It’s been a while since I’ve done a book review. The last one, “The Hard Thing About Hard Things,” can be found here.

I’m consolidating notes for a new business publication I’m doing and “Great By Choice” consumed a big part of my research. I wanted to share the notes with you here.

The last 6 months have contained big updates for me — both personally, and professionally. I find myself doing a lot more writing than before, and will have my new book “Good At Consulting” finished hopefully by Christmas.

There are many opportunities and projects, but the catch is not taking on too much, too soon. Collins has studied some of the greatest businesses in history and presents a lot of interesting study around “focus,” diligence, and the road to both growth & failure.

Enjoy the notes :-)

• Discipline, in essence, is consistency of action—consistency with values, consistency with long-term goals, consistency with performance standards, consistency of method, consistency over time.

• True discipline requires the independence of mind to reject pressures to conform in ways incompatible with values, performance standards, and long-term aspirations.

• The 10Xers did not generally make bolder moves than their less successful comparisons; both groups made big bets and, when needed, took dramatic action. Nor did the 10Xers exude more raw confidence than the comparison leaders; indeed, the comparison leaders were often brazenly self-confident. But the 10Xers had a much deeper empirical foundation for their decisions and actions, which gave them well-founded confidence and bounded their risk.

• Microsoft should have enough cash on hand to go a year—an entire year!—without a penny of revenues. “Fear should guide you, but it should be latent,” Gates said in 1994. “I consider failure on a regular basis.”

• He hung a photograph of Henry Ford in his office, to remind himself that even the greatest entrepreneurial successes can be passed by, as Ford had been passed by GM in the early history of the auto industry.

• 10Xers differ from their less successful comparisons in how they maintain hyper-vigilance in good times as well as bad. Even in calm, clear, positive conditions, 10Xers constantly consider the possibility that events could turn against them at any moment. Indeed, they believe that conditions will—absolutely, with 100 percent certainty—turn against them without warning, at some unpredictable point in time, at some highly inconvenient moment. And they’d better be prepared.

• Every 10Xer we studied aimed for much more than just “becoming successful.” They didn’t define themselves by money. They didn’t define themselves by fame. They didn’t define themselves by power. They defined themselves by impact and contribution and purpose.

• Clear-eyed and stoic, 10Xers accept, without complaint, that they face forces beyond their control, that they cannot accurately predict events, and that nothing is certain; yet they utterly reject the idea that luck, chaos, or any other external factor will determine whether they succeed or fail.

• Fanatic discipline is not the same as regimentation, measurement, obedience to authority, adherence to social stricture, or compliance with bureaucratic rules. True discipline requires mental independence, and an ability to remain consistent in the face of herd instinct and social pressures. Fanatic discipline often means being a nonconformist.

• The 20 Mile March is more than a philosophy. It’s about having concrete, clear, intelligent, and rigorously pursued performance mechanisms that keep you on track. The 20 Mile March creates two types of self-imposed discomfort: (1) the discomfort of unwavering commitment to high performance in difficult conditions, and (2) the discomfort of holding back in good conditions.

• Equally important, Southwest had the discipline to hold back in good times so as not to extend beyond its ability to preserve profitability and the Southwest culture. It didn’t expand outside Texas until nearly eight years after starting service, making a small jump to New Orleans. Southwest moved outward from Texas in deliberate steps—Oklahoma City, Tulsa, Albuquerque, Phoenix, Los Angeles—and didn’t reach the eastern seaboard until almost a quarter of a century after its founding. In 1996, more than a hundred cities clamored for Southwest service. And how many cities did Southwest open that year? Four.

• Progressive Insurance should grow only at a rate at which it could still sustain exemplary customer service and achieve a profitable “combined ratio” averaging 96 percent. What does a combined ratio of 96 percent mean? If you sell $100 of insurance, you should need to pay out no more than $96 in losses plus overhead combined.

• If you deplete your resources, run yourself to exhaustion, and then get caught at the wrong moment by an external shock, you can be in serious trouble. By sticking with your 20 Mile March, you reduce the chances of getting crippled by a big, unexpected shock. Every 10X winner pulled further ahead of its less successful comparison company during turbulent times. Ferocious instability favors the 20 Mile Marchers. This is when they really shine.

• You can get away with failing to 20 Mile March in stable times for a while, but doing so leaves you weak and undisciplined, and therefore exposed when unstable times come. And they will always come.

• Financial markets are out of your control. Customers are out of your control. Earthquakes are out of your control. Global competition is out of your control. Technological change is out of your control. Most everything is ultimately out of your control. But when you 20 Mile March, you have a tangible point of focus that keeps you and your team moving forward, despite confusion, uncertainty, and even chaos.

• “The only way we’re going to get to where we want to be in five years is to make incremental progress year by year…We’ve got to get 20% of the way there every year. We can’t do 2% in year one, two, three and four, and 92% of it in year five. It will never happen that way.”

• There’s an inverse correlation between pursuit of maximum growth and 10X success.

• In contrast, Leon Hirsch at comparison case USSC piled breakthrough upon breakthrough, with new products that revolutionized surgical practice such as absorbable surgical staples and special devices for minimally invasive procedures, building a reputation among business analysts as the most innovative leader in its product categories. Investor’s Business Daily remarked, “That’s how [USSC] kept the competition at bay—by out-innovating them.” Yet Stryker—stepping along one fad behind—trounced USSC in long-term performance.

• Gillette didn’t pioneer the safety razor; Star did. Polaroid didn’t pioneer the instant camera; Dubroni did. Microsoft didn’t pioneer the personal computer spreadsheet; VisiCorp did. Amazon didn’t pioneer online bookselling and AOL didn’t pioneer online Internet service.

• It seems that pioneering innovation is good for society but statistically lethal for the individual pioneer!

• Every company in this study innovated. It’s just that the 10X winners innovated less than we would have expected relative to their industries and relative to their comparison cases; they were innovative enough to be successful but generally not the most innovative.

• Intel’s founders believed that innovation without discipline leads to disaster.

• “What Intel needed going forward was not the courage to take great leaps ahead but the discipline to take orderly steps in a controlled fashion.”

• Grove sought to pattern Intel not after an advanced R&D lab but—of all companies—McDonalds, keeping a hamburger box on his desk with a mock logo, McIntel.

• Gates was smart enough to know that he wasn’t smart enough to predict with certainty what would actually happen to OS/2.

• What did Jobs first do to get Apple back on track? Not the iPod, not iTunes, not the iPhone, not the iPad. First, he increased discipline. That’s right, discipline, for without discipline there’d be no chance to do creative work. He brought in Tim Cook, a world-class supply-chain expert, and together Jobs and Cook formed a perfect yin-yang team of creativity and discipline. They cut perks, stopped funding the corporate sabbatical program, improved operating efficiency, lowered overall cost structure, and got people focused on the intense “work all day and all of the night” ethos that’d characterized Apple in its early years. Overhead costs fell.

• Greatness requires the Churchillian resolve to never give in, but it also requires having the reserves to endure staggering defeats, bad luck, calamity, chaos, and disruption. In a stable and predictable world, leading with fanatic discipline and empirical creativity might be enough; but uncertainty and instability also require leading with productive paranoia, the subject of our next chapter.

• A bullet is a low-cost, low-risk, and low-distraction test or experiment. 10Xers use bullets to empirically validate what will actually work. Based on that empirical validation, they then concentrate their resources to fire a cannonball, enabling large returns from concentrated bets.

• The 10X winners were not always more innovative than the comparison cases. In some matched pairs, the 10X cases proved to be less innovative than their comparison cases.

• The 10X winners in our research always assumed that conditions can—and often do—unexpectedly change, violently and fast. They were hypersensitive to changing conditions, continually asking, “What if?” By preparing ahead of time, building reserves, maintaining “irrationally” large margins of safety, bounding their risk, and honing their disciplines in good times and bad, they handled disruptions from a position of strength and flexibility. They understood, deeply: the only mistakes you can learn from are the ones you survive.

• Productive Paranoia 1: Build cash reserves and buffers—oxygen canisters—to prepare for unexpected events and bad luck before they happen. Productive Paranoia 2: Bound risk—Death Line risk, asymmetric risk, and uncontrollable risk—and manage time-based risk. Productive Paranoia 3: Zoom out, then zoom in, remaining hypervigilant to sense changing conditions and respond effectively.

• Financial theory says that leaders who hoard cash in their companies are irresponsible in their deployment of capital. In a stable, predictable, and safe world, the theory might hold; but the world is not stable, predictable, or safe. And it never will be.

• Compared to the median cash-to-assets ratio for 87,117 companies analyzed in the Journal of Financial Economics, the 10X companies carried 3 to 10 times the ratio of cash to assets. When it comes to building financial buffers and shock absorbers, the 10X cases were paranoid, neurotic freaks!

• 10Xers remain productively paranoid in good times, recognizing that it’s what they do before the storm comes that matters most. Since it’s impossible to consistently predict specific disruptive events, they systematically build buffers and shock absorbers for dealing with unexpected events. They put in place their extra oxygen canisters long before they’re hit with a storm.

• Southwest achieved all this despite what it called “the potentially devastating hammer blow of September 11” because, in its own words from its 2001 annual report, “Our philosophy of managing in good times so as to do well in bad times proved a marvelous prophylactic.”

• On 9/11, Southwest had $1 billion in cash on hand and the highest credit rating in the industry.

• When a calamitous event clobbers an industry or the overall economy, companies fall into one of three categories: those that pull ahead, those that fall behind, and those that die. The disruption itself does not determine your category. You do.

• Sometimes acting too fast increases risk. Sometimes acting too slow increases risk. The critical question is, “How much time before your risk profile changes?” Do you have seconds? Minutes? Hours? Days? Weeks? Months? Years? Decades? The primary difficulty lies not in answering the question but in having the presence of mind to ask the question.

• One of the most dangerous false beliefs is that faster is always better, that the fast always beat the slow, that you are either the quick or the dead. Sometimes the quick are the dead.

• 10Xers distinguish themselves by an ability to recognize defining moments that call for disrupting their plans, changing the focus of their intensity, and/or rearranging their agenda, because of opportunity or peril, or both.

• Have at least one new business or service experiment under way yet keep any new business to less than 5% of total revenues until it demonstrates sustained profitability.

• Conventional wisdom says that change is hard. But if change is so difficult, why do we see more evidence of radical change in the less successful comparison cases? Because change is not the most difficult part. Far more difficult than implementing change is figuring out what works, understanding why it works, grasping when to change, and knowing when not to.

• If you really want to become mediocre or get yourself killed in a turbulent environment, you want to be changing, morphing, leaping, and transforming yourself all the time and in reaction to everything that hits you. We’ve found in all our research studies that the signature of mediocrity is not an unwillingness to change; the signature of mediocrity is chronic inconsistency.

• 10Xers are truly obsessed, driven people. It’s just that they accomplish their huge goals by adhering with great discipline to what they know works while simultaneously worrying—for they always worry—about what might no longer work in a changing environment. When conditions truly call for a change, they respond by amending the recipe.

• Do not attack a fortified hill; avoid markets with powerful, entrenched competitors.

• Practice constructive confrontation. Argue and debate regardless of rank, and then commit once a decision is made—disagree and commit.

• In a great twist of irony, those who bring about the most significant change in the world, those who have the largest impact on the economy and society, are themselves enormously consistent in their approach. They aren’t dogmatic or rigid; they’re disciplined.

• Far more difficult than implementing change is figuring out what works, understanding why it works, grasping when to change, and knowing when not to.

• 10Xers won not because they had better early advantages or superior early luck. As a general rule, they had neither.

• Adding up all the evidence, we found that the 10X cases were not generally luckier than the comparison cases. The 10X cases and the comparisons both got luck, good and bad, in comparable amounts. The evidence leads us to conclude that luck does not cause 10X success. People do. The critical question is not “Are you lucky?” but “Do you get a high return on luck?”

• Getting a high return on luck requires throwing yourself at the luck event with ferocious intensity, disrupting your life, and not letting up. Bill Gates didn’t just get a lucky break and cash in his chips. He kept pushing, driving, working—staying on a 20 Mile March; firing bullets, then big calibrated cannonballs; exercising productive paranoia to avoid the Death Line; developing and amending a SMaC recipe; hiring great people; building a culture of discipline; never deviating from his monomaniacal focus—and sustained his efforts for more than two decades. That’s not luck; that’s return on luck.

• The AMD story illustrates a common pattern we observed in the comparison companies during their respective eras of analysis, the squandering of good luck. When the time came to execute on their good fortune, they stumbled. They didn’t fail for lack of good luck; they failed for lack of superb execution.

• In 1987, the year before Proposition 103, Progressive ranked #13 in the American private-passenger auto-insurance market; by 2002, it reached #4. Resilience, not luck, is the signature of greatness.

• If we all get some combination of both heads (lucky flips) and tails (unlucky flips), and if the ratio of heads to tails tends to even out over time, we need to be skilled, strong, prepared, and resilient to endure the bad luck long enough to eventually get good luck.

• The essence of “managing luck” involves four things: (1) cultivating the ability to zoom out to recognize luck when it happens, (2) developing the wisdom to see when, and when not, to let luck disrupt your plans, (3) being sufficiently well-prepared to endure an inevitable spate of bad luck, and (4) creating a positive return on luck—both good luck and bad—when it comes. Luck is not a strategy, but getting a positive return on luck is.

• Leaders with fanatic discipline, empirical creativity, productive paranoia, and Level 5 ambition never relax when blessed with good luck. They never wallow in despair when hit with bad luck. They keep pushing, driving for the overall goal and cause.

• A 10Xer builds a culture that can achieve results whether it gets good luck or bad, engendering deep confidence that success, in the end, doesn’t depend upon luck.

• The best leaders we’ve studied maintain a paradoxical relationship to luck. On the one hand, they credit good luck in retrospect for having played a role in their achievements, despite the undeniable fact that others were just as lucky. On the other hand, they don’t blame bad luck for failures, and they hold only themselves responsible if they fail to turn their luck into great results.

• The best way to find a strong current of good luck is to swim with great people, and to build deep and enduring relationships with people for whom you’d risk your life and who’d risk their lives for you.

• Greatness is not primarily a matter of circumstance; greatness is first and foremost a matter of conscious choice and discipline.

• The greatest leaders we’ve studied throughout all our research cared as much about values as victory, as much about purpose as profit, as much about being useful as being successful.

• Time magazine wrote of Southwest Airlines in 2002, “The airline received 200,000 resumes last year but hired only 6,000 workers—making it more selective than Harvard.”

• We found in the Built to Last study that leaders of enduring great companies are comfortable with paradox, having the ability to embrace two opposed ideas in the mind at the same time.

• More than any of our prior research, this study shows that whether we prevail or fail, endure or die, depends more upon what we do than on what the world does to us. We take particular solace from the fact that every 10Xer made mistakes, even some very big mistakes, yet was able to self-correct, survive, and build greatness.

Enjoy the week!

Taylor