Can good companies become great ones?? That was what Jim Collins hoped to discover when he began his 5 year research project in 1996
For his study, Jim Collin's wanted to see was it possible to turn a company from a good one, into a great one. So from the beginning he excluded companies that have always been great, for example MSFT GOOG and APPL. He looked at companies that have been around a while and specifically ones that had average stock market performance for 15 years, but then went through a transition and had 3 times the stock market performance for the next 15 years. This Shift had to be distinct from industry, so if an entire industry shifted the company was dropped. Out of 1,435 companies on the Fortune 500 between 1965 and 1995 only 11 made the study. Jim tried to discover any similarities between these 11 companies. One fact stood out above all the rest. They all had great leaders, but not in the traditional sense. They had what Jim called level 5 leadership. When we think of great leaders, particularly in business, we automatically think of people like Michael O'Leary and Jack Welch. Businessmen with great charisma and flair. Yet these men would only be considerd Level 4 leaders
Jim dissected leadership into 5 levels.
1. Highly Capable Individual (skilled)
2. Contributing Team Member (productive in team)
3. Competent Manager (organisation)
4. Effective Leader (vision, performance)
Level 5 builds enduring greatness through a paradoxical combination of personality humility and intense professional will.
The CEO's of the eleven companies all had level 5 leaders. People who shunned personal accolades but were extremely ambitious for the company. A good example is Kimberley Clark. You might recognise them as the makers of Kleenex and similar products. In 1971 a quiet lawyer named Darwin E. Smith was appointed CEO. His first comment was that he wasn't sure if he was qualified. But that did not stop him from making bold decisions. At the time Kimberly Clark's main business was paper mills. But Darwin did not see a future there and his first act was to sell all the paper mills and focus on consumer paper products. He reasoned that better economics and world class competition such as Proctor & Gamble would force it to achieve greatness or perish. And so like the general who burned his boats upon landing on enemy soil, leaving his troops to succeed or die Darwin sold the mills and relied on the ability to conquer new markets for the company to succeed. Over the next 20 years Kimberly Clark out performed the stock market by 400%.
How great were they?
When Ronald Perelman was in charge of Gillette in the 1980's He had to rebuff a number of takeover bids. At the time if shareholders had accepted the deal they would have received an immediate 44% premium on their investment. But Perelman was so successful at Gillette that when he left the shares were worth 64% more than the takeover price. And if you take the 11 companies as a whole, your returns would of been even more astonishing.
If you invested 1$ in the general stock market in 1965 until 2000, you would of had $65 dollars. Now that sounds pretty good, but if you had invested 1$ in these 11 companies, you would of gotten back $470. That is how great these companies were
This post gives a taste of one of my favorite business books and one of the most inspiring business leaders out there IMHO...
My first year in college we watched a presentation by Guy about innovation. It was a fantastic presentation that was very informative yet engaging entertaining and funny. This book is similar, while it is not funny it is the easiest to read business book I've ever come across. This is because it is split up into ten short chapters and lots of relevant examples are given. Guy also starts every chapter with a great quote which defines the chapter and the lesson to be learned from it.
The 10 rules come under three main categories
1. Create like a god, This section explains how to create revolutionary products and services
2. Command like a king, For a revolution to succeed, someone has to take charge and make the tough, insightful and strategic decisions
3. Work like a slave, Successful revolutions require lots of hard work. In this section you'll learn the three most important components of work
My favorite rule is the first one; Cogita Differenter (Think Different)
"I guess in all my years, what I heard more often than anything was, a town of less than 50,000 population cannot support a discount store for very long" Sam Walton
In this chapter Guy highlights the importance of simply thinking differently. He talks about purging your idols, idols are any old prejudices, procedures, and presuppositions that cloud and constrict your thinking. Zero based budgeting is the process in which every expense is questioned from the very first dollar-nothing is continued from previous budgets. "Zero-based idolising" then means questioning every business practice and trashing the ones that are no longer compelling.
Distribution Idol: We sell through dealers, we don't sell to our customers directly
Employee Idol: Employees can't be trusted. We have to monitor their productivity and get after them when their lax"
Market Share Idol: Market share causes profitability, so let's reduce price to gain share
Guy sums up the chapter with this compelling tale. Since 1955 Disneyland made the rules for the amusement park business, for the next thirty years you either played by their rules or hardly mattered at all. Disney's rule provided safe theme rides and entertainment. Then along came Jay Stein. When building Universal Studios Florida, Stein had a different idea of how to play the game. First he threw out his company's standard operating procedure. Instead of stuffing people on a tram and showing them "how we make movies" his pitch became, come ride the movies. Stein also turned amusement park business on its head by reversing Disney's rules of be nice, gentle and politically correct. Universal Studios Florida would kick peoples butts with blood, guts,flames and explosions. Everyday there are customer complaints that fireballs are too hot and everyday thousands of people come back for more. There's not much that Disney can do about this full frontal attack because it's a prisoner of its own g rated fun but safe standards and image. Stein used Aikido marketing turning the strengths of Disney into weaknesses. If Disney tried to liven up its image it would lose its core audience and blur its image.
There are so many business books out there sometimes it's hard to know which ones to read. This is one of those books, it is also very easy to read.
YOU ever have the experience of getting paid and constantly having money for a period of time, but at the end of it having nothing to show for it?
I remember my first summer in college I worked hard all summer on a construction site, during the summer I lived well, but not extravagantly, went for a week holiday in the sun, went to a music festival and a few weekends away. But when the last rays of summer sunshine had dissipated, I was left facing a windy autumn and an austere Winter. As I headed back to college I realised the only real thing I had to show for my summer (besides some awesome memories) was the surfboard I'd bought. Three months of work and this was my only fixed asset. that summer thought me a lesson and something I haven't forgotten. Memories are great but you can't reuse them. So since that time, whenever I come in to a decent bit of money I always make a point of allocating some of it towards fixed assets. It could be anything but generally I go for dvd's, books and domain names. This way at least long after the work is done I can still enjoy it's benefits! So.....To celebrate the (relative) success of my latest money making venture, I decided to pick up a few fixed assets from amazon.com and it got me thinking...
I am a huge fan of amazon.com, one of my favourite things about it is the ability to create a wishlist of items. So for me anytime I come across a book or a dvd I want to check out I'll add it to my wishlist to be viewed at a later date (with amazon's super saver delivery it also makes sense to buy in bulk). I'm constantly adding to this list and whenever I have a bit of money saved up I check these books out to buy them. This is what this post is about. These days before I buy a product I try and find a blog review. I no longer trust a journalist who's played around with something for a week. I want to know how the product performs for the average user and over a long period of time. I am very wary of online reviews particularly on amazon, a disadvantage for me is that the .co.uk site has far less reviews to start with. Fake reviews by companies of their own products have been found on amazon before. So..... do I trust this random name and hope their genuine OR is there a better way....
"Social Media is revolutionizing the world" how often do you hear this? A LOT. Yet as far as I can figure out no one is really harnessing the best benefit of it! That is user reviews. How amazing would it be if you could login with your twitter/facebook account to amazon and leave your review. So when I came along and wanted to figure out if I should buy "direct From Dell" and whether it's any good, I could check out peoples twitter accounts find out if they've the same tastes as me or just tweet them directly and get their input. In one move this will eradicate the uncertainty over online reviews.
Amazons recommendation service is good, people who bought this also bought this. That's fine but it doesn't say people bough this because other people did but having bought it thinks it's totally crap!
The best example I can give is a discussion I had on @twitter with @luketeeling and @clearpreso. We were talking about books to buy. @clearpreso mentioned one called rework I'd never heard of before. I then asked him how it stacked up against 4 hour work week. He said that they were the two books he'd recommend to any entrepreneur and I was sold. But this interaction and comparison of books was vital. If I had gone on amazon and review said "buy this book" I wouldn't have....
Heres the latest update of my portfolio. Made a nice gain on McDonalds so thought it was time to reap the profits. I am also happy to see that the price of Coinstar CSTR has dropped since I sold it. McDonalds is near an all time high so I would expect a similar drop. In both cases, I believe I got out at the right time because I wasn't too greedy, and it's paid off, my portfolio is outperforming the S&P 500!