Why ‘discipline’ wins over ‘innovation’ as the key characteristic of highly successful business owners

You might well know how to grow (i.e. do more of the things that are working for you, and do them better) but as a seasoned entrepreneur, you tend to instinctively want to hold back a bit…
Why?

It’s chiefly a case of paranoia…

Business owners tend to be more paranoid than they let on. They don’t like to be regarded as paranoid so they often hide it.

What are the causes of success? Is it luck or talent? Is it genius or hard work? Or is it creativity or plain diligence?

Jim Collins, the veteran author of Good to Great, and Morten Hansen believe that it comes down to control and discipline in the face of inevitable change. Luck, both good and bad, will befall us, circumstance will be as fickle as the weather. But if we put our heads down, we can thrive.

Their book starts with a definition of what the authors call ’10X’ companies, those that outperform their industry averages by at least 10 times. These companies display three fundamental and distinctive behaviours: ‘fanatic discipline’ and ‘monomaniacal’ focus on achieving their goals; ’empirical creativity’, an obsession with facts rather than opinion and a readiness to ignore conventional wisdom once armed with these facts; and ‘productive paranoia’, a constant worry which fuels relentless preparation and precautions against even the most improbable bad events.

They draw on examples from business and beyond to illustrate 10Xers at work, such as Amundsen and Scott’s race to the South Pole. While Scott took a relaxed, somewhat cavalier approach to his expedition, Amundsen prepared for every eventuality, even having backup plans for his backup plans. He was a relentless ‘tester’ – he ate raw dolphin meat to see if it could provide a decent energy supply. He loaded up with far more supplies than Scott to serve a much smaller team. And, tellingly, for Collins and Hansen, Scott took just one thermometer, which disastrously broke, whereas Amundsen brought four.

Amundsen reached the pole more than a month before Scott and made it back alive. ‘Amundsen and Scott achieved dramatically different outcomes,’ Collins and Hansen write, ‘because they displayed very different behaviours.’

The same applies to companies and helps explain why Southwest Airlines thumped its discount rivals and why Microsoft thumped Apple in the mid-1980s to 1990s. Bill Gates used to keep a photograph of Henry Ford in his office to remind himself of how Ford had been overtaken by General Motors in the early days of the car industry. Gates wanted the constant reminder that however well Microsoft did, there was almost certainly some younger version of himself toiling in obscurity to one day knock him from his perch.

Armed with these behaviours, 10X companies set off on what Collins and Hansen call the ’20 mile march’, a long period of sustained growth, characterised by hitting well-defined performance targets and demonstrating both resolve and control. Through the discipline of behaving consistently over time and proving resistant to a changing marketplace, an organisation discovers self-control. And this, far more than more nebulous ideas such as innovation or creativity, is what determines 10X success.

They compare the process of successful innovation to firing bullets in order to zone in on your target, then heaving a cannonball at it to do the job properly. Disasters happen when one uncalibrated cannonball after another is fired, each big, reckless bet made in the hope of recovering from the last one.

One of the most important lessons in the book is that innovation is not always the surest route to success. In their comparisons of companies in the same industry, notably the biotech firms Amgen and Genentech, Collins and Hansen found that it was the less innovative firm, Amgen, that generated better returns for investors over 20 years. Sometimes, it serves companies to be ‘one fad behind’.

Consistent with this idea is the authors’ assertion that the 10X companies are not the brash risk-takers, but the ones that prepare rigorously for what they cannot predict, the antithesis of many Wall Street banks before the financial collapse. These companies hoard cash and keep comfortable buffers in every area of their business, just in case. They are hyper-realists, who act according to Collins and Hansen’s ‘SMaC’ methodology, being ‘Specific, Methodical and Consistent.

‘Luck is not a strategy,’ the authors conclude. What determines any organisation’s success is how it prepares for both good and bad luck. They call this getting a ‘positive return’ on luck and, if Good to Great’s four million-plus sales is anything to go by, this idea will be embedded in corporate-speak before you know it.

The CFO Centre divides a finance department into 12 areas (we call the ‘12 Boxes’). One of these boxes is ‘Risk Management. Amundsen’s success reaching the South Pole was largely down to the exceptional way in which he managed his downside/risk to stack the cards heavily in favour of him succeeding.

If you would like to book a 30 min call with one of the top CFOs in the country to discuss ‘Risk’ and how you can create a powerful risk management strategy in your business to help you grow much faster and make bolder decisions because you know you have your back covered follow the link below:

Contact – CFO Centre Hong Kong (wpengine.com)