Tag Archives: Business

Blitzscaling: The Lightning-Fast Path to Building Massively Valuable Companies by Reid Hoffman, Chris Yeh

Blitzscaling: The Lightning-Fast Path to Building Massively Valuable Companies by Reid Hoffman, Chris Yeh

Summary

  1. Blitzscaling is when you put speed over efficiency, even in the face of uncertainty. This constant and fast feedback will help you adopt, evolve, and move forward faster than your competitors. Getting this feedback early and moving quickly on it is the name of the game – especially if you are a platform and have a two sided model. Blitzscaling is a risky decision but, if your competitor has taken this path, it is less risky than doing nothing. This book will walk you through how to do it, when to do it, why to do it, and what it looks like. The cost and inefficiencies are worth it because the downside of not doing it when new technology enables is far greater – irrelevance.

Key Takeaways

  • Blitzscaling Overview
    • Blitzscaling will help you make better decisions where speed is the ultimate super power
    • Blitzscaling works as both offense and defense – you can catch people off guard and as if you don’t, you might not survive. You can leverage your initial competitive advantage into a long-term one before the market and competitors can respond. You can get easier access to capital as investors prefer to back market leaders allowing you to further your advantage of competitors. Blitzscaling allows you to set the playing field to your advantage
  1. McKinsey found the companies that had 60% growth when they reached $100 million in revenues are 8x more likely to reach $1 billion then those who are growing at 20% of the similar size. They have first scaler advantage. At this point, the ecosystem around this massive company recognize them as the market leader and shift their behavior to better suit them which leads to positive feedback loops
  2. Startups, just like certain materials and chemicals, go through phase changes. A dominant global leader is not simply a startup times of thousand it is a fundamentally different machine. Just as ice skates are useless on water, the same tactics used in the startup may be useless once you have achieved product market fit.
  3. The five phases of Blitzscaling: Family, tribe, village, city, nation
  4. The first step is creating a business model that can grow. This sounds elementary but it’s amazing how many startup founders miss this simple piece. You must have a business model that can scale or else it’ll break before you can reach dominance. Business model innovation is more important than most people think as technology today is not the differentiator it used to be. Most great startups are like Tesla which combine existing technologies in a unique and special way rather than like Space-X where they had to invent their own technologies 
  5. Blitzscaling is a strategic innovation and hurls much common wisdom out the window. Founders should only blitzscale when they determine that the most important factor in their company’s survival is speed into the market. It is a big bet but can pay off handsomely.
  6. The revenue model don’t have to be perfect when you do it. Your only goal is scale into a market that is winner take all or winner take most. However, not every company should blitzscale if product-market fit isn’t there or if the business model isn’t there
  7. You should blitzscale when there’s a big new opportunity, when the size of the market and gross margins overlap to create potential huge value. You should also blitzscale when there is no dominant market leader or oligopoly that controls the market 
  8. Another way to think about blitzscaling is by climbing learning curves faster than others
  9. Blitzscaling is not meant to go on forever. You should stop when growth slows, when average revenue per employee slows, when gross margins begin to climb, and other similar leading indicator show that your growth is slowing. You should also slow when you are reaching the upper bounds of a market
  10. In blitzscaling mode, raise more cash (much more cash) than you think you’ll need. Typically you should try to raise enough money for 18 to 24 months of survival. When trying to raise money nothing is more powerful than not needing it. Only spend money on things which are life or death if not solved
  11. As startups blitzscale, they have to balance responsibility with their power
  12. Try to partner with currently blitzscaling companies or companies which have blitzscaled in the past
  13. Managing Growth
    1. The role and skills needed by the CEO and top management are different for every level and size of the startup. It is never static and is always changing
    2. Business model growth factors
      1. Market size – paying customers, great distribution, fixed and expanding margins
      2. Distribution – leveraging existing networks, virality
      3. High gross margins – more revenues lead to more cash on hand which can be put to use, more attractive to investors
      4. Network effects – direct, indirect, two sided, local, compatibility and standards
    3. There are two growth limiters: product market fit and operational scalability
    4. 8 key transitions 
      1. From small teams to large teams. This can be a tough psychological change for founders and early employees as it is now impossible to be part of every decision and have clarity into every department 
      2. From generalists to specialists 
      3. From managers to executives. Executives organize and lead managers and managers execute day to day operations. Hire people who are known to at least one current team member, start them small and let them prove their value and gain other’s trust, then think about promoting them
      4. From dialogue to broadcasting. Establishing formal and consistent communication is extremely important as you grow. Chesky sends out a weekly email on Sunday nights which highlight growth metrics but also give the team updates and clarity on how the company is doing and other important topics so that everyone continues to feel involved and informed
      5. From improvisation and inspiration to data. At the beginning you have no customers to listen to but over time you have to track team metrics and analyze the data so that you can improve and adapt. Track the number of user’s raw engagement and churn to begin with and then customize and go deeper as is necessary for your product or service. No company should have more than 3 to 5 metrics as more tends to lead to confusion. It doesn’t necessarily matter what data you collect but what data gets presented to decision-makers. 
      6. From single threading to multithreading. The author doesn’t know of one start up that didn’t start out as singularly focused. They can branch out from there but it is important to have a deep focus when you’re first getting started
      7. From pirate to navy. From continuous offense to a blend of offense and defense. You must strike a balance between the power of being small and nimble and the benefits of being large and having scale. Much like JBS Haldane stipulates, you are fundamentally different when you scale. You can’t run a city the same way you run a tribe and you can’t run a nation the same way you run a city
      8. From founder to leader. Your role as the founder will change as the company scales and grows and you must adapt to it or you won’t be serving the company as it needs you to. You have to keep your personal learning curve ahead of the businesses’ growth curve. There are three ways to scale yourself: delegation, amplification, and simply getting better.
    5. Doing things which don’t scale when you’re growing quickly. It might be best to find a hack that you’ll have to throw away later than taking your time and running an elegant piece of software
    6. Ignore your customers at least at this stage in your growth. You have to provide whatever customer service you can that doesn’t slow you down – most likely this will be no customer service. However, you cannot ignore culture a strong culture is really important and is defined by consistent values and actions across the company. The executive in charge of the functional area which drives the culture of the company tends to be the natural successor to the CEO
  14. Awesome analysis on Zara the clothing retailer who uses split scaling techniques. Although it is a retailer, they use speed to their advantage and focus less on efficiency
  15. Incumbents have some natural advantages such as scale, the power and resources to continuously innovate, longevity, and mergers and acquisitions but the disadvantages include poorly aligned incentives, managerial overhang, lack of risk appetite, public pressure since they’re publicly traded, etc.
  16. A good way to gauge risk is by thinking through the knowns and the unknowns and systemic risk and non-systemic risk. Therefore, you must act immediately if there’s some big systemic risk, do something short term to solve your problem, note the problem now so that you can solve it later and let it burn (if unknown and non-systemic)
  17. Instability and change are the new norm and the only way to thrive is to know that you have to adapt faster than the change around you.  Be an infinite learner, be a first responder who is willing and able to act, veer towards industries, people, and companies that are biased towards blitzscaling as this is where the fastest and biggest growth lies
  18. Other
    1. Real value is created when innovative technologies allow for innovative products / services, with an innovative business, model to emerge
    2. It’s important to differentiate between first mover advantage and first scaler advantage. First movers often die but successful first scalers tend to achieve a very powerful position
    3. Do everything by hand until it’s too painful. Then automate it
    4. Common patterns of dominant businesses:
      1. Bits versus atoms (software/digital rather than physical)
      2. Platforms
      3. Free or freemium
      4. Marketplaces
      5. Subscriptions
      6. Digital goods
      7. Newsfeeds which drive user engagement and retention
    5. You must focus on adaptation rather than optimization
    6. You should always have a plan a Plan B and plan Z that you can fall back on in case your first option doesn’t work out and then your option in case worst case scenarios come up
    7. In the early days prioritize hiring those who can add value immediately and not the absolute perfect candidate
    8. Tolerate bad management. At the beginning it is more important to move quickly than to have perfect organization and processes in place
    9. Launch a product that embarrasses you. You don’t want to wait so long until it’s perfect want to get out and see what the market thinks of it
    10. You have to listen to your customers. Not only what they say, but you also have to know when to ignore them – must learn to blend data/intuition
    11. You have to know which fires to fight which ones to say no to and which ones you actually have some control over. Only then can you know which problems to tackle and in which order. Distribution, product, customer service, operations are some of the most important

What I got out of it

  • Blitzscaling is the pursuit of growth and speed, even in the face of uncertainty. It is a big gamble but is necessary sometimes if coming to market first, fastest, and biggest gives you a shot at owning a big market. A great playbook for anybody thinking about pursuing this strategy

The Yankee of the Yards: The Biography of Gustavus Franklin Swift by Louis F Swift

Summary

  1. “Rare indeed is the man who attains preeminence with the steady, irresistible thrust – who leaves in those who started with him a sense that his success was inevitable, that one could no more have stopped him than an Alpine glacier or a Sierra cascade. This is the story of Gustavus Swift. His abilities and the world’s changing needs came together to produce a career as exceptional as it is interesting.”

Key Takeaways

  1. A Better Mousetrap
    1. His long suit was keeping expenses down. Next in his interest came developing byproducts – which is another form of the same thing. Low expenses and maximum return from every pound of live animal are what made Swift a leader in the new industry of which he was a founder – meatpacking and distribution. He recognized early on that waste and accomplishment are incompatible. 
    2. He turned small and uneconomic units into a large, centralized, very efficient unit which bought, transported, slaughtered, refrigerated, and brought to market high quality beef to dense urban centers. He eliminated middlemen, only shipped parts of the animal that were needed, which eliminated markups, wasted shipping/feeding costs and more. He made money out of what age old customs said to throw away. The butchers were glad to have this rubbish carted off, for disposing of it was difficult. The savings were so great that the beef was sold below locally slaughtered beef although it was higher quality and it still left a handsome margin. His competitors were slow to catch on so used this time to sprint ahead while he had the field to himself. Every cent his business yielded went back into it again 
      1. Reminds me of Sam Zemmuray, the banana king, who took bananas that people thought were useless as they were too ripe and sold them locally. Alchemy – turning other people’s rubbish into gold. 
    3. No enterprise can grow soundly and survive the lean days which always come unless it blocks off every possible source of waste. Byproducts revenue is what developed his business. Before he had finished sign the process, he was using everything from the animal to produce a profit. 
    4. He was never satisfied with his business. He knew he could get more if he could crowd his prices below the rest of the field without sacrificing profit. Out of this continual pushing for sales by cutting his costs, he built his own business to a place of preeminence. There were no little cracks in the walls which permitted anything to get away undetected. It is the leaks which ruin more basically sound businesses than any other cause 
    5. Ability by itself could not have done what he did. His thoroughness was the source of his magic – working dissatisfaction with half measures. Father could not be happy if anything which he was connected functioned short of 100%. Basically of course he comprehended a fundamental commercial truth: if everything is done right if errors are held below the errors of competitors and if a business service and economic end then it must prosper. He schooled himself to do everything absolutely right and to expect the same of everyone else. Perhaps the one point where he laid the most emphasis on having everything done absolutely right was in cleanliness. He insisted on it because he liked it and because it cut down spoilage materially. He looked in the corners, under benches, and in the least well lit parts of for dirt. Sarcasm was his working tool for getting things corrected. He was much more concerned about maintaining a right method than about adopting a new one. Therein he showed that common sense which distinguished his ways of working from those of so many men of greater brilliance. Once he had a good method established he never allowed anyone, himself included, to overlook it. He was ready to supplant it at any time if a better method came his way. But he avoided that common failing of being so busy with new hatched plans that he overlooked the old, tested, profitable methods. 
    6. He had to overcome the sin of newness but his system was a marker improvement over the old order. 
      1. It is said people are afraid of change, and this is partially true, but what people are truly afraid of is uncertainty, losing and being in a worse spot than before. If you have a change which leaves everyone better off, people will flock to you. Nobody was ever afraid of a promotion because it included change. 
    7. He never believed in holding on to a thing because selling it might bring a loss. Meat is perishable and he believed that the best way to make money is to keep turning over goods and capital. He developed s technique  which kept his goods moving at a rate far faster than was needed to avoid spoilage. But he also warned his people not to overload a customer. Never try to sell a customer more of anything than he can get rid of quickly. Try to sell him what he needs and then he’ll come back. He’ll be a better customer in the end. Similarly he held that smaller customers should not be discriminated against. Maybe some day they’ll be a big customer
    8. He used a beautiful, clean, service oriented store to sell more meat. If a customer had their mind set, they sold only that. But if a customer was undecided they would push the meat they wanted to sell. He would sell more with nice displays and by having everything cut up, people would buy more 
  2. Role as a teacher
    1. Whenever he found a good man, he would raise his wages. These men will save us far more than they cost. 
    2. He no interest or time in discussing profitable branches. “I want to talk about the ones that are losing. I have no time for the others.”
    3. He cared about every detail and was always teaching. His aim was not to make a man feel bad but to avoid the possibility of repeating any similar loss
    4. I don’t have to go out and hire very many managers. I can raise better than I can hire. It is noteworthy that 20 odd years after his death, most of the men in positions of high responsibility are men who were trained directly under the founder. These men understand loyalty and that they have an obligation to the company, just like the company has to him 
    5. He believed in helping those who helped themselves 
    6. Loyal support from the head of a business makes loyal men beneath the head. Swift fully backed men he trusted and if he didn’t believe in a man enough to back him, he’d want nothing to do with them. 
    7. If he is the right kind of man, he is better off for being corrected. This man is worth the effort. Otherwise, leave it alone
    8. We have a policy to never put outsiders over old employees if the job can possibly be filled from within 
    9. One secret of his success in training men was the way he dealt with them. He knew all about practically every detail in the business, the standards to which every operation must be held. His microscopic eye for detail never overlooked any really significant points, even though he might not concern himself too immediately with them. At the same time, he would seldom overrule an individual he had confidence in if they made a deliberate junction. He preferred to let the man incur a loss to prove to his own satisfaction what would always have remained a doubt if he had simply been told to follow the boss’s instruction
    10. Even more than in developing executives – Swift’s knack of dealing with human being appeared in his work with the rank and file. It is more difficult to get a reasonable degree of work out of the 97% of employees who never develop the capacity for authority and who never can 
      1. A focus on the bottom of the roster is paramount to high performing teams 
    11. One of the cardinal principles which enabled him to raise better men than he could hire was his sparing use of compliments. You promote the able and willing and unless they do something spectacular, you don’t spoil them
  3. Touching the medium – an eye for detail
    1. Whenever he visited a branch house or plant, he went without warning. Generally he came in the back way and got his eyes full of what was going on, before ever he looked up the men in charge. 
    2. Father’s knowledge of every part of the business and his attention to the most minute details was one of the secrets of his operating success. While the microscopic eye was for scrutinizing little things, he had the telescopic eye for surveying big things. And he never put on the wrong lens!
    3. Swift became a devotee of weekly reports when the company became too big for him to have his finger on every aspect of it. You’ve got to know how you stand every week. If you wait a month, you might be broke. Above all else his favorite statistical diet was the reports of weak departments. His whole being enjoyed the sheer difficulty of going into a seat of trouble, diffing out the facts, aligning them, and putting things right. Swift believed in frequent reminders and in prompt corrective measures. 
    4. Knowledge of every detail of the business was the taproot of his way of managing. His technical knowledge was exhaustive, perhaps as great as that of any man the packing industry has known even to this day. His grasp of the facts of distribution, of transporting the products, of the current standing of company finances – in everything from buying cattle and icing cars all the ah through where he would get another ten millions of capital and how he would use it – made him completely the master. One reason for his mastery of the facts was the time he devoted to business, st the office, at the plants, at home. He worked hard, harder than he asked anyone else to work. The men who worked with him liked his pushing. 
    5. He grew at a rate considerably faster than a conservative man would have thought either possible or safe but his decisions were based on a meticulous knowledge of his own affairs and if the whole industry. 
    6. He did not want his information or opinions second hand. 
    7. Always he held his affairs ahead of his finances and his plans ahead of his affairs. One reason, the principal reason he managed to carry the thing off, was that he knew his business and held to it exclusively. He had no interests outside live stock, packing, and closely related enterprises. A secondary reason why he succeeded where most men must have failed was that he knew the measure of everyone from whom he borrowed money in any considerable amount. While a dreamer and a visionary, he based his dreams and his visions of expansion very much on the practical facts of life. 
      1. Circle of competency
  4. One thing he insisted on absolutely was honesty 
    1. Absolute honesty like his is exceptional. Not only did he know that he was honest in all of his dealings, everyone who dealt with him experienced his honesty and felt perfect assurance in its unvarying characteristic. The extent to which some people with whom he did business relied on his honesty and fairness is almost unbelievable. 
    2. He always regarded his credit as his greatest asset. He always had the money when a loan came due and usually asked for a renewal on the spot. In the downturn of 1893, Swift’s employees knew the business needed cash to survive as they couldn’t get it from banks. Hundreds of employees voluntarily lent the company their savings to keep it alive. That is the confidence and loyalty Swift inspired in his men. 
    3. He always tried to find out the right way to do a thing, and then he followed out his right procedure unfailingly. If a thing’s worth doing at all, it’s worth doing right. This was his maxim – not just in business, but in life.
    4. He never changed his price unless conditions changed. He stood by his word 
    5. There’s no use handling poor stuff or dealing with the wrong sort of people. There are enough people who want good stuff and who will deal honestly, to give us all the business we can handle. This was his guiding principle in picking men or livestock 
    6. Swift always gave his competitor a chance to join him. If you handle my beef, we’ll be partners. If you won’t, I’ll put it in against you. This was the squares kind of competition. And if it came to competition, my father always won. He had the mighty advantage of economics on his side. 
    7. Swift’s reputation was such that many a man gave yo his own established business to come to us, with full confidence that he was bettering himself 
    8. One thing he insisted on was absolute honesty. We want character to go with our goods. And sixteen ounces is a Swift pound. I don’t know how many times he said this to me; it must’ve been in the hundreds 
  5. Other
    1. If it had failed to come through the times of trouble, the verdict must be that it had grown too fast 
    2. He had trained himself never to forget anything until he had seen it to a successful conclusion 
    3. You don’t make a profit on shortages was another maxim of his
    4. He would quickly take a chance to lose a lot of money if that was the key to getting a big trade quickly. 
    5. He saved every minute he could and in this way saved more time than most men have altogether. He let not a minute nor an idea go to waste. He had no patience for anyone or anything which wasted his time. He heartily disliked any duplication of work for appearances’ sake. Using time to good advantage involves principally setting standards of what is worth taking time for and what is not – then holding up these self-imposed regulations. 
    6. To get the company up and running he had to work nonstop. Even after all was taken care of, he lived with it. And that is what wore him out. His son was able to change his working habits so that he was able to decouple and gain perspective
    7. He hated the excuse “it’s not my department” – he wanted everyone of his men to think of himself as a Swift man rather than as a lard department man or whatever his job 
    8. This business will be far bigger after I’m gone – that’s what I’m building for 
    9. The best a man ever did shouldn’t be his yardstick for the rest of his life. The department head or superintendent who used that forbidden yardstick was not worth keeping. Your standards must always be changing, evolving, adapting. 
    10. He was very interested in his employees personal affairs as he realized that a man’s personal habits had a great deal to do with his ability and also that they shed light on what might be expected of the individual
    11. He wished his people to own stock. He was a pioneer in bringing this about in a big way. His was the first large concern to encourage its employees to become substantial stockholders. Partners are usually the cleanest to make money for the firm and the concern which has many stockholders is more stable than the company which is closely held
    12. Use tact when you can but fight when you have to. He always preferred going around a difficulty to going through it. She never threw a challenge into the other fellows territory until he had made up his mind that arbitration or compromise would not settle for trouble
    13. He had absolute faith in his ultimate success. He was afraid of nothing. Even when he was still working out the kinks in refrigerated cars and would lose tons of beef, he’d be optimistic and tell everyone “it will be alright.” “We don’t quite know how to do it right. We’ll get it though. We’ll learn.”

What I got out of it

  1. He had a better business model. His method of slaughtering in one place and selling the meat thousands of miles away saved him costs in many ways. He’d be able to sell it at half of what the local butchers were and still make a healthy profit. He would save on shipping and feeding costs since he’d be shipping lighter and wouldn’t have to worry about keeping the animals fat and happy for the long trips. His innovation in refrigeration especially and constant improvement allowed him to come to dominate the industry in a relatively short period of time. He was a teacher, tough on his people, knew every detail, and worked extremely hard 

Behind the Cloud: The Untold Story of How Salesforce.com Went from Idea to Billion-Dollar Company-and Revolutionized an Industry by Marc Benioff



Summary

  1. Marc Benioff recalls what spurred him to build Salesforce.com and outlines 111 plays which helped him do it 

Key Takeaways

  1. Don’t keep your ideas so well guarded. Share them with friends and serendipity may just help you out 
  2. Be willing to take a risk – no hedging
  3. Always go after the Goliath or market leader. If there is none, go after the status quo 
  4. Whether you use a PR firm or not, make sure you know what your message is 
  5. Companies must embrace marketing from the beginning of their lives in order to break through the noise
  6. Brand (essentially keeping promises you make to employees and customers) is your more most important asset. Make sure everybody in the company is on the same page as to what the company does. Make everyone part of the marketing team and make the message concise and consistent. It must capture why you exist
  7. Build a trusting relationships with influential journalists. Meet with them often and give them direct contact to you.
  8. Unbiased advice from experts is the most powerful form of marketing. Word-of-mouth and references are so powerful
  9. Create your own analogies and metaphors upfront and test them out. This take some work but it’s so worth it as it helps people understand clearly, quickly, and concisely what you’re all about
  10. The event is your message. Make sure that the venue and everything else aligns with who you are – if you’re a sustainable company, have fair trade coffee, etc.
  11. Turn adoption into addiction through fast feedback loops. Keep in constant touch with your customers, track their requests, ask them what you could do better, act on it quickly, ask them how they are using your product. Rinse and repeat
  12. Make your website your best salesman by keeping it fresh and up-to-date. It is more effective than any direct marketing campaign
  13. Don’t undervalue your product at the beginning and don’t give discounts. Keep it simple with one price or a low number of prices across the board. This incentivizes the sales team to close deals immediately rather than waiting until end of quarter and offering customers discounts
  14. You can’t win an entire company at once. Start in a division, prove your value, and grow from there
  15. V2MOM – Benioff’s playbook for making decisions and tracking progress
    1. Vision
    2. Values
    3. Methods 
    4. Obstacles 
    5. Measures
  16. Hiring is one of the most important things you can do. Create a recruiting machine and always be on the lookout for top talent. Have people visit the new employee, make sure they have lunch plans, give them a crash course on product and culture 
  17. Set aggressive but attainable goals. If it’s too hard and only 10% make it, their morale is sky high but everyone else’s is low. This also helps with camaraderie and consistent morale 
  18. Hire A players, demote B players, fire C players. Hire slow and fire fast
  19. Solicit and act upon customer feedback.
  20. Strive for this checklist to be checked off for employees:
    1. I am doing the best work of my professional career
    2. I have the opportunity every day to do what I do best at work
    3. In the past six months I have talked to someone about my progress
    4. There is someone who cares about my development
    5. I have opportunities to learn and grow at work
    6. My opinions are sought after and acted upon
    7. My supervisor or someone cares about me as a person
    8. I have a support network at work
    9. My colleagues care about and do quality work
    10. I am recognized and rewarded for my contributions
  21. Eskimo proverb: “The time to fish is during the storm.” The time for real progress and differentiation is when others are retreating, not when everything is perfect.

What I got out of it

  1. Some great advice for anyone starting or leading a company. A playbook for various stages and common issues that everyone would face in this type of pursuit 



The Dream Machine: JCR Licklider and the Revolution that Made Computing Personal by Mitchell Waldrop

Summary

  1. Licklider was far ahead of his generation in seeing the potential for computers – for making them humane and individual, in democratizing access to information, creating a symbiosis between man and machine. It was his work in the Pentagon along with many other visionaries who made this possible – that allowed for the standalone computer with a mouse and a graphical user interface to come into existence. His desire to understand how the brain worked as a system fueled his curiosity. Lick went on to form the ARPA Information Processing Techniques Office in 1962 and started the research funding for interactive computing and pervasive worldwide networks that has resulted in most of the technology we use today and also fueled the next generations of computing researchers – many of whom became the founders and mainstays of Xerox PARC. When computers were a short step removed from mechanical data processor, Lick’s treatises on human/computer symbiosis shifted our understanding of what computers were and could be.

Key Takeaways

  1. Lick’s goal was to forge ahead with the human/computer symbiosis and create an interconnected, self-perpetuating system into a single computer network. An electronic medium to connect everyone – the ARPA net. Today it is known as the internet and everything we now associate with it
  2. JCR Licklider may be one of the most intuitive geniuses of all time. He simply saw in his head how information flowed, and how people, things, and ideas are interconnected
  3. Lick, while humble and nice, hated sloppy work, glib answers, and never took anything for granted. He was mischievous and a little anarchical. He was never satisfied with the ordinary and always pushed the limits. His grounding in psychology was essential for his later work with computers as he always tried to design the computer and how it functioned to best meet the needs of the humans operating it. Lick approached every problem as a systems problem rather than a detailed or individual problem
  4. The first high-profile project he worked on was related to acoustics for the war and his boss had a simple mantra: hire the best people, buy them the best machines money can buy, inspire them to no end, and work them 14 hours a day. With this formula they achieve nearly everything they set out to
  5. Norbert Wiener was a prodigious character at MIT. He was a genius in multiple ways, especially mathematics where he was able to use his intuition and form physical models in his head of the problem rather than merely manipulating symbols on the page. He had the hologram in the head 
  6. Alan Turing didn’t like seeing what others had accomplished before him. He preferred to reinvent the wheel and figure things out for himself. He wasted a lot of time and reinvented the wheel but he came to understand things deeply.
  7. Johnny Von Neumann’s stored program concept created software and changed computing, opening up the potential that we associate with computers today
  8. Claude Shannon thought of information through a 5 part framework: source, transmitter, communication medium, receiver, destination. This simple framework helped him think through the purpose of information and not get bogged down in details. Information ought to measure how much you learn from a given message. If you knew everything in a given message, the information content is zero. However, information and meaning is separated as it relates to computers. Shannon also proved that it is possible to get a message through with perfect fidelity no matter how much static or distortion or how faint the signal. It’ll eventually get too slow and the codes too long but it is possible to overcome noise. This is the fundamental theorem of information theory. Shannon didn’t like how information and meaning could be too easily confused so he had Von Neumann come up with a new name and he came up with one immediately: entropy. Information is entropy. It has the same formula as the physicists formula for entropy. A mathematical variable related to the flow of heat. Information is everywhere and in everything it is as old as time and ties together the mind-body problem, computation, communication, and more
  9. Lick was interested in every domain and was always pulling in new ideas from different fields. He loved novel ideas and would always push himself and others to think about things differently in order to gain new or deeper insights. While Lick has high expectations for his team, he was extremely devoted and his team knew it – he had built a tribe more than a research group. Lick optimized for creativity and productivity so cared very little for credit. He would give his ideas and insights away for others to work on and publish so that he could get more done 
  10. Understanding how our brain works brought together information theory, logic, communication, cognitive science, behavioral psychology, and much more. Two key breakthroughs were understanding chunking and that it matters tremendously how our neurons fire and are organized – not just the raw number of neurons we have
  11. When Lick was brought on to head up the new ARPA project there was no budget, no mandate, no charter. This was perfect as they could simply talk about and work on the most important questions and topics as they came up, not being pigeonholed or sucked into a specific purpose but able to adjust and adapt to everything new that was happening
  12. A key realization for Lick was that if all his visions where to come true, he had to create a self-reinforcing and self-sustaining community between all the different groups who are contributing to this project. Without this focus and insight, many of these dreams might have been lost, forgotten, or not achieved for some other reason
  13. Corvado created the first open source system which led to the software boom and the PC. Controversial at the time, he followed the dictum that if you create something useful people, will use it. This was significantly different from other utilities of the past because rather than value flowing just one way (like electricity to users), value flows two ways now: from software to user and user back to software. This had tremendous implications
  14. Lick give people plenty of space as long as they’re doing something interesting and living up to his high standards. However, if not, he can be ruthless and shut down programs that weren’t performing
  15. For all of Lick’s strengths, he was terrible administratively. Frustrating his colleagues and friends as they had to badger him for weeks or months to get anything done. And, when everything is funded by ARPA, this was a huge deal 
  16. Lick at ARPA and Bob Taylor at Xerox Parc had to learn how to find a way to get their groups all to move together, to give their groups a sense of cohesion and purpose without crushing their spontaneity and creativity. They had to set things up and create an environment where they would follow their own instincts and self-organize. This is the fundamental to dilemma of management. Bob Taylor spent years traveling and getting to know the cultures of different high performing groups and he took the time to speak to the youngest people there. Not only tp pick up their ideas but to understand what their values were and how he could cater to them.  Taylor’s style of research can be summed up as don’t just invent the future, go live in it. Don’t worry about the cost for now but whatever you invent, make sure to use it and then show others how to use it and why it’s helpful. The only mandatory program was a once weekly discussion from the program leaders about what they were doing and for an hour the other people would have at him. This created a sense of cohesion and purpose and also flushed out ideas before going too far along the wrong path. These meetings often got heated and Taylor would help turn them from “class 1” to “class 2” meetings, meaning they would go from yelling at each other to having to explain the other side‘s position to their satisfaction. This worked amazingly well to flush out ideas and improve communication.
  17. Xerox PARC’s main vision was to create the digital office, an integrated symbiosis between working man and machine. Broadly, it was split into two groups – one focused on hardware and the other on applications. Low cost, high performance and high quality graphics was a thread which ran through everything they were trying to do. Moore’s Law was just beginning to take hold and this who were still sold on time sharing began to be able to see the possibility of an individual, high powered machine for everybody
    1. There was this thread that ran through Vannevar Bush, Licklider, Doug Engelbart, Alan Kay, and others. It was the ascent of man, it was like the Holy Grail. PARC would rationalize it according to what Xerox needed but whenever they could phrase an idea to align with this path everybody’s eyes would light up, hitting a sort of resonance frequency. 
      1. Engelbart’s “Mother of All Demos” – showing off technology which set fire to the vision of the future and what could be
  18. Alan Kay was one of the key members of PARC’s team and was a prodigy from a young age. He learned to read by the age of three and read hundreds of books before going to school. By that young age he knew that a lot of what the teachers were telling him was wrong or at least that there were multiple points of view. The teachers did not like this. He never distinguished art from science and was one of the key pioneers in this field. 
  19. Good names are incredibly important for prototypes – they have to be familiar, easy to spell, easy to use, easy to understand, have a broad theme, and conjure up pleasant feelings. 
  20. Alan Kay mentions that in the history of art, it is not the adults who actually invent the new medium who do amazing things, but the first generation of kids to grow up with it who do
  21. Xerox was growing so quickly in the late 1960s and 1970s that they almost choked on their own growth. In order to survive, they had to bring in management, marketing, and finance types – mostly from IBM and Ford.  While this helped them survive their amazing growth, it also reinforced some bad lessons – that nothing exists or is useful unless it could be shown and captured on the spreadsheet and eventually this led to the demise of Xerox PARC and that era of research and innovation. Jim O’Neil became the numbers guy and shut down much of the spontaneous generation and innovation because if it didn’t meet his numbers he couldn’t “see it” and wouldn’t buy into it. When sales and finance make all the shots, the company is on a downward spiral as they are not able to innovate or think long term
  22. Xerox PARC was an Eden in many ways but what allowed them to flourish was the vision, the people, and an abundance mentality. The fact that they had money to spend and didn’t have to jump through hoops to get it. When there is scarcity you don’t have a community, you just have a bunch of people trying to survive. In 1975 Xerox’s printer and copier business was being threatened and this was their cash cow. The instinct is to keep pouring money into this in order to save it but sometimes that isn’t appropriate. You must know when to cannibalize or disrupt yourself 
  23. You always got the sense that Lick was playing. He was like a kid in a candy store. His exploratory and curious child-like mind never went away. He was not suited to be an administrator or manager but was a visionary and community builder. He encouraged people and showed them what was possible, what they were really working towards 
  24. DEC took advantage of the open architecture and was able to foster creativity and uses for their machines that they never would’ve been able to come up with. Many people loved the ability to tinker, upgrade, or personalize what they bought rather than buying a finish package from an IBM for example. Roberts and his Altera machine would follow DEC‘s lead and make it an open architecture which unleashed a wave on entrepreneurialism and garage start ups by the hundreds – filling all sorts of niches and launching some of the world’s biggest and most successful companies (such as Microsoft)

What I got out of it

  1. An incredibly fun read – detailing not only the people and the history behind the computer revolution, but the atmosphere, thinking, and optimism which fueled it

The Marmon Group: The First Fifty Years by Jeffrey Rodengen

Summary

  1. The stories of Jay and Bob Pritzker and how they started their empire with an unlikely acquisition of Colson Corporation. Jay was a financial wizard and he perfected a way to finance acquisitions by using a loophole in the tax code (this became known as the Pritzker Method), he was also universally respected as a savvy negotiator. Bob was the first engineer in the Pritzker family (the rest were lawyers) and he had a passion for plant management. They made a perfect pair for buying and turning around companies. The Marmon Group is a unique, loose federation of companies comprised mostly of manufacturing companies that operate a broad spectrum of American industry. As of 2002, the more than 100 companies have revenue in excess of $6b and produce a mind-boggling array of products. The Marmon Group continues to thrive and grow because of the trust and integrity built into its most basic structure (Berkshire acquired a controlling interest in 2008 and later bought it outright)

Key Takeaways

  1. The Marmon Group member companies are managed independently, at the local level, and a dual reporting structure feeds financial results to the group’s Chicago HQ where each member company is tracked closely by a small group of executives and managers. Beyond that, most operating and capital decisions are entrusted to the individual company presidents. Even acquisitions are managed at the local level. There are centralized resources and expertise which give companies a strong incentive to join the Marmon Group. Although the enterprise was built through acquisition, much of its growth over the years has been organic. Rather than serve as active micro-managers, the cadre of executives in Chicago viewed themselves as a consulting organization that provided tax, personnel, real estate, and other advice to the member companies of The Marmon Group. Operating policies include nearly complete autonomy, trust, simplicity, and effective leadership at the local level. 
  2. A great opportunity for the Pritzkers was a manufacturing company which was ailing. No attention was given to what business the company operated in and whether it would fit well with existing member companies – it just mattered that it was a solid opportunity
  3. Today, The Marmon Group is the Pritzker family’s largest enterprise, no small feat as they own Hyatt, a large interest in Royal Caribbean Cruise Line, many real estate holdings, and various joint ventures and partnerships
  4. Nicholas Pritzker, Jay and Bob’s grandfather, wrote  a small book that has been passed down the generations; the theme of the book is “Your only immortality is the impact you have on your successors.”
  5. “The only reasons owners of Colson and other troubled companies sold to us at bargain prices in the early days was because they had no place else to go.” – Bob Pritzker
  6. The Marmon Group was built from the ground up with virtually no financial investment by the Pritzker family. The brothers built the company by shrewdly investing in, and then greatly improving, poorly performing businesses. These were then used as vehicles to purchase yet more businesses, and the process evolved into a role model for building a conglomerate.
  7. Colson had troubles and in order to not default, they had to merge with another company that had sufficient working capital to finance a new plant – Great American Industries. It was not a smooth merger and some of the holding companies had fraudulently accounted for their inventories (Colson’s biggest piece of business at the time was a navy contract to produce the Mighty Mouse rocket)
  8. The Pritzkers built up Marmon because of ambtiton but also diversification. They understood that a broad-based organization with manufacturing operations in a variety of industries would be protected during normal economic swings 
  9. Pritzker Method – basically we bought a dominant position in a public company, then proposed a merger for cash or securities, finally we brought it private, and then began revitalizing operations and selling off parts of the business that didn’t fit with its core competenciesd. That’s the history of many of Marmon’s deals
  10. Cerro, metal and mining operation, and Trans Union, a spin-off of Standard Oil where it leased rail cars but also got into consumer credit reporting and other services, were Marmon’s biggest deals. The CEO of Trans Union thought it would be worth more to private owners than to a public company because a private owner would value the firm on the basis of cash flow rather than share earnings. Their cash flow per share at that time was almost 3x its earnings per share. 4 years after the merger, the board lost a case which made them liable for $13.5m to shareholders because it was deemed that they sold too low. This was hailed as a crazy verdict but eventually the Pritzkers paid for the $13.5m fine as long as the board members agreed to pay $25k per year for 5 years to the Illinois Institute of Technology and Stanford Medical School. They footed the bill because they thought the decision was unfair
  11. “One of the advantages of working with Marmon is you sit down with the president and make a decision. You don’t write a big book like you have to do in a public company and then hopefully get on the docket and make a presentation to the board to get approval to do something. With Marmon, we could just sit down and have a discussion and move ahead.”
  12. Bob used to teach at the University of Chicago, and he’s more like a professor. When I came here, one VP gave me some excellent advice. He told me to think of the office as patient waiting rooms and Bob is the doctor. He’ll come around, and he doesn’t like to read a lot of information. Don’t send him long reports or any of those kinds of things. He’ll come around and take your temperature and find out what’s going on and how you feel and what he can do to help. It was good advice
  13. The only constants would be internal expansion and reinvestment augmented by a steady pace of acquisition, characterized more by opportunity than anything else. There was no planned growth. In Marmon, “we’re not planners, we’re opportunists. We really haven’t sat down and said, ‘we really should get in this’ and make a plan.”
  14. Marmon moved on potential acquisitions with speed and surety, sending in small teams from Chicago to rapidly evaluate a company’s potential and future. The team considered a lot of factors, including any potential liability, its financial health, morale, tax status, any potential environmental problems, and capacity for growth. One element that was never considered during due diligence was potential synergy with other Marmon Group companies; each company had to stand on its own as a successful enterprise. This, more than any other single factor, became the defining quality of the sprawling Marmon Group. The Marmon Group comprised member companies run by executives who were almost completely autonomous in their ability to make business decisions. The very speed of this process is one of the selling points – wer’re prepared to act rapidly. 
  15. People sold to Marmon for many reasons but namely they wanted to cash out but continue working. They were the perfect home and everybody trusted them
  16. The Marmon Group stubbornly resisted any kind of corporate organization as a matter of principle – the Pritzkers have an aversion to large bureaucracies. They preferred to keep things as simple and direct as possible. “Trust is crucial in running this company.”
  17. Member companies would often bring acquisition ideas to HQ
  18. Marmon businesses operate about 400 manufacturing, distribution, and service facilities, and employ about 19,000 people worldwide. Revenues exceeded $7.7 billion in 2017.
  19. Today, Marmon Holdings, Inc., part of Berkshire Hathaway Inc., is a global industrial organization comprising 13 diverse business sectors and more than 100 autonomous manufacturing and service businesses. These 13 sectors are:
    1. Beverage Technologies
    2. Foodservice Technologies
    3. Water Technologies
    4. Transportation Products
    5. Rail Products & SErvices
    6. Intermodal COntainers
    7. Crane Services
    8. Retail Solutions
    9. Metal Services
    10. Engineered Wire & Cable
    11. Electrical Products
    12. Plumbing & Refrigeration
    13. Industrial Products

What I got out of it

  1. Learned a lot about Marmon’s history and their values – their speed in execution, opportunistic mindset (nothing was “planned”), their focus on trust/autonomy, and the fact that they never considered synergies between their companies all stood out to me.

Junk to Gold: From Salvage to the World’s Largest Online Auto Auction by Willis Johnson

Summary
  1. This is a story of a man who believes in hard work and treating people right. Willis always says things like, “If you take care of the company, the company will take care of you,” and “Watch your pennies and your dollars will take care of themselves,” and “Don’t forget a lot of people are counting on us.” These values led to his desire to have no debt on his balance sheet, to go public on the NASDAQ Exchange, and to build a great company from the ground up.. “Barry, here’s the thing. I’m not just buying a can of soup for twenty-nine cents and selling it for forty-nine cents,” I explained. “I have ten different services that are growing all the time. Think of us like the local sewer system.” Well, that got his attention. “We’re a utility. Nothing can get rid of us—nothing. Two of the biggest businesses in the world are car manufacturers and insurance companies,” I went on. “If insurance companies don’t write insurance policies on cars, then they’re out of business. If manufacturers don’t make cars, then they’re out of business. They’re always gonna make cars, and they’re always gonna insure them. We’re the guy in between.” I looked him right in the eye and said, “As long as we’ve got the land in the right place to put the cars on, we can’t fail. We are like the septic tanks of the sewer system. You can’t have the system without us.” Barry told me later that after our meeting, he called his wife and told her he had just met the smartest man he’d ever met in business. I don’t know about that; I’d probably give my dad that title. But I do know that despite the fact Barry and I were so different and came from such different worlds, we still understood each other completely. Barry was slick, and I was unrefined. Barry was uptown; I was downtown. But he liked the way I approached business, and I liked his tenacity. We were gonna do business. And we were gonna make some money.”
Key Takeaways
  1. Embrace Adventure and Learn from Second Chances
  2. Don’t Feel Sorry for Yourself
  3. Know What You’re Paying For
  4. Be as Relentless as the Cows
  5. Everyone Is Created Equal, but They Aren’t Always Treated Equally
    1. While my dad taught me how to crunch numbers, build a business, and take chances, Mom played an important role in making me a leader. The most important lesson I learned from her was that no one was better than anyone else.
  6. Take Care of the Business, and the Business Will Take Care of You
    1. Both my dad and I also built reputations in the business world of always standing by our word and never doing business if a deal felt wrong. We both walked away from opportunities that may have helped our businesses but would have crossed a moral or ethical line. To us, the business world was black and white, and a deal you aren’t sure about isn’t really a deal at all. It never ceases to surprise me, though, when others cross that line without even a blink of an eye. I was raised to believe that cheating is the same whether you are taking ten cents or $10,000. And if you could do it once, there was a good chance you would do it again.
  7. Don’t Forget Where You Came From
    1. One of my favorite phrases is, “Sittin’ in high cotton.” It means everything is going well. The cotton’s high, which means the profits are too. But I’ve found you appreciate sittin’ in high cotton a lot more when you’ve had times you couldn’t even find the cotton. It’s those times that keep
  8. Find Something in Common to Unite Around
    1. It took me a long time to figure out what was really going on. That sergeant wasn’t all that concerned about the bed. He was just giving us something to unite around. That bed making brought us together. We all became buddies no matter where we had come from. It didn’t matter if we were jocks or hippies. It was us against that sergeant.
  9. Push through the Fear
    1. So the war taught me how to make the best decisions for the people around me, not just for myself. And the military taught me other lessons too. Having good leaders and a clear chain of command is important. And it taught me cleanliness and order. Keeping things lined up makes for efficiency.
  10. When Times Get Tough, Get Creative
    1. I also learned another important lesson that day. The reason we were able to make such a good deal was because we were the only guys who got dirty. We did our homework and knew exactly what we were buying. As a result, Dad was able to outbid the others, who didn’t know the true value of the yard or had underestimated what others knew about its value. It was also another example of why it’s important to take action and not procrastinate.
    2. All of us would take our lunch breaks in a room above the store. This was before stores commonly installed security cameras, so the room was also a great way to observe customers and catch them stealing. Boy, was that an eye opener. I found out just how dishonest people could really be sitting above that store. That little old lady that you never thought would steal was putting stuff in her purse when no one was looking, or the fat guy was putting pork ribs down his pants and walking out of the store. It made me really think of how theft can affect a business and how you can’t ignore it. Safeway also reinforced the need for order that was established earlier when I was in the army. The aisles had to be organized and clean for people to want to shop and so they could find what they were looking for. That meant paying attention to stock empty shelves, checking expiration dates, and holding specials for items that were overstocked.
  11. When You Make a Promise to Someone, Keep It
    1. Back home and back at the business I loved, I took all I had learned in the military and at Safeway and applied it to dismantling. I tripled the income at the yard by taking good care of customers and calling body shops and mechanics to tell them what inventory we had in stock.
    2. After Dad backed out of the promise he made me, I told myself I would never do that, even if it meant I would lose money. I never promised something to someone that I didn’t do, and I never made promises I couldn’t keep. My word is gold. You don’t have to get me to sign something for me to take my commitment seriously. That was a really good lesson to learn, even if there were better ways to learn it.
  12. You Need to Sacrifice to Build a Dream
  13. Ideas Can Come from Anywhere—Even John Wayne
    1. For those of you not in the business, a dismantling yard primarily deals in used auto parts and recycling scrap iron. I would buy cars—mostly the ones that weren’t drivable and had come to the end of their life—and pay thirty-five dollars to fifty dollars and then tow them to the yard. There, I’d pull all the parts off that I thought I could resell, drain the fluids out of the car (which is called “depolluting”), and then haul the shell to the smelter, where I’d get paid for the iron by the ton. If I had a motor that was cast iron, or any copper or aluminum, I got paid different rates for that as well. At first, when I didn’t have a lot of money, I relied on the scrap iron to make ends meet. As the business grew, I hoped to be able to buy better cars and build up the parts side of the business.
    2. Tammi says she and the other kids all learned how to work and about the value of work during that time. She also says I set a good example for them about how to work hard. But really, I was just doing what I had to do—working late nights and weekends to make the business work. I did make a point, however, of reserving Sundays for family.
    3. While I was building the company, that was our time because building a successful business means nothing if you don’t have your family or your faith.
    4. I did try to use the business to teach my kids some important lessons. Reba tells me I never expected anything from anyone that I wouldn’t do myself, and she’s right.
  14. The Sum of Parts Is Greater Than the Whole—at Least in Dismantling
    1. My dream to build up the parts side of the business was starting to come true. As I was able to buy better cars, Mather was able to stock more and better parts, including motors, transmissions, and rear ends. As this happened, the business relied less on scrap iron, which gradually went from the main revenue stream to a byproduct of the parts business. The better the cars I could buy, the better the parts, and the better the profits. We were also able to pay off all the money friends and family gave us to start the business.
      1. Virtuous cycles, leaping-emergent effects
    2. One other big boost was that I was the first in the industry to dismantle parts, not just cars. Typically, if someone came into a dismantling shop and asked for a 4.6 liter motor, the shop would pull the whole motor out of a wrecked car and sell the motor and everything hanging on it—including the alternator, starter, regulator, smog pumps, air breather, carburetor, and distributor. A fully dressed 318 Dodge engine with twenty-two thousand miles on it might have cost a customer about $400 back in the early ’70s and would have come with a warranty. But if the motor had been sitting for a while, the carburetor might be dried out—the water pump shot or other parts didn’t fit the car just right—meaning there was a good chance the dismantler would have to buy it back to honor the warranty. The customer might also already have a good alternator and not need another one. But they were forced to buy the whole package. That didn’t make sense to me. That’s why if the same customer went into Mather, he or she would find just the motor—steam cleaned and painted and looking brand-new. The additional parts would have been taken out as soon as the motor had arrived to the yard, restored, and sold separately so customers could buy only what they needed. I would sell them just the motor, undressed, for $275—a deal if that’s all they needed. Then I’d sell the other parts separately—the distributor for $50, the alternator for $25, the carburetor for $100. By the time I was done, I could get $700 for the same parts sold separately that were sold together by my competitor for $400. And the customer was happier. I also had fewer buy-backs because I didn’t have to guarantee all the parts on the motor. This caused my profit margins to far exceed that of my competitors.
      1. Making it easier for the customer, adding transparency/ease/velocity can have incredible returns
    3. Whatever made it look nice, we did. That way, when people walked in, it was like they were walking into a real retail store. It made it more personal. They could shop. I know that sounds crazy—shopping at a wrecking yard. But no matter what you are buying, you want it to be a good experience, and you want to find what you want easily. Up until then, people just thought of a wrecking yard as a bunch of wrecked cars in a field that you had to wander through to find what you wanted.
      1. Can use poor competition, low standards to stand out
    4. As I saw the effects Ray’s death had on his surviving wife and kids, it also made me think even harder about the real reason I wanted to be successful—so I could take care of my family.
    5. Even with the larger building to display parts, I knew that to really compete with other auto dismantlers in the Sacramento region, I would need to do something different. I just couldn’t realistically keep every make and model part stocked like the larger dismantlers with more money and space. But I knew of some dismantlers like Al Parker in Citrus Heights who was doing well specializing in only Rambler parts at a small two-acre yard. All the larger dismantlers sold their Rambler parts to him and sent Rambler customers his way because they preferred stocking only hot-selling items that had a high demand. Because Al was the only specialized Rambler dealer in the area, he could draw customers from a large geographical area.
      1. Don’t expect to get different results by doing the same things, you have to act differently
    6. I came back and told Curtis that if we were going to compete, we needed to specialize in a car the other dismantlers in town didn’t want to carry. At the time Chrysler, Dodge, and Plymouth were not cars dismantlers wanted to have because they weren’t hot-selling items. So we made a decision to specialize in Chrysler, Dodge, and Plymouth. All the other dismantlers thought I was crazy. But they were more than willing to sell us their Chrysler parts that weren’t moving and send business our way so they could continue to stock more-popular items. My friend and brother-in-law Mike James says I’m not afraid to break the mold and go where no one else has gone before. I guess I just don’t like people telling me I can’t do something. When people tell me, “Willis, you can’t do that,” it just pushes me to show them I can. It wasn’t that I thought I was better than anybody; I just always thought if you wanted something bad enough and worked hard enough for it, it would happen. And it did. Soon I was drawing on a large area of customers who needed Chrysler parts because other dismantlers didn’t have them. In any one area, there wasn’t a big demand for Chrysler parts, which is why most dismantlers didn’t want to carry them. But in the entire area including Sacramento, Stockton, Marysville, and Yuba City, there was a big demand. There were pockets of General Motors and Ford specialty yards but not Chrysler, so we were filling a need for a big area. It was also cheaper to stock Chrysler parts. At the time we were still partly in the scrap business, so we could buy all the junk Chrysler cars for thirty-five to forty dollars whereas we were paying seventy-five to one hundred dollars for General Motors junk cars. I could go to an auction and buy a wrecked Dodge Polara for twenty-five cents on a dollar compared to a Chevrolet. So I could buy parts cheaper, but the parts were just as valuable, especially since no one else carried them. Before we specialized, Curtis and I were running between $3,500 and $5,000 worth of parts a month at Mather. After specializing, we were running around $3,500 worth of parts a day.
      1. Specializing in a certain niche, even if seemingly unattractive on a standalone basis, can be very attractive when pooled and efficiencies are found – Willis found a 30x in a niche nobody wanted!
    7. Curtis remembers that other people thought I was crazy (or stupid—or maybe both) to spend so much money on a computer for a wrecking yard. But I was never afraid to spend money on technology if it could help us be more efficient. And it turned out that the whole industry would end up computerizing once they saw the benefits it gave people like me and Marv. As large and foreign as this machine seemed back then, it paid off because it gave me a complete picture of the business and the inventory, which in turn gave me more knowledge and control over the yard, which helped me make more money. For example, the computerized system could tell me in a few keystrokes not just how many of each type of make and model doors were in the yard but could also tell me how many right doors we had, how many left doors we had, and what color they all were. If we had a lot of side doors that were the same color, I would discount them to move the inventory. But if we had only one right green Volare door, for example, I could charge customers more because it was harder to find and I could justify the price, which they usually paid because it saved them time and money from having to paint it. This allowed us to move parts faster and maximize our profits. The computer also kept track of the hot-selling items. For example, after we computerized we learned that we sold a lot of right front fenders and left front doors—although I don’t know why. So I made sure we had those in stock. I also started dismantling the right front doors—which didn’t sell as frequently. That way, if a customer needed door glass or a door motor, which didn’t have to come from a specific side, I could sell them out of the doors that weren’t selling very often. This allowed us to still move these parts but not take away from other sales. The customers were happy because they didn’t have to pay for a whole door, and we were getting money for inventory that might have otherwise just sat there.
    8. I did other things that other dismantlers looked at me funny for too, although not for long. For example, all the wrecking yards around Sacramento had agreed to use the same size ad—a little tiny ad—in the yellow pages because it was really inexpensive. Well that didn’t make any sense to me, so I went and bought a half-page, color ad. Curtis jokes that all the other dismantlers were mad at me for a while because they had to do the same thing to compete. I went big—they went big. I wanted to take it to the next level, and the rest of the guys had to try to keep up.
    9. I’d also use the trip to mine other wrecking yards for ideas I could take home and implement at Mather. We’d suck in all their ideas, and they didn’t care if they told us because we weren’t direct competitors. So I would learn a lot about what they did that worked and what didn’t work, like how they were handling antifreeze and tires as environmental regulations weren’t yet developed. Their experiences helped make our company better.
    10. He taught me that you have to do your research and that if you don’t stay on top of reading about other people’s ideas, you never come up with ideas yourself. It’s good to learn from others.
    11. My sister Bonnie said she will never forget how excited Peter and I were. We were excited to buy a salvage auction and to be branching out from the wrecking business. It was a big step, one that would change my life forever. What made the U-Pull-It model unique was the high volume of cars it could turn around. I liken it to the Wal-Mart of dismantling. But it was also a little like the old days of Mather because there was a lot of scrap iron. To keep everything cheap and to be able to retain a high volume, U-Pull-It dealt mostly in end-of-life cars. It got its cars by running ads in the paper announcing, “We’ll buy your junk car.” How much we paid for that car depended on how far we had to tow it and how popular the parts on that make and model were. Popular makes and models would sit out for about thirty days while people pulled what they wanted from it. Less-popular cars would sit for sixty days. At the end of the allotted time, what was left was crushed, and fresh cars brought in with fresh parts. At $70 a ton you can get about $140 for a two-ton car. But if you can sell another $100 or $200 worth of parts out of it, you are doubling your money. Then you multiply that by one hundred cars a day, and that’s where the money comes in because it’s not about how good the parts are on it. If you have three hundred car doors that you would normally crush and you can sell some of them for $5 or $6 each, you’re that much further ahead. We could do this because the customers at a self-service yard like U-Pull-It were also different than customers at my other businesses. These were people who didn’t have a lot of money and were barely getting by. They needed to get their cars running as cheaply as possible to get to work the next day and oftentimes were fixing it themselves. By contrast, Mather dealt mostly with body shops and mechanics, people wanting late-model parts that were guaranteed and as perfect as possible. Most of the customers at U-Pull-It were driving cars just like the ones inside the gates. In some cases, customers would even sell their cars in exchange for one that was slightly better inside. They could buy a car there for $300, drive it until it barely worked, and bring it back a few months later and sell it for $50. Then they could buy another $300 one again. It was a cheap way to maintain transportation. U-Pull-It was also a popular stop for buyers from Mexico, who came with semitrucks and filled them with fenders, radiators, and other parts they would then take over the border and resell. We would give them a discount for buying more than $5,000 worth of parts. The model for U-Pull-It was simple. It didn’t matter what the condition of a part was; all parts of the same kind cost the same amount of money. That put the liability on the person buying it, not the person selling. It benefitted the customers to hunt for the best part they could because they were paying the same amount. In the end, U-Pull-It also had three revenue streams—the gate fee, the parts sales, and scrap iron. That was just three more reasons to like the business, as far as I was concerned. It also had another by-product of business. Because many of the cars were abandoned or forgotten, much of what was left inside had also been forgotten. We created a thrift store out of htese items – baby strollers, CD cases, clothing, and more. Our customers, always looking for a deal, loved the bargains,a nd it provided yet one more revenue stream to the mix.
    12. I was sittin’ in high cotton, running on all cylinders with the Mather Chrysler yard, the mini-truck yard, Today Radiator, Mather Auto Parts, and U-Pull-It. I had also decided to specialize yet again, opening up a foreign auto parts yard next to U-Pull-It under the now well-known Mather name. Foreign cars had become more popular, and I could ship in foreign parts from Taiwan for pennies on the dollar for Datsuns, Toyotas, and Fords. I also sold aftermarket sheet metal from the foreign parts yard. But I still wanted to increase business, especially at the specialized yards. I started a dismantling magazine so I could advertise and allowed all specialized yards in the Sacramento area to purchase full-page ads in it, which I then direct mailed to body shops, mechanics, and insurance companies. I didn’t start the magazine to make money but to be a tool that I, along with other specialized dismantlers, could use to get more business. At first, we just called the magazine Specialized Magazine, a boring name I didn’t care for. We needed to think of something better. Then I remembered from my days growing up on a farm how farmers would store their grain together in a co-op and how other businesses would form similar alliances for a mutual benefit. Since the magazine was a co-op of parts dealers using it for the mutual benefit of advertising, I decided to call it Copart instead.
    13. Instead of waiting for the DMV to find a better way, I went to them and proposed a solution. I would develop a way to create electronic forms and print them from a computer, thereby eliminating the need for the DMV to send out the books at all, saving them money and my business valuable time. I spent about $40,000 building the computerized system for the state of California. Now we could go to the computer and fill out all the paperwork needed and didn’t have to wait for books. It sped up the whole process and was an example of how it pays to fix something yourself instead of waiting for someone else to solve the problem for you.
    14. I got the inspiration to create new services within my companies from Disneyland. When I was younger and I went to Disneyland for the first time, Disneyland wasn’t just a theme park to me or a place to have fun. Disneyland to me was a model of how to build businesses within a business. I paid a fee just to get in the gate. And then when I went to a restaurant, I paid to eat and drink. Then I paid money at the gift shops. I paid for tickets to the rides. Everything I did was another business. I thought, Okay, I’ve got to find a business that has multiple revenue streams within it. Disneyland taught me about building other revenue streams. Every time you can add a revenue stream to the same pipeline, the profit margins change drastically. You are putting more through that pipe. That’s what I always tried to do in my businesses, and it is how we were successful.
    15. U-Pull-It grew up as my children also grew up. As each of them turned sixteen, I would find them a wrecked vehicle from one of the wrecking yards for them to fix up themselves and drive. The kids had to put up half the money—which Joyce and I would match.
    16. My work didn’t drain me; it energized me and drove me. Jay wanted to be like that.
    17. I’d tell him how much I liked a certain motor because it broke a lot. Jay didn’t understand that at first; why would a motor that broke all the time be so great? But I told him, “You’re never going to sell it if it doesn’t break. What are you going to do with a bunch of motors that never break?” It was a big learning curve.
  15. Be Your Customer’s Most Valuable Partner
    1. What if we could clean up those cars—take out the debris, vacuum them out, and make them look clean and new again (outside of the damage)? They would be more attractive to buyers and get more bids, driving the price higher, I thought. I knew I could get the insurance company more money if I cleaned these cars up, but I also knew I would have to charge the insurance companies for that service. That was a problem because insurance companies didn’t want to pay you to clean up a wrecked car. To them it was junk. I had to find another way. I proposed a deal to the Fireman’s Fund. Instead of charging fees, I would keep a percentage of the sale price for each car—20 percent on older, highly damaged cars; 10 percent on newer cars. That meant that the burned-out car I could only sell for twenty-five dollars would only get me five dollars. But I could more than make up for the losses on the badly damaged cars with the 10 percent I got off of the newer cars that could be more easily repaired—especially if we cleaned them up and drew top dollar. The Fireman’s Fund was thrilled because they no longer had upside-down cars and they were seeing their returns go up because the newer cars were getting more bids. And I was watching Copart’s profits go up with the returns. But maybe most importantly, PIP represented a significant shift in the industry. Now the salvage auction was a partner with the insurance company, with the goal of getting the best possible price for each car, eliminating any arguments over fees.
      1. Win/Win
    2. When you buy a business, you can inherit some great talent from that business. To let that talent go is bad business. I learned to really respect the people who came with the facilities we purchased, and many of them turned out to be great, long-term employees who really helped us grow and do well.
    3. Efficiency is what excites Jay. Looking at something and finding a better way to do it is his forte. And that’s something I not only valued but embraced. I’m not the kind of guy who says, “Look, kid, I’ve been doing this for twenty years, and I’m not interested in changing.” I never have a problem if someone tells me something is broken. I have always wanted to do things better and improve on the model.
  16. On Going Public
    1. I had never cared about the stock market. The stock page in the newspaper was as foreign to me as the sports page and about as useful. I hadn’t a clue about Wall Street. But when I heard that IAA was making big moves that could affect my business, I decided I should start to care. Marv sent me IAA’s prospectus, and I read it. Then I read it again. And again. I didn’t understand most of it at the time, but I did understand this: IAA had not been making the money I thought it should be to go public. They were in debt. Going public allowed them to raise a ton of money, and they didn’t even have to pay it back. On the other hand, we were making money, and we weren’t in debt. Even though I knew nothing about going public, I figured if they could do it, so could I. We had a better company.
    2. I know what I don’t know. I also think it’s a good idea to learn as much as you can.
    3. I went down to the library and tried to find a book to explain it all. When you don’t know what you’re looking for, it’s not easy to find it.
    4. Steve told me later that he admired my principles and the fact that failure wasn’t an option for me. But while I was driven, I was also willing to wait to do it the way I wanted, without cutting deals I shouldn’t or selling myself or the business short. John and Steve respected that, which I appreciated
    5. Sometimes people underestimated me because of the way I talked and because I looked more like an Okie farm boy than a polished city slicker. Those people usually lost out. It was a good way to weed out the jerks, though—the Wall Street types who would talk down to me, thinking I was less than them somehow. They didn’t know it, but as they were judging me, I was summing them up too—seeing if they were going to play honest or try to take advantage of me.
    6. I’ve been in business a long time, and if I don’t trust people from a conversation across a dinner table, I’m pretty sure I’m not going to trust them with my reputation or my money. And if I don’t trust them with my money, I’m sure not going to go making money for them. I told Barry, “They’re not good partners. I don’t want to deal with them.”
    7. We all met at a restaurant—which had become my favorite place for these things because deals just go better on a full stomach.
    8. I also knew Copart was mine again. At the time, I had three million shares, making me the biggest shareholder, with 40 percent ownership of the company. I could do one of two things—use my stock as currency to buy other companies or go back to Wall Street to raise more money. Now that Copart was public, raising more money would be easy.
    9. In the meantime, IAA was gobbling up facilities across the country as fast as they could. I knew from my dealings with Bob Spence that their plan was to acquire as many locations as they could and let the yards still run like they had been before they purchased them, even if that meant they ran on separate computer systems and used different business models. IAA figured they’d worry about converting them into one system later, when they had finished growing. My philosophy was much different. I felt Copart should grow slowly, acquiring strategic locations and then converting each one over to the Copart system and business model immediately. Jay had already become an expert at converting yards—taking the lead in changing things over in all the facilities I had acquired while getting ready to go public. I just didn’t want to grow to grow. I wanted to build a brand. I wanted anything with a Copart logo on it to run the same way—same computer system, same pricing, same way of treating our employees—so people started relating our name to a certain way of doing business. We spent time converting things over and converting employees over and teaching them our way of doing things because in many cases, the old way they were doing things hadn’t been working. That’s why they had to sell. That’s also why I think IAA’s approach to keeping newly acquired yards running the same way was wrong. They weren’t fixing what was broken in the first place.
    10. IAA was especially focused on big cities, so we looked at more rural areas. The good news about that is it is a lot cheaper and easier to run a yard in a rural area. There is also less competition. Copart’s board of directors didn’t agree with my approach. They wanted me to grow like IAA was growing—finding locations in big cities like Chicago. I decided what they didn’t know wouldn’t hurt them. I told the board I would look in Chicago, but then did what I wanted to do anyway.
      1. Doing things differently, courage to stand up for what you believe is right
  17. Look Beyond Balance Sheets
    1. IAA would show up wearing suits and riding in limos. I showed up wearing cowboy boots and driving a rental car. Some owners were wooed by the flash of IAA. Some were put off by it. For other owners, it came down to the bottom line—who would pay more? I had the advantage there. IAA bought companies the Wall Street way—based on pretax or after-tax earnings. I had my own method based on how many cars the auction sold and the value of the land. I knew what didn’t show up on the balance sheet of a private, family-owned company—that many of these business owners used a lot of their profits to buy personal cars or pay salaries and benefits to their family members. Many of the businesses were undervalued as a result. I paid a little more for these businesses, but I was also able to see their potential. With my operating systems and business model, I also knew we could increase profits almost instantly. The other philosophical difference between Copart and IAA was that IAA purchased the cars from the insurance companies while Copart charged fees to store, clean up, and sell the cars. The advantage of this was Copart could limit its liability and get a greater percent of earnings per investment, since they were putting out less cash. The downside was IAA could show more revenue on its books, which people on Wall Street saw as having more potential. I didn’t care though because I knew in the long run, it was about earnings. The bottom line is: what percentage are you making on your business? If we are pulling 30 to 40 percent to their 10 percent, we are a stronger company.
  18. Consistency Is the Key
  19. Look for Leaders Everywhere
    1. Loyalty was a trait I valued. Whenever I shake the hand or meet somebody, I really size them up. After that first meeting with Vinnie, I thought, If he’ll stay with the company, he’s going to be a big leader here. Vinnie told me that his impression of me on that first meeting was that of a simple, easygoing guy with a clear vision and who was quick to react. I was a guy who had a lot to get done in a hurry, and Vinnie knew that. In that, we found a common bond.
  20. Admit Your Mistakes
    1. It was just a bad idea, so we went back to the original model. But the good thing about Copart is even though sometimes we have bad ideas, we learn from them and correct them. That’s the advice I also passed on to Jay and Vinnie: Any time you make a mistake or bad news comes and you’re really upset about it, remember there’s a lesson in it. Just chalk it up as a lesson, and don’t let it happen again. When you lose a customer because you bid wrong, don’t get mad at the customer. Ask yourself, “What did we do wrong to not get that contract?” Just like with buying cars—it didn’t work, so we learned that lesson and moved forward.
    2. Even great entrepreneurs make mistakes, but they only make them once because they learn from them. Willis was never afraid to take a risk, but when it didn’t work, it was time to course correct. Making sure you learn from past mistakes was one of the best lessons I learned from Willis over the years.
  21. Keep Your Growth Sustainable
    1. Jim Grosfeld, who was on Copart’s board, gave me some sage advice: “Willis, Wall Street doesn’t care about ups and downs. They hate that. What they like is consistency. If you just make that earnings line just move up a little bit every quarter, every year, you’ll get paid a really good high multiple because then they can figure your company out.” From then on, I concentrated on steady growth, and when I thought about buying another location, I didn’t try to buy it just because I wanted to grow the company. I bought it because it was a good fit and was in a strategic area that helped fill in our network. I learned an important lesson, and that was not to grow too fast. You have to grow slow and steady, or Wall Street will make you pay for it. They always compare you to what you did last time. If you exceed what you did last time, you’re successful; if you come in under what you did last year, they don’t like you.
    2. At one point, I asked David when it would be done. We needed it now, and I wasn’t good at waiting. When David told me it would probably take another eight to ten months, I wasn’t happy. “Well, put more programmers on it—then we’ll get it done faster,” I told him. “Willis, I’m going to give you a lesson in life right now,” David replied. “One woman can have a baby in nine months. But nine women can’t have a baby in one month. The time doesn’t change. That’s the way it is.” CAS (Copart Auction Systems) ended up taking a year to build at a cost of $3 million—huge money at the time. Now he could see how many cars we picked up that day, how many cars we sold that day. It helped us manage our business better and bring it all together.
      1. Irreducible minimums are important to identify and understand
  22. Embrace New Ideas
    1. Jay talked to buyers himself about online bidding, trying to educate them about the new web-based technology. At this time, online bidding had descriptions of cars for sale but no pictures. All the buyers told Jay it was a dumb idea; no one would bid on a car they didn’t look at first, they said. Jay told them, “I’m not asking you to not see the car. I’m asking you to come look at the car the day before the sale, and for thirty-five dollars you can submit a bid on our website and not have to stand in the auction all day or pay a contract buyer one hundred and fifty dollars to stand there for you.”
      1. Removing frictions, making it easier for the customer to do business
    2. Something else amazing with online bidding was happening too. One day, Jay saw a car in San Diego sell to a buyer in Connecticut. We had never imagined cross-state bidding, let alone cross-country bidding. Jay had David call up the buyer and find out how he was bidding on vehicles he was too far away from to come look at prior to the sale. The buyer told him he knew what he was doing, but it would be helpful if Copart put pictures of the cars online too.
  23. Fill in the Gaps
    1. Copart was still physically growing too. Now that the systems were in place, I had a goal of adding six to ten yards per year in strategic locations between existing yards to not only grow the network but also to shorten tow times and cycle times, which is the time between getting a car into a yard and having it be sold and picked up. Every time we added a dot on the map, we saved towing. This was especially important because at the time, about 70 percent of our customers were using the PIP program and we were eating the cost of long tows. Any time we saw our towing costs were too high, we’d try to put a yard between locations to improve our bottom line. If we can tow a car 50 miles instead of 150 miles, that’s money in the bank. The new yards would also free up space in nearby existing facilities, which in turn could take in more cars.
    2. It was all about making the company stronger, without any debt, and having more cash in the bank. We wanted to take care of our employees, the insurance companies, and our buyers.
      1. Stakeholder win/win mindset
  24. Make Doing Business Easy
    1. As the temperatures continued to drop, so did the number of buyers who braved the cold. With fewer buyers, returns also dropped. So I had an idea: Why not bring the buyers inside, into a nice, warm building, and show them the cars on television monitors? People would no longer have to follow around auction trucks in the cold. That’s when EVA (electronic viewing auction) was born. We brought the auctioneers inside and displayed pictures of the cars on one screen and the make, model, and other information about the car on another screen so no one had to go outside anymore. Buyers loved the idea, but to make it work, it required a lot of building. We had to build an auction booth inside the building, get chairs and coat racks, and buy donuts. We had to do more interior things than we ever had before, including wiring these televisions up on stands. It took a big capital investment to get people inside, but they loved it. While about 40 percent of people were bidding online, there were still a lot of people coming to the sale at this time.
  25. Never Stop Improving on an Idea
    1. Internet buyers still wanted more. They wanted a way to increase their bids on the day of the sale too. Jay figured if there was a way people could bid online during the sale, we would get even higher returns.
    2. I learned that from the military. You don’t leave anyone behind.
      1. As a leader, you also have to be on the frontline, facing danger head on; officers have to eat last; group size should be small and manageable (Dunbar’s number)
    3. We had also seen on the news that commercial planes all over were being grounded—not because the government was grounding them but because no one wanted to fly. On the other hand, car rental companies were booming. You could hardly find a car that wasn’t already rented. I told Jay people weren’t going to fly as much after this. Instead, they were going to drive. If that was the case, they were going to wreck more cars. That meant our business was due to grow again.
      1. Willis understood the whole system, and secondary effects
    4. I talked to one of the guys at Salomon Smith Barney and asked if he thought us doing an offering would be OK even though it had only been three weeks since 9/11. I also told him why I thought this was a good time to grow. He told me no one was doing offerings at this time. Wall Street had pretty much shut down since 9/11, and although there were people who wanted to invest and there was money out there, everything had pretty much come to a screeching halt. This made me think, Well, if there’s a lot of money out there and we have a good story to tell, this may be the perfect time to do an offering.
      1. Greedy when others are fearful
    5. We went out on the road show, which we were used to from our first two offerings. Usually you go from one investment company to another, and you only have thirty minutes at each one because their calendar is full. You have twenty-five minutes to tell them about the company and another five minutes to talk numbers, and maybe, if you are lucky, five minutes of questions. Usually there are also only two bankers in the room to make orders because they are so busy. That wasn’t the case this time. In fact, it was totally the opposite. We’d go into a conference room with fifteen investors, and they wanted us to stay because they had no one else coming in—nothing else to do.
      1. Find opportunities for contrast
  26. Ask Yourself, “What’s My Job?”
    1. Because it was easier for buyers to participate and they could do it from anywhere, more buyers bid on each car. The Internet auction also retained the same excitement as live bidding, which kept the competitive atmosphere alive. With more competition, returns went up. In fact, the sale had the highest returns of the entire year. It went over like gangbusters.
    2. It was time to make a major business decision. That decision wasn’t whether we were going to roll out VB2 to all the yards—that decision was obvious, even to the auctioneers who would lose their jobs. So we had to figure out what our job was. We literally sat in a room and wrote the words, “What is our job?” on a board. We decided our job was to help buyers purchase cars easier so we could get the most money for the sellers. That was our job—to get the insurance company more money. That superseded anything else.
    3. I didn’t see it from a seller’s perspective, though. I didn’t expect returns to go up. I wasn’t thinking that by making it easier, more buyers would use it—and that buyers from all over the world would be able to use it. With all those buyers competing over the cars, it was a natural result that the returns would go up. That was the kicker for me.
      1. “Good” decisions are those which have unintended, positive knock-on effects
    4. It goes to show you that any company today has to pay attention to technology and how the world is changing and incorporate that if it wants to survive. You can’t do things the same way and expect to be around in ten years. The world moves too quickly. The moment you snooze, you lose.
    5. Our philosophy is always to be on the bleeding edge and to never let those young kids come up behind us and do what they’ve done to so many industries. We need to hire those kids instead so we can stay ahead of the curve on all the new technology.
  27. Don’t Lose What Makes You Special
    1. It was 2002 when Jay realized something bad had happened to Copart: no one knew anyone anymore. We had gotten so big we didn’t have that mom-and-pop feel anymore. This was especially evident when Jay called up a yard to talk to a general manager one day, and was surprised to find out no one knew who he was. “Jay Adair? I don’t think I know you. Do you work at Copart?” asked the employee who had answered the phone. Copart had become a much different kind of company than when Jay first started working there in 1989. It was big. It was financially secure. It had revolutionary technology. But the vision and spirit we had built the company on was no longer reaching its employees. The employees, as a result, did not act as a team or feel like they were working together. That in turn negatively impacted the company’s progress and its relationship with its customers. So Jay decided Copart needed a revolution. It needed to get back to its roots.
    2. Another catalyst for Jay’s decision to have a revolution was when Copart disbanded its fleet of tow trucks and began to contract with drivers instead. This improved efficiency and cut transportation and insurance costs. But the decision—which meant laying off hundreds of drivers—also hurt morale.
    3. About 75 percent of our workers’ comp costs were for truck drivers. Seventy-five percent of our liability claims were because trucks were driving over mailboxes or knocking down gates. When we added it all up, it was ridiculous. It’s crazy we never thought of it before. After testing it out further, the company decided to get out of trucks altogether. But they needed to find a way to do it that would be fair to the hundreds of drivers who would no longer be on the payroll. Gerry Waters took the lead in an effort to sell all of Copart’s carriers to each driver at a discount. He put together a packet of information for all the drivers that outlined how to start their own businesses, including everything from getting a business license and insurance to lists of lenders that had already been identified as willing to finance their new venture. Copart also promised to favor the new entrepreneurs when choosing subhaulers in the future. Whatever the other local guy towed for, Copart offered to pay more if the driver used to be an employee. Only about 20 percent of the drivers took the deal, with the 80 percent choosing not to take the risk of running their own businesses. Copart found that owner-operated tow trucks worked harder. Each tow represented more money for their business, while regular employees got paid the same no matter how many tows they did in a day. All of a sudden we had people doing more loads in the same amount of time for us—because they were hustling more. They were doing three loads a day instead of two. And they were working earlier and later instead of just punching a clock because it meant more money for them. They were in control of their paycheck. As Copart progressed, the subhaul program progressed with it. Copart began offering incentives for tow companies, like discounts on cell phones and insurance, to sweeten the pot and attract the best companies. It again goes back to the lesson that when something bad happens, like the union problem in Michigan, you don’t need to panic or get mad; you just need to step back and find a new way. And more times than not, that bad thing that happened will turn into a good thing if you listen to the lessons it is teaching you.
    4. There were more lessons. Copart didn’t just learn that it could operate better without its own fleet of trucks; it also learned it needed to change the way it interacted with employees. We learned it wasn’t just enough to treat your employees nice, give them good benefits, and hope they got it. That wasn’t enough to keep the unions out. We treated the employee nice, gave them as many benefits as we could, and treated them like we didn’t want them to leave—because we didn’t. But we didn’t tell them we loved them; we didn’t show them how much they meant to the company. That’s where we had fallen short. This was another reason Jay wanted a cultural revolution at Copart. We had been a nuts-and-bolts company where as long as you got the work done, it didn’t matter if you had fun doing your job or liked the people you worked with or even knew why you were doing what you did. That made us into a place that on some levels really wasn’t a great place to work because it didn’t matter if people would rather work around you than with you. That needed to change. Jay told managers at a conference in 2002 that from then on Copart was going to be a company that didn’t just hire on skill sets or IQ (intelligent quotient); it was going to hire based on attitude—EQ (emotional quotient). We were going to be a company in which people liked their coworkers and had fun at what they did. If that happened, we knew they would probably be more efficient and productive and capable of delivering legendary service. If employees are happy, that translates directly to how we treat our customers and how we can move forward as a company.
    5. Becoming a big, public company, we decided, didn’t mean we had to sacrifice having a culture where people worked hard, had fun, and were rewarded for it. Jay remembered how in the early days he was given the freedom to disagree with me and share his ideas, which helped him grow. He wanted all employees at Copart to have that same opportunity. You should be respectful of your boss but not fear your boss or be afraid to disagree with him or her. If you have the ability to speak your mind, the company benefits too because that’s when great ideas are born. We also wanted to communicate to employees that the most important thing at Copart was keeping a clear moral direction. So many people separate different aspects of life by saying “this is life” and “this is business” and give them different sets of rules. But we look at business and life and family as all intermixing. If you are happy at home, you’re happier at work and vice versa. If you do well at work, you can provide more for your family. Jay also wanted everyone at Copart to treat each other like friends and family. Take care of the company, and we’ll take care of you. Take care of customers like you want to be taken care of
  28. Have a Clear Mission, Vision, and values
    1. To communicate some of these lost ideals and vision, Copart developed a mission, vision, and values statement to guide its business principles and employees. Its mission was to streamline and simplify the auction process; its vision was to continually offer compelling, innovative, and unique products and services to propel the marketplace forward. And the first letter of each of its values spelled out the Copart name itself—committed, ownership, profitability, adaptable, relationships, and trust. But it wasn’t enough to just hang these on the wall. The mission, vision, and values also became a key element in Copart’s training and culture. The CIC—Copart identity campaign—was also launched and introduced initiatives designed to build morale, teamwork, and customer service standards. The campaign included company-wide initiatives, such as the twenty-four-hour rule in which employees must follow up with customers within one day. A weekly cheer was also introduced to bring employees together and build company pride, and employees were also encouraged to wear the company color – blue – one day a week.
    2. I also formed the Copart Private Foundation—a scholarship fund created directly from private contributions made by me and other executives. The foundation was set up to help Copart employees’ children with the costs of college and books. No one who has applied for the scholarship has been turned down. My military background and strong love for my country also prompted me to start a program at Copart that paid 50 percent salary to any employee deployed to an active US military campaign. Positions are also held for six months for those who are deployed. This policy earned Copart national recognition from the Employer Support of the Guard and Reserve (ESGR)
    3. Despite these improvements, Jay was still concerned that the senior management of Copart was still too far removed from the people working in the yards, as was demonstrated when the woman who answered the phone didn’t know who he was. As he was talking to a business associate one day, he thought out loud about how great it would be if he could meet every employee personally and travel to all of Copart’s yards, which numbered more than 110 at that time. His associate laughed at him and commented he would never be able to do it. Was he crazy? That was all the challenge Jay needed to prove him wrong. Jay promised all the employees he would come meet them personally at their yard over the next year. The world tour was born. Jay didn’t know what he was getting into, though. The world tour took on a life of its own, and the spirit and excitement that had been lost over the years returned as employees tried to outdo one another by staging stunts, games, and skits for Jay and other executives when they visited. During the 2005 tour, Jay found himself riding a donkey, being arrested, getting dunked in a dunk tank, and dressing up as Elvis. It was an opportunity for employees to turn the tables on executives and put them on the spot—and as a result, the executives became more like ordinary people in their eyes. More importantly, the world tour also had a powerful message. Jay talked to each yard about where the company had been and where it was going. He told them how Copart’s change-centric culture had made Copart a leader in the industry and how the company would keep embracing change and finding better ways to do things. He explained Copart needed to provide not just good service but legendary service—service that left customers saying, “Wow, how did they do that?” and telling others about the experience. He shared the strength of the company’s future with employees and talked about how the salvage industry was recession proof because people would always be wrecking cars. The world tour really brought the company together. We got to know our employees better, and they got to know us. We got back that mom-and-pop feel we had lost.
    4. Helping out in the Katrina disaster – Through the ordeal, Copart did not pass any of its added costs on to its customers. Copart chose to absorb the costs for a couple of reasons—first, because it was the right thing to do. Copart emerged as an important ally in the clean-up and recovery efforts, with many government agencies asking for and receiving Copart’s help. One of Copart’s first priorities after the storm was picking up vehicles at Kessler Air Force Base in Biloxi, Mississippi, so rescue operations could be made to New Orleans. Copart also absorbed the costs because it wanted to prove to its customers it was not just a vendor but a business partner they could rely on even at the worst possible time.
    5. Finally, I decided to get a second opinion. I called Richard Reese, the CEO of Iron Mountain, who already had operations in the UK. I had met Richard at a CEO group I attended and had asked him for his advice before. “Richard, what’s the most important thing I need to do in England?” I asked. Richard’s advice was quick and direct. “You need to introduce your company’s culture there.” Richard went on to explain that in the UK, business was very hierarchical, meaning managers didn’t like to talk to people many levels below them. “That’s not the way your company or my company works, Willis,” Richard told him. “We need to have that communication between management and the employees—that idea flow—for things to work well.”
  29. Other
    1. Her gut [his wife’s] was always right. She really helped me make good decisions. Joyce always told me she liked to hear about my ideas and see me excited about the next big thing I had planned. There was nothing she felt I couldn’t do, she told me. That’s a pretty amazing thing—when you have someone on your side who feels that way. She knew how much I loved Copart and loved taking it to different places and trying new things. Neither of us really knew if I could ever give that up.
    2. I have only one regret—that I now spend more time with my grandchildren than I was able to spend with my children while they were growing up. I was too busy growing the business to enjoy them as much as I would have liked.
    3. One thing I’ve taught all the executives in the company is that while you may be good in our business, that doesn’t mean you are good in any other business. Don’t get a big head and think you know it all, because that’s when you’ll lose. You’re really good in the car business. You’re really good in the recycling business. You’re not necessarily good in everything else, and you need to understand that. Stay with what you are good at, venture out if you see an opportunity, but pull your horns in if you make a mistake.
    4. Willis didn’t come home at seven at night with his shoulders down like he had just put in another day at the salt mine. His work didn’t drain him; it drove him. I wanted to be like that.
    5. Willis used to say if you get big enough, you can make an industry behave in a particular way.
What I got out of it
  1. Humility, common sense, work ethic, admitting mistakes, being in the thick of it on a daily basis, surrounding yourself with great people and doing the right thing are all key attributes of leaders, as Willis amazingly demonstrates

John H. Patterson: Pioneer in Industrial Welfare by John H. Patterson, Samuel Crowther

Like my write-up on Henry Ford and some of my other “teacher’s reference guides“, I got so much out of Pioneer in Industrial Welfare that I wanted to create a more formal write-up. As always, I have attempted to put together something which is (hopefully) a manageable, actionable and digestible introduction to Patterson’s thinking and business philosophy.

On John H. Patterson

 

 

*The vast majority of the content is from the books and not my own words. I’ve simply distilled, compiled, and added a few notes.

Competing Against Luck: The Story of Innovation and Customer Choice by Clayton Christensen

Summary
  1. This book is about how to better create, predict, and act upon innovation breakthroughs. It helps us better understand why customers behave the way they do and make decisions, shifting from relying on luck to competing against luck.
Key Takeaways
  1. It often looks like companies have good innovation processes but the fundamental problem is that the hordes of data we have today is not organized in such a way as to helpfully indicate which might be the next breakthrough idea. The data never tells you why the customers make the decisions that they do. Understanding this process and some of the questions you can pose will help you get away from relying on lucky and hit or miss innovations and being able to better predict what customers truly want. This leads us to “The Jobs Theory”
  2. The Jobs Theory
    1. The better question to ask is, “what job did you hire that product to do?” This change in perspective helps clear up what your customers truly want. Most of the focus is on customers and the products themselves and not how well the product is truly solving the job that the customer wants. This helps us understand the why of customer behavior, providing the fundamental driver of innovation success
    2. Customers hire a product to make progress, the job they’re trying to get done and the product/service solves these jobs.
    3. Jobs Theory also take into account circumstances, people’s values, emotional and social needs, and more.
    4. Never fall in love with your solution to the job, always try to find way to better understand the job and how to best solve it. These questions and lens will help you more accurately define who your competition truly is. For example, Netflix competes with every form of leisure including a bottle of wine and sleep
    5. The power lies in not being able to explain to successes but in helping a predict future innovation successes
    6. Jobs Theory is an integration mechanism allowing you to create a full narrative and to focus on the right type of complexity. The priorities and trade-offs of customers may totally change with this lens and it’ll get you to focus on what’s truly important the why of customer decision making
    7. These questions help you step into your customer shoes and truly see the world through their eyes
    8. You not only have to think of the product itself but how they find, purchase, and initially learn how to use your product
    9. Non-consumption could be your biggest opportunity as customers don’t do anything because there is no solution which satisfies their needs. This opportunity will not show up in any data but you can uncover it by observing people‘s behavior. You can learn everything you need to know about your product or service just by observing people who use and don’t use your products but you have to know what you’re looking for
    10. Whatever you see customers compensating see this as a great opportunity for some innovation which people would pay highly for
    11. Negative jobs, or what people don’t want to do, are also a rich resource for innovative ideas
    12. Observing customers use your product or service, especially in any unusual ways, is full of opportunities for improvement or for horizontal moves
    13. You have to think through and understand what other product/service/behavior is being “fired” or what you are replacing, in order to better understand where your product fits and what job it is truly doing for you and your customer
    14. Two important forces that are very rarely considered are habits (the fact that people are comfortable with something that tends to be good enough) and anxiety of choosing a new product
    15. Customers are infamously bad at knowing what they want but they can tell you very quickly and accurately where they struggle
    16. Only by constructing the narrative and taking everything into account that led to the purchase can you change the ending and see how your product could fit in
    17. You are selling progress, not products
    18. Consistent small “hires” is a great indicator you are satisfying the job needed
    19. Companies should be organized around the job to be done, rather than by geography, product line, etc.
    20. Products which nail the job they’re supposed to do don’t have to worry about price – customers are grateful for the solution
    21. Taking a job perspective will easily allow you to shift into a mindset and see clearly how to shift annoyances from the customer to internally so that the customer experience is better than ever before
    22. When a product commands high market share and has high pricing power, it is rarely the product itself which is amazing. The overall experience fits the job so perfectly that they’re hard to copy or replace. Creating experiences around this job almost inoculate you to competitors. You must understand the job, the set of experiences around the job that you need to create, and integrating around the job are critical. Helping the customer make progress, incorporating the functional/social/emotional aspects, and aligning experiences and the job
    23. Aligning around the job to be done and making that job crystal clear gives people confidence to act on their own and efficiently scales decision making because the goal is clear. This unlocks human ingenuity, innovation and enthusiasm
    24. Jobs to be done should be in verbs and nouns and not in adjectives and adverbs. It should describe the process itself and not what the customer feels
  3. A genuine insight is a thought which is known as true upon conception – no further analysis is needed
  4. Because it is so much easier to measure efficiency than effectiveness, that’s what most organizations optimize towards. It is hard but necessary to keep top of mind what is important (whether easy to measure or not) and work towards that
  5.  The voice of the customer must be the loudest voice in any decision
  6. Beware the fallacy of “data is always objective”. Data is man made and fallible
  7. SNHU keeps one vital statistic – if you could go back in time knowing what you know now, would you choose SNHU again?
What I got out of it
  1. What job is your product or service being hired to do. This framework helps you better understand what your customers need and how to best serve them. All customers buy products or services to make progress, not for the product/service itself

The Gervais Principle by Venkatesh Rao

Summary
  1. That, ultimately is what this book is about: organizational literacy, the reading and writing of organizational forms. But there is a cost to getting organizationally literate. This ability, once acquired, cannot be un-acquired. Just as learning a foreign language makes you deaf to the raw, unintelligible sound of that language you could once experience, learning to read organizations means you can never see them the way you used to, before. Literacy of any sort gives you the power to recognize and unambiguously label things that the illiterate can easily ignore as noise, fads and bullshit. This power can have very unpredictable effects. You may find yourself wishing, if you choose to acquire it, that you hadn’t. So acquiring organizational literacy is what some like to call a memetic hazard: dangerous knowledge that may harm you. A case of “where ignorance is bliss, ‘tis folly to be wise.”
Key Takeaways
  1. Idealized organizations are not perfect. They are perfectly pathological. So while most management literature is about striving relentlessly towards an ideal by executing organization theories completely, this school, which I’ll call the Whyte school, would recommend that you do the bare minimum organizing to prevent chaos, and then stop. Let a natural, if declawed, individualist Darwinism operate beyond that point. The result is the MacLeod hierarchy. It may be horrible, but like democracy, it is the best you can do.
  2. A Sociopath with an idea recruits just enough Losers to kick off the cycle. As it grows, it requires a Clueless layer to turn it into a controlled reaction, rather than a runaway explosion. Eventually, as value hits diminishing returns, both the Sociopaths and Losers make their exits, and the Clueless start to dominate. Finally, the hollow brittle shell collapses on itself, and anything of value is recycled by the Sociopaths, according to meta-firm logic.
  3. The Losers like to feel good about their lives. They are the happiness seekers, rather than will-to-power players, and enter and exit reactively, in response to the meta-Darwinian trends in the economy. But they have no more loyalty to the firm than the Sociopaths. They do have a loyalty to individual people, and a commitment to finding fulfillment through work when they can, and coasting when they cannot. The Clueless are the ones who lack the competence to circulate freely through the economy (unlike Sociopaths and Losers), and build up a perverse sense of loyalty to the firm, even when events make it abundantly clear that the firm is not loyal to them. To sustain themselves, they must be capable of fashioning elaborate delusions based on idealized notions of the firm – the perfectly pathological entities we mentioned. Unless squeezed out by forces they cannot resist, they hang on as long as possible, long after both Sociopaths and Losers have left
  4. Which brings us to our main idea – how both the pyramid and its lifecycle are animated. The dynamics are governed by the Newton’s Law of organizations: The Gervais Principle. The Gervais Principle is this: Sociopaths, in their own best interests, knowingly promote over-performing Losers into middle-management, groom under-performing Losers into Sociopaths, and leave the average bare-minimum-effort Losers to fend for themselves. The Gervais Principle differs from The Peter Principle, which it superficially resembles. The Peter Principle states that all people are promoted to the level of their incompetence. It is based on the assumption that future promotions are based on past performance. The Peter Principle is wrong for the simple reason that executives aren’t that stupid, and because there isn’t that much room in an upward-narrowing pyramid. They know what it takes for a promotion candidate to perform at the top level. So if they are promoting people beyond their competence anyway, under conditions of opportunity scarcity, there must be a good reason. Scott Adams, seeing a different flaw in The Peter Principle, proposed The Dilbert Principle: that companies tend to systematically promote their least-competent employees to middle management to limit the damage they can do. This again is untrue. The Gervais principle predicts the exact opposite: that the most competent ones will be promoted to middle management. Michael Scott was a star salesman before he become a Clueless middle manager. The least competent employees (but not all of them – only certain enlightened incompetents) will be promoted not to middle management, but fast-tracked through to senior management. To the Sociopath level.
  5. The minimum-effort Loser Stanley tells him coldly, “this here is a run-out-the-clock situation.” The line could apply to Stanley’s entire life. Stanley’s response shows both his intelligence and clear-eyed self-awareness of his Loser bargain with the company.
  6. The future Sociopath must be an under-performer at the bottom. Like the average Loser, he recognizes that the bargain is a really bad one. Unlike the risk-averse loser though, he does not try to make the best of a bad situation by doing enough to get by. He has no intention of just getting by. He very quickly figures out – through experiments and fast failures – that the Loser game is not worth becoming good at. He then severely under-performs in order to free up energy to concentrate on maneuvering towards an upward exit. He knows his under-performance is not sustainable, but he has no intention of becoming a lifetime-Loser employee anyway. He takes the calculated risk that he’ll find a way up before he is fired for incompetence.
  7. So let me introduce you to the main skill required here: mastery over the four major languages spoken in organizations. I’ll call the four languages Posturetalk, Powertalk, Babytalk and Gametalk.
    1. What distinguishes Powertalk is that with every word uttered, the power equation between the two speakers shifts just a little. Sometimes both gain slightly, at the expense of some poor schmuck. Sometimes one yields ground to the other. Powertalk in other words, is a consequential language.
    2. Another way to understand the difference between Powertalk and the other languages is with a card-playing analogy. In Powertalk, you play with valuable currency, usually reality-information. In the other languages, you are playing with no stakes. The most important enabling factor in being able to speak Powertalk is simply the possession of table stakes. Without it, whatever you say is Posturetalk. The only Powertalk you can speak without any table stakes is “silence.”
  8. Treacle is a vocabulary drawn from apparently win-win/play nice frameworks, but deployed with adversarial intent.
  9. So what is going wrong here? Why can’t you learn Sociopath tactics from a book or Wikipedia? It is not that the tactics themselves are misguided, but that their application by non-Sociopaths is usually useless, for three reasons. The first is that you have to decide what tactics to use and when, based on a real sense of the relative power and alignment of interests with the other party, which the Losers and Clueless typically lack. This real-world information is what makes for tactical surprise. Otherwise your application of even the most subtle textbook tactics can be predicted and easily countered by any Sociopath who has also read the same book. Null information advantage. The second reason is that tactics make sense only in the context of an entire narrative (including mutual assessments of personality, strengths, weaknesses and history) of a given interpersonal relationship. The Clueless have no sense of narrative rationality, and the Losers are too trapped in their own stories to play to other scripts. Both the Clueless and Losers are too self-absorbed to put in much work developing accurate and usable mental models of others. The result is one-size-fits-all-situations tactical choices which are easily anticipated and deflected. And the third and most important reason of course, is that your moves have to be backed up by appropriate bets using your table stakes, exposing you to real risks and rewards. A good way to remember this is to think of Powertalk as decisions about what verbal tactics to use when, and with what. The answer to with what is usually a part of your table-stakes. The stuff you are revealing and risking. If you cannot answer “with what?” you are posturing. You are not speaking Powertalk. In the Jim-Wallace example, Jim’s table stakes were his superior knowledge of the Michael-Jan story.
  10. You learn through real Powertalk conversations with other Sociopaths. Betting real stakes, like information, credibility, labor and literal dollars. You get played for a sucker a few times along the way before you wise up. Even if you are a kind Sociopath, you learn to swallow your distaste and occasionally play hardball when you have to.
  11. But if you do have the table stakes to join important conversations, and the mental toughness to play risk-and-reward games with every conversational move, there are a couple of skills worth practicing. The second skill is low-level utterance-by-utterance control, which is much harder. You cannot consciously engineer 7-8 meanings and calibrated amounts of power and leverage into every line you utter, through careful word choice.
  12. the depth of any transaction is limited by the depth of the shallower party.
  13. If the situational developmental gap between two people is sufficiently small, the more evolved person will systematically lose more often than they win. This is the Curse of Development. When you develop psychologically, and leave somebody behind, your odds of winning get worse before they get better.
  14. Well-adjustedness is a measure of the degree to which your worldview is socially acceptable and appropriate in a given environment. Since a messed-up personality can be well-adjusted with respect to a messed-up environment, well-adjustedness has very little to do with sanity and actual mental health. Environments and worldviews really come down to a series of situations and situational reactions. If your situational reactions are generally appropriate but against your best interests, you are a well-adjusted Loser. If they are both appropriate and in your best interests, you are a Sociopath. If your reactions are inappropriate (whether or not they are in your best interests – sometimes they are), you are Clueless.
  15. Here is the non-trivial stuff, compressed into three handy laws: Your development is arrested by your strengths, not your weaknesses. Arrested-development behavior is caused by a strength-based addiction. The mediocre develop faster than either the talented or the untalented. An alternative way of looking at these three laws is to note that defense mechanisms emerge to sustain addictions even when the developmental environment that originally nourished it vanishes. These then are the developmental psychology roots of the Gervais Principle. Recall that Cluelessness goes with overperformance. That overperformance is caused by arrested development around a strength, which has been hooked by an addictive environment of social rewards. Mediocrity is your best defense against addiction, and guarantor of further open-ended psychological development.
  16. Each pattern is based on a preferred, dominant variety of delusion: The Clueless distort reality. The Losers distort rewards and penalties. The Sociopaths distort the metaphysics of human life.
  17. To be an effective teacher at a given level, you need to have studied five years beyond that level. This has nothing to do with subject-matter expertise, and everything to do with trying to exit the Curse of Development zone.
  18. Status illegibility is necessary to keep a group of Losers stable. It is a deep form of uncertainty. I am not saying that there is a ranking that is just not known or knowable. I am saying there is no clear ranking to be known.
  19. Social groups grow from the illegible but stable center of the status spectrum, and leak at the legible but unstable edges.
  20. Remember, you are unique, just like everybody else. And everybody is uniquely above average. This is why, paradoxically, collectivist philosophies that value equality must necessarily value diversity. Nobody wants to be equally average. Everybody must be given a chance to be equally above average. Sociopaths detect and get wary of this dynamic very quickly:
  21. For the alpha, keeping contenders guessing through unpredictable signs of favor is the best idea. Exits work the same way. If an alpha or omega leaves, the new alpha or omega is plucked out of the illegible middle at that time. Not before. Succession planning may be a good idea in formal hierarchies, but it is a bad idea in social groups.
  22. Groups must remain socially fluid to work. Fluidity is the other side of illegibility.
  23. social skill, such as joke-telling ability, is a behavior whose effectiveness is determined by the reaction of a group. A joke is funny if the audience laughs. A proven mathematical theorem remains true even if a billion people scream that it isn’t. Theorem-proving is not a social skill in that sense. Like theorem-proving, social skills are information skills, since nothing tangible is produced besides an effect on others’ minds. Unlike theorem-proving though, the value of the product is based on social proof rather than objective proof. Social skills produce information; a social truth hypothesis (such as a joke). If it passes a social proof test, it becomes a piece of social capital, the grand narrative of the group. In other words: Social skills → Social truth hypotheses → Social proof → Social capital
  24. Most forms of humor attempt to raise or lower status of individuals via game-like structures, with defined roles and a structurally predictable script (the surprise comes from the content). There is always a jokester, a victim (which can be the same person by design or accident) and crucially, an audience. The victim may or may not be present. So there are at least three roles in a piece of humor, of which the role of audience may be played by a group. Sociopath jokes usually involve straight-faced delivery and private laughter, with no hint of mockery.
  25. Among the Sociopaths, status is irrelevant. Table stakes and skill at using them is what matters. Sociopaths pay attention to what you have, and how well you bargain with it. Not who you are.
  26. Clueless jokes are zero-sum, but Loser jokes are actually non-zero-sum. This does not mean they are win-win. This is a variety of non-zero-sum called mutual exploitation, that is sadly under-studied by game theorists. It simply means you can create net positive value by taking turns beating each other up competitively (aside for game-theory geeks: in the iterated prisoner’s dilemma, you get mutual exploitation by breaking the constraint that the cooperation payoff must be higher than the average of the defection and sucker payoffs). You can also create net-negative toxic non-zero-sum outcomes.
  27. Among Losers, in specific situations, status may go up or down, but overall, it just goes round and round. There is no grand status hierarchy. Only a top, a bottom, and an illegible middle. Newcomers attempt to successfully lose themselves in the middle. Situational wins and losses create a turbulent churn that maintains the illegibility without creating any decisive movement within the group.
  28. We’ve been drilling deep into social dynamics, and we finally get to that one deeply human quality that makes all this possible. It’s called empathy. The ability to feel what another human being is feeling. All this complicated social psychology does not need to be explicitly understood. For high-empathy people, all this is natural. By participating in collective feeling in groups of any size, and reacting to basic attraction/aversion drives, you can actually safely navigate all the complexity by instinct. Not only can you do this, you will actually feel good doing this. This feeling is called happiness. I don’t have time to go into this, but happiness is entirely a social phenomenon, and there’s plenty of evidence that the best way (and from my reading, the only way) to get happy is to get sociable. Non-social feelings that seem like happiness turn out, upon further examination, to be distinct emotions like contentment, equanimity or hedonistic pleasure. This isn’t particularly surprising. Our brains are designed like our bodies: just as we possess backs that others can scratch more easily than ourselves, our brains contain “backs,” so to speak. That’s where happiness lives, and is brought alive by empathic scratching.
  29. Why do we use the word “cringe” to describe the peculiar brand of humor in The Office? Think about the word. You cringe when you anticipate pain. Physical cringing, such as the cowering reaction you instinctively produce when you realize your car is going to hit another car, or when you realize somebody is going to hit you, serves to mitigate the anticipated damage. You also cringe via empathic anticipation of someone else’s impending pain.
  30. In this episode, Ryan is still not a Sociopath, so he cringes. Jan and David Wallace on the other hand, maintain an effortless poise no matter what Michael or Dwight get up to. To get there, they have to sequester empathy through detachment, and give up on happiness. We’ll see how and why that pact with the devil happens next chapter. In summary, seasoned Sociopaths maintain a permanent facade of strategic incompetence and ignorance in key areas, rather than just making up situational incompetence arguments. This is coupled with indirection and abstraction in requests given to reports. The result is HIWTYL (heads I win, tails you lose) judo.
  31. Loser group successes are effectively inflated, and blame discounted. So as Loser groups accumulate a history, internal valuations of earned credit are steadily inflated, and assessments of culpability run a deficit. A successful group systematically overvalues its capabilities and develops a blindness to its weaknesses. Sociopaths design the system this way because they are only interested in building an organization that lasts long enough to extract the easy value from whatever market opportunity motivated its formation. Expensive investments that will not pay off before the organization hits diminishing returns are not made. (It is revealing that the longest-lived businesses are family-owned – Sociopaths have an incentive to think long term if they intend to pass the business on to their progeny.)
  32. There are only three ways to get a bureaucracy to do anything it wasn’t designed to do: by stealth, with secret and deniable support from allies in the staff hierarchy; by getting air-cover from a sufficiently high-up Sociopath who can play poker with whichever oversubscribed Sociopath is in charge of exception-handling for the specific process (i.e. jumping the appeals queue and calling in favors to ensure the required ruling); and through corruption and bribery.
  33. That is what Sociopaths ultimately do with their lives if they survive long enough: generate amoral power from increasing inner emptiness, transforming themselves into forces of nature. As a side-effect, they also manufacture transient meanings to fuel the theaters of religiosity (including various secular religions) that lend meaning to lives of Losers and the Clueless. This meaning is achieved via subtraction, through withdrawal of complexities that the latter are predisposed to ignore, leaving behind simpler, more satisfying and more tractable realities for them to inhabit.
  34. Small minds discuss people, average minds discuss events, great minds discuss ideas. And in Jamesian solitude, Sociopaths find ideas contending in their minds. The creative destruction they script in the world of Losers and Clueless is mirrored by a creative destruction in their minds. This process creates power, but destroys meaning, especially the meanings of social realities. The result is increasing inner emptiness and external power. It is this very emptiness that allows the Sociopath to play hero for the Clueless and priest for Losers. Recall that Sociopaths create meaning for others through the things they subtract, rather than the things they add. This is something conspiracy theorists typically don’t get: manufacturing fake realities is very hard. But subtractive simplification of reality is much easier, and yields just as much power.
  35. Sociopathy is not about ripping off a specific mask from the face of social reality. It is about recognizing that there are no social realities. There are only masks. Social realities exist as a hierarchy of increasingly sophisticated and specialized fictions for those predisposed to believe that there is something special about the human condition, which sets our realities apart from the rest of the universe. There is, to the Sociopath, only one reality governing everything from quarks to galaxies. Humans have no special place within it. Any idea predicated on the special status of the human – such as justice, fairness, equality, talent – is raw material for a theater of mediated realities that can be created via subtraction of conflicting evidence, polishing and masking.
  36. To turn status-seeking into a control mechanism is to devalue status. To devalue something is to judge any meaning it carries as inconsequential. In terms of our metaphor of masks of gods, the moment you rip off a mask and wear it yourself, whatever that mask represents becomes worth much less. So the Sociopath’s journey is fundamentally a nihilistic one.
  37. The major theme of Office Space, unlike The Office, is not deciphering and navigating the gridlock on the road to power, but exiting the rat-race altogether, to a state held up as an ideal of freedom: exile.
  38. The only true exit is to a freer mind. The only true state of happy exile is one which allows you to penetrate the social fictions that surround you, whether you remain within a cubicle or build a life around Burning Man.
What I got out of it
  1. Fun read showing why and how The Office is so funny and cringe-worthy. Organizational literacy is a great filter to have in your arsenal – Sociopaths, Clueless, Losers make up the typical hierarchy

The Early Days of WL Gore and Associates by Bob Gore

Summary
  1. Bob Gore, son of founder Bill Gore, recounts the early days at WL Gore and what has made the company sustainable and successful
Key Takeaways
  1. Bill Gore was very enthusiastic and did not have a lot of patience for bureaucracy. He was an entrepreneur from a young age and loved to improvise, move quickly and always emphasized product development. He always was experimenting and he got the family involved by trying out new products or materials with them. He was always looking for the practical potential in new materials.
  2. Always believed in the idea of “value pricing” – price products for what they are worth, not what they cost to manufacture
  3. From DuPont he learned and enjoyed the task force approach and the fact that a group of people can come together without titles without a formal hierarchical position.
    1. People just just get the job done as well as working harder and more enthusiastically then when they were in their usual 9-to-5 jobs. This eventually led to the lattice business structure as opposed to the typical pyramid structure. He became wary of corporate structures and believed that standard accounting tended to make bad business decisions
  4. Another chemist at DuPont had a machine shop and Bill was jealous of that. He was not able to just go ahead and make what he needed to make and use it but had to fill in a request for shop work and would be processed according to its place in the queue. That kind of obstacle destroys momentum and destroys enthusiasm which is why Bill set up a shop in his own basement so that he could experiment and follow his passion
  5. My advice to the man who contemplated an individual enterprise is to carefully consider if he has a dream of compelling importance and to follow his dream
  6. Mother served as moral support and encouragement. Never complaining and keeping everyone happy
  7. The emphasis was always on building our own machinery rather than purchasing it
  8. The large order that forced us into a new facility finally came in the summer of 1960. It was for an application that was totally unforeseen and was never to be duplicated
  9. Our staff is unusual in that each member knows he is closely identified with the success of the enterprise. It is the realization of this that is unusual. This realization has been brought about by a carefully considered program Carried out by the officers, managers, and supervisors. Important in this program is the profit sharing policy established by the Board of Directors. In this plan a sum is appropriated by the Board from profits and distributed amongst all employers in proportion to their gross pay for the period. Neither the period nor the sum is specified in the plan, but the principle of rewards in proportion to contribution has been established. Profit sharing by employees amounted to about 5% of gross pay over the past fiscal year. Our pay scales are minimum and all employees look to profit sharing as an important source of future income. Your management believes that the success of our business rests inescapably on the competence, diligence and loyalty of our people. This is the resource that sets both the limitations and potentials of the enterprise.
  10. Hosted open houses to show visitors their new buildings and products
  11. Action was prized. Gores attitude is to encourage any idea that could be tried relatively quickly and inexpensively which did not have a downside
  12. There was considerable informality and this lead to enhanced communication. We tried hard to fit the organization around an individuals capabilities and needs rather than remake the individual to a predetermined slot in a predetermined organizational concept.
  13. 5-year service anniversary pins have been handed out since the early days
  14. Every associate learned to exercise extreme control over intellectual property and pricing. Manufacturing operations were off limits to visitors and pricing was a very serious area where Bill exercised personal control insofar as he was able. He developed a value pricing model where he would price products for what they were worth in the marketplace not what they cost to manufacture
  15. An early vision of Bill’s was that the enterprise would last far beyond his life. He set up a trust which he transferred a significant portion of his shares so that there would be no ruinous estate taxes upon his and his wife’s death
  16. Established a big office in Flagstaff, AZ, far away from customers, source of raw materials and eastern support. However, it was along the Route 66 and a railroad went through it, making LA just an overnight trip away. They didn’t like LA because of the environment – too much traffic, high taxes, and people continually switched jobs. They sensed there was no permanence and little loyalty of the workforce to a company or a community
  17. There was fear of unionization at one point but after a head of a union took a tour through the plant, he determined that they would not have any trouble with unionization. It was the cleanliness, the good order, the pictures of people’s kids on the machines – the whole atmosphere showed the community and loyalty fostered at Gore. Culture is not all written in words, nor is it all spoken in words, but it is also expressed by our facilities, by a walk through the plant.
  18. Troubles with counterparties often stem from a lack of alignment, enthusiasm, and trust
  19. The biggest benefit of thinking in leaps and not incrementally is that it’ll throw off tons of other ideas that you otherwise never would have had
  20. In the immediate aftermath of our founding back in 1958 our sales organization has been established as a collection of independent third-party sales companies who represented us, each with an exclusive sales territory. The use of independent sales companies have been a financial necessity in the early start up days. This was away for Gore to be sure it’s flow of cash was in balance at all times since we paid the independent sales representatives only one there was income from the sales they had made. To keep their cash flow and balance the sales representative Natalie took the opposite point of view. They only wanted to concentrate on producing near term sales to earn near term commissions. They were reluctant to finance long-term, time consuming, and risky sales development efforts in hopes of earning sales commissions I would pay off only far in the future. Unfortunately, many of our products requires long term efforts and this had to be us and so over a period of years, we replaced independent sales representative companies with full time Gore people
  21. Gore dreamed of an enterprise with great opportunity for all who would join in it, a virile organization that would foster self-fulfillment and which would multiply the capabilities of the individuals comprising it beyond their mere sum
  22. Bill Gore was more interested in the organizational and philosophical portions of the company and his son, Bob, was more product oriented
What I got out of it
  1. Passion, hard work, genuine interest, caring, and a win-win mindset has helped make Gore a durable and successful company
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