Good to Great Under Fire: Circuit City, Fannie Mae and Survivor Bias

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Jim Collins published Good to Great in October 2001, just after the dot-com crash, and it sold more than four million copies. Collins picked 11 companies that had made a sustained leap from good to great and paired each with a comparator in the same industry that failed to make the leap, such as Abbott Laboratories with Upjohn, Circuit City with Silo and Fannie Mae with Great Western Bank. He also studied six unsustained companies, including Chrysler, Hasbro and Rubbermaid. His central finding was the hedgehog concept, borrowed from Isaiah Berlin's essay The Hedgehog and the Fox: great companies found one big thing and pursued it with relentless discipline. Time later listed it among the 25 most influential business management books.

Then the featured companies faltered. Circuit City went bankrupt and liquidated, and Fannie Mae needed a government bailout in the 2008 financial crisis. Economist Steven D. Levitt calculated that a portfolio of the 11 companies bought in 2001 underperformed the S&P 500. Phil Rosenzweig attacked the book's reliance on press clippings as the halo effect and argued Collins had cause and effect reversed. When challenged, Collins said the companies were only great during the period studied, and his follow-up, How the Mighty Fall, blamed failures on drifting from the hedgehog concept.

• Only Nucor among the 11 companies significantly outperformed the market in Levitt's analysis, while Abbott and Wells Fargo were merely adequate.
• Rosenzweig's wrong end of the stick critique holds that dominant, cash-rich companies can afford to focus, rather than focus producing dominance.
• Strategists Douglas Holt and Douglas Cameron argued the book offers a generic recipe that ignores industry-specific challenges.
• A 2012 analysis titled The Moral Fox argued that casting good as the enemy of great encouraged reckless risk taking.
• Reviewer John Greathouse described Collins's later defense as moving the goalposts, making the theory impossible to disprove.