#330 Les Schwab (Charlie Munger recommended this book)

What I learned from rereading Les Schwab Pride In Performance: Keep It Going! by Les Schwab. ---- Get access to the World’s Most Valuable Notebook for Founders by investing in a subscription to Founders Notes ---- (8:00) I didn't know how to ride a bike. We never had one. All the other young kids delivered newspapers on a bike. He's got no money. He doesn't have a bike. So he ran his routes for two months in order to get enough money to buy his first bike. He’d run nine or 10 miles a day. (8:00) I was too proud to complain. (10:00) For a poor boy, money was much more important than pride. (10:00) Am I Being Too Subtle?: Straight Talk From a Business Rebel by Sam Zell. (Founders #269) (13:00) I was young. I was cocky. But the same cockiness helped me a lot in going through life. (15:00) The very first sentence describing his very first day in business is mind blowing: I had never fixed a flat tire in my life. (15:00) the NEW Poor Charlie's Almanack: The Wit and Wisdom of Charlie Munger (Founders #329) (29:00) Sam Walton: The Inside Story of America's Richest Man by Vance H. Trimble (Founders #150) (35:00) I always knew that if we fixed all the flat tires in town, we'd have all the tire business in town. (40:00) If we become complacent, then brother, it's all over with. (52:00) Grinding It Out: The Making of McDonald's by Ray Kroc (Founders #293) (56:00) If you’re not serving the customer, or supporting the folks who do, we don’t need you. —Sam Walton (1:00:00) The company paid low wages and had a lower overhead. The flaw was they didn’t get —with the low pay— near the quality of employees we had. (1:01:00) Life is hard for the man who thinks he can take a shortcut. (1:06:00) Decision making should always be made at the lowest possible level. (1:08:00) Whatever you do, you must do it with gusto, you must do it in volume. It is a case of repeat, repeat, repeat. (1:08:00) Charlie Munger analyzes why Les Schwab was successful. (1:11:00) Extreme success is likely to be caused by some combination of the following factors: 1 Extreme maximization or minimization of one or two variables. Think Costco. 2 Adding success factors so that a bigger combination drives success, often in nonlinear fashion, as one is reminded by the concept of breakpoint and the concept of critical mass in physics. Often, results are not linear. You get a little bit more mass and you get a lollapalooza result. And, of course, I've been searching for lollapalooza results all my life, so I'm very interested in models that explain their occurrence. 3 An extreme of good performance over many factors. Example, Toyota or Les Schwab. 4 Catching and riding some sort of big wave. Example, Oracle. ---- Get access to the World’s Most Valuable Notebook for Founders by investing in a subscription to Founders Notes ---- “I have listened to every episode released and look forward to every episode that comes out. The only criticism I would have is that after each podcast I usually want to buy the book because I am interested, so my poor wallet suffers.” — Gareth Be like Gareth. Buy a book: All the books featured on Founders Podcast ---- Founders Notes gives you the ability to tap into the collective knowledge of history's greatest entrepreneurs on demand. Use it to supplement the decisions you make in your work. Get access to Founders Notes here. ---- “I have listened to every episode released and look forward to every episode that comes out. The only criticism I would have is that after each podcast I usually want to buy the book because I am interested so my poor wallet suffers. ” — Gareth Be like Gareth. Buy a book: All the books featured on Founders Podcast

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00David Senra?

  Back in 2019, one of the co-founders of my favorite app, the best app I pay for, I literally could not make the podcast without it, is called Readwise. I've been talking about it for years. I've been tweeting about it for years. Every single other interview on other people's podcasts I go on, I talk about this. And I did this way before I knew I was going to partner with them on my own product. So I built this product with Readwise. It's called Founder's Notes. You can see it at foundersnotes.com, and it's founders with an S, just like the podcast. So foundersnotes.com. I got a DM from Tristan in 2019, and he was the one that made me aware of Readwise. It was perfect. And the reason it was perfect is because I have way more highlights and notes on my books than most people do. So I have over 20,000. Over the years, I've added over 20,000 highlights and notes for all the books that I read for

• 0:45David Senra?

  the podcast to the Readwise app. And so, and the reason I do that is because I'm able to search everything that I've ever done. I use this every day. I search it every day. It really is the world's most valuable notebook for founders. So I contacted the founders of Readwise and said, hey, can we do this? Can we actually do this project together? I want to make my own version. I want people to have access to everything that I see. Literally, if you sign up at foundersnotes.com, you are able to search and see every single one of my highlights and notes. It's exactly what I see. And so as an illustration of just one of the ways that I use this, is at the end of this episode, I'm going to include this 20-minute episode I made where somebody asked me, like,

• 1:29David Senra?

  how did history's greatest entrepreneurs think about hiring? And anytime I'm asked a question like that, anytime I'm making a podcast, what I do is I'm constantly searching my Readwise app, which is now available at foundersnotes.com, and just, it gives me a complete list of all the different ways that history's greatest founders have thought about whatever subject I happen to be thinking about or working on or investigating. So at the very end of this episode, you're going to hear me speak for 20 minutes. And it's answering the question, how did history's greatest entrepreneurs think about hiring? And all that information came from me searching my notes and highlights, which is exactly what you can do with Founder's Notes. Keep in mind, this is made for founders already running successful companies.

• 2:13David Senra?

  Those already running successful companies will get the most value out of this because it's a way for you to reference the thoughts and ideas of history's greatest founders. And then you know how to apply them to whatever's going on in your company at this very moment. The other thing I want to tell you, it is currently priced at 50% what it will be. So it's actually going to double in price. And the reason I did this is because I'm adding a bunch of features that I think are incredible. And I have to build up the landing page and everything else. If you sign up now, obviously, as I add features, you don't have to pay any additional. I truly do believe it is the world's most valuable notebook for founders, and the value you get out of it will be incredible. You can get immediate access to over 20,000 of my highlights and notes right now by going to foundersnotes.com.

• 2:55David Senra?

  I wrote this in November and December of 1985. I did write this 100% with my old 40-year-old typewriter. I didn't have a ghostwriter. I wanted it in my own words. I hope to pass on some of my theories of business to our people, and I hope these theories are used in our business for as long as the Les Schwab company continues. Should we fail to follow these policies towards customers and employees, I would prefer that my name be taken off of the business. There could be some interest in this book with people who are interested in business. If so, you're invited to read it. I hope in some way, this book might help you in the business world. If you are not interested in business, this book will bore you. And if I were you, I wouldn't waste my time reading it. That was an excerpt from the book that I'm going to talk to you about today, which is

• 3:39David Senra?

  Les Schwab, Pride and Performance: Keep It Going. It is the autobiography of Les Schwab. I want to tell you why I decided to reread this book. The first time I read this book was four years ago. I was going through all of Charlie Munger's book recommendations back then. And he said something that was fascinating, and he said it at the Berkshire Annual Meeting. And he said, "If you want to read one book that will demonstrate really shrewd compensation systems in a whole chain of small businesses, read the autobiography of Les Schwab, who has a bunch of these tire shops all over the Northwest. And he made a huge fortune in one of the world's really difficult businesses by having shrewd systems. And he can tell you a lot better than we can." And so last week, as I was going through the new Stripe Press edition of the updated and abridged version of Poor Charlie's Almanack, in one of the talks, Charlie Munger actually

• 4:24David Senra?

  analyzes what caused the success of Les Schwab based on his reading of the autobiography. So at the very end, I'm going to give you Charlie's interpretation of the book that you and I are going to go over right now. So let's go ahead and jump into the book. As you could probably tell from that excerpt, that came from the foreword of the book. Les's personality jumps off the page. The whole book is like that. He just speaks very clearly and directly. So he says, "Father was not there. He was drunk again. I was born on October 3rd, 1917. School was just a railroad boxcar with somewhat crooked windows cut out in one side of the boxcar. There were three of us in the eighth grade. We had to take state exams to graduate from the eighth grade. We all failed.

• 5:07David Senra?

  The family farm wouldn't sell as it was the start of the big depression. The bank took the farm. My mother thought it might help my father's drinking problem if we moved back to Oregon. That didn't help. It caused the Schwab family many heartaches. We were taught to work at a very young age. It seemed the normal thing to do." So all these sentences that I'm reading you, they're spread over a few different pages. But I feel these sentences tell entire stories. He's going to get his first job. He's 12 years old. This is a job he's gonna, he's gonna work in the newspaper industry up until he try, up until he buys a tire shop in his 30s. But I want to tell you this background because you'll get an idea of who we're dealing with and the kind of work ethic he had. Look at this sentence right here. "I soon got one of the newspaper routes. Before long, I got all three routes."

• 5:54David Senra?

  My family lived in a small two-room home. There was no running water. They're living in a logging camp. Water was hauled by train from town, and you took your bucket to the tap, filled it, and carried it to your home. There was one community shower. So he's living in poverty on the outskirts of town. His mom decides, hey, both your brother and you. She had a strong desire for both of her sons to attend high school. By this time, they made the decision. He hadn't been in school in two years. And so this is what happens when he goes from the outskirts of town into town. We would come into town early Monday morning and return to the logging camp on Friday after school. We missed much of the school activities and pretty much felt like outsiders. One of my biggest fears

• 6:36David Senra?

  was that my father would come to school on Friday drunk. It would haunt me all week as I was proud. Poor, but I had a lot of pride. Many a Friday evening, we would have to sit in front of some old moonshine joint until 9:00 or 10:00 p.m. until we could get our drunken ride home to the log camp. So think about what's happening there. The rest of the family is back in the logging camp. During the week, they're staying in other people's homes so they could go to school. They have to get a ride back to the logging camp from their dad. And the dad thinks this is a good idea to get smashed at a moonshine joint, then drive drunk with his two sons in the car back to the logging camp.

• 7:19David Senra?

  And here's another example of two sentences that tell an entire story. This was killing my mother. It was sad times for the Schwab family. Eventually, Les stays in town on the weekends, and he goes back to the one profession that he knows. He goes back to delivering newspapers. And again, this gives you the idea. I was texting a friend about this book yesterday. And what I was saying is, the book is 40 years old. This guy, I don't think he ever finished high school. He had a middle school, an eighth-grade education, yet he's a business genius. He winds up building a multi-billion-dollar company selling tires. And there's no way you could look at his childhood and predict that outcome, but you could look at his childhood and the way he approached everything is like, this guy's going to succeed at whatever he does. Maybe not to the degree of making a multi-billion-dollar company, but he was not going to end up a loser like his dad.

• 8:04David Senra?

  So he says, "I immediately started to deliver newspapers. I remember my, so well, my first route. I didn't know how to ride a bike. We never had one, so all the other young kids delivering newspapers on a bike, right? He's got no money, doesn't know how to ride one. I ran my route for two months in order to get enough money to buy my first used bike. I'd run nine or 10 miles a day. I was too proud to complain." That is the second time that, something he says over and over again, the fact that he had a lot, he was poor. He knew, he knew he was raised in poverty, but he was a very proud person, a very cocky person. And I think he used his pride and his cockiness as fuel, and I actually think it served him. So now in the story, he's 15 years old.

• 8:45David Senra?

  January 1933, our mother became ill and she was in the hospital. She died 10 days later from pneumonia, but as much as anything, from complete exhaustion. With Dad's drinking problem, the rough log camp life, teaching school and raising babies, it all amounted to just much more than she could handle. A year later, my father died almost to the day of my 16th birthday. He was found dead in front of a moonshine joint. He had gone so far downhill and he was working for 50 cents a day for a rancher. It sounds like my father was all bad. This isn't true. Why and how a man can let this happen, the Lord only knows.

• 9:28David Senra?

  But he was a hardworking, extremely strong man, a gentleman, but a raving maniac when drunk. It certainly brought sad days to our family. Back to this idea that this can't be my life is a very powerful motivator. You see him being embarrassed by his current state of affairs and willing to work incredibly, incredibly hard to change things. I rode my bike during the week, even though I was getting to the age where a boy didn't like being seen delivering newspapers. But money was much more important than pride. And this is another example of why I said I believed Les Schwab was inevitable. There were eight or nine routes in the town and I took over the whole town during the summer.

• 10:09David Senra?

  I was now making about $175 to $200 per month and I wasn't even 17 yet. This was the middle of the depression. My high school principal only made 150 per month. I thought I was already a man. And so the note I left myself when I read this the second time is he's a moneymaker his whole life, just like Sam Zell. It reminded me, if you read Sam Zell's autobiography, which I covered all the way back on episode 269, Sam had this natural instinct to make money when he was a kid. One of the things that blew my mind, obviously when he was, you know, close to the end of his life at 81 years old, he was one of the best entrepreneurs and investors alive. But even when he was in law school, he was making the equivalent. It's like you and I going to law school right now, we'd be in our early twenties and making millions of dollars a year while going to law school.

• 10:55David Senra?

  Sam Zell did the equivalent when he was in law school and a much younger man. So you see when you read his autobiography, it's like, oh, this guy just has a, he's a moneymaker from day one and he has that skill. So now we see that Les is technically an adult. He's 18 years old. He winds up getting married and he says, "We will soon celebrate our 50th anniversary. I was lucky. We have been very much in love and we've had a happy marriage." They wind up having two kids and having to deal with and endure the worst thing that anybody ever has to go through. I'll get there later on. So he goes back to, again, he's gonna stay in the newspaper industry for the next 15 years. He works from one newspaper to another, winds up getting recruited.

• 11:34David Senra?

  And so there's this newspaper in Bend, Oregon that recruited him away from another newspaper to become their circulation manager. And this is where he realizes, oh, actually it's possible that you can know more about something than anyone else. And it gives you a massive edge. It makes me think of that one of the main themes in this excellent talk that the investor Bill Gurley gave, which is called Running Down a Dream: How to Survive and Thrive in a Career That You Love, was the fact that you don't have to be smarter, but you can just, you can know more about something than anyone else just by accumulating more information. And you see that Les did this, not only, Rockefeller was the same thing, where he actually knew more about the business than his bosses when he was like 18 years old.

• 12:17David Senra?

  So there's like a kind of an echo between Rockefeller and Les Schwab. At the same age. The one thing I did know was newspaper circulation work. And I knew more about it than the two other minority owners, who were technically his bosses. There's just three bosses. The circulation end of the newspaper work is usually regarded as the lower end of the prestige ladder. It's essentially a sales job. So that's another, I think, key, which we'll get to in Charlie Munger's analysis of this book later on, is the fact that Les had a fundamental, as you'll see, right? He had a fundamental understanding of human nature. He had magician-like powers with sales, persuasion and incentives. So back to this. I attempted to put some pride. There's that word again. I attempted to put some pride into the circulation work. Didn't matter to him, there was low status. He's gonna make a ton of money doing this.

• 13:02David Senra?

  Ton of money for his day. I attempted to put some pride into the circulation work for myself and for others. I was young. I was cocky. But this same cockiness helped me a lot in going through life. Fast forward 10 years is a very common situation. I was now 28 years old. I had ambition. I wanted to go into business, as I'd always wanted to be a businessman, but I didn't have any money. I was going through a period at this point of not knowing just what I wanted to do. Five years later, still working the newspaper business. I was 33 years old now, and I still wanted to go into business for my own. Money was the main thing holding me up. My brother-in-law told me to find a business, and he'd help me finance it. That was all I needed. And I started to look seriously, as I knew time was running out. I believed if you didn't get started in business at a fairly young age,

• 13:46David Senra?

  you would get into a rut and never make the big decision to jump. And this is so wild. He picks an industry. Wait till we get to this. He picks an industry where he has no experience. He's like, alright, well, there's this little tire shop. They're all franchises at this point. So it's called OK Rubber Welders. It's a franchisee of OK Rubber Welders. And he's like, alright, I thought the tire business had a future. I remember telling my wife, I thought I was a salesman and a pretty good one. And maybe that ability could be used in the tire business. This small shop retreaded tires, sold new tires and fixed flats. It was hard, knuckle-busting, dirty work. The price of the business was $11,000 plus inventory. And we're gonna see Les had a

• 14:31David Senra?

  Earn the boats mentality. It is now or never. I'm going all in. I borrowed $11,000 from my brother-in-law. I sold my house and I borrowed on my life insurance. With all the expenses, he's going to spend about $17,000 acquiring this small tire shop. This is the tire shop. This is going to be in 1952. I was just reading about this yesterday. The fifth generation, his fifth generation just sold the company to a private equity firm for a rumored $3 billion. It is going to start in 1952 with $17,000, all of it borrowed. And so the very first sentence describing his very first day in business is mind-blowing. I had never fixed a flat tire in my life.

• 15:14David Senra?

  And then this next paragraph, this is one of the reasons that Charlie Munger recommended this book. Charlie says over and over again, never, ever think about something else when you should be thinking about the power of incentives. Multiple times in Poor Charlie's Almanack, you see ideas like that. Incentives rule everything around you. Never ever think about something else when you should be thinking about the power of incentives. The most important rule in management is get the incentives right. This is something that Munger repeated over and over again, and it's something that Les understood and did a masterful job. I remember telling my wife many times that if I ever got a chance to go into the business, I had some ideas about sharing with people and about sponsoring people. There are a lot of people who could run a business but never get a chance, due mostly to a lack of startup money, speaking about himself, right?

• 15:57David Senra?

  I was going to furnish the money and in some way share with them in the promotion of our business. You and I are going to get to why this is so important, but I want to give you an overview because it's going to happen a little bit later on. He says multiple times, even at the very end, he writes, I think this is the third edition of the book. So he's constantly writing, like every five or six years, he writes like an updated like epilogue. And he constantly talks about the fact throughout the book and in the updated versions that if I failed with the first store, there was never going to be a second store. And if I failed with the third store, there was never going to be a fifth store. And if I didn't fail with the fifth store, there's never going to be a seventh store. And now I think at the end of the book, they have, you know, hundreds of stores. And so one problem he's going to run into right away is one, he buys this shop. You know how many people work in that shop?

• 16:41David Senra?

  Him, one person. And he does such a fantastic job with it, which we'll get to in a minute. It's crazy how good this guy was at growing businesses. But then he's like, okay, well, I'll do a second shop. Now, here's the problem. I can only be in one shop at a time. And then eventually, obviously, he's going through, like, just visiting shops. He's no longer running them. And so he's like, I need an incentive structure. So these people do their best damn job possible because I can't be there every day. And that's where he realizes, hey, what if I make them essentially a partnership? Because incentives drive behavior. And if you're the other, they start out as one person shops, but then eventually, you know, they might have seven or eight people in there, whatever the case is. But you'll see how powerful that one insight was. Well, it's like, listen, I'll just bring you in. I'll share 50%. That way, when I'm not there, you are heavily incentivized to grow and manage the business

• 17:26David Senra?

  to the best of your capabilities. And so when Charlie's saying, hey, this guy made a huge fortune in a really difficult business, selling tires, for God's sake. And he did it because by having shrewd systems, this is one of the most important systems that he puts in place, and he does it from the very beginning. So let's go back to this. The first month, we did $2,800 in sales. I made a small profit the first month. February was even less in sales, but in March, I started going. And by June and July, I was doing $10,000 or more per month in sales. At year's end, I had $150,000 in sales. The man I bought the business from did $32,000 per year in sales the year before. Les is the only person in the shop, and he 5X'd the sales.

• 18:08David Senra?

  The note I left myself on this page is, being good at sales is like being a magician. And so right away, he realizes that the tire business is a bad business because there is complete collusion at this time that he's getting started. All the rubber companies are American, and they dominate the entire market, and they also collude on pricing. And he's competing against, the big tire companies also have their own stores. And of course, They are going to give a better price on the tires to their own stores than they give to Les. And so when he brings up this point to them, this is what they say. They called it meeting a competitive situation. I called it milking the dealer of his profit. And the great thing about Les is he realizes, oh, this is a problem and it actually produces the greatest opportunity. This is one of the waves that he rides his success, which

• 18:52David Senra?

  we'll go into a little bit later on and Charlie talks about a lot. And so Les says, I had to contend with this, essentially this completely dominated and colluded market, right? I had to contend with this until I made connections with the Toyo Tire Company from Japan. I say, thank God for the foreign tire supply. It helped the independent tire dealer, which is exactly what he is. He's an independent tire dealer. And this wave he surfed, to use the terminology of Charlie Munger, was a massive one because the Japanese go from like 0% market share, and I think within like a decade, maybe even less than two decades, they essentially own the entire market. And so he's got to find a way to survive. And he's like, okay, well, if I sell new tires, I'm not going to make any money. There's no profit. All of his profit is coming from retreading tires. And so retreading

• 19:37David Senra?

  is very common, especially on large truck tires. And so essentially, it's taking a tire that is worn out and then removing the remaining layer of old tread and then just applying a new tread so that the tires has fresh tread again. This saves you from having to buy new tires. This is where all of his profit, this is going to actually bridge the gap. This is how he's going to be able to survive until he gets a reliable and better tire supplier and Toyo Tire Company from Japan is the first. He's going to diversify into other suppliers, but he definitely rides the Japanese tire trend. He says, it was impossible to make a reasonable profit on new tires. I usually got the retreading and I could make a decent profit on that. By handling the business as a one man, on a one man basis, he did the sales, the service, the credit, the whole works, I could operate

• 20:20David Senra?

  very cheaply. I had a theory that went like this, never take advantage of a customer, never take advantage of an employee, but take all the advantage you possibly could of a rubber company because they were not being fair and honest.

• 20:32David Senra?

  Today, in 1985, I don't feel the same way towards rubber companies as I did 25 to 30 years ago. This is a very important point, right? Because they tried to screw them, they tried to put them on a business. He decided to fight back, so this is what he's talking about. They're much better people today. Today, I don't want my company to take advantage of anyone, even the rubber companies. But I certainly won't apologize for anything I did in order to survive 25 to 30 years ago. I am proud that I had the guts to fight. This goes back to this cockiness, this pride thing that's very apparent from the very first page of this book. I'm proud that I had the guts to fight hard enough to survive this period. I feel strongly that the rubber companies were very unfair to their dealers during the early days of my entire business. But really, in many ways, this proved to work out in our favor. What is he talking about?

• 21:16David Senra?

  Problems are just opportunities and workloads. You're gonna screw me over so bad, you're gonna mistreat me, so what am I gonna do? I'm not gonna sit there and take it. I'm gonna look for better options. And he found a better option with the Japanese, and then he rides that wave, and he destroys the people that were trying to screw him over. And he says so here. The five major American rubber companies have received their just awards, as two of them have dropped truck tires entirely. And the other three are doing very well with truck tire sales. It serves them right. They earned their failure. So he immediately starts to expand. He winds up opening a second store a year later. That second store also has one employee, and that employee shares in the profit. And looking back 30 years later, this is what he says.

• 22:00David Senra?

  This was a big day in my business career. This was the start of the profit-sharing program that we still use today. But this is what I meant, that he repeats something over and over again, that, hey, if I messed up on the first store, there is no second store. If I wind up messing on the second store and I'm not there, there's no fifth store, there's no 200th store. And so I have to get the incentives right from day one. I told Frank, that's his, the first hire, I told Frank that if this store was successful, I planned to build more. If this store failed, I would go back and just run one store. There wouldn't be the chain of Les Schwab Tire Centers that we have today if we hadn't been successful in that second store. So he's gonna open a third store. In this third store, he wants to be independent because the first two are actually franchises of the OK Rubber Welders. And he's got a contract

• 22:44David Senra?

  with them. And I'm telling you, it's very, it's impossible to read this book and not love Les as a person. And he's like, nah, I'm gonna be independent and I'm gonna fight because I don't think what you guys are doing are right. And he also has, he was really, Charlie's gonna talk about this later, but he thought he was an artist, like he was really gifted with marketing and advertising as well. So he goes to the franchise company. And he's like, hey, I'm gonna open an independent tire store. And the guy goes, you can't do that. And Les goes, let's not argue. I just wanna be open about it. And so he's like, you can't do that. He's like, yeah, we're not gonna argue. I'm just gonna do this anyways. Like, I'm not here for a discussion. I'm just letting you know, because I thought it would be the right thing to do. And so he's like, alright, now I gotta figure out

• 23:29David Senra?

  a new name. And he's like, maybe I'll just call this a Tire Center. And then he goes, but that seems too plain. And then he goes, well, what if I just call it Les Schwab Tire Center? I'll just name it after myself. And that's exactly what he does. And so then he's like, I know I have a fight, so we're just gonna have to, like, we're just gonna have to fight about this. Yeah, I really did have a fight now with OK. They were threatening to take all my equipment away from me and cancel me as a franchise member. And this was his response when they told him that. I lost my temper. And I told them hereafter, I didn't want any more harassment from them. If they had anything more to say, say it in court. I walked the floor nights. Okay, this is a very important term that he uses over and over again. He talks later on how stressful founding and then expanding the

• 24:14David Senra?

  company over three decades to hundreds of stores and thousands of employees were. And so many times in this book, he's sharing with us, not just the wins, but times where he's almost like depressed and extremely stressed. In fact, he talks about, everybody blew their top. I think their three top executives all had a heart attack, including him. And so when he's, when he's under stress and he's trying to figure out what he does, he says, I walked the floor nights. He's walking around, trying to figure out what to do. And he says why he is so stressed. Because if they took my equipment, it would have bankrupted me. I was bluffing, but I was determined. As I think back, I think the reason that they didn't take me to court was due to the fact that they lost, it would have messed up their franchise nationwide. So, you know, you pay X amount per year to be, to use, to be a franchisee.

• 25:00David Senra?

  And they had 1,100 franchises. And so if Les could prove that they were abusing him, that might apply not just to his two stores, but it could jeopardize the contracts and the treatment of the other 1,100 franchises. That's actually very shrewd on Les' part. And then this is just funny. They keep sending him letters. So it says, every time they tried to cancel me, I would send them a registered letter back telling them that I will not accept the cancellation. And it winded up working. Like, he winds up getting out of this later on, but he is in a hell of a trouble at the very beginning of his career. The early days were full of struggle. And he describes it to you and I here. The pressure on me was tremendous. My largest account was way behind on payments and it worried me to no end. My net worth was about the same as what they owed me.

• 25:42David Senra?

  If they had gone broke at that time, they would have taken me out with them and the Les Schwab story would have ended there. There's a lot of Sam Walton-esque kind of behavior in this book. I feel that Sam Walton and Les Schwab are very similar people. In fact, one of my favorite things that Charlie said last week in Poor Charlie's Ammonack was that fanaticism and scale combined can be very powerful. Fanaticism and scale combined can be very powerful. Think Sam Walton, think Les Schwab. When he says that, I would call Dorothy, that's his wife, and say, let's get the hell out of town for at least one night, maybe two nights, and we do just that. But guess what? I would usually visit other tire dealers.

• 26:22David Senra?

  This is exactly, is exactly, it's incredible how, how similar these great founders are to each other, right? Where Sam Walton's kids would talk about his autobiography, the fact that anytime they went on vacation, they just had to accept the fact that no matter where they went, dad was going to go into, visit the retail stores of wherever he was. And we see the same thing here. And it's during one of these trips where Les actually lays out to his wife that his initial modest goals, he says, like, I had no idea how big this could get. I told Dorothy I was gelling on an idea for the future. Maybe in the future, I could build six, or seven, or eight stores someday. I knew I could buy tires better if I had the time, meaning finding better suppliers, which he does.

• 27:04David Senra?

  I knew how to advertise and promote, which he does, and I wanted to share with the store managers and make them successful. He's really describing what Charlie describes later as like this Lollapalooza effect, like all these different things that Les Schwab did smart and did right over many, many decades that got this nonlinear return. And so the first one was, hey, find a better supplier, ride the wave, that's your Japanese tire wave, knew how to advertise and promote. Charlie says he's an artist at that. I wanted to share with the store managers, that's the incentive, superpower. And then the fourth part is that he was by nature expansive. If he gets to six, he's gonna want to get to seven. If he gets to seven, he's gonna want to get to eight. When he gets to 199, he wants to get to 200. That's just how he is. This is how, more on how he set up the corporation at the very beginning.

• 27:48David Senra?

  Each store operates as a separate entity, and each store operates as a separate business. The store employees share only in the profits of the store they work in. I'm sure you already know this, but just in case you don't, if you read Warren Buffett's shareholder letters, he talks about executive compensation a lot, that the fact is, the individual businesses that Berkshire owns, the person running that business is only incentivized and paid and rewarded or punished based on the performance of that individual business and not Berkshire as a whole. And Les takes that exact same idea, or I guess he did it even before Berkshire existed, because we're still in the early 1950s here. Another comparison you could make between Sam Walton and Les Schwab, if you know, if

• 28:33David Senra?

  you studied the early days of Sam Walton's career, he winds up building a great franchise, but he made the mistake of not owning the ground upon which he was building. He was renting, he was leasing his store. When Sam goes to re-up, the guy's like, okay, yeah, I'm not going to re-lease it to you. Winds up kicking Sam out of his store, opening up his own, essentially just copying what Sam did, and then running both, owning the building and running the retail shop. And there's this great, there's a great scene in, this is actually not in Sam Walton's autobiography, there's another biography of Sam Walton I read, I think it's called Sam Walton, Richest Man in America, by this guy named Vance Trimble, I think it's episode 150 if I'm not mistaken.

• 29:13David Senra?

  But it's one of my favorite scenes, and when I say scenes, it's like when I'm reading the book in my mind, I can actually see this happening. And Sam goes to his lawyers, like surely, like, you know, this guy can't do this. This is unfair. How do we get out of this? And, you know, Sam's still, he's just inexperienced. He just didn't know what he didn't know. And his lawyer is like, no, like that you're screwed here. This guy is going to take, he's not gonna, he doesn't have to lease to you and he can run, you can essentially just duplicate what you did here. And Sam is, the lawyer talks about this. Sam is clenching and unclenching his fist and clenching and unclenching his fist and clenching and unclenching his fist. And he says something like, I'm not whipped.

• 29:57David Senra?

  I built up this store. I can do it again. And so he goes and finds another town. If I'm not mistaken, pretty sure that next town that he goes to is Bentonville, Arkansas. So again, he took problems with just opportunities and work clothes. Okay, I made that mistake. That's a big fuck up on my part. I won't let it happen again. And the reason I bring that up is because in his contracts, when he goes and takes, either takes over a store or winds up leasing, uh, sometimes he takes over other people's failed tire stores. Sometimes he's just leasing the location to build his own. He always has, he will not sign, Les will not sign a contract unless he, he does a five-year lease with a five-year option to buy, if I'm not mistaken. And he repeats that over and over again. He's like, I already seen, I had already seen the wisdom of owning property

• 30:43David Senra?

  and I wanted a contract so that I would own it someday if I made it. And then he'd also cap his downside. This guy, again, I love, I just love everything about Les, like the way he acts. He's very, you know, clear communicator. Will tell you exactly what's important to him, exactly how he thinks. But he also is just really a business genius. And so in, in every contract, he also would cap his downside. He called an escape clause. And he says, I had an escape clause in the contract that I could turn the property back to him and not have to pay it off if the store failed. And there's just this great line that Charlie uses to describe him later on. He says, he was a talented fanatic and he had to get a hell of a lot of things right and keep them right with clever systems. And in this next story, you kind of see that, oh, this guy is actually,

• 31:29David Senra?

  understands marketing and advertising. Again, I know I've already said this, but Munger said that he was an advertising and marketing artist. And so you see this, all of the stores are in places where it snows. Okay? And He winds up going to this company in California. It's called the Mohawk Rubber Company. He actually goes to where the manufacturing plant. And he wants to watch what they're doing and see if there's any opportunity to like, for improvement. And he has a product idea that he's going to use for a very long time. So he says, I was, I was watching them make re-treaded rubber. And I noticed that they used a measuring shovel to add the walnut shells and sawdust. So you could buy either rubber mixed with walnut or rubber mixed with sawdust.

• 32:12David Senra?

  They use this in like sleet and snow and icy conditions, right? They add two shovelfuls to each batch of rubber while mixing. Since we had such a hard time deciding which one was best, Walmart or sawdust? I asked them, could you put one shovel of walnut and one shovel of sawdust? They said yes. I told them to make all of my tires that way unless I told them differently. Then I went home and I started a big advertising campaign. The new rubber, especially designed for the Les Schwab company. Walnut for ice, sawdust for snow. Many people brought in their old tires and asked us to redo their tires because the new rubber sounded so good and they wanted that.

• 32:56David Senra?

  We use this campaign and this rubber for years and years and years. The power of one idea is the fact that it's can be valuable and long lasting for years and years and years. And it took him just going to visit and paying attention. And then one idea pops to his mind and he winds up using that throughout his company, multiple stores for years. Ideas are, great ideas are like magic. And he's got a lot of time to think about his business because just like Sam Walton, when he's driving through those mountain towns, this is before he gets the plane, the Cessna, you know, Sam's going from store to store to store. Les is doing the exact same thing. On an average day in the early days, Les would drive 600 miles a day going around and visiting all of his stores.

• 33:41David Senra?

  Let's go into more of his ideas about advertising and marketing. So he writes all of the radio ads. For his company, his self. And he winds up getting inspired by other ads. So Lucky Strike Cigarettes was one of the largest tobacco producers at this time. And they spent a ton of money on advertising. And their tagline was L S M F T. That was their slogan. They used it on their ads. They printed it on the cigarette packs. And they would hammer it over and over again. And they said Lucky Strike means fine tobacco. And so he heard that and he winds up telling his wife who's next to him. And I go, look, L S M F T. That means Les Schwab means fine tires.

• 34:24David Senra?

  I started to use this slogan immediately and it was very effective. And so he comes up with a campaign for lady drivers. And he says, hey, Les Schwab will change your flat and fix it for free. If you're a lady driver in our area, call us. We will drive to your house. A friendly serviceman will come to your rescue. That's the, the tagline on the ad, right? They'll come to your house. They'll change and repair the flat tire for free. And so this idea over time grew his business. It was very, very shrewd because think about it. If somebody comes to your house and fixes your tire for free. When it's time to get, replace those tires and to get new tires, who are you going to go to? This is the reciprocity tendency that Charlie talks about in his speech at the end of Port

• 35:09David Senra?

  Charlie's Almanack on the psychology of human misjudgment. Humans have this embedded innate and very strong desire that if you do me a favor, I feel the need to repay you. That person is going to the Les Schwab Tire Center and they're going to buy their tires from them. And he says, I always knew that if we fixed all the flat tires in town, we'd have all the tire business in town. Another one of his ideas that Charlie Munger loves. Invert, always invert. You and I have talked about this over and over again. It pops up in a lot of his biographies, very surprising. That you can innovate by doing the exact opposite of your competitors. And so he creates the very first tire showroom. And if you go into a tire shop now, this is exactly what they do. They weren't doing it at this time.

• 35:53David Senra?

  Most tire businesses had a small showroom, so what the customers see, and all the tires were hidden in the warehouse. My thinking was to reverse, to invert, to make the showroom the warehouse. It would impress people. And that's exactly what he does. This is the end result. I had a lot more tires displayed in the showroom than any other tire dealer in the area, and customers were impressed. On the very next page is this illustration of another idea that Charlie Munger repeats over and over again. Understand the circle of your competence. And so he says, "I've often said that I think I'm one of the very best tire dealers in America, but without a doubt, I probably am the worst rancher in America." So he wanted to own a cattle ranch. He did this multiple times. He winds up doing it successfully many decades into the future,

• 36:37David Senra?

  but this is still early in his career, and he sucks at it. He's very bad. "Attempting to be a cattle rancher has cost me millions of dollars. I would undoubtedly be three, or four, or five million dollars richer if I had never attempted to be a rancher. But really, I don't regret it. This is excellent. As you only go through life once, and I would have hated to go through life without my cattle ranch experience." Another thing that's interesting is that he was obsessed with keeping everything clean. So he has this idea, it's like, well, if we, instead of putting all the tires in the back where the customers can't see them, put them in the front. It will be impressive. It'll be this, this like tire supermarket showcase. And you need, he made sure that you have to clean the tires in the store, where all the customers are, every single day.

• 37:21David Senra?

  The tires on display, think about how crazy that is. Nobody else was doing this in his business. The tires on display were cleaned daily. And so one of the great things about this book, Is he does all these like memos, these internal company memos, and they're dated and you could see what he was thinking about. And a lot of them are reprinted in the book. And so I just want to read two sentences from this memo that talks about his obsession with keeping everything clean, because he just was fanatical about doing the best job possible for his customers. "A supermarket tire store has tires displayed, a clean showroom, tires waxed, and an appealing appearance. I sincerely hope I have made myself very clear about the fact that you better clean this every day.

• 38:04David Senra?

  I better not walk into your store and it better, if I walk into your store, it better be clean." And he's driving 600 miles a day, so you never know when he's going to pop up. "I sincerely hope I have made myself very clear. I love you, but I love a supermarket tire store even more." In another memo, he explains, if you read between the lines, how to get the incentives right. And so he's writing this memo to all the managers. "If a bright, young, ambitious man joins our company and wants to make our company his career, does he do it because he likes his manager? Do you think that this man is going to work 10 hours per day just to help you build your store? Do you think that this man is going to work for low pay, year after year, just so that you could build your profit share contract into a nice, fat nest egg? No, I don't think so.

• 38:49David Senra?

  He wants to see results just like you did when you started up the ladder. This man didn't join the company because of the future of the store manager. He understands that you need to appeal to interest, not to reason, right? They were all inherently self-interested. He just gets it. This man didn't join the company because of the future of the store manager, or for that matter, the future of Les Schwab personally. This man joined the company because of his future." And so what he's talking about is trying to get more of his store managers. So he wanted to promote from within all the time. In fact, one of his main directives to his companies and one of, I think, the main ideas he used to build such a successful company was promoting from within. It reminds me of one of my favorite quotes from Sam Zemurray, the banana king.

• 39:33David Senra?

  That said, there's no problem you can't solve if you know your business from A to Z. So actually, I'm going to pause where I'm at in the incentives and read something that Les says later on. "In our 34 years of business, we have never hired a manager from the outside, nor have we ever hired an assistant manager directly to do that job. Every single one of our more than 250 managers and assistant managers started at the bottom, changing tires. They have all earned their management jobs by working up, and they also understand every single part of the business because they did every single part of the business." Another way he reminds me of Sam Walton. Sam Walton had this great line in his autobiography. When people ask like how he built Walmart, he says, "We just got after it and then we stayed after it." Les Swab would say that once you get on the ball,

• 40:16David Senra?

  he uses that word all the time, like you've got to be on the ball, that you stay on the ball. And so a directive that he gives to all of his employees that's reprinted in the book is the fact that you have to focus and you have to avoid complacency. "If we think there's a free lunch, if we rely on last year's results, then this company will turn a corner and then we too will start to go downhill. And once you start down, it is mighty hard to turn around. If we become complacent, then brother, it's all over with." And one thing that he repeats throughout the book that I really love is the fact that if you do stay on the ball, you'd be shocked at how bad and how, especially like most businesses are poorly run. And then if you're on the ball, you can beat them. And so he's realizing this because he's dealing with all these monopolistic rubber companies.

• 41:00David Senra?

  And so he says, "As a young person, I always thought that the heads of large corporations must be human calculators. As I got deeper into the tire business and met many of these people, I was surprised. So often, all they knew was the policy of the company. Ask them a question and the policy would flow from their mouth in a stream, but they couldn't think on their own. The good people who could think and had guts had dropped out of the company long ago and went out on their own." I've often said that we should send Goodyear, Firestone, and the other large rubber companies a Christmas card each year and thank them for their policies as their policies made it possible for us to be successful. He's saying, "Your mediocrity is my opportunity."

• 41:43David Senra?

  And so he was looking for, remember, he starts out from day one. It's like, "I have to fix my supplier problem. This is a big problem." That leads to one of his greatest ideas. And it's had this idea where it's like, well, at this time, tire dealers were constrained in who they were buying their tires from, right? And he's like, "Well, how does a supermarket buy groceries? There's no such thing as a Kellogg supermarket. They may carry Kellogg products if it's the best for their customers, if they get good prices, if they have a good relationship with their supplier. But once they don't, they just move it out and they actually substitute it for something else. He's like, "I'm gonna do the same thing for tires." "I was so disgusted with the tire suppliers, I was willing to do almost anything to help my company survive. In 1966, I made a big decision. I decided to go straight independent, to buy tires like Safeway buys groceries,

• 42:28David Senra?

  to buy the best possible tire, good quality, and at the lowest possible price. This was a major move at that time, and no one had tried it before. The idea was to be a supermarket tire store in no way where we identified or affiliated with any individual rubber company." Let's go back to the fact that incentives drive behavior. One benefit, one unexpected benefit of sharing profits with employees, less theft from within. Again, never, ever think about something else when you should be thinking about the power of incentives. He's talking about the fact that they were able to expand. I think at this point, they have 163 stores. And people would analyze this company, like, "Where are all your controls?" And he's like, "Well, we don't have many controls. Why? Because the incentives are controlling behavior."

• 43:13David Senra?

  "We didn't have many controls. The thing that held it together was that we ran each store as a separate entity. As long as we made sure that every tire was billed to them, as long as they made sure that every tire they sold was billed to the customer, we would come out all right, as long as the people were honest. Our contracts with the managers said," another shrewd system here, okay? "Our contracts with the managers said that in case of dishonesty, you forfeit all your money in the contract." And so this would accumulate throughout the year. After they had about 20,000 or so in their contract, it helped everyone be honest. Now we share with all the people in the store. Now, this is so important. He's really describing, again, he just fundamentally understands human nature. If any one employee sees another employee steal anything, then they are a weak kitten if they don't report it. Why?

• 43:57David Senra?

  Because this man is stealing from them, from his children. If he won't fight for his children, he can't be very much. For a company as large as ours is today, we have very little dishonesty. Every few pages, he goes back and tells more stories about, he feels the profit sharing he did is the most important thing he did in his entire career. And he can't, multiple times in the book, he's like, "I don't understand why other companies aren't copying this." And so he calls it being unselfish for good reasons. I think is a good way to think about that. My thinking has always been, if I give away half the profits, I still have half. If I share $10 million with people, I still have $10 million. I don't understand why businessmen don't do this, as it's being unselfish for good reasons. It helps other people.

• 44:40David Senra?

  And he talks about the fact that you're helping other people succeed, actually will provide you a deeper satisfaction than if you just had another $10 million. Success in life is being a good husband. It's being a good father. And then you end up being a second father to hundreds of other men and women. "Last night, I attended a wedding of a young man from our office. This young man told me that two men had influenced his life, his father and me. That is worth more than money." And he's writing these words after he already dealt with the worst thing that a human can go through, which is the death of his son. Les is gonna be, he's gonna have heart attacks, he's gonna be, he drinks, he's, he says, you know, by his own, he's like, "The doctor says I'm in bad health.

• 45:24David Senra?

  What he means is I'm fat." Like, Les talks that way the whole time. But somehow, he lives till he's almost 90, if I'm not mistaken. But his, his, his daughter's gonna wind up dying of cancer at 52. And his son is going to die at 31 years old. And so his son works in the business, and he winds up having this accident. He's trying to fix this, this truck tire, and the, the lock ring was under too much pressure. And the lock ring flies up and hits him in the head. And, you know, he's gonna be alive for a few more years after this, but he was never really the same. And- I'm just gonna read part of this to you. His name, his son's name is Harland. Harland stopped by the house one night, really broken down.

• 46:07David Senra?

  Maybe I was too rough on him, but the only thing I could tell him was, damn it, I told you so. I wonder now if maybe I was too harsh on him. He was defeated, bankrupt, broke, and really down. The job was too much for Harland. It was too much for Harland. He was about to break down emotionally, so I had no choice but to take him off the job. It certainly was hard on me. It made him feel he was a failure, and he was drinking entirely too much. Harland Schwab would have been a tremendous help had he lived a normal life. He had problems, though, and in some ways, he would have had to conquer these problems sooner or later. At 2:00 a.m. on October 26, 1971, my doorbell rang.

• 46:51David Senra?

  A policeman was at the door. He came in and told me that Harland was dead. He had run into the back of a log truck. I sometimes have thoughts that he might have done this on purpose, as he was very depressed. He was 31 years old. Harland left his wife, Jean, his daughter Diana, 10 years old, and his son Alan, 8 years old. Absolutely devastating. And then around this time, he winds up having a falling out with his partners. He had given two of his partners, I think they each owned 20% of the company, and they go crazy.

• 47:34David Senra?

  They fall out, they have a falling out over money, which is crazy because of how small the amounts wind up they are today, not realizing that you're on this rocket ship, it's working. Just hold on, don't mess this up, figure, like, talk it out. There's just something with, they're not technically co-founders of the company, but you see this a lot with co-founders. I think Paul Graham said the number one breakup in Y Combinator is not like external factors. It's actually co-founder conflict, and you just see it a lot in these books. I'm gonna read this whole thing to you and explain to you what's gonna happen, but it, it, there, when I'm reading it this time, I couldn't help but think about the falling out that Ray Kroc had with the McDonald's brothers. And they're falling out over money and disagreement about like the direction of the company. It's just like,

• 48:19David Senra?

  You're shooting yourself in the foot. There's this giant opportunity. So few businesses actually work and get to this scale. And you've ruined it. It's like hard enough to start a company, a successful company. And then one that's succeeding more than 99.99% of all other companies. And there's something where we just can't help but shoot ourselves in the foot. Reminds me of this, there's this lyric that 50 Cent talks about. Then he says, enemies stay enemies, but friends they change. People go crazy over money, my man. And so this is exactly what happens here. Norm Nelson and Don Miller, these are his partners, were both making tons of money. But a lot of that money was not being taken out of the company. They didn't leave it in there. Their salary was enough to live on, but the rest stayed in the company to be used for expansion. They each owned 20% of this money.

• 49:04David Senra?

  But here's what happens. Now they're seeing how much the company's making. Now the money that's in the company that technically they could have access to, it's growing and growing. So their wives, the people in the family is like, hey, you need to push less on this. We need to get the money. They and their family saw all the money they were making and their wives wanted to get their hands on some of it. And so they wound up having a disagreement about this. And so now Norm and Don wind up teaming against Les. So now it's two on one, but even though Les owns way more of the company. He owns 60% to their 20% each. I soon found out that I had run into a buzzsaw as both Norm and Don teamed up against me. This is something I never could figure out. This was one terrible mistake on their part, as you can use hindsight today.

• 49:46David Senra?

  Money has funny effects on different people, especially the kind of money that these men were now making. I went home and I was talking to my wife about nothing else that night. At breakfast the next day, she suggested, why don't you buy them both out? You'll get by some way. Something hit me. I hit the table. I pounded the table. Dishes fell off and I said, that's the best damn idea we've had in six months. Cause this has been going on for six months. In the six months that we've been talking about it. The agreements that I had with Norm and Don said that I could buy them out at book value at any time by giving them 30 days' notice. And so he goes and meets his partner. Don, you want a swimming pool? Cause they wanted like swimming pool and boats and the stuff people want when they start making more money. Don, you wanted a swimming pool? Now you can have it.

• 50:30David Senra?

  You're gonna get $225,000. Norm, you wanted your money? Now you're gonna get your money. You'll get around $300,000. So he winds up buying out his partners. What's the value of this decision to the fifth generation that winds up selling the company? That's another thing we have to talk about. I don't want to confuse you too much, but. Over and over again, he talks about, you know, I want my company run this way or take my, my goddamn name off it. I don't want the company to go public. I don't want to sell the company. And you could do that all you want, but the guy's been dead for a long time. And then, I mean, not even for a long time. I think it was like 10 years later. And they wind up selling the company. There's just this weird thing that we want like this legacy to continue on.

• 51:10David Senra?

  I've been thinking about this my own self. It's like, well, is it even possible to have like this multi-generational succession plan? Cause now they're five generations out and they're like, oh yeah, you know, great, great grandpa or whatever, didn't want to sell the company, but this company's offering us $3 billion. Uh, yeah, we're gonna take it. So, I don't know. It's just this thought that's in the, the back of my mind. If you're a successful entrepreneur, you're used to having control and influence and bending the world to your will. And yet, all that is not gonna exist when you're not here anymore. It's just something to think about. So anyways, winds up getting, buys out 20% of the company for $300,000. And then the other 20% for 225, okay? Which is one part of their contract, not including their salary or anything else. They were eligible for a 5% cash bonus each year.

• 51:55David Senra?

  Today, which, and when he says today, that's 1986, that they'd be making over a million dollars per year just from that 5% bonus. So if they just held for another 15 years or so, instead of taking the 300 grand that day or 225 that day, they'd be making a million dollars per year. Now, why did I say that? That's very reminiscent of this disagreement that Ray Kroc had with the McDonald brothers. They have this huge fight. It's in the book Grinding It Out, which I've made two podcasts on. The last time I made an episode on that was like 293. It was earlier this year. Ray Kroc winds up buying out the McDonald's brothers and it cost him $14 million and a bunch of interest or whatever, right? And at the time, it was a lot of money, but now he's looking back many, maybe like two decades after.

• 52:37David Senra?

  And he's like, oh, this is peanuts because their contract said that they would have, if they would have stuck around, they would get half of a percent of all sales in every single McDonald's, anywhere, now and in the future. And so even though he's, I think he's, I think Ray Kroc is right in that book. What? That book is probably right in the seventies. Who knows what it'd be worth today? But if they had just held on, instead of taking, so I think it was 12 million to the McDonald's brothers. I think they had to pay like 2 million in transaction costs or interest or something like that. But let's say the McDonald's brothers made 12 million one time. If they just held on, they would be making, at that time that Ray Kroc produced, published a book, $15 million in royalties every year.

• 53:21David Senra?

  And that's, now you're, you're not going to work for that money. You're not going to the office, you're not working in a McDonald's store. It's just $15 million this year. And as it grows, 16 million the next year, 25 million five years from now, and just goes on and on and on. So again, people just go crazy. They go nuts. Money has funny effects on different people. And it can cause you to make a terrible, terrible financial decision. And now that I'm thinking about it, let me look for it. Something just popped in my mind. I'm going to search my Readwise. There is, I'm doing this while I'm talking to you. There is a lot, yep, found it. Okay. This is nuts. Okay, so I just thought about another like investor, founder, partner conflict.

• 54:04David Senra?

  Henry Ford, one of his investors invested $10,000. They wind up having this huge falling out. Now, think about, think about owning a part of the Ford Motor Company, right? Pre-model T. Okay, so this guy, I'm just gonna read this. I'm like excited and I think I've had too much caffeine today. Let me just read this to you. He got $175,000. Hardly a bad, this is Henry Ford speaking now, okay? He got $175,000. Hardly a bad return on an investment of $10,000 three years earlier. So that's great. You invested $10,000, three years later, you get, you, you, you push this issue to get your money out and you get 175,000. You did great, right?

• 54:44David Senra?

  But if he'd stuck it out for a decade longer, he would have gotten $100 million. That is bananas. 10,000 into 100 million in 13 years. And instead, you took the $175,000. Let's go back to his partners. Another thing that he repeats over and over again, "Life is hard." There's no digital version of this book to search through, but if, if it, if there was, "Life is hard" is probably the thing that he repeats the most. "Life is hard." But again, it turned out to be the, the best thing that could have ever happened to the company. Greed was entering into the company and greed destroys. Their interest today would be worth around $12 million each. So again, their equity interest would be worth 12 million in 1985, when the book came out.

• 55:30David Senra?

  Their annual bonus would be another million on top of that. Now, this is bananas, right? Because at the time... When they did this, when they pushed the issue, the company was only doing 10 million in sales. The, I think this was 1967 if I'm not mistaken, okay? 1969, sorry. Okay, so 1967, they're doing 10 million, that's great. 1985, they're doing 180 million. In 2018, they did 1.8 billion dollars. They could have still been alive and had 20% of that company, and instead, they sold it for two, their interest for $225,000 so they could buy a swimming pool. Incredible.

• 56:12David Senra?

  This is why I love biographies, there's just so many lessons and you can, like, hopefully it hits you in the head, or, excuse me, hits you in the heart. But, you know, that takes place over like, you know, three, four pages. It's just absolutely incredible, and then it just makes you think of all the other biographies and maybe other episodes of Founders that you've listened to. You can kind of tie it all together, and it really, I think, makes it resonate much more than just a list of facts. Now, another example, I hate to keep doing this, but I'm telling you, man, Sam Walton and Les Schwab are very similar people. So, Sam Walton's autobiography says, "If you are not serving the customer or supporting the folks who do, we do not need you." This dude, Les, is constantly railing against office people, even though he's an office person. He's like, "The store people are the only ones that are important." We have had, over the years, some people in the office that sometimes think that they

• 56:57David Senra?

  are more important than the stores. The office serves only one purpose, and that is to serve the stores. The office and accounting people can only tell the stores what they have done. If the store manager runs his store right, he doesn't have to spend hours and hours looking at the office reports. If he's doing okay, the records will show it. In fact, if he spends too much time in his office reading the mail, or looking at reports, it is a sure thing that his store will suffer. Sell tires, give service, keep expenses low, watch for leaks, do these things and you'll come out all right. Our store managers make more than our office people. Some of our office people, especially some with these MBA degrees, sometimes wonder about this, but I've warned them, do not bitch to me, because that is the way I want it.

• 57:42David Senra?

  If you want to go out, start at the bottom changing tires, and work into a manager job, then hop to it. If it weren't for those men in these stores working their butts off in all kinds of weather, missing meals, and, and working god awful hours, you wouldn't even have a job. And so that's something that Les repeats. Get out of your goddamn office. Says it over and over again. Like, stop getting in your office, reading reports. Go out and help the customers. Serve the stores. And then, once you're out of your office, you need to stay out of your office. And he continues this line of thinking again. I could help another store manager more in one hour than a professional-type management person could in a week. Why? Because I had the same problems. He had done the job, right? The professional-type management loses out, and it doesn't take long. If you stay out of a store for 30 days,

• 58:27David Senra?

  you've forgotten 50% of what you should know. And when I read that, I thought of this pianist quote that, uh, let me go find the book. I gotta pick up Port Charlie's Almanack now. And Charlie uses this idea, or this story, this quick story, to illustrate an idea. He talks about, like, once you have these skill sets, you have to constantly use them, or you're gonna lose them. And he says, "Skills of a very high order can be maintained only with daily practice." This famous pianist once said that if he failed to practice for a single day, he could notice his performance deterioration. And then, after a week's gap in practice, the audience could notice it as well. Les Schwab's version of that is, "If you stay out of a store for 30 days, you've forgotten 50% of what you know." And so then Les tells a story

• 59:11David Senra?

  about how he wound up winning this competition with what he thought might be a formidable adversary, this Nelson Tire warehouses. And they made a mistake. So he will constantly talk about, "Hey, you need to have a low-cost structure. You need to watch your costs." Of course, he did. But he didn't feel that way about wages. He thought you should pay the highest wages possible. Because the higher wages you pay, the better quality employee you get. The better quality employee you get, the happier customers will be. And so there's all these, like, second- and third-order effects that the people that just cut salaries and think about salaries and wages as a part of their costs, like, never realize, and it'll wind up dooming them. And so it says, if Neil made a major mistake, and he must have because he went bankrupt,

• 59:55David Senra?

  it was in moving too fast, but he had me concerned for quite a period of time. They were springing up all over Oregon and he got up to 24 stores. And so he talks about they did really good in advertising. They did good at holding down costs, but the one mistake they did was that they paid low wages. And the flaw here, this is Les talking, the flaw here was that they didn't get with that low pay near the quality of employees that we had. And this is the most important part, as he's going through and like having this competition head on head, he's like, oh, did I make a mistake here? Like, should I be doing what he's doing? And so he says, after thinking about this for a year or so, I'm wondering if I shouldn't cut wages and benefits, I finally made a decision. And that decision was if I couldn't be proud of my company, if I couldn't pay good wages,

• 1:00:39David Senra?

  if I couldn't have good benefits, and if I couldn't have the best employees, then why would I want to stay in business? So we did nothing and we won. The customer liked us best. Life is hard. This is his summary. This is his summary on the Neil Tyre Warehouse and what doomed them. Life is hard for the man who thinks he can take a shortcut. And so this is an interesting historical fact buried in this very hard to find book that a lot of people have not read. So you know KKR? I think it's like Kohlberg, Kravis, Robertson Company. I think they have like a trillion dollars under assets under management. It's like one of the biggest investment companies in the world, if I'm not mistaken.

• 1:01:22David Senra?

  Well, back, this is now what 40 years ago, he's actually interacting with a bunch of like the partners. And the reason is, I need to bring this up because I mentioned this earlier, how like he could say, hey, it's going to stay in the family business. It's never going to be for sale, but once you die, you really, you know, don't have a lot of say in this. And so he talks about it over and over again, that the company isn't for sale, all the stock will remain in the family. He wound up turning down Buffett earlier in his career. He winds up turning down Michelin Tire. They wanted to buy the company. And it turns out KKR tried to buy the company as well.

• 1:02:01David Senra?

  And this would have been shortly after KKR was founded, because KKR was founded in 1976. I'm so glad I resisted the urge to have our stock on the market. I don't want a few investors around the country club asking about our business and questioning some of our decisions. They might even ask, how come some of those store managers make so much money? Why do they make as much as I do and I have a college degree? I'd probably lose a customer, as my answer would be, he is worth twice as much as you and he has a degree too. He learned how to be a businessman. I'd probably add, he also learned how to work, something you never did learn. There's another company that wanted to buy him and he wound up meeting with the guy. He takes the calls just for fun. This company was headed by a man in his 70s who had made a fortune by buying up privately held companies and letting the present management run them.

• 1:02:46David Senra?

  How many people have used that idea successfully? Buying up privately held companies and letting the present management run them. I told him that I didn't want to sell. The KKR people also contacted me and I spent a day with them. I was more curious than anything. Everyone knows about KKR. They have bought companies out in the billions. They are nice people and if I truly wanted to get out, I would consider them as they have a good reputation with how to handle the companies and employees after they buy it. And so this is causing him to think about succession plans and what's going to happen. And he's very concerned because he says, I've seen companies fail and go downhill and sometimes they disappear entirely after the founder retires or dies. I hope this doesn't happen with our company.

• 1:03:30David Senra?

  Where we are in this point, Les already had way more money ever needed. He could have retired 15 years ago. I could come out with an ast- he's talking about selling the company. I could come out with an astronomical bundle of money if I sold the company. Well, what would I do with it? What good is money beyond a certain point? I think the biggest misconception about public has about a successful businessman is that he's working for more money. You won't find many truly successful ones that are only working for money. Success in my mind, they obviously like the money. He's not saying that, right? Success in my mind comes from having a successful business, one that is a good place to work, one that offers opportunity for people and one that you can be proud of to own. And he goes right back into the fact that incentives drive behavior and he's very proud of what he's done. It is very rewarding to create a program and watch it work. There's

• 1:04:15David Senra?

  something in our program that makes a man that's several hundred miles from the main office be at his store at 7:30 and then sometimes have to stay till 9:00 PM if needed. It's not a big, thick policy book. It's not a lot of supervisors, which he doesn't have. It's something that our programs created in him, right in his heart. He continues on this and he feels that most companies put the emphasis on the wrong part. We are different from most American corporations as we think the most important people in the company are the people on the firing line, the ones who sell, the ones who do service work and take care of the customer. Most American corporations have the fat salaries and outrageous bonuses for the top people and treat the people at the end of the line as peons. I guess that is why if you're on the ball, you can beat them on any type of fair competitive basis.

• 1:05:00David Senra?

  And he practices what he preaches. The warehouse executive people should be very happy that the store managers make good money. They make more money than anybody else in the company. As it helps them. If jealousy ever creeps in, goodbye, Les Schwab Company. We have great people and this won't happen as long as I'm alive. I'll kill them if it does. Again, fanaticism and scale combined can be very powerful. They'll find out that life is hard and he put "life is hard" in caps. It's almost like his motto. "Life is hard." And then he continues on this theme over many, many pages about the importance of taking care of the store. If you take care of the customer, take care of the store, then the office is automatically taken care of. There's this great line, I need to do her biography, Mary Kay, she's the founder of Mary Kay Cosmetics. She has one of the

• 1:05:45David Senra?

  best, in terms of like how to win friends and influence people, if you want to think about it in those terms, she has one of the best lines I've ever heard. She says that, Mary Kay said that everyone goes through life with an invisible sign hanging around their neck that says, "Make me feel special."

• 1:06:01David Senra?

  This can be applied to customers, but it can also be applied to your employees. This is what Les says. "Most men are starved for personal recognition. Any boss who unknowingly or otherwise destroys an employee's self-esteem also destroys the employee. Truly work to make this man a successful man, and then you have done something great. Great for the man and great for you." Les believed in building up and empowering something he repeats over and over again. "Keep your decision-making as low as possible. Keep decision-making lower. A company starts, it grows, and as it grows, more and more of the decision-making tends to move up to the main office. And this is one hell of a big mistake. The decision-making should be always be made at the lowest possible level.

• 1:06:43David Senra?

  Give your manager the authority to make his own daily decisions and let him run his show. Keep your decision-making at the lowest possible level." And then I want to close on this book before we get to Charlie's analysis of this book. I love what he talks about here. Keep the main thing the main thing. Focus on doing the job to your best reability today. That gets you to tomorrow. And then continue that process over a long career and you'll be surprised where you end up. So he's looking back and talking about if he didn't do the day-to-day things correctly, they would have never got this far. "Most companies that have grown large must have had as many of the same problems that we've had. I think many times of the many things that have happened that it could have stopped us from growing.

• 1:07:25David Senra?

  If Frank had failed with that store in Redmond, this is when they expanded, the second store. If the large commercial account I had that owed me so much money had gone broke at the wrong time. If I hadn't won my fight with the OK franchise. If the foreign tires hadn't been available to us. If I had not been able to get through the period of the blow-up between my partners and me. If any of my first five or six stores had failed. If I hadn't gotten out of ranching and got my mind on my business. And the many, many, many more ways that it could have stopped the growth of the Les Schwab company. The parting advice that he has." Reminds me of one of my favorite Edwin Land quotes. Edwin Land said, "There's a rule that they don't teach you at Harvard Business School.

• 1:08:08David Senra?

  It is if anything is worth doing, it's worth doing to excess." The Les Schwab version of that, looking back on his career. He says, "Whatever you do, you must do it with gusto. You must do it in volume. It is a case of repeat, repeat, repeat."

• 1:08:24David Senra?

  And so with that, I pick up Poor Charlie's Almanack. I go to talk number nine, and that is where Charlie analyzes the book that you and I just went over. And so he says, now, I'll give you a hard problem. There's a tire store chain in the Northwest that has slowly succeeded over 50 years. It's the Les Schwab Tire Store Chain. It just ground ahead. It started competing with the stores that were owned by the big tire companies that made all the tires, like the Goodyear's and so forth. And of course, the manufacturer favored their own stores, and those stores had a big cost advantage. Later, Les Schwab rose in competition with the huge price discounters like Costco and Sam's Club. And before that, he competed against Sears.

• 1:09:05David Senra?

  And yet, here is Schwab, now with hundreds of millions of dollars in sales, and Schwab is in his 80s with no education, having done the whole thing. How did he do it? And so this is where Charlie's going to analyze how he did it. And so he says, let's think about this with some microeconomic fluency. Is there some wave that Schwab could have caught? So if you listened to last week, this is something that Charlie talks about over and over again, his surfing model. If you get at the beginning of something, and it's working, and you're riding the wave, stay on the surfboard. He's like, you would be shocked at how, if you just stay on the surfboard, it's going to take you a long way. A lot of people jump off, right? And they get mired in the shallows. That's what Charlie says. And so he says, was there some wave that Schwab could have caught?

• 1:09:48David Senra?

  The minute you ask the question, and the answer pops in, the Japanese had a zero position in tires in America, right? Zero. And they got huge. So this guy must have ridden that wave in the early times. But his slow following success has to have other causes. And so this is where he goes into this Lollapalooza result that Les gets. This is something that Charlie was intensely interested in. He would collect a bunch of instances. He would constantly read about this. And so he says, and that's probably what happened here. This guy did a hell of a lot of things right. And among the things that he did right is he must have harnessed the superpower of incentives. He had a very clever incentive structure driving his people, which again is why Munger said at the annual meeting, you should buy the book.

• 1:10:34David Senra?

  You're managing people. Just read it just for his incentive structure. There's a bunch in the book. And he must be pretty good at advertising, which he is. He's an artist. So he had to get a wave in the Japanese tire invasion. And then a talented fanatic had to get a hell of a lot of things right and keep them right with clever systems. Again, it is not that hard of an answer. We hire business school graduates and they're no better at these problems than you were. Maybe that's the reason we hire so few of them. Well, how did I solve this problem? Obviously, I was using a simple search engine in my mind to go through checklist style. And I was using some rough algorithms that worked pretty well in a great many complex systems. And those algorithms run something like this.

• 1:11:19David Senra?

  And so he's saying this applied to Leschwab, but it also applies to a lot of these other super successful companies. And he gives four factors here. And he says, extreme success is likely to be caused by some combination of the following factors. Number one, extreme maximization or minimization of one or two variables. Number two, adding success factors so that a bigger combination drives success, often in a nonlinear fashion, as one is reminded by the concept of breakpoint and the concept of critical mass in physics. Often, these results are not linear. You get a little bit more mass and you get a Lollapalooza result. And of course, I've been searching for Lollapalooza results all my life.

• 1:12:03David Senra?

  So I'm very interested in models that explain their occurrence. And so Charlie's also explaining not just Leschwab. He uses Costco as an illustration of this point, Toyota as an illustration of this point, and Oracle, just some of them. But he mentions many more in Port Charlie's Almanack. Number three, an extreme of good performance over many factors. That is, jumps right out of the book if you read the Leschwab book. And finally, four, catching and riding some sort of wave.

• 1:12:33David Senra?

  So that is where I'll leave it. Highly recommend that you, if you can get a copy, they're very hard to get. Again, limited, there's only 20,000, I think, in the entire world. If you can get a copy of the book, highly recommend you do so. It's fascinating. And it doesn't really matter what order you do this in. You could read a Les Schwab book first and then read Charlie's analysis. Cause I read this book for the first time four years ago, but then I read Poor Charlie's last week. I'm like, oh shit, like I should go back and revisit Les Schwab. And then reading his analysis and then reading the book was really cool. And then going back to his analysis after, I think really adds to it. So anyways, in any case, I will leave the links down below for both of those books. And if you buy them using that link, you'll be supporting the podcast at the same time. That is 330 books down, 1,000 to go, and I'll talk to you again soon.

• 1:13:20David Senra?

  Okay. So what you're about to hear is this question I was asked a few months ago. I actually recorded this a few months ago. They asked, how did history's greatest entrepreneurs think about hiring? All the answers. People think I have a better memory than I, than I actually do. You know, if people say, oh, David, you have a great memory. My wife would laugh at that because I forget things all the time. It's not that I have a good memory. It's I reread things over and over and over again. Every single answer, every single reference you're about to hear in this 20 minute mini episode came from me searching all of my notes and highlights. That option is now available to you. If you like what you hear, if you think it's valuable, if you're already running a successful company and you want an easy way to reference the ideas of history's greatest entrepreneurs in a searchable database that you can go through at your convenience anytime you want,

• 1:14:06David Senra?

  then you can go to foundersnotes.com and sign up. I want to start out first with why this is so important. There's actually this book that came out in like 1997. It's called In the Company of Giants. I think it's episode 208 of Founders. It's two Stanford MBA students, if I remember correctly. And they're interviewing a bunch of technology company founders. And in there, Steve Jobs is one of them. This is, you know, right, I think even before he came back to Apple. And They were talking about, well, yeah, we know it's important to hire, but in a typical startup, a manager or founder may not always have time to spend recruiting other people. And I first read this, Steve's answer to this, you know, I don't know, two years ago, and I never forgot it. I think it's excellent.

• 1:14:48David Senra?

  I think it sets up why this question is so important. And you should really be spending, especially in the early days, like basically all your time doing this. In a typical startup, a manager may not always have the time to spend recruiting other people. Then Steve jumps in. I disagree totally. I think it's the most important job. Assume you're by yourself in a startup and you want a partner. You take a lot of time finding a partner, right? He would be half of your company. I'm going to pause there. This idea of looking at each new hire as a percentage of the company is genius. Why should you take any less time finding a third or a fourth of your company or a fifth of your company? When you're in a startup, the first 10 people will determine whether the company succeeds or not. Each is 10% of the company.

• 1:15:33David Senra?

  So why wouldn't you take as much time as necessary to find all a players? If three, three of the 10 were not so great, why would you start a company where 30% of your people are not so great? A small company depends on great people much more than a big company does. Okay, so to answer this question, the advantage that I have making founders and that you have as a byproduct of listening to founders is not only that I've read, you know, 300 some biographies of entrepreneurs now, but I have all of my notes and highlights stored in my Readwise app. And that means I can search for any topic. I can look at the past highlights of books or I could search for keywords. So what I did is, first of all, like what I've started to do with these AMA questions

• 1:16:18David Senra?

  is I read them, decide which ones I'm going to do next, and then think about it for a few days. I don't put any, I just literally, I know that's the next question, just let my brain work on it in the background for a few days. And then I'll go through. And start searching all of my notes. And so that's what I did here. And so there's a bunch of, you know, I don't have, I may have like 10 or 15 different founders talking about hiring. The first idea is the most obvious, but I think probably works best when you're already established. So Steve Jobs is talking about, hey, you know, the great way to hire is just find great work and find the people that did that and then try to hire them. When you're Steve Jobs. That's a lot easier. Right. Than if you're just somebody that doesn't have a reputation, maybe you don't have resources,

• 1:17:02David Senra?

  maybe your company's rather new or not as well known. David Ogilvie, I just did Confessions of an Advertising Man a couple of episodes ago, I think 306 or something like that, 307. And he did the same thing. But he's David Ogilvie at that point. So he would find, he'd go through magazines, find great advertising, great copywriting, and he'd write the person a letter and then set up a phone call. And he says he wouldn't, he was so well known and, you know, he's one of the best in his field, that he wouldn't even have to offer a job, just the conversation, then the person would, he would want to hire the person, never mention it, and the person would apply to him. And so again, I think if you can do that, then of course, it's straightforward. Find somebody who does great work.

• 1:17:46David Senra?

  Usually you can do this, I actually have a friend, I can't say who it is, he's doing this right now, actually. I have a friend that's really good at doing this. He's finding people that do great stuff on the internet and then just cold, cold DMing them and then getting, convincing them to work on things. And that usually works, especially with people, like younger people, earlier in their career. There's a bunch of different ways to think about this and a bunch of different ways to prioritize. So the first thing that came to mind, that I found surprising, is you read any biography on Rockefeller, and he had a couple of ideas where he felt the optimization, you know, table stakes, that you're intelligent and you're driven and you're hardworking, right? We don't even have, like, if you're listening to this, you already know that. But he prioritized hiring people with social skills.

• 1:18:30David Senra?

  And so this is what he said, "The ability to deal with people is as purchasable a commodity as sugar or coffee, and I pay for, I pay more for that ability than any other under the sun." There's the two, the second part to this, though. And this is also works well if you have access to more resources. Rockefeller would hire people as he found, as he found talented people, not as he needed them. It's not like, okay, Standard Oil has six open spots, let's go find six candidates, right? He'd come across what he considered a talented person. It didn't even matter if he didn't know what they were going to do. He's like, I'm just going to stack his team. And if you really think about the, his partners at Standard Oil, he essentially built a company, an executive team of founders, of, because he was buying up all their companies.

• 1:19:15David Senra?

  So it's very rare, but there's a line from Titan I want to read to you. Taking for granted the growth of his empire, he hired talented people as found, not as needed. And then I found another idea in the hiring, like the actual interview process. So there's this guy named Van Eever Bush. I did two episodes on him, I think it's 270 and 271. He is the most important American ever in history in terms of connecting the scientific field, private enterprise, and the government. The most important person to keep alive for the American war effort was FDR. The second one was Van Eever Bush. Van Eever Bush is like the Forrest Gump of this historical period. He is involved in everything, from the Manhattan Project to discovering like a young Claude Shannon, to building a mechanical computer.

• 1:20:00David Senra?

  Like this guy literally has done, he's just, he pops up in these books over and over again. If you were reading about American business history during World War II and post-World War II, you are going to come across the name Van Eever Bush over and over again. I read his fantastic autobiography called Pieces of the Action, and I came across this weird highlight. And so this is his brilliant and unusual job interview process. And so he's talking about this organization he's running called AMRAD. At AMRAD, I hired a young physicist from Texas named C.G. Smith. The way I hired him is interesting. An interview of that sort is always likely to be on, on an artificial basis and somewhat embarrassing. So I discussed with him a technical point on which I was then genuinely puzzled.

• 1:20:41David Senra?

  The next day, he came in with a, with a neat solution, and I hired him at once. Here's another idea. This is from Nolan Bushnell. Nolan Bushnell is the founder of Atari, founder of Chuck E. Cheese, and Steve Jobs mentor. He hired Steve Jobs when Steve Jobs was like 19 at Atari. He would ask people their reading habits in interviews. This is why. One of the best ways, his whole thing was he wanted to build, all of his companies laid on a foundation of creative people. So that's what he's looking for. He's like, I need creative people. One of the best ways to find creative people is to ask a simple question. What books do you like? I've never met a creative person in my life that didn't respond with enthusiasm to a question about reading habits. Actually, which books people read is not as important as the simple fact that they read at all.

• 1:21:24David Senra?

  I've known many talented engineers who hated science fiction but loved, say, books on bird watching. A blatant but often accurate generalization. People who are curious and passionate read. People who are apathetic and indifferent don't. I remember one, that's such a great line, and I obviously agree with it. I remember one, I'm gonna read it again. A blatant but often accurate generalization. People who are curious and passionate read. People who are apathetic and indifferent don't. I remember one particular woman who during an interview told me that she had read every book that I had read. So I started mentioning books I hadn't read, and she had read those too. I didn't know how someone in her late 20s found that, this much time to read so much. But I was impressed, I was so impressed that I hired her right there and assigned her to international marketing, which was having problems.

• 1:22:09David Senra?

  This is why, this is why I'm reading this whole section to you. A job with a lot of moving parts benefits from a brain that has a lot of moving parts. It wouldn't be possible to have read that many books without such a brain. So do you see what I mean? Like, we start with Steve Jobs saying, this is the most important thing that you, your role as the leader of the company and the founders do, right? And you are, and it's so important to study, and this is why I'm glad this, this question exists, and why I'm glad that I've, I took the time and I had like the foresight to like, hey, I should really organize my thoughts and notes, because there's no way I would have remembered all this without being, being able to search my Readwise, right? But you have Rockefeller saying, this is what's important to me. You have Bush saying, this is how I hire. Now you have Nolan Bushnell saying, well, here's another weird thing that I learned.

• 1:22:54David Senra?

  Let me go through what Warren Buffett says about this. So this is about the quality. One thing that is consistent. Whether it's Jobs, Buffett, Bezos, Peter Thiel, this just pops up over and over again. They talk about the importance of trying to find people that are better than you. The hiring bar constantly has to increase. Now, obviously, the larger the company gets, that's impossible. Steve Jobs has this great quote where he's like, you know, Pixar was the first time I see, I saw an entire team, entire company of A players, but they had 400 players. They had 400 team members. He's like, at the time, Apple had 3,000. It's like, it's impossible to have 3,000 A players. So there is some number that your company may grow to, where it's just, you're just not, you're not going to have thousands of A players.

• 1:23:38David Senra?

  In my argument, I don't even know if you could have 400. I guess, I mean, I'll take Steve's word for it on there. And Pixar definitely produced great products, but it's probably a lot, lot lower than that as well. So Warren Buffett would tell you to use David Ogilvie's hiring philosophy. And so Warren said, Charlie and I know that the right players will make almost any team manager look good. Again, that is why it's the most important function of the founder, maybe directly next to the product or right above the product, actually, because those are the people building your product. We subscribe to the philosophy of Ogilvie and Mather's founding genius, David Ogilvie. This is what Ogilvie said. If each of us hires people who are smaller than we are, we shall become a company of dwarfs. But if each of us hires people who are bigger than we are, we shall become a company of giants.

• 1:24:19David Senra?

  David, or Jeff Bezos, rather, used a variation of Ogilvie's idea, too. Jeff used to say in Amazon, every time we hire someone, he or she should raise the bar for the next hire so that the overall talent pool is always improving. They talk about this idea on Amazon where the future hires that we do should be so good that if you had applied for the job you already have at Amazon, you wouldn't get in. That's a very interesting idea. Take your time with recruiting. Take your time with hiring. There's this great book on the history of PayPal. It's written, actually, I've recently become friends with the author. His name is Jimmy Sony. And this is in his book. The most fascinating thing that I found was that PayPal prioritized speed.

• 1:25:04David Senra?

  So from the time they're founded to the time they sell to eBay, it's like four years. Jimmy spent more time researching the book than, he spent six years researching the book. I always tease him because like you took longer on a book than they took to start and sell their company. It just speaks to like the quality he's trying to do. But as a byproduct of that, like obviously they move fast, but they prioritize speed over everything else, except in one area, recruiting. Max Levchin kept the bar for talent exceedingly high, even if that came at the expense of speedy staffing. Max kept repeating, A's hire A's, B's hire C's. So the first B you hire takes the whole company down. Let's read that again. A players hire A players, B players hire C players. So the first B player you hire takes the whole company down.

• 1:25:48David Senra?

  Additionally, the team, the company leaders mandated that all prospects, here's another idea for you. All prospects must meet every single member of the team. Now, the next one is the most bizarre. It makes sense if you study, I did this three part on Larry Ellison, three part series on Larry Ellison. I should read those books again because the podcast is like 50 times bigger than, than when I publish those episodes. And he's just, it's crazy. So he would hire based on the confidence, the self-confidence level of the candidate. Listen to this. I have tears in my eyes. I don't know why I'm laughing. Okay. This is just so, because this is, you read about Larry Ellison and he's one of these people.

• 1:26:31David Senra?

  It's like really easy to interface with because you just, you just know exactly who he is and what's important to him. That's why I think it's so funny. Ellison insisted that his recruiters hire only the finest and cockiest new college graduates. When they were recruiting from universities, they'd ask people, are you the smartest person you know? And if they said yes, they would hire them. If they said no, they would say, who is? And they would go hire that guy instead. I don't know if you got the smartest people that way, but you definitely got the most arrogant. Ellison's, and this is why. The personality of the founder is largely the culture of the company. Apple is Steve Jobs. Apple's just Steve Jobs with 10,000 lives, right? I was just texting a founder friend of mine. He listens to the podcast. I actually met him through the podcast. And he's going through this like process of self-discovery.

• 1:27:16David Senra?

  Like, he's already started a bunch of companies that are really successful, but he's like, I think I'm more of this type of founder than the other type of founder. And that's good that he's doing that because he's, hopefully his next mission is like his life's mission, you know? And you can't get to your life's mission unless you figure out who you are. Ellison knew who he was. Ellison's swaggering, combative style became a part of the company's identity. This arrogant culture had a lot to do with Oracle's success. Here's another odd idea for you. Izzy Sharp, the founder of Four Seasons, actually could figure it out that in his business, which was hotels, right? That hiring, hiring the right person could actually be a form of distribution for his hotel. He gave me the idea because of what? What do we know? What do you and I know in our bones? That history's greatest founders all read biographies.

• 1:28:01David Senra?

  They all read biographies of people that came before them and took ideas from them. Izzy Sharp is trying to build Four Seasons. What do you think he did? He picked up a biography of Cesar Ritz. The guy that, Ritz Carlton is named after, arguably the greatest hotelier of all time. And when he realized, oh shit, Ritz, he says, remembering that Cesar Ritz made his hotels world famous by hiring some of the foremost chefs, we decided to do something similar. So what is he talking about? Cesar Ritz went out and partnered with August Escafier. What Cesar Ritz was to hotel, to building hotels, August Escafier was to French cooking. And so what happened is you partner with world famous chefs. People come into your restaurant that's in the hotel because of the world famous chef. And now they know about your hotel. That leads to more, that leads to more activity in your restaurant that you own,

• 1:28:44David Senra?

  but also leads to more brand recognition of your hotel. And then as a byproduct of that, more people staying at the hotel. So hiring as a form of distribution, this is fascinating. That is a fascinating idea. Okay, here's the problem. You can identify great people, right? Maybe they even want to come work, like you've identified them. You've sold them, hey, this is what, this is our mission. This is what we're doing. And yet, humans have complicated lives. They have spouses. They have kids. They have a reason. Maybe they can't move across the country. To work for you, even though they want to. So there's a problem solving element that you see in these books on you have to solve. Like you've already identified the person, you've recruited them, they can't go for some other reason.

• 1:29:29David Senra?

  Okay, well, the great founders are not going to take no for an answer. I read in, um, in this book called Liftoff, which is about the first six years of SpaceX. This is what Elon Musk did. They had anticipated his friend's issue, having convinced Musk they needed to bring this brilliant young engineer from Turkey onboard. It became a matter of solving the problem. His wife had a job in San Francisco. She would need one in Los Angeles, right? Cause that's where SpaceX is at the time. They're, these were solvable problems and Elon's better at solving problems than almost anyone else. Musk therefore came into his job interview prepared. About halfway through, Musk told the guy that he wants to hire. So I heard you don't want to move to LA and one of the reasons is that your wife works for Google. Well, I just talked to Larry and they're going to transfer your wife down to LA. So what are you going to do now?

• 1:30:13David Senra?

  To solve this problem, Musk had called his friend Larry Page, the co-founder of Google. The engineer sat in stunned silence for a moment, but then he replied, given all that, he would come to work at SpaceX. That's really smart. There is another idea when you're promoting, are you going to promote from within or from without? You know, that's dependent on you, depending on what's going on. I do think this is interesting though. There's this guy named Les Schwab, who built this, this really valuable chain of like tire companies in the Pacific Northwest. I actually found out about him because Charlie Munger is like, hey, you should read this biography. He said it in a, he didn't say it to me personally. He said it to, uh, in like one of the Berkshire meetings that to study, Les Schwab had one

• 1:30:55David Senra?

  of the most, uh, one of the smartest, uh, financial incentive structures or any company that, that Charlie Munger had come across. So this is what Les Schwab did. He did not want to hire from, he didn't want to hire other people from other companies because they might come with bad habits. He liked to train his own executives. And so he says, in our 34 years of business, we have never hired a manager from the outside. Every single one of our more than 250 managers and assistant managers started at the bottom changing tires. They have all earned their management job by working up. And then another thing, if you're going to hire the best of the best in A players, their A players don't like to be micromanaged. And so this came in Larry Miller's autobiography called Driven. He owns like, he owned like 93 companies all throughout Utah, car dealerships, movie

• 1:31:40David Senra?

  theaters, all kinds of crazy stuff. But he also owned the, the NBA team, Utah Jazz. And what was fascinating is he's trying to recruit Jerry Sloan as the coach at the point. And Jerry Sloan would only take the job on one condition, and I really like it. I really like this idea. If you hire me, let me run the team and business. Right? That's what you're hiring me for. One of the best things we had ever done was hire Jerry Sloan as coach. At the time, he said, I'm only going to ask you for one thing. If I get fired, let me get fired for my own decisions. If you hire me, let me run the team slash business. Here's another idea from Thomas Edison that I think is fascinating. Really, the way I think about a founder is like, you're developing skills that you can't hire for. You're going to hire for everything else, but you shouldn't be hirable.

• 1:32:25David Senra?

  And Edison wasn't. Edison, expressing his views on the preeminent role of applied scientists, which that's what he considered himself, coined the expression, I can hire mathematicians, but they can't hire me. And so when I read that paragraph for the first time, the note I left myself was develop skills that you can't hire for. Capitalism rewards things that are both rare and valuable. Estee Lauder would give you advice that you need to hire people aligned with your thinking and values. Hire the best people. This is vital. Hire people who think as you do and treat them well. In our business, they are top priority. So this idea is like, that seems kind of weird. Like, hire people who think like you. There's obviously not one right way to build a business. I think that your business should be an expression of your personality and who you are as a person at the core.

• 1:33:10David Senra?

  And so I think there is an art to the building of your business. And the reason I use the word art, I don't mean in like a hoity-toity, you know, pretentious manner. That's not me at all. I don't even care about art at all, really. I mean that you're making decisions not just based on economics. Like, there are non-economic important decisions based on how you're building your business. Like, you could probably make more money doing a decision A, but decision A goes against who you are as a person, or you just don't like it, or it's just not as elegant or beautiful. And so therefore, you don't do it. So that's what I mean about, you know, hire people who think as you do. And for whatever reason, when I read Estee Lauder say that, I was like, okay, that there's like this art to what she's doing. One thing that's going to be helpful in recruiting,

• 1:33:55David Senra?

  this comes from Peter Thiel. I think this is the book Zero to One. Understand that most companies don't even differentiate their pitches to potential recruits into hiring. So therefore, like, they're just going to buy, as a byproduct of that, you're going to wind up with a lower overall talent base. And so he says, what's wrong with valuable stock, smart people are pressing problems? Nothing. But every company makes these claims. So they won't help you stand out. General and undifferentiated pitches to join your company don't say anything about why a recruit should join your company instead of money, instead of many others. So that idea of like your pitch, your actual, he would tell you, you shouldn't be building an undifferentiated commodity business. But even above and beyond that, like, the mission that you're trying to engage

• 1:34:37David Senra?

  everybody to join you in, that pitch, that sale you're trying to make to potential recruits should be differentiated, should not. If that person's applying to five other jobs, there should not be like, it's like, they may not like your mission, they may not like your pitch, but they shouldn't be able to compare it to anything else. Another quote from Nolan Bushnell, "Hire for passion and intensity." That's what he would do, or that's what he did when he found Steve Jobs. "If there was a single characteristic to separate Steve Jobs from the mass of employees, it was his passionate enthusiasm. Steve had one full, one speed, full blast. This was the primary reason we hired him." And one thing all these founders have in common is that he know how important hiring is. And when something's important, you do it yourself.

• 1:35:18David Senra?

  This is again Elon Musk on hiring. He interviewed the first 3,000 employees at SpaceX. That's how important it was. "One of Musk's most valuable skills was his ability to determine whether someone would fit his mold. His people had to be brilliant. They had to be hardworking, and there could be no nonsense. There are a ton of phonies out there, and not many who are the real deal," Musk said of his approach to interviewing engineers. "I can usually tell within 15 minutes, and I can sure, I can for sure tell within a few days of working with them." Musk made hiring a priority. He personally met with every single person the company hired through the first 3,000 employees. It required late nights and weekends, but he felt it was important to get the right people for his company. And then to close on this, we started with Steve Jobs telling us why it was so important and why it should be a large part of how you spend your time.

• 1:36:02David Senra?

  And now we'll close with what you do after. What do you do after you hire the person? This is what he says. It's not just recruiting. After recruiting, it's building an environment that makes people feel they are surrounded by equally talented people and their work is bigger than they are. The feeling that their work will have a tremendous influence and is part of a strong, clear vision. So that is the end to that 20 minute mini episode. I just re-listened to the whole thing and it really does. I think it's a perfect explanation and illustration of why I think Founder's Notes is so valuable. Cause some of those books I haven't read in five, six years. And just the ability to have a searchable database of all these ideas, like this collected

• 1:36:43David Senra?

  knowledge of some of history's greatest entrepreneurs to reference and then contextually apply to our own businesses. It's nothing short of like, it's magic. That's really the way I think about it. I think it's a massive superpower. It gives me a massive superpower. I couldn't have made the podcast without it. I also think if you have access to it, it'll make your business better. And so if you're already running a successful business, I highly recommend that you invest in a subscription and you can do that by going to foundersnotes.com.