Hedgehog Concept: How to beat the market with

Hedgehog Concept

How to beat the market

In the book “Good to Great”, the Hedgehog Concept is described as one of the key reasons why some businesses make the leap from good to great and others don’t. This Concept helped some companies to generate cumulate stock returns 6.9 times over the market, beating companies like Coca-Cola, Intel, GE, and Wal-Mart.

But what does it have to do with a hedgehog?

The theory is based upon an ancient Greek parable: “The fox knows many things, but the hedgehog knows one big thing.” But in the end, the fox loses, and the hedgehog wins.

So, how do you beat the market using Hedgehog Concept?

As a company or a freelancer, you need to find one big thing to focus on. Then you have to align all your strategy around your Hedgehog Concept and stop doing everything irrelevant to it.

What is the Hedgehog Concept?

It is a simple, crystalline concept at the intersection of the following three circles:

1. What you can be the best in the world at (or in your geographical area, or your market niche). Equally important, you need to determine what you cannot be the best at – and stop doing it even if it’s 90% of what you do now. Just because you have a core competence doesn’t mean you can be the best at it. Conversely, what you can be the best at might not even be something you are currently engaged in.
2. What drives your economic engine, or putting in simple, what brings you cash. The critical factor in this circle is to take a deep look into your economic model and discover what makes the most significant impact on generating sustained profitability.
3. What you are deeply passionate about. The good-to-great companies focused on those activities that ignited their passion. The idea here is not to stimulate passion but to discover what makes you passionate.

How do you find your one big thing?

Finding your Hedgehog Concept is not an event but an inherently iterative process that consists of 4 elements:

dialogue and debate, guided by the three circles (either actual debate in a company or internal dialog in personal development);
making decisions based on the results of the debate;
analysis of the results that happened from your decisions;
asking yourself if those results are aligned with the three circles, and going back to the first element to repeat the process.

And don’t be discouraged if you can’t find it straight away. For the companies described in this book, it took on average 4 years to find their Hedgehog Concept. But once they did – it helped them to make the transition from being just good to becoming truly great.

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