Chapter 150 - How to Make a Few Billion Dollars
What I learned from Brad Jacobs
Today’s Chapter is based on the book “How to Make a Few Billion Dollars” by Brad Jacobs.
Brad Jacobs is an American entrepreneur renowned for founding and leading multiple billion-dollar companies, including QXO, Inc., XPO Logistics, United Rentals, and United Waste Systems. His career spans industries from oil trading to logistics and building products, with a record of over 500 acquisitions and transforming fragmented sectors through consolidation and innovation. Jacobs is recognized as one of the most successful business leaders of his era, having created outsized value for shareholders and authored the book “How to Make a Few Billion Dollars” in 2024.
Here’s what I learned:
Embrace Problems
“Problems are only opportunities in work clothes.“
— Henry Kaiser
Brad Jacobs makes it clear that that the habits of thought we bring to business are as important as any spreadsheet or market analysis. He believes that having an optimistic mindset is primordial in producing better business decisions and by consequence, having a more resilient business. As such, Jacobs encourage us to practice how to reframe our mindset by borrowing practices from positive psychology and cognitive behavioral techniques.
For example, he explains that “My wife and I learned this lesson firsthand while raising our children. When we put our kids to bed at night, we’d ask them the same question many parents do: How was your day? Sometimes, we’d hear the good, sometimes the bad, and sometimes the ugly. Then we met Martin Seligman, and he suggested asking children a slightly different question: What was the happiest moment of your day? We tried it. The change was dramatic—no bad, no ugly, just the good. And maybe because our kids knew the question was coming, they kept their antennas up all day with the expectation that the happiest moment could happen at any time. What an easy way to create an optimistic frame of mind!”
As such, Jacobs argues that if you change the question, you can change the scanning pattern of the brain. This skill or habit is primordial in a business settings, as a business can simply be defined as a company that helps its customers to solve problems. Jacobs says, “In that moment, I learned something invaluable: Problems are an asset—not something to avoid but something to run toward. Big ambitions often beget even bigger problems. If your initial reaction to a major setback is overwhelming frustration, that’s understandable, but it’s also counterproductive. Once you’re over that moment, pivot toward success: “Great! This is an opportunity for me to create a lot of value. If I can just figure out how to solve this problem, I’ll be much closer to my goal.””
The morale of the story is simple: don’t be afraid of problems, they are opportunities for you to create value. Train yourself and your team to feel excitement when facing large problems.
“A fellow CEO laid this out for me graphically once when we were talking about M&A deals. “Think of M&A as having four quadrants defined by size and risk,” he said. “Big, low-risk deals are the ones everyone wants, but they don’t exist. Small, low-risk deals do exist, but you can’t make much money from them because of their size. Small, hairy deals are the worst quadrant, because the reward is limited and the odds are stacked against you, so why bother? The bingo quadrant is the big, hairy deals. If you can find a big, hairy deal with solvable problems, that’s where the real money is.””
— Brad Jacobs
Furthermore, Jacobs mentions that it is in human nature to fear big problems especially when they have a large downside risk. As such, it is very difficult to project the positive outcomes or opportunities that come with these problems due to this bias. He advises us to question ourselves with a basic cognitive behavioral therapy (CBT) question to prevent anxiety from hijacking our decisions.
Here’s how Jacobs describes it: “Inevitably, the process of running a business will test your bias toward hope or fear. Are you being too conservative about your projections? Is your fear keeping you from jumping into an opportunity? Is your anxiety fact-based, or are your biases spurring negative emotions? By keeping any biases at arm’s length from your decision-making, you’ll have a far better chance of success. When I notice I’m feeling anxious about something, I ask myself a basic CBT question: ‘What’s the worst that can happen, and how would I cope with that?’ Or, ‘If a friend had a similar worry, how would I advise them to handle it?’ By putting distance between myself personally and the source of the anxiety, I can think more objectively about positive outcomes.“
Similarly, Jacobs suggests using meditation and thought experiments to expand our mind positively which has helped him in making better creative long-term decisions. In fact, he mentions the concept of “gedankenexperiments”, german word for thought experiments, which Einstein used for some of his greatest discoveries.
“I usually spend about half an hour a day meditating—15 minutes in the morning, 15 minutes at night—and much of that time is spent in gedankenexperiments. For me, this creates a feeling of profound calmness, which is when many of my best decisions materialize. Some gedankenexperiments fill me with awe at the sheer magnificence of the universe. Or I think about how it felt to see a beautiful work of art, watch a sunrise, connect with a piece of music, or hold my child in my arms. Daydreaming exercises remind me that positive emotions matter, especially in chaotic business environments.”
— Brad Jacobs
As we have previously learned, Einstein preferred the use of thought experiments over discoveries through trial and error. A thought experiment is an easy tool in order to use one’s imagination in order to investigate the nature of things. This allows us to make experiments at a low cost. For example, if you were asked who would win in a basketball game between Warren Buffett and Michael Jordan, you wouldn’t need to call both of them in order to have them play a game of pick-up to know who would win. You’d easily deduce the results by simulating the game in your mind.
“Our own ideas are more easily and readily at our disposal than physical facts. We experiment with thought, so as to say, at little expense. It shouldn’t surprise us that, oftentime, the thought experiment precedes the physical experiment and prepares the way for it… A thought experiment is also a necessary precondition for a physical experiment. Every inventor and every experimenter must have in his mind the detailed order before he actualizes it.”
— Ernst Mach
Power of Scale
“Every company that intends to grow, should directly address the barriers to scaling.”
— Hendrith Vanlon Smith Jr.
What makes Brad Jacobs’ entrepreneurship career impressive is the fact that he was able to create multi-billion dollar companies in various industries ranging from oil trading to logistics. He often achieved this by scaling these businesses through a roll-up strategy, which is the process of acquiring and merging multiple smaller companies in the same industry and consolidating them into a large company. As such, understanding his thought process on how he identifies an industry to do business in is quite fascinating.
In fact, Jacobs, on this subject, explains that “One of the first things I look for in an industry is scalability. I want to be able to envision how I’ll take a business from a few million dollars to tens of billions of dollars. What will be the path to do that, and how fast can we move along that path? Is the industry growing much faster than GDP so that we’ll probably generate top-line growth each year just by showing up and can build from there? What’s the base price/volume combination we need to be profitable, and how realistic is it to significantly increase our profit margin over time? What could prevent us from doing that?“
His analysis then goes deeper as he examines the structural advantages of size, economies of scale, and the potential for growth both organically and through mergers and acquisitions (M&A). He is particularly focused on the “arbitrage” between the cost of acquiring companies and the value they can create within his larger entity. He says, “Structurally, is it an industry where companies have advantages of size and economies of scale? Are there ways to grow the business organically or through M&A? What multiples will I likely have to pay for companies I acquire, and is that number a large enough discount from the multiple I’d expect my company to trade at? This is important because the arbitrage between our cost of capital and what multiple we’re able to buy companies at is the biggest value-creation lever in a roll-up.”
“When it comes to making a few billion dollars, I’ve got a bias toward industries that are ripe for consolidation. Acquisitions are the best way I know of to scale up fast and gain the advantages that come from a large number of locations and greater market share. With scale, I can professionalize the operations by integrating best practices, spread my cost base over a larger revenue base, and attract desirable customers and management talent.”
— Brad Jacobs
Once he identifies an industry with scalability, Jacobs explains that the next step is to understand everything about the industry. Therefore, he must invest heavily in research and to seek input from experts before jumping into a new venture. As a matter of fact, he mentions that “The most time-consuming task in my methodology is processing all the digital information that I accumulate; it’s a far cry from 44 years ago, when I physically went to the library to start researching industries. But I’ve got a team of super smart people who are good at distilling tons of source information. As I go through the material, I note my observations in preparation for the next step—my interviews with experts. After absorbing a lot of data and arming myself with questions, I seek out people who live and breathe the industry I’m considering. Some of this can be done with video chats, but this phase is more about getting face-to-face and listening intently.”
Finally, as we have mentioned previously, a company gains value by solving its customers’ problems. Therefore, it is not surprising that Jacobs often gets his next big money idea by talking to his customers.
“One effective way to spot new trends is to ask your customers what their dream tech would look like, assuming anything is feasible and cost isn’t a factor. That removes any psychological blocks. I want to know what my customers would go ga-ga over, no matter how fantastical it sounds. What capabilities would it have, what data would they want to push or pull, how would it help them succeed? This produces an avalanche of ideas, which we evaluate for impact, cost, and returns. The ones that make it to the short list are the projects with the greatest value and highest potential return. We stack rank them and then set a budget that’s affordable.”
— Brad Jacobs
This focus on scalability and on customers’ needs reminds me of what we have learned from Sam Walton’s success at Wal-Mart. In fact, in my opinion, at the heart of Wal-Mart’s success lies in Sam Walton’s obsession with providing value to his customers. He mentions, “I learned this early on in our business: the secret of successful retailing is to give your customers what they want. And really, if you think about it from the point of view of the customer, you want everything: a wide assortment of quality merchandise; the lowest possible prices; guaranteed satisfaction; friendly, knowledgeable service; convenient hours; free parking; a pleasant shopping experience.”
This customer-first mentality wasn’t just a slogan, it was deeply embedded in how he approached every aspect of his business. He believed that if you served customers better than anyone else, success would naturally follow. This philosophy led him to implement a practice that was revolutionary at the time: discounting.
Sam Walton’s understanding of the power of discounting wasn’t a stroke of genius; it was a lesson learned early on, a simple principle with profound implications. He discovered that by lowering prices, even slightly, he could dramatically increase sales volume, resulting in greater overall profit. This wasn’t about sacrificing margins; it was about understanding customer behavior and recognizing the allure of a good deal.
Here’s how he explains it, “Say I bought an item for 80 cents. I found that by pricing it at $1.00 I could sell three times more of it than by pricing it at $1.20. I might make only half the profit per item, but because I was selling three times as many, the overall profit was much greater.”
This focus on low prices was a core element of Walmart’s customer-centric philosophy. Walton believed that providing value to the customer was paramount, and that meant offering quality goods at the lowest possible price. He instilled this belief in his employees, emphasizing the importance of passing savings on to the customer whenever possible. This dedication to low prices and customer satisfaction became the driving force behind Walmart’s growth. It resonated with customers, who flocked to the stores for the unbeatable deals and the guarantee of satisfaction. Walton mentions that “The idea was simple: when customers thought of Wal-Mart, they should think of low prices and satisfaction guaranteed.”
“We exist to provide value to our customers, which means that in addition to quality and service, we have to save them money.”
— Sam Walton
Hire Well
“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
If you are going to make a billion dollar business through acquisitions like Brad Jacobs, it is important for you to have quality people in place as you scale. As such, it is with no surprise that Jacobs emphasizes in hiring well. In fact, Jacobs is explicit: 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
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.
Beyond the Book
Listen to "Brad Jacobs, QXO, XPO, United Rentals & United Waste" by David Senra
Listen to "Brad Jacobs: How To Build a Billion Dollar Company" by The Knowledge Project
Read "Thought Experiment: How Einstein Solved Difficult Problems" by Farnam Street
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