Great by Choice Book Review

From SwiftEconomics.com

I consider Jim Collins to be the gold standard when it comes to business management literature. He has previously authored the bestselling and highly informative Built to Last, Good to Great and How the Mighty Fall. This time, he has teamed up with Morten Hansen to write Great by Choice: Uncertainty, Chaos and Luck-Why Some Thrive Despite Them All. This book rounds out the, err, quadrilogy (so far that is) about what makes some companies great and others not-so-great. This one focuses, as the subtitle implies, on how some companies thrive in volatile environments.

Jim Collins’ strength is in simultaneously using massive amounts of research and finding a way to boil that down into a readable, coherent, almost bullet-point type narrative. For this boo, he had a team of 20 some researchers look through every major company in at least the last 50 years to find which one’s beat their industry averages by at least 10 times in highly volatile, unstable environments. He then puts forward memorable phrases to help build an overall framework. Terms such as “Level 5 Leadership,” “BHAG’s” and the “Hedgehog Concept” have become a part of the business lexicon. And in Great by Choice, he adds a few more.

I will start at the end, however, with what in my judgement is the most important part; great companies don’t survive turbulent times by luck. He and his team painstakingly went through each of the seven 10Xer’s and their comparisons (similar companies that did not perform well in uncertainty) and lists every notable event of either good luck or bad luck. As it turns out, there was no statistically relevant difference in the amount of good luck or bad luck the 10Xer’s had as compared to the control companies. In fact, the control companies had ever so slightly more good luck.

As a small aside, much was made about the case Malcolm Gladwell made in Outliers that much of what makes super successful individuals, super successful is luck. And while there is certainly some truth to this, he also makes the case that those outliers had to put at least 10,000 hours of work into their craft and have an IQ of around 120 or better (at least if they were in an intellectual field). It should also be noted that the less successful people he discussed who still had those types of qualifications were still quite successful, they just weren’t outlier successful. There are many less companies than individuals. Doing things the best way as an individual gives you a very high chance of success, and a shot at greatness. For companies, doing things the right way can all but ensure greatness. After all, tragically bad luck, like getting cancer, can kill an individual. But even if the CEO dies, a great company can still endure (assuming that CEO was a level 5 leader, of course).

Indeed, what Jim Collins finds is that a “return on luck” is what is important. Great companies make the most out of it when they are lucky and are able to stomach the blows when they are not. Mediocre companies, not so much.

How? Well, the keys all seem to lie in preparation and prudence. Here are some of the major points:

• 10Xer’s “20 Mile March.” In other words, they try to make consistent gains year after year, instead of taking major risks to try and jump ahead of or catch up to their competition.
• 10Xer’s “fire bullets instead of cannonballs.” What this means is that when entering a new market or adopting a new strategy, they test it out with a small cash investment instead of jumping into something new full throttle even if there appears to be a great opportunity or a sense of urgency.
• 10xer’s “live above the death line” and carry large cash reserves (much larger than the control companies). This way they are never in danger of bankruptcy and can jump on opportunities when they arise (i.e. return on luck).
• 10Xer’s are paranoid about every possibility and prepare for every conceivable scenario in an almost fanatical way.

As Jim Collins discovered in How the Mighty Fall, making big bets with bad information is what usually kills great companies, not simply sulking into a slow, painful decline. And this book shows the other side of the coin. Great companies that thrive in uncertainty (and elsewhere) do so by marching at a steady pace while making prudent, careful decisions. Success, folks, is not flashy.

If Jim Collins, and Great by Choice as well, have a weakness, it’s the flip side of the same coin that is its strength. While I think they’ve employed solid “research foundations”, one always has to be careful in boiling down the massive amount of information available into a few catch phrases, no matter how well supported they are. After all, we only have seven cases here, and it’s all correlative. Correlation does not by itself equal causation. Are there lurking variables? Did they oversimplify?

Probably, in a few places here or there at least. Indeed, even his discussion on luck is, by necessity, rather subjective. After all, which events should qualify?

If there is another reason to criticize Collins, it’s also, at least, superficial evidence that he is right; most of what he writes here, and elsewhere, rings true. Is it not better to be prepared than not prepared? Is it not better to try to get better at a consistent rate then go all in?

But these lessons, like the one’s that Dale Carnegie illustrated in How to Win Friends and Influence People seem obvious at times, but so few practice them. Much of what Jim Collins writes feels similar. In a way it’s obvious, in a way it’s genius.
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But the most important thing is that he’s right. At least I think so. And therefore, I recommend reading his book. It’s not as good as Good to Great, so start there, but it stands on its own and is a very good addition to his seminal series.