I had lunch with a friend of mine the other day. He had just finished selling a company he started 2 years ago for the neat sum of XX million Euro. Now, how do you do that?
Well, his case is really interesting. Had they invented a new gismo that people was lining up to acquire or a new material that could reduce the weight of automobiles by 25% or new technology or some other thing new?
They didn’t even have any IP. All they did was repackage some services that were readily available on the market and sell the new package to corporate customers. The package was well thought of and represented an attractive value proposition, but the real difference was my friend’s ability to acquire new customers. Within the 2 year period, my friend and his partners managed to get so many new enterprise customers on subscription plans that the company’s baseline revenue is secured for the next 3 years.
Asking my friend what really made that possible his answer was: “My partners. Life has taught me that people make the difference, not products.”
He then told me that his personal business bible was “Good to Great” by Jim Collins and his team. The part, where Jim and the team find out how great companies recruit the right people and then find out what to do with them next, is a rule by which my friend lives.
I rushed home and ordered Good to Great from Amazon.de. Soon after receiving the book, I was fortunate to have a strike of the flu for a couple of days and managed to get through the book in between sleeping. That’s an interesting book for sure. I was so inspired by the book that a wrote a two page summary of the findings. You can review them here.
From Good to Great
The book by Jim Collins “Good to Great” (2001) is a study of US companies which from a position of average performance suddenly takes off and outperforms the market by at least a factor of three over a sustained period. The study attempts to identify patterns of behaviour and characteristics that make these “great companies” differ from their peers in the same industry.
Becoming great doesn’t happen overnight, nor can it be subscribed to a single event, program, person or incident. It is the constant accumulation of small steps that suddenly gains momentum and takes the company off to outstanding performance.
Why do we need to know what it takes to be great if we are happy with just being good?
From the study, it appears that the effort required to become great is not more demanding than what it takes to become and remain good. Rather the opposite. It seems that as soon as they gain momentum the great companies have an easier route than the good companies and a much easier route and life than those companies, which struggle with low performance.
Great performers are not related to specific industries. You can find them in any industry at any time.
Level 5 leadership
Great companies all have level 5 leaders and leadership cultures:
- Great top leaders are passionate and strong willed, but they are not big egos, tyrannic or charismatic. They listen well and have an integrating leadership style.
- They are focused on the success of the company and the team and not on their own success.
- They understand how to attract the right people and move/get rid of the wrong people.
- They want and can face brutal facts.
- They are looking for a market/segment/concept where the company can become a clear #1.
First who – then what
Great companies are extremely meticulous in finding the right people first, get them in the right seats and get the wrong people off before defining the course and direction.
The right people are 85% attitude and spirit and 15% qualifications, experience and competence.
Confront the brutal facts
Great companies are constantly looking for facts on their course and destination. They face brutal facts much better and react much swifter than the average peer. However, they never linger from their ambition of becoming #1 in the line of business they have chosen.
The Hedgehog Concept
Great companies choose a market/concept/approach which can make them a clear #1 in their business. When taking off from good to great this market/concept/approach may not be their current core business. If they consider it impossible to become #1 in their current core business, they will adjust their strategy.
To drive the process they use 3 focus areas:
- What are we really passionate about
- Where can we apply this passion to become #1
- How can we measure our progress and performance with simple metrics
Culture of Discipline
Great companies chose to hire people who are self-disciplined and they nurture a culture of responsibility that amplifies self-discipline.
People with self-discipline need less:
Motivation and organizational alignment don’t seem to be an issue in great companies. People seem to be motivated by the culture, their assignments and the course.
In none of the great companies were technology a breakthrough factor, but in all of the companies were technology an accelerator.
All great companies invest heavily and are at the forefront of those technologies, which can improve their performance and position.
The Flywheel and the Doom Loop
Great companies benefit from a long a consistent pull in a well thought direction adjusting the course constantly but never making abrupt strategic moves and acquisitions.
Great companies are like flywheels gaining more and more momentum.
Their good and not so good peers suffer from sudden changes, greater than God leaders and an inability to accept and understand the brutal facts from the market. Instead of gaining momentum, they enter a doom loop.
All the great companies had a purpose and a vision beyond just making money. It was generally a purpose and a vision that everyone in the organization could identify with and support.
The book has been criticized for scientific faults, for stating the obvious and for being too general to offer any help.