Built to Last

Jim Collins and Jerry Porras spent six years comparing companies that had endured for decades against direct competitors of the same age and size that had not. The conclusion that survived the scrutiny is an uncomfortable one for most owners. The enduring companies changed almost everything about how they operated, and almost nothing about what they stood for.

Preserve the core, stimulate progress. Four words, and most owner-managed businesses have them the wrong way round. They protect the habits and negotiate the principles.

What the model actually says

A business has a core ideology. That is its purpose, the reason it exists beyond making money, and a very short list of values it will hold to even when holding to them costs money. The core is fixed. It is not reviewed each January. It does not flex because a competitor undercut you.

Everything else is available for change. Strategy, products, pricing, structure, systems, premises, the people, the goals, the way the work gets done. All of it should be under constant pressure to improve, and none of it earns protection on the grounds that it is how things have always been done here.

Two other ideas from the same work earn their keep. The first is what Collins and Porras call the genius of the AND. Enduring companies refuse the either/or. They want purpose and profit, discipline and creativity, a long horizon and a decent quarter. The moment an owner accepts a trade-off as inevitable, they stop looking for the third option.

The second is clock building rather than time telling. A time teller is a brilliant individual who has the answers. A clock builder creates something that produces good answers after they have left the room, and eventually after they have left the business. In an owner-managed company that is not a philosophical distinction. It is the difference between owning a job and owning an asset.

Why this matters if you own the business

Three reasons, all of them commercial.

First, decisions get faster. Owners who know what is fixed spend far less time agonising. Half the decisions that keep owners awake are only hard because the criteria were never set. If you have already decided that you do not take work you cannot deliver properly, the tempting badly-specified job with the large number attached stops being a dilemma and becomes an email.

Second, a business with a genuine core survives disagreement. Partners fall out over strategy far less often than they fall out over what the business is for. The strategy argument can be settled with numbers. The purpose argument cannot, and it is the one nobody writes down until it is too late to write it down calmly.

Third, this is what a buyer is paying for. A buyer will change your strategy, your pricing and quite possibly your name. What they cannot install is a company that works when the founder is not there, staffed by people who know what good looks like without being told. Clock building is one of the largest single drivers of what your business is worth to somebody else.

The test that separates a value from a preference

Collins offers a blunt test, and it is the most useful part of the whole model. Would you hold to this even if it became a competitive disadvantage? Would you still hold it in ten years, in a market that punished you for it?

If the answer is that it depends, it is a preference. Preferences are fine. They are simply not core, and they should not be defended as though they were.

This test kills most published value statements on contact. Integrity. Excellence. Teamwork. Customer focus. Nobody has ever chosen against any of them. A value that nobody could disagree with is not a value, it is a poster.

A worked example

The following is illustrative, not a client. Take a family engineering firm founded in the late seventies, turning over £2.4m with 22 staff, now run by the founder's daughter. Asked what the business stands for, she produces a list of things she would defend against any incoming manager:

• We never put our name on work we would not accept ourselves.
• We train our own people rather than buying them in.
• The production meeting at seven o'clock on a Monday.
• Paper job cards.
• We sell direct, never through a main contractor.
• We do not work outside a forty mile radius.

Two of those are core. Four are habits from 1994 wearing a value's coat.

The cost of the confusion is measurable. The forty mile rule ruled the firm out of a framework it was technically qualified for, worth roughly £340,000 over three years. The paper job cards meant nobody could say which jobs made money until the year end accounts arrived, nine months after the work was done. Both were defended in exactly the same tone of voice as the quality standard, and by the same people.

Meanwhile the apprenticeship programme came close to being cut. It was expensive, it was slow, and three of the last five apprentices had left within two years of qualifying. On a spreadsheet it looked indefensible. It was also the reason the firm had a workforce that could be trusted unsupervised, which was the reason the quality standard was affordable, which was the reason customers came back. Preserving the wrong things and cutting the right one, inside the same twelve months. That is the normal failure mode and it is not stupidity. It is the absence of a written core to check anything against.

How to apply it this week

1. Write the core on your own, in forty minutes. Not in a workshop, not with a facilitator. One sentence on why the business exists beyond money, and no more than three values. If you need five, you have not decided yet.
2. Run the disadvantage test on each one. Ask what holding to it would cost you in a bad year. If you cannot name a cost, delete it and try again.
3. List ten things you would defend if a new managing director tried to change them. Then mark each one C for core or P for practice. Do it quickly. The instinctive answer is the honest one.
4. Change one P this week. Pick the one you have defended longest. Changing it proves to you, and to everyone watching you, that the practice was never the point.
5. Ask three long-serving people what this business stands for. Separately, and without prompting them. Compare their answers with yours. A gap means either you have not communicated the core or you do not have one.
6. Name one thing that must outlive you. Then ask what would have to be true for it to survive twelve months without you in the building. That question is the whole of clock building, and the answer is usually three or four things you have been avoiding.

The mistake most owners make

They protect the practices and negotiate the principles. It happens quietly. Nobody announces that they are lowering a standard. They take one job they should have turned down because the quarter looked thin, then another, and within a year the standard is whatever the pipeline allows. Meanwhile the seven o'clock meeting remains untouchable.

The second mistake is the opposite of the first and it looks like respect. The owner preserves everything, calls it heritage, and the business slowly becomes a museum with an invoice book. Preserving the core is not the same as preserving your memories of 2009.

The third is writing the core for the website. If the values were arrived at by asking what would sound good to a customer, they will not survive their first collision with a bad month.

The questions to sit with

• Out of 10, how clearly could every person in your business state what this company will not do, whatever the money?
• What have you defended in the last year that turned out to be a habit rather than a principle, and what did defending it cost?
• If you were not here for a year, what would still be true about how the work gets done, and what would quietly disappear?
• Which of your stated values has actually cost you money in the last twelve months? If none has, are they values?

This sits under Exit & Value and Strategy & Destination. What a business is worth to somebody else is mostly the part that keeps working when you are not looking, and that part rests on a core somebody bothered to write down.