I’ve set aside this year to read some of the classic and popular business books out there. The latest book I read was Jim Collins’ Good to Great: Why Some Companies Make the Leap… and Others Don’t.
I’ve gotten a little cynical with some of the business books out there, because I have the sneaking suspicion that while the book is telling you how to get rich, the author has another strategy altogether for getting rich, which involves you buying his or her book. This book is refreshingly different, in the sense that the underlying premises of the book have been proven out by empirical data and in-person interviews with top executives, rather than some business person coming with some new “system”.
The book outlines a number of publicly traded companies whose stock performance over a decade or more tended to outstrip the stock market by leaps and bounds. (We’re talking 10 times better performance, etc.) In contrast, each company was measured against a comparison company that was in a similar industry and probably could have become great considering the similar circumstances, but unlike the “great” companies, simply floundered and failed. So, the book is an illustration both of what works and what doesn’t.
There are several basic concepts that are outlined in the book:
- A “Level 5” leader (you can read a more detailed description of what is meant by “level 5” in the book) is the kind of leader who can take the company to greatness. This kind of leader is usually incredibly humble and self-effacing, yet is passionate about making the tough choices that are needed to turn a company around. This stands in contrast to celebrity CEO’s called in by the board to turn a company around, only to bankrupt it quickly. The other mark of this kind of leader is someone who has assembled the management and leadership in such a way that the company can succeed after they’re gone. This is in contrast to leaders who work incredibly hard and have amazing success, but the company completely flops after they leave office.
- The first step a Level 5 leader takes is to assemble the right team. Only once the team has been assembled should the leader determine the direction the company is going. Jim Collins uses a now-famous analogy of riders on a bus; you need to get the right people on the bus, and in the right seats, and wrong people off the bus, before you decide where the bus is going. If you tell everyone, “The company is heading in this direction”, and then you hire people who share that vision, but then market circumstances dictate you need to change direction, you might have a lot of attrition as people say, “Whoa, let me off the bus. I didn’t want to go to Milwaukee today. I thought we were going to Memphis.” But if you hire Jim because Jim is bright and Jim says, “I don’t care where the bus is going, but I like Mary, and I’ll go wherever we’re going as long as I get to sit next to Mary,” then you know that you have a team of people who are flexible and like working together. This is a recipe for success.
- Collins also talks about the “hedgehog concept”. The hedgehog concept is an idea that seems almost stupid in its simplicity. When a company can find that one thing it’s building itself around, everything else falls in place. Operating with the hedgehog concept brings clarity and helps a company eliminate all the activities that might detract from focus on that one goal that surpasses all others. This singular focus is what helps set great companies apart, while mediocre companies start running off in too many directions at once. A company’s hedgehog concept is born out of three ideas: what are those in the company deeply passionate about, what drives the company’s economic engine, and what the company can be the best in the world at. Where these three ideas meet is where a company finds its hedgehog concept.
- Great companies weren’t born overnight. Their success started slowly and picked up steam over time. After some time elapsed, the company hit a critical mass where the momentum of these changes seemed to allow the company to gain a great deal of notoriety and visible success. Although people from the outside might consider the company an overnight success, those on the inside know that it took years of work to get to that point.
I must admit, by the end of the book I was feeling a little disconnected from the examples in the book; after all, I’m a small business owner, not the CEO of a fortune 100, publicly traded company. At a certain point the analogies seemed a little out of my reach. Also, the book was written in 2009 and some of the “great” companies highlighted (like Circuit City) are no longer in business. Collins himself points out, though, that just because a company is “great” at one point doesn’t guarantee future success if it stops following the principles that got it there in the first place.
All, it was a great primer based on real companies about what differentiates a company from its competition and allows things to run smoothly and successfully.