London Business School Professor John Mullins: “Growth for Growth’s Sake May Not Be Worth It”

The importance of having a “problem-first” mindset, how companies can avoid running out of customers, and why you shouldn’t ask permission.

John Mullins has been teaching entrepreneurship to generations of aspiring business leaders as Associate Professor of Management Practice at London Business School (LBS), one of Europe’s most prestigious business schools. More than a sought-after thought leader, Professor Mullins had been an accomplished executive and entrepreneur in the US retail sector before decamping to Europe.

In his latest book, “Break the Rules!: The Six Counter-Conventional Mindsets of Entrepreneurs That Can Help Anyone Change the World”, he explores the “killer” mindsets that make entrepreneurs and their businesses stand out: having a “yes, we can” attitude and a “problem-first” logic; “thinking narrow” by starting from small markets; getting things done with little or even no money; and “begging forgiveness later” instead of asking permission to launch an innovative startup.

In the following interview, Professor Mullins shares his thoughts on what it takes to be a successful entrepreneur.

What’s the skill that is absolutely essential to become an entrepreneur?

It’s more of a mindset, rather than a skill. A business exists because it satisfies its customers, not because it can raise money or because it can do things that are popular in the business press.

That's what good entrepreneurs do: they find a customer problem, or an area in which there's a lousy experience that they can “elevate to delight”. That’s what I call “customer delight”, what Starbucks and others have done with the coffee business. 

I think that's the most important thing: being driven by customers and solving their problems or offering them “delight”.

What do you gain if you have a customer-centric business, instead of a product-oriented one?

In “Break the rules!”, I argue that there are six mindsets that characterise successful entrepreneurs. One is what I call a “problem-first” logic. Think of Coca Cola. There's old Coke, Classic Coke, New Coke , Diet Coke, Coke Zero, and more. So the focus is on the product, but that’s not exactly innovation that’s going to drive meaningful growth.

What good entrepreneurs do is find a customer problem. In the book, I tell the story of Phil Knight and Bill Bowerman who founded Nike, because elite distance runners, like they were, needed different running shoes. 

They run on dirt paths and country roads and they're always stepping on sticks and rocks, which leads to sprained ankles. They train for miles and miles every week and they get shin splints.Those are not problems that sprinters have, and shoes at that time were made for sprinters. 

So they {Knight and Bowerman} said: “we need a better shoe that's made for elite distance runners.” It turned out that once they learned to build a shoe, elite distance runners loved it and began to win medals. And then, every runner wanted to wear Nike shoes.

Once they built that platform and learned how to manufacture shoes in Asia and how to design shoes with athletes’ help to meet the specific sport’s needs, the future was bright. They did tennis with John McEnroe and basketball with Michael Jordan. The fundamental premise was:

We can solve athletes’ problems by giving them a shoe that's tailored to their sport.

In the book, you discuss strategies followed by Elon Musk and Travis Kalanick. They have both been in trouble recently, which raises the question: can great entrepreneurs be good long-term CEOs too?

Some can. Michael Dell founded Dell when he was 19 years old in his dorm room at the University of Texas, and he still runs Dell today. So you can be a good startup CEO and then run the course. You can argue that Steve Jobs did that very well, too,despite the fact that he got fired for a period of time.

But there are others who reach a point at which they need somebody with different skills. And that's what the Microsoft guys did. Bill Gates said: “I need somebody with different skills”, and he hired Steve Ballmer to be the CEO.

So there's not a general “yes” or “no” answer to that question. I think some people can run the course and some people can’t, or choose not to.

Is there a milestone that hitting it means you have to go?

Many entrepreneurs get a lot of joy out of the early growth of the startup. They try to prove to a sceptical world that they've seen something that others haven't seen. And they're beginning to get customer traction and prove it works.

When a business gets large, that initial excitement wears off and then becomes a game of blocking and tackling and doing the fundamentals. Maybe that's not so much fun for them.

So they decide that it's time for them to let somebody else play that role. Some stick around as the Chief Technology or Innovation Officer. And others say: “ I'll let it go without me”, and they go off and do something different.

One of your rules is that you have to build a cash-generating business from the outset. Why do many startups – Uber being an example – focus on growth rather than profitability?

There are good reasons to focus on growth. Number one, there have been some phenomenal companies created that way, raising round after round of venture capital and funding astonishing growth.

There was Apple a long time ago, and Uber and Airbnb more recently. That is a good path if that's what you want to do.

But one of the risks you run into is ending up like Groupon, which focused on growth too. Along the way, they discovered they were running out of customers. Their key partners were small businesses that provided the Groupon ads. They were getting tired and didn't renew.

So there can be a “growth trap” where you pursue growth for all its glory. And you end up running a large business that actually isn't profitable. Maybe it makes some money and maybe survives for a while. 

But at the end of the day, as Peter Drucker said, if you don't have a paying customer, you don't have a business either. The business has to become economically viable at some point.

So why not start by getting your customers to fund the business? I wrote another book about that called “The Customer-Funded Business”. It’s about getting your customers to provide the early capital. And that's a powerful reason that your business has a reason to exist. Your customers are giving you money in advance, because you're solving a compelling problem.

What are the advantages of creating a “minimum viable product”, like Airbnb did, and not relying on venture capital?

If you compare Steve Jobs and Michael Dell, both of them started PC businesses at about the same time and helped develop that industry. Steve Jobs built Apple with round after round of venture capital.

We'd all be happy to be Steve Jobs, but Michael Dell built his business almost entirely with customer funds. When you wanted a Dell computer, you paid when you ordered it and Dell used that money to buy the parts and do everything else that was necessary to build and deliver the PC. 

If you look at which leader, Jobs or Dell, captured the greater share of value created, it's Michael Dell hands down.

So if you found the business that way, there are two big pluses. One is the freedom you have. You don't have investors telling you what to do. And the second is control: you are the master of your own destiny. You'll make some mistakes on the way and you’ll learn from them. But at the end of the day, it's your journey, not somebody else's.

You argue in the book that entrepreneurs don't like risk. Why is that?

It's because entrepreneurs know that they are living in a world that's abundantly supplied with risk. The majority of ventures fail, and entrepreneurs know that the odds are tough. So one of their key jobs is to figure out how to improve those odds and mitigate the risk.

There's technology risk. Will your technology or approach to it work? There’s market risk too. Even if it works, will somebody buy it? And then there's execution risk. Even if somebody wants to buy it, and the technology works, can your team do all the things that are necessary to run an efficient business? And if you can mitigate the risks in various ways, you improve your odds.

So that's why good entrepreneurs try to pass on risk to others. That's why you get customers to pay you upfront before you invest. You borrow assets rather than investing in them until the business is proven. You raise capital instead of investing your own money, transferring the risk to the investor. 

All of those things help you mitigate risk and therefore have a better chance of being successful.

Another one of your rules is “Don't ask permission, beg forgiveness later”, which sounds like Facebook’s early motto: “move fast and break things.” How do you make sure that regulation doesn't kill your business?

This is another kind of risk. It’s a risk the Uber guys faced. I don't condone all the things that Uber’s founders did while building their business. They did some things that were clearly unethical, perhaps illegal.

The regulations in San Francisco where Uber started said nothing about a taxi company that had no taxis. The regulators just hadn’t thought of the digital world. And so there were no rules that prohibited Uber from doing what they wanted to do. The rules were ambiguous.

Those are the kinds of situations where entrepreneurs should not ask permission: “What do you think, can I start this business?” If they had asked local regulators, we might not have Uber and Grab and Careem and all the other imitators today. We might not even have a gig economy.

I don’t argue that you should break the law. I tell the story of a business that also started in San Francisco called Josephine. It was going to make a marketplace for those who wanted to cook at home and consumers who wanted to buy that food. Well, that was plainly against the health regulations: that's breaking the law. Eventually they got shut down, and deservedly so.

What I suggest is that where the legal or regulatory environment hasn’t contemplated what our world today makes possible, you should just get started, rather than ask whether you can do this.

Once you have a whole lot of customers loving your service, as Uber did very quickly, you have an awful lot of consumers telling regulators: “Don't shut them down”. London became one of Uber’s biggest markets and when the London transportation authorities wanted to shut them down, there was an outcry among consumers who loved Uber.

So if you get consumers on your side, and then you get big enough fast, that mitigates some legal risk. It is less likely that they will shut you down, because you will have created a new model that has value.

Is entrepreneurship a talent or a skill that can be learned? Can anyone be an entrepreneur?

Probably not. Frankly, not everybody wants to be an entrepreneur. Not everybody's comfortable with the levels of risk and uncertainty that surround every entrepreneur.

But a question we often are asked at London Business School is whether we can teach entrepreneurship. Our answer? You can't just take a random person walking by the school, pick them up off the sidewalk, dip them in our secret London Business School sauce, put them back on the sidewalk and magically make them an entrepreneur.

What we can do is help those who are comfortable with what it takes to be an entrepreneur and willing to live in an environment of uncertainty. They are eager to solve problems that only they can solve.

We can equip them better to pursue the entrepreneurial journey, to avoid some of the predictable pitfalls that are going to arise along the way and to help them be better prepared and have a higher success rate than they might otherwise.

Is it better to take an MBA course or learn on the job?

Both of those options are perfectly acceptable. There are large numbers of students who come to business schools with the explicit goal of finding a problem they can solve as an entrepreneur or finding a partner with whom they're going to solve that problem. And that's why they come to do an MBA today.

Coming to a business school that has a vibrant entrepreneurship programme is a very viable way to get started. But it's not the only way. 

If you have an idea of a problem you can solve or some “customer delight” you can provide, you don’t necessarily have to go to a business school if the time is right. If you see a problem, get started, don't spend two years waiting.