Jim Collins

Good To Great

Episode 66

“Good to Great: Why Some Companies Make the Leap.(buy on Amazon).. and Others Don't” is a management book by Jim C. Collins that describes how companies transition from being good companies to great companies, and how most companies fail to make the transition.

SHOW OUTLINE

INTRO

• Contrast Between Success and Failure

LEVEL 5 LEADERSHIP

• What is Great Leadership?

• https://www.jimcollins.com/concepts/level-five-leadership.html

FIRST WHO, THEN WHAT

• Get The Right People

• https://www.jimcollins.com/concepts/first-who-then-what.html

CONFRONT THE BRUTAL FACTS

• The Stockdale Concept

• https://www.jimcollins.com/concepts/confront-the-brutal-facts.html

ABOUT THE BOOK

You can pick up Jim’s ‘Good to Great’ at all good outlets.

Good to Great: Why Some Companies Make the Leap... and Others Don't is a management book by Jim C. Collins that describes how companies transition from being good companies to great companies, and how most companies fail to make the transition. The book was a bestseller, selling four million copies and going far beyond the traditional audience of business books.[1] The book was published on October 16, 2001.

Collins identified several key characteristics in companies that made the leap from good to great.

1. Level 5 Leadership: Leaders who are humble, but driven to do what's best for the company.

2. First Who, Then What: Get the right people on the bus, then figure out where to go. Find the right people and try them out in different seats on the bus (different positions in the company).

3. Confront the Brutal Facts: The Stockdale paradox—Confront the brutal truth of the situation, yet at the same time, never give up hope.

4. Hedgehog Concept: Three overlapping circles: What lights your fire ("passion")? What could you be best in the world at ("best at")? What makes you money ("driving resource")?

5. Culture of Discipline: Rinsing the cottage cheese.

6. Technology Accelerators: Using technology to accelerate growth, within the three circles of the hedgehog concept.

7. The Flywheel: The additive effect of many small initiatives; they act on each other like compound interest.

Collins found that the main reason certain companies become great is they narrowly focus the company’s resources on their field of key competence.

TRANSCRIPT

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mike parsons 0:10

Hello, and welcome to the moon shots podcast. It's Episode 66. I'm your co host Mike Parsons and as always, I'm joined by the boy from Brooklyn, Mr. Chad Owen. Good morning.

Chad Owen 0:23

I here you're in a different location this week, Mike, you're not coming to us from the sunny shores of Sydney Harbour?

mike parsons 0:29

No, it is not from the warm surrounds of Sydney but the slightly chillier surrounds of Bucharest, and next week it will be London. But whilst it's chilly on the outside here, I'm feeling sort of cosy and ready to dive into one of our absolute favourite books from one of our favourite authors. Chad O , and what adventures are we on today and you're travelling will not keep us from producing and bringing the show.

Chad Owen 1:05

I feel like we've been talking about this book since we started the podcast. Almost was it three years ago now making. So this is, of course, the book Good to Great. We previewed. And you've been previewing the series for quite some time. Now, if you can't tell Mike and I are very excited about practically everything that Jim Collins Jerry porous, and others have written. And the interesting thing about this book is even though it was published after built to last, Jim kind of mentioned this as a potential prequel to built to last. But regardless of the order, I think the principles here as timeless or even more timeless, and applicable as to those that we uncovered during both last and we've got an interesting format to the show this week as well, where we've got one really great clip that encapsulates every single chapter in the book. So I'm real excited to bring those clips to you today.

mike parsons 2:04

Yeah. And and I think we should try and share a little bit of Aaron Soozee Azzam for Jim here, particularly for those who are brand new listeners or have recently joined the show, we welcome you. And if you're looking for any of our previous show, or our show notes, you can pop over to moonshots.io. And for those who our beloved loyal listeners, please jump on to your favourite podcast app, give us a review, give us a rating. I think we're up to nearly 40 reviews on the iOS, Apple podcast or so that is great, because that gets the show into the hands of many, many more people. And that really matters because what we're doing here is decoding one of the greatest living business authors and we did in the recent show, built to last which was all about about starting with creating not just a product, but way more than that, starting with the idea of what's the legacy that you really want your company to leave? What is the? What's the environment that you want to create? How do you want to take care of your people. And that was encapsulated by the story of the founders of h. p. They're very, very famous and well known tech company, where the founders got together and agreed on everything about the company and how they wanted to behave, except for the products that they were going to make. And they defer that to the next meeting. I mean, is that not perfect? Chad?

Chad Owen 3:36

I can't think of any startups in the last 15 or 20 years. That didn't, first to start with a quote unquote, genius or product idea, right. So the fact that one of the most enduring tech companies ever started with just two highly aligned purposeful founders, and they're like, yeah, we'll figure out what we want to build later. Mm.

mike parsons 3:59

What's so great, that's all about legacy and values and vision. The next show will all be about discipline. And so we'll be diving into the book, great by choice by Jim Collins. But today, we're going to Good to Great and what an exciting book because they studied a lot of different companies that were publicly listed over many decades to find those that transition from good to great. And what we have for you today is seven clips. six of those are the true backbone ideas of the book, which are so timeless and so powerful. And they play into some of the great thinking of both Drakkar and Simon Sinek, who have also covered on the show. But this is one powerhouse action packed show. So I tell you what, no matter what time of day it is, if you're starting the show now I say get an espresso call. Get out your notebook because we're going to go deep into the world of good

Chad Owen 5:05

to great. And we'll start off with a clip that gets into a little bit how Jim and his team of researchers approached this second very large research project when they were trying to answer a leftover question after they completed the built to last study, which was okay, so we we've identified what has made these companies be such an enduring and lasting company. But how did they become great in the first place?

Jim Collins 5:38

It's very dangerous to study success.

So we don't study success. We study contrast, we study the contrast between success and failure. We study the contrast between endurance and collapse. We studied the contrast between great and good. We studied the country contrast between those who thrive in chaos and those who do not. And it brings me to a key point right up front from all of our work. See if we identify matched pairs of companies match pairs of enterprises that were in the same spot, same time, same opportunities, same resources with the same potential. And yet, one becomes great and the other does not. One thrives in chaos, the other does not. One keeps climbing while the other falls and yet their circumstances were identical or very similar at the start, you come to an inevitable conclusion.

The answer the

cause

of why one becomes great and another not cannot be their circumstance. So if I were to take one giant lesson, from all 25 years of research, I'd put it to you right up front. greatness is not primarily A function of circumstance, it is first and foremost a matter of conscious choice and a discipline.

mike parsons 7:10

Hmm, well, this is just getting me started here. Well, first of all, I love the fact that he points out that he really was almost forensic in finding out and isolating what factors lead to greatness. And to me, that's where the value and the timelessness of his work lays is that they were able to do that very thing. And don't do that. Don't you think, Chad? It's almost that that sort of forensic approach is what creates the power of the next six ideas we're going to lay out on the show. I think that that is the source. And I think it's such a powerful approach to kind of isolate. What is the thing that great companies do?

Chad Owen 7:58

Yeah, and he's Not just sitting in his office in Boulder, Colorado, you know, thinking of these ideas, he and a team of dozens of researchers spent six years going through all of the data to figure out what the differentiating factors were of great companies versus good companies. And at first, they looked at the stock price performance of similar companies in similar industries over time. And what they were looking for was a company that had a period of 10 to 15 years of of expanded and continuous growth as compared to the quote unquote, control company. And if you if you go to our show notes, you'll you'll find the full list of all the different companies, but the, the outliers that they were looking for were the companies that had 10 to 15 years of have a breakthrough in terms of stock price performance in then They conducted hundreds if not thousands of hours of interviews with leaders and employees of those companies to figure out what made the difference between two companies that had the same circumstances. They're in the same industry were building similar products had access to the same talent pool etc. But one company had 345 and even like over 100, x greater returns than their than their pure companies. And you and I can be data geeks, sometimes when it comes to our work. And so knowing that all of these principles are backed by by so much data and academic rigour is just really exciting. And it speaks to the timelessness of these ideas.

mike parsons 9:47

Yeah, and draw some parallels with the likes of Cal Newport, Rene Brown, Drucker and so forth.

But

well, here's one thing for sure that we know it wasn't Just Good luck. It wasn't chance there was some very deliberate things that happened. And the first of those was what he calls level five leadership. And what is so good about what we're gonna do right now is listen to Jim Collins in he's very turbocharged, excited. Enthusiasm is we're going to hear about what it really looks like what it really feels like because we hear about leadership so much. And what he found is almost contrary into what culture has been expected about leaders. So let's have a listen now to Jim Collins talking about leadership.

Jim Collins 10:46

What's great leadership. What's the X Factor of great leadership? Well, in the book Good to Great. We studied people who transformed mediocre average companies into Those that became exceptional like taking an also ran sports team and turning it into a 15 year dynasty. And when we looked at those where they fundamentally changed the trajectory of an enterprise, we discovered this idea of the level five leader. What we found is that it's really a hierarchy, you think of it is that there's level one, level two, level three, level four, level five level one is good individual skills, you can kind of do stuff level two, good team skills, you play well with others. Level three, you learn to manage your good management skills. level four, is leadership, become an effective leader. But here's what's interesting when we looked at the good two great companies, and we looked at their comparisons that didn't make that leap. We asked a simple question. Did the good degrades have leadership and the others did not know we actually found that both the good to great and the comparison had leaders. What was different was that the Good to Great companies had what we call level five leaders. And the comparison companies had level four leaders. So if it took the level five leaders to create a good to great leap, then in the five versus the fours is where you might find the x factor of great leadership. What did we find?

humility,

that the X Factor of truly great leadership is humility. humility, combined with a ferocious will for something bigger than yourself humility in a very special way. I want to be very clear, these people are ambitious. They have tremendous energy. They are often exhausting. They never want to stop they never they're utterly relentless. Okay, there's no they have all that. But here's the difference. See for a five versus a four so far for all that Energy and ambition and drive is about them. It's about what they get. It's about how they look. It's about what they make. It's about what a cruise to them it's about whether they are the centre, that's a four, five, all that same level of energy and drive and ambition is channel outward into a cause into a company into a culture into a quest into something that is bigger and more enduring than they are level fives lead and a spirit of service and they subsume themselves and sacrifice.

Chad Owen 13:43

I can't help but think Mike, if we subtracted a few years from Jim and gave him a slight South African accent we might be hearing from another author that we've profiled, I know show.

mike parsons 13:56

I know I know. It's so scenic esque But I think we can all say that, at times we've been tempted by the allure of what he calls level four leadership or said differently. Ego. Yeah. And what is so fascinating about he's proposition is what he's really saying is that if you want to be great, that is level five, leadership, and that starts with making those around you great. And we've heard about humble leadership, servant leadership, but what he's saying when he looks at the data and studies those that truly have been great, he says it is those that put others before themselves and what he talked about in in his book, and this is how we might recognise it is these people are the last to speak in the meeting. These people are almost unaware of the role, or at least the significance of their contribution because they're so focused on the contribution of others and how they might have them. This is this leadership is not pandering. It's not virtue signalling. It is a true dedication to others. And he could only find that

Chad Owen 15:35

it doesn't also company so it's not easy, but we know what it looks like. So I've got a question for you, Chad. When you think about moments where you have been in the company of great leaders in your career, what does it feel like? What does it look like? What is this level five leadership look like when you've seen it? To me? It looks like A lot of focus on the purpose of the organisation over the career trajectory and ego of that leader, that leader is able to succinctly state the true purpose of the organisation and rally people around that purpose, as opposed to rallying them around themselves. And, and you know, kind of hoarding that talent and all for all for themselves and to accrue the value for their own careers. And I think the other thing that Jim might also say is, they're also relentlessly focused on the big hairy, audacious goal of the company, they're often driving what that goal is, and are being held ultimately accountable to achieving that goal. And again, that goes tied to the purpose of the organisation and not to themselves.

mike parsons 16:52

Yeah, yeah. So So there seems to be true service to those around Moon and those that are making up the organisation. What's also interesting is he actually found that there was no correlation to being charming or a good salesman. In fact, in his book, he often found that the best leaders were quite shy even I think is perhaps one of them. But I find that really fascinating that it really does challenge what we have become trained to expect as a good leader, sort of some bombastic, you know, larger than life, charismatic. He's saying it's, in fact, it's quite the opposite. Hmm,

Chad Owen 17:51

yeah. And I think one of the most fascinating, we could get sidetracked on a whole discussion here. Fascinating leader to view through all of these lenses is Steve Jobs because I think he fits this mould. And yet he also books, some of these principles, which in my mind just kind of makes him and the story of Apple even more of kind of an outlier. Exceptional story. But again, it's really interesting. You know, there's a lot of Apple fanboys and people often and I'm doing it now you put him up and Apple up is this, you know, exemplary example. But I would, you know, as we get through some of these principles, you'll see that Steve Jobs kind of embodies the principle but also the antithesis to the principle as well, which again, just makes him that much more interesting to to study.

mike parsons 18:40

So if we want to walk away with like one habit around great leadership, what comes to your mind is like, if we could adopt one little practice, Chad, to help us on our way to level five ladyship what would that be?

Chad Owen 18:55

i? I don't know. I think it would be something like the default Question that that leader asks of all of their people in every interaction is how can I help you either work towards our B hag or big, hairy, audacious goal or how can I help you find purpose in inside of this organisation and contribute or it's asking the questions and how the and getting involved in that servant leadership style, but I like this idea of asking that question. Yeah. I love it. I love it.

mike parsons 19:29

Yeah. Just like, okay, what's the biggest blocker you face to? doing great work here and serving our mission? Tell me what the biggest blocker is. And I'll try and smash it down for you. You know? That's a really that's a really good one to stop. How about you? And I like the really simple mantra of being the last to speak in a meeting. You know, how often is it that you know the most so so good, so hard? Oh my gosh, like it's like so default wherever I travel in the world. You know, when when the the top dog walks in the room it's like but a machine gun and you're like, Alrighty, here we go. And yeah, I just love the idea of Okay, I'll just listen and I can't remember who it was that we did on the show together but someone we were sort of decoding and researching was saying, Hey surely that's the best way to do it because you just get to hear everyone else's ideas and then you get to pick the best one and to build off that like surely is the best to speak last I can't remember who can you remember who that was. Now I am I am I hallucinating. I read so much and watch so much of this stuff now. I can't remember if I

Chad Owen 20:43

was if he if you know the show or

this Hello, it has

mike parsons 20:50

too many shows.

But we're not gonna stop with people stuff here. Right. We're going to keep going on this leadership and people and culture check out the chat.

Chad Owen 21:00

Yeah, we had, we had brought this concept and principle into the built to last show, but he expounds even further on the importance of, of people and getting the right people inside the organisation and you'll see how most, if not all of these concepts come back to this idea of the right people on the bus, which I think is a great analogy. And so here's Jim elaborating on why it's so important to get the right people inside of your organisation.

Jim Collins 21:36

I've always loved the story silver Blaze, which is the Sherlock Holmes story where at the end of the case, the constable asked Holmes, what was the key to the case and home says it was the Curious Incident of the Dog in the NightTime. And the constable says but the dog didn't do anything in the nighttime. Yes, that was the Curious Incident. The dog didn't bark. And so therefore I knew the criminal must have been somebody Hulu the dark

in our research,

it is the dogs that do not bark that often give us some of the best clues. And they're the dogs that do not bark helped us see the who principle. You would think that if you're leading a company from good to great. One of the things you would expect to see one of the dogs you would expect to bark, as he would find very motivating and charismatic leaders who could infuse motivation into the troops so that they would go out and do good to great things. Well, as our research unfolded, what we found is that most of the great leaders had had a charisma bypass. They couldn't motivate anybody as just a pure motivational force. That's not how they lead. But then when we began asking them, how did you get alignment? How did you get people motivated behind what you were trying to do? The dog just didn't bark. They didn't spend any time on that. That's not how they lead. And we scratched our heads a little bit, how would you make sense of the fact that you're getting a whole company to go in a different direction and yet the leaders who made this happen didn't invest in figuring out how to motivate people how to inspire people how to get people behind the firewall.

And this is when we learn something.

See, if you have the right people, they're already motivated. the right people are self motivated. the right people are self disciplined. And the challenge of management the challenge of leadership is not to how to figure out how to motivate the wrong people into the right people. It's how to get the right people and then not do all the stupid management things that tend to D motivate the already motivated people.

mike parsons 23:56

How powerful is the fact that we we consume ourselves with Trying to use all sorts of tricks, and so forth to get people excited about bad ideas, but he's saying no, your job is if you have the right people they motivated, you just need to get out of their way and not make a mess.

Chad Owen 24:16

Yeah, yeah. And in the book, he goes even further into all these failed, you know, restructuring and promotion plans and incentives and compensation and all of that has no correlation to a good to great company. And it also just reinforces this fact of how important that core purpose of the organisation is. And, yeah, and that ambition of the level five leader because that's actually their biggest asset when it comes to recruiting people. And I feel like I'm talking like Simon Sinek now too, it's just you get them behind the y and, and you don't have to spell work

mike parsons 24:58

out the wrist. Yes, exactly. Yeah, yeah. And And the interesting thing that comes up a lot is often in both cynic and especially Jim Collins touching it is often then when people aren't performing, it's not because they're bad, or that they even have a poor fit with the organisation. It's that they're playing out of position, huh? Yeah. So he's he's really pushing us to not only recruit the right people, but to get people playing to their strengths, where they can be experiencing true mastery. And he's almost making the best case ever for don't micromanage.

Chad Owen 25:38

Yeah, but I think another great clip, go back to the end of the previous episode, Episode 65. Listen to the first who then what clip, it just, he's speaking so passionately about, the need to identify first who you're bringing into the organisation and only after you've the right person and to then figure out what it is that they're doing this is, as many of these principles sort of counterintuitive or contradictory to typical ways of hiring and recruiting talent, you figure out all the things, you write the job description, here's the 10 things that they're going to be held accountable to. And then you go out and find that individual. And in some case, there's, there's no, you're not sharing the purpose or the mission of the organisation at all. You're just giving them a list of 10 things that they need to do. And I think this principle of first to then what's really changing even my own perspective on who are the people that I want to have around me to be my collaborators? It's not just the skills that they have, but it's, you know, who they are fundamentally as people and are they aligned with the vision of what we're trying to accomplish together?

mike parsons 26:51

Yeah. The the.

There's a I'm really trying to think about practices that I see no feel support this. And I love this saying to hire slow and fire fast. And so I'm stealing a lot from his idea of getting the right people on the bus and off the bus. But I think as a default, we often get in quite a hurry to hire people and maybe skip over some important details, some important areas of alignment. And then all too often, we hold on to people that are not a good fit for the organisation. But for some reason, we don't have the courage to just say hey, listen, we got to help you find something else. I think that's this this hire slow fire fast is a really good practice to focus on. Not only people first but like really making sure you get the right people on the bus. My my question for you, Chad is If we play this out what other people practices Do you think help support this idea of first who then what?

Chad Owen 28:08

That's a tough one for me because I'm really just now I feel like I'm just now kind of coming into my my full leadership capacities in my career. So I'm quite new at all of these, you know, hiring and recruitment, collaboration sorts of questions. But I think for me personally, it's understanding more about the person outside of the context of work to understand what some of their drivers and motivations are, and see if and or how they connect to what we're trying to do or what this organisation is trying to accomplish and what their purpose is. So, you may find that if the whole purpose of the organisation is really delivering services to as many people in a certain population, what other ways is that person interested in or connected to your customers, you know that, that you know that they could really get behind? I mean, there's some specific interview questions or conversational questions that you can ask to begin to elicit some of this. But I think, for me, it's waiting the non technical and skill based sorts of questions and screenings when it comes to finding collaborators and, and talent and in focusing on their passions, what they feel like, you know, they're, you know, born to do, what some of their other interests and motivations are.

mike parsons 29:31

Right, right. Yeah. I also like the exercise if you want to be focused on the interview moment, I like to understand the stories they can tell me of moments when they were really collaborative when they took a high degree of ownership, where they will learning where they were committed to getting the job done and serving others. I'm like, Oh, so you like you're really you really think you're a good communicator. Tell me about a time where communication that you've done is really made a difference. And for me, I want to hear stories in detail. So they can truly relate behaviour they talk about, to my expectations of how they'll behave in the organisation. Yeah. And if they can't, if they can't talk about it in any specificity, I'm a how conscious Are you of this behaviour, if you're really struggling to tell me in some detail, it's actually a technique I learned from Elon Musk. When he's like, Oh, you worked on a product. Tell me how you guys approached it. And he said, he can tell almost instantly if someone really worked on the product. Because if they're unable to really tell you in any detail about some of the challenges they face and how they solve them, then you know that they were like, they're a passenger on it. They weren't really that

Chad Owen 30:52

if they're going well.

You know, that. Yeah. Another example that came to Mine, you and I love working in, it's almost a requirement for us to work in highly collaborative environments. You can ask someone, you know, think of a time in which you feel like you're really accomplishing something great, who helped you accomplish that? And so you can really understand if that person was able to, to work with the team to get something accomplished and step outside of themselves and figure out how they worked with that team, and as you said, really focused on those stories to get those, those interesting anecdotes and kind of hard data points on on how they were able to do it.

mike parsons 31:36

Yeah, that's a good one. That's a good one. So we know it's about level five leadership and being humble and serving others. We know it's like obsess about first who then what? And if you need any inspiration about that, go back to our previous show, where I'm going to try and do my best Jim Collins, and he goes first who first who Now let me say it again. First, who then what? It's an impassioned plea to like, hey, HP didn't even know what products they were going to make when they founded the company. It's okay. Just get a good cohort of people around you.

Chad Owen 32:16

Yeah. Yeah. And this is just like two of the principles. We've got four more principles coming your

mike parsons 32:26

way. Oh my gosh. Oh my gosh. now now now, just as a quick heads up to all our listeners. Remember, go to moonshots.io if you want to pick up on the show notes for this episode or any other or you want to delve into any of the other 65 shows regarding Elon Musk. We've got Now tell me about Elon Musk just for a second Chad. Oh, and I'm feeling we might need to cut out third show on Ilan. This guy is talk about getting a lot done in the last six months. How are you feeling like Ilan is back? Do we need to revisit on yet?

Chad Owen 33:05

We may just have to have a standing annual show on him. I mean, the stock price speaks for itself at this point is it's it's I think it's definitely outperformed expectations of most analysts from last year. There were lots of woes. The fact that he's got his production, you know, problems taken care of and they're they're turning out 1000 cars a day. I think it's it's pretty incredible.

mike parsons 33:31

Yeah, Indeed, indeed. So so if you want to dig into any of that, or find you bring a brown who else live let me throw some names at you, Chad on who's who's in our, in our archive. I tell you who else we could do another show and Fred Smith because I think you I think FedEx might be in quite some trouble, did you?

Chad Owen 33:55

I yeah. It's it's one of those things. Amazon can eat the world sorts of stories where most of Amazon's deliveries are. I saw some crazy statistic but they've essentially cut out the middle people have UPS and FedEx in a big way. So I think I think they're a potential acquisition target, not for Amazon, or another e commerce retailer, but probably for a brick and mortar that wants to get into prime style shipping. You know, I don't know if that's a Target or Walmart, or something like that. But there Yeah, there's, we could do, we could do 65 shows the same individuals and come up with so you don't know listeners is we have our producing stack is this about 20 clips, or more for each of these shows, and we can only bring you you know, the top six to eight sometimes 10 or we break all the rules and we'll bring you like 12 or 14 for someone really special but there's so much stuff that hits the the cutting room floor.

mike parsons 34:56

Yeah, just quickly just for some inspiration on our archive on moonshots.io someone we should revisit is Ben Horowitz, the partner of Marc Andreessen from, you know, one of the most esteemed, Andreessen Horowitz, venture capital firm, Ben Horowitz has has a new book out. What you do is who you are, which is a really interesting, really interesting title. Just flicking through here at page and Brin have stepped down from Google. It would be interesting to revisit them. I mean, it's just fascinating. Tim Cook to seems to do Jeff Bezos gotta gotta do another one on him, too. Yeah, he's busy in India at the moment. But you know, Tim Cook continues to be just quite masterful, quite level five leadership. Hey, quiet level five. I think Jim Collins, would him would approve, indeed. All right, we should get back to the show. But for any of those archived shows that were mentioned, just drop over to moonshots.io we We have been in a world of leadership and getting the people, right. But Chad, something happens, something changes in a company when you've got the right people around the table because there's a sense of safety. There's a sense of trust amongst each other. And that opens things up a little bit. And that means that the right conversations about the right topics can happen. So do you want to set the scene for this turn that we're going to be made now now that we've got the right people? What's this next idea? And what's the next clip we've got coming in this journey into Good to Great with Jim Collins.

Chad Owen 36:38

I'm trying to because built to last and good to great kind of bleed together. I'm just triple checking that I've got the right companies here and in my head, but there's this principle of confronting the brutal facts. And I think of this as a mental model where you have to be So you talked about getting the right people in the room to have the right conversations. Often where people mess that up is they create a reality distortion field around themselves, where the only reality that exists is in those four walls of that conference room. And they're not looking out into the world and getting the right inputs to understand really, what's going on. And an example here is from the book is the paper company, Kimberly Clark, that is in competition with others like Scott paper p&g, and many other companies. They decided to sell their paper mills and go all in oh my gosh, on consumer products, because they saw the commoditization of the mill business and the decline of it and and did you know a one at pivot to a product company and yet they sell billions of Huggies every year now you know, and again, they became the Good to Great k kind of company in I think that's one of my favourite examples around this this mindset of, of confronting the brutal facts.

mike parsons 38:08

Yeah, I have to say for the younger members of our audience, what they wouldn't realise is Kimberly Clark, used to be a paper company

seems ridiculous right now.

Chad Owen 38:23

And Kimberly, Wisconsin, like their namesake, they sold those paper mills to go all in as a consumer, a consumer product company. And

mike parsons 38:33

at the time, everyone except the management team were like, this is the craziest thing ever. And it was the classic move of good to great now Chad. Carter, Jim Collins actually kind of has like a whole frame and sort of name for this process. Do you want to just walk us through and set up this clip for us?

Chad Owen 38:56

Oh, sure. I think it the mindsets kind of summarise best in this clip that we have for you where he's he's talking about the stock Dale paradox from from military history. And

Jim Collins 39:08

I would like to give you a way of thinking that has been enormously helpful to me that came from the good to great research for dealing with great difficulty. And it was what we came to call the Stockdale paradox. The Stockdale paradox was taught to us by when we're doing the good to great research, we're trying to make sense of the CEOs win. And in doing that I just by chance happen to get to know Admiral Jim Stockdale, who was the highest ranking military officer in the Hanoi Hilton shut down in 1967 was there till 1974 they could pull him out at any time and tortured him and they did the tortured over 20 times. And I had the privilege to get to know Admiral Stockdale, and we will go into the faculty club one day, and I had read his book in love and war which was written in alternating chapters by himself. And his wife about their years when he was in the camp. And I got depressed reading the book, because it seems so bleak. It seems so difficult it seemed, you know, it's like we can all endure anything if we know it's going to come to an end and we know when.

But what if you don't know if it's ever going to come to an end?

And you certainly don't know when.

So I asked Admiral Stockdale, how he dealt with that? And he said, You have to realise I never got depressed because I never ever wavered in my faith, that not only I would get out,

but I would turn being in the camp into the defining event of my life.

That in retrospect, I would not trade.

Later when we were up the hill, I asked him, I said, Admiral Stockdale who didn't make it out as strong as you and he said, easy it was the optimists.

I said the optimist, you sounded optimistic. He said, No, I was not optimistic.

I never wavered in my faith that I would prevail in the end, but I was not optimistic. I said, What's the difference?

The optimist always thought we'd be out by Christmas.

Of course Christmas would come and it would go.

And then we were going to be out by Easter and thanksgiving and then Christmas would come again. And they died of a broken heart. And that's when Admiral Stockdale grabbed me by the shoulders and said, This is what I learned when you're facing in your imprisoned by great calamity by great difficulty by great uncertainty. You have to on the one hand, never confused. The need for earn wavering faith that you will find a way to prevail in the end. With on the other hand, the discipline to confront the most brutal facts we actually face

and we're not getting out of here by Christmas

mike parsons 41:57

can fronting the crucial fact those honest frank conversations, how rarely do they actually happen? And how ironic that you can only really solve the problem if you confront the brutal facts. And yet so often, we run away from the honest, Frank truth because it might make us look bad, it might make the company look bad, we might have a bad meeting in brackets. But I think like any good friendship, has the capability to be direct, and to do so without judgement so that you can present the brutal facts, because surely once you've presented the brutal facts, if people take it in the right way, you can build a constructive conversation and start heading towards a solution. But oh my gosh, it's just too rare. The conversations of getting in Those brutal facts are just too damn rare.

Chad Owen 43:02

Yeah, I first came across this story about Admiral Jim stocks and in a different book book called the obstacle is the way by Ryan Holliday, here's my chance to plug my my love of stoicism. And I mean, it's an extreme story, I can't even imagine what it would have been like to been, have been in a prison prisoner of war camp for over seven years and coming out of that experience as a survivor. But the two interesting things that I'm taking away as a learning from that story and how it applies to this principle is you never lose faith that in the end, you will overcome your time horizon may have to go from this quarter to maybe five or even 10 years. So in some ways, you have to be willing to stretch out that time horizon but never give up and you at the same time you have to come confront the brutal reality that's right in front of you not being fed properly, potentially being tortured in, you know, so that's not easy. But in the realm of business, it's, there's going to be short term pressures or actions, you know, like, think of the 80s. And in all the hostile takeovers, you know, many companies were existentially threatened by these hostile takeovers, and yet they still had to prove long term viability to to their shareholders. And if they weren't confronting the facts that they could potentially be acquired by, you know, one of these hostile takeovers, they would eat their lunch, and they would never be able to deliver on their long term promise of the company over time. And so, I think this is, as you're saying, an often overlooked reality when it comes to leadership of a company,

mike parsons 44:56

and importantly, what I would point as I don't think he can confront the brutal facts if you don't have the right people. And if you don't have humble characteristics, because I think when a humble person puts to you, Hey, I think we've got a big problem here. And I think it's because of this, it's much easier just to say, Oh, geez, well, maybe we do if someone is perceived, maybe as a little egotistical, and certainly we got a problem here. The feeling is instantly for those around that person is that there's blame being assigned. And I think if we can create emotional safety, through being humble and having the right people around the table, then I think we're able to say, you know what, we're in a bad place. And I think it's only once you acknowledge that, that you can actually save it. It's it's almost like if I was to draw a parallel with our kind of consumer lives, I think it's when when people Go through a trance transformative health and, and diet revolution where they lose a lot of weight and get themselves in shape. Often they have to confront the brutal facts in. I believe that a one of the one of the principles for quitting alcohol is that you need to acknowledge or admit, like that's like step one, right? admitting that you're actually that you hoped. So that what we do is we see this this theme everywhere. That until you confront the brutal facts, whether it's in your personal life at work, until you're ready to acknowledge where you're at where you are, then what the Stockdale concept points out is you might be running the risk of being a little bit too optimistic, and it's just a disappointment all the way if you haven't started from the brutal facts.

Chad Owen 46:56

Yeah, I'd like to take us out of this little valley of darkness. here because it is a very harrowing story. And if you've not read the book in love and war, it's also a really good book. I read it after I had come across the story. But we have three more principles from good to great that we want to be sure that we deliver to you. And this next one, they're all my favourite, but this one is really interesting. I think because of it. It's a novelty, and it's quite easy to remember, because of its name, and it's called the hedgehog concept, in that thinking is that there's two types of thinkers, there's, there's boxes, and there's hedgehogs. And we have a clip from Jim, who's elaborating on why hedgehog thinkers are most important when it comes to identifying the right people, the right leaders, the level five leaders, for companies that want to go from good to great.

Jim Collins 47:56

When we took all our companies, we began to ask The question, Well, is there any pattern to the one big thing that they all followed? Is it is it is there any sort of systematic framework that would explain it. And when we laid out all the information, what we found, and saw in the mess of data was an underlying framework of three intersecting circles. And that what a really good hedgehog concept reflects his deep understanding of each of these three circles. Circle number one, what you are deeply passionate about, and nothing great can happen without beginning first with passion and if you're not passionate, you can't possibly make it great. Circle number two is the lower left circle and this is about understanding what you can be the best in the world at and equally what you cannot be the best in the world at not what you hope to be the best at not what you aim to be the best. But what you actually can be the best at. And then the third circle, bottom right, is what drives your economic engine. And we found in our research for corporations, that they all got a simple penetrating underlying insight, a single ratio. If you could increase one ratio above all other ratios, profit per x, what one x would give you the highest rate of return over time, and it varies from company to company. So standing back then a hedgehog concept is when you find the intersection of what you are passionate about what you can be the best in the world at and what best drives your economic engine, preferably consistent with a single ratio of profit per x.

mike parsons 49:53

Hmm. Now there's an interesting take on this channel and because what we're really talking about is something That can be applied at a company level or at a personal level. So you can actually play this two ways. I think for simplicity sake, I think we should play this one more on the personal side of things. And to kind of kick things off.

Chad Owen 50:16

Why I'll challenge you on the on the company side. Okay, okay, go for it. Wow. Because I know that I'm hearing this clip again. I actually think that this is probably the best, most succinct piece of advice in the entire book. Yes, that if you only take one thing away from this book, and this this episode of moonshots answer those three questions, and you will be so far and as a company, you'll be so far away and ahead of everyone else. What are you as the organisation most passionate about what are you fundamentally he I think he says like encoded like almost at the DNA level. Where do you and what's your encoded expertise where you can be the best not can be where you are able to be the best in the world. And then this idea of the economic engine, what is going to be the one true metric to rule them all. And he uses simplifies it to profit per x, but it could be anything. profit per employee profit per item shipped, profit per website visit, you know, there's so many ways in which you can measure that. If you just answered those three questions as an organisation. I think you're, you're doing really well.

mike parsons 51:32

Yeah. And I actually think, to go deeper into this, that what do you encoded to be the best in the world at if you can isolate one service, one product, one feature or if on a personal layer, and what is the one skill activity that you can be the best in the world at I have found this very powerful More powerful than what you deeply passionate about. And particularly if you consider counterparts, Craftsman mindset, and what drives your economic engine? I think when a company or an individual raises the question, what can you be the best in the world at like when all said and done, what is the thing you are built to do. And when you do it as a company, it just, it just happens as a sports team. When you play the running game when you play Showtime basketball, like the LA Lakers, do whatever it is. If you can isolate that, then the activity simply becomes Let's go find an economic engine. Let's find our passion in that. But also if you know that you can be the best in the world at one thing, then you just go and find things that help you achieve that status of being the best in the world? And actually, I think a lot of companies that lack that clarity, so many companies try to be all things to everyone, don't they?

Chad Owen 53:15

Yeah. Who's your customer? Oh, well, everyone, I can sell this to anybody.

mike parsons 53:19

We've got a service for this and a product for that. And we got another service and another service. Like one of the most amazing things is every new CEO that's brought in to clean out a company, the first thing they do for the larger publicly listed companies, what are they often doing? Oh, hang on a sec. Wearing way too many businesses were selling off this, this and this and this. Let's focus on just a few. If not just one thing. What I think the the big

Chad Owen 53:48

get, what is the concept you got? Exactly.

mike parsons 53:50

And what's so great about it is that you can apply it and here's a similarity to draw a cynic again. Sinek start with why Oh, he's Golden Circle framework can be applied to the individual or the product or the company, as can the hedgehog concept to Isn't that interesting?

Chad Owen 54:09

Yeah. I also I agree with you in that it's the what I call it unique ability. What's what are you designed for, as an organisation or as a person in what do you do better than nearly everyone else? I think it's most important to identify that first. Why I think it's also important to include passion is that's where that's how you answer that question of motivation that we were talking about at the beginning of the show. In in order to have those people that are innately motivated there has you have to identify and see a level of passion for that single thing in order to keep the people motivated. Otherwise, you'll be you know, rolling the boulder up the hill. And then again, you and I love the data. So it's just like, Well, how do we Know for on the right track. That's where that key metric or the economic engine comes into play, where that's how you're, you're measuring your success. So, coming back to FedEx, if you go back and listen to our episode on, Fred Wilson, you'll know that I don't think he stated it as the hedgehog concept. But he was measuring the success of his company in profit per employee. And that told you exactly all you needed to know about his focus. It was really about creating a magical, enabling employee experience that he knew would trickle down to the customer experience. And we've seen the success of that. Yes.

mike parsons 55:35

So the hedgehog concept, just google it will throw in a few links in the show notes so that you can kind of dig into the hedgehog concept. It's really it's it's a very powerful little tool to use and I think you'll find it useful on many layers. But what's interesting is this next clip is Really a bit of a nod to the book that we're going to cover in our next show. Great by choice. We're going to open up now, our thinking and it sort of follows the journey. So you've got servant, humble leadership, where you get the right people on the bus, you have the right conversations. And those conversations are around those questions in the head how hedgehog concept. But the key thing is, you then have to apply this you have to get to work, you have to roll up the sleeves. And what we've got coming now is Jim Collins, talking about the next key fundamental step in this journey from good to great, and it's all about a culture of discipline. So let's have a look at Jim Collins talking about pockets of greatness.

Jim Collins 56:48

Will you build your unit, your mini bus into a pocket of greatness? One thing I gained greater appreciation for at West Point is that great leadership at the Top doesn't amount to very much without exceptional leadership at the unit level. This is the cellular structure. This is where great things get done. But when I look at how the Good to Great CEOs became CEO, they did it by not focusing on their career. They focused on their unit of responsibility. And at every stage of their career, whatever they were running, whether it be in a little accounting department or whether it be a manufacturing facility, controllership, they built their unit into a pocket of greatness. And that is why they were tapped. Focus on your unit, not on your career. Every responsibility you get make it a pocket of greatness. And if you do that you are more likely to die of indigestion for too much of too much responsibility and starvation for too little info Focusing on your unit means Above all, being a first to leader rather than a first what leader and that the number one executive skill for building a pocket of greatness of any size is figuring out who should be in the key seats on the bus to be rigorous about your people decisions. And we've spoken about this before, but it also means being not ruthless, be rigorous, not ruthless.

And that means taking care of your people. For in the end,

life is people.

Chad Owen 58:38

I love how this ties back to one of the core principles of built to last which is this concept of promoting from within instead of without I think it was all the one of the companies in built to last had leaders promoted from within instead of being recruited from outside And this idea of starting with the people that are right around you in the organisation, you don't have to be the CEO to create a culture of discipline. He says, just start with the people that are right around you, and create the pocket of greatness. And that is going to spread this culture of discipline. Mm

mike parsons 59:20

hmm. And isn't it nice that he gives us an a helpful, super practical, very common sense reminder. Don't focus on yourself, focus on that small cohort around you and get the right people in the right seats. Get people playing in the right position, that that's where that that pocket of greatness is and be disciplined in focusing on the culture amongst those people. One of the

Chad Owen 59:47

things that he brings up in the book that sets the good to great companies apart from the control companies is often both companies would kind of pop and break out in terms of marketing. Performance at the same time, but there would be a sharp decline that's right in, in the control company. And when they looked at why that happened, they saw that in the control company, there was almost a tyrannical leader that was forcing the discipline in the company and being a bit of a taskmaster. And that that kind of culture was unsustainable in the long run. And then if you just go back and listen to the clip, we just listened to instead, those kinds of leaders that were concerned not about themselves, but their, their unit around them. Those were the leaders, they were able to take the companies from, from good to great. And so this idea of, you know, forcing a culture of discipline, it's not really the way to go it has to be more emergent and kind of grassroots.

mike parsons 1:00:53

Yeah, and I think the very crazy remind that we get from both cynic and Jim Collins is that we vastly underestimate culture and people. And we're often we often have a sort of preoccupation with the idea or the shiny logo, and how really the behaviours and the culture within organisation have such an influence on the outcome. And to your point about leadership. What was also really crazy is that in good two great companies, what he found was that when the primary CEO and leader left the company continued to be great, yet in the control companies as soon as the dictator left,

Chad Owen 1:01:50

it would crash. Yeah, and that's because they created that cult of personality around them. They hoarded information and resources Yeah, it created an unsustainable path forward for the company. And the worst part is those executives often took multi 10s of millions dollars and golden parachutes on the way out with them.

mike parsons 1:02:12

Right? Totally, totally, because it was about them. And it wasn't about the company. It was about their status. Not the legacy of the company.

Chad Owen 1:02:24

Yeah, I don't want to name names here, but I'm looking at you, Adam Newman from

mike parsons 1:02:29

oh my gosh, boom. Well, moving to the last and final clip and the last big idea that is inside of Jim Collins his book Good to Great. We have one more idea, but I would remind you that if any of these topics have piqued your interest, jump across two main shows that I if you are enjoying the show, jump into your podcast app just while you're listening. Give us a review or rating share this with others. We would deeply appreciate that. And let's turn our listening is now to the last and final concept. Now the flywheel concept is well, it's it's something that Jim Collins has, has brought to life and we've talked a lot about flywheel effects in relationship to Amazon. So I think we should now Linda arias to Jim Collins one final time to hear about the turning of the flywheel.

Jim Collins 1:03:34

And I'm excited to share my latest publication is called turning the flywheel. It's a monograph to accompany Good to Great and the monograph begins with the story of Amazon amazon.com. Grabbing the flywheel concept, coming out of the.com bust in 2001 after being taught the idea But then taking it to another level, and saying what we need to do is to capture the drivers in our flywheel crystallise the components of our flywheel and then turn that flywheel to build relentless momentum unstoppable momentum. The Amazon case is an archetype of a spectacularly powerful flywheel. And it's the starting point of this conversation. But what it really leads to is the idea that to get full power out of the flywheel principle, it's very helpful to rigorously ask the question, how does our flywheel turn? What are the components in our flywheel? What's the sequence in the flywheel? How can we do for ourselves what Amazon did for itself? Now your flywheel will almost certainly be different Then Amazon's, but as we point out in the monograph, it's logic should be equally sound equally compelling. The monograph moves on to share flywheels from a range of types of organisations. We're looking at small companies, healthcare organisations, nonprofits, arts organisations. And there's even a delightful discovery of a rural elementary school, articulating and turning a flywheel so that children learn.

Chad Owen 1:05:34

So, I know I said, the hedgehog concept was the most important.

mike parsons 1:05:41

But are you cheating? Chad? I think he might be cheating. I'm not cheating.

Chad Owen 1:05:45

Finding Your hedgehog concept is is your homework for for tomorrow. Understanding, uncovering, creating and investing in your flywheel. That's the key to your long term success. And oh, that's just yeah, that's momentum right? Right yeah and and and I see the flywheel effect much more as a framework and a system as opposed to kind of the simplicity of the three circles of the hedgehog concept. But you'll You heard him talk about this new monograph book. One of the final chapters in Good to Great is called turning the flywheel. He has since turned that into a little mini sized business book that's also worth checking out if you're interested in learning more about this concept of the firewall and getting some really interesting examples Amazon included, Mike and I have talked about it on the shows in which we talked about Jeff Bezos, episode number three as well as the the Ilan versus Jeff episode. But I don't see many companies understanding what their flywheel is, let alone knowing what a flywheel is, Mike, I'm curious for you. How can we begin to understand and uncover what our flywheels are

mike parsons 1:07:00

So I think a simple practice would be to ask yourself, what seemed to be the causes and the things that correlate with our success as a company, if we have x, y, and Zed, we tend to do really well. And I would look at both direct and indirect things. I would look at things that you control and things you don't control. But most importantly, obviously focus on the things you control. Jeff Bezos says, if he has more videos on amazon prime, he will sell more shoes on the Amazon store. He knows that there is a flywheel effect, that if people come for great content, they leave with a new pair of shoes. So that's why he has amazon prime. That's why he has a free video component to that offering. That's his flywheel effect. And so I challenge all of our listeners to ask themselves when search When conditions are around, you succeed, and perhaps, when you want to look at cause and causation and correlation, perhaps you also want to say, Well, hey, I did the same thing, but had two very different outcomes. What were the things that were different? Much like in how Jim Collins approach this whole book? What are the things that were different because you might isolate? Not only the things that create your flywheel effect, but those that hamper the flywheel effect. Now upon hearing that, Chad, does that give you any inspiration to think about what we do? Or about what other brands do on how they might find their fly? Well, yeah, be warned I might be sending you a calendar invite for us to have a collaboration session to figure out what a firewall is.

Chad Owen 1:08:52

My, my light bulb moment was we often think about business processes in a linear fashion, you know, we think about the customer journey, or, you know, service delivery processes. The important thing about the flywheel is it's circular and self reinforcing. So as you're saying, it's those, it's those most important interactions within or outside of the company with your customers, that is providing value into the next stage, which is providing value into the next stage, which then comes back to the beginning to make the next turn of that flywheel easier. So as you're saying, with Amazon, Bezos knows that it they can go super wide in their product offerings because he knows that for every customer touch point, he can get a you know x additional in revenue. So yes, I may only be interested in buying sneakers on Amazon But hey, I see this cool show on on prime now I'm hooked and I'm in the system. And amazon prime at the middle of it, you know, being able to give me those shoes in just one One day. That's how they can continue to turn that flywheel. And as we, as we've seen, Amazon is pretty much unstoppable at this point in whatever business they're going into, and it's because they have that perpetual momentum from from the flywheel that started turning all the way back in what was at 95 when Amazon was started. I mean, it's, it's been, it's been quite some time now.

mike parsons 1:10:24

Yes. And what's really fascinating if you dig into the book, it's not just Amazon. But Jim was even able to see this, this pattern playing out in elementary schools, which is just so that's, I mean, that's really exciting that Jim Collins could even find the flywheel effect taking place in an elementary school and it's speaking a little bit to the timeless, timely, the timeless nature of of his work, and how it can endure to remind us and to continually You know, tap us on the shoulder and say, Hey, level five leadership. Hey, first to then what? And it is, for me some very memorable, very clear recommendations that Jim has for us. And I think you could almost spend a career just trying to get some of these, right. I mean, there's a lot of work in this, let's let's not sugarcoat it, but you can

Chad Owen 1:11:25

start with the hedgehog concept and then take on the the big challenge that is uncovering and investing in your firewall. That's true that we're not done yet. Right manga we've still got yet another book and then we're going to be profiling Yes.

Yeah. On the show.

Yeah. Great by choice,

mike parsons 1:11:45

great by choice and and what a nice companion to some of the concepts not a good to great. But what we learned in the previous show when we were digging into built to last and I think What you can expecting great by choice is once again, this theme, the greatness is not down to luck or to chance. There's a lot of hard work that goes into it. And the great news is in our next show, we're going to dig into this and we're going to try and uncover it. We're going to try and decode it and share it with you, our listeners. And I think this is the moment where we need to remind our listeners how much we enjoy their feedback. What's your favourite way? Chad? Come on, it's time to remind them. How do you like to hear from our millions of listens, I love

Chad Owen 1:12:35

getting emails in my inbox. At hello@moonshots.io always puts a smile on my face and getting an email from someone in a far flung locale. I want to take this time to give a shout out to Maria and Tunisia and all of our other listeners not just here in the States or in Romania or in England or Australia, but everywhere else. We've been rocketing up the charts. I mean, granted, we're, you know, number 100 and business podcast, but hey, I'll take it. countries like Saudi Arabia, Iceland, Nigeria, so it's it's fun to know that we have listeners and all those those different locales.

mike parsons 1:13:16

Yeah, yeah. And we keep getting more and more outreach for our listeners, we got to know. Just just before the show, actually 29 minutes before we started recording from Denise. Hello, Denise, thanks for sending us a note. We really appreciate the thoughts that you sent through to us. And we encourage all of you to go to moonshots.io to jump in and be part of the conversation about how we get to Good to Great or how we be great by choice who, Chad what a journey. We have come to the end of another show. What did you enjoy the most in revisiting? One of our classics is sounds like You may have traded your allegiance from the hedgehog concept to the fly. Well, I need to know where you stand on what is your favourite? Good to Great concept.

Chad Owen 1:14:10

I love the hedgehog concept if for no other reason that when I was a kid, I had a buzz cut where I spiked my hair and had a nickname of the hedgehog. So the hedgehog concept but I, to me, that's a really fun exercise that you can do on your own. Maybe go into monk mode for a few hours somewhere, turn off all your notifications, bring a notebook with you and write out your answers to what am i uniquely capable of that I can be the best at what am I passionate about and what's the economic engine behind it? It's, it's a pretty, I think it's a pretty you could get a lot out of going through that exercise.

mike parsons 1:14:53

Absolutely. Absolutely. So there we have it, where we're now past the halfway mark in Now Jim Collins series we will be jumping into great by choice in the next episode, we're going to have to put our thinking caps on Chad as to where we go next life after Jim Collins. It's it's pretty hard to think about, but it's true. It's been just so good to go back to this classic. So I thank you to you. I thank you to all of our listeners. And we hope that you join us for the next show where we jump into the world of Jim Collins and great by choice. But for now we're finished our journey into Good to Great. That's the end of another moonshots podcast. That's a wrap

Transcribed by https://otter.ai