Jim Collins spent five years researching what separates great companies from good ones. He studied Fortune 500 giants. But here's what nobody talks about: these patterns work better in small businesses.
Collins identified 11 companies that made the leap from good to great, sustaining returns at least three times the market for 15 years. Every single one displayed specific behavioral patterns during their transition.
The interesting part? These same patterns show up in smaller businesses too. And in a €5M company, they compound faster because you can actually implement them without fighting corporate bureaucracy.
Level 5 leadership exists in €5M companies
Collins found that great companies had "Level 5 Leaders" who combined personal humility with professional will. In Fortune 500 companies, this is rare because politics selects for ego.
In small businesses, this pattern is more common. The founder who still answers customer emails. The CEO who lists their direct number on the website. The owner who reinvests profits instead of taking maximum distributions.
Collins' research showed that Level 5 leaders credit their teams for success and take personal responsibility for failures. They measure success by company performance rather than personal compensation.
What this looks like in practice: In Collins' study, Darwin Smith at Kimberly-Clark worked 18 years building the company while fighting cancer, never seeking publicity. When asked about his management style, he simply said "Eccentric." The company outperformed the market 4.1 times during his tenure.
What to look for: Management that credits the team, takes personal blame for failures, and measures success by company performance rather than personal compensation.
First who, then what actually works at small scale
Collins' most powerful finding: great companies got the right people first, then figured out what to do. Good companies decided the strategy, then hired people to execute it.
The research showed this pattern across all 11 good-to-great companies. They focused on getting the right people on the bus, the wrong people off, and the right people in the right seats before determining where to drive it.
In a 500 person company, changing your team takes years. In a 15 person company, it takes months.
The math is simple: one bad hire in a 10 person company is 10% of your workforce. In a 10,000 person company, it's invisible. Small businesses can't hide performance problems.
Example from the research: At Wells Fargo, CEO Dick Cooley spent most of his first year getting the right people in place before tackling strategy. The company then outperformed Bank of America by over 3 times during his tenure.
What to look for: Low turnover in key roles, employees with 5+ year tenure, culture of hiring for fit over credentials, willingness to leave seats empty rather than fill them wrong.
The hedgehog concept is easier to find in focused businesses
Collins wrote about the hedgehog concept: the intersection of three circles.
- What you can be best in the world at
- What drives your economic engine
- What you're deeply passionate about
Large companies lose this focus. They diversify. They chase growth. They forget what made them great.
The research showed that breakthrough companies maintained strict hedgehog discipline. They said no to opportunities that didn't fit all three circles, even when those opportunities looked attractive.
From Collins' research: Walgreens decided to be the best at convenient drugstores. CEO Cork Walgreen shut down the entire restaurant business (over 500 locations, including family tradition dating to his grandfather) to focus exclusively on their hedgehog. The stock outperformed the market 16:1 over 25 years.
Compare this to companies that chased every adjacent opportunity and achieved mediocre results across multiple fronts.
What to look for: Revenue concentration in core offering, ability to articulate "what we don't do," consistent margin improvement, saying no to opportunities outside the hedgehog.
Culture of discipline without bureaucracy
This is where small businesses have the biggest advantage.
Collins found great companies had disciplined people, disciplined thought, and disciplined action. But they did it without bureaucracy.
In Collins' research, the breakthrough companies combined a culture of discipline with an ethic of entrepreneurship. They didn't need excessive controls because they had the right people who acted like owners.
Example from the research: At Nucor Steel, any employee could make decisions to serve customers without layers of approval. They maintained this discipline through rigorous hiring standards and clear frameworks, not rule books.
In a 50 person company, you don't need an approval process for spending €500. You need people who think like owners. Collins called this "freedom within a framework."
That's culture of discipline. And it scales better than rules.
What to look for: Low process overhead, employee autonomy with accountability, consistent decision quality across the organization, ability to move fast without chaos.
Technology accelerators work faster at small scale
Collins' companies didn't pioneer new technology. They were pioneers in applying existing technology to their hedgehog concept.
The research showed that good-to-great companies carefully selected technologies that directly linked to their three circles. They avoided technology fads but made bold investments in tools that would accelerate their flywheel.
Small businesses can test and implement faster than enterprises. No committees. No change management. No six month IT projects.
From the research: Nucor Steel didn't invent mini-mill technology, but they pioneered its application to steel production. This technology accelerator helped them outperform traditional steel companies by massive margins while the industry struggled.
What to look for: Willingness to adopt proven technology quickly, focus on technology that accelerates the core business, absence of legacy system constraints.
The flywheel spins faster in small businesses
Collins' flywheel concept: great companies build momentum through consistent effort in one direction. Small wins compound into breakthrough results.
In Collins' research, the good-to-great transformations didn't happen through dramatic restructurings or single make-or-break moves. They happened through consistent pushing in one direction until momentum built.
In a massive company, spinning the flywheel takes years. In a small company, you can complete a full rotation in months.
The research pattern: Each turn of the flywheel builds on previous work. At first barely noticeable, then gradually building momentum until reaching breakthrough point. The comparison companies kept launching new programs instead of building consistent momentum.
The advantage in small business: you can see the results of each push faster, make adjustments, and maintain consistency without getting canceled by impatient boards.
What to look for: Compound mechanisms built into the business model, visible momentum in key metrics, consistent execution in the same direction over multiple years.
Why this matters for quality investing
Good to Great patterns serve as quality filters for identifying exceptional businesses. Not because Collins said so, but because they predict sustainable performance.
Collins' five-year study showed that companies with these patterns outperformed the market by 3-6x over 15 years. The patterns weren't random - they appeared in all 11 breakthrough companies and were largely absent in comparison companies.
The advantage in small business: these patterns are easier to spot and verify. Three customer conversations tell you if they have a hedgehog concept. Five employee interviews reveal Level 5 leadership.
In large companies, these signals get buried in complexity. In small businesses, they're obvious.
What the research showed: Companies displaying all the Good to Great patterns together created a compound effect. Having just one or two wasn't enough - the full system working together produced breakthrough results.
What to do with this
If you're evaluating an acquisition:
- Spend time with the CEO. Are they Level 5 or just level ego?
- Map the actual team. Right people in right seats?
- Ask what they said no to last year. Do they have hedgehog discipline?
- Look for the flywheel. What compounds in this business?
If you're operating a business:
- Get the people decisions right first. Strategy follows.
- Define your hedgehog concept. Write it down. Use it to filter every decision.
- Build culture of discipline through people and frameworks, not rules.
- Find your flywheel. Then push it consistently.
Collins studied great companies. But his patterns work better in small businesses because you can actually implement them.
The €5M company with Level 5 leadership and hedgehog discipline will outperform the €500M conglomerate with neither.
That's not theory. That's what Collins' research demonstrated across 1,435 companies over 30 years.
And that's exactly what makes small businesses with these patterns worth finding.
This analysis applies Jim Collins' Good to Great research to small business investing. We're building a concentrated portfolio of quality businesses using systematic behavioral assessment. Every Tuesday we share tactical insights. Every Friday we go deep on patterns that predict performance.
