2009, BOOK EXTRACTS, BOOKS, MARCH 2009

The Seven Leadership Mantras for Exponential Growth

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Behind the starry success of most ‘blueprint’ companies there have been the amazing synergies of dual leadership. Dynamic duos such as Hewlett and Packard, Sears and Roebuck, and Walt and Roy Disney have become the stuff of corporate legend. Exclusive extracts:

Why do we aspire to create organisations of the future? Peter Drucker pointed out that a totally different approach is emerging that says the purpose of an organisation is to get results outside–to achieve performance in the market.  One of the ultimate dimensions of this “performance” calling is the building of businesses that enhance our everyday lives, create a great place to work, and develop the leaders of the future. Where might we find these unique opportunities in one place? In the businesses of the future. But the probabilities of failure for these companies are greater than the odds of success! Therefore, the business of the future must take the form of an exceptional-growth company that executes what it takes to sustain growth…How do you build an exceptional-growth business despite the odds against it? And is there an actionable blueprint to follow?

The Blueprint to a Billion: 7 Essentials to Achieve Expone ntial Growth became the first quantitative identification of the success pattern of… high-performing companies. Although just about all companies aspire to achieve…even exponential growth, of the 7,500 American companies that went public between 1985 and 2007, only 5% have achieved $1 billion in revenues! …Yet these exceptional companies, I call them Blueprint Companies, account for 56% of employment and 64% of market value created by all IPO companies. …They are the heart of America’s innovation and growth: the new companies to work for and invest in. …There are what I call 7 Essentials that underpin this unique pattern of exponential growth. One of the most important of these essentials is the leadership team. What kind of management does it take to propel a company to a billion dollars in revenue in only a few years? What my colleagues and I found is that no single CEO can possibly keep all the essentials in motion sans help.

Back to the Future: Bill Gates Didn’t Build Microsoft Without Help

Back in 1983, when Microsoft was at an inflection point at 50 million in revenues, the company was outgrowing its small-time style faster than Bill Gates could handle. Gates had been trying to take personal charge of five product lines and paid little attention to tailoring programmes to customers’ needs. He found Jon Shirley, a twenty-five-year career veteran at Tandy Corp, …who discovered that Microsoft lacked key statistical data about its products, its markets, and its sales. …The management team…reorganised two divisions: systems software and business applications. Microsoft revamped its applications division into five business units, having P&L responsibility for product lines and marketing and documentation of their products.

Analysts give Shirley credit for quarterbacking many of the key strategic alliances that helped catapult Microsoft to industry prominence. In contrast, Gates focused externally on the market, establishing standards leadership and shaping the technologies for various product areas. …Shirley mirrored a management style that is supportive and didactic, well suited to Microsoft’s campus ambiance. Shirley retired in 1989-after guiding the company from the inflection point to $1 billion as Bill Gates’ “Mr. Inside.”

The Bottomline
To become a leadership team for the future, follow this handy leadership formula:
Blueprint Leadership =  Focus on people and product X Drive for exploration and innovation  X Ability to manage 7 Essentials simultaneously.

Why multiply the three leadership dimensions rather than add them? We found that multiplication illustrates the compounding nature of Dynamic Duo leadership effectiveness. Alternatively, if leaders don’t achieve the performance required on each of these dimensions, the business fails. Therefore, each of these dimensions is necessary to achieve success.
Ever seen a “hands-off’ leader who focuses only on process, with little understanding of the details of the business? Ever find leaders who are focused only on cost reduction at the expense of growth? Ever find leaders who are simply maxed out, with no time to manage all the moving parts? Not a leader for a Blueprint company—the business of the future.

The 7 Essential of Blueprint companies
These seven essentials are the common management practices utilized by America’s highest-growth companies-independent of industry or economic cycle. Utilising one or more of these essentials will improve your business, organization, team, or yourself. Utilizing five or more will truly turbocharge your business to achieve exponential growth.

1. Create and Sustain a Breakthrough Value Proposition
A value proposition states the benefits customers receive from using a company’s products or services in terms that the customer understands. The best Blueprint companies not only created but sustained breakthrough value propositions. For example, Starbucks delivers you a coffee experience and provides a social location that is the third place, to home and work.

2. Exploit a High-Growth Market Segment
Opportunities exist in a lot of industries; some industries have more opportunities than others. However, specialty retail stores generated the highest number of Blueprint companies, with eighteen firms: AutoZone, Staples, Tractor Supply, Williams-Sonoma, PetsMart etc. This occurred because there were multiple market segments to address within this industry. In contrast, there are numerous cases where a single company arises out of an industry to become the only player to achieve $1 billion in revenues-witness Harley-Davidson.

3.Develop Marquee Customers to Shape the Revenue Powerhouse
Customers can be more than customers. The best of them can serve as an extension of your sales force-they become your most effective sales team! I call these marquee customers—that is, customers who shape the company by testing and deploying the products, recommending the company to their peers, and simply providing exponential revenue growth on a per-customer basis. For example, eBay has a large base of “Power-Sellers” as marquee customers.

4.Leverage Big Brother Alliances for Breaking into New Markets
The complement to marquee customers is a “big brother-little brother” alliance. These alliances, in which a bigger company helps a smaller one, provide credibility to the little brother, give it market intelligence, and lead it to marquee customers. Microsoft’s early alliance with IBM is a perfect example.

5. Become the Masters of Exponential Returns
Blueprint companies serve to illustrate what it takes to create the highest value per company. On an average, they were cash-flow positive early and sustained this positive cash flow to $1 billion revenue. Shareholder returns for being a top-performing and exponential growth company are more than compelling: an average of 87% returns to their shareholders while exceeding analysts’ expectations 80% of the time! Do you remember Google beating expectations as it rapidly grew to a billion? In contrast, today’s fairly common management behaviour suggests that overinvesting and utilizing debt is the best financial approach to fuel growth.
6.Develop the Top Management Team with Inside-Outside Leadership

One of the pivotal essentials that enables the other essentials to be simultaneously executed is a dynamic leadership pairing in which one leader (or team) faces outward toward markets, customers, alliances, and the community, while the other leader (or team) is focused inward, to optimise operations. Contrary to the somewhat popular belief that one leader is the leader, this inside-outside leadership pair is highly prevalent among Blueprint companies: Microsoft, eBay, Yahoo!, and Tractor Supply etc. For example, at Tractor Supply, Joe Scarlett was Mr. Outside to Jim Wright, who was the inside-facing leader. In the early days of Yahoo, it was Koogle and Mallett.

7. Develop Your Board with “Essentials Experts”
Blueprint boards aren’t packed with investors, as one would think. Instead, they recruited customers, alliance partners, and other blueprint CEOs to the board, and that made a big difference. I call them “essentials experts” because their role is linked to the shaping and execution of one or more of the essentials. Because most investors have not scaled Blueprint companies to $1 billion revenue, their CEOs were often recruited to provide insights into exponential growth. In contrast, boards with only investors and management tended to be associated with struggling companies. Even today, Tom Sternberg, the founder and former chairman of Staples, is still on the board of PetSmart. Similarly, Howard Schultz served on the board of eBay as it ascended to a billion.

[Published with permission from John Wiley India. Excerpted from 'The Organisation of the Future 2. All rights reserved.]

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