A recent study by professors at Purdue adds to a “growing mountain of evidence of the superior and more lasting performance of companies where the founder still plays a significant role as CEO, chairman, board member, owner or adviser.” This according to an article in the Harvard Business Review.
Specifically, the study found that S&P 500 companies where the founder is still CEO are more innovative, generate 31% more patents, create patents that are more valuable, and are more likely to make bold investments to renew and adapt the business model—demonstrating a willingness to take risk to invent the future.”
To determine why, consulting firm Bain & Company conducted a series of interviews with executives and founders around the world, then analyzed another 200 founder-led companies.
“What we found surprised us,” the article said: “Three sets of hard-edged practices and underlying attitudes, tracing back to the way the founder had set up the company, emerged consistently. In other words, how founders built their companies on the inside, from the start, influenced their companies’ success on the outside, for a long time.”
These practices, which Bain refers to as “the founder’s mentality” are outlined as follows:
- Insurgency—Challenging industry norms, as Netflix did for video rentals, or “to create a new market entirely,” as Google has done. Without this, the article argues, companies become “directionless and uninspiring.”
- Front Line Obsession—This emerges in “a love of details and a culture that makes heroes of those at the front line of the business and gives them power.” Without such deep curiosity of front-line events, the article says, “your company loses its instinct. At the extreme, your company becomes an out-of-touch bureaucracy where power shifts to corporate offices and to people who may never have served a customer or made a product.”
- Owner’s Mindset—Characterized as “the fuel that propelled the rise of private equity, whose essence is dialing up speed to act and taking personal responsibility for risk and for cost.” Without it, companies can become “complacent, slow to act and decide and risk averse. Leaders can easily turn into custodians and then into bureaucrats, and bureaucrats are especially vulnerable today,” the article asserts.
The article concludes that cultivating a founder’s mentality is a key strategic asset and argues that it is the “most important indicator of the health of a company on the inside—which is almost always where the deep root causes of failure to perform on the outside reside.”