What is productive paranoia and why is it so important in leadership?
Many leaders think that optimists are the best people to lead companies, but in fact the data says that optimists have a much higher chance of failing. Instead, the leaders who always ask ‘what if, what if, what if?’ are the ones who build enduring great companies.
You can only learn if you survive your mistakes, and the only way to survive your mistakes is to be constantly on the lookout for things that can impact your plans.
In this episode, Brad Giles and Kevin Lawrence talk about the concept of productive paranoia, and why it’s a critical leadership tool.
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Kevin Lawrence 00:12
Welcome to the Growth Whisperers podcast where everything we talk about is about building enduring, great companies. That’s something that Brad, my co host and I are very passionate about. We spend a big chunk of our life helping people to do that. And we’re here to talk with you about it. So I’m Kevin Lawrence and I’m joined by Brad Giles. We’re on episode 86 – getting close to 100. Brad, how are you doing today?
Brad Giles 00:42
Very good. I seem to be in the winter, that doesn’t seem to end normally. Two or three months ago, we’d be having a change in the season, but the winter just keeps on going.How you doing today?
Kevin Lawrence 00:55
I’m doing great. Yeah, we’re doing a beautiful white snow on the mountains across from us here. And you can see them on it. It’s just beautiful. It’s a little chilly, but I’m doing great. I’m insanely grateful. Today we’ll talk about as we get into the show. Today, we’re talking about productive paranoia, a concept that Jim Collins has written extensively about in his books, in particular, his book, Great by Choice, something that I live in breathe. And I was affirmed, by the way he wrote about it and has talked about it with us, and which has made me realize that my paranoia is a healthy thing, especially when you put it to work. So we’re gonna dig into that today. But we’ll get to that in a minute before that, what is your Word of the Day?
Brad Giles 01:38
It’s hiring. Hiring people. It seems like every meeting I go to, we’re talking about hiring, we’re talking about people who are leaving, we’ve got 2% unemployment here now. So even the people who don’t want to work, actually not working if sorry, they are working, if that makes sense. Even the people who who have no interest in working are somehow been forced to work. Every single meeting, it’s about how can we get people? Some people have left? Yeah, hiring is absolutely front of mind at the moment. What about yours? What’s your thought or?
Kevin Lawrence 02:19
Well, mine is keeping strategic is similar to the to where you’re coming from we are in an incredibly booming time where people are frantically executing, trying to keep up and many are so busy getting things done, they don’t have the time to zoom out and keep strategic when situations, you know, even need to go into hiring one is someone, one of the clients who work with one of his key leaders is like, we just need to hire people. Let’s just pay whatever it takes. We just got to get more people. Yeah, well, that is a tactical response, which may not be very smart in the long term. But you know, it’s not very strategic, potentially. But you know, getting lost up in tactical and panic kicks in. So keeping strategic around hiring would be a great theme for today’s show. If we were to blend those two together. In day, we could do another one just on that. So hey, let’s jump right into today. We’re going to be a real, real quick episode here today. So let’s talk about this thing called productive paranoia a bit. And I’ll just maybe start off with an example. Just before you do. So of course, if you sit with and be worried about things and paranoid and just cycle in cycle on those thoughts. Yeah, that is a really bad thing, because you’ll drive yourself absolutely insane. Although Collins talks those called productive paranoia, where you are, you could call worried or scanning the environment and worried about what could happen. But then you could do something about it. So instead of staying an obsessive worry mode, you notice a risk, boom, let’s put this counter piece in there. We notice a risk, let’s put something else in here. So it’s scanning and then actively doing something versus scanning and scanning and then scanning and scanning and not doing anything.
Brad Giles 04:19
And I guess the opposite of constantly scanning for something bad to happen is not scanning, and then not finding things that pop up,
Kevin Lawrence 04:32
which we would call the optimists in our society. And you would think that optimists would be some of the most successful people and they’re not. They’re generally successful for short periods of time. Yeah. Not enduring. No, because pure optimism and you know, and pure optimism is really dangerous. It’s wonderful. And you have to have that optimism. But you also need to be looking at the other side of the coin. In the right amount, otherwise, you know, you’re going to get taken out by things that you tried to optimize think you just Optimally optimistically bounce over. Yeah, though it’s it’s that combination, but pure optimism is correlated with great taking risks that often take your game.
Brad Giles 05:19
So the only way to survive is to have an element of productive paranoia, or you can’t build an enduring great business, unless you constantly scan to use your word constantly scanning saying, Well, what if this happens, or whatever that happens, because if you’re not doing that, and you’re an optimist, you can get taken out.
Kevin Lawrence 05:42
Exactly. And so for example, we were in a meeting, I’ll be a little bit general about it just generic, because it’s a private client issue. But we’re in a meeting talking about a massive move ahead for this company. And everyone’s excited about it, and they get to do something new, and they’re really excited about it, the bank is more than willing to give them the money for their aspiration, all this stuff. I’m like, I can’t support it. I can’t support it. Because I haven’t seen the scenario planning, where we come up with a list of all the brutal things that could take us out on this new expansion. And until we can see it, and to see that we can either mitigate it, or we can absorb it. Um, we shouldn’t do it. And it’s, it’s not that I don’t believe in this project, I believe in the project. But they haven’t done the work because they’re going to lever up the balance sheet with a lot more debt. And, and they but they haven’t done the work to show is this gonna put us in a situation where it could kill us? ie we, you know, we lose the company? Because we haven’t done that yet. So, but everyone else is all excited and pushing ahead. And I’m like, no bloody way. I mean, the CEOs also on this, and some other people are there. But a lot of people don’t. And next thing you know, you do this big expansion. And next and you’re sitting there going, oops, we over planned it or overbuilt at or overestimate?
Brad Giles 07:08
Yeah. So imagine you’re in a leadership team that’s really positive, you’ve got an exciting big, hairy, audacious goal, a strategy that you believe in, and you’re not perhaps doing as well, we’ve spoken about the qualitative and quantitative aspects of employee and customer surveys. So you’re kind of in an ivory tower a little bit, you’re kind of separated from the data, but you’re in this super positive environment. That’s a great way to get knocked out. Because you’re not always saying, Well, what if this happens, or what happens if that happens? And I come off a series of big wins.
Kevin Lawrence 07:43
Yeah. And the market is booming. And there’s the demand and the customers want more? All that good stuff. You just got to keep looking over your shoulder and not just blindly pushing ahead.
Brad Giles 07:59
Yeah, so I, we were speaking before the show, and I mentioned that before the Coronavirus really took hold at the end of March 2020. I sent out my first email on February the second, which was really, I guess, six to seven weeks before it started to significantly hit the headlines, let’s say. And I was primarily looking at it thinking, if this is happening in China, if we’ve got this virus, what’s it going to do if it gets out of China, I obviously, but then be really primarily thinking about if a number of the people in your firm or get it or get the virus at once. It’s going to mean that you’re not going to be able to continue to operate for a month or two. And that’s going to have devastating consequences. Now, it obviously went on to do other things. But that was absolutely born of productive paranoia.
Kevin Lawrence 09:03
Yeah. And Brad, we’re brothers in paranoia were similar. You know, I was ordering in addition to additional supplies from my place. I was ordering in 95 masks. Yep. And it was late Feb. I believe I used to go back and look at my Amazon history. I was I know I ordered six of the last n 95 masks available on Amazon Canada. Yeah, I got the last ones that I could find. And they were the three M and 95. And I was already doing those things because he can see it coming. Yeah, but that’s my nature. It’s um, it’s interesting and even as we talked about earlier, but in Western Canada, where I live, there’s been a set of anchors with a devastating storm. There are four main arteries that can highways that take you from Vancouver to the rest of the country. All four got washed out on Sunday night as I was driving through them. It’s almost like in the movies, where the you know, the road is falling away or the bridges falling away and behind you We didn’t see it happen. But we can see that this was a really bad scenario as we’re detouring. And even the main highway, we take the cold, the Coca Cola was washed out. So we were taking another one. And you know, within an hour or so after we went through it all, it all came up, flow came apart, and we were some of the last people to make it through. And, you know, the point of it being is that as that’s happening, and I and my son normally drive back and forth between Vancouver and a place called Kelowna, every week, separately, but we also have we call emergency bags, we got a 72 hour bag in the car in the winter, because it’s a mountain pass. And, you know, that’s part of that productive paranoia. And I’ve talked about this in other shows, not only do I have the best snow tires, on my truck that you can get, and they’re studded. And I have sandbags. And I have a 72 hour bag and a bunch of other safety emergency stuff in there. And if I go to a different car, I just transfer everything up sandbags that stays in the truck, but for different reasons. But it’s because you know, you can get stuck in those highways for a long time. And some people just go there with, you know, with nothing. And that’s okay. All I know is if some people got trapped, we would have been fine for a couple of days wouldn’t have liked it, when we had all the supplies we needed. Because it’s unknown, and no one would have expected this to happen. You just expect in the winter bad stuff happens on these mountain roads. And it’s being super prepared. And it’s a mindset. And it’s a healthy mindset. When you do something about there are some people that would be so paranoid that they wouldn’t drive over a mountain pass in the winter. That’s a that’s that’s almost a debilitating paranoia versus constructively taking steps to set yourself up to win.
Brad Giles 11:43
Yeah, that’s an excellent, excellent analogy. So the point here is that the only mistakes you can learn from are the ones you survive. Yes. Otherwise, you get taken out. And so bad things or dangerous things happen all the time. And by embracing the myriad of possible dangers, people with productive paranoia put themselves in a superior position to overcome danger.
Kevin Lawrence 12:12
Because they’re just more prepared. Yeah, that’s it. That’s all that it is. It was interesting, even I’ve got a guy I know fairly well, that it has his own helicopter implies is one helicopter. And I wasn’t sure the first time I wanted that one. When I went up, he’s got one. He’s amazing jet helicopters. It’s outstanding. But you know, when I went up with him, and I’m watching how we do it, man, he’s full of paranoia. Yeah, he’s a fun loving guy. Normally, when he’s in a helicopter, he’s like, he’s all business. All concerned, Tom, watch out for this, you know, and it’s like, and for a recreational pilot, they’re not as experienced. But if that’s what that paranoia helps you to the point where he’s taking the course, where you can land a helicopter with no engine, there’s a special technique where you can put them on the ground fairly safely. Anyway, the point of it is, is it’s a certain attribute that’s very, very helpful in business. And that’s it, we’ll talk a bit more. And so some of the main points, like one point main thing is, you know, you’re doing this when you’re asking, you know, what if, what if, what if you’re looking at different scenarios? And what could happen again, versus just the bold blind optimism?
Brad Giles 13:23
Yeah. And being distracted by other things. Because what if this end? What if 90% of the time or 99% of the time you’re not? Right? It’s the 1% of the time that enables you to survive. It’s okay. People may think, oh, that person’s always worried about, you know, all these things, and nothing ever turns out until the 1% of the time that they do. And that’s, that’s a great way to kind of summarize productive paranoia. What if? What if? What if, what if this customer fails or doesn’t pay? What if our product doesn’t get delivered on time? What if our employees, half of our employees resigned, I had a leadership team that I know of where they’re in, I don’t work with them. But 40% of the leadership team and mid management team all resigned within about a month because they were targeted by the competitors. That’s why one of the reasons my chicken was was hiring. So what if that happens? What if we have it’s the what if, what if, what if the plane crashes?
Kevin Lawrence 14:36
And that’s why we don’t have the whole executive team play on the same plane? Right? Like all of these different things, where people look at things and have plans to mitigate unforeseen, foreseen and unforeseen risk? Yeah, and that’s the idea. Like, I remember, I was talking with one CEO, he was like, you know, I don’t know when the next crazy thing is going to happen in In our business or our economy, but I knew it, I do know that it will. I don’t know what or when, but I know that it will. And I want to be prepared for that.
Brad Giles 15:11
So there’s a really sorry, tip, there’s a really important thing that that’s between the lines of what you just said, Okay. And that is the difference. Jim Collins said that the difference between the great companies and the good companies in his studies was that the employees in the great companies felt that they had a responsibilities, they had a responsibility, whereas in the other companies that executives felt that they had a job. And that responsibility leads to and connects to productive paranoia. Like, what if this happens, what if that there’s a real important connection there,
Kevin Lawrence 15:52
there is add, but we also want to say the other side of the coin is someone who’s always worried about everything, and just an absolute downer, where they worry about it, whine about it, but they don’t take anything to counteract it, we are not saying that no team should continuity look exactly look for the problems, and then have plans to mitigate them, so that you can handle it. So the second point is be prepared for everything that comes up, and especially the things you can’t expect. And that’s why, you know, for a lot of companies, now making sure that you know that they keep extra cash and Collins found in his research companies that were in during the Great had fat balance sheets, basically. So they could weather any storm, and still be good. And that’s the key piece. How do you weather any storm a once in 100 year storm? How do you weather it so you can continue to build your organization going forward?
Brad Giles 16:47
I remember I started working with a client must have been seven or eight years ago. And they were like, many small kind of to medium businesses. I mean, they were like a 20 $40 million business in that region. And, you know, they had cash reserves that were very thin, as is often the case. And I kept harassing them about building their cash. And I said, Don’t worry, just build it up, build it up, build it up. And then heaven forbid, let’s go two years into the future. And what had happened is the industry changed something big happen. And suddenly they needed those reserves that we’d built up. And it was, you know, one of the reasons just by saying what if,
Kevin Lawrence 17:35
like I said, we’re brothers in this, Brad, because I push people to build cash reserves like crazy, you know, and a rule of thumb I’ve been playing with is about 10% of revenue in cash, or equivalent 10%. So if you’re a $200 million business, that’s about 20 million bucks cash. Yeah. And that’s a range where it starts to be decent. Now, I had a whole conversation about some of my clients cash, or 30 Day Cash or 60 Day cash assets that can be liquidated. And one of my clients has a great strategy, he looks at some assets that the company has. Yep. And says what’s the 30 day price? In a bad economy? Hmm. And so he looks at it. So basically, if he’s got $20 million of equity in this asset, yep. But the 30 day price in a bad economy, you know, he might have 12 million, let’s call it 10. So he looks at that’s a $10 million cash reserve sitting there because I can liquidate that asset if I have to. Yeah, but he’s doubled, discounted it based on those factors. But that’s again, that’s part of that productive paranoia.
Kevin Lawrence 18:43
And I’m going when I talk about cash reserves, people would say, Oh, we’ve got an overdraft or we’ve got something else doesn’t count. It doesn’t count. Because in the bad times, the banks are not necessarily Yes. Or no, your friend. No. So exactly. Interestingly, yes. And a lot of people even when it comes to cash, I get very passionate about this, you know, they might have, you know, if they’re doing really well, they have $100 million of cash, but then they’ll go use the bank’s money to do what they need to do to keep the 100 million, because they won’t have access to it, it depending on you know, how up and down a particular industry is or what they’re doing, right. They’re in a fairly up and down business, and industry. So the point of it is, that’s another piece of productive paranoia. Yeah, um, you know, so the third point here is really is all this great thinking, but you got to act on them. You got to plan A, B, and C, and you don’t want to spend a lot of time obsessing over these risks. You quickly want to find a way to mitigate them and know that you’re good. And then if you’re still good, then proceed optimistically. But it’s getting the mitigated up front and looking at all the ugly stuff up front. Again, that’s not rocket science is key piece. And then the other four were the result of this is you can generally be more More aggressive and positive because you know, the worst case scenarios are covered. Yeah, already got it handled, and you’re good, almost no matter what you think, could happen, because you don’t want a lot of Colin’s his research, he found a lot of these companies are actually were risk adverse and very, very careful hence this concept. So just for time, Brad, I’ve got an example here, maybe you want to share a couple examples you want if you want to share the example about growth.
Brad Giles 20:27
Yeah, Andy Grove, any Grove, founder and CEO of Intel, the micro chip maker, or computer chip maker. He was one of the examples in terms of productive paranoia. So his quote was, he’s always looking for the black cloud in the silver lining. And if we go back to the optimist remark that we made before, the silver lining is driven by optimists, they always see the silver lining, but there’s always something else that we’ve got to look for. So that’s a it’s a really, it’s a good way to look at it. And to think, yeah, there are silver linings, but there are also black clouds as well. And we need to know both.
Kevin Lawrence 21:15
Yes. And Andy Grove, you know, another thing I love from him is that he had his book, I think it’s called high output management. You’re the one you’re talking about from his book, only the Paranoid Survive, but high output management, he talked about, always having we call the helpful Cassandra. That’s someone who would criticize his ideas in every team or project he was on. He wanted the person that would speak up and look for the problems and look for the gaps in the thinking. And that was He’s nice, very, very, very successful CEO, Herbert Keller is known for predicting 11 of the last three recessions. That was in Colin’s book, Great by Choice. Yeah, he’s the only buddy west, southwest airlines, amazing CEO, amazing company. But he predicted 11 times he predicted recessions, but they only happened three times, because that’s how his brain is wired. Looking at. There’s lots of other examples. I know I’m remembering. And an amazing CEO that I’ve had the chance to work with for more than a decade. I remember I gave him a copy of Great by Choice Collins’s book, and we talked about this. And then he instantly grabbed his pen and put his name. And he wrote his name on the inside of the book, like, what are you doing? I was wondering what some of the ticket. So it’s a prime example. And the CEO who’s making you know, he’s making a seven figure income, he’s not short of cash, but he’s writing his name in the damn book, because he doesn’t want his book to get stolen. Right. And, and this guy was a great example of productive paranoia, and an outstanding CEO. So there’s lots of different examples of bookkeeping cash, you know, doing risk analysis, taking small steps, like Jim calls, you know, bullets, then cannonballs, and things like suppliers, you know, you know, having multiple suppliers for a different piece. That’s why some companies don’t want one supplier to be you know, 70% of the business, they want to carve it up amongst a few different ones. It’s just it’s risk management.
Brad Giles 23:12
So I actually in my book, the fifth chapter was about succession planning. And that’s not for your kids to take over the business that’s exactly around productive paranoia. And so I cover off within my Thrive this book that I’ve written, it’s about the roles, it’s about the products and services that are at risk. It’s the suppliers that are at risk. It’s evaluating opportunities, new stuff against a set of criteria, and each leader in the business has a clear successor. So that’s another way to another angle to think about it. Yeah, is that it’s forcing yourself to say, what if, what if, what if?
Kevin Lawrence 23:55
Yep. And I will tell you, I share one example where you know, and productive paranoia is always good, right? It’s healthy. But sometimes we relax around things and lose it. And that’s the risk, we get complacent. And I remember one time we were with a group of people going on a drive and one of my passions is driving. And we’re going on this amazing drive through the northern US and Canada and going up to the racetrack. And my son and I are in a car that’s a very very fast car. We got to back for dealership, they did a service, it was all good to go. And we’re going at like we’re really driving past and at one point we started to notice the car started to feel funny. And actually my son was driving at the time sort of feel funny, we pull over well, the wheel was coming off. And, and the wheel nuts were already backed off. Like if you know if the bolt say would have been, you know, an inch and a half two inches sticking out with us not only Oh, it was already halfway out like the wheel, the wheel was destroyed and you know, as much as you know, when I’m gonna drive like that and going to the One of the habits we have at the racetrack is we check the torque on the wheel nuts before we go. Hmm. Yeah, you know, just to double check, because if something comes loose, it can be devastating. You know, and even though you take it to the dealership, which is the brand you bought the car from, which is one of the top car brands in the world, all these things, you should be able to trust them. But you shouldn’t, you should still double check your torques and things like that. It’s just a good habit, and I didn’t, and it could have destroyed the car or killed us, you know, if that will come off at high speed. And it’s just one of these things productive. If I was productively paranoid, I would always check those things. And there’s a discipline to this, versus just getting comfortable and casual. And there’s one other saying would be trust and verify when my case I didn’t verify. So the question to leave you with is, what could you do to be more effectively paranoid, productively paranoid, hopefully paranoid? What could you worry about in your business that could wipe your business out? Or, obviously, if it’s a safety of safety, and it could harm someone, that’s a whole other piece? But what could you do in your business to be more productively paranoid? And then maybe what could you do personally?
Brad Giles 26:10
Yeah, indeed, it’s, it’s such a powerful concept. And I’m so glad that we’ve covered it up today. So let’s have a quick review of some of the key points here in order to wrap up. So really, the it’s about asking what if, what if, what if, but the only mistakes you can learn from other ones use survive, every business will go through an experience mistakes, and this purpose is to help you to survive. So as I said, first of all, it’s about asking, what if? What if, what if it enables you to be prepared for everything that comes up, and especially the things that you can’t expect kept doing to take us on to three and four and onwards?
Kevin Lawrence 26:53
Yes and he basically you just act on his risks and how plan ABC or a plan to mitigate it so that you can put them to the back of your mind and push ahead aggressively, and as a result, be more confident. Because you’ve stared the worst case scenarios in the face, you make a better decision to start with. But then you have more confidence because your decisions are built on granite, versus, you know, floating on a pedal on the water, exaggerating a bit. And then you know the examples we’ve talked about. And you know, just to wrap up the quote from Andy Grove, only the Paranoid Survive. And as your business becomes bigger, not always about survival. It’s about your responsibility to your customers and your employees. And your job is to make sure this organization exists, and is healthy years from today.
Brad Giles 27:41
Awesome, good episode talking about what is productive paranoia, and why it’s a critical leadership tool. So we hope that you’ve enjoyed today’s episode, as always, our podcasts are available on YouTube, obviously searching for the Growth Whisperers and you can find Kevin at Lawrence and co.com