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Highlights 2020: Week 28
[Long Issue] Culture Building and Intelligent Fanatics
Over the past two weeks, my big push has been thinking through how an organization can self-manage. But also avoid some of the traps that trip us all up. How can an organization not just self-manage, but help the individuals inside become the best version of themselves?
The interesting thing about an organization is how short its life is. Even a “long-lived” organization, institution or country has a short time horizon compared with the infinite life of a soul.
Nations, cultures, arts, civilisations—these are mortal, and their life is to ours as the life of a gnat. But it is immortals whom we joke with, work with, marry, snub, and exploit—immortal horrors or everlasting splendours.
C.S. Lewis, “The Weight of Glory”
The individuals in a business aren’t just necessary cogs. They’re the treasure in the chest!
But organizations still matter. They’re like the jungle gyms where we play, and through our play, get stronger. Like any jungle gym worth its salt, they’re not perfectly safe, but they give a space to be challenged and grow.
This topic has gotten more urgent with a recent round of hiring. We’ve added five new part-time folks in the past month and a half, and have two to three sales hires in the works, with another three to five SDRs to follow soon behind.
My big questions for building an organization are:
Seeking the transcendentals: how can we build a place where people seek truth, goodness and beauty. I feel unbelievably blessed to know God and have a chance to seek Him more. People are going to look for God in all kinds of ways, but how can I share the tips that have helped me, as a fellow practitioner who is hungry for fullness of life?
Profit: how can we make money while growing. Profit is important for a lot of reasons, but one of the top reasons is because it keeps us in touch with reality.
Experimentation: how can I encourage testing over theories? Theories are great and all, but a bundle of fast, high-payoff, low-cost bets will trounce them every time.
Decisions as the Lowest Level: the Catholic Church frequently mentions the principle of subsidiarity. If a local parish can make a decision, that’s better than the Bishop (regional director) making it, and far better than the pope. People on the front lines have the most information. How can we get them the best thinking tools to make the decisions well?
Performance-Based Comp Plans: One of my hero companies, Nucor, based a big chunk of their compensation on weekly production numbers. Like it or not, financial compensation is one of the strongest feedback loops available. How can we help folks to reap the rewards or pain of their decision? There’s no autonomy without skin in the game.
To help kick this off, I read The Intelligent Fanatics Project. Here are some of the highlights, in no particular order that might be helpful.
"Patterson was a perpetual beginner. He bought NCR without knowing much of anything about manufacturing—except that he wanted to improve every business owner’s operations. From his experiences, he took what he knew to be right and paid no attention to convention."
"He surrounded himself with the greatest talent, then he unlocked their fullest potential with training and incentives. He was able to get every one of his workers to think like owners, through his profit-sharing plan."
"Price’s belief was that customers were more sensitive to the price of goods than to selection."
"The success of any business is directly correlated to its ability to motivate its people through clever systems and incentives."
"TO ALL STORES . . . If a bright, young, ambitious man joins our company and wants to make our company his career, does he do it because he likes Norm Nelson and wants to help Nom, Gordy, or Bob, or Denny? Do you men think that some little fairy sent you this man just to help you build your bonus? Do you think that this man is going to work ten hours per day, miss meals, have ungodly hours at home, just to help you build your stores? Do you think this man is going to work for low pay, year after year, just so that you can build your profit share contract 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." - An excerpt from one Les Schwab’s letters.
“A common theme among intelligent fanatics is that they operate their businesses with a decentralized model. Workers are given autonomy to run their operation as if it were their own business. Authority and autonomy promote a feeling of control and self-worth that is intrinsically valuable to employees.”
“The big thing that is going to hit you right between the eyes is that “WE EXPECT YOU TO RUN THE STORE.” You are on your own, and you will sink or swim according to your abilities.” - Another Les Schwab excerpt
“Les Schwab and other intelligent fanatics, however, believe that decision making is best executed at the lowest level. Store employees, not the office workers, are the individuals with perfect knowledge of the situation.”
“The company had an open book policy, and employees were able to get practically any information they wanted about the company, including total company profits, employee salaries, and so forth.”
“Planning and corporate layers dilute customer service, increasing the time needed to find a solution. Not every decision will be perfect, so Kelleher has been a big proponent of the motto ‘Ready, fire, aim.’”
“Herb Kelleher wanted employees to take risks; however, Southwest as a whole never took big financial risks.” Lance’s note: how do you avoid the deathline while still giving autonomy?
“‘Because of different personalities and experiences, we handle employees differently and I would not try to teach one set method. I would just say that we cannot tolerate obnoxious, oppressive, abusive, tyrannical despots (assholes).’” - from a letter of Chester Cadiuex, QuikTrip’s founder.
“QuikTrip interviews roughly three out of every one hundred applicants and then chooses from those three. The culture of excellence at QuikTrip is so high that some see it as a kind of cult. […] QuikTrip hires only a quarter of a percent of all applicants.” Lance’s note: feeding the hiring funnel is critical. They hire one out of every 2,500 applicants.
“Some businesses reward long-term employment with a watch or a pen, but at QuikTrip, an employee receives a sabbatical.”
“Management gives almost all information about the company—except details about where management plans to build new stores, which could be leaked to competitors.” Lance’s note: another example of open management. It does seem that having as much information as possible would help with autonomy.
“He also grew up with a respect for those “who worked with their hands as well as their heads.”"
“According to Kenneth Iverson, Nucor’s success was ultimately tied to how the company paid its people […] The basic incentive at Nucor has always been tied to production, at every level.”
“All workers are paid a lower base salary than the industry norm (generally 65% to 70% of the norm), so employees start off each day unsure whether they will earn a competitive wage.”
“The second intangible but highly motivating factor at Nucor has been the opportunity for advancement. Workers have the ability to move up the organization to higher positions.”
“Lemann was looking for “PSDs ”—those who were poor, smart, and had a deep desire to become rich. Young talent would be recruited from a wide pool, and their compensation would be heavily tied to their performance.” Lance’s Note: one of the benefits of hiring diverse people is you can find people who have a hunger to grow, succeed and give back.
“Everything has to have an owner with authority and accountability. Debate is good, but in the end, someone has to decide.”
“At QuikTrip, employees are told to always ask themselves, ‘What would your mother think about what you did today?’”
“Maintaining high profit margins while growing is a very difficult feat. What the intelligent fanatic model proposes is that the only truly sustainable competitive advantage is a company’s human capital.”
“All the successful people I ever met were fanatics about focus. Sam Walton, who built Walmart, thought only about stores day and night. He visited store after store. Even Warren Buffett, who today is my partner, is a man super focused on his formula. He acquires different businesses but always within the same formula, and that’s what works. Today our formula is to buy companies with a good name and to come up with our management system. But we can only do this when we have people available to go to the company. We cannot do what the American private equity firms do. They buy any company, send someone there, and constitute a team. We only know how to do this with our team, people within our culture. Then, focus is also essential.” - excerpt from a 3G Capital Partner, Jorge Paulo Lemann (emphasis mine)
These highlights are inspiring. But this is a bit theoretical.
To quote Gary Vee “I want to make sure that I am giving you equal amounts of clouds and dirt. I want you to understand why this is important, but I also want you to understand how and what to do in order to execute.”
My goal here is not to get stuck in the clouds, but focus in on the dirt of doing, too.
Put another way, talk is cheap. If my employees are miserable, I can dream about creating an organization where they thrive all I want, but it’s nonsense.