Great by Choice-Uncertainty, Chaos, and Luck–Why Some Thrive Despite Them All

Great by Choice-Uncertainty, Chaos, and Luck–Why Some Thrive Despite Them All

Recommend 8/10

ISBN: 978-0062120991

Author(s): Jim Collins, Morten T. Hansen.

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Description

What’s the difference between a a regular company and a great company? Why do some companies make it against all odds? How much does luck play in the role of a successful business? Is there a plan you can create that will make your business amazing? These are the topics this book covers.

Collins and Hansen use empirical data to push through the myths about what makes a company a great company that lasts. The advice given is pretty straight forward and can be applied to any business. The findings in the book shouldn’t be a surprise, but many of them go against modern concepts of company management which largely focus on short-term gains to please shareholders.

If you are running a company or plan to start one, this book will be worth the read.

My Notes

Disclaimer: These are my personal notes about what I found important. They are not a replacement for reading the book, which I recommend you do.

All 10Xers studied were non-conformists. They started with values, purpose, long-term goals, and severe performance standards, and stuck to them regardless of whether it was normal or despite of external pressures

Fanatic Discipline

10Xers have Discipline- Defined as consistency of action

True discipline requires mental independence and not just following rules.

Empirical Creativity

When faced with significant uncertainty, they turn to empirical evidence. Rather than turning to their peers or “common sense” they use empirical data to make decisions. Using empirical data gives you well founded confidence and bounds your risk.

Productive Paranoia

10Xers keep hyper-vigilance in good times as well as bad. They always consider the possibility that events can turn against them at any moment and so they are better prepared. Its not about paranoia directly, but how they take action because of it. They succeed in uncertain, harsh environments through deliberate, methodical, and systematic preparation. Always asking, what if?

Level 5 Ambition

People follow them because they channel their ambition into building something bigger than themselves. They have the dream of building a great company, changing the world, or achieving some great object or objective. It’s not about them. Their ambition is first, and foremost for the company, not themselves. They define themselves by impact, contribution, and purpose

## 20 Mile March

Achieving strong, and consistent growth is key to long term company strength and profits. At the same time, limiting growth during boom years helps keep a company stable. Its about having concrete, clear, intelligent and rigorously pursued performance mechanisms to keep you on track.

Southwest grew every year even when their competition didn’t. They also expanded slowly even in good years.

Uses performance markers to keep pushing performance, but goals must be achievable.

Has self imposed constraints for expansions and growth.

Is specific for that company. Must be within your control to achieve. (A Guide to the Good Life)

Has a time frame that isn’t too short or too long. Is designed and self imposed by the organization. Can’t use outside sources such as Wall Street to justify performance.

Must have great consistency. Focus more on what you are doing than your competition.

The 20 mile march creates order. When its missed, it must be fixed and changes made

Marches dont just have to be about just profits.

Builds confidence in ability to perform well. Attaining consistent results builds confidence in a company…in a person. Helps you focus on your own control rather than blaming external factors. Don’t play the blame game. If goals aren’t being met, look internally and focus on what you can improve and change. Everyone must meet the goals. If not, changes must be made.

Improving results increases confidence, which focuses discipline, which drives better results, which increases confidence and motivation……..

Keeping to your 20 mile march and staying disciplined reduces chance of catastrophe in bad or uncertain times. Allows control in out-of-control environments

Fire Bullets, then cannonballs

You must meet the innovation threshold of your industry, but being extremely innovative won’t make you a 10Xer. Once a company meets the innovation threshold, it needs creativity and discipline.

Intel was consistent and disciplined in their delivery even though they weren’t always the most innovative. Innovation without discipline can lead to disaster.

Mixing creativity and innovation with discipline is a strong force.

Fire bullets before the cannonball. A bullet is test of a product, idea, innovation, technology or market, they are low cost, low risk, and low distraction for the company.

Fire bullets
Assess: did you hit anything
Consider: Do successful bullets merit conversion to cannonballs
Convert: Concentrate resources to fire cannonball

Missed bullets and cannonballs should be taken as lessons and quickly learned from.

You dont’ know if something will actually work until you gain empirical evidence and validation.

10Xers aren’t better at predicting the future. They fire bullets and ask the right questions

How can we bullet our way to understanding? How can we fire a bullet on this? What bullets have others fired? What does this bullet teach us? DO we need to fire another bullet? DO we have enough empirical validation to fire a cannonball?

Apple had to become a disciplined company before they became an innovative one. Most big breakthroughs are small steps that tie together.

Greatness requires resolve to never give in, to endure staggering defeats, bad luck, calamity, chaos, and disruption. In a stable world, lead with fanatic discipline and empirical creativity, but uncertain and unstable worlds require productive paranoia.

Productive paranoia

Decisions at key times are often made long before, during preparation.

Build cash reserves and buffers for unexpected events. Keeping large cash reserves might not be the most effective method of using capital during good times, but it can save a company during bad times and when the economy isn’t stable.

What you do “before” the storm matters most.

Southwest airlines- “As long as we never forget the strengths that enable us to endure and grow in the midst of economic catastrophe, as long as we remember that such economic catastrophes occur with regularity; and as long as we never foolishly dissipate our basic strengths through shortsightedness, selfishness, or pettiness, we will continue to endure, we will continue to grow, and will continue to prosper.”

10Xers carry 3-10 times more cash than rivals and a higher cash-to-asset ratio.

You can’t always predict bad events, but you can know they will happen and be prepared for them.

Bound risk and manage time- 10Xers were more conservative and took less risk, especially risk that could kill the company. Sometimes acting too fast can increase risk. It is important to understand how much time you have to assess risk. Its not about making the anxiety or uncertainty go away, but understanding and assessing the risk.

Zoom out and zoom in, remaining hyper-vigilant to sense changing conditions and respond effectively. Must focus on your company and your external environment.

Zoom out. Sense change in conditions, assess time frame, how much time before the risk profile changes. Does change in risk require disrupting plans? If so, how? Zoom in and focus on execution of plans and objectives.

A fast moving threat does not call for abandoning discipline.

SMaC- Specific, Methodical, and Consistent

Choosing strategies/goals/mission for your company: they should be specific, methodical, and consistent. For example, Southwest Airlines were:

  1. Remain a short haul carrier, under two hour segments
  2. Utilize 737s as primary aircraft
  3. Continue high aircraft utilization and quick turns
  4. Passenger is #1 product, not cargo
  5. Low fares, high frequency
  6. Stay out of food services
  7. No interlining due to costs and complications
  8. Retain Texas as #1 priority
  9. Keep the family and people feeling in our services.
  10. Keep it simple, continue cash register tickets, 10 minute cancellation of reservation, simplified computer systems, no seat selection

Change is not the hardest part. Figuring out what works, understanding why it works, grasping when to change, and knowing when not to is more difficult.

Before wondering if their principles have become obsolete, 10Xers first wonder if they have strayed from their principles.

If you really want to become mediocre or get yourself killed in a turbulent environment, you want to be changing, morphing, leaping, and transforming yourself all the time and in reaction to everything that hits you. **The signature of mediocrity is not an unwillingness to change, but chronic inconsistency. **

Implementing small changes while keeping others the same helps maintain consistency and can also allow for major change.

SMaC can be changed by exercising empirical creativity, which is internally driven and exercising productive paranoia. Fire bullets to test. Zoom out then in.

Changes to a proven SMac are like amendments to the constitution. If you get the recipe right, it should serve you for a long time, at the same time, fundamental changes must be possible.

Luck

Luck, defined as an event that occurs largely or entirely independent of action taken, has potentially significant consequences, has an element of unpredictability.

Luck generally has little influence. People do. The question is do you get a high return on luck.

Being lucky isn’t the key, its what you do with the luck that matters. Many people had similar situation as Bill Gates, but he was the one to pursue it.

10Xers try to find opportunity in bad luck. They find opportunities when there are setbacks

The majority of hockey players are born towards the beginning of the year, but the hall-of-famers are split nearly 50/50. Showing that those at a disadvantage, have a higher chance of being exceptional because they have gone through difficulty.

Assuming you get a mostly even mix of good and bad luck. You must be resilient enough to weather the bad for when the good comes. Luck favors the persistent, but you can only be persistent if you survive.

Managing luck requires 4 things: 1. cultivating the ability to zoom out and recognize luck. 2. Recognizing when to let luck change your plans and when not to. 3. Being prepared to endure bad luck. 4. Creating a positive return on luck both good and bad.

Luck is not a strategy.

Crafting a SMaC recipe

  1. Make a list of successes your enterprise has achieved
  2. Make a list of disappointments your enterprise has achieved
  3. What specific practices correlates with successes but not disappointments
  4. What specific practices correlates with disappointments but not successes
  5. Which of these practices can last 10-30 years and apply across a range of circumstances
  6. Why do these specific practices work
  7. Based on the above, what SMaC recipe, consisting of 8-12 points that reinforce each other as a coherent system best drives your results

Genius of the AND

Disciplined & Creative
Empirical validation & Bold Moves
Prudence & BHAG (Big Hairy Audacious Goals)
Paranoid & Courageous
Ferociously ambitious & not egocentric
Severe performance standards, no excuses & never going to far, able to hold back
On a 20 mile march & fire bullets, then cannonballs
Threshold innovation & one fad behind
Cannot Predict future & prepared for what they cannot predict
Go slow when they can & Go fast when they must
Disciplined thought & Decisive action
Zoom out & Zoom in
Adhering to SMaC recipe & Amending SMaC recipe
Consistency & Change
Never count on luck & get a high ROL (Return on Luck) when luck comes.

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