“Victory awaits him who has everything in order – luck people call it. Defeat is certain for him who neglected to take necessary precautions in time; this is called bad luck” Roald Amundsen
The author of Good to Great, Built to Last and How the Mighty Fall that have sold in total more than 10 million copies worldwide, Jim Collins rebounds with another major revolutionary study with the question of why do some companies thrive in uncertainty, even chaos, and other don’t?. when buffeted by tumultuous events, when hit by big, fast moving forces that we can neither predict nor control, what distinguishes those who perform exceptionally well from those who underperform or worse?.
This book is based on a nine year research project started from 2002 and ended to 2011. The authors started an initial list of 20,400 companies to 7 companies that turned into great companies with spectacular achievements. The researchers collected more than seven thousand historical documents from founding through 2002 and categorized data including leadership, culture, innovation, technology, risk, financial management, strategy, strategic change, speed, luck, founding roots and industry dynamics. The book is filled with great and amazing stories.
To get the question of how, the authors selected a study group coined by 10X which are companies rose from a position of vulnerability, rose to become great companies with dramatic achievements in an unstable environment and then compared these companies to a control group of companies that failed to become great in the same extreme environment. Every 10X case beat its industry index by at least 10 times. If you invested $10,000 of 10X companies at the end of 1972, your investment would have grown to be worth more than $6 million by the end of the study era (2002), a performance 32 times better than the general stock market.
In order to find the 10X cases, the authors stipulated three basic tests including that the enterprise maintained a dramatic achievements for a period of 15+ years corresponding to the general stock market and corresponding to its industry, The enterprise did so in a precarious settings, filled with incidents that were unmanageable, fast moving, uncertain and potentially harmful and the companies started from a position of infants or weak and become a great company.
The authors observed in their research that the 10xers shared a set of behavioral traits that distinguished them from their comparison leaders. The core behavioral traits are Fanatic discipline, empirical creativity and productive paranoia..
Fanatic Discipline: According to Jim Collin, Discipline, in essence, is consistency of actions, consistency with values, consistency with long term goals, consistency with performance standards, consistency of method and consistency over time. True discipline requires the independence of mind to reject pressures to conform in way incompatible with values, performance standards, and long term aspirations. For a 10xers, the only legitimate form of discipline is self discipline, having the inner will to do what it takes to create a great outcome, no matter how difficult.
The 10x companies showed what the authors labeled the 20 Mile March Concept which is more than a philosophy, it about having concrete, clear, intelligent, and rigorously pursued performance mechanisms that keep you on truck. The 20 Mile March creates two types of self imposed discomfort: 1) The discomfort of unwavering commitment to high performance in difficult conditions 2) The discomfort of holding back in good conditions.
The 10xer were not only disciplined but they were also fanatic and depicted the 20 Mile March Principle.
Empirical Creativity: The authors define empirical on relying upon direct observation, conducting practical experiments, and/or engaging directly with evidence rather than relying upon opinion, when conventional wisdom, authority, or untested ideas.
Social psychology research states that people rely upon their peers, group cultures and government officials in times of uncertainty of how to manage and proceed. However the 10xers challenged this traditional acumen to determine their direction during period of ambivalence, they don’t look what other people do or what experts say. They primarily based their decisions on empirical evidence.
Productive Paranoia: The 10xers believes that situation may always change fast and were responsive to the fast changing conditions, constantly asking what if scenario?
The 10xers challenged the financial theory says that leader who keep cash in their companies are reckless in their development of capital. After analysis of three hundred of years of balance sheet from the 10X companies and comparison companies, the authors found concrete evidence that the 10X companies built a lot of reserves. The 10xers always prepare in good and bad times
Did the 10x companies take more risk or less risk than the comparison companies?
The authors discovered that the 10X companies took less risk than their comparison companies. The 10x leaders abhorred death line risks, shunned asymmetric risk, and steered away from uncontrollable risks.
SMAC: SMAC recipe is a set of durable operating practices that create a replicable and constant success formula. The word ‘SMAC’ stands for specific, methodical and consistent. It is imperatives that companies should have SMAC recipe which includes practices ‘not to do’.
The researchers found that 10x companies adhered to their recipes with fanatic discipline to a far greater than the comparisons, while the comparison companies changed a lot their recipe.
Return on Luck: Did the 10x company get more good luck, or less bad luck, than the comparison company?
The authors met with two contradictory perspectives on the course of luck. The first views that luck plays a dominant role for success, winners are luckier than the losers. The second views that luck plays no role in our success and our success heavily dependent on preparation, skills, hard work and determination.
After analyzing the data of the 10x companies and comparison companies, the researchers came to know that all the companies had good luck and bad luck. The critical question is not “are you lucky? However do you get high return on luck?
By: Abdirahman Mohamed Sh. Abdilahi (Guray)