From Good to Great … to Below Average

I almost never read business books anymore. I got my fill of them years ago when I was a management consultant before I went back and got a Ph.D.

Last week, however, I picked up Good to Great by Jim Collins. This book is an absolute phenomenon in the publishing world. Since it came out in 2001, it has sold millions of copies. It still sells over 300,000 copies a year. It has been so successful that seven years later the book is still in hardcover. I’ve been hearing about it for years and never looked at it. People are always asking me about it. I figured it was about time I took a look.

The book focuses on eleven companies that were just okay, and then transformed themselves into greatness — where greatness is defined as a sustained period over which the stock dramatically outperformed the market and its competitors. Not only did these companies make the transition from good to great, but they also had the sorts of characteristics which made them “built to last” (which is the title of Collins’s earlier book).


Ironically, I began reading the book on the very same day that one of the eleven “good to great” companies, Fannie Mae, made the headlines of the business pages. It looks like Fannie Mae is going to need to be bailed out by the federal government. If you had bought Fannie Mae stock around the time Good to Great was published, you would have lost over 80 percent of your initial investment.

Another one of the “good to great” companies is Circuit City. You would have lost your shirt investing in Circuit City as well, which is also down 80 percent or more. Best Buy has cleaned Circuit City’s clock for the last seven or eight years.

Nine of the eleven companies remain more or less intact. Of these, Nucor is the only one that has dramatically outperformed the stock market since the book came out. Abbott Labs and Wells Fargo have done okay. Overall, a portfolio of the “good to great” companies looks like it would have underperformed the S&P 500.

I seem to remember that someone did an analysis of the companies highlighted in Peters and Waterman‘s 1980’s classic book In Search of Excellence and found the same thing.

What does this all mean? In one sense, not much.

These business books are mostly backward-looking: what have companies done that has made them successful? The future is always hard to predict, and understanding the past is valuable; on the other hand, the implicit message of these business books is that the principles that these companies use not only have made them good in the past, but position them for continued success.

To the extent that this doesn’t actually turn out to be true, it calls into question the basic premise of these books, doesn’t it?


One of the subjects that engrossed me in college and grad school was economic history. There's more to learn from companies that have lasted for more than a hundred years and did some real innovations. An example would be Western Union that turned itself around in the remittance business. Recent management books are nothing but fads and analyze the trends in a very narrow way. Japanese management technique was the fad in the '80's until the Japanese economy hit a wall. I still read and re-read Peter Drucker as he dissected management to its essentials like risk-taking and seizing economic opportunities, creating a franchise and expanding markets.

David Lloyd-Jones

There's nothing surprising here.

Just as a bet at a track with a Totalizer is not a bet on the horses but a bet on whether or not you are smarter than the rest of the crowd, so invesing in he stock market with a view to capital gains is a be not on the stocks but is a et on whether you have faster reflexes than al the other folks playing he ae game.

One should not be surprised that well managed companies have been noticed by speculative investors before a mere business book writer sees them. The speculators, after all, do this or a living -- and their inerest has driven he sock price up, which is what makes the writer take notice.

Once the book gets written this only accelerates what was already happening: dumber and dumber cohorts of looker-uppers are noticing these companies.

For the smart speculators the book is just gravy: it has added to he number of eager "investors" available to sell out to.

I think my assessment is a more realisic view of things than the Jamil Alkhatib's above. Being bookish, perhaps, he has written up the same phenomenon in more academic terms.



@#41 I agree NNT lays out sound logic on our ability to predict. Another great read concerning the value of history in predicting future events is The Poverty of Historicism by Karl Popper.

Jamil Alkhatib

The reason the companies mentioned this book have trailed the S&P 500 index is because they were overvalued in the first place. Market participants tend to overestimate the growth rates for these well run companies. When reality sets in, the collapse in equity prices might have nothing to do to the company's fundamentals and more to do with an overreacting crowd. Thats why Warren Buffet buys great companies at a discount to intrinsic value. The negative performance of growth stocks has more to do with panicking crowd.


I'm hang'n with the "halo effect" and Taleb crowd - loved all three books (TBS, FBR, HE) I own them all - I can't believe anyone takes GTG seriously. I own it as well by the way along with ISOE. Instresting books but they're just incorrect. Minor flaw. The book should have been about how to write a book that is completely screwed up but that will net you millions anyway.


I wrote about this a few years ago. After reading the footnotes about the book research, I realized Collins' team did not look at disconfirming evidence.


The only "prediction books" worth reading and taking seriously are "Fooled by Randomness" and "The Black Swan" both by Nassim Taleb.


Reminds me of what Victor Niederhoffer said about the secret to getting rich in Education of a Speculator. That if one had such a secret, one would hardly be likely to give it away for the price of a book. That applies to pretty much all business books, and most especially to finance and investing books.

Ray Gardner

Read "Fooled By Randomness."


He's particularly harsh on journalists, and rightfully so of course, and delivers some abuse to economists as well while giving credit where it is due, and properly dividing the good economists from the prognosticators.

just dug

That book is the best example of survivor bias I've seen. Their methodology looks at the winners of a random lottery and then finds characteristics they have in common - without ever checking to see how many failed companies have those very same characteristics (many of which were highly subjective). A classic bit of foolishness which is the essence of the entire business genre.


Reading Taleb's Fooled by Randomness is a good antidote to this kind of nonsense.


I also hardly read a business a book after I left the management consulting industry. I only read the first chapter or so of Good to Great.

The notion that lasting long is a sign of great company is misleading. A short term project can be a great enterprise, too. Also, greatness should be associated with a management team (and in certain period), not with a company. One generation of the management team (e.g. Microsoft management from startup to 90s) can be great but not the next. We often call a company great, but that is for convenience.

Franck Boizard

A French humorist, Pierre Dac, used to say : «Predictions are diffcult, especially when they concern the future.»


strange phenomenon...
I love your articles. Expanding my world.

Dr Bob

Maybe Dr. Collins should write another book - this one about what happened to these "Good to Great" companies that aren't so great anymore?

In short, once a company is great, how does it stay great?

I'm skeptical of most "business" books because they aren't very scientific and objective. They contain a lot of theory and selected case studies that support the theory, but not a lot of objective evidence that proves their theory.

Buzz Flewhart

Theories are never "proven". Evidence may accumulate to support a theory, but "proof" is purely a mathematical term. This is why I'm skeptical of many skeptics. They want "proof", but proof doesn't exist.
I'll also cast a vote for the Halo Effect. The Good to Great methodology is kind of like looking at the last 20 lottery winners to see which numbers they picked in common. If all of their winning picks included a "1", I must need a "1" in my number to win.

Rajesh Setty


Love your book and thank you for the post. My $.02

The principles outlined in "Good to Great" irrespective of how they were deduced (based on 11 companies) still make sense.

However, every time you arrive at a set of principles based on a sample set, they are true for that sample set (because you used that sample set to derive them) but what gets missed is another sample set (those companies that followed all these principles but still did not make it) that you might not have looked at.

For example, You study the top ten golfers and deduce a set of principles that are common to them. What you don't know is a sample set of golfers who have used all these ten principles and STILL have not made it.

That's what makes it hard.

My $.02 of course.


Doug Kyle

It would be interesting to know what changed in the years since the book first came out. The book talks about things the companies did... did they continue doing them? A lot of things could disrupt the actions that made the companies great that include new CEO, strategy changes, etc.

My impression of the book... good, easy read. Great for anyone, but I specifically recommend it to people who don't read a lot and the ideas in them are simple and; in my opinion, true. Simple and true makes them powerful (a reason I also recommend Patrick Lencioni to people). It's not a complete picture as it doesn't speak to marketing/sales/growth strategies/etc/etc/etc.

My take on a business book (or any book for that matter)... for $20, if you get one new idea that makes you better, it's a great deal and Good to Great had a couple of those for me at the time I read it.


I don't remember how individual Circuit City stores were setup in 2001, but if it's anything close to how they are now then this guy is *cough* bold. The location of every single Circuit City I have visited has been subprime, especially compared to the Best Buys which were nearby (so not on the highway, around other low-traffic shops, etc). When you walk in you'll probably encounter some low-sales item in the front (I've encountered vacuum cleaners and microwaves). The aisles are the widest I have ever seen.

I am convinced they are actually a front for some criminal organization since they do not seem interested in making money.


As a student of biostatistics I have 4 words. Regression to the mean.