Founders - #18 Let My People Go Surfing: The Education of a Reluctant Businessman

Episode Date: January 8, 2018

What I learned from reading Let My People Go Surfing: The Education of a Reluctant Businessman by Yvon Chouinard.---I had always avoided thinking of myself as a businessman. I was a climber, a surfer, a kayaker, a skier, and a blacksmith. We simply enjoyed making good tools and functional clothes. [0:01] One day it dawned on me that I was a businessman and would probably be one for a long time. I knew that I would never be happy playing by the normal rules of business; I wanted to distance myself as far as possible from this pasty-faced corpses in suits I saw in airline magazine ads. If I had to be a businessman, I was going to do it on my own terms. [0:32] One of my favorite sayings about entrepreneurship is: If you want to understand the entrepreneur, study the juvenile delinquent. The delinquent is saying with his actions, “This sucks. I’m going to do my own thing. [1:00]Work had to be enjoyable on a daily basis. [1:18]I’ve always thought of myself as an 80 percent. I like to throw myself passionately into an activity until I reach about an 80 percent proficiency level. To go beyond that requires an obsession and degree of specialization that doesn’t appeal to me. Once I reach that 80 percent level I like to go off and do something totally different. [4:05]Tom Brokaw on Yvon: It’s been helpful to me to be Yvon’s friend. He makes me think about things in new ways. [5:36] Can a company that wants to make the best-quality outdoor clothing in the world be the size of Nike? Can a ten-table, three-star French restaurant retain its third star when it adds fifty tables? The question haunted me throughout the 1980s as Patagonia evolved. [7:35]I continued to practice my MBA theory of management, management by absence, while I wear-tested our clothing and equipment in the most extreme conditions of the Himalayas and South America. [10:13] Throughout the book he’s has a really beautiful idea of comparing business and organizing human labor, to nature. Part of this idea is he intentionally puts Patagonia through a lot of stress because he feels you need stress to grow. [11:42] Doing risk sports had taught me another important lesson: Never exceed your limits. You push the envelope, but you don’t go over. You have to be true to yourself; you have to know your strengths and limitations and live within your means. The same is true for business. The sooner a company tries to be what it is not, the sooner it tries to have it all, the sooner it will die. [18:05] I did not yet know what we would do to get our company out of the mess it was in. But I did know we had to look to the Iroquois and their seven-generation planning, and not to corporate America, as models of stewardship and sustainability. As part of their decision process, the Iroquois had a person who represented the seventh generation in the future. If Patagonia could survive this crisis we had to begin to make all our decisions as though we would be in business for a hundred years. [19:12] The first part of our mission statement, “Make the best product,” is the cornerstone of our business philosophy. “Make the best” is a difficult goal. It doesn’t mean “among the best” or the “best at a particular price point.” It means “make the best,” period. [24:05]The functionality driven design is usually minimalist. Or as Dieter Rams maintains, “Good design is as little design as possible.” Complexity is often a sure sign that the functional needs have not been solved. Take the difference between the Ferrari and the Cadillac of the 1960s. The Ferrari’s clean lines suites its high-performance aims. The Cadillac really didn’t have any functional aims. It didn’t have steering, suspension, aerodynamics, or brakes appropriate to its immense horsepower. All it had to do was convey the idea of power, creature comfort, of a living room floating down the highway to the golf course. So, to a basically ugly shape were added all manner of useless chrome: fins at the back, breasts at the front. Once you lose the discipline of functionality as a design guidepost, the imagination runs amok. Once you design a monster, it tends to look like one too. [25:53]When I die and go to hell, the devil is going to make me the marketing director for a cola company. I’ll be in charge of trying to sell a product that no one needs, is identical to its competition, and can’t be sold on its merits. I’d be competing head-on in the cola wars, on price, distribution, advertising, and promotion, which would indeed be hell for me. I’d much rather design and sell products so good and unique that they have no competition. [27:15]There are different ways to address a new idea or project. If you take the conservative scientific route, you study the problem in your head or on paper until you are sure there is no chance of failure. However, you have taken so long that the competition has already beaten you to market. The entrepreneurial way is to immediately take a forward step and if that feels good, take another, if not, step back. Learn by doing, it is a faster process. [32:40]Nonfiction marketing. Our branding efforts are simple: tell people who we are. We don’t have to create a fictional character. Writing fiction is so much more difficult than nonfiction. Fiction requires creativity and imagination. Nonfiction deals with simple truths. [34:00]It’s okay to be eccentric, as long as you are rich; otherwise, you’re just crazy. [36:19]Quality, not price, has the highest correlation with business success. Whenever we are faced with a serious business decision, the answer almost always is to increase quality. [37:37]We never wanted to be a big company. We want to be the best company, and it’s easier to try to be the best small company than the best big company. [40:20]We don’t hire the kind of people you can order around. We don’t want drones who will simply follow directions. We want the kind of employees who will question the wisdom of something they regard as a bad decision. We do want people who, once they but into a decision and believe in what they are doing, will work like demons to produce something of the highest possible quality. [43:57] Systems in nature appear to us to be chaotic but in reality are very structured, just not in a top-down centralized way. A top-down centralized system like a dictatorship takes an enormous amount of force and work to keep the hierarchy in power. All top-down systems eventually collapse, leaving the system in chaos. A familial company like ours runs on trust rather than on authoritarian rule. [44:52] The lesson to be learned is that evolution (change) doesn’t happen without stress, and it can happen quickly. Just as doing risks sports will create stresses that lead to a bettering of one’s self, so should a company constantly stress itself in order to grow. [50:29] I believe the way toward mastery of any endeavor is to work towards simplicity. The more you know, the less you need. [56:01]  ----Founders Notes gives you the ability to tap into the collective knowledge of history's greatest entrepreneurs on demand. Use it to supplement the decisions you make in your work.  Get access to Founders Notes here. ----“I have listened to every episode released and look forward to every episode that comes out. The only criticism I would have is that after each podcast I usually want to buy the book because I am interested so my poor wallet suffers. ” — GarethBe like Gareth. Buy a book: All the books featured on Founders Podcast

I had always avoided thinking of myself as a businessman. I was a climber, a surfer, a kayaker, a skier, and a blacksmith. We simply enjoyed making good tools and functional clothes that we and our friends wanted. Melinda and my only personal assets were a beat-up Ford van and a heavily mortgaged, soon-to-be-condemned cabin on the beach. Now we had a heavily leveraged company with employees with families of their own, all depending on our being successful. After we had pondered our responsibilities and financial liabilities, one day it dawned on me that I was a businessman and would probably be one for a long time. It was also clear that in order to survive at this game, we had to get

serious. I also knew that I would never be happy playing by the normal rules of business. I wanted to distance myself as far as possible from those pasty-faced corpses in suits I saw on airline magazine ads. If I had to be a businessman, I was going to do it on my own terms. One of my favorite sayings about entrepreneurship is, if you want to understand the entrepreneur, study the juvenile delinquent. The delinquent is saying with his actions, this sucks, I'm going to do my own thing. Since I had never wanted to be a businessman, I needed a few good reasons to be one.

One thing I did not want to change, even if we got serious, work had to be enjoyable on a daily basis. We all had to come to work on the balls of our feet and go up the stairs two steps at a time. We needed to be surrounded by friends who could dress whatever the way they wanted, even be barefoot. We all needed to have flex time to surf the waves when they were good or ski the powder after a big snowstorm or stay home and take care of a sick child. We needed to blur that distinction between work and play and family. So that is from part one of the book that I want to talk to you about today. And that is Let My People Go Surfing, The Education of a Reluctant Businessman by Yvonne Chouinard. So I have to admit, I didn't know who Yvonne Chouinard was before a week or two ago.

I was listening to that podcast, How I Built This, and they republished an old episode of theirs, which was an interview with the founder of Patagonia, Yvonne Chouinard. And within 20 minutes of hearing him speak, I immediately started liking the way he thought. And he went on the podcast to promote the book that he wrote. And this book that I have in my hand was actually meant as just an internal like company handbook for the employees of Patagonia. And it became so popular that he published it as a normal book and since it became so much so popular that uh he published

it as a normal book and and since it sold a lot of copies of that as well the book is split into two parts it's the history which is like a mini autobiography of how he got started doing what he what he does and then the second half is the principles of his company which he's put a lot of time into thinking um i think he's in his 70s by now, and he's founded Patagonia, I think, almost 40 years ago. So he's had a lot of time to ruminate and to kind of come up with his own philosophies, and that's what I find most interesting. That's what I want to talk to you about today. So one of the most interesting things I heard in the podcast with Yvonne was that he is still the sole owner of Patagonia along with his family. He never raised outside money, never took

investors, and last year they did $750 million in sales. So it's quite a success story. He founded it back in the 70s so he's had about over 40 years to really think about the principles and the philosophies that are important to him in running a business and more importantly building a great product. So some of these are really fast and I'm just gonna go through in chronological order and share some of the highlights and ideas that I just found really interesting. So here's this quick one. It's called his idea of being an 80 percenter. I always thought of myself as an 80 percenter. I like to throw myself passionately into a sport or activity until I reach about an 80 percent

proficiency level. To go beyond that requires an obsession and degree of specialization that doesn't appeal to me. Once I reach that 80% level, I like to go off and do something totally different. That probably explains the diversity of the Patagonia product line and why our versatile, multifaceted clothes are the most successful. So I'm going to skip ahead a little bit. I found this really interesting. They republished an excerpt from Life Magazine in 2004. And the broadcaster or the anchorman, Tom Brokaw, was friends with Yvonne. And they asked him the question, they're asking Tom Brokaw, what is your single toughest climb? And I loved his answer.

This is his direct quote. Probably one of my friends, including Yvonne Chouinard, and I did the Kautz Glacier on Mount Rainier. I had never really done ice climbing before, and they gave me a 30-second lesson in crampons and ice axe use. At one point, we were going across a very steep patch of black ice, and if you slipped, you would have gone down about 1,000 feet. I said to Yvonne, we should rope up here. And he said, no way. If you go, then I go. And I don't want to do that. This is like catching a taxi in New York on a rainy day. It's every man for himself. It's been, this is now Tom talking again. It's been helpful to me. It's been helpful to be Yvonne's friend. He makes me think about things in new ways. That's a great description of how I felt when I was reading the book because this guy's a lot of, even though they're logical,

they're somewhat contrarian. So let me skip ahead a little bit. I want to get into some of these things. And now this is Yvonne talking. And he's got two interesting ideas here and it's can large be the best and then his MBA theory of management, which is management by absence. So I wanna read this part. We never had to make a break from the traditional corporate culture that make businesses hide abound and inhibits creativity.

For the most part, we simply made the effort to hold up our own particular tradition. At one time, that tradition looked peculiar, but it no longer does. Many American industries have adopted a more casual workplace, and we played a role in starting that trend. In growing the business, however, we use traditional textbook practices, increasing the number of products, opening new dealers and new stores of our own, developing new foreign markets, and soon we were in serious danger of outgrowing our breaches. We had nearly outgrown our natural niche, that specialty outdoor market. By the late 1980s, the company was growing at a rate that, if sustained, would have made us a billion-dollar company in a decade. To reach that theoretical

billion-dollar mark, we would have to begin selling to mass merchants or department stores. This challenged the basic design principle we had established for ourselves as the makers of the best hardware. So I just want to stop before I continue. This is something that he hits on constantly, that his main goal is just to make the best product and let everything else take care of itself. That's why the subtitle is The Education of a Reluctant Businessman. He thinks of himself as a craftsman, as a product maker, as a climber, not as a businessman. Can a company that wants to – this is something I also think about too. I've been thinking about it recently.

It's like can a company that wants to make the best quality outdoor clothing in the world be the size of Nike? Can a 10-table, three-star French restaurant retain its third star when it adds 50 tables? Can you have it all? The question haunted me throughout the 1980s as Patagonia evolved. Let me just stop before I continue. I think the answer to that question is no. I think when you talk to a lot of entrepreneurs and founders, I shouldn't say for some reason because I can understand the instinct there, but one of their main goals is for a lot of people, size. Let me get as big as possible, most revenue, most employees. And if you if your goal is to make something that's the best in class

i don't think the largest companies can make the best anything um and i struggle to think of large companies that make the best product for anything the uh when i was before i recorded the podcast i was thinking about this this morning i was like like, is there any, like my best experiences, let's take restaurants, for example, are individually owned restaurants. They're not chains. When's the last time you got good customer service from your cell phone provider or Comcast or anybody, any other large corporation like that?

The only thing I can think of is I feel the iPhone is still the best smartphone. Combination of hardware and feel the iPhone is still the best smartphone, combination of hardware and software that is. And that's obviously the large, I think the largest company in the world by market cap at this time, if I'm not mistaken. I can't come up with anything else. And then I thought anecdotally about my own experiences. I started using Uber when they were just in San Francisco, New York, and I loved the experience. And now I can't use, I could barely use any ride sharing apps because it's just, it's got, they got extremely large, but the wait times that the app tells you are no longer accurate where I thought they used to be. Customer service issues with just the larger they got, the quality of the service

degraded to the point where I only use it as my absolute last option, as opposed to something I actually used to enjoy using. So I don't know, something to think about. Again, it just depends on what you're into. Some people want to build huge, large companies, and then that's the end all. I think everybody would be better off if everybody just tried to make the best of whatever it is they're doing and not worry about the size. So let me continue what he continues on this page. And this is when he starts mentioning his theory about the management by absence. I continue to

practice my MBA theory of management, management by absence, while I wear tested our clothing and equipment in the most extreme conditions of the Himalayas and South America. In 1981, three friends and I set off an avalanche while trying to climb the 23,000-foot Ganga Shan in Tibet. We were carried for 1,500 feet and stopped 30 feet from the edge of a 300-feet vertical cliff. One friend died from a broken neck. Another had a broken back, and I had a concussion and broken ribs. I've never had much of an interest in climbing mountains over 25,000 feet. And now with this accident and having two young children, my interest waned even more. I was the outside guy responsible for bringing back new ideas. company needs this is the most important part a company

needs someone to go out and get the temperature of the world so for years i would come home excited about ideas for products new markets are new materials so he's going to continue to expound on his uh his theory of management by absence um he's been the founder along with his wife melinda um the entire time but they also hire CEOs and he mentioned in that interview where he takes off I think something from like made in November every year just to fly fishing and he explicitly tells them not to contact him so part of that is his as you'll see as we continue going through the book he he has this really, I would call it a beautiful idea of comparing business and organizing human labor to nature

and to the way humans did it in the past. And part of his thing is making sure that he puts Patagonia through a lot of stress because he feels, based on the theory of evolution, that you need stress to grow constantly. And part of that is if he was the only one being able to answer the question or to make these important decisions, then the company wouldn't continue to grow and wouldn't be able to do as much good as possible, which is one of his end goals.

So I'm going to skip ahead a little bit. I thought this was really interesting and it tells you more of like why he's doing what he's doing. And this section I wrote is why are we in business? So I've skipped ahead a couple pages. They're going, Patagonia is going through a problem. They were growing way too fast and then there was a worldwide recession in the early 90s.

So he spends a few pages going on about how he kind of just let growth get out of hand. He had like eight different product lines, eight different people responsible for those product lines, three different distribution channels, different people responsible for that. And it just, it stopped making sense to him and he didn't feel he had control. So let's pick that up after he's already identified that they're going through serious problems. At one point, we decided we needed another perspective. And Melinda and I, along with our CEO and CFO, sought the advice of a well-regarded consultant we contacted. His name is Dr. Michael Kami. Dr. Michael Kami, who had run strategic planning for IBM, and at some point had turned Harley Davidson around. We all flew to Florida to see him. Dr.

Commie was a small man in his 70s with a squeaky, heavily accented voice, a full beard, and a lot of restless energy. He lived on an enormous yacht and wore a captain's cap and an open shirt. Before he could help us, he said, he wanted to know why we were in business. I told him the history of the company and how I considered myself a craftsman who had just happened to grow a successful business. I told him I'd always dreamed that when I had enough money, I'd sail off to the South Seas looking for the perfect wave and the ultimate bonefish flat. We told him the reason we hadn't sold out and retired was that we were pessimistic about the fate of the world and felt a responsibility to use our resources to do something about it. We told him about our tithing program, how we had given away a million dollars just in the past year to more than 200 organizations, and that our bottom line reason for staying in business was

to make money we could give away. So the tithing program is they get the day every year, no matter boom or bust. It's 1% of profit or 10% of gross net sales, whichever is larger. And they give that away to organizations that are trying to help the environment, which is, I think, the most important thing in Yvonne's life. Let's go back to the book. Dr. Kami thought for a while and then said, I think that's bullshit. If you're really serious about giving money away, you'd sell the company for a hundred million or so, keep a couple million for yourselves and put the rest in a foundation.

That way you can invest the principal and give away six or $7 million every year. And if you sold to the right buyer, they would probably continue your tithing program because it's good advertising. I said I was worried about what would happen to the company if I sold out. So maybe you're kidding yourself, he said, about why you're in business. It was as if the Zen master had hit us over the head with a stick,

but instead of finding enlightenment, we walked away more confused than ever. Okay, so let me skip ahead to when he really figures out why he's in business. So the next few pages details what they're trying to do to turn around the company. And he realizes that he needs to write down like the philosophies that are in his mind. He needs to write them down and share them with the company so they can focus, they can refocus and hopefully turn the company back around. So he starts having these, I guess he calls them philosophy classes. And here's where he realizes that Dr. Kami was right, that you're kidding yourself while you're in business.

I realize now that what I was trying to do was to instill in my company at a critical time lessons that I already learned as an individual and as a climber, surfer, kayaker, and fly fisherman. I had always tried to live my own life fairly simply. And by 1991, knowing what I knew about the state of the environment, I had begun to eat lower on the food chain and reduce my consumption of material goods. Let me interject here, too, because something that I found unique to Patagonia was they run ads for their clothing, and they tell you don't buy it. His whole thing where he says that he has tried to reduce my consumption of material goods, he wants to make the highest quality shirt, jackets, any kind of clothing. And they have, Patagonia has this thing where they,

for as long as you own that piece of equipment or that piece of clothing, rather, they'll repair it for free. So they're saying, don't buy the jacket. Let us repair it for free. Let us keep it. And that kind of philosophy, which is counterintuitive to how most businesses would be, where you heard that saying about planned obsolescence, he does the exact opposite. So that's what he's mentioning there. And they even said in an interview that he hasn't bought a new shirt in like 15 years or something like that. So he wants to own, and I've tried to adopt this in my own life when I've been thinking about, sometimes I feel like it costs more money for me to be cheap. whatever you're buying you look at price instead of quality where I want to buy less but I want to buy better because I think in the long term like uh like let me give you an example like uh furniture maybe you have tried to be cheap and try to get

the best looking furniture at the cheapest possible price and then it breaks or you move in, something happens where you realize now I've bought two or three couches when I could have just done it right to begin with. So this idea of less but better. Okay. So let me go back to what he's talking about here. Okay. So he talks about, hey, I've already learned as an individual climber. Okay. So he talks about simplicity, less consumption. Okay. Here we go. Doing risk sports, which is what he calls like mountain climbing and the rest, had taught me another important lesson. Never exceed your limits. You push the envelope and you will live for those moments when you're right on the edge, but you don't go over. You have to be true to yourself. You have to know

your strength and limitations and live within your means. The same is true for a business. The sooner a company tries to be what it is not, the sooner it tries to have it all, the sooner it will die. It was time to apply a bit of Zen philosophy to our business. So let me interject again. This, I've already said a couple of times, Zen, simplicity. He hits on this over and over and over again, looking to the natural world to inform your way of making decisions. So he's realizing, crap, I let this get away from me.

Growth occurred too much. It's too complicated. So he goes, it was time to apply a bit of Zen philosophy to our business. Even as I taught our employees the Patagonia philosophy class, i did not yet know what we would do to get our company out of the mess it was in but i did know what what we had become was unsustainable and then we had to look to the this is this is interesting too we had to look to the iroquois and there's the iroquois indians native americans and their seven generation planning and not to corporate america as models of stewardship and sustainability.

So I had never heard this before, but check out what the Iroquois do. As part of their decision process, the Iroquois had a person who represented the seventh generation in the future. If Patagonia could survive this crisis, we had to begin to make all of our decisions as though we would be in business for a hundred years. We would grow only at a rate we could sustain for that long. This whole thing is mentioned in the book multiple times. He wants Patagonia to be around for over a hundred years. And by focusing on that, it causes him to make decisions completely different if he would, if it was a public health company. Teaching the classes also gave me my real answer to dr commie's question i knew after 35 years why i was in business true i wanted to give money to environmental causes but even more i wanted to create in patagonia a model other businesses could look to in their own searches for environmental

stewardship and sustainability. Just as our pitons and ice axes were models for other equipment manufacturers. What he's talking about there is Patagonia actually started out as a company called Chouinard Equipment. And at the time, he says there's only a couple hundred rock climbers in the world. This is back in the 50s. And they would use equipment that would be like 15 they're like pistons that you like i guess not pistons pitons whatever they're called uh you put into the mountain to to hook your gear to at the time people would would be purchasing these like cheaply made crappy ones for like 15 cents uh yvonne teaches himself how to blacksmith and he winds up building his own equipment testing it on himself because he's an avid mountain climber

and then selling them instead of for 15 cents he sold them for a dollar 50 and he winds up building his own equipment, testing it on himself because he's an avid mountain climber, and then selling them. Instead of for 15 cents, he sold them for $1.50. And he winds up getting like 75% of the entire climbing market, but the business is still like it made like 1% profit margin. So that's – he branched out. He started clothing as a way to support – as a higher margin business to support his um his equipment business and then eventually got rid of the equipment business because patagonia became so much in demand um so that's what he's he's referencing there how um how that what he was doing with pitons and ice axes were models for other equipment manufacturers the quality started going up once they realized what was possible so teaching the classes i remember again how i become a biz why or excuse me how i become a businessman in the first place. They had come home from the mountains with ideas

spinning in my head on how to improve each piece of clothing and equipment I used. Teaching the classes, I realized how much Patagonia as a business was driven by its high quality standards and classic design principles. products we made each feature of every shirt jacket or pair of pants had to be necessary so to me what he was saying is there is i'm in business to show other people that there's another way to do business and you can do businesses in his in his words in a more environmentally environmentally responsible way and more calm environment something that uh he talks about later is growing at a natural rate and not like an artificial rate which is why they don't advertise

that much um so that's the only part i was going to cover those those few from part one um just because uh i think it's what i'm so intrigued by is more of his philosophies so part two is called philosophies and he's got all these chapters separated into so let me tell you some of the names of the chapters um and i'm not going to go over over every one um like i've said in every podcast the goal is not to summarize the book it's to get you interested in the book and hopefully you read it yourself um and and if not at least you know that these ideas are out there there so he's got a handful of chapters about product design philosophy, production philosophy, distribution, marketing, financial

so on and so forth so I'm just going to go through these rather quickly because it's not a long book I read it in three days it's 230 pages and there's pictures and inserts. It's not like a normal book. Okay, but this is something I've thought about before in my own life where I feel like sometimes I'm not doing, like I have too much going on where I'm doing a lot of things poorly. And the note I left to myself here where I highlight this is this quote. I was told it was by Bruce Lee. I don't think he said it, but it does sound

like something he would say. So I don't know who to attribute the quote to, but I love it. And I think about it from time to time. And it says, how you do one thing is how you do all things. And let's talk about their intro to product design philosophy of Patagonia. The first part of our mission statement, make the best product, is the cornerstone of our business philosophy. Striving to make the best quality product is the reason we got into business in the first place. We are a product driven company and without a tangible product, there would obviously

be no business and the other goals of our mission statement would be would thus be irrelevant having high quality useful products anchor our business in the real world and allows us to expand our mission because we have a history of making the best climbing tools in the world tools that your life depended on we are not satisfied making second best clothing. Our clothes, from baggies to flannel shirts, from underwear to outerwear, have to be the best of their kind. Trying to make the best product also inspires us to create the best child care center and the best production department and to be the best at our jobs. Make the best is a difficult goal. It doesn't mean among the best are the best at a particular price point.

It means make the best, period. Okay, so I'm gonna skip ahead a few pages in this product design philosophy because he's still, he's got a lot of good ideas in here. So this one is good design as little design as possible. And this is the story he's telling. Koshun Miyamoto complimented his fencing teacher's wife on the beauty of her gravel garden.

A square of coarse grain sand set off by three stones from a nearby stream that conveyed a powerful evocative image of space and balance. The fencing teacher's wife protested that the garden wasn't complete and wouldn't be until she could express the same feeling it has now using only one stone instead of three. So this is under the section that he named, is it as simple as possible? The functionality

driven design is usually minimalist, or as Dieter Ram's head of design at Braun maintains good design is as little design as possible complexity is often a sure sign that the functional needs have not been solved take the difference between the Ferrari and the Cadillac of the 1960s the Ferrari's clean line suited its perform high performance aim aims the Cadillac really didn't have functional aims it didn't have the steering suspension torque aerodynamics or brakes appropriate to its immense horsepower but then nothing about its design really had to work all it had to do was convey the idea of power creature comfort of a living room floating down the highway to the golf course. So to a basically ugly shape were added all manner of useless chrome gingerbread, fins at the back, breasts at the front. Once you lose the

discipline of functionality as a design guidepost, the imagination runs amok. Once you design a monster, it tends to look like one too. So on the next page, he has this really good idea that I like. And it's the difference between innovation versus invention. So I want to read this section to you real quick. And he's funny too because he has all. You'll see right here. When I die and go to hell, the devil is going to make me the marketing director for a cola company. I'll be in charge of trying to sell a product that no one needs, is identical to its competition, and can't be sold on its merits.

I'd be competing head-on in the cola wars on price, distribution, advertising, and promotion, which would indeed be hell for me. Remember, I'm the kid who couldn't play competitive games. I'd much rather design and sell products so good and unique that they have no competition. Again, I want to go back to, I just saw a tweet and I don't know if it's accurate, but it shows the amount of devices purchased smartphones in 2017. And at the top was the iPhone, which in my opinion is the highest quality build that's out there, they sold something like 233 million units. The next one down was a Samsung Galaxy at like 23 million units. So this idea, and I also read about it in Peter Thiel's book Zero to One, that I'd much rather design and sell products so good and unique that they have no competition.

So to him, you're not going to go and and buy you're not choosing between buying a Patagonia jacket or a jacket from Dillard's or Macy's or any other store they're not in the same they're not in the same league so he doesn't really look at them as competitors but that's beside the point let me go back to his main point about the difference between innovation and invention. And you're going to hear some of these, if you've listened to all the podcasts I've done so far, some of these ideas are going to sound familiar. Successful inventing requires a tremendous amount of energy, time, and money.

The big inventions are so rare that even the most brilliant geniuses think up only a few marketable inventions in their lifetimes. It may take 30 years to come up with an invention, but within a few months or years, there can be a thousand innovations spawned from that original idea. Innovation can be achieved much more quickly because you already start with an existing product idea or design. Some companies are based on having proprietary designs and patents, but far more successful ones are based on innovation. In the clothing fashion business especially, there is simply no time for long, drawn-out, pure research.

Patagonia didn't invent bunting fleece. The idea came from my seeing Doug Tompkins wearing a brushed wool Fila pullover. Since it could only be dry cleaned, it was impractical for outdoor use. But it spawned an idea that led to polyester bunting, cinchilla, and a host of micro-fleeces. We adapted the design for stand-up shorts from a pair of double-seated English corduroy shorts and the idea for our very successful baggies came from a pair of nylon shorts I spotted in the Oxnard department store the ultimate patty godia versions are more functional durable and far superior to the knocked off originals especially for their intended act out active outdoor use and this is the part that should sound familiar.

Like creative cooks, we view originals as recipes for inspiration, and then we close the book to do our own thing. The resulting designs are like the fusion recipes of the best chefs. So, of course, I'm referring the podcast I did on the difference between cook and chef, cooks and chef on Elon Musk. If you haven't listened to that, cooks and chef on Elon Musk. If you haven't listened to that, go back and listen to it. It's based on the writing of Tim Urban who created the blog Wait But Why,

which I've mentioned a few times on the podcast, which I really enjoy reading. So let me skip that. It's interesting that, and we've kind of seen this anyways because we're talking about founders and entrepreneurs that are usually separated by time and and An industry and and they're just not it's not like they're running into each other

But through through trial and error and through just running a business they come up with a lot of the same ideas And now I want to so that he continues to go on his product design philosophy, which is really interesting And each of these chapters only like 10 to 15 pages long. So I definitely recommend picking up the book and reading it if it's interesting to you. It certainly was interesting to me. Okay, so now we're in production philosophy. And I wrote a note to myself, ideas should come from as close to the source as possible. So now we're going back into the brain of Yvonne. To stay ahead of the competition, our ideas have to come from as close to the source as possible. So now we're going back into the brain of Yvonne. To stay ahead of the competition, our ideas have to come from as

close to the source as possible. With technical products, our source is the dirtbag core customer. And he's not saying that as a pejorative. Dirtbag is, I guess, a slang name for the people that just travel around and climb mountains. They don't have a lot of money or whatever the case is. He or she is the only one using the products and finding out what works, what doesn't, and what is needed. On the contrary, sales representatives, shop owners, sales clerks, and people in focus groups

are usually not visionaries. They can tell you only what is happening now, what is in fashion, what the competition is doing, and what is selling. They're a good source of information if you want to be a player in the cola wars, going back to his metaphor about businesses that are indistinguishable through quality. But the information is too old if you want to have leading-edge products. There are different ways to address a new idea or project. If you take the conservative scientific route, you study the problem in your head or on paper until you're sure there's no chance of failure.

However, you have taken so long that the competition has already beaten you to market. The entrepreneurial way is to immediately take a forward step, and if that feels good, take another. If not, step back. Learn by doing. It is a faster process. It's also how he did it. Oh, so this is really interesting. I'd never thought of it in this way. So this is from the section on his marketing philosophy and something he calls nonfiction marketing. Even if he or she isn't aware of it, every individual spends an entire lifetime creating and evolving a personal image that others perceive. A company, too, creates and evolves an image that can stem from its reasons to be in business,

can grow out of its actions, or perhaps is assembled from pieces by the creative mind of an advertising person. A company's public image can be very different from who they really are. Go back to what I was saying about large companies and how they spend heavily on advertising and marketing, and their public image is very different from when you're dealing with them and you have a problem. Our branding efforts are simple. Tell people who we are. We don't have to create a fictional character like the Marlboro Man or a fake responsible caring campaign like Chevron's We Agree advertising. Writing fiction is so much more difficult than nonfiction.

Fiction requires creativity and imagination. Nonfiction deals with simple truths. This is not to say that invented brand images through traditional advertising and marketing are not successful. Otherwise, why would an intelligent person be persuaded to take up a tobacco habit that is guaranteed to kill you? Why would a real man smoke Marlboros but never a Virginia Slim? Powerful messaging, yes, but phony. Patagonia's image arises directly from the values, outdoor pursuits, and passions of its founders and employees. While it has practical and nameable

aspects, it can't be made into a formula. In fact, because so much of the image relies on authenticity, a formula would destroy it. Ironically, part of Patagonia's authenticity lies in not being concerned about having an image in the first place. Without a formula, the only way to sustain an image is to live up to it. Our image is a direct reflection of who we are and what we believe. Okay, I'm going to skip ahead to the section on financial philosophy, which is really, really interesting to me. And so he's got a lot of ideas in here. I have to say, like I've maybe thought about, but never put a name to, or maybe never even thought about. So our mission statement says nothing about making a profit. In fact,

our family considers our bottom line to be the amount of good that the business has accomplished over the year. However, a company needs to be profitable in order to stay in business and to accomplish all of its other goals. And we do consider profit to be a vote of confidence that our customers approve of what we are doing. The third part of our mission statement, use business to inspire and implement solutions to the environmental crisis, puts the responsibilities of leadership directly on us. If we wish to lead corporate America by example, we have to be profitable. No company will respect us no matter how much money we give away or how much publicity we receive for being one of the hundred best companies if we are not profitable.

I love this part. It's okay to be eccentric as long as you're rich. Otherwise, you're just crazy. At Patagonia, making a profit is not the goal because the Zen master would say, profits happen when you do everything else right. That's again, his commitment to quality, which we're gonna see here on the very next page.

The note I left here is quality as a solution. And this is something I didn't, I don't, once you hear it, it makes perfect sense,'t I don't once you hear it makes perfect sense but I don't know if I ever explicitly thought about it and that's why I love reading books like this our philosophy does not hold that finances the root of all business rather it complements all other segments of the company we recognize that our profits are directly tied to the quality of our work and our product a company that doesn't take quality seriously

will attempt to maximize profits by cost cutting, increasing sales by creating an artificial demand for goods, and hammering the rank and file to work harder. We believe that quality is no longer a luxury. It is sought out by the consumer and it is expected. For example, the Strategic Planning Institute has been collecting data for years on the performance of thousands of companies. It publishes a yearly report titled Profit Impact of Market Strategy. That report has begun to show quite clearly that quality, not price, has the highest correlation with business success.

This is interesting to me. In fact, the Institute had found that overall, companies with high product and service quality reputations have on average return on investment rates 12 times higher than their low quality and lower price competitors. Whenever we are faced with a serious business decision, the answer almost always is to increase quality. Again, I don't think many people would think that way. And this is an anecdote that he uses to support that. In the middle of the worst days of the Great Recession, I spoke to a

panel of surf industry leaders. I talked about our use of only organic cotton and cleaning up our entire supply chain. A CEO of one of the largest surf companies said that they did a few t-shirts and hats out of organic cotton, but when the recession hit, they had to stop. I asked how his sales were and he mentioned that they were down 20%. I said ours were up 30% that year. Their company and others in the surf industry are barely hanging on now because they didn't understand that their customers had changed so what he's talking about is that quality is no longer luxury it's sought out and then if you focus on quality uh the correlation there is that you're gonna have higher return um he continues uh the the turn. He continues the financial philosophy of Patagonia on the next page. And just in a few

paragraphs, I wrote three different notes. No exit strategy, best is not largest, which we talked about a little bit earlier, and the concept of natural growth. We are a privately owned company, as I mentioned earlier, him and his wife and his kids own all the company. They did about $750 million in sales last year, which is insane. We are a privately owned company, and we have no desire to sell the company or sell stock to outside investors, and we don't want to be financially leveraged. In addition, we have no desire to expand Patagonia beyond the specialty outdoor market. So how does finance react to these very clear-cut dictates? First of all, by growing only at a natural rate, quote unquote, when our customers tell us they are frustrated by not being able to buy our products because of constant out-of-stock

situations, then we need to make more, and that leads to natural growth. We do not create artificial demand for our goods by advertising in Vanity Fair or GQ or on buses in inner cities hoping to get kids to buy their blacked down jackets from us instead of going to North Face or Timberland. We want customers who need our clothing, not just desire it. We never wanted to be a big company. We want to be the best company. And it's easier to try to be the best small company than the best big company. We have to practice self-control. Growth in one part of the company may have to be sacrificed to allow growth in another. It is also important that we have a clear idea of what limits are to this experiment, and we live within those limits knowing that the sooner we expand outside of them, the sooner the type of company we want will die. Slow growth or no growth means the profits have to come from our being more efficient every year.

Unlike the government, we cannot rely on an expanding economy to burn the fat away. It's easier for a company to make a profit when it's growing at 10% or 15% a year. We have been profitable in years when we grew only at a few percent by increasing the quality of our product, maximizing the efficiency of our operations, and living within our means. Because of our pessimism about the future of a world economy based on limited resources and on endlessly consuming and discarding goods, we often don't need, not only don't we want to be financial leveraged, but our goal is to have no debt, which we have achieved. Again, I think this is amazing. The business has already been around for 45 plus years. He wants to go for another 100.

He owns everything himself. And not only do they have no outside investors, but they don't have any debt. This guy's amazing. And this whole idea of, later on the page, I'm not gonna read it, but he talks about, he hammers back on this idea of quality.

He's like, listen, if I could make a lower quality shirt and then you would buy more but then what happens when you buy a shirt for me and two months later it uh it tears apart it falls off it just stops doing what i told you it should be doing and why the reason you bought the shirt in the beginning he's like if i sell you something that's going to last you a lifetime lifetime guaranteed that it's going to be around and constantly repair it for you. The counterintuitive thing is like, oh, that person's only going to buy one shirt. No, that person is so happy that they keep buying other things as opposed to you going the cheap route, making lower quality goods. And then it breaks or tethers.

And that customer never even contacts you to complain. They just never buy anything from you again. It's really sticking in my mind. Okay, so I'm going to skip ahead to the management philosophy. never even contact you to complain. They just never buy anything from you again. It's really sticking in my mind. Okay, so I'm going to skip ahead to the management philosophy. Okay, well, I'm just going to read it all. So first, he has these quotes interspersed throughout the book. And this is a fantastic one that I think should be applied to all businesses.

And it's under the section of management philosophy. And it's a famous Charles Darwin quote. And it's, It's not the strongest species that survives, nor the most intelligent, but the one most responsive to change. So as we, as we continue in this section, you'll see what I meant when I mentioned earlier that he looks to the natural world or other civilizations or groupings of people, our animals, to kind of guide his management philosophy. So keep that Charles Darwin quote in mind for the end. And there's another place you'll see where I use it as well, or he uses it as well. Okay. 20 years ago, we hired a psychologist who specialized in organizational development, who told us that Patagonia has far above average number of very independent-minded employees. In fact, our employees were so independent, we were told,

that they would be considered unemployable in a typical company. We don't hire the kind of people you can order around, like the foot soldiers in an army who charge from their foxholes without question when their sergeant yells, let's go, boys. We don't want drones who will simply follow directions. We want the kind of employees who will question the wisdom of something they regard as a bad decision. We do want people who, once they buy into a decision and believe in what they are doing, will work like demons to produce something of the highest possible quality, whether a shirt, a catalog, a store display, or a computer program.

Again, how you do one thing is how you do all things. He's applying quality not just to the product, but how they support the product, how they advertise the product in a catalog, the store display, or a computer program. How do you get these highly individualistic people to align and work for a common cause is the art of management at Patagonia. So I think this is actually the one section I'm going to read the most from because I found it really interesting. Systems in nature appear to us to be chaotic, but in reality, they are very structured, just not in a top-down centralized way. A top-down central system,

like a dictatorship, takes an enormous amount of force and work to keep the hierarchy in power. Of course, all top-down systems eventually collapse, leaving the system in chaos. SEAL team soldiers have a leader, but are really self-managed as they have all bought into the mission, Know what their individual job is and know the other jobs as well. If their leader is disabled, any of the others can take over. Let me just interject there. If you're interested, I've said before, the reason I read biographies is because most business books I've read are shit. They might have a good idea in them, but an idea that could be described in maybe five paragraphs instead of 300 pages.

But one business book, I guess it is, it's a business book by Jocko Willink I read. It's called Extreme Ownership. The reason I thought about it in this section is because it talks about the Navy SEALs. Right here, Yvonne is talking about he prefers a like a decentralized uh company that supports to the hierarchy of the um like you see in the armed forces extreme ownership dictates like uh so it's jaco and this guy named leif babin who are going over um what their time uh as leaders in seals and one of their biggest thing is decentralized command what he's saying right here is like you've got to explain to people,

even the people that are quote unquote unmanageable, once like why you're doing what you're doing. And once they buy in, if one guy, like if their leader dies, God forbid, in war, somebody else can take over. And so that book seems to be like a war book, but the same principles that are good in combat when your life is literally on the line can be applied in business.

So I've taken like the decentralized command I think is great. He has another one called default aggressive, cover and move. All these things are really interesting when you put them in the context of business or product service. I'm using the word business, but it could be anything. It could be a one person making something. Like business, all businesses, is like what Richard Branson said. It's an idea that'll make other people's lives better.

And that can take the form of a large corporation. It could be two guys in a garage making something. It could be a service product, whatever it is. So whatever, if you're making something, you're creating something, I think that it'd be worth reading it because there's some value there. So let's get back to his management,

Yvonne's management philosophy. When you look to hire management, it's important to know the difference between a manager and a true leader. For instance, the branch manager of a bank is expected to avoid risk, implement strategic plans, and keep things running as they always have. It is like the difference between a cook and a chef. There's that idea. Again, again they both cook food but the chef creates recipes and manages the kitchen while the cook only follows the recipes leaders take risks have long-term vision create this create the strategic plans and instigate change the best leadership is by example melinda and my office space and the ceos is open to anyone, and we always try to be available. We don't have special parking places for ourselves or any upper management.

The best spaces are reserved for fuel-efficient cars, no matter who owns them. Melinda and I pay for our own lunches in our cafeteria. Otherwise, it would send a message to the employees that it's okay to take from the company. A familial company like ours runs on the trust rather than on authoritarian rule. I found that whenever we have had a top manager or CEO leave the company, there is no chaos. In fact, the work continues as if they were still there. It's not that they were doing nothing, but that the system is pretty much self-regulating. Maybe a few people take advantage of our flex time policy, but none of our best employees would want to work in a

company that didn't have that trust. They understand that my so-called MBA, which again, he's referencing management by absence. They understand that my so-called MBA style of management is as much a sign of my trust in them as my desire to be out of the office. Finding that balance between the management problems that come with growth and maintaining our philosophy of hiring independent-minded people and trusting them with responsibility is the key to Patagonia's success. Every company has its ideal size. Alexander Paul Hare, author of the classic Creativity in Small Groups, showed that groups sized between four and seven were most successful at problem solving, largely because small groups, as Hare observed, are more democratic,

egalitarian, mutualistic, cooperative, and inclusive. Hundreds of studies in factories and workplaces confirm that workers divided into small groups enjoy lower absenteeism, less sickness, higher productivity, greater social interaction, higher morale, most likely because the conditions allow them to engage what is best in being human, which is to share the meaning and fruits of their labor. So again, small teams between four and seven. If you remember the podcast I did about Jeff Bezos last week, that's eerily similar to Jeff Bezos' two pizza rule, where he does not want teams at Amazon larger that cannot be fed by two pizzas. And let me wrap up this section on management philosophy here. And I really love this part. The lesson to be learned is that evolution, also known as change,

doesn't happen without stress. And it can happen quickly. The 48% of the American population who doesn't believe in the process of evolution and natural selection see change as a threat, I'm going to continue here, but I really like this idea of making, if everything around us, nature, all forms of life on this planet, go through the process of evolution and constant change, why are we designing businesses that are afraid of that? So he continues to go on with this. So they see change as a threat rather than opportunity to grow and evolve to a higher level. Climbing mountains is another process that serves as an example for both business and life. Many people don't understand how you climb a

mountain is more important than reaching the top. So check this out. You can solo climb Everest without using oxygen, or you can pay guides and Sherpas to carry your loads, put ladders across crevices, lay down 6,000 feet of fixed rope, and have one Sherpa pulling you and one pushing you. You just dial in 10,000 feet on your oxygen bottle and up you go. Typical high-powered, rich plastic surgeons and CEOs who attempt to climb Everest this way are so fixated on the target, the summit, that they compromise on the process. The goal of climbing big, dangerous mountains should be to attain some sort of spiritual and personal growth. But this won't happen if you compromise away the entire process. Just as doing risk sports will create stresses that lead to a bettering of oneself, so should a company constantly stress itself in order to grow. Okay, that's a really good idea, and I think it's almost the complete opposite of what most people that manage businesses try to do.

So let me read that again. Just as doing risk sports will create stresses that lead to a bettering of oneself, so should a company constantly stress itself in order to grow. Our company has always done its best work whenever we've had a crisis. I've never been so proud of our employees as in 1994 when the entire company was mobilized to change over from using traditional cotton to organically grown cotton by 1996. It was a crisis that led us to writing down our philosophies. That's the part I mentioned earlier. When there's no crisis, the wise leader or CEO will invent one, not by crying crying wolf but by challenging the employees with a change you might think that a nomadic society packs up and moves when things get bad however a wise leader knows that you also move when everything is going too well everyone is laid-back lazy and happy if you don't move now

then you may not be able to move when the real crisis happens. Teddy Roosevelt said, In pleasant peace and security, how quickly the soul in a man begins to die. And as Bob Dylan says, He not busy being born is busy dying. New employees coming into a company with a strong culture and values may think that they shouldn't rock the boat and shouldn't challenge the status quo. On the contrary, while value should never change, every organization, business, government, or religion must be adaptive and resilient and constantly embrace new ideas and

methods of operation. So skipping ahead, he continues this in the conclusion of the book, and it's back to this theme on adapting or dying. When I look at my business today, I realize one of the biggest challenges I have is combating complacency. I always say we're running Patagonia as if it's going to be there 100 years from now. But that doesn't mean we have 100 years to get there. Our success and longevity lie in our ability to change quickly. Continuous change and innovation requires maintaining a sense of urgency. A tall order, especially in Patagonia's seeming laid-back corporate culture.

In fact, one of the biggest mandates I have for managers at the company is to instigate change. It's the only way we're going to survive in the long run. So right there, he's echoing what he sees in natural selection and evolution. There he goes. He talks about here. It's the same in nature. Nature is constantly evolving and the ecosystem support species that adapt either through catastrophic events or through natural selection. A healthy environment operates with the same need for diversity and variety evident in a successful business, and that diversity evolves out of a commitment to constant change. Our current landscape is filled with complacency,

be it in the corporate world or on the environmental front. Only on the fringes of an ecosystem, those outer rings, do evolution and adaptation occur at a furious pace. The inner center of the system is where the entrenched, non-adapting species die off, doomed to failure by maintaining the status quo. That's just really great writing there. Businesses go through the same cycles. Conventional corporations are at the center of the ring, and eventually they will die off, either through their own misdeeds or catastrophic events, such as dismal economic climates or unforeseen competition. Only those businesses operating with a sense of urgency,

dancing on the fringe, constantly evolving, open to diversity and a new way of doing things are going to be here 100 years from now. And I'm going to close out this podcast with the way he ends it. And I just love this little short paragraph. I believe the way toward mastery of any endeavor is to work towards simplicity. Replace complex technology with knowledge. The more you know, the less you need.

From my feeble attempts at simplifying my own life, I've learned enough to know that should we have to or choose to live more simply, it won't be an impoverished life, but one richer in all the ways that really matter.