AI transcript
0:00:00 So I looked at that org chart and said this is a messed up org chart, which is great for making money
0:00:04 If you can find something that’s messed up and
0:00:07 Easy to un-mess up. Oh, yeah, there’s your money. There’s your opportunity to make a lot of money
0:00:12 You’ve made a few billion dollars. What lessons have you learned about money and spending money and living with money?
0:00:20 That you wish you knew sooner. You know, seriously, you throw me off a little bit with the question because
0:00:24 When you look at the the numbers the real growth has been through M&A through acquisitions
0:00:28 What’s been my secrets on acquisitions? Here’s the gist. A lot of people have a rigid
0:00:32 Business plan that’s spelled out for many years and that’s it and it’s very it doesn’t usually work
0:00:38 Why because life changes markets change economies change and if you’re rigid if you’re just rigid thinking
0:00:45 You’re gonna have things come your way to make money for shareholders and feel love. It’s nice. It’s great
0:00:49 But it’s really not our thing. That’s a bad way of thinking you said you can get a lot of things wrong if you get the
0:00:54 Big trend, right? What major trend are you most interested in right now? I’m most interested in
0:01:01 Because it is the trend it is the number one trend
0:01:22 Welcome to the Knowledge Project a podcast about mastering the best of what other people have already figured out so you can apply their
0:01:28 Insights to your life. I’m your host Shane Parrish a quick favor to ask before we start most people
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0:02:05 Today my guest is Brad Jacobs executive chairman at XPO Brad is a career
0:02:12 CEO and serial entrepreneur with unique track record of starting multi-billion dollar companies
0:02:19 I think he’s up to seven of them by now, which have created tens of billions of dollars in shareholder value
0:02:25 His goal with all of his ventures is to generate outsized value for shareholders by hiring
0:02:30 Talented people committed to thinking big he recently wrote a book called how to make a few billion dollars
0:02:36 Which is a playbook for creating outsized value now all of that sounds really simple
0:02:41 So I wanted to sit down with Brad for a wide-ranging conversation. How exactly does he do it?
0:02:47 Let’s get into the weeds. We talk about AI trends human nature mergers and acquisitions running meetings
0:02:54 What he looks for when hiring and so much more whether you’re running a business or working in one
0:03:00 You’ll walk away from this conversation with clarity around how to improve your results
0:03:05 It’s time to listen and learn
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0:05:45 Ray Kurzweil who wrote the singularity is one of your heroes and you recently met him
0:05:54 I’m curious what you took away from that conversation and what it was like
0:05:58 Well, I did recently meet him and it was like meeting Albert Einstein or meeting so on
0:06:03 Michelangelo because we look at his context his wide context
0:06:08 he’s looking at the history of the universe going back 13 points something billion years and how we got here and then
0:06:15 looking at those trends and
0:06:17 Where are we going? He identifies the most important trend of all which is
0:06:23 Mesopians have created technology of created tools starting with stone pebbles and
0:06:28 over a couple million years ago and then fire and then settlements and and
0:06:32 Over the last couple hundred years so much so much more so much more in the last 20 years
0:06:37 Accelerating accelerating and now with AI it’s accelerating even more and
0:06:41 Where’s that going?
0:06:43 Where’s that going is the tools that we’ve created the technology we’ve created is becoming
0:06:49 more capable than we are at certain of our traits and
0:06:52 we’re able to outsource a lot of our activities to our own technology and
0:07:00 Ray predicts a singularity whereby
0:07:03 Technology becomes more intelligent more capable than humans and we merge with technology that we use so much technology in our own
0:07:12 In our own bodies with wearables and nanobots and so forth that in AI and outsourcing our memory and sensory and so forth that
0:07:20 You really can’t call it homo sapiens anymore because the traits
0:07:23 Characters have changed so much that will say homo sapiens has become extinct and there’s a there’s a new new species
0:07:29 And I think it’s probably right. What do you think the benefits of that are and what do you think the drawbacks are?
0:07:34 Well, the benefits are we should be able to accomplish a lot more
0:07:38 So if you look at us as a planet eight billion people there’s a lot of things we do well
0:07:43 but there’s a lot of things we don’t do well primarily get along with each other and
0:07:46 Information sharing is not there resource sharing is not there. I think with advances in technology
0:07:51 we will be able to
0:07:54 distribute resources more intelligently and and and more
0:07:59 abundantly and have more resources for more people and I think
0:08:03 Medicine will be better and science science will be better and be able to live longer
0:08:07 We’ll be able to be more in touch with the way we think and to be able to think more constructively because that’s one of the places
0:08:13 Where it’s an area of improvement for humans is we don’t think rationally a lot of times
0:08:17 And I think with technology and AI advancements that we will think more rationally, so it’ll be non-stop therapy
0:08:24 So to speak how do you think rationally when you have all this the information coming at you from all over the world your emotional
0:08:30 You have big swings. I mean you’ve lost billions of dollars and in market cap in a day. I don’t always think perfectly rationally
0:08:37 I’m not a perfect person. I’ve
0:08:39 paid attention to the way I think
0:08:42 over the course of my life and I’ve studied with various people who that’s their specialty is analyzing how you think and
0:08:48 I did a couple of years of therapy for three hours a week for for a couple years. So I I have spent a lot of time
0:08:56 Reflecting on how I think what my automatic thoughts are what my biases are what my cognitive distortions are and I’m aware of those and
0:09:04 I apply various techniques and tools in the toolkit that you learn from
0:09:09 Cognitive therapy dialectical bit behavior therapy positive psychology, etc to to think more rationally and more constructively and more accurately
0:09:16 And I think that helps me in business quite a bit in business
0:09:20 You need to keep your head on your shoulders. You need to be calm. You need to be cool
0:09:25 You need to be collected you need to be dealing with lots of changing
0:09:28 unplanned circumstances and then capitalizing on those and not being overwhelmed by those not being
0:09:35 Beat up but but utilize what comes in capitalizing what comes in to create money to create money for shareholders
0:09:42 So I think that the human capital in them in the psychological
0:09:46 Sense is very very important. So I I put energy into that
0:09:50 You said you can get a lot of things wrong if you get the big trend, right?
0:09:54 What major trend are you most interested in right now?
0:09:59 I’m most interested in AI because it is the trend it is the number one trend
0:10:05 whereby our technology the software that intelligence will be able to consume so much information much more than
0:10:13 We human beings can even with a hundred billion brain cells the power of compute computing is so much greater and
0:10:19 be able to then analyze that and be able to
0:10:22 spit things out and be able to
0:10:25 Eventually, I’m looking forward to the point where
0:10:29 Computers become emotional where they do have emotion with you have empathy just like we have mirror neurons in the front of our in the prefrontal cortex
0:10:36 I’d like to see that trend fruit of materialized where
0:10:40 Computers can feel can have theory of mind can be sitting here with a conversation with Shane Parish and and feeling what you’re feeling and
0:10:49 And feeling happy about what you’re feeling happy about feeling sad about something you’re not feeling happy about
0:10:55 Now I’m looking forward to that trend a lot. No saying AI is sort of everybody recognizes AI as being a trend
0:11:02 But you’ve spotted several trends well before people recognize them and you are way ahead on the AI curve, too
0:11:10 As I understand it. How do you spot those trends before they become mainstream?
0:11:16 Well, I do spend a lot of time thinking about trends
0:11:18 I look I spent a lot of time thinking about the wider context of things like, okay, here’s a situation
0:11:25 What’s the context of that situation?
0:11:27 What’s its origin?
0:11:29 What’s its present conditions and characteristics?
0:11:31 What are the ways it could go and what would be the catalyst to make it go right or straight or left?
0:11:37 I
0:11:38 Intentionally think about trends quite a bit because in business in the business world
0:11:42 You’ve got to get the major trend, right?
0:11:44 You’ve got to get the major trend, right and as my main business mentor make rest in peace little Justin used to say
0:11:50 You can mess up a lot of things
0:11:52 But if you get the main trend, right, you’re gonna make a lot of money and conversely if you don’t get the main trend, right?
0:11:58 You’re swimming upstream. You can do a lot of other things, right?
0:12:02 But you’re not gonna make a lot of money. So I intentionally spend time thinking about
0:12:06 What’s the where does all this fit in and where could it be going?
0:12:10 What’s your research process like I like people and I like picking people’s brains
0:12:14 And I’m shameless about asking people their opinions and I like to be a student more than a teacher
0:12:20 I find a lot of people make the mistake as they get older or they get more successful
0:12:24 They they think they know everything they start teaching all the time
0:12:27 I’m sharing through the book I wrote and through podcast like this and so forth the few little things that I think I have insights
0:12:33 That I can give back to but I absolutely view myself as a student of life
0:12:37 I’m I don’t view myself as as a guru who’s figured it all out by a long shot
0:12:42 and I think if you keep that that element of profound curiosity of
0:12:47 really interesting and being very interested to learn and
0:12:50 Being involved with the sensory experience be involved in the intellectual experience be involved in an analytical capabilities
0:12:58 I think you can learn a lot more and you can see trends that otherwise
0:13:01 You don’t see it just in it and you’re living it, but you’re not seeing the trend
0:13:05 You’re just kind of going along a lot of people who reach your level of success
0:13:11 sort of outsource a lot of this work to other people and by that I mean
0:13:16 Do research on this come back to me. Give me these points, but you seem very
0:13:20 Hands-on in the weeds very involved in the detail. Why is that important to you? I do both shame
0:13:27 I do have a team that researches things for me, but I also I should I like to roll up my sleeves and get into it myself
0:13:33 I like to find even like when I do M&A
0:13:35 So you know my teams that I’ve led have done about 500 acquisitions. I’ve been involved in those acquisitions
0:13:42 So I I get into the details of what are we buying and to buy those 500 companies
0:13:48 We looked at thousands and thousands of other companies that we didn’t buy and I and I I love the process
0:13:54 I love studying each company figuring out how they get to the point where now there are millions or hundreds of millions or billions of
0:14:01 Dollars of revenue and they started from scratch and how do they do that? It’s like a miracle. It’s fantastic
0:14:06 I’m very impressed and excited and enamored with entrepreneurs and companies that have
0:14:12 Created huge growth and huge value and I want to understand that so I want to get into the detail of it
0:14:18 I want to pick their brains. I I see a big value in asking lots of questions people now today
0:14:24 You’re the one asking questions. I’m actually but normally it’s the roller-versal normally
0:14:28 I’m asking a lot of questions if you go into a management meeting. I’m usually asking lots of questions
0:14:33 What have you learned about asking questions that you wish you knew five years ago? I take questioning from the
0:14:38 Therapist so I wrote in the book that the only time my life that I’ve been depressed
0:14:43 But I was really depressed was in the mid-2000s when I had stepped down from being CEO of this big company
0:14:51 You know the rentals and now I didn’t have anything to do. I didn’t I was I was doing some art
0:14:55 I was you know studying art and buying art and I was doing things with my family so forth
0:15:00 but I didn’t have a business and I learned from that that
0:15:03 Everyone has their own thing that makes them excited me is running businesses. I’ve been a CEO since I’ve been
0:15:09 23 years old and I like being a CEO. I really like that job real a lot
0:15:14 Now I wasn’t a CEO and I felt a big gap
0:15:17 I felt I felt depressed I was down and had a lot of
0:15:20 Unconstructive thoughts and inaccurate thoughts and so forth and that drew me just to meeting a lot of fantastic psychotherapists
0:15:27 And I mean fantastic at the top of their game. So there was a psychotherapist in New York City
0:15:33 Called Albert Ellis. He died about 10 15 years ago and he had formed a
0:15:39 school of therapy called
0:15:41 Rational emotive behavior therapy REBT, but in short it was cognitive therapy. It was cognitive behavior therapy
0:15:48 He’d together with another
0:15:50 Psycho psychiatrist actually Aaron Beck whose family and friends called him Tim
0:15:54 I got the privilege of meeting him to and spending time with him in his family
0:15:57 Tim back or Aaron Beck and Albert Ellis were the co-founders of cognitive therapy and
0:16:02 I find that
0:16:05 therapists have of all the different professions are
0:16:08 the best at asking questions and the best of
0:16:12 Getting a person to relax getting a person at ease and to open up and when I learned from studying those psychotherapists
0:16:19 First is you need before you start badgering someone with questions and inquiring and asking them all these important things
0:16:25 Sometimes personal things was intimate things about private things
0:16:28 You need to create you need to create an atmosphere you create an environment. That’s a safe place. That’s a zone where
0:16:35 Your it’s okay to be vulnerable. It’s okay to say what you really feel
0:16:41 It’s okay to take off your mask and show who you really are warts and all and that’s really really important and to do that
0:16:48 you need to be listening and
0:16:50 I learned from studying them that
0:16:53 the most
0:16:54 Maybe the most maybe the single most powerful thing you can do in a relationship with its personal as professional is to
0:17:01 Give someone your 100% like you’re doing up. You’re giving me 100% of your attention. I can see it
0:17:07 You’re you’re looking at me. You’re listening to me
0:17:08 You’re actually paying attention to what I’m saying and that feels good. By the way, that’s making me put a little pressure on me to perform
0:17:15 Better give me good answers, but you’re doing something powerful. You’re you’re giving me your attention
0:17:20 You give me 100% of your attention and I find with therapists. That’s that’s their their little that’s one of their tricks
0:17:27 One of their skills one of their techniques is you have your session for 45 minutes or two hours or whatever it is and during that time
0:17:33 They’re all yours. They’re all listening to you and they’ve got all their attention on you and
0:17:38 That has a certain effect on the person speaking and secondly, they’re not being judgmental
0:17:45 So they’re not they’re going with you. No, there’s they’re not they’re not
0:17:50 disagreeing with you without first
0:17:52 finding a way of agreeing with you
0:17:54 joining then leading
0:17:57 Validating then disputing so even when they are changing the way you’re thinking is that she is a better way to look at that
0:18:04 So another way we can look at that be more constructive before doing that before that disputing before that changing that transforming
0:18:12 They’re first joining there the showing that they understood you they listen to you
0:18:15 They got you they got what you said message received and I find that’s really powerful in business
0:18:20 Whether you’re dealing with employees or whether you’re dealing with someone whose business you’re trying to buy
0:18:26 We’re dealing with a vendor or you’re dealing with a investor or an upset customer
0:18:31 It’s a it’s very good to do that. It’s very nourishing and nurturing to give someone
0:18:37 100% of your attention and listen to them
0:18:41 Non-judgmentally I call it non-judgmental concentration. I
0:18:45 Think I made up that phrase. Maybe I didn’t I forgot and I should have attributed to someone else
0:18:50 But that’s a phrase I use non-judgmental concentration when you’re really taking all your consciousness and giving it to someone and and not
0:18:58 Judging them but going with them trying to get into their way of thinking their their way of feeling even so not just
0:19:05 What are they thinking?
0:19:07 But how are they feeling? So what’s the emotion that’s underlying that and and I use that I use that quite a bit
0:19:15 in you in the book I have a chapter on
0:19:18 How to have an electric meeting how to run an electric meeting which means the meeting that’s powerful a meeting a meeting that
0:19:26 Everyone goes away exhilarated. Everyone goes away with
0:19:29 Lots of things to do that can create a lot of value for the shareholders
0:19:34 Not just one of these whole home meetings and an element of that meeting is
0:19:38 everyone in the meeting shuts off all their devices and
0:19:42 Concentrates concentrates non-judgmentally non-judgmental concentration on the one person who’s speaking at a time
0:19:50 No side conversations. They’re talking over each other
0:19:53 One person speaks at a time, but everyone in the room gives them all their attention. It’s really powerful thing
0:19:58 I like that a lot. It’s sort of the secret to our podcast in a way, which is I want to see the world through your eyes
0:20:05 I don’t have to agree or disagree. That’s not my job
0:20:09 I just want to see what you see think what you think smell what you smell and then that way
0:20:15 I can truly understand where you’re coming from and I think that so often listening is
0:20:20 transactional in the sense of I’m waiting for you to stop so I can just say something or I
0:20:26 Have this point. You don’t understand it
0:20:28 So I’m not really listening to you because you’re talking about something else now
0:20:32 And I think it’s one of the biggest reasons we miss communicate
0:20:35 Yeah, is the work with that the psychotherapist is that where you learned about re-arranging our brain and controlling the mind and
0:20:44 The importance of sort of thought experiments and mindset or talk to me a little bit about that was one of the places
0:20:51 you know from my my main hobby since I was a teenager has been meditation and various forms of meditation and then from meditation and to
0:20:59 learn self-hypnosis and then and then from there I learned all the
0:21:02 Mindfulness and the positive psychology and cognitive therapy and so forth
0:21:07 so I’ve mixed and matched a lot of different schools of thought and
0:21:10 Customized it for me my own personality my background and my individuality. So it’s not just one thing
0:21:17 I’ve had many different influences that have
0:21:20 Created the way I look at life and the way I deal with reality and a lot of that was my education
0:21:26 I was a kid was I studied music. I studied music in math, but in music
0:21:31 It is a lot about relationships unless you’re a solo performer and I was not I like playing a group
0:21:36 I like a band. I like playing with other people
0:21:39 interacting with the other folks is
0:21:41 Part of the magic of making really great music that’s that’s had a big influence on me, too
0:21:46 I define myself I self-identify as a musician more than a business person, which you might find odd because I’ve
0:21:52 been a lot of time building big businesses and running large enterprises, but
0:21:57 when I think about myself, I think about myself as a music musician who
0:22:02 happens to be doing a lot of business and
0:22:05 Has done well at business, but I I feel like a musician and by that I mean
0:22:11 My sense of sound is the dominant sense and I’m I listen very I listen to sounds
0:22:17 I listen to my heartbeat listen to my breath. I’ve seen the sounds in this room going on right now. I I
0:22:22 Suffer quote-unquote and I put air quotes on it because I don’t consider it suffering. I consider it fantastic
0:22:28 Tinnitus
0:22:30 Where where you have ringing in your ear from when I was a teenager probably from listening to music too loud and
0:22:37 I have right now. I’m hearing very high-pitched sounds. I love it
0:22:41 It keeps it interesting. It’s my friend. It keeps me in tune. They sometimes they get louder sometimes get softer now
0:22:47 some people have tinnitus and they
0:22:50 And I might be mispronouncing that but you know I’m talking about yeah
0:22:54 Yeah, ringing there that and they say oh my god’s a terrible thing. It drives me crazy and they get all upset about the thing
0:22:59 I have just the opposite attitude. I feel I’m lucky to have that. I really am lucky and I I wouldn’t know what life would be like without it and
0:23:10 That’s part of being a musician part of part of being a musician is
0:23:13 Embracing sounds no matter what they are. Hmm. No matter what they are and that’s that’s the reality of the moment and you should
0:23:21 Be in that reality and go with that. What’s the relationship if you had to guess between music
0:23:28 Math and business a lot for me a lot
0:23:32 So let’s start with the business and then that’ll show how those other two things relate to it
0:23:38 Business is about making money for shareholders
0:23:40 at at court the report card for a business is
0:23:44 You take money from other people the form of equity the debt you pay back
0:23:49 But the equity is dear and people invest equity into the business and now you have to give them back that money when they sell their shares
0:23:56 But much much more money than they gave you so in my companies
0:24:02 We’ve been fortunate that we’ve been able to give back 32 times their money one and another company is over 150 times
0:24:09 So really really large large large returns like over the top
0:24:13 Unusually high returns that wasn’t by luck. That wasn’t
0:24:19 Quincinental if it was Quincinosa wouldn’t happen five times in a row and in large amounts
0:24:25 That was because there was a playbook. That’s because there was a method to it and
0:24:30 that method
0:24:32 Incorporates many many different elements and I talk about quite a bunch of them in the book that together
0:24:38 Give you an ability to create what we call alpha in the business world
0:24:42 Which is not just beta which is the markets going up to you going together with the market
0:24:46 but alpha which exceeds the beta exceeds the overall uplift that pretty much all boats are lifting by the same time and
0:24:53 Part of the part of the ingredients to that
0:24:59 formula to make
0:25:00 huge huge returns for shareholders
0:25:02 involve
0:25:05 analytical thought
0:25:06 Careful analysis of numbers is all the math
0:25:08 making order out of disorder trying to see where how does this all fit together and
0:25:14 Seeing the relationships between different things
0:25:18 How to reduce things to simplicity because a great mathematicians
0:25:23 Reduce very complicated things to a formula for example. Yeah expressed with just a few hand strokes
0:25:30 So that’s math. That’s mathematics. That’s the beauty of mathematics is seeing the patterns
0:25:36 seeing the seeing this how to make sense out of this and
0:25:40 On the music side, it’s being able to improvise because my training was originally classical
0:25:48 but then I had the fortune to study with
0:25:53 African-American musicians in in in Bennington college Milford graves Bill Dixon and
0:25:58 part of that whole training was to be spontaneous and to be
0:26:04 Improvising and to be in the moment and there is no wrong note if someone plays a note
0:26:11 That’s just a new note. It’s not the wrong note. It’s like, okay, we changed key. Let’s go with that. Come on
0:26:16 Let’s get going. Oh now we’re on so so that ability to
0:26:21 Go with the flow in music. You need to have that in business. A lot of people have a
0:26:26 Rigid business plan that’s spelled out for many years and that’s it and it’s very
0:26:33 Not non flexible that doesn’t usually work. Why because life changes markets change economies change
0:26:41 People change results that you get opportunities that you hadn’t even thought of at the beginning. So you need to you need to
0:26:49 improvise you need to capitalize on that and to make money from that and if you’re rigid if you’re just rigid thinking
0:26:56 If you’re not a musician, you’re not a musical business person
0:26:59 You’re gonna lose opportunities. You’re gonna have things come your way to make money for shareholders and feel well
0:27:06 It’s nice. It’s great, but it’s really not our thing. That’s a bad way of thinking. I’ll share with you one of the
0:27:12 best business deals I did in my life was I bought in
0:27:17 2015 a less than truckload trucking company called Conway is based in Ann Arbor, Michigan
0:27:22 There’s a few billion dollar deal
0:27:24 It was a pivot because this was a hard asset business that tens of thousands of trucks and drivers
0:27:29 It was an asset heavy as asset heavy businesses as you’re gonna get with fixed costs and
0:27:34 depreciation amortization was not an asset like brokerage business
0:27:39 Which is why how I started expo was as an asset like non-asset-based business
0:27:43 But here was an opportunity
0:27:46 To buy something really really cheaply at a small fraction of what it was worth
0:27:51 And even a smaller tiny fraction of what I knew we could make it be worth within a few short years
0:27:57 This is a company that had a lot of excess overhead the organization chart was not
0:28:01 Mathematical going back to symmetry and formula things that relationship makes sense. I like to take and I love org charts
0:28:09 I just love to geek out on org charts and org chart should be pretty
0:28:14 Or chart should be simple. They should be elegant. They should be geometrical
0:28:18 They should not be really complicated like you took some spaghetti and threw it like an abstract art on a canvas
0:28:24 This was this was this is a bad org chart
0:28:27 This had three things of the three different HRs and three different IT organizations and a lot of duplications and
0:28:34 This didn’t make any sense a lot of silos and heavy heavy on the
0:28:40 Non-revenue generating top part of the organization. We should be the lightest part of any organization the heaviest part should be
0:28:46 Parts of the organization that make money that generate revenue that you close to the customer to generate sales
0:28:51 So I looked at that org chart and said
0:28:53 This is a messed up org chart, which is great for making money if you can find something that’s messed up and
0:28:59 Easy to un-mess up
0:29:03 Booyah, there’s your money
0:29:05 There’s your opportunity to make a lot of money and that was it which is like I got so excited about the opportunity to take this company
0:29:10 And I saw a way we could
0:29:12 Significantly grow the profit margin in the cash flow that I pivoted I pivoted and go ahead and do the deal
0:29:19 I got beat up real bad by the market. They said oh it’s a change and I said give me some time and I remember I
0:29:25 Remember Eli Gross who now runs investment banking for Morgan Stanley, but at the time he was covering me XBO as a transportation
0:29:33 banker and
0:29:35 He said, you know, you’re gonna be in the doghouse here for a little while because it’s a pivot and markets don’t like pivots
0:29:39 But assuming you’re right and I know you have high conviction and you deliver the numbers
0:29:45 Over time you’re gonna be a hero here and everyone’s gonna understand what you did and fortunately he and I were right and
0:29:51 You look at that deal even though it was a pivot. It was a change. It was an improvisation
0:29:56 We bought it for about
0:29:59 three billion dollars
0:30:00 Roughly half of it was equities. It really bought it for a billion and a half dollars plus with some leverage today
0:30:06 It’s worth
0:30:07 something like 15 billion dollars and that’s after
0:30:10 having taken out
0:30:13 many like five billion dollars of net cash from it that’s after
0:30:17 Selling off five hundred fifty million dollars of the truckload business. That’s after taking its warehouse business
0:30:25 It’s supply chain business, which was called Menlo and putting that into our GxO subsidiary
0:30:29 That was after taking the brokerage business and putting that with our RxO brokerage business
0:30:34 So this was the gift that kept giving Conway. It’s been an amazing, amazing, amazing ride and the returns
0:30:40 It’s been a I can’t do it in my head, but something like a 20-bagger 15-bagger. It’s a huge huge return on investment capital and
0:30:47 Had I not been trained as a musician in a mathematician, I don’t know that would have sought shame
0:30:54 I don’t know. I didn’t have the mathematical skills. I would have been able to see
0:30:59 Okay, this is a mess, but we can make it clean
0:31:02 I don’t know if I would have been able to have the courage
0:31:06 To improvise and to change from what the the script was
0:31:11 For something that I that I had a high conviction
0:31:14 Would be very very lucrative for our shareholders and in business the bottom line the report card is
0:31:22 How much money did you generate for your shareholders? That’s the that’s the one it’s an examination with one question on it
0:31:29 It’s how much did you make your stockholders? How much money did you make for your stockholders?
0:31:33 How much how much bliss did you give to your investors in terms of return on their capital they invested in you?
0:31:39 They trusted you with you’re a fiduciary in business. You’re you’re a you have a solemn
0:31:45 sacred
0:31:48 Obligate responsibility where you’re taking other people’s money
0:31:52 debt and equity particularly the equity and you’re the custodian for that you’re a custodian of it that you’re
0:31:57 temporarily
0:32:00 Using their their money and your job is to multiply that they have a thousand other places. They could put that money
0:32:06 They picked you. Yeah, they picked you now
0:32:09 You’ve got a big big responsibility
0:32:11 and I think the the training of a mathematician the training of a musician and then all these
0:32:17 implementations I’ve done in the meditation and therapy and so forth
0:32:21 I think that’s been what largely explains at least as far as I can understand
0:32:26 Why my companies have created so much alpha. I have so many rabbit holes. I want to go down there
0:32:31 I think the opportunity hiding in complexity is really interesting because the way that I think about this and correct me
0:32:37 If you see it differently is bad ideas
0:32:40 Can easily hide in complexity?
0:32:44 But they can’t hide in simplicity. What’s your reaction to that? I need to digest it my immediate reaction is yeah
0:32:51 I think I get that because when it’s when so go back to that organization chart that I saw at Conway
0:32:57 It was just a mess. It’s like wow. It’s all over the place and triple dotted lines and squiggly lines
0:33:03 And you had to have different colors and it’s like that’s not a real elegant
0:33:06 Yeah, I think I see what you’re saying in that you could hide inefficiencies as opposed to when it’s a clean
0:33:14 Organization chart
0:33:16 Everyone’s got clear KPIs keep performance indicators everyone has clear metrics everyone has clear goals and the compensation is tied to that and
0:33:24 People rewarded for achieving those goals. Yeah, it’s hard to hide the other thing that I thought was really interesting
0:33:30 Is you brought up the leverage point? How do you think about leverage and debt and employing it and at what point?
0:33:37 Does it become too risky?
0:33:39 And at what point do you think a future opportunity cost you mentioned sort of taking advantage of whatever the world brings?
0:33:45 But if you take on too much debt
0:33:48 at now for an acquisition
0:33:50 You’re reducing your ability to adapt in the future should interest rates rise should
0:33:57 Accompany become available that you really want that’s a dream that wasn’t available when you took on all the debt
0:34:03 How do you think about that? I’m a Zen Buddhist approach to debt not too much not too little
0:34:07 I don’t think it’s an optimal balance sheet if you have no debt
0:34:11 Because you can improve the returns by shrinking your your share count because you have fewer shares
0:34:17 So the same amount of returns is is greater per share to a few returns. I think it’s good to have a little bit of leverage
0:34:23 I don’t think you should have a lot of leverage particularly in today’s world
0:34:28 I don’t think you should have a lot of leverage because this significant geopolitical risk
0:34:32 The geopolitical risk in the Middle East and Ukraine in Taiwan. There’s the United States politics is very volatile
0:34:39 there’s a lot of things that could go wrong real quick and and a
0:34:44 kind of shock to the system would would hurt companies that have too much debt because business would slow down look
0:34:52 What happened during COVID if you were very highly levered during COVID if you had way too much debt and
0:34:57 Then everything slowed down and your revenues went down. You might not have been able to make your interest payments or your debt repayment payments
0:35:04 And could have gone bankrupt companies don’t go bankrupt. Let’s say too much debt
0:35:07 You go bankrupt from not being able to repay your debt
0:35:09 So I don’t think you should have too much debt in my new company that I’m forming QxO
0:35:14 We’re gonna have I think our target a healthy target should be one to two turns of debt by that
0:35:19 I mean we take our free art our EBITDA, which is a measure of our cash flow and and we say let’s have one or two turns of that
0:35:27 so if our
0:35:28 EBITDA ends up being for instance in a period of time for example billion dollars
0:35:31 Well, let’s have one or two billion dollars a debt and that’s that’s a comfortable amount not too much more than that now
0:35:36 You could have for short periods of time
0:35:39 You could lever up like when I bought Conway we levered up to about four times a little more than four times
0:35:45 But we very quickly sold off and mentioned that truckload division for $550 million. Boom
0:35:51 We paid down a whole bunch of debt right from that. We generated a lot of free cash flow
0:35:54 We took that free cash flow instead of doing more acquisitions. We paid down debt
0:35:59 So you can get your leverage under control by one of two ways by improving your profits by increasing your EBITDA
0:36:06 Or by paying down your actual gross amount of debt
0:36:09 And I think you can manage that and that’s a that’s something a good CFO does you sit in the past that you need to be liked and loved
0:36:16 And yet you’re quite contrarian at times in your approach to things. How do you reconcile these two things?
0:36:22 I think you have to be contrarian. I think if you want to make a lot of money in business
0:36:28 You can’t just be a conformist to do at what is in in fashion and what everybody else thinks if you’re gonna do what everyone else thinks
0:36:36 You’re gonna get returns that everyone else gets which is by definition average
0:36:41 So my companies have not made average returns my companies have outperformed their indexes
0:36:47 Not by one or two hundred basis points, but sometimes by five or six times what the index was so
0:36:53 You have to do you have to think differently and take things that are from a different point of view
0:36:58 So one of my favorite investors in my companies has been Orbus
0:37:02 Out in California and in Bermuda and their contrarians
0:37:06 They’re willing to make a bet and a significant bet if they have a high conviction about a trend or a company that the markets not seeing
0:37:14 something’s out of favor but
0:37:16 The market doesn’t understand something about it. Maybe a company is not studied enough. It’s not covered enough
0:37:21 Maybe management is not good at communicating their story and and it’s dislocated the price is dislocated
0:37:26 and you can get a real good value by buying those shares and then being patient
0:37:31 Playing it out the cycle and make real good returns and I’ve seen them do that with my companies when
0:37:36 Something happened in the marketplace that made us a cheap stock for for a short period of time
0:37:41 Boom, they came in they bought a lot of shares and wrote them up and then sold there. We were really high
0:37:46 I think that contrarian value approach to investing to business is profound. I think that’s important and
0:37:53 I remember I remember when I
0:37:57 Sold my first company Amarax my old brokerage company. We started a company in 1979
0:38:03 bunch of broke scrappy kids and we’re in the right place at the right time and the
0:38:09 Iranian
0:38:11 Revolution took place and the shaga kicked out and Khomeini came in and they took 400 hostages and and the oil prices went way
0:38:18 Way up. So it was a great time. It was a sad time for the world
0:38:21 It’s a lot of a chaos and problems
0:38:24 But it was really good to get in the oil business oil business would really volatile and
0:38:27 Some young whippers snappers like us could come in and be taken seriously by
0:38:31 Exxon and mobile and Texaco and Shell and Gulf and BP and all the customers that became our big customers over time
0:38:37 We built that business up over four quick years to about a little under five billion dollars in brokerage volume
0:38:43 So that’s that was really big rapid rapid growth curve and a good team doing that around the world
0:38:49 And then I sold it and I wanted to start a new business and I wanted and I was ambitious
0:38:54 I was single. I wasn’t married enough kids. I could take risks. I could afford to do that
0:38:59 and I was members speaking with my my uncle Howard and
0:39:02 May he rest in pieces long long passed away
0:39:07 and of course my uncle Howard was born in the
0:39:09 1920s, maybe even late late 19 tens and grew up in the depression, obviously and
0:39:16 During world during the World War two and so forth in it was very tough times
0:39:21 So he’s very good
0:39:22 You know, he grew up in a time when there’s a lot of emphasis towards being very frugal and very risk averse
0:39:28 He became an accountant and worked for the government
0:39:30 And I remember talking to him and saying yeah, I’m gonna I’m gonna start another company instead of being an oil broker
0:39:37 I’m gonna I’m gonna go to the I’m gonna go to the adult table instead of the kitty table
0:39:40 I’m gonna I’m gonna be an all trader because I’ve been I’ve been making all this money for my clients where they’re making
0:39:46 Three four five dollars a barrel and I’m making five or ten cents a barrel
0:39:50 Of course, I had no risk, but they were taking positions. So now I’m gonna I’m gonna put my money where my mouth is
0:39:55 I’m gonna put my money into into a bank. I’m gonna get a letter of credit
0:39:59 I’m gonna actually buy and sell as opposed to just broker. He’s oh Brad. Don’t do that. Don’t do that
0:40:05 You should maybe take a small percent of your savings and put it into your new business
0:40:10 but take the vast majority of your money and just tuck it away just in case the next thing doesn’t work out and
0:40:15 Fortunately, I overruled my uncle Howard and I had to go with what he said. I did exactly the opposite
0:40:22 I took a completely
0:40:24 Contrary in position where I took I think it was like a hundred thousand dollars or maybe at most two hundred thousand dollars
0:40:29 And I tucked that away. I took all the rest of my money. I
0:40:34 Deposited it with bank Paribas and now it’s BMP Paribas back then was Paribas and
0:40:39 They gave me a billion dollar line of credit and I swung for the fences
0:40:43 I I used sometimes up to
0:40:45 $990 million of that line of credit doing counter trade deals doing
0:40:50 Prefinance deals doing barter doing processing deals deals that I they were very complex going back to the math very very complex
0:40:59 But organized I knew what I was doing and sometimes people would look at it and say
0:41:04 Wow, there’s a lot of elements to what you’re doing there. You’re buying it. You’re shipping it. You’re refining it
0:41:09 You’re hedging it. There’s a lot a lot of moving parts there said yeah
0:41:12 but I understand each one of these parts and
0:41:14 It’s just math to me and I actually feel this is low risk
0:41:17 This is basically just execution risk and I’m comfortable taking on the execution risk part of it
0:41:23 I don’t have market risk even though it looked like I did but I really didn’t and and as a result of
0:41:28 Not taking his advice and taking contrarian position and having the courage or the guts and the the strength to
0:41:35 Believe in what I wanted to do that. I had a thought and I the courage to say okay. I’m gonna run with this thought
0:41:40 I’m gonna go with this gonna better myself. I’m gonna bet on this idea
0:41:43 We built a really nice oil trading company and did very very well for our sales and for our shareholders
0:41:49 Where did that confidence come from? Well, I don’t know probably confidence comes at a young age
0:41:54 I would think so when you ask a question like that, you know, normally start thinking about like what did your mother say?
0:41:59 What your father yeah, so if I had to think about what did my mother say? What did my father say that was?
0:42:04 very
0:42:07 Transformational the first things that would pop my mind are with my dad what I loved and I had a lot of respect for and he was a
0:42:12 Great dad a very honest person and it was a very dedicated and good provider for the family, but he was very
0:42:20 Very blunt in what he said. He wasn’t very
0:42:23 Diplomatic what he said just said what it what he really thought and I remember one time
0:42:27 When we were doing we had been doing an errand
0:42:31 We’re driving home and he was in the driver’s seat. I was in the passenger seat and we’re at a stoplight and
0:42:36 My father turned to me and said and he’s a big guy with a low voice and you know big laugh and and said
0:42:44 Bradley and my mom and dad were the only people ever call me Bradley
0:42:48 Anyone knows me calls me Brad. Is it Bradley?
0:42:50 It’s really good that you have a
0:42:52 Really good personality because you’re solely not going to get anywhere with those looks
0:42:57 Laugh real loud and that moment was a was a deep moment for me because on the one hand
0:43:06 I was crushed just like 13 years old
0:43:09 You don’t know whether you’re good-looking or ugly when you’re 13 years old
0:43:12 You just are you just are which aren’t you don’t even think about that, but the message I was getting from my father was
0:43:17 You know, I may not be such a good-looking guy. Okay on the other hand the other message
0:43:23 He was giving me was but you have leadership skills
0:43:26 You have personality you have charisma you can you get people to follow you you can become the president of your class
0:43:31 You can become your group leader. You can be the leader of your band and so forth
0:43:36 You can be president of student council and somehow or another despite your your what he considered that not pretty appearances
0:43:43 Not beautiful appearance you were able to
0:43:45 Be a leader and accomplish things and get stuff done and get formed teams get people. So I think in a very
0:43:51 very very paradoxical kind of way my father insulting me on that I
0:43:58 Gave me confidence it gave me confidence of okay, so maybe I don’t have
0:44:03 Great all-american good looks. Who cares? I’ve got something else
0:44:07 I’ve got something in terms of being able to to lead
0:44:10 So maybe that that helped give me confidence because that’s that’s a an experience that
0:44:15 I’ve relived many times over my life my father because it’s a big deal what your father thinks of you what your mother thinks of you on my mother’s side
0:44:22 If I had to think what was something that gave me a lot of confidence my mother, okay?
0:44:27 so so my mom passed away about ten eleven years ago and
0:44:31 You know from the book one of the questions I like to ask people because I learned this from Marty Seligman the father of positive psychology is
0:44:40 what’s a what’s the happiest moment of your of your day as opposed to how did you day go and
0:44:45 just have a little different angle to that question and
0:44:49 We like to be validated. We like to feel we’re appreciated. We’re recognized or understood or approved of particularly from our parents and
0:44:58 my mom was was on her deathbed and
0:45:03 My brother and sister and I were hanging out on her deathbed for a good couple weeks
0:45:09 and I don’t know if you’ve been around people who have died but you know
0:45:13 they’re sort of dying and then suddenly they wake up and like talking to you like nothing’s going no no problem and
0:45:18 And then they lie down again start dying it and they go in and out
0:45:23 it’s kind of half dying and have not dying so forth and
0:45:25 My mother had been lying there and you know that breathing funny when they’re when they’re dying
0:45:29 It’s like it’s really strange way of breathing. It’s not normal way of breathing irregular breathing and then they’re not breathing for periods of time and
0:45:36 there’s a very bizarre experience death and
0:45:39 You never we didn’t quite know whether this was it like we never talked again. She’s done and
0:45:44 She suddenly like sat up
0:45:47 She looked all three of us in the eye and said
0:45:50 I’m really happy each of you turned out so well and smiled with a mother’s love and
0:45:58 And they’re just kind of gracefully lied down and continued the dying process, but that moment
0:46:05 That might be the happiest moment of my life when when my mother my mom the person whose body I came out of the person who took care of me from
0:46:13 right from day one even before day one nine months before day one
0:46:18 approved of me and
0:46:21 validated me and and gave me a stamp of approval and
0:46:25 That’s given me confidence even though that’s later in life. That gave me a boost that was right at the beginning of
0:46:33 Starting expi logistics, which of all different companies. I’ve started that was the one that was the the biggest so far the most most
0:46:38 Successful, so I would say that confidence
0:46:41 Later in life came from that boost that my mother gave me of just approving of us
0:46:47 Why do I’ve learned something from that?
0:46:49 I’ve learned something from that and I try to learn from all these things how I can apply this to business
0:46:54 I’m a business person. I’m trying to make money for shareholders. That’s my goal line
0:46:57 So all these things that I’m going through life learning about I’m then trying to take them
0:47:02 And apply them to business to make money for shareholders. So what did I learn from that? I learned that the relationship between a
0:47:09 Parent in this case my mom and me and the other example my dad and me. It’s a real important experience has a big
0:47:16 Influence on the person what the authority figure thinks about the person and when you’re in business, particularly if you’re the CEO
0:47:25 You’re the authority figure. You are kind of like the dad
0:47:28 you’re kind of like the mom of in my case 150,000 employees and
0:47:32 You have to be careful what you say and it’s not just it’s not just what you say Shane
0:47:39 you can’t just be you can’t fake it and and if you
0:47:43 Don’t like someone disagree with somebody like say, oh, yeah, aren’t you great?
0:47:46 It’s because because people are smart people realize when you’re guessing them
0:47:51 They just know that they know when it’s phony and they know when it’s real too. So what I’ve learned is
0:47:57 You’ve got to rearrange your brain go back to the book
0:47:59 You’ve got to rearrange your brain your way of thinking so that you are positive about people
0:48:04 there’s nobody’s all good and nobody’s all bad and what I know at least and
0:48:09 If you can train yourself to
0:48:12 See the real good in someone and to reflect that to them and to make sure when you’re doing the change part
0:48:20 The improvement part when you’re giving them constructive feedback of how they could be doing a better job
0:48:25 Do that second don’t do that first
0:48:28 First thing is be like my mom and say, you know, I’m just so happy how well you all turned out that that say that first
0:48:36 You know when I do performance appraisals when I do performance reviews my direct
0:48:41 Subordinates what my reports my direct reports. I always start out with the positive stuff
0:48:46 I don’t start right off with okay. Here’s some things that you’re messing up that you need to be doing better
0:48:50 It’s important to have that part of the conversation too because you need to help the person achieve more and do better
0:48:56 But you want to start the conversation with I really want to congratulate you for XYZ
0:49:02 I really want to appreciate I was I want to express my appreciation because you’ve done one two and three
0:49:08 But it’s got to be sincere. It can’t be phony baloney false flattery
0:49:12 That is like you better off to not say anything and then giving phony compliments, but you should I try to
0:49:20 Rearrange my brain so I appreciate a person and say well, why not hire this person in the first place?
0:49:25 What did I love in this person? What did I admire? What did I respect?
0:49:27 What did I really got me made them real high in my estimation and then
0:49:31 Translate that to okay. How is that materialized and what they’ve done and what concrete things have they done not have
0:49:38 Compliments that are just like general compliments, but have very specific concrete compliments of you know
0:49:44 You did this this and this kudos tip of the hat good good job on that and
0:49:49 It goes back to the psychology of validate
0:49:54 then dispute join
0:49:56 Then lead I apply that to business
0:49:59 I do that with with customers in the world of business, you know
0:50:04 We’ve had millions millions millions of customers. They’re not always happy because we’re not no service providers perfect
0:50:09 Once in a while you mess stuff up and you have a you have a difficult conversation with the customer
0:50:14 Maybe they’re not trained in rearranging your brain and they go right into the insults
0:50:17 They skip the whole part about hey, we really like what you’re doing here
0:50:20 They just go right to darn it. You’ve been late on this even damaging that or your invoicing is messed up or whatever it is and
0:50:26 What I learned from all that the answer question is
0:50:30 I’ve got to empathize with that. I’ve got a first under I have to put my
0:50:36 Mind in their mind. I’ve got to put myself in their shoes. I’ve got to I’ve got to say
0:50:43 I’ve got a really on I got a picture clearly how much what we did messed up their supply chain or cost them money or
0:50:49 Costs on a job or whatever just close one annoyance. We’re just made it difficult shoot up their time or and and and made them frustrated
0:50:56 Whatever, whatever I have to figure out. What’s upsetting them going back to what are they saying? What are they feeling?
0:51:02 So I’ve got I’ve got to get in tune with how they’re feeling and I’ve got to
0:51:06 Show them that I’ve heard them. I felt them. I’ve both heard understood them
0:51:12 I’m what they’re said and I’ve also felt the emotion that they’re feeling and and that I get that and that and that I’m
0:51:21 I have a an action plan to solve it. So that is a sequence told that I like your human-centric approach to this
0:51:28 There’s there’s a lot of people who sort of take for granted. Maybe positive feedback and so they offer
0:51:34 Negative only feedback to the people who the who they work with is that a blind spot or what do you think of that?
0:51:42 I think it’s a mistake. I think it’s a mistake to give only positive feedback or only negative feedback
0:51:47 so for example right now I’m in the middle of performance appraisals and
0:51:51 Where each person is writing three things that they’re really proud of that they’ve accomplished in the last few months and
0:51:58 That they really feel good about and there’s an achievement. It’s definitely a plus not a negative
0:52:04 But also three things that you know could have done better or we will do better going forward things that we didn’t quite achieve that
0:52:11 We hope to achieve so it’s a balance. It’s three good things. It’s three bad things, but when I run meetings
0:52:16 I like to make it like an Oreo cookie. I like to make the good stuff
0:52:20 The negative stuff, but then end on the good stuff. It’s very important how you end a meeting
0:52:25 Whatever reason psychologically how you end a meeting makes a big difference in how that person leaves the meeting
0:52:31 So ideally even if we’ve had a tough meeting where we said look these numbers are in the red
0:52:36 They’re not in the black. These numbers are down. They’re not up and we need to up our game
0:52:41 And here’s our action plan and here’s how we’re going to hold ourselves accountable
0:52:44 and here’s how we’re going to tinker with compensation in order to reward people for doing better and to
0:52:49 Not and take hit their bonuses and maybe eliminate the bonuses if they don’t get better fast
0:52:55 So there’s tough conversations that that you have to have but I don’t like to end on that. Yeah, I like to end on
0:53:00 exercises along the lines of
0:53:04 Having everyone in the room. Okay. Now we’ve done all the all the all the tough stuff. We’ve worked hard on the business
0:53:09 And now let’s put that aside
0:53:11 Take a breath now. Let’s just talk about
0:53:13 Who I’ll ask each person I’ll go around the room
0:53:16 It’s supposed to have a dozen people in a meeting and I’ll say
0:53:19 Tell me so we’ve just been meeting for two hours. We were working hard. I can’t put some we identified some really important problems
0:53:26 We need to solve and that if we solve them we’re gonna create a lot of money for our shareholders
0:53:31 So good job team. It was tough, but good job. We were good rigorous process and you worked hard and and a lot of a lot of
0:53:38 Imperfections came up during the meeting and that was was humbling in a lot of ways
0:53:42 But now I want to ask you something after working two hours collaboratively in a meeting like this difficult meeting
0:53:48 Who’s star went up and why who said something that?
0:53:52 They’ve maybe already held them in high esteem
0:53:55 But even you hold them in even higher esteem now as a result of
0:54:00 The way that they thought their thinking process or maybe the elegance and grace with which they expressed a difficult subject or
0:54:07 The way they tackled something from an innovative way
0:54:10 Someone who contributed to the magic of creating alpha creating money for our shareholders
0:54:16 How did they do? Oh, they they handled a situation of conflict because you have conflict in business in a way
0:54:23 That was nice. That was kind-hearted. That was not mean-spirited
0:54:27 So whatever why tell me every I go around the whole room
0:54:30 I say tell me someone in this room who said something or did something or didn’t say something or didn’t
0:54:36 Didn’t do something that made their star go up and why and people feel really good about that
0:54:40 And I have a whole series of exercises and questions that I do like that
0:54:43 Well, one of my do is when we have long meetings or sometimes we have like 10-hour meetings
0:54:48 So there’s even 12 over meetings
0:54:49 We have people coming in from around the world and we’re doing a quarterly operating of you
0:54:53 We’re really covering lots and lots of material
0:54:55 We take just few breaks and just keep going at it going at it. So people are tired at the end of that
0:54:59 It’s been a long long day. We’ve been going from
0:55:01 7 in the morning 7 at night for example with just a few quick
0:55:05 10 or 15 minute breaks. We work right through lunch. We’ll write right through dinner. I
0:55:10 like to end with
0:55:12 sometimes with
0:55:13 getting everyone at the end of all that we stand in a circle and
0:55:17 And I don’t want to say anything. I just want
0:55:21 I just want to spend five full minutes five minutes a long time to be standing in a circle with
0:55:27 15 or 20 other people not saying a word and I want I want everyone to look at each person and
0:55:34 I want them to do two things. I want them to think to themselves think to themselves. I
0:55:39 Really respect this person because or I really admire this person or I’m so grateful that this person is on my team
0:55:48 It’s on the team with us this or the these these this person has XYZ qualities that are so noble. It’s so fantastic
0:55:54 So positive regard that of each person each person one by one
0:55:59 I want them to look around look around the circle and the second thing I want them to do is I want them to say
0:56:04 Not only am I grateful for being on the same team with this person? I really wish this person a lot of success
0:56:10 I hope this person has a fantastic future at this company. I hope this person has a
0:56:16 Fantastic career. I hope they knock it out of the park in terms of their numbers in terms of
0:56:20 profit the generation that they’re going to do and and I find those that two-handed
0:56:25 experience of
0:56:28 gratitude of praise
0:56:30 Gratitude the gratitude that comes from honest praise of each person and then the
0:56:35 The wish the well-wishing to each person. It just it everyone goes away from the meeting just
0:56:40 Figuredly flying on here. He’ll go away with a really good feeling and feelings count in business
0:56:46 In business, I have I write about this in the book of the love vibe that
0:56:49 You want the love vibe? You don’t want the hate vibe
0:56:53 You want the you want that good vibration going around in the company? You want people feeling good about themselves?
0:56:58 Good about the company
0:57:00 Good about the people they’re working with good about the customers good about the vendors
0:57:05 you want there to be like one big happy family and
0:57:09 You have to work at that that doesn’t happen just by itself. That’s not a natural
0:57:14 Event that’s something that requires effort that requires intentionality that requires some skill. You’ve made a few billion dollars
0:57:22 What lessons have you learned about money and spending money and living with money that you wish you knew sooner?
0:57:31 You know sushi you throw me off a little bit with the question because I don’t define myself as in terms of how much money I’ve made like that’s
0:57:39 Like just not like the big deal for me, but it’s a report card, but it’s not it’s not who I am and
0:57:46 It’s not my be all and end all I happen to be in a business that makes a lot of money
0:57:51 So I make a lot of money and my occupation is making money for shareholders when I look at my motivation
0:57:57 If you want to understand my gestalt how I look at the world how I look at myself
0:58:00 It’s really ice if you take those psychological tests. I score very high on
0:58:07 Need to be appreciated so how does that translate into being a CEO?
0:58:10 Where that translates into well, I can be a perfect example last week. We had a call with my 75
0:58:17 Co-investors in my new company QxO. So my wife and I are putting in nine hundred million dollars and then Sequoia and
0:58:26 A few dozen friends and family like really friends in family like my sister or my brother and my niece and nephew
0:58:32 Are putting another hundred million dollars. We’ll have a cool one billion dollars. You’ve been putting it into this company and
0:58:38 I told them at the end of the call. It was an hour cause give him updated what I’m working on. I thank them
0:58:44 Not for the hundred million dollars. I didn’t need the hundred million dollars. I could put another hundred million to mine it
0:58:49 But I thank them for
0:58:51 For giving me motivation
0:58:53 Giving me inspiration giving me a purpose because I want to please them. I want to make them happy
0:58:59 I want to make them a lot of money. I like being happy. I like being feeling good about myself
0:59:04 I like looking in a mirror and like who I’m seeing and how I define that is
0:59:08 pleasing the people that I love and those are my investors my co-investors my my close friends and family and
0:59:14 The people who have been good to me over the years and I give back to them. Let’s deep dive on M&A
0:59:20 How do you think about it at a high level and then specifically walk me through your process for not only evaluating companies?
0:59:29 but
0:59:30 Beginning to end including integration M&A has been a big part of my business career not in the first 10 years in the first 10 years from
0:59:37 1979 to 1989 I
0:59:41 Was in the oil business. It was all organic. We didn’t do one single acquisition
0:59:44 So I’ll just trading and brokering and building up a business organically, but since 1989
0:59:49 I’ve been doing
0:59:52 Roughly about 500 acquisitions. I’ve done a lot of M&A. I love M&A
0:59:56 I love M&A as a way to create value for shareholders because I don’t know of another way on a risk-adjusted basis on a
1:00:05 certainty level that is
1:00:08 More likely to create massive shareholder value than doing sensible M&A in order to
1:00:15 Understand how to create value. I have to understand how am I going to scale up the business? I
1:00:22 Only know how to create tremendous shareholder value by growing a business tremendously that that’s how I know how to do it and
1:00:29 Of course, it’s organic and I’ve had very good organic growths the companies
1:00:34 I’ve led have been well-performing companies that have had good market share and growing market share and we’ve
1:00:39 Taken customers away. We’ve taken business away from our less not as our competitors weren’t managed as well
1:00:45 But the real when you look at the the numbers the real growth has been through M&A through acquisitions
1:00:50 What’s been my secrets on acquisitions? I’ll try to be concise because I did a
1:00:55 Hour-and-a-half podcast McKinsey a couple of years ago and Andy West. That was the only question
1:00:59 That’s one question. I babble down for an hour and a half. It’s still a big people still watch that that podcast
1:01:04 They really told everything about it. Here’s the gist. The gist is
1:01:09 You first have to select an industry. You can’t just do M&A
1:01:14 So I spent the last year
1:01:16 Going around studying dozens of industries looking at hundreds and hundreds of acquisition opportunities
1:01:22 Mostly with Goldman Sachs Morgan Stanley and some other friends Sequoia and some friends
1:01:26 figuring out could I apply my playbook to this industry is the industry big enough is
1:01:33 The industry fragmented enough. Is there M&A to do is bigger better?
1:01:37 That’s not always the case are the economies of scale do you have a competitive advantage by being bigger?
1:01:42 Is there a way to apply technology because my companies have always been tech forward?
1:01:46 to the industry
1:01:48 Because the industry is a little sleepy on technology is the way I run a business the way
1:01:53 I do the intake of people and the culture and the way we interact with each other and so forth is that something that’ll work in
1:01:59 This industry is applied in this industry. Is it it’s something related to something?
1:02:03 I know about industrial services for example most of my companies since 1989 have been industrial services and
1:02:09 I looked at many many different industries and I settled on
1:02:12 The one that checked every single box, which was building products distribution and then in my company is going to be QXO and
1:02:18 M&A will be a big big component of what we do. There are this 800 billion dollars of
1:02:24 Distributors in Western Europe and in North America, which is where I want to plant my flag
1:02:30 I want to build a company. That’s called 50 billion dollars
1:02:34 I can do that if there’s an 800 billion dollar size
1:02:37 I can take 6% of that through acquisition and through organic growth. I can get to 50 billion dollars
1:02:44 There’s many other industries that are nice, but I’m not gonna be able to get to 50 billion dollars
1:02:48 I want to get to 50 billion dollars. So this industry. There’s a clear path of how I can do that
1:02:53 now I can’t just but and there’s
1:02:56 Roughly about 7,000
1:02:59 Distributors here in the United States is about almost twice that amount in Western Europe
1:03:03 So it’s roughly about 20,000 distributors. You’ve got to be very careful about who you buy
1:03:08 There has to be a reason why you’re buying that company. That’s to be a strategic a compelling
1:03:13 Strategic reason of why you’re buying that company. What make what makes sense for that? Why is that good for customers?
1:03:19 Why is that going to make our business a better business?
1:03:22 Why does that fit with the other things that we’ve already bought and put together? How’s it going to integrate?
1:03:26 Well, I like to look at the multiples that I pay for an acquisition
1:03:31 The price that I pay for an acquisition is very very important because when I look at the levers of how we create shareholder value
1:03:39 What contributes to that the biggest level the biggest component is the differential between
1:03:44 when I raise capital at due to my relationships with mostly institutional investors and
1:03:50 Because of the track record and what I can deploy that at on
1:03:54 Doing acquisitions the second biggest lever is how much can I improve the businesses that I buy?
1:04:00 Those that there’s many many levers, but those are the two biggest levers
1:04:03 So I pay close it when I’ve studied all these different industries. I’ve studied
1:04:08 historical
1:04:11 Acquisition multiples and one of the reasons I like billing products distribution is I believe that I’ll be able to buy companies at
1:04:18 Lower multiples of their profit that I’ll be able to raise capital at and that’s going to be a big that desigio that spread
1:04:24 That difference that Delta is going to create value boom just right away right from the first day
1:04:29 Now you asked about integration
1:04:31 Integration is extremely important
1:04:34 Anybody can buy a company. It’s not that hard. You write it. You send a wire. You sign a document
1:04:40 it’s a few dozen pages the lawyers have gone over it and you wire the money and
1:04:44 You own it. So that’s not the hard part. The hard part is
1:04:49 After you’ve selected the right industry after you selected the right companies within that industry to buy after you
1:04:58 had disciplined so that you don’t so that you pay the right price for all those
1:05:03 Then you have to integrate them. I’ve never run companies that have like
1:05:08 Hundreds of different companies all running separately with different names and different syph systems and different back offices and
1:05:15 There is some level of decentralization where you need to be closer to the customer
1:05:19 but I have a very strong appetite for standardization
1:05:23 standardization of
1:05:26 The ERP system that you close the books with
1:05:29 So you close the books promptly right after the close of the month and then you can have
1:05:33 Standardized dashboards all the managers have the same format of the numbers
1:05:39 They’re looking at the KPIs and they see them graphically very easy to understand. I
1:05:43 like to see so they can benchmark every company every
1:05:47 location to every other location every district to other districts every region to other regions and
1:05:53 For that you need standardization. I like to have a very standardized
1:05:56 HR IS human resources system where all the people in the organization and we’ll build the build this company up
1:06:04 We’ll have hundreds of thousands of employees. I need to have a standardized data system for all of our employees
1:06:10 Everyone’s on this for 401k. It’s the same exact way of doing all the benefits are the same all the performance appraisal the same
1:06:18 Compensation I can see right away. I need to have transparency to the information about I need to have the organization charts very accessible right away and
1:06:25 Every time we do an acquisition
1:06:27 I need to pull that information up right away while we’re studying it quickly
1:06:31 So we have a competitive advantage against other bidders to see what would the synergies be so I need standardized
1:06:36 HR technology about about everything I need a standardized
1:06:41 CRM customer relationship management system like salesforce.com or several others as well and
1:06:47 For that to be able to make sure we’re looking at customers
1:06:51 The attractiveness of those customers the profitability of those customers the size of their spend
1:06:56 So therefore the potential of those customers going forward
1:06:59 All the interactions we’ve had with those customers. I need to see that a standardized way all across the globe
1:07:05 Everywhere in every country. We’re functioning it. So I need a standardized technology for
1:07:10 Customer relationship for sales manager. So I’m giving I need a standardized internal social media
1:07:16 I happen to like I’ve used workplace by Facebook. It’s not the only one, but I like that one really well
1:07:21 It’s nice and the interface is really really good
1:07:24 So I like to have everyone on the same one because I like to have one company with one culture where everybody can ping each other
1:07:30 I like I don’t want to have these silos of companies like sometimes you see these companies
1:07:34 Roll up many different companies, but it’s all a mishmash. It’s all separate. I don’t like that at all. I see a lot of these
1:07:43 Middle market private equity firms do that. They roll up these small companies
1:07:47 They’re doing five ten twenty million dollars EBITDA each and they bat and they just buy a bunch of them
1:07:52 And now they’re up to a hundred million or two hundred million EBITDA and they just get a bigger multiple because they’re bigger
1:07:56 But it’s a mess whoever buy those whoever buys those companies is a lot of work to be done
1:08:00 You’ve got to now standardize everything and integrate everything and opportunity to improve them
1:08:04 But it’s a lot of cost and time to fix all that stuff up
1:08:08 So I I integrate from the moment that we agreed to buy a company
1:08:13 we’re starting the integration process and the day we close the acquisition
1:08:17 Gazam we’re in there and and we’re standardizing everything as much as we possibly can and we’re communicating and communicating quite a bit a
1:08:25 big part of the success for M&A is
1:08:28 Forming the relationship with people and making sure we get off on the right foot and making sure that we don’t lose
1:08:36 the great talent and making sure we on the same time we’re identifying
1:08:41 the weak players and
1:08:43 Gracefully and generously exiting them. So there’s a lot of different components to M&A
1:08:48 I’m
1:08:50 Summarizing a lot of different facts each one of those things we could talk for an hour just on that that block
1:08:54 But those are the kinds of things that go through my mind in my approach to M&A
1:08:58 You have some unique questions when you interview sort of the top 10 to 15 people as part of the diligence process
1:09:05 Can you walk me through what at least two or three of those questions are where you get the most useful information? Yes
1:09:10 So you see some companies when they’re negotiated by a company do this very lengthy and
1:09:16 Detailed and bureaucratic diligence process and they hire a firm and they write this big huge memo that nobody ever reads and
1:09:23 or some wonk reads it but nobody important reads it and
1:09:26 Especially just to cover their butt. I’m not trying to cover butts. I’m trying to make money for shareholders
1:09:31 My goal is to make money for shareholders period and so what I’m looking for in diligence is I want to know how they make money
1:09:38 I want to know the history of this company. I want to know the current state of this company
1:09:42 I want to ask those people. I like to interview the top 15 or so people one on one like an hour hour and a half
1:09:49 I like to ask them if this was your money, would you buy this company and
1:09:54 What would if you did buy it
1:09:58 What would you change? What would you do differently? Where’s the opportunity to do something differently than it’s been done and
1:10:03 I like to ask them
1:10:06 Okay, if you were bought buying this company
1:10:09 What would you not change what is so good about this company that’s making it successful that’s attracted a big bidder like ourselves
1:10:16 That we should make sure we’d be crazy to change that so I like to ask questions like that questions that give me insights into
1:10:24 How the business got to where it is? What is what’s the future of this company?
1:10:29 How could we improve the company going forward?
1:10:31 We’re the things that have been blind spots of the current where the company’s been run that we could fix and
1:10:37 What are the things that are working? Well that maybe we could put more resources into where have we not been spending enough money?
1:10:42 Where we were not investing enough money into something that could be a good return on investment on the other hand
1:10:48 Where have we been? Where has the company been wasting money? Where has the money been?
1:10:54 Going into things that why are we doing that doesn’t really help customers?
1:10:57 It doesn’t delight customers doesn’t make customers happier or doesn’t improve our our customer bit business reviews
1:11:04 So why are we even doing it? That’s a I like to ask those questions
1:11:08 And they’re really revealing that the first person who I talked to had questions like that was cat Cole
1:11:14 Who is the vice president now at athletic greens when she turned around Cinnabon?
1:11:21 That’s what she would do. She went and worked in the stores and asked the employees what they would do differently
1:11:25 And it was so revealing in terms of what they ended up changing. I find
1:11:29 so many times in corporations
1:11:34 People don’t ask those questions. Yeah, and I’m big and asking those questions
1:11:40 I’m big at surveying using town halls one-on-one interviews small group interviews
1:11:46 Asking questions about how we’re gonna win. How are we gonna win? What are we doing wrong?
1:11:51 What can we be doing better? What are we doing right that we should do more of and I find it?
1:11:56 Very valuable very very valuable. It yields a great return on time and
1:12:02 as I write about in my book, there’s only two things the manager manages return on capital and return on time and
1:12:10 I believe that
1:12:13 Asking the employees and getting them involved in the process is a great return on time a great return on capital
1:12:18 What’s the role of a board in a strong founder led company?
1:12:23 Like QxO when you’re you’re investing 900 million of your own money
1:12:28 You’re the founder the CEO largest shareholder. What role will that play?
1:12:34 How does that change the role of a board especially when it comes to M&A?
1:12:37 I’ve been really fortunate to have fantastic boards boards that are very strong
1:12:42 People comprised of people who are really competent people have you’re invested in the company. They’re leaning in they take the job seriously
1:12:49 they they’re passionate about the company and
1:12:52 My relationship with the board is a little bit different than most most boards
1:12:56 We’re completely transparent completely open any board member can reach out to any person in the company
1:13:02 Anytime they want and ask them anything they want and there’s no supervision or people have to accompany them or none of that
1:13:09 So I want board members be very very informed. I want board members to get copies of the customer surveys
1:13:15 I want the good and the bad. I want them to see that I want and I want them to see the analysis
1:13:20 I want them to see the analysis of the customer surveys of where we’re doing. Well, we’re falling short. I want them to know that I
1:13:26 Want the board members to have all the employee surveys and see all the word cloud word cloud analysis that we do all the trend
1:13:33 Analysis and all the benchmarking we do I want them to see where the pain points are of employees
1:13:38 I want them to see where employees are happy. I want them to see the trends of employees
1:13:42 I want the directors to be invited to every operating view and every monthly operating view every quarterly operating view of any
1:13:49 Part of the company that tickles their fancy. I want them the more they’re involved the better off we’re benefiting from them
1:13:55 So I like to have board members that are very involved very knowledgeable and we have
1:14:01 good conversations about the important stuff and I don’t run board meetings the way most
1:14:08 Fortune 500 company boards are run most fortune 500 company board members board meetings are kind of they’re very scripted and
1:14:16 they sometimes even rehearsed and
1:14:19 There’s a careful
1:14:21 Store that’s being told by management and it’s done by PowerPoint is done by rehearsed presentations that come up and
1:14:29 Just complete waste almost a complete waste of time
1:14:31 You could do that whole thing is by sending them a document. There’s no reason to convene a meeting for that
1:14:36 It’s just a it’s just a kabuki dance. It’s just it I like to have
1:14:40 Real board meetings where ahead of time everyone’s read all that data and between board meetings
1:14:47 they’ve been in the business to what I’ve been talking about and
1:14:50 They come to the meeting and we bring in over the course of a day
1:14:54 somewhere is between
1:14:56 10 and 20 managers executives sometimes senior ones sometimes mid-level managers sometimes front-level exact managers
1:15:04 employees and
1:15:06 I I go around the room and I like every single director to ask whatever they want to ask
1:15:11 I don’t want to add I don’t want them to tell me ahead of time what they’re going to ask and I don’t want them to tell
1:15:16 The men the managers who they’re interviewing to know what the questions are ahead of time
1:15:21 I don’t want our executives or our frontline employees to waste time and I’m using the word waste deliberately
1:15:26 Preparing for the meeting some speech some script some sometimes phony baloney sales story about how great things are
1:15:34 I want to ask real questions. I want to include in the tough ones and I want people to
1:15:38 Answer them honestly and spontaneously in the moment and completely so that those I love our board meetings
1:15:45 So I’m now chairman at the moment of three different companies
1:15:48 Xpo GxO and RxO and so we tend to have our board meetings
1:15:53 Every three months around the same time around the same two-week period. It’s some of my favorite meetings the whole year
1:15:59 Because I had highly engaged directors who are knowledgeable about the business
1:16:04 And who asked really good question. I learn a lot. I learn a lot at the board meetings
1:16:09 I don’t dominate the board meeting with I’m the person speaking all the time a lot of times
1:16:13 You find that the the chairman of the CEO is like
1:16:15 Making a whole big deal about themselves board meetings should not be about the chairman and the CEO or the chair and CEO
1:16:21 The board meeting should be about the directors
1:16:24 Getting the information they need to get they want to get they should be getting
1:16:28 Should it be focused on problems or what’s going well or how do you think about that from a board level and then I want to get
1:16:34 Into more specifically management meetings, but look at the board level. How would you organize that around?
1:16:40 How do you craft an agenda for that? I don’t craft the agenda
1:16:45 So I know what I craft is I figure out who are the right people to bring in
1:16:49 But even that in terms of the management we should bring in I don’t do that all by myself
1:16:54 I get input from the lead independent director
1:16:57 I get input from the vice chair we come up with something together with the CEO and then I
1:17:03 Distributed around to the whole board. So what do you think? How does this look? I don’t have any changes people usually have changes
1:17:07 They’ll say that’s great, but I’d also like to have a section on HR just even yesterday
1:17:11 We’re preparing for a board meeting and one of my vice chairs said, you know, that’s that’s good
1:17:16 But I want to have a section on human capital management on people management
1:17:20 So we rearrange things and we’re bringing some HR folks. So
1:17:25 My goal is to get the right people in the room in front of the directors and and then let the directors ask
1:17:31 What they feel is right to ask. I don’t want to
1:17:35 Micromanage the agenda because that’s my agenda. I want I am never going to be smarter
1:17:42 Then the sum of all the directors that’s never gonna have mathematical or you have the wrong directors, right very much
1:17:50 So yeah, and I like directors who are smart and we’re engaged and really want to prove the company
1:17:56 They want to play their role. They want to take their fiduciary duty very very carefully. They have a strong duty of loyalty
1:18:01 They have a strong duty of care when you think about decision-making
1:18:05 How often are decisions made by?
1:18:07 committees and the companies you run versus made by
1:18:11 Individuals well, I hate the word committee period committees just like a bureaucratic red tape slow
1:18:20 Kind of low-energy kind of word. I just can’t stand the word. So I try not to call things committees
1:18:24 Just a nomenclature. However, there are sometimes when a group of people will have to make a decision because it’s more than one discipline
1:18:33 That’s required to get to the right decision
1:18:35 There might be a task that we have that has a financial elements
1:18:39 You need someone from finance accounting that certainly has an operational
1:18:42 Element to it. You need ops person there. We’ll also have a big people element. So I need an HR person there
1:18:47 And so I could have if it’s a big decision with big impact
1:18:51 Then I’m going to have C level never the COO the CFO CHRO. That’s a big decision
1:18:57 I’m not going to waste those very important people’s time with small decisions Fp and a financial planning analysis
1:19:03 Plays a big role in my company more than in most companies the Fp and a people are the ones who were
1:19:09 Turning all these ideas in a meeting to listen to all these ideas and they’re turning them into numbers
1:19:14 They’re turning them into forecasts and turning them into projections that turning me to probabilities to turning them to the look
1:19:20 We we have this these 10 things we’re going to work on to create alpha for our shareholders
1:19:26 They’re attaching
1:19:28 Probabilities teach one of those I got a 90% chance of this is in the bag. This is going to happen
1:19:32 This is a long shot. This is like a 10 20% chance of happening, but it’s not a zero percent
1:19:36 It’s a 10 or 20 percent and it’s got a high return if we achieve it
1:19:40 So it’s worth putting the effort in but I’m only going to give 10 or 20 percent credit
1:19:43 We’re even going to give less credit than that and and they’re also doing budgeting constant iterative budgeting
1:19:49 We don’t do budgeting once in a while. We do budgeting every day
1:19:54 every single day where we’ve got our our but our numbers that our plan is our plan and
1:20:01 where are we tracking versus the plan and
1:20:05 the FPA people are
1:20:08 Are really good at figuring out who’s sandbagging and who’s
1:20:13 Exaggerated by that at what I mean by that is you have some managers who just do their personalities or for whatever reason
1:20:20 Or maybe they’re playing games with their bonus. They want to lower expectations. So they come out looking like heroes
1:20:25 Well, that’s not good because we want to know the real
1:20:28 Like the outcome so we can plan around that on the other hand you have some people who are
1:20:37 Overly self-confident and they think this is definitely going to happen
1:20:39 And I’m gonna grow this that but if you look at their history if you look over the last three years
1:20:44 They’ve missed their predictions by three to five percent like pretty much every year. So they’re gonna discount them based on the
1:20:50 Past predicting their future likely to succeeding so the FPA people play a big big role in that and figuring out
1:20:57 What is the?
1:20:59 highest lowest and likeliest outcome for all these different endeavors that we’ve got and they’re also playing a big role for
1:21:06 Allocating capital. So we talked before about the two big things that senior executives do is is
1:21:13 Decide what kind of ways we’re gonna spend money allocate capital because it’s finite even if it’s billions of dollars
1:21:19 It’s not trillions because it is billions. It’s finite capital
1:21:23 How are we going to spend invest that capital of all the different ways we can invest?
1:21:27 What’s the highest and best uses of that capital and how are we going to manage time?
1:21:33 How are we going to get everyone focused on the things that really matter and not waste their time on the silly stuff that
1:21:39 Really doesn’t matter. It’s not going to create
1:21:41 Massive value for our shareholders, which is what our mission is the FPA people help with
1:21:47 Understanding that putting into numbers because sometimes you can get very
1:21:51 inspired and motivated and it’s a really really creative fantastic
1:21:56 Inspiring project comes up when you analyze the numbers. Yeah, it’s really not a really good return on time return on capital
1:22:03 So maybe we shouldn’t be spending so much time on that. So we’re we’re also
1:22:07 Managing how much time are we spending as an organization on what kind of projects you find a lot of time in corporate America?
1:22:14 somehow or another they get lost management gets lost on these
1:22:18 tangents that are not central to their main mission of creating value for shareholders and
1:22:24 The FPA people keep track of that the scorekeepers to keep everyone honest of how we’re investing capital
1:22:31 How are the returns on that capital versus what we expected it to be we planned on how we spending our time is how we’re spending our time?
1:22:39 Proportionate to what has the highest impact of how we’re spending our time and this is a very important role
1:22:46 So FPA ends up being kind of omnipresent throughout the organization anytime
1:22:51 We’re making big decisions because they’re really good at getting all this down to to reality to real numbers and they report to the
1:22:58 CFO is that the structure and internally FPA has has two lines
1:23:03 One is to the CFO on the they have a dotted line to operations and to me
1:23:07 So I rely on my FPA person like every day. I want to know for two reasons
1:23:13 I want to know internally how we’re doing on the projects that we’re
1:23:16 We’re attaching high-priority to I also want to know how we’re doing on our commitments to shareholders to investors
1:23:22 when you’re a CEO of a public company you have a
1:23:26 Really important mission in that you’ve promised
1:23:29 What your numbers are going to be in the future? How much your profits going to be how much your organic revenue?
1:23:35 Go it’s going to be how much your margins are going to be what your return of capital is going to be
1:23:38 How much a free cash flow is going to be and now you’ve got a you’ve got a promise out there
1:23:43 You’ve got a guidance you’ve got a forecast and and you’re working really hard to achieve that
1:23:47 I need to know and FPA is the best place to know that
1:23:51 How we tracking against that and if we’re tracking higher than that and significantly higher than that
1:23:56 There’s a big deviation from that. Well, we’ll talk to to legal and we’ll talk to IR and the investor relations
1:24:02 And we’ll say should we update the the investment community ahead of the quarter ahead of when we normally produce our results and
1:24:08 Equally importantly, maybe even maybe more importantly. I want to know God forbid if we’re tracking below our estimates and
1:24:17 Once I know that then I have a meeting and I say whoa
1:24:20 We’re me of our of our six or seven top metrics that we’ve promised to our investors
1:24:25 We’re doing well on these five or six from these one or two. No, no, no, it’s not doing very well
1:24:30 What are we going to do to get back on track? So constantly?
1:24:34 using our
1:24:36 Sensing information gathering and then getting back on track getting back on track
1:24:41 Do you do the forecasting because you’re going to be going to the capital markets for?
1:24:46 For capital at some point in the future within
1:24:48 Acquisition strategy or would you not do that if you knew you weren’t going to raise additional capital?
1:24:55 Well, I I am a big user of capital markets because all my companies have grown through
1:25:00 Acquisitions and I’ve needed capital to grow those acquisitions
1:25:04 We’ve raised money from the largest sovereign wealth funds in the world and some of the largest pension funds in the world some of the
1:25:10 largest long-only funds and you know
1:25:13 Endowments and a lot of different people whose money we’ve taken and give them back a lot more money than they gave us
1:25:19 So in order to do that
1:25:21 You’ve got to hit that you’ve got to meet your promises your results matter results matter. They’re very very important
1:25:27 So even if we weren’t raising capital the fact that we’ve taken capital
1:25:31 Sometimes we’ve gone for years without raising cash
1:25:34 Well, we’ve maybe refinanced debt to take advantage of changing interest rates or something like that
1:25:38 But in terms of raising equity, which is the dear thing raising equity sometimes we’ve done some acquisitions like in 2015
1:25:45 We did two big acquisitions and then we digested them and we integrated an optimized and doubled and tripled the profit without doing any acquisitions
1:25:52 During that period of time. We didn’t need to raise equity and we didn’t so but even though we weren’t raising equity
1:25:58 Even though we were not going to the back to the capital market chain
1:26:01 We still paid
1:26:03 Extremely rigorous attention to how we’re doing on the numbers. That’s our job
1:26:08 our job as executives as managers custodians of this business is to produce results and that’s measured ultimately in financial results
1:26:17 It’s also produced in infinite in operating results
1:26:20 It’s also concerned of customer satisfaction employees satisfaction
1:26:24 but all those things lead to
1:26:26 financial metrics and
1:26:28 You’ve got to stay focused you have to have the whole organization focused on
1:26:32 Delivering those financial metrics and that’s how you deliver them. It’s a it’s a conscious
1:26:38 Intention and a sense of honor in a sense of I need to do this. This is this is what we need to do
1:26:43 This is our promises promises made promises kept when people tell you they’re not motivated by money
1:26:49 You get suspicious. Why well, I actually respect people highly if they’re not motivated by money
1:26:55 I know a lot of artists. I know a lot of musicians. I have
1:27:00 Friends and relatives who are professors or retired professors in academia. This is not into money
1:27:06 I mean, there’s not into money. They don’t think about they don’t read the Wall Street Journal
1:27:10 They’re not interested in that whatsoever and and I respect that they have a higher calling in a way
1:27:15 They’re they’re focused on some deeper parts of life
1:27:18 But that’s not who I want in my company
1:27:21 I want my company people who are
1:27:23 Absolutely motivated by money or raw capitalists who people who want to make money for themselves and their families and that
1:27:31 We can figure out a way that by being part of our company they can help us make money for shareholders
1:27:37 So that we can pay them more money here. They could make somewhere else. I’ve mad people on the senior level make
1:27:44 Many many people make become millionaires multi-millionaires. I’ve had people become tens of millionaires
1:27:50 I had one person who made over a hundred million dollars. I
1:27:53 Have a couple people now who are on track to make very large amounts of money. This is a good thing
1:27:59 This is a this is an outgrowth of success because we’ve tied everybody’s compensation
1:28:05 We’ve been very thoughtful about compensation plans. We’ve tied their compensation to contributing to our big goals and
1:28:11 The only way they can make all this money is if they’re making money for shareholders
1:28:17 so I love compensation plans for the senior executives that have a big component of
1:28:23 equity
1:28:25 That’s tied. It’s dependent on TSR total shareholder return. So we look at what are the how does our stock perform?
1:28:33 versus
1:28:35 called S&P 500 and
1:28:37 What percentile are we if we’re less than called the 55th percentile?
1:28:42 I’m not so sure that you get any that I don’t not sure the equity should vest
1:28:46 I could argue that if we’re only getting roughly half
1:28:51 Roughly we’re very middling in the results. We’re giving that’s not why people invested in us
1:28:56 People gave us the sovereign wealth funds or pension these big investors
1:29:00 They’ve given us money because they expect us to be much much higher returns than the average company
1:29:05 So I like to have people bet on themselves so that if our if our shareholder returns are less than 55% or so
1:29:12 I don’t want it to vest if it’s 65% invest some if it’s 75% invests more if it that if it if it’s
1:29:21 85% 90% 95% I want it to I want them to make I want it to double vest
1:29:26 I want them to make twice as much as they would otherwise. So I want their interest
1:29:30 Aligned with the shareholders. I want it to be so that the shareholders are saying wow
1:29:37 I really hope senior management team makes a fortune because the only way they’re gonna make a fortune is if
1:29:41 We’re beating all the competition in terms of the returns with our investment. So I like to I like that to happen one thing
1:29:48 I liked about
1:29:49 Goldman Sachs’s compensation plan that I took for them years and years ago when they were partnership a big chunk of their compensation plan
1:29:56 I’m not up to date in their compensation plan now
1:29:57 But back when they were private partnership a big chunk like a significant percent of their comp was based on
1:30:04 How many other?
1:30:07 Partners said that they helped them with what they were working on. Yeah, in other words
1:30:11 I didn’t just work on what I was trying to work on
1:30:13 But I helped you Shane with your cusp with your client and that group effort going back to being a super organism
1:30:20 So if we can have people on the front line in the mid-level management be rewarded financially because that’s the biggest reward
1:30:27 It’s not the only reward, but financially
1:30:29 Financially rewarded for helping other people achieve their goals. That’s a good thing too. So we have all these bespoke
1:30:36 Compensation plans that are well designed that a lot of thought go into that result in the magic
1:30:43 Meaning creating outsized returns for shareholders. That’s the that’s how we do it
1:30:48 Now we also do just general recognition
1:30:52 That’s not as powerful as financial rewards, but it’s still a good thing. So we have all the usual things of
1:30:58 people getting awards and rewards and trips to to places and president’s clubs and
1:31:05 Employee of the month all those kind of things where people feel good about themselves because they’re recognized for going above and beyond
1:31:11 But if I had to pick just one or two the feel-good stuff or the money
1:31:15 I’m going with the money. I like a powerful motivator
1:31:18 I like how everything’s tied to sort of like win-win everybody wins, right?
1:31:21 You’re it’s not one of those places where you’re you can get outsized
1:31:25 Compensation even if our shareholders lose. That’s a terrible thing. That’s an unfair thing. That’s that should never happen
1:31:32 You should you you shouldn’t you should have a complete alignment between
1:31:37 How shareholders do with their investment in the company and how the employees do?
1:31:42 either both of those groups should be making a lot of money or
1:31:46 Not a lot of money now the shareholders can’t control that all their two years invested in their money
1:31:52 The employees control that if the employees are selected well are working together in a good culture
1:31:58 Well are using technology or using ways that they they can succeed or have good feedback loops and
1:32:04 They’re they’re making good decisions and being held accountable for decisions
1:32:08 They’re exceeding them and delivering the numbers and the share price reflects that the share price goes up
1:32:12 That’s great
1:32:13 The shareholders should make a fortune and the employees should make a fortune neither one should make a lot of money at the expense of the other
1:32:20 That’s not fair. That’s just not that’s not right. What CEOs do you think are underappreciated capital allocators when I look at?
1:32:28 the companies that have
1:32:32 Taken money and had small amounts of money and turned it into a huge amount of money
1:32:37 Immediately, I’m thinking Mike Moritz a quiet Sequoia
1:32:40 He was chairman of Sequoia Capital now. He’s retired from that. He’s a Sequoia heritage senior advisor
1:32:46 Sequoia heritage, but if you look at his career everything he’s done over the decades
1:32:49 And I’ve studied Mike very very well for many many decades
1:32:52 He was one of my first outside investors Sequoia Capital came into my United Way systems way back in
1:32:58 1989 1990 and
1:33:01 What is he the champ? What is he the genius of? He’s the genius of
1:33:05 Taking small amounts of money and turning them into huge amounts of money
1:33:10 So you look at at Google at Yahoo at Netscape at Sun Micros all these companies that he invested
1:33:17 Relatively small amounts of money and ended up being worth like 10 billion bucks. That’s
1:33:21 That’s good capital allocation. That’s really really intelligent capital allocation
1:33:26 So I immediately think of I think of a Mike Moritz for something like that
1:33:30 I think in the industrial sector. There’s also people who who have
1:33:36 gone through the same kind of processes I’ve gone through and
1:33:39 Been been disciplined at how the allocate capital and achieved high ROIC as a result of that
1:33:46 You think of the Academy level
1:33:48 CEOs over the years Dave Cody for example when he was at Honeywell for years
1:33:53 He was very very rigorous at this but very mathematical very dispassionate very intelligent about okay guys
1:34:00 This is how much money we’ve got where we’re gonna get the biggest returns and allocating it very very carefully there
1:34:05 So those are the people who come to mine off off top of my head talk to me about the relationship between quality and speed need both
1:34:12 So you see companies sometimes
1:34:15 Be really good on quality, but oh my god. They take forever. So it’s
1:34:21 It’s really not achieving what you’re trying to achieve
1:34:24 You see other companies that move real super fast
1:34:28 But it’s at the sacrifice of of QAQC of quality assurance quality control
1:34:33 The real golden mean is how do you move fast?
1:34:37 but move fast intelligently so that
1:34:41 You’re not sacrificing quality. In fact, you’re moving fast and improving quality at the same time
1:34:48 That goes back to mathematics that goes back to engineering that goes back to planning
1:34:52 understanding the lay of the land
1:34:55 Understanding what exactly is the inefficiency that we’re trying to take out of the system
1:35:00 What’s the biggest lesson you’ve learned from the past year?
1:35:03 You could pick any time frame with this last 12 months last 10 years less my whole life and
1:35:09 Ask me what’s the biggest lesson I’ve learned for sure. I’m going to immediately default to something with people
1:35:15 It’s first I’m going to fall the people and then I’m going to fall to technology
1:35:19 These are the two things because these are the two biggest needle movers
1:35:23 These are the two biggest categories of things that make a difference
1:35:26 So the last year what have I learned about people? Okay? One thing I’ve learned about people is
1:35:32 I’m working with a team now at my my new company. That’s largely the same
1:35:37 They were on my teams before they were either xpo or one of the xos and what I’ve learned is it’s great to have the band back together
1:35:44 It’s great to work with people that you know that you’ve been in the battles with
1:35:50 You’ve shared the glories. You’ve shared the pain. It’s great to be work work with people who?
1:35:55 We’ve been in the dark days together. We’ve been in the strong days together. We’ve won together. We’ve been victorious together
1:36:01 We can complete each other’s sentences. We get each other. We know each other’s spouses. We know each other’s kids
1:36:06 That’s that’s a beautiful thing. I haven’t always had that I have brought
1:36:11 Some people from company to company usually an initial founding management for QxO or all XO people and
1:36:19 One thing I’ve taken away from that is I really love these people. These are people I really
1:36:24 Just respect and admire and I just I’m just so thankful that I get to work with them
1:36:30 Like I feel and I think we all feel this way
1:36:33 I think all of us feel that each of us is getting the long end of the stick by working with the rest of this team
1:36:39 That’s very hard to find a team a group of people this size
1:36:44 That all love each other that all respect each other that all admire each other’s professional and personal
1:36:50 characteristics and traits and that’s that’s a beautiful thing
1:36:53 That’s a big takeaway for me now
1:36:56 I’m gonna go for two for on this. What’s my biggest takeaway on technology in the last 12 months on technology?
1:37:02 what I learned was I
1:37:05 went through this process of studying dozens of industries and I went through the checklist and one of the checklist one of the
1:37:12 things on the checklist was
1:37:13 Can I play can I take technology and apply?
1:37:16 our tech forward mentality and our willingness to invest in technology and put our money where our mouth is and put money in technology in
1:37:24 In an industry where we’ll get a competitive advantage and I found an industry building products distribution that I
1:37:31 Can do that. I found a company an industry that’s got
1:37:34 20,000 companies and there’s about six or seven that are doing really cool things in technology
1:37:40 And that’s pretty much it. I hate to say that so negatively, but I think that’s an objective assessment of it
1:37:45 I think there’s half a dozen or so companies the biggest ones that are a couple of medium-sized companies too
1:37:52 but mostly the biggest ones who are
1:37:54 Approaching technology in the same spirit that reproach technology now
1:38:00 We’re gonna double down on that and spend a lot more money and have the best technologists involved like we always have in our companies
1:38:07 But if you look at the 99% of all the other companies there where other industries were 20 years ago now
1:38:13 I like that Shane. I like going into an industry where I got something I can bring to the industry that’s gonna help
1:38:19 But I can be transformational. I can be a catalyst to improve the quality of the industry
1:38:24 I’m happy to get everyone all excited and share the vision about investing in technology
1:38:28 But we always or I guess I always end with the same question. What is success for you on on the professional level?
1:38:36 It’s very simple. It’s continuing my tradition of
1:38:40 Generating superlative shareholder returns like off-the-charge great returns for investors. That’s my report card that is success
1:38:48 Period. There’s a lot of other things that build up to that. I have to have an engaged workplace
1:38:55 I have to have good relations with my local communities have to do all those good stakeholder stuff
1:38:59 But at the end of the day the report card is one question
1:39:03 What is my share price performance versus the benchmark and not only relative but absolute terms as well?
1:39:10 So it’s it’s about stockholder appreciation for sure professionally all the things
1:39:15 I’m doing of hiring people and putting in technology all the things we’ve been talking about for less couple hours
1:39:19 that all comes down to
1:39:21 To making money for shareholders if you’re not making money for shareholders. It’s just jabber jabber. It’s just talk
1:39:26 So for me success is defined by how is my stock price performance versus everybody else?
1:39:33 So that’s that’s clear for me. It’s very clear my mind
1:39:35 Personally, you know, it’s about my family. It’s about my friends. It’s about my relationships with them
1:39:40 It’s about can I create ways where in the limited times?
1:39:45 I don’t have as much time as most people because I’m really into the business
1:39:48 But in the limited time that I do have can I make those enriching experiences? Can I make those experiences where?
1:39:53 There’s a lot of love in the room. There’s a lot of good stuff going on. There’s a lot of positive vibes
1:39:59 And I’m they’re very symbiotic wonderful relationships where I’m helping the people I I love and and they’re helping me
1:40:06 And if I can achieve that that’s success. That’s amazing. Thank you so much for your time today
1:40:11 This was a fascinating and wide-ranging conversation. I really appreciate the opportunity shame
1:40:23 Thanks for listening and learning with us for a complete list of episodes show notes
1:40:28 transcripts and more go to fs.blog/podcast or just Google the knowledge project
1:40:35 Recently I’ve started to record my reflections and thoughts about the interview after the interview
1:40:41 I sit down highlight the key moments that stood out for me
1:40:45 And I also talk about other connections to episodes and sort of what’s got me pondering that I maybe haven’t quite figured out
1:40:52 This is available to supporting members of the knowledge project. You can go to fs.blog/membership
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1:41:08 The front of street blog is also where you can learn more about my new book clear thinking turning ordinary moments into
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1:41:21 Sharpen your decision-making and set yourself up for unparalleled success
1:41:25 Learn more at fs.blog/clear until next time
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1:41:37 [BLANK_AUDIO]
0:00:04 If you can find something that’s messed up and
0:00:07 Easy to un-mess up. Oh, yeah, there’s your money. There’s your opportunity to make a lot of money
0:00:12 You’ve made a few billion dollars. What lessons have you learned about money and spending money and living with money?
0:00:20 That you wish you knew sooner. You know, seriously, you throw me off a little bit with the question because
0:00:24 When you look at the the numbers the real growth has been through M&A through acquisitions
0:00:28 What’s been my secrets on acquisitions? Here’s the gist. A lot of people have a rigid
0:00:32 Business plan that’s spelled out for many years and that’s it and it’s very it doesn’t usually work
0:00:38 Why because life changes markets change economies change and if you’re rigid if you’re just rigid thinking
0:00:45 You’re gonna have things come your way to make money for shareholders and feel love. It’s nice. It’s great
0:00:49 But it’s really not our thing. That’s a bad way of thinking you said you can get a lot of things wrong if you get the
0:00:54 Big trend, right? What major trend are you most interested in right now? I’m most interested in
0:01:01 Because it is the trend it is the number one trend
0:01:22 Welcome to the Knowledge Project a podcast about mastering the best of what other people have already figured out so you can apply their
0:01:28 Insights to your life. I’m your host Shane Parrish a quick favor to ask before we start most people
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0:01:41 If you can hit the follow button now, I would appreciate it the more people who follow this show the better the guests
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0:02:05 Today my guest is Brad Jacobs executive chairman at XPO Brad is a career
0:02:12 CEO and serial entrepreneur with unique track record of starting multi-billion dollar companies
0:02:19 I think he’s up to seven of them by now, which have created tens of billions of dollars in shareholder value
0:02:25 His goal with all of his ventures is to generate outsized value for shareholders by hiring
0:02:30 Talented people committed to thinking big he recently wrote a book called how to make a few billion dollars
0:02:36 Which is a playbook for creating outsized value now all of that sounds really simple
0:02:41 So I wanted to sit down with Brad for a wide-ranging conversation. How exactly does he do it?
0:02:47 Let’s get into the weeds. We talk about AI trends human nature mergers and acquisitions running meetings
0:02:54 What he looks for when hiring and so much more whether you’re running a business or working in one
0:03:00 You’ll walk away from this conversation with clarity around how to improve your results
0:03:05 It’s time to listen and learn
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0:05:28 To the shores of our beaches
0:05:30 Adventure starts with a license plate choose the one that gives back
0:05:35 Discover how BC parks license plates help protect our parks at BC parks dot CA slash get involved a message from the government of British Columbia
0:05:45 Ray Kurzweil who wrote the singularity is one of your heroes and you recently met him
0:05:54 I’m curious what you took away from that conversation and what it was like
0:05:58 Well, I did recently meet him and it was like meeting Albert Einstein or meeting so on
0:06:03 Michelangelo because we look at his context his wide context
0:06:08 he’s looking at the history of the universe going back 13 points something billion years and how we got here and then
0:06:15 looking at those trends and
0:06:17 Where are we going? He identifies the most important trend of all which is
0:06:23 Mesopians have created technology of created tools starting with stone pebbles and
0:06:28 over a couple million years ago and then fire and then settlements and and
0:06:32 Over the last couple hundred years so much so much more so much more in the last 20 years
0:06:37 Accelerating accelerating and now with AI it’s accelerating even more and
0:06:41 Where’s that going?
0:06:43 Where’s that going is the tools that we’ve created the technology we’ve created is becoming
0:06:49 more capable than we are at certain of our traits and
0:06:52 we’re able to outsource a lot of our activities to our own technology and
0:07:00 Ray predicts a singularity whereby
0:07:03 Technology becomes more intelligent more capable than humans and we merge with technology that we use so much technology in our own
0:07:12 In our own bodies with wearables and nanobots and so forth that in AI and outsourcing our memory and sensory and so forth that
0:07:20 You really can’t call it homo sapiens anymore because the traits
0:07:23 Characters have changed so much that will say homo sapiens has become extinct and there’s a there’s a new new species
0:07:29 And I think it’s probably right. What do you think the benefits of that are and what do you think the drawbacks are?
0:07:34 Well, the benefits are we should be able to accomplish a lot more
0:07:38 So if you look at us as a planet eight billion people there’s a lot of things we do well
0:07:43 but there’s a lot of things we don’t do well primarily get along with each other and
0:07:46 Information sharing is not there resource sharing is not there. I think with advances in technology
0:07:51 we will be able to
0:07:54 distribute resources more intelligently and and and more
0:07:59 abundantly and have more resources for more people and I think
0:08:03 Medicine will be better and science science will be better and be able to live longer
0:08:07 We’ll be able to be more in touch with the way we think and to be able to think more constructively because that’s one of the places
0:08:13 Where it’s an area of improvement for humans is we don’t think rationally a lot of times
0:08:17 And I think with technology and AI advancements that we will think more rationally, so it’ll be non-stop therapy
0:08:24 So to speak how do you think rationally when you have all this the information coming at you from all over the world your emotional
0:08:30 You have big swings. I mean you’ve lost billions of dollars and in market cap in a day. I don’t always think perfectly rationally
0:08:37 I’m not a perfect person. I’ve
0:08:39 paid attention to the way I think
0:08:42 over the course of my life and I’ve studied with various people who that’s their specialty is analyzing how you think and
0:08:48 I did a couple of years of therapy for three hours a week for for a couple years. So I I have spent a lot of time
0:08:56 Reflecting on how I think what my automatic thoughts are what my biases are what my cognitive distortions are and I’m aware of those and
0:09:04 I apply various techniques and tools in the toolkit that you learn from
0:09:09 Cognitive therapy dialectical bit behavior therapy positive psychology, etc to to think more rationally and more constructively and more accurately
0:09:16 And I think that helps me in business quite a bit in business
0:09:20 You need to keep your head on your shoulders. You need to be calm. You need to be cool
0:09:25 You need to be collected you need to be dealing with lots of changing
0:09:28 unplanned circumstances and then capitalizing on those and not being overwhelmed by those not being
0:09:35 Beat up but but utilize what comes in capitalizing what comes in to create money to create money for shareholders
0:09:42 So I think that the human capital in them in the psychological
0:09:46 Sense is very very important. So I I put energy into that
0:09:50 You said you can get a lot of things wrong if you get the big trend, right?
0:09:54 What major trend are you most interested in right now?
0:09:59 I’m most interested in AI because it is the trend it is the number one trend
0:10:05 whereby our technology the software that intelligence will be able to consume so much information much more than
0:10:13 We human beings can even with a hundred billion brain cells the power of compute computing is so much greater and
0:10:19 be able to then analyze that and be able to
0:10:22 spit things out and be able to
0:10:25 Eventually, I’m looking forward to the point where
0:10:29 Computers become emotional where they do have emotion with you have empathy just like we have mirror neurons in the front of our in the prefrontal cortex
0:10:36 I’d like to see that trend fruit of materialized where
0:10:40 Computers can feel can have theory of mind can be sitting here with a conversation with Shane Parish and and feeling what you’re feeling and
0:10:49 And feeling happy about what you’re feeling happy about feeling sad about something you’re not feeling happy about
0:10:55 Now I’m looking forward to that trend a lot. No saying AI is sort of everybody recognizes AI as being a trend
0:11:02 But you’ve spotted several trends well before people recognize them and you are way ahead on the AI curve, too
0:11:10 As I understand it. How do you spot those trends before they become mainstream?
0:11:16 Well, I do spend a lot of time thinking about trends
0:11:18 I look I spent a lot of time thinking about the wider context of things like, okay, here’s a situation
0:11:25 What’s the context of that situation?
0:11:27 What’s its origin?
0:11:29 What’s its present conditions and characteristics?
0:11:31 What are the ways it could go and what would be the catalyst to make it go right or straight or left?
0:11:37 I
0:11:38 Intentionally think about trends quite a bit because in business in the business world
0:11:42 You’ve got to get the major trend, right?
0:11:44 You’ve got to get the major trend, right and as my main business mentor make rest in peace little Justin used to say
0:11:50 You can mess up a lot of things
0:11:52 But if you get the main trend, right, you’re gonna make a lot of money and conversely if you don’t get the main trend, right?
0:11:58 You’re swimming upstream. You can do a lot of other things, right?
0:12:02 But you’re not gonna make a lot of money. So I intentionally spend time thinking about
0:12:06 What’s the where does all this fit in and where could it be going?
0:12:10 What’s your research process like I like people and I like picking people’s brains
0:12:14 And I’m shameless about asking people their opinions and I like to be a student more than a teacher
0:12:20 I find a lot of people make the mistake as they get older or they get more successful
0:12:24 They they think they know everything they start teaching all the time
0:12:27 I’m sharing through the book I wrote and through podcast like this and so forth the few little things that I think I have insights
0:12:33 That I can give back to but I absolutely view myself as a student of life
0:12:37 I’m I don’t view myself as as a guru who’s figured it all out by a long shot
0:12:42 and I think if you keep that that element of profound curiosity of
0:12:47 really interesting and being very interested to learn and
0:12:50 Being involved with the sensory experience be involved in the intellectual experience be involved in an analytical capabilities
0:12:58 I think you can learn a lot more and you can see trends that otherwise
0:13:01 You don’t see it just in it and you’re living it, but you’re not seeing the trend
0:13:05 You’re just kind of going along a lot of people who reach your level of success
0:13:11 sort of outsource a lot of this work to other people and by that I mean
0:13:16 Do research on this come back to me. Give me these points, but you seem very
0:13:20 Hands-on in the weeds very involved in the detail. Why is that important to you? I do both shame
0:13:27 I do have a team that researches things for me, but I also I should I like to roll up my sleeves and get into it myself
0:13:33 I like to find even like when I do M&A
0:13:35 So you know my teams that I’ve led have done about 500 acquisitions. I’ve been involved in those acquisitions
0:13:42 So I I get into the details of what are we buying and to buy those 500 companies
0:13:48 We looked at thousands and thousands of other companies that we didn’t buy and I and I I love the process
0:13:54 I love studying each company figuring out how they get to the point where now there are millions or hundreds of millions or billions of
0:14:01 Dollars of revenue and they started from scratch and how do they do that? It’s like a miracle. It’s fantastic
0:14:06 I’m very impressed and excited and enamored with entrepreneurs and companies that have
0:14:12 Created huge growth and huge value and I want to understand that so I want to get into the detail of it
0:14:18 I want to pick their brains. I I see a big value in asking lots of questions people now today
0:14:24 You’re the one asking questions. I’m actually but normally it’s the roller-versal normally
0:14:28 I’m asking a lot of questions if you go into a management meeting. I’m usually asking lots of questions
0:14:33 What have you learned about asking questions that you wish you knew five years ago? I take questioning from the
0:14:38 Therapist so I wrote in the book that the only time my life that I’ve been depressed
0:14:43 But I was really depressed was in the mid-2000s when I had stepped down from being CEO of this big company
0:14:51 You know the rentals and now I didn’t have anything to do. I didn’t I was I was doing some art
0:14:55 I was you know studying art and buying art and I was doing things with my family so forth
0:15:00 but I didn’t have a business and I learned from that that
0:15:03 Everyone has their own thing that makes them excited me is running businesses. I’ve been a CEO since I’ve been
0:15:09 23 years old and I like being a CEO. I really like that job real a lot
0:15:14 Now I wasn’t a CEO and I felt a big gap
0:15:17 I felt I felt depressed I was down and had a lot of
0:15:20 Unconstructive thoughts and inaccurate thoughts and so forth and that drew me just to meeting a lot of fantastic psychotherapists
0:15:27 And I mean fantastic at the top of their game. So there was a psychotherapist in New York City
0:15:33 Called Albert Ellis. He died about 10 15 years ago and he had formed a
0:15:39 school of therapy called
0:15:41 Rational emotive behavior therapy REBT, but in short it was cognitive therapy. It was cognitive behavior therapy
0:15:48 He’d together with another
0:15:50 Psycho psychiatrist actually Aaron Beck whose family and friends called him Tim
0:15:54 I got the privilege of meeting him to and spending time with him in his family
0:15:57 Tim back or Aaron Beck and Albert Ellis were the co-founders of cognitive therapy and
0:16:02 I find that
0:16:05 therapists have of all the different professions are
0:16:08 the best at asking questions and the best of
0:16:12 Getting a person to relax getting a person at ease and to open up and when I learned from studying those psychotherapists
0:16:19 First is you need before you start badgering someone with questions and inquiring and asking them all these important things
0:16:25 Sometimes personal things was intimate things about private things
0:16:28 You need to create you need to create an atmosphere you create an environment. That’s a safe place. That’s a zone where
0:16:35 Your it’s okay to be vulnerable. It’s okay to say what you really feel
0:16:41 It’s okay to take off your mask and show who you really are warts and all and that’s really really important and to do that
0:16:48 you need to be listening and
0:16:50 I learned from studying them that
0:16:53 the most
0:16:54 Maybe the most maybe the single most powerful thing you can do in a relationship with its personal as professional is to
0:17:01 Give someone your 100% like you’re doing up. You’re giving me 100% of your attention. I can see it
0:17:07 You’re you’re looking at me. You’re listening to me
0:17:08 You’re actually paying attention to what I’m saying and that feels good. By the way, that’s making me put a little pressure on me to perform
0:17:15 Better give me good answers, but you’re doing something powerful. You’re you’re giving me your attention
0:17:20 You give me 100% of your attention and I find with therapists. That’s that’s their their little that’s one of their tricks
0:17:27 One of their skills one of their techniques is you have your session for 45 minutes or two hours or whatever it is and during that time
0:17:33 They’re all yours. They’re all listening to you and they’ve got all their attention on you and
0:17:38 That has a certain effect on the person speaking and secondly, they’re not being judgmental
0:17:45 So they’re not they’re going with you. No, there’s they’re not they’re not
0:17:50 disagreeing with you without first
0:17:52 finding a way of agreeing with you
0:17:54 joining then leading
0:17:57 Validating then disputing so even when they are changing the way you’re thinking is that she is a better way to look at that
0:18:04 So another way we can look at that be more constructive before doing that before that disputing before that changing that transforming
0:18:12 They’re first joining there the showing that they understood you they listen to you
0:18:15 They got you they got what you said message received and I find that’s really powerful in business
0:18:20 Whether you’re dealing with employees or whether you’re dealing with someone whose business you’re trying to buy
0:18:26 We’re dealing with a vendor or you’re dealing with a investor or an upset customer
0:18:31 It’s a it’s very good to do that. It’s very nourishing and nurturing to give someone
0:18:37 100% of your attention and listen to them
0:18:41 Non-judgmentally I call it non-judgmental concentration. I
0:18:45 Think I made up that phrase. Maybe I didn’t I forgot and I should have attributed to someone else
0:18:50 But that’s a phrase I use non-judgmental concentration when you’re really taking all your consciousness and giving it to someone and and not
0:18:58 Judging them but going with them trying to get into their way of thinking their their way of feeling even so not just
0:19:05 What are they thinking?
0:19:07 But how are they feeling? So what’s the emotion that’s underlying that and and I use that I use that quite a bit
0:19:15 in you in the book I have a chapter on
0:19:18 How to have an electric meeting how to run an electric meeting which means the meeting that’s powerful a meeting a meeting that
0:19:26 Everyone goes away exhilarated. Everyone goes away with
0:19:29 Lots of things to do that can create a lot of value for the shareholders
0:19:34 Not just one of these whole home meetings and an element of that meeting is
0:19:38 everyone in the meeting shuts off all their devices and
0:19:42 Concentrates concentrates non-judgmentally non-judgmental concentration on the one person who’s speaking at a time
0:19:50 No side conversations. They’re talking over each other
0:19:53 One person speaks at a time, but everyone in the room gives them all their attention. It’s really powerful thing
0:19:58 I like that a lot. It’s sort of the secret to our podcast in a way, which is I want to see the world through your eyes
0:20:05 I don’t have to agree or disagree. That’s not my job
0:20:09 I just want to see what you see think what you think smell what you smell and then that way
0:20:15 I can truly understand where you’re coming from and I think that so often listening is
0:20:20 transactional in the sense of I’m waiting for you to stop so I can just say something or I
0:20:26 Have this point. You don’t understand it
0:20:28 So I’m not really listening to you because you’re talking about something else now
0:20:32 And I think it’s one of the biggest reasons we miss communicate
0:20:35 Yeah, is the work with that the psychotherapist is that where you learned about re-arranging our brain and controlling the mind and
0:20:44 The importance of sort of thought experiments and mindset or talk to me a little bit about that was one of the places
0:20:51 you know from my my main hobby since I was a teenager has been meditation and various forms of meditation and then from meditation and to
0:20:59 learn self-hypnosis and then and then from there I learned all the
0:21:02 Mindfulness and the positive psychology and cognitive therapy and so forth
0:21:07 so I’ve mixed and matched a lot of different schools of thought and
0:21:10 Customized it for me my own personality my background and my individuality. So it’s not just one thing
0:21:17 I’ve had many different influences that have
0:21:20 Created the way I look at life and the way I deal with reality and a lot of that was my education
0:21:26 I was a kid was I studied music. I studied music in math, but in music
0:21:31 It is a lot about relationships unless you’re a solo performer and I was not I like playing a group
0:21:36 I like a band. I like playing with other people
0:21:39 interacting with the other folks is
0:21:41 Part of the magic of making really great music that’s that’s had a big influence on me, too
0:21:46 I define myself I self-identify as a musician more than a business person, which you might find odd because I’ve
0:21:52 been a lot of time building big businesses and running large enterprises, but
0:21:57 when I think about myself, I think about myself as a music musician who
0:22:02 happens to be doing a lot of business and
0:22:05 Has done well at business, but I I feel like a musician and by that I mean
0:22:11 My sense of sound is the dominant sense and I’m I listen very I listen to sounds
0:22:17 I listen to my heartbeat listen to my breath. I’ve seen the sounds in this room going on right now. I I
0:22:22 Suffer quote-unquote and I put air quotes on it because I don’t consider it suffering. I consider it fantastic
0:22:28 Tinnitus
0:22:30 Where where you have ringing in your ear from when I was a teenager probably from listening to music too loud and
0:22:37 I have right now. I’m hearing very high-pitched sounds. I love it
0:22:41 It keeps it interesting. It’s my friend. It keeps me in tune. They sometimes they get louder sometimes get softer now
0:22:47 some people have tinnitus and they
0:22:50 And I might be mispronouncing that but you know I’m talking about yeah
0:22:54 Yeah, ringing there that and they say oh my god’s a terrible thing. It drives me crazy and they get all upset about the thing
0:22:59 I have just the opposite attitude. I feel I’m lucky to have that. I really am lucky and I I wouldn’t know what life would be like without it and
0:23:10 That’s part of being a musician part of part of being a musician is
0:23:13 Embracing sounds no matter what they are. Hmm. No matter what they are and that’s that’s the reality of the moment and you should
0:23:21 Be in that reality and go with that. What’s the relationship if you had to guess between music
0:23:28 Math and business a lot for me a lot
0:23:32 So let’s start with the business and then that’ll show how those other two things relate to it
0:23:38 Business is about making money for shareholders
0:23:40 at at court the report card for a business is
0:23:44 You take money from other people the form of equity the debt you pay back
0:23:49 But the equity is dear and people invest equity into the business and now you have to give them back that money when they sell their shares
0:23:56 But much much more money than they gave you so in my companies
0:24:02 We’ve been fortunate that we’ve been able to give back 32 times their money one and another company is over 150 times
0:24:09 So really really large large large returns like over the top
0:24:13 Unusually high returns that wasn’t by luck. That wasn’t
0:24:19 Quincinental if it was Quincinosa wouldn’t happen five times in a row and in large amounts
0:24:25 That was because there was a playbook. That’s because there was a method to it and
0:24:30 that method
0:24:32 Incorporates many many different elements and I talk about quite a bunch of them in the book that together
0:24:38 Give you an ability to create what we call alpha in the business world
0:24:42 Which is not just beta which is the markets going up to you going together with the market
0:24:46 but alpha which exceeds the beta exceeds the overall uplift that pretty much all boats are lifting by the same time and
0:24:53 Part of the part of the ingredients to that
0:24:59 formula to make
0:25:00 huge huge returns for shareholders
0:25:02 involve
0:25:05 analytical thought
0:25:06 Careful analysis of numbers is all the math
0:25:08 making order out of disorder trying to see where how does this all fit together and
0:25:14 Seeing the relationships between different things
0:25:18 How to reduce things to simplicity because a great mathematicians
0:25:23 Reduce very complicated things to a formula for example. Yeah expressed with just a few hand strokes
0:25:30 So that’s math. That’s mathematics. That’s the beauty of mathematics is seeing the patterns
0:25:36 seeing the seeing this how to make sense out of this and
0:25:40 On the music side, it’s being able to improvise because my training was originally classical
0:25:48 but then I had the fortune to study with
0:25:53 African-American musicians in in in Bennington college Milford graves Bill Dixon and
0:25:58 part of that whole training was to be spontaneous and to be
0:26:04 Improvising and to be in the moment and there is no wrong note if someone plays a note
0:26:11 That’s just a new note. It’s not the wrong note. It’s like, okay, we changed key. Let’s go with that. Come on
0:26:16 Let’s get going. Oh now we’re on so so that ability to
0:26:21 Go with the flow in music. You need to have that in business. A lot of people have a
0:26:26 Rigid business plan that’s spelled out for many years and that’s it and it’s very
0:26:33 Not non flexible that doesn’t usually work. Why because life changes markets change economies change
0:26:41 People change results that you get opportunities that you hadn’t even thought of at the beginning. So you need to you need to
0:26:49 improvise you need to capitalize on that and to make money from that and if you’re rigid if you’re just rigid thinking
0:26:56 If you’re not a musician, you’re not a musical business person
0:26:59 You’re gonna lose opportunities. You’re gonna have things come your way to make money for shareholders and feel well
0:27:06 It’s nice. It’s great, but it’s really not our thing. That’s a bad way of thinking. I’ll share with you one of the
0:27:12 best business deals I did in my life was I bought in
0:27:17 2015 a less than truckload trucking company called Conway is based in Ann Arbor, Michigan
0:27:22 There’s a few billion dollar deal
0:27:24 It was a pivot because this was a hard asset business that tens of thousands of trucks and drivers
0:27:29 It was an asset heavy as asset heavy businesses as you’re gonna get with fixed costs and
0:27:34 depreciation amortization was not an asset like brokerage business
0:27:39 Which is why how I started expo was as an asset like non-asset-based business
0:27:43 But here was an opportunity
0:27:46 To buy something really really cheaply at a small fraction of what it was worth
0:27:51 And even a smaller tiny fraction of what I knew we could make it be worth within a few short years
0:27:57 This is a company that had a lot of excess overhead the organization chart was not
0:28:01 Mathematical going back to symmetry and formula things that relationship makes sense. I like to take and I love org charts
0:28:09 I just love to geek out on org charts and org chart should be pretty
0:28:14 Or chart should be simple. They should be elegant. They should be geometrical
0:28:18 They should not be really complicated like you took some spaghetti and threw it like an abstract art on a canvas
0:28:24 This was this was this is a bad org chart
0:28:27 This had three things of the three different HRs and three different IT organizations and a lot of duplications and
0:28:34 This didn’t make any sense a lot of silos and heavy heavy on the
0:28:40 Non-revenue generating top part of the organization. We should be the lightest part of any organization the heaviest part should be
0:28:46 Parts of the organization that make money that generate revenue that you close to the customer to generate sales
0:28:51 So I looked at that org chart and said
0:28:53 This is a messed up org chart, which is great for making money if you can find something that’s messed up and
0:28:59 Easy to un-mess up
0:29:03 Booyah, there’s your money
0:29:05 There’s your opportunity to make a lot of money and that was it which is like I got so excited about the opportunity to take this company
0:29:10 And I saw a way we could
0:29:12 Significantly grow the profit margin in the cash flow that I pivoted I pivoted and go ahead and do the deal
0:29:19 I got beat up real bad by the market. They said oh it’s a change and I said give me some time and I remember I
0:29:25 Remember Eli Gross who now runs investment banking for Morgan Stanley, but at the time he was covering me XBO as a transportation
0:29:33 banker and
0:29:35 He said, you know, you’re gonna be in the doghouse here for a little while because it’s a pivot and markets don’t like pivots
0:29:39 But assuming you’re right and I know you have high conviction and you deliver the numbers
0:29:45 Over time you’re gonna be a hero here and everyone’s gonna understand what you did and fortunately he and I were right and
0:29:51 You look at that deal even though it was a pivot. It was a change. It was an improvisation
0:29:56 We bought it for about
0:29:59 three billion dollars
0:30:00 Roughly half of it was equities. It really bought it for a billion and a half dollars plus with some leverage today
0:30:06 It’s worth
0:30:07 something like 15 billion dollars and that’s after
0:30:10 having taken out
0:30:13 many like five billion dollars of net cash from it that’s after
0:30:17 Selling off five hundred fifty million dollars of the truckload business. That’s after taking its warehouse business
0:30:25 It’s supply chain business, which was called Menlo and putting that into our GxO subsidiary
0:30:29 That was after taking the brokerage business and putting that with our RxO brokerage business
0:30:34 So this was the gift that kept giving Conway. It’s been an amazing, amazing, amazing ride and the returns
0:30:40 It’s been a I can’t do it in my head, but something like a 20-bagger 15-bagger. It’s a huge huge return on investment capital and
0:30:47 Had I not been trained as a musician in a mathematician, I don’t know that would have sought shame
0:30:54 I don’t know. I didn’t have the mathematical skills. I would have been able to see
0:30:59 Okay, this is a mess, but we can make it clean
0:31:02 I don’t know if I would have been able to have the courage
0:31:06 To improvise and to change from what the the script was
0:31:11 For something that I that I had a high conviction
0:31:14 Would be very very lucrative for our shareholders and in business the bottom line the report card is
0:31:22 How much money did you generate for your shareholders? That’s the that’s the one it’s an examination with one question on it
0:31:29 It’s how much did you make your stockholders? How much money did you make for your stockholders?
0:31:33 How much how much bliss did you give to your investors in terms of return on their capital they invested in you?
0:31:39 They trusted you with you’re a fiduciary in business. You’re you’re a you have a solemn
0:31:45 sacred
0:31:48 Obligate responsibility where you’re taking other people’s money
0:31:52 debt and equity particularly the equity and you’re the custodian for that you’re a custodian of it that you’re
0:31:57 temporarily
0:32:00 Using their their money and your job is to multiply that they have a thousand other places. They could put that money
0:32:06 They picked you. Yeah, they picked you now
0:32:09 You’ve got a big big responsibility
0:32:11 and I think the the training of a mathematician the training of a musician and then all these
0:32:17 implementations I’ve done in the meditation and therapy and so forth
0:32:21 I think that’s been what largely explains at least as far as I can understand
0:32:26 Why my companies have created so much alpha. I have so many rabbit holes. I want to go down there
0:32:31 I think the opportunity hiding in complexity is really interesting because the way that I think about this and correct me
0:32:37 If you see it differently is bad ideas
0:32:40 Can easily hide in complexity?
0:32:44 But they can’t hide in simplicity. What’s your reaction to that? I need to digest it my immediate reaction is yeah
0:32:51 I think I get that because when it’s when so go back to that organization chart that I saw at Conway
0:32:57 It was just a mess. It’s like wow. It’s all over the place and triple dotted lines and squiggly lines
0:33:03 And you had to have different colors and it’s like that’s not a real elegant
0:33:06 Yeah, I think I see what you’re saying in that you could hide inefficiencies as opposed to when it’s a clean
0:33:14 Organization chart
0:33:16 Everyone’s got clear KPIs keep performance indicators everyone has clear metrics everyone has clear goals and the compensation is tied to that and
0:33:24 People rewarded for achieving those goals. Yeah, it’s hard to hide the other thing that I thought was really interesting
0:33:30 Is you brought up the leverage point? How do you think about leverage and debt and employing it and at what point?
0:33:37 Does it become too risky?
0:33:39 And at what point do you think a future opportunity cost you mentioned sort of taking advantage of whatever the world brings?
0:33:45 But if you take on too much debt
0:33:48 at now for an acquisition
0:33:50 You’re reducing your ability to adapt in the future should interest rates rise should
0:33:57 Accompany become available that you really want that’s a dream that wasn’t available when you took on all the debt
0:34:03 How do you think about that? I’m a Zen Buddhist approach to debt not too much not too little
0:34:07 I don’t think it’s an optimal balance sheet if you have no debt
0:34:11 Because you can improve the returns by shrinking your your share count because you have fewer shares
0:34:17 So the same amount of returns is is greater per share to a few returns. I think it’s good to have a little bit of leverage
0:34:23 I don’t think you should have a lot of leverage particularly in today’s world
0:34:28 I don’t think you should have a lot of leverage because this significant geopolitical risk
0:34:32 The geopolitical risk in the Middle East and Ukraine in Taiwan. There’s the United States politics is very volatile
0:34:39 there’s a lot of things that could go wrong real quick and and a
0:34:44 kind of shock to the system would would hurt companies that have too much debt because business would slow down look
0:34:52 What happened during COVID if you were very highly levered during COVID if you had way too much debt and
0:34:57 Then everything slowed down and your revenues went down. You might not have been able to make your interest payments or your debt repayment payments
0:35:04 And could have gone bankrupt companies don’t go bankrupt. Let’s say too much debt
0:35:07 You go bankrupt from not being able to repay your debt
0:35:09 So I don’t think you should have too much debt in my new company that I’m forming QxO
0:35:14 We’re gonna have I think our target a healthy target should be one to two turns of debt by that
0:35:19 I mean we take our free art our EBITDA, which is a measure of our cash flow and and we say let’s have one or two turns of that
0:35:27 so if our
0:35:28 EBITDA ends up being for instance in a period of time for example billion dollars
0:35:31 Well, let’s have one or two billion dollars a debt and that’s that’s a comfortable amount not too much more than that now
0:35:36 You could have for short periods of time
0:35:39 You could lever up like when I bought Conway we levered up to about four times a little more than four times
0:35:45 But we very quickly sold off and mentioned that truckload division for $550 million. Boom
0:35:51 We paid down a whole bunch of debt right from that. We generated a lot of free cash flow
0:35:54 We took that free cash flow instead of doing more acquisitions. We paid down debt
0:35:59 So you can get your leverage under control by one of two ways by improving your profits by increasing your EBITDA
0:36:06 Or by paying down your actual gross amount of debt
0:36:09 And I think you can manage that and that’s a that’s something a good CFO does you sit in the past that you need to be liked and loved
0:36:16 And yet you’re quite contrarian at times in your approach to things. How do you reconcile these two things?
0:36:22 I think you have to be contrarian. I think if you want to make a lot of money in business
0:36:28 You can’t just be a conformist to do at what is in in fashion and what everybody else thinks if you’re gonna do what everyone else thinks
0:36:36 You’re gonna get returns that everyone else gets which is by definition average
0:36:41 So my companies have not made average returns my companies have outperformed their indexes
0:36:47 Not by one or two hundred basis points, but sometimes by five or six times what the index was so
0:36:53 You have to do you have to think differently and take things that are from a different point of view
0:36:58 So one of my favorite investors in my companies has been Orbus
0:37:02 Out in California and in Bermuda and their contrarians
0:37:06 They’re willing to make a bet and a significant bet if they have a high conviction about a trend or a company that the markets not seeing
0:37:14 something’s out of favor but
0:37:16 The market doesn’t understand something about it. Maybe a company is not studied enough. It’s not covered enough
0:37:21 Maybe management is not good at communicating their story and and it’s dislocated the price is dislocated
0:37:26 and you can get a real good value by buying those shares and then being patient
0:37:31 Playing it out the cycle and make real good returns and I’ve seen them do that with my companies when
0:37:36 Something happened in the marketplace that made us a cheap stock for for a short period of time
0:37:41 Boom, they came in they bought a lot of shares and wrote them up and then sold there. We were really high
0:37:46 I think that contrarian value approach to investing to business is profound. I think that’s important and
0:37:53 I remember I remember when I
0:37:57 Sold my first company Amarax my old brokerage company. We started a company in 1979
0:38:03 bunch of broke scrappy kids and we’re in the right place at the right time and the
0:38:09 Iranian
0:38:11 Revolution took place and the shaga kicked out and Khomeini came in and they took 400 hostages and and the oil prices went way
0:38:18 Way up. So it was a great time. It was a sad time for the world
0:38:21 It’s a lot of a chaos and problems
0:38:24 But it was really good to get in the oil business oil business would really volatile and
0:38:27 Some young whippers snappers like us could come in and be taken seriously by
0:38:31 Exxon and mobile and Texaco and Shell and Gulf and BP and all the customers that became our big customers over time
0:38:37 We built that business up over four quick years to about a little under five billion dollars in brokerage volume
0:38:43 So that’s that was really big rapid rapid growth curve and a good team doing that around the world
0:38:49 And then I sold it and I wanted to start a new business and I wanted and I was ambitious
0:38:54 I was single. I wasn’t married enough kids. I could take risks. I could afford to do that
0:38:59 and I was members speaking with my my uncle Howard and
0:39:02 May he rest in pieces long long passed away
0:39:07 and of course my uncle Howard was born in the
0:39:09 1920s, maybe even late late 19 tens and grew up in the depression, obviously and
0:39:16 During world during the World War two and so forth in it was very tough times
0:39:21 So he’s very good
0:39:22 You know, he grew up in a time when there’s a lot of emphasis towards being very frugal and very risk averse
0:39:28 He became an accountant and worked for the government
0:39:30 And I remember talking to him and saying yeah, I’m gonna I’m gonna start another company instead of being an oil broker
0:39:37 I’m gonna I’m gonna go to the I’m gonna go to the adult table instead of the kitty table
0:39:40 I’m gonna I’m gonna be an all trader because I’ve been I’ve been making all this money for my clients where they’re making
0:39:46 Three four five dollars a barrel and I’m making five or ten cents a barrel
0:39:50 Of course, I had no risk, but they were taking positions. So now I’m gonna I’m gonna put my money where my mouth is
0:39:55 I’m gonna put my money into into a bank. I’m gonna get a letter of credit
0:39:59 I’m gonna actually buy and sell as opposed to just broker. He’s oh Brad. Don’t do that. Don’t do that
0:40:05 You should maybe take a small percent of your savings and put it into your new business
0:40:10 but take the vast majority of your money and just tuck it away just in case the next thing doesn’t work out and
0:40:15 Fortunately, I overruled my uncle Howard and I had to go with what he said. I did exactly the opposite
0:40:22 I took a completely
0:40:24 Contrary in position where I took I think it was like a hundred thousand dollars or maybe at most two hundred thousand dollars
0:40:29 And I tucked that away. I took all the rest of my money. I
0:40:34 Deposited it with bank Paribas and now it’s BMP Paribas back then was Paribas and
0:40:39 They gave me a billion dollar line of credit and I swung for the fences
0:40:43 I I used sometimes up to
0:40:45 $990 million of that line of credit doing counter trade deals doing
0:40:50 Prefinance deals doing barter doing processing deals deals that I they were very complex going back to the math very very complex
0:40:59 But organized I knew what I was doing and sometimes people would look at it and say
0:41:04 Wow, there’s a lot of elements to what you’re doing there. You’re buying it. You’re shipping it. You’re refining it
0:41:09 You’re hedging it. There’s a lot a lot of moving parts there said yeah
0:41:12 but I understand each one of these parts and
0:41:14 It’s just math to me and I actually feel this is low risk
0:41:17 This is basically just execution risk and I’m comfortable taking on the execution risk part of it
0:41:23 I don’t have market risk even though it looked like I did but I really didn’t and and as a result of
0:41:28 Not taking his advice and taking contrarian position and having the courage or the guts and the the strength to
0:41:35 Believe in what I wanted to do that. I had a thought and I the courage to say okay. I’m gonna run with this thought
0:41:40 I’m gonna go with this gonna better myself. I’m gonna bet on this idea
0:41:43 We built a really nice oil trading company and did very very well for our sales and for our shareholders
0:41:49 Where did that confidence come from? Well, I don’t know probably confidence comes at a young age
0:41:54 I would think so when you ask a question like that, you know, normally start thinking about like what did your mother say?
0:41:59 What your father yeah, so if I had to think about what did my mother say? What did my father say that was?
0:42:04 very
0:42:07 Transformational the first things that would pop my mind are with my dad what I loved and I had a lot of respect for and he was a
0:42:12 Great dad a very honest person and it was a very dedicated and good provider for the family, but he was very
0:42:20 Very blunt in what he said. He wasn’t very
0:42:23 Diplomatic what he said just said what it what he really thought and I remember one time
0:42:27 When we were doing we had been doing an errand
0:42:31 We’re driving home and he was in the driver’s seat. I was in the passenger seat and we’re at a stoplight and
0:42:36 My father turned to me and said and he’s a big guy with a low voice and you know big laugh and and said
0:42:44 Bradley and my mom and dad were the only people ever call me Bradley
0:42:48 Anyone knows me calls me Brad. Is it Bradley?
0:42:50 It’s really good that you have a
0:42:52 Really good personality because you’re solely not going to get anywhere with those looks
0:42:57 Laugh real loud and that moment was a was a deep moment for me because on the one hand
0:43:06 I was crushed just like 13 years old
0:43:09 You don’t know whether you’re good-looking or ugly when you’re 13 years old
0:43:12 You just are you just are which aren’t you don’t even think about that, but the message I was getting from my father was
0:43:17 You know, I may not be such a good-looking guy. Okay on the other hand the other message
0:43:23 He was giving me was but you have leadership skills
0:43:26 You have personality you have charisma you can you get people to follow you you can become the president of your class
0:43:31 You can become your group leader. You can be the leader of your band and so forth
0:43:36 You can be president of student council and somehow or another despite your your what he considered that not pretty appearances
0:43:43 Not beautiful appearance you were able to
0:43:45 Be a leader and accomplish things and get stuff done and get formed teams get people. So I think in a very
0:43:51 very very paradoxical kind of way my father insulting me on that I
0:43:58 Gave me confidence it gave me confidence of okay, so maybe I don’t have
0:44:03 Great all-american good looks. Who cares? I’ve got something else
0:44:07 I’ve got something in terms of being able to to lead
0:44:10 So maybe that that helped give me confidence because that’s that’s a an experience that
0:44:15 I’ve relived many times over my life my father because it’s a big deal what your father thinks of you what your mother thinks of you on my mother’s side
0:44:22 If I had to think what was something that gave me a lot of confidence my mother, okay?
0:44:27 so so my mom passed away about ten eleven years ago and
0:44:31 You know from the book one of the questions I like to ask people because I learned this from Marty Seligman the father of positive psychology is
0:44:40 what’s a what’s the happiest moment of your of your day as opposed to how did you day go and
0:44:45 just have a little different angle to that question and
0:44:49 We like to be validated. We like to feel we’re appreciated. We’re recognized or understood or approved of particularly from our parents and
0:44:58 my mom was was on her deathbed and
0:45:03 My brother and sister and I were hanging out on her deathbed for a good couple weeks
0:45:09 and I don’t know if you’ve been around people who have died but you know
0:45:13 they’re sort of dying and then suddenly they wake up and like talking to you like nothing’s going no no problem and
0:45:18 And then they lie down again start dying it and they go in and out
0:45:23 it’s kind of half dying and have not dying so forth and
0:45:25 My mother had been lying there and you know that breathing funny when they’re when they’re dying
0:45:29 It’s like it’s really strange way of breathing. It’s not normal way of breathing irregular breathing and then they’re not breathing for periods of time and
0:45:36 there’s a very bizarre experience death and
0:45:39 You never we didn’t quite know whether this was it like we never talked again. She’s done and
0:45:44 She suddenly like sat up
0:45:47 She looked all three of us in the eye and said
0:45:50 I’m really happy each of you turned out so well and smiled with a mother’s love and
0:45:58 And they’re just kind of gracefully lied down and continued the dying process, but that moment
0:46:05 That might be the happiest moment of my life when when my mother my mom the person whose body I came out of the person who took care of me from
0:46:13 right from day one even before day one nine months before day one
0:46:18 approved of me and
0:46:21 validated me and and gave me a stamp of approval and
0:46:25 That’s given me confidence even though that’s later in life. That gave me a boost that was right at the beginning of
0:46:33 Starting expi logistics, which of all different companies. I’ve started that was the one that was the the biggest so far the most most
0:46:38 Successful, so I would say that confidence
0:46:41 Later in life came from that boost that my mother gave me of just approving of us
0:46:47 Why do I’ve learned something from that?
0:46:49 I’ve learned something from that and I try to learn from all these things how I can apply this to business
0:46:54 I’m a business person. I’m trying to make money for shareholders. That’s my goal line
0:46:57 So all these things that I’m going through life learning about I’m then trying to take them
0:47:02 And apply them to business to make money for shareholders. So what did I learn from that? I learned that the relationship between a
0:47:09 Parent in this case my mom and me and the other example my dad and me. It’s a real important experience has a big
0:47:16 Influence on the person what the authority figure thinks about the person and when you’re in business, particularly if you’re the CEO
0:47:25 You’re the authority figure. You are kind of like the dad
0:47:28 you’re kind of like the mom of in my case 150,000 employees and
0:47:32 You have to be careful what you say and it’s not just it’s not just what you say Shane
0:47:39 you can’t just be you can’t fake it and and if you
0:47:43 Don’t like someone disagree with somebody like say, oh, yeah, aren’t you great?
0:47:46 It’s because because people are smart people realize when you’re guessing them
0:47:51 They just know that they know when it’s phony and they know when it’s real too. So what I’ve learned is
0:47:57 You’ve got to rearrange your brain go back to the book
0:47:59 You’ve got to rearrange your brain your way of thinking so that you are positive about people
0:48:04 there’s nobody’s all good and nobody’s all bad and what I know at least and
0:48:09 If you can train yourself to
0:48:12 See the real good in someone and to reflect that to them and to make sure when you’re doing the change part
0:48:20 The improvement part when you’re giving them constructive feedback of how they could be doing a better job
0:48:25 Do that second don’t do that first
0:48:28 First thing is be like my mom and say, you know, I’m just so happy how well you all turned out that that say that first
0:48:36 You know when I do performance appraisals when I do performance reviews my direct
0:48:41 Subordinates what my reports my direct reports. I always start out with the positive stuff
0:48:46 I don’t start right off with okay. Here’s some things that you’re messing up that you need to be doing better
0:48:50 It’s important to have that part of the conversation too because you need to help the person achieve more and do better
0:48:56 But you want to start the conversation with I really want to congratulate you for XYZ
0:49:02 I really want to appreciate I was I want to express my appreciation because you’ve done one two and three
0:49:08 But it’s got to be sincere. It can’t be phony baloney false flattery
0:49:12 That is like you better off to not say anything and then giving phony compliments, but you should I try to
0:49:20 Rearrange my brain so I appreciate a person and say well, why not hire this person in the first place?
0:49:25 What did I love in this person? What did I admire? What did I respect?
0:49:27 What did I really got me made them real high in my estimation and then
0:49:31 Translate that to okay. How is that materialized and what they’ve done and what concrete things have they done not have
0:49:38 Compliments that are just like general compliments, but have very specific concrete compliments of you know
0:49:44 You did this this and this kudos tip of the hat good good job on that and
0:49:49 It goes back to the psychology of validate
0:49:54 then dispute join
0:49:56 Then lead I apply that to business
0:49:59 I do that with with customers in the world of business, you know
0:50:04 We’ve had millions millions millions of customers. They’re not always happy because we’re not no service providers perfect
0:50:09 Once in a while you mess stuff up and you have a you have a difficult conversation with the customer
0:50:14 Maybe they’re not trained in rearranging your brain and they go right into the insults
0:50:17 They skip the whole part about hey, we really like what you’re doing here
0:50:20 They just go right to darn it. You’ve been late on this even damaging that or your invoicing is messed up or whatever it is and
0:50:26 What I learned from all that the answer question is
0:50:30 I’ve got to empathize with that. I’ve got a first under I have to put my
0:50:36 Mind in their mind. I’ve got to put myself in their shoes. I’ve got to I’ve got to say
0:50:43 I’ve got a really on I got a picture clearly how much what we did messed up their supply chain or cost them money or
0:50:49 Costs on a job or whatever just close one annoyance. We’re just made it difficult shoot up their time or and and and made them frustrated
0:50:56 Whatever, whatever I have to figure out. What’s upsetting them going back to what are they saying? What are they feeling?
0:51:02 So I’ve got I’ve got to get in tune with how they’re feeling and I’ve got to
0:51:06 Show them that I’ve heard them. I felt them. I’ve both heard understood them
0:51:12 I’m what they’re said and I’ve also felt the emotion that they’re feeling and and that I get that and that and that I’m
0:51:21 I have a an action plan to solve it. So that is a sequence told that I like your human-centric approach to this
0:51:28 There’s there’s a lot of people who sort of take for granted. Maybe positive feedback and so they offer
0:51:34 Negative only feedback to the people who the who they work with is that a blind spot or what do you think of that?
0:51:42 I think it’s a mistake. I think it’s a mistake to give only positive feedback or only negative feedback
0:51:47 so for example right now I’m in the middle of performance appraisals and
0:51:51 Where each person is writing three things that they’re really proud of that they’ve accomplished in the last few months and
0:51:58 That they really feel good about and there’s an achievement. It’s definitely a plus not a negative
0:52:04 But also three things that you know could have done better or we will do better going forward things that we didn’t quite achieve that
0:52:11 We hope to achieve so it’s a balance. It’s three good things. It’s three bad things, but when I run meetings
0:52:16 I like to make it like an Oreo cookie. I like to make the good stuff
0:52:20 The negative stuff, but then end on the good stuff. It’s very important how you end a meeting
0:52:25 Whatever reason psychologically how you end a meeting makes a big difference in how that person leaves the meeting
0:52:31 So ideally even if we’ve had a tough meeting where we said look these numbers are in the red
0:52:36 They’re not in the black. These numbers are down. They’re not up and we need to up our game
0:52:41 And here’s our action plan and here’s how we’re going to hold ourselves accountable
0:52:44 and here’s how we’re going to tinker with compensation in order to reward people for doing better and to
0:52:49 Not and take hit their bonuses and maybe eliminate the bonuses if they don’t get better fast
0:52:55 So there’s tough conversations that that you have to have but I don’t like to end on that. Yeah, I like to end on
0:53:00 exercises along the lines of
0:53:04 Having everyone in the room. Okay. Now we’ve done all the all the all the tough stuff. We’ve worked hard on the business
0:53:09 And now let’s put that aside
0:53:11 Take a breath now. Let’s just talk about
0:53:13 Who I’ll ask each person I’ll go around the room
0:53:16 It’s supposed to have a dozen people in a meeting and I’ll say
0:53:19 Tell me so we’ve just been meeting for two hours. We were working hard. I can’t put some we identified some really important problems
0:53:26 We need to solve and that if we solve them we’re gonna create a lot of money for our shareholders
0:53:31 So good job team. It was tough, but good job. We were good rigorous process and you worked hard and and a lot of a lot of
0:53:38 Imperfections came up during the meeting and that was was humbling in a lot of ways
0:53:42 But now I want to ask you something after working two hours collaboratively in a meeting like this difficult meeting
0:53:48 Who’s star went up and why who said something that?
0:53:52 They’ve maybe already held them in high esteem
0:53:55 But even you hold them in even higher esteem now as a result of
0:54:00 The way that they thought their thinking process or maybe the elegance and grace with which they expressed a difficult subject or
0:54:07 The way they tackled something from an innovative way
0:54:10 Someone who contributed to the magic of creating alpha creating money for our shareholders
0:54:16 How did they do? Oh, they they handled a situation of conflict because you have conflict in business in a way
0:54:23 That was nice. That was kind-hearted. That was not mean-spirited
0:54:27 So whatever why tell me every I go around the whole room
0:54:30 I say tell me someone in this room who said something or did something or didn’t say something or didn’t
0:54:36 Didn’t do something that made their star go up and why and people feel really good about that
0:54:40 And I have a whole series of exercises and questions that I do like that
0:54:43 Well, one of my do is when we have long meetings or sometimes we have like 10-hour meetings
0:54:48 So there’s even 12 over meetings
0:54:49 We have people coming in from around the world and we’re doing a quarterly operating of you
0:54:53 We’re really covering lots and lots of material
0:54:55 We take just few breaks and just keep going at it going at it. So people are tired at the end of that
0:54:59 It’s been a long long day. We’ve been going from
0:55:01 7 in the morning 7 at night for example with just a few quick
0:55:05 10 or 15 minute breaks. We work right through lunch. We’ll write right through dinner. I
0:55:10 like to end with
0:55:12 sometimes with
0:55:13 getting everyone at the end of all that we stand in a circle and
0:55:17 And I don’t want to say anything. I just want
0:55:21 I just want to spend five full minutes five minutes a long time to be standing in a circle with
0:55:27 15 or 20 other people not saying a word and I want I want everyone to look at each person and
0:55:34 I want them to do two things. I want them to think to themselves think to themselves. I
0:55:39 Really respect this person because or I really admire this person or I’m so grateful that this person is on my team
0:55:48 It’s on the team with us this or the these these this person has XYZ qualities that are so noble. It’s so fantastic
0:55:54 So positive regard that of each person each person one by one
0:55:59 I want them to look around look around the circle and the second thing I want them to do is I want them to say
0:56:04 Not only am I grateful for being on the same team with this person? I really wish this person a lot of success
0:56:10 I hope this person has a fantastic future at this company. I hope this person has a
0:56:16 Fantastic career. I hope they knock it out of the park in terms of their numbers in terms of
0:56:20 profit the generation that they’re going to do and and I find those that two-handed
0:56:25 experience of
0:56:28 gratitude of praise
0:56:30 Gratitude the gratitude that comes from honest praise of each person and then the
0:56:35 The wish the well-wishing to each person. It just it everyone goes away from the meeting just
0:56:40 Figuredly flying on here. He’ll go away with a really good feeling and feelings count in business
0:56:46 In business, I have I write about this in the book of the love vibe that
0:56:49 You want the love vibe? You don’t want the hate vibe
0:56:53 You want the you want that good vibration going around in the company? You want people feeling good about themselves?
0:56:58 Good about the company
0:57:00 Good about the people they’re working with good about the customers good about the vendors
0:57:05 you want there to be like one big happy family and
0:57:09 You have to work at that that doesn’t happen just by itself. That’s not a natural
0:57:14 Event that’s something that requires effort that requires intentionality that requires some skill. You’ve made a few billion dollars
0:57:22 What lessons have you learned about money and spending money and living with money that you wish you knew sooner?
0:57:31 You know sushi you throw me off a little bit with the question because I don’t define myself as in terms of how much money I’ve made like that’s
0:57:39 Like just not like the big deal for me, but it’s a report card, but it’s not it’s not who I am and
0:57:46 It’s not my be all and end all I happen to be in a business that makes a lot of money
0:57:51 So I make a lot of money and my occupation is making money for shareholders when I look at my motivation
0:57:57 If you want to understand my gestalt how I look at the world how I look at myself
0:58:00 It’s really ice if you take those psychological tests. I score very high on
0:58:07 Need to be appreciated so how does that translate into being a CEO?
0:58:10 Where that translates into well, I can be a perfect example last week. We had a call with my 75
0:58:17 Co-investors in my new company QxO. So my wife and I are putting in nine hundred million dollars and then Sequoia and
0:58:26 A few dozen friends and family like really friends in family like my sister or my brother and my niece and nephew
0:58:32 Are putting another hundred million dollars. We’ll have a cool one billion dollars. You’ve been putting it into this company and
0:58:38 I told them at the end of the call. It was an hour cause give him updated what I’m working on. I thank them
0:58:44 Not for the hundred million dollars. I didn’t need the hundred million dollars. I could put another hundred million to mine it
0:58:49 But I thank them for
0:58:51 For giving me motivation
0:58:53 Giving me inspiration giving me a purpose because I want to please them. I want to make them happy
0:58:59 I want to make them a lot of money. I like being happy. I like being feeling good about myself
0:59:04 I like looking in a mirror and like who I’m seeing and how I define that is
0:59:08 pleasing the people that I love and those are my investors my co-investors my my close friends and family and
0:59:14 The people who have been good to me over the years and I give back to them. Let’s deep dive on M&A
0:59:20 How do you think about it at a high level and then specifically walk me through your process for not only evaluating companies?
0:59:29 but
0:59:30 Beginning to end including integration M&A has been a big part of my business career not in the first 10 years in the first 10 years from
0:59:37 1979 to 1989 I
0:59:41 Was in the oil business. It was all organic. We didn’t do one single acquisition
0:59:44 So I’ll just trading and brokering and building up a business organically, but since 1989
0:59:49 I’ve been doing
0:59:52 Roughly about 500 acquisitions. I’ve done a lot of M&A. I love M&A
0:59:56 I love M&A as a way to create value for shareholders because I don’t know of another way on a risk-adjusted basis on a
1:00:05 certainty level that is
1:00:08 More likely to create massive shareholder value than doing sensible M&A in order to
1:00:15 Understand how to create value. I have to understand how am I going to scale up the business? I
1:00:22 Only know how to create tremendous shareholder value by growing a business tremendously that that’s how I know how to do it and
1:00:29 Of course, it’s organic and I’ve had very good organic growths the companies
1:00:34 I’ve led have been well-performing companies that have had good market share and growing market share and we’ve
1:00:39 Taken customers away. We’ve taken business away from our less not as our competitors weren’t managed as well
1:00:45 But the real when you look at the the numbers the real growth has been through M&A through acquisitions
1:00:50 What’s been my secrets on acquisitions? I’ll try to be concise because I did a
1:00:55 Hour-and-a-half podcast McKinsey a couple of years ago and Andy West. That was the only question
1:00:59 That’s one question. I babble down for an hour and a half. It’s still a big people still watch that that podcast
1:01:04 They really told everything about it. Here’s the gist. The gist is
1:01:09 You first have to select an industry. You can’t just do M&A
1:01:14 So I spent the last year
1:01:16 Going around studying dozens of industries looking at hundreds and hundreds of acquisition opportunities
1:01:22 Mostly with Goldman Sachs Morgan Stanley and some other friends Sequoia and some friends
1:01:26 figuring out could I apply my playbook to this industry is the industry big enough is
1:01:33 The industry fragmented enough. Is there M&A to do is bigger better?
1:01:37 That’s not always the case are the economies of scale do you have a competitive advantage by being bigger?
1:01:42 Is there a way to apply technology because my companies have always been tech forward?
1:01:46 to the industry
1:01:48 Because the industry is a little sleepy on technology is the way I run a business the way
1:01:53 I do the intake of people and the culture and the way we interact with each other and so forth is that something that’ll work in
1:01:59 This industry is applied in this industry. Is it it’s something related to something?
1:02:03 I know about industrial services for example most of my companies since 1989 have been industrial services and
1:02:09 I looked at many many different industries and I settled on
1:02:12 The one that checked every single box, which was building products distribution and then in my company is going to be QXO and
1:02:18 M&A will be a big big component of what we do. There are this 800 billion dollars of
1:02:24 Distributors in Western Europe and in North America, which is where I want to plant my flag
1:02:30 I want to build a company. That’s called 50 billion dollars
1:02:34 I can do that if there’s an 800 billion dollar size
1:02:37 I can take 6% of that through acquisition and through organic growth. I can get to 50 billion dollars
1:02:44 There’s many other industries that are nice, but I’m not gonna be able to get to 50 billion dollars
1:02:48 I want to get to 50 billion dollars. So this industry. There’s a clear path of how I can do that
1:02:53 now I can’t just but and there’s
1:02:56 Roughly about 7,000
1:02:59 Distributors here in the United States is about almost twice that amount in Western Europe
1:03:03 So it’s roughly about 20,000 distributors. You’ve got to be very careful about who you buy
1:03:08 There has to be a reason why you’re buying that company. That’s to be a strategic a compelling
1:03:13 Strategic reason of why you’re buying that company. What make what makes sense for that? Why is that good for customers?
1:03:19 Why is that going to make our business a better business?
1:03:22 Why does that fit with the other things that we’ve already bought and put together? How’s it going to integrate?
1:03:26 Well, I like to look at the multiples that I pay for an acquisition
1:03:31 The price that I pay for an acquisition is very very important because when I look at the levers of how we create shareholder value
1:03:39 What contributes to that the biggest level the biggest component is the differential between
1:03:44 when I raise capital at due to my relationships with mostly institutional investors and
1:03:50 Because of the track record and what I can deploy that at on
1:03:54 Doing acquisitions the second biggest lever is how much can I improve the businesses that I buy?
1:04:00 Those that there’s many many levers, but those are the two biggest levers
1:04:03 So I pay close it when I’ve studied all these different industries. I’ve studied
1:04:08 historical
1:04:11 Acquisition multiples and one of the reasons I like billing products distribution is I believe that I’ll be able to buy companies at
1:04:18 Lower multiples of their profit that I’ll be able to raise capital at and that’s going to be a big that desigio that spread
1:04:24 That difference that Delta is going to create value boom just right away right from the first day
1:04:29 Now you asked about integration
1:04:31 Integration is extremely important
1:04:34 Anybody can buy a company. It’s not that hard. You write it. You send a wire. You sign a document
1:04:40 it’s a few dozen pages the lawyers have gone over it and you wire the money and
1:04:44 You own it. So that’s not the hard part. The hard part is
1:04:49 After you’ve selected the right industry after you selected the right companies within that industry to buy after you
1:04:58 had disciplined so that you don’t so that you pay the right price for all those
1:05:03 Then you have to integrate them. I’ve never run companies that have like
1:05:08 Hundreds of different companies all running separately with different names and different syph systems and different back offices and
1:05:15 There is some level of decentralization where you need to be closer to the customer
1:05:19 but I have a very strong appetite for standardization
1:05:23 standardization of
1:05:26 The ERP system that you close the books with
1:05:29 So you close the books promptly right after the close of the month and then you can have
1:05:33 Standardized dashboards all the managers have the same format of the numbers
1:05:39 They’re looking at the KPIs and they see them graphically very easy to understand. I
1:05:43 like to see so they can benchmark every company every
1:05:47 location to every other location every district to other districts every region to other regions and
1:05:53 For that you need standardization. I like to have a very standardized
1:05:56 HR IS human resources system where all the people in the organization and we’ll build the build this company up
1:06:04 We’ll have hundreds of thousands of employees. I need to have a standardized data system for all of our employees
1:06:10 Everyone’s on this for 401k. It’s the same exact way of doing all the benefits are the same all the performance appraisal the same
1:06:18 Compensation I can see right away. I need to have transparency to the information about I need to have the organization charts very accessible right away and
1:06:25 Every time we do an acquisition
1:06:27 I need to pull that information up right away while we’re studying it quickly
1:06:31 So we have a competitive advantage against other bidders to see what would the synergies be so I need standardized
1:06:36 HR technology about about everything I need a standardized
1:06:41 CRM customer relationship management system like salesforce.com or several others as well and
1:06:47 For that to be able to make sure we’re looking at customers
1:06:51 The attractiveness of those customers the profitability of those customers the size of their spend
1:06:56 So therefore the potential of those customers going forward
1:06:59 All the interactions we’ve had with those customers. I need to see that a standardized way all across the globe
1:07:05 Everywhere in every country. We’re functioning it. So I need a standardized technology for
1:07:10 Customer relationship for sales manager. So I’m giving I need a standardized internal social media
1:07:16 I happen to like I’ve used workplace by Facebook. It’s not the only one, but I like that one really well
1:07:21 It’s nice and the interface is really really good
1:07:24 So I like to have everyone on the same one because I like to have one company with one culture where everybody can ping each other
1:07:30 I like I don’t want to have these silos of companies like sometimes you see these companies
1:07:34 Roll up many different companies, but it’s all a mishmash. It’s all separate. I don’t like that at all. I see a lot of these
1:07:43 Middle market private equity firms do that. They roll up these small companies
1:07:47 They’re doing five ten twenty million dollars EBITDA each and they bat and they just buy a bunch of them
1:07:52 And now they’re up to a hundred million or two hundred million EBITDA and they just get a bigger multiple because they’re bigger
1:07:56 But it’s a mess whoever buy those whoever buys those companies is a lot of work to be done
1:08:00 You’ve got to now standardize everything and integrate everything and opportunity to improve them
1:08:04 But it’s a lot of cost and time to fix all that stuff up
1:08:08 So I I integrate from the moment that we agreed to buy a company
1:08:13 we’re starting the integration process and the day we close the acquisition
1:08:17 Gazam we’re in there and and we’re standardizing everything as much as we possibly can and we’re communicating and communicating quite a bit a
1:08:25 big part of the success for M&A is
1:08:28 Forming the relationship with people and making sure we get off on the right foot and making sure that we don’t lose
1:08:36 the great talent and making sure we on the same time we’re identifying
1:08:41 the weak players and
1:08:43 Gracefully and generously exiting them. So there’s a lot of different components to M&A
1:08:48 I’m
1:08:50 Summarizing a lot of different facts each one of those things we could talk for an hour just on that that block
1:08:54 But those are the kinds of things that go through my mind in my approach to M&A
1:08:58 You have some unique questions when you interview sort of the top 10 to 15 people as part of the diligence process
1:09:05 Can you walk me through what at least two or three of those questions are where you get the most useful information? Yes
1:09:10 So you see some companies when they’re negotiated by a company do this very lengthy and
1:09:16 Detailed and bureaucratic diligence process and they hire a firm and they write this big huge memo that nobody ever reads and
1:09:23 or some wonk reads it but nobody important reads it and
1:09:26 Especially just to cover their butt. I’m not trying to cover butts. I’m trying to make money for shareholders
1:09:31 My goal is to make money for shareholders period and so what I’m looking for in diligence is I want to know how they make money
1:09:38 I want to know the history of this company. I want to know the current state of this company
1:09:42 I want to ask those people. I like to interview the top 15 or so people one on one like an hour hour and a half
1:09:49 I like to ask them if this was your money, would you buy this company and
1:09:54 What would if you did buy it
1:09:58 What would you change? What would you do differently? Where’s the opportunity to do something differently than it’s been done and
1:10:03 I like to ask them
1:10:06 Okay, if you were bought buying this company
1:10:09 What would you not change what is so good about this company that’s making it successful that’s attracted a big bidder like ourselves
1:10:16 That we should make sure we’d be crazy to change that so I like to ask questions like that questions that give me insights into
1:10:24 How the business got to where it is? What is what’s the future of this company?
1:10:29 How could we improve the company going forward?
1:10:31 We’re the things that have been blind spots of the current where the company’s been run that we could fix and
1:10:37 What are the things that are working? Well that maybe we could put more resources into where have we not been spending enough money?
1:10:42 Where we were not investing enough money into something that could be a good return on investment on the other hand
1:10:48 Where have we been? Where has the company been wasting money? Where has the money been?
1:10:54 Going into things that why are we doing that doesn’t really help customers?
1:10:57 It doesn’t delight customers doesn’t make customers happier or doesn’t improve our our customer bit business reviews
1:11:04 So why are we even doing it? That’s a I like to ask those questions
1:11:08 And they’re really revealing that the first person who I talked to had questions like that was cat Cole
1:11:14 Who is the vice president now at athletic greens when she turned around Cinnabon?
1:11:21 That’s what she would do. She went and worked in the stores and asked the employees what they would do differently
1:11:25 And it was so revealing in terms of what they ended up changing. I find
1:11:29 so many times in corporations
1:11:34 People don’t ask those questions. Yeah, and I’m big and asking those questions
1:11:40 I’m big at surveying using town halls one-on-one interviews small group interviews
1:11:46 Asking questions about how we’re gonna win. How are we gonna win? What are we doing wrong?
1:11:51 What can we be doing better? What are we doing right that we should do more of and I find it?
1:11:56 Very valuable very very valuable. It yields a great return on time and
1:12:02 as I write about in my book, there’s only two things the manager manages return on capital and return on time and
1:12:10 I believe that
1:12:13 Asking the employees and getting them involved in the process is a great return on time a great return on capital
1:12:18 What’s the role of a board in a strong founder led company?
1:12:23 Like QxO when you’re you’re investing 900 million of your own money
1:12:28 You’re the founder the CEO largest shareholder. What role will that play?
1:12:34 How does that change the role of a board especially when it comes to M&A?
1:12:37 I’ve been really fortunate to have fantastic boards boards that are very strong
1:12:42 People comprised of people who are really competent people have you’re invested in the company. They’re leaning in they take the job seriously
1:12:49 they they’re passionate about the company and
1:12:52 My relationship with the board is a little bit different than most most boards
1:12:56 We’re completely transparent completely open any board member can reach out to any person in the company
1:13:02 Anytime they want and ask them anything they want and there’s no supervision or people have to accompany them or none of that
1:13:09 So I want board members be very very informed. I want board members to get copies of the customer surveys
1:13:15 I want the good and the bad. I want them to see that I want and I want them to see the analysis
1:13:20 I want them to see the analysis of the customer surveys of where we’re doing. Well, we’re falling short. I want them to know that I
1:13:26 Want the board members to have all the employee surveys and see all the word cloud word cloud analysis that we do all the trend
1:13:33 Analysis and all the benchmarking we do I want them to see where the pain points are of employees
1:13:38 I want them to see where employees are happy. I want them to see the trends of employees
1:13:42 I want the directors to be invited to every operating view and every monthly operating view every quarterly operating view of any
1:13:49 Part of the company that tickles their fancy. I want them the more they’re involved the better off we’re benefiting from them
1:13:55 So I like to have board members that are very involved very knowledgeable and we have
1:14:01 good conversations about the important stuff and I don’t run board meetings the way most
1:14:08 Fortune 500 company boards are run most fortune 500 company board members board meetings are kind of they’re very scripted and
1:14:16 they sometimes even rehearsed and
1:14:19 There’s a careful
1:14:21 Store that’s being told by management and it’s done by PowerPoint is done by rehearsed presentations that come up and
1:14:29 Just complete waste almost a complete waste of time
1:14:31 You could do that whole thing is by sending them a document. There’s no reason to convene a meeting for that
1:14:36 It’s just a it’s just a kabuki dance. It’s just it I like to have
1:14:40 Real board meetings where ahead of time everyone’s read all that data and between board meetings
1:14:47 they’ve been in the business to what I’ve been talking about and
1:14:50 They come to the meeting and we bring in over the course of a day
1:14:54 somewhere is between
1:14:56 10 and 20 managers executives sometimes senior ones sometimes mid-level managers sometimes front-level exact managers
1:15:04 employees and
1:15:06 I I go around the room and I like every single director to ask whatever they want to ask
1:15:11 I don’t want to add I don’t want them to tell me ahead of time what they’re going to ask and I don’t want them to tell
1:15:16 The men the managers who they’re interviewing to know what the questions are ahead of time
1:15:21 I don’t want our executives or our frontline employees to waste time and I’m using the word waste deliberately
1:15:26 Preparing for the meeting some speech some script some sometimes phony baloney sales story about how great things are
1:15:34 I want to ask real questions. I want to include in the tough ones and I want people to
1:15:38 Answer them honestly and spontaneously in the moment and completely so that those I love our board meetings
1:15:45 So I’m now chairman at the moment of three different companies
1:15:48 Xpo GxO and RxO and so we tend to have our board meetings
1:15:53 Every three months around the same time around the same two-week period. It’s some of my favorite meetings the whole year
1:15:59 Because I had highly engaged directors who are knowledgeable about the business
1:16:04 And who asked really good question. I learn a lot. I learn a lot at the board meetings
1:16:09 I don’t dominate the board meeting with I’m the person speaking all the time a lot of times
1:16:13 You find that the the chairman of the CEO is like
1:16:15 Making a whole big deal about themselves board meetings should not be about the chairman and the CEO or the chair and CEO
1:16:21 The board meeting should be about the directors
1:16:24 Getting the information they need to get they want to get they should be getting
1:16:28 Should it be focused on problems or what’s going well or how do you think about that from a board level and then I want to get
1:16:34 Into more specifically management meetings, but look at the board level. How would you organize that around?
1:16:40 How do you craft an agenda for that? I don’t craft the agenda
1:16:45 So I know what I craft is I figure out who are the right people to bring in
1:16:49 But even that in terms of the management we should bring in I don’t do that all by myself
1:16:54 I get input from the lead independent director
1:16:57 I get input from the vice chair we come up with something together with the CEO and then I
1:17:03 Distributed around to the whole board. So what do you think? How does this look? I don’t have any changes people usually have changes
1:17:07 They’ll say that’s great, but I’d also like to have a section on HR just even yesterday
1:17:11 We’re preparing for a board meeting and one of my vice chairs said, you know, that’s that’s good
1:17:16 But I want to have a section on human capital management on people management
1:17:20 So we rearrange things and we’re bringing some HR folks. So
1:17:25 My goal is to get the right people in the room in front of the directors and and then let the directors ask
1:17:31 What they feel is right to ask. I don’t want to
1:17:35 Micromanage the agenda because that’s my agenda. I want I am never going to be smarter
1:17:42 Then the sum of all the directors that’s never gonna have mathematical or you have the wrong directors, right very much
1:17:50 So yeah, and I like directors who are smart and we’re engaged and really want to prove the company
1:17:56 They want to play their role. They want to take their fiduciary duty very very carefully. They have a strong duty of loyalty
1:18:01 They have a strong duty of care when you think about decision-making
1:18:05 How often are decisions made by?
1:18:07 committees and the companies you run versus made by
1:18:11 Individuals well, I hate the word committee period committees just like a bureaucratic red tape slow
1:18:20 Kind of low-energy kind of word. I just can’t stand the word. So I try not to call things committees
1:18:24 Just a nomenclature. However, there are sometimes when a group of people will have to make a decision because it’s more than one discipline
1:18:33 That’s required to get to the right decision
1:18:35 There might be a task that we have that has a financial elements
1:18:39 You need someone from finance accounting that certainly has an operational
1:18:42 Element to it. You need ops person there. We’ll also have a big people element. So I need an HR person there
1:18:47 And so I could have if it’s a big decision with big impact
1:18:51 Then I’m going to have C level never the COO the CFO CHRO. That’s a big decision
1:18:57 I’m not going to waste those very important people’s time with small decisions Fp and a financial planning analysis
1:19:03 Plays a big role in my company more than in most companies the Fp and a people are the ones who were
1:19:09 Turning all these ideas in a meeting to listen to all these ideas and they’re turning them into numbers
1:19:14 They’re turning them into forecasts and turning them into projections that turning me to probabilities to turning them to the look
1:19:20 We we have this these 10 things we’re going to work on to create alpha for our shareholders
1:19:26 They’re attaching
1:19:28 Probabilities teach one of those I got a 90% chance of this is in the bag. This is going to happen
1:19:32 This is a long shot. This is like a 10 20% chance of happening, but it’s not a zero percent
1:19:36 It’s a 10 or 20 percent and it’s got a high return if we achieve it
1:19:40 So it’s worth putting the effort in but I’m only going to give 10 or 20 percent credit
1:19:43 We’re even going to give less credit than that and and they’re also doing budgeting constant iterative budgeting
1:19:49 We don’t do budgeting once in a while. We do budgeting every day
1:19:54 every single day where we’ve got our our but our numbers that our plan is our plan and
1:20:01 where are we tracking versus the plan and
1:20:05 the FPA people are
1:20:08 Are really good at figuring out who’s sandbagging and who’s
1:20:13 Exaggerated by that at what I mean by that is you have some managers who just do their personalities or for whatever reason
1:20:20 Or maybe they’re playing games with their bonus. They want to lower expectations. So they come out looking like heroes
1:20:25 Well, that’s not good because we want to know the real
1:20:28 Like the outcome so we can plan around that on the other hand you have some people who are
1:20:37 Overly self-confident and they think this is definitely going to happen
1:20:39 And I’m gonna grow this that but if you look at their history if you look over the last three years
1:20:44 They’ve missed their predictions by three to five percent like pretty much every year. So they’re gonna discount them based on the
1:20:50 Past predicting their future likely to succeeding so the FPA people play a big big role in that and figuring out
1:20:57 What is the?
1:20:59 highest lowest and likeliest outcome for all these different endeavors that we’ve got and they’re also playing a big role for
1:21:06 Allocating capital. So we talked before about the two big things that senior executives do is is
1:21:13 Decide what kind of ways we’re gonna spend money allocate capital because it’s finite even if it’s billions of dollars
1:21:19 It’s not trillions because it is billions. It’s finite capital
1:21:23 How are we going to spend invest that capital of all the different ways we can invest?
1:21:27 What’s the highest and best uses of that capital and how are we going to manage time?
1:21:33 How are we going to get everyone focused on the things that really matter and not waste their time on the silly stuff that
1:21:39 Really doesn’t matter. It’s not going to create
1:21:41 Massive value for our shareholders, which is what our mission is the FPA people help with
1:21:47 Understanding that putting into numbers because sometimes you can get very
1:21:51 inspired and motivated and it’s a really really creative fantastic
1:21:56 Inspiring project comes up when you analyze the numbers. Yeah, it’s really not a really good return on time return on capital
1:22:03 So maybe we shouldn’t be spending so much time on that. So we’re we’re also
1:22:07 Managing how much time are we spending as an organization on what kind of projects you find a lot of time in corporate America?
1:22:14 somehow or another they get lost management gets lost on these
1:22:18 tangents that are not central to their main mission of creating value for shareholders and
1:22:24 The FPA people keep track of that the scorekeepers to keep everyone honest of how we’re investing capital
1:22:31 How are the returns on that capital versus what we expected it to be we planned on how we spending our time is how we’re spending our time?
1:22:39 Proportionate to what has the highest impact of how we’re spending our time and this is a very important role
1:22:46 So FPA ends up being kind of omnipresent throughout the organization anytime
1:22:51 We’re making big decisions because they’re really good at getting all this down to to reality to real numbers and they report to the
1:22:58 CFO is that the structure and internally FPA has has two lines
1:23:03 One is to the CFO on the they have a dotted line to operations and to me
1:23:07 So I rely on my FPA person like every day. I want to know for two reasons
1:23:13 I want to know internally how we’re doing on the projects that we’re
1:23:16 We’re attaching high-priority to I also want to know how we’re doing on our commitments to shareholders to investors
1:23:22 when you’re a CEO of a public company you have a
1:23:26 Really important mission in that you’ve promised
1:23:29 What your numbers are going to be in the future? How much your profits going to be how much your organic revenue?
1:23:35 Go it’s going to be how much your margins are going to be what your return of capital is going to be
1:23:38 How much a free cash flow is going to be and now you’ve got a you’ve got a promise out there
1:23:43 You’ve got a guidance you’ve got a forecast and and you’re working really hard to achieve that
1:23:47 I need to know and FPA is the best place to know that
1:23:51 How we tracking against that and if we’re tracking higher than that and significantly higher than that
1:23:56 There’s a big deviation from that. Well, we’ll talk to to legal and we’ll talk to IR and the investor relations
1:24:02 And we’ll say should we update the the investment community ahead of the quarter ahead of when we normally produce our results and
1:24:08 Equally importantly, maybe even maybe more importantly. I want to know God forbid if we’re tracking below our estimates and
1:24:17 Once I know that then I have a meeting and I say whoa
1:24:20 We’re me of our of our six or seven top metrics that we’ve promised to our investors
1:24:25 We’re doing well on these five or six from these one or two. No, no, no, it’s not doing very well
1:24:30 What are we going to do to get back on track? So constantly?
1:24:34 using our
1:24:36 Sensing information gathering and then getting back on track getting back on track
1:24:41 Do you do the forecasting because you’re going to be going to the capital markets for?
1:24:46 For capital at some point in the future within
1:24:48 Acquisition strategy or would you not do that if you knew you weren’t going to raise additional capital?
1:24:55 Well, I I am a big user of capital markets because all my companies have grown through
1:25:00 Acquisitions and I’ve needed capital to grow those acquisitions
1:25:04 We’ve raised money from the largest sovereign wealth funds in the world and some of the largest pension funds in the world some of the
1:25:10 largest long-only funds and you know
1:25:13 Endowments and a lot of different people whose money we’ve taken and give them back a lot more money than they gave us
1:25:19 So in order to do that
1:25:21 You’ve got to hit that you’ve got to meet your promises your results matter results matter. They’re very very important
1:25:27 So even if we weren’t raising capital the fact that we’ve taken capital
1:25:31 Sometimes we’ve gone for years without raising cash
1:25:34 Well, we’ve maybe refinanced debt to take advantage of changing interest rates or something like that
1:25:38 But in terms of raising equity, which is the dear thing raising equity sometimes we’ve done some acquisitions like in 2015
1:25:45 We did two big acquisitions and then we digested them and we integrated an optimized and doubled and tripled the profit without doing any acquisitions
1:25:52 During that period of time. We didn’t need to raise equity and we didn’t so but even though we weren’t raising equity
1:25:58 Even though we were not going to the back to the capital market chain
1:26:01 We still paid
1:26:03 Extremely rigorous attention to how we’re doing on the numbers. That’s our job
1:26:08 our job as executives as managers custodians of this business is to produce results and that’s measured ultimately in financial results
1:26:17 It’s also produced in infinite in operating results
1:26:20 It’s also concerned of customer satisfaction employees satisfaction
1:26:24 but all those things lead to
1:26:26 financial metrics and
1:26:28 You’ve got to stay focused you have to have the whole organization focused on
1:26:32 Delivering those financial metrics and that’s how you deliver them. It’s a it’s a conscious
1:26:38 Intention and a sense of honor in a sense of I need to do this. This is this is what we need to do
1:26:43 This is our promises promises made promises kept when people tell you they’re not motivated by money
1:26:49 You get suspicious. Why well, I actually respect people highly if they’re not motivated by money
1:26:55 I know a lot of artists. I know a lot of musicians. I have
1:27:00 Friends and relatives who are professors or retired professors in academia. This is not into money
1:27:06 I mean, there’s not into money. They don’t think about they don’t read the Wall Street Journal
1:27:10 They’re not interested in that whatsoever and and I respect that they have a higher calling in a way
1:27:15 They’re they’re focused on some deeper parts of life
1:27:18 But that’s not who I want in my company
1:27:21 I want my company people who are
1:27:23 Absolutely motivated by money or raw capitalists who people who want to make money for themselves and their families and that
1:27:31 We can figure out a way that by being part of our company they can help us make money for shareholders
1:27:37 So that we can pay them more money here. They could make somewhere else. I’ve mad people on the senior level make
1:27:44 Many many people make become millionaires multi-millionaires. I’ve had people become tens of millionaires
1:27:50 I had one person who made over a hundred million dollars. I
1:27:53 Have a couple people now who are on track to make very large amounts of money. This is a good thing
1:27:59 This is a this is an outgrowth of success because we’ve tied everybody’s compensation
1:28:05 We’ve been very thoughtful about compensation plans. We’ve tied their compensation to contributing to our big goals and
1:28:11 The only way they can make all this money is if they’re making money for shareholders
1:28:17 so I love compensation plans for the senior executives that have a big component of
1:28:23 equity
1:28:25 That’s tied. It’s dependent on TSR total shareholder return. So we look at what are the how does our stock perform?
1:28:33 versus
1:28:35 called S&P 500 and
1:28:37 What percentile are we if we’re less than called the 55th percentile?
1:28:42 I’m not so sure that you get any that I don’t not sure the equity should vest
1:28:46 I could argue that if we’re only getting roughly half
1:28:51 Roughly we’re very middling in the results. We’re giving that’s not why people invested in us
1:28:56 People gave us the sovereign wealth funds or pension these big investors
1:29:00 They’ve given us money because they expect us to be much much higher returns than the average company
1:29:05 So I like to have people bet on themselves so that if our if our shareholder returns are less than 55% or so
1:29:12 I don’t want it to vest if it’s 65% invest some if it’s 75% invests more if it that if it if it’s
1:29:21 85% 90% 95% I want it to I want them to make I want it to double vest
1:29:26 I want them to make twice as much as they would otherwise. So I want their interest
1:29:30 Aligned with the shareholders. I want it to be so that the shareholders are saying wow
1:29:37 I really hope senior management team makes a fortune because the only way they’re gonna make a fortune is if
1:29:41 We’re beating all the competition in terms of the returns with our investment. So I like to I like that to happen one thing
1:29:48 I liked about
1:29:49 Goldman Sachs’s compensation plan that I took for them years and years ago when they were partnership a big chunk of their compensation plan
1:29:56 I’m not up to date in their compensation plan now
1:29:57 But back when they were private partnership a big chunk like a significant percent of their comp was based on
1:30:04 How many other?
1:30:07 Partners said that they helped them with what they were working on. Yeah, in other words
1:30:11 I didn’t just work on what I was trying to work on
1:30:13 But I helped you Shane with your cusp with your client and that group effort going back to being a super organism
1:30:20 So if we can have people on the front line in the mid-level management be rewarded financially because that’s the biggest reward
1:30:27 It’s not the only reward, but financially
1:30:29 Financially rewarded for helping other people achieve their goals. That’s a good thing too. So we have all these bespoke
1:30:36 Compensation plans that are well designed that a lot of thought go into that result in the magic
1:30:43 Meaning creating outsized returns for shareholders. That’s the that’s how we do it
1:30:48 Now we also do just general recognition
1:30:52 That’s not as powerful as financial rewards, but it’s still a good thing. So we have all the usual things of
1:30:58 people getting awards and rewards and trips to to places and president’s clubs and
1:31:05 Employee of the month all those kind of things where people feel good about themselves because they’re recognized for going above and beyond
1:31:11 But if I had to pick just one or two the feel-good stuff or the money
1:31:15 I’m going with the money. I like a powerful motivator
1:31:18 I like how everything’s tied to sort of like win-win everybody wins, right?
1:31:21 You’re it’s not one of those places where you’re you can get outsized
1:31:25 Compensation even if our shareholders lose. That’s a terrible thing. That’s an unfair thing. That’s that should never happen
1:31:32 You should you you shouldn’t you should have a complete alignment between
1:31:37 How shareholders do with their investment in the company and how the employees do?
1:31:42 either both of those groups should be making a lot of money or
1:31:46 Not a lot of money now the shareholders can’t control that all their two years invested in their money
1:31:52 The employees control that if the employees are selected well are working together in a good culture
1:31:58 Well are using technology or using ways that they they can succeed or have good feedback loops and
1:32:04 They’re they’re making good decisions and being held accountable for decisions
1:32:08 They’re exceeding them and delivering the numbers and the share price reflects that the share price goes up
1:32:12 That’s great
1:32:13 The shareholders should make a fortune and the employees should make a fortune neither one should make a lot of money at the expense of the other
1:32:20 That’s not fair. That’s just not that’s not right. What CEOs do you think are underappreciated capital allocators when I look at?
1:32:28 the companies that have
1:32:32 Taken money and had small amounts of money and turned it into a huge amount of money
1:32:37 Immediately, I’m thinking Mike Moritz a quiet Sequoia
1:32:40 He was chairman of Sequoia Capital now. He’s retired from that. He’s a Sequoia heritage senior advisor
1:32:46 Sequoia heritage, but if you look at his career everything he’s done over the decades
1:32:49 And I’ve studied Mike very very well for many many decades
1:32:52 He was one of my first outside investors Sequoia Capital came into my United Way systems way back in
1:32:58 1989 1990 and
1:33:01 What is he the champ? What is he the genius of? He’s the genius of
1:33:05 Taking small amounts of money and turning them into huge amounts of money
1:33:10 So you look at at Google at Yahoo at Netscape at Sun Micros all these companies that he invested
1:33:17 Relatively small amounts of money and ended up being worth like 10 billion bucks. That’s
1:33:21 That’s good capital allocation. That’s really really intelligent capital allocation
1:33:26 So I immediately think of I think of a Mike Moritz for something like that
1:33:30 I think in the industrial sector. There’s also people who who have
1:33:36 gone through the same kind of processes I’ve gone through and
1:33:39 Been been disciplined at how the allocate capital and achieved high ROIC as a result of that
1:33:46 You think of the Academy level
1:33:48 CEOs over the years Dave Cody for example when he was at Honeywell for years
1:33:53 He was very very rigorous at this but very mathematical very dispassionate very intelligent about okay guys
1:34:00 This is how much money we’ve got where we’re gonna get the biggest returns and allocating it very very carefully there
1:34:05 So those are the people who come to mine off off top of my head talk to me about the relationship between quality and speed need both
1:34:12 So you see companies sometimes
1:34:15 Be really good on quality, but oh my god. They take forever. So it’s
1:34:21 It’s really not achieving what you’re trying to achieve
1:34:24 You see other companies that move real super fast
1:34:28 But it’s at the sacrifice of of QAQC of quality assurance quality control
1:34:33 The real golden mean is how do you move fast?
1:34:37 but move fast intelligently so that
1:34:41 You’re not sacrificing quality. In fact, you’re moving fast and improving quality at the same time
1:34:48 That goes back to mathematics that goes back to engineering that goes back to planning
1:34:52 understanding the lay of the land
1:34:55 Understanding what exactly is the inefficiency that we’re trying to take out of the system
1:35:00 What’s the biggest lesson you’ve learned from the past year?
1:35:03 You could pick any time frame with this last 12 months last 10 years less my whole life and
1:35:09 Ask me what’s the biggest lesson I’ve learned for sure. I’m going to immediately default to something with people
1:35:15 It’s first I’m going to fall the people and then I’m going to fall to technology
1:35:19 These are the two things because these are the two biggest needle movers
1:35:23 These are the two biggest categories of things that make a difference
1:35:26 So the last year what have I learned about people? Okay? One thing I’ve learned about people is
1:35:32 I’m working with a team now at my my new company. That’s largely the same
1:35:37 They were on my teams before they were either xpo or one of the xos and what I’ve learned is it’s great to have the band back together
1:35:44 It’s great to work with people that you know that you’ve been in the battles with
1:35:50 You’ve shared the glories. You’ve shared the pain. It’s great to be work work with people who?
1:35:55 We’ve been in the dark days together. We’ve been in the strong days together. We’ve won together. We’ve been victorious together
1:36:01 We can complete each other’s sentences. We get each other. We know each other’s spouses. We know each other’s kids
1:36:06 That’s that’s a beautiful thing. I haven’t always had that I have brought
1:36:11 Some people from company to company usually an initial founding management for QxO or all XO people and
1:36:19 One thing I’ve taken away from that is I really love these people. These are people I really
1:36:24 Just respect and admire and I just I’m just so thankful that I get to work with them
1:36:30 Like I feel and I think we all feel this way
1:36:33 I think all of us feel that each of us is getting the long end of the stick by working with the rest of this team
1:36:39 That’s very hard to find a team a group of people this size
1:36:44 That all love each other that all respect each other that all admire each other’s professional and personal
1:36:50 characteristics and traits and that’s that’s a beautiful thing
1:36:53 That’s a big takeaway for me now
1:36:56 I’m gonna go for two for on this. What’s my biggest takeaway on technology in the last 12 months on technology?
1:37:02 what I learned was I
1:37:05 went through this process of studying dozens of industries and I went through the checklist and one of the checklist one of the
1:37:12 things on the checklist was
1:37:13 Can I play can I take technology and apply?
1:37:16 our tech forward mentality and our willingness to invest in technology and put our money where our mouth is and put money in technology in
1:37:24 In an industry where we’ll get a competitive advantage and I found an industry building products distribution that I
1:37:31 Can do that. I found a company an industry that’s got
1:37:34 20,000 companies and there’s about six or seven that are doing really cool things in technology
1:37:40 And that’s pretty much it. I hate to say that so negatively, but I think that’s an objective assessment of it
1:37:45 I think there’s half a dozen or so companies the biggest ones that are a couple of medium-sized companies too
1:37:52 but mostly the biggest ones who are
1:37:54 Approaching technology in the same spirit that reproach technology now
1:38:00 We’re gonna double down on that and spend a lot more money and have the best technologists involved like we always have in our companies
1:38:07 But if you look at the 99% of all the other companies there where other industries were 20 years ago now
1:38:13 I like that Shane. I like going into an industry where I got something I can bring to the industry that’s gonna help
1:38:19 But I can be transformational. I can be a catalyst to improve the quality of the industry
1:38:24 I’m happy to get everyone all excited and share the vision about investing in technology
1:38:28 But we always or I guess I always end with the same question. What is success for you on on the professional level?
1:38:36 It’s very simple. It’s continuing my tradition of
1:38:40 Generating superlative shareholder returns like off-the-charge great returns for investors. That’s my report card that is success
1:38:48 Period. There’s a lot of other things that build up to that. I have to have an engaged workplace
1:38:55 I have to have good relations with my local communities have to do all those good stakeholder stuff
1:38:59 But at the end of the day the report card is one question
1:39:03 What is my share price performance versus the benchmark and not only relative but absolute terms as well?
1:39:10 So it’s it’s about stockholder appreciation for sure professionally all the things
1:39:15 I’m doing of hiring people and putting in technology all the things we’ve been talking about for less couple hours
1:39:19 that all comes down to
1:39:21 To making money for shareholders if you’re not making money for shareholders. It’s just jabber jabber. It’s just talk
1:39:26 So for me success is defined by how is my stock price performance versus everybody else?
1:39:33 So that’s that’s clear for me. It’s very clear my mind
1:39:35 Personally, you know, it’s about my family. It’s about my friends. It’s about my relationships with them
1:39:40 It’s about can I create ways where in the limited times?
1:39:45 I don’t have as much time as most people because I’m really into the business
1:39:48 But in the limited time that I do have can I make those enriching experiences? Can I make those experiences where?
1:39:53 There’s a lot of love in the room. There’s a lot of good stuff going on. There’s a lot of positive vibes
1:39:59 And I’m they’re very symbiotic wonderful relationships where I’m helping the people I I love and and they’re helping me
1:40:06 And if I can achieve that that’s success. That’s amazing. Thank you so much for your time today
1:40:11 This was a fascinating and wide-ranging conversation. I really appreciate the opportunity shame
1:40:23 Thanks for listening and learning with us for a complete list of episodes show notes
1:40:28 transcripts and more go to fs.blog/podcast or just Google the knowledge project
1:40:35 Recently I’ve started to record my reflections and thoughts about the interview after the interview
1:40:41 I sit down highlight the key moments that stood out for me
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1:41:34 (gentle music)
1:41:37 [BLANK_AUDIO]
Throughout his tenure, Brad Jacobs has built multiple billion-dollar companies. While there is no “playbook” for growing a business, he focuses on a few factors above all else in every company he operates, and in this conversation, he reveals them all.
Shane and Jacobs discuss how to read anyone during an interview through a series of intentional questions, the exciting role of AI and technology in the future of business, and where money-making ideas hide in companies. Jacobs also shares how his training in math and music made him a better business operator, the one thing he focuses on to grow his businesses, how to spot big trends before everyone else, and the only thing a company should focus on for success.
Brad Jacobs has started five companies from scratch and led each to become a billion-dollar or multibillion-dollar enterprise. These include three publicly traded companies: XPO Logistics, where he serves as Chairman and CEO, United Rentals, and United Waste Systems. Before starting XPO in 2011, Jacobs founded United Rentals in 1997 and led the company as Chairman and Chief Executive Officer. In 1989, he founded United Waste Systems.
(00:00) Intro
(04:44) The future of AI
(07:21) How to think rationally
(08:48) The major trend
(10:57) The research process
(13:29) On asking better questions
(19:35) On rearranging your brain
(22:23) On music, math, simplicity, and business
(32:26) Leverage, debt, and optionality
(35:11) What it takes to take contrarian bets
(40:45) Confidence and parents
(50:21) Why negative-only feedback is detrimental for employees
(56:14) Money lessons
(58:13) A deep dive on M&A (Jacobs’ secret sauce to growing his companies)
(01:07:51) Questions to immediately get to know anyone
(01:11:14) On boards and board meetings
(01:16:57) On decision-making
(01:23:37) The role of capital markets
(01:25:41) The type of person you don’t want to hire
(01:31:16) The best capital allocators
(01:33:53) Biggest lesson Jacobs learned from the past year
(01:37:20) On success
(04:44) The future of AI
(07:21) How to think rationally
(08:48) The major trend
(10:57) The research process
(13:29) On asking better questions
(19:35) On rearranging your brain
(22:23) On music, math, simplicity, and business
(32:26) Leverage, debt, and optionality
(35:11) What it takes to take contrarian bets
(40:45) Confidence and parents
(50:21) Why negative-only feedback is detrimental for employees
(56:14) Money lessons
(58:13) A deep dive on M&A (Jacobs’ secret sauce to growing his companies)
(01:07:51) Questions to immediately get to know anyone
(01:11:14) On boards and board meetings
(01:16:57) On decision-making
(01:23:37) The role of capital markets
(01:25:41) The type of person you don’t want to hire
(01:31:16) The best capital allocators
(01:33:53) Biggest lesson Jacobs learned from the past year
(01:37:20) On success
Watch the episode on YouTube: https://www.youtube.com/c/theknowledgeproject/videos
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