurgency, but they represent more than 50% of the net value created in the stock market each year.
Most successful companies don't achieve scale insurgency. As they grow, they allow their Founder's Mentality to fade. They gain the size they wanted, but they become overloaded and vulnerable to forces that blow them off course. Instead of becoming scale insurgents, they grow into incumbents. They are big and successful, but without their Founder's Mentality, they become complex and slow, and their growth eventually stalls out. They are no longer nimble or flexible enough to respond to another set of forces that threaten to push them down into a struggling bureaucracy, or send them into complete free fall.
Bain research shows that 80% of all swings in value, negative and positive, occur as a result of decisions made during these three crises of growth: overload, stall-out and free fall. But companies can avoid or survive these crises if they maintain or recover their Founder's Mentality.
Insurgents can grow to scale without losing their way. And incumbents, even struggling bureaucracies, can rediscover their Founder's Mentality. They too can become insurgents again, and take advantage of size and scale, without succumbing to complexity. Founder's Mentality is one of your greatest assets, if you use it. Where's your company on this journey?