Built to Last: Successful Habits of Visionary Companies

The summary

In 1988 two Stanford researchers got stuck: who is the charismatic visionary leader of 3M? Nobody could name him. The company had run through ten generations of chief executives, so no single genius or lucky product could explain it. Collins and Porras spent six years on the answer. They surveyed seven hundred CEOs, took the twenty companies named most often, cut everything founded after 1950, and were left with eighteen: Merck, Sony, Boeing, 3M, Wal-Mart, Disney among them. Then the move that makes the book work: each was paired with a rival from the same era and industry. Boeing against McDonnell Douglas. Motorola against Zenith. Wal-Mart against Ames. The comparisons aren’t failures; they beat the market. Whatever both groups share explains nothing; only the differences count. A dollar in the general market on January 1, 1926, was worth $415 by the end of 1990. A dollar in the comparison companies, $955. A dollar in the eighteen, $6,356.

The company is the ultimate creation

Hewlett and Packard started a company in 1937 without knowing what it would make. They tried a bowling foul-line indicator, an automatic urinal flusher, and a shock machine for losing weight. Sony’s founders brainstormed after incorporating and considered bean-paste soup. 3M began as a failed mine whose stock traded at two shares for a shot of cheap whiskey. Only three of the eighteen launched on a genuinely great idea, against eleven of the comparisons; early entrepreneurial success turned out to be negatively correlated with becoming visionary.

Their distinction is telling time versus building a clock. George Westinghouse was a brilliant inventor who founded fifty-nine other companies and was right that AC would beat Edison’s DC. Charles Coffin, GE’s first president, invented nothing — he built America’s first industrial research laboratory. Westinghouse’s greatest creation was a power system; Coffin’s was General Electric. Which is why you’ve never heard of William McKnight, who ran 3M for fifty-two years.

The Genius of the AND

Merck developed Mectizan, a cure for river blindness, knowing its million patients couldn’t pay. When no government stepped in, Merck gave it away and funded distribution. Ideals or good business? Both. “Medicine is for the patient,” George Merck said in 1950. “It is not for the profits. The profits follow.” Pfizer’s president then said “we aim to get profit out of everything we do,” and bought fourteen companies in four years. In seventeen of eighteen pairs the visionary company was the more ideological — and made more money.

Johnson & Johnson’s 1943 Credo ranks stockholders fifth, behind doctors, employees, managers and communities. In 1982, after seven deaths in Chicago, J&J pulled every Tylenol capsule in America, an estimated $100 million. Days later Bristol-Myers faced tampered Excedrin and recalled only in Colorado. But content isn’t the point: Philip Morris makes the list too, defiant and proud of cigarettes. What separates these companies is that the ideology is lived, not that you’d like it. Profit, the authors write, is like oxygen: necessary, not the point of life.

Preserve the core, change everything else

The ideology is the only permanent thing; strategy, structure, products and cultural norms should all be open for demolition. IBM stumbled, they argue, by confusing blue suits and mainframes with what it actually believed.

Progress gets stimulated two ways. One is the BHAG, the Big Hairy Audacious Goal. In 1952 Boeing gambled roughly a quarter of its net worth on a prototype for a commercial jet no airline wanted, and built the 707. In 1965 it committed to the 747, which could have killed the company; asked what he’d do if the first one crashed on takeoff, chairman William Allen said he’d rather discuss something pleasant, like a nuclear war. A good BHAG outlives whoever set it — the moon mission didn’t stall when Kennedy died.

The other way is messier. J&J got into baby powder because a doctor complained about skin irritation and was mailed some talc; that accident opened a consumer business worth 44 percent of revenue. Wal-Mart’s greeters began as one manager’s anti-shoplifting experiment. 3M’s masking tape came from a young employee overhearing a paint shop’s profanity — and 3M institutionalized the accident: 15 percent of technical time on projects of your own choosing, a quarter of each division’s sales from products under five years old. Branch, then prune.

You either fit or you’re ejected

None of it is comfortable. Nordstrom’s employee handbook is a single card: “Rule #1: Use your good judgment in all situations. There will be no additional rules.” Sales per hour are ranked and posted in the back room, secret shoppers grade your smile, half of new hires are gone within a year. Summed across indoctrination, tightness of fit and elitism, the visionary companies were more cult-like in fourteen of eighteen pairs. Buy in and you may never be happier; don’t, and you’re ejected like a virus.

They also grow their own. Across seventeen hundred years of combined company history, only four CEOs were ever hired directly from outside. Jack Welch joined GE at twenty-four and spent twenty years inside before the top job; his predecessor began planning that succession seven years ahead, from ninety-six internal candidates. And nobody is allowed to feel finished: P&G set its own brands at each other’s throats from 1931, and Marriott’s chairman visited up to two hundred properties a year while Howard Johnson, Jr. said “we are a reacting company” — his was sold in 1979 and resold six years later for less than half the price.

The bottom line

Enduring companies aren’t led by prophets. They’re engineered by people who care more about the institution than about being right, and who bolt real mechanisms onto both halves of the job: keep the handful of things you’d hold even if they cost you, churn everything else. Read it if you’re building something you want to outlive you; skip it if you want tactics for this quarter, since the evidence runs in decades and stops in the mid-1990s.