One of the best business books I’ve ever read is “Good to Great.” It’s a research-based look at why some companies, after battling it out neck and neck with their competitors for many years, suddenly surged ahead to achieve remarkable, sustained success. As I read it, I couldn’t help but see many ways that the lessons apply to our use of money.
Having written previously about the personal finance implications of the book’s first three insights – that all good-to-great companies are led by Level Five Leaders, take a First Who…Then What approach, and Confront the Brutal Facts (Yet Never Lose Faith) – now let’s look at author Jim Collins’ fourth finding: all good-to-great companies are built on a Hedgehog Concept.
Simple Wins Every Time
The Hedgehog Concept comes from an Isaiah Berlin essay that, in turn, was based on a Greek parable that divided the world into foxes and hedgehogs: “the fox knows many things, but the hedgehog knows one great thing.”
Berlin took the idea further, suggesting that writers and thinkers are either foxes, who see the world in all its complexity, or hedgehogs, who view the world through the lens of one defining idea.
Collins says all companies that move from good to great are hedgehogs, achieving their outstanding results by identifying and then focusing on “a single organizing idea, a basic principle or concept that unifies and guides everything.”
Clarity Through Questions
In order to find your hedgehog concept, Collins says to consider these three questions, which he draws as intersecting circles:
- What could you be the best in the world at?
- What are you deeply passionate about?
- What drives your economic engine? What single denominator has the greatest impact on your economics?
Becoming a Financial Hedgehog
How does this apply to our personal finances? I can see numerous examples of how the overarching idea of simplicity relates.
For some people, investing is an overly complex endeavor. They start down one path only to be diverted by a friend’s hot stock tip or a magazine headline. By contrast, financial hedgehogs take a simpler approach. They choose a strategy and stick with it.
For some people, what to buy and how much to spend are daily, complex decisions impacted by emotion, advertising, and what’s on sale. They wonder why they can’t save and why they have so much debt. By contrast, financial hedgehogs plan their cash flow so they know how much they can spend on groceries, entertainment, and such, while making sure they have enough margin to be able to save, invest, and give. Life is so much simpler.
The Hedgehog at Work
One of the clearest applications of the hedgehog concept is how it relates to our job. Stop and think about what you do for a living, or what you might do in the future. What could you be the best in the world at? It might be a type of job, or maybe a specific aspect of a job. What are you passionate about? And how could your abilities and passion be used to generate income?
How to Discover Your Hedgehog Concept
If you can’t easily answer Collins’ three questions and immediately hone them down to a clear hedgehog concept, that’s okay. Keep these points in mind:
It May Take Time. For the good-to-great companies, it took an average of four years to figure out their hedgehog concept.
Others Can Help. Collins advocates the use of a “council,” a group of trusted advisers who are engaged in the dialogue and debate about identifying your hedgehog concept. You could easily do this on a personal level, asking family members and friends to help you. Infuse them with the brutal facts of your current situation and guide the discussion around the three questions.
Everyone Has One. Maybe you read the question about what you could be the best in the world at and rolled your eyes. Best in the world? Come on, get real. Interestingly, Collins found that in the majority of cases, the good-to-great companies were not the best in the world at anything and showed no prospects of becoming so. And yet every one them maintained faith that they could figure it out.
It’s Not About Bravado. Collins says identifying your hedgehog concept is not about boastful ambition; it’s about the simple observation that, yes, I really could become the best at something I’m passionate about.
What are your thoughts about the hedgehog concept and how do you see it relating to your personal finances? How might it apply to someone who’s retired or a stay-at-home parent? Let me know by leaving a comment below (All you have to do to leave a comment is enter your name and e-mail address).
By Matt Bell
Matt Bell is Sound Mind Investing’s Associate Editor. He is the author of three personal finance books published by NavPress, leads workshops at churches and universities throughout the country, and has been quoted in USA TODAY, U.S. News & World Report, and many other media outlets.