Great by Choice summary

The future is unknown. No one can accurately predict what will happen in the coming months let alone years or decades.

Yet, in these uncertain environments some companies not only survive, but thrive. To understand why, we need only to analyze the practices of the so-called 10X companies: highly successful companies that outperformed their industry average by at least a factor of ten.

Roald Amundsen trekked to the South Pole in an extremely disciplined manner. Every day he marched a similar distance, about 15.5 miles, no matter what the conditions. When the weather and terrain were favorable, he would march this set distance and then stop and rest, even when the team could go further. Conserving energy in this way meant that even when the weather or terrain became difficult, his team was strong enough to march on and hit their target distance. His policy enabled the expedition to maintain a steady pace.

This approach to achieving success is known as Twenty-Mile Marching, and it is one of the strategies that allows 10X companies to thrive in uncertain times. First, the marker by which success will be measured is identified. While Amundsen had his daily distance, companies use longer-term markers like an annual growth percentage or a certain level of innovation. They will then drive themselves to reach this target consistently through both good and bad times.

10X companies are fiercely independent in their decision making and creative output. Some 10Xers like Apple become famous for their constant innovation, and many analysts believe that this boldness in innovation is the key to these companies’ success.

To a certain extent, this is true; however, 10Xers are not innovative just for the sake of it. They do not take foolhardy risks by launching innovative, ground-breaking products without first understanding their potential for success. They first gather all manner of empirical evidence to build a deep and thorough understanding of the marketplace, and then adjust the direction of their innovations to take advantage of opportunities.

There is a common misconception that in a constantly changing environment, the most innovative companies are also the most successful. In reality, innovation alone is no guarantee of success.

Of course, every company must innovate to a certain degree, and every industry has an innovation threshold:a level of innovation firms must meet to avoid being left behind by their competitors. This threshold is higher in some industries than in others. The information-technology industry, for example, has a relatively high innovation threshold. Products become obsolete quickly, so companies must innovate constantly to stay competitive. The airline industry, on the other hand, has a low innovation threshold; there is no need to come up with a new way to fly every month.

10Xers are never comfortable; they are always worried about the future. Even in successful periods, they are always asking themselves, “What if things in my industry change?” “How will my company cope?” and “Where will my next rival come from?” They then put this paranoia to productive use by using it to ensure they are prepared for any situation.

One way 10Xers prepare for difficult times is by hoarding huge reserves of cash. On average, their ratio of cash to assets is three to ten times higher than their competitors.

In 1979, the US airline industry was deregulated, allowing new airlines to be created and therefore increasing competition. In response to this the CEO of Southwest Airlines, a 10X company, issued a list of ten operating procedures to help the company succeed in the changing environment. This list contained a series of commandments such as “Use 737 aircraft” and “Stay out of food services” for the company to follow.

The list proved so successful that over the next quarter of century, 80% of the commandments remained the same. Despite all the changes in the highly volatile airline industry, only 20% of the operating procedures were changed. This gave the company the consistency and clarity it needed to succeed year after year.

There is a worrying trend in modern society which suggests that success is largely the result of luck or circumstance. The notion is that the success of society’s great leaders and companies has less to do with their attitude or tactics than with them just happening to be in the right place at the right time.

Yet the truly great reject this notion. They know that they receive the same amount of luck as everyone else; rather, it is a mixture of hard work and ambition that makes them stand out from the crowd. For 10X leaders, it’s about getting the best return on their luck by ensuring that they make the most of any opportunity that comes their way.