Founders - #102 Akio Morita (Sony)

Starting point is 00:00:01 Forty years ago, a small group gathered in a burned-out department store building in the war-devastated downtown Tokyo. Their purpose was to found a new company, and their optimistic goal was to develop the technologies that would help rebuild Japan's economy. In this early gathering was a young engineer, Akio Morita, then just 25 years old. Today that company is one of the most powerful and respected multinational corporations in the world, Sony, and Akio Morita is its outspoken chairman. The Sony story is one of consistently high-quality merchandise and phenomenally successful marketing strategies

Starting point is 00:00:38 masterminded by Morita, who realized he would have to create the markets for Sony's unprecedented products. Morita's striking departure from the traditional Japanese business practice of making decisions by committee led to the spectacular success of the Sony Walkman, which was his own idea. And perceiving that Sony's future would be intimately tied to that of the United States, Morita decided to found a U.S. subsidiary, Sony America, and he took the highly unusual step of moving his entire family to New York during its establishment. From his global perspective and as a friend and admirer of the U.S., Morita candidly discusses the differences between Japanese and American management practices, the often stormy trade

Starting point is 00:01:24 relations between Japan and the West, the real reasons behind the hollowing out of American industry, and the role of technology in preserving the future of mankind. All right, so that is an excerpt from the book that I read this week and the one I'm gonna talk to you about today, which is Made in Japan, Akio Morita and Sony.

Starting point is 00:01:44 And it was written by Akio Morita and Edwin Reingold and Mitsuko Shimura. Okay, so that excerpt I just read talks about the founding of the company comes right after World War II. Tokyo has been devastated by not only the atomic bombs dropped in Nagasaki and Hiroshima, but there was a ton of firebombing done all over Japan. And so I want to spend some time. I think that's one of the most remarkable elements to Akio and Sony's story. So I want to spend some time describing what that environment was like.

Starting point is 00:02:20 Okay, so this is going to be Akio as a young person dealing with the war. And he's in the Navy at the time. He says, I was having lunch with my Navy colleagues when the incredible news of the atomic bombing of Hiroshima arrived. I understood what the bomb was and what it meant to Japan. He says he had a better understanding of other people because he studied physics before the bombing. I understood what the bomb was and what it meant to Japan and to me. The future had never been more uncertain. Japan had never lost a war,

Starting point is 00:02:50 and only a young man could be optimistic. Yet I had confidence in myself and in my future even then. I was 24. Okay, so that's one of the first personality traits I want to bring to your attention. Akio was, he had the utmost confidence in himself, even when at times he shouldn't have had. And a lot of people even call him cocky.

Starting point is 00:03:11 You're going to see a lot of parallels between Akio and Steve Jobs. Steve Jobs actually met Akio. At the very beginning, if you study the early days of Apple, Steve said that he wanted Apple to be the Sony of computers. And so that's one trait they share. And I'll talk a little bit more about what Steve Jobs said about Sony later on. All right, let's back to the book. I had seen the terrible results of conventional firebombing.

Starting point is 00:03:37 I was in Tokyo when the incendiary bombs whipped up a firestorm that killed 100,000 people in just a few hours. Parts of all of Japan's major industrial cities were charred wastelands in 1945. Depressing heaps of blackened remains were the homes of millions of Japanese. And again, I think that's one of the most remarkable parts of this entire story, is that he's going to start one of the greatest companies of all time out of this kind of environment. So he says, when I first heard of the atomic attack on Hiroshima, it struck me that American industrial might was greater than we realized. It was simply overwhelming. I, for one, should have been prepared for it. In fact, as a boy in high school, I had seen a film of the construction of the Ford Motor Company's River Rouge complex in Dearborn, Michigan, and was thrilled by the concept of this gigantic project. Japan had no integrated manufacturing like that at the time.

Starting point is 00:04:37 So Japan's devastated. They just lost their first war in their entire history. And yet here we see the unwavering confidence of Akio. He says, I don't mind saying that even then as a young man, I felt that somehow I had a role to play in that future. I didn't know how big a role would turn out to be. So I want to tell you a little bit about his early family history, which is fascinating because he's, he, he comes from a family that had a family business for going back 300 years. And so he learns a lot from this family business, but specifically what happens to a multi-generational family business when you lose focus on the business.

Starting point is 00:05:12 So I want to talk about that a little bit here. So he was born the first son and 15th generation heir to one of Japan's finest and oldest sake brewing families. The Morita family had been making sake for 300 years. That's bananas. So they had a really prosperous, they were one of the richest families in Japan at the time. Yet the generations, the two generations, excuse me, the three generations that came before him were, they essentially didn't focus on the business.

Starting point is 00:05:44 They were extremely rich so they spent their time like buying art and fine ceramics and all this other stuff that had nothing to do with the business and so his dad Akio's dad is now gonna have to run the business and he's essentially running a turnaround project okay he went from a once prosperous business to one that was almost out of business and was actually restored back by his father. So he said, unfortunately, the taste of a couple of generations of Merida family heads was so refined and their collecting skills so acute that the business suffered while they pursued their artistic interests, letting the business take care of itself, or rather they put it in other people's hands.

Starting point is 00:06:29 So what does that mean? He says, they relied on hired managers to run the Merida company, but to these managers, the business was no more than a livelihood. And if the business did not do well, that was to be regretted, but it was not crucial to their own personal survival. So there's a misalignment of incentives here, vastly different from a multi-hundred-year family business, right? So he says, in the end, all the managers stood to lose was a job. They did not carry the responsibility of the generations of maintaining the continuity and the prosperity of the enterprise and the financial well-being of the Merida family. And so that is why when the business fell into my father's hands

Starting point is 00:07:04 as the first son of the family, he was faced with the immediate task of bringing the company back to profitability and restoring the Morita family fortunes. No outside manager could be counted on to do that for him. So one of the best things that ever happened to Akio is that he had a very understanding father and his father, so the Japanese tradition according to Akio was, you know, the first born son has to take over the family business. That was, you know, Akio's destiny before Sony. And so as such, his dad from a very young age took Akio to work with him. He'd sit in on meetings, even from the age of like 10, 12, 13. He'd be in all these meetings. They'd be reviewing numbers. And Akio would talk about like after the meetings

Starting point is 00:07:48 were over and after he was essentially shadowing his dad, he'd have to like think for a long time and try to interpret like what the adults were talking about. And I think that is really important that Akio later in life says he's a big fan of the total immersion theory. And I think that has something to do with how his dad, his dad just kind of, you know, brought him in here. You're not going to understand everything, but I'm going to always constantly keep you at the very edge of your capabilities. It's a very uncomfortable place, but it's a place where probably all of our growth comes from. So I think it was very smart. So I'm going to cover a couple of things that he learned from the family business, some traits that his family taught him. They kept his whole life, tenacity, perseverance,

Starting point is 00:08:23 and optimism. He says, this ancestor of mine had the eagerness to try something new. So this is, they were in the sake business and there's ebbs and flows to any business. And so they realized they have to diversify. He says, the ancestor of mine had the eagerness to try something new and the courage and strength not to give up if a single project failed. His predecessor as family head had started a beer business by hiring a Chinese brewery who had learned his trade in England. He also founded a baking company, which prospered. Tenacity, perseverance, and optimism are traits that have been handed down to me through my family genes. And he's going to tell us some explicit business lessons that he learned from his father

Starting point is 00:09:05 he says i think it was very important that i was also cautioned time and time again as a young man so now there's going to be direct quotes from his father don't think that because you are at the top you can boss others around be very clear on what you have decided to do and when you ask others to do and take full responsibility for it. Now back to Akio. He says, I was taught that scolding subordinates and looking for people to blame for problems, seeking scapegoats, is useless. These concepts have stayed with me

Starting point is 00:09:34 and helped me develop the philosophy of management that served me very well. So Jeff Bezos has this great quote where he says, you don't find your passions, your passions find you. And I think that is actually completely true. This example, Akio is another example of that. He finds his obsessions with electronics extremely early in life. So he says, at this point, he's a young boy. He says, I began to buy books about electronics and I subscribed to magazines that contain all the latest information about sound reproduction and radio. These are industries that Sony is going to build to build some pioneering products and a few decades later he says soon i was spending so

Starting point is 00:10:09 much time on electronics that was hurting my school work i was devoting nearly all of my after-school hours to my new hobby this reminded me of um when i did the podcast on the microsoft co-founder paul allen him and bill gates you could take change some of the words in that sentence i just read to you and it's still it would still hold true for, for those two as well. So the devoted nearly all my afterschool hours to my new hobby. I had to teach myself because the subjects I was really interested in were not taught in my school in those days. In fact, I became so engrossed in my electronic tinkering that I almost flunked out of school.

Starting point is 00:10:43 And I think it's really hard to tell what you, what you're meant to do in life. There's so many options. Like you have, especially when you're younger, like, and you don't know much about the world. It seems like there's all these possibilities are limitless and you have this, like this paradox of choice, you know, how do you pick one thing out of millions of different options or opportunities? And I think one easy way to figure out how you want to get an enjoyable life is just listen to your passions. What do you do for fun? I always talk about my love of that word autotelic. It describes an activity that you're doing just for the sake of itself. Is there an activity that you do in your life that's like that? And if so, is there a way to make money

Starting point is 00:11:19 and build a career around it? So one theme that appears over and over in the book, and I also mentioned it in the opening excerpt of this podcast, was the role of technology in preserving the future of mankind. He has an entire chapter. There's only like eight chapters in this book. They're all giant. And one of them is called technology as a survival exercise. That's like a weird way to think about technology, right? And I think it's an weird way to think about technology, right? And I think it's an accurate way to think about it. But I think the reason he was able to think like that is because of these experiences that he had very early that most people on the planet will never,

Starting point is 00:11:55 almost not only people alive today, but in human history never had, right? And so let me read a paragraph so I can add some context to the point I'm trying to make to you. He says, I had built a time clock, which was attached to my radio and was set to wake me up at 6 o'clock every morning. I remember very clearly the morning of December 8th, 1941. It was still December 7th in the United States when my timer turned on my radio and I heard the announcement that Japanese forces had attacked Pearl Harbor.

Starting point is 00:12:24 Now, okay, everybody knows that happened, right? His response was fascinating to me. Listen to what he says. I was shocked. I remember thinking that this was a dangerous thing. I had grown up believing the West was somewhat superior in technology. Knowing about America's technology, I was concerned that a mistake had been made. So what Akio is saying there is like the technologically superior country, like in matters of life and death, you don't want to be fighting a war against another country that's technologically superior, right? So my brain immediately went, well, the same applies on a much smaller scale to companies. If you're competing with companies that are more technologically, like you're going to lose. And this is

Starting point is 00:13:07 not a new idea this week. If you, if you happen to use Twitter, if you want to follow founders podcasts on Twitter, I, um, every so often I just tweet out like old ideas from books I've covered in the past. And this week I tweeted one out from Andrew Carney because he talks about like, he would invest heavily in, heavily in the latest technology of his day when he's building the factories right for steel production and a lot of the old timers in the business were like you're wasting money this is foolish and so what he realized this is the lesson that Andrew Carnegie came away with which I think Akio understood in matters of life and death and then later in matters of commercial interest in business Sony but essentially Andrew

Starting point is 00:13:44 Carnegie would tell us in this one excerpt that you need to invest in technology, the savings compound, it gives you an advantage over slower moving competitors, and can be the difference between profit and loss, in Andrew's case, and in the Japanese-American war, in between life and death. Okay, so now Key is going to tell us a little bit about what it was like right before, right after the war ended and right before Sony was founded. So the Emperor of Japan, actually this is the first time the Japanese people have ever heard his voice, which blew my mind. But he's going to give advice.

Starting point is 00:14:16 The Emperor of Japan comes on the radio and gives advice to the Japanese people. Now, the advice that he's talking about I feel applies to any difficult challenge. It could also apply to building a company, right? The advice that he's talking about, I feel, applies to any difficult challenge. It could also apply to building a company, right? So he says, The emperor, who until now had never spoken directly to his people, told us the immediate future would be grim. He said that we could pave the way for grand peace for all generations to come, but we had to do it by enduring the unendurable and suffering what was insufferable.

Starting point is 00:14:45 He urged Japan to look ahead. Unite your total strength to be devoted to the construction for the future, he said. And he challenged the nation to keep pace with the progress of the world. Akio never says it, but Akio took these words to heart. Apparently, he took these words to heart because Akio is very, like, mission-driven, right? He really felt like not only did he want to build the best products at the time japanese product product he said products made in japan had the reputation for being like crappy poorly made and so he's like i want to build a company that proves that japan can build the best products in the

Starting point is 00:15:17 world and he felt that if he was successful doing so he'd be able to restore the industry that was destroyed so it's like not only is he trying to build a company or first of all build a great if he was successful doing so, he'd be able to restore the industry that was destroyed. So it's like not only is he trying to build a company, or first of all, build a great product, and then second, build a great company, but he's trying to put the troubles of his entire nation on his back. He's a very, very intense person, as you can imagine. He's got some advice for us. This section I'm going to read to you right now, it reminds me of this Charlie Munger quote, which says, avoid intense ideology. It turns your brain to cabbage. If you want to learn more about like the Japanese ethos at this time, I'm in the middle, Dan Carlin of Hardcore History, my favorite

Starting point is 00:15:54 podcast that's ever existed. He's in this middle of this multi-part series on the war between Japan and China at the time, or I guess other countries in Asia as well. And he says something in that podcast where he's like, the Japanese were like everybody else, just more so. They were extreme people, fanatics. So he says, we had managed to do our duty and had come home without physical scars. He's talking about him and his brothers all served in the war. We had also avoided the fanaticism that seemed to grip so much of Japan's youth in those days.

Starting point is 00:16:24 The worship of the emperor and the idea of glorious death. In Japan, we often talk of a psychological climate or atmosphere that sometimes occurs and which seems to sweep people up into like-minded activity, as though everybody is breathing the same special kind of air. So you want to avoid that. There's nothing wrong if you come to your own conclusions like that Like you might be extremely passionate about you know your family or the work you're doing whatever case is But you don't want to just be downloading ideology from other humans and then have this like mass psychosis that occurs constantly through Through human history. So this is the conditions in Japan right before

Starting point is 00:17:03 Akio found Sony. He says, of 7 million remained in the city. That is mind-blowing. Only 10% of the city's streetcars were running. There were only 60 buses in running condition and just a handful of automobiles and trucks. Hospitals were short of everything. Department store shelves were empty. So I want to interrupt here because there's actually a story that's told in Walter

Starting point is 00:17:48 Isaacson's book on Steve Jobs about the meeting that took place between Steve Jobs and Akio Morita. So I want to read the excerpt real quick. So he says, on a trip to Japan, because it's relating to the conditions in post-war Japan. On a trip to Japan in the early 1980s, Jobs asked Sony chairman Akio Morita why everyone in his company factories were wearing uniforms. And this is a quote from Jobs. He says, he looked very ashamed and told me after the war, no one had any clothes. And companies like Sony had to give their workers something to wear each day. Over the years, the uniforms developed their own signature style, especially at companies such as Sony.

Starting point is 00:18:22 And it became a way of bonding workers at the company. Another quote from Jobs, I decided that I wanted that type of bonding at Apple. Sony, with its appreciation for style, had gotten the famous designer Izzy Miyake to create its uniforms. So Jobs had the idea. He tried to implement that at Apple. No one at Apple wanted to wear the uniforms. So Jobs actually hired Izzy Miyake. He's the one that, you know, everybody's, Steve Jobs is infamous for wearing like the same thing every day. It's like that black long sleeve shirt he would wear that he had like hundreds in his closet. Those came from Izzy Miyake. He knew he was introduced to Izzy Miyake by Akio Morita. Okay. So back to the book, this is where Akio meets his future co-founder.

Starting point is 00:19:06 His name is Musuro Ibuka. I'm probably just, I mean, you know I can barely pronounce words in English, so there's no way I'm pronouncing any of these words correctly, but just bear with me. So Ibuka is a genius, and he's also 13 years older than Akio. So I think Akio definitely benefited from meeting him. And Akio had already, or excuse me, not Akio, Masuro had already founded his own company. And so let me tell you a little bit about this. The company that Abuko ran was called Japan, the translation is Japan Measuring Instrument Company. It employed 1,500 people making small mechanical elements that controlled the frequency of radar devices.

Starting point is 00:19:49 These devices had to oscillate at exactly 1,000 cycles per second, and Ibuka had the ingenious idea of hiring music students who had a fine sense of pitch to check the accuracy of the elements. So what he's making. I mention this as an example of the freshness and inventiveness of his mind, which so much impressed me and made me want to work with this man. Ibuka didn't feel professionally satisfied out there in the countryside, merely producing components in large quantities. So he's working on something he's not passionate about.

Starting point is 00:20:21 He wants to develop electronics. And so that's where they're going to wind up teaming up. And so it says, in this empty and bare old building set among the rubble and devastation, the burned out homes and shops of the once prosperous downtown area of Tokyo, Ibuka started the Tokyo Telecommunications Research Laboratories. That's the original name of Sony right there. Okay. So Abuka is going to make some smart decisions here that I think lessons for all of us. One, he first, he starts working on what interests him. And two, at the very beginning, you know, they don't have a lot

Starting point is 00:20:55 of money. He finds a way to add features to a product that a lot of people already have instead of trying to invent something new. Okay. Abuka is resources were all in his own pocket in his own head and he had an intriguing idea since since shortwave receivers were strictly prohibited during the war a keen interest had developed in listening to shortwave broadcasts that's how they communicated messages to the Japanese population during war now that it was no longer illegal perhaps the demand could be met because the radio was very important for hearing air raid warnings and getting other information during the war, people had taken very good care of their radios. So they had this piece of equipment, a lot of people in Japan had it, and they were functioning correctly.

Starting point is 00:21:37 But they could only receive medium wave band, which is regular AM broadcasts. So Abuka designed a shortwave adapter. This could be attached to any standard radio very simply and would convert the unit to shortwave reception. The employees had to scrounge through the black market to get the equipment they needed, but once it was finished, the product became very popular. So Ibuka is doing all of this before before he he's going

Starting point is 00:22:07 to start business uh like being partners with akio so keo sees all this is happening he senses an opportunity and he jumps on it which is another good idea by him so he says i wrote to him immediately and said i would like to to visit him in tokyo i said i wanted to help him in his new business and would support him in any way i could he wrote back immediately inviting me to come see him and the new company but he told me that things were pretty tight and then he was and he was paying his people out of his own pocket and he was looking for funding because i knew abuka they had met previously when uh when when akio was studying physics because i knew Ibuka was having trouble meeting his payroll, I got the idea that I could work with this new company part-time

Starting point is 00:22:48 and teach part-time. So at a time, Akio, before he found Sony, he's teaching physics at the university. And what happens is the government decides, hey, any teachers that served in the military in the war, which since Akio was in the Navy, that accounts for him. They called it like purging them. And so they fired all of them

Starting point is 00:23:10 because they didn't want them, like the people that fetishized war to teach the new generation. They just went through like a devastate, the most devastating time in Japanese history. So anyone who kind of repeats of that. Now Akio gets a lucky break because he doesn't have to teach anymore,

Starting point is 00:23:22 but he's still in the government payroll by mistake. So it says, months went by without any notice that I had been officially purged from my university job. And every month the school would call to tell me to come and pick up my pay because for some reason I remained on the payroll. So he's able to get money from the government of Japan, his normal paycheck, but work at Sony full-time. This went on until October of 1946, when the Ministry of Education finally got around to issuing my personal purge notice. I welcomed the subsidy while it lasted because our new company was not setting any records for financial success in those days. Yeah, that's an understatement. So during the early days of Sony, they had no money. Their workspace was in an old bombed out building

Starting point is 00:24:05 and the only employees was like a gang of misfits. And so here's an example of that. It says, when some of my relatives came to see me, they were so shocked by the shabby conditions that they thought I had become an anarchist. They could not understand how, if I was not a radical, I could choose to work in a place like that. So at this point, Abuka and Akio are partners

Starting point is 00:24:26 now, and there's a really smart move. They knew from the very beginning that they eventually had to build a differentiated product. They just had to get there in steps, right? Because they didn't have a lot of money. So said, Ibuka and I had often spoken of the concept of our new company as an innovator, a clever company that could make new high technology products in ingenious ways. Merely building radios was not our idea of the way to fulfill these ideals. Okay, so they think they found the differentiated product that they want to make, right? So they want to make a wire recorder. We don't even know what that was.

Starting point is 00:25:01 But the parts makers wouldn't sell to them. So there's a bunch of lessons in here. One, this is a blessing in disguise, a reminder that big things start small, and that you should always do your best work, even if you're working in terrible conditions. All right, so I'm going to go right into the story. It says, but as it sometimes happens,

Starting point is 00:25:19 the refusal turned out to be a blessing in disguise. We weren't able to make a wire recorder, which was a disappointment, but the bright side was there was a recorder in our future, a much better product, the tape recorder, although we didn't know it at the time. Okay, so it says the occupation forces, that's essentially U.S. Army forces, had taken over the Japan Broadcasting Company. That's kind of like Japan's equivalent of like the BBC. And they needed new technical equipment such as mixing units and other studio and broadcasting equipment. Okay, so they put this call up saying, hey, can anybody make this for us? So Ibuka was familiar with mixing units and

Starting point is 00:25:59 the technical equipment they needed. So he submits a bid. So then an army general comes to the early Sony, again, it's the same company, but it's not called Sony at this time. So he comes to the office to discuss the bid with him. And this is hilarious. He says, when the general saw our shop, he was taken aback by how primitive it was. And he shook his head. He was so concerned. Now this is the general. He was so concerned about our terrible building that he recommended we keep buckets of sand and water around the place in case of fire. Now think about that. Sony is this gigantic company today. One of the most successful companies of all time.

Starting point is 00:26:38 And it started out in a bombed out building that an American general was like, listen, this thing is going to either collapse or catch fire. You need to put sand and water around the place. So they get the job. He says when the equipment was delivered, everyone marveled at its quality. So that's another lesson. Like you can do great work. You don't need all the things you think you need. Think like they're able to build quality equipment and even in such terrible conditions, everyone marveled at its quality, especially the skeptical officer, who was still puzzled by the fact that a small, new company in a makeshift factory could produce such a high-technology product. Because the quality was so high, we were able to attain further jobs.

Starting point is 00:27:19 There would be no Sony today if they didn't do the absolute best job they could, the absolute best work they could get the absolute best work they could on this on a tiny job so one thing led to another then they just keep they just the entire story of sony like most companies like you start small okay they take another step take another step and then you know over 40 30 30 or 40 50 years whatever it is like you you the results that you can get and what you can accomplish in one lifetime is unpredictable unfathomable to us so it says it says we were able to obtain further jobs. Because of the breakthrough in trust, we made on that first job by demonstrating our quality. So now you get the new job, but now Abuka has to constantly go back and forth from the early Sony factory, if you want to call it, to where the

Starting point is 00:28:00 headquarters, where the American occupation, rather not operation, occupation forces are. And that's extremely important too because that's what's going to lead them to producing their first differentiated product. So it says, while Ibuka was delivering the mixing unit, he spotted an American-made tape recorder, the first tape recorder he ever laid eyes on So they make a tape recorder I'm gonna fast forward because the tape recorder flops and they're gonna old member that that quote from Warren Buffett where he talks about like every time like there's a

Starting point is 00:28:35 like a bubble pops investors Learn very old lessons like lessons that you should have known because if you study history you see that happens over and over again This what's happening? this is what the 19 late 1940s maybe early 1950s what they're gonna about to learn now companies today are learning and companies in the future will learn how many people build a product and then just expect people to just knock down their door and sales has just come out of nowhere and that never happens right

Starting point is 00:29:01 so same thing happens here and they're gonna learn a lot they learn an important lesson that you must know and then find your target customer. And so they launch a product that has no market. They have to go out and create their market. And they do it very intelligently. It says, neither Ibuka nor I had any real training in the consumer end of things or any real experience in making consumer products or selling them. I had never made anything for sale to anyone. I had no experience in merchandising or salesmanship. It never occurred to Abuka or me that there was any need for this. It's a hell of a statement, right? Abuka believed strongly that all we needed to do was make good products and the orders would come. So did I. We both had a lesson to learn. We were engineers and we had a

Starting point is 00:29:47 big dream of success. We thought that in making a unique product, we would surely make a fortune. I then realized that having unique technology and being able to make unique products are not enough to keep a business going. You have to sell the products and to do that, you have to sell the products and to do that you have to show the potential buyer the real value of what you're selling I was struck with the realization that I was going to have to be the merchandiser of our small small company because even though the both engineers of bucca was like the more he was better at it's more qualified and so this is the role Keough adopts like his whole life so in that sense you could think of the very early days of Apple.

Starting point is 00:30:25 Abuka is kind of like Wozniak and Keogh is like Jobs in that sense. It's not a perfect analogy, but it's close enough. So he says, so at this point, I should give you some background. They launched it. No one's buying it. It's really expensive. It's big. And so he's like, what the hell?

Starting point is 00:30:41 What are we doing? So he says, a fortunate chance incident helped me see the light. I was still trying to figure out what we were doing wrong and trying but failing to sell our tape recorders When I happened to stroll by an antique shop, I noticed a customer buying an old vase Without hesitation. He took out his wallet and handed over a large number of bills to the antiques dealer The price was higher than we were asking for our tape recorder. Why, I wondered, would someone pay so much money for an old object that had no practical value, while a new and important device such as our tape recorder could attract no customers? To me, there was no contest. The tape recorder was the better bargain. But I realized that the

Starting point is 00:31:22 vase had perceived value to that collector of antiques and he had his own valid reasons for investing that much money in such an object at that moment i knew that i had to sell a recorder i knew that to sell a recorder we would have to identify the people that would like that would be likely to recognize the value in our product so before this was just trying to sell the tape recorder to like the general consumers not and in hindsight you can see where their mistake was they they they priced the tape recorder uh it was i i forgot the exact conversion but let's say it's like multiple months worth of what the average worker's salary was right so very like it's just no one's going to spend,

Starting point is 00:32:05 let's say it takes half a year of your employment or your work to buy a tape recorder. That's absurd. So they do something really smart here, and they realized where, like, they go to businesses, or specifically, actually, it's the government. So it says, there was an acute shortage of stenographers because so many people

Starting point is 00:32:25 had been pushed out of school and into war work. Until that shortage could be corrected, the courts of Japan were trying to cope with a small overworked core of court stenographers. So they're like, oh, okay, well, instead of you just typing out, why don't you just tape everything? And so he says, we were able to demonstrate our machine for the Japan Supreme Court, and we sold 20 machines almost instantly. The value of the product they were making was solving a very real problem they had. So of course they're going to buy right away. Those people had no difficulty realizing how they could put our device to practical use.

Starting point is 00:33:00 They saw the value in the tape recorder immediately. And to them, it was no toy. So they used the value in the tape recorder immediately. And to them, it was no toy. So they used the profits from the tape recorder to branch out into other different product ideas. And so one idea they had was they had an idea for what they call a pocket radio. Okay. And it says, we could make a very small radio powered by batteries. Miniaturization and compactness have always appealed to the Japanese. Our boxes have been made to nest. Our fans fold.

Starting point is 00:33:31 Our art rolls into neat scrolls. And so we set our goal of a radio small enough to fit into a shirt pocket. Not just portable, I said, but pocketable. So think about how crazy this is. 50 years later, Jobs is going to, Steve Jobs is going to introduce the iPod, and he's going to say it's 10,000 songs that fit in your pocket. We see the early predecessor to the iPod coming from Akio and Sony. So now they do something really smart too.

Starting point is 00:34:00 And you could also see people like Jobs or Musk doing something like this. So what do you do when your pocket-sized radio doesn't fit into a pocket? Akio's idea, you make the pocket bigger. So he says, it was a bit bigger than a standard men's shirt pocket, and that gave us a problem. We liked the idea of a salesman being able to demonstrate how simple it would be to drop it into a shirt pocket. So we came up with a simple solution. We had some shirts made for our salesmen with a slightly larger than normal pockets, just big enough to slip the radio

Starting point is 00:34:32 into. Now, they're not the only ones that came up with this idea. And this next paragraph is a reminder that products don't compete. Companies do. So it says, an American company called Regency put out a pocket-sized radio a few months before ours, but the company gave up without putting much effort into marketing it. As the first in the field, they might have capitalized on their position and created a tremendous market for their product, as we did. But they apparently judged mistakenly that there was no future in this business and gave it up so you could also say sony what's sony's most famous product the sony walkman they sold hundreds of hundreds of millions

Starting point is 00:35:13 and if you're too young if you're listening to this uh it was essentially like you had a cassette player i don't even know if you know what that is or later it's called the disman a cd player it's like um a non-digital ipod. Think about it like that. And they sold 400 million units. It was one of the most successful consumer products of all time, and it happened before the iPod. The genius in what Steve Jobs did was make it fully integrated. In fact, he was inspired by Sony at the beginning of his career,

Starting point is 00:35:39 but then he learned from the mistakes of Sony in the 90s. There's tons of examples of that. I read Steve Jobs' book by Walter Isaacson, where it goes into great detail. from mistakes of Sony in the 90s. There's tons of examples of that. I'd read Steve Jobs' book by Walter Isaacson where it goes into great detail about this time where how Jobs was able, because Sony was competing with Apple at the time. This is pre-iTunes. And Sony had all the advantages.

Starting point is 00:36:00 If you would have been asked to guess who would be the first company to release a digital Walkman with a way to buy songs and everything else you would have thought sony um it was actually apple was uh the one that was obviously exceeding that and you see that you know this plays out over and over again uh in the case in what we're referencing in the book it's like okay well you know we weren't the first to the market you had all this other company that could have had a pocket radio and yet they made the mistake so again that's just an uh that's gonna happen it happened 50 years ago it happened 20 years ago it's gonna happen 200 years ago because the nature

Starting point is 00:36:34 of humans and the nature of companies just doesn't change and so that's why it's so valuable to study the principles in in the history of entrepreneurship we're getting to the why, which I think is extremely important. Like you have to know why you're doing what you're doing. And so this is Akio and Sony's why. They want to change the image of Japanese products as poor quality. And so he says like, and give me an idea about this.

Starting point is 00:36:57 Like in the early days, this reputation was so well known that Sony printed Made in Japan as small as possible. And in some cases they had to reprint or I don't know what the proper term is, though. They made it so small that you couldn't read it. So customs wouldn't accept it. That's how embarrassed they were. Like, that's how bad Japanese products were known at this time. And now it's weird because, you know, so in large part of Sony and other people like it's they're known to make high quality products., so he's successful.

Starting point is 00:37:25 So he says, A Japanese company must export goods in order to survive. With no natural resources except our people's energy, Japan had no alternative. As business prospered, it became obvious to me that if we did not set our sights on marketing abroad, we would not grow to be the kind of company Abuka and I envisioned. We wanted to change the image of Japanese goods as poor in quality. And we reasoned if you're going to sell high quality expensive product, you need an

Starting point is 00:37:53 affluent market. And that means a rich, sophisticated country. All right, so now we get some ideas about how to run business from him. He says He talks about marketing. You should think about marketing as just as communicating. He says, marketing is really a form of communication. In the traditional Japanese system for distributing consumer products, the manufacturers are kept at an arm's length from the consumer. Communication is all but impossible. So that's a big problem for a company that's creating, they're creating companies or products that have no precedent.

Starting point is 00:38:23 So he needs to communicate directly to them. This is also Jobsian. He says, we realized that from the beginning that it could not serve the needs of our company and its new advanced technology products, the traditional way of doing things to Japan. So they have to come up with their own way, right? Third or fourth parties simply could not have the same interest in or enthusiasm for our products and our ideas that we had. We had to educate our customers to the uses of our products to do so we had to set up our own outlets and establish our own

Starting point is 00:38:53 way of getting goods into the markets and we're gonna see his other ideas he didn't believe he didn't believe market research he didn't think the public that he believed the public doesn't actually know what is possible and that we do meaning Sony he talks about the idea of the Walk know what is possible and that we do, meaning Sony. Then he talks about the idea of the Walkman. And I just referenced that they sold over 400 million units sold. Let me, and then another note I left myself, it says this was very much like Steve Jobs. In the beginning, when our track record for success was not established, our competitors would take a very cautious wait and see attitude while we marketed and developed a new product.

Starting point is 00:39:25 In the early days, we would often have the market to ourselves for a year or more before other companies would be convinced that the product could be a success. So if you're able to arrive and use your own reasoning and trust your own judgment, you're going to have a huge advantage over people who are just going to wait and copy what other companies do, right? And we made a lot of money having the market to ourselves. This gave them a huge advantage at the very beginning of the company. They're just making more profits, and then they can reinvest those profits to make more products, and you have this wonderful virtuous cycle. We have to keep a premium on innovation. For many years now, we have put well over 6% of sales into R&D,

Starting point is 00:40:03 and some years as much as 10%. Our plan is to lead the public with new products rather than ask them what kind of products they want. That type of thinking is found all throughout history. That's Akio saying it. You could easily say Henry Ford would say the same sentence. Steve Jobs would say the same sentence. The public does not know what is possible, but we do.

Starting point is 00:40:24 So instead of doing a lot of market research, we refine our thinking on a product and its use and try to create a market for it by educating and communicating with the public. So that's like just a basic business principle that worked in his days and will work today and will work in the future. As an example, I can cite the Walkman. The idea took shape when Abuka came into my office one day with one of our portable stereo tape recorders and a pair of our

Starting point is 00:40:52 headphones. He looked unhappy and complained about the weight of the system. I asked him what was on his mind and he explained, I like to listen to music, but I don't want to disturb others. So you need a private way to do that, right? I can't sit next to my stereo all day. So now you need it to be private, but you need it to be portable. This is my solution. I take the music with me, but it's too heavy. So it said, Abuka's complaint set me into motion.

Starting point is 00:41:20 I ordered our engineers to take one of our reliable small cassette tape recorders, strip out the recording circuit and the speaker, and replace them with a stereo amplifier. I outlined with other detail, the other details I wanted, which included very lightweight headphones. Now, so he's got an idea from a product. First, he sees the problem. I'm sure Abouk is not the only person that feels that way, right?

Starting point is 00:41:43 Humans, all humans, almost every human loves to listen to to music and he's like but we it's too big can we make it smaller so he says everyone gave me a hard time it seemed as though nobody liked the idea it sounds like a good idea but will people buy it if it doesn't have any recording capability so he's talking about the pushback he's getting from internally from the company i don't think so people are are saying, hey, it's a good idea, but since you can't record on it, no one's going to buy it. And then Akio just uses his own basic judgment. He said, this is what he says back to his employees. He goes, millions of people have bought car stereos without recording capability, and I think millions will buy this machine. And this is one of the best sentences in the book the accountants protested but i persisted

Starting point is 00:42:28 so let me read the back cover because he talks about the walkman since it's so important and this is uh his quote on it he says no nobody openly laughed at me but everybody gave me a hard time it seemed as though nobody liked the idea i do not believe that any amount of market research could have told us that the Sony Walkman would be successful. And again, 400 million units moved. That's amazing. So the Walkman comes out and he says, I thought we had produced a terrific item and I was full of enthusiasm for it. But our marketing people were unenthusiastic.

Starting point is 00:42:57 So he still has to fight this battle at the engineering level, now at the marketing sales level and at the accounting level. They said it wouldn't sell and it embarrassed me to be so excited about a product most others thought would be a dud. But this is where I always talk about like, I think we have a deficit. Like most people say, oh, be humble. Like don't, you know, you want to err on the side of humbleness over like arrogance or maybe self-confidence. I say it's the other.

Starting point is 00:43:23 Like we have a, we're sitting at a 40 year low for, for new business creation in the United States. That is a massive, massive problem for our society if that continues. And we have a generation of smart kids that for some reason don't believe in their ability to start a company. And I think one way to fix that is like, first you see, you study stories like this, where you see, you know, people with no education, no resources, doesn't matter. They build companies, you know, over and no education no resources doesn't matter they build companies you know over and over again i think that this podcast demonstrates that over and over and over again and yet so what i would say is like no we need to teach them be confident you can do whatever you want to do err on the side of confidence and cockiness because at least even if you fail at least you tried that's better than having being

Starting point is 00:44:00 full of self-doubt and sitting on your ass and doing nothing. What is that going to solve? That's ridiculous. And again, Akio was cocky. That's what people said. He was too confident, too cocky. Well, this is an example where that profound belief in himself led to overcome all the objections into one of the greatest consumer products ever created. He needed that. That was a tool. They said it wouldn't sell, and it embarrassed me to be so excited about a product that most others thought would be dud. But I was so confident that the product was viable that I said it would take personal responsibility

Starting point is 00:44:35 for the project. Check this out. I never had reason to regret it. The idea took hold, and from the very beginning, the Walkman was a runaway success. So I'm pretty sure he said, I don't know why I didn't include that in my notes but um i i'm pretty sure he said that if the walkman failed he would resign from sony so now like everybody's telling him no

Starting point is 00:44:55 this is a bad idea this is a bad idea this is a bad idea you know his natural inclination is to be overconfident right and that he said i will risk my career. I will resign. That's what I would see. And I'm not saying everybody has to build a company that says a Sony, but we can't have new business creation at a 40-year low. That is a huge problem. We've got to do anything in our power to explain to new generations. We need new small businesses. We do. that's who employs most of the people in this country it's it's really important and i think like for one reason i talked to a lot of people and a lot of people think they they want to start companies it's like i don't think i can do it and i don't know like the solution to that problem like how do you convince somebody to have faith

Starting point is 00:45:40 in themselves i don't know the answer other than being exposed to examples of people that did not have all the benefits in life and still were able to overcome that and actually build a company and do what they wanted in life. Okay, so the Sony Walkman is a success. I'm going to skip over that because another thing happens to him. And again, there's two things that took away from this part, what's about to happen. First, if you actually know why you're doing what you're doing, then a lot of the hard decisions that you have to do is going to inevitably have to make, or it'd become a lot easier, right? And so this is going to be an example of that. And two, this is another example of Akio's huge belief and

Starting point is 00:46:15 confidence in his judgment. So he says, I turned down what looked like a chance to make big profits. The buyers thought I was crazy. And, uh, but even though our company was young and I was inexperienced, time had shown that I made the right decision. So what does that mean? He meets with this company I've never even heard of. It's called Belova. So they like the radios that Sony's making, but they want him to private label them.

Starting point is 00:46:37 And so he's like, this is ridiculous. So he says, they like the radio very much, and their purchasing officer said very casually, we'll take 100,000 units. 100,000 units! I was stunned. It was an incredible order, worth several times the total capital of our company. He told me that there was one condition. We would have to put the Belova name on the radios. That stopped me. I had vowed that we would not be an original equipment maker for other companies. We wanted to make a name for our company on the strength of our own products. We would not be an original equipment maker for other companies. We wanted to make a name for

Starting point is 00:47:05 our company on the strength of our own products. We would not produce radios under another name. When I would not budge, he got short with me. And so this guy's being kind of like a jerk to him. He says, our company name is a famous brand name that has taken over 50 years to establish, he said. Nobody has ever even heard of your brand name. Why not take advantage of ours? Now, this is Akio. 50 years ago, I said, your brand name must have been just as unknown as our name is today. I am here with a new product and I'm now taking the first step for the next 50 years of my company. 50 years from now, I promise you that our name will be just as famous as your company name is today." Okay, so I'm going to fast forward in

Starting point is 00:47:51 the book. He's got a bunch of other just explicit ideas that he feels is beneficial to building, to work and to life. He's living in New York City. He founded the Sony American subsidiary. Now he's living in New York City he founded uh the Sony American subsidiary now he's got to go back to Japan because his dad dies and it's his responsibility to put like the family's uh like affairs in order and so at this time he's reflecting on the end of life and then about what can he learn from his ancestors and then what can he teach the lessons to his kids so one thing he wants to teach is the lessons to his kids is that they want to maintain physical and mental discipline. Akio is an extreme person. He's a misfit.

Starting point is 00:48:29 He's an obsessive. He talks about how—he talks a lot about the difference between Japanese culture and American culture. And he says American culture is like the main ideal is like a life of leisure. He's like, you go to America and you see advertisements to take trips to exotic lands and just sit on your butt and beach and do nothing. And he's like, there's no Japanese equivalent of that. Like we find honor in work. And so you're going to see a lot of like his extremeness in some of the advice that he has for his kids and other people.

Starting point is 00:48:58 So he says, the death in the family makes you examine your life and the future of the family. Where my children were concerned, I felt very strongly that the new post-war education system in Japan lacked discipline. PTA groups had watered down the quality of education, and study for examinations was nothing but rote application. When I attended middle school, discipline was very strict, and this included our physical as well as mental training. Our classrooms were very cold in winter, we didn't have a heater, and we were not allowed to wear extra clothes. In the Navy, our physical as well as a mental training. Our classrooms were very cold in winter. We didn't have a heater,

Starting point is 00:49:26 and we were not allowed to wear extra clothes. In the Navy, I had hard training in boot camp, but every morning we had to run a long way before breakfast. In those days, I did not think of myself as a physically strong person, and yet under such strict training, I found I was not so weak after all. So essentially, he's just learning about the adaptability

Starting point is 00:49:44 of human beings, right? And the knowledge of my own ability gave me confidence in myself that he did not have before. It is the same with mental discipline. Unless you are forced to use your mind, you become mentally lazy and you will never fulfill your potential. And I feel this is happening a lot. I think the advent of social media obviously is a problem with that. There's way less people listening to educational podcasts, audiobooks, reading books. We're scrolling through feeds,

Starting point is 00:50:12 reading a bunch of essentially junk food for the mind. And I think what Akio is saying there is like, you need, just like you get up every morning, hopefully and work out and discipline your body. Like, what are you doing for your mental discipline? They're related. You have to do both is what Akio is telling us it's like sharpen your mind don't just let just like you wouldn't sit at home all day and eat junk food because the good thing about that i like the

Starting point is 00:50:33 feedback loop for physical right where i feel it's not as apparent in mental uh discipline so like if you sat at home you didn't exercise you didn't take care of yourself you ate a bunch of crap you lived a sedentary lifestyle you didn't exercise, you didn't take care of yourself, you ate a bunch of crap, you lived a sedentary lifestyle, you didn't push yourself, essentially you embrace comfort, you would see it because your body is like a physical manifestation of your will, right? At least that's what I believe. But there's no mental equivalent. You know what the mental equivalent is? When you go to dinner, you're interacting with somebody that doesn't read, doesn't learn, basically you got out of college or high school and just stopped learning. And you realize, oh, this is a boring person. This is a person that has nothing going on. They just, they nibble on mental junk food all day. And I love Josh Wolf's, he's an investor at Lux Capital. He learned this

Starting point is 00:51:14 from somebody else. I can't remember who he credits, but he has this three word aphorism that I think about all the time. And it's dual, has a dual meaning. Avoid boring people. Now, that first meaning is you avoid people that bore the hell out of you for good reason because your time here is limited and there's a lot to learn and to experience. But the other meaning is maybe more important, that you should be doing the work and collecting the information and being an interested person so you avoid boring other people too. I think what Akio is saying there is 100% correct.

Starting point is 00:51:44 You need both physical and mental discipline. And you want to avoid areas like what he's saying. Japanese school system got extremely weak. And so he sends his kids like, I think he sends one to Switzerland to a boarding school, one to a boarding school in London. They go to schools in New York City. He's not just telling you this. He's acting on it too um he's got another unique idea moving on this is something i've never even heard of before hire a paid critic this is a genius man so he says uh noria oga who had been a vocal art students at the tokyo university of arts when he first started our first audio tape recorder back in 1950 okay so he says i had had had I had had my eyes on him for all those years because of his bold criticism of our first machine. He was a great champion of the tape recorder, but he was severe with us because he didn't think our early machines were good enough.

Starting point is 00:52:38 Now, I'm going to finish this paragraph, but I'm going to get to the punchline now because I think it'll help you understand. This paid critic he hires eventually becomes the president of Sony. All right. So he was severe with us because he didn't think our early machine was good enough. So he's got somebody else. He's got an external person holding himself to even higher level quality than he did. So he says, it had too much wow and flutter, he said. He was right, of course. Our first machine was rather primitive. We invited him to be a paid critic, even when he was still in school. His ideas were very challenging. He said then, a ballet dancer needs a mirror to perfect her style, her technique. A singer needs the same, an aural, an aural, I don't know how to pronounce the word, a-u-R-A-L, mirror. Olga is now the president of Sony.

Starting point is 00:53:27 Okay, so now we're going to see some more glimpses into his own personal philosophy. He talks a lot about the benefits of spending time with young people, the benefits of vigorous exercise, and the benefits of maintaining self-confidence. So he says, I like to play sports with young people because I get ideas from them and they give me a fresh slant on almost everything. I think it is good for my spirit, too too to be with young people who are enthusiastic. Since I've been playing tennis, I noticed my reflexes are improving and this pleases me because when you start to age, the reflexes and reactions tend to slow down. I noticed when I began to ski that my balance

Starting point is 00:53:58 wasn't too good, but it has improved also. Every executive should be aware of the need for this kind of vigorous exercise, not only for the heart but also for the executive should be aware of the need for this kind of vigorous exercise, not only for the heart, but also for the mind and the sense of confidence it gives you. It is important to maintain confidence in yourself. Here's some example of advice that Akio gives to young people. Essentially, the main point is don't work in a job that you hate. You're going to regret it. He says, nobody can live twice, and the next 20 or 30 years is the brightest period of your life. You only get it once.

Starting point is 00:54:36 When you leave the company 30 years from now or when your life is finished, I do not want you to regret that you spent all those years here. That would be a tragedy. I cannot stress the point too much that this is your responsibility to yourself. So I say to you, the most important thing in the next few months is for you to decide whether you will be happy or unhappy here. He comes up with a unique way to identify bad managers. I like this too. So he's talking to some young people working at Sony. He says before, and this is what a young person tells him, before I joined the company, I thought this was a fantastic company. It is the only place I wanted to work.

Starting point is 00:55:10 But I work for the section chief, Mr. So-and-so. And in my lowly capacity, I work for this man, not for Sony. And everything I do or suggest must go through this guy. I am very disappointed that this stupid section chief is Sony as far as my career is concerned. Now we go to what Akio is learning from this conversation. This was a sobering thought for me. I realized there might be many employees in our company with problems like this. So I started a weekly company newspaper where we could advertise job openings. This made it possible for employees

Starting point is 00:55:42 to try for other jobs confidentially. We have had cases where we discovered a manager was inadequate because so many people working under him asked to be transferred. We learn a lot by listening to our employees. Wisdom is not the exclusive possession of management. So this is another advice that he has for us. Don't sacrifice the benefits of individuality for the sake of consensus. When most Japanese companies talk about cooperation or consensus, it usually means the elimination of individuality. Many Japanese companies like to use the word cooperation their ideas and put their ideas in harmony. If my company is successful, it is largely because our managers do have this ability. So this is more on his management philosophy.

Starting point is 00:56:48 I do not like to have my managers think they are a special breed of people elected by God to lead stupid people to do miraculous things. The world of business has some peculiarities. The remarkable thing about management is that a manager can go on for years making a mistake that nobody is aware of, which means that management can be kind of a con job. That is because management, despite the work of the Harvard Business School and others, and the increasing numbers of holders of advanced degrees in business administration, is an elusive thing that cannot always be judged by next quarter's bottom line. Managers can look good on the bottom line, but at the same time may be destroying the company by failing to invest in the future. So this is one of his main criticisms

Starting point is 00:57:25 about the difference between Japanese management and American management. His American management does not invest enough in the long term to optimize for short-term profits. So that's an example of what he's talking about here, that you can actually be achieving good short-term goals at the same time destroying the long-term value of the company. He says, it does not start at the bottom line of the balance sheet, which can be black one day and red the next, no matter what you do. I told my managers recently, what you are showing to your employees is not that you're an artist who performs by himself in the high wire, but you're showing them how you are attempting to attract a large number of people to follow

Starting point is 00:57:59 you willingly and with the enthusiasm to contribute to the success of the company. If you can do that, the bottom line will take care of itself. And so we're going to see this actually play out. This is a story about the difference in Japanese American management. And this has to do with Sony America. He says, my Sony American president was reluctant to spend the money. So they're launching a new product. And very, very much like Steve Jobs jobs akio was he he was huge about

Starting point is 00:58:25 product launches he wanted to educate he wanted to make sure there was there's investment that people knew like it was an event right and he wants to do it at the very beginning so it pops so this is my sony american president was reluctant to spend the money he said if we spent a lot on this promotion and if he could not bring in enough sales we would lose money I told him over and over again, you must also consider the return that comes in five or 10 years, not just the immediate return. So he says, that night I went to bed troubled. I couldn't sleep, tossing and turning until I could stand it no more. In the middle of the night, I grabbed the phone and called Harvey. That's his president or manager. He was in a meeting in New York. I got him out and yelled at him.

Starting point is 00:59:06 If you're not going to spend a million or $2 million. Oh, this is the Betamax campaign. If you're not going to spend a million or $2 million on the Betamax campaign in the next two months, I will fire you. I had never said anything like that. And he had never heard me sounding like that. It made an impression and I felt better.

Starting point is 00:59:23 He spent the money, but I discovered later what they actually did. What they actually did was to shift the money from one part of the business, so our total advertising expenditure remained the same. So he didn't actually do what he wanted to do. The trouble with American management was that profit was the main goal. So now Akio's going to lay out his explicitly how he looks at this stuff. He says, my argument again and again was that by saving money instead of investing in the business, you might gain profit on a short-term basis, but in actual fact, you'd be cashing in the assets that had been built up in the past. So I like this idea.

Starting point is 01:00:00 The way Akio would educate customers about a new product, it was actually inspired by this Japanese tradition of namawashi. So let me read this part to you. One must prepare the groundwork among the customers before you can expect success in the marketplace. It is a time-honored Japanese gardening technique to prepare a tree for transplanting by slowly and carefully binding the roots over a period of time,

Starting point is 01:00:23 bit by bit, to prepare the tree for the shock of the changes is about to experience this process takes time and patience but it rewards you if it is done properly with a healthy trans if it is done properly it rewards you if it is done properly with a healthy transplanted tree advertising and promotion for a brand new innovative product is just as important. And the one thing that both of these approaches to not only moving trees and gardening, but to preparing customers for new products, the one thing they both have in common

Starting point is 01:00:58 is that it takes time. And that was something Akio talked about over and over again. Optimize for the long term. Great things are going to take a long time. You just, you can't, you know, this is what Warren Buffett was telling us. You can't make, what was it? You can't make a baby in one month by getting nine women pregnant. He's like, some things just take time. More difference between, what he considers the difference between U.S. and Japanese. His U.S. partner comes over and looks at Sony's offices at the time,

Starting point is 01:01:22 and he was just shocked. It was, like like very basic. They had everything they needed, but it wasn't like ostentatious or anything like that. So it says, this is a Japanese talking to the US. If Japanese clients come into the office of a new and struggling company and see plush carpet and private offices and too much comfort, they become suspicious that this company is not serious, that it is devoting too much thought and company resources to management's comfort and perhaps not enough to the product or the potential customer. that this company is not serious, that it is devoting too much thought and company resources to management's comfort and perhaps not enough to the product or the potential customer.

Starting point is 01:01:50 So as an example of this, when I talked about on the Ford and Ferrari series I was doing, when you look at the difference between like the early days of Ford when Henry Ford was in charge compared to when his grandson Henry Ford II, Henry Ford II would eat in a private dining room with white glove staff. They'd like serve them hamburgers as if it was like their own like high-end restaurant. And I think there's a, there's, it's almost like a canary in the coal mine. It's like when you see companies do this and never, and what happened to Ford after? Had a huge, like the Japanese and other like constraints the market, they gutted the American, like look at Detroit today as compared to the 1960s and 1970s.

Starting point is 01:02:30 And I think when you see the, like what the company spends money on, it's like actions express your priority. And so when you have white glove staff in a private dining room and all this other BS, this luxury, is that luxury. How does that benefit the customer? Is that making your product better? It's not. Why are you investing in such stupid things like this? What are you doing? Put that money into the product. Put that money into the customer. But you can't do both things at once. As soon as you start diverting resources away from what's best for the customer and what's better for management, those customers are going

Starting point is 01:03:04 to go elsewhere because another missionary, another misfit, another obsessive person is going to do a better job because you're not focused. I think this is exactly right. This is what Akio says about that. Exactly my sentiments. We want everybody to have the best facilities in which to work, but we do not believe in posh and impressive private offices. Generally, in the Japanese industry, the investment goes into those things that relate directly to the product. This is not rocket science, but there's something about human nature that we seek.

Starting point is 01:03:34 Comfort is a false god. We should not just be trying to make our lives more comfortable. You never adapt and progress and learn in comfort. You just don't. And so I think like fetishizing that. And every time I see super nice company offices, I'm like, oh, okay, well, this business isn't going to last that long. It says, too often I found in dealing with foreign companies that such superfluous things as the physical structure and office decor take up a lot more time and attention and money than they are worth. Again, this is not, I mean, he's telling us,

Starting point is 01:04:08 you know, he's experiencing this half of a century ago or whatever, maybe a quarter of a century ago at this time we're in the book. Warren Buffett just said the same thing. He's like, listen, we spend less than 1% of our operating profit on the headquarters, corporate headquarters. We see some companies have spent in excess.

Starting point is 01:04:22 We look at the books, we analyze the numbers and they're spending in excess 10%, 10% of the company's assets on headquarters. And he's like, me and Charlie Munger have studied this. And what we found is there's no correlation between the percent of money you spend on your company on operations, like on headquarters and everything, to performance.

Starting point is 01:04:43 That's a hell of an indictment, meaning they're spending money for no increase in performance. And what happens when a company or a person is not resourceful? Eventually those resources are going to move to other people that are resourceful. Okay, so where we are in the story, Akio is visiting. He's invited to the USSR, and they want to work together. And so this part was fascinating because this is what Okio told the government in the USSR when it, when they wanted to work with

Starting point is 01:05:10 Sony. And the punchline is if you care about the product you're making, study the details. So he says the Soviets were eight to 10 years behind Japan in the West and their consumer electronic technology. And so he takes a tour of the factory and they want to work together. And, um, they're asking asking like, what do you think? And you know, this is, he's got a sharp tongue. He says, in Japan, we used our top talent and our best brains and spent years seeking ways to increase the efficiency and the productivity

Starting point is 01:05:38 of even such a simple thing as a screwdriver. We have racked our brains and made detailed studies and experiments to decide just what is the exact and precise temperature for a soldering iron in each particular application. You do not make any such effort here. There appears to be no need to do it because nobody seems to care. So needless to say, Sony and the USSR did not work together. Okay, I love this part. So this now we're in the chapter I told you about earlier, where he thinks about technology as a survival exercise. That's a very unique, like way of thinking I don't think I've come across. And I think it's, it's practically correct, though. But this is gonna be a longer part where

Starting point is 01:06:20 I'm going to read to you. And essentially, the main idea here is being wasteful is the opposite of resourcefulness. And I always think like the best description of like what traits you need for entrepreneurship comes from Paul Graham. If you think about all the people that have studied entrepreneurship, very few probably have studied as much or to the degree that Paul Graham has, right? Meaning like multiple companies, not just your own. And that's his, that's his line. Like line like you know the trait that he sees that successful entrepreneurs must have is and i say successful people in general uh in all kinds of domains is that they're relentlessly resourceful and akio obviously was like you don't start sony in a firebombed building without being resourceful right and so he talks a lot about this.

Starting point is 01:07:05 Like he has a lot of criticisms for the West. Actually, you know what? Before I read this section to you, let me just tell you because I took some other notes that aren't in the book. So this is what, these are just some of the notes I took where he just keeps rattling off what he feels. Like I like what he did because Japan, like at the beginning, he's like, he studied American industry to such a degree that eventually he knew it so well that he took what he thought were good ideas and then challenged the bad ones.

Starting point is 01:07:30 And I think that's exactly like, this is what I want to do on the podcast. Like, I don't want to just idolize these people and just accept what they're saying without my own independent thought on it. And there's going to be areas where I disagree or areas where I think I can improve on. And that's the whole thing. Like, you take all this collection of ideas and you combine it together and imbibe it with your own personality. And then you have something unique, right? And I love how Akio did this

Starting point is 01:07:50 because he has huge respect for US industry. But he also is like, you guys are making a lot of mistakes here, in his opinion. And there's no one right way, which is beautiful. So he says, Japan creates more engineers and less lawyers.

Starting point is 01:08:02 This is comparing and contrasting Japan and America. Japan is more cooperative of a government. They see them as allies, not adversaries. In Japan, the founder and CEO must resign if there's shame brought to the company. This is much less important in Japan or less worrisome because the management of a company is more collective. So one person can leave. It's not the end. Japan optimizes for long-term investment over short-term profits. Japan is less hierarchical.

Starting point is 01:08:33 He gives an example of this. We air-condition our factories before our offices. America does it reverse. Most importantly, the most important thing for a Japanese company is continued employment and improvement of workers. America, it's the profit of shareholders. Japan believes any type of work is honorable. They won't look down on specific jobs. He says Americans are like, they turn their nose up. They think all work, Japanese believes work is honorable in itself. He says Americans believe some type of work is honorable.

Starting point is 01:09:04 And he says there's no mandatory retirement age. It's common for people in Japan to work into their 70s and 80s. All right, so now let me go back to what he feels is like more of a Japanese tendency, which obviously other people and other cultures also have these traits, but he feels it's more common in Japan and less common in America at this time. All right. So this is one of the most significant value concepts that we have cherished from ancient times. It's this concept called, geez, montanai. There's no way that's correct. So let me just describe what it is. It is a key concept, one that may help explain a great deal

Starting point is 01:09:43 about Japan, the Japanese people, and our industry. It is an expression that suggests that everything in the world is a gift from the creator and that we should be grateful for it and never waste anything. All things are provided as a sacred trust and actually are only loaned to us to make the very best use of. To waste something is considered a kind of sin. We have developed this concept that goes beyond mere frugality or conservation. The wasting of anything was considered shameful, virtually a crime. We have always had to practice conservation for survival. So now he's going to give you some background into why they've optimized so much for this one trait. We learned once again the meaning of montanai when the oil crisis came. But we also learned how to apply the principles that underline the expression.

Starting point is 01:10:33 And today, with a much expanded economy, we use less crude oil, coal, and natural gas than we did in 1973 because we have learned how to be efficient. So he's saying this has been in our culture for a while. We had to do it because Japan lacks a lot of natural resources. We rely on outside countries to produce it for that. And so in times of struggle, we get really good and really efficient. And then when we don't have times of struggle, we still maintain that advantage, right?

Starting point is 01:10:56 So that's the basic idea. We looked at all of our factory operations, and then this is him applying it to his company. We looked at all of our factory operations and at our products and made design changes where we could save even small amounts of energy. We also we studied all forms of power consumption at Sony in our factories and offices as well as in our products. In 1973, every maker of home appliances went to work to cut power consumption and in fact they competed with each other to see who could produce products using the

Starting point is 01:11:25 least power. Low power consumption then became a major selling point and a new point of competition. I was disappointed to see how little was done in redesign of products in other countries, like the U.S., that had their own oil. In the U.S. and Britain, such a crisis did not have the heavy impact on every single citizen that it did in Japan. So he continues, When you were told from childhood on that the metal object you hold in your hand comes from iron ore mined in countries far away, which is transported to Japan at great expense and is produced in furnaces that use gas and coal from other faraway places, such objects become very valuable. Our general philosophy throughout industry in Japan is that everybody is an inspector and that the goods being made must be made correctly at every single stage

Starting point is 01:12:18 of the operation. This is natural to us. I am reminded of the American expression, there's plenty more where that came from. We have no such expression. He's got more advice that he mentions a number of times that's extremely important to him. He says, my point is that it is unwise merely to do something different and then rest on your laurels. You have to do something to make a business

Starting point is 01:12:43 out of new development, and that requires you keep updating the product and staying ahead of the market. What you learn in school only becomes useful when you add something to it that is yours, and you do it yourself. And then he's got more advice. He says it again, never stop being resourceful. Some people have said that the post-industrial society is here, and some predict that we cannot expect technological innovation anymore. Isn't it funny? He's writing these words in 1985.

Starting point is 01:13:15 The book was published in 1986. And the reason I think it's funny, because people say the exact same thing today. Oh, that's it. We're done. Some people have said that this is the post-industrial societies here. And some predict that we cannot expect technological innovation anymore. And that we will have to live smaller lives with less satisfaction and luxury.

Starting point is 01:13:32 I don't believe it. My prediction is that we can enjoy our lives with less energy, less of the old materials, fewer resources, more recycling, and have more of the essentials for a happy and productive life than ever. Step by step, year by year, we must all learn how to be more skillful and efficient in using our resources economically. I love, love, love that idea. And finally, we're getting, this is the last thing I want to talk to you about. And towards the very end of the book, the know-it-all-like-myself is a keel is full of self-confidence and belief in himself. You should be too.

Starting point is 01:14:10 I'm going to, before I read his words, which I love, it like brought a smile to my face when I saw it. It's like, it's just another reminder that there is no like school of entrepreneurship. There's no, there's nobody that can stop you from making a product that makes other people's lives better. There's no school you have to go through. It's, it's open to everybody and the reason I bring that up is because at one time it was close to the Japanese and

Starting point is 01:14:33 Just like what they did on a culture and country level where they learn from other people They eventually like learn the game and then realize hey We're just as good as it at it as you are and you're gonna see attitude here. You know, it's kind of cocky what he's about to say. But I feel like on a personal level, it's the same for all of us. The stories that we see over and over again is, you know, there's no license, there's no qualifications, no degree you need before you do this. And it is truly available to anybody that has an idea that makes somebody else's life better. So we're going to see this on a country level here. Americans and Europeans seem to think that their idea of how the world trading and monetary systems work and should continue to work should be universal, especially in the business world.

Starting point is 01:15:25 And that since they believe they invented the game, the rules should never be amended. Moreover, some American and European businessmen still look at the Japanese as newcomers, as novices who should still be paying tuition to the school. What they don't want to face is the fact that we are not only in the same school, but we've joined the faculty so I'll leave the story there if you want the full story I recommend reading the book it's fantastic I really like the idea that this book is what 30-something years old and still has knowledge that is that is very valuable today so if you want to

Starting point is 01:15:59 leave if you want to read the book and support the podcast at the same time use the links that are in the show notes to buy the book. That helps out the podcast. You can either find those links in the show notes on your podcast player or you can go to founderspodcast.com. Thank you very much.

Starting point is 01:16:12 I will talk to you next week and I'll be back with another biography of an entrepreneur.

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Founders - #102 Akio Morita (Sony)

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