BSML’s Summary of Principles from:


By Jim Collins and Morten T Hansen


From the BSML Business Wisdom Series


Jim Collins describes himself as a student of great companies. He is the co- author of the best sellers Good to Great and Built to Last and serves as a teacher to leaders throughout the corporate and social sectors.

Morten Hansen is a management professor at Berkley University and INSEAD. He was formerly a professor at Harvard Business School and consultant with Boston Consulting Group. He is the author of the book Collaboration.

The aim of Great by Choice is to understand “why some companies thrive in uncertainty, even chaos, and others do not”.

BSML’s intention in compiling this summary is to share the wisdom of these great researchers with our clients and prospective clients, to encourage them to read the full work, and to help them use its principles to improve management practices and business performance. We welcome your feedback.

Please feel free to share this document with your colleagues and business partners, who have an interest in the topic.

Nick Bentley, Managing Director, BSML


  1. Context and key question

  2. Basis of research

  3. Findings – The 10X Behaviour Model

  4. Principles

    1. Fanatic Discipline

    2. Empirical Creativity

    3. Productive Paranoia

    4. SMaC Recipes

    5. Return on Luck

  5. Afterword

1.1 Context and key question

  • Great by Choice was published in 2011. It follows :

    –  Built to Last – 1994 (which researched 18 of America’s most enduring great companies);

    –  Good to Great – 2001 (which investigated how 11 good companies made the transition to great); and

    –  How the Mighty Fall – 2009 (which investigated the fall of 11 formerly great companies).

  • Great by Choice does not draw directly on the prior books or their findings :

    –  being treated as a unique and separate research area in its own right;

    –  focused on entrepreneurial businesses, which became great despite turbulent times;

    –  the methods, however, are similar; and

    –  the new concepts discovered add to the body of knowledge of what it takes to build a great company

  • The origins of this work came from :

    “Our own persistent angst and gnawing sense of vulnerability in a world that feels increasingly disordered …What’s coming next? All we know is no one knows…

    Yet some companies navigate this type of world exceptionally well. They don’t merely react; they create. They don’t merely survive; they prevail. They don’t merely succeed; they thrive… if not on chaos, then they can thrive in chaos.”

          The key question is … how?

2.1 Basis of research – building a theory from the ground up

  • The aim was to “study extreme results in extreme environments, so extreme standards were used in the selection of cases”
  • These cases were whittled down to 7, from an initial list of 20,400 companies that appeared on the database of the University of Chicago Center for Research in Security Prices (CRSP) between 1971and1995, and met the following criteria:

    –  They were still in existence after June 2002

    –  Outperformed the market by over 3 times by 2002

    –  Were genuine public companies

    –  Had more than $500m of revenue by 2001

    –  Met consistent stock performance criteria for a minimum 15 years from their original public offering, without major fluctuations

    –  Operated in highly uncertain and chaotic industries, and went through events that were uncontrollable, unpredictable, fast and industry-wide

    –  Were young or small at the time of their initial public offering

    –  Outperformed their industry by more than 3 times after their initial public offering

  • 7 comparison companies were then chosen based on industry, age, size, evolution, performance in line with industry and general comparability

2.2 The 7 case study companies*

NameDynastic Era of StudyValue of $10k
to 31/12/2002
the Market
the Industry
Progressive Insurance1965-2002$2.7m14.611.3
Southwest Airlines1967-2002$12.0m63.4550.4

*These are called “10X Companies” or “10Xers” in the book because their performance exceeded their industry performance by more than ten times

2.3 The contrast companies

10x CompaniesDynastic Era
of Study
IntelAdvance Micro Devices
Progressive InsuranceSafeco
Southwest AirlinesPacific Southwest Airlines

2.4 Case study – Southwest Airlines

Think of everything that slammed the airline industry between 1972 and 2002 :

–  Fuel shocks
–  Deregulation
–  Labour strife
–  Air traffic controller strikes
–  Crippling recessions
–  Interest spikes
–  Hijackings
–  Bankruptcy after bankruptcy after bankruptcy
–  9/11

In spite of this, how did Southwest Airlines turn $10,000 invested in 1972 into $12m by 2002, 63 times better than the stock market?

And how did Pacific Southwest Airlines, having the same business model in the same industry, with the same opportunity, at the same time, disappear into irrelevance?

3.1 Core Findings - 10X companies are not

  • More creative

  • More visionary

  • More charismatic

  • More ambitious

  • More blessed by luck

  • More risk seeking

  • More heroic

  • More prone to making big, bold moves

3.2 Core Findings – Greatness and leadership

“Greatness is not primarily a matter of circumstance; greatness is first and foremost a matter of conscious choice and discipline. The factors that determine whether of not a company becomes truly great, even in a chaotic and uncertain world, lie largely within the hands of its people. It is not mainly a matter of what happens to them, but a matter of what they create, what they do and how well they do it.”

“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. Their drive and standards are ultimately internal, rising from somewhere deep inside”

3.3 Core Findings - there are 4 behaviours that deliver 10X results in the face of uncertainty and chaos

3.4 Core Findings - These behaviours keep companies

4.1.1 Fanatic discipline

  • Discipline is in essence consistency of action

    – Consistency with values

    – Consistency with long term goals

    – Consistency with performance standards

    – Consistency of method

    – Consistency over time

  • This discipline is characterised in the book as the “20 mile march”, the benefits of which are :

    – Building confidence in achievement, despite adverse circumstances

    – Building resilience against catastrophe or disruption

    – Helping impose self-control in an out-of-control environment and ward off panic

  • 10Xers are :

    – Utterly relentless, steady in pace, but empirical

    – Fanatics, unbending in their focus on their quest, unyielding in their standards

    – They don’t over-react to events or become diverted

    – Capable of immense perseverance, whilst never over-extending themselves

    – Non conformists, with independence and openness of mind

4.1.2 The 7 characteristics of a 20 mile march

  • Clear performance standard eg 20 miles per day
  • Self imposed constraint eg 20 miles per day, no more no less to avoid over-extending and diminishing resources and energy
  • Appropriate to the specific enterprise – relevant, challenging, but also strengthening
  • Largely within the company’s control to achieve – no luck required, just consistent effort; 20 mile marches can be started at any time
  • Appropriate timeframe – not too long and not too short
  • Designed and self imposed from within – self set to measure progress to the objective concisely; not imposed from outside
  • Achieved with great consistency – becomes routine and outcome certain

4.1.3 20 mile march case studies

10X Cases

Southwest Airlines – profitable for 30 consecutive years, including post 9/11. Constrained growth to preserve culture and profitability

Stryker – consistent 20% annual growth over 16 years, over 30% growth in 3 years; holding back in good times to weather storms in 1992/4

Intel – Doubled complexity at minimum cost every 18 to 24 months over entire era (Moore’s Law)

Microsoft – continuous iterations of software, often imperfect at launch, then improved year after year to achieve dominance. Never over- extended financially

Comparison Cases

Pacific Southwest – pioneered business model used by SA, but abandoned it in 1970s. Taken over by US Air in 1986

USCC – annual growth over 30% in 13 years out of 19; rates ranging from

+ 313% to -200%. Returned less than 1/300th of Stryker over 19 years

AMD – repeatedly pursued big growth through high debt, being badly exposed in 1985/6. No steady performance marker

Apple – lost profit consistency and innovation after Steve Jobs deposed in 1985; regained it on his return in 1996

4.2.1 Empirical creativity – bullets then cannonballs

  • The research reveals that “firing bullets, then cannonballs” better explains 10X success than big innovations or predictive genius
  • 10Xers use bullets (low cost, low risk, and low distraction experiments) to test or “calibrate” their new innovations. If they hit the target (as validated by high profitability in a small market) they are perfected and then heavily invested in (firing cannonballs). If not the company moves on to the next set of bullets. This is done systematically and with discipline
  • Cannonballs (big bets on a new product or market) can be either calibrated (tested with bullets) or un-calibrated. 10Xers had a 69% calibration rate versus their comparators 22%. 10Xers learned from their mistakes faster. Calibrated cannonballs were successful 4 times more than un-calibrated ones at 83% versus 23%
  • Big un-calibrated bets in uncertain times, can often spell disaster. Initial success with un-calibrated cannonballs, can lead to over-confidence and bigger disaster down the track
  • The challenge appears to be creative AND empirical AND disciplined

4.2.1 Empirical creativity – unexpected findings

  • 10Xers were less innovative than their comparators in 4 of the 7 pairs:

    – Southwest Airlines copied Pacific Southwest’s business model entirely. The difference was they confirmed what was tried and true and then followed it religiously, with minimal divergence for 30 years

    – Genentech (which was one of the most innovative companies in the biotechnology industry) outperformed Amgen in patents by over 2 to 1, yet Amgen outperformed it financially by 30 to1. Getting profitable products to market is more important than patenting ideas

    – John Brown at Stryker lived the mantra “its best to be one fad behind the market, but never last”

  • The difference is they were able to test, scale and implement the innovation better than their rivals – Microsoft didn’t have an operating system when IBM came calling, but they built one, tested it, cut the deal and delivered, whilst their competitors dithered
  • Research by Tellis & Golder (noted in the book) showed that only 9% of pioneers end as the final winners in the market and 64% failed outright
  • 10Xers aren’t visionary geniuses, they meet a threshold level of innovation to be in the game, but after that the research suggested that being more innovative than the competition didn’t matter very much

4.2.2 Empirical creativity in times of risk

  • 10Xers were less innovative than their comparators in 4 of the 7 pairs:

    – Other people – experts, pundits, peers or the herd

    – Conventional wisdom, custom or standard practice

  • 10Xers look primarily to empirical evidence (direct observation, practical experimentation and direct engagement with the problem), using independence of thought and creative instincts to see them through
  • They don’t bet smaller or less often than other companies
  • Having an empirical foundation enables 10Xers to make bold, creative moves and bound their risk, with evidence and rigor
  • In 1994, Andy Grove, CEO of Intel, was diagnosed with prostate cancer. Rather than going straight to a specialist he began reading research articles to understand the basis of the test results, the statistics and the pros and cons of treatment options and then re-tested the tests himself. After seeing a specialist, he embarked on an extensive literature review, going back to original sources and even the primary data. In the end “I decided to bet on my own charts”. Faced with uncertainty and significant consequences, he went directly to empirical evidence.

4.3 Productive paranoia – leading above the death line

  • 10Xers maintain hyper-vigilance, focused on threats to their objectives and changes in the environment, especially when things are going well
  • They prepare obsessively and assume conditions will turn against them, at any time, at the worst possible moment, and in quick succession
  • “It’s what you do before the storm hits that counts,” so they channel their fear into action, preparation, developing contingency plans, building buffers, and maintaining large margins of safety
  • They display 3 core sets of practices
    1. Build cash reserves and buffers far beyond the norm – 3 to 10 times the ratio of cash to assets
    2. Bound risk, taking less risks and being extremely prudent in managing key risks :

        – Death line risk (risk that can kill or severely damage the business)

        – Asymmetric risk (potential downside dwarfs the potential upside)

        – Uncontrollable risk (which cannot be controlled or managed)

    1. Zoom out then zoom in – hyper-vigilance, look at the big picture and context, sense changing conditions and impact, then zoom in to respond effectively at a detail level
  • Disciplined thought and disciplined action – they take the time available to make rigorous, clear-headed and empirical decisions, rather than making hasty, reactive, panicky ones. Timing is driven by changes in risk profile. Action is always just fast enough, not too fast

The Death Zone, Everest 8 to 10 May 1996

David Breashears

American mountaineer and film-maker who, in total, made 8 expeditions to Everest reaching the summit 5 times. Winner of 4 Emmy awards for cinematography. On Everest at Camp II on 8 May to film Everest, a multi-million $ IMAX documentary. The IMAX film crew had planned their expedition meticulously, were well resourced with oxygen and supplies. But fearing a bottleneck of 4 other expeditions and 50 climbers below them, Breashears called a team meeting and considered 7 “what ifs?” They all agreed “conditions didn’t feel right” and decided to secure their film equipment, turn around and wait for better conditions and a less crowded summit. On the way down Breashears passed Rob Hall and Scott Fischer, leaders of two of the other expeditions, who were climbing confidently and optimistically in glorious weather. His team returned safely 2 weeks later to Camp II and completed the filming at the summit as planned.

Rob Hall

New Zealand mountaineer & adventure guide. Climbed Everest 5 times overall, K2 (1992) and Seven Summits(1990). Ran Adventure Consultants, incorporated since 1992. On Everest that day leading an expedition of 8 clients, 3 guides and team of Sherpas. 3 other expeditions were also on the mountain with 33 climbers trying to summit. A bottleneck occurred at the Hillary Step, due to the number of people and a line being missing, which took an hour to replace. Ignoring a pre-set “safety turnaround”, time of 2pm, and carrying limited oxygen, Hall waited for a client beyond 4pm and at 5pm a blizzard struck. Hall radioed for help, which was answered by his colleague Andy Harris, who climbed back with oxygen and water. At 4.43am Hall radioed to say the client had died during the night and Harris, who had reached the two men, was missing. Hall’s body was found on 23 May by the IMAX film crew. 8 climbers perished that night – the greatest disaster in Everest history.

4.4.1 Level 5 ambition – the SMaC recipe

  • A SMAaC recipe (specific, methodical and consistent) is :

    – A set of durable operating practices to unify and organise effort

    – That creates a replicable and consistent success formula

    – Gives clear guidance on what to do and what not to do at a practical level

    – Reflects what actually works and why, based on empirical evidence

    – Is enduring and infrequently amended

    – The more uncertain the times, the more useful the recipe is

  • The US Constitution is a SMaC recipe, with only 17 amendments in 220 years
  • All but one company (10X or comparator) has SMaC recipes. The difference was the comparator companies lacked the discipline to stick to them and lurched off in different directions during turbulent times
  • SMaC recipes are supported by10X behaviours :

    – Empirical creativity – to develop and evolve it

    – Fanatic discipline – to stick to it

    – Productive paranoia – to sense necessary changes and manage the tension between consistency and change

  • SMaC recipes can endure for decades
  • The challenges are knowing what works, why, when to change and when not

4.4.2 Southwest Airlines’ SMaC recipe under Howard Putman

  1. Remain a short-haul carrier, under two-hour segments
  2. Utilise the 737 as our primary aircraft for ten to twelve years
  3. High aircraft utilisation and quick turns, ten minutes in most cases
  4. The passenger is our No1 product. Do not carry freight or mail, only small packages which have high profitability and low handling
  5. Continued low fares and high frequency of service
  6. Stay out of food service
  7. No interlining… Costs in ticketing, tariffs and computers and our unique airports do not lend themselves to interlining
  8. Retain Texas as our No1 priority and only go interstate if high intensity short- haul markets are available to us
  9. Keep the family and people feeling in our service and a fun atmosphere aloft. We’re proud of our employees
  10. Keep it simple – cash register tickets, 10 minute cancellations at the gate to clear standbys, simplified computer system, free drinks in Executive service, free coffee and donuts in boarding area, no seat selection, tape recorded manifest, crew and airplanes home to Dallas each night, only one domicile maintenance facility

4.4.3 David Breashears’ SMaC recipe for Everest

  1. Create a binder with tabs for all facets of the expedition, including back up plans (and back up plans for back up plans) for everything that can plausibly go wrong
  2. Perform “Idiot Checks” every time you move locations – 360 degree spins to make sure you haven’t left anything behind
  3. Thread the camera with bare hands, no matter how cold, to ensure a perfect shot every time
  4. Be able to assemble the camera, mount it on the tripod, load and thread the film, aim and shoot in 5 minutes flat
  5. Test equipment in real conditions, sub-zero-freezer and simulation trips before actual expedition
  6. Always optimise weight and functionality. Carry the least amount of mass without sacrificing function/safety
  7. In selecting team-mates, choose people to get stranded with
  8. Always bring back-ups for critical gear and supplies – extra oxygen, crampons, mittens, supplies. Be prepared to stay much longer than planned
  9. Never let a weak member attempt to summit. A team is only as strong as its weakest member
  10. Have two separate teams, climbers and filmmakers, that work well together

4.4.5 Apple’s SMaC recipe under Steve Jobs

  1. Allow no one else to clone our products
  2. Design our products so they work seamlessly together
  3. Make design friendly and elegant
  4. Design for and market to individuals
  5. Obsess about secrecy
  6. Do big launches and capture pent-up excitement
  7. Don’t enter any business where you don’t control the primary technology


Describing Apple’s resurgence , John Sculley (the CEO who ousted Steve Jobs) said in 2010 :

“The same principles Steve is so rigorous about now, are the identical ones he was using then”

4.4.6 Intel’s SMaC recipe under Andy Grove

  1. Concentrate on integrated electronics, where all functions are supplied to the customer as irreducible units. Focus on DRAM memory chips*
  2. Uphold Moore’s Law by doubling the complexity of components per integrated circuit at minimum cost every 18-24 months
  3. Achieve Moore’s Law a) by increasing chip size through reducing random defects b) creating circuit innovations that allow higher functional density and c) making circuit units smaller
  4. Continuously develop the next generation of chips that create a competition free zone
  5. Standardise manufacturing down to the smallest details
  6. Maintain our reputation that “Intel Delivers”
  7. Do not attack a fortified hill
  8. Practice constructive confrontation – argue, disagree then commit
  9. Measure everything and make visible the results
  10. Do not cut R&D during recessions; use recessions to drive our technology

          further ahead


* In 1985 item 1. was changed when Intel exited DRAM and focused on microprocessors. Nothing else changed 

4.4.7 Bill Gates changing Microsoft’s SMaC recipe
to embrace the “internet tidal wave”

  • Prior to 1994 Microsoft built its recipe around :

    1. Stand alone personal computers

    2. Software

    3. Standards

    4. Imperfect products

    5. Price for volume

    6. Open systems

    7. Yelling matches

    8. Windows

    9. Applications

  • When the internet arrived, he zoomed out and dedicated his “Think Week” for 1994 to the internet to consider the questions : What are the facts? Does this require a major change? Is this real or hype? Are we threatened?

  • Once he had determined the threat was real, he zoomed in, wrote a legendary 8 page email entitled the “Internet tidal wave” and turned the company 180 degrees overnight by sending 500 programmers on a speed march to develop what became Internet Explorer

4.5.1 Return on luck

  • Luck was defined as a significant event, which :

    – Happens largely or entirely independent of the actions of the key actors

    – Has a potentially significant consequence (good or bad)

    – Has some element of unpredictability

  • The research coded 230 significant luck events of which 105 were good luck events (49 for the 10Xers; 56 for the comparators) and 125 bad luck events (65 for the 10Xers and 60 for the comparators)
  • The conclusion was that differences in performance were not a result of luck (which arose in equal proportions and similar times) … but what the 10Xers did with their luck. 10Xers :
  1. Made more of their luck by seizing their opportunities, when they came
  2. Responded positively to bad luck (what doesn’t kill you makes you stronger)
  3. “Who luck” (connecting with the right people) was an often cited key driver of success
  • Good luck, no matter how big, was not found to make a great company. However, a single stroke of bad luck or an extended sequence could put a company out of the game for good
  • Much very good luck was squandered by comparators
  • 10Xers maximised their return on luck, by 10X leadership behaviours

4.5.2 Resilience, not luck, is the signature of greatness

Being fired from Apple was the best thing that could have happened to me. The heaviness of being successful was replaced by the lightness of being a beginner again, less sure about everything. It freed me to enter one of the most creative periods of my life.

I’m pretty sure none of this would have happened if I hadn’t been fired from Apple. It was awful-tasting medicine, but I guess the patient needed it.

Steve Jobs

Stanford University speech 2005

5.1 Afterword

Victory awaits he who has everything in order; luck people call it. Defeat is certain for him who has neglected to take the necessary precautions in time; this is called bad luck

Roald Amundsen

5.2 The race to the South Pole – October 1911

Robert Falcon Scott

Led prior expedition to South Pole 1902, reaching 82deg.

Transport – dogs, ponies, motorised sledges (all poorly selected, resulting in dog sleds being man-hauled for most of the 1,400 mile journey)

Team – 17 starting out; 5 for final stage

Rations – 1 ton for 17 men. Ran everything dangerously close to his calculations

Path markings – 1 flag on primary depot only

Assumed the best and complained “our luck in weather is preposterous”

Faced 6 gale force days, travelled on none

Would drive his team to exhaustion on good days and sit in his tent all day on bad days

Reached the South Pole 17/1/12

Ran out of rations 29/3/12, just 11 miles from his supply depot, with the loss of all 5 final team members

Roald Amundsen

Led first successful journey through the Northwest Passagand member of first Antarctic winter expedition.

Transport – 4 sleds, 52 dogs (trained with Eskimos, also used their clothing and methods)

Team – 5 men throughout, 11 dogs survived

Rations – 3 tons for 5 men, huge contingency

Path markings – every 1⁄4 mile with packing case remnants, 8 kms flags on bamboo, and each depot with 20 black pennants spanning 5 kms either side to provide a wide target back

Planned for all eventualities and systematically built enormous buffers against unforeseen events. Faced 15 gale force days, travelled on 8

Stuck to a steady pace of 15 to 20 miles per day in most conditions, averaging 15.5 overall

Reached the South Pole 15/12/11. Team returned safely, with supplies to spare, on 25/1/12, to plan


We work to respond to your enquiries as quickly as possible.


Tel: +64 (027) 454 9315

Office: NTT Building, Level 16, 157 Lambton Quay, Wellington