Supported by Greenhaven Road Capital, finding value off the beaten path.

Eric Maddox was the interrogator who laid the bricks in the road that led to Sadaam Hussein. His story as told in Mission: Black List #1 and in a podcast interview with Patrick O’Shaughnessy was both fascinating and instructive. The book is moviesque and I wished it were forty pages longer. What was day-to-day living like in Iraq? How did they get food for their refrigerator? How did they get the house they lived in? What was their day like?

I want something one part MTV Cribs, one part Lifehacker’s How I Work, and one part Undercover Boss.

For now, all you get is me. Ready?

…

Maddox ended up in Iraq not because he spoke the language, but because he had just enough relevant skills. As someone only partially qualified, he was sent to an area that needed someone with only partial qualifications, Tikrit.

As we’ve seen with Bethany McLean, Kara Swisher, and Danny Meyer the backwater can be a great place to start. “It’s fascinating that being off the beaten path is such a key advantage,” said O’Shaughnessy. For comedian Pete Holmes it was the college he went to.

For Maddox, that advantage included a decentralized command structure. “There was no superior standing over my shoulder, watching my every move,” Maddox writes. That allowed him time to think and learn, to talk and listen, to plan and practice.

Maddox arrived in Tikrit and pretty green. He had some formal education (negotiation training) but doubted its efficacy. The system taught “wouldn’t work on me,” Maddox said, “I wouldn’t break.” Maddox has to adapt his education and figure out a better way to interrogate prisoners. Asked six months later – after the capture of Sadaam – what his system was, Maddox writes, “I let detainees information guide me from the beginning.” He talked to everyone; friends, family, street thugs, nobodies, suspects and more without an assumption about what they could tell. Maddox doesn’t automatically trust anyone, but he listens to them.

In his book, Never Split the Difference, Chris Voss compares it to playing cards. You don’t know what the other person is holding but it could be something you’d like to have or know. Voss writes that you should plan for things that could happen (known unknowns) but be open to unexpected information (unknown unknowns).  This is what happened to Maddox.  “The prisoners were giving me ideas I couldn’t even think of on my own,” he said.

In the beginner’s mind there are many possibilities, in the expert’s mind there are few.

After he talked to many people, Maddox believed that coalition forces were following the wrong leads. The old regime had expired. There was a new organization Sadaam was leading.  “I could create a link diagram based on what I was being told by prisoners, not what others had already assumed.” Maddox had to find the Chesterton Fence that was military strategy in Tikrit. He approached the fence, and before tearing it down, asked if it was still relevant. It was not, so he cut it like a Gordian Knot.

That didn’t mean Maddox knew what the new system was, just that there was a new system. He continued to interrogate prisoners and had a that’s interesting moment. All of  Sadaam’s old bodyguards were out of the loop – except one, Mohammed Ibrahim. Maddox writes that this was “very peculiar.”

…

How do you negotiate with a suspected terrorist? How do you get information from someone who was just shooting at you? Maddox had to rebuild a process on the fly. Here’s what that included:

• Be objective.  “I didn’t care how bad a prisoner was, or was supposed to be,” Maddox writes. “It was important to look at both sides as objectively as I could.” The Harvard Negotiation Project calls this adopting the third stance.
• Build empathy to figure out incentives. Maddox found out that prisoners want two things; freedom and safety for their family. When Chris Voss negotiated with younger kidnappers he figured out they wanted party money for the weekend.
• Maintain relationships. Before a raid, Maddox hung out with his sources, “just as a way to keep the connection between us active.” This was part of the problem with Sam Hinkie’s process.
• Build career capital. Maddox was only partially persuasive when it came time to convince his superiors where and when to act. It was only as he built up career capital that people began to support his ideas. Trish Higgins said “You earn your right to take risks.

Listening well – where this all starts – is like being a Driver’s Ed instructor. You have to pay attention to the situation from the other person’s point of view.

…

Maddox loved his job. He writes that Thanksgiving wasn’t lonely because it gave him a chance to reflect on the “engrossing work.” He had entered the positive feedback loop of skill and passion:

Mohnish Pabrai said to find something you’d like to do more than going to the movies. Manoj Bhargava said to find something you like to do more than following sports. Ken Grossman put it this way:

“I knew all too well how tough my business was to run, and unless they [Grossman’s kids] were as passionate about it as I was, it would not have ben a fun or successful livelihood.”

 

Thanks for reading.

If you made it this far you might like something else I’m writing. It’s a monthly newsletter that ties in connections just like this blog. It’s for people who want to keep learning but lack the time or “footstool” to get started. It comes as a monthly email attachment and its meant to print out and read “nonline.” You can see a sample here, or sign up here.

 

Supported by Greenhaven Road Capital, finding value off the beaten path.

Melanie Whelan is the CEO of Soulcycle and she spoke wth Tony Robbins about the company she leads.

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First, a theory. Fitness is a fashion. In the same way pleats, patterns, and pants come and go as popular, so do forms of fitness. Soulcycle – et al. – is the current thing, but how long will they last? Not long ago people criticized cycling because there was too much body weight support. Was that valid? Does it matter?

Threads will be tweaked, dyed, and spun in new ways but it’s still just a material stitched together. Exercise is much the same, movements sold in new ways. We won’t predict the future of Soulcycle, only that trends come and go. But, there’s still much to learn. Branding is a moat, and if Whelan builds a strong one at Soulcycle then like the Nike or Coca-Cola, the company will persist.

…

Here are 4 questions that businesses must ask and that Soulcycle has answered.

1. Is there a market?
2. What is your MIT?
3. Do you hire right?
4. Do you have WOMM?

Ready?

1/ Do people need what you’re selling? Soulcycle began because founders “Julie and Elizabeth had moved to New York from Colorado and Los Angeles where fitness was part of their lifestyle – they’d go to spinning or yoga or hiking and they couldn’t find anything in New York.” Scratching your own itch is a great way to solve a problem, but it doesn’t solve the Iron Law of the Market.

Tony Hsieh wrote that after his startup he wanted to run a new business, but not one selling “seven fingered gloves.” They might be the best gloves every made, Hsieh wrote, but if there’s no one to buy them then they aren’t really worth anything.

The Instagram founders thought there might be a market as phone cameras got better and social media grew.

In The New New Thing Michael Lewis chased Jim Clark around Silicon Valley through the 1990’s. Of two of Clark’s grander ambitions, one died and one survived all because of the market. Netscape was a smashing success while ITV failed. Even though the later was a larger investment in time, money, and talent, there was no market for an internet connected television.

…

2/  What is your Most Important Things? The MIT is the foundation of your business. Soulcycle, says Whelan, is “a hospitality company first.” Much like what Danny Meyer aims for in restaurants, Whelan tries for fitness. At Soulcycle this means “a yes in every interaction.” If you don’t get into class today, you’re placed at the top of a waitlist for tomorrow. If you want one bike but it’s taken, you get it next. Meyer suggests that any business owners can “write the last chapter for their guests.”

To get people that act with a hospitality first mindset, you need to find the 51% solution (another Meyer term). This means getting people who solve problems, take initiative, and act rather than react. “We believe you hire for attitude and aptitude and not experience,” said Whelan, “We will teach you everything you need to know…we want someone who naturally looks at the glass as half full.” This is also the reason there are no Soulcycle franchises. “We don’t franchise because we’re in the experience business,” says Whelan.

Details are easy to teach, attitude is not.

When Ray Kroc opened his first McDonald’s he hired a hardware salesman with no food service experience. He was “fastidious with great endurance” wrote Kroc.

…

3/ Do you hire right?  Whelan said that there is a format for each class, but instructors are “free to lead it however you’re inspired. What’s meaningful in Seattle is different from what’s meaningful in Coral Gables.”

Good organizations have a decentralized command. Hire the best people you can, then get out of their way.

During the Apollo 11 moon landing, there was a lot of pressure. The Mission Control Flight Director Chris Kraft told Gerry Griffin “Young man, we don’t have to go to the moon today. It’s your call.” That was important, wrote Gene Kranz, “The impact of Kraft immediately removed all political pressure from the decision. Griffin knew all he had to do was make the right technical call.”

Pete Carroll does this too:

“When I help guys in our organization I’ll give them guidelines. ‘When we’re in a situation, it’s okay to do this, if it doesn’t work out I’m fine with that.’ I try to instill in them a risk-taking mentality when then need it…If I’m not making the call, they’re making the call for me and I’m going to try to bolster their confidence to go for it…If you called it on my team, I’m the one that ultimately takes responsibility for it. So go for it.”

Fellow coach Phil Jackson wrote that the most effective approach to coaching “is to delegate authority as much as possible and to nurture everyone else’s leadership skills as well.” At the coaching level he implemented this too, “each coach had a high level of autonomy, but when we talked to the players we spoke as one.”

Leaders lead, they don’t micromanage.

…

4/ Is your marketing good? The best marketing is word of mouth marketing. It’s how Whelan ended up in her first Soulcycle class. “I have this rule in my life where if I hear about something three times from three different people I have to go and try it.” So she went, saw the culture, and liked it.

Jason Calacanis said that if you haven’t hit WOM you haven’t made a great product. Reed Hastings said the Canadian Netflix streaming experience was “a rocket ship” because of WOM. Jeremy Liew looks for WOM for his VC investments.

WOM is how lots of people get started and Whelan admits that it’s part of the reason classes are predominately men. She says this is “an opportunity we’re trying to solve.”

It’s this last line – “an opportunity we’re trying to solve” – that might sum up a business. Have a growth mindset and be willing to wrestle with a problem each day, knowing it won’t go away but will be back at your door tomorrow.

There’s this great scene in Billion Dollar Ball, at an early season practice for a woman’s rowing club where each athlete must test themselves against the machine. Each person rows for as long as she can and her results are recorded. It’s a game you can’t win. One senior notes, “the machine always wins.” That’s true at Soulcycle too. No one ever beats the bike, but that’s not the point. The point is to get back on the bike again tomorrow. It’s to be back at your business the next day.

Thank you for reading, Mike. I’ve got a new thing, it’s a (paid) monthly newsletter for people who like these blog posts. You can see a sample here.

Supported by Greenhaven Road Capital, finding value off the beaten path.

Ken Grossman tells the story of founding The Sierra Nevada Brewing Company in his book Beyond the Pale.

There must be something about breweries. There are notes here from Jim Koch (Sam Adams) and Dick Yuengling too. My guess is that brewing beer satisfies the soul. A link between work and outcome could be another Incentive.

One more thing to chew on before we get started. In March of 2017, Yuval Noah Harari started a podcast tour to talk about his books; Sapiens and Homo Deus. I haven’t read the latter, but the former was good. It was built on the idea that sapiens succeeded because sapiens used stories. This blog uses stories too, but do you?

…

The TLDR version of Grossman’s story is this. Thanks to some early positive male influences, Grossman was able to channel a nonconformist streak into productive skills such as wood and metal working, electronic, bicycle, and auto repair and eventually homebrewing. Lacking funds, Grossman built out his brewing capabilities one jury-rigged piece of equipment at a time. As such, Sierra Nevada expanded slower than possible but never overshot demand. Two other major factors were good timing (luck) and Grossman’s dogged work ethic.

…

Grossman was lucky in many ways. Danny Meyer wrote that luck is when naivete goes unpunished and that was true for Grossman. As I read the book I thought he would have gotten along well with Yvon Chouinard. Both liked to be outside, figure out their own solutions (for Grossman this involved some illegal activities), and not to listen to authority.

This inclination could have had disastrous outcomes. The list of anti-social outcomes is much larger than pro-social ones for someone with this attitude. Luckily Grossman ended up as an entrepreneur. You can rebel against the world in only so many ways.

Grossman was lucky to be nudged in this direction thanks to some kind neighbors and teachers. He didn’t see much of his dad after he divorced Grossman’s mom so it fell to other men to fill the role of father figure.

One was Big John across the street. “Another one of Big John’s traits that rubbed off on me was a thirst for knowledge…Anything was fair game.” Grossman started to read widely and learn. Another positive influence was shop class, which Grossman calls an “adult-sanctioned” hobby.

These figures were important because there’s a see-it-to-believe-it quality in a lot of people’s success. For Michael Lombardi, it was seeing a name. For Reed Hastings, it was seeing streaming on YouTube. For Judd Apatow, it was seeing Steve Martin washing his car. Here’s how Malcolm Gladwell put it:

As for the rest of school? “School sucked – I couldn’t stand the confinement, rules, and authority.” It’s not that Grossman was lazy, “I have always had the need to keep busy, not just physically but also mentally.” It’s that school really does stink. Someone once told me that they build prisons and schools the same way. When I pick my kids up from school it’s unnerving how true this is.

Grossman graduates high school but has no plans. His hobbies are hiking, photography, electronics, cars, and home-brewing. Grossman tries college but drops out. Instead, he gets his XMBA running a satellite bike shop. Grossman writes that his location was profitable, well stocked, and had a loyal customer base. The main shop did not. It was through seeing what to do but also what not to do that Grossman learned about what it takes to run a business.

After the bike shop goes out of business Grossman opens The Homebrew Shop. It’s a place homebrewers can go for supplies and support. There’s limited demand. Grossman is married and has a child. The Homebrew Shop doesn’t earn enough money so he gets a weekend job at another bike shop. Four years later he founds Sierra Nevada.

To set the backdrop let’s pull a quote from Jim Koch. In the 1970’s and 80’s American beer was like making love in a canoe – fucking close to water. It was the nadir of American breweries. Many small companies were going out of business because they were trying to be like the big breweries. They sold mostly the same product but due to economies of scale couldn’t compete on price. Grossman, along with fellow Californian Fritz Maytag (Anchor Steam), wanted to be different and make a new kind of beer. The trend for beer was “not to offend anybody’s taste sensibilities,” Grossman writes.

“Our lives became consumed with bringing our dreams to fruition,” Grossman writes, “Everything we did was with that goal in mind.” He tried to get a small business loan but he had no credit. This turned out to be a blessing in disguise as the prime rate soon climbs to 21%.

Short on cash Grossman scours bankruptcy auctions of old dairy equipment. It’s good enough, but not designed for a brewery. Grossman returns to school to classes like welding, agriculture, and refrigeration. This also gets him access to equipment so he can make modifications on his second-hand equipment. The first year of Sierra Nevada Brewing was all construction and equipment acquisition.

Grossman (eventually) got everything working and brewed a consistent batch. He sold it around Chico only, lacking the volume for distribution. During the 1980’s the industry started to grow and looking back Grossman realized that the breweries that failed made two mistakes.

1. Inconsistent quality.
2. Borrowing money.

Rather than keeping a low overhead, breweries borrowed too much. Not Grossman. “Our plan was to save every penny we could to generate enough cash flow to survive our first year.” Sierra Nevada didn’t grow as fast as they could have, they often had to limit shipments to their distributors, but they survived. Soon they got some buzz from San Francisco magazines and being served at Chez Panisse.

Grossman’s hours didn’t decrease. “(I) felt torn about not being able to spend more time with my family,” wrote Grossman. “Running a brewery was as difficult as running any other kind of business – hard work, long hours, low funds, and tough decisions.” To be good at anything requires some commitment – say 10k hours – and that precludes other things.

Here’s what that growth looked like:

• 1985 4k barrels.
• 1986 7k barrels.
• 1989 20K barrels. (Breaks ground on a second brewery)
• 1992 60K barrels.

How did Grossman do this? One step at a time. “If I looked at the obstacles we faced all at once, I would have thrown in the towel.” One example that could have inspired Elon Musk was a clandestine utility modification. Frustrated with a water line that kept breaking, Grossman writes, “I solved that problem when I rented a trencher and ran 500 feet of new pipe to the meter early one morning without telling anyone.”

Once they hit 60,000 barrels a year, Grossman hired a sale rep. A rep, for the entire country. They didn’t need more because the best marketing is a good product. Scott Galloway calls this the “first rule of marketing.”  The beer sold itself.

Grossman didn’t do it on is own. The people who worked at Sierra Nevada “loved what we were doing, and it was a fun place to work.” As the company became more successful Grossman built The Oasis, an onsite medical facility with massage and lactation rooms. He also built Little Foots childcare on site. I told you he would have gotten along great with Yvon Chouinard.

He also needs to credit his family. Running a brewery is “all encompassing” and his family “has suffered from a lack of attention.” But the glove fit for Grossman. He felt for brewing like Bill Gates felt for computers or Mohnish Pabrai felt for investing. Grosman doesn’t know if this will apply to his kids. “I knew all too well how tough my business was to run, and unless they were as passionate about it as I was, it would not have been a fun or successful livelihood.” Most of Grossman’s successful brewing friends are “highly engaged and somewhat consumed by their companies.”

The great careers are infinite games. “This is a journey; there is no definite end point, and we will continue to strive to great great products.” Ray Kroc wrote that business isn’t like a painting you put finishing touches on and hang on the wall.

Thanks for reading.

…

In the first draft, I wrote ‘jury-rigged’ as ‘jerry-rigged.’ Not sure if I was correct I searched out the word origins. I had hoped that it would be Jerry after an industrious tinkerer, possibly in memory after a Darwin Award. Alas, it’s nautical. A jury-mast was a temporary one.

I’ve got a new thing, it’s called Mike’s Notes.

Supported by Greenhaven Road Capital, finding value off the beaten path.

What can we learn from the man who delivered McDonald’s from sleepy San Bernadino to the world? A lot if we’re choosy. Kroc’s story, as told in Grinding it Out is full of warnings and wishes, gambits and gains. One thing to remember is that the McDonald’s of old isn’t the McDonald’s of today. Kroc writes about how towns welcomed him, especially small towns where going out to eat wasn’t easy.  Anecdotally, I asked the older generations about McDondald’s and they had good things to say.

Ready?

1/ Signals. Ray Kroc was many things before he owned McDonald’s. He played piano part-time. He was on the radio. He sold paper cups and Multimixers. In this last job Kroc noticed an odd referral. People would contact him and say they wanted mixers like they saw in San Bernadino. Kroc writes, “the fact that this was taking place in San Bernadino, which was a quiet town in those days, practically in the desert, made it all the more amazing.”

Kroc thought, that’s interesting. 

If we pay attention to the world around us we can see Signals. Tim Ferriss recalled an early job in technology sales. He ate lunch with the engineers and as they talked he realized that the product – which he had to sell – was messed up. The engineers said there was no way it would be delivered as promised, on time, and on budget.

This forced Ferris to think about alternative incomes. He found a signal in his credit card statements. Ferriss saw that he was spending a decent amount of money on supplements and thought, why don’t I sell those?

Authors like Austin Kleon and Steven Kotler both said they got ideas for their second books from the questions they got at book signings for their first.

If we pay attention, the world around us speaks.

…

2/ Hustle.  The McDonald’s brothers allowed Kroc to expand the chain because they didn’t want to do that much work. “More places, more problems,” they told Kroc. This wasn’t how he saw it. “For me, work was play.” Kroc worked so much he didn’t have time to remain married. “Ethel used to complain once in a while about the amount of time I spent away from home working. Looking back on it now, I guess it was kind of unfair. But I was driven by ambition. I hated to be idle for a minute.”

People that change the world only do so because they want to see a change. These aren’t hobbies. John Boyd is one of our examples. A performance report for him read:

“His production comes from about 10% inspiration and 90% a grueling pace that his cohorts find difficult if not impossible to keep up with. He is extremely intolerant of inefficiency and those who attempt to impede his program.”

Bill Gates’s mother had to negotiate for him to leave work and visit. Gates said there were no weekends or vacation, he just loved to work.

…

3/ The backdrop to Kroc.  Prohibition (1920) creates an ice cream culture in the United States. Dick Yuengling said that this was one way for breweries to remain in business. Prohibition ends (1933) but ice cream culture stays. Vendors refine their technique, flavors, and style. Kroc plays a role in convincing some Chicago soda shops to use his paper cups as a disposable and portable ice-cream vessel rather than a sundae glass.

The United States enters World War 2 (1941) and copper rations mean reduced Multimixer production. Kroc remains employed but realizes the fragility of his employment. He visits a McDonalds. “I was just carried away by the thought of McDonald’s drive-ins proliferating like rabbits.”  The war ends (1944) and there is a population and production surge, especially in Southern California. With the growth of cars, we get the Interstate Highway Act (1956).

This is what made McDonald’s possible.

Milton Hershey had a good backdrop for chocolate (Rail, population, good ingredients). Tom Brokaw had a good backdrop for news. He was stationed in California and covered a rising politician. As the politician took on a larger role so did Brokaw, until both he and Ronald Regan had new jobs in Washington D.C.

…

4/ Hiring. Ray Kroc, like Danny Meyer looks for the 51% solution. When Kroc opened his first McDonald’s he wanted someone “fastidious with great endurance.” His hire was someone with no food service experience who had come from hardware sales. Meyer’s ‘solution’ is to get people who are 51% the right attitude and then teach them the rest.

Kroc also wanted to hire people for a decentralized command organization. “It has always been my belief that authority should be placed at the lowest possible level. I wanted the man closest to the stores to be able to make decisions without seeking directives from headquarters.”

“Hire the best people you can and leave them alone.” Tom Murphy

That didn’t mean Kroc trusted people completely. One franchisee in Cincinnati had a hard time convincing Kroc to expand the menu. He was getting killed during Lent. Kroc said he didn’t care if the Pope himself showed up, he could eat a burger just like everyone else.

The franchisee threatened to break their contract before Kroc relented and said they could experiment with a fish sandwich. By 1965 the Filet O Fish was nationwide. Other franchisees would come up with the ideas for the Big Mac, Egg McMuffin, and Shamrock Shake.

…

5/ Run your own race. “My way of fighting the competition is the positive approach. Stress your own strengths, emphasize quality, service, cleanliness, and value and the competition will wear itself out trying to keep up.”

You are your own competitive advantage. Focus on whatever you do well and copy anything else. Phil Jackson wrote to “lead from the inside out.”

…

Those are five things, and there’s more in the book, but there are things not to learn as well. Kroc wasn’t a present husband or father. He had a big ego. He was impulsive. He didn’t listen well.

The question is, can we tease out those things and leave the rest? Maybe, maybe not. McDonald’s as we know it could only have been created by someone with an ego that made him believe he could do it.

Thanks for reading.

Supported by Greenhaven Road Capital, finding value off the beaten path.

I don’t know what format Patrick O’Shaugnessy has found but it’s a darn good one. His interviews always educate, inform, and include a laugh out loud moment. The conversation with Trish and James Higgins was no exception.

Here are my notes.

1/ Google it. When Trish and James wanted to get started in “permanent equity” (O’Shaugnessy’s term) they just googled it. “We just went on to Google and we were like ‘How do I buy a small business?'” said Trish. The first search results led to more questions, but it was a start.

How simple is that? Google it. When Ken Grossman was building Sierra Nevada Brewing in the 1980’s he couldn’t ‘GIK’ but he had curiosity like Higgins. Grossman writes that he approached problems one bit at a time. Otherwise, it would have overwhelmed him.  That’s what Trish did, one small search at a time.

There are no panaceas, only lots of little steps. One of those early first steps may be a Google search.

…

2/ The checklist. Trish and James described what they want in a business. Don’t worry about copying this list(see #5), James says there are probably 2,000 opportunities here.

1. “An industry that we think will be around for a long time,” says Trish. “The question we are trying to answer is entirely related to the durability of the franchise,” said James.
2. Low revenue variance. The landscaping business they bought had 70% of customers on 1-5 year contracts. For their bakery business, there are high switching costs.
3. Owners stay on. Incentives are a big part of the Chenmark system and that means including people with skin in the game.
4. Location. You can own a bait shop. You can live in Maine (“Living in a small town,” Brent Beshore told Trish, “is a competitive advantage.”). Geography can even make you a prisoner.  Where you are matters.

I wonder how much specificity matters with checklists. Maybe it depends on the science of your study. Atul Gawande’s featured examples are medicine and aviation, two firmer sciences. Buying business is softer so maybe the checklist should be too. Danny Meyer has soft checklists and a softer industry (hospitality).

…

3/ Red teaming. Once Chenmark Capital gets an idea it’s time to test it. “The process from there was a progressive attempt to break the thesis,” said James. Ideally, hammering will strengthen the original idea. James explained that the landscaping business they bought looked even better after they red teamed it.

Red teaming is one way to get out of your head and see things from another point of view. It’s to avoid what Beshore calls “progress anxiety”.

Bill Belichick has practice squads do this. Neville Isdell had his Coke executives dress up in Pepsi gear. Whitey Mack chased Soviet submarines this way. Chris Voss wrote a book that centers around this concept.

Organizations can implement this if they argue well. Marc Andreessen says that he “trashes the shit” out of ideas that his partner Ben Horowitz brings in. Wilbur Wright “was always ready for a scrap.” Charley Ellis said that David Swenson has succeeded – in part – because he argues well. Sam Hinkie wrote that good organizations “have a willingness to tolerate counterarguments.”

All ideas need testing and good ideas remain standing.

…

4/ Incentives. O’Shaughnessy asked about what edge the Chenmark team has and James says it’s the relationships they build. You have to “be willing to spend two to three hours in someone’s living room talking to them about their hopes, dreams, and what they care about.” Buyers want more than money. That is, there are many Incentives.

Later in the interview, the tables are turned and Trish and James consider if they would take on capital (via limited partners). Now they are the business owner with people wanting to buy. “For us, it’s really only interesting if someone is like, ‘Hey, I get what you’re doing and I think that there is value in it.'” said Trish. That is, there are more reasons that just financial ones.

Aligned incentives could have lollapalooza effects. Charlie Munger’s explained:

“The next great model is the idea that especially big forces often come out of these 100 models—which several models combine…You get lollapalooza effects when two, three or four forces are all operating in the same direction. And, frequently, you don’t get simple addition. It is often like critical mass in physics where you get a nuclear explosion if you get to a certain point of mass—and you don’t get anything much worth seeing if you don’t reach the mass.”

You can get lollapalooza effects from people. Danny Meyer suggested that you figure out what someone’s ideals are and make sure those are satisfied. Each incentive – money, recognition, time, relationships – can add up to have large effects.

Compare the Chenmark model to venture capital where investor’s incentives are for a mammoth exit. If this isn’t your goal, says Andy Weissman, don’t take venture money.

…

5/ You are your competitive advantage. “When you go down market there is a premium associated with rolling up your sleeves,” said James, “and getting in the weeds and making things happen. That process is something we really enjoy.”  Trish put it this way, “we’re trying to build something and if things go wrong we’ll figure out it.”

Here’s a difficult job, and as such, it pays extra. It would be perfect for someone who likes this kind of (difficult) work. And that’s exactly what happened!

The last part of the interview is about whether this Chenmark thing is risky and neither Trish or James say it is. It may appear risky – and induce risky articles –  but is it? Trish and James don’t think so and give three reasons.

1. Being a contrarian doesn’t feel risky. From Howard Marks to Sam Hinkie we hear the advice to be different. It makes sense too. If you want different results you have to take different actions.
2. Believing in yourself doesn’t feel risky. Both Trish and James exuded a sense of ownership, or even, Extreme Ownership.
3. Having a slight edge and trusting compounding doesn’t feel risky. Trish and James would pass the marshmallow test with flying colors.

Thanks for reading. If you liked these notes you’ll probably like this interview with Brent Beshore too.

Supported by Greenhaven Road Capital, finding value off the beaten path.

The How I Built This podcast continues to post good, crisp, entertaining, and informational episodes and that includes the one with Manoj Bhargava, founder of Five Hour Energy.

…

Quick anecdote: After my 2016 triathlon I grabbed a Five Hour Energy drink in the post-race tent. I put in the refrigerator and forgot about it. Two months ago I found it behind our jar of bacon fat and gave it a try. I felt amazing. I also realized that there is a component of addiction I know nothing about.

…

Let’s not bury the lede. Bhargava said entrepreneurs need to do three things:

1. “Use your common sense. Do not use MBA-speak.”  (He didn’t mention if he’s read Taleb).
2. “Be totally determined. I hate the work passionate because you get hit in the face a few times and passion seems to fade. Determination means your face hits the floor 20 times and you get up 21 times. You get up no matter what happens.”
3. “A sense of urgency. Do it now, don’t wait.”

…

One thing that made this interview so enjoyable was that Bhargava didn’t tell that many stories. He explained things. When host Guy Raz asks about a business turnaround Bhargava explains, “it’s not rocket science. If you use common sense you’re in great shape. If you use experts you’re in so much trouble.” A moment later he added, “experts are great for telling you what you shouldn’t do.”

That’s it, why make it more complicated?

My guess is that we complicate because knowing and doing are different things. How do I go from knowing to doing? Can’t an MBA help me? Maybe. You could also just try something.

Brent Beshore said the secret to business is to experiment and do more of what works and less of what doesn’t. That’s Bhargava’s model too. After his first year at Princeton, he realized he didn’t need college. Not that he knew everything, he didn’t. He just didn’t need what they were teaching. He went to India and became a monk instead. “That was my true education. It was an education on what is life and how to live and how to live is so fundamental because it affects how you do everything.”

Bhargava returned from India and turned around a plastics company. Then he created an invention company to look for his next thing. At a national food expo, he tasted an energy drink. He couldn’t license it so he tried to make it. The first batch “tasted awful” but Bhargava kept tinkering and tasting.

Bhargava sold it in GNC. Jason Calacanis said on the Dorm Room Tycoon podcast that if you don’t have word of mouth marketing you haven’t made a great product. After one month of sales, Five Hour Energy sold 10,000 units.

He also settled on the strategy of offering it as a shot. Why? For starters, it would have been too damn hard to get space in the cooler section along with the likes of Coca-Cola and Budweiser. Second, why include water?

Bhargava differentiated Five Hour Energy and built a moat around his business. That moat was assaulted when his market share went from 93% to 67% and he said 300+ competitors entered the market. The moat held because none of the knockoffs could knock him off. “The one thing they all forgot,” said Bhargava, “was that you have to have a great product.” It was ironic that a Buffett company (Coca-Cola) was repelled by the very moat mechanism that Buffett likes about Coke. Kevin O’Leary asks this question on the TV show Shark Tank.

And, of course, it helps to get lucky. Bhargava said:

“Business is one of those things where you have to get everything right and then get lucky. Anyone who says luck is not part of it is just arrogant.”

The two-jar model is how Michael Mauboussin taught me about comparing luck and skill. We’ll only reiterate here that anything you can control is skill. That means keeping a low overhead, building good relationships, talking to customers, and being curious are all up to you. Oh, and so is persistance.

If you can persist then you might have something. Bhargava says you have to resist the “heat of failure” and if you fall down, “so what, just get up and do it again.” On a previous episode of HIBT, Nolan Bushnell (Atari, Chuck E Cheese) compared business to a chess board. If you lose one game just set up the pieces and play again. In fact, this should be your default mindset. Ray Kroc said that business isn’t like a painting. A painting you put on the final touches, hang it over the fireplace, and enjoy. A business requires a lot of work.

It helps then if you like what you do.

Thanks for reading.

 

Supported by Greenhaven Road Capital, finding value off the beaten path.

This post will include notes on both Tyler Cowen’s The Complacent Class and the (burger) books In-N-Out and Grinding it Out (McDonald’s). Reading them sequentially (accidentally) was a juxtaposition.

Ready?

…

Cowen’s book is good, fans of Marginal Revolution or the podcast Conversations with Tyler will like it. His thesis is that things are pretty good for a lot of people and they want to keep it that way. This manifests as self-segregation and less risk taking.

Not all this segregation is obvious or explicit. For example, Cowen writes that colleges are often places where a form of self-segregation happens. Reading this jogged a memory of walking across campus and noting the unofficial school uniform; white Apple earbuds, black Northface jacket, and brown Ugg boots (It wasn’t only me that noticed this).

I hadn’t considered the many ways we form groups but I do know that groups affect how we solve problems. One theme of this blog is that new things (non-complacency) come from people who have one foot in the old and one in the new. Milton Hershey moved from caramel to chocolate. The Wright brothers were inventors who dabbled in aviation, not aviators who invented. Phil Knight was an accountant and runner.

To come up with new things we need new ideas and those often come from new people.

“To put it bluntly, most successful social structures are pretty good at re- producing themselves.” – Tyler Cowen

Cowen also writes that we’re innovating less and “for all the talk about Silicon Valley, we are less a start- up nation than before.” There’s availability bias in technology news. Chris Dixon said that many people are surprised at the small scope of venture capital.  Even the start-ups we recognize as successes like Harry’s or Instagram, are small beans. Those things have made our lives better, sure, but by how much? Technology hasn’t – yet – been used to solve big problems of housing, healthcare, or education.

We explore (flaneuring) less too. Cowen calls this “matching” and notes the options for; dating, dog adoption, and bike/car riding. This isn’t all bad Cowen notes, but it does mean future outcomes are based on past experiences.

In The Inevitable, Kevin Kelly praises matching. “Every year I own less of what I use.” Kelly calls this a switch from ownership to access. This is thanks to matching. I asked on Twitter about this and there were many more instances of matching that I realized:

This tool – like any tool – involves trade-offs. Amazon’s book matching is okay but imperfect. I try to find other good sources like this: http://investorfieldguide.com/bookclub/ .

I also wondered how much matching effects exploration. Lyft rides make planning a trip one bit easier. I’ll get there and figure it out.

Cowen is optimistic in general, but not necessarily for you.

Part 2: Hamburgers

There was much less complacency in the early part of the twentieth century. Harry Synder’s father lived in Amsterdam, Seatle, and California before settling permanently. Unlike today – where, Cowen notes, there is less migration – Synder had nothing to protect so he moved. This was the case for Kroc too. In the 1920’s he left a decent job selling paper cups in Chicago to play piano at a Miami club owned by a rumrunner. Why would Kroc leave a good job for an adventure? “I was driven by ambition. I hated to be idle for a minute,” he writes. Kroc was a traveling salesman and when he wanted to learn more about McDonald’s he went to California from Chicago and watched the restaurant from across the street.

“A new city or state forces people to rethink their assumptions about the best ways to do things and about what their lives really should consist of.” – Tyler Cowen

It could be that Kroc and Snyder were non-complacent because it was a good time for it. After World War 2 the United States was ripe for growth. Cowen calls this mindset “aggressive dreaming.” What are the conditions?

• The United States is the last industrial nation standing with a manufacturing base that’s no longer making tanks.
• Women have entered the workplace, for good.
• Eisenhower builds out the interstate system after seeing the Autobahn.
• The GI Bill subsidizes home ownership and college.
• Babies begin to boom.

Daniel Kahneman said that success is a mix of luck and skill and great success is a mix of great luck and skill. This was true for Synder and Kroc. The post-war period was the perfect situation for the hamburger drive-thru (especially in southern California). Synder and Kroc were lucky.

But, the two-jar model reminds us to consider the skill involved too. Synder and Kroc excelled here too.  Stacy Pearlman writes that while Esther Snyder was religious, “Harry’s faith was in hard work.” Kroc put it this way, “If you are running a hundred-yard dash you aren’t thinking about God while you’re running. Not if you hope to win. Your mind is on the race. My race is McDonald’s.” Both men built up a deep understanding of their niches, experimented, and expanded. Neither was complacent.

Our story starts to change in 1973. The oil embargo shakes America out of “aggressive dreaming.” By this point, both McDonalds (nationwide) and In-N-Out (California) are entrenched companies. They have moats thanks to brand and economies of scale. Both restaurants entrench further with ‘Universities.’ This is the start of stasis. We have the companies that Warren Buffett and Charlie Munger look for, ones that can’t be upended by any amount of money.

…

Conclusions.

If you want to understand the entrepreneur, wrote Yvon Chouinard, study the juvenile delinquent. That’s a person who says, this is bullshit, I’m doing things my own way.

Ray Kroc wasn’t a juvenile delinquent but had the attitude. Kroc, like Buffett, Munger, and John Boyd wasn’t the most present husband or father.  It’s hard to find balance said Stephanie Linnartz, “My family is first, my job is second and that doesn’t leave a lot of roomful hobbies and book clubs.”

Non-complacents believe that things need to change and that takes time and energy. Maybe we’re too distracted by Twitter?

I don’t fully get Cowen’s book because I’m part of the things-don’t-look-that-bad-to-me group. But I do get that stasis is bad for the mind, body, relationships, or culture at any scale.

“Apparently peaceful environments are often not so peaceful once you scratch the surface.” – Tyler Cowen

We need some volatility in our lives. It shakes out debris. Greg Ip wrote about the risks when we avoid or control volatility. Chris Cole talked about it too. It’s also a big idea behind Nassim Taleb’s work.

…

My kids know not to say certain words. One is the ‘b’ word. Bored. After reading Cowen I wonder if I should add a ‘c’ word too, complacent. My daughters probably won’t understand that, the oldest is nine. Maybe it should be a word for me.

Thank you for reading. If you want to see all the books I suggest you can sign up here: http://eepurl.com/bgRZOX.

Supported by Greenhaven Road Capital, finding value off the beaten path.

Jeffrey Sachs talked with Barry Ritholtz on the Blumberg Masters in Business podcast. The entire interview was good and these will be a shorter set of notes in a non-list format. If you like the less is more approach let me know.

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Sachs and Ritholtz note that there’s more to life than money, duh. As a platitude we understand this, but they wisely point out that we still use money for a hell of a lot of stuff. Gross domestic product, for example, is one form of measurement we use even though we know it’s not the only thing there is.

Another example is tax cuts as incentives for high net worth individuals. Why doesn’t this work? To use the words of Charley Ellis, people won’t stop working and earning because, “it’s fascinating, it’s really interesting, it’s very enjoyable and you don’t have to stop at 35…I know a couple of people over 100 who are still involved in active management…The rewards are really quite substantial.” There are are many ways to create good Incentives and they often involve more than money.

One inventive incentive solution the duo circle in the episode is the relative nature of incentives. To rephrase things, ‘Would you rather earn a lot absolutely or a lot relatively?’. Nassim Taleb writes that too many millionaires next door will shadow how you view yourself.

…

The expression “marshmallow test” is shared a few times so Ritholtz or Sachs must have read The Marshmallow Test by Walter Mischel. The book summarizes Mischel’s career and expands on other psychology books about habits and willpower. The whole book is good, but if you want one trick today it’s this: make your deferred gratification goals ‘hot’ and your current temptations ‘cool.’ How?

• Make thoughts salient to heat them up. Imagine the results are today or tomorrow. Create a positive association with the future you.
• To avoid temptations cool your thoughts. Create a mental or physical distance between you and temptation. Adopt The Third Stance and imagine what an impartial party would think.

See also: ‘Would Steven Pressfield pass the Marshmallow Test?‘

…

Ritholtz suggested that ESG funds may have better results because the companies that go that far probably get the basics rights. I like that and think I’ll add it to our list of Signals. When he said it I wondered how much the personality of the CEO reflects an organization’s culture. Some examples that came to mind were Zuckerberg and Musk compared to Spiegel and Kalanick.

…

The interview ended with Ritholtz asking Sachs about his hobbies and Sachs says he likes to work. Employment enjoyment is a common denominator for many successful people. Charlie Munger said “In my whole life I’ve never succeeded much in something I wasn’t interested in. I don’t think you’re going to succeed if what you’re doing all day doesn’t interest you.”

If you can create a feedback loop between job, quality, and enjoyment then you’ve got something special, just like Sachs.

Thanks for reading.

Supported by Greenhaven Road Capital, finding value off the beaten path.

Jeremey Liew – partner at Lightspeed Ventures – talked with Kara Swisher on the Recode Decode podcast. Ever since hearing Kara Swisher talk to Ezra Klein I’ve noticed that her interviews stand out. She just lets the guests talk and doesn’t have a list of questions to ‘hit.’ That flexible mindset shows, and it’s something Liew suggests works for businesses too.

We’ll cover.

1. Cyclical thinking.
2. Experimentation.
3. Sampling at Netscape.
4. Know thyself.
5. Chesterton fences at Snapchat.
6. How to compete with Amazon.

Ready?

1/ Cycles. “There’s this sway between walled gardens and content being brought inside to openness and then back to walled gardens. There’s definitely cycles as people think about that.”

Cycles are a helpful way to think about how things happen. Linear is easier, but cycles may be more accurate.

Evolution, for example, is one. The book The Beak of the Finch, Johnathan Weiner explains the cycles of finch sizes on the Gallopogos islands. It starts with weather (rainfall, temperature), which leads to plants (and the types of seeds), and then what size finch (and their beak) is best adapted to that environment.

Another cycle is the personal calendar. Jason Fried said “I think it’s important to optimize your schedule around your natural cycles…That people are running at full capacity all year round is not a natural thing.”

In his interview with Jason Calacanis about Harry’s Andy Katz-Mayfield said that they looked at the facial hair style cycles for ideas.

Finches, people, seasons – all instances where cyclical thinking can work.

…

2/ Experimentation. At AOL Liew was charged with content creation to see if it could be done on a larger scale.

“AOL had bought Netscape in in 1999. I dropped in to run Netscape in 2004 with the express mandate to see if we could build a standalone media business…what we discovered was that yes you could build a media business. That’s what gave AOL a little bit more of data to take the plunge.”

Brent Beshore said that only secret to business is experimentation. “Do more of what works and less of what doesn’t,” Beshore said.

I was talking with a friend who took Nassim Taleb’s course in NYC and he said a big takeaway was that once you eliminate the chances of destruction, you can and should experiment. Much like when Beshore explained it to Patrick O’Shaughnessy, this never clicked until I heard it over and over again.

When Danny Meyer was growing his New York restaurant empire he wanted to open an Indian restaurant, but he knew he had to be different from the existing ones. In Setting the Table he wrote that his head chef:

“(Floyd Cardoz) continually seeks sensible ways to innovate in the Indian idiom, demonstrating that you can experiment while remaining grounded in solid traditions.”

To rephrase that, Meyer hired people who would experiment with something that was just new enough.

…

3/ Why did Netscape have the same homepage for four days?!? 

Liew says that after seeing the same homepage for four days he went to the manager in charge of it and she told him it would change when people stopped clicking on it. Liew continued:

“The thing that really stuck with me about AOL and Netscape was that the core user of technology is middle America. The things that we see in Silicon Valley are not representative of the way that things look in middle America…The point is that we use the internet different than normal people do.”

Part of A Field Guide to Lies focuses on the sampling bias and we get to see it here. If you ask SV engineers about a problem and the users aren’t SV engineers you’ve got bad data. We need to think about this stuff, Levitin points out, because no one is going to think critically for you.

Who was a Netscape engineer in the 1990s? It was male in Silicon Valley who studied computer engineering. That’s a small group.

Today Liew is looking for larger groups and he explains his process to Swisher:

“Right now I think about consumer technology as popular culture. If you think about popular culture the early adopters tend to be young women. If I see a product, service, or app that is really taking off among young women because of genuine word of mouth that gets me really excited.”

In addition to young women, Liew is looking for new places too:

“This is why I think you’ve seen an explosion of startups in New York and L.A.”

In just this one point we’ve pointed out the sampling slip up of not looking for a wider group of people like; middle America, big cities, anywhere not in Silicon Valley, women, and young people.

…

4/ Know thyself. Liew understands that he’s a better investor than operator.

“I think you really have to know what you’re good at. To be a great operator I think you need to have a singular focus and a level of leadership and management charisma that can make you incredibly successful. I’ve seen what good looks like and I’m okay, but I’m nowhere as good as the best operators and CEOs in the world.”

Our circle of competencies aren’t fixed, but they are limited. Liew could grow his ‘operator competency’ but instead chose to focus on his existing strengths.

Charlie Munger, for example, likes to buy moats rather than build them.

Tyler Cowen said this during a March 2017 AMA:

Under the heading of #personalproductivity and #lifehack we like to point out that people have inherent dispositions and skills. Knowing what they are helps.

…

5/ Chesterton fences for Snapchat. Liew said:

“A lot of this comes down to Evan (Spiegel, co-founder, and CEO of Snapchat) being a very special person. Most of us use these unconscious metaphors as we think about new companies, businesses, and products. Even the best product management visionaries rely on these unconscious metaphors. A good example might be Friendster doing reverse chronological order in the feed and ever since then, every social network has done reverse chronological order in the feed. Then Evan comes along and says, ‘How do people tell stories?’. Reverse chronological order is: end middle, beginning. That’s a great example where people didn’t question the metaphor and just did what had been done before.”

According to Liew, Spiegel, wondered why things were done in one order and not another. Asking questions like this can yield new answers. Danny Meyer asked why tipping was done in restaurants. Fried asks, “Why the Hell Not?” Kara Swisher praised Donald Trump for his ability to ask why.

…

6/ How to compete with Amazon. Amazon has become the 800-pound gorilla that seems to enter every conversation. Liew has one solution:

“Amazon is an extraordinary competitor and I would prefer not to be going head to head against them. I think the bigger opportunity in startups is for people who are building these vertically integrated online native brands.”

Let’s focus on the key part, vertically integrated online native brands. 

• Vertically integrated, like Patagonia or In-n-Out.
• Online native, like, Harrys.
• Brands, like, Coca-Cola, a company that no amount of money could topple.

All you need to do is combine those companies. That’s why it’s so hard to compete with Amazon!

Thanks for reading.

Supported by Greenhaven Road Capital, finding value off the beaten path.

Case studies are a lot of fun and teach us how businesses or start-ups run (or run out of money). But we should be careful of the narrative merry-go-round. Sam Hinkie and Paul Graham both warn about the mistakes we make with narratives:

Bill Belichick said he prefers when people go off and work things out on their own and then come back together for this very reason. You don’t want someone going on, creating a good story, and then people following along like it’s summer camp.

With that warning, what you are about to read is a story.

…

Danny Meyer is a restauranteur, CEO of Union Square Hospitality Group, and author of Setting the Table, our source for quotes. This book was a delightful surprise because I knew nothing about Meyer and learned so much from him. This book matched my reading goals (#4).

Ready?

Training

Let’s start at the beginning, Meyer liked to eat. In the book, he proudly recalls winning a cookout competition at summer camp despite his cake sliding off a make-shift rack and into the ashes of the campfire. Growing up he worked in his father’s fledging hospitality businesses industry, mostly in European tours. Meyer’s father didn’t do well, but Danny learned a lot about international cooking, travel, and hospitality.

After finishing college and succeeding in the corporate world, Meyer took a 90% pay cut to return to restaurants from sales. He had to. “A career in the restaurant business was going to tap me on the shoulder even if I hadn’t found it first,” Meyer wrote. Great successes require great work and you’re only going to do it if you like it.

Mohnish Pabrai put it this way, what would you do instead of watching a movie? Charlie Munger said to find something that interests you because “I don’t think you’re going to succeed if what you’re doing all day doesn’t interest you.” In a Reddit AMA Tyler Cowen said that his success if from being born in a way that matches his career and persisting:

 

Meyer studied cooking. He filled his knowledge gaps. “I couldn’t take in the information quickly enough,” he wrote about a wine curriculum. After a short training in formal cooking, he got a job doing simple things. “I did those kitchen tasks no one else wanted to do and in which there was no fear that my rudimentary kitchen skills might lead to disaster.” The backwater is often a good place to start. Both Bethany McLean and Kara Swisher started their journalism careers in areas that didn’t get much attention.

During this time Meyer built up an ethos. “Hospitality exists when you believe the other person is on your side.”

He also learned about Incentives. During his years of giving tours in Italy, he wrote, “I could tell my travelers that I knew of an amazing family run place that very few tourists ever found. They loved that.” That is, Meyer found out about transaction utility, something  Richard Thaler explains.

Another incentive Meyer observed was during his time volunteering for the John Anderson presidential campaign. The volunteers he supervised showed Meyer how  “ideas and ideals were the only currency…(they) taught me to view all employees essentially as volunteers.” He learned that money is a proxy and if you can figure out the thing people really want, you can compensate them with that.

Meyer accumulated a helpful set of skills for someone who wants to be a restauranteur. He’s followed the suggestion to be there and created an understanding of what culture means, as well as the differences between French and Italian cooking. Meyer also developed a set of interpersonal skills he’ll need and knows just enough about cooking and restaurants to get started but not so much that he’ll copy what others are doing.

 

Openings

Meyer notes in the book that the conditions of the environment he wanted to enter were lucky. “I would also have the good fortune of entering the restaurant industry during its fertile period of revolutionary change.”

Conditions matters for business success. It’s the Iron Law of the Market. Milton Hershey shipped out his namesake chocolate on reconstruction railroads and built his national brand as national brands were possible. Hamburger joints like McDonald’s and In-N-Out used the growing car culture to create the drive-through hamburger experience. Even modern companies like Apple rise and fall on the conditions of the environment. Apple needed the mp3 which has its own story in How Music Got Free.

In the conditions and environment of New York City in 1985, Danny Meyer opens Union Square Cafe.

To succeed, Meyer has to be different.  He wanted to “combine the best of what I’ve found with something unexpected.” He compared it to music, “the trick is to put those notes together in a way not heard before.”

He also needed space. Meyer needed a location where there wasn’t a lot of competition and with low rents but also someplace people would actually go. He found a place with low enough rent. Ian Cassel suggested something Meyer would agree with; keep your fixed costs low and your variable costs variable.

A low overhead is a strong suggestion from many founders who make it. Jim Koch never rented an office, preferring instead payphones. Michael Ovitz had an office but used gifted office supplies and his wife answered the phones. Instagram had a low overhead too. One founder said about their first outside investment:

“That’s more money (the first $50K invested) than I had ever heard of in my entire life of a business getting… so here are two guys with a prototype, a couple of computers, and no office, who raised a half a million dollars who are looking at each other like, we think we can make this last. We were living on peanut butter and jelly sandwiches.”

Startups who fail to heed this advice fail. So too – almost – for Tony Hsieh who had to sell off nearly everything he owned to keep Zappos afloat.

Meyer kept his overhead low enough and got luck with his remodel, writing  “my naïveté went unpunished,” when it came to hiring a construction crew. The two-jar model notes that great success requires great luck and had this early break gone against Meyer it’s easy to imagine an alternate universe without Shake Shack.

As he put together the plans for Union Square Cafe, Meyer realized he couldn’t be the chef. He used his connections to find someone who could be. Meyer instead worked out front and thought through larger problems. There were many, but Meyer took a certain approach to them, writing,  “It was oddly exciting to manufacture challenges and surmount them.” This kind of mindset turns problems into puzzles.

Meyer enhanced his understanding of incentives. If a guest wanted a table at 8:00 but none were available, Meyer would counter with an offer to eat at 8:45 “which I knew sounded a little earlier than ‘quarter of nine.’”  Union Square Cafe also had a “medicine cabinet” for guests who didn’t have their expectations exceeded. Free glasses of dessert wine would be offered to patrons. This was cheap(ish) to provide but valuable for the guests. Dessert wines were a European thing and that added to the experience of a free glass (more transaction utility).

Meyer’s deep understanding came from being at his restaurant every day. On his first night away Meyer to his wife to Lutece and the chef asked ‘Why the hell are you in my restaurant?’ Meyer finished his meal but didn’t take another day off for a long time.

As Union Square Cafe succeeded, Meyer dreamed about other restaurants. He compared the process to having kids; fun to conceive, but less fun to gestate. “There’s not a lot of sleep in the first six months and you feel as if you’re never going to get your head above water.”

Meyer’s family was about to grow.

Expanding

One thing Meyer is very good at is tearing down Chesterton Fences. He asks, “Who ever wrote the rule?”

• Who ever wrote the rule that you can’t you have a high-quality burger served in a park? (Shake Shack)
• Who ever wrote the rule that you can’t have good BBQ the middle of a city next to a Jazz Club? (Blue Smoke)
• Who ever wrote the rule that you can’t have good food in a museum? (MOMA)

When it came to new ideas, Meyer sometimes looked online. Before he opened Tabla (Indian food), he wondered about the competition. The best Zagat score in 1997 was 24/30.  Charley Ellis would nod in approval. It’s easier, Ellis said, to win if your competition isn’t very good. That said, Meyer still had to offer something different and better. Chef Floyd Cardoz, wrote Meyer, “continually seeks sensible ways to innovate in the Indian idiom, demonstrating that you can experiment while remaining grounded in solid traditions.”

As the restaurants grew in number Meyer felt what Brent Beshore‘s described as “progress anxiety.” You want to do something. Meyer used a checklist to help limit his actions to the best options.

1. Any new restaurant had to be excellent in its niche. “Be the best you can be within a reasonably tight product focus.”
2. Any new restaurant must not diminish Union Square Cafe.
3. Any new restaurant must not be a big time draw. Meyer created processes that could scale and he wanted to use them.
4. Any new restaurant must be close to Union Square Cafe.

This final point was most important early on. Meyer had to be in his restaurants to check on how things were going. In-N-Out founder Harry Synder did this too, living across from his first location and hopping off the couch to help if he saw the lines become too long.

During the growth phase, Meyer’s pregnant wife gives birth to premature twins that both die. They are devastated. Meyer writes that without therapy “the loss almost certainly would have brought us down individually and together.” Books like Meyers are great to learn from but we should remember that there are people with lives behind the companies.

It’s difficult to have full-time relationships with more than full-time careers. John Boyd, Bill Gates and Warren Buffett and Charlie Munger all committed to their careers to such a degree it left little time for family. Future founders would do well to remember that actions express priorities. As Stephanie Linnartz said, “My family is first, my job is second and that doesn’t leave a lot of room for hobbies and book clubs.”

During the expansion, Meyer hit on the 51% solution. “We can always train for technical prowess,” wrote Meyer. What he wanted is “the excellence reflex,” a response to act when something isn’t right. For Meyer, the Most Important Things were emotional skills like optimistic warmth, intelligence, work ethic, empathy, self-awareness, and integrity. If he found people that exemplified those he could teach them to run a restaurant.

Meyer successfully grew – and had growing pains. He recalls one meeting with a mentor where they talked about doing things the right way and creating good systems. The mentor motioned to the next table and asked where the salt shaker should be. Meyer got up, centered it, and sat back down. His mentor leaned over and moved and asked again, ‘where should the salt shaker be?’ Meyer moved it back. His mentor moved it again.

His mentor’s point was that the salt shaker would never be centered because people would always move it. It was up to Meyer to move it back each day. Ray Kroc put it this way:

“Business is not like painting a picture. You can’t put a final brushstroke on it and then hang it on the wall and admire it.”

Business, life, relationships, blogs, careers are Sisyphisian. This brings us back to where we started. If you don’t like rolling the same boulder up the same hill you need to find a new boulder or hill.

Thank you for reading. If you want to see all the books I read you can sign up here: http://eepurl.com/bgRZOX.