OtherI wrote this in November and December of 1985. I did write this 100% with my 40 year old typewriter.I didn't have a ghostwriter. I wanted it in my own words.I hope to pass on some of my theories of business to our people,and I hope these theories are used in our business for as long as the Les Schwab Company continues.Should we fail to follow these policies towards customers and employees,I would prefer that my name be taken off of the business.There could be some interest in this book with people who are interested in business.If so, you are invited to read the book.I hope in some way this book might help you in the business world.If you are not interested in business, this book will bore you,and if I were you, I wouldn't waste your time reading it.
David SenraAll right, so that's from the fourth of the book that I read this week,and the one I'm going to talk to you about today, which is Les Schwab.Pride and Performance Keep It Going, and it was written by Les Schwab.All right, so I want to talk first, before I jump into the rest of the book,how I discovered – like how I found out about this book.So by this point in time, I've done I don't know what, three or four podcastson various books that I've read about Charlie Munger.I've done a podcast on every single shareholder letter that Warren Buffett has ever written,and I did a podcast on two other books on Warren Buffett.These are all in the archives if you haven't listened to them yet.Obviously, you have access to them anytime you want.Go back and listen to them.But they bring up Les Schwab over and over and over and over again.So it's very simple.Like I've learned a lot from both Buffett and Munger, especially Munger.And if they tell – they say – they always talk about the operatorsand the other business people that they admire and they respect.And then if there's books on them, they explicitly say, hey, you should go read this book.So let me just read some of the various little quotes that I've collected in this regard.This is Charlie Munger.He's giving – it's at the Berkshire meeting in 2004, and he says,if you want to read one book that will demonstrate really shrewd compensation systemsin a whole chain of small businesses, read the autobiography of Les Schwab,who has a bunch of tire shops all over the Northwest.And he made a huge fortune in one of the world's really difficult businessesby having shrewd systems.He can tell you a lot better than we can.
[2:16]
OtherWarren Buffett on the book says, it's an interesting book, selling tires.How do you make money doing that?Then he talks – there's a different speech.This is a speech back in 2003 at the University of California.I'm going to read a few paragraphs from this.
CharlieThis is Charlie Munger talking, and he says, there's a tire store chain in the Northwestwhich has slowly succeeded over 50 years, the Les Schwab tire store chain.It just ground ahead.It started competing with the stores that were owned by the big tire companiesthat made all the tires, the Goodyears and so forth.And of course, the manufacturers favored their own stores.I'll talk to you more about Les' view on that later.Their stores had a big cost advantage.Later, Les Schwab rose in competition with huge price discounters like Costco and Sam's Club.And before that, Sears and so forth.And yet here is Schwab now with hundreds of millions of dollars in sales.And here's Les Schwab in his 80s with no education having done the whole thing.How did he do it?I don't see a whole lot of people looking like a light bulb has come on.Well, let's think about it through – let's think about it with some microeconomic fluency.Then he's going to talk about what – like a brief summary of what he believes was –like led to some of the success that Les had.So he says, is there some wave that Schwab could have caught?The minute you ask the question, the answer pops in.The Japanese had zero position in tires, and they got big.So this guy must have ridden that wave some in the early times.Then the slow-flowing success has to have some other causes.And what probably happened here, obviously, is this guy did one hell of a lot of things right.And among the things that he must have done right is he must have harnessed what –Manquill – I don't know how to pronounce that name – calls the superpower of incentives.He must have had very clever incentive structure driving his peopleand a clever personnel selection system, et cetera.And he must be pretty good at advertising, which he is.He's an artist.So he had to get a wave in the Japanese tire invasion, the Japanese being as successful as they were,and then a talented fanatic – remember that word, fanatic –had to get a hell of a lot of things right and keep them right with clever systems.Again, not that hard of an answer.But what else would be a likely cause to this peculiar success?And then now we have another quote from – it's one of Buffett's shareholder letters.
[4:51]
OtherI don't know which year.But he says, it's extra tough when a fanatical – there's that word again –fanatical small competitor like Rose Blumpkin – that's the lady that –she ran Nebraska Furniture Mart until she was like 103,wound up doing hundreds of millions of dollars a year in revenue.Warren Buffett famously bought her business, and he talks a lot about her in his shareholder letters.Anyways, so he says it's extra tough when a fanatical small competitor like a Rose Blumpkinor a Les Schwab or a Sam Walton sets their sight on your particular marketplace, Buffett said.How do you compete against a true fanatic?You can only try to build the best possible moat and continue to attempt to widen it.So I wanted to bring that up at the very beginning because I think it gives you a good introductioninto who Les Schwab is or was, I guess,and helps understand a lot of the things I'm going to go over in the book.All right, so let me go back to the book.I'm going to start at the very beginning.What I love about Les is that he had a very strong opinion that you should not have a crab-in-the-bucket mentalityand that you need to share everything that you learn and know with other people.In his particular thing, he's like, I need to constantly educate my employeesbecause the only way we're going to be successful is if I can work through them.A way to work through them is to instill them with all the ideas and theories I haveon how we should be running this business.So he says, this is his main thing that he talks about over and over again in the book,the one that Charlie Munger and Warren Buffett always talk about,is that he understood human psychology.They said he wasn't educated.He's an orphan at 15.I'll get there in a minute.But he understood how humans behave and what motivated them.So he famously shared every single store that he had was run as an individual business,and then the workers in that store got 50 percent of the profits.So that's what Munger and Buffett are talking about,that you need to study these compensation systems.This is where we're going to start here because Les talks about it.He says it's the single most important thing he ever discovered in business.So he says, 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 do share, do it openly and honestly,
[7:08]
Otherand don't get jealous if they start to make some money.That's the whole idea.If you make people under you successful, what happens to you?Aren't you also then successful?But if you think of yourself first, it just won't work,and there's no use attempting it.What nicer thing can you do in your life than to help young people build their livesinto successful people, not just in money but in all ways?The older I get, the more proud I am of the profit-sharing programsand other programs that I've created.These are the ones that Munger just referenced, right, or that I've helped create.I believe so strongly that America is such a great countryand that capitalism is the best form of government.I think we owe it to America to do our share to see that it continues.The best possible way to make it succeed is to share with people,to help people be successful people.
QuestionerSo when I'm reading this, first of all, this is why founders can even existbecause for some reason towards the end of the lives of entrepreneurs,they love writing down everything they learn.So all their knowledge from decades and decades of experience doesn't get lost,and then we can use their ideas moving forward, right?But when I read that section, something jumped out of my mind,and so I want to talk to you about that.I'm going to put the book down for a minute.Another person that Munger and Buffett constantly refer and that a lot of people admire,a lot of entrepreneurs that are alive today talk about all they learned from James Sinegal,which is the co-founder of Costco, okay?And what Les is talking about here is, like, listen, you need to –forget your crab-in-the-bucket mentality.Like, share everything you have and build people up.James Sinegal did this with Jeff Bezos.And I read – this is going to come from the Everything Store.I read that book, what, two years ago?I don't even know how long ago.And I've never, ever, ever forgotten this.I think about this all the time.So I'm going to talk a little bit about what – like, James is something like 30 –I think he's like 30, 32 years older than Jeff was.So in the book, it talks about in 2001 –the thing about the company Amazon today is vastly different, right,19 years or whatever it is later.2001, you know, it was a much, much smaller company.So they wind up having a meeting.They meet – funny enough, they meet at a Starbucks inside of a Barnes & Nobles.But anyways, so it says,
[9:21]
OtherSinegal explained the Costco business model to Bezos.It was all about customer loyalty.To the selection of products in individual –though the selection of products in individual categories is limited,there are copious quantities of everything there and it's all dirt cheap.Costco buys in bulk and marks up everything standard across the board 14%.Even when it could charge more, it doesn't advertise at alland earns most of its gross profit from the annual membership fees.So he says – he's continuing the conversation he's having with Jeff.James is talking.He says, the membership fee is a one-time pain,but it's reinforced every time customers walk in and see a 47-inch televisionthat's $200 less than anyplace else.This is a really important sentence here.It reinforces the value of the concept.Customers know they will find really cheap stuff at Costco.Now why is the word value so important?Because James built his entire career off of that.He says, my approach has always been that value trumps everything.The reason people are prepared to come to our strange places to shopis that we have value and we deliver on that value constantly.The Monday after that meeting, Bezos met with his senior managers.Now this is another example I always reference.The same thing we're doing here.We're studying from entrepreneurs of the past.You see that every single other entrepreneur we've ever covered does the same exact thing.Jeff is no different.Now he didn't just have a conversation with James.Well, that's nice, and went home.He actually implemented those ideas into his business,and it fundamentally changed what Amazon is.Think about that.There was no Amazon Prime before this.Okay, so he says, the Monday after that meeting, Bezos went, met with his senior managers,and announced that Amazon would immediately be cutting prices on books, music, and videos by 20% to 30%.Later, during a conference call with analysts, he observed, there are two kinds of retailers.There are those folks who try to figure out how to charge more,and there are companies that work to figure out how to charge less.We are going to be the second, full stop.Now that's not the end of what he learned from this.So I'm going to quote from another.This is now an article analyzing the meeting between James and Jeff.So it says, let's see.Okay, so now this is quotes.This is actually an interview with James.Sorry.He's a tough business person talking.
[11:43]
OtherThis is James talking about Jeff.
QuestionerHe wanted to buy from us at 3% to 4% less than we paid for the merchandise ourselves.
Those talks went nowhere.
Instead, Bezos came away from their conversation with some deep insights about Costco's success in keeping markups small and prices low.
When Amazon eventually launched its Prime membership program, the parallels to Costco's own paid memberships were easy to spot.
Now this is how it ties all the way back to Les.
He says, was Cynical too candid with Bezos?
The Costco co-founder is unrepentant about his willingness to talk shop with a younger entrepreneur trying to build a business.
Perhaps that's because of his desire to see best practices spread throughout American business.
Okay, so this is something Les talks about over and over again.
He's laying out his theories.
He's talking about all the success he's had.
He's like, and he says over and over in the book.
Why are you not doing this?
Why are more American business people doing this?
What are you doing?
Like take this good idea over and over again.
So I just could not help the entire time I'm reading this book, tie it to other things that I've learned in studying all these entrepreneurs.
And you just see these main themes over and over again.
All right, so first I'm going to go back to the book.
I'm going to talk a little bit about his early years.
Now, Les talked about the very beginning.
He didn't have a ghost writer.
He never wrote a book before.
As a result, the book I have in my hand is very, it's put together very bizarrely.
And I love the way it's just, there's no fluff.
He just writes simple, short sentences, and then he'll just go on to the next thing.
I mean, it's not separated.
You have like headings and stuff, but there's no like, it's not like he's, it's not even a narrative, I would say.
He's just whatever happened to be on his mind the day he was writing.
So I want to talk about his early life.
And this is a sentence that, two sentences that kind of sum up his father.
Father Bishop was not there.
He was drunk again.
Talks about, they grew up on like a, like a camp, like a log, I don't know if it was a logging camp.
Essentially, they lived, okay, let me just tell you.
The schools, he's in eighth grade at the time.
The schools were just a railroad boxcar with somewhat crooked windows cut in one side of the boxcar.
There were three of us in the eighth grade.
So they're in this like, this camp with other families that work for the same company.
[13:57]
OtherIn those days, we had to take state exams to graduate from the eighth grade.We all failed.So it says, there's, there's like a lot of ranchers.He grew up in Central Oregon.He considers himself very much like a rancher, a Western person.So it says, the farm wouldn't sell as it was the start of the Great Depression.And the bank finally took the farm back from the debt owed.So that's not what was happening to his family.My mother thought it might help my father's drinking problem if we all moved back to Oregon.We were taught to work at very young ages.It seemed the normal thing to do.Now he's going to describe his, I mean, I guess you call it a home.It's, I mean, it reminds me very much of like the podcast I did on Jim Clayton,who grows up in a log cabin with a sibling and his two parents, no electricity, no running water.And then winds up selling his business for $1.7 billion to Warren Buffett like 40 years later.So we have a similar situation here with Les.He says, small, he's describing it, small two-room holes, a two-holer with no running water.Water was hauled by train from town, spigots from town.Spigots were spotted around camp and you took your bucket to the tap, filled it and carried it to your home.Today, that would be poverty, but the homes were clean and people had fun.There was one community shower.And so he called, he's living in a log camp.Okay.So he says, now a lot of people, you know, good, good, you know, like, oh, poor, like, you know, woe is me.Look at this environment.He didn't look at it like that at all.In fact, he thought that even though the people were poor and didn't have a lot of money, they were still good people.So he says, I've been around the people of the log camp for the past 50 or more years,and the people and the children of these people have turned out to be much, to be much above the average citizen,both in success in business and in being a good all-around citizen.So he's living in a logging camp, but then there's no, like, high school.So he has to, he has to take a bus of some sort to high school,and then he has to be boarded by another family during the week, and he comes back to the logging camp on the weekend.So this is less in high school.He says, we missed much of the school activities and pretty much felt like outsiders.One of my biggest fears was that my father would come to school on Friday drunk.It would haunt me all week as I was proud, poor, but I had a lot of pride.
[16:16]
OtherAnd he talks about the effect that alcoholism had on his family.This was killing my mother.It was sad times for the Schwab family.So he realizes he's taught to work at a young age, and he wants to make his own money.So he starts to immediately deliver newspapers, and he's extremely good at it.So he says, I immediately started to deliver newspapers.I remember so well my first route.I ran the route for two months in order to get enough money to buy my first used bike.So that's how poor he was.Most people were delivering, most other boys of his age were delivering bikes, newspapers on a bike.Later he gets a car, but he builds this entire newspaper.This is an important part of his life to understand him as well.He builds this entire business while he's in high school, and then he starts off just like he does his entire business.Okay, well, I don't have a bike.I've got to use what I have.You know what I have?I have two legs and a lot of youthful energy, so I'm going to run down and deliver the papers.Then I'm going to save my money.I'm going to buy a bike.Then I'm going to get so good, I'm going to start adding other routes.Oh, wow, now I have other routes.I'm making more money.I buy a car.He eventually starts making more money from his newspaper delivery business than his high school principal made.He says, my father died almost to the day of my 16th birthday.He was found dead in front of a moonshine joint.Now there's some crazy sentences here.We thought there might have been foul play, but it didn't really matter.He had gone so far downhill and was working for $0.50 a day for a rancher.It sounds like my father was all bad.This isn't true.Why and how a man can let this happen, the Lord only knows.Being a person who took one drink and couldn't stop until he completely gave out, he ran downhill from there on.But he was a hardworking, extremely strong man, a gentle man, but a raving maniac when drunk.It certainly brought sad days to our family.His mom is going to die very soon after this as well.Going back to what I was just talking about, how he was able to make a lot of money in high school.He says, I rode my bike during the week, even though I was getting to the age where a 16-year-old boy didn't like being seen delivering newspapers, especially on a bike.But money in this case was much more important than pride.So he winds up taking over all these routes.He says there were eight or nine routes in the town, and I took over the whole town during that summer.
[18:29]
OtherI was now making about $175 to $200 per month, and I wasn't even 17 yet, in the middle of a depression.The high school principal only made $150 per month.I think I thought I was already a man.He doesn't hide the fact that he's extremely confident.He calls himself cocky over and over again, and I'll talk more about that in a little bit.But he thinks it's a huge asset, actually.Actually, it's on the very next page.So this is to know that myself as being cocky was helpful.And then I want to talk to you about Les' ability to study more than anybody else did.All right, so he says, the one thing I did know was newspaper circulation work.And I knew a lot more about it than the two minority owners.So he's saying he studied this particular aspect of the newspaper industry more than –there were three people that owned the main newspaper he was working for, which is called –I think it's called the Ben Bulletin.And they had one main guy and then two minority partners.Well, let me – you know what?Before I get there, let me – I'll go back to that.Let me read and finish this paragraph.So he says, the circulation – this is important to know his personality, too,because he talks over and over again how he's a master at analyzing other businessesand seeing what they do wrong and then just avoiding that.It's very similar to, like, Charlie Munger.He says, I'm not trying to be brilliant.I'm just trying to avoid being stupid.Les did the same thing.So he says, the circulation end of the newspaper work is usually regarded as the lower end on the prestige ladder.But it's also closest to the money, right?I attempted to – because he's selling subscriptions to newspapers, too, on his routes.I attempted to put some pride into the circulation work for myself and for others.I was young, sometimes cocky, but this cockiness helped me a lot going through life.Les had an abundance of confidence in himself.And think about it.Think about the access to information and tools that you may have if you haven't started a business yet compared to Les.Parents dead at 15 or 16 years old.He's on his own.They try to give him guardianship.He winds up saying, no, I'll just rent a room and figure it out myself.Really no education to speak of.And builds a company.In 2018, he had $1.8 billion in sales.Okay, so there's another thing that I want to go back to here.He says, I knew – the one thing I didn't know was newspaper circulation work.
[20:51]
QuestionerSo he's essentially saying I focused on one thing and I got really good at it.I knew more about it than two minority owners.So when I read that part, I thought about one of my favorite speeches I've ever seen.It's on YouTube.If you have access to my notes, it's in there.It's a speech by Bill Gurley.He's a partner at Benchmark.It's called Running Down a Dream, How to Succeed and Thrive in a Career You Love.You can read my notes or you can just search in YouTube.I'd recommend watching the whole talk.I think it's about an hour.But he says something in there that I always think about.First of all, he's essentially giving a speech to, I think, University of Texas MBA studentsabout running down how to succeed and thrive in a career you love.Essentially what I just said, don't waste your life doing something you hate.That's what Bill is saying.How do you figure this out?So he says something that directly relates to what we're talking about here with Les.I'm going to get to that.Actually, before I get there, I'm going to share some of the other highlights from this talkbecause it's so interesting.He talks about how he learned from three other people and what they did.So he says a dream job is a career where you have immense passion.Life is a use it or lose it proposition.That's kind of what I was just echoing there, right?Most humans take one career path.If you only have one shot, why not do what makes you happy?That's the entire speech.That's the entire reason why he's giving this speech because he obviously sees people that don't do this.He uses the lives of Bob Dylan, Bobby Knight, and Danny Meyer as examples.So I'm not going to cover all that.I'm just going to cover some highlights.So he talks.He studies.He takes a ton of notes.He's watching The Chef.He talks about this.He talks about one of his favorite quotes.I spent nearly two years doing the best work ever as a student.That comes from Danny Meyer before he opened his restaurants.And what Bill is saying, he's like he's most proud of the studying he did on his own,not the studying he did in college.So now Bill says pick a profession about which you have immense passion, a deep personal interest.Nothing will make you more successful than if you love doing what you're doing.You will work harder than anyone else because it will feel like fun.Remember what Buffett and Munger just told us.How do you compete against a fanatic?
[22:58]
QuestionerYou really can't.Les is a fanatic.Bill Gurley is a fanatic.Everyone has the will to win.People don't have the will to practice.So what is he talking about here?He's saying be obsessive about learning in your field.Hone your craft constantly.Understand everything you possibly can about your craft.This is a crazy sentence.Consider it an obligation.Hold yourself accountable.Keep learning over time.Study the history.Know the pioneers.It's exactly what we're doing here, isn't it?Strive to know more than anyone else about your particular craft.What did Les just tell us?Les just said I knew more than these guys and they own the company.You should be the most knowledgeable person.It is possible to gather more information than someone else.Now that brings me to the most, in my opinion,probably Bill's most important point, okay?And he says the good news.Now think about this in terms of Les and all the people we've studied.The good news.If you're going to research something, this is your lucky day.Information is freely available on the Internet.The bad news.You have zero excuse, zero,for not being the most knowledgeable person in any subject you want.The information is right there at your fingertips.If you adapt that mentality, it is impossible,impossible that you are not going to succeed at what you want to do.And the whole time I'm reading this and thinking about thisand tying all this together, I was rereading some of my notes on,excuse me, the highlights I took when I read Sam Walton's autobiography.And Sam did this exact same thing.He studied everything.I think in the book it says there's not a person alive that walked in morestores than Sam Walton,even when he was vastly more successful than everybody else.And he's like, no, I can still learn from these people.All right, so I'm going to skip.Go back to the book.I'm skipping ahead.He winds up working in the newspaper business for quite a while.So this is less than 28.I was now 20 years old.I had ambition.I wanted to go into business as I always wanted to be a businessman,but I didn't have any money.So the story of Les Schwab is he's got to do the best possible job orwhatever job he has in front of him.And he knows if he keeps at it,eventually the opportunity is going to present itself to get his real goal.So he talked about wanting to be an entrepreneur when he was like 16.Now we're fast forward 12 years.He's still not there yet.
[25:09]
QuestionerRight?He doesn't know what kind of,he knows that he wants to be in business,but he doesn't know what kind of business.So he says,I was going through a period at this point of not knowing just what I wantedto do.I bring that up and I highlight that because everybody feels this way.I felt this,I felt this way in the past many times,less feels this way.Going back to Sam Walton,you know,Sam,I've told him when he's working at JCPenney,he's like,Sam,you got to find a different career.You're not cut out for retail.Like,think about how ridiculous that is.Right?He just didn't know what he was,what he was going to do.And it's no different.Uh,I'm sure you feel the reason I bring this because I'm sure you've had thisown feeling in your life.Right?So I'm going to fast forward.This is now less at 33.Remember he wanted to be an entrepreneur.She's 16.He doesn't do it.He's about 33.He says I was now 33 years old and still wanting to go into business ofmy own money was the main thing holding me up.Uh,so his brother-in-law winds up making some money at,uh,and like the timber industry.Right?So it says,my brother-in-law told me to find a business.He would help me finance it.That was all I needed.And I started to look seriously as I knew the time was running out.I believe if you didn't get started in business at a fairly young age,you would get into a rut and never make the big decision to jump.There was a tire business for sale in Prineville.So this is going to be the very first Les Schwab tire company right here.Um,he went to getting a loan.Let's see.The price of the shop was $11,000 plus inventory.Let's call it 15 grand.Okay.Um,I've seen other people analyze this and they said he did it for 3,500.That's not accurate.I mean,the book,it says the price of the shop was $11,000.So it says,um,I thought the tire business had a future.Remember,he doesn't know anything about the business though.But again,this is where I go back to like having a belief.You can't just have a false belief.I don't mean be cocky or be confident and not do the work to likenecessary to justify that.But what he did,having a career now,sorry,working essentially full-time,which since he was 15 years old and he's 33.Okay.So the 18 years,like he knew he could learn,like he didn't know anything about the newspaper delivery business.Learn that didn't know anything about working.And then he winds up working inside the,
[27:14]
Otherfor the actual newspapers.Didn't know anything about it.Did well,it does.I was like,I don't know anything about the tire business when I figure it out.So he says,uh,I thought the tire business had a future.I remember telling my wife,I thought it was a salesman.Oh,that's an understatement.That's a pretty good one.It's an understatement.And maybe that ability could be used in the tire business.It was a hard knuckle busting,dirty work.I got $11,000 for my brother-in-law sold my home and borrowed on my lifeinsurance.Altogether.I raised $3,500.So what's that?Just under 15,just shy of $15,000.Okay.Now this is,he talks about his first day in business.This,this is the first sentence on the first day.I had never fixed the flat tire in my life.He had no experience with tires whatsoever.Okay.But,but from a very early age,he thought a lot about business.Cause I told you,he constantly analyzed.He's like,why are they making the decision they make?That's so,so weird.You can do this too.Go patronize a store or a service.You're like,this is really sloppy.This is not,I would do it differently.I'm sure you've had these ideas.All of us have had these ideas.Why are you doing this?This is very bizarre.Less has,it's full of ideas like this.So he says,one of this is that if he ever went into business,he was going to share the profits.I remember telling my wife many times that if I ever got a chance to go into business,I had some ideas about sharing with people and about sponsoring people in the business.There are a lot of people who could run a business,but would never get a chance due to mostly the lack of startup money.I was going to furnish the money and in some way,share with them the promotion of our business.So what's unique about the,the structure,the incentive structure.And I would say the organizational structure of Les Schwab is each individual store is its own entity,right?And the employees that are in,that work in that store have partnership agreements.So they don't own stock,but they own access to the profits.Okay.So he says,and that's what he means.Like they may never be able to run a business on themselves,but if they look at their individual stores,a small business and they own 50% of it,and maybe there's,you know,at start,there's one guy running the store,you know,and then,you know,you might have 12 or 13 people in the store over time.That's a gross.So the first month we did $2,800 in sales.
[29:21]
OtherFebruary,that's January,February was even less than sales.But in March,I got,I started going.And by June and July,I was doing $10,000 more per month in sales at the end.Think about this contrast,right?At the end of the year,I had $150,000 in sales.The man I bought,I bought out,meaning the previous year they did 32,000.In sales,the note of myself as being good at sales is like being a magician.Because less would go out and he,he wouldn't sit down and wait for people to come to the store.He'd go out and sell tires.That's what he did all the time.He was a fanatic to use that word again.Um,okay.So now he's going to get into like he,so Munger talked about like he less road,the wave of the Japanese tire importing,right?And why did Japanese,why the Japanese have an opening to,to,to make so much money in the American market?You had a bunch of huge American rubber companies and you're going to see like,because they treated their dealers and the people buying from them terribly.So it says,the pricing policies of the major rubber companies,uh,to their dealers was most unfair.they were all the same,all five of the American rubber companies.So he's saying there's essentially like a cartel,there's collusion,there's price fixing here,right?Uh,this was called meeting a competitive situation.That's,this is the term that,that,that the company's told their dealers,right?What?And so less is going to translate this for us into English.I called it milking the dealer of his profit.Um,and so he's going to continue talking about like that,you know,they're milking the people who are supposed to be helping.It's the opposite theory that less has on business.You should be helping the people that can make you,because helping the people make you more successful,you're doing the opposite.He calls this earning your failure.That's a really interesting idea.He's like,they earn their failure.Um,I had to contend with this until I made connections with Toyo tire company from Japan.I say,thank God for the foreign tire supply.It helped the independent tire dealer.I had a theory that went like this,never take advantage of a customer,never take advantage of an employee,but take all the advantage you possibly could have a rubber company because they were not being fair and honest.So he's giving it back.Exactly.He's not just like,okay,you'll take all my profit.I've got a business thing.I'm going to fight you back.
[31:42]
OtherYou want to be on for me?
OtherI'm going to be unfair with you.
OtherLess a very hard dude.
OtherUm,as you could imagine,he says today in 1985,I don't feel the same way towards rubber companies as I did 25 or 30 years ago.They're much better people today.Today.And so he's saying like,this is the theory.This is the theory I had when I was in the beginning.I don't obviously hold that theory now.She's talking about growth.He had,um,today I don't want my company to take advantage of anyone,even the rubber companies,and I certainly won't apologize for anything I did in order to survive 25 or 30 years ago.I am proud that I had the guts to fight hard enough to survive this period.I feel strongly that the rubber companies were very unfair to their dealers during the early years of my entire business,and they could be unfair because they had a cartel.The five.And now,what do you think is going to happen over and over again?We see examples of this.When you take your eye off of,and you stop having a maniacal focus on the customer,wanting to make more money for self or be selfish or just think,I've cornered this market too bad.They have to deal with it.What's going to happen?The five major American rubber companies have received their just awards as two of them have dropped truck tires entirely,and the other three aren't doing very well with truck tire sales.It serves them right.They have earned their failure.Um,so he's got.Is this his second store?I think he's about to open his second store,but,this is something that less was very adamant about from the very beginning.I had made my mind up to do it very differently.This just comes from his his analysis of,uh,of,studying businesses,seeing where they,they make mistakes and then collecting more information.Oh,I never finished my,um,my point on Bill Gurley.There's a book out there.I'm going to eventually read on the founding of Benchmark and the original founders,like the summary of the book says that,um,they eventually go out and hire people that were very strong in areas.They were weak.And I don't remember,I know Gurley was an analyst and that he was taking his own advice and collecting more information,being the most knowledgeable person than anybody else was.And so they saw that he was strong where they were weak.So they brought him into the company.That advice that he's giving us in that talk made Bill Gurley billionaire.He got into Benchmark.
[33:57]
OtherBenchmark succeeded.And he's a partner now.And he,that's,that's how much studying and learning the craft and taking what you're doing during the day.Seriously.Like,that's what it could lead to.That's a,that's a pretty crazy outcome.So anyways,uh,back to less.My theory in the small store was that all other large tire dealers had,oh,so this is interesting.There's a weird thing.So they're selling truck tires.Remember,there's a lot of like lumber and ranch and like,think of like,you know,very rural production here.Um,so the other businesses would go out and they'd have like these large,they,they bring the service to you.Right.So he says,um,and he's like,well,I'm going to do the opposite.They're going to come to me.He says,my theory in the small store was that all other large truck dealers,large tire dealers had big service trucks running all over the country.They called on mills,commercial accounts,garages,and service stations.But I had made up my mind to do it differently.I would advertise to the ranchers and other people telling them to buy directfrom me.The other tire deer dealers had 6,000 plus invested in service trucks.So one truck would cost six grand right for them.I put it in a whole store for 10 grand.And we were there six days a week.They only used,they only called once a week,meaning like you could only visit,uh,using the trucks,one customer once a week.Uh,he's got people coming to him.It worked.People did come directly to my store and business was picking up constantly.And he did it for a fraction of the cost.Like how many trucks,like $6,000 a pop.You have a bunch of trucks.You're spending way less than he's spent on one store.Um,this is when he started profit sharing.And then this is a very smart move he did on his part.He didn't ever think that Leshaw would be as big as it got because he treatedeverything as an experiment,right?So he says a big day in my business career was on January 1st,1954.Uh,this was the start of the profit sharing program that we still use today.We still share 50% of our profits,but we share it with all employees in the store.Uh,so he's sharing it with this guy,Frank,who's going to be managing of his first store so he can open a second store.He says,I also told Frank that if this store was successful,I plan to build more.If this store failed,I would just go back to Prineville and just run one store.There wouldn't be a chain of lush Schwab tire centers that we have today.
[36:13]
OtherIf I hadn't been successful in Redmond.Okay.So the first two stores to get started,he was like,uh,you sound like a dealer contract.This is how he knows that dealers were,were very unfair.Uh,and it was this,it's called okay.Tires.And he was determined to be independent and he was,he was honest almost to his fault.So he starts meeting with the person,like the person that I guess you call it.Someone was like a franchise,I guess is how I described this.But he says,I was going to open my,in my own,uh,independent tire store.And then the person that he has a contract with,he said,and my reply was,let's not argue.I just want to be open about it.Uh,now I had a fight with okay.Tire stores.They were on my back,but we charged ahead.And he says,I did really have a fight with.Okay.They were threatening to take all my equipment away from me and cancel me out as an okay.Rubber franchise member.I lost my temper and told them hereafter.I didn't want any more harassment from them.If they had anything more to say,say it in court.I walked the floor nights.He,he uses this term over and over again,walking the floor at night,uh,because if they took my equipment,it would have bankrupted me.I was bluffing,but I was determined.Uh,he says,as I think back,I think the reason they didn't take it to court with due to the fact that the,he's,this comes up with a really good insight here due to the fact that if they lost,it would have messed up the front,their other franchises nationwide.So he only had,he's on the 1950s.Uh,the fee was like $12 per year.And they had like thousands of these everywhere.So yeah,they may,uh,let less like slide out of a contract.He shouldn't have been,uh,he shouldn't have gotten out of,but it costs them $24 for the year at a,at a risk of avoiding their franchise contract with thousands of others.Uh,every time they tried to,and this is hilarious.So then they try to cancel me.So every time they try to cancel me,I would send them a registered letter telling them I wouldn't accept thecancellation.It's like,it's like,Oh,it's like somebody breaking up with you.No,I don't think so.We're not going to break up.Um,this is a reminder that the early days of his company were full of struggleand that he had,you know,modest initial goals.Uh,the pressure on me was tremendous.My largest account was behind on payments.And it worried me to no end.So he'd extend credit to his customers.
[38:33]
OtherMy net worth was about the same as what they owed me.If they had gone broke at that time,uh,they would have taken me down with them.And the less Schwab story would have ended right there.Um,I told Dorothy,this is his wife.I was gelling an idea for the future,maybe build six or seven or eight stores someday.I think today they have like 600 or something like that.I was already visualizing ahead,but we certainly went past the six,seven or eight numbers,uh,skipping ahead a little bit.We're going to see less like many of the entrepreneurs that we study aremasters at capping their downside and then leaving the,the up their upside uncapped.And then also he has again,no education,but a lot of street smarts and let people good with people.And he just instinctively knew,Hey,I don't want to build a business on someone else's property.So he says,I had an escape clause in the contract that he's talking about expanding.now he's up to a seventh store and,uh,expanding like larger buildings,larger land.He says,I had an escape clause in the contract that I could turn it back to him andnot have to pay it off.He wanted to lease it to me,but I'd already seen the wisdom of owning property.And I wanted a contract so that I could own it someday if I made it.So he has this,the standard operating procedure where he'd do a five,five,and he would do a five-year lease,um,with a five-year option to buy.Um,and so now actually I was just reading,um,there's actually a piece of news on lush Schwab company recently where,um,it was,it was a private company.I'll talk to you more about that.And they might put it themselves up for sale.Um,less is dead.His,his kids are dead and unfortunately,so this is different multiple generations now.And,um,they're going to sell it.They think they'll get about $3 billion for the company.And they own a big chunk of that value is they own a lot of real estate.And it comes to what less is doing here back in the 1950s.Um,and then this idea about don't build on someone else's property.You still,what is it like the modern day equivalent is people that build,uh,businesses on top of like Facebook,Google,uh,YouTube.I just saw somebody,they were like,they built a business on YouTube.They hired a bunch of people.And then I guess YouTube either change the algorithm or it's decided,Hey,you can't make money.I like to demonetize them.And they went to Twitter and understandably listen,
[40:48]
Otherthis is heartbreaking to me.Like somebody's going to lose their business right on the holidays,whether the case is,it was just like rule number one,don't build a business on someone else's property.Uh,okay,here we go.I love this part.Um,so,okay.So remember at the beginning,he talks about how these,these,these tire companies would just screw their dealers.So he has an agreement about like a,some like a 5%,um,stipulation and a contract,which is essentially his profit margins at the time when he was just startingout.And they agreed to,to keep it in,even though they were going to take it off from other tire dealers.And then they renege like a few months later,they renege on that agreement.And so this is less response.He says,I called the vice president at night and got him out of bed.He later told my wife that I called him at two 30 in the morning.It was not quite that late,but I was mad.I got the 5% back.Um,and so he,the takeaway from this experience he's having,he says,it's hard to comprehend today.Why big companies treat their dealers and employees the way they do.And so,and,and the sense less is their customer.And it's,the lesson here is maintain a maniacal focus on the customer.And just,if you do that,we say,and then the note of myself was like,why is this so hard?Why do so many people spread across all different countries,different time periods,eventually lose sight of who got them there to begin with.What got them there was a maniacal focus on the customer and the P and thebusinesses exceed over a long period of time.Never lose that focus.This is the company's called general tire.I think they go out of business actually.Um,or at least they go to the business they were in at that point.And it's like,it's not,it's not a surprise.Less is like,does it?He's just very,like has a,again,a lot of common sense.It is hard to comprehend today.Why big companies treat their dealers and employees the way they do.Cause we,he knows longterm that when you,when you treat people like that,like they're going to go elsewhere.They have other options.It only works if you have like a,a monopoly.Even then,do you really want to be that,uh,um,that kind of person?Uh,here's an example of his fanaticism.I is not unusual for me to drive 600 miles or more in one day and make many stops.So he'd be out in the field constantly,um,constantly visiting the stores,constantly checking up to make sure that they're actually following through on the ideas and theories and the way he wanted the businesses run.
[43:09]
OtherUm,he's also studied people like from other businesses and,and adapted essentially in this section,he's learning from other advertising,um,practices of other people.Uh,he's studying lucky strike cigarettes.It says lucky strike.Cigarettes were tremendously heavy advertisers.This is,he was advertising the radio at the time.L S M F T was their slogan.I don't know how that even worked.It says it was on their cigarette pack and they hammered it constantly.L S M F T lucky strikes means fine tobacco.So it's an acronym.So he's watching this and he's like,wait a minute.And he's like,I told Dorothy,this is wife again,look,L S M T M F T.That means less Schwab means fine tires.I started to use it immediately and it was very effective.Um,this is huge section.I'm going to skip,but I want to tell you the,um,the,the key takeaway here.Um,he's one of the first company,I think they still do this to this day.Uh,he decides that even if you're not as customer,he'll fix your flat tire for free.And he starts putting that in his advertising.And over time,this tactic grew his business.So he'd lose a little bit on the front end,you know,cause he's dedicating maybe 25 minutes,whatever,however long it takes,takes to fix the flat.But when it was time for new tires,they'd go back to the business that helped them.And that's just,again,fundamental aspect of,of human nature.Um,and he,he started fixing flat just cause he thought it was the right thing to do.And then eventually he's like,oh wow,this is helping me.He discovered this by accident.Cause they come in and like,oh yeah,you know,uh,six months ago,whatever you fix my flat tire.Now I need two rear tires.I need to buy it from you.Um,so any way you can,you can adopt,uh,adapt that to your own life.You might find a way that if you do something for somebody,when time comes,they can,they reciprocate.It's the reciprocal tendency.I think is,is,uh,the psychological term.Um,I can,there's a lot in this book where once you read,once you like,I feel I've read enough about Charlie Munger and then read also the people headmires.And you start to see like what he admires in other people is the stuff he wantsto see in himself and probably does see in himself.And,uh,one of his most famous ideas is invert,always invert.Like you can solve a lot of problems if you work backwards.Uh,this is less saying my,my thinking was to reverse it.Um,and says most tire businesses had a small showroom and all the tires were
[45:31]
Otherhidden in the warehouse.My thinking was to reverse this,to make the showroom,the warehouse,it would impress people,but I had to wait until I can get the right buildings to work out of.I did the best with what I had.And even then I had more tires displayed than any other tire dealer dealer inthe area.People were impressed.And now this is another example of how you can be great at one business.And that doesn't equal that.You're going to be great at any business,right?And a lot of people think that's,that's why you have like this phenomenal serial entrepreneurs.They have a great idea.They sell the company and then they try and sometimes they're successful inthe second or third time,but most cases they gave away their best idea.And now you're just working in your second or third best idea.It's very bizarre.So he's,he wants to start a ranch and ranch is supposed to be able to,it's a business that like it's supposed to sustain itself.He says,I've often said,I think I'm one of the very best tire dealers in America,but without a doubt,I'm pro I probably am about the worst cattle rancher in America.Attempting to be a cattle rancher has cost me millions of dollars.I would undoubtedly be three,four or $5 million richer if I had never attempted to be a rancher.But then you also see his,his idea where he repeats it over and over again,but I don't really regret it as you only go through life once.And I would have hated to go through life without my cattle ranchexperience says that over and over again,you only go through life.Once you only go to life once,why aren't you taking like,why aren't you taking the risk that you want to take?Kind of what we were talking about at the beginning of the podcast,right?This is another example of his fanaticism.He was obsessed with keeping everything clean to the point that heinsisted that member,he said that I'm going to,I'm going to do the opposite of what people do.I'm going to have this huge tire showroom and people are going to bereally impressed.I can see how much selection I have.It's going to look like I have more tires than any,all my competitors.He made sure that the tires on display were cleaned every day.So he says a super,he calls it a supermarket tire store,a supermarket tire store has tires displayed a clean showroom,tires waxed and up and up and a appealing appearance.I sincerely hope I've made myself very clear.And this is also an insight in his personality.
[47:34]
OtherSo he talks about,you have to,um,the tires are clean daily with a dust cloth and they're clean.So nicely because of the clean lacquer and he gives instructions.Uh,I want to tell you where he's writing this.If he's had in the book,he reprints a bunch of,he calls them company bulletins to think of like internal companycommunications,like a memo.And I w I would,I would pay for a book that,that had just had every single memory ever written.I think that'd be fascinating,but he just,he shares a bunch of them.And at the end of this memo,you see an insight into his personality.I think this is this entire memo about keeping your store clean.I sincerely hope I have made myself very clear.I love you,but I love a supermarket tire store even more.This guy,his personality like jumps off of,uh,the page for real.So another example of his,uh,both in his bulletin is how to get the incentives,right?Um,and so this was people.He wanted a,he wanted people like if he's investing in leadership,they have to then in turn,invest in their people.Right?So he says to all stores,if a bright,young,ambitious person joins our company and wants to make our company's career,does he do it because he likes you?Do you think that this man is going to work 10 hours per day just to helpyou build your stores?He's picking up that we're all self-interested.It's in our nature,right?So he says,again,appeal to interest.Don't say,hey,buy my product because it's better for me.Talk to your customer,but what,what's the difference it makes in their lives,right?So he's doing this on an internal management perspective.Uh,do you think this man is going to work,uh,work for low pay year after year just so you can build your profit sharecontract into a nice fat nest egg?No,I don't think so.He wants to see results just like you did when you started up the ladder.This man didn't join the company because of,of the future of the store manager or for that matter,for the future of less Schwab.Personally,this man joined the company because of his future with the less Schwab tirecenters,not you personally.Um,so he talks about,don't block these people,hire them.He wanted them to,um,he wanted them to hire assistant managers and they would,they would,uh,resist because it would take away some of their money.So he says,and not realizing that they'd make more money in the longterm because thesystem manager would make the overall business,
[49:53]
Otherwhich they have a percentage of more successful.So he says,and this program,in spite of this bulletin and my urging never did work until we made achange.Since our managers didn't volunteer,I made a rule.The manager's contract was going to be changed to 45%.If he didn't have an assistant manager,the company got 55%.So it's like,you don't want to give up an extra few points.Fine.The company will take it.Do you know something?We never had a problem after that and having an assistant manager for eachstore.Um,on the next page,he's reminding us the,and the importance of being focused.And I think this is more important today than it was in less Schwab's day,because there's just way more things to,to,to steal away our focus.And then we have entire companies with some of the smartest people in theworld,figuring out how to steal away more of our time.Um,so I think again,less a bunch of people that we studied all talk about,you have to,you have to have dominion and control of your focus,because if you're giving it away,it's the most powerful thing you have.And the thing that will make your business or your life more successful onyour personal level,monetarily,any,any,uh,literally anything that you want to improve,the way to improve it is to focus on it.Um,all right.So he says,we must constantly remind ourselves as to just why we are successful and wemust do something and we must do,and what we must do to,to continue to be successful,because if we become complacent brother,it's all over with.That's another thing.That's hilarious.He calls the reader brother over and over again,brother,it's like Hulk Hogan over here.Um,Oh,so here we go.This is the,um,now he said,there's no really structure to the book,right?Which I,which is really enjoyable.I really liked it.But now in the middle of building,he's talking about how he builds his business.He flashbacks to building his first business,which is like the newspaper delivery business.Right.And this reminded me,uh,the,this moment that I'm about to describe to you is if you experience this,this is the day you become an entrepreneur.Um,this is the same thing last week.I covered Ingvar Kamprad.Did you know,Ikea was founded when he was 17 years old.He worked on it till he's 91,owned a hundred percent of the company died with a net worth somewhere around$50 billion.Even though he had a weird,weird ownership structure later on,but,um,for like tax and state purposes.
[52:04]
OtherUm,he had a very same experience when I,I forgot what he was selling now.I think it was fountain pens.Um,but anyways,he made like a 300% returns and he was like,young,young,maybe under 10.He's like,Oh,wait a minute.I worked all week.I got whatever a dollar,whatever that was.And then I just did this business.And in one transaction,I made five.So we're going to see the same thing.Uh,similar thing happening here in the early days of less Schwab's life.So he says,I guess as I think back,I've always been interested in business stores and the people working instores interested me.That probably is the reason I was successful with my newspaper routes.The newspapers in the 1930 period were very competitive.And if you had ability,you could make good money.Remember he made more than his high school principal.There was about 25% unemployment during the depression period.My folks died when I was 15,but I never took a dime of welfare money.I could always find more work than I could do.I think one thing that convinced me to be a salesman and a businessman was ajob.I had one summer along with my newspaper route.So he worked in a restaurant and he was a dishwasher.I got a dollar 50 per week plus dinner,but it was hard work with the paper early in the morning school all day andworking until eight 30 at night.So I quit the restaurant and started working harder on my newspaper route.We got 50 cents for each new subscription.We sold.I can make more in a few hours selling newspaper subscriptions than I couldall week at the restaurant that convinced me that selling in business would bemy career.So that's what I mean.That's the moment when a,um,an entrepreneur is born.Um,this is a,we now are flashing forward back into his life and he's building his businessand this is where he just gets tired of the BS and he decides I'm goingindependent.So it says,I was so disgusted with the tire suppliers that I was willing to do almostanything to help my company survive about 1966 or thereabouts.I made a big decision.I decided to take down all the rubber company signs to go straightindependent,to buy tires like Safeway buys groceries.This is important.So he took,he calls it the concept that he introduced to the tire industry,the supermarket of tires.And this is also,you know,the company's called Les Schwab tires.They don't manufacture it on tires.They buy the best from other people and sell them,
[54:19]
Questionerbut he's not tied to one individual.Like there's a lot of,um,there's a lot of contracts where it's like,okay,I'm a Bridgestone dealer.I'm a Firestone dealer.I'm a Michelin dealer.Less is like,no,I'm going to be in control here.Not you.Uh,so he says,uh,I decided to buy tires like Safeway buys groceries.I'd buy the best possible tire,good quality,and the lowest possible price.This was a major move at the time.No one had really tried it.All right.So he's continuing to grow,skipping ahead again.He,um,he,he designed his company with not a lot of policies,right?He had systems,which is what Munger would say,but he didn't have a lot of control.So he hires,the company's growing like crazy.So he hires a controller and the controller quits.He's like,no,this is ridiculous.You don't have enough like controls in place.You can't run a business like that.And so why would it work?Like,how did this,this is possible,right?He's got a bunch of stories.He can't be in the stores all day,but he has an incentive structure.It's very smart.Um,so he talks about,listen,there's a con,you're gonna have a contract and your money's going to go into like,it looks like a lot of the profit sharing would go into like a retirement plan,but you would forfeit that money.If you were ever caught being dishonest and in a sense,like stealing from the company,which a lot of,you know,people would do in other companies that didn't really happen here because let'ssay,are you going to steal $400 from the cash register?If you have $20,000 bank that you're going to forfeit.And that says,if you've,if you're caught stealing,it's going to forfeit that.Well,some people still will,of course,but a lot more of like,no,that's,that's a bad deal.So he says now,this is why he says,this is less describing why he can run a company with so,with so many stores,but so few controls.So he says,now that we share with all people,remember there's ownership involved.Uh,if any one employee sees another employee steal anything,they are a weak kitten and they don't report it.Why?Because this man is stealing from them,from his children.If he won't fight for his children,he can't be very much for a company as large as ours is today.We have very little dishonesty.And again,that's just less understanding the way humans think.Okay.Oh,this is,okay.So there's going to be some heartbreaks here.Um,he has two children,um,both of them.He wants,
[56:41]
Otherhe,he wants like the family business to continue.He wanted this business to continue for hundreds of years within thefamily.We obviously now know that that's probably not going to happen now,but,uh,both his,his son and his daughter,um,working in the,in the business.Okay.And this,the,the left myself is something that I'm talking to myself here,uh,is be kinder because we are all temporary and it just,it just,it just,you're going to regret.Now there's some people that are going to do you wrong,even in that situation.Um,like maybe as I get older,I'm just like,you know,just,it's not worth it.Just remove this person for your life,you know,fight or it's just,there's other ways to,to direct that attention.So he was pretty hard on the sun and you're going to see why this is going tobe a big regret here.He says,this is a son.He stopped by the house one night,really broken down.Maybe I was too rough on him,but the only thing I could tell him was,damn it.I told you show,I told you so.I wonder now if maybe I was too harsh on him.He was defeated,bankrupt,broke and really down.So his son is in a really dark,dark place in his life.And,you know,that's life is hard enough to get through without having,you know,somebody you really love,like your father or maybe a close friend be extremely,you know,not help helpful in that situation.His son knows he made a mistake.So a short time after this is what happens.It was 2 a.m.October 26,1971.When the doorbell rang,policemen were at the door.They came in and told me,Harlan,that's a son was dead.He had run into the back of a log truck.I sometimes have thought he might have done this on purpose as he was very,very depressed.He was 31.Harlan left his wife,Jean daughter,Diana,10 years old and son,Alan,eight years old.And so I'm sure that night he was harsh with his son.Like,I'm sure he didn't think,you know,maybe we're going to,maybe I'll be mean.Maybe we'll make up whatever the case was.I'm sure he didn't think his son was going to die at 31 years old.And I think the way Les wrote about this is like,you know,if he had known that he would have did things differently.And so I think like just in general,be kinder as much as we can.It's probably good life advice.Okay.Now I want to tell you about an experience that he's going to have,that he's going to go through that a lot of entrepreneurs deal with.And it's falling out with partners over money.
[59:15]
OtherSometimes it's not just over money,but the falling out of partners,what happens a lot.So he started the company by himself over time.It got so complex that key employees were given like large,decent percentages of the company to help out because he's like,I can't do this all alone.And so he says,Norm Nelson and Don Miller were both making tons of money,but as always,I never paid too much salary.The salary was enough to live on.And the rest stayed in the company to be used for expansion.So what happened is they wanted,they wanted to take their money out.Les wanted to leave it in to expand and continue to grow the company.It's something he did the entire time he was running the company.I soon found out that I run into a buzzsaw as both Norm and Don teamed upagainst me.This is something I could never,ever figure out.So he goes,I think this hurt him a great deal because he talks about it a lot in thebut this one section is like really,really long and he doesn't write long chapters.So I'm just going to hit like the highlights here.And he says what,like what he's learning from the situation,money has funny effects on different people,especially the kind of money these men were now making.So he's fighting about this for like a long time,months and months and months.So he says,I went home and Dorothy and I talked about nothing else that night atbreakfast.Dorothy suggested,why don't you buy them both out?You'll get by some way.Something hit me.I hit the table,dishes fell off.And I said,that's the best damn idea we've had in the six months we've been talkingabout it.So he goes and he says,okay,the contract says at any given time,if I give you 30 days notice,I can buy you out.So I'm not going to argue with you.I'm still the one we're going to run the company.I'll figure out how to do it myself.He says,Don,you wanted a swimming pool.Now you can have it.You'll get your $225,000 norm.You wanted money.Now you're going to get your money.You'll get around $300,000.Okay.I'm skipping large parts of this.He says,it turned out to be one of the,uh,by far one of the best things that could have happened to the company.Greed was entering into the company and greed destroys.Their interest today would be worth around 12,000,$12 million each.So again,less took an extremely,extremely long-term view in his company.He optimized for the long term as anybody that,that is good at running companies does to optimize for the long term.
[1:01:38]
QuestionerI'm going to,I'm going to delay my,um,compensation or my consumption now,because I'll make more money in the future,right?This is just basic tenants of business,right?
QuestionerAt the time he's writing these words,the company was doing $10 million in sales.I'm wrong.The company was doing $10 million.This is in the 1960s when they have this falling out,right?So they're fighting over a couple hundred grand,right?So you can see the long-term vision,like,like a less good.So the company's doing $10 million in sales at that time in 1985.So let's,let's call it almost 20 years later,they were doing 180 million in sales.That's the time he's writing the book,right in the book.Now,fast forward again in 2008,1.8 billion.Could you imagine what that,that,that percentage of less Schwab tires would have been if they would havekept it.They got bought out for 200 and 300 grand.If they waited 20 years,that 200,300 grand is $12 million.Who knows what it would have been if they waited even longer.That's,that's crazy.So there's a lot more to that story,but I'm going to skip over it.He's got a motto,unselfish for good reasons.Unselfish for good reasons has been a slogan of mine for nearly 34 years.I've been in business.I never could understand why more business people don't share with theiremployees.So there's a lot of sentences in this book that start like that.I could never understand why more business people don't do X.So he says,I don't understand why they can,they don't share more with their employees.What nicer thing can you do with their profits?You can't take it with you.And then he talks about like,he's got strong,strong points of view and strong criticisms for how a lot of Americanbusinesses are being run at the time.Have you ever,have you ever been to or read about a ribbon cutting ceremony by a wealthyman whereby he had built a wing on a hospital,built a museum or church or something for the community.Oftentimes his own employees were in the crowd and some of them couldn't evenafford to buy new shoes for their kids.I believe in sharing with those who helped me and thinking about uns and thinking about unselfish for good reasons.Oh,so now we're going to see more of his,his member.I told you his viewpoint was that the people that were doing the actual workwere way more.He did.Not very much in the opposite manner as most people running companies did,especially at this time.this belief is probably still true.
[1:03:55]
OtherHe's like,no,You give all the bonus money to the people in the office.The people in the office are just telling us how the people in the frontlines did.And they're doing it after the people after the fact.He's like,that's nice.People in the office,you're going to tell me next month with the guys and the girls working,the stories did last month.Like those are the most important people.And so this advice is something I talk about a lot where if you're in theposition where you're working for somebody else right now,if in your,in your longterm interest,it's,it's better if you stay closer to the money.If the position you're working in is close to how the company makes money,the further you get away from the money,the easier it is for management and downturns.They already,we don't need that department,close it down.And he says over and over and over again.So he says,we have had over the years,some people in the office that sometimes think they're more important than thestores.The office serves only one purpose.That is to serve the stores.So Sam Walton,his autobiography says,listen,you are either serving the customers or you're serving the people that servethe customers.If you're not doing one of those two things,you're,you will not be employed by me.Henry Ford thought similar things too.He says,our store managers make more money than our office people.Some of our office people,especially some people with MBA degrees or CPA certificates sometimes wonderabout this,but I've warned them don't bitch to me because don't bitch to me becausethat is the way I want it.If you want to go out,start at the bottom,changing tires and work into a manager job,then hop right to it.If it weren't for those men in those stores,working their butts off in all kinds of weather,weather,missing meals,God,all four hours,et cetera,you wouldn't even have a job.He's very adamant.I think there's a lot of this has to tie with like his roots,like growing up the way he did,realizing like how,where the value is actually created in other people's lives.It's not with people sitting in the office.It doesn't mean they don't like,they can't add valuable contributions to a company,but don't,don't,don't get it twisted.Why that company is actually successful.Something less,he bred,that's just one quote.He brings this up a lot in a lot.Okay.Here's a story.Okay.So this is him again,analyzing other businesses in this,
[1:06:01]
Questionerin this case,it's a competitor,right?
OtherAnd so his,his main takeaway is life is hard for people who think they can take ashortcut.So there's this,this part in the tire business in Oregon,that's going to go and,and compete with him.They might've,might've actually been in,in existence before he was,but they were expanding more rapidly than he was.So he said,and the guy,the guy running is called Neil and it's the son of the founder.Actually.It says if Neil,so this business was indeed started before Les Schwab,but it didn't expand rapidly until the sun takes over.Right.And now we're going to see the difference between a founder and a CEO.If Neil,and he talks about this a lot.He talks over and over again that he's worried about the future of hiscompany because he'll say,you know,company X,their founder ran,did a fantastic job.The founder dies.Look at the company X now company Y founder did a fantastic job.Look at the company now over and over again.So let's just obsess with this.If Neil made a major mistake and he must have,because he went bankrupt,it wasn't moving too fast,but he had me concerned for quite a period of time.The Nelson tire warehouses were springing up all over Oregon.I think they got up to 24 stores.They were heavy on advertising.They always advertise.They had the lowest prices in town.Now less is going to say,this is a stupid idea.I personally think it's very foolish and poor business to say we have thelowest prices in town.He says that because first of all,prices change all the time.And so sometimes he'd have customers come into his store and be like,I'm comparing your prices to this ad.I saw that says they had the lowest prices in town.I discovered,Oh my God,they don't have the lowest prices in town.So his,that customer's first impression of the business was they're fricking lying tome.What?They're not going to go back to your store.You just waste all your advertising money.Why'd you do that?Um,so he says,uh,I said,so he didn't like the way they were in their ads,but he also said they were very smart cost wise,right?So they thought,I'm going to have an advantage by having a lower cost,but they,they cut costs in the wrong area.They cut costs and what they paid their employees.Less is making his employees rich.Over the flaw here was that they didn't get with their low play,low pay near the quality of employees we had.And so the problem was less,less almost followed them and would have led to his demise.
[1:08:16]
OtherHe says,after thinking about this for a year or so,wondering if I shouldn't cut wages and Bennett benefits,I finally made the decision.That decision was if I couldn't be proud of my company,if I couldn't pay good wages,if I couldn't have good benefits,if I couldn't have the best employees,then why would I even want to stay in business?I already had all the money I wanted personally.So we did nothing and we won.That's that takes a lot of restraint,understanding the,this person looks like they're succeeding from the outside,but I can identify flaws that over the longterm will take care ofthemselves.So we did nothing and we won the customer liked us best.Life is hard for the man who thinks he can take a shortcut.She's talking.It's like,I'm going to grow methodically slowly over a long period of time.This new guy is going to come in.He's going to outgrow me.Everybody's going to give him adulation and think he's fantastic.And then guess what?Who's going to be around a decade from now?I will.He's not.So he talks to him.He was tempted to go public at one point.So this is a quote from an art,from an interview I saw right before he died in like 2004,he says,the company isn't for sale.All stock will remain in the family.he also turned down acquisition offer offers from Warren Buffett and then the,um,the owner of Michelin tire,uh,actually the owner of Michelin tire became a billionaire off of this.And,he wrote a book that I just,um,that I just downloaded.So he's going to wind up being a,future founders episode.this is,this is less talking about how he resisted.I says,I'm so glad I resisted the urge to have our stock on the market.I don't want a few investors around the country club asking about ourbusiness and questioning some of our decisions.You can,you can probably pick up from now that he's a control freak,um,in the sense that like he wants his business run the way he wants hisbusiness run.Uh,and he says,they might even ask how come some of those store manager,and then you're going to see his personality here too.He says,how come some of the store managers make so much money?Why they make twice as much as I do.And I have a college degree.I'd probably lose a customer as my answer would be.He is worth twice as much as you.And he has a degree too.He learned how to be a businessman.I'll probably add.He also learned how to work something.You never did learn.Um,he,and then he talks about like,
[1:10:31]
Questionerhe still goes on about,you know,I want control.You know,I can make a,he started with,I can make a ton of money,but what am I going to do with the money?Um,this is interesting.Cause while I was researching or reading about Jim,James Senegal,um,Sam Walton,let me see if I still have that quote actually.So don't mess it up.Um,Sam Walton attempted to buy Costco,uh,in the early days of Costco.And he came a couple of times.He spent visiting and James was like,no,I don't want to do it.You know,whatever.And Sam's like,listen,I'm interested in buying company,but I'm never going to do anything hostile to you.So he met with them.He said,no,Sam calls him again.Right.And so,uh,Walton phoned again,wanting to know if Costco leaders have worn out to his idea.Senegal's reply,Sam,we have no interest.We're entrepreneurs.We want to build a company.They'll be here 50 years from now.Walton's reply was,I understand.You understand.He's the same kind of person.He's like,I don't want to sell Walmart either.So I completely understand what you're saying here.So this is,uh,less has that thought.He's like,I don't,I'm not doing this for the short term.He says,I could come out with an astronomical bundle of money if I sold the company,but what would I do with it?What good is money beyond a certain point?He's saying,he's saying I'm already stupid rich.I think the biggest misconception the public has about a successful businessmanis he is working for more money.You won't find many truly successful ones that are greedy success.In my mind,comes from having a successful business.One,it is good place to work.One that offers opportunities for people and when you could be proud to ownsuccess in life is being a good husband,a good father,and you end up being a second father to hundreds of other young men and women.As a,as a business owner.Just last night I attended the wedding of a young man from our office and thisyoung man told me that the two men,uh,that two men had influenced his life,his father and me.That's worth more than money.So I have a lot of thoughts about this one.I think if I analyze the products I love and the company that I truly love,their founders had the same view that,that Sam had,that less has the James has.Um,actually one of my favorite quotes.Let me read this quote from Steve Jobs biography to you that Steve Jobs had.He says,I hate it when people call themselves entrepreneurs when what they're really
[1:12:53]
Othertrying to do is launch a startup and then sell or go public so they can cashin and move on.They're unwilling to do the work.It takes to build a real company,which is the hardest work in business.That's how you really make a contribution and add to the legacy of those whowent before you.You build a company that will still stand for something a generation or twofrom now.That's what Walt Disney did.And Hewlett Packard and the people who built Intel,they created a company to last,not just to make money.That's what I want Apple to be.So there's two thoughts here.These are the people I admire most.It's amazing what they were able to do.And the other thought is,I don't know what it would be like to be able to turn down.let's say I build a business and someone offers me $200 million for it.Like,hopefully I would have,assuming that I thought this was the best idea I'm going to have in my lifeand something that's really important to me.I'd have the wherewithal to,to,to choose the route that other people like Steve and Sam and James and lessdid.I would be lying to you if I was sure for not,especially if you grew up without a lot of money.Like,that's very hard.I like,I,what I'm saying is like,I don't want to judge other entrepreneurs that choose a different route.You know what I mean?And there's a difference between like,I think so a lot of new entrepreneurship is like really creating financialinstruments more than businesses.That's different.But I,I just don't think I'd be in a position to be like,Oh,I can't believe that person sold his company when he could literally set hisentire family,like give financial stability to his entire family.You know what I mean?Like I understand that.And it'd be super hypocritical,hypocritical for me to sit here and be like,Oh yeah,I would never do that.I would just automatically,like no one's ever waved $200 million in front of my face or whatever thenumber is,60 million,whatever,like I completely understand that.Um,so I'm just telling you like,this is what I admire and I hope if I'm ever in that position,like I,I,I would,you know,have the courage because I think it's really,really hard to do what they're doing.Um,but admirable.So I don't know if that,that stream of consciousness made any sense other than like,I understand both sides of it.Um,back to less,he says,most companies,essentially this part I'm going to read to you.Most companies put the emphasis on the wrong part.
[1:15:04]
OtherHe says,we are different from most of the,of the American corporations.As we think the most important people in the company are the people on thefiring line,the ones who sell,do the service work and take care of the customer.Most American corporations have the fat salaries and outrageous bonuses forthe top people and treat the people at the end of the line is peons.I guess that is why,if you're,this is hilarious,I guess that is why if you are on the ball,you can beat them on any type of fair,competitive basis.
OtherHe's saying they have their,their like the one,I think there's a huge problem.Society,like a society level of that,if that trend continues,if you see that the workers get crapped on and the people that are so farremoved from the customers make,you know,these golden parachutes that we,that we've seen a lot in the last decade.But I love what James is saying.He's like,it's good that they're putting the emphasis on the wrong part that tellsyou that they're shitty at business.And he says,that is why if you're on the ball,you can beat them on any type of fair,competitive basis.
OtherLess did not have,there was other competitors that had better relationships with suppliers,had more assets,had more money,more everything.And he's saying,I'm going to beat them because they don't know what they're doing.They're playing pretend.I know what I'm doing.I mean,he proved that he knew what he was doing.I forgot to tell you this at the beginning.He,he didn't write it to publish a book.He wrote it for,and self-published it.He self-published it and only sold in stores,but he became like a cult classic that he did.I have,I'm holding my hand the third printing and it's the last printing accordingto this,this day.And they sold 20,000 of them.So it's not a lot in circulation,but essentially he wrote the book for his employees as a guy to,to carry on the,the,the business after he's dead.It just happened to have like a,like interest to outside people.So I think it's,um,if you're running a company,you should pick this book up.I mean,you don't have to take my word for it.Hopefully you found this interesting,but if Monger is telling you to read the book,just read the book.Um,so anyways,he's got a bunch of theories and stuff that I'm not going to cover here.Just obviously picking out things that were interesting to me.So he says,do a gusto.I'm gonna take a lot of businesses and make us a shotgun.
[1:16:57]
David SenraThey're advertising by this.I mean,they spent a few dollars on newspaper ads,a few dollars on programs,a few dollars here and a few dollars there.You can't be effective that way.Whatever you do,you must do it with gusto.You must do it in volume.So in his case,radio advertising was the first big hit for him.He says,for example,radio,one ad isn't worth a damn,but 10 ads per day for 30 days gets attention.It's a case of repeat,repeat,repeat,repeat.All right.So that's his advice.Do it with gusto.And I love this section.He says,I'm optimistic about the future in spite of everything.If we are smart,if we earn our way,if we do the job,then the future will be optimistic to us.I am 68 years old now.He actually winds up living till about 89.And I've run it in overdrive my whole life.I've been in business for 34 years and I think back a lot in writing this book.Memories come back and you wonder why so many things happened.How in the hell did Les Schwab become the best known tire name in the Northwest?How did these things happen and why?Will changes come in the future that will just reverse these happenings?Will it always work out in our favor?And how did we break away from the pattern and go with what we know today is the Les Schwab way?That wasn't the way the big rubber companies wanted us to do it.We were ahead of the times.The large rubber companies turned out to be our best friends.Why?Because their ways, their policies broke their dealers.Often leaving us as the only dealer in town in a position to give service.This we know for a fact.When we create our programs,when we create our policies,and when we follow our programs and our policies,we will make money.We will always remain strong as long as we have the ability to create.If we fail to create,then we will die on the vine like so many other companies have done in the past.And that's where I'm going to leave the story.If you want the full story,read the book.And if you want to read the book and support the podcast at the same time,buy the book using the link that's in your show notes or are available at founderspodcast.com.Thank you very much, and I'll talk to you next week.