Good to Great

Jim Collins and his research team spent years looking at large American companies that went from ordinary performance to a sustained leap, and comparing them with near-identical competitors that did not. The book that came out of it, Good to Great, is the most quoted business book in circulation and the least acted on.

Before anything else, the honest caveat. The research was on big listed US companies, some of it decades old now, and several of the companies held up as great subsequently did badly. That does not invalidate the disciplines, but it should stop you treating any of this as a formula. What survives is a set of behaviours that are hard, unglamorous, and directly transferable to a business turning over £2m.

The three stages, in the order they are meant to run

Disciplined people. Two ideas. Level 5 leadership, which has its own article, and First Who Then What: get the right people on board before you fix the strategy, because the right people will help you work the strategy out and the wrong ones will not implement the best plan you ever wrote. For an owner-managed business this translates into something unwelcome. The strategy day you are planning is less valuable than the conversation you have been avoiding about the person you should have moved on eighteen months ago.

Disciplined thought. Confront the brutal facts, while holding on to the belief that you will prevail. Collins calls this the Stockdale Paradox, after Admiral Jim Stockdale. It is not optimism. Optimists, in Stockdale's account, were the ones who did not make it, because they kept fixing hopes to dates that then passed. The discipline is to look at the worst of your numbers without flinching and still be certain of the eventual outcome.

The other half of disciplined thought is the Hedgehog Concept: the overlap of what you can genuinely be best at, what drives your economic engine, and what you care deeply about. All three, or it is not a hedgehog.

Disciplined action. A culture of discipline, meaning disciplined people doing disciplined thinking so that you can afford to have very few rules. And technology as accelerator rather than cause. Software applied to a business with no hedgehog just makes the confusion faster.

The economic engine question, and why it changes decisions

The most immediately useful thing in the whole book for a small business is one question: what is your profit per X? Choose the single denominator that, if you improved it, would change everything. Most owners have never chosen one deliberately, so they default to profit per sale, which explains very little.

Take a commercial cleaning firm turning over £2.4m with £310k of gross profit. Illustrative, but the arithmetic is the point. Sixty contracts, so profit per contract is about £5,167. That number tells the owner almost nothing useful. It goes up if he wins bigger contracts and down if he wins smaller ones, and either way it says nothing about what limits the business.

Now measure it per supervisor. There are nine supervisors, so roughly £34,400 each. Suddenly the picture has a shape to it. The best supervisor runs work generating around £48k of gross profit, the weakest around £19k, and the difference is not the contracts, it is rota discipline and staff turnover on their patch. Two things follow immediately. First, the growth constraint is supervisors, not contracts, and the sales effort that everyone assumed was the priority is actually queuing behind a recruitment and training problem. Second, closing half the gap between the weakest three and the average is worth something in the order of £30k of gross profit without a single new client.

Same business, same accounts, different denominator, completely different plan for the year. That is what disciplined thought produces.

The flywheel and the doom loop

Collins's other durable idea is that great transitions have no single defining moment. From the inside it feels like pushing a very heavy wheel: a lot of effort for almost no visible movement, then slightly more movement, then eventually momentum that carries itself. Anyone looking from outside asks what the one big thing was, and there was not one.

The opposite is the doom loop. New direction, disappointing results, new direction, and the wheel never turns twice in the same direction. In small businesses this is the owner who came back from a conference in March, changed the pricing model in June, started a new service line in September and rebranded in January. Each move was defensible. Together they produced nothing, because the wheel got a single half turn each time and then stopped.

The practical test: what have you been doing consistently for three years? If the answer is nothing, you do not have a flywheel, you have a series of pushes.

The mistake most owners make

Treating the seven ideas as a menu and picking the comfortable ones. Hedgehog workshops are enjoyable. Technology projects have a budget and a supplier and a launch date. First Who Then What means a difficult conversation with someone who has been loyal for six years and is no longer right for the job, and that one gets deferred indefinitely.

The order in the diagram is not decorative. People first, then thought, then action. An owner who runs a strategy day with the wrong people in the room has bought themselves an expensive document.

The second mistake is confusing the hedgehog with a niche. A hedgehog is not "we only do dental practices." It is the intersection of capability, economics and genuine interest, tested against evidence. Most stated hedgehogs fail the first test, because "best at" means demonstrably better than the competition, not better than you were last year.

How to apply it this week

1. Name your profit per X. One denominator. Per employee, per branch, per supervisor, per machine hour, per client. Calculate it for the last twelve months before you decide whether you like it.
2. Break that number down by unit and look at the spread. The gap between your best and worst unit is usually the largest improvement available to you, and it needs no new customers.
3. Write down the three brutal facts you have been avoiding. The client that is 40 per cent of revenue. The service line that has lost money for two years. The person. Say them out loud to one other person.
4. Answer the First Who question honestly. If you were recruiting for each seat today, who would you hire again without hesitation? The hesitations are the finding.
5. Test your hedgehog against evidence. For the thing you claim to be best at, what is the proof a sceptical outsider would accept? Win rates, retention, price premium, referral rates.
6. List everything you have started in the last three years. Count the half turns. Then pick the one direction you will push consistently for the next twelve months and stop the others.

The questions to sit with

• Out of 10, how disciplined have you been about doing the same few things repeatedly, rather than starting new ones?
• What is the brutal fact about your business that everyone knows and nobody says in front of you?
• If you had to grow by 50 per cent without adding a single customer, what would you have to fix?
• Which seat in your business would you not fill with the same person again, and how long have you known that?

These disciplines run right through the 6 Steps and are what the Good to Great Assessment is built to test. Nothing in this article is complicated. All of it is difficult, which is precisely why it separates one business from another.