Great by Choice: Leading Above the Death Line

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

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

3. 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

4. Separating 10x 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 10x 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

5. 10x 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.”

6. 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.

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

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

9. 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. 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.

11. 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!”

12. Productive Paranoia 2: Bounding Risk Do 10Xers achieve outsized success simply because they took more risk?

13. Productive Paranoia 2: Bounding Risk • 3 Categories of Risk for enterprises • Death Line Risk • Asymmetric Risk • Uncontrollable Risk • 10Xers avoid these risks

14. Death Line Risk

15. Asymmetric Risk

16. Uncontrollable Risk

17. Productive Paranoia 2: Bounding Risk • Time-based risk

18. 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

19. 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

20. Productive Paranoia 3 • Zoom out, then Zoom in • http://www.youtube.com/watch?v=Ahg6qcgoay4

21. 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 • 10X leaders don’t miss the gorilla, especially if it’s a dangerous threat

22. Zoom out, then Zoom in • Captures essential manifestation of productive paranoia • Dual-lens capability • 10X 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

23. Zoom out, then Zoom in • Zoom out • 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? • Zoom in • Focus on supreme of plans and objectives

24. 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

25. Motorola vs. Intel • Despite being fast paced, remained calm and clearheaded • Formulated smart strategy • 10X teams don’t freeze up or react immediately • Think first, even when they need to think fast • Even 10X companies don’t have a perfect record

26. 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

27. 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