Have you ever wondered why some businesses reach a level of greatness and why others don’t? Is it sheer, dumb luck? Right timing? Great leaders? A perfect product-market fit? A killer marketing team? A we-can-conquer-the-world capital?
We’re not going to ignore the fact that there are plenty of factors that come into play when it comes to making a business great. But as it turns out, there is one thing that will help your business reach that level, and it’s called the Hedgehog Concept.
What is the Hedgehog Concept?
According to Jim Collins, it is a “simple, crystalline concept that flows from deep understanding about the intersection of the following 3 circles.”
Jim Collins and his team came up with the concept while studying how companies transition from good to great. The concept is inspired by Isaiah Berlin’s essay which is about the Greek parable, The Hedgehog and the Fox.
The logical theory is that oddsmakers will pick the fox over the hedgehog. It’s faster, bigger, and cunning. The fox would also constantly devise schemes to attack the hedgehog.
The hedgehog doesn’t dwell on the fox’s attacks. He goes about his usual daily routine. Whenever the fox would sneak an attack, the hedgehog would curl into a tight ball with spines sticking out, making the fox retreat.
Based on that, Berlin divided people into 2 groups: hedgehogs and foxes.
Foxes, he said, are “scattered and diffused, moving on many levels.” The hedgehogs are the opposite. They simplify complex things and follow a single concept. Hedgehogs don’t give importance to anything that doesn’t belong to their concept.
In other words, hedgehogs only focus on what matters. The rest is just noise.
How to use the Hedgehog Concept to turn your business into a great one
The great companies that Jim Collins and his team studied have a deep understanding of the three circles. They know what they can be the best in the world at (and stick to it), what they are truly passionate about, and how to produce a spectacular profit.
The Hedgehog Concept is not just a framed mission statement. It is their northern star—the ultimate guide to everything they do.
To do that, you first need to look at each circle.
- What can you be the best in the world at?
A lot of people (and companies) struggle with this one. Most of us believe that we are great at what we do, but in reality, we fall short of being, at the very least, competent. So how do you get past cognitive biases such as the Dunning-Kruger Effect.
Jim Collins suggests that it is important to both know what you can be the best in the world at and what you cannot be the best in the world at. It’s also important that you should approach your quest with “egoless clarity.”
Here’s how to do it:
- Confront brutal facts
Yes, it’s painful but it’s more painful to make a Hail-Mary pass later on out of desperation. If your data is telling you that your product or service is not working, make them better or change them. Another way to do it is to listen to your customers’ feedbacks.
- Test, test, test
Perform a series of experiments. You’ll never truly know which one will give you an edge until you try. When Abbott was losing to its pharmaceutical competitors, the company experimented with different cost-effective health care products instead of sticking to pharmaceuticals, and it worked.
- Confront brutal facts
- What are you deeply passionate about?
Warren Buffett once said that he would still do his job even if he gets paid with seashells and that he still tap-dances to work each day. What is the one thing that will give you that kind of feeling? Something that you can do each day without losing interest. Something that you can’t stop thinking about, talking about, or something that you truly believe in.
- What drives your economic engine?
It’s the factor that will effectively increase and sustain positive cash flow and profitability. Jim Collins refers to this as your business’s “economic denominator,” and it is accompanied by a simple formula:
Profit per x
With x being the thing that will have the greatest impact on your cash flow. For example, Walgreens switched its standard metric from profit per store to profit per customer. In doing so, the company not only boosted their profitability but the number of stores they have as well.
It sounds so simple in theory; the execution, however…well, that’s a different story. It will take a thorough look into the inner workings of your business, lots of brainstorming, and of course, testing. But if the outcome is having a great business eventually, then all those will be worth it in the end.