Great by Choice: Why Certain Companies and Their Leaders Excel

by Scott Ford

Jim Collins, author of “Good to Great,” also wrote “Great by Choice,” a book based on relevant and meaningful research on why companies and leaders excel. In “Great by Choice,” Collins argues that in times of uncertainty, those who succeed are those who take success into their own hands. He rejects the idea that external factors determine our fate. He discusses “10-x” companies; “10-xers” is the name he gives high-performance companies because they beat the respective industry index by at least 10 times. A “10-xer” is not more creative, charismatic or visionary, or even ambitious or blessed with luck.

“Good to Great” describes three factors for success: disciplined people, disciplined thought and disciplined action. The key factors are discipline, consistent performance and self-imposed constraints. To achieve consistent performance, you need strong performance markers – a lower bound and an upper bound – a hurdle that you jump over and a ceiling that you will not rise above. To succeed you need the ambition to achieve and the self-control to hold back.

A few examples of this are Stryker with 20 percent income growth year-over-year, Southwest Airlines with profits every year and Progressive Insurance with a 26 percent growth rate over time. Each company had top-line and bottom-line parameters to keep them disciplined and focused in both good times and turbulent times.

Southwest Airlines is a key “10-xer” company in “Great by Choice.” Southwest didn’t expand outside of Texas until eight years after it was founded, and took nearly 25 years to reach the eastern seaboard. Although over 100 cities requested their service in 1996, only four were added. Southwest knew their parameters. Expanding to 100 cities was not within the parameters they set, so they remained disciplined. Southwest has been profitable every year for more than 35 years including after 9/11 in 2001. This is an example of discipline to hold back in good years and discipline to drive forward even in bad years and in tough economic times.

Determining your parameters requires time for reflection and thought. The “10-x” companies were successful because they possessed the discipline to set parameters.

In “Great by Choice,” Collins also describes the difference between bullets and cannonballs. For example, picture yourself at sea. A hostile ship is approaching. You have a limited amount of gunpowder, so you take it all, and fire a big cannonball. The cannonball flies out over the ocean and misses the target by 40 degrees. You turn to your stockpile and discover that you’re out of gunpowder, so you die. Instead, suppose you take a little bit of that powder and fire a bullet, instead of a cannonball. It misses by 40 degrees. You make another bullet, and you fire it. It misses by 30 degrees. You make a third bullet, fire, and it misses by 10 degrees. The next bullet hits, and you halt the incoming ship. Now you take all the remaining gun powder and fire the big cannonball along the same line-of-sight, which sinks the incoming ship. You live. The same concept applies to businesses.

In business, a bullet is a low-cost, low-risk and low-distraction experiment. Despite being low-cost, the size of the bullet grows as the enterprise grows. So a cannonball for a million-dollar enterprise for example, might be a bullet for a billion dollar enterprise. The second criteria, low-risk, doesn’t automatically imply a high probability of success. Low-risk means that there are minimal consequences if the bullet goes awry. The third criterion is low-distraction for the overall enterprise, but might involve high-distraction for a few individuals.

The “10-xers” use bullets to empirically validate theories. Then, they concentrate their resources to actually fire the cannonball, enabling large returns from concentrated bets. After a cannonball hits, they make the most of a big success. Amgen is an example of this in action. In 1980 a recumbent DNA technology startup with no CEO, marketing plan or specific direction began firing bullets. Out of numerous bullets, the EPO gene showed the most promise. Amgen scientists isolated the EPO gene. Then, they allocated resources, or “gunpowder,” moving to clinical trials, proving efficacy and securing a patent. After completing research and assessing the market (there are 200,000 chronic kidney disease patients in the United States), Amgen fired a cannonball – building a testing facility, allocating capital to manufacturing and assembling a launch team. EPO became the first blockbuster bioengineered product in history. Amgen fired bullets until they hit a target, and then fired cannonballs and began their march to success.

In “Good to Great,” Collins uses the example of a Fly-wheel. Imagine trying to move a wheel down the road by yourself. Then, your team comes behind you and helps push. At first, you don’t go very far, but you start to move a little, day-after-day. Finally, the wheel starts to move, and you get one complete rotation. Eventually, as you continue to push, the wheel gains momentum. At some point, the team’s discipline will give the wheel enough momentum to move on its own, much like a business.

 

Take time to determine your parameters and bullets. What bullets can you fire to test strategies that you’re thinking about taking to the market-place? Wait until you hit a target, and then use your resources to get disciplined people to take disciplined action, which will help your company succeed.

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Scott Ford is the CEO and founder of Cornerstone Wealth Management Group in Hagerstown. He is the author of Financial Jiu-Jitsu, based on his many years of martial arts training. He is a Gazelles Coach and helps entrepreneurs and business owners operate profitable and efficient firms. Scott can be reached at scottf@cornerstonewealthgroup.com or at (301) 739-8505 or on LinkedIn at www.linkedin.com/in/scottdford.

Securities offered through LPL Financial, Member FINRA/SIPC. Investment advice offered through CWM, LLC, a registered investment advisor and separate entity from LPL Financial.

 

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