Jim Collins wrote Good to Great, Built to Last and taught a case study on the company for his graduate school class on entrepreneurship. In a Fast Company interview published in 2021, he highlighted Yvon Chouinard as an example of leadership that was done right. Collins has an original copy of the 1972 manifesto for clean climbing. We wondered what Jim Collins thought of the transfer of the voting stock to a special trust and the rest of the shares to a nonprofit. The iconoclasticentrepreneur has redefined the term "exit strategy" and he spoke about it to the chief content officer of Inc. Following are excerpts that have been edited.
What was your initial reaction to the news that the Chouinard family was going to give up ownership of Patagonia through this unique structure designed to preserve its independence and its commitment to climate change and conserve?
Jim Collins said that the idea of putting in a structure that will allow the values, purpose, and integrity to continue beyond the founder is indicative of the Built to Last philosophy. One of my reactions was admiration. Yvon is very pure and intimidating to me.
He has been very consistent.
A series of consistent decisions have been made because of clarity of understanding of what you are about. My wife pointed out that Chouinard had freedom because he didn't sell control. He didn't pursue growth in a specific way. The growth was a result of incredible products, incredible execution, and superb branding, which translated into margins and cash flow that could continue to fuel expansion at a consistent pace over time. This isn't a story that lasts five years. The story is five decades old. The first thing it does is sell pitons out of the back of a car. Retaining control allows you to make decisions that align with what your company is about.
SM asked how innovative this move was. It seems that there are very few precedents.
It is called a big and wonderful experiment. It was an experiment when the constitution was written. We weren't sure if it would work because there hadn't been one before.
Product and technology types of innovations are what we usually think of. New fabrics or the next wave of drugs are cool. Organizational innovation is more profound than product innovation when you consider the history of the company.
It could be a new evolution for some companies if the Chouinard family restructures successfully. The R-1 jacket is more significant. Right now, I wear an R-1 which I love.
We don't know what the structure will mean for the company, but we can speculate about it. You can say on the one hand that this will attract more talent who care about the mission. Will people be less motivated to maximize sales and profits if the shares are owned by a nonprofit?
maximization of sales and profits was not the primary goal when I taught this. The CEO said that was not how they looked at things. We are not a shark that just wants to eat as much as possible. The company was very successful and my students were wrestling with it. The company had great products, great branding, and great cash flow that could be reinvested to fuel more of what it was all about. Maximizing revenue and profit isn't the way it's framed.
The flywheel effect is one of the ideas that came out of our work. The 12 o'clock to the 6 o'clock positions is where the company is doing different things, like making great products, driving down Moore's law, or delivering great health outcomes for the Cleveland Clinic. It is possible to convert all that into fuel on the other side of the flywheel. If you want to do more actualizing of your purpose in the world, you need to take all the fuel that is generated back into the top of the flywheel, so that you can drive down the other side and do more actualizing of your purpose.
I think it's a great place to live. It was about focus on great products, a focus on how it actualizes its purpose in the world, and as it comes up the other side, doing it in a way that converts to fuel that can be used to fund the things it cares about in the outside world and do more in
It doesn't matter who owns the company for that to work. I took that back. The person who owned it wanted to make more money. The company has a history of purpose, purpose, purpose, purpose, over and over again.
The flywheel needs to work in a purpose driven organization. The resources for the cause go up when the institution does well.
It's right. The excellence of the products and the materials is what keeps the flywheel spinning.
In 1997 you wrote an article about how Patagonia used its platform for social change. The modern business organization is one of the most powerful tools ever created. Business leaders can use their companies to make a difference.
I don't know if I actually wrote this. It seems like a good sentence.
The editors of Fast Company put Yvon on the cover and there was a lot of praise for them. Is Yvon's legacy more about stimulating social change than it is about inspiring a new generation of founders to experiment with ownership structure to make sure the values stay?
Before they are drawn into the "What everybody else thinks their company or business should be," they should start with their own declaration of independence. This is what we believe to be true. It's up to you to do it. We will lose our ability to control our own destiny if we don't do it sooner. You can make decisions that allow you to not sell control or fuel growth that you don't want. Begin to build.
When people want to know what your exit strategy is. It was redefined by Chouinard. He is saying that this is what his life is about.
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