To follow, without halt, one aim: there is the secret to success.
To follow, without halt, one aim: there is the secret to success.
by Ray Kroc, with Robert Anderson, published 1992
Reading through the stories of great entrepreneurs, business people and politicians like Cornelius Vanderbilt or Warren Buffett, it is easy to find a sentiment much like this one from Ray Kroc:
Ethel [his wife] used to complain once in a while about about the amount of time I spent away from home working. Looking back on it now, I guess it was kind of unfair. But I was driven by ambition.
I find this sentiment remarkable for a few different reasons.
The first is how common it is. It seems to suggest that achieving “great things” in a particular field of enterprise is not possible without neglecting one’s family and other personal relationships in favor of the “productive” relationships and activities.
The second is how little awareness of this tradeoff many such people seem to possess, at least until they reach the end of their life and all their glory has already been gotten. Then, as they contemplate their state of affairs, either looking back on the empire they built or ruminating regretfully now that they are deposed (violently or voluntarily), they seem to re-evaluate how they spent their time and decide they came up short in considering family time less important than it should have been. They also seem to be either disconnected from the damage they do to their children and their psyches, or else try to evade such recognition– I think Ray Kroc mentioned his daughter all of two times in this 200 page telling, and while his daughter may not have been critical to the story of building McDonald’s, you’d think she would’ve provided enough value and motivation in Kroc’s life to merit more than a couple passing mentions!
The third is how excusable such high achievers seem to find their behavior to be in retrospect. “But…” is a permission word. It negates what comes before and offers cover. Yes, Ray Kroc was unfair, but… It suggests a different moral framework for studying life or a particular circumstance, one in which the rules don’t really apply and the ends justify the means.
The fourth is what a temptation these great projects must’ve provided to these people, to ignore their family, their health or any number of other values. If I was a successful paper cup salesman but stumbled upon the idea of McDonald’s myself, could I have resisted the temptation to build it and in the process knowingly give up my family, friends, physical well-being, etc.? It is perhaps easy to sit in judgment of another person’s efforts and decisions when the attraction of my own responsibilities is relatively less compelling. It’s easy to go home to my family at the end of the day as they typically offer me more interest and excitement. But would that be the case if millions of dollars and a global business organization hung in the balance? That I don’t know for sure, and perhaps you can’t know until you’re tempted with it.
But that leads to the fifth point, which is to consider whether a story like Kroc’s and McDonald’s could be told any other way. What if in the first 27 pages of the story of this business the quote above was not to be found, nor anywhere in the 173+ pages that followed? What if Kroc didn’t get divorced (twice), didn’t have a string of health issues along the way, came home and kissed his wife and daughter on the forehead five nights a week and spent most of each month at home and around town rather than around the country? What choices would’ve needed to be made differently to support that outcome, and how would the company look different either internally or competitively if that had been the case? How big would Berkshire Hathaway be if Buffett had raised his own children and loved his first wife more considerately instead of reading so many damn books and annual reports?
To ask may be to answer, but it’s frightening (hopeful?) to think otherwise.
Besides neglecting important obligations and personal considerations, what else do stories like these seem to tell us about those who achieve outsize success?
Incredible stamina seems to be part of it. They don’t just work hard, they work all the time. But again, it’s hard to know if this is part of the person, part of the responsibility and opportunity, or both. How would a person not work hard and often at something they didn’t love to the point they were mesmerized by it? Enthralled is a good way to describe the state of mind in relation to the idea of the thing being pursued here.
Also, simplicity. Maybe it’s the bad ghostwriting designed to break the story down for a lowbrow audience but the way these people talk about what it is they did, they rarely come across as great geniuses, though they’re often wits (Buffett is a notable exception here, and Vanderbilt was clearly “sharp”, a word for cunning back then, though it wasn’t clear he was necessarily “intelligent”, while it was clear he was no buffoon). The grand strategy and complexity is often seen in hindsight, knowing how the story ends and having years and years to tell it and thus accumulate various trappings which may or may not be integral to the success. In Kroc’s own words, it was all about Quality, Service, Cleanliness and Value and then spreading it across the land. Their financing was complicated, but it’s not clear it needed to be, especially if the company was less levered and less insistent on growing as fast as it did. Being focused seems obvious, yet important enough to mention it.
Where does that leave me? If there’s a way to build a legacy that doesn’t involve neglecting one’s family and health, perhaps by being more patient, moving more slowly or being less obsessed about the outcome, that is the kind of legacy I want to build. And I have to wonder what kind of personal insecurity or individual idiosyncrasy or whatever it is, that I seem not to have, that would not allow a person to make that choice given the alternative.
But if the only way to make things great is to trash some other part of your life and leave a smoking crater behind, a crater that’s especially painful in the vulnerability of old age, then I guess I better prepare myself mentally for more humble achievements. I’m just not interested in those kinds of tradeoffs and I don’t understand how such achievements could be satisfying without a family to enjoy them with and the sound mind and body necessary to experience it all.
by Thomas Watson, Jr., published 1990
The son of IBM’s founder, Thomas Watson Jr.’s “Father, Son & Co.” is many things: a collection of folksy business wisdom passed down by his father, memories and recollections of his participation as an airman in World War II and later a US diplomatic career in the USSR, a story about the challenges of growing a global business, lessons in leadership and team building, the pitfalls of transforming an business organization from small scale to large scale and, most importantly, a personal reflection on the value of family. It was most interesting and entertaining for me to read when it dealt with business and some of the personal issues of the author in trying to prove himself in the shadow of a legendary father; I found it less enjoyable and less authentic when the author dabbled in politics or retold sappy anecdotes about popular political figures of his era with whom he had had personal relationships.
The Business of IBM
The axis around which the story revolves is not Tom Watson, Jr., and it’s not Tom Watson, Sr. It’s the company which Senior grew and transformed into IBM, and which Junior effected the change over to actual computing technology in the 1960s, that the book is really about. But because Junior’s and Senior’s personalities, families, fortunes and lives were so wrapped up in the affairs of IBM, it becomes about all of those things in turn as well. That is somewhat surprising because the book is ostensibly a memoir by Junior, yet the gravity of IBM is hard to ignore in nearly every chapter of the book.
When Senior joined on with the company as general manager and, shortly thereafter, president, IBM (then Computing-Tabulating-Record Company) was an important concern but not necessarily a large one. Senior had a vision for it and something of an indomitable will, and he had experienced enough success and failure on his own in other ventures that he had an idea of what it would take to create the vision he had for the company. He built a large, organized and polished sales force, instilled high morale and unity of purpose by creating training programs, achievement awards, national sales team conventions and even company songs that everyone had to sing. He also, like many strong-willed founders, created something of a cult of personality around himself, putting his picture up at IBM offices and facilities, writing memos that were distributed widely to all staff and constantly visiting field offices and manufacturing facilities and “pressing the flesh” with company men and their wives and children, creating a kind of endearing aura of patriarchy.
In later years this intuitive, personality-driven approach was deemed problematic by Junior and other successor senior executives who believed that Senior had created a culture and cadre of Yes Men and hadn’t implemented enough standards and professional protocols that could create stability for growth. But for decades of the company’s history (essentially the first half, to date) this approach seemed to work, and fantastically so. Company publications like “Business Machines” and sales achievement distinctions like the “Hundred Percent Club” put the company’s focus on employee well-being and professionalism and incentivized outstanding achievement in the dawn of the era of lifetime commitment to big companies.
Something that shocked me as I read was how much of IBM’s growth could be attributed to solving statistical problems for the US and other national governments:
IBM more than doubled in size during the New Deal… Social Security… made Uncle Sam IBM’s biggest customer.
Wow! I suppose someone else could’ve come up with the technology as well, but it is kind of amazing to think that the evil New Deal and the disastrous Social Security pyramid scheme would have been too burdensome to administer without the existence of IBM tabulating machines which were a major time saver. It reminds me of Palantir Technologies, which helps the NSA, CIA and other foreign governments conduct surveillance work on target populations, another way to profit off of coercive interference in society’s affairs.
This trend didn’t stop with the New Deal but only started there. During WW2 the company converted many of their factories to help produce armaments (a fairly common industrial practice during the time, but still remarkable) and after the war one of the big incentives (and indeed, initial sources of research funding) for switching the company’s focus to electronic computing solutions were the ongoing “national defense” needs of the US military as the Cold War wore on.
Words of wisdom
I enjoyed the many old-timey nuggets of wisdom and rules about manners sprinkled throughout the book which were mostly remembrances of Junior of things Senior had said to him as he raised him or mentored him in the business. For example, Junior talks about the first time he road a cross-country train with his father on a business trip and the way his father taught him to clean up the wash basin in the bathroom of the railroad car to be considerate of others. “The person coming after you will judge you by how the place is left,” he tells him as he uses a towel to wipe down the basin before and after shaving in it. He talks about the importance of leaving the basin in a clean state so that the next person will have “the same chance you had”. There is a deep moral lesson here that goes well beyond the world of men shaving– this is a version of the Golden Rule, not just considering how upsetting it would be to have someone leave a place in a state of disarray for you, but then following that logic through to performing a service voluntarily for other people in trying to leave the world a little bit nicer than you found it.
In another instance, Senior lectures Junior about the practical reasons for treating even the “lowly” members of society in a kindly and generous fashion:
There is a whole class of people in the world who are in a position to poor-mouth you unless you are sensitive to them. They are the headwaiters, Pullman car conductors, porters and chauffeurs. They see you in an intimate fashion and can really knock off your reputation.
Those who enjoy shows like Downton Abbey are familiar with the idea that the “servants” of the world end up having an interesting amount of power and leverage over those they serve because they are so familiar with them they know their weaknesses, secrets and bad habits. There is something noble and self-aware in Senior’s advice here– a cultivated awareness of the reality of power and influence, mixed with a genuine empathy for treating even the relatively less fortunate with respect and concern. It might be read as “These people could really knife you if you don’t pay attention” but I think it is also honestly read as “Don’t forget these are people, too, and they want and need kindness regardless of their station in life.”
Another endearing moment comes when Senior teaches Junior about how he manages his executives:
“Well, I haven’t shaken up So-and-so for a while. So I’ll get him in and ask some questions about his department and in the process part his hair a little. He’ll get a pat on the back if I find something good or a kick in the tail if I find something bad.”
The imagery of “parting someone’s hair” says a lot about the relative authority of the two people in this “process” and while kicking someone in the tail sounds like bullying, it was clear that Senior gave quite a few pats on the back, as well, and when he dished out the ass-kickings, they might have been deserved– these were grown men dealing with a multi-million dollar business, after all, and if they weren’t bringing their problems to Senior’s attention but rather waiting for him to discover them, shame on them.
In teaching Junior about how to be an executive, Senior advised “what a chief executive does outside his business is just as important as what he does at his desk”, which was another idea I found interesting. I’ve been skeptical in the past of chief executives who seem to spend more time glad-handing than running the business. But I’ve come to appreciate that a lot of running a business simply is taking care of relationships– with customers, employees, vendors and even members of the local community. IBM’s business was dependent upon political grace, so there is perhaps a more sinister side to this advice from the standpoint of simply being a businessman but it was an interesting idea to ponder, nonetheless, that the chief executive’s identity and role extend beyond his office hours.
Senior was clearly a hard-driver and a hard-charger himself. So I was interested to hear about his daily routine:
He had his day set up so that he got up at seven, played tennis from seven-thirty to eight-thirty to stay in shape, got to work on time, did his work, went home, read great books for an hour, had dinner, listened to classical music for a while, and went to bed.
Senior ended up dying of starvation; his stomach was so scarred from stress-induced ulcers that it essentially closed up and wouldn’t let enough food in, and he didn’t want to go under the knife and so chose a fairly painful death by starvation (more on health issues in a moment). But despite this, he lived to age 82! I think that’s still considered a long time to live and I am always curious what a person’s habits were when I hear of such longevity, so it was pleasing to see that he put emphasis on daily physical activity as well as daily relaxing, contemplative activity (reading and music listening). Interestingly, breakfast didn’t seem to play a large part in his routine although Junior recounts many times when he had lunch brought in despite it being ignored in this telling.
A few other choice ideas, on restraint:
What you haven’t said, you can say anytime.
And on the value of friendship:
Don’t make friends who are comfortable to be with. Make friends who will force you to lever yourself up.
The son also rises
So, Senior had a knack for keen insight, but what about Junior?
While Senior was the builder, Junior was the administrator and manager. He seemed to take what he learned from Senior and build on it, so many of his notions seemed like continuations of the thoughts of Senior. For example, consider Senior’s advice about how chief executives should behave as Junior extemporizes about the relationships of businessmen:
A good businessman needs a lot of friends. Cultivating them is a laborious process, and how well you succeed is a direct result of how much effort and thoughtfulness you bring to bear.
He isn’t talking about friends in the business. He’s talking about friends outside of the business, which to me sounds like an echo of the idea that the chief executive’s job extends well beyond life in the office.
Similarly, he recounts a tale about the importance of making good introductions,
I stuck out my hand and said to him, “I’m Tom Watson Jr.”
Offering one’s name with a hand shake ensures that the other person is not put in the uncomfortable spot of being expected to remember people he’s only met once before, which engenders a sense of gratitude and respect immediately. Consider that this was the practice of an individual leading one of the largest and most well-known companies in the world and he still made the effort to be forward about his identity like this.
I also made a note of Junior’s characterization of the political structure of business:
The government has checks and balances, but a business is a dictatorship, and that is what makes it really move.
I think there is consensus building in business, too. It’s hard to keep a team cohesive and productive over a long period of time if people don’t feel like they contribute ideas and that those ideas get seriously considered. But I do understand the idea that ultimately decisions have to be made by somebody, that is, one person, and a business with a strong will behind it can make those decisions more effectively because everyone may be listened to but they don’t necessarily all get a vote. In the business world, people tend to vote by exit which is rarely an option in the world of politics.
The wealth of health
As mentioned earlier, Senior ended up choosing death by starvation when his health maladies caught up with him, though he made it to age 82. I noticed that both Junior and his younger brother (who headed up IBM’s non-US business) suffered heart attacks in their middle-age, attributed to the high stress of their positions.
Junior describes a life of almost continual travel and social functions, not just for himself but for his father and his brother. It was clear reading the book that the Watson clan and IBM executive leadership in general were part of the “global elite”, they knew dignitaries and heads of state from around the planet and were deeply connected to American political figures as well, a confusing blending of public and private prerogatives and relationships. There were many chapters where Junior described so many different locales and travels simultaneously that is almost seemed as if he was everywhere at once– at the very least he would spend long stretches of time away from home engaged in high level networking. It was a fascinating glimpse into “how the other half lives.”
But it was also terrifying from a health point of view. It is just hard to imagine this high-paced lifestyle allowing one to live with optimal health and longevity. Along with suffering a heart attack, his brother seemed to be frail enough to die from a “fall” at age 55. Junior ended up quitting his official business responsibilities following his heart attack which he reflects on with positivity in the book, saying it was a relief to have an opportunity to look critically at his life and get out while he still could. It seems to say a lot about the lifestyle he was living that he could so clearly connect his longevity to his work and chose the former over the latter.
Working with family
At the beginning of the book, Junior says that if you have the chance to go into business with your father, know that it will be difficult, but do it. I was fascinated by this strong suggestion given that he spends much of the rest of the book relating all the violent disagreements he had with his father, their latent power struggles, the continual struggles with self-esteem and even depression that he experienced living and working under the shadow of his successful father and so on.
There were many touching moments in the book where the reader is afforded a look at the parenting practices of Senior, who was truly from a pre-modern era. But there were also many that shocked my sensibilities of the proper relationship between parent and child, such as when Junior recalled how Senior handled tax documentation of his personal trust:
Each year his accountant would come around and have me sign income tax forms that were blank. He’d make an excuse that he hadn’t had time yet to fill them out. This kept up not only through college but ten years beyond, until I was a grown man with children of my own.
How would hiding this information from a child do anything but stoke their curiosity, fear and self-criticism? Why did this practice continue on even when he was a man with his own family (at which point he had long been a part of the business in a senior role)?
While the book offered many such puzzles and glimpses into family life for the accomplished Watsons, I couldn’t help but wonder how people who had achieved such greatness in so many areas had completely neglected to resolve interpersonal emotional conflicts and instead struggled with this source of unhappiness for decades. What is family for?
For me, reading about the early struggles and the early attempts at growth are always the most interesting parts of a story like Thomas Watson, Jr.’s, and IBM’s in general. I found myself less interested in what it was like being Bobby Kennedy’s friend, or getting tapped for the ambassadorship in Moscow. You can look at the history of the company and of the family and think, “It could’ve been anyone else, it’s not clear what they did that was special or unique beyond being lucky” but you can’t say they didn’t work hard, or purposefully. There’s no simple recipes or formulas for success in this book when it comes to business, family or life, but there are a number of things to think about, struggles that turn out to be common to all of us, great or small in our vision or accomplishments. I think that is where the value in this book lay for me.
by Tetsuko Kuroyanagi, published 1981
What a wonderful book! I’ve never read anything quite like it, although it reminded me quite a bit of various Hayao Miyazaki animated films I’ve seen in the past. “Totto-chan” is a memoir in the guise of a novel. The author’s childhood self is the main character and the events described actually took place while she attended a creative school called Tomoe Gakuen in pre-war Tokyo. This proves to be an interesting narrative device because the story is told from the emotional and experiential point of view of a child, but with the knowingness and articulateness of an adult. The obvious fondness or at least understanding of the author toward her younger self serves to enhance the overall sensation of empathy the story engenders, for that is the primary theme of the school and what the children were learning there.
Led by the visionary headmaster, Sosaku Kobayashi, the Tomoe school’s philosophy is built on trusting children to be themselves, “let nature lead” as Kobayashi put it. The story is filled with anecdotes of Totto-chan and her classmates being entrusted to figure things out for themselves, with adults and authority figures like the headmaster and parents simply listening and providing confidence that the children will succeed in coming up with workable solutions as they learn to navigate the world around them. Mistakes and slipups (such as Totto-chan falling into the school’s cesspool) are treated with dignity and patience. Instruction and structure come in the form of simple guidelines (for lunch, students were asked to bring “something from the hills and something from the sea”) with the belief that the children will be motivated to find their own solution with a limited amount of information.
The effect on the children is a unique sensation of freedom and capability, of openness and consideration of themselves and the needs of others. Seemingly without encouragement, the school spontaneously forms a meaningful, interested sense of community and ownership by the students toward their school grounds, neighborhood and classmates. Left to pursue their studies and interests at their own pace, some students excel through deep study and careful focus of a particular subject while others enjoy sampling disparate bits of knowledge and experience without a plan. All students appear happy and enthusiastic about their lives, even those students who come to the school with severe developmental handicaps. As the author says, this liberty allowed a lot of children who were misfits in the standard schooling regime to find a sense of ease and belonging and to go on to live productive, independent and connected lives as adults.
The story gives the reader a glimpse of an educational philosophy and pedagogical approach that is at once intuitive and mysterious: why shouldn’t every school demonstrate such empathy and concern for its students; and how DOES Mr. Kobayashi manage to have such patience and a sunny disposition toward the antics of small children that are considered so “obnoxious” by nearly everybody else? The epilogue of the story summarizes some of the research travel Kobayashi performed in Europe for several years leading up to the founding of the Tomoe school and it becomes clear that there is a dedicated, principled purposefulness to every single event in the story, which the author as an adult reflects upon in the present with a “Oh, so THAT must have been what Mr. Koboyashi was trying to teach us there…” To a cynical mind it may seem almost exploitative to be so cunning in one’s schemes, but if the ultimate goal of the approach is to develop in the students the maxim “Trust yourself”, how nefarious could this stratagem actually be?
The school seems like a very “social” place and less like an academy– numerous field trips, “sports” days, music and exercise classes and camping overnights pepper the plot and while there is a library and scenes of students doing self-directed physics studies with alcohol burners and beakers, they always take place in Tomoe’s disused railroad cars-cum-classrooms. It’s a challenge only to those readers with a constricted view of what education and learning necessarily mean. For Kobayashi and his students, every experience brings teachable moments and the question begged and answered is why reading about flora and fauna in a textbook is a superior approach when one can go outside for a walk and study the variety of life up close.
From the view of paranoid American parenting, the children disrobing with their teachers and swimming naked together in the school’s small pool will seem like a perfect opportunity for secret child abusers amongst the faculty to get their jollies. But the lesson here seems to be that every choice in life brings with it risks and if bathing suit-less swim time is a useful means for helping the children (especially the physically handicapped) to appreciate and accept their differences and similarities such that they can have confidence about who they are and act with kindness towards everyone else, the risk of something monstrous or mean-spirited in such an environment might be a better risk to take than watching certain individuals grow up feeling alienated from themselves and others for lack of such experiences.
Indeed, those same paranoid parents would be wondering how a child could ever develop a moral sense without correction and punishment from adults. It is enjoyable, then, to witness the many moments when Totto-chan attempts to do something underhanded or less than honest (with herself, her parents or her friends) but recognizes the moral inconsistency of her actions on her own and eventually makes amends and moves on. It makes you think that children are capable of so much more than they are given credit for, typically, and that maybe the moral failings of children reflect not their immaturity, but the perverse incentives of the adults who guide them.
This is a humorous book, as well. There were many moments when I couldn’t help but laugh out loud and recount a passage to someone nearby, they’re just too good not to share. And thankfully, there are moments of profound tragedy and despair. I say thankfully, because it is in these recollections that we are truly reminded of how precious life is and what a wonderful gift a school like Tomoe is.
One of those tragedies is that the Tomoe school burned to the ground near the finale of the Pacific War as Tokyo came under increased firebombing by the US Air Force. It’s a stark reminder of the injudiciousness and unfairness of war, even though it is recounted without particular frustration or anger on the part of the author (a testament to the empathetic spirit of the school itself!) But there is also a lesson in the resilience of the creative spirit, as Kobayashi’s only response is to ask, “What kind of school shall we build next?”
The good news is that we don’t have to suffer war or burn our schools down to ask that question ourselves.
I think this book can be enjoyed by children, parents, families, teachers and social theorists and anyone concerned with building a more empathetic society built upon respect for the individual and the instinct of trusting oneself.
by Jim Collins, published 2001
The G2G Model
“Good To Great” seeks to answer the question, “Why do some good companies become great companies in terms of their market-beating stock performance, while competitors stagnate or decline?” After a deep dive into varied data sources with a team of tens of university researchers, Collins and his team arrived at an answer:
The first two items capture the importance of “disciplined people”, the second two items refer to “disciplined thought” and the final pair embodies “disciplined action”. The concepts are further categorized, with the first three components representing the “build up”, the ducks that must be gotten into a row before the second category holding the last three components, “breakthrough”, can take place. The entire package is wrapped up in the physical metaphor of the “flywheel”, something an organization pushes on and pushes on until suddenly it rolls forward and gains momentum on its own.
This book found its way onto my radar several times so I finally decided to read it. I’d heard it mentioned as a good business book in many places but first took the idea of reading it seriously when I saw Geoff Gannon mention it as part of an essential “Value Investing 101” reading list. I didn’t actually follow through on the initial impulse until I took a “leadership science” course recently in which this book was emphasized as worth covering.
I found G2G to be almost exactly what I expected– a rather breathless, New Age-y, pseudo-philosophical and kinda-scientific handbook to basic principles of organizational management and business success. The recommendations contained within range from the seemingly reasonable to the somewhat suspect and the author and his research team take great pains to make the case that they have built their findings on an empirical foundation but I found the “We had no theories or preconceived notions, we just looked at what the numbers said” reasoning scary. This is actually the opposite of science, you’re supposed to have some theories and then look at whether the data confirms or denies them. Data by itself can’t tell you anything and deriving theory from data patterns is the essence of fallacious pattern-fitting.
Those caveats out of the way, the book is still hard to argue with. Why would an egotistical maniac for a leader be a good thing in anything but a tyrannical political regime, for example? How would having “the wrong people on the bus” be a benefit to an organization? What would be the value in having an undisciplined culture of people who refuse to see reality for what it is?
What I found most interesting about the book is the way in which all the principles laid out essentially tend to work toward the common goal of creating a controlled decision-making structure for a business organization to protect it from the undue influence of big egos and wandering identities alike. In other words, the principles primarily address the psychological risks of business organizations connected to cult-like dependency on great leaders, tendency toward self-delusional thinking and the urge to try everything or take the easy way out rather than focus on obvious strengths. This approach has many corollaries to the value investing framework of Benjamin Graham who ultimately saw investor psychology as the biggest obstacle to investor performance.
I don’t have the time or interest to confirm this hypothesis but I did wonder how many of the market-beating performances cataloged were due primarily to financial leverage used by the organization in question, above and beyond the positive effects of their organizational structure.
A science is possible in all realms of human inquiry into the state of nature. Man and his business organizations are a part of nature and thus they fall under the rubric of potential scientific inquiry. I don’t think we’re there yet with most of what passes for business “research” and management or organizational science, but here and there the truth peeks out. “Good To Great” probably offers some clues but it’s hard to know precisely what is the wheat and what is the chaff here. Clearly if you inverted all of the recommendations of the book and tried to operate a business that way you’d meet your demise rather quickly, but that is not the same thing as saying that the recommendations as stated will lead in the other direction to greatness, or that they necessarily explain the above-average market return of these public companies.
I took a lot of notes in the margin and highlighted things that “sounded good” to me but on revisiting them I am not sure how many are as truly useful as they first seemed when I read them. I think the biggest takeaway I had from the book was the importance of questioning everything, not only as a philosophical notion but also as a practical business tool for identifying problems AND solutions.
by Richard Branson, published 2011
Spoiler alert– this book is choppy and inconsistent in the pacing and entertainment factor of its narrative. You really need to read between the lines a bit to get the most value out of it. That being said, it’s surprisingly literary for a dyslexic former publisher of a student magazine and I found Branson’s repeated reference to his high-altitude balloon voyage trials to be an outstanding metaphor for his life as a businessman and entrepreneur.
You see, in Branson’s ballon journeys, the key factors of any consistency were that: a.) Branson was knowingly and openly taking what he perceived to be a potentially life-threatening risk b.) Branson was almost always underprepared for it, or decided to go ahead with his attempt despite early warnings that something was amiss and c.) nonetheless, he somehow managed to survive one disaster after another, only to try something bigger and bolder the next time around.
And this is quite similar to the way he comported himself as an entrepreneur on so many occasions. Again and again, he’d make a daring foray into a business, market or industry he didn’t quite understand, the company would stumble after an early success leaving them all on the brink of failure and yet, each time they’d double down and somehow win.
In that sense, Branson is a perfect example of survivorship bias. On the other hand, having so many narrow misses that turn into massive accelerators of a person’s fortune start to make you wonder if isn’t mostly luck but rather mostly skill.
As an entrepreneurial profile, “Losing My Viriginity” is full of all kinds of great successes and astounding failures. With regards to the failures, something I found of particular interest was the fact that Branson’s company were victims of some of the most common pitfalls of other businesses throughout its early history: taken for a ride by indomitable Japanese owners/partnerships in the 80s, repeated victim of the LBO-boom and the private/public buyout-cycle in the 80s and 90s. When you read these stories in the financial press it always seems to happen to the rubes of the business world, but Branson’s foibles help one to realize even rather sophisticated types can get taken in now and then.
The volatility in Branson’s fortunes do leave one with a major question though, namely, why did Branson’s company ultimately survive?
This isn’t a Harvard Business School case study so I don’t mean to pass this off as a qualified, intelligent answer to that question, but I will attempt a few observations and, in typical HBS fashion, some or all of them may be contradictory of one another and none will be provided with the precise proportional contribution they made to the end result:
Another thing I noticed about Branson and the development of his company was the attention he paid to the composition of management and owners and his dedication to weeding out those who were not good fits in a charitable way. Channeling the “best owner” principle, Branson made a conscious effort to buy out early partners whose vision and tastes did not match the current or future vision of the group. In this way, the company maintained top-level focus and concentration on a shared strategic vision at all times, sparing itself the expense and distraction of infighting and wrangling over where to go next and why.
Another aspect of the company’s resilience had to do with its operational structure. Branson built a decentralized company whose debts and obligations were kept separate. In an environment where new ventures were constantly subject to total failure, this arrangement ensured that no one business failure would bring the entire group down.
The final lessons of the Branson bio were most instructive and had to do with the nature and value of forecasting.
The first lesson in forecasting has to do with the forecasts others make of us, or the world around us. For example, Richard Branson had no formal business training, he grew up with learning disabilities (dyslexia) and he was told very early on in his life by teachers and other adult and authority figures in his life that he’d amount to nothing and his juvenile delinquency would land him in prison. Somehow this worthless person contributed a great deal to society, through business and charity, and by most reasonable measures could be considered a success, making this forecast a failure. If one had taken a snapshot of the great Warren Buffett at a particular time in his adolescence, when the young boy was known to often take a “five-finger discount” from local department stores, it might have been easy to come up with a similar forecast about him.
I’m not sure how to succinctly sum up the concept there other than to say, “Things change.” Most forecasts that involve extrapolating the current trend unendingly out into the future will probably fail for this reason.
The second lesson in forecasting has to do with how we might attempt to forecast and plan our own lives. When we have 50, 60, 70 or more years of a person’s life to reflect on, it is easy to employ the hindsight bias and see how all the facts of a person’s life were connected and led them inexorably to the success (or infamy) they ultimately achieved. And certainly there are some people, again using Buffett as an example, who from an early age were driven to become a certain something or someone and so their ability to “predict their future selves” seemed quite strong.
But the reality is that for the great many of us, the well-known and the common alike, we really don’t have much of a clue of who we are and what we’ll ultimately become. The future is uncertain and, after all, that’s the great puzzle of life that we all spend our lives trying to unravel. Richard Branson was no different. He was not born a billionaire, in a financial, intellectual, personal or other sense. He had to learn how to be a businessman and how to create a billion dollar organization from scratch. Most of the time, he didn’t even know he was doing it. In other words, HE DID NOT KNOW AHEAD OF TIME that he would become fabulously wealthy, and while he was hard-working and driven, it doesn’t even appear he purposefully intended to become so.
Maybe we should all take a page from Branson’s book and spend less time trying to figure out what’s going to happen and more time just… happening. We could sit around all day trying to figure life out, or we could follow the Branson philosophy where he says, “As for me, I just pick up the phone and get on with it.”
by Guy Thomas, published 2011
A methodical review of investors and their strategies
The greatest strength of “Free Capital” is its organization and layout– it’s truly like visiting an expertly-designed website in that the author has organized his investor interviews by four major descriptive categories:
Within each categorical section are profiles of 12 (in total) investors that Guy Thomas spoke with, many of whom are anonymous, most of whom he came into contact with via investor message boards he participates on, and all of whom are UK-based and have managed to grow their capital into millions even over the last decade or less.
Though many were once employed by others and some came from financial backgrounds, all are now independent, full-time investors who live off of their investment returns and it is this kind of self-directed lifestyle and the resources which are needed to finance it that primarily lend themselves to the book’s title.
What’s really great is that in each chapter, Guy Thomas begins with a quick “tearsheet” profile of the investor’s strategy, key phrases, holding period, etc., then neatly organizes the interview material into background on the investor’s life and development as a financial person, outlines their strategy, experiences and any particularly demonstrative coups or failures they’ve enjoyed (or suffered) and finally and extremely helpfully, summarizes all the material again in a table at the end with the major themes or ideas explored for quick reference.
As if this weren’t enough, Guy Thomas has written a lengthy (and for once, interesting) introduction to the book that serves as a combination summary of the main themes of the book as well as a how-to manual for those looking to get the most out of their reading. Thomas is correct in suggesting that the book can be read all the way through as a complete work, or explored at random based on what, if anything, sounds interesting to the reader.
It’s touches like this that show a thoughtfulness on the part of the author that leave the reader painfully aware of their absence in comparison to many other books in the genre. Frankly, it’d be nice if authors and publishers took Thomas’s lead on this point!
My favorite part: inspiration
I was excited to dig into the book in part because a friend had mentioned it to me and had commented favorably on it. He said a lot of the material covered wouldn’t be original but that I might find it inspirational to read other people’s stories of how they got where they are.
Maybe it’s where I am in my life right now, maybe it’s the subtle suggestion my friend made planted in my mind, or maybe it’s the shining spot for the book but the inspiration was one of the most important things I took away from the book. Some of the profiles were admittedly unhelpful (such as the day-trader, an investment style I can’t see any point in) or just not interesting to me (a few of the investors followed research processes I don’t have the time or motivation to emulate), but there were a couple I identified with, which made me feel empowered and hopeful about myself as I read them.
I particularly liked the two named investors, John Lee (who is a dividend-oriented value investor of sorts) and Peter Gyllenhammar (who bankrupted himself twice before hitting his stride and amassing his current fortune). I believe all of the investors lives and experiences illustrated this point well, but these two in particular were examples of the phrase “Patience is a virtue.” If a man can dust himself off after two bankruptcies and still make something of himself he can probably do just about anything given the time and the patience. Seeing as how I haven’t suffered personal bankruptcy (yet) I felt greatly advantaged to learn from this example of perseverance and triumph over failure.
Another theme oft explored in “Free Capital” is the role simplicity plays in good investing. To that effect, I found a lot of great investing ideas captured in brief, simple aphorisms that made them both easily digestible and sufficiently memorable to make use of them myself in my own deliberations. Some examples include:
Also of note is the author’s book-companion blog, which goes into a bit more detail on some of the investment themes captured in the book and which I’ve found to be a good supplement to the reading seeing that I was still interested to learn more even after I put it down.
“Free Capital” is a unique offering. It has a styling and organization that many books in its genre lack and I hope this effort is continued in any future titles from the author. And it treads original ground in profiling anonymous, “everyman” successful investors that no one has heard of yet who have interesting stories, experiences and lessons to share all their own. We can all learn from more than just Warren Buffett, after all.
It’s not without its flaws, of course. As the author himself states, the book doesn’t cover losing investors, people who took some of the risks investors profiled took, and failed, or who took other risks that didn’t turn out right, and then explores what lessons can be learned from their shortcomings. This probably could be a worthwhile book in itself, as there is a growing literature on “failure studies” and as the first lesson every investor must learn is “don’t lose what you’ve got”, learning of common mistakes to avoid could be helpful. Additionally, as an avid deep value (Benjamin Graham) guy myself, I could’ve done without the day trader and some of the other guys who seem like GARPy, momentum-based swing traders with short time horizons and questionable “value” metrics.
But those are minor quibbles and things that Guy Thomas could easily rectify by simply writing us more great books to read! Overall, “Free Capital” was entertaining, at times enlightening and best of all, extremely gracious with my free time as I read the entire thing in just three or four hours. Given the focus on the value of time in the book, I appreciated the fact that I could digest the meat of the book and walk away with some great insights to help my own investing… and still have time left in the day to get other things done!
Success isn’t built on success; it’s built on failure, frustration, and sometimes catastrophe.
I’ve missed more than 9000 shots in my career. I’ve lost almost 300 games. 26 times, I’ve been trusted to take the game winning shot and missed. I’ve failed over and over and over again in my life. And that is why I succeed.
The business cycle rotates periodically between boom and bust. This is one of the inevitable consequences of centrally planning the economy’s interest rates and forcing them below their market equilibrium levels. Because it is inevitable, it is “predictable” and thus every business person must conduct their affairs in light of the fact that at some point in the future they will be faced with a recession. The key measure of risk for a business person operating in a central bank-managed economy, then, is “How will I feel when the recession comes?”
If a recession poses no risk to the financial structure of his holdings and he is positioned in his operations to weather a storm, he may be termed “low risk.” If instead a recession represents an existential threat and/or the potential for severe hardship for his operations, he may be termed “high risk.”
As an ideal, a sufficiently low risk operator should eagerly anticipate a recession as it will represent a cheap buying opportunity during which he will consolidate the failing enterprises of his competitors, scooping up their assets at bargain prices and thereby leap ahead of them without the use of leverage or cheap competitive tactics. Conversely, a sufficiently high risk operator will find the economic Sword of Damocles plunging through his neck in a recession, permanently severing the connection between himself and his former assets. How then to manage financial and operational risk so that continued growth can occur in a manner that is sustainable in all possible economic environments?
In terms of financial risk, we could sort our assets in two ways, by asset quality and by financing quality. The asset with the highest asset quality is the one which has the largest earnings yield relative to its current value. The asset with the highest financing quality is the one which is cheapest to own (ie, annual interest cost).
Practically speaking, sorting assets by asset quality and financing quality and then selling low quality assets and paying down outstanding debt would move an organization toward a more favorable balance between asset quality and finance quality, with an emphasis on equity in the balance sheet. The capital that is freed up in the process is now available to purchase a higher quality asset in the future.
In a recession, the cash flows from low quality assets dwindle while the finance charges on debt remain fixed; not only does such a mixture create a problem in a recession but it falsifies the true “free cash” position of the company in a boom because, to operate prudently, extra cash must be maintained on the balance sheet to offset the risk this low quality asset and debt represent should a recession appear.
The insistence on focusing on the management of financial risk first offers us clues as to a sound growth strategy overall. To be successful and sustainable through all potential economic conditions, growth must be purposeful and planned and should only occur when three conditions are met: there is abundant free cash on the balance sheet, the organization has people “on the bench” and ready for new opportunities and a good buying opportunity (represented by a fair or discount to fair value price) presents itself.
A debt-laden balance sheet is not cash rich because the cash which may be present is actually encumbered by the debt as an offset in a recessionary environment. When we are talking about a cash rich balance sheet, we’re by implication talking about an unlevered balance sheet. Otherwise, the cash is not “free” but rather is “phantom” cash– it will disappear the moment adverse economic conditions present themselves.
The organizational bench condition may be harder to evaluate objectively, but there is a decent rule of thumb. When people in each position in the organization are sufficiently organized to handle their own responsibilities with time to spare, there is organizational bandwidth to spend on promotions and new responsibilities, such as management of newly acquired assets. In contrast, when people in relatively higher positions within the organizational hierarchy are spending their time doing the work of people relatively lower in the organizational hierarchy, it indicates that there is a shortage of quality personnel to fill all positions and that those personnel available are necessarily being “mismanaged” with regards to how they are spending their time as a result.
Further, it implies the risk that growth in such a state might further dilute and weaken the culture and management control of both legacy assets and those newly acquired. This is a risky situation in which every incremental growth opportunity ends up weakening the organization as a whole and creating hardships to come in the next recession. If it’s hard to find good people, inside the organization or without, and there is a general attitude of complacency about what could go wrong in a recession, it is a strong indicator that underperforming assets should be sold and the balance sheet delevered to reduce organizational risk in the event of a recession.
Growth should be fun, exciting and profitable. If it’s creating headaches operationally, or nightmares financially, it should be avoided. You shouldn’t own or acquire assets you don’t love owning. Perhaps the best rule of thumb overall is to ask oneself, “Does owning this asset bring us joy?” If yes, look for opportunities to buy more. If no, sell, sell, sell!
Ultimately, there are three ways to get rich: randomly, with dumb luck and unpredictable market euphoria for the product or service offered (billion-dollar tech startups); quickly, with a lot of leverage, a lot of luck in terms of market cycles and a lot of risk that you could lose it all with poor timing (private equity roll-up); and slowly, with a lot of cash, a lot of patience and a lot less risk while taking advantage of the misery of others during inevitable downward cycles in the economy.
If you were fearful in the last economic cycle, it suggests your financial and organizational structures were not as conservative as you might have believed. It may be an ideal, but it’s one worth reaching for: a recession represents a golden buying opportunity for a cash rich organization to leap ahead of the competition and continue its story of sustainable growth and success.