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SPLIT HAPPENS

Wal-Mart started small. So did Microsoft. So did Apple. So did General Electric and Ford and almost every other company that made it big. They didn’t start by acquisition or spin-off, or achieve mass scale overnight. Nearly every company or organization starts the same way: with an idea. No matter whether an organization grows to become a multibillion-dollar corporation like Wal-Mart or fails in the first few years, most of them started with a single person or small group of people who had an idea. Even the United States of America started the same way.

At the beginning, ideas are fueled by passion—that very compelling emotion that causes us to do quite irrational things. That passion drives many people to make sacrifices so that a cause bigger than themselves can be brought to life. Some drop out of school or quit a perfectly good job with a good salary and benefits to try to go it alone. Some work extraordinarily long hours without a second thought, sometimes sacrificing the stability of their relationships or even their personal health. This passion is so intoxicating and exciting that it can affect others as well. Inspired by the founder’s vision, many early employees demonstrate classic early-adopter behavior. Relying on their gut, these first employees also quit their perfectly good jobs and accept lower salaries to join an organization with a 90 percent statistical chance of failing. But the statistics don’t matter; passion and optimism reign and energy is high. Like all early adopters, the behavior of those who join early says more about them than it does about the company’s prospects.

The reason so many small businesses fail, however, is because passion alone can’t cut it. For passion to survive, it needs structure. A WHY without the HOWs, passion without structure, has a very high probability of failure. Remember the dot-com boom? Lots of passion, but not so much structure. The Titans at Endicott House, however, did not face this problem. They knew how to build the systems and processes to see their companies grow. They are among the statistical 10 percent of small businesses that didn’t fail in their first three years. In fact, many of them went on to do quite well. Their challenge was different. Passion may need structure to survive, but for structure to grow, it needs passion.

This is what I witnessed at the Gathering of Titans: I saw a room full of people with passion enough to start businesses, and with knowledge enough to build the systems and structures to survive and even do very well. But having spent so many years focused on converting a vision into a viable business, many started to fixate on WHAT the organization did or HOW to do it. Poring over financials or some other easily measured result, and fixating on HOW they were to achieve those tangible results, they stopped focusing on WHY they started the business in the first place. This is also what has happened at Wal-Mart. A company obsessed with serving the community became obsessed with achieving its goals.

Like Wal-Mart, the Endicott entrepreneurs used to think, act and communicate from the inside out of The Golden Circle—from WHY to WHAT. But as they grew more successful, the process reversed. WHAT now comes first and all their systems and processes are in pursuit of those tangible results. The reason the change happened is simple—they suffered a split and their WHY went fuzzy.

The single greatest challenge any organization will face is . . . success. When the company is small, the founder will rely on his gut to make all the major decisions. From marketing to product, from strategy to tactics, hiring and firing, the decisions the founder makes will, if he trusts his gut, feel right. But as the organization grows, as it becomes more successful, it becomes physically impossible for one person to make every major decision. Not only must others be trusted and relied upon to make big decisions, but those people will also start making hiring choices. And slowly but surely, as the megaphone grows, the clarity of WHY starts to dilute.

Whereas gut was the filter for early decisions, rational cases and empirical data often serve as the sole basis for later decisions. For all organizations that go through the split, they are no longer inspired by a cause greater than themselves. They simply come to work, manage systems and work to reach certain preset goals. There is no longer a cathedral to build. The passion is gone and inspiration is at a minimum. At that point, for most who show up every day what they do is just a job. If this is how the people on the inside feel, imagine how those on the outside feel. It is no wonder that manipulations start to dominate not only how the company sells its wares, but even how they retain employees. Bonuses, promotions and other enticements, even instilling fear in people, become the only way to hold on to talent. That’s hardly inspiring.

This diagram depicts the life of an organization. The top line represents the growth of WHAT the organization does. For a company, that measurement is usually money—profits, revenues, EBITA, share price or growth in market share. But the metric can be anything, depending on what the organization does. If the organization rescues lost puppies, then the metric would be the number of puppies successfully rescued. It is inherently simple to measure the growth of WHAT an organization does. WHATs, after all, are tangible and easy to count.

The second line represents the WHY, the clarity of the founding purpose, cause or belief. The goal is to ensure that as the measurement of WHAT grows, the clarity of the WHY stays closely aligned. Put another way, as the volume of the megaphone increases, the message traveling through it must stay clear.

The volume of the megaphone comes solely from growth of WHAT. As this metric grows, any company can become a “leading” company. But it is the ability to inspire, to maintain clarity of WHY, that gives only a few people and organizations the ability to lead. The moment at which the clarity of WHY starts to go fuzzy is the split. At this point organizations may be loud, but they are no longer clear.

When organizations are small, WHAT they do and WHY they do it are in close parallel. Born out of the personality of the founder, it is relatively easy for early employees to “get it.” Clarity of WHY is understood because the source of passion is near—in fact it physically comes to work every day. In most small businesses all the employees are all crammed into the same room and socialize together. Simply being around a charismatic founder allows that feeling of being a part of something special to flourish. Although there may be some efficiencies to be gained, for small businesses that are perfectly comfortable staying small, the need to articulate the WHY is not as important. For organizations that want to pass the School Bus Test, to become billion-dollar organizations or work at a scale large enough to shift markets or society, the need to manage through the split is paramount.

The School Bus Test is a simple metaphor. If a founder or leader of an organization were to be hit by a school bus, would the organization continue to thrive at the same pace without them at the helm? So many organizations are built on the force of a single personality that their departure can cause significant disruption. The question isn’t if it happens—all founders eventually leave or die—it’s just a question of when and how prepared the organization is for the inevitable departure. The challenge isn’t to cling to the leader, it’s to find effective ways to keep the founding vision alive forever.

To pass the School Bus Test, for an organization to continue to inspire and lead beyond the lifetime of its founder, the founder’s WHY must be extracted and integrated into the culture of the company. What’s more, a strong succession plan should aim to find a leader inspired by the founding cause and ready to lead it into the next generation. Future leaders and employees alike must be inspired by something bigger than the force of personality of the founder and must see beyond profit and shareholder value alone.

Microsoft has experienced a split, but is not so far down the line that it can’t be put back on track. There was a time not too long ago that people at Microsoft showed up at work every day to change the world. And they did. What Microsoft achieved, putting a PC on every desk, dramatically changed the way we live. But then their WHY went fuzzy. Few people at the company today are instructed to do everything they can to help people be more productive so that they can achieve their greatest potential. Instead, Microsoft became just a software company.

If you visit Microsoft’s headquarters in Redmond, Washington, you will find that although their WHY has gone fuzzy, it is not lost. That sense of a cause, that desire to change the world again, is still there, but it has become unfocused, wrapped up in HOW and WHAT they do. Microsoft has a remarkable opportunity to clarify their WHY and regain the inspiration that took them to where they are today. If they do not, if all they do is manage the WHAT and continue to ignore the WHY, they will end up looking like America Online, a company so far past the split that their WHY is indeed lost. There is barely a hint of the original WHY left anymore.

America Online used to inspire. Like Google today, it was the hot company to work for. People clamored to move to Virginia to work for this amazing company that was changing the rules of business. And it was true that, like all inspiring companies, AOL set in motion changes that profoundly altered how we do almost everything. They inspired a nation to get online. Their cause was clear and their decisions were governed by their WHY. Their goal was to get more people online, even if their decisions in pursuit of that goal wreaked havoc on their business in the short term. With their WHY in focus, AOL pulled ahead of their competition by deciding to change from hourly pricing for Internet access to unlimited monthly pricing, a decision that created so much traffic it shut down their servers. Given the impact, the decision was neither practical nor rational, but it was the right choice to help bring their cause to life. That their systems shut down with the additional traffic only pushed them to work harder to cope with it, to ensure that America could, in fact, get and stay online.

In those days, having an AOL e-mail address was a point of pride—a sign of being one of those who was a part of the Internet revolution. These days, still having an AOL e-mail address is a symbol of having been left behind. That the meaning of something as simple as @aol.com has changed so dramatically is additional proof that the company’s cause has long since departed. Absent a clear WHY, size and momentum are all AOL has to keep them going. The company is not inspiring anymore, not to those who work there and not to those on the outside. We don’t talk about them like we used to and we certainly don’t feel the same way about them either. We don’t compare them to Google or Facebook or any of the other industry-changing companies of today. Like a massive freight train with brakes applied, it will still take miles for this train to come to a complete stop. It’s simple physics. At best AOL’s size will help them putter along, but without a more compelling purpose, cause or belief, the company is simply a collection of stuff. It will probably end up being chopped up and sold off for scrap (technology or customers), which is a sad reality considering how inspiring AOL used to be.

It is not a coincidence that successful entrepreneurs long for the early days. It is no accident that big companies talk about a “return to basics.” What they are alluding to is a time before the split. And they would be right. They do indeed need to return to a time when WHAT they did was in perfect parallel to WHY they did it. If they continue down the path of focusing on their growth of WHAT at the expense of WHY—more volume and less clarity—their ability to thrive and inspire for years to come is dubious at best. Companies like Wal-Mart, Microsoft, Starbucks, the Gap, Dell and so many others that used to be special have all gone through a split. If they cannot recapture their WHY and reinspire those inside and outside their organization, every one of them will end up looking more like AOL than the companies they were.

What Gets Measured, Gets Done

In the fall of her freshman year in college, Christina Harbridge set out to find a part-time job. Intrigued by the prospect of working in the antiques business, she answered a newspaper ad in Sacramento to do office work for a “collector.” Harbridge soon found out, however, that the job was filing papers for a collections agent, and even then she wasn’t entirely sure what that meant.

The collections office consisted of a huge room with dozens of phone stations, each staffed by a debt collector making call after call to a long list of businesses and individuals who owed money. The setup of the room meant there was no privacy—everyone could hear everyone else’s calls. Harbridge was immediately taken by the harshness of the tone that all the collectors used with those from whom they aimed to collect unpaid debts. “They would hound them, and practically threaten them,” she said. “They would do anything it took to get information from them.” Harbridge recognized that the owner of the company and the collectors were all kind, gracious people. They helped each other out, listened to each other’s problems and even joined together to sponsor a homeless family during the holidays. But when they were on the phone to collect a debt, these same people turned passive-aggressive, rude and often mean. It’s not because they were bad people, it’s because they were incentivized to be that way.

Their officious behavior made perfect sense. “What gets measured gets done,” as well-known sales coach Jack Daly says. And in the world of debt collecting, the callers were given bonuses based on how much money they collected. This has resulted in an entire industry that threatens, badgers, hounds and provokes. It didn’t take long until Harbridge found herself adopting the same attitude whenever she talked with debtors. “I began treating people on the phone the way everybody else in the office treated them,” she said.

Feeling like WHAT she was doing was completely out of balance with her WHY, Harbridge decided there had to be another way. “I got it in my head that I was going to start an agency that collected by being nice,” she said. People in the collections business thought Harbridge naïve, if not crazy. And maybe she was.

In 1993, Harbridge moved to San Francisco and started her own collections firm, Bridgeport Financial, steeped in the belief that agents would have more success treating people with respect than badgering them. Harbridge built her company on her WHY—that everyone has a story and everyone deserves to be listened to. Her approach was to have her agents try to establish rapport with the debtor on the other end of the phone in the course of a three-minute conversation. The goal was to learn everything they could about the person’s circumstances: Did they have the means to pay the debt? Would they honor a payment plan? Was the reason for the failure to pay reflective of a short-term situation? “We would get people to tell us the truth,” she said. “Sure, we had a legal department, but we tried to avoid using it.” Harbridge knew, however, that no matter her intentions, if she measured the results the same way as others, the same awful behavior would result. So she came up with an entirely new way to incentivize her people. She found a way to measure WHY.

At Bridgeport Financial, bonuses were not given for the amount of money that was collected; they were given based on how many “thank you” cards her agents sent out. This is harder than it sounds. Sending out a card thanking someone for the time they spent talking on the phone requires a few things. First, Harbridge had to hire people who believed what she believed. She had to hire good fits. If her employees didn’t believe that everyone deserves to be listened to, it wouldn’t work. Only good-fit hires would be capable of creating an environment on the telephone that would actually warrant sending a thank-you card, even though the purpose of the call was to ask for money. Harbridge measured WHY her company existed, not WHAT they did, and the result was a culture in which compassion was valued above all.

But what about the other results? What about her financial results, the ones most businesses pursue first? Bridgeport Financial collected 300 percent more than the industry average. What’s more, most of the people and companies who were initially being pursued ended up doing more business with the original company that sent the collections agency after them in the first place. This is almost unprecedented in the collections industry.

Harbridge’s business succeeded not just because she knew WHY she was doing what she was doing, but because she found a way to measure the WHY. The company’s growth was loud and her cause was clear. She started with WHY and the rest followed.

Most organizations today use very clear metrics to track the progress and growth of WHAT they do—usually it’s money. Unfortunately, we have very poor measurements to ensure that a WHY stays clear. Dwayne Honoré has for the past ten years run his own commercial construction company in Baton Rouge, Louisiana, a trade he learned from his father. A leader with a deep sense of purpose, he devised some years ago a brilliant system to ensure that his values are reinforced in his company’s culture. He figured out how to measure something most people can only pay lip service to: work-life balance. Honoré believes that people should not spend all their time at work, but rather they should work to spend more of their time with their families.

Every employee at Honoré Construction is required to clock in in the morning and clock out in the evening. But there’s a catch. They must clock in between 8:00–8:30 a.m. and out by 5:00–5:30 P.M. Stay any later and they are taken out of a bonus pool. Because employees know they have to leave by 5:30 p.m., wasted time has dropped to a minimum. Productivity is high and turnover is low. Consider how much you get done the day before you go on vacation. Now imagine every day is like that. That’s what Dwayne Honoré figured out how to do. Because he figured out how to measure a value he holds dear, that value is embraced. Most importantly, because Honoré’s actions pass the Celery Test, others can clearly see what he believes.

Money is a perfectly legitimate measurement of goods sold or services rendered. But it is no calculation of value. Just because somebody makes a lot of money does not mean that he necessarily provides a lot of value. Likewise, just because somebody makes a little money does not necessarily mean he provides only a little value. Simply by measuring the number of goods sold or the money brought in is no indication of value. Value is a feeling, not a calculation. It is perception. One could argue that a product with more bells and whistles that sells for less is the greater value. But by whose standard?

My uncle used to make tennis rackets. His rackets were made in the exact same factory as a name-brand racket. They were made of the same material on the same machine. The only difference was that when my uncle’s rackets came off the assembly line, they didn’t put the well-known brand logo on the product. My uncle’s rackets sold for less money, in the same big-box retailer, next to the name-brand rackets. Month after month, the name-brand rackets outsold the generic-brand ones. Why? Because people perceived greater value from the name-brand rackets and felt just fine paying a premium for that feeling. On a strictly rational scale, the generic rackets offered better value. But again, value is a perception, not a calculation, which is the reason companies make such a big deal about investing in their brand. But a strong brand, like all other intangible factors that contribute to the perception of value, starts with a clear sense of WHY.

If those outside the megaphone share your WHY and if you are able to clearly communicate that belief in everything you say and do, trust emerges and value is perceived. When that happens, loyal buyers will always rationalize the premium they pay or the inconvenience they suffer to get that feeling. To them, the sacrifice of time or money is worth it. They will try to explain that their feeling of value comes from quality or features or some other easy-to-point-to element, but it doesn’t. Those are external factors and the feeling they get comes completely from inside them. When people can point to a company and clearly articulate what the company believes and use words unrelated to price, quality, service and features, that is proof the company has successfully navigated the split. When people describe the value they perceive with visceral, excited words like “love,” that is a sure sign that a clear sense of WHY exists.

Good Successions Keep the WHY Alive

There were three words missing from Bill Gates’s goodbye speech when he officially left Microsoft in June 2008. They are three words he probably doesn’t even realize need to be there.

“I’ll be back.”

Though Gates abdicated his role as CEO of Microsoft to Steve Ballmer in 2000 to lend more time and energy to the Bill and Melinda Gates Foundation, he still maintained a role and a presence at the Microsoft headquarters in Redmond, Washington. His plan was always to completely leave the company in the care of others, but like a lot of founders, Gates forgot to do one thing that would allow his plan to work. This one oversight could have a devastating impact on Microsoft and may even require him to come back someday to right the ship he built.

Bill Gates is special. Not just because of his brain or his management style. Though important, those two things alone are not the formula for building a $60 billion corporation from scratch. Like all visionary leaders, Bill Gates is special because he embodies what he believes. He is the personification of Microsoft’s WHY. And for that reason, he serves as a physical beacon, a reminder of WHY everyone comes to work.

When Gates founded Microsoft with Paul Allen in 1975, he did so to advance a higher cause: if you give people the right tools, and make them more productive, then everyone, no matter their lot in life, will have an opportunity to achieve their real potential. “A PC in every home and on every desk,” he envisioned; remarkable from a company that didn’t even make PCs. He saw the PC as the great equalizer. Microsoft’s most successful software, Windows, allowed anyone to have access to powerful technology. Tools like Word, Excel and PowerPoint gave everyone the power to realize the promise of the new technology—to become more efficient and productive. Small businesses, for example, could look and act like big businesses. Microsoft’s software helped Gates advance his cause to empower the “everyman.” Make no mistake, Microsoft has done more to change the world than Apple. Though we are drawn to Apple’s well-deserved reputation for innovation and challenging the business models of more than one industry, it is Microsoft that was responsible for the advancement of the personal computer. Gates put a PC on every desk and in doing so he changed the world. As the physical embodiment of the company’s WHY, the “everyman” who fulfilled an amazing potential, what happens now that he’s gone?

Gates himself has always held that he receives a “disproportionate” amount of attention for his role at Microsoft, much of it, of course, due to his exceptional wealth. Like all inspired leaders, he recognizes that his role is to lead the cause, but it is others who will be physically responsible for bringing that cause to life. Martin Luther King Jr. could not have changed America walking across a bridge in Selma, Alabama, with five prominent civil rights leaders. It took the thousands of people marching behind them to spur change. Gates recognizes the need for people to produce real change, but he neglected to remember that any effective movement, social or business, needs a leader to march in the front, preaching the vision and reminding people WHY they showed up in the first place. Though King needed to cross the bridge from Selma on his march to Montgomery, it was what it meant to cross the bridge that mattered. Likewise in business, though profit and shareholder value are valid and essential destinations, they do not inspire people to come to work.

Although Microsoft went through the split years ago, changing from a company that intended to change the world into a company that makes software, having Gates hanging around helped Microsoft maintain at least a loose sense of WHY they existed. With Gates gone, Microsoft does not have sufficient systems to measure and preach their WHY anymore. This is an issue that will have an exponential impact as time passes.

Such a departure as Gates’s is not without precedent among companies with equally visionary leaders. Steve Jobs, the physical embodiment of the rabble-rousing revolutionary, a man who also personifies his company’s WHY, left Apple in 1985 after a legendary power struggle with Apple’s president, John Sculley, and the Apple board of directors. The impact on Apple was profound.

Originally hired by Jobs in 1983, Sculley was a perfectly capable executive with a proven track record. He know WHAT to do and HOW to do things. He was considered one of the most talented marketing executives around, having risen quickly through the ranks of PepsiCo. At Pepsi, he created the wildly successful Pepsi Challenge taste test advertising campaign, leading Pepsi to overtake Coca-Cola for the first time. But the problem was, Sculley was a bad fit at Apple. He ran the company as a business and was not there to lead the cause.

It is worth considering how such a bad fit as Sculley even got the job at Apple in the first place. Simple—he was manipulated. Sculley did not approach Jobs and ask to be a part of Apple’s cause. The way the real story unfolded made the fallout almost predictable. Jobs knew he needed help. He knew he needed a HOW guy to help him scale his vision. He approached Sculley, a man with a solid résumé, and said, “Do you want to sell sugar water your whole life or do you want to change the world?” Playing off Sculley’s ego, aspirations and fears, Jobs completed a perfectly executed manipulation. And with it, Jobs was ousted from his own company a few years later.

Apple thrived on Steve Jobs’s fumes for a few years as businesses started buying up Macintoshes and software developers continued to create new software. But it wouldn’t be long until the company would begin to falter. Apple just wasn’t what it used to be. It had gone through the split and ignored it. The WHY was getting fuzzier and fuzzier with each passing year. The inspiration was gone. Literally.

With a capable executive like Sculley running the business, there was no one to lead the cause. New products would be “less revolutionary and more evolutionary,” reported FORTUNE magazine at the time, “some people might even call them dull.” Weary of Apple’s “right brain” ways, Sculley reorganized the company repeatedly, each time trying to get back what Apple clearly had lost. He brought in a new executive staff to help. But all they were doing was trying to manage HOW the company worked when it was the WHY that needed attention. Needless to say, morale was dismal. It wasn’t until Jobs returned in 1997 that everyone inside and outside the company was reminded WHY Apple existed. With clarity back, the company quickly reestablished its power for innovation, for thinking different and, once again, for redefining industries. With Jobs at the helm again, the culture for challenging the status quo, for empowering the individual, returned. Every decision was filtered through the WHY, and it worked. Like most inspiring leaders, Jobs trusted his gut over outside advice. He was regularly criticized for not making mass-market decisions, such as letting people clone the Mac. He couldn’t; those actions violated what he believed. They failed the Celery Test.

When the person who personifies the WHY departs without clearly articulating WHY the company was founded in the first place, they leave no clear cause for their successor to lead. The new CEO will come aboard to run the company and will focus attention on the growth of WHAT with little attention to WHY. Worse, they may try to implement their own vision without considering the cause that originally inspired most people to show up in the first place. In these cases, the leader can work against the culture of the company instead of leading or building upon it. The result is diminished morale, mass exodus, poor performance and a slow and steady transition to a culture of mistrust and every-man-for-himself.

It happened at Dell. Michael Dell, too, had a cause when he started his company. From the start, he focused on efficiency as a way of getting more computing power into more hands. Unfortunately, it was a cause that he too forgot, and then didn’t communicate well enough before he stepped down as CEO of Dell Corp. in July 2004. After the company started to weaken—customer service, for one, plummeted—he came back in less than three years.

Michael Dell recognized that without him present to keep energy focused on the reason Dell Corp. was founded, the company became more obsessed with WHAT at the expense of WHY. “The company was too focused on the short term, and the balance of priorities was way too leaning toward things that deliver short-term results—that was the major root cause,” Dell told the New York Times in September 2007. The company had in fact become so dysfunctional that some managers were compelled to falsify earnings reports between 2003 and 2006 in order to meet sales targets, suggesting a corporate culture that put undue pressure on managers to meet bottom-line targets. In the meantime, the company had missed significant market shifts, most notably the potential of the consumer market, and lost its edge with component suppliers as well. And in 2006, Hewlett-Packard swept past Dell as the largest seller of PCs worldwide. Dell had gone through the split and failed to recognize the reason it wasn’t the company it used to be.

Starbucks is another good example. In 2000, Howard Schultz resigned as CEO of Starbucks, and for the first time in its history and despite 50 million customers per week, the company started to crack.

If you look back at the history of Starbucks, it thrived not because of its coffee but because of the experience it offered to customers. It was Schultz who brought that WHY to the company when he arrived in 1982, ten years after Gordon Bowker, Jerry Baldwin and Zev Siegl first started selling coffee beans in Seattle. In the early days it was about the coffee. Schultz, frustrated that the founders of Starbucks couldn’t see the larger vision, set out to put the company on a new course, the course that ultimately turned Starbucks into the company we know today. Schultz had been enamored of the espresso bars of Italy, and it was his vision of building a comfortable environment between work and home, the “third space,” as he called it, that allowed Starbucks to single-handedly create a coffee-shop culture in the United States that had until then only existed on college campuses.

That was the time when Starbucks stood for something. It reflected an underlying belief about the world. It was that idea that people bought, not the coffee. And it was inspiring. But Starbucks, like so many before it, went through the inevitable split. They, too, forgot about WHY the company was founded and started focusing on the results and the products. There was a time when Starbucks offered the option to sip your coffee out of a ceramic cup and eat your Danish off a ceramic plate. Two perfect details that helped bring the company’s belief to life in the place between work and home. But ceramic crockery is expensive to maintain and Starbucks did away with it, favoring the more efficient paper cups. Though it saved money, it came at a cost: the erosion of trust. Nothing says to a customer “We love you, now get out” like a paper cup. It was no longer about the third space. It had become about the coffee. Starbucks’s WHY was going fuzzy. Thankfully, Schultz was there, the physical embodiment of the WHY, to remind people of the higher cause. But in 2000 he left, and things got worse.

The company had grown from fewer than 1,000 stores to 13,000 in only ten years. Eight years and two CEOs later, the company was dangerously overextended just as it was facing an onslaught of competition from McDonald’s, Dunkin’ Donuts and other unexpected places. In a now famous memo that Schultz wrote to his successor, Jim Donald, just months before returning to take the helm, he implored Donald to “make the changes necessary to evoke the heritage, the tradition and the passion that we all have for the true Starbucks experience.” The reason the company was floundering was not that it grew too fast, but that Schultz had not properly infused his WHY into the organization so that the organization could manage the WHY without him. In early 2008, Schultz replaced Donald with a leader who could better steer the company back to a time before the split: himself.

None of these executives are considered God’s gift to management. Steve Jobs’s paranoia, for example, is well documented, and Bill Gates is socially awkward. Their companies are thousands of people deep and they alone can’t pull all the strings or push all the buttons to make everything work properly. They rely on the brains and the management skills of teams of people to help them build their megaphones. They rely on people who share their cause. In this respect, they are no different from other executives. But what they all have in common, something that not all CEOs possess, is that they physically embody the cause around which they built their companies. Their physical presence reminds every executive and every employee WHY they show up to work. Put simply: they inspire. Yet, like Bill Gates, these inspired leaders have all failed to properly articulate their cause in words that others could rally around in their absence. Failing to put the movement into hard words leaves them as the only ones who can lead the movement. What happens when Jobs or Dell or Schultz leave again?

For companies of any size, success is the greatest challenge. As Microsoft grew, Gates stopped talking about what he believed and how he was going to change the world and started talking about what the company was doing. Microsoft changed. Founded as a company that believed in making people more productive so they could achieve their highest potential, Microsoft became a company that simply made software products. Such a seemingly subtle change affects behaviors. It alters decisions. And it impacts how a company structures itself for the future. Though Microsoft had changed since its founding, the impact was never as dramatic because at least Bill Gates was there, the physical embodiment of the cause that inspired his executives and employees.

Microsoft is just one of the tangible things Gates has done in his life to bring his cause to life. The company is one of the WHATs to his WHY. And now he’s off to do something else that also embodies his cause—to use the Gates Foundation to help people around the world wake up every day to overcome obstacles so they too can have an opportunity achieve their potential. The only difference is he’s not doing it with software anymore. Steve Ballmer, a smart man by all accounts, does not physically embody Gates’s vision of the world. He has the image of a powerful executive who sees numbers, competitors and markets. He is a man with a gift for managing the WHAT line. Like John Sculley at Apple, Jim Donald at Starbucks and Kevin Rollins at Dell—all the CEOs who replaced the visionary founders or executives—Ballmer might be the perfect man to work alongside a visionary, but is he the perfect man to replace one?

The entire culture of all these companies was built around one man’s vision. The only succession plan that will work is to find a CEO who believes in and wants to continue to lead that movement, not replace it with their own vision of the future. Ballmer knows how to rally the company, but can he inspire it?

Successful succession is more than selecting someone with an appropriate skill set—it’s about finding someone who is in lockstep with the original cause around which the company was founded. Great second or third CEOs don’t take the helm to implement their own vision of the future; they pick up the original banner and lead the company into the next generation. That’s why we call it succession, not replacement. There is a continuity of vision.

One of the reasons Southwest Airlines has been so good at succession is because its cause is so ingrained in its culture, and the CEOs who took over from Herb Kelleher also embodied the cause. Howard Putnam was the first president of Southwest after Kelleher. Though he was a career airline guy, it was not his résumé that made him so well suited to lead the company. He was a good fit. Putnam recounts the time he met with Kelleher to interview for the job. Putnam leaned back in his chair and noticed that Kelleher had slipped his shoes off under the desk. More significantly, Putnam noticed the hole in one of Kelleher’s socks. It was at that point that Putnam felt he was the right man for the job. He loved that Kelleher was just like everyone else. He too had holes in his socks.

Although Putnam felt Southwest was right for him, how do we know if he was right for Southwest? I had a chance to spend half a day with Putnam to talk. At one point in the afternoon I suggested we take a break and grab a Starbucks. The mere suggestion incensed him. “I’m not going to Starbucks!” he cracked. “I’m not paying five dollars for a cup of coffee. And what the heck is a Frappuccino anyway?” It was at that point I realized how perfect a fit Putnam was for Southwest. He was an everyman. A Dunkin’ Donuts guy. He was a perfect man to take the torch from Kelleher and charge forward. Southwest inspired him. In the case of Howard Putnam, Kelleher hired somebody who could represent the cause, not reinvent it.

Today it has become so acculturated there that it’s almost automatic. The same could be said for Colleen Barrett, who became president of Southwest in 2001, some thirty years after she was working as Kelleher’s secretary in his San Antonio law firm. By 2001, the company had nearly 30,000 employees and a fleet of 344 planes. By the time she took over, Barrett says that running the company had become “a very collective effort.” Kelleher stopped his day-to-day involvement in the company, but left a corporate culture so strong that his presence in the hallways was no longer needed. The physical person had largely been replaced by the folklore of Kelleher. But it is the folklore that has helped keep the WHY alive. Barrett freely admits she’s not the smartest executive out there. She is self-deprecating in her personal assessment, in fact. But as the leader of the company, being the smartest was not her job. Her job was to lead the cause. To personify the values and remind everyone WHY they are there.

The good news is, it will be easy to know if a successor is carrying the right torch. Simply apply the Celery Test and see if what the company is saying and doing makes sense. Test whether WHAT they are doing effectively proves WHY they were founded. If we can’t easily assess a company’s WHY simply from looking at their products, services, marketing and public statements, then odds are high that they don’t know what it is either. If they did, so would we.

When the WHY Goes, WHAT Is All You’ll Have Left

On April 5, 1992, at approximately eight in the morning, Wal-Mart lost its WHY. On that day, Sam Walton, Wal-Mart’s inspired leader, the man who embodied the cause around which he built the world’s largest retailer, died in the University of Arkansas Medical Science Hospital in Little Rock of bone marrow cancer. Soon after, Walton’s oldest son, S. Robeson Walton, who succeeded his father as chairman of the company, gave a public statement. “No changes are expected in the corporate direction, control or policy,” he said. Sadly for Wal-Mart employees, customers and shareholders, that is not what happened.

Sam Walton was the embodiment of the everyman. Though he was named the richest man in America by Forbes magazine in 1985, a title he held until he died, he never understood the importance others placed on money. Certainly, Walton was a competitor, and money was a good yardstick of success. But that’s not what gave Walton or those who worked at Wal-Mart the feeling of success. It was people Walton valued above all else. People.

Look after people and people will look after you was his belief, and everything Walton and Wal-Mart did proved it. In the early days, for example, Walton insisted on showing up for work on Saturdays out of fairness to his store employees who had to work weekends. He remembered birthdays and anniversaries and even that a cashier’s mother had just undergone gallbladder surgery. He chastised his executives for driving expensive cars and resisted using a corporate jet for many years. If the average American didn’t have those things, then neither should those who are supposed to be their champions.

Wal-Mart never went through a split under Walton’s command, because Walton never forgot where he came from. “I still can’t believe it was news that I get my hair cut at the barbershop. Where else would I get it cut?” he said. “Why do I drive a pickup truck? What am I supposed to haul my dogs around in, a Rolls-Royce?” Often seen wearing his signature tweed jacket and a trucker’s cap, Walton was the embodiment of those he aimed to serve—the average-Joe American.

With a company so beloved by employees, customers and communities, Walton made only one major blunder. He didn’t put his cause into clear enough words so that others could continue to lead the cause after he died. It’s not entirely his fault. The part of the brain that controls the WHY doesn’t control language. So, like so many, the best Walton could articulate was HOW to bring his cause to life. He talked about making products cheap to make things more affordable to the average working American. He talked about building stores in rural communities so that the backbone of America’s workforce didn’t have to travel to the urban centers. It all made sense. All his decisions passed the Celery Test. It was the WHY upon which the company was built, however, that was left unsaid.

Walton was involved in the company until just before his death, when his ailing health prevented him from participating any longer. Like all organizations with founder-leaders whose physical presence helps keep the WHY alive, his continued involvement in the company had reminded everyone WHY they came to work every day. He inspired everyone around him. Just as Apple ran on the fumes of Steve Jobs for a few years after he left the company before significant cracks started to show, so did Wal-Mart remember Sam Walton and his WHY for a short time after he died. But as the WHY started to get fuzzier and fuzzier, the company changed direction. From then on, there would be a new motivation at the company, and it was something that Walton himself cautioned against: chasing money.

Costco was cofounded in 1983 by WHY-type Jim Sinegal and HOW-type Jeffrey Brotman. Sinegal learned about discount retailing from Sol Price, the same person from whom Sam Walton admitted to “borrowing” much of what he knew about the business. And, like Walton, Sinegal believes in people first. “We’re going to be a company that’s on a first-name basis with everyone,” he said in an interview on ABC’s newsmagazine show 20/20. Following the same formula as other inspiring leaders, Costco believes in looking after its employees first. Historically, they have paid their people about 40 percent more than those who work at Sam’s Club, the Wal-Mart–owned discount warehouse. And Costco offers above-average benefits, including health coverage for more than 90 percent of their employees. As a result, their turnover is consistently five times lower than Sam’s Club.

Like all companies built around a cause, Costco has relied on their megaphone to help them grow. They don’t have a PR department and they don’t spend money on advertising. The Law of Diffusion is all that Costco needed to get the word out. “Imagine that you have 120,000 loyal ambassadors out there who are constantly saying good things about you,” quips Sinegal, recognizing the value of trust and loyalty of his employees over advertising and PR.

For years, Wall Street analysts criticized Costco’s strategy of spending so much on their people instead of on cutting costs to boost margins and help share value. Wall Street would preferred the company to focus on WHAT they did at the expense of WHY they did it. A Deutsche Bank analyst told FORTUNE magazine, “Costco continues to be a company that is better at serving the club member and employee than the shareholder.”

Fortunately, Sinegal trusts his gut more than he trusts Wall Street analysts. “Wall Street is in the business of making money between now and next Tuesday,” he said in the 20/20 interview. “We’re in the business of building an organization, an institution that we hope will be here fifty years from now. And paying good wages and keeping people working with you is very good business.”

The amazing insight in all of this is not just how inspiring Sinegal is, but that almost everything he says and does echoes Sam Walton. Wal-Mart got as big as it did doing the exact same thing—focusing on WHY and ensuring that WHAT they did proved it. Money is never a cause, it is always a result. But on that fateful day in April 1992, Wal-Mart stopped believing in their WHY.

Since Sam Walton’s death, Wal-Mart has been battered by scandals of mistreating employees and customers all in the name of shareholder value. Their WHY has gone so fuzzy that even when they do things well, few are willing to give them credit. The company, for example, was among the first major corporations to develop an environmental policy aimed at reducing waste and encouraging recycling. But Wal-Mart’s critics have grown so skeptical of the company’s motives that the move was largely dismissed as posturing. “Wal-Mart has been working to improve its image and lighten its environmental impact for several years now,” a column published on the New York Times Web site on October 28, 2008, read. “Wal-Mart is still selling consumerism even as it pledges to cut the social and environmental costs of making the stuff in its stores.” Costco, on the other hand, was later than Wal-Mart to announce an environmental policy, yet has received a disproportionate amount of attention. The difference is that people believe it when Costco does it. When people know WHY you do WHAT you do, they are willing to give you credit for everything that could serve as proof of WHY. When they are unclear about your WHY, WHAT you do has no context. Even though the things you do or decisions you make may be good, they won’t make sense to others without a clear understanding of WHY.

And what of the results? Still running on the memory of Sam Walton, Wal-Mart’s culture stayed intact at first, and the value of the two stocks was about even for a few years after Walton died. But as Wal-Mart continued to run its business in a post-Sam, post-split manner while Costco maintained clarity of WHY, the difference in value changed dramatically. An investment in Wal-Mart on the day Sam Walton died would have earned a shareholder a 300 percent gain by the time this book was written. An investment made in Costco on the same day would have netted an 800 percent gain.

Costco’s advantage is that the embodiment of their WHY, Jim Sinegal, is still there. The things he says and does help reinforce to all those around him what the company stands for. Staying true to that WHY, Sinegal draws a $430,000 salary, a relatively small amount given the size and success of the company. At Wal-Mart’s peak, Sam Walton never took a salary of more than $350,000 per year, also consistent with what he believed. David Glass, the first man to take over as CEO after Sam Walton, a man who had spent considerable time around Walton, said, “A lot of what goes on these days with high-flying companies and these overpaid CEOs, who’re really just looting from the top and aren’t watching out for anybody but themselves, really upsets me. It’s one of the main things wrong with American business today.” Three more CEOs have attempted to carry the torch that Walton lit. And with each succession that torch, that clear sense of purpose, cause and belief, has grown dimmer and dimmer. The new hope lies in Michael T. Duke, who took over as CEO in early 2009. Duke’s goal is to restore the luster and the clarity of Wal-Mart’s WHY.

And to do it, he started by paying himself an annual salary of $5.43 million.