Founders - #181 Paul Orfalea (Kinkos)

Starting point is 00:00:00 Paul says to me, hey do you want to come out with me? I need some local information about rental rates. He grabbed me because I was a student and could give him some feedback about the student perspective on renting near UCSB. So I'm driving with him and Paul is just a terrible driver. There are two sets of realtors trying to follow us. Suddenly, he sees this black cat about 300 yards ahead of us. He screeches on the brakes, pulls a U-turn, and goes the other way. He will not let a black cat cross his path. Then we're driving along, and he sees Pardell Road, the site of the original Kinko's, which he sold to his partner.

Starting point is 00:00:39 Because of that, he won't drive down Pardell Road anymore. We screech up in front of these apartment buildings. I follow Paul as he runs inside. In each one, he turns on a faucet, lets it run for a minute while he watches it, and then asks me, How much rent do you think I can get for this place? I'd say something, and he'd say, Nah, and then he'd give me a number 25% above my estimate. We saw eight properties in what had to be under an hour. The realtors are running behind us. We get back in the car.

Starting point is 00:01:10 He puts offers on six of them and ends up buying four. Basically, he ends up buying about $2 million of real estate in 45 minutes. As we drive back to the office, we stop at a kiosk, where at that time, you had to pay a 50 cent fee to cross the university campus. Paul accidentally drops a dime between the seat and the door. It must have taken him at least two minutes to fish out that dime. By this time, cars are honking behind us. Paul finds the dime, jumps out of the car, puts it on the concrete, and then stomps his heel on it several

Starting point is 00:01:45 times before he gets back in the car. I'm 19 and I'm silent. I'm completely silent. He knew I was mulling that over. I'm looking at him. I'm thinking this guy just bought two million dollars in property and he can't drive down Pardell Road or let a black cat cross the road in front of him. Now what does this thing with the dime mean? He says to me, you know what the lesson in there is? Never lose money. All the way back, I tried to figure that one out. I don't know if he was pulling my leg or if he was extremely superstitious or just plain psychotic.

Starting point is 00:02:22 Paul had some unusual ways of attracting talent, but it worked. He got my attention. So did the company's financial performance. I was the shipping manager, and my job was to send out all the profit and loss statements to each of the stores every month. I mailed them to the approximately 80 stores we had at the time, so I saw how well the company was doing. I became a partner in the organization with five stores in the Bay Area,

Starting point is 00:02:46 and I eventually sat on the board of directors. I was with the company for 20 years. That was an excerpt from the book that I'm going to talk to you about today, which is Copy This, How I Turned Dyslexia, ADHD, and 100 Square Feet into a Company Called Kinko's. And it was written by the founder, Paul Orfala, and his co-author, Anne Marsh. And this is another book that I wasn't aware of. More than half the books that I'm covering on the podcast

Starting point is 00:03:12 are coming from listeners, so please keep the book recommendations coming. I read this book, and then the second recommendation was another book written by Paul. It's almost like a 100-page Cliff Notes version of this book, I would describe it as. It's called Two Billion Dollars and Nickels. It has a fantastic title.

Starting point is 00:03:29 And the reason it's called that is because Kinko's would sell copies for five cents each, and Paul winds up selling the business for about two billion dollars. So I want to start with a description of Paul and the reason behind writing this book from the co-author. As you could guess from the excerpt, we're not dealing with a normal person. He's a crazy misfit. And there's just going to be a lot of crazy stories in the book. And just he has an entire chapter. Let me give you an example.

Starting point is 00:03:57 He's an entire chapter called Deal With Your Dark Side. And it's all about the mental problems he has, all the mistakes, the stuff he admits to. There's just very few people on the planet that would voluntarily put this into writing, all the deficiencies that he has. And I think that's part of what makes the book so interesting is because he's clearly an extremely flawed person. He knows he's a flawed person. And yet he still was able to build a wildly successful business. So this is his co-author. She says, Paul is definitely not a resident of the linear world. I've never met a more circular, out-of-the-box thinker. I'm often exhausting. It's often exhausting trying to keep up with him. But as I've discovered, it's worth the effort because he has an important story to tell.

Starting point is 00:04:41 It's important not only for business people and entrepreneurs who will benefit from his unorthodox and inspirational teaching, but for kids, teachers, and parents struggling with learning disabilities. That is what this book is about. It's the story of how Kinko's came to be and the record of the peculiar genius behind the company. And that's a huge part of Paul's story his entire life. Everybody tells him you're an idiot. You can't read. You can't write. You're going to be a failure. And he just refused to believe that. This is an example or a little description of some of the stuff he went to in his early life. Of the eight schools my parents enrolled me in, four expelled me. My typical report card came back with two C's, three D's, and an F. I graduated from high school eighth

Starting point is 00:05:22 from the bottom of my class of 1200. Frankly, I still have no idea how those seven kids managed to do worse than I did. And the very next line, we see the contrast between his record in school and his record in life. My name is Paul Orfala. In 1970, I started a copy shop in Santa Barbara, California, in an eight by 12 foot storefront next to a hamburger stand. I called it Kinko's after the nickname college friends gave me because of my kinky hair. Today, there are more than 1200 Kinko locations across the globe and revenues from those stores top $2 billion annually. More than 100 of my earliest coworkers and partners are millionaires today because of what we built together.

Starting point is 00:06:02 And so that stark contrast really does set the tone for the entire book because he's constantly talking about other people might describe it as a disadvantage. Other people think you might fail, but you can flip those into opportunities. He talks a little bit more about that now. When tearful parents come up to me to talk about their child's learning disorder, I ask them, oh, you mean his learning opportunity? What is your child good at? What does he like to do? When I meet their kids, I tell them

Starting point is 00:06:25 you're blessed. It's easy to forget that part of the equation in the face of a dire sounding prognosis. So he goes to task on the way teachers and principals talk to him and his family when he was younger. He thinks they're doing a lot of damage by trying to make everybody be the same. He's a misfit 100%. I didn't know it at the time that I opened my first Kinko's, but there's a long history of innovators and achievers who owe their particular brilliance, at least in part, to their deficits. And he's putting deficits in quotation marks. These people make up the ranks of some of the most successful and inventive members of our society. They have for millennia. And so he goes on to name people from history that had some kind of deficiency. Da Vinci, Churchill,

Starting point is 00:07:05 Einstein, Disney. He says a startling number of successful business people have dyslexia. Richard Branson, telecom pioneer Craig McCaw, Cisco CEO John Chambers, broker brokerage founder Charles Schwab, IKEA founder Ingvar Kamprad. I've done a podcast on a bunch of these people. I'm in good kind. This is his main point here. I'm in good company. All of these innovators survived an educational system determined to make them feel like failures. Some of my closest friends were social outcasts. Some of them did end up in jail. And I could relate to them all.

Starting point is 00:07:39 So I'm going to move through the book chronologically, but it does not go in chronological order. The co-author described him as a hurricane. I think that's a good way to think about at least the way he comes off in his writing. This is he's now flashing ahead and way ahead in the story. He's talking about the way he managed and the fact that he took the fact that he couldn't read and that he couldn't sit still and use that as to his advantage. So he was a big he's a big proponent of management by walking around. He's like, I'm not sitting in my office. I'm out in the stores. I'm on the front lines. He constantly talks about that he works for the people that work on the front lines. He does not like the

Starting point is 00:08:12 executives. In fact, he winds up fighting and yelling at a bunch of them, which I'll go into some crazy stories about that as well. But he says, anybody can sit in an office thinking about what people are doing wrong. My job was to get out and find what people were doing right and then exploit it. Then I would spread those practices throughout the Kinko's network. I also, and then again, he talks about it, his deficiency. I also have no mechanical ability to speak of. There isn't a machine at Kinko's I can operate. I could barely run the first copier we leased back in 1970. It didn't matter. All I knew was that I could sell what came out of it. And so the importance of sales and marketing, he'll talk about over and over again. He really identifies as a peddler. You know, that's a craft or a job that goes back for centuries.

Starting point is 00:08:58 He comes from a giant Lebanese family. All of them had businesses, whether they're selling women's clothing, vegetables, cars, it doesn't matter. They were taught the value of sales, of paying attention to your customer and then paying attention to the cash that the customer gives you. And so Paul takes a lot of the lessons that he learned from his giant, loud, crazy family. That's his description, not mine, and applies them to Kinko's. This is him on not hiding your flaws and then the impact of his mother. So it says, my hope is that anyone who picks up this book will come away with new insights into how to better run their business and to cope with and capitalize on what others consider their flaws. In case I haven't made it clear, I'm extremely human. I struggle with my temper, my dark side,

Starting point is 00:09:43 as I like to call it. The dark side of the Kinko story is that the company was built at least in part on emotional extremes most of them my own so he talks about having a problem with self-control that he's an extremely gregarious and outgoing and caring guy that can flip at the end it's almost like bipolar in a sense where he has this one like extremely light side of his personality and an extremely dark where he you know he's cursing at you he's yelling he's ripping things off the the wall and he doesn't recommend that he talks about being embarrassed by it um and something that's slowly over the he ran kinkos for three decades before he sold it he's like you know the

Starting point is 00:10:19 way i was in the let's say the 1980s is not the way i was in the 90s although he talked before he winds up having to seek professional help and get on medication. That's the only thing that solved his problem. He said, uh, building an entirely new sort of business from a single Xerox copy machine. Uh, it gave me, it gave me the life. The world seemed determined to deny me when I was younger. And before I go into, I want to pause here just for going to, uh, he also had extremely positive, uh, role model in his mother. What he just said there, the fact that I could build an entire business for myself from a single Xerox copy machine. I could work at it every day for three decades and then sell it, make myself extremely rich, all the people that work for me extremely rich.

Starting point is 00:10:57 That is why entrepreneurship is one of the greatest human inventions ever because it's open to everybody. That doesn't mean everybody can, like, I don't think everybody obviously should be an entrepreneur, but anybody can. It's not like there's not, nobody can stop you but yourself. And so think about the alternate life as we go through this podcast, think about the alternate life path of Paul. He was not going to get a job. I mean, the guy got fired. I'll go into detail. He got fired from every job he had, flunked out of school. But the fact was that he had value and service that he could provide to others. And as long as you have value and service you can provide to others, people were willing to pay for that value. And then you can keep doing that and keep improving and make it bigger, as

Starting point is 00:11:37 big as you want it to be, or as small as you want it to be. And he actually created his entire life that was denied to him by everybody, every other authority figure besides his family, telling him, you know, you're just a loser, kid. You're stupid. Get out of here. I had my mother to thank for encouraging the development of my own view of the world. So he talks about one day he was expelled when he was 13. And the principal just, you know, tells his mom that, you maybe he can he can find some other kind of work. Maybe he can learn how to lay carpet or do something else that doesn't require reading. And her his mom is just crying. And she's like, I know Paul can do more. And this is what he says. My mom

Starting point is 00:12:17 dreamed her own dreams. You could say that exactly for him. He dreamed his own dreams. She never relied on the bleak assessment of others whenever i felt down i'm not even this is still the introduction how many times has he compared and contrasted the way he felt the way his family felt to the way the outside world felt that is so important because that's the only thing that matters uh andrew carnegan his autobiography talks about uh the the way you view yourself i think he calls it something like the supreme judge within but what he was the point he's trying to make is that there's no fooling yourself. You know what you're qualified to do. You know if you're putting in the work that you need to do. And so all you need to worry

Starting point is 00:12:52 about is making sure that you're not relying on the judgment of other, of you by others, but of how you judge yourself. And I think Paul's echoing that here. Let me go back to this sentence. Whenever I fell down, whenever I started wondering what homeless shelter I would die in, she would buck me up and buck me up by telling me, You know, Paul, the A students work for the B students, the C students run the companies, and the D students dedicate the buildings. And that's remarkable if that actually is something she said to him because he winds up graduating with a D average and then he does wind up having a building dedicated I think he donates like 10 million dollars to and have has a building named after him at the University of Santa Barbara this is he picks up on he's got again a lot of just really practical knowledge about the world that I think is the value in this book and he talks about there's a difference between good being good at school and being good at life and it's a lot easier to be good at life

Starting point is 00:13:44 than it is to be good at school and he good at life. And it's a lot easier to be good at life than it is to be good at school. And he says the education system teaches kids they have to be good at everything. But out of the classroom, I found this just isn't so. Adults have a much easier time. They get to specialize. They get to pick one thing. It's a whole lot easier. So his point is like if you're good at one thing,

Starting point is 00:14:00 in his case, he was good at building a copy and printing business. He didn't have to be good at algebra, physics, history, anything else. But he provided a service. And he also has a great philosophy, and I'm going to run over my future point, that I love, that the culture behind Kinko's. He says, listen, we had fun. They call themselves capitalist hippies. But he's like, we had fun with everything else. The only thing we took serious is the service we provided to our clients. And then everything else of that, we laughed and joked and had a great time.

Starting point is 00:14:29 But I love the idea behind what he's saying here. Pick one thing and be better than anybody else is at it. And he had a lot of competition. You know, anybody at this point, you can lease, I think it was like $1,000 a month, something like that, to lease a copy machine, which is, you know, brand new technology at the time. And so he had a bunch of competitors that he had to battle through, most of which went out of business. This is more about his early life and jobs. In my family, we were all peddlers. I found your average street peddler has more business sense than the guy walking past in a suit. They deal with customers in real time and get instant feedback from the market. So that's something he talks about over and over again, that it's very easy to sit in office away

Starting point is 00:15:09 from the front lines, away from the customers and come up with all these theories. But he's like, you're just you're just using your imagination. If you just go and talk to customers and try to sell them something, they're going to give you the most valuable information in the world. I was working at my father's clothing factory. My job had been buttoning up the dresses after they were steamed, but I really wanted to start assembling orders for customers. So his aunt was overseeing this part. A lot of his family works together. And so he goes to try to switch his job. And it says she spotted me trying to pick orders and shouted at the man helping me. Don't let him do that. He can't even read. I walked out of the factory that day and sat in my car in the parking

Starting point is 00:15:45 lot. I cried for hours. I remember thinking that it was no use trying to please anyone else. It simply wasn't possible, not with my skill set. So I might as well try to please myself. And that is something that I love about reading all these biographies because, you know, these people build giant companies. A lot of people we cover are super famous. They're historical figures. And yet when you read their own words, they all go through periods of this. This is what when you listen to interviews with people that are still alive today, still operating companies,

Starting point is 00:16:16 they're incentivized to lie. Oh, we're crushing it. Everything's good. Everybody says the same thing. But when you pick up the books, you realize that's not the lived experience of anybody. Everybody's going to go through this time. He's constantly fighting in this book to deal with his emotions, to deal with a setback and just realizing, OK, that's fine. I'm going to cry. I'm going to sit in my car. I'm going to cry for a little bit. But then I'm going to try again tomorrow and I'm going to make some progress. And then I'm going to run into a I'm going to run into a setback. I'm going to be down on myself. Maybe I'll go have a drink. Maybe I'll just take the day off and wander around, but I'm not going to stop. And reading stories like that just fires me up. All right. It took me a lot longer before I actually succeeded in doing so. My dad eventually kicked me out of the company. So he gets another job. I was serving ice cream.

Starting point is 00:17:00 A couple of days into that job, I was fired. Then I tried to work at a local gas station. I'm just giving the highlights here. He's fired from that job as well. Delivering newspapers, painting, none of this is going to work out. So it says it didn't take me long. It didn't take long for me to conclude that I was basically unemployable. The only hope for me was to go into business for myself. Okay, so I want to fast forward. He's in college. They're working on a group paper. He's at University southern california and his job is to go make copies and to turn the paper and you know again he's not going to be reading uh he's dyslexic so this is where he actually gets the idea for kinkos and it's small it starts it

Starting point is 00:17:36 starts as a very very small idea and i'm going to tell you how this this made me think of the note i left myself is one of my favorite quotes from what is if you're only going to read one I hope you read, obviously, dozens of the books that we cover here, but it would be James Dyson's autobiography. It's hard to find, hard to get, constantly out of stock, but it's something you can read in a weekend, and it's all about the value of stubbornness and perseverance, and it's just a really fun, interesting book to read. But he said in that book, he's like, listen, people put barriers in front of themselves. And one of them is like, I don't know how to do what I want to do. And his point was like, you can always learn. You have time to learn the technology later. His first vacuum cleaner he built out of the improvement to the Hoover vacuum cleaner that he wanted to that he thought was just a piece of junk and led him down this path that he that like his career path that he's on.

Starting point is 00:18:31 It was built out of cereal packets and masking tape long before I understood how it worked. And this we're going to see the same example here. He goes to make copies. He says, I went to the university's copy center. This is in L.A. OK, I saw something far more interesting. The copy center itself. This is the spring of 1970 and people were scurrying around making voluminous copies of legal paperwork for the trial of Charles Manson. I came running back to class nearly out of breath. I had to talk to Danny. So this is one of his best friends at the time. And he says, as Danny remembers it, this is Danny now, the quote from him. Paul was shaking all over. He told me, Danny, I've got this great idea. I realized I could start a copy shop myself and I knew a place that needed one. My girlfriend at the time was a student two hours north of Los Angeles up on the coast at the University of California at Santa Barbara.

Starting point is 00:19:15 There weren't any copy centers there for students or faculty. I didn't write out a business plan or study the market, but my gut told me I could make money selling what came out of those machines it didn't matter that i had no idea how they worked and he moves on this right away so he sees that by the fall of 1970 he's set up and he says i rented a small small storefront near the university there was only 100 square feet the rent was a hundred dollars a month the place was so small by the time we needed a second cop a second, we had to lug it out on the sidewalk. Yes, customers made their copies outdoors. I was 22 years old. So the very first day, their first order, I think, is like $50.

Starting point is 00:19:55 So think about it. His entire rent is $100. And you have a professor that comes in. He's anxious. He's upset. And Paul really hits on something that's smart here. He understands what he's actually selling. It's not that I'm selling copies. I'm selling a way to relieve your anxiety. People in general, especially at this point in time, are stressed out about technology.

Starting point is 00:20:16 This is not a very different insight. If you think about the way Steve Jobs talked about how people approach personal computer before the very first Apple computer or how the book on Johnny Ive that we just did where he talks about, you know, I love designing. Computers are becoming a huge part of this, but I'm frustrated. I don't think I know how to deal with them. And then he sees an Apple way before he works there. He's like, wow, OK, this is simple. This is now like he was able to calm down and his anxiety was relieved. And so this is what Paul realizes about this professor. He says, like each and every one of the subsequent millions of customers we would serve over the next three

Starting point is 00:20:51 decades, he was stressed out and in a hurry. It was a state of mind all of us at Kinko's would come to be immediately or excuse me, intimately familiar with. Later on, we would learn that we weren't so much selling copies as we were assuaging anxiety. And right from the very beginning, we see he's got a very again, when you read these autobiographies of founders, you're essentially downloading their philosophy on how to run a business. Right. There's no formula. The idea is take a bunch of ideas from other people, combine and make your own unique philosophy because there is no single right way to do it. And so he's going to he's got this idea that's really, really unique. And one you should know about Paul, he tries to get out of as much work as possible. He's not working nights. He's not working weekends. He's always thinking about the business, but he makes sure his physical body is still there for

Starting point is 00:21:37 his family. He doesn't have a family at this time. He's still a college kid. So this is many decades in the future. But one of his ideas is that you have to ask yourself if you're in or on your business. And so being in your business is like you're so mired in the details. You're not running your business. Your business is running you. And therefore, you're not thinking clearly. You're not doing any. His whole thing is like you need to think harder before you. You can work hard, but you have a lot of people work hard, never think hard. It's more important to think hard and then work hard. But if you're on your business, you're not mired down in details. You can see where the business is going. You can make better decisions. And he talks about the time invested in thinking yields more leverage for you than just doing an extra print job.

Starting point is 00:22:18 And so we're going to go into the difference. He's going to bring this up in many different ways. And so another good thing about this book, just like I love I'm a sucker for aphorisms and maxims. He thinks in maxims and aphorisms very much like Charlie Munger. In fact, in the back book, the last like, I don't know, 10 pages are just aphorisms on how we think one sentences like one sentence maxims on how he thinks about businesses. So one of them is, you know, make sure you're on your business, not in your business. So he says, as soon as I could, I had to turn tedious tasks over to others and pay them well for doing them. I could not let myself get swept up by all the monotonous, busy work that

Starting point is 00:22:52 comes along with starting a company. I was already vowing to stay on my business and not in it. And he talks about his dad. He learned some of this from watching his dad do things the wrong way. He was just always mired, couldn't make any progress. But this is the reason I'm going to skip over that part. And this is the reason I learned to turn a lot of busy work over to other people. That's an important skill. If you don't develop it, you'll be so busy that you can't get a free hour, a free week, a free month to sit back and think creatively about where you want to be heading and how you're going to get there.

Starting point is 00:23:21 When your mind can break free of all that worry and clutter, you'll find yourself coming up with the most improbable and inspired ideas. And one thing he really likes, he really likes sales and marketing, and he really likes getting other people to do the work. I didn't spend much time in the store. Now, you may not believe that, but it's true. When I started the original Kinko's, I was still a student two hours south in Los Angeles. I stayed in Santa Barbara for a full week when we opened the store, but after that, I only worked there two days a week. I hired people to run Kinko's for me, and I left it in their care. As a result, there was simply no way to become too bogged down by lots of busy work. On days I was there, I rarely made copies or worked behind the counter.

Starting point is 00:24:00 What I really enjoyed was getting out and meeting people in a word marketing I went around campus handing out flyers there's no better way to stay on your business than to think creatively and constantly about your marketing how you are marketing who you're marketing to and always how you could be doing a better job at it you'd be amazed what kind of business you can generate by seemingly simple things so he talks about this over and over again. I forgot. I think it might have been Warren Buffett. Like, don't dismiss simple.

Starting point is 00:24:31 I don't remember the exact quote, but I want to paraphrase the meaning. It's like, don't dismiss a simple action as not being effective. He said it a lot better than I just did because I don't have it in front of me. But he talks about, you know, we built, we started building the business just going door to door essentially handing out flyers on college campuses kinko's now well i guess it doesn't even exist it's like fedex office but for the first maybe 10 years of its life it is going to be anchored around college campuses they eventually make the transition to serving more of the corporate world to get and one of the reasons they did this is because it gets away the cyclical nature of revenue if you're only like during the summer they did this is because it gets away the cyclical nature of revenue.

Starting point is 00:25:05 If you're only like during the summer, they're making no money because school's out. But he says, you'll be amazed at what kind of business you can generate by seemingly simple thing like handing out flyers. I also sold pens and pencils out of a backpack. No, this is funny. So he stores a backpack and then he goes and sells. Oh, I should I should back up. So he's selling. He knows he's going to sell copies. They start printing. So he's selling. He knows he's going to sell copies. They start printing. They start selling pens.

Starting point is 00:25:27 He essentially used his first store as a giant experiment. He's like, I had four or five business lines in there. I wasn't sure which one was going to work. Whichever one generated the most revenue, we doubled down on. So most of that is obviously going to be copying, printing. So I also sold pens and pencils out of a backpack out in front of the store on the sidewalk by just talking to people passing by. When this form of guerrilla market produced results, I expanded our use of it. So he talks about he goes and hires a bunch of students and they're now selling pens and paper and advertising

Starting point is 00:25:54 kinkos door to door. They just go knock on people's dorm rooms. We also targeted the faculty by going into their departments and pretending we were supposed to be there. We stuffed flyers into the mailboxes of most of the professors on campus. University professors later drove some of our highest revenue businesses. And now he's going to flash forward. Remember, he just told us his first story. He's telling us about this. Then he goes ahead in the story like he does.

Starting point is 00:26:17 It's this Hurricane Paul. And this was hilarious to me. I don't know why, but you can summarize it by saying be inaccessible. Some years later, when we had a few stores up and running, I made my mind to be truly inaccessible. I happened to be sitting in my office that day when the phone rang. It was one of our store managers calling to ask me how to handle a bounce check. I held the receiver away from my face and looked at it, flabbergasted. It was funny because I could picture that in my mind, him doing it. But his insight here is he's 100% correct.

Starting point is 00:26:47 If every store manager needed my help to deal with a bounce check, then we really had problems. I made up my mind then and there I wouldn't be picking up my own phone every five minutes. Staying relatively inaccessible was the only way to stay on my business. And so we're still in the chapter about staying on your business. So everything relates to this idea of don't get mired down. You're the one running the company. Make sure that you're actually running it and it's not running you, that you're thinking long-term, that you're coming up with the very best ideas you do like you can. I would summarize this next section that you can work in sprints

Starting point is 00:27:20 like Larry Ellison, study competitors like Sam Walton, and invent and wander like Jeff Bezos. And those are all insights from past podcasts I did on those three guys. Multiple. I think I've done, what, like four or five podcasts on Jeff Bezos now, two on Sam Walton, and three on Larry Ellison. If you haven't gone back and listened to those. I worked in cycles, spending roughly three weeks on the road, followed by three weeks back at the main office. I visited different stores. I also visited as many competitors as I could since the fact that they existed meant they were doing something right. That sounds just like Sam Walton. I wanted to find out what those things were. They got me away from the main office so I could leave people alone to do their work because the best way to show people you trust them is to leave them alone. Equally important, I found that leaving headquarters got me away from

Starting point is 00:28:05 the mundane daily grind that left no space for insight, inspiration, or innovation. Instead of chief executive, I preferred the title of chief wanderer. And I guess now's a good time to talk to you about this bizarre organizational structure of Kinko's. They're all individual partnerships. So, you know, you think you start a company, the company either owns or actually open new locations, either you own it, or maybe you have a franchise model. He didn't do either of that. Some of them he owned 100% of, but by the time he sold it, he had 127 different partners. All of them were individual partners, partnerships. So in some cases he might earn 30%. So maybe there's one

Starting point is 00:28:45 store and he owns it with one guy, right? And he owns maybe 40% and the other guy on 60%. And sometimes he, there's a series of partners. They all own maybe 15% of the store, but they own 15% of 10 stores. And it was so cumbersome that they had to hire once they, they, they get bought out before they get bought out. They had to bought out, they had to hire a series of attorneys and some venture capitalists help them with this. But they had to go through and roll everybody up into one corporation so you can actually sell the corporation. But the reason I bring that up is because what he's saying here is like, I'm a chief wanderer. He's not, it's almost like he's, it's very like analogous to what nature does, right? There's no top-down hierarchical systems in nature.

Starting point is 00:29:27 There's millions of different experiments, and all those experiments result in different, slightly, like, slighter variations or different outcomes, right? And so what Paul did that was actually really, really brilliant, he's like, okay, I'm going to do a light hand from central HQ and tell you, you know, this is basically what we do here but you come up with the best way to do it then he's traveling around observing all these good ideas and then he'll pick up a good idea say in toledo and then he'll go back to california and give it to the california stores or he'll go down to florida and do it there but he's allowing this

Starting point is 00:29:58 like hotbed of experimentation they talk about you know one time in the book i don't think i'm going to cover this later but one time in the book he's he's traveling with some other other from other partners of his and they come up with a great way they some on a story that has like this this is the greatest way they've seen so far to organize the workflow of kinkos and his partner asked him like why don't you mandate instead of telling people this idea like why don't you mandate every store looks like this and paul said something it was brilliant. He said, because if I do that, this will be the best it ever is. And what that comment tells us is there's always room for improvement.

Starting point is 00:30:36 Again, there's just a lot of practical, like simple knowledge is the way I would describe this book. It was very, very fascinating the way he thinks. And again, it just comes from there's no theory. It comes from three decades of trial and error. And I think that's the most valuable knowledge you can tap into so now we're getting to the a lot of the he talks about like his brain like your brain being your own adversary like you just can't figure something out so maybe you think it's impossible and really i would i would um this reminds me of charlie munger's idea invert always invert and so he realizes i don't want i don't want he he's not thinking about what he wants he wants he's thinking about what he wants to avoid he's, I don't want, I don't want, he's not thinking about what he

Starting point is 00:31:06 wants. He wants, he's thinking about what he wants to avoid. He's like, I don't want only one store. One particularly effective way of saying on your life is to envision the kind of future you do not want. In my mind's eye, I saw this scene unfold. The parents of incoming freshmen take a tour of their old alma mater. Look, Polly, one dad says, there there's Kinko he runs Kinko's or he runs Kinko's copies there I sit my curly hair shot through with gray I wave back at them that's not where I wanted to be in my old age but try as I could I couldn't figure out how to open another store so he can't figure it out he's got what's the equivalent of I guess writer's block but for your mind right so he's like all right I'm out here. Dad used to tell me, so he talks about, again, contrasting like what his dad did

Starting point is 00:31:49 with, okay, I got to avoid that mistake. They go, his dad, before he's born, his dad and his mom go on this long vacation. He says, he used to tell me that it was one of the few times he got a proper perspective on his life. He finally had time to think. He never gave himself another trip like that. He says, okay, I got to avoid that. So he thinks traveling is a way to find perspective. So his business is up and running. Two years later, they don't have any, I think there's only one store at this point. So he takes off to go backpack in Europe.

Starting point is 00:32:18 He says, I left Kinko's in the care of my coworkers for a few months while I took off on my own. I guess I should pause there. He does not use the word employee. He does not believe in the word employee. Everybody's a co-worker. He does profit sharing. He does a lot of interesting things. So his partners are called partners. Everybody else is called a co-worker. All of them have ownership and the profits of the business. So he says backpacking around Europe was highly motivating. I became ambitious again. So he talks about, he's extremely poor. He's like, I watched vacationers strolling in and out of five-star hotels in Paris and Milan. And he says, I could not imagine how is it possible they could

Starting point is 00:32:55 afford those rooms? And I think that is a very common experience for entrepreneurs. I remember listening to Mark Cuban talk in an interview one time. They used to drive around. He's really poor. I think he was running like a bar in college. And he would drive through and just look at these like 20,000 square foot houses. He's like, what do these people do? So we're seeing a very similar experience that Paul's having. He's like, you know, I can barely keep this tiny little 100 square foot company open. Like I can't imagine ever staying in a five-star, you know, restaurant

Starting point is 00:33:25 or a five-star hotel in Paris. And, you know, a few years later, this guy's gonna be worth hundreds of hundreds of millions of dollars. Uh, it's high. It was highly motivating. I became ambitious again. That's what a little perspective can do for you. I started to envision how I might open a second store. Um, I can't even tell you exactly what changed my mind. My thinking just unstuck itself. And so he's giving now direct advice to the reader. So I'll tell you his idea of really paying attention to incentives is what I would call this. But first, this is the best definition of management he's ever heard. It's a really good definition.

Starting point is 00:34:02 He says, My wife gave me the best definition of management I've ever heard. She said, the goal of management is to remove obstacles. It's a good way to think about how this guy manages. Now he talks about the difference between employees and why he wanted to make sure he provided ample financial incentives for all of his employees. I don't want employees. One of the definitions of that word, employ, is to make use of. I didn't want to use people. I wanted coworkers who would be empowered entrepreneurs who tried to instill a sense, or excuse me, we tried to instill a sense of entrepreneurship in all of our workers.

Starting point is 00:34:35 One very important part, one very important way we accomplished this was by giving everyone a share of the profits from the stores. This is why he said at the beginning, you know, hundreds of people have been millionaires off of the business they built. I wanted to work with people that I made money with. And the best single best book you can you can read about the importance of that incentive structure, if that's something that you might want to consider. I was going deep. This is like when I back when I read every single Warren Buffett shareholder letter, I read three or four books on Charlie Munger. I've done podcasts on this. This is from the 80s to around in the hundreds in the episode numbers. But something as a result of reading and studying Warren Buffett and Charlie Munger deeply is they talk about constantly the operators and the entrepreneurs they respect.

Starting point is 00:35:19 And they led me to a bunch of people that I read books on. So I want to read this quote from Charlie Munger. He said this back in 2004 at a Berkshire meeting. And he says, if you want to read one book that will demonstrate really shrewd compensation systems in a whole chain of small businesses, read the autobiography of Les Schwab. I covered this. It's called Pride and Performance. Keep it going is the name of the book. It's Founders number 105 if you haven't listened to it.

Starting point is 00:35:42 Read the autobiography of Les Schwab, who had a bunch of tire shops all over the Northwest. And he made a huge fortune in one of the world's really difficult businesses by having shrewd systems. And he can tell you a lot better than we can. And, you know, he was an orphan. I think he starts the tire center. You know, he's got plenty of competition. He starts it with like $3,500 when he's like 35 years old or something like that. Over the next couple decades, he winds up building this gigantic profitable company. If I remember correctly,

Starting point is 00:36:09 every store he'd split like 50% of all the profits with the people that worked in the store. So this is an idea that different people in different industries have used in different times of history. Whenever I come across that, I have to bring it to attention because that's like, it's like a siren should go off, red flashing lights in our minds. Like, hey, this idea can work in a lot of different domains. might find it useful let's remember it um and just i love people like le schwab but he reminds me very much of like paul it's just like this no frills business just take care of employees focus on uh like the service you provide your customers and don't over complicate things and i love that because i think a lot of people just all human,

Starting point is 00:36:46 it's human nature to overcomplicate things. And when you see the way these, these guys, these people approach their businesses, this is like, all right, this is simple. I can understand this. I can wrap my mind around this. And I didn't even just turn the page. I didn't realize I'm going to run over another. I mean, I just talked about how they keep it simple. He says, uh, our plan for expansion or expansion was a pretty simple one. I got the idea for how to grow by playing the board game Risk when I was a kid.

Starting point is 00:37:10 In Risk, the object of the game is world domination. Playing the game taught me there was no reason to expand in a neat geographic progression. In fact, we didn't need to respect geographic boundaries at all. So that's something he talks about a lot. He'll learn business lessons from games that he applies in real life. So he learns lessons from playing poker, from playing Monopoly, from playing Risk. And the note left on this page is we're about five years in. They have 15 stores at this time and no master plan.

Starting point is 00:37:41 They're just taking it as it comes. Another thing Paul talks about over and over again is the importance of saving money, being frugal. He says, we were really frugal. We, I would sleep, excuse me, we, talking about his partners at the time, and him, we'd sleep in our cars to save on hotel rooms. He continues that trade.

Starting point is 00:37:58 He may, not only does he have that trade, but he wants to make sure all his partners have the trade. He says, I would never do, I'll never do business with people who can't save money. Spenders won't be cautious with their store profits. So the importance of saving, avoiding debt, being frugal. He talks about it maybe a dozen times in the book in different scenarios.

Starting point is 00:38:14 Paul also, in addition to like putting all his like warts and ugliness of him out in the book, talks about, you know, I have ADHD. I have dyslexia. Like he's gone through just tragic, tragic experiences in his life. When he was younger, he was molested. He was kidnapped and molested. Uh, I think by an older neighbor. Um, this, at this point in his life, his first child dies and it's just fuck, just devastating. I just couldn't, I'm going to read this to you just so we understand who this is a

Starting point is 00:38:42 person. It's just, it, it kills me when I read stuff like this. Our firstborn son, Ryan, died of a congenital heart defect. Some things you just never really get over. You just try to come to terms with them. Ryan was seven months old and had been doing well when he died unexpectedly. We were with him long enough to know that he was a special boy. We still keep photos of him in our house it's just i have you know my son's a little over a year old a little over a year old and it's

Starting point is 00:39:09 just it's just devastating reading stuff like that moving on there's a great quote uh from that he says like there's no skill called business i would add this is these few sentences i'm going to read to you. I think that's a good way to think about this. It's really all service, and anyone can learn to serve. Our first partners and our first coworkers weren't business majors. They weren't even particularly interested in business. This was fine by me. We had biologists, philosophers, psychologists, English majors, and lawyers.

Starting point is 00:39:39 We had more degrees at Kinko's than at Thermometer. He's got another great aphorism about, are we looking at our customers or as our customers? And so his whole point is like, you always should be looking at things from your customer perspective. He talks about most businesses. We've talked about this. It could all be so simple. Start with what's best for the customer and work backwards, right? Most companies, most businesses don't do this because they look at it from their perspective. The only perspective that matters is the customers. So he says, I never walked in the back door that was used by my coworkers. I always walked in the front door so I could see things from the customer's perspective.

Starting point is 00:40:11 And then he talks about there's hidden little actions that people do as a result of not looking at things from the customer. And this is where some of the times he flips out on his partners, his coworkers, everything else because of this. He has a, he's maniacal about looking at things from the customer perspective. And this is just really, really smart because a lot of the cost to a lot of these actions you'll see that businesses do, I just went through an experience like this and I'll tell you about it in a minute, they're hidden. And that's his point. This is

Starting point is 00:40:41 extremely wise what's about to happen here. Some of our partners created an inhospitable climate for customers. Some posted negative signs. At one store, a manager hung a sign warning customers that they would be charged a steep fee if they bounced a check. It said, the bank doesn't make copies and we don't cash checks. That really got me boiling. I jumped up on the counter and ripped it down as customers and coworkers looked on amazed. They may sound extreme, but I needed to make the point in a memorable way. I didn't want signs like that staring our customers in the face.

Starting point is 00:41:13 I told our coworkers that the occasional hit we took for a bounce check cost far less than what we lost and couldn't quantify. That's the most important part of this entire sentence, by creating a subtly hostile atmosphere. Customers didn't need to be reminded not to write bad checks, especially when, as we knew, they were stressed out and anxiety-ridden to start with. I noticed the managers had stopped putting out little freebies customers love so much, the paperclips and the pens. But the customers steal them, my partner complained. Of course they do, I said. And so let's go back to that point that it talks about the occasional

Starting point is 00:41:53 hit for a bounce check costs far less than what we lost and couldn't quantify. I had to pick up like two, you know, like the outlet covers. They're like, you know, $1.50, $2, something like that in the local hardware store.50, $2, something like that in a local hardware store. So I go pick them up by this hardware store by my house. I'm waiting in line. First of all, I think it's weird because there's only one. It's like a long line.

Starting point is 00:42:12 It's like five people in line. There's only one cashier open, but there's three people on the counter just sitting talking to each other. It's like, oh, great. This is another poorly run business. Then you see all these signs about, you know, no refunds and just like nothing positive.

Starting point is 00:42:23 And they're like taped up in like this mishmash like really just shitty way to to if you're gonna if you need to convey uh something to your customers like that's a terrible way to do it so then i get up there i think the order is like three dollars and fifty cents pull out uh try to pay by credit card and so lady's like nope you're not spending ten dollars you can't use a card you have to give me cash i was like but i don't have any cash and she's like well that's too bad and i was like okay i was like can you please make an exception i just these are the only two things i need can you please make an exception this one time no okay so i left this thing on the counter walked out the door and ordered on amazon and i'll probably never go back to that store again so like that's the point like

Starting point is 00:43:00 the the owner of that store doesn't know that's happening, or maybe they do know, but they sure as hell can't quantify what their ridiculous policies are losing them in the long term. And one of the things I love about reading all these books and studying the history of entrepreneurship is you really see the contrast. And I think it's also motivating because there's a lot of people that want to run a business or want to start a business, and I get emails from people like this all the time. But they may think it's too hard or maybe they don't have the skills. It's just like the bar is so low. The vast majority of businesses you will ever encounter are poorly run. I want to read this quote from one of Warren Buffett's shareholder letters that I think is dead on. Because how many people have analyzed more businesses that are alive today than Warren Buffett and Charlie Munger? I don't think anybody. And it says our major contribution to the operations

Starting point is 00:43:46 of our subsidiaries is applause, but it's not the indiscriminate applause of a Pollyanna. Rather, it is an informed applause based upon the two long careers we have spent intensively observing business performance and managerial behavior. Charlie and I have seen so much of the ordinary in business that we can truly appreciate a virtual virtuoso performance what Paul was doing he was taking an ordinary or a poor experience from from the customer's perspective and setting the tone it's like that's not acceptable we're going to do a virtuoso performance it doesn't matter that the customers steal our paper our paper clips and our pens it doesn't matter if they bounce steal our paper clips and our pens.

Starting point is 00:44:26 It doesn't matter if they bounce a check every once in a while. Because the percentage of people that are doing that are tiny compared to the 100% of customers that come and realize, hey, I don't have, this is not convenient. I don't have a pen, I don't have a paper clip. Hey, I got this sign that's, you know, trying to make fun of people that bounce checks or whatever the case is. Like that is extremely wise. And maybe you do this already but if not just think about when you go in in whether it's a restaurant a business anything i'm constantly looking it's like could this be done any better like is this an actual good experience and the the businesses

Starting point is 00:44:56 that provide excellent experiences i obviously return just like anybody else would and the ones that don't deserve to go out of business for their incompetence because it's easily avoidable incompetence just ask yourself the decision i'm making is it best for the customer yes or no and paul used that cyst like that that is an operating system it's an example of this whenever i saw managers from the head office disrespecting co-workers from the field i defended the field the energy in most other companies runs in exactly the opposite direction. And he makes the point that the people serving our customers are a lot more important to the overall health of the company than you sitting in the office. And he goes over this over and over again.

Starting point is 00:45:33 This is not very different. Remember back, I think it was on Founders Number 37. One of the best books I've ever read for the podcast. It's such a crazy story. It's called The Fish That Ate the Whale. And it's Sam Zimuri. He comes to America. He's like a 17 or 18 year old Russian immigrant, starts a business on around on around rotting bananas or ripe bananas, bananas that other banana companies would throw away.

Starting point is 00:45:54 He realizes, hey, I got two or three days. If I move fast, I can sell them and they're still good and they're cheaper for customers. But anyways, the his competition, they'd sit. I think their headquarters are in Boston, if I remember correctly. And he's like, but I'm out here in the field. And then when he winds up taking over that giant company, right, he starts a small company, he takes over a giant company. And he's constantly asking them when he's their largest shareholder. He's like, who is like, you hired a guy that's running your plantation down in Honduras, but you're, you're overriding his decisions up here in Boston, who knows more. And so he's like, that's why he would work out in the fields. And that's why he had respect for the people that worked for him. Because this guy's out here doing the same

Starting point is 00:46:27 stuff we're doing. And it just came from a simple idea. Who actually knows more about what's happening in our business? The people in Sam's Murray case, the people in Honduras on his banana plantation, and in Paul's case, the people in the Kinko store. Okay, so let's go to some of the ideas he had to come up with to get around his dyslexia. He can't do email. He still won't do email. He has a hard time reading the few times he, the funny thing is he's really good at numbers. So he'll pour over like the income statements. That's what he really likes. But so they come up with, this is funny because they're, they use instead of email, they're using essentially asynchronous voice recordings.

Starting point is 00:47:02 And I actually see there's companies trying to do the same thing. This is, you know, close to 40 years ago. So they're using voicemail. But it says, wherever I traveled, I found great ideas. Let's say a coworker in Idaho had devised a particularly brilliant inventory system. When I met this coworker, I dialed into our voicemail system and then handed him the phone. Go ahead, I'd say. Introduce yourself and explain it.

Starting point is 00:47:22 The coworker got a chance to explain his idea in his own voice. And by the end of the week, thousands of other people would have heard about it, too. So it's not like a conference call. You can pick it up and listen to it whenever you want. And this is how this is the tool that Paul used to spread information throughout the company when he wasn't in the physical store. So even though I was generally inaccessible at any given moment, it was still possible to reach me. And so he continues about the importance of you need to pick up the best ideas. We just covered in two of the books I just did on Jeff Bezos talks about anybody can email Jeff at Amazon.com. Jeff and his team would read through these emails. They would think about customer anecdotes as valuable intelligence to fix problems that you don't see

Starting point is 00:48:03 in your business. So Paul's not going to use email. He's a suggestion box. And then he finds his suggestions and he starts talking to people at different stores. Like, why is this important to you? And one of his partners made the good points. Like you had to remember, he's been picking up the best ideas from all around the country. And when I read that sentence, I was like, hey, if you really think about what Founders is doing, we're picking, you and I are picking up the best ideas from the history of entrepreneurship. And we're spreading that around. And hopefully when you learn these things and you go tell your employees, your co-founders, your friends, and then they keep spreading these ideas. And we just

Starting point is 00:48:34 create this giant tsunami of some of the best knowledge that you've ever found in the history of entrepreneurship. And those ideas and those insights can actually make people more effective. It's amazing. We also relied on the prosaic suggestion box for input from our customers. So in this case, there's a suggestion box. It all goes, I'm not going to go into detail, this weird structure I just told you about. But in this case, it all goes for some reason with this other company called Kinko's Northwest. But this is very fascinating. The marketing manager and the president of Kinko's Northwest. Remember, you figure they could be sitting in the office, you know, coming up with theories.

Starting point is 00:49:13 No, no, no. We're reading every single message. They read every single customer suggestion from their region for nine years. So it's another idea. Paul and his team were using this decades ago. Jeff is still using it. The customers that care enough to write you,

Starting point is 00:49:29 to talk to you, to send you a message, they care enough about your business that they're going to tell you what they feel can be improved. That's very, very valuable. Let's go back to this.

Starting point is 00:49:38 I love this idea. Take the service you provide your customers seriously, but have fun with everything else. They knew. They're talking about this group of capitalist hippies. They have hair down to their butt. A bunch of the partners were in their early 20s when they started Kinko's. Now we're a few decades into the story. They knew

Starting point is 00:49:52 how to enjoy life and they knew not to take things too seriously other than delivering their product. And I love that. I go back to what we just learned from Jeff the last few weeks. You know, he's talking about there's a lot of things he says in the meetings. And it's really saying, yeah, you could do a shitty job, but do you have professional pride? A third of your life is going to be dedicated to your work. Do you actually care about that or not? And I love this idea. It's like, listen, we're going to have fun.

Starting point is 00:50:19 We're going to have beers after work. We're going to have picnics. We're going to go bowling. We're not going to be too stressed out as much as you can. I mean, Paul has a lot, deal with a lot of stress and he gets on antidepressants later on and everything else. But the idea is like, listen, you know, life is temporary. It's an experience to be enjoyed, but our work is serious because we're serving customers and we can never take advantage of that because then they'll go somewhere else. There's only one, that's what Sam Walton said.

Starting point is 00:50:41 There's only one boss and it's the customer. He could fire you anytime he wants. We were the kind of anti-business. We were a kind of anti-business in a way at the beginning. We felt we were going to do it our own way. We are going to have good values and we're going to make money. They're talking about the, they're, it's almost similar to, I don't know if it's similar, but Yvon Chouinard had that kind of that, let my people go surfing. One of my favorite founders I've ever come across. he's like, listen, if I if I I'd never want to be a businessman. But if I'm going to be and it appears I'm going to be and I'm going to be one for many decades, I have to come up. I have to do it my way to come up with my own philosophy. And we're seeing the same kind of ethos here from from Paul and his partners.

Starting point is 00:51:19 And this is an update on the company 13 years in. By 1983, we were doing about 70 million in sales a year with 120 stores. We were 30 partners with an average age of 28 years old. We were motivated by our own value systems, ideals, and ambitions with scant input from the head office. Each person made his or her own decisions. And then Paul's going to talk about there's even difference between the partners. This is, I'm really running over the point I just made. There's no formula. Your philosophy should match. It was the note I left on this page. And this is why we all did business differently. Dave, one of his partners, admired and sought to emulate big blue chip companies like General Electric. He ran his company with many more levels of bureaucracy than I would have. And yet the policy manual that his company wrote up ended up being adopted by most by most of the other partners. So it's a voluntary adoption basis. This is how the company was run up until it was sold. I hate policy manuals myself. Obviously, I'm never going to spend free time reading them. But if our other partners could

Starting point is 00:52:13 make use of one, I'm glad that Dave got it written. He loved concocting five-year strategic plans, an activity I find pointless and unbearable. In contrast, he thought my stores were loosely and poorly run. I repeatedly told him that he could have expanded his business 10 times faster were he not so repped up and tending to all the bureaucratic mumbo jumbo. So even then, he's like, okay, well, I'm going to have other ideas on the stores that I don't own with you, and we don't have to agree on everything. And this goes back to why he wants to spread the best information, why he wants to get feedback from customers, why he wants to talk about what he experiences at other stores. Like, hey, you know, they had to sign up about the bouncing the checks. Don't do that.

Starting point is 00:52:50 And the point of this section about to read to you is really if you have skin in the game, you want to know the dirt inside your company. I've observed that corporate executives, those who take a salary but don't have a stake in their enterprises, like to be lied to. It makes them feel comfortable. They are the type to be deluded into thinking that everything runs as smoothly as the table service at their favorite restaurant. They don't want to know about the problems. It might upset them. They are more interested in managing their careers than their companies. But if it's your own money on the line, you have a completely different attitude. You want to find out all the dirt you don't want to be spared the gory details and that's another point he makes in different in

Starting point is 00:53:30 different words later on it's like if there's no such thing as a smooth running business like business is problems companies are just effective problem solving machines you might solve a problem now there'll be problem you can't even imagine that you're going to run into a year from now so this idea you're just going to okay I set up my business and it's going to run smoothly, that doesn't exist. So knowing that going in and knowing that other people experience that for when you inevitably run into this yourself, like, okay, this is normal. This is how things are supposed to be. This is just another problem.

Starting point is 00:53:57 I'll solve it and I'll keep moving forward. Talks more about not wanting power, about constantly trying to delegate work and not being a workaholic. Even he says, I won't stop thinking about it, but I'm not going to give up all my time. I'm still going to have fun. I'm still going to spend time with my family. And I think that's just really smart. A lot of people don't believe me when they hear me say that I'm not interested in power, but in the deepest sense, I'm really not. Power to me means having to do a lot of work. I believe in getting out of as much work as I possibly can. When you're not stuck working 12 hours a day,

Starting point is 00:54:27 you've got time left over to goof around, to think creatively, and to get to know the people next to you, and to get to know the people next to you, and eventually you'll be back on your business instead of in it. Okay, so now we got to this chapter that is just remarkable.

Starting point is 00:54:40 You don't find many chapters like this. This is all about his dark side and all about the things that he does not like about himself, the imperfections that he has. By now, you would have to be as bad a reader as I am not to figure out that I have a dark side. You rarely hear people talk about their dark sides, especially business leaders, which is a shame because successful businesses aren't usually started by laid back personalities. I don't hide the fact that I have a problem with anger. I'm not proud of those outbursts. I apologize to all my co-workers and partners who've had to deal with the worst of

Starting point is 00:55:11 my anger. Someone once told me the only true victories in life are victories over ourselves, and I think that's true. My suggestion is fight your emotions. Don't let them rule you i let my anger rule me too often at kinko's and at home and then he starts talking about all the ways that they have a philosophy they have aphorisms spread around the company but he's like they're aspirational i don't i failed like no one's perfect i failed to reach up to meet my own expectations he and this is he's going to go into more detail about eventually seeking treatment for this and realizing like, I kind of want to live like this. Everything in each of our businesses would guaranteed with a personal signature. I personally was on the hook, as were many of my partners for every Xerox machine and lease guarantee in the entire business.

Starting point is 00:55:57 If Kinko's took a dive, as it nearly did at several junctures in its rapid stepladder-like growth, I stood to lose everything. By 1990, when we had about 450 stores, I remember discovering my liability was many times greater than my net worth. So for many years, despite the motivational pep talks I delivered at company meetings, I was literally running scared. So he's like, you can't make money if you're running scared. He's telling people not to be running scared, and he's doing the exact same thing. And he's doing the exact same thing. And he's doing this for a long period of time.

Starting point is 00:56:27 He talks about the outcome here. After a time, these fears wore me down. In my mid to late 40s, he's talking about fear of going broke, fear of failure, which I think everybody feels. In my mid to late 40s, I struggled increasingly to manage my own emotional nature. He was, I think, 52 when he sold the company. Sometimes I felt I'd created a monster. The monster wasn't Kinko's. It was me. After I retired, I started taking Prozac. And believe me, it's a much more pleasant experience living in my own skin. Now, this is think about who's going to admit this. Who's going to write a book and put this on the page where we all benefit from this? This is this is remarkable

Starting point is 00:57:04 that he bears so much of this. He's like, listen, I, from the outside, I'm this huge, successful worth hundreds of millions of dollars. And it was a, not a pleasant experience living in my own skin. It's much more pleasant for the people around me too. Now that he's on Prozac, you know, it talks about, you know, going to, he'd had counselors. He'd had to go to couples counseling for some of his partners. I mean there's a lot of times where he's going and trying to seek help for his just extreme behavior. And this is just a really, really ugly story. How many people would share this voluntarily? What I'm about to read you.

Starting point is 00:57:41 I'm going to let Dave tell you an ugly story. So Dave was one of his partners. In the prime of my kinko's life in 1992, I was in the hospital. I had been diagnosed with leukemia. I'd already written out all my read upon my death letters to my kids and gone through massive doses of chemotherapy to wipe out my bone marrow. I had no marrow left in my body. I was left totally without an immune system and any sort of infection would have killed me. I get this phone call from Paul and he says, what about these PNLs? What's the problem with them? He just gets on me. He's the godfather of my daughter. He's the lead trustee of my living trust. I just knew Paul didn't know what to say. He's a rhinoceros. I don't know what that means.

Starting point is 00:58:21 I just said, Paul, I'm going to have to get back to you on that. So your partner, your friend is on the verge of dying in the hospital, and you're calling about profit and loss statements. Luckily, this guy survived, and he recovered. Another partner. Paul could be abusive. He's immature. He could be hostile, but he could flip that and be phenomenally gracious. He would create chaos.

Starting point is 00:58:43 There was constant turmoil in the organization. You never knew what was expected of you. Paul's extremely difficult to work with because everything else is so personal. And this trait of somebody being borderline genius as far as an operator is concerned and being difficult, there's a quote,

Starting point is 00:59:04 this is something we've seen a lot. 60, 70 years ago, David Ogilvie wrote, he's like, listen, you have to learn to tolerate genius. Talking about some of his best employees. He's like, you have to tolerate genius because it usually, and he used the word tolerate

Starting point is 00:59:18 because he says genius usually comes with disagreeableness and difficult personalities. More examples of him just flipping out. This is him losing his temper over bureaucracy. I fought overhead every day. Or excuse me, I fought overhead from day one at Kinko's. It was an uphill battle all the way. Everywhere I looked, I saw unnecessary expenses.

Starting point is 00:59:37 The problem with bureaucracy at most headquarters is that there's so much passing the buck. No one takes any sort of responsibility. And then he's going to compare and contrast. He hated hanging out at headquarters. So he's one of the ones getting in fights there. And he's going to compare and contrast the behavior he sees at headquarters with what he sees out in the field.

Starting point is 00:59:55 So no one takes the sort of responsibility people shoulder as a matter of course out in the field, where achievement is transparent and measurable. I also began to notice that often the people who survived and received promotions at our head office were the cautious ones and not the creative audacious thinkers. The culture was upside down. At most companies, the headquarters is a notoriously uncreative place, spared from reality. It is a danger to the health of many companies. That said, I think I was wrong in my passionate dislike of our head office.

Starting point is 01:00:23 I just couldn't keep my feelings in perspective. I was like a caged animal when I was there. And so that leads to him throwing things, yelling, fighting, you know, tears. There's a lot of turmoil there, a lot of emotional turmoil, which is exactly what this entire chapter is about. Which, again, is so important because this is hidden from outsiders. He says the upside to my dark side is passion. Now, this is hidden from outsiders he says the upside to my dark side is passion now this is very interesting another example of uh this another partner of his that just this the guy hires i think he winds up hiring to be ceo of one of like his these like sub companies

Starting point is 01:00:55 and kinkos let's say you know one of these companies that maybe own like 25 of the like you know 100 something stores at a time uh but really the the reason i'm bringing this to you is like you have to stand up to bullies. That's the only thing they respect. So it says, Mark Madden is a passionate guy, which is why I tapped him to run my own company. One day, I lit into him more severely than usual, as Mark remembers it. One time, Paul was nagging me about something. Then he started sending me voicemails. He left me about three or four in a row, all personal attacks. I had had it. I hit reply and I said, hey, Paul, fuck you. And I sent the message. Then I sat there and thought that

Starting point is 01:01:32 probably wasn't a good idea. I ran to Paul's assistant because I knew she could stop the message, but she wasn't in. I called the VMX guys. These are the people who run Kinko's voicemail service. Couldn't get in touch with them. A few minutes later, the phone rings. It's Paul. He goes, hey, buddy, how you doing? Then he goes, hey, hey, that message. That was great. The passion was there.

Starting point is 01:01:57 Hey, thanks, buddy. And he hangs up. Then he calls back. Hey, don't ever do that again. As long as a person, this is Paul speaking about this. He says, as long as a person had passion and gumption, I could forgive a lot. He also talks about a great detail where, you know, the financial insecurity or financial anxiety that entrepreneurs go through is a source of a lot of his troubles. Even like, even if he's wildly successful two

Starting point is 01:02:20 decades into his career, he's worried that, you know, he could lose everything. And so it's just something that he has to deal with. And really what he's talking about, he's like, I just want the independence of wealth that wealth provides. And I wanted it desperately. As a dyslexic, I never lost sight of the fact that savings were going to get me much farther along in life than any report card ever would. I wanted to grow up to be like my uncles. When they were older, they had fancy cars. They spent their days polishing them. The hardest decision they had to make was where to go to lunch for that day. They were also free to take care of their kids, to spend time with their families. They never missed a dinner at home. People often equate wealth with immorality,

Starting point is 01:02:53 but that's not what I saw as a kid. I saw people who both made and then saved enough money to have the leisure time to devote to their hobbies and to their families. So that's what he wanted. I'm going to talk a little bit about, because remember I told you this is like a chronological book. We're inside the mind of Paul, and he's just telling us whatever's on his mind at this point. But what's so fascinating is how he felt and how his partners felt after they sold the company.

Starting point is 01:03:18 But he works at the company for a little bit after he doesn't own it anymore. And there's a lot of things that are going on this page. Let me read it to you and then I'll read my note. I'll give you an example of a corporate view of money. So remember, he always thinks, he's like, I ran my business like a peddler and I'm just focused on cash flow. That's all I focus on. And he says to corporate, like they complicate things and they overthink things and they wind up doing things in a worse way, in his opinion, than like a simple peddler would uh we used to sell passport photos at kinko's and we advertised the service in the

Starting point is 01:03:47 local yellow pages it would cost us 75 cents to make a passport photo the price uh the price jumped to a dollar excuse me the cost jumped to a dollar to a dollar 75 when you added the cost of yellow pages so now all in to get the customer in the door and buy the passport and make the passport photo and sell the passport photos to them. They're at $1.75, right? We'd sell those photos for $13 a piece. You think this is a nice business? Shortly after we sold a controlling stake in Kinko's,

Starting point is 01:04:18 the new budget people came in and got rid of the yellow page ads. They saw it as an advertising expense. I used to go to the office and think, are they deliberately trying to be idiots? Then, like a self-fulfilling prophecy, they abandoned the passport business. That is corporate dyslexia.

Starting point is 01:04:36 There is a lot of corporate dyslexia going on, going on out there, rather. So first note, he says he ran his business like a peddler. He just focused on cash flow i already told you that the second thing which i found interesting because he's like they saw it as an expense let me quote david olgevy again and you know maybe he's speaking his book a little bit because he made his money as an advertising agency but he's like listen you need to treat advertising agency or you need to treat advertising not as an expense it's a production it's a part

Starting point is 01:05:03 of manufacturing the product and And his point was that some people treat it as like a sales and marketing expense, right? But he's like, if you can't sell your product without advertising, what happens is, and he's seen this many times, people in like a downturn in the economy, they'll cut back on advertising, which just cutbacks on sales. He's like, no, you have that in the wrong expense column. It's a part of, it's a manufacturing cost. And if you're going to keep manufacturing your your product then you need to keep advertising and we see a similar idea here from paul is this like yellow page ads work and there's just plenty of books that you can like i think of ray crock

Starting point is 01:05:36 uh founder of mcdonald's you know one of the first books i ever did for the podcast he talks about once they started advertising in california um i think that's where some of their first stores were. And he says it was like a blindfold was removed from our – like we went from like a trickle to like an overflow. It clearly works. There's an entire section in the book by Peter Thiel, Zero to One, talks about – everybody talks about, oh, advertising doesn't work on me. And he's like, yes, it works on you. It works on everybody. A little bit about the kind of businesses that Paul likes.

Starting point is 01:06:04 They're simple. They're high margins and there's no inventory. The copy business appealed to me because it fell perfectly within my circle of competence. It's a simple business. It didn't take extraordinary one cent. So it's and then they charge 10x that to the customer. Well, this is a good aphorism that he has. So this is something he learned from his mom. No point in bragging in good times. And the aphorism is give the glory, but take the money. During our years of most rapid growth at Kinko's, I made a policy of not talking to the press. What would I have stood to gain by doing so? I kept my personal profile intentionally low when it came to my relations with the outside world. When Forbes published its first piece on me back in the mid-90s, I wouldn't let them take a picture of me. I always told my partners to give the glory and take the money. There's no point in bragging in good times, as invites competition, unwanted competition.

Starting point is 01:07:11 Okay, so they wind up selling the business to this venture capital firm that reorganizes it and then resells it to FedEx a couple years later. And this is the surprising, this is in a chapter called Know When to Walk Away. And it says, Remember, this is going to make called no when to walk away and it says no matter what anyone says walking away from something you spent 30 years nurturing remember he's this is going to make him hundreds of millions of dollars and this is how he feels after the fact this is very surprising um no matter what or maybe counterintuitive is a better way to describe it no matter what anyone says walking away from something you spent 30 years nurturing whether it's a child a company or even a hobby is going to take a toll how How could it not? How is it humanly possible to say goodbye to something

Starting point is 01:07:46 that contains so much of you and your love and devotion? When my father shuttered his business in 1981, a part of him died along with it. It wasn't that he stopped living after, but it was hard on him. I don't know if closing the company took the life out of him, but he died soon, five years after. And so one of his main partners, Dan, there's a quote here where it talks about how he felt after the sale. And he says, when the Kinko's thing ended for me, I almost felt like I wasn't anywhere.

Starting point is 01:08:15 I wasn't anywhere anymore. When the job was gone, I was gone. Dan went into a severe depression. Most of us men identify far too personally with our work. It's only human. And the note I left myself is there should be a podcast. Here's a podcast idea if you want to start one. on learning from dead entrepreneurs as much as we can, or people that are at least close to dead, or at least retired. I guess a better way to put that. There should be a podcast that only interviews founders five or 10 years after they sold and to see if they regret it. I would definitely subscribe to that. And this is a little bit more about what happened after the sale.

Starting point is 01:08:59 He wasn't ready for this. The first decision of CD&R, that's the firm, made after the sale was to name himself, this is the guy that did the deal, interim CEO. This was not what we were expecting. CD&R swiftly began to set about creating a new company on its own terms. Very quickly, relations between the old and the new guard disintegrated it was startling how quickly they stopped listening to us increasingly i was cut out of decisions i should have left right then yet in truth i wasn't yet ready to let go and then he talks about he's writing this book about five years six years after

Starting point is 01:09:39 this happened the book is close to 15 years old i think it was published 2006. And what's interesting is like he's still emotionally troubled by this. He says, for emotional reasons, I just can't go inside the stores anymore. I don't know if I ever will again. It's too difficult for me. When I see Kinko's coworkers today, they naturally want to tell me about their problems. I can't blame them. This is a very interesting statement he's going to problems. I can't blame them. I spent three, this is very, this is a very interesting statement he's going to make. I can't blame him. I spent three decades

Starting point is 01:10:09 browbeating them to confess every grievance about their work lives to me, but I don't want to hear their complaints anymore. And he continues his thought, continues his thought about the ideas, like I'm a hypocrite. We all are. He says the truth is for everything I just told you about keeping Paul separate from Kinko's, it's been excruciatingly difficult for me to let go. My friend John used to tell me that sometimes in life, you have to forget who you were and learn to be happy with who you are. I'm trying to do that now. And then this was, I mean, honestly, I laughed the first time I read this sentence

Starting point is 01:10:45 because I was completely out of the left field. He's talking about the health issues that the company caused them. 10 years ago, I had bad gas. I couldn't sleep at night and my neck hurt constantly. I've read almost 200 biographies for this podcast. No one's complained about the bad gas they had. Now I don't have gas. My neck doesn't hurt and I sleep like a baby. Getting to this point hasn't been easy, but it was necessary. We finally took our chips off the table and let the game move on without us. And one way he's coming to accept who he was is he finds a new mission. He calls it repurposing yourself.

Starting point is 01:11:21 He's like, okay, I don't run Kinko's anymore. So now he runs, at least the time in the book, he starts an asset management company. He invests his own money and then invests money on behalf of other people. He has a lot of money in real estate, stuff like that. So he has a business he can run that doesn't require as much stress as it was when he was running Kinko's, but still gives him a purpose in life. He's got to find something to do for the next few decades. He's got a great definition of success. I want to read this to you now. I always believe that the definition of success in life is when

Starting point is 01:11:53 your kids want to spend time with you after they've grown up. And so that's something, you know, he tried to be aware of even when he was building Kinko's. He's home on the weekends. He's home at night for dinner. He's still thinking about the business, but he's not going to just, he's not going to be an absent father, an absent husband. And then I'll close on the weekends he's home at night for dinner he's still thinking about the business but he's not going to just he's not going to be an absent father an absent husband and then I'll close on this there's just still obviously a little bit of ambiguity as for myself I'm still letting my soul catch up with my body how long will it take I can't answer that question but it's a good one to ask do you know why children finally outgrow their tendency to ask millions of questions? Not because they've got the answers. They figure out that it irritates the grown-ups.

Starting point is 01:12:37 If you've stopped asking questions, start asking them again. Learn to be immature, at least some of the time. It's taken me my whole life to figure out that I don't have all the answers. All I've ever had was a bunch of questions. When you think about it, Kinko started with a question. How come there's a copy center here at USC and not one up at UCSB? Why is that? The most important thing is to keep dreaming, keep playing, and keep asking questions. And that is where I'll leave it. For the full story, I recommend you buy the book.

Starting point is 01:13:06 If you buy the book using the link that's in the show notes, you'll be supporting the podcast at the same time. If you have a friend or a coworker that you feel would benefit from learning these lessons as well, and you want to give them a gift subscription, I'll leave a link in the show notes to do that as well. That is 181 books down, 1,000 to go, and I'll talk to you again soon.

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Founders - #181 Paul Orfalea (Kinkos)

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