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Building a Visionary Company by James C. Collins Jerry I. Porras

The Myth of the "Great Idea" On August 23, 1937, two recently graduated engineers in their early twenties with no substantial business experience met to discuss the founding of a new company. However, they had no clear idea of what the company would make. They only knew that they wanted to start a company with each other in the broadly defined field of electronic engineering. They brainstormed a wide range of initial product and market possibilities, but they had no compelling "great idea" that served as the founding inspiration for the fledgling company. Bill Hewlett and Dave Packard decided to first start a company and then figure out what they would make. They just started moving forward, trying any. thing that might get them out of the garage and pay the light bills. According to Bill Hewlett: When I talk to business schools occasionally, the professor of management is devastated when I say that we didn't have any plans when we started-we were just opportunistic. We did anything that would bring in a nickel. We had a bowl- ing foul-line indicator, a clock drive for a telescope, a thing to make a urinal flush automatically, and a shock machine to make people lose weight. Here we were, with about $500 in capital, trying whatever someone thought we might be able to do. The bowling foul-line indicator didn't become a market revolution. The automatic urinal flushers and fat-reduction shock machines didn't go anywhere, CAUFORNIA MANAGEMENT REVIEW VOL. 37, NO. 2 WINTER 1995 8 81 ontent.blackboardcan.com/Sadeextcob3b3/27b10909:X-Blackboard- (L Page View All Read aloud T Add text IT Building a Visionary Company a either. In fact, the company stumbled along for nearly a year before it got its first big sale-eight audio oscilloscopes to Walt Disney for work on the movie Fanta- sia. Even then, Hewlett-Packard continued its unfocused ways, sputtering and tinkering with a variety of products, until it got a boost from war contracts in the early 1940s. Texas Instruments, in contrast, traces its roots to a highly successful initial concept. TI began life in 1930 as Geophysical Service, Inc., "the first independent company to make reflection seismograph surveys of potential oil fields, and its Texas labs developed and produced instruments for such work." TI's founders, unlike Hewlett and Packard, formed their company to exploit a specific techno logical and market opportunity. TI started with a great idea." HP did not. Neither did Sony. When Masaru Ibuka founded his company in August of 1945, he had no specific product idea. In fact, Ibuka and his seven initial employees had a brainstorming session-after starting the company--to decide what products to make. According to Akio Morita, who joined the company shortly after its founding. "The small group sat in conference ... and for weeks they tried to figure out what kind of business this new company could enter in order to make money to operate. They considered a wide range of possibilities, from sweetened bean-paste soup to miniature golf equipment and slide rules. Not only that, Sony's first product attempt (a simple rice cooker) failed to work properly and its first significant product (a tape recorder) failed in the market- place. The company kept itself alive in the early days by stitching wires on cloth to make crude, but sellable, heating pads." In comparison, Kenwood's founder, unlike Ibuka at Sony, appeared to have a specific category of products in mind. He christened his company with the name "Kasuga Wireless Electric Firm" in 1946 and "since its foundation, according to the Japan Electronics Almanac, "Kenwood has always been a specialist pioneer in audio technology.*** Like fellow legendaries Ibuka and Hewlett, Sam Walton also started with- out a great idea. He went into business with nothing other than the desire to work for himself and a little bit of knowledge and a lot of passion) about retail- ing. He didn't wake up one day and say, "I have this great idea around which I'm going to start a company." No. Walton started in 1945 with a single Ben Franklin franchise five-and-dime store in the small town of Newport, Arkansas. "I had no vision of the scope of what I would start," Walton commented in a New York Times interview, but I always had confidence that as long as we did our work well and were good to our customers, there would be no limit to us. Walton built incrementally, step by step, from that single store until the "great New York Times interview, but I always had confidence that as long as we did our work well and were good to our customers, there would be no limit to us. Walton built incrementally, step by step, from that single store until the great idea of rural discount popped out as a natural evolutionary step almost two decades after he started his company. He wrote in Made in America: Somehow over the years folks have gotten the impression that Walmart was something that I dreamed up out of the blue as a middle-aged man, and that it was just this great idea that turned into an over-night success. But four first Wal-Mart store) was totally an outgrowth of everything we'd been doing since [1945)another case of me being unable to leave well enough alone another 82 CALIFORNIA MANAGEMENT REVIEW VOL. 37, NO. 2 WINTER 1995 Building a Visionary Company experiment. And like most over-night successes, it was about twenty years in the making." In a twist of corporate irony, Ames Stores (Wal-Mart's comparison in our study), had a four-year head start over Sam Walton's company in rural discount retailing, In fact, Milton and Irving Gilman founded Ames in 1958 specifically to pursue the "great idea of rural discount retailing. They "believed that discount stores would succeed in small towns" and the company achieved $1 million in sales in its first year of operation." (Sam Walton didn't open his first rural dis- count retail store until 1962; until then, he had simply operated a collection of small, main-street variety stores.) "* Nor was Ames the only other company that had a head start over Walton. According to Walton biographer Vance Trimble, Other retailers were out there [in 1962) trying to do just what he was doing. Only he did it better than nearly anyone. 15 HP, Sony, and Wal-Mart put a large dent in the widely held mythology of corporate origins-a mythology that paints a picture of a far-seeing entrepreneur founding his or her company to capitalize on a visionary product idea or vision- ary market insight. This mythology holds that those who launch highly success- ful companies usually begin first and foremost with a brilliant idea (technology. product, market potential) and then ride the growth curve of an attractive prod- founding his or her company to capitalize on a visionary product idea or vision- ary market insight. This mythology holds that those who launch highly success- ful companies usually begin first and foremost with a brilliant idea (technology. product, market potential) and then ride the growth curve of an attractive prod- uct life cycle. Yet this mythology-as compelling and pervasive as it isdoes not show up as a general pattern in the founding of the visionary companies. Indeed, few of the visionary companies in our study can trace their roots to a great idea or a fabulous initial product. J. Willard Marriott had the desire to be in business for himself, but no clear idea of what business to be in. He finally decided to start his company with the only viable idea he could think of take out a franchise license and open an A&W root beer stand in Washington, D.C. Nordstrom started as a small, single-outlet shoe store in downtown Seattle (when John Nordstrom, just returned from the Alaska Gold Rush, didn't know what else to do with himself)." Merck started merely as an importer of chemi- cals from Germany.' Procter & Gamble started as a simple soap and candle maker-one of eighteen such companies in Cincinnati in 1837. Motorola began as a struggling battery eliminator repair business for Sears radios.20 Philip Morris began as a small tobacco retail shop on Bond Street in London." Furthermore, some of our visionary companies began life like Sony, with outright failures. 3M started as a failed corundum mine, leaving 3M investors holding stock that fell to the barroom exchange value of two shares for one shot of cheap whiskey.**2 Not knowing what else to do, the company began making sandpaper. 3M had such a poor start in life that its second presi- dent did not draw a salary for the first eleven years of his tenure. In contrast, Norton Corporation, 3M's comparison in the study, began life with innovative products in a rapidly growing market, paid steady annual dividends in all but one of its first fifteen years of operations, and multiplied its capital fifteenfold during the same time." CALIFORNIA MANAGEMENT REVIEW VOL. 37, NO.2 WINTER 1995 83 Building a Visionary Company Bill Boeing's first airplane failed ("a handmade, clumsy seaplane copied from a Martin seaplane" which flunked its Navy trials), and his company faced ture business to keep itself aloft!** Douglas Aircraft, in contrast, had superb ini- tial success with its first airplane. Designed to be the first plane in history to make a coast-to-coast nonstop trip and to lift more load than its own weight, Douglas turned the design into a torpedo bomber which he sold in quantity to the Navy." Unlike Boeing, Douglas never needed to enter the furniture business to keep the company alive. 26 Walt Disney's first cartoon series Alice in Cartoon Land (ever heard of it?) languished in the theaters. Disney biographer Richard Schickel wrote that it was *by and large a limp, dull and clich ridden enterprise. All you could really say for it was that it was a fairly ordinary comic strip set in motion and enlivened by a photographic trick.*** Columbia Pictures, unlike Disney, attained substantial success with its first theater release. The film, More to Be Pitied Than Scorned (1922), cost only $20,000 and realized income of $130,000, thus launching Columbia forward with a sizable cash cushion that funded the making of ten additional profitable movies in less than two years.2* Waiting for "The Great Idea" Might Be a Bad Idea In all, only three of the visionary companies began life with the benefit of a specific, innovative, and highly successful initial product or service-a "great idea: Johnson & Johnson, General Electric and Ford. And even in the GE and Ford cases, we found some slight dents in the great idea theory. At GE, Edison's great idea turned out to be inferior to Westinghouse's great idea. Edison pursued direct current (DC) system, whereas Westinghouse promoted the vastly superior alternating current (AC) system, which eventually prevailed in the U.S. mar- ket.' In Ford's case, contrary to popular mythology, Henry Ford didn't come up with the idea of the Model T and then decide to start a company around that idea. Just the opposite. Ford was able to take full advantage of the Model T con- cept because he already had a company in place as a launching pad. He founded the Ford Motor Company in 1903 to capitalize on his automotive engineering talent-his third company in as many years and introduced five models (Models A, B, C, E, and K) before he launched the famous Model T in October of 1908. In fact, Ford was one of 502 firms founded in the United States between 1900 and 1908 to make automobiles-hardly a novel concept at the time. In contrast to the visionary companies, we traced the founding roots of eleven comparison companies much closer to the great idea model: Ames, Bur. roughs, Colgate, Kenwood, McDonnell Douglas, Norton, Pfizer, R.J. Reynolds, Texas Instruments, Westinghouse, and Zenith. In other words, we found that the visionary companies were much less likely to begin life with a "great idea than the comparison companies in our study. Furthermore, whatever the initial founding concept, we found that the