Built To Last by Jim Collins

In Built To Last, Jim Collins and Jerry Porras research and explain the characteristics of companies that have massive success over a long period of time.

These companies are:

  • Premier institutions in their industry
  • Widely admired by knowledgable businesspeople
  • Made an significant impact in the world
  • Had multiple generations of CEOs
  • Been through multiple product (or service) life cycles
  • Were founded before 1950

How do we know that these companies are so valuable? They compared these visionary companies with a comparison company that were founded at a similar time and in a similar industry. Think Ford vs GM, or HP vs Texas Instruments. In other words, other solid companies that were better than the general market.

They found that $1 invested in the comparison companies would have returned two times what the general market would have returned. But the visionary companies would have returned fifteen times the general market.

In essence, these companies have something to teach us about what it takes to be very good, for a very long time.

How did they do it? Let’s find out.

Clock Building, Not Time Telling

The authors use the metaphor of building a clock versus telling the time to make the first important distinction between the visionary companies and the comparison companies.

When you are merely telling the time, you are focussed on having a great idea or being a charismatic company leader.

Instead, a clock builder focusses on building a great company that can thrive beyond any product cycle or leader.

Interestingly, few of the great companies in their study can trace their roots back to a great idea or excellent initial product. Some of them began as outright failures.

When Masaru Ibuka founded Sony in 1945, he had no initial product idea. After considering bean-paste soup and miniature golf equipment as two potential first products, they settled on their first product – a rice cooker. It’s first significant product – a tape recorder – failed in the marketplace.

For the visionary companies, a runaway hit product was never the ultimate goal. Creating an enduring company was. As the authors describe it, the shift was in seeing the products as a vehicle to create the company instead of the company as a vehicle to create products.

The builders of the visionary companies were ready to kill or revise a failing product, but were never willing to give up on the company.

Something very interesting happens when you focus on creating an enduring company instead of great products – you realize that you don’t need a high-profile charismatic leader to succeed.

“Tyranny of the OR”

Another interesting thing the authors found was that the visionary companies didn’t seem to make the trade-offs that most companies would make.

Where most companies would make a choice – you can have change OR stability, or low cost OR high quality – the visionary companies would find ways to have both at the same time.

More Than Profits

Visionary companies exist to do more than just make money, where the comparison companies typically don’t.

If you go to business school they’ll teach you that the core purpose of a company is to make money for it’s shareholders. Making money is obviously necessary for a company to survive. Only in Silicon Valley can companies go on for years burning through mountains of cash and still stay in business.

But the visionary companies don’t put profit first – their put their hopes and dreams for what the company can do beyond creating a profit first.

This is what the authors call the core ideology of the company. It is a set of basic precepts that say this is who we are, this is what we stand for, and this is what we are all about.

The core ideology is a combination of core values and purpose.

The core values of a company are the essential and enduring principles that drive all decision making at the company. The Johnson and Johnson Credo is an often cited example (go look it up if you have some time). They remain fixed over time, the bedrock on which the entire company is built.

The purpose of a company is the set of fundamental reasons for the company’s existence beyond just making money. The purpose should be broad, fundamental and enduring. It is something to continuously pursue, not to achieve.

As Walt Disney once said:

Disneyland will never be completed, as long as there is imagination left in the world.

Preserve the Core/Stimulate Progress

Thomas J. Watson, Jr., the son of IBM’s founder and the 2nd president of the company, sums up what the authors are getting at in this section of the book when we says:

“If an organization is to meet the challenges of a changing world, it must be prepared to change everything about itself except its basic beliefs as it moves through corporate life…The only sacred cow in an organization should be its basic philosophy of doing business.”

Preserving the core while stimulating progress is the central concept of this book.

Stimulating progress in the visionary companies is an internal drive, not an external one. They don’t wait for the market to tell them it’s time to improve. They feel compelled to do it on their own – like a great artist feels compelled to create.

The trick is to have a firm understanding of what your core actually is. Most companies in the comparison group mistake strategies and tactics for their core, and thus don’t change their strategies and tactics readily enough.

Unfortunately, that also allows them to drift from their core purpose, leading to the double whammy of a rudderless company fixated on tactics and strategies that will eventually stop working.

Now that we’ve got the core idea of the book nailed down, it’s time to move onto the five categories of preserving the core and stimulating progress you can use to become a visionary company.

Big Hairy Audacious Goals (BHAGs)

Although I have a natural fear of things that are big and hairy, I’m willing to make an exception here.

BHAGs are commitments to challenging and often risky goals toward which a visionary company channels its efforts.

It’s the difference between having a good old regular goal, to becoming committed to a huge and daunting challenge. The most often quoted BHAG of all-time is when Kennedy told the world the US would land a man on the moon before the end of the 1960s were up.