In Great by Choice, the research team of Jim Collins, the best-selling author of Good to Great studied over 20,000 companies before the year 2002 to identify 10X companies and what made them great in relative to comparison companies.
10Xers
10X companies beat its industry index by a minimum of 10 times. Among 10Xers were Amgnen Biomet, Intel, Microsoft, Progressive Insurance, Southwest Airlines and Stryker.
10X companies take full responsibility and when they do this they demonstrate
- Fanatic Discipline (e.g. Herb Kellenr of South West Airlines on animating his airline culture)
- Empirical Creativity (e.g. Andy Grove of Intel on overcoming prostate cancer while fulfilling his role as CEO)
- Productive Paranoia (e.g. Bill Gates of Microsoft on never-ending and careful assessment of risk)
The race to South Pole
Jim Collins exemplified 10Xers with Amundsen and Scott, two great explorers of the Anartic adventures, were in the race to be the first to reach the south pole. Amundsen won because of his meticulous preparation for many years and his diligence of his actions.
Fanatic Discipline: The 20 Mile March
20-Mile March addresses the importance of consistency in performing well over a long period of time, rather than a mixture of spectacular jumps and catastrophic falls. A good 20-Mile March has the following features.
- Clear performance markers
- Self-imposed constraints
- Within ability to reach
- A proper timeframe that’s long enough
Empirical Creativity: Bullet sand Canonballs
If you make one large cannon ball that is made of all ammunition, but it misses when fired, then you lost all your resources. Instead, you can practice with a series of bullets until you know exactly how and where to hit. Then and only then, you make a canonball with remaining ammunition, hit the larger ship and win the battle.
10X companies fire bullets then cannonballs. Steve Jobs used iPod as first a bullet then a canonball.
- A bullet must have little cost or risk, and must be a very good test for what will work.
- A canonball must be calibrated by empirical evidence.
- 10Xers occasionally fire uncalibrated canonballs, but they’re quick to self-correct.
Productive Paranoia: Leading Above the Line
The death line is a series of criteria, which if a company reaches they’re finished. Productive paranoia is put into three categories: cash reserves, bounding risks and zoom out zoom in.
Cash reserves are shock absorbers in case of the black swan events, events that have a low probability of occurring but carry a disastrous consequences.
10X companies take on far fewer risks than comparison companies do. They are also very conservative to risk and are rarely in a rush. Bounding risks have three groups.
- Death line risks – risks that could bring a company to its knees
- Asymmetric risks – risks with potential downsides far greater than possible returns
- Uncontrollable risks – risks that are outside of the company ability to control
Zoom in and zoom out means constantly assessing the big picture. Then having seen what they are, zooming in and taking massive action.
Operating Practices: SMaC
SMaC stands for Specific, Methodical and Consistent. SMaC recipe is a set of robust operating practices. SMaC recipes are rarely changed by 10X companies, if at all. But they do change it partially when there’s strong empirical evidence.
Intel has long had SMaC recipes and has only changed one of the ingredients so that they moved from memory to micro-processors following the price wars with Japanese manufacturers.. Microsoft was completely devoted to standalone computer until 1994 the Internet becomes ubiquitous. Apple massively decline until the return of Steve Jobs when he resurrected the original recipes Apple used before he was ousted.
The Role of Luck
Luck is far from the only distinction between 10Xers and comparisons. In fact, comparison companies had more good lucks than the 10X companies. Regardless, 10X Companies distinguished themselves by how they handled luck events whether good or bad. So it turns out the ‘greatness’ has shown to be more than just ‘luck’.