Tag Archives: Management

Skunk Works: A Personal Memoir of My Years of Lockheed by Ben Rich

Summary

  1. Ben Rich, CEO of the Skunk WOrks after legendary Kelly Johnson stepped down, describes what makes the Skunk Works so special and some behind the scenes looks at how they operate

Key Takeaways

  1. Ben Rich took over Skunk Works from legendary Kelly Johnson. Rich’s first big test was his confidence in stealth when those around him were doubtful of its potential 
  2. Kelly deeply believed that an airplane that was beautiful would fly the same way 
  3. Engineers had to live with their design through production. They were expected on the floor and couldn’t abdicate responsibility just because a design had been approved. Engineers spoke to designers who spoke to manufacturing who spoke to quality and then to flight testing. Quality reported directly to the CEO
  4. To save time, they built the plane vertically which allowed them to work in parallel rather than in series 
    1. Advantageous Divergence
  5. 14 Skunk Works mantras
    1. The Skunk Works manager must be delegated practically complete control of his program in all aspects. He should report to a division president or higher.
    2. Strong but small project offices must be provided both by the military and industry.
    3. The number of people having any connection with the project must be restricted in an almost vicious manner. Use a small number of good people (10% to 25% compared to the so-called normal systems).
    4. A very simple drawing and drawing release system with great flexibility for making changes must be provided.
    5. There must be a minimum number of reports required, but important work must be recorded thoroughly.
    6. There must be a monthly cost review covering not only what has been spent and committed but also projected costs to the conclusion of the program.
    7. The contractor must be delegated and must assume more than normal responsibility to get good vendor bids for subcontract on the project. Commercial bid procedures are very often better than military ones.
    8. The inspection system as currently used by the Skunk Works, which has been approved by both the Air Force and Navy, meets the intent of existing military requirements and should be used on new projects. Push more basic inspection responsibility back to subcontractors and vendors. Don’t duplicate so much inspection.
    9. The contractor must be delegated the authority to test his final product in flight. He can and must test it in the initial stages. If he doesn’t, he rapidly loses his competency to design other vehicles.
    10. The specifications applying to the hardware must be agreed to well in advance of contracting. The Skunk Works practice of having a specification section stating clearly which important military specification items will not knowingly be complied with and reasons therefore is highly recommended.
    11. Funding a program must be timely so that the contractor doesn’t have to keep running to the bank to support government projects.
    12. There must be mutual trust between the military project organization and the contractor, the very close cooperation and liaison on a day-to-day basis. This cuts down misunderstanding and correspondence to an absolute minimum.
    13. Access by outsiders to the project and its personnel must be strictly controlled by appropriate security measures.
    14. Because only a few people will be used in engineering and most other areas, ways must be provided to reward good performance by pay not based on the number of personnel supervised.
      1. There was a secret 15th rule – don’t work with the navy
  6. There was so much secrecy around many of the skunk Works projects that inefficiency and obscurity was a feature not a bug. They had to fail their assembly locations plans and blueprints so well that it added in Normas friction and costs to their overall process
  7. There were of course technical and governmental problems but they succeeded and the stealth fighter became phenomenally profitable, making Lockheed billions of dollars 
  8. No other manufacturer came close to building the intimate relationship between designer and user like skunk works did. They had the pilots responsible for flying the F1-17A part of the production process 
  9. They developed homegrown talent that was able to get up the learning curve very quickly through proper training motivation and incentives
  10. Stealth plus precision missiles was a quantum leap in warfare rendering nearly useless billions of dollars spent on defense systems by the Russians and other enemies
  11. Kelly was of Swedish origin – “as stubborn as a Swede”
  12. The greatest compliment Kelly ever got was from a British colonel that said, “this old Swede can see the damn air!” That’s how efficient his designs were and how intuitive he was with aerodynamics and airplane design 
    1. Hologram in the Head
  13. Kelly believed that if he didn’t have the hell scared out of him as a test flight pilot at least once a year he wouldn’t have the proper perspective to design airplanes. He was one of the leading experts in nearly every aspect of the design and build of airplanes. Nothing ever got past him and he was frustrated by those who try to cover up their mistakes rather than own up to them
  14. One of Kelly‘s key mantras was to have everybody as close to the production floor as possible – even a stones throw away was too far as he wanted structural changes and questions to be addressed immediately. Any delays were to be reported to Kelly immediately and stock items were to be used in place of special parts, even at the expense of added weight – the potential for delay was too great if too many special parts were used 
    1. Velocity
  15. Kelly was strong as an ox and challenged people to arm wrestling. He hardly ever lost 
  16. The U2 spy plane was another great success and allowed the US to get reconnaissance data on the Soviet union without fear of being shot down. This was the greatest success and greatest bargain, allowing policy makers to know what they were truly up against 
  17. The black bird may be the pinnacle of 20th century aviation and Kelly considered it his crowning achievement
  18. The SR 71 blackbird was the most advanced plane of the 20th century. However, they stopped building them in the 1970s and it was officially retired in 1990. The incredible thing is that the titanium skin and the speed at which it flew cause such he got the metal was annealed on every flight, making it stronger overtime
  19. A lot of the technology, planes, and ships that the Skunk Works built allowed for a much smaller team to have the same impact as a past larger team would have. However, in terms of an officer’s prestige, ego, and future prospects, more and bigger was better so they had a hard time attracting ambitious and capable officers to these smaller yet more effective teams. Their stealth ship, Sea Shadow, fell into this category.
  20. An interesting paradox about stealth technology is that it is built to disappear, but it can’t be more quiet than the background noise or else they stand out just as much as if they were using no stealth at all
  21. They were two people set to potentially take over for Kelly when he retired. Ben was Kelly’s favorite since he was technically great but more importantly a good leader straightforward and someone who had big ideas and big vision. There are many great engineers but a few good leaders
    1. Alloying
  22. Don’t build anything you don’t believe in
  23. Skunk Works would likely not be able to exist without a parent organization who they could push and pull talent from. This helps keep the team streamlined and focused without growing excessively large and bureaucratic 
  24. Another important skunk works mantra is to stick with suppliers who perform well. Switching suppliers just because of cost eats up expenses in different ways and is almost never worth it. Form long lasting relationships with good suppliers 

What I got out of it

  1. Exciting book to get behind the scenes of one of the most innovative and important aerospace groups of the past 50 years. A lot to learn from in terms of leadership, velocity, and management organization 

Augustine’s Laws by Norman Augustine

Summary

  1. There have been some many superb books published in recent years dealing with successful busines sundertakings. This book, however, takes a contrapuntal viewpoint and adopts the perspective of learning from a business gone awry. It is much as is the practice at medical conventions – where it is generally considered that a greatl deal can be learned by not focusing on healthy people. 

Key Takeaways

  1. There are 52 total laws, the most compelling (to me), outlined below
    1. There are no lazy veteran lion hunters – margin between victory and defeat is miniscule
    2. If you can afford to advertise, you don’t need to
    3. 1/10th of the participants produce 1/3 of the output. increasing the number of participants simply reduces the average output
    4. The last 10% of performance generates 1/3 of the costs and 2/3 of the problems
    5. It is very expensive to achieve high unreliability. It is not uncommon to increase the cost of an item by a factor of ten for each factor of ten degradation accomplished 
    6. Any task can be completed in only 1/3 more time than is currently estimated
    7. If a sufficient number of management layers are superimposed on top of each other, it can be assured that disaster is not left to chance
    8. The optimum committee has no members
    9. Hiring consultants to conduct studies can be an excellent means of turning problems into gold – your problems into their gold
    10. The weaker the data available upon which to base one’s conclusion, the greater the precision which should be quoted in order to give the data authenticity.
    11. The more time you spend talking about what you have been doing, the less time you have to do what you have been talking about. Eventually, you spend more and more time talkinga bout less and less until finally you spend all your time talking about nothing. 
  2. Other
    1. Managerial intellect wilted in competition with managerial adrenaline
    2. In the words of Rick Mears, “to finish first you must first finish.”
    3. Quantity has a quality all its own
    4. An irate banker demadned that Alexander Graham Bell remove “that toy” from his office. The toy was the telephone. A Hollywood producer scrawled a rejection note on a manuscript that became Gone with the Wind. Henry Ford’s largest origianl investor sold all his stock in 1906. Today, Sears may sell $25,000 of goods in 16 seconds. 
    5. Adding people to speed up a late software project just makes it later
    6. Key Lessons
      1. People are the key to success in most any underatking
      2. Teamwork is the fabric of effective business organizations
      3. Self-image is as important in business as in sports
      4. Motivation makes the diference
      5. Recognition of accomplishment (and lack thereof) is an essential form of feedback
      6. Listening to employees and customers pay dividends – they know their jobs and needs better than anyone else
      7. Delegation, whenver practicable, is the best course. As Plato suggested, justice is everyone doing their own job
      8. Openness with empoyees and customers alike is essential to building trust
      9. Customers deserve the very best
      10. Quality is the key to customer satisfaction. It means giving the customer what was agreed upon – every time.
      11. Stability of funding, schedules, goals, and people is critical to any smooth business operation. Avoid turbulence at all costs
      12. Demanding that last little bit of effort from oneself is essential – it can make the difference against competitors who don’t have the will to put out the extra effort
      13. Provision for the unexpected is a business person’s best insurance policy. It is said that the ultimate form of management is managing under uncertainty. One must identify sources of risks and unknowns and make provisions to overcome them – in the form of financial reserves, schedule reserves, and performance reserves. Promise only that which can be produced and produce that which has been promised.
      14. “Touch Labor” – people who actually come into contact with the product – are the only certain contributors in any organization. Others may contribute – managers, lawyers, accountants, consultants, auditors – but they may not. 
      15. Rules, regulations, policies, reports,a nd organization charts are not a subsitutte for sound management judgment. 
      16. Logic in presenting decision options, consequences, benefits, and risks is imperative. Whenever parameters can be quantified, it is usually desirable to do so
      17. Conservatism, prudent conservatism, is generally the best path in financial matters
      18. Integrity is the sine qua non of all human endeavors including business. It has even been said that if rascals knew the value of honesty they would be honest simply because of their rascality.
      19. Much of the above simply boils down to DISCIPLINE – and in particulars that finest form of the art – SELF-discipline. DIscipline not to take the easy way out, discipline to forgeo “nice-to-have” features, discipline to minimize change, discipline to demand a quality product, discipline to treat a customer fairly even when it costs, and discipline to “tough out” and solve the problems which will occur in even the best-managed undertakings. As Robert Townsend, the former chairman of AVIS, put it in his book Up the Organization, managers must have the discipline not to keep pulling up the flowers to see if their roots are healthy. Most of our problems, it seems, are, as could be their solutions, self-imposed.

What I got out of it

  1. Ironic, sarcastic, hysterical, correct.

The HP Way by David Packard

Summary

  1. David Packard walks through the evolution of Hewlett-Packard from tiny startup to behemoth

Key Takeaways

  1. Finally, they hit upon the audio oscillator and sold eight units to Walt Disney, earning the company its first substantial revenues.
  2. Culture and the HP Way
    1. “But they had a great idea—the ultimate source of competitive advantage—if you can just see it,” I’d push back. “What might that be?” After ten or fifteen minutes, someone would likely voice the key point: Bill Hewlett and David Packard’s greatest product was not the audio oscillator, the pocket calculator, or the minicomputer. Their greatest product was the Hewlett-Packard Company and their greatest idea was The HP Way.
    2. The point is not that every company should necessarily adopt the specifics of the HP Way, but that Hewlett and Packard exemplify the power of building a company based on a framework of principles. The core essence of the HP Way consists of five fundamental precepts.
      1. The Hewlett-Packard company exists to make a technical contribution, and should only pursue opportunities consistent with this purpose;
      2. The Hewlett-Packard company demands of itself and its people superior performance—profitable growth is both a means and a measure of enduring success;
      3. The Hewlett-Packard company believes the best results come when you get the right people, trust them, give them freedom to find the best path to achieve objectives, and let them share in the rewards their work makes possible;
      4. The Hewlett-Packard company has a responsibility to contribute directly to the well-being of the communities in which its operates;
      5. Integrity, period.
    3. Hewlett and Packard rejected the idea that a company exists merely to maximize profits. “I think many people assume, wrongly, that a company exists simply to make money,” Packard extolled to a group of HP managers on March 8, 1960. “While this is an important result of a company’s existence, we have to go deeper to find the real reasons for our being.” He then laid down the cornerstone concept of the HP Way: contribution. Do our products offer something unique—be it a technical contribution, a level of quality, a problem solved—to our customers? Are the communities in which we operate stronger and the lives of our employees better than they would be without us? Are people’s lives improved because of what we do? If the answer to any these questions is “no,” then Packard and Hewlett would deem HP a failure, no matter how much money the company returned to its shareholders.
    4. Therein we find the hidden DNA of the HP Way: the genius of the And. Make a technical contribution and meet customer needs. Take care of your people and demand results. Set unwavering standards and allow immense operating flexibility. Achieve growth and achieve profitability. Limit growth to arenas of distinctive contribution and create new arenas of growth through innovation. Never compromise integrity and always win in your chosen fields. Contribute to the community and deliver exceptional shareholder returns. Behind these specifics lies the biggest “And” of all, the principle that underpins every truly great company: preserve the core and stimulate progress.
    5. Any great social enterprise—whether it be a great company, a great university, a great religious institution, or a great nation—exemplifies a duality of continuity and change. On the one hand, it is guided by a set of core values and fundamental purpose that change little over time, while on the other hand, it stimulates progress—change, improvement, innovation, renewal—in all that is not part of the core guiding philosophy. In a great company, core values remain fixed while operating practices, cultural norms, strategies, tactics, processes, structures, and methods continually change in response to changing realities. Lose your core values, and you lose your soul; refuse to change your practices, and the world will pass you by.
    6. Yet the ultimate test of a great company is not the absence of difficulty, but the ability to recover from setbacks—even self-inflicted wounds—stronger than before.
    7. As we investigate this, we inevitably come to the conclusion that a group of people get together and exist as an institution that we call a company so they are able to accomplish something collectively which they could not accomplish separately. They are able to do something worthwhile—they make a contribution to society (a phrase which sounds trite but is fundamental).
    8. We must realize that supervision is not a job of giving orders; it is a job of providing the opportunity for people to use their capabilities efficiently and effectively.
    9. If our main thought is to make money, we won’t care about these details. If we don’t care about the details, we won’t make as much money. They go hand in hand.
    10. Our first obligation, which is self-evident from my previous remarks, is to let people know they are doing something worthwhile. We must provide a means of letting our employees know they have done a good job. You as supervisors must convey this to your groups. Don’t just give orders. Provide the opportunity for your people to do something important. Encourage them.
    11. Profit is the measure of our contribution to our customers—it is a measure of what our customers are willing to pay us over and above the actual cost of an instrument.
    12. Get the best people, stress the importance of teamwork, and get them fired up to win the game.
    13. I found, after much trial and error, that applying steady gentle pressure from the rear worked best. Eventually, one would decide to pass through the gate; the rest would soon follow. Press them too hard, and they’d panic, scattering in all directions. Slack off entirely, and they’d just head back to their old grazing spots. This insight was useful throughout my management career.
    14. Another example of sharing, though in a much different way, occurred in 1970. Because of a downturn in the U.S. economy, our incoming orders were running at a rate quite a bit less than our production capability. We were faced with the prospect of a 10 percent layoff. Rather than a layoff, however, we tried a different tack. We went to a schedule of working nine days out of every two weeks—a 10 percent cut in work schedule with a corresponding 10 percent cut in pay. This applied to virtually all our U.S. factories, as well as to all executives and corporate staff. At the end of a six-month period, the order rate was up again and everyone returned to a full work schedule. Some said they enjoyed the long weekends even though they had to tighten their belts a little. The net result of this program was that effectively all shared the burden of the recession, good people were not released into a very tough job market, and we had our highly qualified workforce in place when business improved.
    15. GE was especially zealous about guarding its tool and parts bins to make sure employees didn’t steal anything. Faced with this obvious display of distrust, many employees set out to prove it justified, walking off with tools or parts whenever they could. Eventually, GE tools and parts were scattered all around town, including the attic of the house in which a number of us were living. In fact, we had so much equipment up there that when we threw the switch, the lights on the entire street would dim. The irony in all of this is that many of the tools and parts were being used by their GE “owners” to work on either job-related projects or skill-enhancing hobbies—activities that would likely improve their performance on the job. When HP got under way, the GE memories were still strong and I determined that our parts bins and storerooms should always be open. Keeping storerooms and parts bins open was advantageous to HP in two important ways. From a practical standpoint, the easy access to parts and tools helped product designers and others who wanted to work out new ideas at home or on weekends. A second reason, less tangible but important, is that the open bins and storerooms were a symbol of trust, a trust that is central to the way HP does business.
    16. Many companies have a policy stating that once employees leave the company, they are not eligible for reemployment. Over the years we have had a number of people leave because opportunities seemed greater elsewhere. We’ve always taken the view that as long as they have not worked for a direct competitor, and if they have a good work record, they are welcomed back. They know the company, need no retraining, and usually are happier and better motivated for having had the additional experience.
    17. No operating policy has contributed more to Hewlett-Packard’s success than the policy of “management by objective.” Although the term is relatively new to the lexicon of business, management by objective has been a fundamental part of HP’s operating philosophy since the very early days of the company. MBO, as it is frequently called, is the antithesis of management by control. The latter refers to a tightly controlled system of management of the military type, where people are assigned—and expected to do—specific jobs, precisely as they are told and without the need to know much about the overall objectives of the organization. Management by objective, on the other hand, refers to a system in which overall objectives are clearly stated and agreed upon, and which gives people the flexibility to work toward those goals in ways they determine best for their own areas of responsibility. It is the philosophy of decentralization in management and the very essence of free enterprise.
    18. I don’t argue that the job can’t be done that way, but I do argue strongly that the best job can be done when the manager has a genuine and thorough understanding of the work. I don’t see how managers can even understand what standards to observe, what performance to require, and how to measure results unless they understand in some detail the specific nature of the work they are trying to supervise.
    19. I learned everything I could about the causes of failure and decided to spend most of my time on the factory floor, making sure every step in the manufacturing process was done correctly. I found several instances where the written instructions provided the manufacturing people were inadequate, and I worked with them on each step in the process to make sure there were no mistakes. This painstaking attention to detail paid off, and every tube in the next batch passed its final test.
    20. That was the genesis of what has been called MBWA. I learned that quality requires minute attention to every detail, that everyone in an organization wants to do a good job, that written instructions are seldom adequate, and that personal involvement is essential.
    21. It needs to be frequent, friendly, unfocused, and unscheduled—but far from pointless. And since its principal aim is to seek out people’s thoughts and opinions, it requires good listening.
    22. Linked with MBWA is another important management practice at Hewlett-Packard, and a basic tenet of the HP Way. It’s called the “open door policy.” Like MBWA, this policy is aimed at building mutual trust and understanding, and creating an environment in which people feel free to express their ideas, opinions, problems, and concerns.
    23. The open door policy is very important at HP because it characterizes the management style to which we are dedicated. It means managers are available, open, and receptive. Everyone at HP, including the CEO, works in open-plan, doorless offices. This ready availability has its drawbacks in that interruptions are always possible. But at HP we’ve found that the benefits of accessibility far outweigh the disadvantages. The open door policy is an integral part of the management-by-objective philosophy. Also, it is a procedure that encourages and, in fact, ensures that the communication flow be upward as well as downward.
  3. Business
    1. Bill’s audio oscillator represented the first practical, low-cost method of generating high-quality audio frequencies needed in communications, geophysics, medicine, and defense work. The audio oscillator was to become the Hewlett-Packard Company’s first product.
    2. We designated this first product the Model 200A because we thought the name would make us look like we’d been around for a while. We were afraid that if people knew we’d never actually developed, designed, and built a finished product, they’d be scared off. Our pricing was even more naive: We set it at $54.40 not because of any cost calculations but because, of all things, it reminded us of “54°4o’ or Fight!” (the 1844 slogan used in the campaign to establish the northern border of the United States in the Pacific Northwest). We soon discovered we couldn’t afford to build the machines for that price. Luckily, our nearest competition was a $400 oscillator from General Radio, which gave us considerable room to maneuver.
    3. At the end of 1939, our first full year in business, our sales totaled $5,369 and we had made $1,563 in profits. We would show a profit every year thereafter.
    4. In those early days Bill and I had to be versatile. We had to tackle almost everything ourselves—from inventing and building products to pricing, packaging, and shipping them; from dealing with customers and sales representatives to keeping the books; from writing the ads to sweeping up at the end of the day. Many of the things I learned in this process were invaluable, and not available in business schools.
    5. He said that more businesses die from indigestion than starvation. I have observed the truth of that advice many times since then.
    6. Although the pressure to meet production deadlines was enormous, there was also lots of excitement and a great sense of camaraderie.
    7. Eventually, because of big gains in productivity, the bonus to our entire workforce rose to as much as 85 percent of base wages. At that point, which was some time after the war, we abandoned this particular bonus plan. But in no way did we discontinue the practice of sharing profits among all our people. To this day, Hewlett-Packard has a profit-sharing program that encourages teamwork and maintains that important link between employee effort and corporate success.
    8. Bill and I had decided we were going to reinvest our profits and not resort to long-term borrowing. I felt very strongly about this issue, and we found we were clearly able to finance 100 percent growth per year by reinvesting our profits. After some discussion with the members of the board, they seemed to be impressed with what we were doing but said they had a limit of 12 percent of profit they could allow on equity. I pointed out that our business had been doubling every year and that it would continue to do so for several years. I also told them that I had kept my salary at a lower level than it should have been because I did not think it was fair for my salary to be higher than Bill’s army salary.
    9. We developed additional instruments, and later on, again working with Dr. Haeff, we built a device his group developed that was capable of jamming an enemy’s ship-board radar. It was at the core of what was code-named the Leopard project. We were very conscientious about meeting our delivery schedule on this project, working around the clock. I recall moving a cot into the factory and sleeping there many nights.
    10. I believe this decision to focus our efforts was extremely important, not only in the early days of the company but later on as well. During the war, for example, we could have taken on some big—at least for us—production contracts. But that would have built the company to a level that probably couldn’t be sustained later on. I felt that we should take on no more than we could reasonably handle, building a solid base by doing what we did best—designing and manufacturing high-quality instruments.
    11. The counter was so useful when it did work that our customers tolerated its unreliability.
    12. Our collaboration with Stanford and Fred Terman continued, and in 1954 we expanded on the fellowship program and established what became known as the Honors Cooperative Program, which allowed qualified HP engineers to pursue advanced degrees at Stanford. The program made it possible for us to hire top-level young graduates from around the country with the promise that if they came to work for us and we thought it appropriate, they could attend graduate school while on full HP salary. Originally, the company paid part of their tuition as well, and more recently has paid all of their tuition. More than four hundred HP engineers have obtained master’s or doctorate degrees through this program. It has enabled us to hire the top engineering graduates from universities all across the country for a number of years—an important factor in the ultimate success of our company.
    13. As I have said many times, our success depends in large part on giving the responsibility to the level where it can be exercised effectively, usually on the lowest possible level of the organization, the level nearest the customer.
    14. There were about 4,000 people at this facility, and we were the first Americans ever to visit. It was obvious to me that what they were building would be entirely useless in modern-day combat, but I didn’t say anything at the time, except to compliment them on their workmanship.
    15. Bill Hewlett and I were raised during that depression. We had observed its devastating effects on people, including many families and friends who were close to us. My father had been appointed as a bankruptcy referee for the state of Colorado. When I returned to Pueblo during the summers of the 1930s, I often helped my father in looking up the records of those companies that had gone bankrupt. I noted that the banks simply foreclosed on firms that mortgaged their assets and these firms were left with nothing. Those firms that did not borrow money had a difficult time, but they ended up with their assets intact and survived during the depression years that followed. From this experience I decided our company should not incur any long-term debt. For this reason Bill and I determined we would operate the company on a pay-as-you-go basis, financing our growth primarily out of earnings rather than by borrowing money.
    16. Our long-standing policy has been to reinvest most of our profits and to depend on this reinvestment, plus funds from employee stock purchases and other cash flow items, to finance our growth. The stock purchase plan allows employees to apply up to a certain percentage of their salaries to purchase shares of HP stock at a preferential price. The company picks up a portion of the price of the stock. The plan has been in existence since 1959 and has provided us with significant amounts of cash to help finance our growth.
    17. I was convinced we could correct the problem through greater self-discipline. I quickly visited nearly every one of our major divisions, meeting with a host of managers and giving them a lecture that was later characterized by one manager as “Dave’s give-’em-hell talk.”
    18. One of our most important management tasks is maintaining the proper balance between short-term profit performance and investment for future strength and growth.
    19. The pricing of new products is an important and challenging exercise. Often a product will be introduced to the market at a price too low to make an adequate short-term profit. The thinking is that “we’ll get our costs down and that will enable us to make a good profit”— either next month, next quarter, or next year. But that time seldom, if ever, comes. Often pricing also falls prey to the goal of “market share.” Many managers in American industry are caught up with the idea of capturing a larger share of a market, often by undercutting the competition’s prices. In the short term, that often results in an impressive sales volume . . . but at the expense of little or no profit.
    20. What we did decide, however, was that we wanted to direct our efforts toward making important technical contributions to the advancement of science, industry, and human welfare. It was a lofty, ambitious goal. But right from the beginning, Bill and I knew we didn’t want to be a “me-too” company merely copying products already on the market.
    21. A constant flow of good new products is the lifeblood of Hewlett-Packard and essential to our growth. Early on we developed a system for measuring the flow and success of new products.
    22. At HP, as in other technical companies, there is no shortage of ideas. The problem is to select those likely to fill a real need in the marketplace. To warrant serious pursuit an idea must be both practical (the device under consideration must work properly) and useful. Out of those ideas that are practical, a smaller number are useful. To be useful an invention must not only fill a need, it must be an economical and efficient solution to that need. we often used to select projects on the basis of a six-to-one engineering return. That is, the profit we expected to derive over the lifetime of a product should be at least six times greater than the cost of developing the product. Almost without exception, the products that beat the six-to-one ratio by the widest margin were the most innovative.
    23. How do managers provide encouragement and help the inventor retain enthusiasm in the face of such disappointment? HP shows off its first computer in 1967 at the IEEE trade show in New York City. Many HP managers over the years have expressed admiration for the way Bill Hewlett handled these situations. One manager has called it Bill’s “hat-wearing process.” Upon first being approached by a creative inventor with unbridled enthusiasm for a new idea, Bill immediately put on a hat called “enthusiasm.” He would listen, express excitement where appropriate and appreciation in general, while asking a few rather gentle and not too pointed questions. A few days later, he would get back to the inventor wearing a hat called “inquisition.” This was the time for very pointed questions, a thorough probing of the idea, lots of give-and-take. Without a final decision, the session was adjourned. Shortly thereafter, Bill would put on his “decision” hat and meet once again with the inventor. With appropriate logic and sensitivity, judgment was rendered and a decision made about the idea. This process provided the inventor with a sense of satisfaction, even when the decision went against the project—a vitally important outcome for engendering continued enthusiasm and creativity.
    24. In 1994, HP’s sales in computer products, service, and support were almost $20 billion, or about 78 percent of the company’s total business. In 1964, our sales totaled $125 million and were entirely in instruments. Not a penny was from computer sales. This represents a remarkable transformation of our company and its business. It would be nice to claim that we foresaw the profound effect of computers on our business and that we prepared ourselves to take early advantage of the computer age. Unfortunately, the record does not justify such pride. It would be more accurate to say that we were pushed into computers by the revolution that was changing electronics.
    25. Several years later, at a gathering of HP engineers, I presented Chuck with a medal for “extraordinary contempt and defiance beyond the normal call of engineering duty.” So how does a company distinguish between insubordination and entrepreneurship? To this young engineer’s mind the difference lay in the intent. “I wasn’t trying to be defiant or obstreperous. I really just wanted a success for HP,” Chuck said. “It never occurred to me that it might cost me my job.” As a postscript to the story, this same engineer later became director of a department . . . with his reputation as a maverick intact.
    26. The fundamental basis for success in the operation of Hewlett-Packard is the job we do in satisfying the needs of our customers. We encourage every person in our organization to think continually about how his or her activities relate to the central purpose of serving our customers.
    27. Noel, a key member of our top-management team, was a strong advocate for helping the customer, so much so that he wanted our sales engineers to take the customer’s side in any disputes with the company. “We don’t want you blindly agreeing with us,” he’d tell them. “We want you to stick up for the customer. After all, we’re not selling hardware; we’re selling solutions to customer problems.” Noel stressed the importance of customer feedback in helping us design and develop products aimed at real customer needs. He also insisted that our salespeople never speak disparagingly of the competition. This reflected our feeling that competitors should be respected, the type of respect that existed between General Radio and HP when Bill and I were starting out.
    28. “More for less” became the goal for each new LaserJet model. This objective reveals a lesson learned from our experience with calculators. For many years we continued to introduce increasingly sophisticated calculators with greater capabilities at greater cost to consumers. Meanwhile, our competitors were offering basic features at a lower price. For the mass market, basic features were sufficient, and the lower-priced models decreased HP’s calculator market share. The sophisticated HP calculators sold to customers who needed more advanced capabilities—but we lost a large portion of the marketplace. With LaserJet printers, we decided that each revision would offer our customers greater capability at a lower price than its predecessor.
    29. Kenzo Sasaoka, our manager in Japan, and he said that I had shown him the way—that gains in quality come from meticulous attention to detail and every step in the manufacturing process must be done as carefully as possible, not as quickly as possible. This sounds simple, but it is achieved only if everyone in the organization is dedicated to quality.
    30. Especially in a technical business where the rate of progress is rapid, a continuing program of education must be undertaken and maintained.
    31. Another requirement is that a high degree of enthusiasm should be encouraged at all levels; in particular, the people in high management positions must not only be enthusiastic themselves, they must be able to engender enthusiasm among their associates. There can be no place for halfhearted interest or halfhearted effort.
    32. Thus, we made an early and important decision: We did not want to be a “hire and fire”—a company that would seek large, short-term contracts, employ a great many people for the duration of the contract, and at its completion let those people go. This type of operation is often the quickest and most efficient way to get a big job accomplished. But Bill and I didn’t want to operate that way. We wanted to be in business for the long haul, to have a company built around a stable and dedicated workforce. 
    33. Growth also affected the size and nature of company picnics. Bill and I considered picnics an important part of the HP Way, and in the early days we had an annual picnic in the Palo Alto area for all our people and their families. It was a big event, one largely planned and carried out by our employees themselves. The menu consisted of New York steaks, hamburgers, Mexican beans or frijoles, green salad, garlic French bread, and beer. The company bought the food and beer. It became customary for the machine shop people to barbeque the steaks and burgers, with other departments responsible for other parts of the menu. Bill and I and other senior executives served the food, giving us the opportunity to meet all of the employees and their families. In the early 1950s the company bought a parcel of land, called Little Basin, in the redwood country about an hour’s drive from Palo Alto. We converted part of it into a recreation area, large enough to have a picnic with two thousand people or more. We also made it available year around for our employees and their families to go overnight camping. This was such a popular benefit that we decided, later on, to duplicate the idea in other parts of the world where we had concentrations of HP people.
    34. The underlying principle of HP’s personnel policies became the concept of sharing—sharing the responsibilities for defining and meeting goals, sharing in company ownership through stock purchase plans, sharing in profits, sharing the opportunities for personal and professional development, and even sharing the burdens created by occasional downturns in business.
    35. In the United States and many other countries, employees participate in stock purchase plans and in cash profit sharing. U.S. employees with more than six months of service are eligible for profit sharing, and each year receive amounts calculated on the company’s pretax earnings. Over the years this payout has been as high as 9.9 percent and as low as 4.1 percent of base salary. Since the company has always been profitable, the program has continued uninterrupted since we started it in the 1950s.
    36. An important responsibility of managers is the selection and training of their potential successors. Management succession is especially critical at the upper levels of an organization, where a manager may be responsible for a wide scope of complex activities involving the expenditure of many millions of dollars and the efforts of many thousands of people.
    37. I have always felt that the most successful companies have a practice of promoting from within.
    38. Today Hewlett-Packard operates in many different communities throughout the world. We stress to our people that each of these communities must be better for our presence. This means being sensitive to the needs and interests of the community; it means applying the highest standards of honesty and integrity to all our relationships with individuals and groups; it means enhancing and protecting the physical environment and building attractive plants and offices of which the community can be proud; it means contributing talent, energy, time, and financial support to community projects.
    39. It took forty years for the company Bill Hewlett and I started in 1939 to reach one billion dollars in annual sales and a major part of that was from inflation. In the 1994 fiscal year that ended last October, we began the year with twenty billion dollars in worldwide sales and added five billion to that by year’s end. This occurred with essentially no inflation. Other technology companies have shown similar growth. Just as it has in the past, our growth in the future will come from new products. In 1994, we spent two billion dollars in new product development. Beginning in 1939 we generated at least six dollars of profit, spread over five or six years, for every dollar spent on new product development. By new products, I mean products that make real contributions to technology, not products that copy what someone else has done. This must be our standard in the future just as it has been in the past.
  4. Other
    1. I had to work very hard at Latin, but the math and science courses were easy because I already knew about as much as the teachers did. I was elected president of my class all four years.
    1. Bill went to a private elementary school, going to and from on a cable car. He did well with numbers and arithmetic but had great difficulty reading. He was thought to be a slow learner when, in actuality, he was dyslexic. But in those days no one knew what dyslexia was. He continued to have trouble reading and writing, and later on, in lecture classes, he couldn’t write notes fast enough to keep up with the lecturer. So, as is the case with many dyslexics, he learned how to listen, to file thoughts and information in a logical form and have them readily available from memory. “This procedure worked particularly well in learning math and science,” he says.
    2. I learned everything I could about possible causes of failure, and I decided to spend most of my time on the factory floor to make sure every step was done properly. It soon became apparent that the instructions the engineering department gave the factory people were not adequate to ensure that every step would be done properly. I found the factory people eager to do the job right. We worked together to conduct tests and identify every possible cause of failure, and as a result, every tube in that batch of twenty passed its final test without a single failure. That was a very important lesson for me—that personal communication was often necessary to back up written instructions. That was the genesis of what became “management by walking around” at the Hewlett-Packard Company.
    3. These miscellaneous jobs made us more sure of ourselves and our skills. They also revealed something we hadn’t planned but that was of great benefit to our partnership—namely, that our abilities tended to be complementary. Bill was better trained in circuit technology, and I was better trained and more experienced in manufacturing processes. This combination of abilities was particularly useful in designing and manufacturing electronic products.
    4. Another benefit from ranching was my friendship with Bill Hewlett. By running the ranches together—as well as the company—Bill and I developed a unique understanding of each other. This harmony has served us well every single day in running HP.
    5. Shortly after my arrival at the Pentagon, I called on all four of the Joint Chiefs in their offices and told them I wanted to work with them and that I needed their help. Bill and I had a deer hunt every year at our San Felipe ranch southeast of San Jose. He and I brought all the food, and we cooked and served the meals and washed the dishes ourselves with the help of our guests. In the spirit of friendship and collaboration, I invited the Joint Chiefs to join us at the deer hunt in 1969. They came and each got a deer. When it was time to wash the dishes, they rolled up their sleeves and helped us. That hunt helped establish a good rapport with the Joint Chiefs.
    6. Before I went to Washington, even the people who encouraged me to go warned me that a career in business would ill prepare me for the frustrations of government bureaucracy. And they were right.
    7. When i think of the phenomenal growth of the electronics industry over the last fifty years, I realize how fortunate Bill Hewlett and I were to be in on the ground floor. But it reminds me of a story I like to tell on myself. In my sophomore year at Stanford I took a course in American history and had the opportunity to study the westward movement beginning with the early pioneers and continuing throughout the nineteenth century. I remember lamenting that I had been born one hundred years too late, that all the frontiers had been conquered, and that my generation would be deprived of the pioneering opportunities offered our forebears. But in fact, we went on to make breathtaking advances in the twentieth century.

What I got out of it

  1. Some incredible business lessons from one of the original silicon valley companies that started it all

Organizing Genius: The Secrets of Creative Collaboration by Warren Bennis

Summary

  1. This book examines Great Groups systematically in the hope of finding out how their collective magic is made.

Key Takeaways

  1. Focused on seven epic teams that have had enduring impact. They are:
    1. The Walt Disney studio, which invented the animated feature film in 1937 with Snow White and the Seven Dwarfs
    2. The Great Groups at Xerox’s Palo Alto Research Center (PARC)
    3. Apple, which first made computers easy to use and accessible to nonexperts
    4. The 1992 Clinton campaign, which put the first Democrat in the White House since Jimmy Carter
    5. The elite corps of aeronautical engineers and fabricators who built radically new planes at Lockheed’s top-secret Skunk Works
    6. The influential arts school and experimental community known as Black Mountain College
    7. The Manhattan Project.
  2. Overview
    1. Truly profound and original insights are to be found only in studying the exemplary.
    2. Great Groups have some odd things in common. For example, they tend to do their brilliant work in spartan, even shabby, surroundings.
    3. Efficiency is, in fact, not a word much used by the groups in this book. Driven by a belief in their mission, unconcerned by working hours or working conditions, these groups aim to make a difference, not to make money. Could efficiency, productivity, and the desire for immediate pay-offs occasionally be road blocks on the way to greatness?
    4. The more I learned, the more I realized that the usual way of looking at groups and leadership, as separate phenomena, was no longer adequate. The most exciting groups—the ones, like those chronicled in this book, that shook the world—resulted from a mutually respectful marriage between an able leader and an assemblage of extraordinary people. Groups become great only when everyone in them, leaders and members alike, is free to do his or her absolute best.
    5. Great Groups are inevitably forged by people unafraid of hiring people better than themselves. Such recruiters look for two things: excellence and the ability to work with others.
    6. But probably the most important thing that young members bring to a Great Group is their often delusional confidence. Time forces people, however brilliant, to taste their own mortality. In short, experience tends to make people more realistic, and that’s not necessarily a good thing.
    7. Virtually every Great Group defines itself in terms of an enemy. Sometimes the enemy is real, as the Axis powers were for the Manhattan Project. But, more often, the chief function of the enemy is to solidify and define the group itself, showing it what it is by mocking what it is not.
    8. Life in Great Groups is different from much of real life. It’s better. Bambi veteran Jules Engel recalls that the great Disney animators couldn’t wait to get up in the morning to get back to their drawing boards. Fermi and the other geniuses of the Manhattan Project continued to work on the Gadget even when hiking in the mountains on their Sundays off. It wasn’t simply that the work was fascinating and vitally important. The process itself was exciting, even joyous.
    9. Something happens in these groups that doesn’t happen in ordinary ones, even very good ones. Some alchemy takes place that results, not only in a computer revolution or a new art form, but in a qualitative change in the participants. If only for the duration of the project, people in Great Groups seem to become better than themselves. They are able to see more, achieve more, and have a far better time doing it than they can working alone.
  3. Leaders
    1. The leaders who can do so must first of all command unusual respect. Such a leader has to be someone a greatly gifted person thinks is worth listening to, since genius almost always has other options. Such a leader must be someone who inspires trust, and deserves it. And though civility is not always the emblematic characteristic of Great Groups, it should be a trait of anyone who hopes to lead one.
    2. “I explained my views to the orchestra. I did not impose them. The right response, if forced, is not the same as the right response when it comes out of conviction.”
    3. Who succeeds in forming and leading a Great Group? He or she is almost always a pragmatic dreamer. They are people who get things done, but they are people with immortal longings. Often, they are scientifically minded people with poetry in their souls, people like Oppenheimer, who turned to the Bhagavad Gita to express his ambivalence about the atom and its uses. They are always people with an original vision. A dream is at the heart of every Great Group. It is always a dream of greatness, not simply an ambition to succeed. The dream is the engine that drives the group, the vision that inspires the team to work as if the fate of civilization rested on getting its revolutionary new computer out the door.
    4. The way an environment is structured can have an enormous imp
    5. act on creativity, for good or for ill. The atmosphere most conducive to creativity is one in which individuals have a sense of autonomy and yet are focused on the collective goal. Constraint (perceived as well as real) is a major killer of creativity, Amabile has found. Freedom or autonomy is its major enhancer.
    6. Many Great Groups have a dual administration. They have a visionary leader, and they have someone who protects them from the outside world, the “suits.”
    7. The zeal with which people in Great Groups work is directly related to how effectively the leader articulates the vision that unites them.
    8. The best leaders understand very basic truths about human beings. They know that we long for meaning.
    9. Jack Welch once said of his role at General Electric, “Look, I only have three things to do. I have to choose the right people, allocate the right number of dollars, and transmit ideas from one division to another with the speed of light.”
    10. Luciano De Crescenzos observation that “we are all angels with only one wing, we can only fly while embracing each other” is just as true for the leader as for any of the others.
    11. The ability to plan for what has not yet happened, for a future that has only been imagined, is one of the hallmarks of leadership of a Great Group,
    12. Americans don’t like people claiming credit for other people’s work. It violates their sense of fair play. And so Walt Disney was more or less forced to come up with a satisfactory explanation of exactly what he did at the company that bore his name. The Disney version of the truth, the one that the studio would turn to again and again, was the bee story. It appeared, for instance, in “The Magic Worlds of Walt Disney,” an article on the Disney empire that ran in National Geographic in August 1963: You know, I was stumped one day when a little boy asked, “Do you draw Mickey Mouse?” I had to admit I do not draw any more. “Then you think up all the jokes and ideas?” “No,” I said, “I don’t do that.” Finally, he looked at me and said, “Mr. Disney, just what do you do?” “Well,” I said, “sometimes I think of myself as a little bee. I go from one area of the studio to another and gather pollen and sort of stimulate everybody.” I guess that’s the job I do. I certainly don’t consider myself a businessman, and I never did believe I was worth anything as an artist.
  4. Greatness starts with superb people.
    1. They see connections. Often they have specialized skills, combined with broad interests and multiple frames of reference. They tend to be deep generalists, not narrow specialists. They are not so immersed in one discipline that they can’t see solutions in another. They are problem solvers before they are computer scientists or animators. They can no more stop looking for new relationships and new, better ways of doing things than they can stop breathing. And they have the tenacity so important in accomplishing anything of value.
  5. Great Groups and great leaders create each other.
    1. Disney, John Andrew Rice, and Steve Jobs not only headed Great Groups, they found their own greatness in them. As Howard Gardner points out, Oppenheimer showed no great administrative ability before or after the Manhattan Project. And yet when the world needed him, he was able to rally inner resources that probably surprised even himself. Inevitably, the leader of a Great Group has to invent a leadership style that suits it. The standard models, especially the command-and-control style, simply won’t work.
  6. Every Great Group has a strong leader.
    1. This is one of the paradoxes of creative collaboration. Great Groups are made up of people with rare gifts working together as equals. Yet, in virtually every one there is one person who acts as maestro, organizing the genius of the others. He or she is a pragmatic dreamer, a person with an original but attainable vision. Ironically, the leader is able to realize his or her dream only if the others are free to do exceptional work. Typically, the leader is the one who recruits the others, by making the vision so palpable and seductive that they see it, too, and eagerly sign up.
    2. Leaders of Great Groups inevitably have exquisite taste. They are not creators in the same sense that the others are. Rather, they are curators, whose job is not to make, but to choose. The ability to recognize excellence in others and their work may be the defining talent of leaders of Great Groups.
    3. The respect issue is a critical one. Great Groups are voluntary associations. People are in them, not for money, not even for glory, but because they love the work, they love the project. Everyone must have complete faith in the leader’s instincts and integrity vis-a-vis the work.
  7. The leaders of Great Groups love talent and know where to find it.
    1. The broader and more diverse the network, the greater the potential for a Great Group. The richer the mix of people, the more likely that new connections will be made, new ideas will emerge.
    2. Being part of a group of superb people has a profound impact on every member. Participants know that inclusion is a mark of their own excellence. Everyone in such a group becomes engaged in the best kind of competition—a desire to perform as well as or better than one’s colleagues, to warrant the esteem of people for whom one has the highest respect. People in Great Groups are always stretching because of the giants around them. For members of such groups, the real competition is with themselves, an ongoing test of just how good they are and how completely they can use their gifts.
  8. Great Groups are full of talented people who can work together.
    1. Certain tasks can only be performed collaboratively, and it is madness to recruit people, however gifted, who are incapable of working side by side toward a common goal.
    2. Although the ability to work together is a prerequisite for membership in a Great Group, being an amiable person, or even a pleasant one, isn’t. Great Groups are probably more tolerant of personal idiosyncrasies than are ordinary ones, if only because the members are so intensely focused on the work itself. That all-important task acts as a social lubricant, minimizing frictions. Sharing information and advancing the work are the only real social obligations.
  9. Great Groups think they are on a mission from God.
    1. Their clear, collective purpose makes everything they do seem meaningful and valuable. A powerful enough vision can transform what would otherwise be loss and drudgery into sacrifice.
    2. The army had recruited talented engineers and others from all over the United States for special duty on the project. They were assigned to work on the primitive computers of the period, doing energy calculations and other tedious jobs. But the army, obsessed with security, refused to tell them anything specific about the project. They didn’t know that they were building a weapon that could end the war or even what their calculations meant. They were simply expected to do the work, which they did—slowly and not very well. Feynman, who supervised the technicians, prevailed on his superiors to tell the recruits what they were doing and why. Permission was granted to lift the veil of secrecy, and Oppenheimer gave them a special lecture on the nature of the project and their own contribution. ’’Complete transformation,” Feynman recalled. “They began to invent ways of doing it better. They improved the scheme. They worked at night. They didn’t need supervising in the night; they didn’t need anything. They understood everything; they invented several of the programs that we used.” Ever the scientist, Feynman calculated that the work was done “nearly ten times as fast” after it had meaning.
  10. Leaders of Great Groups understand the power of rhetoric. They recruit people for crusades, not jobs.
  11. Every Great Group is an island—but an island with a bridge to the mainland.
    1. Great Groups become their own worlds. They also tend to be physically removed from the world around them.
    2. People who are trying to change the world need to be isolated from it, free from its distractions, but still able to tap its resources.
    3. Participants in Great Groups create a culture of their own—with distinctive customs, dress, jokes, even a private language. They find their own names for the things that are important to them, a language that both binds them together and keeps nonmembers out. Such groups tend to treasure their secrets.
  12. Great groups see themselves as winning underdogs.
  13. Great Groups always have an enemy.
    1. When there is no enemy, you have to make one up.
    2. Competition with an outsider seems to boost creativity. “Win-lose” competition within the group reduces it.
  14. People in Great Groups have blinders on.
    1. In Great Groups, you don’t find people who are distracted by peripheral concerns, including such perfectly laudable ones as professional advancement and the quality of their private lives. Ivy League colleges are full of well-rounded people. Great Groups aren’t. Great Groups are full of indefatigable people who are struggling to turn a vision into a machine and whose lawns and goldfish have died of neglect. Such people don’t stay up nights wondering if they are spending enough time with the children. For the duration, participants have only one passion—the task at hand. People in Great Groups fall in love with the project.
    2. But Great Groups often have a dark side. Members frequently make a Faustian bargain, trading the quiet pleasures of normal life for the thrill of discovery Their families often pay the price. For some group members, the frenzied labor of the project is their drug of choice, a way to evade other responsibilities or to deaden loss or pain.
  15. Great Groups are optimistic, not realistic.
    1. As Seligman explained to Fortune magazine, the people most likely to succeed are those who combine “reasonable talent with the ability to keep going in the face of defeat.”
    2. Alan Kay once observed, “The way to do good science is to be incredibly critical without being depressed.” Great Groups don’t lose hope in the face of complexity. The difficulty of the task adds to their joy.
  16. In Great Groups the right person has the right job.
    1. Too many companies believe people are interchangeable. Truly gifted people never are. They have unique talents. Such people cannot be forced into roles they are not suited for, nor should they be. Effective leaders allow great people to do the work they were born to do.
    2. Many projects never transcend mediocrity because their leaders suffer from the Hollywood syndrome. This is the arrogant and misguided belief that power is more important than talent. It is the too common view that everyone should be so grateful for a role in a picture or any other job that he or she should be willing to do whatever is asked, even if it’s dull or demeaning
  17. The leaders of Great Groups give them what they need and free them from the rest.
    1. Successful groups reflect the leader’s profound, not necessarily conscious, understanding of what brilliant people want. Most of all, they want a worthy challenge, a task that allows them to explore the whole continent of their talent. They want colleagues who stimulate and challenge them and whom they can admire. What they don’t want are trivial duties and obligations. Successful leaders strip the workplace of nonessentials.
    2. All Great Groups share information effectively. Many of the leaders we have looked at were brilliant at ensuring that all members of the group had the information they needed. Bob Taylors weekly meeting at PARC was a simple, efficient mechanism for sharing data and ideas.
    3. Great Groups also tend to be places without dress codes, set hours, or other arbitrary regulations. The freedom to work when you are moved to, wearing what you want, is one that everyone treasures. The casual dress so typical of people in extraordinary groups may be symbolic as well, a sign that they are unconventional thinkers, engaged in something revolutionary.
    4. One thing Great Groups do need is protection. Great Groups do things that haven’t been done before. Most corporations and other traditional organizations say they want innovation, but they reflexively shun the untried. Most would rather repeat a past success than gamble on a new idea. Because Great Groups break new ground, they are more susceptible than others to being misunderstood, resented, even feared. Successful leaders find ways to insulate their people from bureaucratic meddling.
    5. One vital function of the leaders of Great Groups is to keep the stress in check. Innovative places are exhilarating, but they are also incubators for massive coronar-ies. Sundays off helped at Los Alamos and the Skunk Works.
    6. Civility is the preferred social climate for creative collaboration. In an era of downsizing and underemployment, many workplaces have become angry, anguished, poisonous places where managers are abusive and employees subvert each other. Such an environment isn’t just morally offensive. It is a bad place to do good work.
    7. Genuine camaraderie, based on shooting the moon together, is the ideal climate of a Great Group. When less attractive emotions come to the fore, they have to be dealt with before they threaten the project. Taylor’s model for resolving conflicts, which encourages colleagues to understand each other’s positions, even if they disagree, is an especially useful one.
    8. Members of Great Groups also need relative autonomy, a sine qua non of creativity. No Great Group was ever micromanaged.
  18. Great Groups ship.
    1. Great Groups don’t just talk about things (although they often do that at considerable length). They make things—amazing, original things, such as a plane that a bat can’t find.
  19. Great work is its own reward.
    1. The payoff is not money, or even glory. Again and again, members of Great Groups say they would have done the work for nothing. The reward is the creative process itself. Problem solving douses the human brain with chemicals that make us feel good.
    2. There is a lesson here that could transform our anguished workplaces overnight. People ache to do good work. Given a task they believe in and a chance to do it well, they will work tirelessly for no more reward than the one they give themselves. People who have been in Great Groups never forget them, although most groups do not last very long. Our suspicion is that such collaborations have a certain half-life, that, if only because of their intensity, they cannot be sustained indefinitely. Since creative collaboration is done by intellectual explorers, it is not surprising that most Great Groups are temporary. They ship, and soon end.

What I got out of it

  1. A concrete and very helpful synthesis of what traits great groups exhibit. The appendix has the 15 key lessons which is worth reading and re-reading

An Elegant Puzzle: Systems of Engineering Management

Summary

  1. This book starts with organizational design – it gets the right people in the right places, empowers them to make decisions, and then holds them accountable for their results. Next are some tools of management – from systems thinking to vision documents, metrics, reorgs, and career narratives. Approaches touches on how you might need to adjust how you manage as the organization scales. Culture is covered next and touches on how to nurture an inclusive team. Last is a focus on careers – interviewing hiring, and performance management

Key Takeaways

Organizations

  1. When I want to solve a problem quickly and cheaply, I think about process design. If process is too weak a force, culture too slow, and there isn’t much time, then organizational design is a good option
  2. One of the fundamental challenges of organizational design is sizing teams
  3. Managers should support 6-8 engineers and managers-of-managers should support 4-6 managers
  4. A team is at least 4 people as this diversity helps attack and solve complex problems in a more efficient manner
  5. Keep innovation and maintenance together as this leads to higher morale and will avoid creating a two-tiered class system of innovators and maintainers
  6. 4 states of a team and the general solution. Teams want to climb from falling behind to innovating, while entropy drags them backward. Each
    1. Falling behind – add people
    2. Treading water – reduce WIP
    3. Repaying debt – add time
    4. Innovating – add slack
  7. Consolidate your efforts as a leader. Don’t “peanut butter” the situation by trying to evenly spread yourself out. Spend the most time on the teams that need the most help. Adding new individuals to teams disrupts that team’s gelling process, so have rapid growth periods followed by consolidation/gelling periods
  8. Do not separate high-performing teams. They can tackle new problems but should stay together. Shifting scope works better than moving people because it avoids re-gelling costs, and it preserves system behavior. You can also try rotating individuals for a fixed period into an area that needs help
    1. Campbell – Teams > Individuals > Problems
  9. You obviously don’t want to stop growth, but you can concentrate that growth such that your teams alternate between periods of gelling and consolidation
  10. Counterintuitively, you can slow a team down by shifting resources to it, because doing so creates new upstream constraints. Slack is a beautiful thing. It gives people and teams time to improve areas and do it with minimal coordination costs
  11. The real system killer is not system rewrites but the migrations that follow those rewrites
  12. You only get values from projects you finish. To make progress, above all else, you must ensure that some of your projects finish
  13. Funnel interruptions into an increasingly small area, and then automate that area as much as possible. Ask people to file tickets, create chatbots that automate filing tickets, create a service cookbook, and so on.
  14. Projects and tasks must have owners – “Who owns X?”
  15. Block out large chunks of time each week to focus. Telecommute, block out 8-11 each morning, experiment until you find something that works for you. The best solution is a culture of documentation – read documents, and a documentation reach that actually works. Try to get off the “critical path” – don’t be a gatekeeper. This is a significant implementation bug rather than a stability feature to be emulated (except for very important legal/financial/other matters that should have a gatekeeper.)
  16. Organizational debt – the sibling of technical debt and represents things like biased interview processes and inequitable compensation mechanisms, systemic problems which prevents your organization from reaching its potential. Responding to this is central to being an effective leader. A great way to attack this is to focus on a few areas you want to improve and if you’re making progress, feel good about it. You can slack off on the other areas (for now). You can’t do it all at once
  17. Succession planning is thinking through how the organization would function without you, documenting those gaps, and starting to fill them in. This is often overlooked but is vital for the long-term success of your team and organization. First step is to figure out what you do – write down what meetings you attend, what your role is in those meetings, recurring processes, individuals you support, emails you send, requests coming in, to-do lists, external relationships. Taking 2-3-week vacations is actually a beautiful thing – you can see what slips through the cracks and these items can be the start of next year’s list.

Tools

  1. Change is the catalyst of complexity and these tools are meant to help lead efficient change – systems thinking, metrics, and vision
  2. Creating an arena for quickly testing hypotheses about how things work, without having to do the underlying work beforehand, is the aspect of systems thinking that I appreciate most
  3. Problem discovery – problem selection – solution validation – execution – problem discovery…
  4. For problem discovery look at – users’ pain, users’ purpose, benchmark, cohorts, competitive advantages/moats
  5. Must align on strategy and vision in order to scale effectively. Strategies are grounded documents which explain the trade-offs and actions that twill be taken to address a specific challenge. Visions are aspirational documents that enable individuals who don’t work closely together to make decisions that fit together cleanly
  6. No extent of artistry can solve a problem that you’re unwilling to admit
  7. Vision – vision statement, value proposition, capabilities, solve constraints, future constraints, reference materials, narrative
  8. Define goals through a target, baseline, trend, time frame
    1. See John Doerr on OKRs
  9. Since value is gained when a project is completed, you must celebrate completions, no matter how small
  10. Rolling out the change can be difficult/awkward but here are 3 steps to help
    1. Explanation of reasoning driving the reorganization (particularly those who are heavily impacted)
    2. Documentation of how each person and team will be impacted
    3. Availability and empathy to help bleed off frustration from impacted individuals
  11. The 3 rules for speaking with the media
    1. Answer the question you’re being asked – reframe difficult questions
    2. Stay positive
    3. Speak in threes – three concise points, make them your refrain, and continue to refer back to your three speaking points
  12. Failure modes – domineering personalities, bottlenecks, status-oriented groups, inert groups
  13. Presenting to senior management
    1. Communication is company-specific
    1. Start with the conclusion
    2. Frame why the topic matters
    3. Everyone loves a narrative
    4. Prepare for detours
    5. Answer directly
    6. Dive deep into the data
    7. Derive actions from principles
    8. Discuss the details
    9. Prepare a lot, practice a little
    10. Make a clear ask
  14. Communicating with teams/peers
    1. Be a facilitator, not a lecturer
    2. Brief presentations, long discussions
    3. Small breakout groups
    4. Bring learnings to the full group
    5. Choose topics that people already know about
    6. Encourage tenured folks to attend
    7. Optional pre-reads
    8. Checking-in – your name, your team, one sentence about what’s on your mind
    9. Every quarter I spend a few hours categorizing my calendar from the past 3 months to figure out how I’ve invested my time. This is useful for me to reflect on the major projects I’ve done, and also to get a sense of my general allocation of time. I then use this analysis to shuffle my goal time allocation for the next quarter

Approaches

  1. Work the policy, not the exceptions – consistency is a precondition of fairness so cultures which allow frequent exceptions are not only susceptible to bias, but also inefficient
  2. Collect every escalation as a test case for reconsidering your constraints. This approach is powerful because it creates a release valve for folks who are frustrated with edge cases in your current policies – they’re still welcome to escalate – while also ensuring that everyone is operating in a consistent, fair environment; escalations will only be used as inputs for updated policy, not handled in a one-off fashion. The approach also maintains working on policy as a leveraged operation for leadership, avoiding the onerous robes of an exceptional judge
  3. Velocity – when folks want you to commit to more work than you believe you can deliver; your goal is to provide a compelling explanation for how your team finishes work. Finishes is particularly important, as opposed to does, because partial work has no value, and your team’s defining constraints are often in the finishing stages.
  4. Management, at its core, is an ethical profession. To see ourselves, we don’t look at the mirror, but rather at how we treat a member of the team who is not succeeding. Not at the mirror, but at our compensation policy. Not at the mirror, but at how we pitch the roles to candidates
  5. Strong relationships > any problem. Start debugging problems from the relationship angle before anything else. With the right people, any process works, and with the wrong people, no process works
  6. Instead of avoiding the hardest parts, double down on them
  7. Do the right thing for the company, the right thing for the team, and the right thing for yourself, in that order
  8. The best management philosophy never stands still, but – in the model of the Hegelian dialectic – continues to evolve as it comes into contact with reality. The worst theory of management is to not have one at all, but the second worst is one that doesn’t change.
  9. Long bones have growth plates at their ends, which is where the growth happens, and the middle doesn’t grow. This is a pretty apt metaphor for rapidly growing companies, and a useful mental model to understand why your behaviors might not be resonating in a new role. Execution is the primary currency in the growth plates because you typically have a surplus of fairly obvious ideas to try and there is constrained bandwidth for evaluating those ideas. What folks in the growth plates need is help reducing and executing the existing backlog of ideas, not adding more ideas that must be evaluated. Teams in these scenarios are missing the concrete resources necessary to execute, and supplying those resources is the only way to help. Giving more ideas feels helpful, but it isn’t. Away from the growth plates you’re mostly working on problems with known solutions. Known solutions are amenable to iterative improvement, so it would make sense for execution to be highly valued, but I find that, in practice, ideas – especially ideas that are new within your company – are most highly prized.
  10. Leadership is matching appropriate action to your current context
  11. As managers looking to grow ourselves, we should really be pursuing scope: not enumerating people but taking responsibility for the success of increasingly important and complex factors of the organization and company. This is where advancing a career can veer away from a zero-sum competition to have the largest team and evolve into a virtuous cycle of empowering the organization and taking on more responsibility. There is a lot less competition for hard work. Aim to grow scope through broad, complex projects
  12. You need to learn how to set your own direction – talk to peers and see what they’re thinking about, read technical papers, cast the widest net possible so that you understand the problem space
  13. For every problem that comes your way – close out, solve, or delegate

Culture

  1. An inclusive organization is one in which individuals have access to opportunity and membership
  2. Useful metrics – retention, usage rate, level distribution, time at level
  3. Useful programs – recurring weekly events, employee resource groups, team offsites, coffee chats, team lunches,
  4. Ingredients for a great ream – awareness of each other’s work, evolution from character to person, refereeing defection, avoiding zero-sum culture
  5. The best learning doesn’t always come from your manager – create a community of learning with your peers
  6. Humans are prone to interpreting events as causal, but it may be more appropriate to see problems in terms of a series of stockpiles that grow and shrink based on incoming and outgoing flows

Careers

  1. Interviewing tips
    1. Be kind to the candidate
    2. Ensure that all interviewers agree on the role’s requirements
    3. Understand the signal your interview is checking for
    4. Come to your interview prepared to interview
    5. Deliberately express interest in candidates
    6. Create feedback loops for interviewers and the loop’s designer
    7. Instrument and optimize as you would any conversion funnel
  2. If you like an interviewee and will extend an offer, have everyone who interviewed them send them an email or letter saying how much they enjoyed meeting them
  3. Have interviewers write up their feedback on candidates individually
  4. The most sacred responsibilities of management are selecting your company’s role model, identifying who to promote, and deciding who needs to leave
  5. If hiring from within, some necessary ingredients are: an executive sponsor, a recruiting partner, self-sustaining mission, a clear career ladder, role models, dedicated calibrations (performance reviews)

Appendix

  1. Teams have a limited appetite for new processes: try to roll out one change at a time and don’t roll out the next change until the previous change has enthusiastic compliance
  2. Process needs to be adapted to its environment, and success comes from blending it with your particular context

What I got out of it

  1. Some great tools, ideas, perspective on how to manage a quickly scaling organization

Measure What Matters: OKRs: The Simple Idea that Drives 10x Growth by John Doerr

Summary

  1. OKR stands for “objectives and key results.” They are important in that they help drive good ideas forward by gaining clarity, transparency, and accountability. They are a collaborative goal setting structure for individuals, teams, organizations, or anything else. Objectives are what we want to get done – they must be concrete, actionable, and hopefully inspiring. They are a vaccine for fuzzy thinking and action. The key results are how we determine and measure the progress of getting to an objective. The results must be verifiable and have a number attached to them. Specific hard goals push people and if you have verifiable measures of progress you can hold them accountable. Goals create alignment, engagement, meaning, and fulfillment if done correctly. They’ll align people within a company and clarify what is most important, they break down silos, and help people communicate in the same language. They are meant to help communicate, measure, and achieve lofty goals.

Key Takeaways

  1. OKRs have four superpowers: Focus, Align, Track, and Stretch (FATS)
    1. Focus
      1. Setting objectives gives people a clear path on what to work on and what success looks like. Key results help indicate success and progress since there is a clear benchmark for what ‘success’ means for each objective 
      2. When people help set the objectives they are more likely to follow through
      3. Hand-in-hand with focus is a deep commitment. If you waiver or switch priorities often, you will waste time and confuse your team
      4. Objectives should be one line and clearly understandable. The key results must be objective and measurable
    2. Align
      1. OKRs allow teams to move very quickly as it is clear what the priorities are and ensures everybody is moving in the same direction
      2. Transparency is the key and modern goal setting people allow people to buy in and gives management has a clear idea of what people are working on and why.
      3. Objectives get people to flush out their hesitations or frustrations which helps foster communication and collaboration.  
      4. Alignment is extremely important but hard to come by and is the biggest lever to go from strategy to execution – if people don’t know the business model and what they’re doing to help the company succeed, it is hard for them to go all-in and know what they’re supposed to be working on.
      5. In addition, this transparency allows for the whole company to weigh in on the best objectives. The best objectives tend to come outside the C-suite, coming from the front line employees who have the best access to accurate information and changing trends.
      6. You also get more people thinking about the same problems – flushing out ideas, making connections that otherwise might not have been made, and getting cross-division collaboration
    3. Track
      1. OKRs are living and breathing goals, evolving and adapting with the needs of the company. OKRs are meant to be adaptive guardrails, not strict rules to follow.
      2. The OKRs have to be visible and related to daily, or else they fade into irrelevance. 
      3. Making progress in public goals is one of people’s most motivating factors. You need to write them down and follow up on them often
      4. The constant monitoring and making sure that you’re working on the right thing at the right time is more important than the actual objectives
      5. Expectations are easier to set across groups and fewer surprises can be expected when OKRs are set and tracked accordingly 
      6. Post-mortem: OKRs aren’t done even when completed. You can go through a post-mortem: objective scoring (are the objectives themselves valuable and correct?
      7. Google measures each one in a 0 to 1 scale, with anything above .7 being considered successful, subjective self-assessment, and reflection (what contributed to success, what obstacles did I face)
    4. Stretch
      1. Google adheres to and goes after the 10 X improvement. It requires a new way of thinking and a lot of courage to go for 1000% change vs. a 10% change
      2. A stretch goal cannot seem like a long arch to nowhere and it cannot be imposed from the top down, with no basing in reality. Employee buy-in is essential and leaders have to show that they think the objective is important and obtainable
  2. CFR
    1. Conversation – Feedback – Recognition
    2. OKRs set the direction and give clarity, CFRs provide the fuel to get there. They work hand-in-hand and help boost each other up. Continuous performance management rather than quarterly or annually
    3. A manager’s first job is a personal one – to build a deep and trusting relationship with all of their people. The quarterly feedback which is common and most companies is outdated and eats up a lot of time.
    4. CFR is an updated way to give your people feedback – building trust and pushing them to learn and grow.
    5. They help boost OKRs since people can go all-in, knowing that what they’re working on is important and getting appropriate feedback and recognition for their hard work.
    6. Conversation 
      1. It is important for managers to have one on one meetings with their people – the employee must set the tone and agenda, driving the conversation, but the manager must make themselves open and available to discuss and meet with them. This should help the employee with goal setting and objectives, help them look at their progress and areas where they can improve, enable two-way coaching, future career development, and lightweight performance reviews
    7. Feedback
      1. Feedback must be timely and specific in order to be effective
      2. Without consistent feedback it is very hard to know if you’re moving in the right direction and how you’re progressing
      3. Ask new employees – what they love, what drains them, what their ideal job would look like. Make it clear that the expectation is that they will always tell the truth and do the right thing, and that you’ll do the same
      4. Upward feedback – what are you getting from me that is helpful/harmful? What can I do for you to make you more successful?
      5. Career development – what skills or capabilities would you like to develop? In what areas would you like to develop and how can I help you get there?
    8. Recognition
      1. Continuous recognition is a huge driver of engagement and employee satisfaction. 
      2. Institute peer to peer recognition 
      3. Establish clear criteria – projects finished, values lived out, etc. Replace employee of the month with achievement of the month 
      4. Share recognition stories – blog or newsletter
      5. Recognition should be simple and attainable 
      6. Tie recognition into company goals and strategies – customer satisfaction, product launch…
  3. Other
    1. Ideas are easy execution is hard – OKRs help turn bold and audacious ideas into sustainable, scalable, and repeatable processes
    2. About 3 to 5 OKRs per quarter is about right. 
    3. There should be one sole owner for each OKR or else you dilute ownership and accountability
    4. Don’t confuse your mission with your objectives. Your mission is the direction you want to go and your objectives are the steps you need to take to get there. The mission should be extremely aspirational and the objectives more obtainable. This process allows you to be ambitious yet realistic
    5. Doerr’s favorite quote or definition of entrepreneur is “someone who does more than anyone thinks possible with less than anyone thinks possible”
    6. It is important to have rules from the start. Just like trying to give a teenager rules when there were none as a child, it will be difficult to implement after the fact
    7. The best turnover is internal turnover, where people move to different roles within the company to grow and learn
    8. The adoption period can be difficult and take up to a year, but it is worth it. It has to come from the top and everyone has to buy-in
    9. Culture is the only thing which can’t be commoditized or copied 
    10. Conviction and buy-in from leaders is most important to make this process work
    11. Should establish both ambitious and incremental OKRs

What I got out of it

  1. Some great, actionable takeaways on how to think about and establish OKRs, and why that’s important. CFRs is another great idea to take to heart and implement. Simple but definitely not easy

The Effective Executive: The Definitive Guide to Getting the Right Things Done by Peter Drucker

Summary

  1. Most management books deal with how to manage others but this one deals with how to manage oneself; how to lead by example. Effectiveness is not natural and has to be learned and practiced deliberately. Being effective means doing the right things well

Key Takeaways

  1. Jim Collins did the foreword to this edition and highlights his 10 Key Lessons
    1. First, manage thyself 
    2. Do what you’re made for what you can be world class at. To work on exclusively what you’re bad at is foolish and irresponsible but you must address weaknesses which stand in the way of maximizing your strengths and achieving your full potential 
    3. Work how you work best and let others do the same
      1. You must focus on people’s strengths and build around that and not on their weaknesses. Find people who are better than you and who can deliver in specific areas bring them into your fold
    4. Count your time and make it count. This requires the discipline to schedule your time into blocks. The most effective people do one big thing at a time and don’t let distractions seep in. Create unbroken ‘think time’ blocks during your most lucid time of day and do them with regularity. Create chunks for people and random tasks which must get done. Attend only meetings that matter 
    5. Prepare better meetings by having clear reasons for the meeting and having disciplined follow ups. 
    6. Don’t make 100 decisions when one will do. Inactivity can be very intelligent behavior
    7. Determine what your distinctive impact can be in an organization – the one decision, behavior, or action that might not have happened if you were not there
    8. Stop what you would not start. Most people are too busy to work on truly important things so you must have a stop doing list and refine and rethink your daily tasks and objectives
    9. Run lean. An organization is like a biological organism in that the internal mass grows faster than what shows externally – the volume increases as a cube of the linear dimension but the surface area only as the square. You must fight and hold back internal growth which doesn’t help drive profits and goals.
    10. Be useful. Over success. Over wealth. Over fame. Be useful. 
  2. The best executives have personalities all over the map but Drucker found 9 shared traits
    1. They ask what needs to be done.
      1. You must prioritize this list every couple years. Once you tackle the biggest priority, you must redo the process. Can only focus on a maximum of two at any given time
    2. They ask what is right for the enterprise
    3. They make an action plan.
      1. This must include the name of the person who is accountable, the deadline, who this effects directly and must be made aware, who should be told even if they’re not effected 
    4. They take responsibility for the decisions
    5. They take responsibility for communicating the decisions
    6. They are focused on opportunities rather than problems
    7. They run effective and productive meetings
      1. End once the purpose has been accomplished. Announce the purpose of the meeting at the beginning. Sum up what happened, action items, who is accountable, deadlines, send to everyone involved
    8. They thought and said “we” rather than “I”
    9. Listen first, speak last
  3. The shift from manual labor and work to knowledge work is why the demands of executives today is so different than before
  4. Effectiveness is so important and must be learned. Especially in today’s knowledge-based economy. Knowledge work is not graded on costs or quantity but on results. Managers in the knowledge based field are those whose decisions have an outsized impact
  5. Hindrances towards effectiveness include being part of the system itself and not having enough perspective, not being willing to give up a lifetime of habits and work, not letting others step up, and not delegating enough.
  6. Events should not drive what an executive does. Rather, key criteria which help inform results and contributions should be his main focus. The truly important things are not the trends – they are what cause the trends and is why you should never focus on the events but on what lies behind them
  7. Effective executives have these skilsl
    1. They know where their time goes 
      1. Effective executives start with their time not with tasks because they know time is a limiting factor
      2. They record their time, they manage their time, and then they consolidate their time into long chunks.
      3. What can you do away with totally, what can you delegate?
      4. Don’t waste others’ time
      5. Reduce recurrent and predictable decisions
      6. Avoid overstaffing
      7. Reduce poor organization such as too many meetings
      8. Reduce poor information (wrong form or just wrong)
      9. Consolidated time is the key. Most executives don’t have more than 25% of their time at their disposal but if they come in chunks, it’s usually enough. Even if it was 75% but broken up, you’d never get anything done. 
      10. It is hard and rare to over-prune
    2. They focus on results rather than effort
      1. The focus on contribution over effort is the key to this whole book. This is what drives how you spend your time and the decisions you make. As a leader you must make a focus on contribution rather than effort the norm. This helps with communication, getting people to go all-in
    3. They understand what is expected of them and how they can get there
    4. They focus on and build on strengths not weaknesses – both theirs and others’
    5. They focus exclusively on areas where their focus will have outsized returns.
    6. They know that they have to do the most difficult and important things first and that there’s no time for the second things
    7. They make effective decisions and know that a few, big important decisions are the way to go. Many, rushed decisions lead to mistakes
  8. Although there are very many personalities, the one thing they had in common when making decisions was that they were slow and deliberate in personnel decisions
  9. Well managed business are boring and quiet. Crises have been anticipated and routinized. 
  10. Try to contribute in 3 areas: direct results, adding to culture and values, building the next generation 
  11. You must be able to see through the eyes of others and understand how they will use your output. This will help you use common language, put information in a usable form, etc. A generalist is simply a specialist who can translate their knowledge to a universal audience 
  12. You must always think and put tasks first and not personnel or else you will get politicking clash of personalities
  13. Jobs must be big and demanding for executives to see how they live up to it. You must judge the people you are considering by their strengths and what they would need to reasonably fulfill this job and you must have clear expectations and definitions of success
  14. With every strength comes a weakness so you must focus on and understand how does a person’s strength translate to a weakness 
  15. Staff for opportunities and not for problems
  16. You should remove incompetent men. Not only because of their lack of results, but because if they stayed on, it would hurt the rest of the culture. This is not a slight on the man but a slight on the leader who put him in the position to begin with
  17. George Marshall focused on strengths but also on weaknesses. He put Eisenhower in a position to learn about strategy and, even though he was never great, he was able to appreciate its importance later on
  18. Managing upwards is as important as managing downwards. You must make the strengths of your boss productive as their success and promotions will help you as well. Knowing yourself, and your strengths and weaknesses, and how to make your strengths productive is equally as important.  This is an attitude as much as a skill 
  19. The key skill is concentration on the first and most important things first and only doing one thing at a time. Effective executives also make sure that the organization as a whole focuses on one thing at a time. They review the past and anything which isn’t an emphatic yes, is curtailed or done away with completely, leaving time to focus on the most important things. Organizations need to stay lean and muscular just as biological organisms do
  20. Fresh eyes which give fresh perspective is vital 
  21. Setting priorities and posteriorities (a list of what not to do) is more about courage than knowing what to focus on. You must be future-focused – rather than looking at the past, you must look at opportunities rather than problems, you must be willing to set your own agenda and make your own decisions rather than relying on others, and aim high for things which will truly make a difference rather than playing it safe
  22. Effective executives ultimately make effective decisions. They take their time, know what’s truly important, focus on a few things at any one time, and know that quick decisions are sloppy and not impressive
  23. Effective decisions have these common traits
    1. Is this a generic or a specific situation and problem?
      1. As generic problems can have rules and principles to deal with where a specific problem must be dealt with individually.
      2. Executive executives don’t make many decisions because they don’t have to they figure out which problems are generic and through their rules and principles are able to adapt to situations quickly and effectively 
    2. They asked themselves if they would be able to live with the decision for a long time. If not, they keep on working on the solution
    3. They asked them selves, “what are the specifications of the problem they are trying to solve, what are the objectives, and how will they know if their decision has been a good one?” These are the boundary conditions – the minimum results necessary that must be achieved
    4. They ask what is right rather than what is acceptable
    5. They ask and figure out how to turn the solution and question into action. Asking who has to know is as important as understanding the capacity of the people involved in acting out the decision. You must build the execution of the decision into the decision itself which is very difficult
    6. There has to be a feedback loop. This has to be built into the decision to continuously test the assumptions and the actions as they face reality. You cannot get too removed from the process. You must touch the medium and see if yourself how the actions are being carried out and the reactions to it
  24. What is the criteria necessary to determine success and how do you measure that? The effective executive assumes that the traditional measure is wrong otherwise they probably wouldn’t be in this predicament. 
  25. The best executives consider alternatives and this causes dissension and disagreements which is very healthy and can lead to the better decisions and outcomes
  26. You must begin with trying to understand and only then trying to figure out what is right and what is wrong. Like a first-year lawyer is assigned to argue the other side’s case before they’re allowed to think about their own, we must truly understand all sides before making a decision
  27. The last question an effective decision maker asks is, “is the decision even necessary?” Better to not act at all if not needed. Act or don’t act. Don’t hedge or go halfway. Only act if your decisions and your actions are needed and important – if things will work out without your involvement, leave them be
  28. Above all, what is needed is courage. Courage to focus on what you think is right and ignore what you don’t believe will make a difference
  29. Don’t just say this was a great book figure out how it will change how you act and behave. That is the sign of a great book

What I got out of it

  1. Loved this book. So much to gain from reading and re-reading – focus on where your time goes, manage yourself first, know how you work best, focus on contributions rather than effort, know what your role is and how you can most impact the organization, few and deliberate decisions, have the courage to not follow the crowd, encourage dissension and sharing of opinions…

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

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

Sol Price: Retail Revolutionary and Social Innovator by Robert Price

Summary

  1. Robert Price, Sol Price’s son, recalls his father’s history, personality and journey founding FedMart and The Price Club. “Sol always said that luck plays a big part in what happens during one’s lifetime. This is undoubtedly true. Sol was lucky. His parents emigrated from Russia to the United States well before World War II. He was born with a brilliant mind. He was in good health for most of his life. His family moved from New York to California, which led to his love affair with and marriage to my mother. What Sol added to his good luck is what this book is all about.”

Key Takeaways

Sol’s Business Philosophy & Practices

  1. Sol’s core business philosophy was simple: drive operational efficiencies to save on costs; pass these savings onto customers; provide the best possible value to customers; excellent quality products at the lowest possible prices; pay good wages and provide good benefits, including health insurance to employees; maintain honest business practices; treat suppliers better than anyone else; make money for investors.
  2. Discount stores appeared in 1948 and FedMart followed the Fedco template in most every way including membership, concessionaires and a warehouse building. Perhaps the most significant difference between Fedco and FedMart was that Fedco was operated purely as a not for profit whereas FedMart was a not for profit combined with a separate corporation, Loma Supply, which operated as a for profit corporation. Customers would have to pay a minimal fee to become a member, hours were convenient for business owners, products were displayed and sold on makeshift fixtures rather than in display cases and most products, other than jewelry, were self-service, and the selection was limited. Most products were paid at a central register area in cash or with a check, no credit except for purchases of furniture or appliances. The products offered for sale included mattresses, clothing, luggage, furniture, power appliances, hardware, large and small appliances and liquor. Some of the departments were operated by concessionaires, while others were operated by FedMart. In addition, FedMart refused to stock products from manufacturers who enforced Fair Trade laws – companies such as Samsonite Luggage and Gillette Razor Blade Company.
  3. 20 years after founding FedMart, Sol sold control of FedMart to Hugo Mann in 1975 but the relationship quickly soured, inspiring Sol to later found Price Club. Happiest when challenged and new business was a clear slate – thought through all lessons learned and tried to wipe clean all assumptions. He settled on a wholesale business selling to a cross section of small businesses. The Price Club idea was finally conceived sometime in the middle of January 1976 – a wholesale business selling merchandise to small, independent businesses. The business owners would come to a large warehouse, select the products from steel rack displays, pay either by check or cash, and take the products back to their stores, restaurants, or offices. Instead of each business owner purchasing products from various suppliers who specialized in specific product categories, hundreds or even thousands of small businesses would pool their buying power by shopping at our wholesale warehouse. The warehouse would also serve as a storage facility for the various business owners so they would not have to buy and store large quantities of merchandise at their stores or offices. In effect, we would be their warehouses. The wholesale warehouse would buy directly from manufacturers and pass along the savings generated from volume purchasing directly to the store owners
  4. The word “club” was selected because customers would be required to purchase a membership. The customer would be a member of a club, a club that sold merchandise. Thus, the name Price Club was chosen. There were a number of reasons for charging a membership fee of $25, a significant amount of money compared to the rather nominal $2 membership fee that members at FedMart had paid. The most important reasons was to use the membership money to lower prices by including the fee in the calculation of merchandise gross margins. We assumed that, on average, each member would spend $1,000 a year in purchases at Price Club. The $25 membership fee was equivalent to 2.5% of $1,000. When included in gross margin, the prices of merchandise were reduced as shown in the following example:
    1. Example 1 – no membership fee:
      1. Product from supplier: $10.00
      2. Product selling price: $11.12
      3. Margin: 10.5%
    2. Example 2 – $25 membership charged
      1. Product from supplier: $10.00
      2. Product selling price: $10.86
      3. 8% markup plus 2.5% membership fee = $10.5%
    3. The $25 membership fee also operated as an incentive for the member to purchase more as a way to leverage the membership fee as a percent of purchases. In addition, the membership concept helped reduce operating expenses for the business because the membership psychologically tied the member to Price Club and eliminated the need to advertise
  5. Sol always said that teamwork is the key to success
  6. Was a very tough negotiator. He was not afraid to be tough when he felt it was necessary. He was willing to fight for what was right, even if it meant potentially losing, although Sol rarely lost. People wanted Sol in their corner because they knew he had integrity, he was smart, and he was strong. Sol’s experience as an attorney representing clients, and his own moral code, became a foundational feature of the FedMart business. Sol described his business approach as “the professional fiduciary relationship between us (the retailer) and the member (the customer). We felt we were representing the customer. You had a duty to be very, very honest and fair with them and so we avoided sales and advertising. We have in effect said that the very best advertising is by our members, the unsolicited testimonial of the satisfied customer. This fiduciary relationship with the customer was similar to the Golden Rule; the way Sol put it – if you want to be successful in retail, just put yourself in the place of a cranky, demanding customer. In other words, see your business through the eyes of the customer.
  7. Our first duty is to our customers. Our second duty is to our employees. Our third duty is to our stockholders
  8. By reducing merchandise acquisition costs for retailers and other businesses, everyone would win. Small businesses would pay less for their wholesale goods and supplies, retailers could charge lower prices – in turn improving their ability to compete against chain stores, especially the growing number of discount stores that were underpricing small businesses.
  9. Expert Fallacy – “Fortunately most of us had backgrounds that were alien to retailing. We didn’t know what wouldn’t work or what we couldn’t do.” If Sol had been an experienced traditional retail executive, he probably would have focused FedMart’s expansion in Southern California and Arizona, thereby solidifying FedMart’s market dominance in that region. Instead, Sol made his decisions from the point of view of his own experience: the fact that he was an attorney and not a retailer, and that he was an entrepreneur and not a chain store executive. He was never driven by the need to have the most stores or the most money, but by the desire to give the customer the best deal and to provide fair wages and benefits to FedMart’s employees
  10. Of course, everyone wanted to work at FedMart. The fact that Sol was concerned about giving decent wages to employees was one thing, but why would he require FedMart wages to be twice as much as the competitors? FedMart was paying industry-best wages per hour in San Diego and Phoenix. The wage decision in San Antonio was simple: employees in San Antonio worked just as hard and as well as other FedMart employees. FedMart had excellent profits in San Diego and Phoenix while paying good wages, why not apply the same wage philosophy in San Antonio?
  11. Sol always believed real estate was a good investment and the financial characteristics of the business made it a cash flow machine, allowing for easy, fast expansion
  12. Touching the medium – As The Price Company prospered, Sol focused much of his attention on the numbers, daily sales, and monthly financial operating results – the balance sheet and cash flow. He would ask someone from the Morena Price Club or a new Price Club to call him at home every night and tell him what the final sales were for the day. He was intrigued by the Price Club financials, especially how different they were from the financials at FedMart. Comparing FedMart’s financial results for the fiscal year ending August 1969 with Price Club’s financial results for the year ending August 1979, the first major difference was the cost of sales (merchandise markup). FedMart had a 30% markup compared to Price Club’s 11.7% markup. FedMart’s total operating expenses were 17% compared to Price Club’s 9%. Moreover, Price Club’s sales were approaching $1,000 per square foot, at least twice as much as a typical FedMart store. The FedMart/Price Club balance sheet comparison provided other interesting insights. In 1969 FedMart had $20m in inventory and accounts payable of $12m, a 60% payable to inventory ratio. Price Club had $8m in inventory and accounts payable of $7m, a nearly 90% payable to inventory ratio. By the end of the fiscal year in 1981, Price Club’s accounts payable ratio had increased to over 120%. In short, Price Club’s suppliers were financing The Price Company’s business
  13. FedMart developed a line of private label merchandise. It was usually sold with the label FM, or for liquor, with the names of company executives. FedMart purchased these products with specifications and standards as nearly equivalent to the national brands as possible and stocked the FM brand next to the national brand to demonstrate the savings. FedMart’s low price merchandise, limited selection, yet breadth of product offerings had a major impact on the retail world. The challenge would be to operate a geographically widespread business successfully and respond to the competition that was sure to come
  14. Sol really wanted all FedMart employees to think about and understand why their jobs were important to the success of FedMart. He was not a big fan of procedures and training manuals because he believed that manuals were a substitute for thinking
  15. As the number of FedMart’s grew, Sol concluded that FedMart would be well served with central merchandise distribution facilities.
  16. Sol’s emphasis on teaching was expressed in the phrase “alter ego,” a rather simple concept He used the following example. If the owner of a store was able to do all the jobs himself – greet customers, order and receive merchandise, do the accounting, sweep the floors and clean the bathrooms – he would. But the reality is that normally the owner can’t do all the work himself. Therefore, he must hire people to perform their jobs as well or better than he, the owner, would if he had the time. As a corollary, the owner of the store needs to use his time to do the highest-skilled work and to delegate less-skilled work to his “alter egos.” In that way, the owner will devote his time to “managing” the business and making sure that his “alter egos” are doing their jobs and doing them well. The “alter ego” was the management component of a much more comprehensive philosophy that Sol taught to FedMart’s management team and, in fact, to all employees. Sol taught by example and he taught by engaging people in challenging discussions, demanding that they use their brains. Many people, who would later become successful in their own right, learned by following in Sol’s footsteps.
  17. Sol believed in building a long-term relationship with customers. He described his business philosophy as the professional fiduciary relationship between the retailer and the customer. In his words, “If you recognize you’re really a fiduciary for the customer, you shouldn’t make too much money.” The underpinnings of this fiduciary relationship were consistently high quality merchandise and consistently low prices. Sol infused FedMart’s employees with the belief that they were representing the interests of the customer. Sol’s sense of duty to FedMart members was punctuated by FedMart’s return policy: “Everything we sell is guaranteed unconditionally. We will give an immediate cash refund to any customer not completely satisfied with a purchase made at FedMart. No questions asked.”
  18. Sol’s approach to FedMart employees mirrored the relationship he had with FedMart members. He felt a responsibility – a fiduciary duty – to provide excellent wages, benefits, and working conditions for employees. In a bulletin to FedMart employees, Sol said: “You must feel confident that you are working for a fine and honest company. Somehow we must make this mean to each of you that you will be permitted, encouraged, and sometimes even coerced into growing with the company to the limit of your ability. We believe that you should be paid the best wages in your community for the job you perform. We believe that you should be provided with an opportunity to invest in the company so that you can prosper as it prospers. We believe that you should be encouraged to express yourself freely and without fear of recrimination or retaliation. We believe that you should be happy with your work so that your occupation becomes a source of satisfaction as well as a means of livelihood.”
  19. Nothing demonstrated FedMart’s commitment to business integrity more than the pricing of products. According to Sol, FedMart was not a discount store. He described FedMart as a “low margin retailer.” Discount stores set their prices in relationship to a percentage off the manufacturer’s suggested retail price. FedMart priced merchandise starting with the cost of the product and taking as small a markup as possible – consistent with covering expenses and a small profit while giving the customer the best price. Sol also had a rule against pricing any product below cost, the traditional “loss leader.” His reasoning: if some products are sold below cost, other products must be sold at very high margins to make up for the losses. In fact, when grocery stores were selling items such as sugar or coffee below cost, Sol told FedMart managers to place signs next to FedMart’s display of sugar or coffee advising customers to purchase these products at those grocery stores.
  20. The trusting relationship with members was reinforced by FedMart’s unique merchandise selection – limited selection and large pack sizes. Sol proved that it was possible to do more sales with fewer merchandise items (stock keeping units – SKUs). He pioneered large package sizes as a way of lowering prices. One of the more intriguing questions is: why does limited selection result in higher sales? Part of the answer lies in what Sol called “the intelligent loss of sales.” Conventional wisdom in retailing is to stock as many items as possible in order to satisfy every customer’s needs and wants. The “intelligent loss of sales” turns that theory on its head, postulating that the customer demand is most sensitive to price, not selection. And low prices are possible only if there is integrity in the pricing combined with being the most efficient operator. What does limited selection have to do with efficiency? Because payroll and benefits represent approximately 80% of a retailer’s cost of operations, pricing advantage follows labor productivity. Fewer items result in reduced labor hours throughout all of the product supply channels: ordering from suppliers; receiving at the distribution center; stocking at the store; checking out the merchandise; and paying vendor invoices. Put simply, the cost to deal with 4,500 items is a lot less than the cost to deal with 50,000 items
  21. The reality of Sol’s FedMart/Price Club compensation approach was more complicated that simple generosity. Sol was committed to the idea that paying good wages and befits would attract better employees who would remain loyal to FedMart. Providing excellent compensation and treating all employees as part of the team would also result in better job performance, loyalty and honesty. The success of FedMart and later Price Club had a lot to do with being the lowest-cost operator but low operating expenses were never achieved by short changing employees. Because such a large portion of the expense structure in retailing is employee compensation, how is it possible to provide excellent compensation and still be the lost cost operator? Employees who are paid well and treated fairly perform better. In addition, paying high wages puts a focus on continued improvement in labor productivity. As productivity improves, the resulting expense savings are reflected in lower merchandise prices. In return for providing a great workplace for FedMart employees, Sol asked only two things of his employees: that they work hard and that they think. In order to assist employees in thinking about their work, he created a management tool that he called “the Six Rights.” He summarized his ideas as follows: I believed the business broke down into three categories – personnel, product and facilities – and that the same six rules applied to them all. You’ve got to have the right kind, in the right place, at the right time, in the right quantity, in the right condition, at the right price. Along with The Six Rights, Sol insisted that FedMart stores have low displays and wide aisles. Sol had two inviolable rules: the 54-inch height rule and the six-foot aisle rule. His reason for these rules was to make shopping more comfortable for the FedMart member by giving the shopper the feeling of an open and uncluttered shopping environment. When Sol toured the stores, he would quickly spot any infractions.
  22. Nearly everything was wrong with Price Club when first opened – “The Six Rights are all wrong.” For the most part the product selection was based on the incorrect assumption that hardware and variety stores would be major purchasers when, in fact, there weren’t many independent hardware and variety stores left in San Diego. Most products were sold by the case, but the mom-and-pop store owners wanted to purchase in less than case-load quantities. The assumption that most members would want to shop early in the morning was wrong. The choice of Morena Boulevard for a merchandise business was wrong too. The site was difficult to get to and was located away from traditional shopping areas. And, many business owners were just not willing to give up the convenience of sales people calling on them, delivery, and credit in exchange for lower prices. Eventually decided to open up to Credit Union members. They were not charged a fee but had a 5% markup on all items. This turned the business around quickly
  23. Sol had an inner compass that steered him to honest business practices. Obeying the law was foremost in Sol’s mind. Nevertheless, when he thought the law was wrong – Fair Trade laws, separate bathrooms based on race – he had the courage to find a way to get what he knew was the right answer. He was courageous and tenacious
  24. Sol would not permit FedMart buyers to knowingly do business with suppliers who treated their employees unfairly
  25. Sol placed the highest priority on delivering the best possible deal to the consumer and providing excellent wages and benefits to employees. He said that the customer comes first, the employees second and the shareholders third. Yet, throughout his business career, Sol was remarkably successful in making money for people who invested in his business deals. Sol’s concern for investors played out in the success of the publicly traded stock of companies he launched, and in the private business partnerships he created for his friends and family. Sol developed a reputation for making good business decisions.

On Charity & Giving Back

  1. An underlying theme of Sol’s life was his generosity and concern for others
  1. A good businessman has to find the time to take care of being involved with his family and charity; it gives him balance. If you’re lucky, you have the obligation to put a lot back into the pot.
  2. He believed that people give charity for one or more of three reasons: ego, guilt or emotion. Sol said that his main motivators were guilt and emotion, not ego. Sol’s “guilt” was related to his realization of the capriciousness of his life, his having such good fortune compared to those who were not so fortunate. For Sol, sharing his advice and financial resources with someone in need was his way of trying to right a wrong and even out the playing field. With regard to ego, Sol maintained a low profile in everything he did. He never sought publicity or recognition. His and Helen’s names were not usually attached to the gifts they made. Sol did have an ego, and a strong one at that. His ego was defined by his existential sense of the meaning of life – the idea that he always had to be thinking and doing, functioning at the highest performance level to find the right answers, whether in business, in making someone’s life better, or in improving society
  3. As a point of reference, he often cited Andrew Carnegie: “The man who dies rich…dies disgraced.”
  4. The logic for rich people to give back personally and through taxes took two paths – fairness and political pragmatism. Sol believed that fairness was a moral imperative. He would say that rich people often think that they gained their wealth on their own when, in fact, their success was the product of their teachers, along with government workers, service providers, and the employees in their companies. He believed that a just and fair society provides good wages and benefits to the working people who are, fundamentally, partners in wealthy people’s success.
  5. It is much easier to make money than deciding how to best give it away
  6. Through his philanthropy, Sol became social innovator, especially in San Diego

Sol’s Legacy

  1. The remarkable thing about Sol was not just that he knew what was right. Most people know the right thing to do. But he was able to be creative and had the courage to do what was right in the face of a lot of opposition. It’s not easy to stick to your guns if you are swimming against the current of traditional thought when it comes to wage and compensation plans for employees. His lessons and philosophy – that business is about more than making money and that a company also has an obligation to serve society – are still valuable reminders for many of us in business today. The fact that he instilled these concepts in so many who were around him is, in my mind, his greatest legacy.
  2. What greater legacy could there be from a father to son than leaving the gift of life skills necessary to carry on?
  3. Unlike many people who retreat into themselves as they age, Sol continued to engage with a broad range of friends, young and old. Sol’s conversations with friends were rarely retrospective. They talked about politics, ethics, the latest books they had read; they told stories and shared jokes. Sol seldom talked about his past accomplishments
  4. Even more than his willingness to fight for what he believed in, Sol never compromised his values. Sol’s retail success was grounded in an absolute commitment to bringing the best value to his customers. Just as importantly, he insisted on paying high wages and good benefits, including health care, to his employees. He had a real conscience satisfied only by giving the best deal he could to just about everyone
  5. Whatever I [Robert] have learned about business I learned from my father – everything – from how to read a financial statement to management to good judgment and fair dealings. My father taught me how to think and how to question and not to fall into the trap of assuming rather than checking things out for myself. He also taught me to be humble, to appreciate the unpredictability of life, to care for people, to remain hopeful, and always to be there for people who are in need.
  6. Many people who worked for my father were afraid to speak up, although, in truth, he always listened carefully to what other people said
  7. What really made our relationship special was the trust that we had in each other and the knowledge that, beyond the arguing, there were shared values and a loyalty and love that would endure
  8. People often have good ideas. Sol was inspired to make his good ideas happen. Sol’s actions were rooted in a value system that he learned early in life and from which he never strayed, a belief that life can and should be lived with purpose, and lived in the right way. Sol’s life was a testament to the truth that success can be achieved by acting in the right way.

Other

  1. Sol had a knack for putting together seemingly unrelated facts to form clever solutions
  2. Sol was more creative, enjoying the brainstorming and conceptual part of starting businesses whereas his son, Robert, was more operations-focused
  3. My father expected to be informed, fully, openly and honestly, even if he didn’t like what he heard
  4. Sol was a really smart man but what set him apart was his exceptional wisdom. A wise person is someone who knows what’s important. Moral reasoning, that is, the ability to judge right from wrong; compassion; kindness and empathy; humility; altruism; patience; successfully dealing with uncertainty. My dad’s life encompassed all these qualities
  5. Sol’s social conscience was molded by his parents’ beliefs and by their actions. He would later apply the lessons he had learned at home to all aspects of his life, the practice of law, the operation of his businesses, and his personal generosity to family, friends, and society.
  6. “I’m not a great student of the Bible. I can’t rationalize giving God credit for mercy and all the good things that happen – who takes the responsibility for the bad things?…It would be very easy for me to be an atheist except for two things: No. 1 – I’m unable to understand or cope with infinity, and No. 2 – over the years there have been many smart people – much smarter than I – who have wrestled with the concerns I have stated above and who end up – in spite of that – believing. What am I missing?”
  7. Learned the value of reputation and trusting relationships as a lawyer. Did a lot of pro-bono work for Jewish charities when he was a lawyer
  8. Incredible work ethic – taking advantage of every hour
  9. Exemplars – Always had an older person as a mentor
  10. Balance – Although Sol was intense when he was dealing with FedMart businesses, he always found time during his business trips and other travels to have fun
  11. Throughout his legal and business careers, Sol believed that he was given too much credit for his success because he felt that people did not always recognize the role luck played in his life. “Most of life is luck [and] much of what is referred to as genius…is luck.”
  12. Skin in the game – Sol personally invested in Loma Supply because he believed that FedMart would be successful. He would never ask anyone else to invest unless he invested, and Sol was willing to take some risks. This willingness to take risks was to be an important factor in his life.
  13. Sol and his companies changed consumer habits, especially with respect to pharmaceuticals and gasoline
  14. Wasn’t afraid to fire people and act boldly if he thought the company was headed in the wrong direction
  15. Influenced by Dutch chain Makro – pallets, “passport” membership, massive warehouses
  16. Sol felt that before investing a lot of money and hiring people, it would be a good idea to do some market research contacting as many small store owners, restaurant operators, and professionals as possible to confirm that the concept would work. Contacts were made with liquor store operators who sold cigarettes and candy, convenience store owners, hardware and houseware store owners, restaurant owners, and lawyers and accountants. The questions were always the same: Where do you buy your merchandise? Which products do you spend the most money on? How much are you paying? What do you like about the way you are purchasing? What don’t you like? There were some consistent threads in their answers: a few of their products represented a large proportion of total purchases; and they preferred the traditional wholesale system; which involved salesman calling for orders, truck delivery, credit and billing; and they thought that the prices they were paying were high. When asked whether they would be willing to give up some conveniences in exchange for lower prices, most seemed mildly interested but some were not interested at all. Even though the market survey was not all that encouraging, we made a decision to give the wholesale idea a try
  17. Rick was the head buyer and little by little created what would become the opening product assortment. He asked: How do we secure a location? Where to begin? Where should the warehouse be located? How big should it be? How much parking area?
  18. Sol was averse to debt for financing his business, for his customers and personally
  19. Respected velocity – Sol’s motto – “Do it now.”
  20. Sol always said he was lucky and that luck was a huge part of his success
  21. Sampling of products was a major hit. The buyers would showcase new products they liked and human’s inclination for reciprocity when they receive something free made them buy more
  22. Even though Price Club had tried to stay under the radar, people in the retail industry were taking notice. In 1978 Bernard Marcus, soon to be the founder of Home Depot, came to see the Price Club and to visit Sol. Sol inspired dozens of similar concepts – Costco, WalMart, Home Depot, Target, etc.
  23. True believer in competition because lead to better results for the consumer – gave away many secrets and best practices
  24. Having pioneered the warehouse club concept, The Price Company had lost the initiative to competitors. Rather than sticking to a well-planned business strategy, many decisions were being made reactively in response to what the competition was doing. The Price Club was like a sports team that comes into the game with a pre-planned, well thought out strategy, but once the game starts the other team has its own strategy, so the first team gets confused and does not stick with its game plan. Sol admitted he made mistakes in not franchising fast enough and being reluctant to add fresh food departments, allowing Costco and Sam’s Club to rise and expand quickly
  25. Price Club and Costco merged in 1993. Price Enterprises later spun off which Robert, Sol’s son, ran

What I got out of it

An inspiring man! Sol was so innovative and caring – his intentions seemed pure as he truly wanted to help the customer. He revolutionized shopping and inspired a new era of retailing. Be as efficient as possible and pass those savings on quality products to customers; no advertising, no superlatives, everyday low pricing, honest and fair dealing, win/win decisions, pay employees well and treat suppliers a step up. Good advice for any business!

Management of the Absurd by Richard Farson

Summary
  1. Human relations are often paradoxical and not logical and this book explains why many assumptions about people, relationships and “managing” we make are in fact false. “Paradoxes are seeming absurdities and people logically try to rationalize them but here we are going to try to suppress that in order to better understand real life situations.”
Key Takeaways
  1. How we think shapes what we see and paradox and absurdity are part of nearly every interaction
  2. It is important to dispel these logical yet false assumptions because when they inevitably fail, managers get frustrated and aren’t well prepared to handle these situations
  3. Managers do things right, leaders do the right things
  4. Absurdity and paradox will be with us as long as humans are around as they arise due to human nature and its flaws
  5. People must know you are a genuine person and not just a “manager.” Vulnerability is sometimes the best way to act
  6. It can be a relief to many to realize you cannot perfectly learn how to deal with others. There is no perfect way. Any technique loses its power once others realize it is a technique. The best people in any field or endeavor leave technique behind and are simply genuine and authentic
  7. Understanding how something works doesn’t mean you can make it work
  8. Praise may not be as effective of a motivator as people think. It may be a status play that managers need to be sensitive to. Better for a manager to be involved and care about the employees’ work. Praise from a third party is often the most effective
  9. The best resource to resolve a problem is sometimes the group who is experiencing or brings up the problem. Deeper fluency with their own problem and can of course see through their own eyes better than others can
  10. The people with the problems often have the best insights into how to fix the problem and if you involve them there will be much greater buy in and adherence
  11. It is amazing how resilient the individual is yet how fragile the organization made up of these individuals can be
  12. Participative approaches are often more effective in getting people involved and generating ideas but this isn’t often employed. Managers may not truly trust their people and the employees may not have the confidence at first to express their opinions
  13. The best way to improve work and output may not be through management but simply by improving relations
  14. Organizations that need the most help often can benefit the least. The mentally healthiest people can often change the most and gain from it. Often the people who need to change least are forced to in order to accommodate others – may not be fair but it sure is effective
  15. People and companies suffer most often because of fraying or lack of relations
  16. Often, the better things are the worse people feel. Revolutions begin not at the trough but only when things slightly improve. The theory of rising expectations. They are discontented because of higher level concerns. This is actually progress though it may not seem like it at first. The highest performing organizations have the highest order grumbles – self actualization. People will never be totally content. The best campuses and countries often have the most restless populace. The most effective reformers are often thrown out by the very people they have been helping – rising expectations take over
  17. Although creativity seems encouraged it really isn’t because truly creative ideas would require tremendous change. Breakthrough changes always breaks the rules. What people seem to really want is manageable creativity. Long term, respected institutions cannot be as creative as newer ones can and that is why true breakthroughs tend to come from individuals, smaller groups or others who are “outside”. Scale is the enemy of creativity
  18. Leadership is less the property of an individual and should be distributed among its members
  19. Often easier to make big changes rather than small ones as the benefits are so much more drastic. In a group that’s working well without titles or other forms of physical status it would be hard to tell apart the leader from the other members
  20. Often people learn better from others’ mistakes than successes as we can better empathize with them
  21. Failure could be one’s best teacher but it really isn’t as people don’t take the time or make the effort to truly analyze them. It is hard to look yourself in the mirror after a failure
  22. Everything works yet nothing works. Almost all management techniques work somewhat but lasting change is almost impossible to implement. Lasting changes only occur when sound practices are implemented on a continual and sustainable basis
  23. Planning is a poor way to assess the future but it can be helpful for assessing the present. The process and not the product is the important part to help with anticipative behavior
  24. The most impactful leaders do not dominate a group but serve it. Humility comes naturally to the best leaders
  25. The best leaders seem to have the confidence to trust their intuition- the accumulation of experience and learnings that they can draw and act upon. These visceral reactions are often ignored but should be paid attention to while looking for objective information
  26. Efforts to fix people usually don’t work and can be counterproductive. The best managers try to fix the situation or environment rather than the person. Circumstances are powerful influences on behavior
  27. The best managers create an ecosystem where their passion is the organizing and motivating force. This makes the tough pursuit worthwhile and draws others into the mission
  28. Love is fundamental to good leadership as leadership is all about caring
  29. Community is one of the most powerful yet fragile parts of an organization. It takes a lot of time and trust to build and can be ruined quite quickly. An insidious part of the erosion of communities is that it is often made in the name of progress and scale
  30. Amateur comes from the Greek word amator which means “love.” An amateur does what he does out of love. A manager needs to work from a place of love
What I got out of it
  1. Often opportunity lies in paradox, misunderstandings or things which seem counterintuitive. This book is filled with those situations and keeping them in mind when dealing with people will be helpful. The rule of reciprocity is always in play. Treat others as you want to be treated. Embody those things which you yourself are looking for. Genuinely having respect will be invisibly and silently communicated to others. Verbal communication is only a small fraction of all communication. The silent, meta message tends to be more powerful than the message itself