Motley Fool Hidden Gems Investing - Retail, Video Games, and Scaling Up Excellence

Episode Date: December 13, 2019

Costco slips on earnings and a website glitch. GameStop tumbles on flagging same-store sales growth. Adobe hits an all-time high. And Stitch Fix surprises Wall Street. Motley Fool analysts Aaron Bush, Andy Cross, and Jason Moser discuss those stories, dig into the latest from Lululemon, and take stock in an aging opportunity. They also share why they’re keeping an eye on Bill.com, Monster Beverage, and Trimble. Plus, Stanford professor Bob Sutton shares insights from his best-selling book, Scaling Up Excellence: Getting to More Without Settling for Less. Get the first $50 off at www.LinkedIn.com/Fool.   Learn more about your ad choices. Visit megaphone.fm/adchoices

Thanks to LinkedIn for supporting this week's Motley Fool Money. LinkedIn Jobs screens candidates with the hard and soft skills you're looking for so you can hire the right person fast. Find the right person with LinkedIn Jobs. Get $50 off your first job post at linkedin.com slash fool. Everybody needs money. That's why they call it money. From Fool Global Headquarters, this is Motley Fool Money. It's the Motley Fool Money radio show. I'm Chris Hill. Joining me in studio this week, senior analysts Jason Moser, Andy Cross, and Aaron Bush.

Good to see you, as always, gentlemen. Hey, Chris. We've got the latest earnings from Wall Street. We'll talk with bestselling author Bob Sutton about how successful companies scale their businesses. And, as always, we'll give you an inside look at the stocks on our radar. But we begin with big retail. Costco's first quarter sales came in lower than expected. management put part of the blame on Thanksgiving being so late this year. Andy, I'm not indifferent

to how the calendar affects businesses, but I don't think Thanksgiving being late in the year had anything to do with Costco's website being slow this quarter. Well, that is true, Chris. They did have a little trouble on their website during the Black Friday Thanksgiving period. But big retail is right, Chris. They're so close to 100 million cardholders. They're at 99.9 million, up from 98.5 million at the end of the fourth quarter of last year. Overall, it was a pretty nice quarter from my perspective. Total sales up 5.6%, membership fee income up 6.1%. Renewal rate still very strong at almost 90% when you look across the world, about flat with last year. Their executive memberships are now at 21.4 million.

that was up a little bit from the end of the year. Comp sales up 5%. Chris, you mentioned the website. So, the Thanksgiving period did fall out of the comp period, but they also report monthly kind of numbers. So, we knew what they were looking at. And overall, it was still the 5% to 6% of comp store growth, some nice e-commerce business growth. But they did leave some on the table. I talked about it at the call. Their website problems did leave a little bit of e-commerce was up very nicely, but it could have been a little better, had their website performed a little better during the holiday period? Yeah, I've always wondered. I mean, I think Costco is a great example of one of

those membership models that has just proven to be so successful over time. And over this past year, I can't believe this, we joined Costco for the first time ever. I mean, we were never Costco memberships. I'm sorry, Mac. But as I mentioned before, we're doing some bathroom renovations at home, and we thought maybe having that membership, we could shop around. It turned out we didn't use it at all. So, I'm going to be interested to see in a year, will we renew that membership? And really, for Costco, that is the business, right? It is those members. So, it's just going to be noteworthy to see not only those membership renewals, which they've historically just maintained so nicely, but also how high they

can keep pushing that price. Because it does seem like we're running into a world where even Prime memberships are coming under fire now for how pricey they can be perceived. You know, the other really interesting thing about the call is, they got asked the question about order-online pickup, especially with the success we've seen at Target and Walmart, for example. And they said it's just not something they're focused on. They look at it, the CFO actually said it's kind of a head-scratcher to us, considering the way that people shop at Costco. So, they have no intention of going aggressively after that, they're just kind of watching it because of that experience shopping at a Costco.

I feel like maybe in school, there's some secret class where they teach people how to be Costco shoppers. I'm just always astounded by how full those parking lots are and how many people use Costco for their regular shopping. I mean, it's a wonderful deal, it's tremendous value, don't get me wrong. But, I mean, you're not born knowing that, right? I mean, it's taught somewhere at some point, right? Yeah, and people appreciate it, too. Apparently. Shares of software maker Adobe hitting an all-time high this week. Fourth quarter profits

and revenue came in higher than expected, and Adobe getting higher subscriptions in that core digital media business, Jason. Yeah. I think, oftentimes, investors will overlook bigger companies that they feel like maybe the companies have grown so big that the low-hanging fruit has been picked, the returns aren't there for investors and it's not a worthwhile investment. I think Adobe is a great example of a company that just blows this idea completely out of the water. When you look at a lot of the numbers that they're chalking up, it's really just astounding for $140-plus billion market cap. quarter 4 revenue was up 21% from a year ago. Non-GAAP earnings per share up 25%. I'm really

excited about the Adobe Aero platform they're developing for augmented and virtual and mixed reality. It was really neat to see how much focus on the document cloud there was in the call, though. Document cloud revenue for the quarter of $340 million was up 31% from a year ago, and $1.22 billion for the year. That was up 25%. So, we talk a lot about DocuSign on this show, and we talk about their competition in the space, Adobe is one of their big competitors, very similar-sized businesses when you talk about what they're focusing on. DocuSign revenue was up 40% for the quarter last year, for context. So, there's clearly some jockeying going on there in that space.

I'm making my bold, reckless prediction right here, right now, for you three around this table and all of our listeners. I think 2020, Adobe buys DocuSign. because that would give them access to the small and medium-sized businesses that really have taken to DocuSign's product offering so early. Well, in a couple of weeks, we'll have our preview show for 2020, so you'll need to come up with a different reckless prediction for that. Well, I mean, I'm sure people will probably forget what I just said anyway, and I can just use it again, right?

Yeah, so this is a comment that's less about Adobe and more about software in general. But I've told Jamell this a couple of times. I keep on forgetting that Adobe is like a $150 billion business. Isn't that just nuts? And to me, it's a good reminder that some software companies are just going to be massive. And when we look out across a lot of the other smaller players, like DocuSign is a $10 billion business or so, a lot of these businesses that a lot of investors are saying are overvalued are actually going to turn into multi-baggers because companies like Adobe are showing that

it's possible. And so, that's exciting to me. Well, it's not just a software company, but it's an exceptionally profitable software company with margins near 30%, returns on capital close to 30% too. So this is a business, like you said, Aaron, that just sometimes doesn't get the respect that it deserves because while it's been around a long time, the way they've totally changed their business and really focused on the cloud and new innovations is going to drive that business forward. Yeah, the reliability of the subscription revenue and the focus on their market, that creative market that they focus on, as long as they keep investing in bringing new and awesome

products and services for people to use, people are going to keep re-upping. They're going to recognize a little pricing power as time goes on. And this investment should just continue to really perform, I think, for foolish investors that take that long-term view. Same-store sales for GameStop fell 23% in the third quarter. Coincidentally, that is roughly the same amount that the stock fell this week. Aaron, the video game industry is booming. This is a video game retailer. How is it this bad? So, I'm about to go off right now. So, bear with me. This situation is so bad that, in a lot of ways, you can't help but laugh at the absurdity of what's going on. So, let's set the stage.

The future of video games is going to be entirely digital. GameStop is a physical store that sells mainly physical goods, red flag. They have over 5,000 stores, which, for those counting, is more than the number of Chipotles and Chick-fil-A's combined. And every attempt to pivot they've ever taken, buying a mobile phone company, buying an in-browser gaming business, they've all emphatically failed. Oh, yeah, and their net debt is three times their market cap right now. So, yeah, that's setting the stage. And there is some cyclicality in the gaming business. Obviously, when your same store sales go down 20-something percent, that's a bit more than cyclicality. And I'll also say that GameStop has gone through a pretty

insane executive turnover. It's not getting better. The most recent CEO, the current one, George Sherman, who started in April, is acting like he has absolutely no clue how to run the business. So, check this out. Since July, GameStop has repurchased a third of the company's stock. O'Reilly. Well, it's cheap now. O'Reilly. So, I don't know. George, what the heck are you doing, man? Are you trying to kill your own company? You're getting paid millions of dollars to just buy back your stock. This company, and this is something all investors, all activists, all board members

just need to hear, this company is overextended. It's on the wrong side of history. It's overleveraged. And instead of putting their cash flows to work to save the business, they're not even handing it out in dividends to shareholders anymore. They're literally just lighting money on fire to repurchase shares of a business that will die unless they spend that money some other way. So yeah, maybe maybe at this point they can't save themselves they've shot themselves in the foot like a while ago and are already bleeding out um it's it's just so bad so if they want to save themselves they got to get rid of this guy as quickly as possible they need to close down their underperforming stores as quickly as possible and they need to start experimenting with like

alternative floor plans as quickly as they possibly can to become a place that doesn't just sell gaming goods, but sells gaming experiences. Whether that means partnering with amateur e-sports leagues, startups that are doing cool location-based VR-type stuff. Essentially, they need to do everything they can to make their locations, build communities, showcase the future, and in simplest terms, just be a place where people want to be. They're just failing, and it's so abysmal. We got some other news in the industry this week, and that is, we got some more details on Microsoft's next-generation Xbox, which to this point had been referred to as Project Scarlet. So, what details are most exciting

to you, and why do we have to wait a year for this? Because that was the other thing I noticed. Like, oh, we got some more details. It's like, yeah, it's basically December 2020. Yeah. So, both the new Xbox and the new PlayStation, the PlayStation 5, will come out around holidays next year. Typically, console cycles are pretty long anyway, so it's not that surprising that people are starting to talk about things earlier than normal. But I also think with consoles, we're going to start seeing them start to reflect more phone plans, where you have upgrades and you start paying them off monthly. What they're doing, they're framing this up as the Series X. I expect in the same way that they launched the Xbox One and then

had the Xbox One X and One S, that this will just be a series that gets updated slowly over time, so that people won't have to wait so long to get the next version going forward. Well, if you want, Microsoft CEO Satya Nadella can just go through his furniture, find some change, buy GameStop, and then they'll have a showcase for the new Xbox. I think Satya's a little smarter than that. Coming up, we will dip into the Fool mailbag and give you a few stocks for your watch list. stay right here. You're listening to Motley Fool Money. As always, people on the program may have interest in the stocks they talk about,

and The Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear. Welcome back to Motley Fool Money. Chris Hill here in studio with Jason Moser, Andy Cross, and Aaron Bush. Stitch fix on the rise. The company broke even in the first quarter, but Wall Street was expecting a loss, so that was good enough to send the stock up 10%, Andy. Yeah, a little different than last quarter when we saw the reverse, and the stock was down pretty big on the day of their announcement. Active client counts up 17%. That's one number I watch pretty closely, and it's been right around there for the past couple of quarters. That's good. Net revenue was up 21%, which

I think has gotten a lot of people excited. The big kind of innovation they've been pushing over the last few quarters are these direct buy initiatives. So, shop your looks, shop beer colors. They continue to see some nice results with these tests as they go out, so allows people not necessarily to have to always depend on these shipments that they get from their stylists, but actually they can go on and, through some improved algorithms, make these purchases directly. And that's starting to have a little bit of an impact. They raised some guidance for the year after this quarter. So, the stock really had not performed very well over the last few months, and we saw that rebound this quarter.

Lululemon's same-store sales in the third quarter were up 17%, but that just wasn't good enough for investors, Jason, and the stock down 4% on the report. Lululemon's getting it done! Well, yeah, we wouldn't have said this probably a couple of years ago, certainly a few years ago, but the biggest risk for a stock like this right now is valuation. Because when you look at the business, it really is firing on all cylinders. Hey, Ron, how you doing? The valuation doesn't leave a lot of room for a hiccup, and we know in this space that's likely to come at some point, but I don't think that's anything that owners of the business should be worried about today.

I mean, when you look at the numbers that they continue to chalk up there, top-line growth of 23%, comps up 17%, direct-to-consumer now represents 27% of total sales. They did pull back on top-line guidance for the year just slightly, which probably led to a little to the market's trepidation. And I did notice inventory levels are creeping up there a little bit. So, it's nothing terribly concerning, but we should keep an eye on it as we watch the margin picture continue to unfold. But for now, I think this is a business that just continues to impress. And like Under Armour, we talk about, they've got great products. This is what happens when you have great products and you run a great business. So, Kevin Plank,

why don't you take some notes? Radio at Fool.com is our email address. Question from Rob in Massachusetts. He writes, I'm 33 years old, been investing for a little over a year and really enjoying myself. Recently, I came across some amazing numbers in regard to the aging population in the U.S. and the number of people who need or will be needing some sort of incontinence product. How do I invest in this market opportunity? Thanks for all the great shows. I'm a cheesemaker, and the Motley Fool podcast keep me well-occupied during the long hours of washing cheeses.

Thank you for a great question, Rob. Thank you for making cheese one of the great products in the world. What's the move here, Andy? Yeah, I think sticking with probably the big, large consumer product goods companies like Kimberly-Clark, I think, is one. That's probably the play. It is definitely a market that is getting more and more attention to help older citizens. So, I think it's probably bigger on the consumer side, on the big players like Kimberly-Clark. Yeah, I have absolutely no idea how to capitalize on this trend. Never thought about it before, Andy's probably right, but I sense a deeper, darker conspiracy here.

Does anybody find it ironic that a cheesemonger, the creator of one of the least lactose-friendly foods, is curious about profiting from products that will only benefit from lactose intolerance? So, I don't know. I'm thinking that Big Cheese is trying to profit on both sides of the digestive system here. I'm not going to sit here and let you badmouth cheese, and the fact that I'm in big cheese's pocket has absolutely nothing to do with it. Let's get to the stocks on our radar this week. Our man behind the glass, Steve Broido, is back, and he's going to hit you with a question. Andy Cross, what are you looking at this week? Steve, the hot IPO this week, Bill.com came out, and the stock did really well, up 60%. It's now valued more than $2 billion. They provide

business processing for small and mid-sized businesses, invoicing, payable, that kind of stuff. Really interested in this business, cloud-based, very friendly, and there are a lot of small and medium-sized businesses out there who continue to use paper-pushing initiatives, and they need to move into the digital space. So, Bill.com can help them do that. And the ticker symbol? B-I-L-L, Bill. Steve, question about Bill.com? So, that's a pretty clever URL they got. What do you think they paid for it, just out of curiosity?

I'm assuming Bill, somewhere, some Bill, bought Bill.com and they had to buy it from him. Yeah, maybe true. I don't know, Steve-O. Jason Moser, what are you looking at this week? Yeah, new one, I think, for our universe here. A company called Trimble, ticker is TRMB, and at its core, Trimble builds software that connects the physical and digital worlds. So, clearly, right up my alley. It does serve a number of different markets, from construction and engineering to energy, aviation, and beyond. And specifically, it's Trimble Connect that has me interested. That's their mixed reality platform. They've partnered with companies

like Microsoft and Neurable and Magic Leap, among others. CEO Steve Berglund has been there since 1999 running the show. So, I'd like to see leadership that's been there for a while. This is one that's on the watch list here for our augmented reality service. Steve, question about Trimble. What company are they trying to disrupt in this space? Well, very much similar to what we're seeing from Dassault Systems and from companies like Autodesk. Aaron Bush, what are you looking at this week? I'm looking at Monster Beverage, ticker MNST, which is a super easy business to understand.

They sell energy drinks. They make lots of money selling cans of liquid. The stock has underperformed over the past five years or so, but I think now it's finally at a point where it'll start outperforming again. The brand dominates in the U.S. They partnered with Coca-Cola to be able to tap into their global distribution system. That's clicking into gear. Both Europe and Asia are clocking in over 40% growth. I think this is a business they'll be able to do double-digits EPS growth going forward and where the price is at. I think it looks pretty compelling. Steve, question about Monster Beverage?

Seems like the world is trending healthier. Is Monster a healthy drink? No, but believe it or not, energy drinks are still growing something like 10% as a trend around the world. So, I'm not too worried about people shying away from Monster right now. You're more worried about cheese eaters. Yeah, I'm really worried. Trimble, Monster Beverage, Bill.com. You got a stock you want to add to your watch list, Steve?

I think Trimble. Let's go with Trimble. Jason Moser, Aaron Bush, Andy Cross Guys, thanks for being here Up next, a conversation with best-selling author Bob Sutton Stay right here, you're listening to Motley Fool Money Welcome back to Motley Fool Money. I'm Chris Hill. For more than 30 years, Bob Sutton has

taught at Stanford University. He's the author of several bestselling books, including Scaling Up Excellence, Getting to More Without Settling for Less. Last month at the Motley Fool's annual meeting, I talked with Bob in front of a live audience about what works and what doesn't work when it comes to scaling. So let's get into some of the things in the book. And one of the points that you make pretty quickly on is the idea that if you're looking to spread excellence around, one of the most effective ways to do that right off the bat is to find the things that are negative and subtract those. So there's a famous management book, some of you may have heard of, I think the best selling of all time, perhaps Good to Great by Jim Collins. So our mantra is

it's the opposite. It's bad to great. So when you look at situations where you want to spread something good, the first order of business is to get rid of bad stuff. And if you want to go to some of the basic social psychology, kind of think of some of the elements of your life. First of all, let's start with your personal relationships, because that's a good place to start. There's great long-term studies that show that, the studies happen to be of long-term heterosexual married couples, but I think this works for everybody, that if you go below five to one, so every time you have a bad interaction with your partner, you don't make it up with one good interaction, things aren't going to last.

So just as somebody who's been married and living with the same woman like virtually forever, as soon as I heard that research, I say to myself, if I've been bad, I have to be good five times in a row. So that five to one rule is very powerful. and then the other sort of finding more in the workplace is there's good evidence in a small team if you've got a deadbeat

a jerk we heard a mention of jerk I wrote a book called the no rule so that's the word I use but if you've got one person like that in your team it brings down the effectiveness of your team by 30 or 40 percent there's two reasons one is bad behavior is really

contagious the other one so maybe some of you have a bad team member in your team right now. What tends to happen is you spend more time dealing with that difficult person and less time actually doing the work. So if we fast forward to sort of scaling situations, if you look at what some of the most effective scalers do, we were talking about last night at dinner, Carlos Brito, who's the CEO of InBev, which has bought virtually every beer company in the world just about now, Budweiser, Stella, and so on. His perspective is the first order of businesses to get rid of the bad stuff so you can make way for the good stuff. So yeah,

so bad is stronger than good. And good is wonderful, but a little bit of bad can ruin a lot of good. So people can be fired. Yes. What is the process for looking at a suite of products or services and sort of beginning to analyze, okay, we're doing all of these things currently. Right. Should we maybe streamline these, get rid of some of these, and that can apply to products, services, or even marketing messages? Well, so to me, there's two parts of it. One is getting rid of the bad stuff. And some of you may know the story that when Larry Page took over as CEO, it was probably eight or ten years ago, of Google, he actually went to the Wikipedia page to see all the different products.

because in the old days of Google, they were massively decentralized and everybody could do whatever they wanted. They sort of have some guardrails now. And he used the Wikipedia page to identify all the different sort of products that Google had. Most of them, they were sort of like walking dead.

They were zombie products. So that's just the notion of getting rid of pure complexity. So to me, there's two parts of that. One is just getting rid of bad stuff. So you've got destructive people. You've got products that are driving customers crazy. You've got bad processes.

that's part of the bad and the other part and this is a big part of scaling is that just pure cognitive load so we do all sorts of things in organizations to unwittingly put more weight on our mind and the more weight that we have in our mind the harder it is for us to do what we think is right just because we're dragged down by it so that's why huggy rao and i are really quite obsessed with organizational friction now you were talking before you used the word guardrails this gets into another part of the book that I find very interesting, and not just because I was raised Catholic, but the whole concept of Catholicism versus Buddhism is something that companies, as they grow, tend to wrestle with, shall we say, in terms of whether it's, we've got

one location, and we're, you know, we're selling coffee, and we're looking to open up 500 locations, But I'm wondering if you can share a little bit about the struggles and the opportunities that companies have when they're wrestling with those two concepts. So the Catholicism versus Buddhism, let me describe where that came from. In every organization we work with, this challenge, it's always there. It never goes away. It's an ongoing decision for management and everyone else. And the challenge is, do you do the same thing the same way everywhere, or do you allow local variation? And just to tell you where the story came from, because it's got some investment twists, so I'm one of the founders of something called the Stanford D School, which teaches innovation at Stanford.

It's a cross sort of university unit. And in the early days, there's a guy, and you can look him up. He's got an amazing web page. His name is Michael Deering. His company is Harrison Metal. His last job was he was head of eBay North America, and then he got weird and realized he was really good at talking to three or four people and figuring out how to fund them and get them to 20 people. And if you go down the list of companies, you can look at Harrison Metal. He sold five companies to Twitter.

He did Master Class. Harry's Razors, some of you may use. He's been incredibly successful. So we're sitting there with Michael in the early days of the d.school, and he looks at us and he says, so are you going to be Catholics or Buddhists? and we look at him like what the hell are you talking about and he was raised a devout catholic and and this point was and it's a constant struggle is do you allow people to do everything that they want and think is best for themselves and their team or do you force some conformity and the answer to it in any one situation is well you got to figure out what works

because all the evidence is that at least if you want to scale fast in the beginning at least having a playbook that people focus on. This was key to the success of McDonald's in the early days, for example, certainly Home Depot and so on. But on average, what the research shows is that starting out with a playbook, a way that we usually do stuff,

and a few guardrails are really important, and then kind of adjusting it as you go into new markets and hire new kinds of employees, then you've kind of got to change. It seems like that would point to the importance on having a strong culture and also being very clear about the types of people that you hire. Yes, until it gets you to the point where you just keep replicating everybody over and over again and the world changes and you end up having the wrong sorts of people. And just to give you an example with Google, one of my students, Shona Brown, this is what happens at an institution like Stanford. I've known Shona so long that I loaned her $500 once.

She was number four at Google for 10 years. She has like $500 million. So in the early days, Shona, who was actually kind of an uppity Stanford student, and she was a Rhodes Scholar and everything, which permanently infects her mind and not always in the best place. If she was here, I would say this in front of her. And Shona was one of the big pushers in the early day of Google because she has a PhD and was a Rhodes Scholar that we're only going to hire absolutely the best, top one-tenth of one percent of people at Google,

especially people who have degrees from elite universities. And they kind of did this in the early days, but they figured out two things. So they had a real clear mindset. We're going to hire geniuses, and if you know about the early interview process at Google, they'd do 20 or 30 interviews and then not give you an offer. They had a very bad reputation, so they do all this heavy screening, but that worked great in the early days, or at least well enough to build the company, but then they figured out two things, which is that you don't need a Rhodes Scholar 4.0 genius from one of the three elite universities in the world to do everything in an organization.

You really don't, and then some of you may also know that Google has done a bunch of research where they have shown that there's no relationship between the grades that somebody gets as an undergraduate and how good of a programmer they become. correlation is zero one of the things you write about in the book and you've written about more recently is sort of the thought exercise around time travel right essentially imagine you know it comes up in the book with with the Bridgewater Academy uh-huh but just sort of the idea of stopping and trying to figure out wait this thing that we're doing right now what does it look like when it's 50 a hundred times larger or we have 50 or a hundred times as many locations. And it seems like to the extent that you can pull that off, that's time well spent.

So let me talk a little bit about time travel. There's a bunch of research that shows one of the great things about human beings is we're capable of looking back to the past and also imagining what it's like from the future. And one of the most effective decision-making tools is something called a premortem. So a premortem is you imagine it's a year from now. And in particular you imagine that things are totally screwed up and you figure out what happened instead of sort of coming with a list of here's the things that lead to success here's the things that lead to failure and and uh and just to give you a specific example for career stuff my co-author huggy has done it's a randomized experiment with a large software firm and what he did with new

hires was he had him do a failure pre-mortem and the failure of pre-mortem was it's six months from now, and you're a member of this organization, a very successful large software firm, and everything has gone wrong. You've been fired. You can't even get another job. What went wrong? And so he has

them do the, and they did success premortems too. It turns out failure premortems are more powerful, and this wasn't given to management or anything. But what happens when you look down the line a couple of years that a much larger proportion of people who did failure premortems

got really large raises, raises over 10% than the people who were in the control conditions. And so the power of a pre-mortem when you're making a decision such as a merger or rolling out new software stuff is that you don't have all these excuses. You're just looking back from the future

and trying to figure out what went wrong. Coming up, more with Bob Sutton. So stay right here. You're listening to Motley Fool Money. All right. Before we get back to Bob Sutton, quick shout out to LinkedIn, because when it comes to finding candidates that are truly meant for your business, urgency, well, we like urgency, but it can actually be your enemy. That's why LinkedIn is the place to post your job. LinkedIn Jobs screens candidates with the hard and soft skills you're looking for, things like creativity,

adaptability, collaboration. LinkedIn looks beyond the work skills and puts your job post in front of qualified candidates who match your business requirements perfectly. It's no wonder a person is hired every eight seconds with LinkedIn. So visit linkedin.com slash fool and get $50 off your first job post. Again, that's linkedin.com slash fool. Terms and conditions apply. Welcome back to Motley Fool Money. I'm Chris Hill. Let's get back to my conversation in front of a live audience with Bob Sutton about his best-selling book, Scaling Up Excellence. What has been the reaction to the book

from different organizations that you've met with? I mean, the book came out five years ago, and I'm curious if it's been sort of an ongoing parade of people saying, yes, everything that happened in this book is happening to us, or if you've gotten a reaction that surprised you. So there are certain universal elements in the book. And so we've done talks and worked with everybody,

well, Google, the Girl Scouts, the Gates Foundation, lots of investment firms, lots of nonprofits. So we've worked with every kind of organization, at least that I can think of. And the reaction is generally positive, but one of the things that people will say, and I think that this is worth talking about, is that they will talk about the notion that,

oh, you present all these cases of organizations where it's so great, but in my company, we're actually, or my nonprofit, we're actually screwed up. So we're not great like that. Maybe I should move somewhere else and do something different. And one of the main bits of advice that I give here

is that in general, if you go to another organization, and I'm talking about organizations that are scaling well, not ones that are scaling badly. On a day-to-day basis, things always seem screwed up to the people who are inside of it. And so we were just talking about Amazon. I would not want to work at Amazon.

That's kind of a brutal place to work. Netflix, which is a company I work quite well, they're actually really, really hard on employees. They fire people without performance improvement plans. That's one thing they're really proud of. So, and the best example I have of this I gave a talk at a large law firm, and King and Spalding is the name of the law firm. This isn't a secret.

And the way that large law firms work is when they have a partner retreat. They have affinity groups, so they'll have a breakfast for, I don't know, the lawyers who went to Harvard, the gay lawyers, the women lawyers. This group had the Grass is Browner Club, and what the Grass is Browner Club are the people who quit King and Spalding, and they came back because it sucked even worse at the place that they went to. The point is, and this comes from my dear friend David Kelly, the founder of the Stanford D.School, the main founder, and also an innovation firm called IDEO, is that he talks about the notion that when you're doing something original, life is always messy. There's always setback.

It's always confusing. And it always feels worse in the moment. When you look back on it or you look ahead, it might be better. So that's one lesson that I think has sort of come out, that if you think that things are better somewhere else, it might be, but usually it isn't. To go back to your book, one of the things I was struck by, despite the fact that scaling up in an excellent way is a ground war,

it can be a slog, it can take a lot of time, there can be a lot of friction within the organization, and yet there is this through line of optimism from the people in the book. As someone who is a fan of business and rooting for businesses, it was great to see that level of optimism from people, even when they are battling with significant challenges

within their own organization. Did that surprise you at all, that people had that level of heart? Well, so the optimism didn't shock me that much, but there's a nuance that I think is worth talking about. So if you look at, there's a guy named Danny Kahneman who won the Nobel Prize for sort of inventing modern behavioral economics. And Danny will argue, and Danny's really a pessimistic person, by the way. His co-author, Amos Tversky, died.

He was the optimist. But Danny will argue that overconfidence is the worst thing that any human being can suffer from. That's the worst of all the cognitive biases. But what I would say is that the way that people who are good at scaling and organizational growth and leadership are is they have strong opinions weekly held or they're confident but not really sure.

So what that means is that if you're around them and they announce a new product or we're going to open a new location or something, that they're really, really optimistic and get everybody all fired up about how they're going to do it. But at the same time, they're constantly looking for signs that things aren't going quite right and they have to be tweaked or they get rid of the whole thing all at once.

So the great Andy Grove, who some people will say is the greatest Silicon Valley executive of all time, who really made the modern Intel, he was kind of famous for that, which was he'd be completely optimistic until the moment that he fired people who got rid of a product. He was just that sort of person. So this idea about having strong opinions weakly held or being confident but not really sure, that's the kind of thing that to me makes for great executives and great scaling. Because there's this kind of restlessness. It's kind of the hallmark of great filmmakers at Pixar, too, that, yeah, it's going okay, but I don't want to hear about what's great about it. I want to hear about what's wrong and how I can make it better. And that sort of mindset of, yes, it's going to be great in the end, but right now we've got to fix this stuff in front of us to make it even better, to me that's different than just, oh, we're just all so brilliant and I only want to hear good news.

It's more nuanced than that. We are all here for this event with the mindset of scaling up our company in an excellent way and our teams in an excellent way. So my final question is, what advice do you have for us as individuals? So one of the things that happens in a company like this, and I've worked with a lot of companies that scale really fast, Facebook and Uber were just insane in this regard. So what ends up happening is it ends up being difficult to have one us when you have a whole bunch of people sort of coming and going constantly. And one of the things that makes that worse in particular, and this certainly happens where I work,

is that the people who have been there for a long time and have worked together for a long time, they all tend to conglomerate, and they tend to cross their arms and look at the newcomers and say, who the hell are these people? And so I guess my basic advice is try to talk to somebody who you don't know or don't know very well. Don't just stand and talk to the same people you always talk to. I know it's great to see old friends, but for your good and

the good of the organization, I think that people who are the best learners, they talk to people who are different and people they don't know. Because otherwise, when you talk to people you know, you just hear the same story and nobody ever challenges your worldview. And also for having one motley fool, I think that that's part of the interpersonal path. Bob Sutton's book is scaling up excellence, getting to more without settling for less. It's a bestseller for a reason, so check it out when you get a chance. Hey, two quick things before we wrap up this week. First, have you checked out The Motley Fool's new mobile game? It's called Investor Island. It's free to download, and it's fun to play. You can find it in any app store. Just look for Investor Island.

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please consider giving us a rating and review. It helps us out. We really appreciate it. So thanks. That's going to do it for this week's show. Our engineer is Steve Broido. Our producer is Matt Greer. The show is mixed by Dan Boyd.

I'm Chris Hill. Thanks for listening. We'll see you next week.