Reflections On Good-To-Great: Guest Post

I recently posted about the The Key To Gen Y Is Gen X. As an advisor to clients I am always surprised by the lack of understanding Gen X has for the mindset of Gen Y. Most of us who are older than 30 don't seem to realize how fast the world is changing around us. I recently read that the Nokia-Microsoft partnership is going to produce its first phone in two years. Really? Two years? Have these guys even thought about what the smart phone landscape will be like in two year? I don't think we even know who all the players will be two years from now (Facebook will likely be a main competitor), so how can you be designing products for two years from now?

The gap between Gen X and Gen Y is huge, yet I firmly believe neither can be successful in the coming decade without fully understanding and partnering with each other. Business models are changing, and they are not limited to certain industries.

If you are a CEO in a Fortune 1000 company its time to go back to school on understanding your market, and your culture. And its not only CEOs. CIOs are going to have to revisit their entire approach to IT in companies. COOs will need to overhaul their manufacturing process. Marketing and Sales are already making huge shifts in how they connect to their markets. And they are all going to have to understand a little part of the business called Supply Chain.

We are seeing a major change in the landscape of doing business, even though the key fundamentals of business will not change - even the Federal Government can't regulate its way around this fact. At my company, BrainNet, we are tackling these issues every day with clients who realize they have to change, they have to innovate, and that starts inside their organization.

It was therefore particularly interesting to read the reflections of a 21-year old entrepreneur on Jim Collins' classic Good-To-Great. When you talk to business executives from Gen X and older they will tell you Good-To-Great is like a bible for how management should operate. Yet Francis Pedraza's guest post does an incredible job of giving us insight into how Gen Y's mind works, and why proven business principles like those outlined in Good-To-Great may not work for the next generation, but more importantly, are not appealing to future Zuckerbergs of business.

Enter Francis Pedraza, Founder and CEO of The DoBand Campaign...

Reflections On Good-To-Great

by Francis Pedraza

Socrates, I feel ya! One of the things I’ve discovered about my job, is that the more I know, the more I realize how much I don’t know. I run a startup, and I’ve exchanged notes with plenty of other entrepre-doers. We face challenges and opportunities of daunting scope, operate in conditions of extreme uncertainty, we’re under-resourced, and yet we’ve gotta make rain in the desert. Sound familiar?

One feeling that rears its ugly head every so often is that of inadequacy. “Nothing prepared me for this!”

To cope with this, the DoBand team decided to start a book club. We figured it would be a dose of good ol’ OTJ training. ‘Cause “learning the hard-way” ain’t fun.

We polled our advisors for suggestions, and we’ve got quite an ambitious list to work through. Most of these were recent titles, geared specifically towards technology startup stuff. But at the top of the list, we had Good to Great, by Jim Collins. Shahriar Broumand of Nomad Influencer (@sbroumand) had cited it on numerous occasions, and recommended it highly. It was a classic. So we gave it a whirl.

What didn’t work for me.

To make this critique really meta (and cheesy) – Good-to-Great could have gone from good to great.

First off, this whole book could’ve been much shorter. As you’ll see below, the concepts aren’t that hard to grasp. Don’t waste my time, thanks.

Secondly, what about a prequel titled Sucky-to-Good? That’s probably more relevant for most organizations out there. Hey, I’d buy it! Startups struggle with problems so basic that most of the problems in this book seem like luxuries. Don’t acquire too many companies? No kidding! At their worst, all of these companies had steady revenue streams making them tens or hundreds of millions a year. They face a very different set of challenges. Startups need to learn to crawl, then to walk, then hopefully to run. But this book is about winning races. That’s important to remember.

To tell you the truth, I’d been avoiding this book for a while. For as long as I can remember, since the dawn of my business consciousness, it’s been something I’ve put off. It’s one of my dearly beloved uncle Nasser’s favorite books of all time. Yet somehow I had this sense that I’d find it too restrictive, too stiff, too stodgy, too dogmatic. Basically, I had a bizarre prejudice for this book.

…Oddly warranted, actually. The not-so-good (or great, hehe – sorry, couldn’t resist the cheap pun) thing about this book is it’s style. It’s just so irritating. Allow me to explain.

Partly it stems from the fact that Jim Collins hails from an earlier generation. He hails from a long line of business writers that MBAs and Fortune 500 corporate-types adore. From my Gen Y tech-startupy perspective, it makes me cringe to hear him heap praise upon crusty establishment companies. How did Nucor, Philip Morris, Circuit City, and Walgreens make his elite list of “great” companies? Overcoming my negative impressions of these companies and their “old economy” industries wasn’t easy. I had to imagine them a few decades back. Still, it was painful. Do I really aspire to build companies like this? No! Ugh. Yuck.

At least Collins’ lineup of role-model companies alerts us to our biases. We love sexy brands, gorgeous design, cutting-edge technology, insanely great products, and big ideas. But linoleum floored, florescent lighted 24-7 drug-stores on every corner? Nah, that’s not so attractive. But wouldn’t it be so much more attractive if it made us rich and consistently beat the market? Sure it would. We admire charismatic guru entrepreneurs like Steve Jobs who do business ‘their way’ (as Richard Branson put it), not the quiet, humble types that Collins’ trumps up as “Level 5″ executives.

So we have a bias. But conversely, so does Collins! There’s a selection bias – the companies that fit the research criteria all tended to start out as stagnant mid-cap companies in established industries. None were in markets experiencing exponential growth. None faced pressure from below – Kimberly Clark didn’t have to face much pressure from disruptive startups, it started in the paper-mill business. Enter a CEO that puts in place a strong management culture, and all of a sudden these formerly unremarkable companies get their act together. They start tapping into remarkable operational efficiencies by focusing on how to use what they’re best at to address market opportunities. No magic there!

Collins talks at length about the selection process for the Good-to-Great companies, and it’s a very specific set of criteria: businesses that 3x the market index for 15+ years, before ~1990. It turns out only about 15 made the cut. Why didn’t Coke, P&G, and other 20th century big corporate names make the cut? For the same reason that America can’t grow as fast as China – they were already “great”! This rigid slice also precludes any analysis of the success stories behind the most dynamic companies driving growth in today’s economy – Apple, Virgin, Google, Facebook, etc. We’re living in an age of exponential growth – I refer you to Time Magazine’s recent piece on The Singularity movement – and one in which tiny startups with just a few million in capital can release products that disrupt huge industries. Instead of making this disclaimer from the start, Collins’ goes out of his way to say that his study applies to all companies, everywhere. That’s simply not true. Most companies are totally different animals.

Then there’s the “rah-rah” mantra and the cult lingo. Jim Collins very deliberately coins new phrases to describe his concepts. Carving out a fresh vocabulary did ensure that the main points weren’t obscured by pre-defined constructs. Ok, fine. But once he makes his point, he reiterates it too frequently. The taxonomy gets in the way: it’s like watching him beat a dead horse, but at least he gets his point across… Collins clearly tried very hard to elevate this book to the status of a “classic.” He’s quite a promoter: constantly talking up his team, touting his (quasi-scientific) breakthrough research, and promulgating tenuous aphorisms. For those who buy all his hype, they treat this as their bible.

Above all, what turned me off about this was how Collins’ positions his arguments as timeless principles showing us THE WAY to build companies that enjoy enduring success. To some, that illusion of clarity and solidity is comforting. For lack of a better word, I’ll describe it as an ancient ‘conservatism’ – people want to heed the wise and obey their tried and true wisdom. It gives them a simple, straightforward worldview to help them structure their business thinking. To steal Collin’s own phrase, it let’s them plod around with a “hedgehog concept”. Sadly, reality is too dynamic and complex for such rigid success formulae. While I’ll candidly admit that I don’t have all the answers, I’ll also confess that I’m scared of people who have so neatly packaged all the answers. Besides how it comes across as condescending, it makes me feel like my wings have been clipped. “Follow these rules, and you will surely succeed” – sucks all the creative oxygen out of the room. I have a visceral aversion to that. That’s why I think I instinctively avoided books like by Covey, Collins, Drucker, and others. As an entrepreneur, I thrive in a context where problems and solutions are unknown. The journey is explorative. It’s an art, with some science – not vice versa. Machiavelli makes this point so well in Il Principe – if you’re not flexible and adaptive, if you can’t embrace paradoxes and ambiguity, you might succeed in one situation, but you’ll fail when conditions change.

Sorry if that offended anyone. But hey, it’s the blogosphere, and part of my academic training encouraged skepticism. So the contrarian came out first.

What worked for me.

From memory, here’s a smattering of concepts that I find useful.

First and foremost, get the right people on the bus. It’s about people, people, people! This really stood out to me, because I’ve made this mistake before. Like a lot of startup founders, I’m tempted to start by making a compelling pitch for our product and vision, and getting as many people excited about that as possible. If they were excited enough to join, great, come a’board! But this romance fades, and they loose energy, because you didn’t really secure full commitment from them up front, or test their mettle to see if they had the right skills and competence for the job. It becomes a problem when you need to pivot, because they signed up for the original vision.

Hire slow, fire fast. Collins classifies people as A-players, B-players, or C-players. Remove the C-players. See if you can find the B-players a different seat on the bus, so that they can become A-players, otherwise they’re better of getting off the bus, because there isn’t the right place for them in your organization. Leaders in Collins’ “great” companies began their reform programs not by setting a vision, or rallying the troops, or “aligning” their management teams, but by firing and hiring. Don’t settle!

Discussing this point with the venerable Nomad Influencer really drove home how costly hiring decisions can be, especially in a startup. In percentage terms, every new hire is a huge chunk of your workforce, and they contribute DNA to the culture. If you mess up, it takes three months to find out, and three months to find a replacement, and three months to train the replacement, so that you’re 9 months behind! Woah. That puts things in perspective.

Collins makes it clear that when you do hire the right people, it pays insane dividends, like not having to micro-manage, or even to manage. You can lead and be relieved of the stress of making sure people are doing work and have a strategy for getting things done. If they’re the right people, they’ll manage themselves.

The “Level 5″ Leader. Collins’ blows up the idea that struggling companies need to bring on charismatic ego-centric leaders from the outside (like Lee Iacocca at Chrysler) to save them. Their egos discourage contrarian thinking. They put yes-men in management positions, instead of strong managers. They can’t hire people that are smarter than them. They create a leadership void when they leave. Instead, Collins’ model leaders are almost pathetically humble, but have maniacal commitments to the company’s success. They hire the right people. They focus on systems. They get out of the way.

What I like about this theme, which runs throughout the book, is that it’s unexpected. He deprecates “guru-worship” in favor of principled leadership and rational systems. There’s a lot to learn from his “level 5″ leaders. But sadly, I’m only half convinced. What about Steve Jobs? There’s clearly an exception to the rule.

The Hedgehog Concept. So named after one of Aesop’s fables, the basic idea here is that the breakthroughs at the “great” companies were driven by a clear understanding of what they could be the best in the world at, what their most important metrics were, and what their business models would be. When I state it this simply, it seems, well… simple. That’s the point. Collins does a great job of explaining the sophistication behind this simplicity – it took years of market experience for the companies to formulate their hedgehog concept, and once they had it, it was a lens for them to evaluate everything.Collins points out that doing things for the sake of complexity is a very real temptation for many egoist executives. Growth by acquisitions is also a temptation…

The Flywheel Concept. This has to be one of the most poorly defined concepts ever! It comes at the end of the book. Yet I found it to be one of the most powerful take-aways. It’s basically a study of momentum. The insight here was that the “great” companies just kept chipping away at their “hedgehog” concepts, quietly, and steadily, year after year. At first, there’s too many conflicting inputs and too much noise to see if anything’s happening. Eventually, the “flywheel” (look it up, I had to!) starts to rotate under the weight of its own momentum, creating accelerated returns. It all comes together, spinning faster and faster and faster, and that’s when all money gets churned out.

This really hit me. People tend to overestimate in the short-term, and under-estimate in the long term. Sustained and focused effort is an enormously powerful force. It’s like erosion. That’s very encouraging if you’re planning to stay in the game over the long-haul. Just keep at it. Churn the wheel. Keep going. It will ramp…

The Stockdale Paradox. A story of a Vietnam POW provides the watershed emotional event in the book. It’s VERY moving. I cried. Basically, the POWs that didn’t make it, snapped because they always expected to get rescued by Christmas. When Christmas came and went, they thought they’d get rescued by Easter. After setting their hopes high and watching them get crushed again and again, they gave up. Colonel Stockdale was the most senior officer there, and he survived by mentally committing for the long, long-haul. He did not put a target date on “success” (rescue). It was always at some indefinite point in the future. He knew that this would be a defining episode in his life, and he had remarkable patience.

Collins makes a brilliant point that’s resoundingly true: you’ve got to have complete faith in ultimate success, without trying to time it, and yet (here’s the paradox) be able to confront the darkest and most terrible realities of your current predicament with brutal objectivity, and do whatever’s necessary to survive.

Very moving. Just for this one story, it’s worth reading the book.