#160 What I Learned from 3G Capital
What I learned from reading “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”
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.
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.”
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.”
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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