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Good To Great – How Advisors Can Make The Leap

Jim Collins has made a science out of greatness. He’s a man on a mission to study and scientifically determine what makes some companies successful while others fail.

With a quarter of a century of relentless research, Jim has authored and co-authored six books that have sold more than 10 million copies worldwide.

For Good to Great, Jim, a former Stanford University business professor, had a team of 20 people put in 15,000 hours of research to find companies’ secrets for success. Out of the book’s 300 pages, 82 are devoted to appendices and notes on the research methods. Hence, the science of greatness.

For his latest book, Great by Choice, Jim’s objective for the nine years of extensive research was to answer the question, why do some companies thrive in uncertainty, even chaos, and others do not?

In this two-part interview with InsuranceNewsNet Publisher Paul Feldman, Jim discusses the key qualities of success and how small business owners can apply them. Next month, Jim will examine the “Hedgehog Concept” – doing one thing and doing it well.

FELDMAN: A lot of our readers have read your work – from Built to Last, Good to Great, How the Mighty Fall, to your newest book Great by Choice. Can you tell us about Great by Choice and what are some of your latest discoveries?

COLLINS: I have had the privilege to be on a journey for almost 25 years now. In 1988, I began this journey of trying to address one really big question: what makes a great company tick?

That journey began by teaching a course on entrepreneurship and small business for the MBA program at Stanford. The course syllabus said something along the lines of, “This is going to be a course on the unique challenges of small business or the small enterprise.” And I somehow had the instinct to change the syllabus intro to say, “This is going be a course about how to turn a small business into an enduring, great company.” So I put a period at the end of that and that was the opening line of the syllabus.

Then I realized that I didn’t really know very much about what it took to build an enduring, great company. And I was fascinated with the journey by which people started with a small business and built a great company out of it. So I began this long research journey, and I now can think of it as a black box and inside this black box are the distinguishing principles that separate a great enterprise from others.

In a way, you can kind of think of it as it’s really almost four volumes of one question as opposed to four different volumes, the first being Built to Last, which looked at very long-term success; Good to Great, which is about how you take a good enterprise and continually working toward making it great; How the Mighty Fall, which looks at the dark side of how companies self-destruct or how they can self-destruct; and then finally this last one, Great by Choice, which is all about thriving in chaos and uncertainty and why some do and others don’t.

There has always been this lurking point that led toward this. We’re in a world that is going to be full of changes that we can’t predict and some of them are very big, very disruptive, very fast-moving and very dangerous.

FELDMAN: Do you see change happening faster nowadays?

COLLINS: If you look at the amount of change that happened from the end of the 1800s through the 20th century, it has been dramatic. We had the dissemination of electricity, the rise of pharmaceuticals, television, radio, the Internet, and you had, of course, nuclear weapons. You had two world wars. You had the Cold War. You had the rise and fall of an entire empire. I mean just extraordinary amounts of change, even the rise of the modern corporation is one of the changes of the 20th century, capital markets as we know them today. The amount of change has just been utterly astonishing.

So I’m very skeptical when people say today is uniquely full of change than what people before us have faced. I do see two things, though. One is that people believe that the rate of change is faster and the degree of disruption is larger. So if they believe that and they’re starting from that point of belief, then you still need to be able to answer for them, “OK, I don’t know if you’re right or if you’re wrong on that. What I do know is that if you believe that, we need to know what principles allow you to do well in a changing world, because you’re starting from that point of view.”

The second is that I do believe that technological change is happening at a very accelerated pace. I don’t know if they’re more dramatic, but they might be happening faster.

FELDMAN: Right. You think about the iPad, how that’s just taken off and now tablets are a part of almost everyone’s life in the business world. So, that is good change for many people, but good or bad, how do people survive constant change and disruption?

COLLINS: My co-author, Morten Hansen, and I asked, “Why do some thrive in uncertainty and even chaos and others don’t?” That was really the genesis of the study.

This study distinguishes itself from the prior three in two ways. The first is that it deliberately selected subjects by the severity of the environment. There are companies that outperformed their industries by 10 times but didn’t make it into the study because they weren’t in a turbulent enough environment.

The second is that this study more than the others puts an emphasis on the small business and the entrepreneur, because in order to qualify for the study you had to have started your journey to be a 10x great company from a position of being small or young. Very significant companies were once startups. Intel had three people. MGM started in a tilt-up building in Thousand Oaks, Calif. Microsoft started with five people in Albuquerque, N.M. Peter Lewis took over his very, very small family insurance business in Cleveland and it grew into Progressive. They were startups and then they went to become these great winners.

We put more emphasis in our deliberate selection on looking at them when they were small and what they were doing than we did in the previous studies.

FELDMAN: One of the things you talked about in Great by Choice is the core competencies that need to exist to be what you call a 10x leader. For a small business owner, what does it take to become a 10x leader and how do you position yourself for that?

COLLINS: One of the things that I found really fascinating about this is that most of what it takes seems to be learnable. We tend to think that somebody who would lead an enterprise to be 10 times better than its industry must be a superhero. They must be off the charts with charisma and sheer brilliance and that we could never learn to be like them.

We actually found that the distinctive behaviors, the things that separated them, are learned capabilities and behaviors. So let’s talk about these real briefly.

In the book we use this pair of explorers, Roald Amundsen and Robert Falcon Scott, as an analogy because here you have the ultimate sort of small enterprise. They were two small teams both trying to achieve something great in 1911, to be the first to the South Pole and get back alive in a very unforgiving and uncertain environment.

The analogy to being a small business person out there in the world, which is so much bigger than you and potentially unforgiving, is a little bit like being Amundsen and Scott out there on the Antarctic plateau in 1911.

The way to think of it is this triangle that we put in the book. One of the points is the notion of utterly fanatic discipline. The second is this empirical creativity, and the third is productive paranoia. In the middle is this idea of level-five ambition animating the whole thing. Let me just briefly talk about each of these.

All the people we studied were utterly fanatical about understanding what it is that they were trying to do and clearing away everything that got in the way of that. These people were truly driven, intense, fanatic, disciplined people.

Fanatic Discipline means consistency of action, values, goals, service, execution and consistency of hitting your own self-imposed performance expectations. They don’t come from outside. They come from inside. You drive yourself harder than anyone else could possibly drive you.

That notion of discipline has shown up in all of our work but it really stood out in this study and came to life in this thing we came to call the 20-mile march. The idea of the 20-mile march is that you’re on a long journey. You mentioned earlier that many of your readers have been in business for decades, and it’s a long journey. It doesn’t happen overnight. You don’t build a great set of customers overnight. You don’t build a business that serves its particular community so well overnight. It’s a journey.

What we found is that Roald Amundsen exemplified this and called it the 20- mile march. It doesn’t matter whether it’s good or bad weather. You basically say, “Every day we’re going to hit some allocated amount of miles toward our goal,” rather than if it’s good conditions going as far as we can and in bad conditions holding back. The idea of having a 20-mile march is something that you just stay on with incredible consistency.

So, let’s move over to the insurance industry. Progressive Insurance is not your insurance world, but I think it really highlights the idea of the 20-mile march. Peter Lewis at Progressive said, “Look, we need a mechanism to keep us focused on the core discipline of our business,” and that’s the combined ratio for an insurance company, the core profitability. “We’re not going to try to make money by a whole bunch of sophisticated investing stuff. We’re going to do insurance well, and price risk well, and the real nuts-and-bolts management of that. So, we’re going to average a 4 percent combined ratio and we’re going to have a positive profitability in that core underwriting activity every single year if we can,” and they did it for 27 out of 30 years, incredible consistency year in and year out.

Now, it could be that your 20-mile march is, “I’m going to place five calls a day no matter what. I don’t care if I have 105-degree temperature or whether it’s a great day and I could make 30 calls. I’m going to do five a day, every single day, no matter what.” That’s a 20-mile march, and whatever your 20-mile march happens to be, you know what it is.

FELDMAN: I love your concept behind the 20-mile march. How important is having a “20-mile march” for a salesman or a business owner?

COLLINS: The 20-mile march gives them something to focus on and to make progress on day in and day out. They have this clarity and incredible commitment to find a way of navigating their way in a world that just seems to be swirling all around them.

The discipline is in every single day you wake up and the first thing you do is you track your hours from the day before, and you do it every day, and you do it 365 days a year, and you stay on target.

The learned behavior is to say, “I need to know as an agent or an advisor, what is really the right kind of march for me?” And then they need to hold themselves to it fanatically. That’s where the real 20- mile march comes in. It’s in the holding yourself to it.

Once you set your march, there’s no acceptable reason for missing it, no matter what. That’s what the 20-mile march is all about.

FELDMAN: What is your 20-mile march?

COLLINS: My own march is an annual one and I track my time. Every day I put my time in a spreadsheet broken into three categories: creative time, teaching time and other. Over time it needs to be more than 50 percent creative. 50/30/20 should be the target. And if other time starts growing beyond 20 or creative starts falling below 50, I’m off my march.

Now there are some days that are all teaching, some days that are other, whatever, but over the course of a year I track it every day and then I have a constant running monthly total, and then I have the annual total, and over the course of a year I should really come in on target, and the only way I can come in on target is if I’m constantly making sure that I am allocating time for creative work. FELDMAN: What does “creative time” look like for a salesperson or business owner? Our reader’s creative time is very different from yours because you create a lot of research, books and writing. But for people who are selling insurance, what would their creative time be?

COLLINS: I wouldn’t suggest that somebody should have my march. Mine came out of asking my stepfather, who was a great physics professor in terms of great teaching, great research and great service to the university. I once asked him, I said, “What marks a great professor?” He said, “Well, the key is you do 50/30/20, 50 percent of your time in intellectual work, 30 percent of your time teaching and 20 percent in other things you need to do to help the institution.”

I just wrote that down and I thought once I formed my own research lab, I needed to stay on that track. I needed to stay on that 50/30/20. So that’s where it came from.

Now if I were in a different activity in life, then I would have a different allocation. Mine might be 40 percent sales marketing, 40 percent service, 20 percent other.

The key to a 20-mile march is how you’re allocating your time and being utterly, ferociously consistent in how you deploy on the things that you know over time are the most important and tracking it.

The beauty of the 20-mile march is when the world is melting down on you in difficult times with tremendous uncertainties, it gives you something to make sure that you’re paying attention to when you wake up in the morning.

FELDMAN: Let’s talk about the second part of the triangle, the “Empirical Creative Side.” What does that mean to salespeople who might not think they are creative?

COLLINS: The people we studied were not just creative. They were really good at figuring out what works empirically. They would try things. We call it firing bullets, then cannonballs. If you’re going to try something radically new that you haven’t tested, you can’t fire a big un-calibrated cannonball first, because then you won’t have any gunpowder left if it misses.

So, fire bullets. When I see that the bullets are actually on target with something and I’ve got a calibrated line of sight, then I put a lot of resources behind that line of sight and fire a cannonball.

Now for a small business person with limited resources, this is an extremely important idea because you always feel that you need to be thinking about doing something new, whether it’s a new way of reaching your customer audience or responding to challenges. But you have to place your big steps on sound footing.

We write in the book about how Robert Falcon Scott, who didn’t get to the pole first and died along with all of his people on the way back, had placed a big bet on these things called motor sledges, which were engine-driven tractors that they hadn’t tested for the conditions of the South Pole. The engine blocks cracked and that led to a series of things, such as using ponies, which also didn’t work.

Amundsen said, “That’s not proven yet and we’re betting our lives out here,” and he went and lived with Eskimos. The Eskimos said, “Dogs and sleds and skis work really well out here.”

The difference between the two of them is that Amundsen formulated his path based upon real proven empirical experience. He learned from the Eskimos and his own trial and error, whereas Scott went with something that was unproven.

So what does that mean for a small business person? You can’t afford to fire a lot of un-calibrated cannon balls. You’re small. And at the same time, you have to be moving forward and doing new things because the world around you is changing.

So when you’re facing questions such as, “Should I do something with social media? Should I do something with the Internet? Should I do something with whatever,” instead of kind of having this big yes or no answer, which can be paralyzing, turn it into a different question such as, “How can I fire a bullet on this? Is there some way I could do this in a small shot and see if it works?”

FELDMAN: The third part of your triangle is “Productive Paranoia.” Why is this important to 10X leaders and how do you manage it productively?

COLLINS: Our people were really paranoid. They worried constantly about what the world could do to them. Our leaders carried extra cash. They always assumed that they might have to go through a very difficult period. They always assumed that that period might last a lot longer than anybody anticipated.

As a result, they could stay on their march and keep moving forward, when others who are less conservative and less disciplined in good times would find themselves more exposed and maybe have to stop their march altogether.

When you put those three behaviors together, the fanatic discipline, empirical creativity and the productive paranoia, those are kind of the three distinctive behaviors.

FELDMAN: You have “Level 5 Ambition” in the middle of your triangle, can you tell us how that fits in the middle of this great success pyramid and what it means?

COLLINS: All the best people we ever studied were always trying to do something that was more than just their own personal success.

Think about what allows you to do a 20-mile march, find and validate new things that will work even better, protect your flanks from the productive paranoia and all the things necessary to produce the best possible results you can over a long time. If it’s just about some personal success and it’s not really about contribution to something larger than yourself, it’s very hard to sustain it.

Our leaders always saw themselves in service to some cause.

FELDMAN: So, basically you need a total mission of service to choose to be what you call “Great?”

COLLINS: Absolutely. Whatever it was, they were in service to it. So when they woke up in the morning the question wasn’t, “How do I make myself more successful?” The question was, “How can I be of better service? And how can I be of better service to whatever cause it is that I’m engaged in?”

One of the things that’s very interesting about great entrepreneurs over time is you think about four phases of an entrepreneurial business. First phase, you have an idea. The second phase is converting that idea into a business, so now you have a business.

Well then you might actually convert that from a business to a company. It doesn’t have to be a big company, but it’s a company. Then finally, you create a movement like “hey, there are a lot of people who need what we do.” Or, “the world will be better off because of what we do.” That’s a movement. I think that when you have that orientation it just allows you to be self-propelled for a very, very, very long time.

Founder, President, Publisher InsuranceNewsNet.com paul.feldman@innfeedback.com.