TEAM 4: PETER HOGUE, BREANN FLORES, JONATHON JORDAN, MATTHEW HORD, CAMERON LLOYD Leading Above the Death Line

“As soon as there id life there is Danger” - Ralph Waldo Emerson David Breshears

Productive Paranoia Conditions can, and often do, unexpectedly change The only mistakes you can learn from are the ones you survive !0X Journey and the Death Line

3 Types of Productive Paranoia 1: Build Cash Reserves and buffers to prepare for bad unexpected events and bad luck before they happen 2: Bound risk–Death Line risk, asymmetric risk, and uncontrollable risk--and manage time based risk 3: Zoom out, then zoom in, remaining hyper vigilant to sense changing conditions and respond effectively

Productive Paranoia 1 Extra oxygen canisters- Its what you do before the storm comes

10Xers Cash Reserves and Buffers 3 to 10 times the ratio of cash asset 80% of of the 10x carried higher cash to asset ratios and a higher cash to liability ratio Preparing for a Black Swan

Black Swan A low-probability disruption, an event almost no one can foresee You can however predict there will be some black swans. Particular black swan probability less then 1% but the probability some black swan even will happen 100%

Southwest Airlines 1991 Her Kelleher – “As long as we never forget the strengths that enable us to endure and grow in the midst of economic catastrophe; as long as we remember that such economic catastrophes recur with regularity; and as long as we never foolishly dissipate our basic strengths through shortsightedness, selfishness, or pettiness, we will continue to endure; we will continue to grow and we will continue to prosper”

September 11th Southwest cash reserves equal to 1 billion After, they cut no jobs nor any flights They turned a profit in 2001 and were the only airline to turn a profit in 2002 End of 2002 had greater market capitalization than all other major US airlines combined

If you come at the world with the practices of building a great enterprise and you apply them with rigor all the time- good times and bad, stable times and unstable- you'll have an enterprise that can pull ahead of others when turbulent times hit

Productive Paranoia 2: Bounding Risk 10X companies lead with a more conservative approach. Did the 10X cases take more risk or less risk than the comparison cases? 1. Death Line Risk 2. Asymmetric Risk 3. Uncontrollable Risk Not mutually exclusive.

Risk Comparison: 10X Companies vs. Comparison Companies Type of Decisions Made 10X CompaniesComparison Companies Number of Decisions Analyzed 5955 Decisions Involving Death Line Risk 10% of decisions36% of decisions Decisions Involving Asymmetric Risk 15% of decisions36% of decisions Decisions Involving Uncontrollable Risk 42% of decisions73% of decisions Decisions Classified as Low Risk 56% of decisions22% of decisions Decisions Classified as Medium Risk 22% of decisions35% of decisions Decisions Classified as High Risk 22% of decisions43% of decisions

Time-Based Risk When the degree of risk is tied to the pace of events, and the speed of decision and action. Maybe the comparison cases acted too slowly Maybe the 10X cases reduced risk through sheer speed Examined correlation between good and bad outcomes relative to  Speed of recognition  Speed of decision  Speed of execution

Outcome of Time-Sensitive Analysis Recognize change or threat early Take the time available to make a rigorous and deliberate decision Sometimes acting too fast increases risks Sometimes acting too slow increases risk Key question: “How much time before our risk profile changes?”

As a productive paranoid… Want to be cognizant of lurking dangers Vigilant about possible disruptions Does not mean taking quick, immediate action False beliefs:  Faster is always better  The fast always beat the slow  You’re either the quick or the dead

Productive Paranoia 3: Basketball experiment 50% of subjects noticed the gorilla 10X leaders don’t miss the gorilla or threats in front of them

Zoom Out, Then Zoom In Zoom Out  Sense a change in conditions  Asses the time frame: how much time before the risk profile changes?  Asses with rigor: do the conditions call for disrupting plans? Zoom In  Focus on supreme execution of plans and objectives

Intel In 1979 Motorola was rapidly pulling ahead of Intel in position Intel managers met and discussed/ analyzed the weakening problem of Intel Intel zoomed out Developed a plan called operation CRUSH Then Intel zoomed in

Amundsen’s Change Expedition was originally to North Pole Amundsen zooms out Amundsen zooms in

Key Points Build cash reserves and buffers Bound risk Zoom out, then zoom in

Questions?