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Built to Last

January 25, 2006

I'm going to say something unfashionable, I want to build a large, enduring company that stands the tests of time. Lots of startups are given advice to say something along those lines, especially during the 'bubble times', but it was advice given with a wink and a nudge. It's now becoming fashionable, due to various factors such as a weak IPO market and Sarbanes-Oxley to espouse your "true intentions" to build to flip. While you never know what situations you'll be in, deep down it is *not* my intention to build a company "to flip" or sell.

I just finished Built To Last, by Jim Collins and Jerry I. Porras. The premise of the book is that the authors collected data on highly admired, long lasting companies (such as IBM, Merck, and Disney), and then tried to do a qualitative analysis of them to try and figure out what made them great. They did this by comparing what they call "visionary companies" against "companion companies" or other companies, started around the same time, that were successful but not as enduringly successful as the "visionary companies" and not nearly as admired.

Although it's never quite spelled out this way, the core idea of the book is that these companies were idealistic. The founders and employees strove to install a larger sense of meaning to the endeavor, and more importantly institutionalized that idealism in the structures of the company. It is the author's contention that this idealism and it's pervasiveness in the structures of the company are what allowed them to endure and be really great. That's not to say the ideals are always wholesome, Philip Morris instills a deep idealism about individualism, "I can smoke if I want to and you can't stop me!".

I enjoyed the book, although I didn't find any of the "busted myths" or revelations to be surprising. It might be that since the book is over ten years old I've already been exposed to, and subconsciously internalized, the ideas and conclusions. I found resonance with all of the conclusions in the book and found great validation in my own ideas, maybe because I myself, am an idealist (or at least I've been accused of being such in the past).

Character, in the long run, is the decisive factor in the life of an individual and of nations alike.
- Theodore Roosevelt

It was interesting how many of my own company beliefs where echoed in the book. The book talks about great companies being started without initial ideas or failed initial ideas (one of my big points). It also describes how great "visionary" companies don't always have charismatic leaders. It also debunks that success is based in whole on "great strategic planning", instead they talk about the try it in the market and change it if it's broken ideal that I also talk about all the time. The book also concludes that people will rise to greatness if they have a sense of meaning and big sweeping goals, something else I greatly believe.

There's one 'busted myth' I actually take issue with. The book states flatly that truly great companies are *not* focused on "maximizing shareholder value". What they're really saying is that truly great companies are not focused on maximizing immediate profit which, of course, is the usual definition of that phrase. I think that definition of "maximizing shareholder value" is too narrow and should extend beyond the profit of the moment. I believe truly great companies actually increase shareholder value by being idealistic, by setting long term goals, by building institutions to enshrine their idealism, in short by creating an enduring company. Do you want $.05 per share increase now, and a failed company in a year? Or would you rather have shares in a company, like the tortoise and the hare, that will triple, quadruple, increase a hundredfold in value over the longer term?

An interesting thought popped into my head and kept rolling around as I read this book. I'm not sure if it was from an actual passage in the book or if I synthesized it from aspects of the book (if it's in there I apologize for not being able to quote it) but it's a elucidation of the role of profit to a truly great company. To a great company, profit is like air, necessary for life. However, no one lives to breathe. I think this statement and the image it evokes helped me frame my own thoughts on profit versus idealism. While no one lives to breathe, how hard would you fight for air if deprived of that necessity?

I heard a phrase in a movie once, Primary Colors, where one character says to another "Uh Oh, I think you have a case of T.B." which results in a puzzled look, "True Believerism". I want to build a company where everyone is infected with TB. Where people find joy in knowing that they are doing something important and meaningful. I think for people to do great things, to fulfill their human potential, to find real joy in life, they need to feel like they are contributing to something important.

Far and away the best prize that life has to offer is the chance to work hard at work worth doing.
- Theodore Roosevelt

Yet another chance to post some T. Roosevelt quotes.