Good Questions, Great Answers

The cover story by Jim Collins in the October 2001 issue of Fast Company is based on the vast research that went into the making of Good to Great: Why Some Companies Make the Leap ... And Others Don't (HarperCollins, 2001). Collins's new book is destined to influence how leaders around the world think about their companies, their strategies, and their approach to making change.

In an in-depth interview, we asked Collins about the implications of his research and ideas for the economy, stock market, and the very nature of executive leadership.

The good-to-great companies that you wrote about all achieved remarkable stock-market results over a 15-year period. But today, the stock market is down. Does that mean we won't see any good-to-great companies today?

First, I want to correct a great misconception. The stock market is not down. How does the stock market look relative to 1985? The stock market is not down. How does it look relative to 1990? The stock market is not down. The market was irrationally out of whack -- we didn't have a stock market; we had a speculative casino.

The tech bubble wasn't the new economy -- there is a new economy that's been going for years at a deeper level. But the brutal fact is that the companies that were at the top of the tech bubble didn't have results. You can't make zero profits and claim that you have results. In the case of companies that had great results before the bubble burst, they're in a down period now, but so what? The bottom line on a company like Cisco is, we don't know the answer yet. It could be that those companies are just in a very difficult 6- to 12-month period.

Let me use an analogy. Let's say that you have a great basketball dynasty like the UCLA Bruins under John Wooden. This is a team that is going to win 10 NCAA championships in 12 years. They're a team that went from good to great. But in 1970, they lose three games. Does that mean that we're going to write them off and say they're not a great team? We have to look over a longer period of time. The same is true of companies that got caught in the bubble. It was too short a time period. It's going to take more time to tell which companies that are in trouble now are simply going through a momentary period and will have the resiliency to come back.

But to a lot of businesspeople, the current slowdown is a sign of the new economy's demise.

This is one of the most wonderful times in history. Two or three years ago, what was the major complaint that we heard? "It's so hard to get good people! Whine, whine, whine!" Today, we've got the greatest opportunity that we are going to have for decades to snag a boatload -- not a busload, but a boatload -- of great people. And great companies always start with who, not what. We can finally get to the right side of Packard's Law. Packard's Law is like a law of physics for great companies. It says that no company can become or remain great if it allows its growth rate in revenues to exceed its growth in getting the right people in a sustainable way. It's one of those timeless truths that transcend technology and economics. Now, instead of trying to accumulate capital, we can accumulate people.

If I were running a company today, I would have one priority above all others: to acquire as many of the best people as I could. I'd put off everything else if I could afford it -- buildings, new projects, R&D -- to fill my bus. Because things are going to come back. My flywheel is going to start to turn. And the single biggest constraint on growth and the success of my organization isn't markets, isn't technology, isn't opportunity, isn't the stock market. If you want to be a great company, the single biggest limitation on your ability to grow is the ability to get and hang on to enough of the right people.

This is also a great time to force yourself to look back. When you were breaking Packard's Law, you probably let a lot of the wrong people on the bus. This is a good time to get them off. In fact, it's a little easier to do that now. We can blame it on the circumstances.

What else would you do to capitalize on this period of reevaluation?

This is also a great time to ask yourself some really hard questions. In a time of irrational prosperity, where the market would give you money whether you delivered or not, a lot of companies hadn't answered any of the questions in the three circles (What can we be the best in the world at? What is the economic denominator that best drives our economic engine? And what are our core people deeply passionate about?). They had no concept of what they could do better than any other company in the world that was sustainable, they had no profit denominator, and the only thing they had passion for was flipping the company.