Who’s talking: Verne Harnish
Talking to: Amanda Gome
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Welcome to Lunch with an Entrepreneur. My name is Amanda Gome and today I’m talking to Verne Harnish whom I’ve always admired because he took a phrase, and he took it global. He gave the name “Gazelle” to fast growth companies that manage that sustained growth for many years.
Now can you tell me first how you managed to grow a global brand?
It’s about shamelessly stealing, which is one of the first things entrepreneurs have to learn. Professor David Birch at MIT coined the term gazelle for a company that’s growing 20% a year for four years in a row. But he never did anything with it. It became kind of almost a standard term, and David I know well. I think he was actually excited we took the term, built a company around it and took that word really global from a business education perspective; and it’s been a fun term, having a company called Gazelle.
And how did you set up and build a global company from it?
We’ve been able to take advantage of just technology and the internet to get out global … but I think also it’s the times: the real world’s need for innovation and the fact that innovation has always come from the smaller companies, not the large firms.
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And you’ve got all of a sudden a good part of the globe, a billion people plus that are deciding to come into the mainstream economy and so I think a lot of it is just timing. You and I were talking leading up to this, I’ve really been at this thing since 1982 and it always kind of reminded me of Steve Jobs who founded Apple, one of my favourite quotes of his, which is that I’m always amazed how overnight successes take a heck of a long time.
So can you just basically tell us what you do?
We act as an outsourced kind of corporate university for growth companies. I mean the real challenge when growing is the opportunities in the market can literally outgrow the entrepreneur and their team. Large companies, the GEs of the world, have these well-developed corporate education programs, but growth companies don’t and so we really fill that gap, and our main promise is just to kind of help the executives and the entrepreneurs just keep up.
What are the three barriers that companies face when they grow?
There’s really three, and that’s what we talk deep about. In fact again it’s related to a famous Harvard Business Review article by (Larry E) Greiner called “The Evolutions and Revolutions as Organisations Grow”, but the first barrier is the entrepreneur themselves. We joke, but all the thousands of entrepreneurs I’ve worked with over the years, at some level … I don’t want your audience to take this wrong … but most entrepreneurs I know don’t actually like people. Surprisingly. I mean their view is ‘I’d love my business if I just didn’t have to deal with employees or even customers’. They’re into their idea, and as a result most businesses, as you and I were discussing, in Australia and the US are home based. They don’t get beyond the entrepreneur and maybe an assistant.
What’s wrong with that?
Well it’s just … it’s the inability to think anybody else can handle your baby or do anything as well as you can. It’s a fundamental issue of delegation.
But why should businesses want to grow. If you’ve got something that’s home based and you’re happy with that, what’s wrong with that?
No, I don’t think there’s anything wrong at all. It’s not what economies need, it’s just replacing a job as opposed to creating jobs.
It’s also a struggle isn’t it because…
No, but there’s nothing wrong with staying small. You and I were chatting about one of the sad things I see is entrepreneurs grow the business and they look back and say wait a second, now they’ve got some employees and all this overhead, like I’m making less money today than I was three years ago when I was just working out of the house, and so you have to know primarily how to delegate properly. Not abdicate. You do it. It’s how to delegate and how you can get other folks to do things as well or better than you and trust that they can do it.
Do you hire people with different personalities to you?
You do. We’ve hosted Marcus Buckingham, the great people guru right now, and I think he said it best. The real great leaders, they play chess not checkers, and that notion … everybody’s the same.
The chess players understand that folks are different and are able to take advantage of those differences. Hey you move up two and over one, and I’m not going to try to make you go diagonal.
And that’s a set of skills that’s just not innate in a lot of folks, which is again I think the first barrier to why and even related to that, at about 30 or 40 employees, whatever was your strength.
At some point whatever the strength of the entrepreneur was will then start to become the weakness of the organisation, and if your entrepreneur is listening out there, they know it. If you’ve been the one driving sales at some point, you’ll become the bottleneck.
Why? Because you’re not willing to bring in that next person to help you sell because you don’t want to let go of that function. And so it just gets worse at every layer as the organisation grows. So that’s really the first barrier.
What’s the second one?
The second is systems and structures. I mean when you first move out of the house, getting office space and setting up a phone system has killed many a venture, and you’ve got to deal with, like…
You haven’t even got Telstra.
Oh exactly. And well no, it’s just going to be perennial dealing with the systems. And then when you get above $1 million to about $10 million in revenue it’s like your accounting system blows up and you can’t keep track, and if you can’t get over that hump then you have the issue where you get big enough to where all your databases don’t talk to each other.
You’ve got customers sitting over in some customer database. You’ve got them in your accounting system and you’ve got them in some other, like operating system and just an address change is enough to bring the whole place to a screeching halt. And so it’s your inability to systematise.
So what do you do about that? Bring in a general manager who sets up the systems?
We do talk. We have this checklist of habits and I mentioned that discipline is probably the most important thing you need if you’re going to grow a business, and the minute you say the word discipline around most entrepreneurs they get the hives.
What you have to realise is probably the single most important decision an entrepreneur can make if you’re going to grow the business is who is going to be your number two.
Who’s that person that you can just toss things over the wall to and they’ll organise it and systematise it and put a process around it, because entrepreneurs, I’ve learnt at least Amanda, are event-driven not process-driven, and even as they start to grow a business they simply see it as just piecing deals together whether it’s a lot of little deals if they’re in retail or some big deals, it’s just deal flow. And they’ve got to get over that hump and have somebody start to put process in place.
But then doesn’t that slow it down? Isn’t that the beginning of the end of the entrepreneurial zeal of the place.
Yeah, I mean that’s what you think. And that’s … those are some of those myths or ideas that are in an entrepreneur’s head that say ‘I just don’t want to go there’, but it requires a kind of systematising and process. It’s ideal for the franchise. I mean one of the great systematic ways that you can build a company, and folks who get a franchise have much higher success rate than launching their own business, as the numbers show because it is a system.
What’s the third big barrier.
And the third has to do with what I call market dynamics. Up to a few million in revenue, again you’re the only barrier to the organisation getting to a certain size. I mean the size of our global economies generally you can piece together a few million in revenue if you’ve kind of got a few basic things figured out.
But at some point you get large enough to where now you hit this point where all the internal activities are sucking you back into the business when you need to be looking outside more, because now you’re starting to get more competitive pressures.
You’re starting to get big enough that you’re creeping into other companies’ marketplaces, so now you actually have to kind of get your head out and look outside and start making some decisions based on what’s happening in the marketplace, and then when you get large enough now you literally start to get buffeted by economic movements.
Just changes and exchange rates can be enough to make or break you when you get larger. And so it has to just do with the dynamics of the marketplace and your relative size what you have to pay attention to.
So three things. First barrier is the entrepreneur themselves. The inability to let go.
Second is do you have the stomach to bring in the processes and systems necessary to keep the whole place together.
And number three, can you change your focus. As you grow can you look outside and look out further so that you can see the trees that you’re about to hit and avoid it.
That’s very good to grow and get market share, if you can overcome those barriers. What about selling more? How do you literally when you are in that early phase, how do you go about selling more when you’ve always been the person. The entrepreneur, the event driven person that does the deals? As you grow you can’t keep doing that.
Well you know, the oldest rule in history around that is if you want to sell more, get more sales people. And so whether or not you decide to actually get independent reps, you franchise, you hire some sales people, you partner with a larger organisation that can distribute your products or services — you just put your finger on it. Particularly a lot of entrepreneurs, they are the sales engine.
Yeah, but that’s what you hear though. That’s what they say. I mean you’re the sales engine, so once you put in a team and then you go off and work on the business instead of in it, the sales start dropping off.
Well it depends on if you abdicate or delegate. And if you know how to systematise selling. Which most entrepreneurs don’t and I don’t think they should try, and I think they should just have a great time in their independent life running their business from a small office of their home. And really be happy with it.
So how do you, if you want to grow, how do you put in systems?
Well that’s really what I wrote my book about. Mastering the Rockefeller Habit. What did that 20-year-old with his brother and three buddies do to literally build the largest company on the planet, which is the largest company still today.
I mean Exxon Mobil, which overtook Walmart about a year ago, that’s all it is, is John D Rockefeller’s company put back together and the whole autobiography titan really is a great documentation of the kind of systematic decisions and things he put into place.
Like he had the leading edge telegraph system on the planet so he could get data in from the Russian oil fields, and you’ve got to know how tough that was back in the late 1800s to even have the foresight to make those kind of technological investments so that he could get data from around the world that’s a little bit easier today with the internet, but still it’s those phone systems we were kidding about earlier and just making sure that they work. I mean we moved into new offices this past summer and it almost killed us. It was too much.
We’ve got to move. We’ve already outgrown ours. Don’t tell me that.
That’s what I’m talking about. It’s just enough … nothing’s easy. If it was easy everybody would be zooming out there, but it’s not. It’s because of these three things we discussed.
What business should people go into?
Oh I get that question so often, and I don’t want to be trite with the answer, but it really is the business you’re most passionate about. It’s not the business that you see other folks making a lot of money in. That’s the common mistake, if you’re chasing other people’s dreams.
I’m blown away every day by the most unusual businesses people make money doing. Like the one that just sold here in the United States, this little mismatched company where they sold mismatched socks to girls and they built that company up and sold it for $11 million late last year. That’s insane! But it’s really following a passion.
I’m sorry, you have to explain that to everybody listening. What do you mean mismatched socks?
You mean it’s not over there in Australia?
No it isn’t, and there’ll be someone listening who will set it up tomorrow. So what is it.
Well they just played on this idea that girls … I’m not sure I know the ages, like eight to 14, they make socks that don’t match. They look nice together but one might be stripes, one might be polkadots and you can only buy them in odd lots. Like I don’t have a daughter that age, but you buy five socks at a time. So you always have to buy another five then to make the even number and it just becomes this craze. A girl would go to school and wow, her friends would see she has these mismatched but cute socks. I’ve got to have some.
What other businesses should people go into.
Then if you said hey, what’s the growth, I mean first and foremost I’ve kidded about this. It’s kind of like the old idea of the future’s plastics. The future’s water, and you understand that better than anybody else, in Australia. But you’ve got Darius Bickhoff, who said I’m going to take some water, add some vitamins and minerals to it and create a company called “Energy Brands” and his vitamin water is just a huge success. He’s got Coke and Pepsi and everybody chasing after him. I think that anything that has to do with water. Producing it. Moving it. Distributing it. Cleaning it. Colourising it. Whatever is the future. We got the whole planet running out.
Anything else? Any other hot tips?
Well alternative energy is hot right now, and I think anything that has to do with intellectual capital. I’m convinced why we’re in the business that one of the hottest businesses is going to be education. The rest of the world is just hungry for knowledge and you know, the tools that we have today. This hot new book called The Long Tail, I think you know, shows that if your product is in bits and bytes you don’t have to have any inventory, and it’s just about selling intellectual capital. Which is what we’re about.
The Americans love entrepreneurs. In Australia there’s a mixed attitude. People are very supportive of start ups, but there is a very very strong tall poppy syndrome that sort of cuts in and people get resentful of anyone that’s really self made or doing well. Some people. Other people celebrate it. It does seem to be changing. What’s happening in the States. Is it becoming even more entrepreneurial focused or what’s the trend.
No. We’re just getting old in this country. The thing that we’re noticing is a lot of the developing countries are hungrier for our tools than we are even in our own country. The Dubai’s of the world, Panama’s on fire, growing at 7 or 8 per cent a year, and the Latin American markets. Clearly what you’re seeing over in China.
So they all want to know how to be entrepreneurial.
Of course they do.
We’ll have to sell SmartCompany over there!
You bet. Well you know what, they’re still just trying to figure out how to eat. And most of the world’s still focused on just eating. And getting some of the basics. I know when we went to China we were the first group of young entrepreneurs to go to mainland China back in 1986 and we met with the government officials back there, and it was all about ‘hey isn’t this market going to be huge and don’t we all need to worry about the Chinese coming over and invading our markets?’. It’s like, no. We’ve got so many people that just need TVs, washing machines and dryers. We’re going to be forever just dealing with that demand.
But the Chinese are so entrepreneurial now.
You know why? And this is why it seems so weird, but the great entrepreneurs are disciplined. Discipline, routine, sets you free, and they’ve always had a very disciplined culture. And I think it lends itself well to entrepreneurial proceeds. Especially if you’re going to scale them.
And just one last question. How does Australia compare to US. I mean we’ve got much slower broadband, which drives us all mad. And technology does seem to lag. How do we compare in doing business on an international stage with the US.
But you are such international business people. Just given the relative size of your market, you’ve been forced early on to get outside and get global. You know, when I was young I was always amazed at Australians I met travelling. In the United States most of don’t even have passports.
Yes, not that’s not growing businesses. I mean we might be great backpackers, but are we great global entrepreneurs?
But I think because you’re great backpackers! You are so comfortable in other cultures with other languages and other people. You just get along well with folks and that’s like first second and third, what’s required to be great global entrepreneurs. Where we’re stuck in our town because it’s big enough. The market’s big enough in any particular state that you can do fairly well. You’ve always had a great future. You will have a great future just because you’ve got that international perspective. From the very beginning.
Well that’s really inspiring. Thank you so much for talking to us Verne.
This is an edited transcript of the interview which is available by podcast.