What It Takes to Break Through

I bumped into Ã"berguru Peter Drucker one afternoon in 1994, on a tree-lined sidewalk at Claremont University. Over a Diet Coke, we had a short conversation that would change the course of my life, and would result -- almost fifteen years later -- in the writing of this book.

I was in my mid-thirties at the time and had just been named chairman of Collectech Systems, a two-time Inc. 500 technology company based in Los Angeles. I believed Collectech had the potential for exponential growth, perhaps even to revolutionize the industry, but I also sensed that we were at a crucial transition point that would require wrenching changes if we were going to reach our full potential. Making those changes, I feared, might also run the company aground. At the time I ran into Drucker that fateful afternoon, I was making the three-hour, round-trip drive to Claremont University's Drucker Center three times a week to take Ph.D classes from Drucker and his colleagues, hoping they could help me make sense of the difficult issues we faced as a company. My frustration, however, was growing and I decided to ask the master for some help. "Why can't I find the book that helps people like me solve the real problems of moving beyond the entrepreneurial stage of development?" I asked Drucker. After a moment of thought, he looked up and flashed his famous toothy, Zen master grin. "Because," he grunted in his thick Austrian accent, "you haven't written it yet."

Shortly after our conversation, the wheels came off of our business, and I didn't have time to think about books, neither reading nor writing them. I dropped out of the doctoral program with only my dissertation left to complete and spent the next several years fighting for our firm's survival. Collectech eventually emerged from the crisis stronger than ever, with a new business model that propelled it from annual revenue of $10 million to $100 million in just over three years. As the company transitioned out of that difficult time, my mind returned again to that conversation with Drucker. Where, I wondered, was the book that could help a leader steer a firm through the difficult terrain my firm had just navigated, the terrain that lies just beyond the entrepreneurial stage of development? Drucker's words echoed in my mind: ". . . you haven't written it yet."

Then, in 2002, I agreed to be a keynote speaker at a CEO conference in Detroit. At dinner the night before the event, I found myself seated next to the event's other keynote, Good to Great author Jim Collins. We discussed his book over dinner and I shared with him my frustration about the lack of books on how to help companies break through the entrepreneurial stage. I pointed out that all the Good to Great companies were big companies (in his book the average company has sales of $32 billion) that were years or even decades away from their entrepreneurial roots. I wondered aloud whether we would learn different things if we studied companies closer to the time of their entrepreneurial breakthrough. "What a great research question," he replied, and then he went on to encourage me to do my own study using research methods similar to those he used in Good to Great.

On the plane ride home from Detroit, I decided that if the universe delivers signs, mine could not be any clearer. Two of the most respected observers of the business world had told me that I needed to write this book. I reached into the seat pocket and pulled out an air-sickness bag and wrote out a list of three questions that would become the basis for The Breakthrough Company:

1) Why do most companies start small and stay that way?

2) What is special about the handful of companies that successfully break through the entrepreneurial stage of development?

3) What can a leader do to ensure that his company maximizes its chances for breaking through?

We set out to discover what enables little firms to become big. Our search led us to create and analyze what we believe is the most comprehensive database of more than 7,000 of America's fastest growing private and public companies. In addition, we have talked to more than 1,500 key executives, and we reviewed and cataloged more than 5,600 articles. And to make sure we understood the issues from the inside out, we conducted intensive 90-day studies with fifty-two firms ranging in size from $9 million to $3 billion in annual sales.

My goal was to conduct the most exhaustive research ever undertaken on the subject, and to write the book that I had always wanted to read -- the one that fills in some of the details of the territory that lies just beyond the entrepreneurial stage of development. I wanted to identify the secrets of breaking through.

Anyone who has ever made a study of anything knows one thing for certain: The best part is when you come face-to-face with the unexpected. Surprising findings are, as star detective Charlie Chan once said, "like squirt from aggressive grapefruit." Our study produced grapefruit squirts at every turn, so many that we concluded that much of what is believed about what it takes to build a breakthrough company is just plain wrong. Here are just a few of the surprises we uncovered:

1) The most interesting companies may not operate in the markets that Wall Street and the business press consider interesting or "cool." When we launched our study, we worried that perhaps the best-performing companies would all come from a single sector of the economy like tech, leaving us with findings that wouldn't be applicable to the broader market. But our concerns were unfounded. Many of the breakthrough companies began in market segments experts considered unattractive at the time. We weren't surprised to identify several high-tech firms like Intuit, SAS, and ADTRAN among the breakthrough companies -- but we certainly didn't expect to find a nuts-and-bolts distributor, a snowmobile maker, a payroll processor, or even a niche real estate business.

2) Sticking to the knitting won't always get you there. Just as the breakthrough companies ignored the so-called experts when it came to the prospects for their industry, they also kept redefining their businesses. While the textbooks -- and the consultants -- might have suggested that Polaris should remain focused on its core snowmobile business, the company hopped the fence into the far more competitive and profitable ATV market, facing off against some of Japan's most powerful keiretsu at a time when most believed Japanese industry would take over the world. ADTRAN had recently left the relative safety of its telecom niche to do battle over corporate clients with Cisco, the multibillion-dollar tech company in San Jose, California. When Intuit squared off against Microsoft in the small-business accounting market, after having just bested Bill Gates to gain control of the market for personal financial management software, there were many who questioned Scott Cook's sanity. Cook's decision, however, like the ones made by the other breakthrough company leaders, was critical to creating the kind of performance that put these companies on our distinctive list.

3) Don't look for extraordinary people; build a place where ordinary people can do extraordinary things. While they certainly obsessed about each individual hiring decision, breakthrough companies also focused on creating systems that helped their people grow along with the business. "We built this company hiring who we could afford to hire," said Lee Hein, a regional vice president at Fastenal. "What we found was that the average company today doesn't have a clue what people are capable of if you believe in them."