How Jim Collins Found the 11 Great Companies

How do you find a needle in a corporate haystack of 1,435 companies? Understanding the good to great research methodology requires looking at the grueling process Jim Collins used to isolate elite performers. This rigorous approach stripped away luck and circumstance to reveal why a few firms outpaced the market by nearly sevenfold.

Business analysts often obsess over current stars, but they rarely look at the transition from mediocrity to excellence. This study focused exclusively on firms that spent fifteen years at or below market levels before shifting to a massive upward trajectory. By setting such a high bar, the research team ensured that their findings weren't just based on temporary hype or a single lucky product cycle.

Scaling the Good to Great Research Methodology

The "Death March of Financial Analysis" describes the six-month effort to identify companies that leaped from average results to extraordinary sustainment. In his book Good to Great, Jim Collins explains that his team looked for a very specific performance signature. The criteria required a company to have fifteen-year cumulative stock returns at least three times the general market, following a long period of unremarkable performance.

This fifteen-year requirement is essential because it transcends the tenure of a single celebrity leader. It also filters out companies that just happened to be in the right place at the right time. Analyzing 1,435 companies that appeared on the Fortune 500 between 1965 and 1995 provided a massive data set for the team to mine for these rare gems.

Rigid Standards for Selection

Setting a high bar for performance was the first hurdle in the study. The final eleven companies eventually selected didn't just beat the market; they averaged cumulative stock returns 6.9 times the general market. For comparison, a mutual fund of legendary companies like GE, Coca-Cola, and Intel only beat the market by 2.5 times over the same period.

Each company had to demonstrate this pattern independently of its industry. If an entire sector rose at the same rate, that specific company was dropped from the list. This helped the team identify internal management variables rather than external economic shifts as the cause of success.

Vetting Rivals via Jim Collins Book Research

A critical part of the process involved finding a "direct comparison" company for every great firm identified. These were businesses in the same industry with similar resources and opportunities that failed to make the leap. By contrasting the winners with the losers, the team could isolate the exact variables that actually mattered.

Jim Collins book research also included a second group of "unsustained comparisons." These were companies that showed a short-term burst of greatness but couldn't keep the momentum going for the full fifteen years. This allowed the researchers to see what creates a flash in the pan versus an enduring engine of profit.

Filtering Out Lucky Industry Trends

The team spent 10.5 people-years reading and coding nearly 6,000 articles for the study. They didn't start with a theory to prove, but instead built their conclusions from the ground up using empirical evidence. This inductive process ensured that the final framework was rooted in actual data rather than business school assumptions.

One surprising finding was that the good-to-great companies weren't usually in high-growth industries. Many were in "boring" fields like steel, paper, or banking. This proved that greatness isn't a result of being on a rocket ship, but rather a matter of conscious leadership and discipline.

Competing for Dominance in Consumer Retail

Walgreens stands as one of the most remarkable examples of this methodology in action. For over forty years, the pharmacy chain performed with total mediocrity, essentially matching the general market's returns. Then, in 1975, the company began a climb that outpaced the technology superstar Intel by nearly two times over the next quarter-century.

While its rival Eckerd pursued growth for growth's sake through random acquisitions, Walgreens focused on a simple concept of convenience. By 2000, a dollar invested in Walgreens would have beaten a dollar in the general stock market by fifteen times. The research team contrasted these two firms to show how a clear "Hedgehog Concept" beats a scattered strategy every time.

Kimberly-Clark provides another powerful narrative of transition. Under Darwin Smith, the company sold its traditional paper mills to bet everything on consumer products like Huggies and Kleenex. This decision led to the company beating its direct rival, Scott Paper, in six of eight major product categories while generating returns four times the market average.

Three Metrics to Spot a Transition

1. Search for 15-year sustainment. Use financial databases to find companies that have maintained a performance level at least triple the general market for a decade and a half. This eliminates firms that are simply enjoying a temporary windfall or a favorable economic cycle.

2. Identify a clear transition point. Locate the specific year where the stock return chart deviates from the market average. If the company has always been a top performer, it won't offer the same lessons as one that transformed itself from a state of mediocrity.

3. Compare against a failed twin. Find a direct competitor that had the same opportunities but stayed at the market average. If you can't find a significant difference in their leadership or discipline, the success might be a result of industry-wide luck rather than an internal good to great research methodology.

Challenging the Permanence of Greatness

Critics often point out that some of the eleven companies identified by Collins eventually struggled years after the study concluded. Firms like Circuit City eventually went bankrupt, while others saw their market dominance fade. It's valid to question whether the principles identified are permanent or if they merely provide a temporary advantage.

However, Collins argues that greatness is not a permanent state but a result of continuous discipline. If a company stops practicing the core principles—like picking Level 5 leaders or sticking to its Hedgehog Concept—it will inevitably slide back into mediocrity. The decline of these companies doesn't necessarily disprove the methodology; it often highlights what happens when a firm loses its way.

Greatness requires a specific performance signature that separates a lucky break from a systematic transformation. By focusing on firms that beat the market by an average of 6.9 times over fifteen years, the study isolated the behaviors that drive massive sustainment. Review your current investment portfolio for any company that has outperformed its industry average for at least ten consecutive years.