The book compares a set of 10 pairs of companies over a timeframe of over 20 years to demonstrate what choices the same companies make to become great. The great ones (10Xers) were not led by visionaries, they were not more innovative, they did not try to move too fast, and they were not luckier ones either.
Characteristics of great companies
- Fanatic discipline
Great companies aim for consistent growth. They aim for marathons, not sprints. They not only try to maintain their velocity in an adverse environment but also try hard not to over-reach (and exhaust) themselves in favorable conditions. Southwest started service in ~4 new cities every year, Intel aimed for double the transistor count every 18 months, and Progressive Insurance aimed for a 96% combined ratio. Just having good intentions don’t count, only good outcomes matter.
- Empirical creativity
Great companies try a lot of small things (low cost, low risk, low distraction) first before committing themselves to a new direction. They aim with bullets and then after hitting the target fire cannonballs along that trajectory. Southwest copied PSA’s model of no-frills low-cost airlines. PSA shoot itself in the foot by heavily investing in the fly-drive-sleep model which failed miserably. Microsoft supported and believed in OS/2’s success but had a small team that worked on Windows on the side. OS/2 failed and Windows won. Steve Jobs started with only two retail stores for Apple and then iterated on them till they were perfected for replication. The invention of the iPod was a bullet in itself, which Apple never expected to become so dominant in the longer run.
- Productive Paranoia
You can only learn from the mistakes you survive.
Great companies ensure that they have sufficient margin to deal with a catastrophe. Their balance sheets are more conservative. They take more conservative risks. Their leaders zoom out to check the macro conditions before zooming in back. Southwest had contingency plans before 9/11. While other airlines badly suffered, Southwest became, even more, stronger going through the storm. Motorola 68000 was a superior design, a paranoid Andy Grove recognized and fired back with a better ability to deliver chips on time and by going around the globe winning contracts.
- SMaC – Specific, Methodical, and Consistent
Great companies develop a set of SMaC practices that may slowly evolve (as a result of empirical creativity and productive paranoia). Average ones keep changing their targets. Intel was focused on memories, and due to tough competition from the Japanese, they shifted to the processor business (which they were already experimenting with). AMD shifted its target market multiple times from second-sourcing to high-end to customer-centric innovation. Microsoft shifted from a PC to an Internet-centric world in 1994 after realizing its importance.
- Return on luck – Great companies don’t encounter more lucky moments compared to others. What differentiates them is how well they capitalize on them. It is the bad luck that kills the mediocre ones.