Jim Collins: Precision Climbing

Calculate risks and fire bullets before cannonballs, the best-selling author says.
November 13, 2013

Even dressed in a dark suit, blue dress shirt and tie, and black tassel loafers, Jim Collins seems at home on low-level rocks near the Crown Rock Trailhead in Boulder, Colo. The rock faces here are intimate friends, having served as his backyard playhouse most of his life.

At the urging of his chief of staff, Amy Humble, however, he changes into his climbing shoes for the duration of a photo shoot. After all, proper footwear is part of any SMaC climbing recipe (a Collins term for the concept of Specific, Methodical and Consistent, a tested protocol that is empirical). On the rocks or at an entrepreneur’s desk, the recipe is not about being risk-averse but about taking all the controllable risk you can out of the  equation.

The former Stanford University researcher has spent the past 25 years grappling with the results of intricate analytical studies of U.S. companies to determine how the best—and the merely good ones or failures around them—handle risk, grow and prosper during good times and bad. Six books (some with co-authors) and overall world sales of more than 10 million copies later, he has arrived at some quantifiable practices that the most successful companies adopted.

“Our research has shown it’s very rare that great entrepreneurs are necessarily big, swing-for-the-fence risk takers,” Collins says back at his offices, 15 minutes away on 13th Street. “One of the big things [we found] is this notion of empirical creativity, the process of fire bullets and then fire cannonballs.” In the Collins vernacular, bullets are low-risk, low-cost, low-distraction tests that validate an opportunity and don’t overextend an organization; cannonballs are riskier, more costly business-defining initiatives—an uncalibrated cannonball is a high-risk gamble, and a calibrated one, essential for achieving greatness, is a calculated risk proved by rigorous testing (i.e., the lessons of firing many  bullets).

“What’s really interesting about the fire-bullets-and-fire-cannonballs process is that it’s not that they kept things small,” he says. “The greatest companies did big, big bets. They only convert to a cannonball once they’ve fired enough bullets to gain the empirical validation that the bet will work. At some point, you put a lot of chips down to get the results these companies did.”

Collins, almost as passionate a student of history as he is of climbing and adventure, talks animatedly as he gets up from his chair and retrieves a book off a nearby shelf for reference. An oversized stuffed Curious George, something of a company mascot, sits next to one of the shelves, which are peppered with titles such as The Right Stuff, The Last Viking, Winston Churchill’s The World Crisis, Lincoln at Gettysburg , Peter Drucker’s Management and Darwin’s The Origin Of Species.

The best-selling author sets the tone for most of his conversations by first asking penetrating questions himself and listening intensely—a trait he learned from his hero and mentor, management theory pioneer Drucker. His first impulse—to satisfy his burning curiosity, to learn from a guest—is as compelling as his drive to share his views.

Cases in Point

Companies like Texas-based startup Southwest Airlines didn’t just emerge from the clouds, he notes.

“The founders of Southwest took a risk, but what they did was copy the model of PSA [a California-based airline that was having success at the time],” he explains. “They visited PSA, studied their operations. PSA had calibrated the process for them, had proven it could work in California. They had years of empirical success. The Southwest folks could look at it and say, ‘That will work. We can copy that.’ Their cannonball as entrepreneurs wasn’t to do something that hadn’t been tried before: It was to do something already proven, and do it in Texas.”

And Bill Gates didn’t make an outlandishly crazy bet in founding software pioneer Microsoft, Collins says. “Bill Gates did not drop out of Harvard until it was announced that the first Altair [the microcomputer that made its debut in 1975] was going to be coming out. He and [Microsoft co-founder] Paul Allen had been working with computers for a long time, and the Altair was going to need a programming language. So the empirical facts led them to the cannonball—quitting Harvard, living on the floor in Albuquerque, N.M. These were not unknown variables. The only question was who could get it done? That was the bet; that they could go get it done. The worst-case scenario for them was they would return to Harvard if it didn’t work out. Not exactly a huge downside.

“This idea of the far-seeing, genius, visionary, big-bet, throw-all-the-chips-in deal has no basis, except in rare cases like Fred Smith with Federal Express. You can’t fire bullets in launching an overnight express service across the country in one shot. But Fred is more of an anomalous case.”

Navigating Risk

Collins, whose lineage has a touch of the daredevil in it, has taken significant professional risks of his own.

A framed black-and-white photograph of his grandfather and namesake, Jimmy Collins, is prominent on one of the shelves behind him. In the photo, the pioneering Grumman test pilot squats next to his son by the wheels of an XF3F-1 the day in 1935 before the elder Collins died when the plane crashed on Long Island (his life was chronicled in an autobiography and movie).

“What Tom Wolfe wrote about in The Right Stuff was absolutely my grandfather,” Collins says. “Back then test piloting was very, very, very, very risky no matter how good you were.”

While Collins maintains he is “not as cool” as his grandfather, he allows that “relative to most people” he is a standard deviation from the mean in terms of comfort with risk. He began climbing at 13 on the small rocks of St. Vrain Canyon north of Boulder after his stepfather signed him up for a course against his will. By the end of the day he was hooked. In his 20s, he became one of the dozen top climbers in the States. Yosemite became Collins’ alternative playground while he attended Stanford. As a 50th birthday present to himself, he did a 19-hour climb of the 3,000-foot vertical El Capitan in Yosemite (most climbers take a few days to complete the  ascent).

“From the start, I loved the fact that there were very real consequences to failing to do things right [in climbing],” he recalls. “Gravity never accepts excuses, and if you mess up, gravity is not going to care. I loved the problem-solving nature of it.”

Finding the Right Climbs

Collins was a faculty member and researcher at the Stanford University Graduate School of Business when a project with a mentor became Built to Last: Successful Habits of Visionary Companies (with Jerry Porras, HarperBusiness, 1994). Other books, including the research-driven Good to Great: Why Some Companies Make the Leap... and Others Don't (HarperBusiness, 2001), How The Mighty Fall and Why Some Companies Never Give In (CollinsBusiness Essentials, 2009) and Great by Choice: Uncertainty, Chaos, and Luck--Why Some Thrive Despite Them All (with Morten T. Hansen, HarperBusiness, 2011), have painstakingly looked at the nuts-and-bolts formulas of American companies.

In the process, he has gathered much insight into the risk process.

“My wife and I took three big risks in our first 15 years of marriage,” recalls Collins, who asked Joanne Ernst to marry him four days after their first date—an 8-mile run—at Stanford University. In 1983, they walked away from graduate school so she could train to win the women’s division of the Iron Man Triathlon, which she did in 1985 (he lined up sponsorships and negotiated contracts).

Collins explains that if she hadn’t placed the big bet, if all she’d done is dabble in it, she never would have won the Iron Man. That was the cannonball. But she had fired plenty of bullets before that—she had been a cross-country and track runner as a Stanford undergraduate. She began to do really well against elite competition in triathlons, which provided empirical validation.

The second big risk they took came after Collins was teaching entrepreneurship and small-business courses at Stanford from 1988 to 1995, where he started working on the project with Jerry Porras that would become the book Built to Last.

“I was at a fork in the road where I could hedge my bets and do a traditional Ph.D., become a traditional professor, which was highly probable, or bet on the piece of work that Jerry and I had produced,” he says. “Joanne and I had virtually no savings, no family safety nets, we had nothing really to fall back on, but we had each other and we had our education. I cut the rope, took a big gulp. Joanne and I call it our Thelma & Louise moment, except we were trying to make it to the other side of the chasm.”

They did it, as the book became a 1994 best-seller.

Collins made another bet when he took most of the windfall from Built to Last and plowed it into investing in what became Good to Great. “Instead of just banking it, we reinvested it into the next project, and invested the next five years of our lives,” he says. “I was hiring researchers and doing the team, and basically any savings that would have come from Built to Last I just turned around and spent on what became Good to Great.”

Another cannonball hit its mark, producing another best-seller and providing a lucrative cash flow. “After that, everything changed,” he says.

What Makes Companies Great by Choice

The economic pressure was off, but his curiosity pushed him forward. For the Great by Choice project, Collins and his colleague, Morten Hansen, selected severe environments and industries fraught with casualties. They specifically focused on people who would create big companies but were then just “small, vulnerable specks to those environments,” Collins says. “So we were really looking at the entrepreneurial days of Southwest Airlines and Intel and Stryker and Microsoft and Apple.”

The study then focused on the companies that achieved the highest levels of success and results in those environments and analyzed how they did so.

“One hypothesis was they just placed some huge, risky bet, and it just paid off like winning the lottery,” Collins says. “I think one of the great misconceptions is that the people who produced the highest levels of results necessarily took more risk. On the contrary, our leaders were very risk-avoidant, and this is a very important lesson for entrepreneurs. The successful companies engaged in an inherently risky game in the most prudent fashion, squeezing as much of the risk out as possible.”

Common denominators for organizations that achieved lasting greatness included having the burning desire to pursue what Collins calls BHAGs (Big Hairy Audacious Goals) and fanatical discipline (successful leaders continue on at the same pace no matter what the conditions); empirical creativity (a blend of creativity and discipline); and productive paranoia (preparing for when, not if, the next big disruption is going to happen).

“The beauty of this is that you can bound your risk and go big at the same time,” he explains. “That was one of the things that Morten and I found that we just loved—that it is this beautiful combination, beautiful genius of bounding risk, empirical validation and placing gigantic bets when the time comes. You have to be willing to fire the bullets that aren’t going to hit and then calibrate the ones that do. You need to have the discipline to not fire the big uncalibrated cannonball, putting all your chips in with no validation because then if it goes wrong, you’re out. But you also have to have the discipline that when you do have the validation, that you go big. That’s the step that is equally needed.”

Failing and moving forward is a part of the process, he says. “This relates to one of the legs of the triangle, productive paranoia. The only mistakes you can learn from are the ones you survive. Every entrepreneur we studied had things that went awry, that they tried and didn’t work.”

People often look only at the successes of leading companies and entrepreneurs, he says, but that is not the whole story. “The really critical thing is you’re going to have mistakes, setbacks and failures but you have to manage yourself in such a way that they will not kill you.”

A couple of checks on risk that any entrepreneur should consider are a simple, two-question mantra and a step-back look at the situation, Collins says. “What’s the upside? What’s the downside? Every time you’re in a situation, it’s simple. If you ask that question, sometimes you’ll find that something you’re thinking of doing has got way more downside than upside.

“And when you’re hit with something you don’t understand, zoom out and sort of take a big-picture look to see if there’s something there to be afraid of. Or is there an opportunity we might miss? Normally, under duress our very inclination is to zoom in. The really best people, when hit with uncertainty and duress, zoom out, take a really big-angle-lens look and then zoom back in.”

During these instances, it’s important to understand how much time you have before the risk profile of the situation changes.

“One of the most interesting things we found in Great by Choice is that the best people in scary situations do not necessarily move the quickest,” he says. “Their response to a scary or risky situation is not how fast or slow, but how much time do we have before our risk profile changes?”

He rejects the notion that taking time to decide equates to indecisiveness. “I always loved that line from Warren Buffett, ‘Inactivity can be very intelligent behavior.’

“You take the time that the risk profile change allows. If there’s a forest fire coming over that hill and it’s going to be in your house in five minutes, you act now. If you have a cancer diagnosis that’s not going to change for a year, you don’t have to act now but you sure better be figuring out what you’re going to do. We know those situations. But the first question is how much time do you have before your risk profile changes?”

Figuring Out This Luck Thing

Three years ago during a previous SUCCESS interview, Collins mentioned that he didn’t feel successful, just lucky. The notion of luck and its role in success stuck in his curiosity craw, however, and he says he has since “evolved in my thinking.”

“There’s a chapter in Great by Choice called ‘The Return on Luck,’ and it really changed my view on almost everything,” he explains. “I always really did see myself as, ‘I’m just really lucky.’ Built to Last worked; I was really lucky. I met Joanne, and that was really lucky. That’s true. I have been really lucky. I’ve also had bad luck. I tend to discount that.”

Moreover, the popular notion that “I make my own luck” really picked at him. He sought to analyze luck, to quantify it. “I was always unsatisfied with the answers on luck. Take the I-make-my-own-luck notion. Really, you made your own cancer? Help me understand that. I mean, ‘You made the genetics you were born with?’ Help me understand that. No, by definition you don’t make your own  luck.”

Collins and Morten T. Hansen cracked a code of how to define luck, how to quantify it. Most great entrepreneurs “weren’t luckier [than their counterparts] but they had this amazing ability to get this return on luck, whether it be good luck or bad luck,” Collins says. “Their capacity to make more of the luck that they got is what really is distinctive. You’ve got to always be the kind of person who’s putting things in place to prepare for bad luck so that you’ll survive it and eventually get good luck  again.

“You can meet the right spouse, but the return on luck is building your marriage. You can meet a great mentor, but the return on luck is investing in the relationship. You can accidentally discover that you have great cycling genetics, but the return on luck is you quit your job and then you train like insanity to win the Iron Man. So there’s no question that my previous view that I’ve been really lucky is true and incomplete, because the other piece of it is that life is about return-on-luck moments and the long, persistent  journey.”

The best companies and entrepreneurs navigate good luck by effectively spending bullets and cannonballs, and prepare with fanatical discipline and productive paranoia for the time when that luck turns, Collins says. Twenty-five years of data mining tells him so.


Read more about Jim Collins' contribution to corporate strategy, and how he's moving ahead, on SUCCESS.com.

His contribution to corporate strategy and how he’s moving ahead, curiously. - See more at: http://www.success.com/article/marching-in-step-with-jim-collins-concepts#sthash.hD845xt0.dpuf

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