1. This chapter is called "Leading Above the Death Line." It deals with the third of Collins' three distinctives of companies that weather difficult times. The first two were 1) fanatical discipline and 2) empirical creativity. The third characteristic is "productive paranoia."
2. He starts with the story of David Breashears climbing Mt. Everest in 1996 trying to shoot a panoramic view from the top for an IMAX movie in the works. Coming up behind him were two experienced guides, Rob Hall and Scott Fischer. Given the circumstances, Breashears decided to go back down, let the groups coming up pass and any erratic weather, and then try again. He had brought enough extra oxygen to wait a little.
A day later, Hall and Fischer and their groups were dead, and Breashears had enough extra oxygen both to find them and still go to the top himself.
3. Collins breaks down productive paranoia into three aspects: 1) having reserves for a crisis, 2) carefully managing 3 different kinds of risk, and 3) being able to zoom out and then zoom back in when a crisis seems looming.
So 10X companies carried 3 to 10 times the ratio of cash to assets. Intel, for example, had a free cash flow that was 40 percent of its monthly revenue as opposed to the more average 25% of AMD). "It's what they do before the storm comes that matters most" (105). Southwest had a billion dollars in cash on hand when 9-11 hit. They were the only airline that posted a profit not only in 2012, but in the last quarter of 2011.
Breashears had the extra oxygen canisters to postpone his push to the top of Mt. Everest.
4. There are a number of types of risk that productively paranoid companies watch. The first is the Death Line Risk. These are the type of events that could kill or severely damage an enterprise.
A second kind of risk is an asymmetric risk, one where to fail would produce a much greater negative than the positive of success (think Pascal's Wager). Finally, uncontrollable risks are ones that a company would have little ability to manage or control.
10X companies made far fewer decisions in these risky areas than the comparison companies (22% as opposed to 43%).
They added another kind of risk near the end of their study--time-based risks, risks relating to the speed of decision and action. The study found that recognizing a threat early and then taking the time to make a rigorous and deliberate decision yielded better outcomes than quick decisions.
(Their example, though, involved a decision in a couple weeks, so we're not really talking about a whole lot of time. Basically, they didn't just make a decision the day they recognized the looming crisis.)
5. Being able to zoom out and then zoom back in relates to stopping to brainstorm when leadership gets paranoid about a crisis that could happen. So the threat of Motorola led Intel to spend a week zooming out to formulate a strategy before then zooming back in to go full tilt.
Let me say again, they are not counseling inaction. Dare I say that in my circles (education), there's not a lot of leaping at all. The advice to slow down is not what is needed in this case. It is to get paranoid.
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