Charles & Chase Koch on How They Quietly Built a $150B Empire

(0:00) David Friedberg welcomes Charles & Chase Koch (1:04) Koch Inc. Overview: Scale, Business Lines & History (2:21) Building the Business: Early Days & Charles Koch Joins (1961) (11:31) Failures, Creative Destruction & Learning from Mistakes (19:22) Culture & Principle-Based Management (33:53) Georgia-Pacific Acquisition & Culture Transformation (56:17) Stand Together: Education Reform & Social Change (1:12:37) AI, Economic Challenges & the Future of Capitalism Thanks to our partner Axon.ai for making this possible. Axon.ai — AppLovin's AI advertising platform reaches over a billion daily active users across mobile games. Full-screen video ads with a 35-second median watch time. Advertisers are profitably spending hundreds of thousands of dollars a day and advertiser access is still in closed beta. The window is open at https://axon.ai/allin Follow the besties: https://x.com/chamath https://x.com/Jason https://x.com/DavidSacks https://x.com/friedberg Follow on X: https://x.com/theallinpod Follow on Instagram: https://www.instagram.com/theallinpod Follow on TikTok: https://www.tiktok.com/@theallinpod Follow on LinkedIn: https://www.linkedin.com/company/allinpod Intro Music Credit: https://rb.gy/tppkzl https://x.com/yung_spielburg Intro Video Credit: https://x.com/TheZachEffect

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

• 0:00David Friedberg?

  What an honor to be here. Thank you for hosting us Forbes and welcome. This will be put out as the All In interview, so I'm really excited to share this conversation with everyone on the world, on the internet, and to get some time with Charles Koch, Chase Koch. Chase and I have known each other since 2013.

• 0:18Speaker 01

  Yep.

• 0:19David Friedberg?

  When we overlapped in the agriculture industry, got to know each other. We've been business partners. And Charles and I have gotten to know each other a few times over the years, but I'm really excited for this conversation tonight. So Charles, thank you for being here. Thanks for having us. It's an honor.

• 0:38David Friedberg?

  Every few years, a new ad channel opens before the market catches on. That's axon.ai right now. The AI ad platform behind one of the biggest runs in tech with access to over a billion daily active users. Full screen video ads in mobile games watched for a median of 35 seconds. Businesses are profitably spending hundreds of thousands of dollars a day on it, and most advertisers don't even know it exists yet. The window is open at axon.ai/allin. In Silicon Valley, entrepreneurs and even mature company CEOs always like to learn about the story of other businesses and the success of those businesses. And I've always felt like Koch Industries was that untold story. Probably the most profitable private family-owned business in the world.

• 1:21David Friedberg?

  Maybe I'm off on a couple of points, but certainly up there. And one of the most impressive business stories because of the evolution of the business, which I'm hopeful we can hear a little bit about. How that evolution came to be tonight. And just for some statistics, if Koch were publicly traded, the revenue would put it easily in the top 25 of the Fortune 500. It's a family-owned business based out of Wichita, founded in 1940 by Fred Koch, with businesses ranging from energy, agriculture, chemicals, building products, consumer products, even cloud computing. And a very active minority investment portfolio with 120,000 plus employees. That statistic might be off across 60 countries.

• 2:04David Friedberg?

  Very unique operating model, which we'll get into today, including principles around disruptive innovation of the business. Reinvesting 90% of profits in new businesses and growth, meritocratic values.

• 2:17David Friedberg?

  And I'm hopeful that tonight we can take an opportunity to hear about the evolution of the business and talk about some of those principles. And maybe we can get started, Charles. If you could give us a sense of the scale of the business. What are the business lines that you operate today? And maybe, you know, provide a little more color to those high-level statistics I shared today.

• 2:35Speaker 02

  I can go back through some of the history and the failures and successes, but I'll go through what we've grown since the early 1960s. And then we had 300 employees. Now we have more than 130,000 in 60 countries. And we have increased in value 9,000 times over that period.

• 3:07David Friedberg?

  When did you join the business?

• 3:09Speaker 02

  1961, full-time. I'd been working, well, my father, we lived on a farm. And he told me at age 6, he didn't want me to be a country-club bum. So it made me work in all my spare time, which I hated. And so I was always in trouble. And so he was kind of tough on me, rightfully so. And thank God he did. Years later, I ask him, "Pop, why were you so much tougher on me than you were on my younger brothers?" And he said, "Son, you plum-wore me out."

• 3:50David Friedberg?

  When you came into the business, what was the scope of the business? What was the business operating?

• 3:56Speaker 02

  We had two main businesses. One was to design and make fractionating trays. That is, that they separate liquids by differences in boiling points. And then our largest business was a crude-o-gathering system in Oklahoma. And so, so my father, and I was, I had finished, just a few years earlier, finished MIT, and I was... Working for Arthur D. Little, then a leading consulting firm.

• 4:37Speaker 02

  And I was, and you'll think this is a joke, at age 25, I was doing managing, management consulting. I mean, I have to laugh at the absurdity of that, but they were paying me for it, believe it or not. So my father called me and he said, "Son, I want you to come back and join the business." And as tough as he had been on me, and as I say rightly so, I declined. So he called me a few weeks later and he said, "Son, either you come back to run the company, or I'm gonna have to sell it because my health is bad and the companies aren't

• 5:18Speaker 02

  doing well and I don't have long to live." So I agreed because I, well, for a number of reasons. One, the first one is I got three degrees at MIT in engineering and I sucked as an engineer. I mean, get that. So how'd you get through MIT? Because I was real good at the math and the science and the theory. And I was no good at making or operating things. So I figured out pretty quickly that I wasn't gonna make it as an engineer, so I need to

• 6:00Speaker 02

  be an entrepreneur. And because I was good at principles, and that's why we led, so I was always looking for principles that would help me contribute and succeed. And that's what transformed our company.

• 6:24David Friedberg?

  So you come into the business, a couple hundred employees, you said?

• 6:27Speaker 02

  Three hundred.

• 6:28David Friedberg?

  Three hundred employees. And how did you think, was the mandate to grow the business? Was it just to keep it stable?

• 6:34Speaker 02

  No, no, it was, it was, could I take a few minutes to go through those first two businesses?

• 6:39David Friedberg?

  Your show, I'm in, yeah.

• 6:40Speaker 02

  The first three, okay.

• 6:41David Friedberg?

  That sounds great, yeah.

• 6:42Speaker 02

  Okay, the first one was making fractionating trays, designing those. We had a president then who... Who was one of our principles, you don't want to be negative is top-down and obsessed with controlling everybody. So he would send out memos every week demanding on what they spent, how did you spend it on, what did you do, how did you do this right? So they were frustrated. Matter of fact, they started ignoring him. And then the whole culture was protectionist.

• 7:22Speaker 02

  That is, when they sold the internals for a fractionating tower, they wouldn't tell them the design. We need to know the design so we can correct it. No, they wouldn't give it to them. And then, and then what's even worse, to satisfy the European market, they didn't even build a plant there. They had multiple subcontractors do parts of a tray and then bring them all together and assemble with another contractor. Now you can imagine how that was for speed and cost. So we were losing our ass, if you excuse the expression.

• 8:07Speaker 02

  And so I changed the management and changed the philosophy. Okay, the first thing we're going to focus on is creating value for our customers. And then the second thing, we're going to empower our employees so they want to do this. And the third thing, we're going to do a plant. We're going to build a plant in Italy to satisfy the European market. We're going to do it all ourselves. And so we became profitable. And then we started adding related products. And I'll get to that later.

• 8:52Speaker 02

  But, and so we started growing.

• 8:58David Friedberg?

  Can I ask a question?

• 8:58Speaker 02

  Yeah.

• 8:59David Friedberg?

  You come in at 25-plus or minus a little bit and you see the problems at the business. It's not profitable, it's not being well-managed. And you overturn the management team. How did you have the confidence at this age, coming with the experience you had, to take that level of action that quickly?

• 9:18Speaker 02

  Well, it was life or death. And my father said, "You can run this business any way you want. The only thing you need my approval on is to sell." That's the way he talked me into coming back after I said I didn't want to. Or I wasn't going to. And then, and then in 1970, what really helped is my brother, younger brother David, joined the business and then, and then he continued that growth.

• 9:50David Friedberg?

  And then, you're now running a profitable operation. You've got a European business. And at that point, did you start to think about expanding into other products and other?

• 10:00Speaker 02

  Well, that's it. And this is, so, I was learning all these different principles. And, and what I saw we were doing, not here, not just here, but in other things, is we were building capabilities. That is, I looked at it, we need to be capability bounded, not industry bounded. Like, okay, you could say, to a certain extent, because we were in crew all together, we're in the oil industry. Oh, that means, everybody was saying, "You need to be an integrated oil company. You need to be in everything." And I was applying divisional labor by comparative advantage. No, you need to be in the part of it, of the, of the industry, in the part of the value

• 10:45Speaker 02

  chain where you can create more value than others. Otherwise, you're going to fail. And that's what we're seeing happening now. There's more specialization by comparative advantage. And so, that's what, so, so I, I started this, I created this principle called, uh, uh, creating virtuous cycles of mutual benefit. And what that led us to do is to, to, to start this never-ending cycle of, of, of growth, innovation, success, and failures, and failures that...

• 11:33Speaker 02

  When we did it right, that we learned from and made us better and taught us better how to apply principles to create value. And we're still going through that. We have a lot of failures. And that's when you apply creative destruction in your new things. If you're not failing at everything, you're not doing anything new.

• 11:53David Friedberg?

  Where did you learn that lesson? So what was the first major failure that, you know, they always say you got a plan until you get punched in the face. What was the first punch in the face?

• 12:00Speaker 02

  Well, I had a bunch of them with that company. It was called Coke Engineering then. And like I said, okay, when we got into refining, we created petroleum coke. So I said, well, let's come up with a way to use that as base to make activated carbon. And that was a failure. We spent a fair amount of money on that. And we had a whole bunch of those. And we've had many more.

• 12:32David Friedberg?

  How did you make the decision to shut it down or walk away? At some point, a lot of entrepreneurs have this problem. They build something, they're too in love with it, and they don't know when to say enough is enough.

• 12:41Speaker 02

  Yeah. Well, when enough is enough, when we lose our ass enough. No, it's when we decide we don't have the capability to create superior value for our customers and that we're going to be rewarding for. And sometimes it can be the structure of a business. Like a company, the Case Found a Coke Disruptive Technology, Insight Tech. It's been, it does tremendous things, but it is a structure that makes it hard to make it profitable. And so that's the other thing is, so that's another, these are principles that we've learned. Okay, we didn't apply that.

• 13:25Speaker 02

  What were the principles that we didn't apply that caused us to fail? That's what I mean, we learned from failure. So the businesses where you asked the businesses we're in now and Chase and there's Coke people here, you all can catch me up if I the ones I missed, but we have engineered products, engineering construction, we have, we build solar plants, we have commodity trading and distribution, we have fertilizers, we have refined products, we have chemicals and polymers,

• 14:05Speaker 02

  we have glass, we have forest and consumer products, we have four different investment firms with different comparative advantages, and we have electrical products and we have software systems for management.

• 14:32Speaker 01

  Dave, let me just hit one point.

• 14:33Speaker 02

  Did I miss anything?

• 14:34Speaker 01

  No, you got it, you did a great job.

• 14:36Speaker 02

  Whoa.

• 14:37Speaker 01

  Basically, like eight wholly owned business unit platforms that he described and then four investment, different businesses, but I just wanted to kind of really drill a point home because when I, when I came out and I started really hanging out with you and the whole tech community and trying to like build that network, a lot of people have the same question that you did about who is Coke, what are you guys all about, you know, I know it's a large private business, but being in which talking, we don't know that much about it. I think this point that is so different about Coke versus almost any other company out there is what my father said on being capability bounded, not industry bounded.

• 15:20Speaker 01

  And, you know, how do you get from a small crude oil gathering company in Southern Oklahoma to all of those businesses that he described? And there's, I mean, the principles obviously throughout, which we'll be talking about in this discussion, but one of the absolute core differences is that whole approach to capabilities. And I would encourage anyone that's in a business and trying to scale, think about it from that lens, what capabilities have I demonstrated that I can add value to customers? And then pointed at new industries where I can experiment. This is one of our, one of our principles as well, experimental discovery. Not trying to do everything at once and trying to conquer the world, but experiment and test.

• 16:05Speaker 01

  Does the customer value my product or not? And then along the way, you know, those, those core capabilities for us started off as operations, logistics, trading. In the very early days of Coke, that's what we demonstrated we were, we were good at. We were getting great customer feedback. But then when we had the capability approach to say, okay, we started in energy, started in crude oil gathering, pipelines and refineries. Can we point those same capabilities into natural gas? Can we point those into chemicals? Let's experiment there. Can we point those into fertilizers? Cause then we learned about natural gas. And then, then the Georgia Pacific opportunity comes along.

• 16:49Speaker 01

  And it's like, hey, these are wood products. It doesn't seem similar to these other businesses, but it's the same core capabilities. We buy Georgia Pacific and along the way, it was somewhat of a happy accident that we started learning, learning about consumer products and branding. So branding became a new capability for Coke through acquisition, but it started with, where do we think we can add value and do a good job on that and collect new capabilities along the way? So I think that's like a really simple way to think about Coke and it's over the course of time, like how we're different. One other thing I'll mention too, because I've been asked many times, it's like, well,

• 17:32Speaker 01

  so is it sort of like, you know, Berkshire Hathaway where you have all these different businesses, a conglomerate? And I would say, no, I mean, obviously Warren Buffett and his team have done an unbelievable job operating the business the way they have. But we think about our business very differently. Instead of operating them all as independent businesses and almost like in silos, think about it as a republic of science. We're not a conglomerate. We're an integrated set of capabilities.

• 18:01David Friedberg?

  Is it fair to say that you wouldn't consider an acquisition or a new business line if there wasn't some relatedness to an existing competency at the company?

• 18:10Speaker 02

  It depends. I mean, as you see, when you read the book. We went through one chapter on creative destruction. And what Schumpeter called all the different ways to do that. And one is to create a new management approach. Okay, that's our biggest one. So the question is, when we bought Molex, makes electrical connectors, which is done fantastic. And at first, it wasn't doing great. So we said, we think if we can get them to apply these principles, it will turn them around. And we didn't...

• 18:54Speaker 02

  The problem when we do that, the tendency is to learn the lingo. And so you can call everything by these names, and you still do what you always did. And that's what was going on there. And so finally, we got in... No, we had changed the management. And once we did that, and they started applying these principles, they took off, and now they're knocking it out of the park. But let me go back to failures. Because I mean, we're understating our great strength in failures.

• 19:35Speaker 02

  And that is, I'll give you our worst failures, and what caused it. And it caused us by violating the principle of hiring people, first on values, and second on talent. And what I've, for years, I've told people, look, if you want to hire somebody with bad values, because you like them or some... Hire them slow and stupid, and so we can catch them real quick and get them the hell out. Maybe get them to go to work for our competitors, or something.

• 20:17David Friedberg?

  Maybe help them get a job.

• 20:18Speaker 02

  But anyway, that was huge. And then, we made that even worse by taking people...

• 20:30Speaker 02

  Who were, had terrible values and made them leaders. And, and so what we call that is, is rather than, we want everybody in the company to be contribution motivated. That I want to succeed by, by contributing, I want to be rewarded for my contributions, not for anything else. And the, the value I create for our customers or for the future. And, and so they would, some of these people were destructively motivated. What they wanted was power or control and, and they would hide their failures and, and

• 21:12Speaker 02

  make up their successes. And so I'll give you two examples. One goes back to 1973, you remember the war in the Middle East and everything. And they had gotten us into all kinds of wild reckless trades. So that could have bankrupted the company. And then later, because I mean, much later, shows you that, that repetition penetrates even the dullest of minds. So I needed this to happen a bunch of times. So it finally, okay, I got it, I got it, God, don't punish me anymore, please, for my stupid mistakes.

• 21:55Speaker 02

  So, so this was, we, we did it about the same time, our ag group. We heard, we put leaders in who were destructively motivated and in refining, we, we got a leader and they were destroying those businesses. And, and, and so it didn't almost bankrupt it, but it almost wiped out all of Coke's earnings in the, in the late 1990s.

• 22:27Speaker 01

  You'll appreciate this.

• 22:29Speaker 02

  So does that give you a flavor?

• 22:30Speaker 01

  Yeah. So you'll appreciate this, being an ag guy, to go a little deeper on what happened in the late 90s in our ag business. We, we called it a strategy, the gas to bread spread. So we wanted to basically be in every element of the value chain, all the way from pulling the natural gas out of the ground, converting it into fertilizer, making the nitrogen products to grow the crops that would ultimately then end up on the grocery store shelves and be in bread. We got in pizza crusts, all this crazy stuff. When you look back on it, you're like, what the hell are you doing? Right, but it was, it was what he was saying is like, like leadership thinking about we can do, we can do anything. And if we like basically kind of control the entire value chain,

• 23:15Speaker 01

  like we can be, make that successful. Completely violates probably all 41 principles in, in the book, right? Experimental discovery, knowing where your capabilities are, right people, right roles. And so that, yeah, we called it the gas to bread spread. Some people called it the ass to bread spread too.

• 23:35Speaker 02

  And there's another one in there, integrity. Because when they knew there were losses in some of these, and then they wouldn't tell us, they wanted to go ahead anyway.

• 23:44Speaker 01

  We had a, we had a deal within that, you know, like puring a dog food. So one of the, one of the things that was acquired was the large animal feed.

• 23:55Speaker 02

  Many hogs, it was mainly hogs.

• 23:57Speaker 01

  Yeah, so hog, hog feed. And did no diligence, and this is one of our principles, to apply the scientific method. So disprove your hypothesis as much as you try to prove it. And, and so we, we closed that acquisition. And within days, we found out that we had hundreds of millions of out of the money hog contracts. We didn't, didn't even look at the contracts. So I mean, that's when, I think this is really important for founders that want to grow, right? You have this growth at all cost mindset and you start not like asking why not? And this is the kind of trouble that you get yourself in.

• 24:33David Friedberg?

  So let's go back to the management piece. How do you take these principles, which you've applied successfully to? I would use the term iterate because for me, like failure is all about iteration to success and finding paths that work, finding businesses that work and ultimately finding people that work. But how do you drive that culture that represents the principles? Because you could create a book and give it to all your employees and say, guys, here's 41 principles. We've sat down, we've thought about it, we've written them, they're gonna work.

• 25:03Speaker 02

  Yeah.

• 25:04David Friedberg?

  But to actually live them, to realize them, to hold people not just responsible but accountable to them. How do you, how did you do that as you developed these over the decades?

• 25:12Speaker 02

  Because at first, we tried to get them to do it through sheep dipping. That is, you take everybody in, you give them a big seminar, and I'll go do this. And from Pallani, if you wanna read a book that's hard to read, I mean, if you want really hard one, you can read Human Action. This is even harder, called Personal Knowledge, by Michael Pallani, who was a chemist and then became a philosopher. And, and, and he goes through what it takes to, to, to develop personal knowledge. It's, it's, you have to rewire your brain to have it work differently, right?

• 25:57Speaker 02

  You have a habit, so you don't need to think about it. And then if you wanna change, like, do I brush my teeth first, or do I comb my hair first? No, I wanna start combing my hair first. And all of a sudden, you're back brushing your teeth first, and you, because you're not thinking about it. And so, because your brain gets, I mean, you, you know your body. Let's say you're, you're a weightlifter, and you wanna be a marathoner. Okay, it's gonna take work with intensity over time to change your body. Well, your brain's part of your body, so you've gotta do the same thing. So, we said, okay, we've got to start with, so, okay, let's find a group that's really interested in this.

• 26:39Speaker 02

  They're struggling, they're having problems, and here are the principles, and we'll coach them, we'll help them start doing it. And if they work with intensity on it, and then they succeed, then we don't need sheep dipping, because then the other... Businesses and capabilities says, "Gosh, I'd like to do that." So you don't need to call them in. Then we have more demand for people who can help them. And the hardest thing is to have our people in strategy, our principal-based management group, who are really good at helping them. And, boy, they're in more demand than anybody.

• 27:20David Friedberg?

  So the best thing is success will drive social mimicry. You'll see others.

• 27:24Speaker 02

  That's it.

• 27:24Speaker 01

  Here's another take on what he's saying that I think really connects about culture to your question. And that is, like, the essence of like, principal-based management and all the principles in this book as well, is like, what if you could have a business and a culture, small, medium, or large, where everyone knew what to do without being told? And so that's like, hard to get your head around, right? Because I think most businesses come at it from top-down. There's the iconic leader, that's the smartest guy in the room, building the strategy and then telling everyone what to do. And so I think one of the most important principles in this, that we tell a lot of stories around, is to flip that on its head.

• 28:07Speaker 01

  And it's about bottom-up empowerment with principles and empowering your talent, your team, your leaders, with these principles. So that then you use the collective knowledge of everyone, not a couple of smart guys at the top of the company.

• 28:22David Friedberg?

  Most people in most enterprises that aren't owner-operators don't want to fail. They want to keep their job. They want to move up the ladder by being repeatedly successful. And if you want to create a culture of creative destruction, if you want to create a culture of failing and learning from failure, it's very hard to get individuals who live on an income, on a salary, to do that. Because if they make a mistake, if they fail, and then they fail again, and they fail again, I'm worried about losing my job. So what you typically see in most scaled organizations is middle management and even senior management, when founders or owners don't operate it anymore, saying, "I'm going to take the less risky path. I'm going to do the less creatively destructive thing. I'm going to do the thing that's least likely to fail because I don't want to lose my job. I want to keep my job, get my bonus, move on to year two,

• 29:07David Friedberg?

  and go home to my kids and my wife and take care of the family," or whatever the family situation is. And that's my objective.

• 29:14Speaker 02

  See, and that's, that approach creates perverse incentives. And so we try to align our incentives. That we want to reward people according to their overall contribution to Coke's future. So for example, if they have an experiment, and that doesn't mean doing this thing in Ag where you buy all these hogs and you lose hundreds of millions of dollars over what, that's not an experiment. It's an experiment, a good experiment is where the value, you, what you learn from

• 29:55Speaker 02

  this is higher value from this failure than the cost of the experiment. And, and so when we do that, and we're evaluating what the person, you are building capability for the future. That's why we're so, we, we put so much emphasis on, are you building capability? And capability, part of it is the culture and what Chase did with, with Coke Labs, when he started Coke Disruptive, he said Coke Labs, I want every business to be a laboratory for what we find, both to help us source these, these opportunities, these tech opportunities,

• 30:39Speaker 02

  and, and then we'll let, we'll, we'll, if they're just trying something, we'll try it out in that business. And being in all these different businesses that, that touch almost every part of the economy, it gives us a big advantage in that. So, but that affected the whole culture. I mean, on your business, don't you want to be part of Coke Labs? We're, we're an experimental discovery group. We're just not a bunch of grunts here grinding stuff out.

• 31:08Speaker 01

  Yeah, I think the KDT example is a really good one because you asked about motivating and like, what if you fail and then what if you get fired and all that? We, we tried to basically take a little bit of the Silicon Valley approach and bring, you know, of experimental discovery, you learn more and you pivot and learn, have a failure, but then now I know what I don't want to do. I'm going to pivot my strategy to what may be working, I'm going to keep trying as long as you don't go sink the company with some massive bet, right? And I think KDT was a... A great experience like I call, you know, when we did that, when we made those first investments,

• 31:48Speaker 01

  you know this adventure, the losers fall out first and the winners take a hell of a lot longer to materialize. So if we would have just judged it based on, okay, guys, you've got three or four years to figure this out, we would have shut down KDT. Because we had the, but it was that experimental discovery principle and mindset that we applied to it. And oh, by the way, we were learning so much as Coke from seeing the technologies that were coming around the corner that might disrupt our core business. And so we value that learning and we rewarded the people that were bringing that knowledge in. If you just look at it on a bottom line basis in the first couple of years, you say, just shut this down. Right? But then over time, like all these different things and then

• 32:33Speaker 01

  the returns are starting to come because we thought long-term about it. But it all came from that experimental discovery, one principle, and then creative destructions. Like if we're not in the game on technology, we don't see what's coming, something's going to happen, especially with how fast technology is moving today. Some of our businesses are going to become dinosaurs.

• 32:53David Friedberg?

  How much of that risk were you willing to take and did you take on acquisitions? So doing homegrown experiments on new business ideas and strategies and products can be lower cost. But if you're going to do an acquisition, do you have less room for failure?

• 33:07Speaker 02

  Well, how about this? We were a much smaller company and we bought Georgia Pacific for 20 billion.

• 33:12David Friedberg?

  Well, can you just tell us what Georgia Pacific is for those who don't know?

• 33:15Speaker 01

  It's a wood products company and it's got two big pieces to it, building products and consumer products.

• 33:22Speaker 02

  Well, it's got, it's got a third one, but yeah.

• 33:25Speaker 01

  Okay, I'm generalized. But go ahead.

• 33:28Speaker 02

  Sorry. No, no, no. I'll shut up. Shut up, you old guy.

• 33:33Speaker 01

  No, no, no. But, but anyway, but on that one.

• 33:38David Friedberg?

  So when did you buy it and how big of a betting the company moved was that?

• 33:42Speaker 01

  2005.

• 33:43Speaker 02

  Well, that was, yeah, we were much smaller in 2005. I can't remember how much smaller, but it was a lot smaller.

• 33:51Speaker 01

  It was a massive bet.

• 33:52David Friedberg?

  How'd it come up?

• 33:54Speaker 02

  Okay, we were like applying this virtual cycles of mutual benefit. We were saying, okay, what's one of these, uh, these cycles are chemical process industries. And, and wood carving, the pulp and stuff was, matter of fact, we found in my, my, my father's thesis, he, he, he did a, a study in Maine on this very thing on pulping. I mean, I found it later, but that, that didn't.

• 34:30David Friedberg?

  His MIT thesis?

• 34:31Speaker 02

  Yeah, yeah.

• 34:32David Friedberg?

  Wow.

• 34:33Speaker 02

  So we said, okay, let's look at the, oh, and they were, they were saying they need to spin off some of those parts, the pulping part. And we said, okay, let's buy that. And we bought that as an experiment and we did real wealth with it. And so we said, wow, they, they have other, because that was a commodity business and they were trying to get their price earnings ratio, it was like six, and if they became more of a consumer products, they could get it up to nine.

• 35:08Speaker 02

  So we proposed, we met with them and, and proposed that we, uh, uh, we buy the, the commodity part and we'll pay them a high enough price that then they can be all consumer products and get their price. And we showed them all the economics and they said, that's fine, but we'll be sued for constructive fraud because we, we all have this, all these lawsuits against us. And, and, uh, and so we can't do it, but we like the value. And so we went home and says, well, okay, what if we just offered the whole thing?

• 35:53Speaker 02

  And a couple of them were getting ready to retire and, and the senior officers, so they were really liking it and, and they were kicked out of all the board meetings from then on, but anyway.

• 36:06Speaker 02

  So we sold them and that was a time when money was tight and stuff, so nobody came in and topped us. I'll give you just one funny story. We sent one of our people in to be the CEO, Joe Moller, who had been president of the company. And he, they had, it was totally top-down bureaucratic. They were, in Atlanta, they had this 51-story building, was it 51? You can correct me. That's right, yeah, you got it. And they had a private elevator to get up there, and you didn't have to wear a coat

• 36:50Speaker 02

  and tie, but if you came up to, all the management was on this 51st floor, and you had to put on a coat and tie and get permission to come up there. And so Joe immediately kicked them all out, well, he fired a bunch of them, and then set the remaining ones down to work with their groups.

• 37:10David Friedberg?

  On the regular floor.

• 37:12Speaker 02

  And then regular floor, and then turned it all into offices, I mean, into meeting rooms open to anybody. And so that, I mean, you ask about how you get culture change, a lot of it is signals like that, particularly when a bunch of them get fired for being so bureaucratic and hierarchical.

• 37:30David Friedberg?

  Would you say that that business unit operates like the rest of Koch Industries today?

• 37:35Speaker 02

  Oh, absolutely. But how long did it take, Bob?

• 37:37David Friedberg?

  I'll just say, like, that is such a rare and difficult thing to pull off. I mean, there's just countless stories of acquisitions where the acquirer thinks that they have culture, thinks that they know how to transfer culture, and literally no one seems to be able to do it. This was one of the insights from Warren Buffett, is you find great managers, you let them continue to operate as owners of that business, and they get some profit share or whatnot, and they've got a durable moat so he can make a long-term investment, and he just leaves them and...

• 38:05Speaker 02

  Yeah. Yeah, but that's, see, that wouldn't work for us, the stuff we bought. Let me give another one, if I could, that was even more difficult, and that is, sadly, my father died not too long after I came with the company in 1967, and we had owned an interest in a small refinery in Minnesota.

• 38:31Speaker 02

  And, uh, and so, but two years later, we were able to buy it. And, uh, and it was not being operated very well because the management had let the union control how it was run, and so it was run very inefficiently. And so the first thing we tried to do is change the work rules. So they went out on strike, and, uh, by the way, that was at the start of my honeymoon. Thanks a lot, guys. And it was violent. I mean, they, they ran a switch engine and tried to knock down one of our units.

• 39:13Speaker 02

  They shot high-powered rifles in there, and they blocked the gates. I mean, it was impossible to get in there. We had to take helicopter, but we, we were successful in operating without the union workers for nine months, bringing people in from our other plants, and it operated better than they did. So finally, we got the work rules changed, and then we, uh, then we said, okay, we're gonna empower the employees, we're gonna change the culture. Now, you think at Georgia Pacific, it was tough. This was much tougher than that.

• 39:56Speaker 02

  And, and so, we, we, we worked and worked on it to try to make their jobs better, get their opinions, get them to work as teams, get them to come up with innovations, and when they did, we rewarded them, and we got the unions to agree with that. And, and like, like one, they said, a group of them said, "God, we're buying all these spare parts we need. Uh, we can, if you, if you build a machine shop, we can do it cheaper and faster." And they did. And then other things, they saved a ton of money for us, made things more efficient, and now, the culture there is fantastic.

• 40:38Speaker 02

  You, I mean, I mean, we're talking about, we're not talking about Wichita, we're talking about Minnesota.

• 40:46Speaker 02

  So, I mean, we're so proud of what they've done and it just, it still blows me away how, how much they've taken these principles to heart and using them to make that place. So it's, so we've increased the capacity tenfold and it's one of the best refineries in the country.

• 41:08Speaker 01

  Pop, wouldn't you say that, I mean, the common theme on all of these, because we have the same story on Molex, you know, similar, but different than Georgia Pacific. This was a technology company, a connector and cabling and connector company, one of the largest in the world that makes products in your iPhone and med tech products, your automobile. And when we bought that in 2013, it was a paradigm that needed to be changed. You described Georgia Pacific, top down versus bottom up. There was a lot of that too, but it was top line thinking versus bottom line thinking. It was all about revenue growth, right? This is a technology company and it was also a public company for 30-plus years as well.

• 41:51Speaker 02

  Because that's what the market rewarded them for.

• 41:54Speaker 01

  And so, like, the whole-

• 41:55Speaker 02

  The stock price.

• 41:56Speaker 01

  The public versus private discussion is interesting here and it just, what we've learned is it takes a hell of a lot longer than you think to change the culture. And almost in every case, I mean, Pop, tell me if you agree with this, but in almost every case, it requires changing leadership that has the paradigm of bottom-up empowerment and that learns and applies the principles. Almost every time when we fail, it comes down to ignoring the principles. You can, and that's what the book is about, you can kind of reverse engineer these stories, like, well, we missed that principle, we missed this principle. But it comes down to talent and the right people with the right mindset. And I want to share just one story with you that really shows like how we apply this at Coke.

• 42:41Speaker 01

  He talked about our talent vision being you start with basically culture first, you know, skills second, values first, skills second. I always add a third dimension to that as well. Values first, skills second, credentials last. And that is a very different mindset than than most companies because most companies I think look at it and say, I want, I want the guys, you know, that have the 4-0 from the Ivy League school and all that. And there's some incredibly smart, obviously, folks from that. But by our experience, and also is one of the reasons why we stayed in Wichita, Kansas, is that we can basically hire the farm team, right? Kids that have grown up on the farm, that have that contribution

• 43:26Speaker 01

  motivated mindset, that work their tails off and want to come in to make a contribution as opposed to coming in expecting all this stuff and coming in with more of an entitlement mindset. So we, case in point, our CIO today, his name's Jared Benson, he started, his first interaction with Coke was based striping lines in our parking lot. So no college degree whatsoever, but he found his way into Coke because he demonstrated that, hey, he knows a little bit about data science and he could help us. This is about 20 years ago. And then ultimately, he came in, he proved himself, he was running circles around a lot of the team and like just, you know, contribution motive mindset, adding value. He saw the

• 44:11Speaker 01

  cybersecurity risk and that wave coming, built a whole capability to protect us from cyber attacks. And then now he's CIO of the company, guy with no college degree. So I mean, that kind of mindset in terms of our talent vision and like that values first and someone that just wants to come in and they they just love the job and they want to make a difference.

• 44:35David Friedberg?

  Do you actually codify these principles and everyone at the company has a handbook that lists them out and then they're part of the assessment process for quarterly or annual reviews with people?

• 44:45Speaker 01

  Yeah, I mean, obviously, there's the book and he's, this is his fifth book. It's my first. But, but so, Good Profit, Science of Success.

• 44:53Speaker 02

  Chet's is my best book because of Chet. Hey, Brian, the one we did is pretty good too.

• 44:59Speaker 01

  Huxwell, I like that.

• 45:02Speaker 01

  But yeah, no, there is a, there's a discipline, right? And, and really, it comes down to the leaders taking it seriously. And their, the leader's first responsibility is to help their people.

• 45:14David Friedberg?

  Okay, I'm gonna put my analyst hat on for a second.

• 45:16Speaker 01

  Yeah.

• 45:17David Friedberg?

  And I'm gonna say, my observation would, I would create a theory. We could test the theory right now, that being in Wichita, being founder or owner operated, and, you know, having this ability to be isolated from a monoculture. I just feel like Silicon Valley, a lot of companies replicate each other. You have to kind of, there's this term that's being used a lot now, over-socialization. You have to operate like everyone around you, or you're not part of the, you have to fundraise in the right way and do these deals. You have to hire people this way. You have to do this sort of vesting schedule, this sort of equity structure. Everyone's the same. And if you don't, you're kind of a weirdo, but by being in Wichita, you don't really have that problem. You can think your own way. You can challenge yourselves.

• 46:02David Friedberg?

  You can debate. You can come up with your own principles without feeling like everyone else is conforming to the groups around you.

• 46:08Speaker 02

  But they can, because there are a bunch in Silicon Valley that are. They're challenged.

• 46:13David Friedberg?

  Yeah.

• 46:14Speaker 02

  So they're not all that way.

• 46:15David Friedberg?

  They're not all.

• 46:16Speaker 02

  Yeah. And this is what-

• 46:18David Friedberg?

  But is it, is it always been a competitive advantage? I mean, did you ever think to move the headquarters to New York City?

• 46:22Speaker 02

  No, no, but the main thing, we've, we've never thought of that. But, but what we've, sorry about that. I mean, there are advantages to being in New York City. I mean, you have a great mayor now, so they're good to go. But anyway, so we, we, that's a competitive advantage of us.

• 46:44David Friedberg?

  That'll be a comment.

• 46:46Speaker 02

  But, but this is, no, but the main, the main threat we've had is we, we had, saw that wanted to go pup, take us public. And I said it'd be over my dead body, and some of them thought, well, that would be a good idea. Just like they're thinking about Trump, where a lot of people thought, still think about it. I get a lot of nice notices of my imminent death.

• 47:11Speaker 02

  And they say, "Okay, your brother died. We hope it was..." I know this is painful, but I hope it was slow and painful, and I hope Charles is even worse. That's the kind of crap we get. But anyway, the biggest push has been for us to go public. "God, we'll be worth so much," and stuff. And I think our view, we never could have accomplished what we've had. First of all, we never would have built a principle-based framework.

• 47:48Speaker 02

  And then, we never would have been able to pull off this capability-bound versus industry-bound. Because then, I mean, people don't understand it. Now, if you're Buffett and you've sold that long, then people, "Okay, but he wasn't trying to integrate them the way we do. No one would believe it." And so, and that's because you've got to have a story that people, the analysts, can understand. Otherwise, we would, like George Pacific, we would have a low price/earnings ratio.

• 48:27David Friedberg?

  And so, being private, being in Wichita, competitive advantages. What about being owner-operated or founder-operated? There's this argument that the best Silicon Valley companies are those who are founder-led for as long as possible, because the founders are willing to destroy the business creatively. They're willing to think about what's over the hill, make the tough decisions, reinvent the company, hire and fire as needed, be willing to take the short-term financial loss for the long term. Have you been able to get that to distill down into the organization? Because that's the thing that most public companies that are not owner-operated deal with and struggle with, is managers that are short-term incentivized and can't take the big risks and the risks of failure that you're able to embrace.

• 49:11Speaker 02

  No, but I think it depends on the values of the owners. If, like, one of our principles is that any good partnership of any kind, whether it's marriage, friend, employee, partner, requires three things. It requires shared vision, shared values, and having complementary capabilities that you use to make each other better. And if you'd miss any one of those, you're not gonna have a lasting, good partnership. And so I remember I was, I was to the YPO group in Wichita, I was presenting, this is like 20

• 49:54Speaker 02

  years ago, presenting what we were doing and why, and one of them said, "Well, how do you get that to work in a private company?" And, and I answered, "Well, no, it's easier than in a public company, just like I did." And then I, I thought who it was, and he was talking about his father. His father was a total dictator. And there's no way he could apply any of these principles in that. So it all matters who the owners are and what their values are.

• 50:30David Friedberg?

  Can a public CEO that doesn't have a big ownership stake in the company, adopt these principles and transform the culture of that company?

• 50:36Speaker 02

  Well, if you can get, if you can sell it like Buffett has, but I mean, he wasn't doing these principles, but he had a different principle, and that is, "I'm gonna buy a company, it's not gonna take top price, but what's meaningful to them is they run it, so I'm gonna buy it and let them run it." And so that was his, his value that he sold that made him, and the other one was buying insurance companies, so you'd have a lot of liquidity to go do all these things. And those two things are what made him successful.

• 51:11David Friedberg?

  Right. Chase, I wanna just go back to your getting involved in the business.

• 51:15Speaker 01

  Yep.

• 51:16David Friedberg?

  We didn't get into that, but how did you get started at Coke? And were you always a believer in the principles from a young age? Were you around the organization, around your dad?

• 51:25Speaker 01

  Are you kidding? I'm gonna chip off the old block. It took me a while to come around.

• 51:32Speaker 02

  No, this is the most remarkable transformation, I've been talking about them all even, this is the primo.

• 51:39Speaker 01

  Here we go.

• 51:40Speaker 02

  Unbelievable.

• 51:41Speaker 01

  Do I get to tell my story?

• 51:42Speaker 02

  To the absolute bottom, to the absolute top. No, he's blown beyond me. He's doing things I wouldn't. Wouldn't even dream of or have the capability to do.

• 51:53Speaker 01

  So he'll correct.

• 51:53Speaker 02

  Unbelievable.

• 51:54Speaker 01

  He'll correct me 10 times as I tell the story.

• 51:58Speaker 02

  Well, because you're too damn humble.

• 52:01Speaker 01

  So I didn't start when I was six. I started when I was 15. So he caught me some slack, but it's because I was a pretty competitive tennis player.

• 52:09Speaker 02

  He was nationally ranked.

• 52:10Speaker 01

  Until I was 15.

• 52:11Speaker 02

  He was nationally ranked.

• 52:12Speaker 01

  That's first, first time. So, but at 15, I got burned out, you know, tennis, like typical story where I wanted to hang out with my friends. I wanted to have a good time. I was tired of playing six hours a day. So I, I started throwing tennis matches intentionally to get out of it, out of these tournaments. So I'd go home and party with my friends and, and he, he said, look, your attitude is terrible. You can either give a hundred percent on the tennis court and apply yourself, or I'm going to get you a job. I said, I'm sick of tennis. I'm done with it. And so I had, my, the job was figured out the next morning for me.

• 52:50Speaker 02

  Yeah, but I gotta interrupt again because this is important. He thought he would get a nice cushy job in Wichita so he'd go out and party with his friends at night.

• 53:00Speaker 01

  Yeah.

• 53:00Speaker 02

  Well, you know, I'm, I may be old and slow, but I'm not that slow.

• 53:07Speaker 01

  Yeah, he was kicked out of a number of schools.

• 53:09Speaker 02

  I was born at night, but not last night.

• 53:12Speaker 01

  But yeah, so.

• 53:13David Friedberg?

  There's probably a, a parallel story movie that could be made.

• 53:16Speaker 01

  Yeah, no, seriously. There, there really is.

• 53:19David Friedberg?

  Yeah.

• 53:19Speaker 01

  But basically all my [BLEEP] was packed for me.

• 53:21David Friedberg?

  Yeah.

• 53:22Speaker 01

  And it was thrown in the back of a truck and six hours later I showed up at a, at a feed yard and I lived in a single wide trailer the whole summer with, with my boss. I slept on the floor, worked seven days a week and just shoveled cow shit and dug post holes.

• 53:37Speaker 02

  No, Puffy Boils, forget about that. You're Puffy Boils.

• 53:42Speaker 01

  Let's keep it manageable here. So, um, so anyway, um, but the, the, the interesting part of that story, even though I went from literally being like, uh, you know, kind of country club rich kid to. To doing that within 24 hours, it was an absolute transformation for me. The fact that he kind of, he made me do that. And I chose, but I didn't know what I was exactly, you know, choosing. But by, after, you know, I was a month or two into this job, I started like actually feeling like better about myself. You know, I was like, I hadn't really made a contribution up till that point in life. And then I'm actually, I'm working with a team, I'm getting paid minimum wage, I'm working my tail off.

• 54:28Speaker 01

  I'm adding value, even though it may be like just menial work. And this is, I go back to a letter that his father, you know, wrote to him and his other three brothers.

• 54:42Speaker 02

  No, no, my, my older brother.

• 54:44Speaker 01

  Your older brother.

• 54:45Speaker 02

  Cause I was three months old when he wrote it.

• 54:47Speaker 01

  This letter about, basically like, when I pass on, you're gonna get what seems to be a large sum of money. I hope you don't squander it. I hope you don't use it for, but I hope you actually apply yourself because I want you to feel the glorious feeling of accomplishment. And it's a really amazing letter. He has it hung in his office. But I, you know, that was the first time I felt that. Even though I was working at a feed yard, I was like, this feels good, actually. You know, I could have gone down the path of, you know, just kind of staying on the tennis circuit. I have no idea where I'd end up in life, had I, had I not gone down that path.

• 55:30Speaker 01

  And so I basically worked every summer for Coke from that summer on. I worked in the gas liquids plant, I worked in our refineries. All the way through junior year in college, I always had a Coke, you know, kind of summer job. But another, so that was an absolute like transformation for me, in my life.

• 55:48Speaker 02

  Let me, I give you one more credit here. See, he has great humor, which is great, but, and that is, Chase has, I have this gift for abstractions. He's, he's like his mother. He has a gift for people. He understands people and can relate to them and he can go around like, like she can, or Sterling Varner, who was our president in the early days, who by the way, was born. His father had ran mules in an oil field camp and he was born in a tent and they damn

• 56:26Speaker 02

  near died, never went to college and whoever he met with wanted to do business with us. And that's the way Chase is, he goes around, meets these people and all of a sudden they're friends and they want to do business and that's true for staying together too. People you think, oh, they don't want these capitalists or these free enterprise people to do business with them and he gets them on our side and shows them the value of these principles.

• 57:06Speaker 01

  Well, let me make-

• 57:07Speaker 02

  Is that fair?

• 57:08Speaker 01

  Whatever you said. No, I mean, that's my job, that's what I do now, origination and partnerships and about the time I met you, that's when I started getting into technology and trying to build a new community so that we could get access to the most disruptive founders. But one quick story I want to tell because I think it'll be helpful for your audience as well that we haven't touched on yet is the principle of comparative advantage is another meaningful like total shift in my job at Coke and my role at Coke, but also in my personal life was when I was running the ag business, this was later on, we talked about the late 90s, the gas to bread spread and all that, this is a separate business

• 57:53Speaker 01

  with Coke Fertilizer. I spent 10 years in that business really understanding the operations of a business. I worked in sales and in marketing and the accounting, the finance, like every piece of it, the trading. And I ran a lot of the smaller business units, but at one point, my boss at the time wanted to add a whole natural gas trading business to it. So he's like, hey, I gotta, I wanna put a parent company called Ag and Energy Solutions and I want you, I'm gonna throw you the keys to the fertilizer business, you're ready to run it. And so I was promoted to president of Coke Fertilizer. At that time and about nine months in, I realized that I was not the guy for the job. And I walked in my boss, my boss's office and fired myself.

• 58:38Speaker 01

  And humiliating, right? It's like, especially being the boss's son and like thinking about, oh my God, I'm a failure. You know, I could, I couldn't make this work. The business was still doing fine, but I wasn't doing a good job as a leader. And I knew there was someone else that had the comparative advantage to be a great operator, CEO, you know, a president type role. And so I learned through all that, you call it a failure in, in that job, that, um, that I wasn't an operator and I wasn't a good optimization type leader. And I was a builder, like all I wanted to do was go work on the innovation stuff. That was about the time I met you and I learned about Climate Corp and all that.

• 59:23Speaker 01

  I just wanted to go focus on that and then go build the stuff, you know, this whole idea of creative destruction that would disrupt the core business that I was running. And so that whole thing around like understanding your comparative advantage, what you're good at and what you're not relative to others that could be doing that job, was a huge deal. And like my hope was that that was a little bit of an example for other like Coke leaders as well. It's like, if you're not in the right job, like, you know, you don't have to like fire yourself, but, um, but figure out where, what your power ally really is and where you can contribute and, and, um, and add the most value.

• 1:00:04Speaker 01

  So that experience for me, what was amazing, if you look at like what happened after that, we, we got a great president to continue to transform the fertilizer business. It's one of our most exciting businesses today and we keep, we keep growing with it. So that, that did better than it would have done had I stayed in the role. But then all of this led to Coke Disruptive Technologies, which we talked about, which is a totally, you know, an innovation platform for Coke to, to see around corners. So like that one move made one large business much better and, and also.

• 1:00:39Speaker 01

  Created a whole new thing, right? And so like, I always think about, it's like, we have 130,000 employees. What if that one principle, comparative advantage? What if everyone like deeply understood that? And redesigned their role to where they're truly like in their power rally? And what are the results of the business if we could do that? You're never gonna be perfect, but that's the vision that we have and how we

• 1:01:04David Friedberg?

  For the organization.

• 1:01:04Speaker 01

  For the organization.

• 1:01:05David Friedberg?

  So thinking about individuals. How do I self-actualize? How do I find my path of purpose, happiness, success in life by leveraging these sorts of principles in a world that feels radically transforming and continuously constrained? I don't have infinite flexibility. I'm not on the board of Coke. I'm not on the board of my company that I'm employed by. How do I find a path in this world? Because I do think many people today are struggling for that sense of purpose, for that sense of identity, for that sense of realizing their potential and feeling fulfillment in work today.

• 1:01:48Speaker 02

  Well, that's, I mean, that's critical and that's, that's why every, all the, we have, what, 20-some thousand supervisors in the company? And so this is one of their top jobs, is making sure that each employee is in the right role. For example, they're working hard and trying and part of the work they're doing well in and others not. Well, rather than beaten up, you gotta keep doing better. Like, there's certain things if you told me I had to do, I mean, I'm good at concepts

• 1:02:28Speaker 02

  and logic and math, and to go do something else that's quite different, I mean, I'd be a total failure. And you could whip me till I was a grease spot on the floor and I couldn't do better. And so that's the role of the supervisors, to not go tell them, "Okay, your role is to go do this." And they're just trying harder and harder. And so you're making them miserable, and so they hate you, they hate the company. And so that's, that's the way you empower them. That's what, what Maslow said. If, he said that, that if everyone has capability.

• 1:03:07Speaker 02

  And, and if, if you don't develop it and apply it in a way that creates value for others, you will be, you, you may be successful monetarily, or in some way, but you'll be deeply unhappy your whole life, because you won't be fulfilling your nature. Your nature, and I know what mine is, I know what makes people say, "Well, you're 90. Why don't you go out and lie on the beach?" I said, "What, you want me to die? I'd be dead in, in, in a week."

• 1:03:39David Friedberg?

  It's not your nature.

• 1:03:40Speaker 02

  No, it's not my nature. My nature is to, is to, I have this gift. And a lot of our people here may say, "Yeah, you're damn right, you use it too damn much," so.

• 1:03:51David Friedberg?

  What keeps most people from realizing their gift?

• 1:03:53Speaker 02

  Well, I, I think part of it is an education system. So the schools need to be set up, "Okay, we're gonna help you find your gift and what you're passionate about." And, and, and, and what is motivating to you. So, the whole system demotivates you, and that's what the way businesses are managed, you're demotivating. Our whole deal, that's why we, we have five dimensions in the, in the way we apply this. The first is vision, you gotta get the right vision, like what capabilities creating value for others. Uh, then, then it's virtue and talents, we, we've talked about that.

• 1:04:32Speaker 02

  Then it's knowledge, that's republic of, of science, uh, creative destruction, all those things. And then the, the final one is motivation. And so that's what we need to do. And like Joe Lamont has created the schools, he says 90% or 80% motivation.

• 1:04:52Speaker 02

  And so you have games, you have other things that the kids can do that they learn from and enjoy doing, they want to do more. And that's, I mean, I raised our kids with these principles and I made them do it. So I was piss poor applying my principles in, in teaching them this. And he's doing it, he makes a game out of it. He has them reading the book and parts of it. And then they have competition on who can do it better and who's, who's living up to this better? Who's applying this principle better? And they're loving it.

• 1:05:27Speaker 01

  Yeah, I'm not having my kids listen to books on tape from Milton Friedman when they're 10 years old.

• 1:05:32Speaker 02

  No Aristotle.

• 1:05:33Speaker 01

  Aristotle, there's, there's plenty of them. Um, but, um, but let me just make a comment.

• 1:05:40David Friedberg?

  You were told or suggested or encouraged to listen to Aristotle on tape?

• 1:05:45Speaker 01

  Yeah.

• 1:05:46David Friedberg?

  Yeah.

• 1:05:48Speaker 02

  No, he wasn't encouraged, no. We'd go Sunday evenings.

• 1:05:52David Friedberg?

  I gotta take a note for my.

• 1:05:53Speaker 02

  Elizabeth and, and Chase and I would go into my library and I would play these tapes. I'd only play it for 10 minutes because I knew Chase's attention span. Elizabeth was on it, boy, she was on it.

• 1:06:05Speaker 01

  She ran circles around me.

• 1:06:06Speaker 02

  She was getting straight A's and everything. And Chase would fall asleep and then I, then I, after 10 minutes, I'd wake him up. And okay, what, what was his point here?

• 1:06:17Speaker 01

  It's a test every 15 minutes.

• 1:06:19Speaker 02

  And then you may have seen on, on, where was it where you talked about, about you, we, we worked together to do your Aristotle term paper?

• 1:06:29Speaker 01

  Yes.

• 1:06:30Speaker 02

  And why don't you tell that story?

• 1:06:32Speaker 01

  Okay, well, I mean, we had a, it was like a fifth grade paper, like choose your philosopher, write about it. You know, it's gotta be 500 words or whatever. So I came, I was like, I don't know, like what philosopher am I gonna write about? And so he's like, you're gonna write about Aristotle and we're gonna work together on it. But I learned a hell of a lot about Aristotle in, in fifth grade. And I turned in the paper and the professor had a lot of red ink all over it and said, F. You did not write this. And I'm, and so I'm like, oh God, you know, this is so embarrassing. And so I took it back to him and I told him, I said, Pop, um, we got an F on our paper.

• 1:07:13Speaker 01

  No, you said you got it in.

• 1:07:17Speaker 01

  So, and then I didn't think he was gonna pick up the phone and call the teacher. So, he said, you know, Dr. Cohen, I'll never forget this. I was hiding under the table during this phone call. He said, "Dr. Cohen, you know, I helped my son write this paper and he learned a lot from it. And yet, you know, do you not want me to help my son? Do you not want any parents to help their kids like learn?" And, and he said, you know, "I think you have a point, Mr. Cohen." And so the next day- I'm sure he did. And the next day I come back and it had 99 written on the top.

• 1:07:54Speaker 01

  See? I made a contribution. Let me, let me, let me go back. It's a great story, I know. But, um, let me go back to something I think you were getting at, um, around how do you remove more barriers for more people? Um, and this is really kind of the Stand Together story. He mentioned education. I just want to use one example of how important we feel like transforming education is. Then we also feel like it's a movement with tremendous opportunity right now. And so, um, our vision for education is to go from a teach-to-test model, teacher at the front of the classroom, you know, talking at kids, to one that's individualized education.

• 1:08:39Speaker 01

  Because we all, as we talked about, we all learn differently. Everyone learns differently. Yeah, and our kid, all of our kids have learned differently as well. So, um, we did the research at Stand Together and prior to COVID- And Stand Together just- Oh yeah, sorry. So Stand Together, for those that don't know, this is really, um, you know, comes from my father's efforts on social change, which he's been working on for, for 60 years. And Stand Together in 2003 was created that really, um, I think we had the insight of, we can do a lot more together versus do it alone. If we operate in philanthropy and social change and silos, we're just not gonna get the leverage to drive the change that we want to.

• 1:09:22Speaker 01

  So Stand Together is made up of, you know, close to a thousand business leaders. It's it's just like the name describes. It's a community of business leaders that align on vision and values on where we want to see the country. And it's really around this this this pretty simple idea that every human has a gift. But there's so many barriers across all of our institutions, education, you know, broken education system, a broken criminal justice system, bad policy holding people back so you can't chase the American dream and build a business. All of these things, right? So we're very broad in terms of the issues that we focus on. But education is one of the biggest ones.

• 1:10:05Speaker 01

  And so I described the vision of where we're trying to help take it and be a catalyst for change. And one of the things that, you know, we do a lot of research on where public opinion is. And prior to COVID, roughly 20% of families were open to a new model of education, very low, right? And then everyone saw during COVID how screwed up the system was. And they saw their kids come home and they learned a hell of a lot more on YouTube learning than they actually did in the classroom. So after after COVID, three or four years later, you look at that same data and it's 70 to 80% families are open to a completely, you know, to transform the education system. Because everyone now understands that it's just broken.

• 1:10:47Speaker 01

  So we're we're supporting, we have these amazing preferred partnerships, as my father described, whether it's Joe Lamont with what he's doing at the Alpha School, like closing the motivation gap and meeting kids where they are and bringing like gamification and like the principles of Fortnite into education. In a way that kids are like, he's taking kids that are failing students to top of the class in three months. Meeting them where they're at. Meeting them where they're they're at and solving the motivation gap and like making learning fun and cool. Right? Sal Khan did the same. He's a huge partner with Khan Academy. And a really interesting one that we we partnered with the Walton family on is the Vela Fund, basically applying venture capital.

• 1:11:32Speaker 01

  To education entrepreneurs. So coming out of COVID, there were thousands of pissed off parents and teachers that were just fed up with the systems. Like, I'm just gonna create my own school. You know, these small microschools. And so with a relatively modest amount of money, over the last five, six years, we've helped create and seed over 5,000 schools. So what's happening is there's this huge movement where people see is like, my kids are learning the skills of what the future is gonna be like. Not this teach-to-test model where you don't know how to interact with people. The reality is it's project-based learning. They need to have exposure to these AI models. You don't ban them.

• 1:12:17Speaker 01

  You empower them with these models. Right? And so it's one of the most exciting movements that I think Stand Together is really leading on. And, you know, we need more partners that are willing to get behind this.

• 1:12:31David Friedberg?

  I want to go back though, Charles. This work at Stand Together has like taken off. I know a lot of people that are engaging with you, Chase, on this work. And everything you say is so sensible and it's also, it always feels so obvious. Can we go back to the work you've done historically in social change? And what you got right, what you got wrong? Because the narrow view of the word coke comes from a broad public perception of political activity that I think's been amplified and the narrative's been written for you. And I don't think I've personally seen a lot of conversation publicly from you about what you did, when, how you were thinking about social change. Maybe you can go back to the origins of the work you started to engage in and try to drive social change. And over time, what you got right, what you got wrong?

• 1:13:15Speaker 02

  Well, it started with these principles. I mean, to me, they're the principles of human progress. But rather than, than, as Frederick Douglass say, "I'll work with anyone to do right, no one to do wrong." I was only working with

• 1:13:34Speaker 02

  the people who believed in all of these.

• 1:13:39Speaker 02

  And so, we were limited. I mean, I worked with the Libertarian Party, and that got so narrow, and then they started fighting over who has bigger, more purity in these principles to get it exactly like. And one brilliant guy, but totally this way, he said, "My Libertarian is this plum line. Anybody disagrees, I purge." So it's almost like the Communist Party doing the same thing that Lenin did. And they admired Lenin. "Yeah, he had the right strategy." "Well, no, you can't go murder anybody that does like." So it doesn't work for liberty. It works for totalitarianism.

• 1:14:22Speaker 02

  And so, and then I started reading Maslow, "Usaikean Management," and his strategy. And then Viktor Frankl is the one that really got me going. And Viktor Frankl, this tremendous insight. He says, "The problem today is ever more people have the means to live and no meaning to live for." So if you can't find a path to a life of meaning, which comes from, as I said, from finding your gift

• 1:15:07Speaker 02

  and using it to succeed by helping others succeed in a way that gives your life meaning, then you have two choices. You can either choose to go for power or you can go for pleasure. And you see this today, and you see this through the history of the world. So if you choose power, then you're always gonna want, you become addicted to power. "I want more power. I need more power." And we've seen that, as I said, in our businesses. But you damn sure see that in politicians. And you see that in all the dictators in the world.

• 1:15:51Speaker 02

  Then, if you say, if you've given up, and you say, "Well, I've given up, I'm going to go for pleasure." And you dedicate yourself to pleasure without considering the long-term consequences, then you're going to experience failure. You also have a tendency to become addicted, an addict, to become suicidal, and to even engage in crime. And we see both of these today.

• 1:16:35Speaker 02

  So the problem today is when you have a world that is based on power and pleasure, it's a slippery slope to totalitarianism, authoritarianism, and socialism. And that's what we're saying today. So that's the solution, is to help people find their gift and a way to apply it that enables them to succeed by helping others succeed. And so what does that mean? That means we need to, all of us, more fully live up to the promise

• 1:17:20Speaker 02

  and the Declaration of Independence to better apply these principles of human progress. And then the other thing that I screwed up on is for the first, I've been at this more than 60 years.

• 1:17:42Speaker 02

  And for the first 50, I avoided politics, or major party politics. I mean, being in a libertarian party, there was no thought of winning. The only reason I got into that is, well, this is a time people are listening. They're interested in politics, so we'll engage in that, because people are talking, so we'll throw that in the hopper in hopes it takes on. Well, the way that we did it, it didn't take on at all. It blew up in our face. But we decided we needed to get in, because we desperately needed some principle-based policies. Look at all the policies that we have today. They're destructive. They're leading to more and more power and pleasure. Socialism and authoritarianism.

• 1:18:27Speaker 02

  And the mistake we made, or I made, is trying to do it through one party. You can't do that. So now, we follow Frederick Douglass's advice, to work with anyone to do right and no one to do wrong.

• 1:18:44David Friedberg?

  Where are we in the cycle? So there's a rising number of political leaders around the country. Initially, it was in local elections, and now it's on kind of the national stage, declaring themselves socialist, or some form of socialism. Are we kind of on an upswing?

• 1:19:02Speaker 02

  Upswing? What are we doing?

• 1:19:04David Friedberg?

  Is there a socialist...

• 1:19:05Speaker 02

  I thought hell was down, not up. Damn.

• 1:19:11David Friedberg?

  So, where are we?

• 1:19:15Speaker 02

  I think we continue this by, we're going to hell in a basket. It's what, it's what Thomas Jefferson, he had slaves, but what he said about slavery, he says, "If God is just, I despair for the future of our country." That's kind of where I am. "If God is just, I despair for the future of the country." The people we're electing, both Republicans and Democrats, I mean, and the mistreatment, I mean, you look at what's being done, I mean, occupational licensure, the way they're

• 1:19:56Speaker 02

  treating illegal immigrants, you name it, across the board, and the socialists, the way they're treating all the crime, all of that is...

• 1:20:12Speaker 02

  It's what we, we've got to elect people who have some principles beyond power and pleasure.

• 1:20:22David Friedberg?

  What are your principles for changing people's minds?

• 1:20:24Speaker 02

  It's what Chase says, we find them where we are, just like we have in the company. And we show them, this doesn't get results. Now, if you're, if you're a dedicated communist, if you're like, like Trotsky is, if we can get rid of private property, we'll get, we'll get rid of greed. And then every, every man will be a Goethe and a Beethoven. And we will, uh, or we will be able to create ever-ready warehouses of all the goods. And everybody can go in, because out of their goodwill, they'll be making all this stuff.

• 1:21:06Speaker 02

  If people still have those fantasies, it's never worked in history.

• 1:21:12David Friedberg?

  But it's different this time.

• 1:21:14Speaker 02

  Yeah, that's, well, that's right. And so, that's what we're trying to do at Stand Together.

• 1:21:21Speaker 01

  Dave, what we've learned on this is that to change minds and change paradigms, you show versus tell. And go back to what we were talking about before, bottom-up empowerment, as opposed to top-down control. I mean, I think that's like a overarching umbrella principle on all of these. So, our whole thing was Stand Together, and that's, I think, why it's growing exponentially, is because we have stories of, we believe in people. We don't need top-down to come in and tell people how to solve problems.

• 1:21:52Speaker 02

  That's the book that Brian Hooks and I wrote, which we just, we have a new edition, based on the 250. And we got, Martin Luther King III wrote a foreword to it, and...

• 1:22:06Speaker 02

  And that's another book besides this one. If you're interested in these ideas we're talking about on social change, there's much more in that than this book on that. Although, we have quite a bit on this book.

• 1:22:19Speaker 01

  One of the key concepts in that is, if you believe that people aren't the problems to be solved, the people that are in the problem, they're the ones with the best ideas and they're the source of the solution. That's a totally different mindset, right? And I mean, that's what Stand Together does. We talk about venture capital a lot. We bet on people that have found something that works. I'll just give a quick example. Scott Strode from The Phoenix. We found Scott. His story is amazing. It was about eight years ago, where he battled addiction most of his life. He had a mentor that put him in the gym and got him boxing gloves and like, exercise was the thing that helped him kick addiction. And what he did is like, well, if this helps me,

• 1:23:04Speaker 01

  I think I can help other people with this same concept. He built a gym called The Phoenix, combined the power of community with others that are struggling with the same thing, you know, multiplied by the power of exercise and he was getting insane results. Like, relapse rates that were below 10%. So, what we do is like, instead of like, some top-down program to handle addiction, go bet on Scott. And that's what we've done the last seven or eight years is we've gone from, he had a couple gyms in Colorado when we met him, you know, impacting a couple thousand people. He just hit a million people, basically overcoming addiction this last year. That's a movement, right? And I mean, that's a key difference, I think, of Stand Together.

• 1:23:48Speaker 01

  It's like, how do you do what you're talking about at scale? And help people change paradigms? You show them with stories like Scott, that let's believe in the people, let's bet on them to transform society.

• 1:23:59David Friedberg?

  For addiction and crime, that resonates wholeheartedly. Let me ask about the economic condition of America. Kids are graduating college, they got hundreds of thousands of dollars in student loan debt. No one can afford to go to the doctor. Grocery bills are too high, people are worried about paying for their next grocery bill. You look at the polling data, the survey data. The average American is really struggling. I think more than half of Americans, 60-plus percent, maybe 63 percent, have negative equity. They have more debt than they have assets. And everything's getting more expensive and no one's moving up the economic ladder. There's no mobility anymore. People are really struggling and then they're looking on TV and they're seeing spaceships launching up to space, holding flowers out the window, smiling and laughing.

• 1:24:41David Friedberg?

  And it's a really dark time and it really leads people down this path of I need the government to help me. I need support, I need help, I need to elect the people that will fix this for me. How do we address the economic crisis that's facing the average person in America? The lack of economic mobility, the principles around these distraught situations. Fantastic, but this fundamental economic crisis that we're facing.

• 1:25:04Speaker 02

  That's a damn good question. It's like, here's the question. Okay, the eggs have been scrambled, it's your job to unscramble them.

• 1:25:13David Friedberg?

  Right.

• 1:25:14Speaker 02

  So that's the problem. Once you create these entitlements, I mean, you almost can never get rid of them. You almost need... Well, maybe Argentina, if he can pull off what he's doing, because they were in worse shape.

• 1:25:34David Friedberg?

  But they went through it.

• 1:25:35Speaker 02

  Yeah.

• 1:25:35David Friedberg?

  We even went through it.

• 1:25:37Speaker 02

  Well, we're getting there.

• 1:25:39David Friedberg?

  Well, let me ask a question. Does capitalism work long-term? And let me give you an argument why it might not. The success at Koch Industries is built on an algorithm. Your principles, and you've been able to adapt that algorithm and as a result, scale your business, generate cash, reinvest that cash, generate more cash, reinvest that cash, and so on. And you've scaled 9,000x. You've built a compounding advantage in your business.

• 1:26:00Speaker 02

  Right.

• 1:26:01David Friedberg?

  As is the case with all successful capitalists, you build a compounding advantage. The problem with compounding in any system is it eventually eats all of the whatevers in the system or it makes it hard for others to compete in that system or participate effectively in that system. And that's the argument that's being made today against capitalism. How do we counter that idea and share that capitalism should be more accessible to all? That everyone can participate and everyone can benefit? That it doesn't end up in this monopolistic end state where no one...

• 1:26:29Speaker 02

  Well, it starts from removing the barriers. That's what I said. We've got to work for a system where we remove the barriers that are holding people back from realizing their potential, finding their gifts, realizing their potential, and succeeding by contributing. Okay, so, I mean, I mean, so we should start, like occupational licensing. All of this, there are hundreds of, hundreds, as you know, of occupations where they make it so tough, all the local people who are in that business make it impossible for anybody who starts with nothing to do it.

• 1:27:13Speaker 02

  And then, and then the way we're treating illegal immigrants, the one here working and contributing, we harass them and are going to kick them out. No, we ought to welcome them and kick some of the others, the bad ones out. But, I mean, so, some of this is, is basic, and then we, we've got to reward people who want to contribute. That's why we keep, you've got to get people to be contribution motivated. Then you're going to have a life of meaning. And, and that's what Viktor Viktor Frankl was trying to tell us. And if we don't, we're, we're going to fail. And we're failing because we're taking away the chance for most people to have a life

• 1:27:58Speaker 02

  of meaning, because we're setting up all these obstacles. And, and I'm not picking on one party or the other, they're both doing it. And then set up all these tariffs which undermine the division labor by comparative advantage, which makes everything more expensive. So it's just, I mean, everywhere you look, it's a, it's a tragedy.

• 1:28:19David Friedberg?

  There's a debate happening at this moment on AI, regulating AI. How does AI become an enabler of self-actualization, giving every individual the capacity to develop themselves, accelerate and succeed, versus making a fewer number of people even more wealthy and taking jobs away from the masses? What's your view on where AI is taking us?

• 1:28:38Speaker 02

  Well, it's, it depends on how it's done. I mean, that's why we back Cosmos, who is, who is doing, backing people who do AI based on these principles of market-based management, based on these... These principles of human progress. And, and, and why don't you tell everybody what you've done in the, in the book with AI?

• 1:29:01Speaker 01

  I mean, just one principle on like our approach to AI is just simple concept of permissionless innovation. I mean, the cost of AI to get it in people's hands is dropping it just to an incredibly cheap level that hopefully everyone can have access to that. And then combine that with their gifts to unlock their potential and learn 10, 100x faster. That's, I mean, from an AI standpoint, that's, that's, that's our mindset on it. But, and that's what we're doing internally at Coke as well. Like, I think one of the most exciting innovations that we have is all around human empowerment, back to bottom up empowerment with principles. So not only are we, you know, trying to make sure that we have the right supervisors

• 1:29:44Speaker 01

  that are helping people, you know, understand the principles so they can apply them. Um, you know, with the book, we've created an app. Um, I sent it to you, Dave. I don't know if you, you played with it or not, but it's called Principal Companion. You can download it in the App Store. And, um, it's really taking off within Coke because it's just another way to engage with principles in a very simple way and meeting people where they are. Um, whether it's ChatGPT or Claude and solving a problem in five to 10 minutes that otherwise would have taken a long time. We're basically powering it with the principles that are in the book to like any problem. So it's one field, you know, whatever your problem is in business and philanthropy. And if you run a sports team or you're having problems with your kids.

• 1:30:28Speaker 02

  Yeah, yeah.

• 1:30:29Speaker 01

  It helps you with that, right? And so I think that's just one example of how we're trying to like really drive.

• 1:30:34Speaker 02

  And it doesn't give you an, you can't say, well, I got this problem. What's the answer? No, it asks you questions. Okay, okay, given that, have you thought about this? Have you thought about that? So it's a Socratic method and we know what happened to Socrates.

• 1:30:51David Friedberg?

  Yeah, okay. So listen, we're gonna need to wrap in a minute, but before we do, Chase, you know, what was the experience like writing the book with your dad? What's it like working with your dad?

• 1:31:02Speaker 01

  Yeah.

• 1:31:02David Friedberg?

  And what's the biggest lesson, lessons learned from your dad? Yeah. I want to give you a chance.

• 1:31:08Speaker 01

  Absolutely incredible. I'd say it's probably the most important project that I've ever worked on. I'm getting invited into writing this book and I've said to many people, I've learned more in the last 18 months than I probably have the last 18 years, just because when you write something, as you know, the depth of learning and going back into the details of the stories, figuring out how to tell that story in a book in a way that connects with as many people as possible. I always say like, you really don't know something until you have to teach it. And writing a book is a form of like trying to teach others with it. So my depth of learning, because I got to be alongside this guy,

• 1:31:50Speaker 01

  and there's many others across Coke that contributed to this book as well. But learned a tremendous amount. The other thing of just doing this with him, he applied the principles to the book writing process. Right, so it's like everything and it's so consistent. It almost like drives you nuts, right? In terms of applying principles to everything. But principles like openness, creative. He's written, this is his fifth book, this is my first. But he wanted to drive creative destruction of his first four. Right, and so I think bringing me in to it, just bringing a fresh perspective, bringing technology to it and telling stories in a different way.

• 1:32:35Speaker 01

  That's an open mindset. He could have easily said, "Look, I'm the boss. I've done this before. What the hell do you know?" You know? But he had that mindset to it and, you know, applied the principles to it. But I will say, he's such a stickler with words. And you should talk to my mother about this and how it drives her effing nuts. But, so I got, I got kind of an 18-month window on what it's like to be mom, maybe. But, but...

• 1:33:06Speaker 01

  The, you know, we had one chapter in there on stewardship. And I think we're on, we're on version 27 of it or something like.

• 1:33:15Speaker 02

  Yeah, I rewrote it at least 15 times myself.

• 1:33:18Speaker 01

  You are not applying the principle of marginal analysis. Version 26 was pretty damn good.

• 1:33:26Speaker 02

  It was good enough.

• 1:33:27Speaker 01

  So anyway, we, but we had a lot of fun with it. Yeah, of course, there was tension in terms of how you'd write something or whatever. But overall, most important project I've ever worked.

• 1:33:37Speaker 02

  Yeah, now, words have meaning. I mean, people say, "The proof is in the pudding." No, the proof of the pudding is in the eating.

• 1:33:47Speaker 02

  For God's sake, that means nothing. The proof is in the pudding?

• 1:33:51David Friedberg?

  Yeah.

• 1:33:51Speaker 02

  What, you stuck your foot in it?

• 1:33:53David Friedberg?

  Yeah.

• 1:33:53Speaker 01

  He corrects a Coke leader on that in about every meeting we're in, so.

• 1:33:57Speaker 02

  Oh, and then I used to give grammar lessons at our discovery board.

• 1:34:01David Friedberg?

  What's it like working with Chase? What's it been like writing the book?

• 1:34:05Speaker 02

  It's, I mean, he is, I thought he'd help some with the book and he would get us a perspective, different perspective on how to reach young people and do some things and, and improve it from his perspective. But he's taken it to a whole level, like bringing in AI and have AI as the, as a principal companion to the book. And all of these that are way beyond me. So he's taken the, as he has in everything, taken it to a whole level beyond where I am.

• 1:34:38David Friedberg?

  You've written a lot of books. You've built an unbelievable business, one of the greatest on earth. You've engaged in extraordinary social and civic engagement. What do you want the legacy to be?

• 1:34:52Speaker 02

  I want us, I want our country to more fully live up to the promise in the Declaration of Independence.

• 1:35:00David Friedberg?

  Charles Koch, Chase Koch. Thank you.

• 1:35:03Speaker 02

  Thanks, sir.