1. Cameron Rice Nathan Smith Ian Goldberg Michael Medford

2.  Introduction to Productive Paranoia  Productive Paranoia 1  Productive Paranoia 2  Productive Paranoia 3  Closing and Key Points

3.  May 8, 1996, David Breashears looks down from Camp III nearly atop Mt. Everest  Noticed below a small group led by guides Rob Hall and Scott Fischer heading up the Mt.  Conditions didn’t feel right so Breashears and group asked themselves, what if? ◦ What if it was too crowded, what if the weather forced them to stop, what if a bottleneck forms forcing them to turn around?  Group led by two guides suffered in part of the greatest disaster in Everest history

4.  Two sets of team leaders on the same day, on the same mountain, both feeling business pressures and tremendous experience, why does one lead his team to 10x success?  The most important decisions were made months before they were even on the mountain ◦ Breashears prepared bringing excess rations and planned for every possible situation  Build buffers and shock absorbers far beyond the norm of what others do

5.  Expect conditions to unexpectedly change, violently and fast  By asking “What if”, you can prepare ahead of time ◦ Build Reserves ◦ Irrationally large margins of safety ◦ Bounding risk ◦ Hone disciplines in good times and bad ◦ Handle disruptions with strength and flexibility  “The only mistakes you can learn from, are the ones you survive.”

6.  “Its what you do before the storm comes.”  David Breashear’s Intel is like climbing Everest with an Imax camera  Cash reserves and conservative balance sheets are like extra oxygen containers.  The world is not stable, predictable, or safe.

7.  Journal of Financial Economics analyzed 87,000+ companies  10x companies ◦ Cash-to-asset ratio ◦ Cash-to liabilities ratio  Shock absorbers and financial buffers

8.  Term created by Nassim Nicholas Taleb  All 10x companies must learn to act paranoid about the future regardless of how well there current performance is.  Remain conservative.

9.  1991, Herb Kelleher explains why his balance sheet is so conservative.  “As long as we never forget the strengths that enable us to endure and grow in the midst of catastrophe; as long as we remember that such economic catastrophes recur regularly; 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.”

10.  9/11  All other airlines cut operations; SW did not cut a single job or a single flight.  In fact Southwest was the only airline that turned a profit in 2001 & 2002!  In 2002 they opened more locations and achieved greater market cap than everyone else.

11.  After these events Herb was asked by the media for a response and as he choked on his own tears unable to finish his own sentences he said, “You can attack us, but not beat us; you can try to destroy our freedom, but you’ll only make us stronger; you can inflict horror, but you cannot make us terrified. We will Fly!”

12. Do 10Xers achieve outsized success simply because they took more risk?

13.  3 Categories of Risk for enterprises ◦ Death Line Risk ◦ Asymmetric Risk ◦ Uncontrollable Risk  10Xers avoid these risks

17.  Time-based risk

18.  Behaviors that correlate with successful outcomes: ◦ Hyper vigilance ◦ Adjustment of decision speed ◦ Make deliberate, fact-driven decisions ◦ Superb execution once decisions are made

19.  Behaviors that correlate with unsuccessful outcomes: ◦ Arrogance ◦ Failure to adjust decision speed ◦ Reactive, impulsive decisions ◦ Failure to increase intensity  Ensure superb execution

20.  Zoom out, then Zoom in  http://www.youtube.com/watch?v=Ahg6qcgo ay4 http://www.youtube.com/watch?v=Ahg6qcgo ay4

21.  Only 50 percent of people notice the gorilla  Focused on counting  Spend most our lives dealing with what is right in front of us  10X leaders don’t miss the gorilla, especially if it’s a dangerous threat

22.  Captures essential manifestation of productive paranoia  Dual-lens capability  10X leaders remain obsessively focused on their objectives and their environment  Push for perfect execution and adjust to changing conditions  They count the passes AND see the gorilla

23.  Zoom out ◦ Sense change in conditions ◦ Assess time frame: How much time before the risk profile changes? Assess with rigor: Do the new conditions call for disrupting plans? If so, how?  Zoom in ◦ Focus on supreme of plans and objectives

24.  Motorola began to pull ahead of Intel in “design wins”  Could become the standard and could make it difficult to move forward  Zoomed out: Developed a new strategy  Zoomed in: In a week, formed team and traveled across the globe ◦ Turned the tide and gained 2,000 design victories

25.  Despite being fast paced, remained calm and clearheaded  Formulated smart strategy  10X teams don’t freeze up or react immediately  Think first, even when they need to think fast  Even 10X companies don’t have a perfect record

26.  Fast moving threats does not mean to abandon disciplined thoughts and disciplined actions  Do not panic  Think first, and respond fast enough

27.  Build Cash Reserves and Buffers: to prepare for unexpected events and bad luck before they happen  Bound Risk: Manage time based risk  Zoom Out, then Zoom In: Remain hyper vigilant to sense changing time-based risk