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In this edition of Applauz Book Club, we read Good to Great by Jim Collins and reveal the timeless principles of creating an exceptional business.
📖Applauz Book Club is a series that outlines noteworthy ideas from popular books on the topics of work, HR strategy, and management. To see last month’s Applauz Book Club article, click here.
When launching a business, most entrepreneurs strive for greatness. The goal is never to be mediocre.
But Jim Collins, the author of Good to Great, claims many companies wind up doing just that, reaching "good" but never becoming great.
In short – they stagnate.
So what causes a business to flounder? Or conversely, to thrive?
To uncover what makes these “great” companies so special, Collins and his research team hand-picked a sample of "elite companies." He calls these businesses the good-to-great companies.
To make the cut, these companies must have achieved remarkable business performance, but most importantly, sustained that growth for over 15 years. Gillette,
Walgreens, Kroger, and Philip Morris are a few examples.
The research team also tried to find out what factors lead to poor business performance. So they compared findings from the good-to-great companies against a sample of "comparison" companies. These businesses showed an "unsustained" level of performance over a similar period.
As a result of this research, the good-to-great framework was born.
This framework outlines a series of precise steps or "timeless principles" any company can follow to maximize its success.
This book is packed full of surprising findings, insights, and case studies. It would be impossible to summarize them all! Still, we do our best to outline the key takeaways from the core elements of the framework:
That said, you might notice that the "good-to-great" companies are large, publicly-traded organizations. Don’t worry! Collins assures his readers they can apply these ideas to even small and early-stage companies.
This book is for any entrepreneur or business leader who wants to drive success for their company. For those interested in reading the entire thing, you can buy this best-selling book on Amazon here.
Level 5 Leadership
To start off, Collins admits that he was "shocked" to discover the type of leadership required to turn a company into a great one.
Through a series of interviews, Collins's research team revealed exactly which qualities give rise to "Level 5 Leadership." In short, the type of leadership needed to make your company great.
"The good-to-great executives were all cut from the same cloth," Collins states.One surprising finding of these Level 5 leaders is that they possessed "a paradoxical blend" of character traits.
What does this mean?
Well, we tend to assume that "outstanding" leaders have big personalities; they might be outgoing, charismatic, and gregarious, for example. However, Collins found many Level 5 Leaders are the opposite; they are self-effacing, reserved, quiet, or even shy.
Collins asserts, however, not to mistake these traits with weakness. These leaders also possessed a great dose of relentless determination, ambition, and professional tenacity that balanced out their more modest qualities.
Now let's compare these findings to the leaders at the comparison companies. They were quite different.
"In over two-thirds of the comparison cases, we noted the presence of a gargantuan personal ego that contributed to the demise or continued mediocrity of the company."
He notes many of these comparison companies did perform well under the leadership of a talented yet egocentric leader. However, these companies failed to sustain those results. Once these leaders left, the company's performance decayed quickly.
In contrast, the leaders in good-to-great companies worked hard to set up the next generation of leaders for success.
They have a "determination to do whatever needs to be done to make the company great." They are ambitious, but first and foremost, for the company's success; not for one's own riches and personal status.
Collins observes that most of these Level 5 Leaders came from within the company, and a few through family inheritance. In contrast, comparison companies hired leaders from outside much more often.
Collins concludes this chapter by describing a "damaging trend" in business. According to him, many companies show a bias towards "celebrity leaders." He cautions, however, that this type of leader is negatively correlated with going from good-to-great. He urges readers to consider these findings when appointing new leadership in their organizations.
Collins began his quest with a few assumptions. Greatness, he believed, would come from the implementation of a grand vision or strategy.
But his team found something completely different.
Their research revealed that executives who drove positive growth "first got the right people on the bus and the wrong people off the bus."
Yes, getting the right people onboard came before implementing a grand strategy or vision.
In other words, finding and managing great people was a top priority for good-to-great companies.
For example, they didn't hire in haste. They took their time to find the right people. And Collins points out the "right person" is more about finding someone with certain character traits and innate capabilities rather than specific hard knowledge or skills.
In addition, Collins points out that good-to-great companies were stern with wrong people.
Too many companies delay getting the wrong people off the bus. "Hoping the situation will improve." and "investing time and energy into properly managing the person."
He firmly believes, "the right people don't need to be tightly managed or fired up." In short, they are self-motivated, honest people who don’t need to be told what to do. This is a sentiment he reiterates throughout the book.
In contrast, Collins found the comparison companies adopted a completely different model. What he calls the "genius with a thousand helpers."
In this case, the company hires a Level 4 Leader. Initially, the leader develops a vision for the company and then hires a crew of employees to carry out this vision.
Although these companies do see a boost in performance during the leader's tenure, what Collins found is "the model fails when the leader departs."
Lastly, good-to-great companies knew how to utilize their talent's potential. In short, they put their best people on their biggest opportunities, not their biggest problems. Collins states that "building opportunities is what makes you great." So make sure your most talented people are devoted to those critical assignments.
Some people argue entrepreneurs must be a little bit delusional to stay motivated. In other words, you must have such a profound, unwavering belief in your business that you will stop at nothing to see it succeed. In short, optimism is critical in entrepreneurship.
This chapter, "confront the brutal facts," explains that this optimism must always be tempered with realism for a business to achieve greatness. What Collins calls the "Stockdale Paradox."
We often see things as we want them to be, not as they actually are. In other words, we wear rose-coloured glasses, especially for our own ideas and vision.
The good-to-great companies were able to remove those rose-coloured glasses when it mattered. Ultimately, they could be honest with themselves (and their people) when the business was at risk. And as such, they could make a bold move in the right direction.
Collins states, "it is impossible to make good decisions without infusing the entire process with an honest confrontation of the brutal facts."
Sadly, many of the comparison companies failed as a result of the leaders' failure to face reality.
Moreover, the "celebrity" CEOs in the comparison companies cultivate a different climate; the strength of these charismatic personalities can create an environment where people will "filter the brutal facts" from leadership. Collins warns leaders with big personalities can be "as much a liability as an asset."
According to Collins, Level 5 Leaders build cultures where workers feel safe to speak the truth, even if it's difficult to hear. Because facing the truth puts a company in a position to constantly improve, grow, and evolve.
Before leaping into positive growth, a business must do one critical thing -- develop its Hedgehog Concept.
In simplest terms, a Hedgehog Concept is your company's "one big thing." It means identifying what your company can excel at.
It seems simple and intuitive, right?
But Collin's research shows that most companies don't focus on one thing. Instead, they are driven by the wrong things -- namely fear of failure and the desire to minimize risk.
As a result, the following happens:
When companies take this approach, the business gets pulled in too many directions, growth quickly decays, and things ultimately fall apart.
Collins explains why this phenomenon happens.
Many companies focus on what they "want" to be the best at, not necessarily what they "can" be the best at. According to Collins, "this distinction is absolutely crucial."
"Good-to-great companies set their goals and strategies based on an understanding of what you can be the best at; comparison companies set their goals and strategies on bravado."
And just because something is your "core business," Collins explains, "does not mean that you can be the best in the world at it."
This is the heart of why many companies don't make the leap to great. They are unable to "transcend the curse of competence." They don't want to stray from what they are good at. However, in doing so, they miss the opportunity to be great at something else.
Collins explains for most companies; the Hedgehog Concept doesn't emerge overnight. "It's an inherently iterative process, not an event." It takes on average four years for the good-to-great companies to crystallize their Hedgehog Concepts.
The chapter concludes with an intriguing remark. He states that the point at which you solidify your Hedgehog Concept won't be as monumental as you think. Instead, when you find your true north star, it will feel more like "a quiet ping of truth."
During their investigation of good-to-great companies, something stood out to Collins and his team. They were struck by the "continual use" of the following words.
Interestingly, he notes these words were "strikingly absent" from the material on the comparison companies.
"People in the good-to-great companies became somewhat extreme in the fulfillment of their responsibilities," he explains.
Nevertheless, many companies don't become great because they bring undisciplined workers on the bus. But worse, they drag their feet on letting them go.
Collins discusses why keeping the wrong people can seriously undermine a business's long-term success.
This is a simplified explanation of a complex phenomenon, nonetheless, Collins believes companies can largely avoid this problem by hiring disciplined, diligent people in the first place. He firmly believes, "the right people don't need to be tightly managed or fired up."
Collins also reveals companies must establish a culture of discipline via their executives. It's the leadership's duty to "set a clear tone from the top." In other words, leaders must lead by example.
This echoes a similar idea from the book Work Rules! by the former Head of People of Google, Lazlo Bock. Bock shares a similar belief that visible signs of hierarchy imply an obvious disparity. It creates an unspoken "us" versus "them" environment. As a result, this climate erodes a sense of community and belonging and ultimately harms employee motivation.
Like Carl Reichardt, Bock thinks reducing visible signs of hierarchy is critical to getting the most out of employees. Because doing so fosters unity and community among everyone. This is key to motivating employees to go above and beyond.
Finally, Collins closes the chapter by warning to not "confuse a culture of discipline with a tyrant who disciplines." In a true culture of discipline, everyone displays diligence and intensity, not just the CEO. He warns that larger-than-life CEOs who lead through "sheer force of personality usually fail to produce sustained results."
In his research, it became apparent to Collins that technology played a pivotal role in leading the good-to-great companies towards sustained growth
But it might not be in the way you assume.
Collins explains good-to-great companies never chased technology fads or jumped on a tech trend just because they saw their competitors doing it. Quite the contrary, good-to-great companies carefully leveraged technology to accelerate their growth.
“Good-to-great companies used technology as an accelerator of momentum, not a creator of it.”
He also affirms these companies didn't fall into a “technology trap.” In short, they didn’t simply buy into whatever was trendy at that moment. And they thought carefully about how technology fits within the three circles of their Hedgehog Concept. While mediocre companies were more reactive with technology – they “lurch about, motivated by fear of being left behind.”
In other words, technology alone is not enough to make a company great. Businesses need to first develop a clear Hedgehog Concept and stay within the three circles. Under these conditions, the right technology has the power to propel your business forward.
In his study of "elite" businesses, Collins aimed to find the "one big thing" that led these companies to hit a breakthrough.
But, he came up empty-handed.
This realization led him to conclude that breakthroughs don't come from one singular action. Instead, breakthroughs come from "persistent pushing in a consistent direction."
At some point, with enough steady force, "the flywheel builds momentum, eventually hitting a point of breakthrough."
In contrast, the comparison companies followed a different pattern, what he termed the "Doom Loop."
In the Doom Loop, companies take a shortcut and skip the arduous process of building momentum. In short, they tried to jump straight to the breakthrough.
Collins warns this approach never works.
For example, he gives accounts of comparison companies that tried creating a breakthrough via misguided acquisitions. Or by hiring a new CEO who ended up "stopping the flywheel."
He states he found some version of the Doom Loop in every comparison company studied.
Even more interesting, when speaking with good-to-great leaders, Collins found they "weren't even aware that a major transformation was underway." In other words, they didn't chase short-term greatness. The success they had achieved was only apparent to them after the fact.
The major takeaway from Collins's book: You can't skip hard work.
In other words, greatness cannot be manufactured -- at least not with single-stroke solutions. It's a multi-step, organic process.
Greatness is the fruit of small, continuous steps in the right direction. It's the product of consistency and discipline, like a harmonized rowing team where each team member pulls their weight equally toward the same goal.
To that end, the blueprint for greatness is simple. It takes work to put it into practice. But it's conceptually simple.
It means finding the right leaders and people, facing brutal facts, and most importantly, focusing on what your company can be great at in the long term (your Hedgehog Concept) and pursuing it with unwavering determination.
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