The Exchanges

Q One more question about leadership because I just can't help myself, but like how much of leadership do you think is contextual or as somebody we think of as an exemplary leader in one situation would be, uh, mediocre or below in another situation?

A So, obviously, there's a contextual element to everything, and I think that's something you talked earlier about, about even decision-making, is this idea that there isn't kind of an isolated, perfect universe. We don't live on a Euclidean grid, and, and there's context, and there's certainly social context. Uh, we know from social psychology that, you know, almost everything is, is affected by social context, and, you You never know how you're going to behave, how you're going to react in any given situation until you're there, and that's why we should always be very humble about our own sense of ourselves, knowing that we'll always act in a certain way, because you actually don't know under certain pressures, so you should be very humble about that. So context matters a lot. That said, I think what the evidence very clearly shows me is that I can see leaders who learn how to be effective Across very different kinds of contexts. And so, for example, uh, let's take Eisenhower. Phenomenal example. You're supreme commander of allied forces. Before that, you were relatively undistinguished major. You were brought up by General Marshall and so forth. But, you know, being a five-star, which there have only been five five-star generals, I believe, in the history of the U.S. military, but being a five-star general is a very different leadership context than being president in a politi…

AI assessment note: “So context matters a lot. That said, I think what the evidence very clearly shows”

Q Oh, that's really interesting. I hadn't really thought about it in, in that sense. I like that a lot. Um, how do we harness luck then, I guess? What can we do to, to better capitalize on our return on luck?

A Uh, the, the first thing is we'll go back to the flywheel principle. Again, let's take the building of Microsoft as a really good example of this. There was a lock of it. No question, right? And then they got a really high return. The other company could have had that luck event, too. Didn't grab it. But then, what was the capitalizing? Once you grab that luck event, you get building it. It wasn't like, oh, great. Touchdown. We won. We're successful. What happens over the next 20 years is recognizing that there's a flywheel effect that has to do with standards and so forth, and really building that out, and And really doubling down on it, sticking with it consistently, and early on, the early versions of Windows, early turns on that flywheel, were not, some people even laughed at them, but they stayed on it.

AI assessment note: “Once you grab that luck event, you get building it.”

Q that's the patterns that you learn as children, and then at some point you take over your life, and you get to choose Your habits and patterns. Whether you recognize it or not, you can take control. You can pick your own personal board of directors. You can pick your mentors. And we can choose to have the best mentors from history. What's the approach to pick the right ones?

A First, in, in, in my own case, I had to start choosing early. I think my initial choosing was to get away, to, to not have to depend on something like an undependable father. I mean, no one in my family gave me guidance about where or what I should do or how I should think about things. So I think this question of sort of self-direction and self-choice and self-molding for me started, actually, I was 13 or something probably when it was really conscious that it really began. And there were some pivotal moments in that for me where I just like, I'm just going to do this. This is what I'm going to do. But then, uh, when I, when I entered, uh, my twenties, uh, when I think about kind of choosing mentors and, and creating a father, I, I did, I did three things. The first was, I just made a simple goal. I'm gonna read a hundred biographies. And I figured that by reading a hundred biographies, uh, I would get a hundred lives. And those lives would teach me something. The beauty of biographies is you get an entire arc of people's lives, right? And so you don't just see them at moments or incidents. And I sat down, and one of the ones that shaped me a lot was, was, you know, Churchill's memoirs of the Second World War, 4996 pages, six volumes. It completely shaped the way that I think about how you guide through the tumultuous, horrendous times And, and I tried to, you know, take the b…

AI assessment note: “I made a simple goal. I'm gonna read a hundred biographies.”

Q Well, let's talk about Amazon for a second, because they, they invited you out, right? Like Jeff invited you out to Amazon, I think it was in Tell me about that conversation and sort of like, cause you were talking flywheels with them.

A Yeah, so what, what happened is, and I, and I want to be really clear as I started as I, I can take virtually zero credit for anything that Amazon has done spectacularly well, and I don't want to imply that I can. I'm a teacher at heart, and who likes to understand things and to share them, uh, so that people come away with their minds changed in, in a way that's permanent and durable with ideas. And the broad sort of scope of those ideas have been around this question of what makes great companies tick. So it done built to last with Jerry, and where we looked at companies that had sort of gone from startup to this sort of visionary, iconic, enduring status, in contrast to others that could have and didn't. And then we did the good to great study, which is, takes companies that are average performers, and then one breaks through and makes a good to great leap, and the comparison company doesn't. And we asked what was different, and from those we derived the ideas, some of the ones I've already led up partway through the framework earlier in our conversation, up to the flywheel part. So after Good to Great came out, I was invited up to Amazon. I don't even remember who it was specifically that asked me to go up there, but I went up and I met with, uh, the executive team, and I believe the board and stuff like that. But all I did was teach. Didn't tell them what to do, didn't giv…

AI assessment note: “I went up and I met with, uh, the executive team”

Q you spent with us and our listeners, is given what you've studied about leadership and people, and this is going to be a big sort of like hairy open-ended question, um, but you've spent more time thinking about this and you've spent more time with leaders than probably anybody I know and diving into the research. How do we develop Not only young leaders, but how do we develop leaders?

A First of all, I, I, I've learned a great deal about how it is entirely possible to build leaders, and let me just go to the experience, an experience I had that had a profound impact on my thinking about this. For 2012 and 20 13, I had the, it was a real honor to, uh, serve as the class of 1951 chair for the study of leadership at the United States Military Academy at West Point. And I did not come from a military background originally, but I always believed That I owe something to my country, and I didn't serve when I was younger. When the opportunity came, they have this chair, it rotates every two years, sometimes they have like a former general officer in the chair, sometimes they have somebody from the non-military world, such as myself, who holds it for two years, and you can do anything you really want with this chair, including interacting a lot with cadets and faculty at this storied place called West Point. And I learned a huge amount in the West Point journey. Uh, for example, I came to the conclusion that my West Point cadets were, in a general, happier than my Stanford MBA students that I taught, and I think that we just, it was really interesting. I think it has to do with the fact that they're, they're in an ethic of service that's immense, that it's communal success. You never succeed alone, and they know that, and you succeed by helping each other. And the whol…

AI assessment note: “you learn how to get through by growing from your failures”

Q When I was doing research for this, I came across An anecdote where Steve Jobs helped you prepare for class at Stanford University. Can you expand on that? Like, I thought that would be a good place to, like, kick this off.

A Well, sure, and, uh, tell you what, actually, um, uh, I'll begin there, and then as we kind of tilt back, I'd love to ask you a couple of questions, just things that have been provoked in my mind as I've enjoyed learning from, uh, the classroom that you've Created with your marvelous guests of a couple things that occurred to me. I'd love to ask you, uh, the, the story with, uh, with Steve Jobs. So I had the great, really privilege when I was only 30 years old, uh, to begin teaching a course on entrepreneurship and small business at the Stanford Graduate School of Business. And I had a great mentor. One of the things I believe in is you get not just luck in life, but who luck, And a little bit later, by the way, I hope we circle back to the question of luck, because we actually systematically studied and quantified its role in our research in one of our studies, and I think that we ought to, ought to hit that. But people think about luck as kind of what luck. And, um, I've had great who luck in my life. And, uh, who luck is when you come across somebody who changes your trajectory or invests in you, bets on you, uh, gives you guidance at key points. So I had a great mentor named Bill Azir. Who, uh, was a professor of mine, uh, when I was a graduate student at Stanford, and who then went back for me with, uh, with the deans to get me to teach, uh, this entrepreneurship and small…

AI assessment note: “And that leads me to why I ended up calling, uh, Steve Jobs.”

Q said about Ambiguity aversion. That makes me think of one of the reasons that we have all these procedures and organizations is because we want to avoid ambiguity. If we follow the procedure, we're always right. We don't have to exercise a ton of judgment. Even if the outcome is wrong, we did what we were supposed to do. We can't get in trouble. What do you think of that?

A So, so on the one hand, Um, in order to really build and make a flywheel go really far, you need to have some replicable recipes that you're going to be staying with more or less for quite some time. If you take, for example, you know, Southwest Airlines, which amazingly became the best performing stock over a 30 year period from 1972 to 2002 startup company, three airplanes, and they originally copied their recipe from Pacific Southwest Airlines. It's actually an amazing startup story because you're, you're back in the late 19 sixties, early 19 seventies. And, uh, their original business plan was copy PSA in Texas. PSA was Pacific Southwest Airlines. They were based in California. People who from that era may remember the, the air, the company that had the planes that were the sort of point-to-point commuter planes that had little smiley faces on the bottom, you know, on the front part of the, uh, of the fuselage. It made it look like a smiley face in the sky. That was PSA. And Southwest Airlines, uh, basically flew out there and copied their model and took it back to Texas. And this was pre-deregulation, so PSA You know, gladly shared with them how they do things, so much so that, in fact, have you ever wondered why Southwest Airlines is called Southwest Airlines based in Texas? Well, you know, if you, if you basically have the entire recipe and all you do is cross out the wo…

AI assessment note: “in order to really build and make a flywheel go really far, you need”

Q said you're at the midpoint in your career, and you've spent some time consolidating it onto a map, and I think we've covered, you know, a large part of that map on last time we were on the podcast, but last, one thing we didn't hit on was the Stockdale paradox, and I think that's critically important to think about right now. What is it, and why is it important?

A Admiral Jim Stockdale. He, he was the highest ranking naval, uh, officer in the Hanoi Hilton prisoner of war camp, um, in North Vietnam. He was, uh, shot down in the late 19 sixties, and he spent, uh, seven years in the camp, and he had leadership responsibility as that officer, uh, in the camp. I had the tremendous privilege, ah, to get to know Admiral Stockdale a bit when he was studying stoic philosophy across the street at the Hoover Institute, and I was teaching my entrepreneurship and small business class across the street at the Stanford Business School. Through a, ah, a student who had actually written a paper on Stockdale kind of led to me having this chance to have this really life-changing conversation with Admiral Stockdale. We were going to go for a walk on the Stanford campus and have lunch together and talk about whatever. In preparation for that, I, I read his book, In Love and War, which is alternating chapters, uh, written by himself and his wife about his years in the camp. And I, I found myself, as I began to read the book, felt like this sort of cold, penetrating mist was coming in, and I began to feel this encroaching sense of just despair. And because what, what, it wasn't just the, the, the horror of what he lived through, right? I mean, he can take you out and torture you at any time, and they would do that, or put you in leg irons, they would do that, …

AI assessment note: “He was the highest ranking naval officer in the Hanoi Hilton prisoner of war camp”

Q That's an incredible story. Are there any other lessons that you sort of draw from this arc of Steve Jobs?

A One of the things that we have, we've often been asked, and I've been asked a lot, is can somebody grow to become a level five leader? And the level five leader is an idea that came out of the good to great research, which essentially asks the question, can a good company become a great company, and if so, how? And how is it different than the comparison companies? And we have a research method behind everything that we do. But one of the really surprising findings from that research was that at those times of inflection, as a company navigated itself from kind of mediocrity to outstanding performance that lasted at least 15 years, that good to great inflection, we found that the, the companies that made that leap had what we call level five leaders, and the companies that were their direct comparisons, right, in the same time, same industry, same opportunities, same, same resources or a control set, Had what we ended up calling level four leaders, and one of the key insights from good to great was that the power of the level five over the level four, and the essence of the level five was this strange blend of kind of personal humility and indomitable will with ambition channeled into a cause that's bigger than you are, right? That that's what it's about, and that that's, that was different about the good great leaders than the comparisons. Well, People would often come back an…

AI assessment note: “what's really interesting about the arc of Steve Jobs is that I believe”

Q So how do we build this uncertainty muscle? Like how do we develop our ability to live with ambiguity? What are, What are the patterns to that? Like, how do we go about doing that?

A So I remember a student came to me once and said, you know, I, I hear what you say in your class, and you really are challenging us to go do something on our own and to create our own companies. And, you know, I understand that just because I want to be in business doesn't mean I have to work for Exxon or IBM or, you know, a hedge fund that's successful or whatever. Like, I could carve my own path and, uh, really, you know, do it my own way. But, you know, I, I just don't have the risk profile for doing, doing something entrepreneurial. And I said, um, Well, what's one of the first things you learn in investing? One of the first things you learn is, you know, don't put all your eggs in one basket, because that's high risk, right? Let me ask you a question. What's a job? It's all your eggs in one basket. You basically have made a highly undiversified portfolio bet. Oh, and by the way, you have very little control over it. You're exposed to, if it turns out that the people running the company are idiots, or they make really bad decisions, you've made a bad bet that other people are making bad decisions that are affecting your bet. And so in an entrepreneurial world, there's risks, but maybe they're more clear, right, what your risks are. There's this market risk, a finance risk. Inside organizations, there's this thing called political risks. Now, those of us who are not good at …

AI assessment note: “What's a job? It's all your eggs in one basket. You basically have made a highly undiversified portfolio bet.”

Q our transcript just lightly for decision making. There was no queries. I was like, oh my God, how could I have Jim Collins on the line for a few hours and not talk about decision making? So, well, why do so many executives suffer from indecision, but leaders who Build great companies don't seem to. How do we prevent analysis paralysis from sort of preventing us from making a decision?

A So we know quite a bit about this from our research. And just to review for, for everyone, maybe if you haven't heard the previous podcast, um, you know, our, our research method is we study the, uh, historic, we do match pair. We find pairs of companies that were in the same spot, same time, same resources, same potential that then, uh, had different trajectories. And then we study them in slices of history, uh, over time to try to really understand what What separated one from another, particularly during the era when one was great and the other was not. The key to that is historical, right? You try to go back in time. You don't, you don't read just later accounts of why, you know, Intel decided to do the one one Oh three memory chip. You have to try to go back and sort of see what did the world look like to the people at Intel when they were making that decision, right? So that you can then sort of follow through This iterative, uh, it's like an iterated movie, right? Watching through stuff. I say, okay, let's freeze frame here. Here they are in 1972. Here's the context. Here's the environment. And then you look over at the comparison company, and you say, what were they doing? They were looking at the same context, same environment. How did they make the decision different, et cetera? And then you, you replicate that, and you picture it, that, that if you, if you think abou…

AI assessment note: “So we know quite a bit about this from our research. And just to review”

Q so maybe that's a good segue to sort of talk about a little bit of luck. I mean, you had some who luck there. Part of your research is basically sort of like, how do we analyze luck? How do you, how do you think about that? And then also, uh, you have a concept of return on luck, and who luck, and like, let's explore luck a little further.

A I would love to, and because most people don't ever really want to talk about it, but I, I've noticed in your, in your interviews that the concept of luck has come up multiple times, and I'm also struck by the number of people that I've heard reference it, or you've referenced it in your podcast, so I thought this would be a great topic for us to spend a little time on, because we've actually done some systematic analysis of the question. So first of all, let's just complete the framework, uh, because it leads up to the return on luck question. So you have I mean, you know, the inputs and the outputs, and you had the disciplined people, level five leaders, first two right people on the bus, disciplined thought, genius at the end, confront the brutal facts, hedgehog concept, disciplined action, flywheel. We spent a lot of good time on the flywheel, real disciplined understanding into disciplined action, turn the flywheel, and the discipline to stay with the flywheel for long enough to get its compounding effect. And when the world thinks you're crazy, you still understand your flywheel. Then there's these other two parts we, we may or may not, I'd be happy to circle back to the Feed disruption, and the bulls and cannonballs, which is how you extend flywheels in a disciplined way over time. Then you go to the building greatness to last, and there's three components in that. There…

AI assessment note: “first of all, let's just complete the framework, uh, because it leads up”

Q think it's harder to fire the bullets and calibrate or is it harder to fire the cannonball? Like if you were looking at those as processes internally in an organization, which would you focus on in proportion to energy committed? Would it be fifty-fifty? Would it be 75% firing bullets versus 25% sort of like getting better at firing the cannonball after you've calibrated? How would you think about that?

A So sometimes I like to sort of describe things through the lens of a specific case. Let's take the iPod that went into the iPhone and so forth. This was a classic bullets to cannonballs move, and I could go through lots of them through our research. The microprocessor was a bullet to cannonball at Intel. We could take the move to mini mills of manufacturing steel at Nucor was a bullet to cannonball process, right? We could go through a variety of these cases just to illustrate how this works. You got Apple's got It's kind of original activities, which is in the Macintosh computer. Steve Jobs comes back in 1997. First thing he does is to basically try to re-induce some discipline, get costs under control, stop the bleeding, get the Macintosh line back into really good shape, and then to re, to pull out of the woodwork the people who still believed in the real dream that originally founded the company at Apple. And those, some of those people were still there and became the people on whom he could begin building. The next phase of Apple. So, 97 to 2000 to 2003 is make sure that we pay attention to what we have, make sure that the flywheel, as we understand it, is actually turning. Don't deviate from that. We got to really make the most of the Macintosh computer, right? So they did that. While they did that, uh, they were firing some bullets, and one of the bullets was around the …

AI assessment note: “describe things through the lens of a specific case. Let's take the iPod”

Q Yeah, let's do flywheels, and then luck. Can you explain the concept of a flywheel?

A Yeah. So, so let me just zoom out here for a moment, and just kind of, I mentioned earlier in the conversation, there's this method that goes, credit for the foundation of the contrast, and the method goes back to Jerry Porras. And then our, our historical methodology and having control and contrast in it. Why did some teams, some companies attain a superior result and others in the same circumstances, the best of our ability to control that did not. And then kind of in an epidemiological type style, essentially trying to figure that out. And what we found after 6000 years of combined corporate history of doing that across four major studies, uh, looking through different lenses at this question, uh, Kind of overall big question of what makes a great company tick through this rigorous research methodology. You zoom way out and you get a framework of principles. Now, so this is, and I would just want to, I want to quickly highlight a couple of aspects of this framework because it took nearly 30 years to get down to something that fits on a page, right? And I think that the more you get small from a lot of work, the better off you are. And I'll put the flywheel in that context. So let's stand back for a moment. Let's hang on and let's just take a look. Imagine if you're, you're asking the question, what makes a great company tick? First of all, you got to ask, what's a great comp…

AI assessment note: “let me just zoom out here for a moment”