Fast-growing, developing-market companies revel in running circles around larger, slower multinationals. Their advantage is what we call the founder's mentality - an essential sense of insurgent mission, an owner's mindset and a passion for the front line and customers. Typically, they are led by ambitious,entrepreneurial founders who have a deep understanding of what their customers want and know how to deliver it quickly and seamlessly.
But many such companies we work with in India and otherdeveloping markets also face a problem. They know that sustaining growth over the long term requires achieving the benefits of scale that favour large industry incumbents - better costs, pricing power and market influence. With scale, however, comes a perilous trade-off: As they build the kind of organisation they need to sustain growth, they encounter a number of predictable forces that threaten to slow them down and erode the very core strengths and values that powered their early growth and competitiveness.
We call this the growth paradox - growth begets complexity; complexity is the silent killer of growth. And in workshops we have held over the past year with 190 leadership teams as part of Bain's developing market 100 initiative, we have seen that it poses a major challenge for most growing enterprises. Successful founder-led companies like India's Oberoi Groupand Mindtree demonstrate that it certainly is possible to scale without sacrificing an insurgent culture. But it requires recognising the natural forces that threaten to blow companies off course and taking early, decisive action to resist them. We call these forces the 'westward winds' and have organised them into four broad categories:
Revenue grows faster than talent Behind the early success of most insurgent companies is a high-performing team of dynamic, talented individuals. But the golden years when a company's skills mesh closely with its needs are usually short-lived. Fast-growing insurgents typically can't scale up their teams quickly enough to keep pace with opportunity. So they compensate by hiring second-tier talent with little frontline experience and put a series of procedures and processes in place intended to translate the original founding mission into a rulebook. Although many of the new hires may be comfortable with a more process-oriented company, the shift in culture tends to turn off the best employees. Leaders soon discover that they have created a bureaucracy of planners, rather than a sustainable high-performance organisation.
The erosion of accountability Founders and their original teams think like owners. They spend the company's money as if it were their own and take personal responsibility for results. Management discussions are also about real things: solving customer problems, what to do with pricing, how to cut costs, etc. But this abiding sense of ownership fades as companies grow bigger. Instead of focusing on real things, a growing army of middle managers starts obsessing over math. They talk about serving the average customer, not the most important ones. And as the level of abstraction grows, it is no surprise that individual managers feel less accountable for what is happening around them.
Lost voices from the front line At founder-led companies, the people around the table making decisions are typically those who are selling the product and talking to customers on a daily basis. Most founders wouldn't consider making a big decision without first consulting frontline leaders. But then two things begin to happen: First, the company (for all the right reasons) starts to add functional professionals. Then the business gets complex enough that middle managers replace the front line at the table. The voices of those closest to the customer become increasingly faint, resulting in an undifferentiated customer experience. That's what happened at an Indian financial services company we have worked with and the disconnect with its customers eventually led to declining growth in its flagship branches.
The unscalable founder Although the founder's mentality imbues companies with an essential culture of speed, decisiveness and frontline orientation, individual founders themselves are not always equipped to take a company through every stage of its development. Very often, they fail to realise that they owe some of their success to local advantages - proprietary access to talent, capital and government relationships - that won't be available as they expand into new markets, especially abroad. Their inability to adapt to new realities results in diffused focus, over expansion.
The reason we call these the westward winds is because they are unavoidable as companies seek to navigate a true course north to capture their full potential. For a time, young, insurgent companies can get by on long hours and the heroic efforts of a dedicated team. But that's ultimately unsustainable. Eventually, responsible leadership must bring in new talent, develop capabilities and build processes that support the operation of an increasingly large organisation.
Where companies go wrong is that they fail to anticipate how crucial it is to professionalise mindfully. Too often, leaders view the challenge as an end in itself rather than linking it directly to strategic priorities. They hire professionals and fail to integrate them properly. They fail to involve the employees closest to the customer creating distance between leadership and the front line. This explains why most professionalisation efforts fall flat.
In our experience, companies can skip this time of flawed systems through a continuous effort to define the core strategy, translate it into a repeatable model and use it to both embed the strategy in the organisation and guide all efforts to add talent, capabilities and systems. At Oberoi, for instance, the luxury hotelier insists on saying yes to customers 99 per cent of the time. That informs every part of the operation from hiring and training of top associates to the maintenance of tea kettles in the kitchen. Superior service isn't left to chance; it is built into the company's learning systems. One example is a monthly exercise where frontline employees share the most important customer lessons with their peers. That way, says Poornima Bhambal, a manager at the Oberoi Udaivilas in Udaipur, "We learn patterns of what customers want and can anticipate their needs. We try to tailor our offering to our customers without them even knowing we have done it."
Oberoi's obsession with pleasing customers is a founding principal's pillar of the company's founder's mentality that traces back to its earliest days. But it lives on today because a large, professional organistion has been tightly calibrated to deliver on the mission.
Part II of the series focuses on building a strategy-led organisation that involves a company-wide commitment to a multi-year journey
James Allen Senior partner, Bain & Company, London office, co-lead, Global Strategy practice
Dunigan O' Keeffe Partner, Bain & Company, Mumbai office & head, Strategy practice, Asia Pacific
Bhavya Nandkishore Principal, Strategy practice, Bain & Company, New Delhi