"I developed our business model on the idea of creating an enduring, great company — just as you taught us to do at Stanford — and the VCs looked at me as if I were crazy. Then one of them pointed his finger at me and said, 'We're not interested in enduring, great companies. Come back with an idea that you can do quickly and that you can take public or get acquired within 12 to 18 months.' "
A former student was reporting to me on her recent experiences with the Silicon Valley investment community. As an MBA student at Stanford, she had taken my course on building enduring, great companies. She had come up with a superb concept that involved doing just that. But when she took the idea to Silicon Valley, she quickly got the message: Built to Last is out. Built to Flip is in.
Built to Flip. An intriguing idea: No need to build a company, much less one with enduring value. Today, it's enough to pull together a good story, to implement the rough draft of an idea, and — presto! — instant wealth. No need to bother with the time-honored method of most self-made millionaires: to create substantial value by working diligently over an extended period. In the built-to-flip world, the notion of investing persistent effort in order to build a great company seems, well, quaint, unnecessary — even stupid.
The built-to-flip mind-set views entrepreneurs like Bill Hewlett and Dave Packard, cofounders of Hewlett-Packard, and Sam Walton, founder of Wal-Mart, as if they were ancient history, artifacts of a bygone era: They were well-meaning and right for their times, but today they look like total anachronisms. Imagine Hewlett and Packard sitting in their garage, sipping lattes, and saying to each other, "If we do this right, we can sell this thing off and cash out in 12 months." Now that's an altogether different version of the HP Way! Or picture Walton collecting a wheelbarrow full of cash from flipping his first store after 18 months, rather than building a company whose annual revenues now exceed $130 billion. These entrepreneurs and others like them — Walt Disney, Henry Ford, George Merck, William Boeing, Paul Galvin of Motorola, Gordon Moore of Intel — were pedestrian plodders by today's built-to-flip standards. They worked hard to create a superb management team, to develop a sustainable economic engine, to cultivate a culture that could withstand adversity and change, and to be the best in the world at what they did. But not to worry! In the built-to-flip economy, you can get rich without any of those mundane fundamentals.
We have arrived at a unique moment in history: the intersection of an unprecedented abundance of capital and an explosion of Internet-related business ideas. But, for all of the incredible opportunities unleashed by this combination, there is one monumental problem: The entrepreneurial mind-set has degenerated from one of risk, contribution, and reward to one of wealth entitlement. We all have friends and colleagues — often mediocre friends and colleagues at that — who have struck gold after 18 or 12 or 6 months of work in a built-to-flip company. And we have all entertained the thought "I deserve that too." Here's another thought: When I and a lot of other people began talking and writing about the new economy in the early 1980s, little did we know that it would engender what we most despised about the old economy — an entitlement culture in which the mediocre flourish.
Worse, the creative drive behind the new economy at its best has been superseded by a way of thinking that recalls the 1980s at its worst: a Wall Street-like culture that celebrates the twin propositions that "greed is good" and that "more is better." The hard truth is that we're dangerously close to killing the soul of the new economy. Even worse, we're in danger of becoming the very thing that we defined ourselves in opposition to. Those who kindled the spirit of the new economy rejected the notion of working just for money; today, we seem to think that it's fine to work just for money — as long as it's a lot of money.
Have we labored to build something better than what members of previous generations built — only to find their faces staring back at us in the mirror? Is the biggest flip of all the flip that transforms the once-promising spirit of the new economy back into the tired skin of the old economy?
Invasion of the Mind Snatchers
"Built to Last" appeared in 1994, and I was more surprised than anyone when the book took off and became both widely read and highly influential. After all, what my co-author, Jerry I. Porras, and I had produced was a huge analytic study of the underlying principles that could yield enduring, great companies. In the book, we drew examples from such 20th-century icons as Disney, General Electric, HP, IBM, and Wal-Mart. These were not hot companies — nor was this a sexy topic.
And yet the book hit a chord, generating more than 70 printings, translations into 17 languages, and best-seller status (including 55 months on the "Business Week" best-seller list). That wasn't planned; we were lucky. The book appeared just as the whole reengineering, everything-is-change-and-chaos wave crashed down — just as people were beginning to ask themselves, "Is nothing sacred? Is nothing timeless? Is nothing sustainable?"
In retrospect, I think that "Built to Last" gave people three perspectives that they desperately craved. First, it said, "Yes, there are some timeless fundamentals. They apply today, and we need them now more than ever." Second, the book affirmed that the essence of greatness does not lie in cost cutting, restructuring, or the pure profit motive. It lies in people's dedication to building companies around a sense of purpose — around core values that infuse work with the kind of meaning that goes beyond just making money. Third, the book tapped into powerful, albeit latent, human emotions: Readers were inspired by the notion of building something bigger and more lasting than themselves. In quiet moments, we all wonder what our lives will amount to, what we're going to leave behind when we die. "Built to Last" pointed people toward a path that they could follow if they wanted to leave behind a legacy. The book also rooted its answers in rigorous research, lending hard-nosed credibility to principles that people knew in their gut were true but that they could neither prove nor precisely articulate. It gave voice to their inner sense of what must be right, and it backed up that intuition with empirical evidence and clear, logical thinking.
Finally, there is one other reason why "Built to Last" struck a chord, and it is the most important reason of all: The book spoke not only of success but also of greatness. Despite its title, "Built to Last" was not about building something that would simply last. It was about building something worthy of lasting — about building a company of such intrinsic excellence that the world would lose something important if that organization ceased to exist.
Implicit on every page of "Built to Last" was a simple question: Why on Earth would you settle for creating something mediocre that does little more than make money, when you could create something outstanding that makes a lasting contribution as well? And the clincher, of course, lay in evidence showing that those who opt to make a lasting contribution also make more money in the end.
That was the state of play in 1994, when the book hit the market and captured the public's imagination. Then, on August 9, 1995, Netscape Communications went public and captured the market's imagination. Netscape stock more than doubled in price within less than 24 hours. This was the first of a wave of Internet-related IPOs that saw the value of shares double, triple, quadruple — or increase by an even greater margin — during the first days of trading.
The gold rush had begun. The Netscape IPO was followed by IPOs for such high-profile enterprises as eBay, E*Trade, and priceline.com. Companies with no significant products, profits, or prospects scrambled to position themselves in the "Internet space." The point of this new game was impermanence: Startups flip their stock to underwriters, who flip the stock to individual buyers, who flip the stock to other individual buyers — with everyone looking for a quick, huge financial gain.
In some cases, the results were mind-boggling. When the financial Web site MarketWatch.com went public, on January 15, 1999 (with a quarterly net profit margin of -168%), its basket of public shares flipped over not once, not twice, but three times within the first 24 hours, driving the opening-day price up nearly 475%. The flipping continued to escalate, creating a slew of stunning debuts: From November 1998 to November 1999, 10 companies had first-day price increases that exceeded 300%, despite minimal or no profitability. As Anthony B. Perkins and Michael C. Perkins calculate in their superb book, "The Internet Bubble" (HarperBusiness, 1999), less than 20% of the top 133 "flip" IPOs showed any profits as of mid-1999. In fact, their current market valuations would be justified only if revenues for the entire portfolio of companies grew by 80% per year for the next five years — a rate considerably faster than that achieved by either Microsoft or Dell within the first five years of their IPOs.
Fueling the built-to-flip model has been a nearly unprecedented rise in venture-capital investment: From a steady state of about $6 billion per year for the 10-year period from the mid-1980s to the mid-1990s, venture-capital investment exploded, reaching more than $17 billion in 1998. Simultaneously, a flight of angel investors began looking for a piece of the next big flip. As my former student found out, if you have a flippable idea, you won't have much trouble finding capital. It doesn't matter whether the idea is a good one — whether the idea can be built into a profitable business, or a sustainable organization, or indeed a great company. All that matters is that the idea be flippable: Get in, get out, and get on to the next idea before the bubble bursts.
All of this happened overnight, at the blinding pace of change known as "Net speed." One day, I was teaching eager students, entrepreneurs, and businesspeople how to build enduring, great companies. The next day, that goal had become passé — an amusing anachronism. Not long ago, I gave a seminar to a group of 20 entrepreneurial CEOs who had gathered at my Boulder, Colorado management lab to learn about my most recent research. I tried to begin with a quick review of "Built to Last" findings, but almost immediately a chorus of objections rang out from the group: "What does 'building to last' have to do with what we face today?"
Scenes from the science-fiction classic "Invasion of the Body Snatchers" ran through my head. I went to bed one night in my familiar world and woke up the next morning to discover that my students had been taken over by aliens.
Built Not to Last
I believe as strongly as ever in the fundamental concepts that came from the "Built to Last" research. I also know that building to last is not for everyone or for every company — nor should it be. In fact, there are at least two categories of companies that should not be built to last.
The first category is "the company as disposable injection device." In this model, the company is simply a throwaway vessel, a means of developing and injecting a new product or an innovative technology into the world. Most biotechnology and medical-device ventures fall into this category. They function as a highly decentralized form of large company R&D — in effect, serving as external labs for one or another of the large, powerful pharmaceutical companies that dominate the world market. With most such ventures, the only question is which large company will end up owning a given technology. One example: Cardiometrics Inc., a Mountain View, California company that set itself up in 1985 for the purpose of developing a device that could gather data on the actual extent of coronary disease in a patient. (The goal was to reduce the number of people who undergo unnecessary bypass surgery.) Cardiometrics was not built to last, and in 1997 it was acquired by EndoSonics Corp., a heart-catheter company in Rancho Cordova, California that has a distribution network capable of reaching millions of patients. In this case, acquisition by another company made perfect sense — economically, organizationally, strategically, entrepreneurially. And the acquisition in no way demeaned the contribution that the founders and employees of Cardiometrics had made in developing a vital new technology. For companies like this one, it is eminently reasonable to do the hard work of creating a product that can make a distinctive contribution — and then to sell the product to a company that can leverage it faster, cheaper, and better.
In retrospect, we can all point to companies that should have viewed themselves as "built not to last." Confronting that reality would have helped them understand that they were never more than a project, a product, or a technology. Lotus, VisiCorp, Netscape, Syntex, Coleco — all of these companies would have served themselves and the world better if they had accepted their limited purpose from the outset. Ultimately, they squandered time and resources that might have been applied more efficiently elsewhere.
The second category is "the company as platform for a genius." In this model, the company is a tool for magnifying and extending the creative drive of one remarkable individual — a visionary who has immense talent but lacks the temperament required to build an enduring, great company. Once that person is gone, so is the company's reason for being. The best historical example is Thomas Edison's R&D laboratory. The purpose of that enterprise was to leverage Edison's creative genius: Edison would spin his ideas and then flip them out to people who could build companies around them. That's what he did with the lightbulb, and that's how General Electric came into being. When Edison died, his R&D laboratory died with him — as indeed it should have.
Recent adaptations of the genius model include Polaroid (Edwin Land) and DEC (Ken Olsen). And the jury is still out on what may prove to be the most successful and powerful genius platform of all time — Microsoft. Despite the company's profitability and stature, there is no moral or business-logic reason why Microsoft must outlast the guiding presence of Bill Gates.
Not New, Not Even Improved
Like many aspects of the new economy that we celebrate as revolutionary, Built to Flip has been around for a long time. For three decades, entrepreneurs have followed a Silicon Valley paradigm — a set of assumptions about how to handle a startup. The model isn't all that complicated: Develop a good idea, raise venture capital, grow rapidly, and then go public or sell out — but, above all, do it fast. Even 20 years ago, there was an ethic of impatience: A company that hadn't made it big within 7 to 10 years was deemed a failure. There was also an ethic of impermanence: The expectation that a company would be built to last was largely absent from Silicon Valley business culture. Remember Ashton-Tate? Osborne Computers? Businessland? Rolm? Today, none of those outfits exist as stand-alone great companies — but each was a successful example of the Silicon Valley paradigm.
My first encounter with the Silicon Valley built-to-flip mentality came in 1982. While completing my graduate studies, I did a research project on entrepreneurship in the Valley. My target of study was a workstation startup called Fortune Systems. As I explored the internal workings of the company, what struck me wasn't its technology, its business model, or its culture. No, what struck me was what I perceived to be its founders' utter lack of interest in building a great company. Fortune Systems was built to flip from the get-go. Workstations were hot, capital was plentiful, and the stock market was starting to look good for IPOs. I remember asking a member of the management team about plans for building the company after the IPO, and he just looked at me: Clearly, I didn't get it. The point of it all, I concluded, was simply to go public as fast as possible. Even the company's name — Fortune Systems — was a none-too-subtle tip-off to its underlying purpose.
That was almost 20 years ago. Today, we've arrived at a whole new level of flippability. In the old Silicon Valley paradigm, "fast" meant flipping a company within 7 to 10 years. By today's standards, that time frame seems preposterously glacial. Fortune Systems aside, most people operating within the old Silicon Valley paradigm at least gave lip service to the idea of creating a great company — of inventing products that make a significant contribution and then building a sustainable economic engine around those products. People are now proselytizing the bizarre notion that it's better not to have profits: Today's upside-down logic says that a company will get a better valuation if it has nothing but upside potential — because the casino players care about nothing else. In a recent column in the "New York Times," technology writer Denise Caruso described the phenomenon: "The desire to cash out big is not a new motivating force in the technology industry. But what is striking about today's Internet economy is how much of that money lust is focused on selling business plans for their own sake, rather than planning viable businesses."
The High Cost of the Pursuit of Money
The great irony of all this is that we now enjoy the best opportunity in 100 years to build great companies that fundamentally change the world in which we live. Somewhere out there, a small group of people are laying the foundation for the great, enduring companies of the 21st century. They will be for us what Henry Ford, George Merck, and Gordon Moore were for our predecessors. They will fashion organizations that will dominate the economic landscape and the business conversation for the next 50 years. And 50 years from now, most of today's built-to-flip companies and their founders will be as relevant to the world as the gold diggers who flocked to California 150 years ago. That doesn't mean that those who build to flip won't get rich. Many will — perhaps more people than at any time in modern history. In fact, amassing unlimited personal wealth may well be the defining goal of our era. At no time in history has it been easier to reallocate capital without creating lasting value. Of course, in doing so, we run the risk of missing the best opportunity in decades to create something great.
But so what? What's wrong with Built to Flip run rampant?
If Built to Flip were to become the dominant entrepreneurial model of the new economy, one almost-inevitable outgrowth would be a rise in social instability. At the heart of the American commitment to democratic capitalism is a shared ideal: From the Industrial Revolution to the Information Revolution, Americans at all levels of society, in all walks of life, and in all occupations have bought into the proposition that the United States offers economic opportunity for all. What we've already seen, even in this relatively early phase of Built to Flip, is a growing socioeconomic disparity — and, perhaps most troubling, a perceived decoupling of wealth from contribution. Not only is there an increasing sense that the social fabric is fraying, as the nation's wealth engine operates for a favored few; there is also a gnawing concern that those who are reaping more and more of today's newly created wealth are doing less and less to "earn" it.
But here's the good news: Built to Flip can't last. Ultimately, it cannot become the dominant model. Markets are remarkably efficient: In the long run, they reward actual contribution, even though short-run market bubbles can divert excess capital to noncontributors. Over time, the marketplace will crush any model that does not produce real results. Its self-correcting mechanisms will ensure the brutal fairness on which our social stability rests.
The most significant consequence of the Built to Flip model isn't socioeconomic, however. It is personal. When it emerged in the early 1980s, the new-economy culture rested on three primary tenets: freedom and self-direction in your work; purpose and contribution through your work; and wealth creation by your work. Central to that culture was the belief that work is our primary activity and that through work we can achieve the sense of meaning that we are looking for in life. Driving the new economy were immensely talented, highly energetic people who sought a practical answer to a fundamental question: How can I create work that I'm passionate about, that makes a contribution, and that makes money? By fostering a culture of entitlement, Built to Flip debases the very concept of meaningful work. And, as is always the case with any form of entitlement, it ultimately debases the person who feels entitled.
Even for those with exceptional talent and drive, money seems to have become the central point of it all. The poster children of the new new economy are people like Jim Clark, the founding genius of Netscape, who is vividly portrayed in Michael Lewis's riveting book "The New New Thing" (W.W. Norton, 1999). Despite his impressive résumé, Clark comes across as a man who is stuck on a monetary treadmill: He seems addicted to running after more and more, and then more still, without ever stopping to ask why. Late in the book, Lewis describes a scene in which he presses Clark on this very issue. Earlier, Clark had said that he would retire after he became "a real after-tax billionaire." Now he was worth $3 billion. What about his plans for retiring? "I just want to have more money than Larry Ellison," he says. "I don't know why. But once I have more money than Larry Ellison, I'll be satisfied."
But Lewis pressed further. In about six months, Clark would surpass Ellison in terms of net worth. Then what? Did Clark want more money than, say, Bill Gates? Lewis writes, " 'Oh, no,' Clark said, waving my question to the side of the room where the ridiculous ideas gather to commiserate with each other. 'That'll never happen.' A few minutes later, after the conversation had turned to other matters, he came clean. 'You know,' he said, 'just for one moment, I would kind of like to have the most. Just for one tiny moment.' " In the biggest flip of all, by running aimlessly on the new-wealth treadmill, we have come to resemble previous generations. In the old economy, our parents got jobs not because of the work itself but because of the pay. In the new economy, we got jobs not just for the pay but also for the chance to do meaningful work. In the new new economy, we've come full circle. This time, though, the drive for money is not about putting bread on the table (in other words, achieving comfort and security); it's about getting a bigger table. It's about keeping up with the Ellisons.
Comparison, a great teacher once told me, is the cardinal sin of modern life. It traps us in a game that we can't win. Once we define ourselves in terms of others, we lose the freedom to shape our own lives. The great irony of the Built to Flip culture is that its proponents see themselves as freethinking people in search of the Holy Grail. And yet, when they do one successful flip, they invariably discover that it isn't enough. So they go off in pursuit of bigger numbers — not one set of options but a whole portfolio of options — in an escalating, never-ending game. If the Holy Grail isn't $10 million, then maybe it's $50 million. And if it's not $50 million, then surely it's $100 million ... Meanwhile, those who don't play Built to Flip view their "no better than me, but luckier" colleagues with seething envy — a form of self-imprisonment that's even uglier than greed. The Holy Grail will forever elude those who imprison themselves, no matter how gilded the prison. As Joseph Campbell pointed out, the Holy Grail can be found only by those who lead their own lives.
Built to Work
So which are you striving for: Built to Last or Built to Flip? In fact, that's the wrong question. Some companies will be built to last; some won't. Some should be; others shouldn't. Ultimately, that's an artificial distinction.
The real question, the essential question is this: Is your company built to work? The answer rests on three criteria: excellence, contribution, and meaning. Again, consider Cardiometrics. The company may not have been built to last, but in all of its activities, it adhered to the highest possible standards: Instead of relying on expedient studies and marketing hype, it conducted rigorous, costly clinical trials in order to demonstrate the value of its technology. And the company clearly made a significant contribution — to the market, to its investors, and to the lives of patients all over the world. Finally, the people of Cardiometrics found their work to be intrinsically meaningful: They worked with colleagues whom they respected and even loved, and they pursued a worthy aim to the best of their ability. Built to Flip? Built to Last? Cardiometrics embodies neither of these models: It was built to work.
If the new economy is to regain its soul, we need to ask ourselves some tough questions: Are we committed to doing our work with unadulterated excellence, no matter how arduous the task or how long the road? Is our work likely to make a contribution that we can be proud of? Does our work provide us with a sense of purpose and meaning that goes beyond just making money?
If we cannot answer yes to those questions, then we're failing, no matter how much money we make. But if we can answer yes, then we're likely not only to attain financial success but also to gain that rarest of all achievements: a life that works.
Jim Collins (firstname.lastname@example.org) is coauthor of "Built to Last: Successful Habits of Visionary Companies" (HarperBusiness, 1994). Formerly a lecturer at the Stanford Graduate School of Business, he jettisoned a traditional academic career in order to chart his own path. Today, he operates a management-research laboratory in Boulder, Colorado.