Every giant company was once a startup. Right in the middle of that progression is where the magic, or tragedy, really happens, says Jim Collins, the best-selling author and leadership expert.

 

During a recent interrview with Thomas Stewart, the executive director of the National Center for the Middle Market, Collins spoke about how mid-market companies have the choice of whether to "set themselves on the road to greatness." He believes companies and leaders are made through decisions and actions during the what he dubs "the parenting phase." Focusing on the lessons he wrote with co-author Morten Hansen in Great by Choice, Collins break this theory down to Stewart:

It's the stage where you instill your enterprise with its character. Sure, maybe you can go back later and change things and instill character in full adulthood, but it's a lot better to parent your adolescent well than to do a bad job at parenting and hope your kid can recover from it later in life.

Collins' book looks at the company histories of Intel, Walmart, Marriott, and Merck. He says every great company follows a similar journey. "You start with an idea and then turn an idea into a business. Then you turn a business into a company. Then you turn a company into a great company, and a great company into an enduring great company," he tells Stewart.

In that middle section, from a business to a company and then to a great company, is where leaders can make decisions that predict the fate of the enterprise. From Apple to Alibaba, Collins says, many of the largest companies in the world made those game-changing decisions as a teen. The details of their rise to prominence are unique, but they all were able to do three things very well: practice extraordinary financial discipline, repeatedly scale innovation, and train, grow and develop leaders from within the business.

Startups have the benefit of being agile, and large corporations can deal with disruption and competition because of ready access to resources. But mid-sized companies, Collins says, are vulnerable. How did Southwest Airlines, Intel, and Progressive get through the middle-market turbulence? Check out Collins' three characteristics that help mid-sized companies weather storms and become mega-successful large businesses.

1. Be fiscally conservative

The mid-market is a dangerous place. You're surrounded by large corporations and startups are biting at your heels. You have to be ready to deal with disruption, crises, and competitors both large and small. You must be "financially disciplined in good times so that you sail through and survive and prosper and pull ahead of others in the difficult times," Collins says. "So part of what we found was this notion of productive paranoia, which is what a company needs to make sure it always stays above what we called 'the death line.'" 

2. Focus on scaling small bets into big bets

Collins' research found that pioneering companies that innovate the most often are the ones that die. "First-mover advantage is a good way to get killed," he says. "In whatever world you're in, the most critical thing isn't innovation, it's scaling innovation." He's not suggesting neglecting innovation, just advising that you don't bet big on unproven ideas. "The essential thing is empirical validation, followed by big bets based on what is empirically validated," he says. Southwest Airlines, for example, used the same model of Pacific Southwest Airlines and just scaled it in Texas. "The key thing for mid-market companies is to learn to blend creativity and discipline, and thereby become superb at scaling small things into really
big things," he says.

3. Grow your own CEO

Collins believes that leadership is not an innate characteristic. Leadership is learned. His experience in 2012 serving as the Class of 1951 Chair for the Study of Leadership at the United States Military Academy at West Point, solidified his theory. "Whether a company has a great leader depends upon whether its leader decides to become one. It is a decision, it is a choice, it is a journey. It is not a birthright," he says. Two examples he points to are Southwest Airlines and Stryker, both of whose now-legendary CEOs were groomed from the inside. "Herb Kelleher wasn't the Herb Kelleher that we know of today. John Brown wasn't the John Brown," Collins says. "They were largely unknown people who stepped in and simply built great companies. Their name gets made in the act of building it." So if you want leaders to bring your company to the next level after your tenure is over, start training your people.

Published on: Dec 11, 2014