We’ve been doing less blogging lately because this Founder’s Mentality® topic has become quite hot, and we’re working with a lot of business leaders on how to become scale insurgents. The biggest new developments involve micro-battles, and the purpose of this blog is to get you up to date. We’re also going to step back to provide context and lots of links to previous blogs if you’d like to explore further.
Context: The six building blocks on the journey to “scale insurgent”
Context matters. What matters most is the growth paradox: Growth creates complexity, and complexity kills growth. Understanding how companies respond to this core problem has led us to look at companies on two dimensions:
- How well do they maintain their Founder’s Mentality as they grow?
- How effectively are they capturing the benefits of their increasing size?
All great companies start as insurgents, at war against their industries on behalf of underserved customers. This creates a tremendous sense of mission, clarity and focus. Because everyone in the company makes or sells the product in the beginning, these insurgent companies are incredibly customer and frontline focused. Everyone acts like an owner of the business because most are. Speed is a weapon. And what insurgents lack in size, they make up for with the missionary spirit of a scrappy, fast-moving challenger (see Figure 1).
But as companies move along the default path from insurgency to incumbency (see Figure 2), they trade their Founder’s Mentality for the benefits of size. This trade-off seems positive for a while—after all, size matters in business. But once the culture tips toward a more bureaucratic, incumbent mindset, the leaders of these big companies face a huge problem: Their size becomes more burden than asset, and a new generation of insurgents begins picking off their underserved customers. Slowly, these companies slide from incumbency to struggling bureaucracy. They don’t die because they have strong core businesses that can generate profits even in a lousy culture. But it ain’t a lot of fun to work there, and they begin losing the war for talent. Some of you work for companies such as these and can attest that it doesn’t feel great.
We’ve invested a huge amount of time identifying the forces that pull companies off track, and our key message is that there are eight “winds” that hold back all companies. It’s important to note, however, that the forces that blow you toward the default path aren’t personal or political; they are the result of your growth.
By managing these winds effectively, some incumbents and struggling bureaucracies recover, and some insurgents avoid the drift to incumbency. The most successful leaders turn their companies into scale insurgents by creating teams that embrace the benefits of Founder’s Mentality and the benefits of scale. These stories are at the heart of our book The Founder’s Mentality, and we’ve been working with dozens of CEOs on how to start their journey toward scale insurgency. The most successful deploy six building blocks.
- Rediscover the insurgency and capability spikes to accelerate growth. The key concepts here are “insurgency on a hand” and a “compass.” The goal of the former is to translate your strategy into the language of the front line (biological constraints force you to simplify). Your thumb is a statement of your insurgent mission (in customer-focused language), and your fingers represent the three or four spiky capabilities that help you deliver that insurgent mission. The goal of the compass is then to translate that simple but powerful insurgent mission into 10 to 12 “nonnegotiables.” These are the must-do frontline routines and behaviors that everybody commits to doing every time, every day. One CEO argued that this process helps recover the common instincts that defined team behavior in the firm’s early days.
- Build Engine 2 to challenge industry rules and boundaries. The key here is to recognize that sustainable growth demands working through the Engine 1/Engine 2 challenge. Engine 1 is your current core business. It returns significant capital because you lead and have invested in it for years, but it also faces declining growth rates. Engine 2 is your future source of revenue—new businesses with the potential for rapid growth but also characterized by turbulence and lousy short-term economics because you need to invest ahead of revenue. Every company needs to figure out the right organization and investment strategy to manage Engines 1 and 2, but most make one of the following mistakes. First, many companies delay major Engine 2 investments until they see a significant reduction in Engine 1 performance. This is a problem because the new business takes years to build, which means you have to invest well ahead of actual declines in Engine 1. The second mistake is postponing the major Engine 1 cost- and complexity-reduction programs that free up the necessary funds for Engine 2. Companies do this because they think about strategy based on last year’s revenue and overweight Engine 1’s need for resources. The key is to look forward and focus resource allocation where growth is likely to come from over the next decade.
- Refocus the operating model on “franchise players.” The modern firm is dominated by the professional managerial class, and a cynic would argue that incumbent leaders spend most of their time serving this group’s interests rather than the interests of customers. The antidote to this inward focus is to identify your franchise players and reorient the enterprise around them. Franchise players are the mission-critical people who deliver the insurgent mission to customers every day—either by providing the benefits of intimacy (roles devoted to local, close customer contact) or size (roles that focus on lowering costs through global scale). Franchise players are frontline people, but they can also be found in the critical functions that deliver spiky capabilities through scale. Many business leaders don’t know who their franchise players are—and when they do identify them, they often find them buried beneath layers of bureaucracy, making it nearly impossible for them to deliver the insurgent mission to the company’s most important customers. It is critical to liberate them.
- Build learning systems to reconnect with customers and the front line. We talk about learning as a core benefit of getting bigger, but the truth is that very few companies actually have world-class learning systems. They assume that getting bigger results in experience-curve benefits, but they do nothing to enable this. In essence, they are ignoring the one massive competitive advantage of size: superior learning. The best learning system is the Net Promoter System®. Learn about it.
- Simplify to fuel growth. Leaders should constantly review the resources under their control and try to figure out how to do more for less. They should then look to reallocate the resources they don’t need to fund new growth opportunities in or out of their control. Of course, leaders rarely do that, because all bureaucratic training teaches you to hold resources in reserve and to measure your worth by the size of your empire. To create an owner’s mindset (in which folks see every resource as the firm’s resource and work to apply it to the highest and best use) demands a profound cultural shift.
- Create a company of insurgents. Companies don’t win through processes or systems alone; they win through the heroics of their people. Who you reward and the stories you tell about heroes define the company you want to be. Do you regularly reward the folks who do whatever it takes to solve customer issues and who fight against the stupidities of bureaucratic decision making? Or do you signal every day that the way to get ahead is to keep your head down and rise through the professional managerial class slowly and carefully by mastering the politics? When you start to look deeply into your recruiting and development programs, you will be shocked—you are most likely creating incumbents, not insurgents.
The Micro-battles System
The six building blocks set out the “what”—what do we need to do to become a scale insurgent?—but equally important is the “how.”
Leaders of large companies face a dilemma: They agree completely with the ambition to become a scale insurgent, but they are, by definition, an incumbent or a struggling bureaucracy because the leaders have an incumbent or bureaucratic mindset. The leadership team participated in the drift—we got ourselves into this mess, and business as usual isn’t going to get us out of it. The act of deciding to become a scale insurgent is implicitly a declaration of war on the routines and behaviors of the leadership team itself.
We have worked long and hard on this problem over the past four years and believe that deploying the Micro-battles System (see Figure 3) is a highly effective way to pursue the what (building blocks) while shaking up everything in the how. It is a way to start winning again in the marketplace, and it is a way to pursue deep behavioral change as you begin to act as a scale insurgent. It is surgical. We are going to bring change one micro-battle at a time. But the reason we are doing this is because business as usual will fail.
The best way to explain what we mean by micro-battle and the Micro-battles System is to start with a couple of good examples.
Business to consumer: Let’s say you’re a global beer company called Bedrock Enterprises (BE). Your biggest premium brand is Fred’s Grog (a nod to the Flintstones), and it competes with all the top brands. Similar to any self-respecting global company, BE has a strategic priority to “win in China,” and that will require lots of things to go right: BE must hire a good sales team, it must acquire a bunch of Chinese beer brands to get distribution scale, it must deal with Chinese regulators and so on.
What you realize, though, is that these are all enabling activities. The thing that will determine BE’s ultimate success in China is making Fred’s Grog the No. 1 import brand, and that will require winning in the on-trade channel (bars and the like). To conquer the on-trade channel, BE will have to have specific promotions in the trendiest bars that outperform all other imported beers on the preference drivers of the aspirational consumer (namely, the folks whom everyone else wants to be like). That’s a mouthful I know, but you see how we’ve moved from the vague idea of winning in China to a very specific need to get promotions right with specific consumers in specific bars.
And there’s more. What capability are we trying to build with this micro-battle? And how are we going to scale this battle? The leadership team of BE has choices. They could logically argue that since the micro-battle is all about winning in China, the best scaling strategy is to apply their learning in on-trade channel promotion to BE’s portfolio of other brands in China. But they might also take a broader approach. Let’s assume in this case that BE management decides to scale this micro-battle by taking the model proven in China to other emerging-market countries, starting in Nigeria and India. The real strategic priority, then, becomes “win in emerging markets,” not “win in China.” To create an approach that is transferable to India and Nigeria, the BE team decides to add on-trade specialists from India and Nigeria so that they can constantly test the prototype for transferability. What you see here is that a micro-battle isn’t a small thing; it’s an extremely focused initiative that starts with the hardest problem first and iterates on the solution. Micro-battles are all about fast failure and adaptation. But as we’ll see, the key is low-cost failure—you’re trying to make cycle times so fast that you limit the cost of failure on each cycle of learning.
Business to business (B2B): We can be briefer with this second example. Let’s assume we have a complex trucking company called Transport Co. Transport has just bought several major warehouse companies that own lots of distribution centers. It has also acquired a major online player that creates B2B digital platforms to handle ordering and fulfilment. Strategically, Transport wants to be more of an end-to-end logistics player, with both trucking and warehouses, and it knows it needs to tie it all together with a robust digital customer experience. Organizationally, all these moves will demand that Transport go through a huge reorganization around customer segments on one hand and creating a single end-to-end logistics function on the other.
Typically, this kind of transformation takes years of complex organizational rewiring, with lots of internal focus and bureaucratic infighting. But Transport management takes a different approach: For each of our five new customer segments, the company decides, we will launch a micro-battle to gain 100% share-of-wallet from the best-in-class player in that segment. In sports and apparel, for example, the battle will focus on capturing the entire end-to-end logistics business of the leader in that segment.
The goal of this micro-battle and the four others similar to it, however, is more ambitious than that. The ultimate objective is to use these battles to figure out how to act like the Transport of the future. Transport will learn to work with each of its top-five customers as a truly integrated logistics company, even if the broader company isn’t there yet organizationally. So yes, we will continue with some horizontal initiatives to reorganize companywide, but these five micro-battles will ensure that for our five most important customers, we will remain externally focused and agile. We’ll do whatever it takes to organize to serve them and test what the Transport of the future can be.
Defining a micro-battle
With those examples in mind, let’s agree on a standard micro-battle definition:
- Micro-battles are run by small, cross-functional teams of seven to nine people, preferably dedicated full time.
- They are led by a franchise player, who owns the results.
- The team brings together the benefits of customer intimacy (front line) and benefits of scaling (the functions).
- Each team includes a process owner, who understands the principles of Agile innovation and can help the team unlock problems to be more effective.
- Every micro-battle has clearly defined deliverables around developing a winning prototype that can scale. This demands the company develop a clear thesis on key battlefields and what capabilities need to spike.
- Teams are empowered to progress and make recommendations, with a clear process to:
- collect customer feedback to adjust the prototype; and
- gather input from a defined set of stakeholders (including senior leadership).
- Teams are devoted to test and learn. They are willing to fail fast and adapt.
The ultimate goal of micro-battles is to teach the organization to act like a scale insurgent. Because of this, each micro-battle should look like a microcosm of the organization you want to become. This demands a system to maximize learning, focusing on the behaviors of two types of teams:
- Win-Scale: The individual teams running individual micro-battles. They test and learn on four-week cycles. (We call this the “Win-Scale model.”)
- Lead-Learn: The leadership team at the corporate center that is running the portfolio of micro-battles as part of its overall strategy to become the industry’s scale insurgent. (We call this the “Lead-Learn model.”)
Let’s explore how each team should work and the broader capability building and behavioral change we’re trying to engineer.
Think Agile—as in using Agile development methodologies to guide micro-battle activity. The emphasis is on winning (solve the specific by ruthless focus on fast failure) and on scaling (ensure that your solutions can be spread across the company). By definition, there is a tension between winning (make it smaller) and scaling (make it bigger). The skill to manage this tension is a critical capability of a scale insurgent. There are four steps to getting there (see Figure 4).
Step 1: Translate the strategic priority into a prototype. Think back to our first example. The critical first step was sharpening the ambition from “win in China” to “beat every other import brand with Fred’s Grog in the on-trade channel.” The goal here is to identify the “essential thing” that will determine the success of the strategy and figure out how to market test that thing in four-week cycles, using fast failure to hone a prototype.
Strategically, it takes a lot of wisdom to move from big strategic objectives to prototypes. And you will discover that some of your leaders lack that wisdom, which might explain the tremendous yield loss from strategic intent to results. But you will also discover new leaders emerging who can do this brilliantly. Operationally, you will need to break a lot of eggs. Your teams and third-party partners are not geared up for four-week cycles of anything.
Initiatives such as the trade promotion programs in the Fred’s Grog example typically take months to design and execute, so this step demands that you shake up your ways of working. You need to accept fast failure by focusing on prototypes that can be tested quickly with customers, learned from, adapted and then retested. You fail a lot anyway, but most of your failure happens toward the end of big initiatives because your teams put off the hard stuff until the end. Our goal here is to accelerate learning and innovation while also reducing the cost of each failure.
Step 2: Turn a successful prototype into a repeatable model. The second step conflicts directly with the first. We expect micro-battle teams to create a winning prototype for the specific instance (winning in bars in China) but also to create a winning solution that is transferable and repeatable. We want what works in China to work in Nigeria and India. This tension is intentional and defines the behaviors of scale insurgents—their teams can focus ruthlessly on the specific issue in front of them and also consider how that solution might be scaled across the enterprise.
What helps is to populate teams with folks who will be involved in the next phase of the rollout from the beginning, not at the end, of the test phase. Consider this: In the typical incumbent company, if you figure out a winning formula for China and then pass it along to your Nigerian and Indian teams, they often reject it immediately. They complain that the channel structures, the competitive sets and their team capabilities are completely different. The model is unusable. You then spend a huge amount of time fighting about this and questions of “corporate citizenship” emerge—the center accuses the local teams of not being good citizens, of not getting with the program, of not accepting things that haven’t been invented by them. Huge political angst. With micro-battles, you bring someone from Nigeria and India in early to cocreate the prototype. They have to win in China first, but they also have to challenge the team on how to make the model work elsewhere. It may very well be that in that process, the team concludes that the winning Chinese prototype will work in India but not Nigeria. That is data. It might lead to another micro-battle for Nigeria and countries with similar market characteristics.
Step 3: Map out the behavioral change required to embed the repeatable model. The team is also accountable for sorting through the essential behavioral changes required to make the prototype work. In our Fred’s Grog example, the team might very likely learn that the global Fred’s Grog brand team needs to move from headquarters into the field if the model is going to click. It might recommend that global brand owners need to work with key account managers for bars on an ongoing basis to be able to adapt promotions quickly. It may also be that the company’s marketing agency partners are not up to the task of fast prototyping, which means we need new partners. The team might also need new capabilities to create prototypes—especially for labels and bottle sizes. The idea is to work through all the potential obstacles for scaling the repeatable model.
Step 4: Hand off the model for scale deployment. The final step is to prepare the deployment plan and hand off the model to a deployment team. In some cases, that might be the same team in charge of the micro-battle. But in most cases, the team is handing execution back to the organization. The key is that deployment of the winning model will require the same sense of urgency and attention as the design and development of that model. Which leads us to the Lead-Learn model.
The senior executive team is in charge of the Lead-Learn model, and it is accountable for managing the portfolio of micro-battles (see Figure 5). Team members review the progress of all these micro-battles in four-week cycles, and their focus is to determine how the cycle-review sessions will actually work.
The first goal of the leadership team is to lead—that is, to role model the behaviors of the scale insurgent as well as to enable and support the micro-battles team. The senior executive team is not there to second guess the recommendations of the micro-battle team or to bring up big ideological debates that hamper team progress. The job is to lead by supporting the real “bosses”—namely, the franchise players fighting micro-battles that deliver the insurgent mission.
The second job is to learn—that is, to see patterns across the battles as well as to connect the dots and get teams to talk to each other. Ultimately, the goal is to use this learning to adjust the full-potential agenda of the company. Lead is about solving the specific; learn is about expanding those solutions across the enterprise. As with Win-scale, these goals are in opposition with one another, but again, the goal is to change the behaviors—this time to get senior leaders to act like the scale insurgent. There are four steps.
Step 1: Review individual cycle results. The first job of the leadership team is to review the four-week cycle results of the micro-battle teams. A key skill here is listening. The objective is to bypass the usual noise heard in the executive room and to refocus on the voice of the customer, the voice of the front line. Each micro-battle cycle report is essentially that voice. The team is coming back and providing market feedback on a recent prototype that has failed or succeeded. This prototype is the most critical part of a key strategy, and the team is moving toward a solution. Listen.
The second skill is to provide the win-scale challenge. We find that teams tend to fall out of balance with each cycle. Some focus too much on the specifics of the prototype and are creating something that can’t be scaled. Others are so focused on creating something transferable that they aren’t solving the specifics for the market test. One team is creating a Chinese promotion that will never be relevant to other markets. The other team is focused so much on creating something that would work in India and Nigeria that they are failing to listen to the Chinese consumer. In either case, they need to be rebalanced.
The third skill is to role model and champion the behaviors of the scale insurgent. Coach the teams. Help them. But also create heroes out of the teams that are really mastering the win-scale framework.
Step 2: Help the teams accelerate or pivot their micro-battles. One area in which teams often need help is deciding when and how to accelerate or pivot. Think about venture capitalists in this step. If it is a winning idea, help the team figure out how to accelerate the pace of development, how to think bigger, how to go bolder. If it is a winning team, expand the scope of the battle so that it has more impact. Support winners, and give them more resources and responsibilities. If it is a micro-battle team that has lost its way, help them pivot. Help them to reassess the problem, go back to first principles and rethink the thing to be prototyped. Some of the greatest business outcomes occur after multiple pivots. Help your teams pivot.
Step 3: Recognize patterns, and capture learning. The first two steps involve ruthless focus on an individual team and doing what you can to help them run the next cycle. These next two steps are about the portfolio of battles. You start with pattern recognition. What are we seeing across the battles? Which teams need to work more closely together? Is there a common behavioral issue raised by multiple teams that we could address through a new micro-battle or a horizontal initiative?
We have a rule of thumb here. Solve the specific 10 times with the teams and then debate the ideological. Let’s say pricing keeps coming up as an issue and someone keeps saying it’s a problem with the operating model—our markets and functions are not working together to create a common pricing structure. Put up a flip chart in the micro-battles review room that says “pricing.” You then agree that we are simply going to solve the specific pricing issue for the specific micro-battles 10 times. But we’re going to record how we solved it. After 10 times, our flip chart has 10 examples of us solving this problem. Now you can debate the broader issue of the operating model. Now you have pattern recognition; you can see the solutions that work and use that data to make broader change.
Step 4: Adjust the portfolio of micro-battles and/or the full-potential agenda. The final step is all about scaling. We have reviewed all the battles; we have discussed common patterns. What now should we adjust? Do we need to add or shut down battles? Do we need to launch other initiatives or shut down initiatives? Do we need to adjust our strategy? Most important: How do we now reallocate resources to back success? Scale insurgents give winning Repeatable Models® 10 times the resources. They back winners. Incumbents and struggling bureaucracies run democracies, spreading resources like peanut butter across all initiatives so that no one feels like a loser and, of course, no one feels like a winner.
Walk before you run
That’s the heart of the Micro-Battles System. There is, in fact, much more to it: We’ve identified 25 core activities that typify how scale insurgents put the system in motion, and we plan to devote future blog posts to a discussion of each one.
But the good news is that there’s a way to walk before you run. Commit now to run three micro-battles. That’s it. Agree now to carve out three hours of a monthly executive meeting to review the cycle results of those three battles. Mobilize your micro-battle teams to adopt the win-scale model. Mobilize your senior team to adopt the lead-learn model. (These two blogs provide a detailed day-in-the-life case study of Freddie as he moves through the lead-learn and win-scale cycles). Learn through four cycles, and then launch three more micro-battles followed by four more weeks. Then six more battles. Then 12 more. Quickly, you’re more than a year into learning. You are finding that your micro-battle reviews take all day. You are focusing less on functional reporting and more on marketplace battles. You are spending less time as an executive team talking to each other and more time listening to the voice of your customers, the voice of your franchise players. You are backing winning Repeatable Models and succeeding in the marketplace. You’re focused on deep behavioral change. You’re on the journey to becoming a scale insurgent.
Founder’s Mentality® is a registered trademark of Bain & Company, Inc. Net Promoter System® is a registered trademark of Bain & Company, Inc., Fred Reichheld and Satmetrix Systems, Inc. Repeatable Models® is a registered trademark of Bain & Company, Inc.