Podcast Summary
The Impact of Good and Bad Luck on Success: Leadership and compounding are key to success, while good luck provides opportunities and bad luck can setbacks. Level 5 leadership, flywheels, 20-mile marches, and embracing compounding are essential for long-term success.
Learning from this conversation between Shane Parrish and Jim Collins on The Knowledge Project podcast is that while bad luck can have a significant impact, including the potential to be fatal, good luck alone cannot make someone or a company great. Instead, it's the individuals and organizations that demonstrate level 5 leadership, build flywheels, focus on the 20-mile march, and embrace compounding that truly succeed. Jim Collins, the author of several influential business books, including "Good to Great" and "Built to Last," shared his insights from decades of studying successful companies and leaders. He emphasized the importance of leadership, which can be learned but not taught, and the role of luck, which can provide opportunities but ultimately depends on how they are utilized. This conversation offers valuable insights for anyone interested in business, leadership, and personal growth.
From Steve Jobs' transformation to Level 5 leaders: Great leaders can emerge from setbacks and hardships, transforming through personal humility and indomitable will to serve a larger cause
Even in the face of setbacks and hardships, individuals have the capacity to grow and transform into great leaders. Steve Jobs, who was once forced out of Apple, the company he co-founded, is a prime example. In 1988, Jobs was in the wilderness, starting a new company called NeXT, which was not yet a success. However, during this time, Jobs met the speaker and had a profound impact on him. Despite being bitter and angry about losing his company, Jobs channeled his emotions and focused on the quest of his work. This period marked the transformation of Steve Jobs 1.0 to Steve Jobs 2.0, who later returned to Apple and led it to unprecedented success. The research on level 5 leaders from Good to Great further emphasizes this idea. Level 5 leaders possess a unique blend of personal humility and indomitable will, using their ambition to serve a cause larger than themselves. This transformation from a struggling individual to a great leader is a powerful reminder of the potential for growth and resilience.
From Entrepreneur to Company Builder: The Evolution of Steve Jobs: Great leaders, driven by ambitions beyond themselves, transform from entrepreneurs to company builders, humbly serving their vision with unyielding will.
Great leaders, like Steve Jobs, are driven by an ambition that is greater than themselves. They humble themselves in service to this ambition, and with an unyielding will, they work tirelessly to make it a reality. This was evident in Steve Jobs' transformation from a focused entrepreneur to a company builder, whose ultimate goal was to build a lasting and innovative company. The myth that entrepreneurs and company builders are different species is debunked, as many great company builders started as entrepreneurs and grew into their roles. The concept of Level 5 leadership, as described by Jim Collins, is characterized by a clear answer to the question of what one's true ambition is and a commitment to serving that ambition rather than being consumed by it. This humility and unwavering will are essential qualities for any leader striving for greatness.
An unwavering commitment to a company's mission: Successful entrepreneurs and company builders prioritize their mission over ego, leading to great outcomes despite challenges
Successful entrepreneurs and company builders come from various backgrounds and experiences, some with dramatic challenges and others with more straightforward paths. However, what they all have in common is an indomitable will channeled towards their company's mission. This focus on the mission allows them to move their ego out of the way and make outcomes the priority. Examples include Katharine Graham of the Washington Post, who took over the company after her husband's suicide, and Herb Kelleher of Southwest Airlines, who revolutionized the airline industry. The mission or purpose of the enterprise doesn't always have to be grand or noble, but it should be the driving force behind the company. Success stories range from the founding of Teach For America by Wendy Kopp to the birth of Amgen, one of the earliest biotechnology companies, by George Rathmann. These entrepreneurs and company builders demonstrate that an unwavering commitment to the mission, even in the face of adversity, can lead to great success.
The Complexity of Decision Making and the Importance of Self-Awareness: Continuously learn and prepare for decision making by anticipating context, self-awareness is crucial for improvement, and our actions have interconnected consequences.
Decision making is a complex, contextual process that requires continuous learning and self-awareness. Shane Parrish, the host of The Knowledge Project podcast, has had conversations with various thought leaders and noticed a common theme: the importance of decision making and the desire to improve it. He used to believe that there was a skill called decision making that he could learn, but now he sees it as all contextual. The key is to intelligently prepare by anticipating the types of decisions we will make and trying to anticipate what will be relevant. However, if we don't draw attention to our decision-making process, we can't get better because the process is where we make corrections. Rafman, a patent lawyer who defended Amgen's patents, is an example of someone who made a significant impact on people's lives through his work, yet he also became a patient of the very product they produced. This illustrates the importance of striving for longevity and impact in our work, as well as the interconnectedness of our actions and their consequences. Overall, the process of decision making is a lifelong journey of learning and self-awareness.
Distinguishing between good decisions and bad outcomes: Effective decision-making is about recognizing and improving our thought processes, not just focusing on outcomes. Separate good decisions from adverse outcomes and learn from the process.
The outcome of a decision is not always an accurate reflection of the quality of the decision-making process. It's essential to distinguish between good decisions with bad outcomes and bad decisions with good outcomes. By recognizing and addressing the areas where we consistently make mistakes, we can improve our decision-making skills. Additionally, being honest about our reasoning and evaluating our thought processes can help us identify areas for growth and reduce mental justification. In a probabilistic world, accepting the reality of uncertainties and separating good decisions from adverse outcomes is a more effective approach than focusing on the outcome itself. As Jim Collins emphasized, starting with a clear understanding of the brutal facts is crucial for effective decision-making.
Embracing Ugly Facts: Successfully dealing with challenging facts and situations is crucial for making informed decisions and building enduring companies. Engage with difficult realities rather than discounting them.
The ability to effectively deal with challenging facts and situations, rather than discounting them, is a crucial factor in making successful decisions and building enduring companies. This was highlighted in a historical analysis of Intel and Advanced Micro Devices, where both companies faced similar industry changes but reacted differently. The Intel team embraced the ugly facts and wrestled with their potential implications, while the Advanced Micro Devices team discounted or explained away negative evidence. This capacity to face and engage with difficult realities, even if they are unpleasant, is essential for individuals and organizations looking to navigate complex situations and make informed decisions.
Sharing personal experiences builds deeper connections: Recognizing everyone stumbles, acknowledging struggles, and fostering open communication can lead to personal growth and stronger relationships.
Vulnerability and openness about personal experiences, especially during difficult times, can help build deeper connections and foster a sense of community. The current culture of social media often creates a false sense of comparison and isolation, making it harder to acknowledge and learn from our own struggles. It's essential to recognize that everyone stumbles and makes mistakes, and it's not just about what we learn from our experiences but also how we handle them. Emotions and rationality should not be mutually exclusive, and it's crucial to know when to lean on each to navigate life's challenges. Additionally, fostering open communication and emotional expression, as taught in courses like Business 374 at Stanford, can lead to valuable personal growth and stronger relationships.
Jim's realization of feelings' impact on life: Feelings significantly influence our decisions and approaches to life, often more than we realize. Processing unresolved emotions can lead to deeper understanding and self-fulfillment.
Feelings play a significant role in our decision-making and approaches to life, even if we tend to believe we are rational and driven by intellect. This was a powerful realization for Jim during a university course taught by his research mentor, Jerry. Jim had thought he had dealt with unresolved feelings from his past, but he discovered otherwise. The course allowed Jim to confront and process these emotions, leading to a deeper understanding of their impact on his life. This notion that feelings often influence us more than we realize was a core belief of Jerry's. As we age, the sources of motivation may shift from unresolved emotions to a love for the work itself, creating a self-perpetuating sense of joy and fulfillment. This idea can be compared to a flywheel, which gains momentum and continues spinning once set in motion.
Building great companies through disciplined people, thought, action, and endurance: Level 5 leaders prioritize hiring 'first who', confront brutal facts, find hedgehog concepts, take disciplined actions for momentum, and acknowledge the role of luck and its multiplier effect in building lasting companies
Great companies are built on a foundation of disciplined people, thought, action, and building for lasting endurance. Disciplined people consist of level 5 leaders and the principle of "first who" in decision making. Disciplined thought involves confronting brutal facts and finding your hedgehog concept. Disciplined action is where the flywheel effect comes into play, as disciplined decisions lead to momentum and compounding results. The framework also acknowledges the role of luck and return on luck as a multiplier. Great companies, such as UCLA's basketball team under John Wooden, may appear to have instantaneous breakthroughs but often take years to develop.
The power of consistent decisions: Consistent decisions, even small ones, can lead to significant progress over time, creating a 'flywheel' effect. Understanding causes of success and failure is key to making good decisions and avoiding 'doom loops'.
Achieving great results is not an instant process, but rather a long-term, compounding effect of making good decisions. This idea is represented by the "flywheel" principle, where progress begins slowly, like pushing a heavy flywheel, but gains momentum as improvements are made and decisions are made consistently over time. However, it's important to understand that flywheels can also break due to various reasons, such as environmental shifts or internal politics. The opposite of a flywheel is a "doom loop," where disappointing results lead to hasty reactions and changes without understanding the root cause, often leading to further disappointing results. To harness the power of the flywheel, it's crucial to understand the causes of both success and failure and make decisions accordingly. The most durable and spectacular results come from a series of good decisions that compound over a long period.
Understanding a company's flywheel for long-term success: Patience and deep understanding of a company's core mission and passion are key to investing in a successful flywheel, rather than chasing after the latest fads or programs.
Understanding the inner workings of a successful company's "flywheel" is crucial for long-term success, rather than constantly chasing after the latest fads or programs. Companies that have a clear understanding of their intellectual insight and execution on it can continue to improve, even in the face of disappointing results. However, identifying these successful flywheels from the outside and investing in them may not be as simple as it seems, and it's important to have a deep understanding of what makes a great company tick before attempting to invest. Jim Collins, who has spent decades studying this question, shares that while it's tempting to try and identify and invest in a flywheel before it's really turning, it might be more beneficial to wait until it's already far along and well-understood by those building it. This approach requires patience and a deep understanding of the company's core mission and passion. Collins also emphasizes that this is not investing advice, but rather a perspective on the importance of understanding the inner workings of successful companies.
Understanding your business flywheel and its components: To build a successful business, identify and focus on the unique components of your flywheel, and execute consistently on each part to create compounding growth.
To build a successful and enduring business, it's crucial to understand the specific components of your flywheel and how they interconnect to create momentum. Amazon took Jim Collins' flywheel principle and made it their own, crystallizing how their unique flywheel turned. This dynamic understanding of their business logic allowed them to continue growing even during challenging times. However, failing on any component can halt the entire flywheel, so it's essential to execute on each part consistently. By making the flywheel your own and focusing on each component's execution, you can harness its power and build a successful, compounding business.
Jim Collins' Personal Flywheel: Curiosity, Research, Insights, Teaching, and Impact: Investing resources from past successes into new questions and research projects can lead to significant personal and professional returns.
Jim Collins, the author of "Good to Great" and "Built to Last," believes that individuals, like organizations, can have a personal flywheel that drives their curiosity, research, insights, teaching, and impact on the world. Collins shared his own personal flywheel, which starts with curiosity and leads to rigorous research, chaos to concept insights, writing and teaching, and ultimately, having an impact on the world. He emphasized the importance of investing resources from past successes into new questions and research projects. An interesting anecdote he shared was how he met his wife, Joanne, and decided to invest in their relationship just four days after meeting her, which led to a successful marriage and partnership. This story illustrates how investing resources in the right areas, whether it be personal or professional, can lead to significant returns.
Instinct and luck in love and business: Recognizing and harnessing the power of luck can amplify personal relationships and business success
The power of instinct and the element of luck played significant roles in a long-lasting marriage and the success of a great company. The speaker shared a personal story of meeting his wife during a run, where they both instinctively knew they could commit to each other. They faced challenges in their past but had the faith that they could go all in together. This leap of faith was a crucial anchor point in their relationship. In Jim Collins' framework for building a great company, there are several key principles, including disciplined action, understanding the flywheel, and preserving the core. However, Collins identified a multiplier that amplifies the impact of these principles - return on luck. The speaker emphasized the importance of acknowledging the role of luck in success stories, as it often goes unrecognized. Collins' research suggests that some companies are better at capitalizing on luck than others. By understanding how to recognize, harness, and build on good fortune, companies can extend their flywheels and achieve long-term success. This concept of return on luck is an essential component of building a great company that lasts. In summary, instinct and luck played crucial roles in a personal story of love and in the success of a great company. By recognizing and harnessing the power of luck, individuals and organizations can amplify their achievements and create lasting impact.
Understanding the Role of Luck in Business Success: The study of exceptional companies in turbulent industries revealed the potential impact of luck on business success through better timing, bigger spikes, and fewer instances of bad luck. However, all companies and individuals have some inherent luck, and it's crucial to understand the role of luck in outcomes.
The study of exceptional companies that outperformed their industries in highly turbulent industries, like semiconductors and biotechnology, can provide valuable insights into the role of luck in business success. The researchers, including Jim Collins and Morton Hanson, hypothesized that these companies might have been luckier than their comparisons due to better timing, bigger spikes of luck, or fewer instances of bad luck. However, they acknowledged that all companies and individuals have some level of inherent luck, such as being born in an advanced economy or having access to education. To study the impact of luck on outcomes, they defined luck as an event and conducted event analyses to quantify its impact. Ultimately, the researchers aimed to fill the intellectual hole of understanding the role of luck in business success and how it interacts with disciplined people, thought, and action.
Effectively managing luck events: Companies should focus on capitalizing on good luck events and mitigating negative effects of bad luck to maximize their return on luck. It's not just about getting lucky but about what you do with the luck you have.
While luck events can significantly impact companies, their impact is not determined solely by the event itself, but rather by how a company responds to it. A luck event is defined as any unforeseen event that has a potentially significant consequence, good or bad. Companies that capitalize on good luck events and mitigate the negative effects of bad luck events are more likely to succeed. However, good luck cannot directly cause a great company, while bad luck can lead to a company's downfall. Therefore, it's crucial for companies to effectively manage both good and bad luck events to maximize their return on luck. The example of Microsoft and Digital Research illustrates this concept well, as both companies received the same luck event but had vastly different outcomes due to their responses. Ultimately, it's not just about getting lucky but about what you do with the luck you have. To harness luck, companies should focus on the flywheel effect, continuously building upon their luck events to create momentum and growth. Additionally, effectively managing bad luck is equally important, as it can protect a company from being knocked out of the game.
Steady progress despite external conditions: Companies must focus on consistent growth strategies, like a '20-mile march', to capitalize on lucky events and succeed in turbulent environments, rather than being erratic based on external conditions.
While luck plays a role in business success, it's not the only factor. To truly capitalize on a lucky event, companies must translate it into a sustainable growth strategy, such as a consistent 20-mile march. This means focusing on steady progress, even in turbulent environments, rather than being erratic based on external conditions. The example of Microsoft's early years illustrates this concept well. Despite early versions of Windows being laughed at, the company stayed the course and kept building, eventually harnessing the power of the Internet and experiencing massive success. The 20-mile march is not just about a specific growth rate, but rather the commitment to making progress every year, no matter the conditions. This approach leads to greater results in more turbulent environments.
Maintaining a consistent and focused strategy during turbulent times: Committing to a specific goal and not deviating from it, even in the face of disruptions, leads to greater success through constant innovation and adaptation.
During turbulent times, maintaining a consistent and focused strategy, or a "20 mile march," can lead to greater success. This doesn't necessarily mean just focusing on growth, but rather committing to a specific goal and not deviating from it, even in the face of disruptions. The key is the word "consecutive" - for example, aiming for profitability every year for 40 consecutive years. This commitment forces companies to constantly innovate and adapt ahead of disruptions, rather than being reactive. It's a counterintuitive approach, as it may seem that focusing too much on the present could make a company vulnerable to disruptions. However, the long-term focus actually pushes companies to invest in the future and stay ahead of the curve. Additionally, it's not just about being innovative, but rather about scaling the right innovations. So, instead of trying to fire a big cannonball of innovation, it's more effective to fire a series of bullets - small, focused innovations - that consistently hit the mark.
Firing bullets before big cannonballs: Successful companies test innovations through small-scale experiments before making large investments to learn and adapt, while less successful companies either fail to experiment or make uncalibrated big bets, putting them at risk for decline
Successful companies don't rely on uncalibrated big bets to drive growth. Instead, they test and validate their innovations through small-scale experiments before making large investments. Jim Collins, in his research with Morten Hansen, found that companies that follow this approach, firing bullets before big cannonballs, tend to outperform their less successful counterparts. This approach allows companies to learn from their mistakes and adapt, rather than risking everything on an uncalibrated bet that could potentially lead to decline. The comparison companies, on the other hand, either fail to make enough small experiments or fail to convert those experiments into large investments when the time comes. Additionally, these companies often make uncalibrated big bets, which can put them on a path to decline. The psychology behind this behavior is not fully understood, but it may be related to the incentives of leaders and the pressure to win in certain industries. Understanding this pattern of decline is crucial for building companies that last, as productive paranoia involves worrying about downside risks and protecting against them to ensure long-term success.
Stages of a Company's Decline: Hubris, Overreach, Denial, Fall from Grace, and Irrelevance: Companies often decline due to leaders' overconfidence, leading to an undisciplined pursuit of more risks, denial of mounting problems, and eventual fall from grace
The fall of successful companies is a complex process that often begins with the overconfidence and overreach of their leaders, rather than complacency. Jim Collins, in his research on this topic, identified five stages of a company's decline: the first three stages, where the company may still appear healthy from the outside, are hubris, overreach, and denial; the fourth stage is the actual fall from grace; and the fifth stage is irrelevance or death. Companies often fall because of an undisciplined pursuit of more, taking on risks they're not fully aware of due to their overconfidence. This can lead to denial of the mounting risks and problems, which eventually catches up with the company in the fourth stage. Understanding these stages can help businesses recognize the signs of impending decline and take corrective action before it's too late.
Focusing on reactions during a company's decline: During decline, focus on improving processes and experimenting with new initiatives, understanding that some may not succeed but leading to potential transformative moves.
During a company's decline, it's crucial to understand that falling is not the issue; it's how you react. Reactions of grasping for salvation can lead to a doom loop of lurching, panicky moves, and disappointing results. This pattern is more common than companies hunkering down and being too conservative. When a company is in this stage, it's essential to focus on calibrating and improving processes, even while continuing to experiment with new initiatives. Historical research shows that great companies often make "bullets to cannonballs" moves, where initial experiments lead to larger, transformative initiatives. For instance, Apple's introduction of the iPad was a bullet that eventually became the iPhone, iPad, and other game-changing products. However, not every bullet will become a cannonball, and it's essential to understand that uncertainty is part of the process. Companies must fire enough bullets to allow for discovery while recognizing that some will not amount to anything. The key is to maintain focus on the core business while experimenting with new initiatives.
Expanding a successful business model: Successful companies often extend their offerings, leading to greater momentum and success. Apple's iPad is an example, and principles like excellence and calibration are crucial for this extension's success.
Successful companies often build on their initial success by expanding their product or service offerings, creating a "bullet to cannonball" extension of their existing business model. This was the case with Apple and the iPad, which brought new users to the platform and led to even greater momentum and success for the company. The principles of excellence and calibration, as demonstrated by Steve Jobs and Apple, are essential to making this extension a success. The bullet to cannonball extension is not a new flywheel but an extension of the existing one, and history shows that it often becomes the biggest part of the company's growth for decades. Companies like Marriott, Apple, and Intel are examples of this phenomenon. The best counterargument to Good to Great, according to the speaker, is not the failure of companies like Circuit City, but rather the criticism that the study only focused on stock returns. However, the speaker believes that the principles of Good to Great are sound when viewed through different lenses and that the built-to-last companies, which emphasized a purpose beyond just making money, had greater endurance.
Long-term thinking sets visionary companies apart: Visionary companies prioritize long-term thinking, enabling them to make big bets and outmaneuver competitors for sustained success
Visionary companies, like Johnson & Johnson, Walt Disney, and Apple, have a deep sense of responsibility to the world and think long-term, which sets them apart from good-to-great companies. The great CEOs managed for a quarter century, and if you're not making decisions with a 20-mile march in mind, you won't build a company that can still be ahead a decade, 2 decades, or even 3 decades down the road. The time frame for decision-making is a potential contributor to disruption. Long-term thinking allows companies to make big bets and do things that competitors can't, leading to first-order negative, second-order positive outcomes. To develop leaders, experiences like serving as the class of 1951 Chair for the Study of Leadership at West Point can have a profound impact. It's essential to understand that leadership development is possible and that thinking and acting long-term is a crucial aspect of effective leadership.
Building leaders of character at West Point: West Point builds leaders through a communal ethos, interaction with cadets and faculty, and instilling a sense of service, resulting in capable and responsible individuals.
Institutions like West Point can effectively build leaders of character at a young age through a communal ethos that values failure as growth and emphasizes helping each other. The West Point experience, which lasts for two years, offers opportunities for interaction with cadets and faculty, and the immense sense of service instills a mindset of communal success. The unique environment at West Point produces leaders who are capable and responsible, often surpassing the capabilities of a random sample of 22-year-olds. While it may not be possible for someone to make another person a leader, it is clear that learning leadership is achievable. The key components of learning leadership include recognizing the need for action and the ability to inspire others to join in the effort. Effective leaders, such as the school principals and superintendents studied, embrace the responsibility to make a difference and create an environment that fosters success.
Leadership involves inspiring others to accomplish important tasks and serving the people around you: Effective leaders inspire, take action, adapt, learn, and foster an environment for growth and success
Effective leadership involves taking action to address important issues and focusing on serving and developing the people around you. The art of leadership lies in inspiring others to join you in accomplishing what needs to be done. Additionally, context plays a significant role in leadership, as our behavior and abilities can be influenced by the unique circumstances and social contexts we encounter. The best leaders are those who are humble, adaptable, and willing to learn from their experiences. By not being bystanders and taking care of our people, we can foster an environment where everyone can thrive and succeed. Ultimately, the potential for great leadership lies within each of us, and it's up to us to embrace the opportunities to grow and make a positive impact on those around us.
Leaders can adapt and succeed in various contexts but may not excel in all: Leaders can adapt and learn to navigate different contexts, but it's essential to focus on areas of strength and make the most significant impact.
Effective leaders can adapt and succeed in various contexts, but their abilities may not be infinite. Ike Eisenhower, for instance, was a successful military leader and president, but struggled as a university president. Bill Gates transitioned from running Microsoft to leading in global health and philanthropy, achieving success in both arenas. While individuals can learn to navigate different contexts, they may not excel in every one. It's essential to understand where one's strengths lie and focus on areas where one can make the most significant impact. The ability to adapt and learn is crucial for growth and success in any leadership role.
