Topics >  Leadership and Managing >  Leadership >  Corporate Culture > 

Breaking Through

The same thing happened at Chico's. Marvin Gralnick, the founder of the company, really believed in Pazo, a new hip, low-cost apparel chain, even though it was losing money. But another executive, who succeeded Gralnick as CEO, closed that chain down and invested in upscale stores called White House Black Market. That turned out to be a huge moneymaker for the company--more than $360 million last year. And the company has the highest sales per square foot of any apparel retailer in the country and one of the highest profit margins in the industry.

And when an employee's idea doesn't work out?

The first person I interviewed for the book was Scott Cook, of Intuit. He once gave out a "failure of the year" award to the team within his company that produced a flop that the whole company learned something valuable from. None of these companies are afraid of taking risks. They periodically make big bets in new lines of business. They are curious enough to try new things.

Are these companies great at hiring people?

Yes, but more to the point, they are great at developing people. One statistic that blew me away came from Fastenal, the nuts and bolts distributor. The average tenure among the top 25 employees there is 23 years, which means that the people who ran the company in 1985, when it was small, are running it today, when it has $2 billion in sales. And Fastenal employs 1,500 in Winona, Minnesota, where the local population is roughly 2,700. What Fastenal and these other companies recognize is that to get really big, they have to create a culture that is so easy to learn and live by that ordinary workers can thrive. Fastenal, which is a pretty frugal company, spends very lavishly on rigorous employee training.

What are these founders like as managers?

They are good at settling internal disputes in creative ways. There's a legendary story at Staubach about two brokers getting into a fight over a commission. Roger called them in and heard both sides. There was serious money on the table. Roger said, basically, "Here's what we're going to do. We're going to give the whole thing to charity. And any time we're squabbling over money, let's do something good for the world, because this doesn't get the company anywhere." And you know, I bet he never had to mediate a conflict over a commission ever again.

You mention in the book that, in addition to listening to outspoken employees, these companies look outside the organization for good ideas. How?

The best company builders think like any smart builder--they use the business world version of scaffolding to build their companies. By scaffolding, I mean that they relied on outside support and structure while they were building their businesses. To a person, the entrepreneurs I profiled were either active in peer groups like Young Presidents' Organization, or they were tied in very closely with local research universities. SAS, the software company, works very closely with researchers at North Carolina State, and Fastenal has a relationship with the University of Minnesota. Paychex is really smart about using industry analysts at the big investment banks to learn more about trends in its industry.

Marvin Gralnick, of Chico's, went out of his way to recruit the best possible board for the retail industry. Chico's is big, but it isn't one of the top two or three retailers in the country. And yet Gralnick built a board that is a real who's who of retailing, with the former chairman of Macy's, the former chairwoman of the Limited, the vice chairman of Staples, the former CEO of Tommy Hilfiger, and so on. Gralnick says it really helped him to make the decisions he needed to reach a billion dollars.

So many entrepreneurs are afraid of having powerful boards because they don't want to lose control. Or, in the era of Sarbanes-Oxley, they look for board members who will be strong on compliance issues. That's missing an opportunity and focusing on the wrong stuff, I think. Gralnick reminds us of the value of having advisers on your board who can provide you with real strategic advice.

Why do so few companies break through?

Think about what makes small companies successful. They are small, so they can move fast without a lot of organizational friction. They can compete favorably on cost because they have low overhead. Their output per employee is high because there's a Band of Brothers environment at most of them. They are close to the customer. But growth by its nature negates these advantages. Breakthrough companies discover different leverage points--like outside advice or strong boards or maverick employees who lead them into new lines of business.

Correction: The original version of this story misstated the cities in Minnesota in which two companies have headquarters. Polaris has headquarters in Medina and has operations in Roseau, while Fastenal is based in Winona.