How I Built This with Guy Raz - Kinko’s: Paul Orfalea

Episode Date: August 21, 2023

Kinko’s copy shops were once so ubiquitous that the name became a kind of shorthand for photocopying. Paul Orfalea started the first shop in 1970 in a tiny converted hamburger stand near UC Santa Barbara, called it Kinko’s after his childhood nickname, and eventually grew it into a sprawling global chain.   Rather than relying on a franchise model, Paul partnered with co-owners, which often made it hard to keep the business on track. Far-flung owners couldn’t agree about the basics of logo design or the complexities of keeping stores open 24 hours. In 2004, Kinko’s was acquired for $2.4 billion by FedEx, which eventually shed the name and transformed the shops into today’s FedEx Office locations.This episode was produced by Chis Maccini and edited by Neva Grant, with music by Ramtin Arablouei. Our audio engineer was James Willetts. You can follow HIBT on Twitter & Instagram, and email us at [e-mail] Privacy Policy at https://art19.com/privacy and California Privacy Notice at https://art19.com/privacy#do-not-sell-my-info.

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Airbnb.c.a.com slash host. Hey, before we start the show, I want to share something I heard recently from actress Audra MacDonald. It's about fear. Audra is one of the greatest living stage actress. She's won six Tony Awards six, and she told me that every new role she takes still scares her. And she explained why that fear is essential to her work. To hear my conversation with Audra listened to my other podcast, The Great Creators. Just search for the Great Creators with Guy Raz wherever you listen to podcasts or go to the great creators.com. And now on to today's show. I'll tell you something that bothers me is when a business person says, I love my business.

That's absolute bullshit. You love your family. You can enjoy your business. But once that becomes a love affair, lose your objectivity. I never loved my business. I could enjoy it, but man, your business is an instrument to make you happy, and you own it. It doesn't own you. Welcome to How I Built This, a show about innovators, entrepreneurs, idealists, and the stories behind the movements they built. I'm Guy Raz, and on the show today, how Paul Orfala rented a Xerox machine for $1,100 a month

and grew a single store into a global photocopy shop with an instantly recognizable name. Kinkos. Kinkos played a pretty important role in my professional life. In high school, I used to race to the Kinkos in Northridge, California, sometimes at one or two in the morning to print out projects that were due just a few hours later in my English class. In college, once again, I'd race to a Kinko's in the middle of the night,

get a portfolio of my articles spiral-bound and sent off to newspapers just in time to meet their application deadlines for internships. When I applied to be a radio reporter in 2000, just minutes before the deadline, I raced to a Kinkos in Washington, D.C. at 4 in the morning to get my resume and articles all printed out. Kinkos enabled me and probably millions of other people to put off projects, applications, and presentations and presentations. to the very last minute, and still somehow make them look pretty good. For more than three decades, Kinko's copy shops were scattered all over the world, and the business started out with a single 100-square-foot shop and a large Xerox machine across the street from the University of California in Santa Barbara. This was in the early 1970s, and the idea came to Paul Orfala because he saw a long line.

a long line of people waiting to get photocopies at a shop in Los Angeles. And like many entrepreneurs before and after him, Paul thought to himself, if there's a long line, that must be a business worth looking into. The beauty of Kinkos, and we'll get to why Paul called it Kinkos later in the show, but the beauty of it was that it required very little startup capital. And Paul realized that he could capture a large share of the market by open. his shops near colleges and universities. And four cents a copy added up. Eventually, it turned Kinko's into a business that was acquired by FedEx for $2.4 billion. Paul grew up in Los Angeles in the 1950s.

He comes from a family of Lebanese American entrepreneurs. And as a kid, he knew he wanted to start a business as well. But at school, he really struggled. Typical report card was two Cs, three Ds, and N. And in sixth grade, they never let me graduate on stage. They just put me on the junior high. In junior high, they were to let her say, well, you know, he's not really a junior high school graduate.

He hasn't got enough credits or whatever. And the vice principal said to my mother, you know, Mrs. Orfala, maybe one day if Paul can really apply himself, he can learn to lay carpet. And my mother came home and said, I think he can do more than that. So I'm not a grade school or junior high school graduate. graduate, but I have a high school woodshop degree as I was able to graduate. Yeah. Going back to your family, your dad had a textile. He manufactured women's clothing.

I think you had some uncles who had liquor stores and bars. Is that right? Yes. Yes. And so basically the idea, sounds like from an early age, the model that you saw around you was people starting their own businesses, not going to work for some other company. Is that right? Absolutely. My mother would say, honey, you know, you work for other people. You're only as good as yesterday's paycheck.

There was no encouragement to work for other people. It was always about start your own thing. Have your own business. Was that when, do you remember, I mean, because I know the eventually you started junior college and then eventually you got in, you transferred to USC. Was that in your mind from the moment you started college that I'm going to figure out of business to start or not quite yet. No, I knew I'd have my own business.

You knew. I think in raising children, you have one of two choices. They better be good at school, get an accountant, lawyer, whatever, do a profession, or they better be good with money. And my parents encouraged me with money skills, saving, what to do with your money. And I think when raising children, you better have a child with one of those two skills, money skills or school skills. So how did you, from what I understand, like by the time you got to college, you had saved

a little bit of money, right? But how did you save money? How did you make money by the time you got to college? I had a vegetable stand. And then back in those days, the farmers would send all their produce to a central market. And the big markets would go from, say, three in the morning to five and six in the morning to buy all their stuff.

I would buy in the late market, the stuff that was left over, the peaches, the candelopes, the pineapples, I would buy that. I'd sell it at my vegetable stand. And where was your vegetable stand? I had a vacant lot in La Cagnan, it was a great location. It was, for an example, there'd be, you know how a freeway goes, and then there's a vacant lot, and then I would have the stand right there. So I had great visibility.

Right. All right. So you are, I mean, you're sort of working your way through USC. How was college for you when you got to USC? Was it, I mean, I know that you were, you struggled in certain subjects in high school, but I guess you found it easier to work with numbers. Yeah, I absolutely adored my finance classes. Marketing I enjoyed, organizational behavior.

I didn't have to take notes. I was just absorbing everything. Yeah. Now, for an example, a professor would say subchapter S corporation, Everybody else is frantically taking notes. I understood I got the concept. It made so much sense. I didn't have to take notes on those kind of things.

And I calculated at SC. I had so many Bs. You had to have an exact C average to graduate. My last 16 units were all Ds because that's all I needed to graduate. Ds. Yeah. I didn't see any reason. My diploma looks almost the same as everybody else.

So as long as you get the diploma, it didn't matter what the grades were because the diploma looks the same. D's get degrees. Well, I will tell you, I learn. I learned in school. Yeah. And I really did pay attention. And I enjoyed college.

I never cut class, but I really did listen and I learned. Yeah. All right. So you graduate, you get your degree. But I guess while you are there, you notice something about copying machines. This is like 1969, 1970. And Xerox machines, right, had been all. Already been around for, what, 15, 20 years by that point, but people were making photocopies.

Photocopies kind of became more and more common, I guess, while you were at college. Oh, yeah. This place called Magic Machine, it was right by SC, needed Xerox copies for three cents a copy, and there were lines, unbelievably long lines. Lines to photocopy books, right, because people needed to read the chapters or whatever it was. Oh, everything, resumes, whatever. You could just sit there. People want to communicate, and it's a great way for people to communicate their ideas.

And this is in like 1969, and photocopy machines were like these giant things, and it took like a photograph. Like it was like there was like a flash of light for every copy, right? Yes. At the time? Yes. And then it would come out and it was not an amazing facsimile of what you were copying, but it was pretty good. I mean, it probably was revolutionary in 19, even 1969, 1970 people probably thought these were amazing machines.

They were. They were. And you could just see so many applications for it. I could just see it mushrooming. And what did you think when you saw that? I mean, that immediately triggered an idea in your mind to open up your own copy machine shop? Yes. If people are in line, that's a big sign of success.

and I was in the vegetable business. Overnight my inventory rotted, my cucumbers, my corn, and I looked at the Xerox machine, and I thought, man, that paper does not go obsolete. That inventory stays there for months and months at a time. And I thought, I don't want to be in a business where I have to fight my inventory. And what does a long line mean to you when you see a long line?

Money? Money. So you decide, all right, I'm going to open up a shop, a photocopy shop. First of all, we didn't open it in L.A. You opened it in Santa Barbara, which is an hour and a half north of L.A. Tell me why you picked Santa Barbara. I had a girlfriend up here in Santa Barbara, and I was up there, and it just so happened that they didn't have a copy shop.

And I liked the town. So I figured, well, if they're copying at USC, why wouldn't they copy in Santa Barbara? Now, I didn't have to do it an elaborate business plan. They're doing it here. They'll do it there. I mitigated my risk by the fact that students are similar in both campuses. So, all right, I'm assuming that at that time, this is 1970, most students, if they photocopied anything, went to the school library to do it in the school

library's machine, right? Yes. Anybody could get these Xerox machines. In fact, the campus had free labor. They got better contracts on their Xerox machine. so I'm competing not on a level plane, but I'm competing in an unlevel plane with the government. And pure competition, price is to determine why people buy. So I had all these things against me.

I had to outfox the college campus and getting that business started. Do you remember how much the college was charging at the library for a copy? Five cents. Five cents. So you had to beat that or make it a better experience in order to make sure your business is going to work. Well, I beat them because as my volume went up, my marginal cost went down that I could make a profit at three cents a copy. All right, so you decide to open up a location, a copy shop. You need to buy a copy machine. I have to imagine in 1970, that was not a small

purchase. I mean, it was probably going to be really expensive. You needed to sign a lease on a space. You need to, you know, you, so first of all, how did you get the money to, to, to, to do all this? Well, I borrowed $5,000 from Bank of America with my dad's signature. Wow. So the bank was willing to give a 22-year-old kid with no experience a $5,000 loan at that time? With my dad's signature. Yeah. Co-sign, yeah.

Yeah. And the $5,000 was enough to buy what? Well, Xerox in those days rented you the machine. Oh, you didn't buy it. Didn't buy it. And they were, I'll tell you, it really built that business. Xerox was so screwed up in their invoicing that gave me an enormous amount of float. I wouldn't get a bill from a Xerox machine for, say, 60 days, 90 days after it was installed.

Wow. And I didn't have to put up any money to get it. So you didn't have to put any money to get the machine. So you got the machine and then they would bill you a fee to basically, you know, rent it and then to maintain it. and then for the ink and toner and all that stuff? Yep, I had to buy the toner and paper. Do you remember how much it cost to rent the machine at the time? It was $1,100 a month,

and the variable cost after that was one half a set. So for an example, if I did 100,000 copies, my cost to be $1,100 plus a half a set or $500 for $100,000 copies. And I could sell it for $4,000, plus I charged extra for colored paper earn legal size. So my average sale was about four and a half sets. Okay. 1100 a month. Wow, 1970. That's a lot of money to rent a copy machine at that time. It was expensive. But I could do

200,000 copies a month. And so that would be 9,000 in revenue. And my cost would be 2,000 a month, say. So you knew just doing the math that you could make money off this immediately, that this could be profitable. So you get this machine and Xerox doesn't even, you don't even need to put any money down. You just get the machine. You bring it and you find a, and how big was the space that you found? It was the size of a lunch room, 100 square feet. 100 square feet. So that's enough room for a counter. 100 square feet is tiny. Wow. A counter and the machine and maybe four or five people in there. That's it. Not even now. One worker, two workers. But, I mean, customers, right?

Four or five customers. Customers came. I had a, they came outside. They never came inside the store. There was a window to the street. There was a window. They would give you the document and you would copy it for them. Yes.

And it was three or four cents a copy? Four cents a copy. And what did you call that for a shop? Kinkos. My nickname was Kinko because of my kinky hair. You had kinky hair. Uh-huh. Kinky red hair.

And it's a great name for a business. Look at, you want strong consonants, Google, Xerox, Kodak. Coca-Cola. Coca-Cola. So I wanted a business with a strong consonant. Once you heard the name Kinko's, you'd never forget it. No. And, I mean, given that you were seeing every document pretty much handed to you that was being copied, you could, you knew it was being copied.

What did students copy? Was it like other students' notes, for example? Was it pages from books? what kinds of things were they bringing into photocopy? Interesting things. Like they're writing a term paper on Aljur Hiss or they wrote a paper on Richard Nixon and the war in Vietnam. Yeah. I remember Xeroxing for students how to make Molotov cocktails because the anti-war movement was so strong.

You can't believe what they would copy. All right. And you were working in this shop, right? It was just you or did you have somebody else work with you? No, no. I was still going to USC finishing my fifth year of college. So you were going back and forth? Yeah, I worked Tuesdays and Thursday mornings.

And then who worked the other days? I had a lady named Holly DeLay. She was great. And she ran it the other time. And tell me what, what did, I mean, how did the store do? I mean, was it, you mentioned having seen lines outside this copy shop at near USC. Were there lines outside Kinkos or was it just, was it busy or was it around? What do you remember?

Well, there was enough that I was able to, by then I was in my fifth year of school, I paid my tuition on my own. And I supported myself that year. There was enough customers to support myself. So how soon after you opened that shop, was it profitable? Was it pretty much from day one? You understand. If Xerox never billed you, I buy stationary, you know, notebooks and pens. And the first day of school, I put my notebooks and pens on the sidewalk.

I sold $2,000 a day worth of notebooks and pens the first day of school. Everybody needs a notebook and pen. I did film process, you know, like a photo mat. They had cartridges. Yeah. Oh, you did that too. All three. Well, they're synergistic products.

I actually cash flowed the very first month. I had more money in the bank account at the end of the month that I started with. And so you had this shop and the shop was doing pretty well. And Paul, what was your, I mean, was your vision for it, that would be your business? You would have this copy shop and, you know, make a pretty decent living, and that would be your life? No. You had a bigger plan. I think when you're four years old and you say, what's it going to be like when you're an adult, you just kind of go through it.

I followed my mother's advice. She said, you know, honey, in your 20s, try everything. In your 30s, figure out what you do best. 40s make a bunch of money for what you do best, and your 50s try not to do too much. And I did follow her advice. I remember sitting there thinking, if I can't figure out how to get out of this job of running this store, the students that are coming to me now are going to say to their children, go see Paul. He did my copying in school.

Yeah. And I kept thinking, I do not want that for my future, just to sit in this copy shop. When we come back in just a moment, Paul starts to start. to grow kinkos beyond that first location and how he learns that keeping your store open all night will bring in more customers during the day. Stay with us. I'm Guy Raz and you're listening to How I Built This. Hey, welcome back to How I Built This. I'm Guy Raz. So it's the early 1970s, and Paul Orfala is starting to get restless. His first kinkos in the Santa Barbara area is a big success, but he's not satisfied with having just one store.

And I kept looking and I'd say, well, there's two Savon drugstores. There's two Chevron gas stations. Somebody figured out how to go from one to two. And after I was in business three months, I hired a manager. So I was totally free to start conceptualizing how to do other things. Yeah. So then I did a store in Irvine, California. It was a garbage room of a restaurant.

It was about 80 square feet. This was in, this is like within a year, I think, or you open your second location. Yeah, about a year. Yep. Okay. Then we went to Cal State Fullerton. Then I went to Cal Poly San Luis Obispo. And I gradually just hit all the college campuses.

All right. So tell me how did you, going from one to two, right, it requires more money, more cash. Did you have the cash simply through cash flow to open the second business or did you have to take another loan out? Every summer, you don't realize when you're working around. on college campuses, students aren't there very often. Right. So every summer vacation, so every summer I was broken, I had arranged lines of credit. Yeah.

But you have to also remember, Xerox was so screwed up in their billing that I'd never get an invoice. So I could open a store from the day one, I would be cash flowing. I got to bank two weeks for the payroll. I got to bank my paper bill for 30 days. From day one, I would actually cash flow in a new location. Wow. All right.

So, but from what I understand, Paul, after you opened that second location, which was in Irvine just south of L.A., I think you ran into some serious problems. I think because you had decided to branch out into offset printing, like commercial printing, sort of like making posters and menus and stuff like that. Yes.

What happened was I bought offset printing equipment and cameras, and I figured, and I bought a blue printing machine. And that business, I didn't know what the hell I was doing. I didn't know how to run the printing presses. The printing press would break. I'd call the printing press repair person. He would say, no, it's not the printing press.

It's the camera. I'd call the camera guy. He would say, it's not the camera. It's the ammonia from the blue printing machine and screwing up the plates for the printing press. This business, I didn't know what the hell I was doing. I have no mechanical ability whatsoever. And it was bleeding me dry.

Yeah. So I was fortunate enough around 1973 to sell the print shop and focus on the copy shops. So it sounds like that it made you realize you really needed to focus on the core product offering or service, which was photocopies. Yes. It's sort of like when you go sailing. And you notice you don't have any wind, but the guy over there has all the wind. But all my competitors were doing printing, and incidentally they did copying. So I wanted to join their strategy, which was really wrong.

I should have stayed with copying and not done the printing. And so I think sometimes we spend our time on the hardest thing, which was the print shop, where the easy money, the low-hanging fruit was in the copy shops. But a good lesson to learn early in your career, right? Yes. And as you really started to expand the business on college campuses, I guess, one of the things you started to do was work with professors to essentially to photocopy chapters from textbooks, and then you would sell that instead of making the students buy the whole book. Yeah. I like to wander.

So I was wandering in the reserve bookroom at the university. In the reserve bookroom in those days, the professor would say, I'm going to give you an exam. I'd like you to read this. It's too expensive. I'll put it on reserve for you. So when do you think the students went to the reserve bookroom? The night before the test. Right.

So I put out a flyer saying from now on, Professor, leave things on file with Kinko's as well as the reserve bookroom. Well, these professors went crazy for the program. I'll give you an example to jump forward. Say at Ohio State, we were doing 6% of the textbook sales by photocopying. These professors love the program. They could teach with original material, etc. That program really built our business on the college campuses.

So let's talk about expanding the stores. You sort of get the second location and then the third location and those you own and you could kind of manage and oversee the employees. But at a certain point, you really started to expand much faster. And I want to talk to you a little bit about this model because you did not franchise Kinko's locations. I mean, certainly, it first started in L.A., the L.A. area, San Fernando Valley, and then you went into the Pacific Northwest. But it wasn't a franchise model. It was a different kind of model to explain how you got people to manage and co-own the shops, but not be franchisees. Well, a lesson I had learned with employees is I had gone to the Irvine store at 1130 in the afternoon, and it just wasn't open. You can't rely on minimum wage people to have motivation.

So I always figured if I take in a partner, the fact that they have equity in that individual location would make a big difference in the outcome, which is true. So if I had a good store, say in downtown L.A., I took my cousin Denny in as a partner, and he was there. He did a great job and ran the store. So I started with partners with equity in those individual locations. You started with equity because you figured if they were just employees of mine, they don't have any stake in the success of this shop. Absolutely.

And in the company-owned stores, we also had profit-sharing. I believed in profit-sharing. I'm going to digress or change a little bit. I own a bowling alley up here. And so I was insisting as the owner, I want profit-sharing in that bowling alley. So I just went in there and I announced profit-sharing. that next month our sales went up 7%. Profit sharing does pay off.

So I had profit sharing in every one of our locations. Okay, so this model that you created was not a franchise model. It was a model where basically you would find somebody who wanted to operate the store, the Kinko's location, in another city, and they would own and also finance it and you would have a stake in it? How did that work? I'd say I started with my partner, Brad Krauss, up in Northern California. He put up $2,500. I put up $2,500 and would start a store. He was in charge of the store, and my responsibility was the bookkeeping in the back office,

to reconcile the bank statement, doing the general ledger. And so that's how I expanded. I'd find people I liked, and how I could determine how I liked them, is if they had acquired the ability to save some money. And so if they could write a check for $2,500, I had a feeling they were good business people. But why didn't you just do a franchise model, which would have required almost no cash on your part?

Well, I didn't like the model. Franchisees and franchisors are two people flipping each other off all the time. In other words, if I told a franchisee to do something, they would say, well, his motivation isn't cure. He just wants more 6% from the top. I like the idea of sharing in the bottom line with the people. Paul, between 1970, when you opened that first shop in Isla Vista and 1980, but in that 10-year period, you expanded to 80 stores across the United States, Kinko stores.

So each one of those stores, I know that some of them were fully outright owned by you, but some of them were owned by these partners. How did you find them? How did you identify? I mean, this is, you know, today you can go online and find there's hundreds of franchise opportunities. They're advertising everywhere. You just go on the Internet. How did people find you or how did you find people to expand the business across the U.S.?

Well, the people working in the stores knew how much money I was taken in. Yeah. And so they would approach me about going in business. Like Jim Warren, an example, he was a great guy. My very first partners. He would take a Volkswagen van and drive around the country signing leases. Finally, Jimmy decided to take the south, the Georgia, Alabama, South Carolina area. So we became partners.

And tell me when somebody came to you, Paul, I mean, this sounds, and I'm not criticizing you, I'm just, I'm fascinated by this. It sounds really casual and almost haphazard, like it was these informal agreements. in which you entrusted the brand, the name Kinkos, to somebody, somewhere in America, to run it, and you kept a small piece of it. But there was no corporate structure. Is that right? Is that, I mean, it just kind of sounds a little kind of fly by night. You're right. It was fly by night.

It was haphazard. But how did you control the brand when you were, you know, it was just. 80 stores by 1980, how did you control the brand? I didn't really do a good job of that. And I didn't realize I had a brand. But I'll tell you, the key to a field-based organization with partnerships is the bank statement. The fact that I was reconciling the bank statement under my auspices, I was in charge of

the payroll for the locations, I was in charge of, ultimately we became charge of all their accounts receivable. You only do three things in business, and it's really simple. Motivate your workers, understand your customers, and balance your checkbook. The best definition of management is management is to remove obstacles. And I wanted every obstacle from my partners and those store managers so they could be loving the customer. So I tried to take every impediment away from the easy flow of that relationship. So basically, these were investor operators, right? Essentially, you'd find people who were willing to put up half the cash or more. You would get, typically, what percentage ownership would you get of each Kinko's location?

I put up generally 60% of the money. They would put up 40% of the money. I could easily go to the corporation, say in Virginia, and if I didn't like the partner, I'd have a special shareholders meeting and fire the manager. So I did have control. And you have to remember, just like my I'm in line seeing how much money was being made. I have all my workers know how much money I'm taken in. All my customers see the customers in line. And it's easy to get a copy machine. What baffled me is why I didn't have more competition.

Because it was like printing money. Yeah. I mean, you knew that the cost of renting the machine was X dollars. And if you charged four cents a copy, you knew that within a couple of days, you could cover the cost of renting the machine. and then the rest of the month, it was just gravy. Yes. So essentially, you were, as you expanded through the 70s,

you were doing all of the accounting for every single one of these locations and doing payroll. I can't imagine you were doing this all yourself, Paul. No, no, no, I've got to be honest. There's not too many things I really did for myself. My motto has always been anybody else can do it better. And in my case, they can. I supervised every job in that business I had at one time, but I knew how to get out of.

Most people will brag about how hard they work, this, that, and the other. What I think hard work is what keeps you up all night long when you're worrying. That's hard work. You were good at finding other people who could do the jobs. You were good at identifying talent, and then it would free you up to do other things or maybe less work. Yes. And in my entire career, if I went to my office four straight, days, and I'm talking, when I go to an office, I'd have a nice breakfast, I'd be in there,

and I'd leave at 4 o'clock in the afternoon. If I went four straight days, by the fourth day, I'm nervous. My hands are shaking. I'm nervous. I don't have the temperament to be in an office and do all that, or take interruptions. A funny thing happened along the way. I had seven stores, and a manager called me up, and he said, you know, Paul, I got a balanced check in the man, what do I do? And I thought, what do you do? You go after the guy who read the check? And I thought, now, who's stupid? Me or him? I shouldn't be available for those kind of phone calls. So I became inaccessible. And there better be a damn good reason for somebody to call me. And I noticed that the phone, I couldn't get anything accomplished by being so available for phone calls.

You did not have an open door policy, which some people say, my door is always open, and that's a badge of honor. No. There better be a reason for you to come in and interrupt me. Yeah. From what I understand, from what I've read about you, there were some challenges with partners. I mean, of course there are going to be challenges with partners who are running the stores. They have a vision for what they want their location to be. What was, I mean, tell me about some of these challenges that you had. In 1980, I had a business that anybody could come in to come and come. compete with me on any of my workers, any of my customers, etc. I had to motivate, say, the person

at Fort Collins, Colorado, to want to go to work every day and do a good job. And everybody understands the meaning of the work. The meaning of the work is, there is, say, a lost little girl in Spokane, Washington. The family went to the police office first, and they came to us second to do the posters. Those are powerful connections that you're contributing to. You're helping somebody get a job, somebody communicate an idea. I saw that relationship was so perfect. All I had to do is get the hell out of the way of that relationship. Was it easy to motivate people if you realize it was a self-motivated business? They enjoyed and they got fulfillment from their customers. When I noticed that, it was easy for me to get back away from

that business. Secondly, I had to keep our people loyal. And I had a real problem. I recognize loyalty was a real problem for me. Why was loyalty a problem? Because it was too easy to go across the street and compete with me. It was just too easy. You know, in other words, it didn't make sense for people to partner with you when they could just get their own Xerox machine and open their own shop. Easily, yes. And was that happening? Yes, all the time. I had a guy. and Lincoln, Nebraska, he went down to Florida, started to open his own stores. I had a woman in Virginia that went down to Florida once again and opened their own shops. And this was at a point where Kinko's, you had 80 locations, but it still wasn't the ubiquitous brand it would eventually become.

No, it wasn't. So it was vulnerable to competition. Yeah, that's exactly the problem I had. Yeah. The reason I didn't choose franchise Ean is if they viewed me as a parasite from the top, they would easily go across. the street and do it. Right. But I shared in the profits and they got a good salary.

They had a car. We had a pension plan for the partners. Basically, as long as you kept them happy, you can keep them loyal. Yeah, and remove the obstacles. And then as we enlarged, as we got the trademark bigger and bigger, they understood the value of the trademark. But in this evolution, the company color blue making that decision. was the first move we had towards centralization.

Blue like walls inside, like painted blue? Yeah, blue, the logo and blue. Yeah. At that point, we did go towards standardization. And for them to give up the independent power, say, in Texas A&M for being green and whatever color they were, to go to company but color blue, I had a real battle with the field to get the company color blue. But some of them wouldn't do what we want.

wanted him to do. Let's say, we said, get his, I'd say, you know, this binding machine really works. I had a guy in Colorado that if I said to get these machines, he would never buy the machine. He would just so reluctant to do anything new where the guy Brad, in Northern California, I'd tell him to buy a machine, he'd buy 20 of them. So I had to manage him differently. One, I'd have to pull back, the other one I'd have to push. And in your arsenal of leadership, you have the velvet glove and the steel fist. And I had to use the steel fist sometimes. Maybe I did it too much. Well, I mean, but if you use a steel fist, wouldn't you risk that person just saying,

screw this guy, Paul, I'm going to go start my own competitive shop? Yeah, I did. I did. But at that point, Kinkos was getting a cachet and there was some value to the trademark. Yeah. When did that start? I mean, 1980, you got 80 stores. So you're, you know, but still, like, there are large parts of America that never heard of Kinko's.

So at what point did you start to really, you know, what was the shift? Because I guess I remember Kinkos when I was in high school, and this is in the 90s, I remember Kinko's as the place you'd go to at midnight when you had an assignment to do the next day. And you knew Kinko's is going to be open. It was 24 hours. And it was like, oh, my God, I go to Kinko's and just get this like report bound for school. the next day. So was that, because it wasn't 24 hours from the beginning, right? Yes. A major, major organizational transformation was 24 hours. When did that happen?

81, 82. Okay. We had a big battle with the field in this one. And I talked to this guy. He owned these convenience markets called Sheets's Market in Pennsylvania. Sheets. Sheets. They were like 7-Elevens. Oh, they're huge. Yeah. He said something that they would close their convenience market from midnight to six in the morning because they would only do $30 in business. Yeah. Yeah, during the daytime, they would do $6,000 in business. He said for some strange reason, my daytime business dropped 50% when we closed from midnight to 6 in the morning. He said they were 24 hours, then they shut from 12 to 6, but as a result of that, their daytime business shut went down.

50%. And I go to sleep two days later. I wake up like a bat out of hell and I go, what did he tell me? If you go 24 hours a day, your daytime business doubles, which is absolutely correct. Wow. Can you explain why? Because people can always rely on you. So I went back to the organization and I tried to get people to go 24 hours. What do you think they said? No way. No way.

Not going 24 hours. You want me to pay somebody for, you know, You know, those hours where I'm closed? And they were saying, I can't work 24 hours a day. Yeah, right. Of course not. So I'm pressing. It takes me about a year. I finally get a guy out of Chicago.

He tried it. He got up in a meeting and said, this 24-hour thing works. His daytime business doubled. It's just kicked ass. But what explains that? I know you said it's reliability, but is that it? It just sends a signal to the brain that this place is reliable? They're always there.

Wow. Let's say somebody came in at 8 o'clock at night and they're closing at 9 and the person doesn't want to work on a job after 9. That work, I didn't get that job. But by opening 24 hours a day, they could rely on us doing it all night long for them. And people were generally in my business, our customers were angry subconsciously at themselves for not doing their own work yesterday. Yeah.

How many late nights did I have it at Kinko's? high school and college because you wait till the last minute. And it's midnight. And my mom's mad at me. Like you should have done this last week. I'm going to ground you. But there's kinkos. And it's open. And it's depressing because there's no cars, no people out. You're in the kinkos. But it's open. It's there. Absolutely. And our daytime business doubled. It was a very successful endeavor to do. Okay, so the 24-hour Kinko has really kind of changed the game here. And now Kinko's is really, the local owners are starting to see their business growing. But I guess, you know, at the same time, there were still problems with the core business, right? I mean, more competitors, shrinking margins. So there were, there was pressure on the business starting in the mid-1980s. Yeah, I'm always fantasizing what my competition will do to me. So we have these office super stores, the office maxes, the office depots.

And I kept thinking they're going to get hit and open a copy shop 24 hours a day. Yeah, and this is already in sort of the late 80s, but that you start to see those places. I started to see them. And I kept thinking, well, they have a strategic advantage because they got the stationary, which I don't. And the laser printer was coming after me. I could see it coming after me at left field. The laser printer. How was that a threat?

Well, why would you ever go to a, why would you take a piece of paper and take it to a copier when it could just come out at the end of the laser printer? Well, but it still was more expensive and the toner was expensive. In the mid-80s, a laser print was really expensive. But let's say you wanted to put a little bit of red on your document, a little bit of blue. Yeah. It would cost you a dollar or a copy for our color copies. Right.

I saw that laser pinter is the biggest threat to my business. When we come back in just a moment, yet another threat to Kinkos, a major copyright lawsuit. And Paul explains why you should never fall in love with your own business. Stay with us. I'm Guy Raz, and you're listening to How I Built This. Hey, welcome back to How I Built This. I'm Guy Raz. So it's the late 1980s, and Paul has grown Kinkos from a single store near Santa Barbara into a nationwide chain. But he's still uneasy about the future. And he's worried about competition from Office Depot and things like the laser printer.

I kept thinking, why do you need to take a piece of paper to a copier? It can collate for you better, the laser printer, I could put spot color on it. What do they need us for? Tell me a little bit about that insecurity, because I'm thinking, wait a minute, this guy's got this business. It's Kinko's. It's the 80s. You're, I mean, you expanded from zero to 80 through the 70s. In the 80s, you go from 80 in 1980 to 480 in 1990. I'm thinking, this guy is a genius.

He's figured out a way to expand a business with very little money down, high margins. In the meantime, you're telling me, I was incredibly insecure and constantly self-doubting. Tell me, tell me about that, about what was going on in your head. Well, when I saw my relatives, I had an uncle, he had his own business and lost it. And he basically lost his will to live. So I took it very seriously. And with my background, I didn't have that many accolades. So I never was able to take myself seriously.

And I freely still, to this day, don't take myself seriously. I mean, here I had a headquarters with five, six hundred people. I had 30,000 workers. And everybody thinks, well, because he's big, I'm sure that that's going to be a safe job. I'm the only one there thinking, I don't think we've got a future. I'm really insecure here. Wow. But that's what employees are.

Employees like the sense of security of somebody else. I'm the owner. You're an owner of a business. It isn't your job to be cocky and arrogant. You've got to know every little weakness and pitfalls in that business. And I'll tell you something that bothers me. It's when a business person says, I love my business. That's absolute bullshit.

You love your family. You can enjoy your business. But once that becomes a love affair, you lose your objectivity. I never loved my business. I could enjoy it. But, man, your business is an instrument to make you happy. And you own it. It doesn't own you.

And so I had a real detached few of that business. Yeah. I appreciate that. Well, everybody should. Well, there are people who are just supremely confident in their abilities. you've run across those kinds of people. The arrogant people? Yeah, I realize there are arrogant people.

And I believe that there's an arrogance of education. I was always with the normal people. You look at the student, they go to their special little reading group. They go to their special math group. They're always separated from people like me, the Woodshot majors. And they always look at me in school like, well, they're stupid. They're not like me. If they go to their elitist university,

universities or go to their elitist colleges. And there's an arrogance in that, an arrogance in education, that they don't trust the average person. Yeah. Well, I was always with the average person, and I always felt they were smarter than the executives. But that, Paul, that chip on your shoulder is what fueled your success. What you just said right now, that chip on your shoulder, which can be an Achilles heel, too, but it can be a strength, can be a source of energy. that drove you.

Yes, it did. It did. Well, it drove me. I liked money, and it was a good game. I used to tell people I worked with, you know, I didn't get married to us, I was 36 years old, and I'd go to my mother's house and she'd say,

you know, honey, when are you going to get married? When are you going to get married? When are you going to have your children? And I'd say, you know, Mom, I'm tired of you ask me when I'm going to get married. So she said, okay, Paul, I'll never ask you when you're going to get married. but when I look at you, you'll know what I'm thinking.

I love that. I told everybody that story, and I'm saying, I'm into it for the money. I'm not a Xeroxing monk. I don't even like to read. This is a money-making enterprise. But we did have people that I can convince them. It's about making money here. And my very best stores had the most happy workers, most satisfied customers.

They were the most profitable. Yeah. At the time, you also, I mean, a lot of stuff's going on in your life. I mean, you got married. And I think, you know, within a couple years of your marriage, you're, you had this horrible tragedy with your first child who I think died at seven months or something. Is your son Ryan? Yes. Tell me how, I mean, he had, I guess, a congenital heart defect.

And as a baby, he passed. seven months, man, that, I mean, how did you compartmental, how did you run the business and deal with that? Tell me about that time in your life. Oh, it's just hard. He was a real special little boy. And, you know, my dad had a good quote. You know, and somebody loses someone they love. He would say, just because other people go through it doesn't make it easier. It's a miserable time and just going to have to go through your own period of hell. Yeah. And the saddest part of losing a loved one is you have to comfort the people that are there to comfort you.

Yeah. And I have to actually comfort them and say, well, I'm okay. I'm okay. That was the part that hurt the most. And what we did, which was really stupid, is we had a private funeral. And what's good about a funeral is everybody's there at once sharing the grief. Yeah. What I had to do is I had to go through it one-on-one.

with just about every human being I met, and I had to comfort them, which is the best thing about a funeral is you get it all over with all the sadness, and you can go on with your relationships. Well, the coolest thing I've ever been called is dad. Yeah, agree. Yeah. You've got two kids, right? Yeah, too.

Mason and Keenan and I'm lucky enough to go to this weekend to my son's baby shower. Oh, amazing. And then the other one's going to get married and he's going to have an engagement party. So I got two in one month. Amazing. All right. So let me go back to the to the 80s, the late 80s, just for a moment. I mean, you are, you're dealing with the lazaprunner threat. You're dealing with, you know, with more competition. And then in 1989, you get hit with a lawsuit. Some of the big textbook publishers wind up suing Kinkos over this program that you had where you would photocopy parts of textbooks and then college students would buy them. right, instead of buying the book. And the publishers were saying, this is copyright infringement. And, I mean, you fought that lawsuit, but ultimately you lost. You had to pay like $2 million to settle.

Yeah. And Congress tried to codify what you can and can't copy in the 1974 copyright law. And in the law, they said it's a de minimis portion of the book. So we had all these professors signing that they were in compliance with that. And we got annihilated. But at that time, we were noticing that the commercial locations, the one, you know, in the middle of the town, were taking off. And more and more technology was coming in our direction. So I almost outgrew that publishing program.

In other words, you're saying that that lawsuit and what happened as a result of it essentially killed your business with a significant number of college students. but as a result, it kind of forced you to pay attention to the other customers coming in, the non-students? Yeah, and repositioning to the commercial locations with good parking. Wow. And meantime, it seems like Kinko's was a self, it was like a self-multifying cellular organism. Like, it was just growing and growing. But there were, I mean, you get through this kind of this, this rocky period in this lawsuit, you shift away from students.

And I think really in the 90s, Kinko starts to become more of a like your office away from the office. It was like you could come, you could use a PC, you could log on to AOL here, you could do your graphic design here. Like, where did that idea come from to shift Kinko's towards like being your sort of office on the road? It just transformed ourselves into having computer workstations. And we called it your branch office. But what always frustrated me about Kinko's is we were an operating company that sold, and I wanted to transform us to a selling company that operated. You also have to remember at this time, I'm dealing with people that are 45 and 50.

You're talking about the owners, the co-owners. The owners and executives. And there's new technology that's obsolete in what we use to think about the world. They're just coming after us. Also, when you're dealing with them, people that are in 45 and 50, they got a foot in and a foot out. Yeah. So I was dealing with that. Meantime, you also made a decision around, I think around this time in sort of the mid to the late 80s to bring on, let's say, more of a professional kind of leader to help you, a guy named John Davis,

who was a USC professor. Why did you feel like you needed help? Or where did you need help? We had to change the philosophy of the company that John Davis helped create. And as you could tell it with a business with not a lot of formal agreements, with various partners, a lot of independent thinking, I had to get buy-in to the central organization. We were talking to people that were very good with things. We needed them to reorient themselves to managing people. We needed well-rounded leaders.

And I needed to develop a company philosophy. Our first sentence in the philosophy is our primary objectives to take care of the customer. But some of our customers are so outlandishly rude, we had to have a mechanism in our values to fire a customer. So we added in the second paragraph the co-workers are the foundation of our success. So a manager in contemplating firing a customer could look at the first sentence and the second sentence, And weigh the ambiguity of how to handle that. And this was John's charge to basically create these structures, these doctrines. Philosophy.

Philosophies, yeah. Yeah. All right. So 1996, by that year, you had 851 locations in every single state. And for foreign countries, there are 20,000 people employed. You owned 100 stores outright and then you had a stake in pretty much every other one. But you knew already then you were looking for an out. You were looking for some type of exit.

Yes. So you found an investment firm that they would buy a 30% stake in Kinko's. They paid $200 million, according to Bloomberg. And they essentially make some changes. I mean, understandably, they're now in control. They rolled the partnerships into a single corporate entity. So they're looking at Kinkos and they're like, this is a mess. it's too disorganized. How did you feel about some of that? I mean, were you optimistic about some of those

changes? Because it seems like it made sense. Yes, it made sense. And they took control. But I basically took six months off. When I came back, I think when you sell your business, they shouldn't keep the founder on. It's sort of like cutting the tail off an inch at a time. And everybody who was unhappy came to me, and I didn't have any influence or power to do anything about it. And they kept you on as a consultant? No, I was chairman of the board. Okay. Your conflicts with them got to a point where you just left or I guess you parted ways.

And I guess in the end, you came to an agreement. They bought out the rest of your shares in 2002, and that was it. You were out of the picture. Yes. Done with Kinko's. It was not your business. You had no stake in it anymore. No.

About 18 months later, They sell it to FedEx for about $2.5 billion. When you found out about that sale, were you angry? Because I have to assume that you would have made a little bit more money had they not bought you out in 2002. I was happy for the company because when I had the business, our customer service was something I was so proud of. Yeah. Our customer service went under their auspices wasn't as good. And I was really, I was just as happy to get FedEx so they could have their customer service there.

Paul, I mean, you were now, you know, in your 50s at this point in the early 2000s, freed of this or divested, right, and wealthy. And what did you, I mean, were you happy? Were you like, ah, I don't have to go to an office anymore. and have to work anymore because sometimes I talk to founders and they actually get depressed. They feel like they don't have a sense of purpose anymore. Like they're, they don't have anywhere to go and they're not busy. And did you, how did you feel? Elated. And liberated. Yeah. I have two, you know, you have two children. One child has to be entertained by others and the other one can entertain themselves. I've always been the kind of person that can entertain myself. Yeah. So, I found a new purpose of my life. I teach in school. I teach at Loyola now at USC. I love the philanthropy we're doing.

I believe what Andrew Carnegie said is correct. He who dies with wealth dies in sin. I'm doing a pretty good job of giving all my money away. What did you decide to do with your money? Everything goes to children. What I'm real proud of is orthodonture. If you're a title, one child,

you have a pathway to orthodonts. We've fixed over the years maybe 20, 30,000 orthodontors. I believe that society gets a compounded rate of return from a good smile. Yeah. Self-esteem, better college graduation. I'm convinced of it. If my legacy would be that every child has a happy smile, every child knows enough about nutrition to eat nutrition.

That would really delight me. Paul, when you think about this, you know, your life story, I mean, you know, I appreciate the kind of self-deprecating part of you. I think that's very refreshing and lovely. But you built an incredibly successful business, you know. You were not the best student. You were not the star. But then you went on to build this very successful business that had a pretty significant cultural impact. I mean, anybody, you know, over the age of 30, you know, you know, over the age of 30, you know, let's say, 35 probably, knows kinkos, used kinkos. I remember 2008, I rushed to a kinko's on deadline applying for a job to be the host of weekend all things considered at NPR when I still worked there. And I put together a spiral-bound proposal of what I wanted to do the show. I mean, I got that job because I made that presentation, you know. And, you know, you did that. You enabled that. And so when you think about your story, what you've done, what you've done, you built where you are now, how much of that do you attribute to the grind, the hard work

you put in, and how much do you think has to do with just getting lucky? More luck. Luck has a lot more to do with life than we might think. And it also followed my strong suit, which was, I can't sit still. I'm extremely restless. That went to my strong suit. And it goes to my outlook of life. Dan Fredrickson had a quote for me once that I really liked. No one goes to work to do a bad job. People go to work to do a good job. It's up to you as an owner to want that. I told you about our customers and our workers' relationship and how fulfilling that was. So I attribute a lot of what I have to luck, to a business that went to my strong suit and lay out like a life. I think people are basically honorable and decent and trustworthy.

and the world is a wonderful place to live in. And you're not going to make money with a sinister view of humanity. That's Paul Orpola, founder of Kinko's. By the way, you can actually visit that first Kinko's location. There's a plaque outside the building at 6521 Partle Road in Isla Vista, California. It's no longer a copy shop and the place has changed hands a lot since the 1970s. At one time, it was a beer and burger joint called McBurley's. And then a bunch of different restaurants, espresso aroma, the spot on the side,

Dirties Barbecue, the South Coast deli, and just recently opened a new place called Social Eats. Hey, thanks so much for listening to the show this week. Please make sure to click the follow button on your podcast apps. You never miss a new episode of the show, and it's totally free. This episode was produced by Chris Messini with music composed by Ramtin Arablui. It was edited by Neva Grant with research. help from Catherine Seifer. Our audio engineer was James Willits. Our production staff also includes Alex Chung, Casey Herman, Elaine Coates, Carla Estevez, John Isabella, Liz Metzger, Sam Paulson,

J.C. Howard, Carrie Thompson, and Ramel Wood. I'm Guy Raz, and you've been listening to How I Built This.