By Samuel Kniseley Ballesteros on May 6, 2020
Many companies feel that, if their products or services are to remain relevant and in demand, they must constantly innovate. During times of economic upheaval, that innovation can become even more important. Some find that they can’t proceed with “business as usual,” and that they’ve got to pivot their business to survive. One Michigan company, that sews covers for the automotive industry, had to shut down their plants during the Coronavirus Pandemic and innovate. Within one week, they restarted by sewing and marketing Personal Protective Equipment for hospitals, clinics, first responders, etc. Companies like this innovate to survive, but the successful ones combine discipline with innovation to stay focused on their niche.
In my last article, I wrote about the first of three behaviors that Jim Collins and Morton Hansen discuss in their book, Great by Choice, as essential for a company to survive and thrive even in the midst of uncertainty and economic turmoil. That first behavior was the Fanatic Discipline that 10xers employ to focus on their priorities and really get what they want from their businesses. These Great by Choice companies employed the 20-Mile March discipline I discussed in my last article, pacing themselves to conserve their resources during the good times and to push hard through the bad times, 20 “miles” at a time.
The next essential behavior Collins and Hansen identified was Empirical Creativity which mixes creativity with discipline to propel successful entrepreneurs to thrive even in the midst of chaos and an uncertain future for businesses. I often hear how important innovation is to certain industries, such as manufacturing, technology, etc. Some even equate innovation with success. In other words, the perception is that the more innovative you are, the more successful you will be. However, Collins and Hansen’s discovery in their book, Great by Choice, showed that an increase in innovation was not necessarily proportional with an increase in success:
“The evidence from our research does not support the premise that 10x companies will necessarily be more innovative than their less successful comparisons. And in some cases, such as Southwest Airlines versus PSA and Amgen versus Genentech, the 10x companies were less innovative than the comparison….we’re not saying that innovation is unimportant…We concluded that each environment has a level of ‘threshold innovation’ that you need to meet to be a contender in the game; some industries such as airlines, have a low threshold, whereas other industries, such as biotechnology, command a high threshold. Companies that fail even to meet the innovation threshold cannot win. But–and this surprised us–once you’re above the threshold, especially in a highly turbulent environment, being more innovative doesn’t seem to matter very much.” (p. 65, 67)
Of the companies that were high innovators, but never became 10xers, many encountered disastrous results because of their unbridled creativity. Innovating blindly, they spent unlimited amounts of money, time and energy on new ideas before they were proven.
In contrast, 10xers consistently exhibited the restraint of Empirical Creativity by shooting “Bullets first, then Cannonballs” to innovate. In this concept, innovators would shoot small bullets first (testing new products, technologies, services or processes) to see what would hit the target (and stick)! Once a new idea was tested and proven, then the wise entrepreneurs would fire their cannonballs. The idea is that a few small bullets will probably not sink a ship, but a misfired cannonball can sink a business! Entrepreneurial organizations should not fire a cannonball (spend large amounts of resources on ideas) before first firing small bullets (testing those ideas to see if they will even work, or that the product or service will be in demand).
Collins and Hansen said that a bullet is, “An empirical test aimed at learning what works and that meets three criteria”:
What I’m stressing here is that you must be creative, but then you need to validate your creativity with empirical evidence. One way is to learn by studying research performed by others in your industry so you don’t have to fire any bullets. The other is to fire a first round of small bullets (testing your new idea, product, service or process). Then keep firing bullets until you get validation that you’re hitting the target and that those bullets are making an impact (testing it in a small segment of your customer base, etc.). Only then, do you load the cannonball into your cannon. The way you do that is by turning the new idea that works into a core process and making it part of your 20-Mile March.
By Samuel Kniseley Ballesteros on April 20, 2020
Jim Collins, author of the business classic Good to Great, and UC Berkeley Professor Morten Hansen set out, in their book, Great by Choice, to answer that question.
Specifically, they asked,
“Why do some companies thrive in uncertainty, even chaos, and others do not? When buffeted by tumultuous events, when hit by big, fast-moving forces that we can neither predict nor control, what distinguishes those who perform exceptionally well from those who underperform or worse?”
Collins and Hansen narrowed their list of test companies down from 20,400 to 7 matched pairs, each of which was in the same industry, had the same financial resources and encountered similar challenges, both internal and external.
Between each pair of companies, one outperformed the industry benchmark significantly, while the other struggled or failed! Collins and Hansen identified seven “10x companies” including Amgen, Biomet, Intel, Microsoft, Progressive Insurance, Southwest Airlines and Stryker who consistently beat their industry index, and accomplished this tremendous growth during chaotic times.
What made the difference between them and their counterparts who under-performed? Collins and Hansen’s substantial analysis identified 3 core behaviors that gave the 10x companies an edge over their counterparts. They were FANATIC DISCIPLINE, EMPIRICAL CREATIVITY and PRODUCTIVE PARANOIA.
What is Fanatic Discipline?
The first behavior, Fanatic Discipline, is the resolve to stay focused on the vital disciplines that give you what you want from the business. The authors of Great by Choice say, “For a 10xer, the only legitimate form of discipline is self-discipline, having the inner will to do whatever it takes to create a great outcome, no matter how difficult” (Great By Choice, p. 23). So, discipline is defined here as “consistency of action” (Great By Choice, p. 23).
They compare this “consistency of action” to a 20 Mile March, and they illustrate it by contrasting the dramatic stories of 20th Century explorers, Roald Amundsen and Robert Falcon Scott.
“In October 1911, two teams of adventurers made their final preparations in their quest to be the first people in modern history to reach the South Pole. For one team, it would be a race to victory and a safe return home. For the second team, it would be a devastating defeat, reaching the Pole only to find the wind-whipped flags of their rivals planted 34 days earlier, followed by a race for their lives -- a race that they lost in the end, as the advancing winter swallowed them up. All five members of the second Pole team perished, staggering from exhaustion, suffering the dead-black pain of frostbite, and then freezing to death as some wrote their final journal entries and notes to loved ones back home.”
“It's a near-perfect matched pair. Here we have two expedition leaders -- Roald Amundsen, the winner, and Robert Falcon Scott, the loser -- of similar ages (39 and 43) and with comparable experience. Amundsen and Scott started their respective journeys for the Pole within days of each other, both facing a roundtrip of more than 1,400 miles into an uncertain and unforgiving environment, where temperatures could easily reach 20˚ below zero even during the summer, made worse by gale-force winds. And keep in mind, this was 1911. They had no means of modern communication to call back to base camp -- no radio, no cellphones, no satellite links -- and a rescue would have been highly improbable at the South Pole if they screwed up. One leader led his team to victory and safety. The other led his team to defeat and death.”
“What separated these two men? Why did one achieve spectacular success in such an extreme set of conditions, while the other failed even to survive?” How to Manage Through Chaos by Jim Collins and Morten T. Hansen
What made Amundsen and the 10x companies in Collins and Hansen’s research different?
Were they luckier? Were they smarter? Were they more visionary, innovative or creative? Were they more willing to take risks? What Collins and Hansen discovered in their 9-year study is that none of those traits made them successful. What did make a difference was their behavior!
The first difference was that they were more fanatically disciplined. We can see this by contrasting Amundsen’s and Scott’s approach.
Scott thought that his best chance at reaching the South Pole was to cover as much distance as possible when conditions were favorable. Therefore, he would push his team as far as they could go on good days. Then, exhausted, they still had to set up camp for the night. If the next day presented harsh conditions, they would hunker down in their tents and lament their bad luck that day.
The 20-Mile March
In contrast, Amundsen began with the end in mind, calculating the number of days it would take to reach the South Pole by the team’s target date. Giving himself some buffer time, he figured that the team could reach their destination by marching 15 to 20 miles every day. On good days, the team would exercise self-control, and stop to rest and re-energize after a maximum of 20 miles. When they encountered bad weather or terrain, they would push past it to complete their 20-Mile March.
Collins and Hansen write, “The 20 Mile March creates two types of self-imposed discomfort: (1) the discomfort of unwavering commitment to high performance in difficult conditions, and (2) the discomfort of holding back in good conditions” (Great By Choice, p. 45).
An example is that, in spite of all the chaos and economic troubles experienced by the airline industry between 1990 and 2003, Southwest Airlines produced a solid profit for 30 consecutive years. However, the airline known for “Low Fares, Lots of Flights and Lots of Fun,” was also known to “hold back in good times so as not to extend beyond its ability to preserve profitability and the Southwest culture” (Great By Choice, p. 45).
When we begin implementing the Entrepreneurial Operating System® (EOS®) with leadership teams, we embark on a journey to strengthen the Six Key Components™ of their business.
The Traction® component is all about “consistency of action” or, as we call it, execution. The 2 tools or disciplines that we use to strengthen the Traction® component are Rocks and Meeting Pulse™, which create a 20-Mile March discipline for the team.
Rocks are the most important priorities we must work on in the next 90 days. This is part of our 20-Mile March. Rocks just help us focus. By focusing on our Rocks, we learn to live within the 90-Day World® that looks like this. We consistently act on the vision by focusing on the most important priorities for 90 days. Then we stop, pick our head up out of working in the business and meet for a Quarterly Session to review whether we’ve completed our Rocks and learn how to get better, faster and stronger. Then we review our vision to make sure we all have one vision, one page, one plan. From there, we set new Rocks for the next 90 days, and we jump back into the business to consistently act on those priorities for the next 90 days.
Within the 90-Day World®, we implement a weekly Meeting Pulse™ with a very specific agenda called the Level 10 Meeting™ (or L10) Agenda. This is another part of our 20-Mile March in that the leadership team meets every week for 90 minutes, on the same day, at the same time, using the same agenda, starting on time and ending on time. During the 90 minutes, the team is checking on their Scorecard, their Rocks, their customers & employees, and on their weekly To-Do’s (7-Day Action Items). Any of these items that are off-track drop down to the Issue Solving section of the meeting. Then, 60 of the 90 minutes is spent identifying the true root cause of any off-track Scorecard numbers, Rocks and To-dos. This is what makes for effective meetings where you are solving your problems as they arise, especially anything that is keeping you from focusing on and completing your Rocks (90-day priorities) or your To-dos.
Fanatical focus on these disciplines can help you survive and thrive, even in the midst of economic turbulence. That behavior, of FANATIC DISCIPLINE, is the first that Collins and Hansen’s research found characteristic of 10x companies. In my next article, we’ll explore the next behavior that propels 10x companies, EMPIRICAL CREATIVITY.
A Lighthouse in the Storm
During economic downturns, staying focused on a clear vision and staying on course is like having a lighthouse to guide us through the rocky, choppy waters of a fierce storm. Unfortunately, fear of loss can spark irrational, knee jerk reactions such as risk avoidance, hasty entry into markets outside of your core focus and shortsighted cost saving initiatives. So, how do we stay focused on the future so that we continue forward momentum toward having the kind of companies that Jim Collins and Jerry Porras, describe in their book, as Built to Last?
In their book, Collins and Porras studied 1000 CEOs and found that companies that have thrived for 150 to 200 years were absolutely clear and focused on why they exist, what was their niche, where they were going long-term, and they had a good picture of what it would look like when they reached that long-term goal. Because of their long-term view, they anticipated storms along the way and stayed focused on their vision in the midst of the storms when they came.
These legacy companies resisted the temptation to stall or halt any of their core processes that were working to propel their vision and make them more manageable, scalable and profitable organizations. They refused to stop taking time to work “on” their business when the temptation is there to increase time “in” the business because of hard times. These leaders knew that these were the very disciplines that would get them through the downturn, and they came out of the other side of the storm better, faster and stronger.
Don’t Abandon the Foundation!
The Entrepreneurial Operating System® (EOS®) gives you the foundational tools (Accountability Chart, Rocks, Meeting Pulse and Scorecard). When you add a clear and compelling vision to that foundation of discipline and real accountability, your organization will not only take off, but a continual focus on that discipline and accountability will provide long-term sustainable, scalable, manageable and profitable growth.
The key is focus! Once you’ve discovered and can clearly articulate your Core Focus™, the intersection between why you exist (Purpose/Cause/Passion) and what you do best (Niche), the priority is to stay laser-focused on it, while avoiding distracting, shiny opportunities as well as temptations to divert from your course during these upsetting economic downturns. This focus has the potential to get you through the storm looking better than when you entered it.
Envision a Bright Future During the Storm!
A clear vision keeps you focused on the future because it allows you to set your goals with the “end in mind,” as Stephen Covey so wisely said. Then, you can use those goals, just as travelers have used the Northstar to navigate, to guide your path forward, even in the midst of recessions that can bring temptation to “batten down the hatches.”
In addition to containing risk and managing your P&L, it’s super important to continue preparing the business for a brighter future. When you’re thinking about cost-saving measures to survive the storm, you’ve got to ask yourself, “If all I do is try to save costs today to survive, without focusing on healthy, sustainable growth, where will we be when we come out of this downturn?” Don’t just think short-term. If you just remain flat and survive, will you be prepared when the economy rebounds? Will your people get discouraged and jump ship when they do not see the vision progressing?
Protect Your Culture!
Focusing on your vision and your disciplines will also protect your culture, the very heart of your organization. Organizations that have protected their culture during recessions, and have stayed focused on the disciplines that give them Traction®, have proven that their core values and culture remained intact, in contrast with those that abandoned them during crisis. Reconsider canceling some of your morale building company events because money is tight so that you don’t eliminate some of the very initiatives that made your company what it is today.
Even if the leadership team and upper management have to take slight reductions in pay for a season, it will be worth it in the end. I remember one leadership team of a sizable manufacturing plant that decided all upper management would take slight pay cuts during a recession so that everyone, who made $50,000.00 or less annually, would maintain their pay and their jobs! This gesture and commitment to those families showed their dedication to the long-term vision and secured those employees’ commitment to the vision.
What will you do when the going gets tough?
Samuel Kniseley Ballesteros is Principal of The Advantage Solution, LLC, a business coaching firm that helps people get what they want from their businesses.
The business climate is changing and the waves are coming whether we are ready or not! Companies that identify unchangeable trends in business and adapt early will find tremendous, previously undiscovered opportunities for growth.
History teaches us that technology & process advancements disrupt old business models. For example, ice companies experienced a revenue disruption during the advent of refrigeration, but did not adapt because they thought their product was ice instead of refrigeration. Some railroad tycoons lost significant income when cars and planes disrupted their business, but did not adapt because they thought rail service was their product instead of transportation.
In contrast, let’s look at an industry giant who survived disruption by adapting. Upon realizing that computer and software sales from new market entrants was causing a significant decline in its mainframe and software sales, IBM visionary Lou Gerstner, former CEO, knew change was imminent. Approaching it’s 100th anniversary, IBM did not default to denial, but also did not scrap its entire business model. Instead, IBM realized that it was a technology service company and began to put more emphasis on their service business and less emphasis on what was becoming a commodity, hardware & software.
Similarly, as business owners, you can anticipate that unchangeable trends, such as new technologies, cloud based apps, globalization of outsource services, globalization of economies and supply chains, government regulations and demographic shifts, will disrupt the traditional business model. Facing that reality and adapting your business model to create new opportunities will be vital for your company’s survival.
Like IBM, there’s no need for you to scrap your entire business model. In fact, it’s time to take inventory of your assets and differentiators to place emphasis on the services and products that will add relevant value with a future view. As a business leader, your ability to anticipate opportunities or possible disruptions for the industries within your sphere of influence will be one of your greatest assets.
Like IBM, begin to put more emphasis on the services and products that provide solutions for anticipated disruptions or potential opportunities and less on your what may be evolving into a commodity that will require you to work harder, faster and for less money. The focus has to move from what your customers need to what they want, relevant solutions that add value.
Listen to what Tech Futurist & Innovation Expert, Daniel Burrus, CEO & Founder of Burrus Research, Inc., has to say,
“To thrive in this new age of exponential change and growing uncertainty, it is now an imperative to anticipate both problems and opportunities in the future by learning what Apple and Google have learned – how to use the certainty of Hard Trends to drive innovation and actively shape the future. ”
The trends are moving fast! Will you adapt?
Samuel Kniseley Ballesteros is a Professional EOS Implementer®.