Uncertainty, chaos, and luck – why some thrive despite them all
By Jim Collins and Morten T. Hansen
Definition “10Xers” (pronounced “ten-EXers”):
Enterprise that…
- sustained truly spectacular results for an era of 15+ years relative to the general stock market and relative to its industry.
- achieved these results in a particularly turbulent environment, full of events that were uncontrollable, fast moving, uncertain, and potentially harmful.
- began its rise to greatness from a position of vulnerability, being young and/or small at the start of its 10X journey.
Contrary findings…
- 10Xers did not have a visionary ability to predict the future.
- 10Xers were not necessarily more innovative than their less successful comparisons.
- The overall ethos of “Fast! Fast! Fast!” is a good way to get killed.
- 10Xers changed less in reaction to their changing world than the comparisons cases.
- 10Xers did not generally have more luck than the comparisons.
- 10Xers were not more creative than their less successful comparisons.
- 10X leaders were not more charismatic than their less successful comparisons.
- 10Xers were not more ambitious than their less successful comparisons.
- 10Xers were not more risk seeking than their less successful comparisons.
- 10Xers were not more heroic than their less successful comparisons.
- 10Xers were not more prone to making big, bold moves than their less successful comparisons.
10Xers
10Xers understand that…
- they face continuous uncertainty.
- they cannot control, and cannot accurately predict, significant aspects of the world around them.
- they reject the idea that forces outside their control or chance events will determine their results.
- they accept full responsibility for their own fate.
10Xers bring this understanding to life by a triad of core behaviors:
- Fanatic discipline
- Empirical creativity
- Productive paranoia
Animating these three core behaviors is a central force:
- Level 5 ambition
Fanatic discipline
True discipline requires the independence of mind to reject pressures to conform in ways incompatible with values, performance standards, and long-term aspiration.
The only legitimate discipline is self-discipline, having the inner will to do whatever it takes to create a great outcome, no matter how difficult.
In an uncertain and unforgiving environment, following the madness of crowds is a good way to get killed.
Fanatic discipline: The 20 mile march
The 20 mile march is about having concrete, clear, intelligent, and rigorously pursued performance mechanisms that keep you on track.
The 20 mile march creates two types of self-imposed discomfort:
- The discomfort of unwavering commitment to high performance in difficult conditions, and
- the discomfort of holding back in good conditions.
Elements of a good 20 mile march are:
- Performance markers that delineate a lower bound of acceptable achievements.
- Self-imposed constrains… upper bound how far you’ll march in good times (a ceiling that you will not rise)… lower bound of acceptable achievements (a hurdle that you have to jump over).
- Tailored to the enterprise and its environment.
- Largely within the company’s control to achieve.
- A proper timeframe – long enough to manage, yet short enough to have teeth.
- Imposed by the company itself, not from the outside.
- Achieved with great consistency – in good times and bad times.
The 20 mile march
- Builds confidence in the ability to perform well in adverse circumstances.
- Reduces the likelihood of catastrophe when hit by turbulent disruption.
- Helps exert self-control in an out-of-control environment.
Empirical creativity
Being “empirical” means relying upon direct observation, conduction practical experiments, and/or engaging directly with evidence rather than relying upon opinion, whim, conventional wisdom, authority, or untested ideas.
10Xers made their bold, creative moves from a sound empirical base.
Empirical creativity: Fire bullets, then cannonballs
10X companies were not necessarily more innovative than their less successful comparisons.
Each environment has a level of “threshold innovation” that you need to meet to be a contender in the game.
Once you’re above the threshold of innovation necessary for survival and success in a given environment… being more innovative doesn’t seem to matter very much… it needs a mixture of other elements to become a 10X company – in particular, the mixture of creativity and discipline.
Innovation without discipline leads to disaster… the combination of discipline and creativity makes greatness.
Bullets, then cannonballs:
- First, you fire bullets to figure out what works.
- Then once you have empirical confidence based on the bullets, you concentrate your resources and fire a cannonball – a calibrated cannonball.
a. Don’t fire uncalibrated cannonballs! If you do, learn from your mistakes as expensive tuition and return to a bullet-then-cannonballs approach.
b. Terminate bullets that show no evidence of eventual success!
- After the cannonball hits, you keep 20 mile marching to make the most of your big success.
What makes a bullet?
A bullet is an empirical test aimed at learning what works and that meets three criteria:
- A bullet is low cost.
- A bullet is low risk – there are minimal consequences if the bullet goes awry or hits nothing.
- A bullet is low distraction – low distraction for the overall company, may be high distraction for one or a few individuals.
A big, successful venture can look in retrospect like a single-step creative breakthrough when, in fact, it came about as a multistep iterative process based more upon empirical validation than visionary genius.
Productive paranoia
10Xers maintain hypervigilance in good time as well as bad. They constantly consider the possibility that events could turn against them at any moment.
By embracing the myriad of possible dangers, they put themselves in a superior position to overcome danger. They succeed in an uncertain and unforgiving environment through deliberate, methodical, and systematic preparation, always asking, “What if? What if? What if?”. They cannel their fear and worry into action, preparing, developing contingency plans, building buffers, and maintaining large margins of safety.
Productive paranoia: Leading above the death line
The only mistakes you can learn from are the once you survive. “Hitting the death line” means, you end the journey – game over.
Three key dimensions of productive paranoia:
- Build cash reserves, buffers to prepare for unexpected events and bad luck before it happen.
- Bound risk – death risk, asymmetric risk, and uncontrollable risk – and manage time-based risk.
a. Death risk: risk that could kill or severely damage the enterprise.
b. Asymmetric risk: risk for which the potential downside is much bigger than the potential upside.
c. Uncontrollable risk: risk that has little ability to manager or control.
d. Time-based risk: risk that it tied to the pace of events and the speed of decision and action. - Zoom out, then zoom in, remaining hypervigilant to sense changing conditions and respond effectively.
10Xers remain productively paranoid in good times, recognizing that it’s what they do before the storm comes that matters most.
10Xers bound, managed, and avoid risks. They asked the key question: “How much time before our risk profile changes?”
10Xers remain obsessively focused on their objectives and hypervigilant about changes in their environment (they zoom out) and asked “How much time before our risk profile changes?” They push for perfect execution of plans and objectives and adjust to changing conditions (they zoom in).
10Xers think first, even when they need to think fast!
Level 5 ambition
10Xers leader’s most important trait: they are incredibly ambitious, but their ambition is first and foremost for the cause, for the company, for the work, not themselves.
Level 5 ambition: SMaC
A “SMaC recipe” is a set of durable operating practices that create a replicable and consistent success formula. SMaC stand for Specific, Methodical, and Consistent.
A SMaC practice is not the same as a strategy, culture, core values, purpose, or tactics. A solid SMaC recipe is the operating code for turning strategic concepts into reality, a set of practices more enduring than mere tactics. It includes practices “what to do” and “what not to do”.
The signature of mediocrity is not the unwillingness to change, the signature of mediocrity is chronic inconsistency.
A great company must evolve its recipe, revising selected elements when conditions merit, while keeping most of its recipe intact.
There are two healthy approaches to amending the SMaC recipe, depending on the situation:
- Exercising empirical creativity: Firing bullets to discover and test new practices before making it part of the recipe.
- Exercising productive paranoia: Zoom out to perceive and assess a change in conditions, than zoom in to implement amendments as needed.
Far more difficult than implementing change is figuring out what works, understanding why it works, grasping when to change, and knowing when not to.
Return on luck
Luck happens, good or bad, to everyone, whether we like it or not. The real difference between 10X and the comparison cases wasn’t luck per se but what they did with the luck they got.
It is the 10Xers ability to get a high return on luck at pivotal moments that distinguished them and this is a huge multiplicative effect. They zoom out to recognize when a luck event has happened and to consider whether they should let it disrupt their plans… Then they zoon in and throw theirselves at the luck event with ferocious intensity, not letting up…
10Xers shine when turning bad luck into good results… Resilience, not luck, is the signature of greatness… “What did not kill them, made them stronger”.
10Xers exercise productive paranoia, combined with empirical creativity and fanatic discipline, to create huge margins of safety. If you stay in the game long enough, good luck tends to return… Luck favors the persistent, but you can persist only if you survive.
Luck did not cause 10X success. People do! People are disciplined fanatics. People are empirical. People are creative. People are productively paranoid. People lead. People build teams. People build organizations. People build cultures. People exemplify values, and achieve big hairy audacious goals. Of all the luck we can get, people luck – finding the right mentor, partner, teammate, leader, or friend – is one of the most important!
Source: Great By Choice (XXX)
