Invest Like the Best with Patrick O'Shaughnessy - Paul Orfalea - It’s About the Money - [Invest Like the Best, EP.299]

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Starting point is 00:01:54 Patrick O'Shaughnessy is the CEO of O'Shaughnessy Asset Management. All opinions expressed by Patrick and podcast guests are solely their own opinions and do not reflect. the opinion of O'Shaunsi asset management. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions. Clients of O'Shaughnessy asset management may maintain positions and the securities discussed in this podcast. My guest today is Paul Orphalia. Paul founded Kinkos, the popular copy chain in 1970. He started with a single photocopy shop in California and grew the business into a $2 billion multinational operation over the course of his 30 years in charge. Paul is a non-traditional leader in the best sense, and we discuss his philosophy of business building,

Starting point is 00:02:38 from why your subordinate should frustrate you, why you shouldn't love your business, and tips he learned on hiring well. Please enjoy this conversation with Paul Orphalia. And if you want to learn more about Paul's story, listen to episode 181 of the Founders podcast, now a part of the Colossus Network of Podcasts. We were chatting a bit before we hit record here, and I was towing with interesting places to start our conversation. There's a line from a biography of yours that just made me laugh and I really enjoyed. And so I thought I would start just there. You said something like, I graduated from high school, eighth from the bottom of my class of 1,200 students. And then the next line was, frankly, I still have no idea how those seven kids managed to do worse than I did.

Starting point is 00:03:21 So I'd love to begin by hearing about what it was like to be a very bad student in high school. In their way, I was a bad student. And I'll tell you a funny story. My brother was studying for a test at 9.30 at night, my older brother. And my dad walked in, so what are you doing to my brother? And my brother said, well, I'm studying for a test. My dad said, well, you'll never remember it. So what's the good of learning?

Starting point is 00:03:41 I went to school to learn, and I couldn't read. But I do remember what I learned. In every class, I remember the lecture or the talk. And I put it in context. As far as pleasing others, getting a stupid grade, it never was high on my radar. An example would be if your child comes home with a painting from school and they're five years old, what do you say to them? Most people say, that's really good. That's really a great painting. Bullshit. Tell me about the painting and why did you do this color? What is it? And what we

Starting point is 00:04:13 have done, especially now in education, is we produce a bunch of people pleasers, not pleasing themselves. When did you first realize that you were unemployable and that you needed to be an entrepreneur yourself? All the rejection, shit out the day one. I never thought of getting a job. And I'm Lebanese. And we must have 500 relatives in Southern California. I never knew a human being at the job. And my mother would say, honey, you work for other people, you're only as good as yesterday's paycheck. They don't save their money. They spend it as fast as they make it.

Starting point is 00:04:45 They paycheck to paycheck. And my mother would say two things. Only two things that she cared about. Are you saving your money and are you sleeping? Do you notice school wasn't one of them? One of the asses. Maybe tell me the origin story of the very first. Kinkos, which I think was like an 8 by 12 store. How did that thing come to be?

Starting point is 00:05:07 I was in USC. I graduated at the 2-0. I was in a class. You had a group project. And I made a deal with the group that they wrote the paper. I'd get them Coca-Cola. I'd get them pizza. I'd do if they wanted. And so they wrote a document, maybe 100 pages. And I had to make about eight copies of it. There was a place by USC that made Xerox copies. And there were all these people online. And I could I'd drive by it at night. They were Xeroxing, Xeroxing copying. So I figured, well, if they're copying at USC, why would these same people copy at Santa Barbara? So I opened up, it was basically a garage, paid $100 a month rent, had a copy machine. Then I figured the first day of school, every student needs a notebook and pen. So I'd put my notebooks and pens in the sidewalk

Starting point is 00:05:52 and have a sidewalk sale for stationery. I sold $2,000 a day with the notebooks and pens. The pathos me is why doesn't some industrious person go around a college campus? was the first week of school, but prior, have an illegal stand where you sell them up bullshit. I just don't know if there's enough hustle in this world. What was the hustle like early on? You mentioned the stages of being an entrepreneur, first starting with managing and then more towards policy as the thing gets bigger.

Starting point is 00:06:18 Talk about the ideal progression of an entrepreneur in your mind. I'm not a capable person. I can't read well. I'm not mechanical. And I'm extremely restless. So if you have these three great attributes, you realize anybody else, you realize anybody else can do it better, which is true. Anybody else could run the Xerox machines better. I couldn't sit still. I hated being in the stores. So the best way to tell people you trust them is just leave them.

Starting point is 00:06:41 So I was leaving the stores constantly and I was hustling, passed out flyers. I was my restlessness, not mechanical. So I never really knew how to run these machines. I was lucky enough to have these skillsets that helped me a great deal. Sometimes the key thing for an entrepreneur is a simple recognition of a problem and then the marketing around that problem to the customer. What have you learned about those two topics? Maybe starting with recognizing a real customer problem. Oh, that's what you do all day long, isn't it? Maybe you do.

Starting point is 00:07:11 I'm just always thinking about how to hustle. It's just in my soul. Thinking about how to promote the sale. And I like sales a lot. That's if I was good at anything, I love sales. What did you enjoy most about it? Was it just the challenge of it, the competition of it? What they don't offer in business schools, I teach it to business schools now,

Starting point is 00:07:29 is a course in sales management. We don't realize there's different kinds of sales. A used car dealer has a one-time closed. But a lot of people are in relationship sales, like a drug company. I was more of a relationship sales. So I didn't have to necessarily have a close with a customer. I was always saying where I'm in business, I'm in copy, and can I get your printing from you?

Starting point is 00:07:49 That was in jail. Can you talk about the process of once Kinkos was more established, more stores, the amount of time that you would devote to going into each of them and finding what was working well and how you disseminated that to all the other managers. I love that story. Most people will brag about how many hours they work, which is a bunch of bullshit. If hard work is what you're worrying about all night long, I was a hard worker because I was always worried.

Starting point is 00:08:17 But as far as the height of my career, the most I ever had to do was maybe eight hours of work a week with phone calls and correspondence. eight hours. My job was really going store to store looking for what people were doing right at exploiting it. Every one of those locations that we had, there was something in there that was a nugget for all of them to follow. So that was my job. Anybody can be an executive sitting in their office and worried about what's wrong. You find out what's right and exploit the hell out of it. Do you have a memory of finding something that a manager was doing that blew you away? In San Diego, we had a color copier and we had calendars.

Starting point is 00:09:00 You take 12 months and put pictures on the top and the calendar on the bottom. We sold them for $30 a calendar, and they cost us maybe a dollar and a half to make. You think that's a good business? Pretty good. I was wandering in the reserve bookroom one day. Bookroom in a college campus. A teacher would say, well, I put this book on reserve. It's too expensive for you to buy.

Starting point is 00:09:22 I'd like you to read it for the final. Now, when do you think the students are going to go and look at the book, the night before the final? So I had a little flyer with four of the spellings, pass it out at the college campus, I said, hey, professor, next time, leave things unfil with kinko's as well as a reserve bookroom. Well, these professors went crazy. They're now called readers. I would say 15% of the books in college campuses are done by the professor putting their own anthologies together, original material together, or it's on Internet that they've created.

Starting point is 00:09:53 So the textbooks, we competed with the textbook business. At that point, when we had that publishing business or the copying, the manufacturing, the textbooks, I knew I had a concept that could go to any college campus in America. It wasn't hard to find out my target market. Generally, a state will name a school after themselves, like Alabama, University of Alabama, University of Ohio. I mean, it really wasn't hard to find out where the target market was. How did you get these messages from your brain to everyone else in the Kinko's network?

Starting point is 00:10:23 nagging. Professional nagger. I was. I swear to God, nagging. Repeat, nag. You see it as a delicate balance. Because if I'm running a military organization, it's Theory X, people do what they're told. President Eisenhower said, when I was a general, people just did what I told me to do.

Starting point is 00:10:42 I became president of the United States. People just don't do what I tell them to do. There's different skill sets. I was hurting a bunch of cats. That's the only way I could have run it. Because I have to rely on the individuals at these various locations, having the self-esteem and self-worth to figure it out for themselves. And when you figure it out for yourself versus being told what to do is a delicate balance, I had to nag a bunch of empowered no people.

Starting point is 00:11:09 You know what an empowered no person is? No. That's somebody in the organization, hey, they've had empowered, and they just don't want to do it. So, government's a good example, a bunch of empowered knows. I've always done it this way. why should I do it tomorrow differently? Interestingly enough, leaders are in the future or an owner, managers in the present. That includes that chief executive officer and accountants are in the past. So you've got to remember what tends you're talking to because their managers are upset themselves for not doing what they didn't do yesterday.

Starting point is 00:11:39 I never had that problem. I was always worried about tomorrow. You defined a great business as one that makes money when you sleep, not when you work, and you have this great idea of working on not in the business. we've already started talking about this in many ways. How do you think most entrepreneurs could do more of this more effectively? Is it just about delegation at the end of the day to free up time? Is it just a time problem?

Starting point is 00:12:01 Well, it depends on the business. If you're in the investment business, really is hard to delegate some of the responsibility. So if you're a dentist or a doctor or one person pharmacy, it's hard me to tell you, get out of the way and open another pharmacy. When we started expanding, we would have two and three workers in a location. The leader of those stores, by nature, knew everything about all the things in that store. I left a business 20 years later that had 50 workers over 24 hours a day. The workers we used to have knew a lot about things.

Starting point is 00:12:34 The business I left, the leaders knew a lot about people. And you have to analyze yourself. Go to your rubber ducky at night and say, do I feel comfortable having other people do things for me? Or do I feel comfortable with the vagaries of human beings and the, inconsistency of human beings. I was lucky when I told you anybody else can do it better, and I really believe that. Look at the Maytag repair person. Spouse says, why don't you manage a bunch of other Maytag repair people? He has a nervous breakdown. He or she has a nervous break down. They're not comfortable managing people. Thing people have a lot of problems

Starting point is 00:13:08 with people people. And you've got to go to your rubber ducky at night and say both are correct. Do I feel comfortable being Solo Suzuki, or do I feel comfortable managing people? And managing people are difficult. What do you think are some of the most interesting things that you changed managing people over 20 plus your time horizon? What did you get better at versus what you were naturally good at in the area of managing people? Oh, my insecurities. How so? Basically, you're an insecure person. Everybody is. And so I think managing myself is probably my biggest problem. God, I just used to inflate. And I was always paranoid in business. I was always a person across the street trying to think how I was going to wipe myself out.

Starting point is 00:13:51 What did I become good at? Just getting out of the way of people. Best thing you can do is get out of their way sometimes. There's a great line you said, which is kind of the opposite, which I'd love to explore, which is that a good salesperson will sell you broke. Maybe there's a class of people that you do need to intervene or have more guardrails around. What does that phrase mean that a good salesperson will sell you broke? Well, my dad told me a good salesperson sells you broke.

Starting point is 00:14:15 Meaning, if you listen to your salespeople too much, You're never going to have enough inventory and you're never going to charge them. They're always going to be aggravating. A good salesperson will aggravate the holy hell out of you. And good subordinates will aggravate you. Whenever you talk to your people, they should be bringing up stuff you don't want to hear. My dad surrounded himself with people that he had to hear that aggravated him. I could see that.

Starting point is 00:14:37 There was built in tensions between all the groups he had to manage. What do you think about disagreeableness as a positive characteristic for people in business or people in general, I guess? If I could go back and rerun my business, I think we were too much get along and too much consensus building. Looking back, I think we should have had more healthy disagreements. And I would have injected our company philosophy and the value is candor. Sometimes I don't think we were candid enough of people. That's a bigger regret I had. This candor wasn't respected as much as get along. Do you think candor's different from disagreeableness? Well, I think they're synonymous. Do you think that there are people that are better at recognizing

Starting point is 00:15:17 the difference between how something is and how something ought to be, and that drives them nuts, and that's sort of disagreeableness. Well, things are never going to be like the odd to be. That's one of the ambiguities that run in a business. It isn't perfect. Look at Da Vinci, if you came back alive and said, you know, I could use more pink on that part over there. You're an artist in business. It's not a science.

Starting point is 00:15:36 Business is an art for it. It strikes me that somewhat funny that you teach in business school now, given some of the lines about your student, you've got another great one that says, the C students that run things and the D students that have buildings dedicated to them. And the A students maybe work for them. My mother's quote was, you know, honey, the A students work for the B students. The C students run the businesses and the D students dedicate the buildings. So with that in mind, which I think says something about leverage.

Starting point is 00:16:04 Why are you teaching? And what are you teaching? I get a lot out of it. 30 years at various universities. In my business, they were just sounding boards and telling me what the hell to do in my business. We just get a lot of it, being with young people and their ideas. I just really enjoy it. I'm an old man.

Starting point is 00:16:20 I'm 74 years old. Do you think I want to be a big shot in that country club across street, those old parts? Where these young people look at me, I have something to say. Do you teach by talking? What is your style? No one can take notes in my class. And everything is through a question. So I go all the way around a table, 25 students, and everybody has to ask a question.

Starting point is 00:16:42 And very seldomly will I answer a question. It's all about things in the newspaper, articles, and they have to ask questions. Will the riots in Iran this week affect the treaty to get rid of nuclear weapons? How in the hell would I have known that when I started the class that that would be in the news today? Or how would I know that Putin decided to have a draft and they're rioting in some parts of Russia about the draft? How would I have known that, that war is becoming unpopular in Russia? what effects could that have on possibly a tactical nuclear weapon? I believe in teaching history backwards. Why is it today? How did it get in the news or in the world? Why did it get there?

Starting point is 00:17:26 It seems like school is always some sort of syllabus about this happen when, but if you're into the current events, it's all about ambiguity. How will the immigration problem and the southern borders affect Biden's reelection to the Republicans or Democrats? And if the Republicans get elected, what will that do to physical policy? Last week we had a Federal Reserve meeting. That's a great learning experience. And so the method is you have a student ask a question that's of interest and then you peel back from that origin question.

Starting point is 00:17:56 And I never answered questions. So it literally is just 25 students asking a question in a row. Go around the room and then this really irritates me. These students have studied the Federal Reserve in two classes in business school. in microeconomics and their senior year, there's an economics course. And I ask them, one out of 100 will know the three powers in Federal Reserve. And those are major chapter headings. If I tell you major chapter headings, it's chapters about what these powers are, the reserve

Starting point is 00:18:28 requirement, the open market committee, and the federal funds rate. They don't remember it. I can explain the Federal Reserve in two minutes. Let's do it. If you take money and put it under your mattress, what does that do with the amount of money in supply? Reduces it. The Federal Reserve makes member banks put money in reserve with them.

Starting point is 00:18:46 So that takes money out of society. That's called the reserve requirement. If they lower the reserve requirement, that means there's more money in society. To raise it, that's one policy. The second one is when banks are out of compliance with the reserve requirement, Federal Reserve lends them money. That's the federal funds rate. That's when they decide to raise interest rate.

Starting point is 00:19:08 That's the one they're talking about. And the third one is the Federal Reserve prints all the money. It's completely separated from politics. And the Federal Reserve buys and sells assets. If they buy an asset, I mean purchase it something, that means that they're writing a check to society, just like the person taking money out of their mattress and spending money on society. If they sell what they have under the mattress, that takes money out of society. Those are the three powers of the Federal Reserve.

Starting point is 00:19:37 and I can explain it in five minutes, that would be one of the assignments. And then what's great is I teach at 11 o'clock on Wednesdays, and that's when they have the Federal Reserve announcement. And it's a great moment. What do students most commonly come up to you wanting after taking your class? Do they seek advice? They want solutions. And you remember Wizard of Oz, Dorothy, I want to go back home.

Starting point is 00:20:01 He says, click your heels, you have an inside of you. And so I don't know if we ever trust our own instincts and trust her own. sentence. Did your style of management where you made yourself inaccessible, you think that's the best way as a leader to teach people how to click their own heels? No, no, no, no. You can't because let's say you're designing software, you've got to be available. It depends on the business. My business was pretty simple. I didn't fight in. It was like this. You dial a button, how many copies, pushed a button and rang a register. There wasn't too much confusion. And I could leave that business. If I had a store where I sell dresses, you're worried about leakage, stealing.

Starting point is 00:20:39 You're worried about new styles in your store. It's hard to leave that kind of business. My business was pretty simple. I had some chemists I worked with, and that's where I spent some of my time. A chemist knows how to take money and turn it into shit. Guarantee you I have some chemist I work with. And whatever your organization is, you'll have the Marine Corps 10%. That's the bottom 10% that will take money and turn into the shit.

Starting point is 00:21:02 How do they do that? What is that style? A high labor percentage, or their average copy sale was too low. Just screwed up. I can't explain that a bad store would be a bad store. And they would be bad at every damn thing. You go to the bank statement department. What we didn't want is we wanted people with the bank every day, and I keep in cash in.

Starting point is 00:21:20 And you'd go in, I would get a report of who didn't go to the bank every day. I mean, there's all sorts of ways of being screwed up. And I knew who they were. And I worked on them. And I nagged about it. There's a great story of you ripping down a sign that was antagonistic to a customer in the book. What was that story? And what does that typify, a customer focus?

Starting point is 00:21:41 When I would go to the stores, very seldomly would I do a berserk? But if they had a negative sign in front of a customer that's bullshit about bounce check, $25, or the word no in front of the customer, I would get inflamed. It was a yes business. I want your money. And anybody bringing a register in my direction, I'm saying yes to. Talk a bit about the role of anger in your career in life. You wrote a bit about it being something that you've worked on over time. How did you work on it?

Starting point is 00:22:10 Why did you work on it? I was under so much financial pressure. I was a sub chapter S. We funded the whole business out of cash flow. I was under so much pressure that I would sometimes vent too much with my people. And then I found out I could be just as effective with a whisper as a shout. and actually probably better if they had a normal voice. Sometimes these chemists would drive me out of my mind.

Starting point is 00:22:33 Do you think Kinkos was a good business overall? Obviously, it was big business and it was sold and everyone did well, but where does it fall in the spectrum of bad-to-gray businesses? Well, it's a timing issue. I don't like to say this, but I'll tell you the story. I was never in my business. I was always across the street. And I knew in the mid-90s, this laser printer was going to come and kick my ass.

Starting point is 00:22:56 And so we were growing, growing, growing, and I sold the business. This guy, Bernard Baruch, said, my biggest regret he had is I sold too soon. I knew that laser printer was going to come and wipe my out from being across the street. We sold the business in 1997. And the funny thing is, is I knew we were going to have problems. But everybody inside the business love the business. And I really fundamentally believe you should not love your business. You can enjoy your business.

Starting point is 00:23:24 But once it becomes a love affair, you lose your object. activity. You have to always remember that business is an instrument that you won't it. It doesn't own you. You love your family. You don't love your business. It's become a popular thing, especially in some of the technology companies that I've held closely for the leaders, the CEOs, the founders, to clarify to their teams that they are a team, a championship team, not a family. They're not there to love each other and support each other. They're there to win or serve the customer. And if you're not doing that, you're out, just like you would be on the Yankees or the Lakers. I can understand that because we had in our company value statement, which we're all part of the Kinko's family.

Starting point is 00:24:03 Towards the end, we were questioning if we wanted that is one of the core values. Also, for diversity reasons, a family I'll look alike. We were questioning that at the end. If you had my job and you had to financially back people in business where it was early, what characteristics would you look for in the founders? Well, here's how I used to interview. I never did it at the desk because I was ours nervous. table. I never liked the table. I'd take them out to oatmeal, and I'd see how they treated waiters and

Starting point is 00:24:31 matrices. And J.C. Penny used to say, if they salted their food before they tasted it, think that that might be a little premature. You just notice little things, and one of the good things about taking somebody to dinner is you see what they're like when they're drinking. In Latin, in veto veritas, in why there is truth. And I always ask at the dinner, something about the holidays. and let's say, like Christmas, we were able to go home for Christmas or whatever, and then say, well, I was too busy. My drive 200 miles away was too much for me to do that X-O. If they weren't nice to their parents, they weren't going to be nice to me.

Starting point is 00:25:08 Those little techniques I used to decide people if I wanted to work with. What about just qualities of a business that if you were to rerun this whole story, you would cultivate more or less than you did at Kinko? You saw the threat coming, so that was something valuable. but in terms of maybe on the upper trajectory years, what are aspects of a good business in your view, just in as general terms as you can make it? All these big shots want to talk to the Wall Street, dumb shits.

Starting point is 00:25:34 If you want to know a good business, you go to the lunchroom and talk to the workers. I'll tell you the truth. Workers don't lie. They know what's going on. You know, just like a parent, you can't let her a child. They know everything's going on. If you want to know what's going on, go to the lunchroom.

Starting point is 00:25:47 Or drive with the salesperson and see what's going on. The salesperson will say, well, you know, I got this competitor. I see a big threat over there. The Wall Street folks, they don't think that way. Too frameworky and theoretical. I favorite was Wall Street did something stupid the other day. I figured some Ernie's report that was just obvious that this company was going to have problems, and it was such a surprise to Wall Street.

Starting point is 00:26:10 Like Kodak was recommended all the way to the end. Well, you could just go look at these digital cameras and say, they got a future here. But Wall Street was surprised. Don't you use your eyes outside of your computer? There's a great line that reminds me of, again, in the story where you say, don't like the word employee because employee means to use and you don't want to use people, you want to partner with them. What did you learn there? The origin of that word, duration is to employ steal. That means you've been to the will of.

Starting point is 00:26:38 So that's the origin. I wanted people to think for themselves. How do I rely on somebody in Fort Collins, Colorado, if they work south, rely it? Once you had a concept that worked, the box, the store, what was the strategy for where to go next. We see university's name of school after themselves. And I told you I was a lousy student. And so in college, the catalog first came out for the courses. I'd go to the professor and say, you know, I'd love to be in your waiting list, Professor

Starting point is 00:27:03 Jones. And said, sure, you could be in my class. So I'd show up the first day of class, and they would naturally give me the class. That's an ounce of prevention. We did the same thing with all the landlords through all the country. We'd find out who the landlords were and they'd write on a letter. Back then they had poster stamps and say, the next time you have a vacancy, let us know. We got the best vacancies throughout the country for our stores. What was the most clever

Starting point is 00:27:26 marketing strategy you ever designed or deployed? Well, probably that publishing business were the calendars. I just talked about. Then I remember I was four cents a copy. I thought, wow, I could go to four and a half cents. It doesn't mean many things. Four, four and a half. Who cared? So I discovered a half cent. Simple as that. That's a high percentage growth and revenue. Yeah. What did you learn about spreading the glory versus the most? money. I love that turn of phrase. People will do a lot for glory. Look at the military. Now, anybody in their right mind, would they go and say, I want to attack that machine gun for $50 million? No one would. But they give you a little feather in the military, and you can't wait to

Starting point is 00:28:03 attack the machine gun. You look at the military, they do a lot with glory. You give the glory, keep the money. I got more out of a thank you than anything else and a basic recognition. I learned that from a guy named Dan Fredrickson. He was the president of the company, and he was very good at recognition. What did he do so great? He would recognize people with best co-worker of the month in the stores. We had to have a picnic once year, a company convention, and he'd give out plaques and pins for how long they've been with the company.

Starting point is 00:28:31 Those kind of things really went a long way. What do you think of the state of entrepreneurship today versus when you started? Well, they're a highfalutin computer type people. I've just baffled it, just the down and dirty way of making money. But that case would point takes up viral notebooks, put them on the campus the first day of school. These parking lots, I just baffled. We have his town. I look at Montecito. And you can't park your car. And this guy I know has all these vacant land. A parking lot puts a barricade up. Now, if I was an industrial high school kid, I'd say, I'll pay you $200 a night. Can I park the cars

Starting point is 00:29:02 here? You know, you have a backpack full of coffee. And you go to the theater and you say, well, I've a cup of coffee for you. It's $4 a night. Or you go to the drinking districts. Pour coffee. You can give a milk and sugar. I saw this thing. You could probably get 50, cups of coffee out of one of these backpacks. That's $300 or $250. You could probably sell it in two hours. I was with my kids and we did a lemonade stand, but why do it in front of the house? I put it right in front of the market, supermarket. We sold so much damn lemonade and cookies. I had to go back into the market by the lemonade and the cookies in the market. We'd sell $200 of cookies and lemonade at an hour. Then I take my children to the bank right away,

Starting point is 00:29:44 and they really understood I was really into savings. My wife was into the school thing. Next slide. I really cared about them having money skills. How did you instill frugality and the saving mentality in the business? Oh, you know, where do you use environment? You use the word environment as core value, meaning we're environmentally friendly. I mean, we're shut off the lights to stop waste the money here.

Starting point is 00:30:09 That's simple. Was it from your parents? Say more about the emphasis on savings. It seems like a key theme through your life. Do you think that out of the birth canal, I was thinking, I can't get a job and have to do with my savings account? I figured that out real young. I noticed my uncles who I admired a lot in their 50th birthdays. They had come back from the war. They saved their money and they bought liquor stores and bars. And then their 50th birthday, they lived off their real estate. I'm either saying,

Starting point is 00:30:37 now you want to end up like Uncle Nick and Uncle Amel, their biggest decision every day is where am I going to eat lunch. That's one source of motivation. How do you think about what motivated you the rest of the time? Money. I was motivated by money. I don't like to read. Why in the hell what I care about? Xerox copies are binding and that bullshit.

Starting point is 00:30:56 I was motivated always by money. And I used to tell people I worked with this anecdote. I didn't get married to us, 36 years old. I'd go to my mother's house and she'd say, honey, when are you going to get married? So one time she said, when are you going to get married? I said to her, I'm tired of you asking me to get married. And so she said, okay, I'll never ask you when you're getting married, but when I look at you, you'll know what I'm thinking. I told people that. I'm into it for the money and we're about the money here. And some people, they think talking about money is kind of hippie-esque, uncool shit. I was into it for the money. And I knew everybody I worked with it. It's about the money.

Starting point is 00:31:35 That sounds like very counterculture in some weird way, even though in some sense, obviously what everyone in a for-profit business is after. or maybe not, maybe they're after other things glory or whatever. Why does that seem countercultural or something? Why does that seem odd in today's lens? I'm into it for the money, but also in any business, you have to take your people to a higher level. For an example, when Stephen Jobs was interviewing Scully, he said the Scully, the guy from Pepsi-Colon, he said, what do you want to be remembered for?

Starting point is 00:32:06 Selling sugar-water to children, we're helping people rethink life. And I used that anecdote. And at Witte was a motivator. People would help our customers get a job, would help them sell something. There was a lost little girl in Spokane, Washington, kidnapped from a girl. Well, the family went to the police department first,

Starting point is 00:32:23 and they came to us second to put on it posters. Those are powerful collections to a sense of purpose. I tried really hard to get everybody to feel a sense of purpose, that we're into it for a higher message, and they're into it for the money. Who did you most admire, or who do you most admire? Well, I like this guy down the street. His name's Devon Chouinard.

Starting point is 00:32:43 He just gave all this money to the environment. I really respected him. I met him. He ran his business with absolute integrity. He was a few blocks away from our headquarters. I really admired him. He was amazing. That book of his Let My People Go Surfing is one of the greatest books on business for

Starting point is 00:32:58 sure. What was he like as a person? I only met him a couple times. I just heard about him. I saw an interview where he doesn't want people buy new clothes. He wants to repair the old ones. I just thought that the guy was absolute integrity and honest to himself. Do you feel like that was ever breached in your career?

Starting point is 00:33:13 Did you learn anything about alignment of integrity and action? Integrity is like virginity. You're only going to lose at once. And if you're people, I'm in the retail business and they can steal a cash big time. And they knew if I did anything wrong, I got the consequence. I realized there, from the very beginning, honest, scruples, integrity. Because let's say I had an extravagant expense account and my workers knew that I had both charges of the business or all that bullshit. They can hold me hostage. What was it like to sell?

Starting point is 00:33:45 You timed it quite beautifully. So that's a positive. Were there negatives? What did it feel like to sell that business? I never used to believe in arrogant people and liars. Then I did business with these people in New York and they lied. They're arrogant. And they fired a lot of good people, not because of productivity, because they were loyal to the new chief executive. And if you'll let me digress. Do you remember Godfather one and Godfather two? Yes. Godfather one, he's building an achieving organization. Godfather two, he was only concerned about who was loyal to him.

Starting point is 00:34:19 Remember the final scene how he killed people? That's the way it is. And the founder cares about the achieving organization. The guy that comes in second wants to know, are you loyal to me and not the organization? And that's what happened. We bought these people in New York. They were just ruthless the way they treated our people. That really hurt.

Starting point is 00:34:37 Now, I'll give you some advice. If you sell your business, don't stick around. It's like cutting the tail of a dog an inch of the time. Every day, I'd hurt. And the lack of common sense the people from New York had, it was just incredible. Just common sense. They didn't know our variable cost. They didn't even understand microeconomics.

Starting point is 00:34:57 You talked about how you're dyslexic, but how good are you naturally with numbers and math? I don't like algebra or X's noise. I never really got along with them. I never saw any purpose to have an X in my life. I'm really good at addition, subtraction, multiplication, and division. But if it didn't have to do with that, I wasn't really solving for X or Pythagorean theory in my whole life. And I knew I'd never read Pythagorean Theron. And in business, was it as simple as super high gross margins or some simple heuristics that were basic addition,

Starting point is 00:35:25 subtraction, multiplication? Is that what drove most of your thinking on like, we should do this or not do this? Yes. You have to understand, you have to read through the numbers. For an example, these idiots we bought from New York, we'd have this stuff called bordered, paper. And the boarded paper would go to the computer department. It was papers for parties or something. We'd go to the computer department and go to the copy department. So you get your general ledger report on cost of goods sold, and it would show 85% cost of good sold because it shrinkage.

Starting point is 00:35:55 We had to realize that the stores wouldn't ring it up in the cash register as boarded paper than the computer department and then copied. You had to see through the lines. But the pea grains in New York, guess what they did? They got rid of ordered paper. And then they had a mandate that we had to have a good cost of sales ratio. Naturally, the stationary is only working a 50% margin. And the copies our cost of goods sold was 20%. So what do you think the field does? They get rid of stationary and ordered papers. I could tell you so many stupid things they did. Back in those days, we did passport photos. It cost us maybe a dollar. We sold for $14. That's a cool business. We'd have zero customers, But the minute the Yellow Pages broke, it cost me a dollar or a customer.

Starting point is 00:36:39 $2 you sell it for $14. That's kind of cool. The new people come in and they have budgeting. Now, what do you think you can control in a budget? You can't control your rent, your utilities, various costs. You can control advertising. So what do you think the field and the headquarters got in Cahoots with? The Yellow Pages.

Starting point is 00:36:58 Now, was the Yellow Pages not a variable cost? Was it a fixed cost or a variable cost? I cost it in my mind a dollar a customer. They considered a fixed cost advertising. Lo and behold, the geniuses that the new people were, they got rid of password photos. Just things like that, I would sit there and see that the stupidity. One of the great definitions of success that you've talked about is having your adult children want to hang out with you when they grow up. Where did that come from?

Starting point is 00:37:28 And any other clever definitions of success like that that you think serve as good advice? Well, really, when you think of it, imagine having all that fancy bullshit and your kids don't want to come home for Christmas. They came from a large, extended family. I don't know. My parents are really cool. What stands out most about them in your memory? Common sense. Most uncommon sense, Mark Twain said it was common sense.

Starting point is 00:37:49 My mother, she was very wise, and she always had these people over the house talking. And most of my knowledge came from her and her girlfriends talking or my dad talking to their friends. But every time somebody would leave, my mother would say, you know, honey, you don't seem kind to your. yourself. That was just a good refrain. Are you kind to yourself? Remember little things like that. What was their impression of you as you were building the business? What was it like to talk to them about it? I could have been at two places in life. It could be at a homeless shelter today or in this big fancy home, but there's no place in the middle for a guy like me. Why not? I never could handle a boss. I just never thought of myself in the middle of anywhere. There was a child that never thought I'd

Starting point is 00:38:25 end up in the middle anywhere. I'd either be homeless, an alcoholic, and a reprobate, or in the fancy home. I just knew that intrinsically. I can't read. I'm not mechanical. What the hell do society ever a guy like me? Well, now that you are in the fancy home, what has your interest and keeps your interest most? Oh, I like the charity work I'm doing. I'm kind of give away all my money before I thought. One of the causes I'm passionate about is orthodox. And we do it for title on children. If you can remediate a child's teeth and be proud of their smile, I'm convinced they'll have less incarceration, better job prospects, and hire going to call. college, better self-esteem. And for the $5,000 investment, I think it returns a compounded

Starting point is 00:39:06 greater return for society. I'm involved with our local schools. Can you imagine a child can go to school and not know how to swim at the end of the grade school or not know how to ride a bike, yet maybe they'll learn the Pythagorean theorem. What's more important knowing how to swim? I remember learning how to swim. The self-esteem I did by just being thrown in there and learning how to calm my nerves. We get involved with schools, and we will not get involved in the state commit themselves that every child will learn how to swim or ride a bike. In California, we fund our schools by property taxes. Now, the fancy school district over here, I live in, the per student, the state of California gives them it's $36,000 a year. My only half away is

Starting point is 00:39:48 another school, and they get $10,500 per student. I just looked at that and I thought, now that's absolute chicken shit. That's my primary. causes children, getting an even break. Who stands out as the most interesting person that you ever worked with at Kinkas? Our company was a company that attracted fringe people. We had a store in Hawaii, and the person running Hawaii drove me out of my mind. So I go to Hawaii, and she introduces me to her boyfriend. He ran one of the stores.

Starting point is 00:40:16 They break up. He ends up in New Mexico at a competitor's, and he has an affair with the wife of the own, and they conspire to kill the husband. So this guy, David, the husband or wife are walking, he comes out of the bushes and kills the husband with a knife. And in the process, nice himself on the groin and gets his leg out tweeted. She calls me up from Hawaii and says, David has been in some trouble in New Mexico. Can you help him out? Murder one.

Starting point is 00:40:44 What the f I could do something about murder one? So never a dull moment. It would be the summary. What, if anything, do you wish you had done most differently, building Kinkas? Oh, I had to paid attention to computers and stuff. When you think of all the Microsofts and all that, we were there waiting for them. And if I'd paid attention to computers, I think I would have been better of all the high-tech stuff. And systems like software, much to my chagrin, I didn't pay enough attention to it.

Starting point is 00:41:11 What do you think that was? What do you think that you missed or what was it about? What was going on that caused that? I'm not because I can't read very well. I don't have email or a computer. I have a computer, but I don't have email on that. So probably because I couldn't understand them. I never took the time to really appreciate what they can do. What do you think is underappreciated about our country relative to others based on your travels?

Starting point is 00:41:32 This country is great, always has been great, and always will be great. When you look at the founding fathers and what we've done and how we all have a set of values, we buy into the system here. When you think of it, if you go to society and look what's going right, you're going to be a lot better off than look at the dysfunctionality. I go to Washington, D.C., and I go, wow, what's this building? It's Congress. They worry about stuff for tomorrow. The president just tries to manage things. And if they can't figure it out, it's too ambiguous, they go to the Supreme Court. And you go, wow, that's kind of exotic. Then you go, Federal Reserve, that's independent of politics or the FDA. Then you go, well, we don't want so much

Starting point is 00:42:08 power in Washington. Let's have some states, and the states do schools. And then the city runs streets. And you say, now that is really appropriate form of government. Decision makers are where they are appropriately placed. And it just sit in awe. and go, this is really unbelievable. And nobody appreciates. I drive on a paved street. I can have a heart attack with ambulance guns. I can push buttons and talk to anybody in the computer.

Starting point is 00:42:35 I mean, this is an amazing matter. And you go, wow, this is an amazingly cool country. I just think we've done a fantastic job in this country. And sure, we can do things better. But we basically built America, contrary to what people think is a handshake. There's a great sense of personal integrity. And I can't think of too many times or one time, the people didn't honor their commitments. You say, I'm going to do something.

Starting point is 00:42:59 They do it. It seems like the most honest people seem to be doing the best in society. I think your story and your history is one of the most interesting and fun to explore. I'm so appreciative of your time today. I ask everyone I talk to the same traditional closing question. What's the kindest thing that anyone's ever done for you? I actually, example, the day my wife thought I wasn't going to be exercised for a few days. And she took me in maybe exercise.

Starting point is 00:43:21 I don't want to do it, but that's kind. I think little things your spouse thus for is kindness. Kindness probably begins at home. I always always baffled with people that were so kind with the outside world and forgot their family. Little acts of kindness to your family or your employees, your workers. Their problems are your problems. For an example, if I ever made money, I think about at the end of the year what kind of extra benefit we could have for our workers.

Starting point is 00:43:48 You know, it's deductible health care. When I left, I found the same-sex benefits. This is back in 1995. I was proud of that. I don't know if that's kindness. But you always got to put yourself in the other person's shoes. Is there any other big overarching lesson that you feel like you've earned or know in a deeper way than most people you encounter do that you wish you could share more? Well, you have to remember I had so much rejection as a child, from women and schools getting expelled and socially.

Starting point is 00:44:17 And I think it makes you either kind because you understand how other people, people who have it hurt, where you become invittered. I don't know, for some reason I became more empathetic. I think empathy is a prerequisite to have in your own business, understanding where people are coming from your workers. Interestingly enough, the first quality a baby acquires is empathic behavior. And the last quality you lose, and Alzheimer's is empathic behavior. So we're born with empathy, but we forget it.

Starting point is 00:44:46 Mistakes, when you think of it, mistakes don't cost you. For an example, two billion years ago, there was much of pond scum. We evolved from pond scum. If mitosis was perfect, and those cells split perfectly, we would never evolve. But was the imperfection of that splitting of the cell that had us evolved? We evolved from imperfection. It's a wonderful, wonderful, dot. So don't be so hard of yourself. That's one of probably the best thing I've learned is. Not so tough of myself as I used to be. A wonderful place to close. Thank you so much for time.

Starting point is 00:45:17 One last quote, Bob Hope said, in your 20s, you worry about what people think about you. In your 40s, you don't really care if people think about you. Then you get to be 60, you realize no one ever thought of you in the first place. That's so true. No one's thinking about you nearly as much as you are. It's a total blast. It's really nice to meet you. If you enjoy this episode, check out join colossus.com.

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