Kinko’s: Paul Orfalea

Kinko’s copy shops were once so ubiquitous that the name became a kind of shorthand for photocopying. Paul Orfalea started the first shop in 1970 in a tiny converted hamburger stand near UC Santa Barbara, called it Kinko’s after his childhood nickname, and eventually grew it into a sprawling global chain. Rather than relying on a franchise model, Paul partnered with co-owners, which often made it hard to keep the business on track. Far-flung owners couldn’t agree about the basics of logo design or the complexities of keeping stores open 24 hours. In 2004, Kinko’s was acquired for $2.4 billion by FedEx, which eventually shed the name and transformed the shops into today’s FedEx Office locations. This episode was produced by Chis Maccini and edited by Neva Grant, with music by Ramtin Arablouei. Our audio engineer was James Willetts. You can follow HIBT on Twitter https://twitter.com/HowIBuiltThis & Instagram https://www.instagram.com/howibuiltthis, and email us at [email protected] mailto:[email protected]. See Privacy Policy at https://art19.com/privacy and California Privacy Notice at https://art19.com/privacy#do-not-sell-my-info.

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• 0:00Guy Raz?

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• 1:32Guy Raz?

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• 2:16Guy Raz?

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• 3:00Guy Raz?

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• 3:45Guy Raz?

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• 4:29Guy Raz?

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• 5:14Guy Raz?

  from actress Audra McDonald. It's about fear. Audra is one of the greatest living stage actors. She's won six Tony Awards, six. And she told me that every new role she takes still scares her. And she explained why that fear is essential to her work. To hear my conversation with Audra, listen to my other podcast, The Great Creators. Just search for The Great Creators with Guy Raz wherever you listen to podcasts or go to thegreatcreators.com. And now, on to today's show.

• 5:54Speaker 01

  I'll tell you something that bothers me is when a business person says, "I love my business." That's absolute bullshit. You love your family. You can enjoy your business, but once that becomes a love affair, you lose your objectivity. "I never loved my business. I could enjoy it, but man, your business is an instrument to make you happy, and you own it. It doesn't own you."

• 6:25Guy Raz?

  Welcome to How I Built This, a show about innovators, entrepreneurs, idealists, and the stories behind the movements they built. I'm Guy Raz, and on the show today, how Paul Orfalea rented a Xerox machine for $1,100 a month and grew a single store into a global photocopy shop with an instantly recognizable name: Kinko's.

• 6:56Guy Raz?

  Kinko's played a pretty important role in my professional life. In high school, I used to race to the Kinko's in Northridge, California, sometimes at 1:00 or 2:00 in the morning to print out projects that were due just a few hours later in my English class. In college, once again, I'd race to a Kinko's in the middle of the night, get a portfolio of my articles spiral-bound, and sent off to newspapers just in time to meet their application deadlines for internships. When I applied to be a radio reporter in 2000, just minutes before the deadline, I raced to a Kinko's in Washington, DC at 4:00 in the morning to get my resume and articles all printed out. Kinko's enabled

• 7:38Guy Raz?

  me and probably millions of other people to put off projects, applications, and presentations to the very last minute and still somehow make them look pretty good. For more than three decades, Kinko's copy shops were scattered all over the world. And the business started out with a single 100-square-foot shop and a large Xerox machine across the street from the University of California in Santa Barbara. This was in the early 1970s, and the idea came to Paul Orfalea because he saw a long line, a long line of people waiting to get photocopies at a shop in Los Angeles. And

• 8:18Guy Raz?

  like many entrepreneurs before and after him, Paul thought to himself, if there's a long line, that must be a business worth looking into. The beauty of Kinko's, and we'll get to why Paul called it Kinko's later in the show, but the beauty of it was that it required very little startup capital. And Paul realized that he could capture a large share of the market by opening his shops near colleges and universities. And four cents a copy added up. Eventually, it turned Kinko's into a business that was acquired by FedEx for $2.4 billion. Paul grew up in Los Angeles in the 1950s. He comes

• 9:00Guy Raz?

  from a family of Lebanese-American entrepreneurs. And as a kid, he knew he wanted to start a business as well. But at school, he really struggled.

• 9:09Speaker 01

  Typical report card was two Cs, three Ds, and an F. And in sixth grade, they never let me graduate on stage. They just put me on to junior high. In junior high, they wrote a letter saying, you know, he's not really a junior high school graduate. He hasn't got enough credits or whatever. And the vice principal said to my mother, you know, Mrs. Orfalea, maybe one day, if Paul can really apply himself, he can learn to lay carpet. And my mother came home and said, I think he can do more than that. So I'm not a grade school or junior high school graduate, but I have a high school woodshop degree, and I was able to graduate.

• 9:46Guy Raz?

  Yeah. Going back to your family, your dad had a textile, he manufactured women's clothing. I think you had some uncles who had liquor stores and bars, is that right?

• 9:58Speaker 01

  Yes, yes.

• 9:59Guy Raz?

  And so, so basically, the idea, it sounds like from an early age, the model that you saw around you was people starting their own businesses, not going to work for some other company, is that, is that right?

• 10:12Speaker 01

  Absolutely. My mother would say, honey, you know, you work for other people, you're only as good as yesterday's paycheck. There was no encouragement to work for other people.

• 10:22Guy Raz?

  It was always about, start your own thing?

• 10:25Speaker 01

  Have your own business.

• 10:26Guy Raz?

  Was that, when, do you remember, I mean, because I know the, eventually, you started junior college, and then eventually you got in, you transferred to USC, was that in your mind, from the moment you started college, that I'm going to figure out a business to start, or, or not quite yet?

• 10:42Speaker 01

  No, I knew I'd have my own business.

• 10:44Guy Raz?

  You knew.

• 10:45Speaker 01

  I think, in raising children, you have one of two choices. They better be good at school, get an accountant, lawyer, whatever, do a profession, or they better be good with money. And my parents encouraged me with money skills, saving, what to do with your money, and I think, when raising children, you better have a child with one of those two skills, money skills or school skills.

• 11:10Guy Raz?

  So, how did you, from, from what I understand, like, by the time you got to college, you had saved a little bit of money, right? Like, but how did you, how did you save money? How did you make money by the time you got to college?

• 11:20Speaker 01

  I had a vegetable stand. And then, back in those days, the farmers would send all their produce to a central market, and the big markets would go from, say, 3:00 in the morning to 5:00 and 6:00 in the morning to buy all their stuff. I would buy on the late market, the stuff that was left over, the peaches, the cantaloupes, pineapples, I would buy that, that's all at my vegetable stand.

• 11:46Guy Raz?

  And where was your vegetable stand?

• 11:48Speaker 01

  I had a vacant lot in La Cuenca, it was a great location. It was, there, for an example, there'd be, you know how a freeway goes? And then there's a vacant lot. And then I would have to stand right there. So I had great visibility.

• 12:04Guy Raz?

  Right. All right, so you are, I mean, you're sort of working your way through USC. How was college for you when you got to USC? Was it, I mean, I know that you were, you struggled in certain subjects in high school, but I guess you found it easier to work with numbers.

• 12:20Speaker 01

  Yeah, I absolutely adored my finance classes. Marketing I enjoyed, organizational behavior. I didn't have to take notes. I was just absorbing everything.

• 12:30Guy Raz?

  Yeah.

• 12:31Speaker 01

  Now, for an example, a professor would say, "Subchapter S Corporation." Everybody else is frantically taking notes. I understood, I got the concept. It made so much sense. I didn't have to take notes on those kind of things. And I calculated at SC, I had so many Bs. You had to have an exact C average to graduate. My last 16 units were all Ds because that's all I needed to graduate.

• 12:53Guy Raz?

  Ds?

• 12:54Speaker 01

  Yeah, I didn't see any reason. My diploma looks almost the same as everybody else.

• 13:00Guy Raz?

  So as long as you get the diploma, it didn't matter what the grades were because the diploma looks the same?

• 13:04Speaker 01

  Ds get degrees. Well, I will tell you, I learned. I learned in school.

• 13:08Guy Raz?

  Yeah.

• 13:09Speaker 01

  And I really did pay attention and I enjoyed college. I never cut class, but I really did listen and I learned.

• 13:16Guy Raz?

  Yeah. All right, so you graduate, you get your degree. But I guess while you are there, you notice something about copy machines. This is like 1969, 1970. And Xerox machines, right, had been already been around for what, 15, 20 years by that point? But people were making photocopies. Photocopies kind of became more and more common, I guess, while you were at college.

• 13:44Speaker 01

  Oh, yeah. This place called Magic Machine, it was right by SC. They did Xerox copies for three cents a copy. And there were lines, unbelievably long lines.

• 13:54Guy Raz?

  Lines to photocopy books, right? Because people needed to read the chapters or whatever it was.

• 14:00Speaker 01

  Oh, everything, resumes, whatever. You could just sit there. People want to communicate and it's a great way for people to communicate their ideas.

• 14:09Guy Raz?

  And this is in like 1969 and photocopy machines were like these giant things and it took like a photograph, like it was like there was like a flash of light for every copy, right?

• 14:22Speaker 01

  Yes.

• 14:22Guy Raz?

  At the time?

• 14:23Speaker 01

  Yes.

• 14:23Guy Raz?

  And then it would come out and it was not an amazing facsimile of what you were copying, but it was pretty good. I mean, it probably was revolutionary in 19, even 1969, 1970, people probably thought these were amazing machines.

• 14:38Speaker 01

  They were. They were. And you could just see so many applications for it. I could just see it mushrooming.

• 14:45Guy Raz?

  And what did you think when you saw that? I mean, that immediately triggered an idea in your mind to open up your own copy machine shop?

• 14:53Speaker 01

  Yes. If people are in line, that's a big sign of success. And I was in the vegetable business. Overnight, my inventory rotted, my cucumbers, my corn. And I looked at the Xerox machine and I thought, man, that, that paper does not go obsolete. That inventory stays there for months and months at a time. And I, I thought, I don't want to be in a business where I have to fight my inventory.

• 15:23Guy Raz?

  And what does a long line mean to you when you see a long line?

• 15:26Speaker 01

  Money.

• 15:27Guy Raz?

  Money. So you, you decide, all right, I'm going to open up a shop, a photocopy shop. First of all, we didn't open it in LA. You opened it in Santa Barbara, which is an hour and a half north of LA. Tell me why you picked Santa Barbara.

• 15:45Speaker 01

  I had a girlfriend up here in Santa Barbara and I was up there and it just so happened that they didn't have a copy shop. And I liked the town, so I figured, well, if they're copying at USC, why wouldn't they copy in Santa Barbara? Now, I didn't have to do an elaborate business plan. It's they're doing it here, they'll do it there. I mitigated my risk by the fact that students are similar in both campuses.

• 16:09Guy Raz?

  So, all right, I'm assuming that at that time, this is 1970, most students, if they photocopied anything, went to the school library to do it in the school library's machine, right?

• 16:20Speaker 01

  Yes. Anybody could get these Xerox machines. In fact, the campus had free labor, they got better contracts on their Xerox machine. So I'm competing not on a level plane, but I'm competing in an unlevel plane with the government. And pure competition, price is determinant why people buy. So I had all these things against me. I had to outfox the college campus in getting that business started.

• 16:47Guy Raz?

  How much was, do you remember how much the college was charging at the library for a copy?

• 16:52Speaker 01

  Five cents.

• 16:53Guy Raz?

  Five cents. So you had to beat that or make it a better experience in order to make sure your business was going to work?

• 17:00Speaker 01

  Well, I beat them because as my volume went up, my marginal cost went down that I couldn't make a profit at three cents a copy.

• 17:09Guy Raz?

  All right. So you decide to open up a location, a copy shop. You need to buy a copy machine. I have to imagine in 1970, that was not a small purchase. It was probably going to be really expensive. You needed to sign a lease on a space. So first of all, how did you get the money to do all this?

• 17:30Speaker 01

  Well, I borrowed $5,000 from Bank of America with my dad's signature.

• 17:35Guy Raz?

  Wow. So the bank was willing to give a 22-year-old kid with no experience a $5,000 loan at that time?

• 17:43Speaker 01

  With my dad's signature.

• 17:44Guy Raz?

  Yeah. Co-sign, yeah.

• 17:46Speaker 01

  Yeah.

• 17:47Guy Raz?

  And the $5,000 was enough to buy what?

• 17:49Speaker 01

  Well, Xerox in those days rented you the machine.

• 17:53Guy Raz?

  Oh, you didn't buy it?

• 17:54Speaker 01

  Didn't buy it. And they were, I'll tell you what really built that business. Xerox was so screwed up in their invoicing, it gave me an enormous amount of float. I wouldn't get a bill from a Xerox machine for, say, 60 days, 90 days after it was installed.

• 18:09Guy Raz?

  Wow.

• 18:10Speaker 01

  And I didn't have to put up any money to get it.

• 18:12Guy Raz?

  So you didn't have to put any money to get the machine. So you got the machine and then they would bill you a fee to basically, you know, rent it and then to maintain it and then for the ink and toner and all that stuff?

• 18:24Speaker 01

  Yep. I had to buy the toner and paper.

• 18:27Guy Raz?

  Do you remember how much it cost to rent the machine at the time?

• 18:31Speaker 01

  It was $1,100 a month and the variable cost after that was one half a cent. So for an example, if I did 100,000 copies, my cost would be 1,100 plus a half a cent or $500 for 100,000 copies. And I could sell it for four cents, that's $4,000. Plus I charged extra for colored paper and legal size. So my average sale was about four and a half cents.

• 18:55Guy Raz?

  Okay. $1,100 a month, wow, 1970, that's a lot of money to rent a copy machine at that time. It was expensive.

• 19:04Speaker 01

  But I could do 200,000 copies a month. And so that'd be 9,000 in revenue. And my cost would be 2,000 a month, say.

• 19:13Guy Raz?

  So you knew, just doing the math, that you could make money off this immediately, that this could be profitable. So you, so you, you get this machine and Xerox doesn't even, you don't even need to put any money down. You just get the machine, you bring it in and you find a, and how big was the space that you found?

• 19:30Speaker 01

  It was the size of a lunchroom. 100 square feet.

• 19:34Guy Raz?

  100 square feet. So it was, that's enough room for a counter. 100 square feet's tiny, wow. A counter and the machine and maybe four or five people in there. And that's it.

• 19:45Speaker 01

  Not even that, one worker, two workers.

• 19:48Guy Raz?

  But, I mean, customers, right? Four or five customers.

• 19:50Speaker 01

  Customers came, I had a, they came outside. They never came inside the store. There was a window to the street.

• 19:56Guy Raz?

  There was a window. They would give you the document and you would copy it for them.

• 20:01Speaker 01

  Yes.

• 20:01Guy Raz?

  And it was three or four cents a copy?

• 20:03Speaker 01

  Four cents a copy.

• 20:05Guy Raz?

  And, and what did you call that first shop?

• 20:07Speaker 01

  Kinko's. My nickname was Kinko because of my kinky hair.

• 20:11Guy Raz?

  You had kinky hair?

• 20:12Speaker 01

  Uh huh. Kinky red hair. And it's a great name for a business. Look at, you want strong consonants. Google, Xerox, Kodak.

• 20:23Guy Raz?

  Coca-Cola.

• 20:24Speaker 01

  Coca-Cola. So I wanted a business with a strong consonant. Once you heard the name Kinko's, you'd never forget it.

• 20:31Guy Raz?

  No. And, and I mean, given that you were seeing every document pretty much handed to you that was being copied, you could, you knew it was being copied. What did students copy? Was it like other students' notes, for example? Was it pages from books? What, what kinds of things were they bringing into photocopy?

• 20:48Speaker 01

  Interesting things. Like they're writing a term paper on Alger Hiss or they wrote a paper on Richard Nixon and the war in Vietnam.

• 20:59Guy Raz?

  Yeah.

• 20:59Speaker 01

  I remember Xeroxing for students how to make Molotov cocktails because the anti-war movement was so strong. You can't believe what they would copy.

• 21:08Guy Raz?

  All right, so you and you were working in this shop, right? It was just you or did you have somebody else work with you?

• 21:13Speaker 01

  No, no, I was still going to USC, finishing my fifth year of college.

• 21:17Guy Raz?

  So you were going back and forth?

• 21:19Speaker 01

  Yeah, I worked Tuesdays and Thursday mornings.

• 21:22Guy Raz?

  And then who worked the other days?

• 21:23Speaker 01

  I had a lady named Holly Delay. She was great and she ran it the other time.

• 21:27Guy Raz?

  And tell me, what, what did, I mean, how did the store do? I mean, was it, you, you mentioned having seen lines outside this copy shop at, near USC. Were there lines outside Kinko's or was it just, was it busy or was it erratic? What do you remember?

• 21:45Speaker 01

  Well, there was enough that I was able to, by then I was in my fifth year of school. I paid my tuition on my own and I supported myself that year. There was enough customers to support myself.

• 21:58Guy Raz?

  So how soon after you opened that shop, was it profitable? Was it pretty much from day one?

• 22:03Speaker 01

  You understand, if Xerox never billed you, I buy stationery, you know, notebooks and pens? And the first day of school, I put my notebooks and pens on the sidewalk. I sold $2,000 a day worth of notebooks and pens the first day of school. Everybody needs a notebook and pen. I did film processing, you know, like a photo mat, they had cartridges.

• 22:25Guy Raz?

  Yeah. Oh, you did that too?

• 22:26Speaker 01

  All three. Well, they're synergistic products. I actually cash flowed the very first month. I had more money in the bank account at the end of the month than I started with.

• 22:38Guy Raz?

  And, and so you had this shop and, and the shop was doing pretty well. And, and Paul, what was your, I mean, was, was your vision for it? That it would, that, that would be your business? You would have this copy shop and, you know, make a pretty decent living and that would be your life?

• 22:56Speaker 01

  No.

• 22:57Guy Raz?

  You, you had a bigger plan?

• 22:58Speaker 01

  I think when you're four years old and you say, what's it going to be like when you're an adult? You just kind of go through it. I followed my mother's advice. She said, you know, honey, in your twenties, try everything. In your thirties, figure out what you do best. Forties, make a bunch of money from what you do best. In your fifties, try not to do too much. And I did follow her advice. I remember sitting there thinking, if I can't figure out how to get out of this job, of running this store, the students that are coming to me now are going to say to their children, go see Paul, he did my copying at school.

• 23:34Guy Raz?

  Yeah.

• 23:35Speaker 01

  And I kept thinking, I do not want that for my future, just to sit in this copy shop.

• 23:42Guy Raz?

  When we come back in just a moment, Paul starts to grow Kinko's beyond that first location, and how he learns that keeping your store open all night will bring in more customers during the day. Stay with us. I'm Guy Raz, and you're listening to How I Built This.

• 24:05Guy Raz?

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• 26:17Guy Raz?

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• 27:45Guy Raz?

  Hey, welcome back to How I Built This. I'm Guy Raz. So it's the early 1970s and Paul Orfola is starting to get restless. His first Kinko's in the Santa Barbara area is a big success, but he's not satisfied with having just one store.

• 28:01Speaker 01

  And I kept looking and I'd say, well, there's two Savon drugstores. There's two Chevron gas stations. Somebody figured out how to go from one to two. And after I was in business three months, I hired a manager. So I was totally free to start conceptualizing how to do other things.

• 28:22Guy Raz?

  Yeah.

• 28:23Speaker 01

  So then I did a store in Irvine, California. It was a garbage room of a restaurant. It was about 80 square feet.

• 28:29Guy Raz?

  This was in, this is like within a year, I think, or you opened your second location.

• 28:33Speaker 01

  Yeah, about a year.

• 28:34Guy Raz?

  Yep, okay.

• 28:36Speaker 01

  Then we went to Cal State Fullerton. Then I went to Cal Poly San Luis Obispo. And I gradually just hit all the college campuses.

• 28:43Guy Raz?

  All right, so tell me, how did you, going from one to two, right? It requires more money, more cash. Did you have the cash, simply through cash flow, to open the second business? Or did you have to take another loan out?

• 28:57Speaker 01

  Every summer, you don't realize when you're working around college campuses, students aren't there very often. It was summer vacation. So every summer I was broke and I had to arrange lines of credit.

• 29:07Guy Raz?

  Yeah.

• 29:07Speaker 01

  But you have to also remember, Xerox was so screwed up in their billing that I'd never get an invoice. So I could open a store, from the day one, I would be cash flowing. I got to bank two weeks for the payroll. I got to bank my paper bill for 30 days. From day one, I would actually cash flow in a new location.

• 29:26Guy Raz?

  Wow, all right. So from what I understand, Paul, after you opened that second location, which was in Irvine, just south of LA, I think you ran into some serious problems. I think because you had decided to branch out into like offset printing, like commercial printing, sort of like making posters and menus and stuff like that?

• 29:47Speaker 01

  Yes. What happened was... I bought, you know, offset printing equipment and cameras. And I figured, and I, I bought a blueprinting machine. And that business, I didn't know what the hell I was doing. I didn't know how to run the printing presses. The printing press would break. I'd call the printing press repair person. He would say, no, it's not the printing press. It's the camera. I'd call the camera guy. He would say, it's not the camera. It's the ammonia from the blueprinting machine. It's screwing up the plates for the printing press. This business, I didn't know what the hell I was doing. I have no mechanical ability whatsoever. And it was bleeding me dry.

• 30:29Guy Raz?

  Yeah.

• 30:29Speaker 01

  So I was fortunate enough around 1973 to sell the print shop and focus on the copy shops.

• 30:36Guy Raz?

  So you, so it sounds like that, that made you realize you really needed to focus on the core product offering or service, which was photocopies.

• 30:46Speaker 01

  Yes. It's sort of like when you go sailing and you notice you don't have any wind, but the guy over there has all the wind. But all my competitors were doing printing and incidentally they did copying. So I wanted to join their strategy, which was really wrong. I should have stayed with copying and not done the printing. And so I think sometimes we spend our time on the hardest thing, which was the print shop, where the easy money, the low hanging fruit was in the copy shops.

• 31:17Guy Raz?

  But a good lesson to learn early in your career, right?

• 31:21Speaker 01

  Yes.

• 31:22Guy Raz?

  And, and as you really started to expand the business on college campuses, I guess one of the things you started to do was, was work with professors to essentially to photocopy chapters from textbooks. And then you would sell that instead of making the students buy the whole book.

• 31:42Speaker 01

  Yeah. I liked to wander. So I was wandering in the reserve book room at the university. And the reserve book room in those days, the professor would say, I'm going to give you an exam. I'd like you to read this. It's too expensive. I'll put it on reserve for you. So when do you think the students went to the reserve book room? The night before the test.

• 32:04Guy Raz?

  Right.

• 32:04Speaker 01

  So I put out a flyer saying, from now on, professor, leave things on file with Kinko's as well as the reserve book room. Well, these professors went crazy for the program. I'll give you an example to jump forward. Say at Ohio State, we were doing 6% of the textbook sales by photocopying. These professors loved the program. They could teach with original material, et cetera. That program really built our business on the college campuses.

• 32:32Guy Raz?

  So, let's talk about expanding the stores. You sort of, you get the second location and then the third location. And those you own and you could kind of manage and oversee the employees. But at a certain point, you really started to expand much faster. And I want to, I want to talk to you a little bit about this model because you did not franchise Kinko's locations. I mean, certainly it first started in LA, the LA area, San Fernando Valley, and then you went into the Pacific Northwest. But it wasn't a franchise model. It was a different kind of model. Explain how you got people to manage and co-own the shops but not be franchisees.

• 33:18Speaker 01

  Well, a lesson I had learned with employees is I had gone to the Irvine store at 11:30 in the afternoon and it just wasn't open. You can't rely on minimum wage people to have motivation. And so I always figured if I take in a partner, the fact that they have equity in that individual location would make a big difference in the outcome, which is true. So, if I had a good store, say in downtown LA, I took my cousin Denny in as a partner and he was there, he did a great job and ran the store. So I started with partners with equity in those individual locations.

• 33:55Guy Raz?

  You started with equity because you figured if they were just employees of mine, they don't have any stake in the success of this shop.

• 34:04Speaker 01

  Absolutely. And in the company-owned stores, we also had profit sharing. I believed in profit sharing. I'm going to digress or change a little bit. I own a bowling alley up here. And so I was insisting in the, as the owner, I want profit sharing in that bowling alley. So I just went in there and I announced profit sharing. That next month, our sales went up 7%. Profit sharing does pay off. So I had profit sharing in every one of our locations.

• 34:34Guy Raz?

  Okay, so you, so this model that you, that you created was not a franchise model. It was a model where basically you would find somebody who wanted to operate the store, the Kinko's location in another city and they would own and also finance it and you would have a stake in it? How did that work?

• 34:55Speaker 01

  I, let's see, I started with my partner Brad Kraus up in Northern California. He put up $2,500. I put up $2,500 and would start a store. He was in charge of the store. And my responsibility was the bookkeeping in the back office, reconciling the bank statement, doing the general ledger. And so that's how I expanded. I'd find people I liked and how I could determine how I liked them is if they had acquired the ability to save some money. And so if they could write a check for $2,500, I had a feeling they were good business people.

• 35:32Guy Raz?

  But why didn't you just do a franchise model, which would have required almost no cash on your part?

• 35:38Speaker 01

  Well, I didn't like the model. Franchisees and franchisors are two people flipping each other off all the time. In other words, if I, if I told a franchisee to do something, they would say, well, he's not, his motivation isn't cure, he just wants more 6% from the top. I like the idea of sharing in the bottom line with the people.

• 35:58Guy Raz?

  Paul, between 1970, when you opened that first shop in Isla Vista, and 1980, in that 10-year period, you expanded to 80 stores across the United States, Kinko's stores. So each one of those stores, I know that some of them were fully outright owned by you, but some of them were owned by these partners. How did you find them? How did you identify? I mean, this is, you know, today, you can go online and find, there's hundreds of franchise opportunities. They're advertising everywhere, you just go on the internet. How did people find you? Or how did you find people to expand the business across the US?

• 36:36Speaker 01

  Well, the people working in the stores knew how much money I was taking in.

• 36:40Guy Raz?

  Yeah.

• 36:41Speaker 01

  And so they would approach me about going in business. Like Jim Warren, a good example. He was a great guy, one of my very first partners. He would take a Volkswagen van and drive around the country signing leases. Finally, Jimmy decided to take the South, the Georgia, Alabama, South Carolina area. So we became partners.

• 37:04Guy Raz?

  And tell me, when somebody came to you, Paul, I mean, this sounds, and I'm not criticizing you, I'm just, I'm fascinated by this. It sounds really casual and almost haphazard, like it was these informal agreements in which you entrusted the brand, the name Kinko's, to somebody, somewhere in America, to run it, and you kept a small piece of it, but there was no corporate structure. Is that right? Is that, I mean, it just kind of sounds a little, kind of fly-by-night.

• 37:39Speaker 01

  You're right, it was fly-by-night. It was haphazard.

• 37:43Guy Raz?

  But how did you control the brand? When you were, you know, it was just 80 stores by 1980, how did you control the brand?

• 37:54Speaker 01

  I didn't really do a good job of that. And I didn't realize I had a brand. But I'll tell you, the key to a field-based organization with partnerships and everything...

• 38:06Speaker 01

  Is the bank statement, the fact that I was reconciling the bank statement under my auspices. I was in charge of the payroll for the locations. I was in charge of, ultimately, we became in charge of all their accounts receivable. You only do three things in business, and it's really simple. Motivate your workers, understand your customers, and balance your checkbook. The best definition of management is management is to remove obstacles. And I wanted every obstacle from my partners and those store managers so they could be loving the customers. So I took, I tried to take every impediment away from the easy flow of that relationship.

• 38:47Guy Raz?

  So, so basically, these were investor operators, right? Essentially, you'd find people who were willing to put up half the cash or more. You would get, typically, what percentage ownership would you get of each Kinko's location?

• 39:00Speaker 01

  I put up generally 60% of the money. They would put up 40% of the money. I could easily go to the corporation, say, in Virginia. And if I didn't like the partner, I'd have a special shareholders meeting and fire the manager. So I did have control. And you have to remember, just like myself, I'm in line seeing how much money was being made. I have, all my workers know how much money I'm taking in. All my customers see the customers in line. And it's easy to get a copy machine. What baffled me is how, why I didn't have more competition.

• 39:34Guy Raz?

  Because it was like, it was like printing money.

• 39:37Speaker 01

  Yeah.

• 39:37Guy Raz?

  I mean, you knew that the cost of renting the machine was X dollars. And if you charged four cents a copy, you knew that within a couple of days, you could cover the cost of renting the machine. And then the rest of the month, it was just gravy.

• 39:51Speaker 01

  Yes.

• 39:52Guy Raz?

  So essentially, you, you were, as you expanded through the 70s, you were doing all of the accounting for every single one of these locations and doing payroll?

• 40:06Guy Raz?

  I can't imagine you were doing this all yourself, Paul.

• 40:08Speaker 01

  No, no, no. I gotta be honest. There's not too many things I really did for myself. My motto has always been, anybody else can do it better. And in my case, they can. I supervised every job in that business I had at one time, I knew how to get out of. Most people will brag about how hard they work, this, that, and the other. What I think hard work is what keeps you up all night long when you're worrying. That's hard work.

• 40:32Guy Raz?

  You were good at finding other people who could do the jobs. You were good at identifying talent and then it would free you up to do other things or maybe less work.

• 40:42Speaker 01

  Yes. And in my entire career, if I went to my office four straight days, and I'm talking, when I go to an office, I'd have a nice breakfast, I'd be in there, and I'd leave at four o'clock in the afternoon. If I went four straight days, by the fourth day, I'm nervous. My hands are shaking. I'm nervous. I don't have the temperament to be in an office and do all that or take interruptions.

• 41:07Guy Raz?

  Yeah.

• 41:07Speaker 01

  A funny thing happened along the way. I had seven stores and a manager called me up. And he said, you know, Paul, I got a bounced check in the mail. What do I do? And I thought, what do you mean? What do you do? You go after the guy who wrote you the check. And I thought, now, who's stupid, me or him? I shouldn't be available for those kind of phone calls. So I became inaccessible. And there better be a damn good reason for somebody to call me. And I noticed that the phone, I couldn't get anything accomplished by being so available for phone calls.

• 41:38Guy Raz?

  You did not have an open door policy, which some people say, my door is always open and that is a badge of honor.

• 41:43Speaker 01

  No. There better be a reason for you to come in and interrupt me.

• 41:46Guy Raz?

  Yeah. From what I understand, from what I've read about you, there were some challenges with partners. I mean, of course, there are going to be challenges with partners who are running the stores. They have a vision for what they want their location to be. What was, I mean, tell me about some of these challenges that you had.

• 42:08Speaker 01

  In 1980, I had a business that anybody could come and compete with me on. Any of my workers, any of my customers, et cetera. I had to motivate, say, the person at Fort Collins, Colorado, to want to go to work every day and do a good job. And everybody understands the meaning of the work. The meaning of the work is there is, say, a lost little girl in Spokane, Washington. The family went to the police office first, and they came to us second to do the posters. Those are powerful connections that you're contributing to. You're helping somebody get a job, somebody communicate an idea. I saw that relationship was so perfect.

• 42:53Speaker 01

  All I had to do is get the hell out of the way of that relationship. Was it easy to motivate people if you realized it was a self motivated business? They enjoyed and they got fulfillment from their customers. When I noticed that, it was easy for me to get back away from that business. Secondly, I had to keep our people loyal. And I had a real problem, I recognized loyalty was a real problem for me.

• 43:21Guy Raz?

  Why was loyalty a problem?

• 43:24Speaker 01

  Because it was too easy to go across the street and compete with me. It was just too easy.

• 43:28Guy Raz?

  You know, in other words, it didn't make sense for people to partner with you when they could just get their own Xerox machine and open their own shop.

• 43:35Speaker 01

  Easily, yes.

• 43:36Guy Raz?

  And was that happening?

• 43:38Speaker 01

  Yes, all the time. I had a guy in Lincoln, Nebraska. He went down to Florida, started opening his own stores. I had a woman in Virginia that went down to Florida once again and opened their own shops.

• 43:48Guy Raz?

  And this was at a point where Kinko's, you had 80 locations, but it still wasn't the ubiquitous brand it would eventually become.

• 43:55Speaker 01

  No, it wasn't.

• 43:57Guy Raz?

  So it was vulnerable to competition?

• 43:59Speaker 01

  Yeah, that's exactly the problem I had.

• 44:01Guy Raz?

  Yeah.

• 44:02Speaker 01

  The reason I didn't choose franchisee is if they viewed me as a parasite from the top, they would easily go across the street and do it.

• 44:11Guy Raz?

  Right.

• 44:12Speaker 01

  But if I shared in the profits and they got a good salary, they had a car, we had a pension plan for the partners.

• 44:19Guy Raz?

  Basically, as long as you kept them happy, you could keep them loyal.

• 44:24Speaker 01

  Yeah, and remove the obstacles. And then as we enlarged, as we got the trademark bigger and bigger, they understood the value of the trademark. But in this evolution, the company color blue.

• 44:38Speaker 01

  Making that decision was the first move we had towards centralization.

• 44:44Guy Raz?

  Blue, like walls inside, like painted blue?

• 44:47Speaker 01

  Yeah, blue, the logo in blue.

• 44:50Guy Raz?

  Yeah.

• 44:51Speaker 01

  At that point, we did go towards standardization. And for them to give up the independent power, say in Texas A&M for being green and whatever color they were, to go to company, put color blue, I had a real battle with the feel to get the company color blue. But some of them wouldn't do what we wanted them to do. Let's say, we said, get his, I'd say, you know, this binding machine really works. I had a guy in Colorado that if I said to get these machines, he would never buy the machine. He was just so reluctant to do anything new. Where the guy Brad in Northern California, I tell him to buy a machine, he'd buy 20 of them. So I had to manage them differently. One, I'd have to pull back, the other one I'd have to push.

• 45:35Speaker 01

  And in your arsenal of leadership, you have the velvet glove and the steel fist. And I had to use the steel fist sometimes. Maybe I did it too much.

• 45:44Guy Raz?

  Well, I mean, but if you use a steel fist, wouldn't you risk that person just saying, screw this guy, Paul, I'm gonna go start my own competitive shop?

• 45:53Speaker 01

  Yeah, I did, I did. But at that point, Kinko's was getting a cachet and there was some value to the trademark.

• 45:59Guy Raz?

  Yeah. When did that start? I mean, 1980, you got 80 stores, so you're, you know, but still, like, there are large parts of America that never heard of Kinko's. So at what point did you start to really, you know, what was the shift? Because I guess, I remember Kinko's when I was in high school, and this is in the 90s, I remember Kinko's as the place you'd go to at midnight when you had an assignment to do the next day and you knew Kinko's was gonna be open. It was 24 hours and it was like, oh my God, I could go to Kinko's and just get this like report bound for school the next day.

• 46:41Guy Raz?

  So was that, because it wasn't 24 hours from the beginning, right?

• 46:45Speaker 01

  Yes. A major, major organizational transformation was 24 hours.

• 46:52Guy Raz?

  When did that happen?

• 46:54Speaker 01

  Eighty-one, eighty-two.

• 46:55Guy Raz?

  Okay.

• 46:56Speaker 01

  We had a big battle with the field in this one. And I talked to this guy. He owned these convenience markets called Sheets' Market in Pennsylvania.

• 47:05Guy Raz?

  Sheets?

• 47:06Speaker 01

  Sheets. They were like 7-Elevens.

• 47:08Guy Raz?

  Oh, they're huge. Yeah.

• 47:10Speaker 01

  He said something that they would close their convenience market from midnight to six in the morning because they would only do thirty dollars in business.

• 47:18Guy Raz?

  Yep.

• 47:18Speaker 01

  Yeah, during the daytime, they would do six thousand dollars in business. He said, "For some strange reason, my daytime business dropped fifty percent when we closed from midnight to six in the morning."

• 47:30Guy Raz?

  He said they were twenty-four hours, then they shut from twelve to six. But as a result of that, their daytime business shut, went down.

• 47:38Speaker 01

  Fifty percent. And I go to sleep. Two days later, I wake up like a bat out of hell and I go, "What did he tell me? If you go twenty-four hours a day, your daytime business doubles." Which is absolutely correct.

• 47:50Guy Raz?

  Well, can you explain why?

• 47:52Speaker 01

  Because people can always rely on you.

• 47:55Guy Raz?

  Hmm.

• 47:56Speaker 01

  So, I went back to the organization and I tried to get people to go twenty-four hours. What do you think they said?

• 48:03Guy Raz?

  No way.

• 48:04Speaker 01

  No way.

• 48:04Guy Raz?

  Not going twenty-four hours. You want me to pay somebody for, you know, those hours where I'm closed?

• 48:10Speaker 01

  And they were saying, "I can't work twenty-four hours a day."

• 48:13Guy Raz?

  Yeah, right. Of course not.

• 48:14Speaker 01

  So, I'm pressing. It takes me about a year. I finally get a guy out of Chicago. He tried it and he got up in a meeting and said, "This twenty-four hour thing works." His daytime business doubled. It's just kicked ass.

• 48:28Guy Raz?

  But what, what explains that? I know you said it's reliability, but is that it? It's just people just, it just sends a signal to the brain that this place is reliable?

• 48:36Speaker 01

  They're always there.

• 48:37Guy Raz?

  Wow.

• 48:38Speaker 01

  Let's say somebody came in at eight o'clock at night and they're closing at nine and the person doesn't want to work on a job after nine. That work, I didn't get that job. But by opening twenty-four hours a day, they could rely on it, us doing it all night long for them. And people... Where generally, in my business, our customers are angry subconsciously at themselves for not doing their own work yesterday.

• 49:04Guy Raz?

  Yeah. How many late nights did I have at Kinko's in high school and college? Because you wait till the last minute, and it's midnight, and my mom's mad at me, like, "You should have done this last week, I'm going to ground you." But there's Kinko's, and it's open. And it's depressing because there's no cars, no people out, you're in the Kinko's, but it's open, it's there.

• 49:25Speaker 01

  Absolutely. And our daytime business doubled. It was a very successful endeavor to do.

• 49:31Guy Raz?

  Okay, so the 24-hour Kinko's really kind of changed the game here. And now Kinko's is really, the local owners are starting to see their business growing. But I guess, you know, at the same time, there were still problems with the core business, right? I mean, more competitors, shrinking margins. So there were, there was pressure on the business starting in the mid-1980s.

• 50:00Speaker 01

  Yeah. I'm always fantasizing what my competition will do to me. So we have these office superstores, Office Max's, the Office Depots. And I kept thinking, they are going to get hip and open a copy shop 24 hours a day.

• 50:15Guy Raz?

  Yeah. And this is already in like, sort of the late 80s, but that you start to see those places.

• 50:20Speaker 01

  I'm starting to see them. And I kept thinking, well, they have a strategic advantage because they got the stationery, which I don't. And the laser printer was coming after me. I could see it coming after me at left field.

• 50:31Guy Raz?

  The laser printer? How was that a threat?

• 50:34Speaker 01

  Well, why would you ever go to a, why would you take a piece of paper and take it to a copier when it could just come out the end of the laser printer?

• 50:41Guy Raz?

  Well, but it still was more expensive, and the toner was expensive. In the mid-80s, a laser printer was really expensive.

• 50:47Speaker 01

  But let's say you wanted to put a little bit of red on your document, a little bit of blue.

• 50:51Guy Raz?

  Yeah.

• 50:52Speaker 01

  It would cost you a dollar a copy for our color copies.

• 50:54Guy Raz?

  Right.

• 50:55Speaker 01

  I saw that laser printer is the biggest threat to my business.

• 50:58Guy Raz?

  When we come back in just a moment, yet another threat to Kinko's, a major copyright lawsuit. And Paul explains why you should never fall in love with your own business. Stay with us. I'm Guy Raz, and you're listening to How I Built This.

• 51:29Guy Raz?

  Hey, welcome back to How I Built This. I'm Guy Raz. So it's the late 1980s and Paul has grown Kinko's from a single store near Santa Barbara into a nationwide chain. But he's still uneasy about the future and he's worried about competition from Office Depot and things like the laser printer.

• 51:49Speaker 01

  I kept thinking, why do you need to take a piece of paper to a copier? It can collate for you better, the laser printer, I could put spot color on it. What do they need us for?

• 52:01Guy Raz?

  Tell me a little bit about that insecurity because I'm thinking, wait a minute, this guy's got this business, it's Kinko's, it's the 80s. You expanded from 0 to 80 through the 70s. In the 80s, you go from 80 in 1980 to 480 in 1990. I'm thinking, this guy's a genius. He's figured out a way to expand a business with very little money down, high margins. In the meantime, you're telling me I was incredibly insecure and constantly self-doubting. Tell me about that, about what was going on in your head.

• 52:39Speaker 01

  Well, when I saw my relatives, I had an uncle, he had his own business and lost it. And he basically lost his will to live. So I took it very seriously. And with my background, I didn't have that many accolades. So I never was able to take myself seriously. And I really still, to this day, don't take myself seriously. I mean, here I had a headquarters with 500, 600 people, I had 30,000 workers. And everybody thinks, well, because he's big, I'm sure that that's going to be a safe job. I'm the only one there thinking, I don't think we've got a future. I'm really insecure here.

• 53:18Guy Raz?

  Wow.

• 53:19Speaker 01

  But that's what employees are. Employees like the sense of security of somebody else. I'm the owner. You're an owner of a business. It isn't your job to be cocky and arrogant. You've got to know every little weakness and pitfalls in that business. And I'll tell you something that bothers me. Is when a business person says, I love my business. That's absolute bullshit. You love your family. You can enjoy your business, but once that becomes a love affair, you lose your objectivity. I never loved my business. I could enjoy it, but man, your business is an instrument to make you happy. And you own it, it doesn't own you. And so I had a real detached view of that business.

• 54:01Guy Raz?

  Yeah. I appreciate that.

• 54:03Speaker 01

  Well, everybody should.

• 54:04Guy Raz?

  Well, there are, there are people who are just supremely confident in their abilities. You know, you've run across those kinds of people.

• 54:12Speaker 01

  The arrogant people? Yeah, I realize there are arrogant people. And I believe that there's an arrogance of education. I was always with the normal people. You look at the student, they go to their special little reading group. They go to their special math group. They're always separated from people like me, the woodshod majors. And they always look at me like in school, like, well, they're stupid. They're not like me. They go to their elitist universities or go to their elitist colleges. And there's an arrogance in that, an arrogance in education, that they don't trust the average person.

• 54:47Guy Raz?

  Yeah.

• 54:47Speaker 01

  Well, I was always with the average person and I always felt they were smarter than the executives.

• 54:52Guy Raz?

  But, but that, Paul, that chip on your shoulder is what fueled your success. What you just said right now, that chip on your shoulder, which can, can be an Achilles heel too, but it can be a strength, can be a source of energy. That drove you.

• 55:09Speaker 01

  Yes, it did. It did. Well, it drove me. I liked money and it was a good game.

• 55:16Guy Raz?

  Hmm.

• 55:17Speaker 01

  I used to tell people I worked with, you know, I didn't get married till I was 36 years old. And I'd go to my mother's house and she'd say, you know, honey, when are you going to get married? When are you going to get married? When are you going to have your children? And I'd say, you know, Mom, I'm tired of you asking me when I'm gonna get married. So she said, okay, Paul, I'll never ask you when you're gonna get married. But when I look at you, you'll know what I'm thinking.

• 55:41Guy Raz?

  I love that.

• 55:41Speaker 01

  And I told everybody that story and I'm saying, I'm into it for the money. I'm not a Xeroxing monk. I don't even like to read. This is a money-making enterprise. But we did have people that, uh, I had to convince them. It's about making money here. And my very best stores had the most happy workers, most satisfied customers. They were the most profitable.

• 56:07Guy Raz?

  Yeah. At the time, you also, um, I mean, a lot of stuff's going on in your life. I mean, you got married and I think, you know, within a couple of years of your marriage, you're, you had this horrible tragedy with your first child, who I think died at seven months or something, is your son Ryan?

• 56:29Speaker 01

  Yes.

• 56:31Guy Raz?

  Tell me how, I mean, he had, I guess, a congenital heart defect and as a baby, he passed. Seven months, man, that, I mean, how did you compartmental? How did you run the business and deal with that? Tell me about that time in your life.

• 56:46Speaker 01

  Oh, it was just hard. He was a real special little boy. And, uh, you know, my dad had a good quote. You know, when somebody loses someone they love, he would say, just because other people go through it, doesn't make it easier. It's a miserable time and you're just gonna have to go through your own period of hell.

• 57:07Guy Raz?

  Yeah.

• 57:08Speaker 01

  And the saddest part of losing a loved one is you have to comfort the people that are there to comfort you.

• 57:17Guy Raz?

  Yeah.

• 57:17Speaker 01

  And I have to actually comfort them and say, well, I'm okay, I'm okay. That was the part that hurt the most. And what we did, which was really stupid, is we had a private funeral. And what's good about a funeral is everybody's there at once, sharing the grief. What I had to do is I had to go through it one-on-one with just about every human being I met. And I had to comfort them, which is the best thing about a funeral is you get it all over with all the sadness and you can go on with your relationships. Well, the coolest thing I've ever been called is Dad.

• 57:53Guy Raz?

  Yeah, agree.

• 57:54Speaker 01

  Yeah.

• 57:55Guy Raz?

  You've got two kids, right?

• 57:57Speaker 01

  Yeah, two, Mason and Keenan. And I'm lucky enough to go to the, this weekend to my son's baby shower.

• 58:05Guy Raz?

  Oh, amazing.

• 58:06Speaker 01

  And then the other one's going to get married and he's going to have an engagement party. So I got two in one month.

• 58:12Guy Raz?

  Amazing. All right. So let me go back to the, to the eighties, the late eighties, just for a moment. I mean, you are, you're dealing with, with the laser printer threat. You're dealing with, you know, with more competition. And then in 1989, you get hit with a lawsuit. Some of the, the big textbook publishers wind up suing Kinko's over this program that you had, where you would photocopy parts of textbooks and then college students would buy them, right, instead of buying the book. And the publishers were saying, this is copyright infringement. And I mean, you fought that lawsuit, but ultimately you lost. You had to pay like, like $2 million to settle.

• 58:54Speaker 01

  Yeah. And the Congress tried to codify what you can and can't copy in the 1974 copyright law. And in the law, they said, it's a de minimis portion of the book. So we had all these professors signing that they were in compliance with that. And we got annihilated. But at that time, we were noticing that the commercial locations, the one, you know, in the middle of town, were taking off and more and more technology was coming in our direction. So I almost outgrew that publishing program.

• 59:28Guy Raz?

  In other words, you're saying that, that that lawsuit and what happened as a result of it essentially killed your business with a significant number of college students. But as a result, it kind of forced you to pay attention to the other customers coming in, the non-students?

• 59:45Speaker 01

  Yeah. And repositioning to the commercial locations with good parking.

• 59:49Guy Raz?

  Wow.

• 59:51Guy Raz?

  And meantime, it seems like Kinko's was a self, it was like a self multiplying cellular organism. Like it was just growing and growing. But there were, I mean, you get through this kind of this rocky period in this lawsuit. You shift away from students and I think really in the 90s, Kinko starts to become more of a like a your office away from the office. It was like you could come, you could use a PC, you could log on to AOL here, you could do your graphic design here, like where did that idea come from to shift Kinko's towards like being your sort of office on the road?

• 1:00:30Speaker 01

  It just transformed ourselves into having computer workstations. And we called it your branch office. But what always frustrated me about Kinko's is we were an operating company that sold. And I wanted to transform us to a selling company and operated. You also have to remember at this time, I'm dealing with people that are 45 and 50.

• 1:00:54Guy Raz?

  You're talking about the owners, the co owners?

• 1:00:55Speaker 01

  The owners, executives.

• 1:00:57Guy Raz?

  Yeah.

• 1:00:58Speaker 01

  And what's, there's new technology that's obsoleting what we used to think about the world. They're just coming after us.

• 1:01:04Guy Raz?

  Yeah.

• 1:01:05Speaker 01

  Also, when you're dealing with people that are 45 and 50, they got a foot in and a foot out.

• 1:01:10Guy Raz?

  Yeah.

• 1:01:11Speaker 01

  So I was dealing with that.

• 1:01:13Guy Raz?

  Meantime, you also made a decision around, I think around this time in the, in sort of the mid to late 80s to bring on, let's say more of a professional kind of leader to help you. A guy named John Davis, who was a USC professor. Why did you feel like you needed help or where did you need help?

• 1:01:34Speaker 01

  We had to change the philosophy of the company that John Davis helped create. And as you could tell, with a business with not a lot of formal agreements, various partners, a lot of independent thinking, I had to get buy-in to the central organization. We were talking to people that were very good with things. We needed them to reorient themselves to managing people. We needed well-rounded leaders. And I needed to develop a company philosophy. Our first sentence in the philosophy is, our primary objective is to take care of the customer. But some of our customers are so outlandishly rude, we had to have a mechanism in our values

• 1:02:17Speaker 01

  to fire a customer. So we added in the second paragraph, "The coworkers are the foundation of our success." So a manager in contemplating firing a customer could look at the first sentence and the second sentence and weigh the ambiguity of how to handle that.

• 1:02:35Guy Raz?

  And this was John's charge, to basically create these structures, these doc-

• 1:02:41Speaker 01

  Philosophies.

• 1:02:42Guy Raz?

  Philosophies, yeah.

• 1:02:43Speaker 01

  Yeah.

• 1:02:44Guy Raz?

  All right, so 1996, by that year, you had 851 locations in every single state and four foreign countries, or 20,000 people employed. You owned 100 stores outright, and then you had a stake in pretty much every other one. But you knew already then, you were looking for an out. You were looking for some type of exit.

• 1:03:08Speaker 01

  Yes.

• 1:03:08Guy Raz?

  So you found an investment firm that they would buy 30% stake in Kinko's. They paid $200 million, according to Bloomberg. And they essentially make some changes. I mean, understandably, they're now, you know, in control. They rolled the partnerships into a single corporate entity. So they're looking at Kinko's and they're like, "This is a mess. It's too disorganized." How did you feel about some of that? I mean, were you optimistic about some of those changes? Because it seems like it made sense.

• 1:03:37Speaker 01

  Yes, it made sense and they took control. But I basically took six months off. When I came back.

• 1:03:44Guy Raz?

  Yeah.

• 1:03:46Speaker 01

  I think when you sell your business, they shouldn't keep the founder on.

• 1:03:50Guy Raz?

  No.

• 1:03:50Speaker 01

  It's sort of like cutting the tail off an inch at a time. And everybody who was unhappy came to me and I didn't have any influence or power to do anything about it.

• 1:03:59Guy Raz?

  And they kept you on like as a consultant?

• 1:04:01Speaker 01

  No, I was chairman of the board.

• 1:04:03Guy Raz?

  Okay. Your conflicts with them got to a point where you just, you left or I guess you parted ways. And I guess in the end, you came to an agreement. They bought out the rest of your shares in 2002 and that was it. You were out of the picture.

• 1:04:21Speaker 01

  Yes.

• 1:04:21Guy Raz?

  Done with Kinko's. It was not your business. You had no stake in it anymore.

• 1:04:25Speaker 01

  No.

• 1:04:27Guy Raz?

  About 18 months later, they sell it to FedEx.

• 1:04:31Speaker 01

  Yeah.

• 1:04:32Guy Raz?

  For about $2.5 billion. Were, when you found out about that sale, were you angry? Were you, I mean, because I have to assume that you would have made a little bit more money had you, had they not, right, bought you out in 2002?

• 1:04:49Speaker 01

  I was happy for the company because when I had the business, our customer service was something I was so proud of.

• 1:04:57Guy Raz?

  Yeah.

• 1:04:57Speaker 01

  Our customer service went under their auspices, wasn't as good. And I was really, I was just as happy to get FedEx so they could have their customer service there.

• 1:05:10Guy Raz?

  Paul, I mean, you are now, you know, in your 50s at this point, in the early 2000s, freed of this or divested, right? And wealthy. And what did you, I mean, were you happy? Were you like, ah, I don't have to go to an office anymore, not have to work anymore? Because sometimes I talk to founders and they actually get depressed. They feel like they don't have a sense of purpose anymore, like they're, they don't have anywhere to go and they're not busy. And did you, how did you feel?

• 1:05:38Speaker 01

  Elated.

• 1:05:42Speaker 01

  And liberated.

• 1:05:43Guy Raz?

  Yeah.

• 1:05:44Speaker 01

  I have two, you know, you have two children. One child has to be entertained by others. The other one can entertain themselves. I've always been the kind of person that can entertain myself.

• 1:05:55Guy Raz?

  Yeah.

• 1:05:55Speaker 01

  So I found a new purpose in my life. I teach in school. I teach at Loyola now at USC. I love the philanthropy we're doing. I believe what Andrew Carnegie said is correct. He who dies with wealth, dies in sin. I'm doing a pretty good job of giving all my money away.

• 1:06:13Guy Raz?

  What did you decide to do with your money?

• 1:06:15Speaker 01

  Everything goes to children. What I'm real proud of is orthodonture.

• 1:06:20Guy Raz?

  Huh.

• 1:06:21Speaker 01

  If you're a title, one child, you have a pathway to orthodonture. We fixed over the years, maybe 20, 30,000 orthodontures. I believe that society gets a compounded rate of return from a good smile.

• 1:06:37Guy Raz?

  Yeah.

• 1:06:37Speaker 01

  Self-esteem, better college graduation. I'm convinced of it. If my legacy would be that every child has a happy smile. Every child knows enough about nutrition to eat nutritiously. That would really delight me.

• 1:06:54Guy Raz?

  Paul, when you, when you think about this, you know, your life story, I mean, you know, I appreciate the kind of self-deprecating part of you. I think that's very refreshing and lovely. But you built an incredibly successful business, you know? You were not the best student. You were not the star. But, but then you went on to build this very successful business that had a pretty significant cultural impact. I mean, anybody, you know, over the age of 30, let's say 35 probably, knows Kinko's, used Kinko's. I remember 2008, I rushed to a Kinko's on deadline, applying for a job to be the host of Weekend All Things Considered at NPR when I still worked there.

• 1:07:38Guy Raz?

  And I put together a spiral-bound proposal of what I wanted to do to the show. I mean, I got that job because I made that presentation, you know? And, you know, you did that. You enabled that. And also when you think about your story. What you've done, what you built, where you are now. How much of that do you attribute to the grind, the hard work you put in? How much do you think has to do with just getting lucky?

• 1:08:04Speaker 01

  More luck. Luck has a lot more to do with life than we might think. And it also followed my strong suit, which was, I can't sit still. I'm extremely restless. That went to my strong suit. And it goes to my outlook of life. Dan Fredrickson had a quote for me once that I really liked. "No one goes to work to do a bad job. People go to work to do a good job. It's up to you as an owner to want that." I told you about our customers and our workers' relationship and how fulfilling that was. So I attribute a lot of what I have to luck, to a business that went to my strong suit, and my outlook of life.

• 1:08:47Speaker 01

  I think people are basically honorable and decent and trustworthy. And the world is a wonderful place to live in. And you're not going to make money with a sinister view of humanity.

• 1:09:00Guy Raz?

  That's Paul Orfalea, founder of Kinko's. By the way, you can actually visit that first Kinko's location. There's a plaque outside the building at 6521 Pardell Road in Isla Vista, California. It's no longer a copy shop, and the place has changed hands a lot since the 1970s. At one time, it was a beer and burger joint called McBurley's, and then a bunch of different restaurants: Espresso Roma, The Spot on the Side, 30's Barbecue, The South Coast Deli, and, just recently opened, a new place called Social Eats.

• 1:09:37Guy Raz?

  Hey, thanks so much for listening to the show this week. Please make sure to click the Follow button on your podcast apps. You never miss a new episode of the show, and it's totally free. This episode was produced by Chris Messini with music composed by Ramtin Arablouei. It was edited by Neva Grant with research help from Catherine Seifer. Our audio engineer was James Willetts. Our production staff also includes Alex Chung, Casey Herman, Elaine Coats, Carla Estevez, John Isabella, Liz Metzger, Sam Paulson, J.C. Howard, Kerry Thompson, and Ramel Wood. I'm Guy Raz, and you've been listening to How I Built This.