The Founder's Mentality

Some Impressionistic Take away from the Book of
Chris Zook & James Allen
The Founder’s Mentality
Ramki
ramaddster@gmail.com

About the Authors
Chris Zook is an advisory partner in Bain & Company's Boston office. He was
co-leader of the Global Strategy Practice for 20 years. During his more than
25 years at Bain, Chris has specialized in helping companies find new
sources of profitable growth.
A best-selling author, Chris published his fifth book, The Founder's
Mentality (Harvard Business Review Press) in 2016. Based on a decade-long
study of companies in more than 40 countries, The Founder's
Mentality shows how leaders can overcome the predictable crises of growth
and set their companies on a path of sustainable growth.
James Allen is a senior partner in Bain & Company's London office. He
formerly led Bain's Global Strategy practice, is the founder of the
firm's Customer Strategy & Marketing practice and is a member of the
European Consumer Products and Technology practices. In addition, he
leads Bain's Developing Market 100 initiative.
James is a recognized leading expert in developing global corporate and
business unit strategy. With more than 25 years of consulting experience,
he has worked extensively for multinational companies in consumer
products, oil and gas, technology and telecommunications, healthcare, and
other industries. He advises clients on the development of global growth
strategies, emerging market entry strategies and turnaround strategies.

Over the past decade, the overwhelming majority of companies
have not been able to sustain more than a minimal level of
growth.
Many more have failed entirely. While 85 percent of company
leaders recognize that internal factors rather than external
influences are the cause of these shortfalls and failures, many
leaders still struggle to successfully protect their companies
against three predictable crises of growth: overload, stall-out,
and free fall.
In The Founder’s Mentality, Chris Zook and James Allen
examine these crises and explain how companies can recover
from them to be successful in the future.
Prelude

5
The Search for the deep principles underlying sustained profitability
The Founder’s Mentality

 Founders typically begin by rallying around unmet needs of
underserved customers, or creating a new industry altogether.
 The mission is understood by all employees, who feel personal
responsibility and emotional engagement.
 Success is powered by front-line employees who closely
connect with customers and advocate their causes; they treat
their job more as parents than babysitters.
 This founder’s mentality faces challenges in scale stage as the
organization becomes layered with complexity and struggles to
retain or attract talent.
 Fast growth can also be followed by fast failure.
 The founder’s framework can sometimes be lost – but can be
regained as well, and not just by the original founder but by
committed new leaders appointed by investors or the board of
directors.
The Founders Mentality

 Businessman Leslie Wexner opened his first storefront
believing that he could succeed by outworking his
competition, that nothing was more important than serving
his customers, and that everyone involved in the business
had a stake in its success.
 Living by these values, he transformed his shop from a
$5,000 investment to a Fortune 500 company worth more
than $28 billion.
 Wexner’s story demonstrates the power of the founder’s
mentality, a mindset that urges individuals to strive for
ongoing, sustainable growth—from startup to mature
business. However, while all companies have founders, not
all companies are driven by their founders’ mentalities.
The Key to Achieving Sustainable growth

 This mindset is defined by three key traits:
 An insurgent mission: A powerful, overarching sense of purpose
that drives every aspect of a business.
 The front-line obsession: An unrelenting commitment to
customers.
 The owner’s mindset: The notion that every employee feels a
personal investment in and commitment to the business’s
success.
 Companies that manage to maintain an owner’s mindset as they grow
rely on the following three key ingredients:
 A strong focus on cost: Employees treat company funds as if they
came from their own pockets.
 A bias toward action: Decisions are made quickly and then acted
upon.
 An aversion to bureaucracy: Organizational simplicity is favored
and protected.

 As companies grow, these three ingredients are challenged—as
are the three key traits of the founder’s mentality.
 Issues that accompany growth are often traceable to erosion in the
founder’s mentality.
 This erosion generally occurs when there is an excessive focus on
external rather than internal conditions.
 By assessing a company’s relative position on the founder’s
mentality map, a four-quadrant model that graphs The founder’s
 Start-up insurgency (where the company began),
 Scale insurgency (how it has grown and built market power),
 Incumbency (where it has achieved sustained strength but
grown complacent), and
 Struggling bureaucracy (where it has lost the eternal strength of
the founder’s mentality altogether), leaders can make the
journey “north” and achieve profitable growth.

The concept was simple. Companies are like people and go through different stages of
development, maturity, and decay. At each of these stages, there are challenges that
must be overcome, for the company / organization to continually grow and succeed.
There are “traps” that companies can fall into such as “infant mortality” and “divorce”
Adizes –Corporate Life Cycle

 At it’s core, the idea is simple. Small companies start with a spark, a
passion, and a mission.
 That companies lose this magic over time for many reasons.
 We see this from all the major case studies Dell computer, Southwest,
and Starbucks; small, scrappy companies become the stalwarts they
were fighting against in the early days.
 Look at the Corporate annual reports, 80%+ of companies state they plan
to outgrow their markets by 2x. Unsurprisingly, only few achieve these
lofty goals. Digging further, it is discovered that these companies did not
blame the market or the environment; no, they blamed themselves and
internal reasons:
 Organizational complexity
 Problems with culture
 Lack of resources
 Inability to focus
 Weak business plans
 Lack of capabilities
The reality

The Journey North: Achieving Profitable growth at scale

 Best place is top right. Looking at the 2×2 matrix, clearly the best
place to live is the top right – high on founders mentality (strong
culture, good profitability, can-do attitude) and high on scale and
scope (global, economies of scale, bigger and better than ever). This
is ENORMOUSLY hard to do. Ask anyone who has been in a
company with 5 people that grew to more than 100 and they will tell
you about the trials and tribulations.
 Gravity pulls you to the bottom left. No surprise, we have to
fight inertia, ennui, and messy human nature which pushes us to the
bottom left.
 Worst case, you lose the passion that made you aggressive, crafty
and innovative.
 Worst case, you lose any scale which lowered your cost of
competition, or ability to easily cross-sell or hit multiple markets at one
time.
 Worst case, you are at the bottom left – bureaucratic and boring. You
are a mess.
The Journey North: Achieving Profitable growth at scale

Mapping out Founder’s Mentality vs. Big Company Scope and Scale, you can see the most typical
pathway is for new small companies to start in the bottom right (lots of magic, no scale), and as
they become more successful, profitable and larger, they lose this mentality. These companies go from
being “insurgents” to being “incumbents”.
Founder’s Mentality Vs. Big companies

Companies that have successfully retained the founder’s mentality
are as varied as Google, IKEA, Oberoi Hotels, Haier, and AB InBev.
Leslie Wexner’s L.Brands is also in this list; it includes companies
like The Limited, Victoria’s Secret, Bath & Body Works, Abercrombie
& Fitch.
Yonghui Superstores in China offers produce direct from the farm.
In addition to large efficient stores, it has launched smaller
innovative stores to challenge itself just as external disruptors would.
Toyota’s factory production system empowers any employee to flag
problems and submit suggestions.
Marico’s Harsh Mariwala transformed the edible oils market
through practices like packaging oil in small plastic bottles rather
than large tins, and creating a rural distribution network. Widespread
participation led to the creation of its “People, Products and Profits”
principles. This codifying, socializing and embedding of purpose is
key to its success, according to the authors.

 Nike’s bold mission was to make high performance shoes
for sweaty athletes. This was also reinforced by Nike’s
repeatable model (spikiness), which focuses on 4 core
areas of differentiation (brand, technology & IP, Innovation,
and logistics/ supply chain), and a three-step approach to
adjacencies:
 Step 1 – move into new sport footwear
 Step 2 – Seek celebrity endorsement of the "hottest" star
or team – Jordan was a rookie when he signed with Nike
 Step 3 – Leverage endorsement to move into apparel
and later into equipment
Nike’s Bold Mission

Oberoi- Front line Obsession
 It’s the mindset of young M.S. Oberoi, who grew up poor in what is now
Pakistan.
 The Oberoi Group is one of the world’s great luxury hotel companies.
Oberoi founded the hotel chain in 1934 after raising the money to buy a
hotel in Calcutta whose price was rock bottom because it had been hit by
a cholera epidemic—the kind of classically courageous move that young
insurgents make.
 The length of bellmen’s trousers, the temperature of the tea, the freshness
of the flowers, the placement of signage: Oberoi obsessed about every
detail that might affect the customer experience in his hotels.
 Even in his eighties he was still visiting them to make sure his employees
were getting everything right. In doing so, he got his employees to share in
his obsession—which is why, more than a decade after his death, Oberoi
hotels are still so successful.
 In 2015, Travel & Leisure named Oberoi the best hotel brand in the world,
and its hotel in Udaipur, India as the best hotel in the world. The founder’s
mentality lives on.

Oberoi- Front line Obsession
 At any Oberoi hotel, the employees on the front line are individually
responsible and empowered to directly create value for the customer.
 During an average stay, an Oberoi customer contacts an average of 42
different staff members, each of whom has the discretion to make
decisions as he or she sees fit—even at the level, say, of giving a scarf to
a customer on the way to visit a sick friend.
 To maintain a personal connection with each customer, the staff meet
nightly to go over the day’s arrival list, and to review the history and
preferences of each new guest.
 This attention to detail and front-line empowerment are the Oberoi’s great
competitive advantages, and the company has succeeded for decades by
always making them a priority.
 Oberoi’s hotel staff gets training in emotional intelligence and empathy;
the slogan in the kitchen is “Improve Everything You Touch.” New
employees are welcomed like royalty, and management meetings are
open to employees as well. Even in his nineties, the founder had deep
curiosity about every detail of guest experiences

AB In Bev- Owner’s Mindset
 AB In Bev's executives devote a lot of time and energy to
fostering this culture.
 As one manager said, "We create restaurant owners, not
waiters." When we looked perplexed, he explained: "If you're
a restaurant owner and a new restaurant opens across the
street serving the same food, how do you feel? You feel like
someone is putting your livelihood at risk, threatening you,
threatening your family.
 It's personal, because the restaurant is your dream. But if you
are a waiter and a new restaurant opens across the street
how do you feel? At best, indifferent. Actually, there's now
competition for your services. Many companies inadvertently
create waiters. We work tirelessly to create restaurant
owners.“

AB In Bev- Owner’s Mindset
 ABI has adopted many very visible approaches to embedding
the owner’s mind-set.
 It demands that every budget item be defended in the open
every year.
 It sets aggressive goals around the key profit drivers in every
part of the business. It makes sure that leadership targets
cascade down and are disaggregated to the next level of
leaders, so that every person is clear how they he or she
connects to the whole; —no one escapes, there is no place to
hide, and all face challenging gaps to fill.
 It ABI challenges key managers to dream up threats that
could disrupt part of their business model, anything from bans
on alcohol to on-line delivery services to revolutions such as
changes in packaging. It maintains a widely publicized list of
ten core principles and their prominent use in the company.

AB InBev does not invest in fancy offices; it focuses heavily on
young people who have a hunger to succeed. It has acquired
beverage firms around the world and constantly refines its
practices and culture. “We create restaurant owners, not waiters.
Owners take results personally,” according to one of the
company’s principles. “We always think we can do more,” says
CEO Carlos Brito.

The Actions to Ponder are …
 Does everyone understand the organization’s insurgent
mission?
 Are we focused on empowering /supporting the frontline?
 Do we think and act like owners? – Entrepreneurship ?
 Do we share the ambition to become the scale insurgent in
our sector?
 Can we learn from competitors, especially newly emerging
insurgents, who embody the founder’s mentality better ?
 How do answers to these questions change our business
priorities ?

The 3 Predictable Crisis of Growth

 As companies grow, they change over time. Organizational
structures become more complex, decisions are made more
slowly, and new staff members may not have the same level
of engagement as original teammates.
 The changes that come with growth precipitate the three
predictable crises of growth, putting the founder’s mentality in
jeopardy and posing threats to the entire enterprise. These
three crises are:
 Overload.
 Stall-out.
 Free fall.
The Predictable Crisis of Growth

 Overload sets in when a company is not prepared to
effectively manage the increasing size and complexity that
are by-products of aggressive growth.
 For example, Norwegian Cruise Line, the originator of the
modern cruise industry and one-time market leader, had so
overburdened itself with acquisitions, divestitures, and joint
investors by the late 1990s that it lost touch with its original
mission.
 By 2000 it was bought out by Star Cruises. A series of
misguided transformations ensued and the company
continued to flounder. Eventually, a progressive CEO
stepped in to redirect the company.
The Predictable Crisis of Growth- Overload

 Stall-out occurs when a company has successfully scaled, but
becomes sluggish because of increasingly complex bureaucracy.
 Stall-out is very common, impacting as many as two-thirds of the
companies that reach incumbency.
 Without addressing internal causes, only a small number ever
recover market power and momentum.
 Stall-out can occur very rapidly, sometimes within only a few years.
 The primary cause of stall-out is the loss of dexterity and flexibility.
When stall-out occurs, many companies implement dramatic,
short-term command and control measures rather than going back
to the roots of their founder’s mentality.
 For instance, Home Depot was nearly destroyed by this type of
response to stall-out, but a new CEO had the wisdom to tap into
the company’s founding principles and reverse its track.
The Predictable Crisis of Growth- Stall-out

 Free fall, which can happen at any stage of a company’s life cycle,
often occurs when an established company is under attack by new
business models and changing markets.
 Though the causes of free fall might appear to be external, in fact
the source of the problem is an inadequate internal response to
outside circumstances.
 Companies fall victim to free fall when they are not prepared for
outside threats, cannot adapt quickly enough to changing business
environments, or have no other offerings to present in the face of
obsolescence or declining markets.
 The three crises of growth are not only challenges, they are also
opportunities.
 Companies can create value from different winds of change by
properly addressing them. For example, the westward winds of
overload and erosion tend to arise from one of the following
circumstances:
The Predictable Crisis of Growth- Free fall

A sharp insurgent mission should
provide a company with its focus
and purpose, both inside and
outside.

 An unscalable founder: A founder that cannot let go of the
reins and adapt to growth.
 This often results in a bottleneck, a condition that affects two
out of five growing organizations.
 Lost voices from the frontline: The accelerated demands of
overload that prompt managers to distance themselves from
the front line, a behavior that is very damaging to the
founder’s mentality.
 The erosion of accountability: The pressures of overload that
can lead to internal dysfunctionality and a lack of
accountability in decision making.
 Revenues growing faster than talent: Overly ambitious
staffing practices that are intended to address increasing
complexity, often resulting in poor hiring decisions

 The southward winds, on the other hand, reverse the benefits of scale and
result in slowdown.
 Symptoms are a disconnect with the frontline, a lethargy attributable to
excessive processes, and the inability to quickly mobilize.
 Southward winds include:
 The complexity doom loop: An overabundance of business
opportunities, customer segments, geographies, product lines,
distribution channels, and services suck energy from an organization.
Complexity is a silent killer of organizations, and the founder’s mentality
is the best measure of inner organizational health.
 The curse of the matrix: The tendency to divide organizations into
functions to better manage complexity results in internal conflict and
stalled productive action.
 Fragmentation of the customer experience: As companies get larger,
accountability dwindles, and the customer experience is compromised.
 Death of the nobler mission: When a company loses its shared sense of
mission across the employee base, it is said to have lost its “soul.”

Here are the 4 things that kill a small company culture.
1) Cannot find the right people
2) People forget who is responsible for what
3) People stop talking about the customer
4) The founder sticks around too long, unable to adjust
Bad News -1 –Killers of Founder’s Mentality

Here are the things that kill the power of a large company.
1) Matrix organizational structure that does nothing
2) No sense of the customer experience
3) Process-upon-process complexity for-no-reason
4) Losing the soul of the business.
Bad News -2 –Killers of Scale

Stall-out hits companies that have
successfully scaled and are now
struggling with the challenges of
complexity. Rising levels of bureaucracy
and internal dysfunction threaten to
overwhelm the engines that powered
them to success.

 Where is your business located on the founder’s mentality
map and which winds are hurting you most ?
 How are these forces reducing your ability to respond to
customers and compete with speed & robbing your people of
their energy and freedom to act ?
 What actions can you start taking now to restore the founder’s
mentality and what measures can you use to check your
progress?
 What capabilities are missing or not strong enough to keep
your company competitive in the future ? What actions can
you take to acquire or strengthen them ?
 What can leaders do on their own, independent of an
institutional response ?

The unscalable founder
Lost voices from the frontline
Erosion of accountability
Revenues grow
faster than the
talent
Fighting the crisis of overload

 Open communication lines
 Celebrate and reward frontline heroes
 Make constant improvement a focus (forums, recognize
great ideas)
 Codify best practices
 Keep the focus on core principles
 Introduce stakeholder happiness surveys
 Celebrate people reinforcing values
 Open office
 Open office floor
The Power of Founder’s Mentality

 Embrace conflict (let managers put on different hats)
 Consistent lower end metrics which require instant action
 Call top performer meetings (recognition, risk management, cut
through bureaucracy)
 Dream big
 Promote fast
 Fast feedback
 Invest in training
 Promote from within
 Empower leaders
 Zero based budget – re-asses redeploy
The Power of Founder’s Mentality

 How to create forum of franchise players to provide front-line
viewpoint on how to restore the founder’s mentality ?
 Review the agendas for key management meetings during
the past 6 months with the goal of assessing whether the
meetings focused enough on customers and front-line
employees.
 Identify immediate actions to speed up their ability to serve
customers.
 Decide how best to design and test next-generation business
model to respond to new insurgents.

 One of the greatest challenges leaders can face is being part of a
large company with a clear growth engine & the perception that it is
starting to slow down.
 Stall-out is actually not rare, it's common, in large companies.
 Over the last 15 years we found two-thirds of companies either stalled
out, were acquired by others or went bankrupt. And of those that
stalled out, only about one in seven actually was ever able to renew
their momentum.
 Once you stall out, it's extremely difficult to restart the engine. A lot of
bad dynamics occur.
 Younger people don't see as much opportunity and they begin to
leave.
 Power begins to move into the corporate center from the front line,
who becomes demoralized.
 Bureaucracies begin to husband and hold on to resources rather than
liberate them to invest in new sources of growth.
Stall-out is common in large companies

 It has been estimated that two-thirds of all mature companies
will experience stall-out, and fewer than one in seven will
recover.
 Those that have recovered have done so by simplifying and
rebuilding their core businesses.
 For example, by 2007, the Home Depot had lost 50 percent
of its market value. Newly instated CEO Frank Blake realized
the core of the problem was a deteriorating customer
experience and disempowered employees.
 Blake set out to revitalize the company by embracing its
founder’s mentality and returning to its core values.
 This eventually resulted in a six-fold increase in price per
share.
Reversing the Stall-out

Re-empower and reinvest in people
 Spend more time on customer
 Bonus pool
 Rehire veterans
 Honor badges for exceptional customer service
Lower cost & complexity
 Simplify portfolio
 Free up resources
 Reduce operating costs
 Develop simpler strategy
 Reduce complexity in design, supply chain, product and process
 Collect ideas from everyone how to improve
 Empower people who don’t have vested interest in past decisions
Entrepreneurs
 From outside – acquire companies
 Partner with outside entrepreneurs
 Change ownership (go private)
Renew…

 Sell underperforming business units
 Re-empower frontline executives in senior meetings
 Simplify/take out complexity
 Use customer support staff to support customers, invest into it don’t reduce
to squeeze margins, NPS
1) Build a re-founding team
 Change senior leadership team
 Needs new energy (not depressed and tired)
 Rebuild future not defend the past
 May need new skills and capability
 Hard for people to recognize failure easier new people with open minds
 This needs to be very fast
 Time is lost
 Don’t let the newcomers absorb the old ways
 Move Quickly
Essential Steps to Reverse free fall …

2) Focus on core of core
 Noncore assets, departments, functions, processes – eliminate
3) Redefine insurgency
 Establish vision / purpose
 Align everyone on it
4) Rebuild front line
 New language (as a village, CEO being mayor) increases accountability
 Good customer service awards
 Customer feedback on walls
5) Invest massively in new capability
 Embrace the future and think about what you need
6) Wild card: consider privatization
 Buys time
 Potentially attracts talent
 Reduces external distractions
 Allows focusing on internal
Essential Steps to Reverse free fall …

 Make the case for change with your people. Are parts of the
business model becoming obsolete? If so, focus urgently on
how they should be redesigned.
 Radically reduce complexity to liberate resources & sharpen
focus , even this means shrinking the business back to the “
core of the core”.
 Involve the strongest, next generation franchise players in
identifying how the core business needs to change to
compete.
 Set up a program office of leaders assigned full-time to
manage the turnaround & transformation of the business
model.
 Ensure 50% of management discussions are focused on
investing in capabilities to grow over the long term.

Self-awareness
 Real root cause metrics
 Listen to the right people in the company
 How you spend your time has symbolic value
Common ambition
 Clear actionable mission
 Reach out directly to the frontline, understand problems and customers
Create a compass
 Create non-negotiable guidelines for the company
 Get input from employees
 Turn it into action plan
Decision skills
 Often organizations are over managed and under led
 Managers do things right, leaders to the right things
 The efficiency of manager vs effectiveness of the leader
Action Plan for Leaders

Janusian Thinking
 Consider opposites simultaneously
Say No to Say Yes
 Find the right good idea
Use power of 10x
 Don’t invest into everything achieving consistent mediocracy
 Willingness to invest 10x the normal resources to great ideas
“Hidden” root cause
 Pull out the real problem
 Ask the 5 Why’s
 Be an active listener
Invest massively in Next Generation leaders
 Never found anyone who said we overinvested massively in talent
Invest preemptively in building capability
 Training is a big deal
Focus on long term goals and horizons
 Invest in it

Guardians of speed and agility
 Simplify & Kill energy vampires
 Decide on who has the “D” (power to decide)
 Reduce organization layers
 Reduce ambiguity around the mission
 Realign resources (zero basing)
 Customer experience owner
 Monday meetings to resolve roadblocks
 Find repeatability
 Reduce constant new analysis from leaders
Share burden of leadership across Organization
 You and everyone else owns the problem (not pushing it around)
 Ban talk about “we’ve done this” “we do things this way”
 Ask for forgiveness, not permission to experiment
 One team!
 Pair veterans with newbies (experience and energy)

 Excess complexity
 Energy vampires
 Debate in committees where no person “ has the D” ( the right to
decide)
 Excessive organizational layers and span breakers.
 Ambiguity around core principles & objectives and a lack of common
instincts for how to react to competitors.
 Trapped resources in departments ( hence, the power of zero basing)
 Balkanized customer experiences with single owner.
 Lack of Monday meetings to de-bottleneck decisions and actions,
leaving conflict unresolved.
 Failure embrace in power of repeatable models so that each new
growth opportunity demands new and different capabilities.
 Large Corporate staffs endlessly initiating new activities to better
inform themselves.
Hidden Killers of Speed in Organizations

 The founder’s mentality can outlast the founders. As long as a
company continues to operate based on its founder’s values and
behaviors, the company can continue to be successful long after its
founder is no longer at the helm.
 Complexity is a silent killer for organizations, and the founder’s
mentality is the best measure of an organization’s inner health.
 The founder’s mentality includes three essential traits: the
insurgent mission, the front-line obsession, and the owner’s
mindset. All companies have founders, but not all companies have
a founder’s mentality—which is based on a compelling and
disruptive mission, an obsession with serving customers, and a
sense of ownership at all levels of the organization.
 All successful organizations are vulnerable to three typical crises:
overload, stall-out, and free fall. With growth comes change that
can put a founder’s mentality in jeopardy and an organization at
risk. However, these risks are predictable and preventable.
Key Take Aways

 Overload, stall-out, and free fall stem from internal, not external,
causes. Though the three common crises organizations face
often appear to be caused by external factors, they are actually
caused by internal dysfunction—precipitated by a drifting away
from the principles of the founder’s mentality.
 The negative impacts of the three typical crises can be mitigated
by a rejuvenation of the founder’s mentality. By rebuilding
insurgency, reigniting front-line obsession, and reengaging an
owner’s mindset, organizations can combat and overcome the
crises of overload, stall-out, and free fall.
 Everyone is a leader. The founder’s mentality presumes that
every member of an organization is actively en- gaged in the
company’s mission, feels empowered to act on behalf of the
customer and the frontline, and takes pride in ownership.
Key Take Aways

The Six Building Blocks to restore the Founder’s Mentality
One Distinct Approach

Thank you
Your comments
ramaddster@gmail.com

The Founder's Mentality

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