Building Vision — the Physics and Engineering Principles of Building Great Companies

Audio Transcript

A number of years ago I was giving a seminar presentation to a group of people gathered from what was then called the new economy. There were people from Internet companies and people who invested in such companies. As I was talking about timeless principles and the fundamentals of what makes enduring great companies, a hand shot up from the back of the room. It was a person from an Internet company, an intelligent man, who asked a question. He said, “Jim, I listened to what you’re saying, but it sure seems to me that it’s an entirely new world now. None of the old rules apply. It’s a new economy. We need to throw out the old in order to make way for the new, and that’s what this whole new economy is all about, don’t you think? What do you say about that?”

It was a thoughtful question. It was a good question, and a challenging question. I responded to him saying, “I disagree. I believe that there are laws of physics of building enduring, great companies, and that no matter how much the world changes, if you build bridges without attention to those timeless, classical laws of physics, your bridges are going to fall down.”

He looked at me with a little bit of disdain, a little bit of wonderment, I suppose, thinking that I must be sort of a fossil, a dinosaur, a classical physicist who just didn’t understand the new quantum theory. Perhaps he’s right. Maybe I wasn’t. Maybe I’m not smart enough to understand all the nuances of new economies. Maybe there are quantum physics of building great companies now.

But the way I look at it is that when you do quantum physics, it’s additive to our understanding. We don’t throw out principles once we understand them. We need to build upon them, and then we learn new principles as we go along. So, all of my work, as I see it, is about trying to find fundamental principles—be they quantum, be they classical—about what it takes to build great companies in any era. And the laws of physics never become purely obsolete. They become additive to our wisdom base.

Think about it this way. Take the principle of getting the right people on the bus, or the principle, if you will, of Packard’s Law. I believe this is a law of physics. It goes like this: if you allow growth in revenues to consistently outpace growth in the ability to get enough of the right people on the bus in order to make good on those revenues, if that gap widens systematically over time, you cannot, you will not, remain a great company, or maybe even become one.

I believe that’s a QED law of physics. But, of course, we have to think about it on the other side, that what changes—and this is why I agree with my challenging questioner—the practices have got to change. The way we bring to light those laws of physics must change. So, we think of it as that’s a law of physics, Packard’s Law, but the engineering will need to change, just like mechanical to electrical engineering.

It used to be in the past that our early, early versions of the right people on the bus were things like indentured servitude. Then we evolved to a twentieth-century version, which were regular jobs and employment. Now we’re moving to a more contract basis, something more along the lines of the new economy, more stock based. Those will be new mechanisms of holding people—of getting people on the bus.

But the principle, Packard’s Law—the principle of having enough of the right people on the bus and not letting the wrong people on the bus—that principle will remain true, no matter how many new economies we go through. Physics is timeless; practices of engineering continually evolve and change.