Founder's Mentality Blog

In Praise of Spikiness: How Founder’s Mentality Companies Create an Edge

Spikiness creates differentiation and passion in a world where the forces of entropy and institutionalization push for the opposite.

Par Chris Zook

First published on août 15, 2013
min


The best-performing companies in the world today are earning above-average returns, gaining rapid market share, having lasting competitive advantage and creating jobs in a world that desperately needs them. And four out of five of them have clear elements propelling them that can be traced back to something special about their founders (whether still there or not): A Founder’s Mentality℠ that somehow survives and persists, defining what made that company special in how it competes, or excellent in how it behaves. During the past two years, my co-leader in Bain’s Global Strategy practice, Jimmy Allen, and I have held more than 450 meetings and workshops in more than 50 countries in our pursuit of what makes these companies special, lasting and repeatable. We have identified a set of behaviors called the Founder’s Mentality, which define in a pure way the attributes of these companies. As we examined these attributes, we were struck by a marked “spikiness.” That is, the really great and lasting companies frequently have one amazing, almost exaggerated strength that runs like a golden thread through their culture, identity and competitive advantage. It reminds me of professional tennis, where everyone has the shots and ability to win on any given day, thanks to modern techniques that raise the base skill level for everyone. But the true greats always seem to have at least one dimension that seems to set a new standard—the topspin forehand of Nadal, the strategic brain of Federer, the volleying of McEnroe, the backhand of Graf, the serve of Serena Williams. We see a similar phenomenon in the great Founder’s Mentality companies. While most companies maintain certain basic levels of financial and operational efficiency, Founder’s Mentality companies stand out in certain hard-edged behaviors. One is the way they treat money as if it was their own, which affects attitudes to cost, risk and reinvesting in the business. We see this as an exaggerated strength in companies around the world such as Reliance Industries in India, where CEO Mukesh Ambani refers to it as the “owner’s mentality.” We see it in Mexico’s América Móvil, where Chairman Emeritus CEO Carlos Slim’s core principles include putting all earnings back in the business. We see it in the investment principles of Warren Buffett at Berkshire Hathaway in the US. And we see it at AB InBev, the largest beer company in the world, where the Founder’s Mentality that created AmBev in Brazil is embedded in the company’s core principles: “We are a company of owners. Owners take results personally.” These are points of true spikiness. Another point of spikiness among these companies is their focus on the front line of the business, its details, the celebration of frontline employees and an insatiable thirst for customer detail. We see that in the Oberoi chain of hotels in India where Executive Chairman Prithvi Raj Singh Oberoi cares about every detail from the length of the valets’ trousers to the nature of the signage. And one of the most striking examples was when CEO Howard Schultz returned to Starbucks to help restore the company. One of his first major acts was to close 7,100 stores for several hours to retrain the frontline baristas (an action most corporations would hesitate to take for fear of the financial impact). The third behavior inherent in a Founder’s Mentality company—and the one that produces the other two—is the powerful awareness of a long-term goal, a vision and a sense of the business’s unique reason for existence. Years after it was founded, IKEA still retains its special model of involving customers to bring good furniture to the masses. Before stepping down as Chairman of Tata Group last year, Ratan Tata emphasized long-term perspective and values in his last speech to his top 500 managers. And that sense of unique purpose is what the founders of Twitter emphasized as a core motivation in a revealing discussion held at the 2013 Endeavor Entrepreneur Summit in San Francisco in June. Spikiness on a platform of strength beats homogeneity almost every time. It creates differentiation and passion in a world where the forces of entropy and institutionalization push for the opposite. The analogy that comes to mind is that, in the early years of diamond mining, the grinders were set rougher than today, creating a lower yield, but a higher frequency of amazing, large, enduring diamonds. As diamond mines became more corporate, many set the grinders much more finely, producing a higher yield of less distinguished diamonds, but fewer of the large, enduring specimens that gave diamonds their aura. In business, great companies are like those large, unique, diamonds, and we see a growing recognition of the importance of the Founder’s Mentality. Spikiness is in ascendency, and the mediocrity of fine grinding is starting to lose ground.

The best-performing companies in the world today are earning above-average returns, gaining rapid market share, having lasting competitive advantage and creating jobs in a world that desperately needs them. And four out of five of them have clear elements propelling them that can be traced back to something special about their founders (whether still there or not): A Founder’s Mentality℠ that somehow survives and persists, defining what made that company special in how it competes, or excellent in how it behaves.

During the past two years, my co-leader in Bain’s Global Strategy practice, Jimmy Allen, and I have held more than 450 meetings and workshops in more than 50 countries in our pursuit of what makes these companies special, lasting and repeatable. We have identified a set of behaviors called the Founder’s Mentality, which define in a pure way the attributes of these companies.

As we examined these attributes, we were struck by a marked “spikiness.” That is, the really great and lasting companies frequently have one amazing, almost exaggerated strength that runs like a golden thread through their culture, identity and competitive advantage.

It reminds me of professional tennis, where everyone has the shots and ability to win on any given day, thanks to modern techniques that raise the base skill level for everyone. But the true greats always seem to have at least one dimension that seems to set a new standard—the topspin forehand of Nadal, the strategic brain of Federer, the volleying of McEnroe, the backhand of Graf, the serve of Serena Williams.

We see a similar phenomenon in the great Founder’s Mentality companies. While most companies maintain certain basic levels of financial and operational efficiency, Founder’s Mentality companies stand out in certain hard-edged behaviors.

One is the way they treat money as if it was their own, which affects attitudes to cost, risk and reinvesting in the business. We see this as an exaggerated strength in companies around the world such as Reliance Industries in India, where CEO Mukesh Ambani refers to it as the “owner’s mentality.” We see it in Mexico’s América Móvil, where Chairman Emeritus CEO Carlos Slim’s core principles include putting all earnings back in the business. We see it in the investment principles of Warren Buffett at Berkshire Hathaway in the US. And we see it at AB InBev, the largest beer company in the world, where the Founder’s Mentality that created AmBev in Brazil is embedded in the company’s core principles: “We are a company of owners. Owners take results personally.” These are points of true spikiness.

Another point of spikiness among these companies is their focus on the front line of the business, its details, the celebration of frontline employees and an insatiable thirst for customer detail. We see that in the Oberoi chain of hotels in India where Executive Chairman Prithvi Raj Singh Oberoi cares about every detail from the length of the valets’ trousers to the nature of the signage. And one of the most striking examples was when CEO Howard Schultz returned to Starbucks to help restore the company. One of his first major acts was to close 7,100 stores for several hours to retrain the frontline baristas (an action most corporations would hesitate to take for fear of the financial impact).

The third behavior inherent in a Founder’s Mentality company—and the one that produces the other two—is the powerful awareness of a long-term goal, a vision and a sense of the business’s unique reason for existence. Years after it was founded, IKEA still retains its special model of involving customers to bring good furniture to the masses. Before stepping down as Chairman of Tata Group last year, Ratan Tata emphasized long-term perspective and values in his last speech to his top 500 managers. And that sense of unique purpose is what the founders of Twitter emphasized as a core motivation in a revealing discussion held at the 2013 Endeavor Entrepreneur Summit in San Francisco in June.

Spikiness on a platform of strength beats homogeneity almost every time. It creates differentiation and passion in a world where the forces of entropy and institutionalization push for the opposite. The analogy that comes to mind is that, in the early years of diamond mining, the grinders were set rougher than today, creating a lower yield, but a higher frequency of amazing, large, enduring diamonds. As diamond mines became more corporate, many set the grinders much more finely, producing a higher yield of less distinguished diamonds, but fewer of the large, enduring specimens that gave diamonds their aura.

In business, great companies are like those large, unique, diamonds, and we see a growing recognition of the importance of the Founder’s Mentality. Spikiness is in ascendency, and the mediocrity of fine grinding is starting to lose ground.