Though there are many ways to estimate the success rates of start-up businesses in the world, there is no doubt that all of them produce an extremely low number. We estimate that only one in 500,000 businesses started by founders actually grow to be $100 million or more in size, with a decade of sustained growth and profitability. Those that make it through the gauntlet will have experienced some fantastic luck and good fortune. More important, they also will have fought their way through no shortage of difficult and predictable challenges faced by every new business trying to survive, adapt and scale in size.
While every successful founding team is different, we believe that there are some common strengths that carry them through the fragile start-up stage to achieving self-sufficient scale, often fighting as David did against enormous and well-funded Goliath. We call these strengths the Founder’s MentalitySM.
We have come to the conclusion that many businesses age and decline prematurely—just as people sometimes age before their time—because they get out of shape and lose their focus, flexibility and intensity, which was so central to their original success. The Founder’s Mentality is not the fleeting bloom of youth, but a set of hard-edged behaviors of enormous power, which can be managed and extended if you work at it.
I had a chance to speak on this topic at the Endeavor Entrepreneur Summit in San Francisco recently. Endeavor is the largest global organization and network of entrepreneurs in the developing world and now has nearly 800 member companies. As Linda Rottenberg, Endeavor’s founder, states, it is an organization “of entrepreneurs, by entrepreneurs and for entrepreneurs.”
There were about 300 Endeavor entrepreneurs at the conference. I had the chance to administer a survey to them in preparation for my talk and also interview 15 of the top entrepreneurs. I discovered that the entrepreneur founders were acutely conscious of the Founder’s Mentality as a competitive advantage. In fact, 94% of those surveyed believed it was significant in their companies’ success and competitiveness, and they were quite articulate in describing its elements.
These leaders felt the Founder’s Mentality conferred the strongest natural advantages in five areas:
- Having an “owner mindset” in decision urgency and cash management; three times the average rating in our survey of attributes
- Having a credible, uplifting “bold mission” beyond just staying in business; two times the average rating
- Having enormous passion and curiosity about customer details and the concerns of the front line
- Having an obsession with A-level talent and direct-line mentoring in lineage from the founders themselves
- Having a passion for focus and simplicity
Even in this group of relatively small companies (generally less than $100 million in size), seven in 10 felt that it was extremely difficult to preserve these attributes as the business grew in scale. Imagine the challenge for much larger businesses trying to fight against the ravages of aging, loss of passion and onset of bureaucracy.
One South African entrepreneur, Carlo Gonzaga, has been growing his restaurant business at an annual rate of nearly 50% over the past few years. Today his company, Taste Holdings, has nearly 600 stores and is a public company.
“What is the biggest trade-off between Founder’s Mentality and scale? Here is my list,” he said. “First, we started to fall into the trap of short-term profit when we went public. The result was sometimes not putting the customer first in all of our choices. We were told this could happen, and we are putting in place some clear principles, so that we can fight against this tendency. Second, the sense of team can erode as fast growth overtakes you. We used to do things in the restaurants like hiding eggs and having everyone find them to make omelets together. We lost some of these practices and are working to bring them back. Third, we have vacillated between a complex ‘balanced scorecard’ and some very simple measures.”
He continued, “We used to track a few things in a war room against competitors. This has become diluted over time, and we are trying to get back to the feeling of unrelenting intensity of the founder on these areas of performance. Finally, we realized that we needed to create some nonnegotiable principles of behavior that would cut across the businesses and apply to everyone. As part of this, we are increasingly using technology for fast surveys with SurveyMonkey, of our franchisees and frontline employees. Above all, you need to retain transparency of information. Opacity can set in as you grow, and you have to fight against that. Transparency creates trust, and trust reinforces authenticity. And authenticity is what Founder’s Mentality is about.”
Our research at Bain & Company shows that those companies that are able to maintain the five dimensions of Founder’s Mentality are able to scale their businesses faster and more profitably, often gaining share against slower or more bureaucratic companies.
For many companies, Founder’s Mentality is one of their most valuable competitive assets and should be managed consciously. If you can maintain it as your organization ages—like maintaining physical fitness as you age—it can become an even greater competitive advantage. Companies like IKEA, Nike, Starbucks, AB InBev and Enterprise Rent-A-Car are large, sustained successes, and they owe part of their current strength to their ability to scale while fighting the erosion of their Founder’s Mentality