When investing into a company, whether at the startup level or after the company has gone public, how do you know if the company can get to the next level? Very few companies are actually excellent companies. How to tell if the company can go from good to great and beyond? In the #1 bestseller Good to Great, Jim Collins has detailed how to identify the subtle details of which companies can advance and improve. The book has achieved a global sales figure exceeding 10 million copies. The findings are often counter intuitive, and not what one might initially think.
-chapter 1; good is the enemy of great
-it leads to false pride and satisfaction preventing further motivation to change
-for companies to move from good to great, and how that might happen. -Larger than life celebrity leaders who come in new to a company are negatively correlated with good to great.
-No executive compensation style changes the likelihood of good to great? Maybe.
-spending time on what not to do and what to stop doing is good too
-technology accelerated change but doesn’t cause good to great
-good to great; just do it quietly, no launch party or anything.
-in all industries
-greatness is not a function of circumstance, it is a matter of choice
-Level 5 leadership; self-effacing, quiet, reserved, shy; paradoxical blend of personal humility and professional will
-first pick the right people to get in the bus, get the wrong people off, then figure out strategy and vision. You can’t make a good deal with the wrong people
-Stockdale paradox; have unwavering confidence and at the same time confront the facts of reality
-culture of discipline
-revolutions don’t work; significant change happens over time
-good CEOs wipe out old decisions and admit to the mistake; they sell, like Darwin Smith did for the old mills at Kimberly Clark
-ambition for a greater goal, not themselves
-self-effacing; shy and likes to stay out of the spotlight
-humility + will = level 5
-Colman Muckler fought for Gillette and did things to not allow the sale of the company to acquisition companies
-Are you a comparison company or an innovative company?
-comparison companies often have I-centric leaders, where everything is about themselves, they are always talking about themselves
-great leaders tend to not make things about themselves
-avoid businesses of CEOs who have giant egos; that usually leads to demise eventually. Also true for in person
-unwavering resolve; level 5
-good companies hire from within for top management positions based on merit, not nepotism
Level 5 leaders have a quiet, dogged nature workmanlike diligence. They have humility, not egos. Most with an ego for individual success focus on what they get, instead of what they can build.
Chapter 3 — first who, then what
-you need people who are in it for the people, not the direction. If your direction changes, they want to leave and that’s no good. Find people who cherish you for you and who you cherish for them. This is the best for the long term, as it’s not dependent on external factors
-arrogant leaders once they leave the company crumbles. See what the successor is like and if the initial founder took time to recruit from within a successor ahead of time; if they put thought into it that is good. If not, the company dies with the founder
-you can teach a farmer to make steel, but you can’t teach the farmer the work ethic to make the steel
-do not turn lazy people into hard workers, but rather have an environment for hard working people to thrive in
-good to great companies place higher attributes on character over education or work experience
-not changeable: work ethic, character, basic intelligence, dedication, values
-always ask why; ask people why they make the decisions they made in their life
-do not have a death by a thousand cuts; don’t let things languish. Deal with them upfront so both sides can get on with their lives, that is rigorous
-how to be rigorous and not ruthless
-1; find the right people. When in doubt don’t hire, keep looking. At what point do I compromise for someone? You don’t compromise, find another way to get through until you find the right people
-2; when you know you need to make a people change, act. Now, don’t wait. If you feel the need to tightly manage someone, then a mistake had already been made. There is no trust. Letting the wrong people hang around is bad for the right people, as they have to compensate for them. Good to great companies had people either stay a long time or not a very long time, and nothing in the middle.
-if someone were to leave, would you feel disappointed or relieved?
-3; put your best people on your biggest opportunities, not your biggest problems
-create a place where the best people always have a seat on the bus
-you can also live a great balanced life while building a great company, with no excessive work hours. In fact it works better this way, not when someone doesn’t have a life outside work
-a great life comes from doing what you want to do with who you want to
-you cannot motivate right behaviours from the wrong people
-whether someone is the right person has more to do with that persons character than it does background, education, skills, or knowledge
Chapter 4 — confront the brutal facts (and don’t lose faith)
-great companies follow the data, not what other people say or the newest trend
-great companies confront the brutal facts; bad companies don’t change anything, even in a midst of a disaster
-when you worry about what other people are going to say before saying what you say, that is bad
-when you worry more about the leader than reality itself, vs reality over the leader. Avoid being the emperor who wore no clothes
-you cannot motivate others, you can only work to avoid demotivating them
Creating a climate where truth is heard:
-lead with questions to understand, not answers. Non-agenda meetings is also a good way
-engage in dialogue and debate, not coercion. Allow people to debate and give out what they really think
-conduct autopsies without blame to avoid problems being hidden
-build “red flag” mechanisms. Analysis of Information is way more important than quality or speed of information
-3 types of people; those from negative events that are permanently dispirited, those who return back to normal, and those that become stronger
-Stockdale paradox; have unwavering faith and accept reality
-According to prisoner Stockdale, the optimists gave up early
-build red flag mechanisms so certain things can’t be ignored
Chapter 5 — The Hedgehog Concept (Simplifying Within Three Circles)
-be a hedgehog and not a fox. Simple, concentrated vision, not worried about being cunning, focused on the task at hand and not multiple things, being a mediocre busybody. Foxes are scattered, diffused, inconsistent
-Hedgehog concept unifies three circles:
1; what you are passionate about (NOT what stimulates fleeting passion)
2; what you can be the best in the world at (and avoid what you are bad at) based on genuine self-awareness
3; what drives your economic engine (what pays the bills)
-Link interests and skills, that’s how to get paid long term
-know what you know, know what you don’t know, and do things you are good at. Just because one has done something for years does not mean you are good at it
-having competence at something does not mean you should pursue it; e.g. just because you get high grades in math doesn’t mean you should become a mathematician. You should do things you inherently have an ability for; genetically encoded for.
-despite Abbott Laboratories already 99% revenue in pharmaceuticals, it knew it could not be the best and shifted to product portfolio for health care at low cost
-you know your company has a strong brand when the name of the brand is the name of the product
-KPI is not so obvious. The denominator is difficult to determine.
-Passion is one of the keys; you cannot make passion happen at something you aren’t passionate about
-Comparison companies focused only on growth, an unsustainable path.
-Hedgehog concept happens over time, on average for four years to see a difference; an iterative process. Find what works for you and stick with it
-bravado vs the quiet truth
Chapter 6 — A culture of discipline
-bureaucratic rules exist to manage the small number of wrong people on the bus; which leads to good people quitting, which leads to more wrong people and more rules. To avoid this, create a culture of discipline entirely and avoid bureaucracy and hierarchy. Freedom within responsibility, so entrepreneurial spirit still exists
-find self-disciplined people
-when dictator types leave a company, the company doesn’t do well
-When a company needs to diversify revenue, especially into non-related industries, that may be a signal of a problem, or a sign of less profit to come
-good corporate policy; like in life, keep costs low, no fancy jets or dinners or cars. No special rooms or perks for executives; these kinds of companies tend to do well, or at least, not badly. Executives do not treat themselves as above others. And they will also suffer in recession, and even more, than regular workers in pay cuts. Leaders eat last. This is the quality management at Nucor.
-most people lead busy but undisciplined lives; they try to get ahead with doing doing and doing. It rarely works.
-build a “stop doing” and “do not do” list
-budgeting is to figure out what you should spend money on and what shouldn’t be entirely
-good to great companies, like good to great people, channeled their resources into only one or a few areas, and did not spread them all over the place. They did not still cling to the past or wrong decisions, and worked to recognize and overhaul wrong decisions entirely. Additionally, this included no hedges
-Chapter 7; technology accelerators
-unless you are the pioneer of a particular technology, use technology as an accelerator of wealth, not the creator of wealth
-many of the first to market movers, cannot keep the lead and end up faltering, despite having the superior technology first. If they build up the lead, then it’s over. E.g. Microsoft was not first to excel, lotus and before that, VisiCalc were first.
-Comparison companies are always like comparing people. Talking about other companies and people, reactionary and always considering competition, instead of talking about what they do and focused on what they are doing. Time spent worrying about what others are doing is better spent being proactive about what ones self is doing.
-those who are mediocre have fear, fear of being left behind, fear of judgment. Those who are excellent are motivated, daring, wanting excellence for its own sake, not for external reward
-Striving for greatness or settling for mediocrity
-crawl, walk, run
Chapter 8 — The flywheel and doom loop.
-it takes 10 years for significant notable change to be noticed by interested outsiders. This is when more articles are disproportionately written, than the first ten years. Overnight successes take a long time to realize
-work day by day consistently to get the long term vision fulfilled. Most importantly, results should slowly come. If nothing’s happening, then it may be time to change things up.
-under the right conditions, problems of commitment, alignment, motivation, and change just melt away
-show people the track record of success in your flywheel and you will do well. No bravado or convincing people, just showing instead of telling
-Doom Loop; comparison companies trying to come up with one grand plan and constantly changing directions and too many ideas, never committing
-companies will often use acquisitions to buy their way into artificial growth, rather than doing actual work. Acquisitions in unrelated industries are especially bad
-get consistency
Chapter 9
-overnight successes take a long time to formulate, then they take off once noticed by the greater media
-great companies have a real goal to accomplish, before making money. That’s very rare. Most are in the business for the money. As Warren Buffett said, they have to be in it for the love of the business and not the love of the money. If they only love the money then they are screwed
-when Walt Disney was 21 no one would hire him, so he went and created his own animated cartoons, and reinvented theme parks as he believed the current ones were badly managed. Wow. Core value of “bring a smile to a child’s face”
1- clock building, not time telling. Build an organization to endure through multiple generations; enduring qualities
2- embrace both extremes on dimensions at the same time
3- core ideology; core values and purpose (beyond just making money)
4- preserve the core and stimulate progress
-perpetuating mediocrity drains energy, striving for greatness adds energy
-what work makes you feel compelled for greatness? If one asks why we should be great and isn’t success enough, then that is the wrong line of work
-meaningful work, achieving something greater, means the short life spent on earth was well spent and mattered
Disclaimer
This is not Financial Advice. This article is meant only for educational and perhaps entertainment purposes.