Great by Choice: Leading Above the Death Line
Cameron RiceNathan SmithIan Goldberg
Michael Medford
Introduction to Productive Paranoia Productive Paranoia 1 Productive Paranoia 2 Productive Paranoia 3 Closing and Key Points
Overview
May 8, 1996, David Breashears looks down from Camp III nearly atop Mt. Everest
Noticed below a small group led by guides Rob Hall and Scott Fischer heading up the Mt.
Conditions didn’t feel right so Breashears and group asked themselves, what if?◦ What if it was too crowded, what if the weather forced
them to stop, what if a bottleneck forms forcing them to turn around?
Group led by two guides suffered in part of the greatest disaster in Everest history
What if?
Two sets of team leaders on the same day, on the same mountain, both feeling business pressures and tremendous experience, why does one lead his team to 10x success?
The most important decisions were made months before they were even on the mountain◦ Breashears prepared bringing excess rations and planned for
every possible situation
Build buffers and shock absorbers far beyond the norm of what others do
Separating 10x Companies
Expect conditions to unexpectedly change, violently and fast
By asking “What if”, you can prepare ahead of time◦ Build Reserves◦ Irrationally large margins of safety◦ Bounding risk◦ Hone disciplines in good times and bad◦ Handle disruptions with strength and flexibility
“The only mistakes you can learn from, are the ones you survive.”
10x Companies Lead with Productive Paranoia
“Its what you do before the storm comes.” David Breashear’s Intel is like climbing
Everest with an Imax camera Cash reserves and conservative balance
sheets are like extra oxygen containers. The world is not stable, predictable, or safe.
Productive Paranoia 1
Journal of Financial Economics analyzed 87,000+ companies
10x companies◦ Cash-to-asset ratio◦ Cash-to liabilities ratio
Shock absorbers and financial buffers
Systematic Analysis
Term created by Nassim Nicholas Taleb All 10x companies must learn to act
paranoid about the future regardless of how well there current performance is.
Remain conservative.
Black Swan
1991, Herb Kelleher explains why his balance sheet is so conservative.
“As long as we never forget the strengths that enable us to endure and grow in the midst of catastrophe; as long as we remember that such economic catastrophes recur regularly; and as long as we never foolishly dissipate our basic strengths through shortsightedness, selfishness, or pettiness, we will continue to endure’ we will continue to grow; and we will continue to prosper.”
Southwest does it right
9/11 All other airlines cut operations; SW did not
cut a single job or a single flight. In fact Southwest was the only airline that
turned a profit in 2001 & 2002! In 2002 they opened more locations and
achieved greater market cap than everyone else.
10 years later…
After these events Herb was asked by the media for a response and as he choked on his own tears unable to finish his own sentences he said, “You can attack us, but not beat us; you can try to destroy our freedom, but you’ll only make us stronger; you can inflict horror, but you cannot make us terrified. We will Fly!”
Herb Kelleher’s humbleness
Do 10Xers achieve outsized success simply because they took more risk?
Productive Paranoia 2: Bounding Risk
3 Categories of Risk for enterprises◦ Death Line Risk◦ Asymmetric Risk◦ Uncontrollable Risk
10Xers avoid these risks
Productive Paranoia 2: Bounding Risk
Type of Decision 10X Companies Comparison Companies
Number of Decisions Analyzed
59 55
Decisions Involving Death Line Risk
10% of Decisions 36% of decisions
Death Line Risk
Type of Decision Made 10X Companies Comparison Companies
Number of Decisions Analyzed
59 55
Decisions Involving Asymmetric Risk
15% of Decisions 36% Decisions
Asymmetric Risk
Type of Decisions Made
10X Companies Comparison Companies
Number of Decisions Analyzed
59 55
Decisions Involving Uncontrollable Risk
42% of Decisions 73% of Decisions
Uncontrollable Risk
Time-based risk
Productive Paranoia 2: Bounding Risk
Behaviors that correlate with successful outcomes:◦ Hyper vigilance◦ Adjustment of decision speed◦ Make deliberate, fact-driven decisions◦ Superb execution once decisions are made
Productive Paranoia 2: Bounding Risk
Behaviors that correlate with unsuccessful outcomes:◦ Arrogance◦ Failure to adjust decision speed◦ Reactive, impulsive decisions◦ Failure to increase intensity
Ensure superb execution
Productive Paranoia 2: Bounding Risk
Zoom out, then Zoom in
http://www.youtube.com/watch?v=Ahg6qcgoay4
Productive Paranoia 3
Only 50 percent of people notice the gorilla Focused on counting Spend most our lives dealing with what is
right in front of us 10X leaders don’t miss the gorilla,
especially if it’s a dangerous threat
Productive Paranoia 3
Captures essential manifestation of productive paranoia
Dual-lens capability 10X leaders remain obsessively focused on
their objectives and their environment Push for perfect execution and adjust to
changing conditions They count the passes AND see the gorilla
Zoom out, then Zoom in
Zoom out◦ Sense change in conditions◦ Assess time frame: How much time before the risk profile
changes?Assess with rigor: Do the new conditions call for disrupting plans? If so, how?
Zoom in◦ Focus on supreme of plans and objectives
Zoom out, then Zoom in
Motorola began to pull ahead of Intel in “design wins”
Could become the standard and could make it difficult to move forward
Zoomed out: Developed a new strategy Zoomed in: In a week, formed team and
traveled across the globe ◦ Turned the tide and gained 2,000 design victories
Motorola vs. Intel
Despite being fast paced, remained calm and clearheaded
Formulated smart strategy 10X teams don’t freeze up or react
immediately Think first, even when they need to think
fast Even 10X companies don’t have a perfect
record
Motorola vs. Intel
Fast moving threats does not mean to abandon disciplined thoughts and disciplined actions
Do not panic Think first, and respond fast enough
Productive Paranoia 3
Build Cash Reserves and Buffers: to prepare for unexpected events and bad luck before they happen
Bound Risk: Manage time based risk Zoom Out, then Zoom In: Remain hyper
vigilant to sense changing time-based risk
Key Points