Jim Collins — Good to Great — The Knowledge Project #67

KEYPOINTS

• 01

  Level 5 leaders blend humility with indomitable will.

  In Jim Collins's Good to Great research, companies that made the leap from mediocrity to outstanding performance lasting at least 15 years had Level 5 leaders. Direct comparisons in the same industries, with the same opportunities, had Level 4 leaders. The essence of Level 5 is the answer to a question: what is your ambition really for? Level 5 leaders may be even more ambitious than most, but that ambition is channelled outward into the company or a cause, never into what they get or how they look. They put themselves in service to it, with an iron will. Many had 'charisma bypasses' — shy and self-effacing.

• 02

  Steve Jobs is a growth story, not a success story.

  In 1988, at 30, Collins cold-called Jobs to come to his Stanford class on turning startups into enduring great companies. Jobs, three years after losing Apple and not even invited to a gathering of top Silicon Valley leaders, sat cross-legged and talked for nearly two hours — utterly driven by the work, not what it would bring. Collins sees a Jobs 1.0 and a 2.0, shaped by the wilderness and by learning from Ed Catmull. By the end, Jobs wanted Apple to prove its greatness by not needing him. The idea that entrepreneurs and company builders are different species is wrong; most great builders started as entrepreneurs and grew.

• 03

  Start by confronting the brutal facts.

  Collins's method, from mentor Jerry Porras, studies companies historically, through their eyes at the time, against a comparison company in the same situation. The great companies didn't have better information or analysis. In the late '60s and early '70s, Kroger and A&P saw the same shift to larger stores and new technology. A&P explained away the ugly facts; Kroger 'went into the teeth' of them. On decisions, separate process from outcome: a good decision can end badly, and a bad process that gets lucky compounds in the wrong direction. And turn every 'what' decision into a 'who' decision.

• 04

  Greatness comes from turning the flywheel, not a single breakthrough.

  John Wooden's UCLA dynasty, which won 10 NCAA titles in 12 years, looked sudden from outside. But it came after more than a decade of refining the fast break, players and system — turn after turn until the breakthrough. Its opposite is the doom loop: disappointing results, a reaction without understanding — a new leader, program or acquisition — then more disappointment. A flywheel isn't aspirations drawn in a circle. Each component must almost inevitably drive the next, and failing on any component stops the whole thing, like multiplying by zero.

• 05

  Luck is asymmetric — bad luck can kill you, good luck can't make you great.

  In Great by Choice, Collins and Morten Hansen defined a luck event as one you didn't cause, with potentially significant consequences, that surprised you. Coding every luck event, they found the 10x winners weren't luckier than their comparisons. If anything the comparisons were, though it was a wash. The difference was return on luck. IBM approached both Digital Research and Microsoft for a PC operating system; only Gates seized it and turned it into a flywheel for decades. Managing luck is even more about protecting the downside so bad luck never knocks you out of the game.

• 06

  The 20-mile march defeats turbulence.

  Collins offers two small tech companies. One grows net income 25% a year, plus or minus 15 points. The other averages 45%, but swings from +300% to −200%. Most people pick the 45%, but the steady marcher won by an enormous margin. Stryker's march was 20% net income growth every year; Southwest's was profitability every year; Intel's was Moore's Law. Collins says the key word is 'consecutive.' Committing never to miss for 20 or 40 years forces you to invest now for cycles far down the road, keeping you ahead of disruption.

• 07

  Fire bullets, then cannonballs.

  Pioneering innovators don't usually win; those who scale the right innovations do. Fire small, low-cost bullets, recalibrate, and only after one hits commit your gunpowder to a calibrated cannonball. Apple's early-2000s annual report gave the iPod about three sentences. Once iTunes was put on Windows and demand appeared, Apple committed big. Fire bullets well, so a miss is a clean test. Often the second cannonball becomes the company's biggest business: Marriott from restaurants into hotels, Intel from memory into microprocessors, Disney from films into theme parks.

• 08

  Great companies fall through overreach, not complacency.

  In How the Mighty Fall, the five stages are: hubris born of success; undisciplined pursuit of more; denial of risk and peril; grasping for salvation; and capitulation to irrelevance or death. A company can look healthy through stage three. Ascent is a narrow path, like racking pool balls; decline has endless paths, like entropy. Disruption, Collins argues, is often about the timeframe of decisions: the best CEOs managed for the quarter century. Built-to-last companies also had a purpose beyond money, as at HP, Merck and Johnson & Johnson.