Great by Choice Leading Above the Death Line

Great by Choice: Leading Above the Death Line Cameron Rice Nathan Smith Ian Goldberg Michael Medford

Overview � Introduction to Productive Paranoia � Productive Paranoia 1 � Productive Paranoia 2 � Productive Paranoia 3 � Closing and Key Points

What if? � 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

Separating 10 x Companies � 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 10 x 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

10 x Companies Lead with Productive Paranoia � 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. ”

Productive Paranoia 1 � “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.

Systematic Analysis � Journal of Financial Economics analyzed 87, 000+ companies � 10 x companies ◦ Cash-to-asset ratio ◦ Cash-to liabilities ratio � Shock absorbers and financial buffers

Black Swan � Term created by Nassim Nicholas Taleb � All 10 x companies must learn to act paranoid about the future regardless of how well there current performance is. � Remain conservative.

Southwest does it right � 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. ”

10 years later… � 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.

Herb Kelleher’s humbleness � 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!”

Productive Paranoia 2: Bounding Risk Do 10 Xers 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 � 10 Xers avoid these risks

Death Line Risk Type of Decision 10 X Companies Comparison Companies Number of Decisions Analyzed 59 55 Decisions Involving Death Line Risk 10% of Decisions 36% of decisions

Asymmetric Risk Type of Decision Made 10 X Companies Comparison Companies Number of Decisions Analyzed 59 55 Decisions Involving Asymmetric Risk 15% of Decisions 36% Decisions

Uncontrollable Risk Type of Decisions Made 10 X Companies Comparison Companies Number of Decisions Analyzed 59 55 Decisions Involving Uncontrollable Risk 42% of Decisions 73% of Decisions

Productive Paranoia 2: Bounding 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 3 � Zoom out, then Zoom in � http: //www. youtube. com/watch? v=Ahg 6 qcgo ay 4

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 � 10 X leaders don’t miss the gorilla, especially if it’s a dangerous threat

Zoom out, then Zoom in � Captures essential manifestation of productive paranoia � Dual-lens capability � 10 X 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 � Zoom in ◦ 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? ◦ Focus on supreme of plans and objectives

Motorola vs. Intel � 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 � 10 X teams don’t freeze up or react immediately � Think first, even when they need to think fast � Even 10 X companies don’t have a perfect record

Productive Paranoia 3 � Fast moving threats does not mean to abandon disciplined thoughts and disciplined actions � Do not panic � Think first, and respond fast enough

Key Points � 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