Lessons Learned from the Book “Good to Great”

An Introduction to "Good to Great"

It has been said that if you want to do better, learn from the best. The book "Good to Great” by Jim Collins identified some of the firms that went from good to great and then consistently achieved great returns year after year.

These leaders of these exceptional firms are called “10X” leaders in Jim Collins' book. What lessons can be learned from the case studies in “Good to Great”?

Scanned Copy of the Book "Good to Great" by Collins
Scanned Copy of the Book "Good to Great" by Collins | Source

Manage by a Plan But Not Management Fads

The best leaders learn what works, as well as why it works, and then build something that works for them.

They do not adopt the latest management trend. They do not copy someone else’s process which may not work with their organization or industry. They do not implement changes without knowing the intention, the goal and ways to measure the success or failure of the goal.

They do not lurch from reform to reform, such as “Lean”, MBO (management by objectives), Theory Z, or “Six Sigma”. Toyota’s production system, often touted as a reform businesses should implement, is actually the opposite of a “reform”; it is how Toyota operates and has operated for decades. In contrast, constantly searching for the next management reform to implement creates chaos in operations because it is hard to plan long term, creates the belief that the solution is “out there” instead of in peoples’ own hands and destroys accountability as consultants are rotated in and out.

Not So Fast with Fast Decisions

The best leaders recognize when the time frame in which they must make a decision. They make fast decisions when they need to make fast decisions. They also know when they have time to make slow, deliberated decisions. They do not make fast decisions simply because it is expected in a fast-paced world.

They do not rush to put out constant fires, what Six Sigma calls the “burning platform”. They do not rely on luck. They do not act without decision criterion such as the profitability of the acquisition, the cost of not acting and the benefits of any operational change. If they don’t have the information to make an informed decision, they get the information, then decide. And they determine the priority and speed of the decision to determine how long they have to deliberate first and foremost.

Great leaders mitigate risk by minimizing debt and saving cash.
Great leaders mitigate risk by minimizing debt and saving cash. | Source

Dave Ramsey's Advice on a Corporate Scale

The best leaders have buffers that reduce the risk of unknown and potentially catastrophic events. Financial guru Dave Ramsey recommends the book “Good to Great” to his radio show listeners. One reason may be that the 10X leaders follow Dave Ramsey’s financial advice. They have large cash positions compared to their rivals.

This means that they have the cash to weather a drop in sales, the ability to pay cash for choice acquisitions when opportunities arise and minimize the debt loads that can crush a business when income drops off.

Redundancy Can Be a Saving Grace

The best leaders take control of their own fate in the face of uncertainty. They build in system redundancies, such as backup decision makers, alternate sources of key supplies, margins of error in projections and avoiding business deals that will kill the business if things go wrong.

Leaders of 10X organizations inspire people to invest in the organization, not work for the leader's personal benefit.
Leaders of 10X organizations inspire people to invest in the organization, not work for the leader's personal benefit. | Source

Inspiring through Higher Ideals, Not Greater Ego

The best business leaders have high personal performance standards, fanatical integrity and strong discipline. They are not driven by ego, though, but a goal higher than themselves – the organization. This results in teams similarly driven to improve the organization instead of focusing on themselves. And when the leader isn’t running the business to maximize personal profits, others are more willing to sacrifice for the common good of the organization.

The best leaders never rely on charisma or charm to succeed. They impress others by planning for contingencies in advance and then impressing others by weathering a storm with confidence because they were prepared.

Just the Facts, Please

The best leaders rely on intensive analysis of empirical evidence over studies of studies. This allows them to ignore common practices and conventional wisdom when observation contradicts it.

They also prefer to rely on actual data over the opinion of experts who may not actually have experience with the current events or particular product. This allows them to make big decisions contrary to public opinion, because they aren’t relying on common knowledge.

Plan for the Worst So You Can Achieve the Best

The 10X corporate leaders have something Jim Collins calls “productive paranoia”. They visualize the worst contingencies and most dire outcomes. However, they aren’t paralyzed by fear or waste time imagining impossible scenarios. What the 10X leaders do is plan productively to mitigate the odds of the worst case scenarios happening or mitigate the impact if they do.

This is equivalent to someone having a fear of natural disasters, but instead of living in fear of it always watching the news, instead stockpiling supplies to live comfortably for weeks before things return to normal and practicing living with the power out. It is similar to the Dave Ramsey plan of planning for the worst by having a large emergency fund to pay for large unexpected medical bills or extended periods of unemployment. The productive paranoia is why so many 10X businesses have 10% to 50% of their balance sheet in cash, when many of their rivals have far less cash and much more debt.

One of the side effects of productive paranoia is managing risks. They avoid decisions that can make or break the business, taking moderate or severe risks only after mitigating the risk and prefer low level risks. They are not gamblers.

Outlook, Not Background, Is the Common Criteria

There is not a common background for 10X leaders. They do not all come from elite business schools, not even most. Nor do they all rise up from dire poverty. What they share in common is the productive paranoia, planning for the worst while making decisions quickly to capitalize on opportunity and a constant vigilance about the world that allows them to act before most events become unmanageable.

One of the common traits of 10X leaders is the “20 mile march”. They set an attainable goal that is easily achieved on good days and achievable in the face of adversity, day after day. Then they work to continue achieving those “20 mile per day” goals day after day.

This has the benefit of creating a sense of control in the face of an uncertain world. This goal setting technique prevents businesses from over-extending themselves in good times and risking failure when challenges arise. And it creates confidence.

The Jim Collins book “Good to Great” says that confidence comes from performance in the face of adversity, essentially achieving the goal despite the challenges. Then you have confidence, knowing that you can do it, because you have done it in the past despite the challenges. Self-esteem is not a prerequisite, and is in fact counter-productive, since in today’s society it features feeling good about yourself without actually achieving anything and causes incredible self doubt when someone fails on the first try.

It is the methodical and consistent setting and achieving of goals, while planning how to meet them and minimizing risks that prevent achieving them, that they share in common.

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