Today’s Chapter is based on the book “The Nvidia Way: Jensen Huang and the Making of a Tech Giant” by Tae Kim.

Jensen Huang is a Taiwanese-born American entrepreneur who co-founded NVIDIA Corporation in 1993 and serves as its founder, president, and CEO. Under his leadership, NVIDIA became a leading provider of graphics processing units (GPUs) and emerged as the central engine behind the artificial intelligence (AI) boom.

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Here’s what I learned:

Whiteboarding

“Clear writing gives poor thinking nowhere to hide.”
— Shane Parrish

One of the key concept we can learn from Jensen Huang is his obsessive use of the whiteboard. While most companies use Powerpoint decks to prepare presentations, Huang prefers using a whiteboard so that he can jump in mid-meeting with a marker in hand to sketch, erase and sketch again. This isn’t just a preference, but a philosophy on how most ideas come to life at Nvidia. Tae Kim writes that “At Nvidia, the whiteboard is more than the primary form of communication at meetings. It represents both possibility and ephemerality—the belief that a successful idea, no matter how brilliant, must eventually be erased, and a new one must take its place.”

This concept is an important part of the Nvidia’s corporate culture. By using a whiteboard to present at meetings, every employees cannot hide behind prepared slides; they need to think out loud, in real time, in front of everyone. This can easily expose those that do not truly understand the topic at hand.

“Whiteboarding also requires active thinking and inevitably reveals how well (or not) any employee, including an executive, knows the material. Employees must demonstrate their thought process in real time, in front of an audience; there’s no hiding behind neatly formatted slides or slick marketing videos.”
— Tae Kim

This concept of whiteboarding comes from the fact that Jensen Huang loves teaching and the whiteboard is his chalkboard. As Tae Kim explains, “In another life, Jensen Huang might have been a teacher. His preferred medium is the whiteboard: at many of the meetings he attends at Nvidia, where he has been the CEO since he cofounded the company in 1993, he will leap up, his favorite chisel-tip, dry-erase marker in hand, and diagram a problem or sketch out an idea—even if someone else is speaking or whiteboarding themselves at the same time. In fact, he alternates between teacher and student, fostering a collaborative ethos among his employees to develop their thinking and solve the issues they face.”

Similarly, the whiteboard is an analogy often used at Nvidia to represent Nvidia’s way of handling mistakes. As a matter of fact, in the company, the past, whether it was a glorious success or a humiliating failure, is simply material to be erased. By doing so, employees don’t become complacent on their recent success and do not have decision paralysis due to previous failures.

“I found this to be a pervasive attitude within Nvidia: that the culture of the place discourages looking back, whether at errors or successes, in favor of focusing on the future—the blank whiteboard of opportunity.“
— Tae Kim

This reminds me of what we have learned from Bejamin Franklin who once said, “Drawing is a kind of universal language, understood by all nations. A man may often express his ideas, even to his own countrymen, mòre clearly with a lead pencil or bit of chalk than with his tongue.” As a matter of fact, Franklin understood that writing is an important part of learning. By writing about a topic at hand, you must be able to compress your ideas into words which requires both understanding and thinking. As such, writing is a great process to understand things better yourself and to identify the topics that you understand from those that you do not know what you are talking about. The reason I started this blog is precisely for this purpose of forcing myself to think and to understand deeply what I learn from these books that I read.

“A good writer doesn’t just think, and then write down what he thought, as a sort of transcript. A good writer will almost always discover new things in the process of writing.”
— Paul Graham

Finally, writing is a great tool for better decision making. In fact, by keeping a decision journal at hand, you will be able to collect feedbacks from your previous decisions in the hope of making better decisions in the future. Writing it down on a journal is crucial as it allows you to review all the circumstances and accessible knowledge you had at the time of your decision and to truly evaluate it without being obstructed by hindsight bias.

“Go down to a local drugstore and buy a very cheap notebook and start keeping track of your decisions. And the specific idea is whenever you’re making a consequential decision, something going in or out of the portfolio, just take a moment to think, write down what you expect to happen, why you expect it to happen and then actually, and this is optional, but probably a great idea, is write down how you feel about the situation, both physically and even emotionally. Just, how do you feel? I feel tired. I feel good, or this stock is really draining me. Whatever you think.

The key to doing this is that it prevents something called hindsight bias, which is no matter what happens in the world, we tend to look back on our decision-making process, and we tilt it in a way that looks more favorable to us, right? So we have a bias to explain what has happened.”
— Daniel Kahneman

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Speed of Light

“A maniacal sense of urgency is our operating principle.”
— Elon Musk

Jensen Huang does not believe in what most people would call a worklife balance. In fact, he believes in obsession. One of the core philosophy at Nvidia is the concept of “Speed of Light”, which means measuring your performance not against what the competitors are doing or what you’ve done previously, but against the absolute limits of what if physically possible. Kim mentions that “Since Nvidia’s founding, Jensen has insisted that all Nvidia employees work at the “Speed of Light.” He wants their work to be constrained only by the laws of physics—not by internal politics or financial concerns. Each project must be broken down into its component tasks, and each task must have a target time-to-completion that assumes no delays, queues, or downtime. This sets the theoretical maximum: the “Speed of Light” that it is physically impossible to exceed.“

This core belief most likely comes from Jensen Huang’s work ethic. Born in a family of immigrants, Huang was extremely hard working, often working from 9AM to midnight, and he expected his team at Nvidia to match his own intensity.

“There may be people smarter than me, but no one is ever going to work harder than me.”
— Jensen Huang

It is important to note that this philosophy of “Speed of Light” was actually born from necessity, especially in the early days of the company. Nvidia was often in lack of capital and Huang often told his employees at every monthly company that “We’re thirty days from going out of business.” While this may not be the case anymore, to avoid complacency, Huang kept the culture of working at the speed of life so that every staff continue to feel the urgency of a startup even when the company was worth hundreds of of billions. Fear and anxiety became Huang’s favourite motivational tools.

Similarly, employees knew they had to keep working at the speed of light and to not become complacent as Huang was extremely competitive and he needed Nvidia to win at everything even against itself. Tae Kim writes, “Andrew Logan, Nvidia’s director of corporate marketing, remembers how one of Nvidia’s chips came in second place for a computer magazine awards feature. In his prior job at S3, executives would be happy if their products finished in the top three. Not at Nvidia. “The first time we came in second place, Jensen sternly told me: Second place is the first loser,” Logan said. “I never forgot it. I realized I’m working for a boss who believes we have to win at everything. It was a lot of pressure.””

“Jensen runs the company in the way he does because he believes that Nvidia’s worst enemy is not the competition, but itself—more specifically, the complacency that grips any successful company, particularly one with a long and impressive track record such as Nvidia.”
— Tae Kim

This obviously reminds me of Elon Musk who once said, “You must be extremely tenacious. Work like hell. You have to put in eighty-to one-hundred-hour weeks every week. This will improve your odds of success.” As such, it is not surprising that Musk, similar to Jensen Huang, isn’t too found of the idea of a balanced work week. He mentions that “Nobody ever changed the world on forty hours a week.”, and he clearly puts this principle to the test. As a matter of fact, Musk was well known for setting aggressive timelines using it as a motivation for his employees to work harder and more efficiently.

“You need to work. Work hard. Like every waking hour. Particularly if you’re starting a company, you need to work super hard. Do the simple math: Somebody else is working fifty hours a week and you’re working one hundred. You’ll get twice as much done in a year. 54 If other people are putting in forty-hour workweeks and you’re putting in one hundred, what takes them a year, you will achieve in four months.”
— Elon Musk

Furthermore, in order for his companies to achieve the deadlines set by his maniacal approach, Musk had to implement a system for them to work fast and efficiently. To do so, he elaborated an Algorithm inspired from engineering in order to speed things up. He mentions, “I have everyone at my companies rigorously implement a five-step process for engineering. I call it The Algorithm. I’ll list the steps, then explain. The order is very important. Make your requirements less dumb. Try very hard to delete the part or process. Simplify or optimize. Accelerate. Automate.”

First, he believes that most of the requirements are dumb and that it is primordial to question them and see why they were set in the first place. He explains, “Whatever requirements or constraints you do have must come from a person, not a department. You can’t actually ask a department. You have to be able to ask a person, and the person putting forth the requirement must take responsibility for that requirement. Otherwise, you could have a requirement made up by an intern two years ago off the cuff, or someone who isn’t even at the company anymore. You must know the name of the real person who made every requirement. Many times we’ve had dumb requirements, dug into them, and discovered no one currently working in that department agrees with the requirement. These things are often way more silly than you think. So step one is make your requirements less dumb.”

Second, you often need to eliminate some steps to make things faster. As a matter of fact, Musk was well-known among his employees to often go through a rampage of deleting things. He was never conservative about these things as he believed that “If you’re not adding deleted things back in 10 percent of the time, you’re clearly not deleting enough.”

Third, you need to optimize every single steps that are essential. And once that is done, you can start on step four and five which are to accelerate and automate. Musk warns to not skip over the steps. As he explains, “do not go faster until you have worked on the other three things first. I mistakenly spent a lot of time accelerating processes that I later realized should have been deleted. Speeding up something that shouldn’t exist is absurd. If you’re digging your grave, don’t dig it faster. Stop digging.”

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Focus on the Mission

“Mercenaries think opportunistically; missionaries think strategically. Mercenaries go for the sprint; missionaries go for the marathon. Mercenaries focus on their competitors and financial statements; missionaries focus on their customers and value statements. Mercenaries are bosses of wolf packs; missionaries are mentors or coaches of teams. Mercenaries worry about entitlements; missionaries are obsessed with making a contribution. Mercenaries are motivated by the lust for making money; missionaries, while recognizing the importance of money, are fundamentally driven by the desire to make meaning.”
— John Doerr

A final lesson we can learn from Jensen Huang is about organizational design. First of all, while most companies are build like a pyramid with layers of management, Huang prefers a flat model. He deliberately built Nvidia as a flat organization where the mission is the ultimate authority. He explains that “Over the years, I realized what was happening, how people protect their turf and they protect their ideas. I created a much flatter organization.” As a matter of fact, Huang believes this structure avoids backstabbing and political infighting within the company.

To make this work, it is primordial to encourage transparency within the company. To do so, Huang has established a few unusual practices. One of these practices is called “Top 5 Email”, where employees at every level must send weekly updates on their priorities. This isn’t about micromanagement, but for Huang to detect corporate weaknesses before they become crises directly from the source.

“The “Top 5” emails became a crucial feedback channel for Jensen. They enabled him to get ahead of changes in the market that were obvious to junior employees but not yet to him or his e-staff. “I’m looking to detect the weak signals,” he would tell his employees when asked why he liked the Top 5 process. “It’s easy to pick up the strong signals, but I want to intercept them when they are weak.””
— Tae Kim

Second of all, an important key phrase at Nvidia is “The Mission is the Boss.”, meaning that decisions aren’t made to please a senior executive or to meet a short-term goal. They are made to serve the customer and to advance the company’s core objectives. As such Jensen Huang often told his employees “ that their ultimate boss was the mission itself. The idea was to make decisions for the good of the customer, not to boost the career of the executive above them.“

Huang elaborates that “The concept of the mission is the boss makes a lot of sense because ultimately we’re here to realize a particular mission, not in service of some organization. It got people thinking about the work and not the organization. The work, not the hierarchy.”

Finally, you need to hire missionaries not mercenaries. As a matter of fact, hiring raw talent is one of the key component of Nvidia’s success. This is crucial because as Huang explains, “Good programmers want to work with other good programmers. So once the quality of programmers at your company starts to drop, you enter a death spiral from which there is no recovery. In technology, once you have bad programmers, you’re doomed.”

“In a sense, that is the Nvidia Way in its purest form. It is the unwavering belief that there is tremendous reward in doing your job the best you can. It is the drive to persevere amid adversity. Or, as Jensen put it when looking directly into my eyes: the secret to his company’s success is nothing more than ‘sheer will.’”
— Tae Kim

This reminds me of Brac Jacobs who once said that a CEO’s most important job is recruiting. He explains that “CEOs tend to get credit for the accomplishments of the teams they lead, but in reality, the most important thing a CEO does is recruit superlative people who have a combination of impressive traits. Talent is a must of course, but it’s equally important to hire quality people who are capable of constructive interactions with others.”

So what are traits that Jacobs look for when hiring? He believes in four non-negotiable traits: intelligence, hunger, integrity and collegiality. Miss any one of these characteristics and the candidate is out. As he once said, “Make your hiring choices as perfect as they can be because there are few mistakes costlier than hiring the wrong person.”

Personally, I believe integrity to be the most important of these traits. As Warren Buffett once said, “Intelligence, energy, and integrity. And if they don’t have the last one, don’t even bother with the first two. I tell them, ‘Everyone here has the intelligence and energy—you wouldn’t be here otherwise. But the integrity is up to you. You weren’t born with it, you can’t learn it in school.” Here’s what Jacobs has to say about integrity: “I’ve learned three important lessons about integrity over the course of my career. First, if someone’s willing to lie about small things, they’re usually willing to lie about big things. It’s a lot of work to communicate with someone you don’t trust to speak truthfully, where you have to constantly wonder whether they’re lying, and why. And more critically, trustworthy employees are leadership’s eys and ears in business operations. Dishonest employees blind management to the reality of what’s going on. The second thing I’ve learned is that, sooner or later, liars get caught. That’s why I believe honest people are more successful in the long term than dishonest people. I’m chasing success on a massive scale, so I can’t afford to have liars on the team. They pose an existential threat to the entire company, and the team can sense that, even if they don’t know anything specific. Honest employees make it easier for everyone to relax. And third, honest people don’t have to tell you how honest they are. Instead, they show integrity through their actions. Most reputations for integrity come from the cumulative effect of someone doing what they say they’ll do, and being straightforward in how they speak. These are the kinds of cues we look for as someone moves through the hiring process.”

“While there’s little about these three leaders that seems to connect them on the surface, they’re nearly identical in possessing the four qualities I seek in every hire: intelligence, hunger, integrity, and collegiality. If a candidate is deficient in any one of these four, that’s a risk I don’t take. If I find someone who scores high in all four qualities, and has the skills for the role, I snap them up.”
— Brad Jacobs

Furthermore, Jacobs is a believer in hiring people who are motivated to make a lot of money. He explains that “CEOs can give their employees experience and advice, but you can’t pay the mortgage with advice. Compensation is the most effective tool I have to motivate employees. If a candidate says to me, “I’m not motivated by money,” I suspect either they’re not being candid or they lack the hunger that’s necessary to succeed in what is, after all, a profit-driven enterprise.“

It is clear that Jacobs fully understands the power of incentives. Once you have great employees working for you, it is important to set a compensation system in place in order to retain these great talents. Bonus point if the incentive structure is aligned with the company’s goals. As Jacobs once said, “That’s why I’ve “overpaid” almost every direct report I’ve ever had to ensure I had top-tier people in place. When I pay someone a big bonus or see the value of their equity keep rising, I have the satisfaction of knowing it’s a twofer, because I’ve been careful to align that person’s incentive structure with the company’s goals. The only way to earn windfall money in my companies is to make outsized contributions to value creation.“

This philosophy creates a virtuous cycle where motivated employees drive company success, which in turn leads to greater rewards for them. It is the ultimate alignment of interests, making a good compensation system one of the smartest investments a leader can make.

“And that’s the bottom line of a compensation structure that aligns the interests of the people in your organization with the interests of your company and its shareholders. Employees are happier and have more reason to work hard. Managers are more motivated to devise creative solutions to challenges. The company is better positioned to make gains in operational excellence, market share, and profitability.”
— Brad Jacobs

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Today’s Chapter is based on the book “Grinding It Out: The Making of McDonald’s” by Ray Kroc.

Ray Kroc was an American entrepreneur who transformed McDonald’s from a single California drive-in into the world’s largest and most profitable fast-food franchise. After discovering the McDonald brothers’ efficient restaurant in 1954, he founded McDonald’s System, Inc. in 1955, bought out the brothers in 1961 for $2.7 million, and revolutionized the industry through strict standardization and franchising.

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Here’s what I learned:

Keep Grinding

“I’m a great believer in luck, and I find the harder I work, the more I have it.”
— Thomas Jefferson

Ray Kroc rejected the notion that success or failure is caused by external forces or luck. Instead, he operated under the firm conviction that individuals are the sole architects of their destinies. For Kroc, he believed that happiness was not stumbled upon, but actively constructed through hard labor and the courage to seize opportunities when they come up. As he explains, “I have always believed that each man makes his own happiness and is responsible for his own problems.”

As a matter of fact, Ray Kroc is a perfect example of how entrepreneurs can succeed even if they start at a later age. Kroc was 52 years old when he partnered with the McDonald brothers. Nonetheless, his story is not one of overnight success but of relentless effort over a lifetime. Kroc started his career working over seventeen years at the Lily Tulip Cup Company climbing the sales ladder. Yet, when he encountered a multi-splinded milkshake machine known as the Multimixer, he was not afraid to abandon everything to focus on it. He writes, “It follows, obviously, that a man must take advantage of any opportunity that comes along, and I have always done that, too. After seventeen years of selling paper cups for Lily Tulip Cup Company and climbing to the top of the organization’s sales ladder, I saw opportunity appear in the form of an ugly, six-spindled milk shake machine called a Multimixer, and I grabbed it.”

Furthermore, when he saw the spectacular high-volume operation of the McDonald brothers, his instinct was not to merely sell them more mixers, but to envision a national chain and offer himself to work with them for that expansion. He was ready to jump onto this opportunity despite his illness setbacks. He mentions, “I was a battle-scarred veteran of the business wars, but I was still eager to go into action. I was 52 years old. I had diabetes and incipient arthritis. I had lost my gall bladder and most of my thyroid gland in earlier campaigns. But I was convinced that the best was ahead of me. I was still green and growing, and I was flying along at an altitude slightly higher than the plane.”

“For me, this was the first phase of grinding it out—building my personal monument to capitalism. I paid tribute, in the feudal sense, for many years before I was able to rise with McDonald’s on the foundation I had laid. Perhaps without that adversity I might not have been able to persevere later on when my financial burdens were redoubled. I learned then how to keep problems from crushing me. I refused to worry about more than one thing at a time, and I would not let useless fretting about a problem, no matter how important, keep me from sleeping. This is easier said than done. I did it through my own brand of self-hypnosis.”
— Ray Kroc

Finally, it is clear from reading his story that Ray Kroc was extremely hard working. He would often worked for 12-14 hours per day. He writes, “Others marveled that I could work twelve or fourteen hours a day at a busy convention, then entertain potential customers until two or three o’clock in the morning, and still be out of bed early, ready to collar my next client. My secret was in getting the most out of every minute of rest. I guess I couldn’t have averaged more than six hours of sleep a night. Many times I got four hours or less. But I slept as hard as I worked.”

To recap, Kroc’s life philosophy can be summarized with the idea that one should become a perpetual learner and to work hard in order to seize all opportunities that come to you. As he once said, “As long as you’re green you’re growing, as soon as you’re ripe you start to rot.”

This reminds me of Chung Ju-Yung’s mentality who once said that “timing and action are the keys to success or failure.” In fact, in Hyundai’s founder’s opinion, luck is all about understand when to seize the right moment and that good or bad luck depends on how one manages time. He also believes that everyone, poor or rich, all have roughly the same amount of time to develop themselves to be prepared to take full advantage of a great opportunity.

The difference is that people who work hard are better apt to take advantage of good timing in contrast to lazy people. As a matter of fact, diligent workers, even during bad times, understand that they still need to make continuous effort in order to minimize or avoid adverse consequences. Whereas, lazy individuals will miss the opportunities presented to them during good times and are oblivious to dangers during bad times. Thus, hard working people are deemed to be always lucky compared to others.

“And within our lifespans, I believe each person also undergoes roughly equal amounts of good times and bad times. Self-development is contingent on one’s ability to make the most of the good times through hard work and diligence. When times are bad, all we can do is assess our situation and carry on. By doing so, we can overcome the bad times without needing to rely on luck. The course of one’s life is not determined by the timing of one’s birth, but by the choices he or she makes in both good times and bad.”
— Chung Ju-Yung

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Focus on Details

“It’s the little details that are vital. Little things make big things happen.”
— John Wooden

When Ray Kroc first visited the McDonald brothers’ restaurant in San Bernardino, he was impressed with the restaurant’s radical simplicity, standardization, and process mechanical efficiency. The brothers stripped their menu down to hamburgers, cheeseburgers, french fries and basic beverages and executed each step like if it was an assembly line. This level of operational focused allowed for absolute control over quality, speed and consistency.

In fact, even the layout of the restaurant at the first McDonald’s location was set up in a way to improve speed and consistency. Kroc explains, “Mac and Dick had a tennis court behind their house, and they got Art Bender and a couple of other operations people up there to draw out the whole floor plan with chalk, actual size, like a giant hopscotch. It must have looked funny as hell—those grown men pacing about and going through the motions of preparing hamburgers, french fries, and milk shakes. Anyhow, they got it all drawn, just so, and the architect was to come up the next day and copy the layout to scale for his plans.”

As such, Kroc recognized that McDonalds’ success is based on the system behind it which focused on details, particularly in elements that other restaurants treated as afterthought at the time. For example, he observed firsthand how the brothers handled their french fries operations, treating a simple side dish as a highly precise science. He writes, “The McDonald’s french fry was in an entirely different league. They lavished attention on it. I didn’t know it then, but one day I would, too. The french fry would become almost sacrosanct for me, its preparation a ritual to be followed religiously.”

Similarly, Kroc mentions that “It requires a certain kind of mind to see beauty in a hamburger bun. Yet, is it any more unusual to find grace in the texture and softly curved silhouette of a bun than to reflect lovingly on the hackles of a favorite fishing fly? Or the arrangement of textures and colors in a butterfly’s wing? Not if you are a McDonald’s man. Not if you view the bun as an essential material in the art of serving a great many meals fast. Then this plump yeasty mass becomes an object worthy of sober study.”

“We agreed that we wanted McDonald’s to be more than just a name used by many different people. We wanted to build a restaurant system that would be known for food of consistently high quality and uniform methods of preparation.”
— Ray Kroc

By consequence, when Kroc obtained control of the licensing rights and opened his first experimental McDonald unit in Illinois, his primary focus was to replicate and to preserve the operational uniformity across hundreds of locations around the world. He understood that the key to maintain a national brand was for customers to receive the exact same hamburger, cooked to the exact same specifications, whether they are in Chicago, California or a small town in the Midwest.

This eventually led to the implementation of McDonald’s four core values: Quality, Service, Cleanliness, and Value. These values were rigorously drilled into every crew members working at the company. Kroc used to say that “If I had a brick for every time I’ve repeated the phrase QSC and V (Quality, Service, Cleanliness, and Value), I think I’d probably be able to bridge the Atlantic Ocean with them.”

This focus on excellence in the details reminds me of what we have learned from John Wooden who believed that excellence comes from one’s character through the little details. In fact, for Wooden, character is revealed not in grand gestures but in small, consistent actions. He once said, “I believe in the basics: attention to, and perfection of, tiny details that might commonly be overlooked. They may seem trivial, perhaps even laughable to those who don’t understand, but they aren’t. They are fundamental to your progress in basketball, business, and life. They are the difference between champions and near champions.” This focus on the little things—whether it’s keeping your word, showing up on time, or treating others with respect—demonstrates the depth of Wooden’s commitment to integrity.

Furthermore, Wooden recognized that character is about actively cultivating one’s positive qualities. He encouraged individuals to focus on developing their inner strengths emphasizing that these are within everyone’s reach. He once said, “Take a moment and draw a circle around the following personal characteristics that you possess: confidence, poise, imagination, initiative, tolerance, humility, love, cheerfulness, faith, enthusiasm, courage, honesty, serenity. I hope you circled them all because all are within each of us. It is simply up to us to bring them out.”

“There’s nothing wrong with having faults so long as you work conscientiously to correct them. How hard you work at correcting your faults reveals your character.”
— John Wooden

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Delegate

“No person will make a great business who wants to do it all himself or get
all the credit.”
— Andrew Carnegie

While Kroc was quite obsessive in terms of his employees following the company’s standards, he was surprisingly generous with autonomy. In fact, Kroc understood that the best executives were the ones who hired well and got out of the way. He explains that “if you hire a man to do a job, you ought to get out of the way and let him do it. If you doubt his ability, you shouldn’t have hired him in the first place.“

This philosophy also extended to the way Kroc treated McDonald’s franchisees. He famously refused for the company to become the supplier to his own operators, even though that would have been enormously profitable in the short term. Rather than to treat his franchisees as customers, he made sure to make himself aligned with them as partners. He writes, “One of the basic decisions I made in this period affected the heart of my franchise system and how it would develop. It was that the corporation was not going to get involved in being a supplier for its operators. My belief was that I had to help the individual operator succeed in every way I could. His success would insure my success. But I couldn’t do that and, at the same time, treat him as a customer. There is a basic conflict in trying to treat a man as a partner on the one hand while selling him something at a profit on the other.”

“I was not in the hamburger business. I was in the people business.”
— Ray Kroc

Similarly, he understood that all franchisees were small business owners whose collective energy made McDonalds’ a valuable brand and, by consequence, it would only be fair for them to be rewarded properly. As such, Kroc mentions, “We recognize that it would be unwieldy and counterproductive for the corporation to own more than about thirty percent of all stores. Our slogan for McDonald’s operators is “In business for yourself, but not by yourself,” and it is one of the secrets of our success.”

As such, it is not surprising that McDonalds’ had created more millionaires out of franchisees than any other company in history. While Kroc takes a genuine pride in the wealth his company has created for others, he believes that the success lays not on him but on the individuals who were courageous enough to take up on the opportunity given. On the subject, he mentions, “ I’d rather say I gave a lot of men the opportunity to become millionaires. They did it themselves. I merely provided the means. But I certainly do know a powerful number of success stories.”

“McDonald’s doesn’t confer success on anyone. It takes guts and staying power to make it with one of our restaurants. At the same time, it doesn’t require any unusual aptitude or intellect. Any man with common sense, dedication to principles, and a love of hard work can do it.”
— Ray Kroc

This reminds me of how Les Schwab succeeded in business based on the belief in profit sharing as a mean to empower employees. In fact, Schwab firmly believed right from the beginning that when employees are treated as partners, they become more invested in their work. As such, Les Schwab first started by sharing 50 percent of the profits of each new store with its manager, and later on, they changed their profit sharing structure to share over 49.51% of their profits with employees working in the stores. The logic is simple; when workers see a direct link between their efforts and the company’s success, they are more likely to go above and beyond in their roles.

Les Schwab once said, “I never could understand why more business people don’t share with their employees. What nicer thing can they do with their profits? You can’t take it with you. Naturally you should look out for your family, but you can always come out better for your family if you look out for your employees first.”

This approach not only fosters loyalty but it also creates a culture of accountability and motivation. By sharing profits with his employees Schwab cultivates an environment where employees feel valued and recognized for their contributions. This sense of ownership translates into higher productivity and morale, which ultimately benefits the entire organization. As he once said, “I encourage you to share profits with your employees. I encourage you in every way possible to ‘Build People.’ This is good for America, it is good for you, and it is good for your employees.”

“If you make people under you successful, what happens to you? Aren’t you also then successful?”
— Les Schwab

Furthermore, while money is a strong incentive in itself, Les Schwab also made sure to build an environment where his employees could enjoy individual empowerment. As a matter of fact, he advocated for treating employees like partners, fostering an environment of open communication, and providing them with the tools and knowledge to make impactful decisions.

Les Schwab explains that “I really do think that young men who work for the Les Schwab Company for three or four years is almost as good as taking three or four years of business schooling. The reason for this is the complete openness of the company. Every employee in every store is encouraged to read and study the Profit and Loss Statement of his store. Each store has a monthly meeting around the P&L Statement. They are encouraged to ask questions.“

This complete transparency on the company’s profits fostered a sense of ownership among employees. They were fully invested in the success of their store, their team, and the company as a whole.

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Beyond the Book

Read "The Power of Incentives: The Hidden Forces That Shape Behavior" by Farnam Street

Listen to "[Outliers] How McDonald’s Took Over America | Ray Kroc" by The Knowledge Project

Listen to " The Making of McDonald's: The Biography of Ray Kroc" by Founders Podcast

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Today’s Chapter is based on “The Hard Thing About Hard Things: Building a Business When There Are No Easy Answers―Straight Talk on the Challenges of Entrepreneurship” by Ben Horowitz.

Ben Horowitz is a Silicon Valley entrepreneur, investor, and author best known as the co-founder of the venture capital firm Andreessen Horowitz (a16z). He previously co-founded Opsware, which Hewlett-Packard acquired in 2007.

Buy it on Amazon here.

Here’s what I learned:

The Struggle

“If you’re going through hell, keep going.”
— Winston Churchill

One of the key lessons from Ben Horowitz’s book is that building a company inevitably involves facing difficulties and avoiding or sugarcoating this reality is the main reason for most companies’ failures. As a matter of fact, Horowitz believes that entrepreneurship is not an easy path, and that “the Struggle” is necessary for a company to succeed. He writes, “Every great entrepreneur from Steve Jobs to Mark Zuckerberg went through the Struggle and struggle they did, so you are not alone. But that does not mean that you will make it. You may not make it. That is why it is the Struggle. The Struggle is where greatness comes from.”

Horowitz believes that every entrepreneur will eventually face periods where nothing feels right and every path seems blocked. However, it is by overcoming these challenges that entrepreneurs build the foundation for future success. These times of adversities came often during Horowitz’s career as the founder of a tech company, especially at Opsware. During these moments, it is important for entrepreneurs to be creative in their solutions to overcome challenges. Horowitz recounts that he would often ask himself “what’s the worst thing that could happen?” By doing so, he believed it helped him overcome fear of hopelessness and to keep moving forward, often with a creative solution to the problem at hand.

“I tried to make myself feel better by asking, ‘What’s the worst thing that could happen?’ The answer always came back the same: ‘We’ll go bankrupt, I’ll lose everybody’s money including my mother’s, I’ll have to lay off all the people who have been working so hard in a very bad economy, all of the customers who trusted me will be screwed, and my reputation will be ruined.’ Funny, asking that question never made me feel any better. Then one day I asked myself a different question: ‘What would I do if we went bankrupt?’ The answer that I came up with surprised me: ‘I’d buy our software, Opsware, which runs in Loudcloud, out of bankruptcy and start a software company.’”
— Ben Horowitz

Horowitz, now a venture capitalist, has met various successful CEOs and often asked them how they faced “the struggle”. He mentions that all the great CEOs tend to be remarkably consistent in their answers. They all say, “I didn’t quit.” While facing “the struggle” doesn’t necessarily guarantee success, it does separate those who eventually make it from those who do not.

Nonetheless, Horowitz warns that this often leads to founders needing to make decisions against conventional wisdom. In fact, he believes that there is always a move for the issue at hand, but a founder needs to have the guts to make it. For example, when Horowitz was facing a lack of funds during the tech crash in the early 2000s at Loudcloud, instead of giving in, he decided to bring the company public. He writes, “As a result, like playing three‑dimensional chess on Star Trek, there is always a move. You think you have no moves? How about taking your company public with $2 million in trailing revenue and 340 employees, with a plan to do $75 million in revenue the next year? I made that move. I made it in 2001, widely regarded as the worst time ever for a technology company to go public. I made it with six weeks of cash left. There is always a move.”

Finally, when facing “the struggle”, Horowitz warns that you cannot play the odds. If you calculate your chances of survival at one in a thousand, your task remains exactly the same: find the answer.

“Startup CEOs should not play the odds. When you are building a company, you must believe there is an answer and you cannot pay attention to your odds of finding it. You just have to find it. It matters not whether your chances are nine in ten or one in a thousand; your task is the same.”
— Ben Horowitz

This reminds me of Hyundai’s founder Chung Ju-Yung. Whenever someone said that a proposed project was impossible, his favourite response was “Did you try?” In fact, when Hyundai first got into the car industry, they knew that they had to partner with an American company who had superior technology. When Chung heard of Ford’s visit in South Korea, he immediately asked his younger brother to negotiate an automobile assembly technology contract with Ford. His brother was taken back as it seemed improbable to reach an agreement this quickly with a major foreign car company. Chung responded with the following saying: “Have you even tried?”

For Chung, the first rule to become a successful person is to have the mentality of thinking that anything is possible. As he explains, “If you doubt yourself, then you will only be able to accomplish as much as your doubts let you. If you think you can’t do something, then you won’t be able to do it.”

“I am someone who believes that if a person limits themselves to the fixed ideas inherent in common sense, they will not be very creative.”
— Chung Ju-Yung

In the case of Chung, he knew that for him to beat his competitors, he had to finish projects in a shorter amount of time than other people. In fact, he mentions that he succeeded because while others were still hesitating, he had already begun working. This is the reason why his motto is “shorten the time”. In his opinion, that is the surest way to encourage innovation and improvement. As a matter of fact, he would often take tours of his projects and would always seek to find ways to shorten construction times in unconventional ways.

Chung believed that finding clever solutions would never come from people with conventional thinking. As a matter of fact, he mentions that “if you only think in accordance with what you learned through books, your imagination will be limited to that.”

“When we worked on the Jubail project, we had to make 160,000 drill bits to build the breakwater and shore protection structures. If we built 200 every day, it would take us 800 days to make 160,000. But at the site, the workers were making them one at a time instead of using a mold to mass produce them. Their sorry excuse for this wasteful effort was that the molds weren’t the right height to fix onto the end of the cement trucks.

When I saw this, I was furious. Why did these people have brains if they weren’t going to use them? It didn’t take a genius to realize that the outflow ramp for the concrete on the trucks needed to be raised to fit the molds. If they just followed this simple solution, they wouldn’t need a crane, and they wouldn’t waste time and energy. They couldn’t think to adjust the concrete mixer truck, thinking it was unchangeable. Would the gods punish them for making some small adjustments? After I made the changes, we went from 200 per day to 350 per day.”
— Chung Ju-Yung

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Take Care of Your People

“Four Seasons is the sum of its people—many, many good people.”
— Isadore Sharp

Ben Horowitz learned a core business philosophy from his old boss Jim Barksdale who was fond of the saying, “We take care of the people, the products, and the profits—in that order.” While other CEOs may instinctively reverse the sequence, Horowitz argues that it is a colossal mistake. He explains that “‘Taking care of the people’ is the most difficult of the three by far and if you don’t do it, the other two won’t matter. Taking care of the people means that your company is a good place to work.”

For Horowitz, one of the most overlooked way to take care of your employees is to invest in their training. While he used to neglected this entirely, Horowitz quickly changed his mind after reading Andy Grove’s High Output Management. He writes, “Andy Grove does the math and shows that the opposite is true: Training is, quite simply, one of the highest‑leverage activities a manager can perform. Consider for a moment the possibility of your putting on a series of four lectures for members of your department. Let’s count on three hours preparation for each hour of course time—twelve hours of work in total. Say that you have ten students in your class. Next year they will work a total of about twenty thousand hours for your organization. If your training efforts result in a 1 percent improvement in your subordinates’ performance, your company will gain the equivalent of two hundred hours of work as the result of the expenditure of your twelve hours.”

Horowitz notes that the biggest obstacle to training in startup companies is due to the perception that it takes too much time. Founders often skip training because they believe they need to move fast and assume that everyone can learn on the job. However, this can lead to inconsistent execution, frustrated employees and unnecessary turnover.

“Ironically, the biggest obstacle to putting a training program in place is the perception that it will take too much time. Keep in mind that there is no investment that you can make that will do more to improve productivity in your company. Therefore, being too busy to train is the moral equivalent of being too hungry to eat.”
— Ben Horowitz

Furthermore, Horowitz also emphasizes on the importance for founders to have one-on-one meetings with their employees. He mentions that this exercise is a great way for them to learn about best ideas and the struggles that his staff is facing on a daily basis. The goal of the meeting is to ensure that employee life issues and critical feedback reach the people who can actually do something about them. When that system works, employees feel heard, and the company gains an early warning system for trouble. He writes, “In the end, the most important thing is that the best ideas, the biggest problems, and the most intense employee life issues make their way to the people who can deal with them. One‑on‑ones are a time‑tested way to do that, but if you have a better one, go ahead with your bad self.”

This reminds me of Elon Musk’s view on leadership. He believed that creating a culture of excellence requires more than just hiring well. It also requires leaders who are willing to lead by example and who are willing to get their hands dirty. Elon Musk is often seen sleeping on factory floors and working alongside his teams during crises. He understood that his employees would work harder if they saw him working alongside of them. He mentions, “Think about war. Do you want the general in some ivory tower or on the front lines? The troops fight harder if they see the general on the front lines. Nobody bleeds for the prince in the palace. Get out there on the front line. Show them that you care and that you’re not in some plush office somewhere.”

Similarly, Musk believed in removing any barriers that may separate senior executives from employees. As a matter of fact, he expects his managers to have hands-on experience in the work they oversee. For example, software managers must be able to code and solar roof managers must be able to install roofs. If you cannot do the work yourself, you have no business telling others how to do it. He elaborates that, “All technical managers must have hands- on experience. For example, managers of software teams must spend at least 20 percent of their time coding. Solar roof managers must spend time on the roofs doing installations. Otherwise, they are like a cavalry leader who can’t ride a horse or a general who can’t use a sword.”

“When the team is being asked to work super hard, I have to be right there with them and they have to see it. If I fall asleep in the middle of the factory floor at four in the morning and wake up four hours later, they see that. They are like, “If the CEO is willing to take that level of pain, I can do it too.””
— Elon Musk

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Tell The Truth

“At Berkshire, we believe in Charlie’s dictum—‘Just tell me the bad news; the good news will take care of itself’—and that is the behavior we expect of our managers when they are reporting to us.”
— Warren Buffett

Ben Horowitz believes that his single biggest improvement as a CEO came on the day he stopped being too positive. This goes against the popular image that a leader must be an eternal optimist who never lets his employees see doubt. In fact, Horowitz argues that false positivity destroys trust and that when employees sense that a CEO is sugarcoating reality, they stop believing anything that comes out of his or her mouth. He writes, “One of the most important management lessons for a founder/CEO is totally unintuitive. My single biggest personal improvement as CEO occurred on the day when I stopped being too positive.”

This is especially true considering that as a company grows, communication becomes its biggest challenge. If employees fundamentally trust the CEO, communication becomes vastly more efficient. However, trust cannot be built on a foundation of half‑truths or selective optimism. When things are going badly, the CEO must say so clearly. Horowitz learned this during the Opsware turnaround, when he called an all‑engineering meeting and told the team the truth: they were getting their asses kicked, and if things did not change, he would have to sell the company for cheap.

“I need you to go home tonight and have a serious conversation with your wife, husband, significant other, or whoever cares most about you and tell them, ‘Ben needs me for the next six months.’ I need you to come in early and stay late. I will buy you dinner, and I will stay here with you. Make no mistake, we have one bullet left in the gun and we must hit the target.”
— Ben Horowitz

While you may believe that such a speech may be risky because it may scare away employees, only two employees left the company. The remaining staff were willing to make the sacrifice required to save the business. As such, through this experience, Horowitz discovered that when you treat people like adults and share the real stakes, they rise to the occasion. Hiding problems only delays the inevitable and robs your team of the chance to help solve them.

Furthermore, Horowitz writes, “If you investigate companies that have failed, you will find that many employees knew about the fatal issues long before those issues killed the company. If the employees knew about the deadly problems, why didn’t they say something? Too often the answer is that the company culture discouraged the spread of bad news, so the knowledge lay dormant until it was too late to act.”

By consequence, it is clear that a good company culture encourages people to share bad news and that a company that is able to discuss its problems freely and openly can quickly solve them. In contrast, a company that covers up its problems will only frustrate everyone involved. This lesson also extends to how founders should handle layoffs. Based on a piece of advise from his mentor Bill Campbell, Horowitz believes in treating the people who are leaving fairly, because the people who stay are watching. If you are dishonest or cruel with the departing, the survivors will never trust you again.

This reminds me of how Sam Zell used to love to be challenged by his employees and more than welcomed debates. For him, it was important for him to create a work environment where his employee’s voice can be heard. As a risk taker, Zell’s greatest fear was to not have information that could of protected him from making a mistake due to the lack of communication with his staff. As such, he made sure to implement a meritocracy culture in his company to allow all his employees to be part of the decision making process.

“At our core, we are a meritocracy—an environment that Bob and I cultivated in the early days. A meritocracy gives you the freedom to be yourself by eliminating superficial markers, so you are measured only by what you produce. In essence, it is an equalizer that focuses everybody on what’s important so you have the opportunity to reveal your best. Once you’ve worked in a true meritocracy, it’s very hard to settle for anything else.”
— Sam Zell

This is eerily similar to Ray Dalio’s idea meritocracy, a system hat allows the best ideas to win regardless of who or where they come from. According to Dalio, the founder of Bridgewater, the world’s largest hedge fund, this is the best way to produce the best possible decision by enabling the best thinking of all team members.

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Beyond the Book

Read "Ben Horowitz: The Struggle" by Farnam Street

Read "The Peter Principle and the Law of Crappy People" by Farnam Street

Read "Ben Horowitz On What Makes a Great Founder" by Sequoia Capital

If you are interested in having conversations with the eminent dead, consider trying my AI Chatbox prompted with highlights from over 100+ biographies I have read. Try it here.

If you enjoy reading my newsletter, please consider becoming a paid subscriber. You’ll be able to keep this newsletter going! Here’s what you get when you upgrade:

• Voting on polls: you’ll get to vote on who I should write about next.

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• Supporting my next book purchase: all payments received will be used to purchase a new biography.

Today’s Chapter is based on the book “How to Fail at Almost Everything and Still Win Big: Kind of the Story of My Life” by Scott Adams.

Scott Adams was an American cartoonist and author best known as the creator of the Dilbert comic strip, a satirical take on white‑collar office life that became widely popular worldwide starting in 1989.

Buy it on Amazon here.

Here’s what I learned:

Systems not Goals

“How you climb a mountain is more important than reaching the top.”
— Yvon Chouinard

One concept that is often reiterated by Scott Adams in his book is the distinction between having a goal and having a system. He explains that a goal is a future event that you either achieve or not, leaving you in a state of constant pre-success failure. On the other hand, a system is a daily practice that increases your odds of success in the long run, regardless of the immediate outcome. Adams argues that people who rely on systems consistently outperform those who are solely focused on goals. He writes, “Throughout my career, I’ve had my antennae up looking for examples of people who use systems versus goals. In most cases, as far as I can tell, the people who use systems do better. The systems-driven people have found a way to look at the familiar in new and more useful ways.”

Furthermore, Adams believes that this reframing allows individuals to become happier. Instead of waiting for a distant achievement to feel successful, you can feel successful every time you apply your system. More importantly, by following a system-based approach over a goal-oriented approach, you will never be sitting on your laurels as you will always be consistently finding ways to improve.

This can be perfectly explained through a story Adams learned early in his career from an encounter with a CEO on an airplane who said, “every time he got a new job, he started immediately looking for a better one. For him, job-seeking was not something one did when necessary. It was an ongoing process. This makes perfect sense if you do the math. Chances are, the best job for you won’t become available at precisely the time you declare yourself ready. Your best bet, he explained, was to always be looking for the better deal. The better deal has its own schedule. I believe the way he explained it is that your job is not your job; your job is to find a better job. This was my first exposure to the idea that one should have a system instead of a goal.”

“All I’m suggesting is that thinking of goals and systems as very different concepts has power. Goal-oriented people exist in a state of continuous pre-success failure at best and permanent failure at worst, if things never work out. Systems people succeed every time they apply their systems in the sense that they did what they intended to do. The ‘goals’ people are fighting the feeling of discouragement at each turn. The systems people feel good every time they apply their system. That’s a big difference in terms of maintaining your personal energy in the right direction.”
— Scott Adams

Similarly, this thinking can only be used in terms of maintaining good habits. By focusing on having a good system in place rather than achieving a specific goal, it is a lot easier to maintain habits consistently. Adams experienced this with his own workout routine. Rather than focusing on expecting himself to work out for an x amount of time every day, he focused on building the habit of going to the gym on a daily basis. As such, he didn’t feel any guilt whenever he went to the gym and didn’t feel like working out.

In fact, he writes, “As I drive home from the gym—a seemingly wasted trip—I never feel defeated. Instead, I feel I’m using a system that I know works overall. I win if I exercise, and I win (albeit less) if I use my system and decide not to work out.” By focusing on the system itself rather than a specific outcome, he eliminates the feeling of failure.

By focusing on systems, Adams positioned himself to capitalize on opportunities. He didn’t chase a single big break but built habits that increased his surface area for luck. This reminds me of what we have learned from Bill Walsh’s leadership philosophy that puts emphasis on process over results. He understood that focusing solely on winning can create undue pressure and lead to suboptimal performance. Instead, Walsh advocated for a concentration on the processes that drive success. Especially at the beginning of his reign as the coach of the San Francisco 49ers, Walsh insisted “to channel the concentration of the 49ers toward improving performance on the field and throughout the organization.”

As a matter of fact, he believed that when teams obsess over their execution and the quality of their thinking, success will inevitably follow. He once said, “I directed our focus less to the prize of victory than to the process of improving—obsessing, perhaps, about the quality of our execution and the content of our thinking.” This approach allows for a sustainable path to achievement, where improved performance becomes the primary goal rather than fleeting victories.

Walsh admits that this is difficult to execute especially due to external pressures, such as media scrutiny or fan expectations which can distract from this focus. Instead, Walsh prioritize the development of skills and fostering a growth mindset; he cultivated an atmosphere where individuals could thrive without the paralyzing fear of failure. His philosophy encourages leaders to cultivate patience and persistence by emphasizing that that the true measure of success lies in continuous improvement rather than immediate results. He believed that when individuals are committed to their processes, the outcomes—both on and off the field—will take care of themselves.

“Consequently, the score wasn’t the crushing issue that overrode everything else; the record didn’t mean as much as the season progressed, because we were immersed in building the inventory of skills, both attitudinal and physical, that would lead to improved execution. That was the key.”
— Bill Walsh

This mentality of focusing on the process rather than the outcome allowed the 49ers to weather temporary setbacks and maintain a long-term perspective. Walsh knew that even in defeat, there were valuable lessons to be learned and opportunities for growth. He mentions the fact that “a resolute and resourceful leader understands that there are a multitude of means to increase the probability of success. And that’s what it all comes down to, namely, intelligently and relentlessly seeking solutions that will increase your chance of prevailing in a competitive environment. When you do that, the score will take care of itself.”

In fact, according to Bill Walsh, failure is not merely a setback but a critical component of success. He mentions that *“When the inevitable setback, loss, failure, or defeat comes crashing down on you—allow yourself the ‘grieving time,’ but then recognize that the road to recovery and victory lies in having the strength to get up off the mat and start planning your next move.”*Ultimately, the capacity to learn and adapt defines a champion’s journey. The lessons learned from failure foster a unique strength.

“When you stand and overcome a significant setback, you’ll find an increasing inner confidence and self-assurance that has been created by conquering defeat.”
— Bill Walsh

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Failure as a Tool

“I’ve missed more than 9000 shots in my career. I’ve lost almost 300 games. 26 times, I’ve been trusted to take the game winning shot and missed. I’ve failed over and over and over again in my life. And that is why I succeed.”
— Michael Jordan

Scott Adams’s career is a perfect example of how failures can lead to success stories. As a matter of fact, Adams doesn’t just tolerate failure, he invites it and most importantly, extracts value from it. He genuinely believes that failure is a fertilizer for growth. He writes, “Failure always brings something valuable with it. I don’t let it leave until I extract that value. I have a long history of profiting from failure. My cartooning career, for example, is a direct result of failing to succeed in the corporate environment.”

Adams doesn’t believe that one shouldn’t just forget about his failures, but to repurpose them for future growth. Through a metaphor, he explains that, “If I find a cow turd on my front steps, I’m not satisfied knowing that I’ll be mentally prepared to find some future cow turd. I want to shovel that turd onto my garden and hope the cow returns every week so I never have to buy fertilizer again. Failure is a resource that can be managed.”

“I’ve long seen failure as a tool, not an outcome. I believe that viewing the world in that way can be useful for you, too.”
— Scott Adams

Before becoming the author of the famous comic Dilbert, Adams mentions that he had many failed business ideas, but that all of these adventures provided him with fundamental lessons that allowed him to become a successful cartoonist. For example, although he failed to release any of his computer game projects, it gave him a technical knowledge that would prove invaluable for his career. He writes, “All my computer game ideas failed, but in the process I learned enough about personal computers to look like a technical genius in those early days of computing—the eighties. That knowledge transferred to my day job at the bank and later to my cartooning career as well.”

As such, it is clear that for Scott Adams failure isn’t something to fear or to avoid, it should be used as a valuable input that can be used to increase your skills and insights. He writes, “I do want my failures to make me stronger, of course, but I also want to become smarter, more talented, better networked, healthier, and more energized.“ This mentality of his can be perfectly described by his desire to continue doing public speaking even when he was diagnosed with spasmodic dysphonia, a condition that caused him to be unable to speak normally, just so that he could an experiment. He needed to understand the pattern of his own voice under pressure, and failure was simply a possible data point.

“I needed to know why I could speak normally in some situations and not in others. Why does context matter? Is it something about my adrenaline level, or the tone of my voice, or the region of my brain that I access for memorization? If I could find the pattern, I thought it might reveal a solution to my voice problem.”
— Scott Adams

This reminds me of Michael Dell who believes that failure is not something to be avoided at all costs, but something that can be embraced and learned from. At his own company, he has experienced plenty of stumbles, from product flops to inventory crises, and each one of these mistakes made the business stronger. He explicitly rejects the concept that success is linear.

Dell writes, “But for every company, Dell included, kaizen is an ideal rather than a reality. Success is not a straight line up. It’s fail, learn, try again, then (you hope) succeeded. How successful you are is really a function of how well you deal with failure—and how much you learn from it. Many people don’t reach their greatest potential because they fear failure. In avoiding failure, they deprive themselves of a great teacher.”

However, Dell warns that business leaders must actively remember their failures, and not conveniently forget about them. This is often the case during periods of success where you convince yourself to believe that everything is fine. Success can be dangerously seductive while failure, by contrast, forces genuine reflection and adaption. This is why Dell believes that success can be a horrible teacher as it leads to complacency.

“The low points matter a lot: though it’s nice to remember successes, it’s important to remember failures too.”
— Michael Dell

As we have learned, Dell was able to succeed because his company’s greatest competitive advantage, the build-to-order model, was born through necessity as he didn’t have the capital to mass produce computers and hold inventory. He emphasizes that moments of friction are what built the company’s engineering muscle. He argues that many people fail to reach their potential because they are too afraid of making a mistake, thereby depriving themselves of the greatest teacher they will ever have.

The lesson here is clear, constraints and failures often force innovation. Leaders who fear failure will never take the risks required for meaningful growth. As Dell puts it daring to fail is the only path to meaningful growth, and every failure and setback made him and his company stronger and more resilient. Dell quotes Eleanor Roosevelt who once said, “You must do the thing you think you cannot do.”

“Success is a horrible teacher. Setbacks and failures make you stronger over time-if you let yourself learn from them.”
— Michael Dell

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Know A Little Bit Of Everything

“The more high-quality mental models you have in your mental toolbox, the more likely you will have the ones needed to understand the problem. And understanding is everything. The better you understand, the better the potential actions you can take. The better the potential actions, the fewer problems you’ll encounter down the road. Better models make better decisions.“
— Shane Parrish

In a world that encourages specialization, Scott Adams offers a contrarian view and argues that you don’t need to be world-class at any single skill to achieve extraordinary success. Instead, he argues that you can combine several merely good skills together to create a unique and powerful package. He calls this talent staking and it is the core formula for his own unlikely career as a famous cartoonist despite being a bad drawer. He writes, “To put the Success Formula into its simplest form: Good + Good > Excellent”

The logic is simple but profound. Being in the top 1% of a single skill, like drawing or comedy, is incredibly difficult and requires immense talent and luck. However, being in the top 25% of two or three complementary skills is far more achievable and the combination of those skills makes you uniquely valuable. Adams himself is the perfect case study.

“I’m a perfect example of the power of leveraging multiple mediocre skills. I’m a rich and famous cartoonist who doesn’t draw well. At social gatherings, I’m usually not the funniest person in the room. My writing skills are good, not great. But what I have that most artists and cartoonists do not have is years of corporate business experience plus an MBA from Berkeley’s Haas School of Business.”
— Scott Adams

As a matter of fact, Adam’s corporate experience gave him authentic material, and his business education gave him the strategic sense to navigate the industry. Neither skill alone would have made him a successful cartoonist, but together, they created a powerful niche that no pure artist or pure businessperson could easily occupy. He further explains, “When I combined my meager business skills with my bad art skills and my fairly ordinary writing talent, the mixture was powerful. With each new skill, my odds of success increased substantially. But there was still one more skill I acquired in my day job at Pacific Bell that ended up mattering a lot: I knew how to use the Internet before most people had even heard of it.”

As such, Adams encourages us to be multidisciplinary and to learn various skills and knowledge. The idea is not to master them all but to become proficient enough in several to create an unique competitive advantage. He writes, “The great thing about reading diverse perspectives from the fields of business, health, science, technology, politics, and more is that you automatically see patterns in the world and develop mental hooks upon which you can hang future knowledge.”

In his book, Adams lists out skills he believes everyone should be familiar with at a competent level:

• Public speaking

• Business writing

• A working understanding of the psychology of persuasion

• Basic technolgy concepts

• Social skills

• Proper voice technique

• Good grammar

• Fundamental of accounting

This reminds me of the concept of multidisciplinary learning that we have learned from Charlie Munger who also believed that people with a broad mind and who understand many different models from many different disciplines make better decisions. This is mainly because it allows one to have a different box of tools when facing a problem. Peter Kaufman, one of Munger’s most vivid followers of his multidisciplinary approach, mentions the reason why it is important to be a multidisciplinary thinker in his speech to the California Polytechnic State University Pomona Economics Club:

“The answer comes from the Austrian philosopher Ludwig Wittgenstein, who said, “To understand is to know what to do.” Could there be anything that sounds simpler than that? And yet it’s a genius line—”to understand is to know what to do.” How many mistakes do you make when you understand something? You don’t make any mistakes. Where do mistakes come from? They come from blind spots, a lack of understanding. Why do you need to be multidisciplinary in your thinking? Because as the Japanese proverb says, “The frog in the well knows nothing of the mighty ocean.” You may know everything there is to know about your specialty, your silo, your “well,” but how are you going to make any good decisions in life—the complex systems of life, the dynamic system of life—if all you know is one well?”
— Peter Kaufman

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Beyond the Book

Read "How to Fail at Almost Everything and Still Win Big" by Farnam Street

Read "Forget About Setting Goals. Focus on This Instead." by James Clear

Read "Improving Your Luck" by Farnam Street

Read "The Multidisciplinary Approach to Thinking" by Farnam Street

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Today’s Chapter is based on the book “Zero to One: Notes on Startups, or How to Build the Future” by Peter Thiel.

Peter Thiel is a billionaire entrepreneur, and venture capitalist. He co-founded PayPal in 1998, serving as its CEO until eBay acquired it for $1.5 billion in 2002, and later became Facebook’s first outside investor with a $500,000 stake in 2004.

Buy it on Amazon here.

Here’s what I learned:

Zero to One

“If you want something new, you have to stop doing something old”
— Peter Drucker

Peter Thiel believes there’s two types of progress that shapes how we should approach innovation and business strategy: horizontal or vertical progress. He coins the terms “1 to n” to describe horizontal or extensive progress meaning copying things that work and “zero to one” to describe vertical or intensive progress meaning doing new things. Thiel argues that the latter is what truly advances civilization and creates outsized value.

He writes, “Of course, it’s easier to copy a model than to make something new. Doing what we already know how to do takes the world from 1 to n, adding more of something familiar. But every time we create something new, we go from 0 to 1. The act of creation is singular, as is the moment of creation, and the result is something fresh and strange.”

This idea reflects the reality that in today’s world, globalization and technology has made copying easier than ever. Hence, it is a lot easier for companies to go from 1 to n by expanding into new markets by replicating successful models. However, this also leads to commoditization and limited returns. Therefore, only true technology breakthroughs create entirely new progress. He reiterates that “When we think about the future, we hope for a future of progress. That progress can take one of two forms. Horizontal or extensive progress means copying things that work—going from 1 to n. Horizontal progress is easy to imagine because we already know what it looks like. Vertical or intensive progress means doing new things—going from 0 to 1. Vertical progress is harder to imagine because it requires doing something nobody else has ever done.”

“The single word for vertical, 0 to 1 progress is technology.”
— Peter Thiel

Furthermore, Peter Thiel believes that startup companies are the ones that mainly thrive on original thinking due to their small size. He argues that because these companies are lean, it is much easier for them to innovate. In contrast, larger corporations have a more difficult to innovate since they are sitting on their past successes and have much more difficulty changing things.

As a matter of fact, it is far less risky for them to improve an existing product rather than to invent an entirely new category. He writes, “All companies must be “lean,” which is code for “unplanned.” You should not know what your business will do; planning is arrogant and inflexible. Instead you should try things out, “iterate,” and treat entrepreneurship as agnostic experimentation.”

“Indeed, the single most powerful pattern I have noticed is that successful people find value in unexpected places, and they do this by thinking about business from first principles instead of formulas.”
— Peter Thiel

This reminds me of Andy Grove at Intel who was known for his unrelenting focus on staying ahead of the competition and anticipating the next big shift in the technology landscape. At the heart of Grove’s philosophy is the idea that healthy paranoia is an essential quality for business success. As he once said, “I believe in the value of paranoia. Business success contains the seeds of its own destruction.” This notion may sound extreme, but Grove’s logic is hard to refute. In fast-moving, hyper competitive markets, complacency is the main reason for the downfall for even the largest companies.

This risk comes from the fact that when companies are doing well, the leadership teams can become complacent as they fail to recognize the warning signs that the industry is slowly changing beneath their feet. Grove saw this dynamic play out time and again, as once-dominant players in the tech sector found their fortunes suddenly in free fall.

Grove illustrates this point by recounting the experiences of his own company, Intel, as it navigated a strategic inflection point in the computer industry, where there are often changes to the rules of the game. He observes that “sometimes these rules change—often in very significant ways. Yet there is no flashing sign that heralds these rule changes. They creep up on you as they crept up on us, without warning.”

His solution was to encourage a guardian attitude among his management team, where vigilance against potential threats was the default mindset.

“I believe that the prime responsibility of a manager is to guard constantly against other people’s attacks and to inculcate this guardian attitude in the people under his or her management.”
— Andy Grove

This is especially true considering middle management are often the first to sense the shifting winds of change. He explains that “middle managers—especially those who deal with the outside world, like people in sales—are often the first to realize that what worked before doesn’t quite work anymore; that the rules are changing.” Heeding the insights of these frontline employees can be instrumental in anticipating and adapting to the new realities of the market.

The lesson here is that business leaders cannot afford to be passive observers, waiting for the next crisis to emerge. Instead, they must be actively scanning the horizon, stress-testing their assumptions, and empowering their teams to voice concerns without fear of repercussion.

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Uncover Secrets

“If conventional thinking makes your mission impossible, then unconventional thinking is necessary.”
— Elon Musk

Peter Thiel believes that innovation comes from uncovering secrets. However, he observes that most people have convinced themselves that all the important discoveries have already been made. They assume that anything truly valuable must already be known and that the only remaining opportunities lie in marginal improvements. In Thiel’s opinion, this mentality is a mistake. He writes, “The actual truth is that there are many more secrets left to find, but they will yield only to relentless searchers. There is more to do in science, medicine, engineering, and in technology of all kinds. We are within reach not just of marginal goals set at the competitive edge of today’s conventional disciplines, but of ambitions so great that even the boldest minds of the Scientific Revolution hesitated to announce them directly.”

In fact, Thiel believes that most people stop looking for secrets because they are afraid of being wrong, or because they have the internal idea that if something was truly possible, someone would already be doing it. As such, great companies are built on secrets that are hidden in plain sight. Thiel lists out examples from Silicon Valley such as Airbnb and Uber.

“Great companies can be built on open but unsuspected secrets about how the world works. Consider the Silicon Valley startups that have harnessed the spare capacity that is all around us but often ignored. Before Airbnb, travelers had little choice but to pay high prices for a hotel room, and property owners couldn’t easily and reliably rent out their unoccupied space. Airbnb saw untapped supply and unaddressed demand where others saw nothing at all.”
— Peter Thiel

Peter Thiel mentions that there are two kind of secrets: secrets of nature and secrets about people. Thiel explains, “There are two kinds of secrets: secrets of nature and secrets about people. Natural secrets exist all around us; to find them, one must study some undiscovered aspect of the physical world. Secrets about people are different: they are things that people don’t know about themselves or things they hide because they don’t want others to know. So when thinking about what kind of company to build, there are two distinct questions to ask: What secrets is nature not telling you? What secrets are people not telling you?”

As such, Thiel encourages founders to actively look where nobody else is looking. Ignore conventional wisdom and the herd mentality. The most important is for founders to think for themselves, as that is the only reliable way to uncover a secret that can become the foundation of a great company. He writes, “Recall the business version of our contrarian question: what valuable company is nobody building? Every correct answer is necessarily a secret: something important and unknown, something hard to do but doable. If there are many secrets left in the world, there are probably many world-changing companies yet to be started.”

This reminds me of Chung Ju-Yung (founder of Hyundai)’s favourite question of “Did you Try?”. In fact, when Hyundai first got into the car industry, they knew that they had to partner with an American company who had superior technology. When Chung heard of Ford’s visit in South Korea, he immediately asked his younger brother to negotiate an automobile assembly technology contract with Ford. His brother was taken back as it seemed improbable to reach an agreement this quickly with a major foreign car company. Chung responded with the following saying: “Have you even tried?”

For Chung, the first rule to become a successful person is to have the mentality of thinking that anything is possible. As he explains, “If you doubt yourself, then you will only be able to accomplish as much as your doubts let you. If you think you can’t do something, then you won’t be able to do it.”

As a matter of fact, Chung Ju-Yung mentions the importance for a company to innovate, especially when there are competitors. In fact, he believes that running a company without competition will slow you down, because if there is no competition, “you don’t need to improve the quality of your product, and there’s also no pressure to shorten production times.” In business, being complacent is the same as falling behind and if you are not leading, you’re losing. By consequence, it is essential for one to think unconventionally to succeed in business.

“I am someone who believes that if a person limits themselves to the fixed ideas inherent in common sense, they will not be very creative.”
— Chung Ju-Yung

In the case of Chung, he knew that for him to beat his competitors, he had to finish projects in a shorter amount of time than other people. In fact, he mentions that he succeeded because while others were still hesitating, he had already begun working. This is the reason why his motto is “shorten the time”. In his opinion, that is the surest way to encourage innovation and improvement. As a matter of fact, he would often take tours of his projects and would always seek to find ways to shorten construction times in unconventional ways.

“When we worked on the Jubail project, we had to make 160,000 drill bits to build the breakwater and shore protection structures. If we built 200 every day, it would take us 800 days to make 160,000. But at the site, the workers were making them one at a time instead of using a mold to mass produce them. Their sorry excuse for this wasteful effort was that the molds weren’t the right height to fix onto the end of the cement trucks.

When I saw this, I was furious. Why did these people have brains if they weren’t going to use them? It didn’t take a genius to realize that the outflow ramp for the concrete on the trucks needed to be raised to fit the molds. If they just followed this simple solution, they wouldn’t need a crane, and they wouldn’t waste time and energy. They couldn’t think to adjust the concrete mixer truck, thinking it was unchangeable. Would the gods punish them for making some small adjustments? After I made the changes, we went from 200 per day to 350 per day.”
— Chung Ju-Yung

Chung believed that finding clever solutions would never come from people with conventional thinking. As a matter of fact, he mentions that “if you only think in accordance with what you learned through books, your imagination will be limited to that.”

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80/20

“80% of the results come from 20% of the effort. The key is knowing which 20%.”
— Richard Koch

Peter Thiel is also a big believer of the power law especially in terms of venture capital investing. In fact, while most people intuitively believe in normal distributions: a few terrible outcomes, a few excellent outcomes, and a larger cluster of average outcomes, Thiel argues that this is completely wrong when it comes to startups investing. He mentions that the power law rules everything, meaning that a tiny number of outcomes will produce almost all of the value.

Thiel writes about the Pareto principle by mentioning that “In 1906, economist Vilfredo Pareto discovered what became the “Pareto principle,” or the 80‑20 rule, when he noticed that 20% of the people owned 80% of the land in Italy—a phenomenon that he found just as natural as the fact that 20% of the peapods in his garden produced 80% of the peas. This extraordinarily stark pattern, in which a small few radically outstrip all rivals, surrounds us everywhere in the natural and social world.”

In terms of venture capitalist investing, the Pareto principle explains that more often than not a single successful investment will return more than the entire rest of the fund combined. This is the biggest secret in venture capital according to Thiel. As such, rather than investing in many names, he recommends only investing in five to seven companies, each of which has the potential to become a multibillion-dollar business.

“The biggest secret in venture capital is that the best investment in a successful fund equals or outperforms the entire rest of the fund combined.”
— Peter Thiel

Similarly, the Pareto principle and the power law is also valuable in terms of entrepreneurship. Thiel advises against spraying effort across many projects or pursuing a diversified portfolio of ideas. Instead, identify the single most promising opportunity and pursue it with singular focus.

Furthermore, Thiel believes that many people in Silicon Valley are too eager to start their own startups when they would be far better off joining a fast-growing company. He explains, “People who understand the power law will hesitate more than others when it comes to founding a new venture: they know how tremendously successful they could become by joining the very best company while it’s growing fast. The power law means that differences between companies will dwarf the differences in roles inside companies. You could have 100% of the equity if you fully fund your own venture, but if it fails you’ll have 100% of nothing. Owning just 0.01% of Google, by contrast, is incredibly valuable (more than $35 million as of this writing).”

This reminds me of the Pareto Principle we have learned from Tom Monaghan, the founder of Domino’s who believed in the two following core business tenets:

1. Prepare pizzas with the freshest ingredients possible

2. Deliver pizzas to the customers within thirty minutes

To make sure to run a profitable business while still satisfying its promises to the customers, Tom Monaghan used the Pareto Principle, also known as the 80/20 rule. This principle explains that 80% of outcomes are the result of 20% of inputs. In Domino’s case, Monaghan quickly realized that even though he sold three different sizes of pizzas 80% of his sales came from 12-inches pizzas. Similarly, 90% of beverage sold were either Coke or Pepsi. He explains “In Ypsilanti, at least 80 percent of the orders from dorms were for twelve-inch pizzas. So why have any other size?“

This was a major revelation and breakthrough in Domino’s Pizza history. By doing so, the company was able to leverage its profits even further. It may seems counter intuitive that simplifying a business may increase its revenue, but here’s how Monaghan explains it:

“The main argument for having only twelve-inch pizzas was faster service. But quality would be improved, too. A pizza maker has to learn how to make each size pie. The twelve-incher is easier and larger ones are much harder.
There would be fewer mistakes too both in taking orders and boxing them. With three sizes of pies and just two inches difference between them, it sometimes happened during a rush that a worker would ruin a large pie by trying to jam it into a medium size box.
Then there were the saving we would make in purchasing. Having one size would cut our box inventory requirements by two-thirds.”
— Tom Monaghan

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Beyond the Book

Read "Summary: Peter Thiel’s Zero To One" by Farnam Street

Watch "Zero to One by Peter Thiel | Why Competition is for Losers (TIP786)" on YouTube

Read "Leverage: Gaining Disproportionate Strength" by Farnam Street

Listen to "#424 Peter Thiel on How to Build a Creative Monopoly" by Founders Podcast

If you are interested in having conversations with the eminent dead, consider trying my AI Chatbox prompted with highlights from over 100+ biographies I have read. Try it here.

If you enjoy reading my newsletter, please consider becoming a paid subscriber. You’ll be able to keep this newsletter going! Here’s what you get when you upgrade:

• Voting on polls: you’ll get to vote on who I should write about next.

• Requesting biographies: you can request a biography for me to read and write about next.

• Supporting my next book purchase: all payments received will be used to purchase a new biography.

Today’s Chapter is based on the book “Play Nice But Win: A CEO’s Journey from Founder to Leader” by Michael Dell.

Michael Dell is an American billionaire entrepreneur best known as the founder, chairman, and CEO of Dell Technologies, one of the world’s largest technology infrastructure companies. He started the business in 1984 from his college dorm, pioneered direct‑to‑customer PC sales, and became the youngest CEO ever of a Fortune 500 company at age 27.

Buy it on Amazon here.

Here’s what I learned:

Be Curious

“Curiosity is, in great and generous minds, the first passion and the last.”
— Samuel Johnson

A key trait that drove Michael Dell to success in business was his curiosity. He was simply a curious kid who wanted to know how things worked. While other children might have been content to simply use their toys, Dell was the one taking them apart. This relentless curiosity became the engine of his entrepreneurial journey. Dell writes, “I was extremely curious, maybe the most so in the family. It was a trait my parents really encouraged in all of us. A lot of exploits other kids might’ve gotten punished for, they just smiled at. My brothers and I were always taking things apart around the house to see how they worked. My specialty was anything with electronics in it—telephones, televisions, radios. Most of the time I put them back together.”

Dell’s curiosity wasn’t limited to hardware. He absorbed business and economic knowledge the way other kids absorbed comic books. His family’s dinner table conversations revolved around the Federal Reserve, oil prices, and stock markets. By the time he was a teenager, he was reading The Wall Street Journal at summer camp and following the stocks he had invested in. This intellectual hunger never left him. He explains, “When my mom and dad talked, it wasn’t gossip or chitchat. They were constantly discussing the economy: What was the Federal Reserve doing? Where were oil prices and interest rates and currencies and the stock market? We had Forbes and Fortune and Barron’s in the house; we used to love watching Louis Rukeyser’s Wall Street Week. Even before my mom started working as a stockbroker, she had these huge Value Line books, with pages and pages of information on individual companies. I soaked it all in.”

“I don’t know why people aren’t more curious, and why curiosity isn’t considered a more important leadership trait. A journalist once asked me if I was ever bored as a kid. I only had to think about it for a second: I never was, not even for a minute, because I was so curious. Every day I’d wake up excited by all the new things there were to learn about.”
— Michael Dell

As such, it is not surprising that Michael Dell argues that curiosity is an undervalued leadership quality. As a matter of fact, when he was running Dell, he was constantly asking himself “how” and “why” questions. He started his company mainly because he was wondering why customers couldn’t get exactly the computer they wanted without retail markups.

And more importantly, Dell explains that leaders who stay curious avoid complacency. They surround themselves with people who know more than they do and constantly seek to understand new developments in technology and business. He mentions, “Change, true transformation, is a race with no finish line. Which means there’s so much more out there for me—for all of us—to learn about. How cool is that?” The lesson is clear: the moment you stop asking questions is the moment your organization stops growing.

“Curiosity. Have I mentioned curiosity already? It’s so important, I’ll say it again: Always be learning. You want to have big ears. To listen, to learn, and to always be curious. To be open to ambiguity. Design your company from the customer back.”
— Michael Dell

This reminds me of how innovation can come from being curious and asking the right questions. Similar to Dell, Ingvar Kamprad’s leadership at IKEA is a perfect example of how challenges can turn into opportunities through innovative problem solving. As a matter of fact, many of IKEA’s innovations did not come through a deliberate strategy from the outset but evolved as a response to practical difficulties. Kamprad’s willingness to rethink traditional methods allowed IKEA to carve out a unique niche, demonstrating that innovation often arises from necessity.

One example of this is the development of the self-assembling furnitures and of flat-packing which became an industry standard but first started as a solution born out of logistical woes. Kamprad explains that “Perhaps it could be said that reality forced the innovation upon us. We had begun to experience a worrisomely high percentage of damaged furniture in transport—broken table legs and that kind of thing, and the European insurance companies were beginning to grumble. The more “knockdown” we could produce, the less damage occurred during transport and the lower the freight costs were; that was the logic of it.“

This forced adaptation not only solved the immediate problem of damaged goods but also revolutionized the furniture industry, reducing shipping costs, storage space, production costs and ultimately, the price for consumers. As Kamprad mentions, “It was not difficult for me to see the advantages of self-assemble furniture and the superiority of flat parcels. Flat parcels saved enormously on storage and freight, and in the long run they were to be the prerequisites for the next step: customers taking home parcels of large furniture themselves.”

As a matter of fact, this issue with logistics led to the introduction of “Max”, the first self-assembly table that marked the beginning of a design philosophy called “democratic design” which is functional, affordable, and adaptable to mass production. Kamprad mentions that “A design that was not just good but also from the start adapted to machine production and thus cheap to produce. With a design of that kind, and the innovation of self-assembly, we could save a great deal of money in the factories and on transport, as well as keep down the price to the customer.”

“In IKEA’s business philosophy, the whole matter should be inscribed as a golden rule: regard every problem as a possibility. New problems created a dizzying chance. When we were not allowed to buy the same furniture that others were, we were forced to design our own, and that came to provide us with a style of our own, a design of our own.”
— Ingvar Kamprad

This lesson is invaluable for modern businesses. By embracing challenges as catalysts for innovation, whether through new product designs or process improvements, companies can stay ahead of the curve. Kamprad’s story teaches that the most groundbreaking ideas often emerge when leaders are willing to question the status quo and adapt creatively to their circumstances.

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Execute!

“To me, ideas are worth nothing unless executed. They are just a multiplier. Execution is worth millions.”
— Steve Jobs

One of the strongest lessons we can learn from Michael Dell is that ideas matter, but execution matters more. He was not the only person in the industry to see PCs as the future, but he was the only one to imagine and execute on his idea of direct-to-consumer sales. What separated Dell from other players was the discipline to turn those ideas into a working operating model. Dell writes, “Ideas are a commodity. Execution of them is not. Coming up with a great idea or strategy is necessary but not sufficient for success. You must execute. This requires detailed operational discipline and understanding.”

Dell mentions that executing on an idea is not easy, especially when you are just starting. You really need to make sacrifices to succeed. He mentions, “Iʼd been happily working sixteen-hour days, eating at the office, sleeping at the office. My work was my life; my company was my second family. Anyone who says you can start a company and have work-life balance is lying.”

In Dell’s situation, his execution of his idea is even more impressive because he did it at such a young age and without any capital. He made up for it through hard work. He explains, “In the few hours when I wasnʼt working, I was devouring books about leadership and management, learning about all the things I didnʼt know. I was twenty-one— a curious and ambitious twenty-one, to be sure, but there was a lot I didnʼt know.”

“Did we know what we were doing? Yes and no. My entrepreneurial boyhood notwithstanding, I had never run a business before, so there was that learning curve to climb. But it wasn’t just learning to run a business; it was learning to run a business that wasn’t like other businesses—even though on the surface, PC’s Limited looked like many other computer businesses.”
— Michael Dell

Luckily for Dell, the lack of capital actually became an advantage for him. He explains, “And yet of all the many companies trying to imitate us by making build-to-order PCs and getting them out the same day, plus offering free technical support by phone, we were the only one that thrived and succeeded. We didn’t start building to the customer’s order because we saw some massive paradigm in the future. We started that way because we didn’t have the capital to mass-produce. It turned out to be a pretty lucky handicap. And many of the biggest lessons we learned in the company’s formative years came about in the same seat-of-the-pants way. We experimented and improvised our way to success.”

Michael Dell’s story reminds me of Jason Fried’s belief that starting a business today a lot more accessible than ever before. Fried insists that with technology, there is a lower barrier of entry for people to launch ventures without the risks and resources it once required. This technological shift democratizes opportunity, making it possible for anyone with an idea to enter entrepreneurship.

On this, he writes, “There’s a new reality. Today anyone can be in business. Tools that used to be out of reach are now easily accessible. Technology that cost thousands is now just a few bucks or even free. One person can do the job of two or three or, in some cases, an entire department. Stuff that was impossible just a few years ago is simple today. You don’t have to work miserable 60/80/100-hour weeks to make it work. 10-40 hours a week is plenty. You don’t have to deplete your life savings or take on a boatload of risk. Starting a business on the side while keeping your day job can provide all the cash flow you need. You don’t even need an office. Today you can work from home or collaborate with people you’ve never met who live thousands of miles away.”

Fried’s own experience in entrepreneurship with 37signals (now Basecamp) exemplifies this. He started small, sharing office space and handling customer support himself. He argues against the misconception that you need a ton of capital to start your own business is false and this is especially true in service businesses such as consultants, software companies, wedding planers, graphic designers, etc. In fact, he writes that “If you’re running a business like that, avoid outside funding. In fact, no matter what kind of business you’re starting, take on as little outside cash as you can. Spending other people’s money may sound great, but there’s a noose attached.”

This is especially true considering that obtaining outside money often leads to unnecessary complexity. By staying lean, businesses retain control and avoid making decisions that are not cost controlled.

Furthermore, Jason Fried mentions that the easiest way to start is to make something you need and that you would want to use. He elaborates that if you believe a product is useful, there is certainly other people out there that think the same. Sure, the target addressable market may not be large, but if you are running on a low-cost, it doesn’t really matter.

“The easiest, most straightforward way to create a great product or service is to make something you want to use. That lets you design what you know—and you’ll figure out immediately whether or not what you’re making is any good.”
— Jason Fried

Plus, building what you want to use gives you an intuitive understanding of customers’ needs and makes the steady work of iteration more meaningful. As he once said, “Best of all, this “solve your own problem” approach lets you fall in love with what you’re making. You know the problem and the value of its solution intimately. There’s no substitute for that. After all, you’ll (hopefully) be working on this for years to come. Maybe even the rest of your life. It better be something you really care about.”

Finally, Fried stresses the concept that ideas alone are worthless without execution. He urges immediate action, even if imperfect, over endless planning. And so, he encourages us to start making our ideas into a product, but iterate and refine it along the way.

“Ideas are cheap and plentiful. The original pitch idea is such a small part of a business that it’s almost negligible. The real question is how well you execute.”
— Jason Fried

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Embrace Failure

“I have not failed. I’ve just found 10,000 ways that won’t work.”
— Thomas Edison

Through his experience at Dell Computer, Michael Dell believes that failure is not something to be avoided at all costs, but something that can be embraced and learned from. At his own company, he has experienced plenty of stumbles, from product flops to inventory crises, and each one of these mistakes made the business stronger. He explicitly rejects the concept that success is linear.

Dell writes, “But for every company, Dell included, kaizen is an ideal rather than a reality. Success is not a straight line up. It’s fail, learn, try again, then (you hope) succeeded. How successful you are is really a function of how well you deal with failure—and how much you learn from it. Many people don’t reach their greatest potential because they fear failure. In avoiding failure, they deprive themselves of a great teacher.”

However, Dell warns that business leaders must actively remember their failures, and not conveniently forget about them. This is often the case during periods of success where you convince yourself to believe that everything is fine. Success can be dangerously seductive while failure, by contrast, forces genuine reflection and adaption. This is why Dell believes that success can be a horrible teacher as it leads to complacency.

“The low points matter a lot: though it’s nice to remember successes, it’s important to remember failures too.”
— Michael Dell

As we have learned, Dell was able to succeed because his company’s greatest competitive advantage, the build-to-order model, was born through necessity as he didn’t have the capital to mass produce computers and hold inventory. He emphasizes that moments of friction are what built the company’s engineering muscle. He argues that many people fail to reach their potential because they are too afraid of making a mistake, thereby depriving themselves of the greatest teacher they will ever have.

The lesson here is clear, constraints and failures often force innovation. Leaders who fear failure will never take the risks required for meaningful growth. As Dell puts it daring to fail is the only path to meaningful growth, and every failure and setback made him and his company stronger and more resilient. Dell quotes Eleanor Roosevelt who once said, “You must do the thing you think you cannot do.”

“Success is a horrible teacher. Setbacks and failures make you stronger over time-if you let yourself learn from them.”
— Michael Dell

Leaders can learn a lot about embracing failures from professional athletes like Stephen Curry. As we have learned previously, Curry views challenges not as obstacles but as stepping stones to success. He embraced what he calls the J-curve of progress, where a dip is often needed before seeing massive progress. This once again demonstrates why we should favour Curry’s process focused approach rather than taking a results-based focus. Curry writes, “I’ve learned over the years that challenges are the most efficient teachers, so I don’t run from them. You need to get used to doing difficult things, so you’re not living in fear of things going wrong.”

A perfect example of this in basketball comes from Michael Jordan who once said, “I’ve missed more than 9,000 shots in my career. I’ve lost almost 300 games. Twenty‑six times, I’ve been trusted to take the game‑winning shot and missed. I’ve failed over and over and over again in my life. And that is why I succeed.” Similarly, Curry writes, “While missing shots is a great way to learn, obsessing over failure is just a distraction from the work of improvement.”

“This is trouble if you’re motivated solely by the validation of quick results. You’ll give up if you are results-focused instead of process-focused, because working harder doesn’t make that curve go up faster.”
— Stephen Curry

Furthermore, Curry explains that it is often common for persistent practice to not showing results immediately. He draws a parallel to the J-curve in investing. He writes, “Imagine a big J on a page: The dip at the start of the letter is when you’re investing in something but haven’t gotten any returns yet, and then the line rises, and fast. Whatever the investment is, you’re going to get feedback on the loss quicker than you get any positive returns—it takes longer for the trajectory to start shooting up. When you’re in that down phase, you have no idea how far it’s going to go until it starts to go the other way.”

Similarly, Curry had a similar experience during a summer in High School, where he had to re-learn how to shoot in order to improve his mechanic that would allow him to succeed at the next level. He explains, “I would acknowledge to young me that this summer will be one of the hardest tasks I’d ever face in my basketball life: breaking down the one thing I thought I did well to try to do it better, while feeling so far away from what I hoped the end result would be. And this is the advice I would give myself: This may seem like it’s as hard as it gets, but you’re going to have to do variations of this same work a hundred more times in your life. Different scenarios and settings. Different challenges. But the same hard work with the same distant and uncertain outcome.”

What he learned from that summer wasn’t just an improved shot, but the fact that if something is handed to you easily, you won’t get the chance to develop the drive you need to sustain excellence. This also happened to him when he was about to play in College. He was only able to play at Davidson a smaller Division I team, but this helped him to “work harder, maximizing my skill set as a sharpshooter who could tire out any opponent by racing all over the court.”

“The times when you’re most uncomfortable are the inflection points in your life. The discomfort is how you know you are changing.”
— Stephen Curry

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Beyond the Book

Listen to "Michael Dell, Dell Technologies" by David Senra

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Today’s Chapter is based on the book “Junk to Gold: From Salvage to the World’s Largest Online Auto Auction” by Willis Johnson.

Willis J. Johnson (born 1947) is an American billionaire businessman best known as the founder of Copart, a global leader in online auctions for salvage and totaled vehicles. A Vietnam War veteran who earned a Purple Heart, he later took Copart public in 1994, pioneered online car auctions in the late 1990s, and served as CEO until 2010 before stepping back into an executive chairman role and other ventures.

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Here’s what I learned:

Hard Work

“I’m a greater believer in luck, and I find the harder I work the more I have of it.”
— Thomas Jefferson

Willis Johnson, the founder of Copart had a relentless work ethic which he inherited from his father who had a life where nothing came easy and opportunities had to be chased. Growing up, Johnson watched his dad work extreme hours and seize every chances he had, whether it was through metal scrapping or finding bargains at auctions. As Johnson writes, “When I was growing up, my dad would often work fifteen hours a day, seven days a week. It was always that way for my dad. When he was a kid, he would fill a small wagon with ice and bottles of Coke. He’d take that wagon to construction sites and sell cold drinks to the workers. He learned the value of hard work, and it gave him a taste for starting up businesses that could help support the family.”

Similarly, the children in the Johnson family were quickly put to work when the family moved to a family ranch in Arkansas. This experience at the farm built Johnson’s grit that he later applied in his career. Throughout his father’s businesses, he also noticed that the world wasn’t always fair. As he explains, “While hard work became second nature, I learned it wasn’t always a guarantee of success, and people aren’t always treated equally for equal work. The world was unfair, and this bothered me.”

Nonetheless, his father’s approach taught him that success can be built on the accumulation of small disciplined actions rather than a single stroke of luck. It allowed Johnson to build a character of resourcefulness in spotting value where others saw scrap, whether it was by scanning newspapers for deals or learning from auctions. Johnson didn’t just work hard, he worked smart.

“My dad was the smartest man I ever knew in business, and I soaked up everything I could from him. We not only shared the same name but also a belief that nothing was impossible with hard work and determination.”
— Willis Johnson

Furthermore, Willis Johnson also learned from his father to be relentless in terms of frugality. His father once said, “Take care of your pennies and your dollars will take care of themselves. As such, it isn’t surprising to know that Willis Johnson was a very hands-on owner throughout his different business ventures. As a matter of fact, his approach to business remained grounded even after he became a wealthy executive. He was never a leader who stood on a pedestal and was always working in the yard alongside his employees.

For example, in the early days of Mather, he worked alongside his employees, dismantling cars and was known for having grease under his nails. He believed that if he wouldn’t do a job, he couldn’t expect anyone else to do it either. This willingness to get dirty was often the competitive advantage that allowed him to see value where others saw only scrap. At auctions, he and his father were often the only ones who truly knew the value of what they were bidding on because they had done the manual homework that others found too beneath them.

This reminds me of what we learned from Elon Musk who believed that creating a culture of excellence requires more than just hiring well. It also requires leaders who are willing to lead by example and who are willing to get their hands dirty. Elon Musk is often seen sleeping on factory floors and working alongside his teams during crises. He understood that his employees would work harder if they saw him working alongside of them. He mentions, “Think about war. Do you want the general in some ivory tower or on the front lines? The troops fight harder if they see the general on the front lines. Nobody bleeds for the prince in the palace. Get out there on the front line. Show them that you care and that you’re not in some plush office somewhere.”

Similarly, Musk believed in removing any barriers that may separate senior executives from employees. As a matter of fact, he expects his managers to have hands-on experience in the work they oversee. For example, software managers must be able to code and solar roof managers must be able to install roofs. If you cannot do the work yourself, you have no business telling others how to do it. He elaborates that, “All technical managers must have hands- on experience. For example, managers of software teams must spend at least 20 percent of their time coding. Solar roof managers must spend time on the roofs doing installations. Otherwise, they are like a cavalry leader who can’t ride a horse or a general who can’t use a sword.”

“When the team is being asked to work super hard, I have to be right there with them and they have to see it. If I fall asleep in the middle of the factory floor at four in the morning and wake up four hours later, they see that. They are like, “If the CEO is willing to take that level of pain, I can do it too.””
— Elon Musk

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Integrity

“If it is not right do not do it; if it is not true do not say it.”
— Marcus Aurelius

Willis Johnson’s father also helped him cultivate a sense of integrity. For him, deals were either right or they weren’t and cheating, even over some pennies, eroded trust permanently. As such, Johnson, following the steps of his father’s frugal, built a reputation for standing by his commitments and always walked away from questionable opportunities. Johnson writes, “Both my dad and I also built reputations in the business world of always standing by our word and never doing business if a deal felt wrong. We both walked away from opportunities that may have helped our businesses but would have crossed a moral or ethical line. To us, the business world was black and white, and a deal you aren’t sure about isn’t really a deal at all.”

As such, Johnson believed in the importance of never breaking his words, even at personal cost. He explains that “I was raised to believe that cheating is the same whether you are taking ten cents or $10,000. And if you could do it once, there was a good chance you would do it again.” This principle guided everything from how Johnson treated employees to how he dealt with customers.

“I told myself I would never do that, even if it meant I would lose money. I never promised something to someone that I didn’t do, and I never made promises I couldn’t keep. My word is gold. You don’t have to get me to sign something for me to take my commitment seriously.”
— Willis Johnson

By consequence, it is not surprising to learn that he paid above average wages and benefits to his employees in order to retain talents but to also build loyalty among his staff. Johnson explains that, “We learned it wasn’t just enough to treat your employees nice, give them good benefits, and hope they got it. That wasn’t enough to keep the unions out. We treated the employee nice, gave them as many benefits as we could, and treated them like we didn’t want them to leave—because we didn’t. But we didn’t tell them we loved them; we didn’t show them how much they meant to the company.”

When Johnson’s son-in-law Jay joined the company, he understood right away that one of the key reasons for Copart’s success was due to its corporate culture. The company believed in the philosophy that if you take care of your people, they will take care of the company. In fact, the company’s ethos was eventually distilled into a set of values whose first letters spelled out the company’s name COPART: Committed, Ownership, Profitability, Adaptable, Relationships, and Trust.

“Copart was going to be a company that didn’t just hire on skill sets or IQ (intelligent quotient); it was going to hire based on attitude—EQ (emotional quotient). We were going to be a company in which people liked their coworkers and had fun at what they did. If that happens, we knew they would probably be more efficient and productive and capable of delivering legendary service.”
— Willis Johnson

Furthermore, Copart’s success can also be explained by the way the company treated their customers, or what they called legendary services which became the standard. They believed in providing services that would leave customers saying “Wow, how did they do that?”.

Copart’s focus on treating their employees and their customers fairly reminds me of the importance of hiring employees who have integrity. As Warren Buffett once said, “Intelligence, energy, and integrity. And if they don’t have the last one, don’t even bother with the first two. I tell them, ‘Everyone here has the intelligence and energy—you wouldn’t be here otherwise. But the integrity is up to you. You weren’t born with it, you can’t learn it in school.” Here’s what Jacobs has to say about integrity: “I’ve learned three important lessons about integrity over the course of my career. First, if someone’s willing to lie about small things, they’re usually willing to lie about big things. It’s a lot of work to communicate with someone you don’t trust to speak truthfully, where you have to constantly wonder whether they’re lying, and why. And more critically, trustworthy employees are leadership’s eys and ears in business operations. Dishonest employees blind management to the reality of what’s going on. The second thing I’ve learned is that, sooner or later, liars get caught. That’s why I believe honest people are more successful in the long term than dishonest people. I’m chasing success on a massive scale, so I can’t afford to have liars on the team. They pose an existential threat to the entire company, and the team can sense that, even if they don’t know anything specific. Honest employees make it easier for everyone to relax. And third, honest people don’t have to tell you how honest they are. Instead, they show integrity through their actions. Most reputations for integrity come from the cumulative effect of someone doing what they say they’ll do, and being straightforward in how they speak. These are the kinds of cues we look for as someone moves through the hiring process.”

Similarly, Brad Jacobs believes in four non-negotiable traits when hiring: intelligence, hunger, integrity and collegiality. Miss any one of these characteristics and the candidate is out. As he once said, “Make your hiring choices as perfect as they can be because there are few mistakes costlier than hiring the wrong person.”

“While there’s little about these three leaders that seems to connect them on the surface, they’re nearly identical in possessing the four qualities I seek in every hire: intelligence, hunger, integrity, and collegiality. If a candidate is deficient in any one of these four, that’s a risk I don’t take. If I find someone who scores high in all four qualities, and has the skills for the role, I snap them up.”
— Brad Jacobs

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Specializing

“Ignore the conventional wisdom. If everybody else is doing it one way, there’s a good chance you can find your niche by going in exactly the opposite direction.”
— Sam Walton

Willis Johnson didn’t succeed in business by doing what everyone else did. He didn’t just participate in the auto dismantling industry, he reinvented it by looking at the business through different lens.

One of his most significant innovations was the realization that he could make more money by dismantling parts and selling them individually than to sell them as a whole. While others forced customers to buy a used engine bundled with all its attached parts, Johnson dismantled them and only sold to the customers what they really wanted. He writes, “I would sell them just the motor, undressed, for $275—a deal if that’s all they needed. Then I’d sell the other parts separately—the distributor for $50, the alternator for $25, the carburetor for $100. By the time I was done, I could get $700 for the same parts sold separately that were sold together by my competitor for $400. And the customer was happier.”

Willis Johnson also understood the value of finding a niche that others ignored. When he was facing stiff competition, he decided to specialize in auto parts that other dismantlers did not want to carry, such as parts from Chrysler, Dodge and Plymouth, due to their unpopularity. While his competitors were chasing popular components from General Motors and Ford, they were more than willing to sell their slow-moving inventory to Johnson, even at a discounted price. The results were immediately amazing. Johnson mentions that “Before we specialized, Curtis and I were running between $3,500 and $5,000 worth of parts a month at Mather. After specializing, we were running around $3,500 worth of parts a day.”

“At the time Chrysler, Dodge, and Plymouth were not cars dismantlers wanted to have because they weren’t hot-selling items. So we made a decision to specialize in Chrysler, Dodge, and Plymouth. All the other dismantlers thought I was crazy. But they were more than willing to sell us their Chrysler parts that weren’t moving and send business our way.”
— Willis Johnson

Finally, Johnson was never afraid to invest into technology, despite being from a generation that did not grow up with computers. With the help of his son-in-law, Jay, he was able to embrace the internet before most of the industry even understood what it was. They developed a system that allowed to move all of Copart’s auctions entirely online and expanded their buyer base from local yards to bidders internationally like Mexico and Canada. As Johnson writes, “Copart was no longer just a salvage company; it was also a technology company.”

This was extremely controversial as customers and employees were skeptical of online auctions. In fact, “All the buyers told Jay it was a dumb idea; no one would bid on a car they didn’t look at first, they said. Jay told them, “I’m not asking you to not see the car. I’m asking you to come look at the car the day before the sale, and for thirty-five dollars you can submit a bid on our website and not have to stand in the auction all day or pay a contract buyer one hundred and fifty dollars to stand there for you.” Once buyers understood the concept, it took off, and Copart had more than $ 1 million in online sales the first quarter.”

The success of Copart and Willis Johnson through specializing and finding a niche reminds me of the Pareto Principle we have learned from Tom Monaghan, the founder of Domino’s who believed in the two following core business tenets:

1. Prepare pizzas with the freshest ingredients possible

2. Deliver pizzas to the customers within thirty minutes

To make sure to run a profitable business while still satisfying its promises to the customers, Tom Monaghan used the Pareto Principle, also known as the 80/20 rule. This principle explains that 80% of outcomes are the result of 20% of inputs. In Domino’s case, Monaghan quickly realized that even though he sold three different sizes of pizzas 80% of his sales came from 12-inches pizzas. Similarly, 90% of beverage sold were either Coke or Pepsi. He explains “In Ypsilanti, at least 80 percent of the orders from dorms were for twelve-inch pizzas. So why have any other size?“

This was a major revelation and breakthrough in Domino’s Pizza history. By doing so, the company was able to leverage its profits even further. It may seems counter intuitive that simplifying a business may increase its revenue, but here’s how Monaghan explains it:

“The main argument for having only twelve-inch pizzas was faster service. But quality would be improved, too. A pizza maker has to learn how to make each size pie. The twelve-incher is easier and larger ones are much harder.
There would be fewer mistakes too both in taking orders and boxing them. With three sizes of pies and just two inches difference between them, it sometimes happened during a rush that a worker would ruin a large pie by trying to jam it into a medium size box.
Then there were the saving we would make in purchasing. Having one size would cut our box inventory requirements by two-thirds.”
— Tom Monaghan

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Beyond the Book

Read "Learning From Copart’s Willis Johnson" by Investment Masters Class

Read "Warren Buffett: The Three Things I Look For in a Person" by Farnam Street

Read "Leverage: Gaining Disproportionate Strength" by Farnam Street

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If you enjoy reading my newsletter, please consider becoming a paid subscriber. You’ll be able to keep this newsletter going! Here’s what you get when you upgrade:

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Today’s Chapter is based on the “Letters to Giverny Capital Partners (2001-2025)” by Francois Rochon.

François Rochon is a Canadian value investor and the founder, president, and portfolio manager of Giverny Capital in Montreal. Over several decades he has compounded portfolios at roughly 14–15% per year by focusing on owning a concentrated basket of outstanding, high return on capital businesses for the long term.

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Patience is a Virtue

“Successful Investing takes time, discipline and patience. No matter how great the talent or effort, some things just take time: You can’t produce a baby in one month by getting nine women pregnant.”
— Warren Buffett

Francois Rochon repeatedly presents the idea that superior long-term returns are impossible without genuine patience. In his annual letters, he reminds his Giverny partners that the stock market rewards those who can wait through the inevitable storms rather than those that overreact over every headline or quarterly results. In his opinion, patience is not solely to wait but the discipline of refusing to sell your winners and to chase hot trends. He illustrates the importance of patience by referring to Philip Carret, the legendary investor, who was once asked what was the most important lesson of his 75 years of experience during an interview. He answered with just one word: “Patience”.

As such, Rochon’s experience managing Giverny Capital is a perfect example of how patience pays off in the stock market. Giverny Capital has earned an average return of around fifteen percent per year and the firm held companies for six to seven years on average, roughly twelve times longer than the typical investor. Rochon sees this low turnover as a direct result from his investment philosophy of investing in exceptional companies that deserve to be owned for a long period of time. As such, it is not surprising that Rochon argues that trying to predict short-term market direction is futile. Instead, he believes in being always invested in the market.

“Since no one really knows what the market will do in the short run, the best strategy, I believe, is to simply stay invested (at least as long as we find businesses that meet our criteria). And one thing that 2003 showed us again is that the first ingredient to make money in the stock market is to be present.”
— Francois Rochon

As a matter of fact, Francois Rochon is brutally honest in the fact that he cannot predict the market. He freely admits that he does not know where the market is going next month or next year. He acknowledges that some of his purchases will disappoint and that his portfolio will underperform the index roughly one year out of three, in what he coins as The Rule of Three. He writes, “In fact, I believe that there are stock market realities that should be accepted when we decide to become equity holders. I named those ‘The Rule of Three’: One year out of three, the market will go down (by more than 10%). One stock out of three that we will buy will be somewhat disappointing. And one year out of three, we will under perform the indexes. I don’t have scientific facts to offer you to explain this rule. That is why it is an empirical conclusion: it can be observed, it can’t be explained. But it can be psychologically useful as knowing this rule will help us navigate through market storms.”

As Rochon explains, after three decades of investing in the stock market, he is convinced that the biggest mistake that investors can make is to try to predict the financial markets and to try to wait for a better time to buy or sell stocks. He tells the story of a money manager who was an outstanding stock picker but that has been pessimistic about the stock market for 18 years who could have done more than 20% a year for more than three decades if he had just invested 100% of his portfolio in his favorites stocks and just forgot about the market.

“I would like to emphasize the most important lesson of the last twenty years: It is futile to try to predict the stock market over the short run. All previous lessons are useless if you try to predict the stock market over the short run. I have heard people say hundreds of times that they were waiting to buy great companies because they had negative views on the short-term direction of the stock market. Owning great businesses, managed by great people and acquired at reasonable prices is the winning recipe. The rest is just noise.”
— Francois Rochon

This reminds me of what we have learned from Lawrence Goldstein at Santa Monica Partners, who believes that investing in overlooked companies requires patience in order for their value to unlock. In fact, Goldstein once said “I believe that neglected stocks win hands down over longer periods of time and with less risk. Clearly, patience is the key to investing successfully in our kinds of securities.” As such, he frequently advocates for a long-term perspective, emphasizing to his partners in his shareholder letters that true value creation takes time. As he once wrote, “My belief of course is that patience is a virtue to be rewarded.”

By having a long-term perspective, Goldstein is able to ride out market volatility without panicking. He recognizes that short-term price fluctuations are inevitable but he doesn’t let them distract him from his long-term goals. Similarly, he reiterates to his partners that “Riding out the volatility and noise is essential to successful long-term investing. Put another way, we must keep control of our stomachs (though others around us may not) when sailing through stormy seas.”

By consequence, Goldstein practices an investment methodology that prefers holding investments for the long haul and allowing them to compound over time. By consequence, Santa Monica Partners have an “extremely low turnover [of companies in the portfolio] is the norm for us, of course, as ‘buy and hold’ is not just my preference and practice, but something that permeates my very being.” This low turnover not only reduces transaction costs but also allows him to defer capital gain taxes, further enhancing returns.

“For all we are concerned with is the long-term beyond the horizon. When we invest we like to think in terms of forever. We can care less about a quarter or a year and rather focus on the far away pot of gold on the distant horizon. Sometimes we reach it sooner because of the occurrence of a value-creating catalyst. Most of the time it is because the company over time just grows like a weed or like topsy and in the fullness of time we reach the horizon and the great value realization outs.”
— Lawrence J. Goldstein

For Goldstein, patience is not about idleness but about allowing compounding to work its magic. He cites examples like Balchem, a stock that became a “92-bagger in 20 years,” and Compass Knowledge, which quintupled in value in just two years. These gains were only possible because Santa Monica Partners held these investments through periods of stagnation and volatility, trusting that their underlying value would eventually surface. As Goldstein once said, “Patience and courage too is also important so as to be able to look across the investment valleys and beyond the peaks in order to make and be willing to hold on long-term to achieve what may be very successful and at times extraordinary investments.”

“Once in a blue moon you find one which is really a great one but to the ignorers ‘too small’ or ‘too closely held’ or its variations ‘doesn’t trade enough’ or is ‘illiquid’ or too this or too that. In almost all cases these companies don’t deserve their undervaluation. How do we as investors profit? Value will out in time. It always does.”
— Lawrence J. Goldstein

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Focus on Intrinsic Value

“The critical investment factor is determining the intrinsic value of a business and paying a fair or bargain price.”
— Warren Buffett

A second lesson that can taken from Francois Rochon’s letters to partners is the concept that investing should be seen as purchasing a company rather than stocks. As such, he focused relentlessly on the intrinsic performance of the companies themselves rather than the changes in stock price. He believed that the market’s daily price is a noisy proxy and that true returns are driven by the underlying company’s ability to grow owner earnings and to create a durable competitive advantage. He writes that when assessing any company, he examines the following five pillars:

• The business model (market share, product innovation, etc.)

• The financial (balance sheet and profit margin) structure

• Quality of management

• Long-term growth perspectives (which are linked to the first three)

• Market valuation compared to intrinsic value

You will see that the last pillar draws on Warren Buffett’s concept of focusing on owner earnings to track how much economic value the companies are truly creating. Since the beginning of his letters, Francois Rochon has published charts showing that the intrinsic value of Giverny’s portfolio companies do not grow at the same rate as their stock prices. However, in the long run, they should grow at the same rate. He writes, “In the long run, stock market performance will follow hand in hand the intrinsic performance of the underlying companies. But in the short term, there can be huge gaps between the two. You can notice that some years, the market performance was bellow intrinsic performance (1999, 2000 and 2002). This is 3 years out of 8 (40% of the time).”

“As you know by now, Giverny Capital is not like other money management firms. We evaluate the quality of an investment by focusing on the growth in intrinsic value instead on market price.”
— Francois Rochon

Concerning management quality, after studying and learning from Philip Fisher, Rochon concluded that the quality of the people running the business accounts for more than 90% of the company’s long-term success. Therefore, he often looks for leaders who love their business more than they love money and who treat shareholders as true partners.

As such, it is not surprising that Francois Rochon the daily changes in stock prices not as a reliable guide but as a servant that occasionally offers extraordinary opportunities precisely because most participants behave irrationally. He writes in his letters that downturns, corrections and periods of pessimism are the best times to invest into high-quality businesses as they can be purchased at a discount from their intrinsic value. As he explains, “The steep decline that followed the September 11 attacks and the subsequent rise of stocks remind us that, in the universe of stock markets, it is better to buy in rainy days than in sunny days. Because when the sky is all blue, stocks are often changing hands at prices that reflect the fact that a majority of investors (I) believe that the sky will stay blue forever. In recessions and other crisis, it’s the opposite: many will sell their stocks at any price thinking that never again will the blue sky return. To be able to keep in perspective stock market’s sunny days from rainy days is a quality that is quite useful to develop.”

This reminds me of the importance of understanding Mr. Market, a term coined by Benjamin Graham. Here’s how the legendary Warren Buffett explains in his own word in his 1987 Berkshire Hathaway letter to shareholders:

“Ben Graham, my friend and teacher, long ago described the mental attitude toward market fluctuations that I believe to be most conducive to investment success. He said that you should imagine market quotations as coming from a remarkably accommodating fellow named Mr. Market who is your partner in a private business. Without fail, Mr. Market appears daily and names a price at which he will either buy your interest or sell you his.

Even though the business that the two of you own may have economic characteristics that are stable, Mr. Market’s quotations will be anything but. For, sad to say, the poor fellow has incurable emotional problems. At times he feels euphoric and can see only the favorable factors affecting the business. When in that mood, he names a very high buy-sell price because he fears that you will snap up his interest and rob him of imminent gains. At other times he is depressed and can see nothing but trouble ahead for both the business and the world. On these occasions, he will name a very low price, since he is terrified that you will unload your interest on him.

Mr. Market has another endearing characteristic: He doesn’t mind being ignored. If his quotation is uninteresting to you today, he will be back with a new one tomorrow. Transactions are strictly at your option. Under these conditions, the more manic-depressive his behavior, the better for you.

But, like Cinderella at the ball, you must heed one warning or everything will turn into pumpkins and mice: Mr. Market is there to serve you, not to guide you. It is his pocketbook, not his wisdom, that you will find useful. If he shows up some day in a particularly foolish mood, you are free to either ignore him or to take advantage of him, but it will be disastrous if you fall under his influence. Indeed, if you aren’t certain that you understand and can value your business far better than Mr. Market, you don’t belong in the game. As they say in poker, “If you’ve been in the game 30 minutes and you don’t know who the patsy is, you’re the patsy.”

Ben’s Mr. Market allegory may seem out-of-date in today’s investment world, in which most professionals and academicians talk of efficient markets, dynamic hedging and betas. Their interest in such matters is understandable, since techniques shrouded in mystery clearly have value to the purveyor of investment advice. After all, what witch doctor has ever achieved fame and fortune by simply advising “Take two aspirins”?

The value of market esoterica to the consumer of investment advice is a different story. In my opinion, investment success will not be produced by arcane formulae, computer programs or signals flashed by the price behavior of stocks and markets. Rather an investor will succeed by coupling good business judgment with an ability to insulate his thoughts and behavior from the super-contagious emotions that swirl about the marketplace. In my own efforts to stay insulated, I have found it highly useful to keep Ben’s Mr. Market concept firmly in mind.

Following Ben’s teachings, Charlie and I let our marketable equities tell us by their operating results – not by their daily, or even yearly, price quotations – whether our investments are successful. The market may ignore business success for a while, but eventually will confirm it. As Ben said: “In the short run, the market is a voting machine but in the long run it is a weighing machine.” The speed at which a business’s success is recognized, furthermore, is not that important as long as the company’s intrinsic value is increasing at a satisfactory rate. In fact, delayed recognition can be an advantage: It may give us the chance to buy more of a good thing at a bargain price.”
— Warren Buffett

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Be a Contrarian

“Be fearful when others are greedy and greedy when others are fearful.”
— Warren Buffett

One final lesson that can be learned from Francois Rochon’s letters to his Giverny partners is the importance of having an investment philosophy that is rational and independent. As a matter of fact, he acknowledges that his approach in investing in a small number of high-quality businesses and having low turnover is greatly different from conventional wisdom in money management.

This approach of his was greatly influenced by the great John Templeton who once said, “It is impossible to obtain a performance superior to the average unless you do something different from the average”. Rochon explains further that, “Our investment philosophy doesn’t reflect the conventional approach toward portfolio management. To own few stocks, to avoid some industries that we know nothing about and to ignore market fluctuations is a sensible approach but that is far from being widely used in the industry. But that doesn’t disturb us a bit: since our beginning we have known that “being different” is the first ingredient of success (although there are many other ingredients needed!).”

Rochon’s contrarian approach is also apparent in his refusal to follow the crowd and to invest in industries that he does not understand. He prefers investing in companies that are within his circle of competence. Similarly, what differentiates him from other money managers is his emphasis on continuous learning and humility. Even after more than decades into the business, Rochon understands the limits of his circle of competences and is eager to study his past mistakes in his letters to partners in a dedicated section called “Mistake du jour”, where he lists out mistakes he has made over the years.

“There is a lot to learn from our mistake but it is a little less painful to learn from other’s mistakes.”
— Francois Rochon

This reminds me of what we have learned from Hetty Green, whose greatest edge as an investor was her willingness to go against the crowd. She always kept a stack of cash ready to take on opportunities created by prices going down due to fear. As a matter of fact, in an era where speculative frenzies regularly swept through Wall Street, ruining countless of investors who bought at the top of the market crazy and who panicked at the bottom, Green understood that following the herd was a certain way to lose capital. Instead, she built a contrarian investment philosophy and she possessed the discipline to execute it to perfection.

Her contrarian strategy in investing was honed early on, particularly during the economic turmoil following the Civil War. Wallach writes that “The devastation of the South, the high debt caused by the war, and the disarray of the Union created a stormy picture. Many people viewed the country’s economy as doubtful. Seeing chaos around the corner, they worried about the stability of the government and refused to pay face value for its greenbacks. Instead, they rushed to gold. The rules of the marketplace state that for every seller there must be a buyer. The more the public discounted paper money, pushing it down as low as fifty cents on the dollar, the more Hetty bought.“

“I buy when things are low and nobody wants them. I keep them until they go up and people are crazy to get them. That is, I believe, the secret of all successful business.”
— Hetty Green

There are three reasons why Hetty Green was able to implement this contrarian investing approach successfully. Firstly, she always had cash on hand. As Shane Parrish once said in an interview with Tim Ferriss, the reason why Warren Buffett is so successful is because he has a large stack of cash in the balance sheet, “and so, what he’s always doing is everybody thinks he’s out of touch and he looks like an idiot. But he always wins because no matter what the outcome is, he wins. If the stock market goes up, he wins. If the stock market crashes, he wins because he’s put himself in a position where no matter what happens, he can take advantage of circumstances rather than having circumstances take advantage of him.“

Secondly, Hetty Green only invested in things that were within her circle of competence. Notably, she mainly invested in railroads, bonds or real estate. She used her research skills to identify bargains others missed, but it was also a lot easier for her to buy things that are depressed when she knows what she is buying. As Wallach writes, “Whether it was a horse and buggy or stocks and bonds, her canny habit of investigating every possible facet before she bought helped make her successful. “

Green explains that to determine when stocks are cheap demands a thorough knowledge of “their history, their dividend-paying possibilities, and what they have sold for in the past. If one can buy a good thing at a lower cost than it has ever sold for before, he may be fairly sure of getting it cheap.”

“Before deciding on an investment, I seek out every kind of information about it.”
— Hetty Green

Thirdly, Hetty Green was extremely patient once she invested in an asset. She would often buy assets and tuck them away for years, sometimes waiting decades for investments to finally pay off. As she once said, “I keep them just as I keep a considerable number of diamonds on hand until they go up and people are anxious to buy.”

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Beyond the Book

Read "Master Series: Francois Rochon" by Investment Masters Class

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Today’s Chapter is based on the book “Shot Ready” by Stephen Curry.

Stephen Curry is an American professional basketball player for the Golden State Warriors in the NBA, widely regarded as the greatest shooter in history. He revolutionized the game by popularizing the three-point shot, leading the Warriors to four championships (2015, 2017, 2018, 2022) and earning two MVP awards while setting the all-time record for three-pointers made.

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Embrace the Grind

“The hardest thing to do is work hard when no one is watching.”
— Ray Lewis

The most famous image of Stephen Curry is him jogging backward after releasing a three-pointer, the ball still in the air, his eyes already looking away before the ball goes through the net. However, what we don’t see are the thousands of repetitions that made that moment possible. The same shot, over and over, when there is no crowd, no defender, no applause.

As a matter of fact, Curry’s success began long before the bright lights of the NBA. It started in local gyms where he learned to love the unseen work that separates the good players from the great ones. He understood that greatness isn’t accidental but forged by hours of practice when no one is watching. He believed that the key to success is to work on the fundamentals. As he once said, “We practice not until I get the shot right, but until I can’t get it wrong.”

From the get go, Steph Curry understood that for him to succeed as a basketball player, he had to work harder than anyone else. As he explains, “I was never the most gifted athlete—not the highest jumper or the fastest runner or the tallest player on the court. In college, I looked like a middle-schooler trying to age himself up with a mustache so thin it seemed drawn on. Depending on my haircut, I’m still only 6’3” in a league where the average is 6’6”.”

As such, it is not surprising that Steph Curry believed in waking up earlier than others to work on his craft. He writes, “The key to these summer workouts, as in most things in life, is getting started before everyone else’s day begins.” Furthermore, he understood that he had to approach practice deliberately focusing on the details. As he mentions, “I give the ball a hard dribble, because even here in the practice gym, intensity and intention are important.”

“I fell in love with the grind. You have to. With the sacrifices that it takes to be great, you have to find joy in the work you do when no one else is around.”
— Stephen Curry

Curry defines the grind as the most important hours in any pursuit. For him as a basketball player, it is the work he does at the gym in isolation, where there is no defence and no live action. And yet, even when practicing alone, he practiced with a shot-ready mentality, as if the stakes were high and the clock is low. This allowed Curry to ensure that in-game performance felt easier than in practices.

Furthermore, Curry believes that focusing on the fundamentals are key to growth especially when you reach a plateau. He writes, “Grounding means returning to the fundamentals of the game, which is important whatever your game is. If you don’t master and remaster the basics, you’ll always be wasting time compensating for fundamental flaws.” As such, if you feel stuck, Curry advises you to “Slow down to examine what you’re doing, starting from the smallest variable—whatever your equivalent of the fifth metatarsal is—because being disciplined about small details, and taking joy in the work of getting them right until they’re second nature, is how you build consistent success.”

“Growth is the ultimate objective, but it emerges from grounding. Without mastering the fundamental principles of success, you can still struggle through, but at best you’ll be meeting your challenges instead of growing from them.”
— Stephen Curry

This reminds me of what we have learned previously from Kobe Bryant’s “Mamba Mentality”. Although Bryant first started it as a catchy hashtag, it became to symbolize his work ethic and his way of life. As Kobe once said, “The mindset isn’t about seeking a result—it’s more about the process of getting to that result. It’s about the journey and the approach. It’s a way of life. I do think that it’s important, in all endeavors, to have that [Mamba] mentality.”

As we have seen from others, obsession to one’s craft is primordial to reach success. In fact, Kobe believes that one must be willing to make sacrifices to obtain the level of success he had. He explains that “If you really want to be great at something, you have to truly care about it. If you want to be great in a particular area, you have to obsess over it. A lot of people say they want to be great, but they’re not willing to make the sacrifices necessary to achieve greatness.”

“What I’m saying is greatness isn’t easy to achieve. It requires a lot of time, a lot of sacrifices. It requires a lot of tough choices. It requires your loved ones to sacrifice, too, so you have to have an understanding circle of family and friends. People don’t always understand just how much effort from how many people goes into one person chasing a dream to be great.”
— Kobe Bryant

In Kobe’s case, he was obsessed in becoming the best and he “had a constant craving, a yearning, to improve and be the best.” As he once said, “If you want to be a better player, you have to prepare, prepare, and prepare some more.”

One way he did this was by watching game tapes of other players in order to figure out their weakness. His mentality was to dominate his opponents. He reiterates that “Whether it was AI, Tracy, Vince—or, if I were coming up today, LeBron, Russ, Steph—my goal was to figure you out. And to do that, to figure those puzzles out, I was willing to do way more than anyone else.”

Furthermore, Kobe understood that if he wanted to be the best, he had to take a contrarian approach compared to everyone else. As Albert Einstein once said, “The one who follows the crowd will usually get no further than the crowd. The one who walks alone is likely to find themselves in places no one has ever been before.”

Therefore, Kobe had a particular workout routines compared to his peers. Here’s how he describes it:

“I always felt like if I started my day early, I could train more each day. If I started at 11, I’d get in a few hours, rest for four hours, and then get back to the gym around 5 to 7. But if I started at 5 AM and went until 7, I could go again from 11 until 2 and 6 until 8. By starting earlier, I set myself up for an extra workout each day. Over the course of a summer, that’s a lot of extra hours in the gym.”
— Kobe Bryant

Furthermore, Kobe believes that part of the reason to his success is due to the fact that he was never satisfied even when he reached the top. He always had that desire to be better even when he was winning championships. As he once said, “I’m at the gym at the same time after losing 50 games as I am after winning a championship. It doesn’t change for me.”

In fact, this continuous obsession to improve and to become better cannot change if one is to reach the top. Kobe reiterates that “The only aspect that can’t change, though, is that obsession. You have to enter every activity, every single time, with a want and need to do it to the best of your ability.”

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Embrace The Shot Ready Mentality

“Opportunity comes to the prepared mind.”
— Charlie Munger

Stephen Curry didn’t just practice shots, he was mainly training his mind to perform under pressure. He coins the term “Shot Ready” to defines this mentality of being able to execute things automatically even when nerves strike. He explains, “I spend so much time practicing in this feeling so that even under the bright lights and crushing pressure of a real game, I can easily fall into an unconscious flow and execute my training. Of course, I’ll still feel all the nerves, but I don’t let them linger. Instead, they pass right through me. What is left behind is a calm that allows my training to kick in. And then I deliver.”

As a matter of fact, Curry is well-known for being the best shooter of all-time and he shares that the secret to being a great shooter is to be consistent. He writes that “Consistency is sometimes more powerful than technical perfection. Whether it’s from two feet or twenty feet, your shot position should always look exactly the same. When you have mastered the right form—the technically correct way to shoot—then you can relax into your own specific way to do it. And then you need to stick with it.” As such, having a “Shot Ready” mentality allows Curry to be in perfect balance and to simply let his muscle memory and practiced mechanics to take over. He doesn’t even need to think during a game and just follows his instincts completely.

“Being shot ready requires practice, training, and repetition, but it rewards that work with an unmatchable feeling of transcendence.”
— Stephen Curry

A big part of being “Shot Ready” is trained through visualization. Curry believes that visualization can be practiced. He writes, “You can practice visualization. Do it with me now. Think of yourself taking a shot. At first, you might see yourself from behind, facing a basket. But you have to get closer. Home in. Don’t picture yourself on the court. No, get inside your imagined self, see through your eyes, and feel through your hands. Notice every detail of your mechanics as you go into a shot. Feel the ball spinning off the leave finger of your hand, feel your hand follow through in a gooseneck. Do it again. Make it perfect. Watch the arc of the ball as it goes exactly where you targeted it, as if the gooseneck of your shooting hand just dropped the ball right in.”

Another part of being “Shot Ready” is to have confidence in your abilities. He believes that to be a great shooter, you need to be right in between of confidence and cockiness. However, you need to have the work ethic that earns you this confidence as it won’t mean a thing if you haven’t done the work. As he reiterates, “What’s the one key ingredient that the greatest shooters have in common? They all think they’re the greatest shooter ever.“ Confidence isn’t about making every shots, but about not letting any missed shots affect you. It is about trusting that your preparation has given you everything you need and to not have any hesitation for your next shot.

“As a shooter, what I need is confidence that the next shot is going to go in. To maintain that confidence—and to stay in the calm flow state I work so hard to achieve—my job is to not overanalyze. That applies to so much of life. You let a little bit of doubt creep in while you’re performing, and soon it infects your whole process. Doubt and worry will sap you of the juice and energy you need to perform in the moment.”
— Stephen Curry

This reminds me of what we have learned from Joe Montana who once said, “it is impossible to strive for something until we know what it is we are pursuing. You have to know what you want.”

If we do not know what are specific goals are, it is very difficult to have the drive, discipline or imagination to achieve them. As such, the first thing to do is to identify what we want to accomplish. Not only that, I believe it is primordial to choose which goals we need to focus on in order to manage our time better. One way of doing this is by writing down the goals we want to achieve and to circle the top three we want to achieve. The rest should be eliminated.

“This first principle, knowing what we want, is the beginning of achieving performance excellence.”
— Joe Montana

Once we have a goal in mind, Montana explains that visualization is a great mental tool in obtaining the positive results that we desire. He elaborates that “By concentrating on the image or outcome we desire, we can step into an “as if” reality, experiencing something as if it is really happening.”

He explains that the most important aspect of the visualization process is imagination. The greater the imagination, the more effective the visualization process will be. This idea reminds me of the importance of having imagination to succeed in business.

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Embrace Failures

“Failure isn’t fatal, but failure to change might be.”
— John Wooden

Stephen Curry views challenges not as obstacles but as stepping stones to success. He embraced what he calls the J-curve of progress, where a dip is often needed before seeing massive progress. This once again demonstrates why we should favour Curry’s process focused approach rather than taking a results-based focus. Curry writes, “I’ve learned over the years that challenges are the most efficient teachers, so I don’t run from them. You need to get used to doing difficult things, so you’re not living in fear of things going wrong.”

A perfect example of this in basketball comes from Michael Jordan who once said, “I’ve missed more than 9,000 shots in my career. I’ve lost almost 300 games. Twenty‑six times, I’ve been trusted to take the game‑winning shot and missed. I’ve failed over and over and over again in my life. And that is why I succeed.” Similarly, Curry writes, “While missing shots is a great way to learn, obsessing over failure is just a distraction from the work of improvement.”

“This is trouble if you’re motivated solely by the validation of quick results. You’ll give up if you are results-focused instead of process-focused, because working harder doesn’t make that curve go up faster.”
— Stephen Curry

Furthermore, Curry explains that it is often common for persistent practice to not showing results immediately. He draws a parallel to the J-curve in investing. He writes, “Imagine a big J on a page: The dip at the start of the letter is when you’re investing in something but haven’t gotten any returns yet, and then the line rises, and fast. Whatever the investment is, you’re going to get feedback on the loss quicker than you get any positive returns—it takes longer for the trajectory to start shooting up. When you’re in that down phase, you have no idea how far it’s going to go until it starts to go the other way.”

Similarly, Curry had a similar experience during a summer in High School, where he had to re-learn how to shoot in order to improve his mechanic that would allow him to succeed at the next level. He explains, “I would acknowledge to young me that this summer will be one of the hardest tasks I’d ever face in my basketball life: breaking down the one thing I thought I did well to try to do it better, while feeling so far away from what I hoped the end result would be. And this is the advice I would give myself: This may seem like it’s as hard as it gets, but you’re going to have to do variations of this same work a hundred more times in your life. Different scenarios and settings. Different challenges. But the same hard work with the same distant and uncertain outcome.”

What he learned from that summer wasn’t just an improved shot, but the fact that if something is handed to you easily, you won’t get the chance to develop the drive you need to sustain excellence. This also happened to him when he was about to play in College. He was only able to play at Davidson a smaller Division I team, but this helped him to “work harder, maximizing my skill set as a sharpshooter who could tire out any opponent by racing all over the court.”

“The times when you’re most uncomfortable are the inflection points in your life. The discomfort is how you know you are changing.”
— Stephen Curry

Similarly, Michael Jordan also faced various failure during his career in basketball. However, he was able to move on and succeed by understanding that some things are outside of his control. In fact, he learned to focus on things he could control which was to give it his best and to make all the work necessary to put himself in a position to succeed. Furthermore, Jordan mentions that if you give it your best, all the other things will come to you.

“I had put in all the work, not only in that particular game, but in practice every day. If I missed, then it wasn’t meant to be. That simple. It wasn’t because the effort wasn’t there. It wasn’t because I couldn’t make the shot, because I had taken the same shot many times in every situation. As soon as the ball went up, there weren’t any nerves because I had trained myself for that situation.

I was as prepared as I could possibly have been for that moment. I couldn’t go back and practice a little harder. I knew I had done the right things to prepare myself for that situation. One way or another, I knew I was prepared to be successful. Now, if you know you haven’t prepared correctly, or you know you haven’t worked hard enough, that’s when other thoughts and emotions creep into your mind. That’s stress. That’s fear.

It’s the same process for doing anything, anywhere in life no matter how big or small the stage. Whether it’s running a corporation, taking a test in second grade or taking a shot to win a game, at that moment you are the sum total of all the work you have put in, nothing more and nothing less. If you are confident you have done everything possible to prepare yourself, then there is nothing to fear.”
— Michael Jordan

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Beyond the Book

Read "Turning Adversity Into Advantage" by Farnam Street

Read "Why You Should Practice Failure" by Farnam Street

Watch " Stephen Curry: Shot Ready" on YouTube

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Today’s Chapter is based on the book “The Book of Elon: A Guide to Purpose and Success” by Eric Jorgenson.

Elon Musk is an entrepreneur renowned for leading major tech companies, such as Tesla, Space X and xAI. He is well-known for thinking in first principles and for his success as an intelligent fanatic. He is considered as one of the greatest entrepreneurs of our time and is one of the wealthiest person alive.

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First Principles Thinking

“As to methods, there may be a million and then some, but principles are few. The man who grasps principles can successfully select his own methods. The man who tries methods, ignoring principles, is sure to have trouble.”
— Harrington Emerson

Elon Musk is a perfect example of how innovation comes from thinking like a physicist. He mentions that “When you want to do something new, you have to apply the physics approach. Physicists discover counterintuitive new things, like quantum mechanics. They do that by thinking from “first principles”: building their reasoning from the ground up.” By using first principles thinking, he can break down problems to their most fundamental truths which helps in solving complex issues. He believes that if an idea aligns with the laws of physics and does not violate core principles, it is worth pursuing even if the chances of success are low. As he once said, “If the reasoning fits, and you’re not violating the laws of physics, that’s the thing you should try to do.”

As a matter of fact, first-principles thinking comes from physics and Elon Musk urges everyone to adopt it when thinking about complex problems. He mentions, “Break something down to the most fundamental principles. Start by asking: What am I most confident is true at a foundational level? That sets your axiomatic base. Then you reason up from there. Then you check your conclusions against the axiomatic truths.”

Tesla’s success in commoditizing EV vehicles comes from Elon Musk’s first principles thinking. He was able to overcome the conventional thinking that batteries would remain expensive forever based on historical costs. By dismantling batteries into its raw materials, Musk was able to find a way to make them cheaper.

“Here’s an example from early in building Tesla. People said battery packs were too expensive to make cheap electric cars. They assumed they would always be expensive, because they had been in the past. That’s pretty dumb. … The first-principles approach to battery costs is this: What are the batteries made of? What are the materials that make up the batteries? What is the market value of those material constituents? It’s got cobalt, nickel, aluminum, carbon, some polymers for separation, and a steel can. Okay, what if we bought that amount of material at the London Metal Exchange? What would each of those things cost? Oh, geez, it’s only $80 per kilowatt hour. So clearly, we just need to think of clever ways to take those materials and combine them into the shape of a battery cell. That’s how I knew it was possible to build batteries much much cheaper than anyone else realized.”
— Elon Musk

First principles thinking was also used at SpaceX in order to make rocket prices cheaper. Musk explains that, “First-principles thinking built SpaceX. Most people think, “Historically, all rockets have been expensive. Therefore, in the future, all rockets will be expensive.” But that’s not true.” He first understood that a rocket was made from aluminium, titanium, copper and carbon fiber and researched on what was the cost of all these raw components. The conclusion was telling, the price of raw materials to build a rocket was relatively small, well under 5% of the current cost of rockets. Musk decided that it would be much cheaper for him to build rockets himself, as he believed that “The manufacturing must be very inefficient if the raw material cost is only 1 or 2 percent of the finished product.”

As a matter of fact, Musk coined the term “The Idiot Index”. The higher a finished product cost compared to the cost of its materials, the higher the Idiot Index. When faced with a part or a product with a high Idiot Index, Musk would cut cost with more efficient manufacturing techniques, often doing it internally. On the Idiot Index, he once said, “If the ratio is high, you’re an idiot.”

First-principles thinking is uncomfortable because it forces you to question assumptions that everyone else has accepted. But that discomfort is precisely the point. If you want to achieve what others cannot, you must think in ways that others will not.

“I would encourage people to use the mental tools of physics and apply them broadly in life. They are the best tools.”
— Elon Musk

This reminds me of Sam Zell’s concept of keeping things simple. Whenever he faced a complex deal, he made sure to understand all the risks involved and to focus on solving the one that would make or break the deal. He explains, “I realized that the basics of business are straightforward. It’s largely about risk. If you’ve got a big downside and a small upside, run the other way. If you’ve got a big upside and a small downside, do the deal. Always make sure you’re getting paid for the risk you take, and never risk what you cannot afford to lose. Keep it simple. A scenario that takes four steps instead of one means there are three additional opportunities to fail.”

As such, he understood that by simplifying the problems into simple goals and steps, it is much more likely to be successful. He learned this from his mentor Jay Pritzker who taught him how to look at real estate deals.

“Jay taught me to use simplicity as a strategy. He had an uncanny ability to grasp an extremely complex situation and immediately locate the weakness. He always said that if there were twelve steps in a deal, the whole thing depended on just one of them. The others would either work themselves out or were less important. He had a laser focus on risk. I like to say my father taught me how to be, law school taught me how to think, Jay taught me how to understand risk.”
— Sam Zell

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Maniacal Urgency

“People think focus means saying yes to the thing you’ve got to focus on. But that’s not what it means at all. It means saying no to the hundred other good ideas that there are. You have to pick carefully. I’m actually as proud of the things we haven’t done as the things I have done. Innovation is saying no to 1,000 things.”
— Steve Jobs

Ideas are cheap. Execution is what is worth millions. Musk mentions that he has “more ideas than I could possibly execute. Innovation is not the problem. Execution is the problem.” What separates successful people from dreams is not the quality of their ideas but their ability to turn those ideas into reality. And turning ideas into reality requires a level of intensity that most people find uncomfortable. Elon Musk once said, “A maniacal sense of urgency is our operating principle.” In fact, from reflecting on how Musk ran his companies, it is clear that real progress demands extreme effort, focus and a sense of urgency that borders on the obsessive side. He believes that “You must be extremely tenacious. Work like hell. You have to put in eighty-to one-hundred-hour weeks every week. This will improve your odds of success.”

As such, it is not surprising that Musk isn’t too found of the idea of a balanced work week. He mentions that “Nobody ever changed the world on forty hours a week.”, and he clearly puts this principle to the test. As a matter of fact, Musk was well known for setting aggressive timelines using it as a motivation for his employees to work harder and more efficiently.

“You need to work. Work hard. Like every waking hour. Particularly if you’re starting a company, you need to work super hard. Do the simple math: Somebody else is working fifty hours a week and you’re working one hundred. You’ll get twice as much done in a year. 54 If other people are putting in forty-hour workweeks and you’re putting in one hundred, what takes them a year, you will achieve in four months.”
— Elon Musk

Furthermore, in order for his companies to achieve the deadlines set by his maniacal approach, Musk had to implement a system for them to work fast and efficiently. To do so, he elaborated an Algorithm inspired from engineering in order to speed things up. He mentions, “I have everyone at my companies rigorously implement a five-step process for engineering. I call it The Algorithm. I’ll list the steps, then explain. The order is very important. Make your requirements less dumb. Try very hard to delete the part or process. Simplify or optimize. Accelerate. Automate.”

First, he believes that most of the requirements are dumb and that it is primordial to question them and see why they were set in the first place. He explains, “Whatever requirements or constraints you do have must come from a person, not a department. You can’t actually ask a department. You have to be able to ask a person, and the person putting forth the requirement must take responsibility for that requirement. Otherwise, you could have a requirement made up by an intern two years ago off the cuff, or someone who isn’t even at the company anymore. You must know the name of the real person who made every requirement. Many times we’ve had dumb requirements, dug into them, and discovered no one currently working in that department agrees with the requirement. These things are often way more silly than you think. So step one is make your requirements less dumb.”

Second, you often need to eliminate some steps to make things faster. As a matter of fact, Musk was well-known among his employees to often go through a rampage of deleting things. He was never conservative about these things as he believed that “If you’re not adding deleted things back in 10 percent of the time, you’re clearly not deleting enough.”

Third, you need to optimize every single steps that are essential. And once that is done, you can start on step four and five which are to accelerate and automate. Musk warns to not skip over the steps. As he explains, “do not go faster until you have worked on the other three things first. I mistakenly spent a lot of time accelerating processes that I later realized should have been deleted. Speeding up something that shouldn’t exist is absurd. If you’re digging your grave, don’t dig it faster. Stop digging.”

Elon Musk’s approach is eerily similar to Chung Ju-Yung’s motto of “shorten the time”. The founder of Hyundai believed that this is the surest way to encourage innovation and improvement among the company. He would often take tours of his projects and would always seek to find ways to shorten construction times in unconventional ways. He once said, “I am someone who believes that if a person limits themselves to the fixed ideas inherent in common sense, they will not be very creative.”

Chung believed that finding clever solutions would never come from people with conventional thinking. As a matter of fact, he mentions that “if you only think in accordance with what you learned through books, your imagination will be limited to that.”

“When we worked on the Jubail project, we had to make 160,000 drill bits to build the breakwater and shore protection structures. If we built 200 every day, it would take us 800 days to make 160,000. But at the site, the workers were making them one at a time instead of using a mold to mass produce them. Their sorry excuse for this wasteful effort was that the molds weren’t the right height to fix onto the end of the cement trucks.

When I saw this, I was furious. Why did these people have brains if they weren’t going to use them? It didn’t take a genius to realize that the outflow ramp for the concrete on the trucks needed to be raised to fit the molds. If they just followed this simple solution, they wouldn’t need a crane, and they wouldn’t waste time and energy. They couldn’t think to adjust the concrete mixer truck, thinking it was unchangeable. Would the gods punish them for making some small adjustments? After I made the changes, we went from 200 per day to 350 per day.”
— Chung Ju-Yung

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Attract Great Talent

“If each of us hires people who are smaller than we are, we shall become a company of dwarfs. But if each of us hires people who are bigger than we are, we shall become a company of giants.”
— David Ogilvy

No one builds a rocket or a car company alone. Elon Musk would be the first to admit this. His job as the CEO is not to take credit but to create an environment where his employees can do their best work. That means recruiting well, removing bureaucratic barriers, and leading by example. As he once said, “I want to emphasize that sometimes—in fact, most of the time—I get way too much credit or attention for what I do. I’m just the visible element. The reason these companies are successful is because we have extremely talented people at all levels making it happen.”

Moreover, he advocates for a “Special Forces” culture where only excellent performers are welcomed. In fact, he is ruthless about quality. He explains that only exceptional performance constitutes a passing grade. Mediocrity is not acceptable, not because he is cruel, but because the problems he is trying to solve are genuinely hard. A company that tolerates average work will produce average results, and average results will not get humanity to Mars or transition the world to sustainable energy. He says, “When hiring, I look for evidence of exceptional ability, or at least exceptional aspiration.”

“Wherever the smartest, most driven people are choosing to work, that company is going to win.”
— Elon Musk

Furthermore, creating a culture of excellence requires more than just hiring well. It also requires leaders who are willing to lead by example and who are willing to get their hands dirty. Elon Musk is often seen sleeping on factory floors and working alongside his teams during crises. He understood that his employees would work harder if they saw him working alongside of them. He mentions, “Think about war. Do you want the general in some ivory tower or on the front lines? The troops fight harder if they see the general on the front lines. Nobody bleeds for the prince in the palace. Get out there on the front line. Show them that you care and that you’re not in some plush office somewhere.”

Similarly, Musk believed in removing any barriers that may separate senior executives from employees. As a matter of fact, he expects his managers to have hands-on experience in the work they oversee. For example, software managers must be able to code and solar roof managers must be able to install roofs. If you cannot do the work yourself, you have no business telling others how to do it. He elaborates that, “All technical managers must have hands- on experience. For example, managers of software teams must spend at least 20 percent of their time coding. Solar roof managers must spend time on the roofs doing installations. Otherwise, they are like a cavalry leader who can’t ride a horse or a general who can’t use a sword.”

“When the team is being asked to work super hard, I have to be right there with them and they have to see it. If I fall asleep in the middle of the factory floor at four in the morning and wake up four hours later, they see that. They are like, “If the CEO is willing to take that level of pain, I can do it too.””
— Elon Musk

This reminds me of what we have learned from Steve Jobs and on the importance of hiring A-players. As a matter of fact, Jobs was also a master at recognizing talent and surrounding himself with exceptional people. He had an almost uncanny ability to locate and convince talented individuals into joining his team, often convincing them to take on roles they might otherwise have avoided. Steve Jobs was well known for working with only A-Players.

“So I’ve built a lot of my success on finding these truly gifted people, and not settling for “B” and “C” players, but really going for the “A” players. And I found something… I found that when you get enough “A” players together, when you go through the incredible work to find these “A” players, they really like working with each other. Because most have never had the chance to do that before. And they don’t work with “B” and “C” players, so it’s self-policing. They only want to hire “A” players. So you build these pockets of “A” players and it just propagates.”
— Steve Jobs

Furthermore, one of Steve Jobs’ biggest quality as a leader is his ability to connect with people who had the skills he lacked. As a matter of fact, when Jobs first started Apple, it was his partner Steve Wozniak, often referred to as the technical genius behind Apple, who was responsible for designing the hardware that made the company famous. Jobs, on the other hand, took care of the business aspects, from securing funding to negotiating deals. Together, they formed a partnership that would change the world.

Jobs’ ability to recognize Wozniak’s genius and harness it for the company’s benefit was one of his greatest strengths. He understood that Wozniak’s designs were not just technically impressive—they were revolutionary. This realization helped Jobs see the potential for turning Wozniak’s creations into profitable products.

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Today’s Chapter is based on the book “Becoming Trader Joe: How I Did Business My Way and Still Beat the Big Guys” by Joe Coulombe.

Joe Coulombe was the founder of Trader Joe’s in 1967 and led it as CEO until 1988. He built the chain around a specific customer niche (underpaid professionals), emphasizing unusual products, strong value, and a quirky brand identity that helped Trader Joe’s stand out in grocery retail.

Buy it on Amazon here.

Here’s what I learned:

Pay People Well

“Four Seasons is the sum of its people—many, many good people.”
— Isadore Sharp

A big reason for Joe Coulombe’s success at Trader Joe’s was his decision to pay employees far above industry norms. He refused to treat labor as an expense to be minimized. Instead, he viewed high wages as a necessity and an investment that delivered higher productivity and a lower turnover of employees. As he once said, “This is the most important single business decision I ever made: to pay people well. First Pronto Markets and then Trader Joe’s had the highest‑paid, highest benefited people in retailing.”

Coulombe explains that “Time and again I am asked why no one has successfully replicated Trader Joe’s. The answer is that no one has been willing to pay the wages and benefits, and thereby attract—and keep—the quality of people who work at Trader Joe’s. My standard was simple: the average full-time employee in the stores would make the median family income for California.”

As a matter of fact, Coulombe argues that turnover is the most expensive form of labor expense and that high wages would attract and retain the highest talent within the company. As such, this wasn’t a scheme based on generosity, but an economics decision. He understood that good people would repay his investment through higher output and loyalty. This commitment to compensation creates a virtuous cycle. While competitors struggled with high costs of employee turnover and training, Trader Joe’s enjoyed a stable and dedicated workforce. Coulombe argues that “You can’t afford to have cheap employees.”

“Productivity in part is the product of tenure. That’s why I believe that turnover is the most expensive form of labor expense. I am proud that, during my thirty years at Pronto and Trader Joe’s, we had virtually no turnover of full‑time employees, except for the ordinary human problems of too, too solid flesh.”
— Joe Coulombe

And equally as important, Coulombe understood that money alone wasn’t enough to retain talents. Majority of employees leave due to un-listened grievances. He mentions that “At Stanford I’d been taught that employees never organize because of money: they organize because of un-listened-to grievances. We set up a program under which each employee (including some part-timers) was interviewed, not by the immediate superior, the store manager, but by the manager’s superior. The principal purpose of this program was to vent grievances and address them where possible. And I think this program was as important as pay in keeping employees with us.”

Simply said, Coulombe understood that if you treat people as interchangeable parts, they will act like them. However, if you provide them with security and a sense of belonging, they become the differentiator that a larger, more faceless competitor cannot replicate. When asked how he could afford such highly paid employees, his response was always rooted in terms of productivity: a highly competent, well-paid person produces more value per hour than two underpaid, unmotivated ones.

“The answer, of course, is that good people pay by their extra productivity.”
— Joe Coulombe

This reminds me of the power of incentives that we have learned from Paul Orfalea at Kinko’s who also had a great incentive structure in place which lead to the success of his company. In fact, Orfalea realized that the workers behind the counter at Kinko’s were the true heroes of the company. As a matter of fact, being in the retail copy centers business, Orfalea had plenty of competitors considering it is an industry with no barriers to entry.

As such, if he wanted to beat his competitors, he would have to make Kinko’s a great place to work; he would have to create an incredible corporate culture and make it a competitive advantage. This starts by setting the right incentives in place. In fact, Orfalea mentions that it is a lot easier to manage the work environment than the people in a store. He once said that “when people are properly motivated, they will essentially manage themselves.”

First, he started calling his employees as coworkers to remind himself that he didn’t want to “use” people, but to work with “empowered entrepreneurs”. To instill this sense of entrepreneurship among Kinko’s workers, the company gave a share of the profits of the store to everyone — partners, managers, and even workers behind the counter.

Orfalea mentions that initially, Kinko’s “gave each manager 25 percent of his or her store’s profits. Later, we expanded the system of profit sharing when we started giving each manager 15 percent of the store’s profits and earmarking the remaining 10 percent to be split among that store’s coworkers.”

“At Kinko’s, we were building a family together at the same time we were building a business.”
— Paul Orfalea

Second, Orfalea mentions that “people want to know they are contributing to society.” As such, other than monetary incentives, Kinko’s had to give a sense of mission to keep their workers both happy and motivated.

To do so, Orfalea set a flat organization at Kinko’s. Without having any hierarchy, every single member of the company were treated equally in the company and were part of the decision process. In fact, Orfalea mentions that the head office’s main purpose is to serve the stores. He implemented the “80/20” policy where managers were encouraged to spend 80 percent of their time on the floor of the stores with coworkers and only 20 percent of their time in their offices.

As such, Kinko’s empowered coworkers behind the counter to become autonomous thinkers. They would not be required to ask for permission for implementing new ideas for taking care of customers. As Paul Orfalea once said, “our original store was a hothouse of experimentation.”

“As we grew, we designed a structure for our company that would be as democratic as the services we were providing. For me, this was the true brilliance of the Kinko’s we created.”
— Paul Orfalea

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Find Undervalued Opportunities

“There are different ways to hunt, just like different places to fish. And that’s investing. And knowing that, of course, one of the tricks is knowing where to fish.”
— Charlie Munger

Being a successful retailer in America is extremely difficult. And this is especially true as a small player. Coulombe mentions that being a retailer in the grocery business, it is very difficult to differentiate yourself and to have a competitive advantage. This all changed once Joe Coulombe had the insight of hunting for discontinued products that he could purchase at large quantities for a discount. This was the core belief that made Trader Joe’s into what it is today.

He writes, “To this day, the promotion of Extra Large AA eggs is one of the foundations of Trader Joe’s merchandising, not just because of the program per se, but because it set me to wondering whether there weren’t other discontinuities out there in the supplies of merchandise. Eight years later, we built Trader Joe’s on the principle of discontinuity.”

As such, rather than to compete with other retailers that sold branded merchandise that customers already knew, Trader Joe’s turned into selling unique products that the customers may not be as familiar with such as discontinued products or private labels. This required, however, that the company cultivate its customers to these products. Hence why Coulombe believed that Trader Joe’s “fundamentally changed the point of view of the business from customer oriented to buyer-oriented. I put our buyers in charge of the company.”

“As we evolved Trader Joe’s, its greatest departure from the norm wasn’t its size or its decor. It was our commitment to product knowledge, something which was totally foreign to the mass-merchant culture, and our turning our backs to branded merchandise.”
— Joe Coulombe

Trader Joe’s developed a strict test for any new category of products: high value per cubic inch, high rates of consumption, ease of handling, and some way to be outstanding in either price or assortment. One example of this is hard liquor. Coulombe writes that “The advantage of hard liquor merchandise was that it met three tests: A high value per cubic inch, essential to a small store format. A high rate of consumption. It had to be easily handled. If we could have added a fourth test, it would be that we had to be outstanding in the field. That would be an ideal category.”

This relentless focus on finding products with differentiation was a core idea of Coulombe’s merchandising philosophy which became a true competitive advantage at Trader Joe’s. As Coulombe once said, “The fundamental job of a retailer is to buy goods whole, cut them into pieces, and sell the pieces to the ultimate consumers. This is the most important mental construct I can impart to those of you who want to enter retailing. Most ‘retailers’ have no idea of the formal meaning of the word. Time and again I had to remind myself just what my role in society was supposed to be.”

This concept of Joe Coulombe reminds me of what we have learned from Jim Weber’s journey at Brooks on the importance of focusing on a specific niche. When Weber took over as CEO in 2001, Brooks was struggling to compete with industry giants like Nike and Adidas. The company was spread too thin, trying to cater to too many categories. Weber made a bold decision: Brooks would focus solely on performance running. This pivot became the foundation of its success.

Weber’s philosophy was clear: you don’t have to be everything to everyone. Instead, you can dominate a smaller, more focused market. Brooks narrowed its focus to performance running, developing products that catered specifically to serious runners. This decision was a game-changer. As he explained, “Going forward, I told them, we would pivot to a running-only brand. Real performance for real runners. Our product would perform for the most discerning runners, earning their trust mile after mile, and our brand would embody the spirit and soul of all who run.”

“In footwear, many believe the conventional wisdom that says brands must play in all categories, across myriad price points. They believe that a company can’t survive by playing a narrow game. Our contrarian philosophy was to focus only on premium running, turning a narrow focus into a strength.”
— Jim Weber

Weber was inspired by Warren Buffett’s investment philosophy, particularly Buffett’s emphasis on building moats around businesses, as a matter of fact, the concept of a “moat” was central to his strategy. A moat, in business terms, refers to a company’s ability to maintain a competitive advantage over its rivals. Weber explains that “In business, a moat leverages the medieval castle metaphor, describing a business’s competitive advantages that allow it to successfully grow and defend its position with customers profitably against any would-be competitor.”

Weber believed that, “If you are entering a new business with serious competition, you need to prioritize solving for your moat.” For Brooks, the moat problem was solved once they focused on delivering premium products for performance running only. Weber’s decision to focus on a niche market also allowed Brooks to create a distinctive brand identity. Rather than trying to compete with larger, more diversified brands, Brooks leaned toward areas where competitors weren’t focusing on in order to create a brand that stood out in the croweded sportswear market.

“The goal for a brand is not to emulate the competition but to find unaddressed opportunity in between the strengths that your competitors already own.”
— Jim Weber

This focus on a niche not only helped Brooks survive but thrive. By 2010, Brooks had become the fastest-growing brand in running, surpassing Asics in market share in the specialty run channel. As Weber reflects, “I was convinced that Brooks’s opportunity in premium performance run was big. Plus, our Run Happy positioning was novel and unique. Given the size of the category, we had a billion-dollar idea.”

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Build A Cult

“If you do build a great experience, customers tell each other about that. Word of mouth is very powerful.”
— Jeff Bezos

Another key reasons for Trader Joe’s success was Coulombe’s ability to build a cult-like following among his customers. As a matter of fact, as education levels rose, a new group of demographic emerged in the United States, those who were well-traveled and well-educated but didn’t necessarily have the income to match their sophisticated taste. Coulombe identified them as his preferred customers as they would appreciate a store that would prioritize product knowledge over flashy advertising.

Coulombe understood that by leaning into the interests of this demographic, such as fine wines and healthy foods, he could create a level of loyalty and build a cult-like following. He writes, “Trader Joe’s became a cult of the overeducated and underpaid, partly because we deliberately tried to make it a cult once we got a handle on what we were actually doing, and partly because we kept the implicit promises with our customers.”

“We became the best place in the world to buy a good bottle of wine for less than $ 2.00. That’s a position we held for the rest of my days at Trader Joe’s. It absolutely addressed our prime market, the overeducated and underpaid people of California.”
— Joe Coulombe

This focus on the overeducated and underpaid also drove the way Trader Joe’s expanded its locations. Coulombe looked for areas near major institutions of learning, hospitals and high-tech offices. He sought out the density of intelligence rather than just the density of wealth. He knew that a neighborhood with more PhDs than a typical college would be the perfect fertile ground for a store that sold obscure Bordeaux blanc and almond butter.

Coulombe explains that “We looked for our demographics: there are lots of overeducated and underpaid people in Southern California. That’s why most Trader Joe’s were located near a major institution of learning: Long Beach State, UC San Diego, UCLA, and hospitals like The Huntington in Pasadena or Long Beach Veterans’ and high tech corporate offices like TRW in Manhattan Beach, which probably has more PhDs than most colleges.”

Furthermore, this principle also differentiated Trader Joe’s approach to marketing compared to other retailers. The company treated marketing as a strategic weapon to educate its customers on the products rather than selling them. For example, Coulombe writes that “Most supermarket radio spots are paid for by cooperative advertising allowances from manufacturers. The supermarkets jam as many brands into sixty seconds as possible, because it maximizes their revenue. Information be damned! In sharp contrast, each Trader Joe’s spot was devoted to a single product, about which we tried to develop a story. And we refused to accept any advertising revenue from any manufacturer.”

Similarly, Trader Joe’s created the Fearless Flyer, which was an educational medium on products offered by the company. It quickly became a collectible educational tool for customers who often “ kept three-ring notebook collections of the issues so they could refer back to the articles.” And, Coulombe proved that when you educate customers, treat them as intelligent adults, and keep every promise, loyalty becomes almost religious.

“As everyone knows, word of mouth is the most effective advertising of all. Or, when in my cups, I have been known to say that there’s no better business to run than a cult. Trader Joe’s became a cult of the overeducated and underpaid, partly because we deliberately tried to make it a cult once we got a handle on what we were actually doing, and partly because we kept the implicit promises with our clientele.”
— Joe Coulombe

This reminds me of David Ogilvy’s principles of advertising. David Ogilvy once asked Sir Hugh Rigby, the surgeon to King George, what it takes to be a great surgeon. His response? “What distinguishes the great surgeon is that he knows more than other surgeons.” Similarly, Ogilvy believes this is true both in advertising and life in general. Those who succeed tend to have superior knowledge.

As Ogilvy, once said, “You don’t stand a tinker’s chance of producing successful advertising unless you start by doing your homework.” In terms of advertising, Ogilvy recommends a few steps one should take in order to succeed:

1. Learn everything about the product that is to be advertised. It is only by knowing all about it that one can find a great idea on how to sell it.

2. Find out how similar products are being advertised and how successful their advertising are.

3. Identify who the customers are and find out what they think about the product you are advertising (i.e: what attributes are important to them and what promise would be most likely to make them buy your brand again)

4. And finally, consider how you want to “position” your product. Ogilvy defines positioning as asking yourself “what the product does, and who is it for?”

As we have previously learned from Ogilvy, “every advertisement is part of the long-term in the personality of the brand.” He mentions that the company “who dedicates his advertising to building the most favourable image, the most sharply defined personality, is the one who will get the largest share of the market at the highest profit—in the long run.” For this reason, it is primordial to decide what “image” you want for the brand.

Furthermore, Ogilvy is a keen believer of using researches as a tool to improve his advertising. As he once said, “Advertising people who ignore research are as dangerous as generals who ignore decodes of enemy signals.” He mentions that while there aren’t any rules in advertising, it would be foolish to ignore the results of researches. Yet, it happens more often than you would think. Here’s a few advertising advices Ogilvy provides based on researches:

• “Research suggests that if you set the copy in black type on a white background, more people will read it than if you set it in white type on a black background.”

• On the average, five times as many people read the headlines as read the body copy. It follows that unless your headline sells your product, you have wasted 90 per cent of your money.

• Advertisements in four colors cost 50 per cent more than black-and-white, but, on the average, they are 100 per cent more memorable. A good bargain.

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Today’s Chapter is based on the book “The Richest Woman in America: Hetty Green in the Gilded Age” by Janet Wallach.

Hetty Green was an American businesswoman and financier known as the Witch of Wall Street. She built a vast fortune by investing in government bonds, railroads and real estate, often helping stabilize New York City and Wall Street during financial panics by providing loans when banks were unwilling to extend credit. Despite her wealth, she lived frugally which fed to her reputation as an eccentric woman in the Gilded Age.

Buy it on Amazon here.

Here’s what I learned:

Be Financial Literate

“Financial freedom is available to those who learn about it and work for it.”
— Robert Kiyosaki

In some ways, Hetty Green lived in a world in which she did not belong. She was a businesswoman in a world dominated by men. She was born and raised in a family of Quaker in the Gilded Age, an era of excess. And yet, she succeeded because she educated herself thoroughly, thought independently and lived beyond her means. In fact, from her earliest years, Hetty Green absorbed financial knowledge in ways that most children, particularly girls of her era, never experienced. Her grandfather, recognizing her quick mind, enlisted her help with his business correspondence.

Wallach writes that “The girl was quick with numbers and good at reading, and she caught her grandfather’s notice. With his eyesight failing, he snapped open the evening newspapers, handed them to Hetty, and asked her to read aloud. In her child’s voice she called out the stock quotations and commerce reports, warming her grandfather’s heart. And sometimes when he needed help with his correspondence, he called on her. That was how she absorbed some of his business methods, she later said.”

Similarly, Hetty’s father continued her financial education by bringing her along his business meetings. Wallach mentions that “She watched him closely as he assessed the inventory, inspected the ships, dealt with the captains, and heard the rough talk of the crews. She listened to him bargain with merchants and berate them when he thought they were charging too much. She followed along when he took her to the countinghouse and showed her how to read the ledgers, or brought her to the brokers and taught her how to trade commodities. She paid attention when he repeated again and again that property was a trust to be taken care of and enlarged for future generations.”

“There is nothing better than this sort of training. A girl acquires the habit of keeping track of every cent and gets the most value for every dollar she spends.”
— Hetty Green

As such, it is not surprising that throughout her life, Green advocated for women to take control of their own finances, believing that ignorance made them vulnerable. Wallach mentions that Green “encouraged girls to educate themselves about business; she urged women to manage their own money and take control of their finances.”

By consequence, on the day that her son was born, Green only had one goal, to see him become the richest man in America. And, to do so, he had to be financial literate. Similarly to the financial education she received from her father, Green sent her son Ned to Chicago to oversee her mortgages at an early age. He was charged to collect payments due and she required him to memorize the amount of principle and interest owed on each mortgage, as she once warned him that “Whatever someone owed, don’t take a penny less. And not a penny more. It would only mess up his books”

She also brought Ned along to train him in real estate investing. She fully believed that a hands-on experience was the best way to learn. It was important for him to understand what it involved in terms of materials and labor and not just the financial aspect of it. But more importantly, Green gave him important responsibilities in terms of buying and selling new properties and mortgages. Ned was held fully accountable for his every decision. Of course, Green gave him plenty of advices on how to make a deal. As she once said, “If anyone is fool enough to offer you the full amount, take it. If you are offered less, tell the man you will give him the answer in the morning. Think the matter over carefully in the evening. If you decide that it will be to our advantage to accept the offer, say so the next day.”

“In business generally, don’y close a bargain until you have reflected on it overnight.”
— Hetty Green

For parents today, Hetty Green’s example offers a powerful reminder that financial education cannot be left to chance. Children learn attitudes toward money from watching their parents, and they need intentional teaching about saving, investing, and the values that should guide financial decisions. Hetty understood that wealth without wisdom is a burden, and she worked to ensure her son would be prepared for the responsibility she was placing in his hands.

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Be Frugal

“The way to wealth is as plain as the way to market. It depends chiefly on two words, industry and frugality: that is, waste neither time nor money, but make the best use of both. Without industry and frugality nothing will do, and with them everything.”
— Benjamin Franklin

Hetty Green was most famous for being heavily criticized for her extreme frugality during the Gilded Age. As a matter of fact, when her cleaning lady gave birth to a son, Green gave her a gold piece and advised her to keep it in the bank until he turns twenty-one. Instead of appreciating the lesson on compound interest, the cleaning lady scorned Green for saving instead of spending.

Green possessed a fortune that could have bought her palaces, yet she chose to live in modest boarding houses, wearing the same black dresses until they wore out, and haggling over the price of everyday goods. While her thriftiness often bordered eccentricity, her underlying philosophy was incredibly sound. She understood that wealth is not measured by what you spend but by what you keep.

Green rejected the spending habits that were rapidly taking hold in America during the Gilded Age among the wealthiest. she saw no value in displaying wealth through expensive clothes and jewelry, viewing them as wasteful and foolish. She recognized from an early age that every dollar spent on luxury was a dollar that could no longer be put to work and earning compounding interest. As Green once said, “Watch your pennies and the dollars will take care of themselves.”

As such, it is not surprising that frugality was a governing principle in her household. She believed that the modern American culture was creating a dangerous lack of financial discipline and she wanted to make sure that her children would not be accustomed to easy credit and instant gratification. As such, while she gave her son Ned a larger allowance than other boys, she still dressed him in hand-me-down clothes and taught him to watch his pennies.

“There’s one reason why we have hard times: money easy coming and easy going! American children are not taught how to save money but how to spend it. Everything they want—give it to them so long as you know the price of the credit. That’s the policy of the modern mother and she is raising a nation of spendthrifts whose one thought is to get what they want when they want it.”
— Hetty Green

During an interview with a reporter, she explained that her clothes weren’t in style, but “I’ve worn it for nearly ten years and it’s going to do ten more years’ service. I’m too old a lady to care about clothes.” She elaborates that “when it comes to spending your life, there have to be some things neglected. If you try to do too much, you can never get anywhere. As I was naturally made for work, I just as naturally wasn’t made for a fashion plate. I have never bothered about what to wear.”

It can be said that Hetty Green’s thriftiness started at a young age. She first created her first bank account at the mere age of eight, where she would gather all the precious coins she had saved from her weekly allowance. This was the start of Hetty’s frugality and became the foundation that turned modest capital into billions. In an age of instant gratification and consumer debt, what Hetty Green can teach us is clear: live below your means and earn compound growth.

This importance put into frugality reminds me of what we have learned from Benjamin Franklin who had “frugality” as one of his thirteen virtues. In fact, Franklin’s upbringing instilled in him a deep respect for hard work and thriftiness, values that shaped his success and remained central to his philosophy throughout his life. As a matter of fact, Franklin explains that his habits of frugality came from his father who often repeated to him this proverb of Solomon, “Seest thou a man diligent in his calling, he shall stand before kings, he shall not stand before mean men.”

As such, when he first started his career as a printer, his frugal approach was already evident. As Franklin once wrote, “I dressed plainly; I was seen at no places of idle diversion. I never went out a fishing or shooting; a book, indeed, sometimes debauched me from my work, but that was seldom, snug, and gave no scandal; and, to show that I was not above my business, I sometimes brought home the paper I purchased at the stores thro’ the streets on a wheelbarrow.”

Similarly, Franklin was also frugal in the way he managed his household. He explained, “We kept no idle servants, our table was plain and simple, our furniture of the cheapest. For instance, my breakfast was a long time bread and milk (no tea), and I ate it out of a twopenny earthen porringer, with a pewter spoon.”

“In order to secure my credit and character as a tradesman, I took care not only to be in reality industrious and frugal, but to avoid all appearances to the contrary.”
— Benjamin Franklin

Furthermore, his frugality even influenced Benjamin Franklin’s eating habit. As a matter of fact, in order to save money, when he was 16, Franklin started following a vegetable diet as he could end up saving half of what his brother paid him to board himself. This would not only allow himself more money to spend on books but more time to read.

As Franklin mentioned, “I made myself acquainted with Tryon’s manner of preparing some of his dishes, such as boiling potatoes or rice, making hasty pudding, and a few others, and then proposed to my brother, that if he would give me, weekly, half the money he paid for my board, I would board myself. He instantly agreed to it, and I presently found that I could save half what he paid me. This was an additional fund for buying books. But I had another advantage in it. My brother and the rest going from the printing-house to their meals, I remained there alone, and, dispatching presently my light repast, which often was no more than a biscuit or a slice of bread, a handful of raisins or a tart from the pastry-cook’s, and a glass of water, had the rest of the time till their return for study, in which I made the greater progress, from that greater clearness of head and quicker apprehension which usually attend temperance in eating and drinking.

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Be Contrarian

“Be fearful when others are greedy and greedy when others are fearful.”
— Warren Buffett

In my opinion, Hetty Green’s greatest edge as an investor was her willingness to go against the crowd. She always kept a stack of cash ready to take on opportunities created by prices going down due to fear. As a matter of fact, in an era where speculative frenzies regularly swept through Wall Street, ruining countless of investors who bought at the top of the market crazy and who panicked at the bottom, Green understood that following the herd was a certain way to lose capital. Instead, she built a contrarian investment philosophy and she possessed the discipline to execute it to perfection.

Her contrarian strategy in investing was honed early on, particularly during the economic turmoil following the Civil War. Wallach writes that “The devastation of the South, the high debt caused by the war, and the disarray of the Union created a stormy picture. Many people viewed the country’s economy as doubtful. Seeing chaos around the corner, they worried about the stability of the government and refused to pay face value for its greenbacks. Instead, they rushed to gold. The rules of the marketplace state that for every seller there must be a buyer. The more the public discounted paper money, pushing it down as low as fifty cents on the dollar, the more Hetty bought.“

“I buy when things are low and nobody wants them. I keep them until they go up and people are crazy to get them. That is, I believe, the secret of all successful business.”
— Hetty Green

There are three reasons why Hetty Green was able to implement this contrarian investing approach successfully. Firstly, she always had cash on hand. As Shane Parrish once said in an interview with Tim Ferriss, the reason why Warren Buffett is so successful is because he has a large stack of cash in the balance sheet, “and so, what he’s always doing is everybody thinks he’s out of touch and he looks like an idiot. But he always wins because no matter what the outcome is, he wins. If the stock market goes up, he wins. If the stock market crashes, he wins because he’s put himself in a position where no matter what happens, he can take advantage of circumstances rather than having circumstances take advantage of him.“

Secondly, Hetty Green only invested in things that were within her circle of competence. Notably, she mainly invested in railroads, bonds or real estate. She used her research skills to identify bargains others missed, but it was also a lot easier for her to buy things that are depressed when she knows what she is buying. As Wallach writes, “Whether it was a horse and buggy or stocks and bonds, her canny habit of investigating every possible facet before she bought helped make her successful. “

Green explains that to determine when stocks are cheap demands a thorough knowledge of “their history, their dividend-paying possibilities, and what they have sold for in the past. If one can buy a good thing at a lower cost than it has ever sold for before, he may be fairly sure of getting it cheap.”

“Before deciding on an investment, I seek out every kind of information about it.”
— Hetty Green

Thirdly, Hetty Green was extremely patient once she invested in an asset. She would often buy assets and tuck them away for years, sometimes waiting decades for investments to finally pay off. As she once said, “I keep them just as I keep a considerable number of diamonds on hand until they go up and people are anxious to buy.”

This reminds me of the concept of Second-Level Thinking from Howard Marks, who argues that merely matching the market is easy, but outperforming it requires superior insight, which he calls second-level thinking. He writes, “Anyone can achieve average investment performance—just invest in an index fund that buys a little of everything. That will give you what is known as “market returns”—merely matching whatever the market does. But successful investors want more. They want to beat the market.”

As such, in Marks’ opinion, the definition of successful investing is to do better than the market and other investors. He adheres to the fact that “To accomplish that, you need either good luck or superior insight. Counting on luck isn’t much of a plan, so you’d better concentrate on insight.”

The core challenge is that not only do you need to have a contrarian approach, but your thinking must surpass the collective intelligence of the market. Other participants are smart, informed, and equipped with powerful tools, so you need an edge they lack.

“Remember, your goal in investing isn’t to earn average returns; you want to do better than average. Thus, your thinking has to be better than that of others—both more powerful and at a higher level. Since other investors may be smart, well-informed and highly computerized, you must find an edge they don’t have. You must think of something they haven’t thought of, see things they miss or bring insight they don’t possess. You have to react differently and behave differently. In short, being right may be a necessary condition for investment success, but it won’t be sufficient. You must be more right than others … which by definition means your thinking has to be different.”
— Howard Marks

Marks mentions that second-level thinking is not linear or simple. It involves weighting probabilities and comparing your view to the consensus. A second-level thinker must take many things into account such as:

• What is the range of likely future outcomes?

• Which outcome do I think will occur?

• What’s the probability I’m right?

• What does the consensus think?

• How does my expectation differ from the consensus?

• How does the current price for the asset comport with the consensus view of the future, and with mine?

• Is the consensus psychology that’s incorporated in the price too bullish or bearish?

• What will happen to the asset’s price if the consensus turns out to be right, and what if I’m right?

Howard Marks reminds us that investing is a competitive endeavor. To win consistently, you cannot follow the crowd. You must train yourself to question assumptions, probe deeper, and stay disciplined when your view diverges from the majority. Marks makes it clear that this higher-level cognition is the foundation of lasting outperformance. He writes, “Before trying to compete in the zero-sum world of investing, you must ask yourself whether you have good reason to expect to be in the top half. To outperform the average investor, you have to be able to outthink the consensus. Are you capable of doing so? What makes you think so?”

“If your behavior is conventional, you’re likely to get conventional results—either good or bad. Only if your behavior is unconventional is your performance likely to be unconventional, and only if your judgments are superior is your performance likely to be above average.”
— Howard Marks

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Today’s Chapter is based on the book “Delivering Happiness: A Path to Profits, Passion, and Purpose” by Tony Hsieh.

Tony Hsieh was an American internet entrepreneur best known as the longtime CEO of Zappos, where he built a billion‑dollar online shoe retailer famed for its customer service driven culture. Before Zappos, he co‑founded the online ad network LinkExchange, sold it to Microsoft for about 265 million dollars.

Buy it on Amazon here.

Here’s what I learned:

Culture

“Your culture is your most valuable asset. Guard it with your life.”
— Brian Chesky

Tony Hsieh understood that culture is the foundation upon which everything else in a company is built. It determines who you hire, how you treat your customers, and ultimately what your brand becomes in the world. Hsieh learned this lesson the hard way. After selling his first company LinkExchange to Microsoft for $265 million, Hsieh realized that he neglected the company culture which led him to this unhappiness that forced him to exit the business.

Hsieh writes, “The short story is that we simply didn’t know we should have paid more attention to our company culture. During the first year, we’d hired our friends and people who wanted to be part of building something fun and exciting. Without realizing it, we had together created a company culture that we all enjoyed being a part of. Then, as we grew beyond twenty-five people, we made the mistake of hiring people who were joining the company for other reasons. ”

By consequence, Hsieh ensured that corporate culture would be the cornerstone of everything he would build at Zappos. He understood that when people a company for the wrong reasons, it changes the entire dynamic within. As such, at Zappos, Hsieh made culture the number one priority, and he backed that priority with concrete actions.

“Our employees know that our number one priority at Zappos is our company culture.”
— Tony Hsieh

Learning from his mistakes at LinkExchange, Hsieh deliberated changed the layout of the office to only have one entrance in and out of the building forcing people to interact with each other. He also created “The Face Game”, where employees had to identify colleagues by their photos before they could log into their computers. This game reflects the reality that culture isn’t built through mission statements, but by the thousand of small interactions between people who know and care about each other.

Hsieh explains, “At Zappos, an additional step is required: a photo of a randomly selected employee is displayed, and the user is given a multiple-choice test to name that employee. Afterward, the profile and bio of that employee are shown, so that everyone can learn more about each other. Although there is no penalty for giving the wrong answer, we do keep a record of everyone’s score. Internally, we refer to this as ‘The Face Game.’”

Furthermore, Hsieh quickly realized that a corporate culture and brand are inseparate. While many companies spend millions on branding campaigns, trying to project an image to the world, while internally their culture tells a completely different story, Hsieh understood that you can’t fake a brand. What your customers experience is ultimately a reflection of what your employees experience every day. If you want to be known for exceptional service, you must first create an environment where people genuinely care about each other. He mentions that “Over time, as we focused more and more on our culture, we ultimately came to the realization that a company’s culture and a company’s brand are really just two sides of the same coin. The brand is just a lagging indicator of a company’s culture.”

As such, Hsieh defined Zappos culture in terms of 10 core values:

1. Deliver WOW Through Service

2. Embrace and Drive Change

3. Create Fun and a Little Weirdness

4. Be Adventurous, Creative, and Open-Minded

5. Pursue Growth and Learning

6. Build Open and Honest Relationships with Communication

7. Build a Positive Team and Family Spirit

8. Do More with Less

9. Be Passionate and Determined

10. Be Humble.

Nonetheless Hsieh mentions that a company’s specific values matter less to a company’s success compared to their commitment to them. He explains, “As it turns out, it doesn’t actually matter what your company’s core values are. What matters is that you have them and that you commit to them. What’s important is the alignment that you get from them when they become the default way of thinking for the entire organization.”

“At Zappos, our belief is that if you get the culture right, most of the other stuff—like great customer service, or building a great long-term brand, or passionate employees and customers—will happen naturally on its own.”
— Tony Hsieh

This reminds me of Richard Farmer, the founder of Cintas who believed that Cintas’ ultimate competitive advantage is their corporate culture. He explains that “Our culture is rare, invisible, and difficult—if not impossible—to replicate.Competitors can copy our sales material, our products and even some of our systems, but they cannot copy our culture.”

“I swore that I would do whatever it took to develop obvious and authentic competitive advantages. Today, we recognize that our most significant competitive advantage is very rare, intangible, and impossible to replicate. I’m talking—again—about our corporate culture.”
— Richard Farmer

However, in order to implement a great corporate culture at Cintas, it was primordial for Farmer to create a vision for the company to lead his employees. Cintas’s vision was the following:

1. To be known as a company that insists on absolute honesty and integrity in everything we do.

2. To have a highly talented and diverse workforce which is harmonious and compatible with our corporate culture.

3. To have a uniform rental presence in every city in the United States.

4. To leverage that field presence to provide our customers with additional products and services.

5. To expand our uniform business into segments of industry we don’t normally service (such as hospitality, transportation, restaurants, and so forth).

Farmer explains that it is important for a company to have a vision and to share it to its employees. In fact, he explains that “employees are not just doing a job. They’re sharing a vision. If they share a vision, a job is more than a job.”

He uses the following anecdote to explain the importance of having a common vision among a company:

“I used to tell the story about a man walking down the street in the middle of a big city and how he came upon a construction site. Bulldozers and earthmoving machines were busy on the site. People were working hard. He came across three men in a ditch. He asked the first man, “What are you doing?”

“I’m digging a ditch,” the first man said.

Our protagonist asked the second man, “What are you doing?”

“We’re digging a ditch for the water line for that building going up over there, the second man said.

Our protagonist asked the third man, “What are you doing?”

The man looked up and replied, “We’re building a cathedral. It will be a big beautiful cathedral with five big tall spires and beautiful stained glass windows. It will seat 500 people. It will be the most beautiful church in this city. That’s what we’re doing.”

Every time I’d tell that story, I’d ask my audience which of those men do you think is most motivated. Obviously the man building a beautiful church will be more committed than the others because he shares a vision. He may be in a ditch, but he is proud of what he is doing. That simple story demonstrates why it’s important to have a vision and share it with everyone.”
— Richard Farmer

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Long-Term

“Someone is sitting in the shade today because someone planted a tree long time ago.”
— Warren Buffett

Tony Hsieh was a long-term thinker. He understood that the decisions that create lasting value are often the ones that look foolish in the short run. This philosophy permeated every aspect of how he ran Zappos, from customer service to inventory management to the eventual sale of the company to Amazon. His understanding of long-term thinking was shaped partly by an unexpected teacher: poker. As a matter of fact, Hsieh became an avid poker player and he recognized commonality between both the card game and business.

He writes, “One of the most interesting things about playing poker was learning the discipline of not confusing the right decision with the individual outcome of any single hand, but that’s what a lot of poker players do. If they win a hand, they assume they made the right bet, and if they lose a hand, they often assume they made the wrong bet.” He explains that in the short-run, in poker, good decisions don’t necessarily provide a good outcome due to factors beyond your control. However, in the long run, poker players with a good decision-making process will win a majority of the time.

This philosophy of taking decisions for the long-term was tested repeatedly at Zappos and the most dramatic expression of long-term thinking came in how Hsieh approached customer service. While most companies view customer service as a cost to be minimized, Hsieh viewed it as an investment for the future.

“In the United States, we offer free shipping both ways to make the transaction as easy as possible and risk-free for our customers. A lot of customers will order five different pairs of shoes, try them on with five different outfits in the comfort of their living rooms, and then send back the ones that don’t fit or they simply don’t like—free of charge. The additional shipping costs are expensive for us, but we really view those costs as a marketing expense.”
— Tony Hsieh

While free online returns may be the norm nowadays, it was not always the case. Hsieh was an early adapter of this policy as it built trust. Customers who knew they could order with zero risk became loyal customers for life. They told their friends. They came back again and again. Over time, the marketing expense of free shipping generated returns that no advertising campaign could match.

This long-term perspective also shaped how Zappos handled its call center. While most companies outsource customer service to the lowest bidder, Hsieh insisted on keeping it in-house and investing heavily in it. He writes, “We receive thousands and thousands of phone calls and e-mails every single day, and we really view each contact as an opportunity to build the Zappos brand into being about the very best customer service and customer experience. Seeing every interaction through a branding lens instead of an expense-minimization lens means we run our call center very differently from most call centers.”

The math here is simple but counterintuitive. If you view each call as a cost to minimize, you train your employees to get off the phone as quickly as possible. If you view each call as a branding opportunity, you train them to build relationships. One approach saves money today. The other builds loyalty that pays dividends for years.

As such, when Hsieh was considering selling Zappos, it was an easy decision to sell it to Amazon. Yet, he insisted on an all-stock transaction instead of taking cash which turned out to be an amazing decision for those that remained invested in the long-term success of Amazon. Hsieh mentions, “In our minds, that felt too much like we were selling the company. Selling our company wasn’t our goal. We wanted to continue building the Zappos brand, business, and culture. And we wanted to continue to feel like owners of the company. So we pushed hard for an all-stock transaction, meaning that Zappos shareholders would simply trade in their stock in exchange for Amazon shares. In our minds, this was much more in the spirit of the marriage that we were envisioning, analogous to when married couples get a joint bank account.”

“If we spend our money carefully and continue to constantly improve the customer experience, we will reach over $1 billion in shoe sales a year in the not too distant future. I know $1 billion sounds impossible at first—but so did our current sales volume 3 years ago. But the reality is, it’s actually not that crazy a number, and it’s a very achievable goal: By 2010, total footwear sales in the US will be over $50 billion a year. Online footwear sales will be 10% of that—$5 billion a year. If we continue to be the leader in our space because of our relentless focus on improving the customer experience, then there is no reason why we won’t be doing at least 20% of all online footwear sales by then.”
— Tony Hsieh

This reminds me of how Jeff Bezos ran Amazon with the same mentality: that long-term vision is necessary. As a matter of fact Bezos once said that long-term thinking shareholders can allow Amazon to make constant innovations, despite having failures from time to time. As such, Bezos was not timid in making investment decisions where he had an opportunity in gaining market leadership advantages even when he knew that some of his investments would not pay off. He explains, “We like to invent and do new things, and I know for sure that long-term orientation is essential for invention because you’re going to have a lot of failures along the way.”

As a pioneer in the technology industry, it is in the Amazon’s DNA to be committed to constant improvement, experimentation and innovation. This can be done by investing into new businesses. However, Bezos mentions that it is also his responsibility to make sure that any opportunities they invest in must generate the same return on capital that investors expected when they invested in Amazon. This can only be done by taking a long-term and true ownership approach.

“Outsized returns often come from betting against conventional wisdom, and conventional wisdom is usually right. Given a ten percent chance of a one hundred times payoff, you should take that bet every time. But you’re still going to be wrong nine times out of ten. We all know that if you swing for the fences, you’re going to strike out a lot, but you’re also going to hit some home runs. The difference between baseball and business, however, is that baseball has a truncated outcome distribution. When you swing, no matter how well you connect with the ball, the most runs you can get is four. In business, every once in a while, when you step up to the plate, you can score one thousand runs. This long-tailed distribution of returns is why it’s important to be bold. Big winners pay for so many experiments.”
— Jeff Bezos

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Happiness

“Success is not the key to happiness. Happiness is the key to success. If you love what you are doing, you will be successful.”
— Albert Schweitzer

Tony Hsieh genuinely believed that a company’s core ethos is to deliver happiness, for the customers, the employees and for the founder himself. This belief shaped everything from Zappos’ customer service philosophy to its approach to employees development. This idea came to Hsieh after he became wealthy via the sale of LinkExchange. He writes, “I made a list of the happiest periods in my life, and I realized that none of them involved money. I realized that building stuff and being creative and inventive made me happy.”

As such, when he took over the CEO position at Zappos, the focus on happiness manifested in the goal of helping employees find meaning in their work. He writes, “Our goal at Zappos is for our employees to think of their work not as a job or career, but as a calling.” To achieve this, Zappos also heavily invested in employee development and to create clear paths for growth for its employees.

“Our vision is for almost all of our hires to be entry level, but for the company to provide all the training and mentorship necessary so that any employee has the opportunity to become a senior leader within the company within five to seven years.”
— Tony Hsieh

Furthermore, Hsieh understood that people who feel they are growing and have a future are happier at a company, and happier employees create better customer experiences. It was a virtuous cycle that reinforced itself. In fact, the ultimate expression of happiness as a business model came in how Zappos thought about its customers. He explains that “At Zappos, an example of the customer hierarchy at work would be: Receives correct item (meets expectations). Free shipping (meets desires). Surprise upgrade to overnight shipping (meets unrecognized needs).”

This framework of exceeding a customer’s expectations creating happiness is the essence of Zappos’ first core value: to deliver WOW through services. Meeting expectations is only the baseline. You don’t get credit for it, you just avoid being punished. Meeting desires is good, but it’s still within the realm of what customers already know they want. The magic happens when you meet unrecognized needs and when you deliver something customers didn’t even know to ask for. That’s when you create WOW.

Hsieh writes, “WOW is such a short, simple word, but it really encompasses a lot of things. To WOW, you must differentiate yourself, which means do something a little unconventional and innovative. You must do something that’s above and beyond what’s expected. And whatever you do must have an emotional impact on the receiver.”

And creating WOW wasn’t just about making customers happy. It was about making employees happy too. When employees have the power to create emotional impact, work becomes meaningful. It stops being a series of transactions and becomes a series of human connections. That’s the essence of delivering happiness.

“What’s interesting is that if you keep asking yourself “Why?” enough times, you’ll find yourself arriving at the same answer that most people do when they repeatedly ask themselves why they are doing what they are doing: They believe that whatever they are pursuing in life will ultimately make them happier. In the end, it turns out that we’re all taking different paths in pursuit of the same goal: happiness.”
— Tony Hsieh

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Today’s Chapter is based on the book “Runnin’ Down a Dream: How to Thrive in a Career You Actually Love” by Bill Gurley.

Bill Gurley is an American venture capitalist and longtime general partner at Benchmark, a prominent Silicon Valley firm, known for early investments in companies like Uber, Zillow, OpenTable, Grubhub, Stitch Fix, and Nextdoor.

Buy it on Amazon here.

Here’s what I learned:

Find Your Fascination

“The best job is the one you’d do even if you didn’t need the money— the one that makes you tap dance to work every day.”
— Warren Buffett

Bill Gurley has studied many successful people from different industries and have found a common pattern among all of them. Among them, he believes in the importance of pursuing what genuinely fascinates you. He argues that true success often stems from an obsessive interest that drives people to learn and work without feeling a burden. Curiosity and a perpetual desire to learn should lead you toward working in a career that energizes you.

Gurley believes that the term “Follow your passion” has become a bit of a cliche, but that “Fascination might be a better word because it suggests giving real, substantial thought to something, rather than relying on surface-level vibes. And it invokes an equally important word—curiosity. If you are fascinated with something, you yearn to understand every bit of detail about it. And that desire to know more will be endless.”

One example Gurley provides is Magnus Carlsen, the chess champion who didn’t just practice but lived and breathed the game from a young age. Unlike other kids who treated chess practices as homework, Carlsen found it enjoyable which set him apart. This intrinsic motivation is what separates thriving professionals from those who burn out. Gurley explains that “Most of the top chess players in the world study the game for several hours a day. Magnus Carlsen, often considered the greatest chess player of the modern era, has said that from a young age, his preparation has been more focused on the joy he gets from the game.”

“I would still spend a bunch of time reading books, playing—the things I still do, but I do them for fun. That was the difference between me and the other kids. They would go to chess practice. They would maybe even do their homework. But they weren’t living and breathing the game in the way that I was.”
— Magnus Carlsen

Based on this premise, Gurley stresses that a college major is not a life sentence, it is more than acceptable to pivot away from it. The key is to view your formal education as a starting point rather than a dead-end. He writes, “It is important to realize that most people will end up doing something outside their college major. And that is perfectly fine. Said another way, the “major” decision need not be as daunting as it seems. I would think of it as one of the first stops of many on the path to finding your eventual career. If you love it, great. If not, there will be ample opportunity in the future to expand your career horizons. And you will still benefit from the journey.”

And so, how does one know if you have found a deep fascination that’s worth pursing as a career? Gurley believes that the best test comes from what he learned from the legendary college basketball coach Bobby Knight who once said, “The will to win is not nearly as important as the will to prepare to win. Everyone wants to win, but not everyone wants to prepare to win.”

“When you are thinking about what fascinates you, run through this in your mind. Does the idea of doing whatever your chosen field requires for an indefinite amount of time sound tedious—or does it sound like fun? To be truly successful, your work needs to feel joyful—the way chess feels to Magnus Carlsen. It must be fulfilling all on its own, not just because of the potential outside rewards.”
— Bill Gurley

Finally, Gurley suggests trying the Compass Exercise designed by Bill Burnett and Dave Evans from their book “Designing Your Life” to find out what you are curious about. He elaborates that the Compass Exercise “is similar to “loves and strengths” but is more focused on alignment with your own values—what you define as happiness and success. They recommend you write two short 250-word essays. The first is titled “What is work for?” and the second is titled “What is a good life?” As above, the goal is then to search for careers that create coherence between the two. This exercise is more about identifying your core values and making sure there is alignment with your actual career direction.”

This reminds me of what we have previously learned from Kazuo Inamori, the founder of Kyocera who believed that the purpose of life is to elevate our minds and to refine our souls. He elaborates that refining one’s soul can only be done through hard work. As a matter of fact, he explains that “Working diligently does much more than fulfill us. It also builds and refines our character and helps us hone our philosophy for living.”

As such, he believes that it is one’s duty to be persistently striving to make each day better than the one before. This is the key in finding purpose and value in life. And you only achieve this, if you are working in a career that you have a fascination for. This reminds me of this following quote from Charlie Munger: “Spend each day trying to be a little wiser than you were when you woke up. Day by day, and at the end of the day-if you live long enough-like most people, you will get out of life what you deserve.”

Furthermore, Inamori explains that “the path to refining one’s character can be found in one’s daily work.” As such, no matter role or job is in front of you, make sure you do your best. Similarly, whether you are a carpenter, a tailor or a fisher, you need to work hard in order to refine your soul and to elevate your character.

This reminds me of the important lesson Lee Iacocca learned from his father. Once at a restaurant, Iacocca recalls that the waitress was being rude and his father gave her the following speech:

““I’m going to give you a real tip,” he’d say. “Why are you so unhappy in this job? Is anyone forcing you to be a waitress? When you act surly, you’re telling everybody you don’t like what you’re doing. We’re out for a nice time and you’re wrecking it. If you really want to be a waitress, then you should work at being the best damn waitress in the world. Otherwise, find yourself another line of work.””
— Lee Iaccoca

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Learning Machine

“I constantly see people rise in life who are not the smartest, sometimes not even the most diligent, but they are learning machines. They go to bed every night a little wiser than they were when they got up, and boy does that help, particularly when you have a long run ahead of you.”
— Charlie Munger

Once you have identified your deep fascination, Bill Gurley mentions that the next step is to commit to a lifetime of learning. He emphasizes that the titans of any industry, whether it is Danny Meyer in the restaurant business or Stephen King in literature, they never stop being students of their craft. They do not rest on their laurels or assume that their past successes guarantee future victories. Instead, they continuously consume information, study their predecessors, and look for new edges to sharpen their skills.

Gurley writes, “You can see this pattern of deep and continuous learning repeated in the titans of almost every industry. Danny Meyer studied every element of the restaurant business—and continues his studies of the field, even after all his success. Lorrie Bartlett, the Hollywood agent, consumed as many stories as she could as a kid and still reads every script she can. Jerry Seinfeld studied the best comics in the world.”

The beauty of this continuous learning process is that, if you have truly found your fascination, it will not feel like a chore at all. The pursuit of knowledge becomes an engaging and almost playful endeavor. You find yourself going down rabbit holes of information simply because you want to know the answer, not because it was assigned to you as a task.

“You want learning to be fun. You need it to feel like play. We’ve all been drawn down a rabbit hole of knowledge trying to answer some question or understand something that happened—knowing even in the moment that the entire endeavor might be a waste of time. But sometimes you really want to know something. Studying your field needs to feel like that. You would do it even if it weren’t your job. The knowledge is its own reward. Your curiosity and drive have to come naturally. You cannot force it.”
— Bill Gurley

Furthermore, to structure this lifelong educational journey, Gurley outlines a comprehensive framework for how you could approach your intellectual development. It is not enough to simply read, you must be intentional and multifaceted in your learning strategy. He mentions that there are four learning types: industry history for credibility, continuous updates for edge, specialization for uniqueness, and outside fields for breakthroughs. He elaborates that “First, you should learn the history of your chosen field. Then you need to commit to learning continuously, in a self-propelled way, throughout your career. What’s evolving? Who else in your field has big new ideas that you should know about? Third, you need to go deep in some specialized, unique way. In other words, you will develop unique insights and skills in your field that separate you from the rest. And, finally, you need to learn outside your chosen field—following other fascinations—because that type of far-away learning is actually the most likely to spark novel and truly impactful breakthroughs.”

By understanding the history of your field, you avoid repeating past mistakes and gain an appreciation for the foundational principles of your work. By learning continuously about current trends, you stay relevant and adaptable. By developing a specialized niche, you make yourself indispensable and create a unique value proposition.

Finally, by exploring entirely unrelated fields, you allow your brain to make novel connections, leading to the kind of innovative thinking that can redefine an entire industry. This relentless, multi-pronged approach to honing your craft ensures that you are always growing, always improving, and always moving forward.

“The illiterate of the 21st century will not be those who cannot read and write, but those who cannot learn, unlearn, and relearn.”
— Alvin Toffler

If you want to become a learning machine, you must be reminded of the principle of compounding as we have learned previously from Warren Buffett. As a matter of fact, the power of compounding is a mental model that shouldn’t be only used in investing. Compounding also works in terms of seeking wisdom or obtaining good habits. As a matter of fact, a one percent improvement every day leads to 37x improvement in a year.

Alternatively to investing, Buffett also uses it to think about his mind and body’s health. As a matter of fact, bad habits can also compound negatively. Even more concerning is the fact that you only get one mind and one body to last a lifetime. As Buffett once said, “It’s what you do right now, today, that determines how your mind and body will operate ten, twenty, and thirty years from now.” Buffett often mentions snowball as an analogy to understand compounding.

“I packed my little snowball very early, and if I had packed it ten years later, it would have been way different than where it stands on the hill right now. So I recommend to students that if you start out a little ahead of the game—it doesn’t have to be a lot, but it’s so much better than starting out behind the game. And credit cards really get you behind the game.” — Warren Buffett

“The snowball just happens if you’re in the right kind of snow, and that’s what happened with me. I don’t just mean compounding money either. It’s in terms of understanding the world and what kind of friends you accumulate. You get to select over time, and you’ve got to be the kind of person that the snow wants to attach itself to. You’ve got to be your own wet snow, in effect. You’d better be picking up snow as you go along, because you’re not going to be getting back up to the top of the hill again. That’s the way life works.”
— Warren Buffett

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Find Mentors

“If I have seen further, it is by standing on the shoulders of giants.”
— Isaac Newton

Bill Gurley views mentorship as a supower, allowing you to accelerate your learning by borrowing from others’ experiences. He cites notably the example of Warren Buffett who learned about value investing through his mentor, Benjamin Graham. Great mentors can share with you hard-earned lessons so that you can avoid the pitfalls. Gurley writes, “Good judgment comes from experience, which comes from bad judgment. Why relearn things others already learned the hard way? A good mentor will share hard-earned lessons and industry insights, helping you learn in weeks or months what might otherwise take years. No matter how successful you become, it never hurts to ask for advice from people you trust when you are making hard decisions.”

Another example of the importance of mentorship is Mark Zuckerberg, who used to take long walks with Steve Jobs during the early days of Facebook. The two would discuss about everything from management approaches to Facebook’s overall company mission. In the current day and age, you don’t even need to be in direct contact with your mentors. Everyone can be studied remotely through books, interviews and social media.

“Start today by studying the greats in your field. Read their books, listen to their interviews, watch their videos on YouTube. If they are on social media, you can follow them and comment on their posts. If they ever follow you back, you can direct-message them—which is an incredibly powerful means to contact someone you idolize directly. If you charm someone, they might just respond.”
— Bill Gurley

This approach also works by having great relationship with senior colleagues at your current company. Gurley writes, “If you are early in your career at a company, you might approach a more experienced colleague for advice over coffee. If you are shifting careers, reach out to people in your new industry. Many mentorships start through informal conversations.”

The key is taking initiative. Mentors are busy people. They’re unlikely to chase you. But if you show up prepared, demonstrate that you value their time, and let your ambition show, many will be genuinely happy to help. As Tim Ferriss once said, “To learn and grow quickly, identify who inspires you, then reach out. The best mentors respond to ambition.”

Gurley elaborates that “This is a critical insight. Make sure your own ambition is on display during this process. If you are at this point in your journey, where you are searching for mentors, you have nothing to lose and everything to gain. Later in life, many of these people will be your co-workers and peers. But if you are just starting out, put your curiosity, your earnest (and ambitious) desire to learn, on display.”

Finally, Gurley believes in having multiple mentors or what former Facebook COO Sheryl Sandberg calls a “personal board of advisors.” It is often important to find different successful people to mentor you on different aspects. One can teach you about leadership while another can teach you about communication. Different people may have different areas of expertise and have different views on things which is extremely useful.

This reminds me of Shane Parrish’s concept of creating a board of directors in his head in order to help him with decision-making. Even better, he believes that this fictional board can include people from the present and the past. What better way of thinking about a problem than to do so under the lenses and advices of great ones like Charlie Munger.

Here’s what my personal board of directors would look like:

• Warren Buffett

• Charlie Munger

• David Ogilvy

• Henry Singleton

• Thomas Mellon

• Naval Ravikant

• Benjamin Franklin

• Thomas J. Watson

What about you?

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Beyond the Book

Listen to "#413 How To Run Down A Dream" by Founders Podcast

Read "“Runnin’ Down a Dream: How to Succeed and Thrive in a Career You Love”" by Bill Gurley

Read "Become A Learning Machine" by Farnam Street

Read "Standing on the Shoulders of Giants" by Farnam Street

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Today’s Chapter is based on the book “Rework” by Jason Fried.

Jason Fried is an entrepreneur, author, and software designer best known as the co-founder and CEO of 37signals, the company behind Basecamp and the email service HEY. He advocates for simple, focused software and calm, sustainable ways of working.

Buy it on Amazon here.

Here’s what I learned:

Don’t Wait, Just Start

“To me, ideas are worth nothing unless executed. They are just a multiplier. Execution is worth millions.”
— Steve Jobs

Jason Fried challenges the traditional notion of entrepreneurship by emphasizing that starting a business today a lot more accessible than ever before. He insists that with technology, there is a lower barrier of entry for people to launch ventures without the risks and resources it once required. This technological shift democratizes opportunity, making it possible for anyone with an idea to enter entrepreneurship.

On this, he writes, “There’s a new reality. Today anyone can be in business. Tools that used to be out of reach are now easily accessible. Technology that cost thousands is now just a few bucks or even free. One person can do the job of two or three or, in some cases, an entire department. Stuff that was impossible just a few years ago is simple today. You don’t have to work miserable 60/80/100-hour weeks to make it work. 10-40 hours a week is plenty. You don’t have to deplete your life savings or take on a boatload of risk. Starting a business on the side while keeping your day job can provide all the cash flow you need. You don’t even need an office. Today you can work from home or collaborate with people you’ve never met who live thousands of miles away.”

Fried’s own experience in entrepreneurship with 37signals (now Basecamp) exemplifies this. He started small, sharing office space and handling customer support himself. He argues against the misconception that you need a ton of capital to start your own business is false and this is especially true in service businesses such as consultants, software companies, wedding planers, graphic designers, etc. In fact, he writes that “If you’re running a business like that, avoid outside funding. In fact, no matter what kind of business you’re starting, take on as little outside cash as you can. Spending other people’s money may sound great, but there’s a noose attached.”

This is especially true considering that obtaining outside money often leads to unnecessary complexity. By staying lean, businesses retain control and avoid making decisions that are not cost controlled.

Furthermore, Jason Fried mentions that the easiest way to start is to make something you need and that you would want to use. He elaborates that if you believe a product is useful, there is certainly other people out there that think the same. Sure, the target addressable market may not be large, but if you are running on a low-cost, it doesn’t really matter.

“The easiest, most straightforward way to create a great product or service is to make something you want to use. That lets you design what you know—and you’ll figure out immediately whether or not what you’re making is any good.”
— Jason Fried

Plus, building what you want to use gives you an intuitive understanding of customers’ needs and makes the steady work of iteration more meaningful. As he once said, “Best of all, this “solve your own problem” approach lets you fall in love with what you’re making. You know the problem and the value of its solution intimately. There’s no substitute for that. After all, you’ll (hopefully) be working on this for years to come. Maybe even the rest of your life. It better be something you really care about.”

Finally, Fried stresses the concept that ideas alone are worthless without execution. He urges immediate action, even if imperfect, over endless planning. And so, he encourages us to start making our ideas into a product, but iterate and refine it along the way.

“Ideas are cheap and plentiful. The original pitch idea is such a small part of a business that it’s almost negligible. The real question is how well you execute.”
— Jason Fried

This reminds me of what we have learned from Michael Bloomberg who believed in the concept of “doers”, the lean and hungry ones are the ones that usually go the furthest and that achieve the most. As a matter of fact, Bloomberg mentions that while it is important to have a vision, it is dangerous to start second-guessing yourself by worrying too much about the details.

At Bloomberg, the strategy has always been to build the product first and the rest would take care of themselves. Of course, Bloomberg made mistakes along the way and the product would have to be improved on with the feedbacks received from their customers. However, while their competition were still planning on perfecting their product, they were already through rounds of testing and were about to release their tenth version.

“ It gets back to planning versus acting. We act from day one; others plan how to plan—for months.”
— Michael Bloomberg

This is exactly how Bloomberg obtained their first customer. While Merrill Lynch were in the planning to develop a similar product, Bloomberg was able to obtain the contract by guaranteeing that they would deliver a workable product before the estimated time of delivery provided by Merrill Lynch’s internal tech team. Furthermore, he promised that Bloomberg would only be paid until they were truly satisfied with their product.

While it does not seem like it on the surface, this agreement was extremely beneficial for Bloomberg as it would allow them to receive direct feedbacks from Merrill Lynch on how to improve their product. As Bloomberg would say, “At Bloomberg, a problem spurs a solution. That’s what makes us successful.”

If you ever had a business idea that you would like to execute, here’s Michael Bloomberg’s advice on how you should proceed:

Think and Write A Plan!

“Think logically and dispassionately about what you’d like to do. Work out all steps of the process—the entire what, when, where, why, and how. Then, sit down after you are absolutely positive you know it cold, and write it out. There’s an old saying, “If you can’t write it, you don’t know it.” Try it. The first paragraph invariably stops you short. “Now why did we want this particular thing?” you’ll find yourself asking. “Where did we think the resources would come from?” “And what makes us think others—the suppliers, the customers, the potential rivals—are going to cooperate?” On and on, you’ll find yourself asking the most basic questions you hadn’t focused on before taking pen to paper. As you discover you don’t know it all, force yourself to address the things you forgot, ignored, underestimated, or glossed over. Write them out for a doubting stranger who doesn’t come with unquestioned confidence in the project’s utility—and who, unlike your spouse, parent, sibling, or child, doesn’t have a vested interest in keeping you happy. Make sure your written description follows, from beginning to end, in a logical, complete, doable path.”

Tear It Down and Take Action!

“Then tear up the paper. That’s right, rip it up. You’ve done the analysis. You’ve found enough holes in the plan to drive your hoped-for Bentley automobile through repeatedly. You’ve planned for myriad what-if scenarios. You’ve presented your ideas to others. You’ve even mapped out the first few steps. But the real world throws curveballs and sliders every day, as well as the fastballs you practice against. You’ll inevitably face problems different from the ones you anticipated. Sometimes you’ll have to “zig” when the blueprint says “zag.” You don’t want a detailed, inflexible plan getting in the way when you have to respond instantly. By now, you either know what you can know—or you don’t and never will. As to the rest, take it as it comes.”

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Sometimes Less Is More

“Given the choice of being the earliest, the largest or the best, always aims to be the best.”
— Lui Che-woo

Another big misconception Fried tries to break is the cultural obsession with bigness. He mentions that we have this tendency to believe that a successful business means more employees, more office space, more funding, and more hours. However, Fried argues that “Maybe the right size for your company is five people. Maybe it’s forty. Maybe it’s two hundred. Or maybe it’s just you and a laptop. Don’t make assumptions about how big you should be ahead of time. Grow slow and see what feels right —premature hiring is the death of many companies. And avoid huge growth spurts too—they can cause you to skip right over your appropriate size.”

As such, he mentions that it is not a must for a business to grow in size, but rather a choice. In fact, Fried argues that there are many reasons why a company should not be upsizing. One of these reasons is that a larger company creates bureaucracy which slows things down. Small companies are better at pivoting. Small companies can experiment. Small companies can actually get things done instead of holding meetings about holding meetings. When you’re small, you’re agile. When you’re small, every employee matters.

“Embrace the idea of having less mass. Right now, you’re the smallest, the leanest, and the fastest you’ll ever be. From here on out, you’ll start accumulating mass. And the more massive an object, the more energy required to change its direction. It’s as true in the business world as it is in the physical world.”
— Jason Fried

Furthermore, this concept of “Sometimes Less is More” can also be applied in product building. It is a lot easier to build a successful product by keeping it simple. Fried argues that it is better to build a half-product that works well than a full-product that doesn’t. He mentions that “You can turn a bunch of great ideas into a crappy product real fast by trying to do them all at once. You just can’t do everything you want to do and do it well. You have limited time, resources, ability, and focus. It’s hard enough to do one thing right. Trying to do ten things well at the same time? Forget about it. So sacrifice some of your darlings for the greater good. Cut your ambition in half. You’re better off with a kick-ass half than a half-assed whole.”

As such, he mentions that when we start anything new, we need to identify the epicenter. He writes that “There’s the stuff you could do, the stuff you want to do, and the stuff you have to do. The stuff you have to do is where you should begin. Start at the epicenter.” To identify the epicenter, he believes in asking the question “If I took this away, would what I’m selling still exist?” Always think about the big picture first, then you can work out on the details.

“When we start designing something, we sketch out ideas with a big, thick Sharpie marker, instead of a ballpoint pen. Why? Pen points are too fine. They’re too high-resolution. They encourage you to worry about things that you shouldn’t worry about yet, like perfecting the shading or whether to use a dotted or dashed line. You end up focusing on things that should still be out of focus. A Sharpie makes it impossible to drill down that deep. You can only draw shapes, lines, and boxes. That’s good. The big picture is all you should be worrying about in the beginning.”
— Jason Fried

Similarly, if you are facing a problem, often the solution is to trim things out rather than adding more things. Fried writes, “When things aren’t working, the natural inclination is to throw more at the problem. More people, time, and money. All that ends up doing is making the problem bigger. The right way to go is the opposite direction: Cut back. So do less. Your project won’t suffer nearly as much as you fear. In fact, there’s a good chance it’ll end up even better. You’ll be forced to make tough calls and sort out what truly matters.”

This principle can be illustrated beautifully through the lens of failing restaurants. Fried writes, “Watch chef Gordon Ramsay’s Kitchen Nightmares and you’ll see a pattern. The menus at failing restaurants offer too many dishes. The owners think making every dish under the sun will broaden the appeal of the restaurant. Instead it makes for crappy food (and creates inventory headaches). That’s why Ramsay’s first step is nearly always to trim the menu, usually from thirty- plus dishes to around ten. Think about that. Improving the current menu doesn’t come first. Trimming it down comes first. Then he polishes what’s left.”

This also works in terms of working hours. Fried’s experience at Basecamp in terms of working hours is extremely different compared to other start-up companies. He believes that workaholism is not only unnecessary but stupid. He explains that “Working more doesn’t mean you care more or get more done. It just means you work more. Workaholics wind up creating more problems than they solve. First off, working like that just isn’t sustainable over time. When the burnout crash comes—and it will—it’ll hit that much harder. Workaholics miss the point, too. They try to fix problems by throwing sheer hours at them. They try to make up for intellectual laziness with brute force. This results in inelegant solutions.”

We’ve all been conditioned to equate long hours with dedication. But Fried exposes this as intellectual laziness. The real genius isn’t grinding through the night; it’s finding the solution that requires one-tenth the effort. As a matter of fact, Fried argues that workaholism actually deters creativity as lack of sleep prevents thinking. He explains that “Creativity is one of the first things to go when you lose sleep. What distinguishes people who are ten times more effective than the norm is not that they work ten times as hard; it’s that they use their creativity to come up with solutions that require one- tenth of the effort. Without sleep, you stop coming up with those one- tenth solutions.”

“If all you do is work, you’re unlikely to have sound judgments. Your values and decision making wind up skewed. You stop being able to decide what’s worth extra effort and what’s not. And you wind up just plain tired. No one makes sharp decisions when tired. In the end, workaholics don’t actually accomplish more than nonworkaholics. They may claim to be perfectionists, but that just means they’re wasting time fixating on inconsequential details instead of moving on to the next task.”
— Jason Fried

As such, more hours doesn’t mean more results. More employees doesn’t mean more progress. More features doesn’t mean more value. Sometimes, the most powerful move is to embrace constraints and let them force you to be creative.

This reminds me of the Pareto Principle we have learned from Tom Monaghan, the founder of Domino’s who believed in the two following core business tenets:

1. Prepare pizzas with the freshest ingredients possible

2. Deliver pizzas to the customers within thirty minutes

To make sure to run a profitable business while still satisfying its promises to the customers, Tom Monaghan used the Pareto Principle, also known as the 80/20 rule. This principle explains that 80% of outcomes are the result of 20% of inputs. In Domino’s case, Monaghan quickly realized that even though he sold three different sizes of pizzas 80% of his sales came from 12-inches pizzas. Similarly, 90% of beverage sold were either Coke or Pepsi. He explains “In Ypsilanti, at least 80 percent of the orders from dorms were for twelve-inch pizzas. So why have any other size?“

This was a major revelation and breakthrough in Domino’s Pizza history. By doing so, the company was able to leverage its profits even further. It may seems counter intuitive that simplifying a business may increase its revenue, but here’s how Monaghan explains it:

“The main argument for having only twelve-inch pizzas was faster service. But quality would be improved, too. A pizza maker has to learn how to make each size pie. The twelve-incher is easier and larger ones are much harder. There would be fewer mistakes too both in taking orders and boxing them. With three sizes of pies and just two inches difference between them, it sometimes happened during a rush that a worker would ruin a large pie by trying to jam it into a medium size box. Then there were the saving we would make in purchasing. Having one size would cut our box inventory requirements by two-thirds.”
— Tom Monaghan

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Learn From Successes, not Failures

“Success is not final, failure is not fatal: it is the courage to continue that counts.”
— Winston Churchill

One of Jason Fried’s most counterintuitive lessons is to prioritize learning from successes rather than from failures. Conventional wisdom believes that you can learn more from your mistakes than from your successes, but Fried argues that it often teaches only what to avoid, leaving you without any insights on what is needed to succeed. Successes, however, provide actionable blueprints, repeatable strategies that can build momentum and confidence.

Fried writes, “Another common misconception: You need to learn from your mistakes. What do you really learn from mistakes? You might learn what not to do again, but how valuable is that? You still don’t know what you should do next. Contrast that with learning from your successes. Success gives you real ammunition. When something succeeds, you know what worked—and you can do it again. And the next time, you’ll probably do it even better.”

He further explains that studies show clearly that repeat entrepreneurs who succeeded before have a higher odds of future wins whereas failed entrepreneurs don’t have a higher odds of success. He mentions that “A Harvard Business School study found already-successful entrepreneurs are far more likely to succeed again (the success rate for their future companies is 34 percent). But entrepreneurs whose companies failed the first time had almost the same follow-on success rate as people starting a company for the first time: just 23 percent.”

“That shouldn’t be a surprise: It’s exactly how nature works. Evolution doesn’t linger on past failures, it’s always building upon what worked. So should you.”|— Jason Fried

In Fried’s opinion, a common theme among successful entrepreneurs is that they are building something durable by focusing on what doesn’t change. He mentions that “The core of your business should be built around things that won’t change. Things that people are going to want today and ten years from now. Those are the things you should invest in. Amazon.com focuses on fast (or free) shipping, great selection, friendly return policies, and affordable prices. These things will always be in high demand.”

As such, Fried believes in ignoring the external noise and to keep focusing things that are permanent, things that will never go out of style. Similarly, he warns us to avoid focusing on the competition too much. If you focus too much on competitors, you don’t spend the time needed to improve on yourself.

“Your chances of coming up with something fresh go way down when you keep feeding your brain other people’s ideas. You become reactionary instead of visionary. You wind up offering your competitor’s products with a different coat of paint.”
— Jason Fried

This reminds me of Jeff Bezos’ concept of obsessing over the customers. As a matter of fact, rather than focusing on competitors, Bezos founded Amazon with the idea of making it Earth’s most customer-centric company in the world. This concept came to him through the mental model of inversion. As a matter of fact, he realised that: “under all kinds of regulatory frameworks that I can imagine, customers are still going to want low prices. They’re still going to want fast delivery. They’re still going to want big selection. These are so fundamental and what we do.” As such, by working backward, similar to Jason Fried, Bezos always required Amazon to acquire new competencies to fulfil these never-changing and permanent customers’ needs:

“In our retail business, we have strong conviction that customers value low prices, vast selection, and fast, convenient delivery and that these needs will remain stable over time. It is difficult for us to imagine that ten years from now, customers will want higher prices, less selection, or slower delivery. Our belief in the durability of these pillars is what gives us the confidence required to invest in strengthening them. We know that the energy we put in now will continue to pay dividends well into the future.”
— Jeff Bezos

To do so, Bezos mentions in his 1997 Letter to Shareholders that the company must focus relentlessly and passionately on the customers in what he calls “Obsess over Customers”. As such, Amazon has been primarily built on three pillars of customer experience:

1. Large Selection of Products

2. Convenience

3. Low Price

As such, it is important for the company to keep a consistent high standard and to be always looking for ways to strengthen the three pillars of customer experience. And, sometimes, this can be solved by thinking backward, instead of forward. For example, rather than thinking on ways to improve convenience and experience for customers, Bezos decided to eliminate the root causes of errors which led to the same effect he wanted. This is the power of inversion! As Charlie Munger once said, “all I want to know is where I’m going to die, so I’ll never go there.”

Finally, Bezos truly believes that a business model based on obsessive customer focus is one of the best ways of running a business. The main advantage of being customer focused is that instead of focusing on what competitors are doing, Amazon are purely focused on satisfying customers who are always dissatisfied. As such, they cannot rest on their laurels and need to perform consistently. As he once said, “you cannot rest on your laurels in this world. Customers won’t have it.”

“I constantly remind our employees to be afraid, to wake up every morning terrified. Not of our competition, but of our customers. Our customers have made our business what it is, they are the ones with whom we have a relationship, and they are the ones to whom we owe a great obligation. And we consider them to be loyal to us—right up until the second that someone else offers them a better service.”
— Jeff Bezos

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Beyond the Book

Listen to "#54 Jason Fried: Doing the Enough Thing" by The Knowledge Project

Listen to "Jason Fried, 37signals (makers of Basecamp, HEY and ONCE)" by David Senra

If you are interested in having conversations with the eminent dead, consider trying my AI Chatbox prompted with highlights from over 100+ biographies I have read. Try it here.

If you enjoy reading my newsletter, please consider becoming a paid subscriber. You’ll be able to keep this newsletter going! Here’s what you get when you upgrade:

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Today’s Chapter is based on the book “The Most Important Thing Illuminated: Uncommon Sense for the Thoughtful Investor ” by Howard Marks.

Howard Marks is an American investor, author, and co-founder and co-chairman of Oaktree Capital Management, the world’s largest investor in distressed securities. Renowned for his investor memos, Marks emphasizes risk control, second-level thinking, and market cycles over chasing returns.

Buy it on Amazon here.

Here’s what I learned:

Second-Level Thinking

“Failing to consider second- and third-order consequences is the cause of a lot of painfully bad decisions, and it is especially deadly when the first inferior option confirms your own biases. Never seize on the first available option, no matter how good it seems, before you’ve asked questions and explored.”
— Ray Dalio

Howard Marks believes that successful investing is far more demanding than most people realize. It requires seeing beyond the obvious surface-level analysis that everyone else is doing. Marks argues that merely matching the market is easy, but outperforming it requires superior insight, which he calls second-level thinking. He writes, “Anyone can achieve average investment performance—just invest in an index fund that buys a little of everything. That will give you what is known as “market returns”—merely matching whatever the market does. But successful investors want more. They want to beat the market.”

As such, in Marks’ opinion, the definition of successful investing is to do better than the market and other investors. He adheres to the fact that “To accomplish that, you need either good luck or superior insight. Counting on luck isn’t much of a plan, so you’d better concentrate on insight.”

The core challenge is that not only do you need to have a contrarian approach, but your thinking must surpass the collective intelligence of the market. Other participants are smart, informed, and equipped with powerful tools, so you need an edge they lack.

“Remember, your goal in investing isn’t to earn average returns; you want to do better than average. Thus, your thinking has to be better than that of others—both more powerful and at a higher level. Since other investors may be smart, well-informed and highly computerized, you must find an edge they don’t have. You must think of something they haven’t thought of, see things they miss or bring insight they don’t possess. You have to react differently and behave differently. In short, being right may be a necessary condition for investment success, but it won’t be sufficient. You must be more right than others … which by definition means your thinking has to be different.”
— Howard Marks

Marks mentions that second-level thinking is not linear or simple. It involves weighting probabilities and comparing your view to the consensus. A second-level thinker must take many things into account such as:

• What is the range of likely future outcomes?

• Which outcome do I think will occur?

• What’s the probability I’m right?

• What does the consensus think?

• How does my expectation differ from the consensus?

• How does the current price for the asset comport with the consensus view of the future, and with mine?

• Is the consensus psychology that’s incorporated in the price too bullish or bearish?

• What will happen to the asset’s price if the consensus turns out to be right, and what if I’m right?

Howard Marks reminds us that investing is a competitive endeavor. To win consistently, you cannot follow the crowd. You must train yourself to question assumptions, probe deeper, and stay disciplined when your view diverges from the majority. Marks makes it clear that this higher-level cognition is the foundation of lasting outperformance. He writes, “Before trying to compete in the zero-sum world of investing, you must ask yourself whether you have good reason to expect to be in the top half. To outperform the average investor, you have to be able to outthink the consensus. Are you capable of doing so? What makes you think so?”

“If your behavior is conventional, you’re likely to get conventional results—either good or bad. Only if your behavior is unconventional is your performance likely to be unconventional, and only if your judgments are superior is your performance likely to be above average.”
— Howard Marks

This contrarian approach to investing reminds me of what we have learned from Alan Greenberg from Bear Sterns who had a contrarian approach to business. As a matter of fact, he was famous for hiring talented people, whom he called number one draft picks, when other companies were having hiring freeze during recessions. Greenberg explains that “We are not panicking; we are not laying off people, but we are making a real effort to cut expenses. The other side of the coin is we have hired a large number of number one draft picks in the last few months. This is the time to hire good people. We have followed this policy in the past, and I am convinced that we will be proven correct once again.”

Furthermore, while other companies focused on hiring individuals with MBA degrees, Greenberg enjoyed hiring people with PSD degrees — poor, smart and a deep desire to become rich. A great example of how Greenberg was a contrarian. He writes, “Our first desire is to promote from within. If somebody with an MBA degree applies for a job, we will certainly not hold it against them, but we are really looking for people with PSD degrees. They built this firm and there are plenty around because our competition seems to be restricting themselves to MBA’s. If we are smart, we will end up with the future Cy Lewises, Gus Levys and Bunny Laskers. These men made their mark with a high school degree and a PSD. * PSD stands for poor, smart and a deep desire to become rich.”*

Being a contrarian in business is certainly a great way of finding a competitive edge over the competition. This is equally right in investing as from the famous saying of Warren Buffett: “Be fearful when others are greedy, and greedy when others are fearful.” However, while being a contrarian in itself isn’t hard — anyone can say the opposite of what crowd believes, you must also be right to have an advantageous divergence in investing and in business. This can be extremely hard. Not only that, timing is also an important factor for a successful contrarian approach.

“Here we go again. Business is tough. The Dow Jones index dropped almost 200 points a month ago. Firms are announcing major layoffs. What is our posture at this time? Your executive committee feels we should be hiring, not firing. This is the time to pick up great people. This position may amaze some newer associates, but those of you who have been exposed to our culture will not be surprised by this move. Being a contrarian has worked for us in the past and it will work again. Spread the word—we are hiring, not firing. The flip side is that our associates should be relieved and maybe the people who work here will even appreciate what a great place this is to build a career.”
— Alan Greenberg

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Understanding Risk

“Risk comes from not knowing what you are doing.”
— Warren Buffett

Howard Marks believes that one of the most important trait of a great investor is the ability to understand risk. In fact, outstanding investors are defined as much by how well they manage risk as by the returns they generate. Marks teaches that risk is not primarily volatility but the permanent loss of capital which is often born from being overly optimistic or paying too much for an asset. Success in investing also requires attentiveness to cycles and understanding the pendulum-like swings of sentiment in stock prices. Marks writes, “The possibility of permanent loss is the risk I worry about, Oaktree worries about and every practical investor I know worries about.”

As such, Marks argues that risk often comes from excessive enthusiasm. He explains that “The most dangerous investment conditions generally stem from psychology that’s too positive. For this reason, fundamentals don’t have to deteriorate in order for losses to occur; a downgrading of investor opinion will suffice. High prices often collapse of their own weight.” While we often hear that high return is correlated to taking high returns, Marks genuinely believes that both can be done simultaneously if we buy things at a lower valuation than they’re worth.

“Theory says high return is associated with high risk because the former exists to compensate for the latter. But pragmatic value investors feel just the opposite: They believe high return and low risk can be achieved simultaneously by buying things for less than they’re worth. In the same way, overpaying implies both low return and high risk.”
— Howard Marks

Furthermore, Marks believes that cycles are inevitable in the stock market and that ignoring them is perilous. As a matter of fact, he argues that successful investors need to identify what is the sentiment of the market towards the company and where in the cycle is the company’s stock price trading at. He explains that there are two concepts that he hold with complete confidence: Rule #1: Most things will prove to be cyclical; Rule #2: Some of the greatest opportunities for gain and loss come when other people forget rule number one.

He compares market moods swing to a pendulum. Eventually, things regress back to the norm in an upward or downward fashion. He writes, “The mood swings of the securities markets resemble the movement of a pendulum. Although the midpoint of its arc best describes the location of the pendulum “on average,” it actually spends very little of its time there. Instead, it is almost always swinging toward or away from the extremes of its arc. But whenever the pendulum is near either extreme, it is inevitable that it will move back toward the midpoint sooner or later. In fact, it is the movement toward an extreme itself that supplies the energy for the swing back.”

“The road to long-term investment success runs through risk control more than through aggressiveness. Over a full career, most investors’ results will be determined more by how many losers they have, and how bad they are, than by the greatness of their winners. Skillful risk control is the mark of the superior investor.”
— Howard Marks

Finally, Marks believes it is necessary to clarify that risks need to be taken to obtain superior return. Recognizing risk is one thing and controlling it is another. A good investor does not avoid risk but control it. He writes, “I want to make clear the important distinction between risk control and risk avoidance. Risk control is the best route to loss avoidance. Risk avoidance, on the other hand, is likely to lead to return avoidance as well. Once in a while I hear someone talk about Oaktree’s desire to avoid investment risk and I take great issue. Clearly, Oaktree doesn’t run from risk. We welcome it at the right time, in the right instances, and at the right price.”

This reminds me of Mohnish Pabrai’s concept of Dhandho investing, the idea that high returns do not necessitate high risks. Instead, Pabrai advocates for a mindset that seeks asymmetric bets, those with significant upside potential but minimal downside risk. This principle, encapsulated in the phrase “Heads, I win; tails, I don’t lose much”, is a cornerstone of the Dhandho framework and reflects his belief that disciplined investors can achieve extraordinary results by carefully selecting opportunities with favorable odds.

As a matter of fact, Pabrai explains that “We have all been taught that earning high rates of return requires taking on greater risks. Dhandho flips this concept around. Dhandho is all about the minimization of risk while maximizing the reward. The stereotypical Patel naturally approaches all business endeavors with this deeply ingrained riskless Dhandho framework—for him it’s like breathing. Dhandho is thus best described as endeavors that create wealth while taking virtually no risk.”

To demonstrate the power of Dhandho, he mentions the story of how Richard Branson built Virgin Atlantic with zero capital. In fact, although the airlines businesses is known to be capital-intensive and highly regulated, Branson was able to identify a service gap and exploited it with minimal initial capital outlay, leveraging creativity over cash. The potential upside was building a global brand; the downside was limited because so little equity was risked upfront.

“My take on Virgin Atlantic is simply this: if you can start a business that requires a $200 million 747 jumbo jet and a boatload of employees in a tightly regulated industry for virtually no capital, then virtually any business that you want to start can be gotten off the ground with minimal capital. All you need to do is replace capital with creative thinking and solutions. Branson found a service gap and went after it. By the time that gap narrowed and British Airways and his other competitors woke up, he had already built a strong brand. Even today, Virgin Atlantic offers a very unique product in a very tough industry. The Virgin Atlantic business model is pure Dhandho. Heads, I win; tails, I don’t lose much!”
— Mohnish Pabrai

Pabrai explains that the reason why the Dhandho approach works is due to the fact that investors often confuse risk with uncertainty. He mentions that “Low risk and high uncertainty is a wonderful combination. It leads to severely depressed prices for businesses—especially in the pari-mutuel system-based stock market. Dhandho entrepreneurs first focus on minimizing downside risk. Low-risk situations, by definition, have low downsides. The high uncertainty can be dealt with by conservatively handicapping the range of possible outcomes. You end with the classic Dhandho tagline: Heads, I win; tails, I don’t lose much!”

As a matter of fact, Pabrai loves comparing investing in the stock market to the pari-mutuel system. As such, he encourages investors to adopt a probabilistic mindset, akin to Charlie Munger’s approach to betting at the race track. Pabrai mentions that “If you went to a horse race track and you were offered 90 percent odds of a 20 times return and a 10 percent chance of losing your money, would you take that bet? Heck Yes! You’d make that bet all day long, and it would make sense to bet a very large portion of your net worth with those spectacular odds. This is not a risk-free bet, but it is a very low-risk, high-return bet. Heads, I win, tails, I don’t lose much!”

The lesson here is clear: investors should seek opportunities where the downside is limited, and the upside is substantial, and be willing to act decisively when such opportunities arise. This approach requires a deep understanding of probabilities and a willingness to wait for the right moment, much like a seasoned gambler at the pari-mutuel betting system.

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Intrinsic Value

“We define value investing as buying dollars for 50 cents.”
— Seth Klarman

If second-level thinking is the engine of superior investing, then value is the compass that guides it. Marks is unapologetically a value investor, and he makes clear that without a reliable estimate of intrinsic value, an investor is simply guessing. Marks writes, “For investing to be reliably successful, an accurate estimate of intrinsic value is the indispensable starting point. Without it, any hope for consistent success as an investor is just that: hope.”

This emphasis on intrinsic value is not about finding companies with strong brands or impressive growth trajectories. It is about understanding what an asset is truly worth and then comparing that to the price at which it is available. As a value investor, Marks elaborates that “an asset isn’t an ephemeral concept you invest in because you think it’s attractive (or think others will find it attractive). It’s a tangible object that should have an intrinsic value capable of being ascertained, and if it can be bought below its intrinsic value, you might consider doing so. Thus, intelligent investing has to be built on estimates of intrinsic value. Those estimates must be derived rigorously, based on all of the available information.”

Nonetheless, Marks warns that while value investing is a path to consistently produce favourable results in investing, it is not easy. For one, you need to be able to provide an accurate estimate of value, if not, you are likely to overpay for a company. And, Marks mentions that if you overpay, “it takes a surprising improvement in value, a strong market or an even less discriminating buyer (what we used to call a “greater fool”) to bail you out.”

To make it even harder, Marks mentions that even if you are right in your valuation, you need to be patient enough to be proven right by the market. As he once said, “An accurate opinion on valuation, loosely held, will be of limited help. An incorrect opinion on valuation, strongly held, is far worse. This one statement shows how hard it is to get it all right.”

“If you’ve settled on the value approach to investing and come up with an intrinsic value for a security or asset, the next important thing is to hold it firmly. That’s because in the world of investing, being correct about something isn’t at all synonymous with being proved correct right away.”
— Howard Marks

Finally, Marks mentions that price should be the ultimate starting point for any value investors. Often, investors are ready to overpay for higher quality assets, but Marks who has experienced the Nifty-Fifty warns us that “It has been demonstrated time and time again that no asset is so good that it can’t become a bad investment if bought at too high a price. And there are few assets so bad that they can’t be a good investment when bought cheap enough.”

This was a liberating insight for Howard Marks. By understanding that a wonderful company can be a terrible investment if you overpay, and a mediocre company can be a fantastic investment if you buy it cheap enough, Marks operates Oaktree Capital with a simple philosophy: “Well bought is half sold.” He explains that at Oaktree, “we mean we don’t spend a lot of time thinking about what price we’re going to be able to sell a holding for, or when, or to whom, or through what mechanism. If you’ve bought it cheap, eventually those questions will answer themselves.”

“The relationship between price and value holds the ultimate key to investment success. Buying below value is the most dependable route to profit. Paying above value rarely works out as well.”
— Howard Marks

This reminds me of what we have learned from Lawrence Goldstein at Santa Monica Partners, who believes that investing in overlooked companies requires patience in order for their value to unlock. In fact, Goldstein once said “I believe that neglected stocks win hands down over longer periods of time and with less risk. Clearly, patience is the key to investing successfully in our kinds of securities.” As such, he frequently advocates for a long-term perspective, emphasizing to his partners in his shareholder letters that true value creation takes time. As he once wrote, “My belief of course is that patience is a virtue to be rewarded.”

By having a long-term perspective, Goldstein is able to ride out market volatility without panicking. He recognizes that short-term price fluctuations are inevitable but he doesn’t let them distract him from his long-term goals. Similarly, he reiterates to his partners that “Riding out the volatility and noise is essential to successful long-term investing. Put another way, we must keep control of our stomachs (though others around us may not) when sailing through stormy seas.”

By consequence, Goldstein practices an investment methodology that prefers holding investments for the long haul and allowing them to compound over time. By consequence, Santa Monica Partners have an “extremely low turnover [of companies in the portfolio] is the norm for us, of course, as ‘buy and hold’ is not just my preference and practice, but something that permeates my very being.” This low turnover not only reduces transaction costs but also allows him to defer capital gain taxes, further enhancing returns.

“For all we are concerned with is the long-term beyond the horizon. When we invest we like to think in terms of forever. We can care less about a quarter or a year and rather focus on the far away pot of gold on the distant horizon. Sometimes we reach it sooner because of the occurrence of a value-creating catalyst. Most of the time it is because the company over time just grows like a weed or like topsy and in the fullness of time we reach the horizon and the great value realization outs.”
— Lawrence J. Goldstein

For Goldstein, patience is not about idleness but about allowing compounding to work its magic. He cites examples like Balchem, a stock that became a “92-bagger in 20 years,” and Compass Knowledge, which quintupled in value in just two years. These gains were only possible because Santa Monica Partners held these investments through periods of stagnation and volatility, trusting that their underlying value would eventually surface. As Goldstein once said, “Patience and courage too is also important so as to be able to look across the investment valleys and beyond the peaks in order to make and be willing to hold on long-term to achieve what may be very successful and at times extraordinary investments.”

“Once in a blue moon you find one which is really a great one but to the ignorers ‘too small’ or ‘too closely held’ or its variations ‘doesn’t trade enough’ or is ‘illiquid’ or too this or too that. In almost all cases these companies don’t deserve their undervaluation. How do we as investors profit? Value will out in time. It always does.”
— Lawrence J. Goldstein

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Beyond the Book

Read "Second-Order Thinking: What Smart People Use to Outperform" by Farnam Street

Read "Memos to Oaktree Clients: The Complete Collection" by Howard Marks

Listen to "#53 Howard Marks: Luck, Risk and Avoiding Losers" by The Knowledge Project

Today’s Chapter is based on the book “The Duolingo Handbook”.

Luis von Ahn co-invented CAPTCHA to distinguish humans from bots online, later developed reCAPTCHA—which digitized books via user input and sold it to Google in 2009—and co-founded Duolingo, the world’s most popular free language-learning platform where he serves as CEO.

Read it for free here.

Here’s what I learned:

Long-Term Vision

“If it helps in the short-term, but hurts Duolingo in the long-term, it’s not right.”
— Luis von Ahn

Luis von Ahn founded Duolingo with one concept in mind: to stand out as a company that thinks long-term. His journey at Duolingo exemplifies how committing to the long-term can yield extraordinary results. As a matter of fact, von Ahn created Duolingo with the purpose of democratizing education, by making long-term decisions from product development to hiring. As he explains, “Our mission is to develop the best education in the world and make it universally available.” By avoiding short-term thinking, Duolingo has built a sustainable empire that serves hundreds of millions of users worldwide today.

At the heart of this approach is the recognition that languages need time to be learned. As such, it was important for von Ahn to develop Duolingo with this in mind. As von Ahn explains “Learning—particularly language learning—requires regular practice over extended periods of time. That’s why we prioritize user retention, and have spent years perfecting the Streak feature. The more we can do to keep our learners committed for the long haul, the more value they’ll get from Duolingo.”

Similarly, von Ahn understood that innovation requires time. Von Ahn and his co-founder Severin Hacker understood early on that building an effective language-learning app wasn’t a sprint but a marathon. They bet on emerging technologies, even when they were imperfect, trusting that advancements would catch up.

“From the beginning, we’ve believed that technology will advance enough to make our most ambitious ideas possible. And betting on that has been crucial to how we operate. For example, we invested in early text-to-speech systems instead of recording human voices: even though our audio sounded robotic at first, we knew the technology would improve with time.”
— Luis von Ahn

This also extended with the way Duolingo monetized itself. Rather than locking core features behind paywalls, Duolingo offers a robust free version, betting that satisfied users will upgrade. This tension between accessibility and revenue could have derailed lesser companies, but von Ahn’s patience and long-term vision paid off with Duolingo. He writes, “It became clear that introducing a freemium subscription product was the best opportunity to scale the business. The hard part was doing so while still offering an excellent product for those who couldn’t pay. We landed on a subscription package that eliminated ads and gave learners unlimited hearts. Both of these features remove friction from the app. Over the years, we’ve continued to tweak this model, but the core dynamic is the same: the paid product gives us the resources to pursue our mission at the greatest scale, and the free product is largely how that mission is achieved.”

In the same line of thought, Duolingo avoided having too many ads in their application. Von Ahn mentions, “Take advertising. We could increase revenue tomorrow by showing more ads in the app. But we know that too many ads can annoy users and stifle long-term growth, potentially compromising our goal of making the best education universally available. This is a real trade-off. But over and over, we’ve taken the long view. We have to: our goals are too big to think any other way.”

Furthermore, the hiring process at Duolingo also reflects a long-term approach. The company insists on waiting for the right people, prioritizing long-term fit over immediate needs. This has resulted in a team with unusually low turnover, fostering institutional knowledge that compounds over years. Von Ahn mentions that “Hiring decisions are some of the most important decisions we make. That’s why we take time to find the right person—even if it means waiting. Each new hire needs to meet our bar. Is this person exceptional? Are they willing to get their hands dirty? Are they a clear communicator? Will they prioritize what’s best for the company over their personal goals?”

“The temptation of short-term wins can be powerful. We had a simple mantra in the early days: “Don’t do dumb s**t.” Looking back, this was the first version of “Take the Long View.” We knew that to have any shot at meaningful success, we had to steer clear of gimmicks and tricks that might seem helpful in the short-term but hurt us down the road.”
— Luis von Ahn

This reminds me of how Jeff Bezos ran Amazon with the same mentality: that long-term vision is required for innovation. As a matter of fact Bezos once said that long-term thinking shareholders can allow the company to make constant innovations, despite having failures from time to time. As such, Bezos was not timid in making investment decisions where he had an opportunity in gaining market leadership advantages even when he knew that some of his investments would not pay off. He explains, “We like to invent and do new things, and I know for sure that long-term orientation is essential for invention because you’re going to have a lot of failures along the way.”

As a pioneer in the technology industry, it is in the Amazon’s DNA to be committed to constant improvement, experimentation and innovation. This can be done by investing into new businesses. However, Bezos mentions that it is also his responsibility to make sure that any opportunities they invest in must generate the same return on capital that investors expected when they invested in Amazon. This can only be done by taking a long-term and true ownership approach.

“Outsized returns often come from betting against conventional wisdom, and conventional wisdom is usually right. Given a ten percent chance of a one hundred times payoff, you should take that bet every time. But you’re still going to be wrong nine times out of ten. We all know that if you swing for the fences, you’re going to strike out a lot, but you’re also going to hit some home runs. The difference between baseball and business, however, is that baseball has a truncated outcome distribution. When you swing, no matter how well you connect with the ball, the most runs you can get is four. In business, every once in a while, when you step up to the plate, you can score one thousand runs. This long-tailed distribution of returns is why it’s important to be bold. Big winners pay for so many experiments.”
— Jeff Bezos

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Expect Excellence

“If you don’t have time to do it right, when will you have the time to do it over?”
— John Wooden

Luis von Ahn’s leadership at Duolingo can be simplified as a relentless pursuit of excellence, not as an aspiration but as a non-negotiable foundation. He once said, “Excellence isn’t some lofty goal—it’s our baseline.” As a person with a detail-oriented mindset, von Ahn wanted to build a culture at Duolingo that rejects mediocrity to ensure that Duolingo wasn’t just a functional app but the world’s leading language-learning platform. As von Ahn mentions, “To change how the world leans, we must do work-class work.”

As per usual, this culture of excellence must be rooted into the people working at Duolingo. As such, when hiring, Duolingo ensures to hire individuals who are great both in their skills but also in their characters. As von Ahn explains, “Our people set the bar for everything else we do. So, we insist on bringing in exceptional talent—individuals who stand out not just in their skills but in their character. That might mean someone who was at the top of their class, or the first from their family to graduate from college—but also is genuinely kind. To maintain this standard, Luis and Severin still approve every new hire.”

It is also important for employees at Duolingo to love their work and to have high standards. This can be achieved by assigning them clear mandates that ensure accountability. Von Ahn writes, “One key to maintaining high standards is assigning ownership. That means putting a person or team on a task, providing a clear mandate and saying, “You are responsible.” We’ve seen it again and again: only things that are owned become excellent.”

“Another key way we maintain excellence is by using the app daily. This ensures that we ourselves love the product and that bugs are spotted and resolved quickly. To make this process even more effective, we built Shake to Report, a simple tool that lets anyone in the company snapshot and report an issue instantly by shaking their device. Over the years, Shake to Report has become a vital part of our development process, making excellence in the app a shared responsibility.”
— Luis von Ahn

But more importantly, von Ahn explains that employees need to be able to take on constructive criticism in order to maintain a high standard of excellency. He believes in the motto of “Hard on the work, easy on the people.” He writes, “That means giving constructive, clear feedback that sharpens ideas without undermining relationships. (We stick to the “what,” not the “who.”) It also means being open to receiving feedback and not taking it personally. This candid, constructive approach allows us to hold each other to high standards while fostering trust and collaboration.”

Finally, excellence is also codified in terms of product design. There are four guiding elements that influences the way Duolingo is built: Useful, Intuitive, Delightful and Polished. Here’s how von Ahn explains them:

Useful: Learners need to get utility out of whatever we’ve built. Otherwise, we’ve made something that adds more complexity to the app and distracts learners from what they’re here to do.

Intuitive: Learners should be learning, not figuring out how to use the app. Every feature must be easy to use for everyone—it doesn’t matter whether they’re a 75-year-old in India using an Android or a 16-year-old in New York City on an iPhone. If a feature or screen requires explanation or additional context, it’s not right.

Delightful: Every new feature needs to have some amount of fun and delight. We might not need the most elaborate animations in the first iteration of a feature, but there should always be a hint of the magic that learners love.

Polished: This is what makes a feature feel complete. Tight visual design, perfect copy, and seamless interactions are the baseline. Nothing should feel clunky or inconsistent. For instance, we shouldn’t have both a Back button and an X button that do the same thing.

This focus on excellence and in the details reminds me of what we have learned from John Wooden who believed that excellence comes from one’s character. In fact, he believes in building one’s character over one’s reputation. He encourages us to focus on who we are rather than how others perceive us. He writes, “Be more concerned with your character than your reputation. Character is what you really are. Reputation is what people say you are. Reputation is often based on character—but not always.”

For Wooden, character is revealed not in grand gestures but in small, consistent actions. He once said, “I believe in the basics: attention to, and perfection of, tiny details that might commonly be overlooked. They may seem trivial, perhaps even laughable to those who don’t understand, but they aren’t. They are fundamental to your progress in basketball, business, and life. They are the difference between champions and near champions.” This focus on the little things—whether it’s keeping your word, showing up on time, or treating others with respect—demonstrates the depth of Wooden’s commitment to integrity.

Furthermore, Wooden recognized that character is about actively cultivating one’s positive qualities. He encouraged individuals to focus on developing their inner strengths emphasizing that these are within everyone’s reach. He once said, “Take a moment and draw a circle around the following personal characteristics that you possess: confidence, poise, imagination, initiative, tolerance, humility, love, cheerfulness, faith, enthusiasm, courage, honesty, serenity. I hope you circled them all because all are within each of us. It is simply up to us to bring them out.”

“There’s nothing wrong with having faults so long as you work conscientiously to correct them. How hard you work at correcting your faults reveals your character.”
— John Wooden

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Ship it Fast!

“Sometimes, making the wrong choice is better than making no choice. You have the courage to go forward, that is rare. A person who stands at the fork, unable to pick, will never get anywhere.”
— Terry Goodkind

Duolingo’s success under Luis von Ahn also hinges on a culture of speed and experimentation, where ideas are tested swiftly and only the winners are scaled. Von Ahn created a framework to encourage innovation through constant evolution and where experimentation was encouraged. He writes, “We were also fast as hell. And the pace of our experimentation allowed us to quickly figure out what was working, and ditch what wasn’t. This applied across everything: product, hiring, engineering, and our business as a whole. We were testing and learning at warp speed.”

As a matter of fact, even today, Duolingo releases new versions of the application on iOS and Android every week while running hundreds of experiments simultaneously. Von Ahn truly believed that the principle of ““Ship It” keeps us ahead of our competitors; “Ship It” makes Duolingo a fun place to work; “Ship It” ensures that our product never sits still.”

“Duolingo is the sum of thousands of experiments. The faster we can run experiments—successful or not—the faster we can improve the app and advance our mission. Over time, each of these changes builds on one another, creating a cycle of compounding growth.”
— Luis von Ahn

And while speed was important, Duolingo was also ruthless in terms of focusing their experimentations effort into things that would improve the company’s offering to the customers. Any features that do not deliver value are quickly removed as unnecessary complexity. As von Ahn writes, “As much as we want to move fast and increase clock speed, we always need to make sure we’re working on the right thing. At Duolingo, prioritization is sometimes described as “ruthless:” we are decisive about what we focus on as a company, based on what will have the largest impact on our learners.”

He also mentions that “Deciding what to prioritize starts with clearly defined goals. For every initiative, we ask: How does this contribute to our mission? What measurable outcomes will it drive? And if something doesn’t move the needle in a meaningful way, it’s cut—no matter how much effort has already gone into it. One high-impact win always outweighs a handful of small scattered efforts.”

This led to Von Ahn to create what he calls the Green Machine which outlines the six steps for Duolingo’s success which can be summarized by gathering excellent people, giving them space to experiment and to double down on what works.

1. Staff It with Great People

2. Define Success

3. Set Guardrails and Think Long-Term

4. Build the Thing and Set Up Feedback Loops

5. Execute with Urgency and Excellence

6. Double Down on What Works, Stop What Doesn’t

“For a good idea to become reality, we need to move with a sense of urgency. So Go, Go, Go!”
— Luis von Ahn

This reminds me of how Michael Bloomberg first created his own company. He noticed that in life, it is the “doers”, the lean and hungry ones that usually go the furthest and that achieve the most. As a matter of fact, Bloomberg mentions that while it is important to have a vision, it is dangerous to start second-guessing yourself by worrying too much about the details.

At Bloomberg, the strategy has always been to build the product first and the rest would take care of themselves. Of course, Bloomberg made mistakes along the way and the product would have to be improved on with the feedbacks received from their customers. However, while their competition were still planning on perfecting their product, they were already through rounds of testing and were about to release their tenth version.

“ It gets back to planning versus acting. We act from day one; others plan how to plan—for months.”
— Michael Bloomberg

This is exactly how Bloomberg obtained their first customer. While Merrill Lynch were in the planning to develop a similar product, Bloomberg was able to obtain the contract by guaranteeing that they would deliver a workable product before the estimated time of delivery provided by Merrill Lynch’s internal tech team. Furthermore, he promised that Bloomberg would only be paid until they were truly satisfied with their product.

While it does not seem like it on the surface, this agreement was extremely beneficial for Bloomberg as it would allow them to receive direct feedbacks from Merrill Lynch on how to improve their product. As Bloomberg would say, “At Bloomberg, a problem spurs a solution. That’s what makes us successful.”

“Every day, our system got better as we fixed each problem they pointed out. I’d always rather have a smart, fair, honest, demanding client than a nasty dummy or an “I don’t care” user.”
— Michael Bloomberg

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Today’s Chapter is based on the book “Montaigne” by Stefan Zweig.

Michel de Montaigne was a French Renaissance writer and philosopher whose Essais practically invented the modern essay form and offered an intimate self-portrait through skeptical, personal reflection on everyday life and human nature. A key figure of Renaissance humanism, he used candid autobiographical anecdotes and probing questions to explore themes like morality, education, and the limits of human knowledge, influencing later thinkers from Bacon and Pascal to Nietzsche.

Buy it on Amazon here.

Here’s what I learned:

Learn to Read

“Books are a uniquely portable magic.”
— Stephen King

How do we read? Do we read to impress others or to check books off a list? Do we suffer through dense texts because we feel like we ought to? Montaigne does not believe in the necessity to finish books. For him, books are not sacred tablets to be worshipped, but companions to be enjoyed. If a book bored him, he dropped it. If he didn’t like a philosopher, he would move on. He sought reading for pleasure and conversation, not labor.

Stefan Zweig highlights this delightful relationship that Montaigne has with literature. He explains that in Montaigne’s tower, he was surrounded by books he inherited from his friend Étienne de La Boétie. He writes, “For him books are not like men, who impose themselves and burden him with their chatter, and of whom it is hard to be rid. When you don’t call for them they stay put; you can just pick up this one or that, according to your whim: ‘Books are my kingdom. And here I seek to reign as absolute lord.’ Books offer him their opinion and he responds with his own.”

“He wants to read and learn, but only so far as he can savour the experience. As a young man he had read, he states “ostentatiously”, merely to show off his knowledge; later, to acquire a measure of wisdom, and now only for pleasure, never to gain an advantage. If a book bores him, he opens another, if a book seems heavy going: I don’t wear down my nails over some difficult passage in a book; I’ll make one or two forays, then if that fails I’ll give up. My mind is only really made for leapfrogging. What I don’t make out at the first attempt, I strain to see through an even deeper murk at every renewed effort.”
— Stefan Zweig

As such, it is fair to say that Montaigne argues that reading should not be a passive intake of information but an active dialogue with the author. Montaigne would scribble in the margins, argue with the authors and used their thoughts to spark his own. He did not read to become a walking encyclopedia, but to better understand himself. He looked to improve himself by reading the lives of the ancients, using their stories as lessons.

As Zweig wrote on Montaigne, “It was a beautiful thing to read books, to spend an idle hour in Greece with Plato, to savour an hour of Seneca’s wisdom, it was restful and calming to live alongside these companions from previous centuries, with the greatest minds of history. But one lives in one’s own century, for better or worse, and the air of the time penetrates into even the most cloistered space.”

“He explores ‘the rich souls of times past’ to correlate them with his own. He studies virtues, vices, flaws and merits, the wisdom and puerility of others. History is his great instruction manual, for, as he says, it is in his actions that man reveals himself.”
— Stefan Zweig

Montaigne’s approach is demonstration that it is okay to read for our own entertainment. It also encourages us to engage with texts personally, to take what resonates and leave the rest. Montaigne’s library was a place of comfort for him. Zweig reports that Montaigne personally valued poetry and especially history as it thought him the psychology behind human motives. He writes, “The great lesson Montaigne receives from books is that reading, in its rich diversity, sharpens his faculty of judgement. It impels him to respond, to lend his own counsel.”

This idea of reading the lives of the ancients in order to learn from them reminds me of what we have previously learned from Charlie Munger. Munger, like many great people before him, believed that the fastest way to earn wisdom is to learn from the success and failure of others. As a matter of fact, life is way too short to learn everything on your own, and that’s without saying how much pain we can avoid by learning from mistakes of others instead of committing them ourselves.

As Munger once said, “I believe in the discipline of mastering the best that other people have ever figured out. I don’t believe in just sitting down and trying to dream it all up yourself. Nobody’s that smart.”

In the case of Munger, he loved to read biographies as it is a great way to learn from the masters of each disciplines. Here’s how he explains it:

“I am a biography nut myself. And I think when you’re trying to teach the great concepts that work, it helps to tie them into the lives and personalities of the people who developed them. I think you learn economics better if you make Adam Smith your friend. That sounds funny, making friends among the “eminent dead,” but if you go through life making friends with the eminent dead who had the right ideas, I think it will work better for you in life and work better in education. It’s way better than just giving the basic concepts.”
— Charlie Munger

Charlie Munger, who was Warren Buffett’s partner at Berkshire Hathaway, is considered one of the greatest investor of all-time. Buffett and Munger’s track record at Berkshire is exceptional, returning over 19.8% compounded annual gain from 1965 to 2022 compared to only 9.9% for the S&P 500 Index. What’s the secret to their success? Well, I believe that part of the reason is because both Munger and Buffett are compounding learning machine. As a matter of fact, Munger mentions that he doesn’t know any single successful investor who do not read voraciously.

“I constantly see people rise in life who are not the smartest, sometimes not even the most diligent, but they are learning machines. They go to bed every night a little wiser than they were when they got up and boy does that help, particularly when you have a long run ahead of you.”
— Charlie Munger

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Learn to be Skeptical

“Skepticism is a virtue in history as well as in philosophy.”
— Napoleon Bonaparte

Michel de Montaine was known to be a skeptic and always refused to believe that he knew everything. He was also a man who abhorred all rigid thought and dogma and preferred discovering things on his own. His scepticism was a method for Montaigne to interrogate everything around him, refusing to make permanent any truth that his lived experience might later contradict. Zweig mentions that Montaigne cherished uncertainty and treated his life as an ongoing experiment. He writes, “Montaigne’s greatest pleasure is in the search, not the discovery. He is not one of those philosophers who seek the philosopher’s stone, the convenient formula. He cares not for dogma, precepts, and has a horror of definitive assertions: ‘Assert nothing audaciously, deny nothing frivolously.’”

While Montaigne’s habit to always changing his mind might seem like a weakness, Zweig argues that it is in fact his strength. He says, “An inability to remain fixed at a certain point allows him always to go further. With him nothing is ever set in stone.” As such, when Montaigne writes his essays, he does not intend to lecture us but uses it as a way to track his own difficulties and confusions.

In fact, Zweig explains that when Montaigne writes ”posed this question: “How should I live?” he did not insist on following it up with: “This is how you should live!” The man who had engraved on a medallion the chosen maxim “Que sais-je?” had always detested fixed assertions. He had never sought to counsel others on anything he did not know intimately himself. (…) If someone wants to draw advantage from this, then he has no objection. As he says, his folly and error can hardly damage anyone else. “If I make a fool of myself then it’s at my own expense and cannot prejudice others, because it is a folly that abides within me and cannot be followed.”

“This is not my doctrine; it is my study, and no one else’s lesson but my own.”
— Michel de Montaigne

By consequence, from Montaigne, we can learn how to practice sceptical self-inquiry and to keep a record of thoughts and experiences. The modern adaptation of Montaigne’s essays is straightforward: maintain a private journal, test cherished assumptions against new experiences, and allow your beliefs to evolve.

This method of learning from skepticism reminds me of the Socratic approach that we have learned from Don Valentine from Sequoia Capital who approached business and investing with an unwavering commitment to questioning everything, a habit that was rooted in his early education and experiences. By having a skeptical mindset, he was able to cut through noise, identify opportunities and avoid pitfalls. Valentine questioned everything in order to foster a deeper understanding through persistent inquiry.

As a matter of fact, Michael Moritz writes that Valentine “went on to study at Fordham University, where his professors were Jesuits and whose teaching approach was based on the restless, open-ended questioning style of Socrates. It was this style of inquiry, aimed at rooting out answers to intractable topics from a collection of people with different points of view and experiences that, more than the details of his studies, influenced Don throughout his life. It made him doubt everything—particularly conventional thinking—and was the source of some of his favorite, terse ways of ferreting out answers. ‘Why?’ ‘Who cares?’, ‘Who needs it?’ ‘Why does it matter?’, ‘What does it do?’, and ‘So what?’ were the plain verbal thrusts he came to employ to gauge whether prices could be raised, a product made sense, a new market should be attacked or the significance of a milestone.“

The Socratic method became one of Valentine’s core reasoning when evaluating ideas, markets, and people at Sequoia Capital. In fact, this constant approach of questioning everything made Valentine dislike any policies and procedures, as he believed that rigid structures stifled creativity. Moritz mentions that Valentine ”was no fan of policies or procedures since he was convinced that they stifled creativity and were promulgated by mediocrities.” An example to illustrate this was the fact that Valentine always used to wear his nametag on his right breast at functions while the convention was to wear it over the left.

This also reminds me of how Charlie Munger warned us to avoid intense ideologies:

“Another thing I think should be avoided is extremely intense ideology, because it cabbages up one’s mind. You’ve seen that. You see a lot of it on TV, you know preachers for instance, they’ve all got different ideas about theology and a lot of them have minds that are made of cabbage.

But that can happen with political ideology. And if you’re young it’s easy to drift into loyalties and when you announce that you’re a loyal member and you start shouting the orthodox ideology out what you’re doing is pounding it in, pounding it in, and you’re gradually ruining your mind. So you want to be very careful with this ideology. It’s a big danger.

In my mind I have a little example I use whenever I think about ideology, and it’s these Scandinavian canoeists who succeeded in taming all the rapids of Scandinavia and they thought they would tackle the whirlpools in the Grand Rapids here in the United States. The death rate was 100%. A big whirlpool is not something you want to go into and I think the same is true about a really deep ideology.

I have what I call an iron prescription that helps me keep sane when I naturally drift toward preferring one ideology over another. And that is I say “I’m not entitled to have an opinion on this subject unless I can state the arguments against my position better than the people do who are supporting it. I think that only when I reach that stage am I qualified to speak.” Now you can say that’s too much of an iron discipline..it’s not too much of an iron discipline. It’s not even that hard to do.”
— Charlie Munger

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Learn to be Yourself

“Be yourself; everyone else is already taken.”
— Oscar Wilde

One of the biggest lessons we can learn from Montaigne, according to Stefan Zweig is to be oneself. Zweig mentions that Montaigne dedicated his life and his strength to the question of remaining free. As he explains, “It is to this question and this question alone that Montaigne dedicated his life and his strength. It is for this love of liberty that he observes himself, watches over, experiences and criticizes every movement and every sensation.”

As such, when Montaigne withdrew from political spectacle and public vanity to remain in his tower to read, Zweig argues that he does it purely to cultivate a disciplined internal freedom. Montaigne’s withdrawal is a deliberate principled stance: a conscious discipline of solitude and self-mastery, a refusal to be persuaded by external factors. In his tower, he set himself to the quest of preserving himself and to ask himself, “Que sais-je?” (What do I know?).

“The outside world can take nothing from you and cannot unhinge you, as long as you do not allow yourself to be disturbed. The events of your time remain impotent before you, as long as you refuse to take part in them, and the madness of the epoch does not constitute a real danger, as long as you conserve in yourself a purity of spirit.”
— Stefan Zweig

This lesson from Montaigne is quite fitting in today’s world. As we live in an era of constant connectivity due to the internet. We are expected to have an opinion on everything, to be constantly available and to define ourselves with our external affiliations. Montaigne, who lived through the social unrest in France, chose not to participate but to retreat into his own citadel. As he once said, “La plus grande chose du monde c’est de savoir être à soi.” (The most important thing in the world is to know how to be yourself.)

This reminds me of what we have learned from Michael Jordan who believed that one of the most important things he learned at an early age is to follow his own instincts. As such, he was the one creating his own standard and never tried to be like somebody else or to live up to the expectations of others. ****In fact, Jordan is a true believer that part of his success comes from his authenticity. He explains that “Authenticity is about being true to who you are, even when everyone else wants you to be someone else.”

“I’ve never been worried about anyone’s perception one way or another. I’ve never allowed anyone’s opinion to define me. I’m comfortable with who I am. I trust myself.”
— Michael Jordan

As a matter of fact, Jordan believes that it is difficult to become the best you can be when you are focused on trying to be the best version of someone else. Without authenticity, you are not going to last long. He explains that “the products, companies and people who stay true to who they are usually end up being around for a long time.” Furthermore, he elaborates that companies that jump into trends or try to be something other than what or who they are, generally, don’t last very long.

He writes, “If you are trying to make your way through a maze, and your decisions come from the inside, from your gut, nine times out of ten you won’t find yourself running into a wall. But if you rush into something, make decisions to appease somebody else, or chase the easy dollar, then you are going to find that wall.” Following one’s instinct may seems scary at first, but if you follow your instincts and put in the work necessary, you are bound to encounter success. It is only a a question of when. As Naval Ravikant would say, “great people have great outcomes. You just have to be patient.”

“All you should do is what you want to do. If you stop trying to figure out how to do things the way other people want you to do them, then you get to listen to that little voice inside of your head that wants to do things a certain way and then you get to be you.

No one in the world is going to beat you at being you. You’re never going to be as good at being me as I am. I’m never going to be as good at being you as you are.”
— Naval Ravikant

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Today’s Chapter is based on the book “The Way of the Champion: Pain, Persistence, and the Path Forward“ by Paul Rabil.

Paul Rabil is an American sports executive, retired professional lacrosse player, and entrepreneur, widely nicknamed “the LeBron of lacrosse” for his dominance in the sport. He starred at Johns Hopkins University, became a multi-time MVP and champion professionally, then co-founded the Premier Lacrosse League in 2018 and now serves in a leadership role growing the league and the sport globally.

Buy it on Amazon here.

Here’s what I learned:

Consistency

“The first rule of compounding: Never interrupt it unnecessarily.”
— Charlie Munger

A core reason for Paul Rabil’s success in becoming the greatest lacrosse player of all time is the simple but brutal truth that mastery is built through one small action at a time. Tony Seaman, a lacrosse coaching legend once addressed a room of aspiring young players with a winning formula for earning a full Division I scholarship. He said, “There’s one thing you have to do. From this day forward, through your senior year of high school,” Seaman told us, “you have to shoot a hundred shots a day. That’s it. You shoot a hundred shots a day from now through your senior year of high school, I guarantee you will get a full scholarship to the Division 1 college of your choice.”

But there’s a catch, Seaman mentions that “You can’t miss a day. Not a holiday. You can’t miss when it’s pouring down rain. You can’t miss because you had a game the night before—or the day of. You can’t miss a day because you’re on vacation. And if you can’t find a goal, make one up. You have to find a way.” The lesson from Seaman is clear. Consistency is the key to success. This mindset separates those who dream from those who deliver. Missing one day may feel inconsequential, but it breaks the rhythm and erodes the identity of someone who shows up no matter what. Rabil’s own career, and the careers of countless champions he studies, prove that sustained daily effort is the foundation of extraordinary results. Whether you are writing code, building a business, or refining a craft, the discipline of never skipping a day creates momentum that eventually becomes unstoppable.

“It doesn’t matter how ambitious or speculative the goal, you get there by taking one small step after one small step. Thirty minutes a day. One hundred shots on net, two hundred words on the page, three hundred push-ups, conditioning. Whatever reps are in your sport, in your business, in your chosen field, you do them. One after another until you hit the magic number. And there is only one caveat: You can’t miss a day.”
— Paul Rabil

As a matter of fact, Rabil understands that his success comes from compounding. He borrows this term from Warren Buffett when he mentions that his “life has been a product of compound interest.” He believes that it is simple math: experts refers to the fact that often thousands of hours of practice are required for mastery and you can only get there little by little. Rabil writes, “Work hard. Take care of your body—nutrition, sleep, training, recovery, and so forth. Pay attention to the details—the little things that will add up to make a big difference. Show up every day—whether it’s a Sunday game day, a Wednesday practice day, or a Tuesday in the offseason. Fall in love with what you do.”

Furthermore, Rabil argues that true success never comes suddenly but is a lagging indicator of a thousand of invisible choices we have made without others knowing. It is the accumulation of hours of practice. Rabil emphasizes that that the difference between good and great often lies in the details that others deem irrelevant. It is easy to work hard when the stadium is packed or when the boss is watching, but the champion’s character is forged in solitude. As Coach Pietramala once told him, “character is what you do when nobody is watching.” The ability to be consistent in making the “grunt work” is primordial. In fact, Rabil mentions that this obsession with detail provides a competitive advantage in a world where most people are looking for shortcuts. Rabil notes that many people are talented, but few are willing to endure the boredom of consistency. The little things are the mathematical variables that, when compounded over time, create the massive separation between the elite and the average.

“The professional knows that the work doesn’t stop with success. They know that success is a by-product of the work. So they keep doing the work. They don’t miss a day.”
— Paul Rabil

This reminds me of what we have learned from Michael Jordan who mentioned that people rarely pay attention to the effort that it took for people successful. Success comes from all the little efforts that were made to improve one step at the time, and people tend to forget that. When he moved to the world of business, he realised that great companies have a lot in common with basketball teams. Through reverse engineering, he figured out that players who practice hard when no one is paying attention are the ones that will play well when everyone is watching. He mentions, “They don’t understand the foundation I had to create to support everything that came afterward. They don’t know about lifting weights at 7 A.M., practicing hard every day, finding ways to motivate myself for every game, sitting up half the night with an ankle in a bucket of ice, or hooked up to an electronic stimulation machine. They don’t know anything about those things.”

Furthermore, the most challenging thing about keeping a good work ethic is to do it for a long period of time. As Jordan would say, “commitment cannot be compromised by rewards.” In fact, while it is challenging to not give up and to persist with our good habits and efforts when things go wrong, it is even more mentally difficult to be consistent once we have a taste of success. Jordan writes, “Excellence isn’t a one-week or one-year ideal. It’s a constant. There will be days when you don’t feel on top of your game, meetings in which you aren’t at your best, but your commitment remains constant. No compromises.”

In Jordan’s opinion, this sense of commitment can be seen with just about anyone achieving at a high level; he gives the example of Tiger Woods who was back in the gym by 6:30 to work out the morning after he beat Phil Mickelson at the Ford Championship in 2005.

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Focus

“The thing you do obsessively between age 13 and 18, that’s the thing you have the most chance of being world class at.”
— Bill Gates

The second lesson we can learn from Paul Rabil’s success is the ability to “putting on your blinkers”, a metaphor he uses to encourage us to block out everything that does not serve the mission you are trying to achieve. As he explains, “In the pursuit of becoming a champion, there exists a profound yet often overlooked skill: the ability to give your undivided attention. We live in an age of constant distraction, making focus a rare gem—one that will separate you from the ordinary.”

In fact, in an age of infinite distraction, the ability to focus is a superpower. We are constantly bombarded with social media notifications, opinions and distractions, but we need to ignore the noise and focus on what we can control: practice, practice, practice. And yet, even in terms of practices, Rabil believes in being focused in what we calls deliberate practice. It is not enough to simply show up and go through the motions. Many people spend hours in the gym or the office without actually improving because they are not mentally engaged. They are present in body but absent in spirit. Rabil distinguishes between “practice” and “smart practice.” Smart practice involves a level of intensity and specificity that mimics the pressure of the actual game. It also requires stripping away the ego and working on the things we are bad at, rather than just showing off the things we are good at. A perfect example of someone who practices smartly is Stephen Curry.

“Watch a Steph Curry shooting workout. After he’s done in the paint, he doesn’t set up beside a rack of basketballs and shoot from one spot on the floor. No. He runs off a pick, catches a pass, and shoots. He dribbles, drives, passes, runs to the corner, gets the ball back, and shoots. He dribbles between the legs, around the back, head fake, step back, and shoots. This wasn’t always the way he practiced, Steph told me. “I practice smart now,” he said. “I’m not just in the gym just to be in there. There’s a particular approach and mentality when I’m in the gym that I have to have every time. And that’s a game speed mentality. Every hour, every minute I’m on the floor, I approach practice with that game speed mentality.””
— Paul Rabil

Furthermore, Rabils mentions the importance of narrowing our focus on factors in which we can influence. He recounts the lessons from John Wooden who learned “at a young age, he recognized the importance of distinguishing between two categories: “things over which I had no control” and “things over which I had some control.” On the latter category, Wooden devoted immense intensity and effort. He dedicated himself to improving his conditioning, ball handling, and shooting skills.”

Finally, Rabil mentions that the premise of focus also means saying “no”. He mentions that the “MIT Sloane’s Neurological Science Department demonstrated that the human brain is incapable of focusing on two things at once. Multitasking is a myth. Walking and chewing gum isn’t in the same stratosphere as having the desire to become a champion in sport and in business.” He also cites the wisdom of Jony Ive and Steve Jobs to highlight that focus is fundamentally an act of exclusion.

““What focus means,” Ive says, “is saying no to something that you—with every bone in your body—think is a phenomenal idea, and you wake up thinking about it, but you say no to it because you’re focusing on something else.” It’s about sacrifice. When Ive first started working at Apple, Steve Jobs told him, “Jony, you have to understand: there are measures of focus, and one of them is how often you say no.” Routinely, Jobs would ask, “Jony, how many things have you said no to today?” This kind of focus, Ive admits, “takes so much effort . . . But all of the good things we’ve done have required that sort of focus.””
— Paul Rabil

This reminds me of what we have previously learned from Harvey Firestone, who was also keen on focusing on what was important in business: thinking. As a matter of fact, he explains that it is quite difficult in business to have some time to yourself to think as numerous things come up every day that will need your attention. However, Firestone mentions that it is important to set aside some time to think as thinking is primordial in making good decisions and to run a successful business in the long run. He provides the example of Henry Ford, the founder of Ford Motor Corporation. While Ford is known for making business decisions quickly, but in reality, “He reaches his decisions slowly and alone; he does not jump at anything, and so, when the time comes for execution, everything moves with marvelous rapidity because everything has been previously thought through and planned.“

As a matter of fact, Ford was a master of delegating executive duties to others and made sure to have enough time on his own to think, and to plan and to watch. He would make sure to never assign any executive duties to himself and to have no social obligations. Hence the importance of being able to say no. It is often mentioned that the difference between average results and exceptional results is what you avoid. In fact, there is an exact amount of hours per week and saying yes consumes time while saying no saves time. The famous Daniel Kahneman has a rule that he never says yes on the phone and will only reply later by email after thinking about it, which he rarely does. By saying no, you are able to save more time to spend thinking or to focus on better opportunities.

“He has had the time to do this thinking and planning because he has used his time himself instead of permitting others to use it for him. And he is certain that plans will be executed for him, because he knows how to let men go when they grow too rich and lazy to execute.”
— Harvey Firestone

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Make Mistakes

“I’ve failed over and over and over again in my life. And that is why I succeed.”
— Michael Jordan

Fear of failure is a perhaps one of the greatest inhibitor of human potential. We are often terrified of looking stupid, of wasting time, or of confirming our own insecurities. We tend to view failure as a verdict on our worth. If we try and fail, we tell ourselves that we are failures. Paul Rabil challenges this narrative aggressively. Throughout his journey, he learned that failure is not the opposite of success but a necessary ingredient of it. He once said, “The path to success, the path you are on—it’s going to be riddled with failures and rejections and mistakes and losses and bad games and bad seasons. All the greats—athletes, actors, entrepreneurs, all of them—have their own long list of failures.”

In fact, he argues that a champion does not avoid failure, but embraces it. Champions use failures as data as they are valuable feedbacks that can be used to improve. Rabil points to the Stoic philosophy and the mindset of elite coaches to illustrate that dwelling on a mistake is actually more damaging than the mistake itself. If you are stuck thinking about the error you made ten seconds ago, you are not present for the opportunity happening right now.

“If we can’t admit to our mistake, we can’t learn. If we can’t learn, we can’t forget. And if we can’t forget, we can’t make the next best play.”
— Paul Rabil

This concept of the “next best play” is crucial. It acknowledges that the past cannot be changed. You cannot un-throw an interception or un-say a regretful comment. However, you have the power to control what happens next. This requires a level of emotional detachment that allows high performers to separate the fruit of their effort from the outcome. They do not take a loss personally but rather professionally. Rabil explains, “A dividing line between success and failure is simply the ability to bounce back quickly. To accept that failure is part of this process. And never mope just because you messed up, never take a week off. Because it’s really two.”

Rabil illustrates this with the concept of the “pendulum.” Life moves in swings. Highs are followed by lows, and lows are followed by highs. The mistake many people make is believing that the low point is permanent. They stop swinging. They retreat. But the champion understands the physics of success: the downward swing provides the kinetic energy necessary to rise again. Rabil writes, “When you are at an extreme—when things are going well or unwell—remind yourself that the swing in the other direction is just a matter of time. That you can’t have the swing up without the swing down. And you can’t swing back up without experiencing the pain of the downswing. Just commit to the experience and trust that you’ll come around.”

This perspective transforms how we should view adversity. Rabil shares stories from legends like Bill Belichick and Michael Jordan, noting that their resumes are filled with important losses along with their success. Yet, they are defined by their wins because they refused to let the losses define them. They understood that losing is simply a by-product of being in the arena. As Michael Jordan once said, “I’ve missed more than 9000 shots in my career. I’ve lost almost 300 games. 26 times I’ve been trusted to take the game winning shot and missed. I’ve failed over and over and over again in my life. And that is why I succeed.”

“This is both a philosophical point and simple math: To win a lot, you have to risk losing a lot. If you stick around, those losses are going to add up—that can’t scare or scar you. Losing is a by-product of being good enough and not quitting.”
— Paul Rabil

This reminds me of Sir Alex Ferguson, the legendary manager of Manchester United, whose family motto is “Dulcius ex asperis”, meaning “Sweeter after difficulties”. A saying that marked his 39 years in football management. As a matter of fact, Ferguson mentions that the recovery after losses is an important part of Manchester United’s success.

The famous Class of ‘92, a group of young players that would end up bringing major success to the Club such as David Beckham, Paul Scholes and Ryan Giggs, came up after a series of defeats. Notably, Ferguson mentions that “I lost three FA Cup finals, to Everton, Arsenal and Chelsea. I lost League Cup finals to Sheffield Wednesday, Aston Villa and Liverpool. And two European Cup finals to Barcelona. (…) When we lost the FA Cup final to Everton in 1995 I said: ‘That’s it, I’m making changes here.’ And we made them.“

Ferguson mentions that after a loss, his first thought was always to “think quickly about what you should be doing.” Rather than being upset about the defeat, his mind would go straight into thinking about improvement and recovery.

“Sometimes defeats are the best outcomes. To react to adversity is a quality. Even in your lowest periods you are showing strength. There was a great saying: It’s just another day in the history of Manchester United. In other words fighting back was part of our existence. If you are lackadaisical about defeats you can be sure there will be more to come.”
— Alex Ferguson

Similarly, Ferguson realised that this ability to face adversity can also applied in finding potential players for Manchester United. He explains that while he was examining successful people, he realised that “a modest start in life can be a help more than a hindrance.” In fact, he explains that many of his greatest players excelled partly due to their working-class background.

This is extremely helpful, especially for Manchester United players who are playing in front of fans with high demands and with short patience span. As a matter of fact, the main thing Ferguson looks for in players is temperance. He would ask himself the following “Would they grow or shrink in a United shirt?”

Ferguson mentions that he has coached only one player who was totally unaffected by his mistakes, and that was David Beckham:

“You had to admire that. In a way it was a great quality. No matter how many mistakes he would make (in my eyes, not his), he would always want the ball. His confidence never suffered. Otherwise, dips of that kind are innate to all footballers, and plenty of managers. Public scrutiny penetrates the body armour, whether from the public, press or fans.”
— Alex Ferguson on David Beckham

Generally, even the best players can lose confidence. And, it is the manager’s responsibility to create an environment where players can thrive under external pressure and through success and adversity. Ferguson believes in building a culture around the training ground so that players can fall back on in cases of adversity.

Ferguson explains that “What we did at all times, in success and adversity, was make sure the training ground was sacrosanct. The work there, the concentration, and the standards we maintained never dropped. Eventually that consistency of effort will show itself on a Saturday.”

More importantly, Ferguson had the tendency to treat his players like he would treat his family. No matter their performance, he would always have their back. Even after terrible losses, while he could criticise the performance of the team in general, he would never criticise a specific individual after the game to the media. As Warren Buffett once said, “Criticise by Category — Praise by name.”

“At my end of it, I had a formula for defeat. After saying my bit in the dressing room, always, before going through that door to face the press, to face the television, to speak to the other manager, I said to myself, ‘Forget it. The game’s gone.’ I always did that. Whenever people came to my room at the ground after a game, I always made sure there was a good atmosphere. There was no gloom, no frostiness. No blaming the referee.”
— Alex Ferguson

Furthermore, Ferguson explains that after a defeat his feeling was always: “I don’t like this, but we’ll have to meet the challenge. We’ll have to step up a mark.” In fact, he enjoyed challenge and took defeats as a motivation to improve as a team.

He mentions that “Every time those moments poked us in the eye, we accepted the invitation to regroup and advance again. Those were motivating passages. They forced me on. I’ll go further: I can’t be sure that without those provocations I would have enjoyed the job so much.”

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Today’s Chapter is based on the book “Dream Big (Sonho Grande): How the Brazilian Trio behind 3G Capital - Jorge Paulo Lemann, Marcel Telles and Beto Sicupira Acquired Anheuser-Busch, Burger King and Heinz” by Cristiane Correa.

3G Capital is a global private equity and investment firm founded in 2004 that evolved from the Brazilian investment office of Jorge Paulo Lemann, Marcel Telles, and Carlos Alberto Sicupira. It is known for an owner-operator, cost-focused approach and for high-profile, long-term investments in consumer brands such as Anheuser-Busch InBev, Restaurant Brands International (Burger King, Tim Hortons, Popeyes), and Kraft Heinz.

Buy it on Amazon here.

Here’s what I learned:

Invest in People

“Employees are a company’s greatest asset – they’re your competitive advantage. You want to attract and retain the best; provide them with encouragement, stimulus and make them feel that they are an integral part of the company’s mission.”
— Anne M. Mulcahy

The story of Jorge Paulo Lemann, Marcel Telles and Beto Sicupira at Banco Garantia and later at 3G Capital is a proof that prioritizing human is the key to success in business. From their early days at Banco Garantia to orchestrating massive acquisitions like Anheuser-Buschc, Burger King, and Heinz, the trio had an unwavering commitment to their employees. This approach wasn’t just about hiring great talents, it was also about nurturing them, challenging them and sharing the rewards in a way that encouraged corporate loyalty and exceptional performance.

In fact, one of the core insights from 3G Capital is how they viewed people as their primary asset, even when unproven. They believed in giving young leaders opportunities and accepting occasional setbacks as part of the growth process. Similarly to Alan Greenberg at Bear Stearns, the trio loved to hire PSDs, where “PSD stands for poor, smart and a deep desire to become rich.” This criteria prioritized hunger, intellect, and ambition over pedigree.

Jim Collins writes in the Foreword that, “The founders certainly have a strong dose of financial genius, but that is not the primary source of their success. From the very beginning, their primary investments have been in people, especially young and talented leaders.”

“Their philosophy: Better to give talented (if unproven) people a chance, and endure a few disappointments along the way, than to not believe in people. The number one ingredient in their secret sauce is an obsession with getting the right people, investing in those people, challenging those people, building around those people and watching those people experience the sheer joy and exhilaration of achieving a big dream together.”
— Jim Collins

Furthermore, Lemann, learned from his experience working at Invesco: you need to pay your employees well. More importantly, he was eager to set a company culture where merit, not hierarchy reigns supreme. Lemann, Telles and Sicupira cultivated a meritocratic environment that rewarded performance and aligned incentives so that everyone shared in the upside. This meritocracy wasn’t soft, it was rigorous and demanding. As Jim Collins mentions, “The founders built a consistent culture that gave people the opportunity to share in the rewards of the big dream. The culture valued performance, not status; achievement, not age; contribution, not position; talent, not credentials. By mixing these three ingredients–Dream + People + Culture–into a powerful concoction, they created a recipe for sustained success.”

However, meritocracy also had its ruthlessness. Once inside the organization, there was no room for complacency for the employees. Performance was the sole currency for advancement and reward. Correa writes, “Those who were good rose. Those who were not inevitably turned up as a subject of discussion at the partners’ annual meeting, known as the “smoke signal,” which decided who would be fired. The practice was to get rid of around 10% of the headcount annually. Garantia worked with a team of just over 200 people for more than a decade. This was a rule created by Lemann to prevent the firm from expanding too much. This meant that getting rid of the worst performers was the only way to open room for new, talented young people.”

Nonetheless, those that survived were rewarded generously. As a matter of fact, Lemann, Telles and Sicupira cultivated a culture of ownership, allowing top talent to buy into the partnership, aligning their personal wealth directly with the firm’s success. This created a powerful flywheel: great people were attracted to the chance for outsized rewards, their efforts drove extraordinary results, and their resulting wealth reinforced the culture’s credibility, attracting the next generation of talent. The results are incredible: “It has been estimated that since Banco Garantia was founded in 1971, between 200 and 300 people who worked in the three partners’ various businesses have each earned more than US$ 10 million. Forbes magazine reported in March 2013 that Lemann was the 33rd richest man in the world, with a fortune of almost US$ 18 billion (Telles and Sicupira were ranked in the 119th and 150th positions, with US$ 9.1 billion and US$ 7.9 billion, respectively). The three are among the 10 richest people in Brazil. Those who know Lemann well have no doubt that he only became a top-level billionaire because he enriched dozens of people on the way.”

“For Lemann, Telles and Sicupira, culture is not in support of strategy; culture is strategy. The three partners have always held to their core values and distinctive culture, while continually growing into new industries, expanding across geographies, and pointing towards ever bigger goals–a beautiful example of the underlying dynamic, “Preserve the Core and Stimulate Progress” exemplified by any enduring great company.”
— Jim Collins

This reminds me of Ken Iverson’s egalitarian culture at Nucor. As a matter of fact, considering Iverson pushed for a decentralization model, it is not surprising that Nucor thrived by dismantling traditional hierarchies and creating an egalitarian culture where every employee was treated as an equal, regardless of title. This wasn’t mere rhetoric; it was embedded in policies that eliminated perks for executives, promoted open communication, and ensured transparency. Iverson believed that motivation stems from feeling valued and respected, and an egalitarian environment sustains that over time, leading to higher productivity and loyalty. By rejecting symbols of status and sharing information freely, Nucor built trust that differentiated it from union-heavy competitors in the steel industry.

“The term that comes closest to describing Nucor’s culture, I think, is “egalitarian.”
— Ken Iverson

One example of Iverson’s disdain for hierarchical symbols was evident in his decision to standardize hard hats, a small but powerful move to erase visible distinctions. Iverson explained, “In Nucor plants, like most hard hat environments, workers, supervisors, department managers, and the general manager of the facility all wore different color hard hats, signifying their place in the hierarchy. And a high-ranking executive visiting from headquarters might be given a gold hard hat to wear, as a symbol of his lofty status. This was in keeping with industry tradition, but it seemed so contrary to our goal of maintaining an egalitarian culture, I decided right then and there, without consulting anyone, that all Nucor personnel would wear green hard hats, and all visitors would wear white, from then on, no exceptions.“

Nucor’s egalitarianism extended to benefits and amenities with all executives forgoing luxuries to align with frontline workers. Iverson noted that “executives get the same group insurance, same holidays, and same vacations as everybody else. They eat lunch in the same cafeterias. They fly economy class on regular commercial flights (although we do allow the use of frequent flyer upgrades). We have no executive suites and no executive cars.“

Furthermore, Iverson believed in sharing information with his employees, as a tool to build trust and to promote an egalitarian working culture.

“Sharing information is another key to treating people as equals, building trust, and destroying the hierarchy. I think there are really just two ways to go on the question of information-sharing: Tell employees everything or tell them nothing. Otherwise, each time you choose to withhold information, they have reason to think you’re up to something. We prefer to tell employees everything. We hold back nothing.“
— Ken Iverson

Finally, by living as part of the company rather than above it, Iverson showed that egalitarianism isn’t just fair, it is a strategic advantage for motivation and performance. When asked how he could explain Nucor’s success, Iverson mentions that “It is 70% culture and 30% technology.”

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Learn from Others

“If I have seen further [than others], it is by standing on the shoulders of giants.”
— Isaac Newton

One of the most surprising aspects of Lemann, Telles and Sicupira’s success is their humility. They do not claim to have invented anything, instead, they believe that they are shameless proponents of copying what works. They view the business world as a vast laboratory where others have already run the experiments. Their genius lies in identifying the best practices from around the globe and implementing them with superior discipline. This explains why they were able to acquire and run successful businesses in different industries.

Their humility can be demonstrated from this quote from Warren Buffett who got to know Jorge Paulo Lemann when they were both on the board of directors of Gillette: “I knew absolutely nothing about him and had never even heard of him. We used to meet every two or three months and it took some time before we really got to know each other. However, you learn a lot of about people on a board of directors. What I noted right from the beginning was that he said things that made sense. He didn’t pretend to know things he didn’t or talk just to hear the sound of his own voice. He had a tremendous view of business and was articulate, which cannot be said for all board members.”

As a matter of fact, Jim Collins explains that “From early in his career, Jorge Paulo Lemann actively sought people he could learn from, and he would make pilgrimages to visit them: the great Japanese industrialist Matsushita, the visionary retailer Sam Walton, the great financial genius Warren Buffett. Not only that, he found ways to connect great people with other great people; he wasnʼt “making connections” in the traditional way, but facilitating interactions among exceptional people and thereby stimulating an exponential level of learning for everyone. Interestingly, as he moved into his fifth, sixth and seventh decades of life, he continued this learning quest, often seeking mentors and teachers younger than himself. The three founders remain always students, learning from the best and then teaching the next generation.”

For example, when Sicupira was tasked with turning around Lojas Americanas after its acquisitions, he did not waste any time to seek help from the giants of retail which lead him to a pivotal relationship with Sam Walton. Their relationship with Walton was vital as they could not have met a better teacher to show them how to operate in the retail business.

“Shortly before assuming command of Lojas Americanas, and when he was still on the executive board, Sicupira sent 10 letters to some of the worldʼs biggest retailers. He introduced himself and asked if he could learn how each company operated at firsthand. His aim was to learn from the leaders and then adopt the best ideas. Why waste time reinventing the wheel if he could copy from the most advanced companies in the world? Two never replied while another two politely declined. Five companies, including Kmart and Bloomingdaleʼs, replied and invited him to visit their head offices. The CEO of one of the companies Sicupira contacted went further and phoned him directly. He said he would be happy to receive him and show him the operations of his company, a chain he had founded in Arkansas in 1962. His name was Sam Walton and the company he ran was called Walmart.”
— Christiane Correa

Similarly, when running Banco Garantia, Lemann pretty much copied the Goldman Sachs’ model in terms of remuneration. Correa writes, “Garantia paid salaries that were below the market average but the bonus could amount to four or five extra salaries, a potentially huge amount of money at that time. Of course, this was conditional on the employees beating their targets. It was a clear and simple rule that was valid even for the office boys: work well and you will be rewarded. Lemann believed it was essential that everybody, even those at the very bottom, felt like “owners” of the business. Lemann decided that was the only way they would give their best and make the institution grow. To encourage people even more, the bonus was paid twice a year.“

Even their concept of “ruthless meritocracy” is copied from the management strategies of General Electric under Jack Welch. The trio saw the “20-70-10” rule which rewards the top 20%, keep the middle 70% and fire the bottom 10% and applied it to the beer industry in Brazil while running Brahma. Correa mentions, “Of course, this was not exactly an original idea. Tellesʼ thinking resembled what Jack Welch, the legendary CEO of GE, had adopted in the long-standing company founded by Thomas Edison. The similarity was not unwarranted. Telles and his partners never had any experience with GE, as they did with Goldman Sachs and Walmart, but the companyʼs annual reports were a Bible for the Brazilians who, once again, copied the best from them. Welch, regarded as the CEO of the 20th century, led GE from 1981 to 2001. During this period, GE adopted what became known as the 20-70-10 rule. It laid down that employees in a meritocratic environment should be split into three ranges: the 20% top performers should be rewarded, the 70% average performers retained and the 10% underperformers shown the door. By adapting the GE rule to its own situation, Brahma renovated its workforce.”

“I don’t know if I am going to learn to eat hamburger, but I will learn how to make it…I reached the conclusion that the brand [Burger King] is much stronger than people thought.”
— Beto Sicupira

This reminds me of Mohnish Pabrai who believed in investing in companies that are copycats. He mentions that investors should favor investing in businesses that copy and scale proven models rather than those that innovate from scratch. Innovation, while celebrated, is inherently risky, whereas copying successful models reduces uncertainty. As Pabrai explains, “Innovation is a crapshoot, but investing in businesses that are simply good copycats and adopting innovations created elsewhere rules the world.”

He uses the example of Microsoft as a case study to illustrate this principle. In Pabrai’s opinion, Microsoft’s success lies in its ability to adopt and scale innovations pioneered by others, effectively neutralizing competitive threats. He mentions that “Microsoft repeatedly has reacted to innovation outside its walls by acting quickly and intensely to nullify the threats. They have looked for customer validation of someone else’s innovation before embarking on their own. It is a very powerful strategy.”

“Microsoft is an excellent lifter and scaler. It has had 90 + percent success in annihilating the “enemy product” it has gone after. It is an open question how the battle of Google versus Microsoft will finally play out. With over sixty thousand employees, Microsoft is now, unfortunately, the bureaucracy it has always despised. If I were given just two investment choices of Google or Microsoft at present prices, it is a no-brainer decision for me. I’d pick Microsoft all day long. It is a battle between an innovator versus a cloner. Good cloners are great businesses. Innovation is a crapshoot, but cloning is for sure.”
— Mohnish Pabrai

As a matter of fact, Pabrai argues that copycat businesses, when run by capable managers, often outperform innovators because they avoid the pitfalls of untested ideas. He once said that “In seeking to make investments in the public equity markets, ignore the innovators. Always seek out businesses run by people who have demonstrated their ability to repeatedly lift and scale. It is the Dhandho way.”

However, this approach is not about stealing ideas, but about recognizing and scaling proven concepts. Pabrai points to Sam Walton’s Wal-Mart as an example. He mentions that “Sam Walton was a lifelong student (and lifter) of other retailers’ models. Most of Walmart’s business model was lifted from Kmart. If you carefully study the most successful businesses around, you’ll notice that much of it has been lifted and scaled by great executers.”

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Simplicity

“Take a simple idea and take it seriously.”
— Charlie Munger

In an era where corporate success often led by expensive offices and corporate jets, the trio at 3G Capital adopted a different approach: aggressive simplicity. This was not merely a choice of style, but a business strategy to survive. They viewed every dollar spent on non-essential items as a dollar stolen from the shareholders’ returns. Their philosophy believes that complexity is the enemy of execution. By keeping the operation simple and the environment austere, they ensured that focus remained entirely on the work. This approach often came as a shock to the companies they acquired, as the austerity was not common among big corporations.

Jim Collins writes, “Simplicity has genius and magic in it. On almost every dimension, the three founders exemplified simplicity. They have very simple dress; you would not notice them in a crowd. They kept simple offices, never walling themselves off from their people in an executive suite. They used their increasing wealth not for opulence, but to simplify their lives, so they could focus on continuing to build the company. (I learned that the best sign of true wealth is an uncluttered calendar, with time available to focus on the most important priorities.) And their entire strategy is so simple: Get great people, give them big things to do and sustain a meritocratic ownership culture.”

When Lemann started Banco Garantia, he tore down closed offices and preferred open-plan offices to facilitate communication and destroy hierarchy. They believed that physical barriers created psychological barriers and were against their culture of meritocracy. As such, this was a common technique that was used when acquiring new companies. When Telles took over Brahma, the removal of walls was often one of the first action of the new management team.

“To speed up the changes, Telles and his men adopted more or less the same approach used in Garantia and Lojas Americanas. The walls of the directorsʼ offices were torn down and gave way to a big table they all shared. The number of secretaries shrank and the executives had to get used to sharing them with their colleagues. Reserved parking places for directors were abolished and those who arrived first got the best spots, a rule that applied to Telles himself. The executive restaurants were closed and the segregated bathrooms for executives and “others” were also scrapped.”
— Christiane Correa

Furthermore, the trio were relentless in terms of cost-cutting. High costs among the company were regarded as a sin. Correa writes that “Executives flew coach class and stayed in three-star hotels, sometimes even sharing the same room. Meals in restaurants were modest affairs, washed down with a beer, at most.” As a matter of fact, the corporate culture built by Lemann was quickly spread to all the companies in which they invested: “meritocracy, relentless cost control, hard work and a lot of pressure that not everyone could endure.” As Sicupira once said, “Costs are like nails; they always need to be cut.”

Nonetheless, it is important to note that the trio’s obsession on cost-cutting was based on their focus on building a simple business and not on “managing money”. Instead, they believed wealth is a byproduct of building something great. As Lemann once said, “When everyone else was spending their time managing their money, we invested our time in building our company. If we built our company, then that would be the very best way in the long run to generate wealth. Managing money, by itself, never creates something great and lasting, but building something great can lead to substantial results.”

As such, when they acquired new companies, they kept things simple, mainly because they bought great companies and they did not want to mess it up. As such, sharing cost-cutting policies and sharing corporate culture were the only things they needed to accomplish. Their entire strategic playbook is elegantly simple, a recurring loop: Get great people, give them big dreams to pursue, and sustain a meritocratic ownership culture.

“You and your team should do absolutely nothing in the first year that has to do with the business. Only do sensible things while you learn how the company works. If you start doing things related to the way the business operates as such, there is a good chance of making a mess of it.”
— Beto Sicupira

This relentless focus on cutting costs reminds me of Capital Cities. Murphy and Burke at Capital Cities understood a fundamental truth: while revenues in an advertising-based business could be unpredictable, costs were almost entirely within their control. They instilled a culture where every dollar spent was scrutinized, not for the sake of being cheap, but to build a resilient and highly profitable enterprise. This frugality was a defensive moat against economic downturns and a competitive weapon. As Thorndike explains, “Frugality was also central to the ethos. Murphy and Burke realized early on that while you couldn’t control your revenues at a TV station, you could control your costs. They believed that the best defense against the revenue lumpiness inherent in advertising-supported businesses was a constant vigilance on costs, which became deeply embedded in the company’s culture.”

“The best defense against revenue uncertainties are constant, tight cost controls.”
— Tom Murphy

In fact, the most legendary story about Tom Murphy was how he scrutinizes every expenses, even for paint. Thorndike writes, “Shortly after Murphy arrived in Albany, Smith asked him to paint the dilapidated former convent that housed the studio to project a more professional image to advertisers. Murphy’s immediate response was to paint the two sides facing the road leaving the other sides untouched (“forever cost conscious”). ”

More importantly, this cost control culture was passed down from the executives to the operating managers. As Phil Beuth mentions, “Now, 30 years later, the company is no longer small, and if you wonder how it happened, well, there is no mystery; we just did it day to day. The bankrupt stations lost $ 360,000 the first year, and we did not turn the corner until our third year, after going back to our stockholders twice for $ 150,000 each time. There were 39 employees running radio and TV, and we learned one important thing—we needed only a few people to keep things going. That experience was worth a great deal to Capital Cities over the years. It helped us avoid building up huge staffs. We believed we should hire the best people, pay them well, and never have more people than necessary. Even to this day, we have no corporate counsel, no vice president of personnel, no public relations department.”

“The goal is not to have the longest train, but to arrive at the station first using the least fuel.”
— Tom Murphy

Furthermore, Murphy and Burke’s success in building Capital Cities was often by acquiring companies and incorporating Capital Cities’ culture of being cost efficient. Often, this would allow the newly acquired subsidiary to run leaner and to boost margins significantly.

A great example of this was how they transformed ABC’s culture from extravagance to efficiency. Thorndike mentions that “Burke and Murphy wasted little time in implementing Capital Cities’ lean, decentralized approach—immediately cutting unnecessary perks, such as the executive elevator and the private dining room, and moving quickly to eliminate redundant positions, laying off fifteen hundred employees in the first several months after the transaction closed. They also consolidated offices and sold off unnecessary real estate, collecting $175 million for the headquarters building in midtown Manhattan.”

“ABC, in fact the whole broadcasting industry, was a limousine culture—one of the most cherished perks for an industry executive was the ability to take a limo for even a few blocks to lunch. Murphy, however, was a cab man and from very early on showed up to all ABC meetings in cabs. Before long, this practice rippled through the ABC executive ranks, and the broader Capital Cities ethos slowly began to permeate the ABC culture. When asked whether this was a case of leading by example, Murphy responded, “Is there any other way?””
— William Thorndike

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Beyond the Book

Read "Even in an idea meritocracy, merit cannot be the only determining factor in assigning responsibility and authority." by Ray Dalio

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