No. 1 CEO: The Strategies I Used to Build 5 Billion-Dollar Companies (And How You Can Use Them)

The conversation dives into the intricacies of business strategy, focusing on the transformative power of acquisitions, technology, and effective leadership. The speaker, a successful CEO with a history of creating substantial shareholder value, emphasizes the importance of adaptability in business plans, the strategic use of technology, and the critical role of human capital. He highlights the need for a balanced approach to leveraging debt, the significance of non-judgmental concentration in leadership, and the profound impact of positive reinforcement on team performance. The discussion also touches on the speaker's personal motivations, underscoring a commitment to both professional excellence and meaningful personal relationships.

• A disorganized org chart can signal an opportunity for profit if it can be streamlined.
• Simplifying and optimizing organizational structures can lead to significant financial gains.

"So I looked at that org chart and said this is a messed up org chart which is great for making money if you can find something that's messed up and easy to unmess up, Booyah, there's your money, there's your opportunity to make a lot of money."

• Identifying inefficiencies in organizational structure is crucial for business success.
• Streamlining operations can transform a struggling company into a profitable one.

• Real growth often comes from mergers and acquisitions (M&A).
• Flexibility in business plans is essential as markets and economies change.

"You throw me off a little bit with the question because when you look at the numbers, the real growth has been through M&A, through Acquisitions."

• A rigid business plan can be detrimental; adaptability is key to seizing new opportunities.
• Successful businesses capitalize on changing circumstances rather than being overwhelmed by them.

• The most significant trend currently is artificial intelligence (AI).
• Technology, including AI, is advancing rapidly and will continue to shape the future.

"I'm most interested in AI because it is the trend, it is the number one trend whereby our technology software, that intelligence, will be able to consume so much information much more than we human beings can."

• AI is expected to surpass human capabilities in many areas, leading to a potential merging of technology and humanity.
• The singularity, where technology becomes more intelligent than humans, is a concept predicted by Ray Kurzweil.

"Ray predicts a singularity where technology becomes more intelligent, more capable than humans, and we merge with technology that we use so much technology in our own bodies with wearables and Nanobots."

• Technology can help distribute resources more efficiently and improve medicine and science.
• Advances in AI can lead to more rational thinking and better decision-making.

"With advances in technology, we will be able to distribute resources more intelligently and more abundantly and have more resources for more people."

• There are potential drawbacks, such as the loss of human traits and characteristics.

"Homo sapiens has become extinct and there's a new species, and I think he's probably right."

• Reflecting on one's thinking patterns and biases is crucial for personal and professional growth.
• Techniques from cognitive therapy and positive psychology can help in thinking more rationally and constructively.

"I've studied with various people who that's their specialty is analyzing how you think, and I did a couple years of therapy for three hours a week for a couple years."

• Rational thinking helps in business by keeping calm and collected in changing circumstances.
• Psychological tools and techniques are valuable in managing stress and making informed decisions.

• Understanding the wider context of situations is essential for spotting trends.
• Being a lifelong learner and maintaining curiosity is crucial for identifying emerging trends.

"I intentionally think about trends quite a bit because in business, you've got to get the major trend right."

• Engaging in continuous learning and asking questions helps in understanding trends better.

"I like to be a student more than a teacher. I find a lot of people make the mistake as they get older or they get more successful, they think they know everything."

• Being involved in the details of business operations is important for understanding and improving them.
• Combining team research with personal involvement leads to better decision-making.

"I do have a team that researches things for me, but I also like to roll up my sleeves and get into it myself."

• Personal involvement in acquisitions and business processes helps in identifying opportunities and making informed decisions.

• Creating a safe and non-judgmental environment is crucial for effective communication.
• Giving full attention and listening non-judgmentally fosters better relationships and understanding.

"You need to create an atmosphere, you need to create an environment that's a safe place, that's a zone where it's okay to be vulnerable."

• Techniques from therapy, such as non-judgmental concentration, can be applied in business to improve communication and decision-making.

"The most powerful thing you can do in a relationship, whether it's personal or professional, is to give someone your 100% attention."

• Meditation and mindfulness practices contribute to better mental health and decision-making.
• Combining different schools of thought helps in developing a personalized approach to life and business.

"My main hobby since I was a teenager has been meditation and various forms of meditation."

• Music and math have influenced the approach to business by fostering analytical and improvisational skills.

• Music and math contribute to business success by promoting analytical thinking and improvisation.
• Understanding relationships and patterns in music and math parallels understanding business dynamics.

"Business is about making money for shareholders at its core, and part of the ingredients to that formula involve analytical thought and careful analysis of numbers."

• Improvisation in music teaches flexibility and adaptability, which are crucial in business.

"Part of being a musician is embracing sounds no matter what they are, and that's the reality of the moment, and you should be in that reality and go with that."

• The acquisition of Conway, a less-than-truckload trucking company, exemplifies identifying and capitalizing on business opportunities.
• Simplifying and optimizing Conway's organizational structure led to significant financial gains.

"I bought in 2015 a less-than-truckload trucking company called Conway. It was a pivot because this was a hard asset business, but here was an opportunity to buy something really, really cheaply."

• Identifying inefficiencies and streamlining operations were key to transforming Conway into a profitable venture.

"This was a bad org chart. It had three different HRs and three different IT organizations and a lot of duplications. If you can find something that's messed up and easy to unmess up, Booyah, there's your money."

• The speaker discusses a significant pivot in their business strategy.
• They faced criticism from the market initially but had high conviction in their approach.
• The pivot resulted in substantial financial gains for the company.

"I saw a way we could significantly grow the profit margin in the cash flow that I pivoted... I got beat up real bad by the market... but assuming you're right and I know you have high conviction and you deliver the numbers over time, you're going to be a hero here."

• The speaker's conviction in their strategy was validated by the results, turning a $3 billion investment into a $15 billion valuation.

"We bought it for about $3 billion... today it's worth something like $15 billion... it's been an amazing amazing amazing ride and the returns... something like a 20 bagger 15 bagger a huge huge return on invested capital."

• The speaker attributes part of their success to their background in mathematics and music.
• These skills helped them see potential in complex situations and improvise effectively.

"Had I not been trained as a musician and a mathematician I don't know that I would have saw it... I don't know if I would have been able to have the courage to improvise and to change from what the script was."

• Emphasizes the importance of clear metrics and organization in business efficiency.

"If I didn't have the mathematical skills I would have been able to see okay this is a mess but we can make it clean."

• The primary responsibility in business is to generate returns for shareholders.
• Emphasizes the solemn responsibility of managing other people's money.

"In business the bottom line the report card is how much money did you generate for your shareholders."

• The speaker stresses the importance of being a good custodian of shareholder investments.

"You're a fiduciary in business... you're temporarily using their money and your job is to multiply that."

• Bad ideas can hide in complexity but are exposed in simplicity.
• Clear organization and metrics are crucial for efficiency and transparency.

"When it's a clean organization chart everyone's got clear KPIs... it's hard to hide inefficiencies."

• The importance of having clear goals and compensation tied to achieving those goals.

"Everyone has clear metrics everyone has clear goals and the compensation is tied to that and people are rewarded for achieving those goals."

• Discusses the balance of using leverage and the risks associated with too much debt.
• Emphasizes a cautious approach to debt, especially in volatile geopolitical climates.

"A Zen Buddhist approach to debt not too much not too little... I don't think you should have a lot of Leverage particularly in today's world."

• Highlights the need to manage debt effectively to avoid bankruptcy.

"Companies don't go bankrupt unless they have too much debt you go bankrupt from not being able to repay your debt."

• Advocates for a contrarian approach to business to achieve above-average returns.
• Shares personal experiences of taking significant risks that paid off.

"If you're going to do what everyone else thinks you're going to get returns that everyone else gets which is by definition average."

• The story of taking a contrarian position and betting on oneself to achieve success.

"I took a completely contrarian position... I swung for the fences... and as a result of not taking his advice and taking a contrarian position... we built a really nice oil Trading Company."

• Confidence and leadership skills were influenced by early life experiences and family.
• The impact of parental feedback on self-perception and confidence.

"My father insulting me on that gave me confidence... I have leadership skills you can become the president of your class."

• The speaker's mother's approval provided a significant confidence boost later in life.

"My mother... said I'm really happy each of you turned out so well... that moment might be the happiest moment of my life."

• Emphasizes the importance of positive feedback and human-centric leadership.
• Balancing positive and negative feedback for effective performance appraisals.

"I've learned that the relationship between a parent and a child is a real important experience... when you're in business particularly if you're the CEO you're the authority figure."

• Advocates for starting performance reviews with positive feedback and being sincere.

"I always start out with the Positive stuff... it's important to have that part of the conversation too because you need to help the person achieve more and do better."

• Importance of empathizing with customers and understanding their frustrations.
• Effective problem-solving requires understanding both the customer's words and emotions.

"I've got to empathize with that I've got to first I have to put my mind in their mind I've got to put myself in their shoes."

• The sequence of addressing customer issues involves understanding, empathizing, and action planning.

"I've got to show them that I've heard them I've felt them... and that I have an action plan to solve it."

• Effective meetings should balance positive and negative feedback.
• Ending meetings on a positive note is crucial for morale and motivation.

"I like to make it like an Oreo cookie I like to make the good stuff the negative stuff but then end on the good stuff."

• The psychological impact of how a meeting ends influences the overall perception and motivation of the participants.

"It's very important how you end a meeting for whatever reason psychologically how you end a meeting makes a big difference in how that person leaves the meeting."

• Tough Conversations on Compensation: Addressing compensation adjustments based on performance.
• Positive Reinforcement Exercises: Ending meetings with recognition of contributions and positive reflections.
• Gratitude and Well-Wishing: Exercises to promote team cohesion and positive feelings.

"Here's how we're going to tinker with compensation in order to reward people for doing better and to maybe eliminate their bonuses if they don't get better fast."

• Importance of linking compensation to performance improvement.

"I like to end on exercises... tell me someone in this room who said something or did something that made their star go up and why."

• Encouraging recognition of peers to foster a positive work environment.

"I want them to think to themselves, 'I really respect this person because...' and 'I hope this person has a fantastic future at this company.'"

• Promoting gratitude and well-wishing to build a supportive team culture.

• Long Meetings: Strategies to maintain engagement and end on a positive note.
• Silent Reflection: Ending meetings with a silent exercise to promote respect and admiration among team members.

"Sometimes we have 10-hour meetings... I like to end with getting everyone at the end of all that to stand in a circle... and spend five full minutes not saying a word."

• Using silence to foster reflection and mutual respect.

"I want everyone to look at each person and think to themselves, 'I really respect this person because...'"

• Encouraging team members to acknowledge each other's contributions and qualities.

• Personal Motivation: Emphasis on appreciation and purpose over financial gain.
• Role of Money: Viewing money as a report card rather than a defining factor.

"I don't define myself in terms of how much money I've made... it's a report card, but it's not who I am."

• Distinguishing personal identity from financial success.

"I thank them not for the $100 million... but for giving me motivation, inspiration, and a purpose."

• Valuing the support and motivation from investors and loved ones over financial contributions.

• Industry Selection: Importance of choosing the right industry for M&A.
• Integration Process: Emphasis on thorough integration post-acquisition.
• Standardization: Need for standardized systems across acquired companies.

"I love M&A as a way to create value for shareholders... I have to understand how am I going to scale up the business."

• M&A as a strategic tool for scaling and creating shareholder value.

"You first have to select an industry... could I apply my playbook to this industry?"

• Critical evaluation of potential industries for M&A suitability.

"Integration is extremely important... anybody can buy a company... the hard part is integrating them."

• Highlighting the challenges and importance of effective integration post-acquisition.

"I need standardized technology for customer relationship management... I like to have one company with one culture."

• Importance of standardizing systems and culture across the organization.

• Key Interview Questions: Questions to gain insights into company operations and potential improvements.
• Employee Involvement: Importance of involving employees in the evaluation process.

"I like to interview the top 15 or so people one-on-one... if this was your money, would you buy this company?"

• Gaining candid insights from key personnel during due diligence.

"I like to ask questions like that... what would you not change?"

• Identifying both strengths and areas for improvement within the company.

• Transparency and Involvement: Ensuring board members are well-informed and involved.
• Real Board Meetings: Focus on substantive discussions rather than rehearsed presentations.

"I want board members to be very, very informed... I want them to see the analysis of the customer surveys."

• Encouraging transparency and detailed knowledge among board members.

"I don't run board meetings the way most Fortune 500 company boards are run... I like to have real board meetings."

• Emphasis on genuine, unscripted discussions during board meetings.

"I learn a lot at the board meetings... the board meeting should be about the directors getting the information they need."

• Valuing the learning and insights gained from active and engaged board members.

• Agendas are collaboratively created with input from the lead independent director, vice chair, and CEO.
• The goal is to bring the right people into the room and let directors ask pertinent questions.
• Directors often suggest changes or additions to the agenda, such as including sections on human capital management.

"My goal is to get the right people in the room in front of the directors and then let the directors ask what they feel is right to ask."

• The speaker emphasizes not micromanaging the agenda to leverage the collective intelligence of the board.

"I am never going to be smarter than the sum of all the directors."

• The term "committee" is avoided due to its bureaucratic connotations.
• Decisions often require input from multiple disciplines (e.g., finance, operations, HR).
• Large-impact decisions involve C-level executives, while smaller decisions do not waste their time.

"I hate the word committee period... however, there are times when a group of people will have to make a decision because it's more than one discipline that's required to get to the right decision."

• FP&A is crucial for turning ideas into numbers, forecasts, projections, and probabilities.
• They play a significant role in budgeting, which is an ongoing, daily process.
• FP&A helps identify managers who might be sandbagging or overestimating outcomes.

"The FP&A people are the ones who are turning all these ideas... into forecasts, projections, and probabilities."

• FP&A is essential for capital allocation and ensuring time is spent on high-impact projects.
• They keep track of capital investment returns and time management within the organization.

"FP&A ends up being kind of omnipresent throughout the organization anytime we're making big decisions."

• The speaker's companies have grown through acquisitions, requiring capital from various sources.
• Results and meeting promises are crucial, even when not actively raising capital.
• Equity is raised cautiously, often during significant acquisitions.

"In order to do that you've got to meet your promises; your results matter."

• Focus remains on delivering financial metrics and maintaining rigorous attention to numbers, irrespective of capital-raising activities.

"Even though we weren't raising equity... we still paid extremely rigorous attention to how we doing on the numbers."

• The speaker respects individuals not motivated by money but prefers employees who are.
• Compensation plans are designed to align personal financial success with shareholder returns.
• Equity-based compensation is tied to total shareholder return (TSR).

"I want my company people who are absolutely motivated by money, who are raw capitalists."

• Recognition and financial rewards are used to motivate employees, with a preference for financial incentives.

"If I had to pick just one or two, the feel-good stuff or the money, I'm going with the money."

• Complete alignment between shareholder returns and employee compensation is crucial.
• Employees should not make money at the expense of shareholders and vice versa.

"You shouldn't have a complete alignment between how shareholders do with their investment in the company and how the employees do."

• Mike Moritz of Sequoia Capital is highlighted for turning small investments into significant returns.
• Dave Cote of Honeywell is noted for his rigorous capital allocation and achieving high returns on invested capital (ROIC).

"Immediately I'm thinking Mike Moritz at Sequoia... He's the genius of taking small amounts of money and turning them into huge amounts of money."

• The balance between quality and speed is essential; moving fast should not sacrifice quality.
• Intelligent planning and understanding inefficiencies are key to achieving both.

"You need both... The real golden mean is how do you move fast but move fast intelligently."

• People and technology are the two biggest needle movers in the last year.
• Working with a familiar and trusted team is highly valuable.
• Applying technology in industries that are behind can provide a competitive advantage.

"It's great to have the band back together... It's great to work with people that you know."

"I found an industry... where I can bring to the industry that's going to help."

• Professional success is defined by generating superior shareholder returns.
• Personal success involves enriching experiences and positive relationships with family and friends.

"For me, success is defined by how is my stock price performance versus everybody else's."

"Personally, it's about my family, it's about my friends, it's about my relationships with them."