Collins theory of the hedgehog and the fox. Hedgehog theory. How does your economic model work? Profit per X

In accordance with the Chart of Accounts in force regulations on accounting and taxation, in accordance with Russian and international standards, the theoretical foundations for the formation of financial results, the methodology for their accounting and reporting in accordance with the requirements of PBU 18/02 are outlined; principles of organization tax accounting and key areas for improving the methodology for accounting for financial results. For university students studying in the specialty "Accounting, Analysis and Audit"; may be useful to students of advanced training courses.

In accordance with the Chart of Accounts for accounting the financial and economic activities of organizations and the Instructions for its application, current regulations set out the issues of accounting for: finished products, works, services, financial results and use of profits; capital, funds, reserves, loans and borrowings, as well as financial statements. For university students studying in the specialty "Accounting, Analysis and Audit", it may be useful for students of advanced training courses.

Detailed explanations are given on the determination of income from the sale of products (works, services) and the attribution of costs to their cost, the procedure for the formation of non-operating income and expenses taken into account for tax purposes, and the determination of the amount of taxable profit. The publication was prepared on the basis of Chapter 25 of the Tax Code Russian Federation taking into account the changes and additions made, decrees of the Government of the Russian Federation, instructions from the Ministry of Finance of Russia and the Ministry of Taxes of Russia. For heads of organizations, chief accountants, auditors and tax officials.

The content of concepts related to the shadow and informal economy is revealed. The reasons for the stability of shadow economic processes as an object of statistical research are analyzed. Methodological issues of measuring the shadow and informal economy are considered. The domestic and foreign experience in constructing a system of indicators, classifications and methods for assessing individual segments of shadow economic activity and economic activity in the informal sector of the economy is summarized. The book is equipped with a glossary and an extensive bibliography. For a wide range of economists and statisticians. It can be recommended as a teaching aid in the system of advanced training in accounting and statistics, as well as for teachers, graduate students and students of higher educational institutions of economics.

The monograph is devoted to the formation of the private sector in the economies of the post-socialist countries of Central and Eastern Europe (CEE). A comparative analysis of models of privatization of state-owned enterprises in CEE countries and Russia was carried out; the main mechanisms for the formation of private capital based on the privatization of financial resources are shown; the dynamics, incentive measures and main problems of private sector development on its own basis have been identified. When analyzing the transformation of property relations, the shadow economy is included as a component of the object of study, and the genesis of its development is shown. Some socio-economic consequences of the privatization of the economy of post-socialist countries are considered. A comparative analysis of the initial basis, models and subjects of privatization, mechanisms of subsequent concentration of capital, ownership and control in CEE countries and Russia allows us to understand the causes of many of the problems that Russian society is currently facing, to outline ways out...

The consensus among experts is that the global economic downturn is already here, that the recession will hit every sector of the economy, and that things will get worse before they get better. Therefore, you should not hope that the recession is somewhere “out there”, “not here” and maybe everything will gradually resolve itself. But you, a serious and far-sighted entrepreneur, don’t think so, do you? You intend to take action. The larger your business, the longer it will take to turn it in the right direction, and the sooner you need to start this turn. In addition, if you are united in all faces and qualities, you will have to keep the business afloat with one hand, and radically change everything in it with the other. Nicholas Bate offers you a detailed, thoughtful and at the same time extremely clear plan of action. And Sergei Potapov, the author of the “Russian” chapters, adds a little local color to this plan, adapting the English book to Russian realities. Let's be honest: today's financial prospects do not look...

The economic crisis has shown the complete failure of market fundamentalism, which denies state regulation of the economy. The transition to an innovative economy requires improving the legal regulation of production and economic activities. The work examines business (economic) law as a tool for regulating production and economic activities in the real sector of the economy. The concept of the real sector of the economy is considered, the legal status of economic entities in the real sector of the economy and the problems of legal regulation of their economic relations in modern conditions are analyzed. The features of the legal organization of intra-economic relations that develop within corporate and unitary enterprises are shown. For scientists and practitioners in the field of law and economics. Recommended for undergraduates, graduate students and teachers of law and economics universities and faculties.

Quote Project financing can provide a very significant share of a bank's income. What the book is about The book talks about what you need to pay attention to first of all, what to do in order to avoid mistakes at any stage of project financing. Why the book is worth reading What is the difference between project finance and project finance? What are the modern principles, methods and models of project financing? The book covers all aspects of working with an investment project: from project initiation and project analysis, structuring a project financing scheme, monitoring project implementation and project management to exiting the project. The book is based on foreign and Russian experience evaluation, project analysis and project financing. It summarizes the materials of the course “Project Financing: State of the Art and Prospects for Development,” which the author teaches at the Financial University under the Government of the Russian Federation. ...

The features of the functioning of regions as independent economic entities of a corporate type are considered. The need for cross-level and cross-sector financial integration as a source of generating strategic investments in the regions is substantiated. The concept of regional development based on financial integration is formulated. Methodological foundations for network financing of integrated structures have been developed. The experience of using individual network financing models in the Nizhny Novgorod region is analyzed. For researchers in the field of economics, finance and management, specialists from government agencies, graduate students, students of economics and finance faculties, as well as a wide range of readers.

The development of integration processes in the world and in Russia is becoming one of the significant factors in the growth of companies and predetermines the structure of commodity markets. This raises a number of questions that are the subject of research in this monograph. These include theoretical aspects of integration processes in the transition from industrial to post-industrial economies, forms, methods and patterns of integration in various product markets, processes of mergers and acquisitions as forms of property integration, features of financing integration processes and management of the consolidation effect. The monograph is addressed to the scientific community, specialists in integration processes in the post-industrial economy, professional participants in mergers and acquisitions processes, students, undergraduates, graduate students and doctoral students of economic universities and specialties.

Are you a “fox” or a “hedgehog”?

In one of his works “The Hedgehog and the Fox” (1953), Isaiah Berlin, an English philosopher and political figure (by the way, with Russian roots) deploys an interesting metaphor belonging to the ancient Greek poet:

“The fox knows many secrets, but the hedgehog knows only one, but the most important one.”(Archilochus)

For Berlin, the fox and the hedgehog symbolize two fundamental different strategies in achieving the goal: the cunning fox constantly invents a variety of ways to attack the hedgehog, while the hedgehog defends itself from its attacks in one single, but invariably effective way - by curling up into a ball and exposing its thorns. That's why it always wins.

In other words, in this classification, based on a Greek proverb, the hedgehog symbolizes a creature that is not at all stupid, although somewhat limited by a lack of imagination.

IN " Explanatory dictionary Russian language" Ozhegova phraseological unit "no brainer" is interpreted as "clear and simple, understandable to everyone"

Then the most interesting part begins: Isaiah Berlin transfers these animal symbols into the human world and distinguishes two types of worldviews. Of course, the author warns us, this analogy should not be given the character of a theorem - after all, there is no strict proof, there is only an assumption.

Foxes strive for several goals at the same time, and see the world in all its complexity. They are “scattered, trying to achieve a lot at once,” says Berlin, “their thinking is not unified by a concept or vision.” Sir Isaiah includes Shakespeare and Pushkin in the fox group.

Hedgehogs, for their part, simplify the world, reducing it to a simple organizing idea, principle or concept that ties everything together and guides their actions. No matter how complex the world is, the “hedgehog” reduces all issues and problems to a simplified, sometimes even primitive, “hedgehog” idea. For a hedgehog, everything that does not fit into his own concept does not matter. Berlin includes Nietzsche and Dostoevsky in the hedgehog row.

One of the publicists applied the same figurative metaphorical matrix to politics: the behavior of Hillary Clinton and Barack Obama during the elections.

“According to the unanimous opinion of analysts, the developments of both candidates are largely similar. However, Hillary's political projects are many times superior to Obama's populist program.

Its solutions to the most pressing national issues: health insurance, tax cuts, procedures for legalizing illegal immigrants and, most importantly, the issue of withdrawing troops from Iraq are more thoughtful, realistic and economically beneficial. This is understandable: she has vast experience and outstanding analytical skills. It would seem that, given all other conditions, her victory is guaranteed. After all, behind her political opponent there is nothing but skin color, charisma and a well-spoken tongue.

But Barack Obama’s personality contains much of what Hillary lacks, and what professional political strategists could not teach her... he concentrated his efforts on winning not the brains, but the feelings of voters” (Expert magazine).

Why don't you like the strategy of Foxes and Hedgehogs? If another Fox had fought Hillary, then the victory could have been celebrated long ago. But the circumstances were such that she was confronted by the real Hedgehog. This means a person who endlessly believes in his truth, concentrated on the main idea (“CHANGE”). And his inner confidence and integrity are his main weapon.

In his book “From good to great. Why do some companies make breakthroughs and others don't..." Jim Collins went even further and applied this metaphor to business.

Hedgehog companies know the answer to three main questions:

what the company can be the best in the world at;
they have a simple economic model, a single coefficient for determining business profitability;
great companies gave their all to activities for which they had a real passion.

“The beauty of the findings is that they can make life easier while increasing efficiency. Having clarity about what is important and what is not is a huge relief...”

writes Collins. Consistent actions to implement the intended strategy will inevitably lead to victory. If, of course, the strategy is correct

"The Hedgehog Concept"

Let's say you could choose a job that satisfied three criteria:

First, you have a natural or God-given talent for this job, and you could possibly become the best in the world at using this talent. (“I feel like I was born to do this.”)

Second, you get paid well for what you do. (“And I get paid for this? Is this a dream?”)

Third, you do work that you love, you like the process itself. (“I can’t wait to go back to work the next day. I really believe in what I do.”)

If you can find yourself at the intersection of these three circles and express what is at the center into a simple, clear concept that guides your life choices, you will have what we call the “hedgehog concept.”

The Hedgehog Concept is not a goal to become the best, not a strategy to become the best, not an intention to become the best, not a plan to become the best. It's understanding what you can be the best at. And this distinction is extremely important.

Having a core business and just because you've been doing it for years, maybe even decades, doesn't mean you're the best at it in the world. And if you can't be the best in the world at your core business, then your core business can't form the basis of your Hedgehog Concept.

The development of the “hedgehog concept” is an internal continuous process, and not some kind of accident.

The essence of the process is to engage people in a lively discussion based on real facts and built around three circles. Do we really understand what we can become the best in the world at, as opposed to what we can just succeed at?

Do we really understand what drives our economic model, what our economic criteria are? Do we truly understand what ignites our passion most?

There's one in particular useful trick, which stimulates the process, and which we called “Council”. The Council is a group of people who take part in discussions and debates around the issues described by the three circles. The discussions are repeated and repeated. The Board is trying to find answers to the company's most important questions.

In response to the question, “How do we develop our hedgehog concept?” I would point to a diagram called “Developing a Hedgehog Concept” and say, “Create a Council and use that as a model. Ask the right questions, have discussions, make decisions, analyze results and learn - all within the context of the three circles. Continue again and again, seeking understanding.”

8 principles of great companies

It all starts with the leader

Collins coined the phrase “Level 5 Leader.” The fifth level, according to Collins, is located somewhere above the usual four steps of the business hierarchy (highly professional employee, valuable team member, competent manager, effective leader). The “Leader of the Fifth Level” combines unique modesty with an equally unique professional will. It is such a leader who can be focused on the success of the business more than on his own ambitions. He will be able to generate genuine enthusiasm, rather than fits of fear or bravado, and will be able to prepare a worthy successor. Overall, Collins showed the almost unattainable ideal that every leader should strive for in order not to repeat the mistakes of Al Dunlap, who arrived at Scott Paper to the sound of fanfare. He enjoyed playing up his nickname, “Rambo in a striped suit,” and ended up losing a hundred million dollars in a year and a half. At the same time, Carl Reichard of Wells Fargo was depriving employees of free coffee and sitting in meetings in a shabby old chair. However, his company began that amazing growth that only eleven companies out of one and a half thousand were able to achieve.

People are more important than business

Collins argues: first of all, you need to make sure that the right people are on board, and the unnecessary ones are overboard, and only then decide where to actually sail. That is, the question “What to do?” - at best, the second in a row, but not the first. According to Collins, the only promising model is a group of equally talented and passionate people who constantly ask each other difficult questions and argue until they are hoarse. Ken Iverson of the steel company Nucor, which Collins listed as one of the 11 greats, describes the atmosphere at the company this way: “Discussions became so tense that people began to attack each other. Their faces were filled with blood, their veins were swollen. We discussed for hours until we came to something.”

Face the harsh facts

Correct decisions are made only when no problem is ignored or hushed up. It seems that this should be obvious to everyone, but in practice, not everyone has the confidence and dedication to admit the presence of big troubles. Until 1973, the Pitney Bowes company, which made letter sorting machines, and the Addressograph company, which made address copying machines, existed peacefully in the US postal business. It was obvious to everyone that such a business would not last forever. But Pitney Bowes took on the repurposing (focusing on new office equipment), while Addressograph did not. By 2000, Pitney Bowes had sales of over $4 billion, and Addressograph was sitting on $100 million. Fred Perdue of Pitney Bowes summed it up this way: “My job is to turn over rocks and see what's underneath, even if what I see is hellish.” bites."

Only the hedgehog doesn't lose

In his essay “The Hedgehog and the Fox,” Isaiah Berlin identified two types of behavior: the fox invents a lot of ways to catch and eat the hedgehog, and the hedgehog always responds with the same defense—and every time successfully. According to Collins, it is this combination of a simple solution and unwavering persistence that produces truly breakthrough effects. The metaphor is not uncontroversial, but the examples put everything in place. At one time, Charles “Cork” Walgreen made a simple “hedgehog” decision: Walgreens was getting out of the restaurant business and creating a chain of convenience stores. In five years, the company sold 500 restaurants and built a ton of pharmacies (the density record is 9 pharmacies per square mile), making sure that each one was on a corner so customers could come in and out from all directions. As a result, Walgreens managed to lead this new segment.

Define your mountain

Collins suggests that the hedgehog, before he becomes stubborn, find the answer to three simple questions: a) What can you be the best in the world? b) What leading economic indicator will you use to measure your success? c) What do you have a real passion for? If in some area the answers to these three questions intersect, then there, in this area, will be found “a colossal and bold goal - a mountain that must be climbed.” For example, Kimberly-Clark sold all its pulp and paper mills and exited paper production - sincerely wanting to take on paper-based consumer products and fight not just anyone, but the colossus of Procter & Gamble. “Being better than everyone else” meant for Kimberly-Clark to create products that covered the entire segment (this almost succeeded with Huggies diapers and Kleenex wipes). The true passion within Kimberly-Clark is evidenced by one executive's confession: "Traditional paper products are good, but they don't have the charm of a diaper."

Discipline instead of adventures and bureaucracy

The team should have a list of what not to do. Everything that does not fit into the “hedgehog” strategy should be discarded. Thus, Darwin Smith, having headed Kimberly-Clark, stopped monitoring speculation on Wall Street, calling for a focus on long-term problems. Sony CEO Akio Morita refused the largest deal, not wanting to sell his receivers in the American market under someone else's brand.

Technology without a hedgehog is nothing

Collins drew a pattern: technology serves as an accelerator of success only when it fits into the hedgehog’s plan. For example, with the development of online commerce, sites like Drugstore.com could easily leave the Walgreens pharmacy chain out of business. However, Walgreens management integrated the chain into its own “hedgehog” concept. As a result, in the first year, “pharmacy” stocks dropped noticeably, and dot-com stocks “doubled.” However, then Walgreens seized the initiative and launched its own network, linking all district pharmacies into one global one. The resulting system put it ahead of its competitors by a whole decade.

Spin the flywheel

Collins saved the main secret of super-successful companies for last. In the study, he found that 11 companies did not have “one killer innovation, one breakthrough, one sweeping revolution.” Any large-scale undertaking, the author concludes, moves heavily at first, like a huge flywheel. But if you continue to rotate it in one direction, the flywheel will pick up speed and move faster and easier.

Was Collins wrong?

The scientific significance of Collins's ideas has, of course, been disputed. The creator of Freakonomics, Steveng Levitt, believes that such research accumulates only the past and never looks into the future. Lausanne professor Phil Rosenzweig points out a logical flaw in Collins’s work: if 11 successful companies have common features, this does not mean that these particular features predetermined the success of each company. Finally, Harvard Business Review expert Umar Haque argues that in both the economy and society, the opposite trend is now relevant - from great to good. All this does not negate the outstanding result of Collins, who, firstly, himself always admitted that he only opened the “black box”, and secondly, emphasized that greatness is not at all the same as size. Greatness for Collins is meaningfulness. He concluded his book with the following words: “It is impossible to live great life, if it is meaningless."

The fates of the great: from prosperity to bankruptcy

More than ten years have passed since the publication of the book “From Good to Great”. The fate of the 11 companies that author Jim Collins called “great” turned out differently - only four companies were able to confirm their high status. Maybe Collins was wrong in calling the others great. But most likely, simply greatness is not a knighthood assigned once and for all. And it’s easy to lose it by making mistakes, especially during a crisis. Collins did not fail to devote his latest research to the fall of the great - after all, according to the researcher, collapse also has its own patterns.

By the way, the “hedgehog concept” in a slightly modified form is quite workable algorithm for searching for a promising idea to create the first own business. More details about this in one of the following posts. Now a few words about “hedgehogs” and “foxes” among novice businessmen.

Humanities scholars generally seem to adopt the hedgehog strategy. And they concentrate on one thing, simple and understandable to them personally. For example, first a pharmacy kiosk, then a full-fledged pharmacy, then several, then a whole pharmacy chain with carefully thought-out placement of points. “Hedgehogs” do not stray from their chosen strategy, even if you promise them 1000% of the profit in a fundamentally new line of business (say, issuing “FAST loans” to everyone in pharmacies).

Perhaps it is impossible to say unequivocally which of the two styles is “correct”. Both “foxes” and “hedgehogs” can build a successful business, or they can completely fail. There is only one caveat. Hedgehogs often fail at the start, where quick reaction and flexible tactics are critical, and the price of strategic miscalculations is immeasurably high. Fox is let down by weak management: try to act equally effectively in a dozen very different, sometimes qualitatively different, directions.

And finally – about “snakes” (a.k.a. “office plankton”) . Some of them strive to enter the business league via the fox's path. That is, they first accumulate knowledge in a variety of industries “necessary” for starting their own business. They attend dozens of courses, read hundreds of books, study various forums, websites and blogs. They prepare thoroughly and seriously. Other “snakes” polish their business idea and gradually begin to bring it to life - through freelancing, part-time work, volunteering, etc. That is, they take the hedgehog’s path, concentrating on one thing. This seems like a more workable concept.

And you, dear readers, who do you see yourself in business - a “hedgehog” or a “fox”?

"The Hedgehog Concept", or Three Intersecting Circles To achieve extraordinary results, you must move beyond the “curse of competence.” Just because something is your core business, competency, and you've been doing it for years, maybe decades, doesn't necessarily mean you're the best at it in the world. And if you are not a world-class expert in what is your core activity, that activity cannot be the basis for you to build a great company. This approach must give way to a simple concept that reflects a deep understanding of what the three intersecting circles represent.

In his famous essay “The Hedgehog and the Fox,” Isaiah Berlin divided the world into “hedgehogs” and “foxes,” based on an ancient Greek parable: the fox knows many different things, the hedgehog knows one thing, but very important.2 The fox is a cunning creature capable of inventing a million complex strategies to attack the hedgehog on the sly. Day after day, the fox circles his hole, waiting for the moment to pounce. Fast, agile, beautiful, sneaky, the fox, it would seem, should emerge victorious. The hedgehog, on the contrary, is clumsy and looks like a cross between a porcupine and an armadillo. All day he runs back and forth through the forest, looking for something to eat.

The fox waits, silently lurking at the crossroads of the paths. The hedgehog walks, suspecting nothing, straight into the paws of the fox: “Aha,” the fox thinks, “here you are!” She jumps out from behind the cover and quickly rushes towards the hedgehog. The little hedgehog, sensing danger, looks up and thinks: “Well, here it is again, will she really never learn anything?”, and curls up into an even ball. The hedgehog becomes a sphere with sharp needles sticking out in all directions. The fox, leaning towards its victim, sees what kind of defense the hedgehog has erected, and refuses to attack. Returning to the forest, she begins to develop a new method of attack. Every day the battle between the fox and the hedgehog is repeated, and, despite the superior cunning of the fox, the hedgehog always wins.

“Berlin, based on this parable, proposed dividing all people into two groups: “foxes” and “hedgehogs.” Foxes strive for several goals at the same time, and see the world in all its complexity. They are "scattered, trying to achieve a lot at once," says Berlin, "their thinking is not unified by a concept or vision." Hedgehogs, for their part, simplify the world, reducing it to a simple organizing idea, principle or concept that ties everything together and guides their actions. No matter how complex the world is, the “hedgehog” reduces all issues and problems to a simplified, sometimes even primitive, “hedgehog” idea. For a hedgehog, everything that does not fit into his own concept does not matter.

More precisely, the Hedgehog Concept is a simple, crystal clear concept represented by three intersecting circles that answers three questions:

1. What can you be the best in the world at?(and, equally important, what activity are you unable to be the best in the world at)?

This approach goes beyond the concept of core competence. Just because you have a core competency doesn't necessarily mean you're the best in the world at it. Conversely, what you can become the best in the world at may not be what you are currently doing.

2. How does your business model work?

All great companies have had an exceptional understanding of how to maximize cash flow and achieve high rates of profitability. Moreover, they all used a certain key indicator, a “common divisor” - profit per “X” - changes in which had a decisive impact on all their economic indicators. (This could be a thread Money to "X" in the social sector.)

The “common denominator” may not be obvious, even invisible. The key is to ask yourself what that single metric is, and that very question will allow you to gain a clear understanding of the fundamentals of your economic model.

3. What do you especially like to do?

Great companies gave their all to activities for which they had a real passion. The idea is not to fuel employees' passion for a particular activity, the idea is to discover what truly excites those who work for the company.

So that you immediately understand the concept of three circles, I will give an example from life. Let's say you could choose a job that satisfied three criteria.

First, you have a natural or God-given talent for this job, and you could possibly become the best in the world at using this talent. (“I feel like I was born to do this.”)
Second, you get paid well for what you do. (“And I get paid for this? Is this a dream?”)
Third, you do work that you love, you like the process itself. (“I can’t wait to go back to work the next day. I really believe in what I do.”)

To develop the Hedgehog Concept, all three circles are needed. If you make a lot of money doing something that you will never be the best at, you will create a successful company, but not a great one. If you are the best at something, you will never stay at the top unless you have a deep passion for what you do. And finally, you may be obsessed with what you do, but unless you are the best in the world or there is no economic sense in what you do, you may have a lot of fun doing what you do, but you won't achieve great results. results.

The Hedgehog Concept is not a goal to become the best, not a strategy to become the best, not an intention to become the best, not a plan to become the best. It's understanding what you can be the best at. And this distinction is extremely important.
It is important to understand that the development of the “hedgehog concept” is an internal continuous process, and not some kind of accident.
The essence of the process is to engage people in a lively discussion based on real facts and built around three circles. Do we really understand what we can be the best at in the world, as opposed to what we can just be successful at? Do we really understand what drives our economic model, what our economic criteria are? Do we truly understand what ignites our passion most?

Know yourself. inscription at Delphi, according to Plato
"Know thyself Scribes of Delphi, via Plato 1

Are you a fox or a hedgehog?

In his famous essay “The Hedgehog and the Fox,” Isaiah Berlin divided the world into “hedgehogs” and “foxes,” based on an ancient Greek parable: the fox knows many different things, the hedgehog knows one thing, but very important. 2 The fox is a cunning creature, capable of inventing a million complex strategies to attack the hedgehog on the sly. Day after day, the fox circles his hole, waiting for the moment to pounce. Fast, agile, beautiful, sneaky, the fox, it would seem, should emerge victorious. The hedgehog, on the contrary, is clumsy and looks like a cross between a porcupine and an armadillo. All day he runs back and forth through the forest, looking for something to eat.

Berlin, based on this parable, proposed dividing all people into two groups: “foxes” and “hedgehogs”. Foxes strive for several goals at the same time, and see the world in all its complexity. They are "scattered, trying to achieve a lot at once," says Berlin, "their thinking is not unified by a concept or vision." Hedgehogs, for their part, simplify the world, reducing it to a simple organizing idea, principle or concept that ties everything together and guides their actions. No matter how complex the world is, the “hedgehog” reduces all issues and problems to a simplified, sometimes even primitive, “hedgehog” idea. For a hedgehog, everything that does not fit into his own concept does not matter.

Princeton professor Marvin Bressler, during one of our long conversations, defined the difference between “foxes” and “hedgehogs”: “You know what distinguishes those who make a truly significant contribution to achieving ultimate goal, from those who, despite their abilities, contribute nothing? The first are “hedgehogs”. Freud with the subconscious, Darwin with natural selection, Marx with class struggle, Einstein with the theory of relativity, Adam Smith with the division of labor - they were all “hedgehogs”. They took a complex world and simplified it. "Those who left the most visible mark," Bressler said, "have heard a thousand times: 'It's a good idea, but you've gone too far.' 3

Let's be clear - hedgehogs are not stupid. Against. They know that the essence of the deepest understanding is simple. What could be simpler than e=mc 2 ? What could be simpler than the idea that the subconscious determines our id, ego and superego? What could be more elegant than Adam Smith's pin factory and his "invisible hand"? No, “hedgehogs” are not simpletons, they are perceptive, which allows them to discern fundamental principles behind all the complexity of the world. “Hedgehogs” see the essence and do not pay attention to the rest.

What do hedgehogs, foxes and great companies have in common? All.

The founders of great companies were, to one degree or another, hedgehogs. They used their hedgehog nature to guide companies toward what we called the hedgehog concept. The managers of direct comparison companies, who were mostly foxes, failed to take advantage of the simplicity of hedgehogs and remained inconsistent.

Let's go back to the example of Walgreens and Eckerd. Consider how Walgreens generated stock returns that were 15 times the market average from 1975 to 2000, handily beating greats like GE, Merck, Coca-Cola, and Intel. This is an exceptional result for such a little-known, even boring company. In an interview with Cork Walgreen, I pressed him for a deeper explanation of these surprising results. Finally he said with some irritation: “Look, it wasn’t that hard! Once we understood the concept, we took action.” 4

What concept? Very simple: the best, most convenient pharmacy with high profitability per customer visit. That's all. This is the unique strategy that Walgreen used to beat Intel, GE, Coke and Merck.

In classic Hedgehog fashion, Walgreen took this simple concept and executed it with fanatical consistency. He began a systematic program to change the location of the pharmacies to a more convenient one, preferably on a corner so that customers could enter and exit from all directions. If a great corner location came up just half a block from a profitable Walgreens pharmacy, the company would close it (even if it cost $1 million to break the lease) to open a new corner pharmacy. 5

Walgreens is a pioneer of drive-thru pharmacies, the company realized that customers liked the idea and built hundreds of these pharmacies. In cities, Walgreens located its pharmacies next to each other - so that the next pharmacy was no more than a few blocks away. 6 In downtown San Francisco, for example, they placed nine pharmacies within a mile radius. Nine pharmacies! 7 If you look closely, you'll see that Walgreens pharmacies are as densely packed in some cities as Starbucks coffee shops are in Seattle.

Walgreens then linked the concept of convenience to a simple economic idea - profit per customer visit. Close proximity (nine pharmacies per mile!) leads to economies of scale, which allows for more money to be spent on densifying the network. This, in turn, attracts even more customers. By adding high-margin services such as one-hour photos, Walgreens increased its profit on each customer visit. An increase in the number of services led to an increase in the number of visits, which made it possible to reinvest profits into the system and open even more convenient pharmacies. Pharmacy after pharmacy, block after block, city after city, region after region - with its incredibly simple idea, Walgreens became more and more like a hedgehog.

In a world ruled by management fashionistas, brilliant visionaries, loud-voiced futurists, fear salesmen, human resource management gurus and others, seeing a company that has achieved brilliant success by taking one simple idea and imaginatively implementing it is refreshing. Become the best in the world thanks to convenient pharmacies, constantly increase profits from each client visit, what could be simpler and more obvious?

But if everything was so simple and obvious, why didn’t Eckerd see it? Although Walgreens was open only in cities where it could implement the concept of convenience and high density of pharmacies, we did not find anything similar to Eckerd's consistent development concept. Businessmen to the core, Eckerd's top executives jumped at every opportunity to acquire stores wherever they could - 42 locations here, 36 locations there, chaotically, without any consistency.

Walgreen's executives realized that profit growth could only be achieved by cutting out everything that didn't fit into the Hedgehog Concept, while Eckerd's executives sought growth for the sake of growth itself. In the early 1980s, while Walgreens was praying for its concept of developing a convenience store chain, Eckerd entered the home video market by purchasing American Home Video Corporation. The head of Eckerd told the magazine Forbes in 1981: “Some people think that the cleaner our business (from outside activities), the better. But I want to see growth, and the home video market is just nascent, not like, say, drugstore chains.” 8 Eckerd's foray into the video rental market cost the company a net loss of $31 million when it sold the business to Tandy, which trumpeted that it had acquired the assets for $72 million below their book value. 9

In the same year that Eckerd acquired American Home Video, Walgreens and Eckerd had identical sales ($1.7 billion). Ten years later, Walgreens' sales were nearly twice that of Eckerd's, generating $1 billion more in net income during that decade. Twenty years later, Walgreens is stronger than ever and is the company with the most consistent long-term performance in our study. Meanwhile, Eckerd ceased to exist as an independent company, having been swallowed up by J.C. Penney. 10

Three circles

The Hedgehog Concept was coined during one of our research group meetings as we tried to understand how Walgreens was able to achieve such amazing results.

Aren't we just talking about strategy? - I asked. -Convenient location pharmacies, profitability per customer - aren't these basic strategic issues?

But Eckerd also had a strategy, said Jenny Cooper, who compared the two companies. - We cannot say that it is just a matter of strategy. They have both there was a strategy.

Jenny was right. Strategy in itself is not the main difference between a company that has become great and all others. And those and others have strategic plans, and there is absolutely no evidence that companies that have achieved outstanding results have invested more time and effort into strategy development or long-term planning.

OK, so we're just talking about bad strategy and good strategy?

My team thought for a minute. Lee Wilbanks then remarked:

What amazes me is their incredible simplicity. I'm thinking of Kroger with their supermarket concept, Kimberly-Clark with their move into consumer packaged goods, or Walgreens with their pharmacies. These were all very, very, very simple ideas.

The whole group immediately perked up and began heatedly discussing our companies. It soon became abundantly clear that all of the outstanding companies included in our study had a simple concept behind their decision making, and that was what drove them to success. And the companies we used as comparisons, such as Eckerd, stumbled because of the ambition of their own growth strategies.

O.K.,” I decided to cool their ardor, “but is simplicity itself sufficient? Just because it's simple doesn't mean it's right. The world is full of companies that had simple but false ideas.

We then decided to systematically review the concepts of great companies and the concepts of direct comparison companies. After months of sifting and sorting data and analyzing options, we finally came to the conclusion that the “hedgehog concept” in every company that achieved outstanding results was not some random idea.

The main strategic difference between great companies and everyone else lies in two fundamental differences. First, great companies based their strategies on a deep understanding of three fundamental principles - what we came to call the "three circles." Second, they formulated this understanding into a simple, clear concept that we called the “hedgehog concept.”

More precisely, the “hedgehog concept” - It's a simple, crystal clear concept represented by three intersecting circles that answers three questions:

1.What can you be the best in the world at? (and, equally important, what type of activity are you in? you can not to be the best in the world)? This approach goes beyond the concept of core competence. Just because you have a core competency doesn't necessarily mean you're the best in the world at it. Conversely, what you can become the best in the world at may not be what you are currently doing.
2. How does your business model work? All great companies have had an exceptional understanding of how to maximize cash flow and achieve high rates of profitability. Moreover, they all used a certain key indicator, a “common divisor” - profit per “X” - changes in which had a decisive impact on all their economic indicators. (This could be cash flow to "X" in the social sector.)
3. What do you especially like to do? Great companies gave their all to activities for which they had a real passion. The idea is not to fuel employees' passion for a particular activity, the idea is to discover what truly excites those who work for the company.

Three circles of the "hedgehog concept"

So that you immediately understand the concept of three circles, I will give an example from life. Let's say you could choose a job that satisfied three criteria. First, you have a natural or God-given talent for this job, and you could possibly become the best in the world at using this talent. (“I feel like I was born to do this.”) Second, you get paid well for what you do. (“And I get paid for this? Is this a dream?”) Third, you do work that you love, you like the process itself. (“I can’t wait to go back to work the next day. I really believe in what I do.”) If you can find yourself at the intersection of these three circles and express what is in the center in a simple, clear concept that guides your life choices, you get what we call the “hedgehog concept.”

To develop the “hedgehog concept”, it is necessary all three circle. If you make a lot of money doing something that you will never be the best at, you will create a successful company, but not a great one. If you are the best at something, you will never stay at the top unless you have a deep passion for what you do. And finally, you may be obsessed with what you do, but unless you are the best in the world or there is no economic sense in what you do, you may have a lot of fun doing what you do, but you won't achieve great results. results.

Understanding what you can (or can't) do best

“They do only what they understand and let their abilities, not their egos, determine what to do.” 11 So wrote Warren Buffett about his $290 million investment in Wells Fargo, which he made despite serious doubts about the banking industry. 12 Before it developed its Hedgehog Concept, Wells Fargo tried to become a global bank, operating like a mini-Citicorp, and doing it rather mediocrely. Then, under the leadership of first Dick Cooley and then Karl Reichardt, Wells Fargo's managers began asking themselves tough questions: what could we potentially do better than any other company, and, equally important, what could we do? Not can we do better than any other company? And if we can't be the best at it, then why are we even doing it?

Ambition forgotten, Wells Fargo shuttered most of its international operations, recognizing that it was no better than Citicorp in the global banking business. 13 Wells Fargo then turned his attention to what he was wearing could Become the best in the world: Run a bank like a business as usual, focusing on the Western States. That's all. This was the essence of the Hedgehog Concept that transformed Wells Fargo from a doomed attempt to become another Citicorp into one of the most efficient banks in the world.

Carl Reichard, the head of Wells Fargo during the period of transformation, is a complete hedgehog. When his colleagues at Bank of America went into a counter-revolutionary panic over deregulation, hiring change management gurus with their complex models and multiple surveys, Reichard boiled it down to an extremely simple idea. 14 "This is not space research, he said in an interview with us. “What we did was very simple, and we tried to keep it simple.” Everything was so simple and clear that it seems stupid to even discuss it. The average businessman with experience in any competitive industry where there is no government regulation will swallow this like a goose swallows a cockchafer.” 15 Reichard focused his employees' attention on the simple idea of the hedgehog, constantly reminding them that they could make more money in Modesto than in Tokyo. 16 Those who worked with Reichard were amazed at his ingenious simplicity. “If Carl were an Olympic diver,” said one of his colleagues, “he wouldn’t do a five-turn somersault, but he would do the best swallow in the world, and he would do it perfectly, over and over again.” 17

Wells Fargo's focus on the "hedgehog concept" was so strong that it became, by their own admission, a "mantra." During our interviews, people at Wells Fargo repeated the same thing: “It wasn't difficult. We just looked very critically at what we were doing and decided to focus on the few things we knew we could do better than anyone else and not get distracted by areas that would feed our egos. , but in which we would never become the best."

This brings us to one of the key takeaways from this chapter. The Hedgehog Concept is not a goal to be the best, a strategy to be the best, an intention to be the best, or a plan to be the best. This understanding what you are in you can To be the best. And this distinction is extremely important.

Every company would like to be the best at something, but few, armed with deep knowledge and a mind unclouded by vanity, understand what they can truly become the best in the world at and, equally important, what they can't become the best. This is what makes the main difference between great companies and everyone else.

Look at the difference between Abbott Laboratories and Upjohn. In 1964, both companies were almost identical, in terms of their turnover, profits, and product lines. Both companies had the bulk of their business in pharmaceuticals, mainly in the production of antibiotics. Both companies were family businesses. Both companies lagged the industry average. But then in 1974, Abbott made a dramatic turnaround in its economic performance: its stock returns were 4 times the market average and 5.5 times those of Upjohn over the next fifteen years. One important difference is that Abbott used the Hedgehog Concept, based on an understanding of what they could actually be best at, while Upjohn did not.

Abbott began by facing the hard facts. In 1964, Abbott lost its opportunity to become the best pharmaceutical company. While Abbott trudged sleepily through the 1940s and 1950s, riding on the profits of erythromycin, companies like Merck built research laboratories to rival Harvard and Berkeley. By 1964, George Cain and the Abbott team realized that Merck and others had achieved such a powerful lead in scientific development that trying to become the best pharmaceutical company was like being on a football team. high school challenge the Dallas Cowboys.

Even if Abbott's entire history had been in pharmaceuticals, becoming the best pharmaceutical company was no longer possible. So, under the guidance of a Level 5 leader, armed with the Stockdale Paradox, especially the thesis of faith, the Abbott team began searching for what they could become better at. Around 1967, this realization emerged: We had lost our chance to be the best pharmaceutical company in the world, but we had a chance to be the best at developing healthcare products that would allow healthcare organizations to lower their costs. Abbott began experimenting with hospital foods (to help postoperative patients recover quickly) and diagnostic devices (one way to reduce the cost of treatment is through proper diagnosis). Abbott became the No. 1 company in both markets and soon became the number one company in the world creating products that make healthcare more cost-effective. 18

Upjohn continued to live with the illusion that they could beat Merck. 19 Later, as their lead in the pharmaceutical industry widened, they began to engage in activities in which they were clearly not the best in the world, such as plastics or chemicals. As the gap widened even further, they turned to "ethical" drugs, still unwilling to admit that they were too small to win big in the pharmaceutical game. 20 Although Upjohn spent nearly twice as much (as a percentage of sales) as Abbott on research, profits were less than half Abbott's by 1995, when Upjohn was purchased. 21

The example of Abbott and Upjohn clearly illustrates the difference between the core business principle and the hedgehog concept. Having a core business and just because you've been doing it for years, maybe even decades, doesn't mean you're the best at it in the world. If you cannot be the best in the world in your core business, then your core business cannot become the basis of your “hedgehog concept.”

Definitely, the Hedgehog Concept and the Core Competency are not the same thing. You can be competent at something, but you don't necessarily have the chance to be the best in the world at it. Let's say a young man has an "excellent" grade in mathematics in high school and passes "excellent" in mathematics at the final exams, he is competent in mathematics. Does this mean that this young man should become a mathematician? Not necessary. Let's say he goes to college, majors in math, still gets straight A's, but runs into kids who are naturally good at math. As one student in a similar situation said: “It would take me 3 hours to finish the exam assignment. And in the class there were those who completed the same task in 30 minutes and still received an A+. Their brains are simply wired differently. I realized very quickly that I could become a very competent mathematician, but I would never be the best.”

Parents and friends will put pressure on this young man, persuading him to continue: “But you can do it.” Just like our young man, many people have chosen or accidentally found themselves in jobs in which they will never achieve the highest level of excellence. Suffering from the “curse of competence” and lacking the “hedgehog concept,” they almost never achieve outstanding results.

The Hedgehog Concept requires the strictest quality standards. Not just revitalization strengths and competency, but a deep understanding of what your organization truly has the potential to be the best at. Like Upjohn, the companies used as comparisons remained in businesses they were "good" at but could never become the best at, or worse, entered new markets and struggled to achieve explosive growth and profitability where they could never be the best. They made money, but they never became great.

Going from good to great requires overcoming the “curse of competence.” It takes courage to admit, “Just because we can do it well, make money, and grow, doesn’t mean we can be the best at it.” Companies that achieved outstanding results understood that if you continue to do what you are good at, you can only achieve good results. Focusing on what you can do better than any other organization is the only way to great results.

Each of the companies that achieved outstanding results understood this principle well and directed all their efforts into areas in which they could become better (see Table 5.1). Direct comparison companies rarely achieved this understanding.

Table 5.1
Companies that have achieved outstanding results - The “we can become the best in the world in...” circle in the “hedgehog concept”

This table shows how companies that have achieved great results viewed their opportunities and how that analysis informed the transition from good to great. List Not includes those activities in which companies were already the best in the world when their management began to make changes (most companies did not have an activity in which they were the best), instead, this is a list of those activities that companies chose as those , in which they we could become the best in the world.
Abbott Laboratories: could become the best by creating products that reduce costs for the healthcare system.	Abbott realized that they could not become the best pharmaceutical company in the world, despite the fact that drugs at that time accounted for up to 99% of their turnover. 22 They shifted their focus to creating products that would allow healthcare organizations to reduce their own costs, for example, specialty food for hospitals, diagnostic equipment, and consumables for hospitals.
could become the best by introducing the 4S Model to sell high-value goods.	Circuit City realized that they could become the McDonald's of high-end consumer goods and centrally manage a wide network of stores. Their difference was not that they used the 4S (Service, Selection, Savings, Satisfaction) model per se, but in that they were capable consistently and exceptionally successfully bring it to life.
could become the best in the financial market of mortgage loans.	The main challenge was to see that a) it could become a participant in the financial markets as well as any other company on Wall Street; b) can develop a unique ability to assess the risks associated with mortgage loans.
could become the best in the production of haberdashery goods with world-famous brands, which would require the use of high technology.	Gillette realized that they had a very unusual combination of skills: 1) the ability to produce billions of low-cost, high-tech products (such as razor blades) and 2) the ability to create global brands, the Coca-Cola of razors and toothbrushes.
could become the world's best in the production of paper-based consumer goods.	Kimberly-Clark realized that they had the opportunity to create category killer brands, that is, products that are released under these brands become associated with the brand itself (for example, Kleenex) in paper-based consumer products.
could become the best with original superstores.	Kroger has always been strong in developing innovative grocery store solutions. They realized this ability by creating a type of store where many small shops with high profitability coexisted under one roof.
could become the best by combining corporate culture and technology to produce steel at low cost.	Nucor realized that it was strong in two areas: 1) creating a performance-oriented culture and 2) implementing new technologies. By combining these two capabilities, Nucor became No. 1 in the United States in producing steel at the lowest cost.
could become the best in the world, producing cigarettes and later other products that would retain customers.	At the beginning of the transformation, Philip Morris realized that they could become the best tobacco company in the world. Later they had to go into other businesses (as all tobacco companies did in self-protection), but they continued to rely on their ability to create brands in the market for “sinful” products such as beer, tobacco, chocolate, coffee, and in the food market.
could become the best in the world at transmitting messages using sophisticated technologies.	When Pitney wrestled with the question of what they could do better than mail machines, they realized: 1) they are not just a mail company, but something more - participants in the business of communications and messaging; 2) their strength is in creating complex machines to automate operations.
could become the best in pharmacy management.	Walgreens understood that they were not just a pharmacy, but a network of conveniently located retail outlets. So, they started looking best places, placing many stores in a limited area, and became pioneers in the creation of drive-thru pharmacies. They have also invested heavily in technology (most recently their online portal) in an attempt to link all Walgreens pharmacies around the world and turn them into one giant "neighborhood" pharmacy.
could become the best by running the bank like a business, focusing on the western states.	Wells Fargo realized two critical things. First, most banks viewed themselves as banks, acted like banks, and protected their banking culture. Wells Fargo viewed itself as a normal business that happened to be in the banking business. “Run it like a normal business,” “run it, as if you own it” - these maxims became a “mantra”. Second, Wells Fargo realized that it could not become the best global bank in the world, but it could become the best in the western United States.

Let's take a look at your economic engine, what is your denominator?

Companies that have achieved extraordinary results have often achieved them in completely “non-extraordinary” areas. Banking was in the bottom quartile of industries in terms of average industry returns, at a time when Wells Fargo stock outperformed the market by 4x. Even more impressive results were achieved by Pitney Bowes and Nucor, which were in industries that ranked in the bottom 5% of profitability, yet both companies outperformed the market average by more than 5 times. Only one of the companies that achieved outstanding results was in a successful industry (which was in the top 10% of industries), 5 were in good industries, and the remaining 5 were either in bad or very bad industries (see Exhibit 5.A, where general data by industry is provided).

Our research clearly shows that you don't need to belong to a successful industry to become a great company. Each company that has achieved outstanding results has created its own economic machine, regardless of the situation in the industry. They were able to achieve this because they had a deep understanding of what constituted the basis of their economic activities.

This is not a microeconomics textbook. Every company and every industry has its own economic realities, and I'm not going to discuss them here. The main idea is that all great companies had a deep understanding of the drivers of their business and built their systems in accordance with this understanding.

However, we have noticed that all great companies have one thing in common, a “common denominator.” Imagine: if you need to choose one and only one indicator - profit on"X" (or in the social sector, the cash flow of 'x') that, growing over time, would have the greatest and most consistent impact on your economic performance? We have concluded that this question leads to a deep understanding of the fundamental economic activities of organizations.

Remember how Walgreens moved away from the standard form of reporting profit per store and focused all its attention on profit per store? every client visit. Convenient store locations come at a cost, but by increasing profits per visit, Walgreens was able to significantly improve the convenience of its pharmacies (nine per mile!) “while increasing system-wide profitability. The standard approach - profit per store - would conflict with the concept of convenience. (Most quick way to increase profit per store is to reduce the number of stores and locate them in less expensive places. But this would not fit into the concept of maximum convenience.)

Or Wells Fargo. When the Wells Fargo team was confronted with the unsavory reality of the deregulation of the banking industry's commodification of products, they realized that standard banking reporting of loan profit or deposit profit no longer worked. Instead, they introduced a new indicator: profit per employee. Following this logic, Wells Fargo became one of the first banks to change the structure of its branch network, moving to a small branch and ATM format.

For example, Fannie May realized that their metric should be earnings per risk level on each mortgage, rather than on the loan itself (which seemed “obvious”). It was a great decision. Indeed, a critical factor in Fannie Mae's economic performance is its ability to understand default risk better than anyone else in the industry. They then started making money by getting into the insurance business and managing the differences in risk levels. Simple, heartfelt, unexpected - and to the point.

Nucor also contributed to the management of the extremely competitive steel industry by developing a new metric: profit per ton of finished steel. At first glance, it seems that profit per worker or per asset value is the same indicator. But Nucor understood that the driving force behind their business was a combination of a strong work ethic And modern technologies. Profit per worker or per asset value would not reflect both, but was achieved by using profit per ton of steel produced.

Do you need this common denominator? No, but trying to find it will help you understand what's going on in your business better than guessing by three or four indicators. By asking yourself what drives your economic performance, you develop a better understanding of the key factors for success.

When we started discussing this common denominator idea, we decided to try it out with a few senior management teams. We have found that the issue generates heated debate and controversy. And even when people failed or refused to look for this common denominator of their activities, the question itself helped them better understand the economic nature of their business. This is the most important thing - to have a denominator, not for the sake of the denominator, but for the sake of a deeper understanding of how to create a strong and long-term economic model.

Table 5.2:
The main economic indicator that companies developed during the period of transformation

per employee	Reason: The shift from profit per product group to profit per employee is consistent with the desire to reduce costs to the health care system.
per geographic region	Reason: The shift from profit per store to profit per region reflected regional economies of scale. While per-store conversion continued to be very important, regional conversion opened the door to a new type of analysis and allowed for performance that was better than Silo's.
on the level of risk for each mortgage loan	Reason: The shift from return on credit to return on risk reflects the fundamental finding that managing interest rate risk reduces a company's exposure to interest rate fluctuations.
Gillette: per client	Reason: The transition from profit per division to profit per customer shows how powerful the principle of repeat purchase economics (for example, razor cartridges) can be, multiplied by the profit per purchase (for example, Mach III, not disposable blades).
on brand	Reason: Transition from profit on the main asset (plant) to profit on the brand; less cyclical and more profitable in good and bad years.
on the local population	Reason: The shift from profit per store to profit per local population reflects the conclusion that local market share determines the economic performance of grocery stores. If you can't become No. 1 or No. 2, then you better give up this type of activity.
per ton of finished steel	Reason: The shift from profit per unit to profit per ton of finished steel reflects the merging of Nucor's unique culture with mini-mill technology, which is better than just a focus on volume.
	Rationale: The shift from regional profit to global brand profit reflects the understanding that the path to outstanding performance is through creating brands with global power, such as Coca-Cola.
per client	Reason: The shift from profit per device to profit per customer reflects the company's desire to use existing products to expand the range offered to existing customers.
for buyer's visit	Reason: The shift from profit per store to profit per customer reflects a symbolic relationship between convenient (and expensive) pharmacy locations and strong long-term economic performance.
per employee	Reason: The transition from profit per loan to profit per employee reflects an understanding of the harsh fact of deregulation: banking services - faceless product.

All companies that have achieved outstanding results have had such a common denominator (see 5.2), and companies of direct comparison, as a rule, do not. In fact, we found only one company, among the direct comparison companies, that had actually achieved a detailed understanding of the fundamentals of its economic activities. Hasbro grew and expanded by realizing that big-name games like GI Joe and Monopoly made more money than big, but short-lived hits. 23 Hasbro is the only company among our direct comparison companies that has achieved understanding of all three circles in the Hedgehog Concept. It became the world's best at acquiring and updating popular toys and games, bringing them on and off the market to maximize profits. And their people were passionate about business. By consistently applying the three-circle concept, Hasbro came out on top among those we used for comparison, only proving how powerful the Hedgehog Concept can be.

Hasbro was unable to sustain its results over the long term, in part because they were unable to stay within the three circles after the unexpected death of the company's head, Stephen Hassenfeld. Hasbro's example reinforces the main lesson.

If you successfully apply these ideas, but then stop doing so, you will immediately go from great to good or even further. There is only one way to stay great - to consistently apply the principles that help you achieve great results.

Find out what you are truly passionate about

When we met with Philip Morris executives, we encountered an engagement and passion that amazed us. Remember, in the chapter “First Who,” George Weissman says that work was like love for him, a love so strong that it was second only to the love for his own wife. Despite the fact that the company offered a set of "vicious" products (Marlboro cigarettes, Miller beer, Velveeta cheese with 67% fat, Maxwell House coffee for those with caffeine addiction, Toblerone chocolate for chocoholics, etc.), we found that company managers were obsessed with their jobs. Most were also passionate consumers of their own products. In 1979, Ross Millhiser, who was vice chairman of Philip Morris and a heavy smoker, said: “I love cigarettes. It's one of the things that makes life worth living." 24

The people who worked for the company loved Philip Morris and what they did. They imagined themselves as lonely and independent cowboys, like on Marlboro advertising posters. We have the right to smoke, we will defend this right! When we did our previous project, one of the board members said, “I love being on the board of Philip Morris. It's like being part of something special." Having said this, she proudly blew out a stream of cigarette smoke. 25

You may say, “But this is just a defensive reaction from the tobacco industry. They simply have no choice but to say it. Otherwise they wouldn’t be able to sleep at night!” But remember that R.J.R. Same was a representative of the tobacco industry and was also attacked by public opinion. In contrast, Philip Morris began to diversify away from the tobacco business into markets where it could grow, regardless of whether it had a passion for the products of the companies it absorbed or whether it could become the best in those markets. The Philip Morris people have always been in the tobacco business, largely because they love the business. R.J.R. people they saw the tobacco business as simply a source of profit. As colorfully described in the book Barbarians at the Gates, the leaders of R.J.R. have lost interest in anything other than their own enrichment through seizing control of the board of directors. 26

It does not seem entirely appropriate to consider something as ephemeral as “passion” to be an integral part of the strategic model. But as we analyze great companies, we find that passion plays a key role in their versions of the Hedgehog Concept. You can't produce passion, you can't stimulate passion in your employees. But you can open What awakens passion in you and those around you.

The great companies didn't say, "Okay guys, let's all get really passionate about what we're doing now." Quite logically, they went exactly the opposite way: we should only do what we are truly passionate about. Kimberly-Clark executives moved into consumer products largely because they were excited about it. As one executive put it, “Traditional paper products are good, but they don't have the charm of a diaper.” 27

When Gillette executives decided to create a sophisticated production of relatively expensive razor systems and not bother with low-margin disposable razor blades, they did so in large part because they were indifferent to disposable razor blades. "Zein talks about shaving systems with as much passion as if he were a Boeing or Hughes engineer," one journalist wrote about the Gillette chief in 1996. 28 Gillette has always achieved exceptional results when it takes on a business that fits its “hedgehog concept.” "People not passionate about Gillette may not apply for jobs," the reporter wrote Wall Street Journal, who mentioned that one of the graduates of a prestigious business school did not get a job because she showed insufficient passion for the company's deodorant. 29

You might not be too keen on deodorant either. You might have a hard time falling in love with medicine, grocery stores, cigarettes, or mail sorting machines. You may wonder what kind of person it must be to be captivated by the idea of a bank like McDonald's, or to see charm in a diaper. In the end, it doesn't matter. What matters is that They passionate about What they do, and this passion is deep and sincere.

This doesn't mean, however, that you have to be deeply passionate about the mechanics of a business process per se (although that's possible). The circle of passion can also be drawn around what is the reason for your organization's existence. Surely the Fannie Mae people weren't keen on the mechanics of turning mortgages into options. But they were obsessed with helping people of all social classes, backgrounds and races achieve the American dream of home ownership.

Linda Knight, who joined Fannie May in 1983 when the company was going through its toughest time, told us: “It was the company that made home ownership a reality for thousands of Americans. There's much more to it than just making money, which is why we've been so dedicated to preserving, protecting and strengthening the company." 30 As another Fannie Mae executive summed it up: “I believe that we are the main engine in the development of America's social system. When I see disadvantaged areas gradually disappearing because people are buying their own homes, I work with new energy.”

The victory of a clear understanding of the situation over bravado

During discussions, we noticed that we often talked about the difference in the state of the company before and after realizing the “hedgehog concept”. Before is like groping in the fog. You are definitely moving forward, but not as much as if you could see around you. When crossing paths, you can only see what is in front of you and must move slowly, almost at a crawl. Afterwards the fog disappears and you can see for miles around. Now you don’t have to think at every intersection, and you can get to your feet and walk forward, walking or even running. Once you start using the Hedgehog Concept, mile after mile, intersection after intersection, you make decisions quickly, fog is no longer a hindrance.

Paradoxically, the comparison companies, despite restructuring programs, energetic maneuvers and charismatic leaders, were in most cases unable to emerge from the fog. They try to escape, making bad decisions at forks in the road, and they constantly have to go back. Sometimes they completely fly off the road, crash into trees or fly downhill. (But, no doubt, they do it at full speed and with great fanfare!)

For comparison companies, the same world that became so simple and clear to those who rely on a simple and clear concept and achieve outstanding results remains complex and obscure. Why? For two reasons. First, direct comparison companies never asked the right questions—the ones we described with the three circles. Second, they set goals and developed strategies driven by more by their own bravado than by understanding the situation in which they find themselves.

When analyzing the comparison companies, it becomes clear how mindlessly they were trying to achieve rapid growth: more than two thirds of the companies were obsessed with achieving growth at all costs, neglecting the principles of the Hedgehog Concept. 31 Phrases such as “we tried to achieve growth at any cost”, “we believe size equals success” are often found in press materials about these companies. On the other hand, none of the great companies were obsessed with growth. Yet their growth over the long term has far outpaced that of the companies for which it was the mantra.

Take Great Western and Fannie May. “Great Western is an uncontrollable child,” wrote The Wall Street Transcript. - He wants to grow in every direction.” 32 The company looked for itself in the financial market, leasing, insurance, manufacturing, constantly buying companies in the pursuit of growth. 33 More! Even more! In 1985, the head of Great Western told an analyst meeting: "Don't worry about calling us a bank, a savings and loan association, or a zebra." 34

This is so different from Fannie Mae, who had a simple, absolute understanding of what they could really do to become the best in the mortgage financial market, better even than Goldman Sachs or Solomon Brothers, by creating new financial markets related to mortgages. They created a powerful economic machine by shifting the focus of their business model from selling mortgages to managing risk. And they drove this car with real passion, the people at Fannie Mae were really passionate about the fact that they were playing an important role in democratizing home ownership.

Until 1984, the share price of both companies was the same. But in 1984, a year after Fannie May came up with its “hedgehog concept,” its stock soared, while Great Western continued to delude itself and others until its takeover in 1997. Focusing on a simple, elegant concept Rather than just growth, Fannie Mae nearly tripled its turnover from 1984 to 1996. Great Western, for all its steroid injections, increased its turnover and profits by 25% over the same period, but lost its independence in 1997.

The Fannie Mae vs. Great Western example illustrates a very important point: “Growth!” and the “hedgehog concept” - not the same thing. If you have the right vision and all decisions are made in accordance with it, you will gain such momentum that your main problem will not be how to grow, but how to not grow so fast.

The Hedgehog Concept is a turning point on the road from good to great. In most cases, dramatic improvements in performance occur within a few years of adoption of the concept. Moreover, everything that follows in the book is based on the assumption that the company is using the “hedgehog concept.” As will become abundantly clear in subsequent chapters, “disciplined action” is the third important element our methodology after “disciplined people” and “disciplined thinking” - only makes sense if the company uses the “hedgehog concept”.

Despite its extreme importance (or rather because of its extreme importance), it would be a terrible mistake to mindlessly embrace the Hedgehog Concept. You can't just go out into nature for a couple of days, draw some diagrams and graphs, start a series of discussions and thus develop an understanding of what you will do in the future. No, of course you can, but what you get will be wrong. It would be as if Einstein said, “I think it’s time to become a great scientist, so I’ll go to the Four Seasons this weekend, make diagrams, and unlock the secrets of the universe.” Deep understanding cannot be achieved this way. Einstein wandered around in the fog for 10 years to create the theory of relativity, and he was not a stupid guy. 35

On average, it took great companies four years to develop their own “hedgehog concepts.” Like scientific theory, the Hedgehog Concept simplifies a complex world and makes decisions easier. But while the concept itself is simple and elegant, its development can be fiendishly complex and time-consuming. It is important to understand that developing the “hedgehog concept” is internal continuous process, and not some accident.

The essence of the process is to engage people in a lively discussion based on real facts and built around three circles. Really Do we understand what we can become the best in the world at, as opposed to what we can simply succeed at? Indeed Do we understand what drives our economic model, what is our economic criterion? Indeed Do we understand what ignites our passion most of all?

There is one particularly useful technique that stimulates the process, which we call “Advice”. The Council is a group of people who take part in discussions and debates around the issues described by the three circles. The discussions are repeated and repeated. The Board is trying to find answers to the company's most important questions.

If someone asks the question: “How can we speed up the process of developing a “hedgehog concept” for our company?”, I will answer: “Increase the number of sessions to work through all your questions over a certain period of time.” If you repeat the entire process enough times, using the questions described in the three circles, you are sure to achieve the deep understanding necessary to develop the Hedgehog Concept. It won't happen overnight, but it will definitely happen.

a) The board exists to gain understanding of the critical issues facing the organization.
b) The Board is composed of senior management and serves the interests of senior management and typically has between five and twelve members.
c) Each member of the Council should have the opportunity to argue and discuss answers to questions, but not based on ambition or proprietary interests.
d) Each member of the Council must respect other members of the Council, all members of the Council are equal with no exceptions.
e) Board members come from different perspectives, but each Board member has in-depth knowledge of certain aspects of the organization or the environment in which it operates.
f) The Board includes, but is not limited to, the company's senior executives, and not every senior executive needs to be a member of the Board.
g) The Council is a permanent structure and not a committee assembled ad hoc for a special project.
h) The Council meets periodically, no more than once a week, but not less than once a quarter.
i) The Council does not seek consensus, recognizing that such decisions often conflict with better decisions. Responsibility for making the final decision remains with the head of the company.
j) The Council is an informal body and is not included in the organizational chart and does not have a charter.
k) The Council may operate under different names, usually completely harmless. Great companies had names like “profitability committee,” “corporate product committee,” “strategy development group,” and “executive council.”

Developing the Hedgehog Concept is an Iterative Process

Should every organization develop a “hedgehog concept”? What if you wake up one day, look around soberly and conclude: “There is nothing and there was nothing that we did better than others.” This is one of the most interesting aspects our research. In most cases, the companies that achieved outstanding results were not “the best in the world” in any field of activity, and had little prerequisites for becoming. Using the Stockdale Paradox (“There must be something we can become better at, and We'll find This! We must also take a sober look at reality and understand what we cannot be the best at. and don’t create illusions!”), Each of the great companies, no matter how pathetic it was at the beginning, has brought its own “hedgehog concept” to completion.

As you develop your vision, remember that when companies that achieved outstanding results grasped the Hedgehog Concept, they did not jump through the roof and beat themselves in the chest with their fists and boast, as in direct comparison companies. “Yes, we can be the best at this activity,” they stated a fact, as calmly as saying that the sky is blue and the grass is green. The moment of realizing your “hedgehog concept” is like a single, pure, perfectly played note at the end of a Mozart piano concerto, which hangs high in the air in the absolute silence of the concert hall. There is no need to say anything, the truth speaks for itself.

This brings to mind an incident from my family that demonstrates the fundamental difference between self-awareness and bravado. In the early 1980s, my wife Joan began competing in marathons and triathlons. As she gained experience, she felt more and more confident. She once took part in a race against the best female triathletes in the world and, despite a poor swimming performance (she was hundreds of places behind the leaders) and having to push a heavy, non-aerodynamic bike up a high hill, she managed to finish. to finish in the top ten.

A few weeks later, at breakfast, Joan looked up from the morning paper and said quite calmly, “I think I could win Ironman.”

The Ironman is a world championship triathlon that involves a 2.4-mile ocean swim, a 112-mile bike ride and a 26.2-mile marathon along the scorching lava coast of Hawaii's Kona Coast.

“Of course, to do this, I would have to quit my job, refuse offers from business schools (she was accepted to study at several top business schools) and devote all my time to training. But..."

There was no bluster in her words, no nervousness, no boasting, no showmanship. She didn't try to convince me. She simply shared what she considered to be a fact, a truth that was no more striking than the fact that the walls were painted white. She had passion. She had abilities. If she won the competition, she would have a financial result. The goal of winning Ironman came after the “hedgehog concept” had previously been developed.

She decided to participate in the competition. She left work. She turned down offers from business schools. She sold the mills! (But she kept me on her team.) Three years later, on a hot October day in 1985, she broke the finish line in Hawaii as the first world champion. When Joan decided she was going to win the Ironman, she didn't know if she would become the best triathlete in the world. But she realized that could to become one, it was a real opportunity, not self-deception. That makes all the difference. This is the difference that is important for those seeking to move from good to great to understand, and it is the difference that those who fail do not understand.

Main conclusions

To move from good to great results, we need to develop a deep understanding of what we describe using the three circles, which serve as the basis for a simple and understandable concept (“the hedgehog concept”).

Three circles of the "hedgehog concept"

The main thing is to understand what area your organization is in Maybe to be the best in the world, and it is equally important to understand what it is can not to be the best in the world, but not at what she is I'd like to to be the best in the world. The Hedgehog Concept is not a goal, it is not a strategy, it is not an intention, it is understanding.
If you cannot be the best in the world at your core business, then your core business cannot serve as the basis for your Hedgehog Concept.
Understanding what you can be the best at in the world is a tougher standard than a “core competency.” You may have competence, but not necessarily the ability to become the best in the world within your competence. On the other hand, there are many areas in which you could become the best in the world, but this is not your current area of expertise.
Understand what drives your business and look for a performance metric (profit x x or, in the social sector, cash flow x x) that best reflects the dynamics of your business.
Great companies set goals and developed strategies based on an understanding of the situation in which they found themselves. The companies we used for comparison were driven by their own bluster.
Developing a hedgehog concept is an iterative process. The Council can be a useful tool.

Unexpected conclusions

Companies that achieve outstanding results are like hedgehogs - simple, slow creatures that know something very important and stick to it. The companies we used for comparison are more like foxes - sneaky, cunning creatures that know a lot of different things, but are inconsistent.
On average, it took great companies four years to develop their Hedgehog Concept.
Strategies as such do not differentiate great companies from direct comparison companies. Both had a strategy, and we have no evidence that the great companies spent more time or effort on strategic planning.

Notes for Chapter 5

Plato believed that this deepest judgment was an inscription at Delphi (Protagoras, 343B); Plato: The Protagoras and Meno translated by W.K.C. Guthrie(New York and London: Penguin Classics, 1956), 77.
Isaiah Berlin The Hedgehog and the Fox(Chicago: Elephant Paperbacks, 1993) 3 Conversation with the author.
Interview for Study #10-F, page 3.
Research Interview #10-0, p. 22.
"Convenience with a Difference", Forbes, June 11, 1990.
Walgreens Annual Report 1998, 16.
"Tuning In" Forbes, April 13, 1981, 96.
"Tandy Agrees to Buy Assets of Eckerd Unit", The Wall Street Journal, July 5, 1985.
Moody's Industrial Subsidiary List(Mergent FIS, 2000).
Warren Buffett The Essays of Warren Buffet: Lessons for CorporateAmerica (Lawrence A. Cunningham, 1998), 98.
"Warren Buffet's favorite banker", Forbes, October 18,1993.
"Wells Fargo Targets Southern California" American Banker, July 10, 1987, 1; "Wells Fargo to Cut Overseas Activities to Boost their Profit", The Wall Street Journal, May 3,1985,32; "Wells Fargo Trims Its Sails" American Banker, May 3,1985; "A banker even Keynes might love", Forbes, July 2, 1984, 42.
"BankAmerica launches probe", The Wall Street Journal, January 28, 1985, 27; "More than mortgages ails BankAmerica", Fortune, April 1, 1985, 50; "Big Quarterly Deficit Stuns BankAmerica" The Wall Street Journal, July 18, 1985, 1; "Sam Armacost's Sea of Troubles", Banker, September 1, 1985, 18.
Interview as part of research #11-N, pp. 5, 13.
Interview for Study #11-F, pp. 5, 11.
"Boot Camp For Bankers" Forbes, July 23, 1990, 273.
"Hospital Suppliers Strike Back" The New York Times March 31, 1985, Section 3, 1; The Abbott Almanac: 100 Years Of Commitment To Quality Health Care(Benjamin Company, 1987) 170, 210; "Abbott: Profiting From Products That Cut Costs" Business Week, 18 June 1984, 56; "In Medical Testing, Abbott Is The Name Of The Game", Business Week, June 1, 1987, 90.
Financial World, September 5,1989,26; "Upjohn: The Corporation: Strategies: Will This Formula Cure What Ails Upjohn: As the sharks circle, it"s big spending on R&D and marketing", Business Week, September 18, 1989, 65.
"Riptide: Can Upjohn Manage its Way out of a Product Gap", Financial World, September 5, 1989, 26.
"Upjohn: Mergers: Upjohn Finally Makes it to the Big Leagues: How CEO Zabriskie engineered the Pharmacia merger", Business Week, September 4, 1995.
1960 and 1961 Abbott Annual Reports.
"Hasbro may alter bid to appease Tonka holders", Financial London Times, April 16, 1991, 26; "Tonka says yes to Hasbro", Financial London Times, April 19, 1991, 30.
"Tobacco: Profit Despite Attacks", The New York Times January 25, 1979.
James C. Collins and Jerry I. Porras, Built to Last(New York: HarperCollins, 1997), 86.
Bryan Burrough & John Helyar, Barbarians at the Gate(New York Harper Coffins, 1991).
Interview for Study 5-A, p. 13.
"An Iconoclast in a Cutthroat World", Chief Executive, March 1996.
"Gillette Holds Its Edge by Endlessly Searching for a Better Shave" The Wall Street Journal, December 10, 1992.
Interview for Study #3-G, page 7.
The companies we used for comparison that demonstrated an obsession with growth were Bank of America, Addressograph Multigraph, Eckerd, Great Western Financial, Silo, Upjohn, Warner-Lambert, Burroughs, Chrysler, Harris, Rubbermaid, and Teledyne.
"The Wall Street Transcript: Corporate Critics Confidential: Savings and Loan Industry", The Wall Street Journal, June 12, 1989, 93, 903.
"How Playing it Safely Worked for Great Western", Business Week, September 7,1987,70.
"The Wall Street Transcript: Remarks by James F. Montgomery to the Boston Security Analysts Society, October 8, 1985", The Wall Street Journal, December 23, 1985, 80245.
In a letter to Carl Seelig, Einstein wrote: “Between the birth of the idea of the theory of relativity and the completion of the corresponding publication, five or six weeks passed. But it would hardly be correct to consider that this was a birthday, since the materials and constituent parts had been accumulated over a number of years... ." In a letter to R. S. Shankland in 1952, he considered himself to have "worked ten years" on the theory. Ronald W. Clark, Einstein: The Life and Times(New York and Cleveland: The World Publishing Company, 1971), 74-85, 120.

There is an ancient Greek parable about the fox and the hedgehog, understanding which can provide your business with a competitive advantage for decades to come.

The fox is a cunning creature, capable of inventing a million complex strategies to attack the hedgehog. Day after day, the fox circles his hole, waiting for the moment to pounce.

The agile fox, it would seem, should emerge victorious.

The hedgehog, on the contrary, is clumsy and clumsy. All day he runs back and forth through the forest, looking for something to eat.

The fox waits, silently lurking at the crossroads of the paths. The hedgehog walks, suspecting nothing, straight into the paws of the fox.

“Aha,” the fox thinks, “here you are!”

She jumps out from behind the cover and quickly rushes towards the hedgehog. The little hedgehog, sensing danger, looks up and thinks: “Well, again, will she never learn anything?”- and curls up into a ball with sharp needles sticking out in all directions.

The fox sees what kind of defense the hedgehog has erected and refuses to attack.

Returning to the forest, she begins to develop a new method of attack. Every day the battle between the fox and the hedgehog is repeated, and, despite the superior cunning of the fox, the hedgehog always wins.

Are you a fox or a hedgehog? What about your business?

The English philosopher Isaiah Berlin, based on this parable, divided all people into two groups: “foxes” and “hedgehogs”.

"Foxes" They strive for several goals at the same time and see the world as complex. They are unfocused and try to achieve everything at once. Their thinking is not united by one concept or vision.

"Hedgehogs" simplify the world, reducing all questions and problems to a simple, sometimes even primitive, “hedgehog” understandable idea.

The rule of “hedgehogs” and “foxes” also works in business.

The Hedgehog Concept was introduced by business expert Jim Collins in his book Good to Great. He studied the experiences of 10X successful companies that went great by achieving and sustaining excellent business results. They clearly defined a strategy for themselves and consistently moved along it.

Hedgehog companies showed 3-5-10 times more profitability than the market average.

How the Hedgehog Concept Works in Business

In today's world, an entrepreneur has too many opportunities. Endless information, new technologies, tricks. When there are no opportunities, this is bad, but when there are many opportunities, this is even worse. Today, businesses are dying one after another from “overeating”: they are trying to eat what they don’t need. They dont have focus.

In business there is always a limited amount of resources: time, people, brains. The skill of an entrepreneur is to effectively focus resources where they will produce maximum results.

Do not try to cover more areas, but really assess the situation and select only the necessary ones.

The first task of a business is to maintain focus and not waste resources. The right focus is the one that will ensure your victory. A win for a certain company, in a certain market, at a certain time.

Every day you make a lot of decisions in business. To make a product or not to make it, to develop it or close it, to enter this market or not... It’s like walking along a path in the fog, where every 2 meters there is an intersection.

You need to stop every time and decide where to go.
When there is no hedgehog concept, chaos ensues. You don't understand which point to hit to get the result.

The essence of the “hedgehog concept” is to take something complex and simplify it as much as possible.. Choose the main thing from a bunch of possibilities and get a simple, understandable, winning strategy.

When you understand your hedgehog concept, it is as if all the fog is cleared away. You see at the other end of the field the point you need to reach. You know what paths to take to do this.

Three Questions to Create a Hedgehog Concept

1. What can you be the best in the world at?

When you answer this question, you need to understand what you cannot be the best in the world at. This is also important.

When it comes to GoldCoach, we know we can be the best in the world at getting clients results with discipline and patience. We patiently and consistently implement the methodology, create a system, and bring it to fruition.

All our TOPs are people who know how to achieve results. We have employees like this that take root with us. But “seekers” are not, they are rejected by the system.

We at GoldCoach introduced the “hedgehog concept” in 2016. Then we went for 4 days with the whole team for training. For 4 days, the strategic council worked on the company's strategy, including the “hedgehog concept.”

The process of writing the “hedgehog concept” itself is as important as the result you get in the end. “The Hedgehog Concept” is the result of debates, discussions and debates. As a result, you must understand: who you are, what you are about, what you do in the market, what is your strength.

We realized that we couldn't be the best in the world at selling hot chips. That’s why we didn’t run to blockchain and Bitcoin, unlike many.

The central theme of our company is to bring the client to results. Since 2016, we began to intensively develop the GPS product. Its development to its current level is the result of the fact that in 2016 we had the “hedgehog concept”.

When you start investing resources into your strength, it will give you market advantage.

Write your answer to the question: what can you be the best in the world at?

Don't write too complicated. You should have one main idea. Look at yourself and your company. The answer to this question needs to be finalized with your strategic advice and returned to this. At some point you will feel that you have found your strategy.

2. What is your passion? What do you especially like to do? What sparks passion in you personally and in your employees?

If a business suits your passion, you will still do it. Even if it doesn't make a profit for some time.

At GoldCoach, our passion is to discover, learn and communicate cutting-edge business technologies and models to clients.

Ivan Zimbitsky consciously chose a career as an entrepreneur. For him this means constant growth, learning and development.

The head of the sales department, Bogdan Kurinny, comes out of the bookstore with books on business or thinking.

Irina Korobskaya, an expert coach and head of our internal coaching school, has her training scheduled for a year in advance.

I have purchased and installed books on my phone to read, also for a year in advance. Even at school, for me, the books “Think and Grow Rich” and “How to Survive Among Sharks” were more interesting than fiction. If tomorrow I am banned from doing anything, I will read books on business, self-development, thinking, and autobiographies of famous people. I have thirst for learning.

At GoldCoach, this is the general spirit of the company - to learn non-stop.

When you're in business and realize that everyone is in it for the money, you won't build anything worthwhile. There must always be an idea and passion.

Answer the question: What is your passion? What do you like to do?

Try to remove the unnecessary and leave the main thing. One answer - one thought. Strategy is when you remove everything unnecessary.

And determine what value are you creating?

Your passion must be valuable. For example, personal growth is great, but what value does it have for others?

3. How does your business model work? Profit per X

Jim Collins and his team discovered that you don't have to be in a successful industry to be a great company. Often the opposite happens.

10X companies started out in struggling industries but found an economic model that allowed them to make a lot of money and become great.

In business there is a main indicator - “Profit per X”. X is a definite factor in your business.

Let's imagine steel production. Once upon a time, steel mills had a measure of company performance called “profit per employee.” It showed how efficient the work of workers at the plant was.

Jim Collins gives an example of a company that has become the most profitable in the industry. They introduced the “Profit per ton” indicator and began to monitor it. The efficiency of people and the efficiency of equipment were taken into account. When the company began to focus on this indicator, it began 5 times more profitable than competitors.

Let's take the example of GoldCoach. Our indicator:

Customer lifetime value is how much money a customer keeps in your business over the course of their lifetime with your company. We measure this indicator; there is a certain formula that takes six months into account. Our X is the cost of attracting customers.

Let’s say that in six months we spent $200,000 on attracting clients and earned $600,000. So we understand that our Profit on X = 3.

Why did we choose customer acquisition costs as X? This key factor, which will allow us to grow. In our industry, the key to a company's growth is how much the company can afford to invest in marketing.

Let's take 2 companies. One can invest 10 thousand dollars a month to attract, and the other - 1 million. Which one will win? The answer is obvious.

X is the winning factor in your business.

We have a client who is dealing monolithic construction high-rise buildings. Their indicator Profit per X is profit per cubic meter.

You write down the Profit per X indicator for the company, and then make a plan for how you will achieve it.

Formulate your version of what your X is.

The Hedgehog Concept comes from the intersection of 3 circles: what you can be the best at, what your passion is, and how you generate money.

P.S. Where to start transforming your business and simplifying your life as a business owner?

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In the past, Andrey was a successful marketer, worked with Samsung, Imperial Tobacco (Davidoff, West, R1, Prima brands), Mironovsky Khleboproukt (Nasha Ryaba, Legko!), TetraPak, Fujitsu-Siemens, Canon, Logitech.

Thanks to his experience, Andrey looks at business systematically and helps clients get out of routine and scale their businesses.

Conducted over 4265 hours of personal consultations.