Mastering the 7 Essentials of High-Growth Companies: Effective Lessons to Grow Your Business

MASTERING THE

7 High-Growth

ESSENTIALS OF

Companies EFFECTIVE LESSONS TO GROW YOUR BUSINESS

DAVID G. THOMSON

Bestselling author of Blueprint to a Billion

MASTERING THE

7 High-Growth

ESSENTIALS OF

Companies

MASTERING THE

7 High-Growth

ESSENTIALS OF

Companies

EFFECTIVE LESSONS TO GROW YOUR BUSINESS

David G. Thomson

John Wiley & Sons, Inc.

Copyright © 2010 by David G. Thomson. All rights reserved. Published by John Wiley & Sons, Inc., Hoboken, New Jersey. Published simultaneously in Canada. Figures 1.1, 2.2, 2.3, and 3.1 are reprinted from Blueprint to a Billion, and used with permission of John Wiley & Sons, Inc. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the Publisher, or authorization through payment of the appropriate per-copy fee to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, (978) 750-8400, fax (978) 646-8600, or on the Web at www.copyright.com. Requests to the Publisher for permission should be addressed to the Permissions Department, John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030, (201) 748-6011, fax (201) 7486008, or online at http://www.wiley.com/go/permissions. Limit of Liability/Disclaimer of Warranty: While the publisher and author have used their best efforts in preparing this book, they make no representations or warranties with respect to the accuracy or completeness of the contents of this book and specifically disclaim any implied warranties of merchantability or fitness for a particular purpose. No warranty may be created or extended by sales representatives or written sales materials. The advice and strategies contained herein may not be suitable for your situation. You should consult with a professional where appropriate. Neither the publisher nor author shall be liable for any loss of profit or any other commercial damages, including but not limited to special, incidental, consequential, or other damages. Blueprint to a Billion, 7 Essentials, and Marquee Customer are trademarks or service marks of The Blueprint Growth Institute and/or David G. Thomson. For more information about David G. Thomson or his books, visit his Web site at www.blueprintgrowth.com. For general information on our other products and services or for technical support, please contact our Customer Care Department within the United States at (800) 7622974, outside the United States at (317) 572-3993 or fax (317) 572-4002. Wiley also publishes its books in a variety of electronic formats. Some content that appears in print may not be available in electronic books. For more information about Wiley products, visit our Web site at www.wiley.com. Library of Congress Cataloging-in-Publication Data Thomson, David G. Mastering the 7 essentials of high growth companies : effective lessons to grow your business / David G. Thomson. p. cm. Includes bibliographical references and index. ISBN 978-0-470-61062-6 (cloth) 1. Corporations—Growth. 2. Industrial management. 3. Organizational effectiveness. I. Title. II. Title: Mastering the seven essentials of high growth companies. HD2746.T565 2010 658.4'06–dc22 2010004451 Printed in the United States of America 10 9 8 7 6 5 4 3 2 1

David has distilled the 7 Essentials into practical and actionable guidelines that leaders can apply to grow their business. The value of this book is not its interesting stories, thorough analysis, or actionable lessons. The real value lies in what you do with what you learn. —Marshall Goldsmith Goldsmith is the million-book author of What Got You Here Won’t Get You There and Mojo. The American Management Association named Goldsmith as one of 50 great thinkers and business leaders who have impacted the field of management over the past 50 years.

This book is dedicated to my family. I am especially thankful to my wife, Eileen, and our four children, who are all on their journey to pursue careers with growth companies: Christine, Allison, Julie, and Kevin. I am blessed to have their love and encouragement. I am also thankful for my parents’ and friends’ support and contributions.

Contents

Preface

xi

Acknowledgments

xvii PART ONE

Achieving Growth during Challenging Times Companies That Are Redefining Growth Your Revenue Growth Blueprint

3 13

PART TWO The 7 Essentials of High-Growth Companies The 7 Essentials

27

Applying the 7 Essentials as a Positive Feedback System

59

Three Big Boulders on the Path to Growth—And How to Clear Them Away

73

PART THREE The 7 Essentials in Action The Emergence of the Global 7 Essentials

ix

89

x

Contents

Blueprint . . . or Blue Print: Same Story, Same Values

93

Applying the 7 Essentials at HCL Technologies

103

HCL’s Blue Print for Continued Exponential Growth

119

PART FOUR A Blueprint to Achieve High Growth Create Your 7 Essentials Action Plan

131

Build Your 7 Essentials Roadmap

147

Insights to Actions

151

The 7 Essentials for Start-Up Companies

163

PART FIVE A Growth Calling Identify Your Growth Calling

169

Essential Leadership Pillars

173

Your Journey Begins with Three Steps

191

Notes

197

Index

199

Preface

W

hat separates the masses of management teams from the masters—those who manage to grow their companies through the most challenging market and economic cycles? What are the effective lessons utilized by America’s recessionproof growth companies that I can apply to grow my business? What are the values, fundamentals, and actions that I can apply that will make the difference between simply surviving and achieving exceptionally high growth for my company? Since the release of my first best-selling book, I have crossed the globe speaking to and conducting workshops with more than 25,000 leaders and management teams. These are the penetrating questions that I continue to discuss and engage on with management teams who are redefining what it will take to achieve growth for the foreseeable future. If you are asking one or more of these types of questions, I have written this book for you. My goal is to help you recognize, develop, and refine the management practices and actions needed to truly be an effective growth company, the kind others want to emulate. The answer to these questions is what I call Mastering the 7 Essentials of High-Growth Companies. The 7 Essentials are a proven set of management practices, an effective growth blueprint, that you can apply to propel your company’s growth prospects through all economic cycles. Most important, they will help you recession-proof your company and become a growth leader for the recovery and through the next growth cycle. Building a resilient growth company is a difference-making xi

xii

Preface

trait of the best-run growth companies that particularly distinguishes them during the most challenging of market and economic cycles. You may be asking, “What’s new here?” especially since every company focuses on a market, has customers, tries to be profitable, and has a management team. In other words, it tries to achieve growth. Fair question. The difference between a struggling company and one that shows exceptional growth is the unique combination of what it does and how it does it. This unique what and how combination is reflected in the word mastering in the title of this book. When companies master the 7 Essentials, it results in a quantifiable growth difference. This difference results in consistent top-line performance as measured by revenue growth and bottom-line growth as measured by profit, return on investment, and free cash flow. I wrote this book to help you apply the unique and effective lessons derived from growth company chief executives who are applying the 7 Essentials. They utilize effective lessons: leveraging influencers to sell for them, interviewing competitor ’s customers to identify new needs, leveraging alliances to break into new markets, and mobilizing their entire company to become the most productive growth company. Turbulence creates change, and exceptional companies profit from these varied economic conditions. Achieving growth through down economic cycles and achieving growth leadership into the next up economic cycle enables companies to redefine their market position and outmaneuver competitors. Now is the time to separate your company from competitors. If your company can achieve growth through the foreseeable future, it will emerge as one of the leaders for the next growth cycle—and stay there! Whether you work for a private or public company, a business unit of a corporation, in government, education, or the nonprofit sector, you can take away insights from the success pattern of America’s highest-growth companies and apply the 7 Essentials to grow your business.

Preface

xiii

Why You Need to Master the 7 Essentials Applying the growth values and fundamentals of America’s exceptional growth companies will be essential for your business to not only survive but thrive. Yes, it is possible to achieve exceptional growth through challenging times; the most recent growth rates of America’s highest-growth companies prove it. Microsoft, Google, Panera Bread, Staples, Juniper Networks, Nike, and Endo Pharmaceuticals are just a few of America’s exceptional growth companies that have managed to turn big ideas into billion-dollar revenue businesses. Some were even founded during recessionary cycles, and all have demonstrated growth through recessionary periods, especially the 2001–2002 and the 2007–2008 recessions. This elite set of companies is the source of U.S. innovation, growth, new employment, and investment through all economic cycles. They represent a class of more than 400 growth companies that will be the leaders for the next growth cycle and are today’s masters of the 7 Essentials. These are the companies to learn from, work for, and invest in. This book is that actionable blueprint. It applies to any company focused on growth, whether that company is based in the United States or anywhere on the globe. While the bulk of my research has been identifying the effective lessons common across America’s exceptional growth companies, there are similar lessons from high-growth companies from other parts of the world. Despite country of origin or language differences, different industries or different sizes, these growth companies universally demonstrate the principles of the 7 Essentials. My interactions with Asian companies have been particularly illustrative of the 7 Essentials. In September 2008, I was discussing the 7 Essentials with a group of management teams from high-growth companies near Shanghai, China. During our discussion, I happened to mention that I appreciate

xiv

Preface

Stephen Covey’s 7 Habits of Highly Effective People. I drew the analogy, partly for translation purposes, that the 7 Essentials can be used as an equivalent set of lessons and guidelines to grow your business. It was when I saw a unanimous set of smiles across the hundreds of Chinese faces that I sensed the 7 Essentials was a universal language of growth fundamentals. In the same way that effective people share commonalities across countries and cultures, the 7 Essentials of high-growth companies transcends industries, countries, and cultures when it comes to the fundamental management practices that propel growth companies. My trips across Asia inspired me to identify a world-class case study to illustrate that Asian growth companies do indeed apply the same 7 Essentials as America’s highest-growth companies. Early in 2009, I had the opportunity to meet with and interview Vineet Nayar, the CEO of HCL Technologies, one of the largest outsourcing companies in India and ranked a Top 20 Most Influential Company by BusinessWeek. My interview with Nayar and his team came about from the initiative of Anubhav Saxena, a senior HCL executive, who approached me after a keynote presentation I made at SAP Labs in Palo Alto, California, in October 2008. Saxena told me, excitedly, “In July 2005, the very month your best-selling book Blueprint to a Billion was being typeset, independently and without knowledge of your work, Vineet Nayar launched a growth initiative called ‘The Blue Print.’ While we use a somewhat different language, the fundamentals of the 7 Essentials, your Blueprint, are essentially our Blue Print.” HCL is a real-world embodiment of the execution of the 7 Essentials across up and down economic cycles. This global leader, headquartered in Asia, is a testimony that applying the same fundamentals as America’s highest-growth companies is, in fact, a real-world set of lessons that can transcend industry, country, and culture as well as wild oscillations of global market and economic cycles.

Preface

xv

The lessons this book imparts are valuable to everyone engaged in enterprise—from management teams, big and small, general and functional, in stand-alone companies as well as large corporations, in the United States and globally; investors, board members, regulators, legislators, educators; and students—anyone focused on creating and sustaining a successful environment for innovation and business growth. I aim to impart a message that is pragmatic, upbeat, and motivational. The greater your success at building high-growth companies, the more new jobs are created, the more these public companies propel the overall stock market, and the more the economy grows. Growth starts with what you do. May this book propel you and your organization’s growth to become masters of exceptional growth through the challenging times ahead. This is not only doable; increasingly it is becoming essential. DAVID G. THOMSON

Acknowledgments

A

lthough the book bears the author ’s name, it took a real team effort with significant support from CEOs, editors, friends, and family. Their contribution has touched this book in many special ways. I am indebted to those who were interviewed for this book. They opened their hearts and minds to share their insights so that you can benefit from them. I would especially like to thank Rick Alden, CEO, Skullcandy; Carol Ammon, retired Chairman and CEO of Endo Pharmaceuticals; Selim Bassoul, CEO, Middleby; Tom James, Chairman and CEO of Raymond James Financial; Scott Kriens, Chairman, Juniper Networks; Vijay Kumar, Senior Vice President, Delivery/Operations, HCL Technologies; Mariann MacDonald, Retired Vice President of Operations of Endo Pharmaceuticals; Jim McCluney, CEO, Emulex; Vineet Nayar, CEO, HCL Technologies; Anant Gupta, President, HCL Technologies, Infrastructure Services Division; Dominic Orr, CEO, Aruba Networks; Anubhav Saxena, Global Vice President Marketing, HCL Technologies; Joe Scarlett, Retired Chairman Tractor Supply; Pradeep Sindhu, Vice Chairman of the Board, Juniper Networks; R. Srikrishna, HCL’s Executive Vice President Sales, HCL Technologies; Tom Stemberg, Founder and Chairman Emeritus of Staples; Vernon Wilson, Executive Director of Information Technology, Cummins Business Services; and Phil Zaroor, CEO, Advantage PressurePro. Thank you for being role models for my readers and sharing such practical insights. Special appreciation is extended to Lloyd Adams, Vice President of Marketing for SAP Asia Pacific and Japan, who xvii

xviii

Acknowledgments

sponsored me on my global tour. A special thank you to Vineet Nayar, Anubhav Saxena, and the HCL Technologies executive team, who graciously shared their insights for the HCL Technologies case study in this book. You all are special. The work is so much better because of the problem solving, editing, storyline structuring, pressure testing, and analysis that underpins this book. I am so blessed to have friendships that help make this work special for you and me. Thank you to Eric Arnson of Originate Ventures, whom I met at McKinsey & Company and is a friend and practical thought leader par excellence; Dick Campbell, who has guided and shaped many insights; Erik Colonius, friend and experienced editor extraordinaire; David Cox; Dr. Julie Edge, Inside Edge Solutions, for your so timely critique, insights, and entrepreneurial perspective; Lisa Eskey, who sparked the introduction to Juniper Network; Jim Estill, Seed Investor and Board Member of Research in Motion; Glenn Falcao; Jennifer Futernick, my friend, inner voice, and editor; Kathleen Gagnon for her critique and editing; Marshall Goldsmith, for his steadfast friendship and encouragement; Gary Henson, Chief Investment Officer of Mariner Wealth Advisors, who pressure-tested this manuscript; Dr. Tommi Johnsen, Associate Professor of Finance at the University of Denver, who kept my Blueprint financial research pointing true north; Alison Layne for her insight into branding and her graphic design talents; Avery Lyford, Partner at Signal Lake Ventures, a great friend and thought partner; Patricia O’Connell, Management Editor at Businessweek.com, for sponsoring the 7 Essentials column and pushing for even more in-depth insights for her readers; Tim Sepp of Standard & Poor ’s, who continues to bless me with his hard work; JP Tremblay of Standard & Poor ’s, for his friendship and support; Bob Sadler, Sadler Consulting, for your coaching; Bart Stuck, Signal Lake Ventures, my mentor extraordinaire; and Susan and Marc Wilborn, special friends and caring coaches. Thank you to Jon House, President,

Acknowledgments

xix

Level Five Solutions; Louis Chen of Level Five Solutions; and Bob Covell, President, Rolet Internet Services, for developing the Web site and The 7 Essentials Scorecard tools for our readers. Thank you to Michael Stark and the Visual Ink team, for your initiative and creativity with our posters and Essentials Roadmaps. Your hard work over the years is testimony to the quality you deliver and the usefulness of the tools. To Pamela van Giessen, Editorial Director at John Wiley & Sons, appreciation for your championing of this book, and the Wiley team, especially Emile Herman. Thanks especially to my loving wife, Eileen. This book would not be possible without her endorsement to keep pushing forward. I am so fortunate. To my girls and son, my blessings that you may benefit from these insights for many years to come. Thank you all for making my journey to identify these insights and to create this book so special. You are a great team. D.G.T.

MASTERING THE

7 High-Growth

ESSENTIALS OF

Companies

P A R T

O N E

ACHIEVING GROWTH DURING CHALLENGING TIMES We Le a r n Th a t A m e r i c a’s H i g h e s t - G row t h Co m pa n i es Grow th ro u g h All Economic Cycles and Share a Common S u c ce s s Pat te r n

Chapter

1

Companies That Are Redefining Growth

C

onsider these startling facts. Despite America being a global leader for innovation and growth, more than 60 percent of America’s new public companies since 1980 no longer exist. In contrast, 4 percent have achieved more than $1 billion in revenue. Joining this elite set of 4 percent are an average of 34 public companies per year achieving $1 billion in revenue, independent of up or down economic cycles. The remaining companies are caught in a struggle between the greater odds of failure and the significant upside benefits for achieving exceptional growth. On a side note, for those companies with more than $1 billion in revenue aspiring to grow to $10 billion, the ratio of failure to success is the same: Only 4 percent make it to $10 billion from $1 billion in revenue! These ratios and the success rate of America’s highestgrowth companies have been true for the past decade and are forecasted to be true for the second decade of this century. The companies that are redefining growth are the ones that are growing through the most challenging of times, not just during up economic cycles when the rising tide lifts all boats. At the close of the first decade of the twenty-first century, business is entering unchartered territory. Recent trends 3

4

Mastering the 7 Essentials of High-Growth Companies

suggest that we are moving out of a recession (fairly labeled “the Great Recession”) into a unique growth phase characterized by ongoing recession-like characteristics with high unemployment with growth. The heady growth cycles of the late 1990s and the go-go years of 2004 to 2007 will likely not return. The numbers in this book point to an extreme financial scenario for business growth: a higher upside for those businesses that achieve growth with a greater failure rate for those that struggle: “Grow or Go.” Management teams are clearly identifying the risk of not growing and are searching, with a renewed sense of urgency, to identify the effective actions that will grow their businesses. Independent of economic conditions, what is the success pattern of America’s highest-growth companies that enables them to achieve consistent growth through all economic cycles? What are their growth insights that you can apply? This book does more than uncover these companies’ growth insights; it also provides effective lessons from chief executives who are leading their companies to grow even through the most challenging of times. Applying these insights will improve your odds of success to achieve high growth independent of the size of your company or the state of our economic cycle. Those of us in business naturally view business growth through different lenses, often based on our business experiences. Inventors view growth opportunities through their lens of innovation opportunities. On the other hand, financial services experts view growth through changes in financial performance and company valuations. In contrast, I define a growth company as having a simple, fundamental, and essential characteristic: achieving compounding customer demand as measured by revenue growth. This allows companies to grow revenue every year, which is the number-one objective of just about all for-profit management teams—and the one that is most difficult to achieve. This is the

Companies That Are Redefining Growth

5

measure, however, that ultimately defines a growth company. This same measure is constant through all economic cycles. Revenue growth gives the management team the option of generating profit and returns for investors and employees. It is not sustainable to do the reverse—that is, to overinvest, or to cut costs to generate profit and then look for revenue growth— yet all too many management teams travel this dead-end road to short-term success. Even though today’s economic challenges may seem like an unfavorable headwind, companies of all sizes can achieve consistent and compounding revenue growth: $1 million, $10 million, $50 million, $200 million, $500 million, and even $1 billion and beyond. Growth rates may slow temporarily as a result of declining or rapidly changing market conditions, but revenues of high-growth companies still average compounding revenue-growth rates over the longer term, annually across multiple years.1 America’s exceptional growth companies have a consistent track record of growing through recessionary periods and becoming the leaders for the next economic growth cycle. While the list of names changes, what is in common is that companies achieve growth during the toughest of times. During the 1993 recession, Cisco, Cadence Design, and Cracker Barrel Restaurants, which averaged revenues of $500 million, continued to achieve revenue growth. Since this recessionary period, Cadence Design and Cracker Barrel are $1 billion-plus companies with Cisco growing to a stellar $36 billion in revenue. Cerner and Endo Pharmaceuticals, leading healthcare software and pain medication providers, serve as proof that companies can grow through this most recent recession, as do Green Mountain Coffee, Middleby, Deckers Outdoors, and Intuitive Surgical. Even during recessions or slow-growth economic cycles, there are still growth market segments. There is good news—a select set of exceptional revenue growth companies is leading the way.

6

Mastering the 7 Essentials of High-Growth Companies

I searched for public growth companies between $50 million (small business) in revenue to $10 billion (typically a member of the Standard & Poor ’s 500 Index) to identify more than 400 growth companies that are achieving an annual average revenue growth rate in excess of 20 percent. In particular, what about the small to midsize growth companies below $1 billion in revenue? There is inspiring news about the future of America’s next-generation growth companies. Leading the next generation is a resilient set of 170 companies that are growing beyond $50 million and are likely to achieve $1 billion in revenue over the next five years. Their annual revenue growth is averaging 49 percent, with 99 percent of them achieving record revenue highs. You may know some of these up-and-coming billion-dollar companies: They include Morningstar, a leading source for financial services and evaluation of mutual funds; and Under Armour, a leading sportswear provider. The companies with the highest revenue-growth rates and strongest fundamental performance can be found in these top industries: • • • •

Oil and gas exploration, production, and services Healthcare equipment and services Internet software and services Biotechnology

Like Under Armour, companies offering distinctive consumer products continue to grow even in the face of consumer spending reluctance. When it comes to growth during challenging times, however, there can be good news even for the larger companies. The billion-dollar-revenue club continues to defy the norm. Almost three-quarters of these companies, including Paychex, Polycom, and NII Holdings (Nextel International), continue to achieve record revenues. The remaining 25 percent represent a minority that are off their highs. KB Home, Jones Apparel

Companies That Are Redefining Growth

7

Group, and Avis Budget Group, for example, are suffering from the forces of reduced consumer spending and corporate travel restrictions. Despite the setbacks of some of these companies, I believe these growth companies, going strong into the next decade, are more than the “green shoots” (to borrow a now-popular term from our President) that will power America’s next employment and economic growth cycle; they are a “green forest.” These are the companies to be involved with—to partner with, buy from, work for, invest in, or simply emulate to achieve exceptional growth through the challenging times ahead.

Secrets of America’s Highest-Growth Companies What does it take to grow from a million-dollar company to become an exceptional-growth company? I define exceptional-growth companies as having the potential to grow all the way to hundreds of millions or even a billion dollars in revenue. This may seem like a simple question to answer during the up-market periods in the late 1990s or 2003 to 2007: Almost all companies grew, propelled by the rising tide of a growth economy. The real insights can be found by searching for the growth success pattern through the lens of recessionary cycles of 1993 and 1994, 2001 to 2003, and 2007 to 2009. In trying to ferret out insights by posing growthrelated questions to leading business executives, investors, and business growth consultants, I realized that the answer would not come from studying organization or leadership theory (though such study can be valuable), or from examining divisions or operating units in larger companies. The answer would come from a quantitative and fact-based analysis of America’s fastest-growing public companies, especially through down market cycles. Furthermore, the analysis had to hinge on what is often overlooked: revenue performance. Every company can invest,

8

Mastering the 7 Essentials of High-Growth Companies

even overinvest, to grow. But not every company can create revenue growth through down market cycles. My research project began during the last recession (2001– 2003) by searching for the American companies that grew to $1 billion in revenue after their initial public offering (IPO) since 1980. I especially wanted to know if growth was sustainable through down economic cycles. When I synthesized my findings at year-end 2004, I was surprised to find that only 5 percent of these companies grew from a million to more than a billion in revenue and yet they disproportionately accounted for 56 percent of employment and 64 percent of the market value created by all IPO companies! I called this elite set the Blueprint Companies, as they could frame the success pattern, or blueprint, to achieving exceptional growth across up and down economic cycles. It became increasingly clear that understanding the secrets of their unique financial characteristics as well as managerial traits could frame a blueprint for growth applicable to all economic cycles. As I have since learned, growing through down market cycles and leading the next growth cycle is the period when companies change market positions and outmaneuver competitors. This is the defining moment that separates companies that merely survive from those that thrive in the next growth cycle. You will find the fingerprints of these original Blueprint Companies everywhere. Their products enhance our everyday lives and you know many if not most of them. Perhaps just today you used Microsoft software; used the Internet (which rides on Cisco and Juniper Networks networking equipment); shopped on eBay or Amazon.com; purchased a home sound system or office supplies from Best Buy or Staples; visited Home Depot this weekend to buy materials to fix your home or improve your garden. Perhaps recently you watched movies from Time Warner; took medicine from Amgen, Genentech, or MedImmune; or used financial services from Charles Schwab.

Companies That Are Redefining Growth

9

Do you depend on Express Scripts, UnitedHealth Group, or HCA Inc. for your prescriptions and health plan? When I was actively engaged in my research in 2001, little did I know that history would repeat itself in late 2007 through mid-2009 and we would experience another recessionary cycle closer to a modern-day version of the Great Depression. The severity of this recession will mean a “new normal” for the next growth cycle, which will be characterized by customers with limited capital to spend, emerging global competitors, and rising costs. That said, I continue to be amazed at the disproportionately positive impact a small number of companies had and continue to have on America’s growth, employment, and investors. As of year-end 2009, this disproportionate ratio remains intact. While the number of public companies has grown to 11,000 from 7,500 in 2004, only 410 companies from this set, or 4 percent, account for more than 9 million employees, $2.6 trillion of market value, and $3 trillion in revenues. For the government, these 410 companies account for 72 percent of the taxes of all IPO companies since 1980. Growth companies are good business even for governments! (See Figure 1.1.)

FIGURE 1.1

Blueprint Companies Are America’s Growth Engine 11,000

Growth companies below $1B revenue and companies out of business Blueprint companies

14.8M

$4.1T

$4.4T

63%

64%

69%

Market Value

Revenue

4%

Number of Companies

Number of Employees

Source: Standard & Poor’s Compustat, Blueprint analysis.

10

Mastering the 7 Essentials of High-Growth Companies

As of January 2010, Blueprint Companies represent 4 percent of American companies that went public since 1980 and achieved $1 billion in revenue. Yet they disproportionately account for 63 percent of the employment created, 64 percent of the market value, and 69 percent of the revenue of all new public companies!2

New Blueprint Companies continue to affect our lives every hour of every day. For example, have you visited and enjoyed Panera Bread, Chipotle Mexican Grill, or The Cheesecake Factory lately; possibly used green energy provided by SunPower or First Solar; ordered movies from Netflix; utilized the new GoToMeeting service from Citrix Systems; or, if you are a chronic pain sufferer, improved the quality of your life and achieved more of a sense of hope with Percocet and Lidoderm pain medication from Endo Pharmaceuticals? This is another proof point that the success pattern of America’s highest-growth companies is indeed predictable; the success rate of companies that achieve $1 billion in revenue, as our measure of having achieved exceptional growth is indeed fairly consistent at 4 to 5 percent. My findings, both in its first wave through 2004 and now in its update through year-end 2009, reveal that, financially and organizationally, the other 96 percent of companies are not ones to model behaviors and actions after. But still, a 4 or 5 percent success rate is pretty small. Do you think you can change your company’s odds by understanding the success pattern of this select set of exceptional-growth companies? I strongly believe the answer is yes. What about the success rate of the other 96 percent: the non-exceptional growth public companies? Despite the number of new IPO companies increasing between 2004 and 2009, the acquisition and failure rate has increased from 32 to 62 percent. The odds of failure have significantly increased while the number of Blueprint Companies has essentially remained constant!

Companies That Are Redefining Growth

11

Understandably, economic headwinds have affected the majority of companies, but there’s something reassuringly steady, foundational, and inspirational about the secrets to achieving exceptional growth derived from America’s Blueprint Companies. This is what you’ll be reading about in this book, as well as how you can apply these insights to improve your own company’s odds of success.

Chapter

2

Your Revenue Growth Blueprint

E

xceptional-growth companies have a simple but definable characteristic: Not only do they grow fast, but they achieve compounding revenue growth. Even though these current tough times may seem overwhelming, consistent and compounding revenue growth can be achieved by companies of all sizes: $1 million, $10 million, $50 million, $200 million, $500 million, and even $1 billion to $10 billion and beyond. Growth rates may slow temporarily as a result of declining or rapidly changing market conditions, but revenues of these high-growth companies still average compounding growth rates over the longer term. Companies that achieve compounding revenue growth demonstrate a revenue growth pattern that is unique compared to non-growth companies that have revenue histories that look random with no or inconsistent growth. Like a fast-moving jet plane accelerating down a runway, these companies achieve enough take-off velocity to rapidly climb to a cruising altitude destined for the flight of exceptional growth—in fact, exponential growth. A jet plane’s velocity growth rate, or acceleration from zero to flight speeds in excess of 400 miles per hour, is in fact exponential. To reiterate (in fact, it can’t be said enough times), the term “exponential” describes the revenue trajectory

13

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Mastering the 7 Essentials of High-Growth Companies

of America’s highest-growth companies: Exceptional growth is exponential growth. Looking at the revenue curves of just a few of America’s highest-growth companies—Google, SunPower, Cerner, Panera Bread, and Coldwater Creek— three discernible phases to their exponential-growth patterns emerge (see Figure 2.1). Their exponential revenue growth curves have three phases: (1) a variable runway, (2) an inflection point where revenue breaks out into an exponential trajectory, and (3) variable growth rates to $1 billion in revenue. Regarding the variable runway, the companies on the left side of Figure 2.1 have a discernibly shorter runway than those on the right side: Google’s was as short as 24 months, while Cerner ’s was eight years. They all have a common inflection point. Like a jet taking off, they achieved FIGURE 2.1

Exponential Revenue Growth Pattern $Millions 1,000

Google SunPower

Cerner

Coldwater Creek

Variable growth rates Panera Bread

0 Variable runway Source: Standard & Poor’s Compustat, Blueprint analysis.

Inflection Point

Years

Your Revenue Growth Blueprint

15

exponential growth through all types of weather—in other words, through up and down market cycles. When researchers study growth businesses, they typically start their analysis at the company’s founding year or at the year of initial public offering (IPO). The Blueprint models are anchored at the inflection point—the point where the business demonstrates its breakout to achieve a fairly consistent exponential revenue growth trajectory. Why? The entrepreneurial phase for starting a company is different from the exponential-growth phase. The entrepreneurial phase is distinguished by transforming an idea into a viable business model with first customers, alliance partners, and a supply chain. The average time from founding to the inflection point is five years. The inflection point marks the moment when the business is fully formed as a system—when it has a pipeline of customers, a product or service, and an organization capable of the functions necessary to sustain growth. The exponential-growth phase has a common pattern. Companies achieve fairly consistent growth from $50 million to $1 billion through up and down economic cycles and independent of industry. Despite running into tough times and roadblocks along the way, these companies manage to self-correct rapidly in order to continue their compounding growth trajectory. Utilizing this more quantitative approach to analyzing growth, I set out to derive the fundamental and management insights common across and unique to America’s highestgrowth companies—with a particular focus on growing through recessionary and recovery periods.

Exponential Growth Has Two Distinct Parts The first significant counterintuitive finding was the time frame and trajectory of exponential revenue growth (see Figure 2.2). By centering the revenue curves at the inflection point, also

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Mastering the 7 Essentials of High-Growth Companies

FIGURE 2.2

Growth Trajectory of America’s Highest-Growth Companies Examples: Broadcom Career Education Cisco Medimmune Google Microsoft eBay Starbucks Revenue ($M) $1,000 4 Years 6 Years

Cerner Fifth Third Bancorp Fastenal Tractor Supply 12 Years

Inflection Point Normalized Time (Years)

0 ⫺10

0

10

Source: Standard & Poor’s Compustat, Blueprint analysis.

known as year 0 in normalized time, I found that revenue growth has two distinct parts: Part One is the time to the inflection point, which is highly variable from founding and the entrepreneurial phase to the inflection point. Part Two is the trajectory from the inflection point to $1 billion in revenue, which takes one of three time frames: a four-, six-, or twelve-year trajectory. These three exponential time frames—four, six, or twelve years—continue from $1 billion to $10 billion in revenue. The nature of the curves is fairly consistent in terms of exponential

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revenue growth, thus creating a unique opportunity to benchmark growth trajectories. It is truly your destiny to achieve $1 billion revenue if you build the right company at the inflection point. If your company achieves $1 billion revenue, it earns the opportunity to grow to $10 billion on one of these same growth trajectory time frames. One might naturally assume that the number of years it takes from founding to achieve $50 million revenue, at the inflection point, is correlated with time to grow from $50 million to $1 billion in revenue. Not so. For example, Google went from founding to the inflection in two years and went up the front side of the four-year trajectory to become one of the fastest-growing companies. In contrast, Cisco took seven years to get to the inflection point before going up the four-year trajectory. In an extreme example of a lengthy timeline to the inflection point, Fifth Third Bancorp had its beginnings in the middle of the nineteenth century. The company passed through the inflection point in the late 1980s to ascend on the back side of the twelve-year trajectory to achieve $1 billion in 1994.

Every IPO company that has achieved $1 billion in revenue since 1980 has followed one of these three revenue growth trajectories to $1 billion. It was true prior to 2004; it has been true through year-end 2009; and I expect it to continue for at least the next decade.

When a company grows through the inflection point at a revenue growth rate of at least 30 percent, it earns the right to achieve one of these three trajectories to $1 billion. It is possible to architect a billion-dollar business early—much like laying the foundation for a skyscraper and building the first few floors. Everyone knows the building will tower over the landscape; they just do not know how high the building will be. It can be your destiny to grow your business through up and down

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Mastering the 7 Essentials of High-Growth Companies

market cycles if you build a high-growth company at the inflection point, or $50 million in revenue. Like a skyscraper with a solid foundation, the winds of economic turbulence will not sway a well-constructed business. A business that continues to grow through down economic cycles, albeit more slowly, can achieve its destiny to achieve $1 billion in revenue. In fact, these three growth trajectories apply all the way to $10 billion in revenue. For example, Microsoft grew on the six-year trajectory to $1 billion and again on the six-year trajectory to $10 billion. In twelve years, Microsoft grew from $50 million to $10 billion. Other companies, such as Staples and Home Depot, have followed the same course. Companies like eBay and NII Holdings are following in their footsteps. (NII Holdings, headquartered in Virginia, is a leading wireless provider in Mexico and South America.) This finding may seem counterintuitive in today’s cyclical economic environment, but these trajectories prove it.

Growth in Any Economic Sector You might believe, as I did, that exponential company growth occurs mostly in high-innovation economic sectors, such as Information Technology (IT). With familiar great companies that so underpin our lives, like Google, eBay, Microsoft, Oracle, Cisco, and Juniper Networks, it is not hard to understand why people believe that the most rapid growth in recent years has been among high-tech firms. But is this really the case? Contrary to popular perceptions, IT accounts for only 18 percent of the Blueprint Companies through 2010 (see Figure 2.3). The Consumer Discretionary sector—retail specialty stores, Internet retail, and the like—actually outranked the tech sector. More growth companies have been generated in the services economic sectors than many thought—including me, despite my electrical engineering background.

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FIGURE 2.3

Growth Companies by Economic Sector Change since 2004* 22%

Consumer Discretionary 18%

Information Technology

14%

Financials Industrials

14%

Healthcare

4%

13%

Energy

10%

Materials Customer Staples

⫺4%

5%

4% 2%

Utilities

2%

Telecom services

2%

*Other changes ⫹/⫺1%

Source: Standard & Poor’s Compustat, Blueprint analysis.

This pattern has remained intact since 2004, with some minor changes to the proportions. One economic sector experiencing significant growth is Energy. With a rise in the demand for a sustainable and secure supply of petroleum-based energy, oil and gas exploration companies such as Whiting Petroleum Corporation and St. Mary Land & Exploration Company represent two of the many new billion-dollar energy companies. Two new “green” companies reflect the emerging trend in alternative energy: SunPower and First Solar. This rise in energy companies has been offset by a decrease in new Consumer Discretionary companies as consumers reduce their spending. Still, despite this consumer trend, consumerfocused companies have recently made the list: Coldwater Creek, a top women’s apparel retailer; dineEquity, the owners of Applebee’s and IHOP; and Ulta Salon, Cosmetics & Fragrance, the largest beauty retailer that provides one-stop shopping for prestige, mass-market, and salon products and services in the United States.

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By now you may be wondering: With the severe troubles on Wall Street in late 2008 and early 2009, what new financial companies achieved $1 billion in revenue? After all, it seemed that nearly every large financial services company was tanking, teetering on severe losses, or was de facto on America’s shame list. Actually, growth companies have been innovating in private equity and market exchanges: Blackrock, the Nasdaq OMX Group (the Nasdaq exchange), and the Chicago Mercantile Exchange are the newest growth achievers. This may seem counterintuitive from when regional banking and investment banks dominated America’s financial services growth lists. The rise of these newcomers has been fueled by the increased sophistication of and demand for private equity investing. The private equity and market exchanges have become public entities reflecting globalization and the rise in even more real-time trading services.

In Search of Insights into Achieving Exponential Growth The original and continuing search to identify the “practical” insights that propel America’s highest-growth companies was, and is, driven by my desire to find answers to what questions, such as: • What is the importance of achieving exponential revenue growth on a per-customer basis? • What is the investment profile for creating exponential growth: overinvest to grow, or become cash flow positive early and invest as the company grows? • What are the honorable values and management techniques that fuel exponential growth particularly through challenging times? I needed to find answers to these questions that could be applied to achieving exponential growth, particularly during the most challenging of times.

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As part of the ongoing Blueprint research, I wanted to do real-time quantitative business research during the systematic failure of the credit system and bailout period of the 2008 recession. A related and perhaps larger-picture business agenda was to see if I could determine whether or not America’s high-growth companies are indeed a recession-proof, goodnews story that can help point the way forward to building resilient growth companies. I did find these answers and more, not only financial but behavioral. I hope these examples will inspire you and prove that growth can be achieved even during the toughest of times. In fact, demonstrating growth during the most challenging of times is the hallmark of these truly exceptional-growth companies. I tried to capture these insights so that you too can join the ranks of this elite set of high-growth companies. Let’s go back a few years, to the period between 2001 and 2003, when I launched the search to identify the success pattern of America’s exceptional-growth companies. Despite the recessionary downdraft, companies like eBay were thriving while the masses were like birds failing to fly in the face of a headwind. By first looking at the financial patterns of this select set of companies and defining the actions that created their financial impact, I found that it was possible to discern the behaviors and skills that were equally required. As a result, this reverse engineering revealed a set of insights—or essentials—that are common across these companies, independent of industry and independent of economic cycle. This research technique also eliminated the behaviors and actions that were not relevant or unique. For example, almost all companies demonstrated a passionate management team, with the failing companies demonstrating blind passion—they never knew when to quit. Why blind passion? One of the most popular questions I receive after many of my keynote presentations is “What is the primary reason companies fail?” Blind passion is a dominant reason: These teams fail to self-correct,

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particularly when changing economic cycles drive customers to redefine their needs. As a result, failing companies continue to spend more than they earn, resulting in their financial failing. This book focuses on the common essentials exhibited across Blueprint Companies in all industries; it is not about the lessons learned from one or even a few successful companies within one industry. It is also important to point out that this research aims to discover the Essentials Roadmap you can apply today to improve your company’s growth prospects— with a particular focus to achieving growth through particularly challenging times.

Each of us in business may think our company is different, our situation is unique; and it is. But there is a success pattern that high-growth businesses share in common that creates a successful growth company. The numbers prove it.

■■■■■ Part One Summary Key Points • Even during recessions or slow-growth economic cycles, there are still growth market segments. • The unique revenue growth pattern of America’s highest-growth companies is compounding or exponential revenue growth. Identify your growth pattern and determine what incremental revenue growth is required to achieve this growth pattern. • Exponential-growth companies are in every economic sector and continue to grow through tough economic times.

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In fact, companies that are growing through this period become the leaders for the next growth cycle. Unexpected Findings • The increasing disproportionate impact of America’s highest-growth companies: 4 percent of companies account for more than 60 percent of revenues, employment, market value, and taxes of all public companies since 1980. • The increasing failure rate of public companies, which increased from 25 to 60 percent over the past five years. • Exponential revenue growth can be achieved from $50 million to over $10 billion revenue. This growth pattern applies to businesses of all sizes and across all industries. • America’s exponential-growth companies actually have a consistent track record of growing through recessions.

P A R T

T W O

THE 7 ESSENTIALS OF HIGH-GROWTH COMPANIES We Identify the Values and M anagement Prac tices That You Can Us e to G row Yo u r B u s i n e s s

Chapter

3 The 7 Essentials

“D

uring tough times, the tough get growing.” That’s an inspiring expression my father, now 87, taught me when I was a general manager trying to turn business units around and feeling it was an impossible and lonely road to travel. The “tough get growing” is a management attitude I am seeing displayed by an increasing number of today’s successful executives who are reaching for the inner strength to grow during the most challenging of times. A tough economic period is the growth opportunity window to separate your company from competitors. If a company can achieve growth in tough times, typically just after a recessionary cycle, it will emerge as a chosen leader for the next growth cycle. This is an unshakable fact derived from the success patterns of America’s growth companies. What’s more, uplifting and practical lessons about business growth can be learned during daunting times. As we in America have recently witnessed from all the news about shady business and investment dealings, there is now an even more profound need for business growth based on sound values and fundamentals, for employment based on building or restoring wealth-creation opportunities, and for the reemergence of confidence that businesses can steadily grow through both heady as well as sobering times. 27

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In fact, the reason for writing this book is to help you apply the recession- and recovery-tested 7 Essentials of proven financial and managerial actions that will help your company achieve sustainable growth through all economic cycles. If applying these essentials can grow your business during the most challenging of times, imagine what they can do for you during “up” market cycles! Where did these 7 Essentials come from? They are the insights and actions that America’s highest-growth companies have applied to grow through multiple up and down market cycles over the past 20 turbulent years. The 7 Essentials are based on more than six years of interviews, research, advising, and working with scores of management teams across all industries. I first wrote about the 7 Essentials in my book Blueprint to a Billion: 7 Essentials to Achieve Exponential Growth, which was released in 2006. On a personal note, thank you to all my readers and sponsors for making it a best-seller and thank you for your inspirational reviews. To respond to demands from management teams that wanted to measure their performance against each of the essentials, my team and I created The 7 EssentialsSM Scorecard—an online tool that assesses your company and how it performs against the success pattern of America’s highest-growth companies. Based on the data from the scorecard and my research, I continue to see a proven growth pattern based on the 7 Essentials. This book offers tailored actions you can apply immediately to propel your company’s growth prospects.

How the 7 Essentials Came to Be During the 2001 to 2003 recession cycle, companies were failing everywhere as a result of collapsing market valuations and the absence of the next wave of marketable innovation. At that time, I was drawn into discussions with chief executive officers (CEOs), venture capitalists, executives of Fortune 500 corporations, and private equity firms to redefine growth. They

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wanted to know if growth could be achieved in down markets or economic cycles and whether struggling businesses and investments could become growth opportunities. At the time I was an Associate Principal at McKinsey & Company, where I and many of my colleagues specialized in fixing broken businesses and growing billion-dollar ones. I felt compelled to determine why some companies plummeted despite every good intention of trying to manage high growth. After all, no company sets out to fail; each is established with high hopes of excellent revenue and a successful growth trajectory. Clearly this recession amplified the disproportionate rate of companies that were failing. In response to observing this gap—that the odds of failure in business are significantly greater than the odds of success—I decided to undertake a primary research initiative from a financial and management values perspective to identify clear and measurable answers to what contributes to achieving sustainable growth, particularly during recessionary economic cycles.1 I was searching for the common underlying fundamentals to achieve exceptional growth, independent of industry. After all, building a company for long-term growth is preferable to bailing one out. After reading Stephen Covey’s best-selling The 7 Habits of Highly Effective People 2 and being moved by his simple wisdoms about personal effectiveness, I was inspired to identify the 7 Essentials of Exceptional Growth Companies. Effectiveness in business has profound merit too! During my tenure as a consultant at McKinsey & Company, I learned that business dynamics help determine the underlying, interlinked feedback loops of processes and practices that can positively account for exponential growth or, if negative, for company failure. While it is not possible to model the particular business dynamics, or feedback loops, for each Blueprint Company, I was able to determine the dynamic essentials that seemed to be common to most of them. I call these the 7 Essentials. These are the essentials—the values and management techniques necessary to create exponential growth. Despite the diversity of companies

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and industries, I found these essentials to be common across the Blueprint Companies and industries I examined. To prove that these common 7 Essentials were unique to Blueprint Companies, as compared to low-growth or failing ones, I compared companies in the same industry—one set drawn from the Blueprint list, the other from a group of companies that were founded in the same year, had viewed the same market opportunities, but had failed to grow revenues at an exponential rate. Siebel Systems, for instance, was founded in the same year as Onyx Software and targeted at the same market; Siebel made it to $1 billion but Onyx did not. Juniper Networks and Avici Systems were founded in the same year, but Juniper grew to more than $1 billion and Avici has been restructured.

Identifying the 7 Essentials Early in my search for these insights, I presented to and discussed the 7 Essentials with CEO roundtables, investors, and management teams, where they challenged me to identify some of the more universal leadership truths of the research. These truths included enduring management fundamentals to achieve sustainable and quality exponential growth, particularly during recession and recovery periods. After years of research and scores of interviews, I unearthed management values and techniques embodied in the 7 Essentials. These are aligned to create financial impact in what I call The Essentials Triangle framework (see Figure 3.1). The inbound side requires a Big Idea, or value proposition. To create exponential revenue growth from the Big Idea, three essentials are required. To capture the opportunity for exponential and sustainable returns, three more essentials are required. The framework for these essentials is The Essentials Triangle. Each side of this triangular framework aligns with a company’s financial statement: research and development, revenue, and profit.

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FIGURE 3.1

The Essentials Triangle

The Big Idea

Value proposition

Market Customers

Create and Sustain Exponential Revenue Growth

Alliances Business returns Management team

Board

Create and Sustain Exponential Returns Source: Blueprint analysis.

The exponential-growth company creates a Big Idea that delivers breakthrough or “exceptional” value for its customers. This Big Idea is superior to its competitors’ offerings because it fills an unmet need the best way, not just at the beginning but all the way to $1 billion in revenue. Most companies accept the status quo of their industries—not Blueprint innovators. They look for and develop blockbuster ideas with quantum-leap value propositions. A company that creates and sustains exponential revenue growth gives the management team the option to create a business model of exponential returns. Attractive markets, customers, and alliances enable exponential revenue growth. Blueprint Companies leverage them all. Exceptional-revenue-growth companies can create a business model of exponential returns, or profit, by managing expenses and investments in order to deliver positive return on investment (ROI) and cash flow early and consistently.

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Although technology companies were not the most prevalent among America’s growth companies, they are the role model for achieving exponential returns. With these companies, I found positive cash flow was a consistent 10-plus percentage points of revenue from the inflection point all the way to $1 billion in revenue. Therefore, the absolute value of cash flow paralleled the exponential growth of revenue, depending on the trajectory: four, six, or twelve years. Cash flow and ROI are the primary drivers of market value (or shareholder value). To achieve these returns, the management team had to execute five or more of the 7 Essentials. Despite the diversity of high-growth companies in different economic sectors and different company sizes, seven common management practices rose to the surface again and again. Five or more of these seven essentials showed up in more than 90 percent of the companies studied. These 7 Essentials are necessary to achieve and sustain exponential growth. The 7 Essentials are described in the next sections with illustrative examples of actions to apply.

The 7 Essentials Essential #1: Create and Sustain a Breakthrough Value Proposition Deliver higher-order benefits or “exceptional value” as perceived by customers. Essential #2: Exploit a High-Growth Market Segment Create a new market with a “breakthrough innovation,” redefine a market segment within a large market, or optimize a market segment as a category killer. Essential #3: Utilize Marquee Customers to Fuel Exponential Revenue Growth Customers can be more than customers. The best of them serve as an extension of the sales force and advisors to guide growth. They provide exponential revenue growth on a per-customer basis.

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Essential #4: Leverage Big Brother Alliances for Breaking into New Markets Establish long-term win-win partnerships to fill portfolio gaps, fortify supply chains, or break into new markets. Essential #5: Become the Masters of Exponential Returns Companies that are cash flow positive and have little long-term debt are the masters. Essential #6: Practice Inside–Outside Leadership A complementary Inside–Outside Leadership pair leads your company. One is inside facing, focusing on operations and innovations, while the other is outside facing, focusing on customers, alliances, and the community. The principle of Inside–Outside Leadership is applied throughout the organization. Essential #7: Balance the Board with Essentials Experts: Customers, Partners, and a Growth CEO Balance investors and management with Essentials Experts: customers, alliance partners, and a CEO who has successfully grown a larger-growth company.

Essential #1: Create and Sustain a Breakthrough Value Proposition A value proposition conveys the benefits customers receive from using a company’s products or services in terms that the customer understands. The highest-growth U.S. companies not only deliver exceptional value; they offer breakthrough value propositions. There are three kinds of breakthrough value propositions: 1. New World Shapers create transformational products and services. For example, Cisco’s creation of the dataswitching router enabled data flow over the Internet. 2. Niche Shapers follow New World Shapers with products or services that redefine a specific market segment, as Nike did for the running shoe: arch support, a cushioned sole, and material suited to air circulation.

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3. Category Killers optimize a market by attacking the existing incumbents with a better, faster, cheaper value offering. Consider Southwest Airlines’ approach to optimizing travel in the airlines industry; Best Buy and other “big box” stores as follow-ons to Wal-Mart; and Priceline.com’s reinvention of the travel planning industry. These types of companies thrive, in particular, during recessionary periods. A New World Shaper would be eBay, Microsoft, Amgen, or Genentech; a Niche Shaper would be Starbucks; and a Category Killer would be a company like Home Depot or Staples, which offer lower prices compared to specialized retailers. While I initially thought the highest Blueprint Companies would be New World Shapers, I found that more than 40 percent of top Blueprint Companies were either Niche Shapers or Category Killers. This counters the notion that great companies exclusively require disruptive innovation or create new markets in order to grow. Companies that deliver higher-order benefits to customers tend to generate higher revenue growth rates, higher gross margins, and competitive advantages. An example of a higherorder benefit is Google’s search services, which are viewed as highly relevant, fast, and trusted. Nike running shoes were launched and continue to redefine the running experience, as are the new Under Armour running shoes that are arriving to market from this high-performance sportswear company. Markets and product categories are continually being redefined. There is no rest for the growth company! Benefits expressed in customer terms realize the highest value to new customers. The highest value to customers tends to be associated with companies that achieve the highest revenue growth. Identifying whether your company is creating a new market, redefining a focused market segment, or optimizing a market category is a prerequisite to tailoring the execution

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of the 7 Essentials. While this may seem like a simple choice, I have had numerous discussions with management teams where they could not agree. For example, redefining a market may suggest companies utilize brand-name customers as icons to communicate higher-order benefits, while optimizing a market will require customers to experience the cost savings and spread the word—a more guerrilla-marketing initiative. For example, this was the technique utilized effectively by Tom Stemberg when he built the first Staples and, for all intents and purposes, no one initially came. He shares his useful insights on how he solved this serious problem in Part Four of this book. An action you can take starting tomorrow morning is to reinterview your customers and redefine your company’s higher-order benefits. During recessionary and challenging times, customers are redefining desired benefits in terms of value, flexibility, good-enough quality, and cost effectiveness. Middleby’s Value Transformation Fuels Growth through Two Recessions When I moderate CEO panel discussions on The 7 Essentials, the CEOs invariably make practical suggestions that just stun the audience. “Why didn’t I think of that?” or “I am going to try that tomorrow!” are candid responses that I frequently hear. One panel discussion really stood out for me; it proved how a company can achieve exceptional growth by focusing on delivering a highly differentiated, valuable set of benefits for customers. Selim A. Bassoul serves as Chairman and CEO of The Middleby Corporation, a member of a select set of companies that have achieved high revenue growth through both the 2002 and the 2008 recession. His company is the leading value-added manufacturer of hot commercial food service and processing equipment (number one or two market share in each product

36

Mastering the 7 Essentials of High-Growth Companies

category) of ovens and ranges used in commercial restaurants, institutional kitchens, and food packaging. Middleby’s customers include restaurants such as Panera Bread, Dunkin’ Donuts, Subway, Papa John’s, and Morton’s The Steakhouse. If you imagine arriving to turn a company around during the peak of the bursting of the 1999 Internet bubble, you can relate to Selim Bassoul’s story. When he took the reins at Middleby, revenues were $132 million, which soon shrank to $100 million by the start of the 2001 to 2003 recession. “We had very limited resources and capital, we were running out of cash, and we were highly reliant on three customers that generated more than 60 percent of the sales,” Bassoul remembers. “We lacked innovation and the products we were generating or creating were very ’me-too’ kitchen products across a very broad range of mixers, refrigerators, and ovens. Roughly 30 percent of the orders were not shipped on time. You could say we had a case study of a lousy company.” No-Quibble Warranty Bassoul recounts that Middleby desperately needed to find one or two market differentiators and take a big swing. The company needed to really change its growth mind-set. “We needed to build the premium brand in order to be number one in our category so we focused on ovens and backed it up with a ‘No-Quibble Warranty.’ No Quibble means no quibble. Middleby will take back the piece of equipment no questions asked for whatever reason. This warranty is good for the first year but could be longer for other pieces of equipment. The goal is to meet or exceed a customer ’s cooking and service expectations. Costco and Nordstrom’s are two of the few retailers that offer ‘no questions asked’ returns with great success. Ours is even more compelling since returning a kitchen is a lot more costly than returning a shirt!”

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Another point of differentiation: Middleby’s tests each oven before it is shipped. “This creates an internal incentive for us to ensure that premium quality is built into everything we do: engineering, production, installation, and service,” says Bassoul. “This may sound basic but is not done by all of our competitors.” Middleby’s growth turnaround incorporated more than operations excellence combined with an industry-leading warranty. Bassoul focused on transforming Middleby’s value proposition. He took an innovative approach to identifying the turnaround growth opportunity: “Our sales team focused on building relationships with new and current customers. I blazed a trail to call on our competitors’ customers, not to sell them but to find out why they bought our competitors’ products and to listen to their insights about the market.” During Middleby’s turnaround in 2001, Bassoul says he heard two things about his competitors’ restaurant customers that seemed directly related to his business: Restaurants were cutting back on food costs, and the trend of casual dining out was growing every day. What Women Chefs Want Based on the insights he got from listening to his competitors’ customers, Bassoul decided to redefine the brand around more casual dining and put all of Middleby’s engineering focus on the innovations required to make energy-efficient ovens. He learned another tough lesson: “What we discovered was an insightful fact; over half of the chefs were women. The company immediately formed a Women’s Chef Advisory Council to listen to their unmet needs.” Female chefs needed ovens that were lower in height so they could use the top shelves, and self-cleaning to be more productive and energy efficient to support their green-driven values. Bassoul says:

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“We moved from the male-centric ’make it bigger and more powerful’ to redefining the benefits desired by the majority of our chefs. What we were doing was completely different than anything Middleby’s competitors were doing; and that’s exactly why we did it. Combined with a new product line of ovens with features more friendly to women, we focused on casual dining leaders, such as partnering with YUM! Brands’ Kentucky Fried Chicken to introduce grilled chicken and providing ovens to Dunkin’ Donuts and Subway [see Figure 3.2]. All are now our Marquee Customers.

FIGURE 3.2

Middleby Bread Oven Used in Subway Franchises

Source: Middleby Corporation.

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Bassoul continues to learn from customers who don’t buy from Middleby: what his competition is doing, identifying new niches around unmet customer needs, and learning why and how his company is not meeting their needs. “This may seem counterintuitive, but your competitors’ customers can be more frank and honest with you than your current customers,” Bassoul observes. “They are not sensitive to hurting your feelings; they tell it like it is.”

How to Access and Interview Your Competitors’ Customers It may seem intimidating to ask a competitor’s customers to meet and discuss their insights, but Selim Bassoul has developed a unique approach. “Prior to meeting, I simply say: ‘I am here to make the industry better and would like to understand how to make my company better as well. Would you mind sharing your wisdoms and insights?’ I find customers are always flattered that I take my time to meet with them in person. Two secrets to success: just ask, and take time to listen in person. I ask about trends in our industry and with their business. Without much prompting, I may hear that they did not buy our product for a couple of reasons: the local representative did not meet their expectations, our price was too high, or we lacked a feature. Designing new features can open a new set of customers for Middleby. For example, I learned that adding electronic ignition to our ovens opened up a set of new customers who turn off their ovens at night. I may also hear that a competitor ’s customer is frustrated and desires to move to Middleby in the future.”

Viewing growth opportunities through the lens of your competitors’ customers can be more important than listening to current customers. So capture the 1 + 1 = 3 effect by listening to your competitors’ best customers in addition to your own. A proof

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point? Middleby has grown from a revenue low of $100 million in 2001 to more than $657 million by year-end 2009. Bassoul and his company turned in a remarkable 30 percent growth rate through the 2007 to 2009 recession and have been recognized with numerous growth awards—including Ernst & Young’s Entrepreneur of the Year in 2004 and the Association of Corporate Growth in 2007. Ask yourself and your management team these questions: • How can your service or product become the most desired in your industry or market category considering customers are redefining their needs and desired benefits for the challenging times ahead? • Are you meeting with and listening to your best customers and those of your competitors? If not, what will get you started? If you are, what advantages have you identified that will redefine what exceptional value your company can provide? • What actions could you take to create an improved or new exceptional value differentiator for your company?

Essential #2: Exploit a High-Growth Market Segment Opportunities exist in so many areas, but some industries, admittedly, have more opportunities than others. In the 1990s, fresh industries such as biotechnology and Internet retail spawned multiple Blueprint Companies. Over the past quarter century, the specialty retail stores industry generated the highest number of new billion-dollar companies. This occurred because there were multiple market segments to address within this industry: office supplies, teenager fashion, and pet supplies, to name a few. Right behind this leading industry were these leading services industries: Insurance, Health Care Facilities, Data Processing and Outsourced Services, and Regional Banking.

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My research colleagues and I were surprised that there were no software, hardware, or semiconductor technology companies in the top five; this was astonishing. In contrast, there were numerous cases where a single company arose in an industry to become the only player to achieve $1 billion in revenues—witness Harley-Davidson, a company that remains at $6 billion in revenue through the most recent up and down market cycles. When we interviewed the CEOs in these five services industries, we found a set of facts that can be applied to any industry. Although the 2009 profile shows growth in a number of new billion-dollar companies in energy, industrials, and healthcare sectors, the changes are not yet significant enough to change the long-term findings. These service-industry CEOs told us that the highest-growth markets can be those where companies redefine a potential billiondollar market segment as part of a multihundred-billion-dollar market. In healthcare services, companies have targeted subsegments in chronic care and retirement care. This also is what retailers such as Panera Bread have done by targeting retail segments for casual dining, or the way PetSmart has grown by exploiting the market for pet care products and services. A second insight was to import ideas from other industries. For example, Tom Stemberg, founder and Chairman Emeritus of Staples, imported the shopping cart from the supermarket industry to offer one-stop shopping for office products. This occurred during a period when small businesses had to shop for their needs at a range of different retailers. This may seem obvious but actually is rarely done. Why? Our natural intuition is to view growth through the lens of our industry: Our social networks, careers, and financial assessments often are confined to an industry or industry group. Finally, a third insight was to utilize technology and management practices to stay close to your customer. Joe Scarlett, the just-retired Chairman of Tractor Supply, a top retailer serving rural America, met with suppliers twice a year to

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share their customer needs so that his suppliers could better modify their products to better meet the needs of Tractor Supply’s customers. During tough economic cycles, to offset reduced customer demand, expand your available market by redefining a subsegment of your market, move to serving adjacent market segments within your overall market, and work with partners to tailor products and services to better meet the changing needs of your customers. You can redefine your market opportunity by redefining who your customers are or need to be and identifying their unmet needs. Start this process by asking yourselves these questions: • How innovatively are you redefining or identifying market segments that present growth opportunities? • What insights can you gain from new customers that will enable you to identify which products or services are required to deliver exceptional value to address unmet needs? • If you can redefine the value zone between your most important customers and your company, can you then create an explosive market opportunity?

Essential #3: Utilize Marquee Customers to Fuel Exponential Revenue Growth 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 help power the growth of the company by testing and deploying the product, by providing exponential revenue growth on a per-customer basis, and simply by recommending the company to their peers. Think of these customers as one of a company’s most important assets. For HCL

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Technologies, a case study we will look at in more depth in Part Three, corporate Marquee Customer testimonials resulted in a 100 percent win rate with prospective new customers. Marquee Customers also exist with consumer companies. For example, eBay’s top customers are part of a feedback system that continues to help shape eBay’s new services. They also are a powerful word-of-mouth sales force to attract other customers. High-Profile Set of Marquee Customers at Skullcandy For Skullcandy, the hot-growth headphone company (which is about to exceed $100 million in revenue and is still growing through these challenging times), has been leveraging Marquee Customers to propel growth. Rick Alden, CEO of Skullcandy, elaborates: “The concept was to integrate headphones and audio technologies into skateboard and snowboard clothing and accessories, such as helmets and ski jackets. This was a new category that was not addressed by others.” Skullcandy actually has two tiers of Marquee Customers: retailers and the retailers’ customers. That sets up a pushpull dynamic. The brand-name retailers (the first tier of Marquee Customers) create the push, by offering products in brand-name stores where sports enthusiasts shop. The iconic snowboarders and skateboarders whom enthusiasts look to for trends (the second-tier Marquee Customers) influence customers, creating the pull. I asked Alden to elaborate on his Marquee Customer essential insights. “Our first Marquee Customers were The Click Skateboard Shops and Salty Peaks Snowboard Shop. We gained credibility and visibility to other regional independent retailers when they saw how well we were doing. Our first national footprint Marquee Retail Customer was Zumiez, a leader in action sports and a company that is achieving

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exceptional growth. Being featured in their retail stores showed specialty skateboard and snowboard retailers that Skullcandy offered a desired brand and could consistently supply a national retailer. The next leg up for us was to establish a Marquee relationship with Frye Stores, the number-one consumer electronic retailer with more than one thousand stores in the United States.”

Realizing the potential to create demand-pull—Skullcandy enlisted the second tier of Marquee Customers, using its alliances with the specialty retailers it was working with. “When other snowboarders see Half-Pipe World Champion Silver medalist Todd Richards, who pioneered the snowboard trick ’the wet cat,’ wearing Skullcandy, they want to try our products too,” says Alden. Other second-tier Marquee Customers Skullcandy enlists are Olympic Gold medalist Danny Kass, who wore Skullcandy’s headphones during the X-Games, and snowboarder Marc Frank Montoya (see Figure 3.3), the master of rails and all things park who was ranked the number-three top rider by Snowboard Magazine in 2005. When influencers wear Skullcandy products, these Marquee Influencers inspire other skateboarders, snowboarders, and even skiers to ask for Skullcandy’s headphones at retail stores. “We found that since there were no headphones in this category, we didn’t have to compete to sign advertising contracts; we just had to give them a set to try out—FREE,” says Alden. “No fees paid for their endorsement. That simple.” The underlying driver for corporate exponential revenue growth is exponential revenue growth per Marquee Customer. Maximizing customer life cycle revenues is fundamental to achieving exponential revenue growth per customer. Whether in tough or terrific times, the big insight is that your best customers don’t just buy; they proactively sell on your behalf to their associates. This is one of the

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FIGURE 3.3

Marc Frank Montoya Wearing Skullcandy Headphones

Source: Skullcandy.

highest-impact actions you can take to fortify sales. It also is such a low cost that it will become an outstanding return on investment. During many of the 7 Essentials Workshops, I found that the benefits of leveraging Marquee Customers to serve as advisors and “lighthouse customers” (customers who shine their light for your company) is the one essential that elicits the most discussion. For almost all businesses, sales and marketing is the largest expense item on the income statement. The challenge, when capital and expenses are tight, is to get higher impact from sales and marketing investments. When customers proactively spread the word to industry peers, your sales cycle will be cut in half and the cost of sales and marketing for those new customers will drop at least proportionately. Focusing on executing a formal process for enlisting your best customers to sell for your

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company and to serve on a Customer Advisory Council—these are important actions you can take tomorrow and the cost is negligible. More detail on how to set up a Customer Advisory Council is featured in Part Four. Although many companies think they are already executing the Marquee Customer essential, The 7 Essentials Scorecard and workshop results help prove that most companies, including yours, still have significant upside to be realized by leveraging customer relationships. Are your best customers selling for you? The remarkable value added by Marquee Customers can be enhanced by reflecting on these questions: • How well are you developing your best customers into Marquee Customers? Do you fully understand what it takes to move a customer into the Marquee category for your company? • How are you refining new innovations to accelerate new products and services to fuel growth through the lens of your Marquee Customers? • How are you leveraging your best customers, not only to buy from your company, but to sell to other prospective customers, reduce your sales cycle in half, and significantly reduce your costs for sales and marketing? What are you doing, in return, to repay their good gestures?

Essential #4: Leverage Big Brother Alliances for Breaking into New Markets The complement to Marquee Customers is a Big Brother–Little Brother alliance relationship to break into new markets. These alliances involve a bigger company helping a smaller one by providing credibility in the market to the Little Brother, giving it market intelligence and leading it to Marquee Customers. It’s a two-way street. Big Brothers also need Little Brothers to

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help them remain on the cutting edge of innovation. During our interviews with Big Brother partners, we learned that understanding the win-win motivations between partners can take longer and is more important than the agreement. Surprisingly, we learned that Big Brothers have as much difficulty finding the right Little Brother as Little Brothers have trying to get access to the right champion in a Big Brother. Especially during a down economic cycle, large companies cannot invent everything. They will have defined portfolio gaps that need to be filled by smaller companies. Filling a portfolio gap in a distinctive way will create a highly valued and leveraged alliance relationship. The iconic example of filling a portfolio gap for a Big Brother alliance partner was Microsoft’s alliance with IBM to provide the personal computer operating system (now Windows®). Today, the Big Brother of the consumer market is Procter & Gamble (P&G). Nancy Bailey & Associates (www.baileylicensing.com) is P&G’s Little Sister who acts as a marriage broker by aligning smaller companies to fill gaps in P&G’s portfolio for well-known brands such as Mr. Clean® mops and brooms, Scope® Portable Breath Fresheners, and Febreze® Vacuum Cleaner Bags and Filters. Leveraging alliances to break into new markets happens to be one of the lowest overall scores from our 7 Essentials Scorecard assessments. There are definite ways to improve on this dimension, and the importance of doing so cannot be overstated. Two companies that have effectively applied Essential #4 are highlighted in Part Four. For now, think about how you can start to identify and build long-term partnerships by answering these questions: • While alliances can be tricky to execute due to the asymmetric size between Big and Little Brother partners, how well are you leveraging supply and channel alliances to break into new markets?

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• How well are you identifying, forming, and building truly trust-based alliances to ensure a long-term win-win relationship? • Are there opportunities to leverage Marquee Customer relationships to serve as a matchmaker if you are struggling to find the right Big or Little Brother?

Essential #5: Become the Masters of Exponential Returns A fairly common management behavior suggests that allocating more resources toward developing and introducing products will solve innovation problems. This often leads to directing too much investment in research and development (R&D), resulting in an overinvestment situation often funded by increasing debt levels. During the high-tech boom that peaked in 2000, we were treated to a rare phenomenon: Companies actually thought they could succeed without profits, and investors—for a few giddy months at least—seemed to agree. That phenomenon did not last long. Case in point: In 2001, Webvan drove off a cliff into Chapter 11 only 18 months after its IPO due to rapidly disappearing cash reserves. Webvan was too optimistic about consumers’ willingness to ditch tedious checkout lines at regular grocery stores and flock to an online delivery service. While the quality of its service was rated as excellent, Webvan could not attract enough customers. One of the lessons from Webvan and the plethora of other dot-com companies that crashed is that overinvesting leading to negative cash flow is not the path to growth, especially if there are limited proof points indicating growing customer demand.3 I found that shareholder value is maximized by three factors: high revenue growth, high return on investment, and sustained cash flow growth. To maximize shareholder value, a return on invested capital that significantly exceeds the cost

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of capital is required. Delivering consistent performance across these three factors is the foundation for positive shareholder returns. Growth companies implement a process for executing a multiyear plan and measuring key financial and customer metrics, as well as providing the incentive to their organization to achieve exponential returns. Shareholder returns for top-performing Blueprint Companies are more compelling. Blueprint Companies on the four-year trajectory delivered an average of 87 percent returns while exceeding analyst expectations 80 percent of the time— during up and down market cycles. Your company does not have to be a glamour stock, like Google, to achieve these stellar returns. Lower-profile Nextel International, a leading wireless provider serving Latin and South America, has seen its market value increase from $235 million in 2003 to more than $3 billion in 2010. It seems like common sense that companies should seek to be profitable. In fact, only a minority are achieving both growth with profitability on a consistent basis. As of year-end 2009, only 23 percent of all public companies with revenue of between $100 million and $10 billion achieved both positive sales growth and positive cash flow. Yes, not all growth companies that are achieving revenue growth are profitable. The masters do both: grow their revenues and achieve positive profit and cash flow. Although this may seem like common sense, this small percentage of profitable companies demonstrates that their performance is unique. Why are only 23 percent of businesses growing and generating positive cash flow? During turbulent economic cycles, management teams tend to swing to the extremes. During up economic cycles, optimism often leads investors and management teams to direct too much investment in R&D and sales and marketing, resulting in an overinvestment that results in the addition of debt. During a down market cycle, they cut R&D and sales/marketing investments to preserve cash while

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leveraging more debt to sustain the company through challenging times. This creates a vicious cycle of debt and over–under investment that drives a disproportionate number of companies to fail during periods of tight credit. The success pattern of America’s highest-growth companies is that they tend to be cash flow positive as early as $25 million in revenue and grow a profitable business all the way to a billion or more in revenue and beyond. This is the success pattern of Cisco, Google, Microsoft, Staples, and many others across different industries. When I started doing my research on the 7 Essentials of high-growth companies, I thought being profitable early and staying profitable seemed more like common sense than an insight. Many of my readers and audience members at my keynote presentations also thought it was intuitively common sense, but the numbers told a different story. The disproportionate number of struggling companies saddled with high levels of long-term debt has shown how important it is to achieve consistent growth with profitability. Down economic cycles truly define the real growth companies: those that can be profitable while continuing to reinvest in R&D and sales and marketing. Growing a profitable business is more than common sense; it is an insight. What are today’s benchmarks for becoming the masters of exponential returns? Utilizing the latest tools from Standard & Poor ’s, it is possible to identify America’s best-run growth companies. As of the end of the second quarter 2010, companies growing to a billion, such as Centene, HealthSpring, and Flir Systems, along with Deckers Outdoor and Texas Roadhouse (which are billion-dollar-plus revenue companies), are representative of the success pattern of America’s bestperforming growth companies. Despite the challenging times, they are profitable, cash flow positive, and generating high return on investment. These are the fundamental factors that drive above-average returns to the shareholder.

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The bottom line: Being consistently profitable, with low long-term debt, will enable you to grow through all economic cycles. As your company aspires to achieve growth, ask yourself these questions on the crucially important issue of profitability and reinvestment to achieve growth: • If your business is saddled with disproportionately high long-term debt and low profitability, are you urgently focusing on a turnaround? • Which management approach best represents how you are achieving profitability from gross margin earned: overinvest, cut costs, or balance profitability with reinvesting to grow? • How well is your decision-making process that balances profitability with reinvesting to grow working?

Essential #6: Practice Inside–Outside Leadership Contrary to the somewhat popular belief that one leader is the leader, among America’s highest-growth companies, leadership is based on dynamic duos: two individuals who complement one another to build the firm from big to a billion in revenue and beyond. Dynamic duos are the stuff of corporate legend: Sears and Roebuck, Roy and Walt Disney, Hewlett and Packard, and the like. At Apple, Steve Jobs is Mr. Outside and Tim Cook is Mr. Inside. Microsoft, Cisco, Apple, Juniper Networks, Nike, Starbucks, HCL Technologies, and many others have applied the same Inside–Outside Leadership pattern. The pivotal Essential that enables the other Essentials to be executed simultaneously is the strategic leadership pairing in which one leader (or team) faces outward toward markets, customers, alliances, and the community, with the other leader (or team) focused inward to optimize operations.

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The inside-facing executive is typically the Chief Operating Officer; the outer-facing executive is typically the Chief Executive Officer. Together they make swift decisions—and quickly correct their mistakes. Most important, they have real trust in and respect for one another. This pair works to execute all essentials simultaneously. Even with limited resources, such teams execute 1 + 1 = 3 miracles. Exceptional-growth company leaders have a conscious understanding of their own strengths and weaknesses and seek a partner who complements their style. Many companies have leaders who perform the functions of Inside and Outside leadership, but exceptional-growth company leaders are more purposeful in seeking out and matching their own styles with compatible ones. Leadership characteristics that distinguish the Inside-Outside pairing include: • Consistent communication about the company’s direction and priorities • Consistent ethics and values, particularly during defining moments • Problem-solving skills • Passion to address customers’ unmet needs A Dynamic Duo Led Endo Pharmaceuticals from a Million to a Billion Endo Pharmaceuticals is a wonderful case study of an Inside– Outside Leadership pair in today’s world of new billion-dollar companies. Endo Pharmaceuticals exceeded $1 billion in revenue in 2008 as a leading supplier of new drugs and therapies for the treatment of pain. More than 20 percent of Americans suffer from chronic pain. Almost everyone has a family member or knows someone who is affected by chronic pain. Endo Pharmaceuticals improves the quality of life for those suffering from severe pain.

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In the company’s early days, when Carol Ammon was the Chairman and CEO and Mariann MacDonald was the Executive Vice President of Operations, they were known as a real dynamic duo by all who knew them. Underscoring this dynamic duo was a friendship that underscored their favorite mantra: “Check your ego at the door.” Carol Ammon and Mariann MacDonald met when they were in their twenties while working at DuPont. Ammon worked in research and MacDonald worked in new-product development. MacDonald tended to follow Ammon through each department; they seemed to be walking on the same stepping-stones. Through this career path, they became very good friends. As friends often realize, opposites attract. Each had strengths and weaknesses that complemented the other, truly the basis for a lasting dynamic duo relationship. As almost all duos would testify when asked, they truly felt they did their best work together. Here’s a highlight of what they shared with me about their unique relationship and approach to teamwork: Carol Ammon: Everyone has strengths and weaknesses. If you can pair up with a person who blends perfectly and matches where your weaknesses are with their strengths, the two of you together make that powerful third person. We think of it as a three-legged stool. Mariann MacDonald: We never had big egos. Carol was never afraid to say “I don’t know this, and can you please help me with this.” We were really friends, and when you have somebody as your friend, there is no obstacle you cannot overcome. We were very open with each other. If we had challenges, we could talk to each other. In business, that is not always the case. We were never threatened by one another. We could go into an office and yell at each other, then give each other a hug and go out as a team. There was never a time that we lost our friendship even though we were business partners. We could never have done this without each other.

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When Del Jones, the Money Section editor from USA Today, called me for a cover story in 2009 on why so many women start businesses and only a few grow them to $1 billion, I was surprised to identify that this dynamic duo from Endo was the only leadership pair to found and grow a billion-dollar business within the past three years. Their values, skills, and friendship are a wonderful illustration of a complementary power that transcends company size, industry, leadership culture, and composition. In the Endo case, this pair has retired, and a new team is leading the company to the next billion. This Inside–Outside Leadership doesn’t just apply to the top pair; it applies to management pairs across all functions of a business. The HCL Technologies Blue Print story, which you will read about in Part Three, exemplifies a corporate organization that embraces this unique leadership construct across all of its functions. Here are three questions to reflect and engage on with your team or potential other half: • Whether you are running a company or in middle management, are you paired up with a counterpart who complements your talents? If you don’t think so, have you considered clarifying your roles with a trusted partner? • If you are a jack-of-all-trades working operational and customer-facing initiatives, can you achieve higher performance by focusing much more on either inside or outside initiatives and then partnering with a trusted counterpart to do the other half of the equation? • How well are your company’s structure, management objectives, and incentives leveraging Inside-Outside management pairs? For example, do you think sharing the same objectives and incentives across Inside and Outside pairs is a productive approach?

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Essential #7: Balance the Board with Essentials Experts: Customers, Partners, and a Growth CEO Is the composition of the Boards of Directors of America’s exceptional-growth companies different from that of other companies? Yes, exceptional-growth company boards are not packed with just investors, as one might think. Rather, they balance investors and management team leaders with customers, alliance partners, and one or more high-growthcompany CEOs. I call these atypical board members the Essentials Experts because their role is linked to the shaping and execution of one or more of the other six Essentials. Tom Stemberg is a great example of someone who built a board comprising Essentials Experts when he was CEO of Staples. Now, as a Managing General Partner at Highland Capital, he plays the “Blueprint” CEO role on the board for PetSmart and lululemon athletica, a yoga-inspired athletic apparel company that is achieving exponential revenue growth and returns. If Stemberg’s experience reflects the composition of the high-growth company boards, who serves on the boards of the struggling companies? They are dominated by investors and management team members! Most investors and management team members have not grown companies to $1 billion in revenue, nor do they bring the customers’ perspective. When dominated by investors, a board’s primary interest often focuses on achieving financial return from the investors’ investments. A management team/ investor-driven board becomes a “virtual” management team rather than a group of experts that can help the company to grow exponentially. If Stemberg’s approach was common across high-growth companies, I hypothesized that their boards probably had quite a few customers and investors on them. Was I surprised!

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• Sixty percent of the fastest-growing companies had an alliance partner on the board and 30 percent had customers. • I did not find a consistent set of big-name investors on exceptional-growth company boards. I tended to see the same investment firms but rarely the same partner. • Surprisingly, I found the CEOs from other high-growth companies time and time again. It would seem that if a CEO agrees to sit on the board of a smaller company, you can probably bet that this person knows a big idea when he or she sees it and believes in the potential of the management team. • The boards were, on average, quite balanced. The average size was nine, with customers, alliance partners, community, and CEOs from other large companies counterbalancing the investors and management team. The bottom line is this: Board composition is a reflection of the execution of the Essentials. It is important to balance management and investor board members with outside members who are CEOs, customers, alliance partners, and community members.

I had the opportunity to discuss this insight with Tom James, (son of founder Bob James), the Chairman and CEO of Raymond James Financial Inc., while leading a panel discussion at the Ernst & Young Growth Forum in 2008. James was named Entrepreneur of the Year in the financial services category. Raymond James, founded in 1962 and a public company since 1983, is a diversified financial services holding company with subsidiaries engaged primarily in investment and financial planning, in addition to institutional sales, investment banking, asset management, and commercial banking. Total client assets are approximately $236 billion; revenues have grown from $85 million in 1985 to $2.6 billion revenue through year-end 2009 for an average compounding growth rate of 17 percent over this 23-year period.

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James echoed the insights of America’s highest-growth companies: “A Board of Directors can be a very valuable essential. A board has to have no fear about challenging management. As a CEO or leader, if you are insecure you are going to have a tough time running a growth company the way you need to run it. You need to be willing to listen to and stand up for your ideas, but sometimes you learn that the ideas of highly experienced board members are a lot better than yours. The relationships with board members enable us to pick up the phone and call those people as advisors, who can be of great value. Having a strong board that challenges you is one of the most important things you can do in terms of developing a strategic plan for your company as well as becoming a better leader/manager.”

James’ methodology, from even before the time his company went public in 1983, was to hire CEOs, including CEO’s who had run other brokerage firms. He used to jokingly tell his CEO board members that “we are putting you on the board so that we can avoid the mistakes that you have already experienced.” And he was serious about that joke! Raymond James Financial engages a number of CEOs to serve on its board: H. William Habermayer Jr., retired and former President and CEO of Progress Energy Florida; Susan Story, CEO of Gulf Power; Shelley G. Broader, past President of Sweetbay Supermarkets and COO of Michaels Stores, Inc.; and Robert P. Saltzman, retired and former President and CEO of Jackson National Life Insurance Company; and lead director, Wick Simmons, past President of NASDAQ and Prudential Securities. What if you are a small company? As a personal case study, I am on the Board of Directors of a pre-revenue company, Primal Fusion in Waterloo, Canada, serving as the growth advisor. Primal Fusion is focused on pioneering a new category

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of online activity called thought networking. Like social networking, thought networking provides a way to represent ourselves digitally in the online world. Unlike social networks, which represent our identities, thought networks represent our thoughts and ideas. Jim Estill, the original seed investor and current board member of Research in Motion, the famous maker of the BlackBerry, is the investor board member. He also serves a dual role as the lead investor and as the billion-dollar CEO. As the company moves to revenue, we plan to balance our board with customers, alliance partners, and community members and academics. The benefits that a board offers are often unique to that company; still, there are some tried-and-true rules to remember. Ask yourself and your top management: • How well are you finding and then incorporating strategy advice from customers, alliance partners, and C-level executives (e.g., a CEO) who have led growth businesses larger than yours? What are you doing to make your board appealing to them to join? • If your Board of Directors (either formally or virtually) is currently dominated by investors and management team members, what are you doing to better educate them on growth principles? • Especially during downturns, is your board being renewed with new members who bring fresh experiences, perspectives, and contacts? If you cannot answer all these questions, I trust I am convincing you that while the 7 Essentials may sound obvious in hindsight, the what and the how of each of these Essentials is defined differently by America’s highest-growth companies. Let’s now turn to identifying the insights you will need to define the actions that will be necessary to propel you to achieve high growth.

Chapter

4

Applying the 7 Essentials as a Positive Feedback System

L

eaders of exceptional-growth companies view their businesses as a system and those they deal with as an ecosystem. They view growth through the lens of a system. The 7 Essentials are more than a strategy; when linked, they are a systems approach to creating leverage that leads to achieving compounding growth. In order to create compounding or exponential revenue and profit growth, positive feedback loops have to be created within your business. For example, customers who do more business with you every year are the rising tide for your company’s revenue growth. Taking a page from my days as a systems engineer, creating positive feedback loops is the underpinning systems approach to creating leverage (see Figure 4.1). Positive feedback creates a reinforcing positive feedback loop that creates more positive feedback: an effect that is true in electrical systems and is true with human behavior. The greater the number and degree of the linkages between the 7 Essentials, the greater the impact due to positive feedback loops, which leads to the greater impact of leverage. Leverage is the critical ingredient that enables a growth company to achieve compounding growth and returns with limited resources. 59

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FIGURE 4.1

The 7 Essentials Positive Feedback Growth System

Low-Growth Business ⫹

Apply the 7 Essentials Exponential Growth Business Leverage the Essentials

Source: Blueprint analysis.

By now, you may be wondering if in order to transform your business into a growth system, you have to do it all—all of the 7 Essentials? The answer is yes. A useful analogy is a car engine: It runs well when a basic spark is fired in each cylinder; then press on the gas, and you get acceleration and bruteforce speed. What differentiates exponential-growth from low-growth or no-growth companies is the consistent execution of at least five of the 7 Essentials. Additional case studies continue to demonstrate how America’s high-growth companies execute these Essentials at average or above-average levels of performance. The 7 Essentials Scorecard To help you apply and quantify your performance against this unique benchmark, my software team and I have developed an easy-to-use and confidential 7 Essentials Scorecard that you can employ to measure your company ’s performance. The 7 Essentials Scorecard is an online, confidential tool to measure your team’s and company ’s performance for each of the 7 Essentials (see Figure 4.2). The online scorecard synthesizes seven statements per Essential that you can score. The average of these statements creates a score per Essential. An average score of 1 or 2 is underperforming;

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a score of 3 is average; and a score of 4 or 5 is above average. Your goal is to achieve five or more of the 7 Essentials with above-average performance. The 7 Essentials Scorecard will enable you to quickly identify your essentials performance gap. FIGURE 4.2

The 7 Essentials Scorecard

Information on how to access the scorecard can be found at www.blueprintgrowth.com and at the end of this book.

Leverage is the secret to doing more with less. Although executing each of the 7 Essentials is one aspect of your company’s high-growth strategy, the hidden, more powerful aspect of this work is the interaction between the 7 Essentials to create leverage. Let me make it as clear as I can: Leverage is executing all of the 7 Essentials so that one essential can positively reinforce another. It is not merely financial leverage, used by many

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struggling companies in this recession-style decade; it is leveraging the Essentials of management fundamentals. Linking the Essentials so actions in one Essential can reinforce or amplify the effect with another Essential can make the difference between achieving modest growth and exceptional growth. Here are just two examples to illustrate how the interaction between the Essentials can create leverage. 1. Marquee Customers (Essential #3) provide feedback on your Value Proposition (Essential #1). For example, when Marquee Customers meet with your design team to discuss product improvements (Essential #1) or these same customers sell to other customers (Essential #3), leveraging Marquee Customer relationships can shorten design cycles, increase value and thereby margins (Essential #5), and shorten the sales cycle, which accelerates revenues. For Advantage PressurePro, a leading provider of wireless tire-pressure monitoring systems whose story you will encounter later in this book, supplier alliance partners are bringing new innovations to the company, and fleet operator customers are spreading the word to other customers. 2. Alliance Partners (Essential #4) help a company break into new markets (Essential #2) and bring ideas for new products (Essential #1). In the Emulex story later in this chapter, Jim McCluney discusses the interaction of the 7 Essentials at Emulex—linking his R&D team to alliance partners, leveraging Little Brother alliances to accelerate new products to market, and changing Big Brother alliance relationships so they bring new ideas to Emulex. Advantage PressurePro is leveraging the U.S. federal government to open new markets within the transportation industry as a leverage point to break into new markets.

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There are many more opportunities to create leverage: recruit a CEO who has led a growth business to join your board of directors (Essential #7) and leverage his or her talents to refine your business model (Essential #5). For example, discuss the balance of cash flow with investing for growth. Another example is to leverage Marquee Customers (Essential #3) to identify and introduce you to Big Brother alliance partners (Essential #4). Alliance partners will take a discussion more seriously if they can understand a business case and the higherorder benefits of a Big Brother–Little Brother alliance through the lens of an important customer. I have found that a small percentage of people believe that exceptional-growth companies are just lucky—you know, at the right place at the right time. Luck has some influence, but not much, as most successful leaders relate that it is not the driver of growth performance. Founded in 1996, Juniper Networks, Inc. is one of the world’s leading information technology and networking products multinational companies with revenues exceeding $3.5 billion. Juniper ’s products are widely used in large networks around the world, and the company is a leader in high-performance networking. Juniper made its debut in Fortune’s 100 Best Companies to Work For in 2009. Interviewing Scott Kriens, Chairman of the Board, and Pradeep Sindhu, Vice Chairman and Cofounder, I asked for their insights on the role of luck in their company’s exceptional growth. Here is Kriens’ perspective: “Luck is too simple a label when it comes to describing what it takes to be one of the small percentage of exceptional growth companies. Assume every company views, through some lens, their new idea as a good one. Their ideas may have value and some basis to become real businesses, but most of them don’t reach critical mass. Luck can make the difference between having a good idea and reaching

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critical mass to do something with it. In Juniper ’s case, if we started the company two years later, and came to market after the Internet boom period, we would not have hit escape velocity and would have been relegated to working on smaller problems on a smaller scale. In contrast, if we had started earlier, even with the same team and same execution, we would not have had the explosive demand to grow. So yes, luck was there, but we have learned, in hindsight, that there has to be the combination of good timing and the forethought to be able to take a long view in order to capitalize on what the right timing makes possible.”

Pradeep Sindhu is a scientist extraordinaire: a former Principal Scientist at Xerox’s renowned Palo Alto Research Center who, in 1995, left for a vacation and returned with a back-of-the-envelope idea to build a high-performance router to support the quickly emerging Internet. He expanded on this defining moment during my interview with him at his office in Silicon Valley. “I remember very distinctly in October 1995, after I completed my paper design, I had an epiphany. This back-ofthe-envelope design was five years ahead of its time. I was acutely aware that if such a high-performance networking device could be built and the market seemed large, lots of people could have similar insights. I had the distinct feeling, the kind you always remember, that there was an urgency to act—right now. I was lucky, perhaps, to be thinking of this problem at the right time. I have since learned that with the right proof points, it is possible to prescriptively identify ‘good timing.’ The fact that I took an action that led to all the actions that Juniper took along the way have made the difference: If we wind back the calendar to 1995 and look at the key decisions made and not made, all the twists and turns that the company took are far more important to determining

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the successful outcome than my big a-ha. The reason why I think a lot of us believe luck is significantly involved is the thousands of decisions that had to be made, the majority of which went the right way for us, and that alone indicates a lot of luck.”

While good timing, the urgency to act, and making enough of the right decisions are often perceived as good luck, in fact much of luck is the unique combination of these ingredients. You can influence luck, as Kriens and Sindhu have demonstrated.

Scott Kriens’ and Pradeep Sindhu’s insights will be reflected by numerous leaders and CEOs as you read subsequent chapters of this book. Their core beliefs told them that this was the right time, the innovation was ahead of its time, and it was possible to be second to, but better than, the incumbent. These are all critical ingredients that give a new company time to take the long view: to make thousands of decisions that take them on a roller-coaster-like growth journey to achieve exceptional growth. I believe the 7 Essentials and the Blueprint is the framework that enables leaders to make thousands of decisions that result in more right than wrong choices. There is a Blueprint to make the right choices to better your odds of success. Opportunity comes to those who are prepared for the longview opportunity. Thousands of decisions are involved in taking the actions to capitalize on these opportunities. Although many believe luck is the underlying force to make enough of these right decisions, I believe there is essentially more skill than random luck—in other words, there is a Blueprint to follow.

Applying the 7 Essentials at Emulex In early 2008, my associate and longtime friend Bob Sadler and I conducted The 7 Essentials Workshop for Emulex, a technology company specializing in networking solutions for data

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centers. Emulex’s CEO, Jim McCluney, described the company as “one that had stalled but had potential to grow if it could exploit new markets.” Expanding on his company’s growth dilemma, McCluney remarked: “Emulex is a nearly $500 million revenue company, one with stalled growth, and one that has the potential to become a $1 billion company in the converging enterprise networking market. While we provide a wide range of enterprise-class products that enable our customers to intelligently connect storage, servers, and networks, our growth is slowing. Though we are one of the most profitable in our industry, we started the process of looking ahead to innovate and leverage new technologies to exploit new emerging markets such as converged networks. We knew we had to change focus in order to fill in our growth gaps so we could realize, once again, the growth we had achieved in the late 1990s.”

Many of McCluney’s subsequent actions derived from a defining moment during our 7 Essentials Workshop. The team had responded quite thoughtfully to The 7 Essentials Scorecard, and from their responses, we discovered that the Emulex team members were not in agreement on one criteria in particular: how to agree on the importance that “new products fuel the growth of our company.” Furthermore, they could not agree even on the definition of a new product. A tennismatch-like argument erupted during the workshop! One side argued that enhancements to the core business were new products; the other side argued that new products were reserved for new markets. I asked, “Jim, are your growth aspirations to fuel Emulex’s growth with a complement of new products for new market segments, or to enhance the core business with new products

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that are extensions of current products? What is your growth goal?” McCluney responded, “New products are reserved for new market segments to accelerate the growth of our business. Let’s call, for internal purposes, new products that are related to our core business enhanced products.” The result was a redefinition of a new product as one that would grow the business beyond the core business and an enhanced product as one that extends the core business. From this clarification, the team launched an initiative to recategorize Emulex’s R&D program. With a shared definition of growth to be fueled by new and enhanced products along with the identification of a revenue gap in excess of $200 million over the next few years, Emulex created Plan A associated with the core business and Plan B to fill its growth aspiration revenue gap. Plan B (B for billion) was defined as a suite of new businesses that would incrementally grow Emulex to achieve a billion in revenue sooner. It was Plan B that Emulex would soon embrace as the I2B Process, or Innovate to a Billion Process. McCluney shares Emulex’s plan next.

The Innovate to a Billion (I2B) Process “The first step to igniting growth is to ‘look in the mirror ’ and be brutally honest. We weren’t doing a good job with internal innovation. There was a little of the ‘innovators dilemma’ going on. To fund growth, we had to make a very tough decision: We took 10 percent of our annual R&D budget and set it aside for innovation—to develop new products for new markets—what we called Plan B in our workshop. This was a very tough process that we undertook last year as we rationalized and prioritized our R&D. For our core business team, it was a very tough culture change to do more with less. We had to convince our high-performance team, which was generating positive cash flow, that they had to do more with less in order to fund Plan B growth. (Continued)

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(Continued) We then launched what we call the I2B or Innovate to a Billion Process, which is composed of four steps: 1. Establish Innovation Work Groups That Provide Innovative Ideas We now host regular ideation and innovation sessions with our engineering, marketing, and management teams. At these sessions, no idea is a bad idea, so we are prepared for a few bizarre ideas. We built an ideation repository, using our information technology systems, so that we could sort and keep track of all ideas. We then formed a subteam to validate and coach the teams generating ideas. Every month we have a New Business Opportunity Review with management, engineers, and sales to review and prioritize all opportunities. So far, two major growth opportunities have been identified utilizing this process. 2. Move from Ideation to Prototype With our R&D savings from the core business, we formed an internal venture team that funds new opportunities. The first two projects funded were higher-level software and services that will enable our customers to use the converged network and a new technology platform that will form the basis for a new architecture for a new world of servers. We have the potential to be a first mover for this new platform. 3. Develop a Business and Go-to-Market Model We have formed small, entrepreneurial I2B business units and teams to focus on each opportunity. Their priority is to focus on developing the best business model for Emulex, including alliances with external partners. It was a difficult moment when we decided we couldn’t invent it all ourselves. In many cases it would take too long. This realization drove a big culture change for us to go outside and partner. Our new partnering approach is setting the stage for outstanding growth opportunities. For example, Emulex is partnering with a smaller company, Server Engines, which has a long history of producing world-class silicon. Together, we are securing major design wins at the largest server providers in the world. It is a great example of a 1 + 1 = 3 alliance that is creating capabilities without peers in the market.

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4. Leverage the 7 Essentials to Achieve Exceptional Growth We have adapted The 7 Essentials Scorecard and essentials roadmapping process through each of our new business initiatives. Just the other day, an employee came up to me and said, “I have my own scorecard on the 7 Essentials and I think we are doing quite well.” The process is starting to seep across and down into the culture.

Bob Sadler provides additional insight into Emulex’s process with his comments: “Plan B was not sitting on the runway waiting to take off. As with most rapid-growth companies, Emulex was enthusiastic about too many great ideas. Product development was a ‘hothouse’ that was loaded with too many projects. It took several days to even identify all of the projects that were in development. There was a gasp in the room when we discovered that there were almost twice as many projects as executives thought. Eventually, we reconciled like projects and agreed that there were really 12 projects. We developed decision criteria and a project template for all to use. We asked each project leader to sell his/her project to an executive team. After each sales pitch, the team placed the project in a rank order on two axes. The first axis was according to ‘Value to Emulex.’ The other axis was ‘Ease of Execution.’ Once the projects were ranked on the two axes, it was clear that up to four projects were clearly the winners to drive Plan B. The whole Emulex product development ecosystem understood why those projects were selected. The transparency was important in getting the buy-in needed to accelerate Plan B. Emulex transformed itself from a company that was evolving one product at a time to a company that was

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architecting its future. They agreed to repeat the product development process every six months. They plan to constantly analyze the value of new ideas against the value of products already in development, which we call the Innovate to a Billion Process. It’s such a simple drill. It’s common sense . . . but in the heat of daily battle, common sense and simplicity are often overlooked.”

In a recent follow-up discussion with McCluney at his office in Costa Mesa, California, he was quick to point out that while he focused on a subset of the essentials, his appreciation for the 7 Essentials was that they were interlinked; that they are a system. He explained: “The 7 Essentials provides a great framework. While each of the Essentials made sense individually, what helped me crystallize their execution is when I realized how they worked together as a system. These Essentials present a tremendous opportunity for a company like ours that is embarking on change. The 7 Essentials gave me a rallying call and a visual demonstration to present to the entire Emulex team of what we were endeavoring to do and to put a goal out there that was doable. It helped us to look beyond where we were to other high-growth markets, change our views of where to find innovation, and realign our management structure as well as implement Inside–Outside Leadership. We are now focused on execution, realizing that building the essentials system is an ongoing process that never stops.

Emulex is a great example of how a new CEO has applied the 7 Essentials to turbo charge a company’s growth. During the past year, the positive feedback from Emulex’s growth transformation has been energizing. McCluney delights when customers and alliance partners all seem to express a common

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impression of the new growth of Emulex. What a difference a year makes. Emulex’s relationship with its Big Brother alliance partners—IBM, HP, EMC, Cisco, and Sun MicroSystems—and Marquee Customers have flipped from a customer-supplier relationship to being a strategic partner. This means partners and customers consider Emulex more relevant to their success, and they bring new ideas of what they would like from Emulex to McCluney and his team. Mixing new business growth with optimizing a core business has been a tough culture change that has required the adoption of Inside–Outside Leadership. Utilizing Emulex’s Essentials Scorecard assessment, the management team and I identified that McCluney was missing his Inside executive. Shortly thereafter, he began the process of identifying an Inside executive who could serve as a Chief Operating Officer (COO). McCluney found his Mr. Inside through personal networking when he heard an ex-IBM executive, whom he respected, was becoming available in the talent market. After months of discussions on management styles and values in addition to technologies and market opportunities, Jeff Benck joined Emulex as Mr. Inside, COO. McCluney’s patience has been well rewarded because Benck is a partner he can trust to run the operation; therefore, he has more time to spend with customers, alliance partners, and investors. “The bottom line: Emulex is a company poised for doubledigit revenue growth,” the enthusiastic McCluney shared with an exceptional smile.

Chapter

5

Three Big Boulders on the Path to Growth—And How to Clear Them Away

D

o you sometimes feel that there isn’t enough time in the day to complete the most important items on your to-do list? When times are tough and problems present themselves, there isn’t time to handle even more to do. Clearing a path forward can be like driving along a mountain road where you are navigating sharp turns and watching for fallen rocks from the mountain above. When a boulder falls and blocks your way, there is no choice but to move it. As I work with and advise management teams, I find most companies are challenged in three broad categories: (1) low revenue growth, (2) lack of positive cash flow, and (3) the inability to reinvest in order to grow. If your company is experiencing one or more of these challenges, they can be signs that your company is stuck on its growth path. Aruba Networks is a colorful example of how a company applies parables to guide its management approach to clearing its proverbial boulders and its growth path.

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How Aruba Networks Cleared Its Path to Achieve Growth When a market is dominated by a major player, a new entrant has to be second but better. The new company has to outinnovate and move more quickly in order to win against the incumbent. Aruba Networks was created during a recessionary cycle in 2002. The company’s mission was to look at the emerging wireless needs of medium to large enterprises. Professional workers were becoming more mobile, requiring enterprise wireless networks to provide more secure transmission of voice and data. In 2003, the Aruba Networks team started shipping $1 million (in revenues) of its first product. The company has grown to close to $200 million dollars by 2009, with customers such as Microsoft, SAP, American Express, and the U.S. Air Force, even though Aruba was essentially competing against two big incumbents in the telecom equipment industry: Cisco and Motorola. In 2008, Aruba Networks passed Motorola to be second only to Cisco. Late in 2009, I asked Aruba Networks’ President and Chief Executive Dominic Orr his secrets for outgrowing two big incumbents, particularly during growth-challenged times. Orr is a thoughtful and practical leader who willingly shared his insights and parables, all of which seemed fairly simple in hindsight, but were quite shrewd and wise in execution. Here are highlights of his insights about Aruba Networks’ growth trajectory: “For a smaller company to even begin to compete, it has to win at focus and speed. For those who work in Silicon Valley, there are a lot of creative people who live around here so our challenge is not creativity but how to focus. For us in Aruba Networks, we use customer feedback as the lens to focus our talent and creativity.

Three Big Boulders on the Path to Growth

To outgrow the competition, you have to assume your large company competitor has an even larger number of smart and creative people upon which they can rely on for product innovation. The unique advantage that a small company has against an incumbent is speed. Speed comes in two forms. 1. When you are growing from zero to $50 million in revenue, you should grow by brute-force speed. You want to create and grow a customer advocacy community and market momentum as quickly as possible. 2. When you get to $50 million in revenue, you have to change the definition of speed to thoughtful speed. This is equivalent to a car on a racetrack that is approaching a corner. The driver has to slow down to get in position to best handle the curve and time the car ’s acceleration and position for exiting the curve. In business, this means that at this stage, you have to do thoughtful speeding because you have to grow with your customer. Here in Silicon Valley we have this joke: ‘God created heaven and earth in seven days because he or she did not have an installed base.’ As you grow, you have to be mindful of the smooth growth path required of your installed base while aggressively addressing the needs of new prospects. The transition from brute force speed to thoughtful speed happens in everyday life. Let me illustrate: I am sure there are situations when you find yourself late for a meeting. While you are calling ahead to let others know you’ll be late, you’re probably speeding on the highway. Suddenly you realize you missed the exit and the next exit is 10 miles away, so you have to do a U-turn at the next exit. In this case, brute-force speed has wasted a lot of time! If you go fast all the time, there are consequences for not

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applying thoughtful speed. For Aruba Networks, we now have 7,000 enterprise customers we need to bring along, and we can’t do U-turns on them.”

Orr ’s analogy of missing the exit rings so true. The blessing and the curse of speeding is you get to your destination more or less on time but you may miss that all-important exit if you do not pay attention. There are times when we simply have to go slow to go fast. In the crazy rush to grow, amid myriad conflicting forces that can impinge on practically every workday, what is the management secret to paying attention to details while driving fast? What is a useful exercise to prioritize what should most require your attention? How do you determine what issues are ancillary and tertiary to those few crucial things?

Boulders, Rocks, Pebbles To address these conundrums, Orr offers some real-time, practical advice that he uses all the time at Aruba Networks. He continues: “After recruiting good people and good ideas, there are two assets you have to manage: time (resources) and capital. In good markets, capital is easy and time is a limiting factor—after all, there are only seven days during the week. During recessionary cycles, time slows down but then capital can become very scarce. We have a parable we use to manage our limiting assets: We look at time and capital as a fixed jar. We classify problems of all sorts and sizes into Boulders, Rocks, and Pebbles. In the start-up mode, you care about speed. When it comes to problem solving, the first problem to be identified is the next one to be solved: focus on getting everything

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done with brute-force speed. However, when you get past $50 million in revenue and have your sights on growing to $1 billion, you need to be preciously guarding your two jars in order to maximize the capacity of your company to grow. In fact, everyone at our staff meetings says ‘Boulders, Rocks, and Pebbles’ as a simple clarifying device. We put the Boulders in the jar first, then put our Rocks, then fill the cracks with Pebbles. [See Figure 5.1.] At our off-site quarterly staff meetings, we look at the key boulders, for example, determining the right time to upgrade our supply chain systems with the objective being to remove the Boulders and move them to the rock stage. As we solve one Boulder, we escalate a Rock. We have a rule of thumb that we must limit our jars to only four Boulders. We assign the best resources to address each Boulder, independent of function.”

During the market growth cycle of 2003 to 2007, Orr shares: “Aruba Networks just kept shipping. However, our supply chain systems were being strained to keep up with growth. ‘Times are good so keep shipping!’ was the mantra at the time. We decided we needed to replace our supply chain. When we were ready to commit to actually executing the replacement of our supply chain in the fall of 2008, I had cold feet. We had tight capital and resources. My core belief about achieving an exceptional highgrowth company in our high-technology industry is that the highest priority for resources and capital must be allocated to research and development of new products and to sales. We were challenged to come up with sufficient available headcount and skills in IT [information technology] along with the IT investment. After a delay, the thoughtful-speed approach took over. Basically, I asked our top management team and Board of Directors, ‘Do we believe that we will grow to be a billion-dollar company?’

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Either we believe it or we don’t. If we do, then this is the best time for us to reinvest to prepare for our next growth cycle. It was the time to make turning this boulder into a rock—make this big problem a smaller one.” FIGURE 5.1

Boulders, Rocks, and Pebbles

BOULDERS PEBBLES

ROCKS

NOT LIKE THIS

LIKE THIS

Put the boulders in first, then the rocks, then the pebbles

Source: Visual Ink.

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Three Typical Boulders That May Challenge Your Growth Potential After spending hundreds of hours advising and consulting with aspiring growth companies, I have come to recognize that problems in achieving growth (to use Orr ’s parable) center around three big Boulders: low revenue growth, lack of positive cash flow, and reinvesting in new products and infrastructure. Are these any of your Boulders? Let’s take them on one at a time and outline key actions you can take to smash these boulders into Rocks or even Pebbles.

Boulder #1: Low Revenue Growth Do you feel as if revenue growth is not meeting your expectations? Are you achieving exponential revenue growth on a percustomer basis? If not, you may be underleveraging the rising tide of revenue growth on a per-customer basis. Here are three symptoms and what to do about it: Symptom: Your business is challenged with low revenue growth among your most important existing and new customers. What to do about it: If your revenues are flat on a percustomer basis, either your sales team is ineffective or your product line is not broadening to adequately capture a greater share of “wallet.” Two companies that have leveraged their core innovations and processes to broaden their markets are eBay and Under Armour. eBay diversified into adjacent market categories, such as real estate and automotive, while Under Armour broadened into a suite of high-performance sportswear. Under Armour started from a simple plan to make a superior T-shirt for its original product market in football jerseys. Both companies did this in good and bad market cycles.

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If you lack new customers to fuel your growth, you could be stuck with an underperforming sales force. To redefine your customers’ benefits, interview your best customers to understand their higher-order needs. Apply the lessons shared by Selim Bassoul, Chairman and Chief Executive of The Middleby Corporation (see Chapter 3), by interviewing your competitors’ customers to identify industry trends and why customers do not buy from you. Listen attentively—and use your customers’ rationale, benefits language, and potential endorsements to market to other customers. Likewise, mobilize your alliances to break into new markets and new customers. Broaden your product line through innovation investment, or use mergers and acquisitions to capture a greater share of wallet with your current customers (and secure new customers in new markets). Fill a critical portfolio gap for Big Brother alliance partners. Large companies cannot innovate to fill all their portfolio gaps and place bets for new emerging market segments. This is especially true in tough times. That’s why large companies are eager to partner with smaller companies that offer a unique value proposition to fill those gaps. If your company is midsize, like Emulex, leverage alliances with smaller companies to fill your company’s portfolio gaps. Symptom: Customers are not advising your company or proactively selling for you. What to do about it: Have you formed a Customer Advisory Council with your most important customers? More than half of the companies I do workshops for do not implement this simple council, yet it is one of the most important actions you can take—and it won’t cost you anything. In the same way that Broadcom and eBay utilized Customer Advisory Councils to establish a customer-tested road map for growth, act as the voice of

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the customer, help define the company’s value proposition, and even sell to other customers, you can too. Identify your top five customers and ask them to meet with you to help you grow your business; call them to meet for lunch or dinner. Invite them to an offsite meeting in an affordable but creative location that invites open dialog (like a nearby resort overlooking a lake). Follow in the footsteps of Middleby as it utilized a Women’s Chef Advisory Council to identify missing features and how to make its ovens shorter and more energy efficient. Turn these top five customers into an army of business ambassadors and advisors for you over the next year or two. Transform them into Marquee Customers! eBay grew its PowerSellers from a handful of customers to several hundred thousand fans. A single meeting became a series of effective annual conferences. Symptom: One leader is trying to do it all. What to do about it: Is your company led by a Dynamic Duo—an Inside- and Outside-facing pair? The highestgrowth companies were and are led by pairs, such as the pair who led Endo Pharmaceuticals or the well-known pair who has led Cerner, Neal Patterson and Cliff Illig. Taking a page from Jim McCluney, CEO of Emulex, complement recruiters with personal networking to find your other half. The odds are you may know or are working with this person.

To be sure, the can-do tone of these initiatives may sound naive. “Easier said than done!” you might be muttering. But experience demonstrates that these steps are not only doable; they are being done right now by growth companies during recovery times as the economy enters a lengthy period of slow growth.

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Boulder #2: Lack of Positive Cash Flow If your company lacks positive cash flow in these tough economic times, it means your gross margins are under pressure or your product, service costs, or expenses are too high. It could be one, two, or all three of these. If gross margins are under pressure, how does your company’s gross margin compare to that of peers in your industry and in similar industries? If it is lower: Symptom: Gross margins are under pressure due to falling prices. What to do about it: Are you redefining your benefits to better align with your customers’ changing needs? Selling value is better than cutting price. Easy to say and hard to do; focus on sales force training and diagnose win/loss and high margin sales opportunities to identify the benefits and sales techniques that work best. Symptom: High product costs are a challenge compared to competitors and value being delivered. What to do about it: If your product cost is high, you may need to invest in infrastructure in order to optimize your business, especially in terms of systems and processes. Do you have a streamlined and highly efficient supply chain? Symptom: High sales and marketing and research and development (R&D) expenses. What to do about it: Even if your company is achieving great gross margins, expenses may be high. Blueprint Companies are generally cash flow positive as early as $25 million. They manage expenses in sales and marketing and R&D to deliver a consistent 10 percent-plus EBITDA (earnings before interest, taxes, depreciation, and amortization) across all types of market cycles. High-growth companies

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prioritize expenditures so that they do not exceed the gross profit earned. They also plan to meet earnings targets. Although expenses and earnings change every year, the best-run, high-growth companies are defined as those that follow an overall trend to balance expenses with earnings. Overspending is not a path to success over the long term. Symptom: Team performance is inconsistent. What to do about it: Use down market cycles to upgrade your team. With cutbacks, great talent to fuel your company’s growth to the next level is almost always available for hire. Bottom line: Teams do change with their growth along the revenue S curve from incubation to inflection, to a billion and beyond. As companies grow, their teams have a changing cultural mix from that dominated by the creativity of innovation and entrepreneurship to one balanced between innovation and the process culture required to grow a company with discipline. I first learned this concept from my colleague Peter Robertson, author of Always Change a Winning Team (www.human-insight.com), and I have found the same with most of my clients.

Boulder #3: Reinvesting in New Products and Infrastructure During cycles of economic uncertainty, many companies choose cash flow over continued investment in infrastructure. Is this the right choice? How do we determine the right blend? Fortunately, the 7 Essentials will help you make the right decision and gain the required return on your investment. Think of a simple equation: Management Techniques (the 7 Essentials) + Reinvesting in New Products and Infrastructure = Sustainable Growth Company

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If your company is stalled in its growth trajectory, it may have a performance gap in one or more of the 7 Essentials, or it may not be reinvesting enough in new products and infrastructure to position itself for the next market upturn. Often I find companies have an aged product line due to a lack of reinvestment or a dysfunctional innovation process. Symptom: Dealing with an aging product line is problematic. What to do about it: The age of your product lineup will tell you if you have not innovated sufficiently in good times. Keeping your lineup fresh is imperative. If your competition is offering new products and/or services, they may be buying market share and forcing price pressure on you. A cure: design and test. Innovate faster by redesigning your innovation process. Get feedback early by taking a small slice of your innovation investment to quickly prototype product line extensions, enhancements, or entirely new products or services, and test with customers. If you are short of cash, how do you fund new products? Essentially, you reinvest through quick experimentation. The key here is to get value for the reinvestment. Symptom: Aging or manual processes and systems are a challenge. What to do about it: During particularly tough economic times, it is easy to assign an across-the-board cost cut to achieve or maintain positive cash flow. However, leaders of exponential-growth companies utilize a systems approach to problem solving. For example, they optimize their business during down market cycles. This includes streamlining processes, reducing headcount in selected areas, and investing in systems and IT infrastructure to optimize the business supply chain, customer management system, or front-end market intelligence. Thinking of your business as a system is a key to determining the actions to take.

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As illustrated by the Aruba Networks example (the Boulders, Rocks, Pebbles story), the most competitive exceptional-growth companies are using this slower-growth cycle to redefine and retool their growth plans. They are utilizing thoughtful speed to offset the effects of our current economic conditions.

■■■■■ Part Two Summary Key Points • A tough economic period is the growth opportunity window to separate your company from competitors. • The 7 Essentials are applicable across all economic cycles. The execution of the what and how for each Essential varies depending on whether the market cycle is a recession, recovery, or growth stage. • Markets and product categories continually are being redefined. There is no rest for the growth company! Benefits expressed in customer terms realize the highest value to new customers, which forms the basis for high-revenue growth. • The underlying driver for corporate exponential revenue growth is exponential revenue growth per Marquee Customer. Maximizing customer life cycle revenues is fundamental to achieving exponential revenue growth per customer. • Inside–Outside Leadership is the unique leadership style that is applied by growth companies—not just at the top but throughout the organization. Unexpected Findings • Viewing growth opportunities through the lens of your competitors’ customers can be more important than listening to current customers.

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• The recent economic behavior of many overextended businesses highlights how insightful and unique the financial performance behaviors of exponential-growth companies are. High-growth companies tend to be cash flow positive early and reinvest in order to fuel growth. They avoid high levels of long-term debt. Successful, growth-minded chief executives focus on optimizing their businesses to preserve cash flow and reinvesting it in infrastructure and innovation for the next growth cycle. • Leaders of exceptional-growth companies view their businesses as systems and those they deal with as ecosystems. They view the 7 Essentials as more than a list but as a systems approach to achieving compounding growth. In order to create compounding or exponential revenue and profit growth, positive feedback loops should be created to create leverage. Leverage is realized through the linking of two or more of the Essentials.

P A R T

T H R E E

THE 7 ESSENTIALS IN ACTION We Le a r n Th a t t h e D i f fe re n ce b e t we e n a Struggling Company and One That Achieves Exceptional Growth Is the Unique Combination o f What I t D o es a n d H ow I t D o e s I t

Chapter

6

The Emergence of the Global 7 Essentials

E

arly in 2008, I was preparing for a global keynote speech and workshop tour across Asia sponsored by Lloyd Adams, Vice President of Marketing for SAP Asia Pacific. He challenged me to make the 7 Essentials even more relevant for the 8,000 executives from different countries and cultures to whom I would be presenting. Identifying a global pattern would serve as another and even more powerful indicator that the management and financial fundamental patterns to achieve exponential growth are universal, independent of economic cycle, industry, and now country and culture. As the financial measure of global growth, the second stage of our study of new billion-dollar companies over the past five years does indeed show a pattern: Globally, an average of 215 companies per year graduate to $1 billion ($US are used throughout). During the past two years, when I spoke to American executives, I asked which country ranks first in number of new billion-dollar revenue companies: the United States, China, or Russia? Most guess China or Russia, but the answer is the United States, with China ranking a very close second place.

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Why do many Americans in their gut feel that the United States has lost its innovation leadership? Because Asia is generating a higher number of new billion-dollar companies than any other continent. Asia/Pacific countries as a group, China, India, Japan, Korea, Taiwan, Australia, and Singapore, to name a few, are the primary global source for new billion-dollar company growth. So I asked myself: Where can I find a new Asia/Pacific billion-dollar-company example that is achieving exponential growth, utilizing all of the 7 Essentials? I was looking for one that is achieving growth in spite of the global recessionary economic climate, and exemplifies the positive values and fundamentals of America’s highest-growth companies. Fortuitously, during a presentation and discussion on the 7 Essentials at SAP Labs in Silicon Valley in mid-fall 2008, I met Anubhav Saxena from HCL Technologies America. HCL Technologies is a company founded in India that entered the global information technology outsourcing market in 1999 (following its initial public offering) and has gone on to become a global leader in IT services, achieving $2.1 billion in revenue year-end 2009, up from revenues of $118 million in 2000. It has transformed into a global powerhouse, becoming one of the leading IT outsourcing companies in the world. HCL has been ranked by BusinessWeek as one of the top 20 most influential companies. As such, it joins the ranks of Google, Wal-Mart, and Toyota. Saxena was so excited by my Blueprint presentation and discussion that he attended in October 2008 that, after the presentation, he ran out to a nearby bookstore, bought copies of Blueprint to a Billion, came back for an autograph, and immediately couriered a box of the books to HCL’s headquarters in India. I sensed there had to be a deeper, more personal story behind his extremely enthusiastic response. He eagerly shared with me the reason behind his excitement: “In July 2005, the very month this book was being

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typeset, independently and without knowledge of your work, Vineet Nayar, CEO of HCL Technologies, launched a growth initiative called ‘The Blue Print,’” he exclaimed. “Since that year, HCL Technologies has been formulating annual Blue Print growth initiatives to achieve exponential revenue growth.” He continued: “While we use a somewhat different language, the fundamentals of the 7 Essentials, your Blueprint, are essentially our Blue Print.” The world works in wondrous ways. There could be no better opportunity to prove to myself and others that whether one applies a “Blueprint” or a “Blue Print,” the fundamentals to achieve exponential growth are the same. I had the opportunity to interview Nayar on the phone from his office in New Delhi and again in person with his leadership team when he and I led an intimate discussion on growth for a small group of local executives at the Harvard Club in New York in June 2009. During the interviews, as I expanded on the 7 Essentials, Nayar overflowed with HCL-related insights and actions. The growth insights of America’s highest-growth companies were being applied independently across the other side of the world. For companies in the United States, India, and around the world, demonstrating a universal Blueprint fortifies the assertion that companies can grow through extremely tough times and that growth companies, no matter their global location, share many common and positive fundamental values. The HCL case study also offers a welcome contrast to many current business stories of crushing economic failure and shameful personal greed.

Chapter

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Blueprint . . . or Blue Print: Same Story, Same Values

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he economic turbulence of 2008 and 2009 upended many industries and changed the lives of countless executives, employees, and consumers. Companies such as General Motors, Yahoo!, and Sprint—once dominant in their industries—have fallen behind, while new competitors have rushed to the fore. There are companies like Lehman Brothers, Circuit City, and Mervyns that have just fallen away. In 2008, BusinessWeek ranked the 20 most influential companies in the world—an elite group that included Wal-Mart, Toyota, Microsoft, Unilever, Apple, and Google.1 A newcomer to this elite list was HCL Technologies. HCL was founded in India in the mid-1970s, entered the global information technology (IT) market in 1999 (following its initial public offering), and has become a global leader in IT services. It serves customers across infrastructure, applications, and business process outsourcing services (payroll, accounting services, and human resource processes) in industries ranging from manufacturing to banking and financial services to healthcare. As a testimony to its new global leadership, Nokia awarded HCL a five-year contract to provide global PC desktop support services across 76 nations in 13 languages. In securing the 93

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contract, HCL elbowed out the incumbent IBM along with top western and Indian outsourcing leaders.2

The Blueprint for the Making of One of the World’s Most Influential Companies The journey to achieve exponential growth, across up or down (bear or bull) economic cycles, is rarely a smooth one. HCL Technologies is no exception. In 1976, Shiv Nadar, a young electrical and electronics engineer, founded HCL (Hindustan Computers Limited) with less than $4,000. The company quickly established itself as India’s most successful computer hardware maker. By the early 2000s, revenues had climbed to $1 billion (see Figure 7.1). Indeed, HCL seemed poised for continued upward growth. During the 1990s, software and IT outsourcing services became more important than hardware. Soon HCL’s growth fell behind that of IBM, Hewlett Packard (HP), and some of its Indian competitors. Despite revenues of $3.7 billion in 2005 and growth of FIGURE 7.1

HCL Technologies’ Growth Trajectory Revenue ($M) 1,000

4 Years

12 Years

6 Years

HCL Technologies

0 ⫺10

Normalized Time (Years) 0

Source: Standard & Poor’s Compustat, Blueprint analysis.

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35 percent a year, HCL’s founder correctly attributed the company’s success to momentum of the past. As we have seen, one of the secrets for exponential growth is the creation of billion-dollar business units. Nadar recognized this by realizing that the IT services business was different from the hardware business, and each would require a dedicated management team. In 1998, he divided HCL into two companies. The first, HCL Infosystems, was to be a domestic enterprise focused on hardware and systems integration in India. The second, HCL Technologies, was to be a global IT services company that would provide software-led IT solutions, remote infrastructure management services, and global business process outsourcing. In 1999, Nadar led HCL Technologies through the largest IPO (up to that time) of an Indian IT company. Searching for a new leader in 2005, Nadar reached out to Vineet Nayar, a 45-year-old engineer with a Master ’s in Business Administration degree and a true entrepreneurial spirit. In his internal company announcement, Nadar said, “Vineet has demonstrated strong leadership skills during his 20 years with HCL. I feel confident that his global outlook, inspiring leadership skills, and demonstrated track record of building new businesses will take HCL Technologies to the next trajectory of growth.” Nayar had risen through the ranks of an HCL subsidiary, Infrastructure Services Division. He was known for his charismatic and strategic ability to create innovative business models and, beyond that, for putting the Infrastructure Services Division on its own track toward exponential, billion-dollar growth. He ingrained the fundamentals to achieve exceptional growth and helped establish the company’s culture around innovative services and relationships with brand-name customers. So far, so good; but with HCL Technologies’ revenue growth still lagging at about $750 million, Nayar had his work cut out for him.

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How to Be Remembered Nayar recognized that HCL had lost ground between 2000 and 2005 when he looked at how his company compared to the competition in terms of value creation, brand-name customers, and revenue growth rate. Why? “A refusal to look at the truth,” he told me. “When we were finally able to face the truth, which was that we simply were underperforming our growth potential, we asked, ‘What can we do about it?’ Once the team got past the truth to see that we were not the ‘prettiest’ of companies, we asked, ‘What should our blue print for success be?’” At dinner one evening at his home in India with Anubhav Saxena, Vice President of Business Development, Nayar was reflecting on the challenges ahead. He turned to Saxena and asked, “What do you want employees as well as customers to say of our company in 2012?” This was the most probing business question Saxena had been ever asked; it was akin to asking how a person wants to be remembered in his eulogy. It was a particularly important question because companies do live by—and are remembered by—values, just like people. The ensuing discussion came full circle when Nayar declared, “I alone cannot create the value. It is bigger than I am. HCL has no option but to hire the very best talent it can attract to the company, empower those people to create a culture of ethical values as well as growth, and have them answer this question for themselves.” To create a transformational blueprint (though they wrote it as two words, Blue Print), Nayar made three important decisions based on identifying large opportunities, leveraging partnerships, and creating value for customers. First, he decided that the company needed to target the high-growth, highestcustomer-value core of the market. Second, it needed to form strategic alliances and joint ventures. Third, it needed to identify innovations that could offer unique and high-value products and services, for both their customers and their employees.

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In the services business, having the best talent in the industry would be HCL’s most valued asset. Nayar aspired for HCL to become the “Employer of Choice” (a credential it has achieved, as recognized by Hewitt Associates)3 before launching its more provocative “Employee First” program. The Employee First program focuses on employee empowerment, feedback, satisfaction, and rewards, which are all central to the number-one program in the company. A foundation of the company is that satisfied customers and clients are a natural by-product of satisfied, respected, and motivated employees.

HCL’s “Blue Print” Achieves Exponential Growth To communicate this new strategy, Nayar called in his marketing team. After some creative brainstorming, they returned with a poster featuring a child’s handprint on a wall. Nayar explained: “It is a common practice in the U.S. and India to take a handprint and footprint when a child is born. In India, we even take footprints in clay when we get married. The handprint was perfect [emphasizing the crucial importance of each individual in the new corporate culture]. The word ‘Print’ was chosen to symbolize that this is your print and therefore the way forward is about you; you and the organization are combined. The addition of the word ‘Blue,’ taken from the architectural blueprint analogy, symbolized a framework evolving going forward.”

Together, the words Blue Print created a distinctive message. In July 2005, Nayar convened the company’s top 100 managers for a three-day Blue Print meeting. He told the team: “This is your plan, your future, your pride in what you would do . . . and only you can do it. Nobody else can do it. What is important is not the intellectual finality of

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FIGURE 7.2

HCL Technologies’ Blue Print

Source: HCL Technologies.

the plan, as it will, and should, evolve every year. What matters most is how you put your handprints on what we do and how we execute. This is your Blue Print to achieve growth and success.”

With that, HCL launched its campaign (see Figure 7.2).

While I was sending the Blueprint to a Billion: 7 Essentials to Achieve Exponential Growth manuscript to typesetting in July 2005, Vineet Nayar, on the other side of the world, was independently launching HCL’s Blue Print initiative. The words were not precisely the same (they even had slightly different cultural and regional implications) but the message and approach to achieving exponential growth were exactly the same.

What specifically was Nayar ’s Blue Print strategy? The company’s first initiative was to get its house in order, mostly by rejuvenating employee morale and improving operating efficiency. Nayar took two main steps to do this: 1. He launched a company-wide 360-degree feedback process, including one-on-one meetings with employees

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and their bosses to personally respond to issues they each raised with the mutual goal being to build a transparent and accountable culture. 2. He restructured the company around value centers: sales, delivery, and quality. HCL’s second initiative was to form strategic partnerships with other companies so that it could offer increased end-to-end value. The companies HCL formed partnerships with were SAP, Microsoft, VMWare, and Xerox. The third initiative, slated for completion in 2010, radically shifted HCL’s business model to sustain exponential growth; 50 percent of revenues would come from services that did not exist in 2005. A few of these services were Integrated (Infrastructure  Application) Services and Remote Infrastructure Management Services. Nayar also had his top 100 executives set goals for the coming year. “In truth, it did not matter what the specific goals were,” he notes. “I planned to run the company by comparison, whereby everyone could see how other groups in the company were doing.” Nayar did mandate one guideline. In the coming year, the sales team would have revenue goals, and delivery would have revenue and profitability goals. “We had different challenges in sales and delivery,” he explains. “Sales had to start delivering accelerated growth and increasing market share while delivery had to build execution excellence.” As he closed the meeting, Nayar extended a challenge: Each executive had to figure out how he or she would help HCL win multiyear, multiservice, multimillion-dollar co-sourcing partnerships in order to transition from a base of many small contracts. While that set many internal wheels in motion, it was also clear that HCL Technologies, in order to grow against such global majors as Accenture and IBM, needed to change the way it approached its customers. It needed to differentiate itself,

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offering outsourcing services, such as Infrastructure Services and Integrated Operations Management Services, that would transform its customers’ businesses. Rather than going after small, project-based work, it needed to work toward the really big deals. “In order to win,” reflects Nayar, “we needed to remove the silos, which had grown surprisingly entrenched, and encourage collaboration across the company.” How could HCL win against the global majors like IBM and HP, let alone successfully execute sophisticated engagements across different cultures, geographies, and IT technologies? The skeptics were appropriately skeptical. “To the skeptics I said, ‘I am coming from HCL’s Infrastructure Services Division, where we started the company with one big and unique value proposition. So I am used to this kind of big stretch,’” Nayar explains. One attendee from the top 100 managers meeting noted, “Nayar, who was still serving as President at that time, was very open to discussion. We were encouraged to express dissent. He was also quite clear when he stated that HCL is not going to be a me-too player. Our intention is to be number one in our chosen markets.” Nayar explains that HCL’s strategic vision was not based on solving technology problems, because technology itself tends to get obsolete by the time customers realize its value. Rather, he shares: “We must be in the business of applying technology to solve business problems such as process simplification and unified, real-time IT dashboards. In order to become solvers of business problems, one needs to be able to understand, on a deeper level, the customer ’s business, which I call domain knowledge. Second, one needs expertise in mapping business processes to IT such as ‘hire to retire’ and ‘procure to pay.’ And third, one needs expertise in realizing business value through implementing with

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defect-free execution. These three components are absolutely critical for success.”

To embody this strategic vision and offer a road map for employees to improve on previous lapses, a well-articulated mission statement and quality policy were defined. HCL’s Mission Statement To provide world-class information technology solutions and services to enable our customers to serve their customers better. Quality Policy We shall deliver defect-free products, services, and solutions to meet the requirements of our external and internal customers, the first time, every time.

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Applying the 7 Essentials at HCL Technologies

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CL successfully identified not only what but how the 7 Essentials had to be applied in the real world. HCL came through with impressive delivery on each of the 7 Essentials, the first two being addressed in reverse order; that is in itself a valuable lesson. When turbo-charging a company’s growth, one does not necessarily need to start at Essential #1: Create and Sustain a Breakthrough Value Proposition. In HCL’s case, it started with redefining the market and then reverse-engineered the value required to redefine the market.

Essential #2: Exploit a High-Growth Market Segment The most burning question facing Nayar, at HCL’s first Blue Print meeting in July 2005, was “How do we get a big piece of the core IT outsourcing market?” His answer was provocative. “Since the market is stagnating, we will have to inject a catalyst inside it and redefine a market segment to create an explosive growth opportunity.” In other words, HCL had to create an “explosion” that would redefine an exponential-growth market within the somewhat stagnant outsourcing market. What could that opportunity possibly be? It turned out to be delivering 103

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outstanding quality. This might not sound revolutionary, but it was, at least for this company. It made sense; consumers were frustrated. Their outsourcing suppliers had promised to support them and their products, but services were dreadful—long-term, inflexible contracts, and the outsourcers were not delivering on their promises. Customers were becoming increasingly vocal to HCL about their needs not being met by other outsource providers. Explains Nayar: “We found the gap. The supplier gap was between the five or six global providers who were achieving more than $3 billion in revenue and the many smaller providers. The global providers had very rigid contracts with their customers and lacked a good understanding of what customers were going to want, much less the ability to be flexible to meet a customer ’s changing needs. In contrast, the smaller providers could not serve customers globally. When we talked to our customers, we found the opportunity gap to be supplier trust along with contract and results transparency at the intersection of the supplier engagement and customer relationship.”

There it was: HCL’s strategic opportunity! By taking the battle to the core of the market—to the interface between the customer and the services provider—they knew they could win. Having decided to redefine “the outsourcing market with quality and innovation,” Nayar ’s team still had to define its Breakthrough Value Proposition, one that no other IT company could provide globally. “The Blue Print in 2005 was framed on what we would do to pursue the core market of IBM and the Accentures of the world, and how we would execute a disruptive service offering that is highly valued by customers,” Nayar explains. These insights still define HCL’s Blue Print, and the result has been a five-year compounding revenue growth rate of 63 percent.

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Essential # 1: Redefining the Value Proposition: On the Lookout for a Breakthrough To grow beyond its 2005 revenues, HCL needed to win larger, integrated deals that involved both software applications and hardware infrastructure. These benchmark deals were dominated by IBM, Electronic Data Systems (now a division of Hewlett Packard [HP]), Computer Science Corporation, and HP. Anant Gupta, Nayar ’s operations-focused counterpart, led the effort. But what would differentiate HCL’s services from the others in the industry? What long-lasting value could HCL offer? At last Gupta and Nayar agreed that their engagements with customers would always, and forever, be based on trust, transparency, and flexibility. They would build their business on these pillars; that’s what would make HCL different. One example is that HCL was the first to develop a trusted approach called co-sourcing for clients. This enabled HCL and the customer to jointly manage the IT infrastructure. Gupta balanced his emotionally aspirational foundation with pragmatic execution. “We adopted a flawless execution model philosophy,” he notes. “This was critical to our value proposition, so that when we took risks, they would be backed with a proper plan of execution and a strategy of risk mitigation.” Timing was also of the essence. “While we believed there is a value proposition in terms of a two-, three-, and even four-year horizon,” he notes, “customers also want quick wins as the first step toward a long-lasting and significant relationship. So we focused on quick wins, delivering results in three to nine months—with longer-term wins (beyond nine months) accruing even longer-term value to the customer.” In order to take market share from the other global players, HCL had to become far easier to do business with as well: more flexible, more transparent, more capable of establishing deeper relationships with large enterprise customers. Above all else, the team had to deliver on the promise to redefine value for these new, large customers. When the team

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studied IBM’s and Accenture’s services, they found that these other companies were largely based on having better talent and greater experience in outsourcing. “When you are the new company on the block, competing with established global providers, how do you beat that?” Nayar asks with a smile. He continues, “Redefine the rules: We believed that if we could actually deliver the entire IT operation remotely, we could deliver value uniquely in three ways. First, HCL would be able to provide customers with higher visibility to their operations through a dashboard. Providing customers real-time data from their outsourced operations, we were perceived as being more open with reports and transparent. Second, we could offer higher flexibility to grow and decrease the IT infrastructure as our customers’ businesses required. And third, we would be able to do it at a lower price point and response time that no other supplier could offer. Of course, it isn’t just price that is important; we were also willing to offer risk/reward arrangements, such as penalty clauses based on performance benchmarks and sharing cost savings, as a sign that we were willing to invest in our customer relationships for the long term.”

Once that was decided, HCL invested significantly in the systems, processes, and tools required to deliver on its valuepacked promise.

Nayar believes that competitors can copy what you do. However, they cannot precisely copy how your company executes on its promises, especially if you build your differentiated value proposition on what you offer and how you execute it.

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Importing ideas from other industries is a hallmark of successful exponential growth. In the case of HCL, the company recognized that it needed to deliver value through a services supply chain of some sort. To do this, the HCL team studied supply chain systems and processes in manufacturing industries, and then reported on them through a series of measurements on a real-time IT dashboard. “We discovered that value is created in the interface between suppliers, employees, and customers. We call this the Value Zone,” says Nayar. Indeed, it was within the Value Zone that HCL Technologies was certain it could create an exceptional-growth opportunity. Nayar realized that the Value Zone offered an opportunity to cut costs and operate smarter. In fact, by delivering a more sophisticated offering—incorporating infrastructure, applications migration, and design services—HCL could improve the economic return for customers in more ways than the customer had ever experienced.

Luck or a Leap of Faith? Says Anant Gupta: “It was definitely a leap of faith when it came to executing our value proposition. It was based on three tenets: trust, transparency, and flexibility. That leap of faith is built upon the hope that the customers would find us a trustworthy and transparent organization that also is committed to flawless execution. The customers had to buy into that belief.” Fortunately, it came through in the convincing body language of the people who were part of our engagement team; from sales, to outsourcing delivery, through to the executive management team. I believe customers really got the comfortable feeling that ‘ Yes, this can be done.’ I think that is what shifted customers from their traditional outsourcing suppliers to HCL.”

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Essential #3: Marquee Customers Fuel HCL’s Exponential Revenue Growth High-growth companies enlist their Marquee Customers to sell for them. This was one of HCL’s Blue Print messages as well. First, HCL had to identify and win over these valuable Marquee Customers. Early on in the endeavor, the company received some good news. McKinsey & Company, which was consulting for Advanced Micro Devices (AMD) on an outsourcing request, had heard about HCL’s Blue Print goals and invited the company to compete for the AMD outsourcing contract. Taking McKinsey–United States up on the invitation, HCL discovered that AMD had very different requirements from what was originally perceived. AMD was not looking so much for rapid change as a series of quick wins, based on customizing its outsourcing approach to their specific needs. Furthermore, it wanted flexibility in the customer engagement, and transparency as well. HCL went to work with its proposal and in the end beat IBM, HP, and Accenture to the contract. AMD was a twofold win: Not only did HCL win the confidence of the McKinsey team and AMD, the success attracted the attention of other potential Marquee Customers in the financial services, retail, and manufacturing industries. The HCL team quickly moved to leverage the AMD relationship in order to establish Marquee Customer opportunities with leading companies such as Autodesk, Nokia, and Teradyne. Attracting Marquee Customers made a real difference across each of HCL Technologies’ business units. One of the big deals for the Infrastructure Services Division, for instance, was Cummins, the world’s leading diesel engine manufacturer. Cummins took a chance on HCL Technologies—and was pleasantly surprised when costs decreased and customer satisfaction increased. After that, Cummins wanted HCL to succeed, so that it could grow and provide more services for Cummins in the future.

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Thus, Cummins became a Marquee Customer, offering to share its winning experiences with corporate prospects to which HCL was marketing. The Cummins-HCL relationship is the winning combination. “Over the past five years, we have won contracts with 100 percent of the customers that Cummins has referred to us,” notes R. Srikrishna, HCL’s Executive Vice President of Sales. “Customers love to buy from their customers’ other customers.” How do you turn a single Marquee Customer into many more? In the case of HCL Technologies, the company formed a Customer Advisory Council, with companies like Cummins and Boeing aboard. At the council meetings, HCL could suggest new services, develop new product strategies, and listen to customers tell them how to make their services even better. Keeping customers happy pays off—and HCL makes a practice of it. “We make sure to live up to all our commitments and not just meet service levels. We really want to exceed basic service levels,” explains Vijay Kumar, Senior Vice President, Delivery/Operations. “We have to be flexible in order to meet our customers’ changing requirements. We have to offer new solutions and create flexible agreements that have flexible financial terms. As a result, we gradually get to a win-win approach to business—customers become our friends. This is our insight into executing a win-win payoff.” HCL works hard to facilitate this communication between its current customers and potential customers. In November 2008, for instance, HCL hosted “Unstructure,” a Marquee Customer annual event that brought more than 600 executive-level customers and prospects from across industries and nations to Orlando, Florida. The event featured thought leaders in economic trends, growth, and, of course, outsourcing strategies. HCL Technologies’ current customers were encouraged to share their experiences with the new prospects.

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A Unique Perspective from Cummins Can customers become your sales force extraordinaire? Vernon Wilson, Executive Director of Information Technology, Cummins Business Services, offers his perspective on the HCL-Cummins win-win equation: “In 2003, one of our major initiatives was to look at offshoring the Cummins Infrastructure Support arm. During the process we visited seven offshore vendors. We selected HCL Technologies because of its commitment to task. When we met the HCL executives, including Vineet Nayar, we saw that they were clearly committed to making Cummins a better company by partnering with us and helping us drive our costs down. Moreover, we liked HCL’s emphasis on highly skilled workers. During a visit to HCL, I saw technical support professionals wearing three colors of shirts. Each of the colors stood for their certification on Cisco’s networking products. As they advanced through the certification process, their shirts changed colors. That was the most astounding sight I have ever witnessed during my infrastructure career. What this process communicated was HCL’s commitment to technology and the training of their employees in advance of changing technologies. HCL wasn’t selling us just a service but state-of-the-art technology support. And it communicated this in a delightfully unique way.” Vernon Wilson noted that Cummins holds its vendors accountable to their commitments. “ That ’s what makes for a successful relationship,” he says. “But HCL’s particular accountability to task has been ‘overwhelming,’ ” he explains, “continually exceeding our expectations.” For example, when Cummins rolled out a major initiative called ‘ Through the Lens of the Customer,’ the HCL team volunteered to participate in the training, right along with Cummins’ employees. That speaks highly of HCL’s commitment to the task. Wilson continues: “ We realized that we were taking a risk outsourcing to a smaller company like HCL. It was a new business for them. But Vineet Nayar demonstrated his commitment to us by backing it up with penalty clauses. If HCL did not deliver on a certain cost and service level, HCL would be penalized. This was a unique commitment compared to HCL’s competitors—one that could only be made if HCL was confident in its execution processes.”

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Wilson also noted that HCL was willing and able to flex its resources to meet his company ’s changing demands. HCL took Cummins global as fast as it could, for instance, soon supporting Cummins in eight languages from HCL’s help desks in Poland, India, and Ireland. Transforming from Customer to Marquee Customer By now, Cummins has been a benchmark customer for HCL for several years. That relationship shows just how valuable a Marquee Customer can be. Says Wilson: “ This has been an overwhelming success for HCL. At Cummins we pride ourselves on being a very open environment. We share our wins with other companies. Integrity is one of our big core values. So when we have been asked to visit or entertain possible customers for HCL, we openly share our journey with them, in two- or three-hour sessions. And when other potential HCL customers visit us here, they quickly pick up that we are not trying to sell them anything; we just tell them the facts about our success story with HCL. In this manner, my own bottom line is this: HCL is a company truly committed to success and technology, and it has a vision and leadership that matches well with Cummins’ direction.”

Essential #4: Leverage Big Brother Alliances for Breaking into New Markets As a company executes its growth strategy, it will inevitably find gaps in its portfolio of products or services. Filling those gaps with premier brand alliance partners not only expands the business, but enhances its value proposition and credibility with Marquee Customers. As HCL’s Infrastructure Services Division won larger and more complex deals, for example, customers demanded integrated solutions that it did not have. These included data center hosting, desktop support services, and the capacity to manage thousands of office printers. Infrastructure Services Division’s first global alliance, with SunGard Systems, supplied its customers with hosting and

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business continuity services. Another alliance, with Unisys, made desktop outsourcing possible. An alliance with Xerox, meanwhile, provided print, copier, fax, and scanner services. These alliances gave HCL the ability to offer industry-leading services and a one-stop shopping value proposition. Why did these top companies partner with HCL? Simple: to establish partnership alliances (rather than subcontracting relationships) and to give customers the benefits of a combined services offering at a level of quality that had won HCL high marks for customer satisfaction. Nayar ’s team also focused on partnerships that created Influence Zones. HCL convinced the top consulting firms— McKinsey & Company, TPI, and Gartner—that customers had unmet needs and that HCL could offer unique ways to provide them. Nayar also created alliances with Microsoft, Cisco, and SAP. He said with a smile: “We had often asked our partners if they were in the business of selling tools. Wrong idea. Instead, we started to say, why don’t you collaborate with us to use your tools to provide services on a revenue-share basis? For example, we approached Cisco and asked if we could jointly provide services to manage Cisco’s networks for telecom carriers. This would deliver increased visibility on bandwidth utilization, application response time, and optimizing bandwidth. Working smart would improve their service levels and reduce their costs. Then we went to SAP and offered to partner with them on software implementation. All of this was so that customers could look to just one value zone for trust, transparency, and flexibility.”

Through this steady partnering with suppliers, influencers, and customers, HCL was able to get its partners to describe the benefits of the Value Zone to new customers.

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Explains Nayar: “Mobilizing everyone you work with to sell for you—that’s the secret to becoming an exceptional growth company. For every one of our HCL salespersons, we also have 100 partners directing customers to us. A 100:1 effect. That creates a sales force that is nothing less than industry shaping.”

Essential #5: Become the Masters of Exponential Returns Blueprint companies balance revenue growth with consistent earnings and, most important, cash flow. HCL had succeeded at that over the years, with a significant share of cash reinvested in the company to fuel future growth. How does one balance cash flow with growth investing? “Our fundamentals are built on profitable customer relationships and profitable business units,” says Anant Gupta. “We are growing at 60 to 70 percent of a larger base. So the investments that we continue to make need to be made 12 to 15 months ahead of time. Instead of building infrastructure in advance for 500 people, as we did then, we now build it for 3,000.” Nayar adds: “The first step is to invest to the level your company can afford. If you can write off $10 million, then invest only $10 million. If you can write off $100 million, then limit your investment to that level. For instance, when we started our investment in Remote Infrastructure Management, we had only $10 million of capital. So we said, ‘If we don’t see growth by a defined milestone, then that’s the end of it!’ Every one of our business plans has what I call a Death Date. By the time the Death Date is reached, the concept must be proven, and revenue should be visible—or we kill the project and write off the investment.”

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HCL’s Remote Infrastructure Management is charting its own path to a billion on the six-year trajectory, thereby demonstrating that the company can successfully build billion-dollar business units.

The second step toward balancing revenue growth with consistent earnings, says Nayar, is creating passion for the idea. “Any idea can be made to work. You have to come to India to look at the hawkers on the street; or to see how wireless messaging services are being used by the fishermen on the coasts of India to find the best price for their catch. Or how mobile phones are being used by farmers to find out where best to market their produce. In contrast, when you have an executive who is only worried about his bonus, he will not be absolutely focused on making the brightest ideas work.”

This might sound strange or, alternately, self-evident, but it has been proven to be true. Third is a strict regime of financial reporting and corporate governance. Says Nayar: “My belief is that money in the hands of the shareholders generates the highest return to investors. That means that the shareholder invests in a company to get in excess of 10 to 30 percent per annum. So, to keep shareholders’ money on your balance sheet as cash is a sin because if you have excess cash in your balance sheet, you should return it to the shareholder.”

Fourth is leverage. In Nayar ’s words: “The concept of leverage is to not go into significant debt; debt is largely an American concept. Our concept of leverage is shaded depending on the opportunity—in other words, borrowing versus the returns that you can achieve.

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Since companies in India can borrow in U.S. funds at 2 to 3 percent and deposit in India at 10 percent return, we would be wise to leverage our balance sheet. By the way, this is still true in our current global economic crisis. If you have a business plan, look at the cost of borrowing versus the cost of interest that you can get on the excess funds and make a leverage decision. Obviously, don’t overleverage your company. That could cause it to fail if the project fails.”

Essential # 6: Practicing Inside–Outside Leadership—Corporate-wide HCL management focuses on dynamic duos or what it calls dynamic duos in a box. This means that HCL embraces the Inside–Outside pair concept. It’s relevant not only for top management; rather, it is applied throughout the entire organization. In the case of HCL, CEO Nayar is Mr. Outside. Mr. Gupta, meanwhile, is Mr. Inside (see Figure 8.1). Nayar says: FIGURE 8.1

HCL Technologies’ Inside–Outside Dynamic Duo: Anant Gupta (left) and Vineet Nayar (right)

Source: HCL Technologies.

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“Our entire structure is based on dynamic-duo pairs. This creates what I call alternate structures, meaning that even with different reporting relationships, Inside–Outside pairs can be formed with complementary skill sets. Anant and I are really different, for instance, but this is beneficial. He comes from an R&D [research and development] background. He can visualize technology trends a million times better than I can. To complement him, I focus on external essentials, such as alliance and customer relationships.”

Unlike some companies, HCL replicates this Inside–Outside Leadership throughout the organization. In the Infrastructure Services Division, for instance, R. Srikrishna, Executive Vice President of Sales plays Mr. Outside, while C. Vijay Kumar, Senior Vice President of Delivery and Operations, is Mr. Inside. The secret to Srikrishna’s and Kumar ’s success is not only that they do their own jobs extremely well, but they have also spent time in each other ’s jobs—enough to trust the other to know what he is doing. In terms of organizational structure, HCL is even organized so that Inside–Outside pairs report to other dynamicduo pairs. To ensure success, the company makes a point of finding complementary pairings. HCL’s pairings focus encourages teamwork. “We are quick to appreciate what each person brings to the table,” says Kumar. “There is a careful balance. And while any person may be called upon to do another ’s job, the culture is built on trust and respect for the role that people do, in fact, assume.” In the end, it’s the results that count. Kumar explains: “Senior leaders have a common goal, which brings a lot of synergy in how we work together. While each ‘yin and yang’ pair is typically evaluated on six metrics (sales, sales growth, profitability, service quality, customer satisfaction, and continuous improvement) the relative weighting varies. Customer sales are more highly weighted for the

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outside executive, for instance, while delivery satisfaction is more highly weighted for the delivery leader.”

What makes this organization work so well? A culture of mutual respect across leadership, recognition of what each person contributes, and the fact that many of them have worked together for a long time. A culture of transparency, down and across the organization, Kumar emphasizes, builds a culture of interaction that drives effective teamwork. This all makes sense for long-term players, but does the introduction of external talent change things? Kumar, Mr. Inside, explains: “We recognize that newcomers face leadership challenges. But we also realize that we will limit our growth if we do not spend the mentoring time necessary for our newcomers to be successful.” An Extended Family All of this camaraderie sounds too good to be true, but it isn’t. There is a family component to HCL’s pairing management approach, especially since relationships often extend beyond normal 9-to-5 office hours. “ We often support the other person’s extended family, especially in times of trouble or illness,” explains Gupta.

Essential #7: The Board Balanced with Essentials Experts As with other Blueprint Companies, HCL’s Board of Directors is not dominated by investors and management team members but balanced with Essentials Experts. In HCL’s case, six of the ten are from independent companies. Two have accounting backgrounds. One is an IT entrepreneur who has grown IT companies from scratch, with failures and successes among them. Another has a call-center background. HCL wants its directors to ask tough, probing, real-life questions, and the management team gets them.

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he odds of reaching $10 billion are, indeed, similar to what it takes to achieve the first billion. Only 5 percent of America’s billion-dollar companies have succeeded in the climb beyond $1 billion to $10 billion in revenue. In considering the next leg of the journey, Nayar does not bother weighing the odds. “While investors tend to measure success in financial terms, $10 billion in revenue is not our goal,” he says. “I believe we will automatically get there, not because we plan to get there but because of how we conduct our business. Besides, I don’t want us to be known for our size. I want us to be known for the value we create for our customers and for our employees.” What does it take to continue exponential growth beyond a billion? “First, focus on value-centricity, as opposed to volumecentricity, which I believe is a contrarian view,” Nayar asserts. “I have always told my people that if you want to focus on volume-centric ideas that do not create significant value for customers, don’t even walk into my office. At HCL, nobody gets excited because of the size of this business. It’s quality and service to customers that counts.”

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Nayar continues: “For example, there is a very small business unit within HCL that is creating rave reviews because it has developed a very innovative tool that automatically maps all the customer processes along with the software applications and infrastructure layers onto a piece of paper. This innovation immediately demonstrates the tangled web of processes and systems customers are trying to run their businesses with. The revenue of that division is less than $50 million, but they were nominated as the best business within HCL Technologies, and won all awards hands down. My philosophy is that the only way you will succeed is by taking a contrarian view of the market, and then executing on that point of view extremely well. That’s the first, well, essential for success.”

The second fundamental part of continuing exponential growth beyond a billion, he shares, is to stretch the envelope of trust. “Trust is often missing in business. People really do want trust partnerships. As the world is increasingly threatened by negative economic and political forces, trust will increasingly become the standard by which people form a relationship. If you are in the business of offering trust and if you can seriously say ’trust me,’ you are in the right place in terms of truly excellent business practices. So HCL stretches the envelope of trust, by being flexible, and above all, transparent in its dealing with its people, customers, employees, and shareholders.”

Third, for HCL, is emphasizing the Employee First initiative. “Only the Employee First Value Zone will lead us to explosive success,” states Nayar. For example, the company recently

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made the largest acquisition in the information technology industry, paying $700 million to acquire Axon, a British firm with 50 percent of its revenues coming from the United States, Australia, and China. “The reason the integration has worked very well,” says Nayar, “is that first we respect the employees. We respect who they are, what they are, how they work; and that respect allows us to grow because these employees perform at an exceptionally high level. Trust creates that.” The fourth part of continuing exponential growth beyond a billion is disruption in the value proposition. HCL believes that remote infrastructure management, which it helped create a few years ago, must go through another level of disruption. In other words, last year ’s value proposition is already out of date. It is evolving again to stay ahead of customer requirements and the competition. For example, HCL set up a help desk operation in Raleigh, North Carolina, which is staffed by U.S. employees to complement offshore solutions with onshore ones. Fifth is pursuing new markets. Nayar says that while HCL has targeted the total IT outsourcing market, “We keep looking for what is new in such regions as Continental Europe, and what is new are such recent business models as global delivery.” To that end, HCL is looking forward to changing its business model to one that emphasizes revenue sharing. “In that way,” he explains, “we can share the risks and rewards with our partners and customers.” For example, when a customer buys a Cisco product or a security product from Computer Associates, HCL receives a royalty.

Continually Evolving the Blue Print Blueprints are made to evolve, and the HCL Blue Print of 2005 is doing just that. The new Blue Print is expansive and modular as it is redrawn to adapt to HCL’s expanding global marketplace. Nayar grows passionate as he describes the future of the outsourcing IT industry.

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“The outsourcing market will be anywhere between $25 billion and $28 billion in expenditures by 2012. If you look back about 18 months, we had only two chapters—one was Applications Software and the second was Business Process Outsourcing Services. Many people thought infrastructure management was one of these two. But it isn’t. So we’ve created a third chapter called the Remote Infrastructure Management chapter, which is creating new opportunities, navigating with many industries on security and compliance. It’s a $100 billion industry with an offshore segment of about $28 billion. So that’s more proof that it’s a new industry, not even what it was three or four years ago. ”

He adds, “For the next decade, the Blue Print is our framework for exponential growth.” (See Figure 9.1.) Dialoging the evolution of HCL’s Blue Print with Nayar after a panel discussion on the 7 Essentials at the Harvard Club in New York, it became evident that Nayar was thinking the company could FIGURE 9.1

HCL Infrastructure Division’s (ISD) Growth Trajectory Revenue ($M) 1,000

12 Years

4 Years 6 Years

HCL ISD

0 ⫺10

Normalized Time (Years) 0

Source: Standard & Poor’s Computstat, Blueprint analysis.

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potentially face management bandwidth challenges as the services business model tends to be complex due to the high number of customized solutions. Taking the Blue Print to the next level, Nayar launched myBlueprint: an Employee First initiative to invert HCL’s Blue Print from the Office of the Chief Executive to empower Inside– Outside Leadership pairs across HCL to create their own blueprint growth plan for 2010 and beyond. Nayar explains the insights behind his innovative management initiative: “We took the first step to fix management bandwidth by implementing Inside–Outside Leadership across HCL. The reason behind utilizing this approach was to create a self-run, self-governing organization. Our leadership pairs could leverage their complementary skills to address common problems and make independent decisions. As a result, we were more productive than a hierarchal system. The next challenge was to create a planning mechanism for these pairs. I kept asking a most critical question, ‘What is the evolution beyond self-governing Inside– Outside Leadership pairs?’ The answer is myBlueprint. These pairs are being challenged to grow beyond self-governing to self-planning. myBlueprint is creating a new paradigm for business planning: for Inside–Outside Leadership pairs to create their own myBlueprint and review it with pairs around them. These 360 degree reviews provide the opportunity to leverage the Inside–Outside Leadership community—innovators (inside), account managers (outside), delivery managers (inside)—to incorporate their ideas into an ‘open book’ myBlueprint plan. The community helps me think through the plan, learn from the best and lead closer to customers.”

To simultaneously initiate more than 300 myBlueprint plans globally across HCL, Nayar faced management and information

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systems challenges. First, there were four necessary ingredients critical to enabling this process: 1. An organization structure based on Inside–Outside Leadership pairs 2. A culture of openness where colleagues add value rather than compete with one another 3. An Employee First initiative that empowers teams 4. A CEO comfortable with the use of social networking tools Second, the corporate IT function had to support the latest social networking tools to enable teams to share their plans across their 360-degree community. Finally, Nayar insightfully points out that leaders not open to feedback and sharing their plans tended to correlate with underperforming units. A unique advantage of the myBlueprint process is that plans are recorded not just for sharing but for the CEO to review and provide input. Nayar personally reviewed each of the 300 plans to provide his perspectives, suggestions for improvements, or endorsements. As a result, the value of CEO and management reviews shifted from “I have no value to add” or “Let me summarize the plans” to adding perspective on how to help leadership pairs improve their blueprint. Nayar shares his excitement for myBlueprint: “The summary of all 300 myBlueprints is the CEO’s myBlueprint, which becomes the company’s Way Forward. I called this process myAnalysis and The Way Forward to represent the direction the company should take based on a summary of all of HCL’s myBlueprints. We now have a new HCL Blue Print derived not from the CEO, but based on all of the Inside–Outside pairs who reside in the value zone close to our customers.”

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Sustaining global leadership and influence requires leading change. HCL’s Blue Print events are transitioning to a culture of social networking of myBlueprint growth plans. Nayar shares his perspective on this breakthrough management technique: “You have to recognize that Facebook and Twitter are now integrated into the corporate culture as the place where outstanding thought leadership and communities share insights and communicate. As corporate leaders, we have a new choice: We can let our best resources communicate outside our walls or integrate social networks to enable teams to collaborate in ways you could not imagine. I believe in five years, Inside–Outside Leadership pairs combined with social networking will create the ultimate self-run, self-planning organization. Leaders will be defined by the followership they earn because others want to follow, not the power of protecting information or being the CEO or group leader. They have a plan that makes them accountable to one another and the customer, not just the company. Everyone wins.”

The Long View: Growing through a Recession No doubt about it, the 2009 downturn dramatically slowed growth for most companies around the world. Is that entirely bad? Through the lens of its Blue Print, HCL sees opportunity in economic downturns. During the economic downturn of 2001 to 2003, for instance, HCL saw that many of its competitors had locked their IT customers into 7- to 10-year contracts that they could not easily adjust or exit. That’s where HCL saw an exceptional-growth opening. If it could write its contracts with flexible provisions, so that the customer could better manage through these downturns, HCL would have a service that customers would prefer to buy.

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For HCL, the global economic slowdown doesn’t signal the need to step on the brakes. Instead, Nayar believes the way out of the recessionary times into the recovery phase is in aggressively increasing investment, opening new offices, and offering new services. This may sound counterintuitive, but it’s not. It’s wise business practice. To be sure, Nayar believes, the IT sector will feel pain in the short term. Slower growth can be anticipated. In the medium to longer term, though, he believes that HCL is just the medicine for exceptional growth: HCL’s services can reduce cycle times and take hundreds of millions of dollars out of business operations. Based on that belief, HCL has signed more deals than ever before over the last few quarters. And, Nayar believes, HCL’s growth will continue into the next decade. He explains: “At HCL, we do not look at the short term. If you are in a car race and you see a bend in front of you, which is what we are seeing now, you do not know whether there is a road after the bend or a dead end. A typical, bean-counter CEO would step on the brakes because he believes there is a 50 percent chance that there’s a dead end around the bend. We believe we are on a racetrack and we should position ourselves to accelerate out of the curve. At HCL, we look back at the companies that emerged successfully from recessions, and we found that those companies that wisely invested their cash, selectively executed mergers and acquisitions, and actually stepped on the gas were the companies that were the leaders in the next growth cycle. So we are stepping on the accelerator. We are investing more than ever before. We are increasing our sales headcount. We are reaching out and opening new offices. We are adding new services that we hope will accelerate our pace of generating revenues. Our short-term revenues are irrelevant, because these will change in proportion to what our customers want to see immediately. But in the medium to long term, what I am hearing the customer say

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is ‘HCL, you are the answer to the problems I am facing.’ That is a wonderful statement to hear, and that is why we are stepping on the gas.”

■■■■■ Part Three Summary Key Points • HCL utilized all 7 Essentials by defining actions that align to each Essential. Particularly redefining higherorder benefits by focusing on the Value Zone; leveraging Marquee Customers such as Cummins Business Services to sell for HCL, and employing Inside–Outside Leadership pairs across the organization. • Vineet Nayar ’s focus on empowering employees to achieve growth defines HCL’s growth trajectory rather than the goal itself. He shows that focusing on the values and fundamentals for achieving compounding growth will prove successful over the long term. • HCL focuses on five values as a platform for sustainable growth: 1. Value centricity 2. Trust 3. The Employee First initiative 4. Disruption in the value proposition 5. New markets HCL is a testament to the fact that it is possible to define the values that will guide decisions and frame a growth blueprint. Unexpected Findings • Shiv Nadar, Founder of HCL, laid the foundation for another billion-dollar company by spinning out HCL

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Technologies. He established a “rare” track record of building multiple exponential-growth businesses. • Vineet Nayar employed a Blue Print metaphor as a visual to frame HCL Technologies’ growth framework. Utilize a similar visual framework to develop a shared vision and energize your team. • HCL’s plans or Blue Print is actionable, a corporate-wide process, and is continually evolving. Nayar focuses on empowering and seeking buy-in from all HCL employees to the Blue Print framework. He looks to each leader to be accountable to execute his or her portion of the Blue Print. HCL is a global leader that proves companies can develop and apply a similar Blue Print framework and leadership approach in order to fuel long-term growth. • Companies in Asia are applying the same growth fundamentals as America’s highest-growth companies. The 7 Essentials are universal and globally applicable.

P A R T

F O U R

A BLUEPRINT TO ACHIEVE HIGH GROWTH We Transform Insights into Ac tions You Can Apply to G row Yo u r B u s i n e s s

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he Space Shuttle is poised for launch at Florida’s Cape Kennedy. Mission control is checking all systems for liftoff. Fuel temperature and pressure are a go; navigational instruments check out; the crew is on board and the weather has cleared. All critical functions are being monitored. Three . . . two . . . one, and we have ignition. To break the bonds of gravity, the shuttle must reach a blistering speed of 36,700 feet per second, or 25,000 miles per hour. Every part of the system will endure unimaginable stress. While the trajectory to orbit appears smooth, the ride is buffeting. Once the critical threshold has passed, less thrust is required and the astronauts experience the pleasures of weightlessness. The crew takes on many of the functions of mission control. The team on the ground takes on a new role: flight tracking, systems monitoring, and proactive planning to self-correct in the event of deviations from the plan. We have heard the term “escape velocity” from Chief Executive Officers (CEOs) like Scott Kriens of Juniper Networks, who described his company’s early revenue growth as an experience that enables a fast transition from a small

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business to a business with a growth rate being propelled to achieve exceptional growth. Krien’s insight is typical of CEOs who describe their growth when they look back in history. Aruba Networks’ CEO, Dominic Orr, describes escape velocity using his brute-force and thoughtful speed analogy. Exactly how do you get your company in the best position to achieve the escape velocity of revenue growth and maintain a growth rate to achieve exceptional-growth company orbit? Whether you are a small or midsize business, at $1 million, $20 million, $100 million, or $500 million in revenue, the 7 Essentials are like the procedures and gauges in a space shuttle, the instruments to help your company rise steeply into the sky. They also map out the actions required when the weather turns rough and extreme turbulence occurs. Fortunately for you, these managerial actions are time-tested by America’s highest-growth companies during up and down market cycles. Let’s take a look at the time-proven actions that align with each of the 7 Essentials. At first glance, these actions may seem extremely hard to do. With some nimbleness and ingenuity on your part, plus effective feedback from customers, your management team, your board, your employees, and The 7 Essentials Scorecard, they are not difficult. I promise you! The best way to illustrate the application of the 7 Essentials, especially since you have been immersed in the HCL Blue Print, is to view an additional real-world case study: a small company approaching the inflection point. Although a lot smaller than HCL Technologies, it is following in the footsteps of HCL by applying the 7 Essentials as a blueprint.

Case Study: Advantage PressurePro Captures the 7 Essentials Advantage Early When high-growth companies or business units are small, they need help from a larger company to break into a new market and gain credibility with Marquee Customers. This

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type of asymmetric alliance relationship is what I call Big and Little Brother alliances—one in which a bigger company helps a smaller one by providing credibility in the market, offering market intelligence, and leading it to Marquee Customers. What makes these relationships work, however, is that they are mutually beneficial. Big Brothers also need Little Brothers to help them remain on the cutting edge of innovation and emerging markets as well as to fill portfolio gaps. Especially during a down economic cycle, large companies cannot invent everything. They will have defined portfolio gaps that need to be filled by smaller companies. Filling a portfolio gap in a distinctive way will create a highly valued and leveraged alliance relationship. Advantage PressurePro, which manufactures and markets after-market wireless tire-pressure monitoring systems for cars and trucks, is a 2009 case study in how leveraging Big Brother alliances is the cornerstone Essential that is fueling the growth opportunity of this small company. Phil Zaroor, Founder and CEO, tells how his small, private business is building a company no trucking company can live without—not even the U.S. government. Zaroor ’s Advantage PressurePro has billiondollar plans to put wireless tire-pressure monitoring systems on all types of vehicles, keeping the world’s cars and trucks rolling with optimal tire pressure (see Figure 10.1). Tire pressure? What’s the big deal? Optimal tire pressure is fundamental to gas mileage, tire wear, and safety. Though this company is small, it is getting, you could say, billion-dollar exposure. It has been on the cover of magazines and Zaroor has met with the Senate Democratic Steering and Outreach Committee, which brought together a cross-section of businesses and organizations investing in clean energy and helping to make America the engine of innovation in the twenty-first century. What is propelling this tire pressure company to grow through flat economic times (pun intended)? Zaroor ’s passion to understand, apply, and fully execute the 7 Essentials

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FIGURE 10.1

Phil Zaroor, CEO, Advantage PressurePro

Source: Advantage PressurePro, Jay Liebenguth.

is making the measurable difference for his company. Instead of inviting me to meet at the headquarters of Advantage PressurePro, located in a small town in western Missouri, Phil Zaroor invited my wife and me to dinner, along with visiting distributors from Russia and Poland, so we could spend the evening talking about his enthusiasm for the 7 Essentials and how they have set his company on an exponentialgrowth trajectory. Zaroor shared what he calls his “Essentials Perspective”: achieving exceptional growth, transforming

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from a small business to expecting to achieve $50 million at the inflection point within the next three years: “When we launched our business, we recognized that optimal tire pressure is fundamental to getting maximum gas mileage, lessening tire wear, and increasing safety. The transportation market (vehicles of all types) represented one of the largest markets in the world. Within this huge market, evaluating each market segment’s need led us to identify our first billion-dollar opportunity: Fuel, tires, and labor represent the three greatest costs for almost all trucking fleets, and we saw the potential impact that tire pressure has across each of these segments and their costs. We also identified that we had to create a product that could easily be installed on current vehicles as an aftermarket installation.”

The U.S. Department of Transportation states that because of low tire pressure, 2 billion gallons of fuel are wasted each year in the nation, 57 billion pounds of carbon emissions are released unnecessarily, and 58 million tires are scrapped prematurely due to uneven wear. These numbers are a testimony to the multibillion-dollar opportunity for Advantage PressurePro. Zaroor continues: “I interviewed some of the largest fleet operators to understand the higher-order benefits of correct tire pressure. We recognized the impact PressurePro could have when we heard ‘keeps our trucks on the move, saves roadway breakdowns; lowers insurance cost, improves safety; increases dependability; improves vehicle stability, handling and braking; assists in providing longer tire life; and lowers fuel costs.’ I have to tell you, that was a WOW for us. We also recognized that we could provide a unique set of benefits integrating our PressurePro product

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to telematics products—the ability to remotely monitor a vehicle’s health in order to provide greater efficiency and value during lean economic times.”

Being small yet striving to win a big market, Zaroor understands the leverage associated with partnering with Big Brother alliances. He leverages alliances on the supply side and the channel to market. On the supply side, General Electric (GE) makes the sensor chips that go into the Advantage PressurePro systems. Michigan-based Lextronix handles the company’s development and production. How did Zaroor identify GE as a potential alliance partner? He did his homework. “I knew GE was making a sensor of a different type than we needed. Most tire pressure sensors are inside the tire while we needed one that was on the valve stem,” he explains. He also knew that the GE’s sensor unit wasn’t anywhere near the $1 billion revenue mark it needed to reach to achieve the company’s goal of being number one or two in every business segment the company was in. “Our approach could provide the sensor business unit at GE the opportunity to close their revenue gap,” explains Zaroor. Zaroor ’s product strategy is to make the wireless tire monitor adaptors, which screw onto the valve stem of the tire, easy to install. The company has developed a wireless pressure monitor display unit for drivers that can be interconnected into third-party telematics products. This integration uniquely provides the ability to remotely monitor a vehicle’s tire pressure in order to provide greater efficiency and value during lean economic times. Zaroor complements his supply-side alliances with more than 30 affiliate alliances, such as with Square Rigger, a fleetmaintenance software vendor in Washington, and Transmobile, a Florida-based tech company that sells asset tracking applications. “Instead of hiring our own sales force, our partners integrate our technology into their own product lines,” Zaroor

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says. The result is hundreds of points of sales delivering highgross margins. It illustrates how filling a gap in your alliance partner ’s product line can form the basis of a long-lasting Little Brother–Big Brother Alliance win-win relationship, increase sales, and decrease the cost of selling and marketing. Hailing from a rural community in Missouri does not stop Zaroor from thinking about developing a global business. “Our telematics partners are becoming our Marquee Customers that are fueling our revenue growth. We are expanding globally and building markets in South America, Eastern Europe, China, and India, as well as expanding into new product lines and market segments to better serve their needs,” explains Zaroor. The 7 Essentials are creating leverage that propels PressurePro’s growth. Zaroor explains the positive interaction effect between the Essentials: “Our growth has opened interest from some of the largest distribution firms in the world—Marquee Customers that add to sales—allowing us to significantly increase volume and reduce pricing, thereby growing even faster. Best of all, our improving positive cash flow is enabling us to add to our sales, office and management staff, and support an aggressive new products program. Rather than being reactive, the management team can now plan and implement growth plans to assure long-term growth. Are we ‘Essentially Perfect’? By no means. We have yet to recruit our Board of Directors, which will include executives who have grown exceptional growth businesses, customers, and alliance partners so that we can create a balanced and more formal board of directors. We still have lots to learn, but we’re on a roll. We are now striving to hit the first level of success, $50 million in sales, which we expect to achieve by the end of 2011. From there, with guidance from each of the 7 Essentials, we intend to be a one billion dollar ‘small firm’ that can have a

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measurable effect on gas consumption, carbon emissions, and tire wear. By helping the environment in this crucial way, we are also contributing to the greater good, and that feels very good!”

Focus on Redefining the Revenue Growth Essentials Essential #1: Create and Sustain a Breakthrough Value Proposition The Essential that defines the foundation for every growth business is “Deliver Exceptional Value or Benefits.” Harkening back to the first Essential, these are values that truly differentiate your business proposition from others. They are benefits that make your product or service better in the eyes of the customer. While this sounds simple, it is hard to execute. Particularly during down economic cycles, customers redefine their needs and thus redefine the higher-order benefits they require. For example, there is a distinct shift in value based on time savings to value based on hard cost savings. During down economic cycles, customers are less tolerant of the hidden cost of just-good-enough quality and customer service. In the Advantage PressurePro case study, Zaroor focuses on the benefits of availability of resources, economics, and social responsibility to serve the greater good for our climate in terms of clean energy and wasted resources (tires and gas). Benefits have to be even more discernible and more quantifiable during down economic cycles as customers have more choices on which to spend more limited resources or capital— or they have more resistance to spending at all. One option customers can definitely choose is deferral. The lesson is clear: Do not underestimate the need to interview customers to redefine your “value zone,” as both Vineet Nayar of HCL and Phil Zaroor of Advantage PressurePro have done so successfully. While your company is innovating

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product and services, make sure you spend as much time and energy innovating in redefining benefits that the customer can readily feel. This means focusing outside-facing executives on interviewing customers and assessing competitors. Since customer needs do change, or at least the way they articulate their needs changes, it is essential to the success of your business to keep redefining your products, services, and company’s higher-order benefits. In order for you to speak effectively to your customers in the new language of what it takes to offer higher-order benefits during recessionary cycles, be a very good listener and try, as best as possible, to realign your business goals with their needs. Bend your research and development and investment strategy to what they want. Are You Redefining Your Higher-Order Benefits through the Lens of the Customer? Let your customers tell you what higher-order benefits you should be delivering so that you can redefine your value zone. Listen very carefully—and use their rationale and language to market similar benefits to other customers. Focus on what I like to call the “experience” benefits. We found that benefits are grouped by product/service, location, and experience. Just as Starbucks declares itself the “third place” (after home and work), offer experience benefits that integrate your business with that of your customer. Try streamlining the processes between your business and your customers in order to reduce the cost of doing business with one another. Watch how other leaders in your industry and other industries reduce costs and incorporate their best ideas. Testing your company’s higher-order benefits with alliance partners is another key source of market intelligence. As we witnessed with Advantage PressurePro’s Big Brother alliance partners, filling a defined portfolio gap in a unique and highly valued manner creates significant opportunities for exposure to new market and geographic segments.

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Where Are the Opportunities to Extend Your Benefits? Especially during down economic or market cycles, take the opportunity to broaden your product line to capture a greater share of the wallet from your customers and to secure new customers in new markets. This period is a wonderful opportunity to leverage partnerships or execute targeted acquisitions to fill your company’s portfolio gaps or, as illustrated by Emulex, create partnerships for your Plan B—Innovate to a Billion. Broadening your product line will provide growth opportunities as your best customers desire to spend more with you. The broader offering can appeal to a wider set of potential customers. Can You Test and Invest Efficiently and Quickly? Innovate fast; then test. Take a slice of your innovation investment and quickly prototype product line extensions, enhancements, and new products. Test them with customers. As we heard from Dominic Orr, CEO of Aruba Networks, utilize the lens of the customer to get feedback early. Make second- and third-iteration improvements fast. Focus on brute-force speed. Utilizing speed to your advantage will optimize investments and enable you to quickly incorporate customer feedback in order to maximize perceived value. That is how you will find your next growth opportunity during a cycle when customers are redefining their needs. Utilize Orr ’s parable of thoughtful speed to identify the next big opportunity: Move fast, but slow down to pay attention to insightful customer feedback. Going too fast and not paying attention may cause you to miss your billion-dollar opportunity. Keep a balance between brute force and thoughtful speed. Move That Revenue Growth Boulder Achieving consistent revenue growth is a top challenge during rough times. It is the number-one boulder, applying Orr ’s parable that separates a failing company from an exceptional growth one. How do you improve your customer demand and find new customers

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without overinvesting in sales and marketing? There is a lot to execute, so don’t panic. Utilize a divide-and-conquer strategy. Essential #2: Exploit a High-Growth Market Segment Can You Redefine the Market Segments Your Company, Product, or Service Is Targeting? Like Phil Zaroor, be voracious in getting information. Scour the news, contact appropriate governmental agencies, read reports, interview a lot of leading customers to assemble an insightful market-segment perspective that identifies an opportunity gap defined by redefined customer needs, willingness to buy, higher-order benefits, competitive advantage, and your ability to serve this opportunity gap. Prioritize and focus on the segments that are large and easier to execute. While this may sound somewhat strategic, it is actually a pragmatic digging for insights, networking to know, and assessing your ability to capture a problem-solving process that requires time and attention. The art of this process is being able to make significant decisions with enough information during periods of higher uncertainty. How Is Your Company Expanding to New High-Growth Market Segments? To expand your market, move into adjacent market segments or geographies. For instance, Under Armour diversified from high-performance shirts to a greater range of sportswear, such as jerseys and shorts and sportswear for women, and is now introducing a new line of running shoes. All these moves further leveraged the company’s core innovations and pushed it toward its billion-dollar-revenues goal. Sales and marketing costs are typically the highest costs incurred in most business models. To avoid overinvesting in order to grow, leverage Marquee Customers to sell for you, and leverage your Big Brother alliances to break into new markets. Essentials #3 and #4 are proven initiatives you can use to help your revenue growth prospects.

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Essential #3: Utilize Marquee Customers to Fuel Exponential Revenue Growth Can You Leverage Your Best Customers to Advise and Sell for Your Company? Form a Customer Advisory Council with your best customers. Companies that grow in down markets let their customers draw their road map, define their higher-order benefits, and even sell their goods and services to other customers. The advisory council is the ace up your sleeve, particularly in down markets. Those great customers of yours will be an invaluable extension to your management team, marketing team, and sales force. They are your biggest fans so make sure you take advantage of their innate enthusiasm. There is something downright economical about doing that! Essential #4: Leverage Big Brother Alliances for Breaking into New Markets Can Your Company Fill a Critical Portfolio Gap for Your Big Brother Alliance Partners? Particularly during down markets, large companies cannot innovate fast enough to fill all the

Three Focused Steps to Launching Your Customer Advisory Council I conducted a 7 Essentials Workshop with a group of 80 companies, hosted by the Entrepreneurs Organization in Houston, Texas. It was determined that the most beneficial initiative for this group was launching a Customer Advisory Council. Here is a simple list of steps to get started. Step 1. Identify a handful (typically fewer than five) of your best customers who are forward thinking, well respected in their industry or markets, and with whom you have a trusted relationship. Start with a simple list of three to five customers with a priority on quality versus quantity. Do not forget to create a list of complementary versus competing customers.

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Step 2. Meet one on one with each customer. a. Ask them if they would mind helping you to redefine the benefits your company provides in their own terms. b. Problem-solve with them to define a road map of future products and services to meet their future needs. c. Have them consider selling for you by speaking at industry forums or trade shows, writing press announcements, or speaking to other potential customers, as Verne Wilson, executive director of Cummins Business Services, does for HCL. If you are nervous, please trust me on this: These customers are your best friends, have your best interests at heart, and, particularly during these times, want to help! Just ask. Step 3. Start a simple and focused meeting, typically quarterly, with a focused three-part agenda: a. Benefits: Redefine customer needs along with the benefits your company delivers. b. Roadmap: Define a multiyear (or multimonth, depending on your time horizon) road map that describes how you can meet their product and services needs going forward. c. Marquee Customer marketing: Discuss how to leverage your best customers to market and even proactively sell for you. A discussion can vary from offering testimonials at trade shows to hosting potential customers, following in the footsteps of the HCL-Cummins Marquee Customer relationship, or just having an agreement that if they call associates, you will personally and immediately follow up. It is important that you keep your Customer Advisory Council members updated on progress and demonstrate how you incorporated their advice into redefining benefits, actions, and new products. Promotion is a twoway street: The company “sells” for the customer while the customer is selling for the company. Often, co-advertising and public relations campaigns emerge from Customer Advisory Councils. Once you have launched this process with a few customers, add new members from different geographies and market segments to your Council’s membership. This initiative will propel your top-line revenue growth, with a profitable margin, all for the cost of a working lunch or dinner. Though it seems like common sense, it is rarely executed.

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gaps in their portfolios, especially in placing bets for emergingmarket services and products. Smaller companies can help them out with a unique value proposition. Utilize your Marquee Customers for an introduction! Alternatively, you can leverage alliances to expand globally. Set up partnerships with in-country partners to expand your available market. Optimize for Profitability and Reinvest Without profits to reinvest, a company cannot achieve sustainable revenue growth. This is particularly true in uncertain economic conditions. Here again, three Essentials will drive profit and cash flow performance: Become the masters of exponential returns by becoming cash flow positive early; utilize a dynamic duo of Inside–Outside Leadership to execute the internal and external Essentials; and balance the board of directors with Essentials Experts. Essential #5: Become the Masters of Exponential Returns Are You Enabling Your Business to Serve as a Growth Platform? To maintain cash flow during perilous economic times, it is easy to cut costs across the board. Successful leaders use a systems approach to optimize their business. They may streamline processes, reduce headcount in selected areas, and invest in systems and information technology infrastructure to optimize the business supply chain, customer management, or market intelligence system. By optimizing the business rather than reducing costs, they create a platform on which new products and services can be rapidly introduced to fuel additional growth. Thinking of your business as a system is a key to determining the suite of actions to take. Essential #6: Practice Inside–Outside Leadership Do You Have a Dynamic Duo Leading Your Company? Focus either on recruiting to satisfy this need or formalizing

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Inside–Outside Leadership. In many cases, I found the pairs implicitly exist in a company, but an explicit discussion is required to clarify roles and trust. Alternatively, as in the case of Emulex, recruiting an executive is required. What Is the Role of the Outside Leader? The outside executive, typically the CEO or Executive Vice President of Sales and Marketing, should be traveling 30 to 50 percent of the time forging innovative alliances and creating increased customer demand. Remember the way Vineet Nayar, Mr. Outside of HCL Technologies, took to the road to reenergize his company’s growth? During down cycles, the outside role is especially critical even to make the next million. What Is the Role of the Inside Leader? The inside executive, typically the COO, VP Operations, or Chief Financial Officer, serves as the other half of the dynamic duo focusing on the internal operations of the business. The inside executive works with the outside leader to break problems and opportunities into manageable pieces and execute them. This leader is key to linking the Essentials and is critical to achieving leverage. For example, linking the engineering team to meet with Marquee Customers, optimizing systems and processes to deliver higherorder benefits to customers, and leveraging positive cash flow to reinvest in new products and infrastructure in order to grow.

Essential #7: Balance the Board with Essentials Experts: Customers, Partners, and a Growth CEO Is Your Board Balanced with Customers, Partners, and a Growth Company CEO? In our research, we found that companies with Boards of Directors dominated by investors and management team members tended to struggle in the long term. So fill your board instead with customers, alliance partners, and

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a CEO who know how to lead a company to achieve exponential growth. These members will balance short-term profitability demands with longer-term interests. In short, is your board balanced? If not, this is a great time to establish a board that will better serve you as you navigate especially rough financial waters.

The Bottom Line Regardless of your circumstances, you will need some combination of the 7 Essentials in order to make the right decisions. I come back time and again to a simple equation: Management Techniques ⫹ Reinvest in Infrastructure and Innovation ⫽ Sustainable Growth Company It takes the 7 Essentials plus Reinvesting in Infrastructure and Innovation to achieve consistent exponential growth. Reinvesting in new business systems and new products are prerequisites to achieving sustainable growth. Each aligns to the Essentials. For example, new business systems are required to manage large numbers of important customers. Though this may sound self-evident, it is amazing to see how many companies get it wrong.

Chapter

11

Build Your 7 Essentials Roadmap

T

o facilitate the application of the 7 Essentials to your business, I recommend a two-stage process: Step 1. Utilize the online 7 Essentials Scorecard to identify performance gaps. Step 2. Build your 7 Essentials Roadmap: a visual representation of the key action items by Essential along with the time frame for implementation.

In partnership with Visual Ink, a San Francisco–based innovative graphics illustration and creation company, we developed a series of colorful poster templates upon which management teams create their road map. The poster templates also allow users to include a summary of their company’s score for each Essential and what users think the target score should be at the end of 18 months. To illustrate, Figure 11.1 provides a 7 Essentials Roadmap based on a compilation of action items related to the company stories in this book. For example, Emulex immediately launched into redefining its segments and growth

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Hire Mr./Mrs. Inside

Develop Top Customer P&L Model

Form Customer Advisory Council

Consolidate and Define New Product Ideas

TODAY’S SCORECARD

Build Board of “Essentials Experts” CEO on Board

Develop Product Line/Market P&L Models

Upgrade Supply Chain

Interview Competitor’s Customers

Alliances with Use Marquee Little Brothers to Customers to Fill Portfolio Identify Big Brother Gaps Alliances

Redefine and Resegment the Market to Identify High-Growth High Growth Opportunities

Launch “Innovate to a Billion” Process

Source: Blueprint Growth Institute, Visual Ink. © 2010 Blueprint Growth Institute. All rights reserved.

INVEST IN INFRASTRUCTURE

7. BOARD OF ESSENTIAL EXPERTS

6. INSIDE/OUTSIDE LEADERSHIP

5. EXPONENTIAL RETURNS

4. BIG BROTHER ALLIANCES

3. MARQUEE CUSTOMERS

2. HIGH-GROWTH MARKET

1. VALUE PROPOSITION

BENEFITS

Illustrative 7 Essentials Roadmap

FIGURE 11.1

Leverage Board Members to Develop develop Alliances and Marquee Customers

Utilize Marquee Customer in Trade Shows

Invest in Two New Growth Initiatives

Form Growth Business Units

Upgrade Customer Systems

Scale Advisory Boards

TOMORROW’S SCORECARD

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opportunities focusing on the converged network. Jim McCluney recruited Jeff Benck as his Chief Operating Officer, or Mr. Inside, due to a need to focus on growth initiatives. Executing on this Essential enabled the Emulex team to restructure into a core business and growth business units. Advantage PressurePro accelerated the formation of its Customer Advisory Council, composed of dealers and truck fleet operators, to help define the benefits of wireless tirepressure monitors and to utilize software and communications to integrate them into truck fleet information systems. The 7 Essentials Roadmap enables teams to create project plans that define key initiatives along with determining the appropriate timing. To reiterate, use The 7 Essentials Scorecard to identify performance gaps and build your 7 Essentials Roadmap to identify and sequence actions by Essential. Linking the Essentials creates leverage and forms the basis for the 7 Essentials System.

Chapter

12

Insights to Actions

B

efore starting to build your action plan, you may be searching for actionable suggestions that will help you answer questions you may have. To get you started, here is an Insights to Actions set of actions derived from the insights synthesized from the latest research and interviews in this book. As you reflect on these actions, think about the case studies we have examined. Consider filtering these actions and developing your own, and then applying them to create your 7 Essentials Roadmap. For each Essential, I identified three actions you can take based on the insights from my research, findings from my many workshops, and the case studies in this book.

Essential #1: Create and Sustain a Breakthrough Value Proposition Take these three actions to transform your value proposition and create exceptional value for your customers. 1. Interview Your Competitor’s Customers Follow in Bassoul’s footsteps, the Chief Executive Officer (CEO) of Middleby, to interview your competitors’ customers

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to identify market trends, understand new business needs, and identify your company’s opportunities to serve new customers or regain the ones you have lost. Often the interviewer may need to be the CEO or another company leader who is not charged directly with making sales. Utilizing one of your company’s leaders communicates an importance to the interview, an orientation to a broad business discussion, and one that is likely to produce action. 2. Just Ask for Time to Listen It may seem intimidating to ask competitors’ customers to meet and discuss their insights. Just ask for time to listen. Bassoul has developed a unique approach on his pioneering abilities: “Prior to meeting, I simply ask, ‘I am here to make the industry better and would like to understand how to make my company better as well. Would you mind sharing your wisdoms and insights?’ I find customers are always flattered that I take my time to meet with them in person.” Two secrets to success: Just ask, and take time to listen in person. Bassoul adds: “I ask about trends in our industry and with their business. Without much prompting, I may hear that they did not buy our product for a couple of reasons: the local representative did not meet their expectations, our price was too high, or we lacked a feature. Designing new features can open a new set of customers for Middleby. For example, I learned that adding electronic ignition to our ovens opened up a set of new customers who turn off their ovens at night. I may also hear that my competitors’ customers are frustrated and desire to move to Middleby in the future.”

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3. Turn Feedback Insights into Action Whether you identify the need to form a Customer Advisory Council, add new features, or improve service levels, seek feedback that these actions will address the unmet needs you discover. Often, these actions do not require significant investment. Simple actions may lead to these customers participating in an advisory council or becoming a pilot for a new version of your product or service. Viewing growth opportunities through the lens of your competitors’ customers can be more important than listening to current customers. Capture the 1 ⫹ 1 ⫽ 3 effect by listening to your competitors’ best customers in addition to your own. Still need proof? Middleby has grown from $100 million in 2001 to over $650 million by year-end 2009. Bassoul’s company turned in a remarkable 30 percent growth rate through the 2008 recession and through year-end 2009.

Essential #2: Exploit a High-Growth Market Segment Apply the next actions to redefine your market opportunity.

1. Redefine a Stagnant Market by Identifying a Need Gap HCL’s Nayar demonstrates that interviewing customers can uncover a potential billion-dollar opportunity characterized by customers’ unmet needs. Bear in mind that customers often redefine their needs during periods of economic stress. Quality, trust, and flexibility became increasingly important to information technology customers in the wake of the 2001 to 2003 recession—so much so that, three years later, those needs were still unmet and offered HCL great opportunity.

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2. Reverse-Engineer Your Breakthrough Value Proposition (Essential #1) In order to transform a company’s growth, one does not necessarily need to start at Essential #1: Create and Sustain a Breakthrough Value Proposition. For example, HCL started with redefining the market, Essential #2: Exploit a HighGrowth Market Segment, and then reverse-engineered the value required in order to capture a redefined market segment. Periods of economic transition are the time to identify your next growth-market segments, even though markets may appear stagnant. Nayar framed the platform for this growth during the last recession by redefining the class of customers HCL would serve. HCL then focused on identifying significant unmet needs within the customer set it sought to serve. To turn these insights into action, HCL reverse-engineered these needs into the services that would deliver the exceptional value required. 3. Focus on Delivering Exceptional Value to a Specific Set of Customers as Your Market Opportunity HCL uses the term “Value Zone” to define the intersection of the value the company can provide and the needs of the corporate customer. Defining your market opportunity around your Value Zone can lead to redefining your market segment through the lens of a specific set of customers. Since economic cycle transitions often serve as an inflection point for changing customer needs, focusing on meeting new customer needs will enable you to insightfully identify a high-growth market segment that is underserved.

Essential #3: Utilize Marquee Customers to Fuel Exponential Revenue Growth To leverage Marquee Customers to grow your revenue, shorten sales cycles and reduce marketing and sales investments; and get started with the next actions.

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1. Form a Customer Advisory Council Apply a structured and disciplined approach to seeking customer feedback and advice. Form a Customer Advisory Council with a few customers. Set an agenda around three items: 1. Define the “exceptional value” your solutions provide to address your customer ’s unmet needs. 2. Define a product or solutions road map to solve future needs. 3. Discuss how your best customers can help proactively sell for you: talk at industry conferences, serve in testimonials, and spread the word to other potential customers. Deepening customer relationships is the leverage that separates exceptional growth companies from those that are struggling or are growing slowly. 2. Refine New Innovations through the Lens of Marquee Customers Get your new products out of the lab in order to seek early valuable feedback from customers. Refine new products and services through the lens of Marquee Customers. Problem-solve with your customers. Listen for missing capabilities and higher-order benefits. At times, customers can articulate a problem, but not know the most innovative solution. On the other hand, suppliers know innovative solutions, but may not be aware of the big unmet need. Success will be identifying a big unmet need for your customer and your customer identifying that your company can provide exceptional value that specifically addresses this unfulfilled need. 3. Leverage Marquee Customers and Marquee Influencers to Sell for You Marquee Customers are a unique leverage opportunity to spread the word and even sell for you. They sell for you when

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they discuss how your company is providing products or services that fill a big unmet need. Sharing their experience with other companies is more than selling; they are offering a credible, third-party testimonial that you cannot provide. Customers love to be sold by other customers. When this happens, your sales cycle time will be reduced by half, the cost of sales and marketing will be reduced, and your win rate will increase.

Essential #4: Leverage Big Brother Alliances for Breaking into New Markets To establish long-term, win-win partnerships to fill portfolio gaps, fortify supply chains, or break into new markets, apply these three actions. 1. Consider Alliances with Both Suppliers and Channels to Market Advantage PressurePro Zaroor ’s application of alliances with General Electric and Lextronix to both supply sensor components and provide development and manufacturing services is a great example of how you can search out alliances to create value for your company. Supply-side alliances provide Big Brothers the opportunity to participate in emerging markets, while smaller, faster-moving companies can leverage supplier credibility and capacities to secure large customer and market opportunities. This approach complements supply-side alliances and leverages market-facing alliances to address different market or geographic segments. 2. Align Long-Term Interests Before approaching a partner, whether big or small, it is important to do your homework to propose a basis for a long-term, win-win alliance. Identifying two Brothers, one in each company, is critical

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to developing a lasting win-win relationship. Rushing to sign an alliance agreement can be false security. Zaroor bases many of his alliance agreements on contracts after long-term discussions to align interests. Contracts are amended several times as the relationship evolves. 3. Leverage Your Marquee Customers to Introduce You to the Right Partner When I conduct 7 Essentials Workshops, I often hear that companies are struggling to find the right partner or contact within a large company. Yet they have Marquee Customers who are also important customers for potential alliance partners. Enlist help from your best customers to help introduce you to alliance partners. Your customers can clearly articulate the winwin-win relationship for you, your customer, and your future alliance partner.

Essential #5: Become the Masters of Exponential Returns Here are three actions you can take to become the masters of exponential returns, even during the most challenging of times. 1. Focus on Positive Cash Flow Performance Combined with Reducing Long-Term Debt The frog in water that is slowly warming does not jump out; it slowly boils to death. Likewise, management teams that manage a business that migrates to negative cash flow with increasing long-term debt is destined to fail: quickly in the case of Internet and tech companies, and slowly in the case of many ongoing businesses with significant history. If your business is cash flow negative with high long-term debt, your highest priority is to perform a thorough review of

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initiatives to increase gross margins and decrease all expenses. Focus on achieving positive cash flow during these challenging times. Although this is tough to do, it is imperative that your company join the ranks of the minority of growing and profitable companies. 2. Reinvest in Revenue-Growth Initiatives America’s highest-growth companies are reinvesting in new products and services to achieve revenue growth. These investments are highly capital efficient. Interviews with CEOs of these companies prove a different approach: “Fail Often, Fail Fast, and Fail Cheap” in order to find the billion-dollar opportunity. Look for early signals that a small business (unit) has the potential to achieve exponential revenue growth. Focus on the growth rate, not the size of business to measure success. For example, after the launch of Staples, founder Tom Stemberg knew he had an exceptional-growth opportunity when the store achieved year-four forecasts within the first twelve weeks. 3. Develop a Disciplined Process to Balance Positive Cash Flow with Reinvesting A useful technique applied by growth companies is to withhold 10 percent of the planned budget for growth initiatives. These management teams utilize this self-funded “venture fund” to fund growth initiatives. This process requires management teams to ruthlessly prioritize investments for the core business. When I work with management teams, the Chief Financial Officer often plays the role of the guardian of cash flow. The challenge is getting the team to trade off investments in one function against another all for the good of the company. This is when Inside– Outside Leadership techniques are most useful, which is

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another reason why you need to follow the actions of the next Essential.

Essential #6: Practice Inside–Outside Leadership Leverage Inside–Outside Leadership to make your leadership and organization teamwork much more effective and trustbased by applying the next actions.

1. Apply Inside–Outside Leadership to Your Company Here are a few symptoms that indicate that you may need an Inside–Outside Leadership pair: Do you feel guilty that you are not visiting customers enough or do you need to be in the office to handle operations? When you ask others to identify the Inside–Outside Leadership pair of your company, do they struggle? Do you have a trusted partner who complements you? If the answer is no to any of these questions, follow in the footsteps of Tractor Supply and Emulex to find your other half.

2. Build a High-Performance Culture Based on Trust Inside–Outside pairs build a culture of trust and open communications because they trust one another. If you are lacking your other half, build a complementary relationship with a peer, or if you have the option, try to recruit a peer to serve as your Inside or Outside complement.

3. Practice Inside–Outside Leadership Throughout Your Company Applying Inside–Outside Leadership principles is not just for the top two pair. It applies across a company and is a basis for organization design, metric alignment, and development.

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For example, HCL Technologies’ account executives (Outside facing) are paired up to a counterpart for delivery of outsourcing services (Inside facing). They share common metrics and objectives. There are more than 300 pairs throughout HCL globally.

Essential #7: Balance the Board with Essentials Experts: Customers, Partners, and a Growth Company CEO Balance investors and management with Essentials Experts: customers, alliance partners, and a CEO who has led a growth company larger than yours, by applying the next actions.

1. Balance Your Board of Directors Early Follow in the footsteps of Tom Stemberg and Tom James: Balance your board with CEOs, customers, and alliance partners to complement the interests of investors and management team board members. Whether your company is pre-revenue or on the way to $1 billion in revenue and beyond, a balanced board that brings experience to challenge the management team is an invaluable Essential.

2. Leverage Advisory Boards to Bring Deep Expertise Although they are not formal boards of governance, advisory boards are key to accessing deep expertise. For many later-stage companies, a Marquee Customer Advisory Board (Essential #3) is invaluable. To leverage advisory boards, make them small but highly talented and experienced. Host meetings regularly. Although this action may seem obvious, more than 80 percent of the companies in my workshops are not leveraging advisory boards with this simple, focused approach.

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3. Breathe Fresh Life into Your Board Especially during downturns and recovery periods, follow in the footsteps of Tom James: Renew your board or add to it in order to balance the perspectives of investors and management members. It is important to keep your board fresh with experiences and perspectives in order to challenge the management team to be the best they can be.

Chapter

13

The 7 Essentials for Start-Up Companies

A

ll growth businesses start small. Some of the most frequent questions from entrepreneurs who believe they have an exceptional-growth opportunity are: • Is there a Blueprint to $10 million? • Do the 7 Essentials apply when a business is a start-up? • Are the growth challenges of start-up and growing companies similar?

Good news! Recent findings indicate that there is a Blueprint for start-up companies. I am collaborating with former McKinsey & Company partner Eric Arnson, the Managing Partner for Originate Ventures, a private equity firm, to adapt the 7 Essentials to early-stage investing. We are applying a measurable approach to the screening, evaluation, investing, and post-investing phases. After performing more than 2,000 business plans and evaluations through a disciplined process, Arnson’s team has identified how the 7 Essentials can be tailored for start-ups. Arnson shares his top three insights on three of the 7 Essentials.

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Essential #1: Create a Powerful Value Proposition. We assess value propositions based on three criteria: does it address a deep, frequent, or changing unmet need? Then does the prospective company have a unique ability to deliver on that need? We painstakingly contrast the prospective company’s benefits to the competition. Specifically, we talk with customers to understand the “frustration” or “what’s not working well” with the status quo. We follow that with separate feedback on the new product or service. Customers are very candid; they have nothing to lose as they want a better solution. Simply put: truth. Essential #3: Fuel a Start-up’s Growth Through Marquee Customers. This essential is the proof point that validates that the powerful value proposition is indeed breakthrough. Importantly, a Marquee Customer must truly be marquee: one that is recognized and respected within their industry. For example, British Petroleum (BP) provided a defining testimonial for ProtonMedia, a virtual environment start-up that is a competitor to Second Life. A ranking member from BP’s Technology Group provided a compelling case study on how Proton’s virtual environment, ProtoSphere, was enabling BP’s exploration, drilling, and production teams to work virtually and globally. This enabled the formation of dynamic teams, from all over the world, that could interact, share, and collaborate by accessing specialized offices without experiencing delays or costs for travel. Bottom line: BP could clearly articulate the benefits and the importance of Proton’s virtual environments and was willing to actively share Proton’s breakthrough products at industry conferences and with other corporations. Essential #6: Utilize Inside–Outside Leadership. We endorse the importance of the Inside–Outside Leadership

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Essential so much that we will not make an investment in a company that does not have an Inside–Outside Leadership pair. We find the Outside leader is resourceful, networks extremely well, and can close a sale. This “selling CEO” has such conviction in their solution that they can be influential and persuasive with Marquee Customers. The Inside leader has experience at running the operation of a business and leading development teams to quickly turn an idea into an initial product or service. They are good listeners and can work with customers to quickly refine the initial offering. When there is only one-half of the dynamic duo, however, the founder/CEO is usually the “selling CEO.” They must realize they need an Inside partner—one with different, complementary skills—and be treated as a partner, not a subordinate. Sometimes that takes time, because the CEO must conclude he/she can’t do it all.

What is the breakthrough value proposition of the “Blueprint to $10 Million” to Arnson and his team? Arnson shares: “To generate superior returns as a venture investor, the trick is to utilize a disciplined approach to accelerate growth. We are utilizing proven methods to improve our odds of creating an exceptional-growth company. Why? Since a typical start-up requires three to five rounds of capital, eliminating one or two rounds significantly increases our return on investment.” Whether you are a start-up company, an angel investor, or a venture capitalist, applying a Blueprint and your 7 Essentials Roadmap early can improve your odds for success and accelerating growth—exponential growth!

P A R T

F I V E

A GROWTH CALLING We Le a r n Th a t G row t h Le a d e r s O f te n E x peri en ce a Grow th Callin g That Is D i s t i n gu i sh ed by Three Essent ial Leadership Pillars

Chapter

14

Identify Your Growth Calling

F

ield of Dreams, an award-winning 1989 movie, symbolizes the qualities and mind-set of the founders and leaders of America’s highest-growth companies. Ray Kinsella, played by Kevin Costner, is a novice farmer living in rural Iowa with his wife, Annie, and their young daughter, Karin. Walking through his cornfield, Ray hears a voice whisper, “If you build it, they will come.” He envisions a pristine baseball field built on one of his cornfields. Watched by incredulous neighbors and his supportive but skeptical wife, Ray plows under his corn and builds the field. As with Ray, when building a growth company, there are defining moments of doubt and near failure, yet definable proof points keep leaders on track. A year after construction, Ray and Annie are forced to consider replacing the field with corn again to stay financially solvent. Ray, talking to his brother-in-law, Mark, is told he will go bankrupt unless he replants the corn. Ray later hears the voice say, “Go the distance.” Mark arrives to try to convince Ray to sell the farm, as he and his partners want to purchase the mortgage. Karin assures Ray he doesn’t have to sell the farm, saying, “People will come” and pay to watch the ball games. It was said:

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“They’ll watch the game and it’ll be as if they dipped themselves in magic waters. The memories will be so thick they’ll have to brush them away from their faces. People will come[,] Ray. The one constant through all the years, Ray, has been baseball. America has rolled by like an army of steamrollers. It has been erased like a blackboard, rebuilt and erased again. But baseball has marked the time. This field, this game: it’s a part of our past, Ray. It reminds us of all that once was good and it could be again.”

Field of Dreams has inspired millions over the decades for its stories of being called, going the distance, and service to others. As the movie unfolds, it becomes the story of a man who believed in a good product—nostalgia—a desire to “feel good,” to revisit memories and the comfort of days gone by. The movie relays a higher ideal that applies to individuals, family, and the community. Ray kept true to his calling and took action—one step at a time. Like Field of Dreams and baseball, growth companies have made their mark on America’s Dream; they are the underpinning of what is good and represent the best in America. Having had a unique opportunity to interview, know, and work with numerous CEOs and management teams, I have found many of these exceptional-growth leaders discover and live their call to grow—a call to lead or be part of an exceptional-growth company. Others follow these leaders because they have an inspiring framework or Blueprint for growth and are willing to stand up for their core beliefs: to grow an exceptional-growth company for the greater good. Although leadership has been well-defined and studied, I have not found insights into the unique set of leadership fundamentals that profiles leaders of exceptional-growth companies. It is more than skills, integrity, motivation, and trust. Leaders have a calling to achieve what others do not see or envision. They actually realize a calling.

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With this calling and set of unique leadership characteristics in mind, I met with a number of leaders and asked them to label and define their calling and unique leadership growth skills. Would you believe, they were all speechless. Not one could label or even describe what I saw in them. This is the same effect I found when I identified Inside–Outside Leadership. Once it is defined, it is easier to recognize and communicate with others. On my growth journey, I have heard Richard Leider, a pioneer in the field of career coaching and a noted spokesman for the power of purpose, discuss the power of callings—not religious ones, often referred to as a Higher Calling, but those that occur in business. Leider shares his perspective on these growth leadership callings: “A calling is the inner urge to service in a way that makes a difference to somebody or the world. It is not about you but something much larger—it is a focus and a direction, like ‘Heading West.’ In contrast to a goal, there is never a completion to a calling. A calling, when it is truly embodied, gets you out of bed in the morning and gives you a reason to live life to its fullest.”

Where Do Growth Leaders Get This Calling? One thing is for sure: Growth leaders’ personal upbringing, family values, and career experiences all blend to prepare them for this growth calling. Their calling comes from an inherently spiritual concept that challenges us to work and lead from our deepest beliefs. These growth leaders are action-oriented problem solvers, take the long view, and believe in serving the greater good. They are humble, strive to continuously learn, surround themselves with the very best talent, and demonstrate honorable values. They come from different experiences: entrepreneurs, executives, inventors, university dropouts, scientists, and business builders.

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There is a definitive personal inflection point (not to be confused with a business inflection point) that creates a calling. I have found that three ingredients form the basis for a calling to create and grow an exponential-growth business: 1. Vision defined by proof points. A vision defined by proof points addresses concrete long-term needs and opportunities and provides the critical analyses that can prove or disprove an opportunity. Proof points define opportunities when others may view them to be counter to their core beliefs or provide visibility to an unrealized opportunity. Leaders exhibit an urgency to act in order to achieve the vision. 2. Confidence, values, and skills to act. Leaders of exponentialgrowth companies have the confidence, values, and skills to act. Their actions are often defined by a calculated risk assessment: balancing risk of failure versus success. They inspire and influence others whether they are team building, developing a new business, or problem solving. 3. Aspiration to serve others: customers, employees, and investors. Growth leaders have a value set that includes service to others: to change the world for a greater good, create a great place to work, serve customers, and generate great returns for investors. They do not work for “me” and “my financial wealth.” Although they do realize financial wealth, it is not the goal. They communicate a “we” attitude, not an “I attitude.”

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Essential Leadership Pillars

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re you being called to create, lead, or join an exceptionalgrowth company? If you are not being called, are you preparing for your growth journey? After much research and discussion with colleagues, we identified three Essential Leadership Pillars that capture the unique combination of leadership skills utilized by growth leaders. These three Essential Leadership pillars are PurposeDriven, Enterprising, and Service Leadership. Each is a critical component of leadership that facilitates the mastery of each of the 7 Essentials (see Figure 15.1). There is no better way to describe these pillars than the next three stories of how three exceptional-growth leaders serve as role models for each pillar. These leadership stories have inspired me.

Purpose-Driven Leadership During 2009, Staples crossed the $20 billion threshold and was still growing. In hindsight, the success of the first store was the defining moment that determined the company’s destiny: failed start-up or a multibillion-dollar global powerhouse.

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FIGURE 15.1

The Essential Leadership Pillars

Create and Sustain Exponential Revenue Growth The 77 essentials Essentials The The Big Idea

Enterprising Leadership

PurposeDriven Leadership

Service Leadership

Your Growth Calling

Source: Visual Ink, Blueprint Growth Institute.

Tom Stemberg founded, built, and opened the first Staples. No one came. How did he solve his billion-dollar problem? I had interviewed him for my first book and had the opportunity to discuss growth insights at the Churchill Club in Silicon Valley with him in early 2006. When everything is going wrong, it takes inner strength and confidence in one’s abilities to solve problems quickly and effectively and serve as an inspirational leader so that others can faithfully apply their skills and talents during tough times. I asked Tom Stemberg to share his Purpose-Driven Leadership insights into transforming a not-so-working business launch into a multibillion-dollar powerhouse. Stemberg said: “I founded Staples on three core principles: 1. Provide a one-stop shop for all of the products consumed in the office.

Essential Leadership Pillars

To assemble and run an office, small businesses and entrepreneurs had to visit the business machine dealer, the copier dealer, the computer dealer, the software store, and, finally, a grocery store for coffee. Our idea was to be customer focused, to put together all of the products that an office consumed under one roof, including services like high-speed copiers. 2. Offer everything at half price. In the mid-1980s, when I founded Staples, the office dealers published a credible price list from which everyone discounted between 10 to 20 percent. Our prices were 50 percent off published list prices—a price unheard of in the office supplies and services market. 3. Provide a convenient place to shop. Staples was a convenient place to shop, not just a convenient location but also expanded store hours. The typical stationery store hours were open 9 A.M. to 5 P.M., but entrepreneurs work early, late, and on weekends. We opened Staples from 7 A.M. to 9 P.M. and were open on Saturdays. Before we opened our first store, Todd Krasnow, our marketing lead, contracted Leo Shapiro Associates (a well-known research firm) to test our value proposition with potential customers. Most went, “WOW, unbelievable, too good to be true, and this is going to be great!” With market research results like this, how could we not believe this was going to an exceptional growth business? Todd launched an aggressive public relations campaign for the grand opening of our first store in Brighton, Massachusetts, May 1, 1986. First to arrive on our opening day was Bill Bain, our lead investor and founder of Bain Capital, who drove up in his Jaguar and bought a few hundred dollars of office supplies. Our landlord, friends, and family all came to shop. By

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the end of our first day, we recorded our first $16,000 in revenue. We felt pretty good. By the end of the second day, there were virtually no customers, and the third day was the same with no business. We were more than deeply concerned. We had built a store and no one came. What worried us even more was we couldn’t even pay people to come just one time; we called 50 prospective customers around the Brighton area and paid them $10 in advance to give us their opinion after they visit our store. Not a single customer showed up! After that failure, we realized we had to more than be concerned. We had to do some real soul searching. Meanwhile, we identified that the very few customers who did visit our store were absolutely blown away by the prices—50 percent off. Our handful of customers all shared the reaction we expected: “WOW, this is great!” Next thing we knew the new customer from Brighton told their cousin in Manchester, New Hampshire, to drive to our store to save 50 percent on office supplies. We quickly learned that if we could get people to the store, they were going to like it. Todd put together a marketing blitz to basically bribe shoppers to come just once. The most memorable ad was “The Bag of Goods.” We advertised a bag of a dozen legal pads, 100 file folders, 1,000 paper clips, and 12 Bic pens. The headline was: “List price $45, Staples every day low price $11.79, your introductory price, with this coupon, FREE.” It was amazing how many showed up to redeem this offer and see our everyday low prices firsthand. It was then they realized they were paying too much for office supplies, computers, and services. Not only did they come back, but they told all their friends.

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Once customers started coming to our stores, sales grew 15 percent week over week. By August, we were achieving sales of $100,000 per week, which is what we thought we could achieve by the fourth year. It was then we knew we had a real winner on our hands.”

The first $100,000 revenue proved to Stemberg that he had a winner. Just three years later, Staples became a public company with revenues of $119 million. Growing through the recession of 1993, Stemberg’s office supermarket exceeded $1.1 billion revenue. Growth did not stop there. Staples exceeded $10 billion in 2001 defying another recession in 2003, and another recession in 2008 to break the $20 billion revenue milestone mid-2009. Stemberg’s story is evidence that it is possible to prescriptively identify an exceptional-growth business early. If you have a winner on your hands, do not underestimate your growth potential.

Three Lessons You Can Apply When You Build Your Business and No One Comes According to Stemberg: 1. Always Go Back to Understanding the Customer We learned from customers that office products were an out-of-mind expenditure. People did not appreciate how much money they were spending on office supplies and services. It was only when we made it clear to them that they were paying way too much that the outrage of overpaying was ignited and they began to shop with us. When we figured out how to ignite their outrage, we used direct comparative slogans such as: • If you paid too much for your advertising agency, you might have gotten better creative. (continued )

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(continued ) • If you paid too much for your lawyer, you might have received better advice. • If you paid too much for paperclips, you are getting ripped off! We called small businesses and said: “If you would send us your invoice, we will analyze what you are paying. If you are not getting a good deal, you should be aware of it.” We would show them simple charges like paying $11.00 for file folders while we charge $2.99. That is when they would say, “ WOW. Hold on here, I am getting ripped off.” We not only identified the problem, we solved it with our solution. The challenge was we had to educate the customer that there was a problem. 2. Never Lose Faith in Your Ability to Solve a Tough Problem Quickly It can be pretty depressing being the CEO when things are not going right. I did my very best, outside of the top three people, to never share my worries. I could never show any doubt that we were going to be successful. While I knew we had done our homework to prove Staples could be a winner, we needed to quickly identify the marketing approach to capture the potential we knew was there. During defining moments, it is especially important to inspire your best employees. If they lose faith and leave, a new business can unravel faster than you can imagine. During defining moments, the team’s creativity, performance, and can-do attitude can make or break a new business. 3. Focus on Customer-to-Customer Marketing, not Advertising We learned that advertising is not as effective as customers spreading the good news about Staples to potential customers or just having articles written about Staples. The top reason our customers came to Staples was they heard about us from a friend. Then they drove by and were curious. Our publication or broadcast media kept us top of mind, which created more demand to drive by and check out the store. This then led to more customers telling others about Staples.

Stemberg is a distinctive Purpose-Driven Leader. PurposeDriven Leaders define a vision based on identifying and validating the quality, viability, and timing of their core beliefs.

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They have the ability to define opportunities when others may see them as illogical or are blind to the road ahead. Their steadfast commitment to a vision based on insightful proof points inspires others and provides a sense of assuredness. They exhibit a consistent drive and urgency to problem-solve and take action in order to achieve the vision. Stemberg is now a partner at Highland Capital Partners, where he invests in high-growth companies such as lululemon athletica, the Canadian yoga apparel company that has achieved more than $350 million in revenue since going public in 2006 with stores across North America and Asia. Stemberg, in his role as early investor and board member, has encouraged Chip Wilson, lululemon’s founder and CEO, to apply the lessons of the 7 Essentials. Lululemon has no marketing department and does not advertise. Instead, it builds relationships with yoga instructors and sponsors community races and events so customers can spread the word to other customers and see the products firsthand.

Purpose-Driven Leadership Qualities • Create a three- to five-year vision to serve as a runway for business growth. The basis for an exceptional-growth business can be years ahead of its time. Leaders of these businesses look out, beyond the quarter, to balance and align short-term, quick wins by investing time and talent to achieve long-term growth. • Define a vision based on proof points. A vision is not blind faith but based on an increasing number of fact-based proof points. Leaders of exceptional-growth businesses strive to identify insights, even if those ideas go against the prevailing wisdom of the masses. • Apply pick-a-path problem solving. With a vision of what the business can look like in the near and distant future, these leaders view problem solving as identifying the right path to achieving their goal. When a chosen path leads in the wrong direction, they fail fast and refocus on finding winning alternatives.

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Companies and leaders that excel in Purpose-Driven Leadership tend to excel in Essential #1: Create and Sustain a Breakthrough Value Proposition, Essential #2: Exploit a HighGrowth Market Segment, and Essential #3: Utilize Marquee Customers to Fuel Exponential Revenue Growth. These companies also recognize that no one leader can do it alone; rather, an Inside–Outside pair, a dynamic duo, is needed: Essential #6: The Management Team Should Practice Inside– Outside Leadership.

Enterprising Leadership As Thomas Friedman, author and New York Times columnist, regularly suggests: “America will need to invent, invent, invent in order to create the next wave of growth. We need to spawn more new companies. Thanks to the brilliance of entrepreneurs like Vint Cerf one of the founders of the Internet, Jerry Yang one of the founders of Yahoo!, Marc Andreessen the founder of Netscape, Sergey Brin and Larry Page the founders of Google, to name just a few, they transformed the Internet into an ecosystem of new billion-dollar businesses.”1 Looking forward to the next decade, are we on the edge of the next Internet-like innovation tsunami with smart-grid infrastructure? During his first six months in office, President Obama pledged to make major investments in infrastructure, including the construction of a new, national “smart grid” that “will save us money, protect our power sources from blackout and attack, and deliver clean, alternative forms of energy to every corner of our nation.”2 What will it take to invent the “smart grid” of the future? As with a telecommunications network, there must be a set of building blocks. The grid will have switches and routers to switch power from sources to where it is needed, storage to capture solar energy during the day and consume it during the night, and information communications to measure

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power usage. With a smart grid, the cost of transmission will fall significantly, providing magnitudes of capacity for new alternative energy devices and vehicles that will emerge. Consumers will monitor and even sell energy to the grid from their own solar panel arrays. Will new exceptional-growth companies build the infrastructure for the smart grid? Take a page from the founder of Juniper Networks, Pradeep Sindhu, a former Principal Scientist of Xerox’s renowned Palo Alto Research Center who, in 1995, left for a vacation and returned with a back-ofthe-envelope idea to build a high-performance router for the next-generation Internet. His Silicon Valley–based Juniper Networks is now a leading supplier of high-end networking equipment that routes Internet traffic across the largest Internet backbones: giant phone companies and Internet service providers that shoulder the majority of the Internet traffic. Juniper is regarded as one of the world’s best-managed and fastest-growing companies. Insights Based on Proof Points The timing of Sindhu’s insights was critical to the launch of Juniper Networks. During the 1995 time frame, Internet traffic was experiencing explosive growth, which was straining the capacity of current network elements or routers. In particular, the core of the Internet was constrained due to capacity limitations and there was growing demand from the telecom and Internet service providers for a next-generation core router. Exploding traffic was not the only factor driving change within the Internet infrastructure. Local area networks originally were built on the premise that computers from different manufacturers like Apple, IBM, and Sun Microsystems used different network protocols, which needed translation if the computers were to communicate with each other. The original research at Stanford University to build multi-protocol

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routers drove the founding and growth of Cisco. Along with exploding Internet traffic, an explosion of devices and Web sites were connected to the Internet. These devices were now high-speed computers that could utilize a new standard protocol, the Internet protocol (IP).

Opportunity Validated by Proof Points Sindhu believed that these changes to Internet traffic presented an opportunity to build a new Internet infrastructure. Being a scientist, he derived four proof points that validated his opportunity: 1. Since Internet traffic was doubling every six months, the current Internet infrastructure was becoming capacity strained. 2. In the long term, most Internet traffic would be computer-to-computer traffic. The new Internet protocol (IP) standard was optimized for computer-to-computer traffic and therefore was fundamental to the growth of the Internet. 3. Advances in optical network technologies were significantly reducing the cost of transporting Internet traffic over long distances. 4. The router, not the switch, was the right way to build a scalable Internet.

Making Calculated Bets Sindhu believed that if he could build a next-generation router, he would have a product that could uniquely solve the expected Internet capacity issues. Based on the rates of data processing needed, he believed this router would have to process Internet packets directly in specialized silicon

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chips instead of in software running on general-purpose microprocessors. During an interview at his office in Silicon Valley, I asked him to recall the sources of his insights. “In 1995, my backof-the-envelope design for a new core router gave me confidence to take the first step. The validation of this design came when we successfully completed the design and powered up the router in 1998. No one before us had succeeded in putting the entire forwarding path for IP directly in silicon at these speeds.” Picking the right first customers was a most important second bet. In the spring of 1996, Sindhu and the two founders met with Mike O’Dell, the Chief Technology Officer of UUNET (since bought by WorldCom, followed by Verizon), one of the largest Internet services providers. At their first meeting, O’Dell made a passionate appeal to the Juniper Networks’ team to “Just get it to work. This is exactly what the industry needs. Don’t be worried about the marketplace. Do not fail.” Sindhu points out: “It was very important to listen to the right customers.” Finding the right customers is not just based on luck. Sindhu reflects that this encouraging sign from UUNET was not an accident. Dennis Ferguson, one of Juniper ’s cofounders, had worked for service providers so he understood the problem from the service-provider perspective. Ferguson’s insights guided us on what to build. There was a third bet: out-innovating Cisco, the dominant router provider. In retrospect, Kriens shares that he and Sindhu learned about an important phenomena, which he refers to as the “Incumbent’s Dilemma”: “The Incumbent’s Dilemma exists when a new adjacent market emerges. In our case, high-capacity IP routers were different than Cisco’s original routers that were built for enterprises. As an incumbent, you repurpose what you have and fill the needs for this adjacent and emerging

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market segment. Since the incumbent can quickly respond to customers’ needs as the ‘first mover,’ due to the absence of alternatives, the quantitative results leads the incumbent to believe their existing solution will serve the new market. When it comes to testing whether a big idea is worthy of launching a potential exceptional growth business, my basic belief is that you can’t out-execute or out-innovate a competitor that has already been doing something by doing it the same way or by entering the market with the same way assuming your group is smarter. You are making a dangerous bet on their failure as being in the critical path of your success. While Cisco was successfully serving the emerging market for new high-capacity Internet protocol routers, it took Juniper two years to build its new semiconductor chips and software as a foundation for a breakthrough, high-capacity architecture. As a result, for the Internet infrastructure market, we are further ahead of the incumbent.”

I asked for Kriens’ perspective on having the good fortune to be positioned for this exceptional-growth opportunity and achieving “escape velocity”: “We cannot overlook good timing. The company’s revenue for the first three years went from zero to $100 million, then to $600 million and then to $900 million. Following the notion to get to $1 billion in revenue, we achieved ‘escape velocity’ at an amazing rate. The combination of Sindhu’s insights with customer involvement and guidance gave us the innovation that turned out to be right. What nobody could predict was the explosive growth and rate of growth of the demand for the solution to the problem. Anybody looking to learn how to succeed had better be looking to be in a position to capitalize on good timing and explosive growth.”

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Kriens and Sindhu embody Enterprising Leadership. Enterprising Leaders demonstrate a resourcefulness to overcome obstacles. They are prepared for the opportunities that will come their way. While they believe in luck, they tend to influence luck through judgments in timing and preparation in order to capitalize on timing opportunities. They view their business as a system of interacting Essentials that creates opportunities for leverage. For example, the best customers can create leverage by helping to refine a breakthrough innovation to address higher-order customer needs. They then provide, as UUNET exemplified, credibility for the company to establish more Marquee Customer relationships. Enterprising Leaders are practical problem solvers who believe that as one door opens, new paths forward will present themselves.

Enterprising Leadership Qualities • Be prepared for opportunities. Although fortunate timing can be perceived as luck, these leaders pre-positioned their company for these opportunities and are prepared to capitalize on them when they do occur. • Apply a systems approach to business building. These leaders have the versatility to integrate strategy, planning, and execution into a systems approach to build an exceptional-growth business. These leaders focus on executing quick wins aligned to a longer-term success scenario. Their “living” strategy and plans are self-correcting. • Build teams from different experiences. Diverse teams with different backgrounds can more readily import ideas from different industries, thereby creating unique value and competitive advantage. • Be a calculated, not a hopeful, risk taker. These leaders make innovation, customer, and business bets based on calculated risks. They take actions or make decisions in order to position the company to take advantage of a “calculated” opportunity and be prepared to capitalize on it when it comes their way.

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Companies and leaders who excel in Enterprise Leadership tend to excel in Essential #1: Create and Sustain a Breakthrough Value Proposition as well as Essential #3: Utilize Marquee Customers to Fuel Exponential Revenue Growth. They also tend to demonstrate excellence with Essential #6: The Management Team Should Practice Inside–Outside Leadership. Being enterprising, they excel at Essential #5: Become the Masters of Exponential Returns.

Service Leadership During down economic cycles, there is an all-too-frequent dearth of respect for employees. Conventional management approaches tend to reduce headcount and reduce salaries along with reductions in corporate contributions to 401(k), pension, and healthcare benefits. These actions communicate to employees—even the ones who remain—that they are fungible, not highly valued, and close to being the “last” priority. By contrast, leaders like Vineet Nayar from HCL take a long-term and more robust (you could even say humane) view to employee relationships. Whether in up or down economic cycles, HCL’s employees are valued and truly come first. Nayar ’s belief—typical of Blueprint Company leaders, particularly those in the services industries—is that employee empowerment is critical to customer satisfaction: employee first, customer second. A distinguishing employee-management approach from HCL’s Blue Print was Nayar ’s recognition that greater financial success would require inverting the organization structure to empower employees in the “Value Zone.” HCL’s Employee First initiative underlines the concept of reverse accountability: Managers and support functions are serving employees, not the other way around. “We are spoiling our employees,” Nayar says proudly. “But then this fivestar treatment for our employees is, in turn, a great model for how they should treat customers.”

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It might seem counterintuitive to treat employees first during turbulent times, but it’s not. Here are two proof points: The Hewitt Best Employers in Asia 2009 study, conducted by Hewitt Associates in partnership with Dow Jones and The Wall Street Journal Asia, ranked HCL Technologies as one of the top 30 employers in Asia to work for. This study measures organizations’ effectiveness in providing a workplace that engages employee intellectual and emotional commitment. In India, the Hewitt 2009 study ranked HCL Technologies the country’s best employer for creating a positive work experience for employees and its long-term approach amid challenging conditions. If you are planning to compete globally, take a page from HCL’s Employee First Blue Print. This reverse-accountability attitude also ripples into compensation and performance evaluation. Every company seeks to measure its employees through the metric of how they have created value for their customers, yet most struggle with how to do it. HCL developed a simple but innovative solution to the problem. In Nayar ’s words: “The customer wants innovation the most, so why don’t we let the customer be the judge? We created a simple tool. Whenever an employee thinks he has gone above and beyond the contract—unexpected cost savings, higher infrastructure utilization, accelerated schedule, or just plain extra-mile service—he logs the value created in the value portal. This then shoots off a note to the customer asking the customer how much he values this unusual level of service. The customer responds with his assessment on a one-to-five scale. The quarterly sum of these points totals the innovation points each person receives, which can be redeemed for gift awards and can have a positive impact on that employee’s evaluation.”

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Finally, HCL is a leader in open 360-degree feedback. All managers are required to go through the feedback mechanism regardless of their level in the organization. The unique twist at HCL is that the feedback is public for all employees to see. Nayar is a lead example. As of 2008, more than 2,000 managers had posted their feedback on Nayar on company Web sites as a testament to accepting feedback and committing to change. Nayar is recognized globally for his innovation in Service Leadership. Service Leaders demonstrate a higher-order calling to serve others: customers, alliance partners, community, employees, and investors. They believe that service to others is the greater good. Personal satisfaction and wealth are derived through service to others, not service to self. These leaders are inspirational to others through building companies based on service-focused values and building teams based on personal commitment and accountability to one another.

Service Leadership Qualities • Create a great place to work. Service to employees and customers is realized by living fundamental values: empowerment, accountability, respect, appreciation, reward, and trust. These leaders utilize parables and metaphors for clarity and simplicity of communications across the organization. • Focus on the right customer to create exceptional value. Filtering innovation through the lens of the right customer is key to achieving breakthrough benefits. During tough times, these leaders differentiate themselves through their relentless focus on service to customers. • Inspirationally lead during defining moments. These leaders are inspirational and influential during defining moments based on example; they are resolute, resourceful, and personally committed to service to others. The actions that define the course of a company ’s fate or define the culture of a company are based on the actions taken during defining moments.

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Companies and leaders who excel in Service Leadership tend to excel in Essential #1: Create and Sustain a Breakthrough Value Proposition; Essential #3: Utilize Marquee Customers to Fuel Exponential Revenue Growth; Essential #4: Leverage Big Brother Alliances for Breaking into New Markets as their employees enjoy serving customers, alliance partners, and the community. Of course, Essential #6: Practice Inside–Outside Leadership is the Essential that serves employees so that they can in turn serve customers, alliance partners, the community, and investors. Service to others would not be sustainable without excelling in Essential #7: Balance the Board with Essentials Experts: Customers, Partners, and a Growth CEO who endorse and encourage this leadership approach. The 7 Essentials, the Blueprint, and these Essential Leadership Pillars are the answer to creating an exceptionalgrowth company with the benefits that come with this unique growth approach. Figure 15.2 is a summary of how the Essential Leadership Pillars will help you and your company master the 7 Essentials. No one leader or team member can be the master for every Essential or Leadership Pillar. It takes a special team. A team FIGURE 15.2

Applying the Leadership Pillars to the 7 Essentials Leadership Pillars Purpose Driven

Enterprising

Service

Essential #1: Value Proposition







Essential #2: High-Growth Market Segment





Essential #3: Marquee Customers





 

Essential #4: Big Brother Alliances 

Essential #5: Exponential Returns Essential #6: Inside–Outside Leadership



Essential #7: Board of Essentials Experts





 

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with complementary leadership skills based on trust and fundamental values. A team that has the potential to utilize all three leadership pillars to mastering the 7 Essentials of highgrowth companies. All the best on your exponential-growth journey. Following in the footsteps of America’s highest-growth companies will enable you to realize your calling to achieve exceptional growth for you, your team, and your company. You now have the essentials to make the growth difference. Go for it!

Chapter

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Your Journey Begins with Three Steps

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new set of tools and resources has been built to help you apply the 7 Essentials. Please visit www.blueprintgrowth .com to find these tools. In addition, dozens of additional chief executive interviews that identify highly relevant and essential Insights to Actions can be found on our Blueprint Growth YouTube Channel, which can be accessed from the home page of our Web site. Utilize the following simple three-step approach to start your journey to becoming an exceptional-growth company.

Step 1: Take the 7 Essentials Scorecard Visit www.blueprintgrowth.com, where you will find the 7 Essentials Scorecard. The scorecard is a unique feedback tool, much like a personal 360-degree assessment, that will confidentially provide you an online assessment of how you think your team or company is performing against each of the 7 Essentials. This online tool is simple and efficient to use. There are seven statements for each of the 7 Essentials, which you score

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FIGURE 16.1

Essentials Scorecard Results for a Blueprint Company

from 1 to 5 as a measure of your assessment. Based on your judgment, a score of 1 or 2 signifies underperformance, a score of 3 is average, and a score of 4 or 5 is above-average performance. The average of the seven scores per Essential provides an average score for each Essential. The scores are color coded in the 7 Essentials Scorecard as red, yellow, and green for below-average, average, or above-average performance respectively (see Figure 16.1). In addition to scoring your company or business unit, for investment firms of corporate business development functions, individual scorecards can be assembled into a Portfolio Heat Map to measure and rank performance by Essential or total score. To contrast a set of typical scorecard responses, Company A (see Figure 16.2) has assessed above average performance in each of the 7 Essentials and the linking of these Essentials as a measure of leverage.

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FIGURE 16.2

Portfolio Heat Map for Multiple Companies (or Business Units)

In contrast, Company D has an average score with underperformance in Essential #4. Company B is also average with underperformance in Essentials #1, #2, and #5. Company B has a questionable value proposition and market that is probably leading to low gross margins and low profit. Company C is underperforming with all Essentials, scoring average or below. Management teams need to focus on moving underperforming Essentials (red) to average (yellow) and turning averageperforming Essentials (yellow) to above average (green). Note: The colors are vividly displayed on the online scorecard. The figure here shows green and red as darker gray, and yellow as lighter gray. The scorecard is a useful tool to help you identify your problem areas and then focus your actions. If you manage a portfolio of business units or companies, use the portfolio Heat Map to identify common areas for improvement. For example, three of the four related companies illustrated are underperforming in Essential #4: Big Brother Alliances.

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To help you benchmark your performance, of the more than 1,000 companies that have taken The 7 Essentials Scorecard, 10 percent scored above average (or five or more of the 7 Essentials are above average performance); 60 percent scored average; with the remaining 30 percent having scored as underperforming across most of the Essentials. The common underperforming Essentials are: Essentials #3 (Marquee Customers); #4 (Big Brother Alliances); and #7 (Board of Essentials Experts). This makes sense since these Essentials underpin revenue growth. By the way, most companies think they have a “big idea” and a huge market opportunity! Which profile to you fit into? To remind you of the 7 Essentials, download a free miniposter at www.blueprintgrowth.com.

Step 2: Develop Your 7 Essentials Roadmap Spend a few weeks developing an actionable road map against each of the 7 Essentials. Bring your leaders and teams together to agree on an action plan. How can you create your own road map? After taking the scorecard, answer the questions posed in Part Two. Focusing on one Essential at a time, identify actions that will improve performance. Use this book as a source for ideas. Focus on the underperforming Essentials, which were identified in your 7 Essentials Scorecard assessment. When you have completed your 7 Essentials Roadmap, assess the timing and linkage of the actions to identify leverage. If you would like a template to create your own 7 Essentials Roadmap, you can order it through www.blueprintgrowth. com. The template is available in different sizes, which you can draw on and post for your team. Alternatively, if you would like a structured 7 Essentials Workshop facilitated by me or one of my associates, download a workshop brochure from the site listed.

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TODAY’S SCORECARD

ADD TEXT HERE

ADD TEXT HERE ADD TEXT HERE

Source: Blueprint Growth Institute, Visual Ink. © 2010 Blueprint Growth Institute. All rights reserved.

INVEST IN INFRASTRUCTURE

7. BOARD OF ESSENTIAL EXPERTS

6. INSIDE/OUTSIDE LEADERSHIP

5. EXPONENTIAL RETURNS

4. BIG BROTHER ALLIANCES

3. MARQUEE CUSTOMERS

2. HIGH-GROWTH MARKET

1. VALUE PROPOSITION

BENEFITS

The 7 Essentials Roadmap Template

FIGURE 16.3

TOMORROW’S SCORECARD

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The 7 Essentials Roadmap is your action plan that will transform underperforming Essentials into above-average performance. You or your team can create a project book derived from the initiatives identified for each Essential. Each initiative needs to have an owner, a timeline, and a set of key success factors in order to ensure efficient and timely execution. After six months, retake The 7 Essentials Scorecard and compare this assessment to your first one. Your company’s performance should be improving. Refine the actions on your 7 Essentials Roadmap for the next six months (see Figure 16.3).

Step 3: Read Blueprint to a Billion After more than two decades of leading, researching, speaking, and advising companies on growth, I am often asked, “If you were to take everything you have learned about the success pattern of America’s growth companies, what would it be?” Blueprint to a Billion is the answer. In it, I have identified the exponential-growth pattern of America’s highest-growth companies and the 7 Essentials in detail. May your growth journey be exponential!

Notes Chapter 1 1. Analysis is based on two years compounding revenue growth of 20 percent per year for midsize companies, with higher rates for smaller companies and lower rates for larger ones. 2. Analysis is based on the share of market value and employment at year-end 2009 for all companies that have gone public since 1980 with revenue less than $1 billion at the time of initial public offering.

Chapter 3 1. The research period occurred after I left McKinsey & Company and Hewlett Packard. 2. Stephen Covey, The 7 Habits of Highly Effective People, Free Press; 15th anniversary edition (November 9, 2004); 15 million copies were sold. 3. Joanna Glassner, “Why Webvan Drove off a Cliff,” Wired, July 10, 2001, www.wired.com/techbiz/media/news/2001/07/45098.

Chapter 7 1. Jena McGregor, “The World’s Most Influential Companies,” Business Week, December 18, 2008. 2. “HCL Bags Nokia Desktop Management Deal for 76 Nations,” Economic Times—Delhi, January 30, 2009, 6. 3. The Hewitt Best Employers in Asia 2009 study is conducted by Hewitt Associates in partnership with Dow Jones and The Wall Street Journal Asia and in collaboration with local partners in each market. The study provides a definitive benchmark against which the effectiveness of the organization is measured in providing a workplace that engages the intellectual and emotional commitment of the employees. While revealing how Asian organizations are achieving a real competitive advantage through their people, the study also indicates where each organization is at on its

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Mastering the 7 Essentials of High-Growth Companies journey to being an “employer of choice.” Available at http://was2.hewitt .com/bestemployers/asia/english/hewitt_be_india2009.htm.

Chapter 15 1. Thomas L. Friedman, “Invent, Invent, Invent,” New York Times, June 27, 2009, www.nytimes.com/2009/06/28/opinion/28friedman.html. 2. The New York Times. 2009. “Obama’s Remarks on ‘Smart-Grid’ Projects,” October 27, 2009. Available at http://www.nytimes.com/2009/10/28/ us/politics/28obama.text.html.

Index Cracker Barrel Old Country Store, 5 Cummins Business Services, 108–111

Accenture, 99, 104, 106, 108 Adams, Lloyd, 89 Advanced Micro Devices, 108 Advantage PressurePro, 62, 133–138 Alden, Rick, 43–46 Amazon.com, 8 Ammon, Carol, 53–54 Arnson, Eric, 163–165 Aruba Networks, 73–78

Deckers Outdoors, 5 dineEquity, 15 Dunkin, Donuts, 36, 38 eBay, 18, 43 Emulex, 65–71 Endo Pharmaceuticals, 5, 52–54 Entrepreneurs Organization, 142 E&Y, 56 Estill, Jim, 58

Bain, Bill, 175 Bain Capital, 175 Bassoul, Selim, 35–40, 80, 151–153 Benck, Jeff, 71, 149 Blackrock, 20 Best Buy, 8, 34 BusinessWeek, 93 Cadence Design, 5 Cerner, 5, 14, 81 Chicago Mercantile Exchange, 20 Chipotle Mexican Grill, 10 Churchill Club, 174 Cisco Systems, 5, 8, 16, 33, 121 Citrix Systems, 10 Coldwater Creek, 14, 19 Cook, Tim, 51 Covey, Stephen, 29

Fifth Third Bancorp, 17 First Solar, 5, 19 Friedman, Thomas L., 180 Frye Stores, 44 Gartner, 112 General Electric, 136, 156 Google, 14, 17, 33 Gupta, Anant, 105, 107, 113, 115, 117 HCA, 9 HCL Technologies, 93–127, 186–188

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HCL (Hindustan Computers Limited), 94 Highland Capital Partners, 55, 179 Home Depot, 18

Index

O’Dell, Mike, 183 Obama, President Barack, 180 Oracle, 18 OriginateVentures, 163 Orr, Dominic, 73–78, 140

IBM, 106 James, Tom, 56–57, 160 Jones, Del, 54 Juniper Networks, 63–65, 131, 181–185 Kass, Danny, 44 Krasnow, Todd, 175 Kriens, Scott, 63–65, 131, 181–185 Kumar, Vijay, 109, 116–117 Leider, Richard, 171 Lextronix, 136 Lululemon Athletica, 179 MacDonald, Mariann, 53–54 McCluney, Jim, 62, 65–71, 81, 149 McKinsey & Company, 29, 108, 112 Microsoft, 18, 99 Middleby, 5, 35–40, 80–81 Montoya, Marc Frank, 45 Morningstar, 6 Nancy Bailey and Associates, 47 NASDAQ OMX Group, 20 Nadar, Shiv, 94 Nayar, Vineet, 91–127, 186–188 NII Holdings (Nextel International), 6, 18 Nike, 33–34, 51

Panera Bread, 10, 14, 36, 41 Paychex, 6 Polycom, 6 Priceline.com, 33 Primal Fusion, 57–58 Procter & Gamble (P&G), 47 Proton Media, 164 Ramond James Financial, 56–57 Robertson, Peter, 83 Richards, Todd, 44 Sadler, Bob, 65, 69 SAP, 89, 90, 99 Saxena, Anubhav, 90, 96 Sindhu, Pradeep, 63–65, 181–185 Skullcandy, 43–46 Southwest Airlines, 34 Srikrishna, R., 116 St. Mary Land & Exploration Company, 19 Standard & Poor’s, 50 Staples, 41, 173–178 Starbucks, 51, 139 Stemberg, Tom, 35, 41, 55, 158, 160, 174–179 Subway, 38 SunGard Systems, 111 Sun Microsystems, 181 SunPower, 10, 14, 19

Index

The Cheesecake Factory, 10 TPI, 112 Ulta Salon, Cosmetics & Fragrance, 19 Under Armour, 6, 34 UnitedHealth Group, 9 Visual Ink, 147

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Wal-Mart, 34, 90, 93 Whiting Petroleum, 19 Wilson, Vernon, 110–111 Xerox, 64, 99, 112, 181 Zaroor, Phil, 133–138, 156–157 Zumiez, 43

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Praise for

MASTERING THE 7 ESSENTIALS of High-Growth Companies “Thomson nails the essentials required to become a high-growth company in Mastering the 7 Essentials of High-Growth Companies. The management practices he identifies certainly applied to RIM’s Blackberry in the early years: a breakthrough proposition focusing on a high-growth smartphone market, inside/outside management with a co-CEO pair, and core alliances with brand name service providers. This book clearly outlines what it takes to grow your business which can lead to achieving the kind of exceptional growth RIM is achieving.”

—Jim Estill, Seed Investor and member of the Board of Directors for Research in Motion (RIM) “Achieving exceptional growth, especially during challenging times, is rare but can be done. Applying these 7 Essentials will provide invaluable insights that can guide your actions to grow your business. I applied the ‘essential’ lessons Thomson identifies while growing Staples and apply them to the companies we invest in at Highland Capital.”

—Tom Stemberg, Founder and Chairman Emeritus of Staples, Managing General Partner of Highland Capital Partners “HCL is proud to have had the essentials of a hungry, global, high-growth enterprise that Thomson outlines in Mastering the 7 Essentials of High-Growth Companies built in its genes. If you are inspired to grow your business, regardless of whatever country, culture or industry your company is in—this book offers a practical and actionable set of lessons that will help guide your growth journey.”

—Shiv Nadar, Founder, HCL