Built to Flip

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.