Great by ChoiceJim Collins and Morten Hansen Uncertainty, chaos and luck—Why some thrive despite them all!
South Pole Victory awaits him who has everything in order—luck people call it. Defeat is certain from him who has neglected to take the necessary precautions in time; this is called bad luck. -Roald Amundsen
Selection Criteria • Spectacular results for an era of 15+ years relative to the stock market and industry • Turbulent environment—uncontrollable, fast-moving, uncertain and potentially harmful • Began from a position of vulnerability, being young and/or small at the start of its 10X journey
Myths • Successful leaders in a turbulent world are bold, risk-seeking visionaries • Innovation distinguishes 10X companies in a fast-moving, uncertain, and chaotic world • A threat-filled world favors the speedy; you’re either the quick or the dead • Radical change on the outside requires radical change on the inside • Great enterprises with 10X success have a lot more good luck
Behaviors in 10X Leadership Fanatic DISCIPLINE Level 5 AMBITION Empirical CREATIVITY Productive PARANOIA
Fanatic Discipline • Consistency of Action • Consistency with: • Values • Long-term goals • Performance standards • Long-term aspirations • Self Discipline=inner will to do whatever it takes to create a great outcome, no matter how difficult
20 Mile March • Consistent performance no matter what • Lower bound and Upper bound • Discomfort • Unwavering commitment to high performance in difficult conditions • Discomfort of holding back in good conditions
20 Mile March • Which company would you invest in, A or B? • Both small companies • Fast growing industry • Spinning out disruptive technology • Thriving on rapidly growing customer demand • Company A: 25% average annual growth 19 years • Company B: 45% average annual growth 19 same years
20 Mile March • Additional information:
Stryker: 350 times USSC: Fell below market and disappeared
Stryker’s 20 Mile March • Achieve 20% net income growth every year • Law—not an option • Snorkel Award for those that lagged • Behind for 2 years—CEO would “help” working around the clock • No excuses
Elements of a Good 20 Mile March • Performance markers—lower bound of acceptable achievement • Self-imposed constraint—upper bound in exceptionally good conditions • Tailored to enterprise • Lies largely within your control to achieve • Goldilocks time frame—not too short and not too long but just right • Designed and self-imposed by the enterprise • Must be achieved with great consistency. Good intentions don’t count
20 Mile March Accomplishing a 20 Mile March, consistently, in good times and bad, builds confidence. Tangible achievement in the face of adversity reinforces the 10X perspective: we are ultimately responsible for improving performance. We never blame circumstance; we never blame the environment.
20 Mile March Failure to 20 Mile March in an uncertain and unforgiving environment can set you up for catastrophe. Every comparison case had an episode in its history in which failing to 20 Mile March led to a devastating outcome. In contrast, only two 10X companies had episodes of failing to 20 Mile March, and neither of these episodes led to a catastrophe because the 10X companies self-corrected before a storm could rise up and kill them.
20 Mile March Like Amundsen and his team, the 10Xers and their companies use their 20 Mile Marches as a way to exert self-control, even when afraid or tempted by opportunity. Having a clear 20 Mile March focuses the mind; because everyone on the team knows the markers and their importance, they can stay on track.
Exercise • Determine a good 20 mile march for your organization
Empirical Creativity • Is innovation a key to successful companies? • Don’t creative companies outperform other less creative companies?
Empirical Creativity • Only 9% of pioneers end up as the final winners in a market • 64% of pioneers failed outright. • It seems that pioneering innovation is good for society but statistically lethal for the individual pioneer.
Empirical Creativity The evidence from our research does not support the premise that 10X companies will necessarily be more innovative than their less successful comparisons. And in some surprise cases, such as Southwest Airlines versus PSA and Amgen versus Genentech, the 10X companies were less innovative than the comparisons.
Innovation Each environment has a level of “threshold innovation” that you need to meet to be a contender in the game… Companies that fail even to meet the innovation threshold cannot win. But once you’re above the threshold, especially in a highly turbulent environment, being more innovative doesn’t seem to matter very much.
Discipline and Innovation • Intel versus Advance Memory Systems—1970 • AMS produced first 1000 bit memory chip • Intel rushed to market its 1103 chip late 1970 but had problems • In spite of these problems, by 1973 Intel crushed AMS • Reason: “Intel Delivers”--Intel believed that innovation without discipline leads to disaster.
Discipline The great task, rarely achieved, is to blend creative intensity with relentless discipline so as to amplify the creativity rather than destroy it. When you marry operating excellence with innovation, you multiply the value of your creativity. And that is what 10Xers do.
Empirical Creativity Amgen’s early days illustrate a key pattern we observed: fire bullets, then fire cannonballs. First, you fire bullets to figure out what will work. Then once you have empirical confidence based on the bullets, you concentrate your resources and fire a cannonball. After the cannonball hits, you keep 20 Mile Marching to make the most of your big success.
What Makes a Bullet? A bullet is an empirical test aimed at learning what works and that meets three criteria: • Low Cost • Low Risk • Low Distraction
Empirical Combination of Activities • Fire bullets • Assess: Did your bullets hit anything? • Consider: Do any of your successful bullets merit conversion to a big cannonball? • Convert: Concentrate resources and fire a cannonball once calibrated • Don’t fire uncalibrated cannonballs • Terminate bullets that show no evidence of eventual success
Empirical Validation • If an enterprise gets slammed by a series of shocks just as its uncalibrated cannonballs go crashing off into space, it’s more likely to have a catastrophic outcome (PSA). • In the face of instability, uncertainty, and rapid change, relying upon pure analysis will likely not work, and just might get you killed. Analytic skills still matter, but empirical validation matters much more (Progressive).
Steps A big, successful venture can look in retrospect like a single-step creative breakthrough when, in fact, it came about as a multistep iterative process based more upon empirical validation than visionary genius. The marriage of fanatic discipline and empirical creativity better explains Apple’s revival than breakthrough innovation per se.
Exercise • Determine two “bullets” that would apply to your business
Productive Paranoia • Build cash reserves and buffers to prepare for unexpected events and bad luck before they happen • Bound risk—Death Line risk, asymmetric risk, and uncontrollable risk—and manage time-based risk. • Zoom out, then zoom in, remaining hypervigilant to sense changing conditions and respond effectively
Productive Paranoia 1 • Extra Oxygen canisters—it’s what you do before the storm comes • Cash reserves—10X companies carried 3-10 times the ration of cash to assets (87,117 companies compared) • 10Xers are “Paranoid, neurotic freaks”—even when they were small and starting out • Black Swan events—Hard to predict but high probability they will occur
Southwest 2001 • On 9/11, SW had $1B in cash on hand and highest credit rating in the industry • Lowest cost-per-available-seat-mile • Crisis plan in place • No jobs cut • No flights cut • Turned a profit in 2001 including Q4 • Turned a profit in 2002
Productive Paranoia 2—Bounding Risk • Death Line risk--Kill you or severely damage the enterprise • Asymmetric risk—Potential downside is much bigger than the potential upside • Uncontrollable risk—Expose the enterprise to forces and events that it has little ability to manage or control
Acting on Risk Sometimes acting too fast increases risk. Sometimes acting too slow increases risk. The critical questions is, “How much time before your risk profile changes?” Do you have Seconds? Minutes? Hours? Days? Weeks? Months? Years? Decades? The primary difficulty lies not in answering the questions but in having the presence of mind to ask the question.
Productive Paranoia 3: Zoom Out, then Zoom In Gorilla in the room Zoom Out Sense a change in conditions Assess the time frame: How much time before the risk profile changes? Assess with rigor: Do the new conditions call for disrupting plans? If so, how? Zoom In Focus on supreme execution of plans and objectives
Intel’s Zoom Out then Zoom In • Intel identified that Intel’s 8086 processor was falling behind Motorola’s 68000 chip—Intel becoming obsolete • Dec 4, 1979 Special Task Force formed • Analyzed the threat—Why is Motorola winning? How important is it? How can we counter • Counterattack—Zoom In—2000 design wins within a year
Action • When facing fast-moving threats, 10X teams neither freeze up nor immediately react; they think first, even when they need to think fast. • Remember, not all time is equal. Live serves up moments that count much more than other moments.
Level 5 Leadership • Don’t define themselves by money, fame or power • They define themselves by impact and contribution and purpose • The central question is, “What are you in it for?” 10X leaders can be bland or colorful, uncharismatic or magnetic, understated or flamboyant, normal to the point of dull or just flat-out weird—none of this really matters, as long as they’re passionately driven for a cause beyond themselves.
SMaC Recipe • Specific, Methodical and, Consistent • Set of durable operating practices that create a replicable and consistent success formula—include things not to do • Not strategy, culture, core values, purpose, or tactics
SMaC Advantages • Keep bearings and sustain high performance in extreme conditions • Creates confidence that the team can perform following the SMaC • Establishes control in areas that you have control • The more unforgiving your world, the more SMaC you need to be
SMaC • Durable—lasts over time • Comparison companies changed recipes 4X as much as the 10Xers • Requires fanatic discipline—stay the course The signature of mediocrity is not an unwillingness to change; the signature of mediocrity is chronic inconsistency.
Exercise • Create your SMaC • Identify at least three durable operating practices for your company • One must be a “do not”
Luck • Definition—Must meet all three tests • Some significant aspect of the event occurs largely or entirely independent of the actions of the key actors in the enterprise • The event has a potentially significant consequence (good or bad) and • The event has some element of unpredictability
Luck • Did 10Xers have more good luck than comparison companies? No! • Did comparison companies have more bad luck than the 10Xers? No! • Did the 10Xers have a big “luck spike” that gave them a huge advantage? Only 1 (with reservations) • Did the 10Xers get more luck early? No!
Luck • Adding up all the evidence, we found that the 10X cases were not generally luckier than the comparison cases. The 10X cases and the comparisons both got luck, good and bad, in comparable amounts. The evidence leads us to conclude that luck does not cause 10X success. People do. The critical question is not “Are you lucky” but “Do you get a high return on luck?”
Luck Don’t Confuse Luck with Return on Luck (ROL) Bad Luck Good Great Return on Luck Poor