I’d like to close this chapter with an essential caveat about persistence from Built to Last. Of all the paragraphs I’ve authored or co-authored in thirty years, this is one of the most essential for entrepreneurs and leaders of early-stage ventures, reproduced here as a reminder to keep firmly in mind as you build your company:

The builders of visionary companies were highly persistent, living to the motto: Never, never, never give up. But what to persist with? The company. Be prepared to kill, revise, or evolve an idea . . . but never give up on the company. If you equate the success of your company with the success of a specific idea—as many businesspeople do—then you’re more likely to give up on the company if that idea fails; and if that idea happens to succeed, you’re more likely to have an emotional love affair with that idea and stick with it too long, when the company should be moving vigorously on to other things. But if you see the ultimate creation as the company, not the execution of a specific idea . . . then you can persist beyond any specific idea—good or bad— and move toward becoming an enduring great institution.

Stockdale embraced a Genius of the AND in his leadership: You must retain unwavering faith that you can and will prevail in the end, regardless of the difficulties, and at the same time you must confront the most brutal facts of your current reality, whatever they might be. You must believe you can survive the camp and will live to see your loved ones again, and at the same time you must stoically accept that you will not be out by this Christmas or the next Christmas or even the next Christmas after that. Never fall into the leadership trap of creating false hopes soon to be destroyed by events. Yet equally, never capitulate to despair and lose faith that you will prevail in the end. You need the Stockdale Paradox to go from start-up to great company. You need the Stockdale Paradox to lead a company from good to great. You need the Stockdale Paradox to navigate turbulence and disruption. You need the Stockdale Paradox to reverse decline and engineer a return to success. You need the Stockdale Paradox to continually renew a successful company so that it might endure. Level 5 leaders confront the brutal facts before they set vision and strategy, and they create a climate where the truth is heard. Failure to confront the brutal facts is a precursor to catastrophic decline, always. (Directed reading: Good to Great, Chapter 4.)

If you brilliantly move through all the key principles in Stages 1 through 3, you will likely create a very successful company. In Stage 4, you make your company built to last. There are three key principles in Stage 4:

• Practice productive paranoia (avoid the 5 Stages of Decline).

• Do more clock building, less time telling.

• Preserve the core/stimulate progress (achieve the next BHAG).

One of our key findings is that the winners exercise prodigious amounts of productive paranoia. Our research showed that they carried a much higher cash-to-assets ratio than less successful companies as a disciplined habit from early in their development. (Think of a conservative balance sheet as one element of the twenty-five squadrons.) They worried obsessively about unexpected events that could destroy them, and they built buffers so they could survive external shocks. They also shunned uncalibrated risks that could leave them exposed to calamity.

In my book The End of Competitive Advantage, I suggest several early warning signs that an advantage is likely to be on the decline. How many of these do you think your organization’s leaders would be likely to agree with?

• I don’t buy my own company’s products or services. 

• We are investing at the same levels or even more but not getting margins or growth in return. 

• Customers are finding cheaper or simpler solutions that are “good enough.”

• Competition is emerging from places we didn’t expect. 

• Customers are no longer excited about what we have to offer. 

• We are not considered a top place to work by the people we would like to hire. 

• Some of our very best people are leaving. 

• Our stock is perpetually undervalued. 

• Our technical people (scientists and engineers, for instance) are predicting that a new technology will change our business. 

• We are not being targeted by headhunters for talent. 

• The growth trajectory has slowed or reversed. 

• Very few innovations have made it successfully to market in the last two years. 

• The company is cutting back on benefits or pushing more risk to employees.

• Management is denying the importance of potential bad news.