Tag Archives: Business

Loonshots: How to Nurture the Crazy Ideas That Win Wars, Cure Diseases, and Transform Industries by Safi Bahcall

Summary

  1. “I’ve always appreciated authors who explain their points simply, right up front. So here’s the argument in brief: The most important breakthroughs come from loonshots, widely dismissed ideas whose champions are often written off as crazy. Large groups of people are needed to translate those breakthroughs into technologies that win wars, products that save lives, or strategies that change industries. Applying the science of phase transitions to the behavior of teams, companies, or any group with a mission provides practical rules for nurturing loonshots faster and better.”

Key Takeaways

  1. The Bush-Vail Rules: Many of the lessons in this book are adapted from how Vannevar Bush at DARPA and Theodore Vail at AT&T’s Bell Labs handled and fostered loonshots
    1. Separate the phases
      1. Separate your artists and soldiers
        1. Create separate groups for inventors and operators: those who may invent the next transistor vs. those who answer the phone; those who design radically new weapons vs. those who assemble planes. You can’t ask the same group to do both, just like you can’t ask water to be liquid and solid at the same time
      2. Tailor the tools to the phase
        1. Wide management spans, loose controls, and flexible (creative) metrics work best for loonshot groups. Narrow management spans, tight controls, and rigid (quantitative) metrics work best for franchise groups
      3. Watch your blind side: nurture both types of loonshots
        1. Make sure your loonshot nursery seeds both types of loonshots, especially the type you are least comfortable with. S-type loonshots are the small changes in strategy no one thinks will amount to much. P-type loonshots are technologies no one thinks will work.
    2. Create dynamic equilibrium
      1. Love your artists and soldiers equally
        1. Artists tend to favor artists; soldiers tend to favor soldiers. Teams and companies need both to survive and thrive. Both need to feel equally valued and appreciated. (Try to avoid calling one side “bozos.”)
      2. Manage the transfer, not the technology: be a gardener, not a Moses
        1. Innovative leaders with some successes tend to appoint themselves loonshot judge and jury (the Moses Trap). Instead, create a natural process for projects to transfer from the loonshot nursery to the field, and for valuable feedback and market intelligence to cycle back from the field to the nursery. Help manage the timing of the transfer: not too early (fragile loonshots will be permanently crushed), not too late (making adjustments will be difficult). Intervene only as needed, with a gentle hand. In other words, be a gardener, not a Moses.
      3. Appoint and train project champions to bridge the divide
        1. Soldiers will resist change and see only the warts on the baby-stage ideas from artists. Artists will expect everyone to appreciate the beautiful baby underneath. They may not want have the skills to convince soldiers to experiment and provide the feedback that is crucial for ultimate success. Identify and train bilingual specialists, fluent in both artist-speak and soldier-speak, to bridge the divide
    3. Spread a system mindset
      1. Keep asking why the organization made the choices that it did
        1. Level 0 teams don’t analyze failures. Level 1 teams assess how product features may have failed to meet market needs (outcome mindset). Level 2 teams probe why the organization made the choices that it did (system mindset). They analyze both successes and failures because they recognize that good outcomes don’t always imply good decisions (got lucky), just as bad outcomes don’t always imply bad decisions (played the odds well). In other words, they analyze the quality of decisions, not just the quality of outcomes.
      2. Keep asking how the decision-making process can be improved
        1. Analyzing a product or a market may be technically challenging, but it is a familiar and straightforward exercise. Analyzing why a team arrived at a decision can be both unfamiliar and uncomfortable. It requires self-awareness from team members; the self-confidence to acknowledge mistakes, especially interpersonal ones; and the candor and trust to give and receive delicate feedback. The process is likely to be more efficient, and less painful, when it is mediated by a neutral expert from outside the team.
      3. Identify key influences – people involved, data considered, analyses conducted, how choices were framed, how market or company conditions affected that framing – as well as both financial and nonfinancial incentives for individuals and for the team as a whole. Ask how those influences can be changed to enhance the decision-making process in the future
      4. Identify teams with outcome mindset and help them adopt system mindset
    4. Raise the magic number
      1. Reduce return-on-politics
        1. Make lobbying for compensation and promotion decisions difficult. Find ways to make those decisions less dependent on an employee’s manager and more independently assessed and fairly calibrated across the company.
      2. Use soft equity (nonfinancial rewards)
        1. Identify and apply nonfinancial rewards that make a big difference. For example, peer recognition, intrinsic motivators
      3. Increase project–skill fit (scan for mismatches)
        1. Invest in the people and the processes that will scan for a mismatch between employees’ skills and their assigned projects, and will help managers adjust roles or employees transfer between groups. The goal is to have employees stretched neither too much nor too little by their roles.
      4. Fix the middle (reduce perverse incentives for middle managers)
        1. Identify and fix perverse incentives, the unintended consequences of well-intentioned rewards. Pay special attention to the dangerous middle-manager levels, the weakest point in the battle between loonshots and politics. Shift away from incentives that encourage battles for promotion and toward incentives centered on outcomes. Celebrate results, not rank.
      5. Bring a gun to a knife fight (engage a chief incentives officer)
        1. Competitors in the battle for talent and loonshots may be using outmoded incentive systems. Bring in specialist in the subtleties of the art – a chief incentives officer.
      6. Fine-tune the spans (wide for loonshots groups; narrow for franchise groups)
        1. Widen management spans in loonshot groups (but not in franchise groups) to encourage looser controls, more experiments, and peer-to-peer problem solving
    5. For anyone championing a loonshot, anywhere:
      1. Mind the False Fail
        1. Is a negative outcome due to a flaw in the idea or the test? What would you have to believe for it to be a flaw in the test? How might you evaluate that hypothesis
      2. Listen to the Suck with Curiosity (LSC)
        1. When you have poured your soul into a project, you will be tempted to argue with critics and dismiss whoever challenges you. You will improve your odds of success by setting aside those urges and investigating, with genuine curiosity, the underlying reasons why an investor declines, a partner walks, or a customer choose a competitor. It’s hard to hear no one likes your baby. It’s even harder to keep asking why
      3. Apply system rather than outcome mindset
        1. Everyone will make wrong turns in navigating the long, dark tunnel through which every loonshot travels. You will gain much more (and feel much better) by trying to understand the process by which you arrived at those decisions. How did you prepare? What influenced you? How might you improve your decision-making process?
      4. Keep your eyes on SRT: spirit, relationships, time
        1. When championing a loonshot, it’s easy to lose sight of what’s important, of why you are doing with what you are doing. A little obsession can be good. Too much can backfire. What’s helped me, on occasion, to pull back from the edge – to create a more sustainable and productive level of obsession – is stepping back to think on SRT

What I got out of it

  1. A beautiful and powerful framework for how to foster and handle loonshots. Important for any size company or venture

Small Giants: Companies That Choose to Be Great Instead of Big by Bo Burlingham

Summary

  1. Burlingham studies 14 companies which have chosen to be the best in their field, rather than growing for growth’s sake. They have all decided to remain privately held, with the majority of the stock in the hands of one person or a few like-minded people. These companies are all committed to being the best at what they do. More important than profits or growth. They understood that bigger does not necessarily equal better. They had a firm understanding of what they wanted and didn’t let the allure of scale get in their way

Key Takeaways

  1. The 14 companies studied include: Anchor Brewing, CitiStorage, Clif Bar, ECCO, Hammerhead Productions, Righteous Babe Records, Union Square Hospitality Group, Zingerman’s Community of Businesses, OC Tanner, Reell Precision Manufacturing, Rhythm & Hues Studios, The Goltz Group, WL Butler Construction,
  2. Danny Meyer, USHG
    1. I’ve made much more money by choosing the right things to say no to than by choosing things to say yes to. I measure it by the money I haven’t lost and the quality I haven’t sacrificed.
    2. Meyer’s 3 criteria to start a new restaurant
      1. It would have to be capable of becoming as extraordinary a restaurant as Union Square
      2. It would have to enhance the value of Union Square Café
      3. It would have to bring more balance to my life, not less
    3. One goal of our strategy was to provide opportunities for employees to move around, which served two purposes. First, it gave people room to grow and find new challenges without leaving USHG. That, in turn, allowed me not only to retain talent I didn’t want to lose but also to use that talent to get some of the mother yeast into any new project. Blue Smoke opened with a chef who had eight years at US Café, a GM who’d done the same, a service director with 5 years at Gramercy, a pastry chef with 3 years at Tabla and 11 Madison, and on and on. We just belief that if we can start out having a high comfort level with the culture, the thing can become whatever it’s going to become and it will be good.
    4. Enlightened Hospitality
      1. Neurotic desire for others to have a good time, to show that you care about them personally. You don’t just want them to be satisfied, you want them to be happy. It’s a step beyond service, and it requires the company to develop an emotional connection with customers through individual, one-on-one, person-to-person contact
      2. It’s an emotional skill – letting customers know you’re on their side
      3. Commitment to 5 core values
        1. Caring for each other
        2. Caring for guests
        3. Caring for the community
        4. Caring for suppliers
        5. Caring for investors and profitability
        6. (in descending order of importance)
    5. 3 pillars
      1. Integrity – the company is what it appears, and claims, to be. It does not project a false image to the world
      2. Professionalism – the company does what it says it’s going to do. It can be counted on to make good on its commitments
      3. Direct, human connection – the effect of which is to create an emotional bond, based on mutual caring
        1. It’s generally not the people at the top of the organization who create the intimate bonds. It’s the managers and the employees who do the work of the business day in and day out. They are the ones who convey the spirit of the company to the outside world. Accordingly, they are the company’s first priority – which, from one perspective, is ironic. For all the extraordinary service and enlightened hospitality that the small giants offer, what really sets them apart is their belief that the customer comes second.
      4. Must have the right context – community, culture, time. The “terroir”, like in wine, shapes the company. The company must be deeply rooted in their communities, exhibiting symbiotic relationships with the communities in which they’ve grown up, and the vitality of those connections is part of their mojo
  1. Mojo
    1. Mojo = relationship with employees. Indeed, the relationship between the employees and the company is the entire basis for the mojo they exude. You can’t have the second without the first. Unless a significant majority of a company’s people love the place where they work; unless they feel valued, appreciated, supported, and empowered; unless they see a future full of opportunities for them to learn and grow – unless, that is, they feel great about what they do, whom they do it with, ad where they’re going – mojo is simply not in the cards. Why? Because everything else that makes a company extraordinary – a great brand, terrific products or services, fabulous relationships with customers and suppliers, a vital role in the community – depends on those who do the work of the business, day in and day out
    2. Person in charge must have deep and intimate relations with the employees – who they are and what they do
    3. Spontaneity / Magic is the key for mojo
    4. Leaders have a very clear idea for what the good things in life are all about – exciting challenges, camaraderie, compassion, hope, intimacy, community, a sense of purpose, feelings of accomplishment, and so on – and they have organized their businesses so that they and the people they work with can get it. When outsiders come in contact with such a business, they can’t help but feel the attraction. The company is cool because of what’s going on inside it is good, it’s fun, it’s interesting, it’s something you want to be associated with. From that perspective, mojo is more or less the business equivalent of charisma. Leaders with charisma have a quality that makes people want to follow them. Companies with mojo have a quality that makes people want to be part of them.
    5. No greater challenge than making mojo last – succession planning is vital
    6. I don’t believe it’s possible to for a company to have mojo without leaders who feel so enthusiastic about what their companies do. If they don’t love the business, if they don’t feel that what the business does is vitally important, if they don’t care deeply about being both great and unique in providing whatever product or service they offer, nobody else will either. You can’t measure mojo by how big a company is and how much profit it generates. A company’s growth and the consistency of its financial returns may tell you something about the management team but they say little about whether or not the business is contributing anything great and unique to the world. Instead, small giants focus on the relationships that the company has with its various constituencies. The relationships are rewarding in and of themselves but also because their strength reveals the degree to which people are inspired by the company and its ability to inspire them is the best measure of how they perceive the value of what the company does. If they are as passionate about it as the founders and leaders, the financial results are likely to follow. But they also know those relationships are fragile. They depend on a level of trust and intimacy and that’s easily lost. All it takes is a little neglect. That usually happens when the leaders focus on growth, not as by-products of a well-run business but as goals to pursue for their own sake
  2. The Goltz Group
    1. Goltz – major lesson learned is to let people off the hook in ‘out of their control’ situations. There is a difference between mistakes (forgive immediately) and hazardous conduct
    2. Business can be summed up in 2 words: leverage and control
    3. An entrepreneur is an artist whose medium is business
    4. One of the least recognized hazards of business is boredom
    5. Business, for me, is a sort of puzzle. We believe there’s a solution to every problem and we think we can figure it out fi we can just visualize what needs to be done. That usually means coming up with a different way of looking at the situation. You need a kind of peripheral vision. You try this angle and that angle, searching for what everybody else is missing. You don’t always find it, but when you do, the experience is tremendously satisfying
  3. Anchor Brewing
    1. Fritz Maytag of Anchor Brewing was always the Brewmaster. Must know key processes inside out. His role is to make sure that everybody at anchor gets the idea that we have a theme and to remind people what they’re up to and to set standards.
  4. UNBT
    1. UNBT was founded on the heretical notion that a company’s growth has organic, almost preordained, limitations, and if you exceed those limitations and grew too fast, you would undermine your ability to provide excellent customer service, create a great workplace for your employees, and maximize shareholder returns. “We could grow faster, but it would cost us everything. In the bureaucracy of growth, you lose your distinctiveness. Banks which maintain their discipline and maintain their focus could go on delivering superior returns indefinitely.
      1. JBS Haldane On Being the Right Size
      2. What will kill this company is a bunch of people running around with their noses stuck in rule books and manuals
      3. It was Schmitt’s responsibility to create an enjoyable work environment. He was simply unwilling to growth for its own sake. He believed that as long as he kept his eye on the ball, growth would take care of itself. It was a matter of logic and principle, and he said he would apply the same approach even if he were in an altogether different business. It’s like you’re sailing down a river on with many tributaries running off. Yes ,you pause to consider each tributary and whether it is part of your voyage, but keeping you on course is the knowledge of where you want to be at the end of the trip
  5. Clif Bar
    1. I’m sure my enthusiasm is contagious
    2. 5 aspirations
    3. Sustaining the brands
    4. Sustaining the business
    5. Sustaining the people
    6. Sustaining the community
    7. Sustaining the planet
    8. Other
      1. Control + Time = Freedom
      2. Aim to be the employer of choice wherever you have facilities
      3. Must articulate, demonstrate, and imbue company with a higher purpose. Remind people in unexpected ways how much the company cares about them: mutual trust, respect, and collegiality between employees
      4. The power of having no hidden agenda is massive
      5. Leaders acutely aware of the little worlds they create internally – the small ecosystems which emerge at their companies
      6. Empower people to own/feel the pain from their job. Teach – Equip – Trust. This unleashes full potential and builds trust
      7. Question everything, chart your own course, have a deep passion for what you’re doing, intimately connect with your community/suppliers/customers/employees/own management, 
    9. Growth is a decision, not a necessity, but you will face enormous pressures to grow from customers, employees, investors, suppliers, competitors
    10. Success means you’re going to have better problems
    11. Keep control and don’t bring on outside investors who will interfere
    12. Avoid acquisitions – merging cultures is too hard
    13. Continuous pressure to keep best employees engaged and challenged. Creating opportunities for employees and opening up new possibilities for the business are the goals, not growth. Growth is a natural by-product of the company’s success in pursuing its central purpose and reason for being, whatever that may be
    14. Be picky about who you do business with – fire bad clients and only partner with good (win/win) clients
    15. They all sought to have a deep impact, which leads to an intimacy with all their stakeholders – one of the great rewards and great generators of mojo they exude
      1. No conscious effort to sell. Simply present what you do, who you are, and you’ll get the right customers

What I got out of it

  1. Enjoyed the book – especially Danny Meyer’s portions and the idea that mojo comes from trusting relationships with all constituencies, especially employees.

7 Powers: The Foundations of Business Strategy by Hamilton Helmer

Summary

  1. Helmer sets out to create a simple, but not simplistic, strategy compass. His 7 powers include: scale economics, switching costs, cornered resource, counter positioning, branding, network effects, and process.

Key Takeaways

  1. Strategy: the study of the fundamental determinants of potential business value The objective here is both positive—to reveal the foundations of business value—and normative—to guide businesspeople in their own value-creation efforts. Following a line of reasoning common in Economics, Strategy can be usefully separated into two topics: Statics—i.e. “Being There”: what makes Intel’s microprocessor business so durably valuable? Dynamics—i.e. “Getting There”: what developments yielded this attractive state of affairs in the first place? These two form the core of the discipline of Strategy, and though interwoven, they lead to quite different, although highly complementary, lines of inquiry.
  2. Power: the set of conditions creating the potential for persistent differential returns. Power is the core concept of Strategy and of this book, too. It is the Holy Grail of business—notoriously difficult to reach, but well worth your attention and study. And so it is the task of this book to detail the specific conditions that result in Power
  3. The Mantra: a route to continuing Power in significant markets. I refer to this as The Mantra, since it provides an exhaustive characterization of the requirements of a strategy.
  4. The Value Axiom. Strategy has one and only one objective: maximizing potential fundamental business value.
    1. For the purposes of this book, “value” refers to absolute fundamental shareholder value—the ongoing enterprise value shareholders attribute to the strategically separate business of an individual firm. The best proxy for this is the net present value (NPV) of expected future free cash flow (FCF) of that activity.
  5. Dual Attributes. Power is as hard to achieve as it is important. As stated above, its defining feature ex post is persistent differential returns. Accordingly, we must associate it with both magnitude and duration.
    1. Benefit. The conditions created by Power must materially augment cash flow, and this is the magnitude aspect of our dual attributes. It can manifest as any combination of increased prices, reduced costs and/or lessened investment needs.
    1. Barrier. The Benefit must not only augment cash flow, but it must persist, too. There must be some aspect of the Power conditions which prevents existing and potential competitors, both direct and functional, from engaging in the sort of value-destroying arbitrage Intel experienced with its memory business. This is the duration aspect of Power
    1. Benefits are common, and they often bear little positive impact on company value, as they are generally subject to full arbitrage. The true potential for value lies in those rare instances in which you can prevent such arbitrage, and it is the Barrier which accomplishes this. Thus, the decisive attainment of Power often syncs up with the establishment of the Barrier.
  6. Complex Competition. Power, unlike strength, is an explicitly relative concept: it is about your strength in relation to that of a specific competitor. Good strategy involves assessing Power with respect to each competitor, which includes potential as well as existing competitors, and functional as well as direct competitors. Any such players could be the source of the arbitrage you are trying to circumvent, and any one arbitrageur is enough to drive down differential margins.
  7. The 7 Powers
    1. Scale Economies
      1. Scale Economies—the First of the 7 Powers The quality of declining unit costs with increased business size is referred to as Scale Economies.
        1. Benefit: Reduced Cost
        1. Barrier: Prohibitive Costs of Share Gains
    1. Network Economies
      1. Network Economies: the value of the service to each customer is enhanced as new customers join the “network.” In such a situation, having the most customers is everything,
      1. Industries exhibiting Network Economies often exhibit these attributes: Winner take all.
    1. Counter-Positioning
      1. Counter-Positioning: A newcomer adopts a new, superior business model which the incumbent does not mimic due to anticipated damage to their existing business.
      1. This chapter introduces Counter-Positioning, the next Power type. I developed this concept to depict a not well-understood competitive dynamic I often have observed both as a strategy advisor and an equity investor. I must confess it is my favorite form of Power, both because of my authorship and because it is so contrarian. As we will see, it is an avenue for defeating an incumbent who appears unassailable by conventional wisdom metrics of competitive strength.
      1. But nearly always, these featured the same outcome: the incumbent responds either not at all or too late. The incumbent’s failure to respond, more often than not, results from thoughtful calculation. They observe the upstart’s new model, and ask, “Am I better off staying the course, or adopting the new model?” Counter-Positioning applies to the subset of cases in which the expected damage to the existing business elicits a “no” answer from the incumbent. The Barrier, simply put, is collateral damage. In the Vanguard case, Fidelity looked at their highly attractive active management franchise and concluded that the new passive funds’ more modest returns would likely fail to offset the damage done by a migration from their flagship products.
      1.  
      1. What are the potential causes of such decrements? They could be numerous, but over several decades of client strategy work, I have noted two that seem common. The first involves two characteristics of challenges to incumbency:
        1. The challenger’s approach is novel and, at first, unproven. As a consequence, it is shrouded in uncertainty, especially to those looking in from the outside. The low signal-to-noise of the situation only heightens that uncertainty.
        1. The incumbent has a successful business model. This heritage is influential and deeply embedded, as suggested by Nelson and Winter’s notion of “routines,” and with it comes a certain view of how the world works. The CEO probably can’t help but view circumstances through this lens, at least in part. Together these two characteristics frequently lead incumbents to at first belittle the new approach, grossly underestimating its potential.
      1. As noted in the Introduction, Power must be considered relative to each competitor, actual and implicit. With Counter-Positioning, this is particularly important, because this type of Power only applies relative to the incumbent and says nothing regarding Power relative to other firms utilizing the new business model.
      1. Though this isn’t always the case, I have noticed a frequently repeated script for how an incumbent reacts to a CP challenge. I whimsically refer to it as the Five Stages of Counter-Positioning: Denial Ridicule Fear Anger Capitulation (frequently too late)
      1. Once market erosion becomes severe, a Counter-Positioned incumbent comes under tremendous pressure to do something; at the same time, they face great pressure to not upset the apple cart of the legacy business model. A frequent outcome of this duality? Let’s call it dabbling: the incumbent puts a toe in the water, somehow, but refuses to commit in a way that meaningfully answers the challenge. Counter-Positioning often underlies situations in which the following developments are jointly observed: For the challenger Rapid share gains Strong profitability (or at least the promise of it) For the incumbent Share loss Inability to counter the entrant’s moves Eventual management shake-up (s) Capitulation, often occurring too late
      1. Such reversals are rare in business, because contests typically take place over extended periods and with great thoughtfulness on all sides. Even a momentary lapse by an incumbent won’t present a sufficient opening. The only bet worthwhile for a challenger is one in which even if the incumbent plays its best game, it can be taken off the board. A competent Counter-Positioned challenger must take advantage of the strengths of the incumbent, as it is this strength which molds the Barrier, collateral damage.
    1. Switching Costs
      1. Switching Costs arise when a consumer values compatibility across multiple purchases from a specific firm over time. These can include repeat purchases of the same product or purchases of complementary goods.
      1. Benefit. A company that has embedded Switching Costs for its current customers can charge higher prices than competitors for equivalent products or services. This benefit only accrues to the Power holder in selling follow-on products to their current customers; they hold no Benefit with potential customers and there is no Benefit if there are no follow-on products.
      1. Barrier. To offer an equivalent product, competitors must compensate customers for Switching Costs. The firm that has previously roped in the customer, then, can set or adjust prices in a way that puts their potential rival at a cost disadvantage, rendering such a challenge distinctly unattractive. Thus, as with Scale Economies and Network Economies, the Barrier arises from the unattractive cost/benefit of share gains for the challenger.
      1. Switching Costs can be divided into three broad groups:
        1. Financial.
        1. Procedural.
        1. Relational.
      1. Switching Costs are a non-exclusive Power type: all players can enjoy their benefits.
    1. Branding
      1. Branding is an asset that communicates information and evokes positive emotions in the customer, leading to an increased willingness to pay for the product.
      1. Benefit. A business with Branding is able to charge a higher price for its offering due to one or both of these two reasons:
        1. Affective valence. The built-up associations with the brand elicit good feelings about the offering, distinct from the objective value of the good.
        1. Uncertainty reduction. A customer attains “peace of mind” knowing that the branded product will be as just as expected.
      1. Barrier. A strong brand can only be created over a lengthy period of reinforcing actions (hysteresis), which itself serves as the key Barrier.
      1. Brand Dilution. Firms require focus and diligence to guide Branding over time and ensure that the reputation created remains consistent in the valences it generates. Hence, the biggest pitfall lies in diminishing the brand by releasing products which deviate from, or damage, the brand image. Seeking higher “down market” volumes can reduce affective valence by damaging the aura of exclusivity, weakening positive associations with the product.
      1. Problem is, the qualities that make Branding a Power also make it hard to change; the considerable risk is dilution or brand destruction.
      1. Type of Good. Only certain types of goods have Branding potential as they must clear two conditions:
        1. Magnitude: the promise of eventually justifying a significant price premium. Business-to-business goods typically fail to exhibit meaningful affective valence price premia, since most purchasers are only concerned with objective deliverables. Consumer goods, in particular those associated with a sense of identity, tend to have the purchasing decision more driven by affective valence. Here’s the reason: in order to associate with an identity, there must be some way to signal the exclusion of alternative identities.
        1. For Branding Power derived from uncertainty reduction, the customer’s higher willingness to pay is driven by high perceived costs of uncertainty relative to the cost of the good. Such products tend to be those associated with bad tail events: safety, medicine, food, transport, etc. Branded medicine formulations, for example, are identical to those of generics, yet garner a significantly higher price. Duration: a long enough amount of time to achieve such magnitude. If the requisite duration is not present, the Benefit attained will fall prey to normal arbitraging behavior.
    1. Cornered Resource
      1. Cornered Resource definition: Preferential access at attractive terms to a coveted asset that can independently enhance value.
      1. Benefit. In the Pixar case, this resource produced an uncommonly appealing product—“superior deliverables”—driving demand with very attractive price/volume combinations in the form of huge box office returns. No doubt—this was material (a large m in the Fundamental Equation of Strategy). In other instances, however, the Cornered Resource can emerge in varied forms, offering uniquely different benefits. It might, for example, be preferential access to a valuable patent, such as that for a blockbuster drug; a required input, such as a cement producer’s ownership of a nearby limestone source, or a cost-saving production manufacturing approach, such as Bausch and Lomb’s spin casting technology for soft contact lenses.
      1. Barrier. The Barrier in Cornered Resource is unlike anything we have encountered before. You might wonder: “Why does Pixar retain the Brain Trust?” Any one of this group would be highly sought after by other animated film companies, and yet over this period, and no doubt into the future, they have stayed with Pixar. Even during the company’s rocky beginning, there was a loyalty that went beyond simple financial calculation.
      1. Our general term for this sort of barrier is “fiat”; it is not based on ongoing interaction but rather comes by decree, either general or personal.
      1. Another way to put this is that a Cornered Resource is a sufficient condition for potential for differential returns.
    1. Process Power
      1. I save it until last because it is rare. I will use the Toyota Motor Corporation as a case.
      1. Perhaps the best way to think of it is this: Process Power equals operational excellence, plus hysteresis. Having said that, such hysteresis occurs so rarely that I am in strong agreement with Professor Porter’s sentiments.
      1. Benefit. A company with Process Power is able to improve product attributes and/or lower costs as a result of process improvements embedded within the organization. For example, Toyota has maintained the quality increases and cost reductions of the TPS over a span of decades; these assets do not disappear as new workers are brought in and older workers retire.
      1. Barrier. The Barrier in Process Power is hysteresis: these process advances are difficult to replicate, and can only be achieved over a long time period of sustained evolutionary advance. This inherent speed limit in achieving the Benefit results from two factors:
        1. Complexity. Returning to our example: automobile production, combined with all the logistic chains which support it, entails enormous complexity. If process improvements touch many parts of these chains, as they did with Toyota, then achieving them quickly will prove challenging, if not impossible.
        1. Opacity. The development of TPS should tip us off to the long time constant inevitably faced by would-be imitators. The system was fashioned from the bottom up, over decades of trial and error. The fundamental tenets were never formally codified, and much of the organizational knowledge remained tacit, rather than explicit. It would not be an exaggeration to say that even Toyota did not have a full, top-down understanding of what they had created—it took fully fifteen years, for instance, before they were able to transfer TPS to their suppliers. GM’s experience with NUMMI also implies the tacit character of this knowledge: even when Toyota wanted to illuminate their work processes, they could not entirely do so.
  8. The Path to Power: “Me Too” Won’t Do
    1. Here’s the first important takeaway from our consideration of Dynamics: “getting there” (Dynamics) is completely different from “being there” (Statics). In other words, to assess which journeys are worth taking, you must first understand which destinations are desirable. Fortunately the 7 Powers does exactly that: it maps the only seven worthwhile destinations.
    1. The first cause of every Power type is invention, be it the invention of a product, process, business model or brand. The adage “‘Me too’ won’t do” guides the creation of Power.
    1. Planning rarely creates Power. It may meaningfully boost Power once you have established it, but if Power does not yet exist, you can’t rely on planning. Instead you must create something new that produces substantial economic gain in the value chain. Not surprisingly, we have worked our way back to Schumpeter.
    1. Power arrives only on the heels of invention. If you want your business to create value, then action and creativity must come foremost. But success requires more than Power alone; it needs scale. Recall the Fundamental Equation of Strategy: Value = [Market Size] * [Power]
    1. Invention has a powerful one-two value punch: it both opens the door for Power and also propels market size.
  9. Other
    1. By far the most important “value moment” for a business occurs when the bars of uncertainty are radically diminished with regards to the Fundamental Equation of Strategy, market size and Power. At that moment, the cash flow future makes a step-change in transparency.
    1. A primary driver of opacity is high flux: if a business is in a fast-changing environment, then the information facing investment pros tends to have much higher uncertainty bars regarding future free cash flow. But high flux also attends the sort of conditions which orbit the “value moment.” So if the 7 Powers can lead to alpha by identifying Power in these situations ex ante, it also promises to be useful in doing the same for those inventors on the ground trying to find a path to satisfy The Mantra.
    1. The 3 S’s. Power, the potential to realize persistent differential returns, is the key to value creation. Power is created if a business attribute is simultaneously:
      1. Superior—improves free cash flow
      1. Significant—the cash flow improvement must be material
      1. Sustainable—the improvement must be largely immune to competitive arbitrage

What I got out of it Helmer provides a simple, but not simplistic, strategy framework in which to analyze, build, invest in companies. SSCCBNP – scale economies, switching costs, cornered resource, counter positioning, branding, network effects, process. The book is well worth reading and re-reading. The real world examples he gives relating to his framework are helpful to better understand it all.

High Growth Handbook: Scaling Startups from 10 to 10,000 People by Elad Gil

Summary

  1. Elad discusses some key topics that entrepreneurs face from initial stages of a company to exit. He gets great insights from some of the best known entrepreneurs which is helpful to better understand how to navigate complex situations that naturally arise through this process

Key Takeaways

  1. Most startups, once they hit product market fit, shift more towards distribution focus rather than product focus. Distribution has proven to beat out product time and again 
  2. Coming out with a second hit product is often harder than the first but you need to keep iterating or else you’ll get left behind
  3. Pricing power is a key aspect of a moat. If you can’t raise prices, you’re in trouble. This is enormous leverage as it drops right to the bottom line and can fund new efforts, hiring, research, and more. Higher prices = faster growth
  4. Role of the CEO
    1. The CEO sets the vision of the company and communicates that to all stakeholders while hiring, growing, and fostering the culture.
    2. They are chief psychologist and need to be responsible for capital allocation.
    3. You must manage yourself, your reports, and your Board.
    4. You must learn to delegate more, audit your calendar, say “no” more often and make time for things you enjoy.
    5. Learn from an experienced executive, trial by fire, have dinner often with CEOs at other companies, get an executive coach.
    6. You must be able to get perspective and keep the big picture in view – this means focusing on the right things.
    7. Hold regular 1-on-1s, weekly staff meetings 
    8. Should write a “How to Work with Me” document which will help others quickly understand how you like to work 
      1. Great example of how Johnson of Stripe wrote her document
    9. Can’t have too many things be mandatory so must choose carefully 
    10. As a leader, you have to state the obvious and you have to do it often. Make sure people are on the same page. Create documents which outline your overall vision and strategy and shorter term documents for how you’ll get there. You must codify a set of behaviors and principles and adhere to them. You need planning procedures earlier than you think and they must start at the top and flow all the way down 
    11. There are five main jobs for the CEO
      1. Chief product officer
      2. Primary face of the company
      3. Steward for senior executives
      4. Chief strategist
      5. Cultural leader
        1. You do not want to preserve culture. You want to steer and guide it overtime
  5. Role of the Board
    1. Choosing your Board, particularly your independent director, is of utmost important.
    2. The book has some great examples of how you should approach, what you want at varying stages, etc.
    3. The Board’s role is advisory and they should come in asking, “how can I help?” and pose questions rather than demand action.
    4. It should be a collaborative open relationship rather than a hierarchical one.  
    5. One of your mantra’s has to be “do no harm”
    6. Board meetings exist to help the company and ensure proper corporate governance for all stakeholders.
    7. Board meetings should start with
      1. Board matters which should be a quick, high-level overview of key metrics which impact the strategy and the high-level vision
      2. Follow-up items from last Board’s meeting
      3. End with strategic initiatives which should take up most of the time.
      4. Send out the slides before the meeting so everyone has a chance to review them and think about everything
    8. Keep your Board to five or six people if possible as it starts getting political and unwieldy much beyond that.
    9. You have to set expectations early that there won’t be fancy PowerPoint decks just a sheet of paper with the key metrics and strategic points you want to talk about
    10. As a CEO and founder you have to manage the board
  6. Hiring and Training
    1. When hiring people, you should ask the same questions for people interviewing for the same roles so that you can calibrate. The faster you can interview and offer a job the higher your candidate conversion will be
    2. At the beginning, you should hire through your network and this will take a lot of time and effort. As you grow, you can use outside recruiters or bring someone in house to manage it all
    3. When someone is brought on board, send out a welcome email, have a care package waiting for them (such as a hoodie, a onesie for their baby, their laptop etc.)
    4. Assign them a mentor or a buddy for the first couple months and make sure they feel true ownership over whatever they were hired to do
  7. How to hire Executives, COO
    1. Your job as the CEO is not to know everything but to make sure all problems are solved. Hire people that complement you and can do certain things better than you ever could. These high level issues are perfect for a COO. 
    2. Great executives are thinking about and preparing for issues that will come up in 6-12 months. They’re not fighting today’s fires but figuring out how to solve others before they even start
    3. You must hire someone with the right experience. If your company is too large or small for a certain hire, the executive will be bored or over their heads
    4. There is no perfect Org structure and if you’re growing very quickly, you will literally have a different company and 6 to 12 months. So, you should optimize for the current needs rather than trying to optimize for where you think the company might be in a couple years.
    5. Reorgs, while difficult,  will happen both at the company level and at the functional level but they must be handled delicately, thoughtfully, and quickly 
    6. Rapidly growing companies should look to have a position that “fills the gaps.” Someone who reports directly to the founder or CEO and can help cover bases and fix problems until a bigger team and an executive is hired and built out. Fast growing companies are chaotic on the inside and that’s why a position like this is so powerful. Finding a good person, having them understand the problems, building out their team, and scaling takes time so you really need to be looking out for at least a year and hiring someone to fix the problems you think you’ll run up against.
    7. Early on make sure you have the proper scaffolding for your organization so that it doesn’t break when you scale. it doesn’t need to be large or require tons of people but it should be thoughtfully built out
    8. You can compromise on skill or experience when hiring quickly but never compromise on culture – no jerks. Say your culture and values so often that you get sick of it. Reward people on performance and culture to align incentives
  8. Other
    1. Product managers are the CEOs of a certain product lines and are responsible for addressing customer needs, desires, wants, and creating products to match that
    2. When fundraising, don’t over-optimize for a valuation. Raise money at a fair price and that way you can grow into it organically. In addition, later fundraising could be easier because metrics are more realistic and manageable to meet
    3. Right of First Refusal for secondary share offerings and/or a mandate in your charter discussing this could be helpful if you grow and employees want to diversify and cash out

What I got out of it

  1. A supremely helpful and insightful book for anyone thinking of starting a company, in the midst of starting one, or far along the path. Will come back to and reference often

Great reference website for more resources

Founders at Work: Stories of Startups’ Early Days by Jessica Livingston

Summary

  1. Jessica Livingston interviews some of the biggest technology entrepreneurs about their experience in the early days of their companies. You’ll get firsthand knowledge about the whole process and be able to pick up patterns across time (it’s always more work than you think it’ll be, almost none of these entrepreneurs foresaw how big their companies would eventually become). “Why the disconnect [between startups trying to seem like formal companies but actually operating far faster, often better]? I think there’s a general principle at work here: the less energy people expend on performance, the more they expend on appearances to compensate. More often than not the energy they expend on seeming impressive makes their actual performance worse. A few years ago I read an article in which a car magazine modified the “sports” model of some production car to get the fastest possible standing quarter mile. You know how they did it? They cut off all the crap the manufacturer had bolted onto the car to make it look fast. Business is broken the same way that car was. The effort that goes into looking productive is not merely wasted, but actually makes organizations less productive. Suits, for example. Suits do not help people to think better. I bet most executives at big companies do their best thinking when they wake up on Sunday morning and go downstairs in their bathrobe to make a cup of coffee. That’s when you have ideas. Just imagine what a company would be like if people could think that well at work. People do in startups, at least some of the time. (Half the time you’re in a panic because your servers are on fire, but the other half you’re thinking as deeply as most people only get to sitting alone on a Sunday morning.) This book can help fix that problem, by showing everyone what, till now, only a handful people got to see: what happens in the first year of a startup. This is what real productivity looks like. This is the Formula 1 racecar. It looks weird, but it goes fast.”

Key Takeaways

  1. Apparently sprinters reach their highest speed right out of the blocks, and spend the rest of the race slowing down. The winners slow down the least. It’s that way with most startups too. The earliest phase is usually the most productive. That’s when they have the really big ideas. Imagine what Apple was like when 100% of its employees were either Steve Jobs or Steve Wozniak.
  2. In this book, you’ll hear the founders’ stories in their own words. Here, I want to share some of the patterns I noticed. When you’re interviewing a series of famous startup founders, you can’t help trying to see if there is some special quality they all have in common that made them succeed. What surprised me most was how unsure the founders seemed to be that they were actually onto something big. Some of these companies got started almost by accident. The world thinks of startup founders as having some kind of superhuman confidence, but a lot of them were uncertain at first about starting a company. What they weren’t uncertain about was making something good—or trying to fix something broken. They all were determined to build things that worked. In fact, I’d say determination is the single most important quality in a startup founder. If the founders I spoke with were superhuman in any way, it was in their perseverance. That came up over and over in the interviews. Perseverance is important because, in a startup, nothing goes according to plan. Founders live day to day with a sense of uncertainty, isolation, and sometimes lack of progress. Plus, startups, by their nature, are doing new things—and when you do new things, people often reject you. That was the second most surprising thing I learned from these interviews: how often the founders were rejected early on. By investors, journalists, established companies—they got the Heisman from everyone. People like the idea of innovation in the abstract, but when you present them with any specific innovation, they tend to reject it because it doesn’t fit with what they already know. Innovations seem inevitable in retrospect, but at the time it’s an uphill battle. It’s curious to think that the technology we take for granted now, like web-based email, was once dismissed as unpromising. As Howard Aiken said, “Don’t worry about people stealing your ideas. If your ideas are any good, you’ll have to ram them down people’s throats.” In addition to perseverance, founders need to be adaptable. Not only because it takes a certain level of mental flexibility to understand what users want, but because the plan will probably change. People think startups grow out of some brilliant initial idea like a plant from a seed. But almost all the founders I interviewed changed their ideas as they developed them. PayPal started out writing encryption software, Excite started as a database search company, and Flickr grew out of an online game. Starting a startup is a process of trial and error. What guided the founders through this process was their empathy for the users. They never lost sight of making things that people would want.

Summary

  1. Very rich read which provides great insights into how these entrepreneurs think, how they reacted and adapted to situations, and how persistent and creative you have to be to survive. Highly recommend for anyone thinking of starting their own business or in the midst of it now. Many parallels and patterns to learn from

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.