The Mindset Behind Building a Great Little Business | Brad Jacobs

21:24And now you have to give them back that money when they sell their shares, but much, much more money than they gave you. So in my companies, we've been fortunate that we've been able to give back 32 times their money in one. And another company is over 150 times. So really, really large, large, large returns, like over the top, unusually high returns. That wasn't by luck. That wasn't coincidental. If it was coincidental, it wouldn't happen five times in a row in large amounts. That was because there was a playbook. That was because there was a method to it. And that method incorporates many, many different elements.

22:05And I talk about quite a bunch of them in the book that together give you an ability to create what we call alpha in the business world, which is not just beta, which is the market's going up. So you're going together with the market, but alpha, which exceeds the beta, exceeds the overall uplift that pretty much all boats are lifting by the same tide. And part of the ingredients to that formula to make huge, huge returns for shareholders involve analytical thought, careful analysis of numbers is all the math, making order out of disorder, trying to see how does this all fit together, and seeing the relationships between different things, how to reduce things to simplicity.

22:51because the great mathematicians reduced very complicated things to a formula, for example, expressed with just a few hand strokes. So that's math. That's mathematics. That's the beauty of mathematics is seeing the patterns, seeing how to make sense out of this. And on the music side, it's being able to improvise because my training was originally classical, But then I had the fortune to study with African-American musicians in Bennington College, Milford Graves, Bill Dixon. And part of that whole training was to be spontaneous and to be improvising and to be in the moment. And there is no wrong note.

23:40If someone plays a note, that's just a new note. It's not the wrong note. It's like, okay, we changed key. Let's go with that. Come on, let's get going. an hour and hour on. So that ability to go with the flow in music, you need to have that business shape. A lot of people have a rigid business plan that's spelled out for many years and that's it. And it's very non-flexible. That doesn't usually work. Why? Because life changes, markets change, economies change, people change, results change. You get opportunities that you hadn't even thought of at the beginning. So you need to improvise, you need to capitalize on that and to make money from that.

24:24And if you're rigid, if you're just rigid thinking, if you're not a musician, if you're not a musical business person, you're going to lose opportunities. You're going to have things come your way to make money for shareholders and feel, well, it's nice, it's great, but it's really not our thing. Well, that's a bad way of thinking. I'll share with you one of the best business deals I did in my life was I bought in 2015, a less than truckload trucking company called Conway. It was based in Ann Arbor, Michigan. It was a few billion dollar deal. It was a pivot because this was a hard asset business.

24:58It had tens of thousands of trucks and drivers. It was as asset heavy businesses as you're going to get with fixed costs and depreciation and amortization. It was not an asset light brokerage business, which is how I started XPO as an asset light, non-asset-based business. But here was an opportunity to buy something really, really cheaply at a small fraction of what it was worth and even a smaller, tiny fraction of what I knew we could make it be worth within a few short years. This is a company that had a lot of excess overhead. The organization chart was not mathematical, going back to symmetry and things that relationship makes sense.

25:37I like to take, I love org charts. I just love to geek out on org charts. An org chart should be pretty. Org charts should be simple. They should be elegant. They should be geometrical. They should not be really complicated like you took some spaghetti and threw it like an abstract art on a canvas. This was a bad org chart. This had three things of three different HRs and three different IT organizations and a lot of duplications. And And it didn't make any sense. A lot of silos and heavy, heavy on the non-revenue generating top part of the organization, which should be the lightest part of any organization.

26:16The heaviest part should be parts of the organization that make money, that generate revenue, that you're close to the customer, that generate sales. 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 un-mess up, booyah, there's your money. There's the opportunity to make a lot of money. And that was it. It was just like, I got so excited about the opportunity to take this company. And I saw a way we could significantly grow the profit margin, the cash flow that I pivoted. I pivoted and go ahead and do the deal.

26:50I got beat up real bad by the market. They said, oh, it's a change. And I said, give me some time. And I remember, I remember Eli Gross, who now runs investment banking from Oregon Stanley, but at the time he was covering me, XPO, as a transportation banker. And he said, you know, you're going to be in the doghouse here for a little while because it's a pivot and markets don't like pivots, 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 and everyone's going to understand what you did. And fortunately he and I were right.

27:22And you look at that deal, even though it was a pivot, it was a change, it was an improvisation. We bought it for about $3 billion. Roughly half of it was equities. It really bought it for a billion and a half dollars plus some leverage. Today, it's worth something like$15 billion. And that's after having taken out many, like$5 billion of net cash from it. That's after selling off$550 million of the truckload business. That's after taking its warehouse business, its supply chain business, which was called Menlo and putting that into our GXO subsidiary. That was after taking the brokerage business and putting that with our RXO brokerage business.

28:05So this was the gift they kept giving Conway. It's been an amazing, amazing, amazing ride. And the returns, it's been a, I can't do it in my head, but something like a 20 bagger, 15 bagger. It's a huge, huge return on investment capital. And had I not been trained as a musician and a mathematician, I don't know that I would have saw it, Shane. I don't know 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. I don't know if I would have been able to have the courage to improvise and to change from what the script was for something that I had a high conviction would be very, very lucrative for our shareholders.

28:48And in business, the bottom line, the report card is how much money did you generate for your shareholders? That's the one. It's an examination with one question on it. It's how much did you make your stockholders? How much money did you make for your stockholders? How much bliss did you give to your investors in terms of return on their capital they invested in you, they trusted you with? You're a fiduciary in business. You have a solemn, sacred, obligate responsibility where you're taking other people's money, debt and equity, particularly the equity, and you're the custodian for that. You're a custodian of it.

29:28You're temporarily using their money. And your job is to multiply that. They have a thousand other places they could put that money. They've picked you. They've picked you. Now you've got a big, big responsibility. And I think the training of a mathematician, the training of a musician, and then all these experimentations I've done in meditation and therapy and so forth, I think that's been what largely explains, at least as far as I can understand, why my companies have created so much alpha.

29:59Shane Parrish:I have so many rabbit holes I want to go down there. I think the opportunity hiding in complexity is really interesting because the way that think about this and correct me if you see it differently is bad ideas can easily hide in complexity but they can't hide in simplicity what's your reaction to that i need to digest it my immediate reaction is yeah i think i get that because when it's when so go back to that organization chart that i saw at conway it was just a mess it was just like wow it's all over the place triple dotted lines and squiggly lines and you had to have different colors and different It's like, that's not a real elegant.

30:38Yeah, I think I see what you're saying. In that, you could hide inefficiencies as opposed to when it's a clean organization chart. Everyone's got clear KPIs, key performance indicators. Everyone has clear metrics. Everyone has clear goals. And the compensation is tied to that. And people are rewarded for achieving those goals.

30:58Shane Parrish:Yeah, it's hard to hide. The other thing that I thought was really interesting is you brought up the leverage point. How do you think about leverage and debt and employing it? And at what point does it become too risky? And at what point do you think of future opportunity costs? You mentioned sort of taking advantage of whatever the world brings, but if you take on too much debt at now for an acquisition, you're reducing your ability to adapt in the future should interest rates rise, should a company become available that you really want, that's a dream, that wasn't available when you took on all the debt?

31:34Shane Parrish:How do you think about that? I have a Zen Buddhist approach to debt. Not too much, not too little. I don't think it's an optimal balance sheet if you have no debt, because you can improve the returns by shrinking your share count, because you have fewer shares. So the same amount of returns is greater per share, except if you return. So I think it's good to have a little bit of leverage. I don't think you should have a lot of leverage, particularly in today's world. I don't think you should have a lot of leverage because there's significant geopolitical risk. There's geopolitical risk in the Middle East, in Ukraine, in Taiwan.

32:08The United States politics is very volatile. There's a lot of things that could go wrong real quick. And a kind of shock to the system would hurt companies that have too much debt because business would slow down. Look what happened during COVID. If you were very highly levered during COVID. If you had way too much debt and then everything slowed down and your revenues went down, you might not have been able to make your interest payments or your debt repayment payments and could have gone bankrupt. Companies don't go bankrupt unless they have too much debt. You go bankrupt from not being able to repay your debt.

32:40So I don't think you should have too much debt. In my new company that I'm forming, QXO, we're going to have, I think our target, a healthy target should be one to two turns of debt. By that, I mean, we take our EBITDA, which is a measure of our cash flow. And we say, well, let's have one or two turns of that. So if our EBITDA ends up being, for instance, in a period of time, for example, a billion dollars, well, let's have one or two billion dollars of debt. And that's a comfortable amount, not too much more than that. Now, you could have for short periods of time, you could lever up. Like when I bought Conway, we levered up to about four times, a little more than four times, but we very quickly sold off.

33:18I mentioned that truckload division for$550 million. Boom, and we paid down a whole bunch of debt right from that. We generated a lot of free cash flow. We took that free cash flow. Instead of doing more acquisitions, we paid down debt. So you can get your leverage under control by one of two ways, by improving your profits, by increasing your EBITDA, or by paying down your actual gross amount of debt. And I think you can manage that, and that's something a good CFO does.

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34:23Shane Parrish:Ever hit 3 p.m. and feel like your brain just quit? For a lot of people, that's not caffeine or sleep. It's electrolytes. And water alone won't fix it. That's why I drink Element every day after lunch. Zero sugar, no dodgy ingredients, just a real dose of sodium, potassium, and magnesium. I know you're all thinking electrolytes are for athletes, but you don't have to be an athlete to benefit from it. And it tastes great. Stay sharp in the afternoon and grab a free eight-count sample pack with any purchase at drinkelement.com slash TKP. That's drinkelement.com slash TKP. You've said in the past that you need to be liked and loved, and yet you're quite contrarian at times in your approach to things.

35:13Shane Parrish:How do you reconcile these two things? I think you have to be contrarian. I think if you want to make a lot of money in business, you can't just be a conformist to do what is in fashion and what everybody else thinks. 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. So my companies have not made average returns. My companies have outperformed their indexes not by one or 200 basis points, but sometimes by five or six times what the index was. So you have to think differently and take things that are from a different point of view.

35:51So one of my favorite investors in my companies has been Orbis out in California and in Bermuda. And they're contrarians. They're willing to make a bet and a significant bet if they have a high conviction about a trend or a company that the market's not seeing. Something's out of favor, but the market doesn't understand something about it. Maybe a company's not studied enough. It's not covered enough. Maybe management is not good at communicating their story and it's dislocated. The price is dislocated. And you can get a real good value by buying those shares and then being patient, playing it out the cycle and make real good returns.

36:26And I've seen them do that with my companies when something happened in the marketplace that made us a cheap stock for a short period of time. Boom, they came in and they bought a lot of shares and wrote them up and then sold them really, really high. I think that contrarian value approach to investing, to business, is profound. I think that's important. And I remember when I sold my first company, Amarac, my old brokerage company. We'd started a company in 1979, a bunch of broke, scrappy kids. And we were in the right place at the right time. And the Iranian revolution took place. and the shock got kicked out and Khomeini came in and they took 400 hostages and the oil prices went way, way, way up.

37:12So it was a great time. It was a sad time for the world. It's a lot of chaos and problems, but it was really good to get in the oil business because oil business was really volatile and some young whippersnappers like us could come in and be taken seriously by Exxon and Mobil and Texaco and Shell and Golf and BP and all the customers that became our big customers over time. We built that business up over four quick years to about a little under$5 billion in brokerage volume. So that was a really big, rapid growth curve. And I had a good team doing that around the world. And then I sold it, and I wanted to start a new business, and I was ambitious.

37:48I was single. I wasn't married. I didn't have kids. I could take risks. I could afford to do that. And I remember speaking with my Uncle Howard, and may he rest in peace. He's long, long passed away. and of course my uncle Howard was born in the 1920s maybe even late late 1910s and grew up in the depression obviously and uh during world during world war ii and so forth and it was very tough times so he's very you know he grew up in a time when there's a lot of emphasis towards being very frugal and very risk averse he became an accountant and worked for the government and i remember talking to him and saying yeah i'm gonna i'm gonna start another company instead of being an oil broker, I'm going to go to the adult table instead of the kiddie table.

38:33I'm going to be an oil trader because I've been making all this money for my clients where they're making three, four, five dollars a barrel and I'm making five or 10 cents a barrel. Of course, I had no risk, but they were taking positions. I said, now I'm going to put my money where my mouth is. I'm going to put my money into a bank. I'm going to get a letter of credit. I'm going to actually buy and sell as opposed to just broker. He said, oh, Brad, don't do that. Don't do that. you should maybe take a small percent of your savings and put it into your new business, but take the vast majority of your money and just tuck it away just in case the next thing doesn't work out.

39:09And fortunately, I overruled my Uncle Howard and I had to go with what he said. I did exactly the opposite. I took a completely contrarian position where I took, I think it was like$100 ,000 or maybe at most$200 ,000. And I tucked that away. I took all the rest of my money. I deposited it with Banque Paribas. Now it's BNP Paribas. Back then it was Paribas. And they gave me a billion dollar line of credit. And I swung for the fences. I used sometimes up to$990 million of that line of credit doing counter trade deals, doing pre-finance deals, doing barter, doing processing deals, deals that they were very complex, going back to the math, Very, very complex, but organized.

39:54I knew what I was doing. And sometimes people would look at it and say, wow, there's a lot of elements to what you're doing there. You're buying it. You're shipping it. You're refining it. You're hedging it. There's a lot of moving parts there. I said, yeah, but I understand each one of these parts. And it's just math to me. And I actually feel this is low risk. This is basically just execution risk. And I'm comfortable taking on the execution risk part of it. I don't have market risk, even though it looked like I did, but I really didn't. and as a result of not taking his advice and taking contrarian position and having the courage or the guts or the strength to believe in what I wanted to do, that I had a thought and I had the courage to say, okay, I'm gonna run with this thought.

40:33I'm gonna go with this. I'm gonna bet on myself. I'm gonna bet on this idea. We built a really nice oil trading company and did very, very well for ourselves and for our shareholders. Where did that confidence come from? Well, I don't know. Probably confidence comes at a young age, I would think. So when you ask a question like that, you normally start thinking about like, what did your mother say? What did your father say? So if I had to think about what did my mother say? What did my father say? That was very transformational. The first things that would pop in my mind are with my dad, who I loved and I had a lot of respect for.

41:05And he was a great dad and a very honest person. And he was a very dedicated and good provider for the family. but he was very blunt in what he said. He wasn't very diplomatic in what he said. He just said what he really thought. And I remember one time when we had been doing an errand, we're driving him home and he was in the driver's seat and I was in the passenger seat. And we're at a stoplight and my father turned to me and he was a big guy with a low voice and big laugh and said, Bradley. And my mom and dad were the only people who've ever called me Bradley. anyone who knows me calls me Brad.

41:42He said, Bradley, it's really good that you have a really good personality because you're certainly not going to get anywhere with those looks. I laughed real, real loud. And that moment was a deep moment for me because on the one hand, I was crushed. I was like 13 years old. You don't know whether you're good looking or ugly when you're 13 years old. You just are. You just are what you are and you don't even think about that. But the message I was getting from my father was, you know, I may not be such a good looking guy. Okay. On the other hand, the other message he was giving me was, but you have leadership skills.

42:19You have personality, you have charisma. You can get people to follow you. You can become the president of your class. You can become your group leader. You can be the leader of your band and so forth. You can be president of the student council. And somehow or another, despite your, what he considered that not pretty appearance, if not beautiful appearance, you're able to be a leader and accomplish things and get stuff done and get form teams and get people. So I think in a very, very, very paradoxical kind of way, my father insulting me on that gave me confidence. It gave me confidence of, okay, so maybe I don't have great all-American good looks.

42:59Who cares? I've got something else. I've got something in terms of being able to to lead. So maybe that helped give me confidence because that's an experience that I've relived many times over my life, my father, because it's a big deal what your father thinks of you, what your mother thinks of you. On my mother's side, if I had to think, what was something that gave me a lot of confidence for my mother? Okay. So my mom passed away about 10, 11 years ago. And you know, from the book, one of the questions I like to ask people, because I learned this from And Marty Seligman, the father of positive psychology, is what's the happiest moment of your day as opposed to how did your day go?

43:39And just have a little different angle to that question. And we like to be validated. We like to feel we're appreciated, we're recognized, we're understood, we're approved of, particularly from our parents. and my mom was on her deathbed and my brother and sister and I were hanging out on her deathbed for a good couple of weeks. And I don't know if you've been around people who've died, but they're sort of dying and then suddenly they wake up and they're talking to you like nothing's going, no problem. And then they lie down again, start dying again. And they go in and out and it's kind of half dying and half not dying and so forth.

44:18And my mother had been lying there and they're breathing funny when they're dying. It's like a really strange way of breathing. It's not a normal way of breathing. It's irregular breathing. And then not breathing for periods of time. And so it's a very bizarre experience, death. And we didn't quite know whether this was it. Like we're never gonna talk again. She's done. And she suddenly like sat up. She looked all three of us in the eye and said, I'm really happy each of you turned out so well. and smiled with a mother's love and then just kind of gracefully lied down and continued the dying process.

44:56But that moment, that might be the happiest moment of my life when my mother, my mom, the person whose body I came out of, the person who took care of me right from day one, even before day one, nine months before day one, approved of me and validated me and gave me a stamp of approval. And that's given me confidence, even though that's later in life. That gave me a boost. That was right at the beginning of starting XPO Logistics, which of all the different companies I've started, that was the one that was the biggest so far, the most successful. So I would say that confidence later in life came from that boost that my mother gave me of just approving of us.

45:40By the way, I've learned something from that. I've learned something from that. and I try to learn from all these things how I can apply this to business. I'm a business person. I'm trying to make money for shareholders. That's my goal in life. So all these things that I'm going through life learning about, I'm then trying to take them and apply them to business to make money for shareholders. So what did I learn from that? I learned that the relationship between a parent, in this case, my mom and me, or in the other example, my dad and me, it's a real important experience. It has a big influence on the person, what the authority figure thinks about the person.

46:16And when you're in business, particularly if you're the CEO, you're the authority figure. You are kind of like the dad. You're kind of like the mom of, in my case, 150 ,000 employees. And you have to be careful what you say. And it's not just what you say, Shane. You can't just be, you can't fake it. And if you don't like someone, disagree with somebody, like say, oh yeah, aren't you great? Because people are smart. People realize when you're BSing them. They just know that. They know when it's phony. And they know when it's real, too. So what I've learned is you've got to rearrange your brain.

46:52Go back to the book. You've got to rearrange your brain, your way of thinking, so that you are positive about people. Because nobody's all good and nobody's all bad. The one I know, at least. And if you can train yourself to see the real good in someone and to reflect that to them and to make sure when you're doing the change part, the improvement part, when you're giving them constructive feedback of how they could be doing a better job, do that second. Don't do that first. First thing is be like my mom and say, you know, I'm just so happy how well you all turned out. Say that first. You know, when I do performance appraisals, when I do performance reviews, my direct subordinates, my reports, my direct reports, I always start out with the positive stuff.

47:39I don't start right off with, okay, here's some things that you're messing up that you need to be doing better. It's important to have that part of the conversation too, because you need to help the person achieve more and do better. But you want to start the conversation with, I really want to congratulate you for X, Y, Z. I really want to appreciate, I want to express my appreciation because you've done one, two, and three. But it's got to be sincere. It can't be phony baloney, false flattery. That is like, you're better off not saying anything than giving phony compliments. But I try to rearrange my brain so I appreciate a person and say, well, why did I hire this person in the first place?

48:18What did I love in this person? What did I admire? What did I respect? What really made them real high in my estimation? And then translate that to, okay, how is that materialized and what they've done and what concrete things have they done? Not have compliments that are just like general compliments, but have very specific, concrete compliments of, you know, you did this, this, and this. Kudos. Tip of the hat. Good job on that. And it goes back to the psychology of validate, then dispute. Join, then lead. I apply that to business. I do that with customers. In the world of business, we've had millions and millions of customers.

48:59They're not always happy because no service provider is perfect. Once in a while, you mess stuff up and you have a difficult conversation with a customer. Maybe they're not trained in rearranging your brain and they go right into the insults. They skip the whole part about, hey, we really like what you're doing here. They just go right to, darn it, you've been late on this. Are you damaging that? Or your invoicing is messed up or whatever it is. and what I learned from all that, to answer your question is, I've got to empathize with that. I've got to first understand, I have to put my mind in their mind.

49:31I've got to put myself in their shoes. I've got to say, I've got to picture clearly how much what we did messed up their supply chain or cost them money or cost them a job or whatever or just cost them an annoyance or just made it difficult to shoot up their time and made them frustrated or whatever. I have to figure out what's upsetting them, going back to what are they saying and what are they feeling? So I've got to get in tune with how they're feeling and I've got to show them that I've heard them, I've felt them. I've both understood them, what they're said, and I've also felt the emotion that they're feeling and that I get that.

50:12and that I have an action plan to solve it. So that is a sequence to all that.

50:19Shane Parrish:I like your human-centric approach to this. There's a lot of people who sort of take for granted maybe positive feedback, and so they offer negative-only feedback to the people who they work with. Is that a blind spot, or what do you think of that? I think it's a mistake. I think it's a mistake to give only positive feedback or only negative feedback. So for example, right now, I'm in the middle of performance appraisals and where each person is writing three things that they're really proud of, that they've accomplished in the last few months and that they really feel good about and it's an achievement.

50:55It's definitely a plus, not a negative. But also three things that, you know, could have done better or we will do better going forward. Things that we didn't quite achieve that we hope to achieve. So it's a balance. It's three good things, it's three bad things. But when I run meetings, 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. 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. So ideally, even if we've had a tough meeting where we said, look, these numbers are in the red.

51:30They're not in the black. These numbers are down. They're not up. And we need to up our game. And here's our action plan. And here's how we're going to hold ourselves accountable. and here's how we're going to tinker with compensation in order to reward people for doing better and to hit their bonuses and maybe eliminate their bonuses if they don't get better fast. Those are tough conversations that you have to have, but I don't like to end on that. I like to end on exercises along the lines of having everyone in the room. Okay, now we've done all the tough stuff, we've worked hard on the business.

52:02Okay, now let's put that aside. Take a breath. Now let's just talk about who, I'll ask each person, I'll go around the room, suppose I have a dozen people in a meeting and I'll say, tell me something. So we've just been meeting for two hours. We've been working hard. We identified some really important problems we need to solve. And that if we solve them, we're going to create a lot of money for our shareholders. So good job team. It was tough, but good job. We were going through a good rigorous process and you worked hard. And a lot of imperfections came up during the meeting. And that was humbling it in a lot of ways.

52:35But now I want to ask you something. After working two hours collaboratively in a meeting like this, difficult meeting, whose star went up and why? Who said something that maybe you already held them in high esteem, but you hold them in even higher esteem now as a result of the way that they thought their thinking process, or maybe the elegance and grace with which they expressed a difficult subject, or the way they tackled something from an innovative way, someone who contributed to the magic of creating alpha, creating money for our shareholders. How did they do? Oh, they handled a situation of conflict because you have conflict in business in a way that was nice, that was kind-hearted, that was not mean-spirited.

53:20So whatever, tell me, I go around the whole room and say, tell me someone in this room who said something or did something or didn't say something or didn't do something that made their star go up and why. And people feel really good about that. And I have a whole series of exercises and questions that I do like that. One of them I do is when we have long meetings, sometimes we have like 10-hour meetings, sometimes even 12-hour meetings. We have people coming in from around the world and we're doing a quarterly operating review. We're really covering lots and lots of material. We take just a few breaks.

53:49We just keep going at it, going at it. So people are tired at the end of that. It's been a long, long day. We've been going from seven in the morning to seven at night, for example, with just a few quick 10 or 15-minute breaks. We work right through lunch, right through dinner. I like to end with, sometimes, with getting everyone, at the end of all that, we stand in a circle. And I don't want to say anything. I just want to spend five full minutes, five minutes is a long time, to be standing in a circle with 15 or 20 other people, not saying a word. And I want everyone to look at each person. And I want them to do two things.

54:29I want them to think to themselves. think to themselves, I really respect this person because, or I really admire this person, or I'm so grateful that this person is on my team, is on the team with us. This person has XYZ qualities that are so noble, so fantastic. So positive regard of each person. Each person, one by one, I want them to look around the circle. And the second thing I want them to do is, I want them to say, not only am I grateful for being on the same team with this person, I really wish this person a lot of success. I hope this person has a fantastic future at this company. I hope this person has a fantastic career.

55:10I hope they knock it out of the park in terms of their numbers, in terms of profit, the generation that they're going to do. And I find that two-handed experience of gratitude of praise, the gratitude that comes from honest praise of each person and then the well-wishing to each person. It just, everyone goes away from the meeting just... You'll be flying on air. You'll go away with a really good feeling. And feelings count in business. In business, I have, I write about this in the book, the love vibe, that you want the love vibe. You don't want the hate vibe. You want the good vibration going around in the company.

55:49You want people feeling good about themselves, good about the company, good about the people they're working with, good about the customers, good about the vendors. You want them to be like one big happy family. And you have to work at that. That doesn't happen just by itself. That's not a natural event. That's something that requires effort, that requires intentionality, that requires some skill.

56:12Shane Parrish:You've made a few billion dollars. What lessons have you learned about money and spending money and living with money that you wish you knew sooner? You throw me off a little bit with the question because I don't define myself as in terms of how much money I've made. Like that's like, just not like the big deal for me, but it's a report card, but it's not who I am. And it's not my be all and end all. I happen to be in a business that makes a lot of money. So I make a lot of money. My occupation is making money for shareholders. When I look at my motivation, if you want to understand my gestalt, how I look at the world, how I look at myself, it's really, if you take those psychological tests, I score very high on need to be appreciated.

57:01So how does that translate into being a CEO? Well, that translates into, well, I'll give you a perfect example. Last week, we had a call with my 75 co-investors in my new company, QXO. So my wife and I are putting in$900 million and then Sequoia and a few dozen friends and family, like really friends and family, like my sister and my brother and my niece and nephew are putting in another$100 million. So we'll have a cool$1 billion even putting into this company. And I told them at the end of the call, it was an hour call, just giving them an update of what I'm working on. I thanked them, not for the$100 million, because I didn't need the$100 million.

57:40I could put another$100 million of mine in. But I thanked them for giving me motivation, giving me inspiration, giving me a purpose, because I want to please them. I want to make them happy. I want to make them a lot of money. I like being happy. I like feeling good about myself. I like looking in a mirror and like who I'm seeing. And how I define that is pleasing the people that I love. And those are my investors, my co-investors, my close friends and family and the people who have been good to me over the years.

58:10Shane Parrish:And I give back to them. Let's deep dive on M &A. How do you think about it at a high level? And then specifically walk me through your process for not only evaluating companies, but beginning to end, including integration. M &A has been a big part of my business career, not in the first 10 years. In the first 10 years from 1979 to 1989, I was in the oil business. It was all organic. We didn't do one single acquisition. It was all just trading and brokering and building up a business organically. But since 1989, I've been doing roughly about 500 acquisitions. I've done a lot of M &A. I love M &A.

58:49I love M &A as a way to create value for shareholders because I don't know of another way on a risk-adjusted basis, on a certainty level, that is more likely to create massive shareholder value than doing sensible M &A. In order to understand how to create value, I have to understand how am I going to scale up the business? I only know how to create tremendous shareholder value by growing a business tremendously. That's how I know how to do it. And of course, it's organic. And I've had very good organic growth. The companies I've led have been well-performing companies that have had good market share and growing market share.

59:31And we've taken customers away. We've taken business away from our competitors who aren't managed as well. But the real, when you look at the numbers, the real growth has been through M &A, through acquisitions. what's been my secrets on acquisitions? I'll try to be concise because I did a hour and a half podcast with McKinsey a couple of years ago with Andy West. That was the only question. He asked one question and I babbled on for an hour and a half. It's still a big, people still watch that podcast because I really told everything about it. Here's the gist. The gist is you first have to select an industry.

1:00:05You can't just do M &A. So I spent the last year going around studying dozens of industries, looking at hundreds and hundreds of acquisition opportunities, mostly with Goldman Sachs, Morgan Stanley, and some other friends, Sequoia, and some friends, figuring out, could I apply my playbook to this industry? Is the industry big enough? Is the industry fragmented enough? Is there M &A to do? Is bigger better? That's not always the case. Are the economies of scale? Do you have a competitive advantage by being bigger? Is there a way to apply technology? My companies have always been tech forward to the industry because the industry is a little sleepy on technology.

1:00:43Is the way I run a business, the way I do the intake of people and the culture and the way we interact with each other and so forth, is that something that will work in this industry, is applied in this industry? Is it something related to something I know about? Industrial services, for example. Most of my companies since 1989 have been industrial services. And I looked at many, many different industries and I settled on the one that checked every single box, which was building products distribution. And the name of my company is going to be QXO. And M &A will be a big, big component of what we do.

1:01:15There are$800 billion of distributors in Western Europe and in North America, which is where I want to plant my flag. I want to build a company that's, call it$50 billion. I can do that. If there's an$800 billion size, I can take 6 % of that through acquisition and through organic growth. I can get to$50 billion. There's many other industries that are nice, but I'm not going to be able to get to$50 billion. I want to get to$50 billion. So this industry, there's a clear path of how I can do that. Now, I can't just buy... And there's roughly about 7 ,000 distributors here in the United States. There's about almost twice that amount in Western Europe.

1:01:56So it's roughly about 20 ,000 distributors. You've got to be very careful about who you buy. There has to be a reason why you're buying that company. There has to be a compelling strategic reason of why you're buying that company. What makes sense for that? Why is that good for customers? Why is that going to make our business a better business? Why does that fit with the other things that we've already bought and put together? How's it going to integrate well? I like to look at the multiples that I pay for an acquisition. The price that I pay for an acquisition is very, very important because when I look at the levers of how we create shareholder value, what contributes to that?

1:02:33The biggest lever, the biggest component is the differential between what I raise capital at due to my relationships with mostly institutional investors and because of the track record and what I can deploy that at on doing acquisitions. The second biggest lever is how much can I improve the businesses that I buy? There's many, many levers, but those are the two biggest levers. So I pay close. When I've studied all these different industries, I've studied historical acquisition multiples. And one of the reasons I like building products distribution is I believe that I'll be able to buy companies at lower multiples of their profit than I'll be able to raise capital at.

1:03:15And that's going to be a big, that disagio, that spread, that difference, that delta is going to create value, boom, just right away, right from the first day. Now, you asked about integration. Integration is extremely important. Anybody can buy a company. It's not that hard. You write it, you send a wire, you sign a document, it's a few dozen pages, lawyers have gone over it and you wire the money and you own it. So that's not the hard part. The hard part is after you've selected the right industry, after you've selected the right companies within that industry to buy, after you had discipline so that you pay the right price for all those, then you have to integrate them.

1:03:59I've never run companies that have like hundreds of different companies all running separately with different names and different systems and different back offices. And there is some level of decentralization where you need to be closer to the customer. But I have a very strong appetite for standardization. Standardization of the ERP system that you close the books with. So you close the books promptly right after the close of the month. And then you can have standardized dashboards. So all the managers have the same format of the numbers they're looking at, the KPIs. And they see them graphically, very easy to understand.

1:04:36I like to see so they can benchmark every location to every other location, every district to other districts, every region to other regions. And for that, you need standardization. I like to have a very standardized HRIS, human resources system, where all the people in the organization, and we'll build this company up, we'll have hundreds of thousands of employees. I need to have a standardized data system for all of our employees. Everyone's on the 401k. It's the same exact way of doing. All the benefits are the same. All the performance appraisals are the same. Compensation I can see right away.

1:05:12I need to have transparency to the information. I need to have the organization charts very accessible right away. And every time we do an acquisition, I need to pull that information up right away while we're studying it quickly so we have a competitive advantage against other bidders to see what would the synergies be. So I need standardized HR technology about everything. him. I need a standardized CRM, customer relationship management system, like salesforce.com or several others as well. And for that, to be able to make sure we're looking at customers, the attractiveness of those customers, the profitability of those customers, the size of their spend.

1:05:49So therefore the potential of those customers going forward, all the interactions we've had with those customers. I need to see that in a standardized way all across the globe, everywhere, in every country we're functioning in. So I need to standardized technology for customer relationship, for sales manager. So I'm giving, I need a standardized internal social media. I happen to like, I've used Workplace by Facebook. It's not the only one, but I like that one really well. It's nice and the interface is really, really good. So I like to have everyone on the same one because I like to have one company with one culture where everybody can ping each other.

1:06:23I like, I don't want to have these silos of companies. Like Sometimes you see these companies roll up many different companies, but it's all a mishmash. It's all separate. I don't like that at all. You see a lot of these middle market private equity firms do that. They roll up these small companies. They're doing$5,$10,$20 million EBITDA each, and they just buy a bunch of them, and now they're up to$100 million or$200 million EBITDA, and they just get a bigger multiple because they're bigger, but it's a mess. Whoever buys those companies, there's a lot of work to be done. You've got to now standardize everything and integrate everything.

1:06:56and opportunity to improve them, plus a lot of cost and time to fix all that stuff up. So I integrate from the moment that we agree to buy a company, we're starting the integration process. And the day we close the acquisition, gazam, we're in there and we're standardizing everything as much as we possibly can. And we're communicating and communicating quite a bit. A big part of the success for M &A is forming the relationship with people and making sure we get off on the right foot and making sure that we don't lose the great talent and making sure we, on the same time, we're identifying the weak players and gracefully and generously exiting them.

1:07:39So there's a lot of different components to M &A. I'm summarizing a lot of different facts, each one of those things. We could talk for an hour just on that block. But those are the kinds of things that go through my mind in my approach to M &A.

1:07:51Shane Parrish:You have some unique questions when you interview sort of the top 10 to 15 people as part of the diligence process. Can you walk me through what at least two or three of those questions are where you get the most useful information? Yes. So you see some companies, when they're negotiated by a company, do this very lengthy and detailed and bureaucratic diligence process. And they hire a firm and they write this big, huge memo that nobody ever reads. And some wonk reads it, but nobody important reads it. And it's basically just to cover their butt. I'm not trying to cover butts. I'm trying to make money for shareholders.

1:08:24My goal is to make money for shareholders, period. And so what I'm looking for in diligence is I want to know how they make money. I want to know the history of this company. I want to know the current state of this company. I want to ask those people. I like to interview the top 15 or so people one-on-one, like an hour, hour and a half. And I like to ask them, if this was your money, would you buy this company? And if you did buy it, what would you change? What would you do differently? Where's the opportunity to do something differently than has been done? And I like to ask them, okay, if you were buying this company, what would you not change?

1:09:05What is so good about this company that's making it successful, that's attracted a big bidder like ourselves, that we should make sure we'd be crazy to change that. So I like to ask questions like that, questions that give me insights into how the business got to where it is? What's the future of this company? How could we improve the company going forward? Where are the things that have been blind spots of the current where the company's been run that we could fix? And what are the things that are working well that maybe we could put more resources into? Where have we not been spending enough money?

1:09:35Where have we not investing enough money into something that could be a good return on investment? On the other hand, where has the company been wasting money? Where has the money been gone into things is that why are we doing that? It doesn't really help customers. It doesn't delight customers. It doesn't make customers happier or doesn't improve our customer business reviews. So why are we even doing it? That's, I like to ask those questions.

1:10:01Shane Parrish:And they're really revealing. The first person who I talked to who had questions like that was Kat Cole, who is the vice president now at Athletic Greens. When she turned around Cinnabon, that's what she would do. She went and worked in the stores and ask the employees what they would do differently. And it was so revealing in terms of what they ended up changing. I find so many times in corporations, people don't ask those questions. And I'm big at asking those questions. I'm big at surveying, using town halls, one-on-one interviews, small group interviews, asking questions about how are we going to win?

1:10:42How are we going to win? What are we doing wrong? What can we be doing better? What are we doing right that we should do more of? And I find it very valuable, very, very valuable. It yields a great return on time. And as I write about in my book, there's only two things a manager manages, return on capital and return on time. And I believe that asking the employees and getting them involved in the process is a great return on time and a great return on capital.

1:11:11Shane Parrish:What's the role of a board in a strong founder-led company like QXO? You're investing$900 million of your own money. You're the founder, the CEO, largest shareholder. What role will that play? How does that change the role of a board, especially when it comes to M &A? I've been really fortunate to have fantastic boards. Boards that are very strong, comprised of people who are really competent. People who are invested in the company. They're leaning in. They take the job seriously. They're passionate about the company. And my relationship with the board is a little bit different than most boards.

1:11:49We're completely transparent, completely open. Any board member can reach out to any person in the company anytime they want and ask them anything they want. And there's no supervision or people have to accompany them or none of that. So I want board members to be very, very informed. I want board members to get copies of the customer surveys. The good and the bad, I want them to see that. And I want them to see the analysis. I want them to see the analysis of the customer surveys of where we're doing well and where we're falling short. I want them to know that. I want the board members to have all the employee surveys and see all the word cloud analysis that we do, all the trend analysis and all the benchmarking we do.

1:12:28I want them to see where the pain points are of employees. I want them to see where employees are happy. I want them to see the trends of employees. I want the directors to be invited to every operating view and every monthly operating view, every quarterly operating view of any part of the company that tickles their fancy. I want them, the more they're involved, the better off we're benefiting from them. So I like to have board members that are very involved, very knowledgeable, and we have good conversations about the important stuff. And I don't run board meetings the way most Fortune 500 company boards are run.

1:13:03Most Fortune 500 company board meetings are kind of, they're very scripted. And sometimes they even rehearse. And there's a careful story that's being told by management. And it's done by PowerPoint. It's done by rehearsed presentations that come up. And it's almost a complete waste of time. You could do that whole thing just by sending them a document. There's no reason to convene a meeting for that. It's just a kabuki dance. I like to have real board meetings where ahead of time, everyone's read all that data. And between board meetings, they've been in the business, what I've been talking about.

1:13:43And they come to the meeting and we bring in over the course of a day, somewhere between 10 and 20 managers, executives, sometimes senior ones, sometimes mid-level managers, sometimes front-level managers, employees. and I go around the room and I like every single director to ask whatever they want to ask. I don't want them to tell me ahead of time what they're going to ask. And I don't want them to tell the managers who they're interviewing to know what the questions are ahead of time. I don't want our executives or our frontline employees to waste time. And I'm using the word waste deliberately preparing for the meeting, some speech, some script, some sometimes phony baloney sales story about how great things are.

1:14:27I want to ask real questions. I want to include in the tough ones. And I want people to answer them honestly and spontaneously in the moment and completely. So that those, I love our board meetings. So I'm now chairman at the moment of three different companies, XPO, GXO, and RXO. And so we tend to have our board meetings every three months around the same time, around the same two-week period. It's some of my favorite meetings the whole year because I have highly engaged directors who are knowledgeable about the business and who ask really good questions. I learn a lot. I learn a lot at the board meetings.

1:15:02I don't dominate the board meeting with I'm the person speaking all the time. A lot of times you find that the chairman or the CEO is like making a whole big deal about themselves. Board meetings should not be about the chairman and the CEO or the chair and the CEO. The board meeting should be about the directors getting the information they need to get, they want to get, they should be getting.

1:15:21Shane Parrish:Or should it be focused on problems or what's going well? How do you think about that from a board level? And then I want to get into more specifically management meetings. But like at the board level, how would you organize that around? How do you craft an agenda for that? I don't craft the agenda. So what I craft is I figure out who are the right people to bring in. But even that, in terms of the management we should bring in, I don't do that all by myself. I get input from the lead independent director. I get input from the vice chair. We come up with something together with the CEO. And then I distribute it around to the whole board.

1:15:57I said, what do you think? How does this look? Anyone have any changes? People usually have changes. People say, that's great. But I'd also like to have a section on HR. Just even yesterday, we were preparing for a board meeting. And one of my vice chairs said, that's good. But I want to have a section on human capital management, people management. So we rearranged things. And we're bringing some HR folks. So 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. I don't want to micromanage the agenda because that's my agenda.

1:16:33I am never going to be smarter than the sum of all the directors. That's never going to happen mathematically. Or you have the wrong directors, right? Very much so. And I like directors who are smart and who are engaged and really want to improve the company. They want to play their role. They take their fiduciary duty very carefully. They have a strong duty of loyalty.

1:16:54Shane Parrish:They have a strong duty of care. When you think about decision-making, how often are decisions made by committees in the companies you run versus made by individuals? Well, I hate the word committee, period. Committee is just like a bureaucratic, red tape, slow, kind of low-energy kind of word. I just can't stand the word. So I try not to call things committees, just a nomenclature. However, there are some 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. There might be a task that we have that has a financial element.

1:17:32So you need someone from finance accounting that certainly has an operational element to it. You need ops person there. What else do we have a big people element? So I need an HR person there. And so I could have, if it's a big decision with big impact, then I'm going to have C-level. Remember the COO, the CFO, the CHRO. That's a big decision. I'm not going to waste those very important people's time with small decisions. FP &A, financial planning analysis, plays a big role in my company, more than in most companies. The FP &A people are the ones who are turning all these ideas. They're in a meeting.

1:18:04They're listening to all these ideas, and they're turning them into numbers. They're turning them into forecasts. They're turning them into projections. They're turning them into probabilities. They're turning them to the, look, we have these 10 things we're going to work on to create alpha for our shareholders. they're attaching probabilities to each one of those. I got a 90 % chance of this is in the bag, this is going to happen. This is a long shot. This is like a 10, 20 % chance of happening, but it's not a 0%. It's a 10 or 20 % and it's got a high return if we achieve it. So it's worth putting the effort in, but I'm only going to give 10 or 20 % credit.

1:18:36Maybe I'm going to give less credit than that. And they're also doing budgeting, constant iterative budgeting. We don't do budgeting once in a while. We do budgeting every day, every single day where we've got our numbers, that is our plan, and where are we tracking versus the plan? And the FPA people are really good at figuring out who's sandbagging and who's exaggerating. So what I mean by that is you have some managers who just do their personalities or for whatever reason, or maybe they're playing games with their bonus. They want to lower expectations. So they come out looking like heroes.

1:19:18Well, that's not good because we want to know the real likely outcome so we can plan around that. On the other hand, you have some people who are overly self-confident and they think this is definitely going to happen and I'm going to grow this. But if you look at their history, if you look over the last three years, they've missed their predictions by three to five percent, like pretty much every year. So they're going to discount them based on the past predicting their future likelihood of succeeding. So the FP &A people play a big, big role in that and figuring out what is the highest, lowest and likeliest outcome for all these different endeavors that we've got.

1:19:57And they're also playing a big role for allocating capital. So we talked before about the two big things that senior executives do is decide what kind of ways we're going to spend money, allocate capital because it's finite. Even if it's billions of dollars, it's not trillions or gazillions, it's billions, it's finite capital. How are we going to invest that capital of all the different ways we can invest? What's the highest and best uses of that capital? And how are we going to manage time? How are we going to get everyone focused on the things that really matter and not waste their time on the silly stuff that really doesn't matter?

1:20:33It's not going to create massive value for our shareholders, which is what our mission is. The FBA people help with understanding that and putting it into numbers. Because sometimes you can get very inspired and motivated and it's a really, really creative, fantastic, inspiring project comes up. But when you analyze the numbers, it's really not a really good return on time or return on capital. So maybe we shouldn't be spending so much time on that. So we're also managing how much time are we spending as an organization on what kind of projects. You find a lot of time in corporate America, somehow or another, they get lost.

1:21:10Management gets lost on these tangents that are not central to their main mission of creating value for shareholders. And the FP &A people keep track of that. They're the scorekeepers to keep everyone honest of how we're investing capital, how are the returns on that capital versus what we expected it to be, what we planned on. How are we spending our time? Is how we're spending our time proportionate to what has the highest impact of how we're spending our time? And this is a very important role. So FP &A ends up being kind of omnipresent throughout the organization anytime we're making big decisions because they're really good at getting all this down to reality, to real numbers.

1:21:50Shane Parrish:And they report to the CFO. Is that the structure internally? FP &A has two lines. One is to the CFO, and they have a dotted line to operations and to me. So I rely on my FP &A person every day. I want to know for two reasons. I want to know internally how are we doing on the projects that we're attaching high priority to. I also want to know how are we doing on our commitments to shareholders, to investors. When you're a CEO of a public company, you have a really important mission in that you've promised what your numbers are going to be in the future, how much your profit is going to be, how much your organic revenue growth is going to be, how much your margins are going to be, what your return on capital is going to be, how much your free cash flow is going to be.

1:22:33And now you've got a promise out there. You've got a guidance. You've got a forecast. And you're working really hard to achieve that. I need to know, and FP &A is the best place to know that, how are we tracking against that? And if we're tracking higher than that and significantly higher than that. There's a big deviation from that. Well, we'll talk to legal and we'll talk to IR and the investor relations and we'll say, should we update the investment community ahead of the quarter, ahead of when we normally produce our results? And equally importantly, maybe even more importantly, I want to know, God forbid, if we're tracking below our estimates.

1:23:09And once I know that, then I have a meeting and I say, whoa, of our six or seven top metrics that we've promised to our investors, we're doing well on these five or six. But on these one or two, no, no, no, it's not doing very well. What are we going to do to get back on track? So constantly using our sensing, information gathering, and then getting back on track, getting back on track.

1:23:35Shane Parrish:Do you do the forecasting because you're going to be going to the capital markets for capital at some point in the future with an acquisition strategy? Or would you not do that if you knew you weren't going to raise additional capital? Well, I am a big user of capital markets because all my companies have grown through acquisitions. And I've needed capital to grow those acquisitions. We've raised money from the largest sovereign wealth funds in the world and some of the largest pension funds in the world, some of the largest long-only funds, and endowments and a lot of different people whose money we've taken and given them back a lot more money than they gave us.

1:24:12So in order to do that, you've got to hit that. You've got to meet your promises. Your results matter. Results matter. They're very, very important. So even if we weren't raising capital, the fact that we've taken capital, and sometimes we've gone for years without raising capital, well, we've maybe refinanced debt to take advantage of changing interest rates or something like that. But in terms of raising equity, which is the dear thing, raising equity, sometimes we've done some acquisitions, like in 2015, we did two big acquisitions, and then we digested them, and we integrated and optimized and doubled and tripled the profit without doing any acquisitions.

1:24:46During that period of time, we didn't need to raise equity, and we didn't. But even though we weren't raising equity, even though we were not going to back to the capital market chain, we still paid extremely rigorous attention to how we're doing on the numbers. That's our job. Our job as executives, as managers, custodians of this business is to produce results. And that's measured ultimately in financial results. It's also produced in operating results. It's also concerned of customer satisfaction, employee satisfaction. But all those things lead to financial metrics. And you've got to stay focused.

1:25:23You have to have the whole organization focused on delivering those financial metrics. And that's how you deliver them. It's a conscious intention and a sense of honor and a sense of, I need to do this. This is what we need to do. This is our promises. Promises made. Promises kept.

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1:26:13Shane Parrish:Why? Well, I actually respect people highly if they're not motivated by money. I know a lot of artists. I know a lot of musicians. I have friends and relatives who are professors or retired professors in academia. They're just not into money. I mean, they're not into money. They don't think about it. They don't read the Wall Street Journal. They're not interested in that whatsoever. And I respect that. They have a higher calling in a way. They're focused on some deeper parts of life. But that's not who I want in my company. I want my company, people who are absolutely motivated by money, who are raw capitalists, for people who want to make money for themselves and their families.

1:26:53And that we can figure out a way that by being part of our company, they can help us make money for shareholders so that we can pay them more money here than they can make somewhere else. I've had people on the senior level make, many, many people become millionaires, multimillionaires. I've had people become tens of millionaires. I had one person who made over$100 million. I have a couple of people now who are on track to make very large amounts of money. This is a good thing. This is an outgrowth of success because we've tied everybody's compensation. We've been very thoughtful about compensation plans.

1:27:30We've tied their compensation to contributing to our big goals. And the only way they can make all this money is if they're making money for shareholders. So I love compensation plans for the senior executives that have a big component of equity that's tied, that's dependent on TSR, total shareholder return. So we look at how does our stock perform versus called S &P 500 and what percentile are we? If we're less than, call it the 55th percentile, I'm not so sure they should get any, that I'm not sure equity should vest. I could argue that if we're only getting roughly half, roughly, we're very middling in the results we're giving, that's not why people invested in us.

1:28:20People gave us the sovereign wealth funds or pension, these big investors, they've given us money because they expect us to be much, much higher returns than the average company. So I like to have people bet on themselves so that if our shareholder returns are less than 55 % or so, I don't want it to vest. If it's 65%, it vests some. If it's 75%, it vests more. If it's 85%, 90%, 95%, I want it to double vest. I want them to make twice as much as they would otherwise. So I want their interest aligned with the shareholders. I want it to be so that the shareholders are saying, wow, I really hope senior management team makes a fortune because The only way they're going to make a fortune is if we're beating all the competition in terms of the returns with our investment.

1:29:09So I like that to happen. One thing I liked about Goldman Sachs' compensation plan that I took for them years and years ago when they were a partnership, a big chunk of their compensation plan, I'm not up to date in their compensation plan now, but back when they were a private partnership, a big chunk, like a significant percent of their comp was based on how many other partners said that they helped them with what they were working on. Yeah. In other words, I didn't just work on what I was trying to work on, but I helped you, Shane, with your client and that group effort going back to being a super organism.

1:29:43So if we can have people on the front line and the mid-level management be rewarded financially, because that's the biggest reward, not the only reward, but financially, financially rewarded for helping other people achieve their goals, that's a good thing too. So we have all these bespoke compensation plans that are well-designed, that a lot of thought go into, that result in the magic, meaning creating outsized returns for shareholders. That's how we do it. Now, we also do just general recognition. That's not as powerful as financial rewards, but it's still a good thing. So we have all the usual things of people getting awards and rewards and trips to places and president's clubs and employee of the month, all those kind of things where people feel good about themselves because they're recognized for going above and beyond.

1:30:34But if I had to pick just one or two, the feel good stuff or the money, I'm going with the money.

1:30:40Shane Parrish:It's a powerful motivator. I like how everything's tied to sort of like win-win. Everybody wins, right? but it's not one of those places where you can get outsized compensation even if our shareholders lose. That's a terrible thing. That's an unfair thing. That should never happen. You should have a complete alignment between how shareholders do with their investment in the company and how the employees do. Either both of those groups should be making a lot of money or not a lot of money. Now, the shareholders can't control that. All they're doing is investing their money. The employees control that.

1:31:17If the employees are selected well, are working together in a good culture well, are using technology, are using ways that they can succeed or have good feedback loops, and they're making good decisions and being held accountable for those decisions, they're exceeding them and delivering the numbers. And the share price reflects that. The share price goes up. That's great. The shareholders should make a fortune and the employees should make a fortune. Neither one should make a lot of money at the expense of the other. That's not fair.

1:31:44Shane Parrish:That's just not right. What CEOs do you think are underappreciated capital allocators? When I look at the companies that have taken money and had small amounts of money and turned it into huge amounts of money, immediately I'm thinking Mike Moore at Sequoia. He was chairman of Sequoia Capital. Now he's retired from that and he's at Sequoia Heritage, he's a senior advisor at Sequoia Heritage. But if you look at his career, everything he's done over the decades. And I've studied Mike very, very well for many, many decades. He was one of my first outside investors. Sequoia Capital came into my United Way systems way back in 1989, 1990.

1:32:24And what is he the genius of? He's the genius of taking small amounts of money and turning them into huge amounts of money. So you look at Google, at Yahoo, at Netscape, at Sun Micros, all these companies that he invested relatively small amounts of money in and ended up being worth like 10 billion bucks. That's good capital allocation. That's really, really intelligent capital allocation. So I immediately think of a Mike Moritz for something like that. I think in the industrial sector, there's also people who have gone through the same kind of processes I've gone through and been disciplined at how they allocate capital and achieved high ROIC as a result of that.

1:33:10You think of the academy level CEOs over the years, Dave Cody, for example, when he was at Honeywell for years, he was very, very rigorous at this, very mathematical, very dispassionate, very intelligent about, okay, guys, this is how much money we've got, where are we going to get the biggest returns and allocating it very, very carefully there. So those are the people who come to mind off the top of my head. Talk to me about the relationship between quality and speed. You need both. So you see companies sometimes be really good on quality, but oh my God, they take forever. So it's really not achieving what you're trying to achieve.

1:33:48You see other companies that move real super fast, but it's at the sacrifice of QA, QC, of quality assurance, quality control. The real golden mean is how do you move fast, but move fast intelligently so that you're not sacrificing quality. In fact, you're moving fast and improving quality at the same time. That goes back to mathematics. That goes back to engineering. That goes back to planning, understanding the lay of the land, understanding what exactly is

1:34:20Shane Parrish:the inefficiency that we're trying to take out of the system. What's the biggest lesson you've learned from the past year? You could pick any timeframe, whether it's last 12 months, last 10 years, my whole life, and ask me what's the biggest lesson I've learned. For sure, I'm going to immediately default to something with people. First, I'm going to default to people, then I'm going to default to technology. These are the two things. Because these are the two biggest needle movers. These are the two biggest categories of things that make a difference. So in the last year, what have I learned about people?

1:34:53Okay, one thing I've learned about people is I'm working with a team now at my new company that's largely the same. They were on my teams before. They were either XPO or one of the XOs. And what I've learned is, it's great to have the band back together. It's great to work with people that you know, that you've been in the battles with. You've shared the glories. You've shared the pain. It's great to work with people who, we've been in the dark days together. We've been in the strong days together. We've won together. We've been victorious together. We can complete each other's sentences. We get each other.

1:35:27We know each other's spouses. We know each other's kids. That's a beautiful thing. I haven't always had that. I have brought some people from company to company, usually. Initial founding management for QXO were all XO people. And one thing I've taken away from that is I really love these people. These are people I really just respect and admire. And I just, I'm just so thankful that I get to work with them. Like I feel, and I think we all feel this way. I think all of us feel that each of us is getting the long end of the stick by working with the rest of this team. That it's very hard to find a team, a group of people this size that all love each other, that all respect each other, that all admire each other's professional and personal characteristics and traits.

1:36:15And that's, that's a beautiful thing. That's a big takeaway for me. Now, I'm going to go for a twofer on this. What's my biggest takeaway on technology in the last 12 months? On technology, what I learned was I went through this process of studying dozens of industries and I went through the checklist. And one of the things on the checklist was, can I take technology and apply our tech forward mentality and our willingness to invest in technology and put our money where our mouths and put money in technology in an industry where we'll get a competitive advantage? And I found an industry building products distribution that I can do that.

1:36:56I found an industry that's got 20 ,000 companies and there's about six or seven that are doing really cool things in technology. And that's pretty much it. And I hate to say that so negatively, but I think that's an objective assessment of it. I think there's half a dozen or so companies, the biggest ones that are, a couple of medium-sized companies too, but mostly the biggest ones who are approaching technology in the same spirit that we approach technology. Now we're going to double down on that and spend a lot more money and have the best technologists involved like we always have in our companies.

1:37:30but if you look at the 99 % of all the other companies, they're where other industries were 20 years ago. Now, I like that, Shane. I like going into an industry where I got something I can bring to the industry that's going to help. I can be transformational. I can be a catalyst to improve the quality of the industry. I'm happy to get everyone all excited and share the vision about investing in technology.

1:37:51Shane Parrish:But we always, or I guess I always end with the same question. What is success for you? On the professional level, it's very simple. it's continuing my tradition of generating superlative shareholder returns, like off the charts, great returns for investors. That's my report card. That is success, period. There's a lot of other things that build up to that. I have to have an engaged workplace. I have to have good relations with my local communities. I have to do all those good stakeholder stuff. But at the end of the day, the report card is one question. What is my share price performance versus the benchmark?

1:38:31And not only relative, but absolute terms as well. So it's about stockholder appreciation for sure, professionally. All the things I'm doing of hiring people and putting in technology, all the things we've been talking about the last couple of hours, that all comes down to making money for shareholders. If you're not making money for shareholders, it's just jabber jabber. It's just talk. So for me, success is defined by how is my stock price performance versus everybody else's. So that's clear for me. It's very clear in my mind. Personally, it's about my family. It's about my friends. It's about my relationships with them.

1:39:04It's about, can I create ways where in the limited times, I don't have as much time as most people because I'm really into the business. But in the limited time that I do have, can I make those enriching experiences? Can I make those experiences where there's a lot of love in the room. There's a lot of good stuff going on. There's a lot of positive vibes. And they're very symbiotic, wonderful relationships where I'm helping the people I love and they're helping me.

1:39:29Shane Parrish:And if I can achieve that, that's success. That's amazing. Thank you so much for your time today. This was a fascinating and wide-ranging conversation. I really appreciate the opportunity, Shane.

1:39:46Thank you.