Great by Choice (pt. 2)

You can find our last post in the Great by Choice series here: Fanatic Discipline (20 Mile March)

One of the first books our employees are given on their first day at SLS is “Great by Choice” by Jim Collins and Morten T. Hansen, which looks at why some companies thrive in uncertainty and chaos, and why others don’t. What draws us to this particular book is its focus on quantifiable data to lead you to the conclusions of what made these companies excel in their industries. There are three main points that we will cover in three blog posts, so that we can hopefully give you some insights that will help you become GREAT BY CHOICE. And to that end … let us know when we can assist. We’re more than a commercial lender. We’re your partner in business. Call us at 816.423.8021

For some backstory, the research for this book began in 2002, and continued for nine years. The subjects of the study were seven companies that are referred to as “10xers”, or companies that beat their industry index by at least 10 times, but that is just the baseline. Some companies went above and beyond that benchmark, like Southwest Airlines who performed 63.4 times better than the market as a whole, and 550.4 times better than its own industry! These companies include:

• Amgen (1980-2002)
• Biomet (1977-2002)
• Intel (1968-2002)
• Microsoft (1975-2002)
• Progressive Insurance (1965-2002)
• Southwest Airlines (1967-2002)
• Stryker (1977-2002)

As mentioned previously, there are three main points that cover the three main characteristics these 10xers have including Fanatic Discipline, Empirical Creativity, and Productive Paranoia. Today we will be taking a look at Empirical Creativity.

Empirical Creativity

“Social psychology research indicates that at times of uncertainty, most people look to other people – authority figures, peers, group norms – for their primary cues about how to proceed. 10Xers, in contrast, do not look to conventional wisdom to set their course during times of uncertainty, nor do they primarily look to what other people do, or to what pundits and experts say they should do. They look primarily to empirical evidence.” (pg. 25 – Great by Choice)

Empirical Evidence is the knowledge received by means of the senses, particularly by observation and experimentation, per Wikipedia. In other words, you have to see it (or do it) to believe it. This doesn’t mean this is the primary way that 10Xers make all of their decisions – it’s impossible to see or do everything at once – but it plays a big role in how they plot their path forward.

The mantra of this methodology is “fire bullets, then cannonballs”. Imagine a battle at sea: your ship is facing off against the enemy’s vessel, and it’s a battle of survival. You’ve heard that a cannonball could end this battle before it even starts, so you load up your cannon and pour in your gunpowder… and miss. Oops! While you’re trying to reload, you hear the terrible sound of wood splintering. You’ve been hit. Now rewind: Before shooting your cannonball, you take a couple test shots with bullets for your angle. First shot, twenty degrees too high. Second, ten degrees. Third? It’s a hit. You load your cannon and aim at about the same angle as that last shot, and next thing you know, you’re making it back to shore.

The goal is to learn what works for YOU. You have to make the observations, you have to get creative with what you find. Looking at general data isn’t going to lead you to 10X success. This can lead to you firing your cannonball too early. You need to fire a few bullets before you make your next big shot. But here we are just talking about metaphors. What exactly is a bullet for your business?

A bullet is an empirical test that will help you learn what works in your business and within your industry. Bullets have the following characteristics:

• A bullet is low cost. This means different things for different companies. In fact, this could mean different things to your business as you continue to grow. Adjust accordingly, but keep your costs down.
• A bullet is low risk. This means you can afford to miss with this bullet. That doesn’t mean that you’re looking for a high success rate. You’re testing to find a cannonball with a high success rate. Don’t be afraid to miss, just make sure it won’t sink you on accident.
• A bullet is low distraction. We’re only talking about the whole company here. There is a high chance that this bullet will be a large distraction for a select few. Just make sure it stays in the hands of those that are directly involved, until it’s ready to be embraced company-wide.

In the case of Biomet (one of the studied 10X companies), they used a combination of internal creative bullets, through testing new ideas in multiple ways to see where they would concentrate their resources, as well as bullet-level acquisitions. The thing is, they only pursued acquisitions under strict circumstances. They wanted to explore new markets, technologies, and niches, but made sure their acquisitions would be made with little or no debt, and only when the balance sheet would remain strong after the purchase. These self-regulations kept their tests at the bullet level, and then they worked each idea and acquisition until they found their next cannonball. What happened next? 10X success.

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You can find our last post in the Great by Choice series here: Fanatic Discipline (20 Mile March)

These ideas have been major philosophies of our business, and we hope it has given you productive ideas for yours. We’ve worked with a lot of companies over the years who are on the journey to become Great by Choice. We’ve helped businesses finance equipment to free up their monthly cash flow to pursue their business bullets, and continue to be a part of companies’ 20 Mile Marches. Maybe the ideas in this series were valuable enough, and if that’s true, thanks for stopping by, but if we can help assist you, feel free to give us a call! We’re more than your commercial lender, we’re your partner in business.

Brian Soetaert

bsoetaert@slsfinancial.com

816.587.7375