How to Break the Rules of Business with John Mullins, Professor at London Business School

(Intro Narrator at 00:00:00) Today, we're talking to John Mullins, best-selling author and professor at London Business School, about how entrepreneurs should be breaking the rules of business. You're listening to Joel Beasley, Modern CTO.

(Joel Beasley at 00:00:18) I found your book, Break the Rules, Six Counter-Conventional Mindsets of Entrepreneurs. Tell me about this book.

(John Mullins at 00:00:29) Well, I wrote this book because we need more entrepreneurial thought and action in our world today. You know, it's fast-growing entrepreneurial companies that create all the net new jobs in the world. It's not the startups, because for everyone who starts today, there's another one dying tomorrow. It's not the big companies because they're replacing labor with capital as fast as they can. It's fast-growing entrepreneurial ventures that really deliver the social returns.

(John Mullins at 00:01:00) And, you know, in these slow-growing big companies, they're being strangled by layers of bureaucracy. And if they too could learn to think a little bit—they could act more like entrepreneurs do—it might be good for them. So that's why I wrote the book, and it's been gratifying to see its reception. It's got more than a million views on YouTube now, on TED.com. The TED.com thing I did on the book has more than a million views.

(John Mullins at 00:01:28) So it's—

(Joel Beasley at 00:01:29) That might have been what it was.

(John Mullins at 00:01:30) Yeah, yeah. It's a sort of a talk. But yeah, I did a TED talk at LBS, and then TED.com called and said—I sent an email. I said, "Would you mind if we put this on the main TED stage instead of just, you know, TEDx?" And would I mind? Of course not. You know?

(John Mullins at 00:01:49) Yeah, that'd be great. And here we are.

(Joel Beasley at 00:01:52) What led you to write this book? Walk me through your maturity curve, and at what point were you thinking to yourself, "Okay, it's enough of a thing that now I need to actually sit down and write this book."

(John Mullins at 00:02:07) Well, I think a couple things came together. My wife, Donna, would answer your question by saying John needed a project. I would answer your question by saying I was reflecting on the body of work I've done in the last twenty or so years at LBS. I've written fifty-some cases on entrepreneurial companies, and I've really gotten to understand entrepreneurs in a pretty intimate way. And it occurred to me that the research that I'd read when I came into this second career of being a professor—I'd been an entrepreneur before—the research that I read back then had tried to find out what the differences are between successful entrepreneurs and other successful business people. And all—a ton of research was done—and the bottom line of all that research is, "We can't find any differences." And yet, you know, I've been close to hundreds of entrepreneurs, and there are differences. And I said to myself, "Well, just because that research couldn't find these differences, maybe I could find them."

(John Mullins at 00:02:46) So I sort of dug back into all the case study work I'd done and the previous books I'd written. And I said, "You know, there are these differences, and I think I've found what the differences are. It's these mindsets that entrepreneurs have that big business people don't have."

(Joel Beasley at 00:03:36) What are they?

(John Mullins at 00:03:37) So it turns out there's six of them. The first one I call "Yes We Can." And in big companies, you know, you're supposed to stick to your knitting and build on your core competencies and not do stuff that's outside those. Entrepreneurs don't feel bound by that. When something comes along that a customer needs, and they think they can find a way to pull together the resources they need to deliver it, they say, "Yeah, we can do that." And then they go back to their office or their dining room table and say, "Oh my goodness, how the hell am I gonna deliver on this?" But they figure it out. So that's the first one. And I'm happy to run through the list of all five, if you'd like me to.

(John Mullins at 00:04:22) The second one I call "Problem First, Not Product First Logic." So in most big companies today, it's all about the product. So, you know, we've got Coke and New Coke, which didn't work very well, and then Diet Coke and Coke Zero and Coke this and Coke that, and all these product line extensions. They're all focused on the product. Entrepreneurs, the good ones, don't focus on what the product is they're gonna offer. They focus on finding a compelling problem that there is to solve. And if they can solve that compelling problem, then they're gonna have a nice little business that might grow into a bigger business. And I tell a bunch of stories in the book that bring that point to life.

(John Mullins at 00:05:14) The third one I call "Think Narrow, Not Broad." So in big companies today, you know, you really can't get funding to do anything that isn't gonna be huge. You know, big companies need any new stuff to move the needle, and they're not gonna mess around with something small. But for entrepreneurs, the best of breed, they think about an incredibly narrow target market that's got a problem, as I said before, with problem-first logic. And a target market that's so narrow that they can tailor a solution to that narrow market. It's just, frankly, a better solution that nobody else has offered.

(John Mullins at 00:05:56) And by thinking really narrowly, you can tailor your solution, and you get a good start. And once you get a good start, you build a foundation and you learn some things, then you can grow. And in the book, I tell a story of Nike, whose target market initially was elite distance runners, people who could run pretty much a four-minute mile. Well, that's a pretty small target market. But, of course, once Nike learned to import shoes from Japan and get athletes to help them design shoes that would solve elite distance runners' needs, which were different from sprinters' needs, and once they learned to get athletes to endorse them, then, you know, years later after they'd been successful at that, they were able to give John McEnroe a call and say, "Gee, John, why don't we do tennis?" And then there was Michael Jordan and, "Let's do basketball." And here we are today with Nike being the clear global leader in athletic footwear. But they got there because they thought incredibly narrowly at the outset. Find a compelling problem of a very small target market, solve that problem, and off you go. So that's the third one.

(John Mullins at 00:07:08) The fourth one I call "Ask for the Cash and Ride the Float." And the basic idea is, Michael Dell figured this out early when he started Dell Computing. Wouldn't it be nice if you get the customer to pay for what you're gonna sell them before you make it? That's what Dell did and still does. That's what Elon Musk did with the first Teslas. And that's what many good entrepreneurs do. They—again, if they're thinking narrowly and they find a problem that a customer has, that's a compelling problem—they can go into that customer and say, "Okay, I need you to give me the cash now, and I'll have the product for you in X weeks or X months." And if you get somebody to pay you in advance, you can use that cash to do all the other things you need to do besides build the product. So that's the fourth one.

(John Mullins at 00:08:07) The fifth one I call "Beg, Borrow, But Please Don't Steal." And the basic idea is that in a big company, it's pretty well assumed that you have to invest in the assets you need, you know, to do something new. You gotta build a prototype or invest in a factory or whatever it is, depending on what you're trying to do. But good entrepreneurs try and figure out, "Well, how can I test this idea without making all that investment by borrowing what I need?" And I learned that lesson a long time ago in one of my ventures.

(John Mullins at 00:08:46) It was a chain of fresh pasta stores, but we weren't exactly sure how much market reception and traction we'd get in Denver, Colorado. And so we said, "Well, maybe we shouldn't build a commercial kitchen. Let's borrow a commercial kitchen that's available at night." And that's what we did. And we didn't build our commercial kitchen until we had four stores in place. We borrowed the kitchen. And there's some other stories that I tell in the book. But the basic idea is you don't have to invest upfront. This is an assumption that big companies have that first you invest and then you measure the cash flows. Maybe you don't have to invest. Maybe you can borrow what you need. And, yeah, you're gonna pay for it in one way or another. But it's a much better way to find out if you're really on the right track.

(John Mullins at 00:09:28) And then the last one, number six, I call "Never Ask Permission." But if you have to beg for forgiveness, you can do that later. And, of course, that's what Uber did. You know, had Uber asked the regulators in San Francisco, "Would you mind if we start a taxi company without any taxis?"—I think we know what the regulators would have told them, right? But the rules hadn't contemplated what could be done, you know, with technology these days, bringing together buyers and sellers without ever touching the assets, the cars.

(John Mullins at 00:10:15) And so there weren't rules against it. And so off they went. But had they asked for permission to do it, I don't think we'd have Uber today. We probably wouldn't have the gig economy we have today. So enormous progress can be made. I'm not suggesting entrepreneurs should break the law. Of course, they shouldn't break the law. But a lot of times, the laws just haven't contemplated what could be done today. And when you've got an opportunity to make the world a better place, and I think arguably the world is a better place with Uber and Careem and Grab and all the rest of the ride-hailing companies—if you've got an opportunity you see to do something that the laws are either ambiguous about or haven't addressed, then, you know, don't ask a lawyer if it's okay. Just get rolling. So six ideas, pretty simple. None of them rocket science.

(Joel Beasley at 00:11:09) No. I connected really strongly with the "Ask for Cash and Ride the Float," because that's how I started all of my businesses. I've done four now. And every single time, I always got a customer to sign before the business existed, and then I used that money to form the company and build the first version of the product.

(John Mullins at 00:11:27) Yep.

(Joel Beasley at 00:11:28) And I don't know. I just did that because I didn't have any resources. I didn't have any other choice. I was like, "We should build this." And then what I found really quickly is that it's a good market validator, because the larger the problem, the more painful the problem, the less good alternatives exist, the more someone's willing to pay for it to exist before it exists. So if there's good alternatives, they're not—"I'll just go buy this one. It already exists. I already, you know." But you're—so I've learned that lesson. What other one did I—problem first, not products first—interesting, because it reminds me of a lot of engineers that will fall in love with a tool and try to figure out how to solve the problem with that tool.

(John Mullins at 00:12:12) "Build it and they will come."

(Joel Beasley at 00:12:14) Yeah. But it's like, "No."

(John Mullins at 00:12:15) Maybe they won't.

(Joel Beasley at 00:12:18) Well, I've gone into business thinking that the answer's A and that we're gonna do A. And then after several calls, realized that this other thing I didn't even think of is actually the thing everyone's looking for, and, like, "Let's go do that."

(John Mullins at 00:12:32) Yeah. In fact, one of my books that I wrote with Randy Komisar back in, what, 2009, I guess we published it, called Getting to Plan B, and it's about exactly that. Most of the time for most entrepreneurs, Plan A does not pan out the way you thought it would. So, you know, don't get too hung up on Plan A. Get hung up on solving problems for customers. And when you find a great problem that a customer wants solved and is willing to pay you for, you know, then that's what you wanna do.

(Joel Beasley at 00:13:02) Okay. The way that this podcast started, it's like I built and sold these software technology companies. And then I was having conversations and started the podcast to talk about building engineering teams, and I thought, "You know what? This podcast is gonna do for me. It's going to get me great relationships with really talented, brilliant people so that maybe I'll end up as the VP of Engineering at Uber, or maybe I'll end up at some really swanky, cool, big OpenAI-type company." Right? And this was ten years ago. And I had no idea that it would become the business. So at first, we started—people came to us from like, "Hey, we wanna license your interviews." It's leadership development training content. So I was like, "Alright." So they signed a contract, and we formed a company, and it's Leaderbits, leadership training and stuff. And we started doing that, and then people were—the COVID stuff happened, and nobody needed leadership training. And I was like, "Oh, that's a really bad business to start up in because, you know, it's not a requirement to run your operations." At the same time, people had been asking us to build them shows and do podcasting with them because we had a successful show. So we pivoted into podcast production services, and that's done really well for us.

(John Mullins at 00:14:15) Cool. Yeah.

(Joel Beasley at 00:14:17) It's like tech podcast to leadership training to a production company. I don't know. It just kinda happened, but we're still alive.

(John Mullins at 00:14:24) Yep. Yeah. Well, Peter Drucker, arguably was the most important management thinker of the twentieth century. And Drucker said something like this: "To build a successful business, you're probably gonna sell your product to people you didn't imagine selling it to, for purposes you didn't think it would be used for," and so on and so forth. He specified four things, all of which would be a surprise. And that's the likely outcome. It's the reality.

(Joel Beasley at 00:14:58) Are big companies buying this book and giving it to their executives to get their executives to think like entrepreneurs, or no?

(John Mullins at 00:15:07) I would like big companies to do that. And my next sort of stage of promoting this set of ideas is in big companies like that, because I think they need to do that. That said, I think it's a little scary. So I did a talk—it's something called the Business Roundtable, I think Business, let's call it Innovation Roundtable in Copenhagen—a little over a year ago on this set of ideas. It was right before the book had been published. And a lot of the people in that room were the people who work in the innovation units in these big companies. You know, every big company has a little innovation unit. They stick it off in a corner, and they give it some freedom to fool around with new stuff. And it was these people that were at this conference. And what they all said to me is, "You know, it's our job to drag this big company I work for screaming and kicking into the twenty-first century, but they don't wanna take any risks."

(John Mullins at 00:16:11) No, you know, big companies don't like risk. It's nasty. They like nice, stable quarterly earnings growth and doing things like targeting little tiny markets that might turn out to be bigger ones, as the founders of Nike did. You know, that's not gonna happen in a big company. Asking for the cash upfront. "Well, we got plenty of cash. Why do we need to do that?" You know? And so on. So I think it's—yeah, I wanna tackle that next, but I think it's a difficult thing to tackle because of the prevailing attitudes and the prevailing kind of rules that say these six things aren't the way to run a big business. You're supposed to do the opposite of these six things. So it's a bit of a challenge.

(Joel Beasley at 00:17:01) You know what scares me? Businesses without their founders.

(John Mullins at 00:17:07) Yeah. I mean, it's now clear that founder-led businesses do better than those where the investors come in and replace the founders. Took them a while to learn that.

(Joel Beasley at 00:17:16) But we have to wait for things to change to where you need that thought. But yeah, you know, when I first started, so my early part of my career was mostly me working with somebody, like a business partner, to build a technology to solve a problem they'd—or like, we'd already kind of figured out existed, and they handled the business side of things. And then when I got into the business side of things and had to learn how sales works and sales calls and meetings and all of that, it was so eye-opening for me to be on the phone with a senior executive or an executive-type person at a Fortune 1,000-type company who can't do anything. Like, "Oh, I gotta go over here and get this approval and then go over here and get this team to do it." And I'm like, it's a $10,000 decision, and you're gonna spend $25,000 in people's time thinking about this decision.

(John Mullins at 00:18:14) Crazy, isn't it?

(Joel Beasley at 00:18:15) Yeah. Yeah. Yeah. But that's real. That's more often than not.

(Joel Beasley at 00:18:19) That's happening.

(John Mullins at 00:18:20) Yeah. And that's why so many companies are growing so slowly. You know, they can't do anything. Innovation is the lifeblood of their future success, but they can't do it. Guy named Bill Joy is a longtime VC in California, with Sun Microsystems earlier in his career. He wrote a little column in Fortune magazine a long time ago. He said, you know, innovation is happening everywhere, but mostly elsewhere, speaking to big companies. You know, it just doesn't happen there. Yeah. It's a challenge.

(Joel Beasley at 00:18:54) What point are you at in your career? Like, what would you like to see happen over the next 10 years?

(John Mullins at 00:19:02) Well, I think where I am is I'm sort of a Pied Piper, if you will, for entrepreneurs who wanna grow their businesses. So I do a lot of work with entrepreneurs to help them figure out how to remove the barriers that stand in the way of growth. So I do that. And I think I wanna be a bit of a gadfly with these big companies that say they'd like to grow faster, but don't know how to innovate in order to do that. You know, some become—Amazon's a really big company today, right? Amazon still knows how to innovate. Google's a big company today. They know how to innovate. But, you know, Procter & Gamble and Diageo and all those guys, they've pretty well given up. And to do anything new, they buy it because they can't create stuff inside in a very effective manner. So I'd like to be perhaps a bit of a thorn in the side. You know, you could do this, but you gotta change your mindsets to be able to do it.

(Joel Beasley at 00:20:00) And that is a pretty interesting concept that I was actually talking about, I think, two months ago, where some companies, like the PE-backed companies, that's just their model. They're like, we don't need to innovate. We're just gonna buy up the people that innovate, and we're just gonna be really good at watching who's coming down the pipeline, and we're gonna go buy them up one way or another before they reach a certain scale. And so—

(John Mullins at 00:20:29) It's one model.

(Joel Beasley at 00:20:30) That's one model. Yeah.

(John Mullins at 00:20:31) And Cisco did that very successfully for a very long time. That's okay, but not everybody's good at that. And the evidence about the M&A activity is not very promising evidence. You know, those M&A deals don't often create shareholder value. They often destroy it.

(Joel Beasley at 00:20:49) Do they really? Yeah. Yeah, they do. This is news to me. Can you tell me more?

(John Mullins at 00:20:54) Well, there's been a recent article that challenges some of the past data, but the data suggests that something like 70% of all merger and acquisition deals fail to create shareholder value. And you might ask, so why is that true? Well, so many of these deals are done because of hubris or, you know, CEOs who have to make their mark, and they wanna run a bigger company, and they get incentivized to grow the top line of the business. And one way to do that quickly is to buy other companies. So the incentives get skewed, and they do deals, so they overpay for those deals. And then they can't integrate the two cultures, and they don't work.

(Joel Beasley at 00:21:50) Well, hold on a second. Let's talk it out. It's incentive alignment, right? So if my directive is just total gross revenue, and there's no notification of, like, no additional debt or whatever it is, I could essentially just go around and buy up a bunch of companies, exceed my target, and get my bonuses by increasing gross revenue. Right?

(John Mullins at 00:22:13) You could.

(Joel Beasley at 00:22:14) I could.

(John Mullins at 00:22:16) Yeah. And incentives aren't quite that simple today. They're not strictly around revenue. But, you know, a lot of CEOs wanna run something bigger than it is today. And one way to get there is to buy another company.

(Joel Beasley at 00:22:30) That's been interesting to me. I don't—I understand and empathize with it, but I don't have that high body count drive. Like, I've noticed some people, all they care—like, all of their pride and all of their focus on, "We've got 4,000 employees or 10,000 or 100,000." And I'm like, well, that's great. How profitable are you? Like, how much money are you making? Like, what type of problems are you solving? Are you selling, you know, baby wipes? Is that what you're interested in selling? Or are you building the next generation of some interesting type of technology? So I've always been more interested in what the actual problem is that's being solved, the humans that I'm spending time with while that problem is being solved, and that there's financial benefit to solving that problem, and it's cash flowing to me. That's where I typically spend most of my time.

(John Mullins at 00:23:26) Well, that's a good place to be. You know, they say that revenue is vanity, profits are sanity, but cash flow is reality. And at the end of the day, our job as entrepreneurs is to generate cash flow. And with that cash flow, we can do lots of things.

(Joel Beasley at 00:23:45) I remember the first time looking at a P&L—well, hold on a second. The first time looking at a P&L in this—and the P&L was in such a way that we were very profitable month over month, but we didn't have any cash. I was like, okay, clearly I don't know something here. This was years ago, but I had my accountant person—I was like, take the next two days. Just meet with me for three hours a day and explain this to me like I'm a small child, because you're showing me that this is awesome, and I see my bank account and it's not. And so what's the deal?

(John Mullins at 00:24:22) Good for you. And that's a very common phenomenon. And too many people think growing a business is gonna generate cash. Most of the time, growing fast consumes cash. It doesn't generate cash, because your customers aren't paying you quickly, or you gotta invest in more inventory or more staff to build a product or whatever it is. And yeah, you can be profitable, but you can be profitable and run out of cash. It happens all the time.

(Joel Beasley at 00:24:55) Yeah. That's crazy. Let's do a hard plug for your book. It's Break the Rules: The Six Counter-Conventional Mindsets of Entrepreneurs. What's the one reason why people should buy this book?

(John Mullins at 00:25:08) Everybody wants to be an entrepreneur today. Every executive wants their company to be a little bit more entrepreneurial and out of the box. And this book is gonna give them six key tools to do exactly that.

(Joel Beasley at 00:25:22) Nailed it. Anything else you wanna get out there to the world today, John?

(John Mullins at 00:25:26) No. I'm good, Joel. Nice conversation.

(Joel Beasley at 00:25:30) Yeah. Thank you so much. You made my job really easy, which is sharing those mindsets and really articulating them well. People are gonna love you and buy the book and follow you from this interview, and so thank you so much for doing it.

(Joel Beasley at 00:25:42) Thank you so much for listening. And if you found this episode useful, please share it with a friend or colleague who you think would get value from it. And if you have topics that you'd like to hear discussed on the podcast, either add me on LinkedIn or send me an email: [email protected]. Every time I get an email or LinkedIn message, it absolutely makes my day and inspires me to keep going.