Brad Jacobs – Masterclass on Leadership and Management (EP.368)

23:49Now, of course, we have to do the diligence that the lawyers need. We have to do the diligence that if there's lenders involved that they need, we have to do the basic fiduciary stuff. But I don't like to overdo it. I like to just do the, not quite the bare minimum of that stuff, but towards the bare minimum, the essential stuff that we must do, but not do all the little stuff that's really not important. And I want to spend a lot of time understanding the culture. I want to understand the people and I want to understand the systems. Now, ironically, I want the people to be great. I'm not really upset if it's systems or bad because I can put in good systems.

24:21So that's something that I like. I like it if the main risk in an acquisition is execution, is operational excellence, because we're operators. We know how to go into a business and run it well for high levels of customer satisfaction, high levels of employee engagement, and get everyone focused on making money in an honest way, making a lot of money, and killing the competition instead of killing each other, as I titled one of the chapters in my book. What's the cadence of deals you've done in the past? It's varied. So when I first started doing M &A, United Waste, United Rentals, where we did hundreds of acquisitions, there I did a lot of acquisitions in a short period of time.

24:58So sometimes we did a couple acquisitions in a week. Sometimes there were smaller acquisitions. And then once in a while, we would do a large acquisition. And then we stopped a little bit. So I typically do large deals in pairs. Not always. I like to do two large deals near each other and then stop and digest and integrate. The reason I do that is I don't want to have to do two organizational charts. So I pay a lot of attention to organizational charts. So in 2015, we bought Norbert, and that was a pretty large acquisition. They were in dozens of countries. And then three months later, we bought Conway here in the United States, which was also a large acquisition.

25:31Both were publicly traded companies. And some people said, well, isn't that risky? And is that inefficient doing two deals right after that? I looked at it just the opposite. And fortunately, I turned out to be right, where we bought these two companies, and then we stepped back, didn't do acquisitions for a while, and we just integrated it. We did a global organization chart, recruited people who are used to functioning on that scale, and we integrated them all in one global HR organization, one global IT organization, one global sales and marketing approach to the market. Everything won. Everything won.

26:02One XPO was a mantra for the whole global organization. And that worked out really, really well to do it like that. How do you go about integrating these acquisitions? When I do an acquisition, the first and foremost topic at hand is people. People, people, people, people. The entire focus is on the people. I want to identify the great talent. I want to keep that talent. That is the very first thing that's important. I also want to identify who are weak performers that really the rest of the team doesn't want them on the team because they're not contributing. And I want to be generous with them and give them nice exit packages, but I want to exit them.

26:35Figure out who the team is is the very, very first thing to do. The second thing I do is I ask everybody in the company something that they're usually not asked, which is, what had you been doing prior to me buying the company that was great? And then I'd be stupid if I changed it. What are the things that made this company fantastic? And I listen to all that because you hear a lot of really good stuff. And I ask the converse of that too, Ted. I say, okay, now tell me all the stupid stuff because we all do stupid stuff in business. Tell me the things that frustrate you the most, that over the years you just were pulling out your hair, maybe just gave up in the end of, boy, we're just inefficient here, or there's waste here, or we're doing it backwards here, or we're doing extra steps in this, or we're annoying customers doing that, or we're not being straightforward on this, and the tech is doing that, it should be doing this.

27:20And then we get this list of thousands and thousands of ideas of how to improve the company from just the answers to those two questions. And then we stack rank all those of return on capital, return on time, because you have to take into consideration both of those. And then we pare the list down and that becomes our alpha creating list. That's our plan. That's our business plan is based on a crowdsourced investigation of what's been going well, what could be going better. And then we assign every single one of those tasks to someone. There may be a team, there usually is a team behind them, but I always like to assign it to one person to be in charge of it, to own it.

27:57It's their responsibility. They're going to be accountable for it. And I have a weekly meeting with all the people in charge of all these items. And it's a very simple meeting. Are we red, yellow, or green in terms of progress we expected to make to achieving this goal? And if we're yellow or red, what are we going to do? Make it green. And that's the process. And then at the same time that I'm doing that, I'm assessing the people. I may be tinkering with the compensation to tie them to these new goals. We're developing the business plan. I do very intense integration. I actually find that with technology integration, going slowly is more risk than ruffling some feathers and doing it right away.

28:36So I like to have one system. I like to have one system of everything. The basis of our business is the MOR, the monthly operating review. And the monthly operating review is the hallmark of how we run a business, where we've all agreed on the vision. We've also agreed on what are the steps to achieve that vision. We've also agreed to stack rank the levers of importance that will move the needle the most. And then with the monthly operating review, we take each one of those KPIs, those key performance indicators, and we put one on a page, not 100 on a page, not 50 on a page, which you see on so many business reviews and the majority of the room can't even follow what's going on here.

29:17But we put one on a page. So we have thick decks, but there's not much information on each page, but it's the important information. And it'll have one bar that's black, that's the goal. And then it'll have another bar right next to it that's either taller and green because we beat the metric or shorter and red because we missed. They'll be in simple English, hopefully one sentence at maximum two. Why? Why did we beat it? And let's keep doing that. Or why do we miss it? And what are we going to do to fix that? And the end result of this monthly operating review process, and it's very formulaic, it's very methodical, is to have a list of what we're going to work on.

29:56Okay, what is a to -do list that's going to keep creating margins going up, return on capital going up, pleasing the customer, getting a more engaged workforce, all the things that go into making a fantastic company. What are some of the challenges that you run into integrating acquisitions? It goes back to the people. You've got to get the people right. We've got the people right almost all the time. But there's been a few times where we had doozies, where we promoted someone to be in charge of something and we're not the right people. But we usually figure this out pretty quickly though, because we have that monthly operating review process where we're zeroing in on the most important numbers and we're benchmarking the whole organization.

30:32So you're always seeing in real time, who are the managers who are hitting the leather off the ball? And you're seeing the managers that are falling behind. And sometimes you'll go for a few months or a few quarters and it's the same people who are not doing well. you have to make a change. How do you go about assessing the people that you bring onto your team? If you give me a fantastic team, even if the market's not so great, I'll still figure out a way to zig and zag and create a lot of money. If you give me A -plus players, people who are smart, people who are hungry, people who are hardworking, people who get along with each other, these are the things I look for.

31:06I screen very intensely on the intake of these people. And I have a 45 -point questionnaire, which I put in my book at the end of it as an appendix, that gets to these issues. And the interview process is really to figure out, is this person super smart? They better be at least smarter than me. That's important. I don't want to be in rooms with teams that are not as smart as me. I want to be in rooms with people who are smarter than me. These people have grit. They have work ethic. Do they really love the job or is it just a job? If it's just a job, I don't want them. There's plenty of other jobs.

31:34If it's passion, if they really are all in on this, and this is something they really enjoy doing and they love coming to office. I want to get them. Are these people honest? We screen for people who are super high integrity because if you're on a team and some of the people are bent, some of the people are not totally straight, some of the people are not totally honest, and you got to be second guessing them or interpreting them or looking over your shoulder, it kills it. It kills the whole vibe. You need people who are completely honest so that what you see is what you get and you don't have to spend any time analyzing what they're saying.

32:06You need to have people who are collegial and collaborative. I don't mean people who are just going to agree with everyone falsely. I mean, in fact, just the opposite. I mean, people who can help create an atmosphere, an environment where you're encouraged to disagree and to provide dialectical opinions, meaning looking at things from different points of view, but do so in a nice way, do it in a respectful way. I screen for people who are genuinely respectful. Sometimes people just, they're not respectful in life due to their education, due to their genetics, whatever, they're just not nice people.

32:40And I don't want those people. I want people who are kindhearted. I want people who are compassionate. I want people who play well in the sandbox and get along with each other. So I need superstars. I need superstars that embody these qualities. You give me that. If I have to adapt the business plan a little bit or the strategy a little bit due to changing circumstances or maybe lack of foresight, I can do that. I got the team to do that. We will get to the right decisions because we've got the right people and we have the right culture that allows people and encourages people to respectfully disagree with each other.

33:09So that's the main thing I work on. Now, there's a hundred other things, but that's the thing that I just cannot get wrong. That's the thing that's so important to get right. And if I get those things right, the human qualities, the rest is a breeze. One of the most expensive mistakes you can make is hiring the wrong person. It's a big, big cost to hire the wrong person. A lot of things, if you write nine times out of 10, that's fine. With hiring, if one out of 10 people or 10 out of 100 people you're hiring is a doozy. It's really expensive. It's very costly. So you want to be really careful on the intake of who you hire.

33:41How do you think about those mistakes? Because inevitably everybody makes mistakes. I like to do postmortems. When we've made a mistake and someone didn't work out, I like to honestly assess, well, what did we miss here? What did we think was X and it really turned out to be Y? Was it a cultural miss wasn't aligned? Was it, wow, we thought this person was really super smart. Turns out they were all super smart in the interview process. Not in reality. Was it, we thought this person was a great leader, but it turned out they were turkey. They weren't nice to their people. You cannot be not nice to your employees.

34:13The people that you manage have to respect you and have to like you and have to want to follow you and you have to be a good leader. And sometimes we've gotten people who are really good on checking all the other boxes, but the personality wasn't there. The charisma wasn't there. The character wasn't there. And then we try to learn from that so we don't make those same mistakes going forward. You mentioned earlier the importance of information and keeping track of what all these people are doing. How do you use information to increase the operating results? When I'm looking at running a company, I'm looking at it as information.

34:45I'm looking at it as how do I have all these feedback loops within the different stakeholders, within the different constituents? So I have employees, I have investors, I have customers, I have vendors, I have regulators, I have all the usual stakeholders. I need to know what they're thinking. I need to know what's going through their mind. The company has to be very much in tune with what employees are thinking about the company. The management has to be very, very in tune with how do we get more collaborative relationships with our vendors so we can earn and deserve better price, better terms.

35:16We have to know what our owners think, what our shareholders think. We have to be very, very in tune with the people who have given us their dear equity and expect, rightfully so, a lot more money back than they gave us. We have to know what they think. We have to be hearing what they want. They own the company. We need to know what they as partners, as investors want. So all these feedback loops are very, very, very important. And I spend a lot of time making sure we do have intense feedback loops so information is flowing. Another way we use information is best practices. So when I'm running a business, whether it's a waste management company, whether it's a rental company, whether it's a transportation company, it's dispersed.

35:51It's all around God's earth. And I need to figure out to know what's working and what's not working. So you could argue that the most important challenge for a CEO of a large dispersed business is to find out the places where there's spectacular results and then figure out why. Why is this branch or this district or this region killing it? They're just crushing it. They're doing much, much better than their benchmarks. And then how do you transfer those best practices to other parts of the company so that you lift up? everyone gets the benefit of what's really working in a place. You have to unleash that information.

36:27You have to get it out from being trapped in just one location, get it all over the place. And the other side of the coin is true too. You look on the benchmarks, what's not working? What's on the low end of the curve? Who's underperforming on the various metrics that matter? Why? Why is they doing that? And usually it's the people. Usually it's the managers. I've learned that. You put a great management team running a district or a region, maybe not right at first, they got to do some fixing upping or turning around, but give a little bit of time, boom, they're outperforming the rest of the company.

36:59Sometimes it's not just the manager though. Sometimes it's practices. Maybe you're spending a little too much time on cost control, not enough on customer service. Maybe you're not spending enough time on cost control and you're getting all filled up with extra costs that's unnecessary. You're not watching your head count, for example. So figuring out the why of the numbers and then transplanting that all around in the company is a big, big value add. Once you have everyone on the team, I'd love to hear more about how you work with them on a day -to -day basis. And maybe start with the idea of delegation.

37:30So you want to delegate everything that you're not either uniquely qualified to do, or you do it better than everybody else, or it's not so high value that you need to do that. But pretty much everything else, you want to be getting off your plate to people who are competent, people who are diligent, people who are capable, and they can do it just as well, or maybe better than you can. You don't want to micromanage things that you don't have to micromanage. You want to micromanage the stuff that this is really high value and this is why you have that job in leadership. So delegation is important.

38:00You can't take everything onto your plate. You can't do it. You won't be able to sleep. You'll be tired. You'll be overwhelmed. So you need to delegate quite a bit. You need to empower people who deserve and are qualified to be empowered. It goes back to screening for the people. I interact with my management team and my management teams interact with the people they lead very intensely. So we're not operating in silos at all. We're meeting with each other officially, formally on a certain cadence, usually once a week, sometimes twice a week if there's a big strategic thing going on, sometimes more than that, but certainly no more than every other week on a regular basis.

38:34And we have frank conversations of what's working and more importantly, what's not working and what can we improve. And there has to be this trust where we really like each other. We really admire each other. We really respect each other. And we really like interacting with each other. I can trust you to tell you the truth of what's bugging me, of what I'm worried about, what's stressing me out, where I think I could go wrong, where are the banana peels I think we could slip on. I need to trust someone to confide in that, that I know that they're not going to go and use that to my disadvantage, but they're actually going to help me.

39:03They're going to be my partner, real partner. That's a two -way street. It's the manager to the person being managed, but it's also the other way too. It's a two -way relationship there. So a lot of communication I like to, quote, over -communicate, unquote. I try to figure out ways to over -communicate, quote, unquote, as many ways as possible, through as many modalities as possible. So when we do our employee surveys, which I'm religious about, where we send out a succinct questionnaire to every employee in the company every three months that says just a few questions. Number one, rate your level of job satisfaction on a scale of one to 10.

39:39Question number two, what would it take to make it a 10? Question number three, what's your single best idea to improve our company? And then I have the senior management team read every single response that we get. We get big engagement on this. And at least we get 80 % engagement. Sometimes we get more than that. Because people like being asked these questions because it's a form of validation. We human beings like being validated. And by asking someone's level of job satisfaction, what is the message you're giving them? The message you're giving them is, I care about your job satisfaction. I want you to be happy here.

40:10and the message you're giving, well, if it's not a 10, how can I make it a 10? I want to invest in our relationship. Any relationship, it's the same principle, but an employee relationship is the same thing. So they feel good about that. And then that third question of what's your single best idea to improve our company? Okay, now you're getting thousands and thousands of ideas from people who actually know what they're talking about. These are not outsiders or third parties you're bringing to the company. These are frontline employees. These are mid -level managers. people are in it all day long.

40:39These are people who are interfacing with the customer, interfacing with the vendors, interfacing with everyone. And they're responsible for hitting the numbers. And you're hearing from them tremendously valuable data points of what we're doing wrong and messing up and got to fix that. And what are the things that we're so much better than competition because we're doing X, Y, Z, and let's do more of that stuff. So we have everyone listen to those. And then we turn them into action points. We assign people responsibility and tasks for each one of those. That form of communication is really, really important.

41:10That's only one example of communication. I love internal social media. So we use a platform called Workplace by Facebook. It's basically like Facebook, but you have to be in the company in order to be on it. And I don't like to have one of these social medias where they're edited and they're moderated and it's all a bunch of propaganda. It's all a bunch of rah, rah, rah, aren't we great? Well, that's nice to hear that, but it's equally important and valuable to hear, hey, help me, we got a problem here. Red flag, red flag, look at me, listen to me. That we see in the internal social media too.

41:42We don't have meetings for the sake of meetings. That's a bad thing actually. But we have what I describe in the book as electric meetings where everyone's on the edge of their seat for the hour or the hour and a half or however long the meeting is and everyone's very tuned in to what's going on. And we're actually talking about things that are important, that are game changers. People like being parts of those meetings. So how do you go about creating those electric meetings? There's three ingredients. Number one, you have to have the right constellation of people in the meeting. Number two, you have to have a crowdsourced agenda.

42:15What I mean by that is if I'm leading that meeting, I'm not setting the agenda. I'm asking everybody ahead of the meeting, what do you think we should talk about? What are the most important things we can talk about as a group at this important meeting we have coming up? And every meeting is important. Otherwise, we're not going to have the meeting. That can move the needle. that can help us meet our goals. Remember our goals are blank, blank, and blank. What should we talk about as a group to use this valuable time that will help us meet our goals more? And then I have everybody vote on those.

42:44So maybe there'll be 100 or 150 ideas of what we should talk about. So we send it all around on an app. We have everyone vote on every single one of those. Scale of one to 10. I love one to 10 scales. I like to form them in terms of questions because then we go around the room and everyone answers the question. And how important do you think this question is to help us meet our goals? Is it a needle mover or not? And then based on that ranking where people have voted democratically, people have voted on it, the ones that had the highest scores, that becomes the agenda. And we go down the agenda from the highest ranked ones until we've run out of time.

43:17And then I also ask people before the meeting, because we don't do PowerPoints at meetings as a general rule. We do discussions at meetings, interactive, lively discussions. We have really good conversations that people are very engaged in. We read them ahead of time. And I ask people ahead of time on the app, okay, you've read the deck and you've read the questions that have come in from people. What are your top one or two takeaways? Sometimes people can't help themselves when they've read five or 10 takeaways. I try to limit to one or two takeaways from what you read. What is something that you read it and said, hmm, or aha, or yes, hadn't thought about that, or wow, this is a really important point.

43:53We should definitely zero in on this. This is valuable. This is something that moves the needle. This is something that can make our company better. This is something that can elevate our customer experience, or this is something that can take out unnecessary costs. This is something that's important to talk about. And then everyone sees what everyone wrote. They don't see who wrote it, by the way. I keep it anonymous. We have real honest feedback. Now we come into the meeting with the right group of people, with an informed group of people, because they've read all the data ahead of time, with an agenda that's been crowdsourced that everybody's bought into because it's their agenda.

44:23It's not me coming down from the mountain like Moses with all the answers. Which, by the way, as a leader, it's very liberating because you don't have this burden on your shoulder to be this genius of coming up with, here's the most important things we should focus in on. It's really an arrogant attitude when you think about it. It's really hubris to think that I'm smarter than everyone in this room put together. It's not effective for me to set the agenda. I have a role in the agenda, but I'm not setting it. I'm crowdsourcing that agenda. The third element, in addition to getting the right people to crowdsourcing the agenda, is creating an atmosphere, a setup, a culture, an environment where people feel it's not just okay, but it's encouraged and even will be rewarded to disagree as long as you do it respectfully.

45:10This third prong that I'm describing now is a really important prong because you can have the right people, you can have the right agenda, but if people don't trust the other people or don't respect the other people or don't communicate in a way that's uplifting, it's not an effective meeting. An effective meeting is where it's a good thing where people are dialectical. And I try not to use big words and dialectical is a big word, but it's a good word, meaning looking at a situation or a problem from multiple directions. It's not black and white thinking. It's not dichotomous thinking where it's either this or that or subject to what's one of the worst ways to think in life, which is I have all the answers and I'm 100 % right.

45:50No matter what evidence comes, I'm never going to change my mind because I've got it all figured out and you have to agree with me and everyone else has to agree with me or else that's awful. That's really stinking thinking, as they say. So it's not that at all. It's an atmosphere where it's a really beautiful thing to be in a room with people where you've got a great relationship, an honest relationship, where it's okay to disagree. And people are trained and people have disciplined to speak in a respectful way. So I can disagree with you or you can disagree with me on something. I may look at something and see a glass half empty and you may see a glass half full.

46:24Guess what? We may both be right. There might be elements of the way you're looking at it, the way I'm looking at it that are equally valid. But I was just looking at it one way. You were only looking at it myopically another way and we weren't getting the full picture. And by having a nice discussion where you're telling me something different than what I thought and vice versa, we both walk out a little more enlightened in that discussion. We both now have a broader perspective that makes us better managers, makes us better executives, makes us more able to create alpha. You're not going to be able to create alpha if you think you have all the answers and you're never going to change your mind.

46:56You're much more likely to create a lot more alpha if you have a group of people who are super smart and are interacting with each other in a enlightened way, in a nice way with differing points of view. And you have an open mind to change your view based on what other people say. So those are really the three things that I need in order to have an electric meeting. In the context of bringing the right people together, I'm curious how you decide who the right people are and how many of them can optimize a meeting. Earlier in my career, I used to have these monstrously large meetings with 50 people, 75 people.

47:31And I learned over time that you're better off with a smaller amount of people. In the companies I've run, I've always felt 15 to 20, maybe 25, maybe 30 if it's a quarterly operating review. But if it's the standard monthly operating review or if it's a task force, I'm better off being a little understaffed in terms of those meetings because the trust factor is more. The respectfulness is more and there's less politics and less posturing and less peacocking. You have these larger, larger meetings. People tend to peacock more. They making a fool out of themselves, not saying something stupid. I say stupid stuff all the time and then people shoot it down in a nice way and I benefit from that.

48:06I want people to feel free to think out loud. I want people to feel free to think together. You have to have people who are the smartest people about that subject matter and whose opinions matter because they're knowledgeable and they're leaders. And you sometimes want to have frontline employees too, so you're not just getting it from a high level, but maybe you want people from mid -level and you want people on frontline. Now, regardless of who the people are, there's a few basic rules that apply to making an effective meeting in my book that's worked really well for me and that I've honed over the decades.

48:36Number one, nobody's going to have any devices on. Nobody's going to be checking their emails. Nobody's going to be sending text messages. Nobody's going to be surfing the internet, not during a meeting I'm involved in or any of our leaders are in. That is a cardinal rule. You're going to have no distractions and one person's going to speak at a time and only one. You're not going to speak over people. You're not going to be interrupting people. You might raise your hand that you want to interrupt. We have a lot of discussions where they're very animated and people are leaning in over the table, waving their hand.

49:05They want to talk, but they're not going to start interrupting people. That person's got the floor at that moment and they deserve to be able to talk. So we're not going to be having side conversations. You're not going to be in a meeting where somebody's expressing an opinion or belief or an idea and a couple people around the table are whispering to each other and rolling their eyes. That is not going to happen in one of our meetings. That is an ineffective way to create a group to succeed. We're going to have one person speak at a time and we're going to give that speaker our full attention, 100 % full attention.

49:36Everyone's eyes are looking at that person's face. Everyone's ears are listening to the sounds coming out of that person's mouth. Everyone is fully in tune with that person. People are very joined with that person spiritually, so to speak. And that's a powerful thing. That's a powerful thing for the person speaking. Again, it goes back to validation. And people are on their best when you've got everybody's attention. You really get in the groove. And it's a powerful thing for the room because if you have a normal, typical meeting, a normal, typical company that's generating average alpha, people are going to go to a meeting and after the meeting, they're really not going to have heard a significant percentage of what people said.

50:16That's not good. The purpose of the meeting is to transfer knowledge, transfer information, to learn from that, to benefit from that. If you're not actually hearing what people are saying, how are you going to benefit from that? It's not a real conversation. So full attention with an open, receptive mind. So with what I like to call non -judgmental concentration, where I'm concentrating on a person, I'm blotting out the whole rest of the world. The world will still be there after the meeting's over. But right now, I forget about the world. Everyone in that room has to concentrate, concentrate, concentrate on the person talking and what they're talking about.

50:51I actually banned our chief customer officer from operating abuse for a year because he couldn't abide by the rules. He violated the rule of talking while someone else was talking. After five or six times, I warned him. I said, gee, I love you, but I'm going to have to kick you out of these meetings because you're messing up the vibe. These basic rules of how to run an electric meeting work and they make us have different types of meetings, very productive meetings where we can accomplish big stuff in short periods of time. They don't work if you don't follow the rules. So I hold people's fire to following the rules.

51:20You mentioned perfectionism early on and I'm curious what some of your big mistakes have been and lessons from them. I've made a lot of mistakes, Ted, because I've been very busy, very, very active since It's 1979 with almost no stops, including weekends. So I've been making lots and lots of decisions, thousands and thousands of decisions on all different subjects. The vast majority of my decisions have worked out. The major decisions have worked out, but I've done dumb stuff. And I talk about it in the book. I've done dumb stuff with people. I promoted the wrong people. I trusted the wrong people.

51:53I had higher regard for someone they turned out to be. And we had to mop that up. One thing we do is we do identify and solve problems quickly. but I've caused problems with having not the right judgment on certain people. I've gotten much better at that over time. I've made mistakes on technology. I've made mistakes on integrations. I've made mistakes on compensation plans. I've made mistakes on balancing customer service and investing in CapEx. Do you run a business for cash flow or do you run the business for higher margin? I've made tons of mistakes all across the spectrum. I've made a mistake in every category that you can make a mistake, usually multiple times over the decades, but that's part of the game.

52:28And you started this interview talking about meditation and cognitive therapy and how you use your mind. I studied under this guy who's dead now. He was a great psychologist, Albert Ellis in New York. And what I learned from Albert Ellis was you got to kill the perfectionism. He had a phrase, he said, we human beings, because of our evolutionary background, how we got to where we are, we're all fallible. I'm not going to say the exact word, but effed up human beings. We're fallible, effed up human beings. And if we can accept that as a fact, as truth, that I'm a fallible, effed up human being, you're a fallible, effed up human being, all the people are fallible, effed up human beings, life as a whole is fallible and effed up, and nobody's perfect.

53:11I'm not perfect. You're not perfect. Life's not perfect. Nothing is perfect. Everything's got defects in it. Everything is messed up in some way. If you can grasp that, If you can comprehend that and if you can accept that, you're going to be a lot happier, number one. It gives you a great relief because you lose that demand that you and others and life has to go swimmingly well and perfectly, otherwise you get frustrated. And if you expect it because it's going to happen, that things are going to go wrong and you are going to make mistakes, as long as they're not major ones, that's okay. It's expected.

53:42And if you can grasp that, that we're not perfect people, we're very perfectly imperfect people. and so is everybody else, then you'll be in a much better place psychologically. So I don't beat myself up for making mistakes. I make mistakes every day. I make mistakes every week. You got to be able to detect them fast and you got to be able to correct them fast. And that goes to culture and that goes to systems and processes. That goes to technology. That goes to having that information transfer that we're talking about before. That goes to having an organization where it's a speak up culture, where people are encouraged to, they see something, they say something.

54:19as the cliche goes. When they see something that's wrong, they call it into the hotline, or they report it to HR, or they report it to legal, they report it to their manager. Or if it's about their manager, they report it maybe to the manager directly, or they report it to some other part of the organization to have a check and balance there. But that's life and that's business of messing stuff up. That's okay. That's a good thing. How have you thought about doing M &A strategy, which notoriously doesn't always work, in public companies compared to the institutional world, we see so many private equity funds?

54:49I look at M &A a little bit differently than most people look at it. I look at M &A as an opportunity to please the customer more, to improve my return on capital, to get something that's going to be accretive to my earnings. I look at M &A as something that on a long -term basis, because I'm not a private equity guy, I'm not going to flip this in three or four years. This is something I'm building as long -term. I'm looking at it from the point of view of, okay, let's fast forward 10 years. and what do I think the numbers will look like? If it's got X amount of EBITDA right now, what do I think that EBITDA is going to be in 10 years from now?

55:24What do I think the cash flow is going to be cumulatively over the next 10 years? And then I discount that to present value and then I compare that to, okay, what do I got to put in for this? How much money do I have to pay for this? And then I compare the two because at the end of the day, what is business? How do you create value in business? You create value in business by deploying a finite, maybe a large amount, but a finite amount of capital some debt, some equity, and getting back from that deployment of capital, a lot more capital than you put in. That's it. There's a hundred other ways you can slice and dice it, but that's what it's all about.

55:57At the end of the equation, the most important thing is return on invested capital. If you have very superlative return on invested capital that you're putting in this amount of money, but you're getting back in so much more money, and I'm getting my money back in a short period of time, and the rest of that's gravy, you're going to create alpha. them. I have two metrics that I think are the most important things, actually. ROIC and what I call ROT, but it's not a rotten thing. It's a good thing. Return on time. When you're a leader, when you're a CEO, or if you're an institutional investor and you're running a team, whether you're running a few dozen people, a few hundred people, or in my case, 150 ,000 people, how you channel their time is as important as return on capital.

56:38In fact, it turns into return on capital. So here's the way I look at it. Before I divided the company up into three different companies, we had roughly in the neighborhood of 150 ,000 employees. And supposing each one of those folks is coming in, call it an average eight hours a day. So eight hours times 150 ,000 is about 1 .2 million hours a day. So call it six million hours a week. That six million hours a week can be okay, productive, you can get a bunch of stuff done, or it can be more productive and get actually more stuff done in the same amount of time, or it can be super productive. It can be extremely productive and achieving much greater things than our competitors are with the same amount of hours.

57:17Compensation is really important. Nobody's coming to work in your company to make money for the boss. Nobody's thinking like that. People are coming in to make money for themselves and their family. And if they have kids, their kids or whoever they love to save for their retirement or whatever, they want to come in to make money. They want to come into the organization for different reasons too, but the prime reason people are coming to a work is to make money. That's an honest fact. That's a good thing because now you've got a way that you can tie that person's compensation. Yes, I can fulfill your goal.

57:48I can create a situation where you can earn a lot more money here at this company, more than at any other company, but, and only but, if you help contribute to these levers to create the results. So tie the compensation to success. The only way that people make money and big money, which they should make big money, is if we're successful as an organization and they're contributing. And then measure that. Tie the compensation to winning. If you tie the compensation to winning, guess what? You're going to win or you're going to die trying. People are going to really try hard and people are going to feel great when they win.

58:23Not just because they're getting atta boys and atta girls and pats on the back. It's good too. But because there's money in it for them. I've had people make tens of millions of dollars. See the senior executives. I've had one person make over $100 million. That's a wonderful thing. The only way they made that money is because they performed and they deserved it. And God bless them. We want it. We designed compensation systems so that people at the top level of the company made a lot of money if we create a lot of money for our shareholders. And we did create a lot of money for our shareholders.

58:52So they made a lot of money. Had they not, they wouldn't have made all that money. We have people who are truck drivers. We have people who are warehouse workers. We have people who are mid -level managers who make one and a half, two times they would have made it to the competition, but it's because they were performing their safety records. Whatever the KPIs were, whatever the metrics are, we tied it to that. So tying compensation is an important ingredient for success. With this book, you're taking all these lessons and you're going on this roadshow talking about this publicly. What was your motivation for doing that?

59:22So what I wanted to do is I wanted to analyze what were the idiosyncratic, what were the things that were specific to us that made us different from other companies that did okay or actually did very good, but didn't do very, very, very good like our companies in terms of creating alpha, in terms of creating shareholder value. And I wanted to get an honest assessment of that and to think about that. And I also wanted to see what are the things I messed up and I wanted to know both of those categories of things. So A, I did the right things more of, and I didn't do the dumb stuff. That was my motivation for writing the book.

59:54Like I said, I didn't know if I was going to publish it or not. Ended up I did publish it and I'm glad I did. nice to share it with other people. But I learned that I have about roughly 100 things that are the Brad Jacobs way of running a business. My way of selecting people, the types of people I like, the way I like to interact with people, the technology, the way I look at an industry, the way I pick an industry, the metrics, the way I interview people. It's all the things that I think go into answering the question that I asked myself, which is why did we create so much alpha? Why did we make 32 times our money for initial investors in this company?

1:00:27Why did we outperform 5 .6X the S &P 500? Why did we do all this? That didn't happen by itself over and over again. There was a reason for that. So I got all those down. I realized after I got to about the 100 things is I don't have another 100. That's it. It's not like I came up with 200 ideas that were part of the magic and I'm saving the other 100 for the sequel. I don't have a sequel. This is the one only book. I poured everything that I think was the reason why we were so successful into that book. That's it. Put a circle around it. I think that covers 90 -something percent of the magic. And what's the takeaway from that?

1:00:57The takeaway from that is that's the single most important consequential decision you will make in business and in life, in my opinion. It's who are the people? What's the quality of people? What are the traits of those people that you're going to surround yourself with? Who are the people whose air, when they exhale, you're going to inhale and vice versa? Do you surround yourself with people who give you energy and bring out the best in you and trigger all kinds of great creativity and energy and happiness. I always felt that I got the longer end of the stick when gaining the privilege and the pleasure of working with that person five days a week, or in some cases, six or seven days a week.

1:01:34That this is a person who I truly love, who I truly respect, who I truly admire, who I think is just someone superlative. It's just someone who's got it. It's that it person. And that's been good for me because I'm in a better mood all day long as a result of being with people who are nourishing and enriching and nurturing. you create what I talk about in the book as a superorganism. You see the concept of superorganism in science, where you have E .O. Wilson and Bert, I can't pronounce his last name, have written books called The Superorganism. And they wrote a lot of books out of Yale, where they studied ants and ant colonies, and they studied bees and beehives, and they studied bacteria and species of bacteria that have intense levels of communication, that they have such level of integration with each other, have such levels of coordination with each other that you really can't call them separate individuals.

1:02:27They have a superorganism quality to them. You can learn so much by studying science about how to apply that to business, about nature. The best business organizations take these lessons from science, from the arts, and what works in other parts of life, business is part of life, and take those fundamental rules, those fundamental laws of nature, and apply them to the business environment. And one of those rules is the effective organisms become superorganisms, powerful organisms by communicating well. You want to apply these principles and create a superorganism in your company. You want to have levels of superorganisms.

1:03:03You want to have your corporate office be a superorganism. You want to have your regions. You want to have your business units and you want to have the whole company a superorganism. You bring a tremendous amount of energy to everything you're doing. I'm told that. Have you thought about how you generate all this energy? I have no idea, Ted. I've been going so fast and taking so few pauses that I haven't had time to sit in days of my navel and reflect on who I am with my strengths and weaknesses because I have both. But I think it's probably an empirically true fact that even though I'm 67 years old, I have the energy of someone who's 27 or someone who's 37.

1:03:38I don't know why. Maybe it's just genetics. Before we wrap up, I'd be remiss if I didn't ask you what's coming next so that people who have gotten excited about what you're talking about might be able to participate? Well, I'm going to try to use the same exact playbook that's worked for me in my previous companies. I can't guarantee I'll get the same level of returns because some of that was luck just being in a good environment with almost no interest rates for a big part of that time. But I do hope to significantly outperform the market. That's my goal. And I have confidence that I'll use the same playbook and the odds are in my favor.

1:04:10So I've picked an industry after all that time. It's an industry that checks every single box that I started this interview on. It's large. It's $800 billion in size between the geographies I'm going to focus in on, which are North America and Western Europe. I'm talking about building products distribution. It's been growing nicely, 7 % CAGR over the last five years. I have an ambition of growing faster than the average company. It's got wind to its back. There's three parts of building products distribution. There's residential, there's non -residential, and there's infrastructure. And I've been holding my cards close to my chest of where exactly of those three we're going to place most of our bets.

1:04:49But if you look at those three different parts of the building products universe, there's tailwinds in all of them. In the residential part, the supply of homes in America, for example, is estimated to be about 3 million units short. There's a shortage. There's a big housing crisis. And the houses that do exist are old. The average age of a house in the United States is old. It's over 40 years. There has to be a lot of repair and remodeling, a lot of new construction. You look at non -residential construction, it's even older. Typical building is over 50 years. The infrastructure in both North America and in Europe is aging, to state it kindly.

1:05:23There's estimated to be about $2 trillion of investment needed to just get the infrastructure to be safe and functional in the United States and a relatively similar amount in Europe. So there's a lot of growth to it. This is an industry where tech is our friend. I talked about that earlier where I like to go to industries where tech is on our side. I see a big opportunity in building products distribution to be tech forward and to get a leg up on the competition. There's a handful of companies in this industry that are doing pretty good stuff actually in technology, and they are tech forward and they are spending some money.

1:05:57I'm going to spend more money, but they're spending some money on investing in technology. I see an opportunity to use technology all across the value chain here, from interacting with the customer on B2B e -commerce, to doing pricing, to doing demand forecasting, to doing what we've done so well at GXO, which is warehouse automation and robotics, to do automated inventory management, to do what we've done so effectively on the trucking side at XPO, which is the route optimization for the delivery fleets, to get supply chain visibility, to do sector -specific innovation with each sector and to add value -added services and to do end -to -end digital customer connectivity.

1:06:38Those are the things that I want to do. I want to do the e -commerce, the optimization, the forecasting, the inventory management. These are the things that I want to apply to the business to make the margins better, hopefully, to make the returns on capital better. This is an industry that checks the box of bigger is better. And you get economies of scale as a bigger distributor. You have better procurement. You can buy things at lower prices. That was one of the main value drivers at United Rentals was we bought all the vendors' customers or many of the vendors' customers, and we demanded a 15 % or 20 % decrease in the price they gave it to us because we deserved it.

1:07:12So I want to get best practices. I want to attract better talent. There's an advantage to scale in this industry. And I put revenue run rate targets out there, and I'm going to build a big company here. I want to build a company that's much bigger than the companies I've built before because I think I can do that. Because going back before, I've made every mistake you can make and I've also done fantastic stuff that are applicable to this industry. I think I have the bandwidth to run a much, much larger company. And I've put my money where my mouth is. Our initial investment is a billion dollars, not a few billion dollars like the book, but a billion dollars.

1:07:46And $900 million of that is coming from me. And $100 million of that is coming from Sequoia Heritage and from friends and family. When I say friends and family, my brother, my sister, my niece, my nephew, my real friends and my best friends and best friends and family. So that's a big motivator to me. Big motivator to me is I can't face all those people unless they're really successful. It'd be very bad Christmas vacations. I'm excited about this. This is something where other investors or other management teams have made a lot of money and I want to make more money than they've made. The process that you've gone about this, given your track record, you easily could have raised a successful IPO, done it from scratch, blank check company.

1:08:23Why did you decide to enter the markets the way you did? I don't like SPACs. The reason I don't like SPACs, with all due respect to people who've had successful SPACs and management teams and investors who've done well in them, God bless them. But what I don't like about SPACs is you don't have this tight alignment. The more tightly aligned you can be between management and the board and the shareholders who own the company, the higher the chances are you're going to win, that people are going to be focused on creating alpha. And when you do a SPAC, the promoter, and I'm using the word promoter deliberately because a lot of times they're not operators, they get 20 % off the top and they haven't put much if any money in.

1:09:01I don't feel that's the right thing to do. I don't think that's real perfect alignment. I like putting my money where my mouth is and investing in the company. And I like getting warrants for doing that and ground floor value of the investment in the equity. And then I like to have the management team have a big equity component that is going to work out really well if we deliver a lot of share price appreciation and it's not going to work out very well if we don't. So I want people to have that incentive. I want everyone to be aligned. I want it to be that the investors are perfectly happy with a smile on their face if management makes a lot of money on their equity, because the only time that happens is if they're making a lot of money on their equity.

1:09:42In SPACs, it's not always the case. Now, Brad, I want to make sure I get a chance to ask you a couple of closing questions before I let you go. What is your favorite hobby or activity outside of work and family? Oh, you named the two. So I spend the vast, vast majority of my time on those two things, on the business, whatever that happens to be at the time, and on my family. If you take that apart, my main hobbies have been music and meditation. I still consider myself a musician, although I don't play and practice hours and hours a day like I did when I was a real musician when I was young. But if you're trained as a musician and you're really a musician, your whole life is music.

1:10:17You're always listening to sounds. You're always in tune with the sounds of your heartbeat, of your breathing. You get in tune with rhythms of business, of cycles. You think in terms of harmony. You think in terms of groups, because you play in a band. The principles, the basic principles of music, which I learned from the greats like Bill Dixon and others, they still apply. I mean, for me, that's part of my gestalt. That's part of my way of looking at life. So music is important to me. Meditation is important to me. I think it's valuable to get out of for some time in the morning, sometimes in the afternoon, the familiar patterns of the way I live life and to get into some unfamiliar territory.

1:10:54What's one fact that most people don't know about you? People mostly know about my business. And someone told me that they learned more about me in the last six months because I've been on podcasts and I've given interviews on television. I've written a book where I've opened the kimono and talked more about myself as a human being. What's really about me is my business stuff and a few of these personal things. And I'm not a very complex person. I have a few dimensions to me. I'm not very multidimensional. I've had a long career of dead -end jobs. Look at it like that. What's your biggest pet peeve?

1:11:25My biggest pet peeve with myself is when I look at things as peeves. So my perfectionism, which I struggle with. I'm programmed to wanting to be right, to be successful. And I want to please people. And I want everyone to cheer me and say, yes, thank you for making me all that money. It's very important to me. I've touched so many people's lives by making the money and some people a lot of money. And I like that. And I want to not be too hard on myself to say, I've got to do that every week of every year for the next decade. Look, there's going to be quarters where I overperform. That's okay. That's part of the game.

1:12:01As long as over the intermediate term and the long term, I vastly overperform, I'm still going to get an A plus on that. But I want to get an A plus every week. And my pet peeve is that I can't quite get rid of that. Maybe I need to go back to therapy. I haven't done therapy for about 15 years, so maybe I need to tune up. Which two people have had the biggest impact on your business life? Ludwig Jesselson, for sure. Ludwig Jesselson was the head of what I consider the first hedge fund before there was such a word as hedge fund, back in the 70s and 80s, called Philip Brothers, the big commodity trading house.

1:12:34But essentially, it was what today would be a hedge fund. They were buying and selling commodities. And this was a man who was in his 70s when I was in my 20s, and he took me under his wing. And he very generously let me hang out with him and watch him and observe him and ask him a million questions. And I did ask him many, many, many questions. He answered very honestly, and I got the benefit of his life. And I always glommed on to people who were older than me, wiser than me, more successful than me. And I've just asked them a lot of questions. He's one person that has really, really influenced me a lot early in my life.

1:13:05The other person that's influenced me, and I haven't met him yet, but I'm hopeful to meet him soon, is Ray Kurzweil. Ray Kurzweil, I know very well from his writings and from his YouTubes. Ray Kurzweil is the futurist, the author. He's the head of a big AI project at Google, and he's a big thinker, a big, big thinker. And he thinks about life in terms of billions of years. So I like people who think in billions. That's good. That's something in common with him. And he has a very clear vision of where technology has come from over the last few million years. He wrote a book that is this book that's influenced me the most called The Singularity is Near that he wrote back in around 2005.

1:13:43It completely changed my view of where we are and where we're going and the whole last couple million years of technology and how that's worked and where it's come from. And more importantly, where technology may be going in the coming decades and how that's going to affect humanity. And wow, a lot of things, almost everything he said in that book in 2005 has come true. I've learned from him the importance of technology. All right, Brad, one more. What's the best advice you've ever received? I guess I would go back to Albert Ellis and his therapy. He talked about unconditional self -acceptance, unconditional other acceptance.

1:14:19And what that means is not having a lot of musts and shoulds and perfectionism about yourself or about others, because that's self -defeating. And I learned from him that we as humans, we have these automatic thoughts that are coming all day long. Some people aren't aware of them. Some people are very aware of them. And a lot of them are filtered. They're filtered by what Aaron Beck called the schema. And that schema is full of cognitive distortions, cognitive biases, things that make things inaccurate. So you're filtering out things that are not in accordance with your schema, with your core beliefs.

1:14:56So the more you can be aware of what your biases are, what your schema is, how you're thinking, and then if you can rearrange the way you're thinking, I would consider that one of the best pieces of advice I've gotten that's really impacted me very much in my life. Brad, thanks so much for sharing your incredible wisdom and success. The pleasure has been all mine. Thank you so much for this opportunity. Thanks for listening to the show. To learn more, hop on our website at capitalallocators .com, where you can join our mailing list, access past shows, learn about our gatherings, and sign up for premium content, including podcast transcripts, my investment portfolio, and a lot more.

1:15:37Have a good one and see you next time.