The Knowledge Project with Shane Parrish - Brad Jacobs: How To Build a Billion Dollar Company

Episode Date: March 19, 2024

Brad Jacobs doesn't just build big companies – he builds industry giants. As the founder of eight multibillion-dollar companies, he's cracked the code on scaling businesses from zero to billions. In this conversation, the secrets he's earned over decades. You'll discover where billion-dollar opportunities are hiding in plain sight, how to spot massive trends years before your competitors, and the most crucial factor determining a company's success. Currently serving as Chairman and CEO of QXO, Jacobs brings a mathematician's precision and a musician's creativity to scaling businesses. His track record speaks for itself: every company he's founded has reached billion-dollar status or beyond. (00:00) Intro (04:44) The future of AI (07:21) How to think rationally (08:48) The major trend (10:57) The research process (13:29) On asking better questions (19:35) On rearranging your brain (22:23) On music, math, simplicity, and business (32:26) Leverage, debt, and optionality (35:11) What it takes to take contrarian bets (40:45) Confidence and parents (50:21) Why negative-only feedback is detrimental for employees (56:14) Money lessons (58:13) A deep dive on M&A (Jacobs' secret sauce to growing his companies) (01:07:51) Questions to immediately get to know anyone (01:11:14) On boards and board meetings (01:16:57) On decision-making (01:23:37) The role of capital markets (01:25:41) The type of person you don't want to hire (01:31:16) The best capital allocators (01:33:53) Biggest lesson Jacobs learned from the past year (01:37:20) On success   Watch the episode on YouTube: https://www.youtube.com/c/theknowledgeproject/videos Newsletter - I share timeless insights and ideas you can use at work and home. Join over 600k others every Sunday and subscribe to Brain Food. Try it: https://fs.blog/newsletter/ My Book! Clear Thinking: Turning Ordinary Moments into Extraordinary Results is out now - https://fs.blog/clear/  Follow me: https://beacons.ai/shaneparrish Join our membership: https://fs.blog/membership/ Sponsors: Eight Sleep: Sleep to power a whole new you. https://www.eightsleep.com/farnamstreet Shopify: Making commerce better for everyone. https://www.shopify.com/shane Learn more about your ad choices. Visit megaphone.fm/adchoices

So I looked at that org chart and said, this is a messed up org chart, which is great for making money. If you can find something that's messed up and easy to un-mess up, boo-ya, there's your money. There's your opportunity to make a lot of money. You've made a few billion dollars. What lessons have you learned about money and spending money and living with money

that you wish you knew sooner? You know, seriously, you throw me off a little bit with the question. When you look at the numbers, the real growth has been through M&A, through acquisitions. What's been my secrets on acquisitions? Here's the gist. A lot of people have a rigid business plan that's spelled out for many years, and that's it. And it's very...

That doesn't usually work. Why? Because life changes. Markets change. Economies change. And if you're rigid, if you're just rigid thinking, you're going to have things come your way to make money for shareholders and feel, well, it's nice. It's great, but it's really not our thing.

That's a bad way of thinking. You've said you can get a lot of things wrong if you get the big trend right. What major trend are you most interested? in right now. I'm most interested in because it is the trend. It is the number one trend. insights to your life. I'm your host, Shane Parrish. A quick favor to ask before we start. Most people listening on Apple Podcasts or Spotify right now haven't yet hit the follow button. If you can hit the follow button now, I would appreciate it. The more people who follow the show, the better the guests we can get. Thank you and enjoy the conversation.

If you'd like access to the podcast before everyone else, special episodes just for you, hand-edited transcripts, or you just want to support the show you love, join at fs.blog slash membership. Check out the show notes for a link. Today, my guest is Brad Jacobs, Executive Chairman at XPO. Brad is a career CEO and serial entrepreneur with a unique track record of starting multi-billion dollar companies. I think he's up to seven of them by now,

which have created tens of billions of dollars in shareholder value. His goal with all of his ventures is to generate outsized value for shareholders by hiring talented people committed to thinking big. He recently wrote a book called How to Make a Few Billion Dollars, which is a playbook for creating outsized value. Now, all of that sounds really simple, so I wanted to sit down with Brad for a wide-ranging conversation. How exactly does he do it? Let's get into the weeds. We talk about AI, trends, human nature, mergers and acquisitions, running meetings, what he looks at. looks for when hiring and so much more. Whether you're running a business or working in one,

you'll walk away from this conversation with clarity around how to improve your results. It's time to listen and learn. met him. I'm curious what you took away from that conversation and what it was like. Well, I did recently meet him, and it was like meeting Albert Einstein or meeting someone on Michelangelo, because when you look at his context, his wide context, he's looking at the history of the universe going back 13. Something billion years and how we got here. And then looking at those trends and where are we going? He identifies the most important trend of all, which is homo sapiens have created technology,

created tools, starting with stone pebbles and over a couple million years ago and then fire and then settlements and over the last couple hundred years, so much, so much more, so much more. In the last 20 years, accelerating, accelerating. And now with AI, it's accelerating even more. And where's that going?

Where's that going is the tools that we've created, the technology we've created, is becoming more capable than we are at certain of our traits. And we're able to outsource a lot of our activities to our own technology. And Ray predicts a singularity whereby technology becomes more intelligent, more capable than humans, and we merge with technology, that we use so much technology in our own bodies with wearables and nanobots and so forth that, in AI, and outsourcing our memory and sensory and so

for it that, that you really can't call it Homo sapiens anymore because the traits, characteristics have changed so much that will say homo sapiens has become extinct and there's a new species. I think he's probably right. What do you think the benefits of that are and what do you think the drawbacks are? Well, the benefits are we should be able to accomplish a lot more. So if you look at us as a planet, eight billion people, there's a lot of things we do well, but there's a lot of things we don't do well, primarily get along with each other. And information sharing is not there. resource sharing is not there. I think with advances in technology, we will be able to distribute resources more intelligently and more abundantly and have more resources for more people. And I think

medicine will be better and science will be better and be able to live longer. We'll be able to be more in touch with the way we think and to be able to think more constructively because that's one of the places where it's an area of improvement for humans is we don't think rationally a lot of times. And I think with technology and AI advancements that we will think more rationally. So it'll be nonstop therapy, so to speak. How do you think rationally when you have all this information coming at you from all over the world? You're emotional. You have big swings. I mean, you've lost billions of dollars and in market cap in a day. I don't always think perfectly rationally. I'm not a perfect person. I've paid attention to the way I think over the

course of my life. And I've studied with various people who, that's their specialty, is analytical. how you think. And I did a couple of years of therapy for three hours a week for a couple years. So I have spent a lot of time reflecting on how I think, what my automatic thoughts are, what my biases are, what my cognitive distortions are. And I'm aware of those. And I apply various techniques and tools in the toolkit that you learn from cognitive therapy, dialectical behavior therapy, positive psychology, et cetera, to think more rationally and more constructively and more accurately. And I think that helps me in business quite a bit. In business, you need to keep your head on your shoulders. You need to be calm. You need to be cool.

You need to be collected. You need to be dealing with lots of changing unplanned circumstances and then capitalizing on those and not being overwhelmed by those, not being beat up, but utilize what comes in, capitalize and what comes in to create money, to create money for shareholders. So I think that the human capital in the psychological sense is very, very important. So I put energy into that. You've said you can get a lot of things wrong if you get the big trend right. What major trend are you most interested in right now? I'm most interested in AI because it is the trend. It is the number one trend whereby our technology, software, that intelligence will be able to consume so much.

information much more than we human beings can, even with 100 billion brain cells. The power of computing is so much greater and be able to analyze that and be able to spit things out and be able to eventually, I'm looking forward to the point where computers become emotional, where they do have emotion, where they do have empathy, just like we have mirror neurons in the front of our brain in the prefrontal cortex. I'd like to see that trend materialize where computers, can feel, can have theory of mind, can be sitting here with a conversation with Shane Parrish and feeling what you're feeling and feeling happy about what you're feeling happy about and feeling sad about something you're not feeling happy about. Now, I'm looking forward to that

trend a lot. And the saying AI is sort of everybody recognizes AI as being a trend. But you've spotted several trends well before people recognize them. And you were way ahead on the AI curve too, as I understand it. How do you spot those trends before they become mainstream? Well, I do spend a lot of time thinking about trends. I look, I spent a lot of time thinking about the wider context of things. Like, okay, here's a situation. What's the context of that situation? What's its origin? What's its present conditions and characteristics? What are the ways it could go? And what would be the catalyst to make it go right or straight or left? So I intentionally think about trends quite a bit, because in business, in the business world, you've got to get

the major trend right. You've got to get the major trend right. And as my main business mentor, may rest in peace, Ludwig Jesselson used to say, you can mess up a lot of things. But if you get the main trend right, you're going to make a lot of money. And conversely, if you don't get the main trend right, you're swimming upstream, you can do a lot of other things right, but you're not going to make a lot of money. So I intentionally spend time thinking about what's the, where does all this fit in and where could it be going? What's your research process like? I like people and I like picking people's brains and I'm shameless about asking people their opinions and I like to be a student more than a teacher. I find a lot of people who make the mistake as they get older or they get

more successful. They think they know everything and they start teaching all the time. I'm sharing through the book I wrote and through podcasts like this and so forth, the few little things that I think I have insights that I can give back to. But I absolutely view myself as a student of life. I don't view myself as a guru who's figured it all out by a long shot. And I think if you keep that element of profound curiosity of really interesting and being very interested to learn and being involved with the sensory experience, be involved in the intellectual experience, be involved in analytical capabilities, I think you can learn a lot more and you can see trends that otherwise you don't see it, just in it and you're living it, but you're not seeing the trend. You're just

kind of going along. A lot of people who reach your level of success sort of outsource a lot of this work to other people. And by that, I mean, do research on this. Come back to me, give me these points. But you seem very hands-on in the weeds, very involved in the detail. Why is that important to you? I do both, Shane. I do have a team that researches things for me. But I also, I like to roll up my sleeves and get into it myself. I like to find, even like when I do M&A. So, you know, my teams that I've led have done about 500 acquisitions. I've been involved in those acquisitions. So I get into the details of what are we buying.

And to buy those 500 companies, we looked at thousands and thousands of other companies that we didn't buy. And I love the process. I love studying each company figuring out how they get to the point where now there are millions or hundreds of millions or billions of dollars of revenue and they started from scratch. and how do they do that? It's like a miracle. It's fantastic. I'm very impressed and excited and enamored with entrepreneurs and companies that have created huge growth and huge value. And I want to understand that. So I want to get into the detail of it. I want to pick their brains. I see a big

value in asking lots of questions. Now, today, you're the one asking questions and I'm answering but normally it's the role reversal. Normally, I'm asking a lot of questions. If you go into a management meeting. I'm usually asking lots of questions. What have you learned about asking questions that you wish you knew five years ago? I take questioning from the therapist. So I wrote in the book that the only time my life that I've been depressed, but I was really depressed, was in the mid-2000s, when I had stepped down from being CEO of this big company, United Rentals, and now I didn't have anything to do. I didn't, you know, I was doing some art. I was, you know, studying art and buying art, and I was doing things with my family and so forth. But I didn't have a business.

business and I learned from that that everyone has their own thing that makes them excited me as running businesses I've been a CEO since I've been 23 years old and I like being a CEO I really like that job really a lot now I wasn't a CEO and I felt a big gap I felt I felt depressed it was down and had a lot of unconstructive thoughts and inaccurate thoughts and so forth and that drew me to meeting a lot of fantastic psychotherapist and I mean fantastic at the top of their game so So there was a psychotherapist in New York City called Albert Ellis. He died about 10, 15 years ago. And he had formed a school of therapy called Rational Emotive Behavior Therapy, R-E-B-T.

But in short, it was cognitive therapy. It was cognitive behavior therapy. He together with another psychiatrist, actually, Aaron Beck, whose family and friends called him Tim. I got the privilege of meeting him too and spending time with him and his family. Tim Beck or Aaron Beck and Albert Ellis. for the co-founders of cognitive therapy. And I find that therapists have, of all the different professions,

are the best at asking questions and the best of getting a person to relax, getting a person at ease, and to open up. And when I learned from studying those psychotherapists, first is you need, before you start badgering someone with questions and inquiring and asking them all these important things, sometimes personal things,

sometimes intimate things, private things, you need to create, you need to create an atmosphere. You'd create an environment that's a safe place. That's a zone where you're, it's okay to be vulnerable. It's okay to say what you really feel. It's okay to take off your mask and show who you really are, warts and all. And that's really, really important. And to do that, you need to be listening.

And I learned from studying them that the most, maybe the most, maybe the single most powerful thing you can do in a relationship with it's personal, it's professional, is to give someone your 100% like you're doing it. You're giving me 100% of your attention. I can see it. You're looking at me. You're listening to me. You're actually paying attention to what I'm saying.

And that feels good, by the way. That's making me put a little pressure on me to perform better and give good answers. But you're doing something powerful. You're giving me your attention. You're giving me 100% of your attention. And I find with therapists, that's their little. That's one of their tricks, one of their skills, one of their techniques is you have your session for 45 minutes or two hours or whatever it is.

And during that time, they're all yours. They're all listening to you and they've got all their attention on you. And that has a certain effect on the person speaking. And secondly, they're not being judgmental. So they're not, they're going with you. Now, there's not, they're not disagreeing with you without first finding a way of agreeing with you. joining, then leading, validating, then disputing.

So even when they are changing the way you're thinking and say, gee, is there a better way to look at that? Is there another way we can look at that, be more constructive? Before doing that, before that disputing, before that changing, that transforming, their first joining, they're showing that they understood you. They listen to you.

They got you. They got what you said, message received. And I find that's really powerful in business, whether you're dealing with employees, or whether you're dealing with someone whose business you're trying to buy or you're dealing with a vendor or you're dealing with a investor or an upset customer, it's very good to do that. It's very nourishing and nurturing to give someone 100% of your attention and listen to them non-judgmentally. I call it non-judgmental concentration. I think I made up that phrase. Maybe I didn't and I forgot and I should

attribute to someone else, but that's a phrase I use, non-judgmental, concentration, when you're really taking all your consciousness in giving it to someone and and not judging them, but going with them, trying to get into their way of thinking, their way of feeling even. So not just what are they thinking, but how are they feeling? So what's the emotion that's underlying that? And I use that quite a bit. In the book, I have a chapter on how to have an electric meeting, how to run an electric meeting. which means a meeting that's powerful, a meeting that everyone goes away exhilarated. Everyone goes away with lots of things to do that can create a lot of value for the shareholders,

not just one of these whole home meetings. And an element of that meeting is everyone in the meeting shuts off all their devices and concentrates, concentrates, non-judgmentally, non-judgmental concentration on the one person who's speaking at a time. No side conversations, no talk. talking over each other. One person speaks to time, but everyone in the room gives them all their attention. It's really powerful thing.

I like that a lot. It's sort of the secret to our podcast in a way, which is I want to see the world through your eyes. I don't have to agree or disagree. That's not my job. I just want to see what you see, think what you think, smell what you smell, and then that way I can truly understand where you're coming from.

And I think that so often listening is transactional in the sense of, I'm waiting for you to stop so I can just say something or I have this point. You don't understand it. So I'm not really listening to you because you're talking about something else now. And I think it's one of the biggest reasons

we miscommunicated. Yeah. Is the work with the psychotherapist, is that where you learned about rearranging our brain and controlling the mind and the importance of sort of thought experiments and mindset or talk to me a little bit about that? It was one of the places

you know, from my main hobby since I was a teenager has been meditation and various forms of meditation. And then from meditation and to learn self-hypnosis. And then from there I learned all the mindfulness and the positive psychology and cognitive therapy and so forth. So I've mixed and matched a lot of different schools of thought and customized it for me, my own personality, my background and my individuality. So it's not just one thing. I've had many different influences that have created the way I look at life and the way I deal with reality. And a lot of that was my education when I was a kid. I studied music.

I studied music in math. But in music, it is a lot about relationships. Unless you're a solo performer, and I was not. I like playing a group. I like a band. I like playing with other people. Interacting with the other folks is part of the magic of making really great music. That's had a big influence on me, too.

I define myself, I self-identify as a musician, more than a business person, which you might find odd, because I've been a lot of time building big businesses and running large enterprises. But when I think about myself, I think about myself as a musician who happens to be doing a lot of business and has done well at business, but I feel like a musician. By that, I mean my sense of sound is the dominant sense. and I listen very I listen to sounds I listen to my heartbeat listen to my breath I listen to the sounds

in this room going on right now I suffer quote unquote and I put air quotes on it because I don't consider it suffering I consider it fantastic tinnitus where you have this ringing in your ear

from when I was a teenager probably from listening to music too loud and I have it right now I'm hearing very high-pitched sounds I love it it keeps it interesting it's my friend It keeps me in tune.

Sometimes they get louder. Sometimes they get softer. Now, some people have tinnitus, and they, and I might be mispronouncing that, but you know what I'm talking about. Yeah. I'm ringing in the ear. That, and they say, oh, my God, it's a terrible thing.

It drives me crazy, and they get all upset about the thing. I have just the opposite attitude. I feel I'm lucky to have that. I really am lucky, and I wouldn't know what life would be like without it. And that's part of being a musician. part of being a musician is embracing sounds no matter what they are no matter what they are and that's that's the reality of the moment and you should be in that reality and go with that what's the relationship if you had to guess between music math and business a lot for me it's a lot

so let's start with the business and then that'll show how those other two things relate to it Business is about making money for shareholders at core. The report card for a business is you take money from other people in the form of equity, the debt you pay back, but the equity is dear and people invest equity into the business. And now you have to give them back that money when they sell their shares, but much, much more money than they gave you. So in my companies, we've been fortunate that we've been able to give back 32 times their money you won. And another company is over 150 times. So really, really large, large, large returns, like over the top, unusually high returns.

That wasn't by luck. That wasn't coincidental. If it was coincidental, it wouldn't happen five times in a row in large amounts. That was because there was a playbook. That was because there was a method to it. And that method incorporates many, many different elements. And I talk about quite a bunch of them in the book, that together give you an ability to create what we call alpha in the business world, which is not just beta, which is the market's going

up, so you're going together with the market, but alpha, which exceeds the beta, exceeds the overall uplift that pretty much all boats are lifting by the same tide. And part of the ingredients to that formula to make huge, huge returns for shareholders involve analytical thought and careful analysis of numbers is all the math making order out of disorder

trying to see where how does this all fit together and seeing the relationships between different things how to reduce things to simplicity because the great mathematicians reduce very complicated things to a formula for example

expressed with just a few handstrokes so that's math That's mathematics. That's the beauty of mathematics is seeing the patterns, seeing the, seeing the, how to make sense out of this. And on the music side, it's being able to improvise because my training was originally classical, but then I had the fortune to study with African American musicians in Bennington College, Milford Graves, Bill Dixon. And part of that whole training was to be spontaneous and to be improvising and to be in the moment. And there is no wrong note. If someone plays a note, that's just a new note. It's not the wrong note.

It's like, okay, we changed key. Let's go with that. Come on, let's get going an hour and hour on. So that ability to go with the flow in music, you need to have that in business shape. a lot of people have a rigid business plan that's spelled out for many years and that's it and it's very non-flexible that doesn't usually work why because life changes markets change economies change people change results in you get opportunities that you hadn't even thought of at the beginning so you need to you need to improvise you need to capitalize on that and to

make money from that. And if you're rigid, if you're just rigid thinking, if you're not a musician, if you're not a musical business person, you're going to lose opportunities. You're going to have things come your way to make money for shareholders and feel, well, it's nice, it's great, but it's really not our thing. Well, that's a bad way of thinking. I'll share with you one of the best business deals I did in my life was I bought in 2015 a less than truckload trucking company called Conway. It was based in Ann Arbor, Michigan. It was a few billion dollar deal. It was a pivot because this was a hard asset business. It had tens of thousands of trucks and drivers. It was as asset-heavy businesses as you're going to get with fixed costs and depreciation

and amortization. It was not an asset-like brokerage business, which is how I started XPO as an asset-like, non-asset-based business. But here was an opportunity to buy something really, really cheaply at a small fraction of what it was worth and even a smaller tiny fraction of what I knew we could make it be worth within a few short years. This is a company that had a lot of excess overhead. The organization chart was not mathematical, going back to symmetry and formula, things that relationship makes sense.

I like to take, I love org charts. I just love to geek out on org charts. An org chart should be pretty. Orch chart should be simple. They should be elegant. They should be geometrical. They should not be really complicated like you took some spaghetti and threw it like an abstract art on a canvas.

This was a bad orchard. This had three things of three different HRs and three different IT organizations and a lot of duplications and it didn't make any sense. A lot of silos and heavy, heavy on the non-revenue generating top part of the organization, which should be the lightest part of any organization. The heaviest part should be parts of the organization that make money,

they generate revenue, that you're close to the customer, that generate sales. So I looked at that org chart and said, this is a messed up org chart, which is great for making money. If you can find something that's messed up and easy to unmess up, booyah, there's your money. There's your opportunity to make a lot of money.

And that was it, which is like I got so excited about the opportunity to take this company. And I saw a way we could significantly grow the profit margin in the cash flow. that I pivoted. I pivoted and go ahead and do the deal. I got beat up real bad by the market. They said, oh, it's a change. And I said, give me some time.

And I remember, I remember Eli Gross, who now runs investment banking from Morgan Stanley. But at the time, he was covering me, XPO, as a transportation banker. And he said, you know, you're going to be in the doghouse here for a little while because it's a pivot. And markets don't like pivots. But assuming you're right, and I know you have high conviction, and you deliver the number, over time, you're going to be a hero here. And everyone's going to understand what you did. And fortunately, he and I were right.

And you look at that deal, even though it was a pivot, it was a change, it was an improvisation. We bought it for about $3 billion. Roughly half of it was equity. So really we bought it for a billion and a half dollars plus some leverage. Today it's worth something like $15 billion. And that's after having taken out many, like $5,000. billion dollars of net cash from it. That's after selling off $550 million of the truckload business. That's after taking its warehouse business, its supply chain business, which was called

Menlo and putting that into our GXO subsidiary. That was after taking the brokerage business and putting that with our RXO brokerage business. So this was the gift that kept giving Conway. It's been an amazing, amazing ride. And the returns, it's been a, I can't do it in my head, but something like a 20-bagger, 15-baggers. It would be huge, huge. return on investment capital. And had I not been trained as a musician and a mathematician, I don't know that I would have saw it, Shane. I don't know if I didn't have the mathematical skills, I would have been able to see, okay, this is a mess, but we can make it clean. I don't know if I would have been able to have the

courage to improvise and to change from what the script was for something that that I had a high conviction would be very, very lucrative for our shareholders. And in business, the bottom line, the report card, is how much money did you generate for your shareholders? That's the one, it's an examination with one question on it. It's how much did you make your stockholders? How much money did you make for your stockholders? How much, how much bliss did you give to your investors in terms of return on their capital? They invested in you, they trusted you with. You're a fiduciary in business. You have a solemn, sacred, obligate responsibility where you're taking other people's money,

debt and equity, and particularly the equity, and you're the custodian for that. You're a custodian of it. You're temporarily using their money. And your job is to multiply that. They have a thousand other places they could put that money. They've picked you. They've picked you. Now you've got a big, big responsibility.

And I think the training of a mathematician, the training of a musician, and then all these experimentations I've done in meditation and therapy and so forth, I think that's been what largely explains, at least as far as I can understand, why my companies have created so much alpha. I have so many rabbit holes I want to go down there. I think the opportunity hiding in complexity is really interesting because the way that I think about this and correct me, if you see it differently, is bad idea. is can easily hide in complexity.

But they can't hide in simplicity. What's your reaction to that? I need to digest it. My immediate reaction is, yeah, I think I get that. Because when it's, so I'll go back to that organization chart that I saw at Conway. It was just a mess. It was just like, wow, it's all over the place, triple dotted lines and squiggly lines. You had to have different colors and different, it's like, that's not a real elegant.

Yeah, I think I see what you're saying. In that, you could hide inefficiencies, as opposed to when it's a clean organization chart, everyone's got clear KPIs, key performance indicators, everyone has clear metrics, everyone has clear goals, and the compensation is tied to that, and people rewarded for achieving those goals. Yeah, it's hard to hide. The other thing that I thought was really interesting is you brought up the leverage point. How do you think about leverage and debt and employing it? And at what point does it become too risky? And at what point do you think of future opportunity costs? You mentioned sort of taking advantage of whatever the world brings, but if you take on too much debt at now for an acquisition, you're reducing your ability to adapt in the future. Should interest rates rise, should a company become available that you really want? That's a dream that wasn't available when you took on all the debt.

How do you think about that? I have a Zen Buddhist approach to debt. Not too much, not too little. I don't think it's an optimal balance sheet if you have no debt because you can improve the returns by shrinking your share count because you have fewer shares. So the same amount of returns is greater per share. I think it's good to have a little bit of leverage.

I don't think you should have a lot of leverage. Particularly in today's world, I don't think you should have a lot of leverage because there's significant geopolitical risk. There's geopolitical risk in the Middle East. in Ukraine, in Taiwan, the United States politics is very volatile. There's a lot of things that could go wrong real quick. And a kind of shock to the system

would hurt companies that have too much debt because business would slow down. Look what happened during COVID. If you were very highly levered during COVID, if you had way too much debt, and then everything slowed down and your revenues went down, you might not have been able to make your interest payments

or your debt repayment payments. Could have gone bankrupt. Companies don't go bankrupt, let's say have too much debt. You go bankrupt from not being able to repay your debt. So I don't think you should have too much debt. In my new company that I'm forming in QXO, we're going to have, I think our target, a healthy target should be one to two turns of debt. By that I mean, we take our EBITDA, which is a measure of our cash flow, and we say,

let's have one or two turns of that. So if our EBITDA ends up being, for instance, in a period of time, for example, a billion dollars, well, let's have one or two billion dollars of debt. And that's a comfortable amount. Not too much more. Now, you could have for short periods of time, you could lever up. Like when I bought Conway, we levered up to about four times, a little more than four times. But we very quickly sold off, I mentioned that truckload division for $550 million.

Boom, we paid down a whole bunch of debt right from that. We generated a lot of free cash flow. We took that free cash flow instead of doing more acquisitions. We paid down debt. So you can get your leverage under control by one of two ways. by improving your profits, by increasing your EBITDA, or by paying down your actual gross amount of debt. And I think you can manage that, and that's something a good CFO does. You've said in the past that you need to be liked and loved, and yet you're quite contrarian

at times in your approach to things. How do you reconcile these two things? I think you have to be contrarian. I think if you want to make a lot of money in business, you can't just be a conformist to do what is in fashion and what everybody else thinks. If you're going to do what everyone else thinks, you're going to get returns that everyone else gets, which is by definition, average. So my companies have not made average returns. My companies have outperformed their indexes not by one or two hundred basis points, but sometimes by five or six times what the index was.

So you have to think differently and take things that are from a different point. of view. So one of my favorite investors in my companies has been Orbis out in California and in Bermuda and they're contrarians. They're willing to make a bet and a significant bet if they have a high conviction about a trend or a company that the market's not seen. Something's out of favor, but the market doesn't understand something about it. Maybe a company's not studied enough. It's not covered enough. Maybe management is not good at communicating their story and it's dislocated. The price is dislocated. And you can get a real good value. by buying those shares and then being patient, playing it out the cycle and make real good returns.

And I've seen them do that with my companies when something happened in the marketplace that made us a cheap stock for a short period of time. Boom, they came in and they bought a lot of shares and wrote them up and then sold their really high. I think that contrarian value approach to investing to business is profound. I think that's important. And I remember when I I sold my first company, Amorex, my old brokerage company. We started a company in 1979, a bunch of broke, scrappy kids, and we're in the right place at the right time, and the Iranian revolution took place, and the shock got kicked out, and Comania came in, and they took 400 hostages, and the oil prices went way, way, way up.

So it was a great time. It was a sad time for the world. It was a lot of chaos and problems, but it was really good to get in the oil business, oil business was really volatile, and some young whippersnappers like us could come in and be taken seriously by Exxon and Mobile and Texaco and Shell and Gulf and BP and all the customers that became our big customers over time. We built that business up over four quick years to about a little under $5 billion in brokerage volume. So that's, that was a really big rapid, rapid growth curve. And I had a good team doing that around the world. And then I sold it and I wanted to start a new

business and I wanted and I was ambitious. I was singing. go all the way. I wasn't married to have kids. I could take risk. I could afford to do that. And I remember speaking with my my uncle Howard and may you rest in peace. He's long, long passed away. And of course, my uncle Howard was born in the 1920s, maybe even late late 19 teens and grew up in the Depression, obviously. And during the World War II and so forth, and it was very tough times. So he grew up in a time when there's a lot of emphasis towards being very frugal and very risk-averse. He became an accountant and worked for the government.

And I remember talking to him and saying, yeah, I'm going to start another company. Instead of being an oil broker, I'm going to go to the adult table instead of the kitty table. I'm going to be an oil trader. Because I've been making all this money for my clients where they're making three, four, five dollars a barrel, and I'm making five or ten cents a barrel.

Of course, I had no risk. But they were taking positions. I said, now I'm going to put my money where my mouth. is. I'm going to put my money into a bank. I'm going to get a letter credit. I'm going to actually buy and sell as opposed to just broker. You say, oh, Brad, don't do that. Don't do that. You should maybe take a small percent of your savings and put it into your new business, but take the vast majority of your money and just tuck it away just in case the next thing doesn't work out. And fortunately, I overruled my Uncle Howard. I had to go with what he said.

I did exactly the opposite. I took a completely contrarian position. where I took, I think it was like $100,000 or maybe at most $200,000, and I tucked that away. I took all the rest of my money. I deposited it with Bank Peribaba. Now it's BMP Perry Bar, back then it was Perrybaugh. And they gave me a billion dollar line of credit. And I swung for the fences. I used sometimes up to $990 million of that line of credit doing counter trade deals, doing pre-financed deals, doing barter, doing processing deals. Deals that I, they were very complex, going back to the math, very complex, but organized. I knew what I was doing.

And sometimes people would look at it and say, well, there's a lot of elements to what you're doing there. You're buying it. You're shipping it. You're refining it. You're hedging it. There's a lot, a lot of moving parts there. I said, yeah, but I understand each one of these parts. And it's just math to me.

And I actually feel this is low risk. This is basically just execution risk. And I'm comfortable taking on the execution risk part of it. I don't have market risk. even though it looked like I did, but I really didn't. And as a result of not taking his advice and taking contrarian position and having the courage or the guts and the strength to believe in what I wanted to do, that I had a thought and I had the courage to say, okay, I'm going to run with this thought. I'm going to go with this. I'm going to bet on myself. I'm going to bet on this idea.

We built a really nice oil trading company and did very, very well for our sales and for our shareholders. Where did that confidence come from? Well, I don't know. Probably confidence comes at a young age, I would think. So when you ask a question like that, you normally start thinking about, like, what did your mother say, what did your father say? Yeah.

So if I had to think about, what did my mother say, what did my father say? That was very transformational. The first things that would pop in my mind are with my dad, who I loved, and I had a lot of respect for, and he was a great dad,

and a very honest person, and he was a very dedicated and good provider for the family. But he was very blunt in what he said. He wasn't very diplomatic, What did you say? Just said what he really thought. And I remember one time when we were doing, we had been doing an errand, we're driving home, and he was in the driver's seat, and I was in the passenger seat. And we're at a stoplight. And my father turned to me and said, and he was a big guy with a low voice and, you know, big laugh. And said, Bradley, and my mom and dad were the only people who've ever called me Bradley. And anyone knows, he calls me Brad. But he said, Bradley, it's really good that you have a really good. personality because you're certainly not going to get anywhere with those looks. Oh, ah, ah, ah, I laughed real, real loud. And that moment was a, was a deep moment for me.

Because on the one hand, I was crushed, just like 13 years old. You don't know whether you're good looking or ugly when you're 13 years old. You just are. You just are what you are and you just don't even think about that. But the message I was getting from my father was, you know, I may not be such a good looking guy. Okay. On the other hand, the other message he was giving me was, but you have leadership skills. You have personality, you have charisma, you can, you can get people to follow you. You can become the president of your class. You can become your group leader. You can be the leader of your band and so forth. You can be president council. And somehow or another, despite your, what do you consider that pretty appearances,

not beautiful appearance, you were able to be a leader and accomplish things and get stuff done and get formed teams and get people. So I think in a very, a very, very paradoxical kind of way. My father insulting me on that, gave me confidence. It gave me confidence of, okay, so maybe I don't have great, all-American good looks. Who cares? I've got something else. I've got something in terms of being able to lead. So maybe that help give me confidence because that's, that's an experience that I've relived many times over my life, my father, because it's a big deal what your father thinks of you, what your mother thinks of you. On my mother's side, if I had to think, what was something that gave me a lot of confidence

from my mother? Okay, so my mom passed away about 10, 11 years ago. And you know from the book, one of the questions I like to ask people, because I learned this from Marty Seligman, the father of positive psychology, is what's the happiest moment of your day, as opposed to how did your day go? And just have a little different angle to that question. And we like to be validated. We like to feel we're appreciated, we're recognized, we're understood, we're proved up, particularly from our parents. And my mom was on her deathbed, and my brother and sister and I were hanging out on her deathbed for a good couple weeks. And I don't know if he's been around people who have died, but, you know, they're sort of dying, and then suddenly they wake up

and like talking to you, like nothing's going, no problem. And then they lie down against start dying again. And they go in and out and it's kind of half dying and half not dying and my mother had been lying there and, you know, breathing funny when they're dying. It's like really strange way of breathing. It's not normal way. It's irregular breathing. And then they're not breathing for periods of time. And there's a very bizarre experience, death. And we didn't quite know whether this was it. Like we're never going to talk again. She's done. And she suddenly like sat up, she looked all three of us in the eye and said, I'm really happy each of you turned out so well and smiled with a mother's love. And then just kind of gracefully lied down and continued

the dying process. But that moment, that might be the happiest moment of my life. When my mother, my mom, the person whose body I came out of, the person who took care of me right from day one, even before day one, nine months before day one, approved of me and validated me and gave me a stamp of approval. And that's given me confidence, even though that's later in life, that gave me a boost. That was right at the beginning of starting XPO logistics, which of all different companies I've started, that was the one that was the biggest so far, the most successful. So I would say that confidence later, in life came from that boost that my mother gave me of just approving of us.

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lenses at your child's next visit. I've learned something from that. And I try to learn from all these things, how I can apply this to business. I'm a business person. I'm trying to make money for shareholders. That's my goal in life. So all these things that I'm going through life learning about,

I'm then trying to take them and apply them to business to make money for shareholders. So what did I learn from that? I learned that the relationship between a parent, in this case my mom and me, and the other example, my dad and me, it's a real important experience. It has a big influence on the person, what the authority figure thinks about the person. And when you're in business, particularly if you're the CEO, you're the authority figure.

You are kind of like the dad. You're kind of like the mom of, in my case, 150,000 employees. And you have to be careful what you say. And it's not just what you say, Shane. You can't just be, you can't fake it. And if you don't like someone or disagree with somebody, like say, oh, yeah, aren't you great? Because people are smart. People realize when you're BSing them.

They just know that. They know when it's phony. And they know when it's real, too. So what I've learned is you've got to rearrange your brain, going back to the book. You've got to rearrange your brain, your way of thinking so that you are positive about people. There's nobody's all good and nobody's all bad. No one I know, at least. and if you can train yourself to see the real good in someone and to reflect that to them

and to make sure when you're doing the change part, the improvement part, when you're giving them constructive feedback of how they could be doing a better job, do that seconds. Don't do that first. First thing is be like my mom and say, you know, I'm just so happy how well you all turned out. Say that first. You know, when I do performance approach, When I do performance reviews, my direct subordinates, my reports, my direct reports, I always start out with positive stuff. I don't start right off with, okay, here's some things that you're messing up that you need to be doing better.

It's important to have that part of the conversation, too, because you need to help the person achieve more and do better. But you want to start the conversation with, I really want to congratulate you for X, Y, Z. I really want to appreciate, I want to express my appreciation because you've done one, two, and three. But it's got to be sincere. It can't be phony baloney false flattery. That is like you're better off not saying anything than giving phony compliments. But you should, I try to rearrange my brain so I appreciate a person and say, well, why to hire this person in the first

place? What did I love in this person? What did I admire? What did I respect? What did I really got me, made them real high in my estimation? And then translate that to, okay, how is that materialized in what they've done. And what concrete things have they done? Not have compliments that are just like general compliments, but have very specific concrete compliments of, you know, you did this, this and this. Kudos. Tip of the hat. Good, good job on that. And it goes back to the psychology of validate, then dispute. Join, then lead. I apply that to business. I do that with with customers. In the world of business, you know, we've had millions, millions of millions of customers. they're not always happy because we're not no service providers perfect once in a while you

mess stuff up and you have a you have a difficult conversation with the customer maybe they're not trained in rearranging your brain and they go right into the insults and they skip the whole part about hey we really like what you're doing here they just go right to darn it you've been late on this or damaging that or your invoicing is messed up or whatever it is and what I learned from all that the answer to question is I've got to empathize with that I've got to first understand I have to put my mind in their mind. I've got to put myself in their shoes. I've got to, I've got to say, I've got to really, I've got to picture clearly how much

what we did messed up their supply chain or cost them money or cost someone a job or whatever or just cost someone annoyance or just made it difficult, shoot up their time or, and made them frustrated or whatever, whatever, I have to figure out what's upsetting them, going back to what are they saying and what are they feeling. So I've got to get in tune with how they're feeling. And I've got to show them that I've heard them, I've felt them. I've both heard, understood them, what they're said. And I've also felt the emotion that they're feeling and that I get that.

And that I have an action plan to solve it. So that is a sequence to all that. I like your human-centric approach to this. There's a lot of people who sort of take for granted, maybe positive feedback. And so they offer negative-only feedback to the people who they work with. Is that a blind spot or what do you think of that? I think it's a mistake. I think it's a mistake to give only positive feedback or only negative feedback.

So, for example, right now, I'm in the middle of performance appraisals. And where each person is writing three things that they're really proud of that they've accomplished in the last few months and that they really feel good about and it's an achievement. it's definitely a plus, not a negative, but also three things that, you know, we could have done better or we will do better going forward, things that we didn't quite achieve that we hope to achieve. So it's a balance, it's three good things, it's three bad things. But when I run meetings, I like to make it like an Oreo cookie. I like to make the good stuff, the negative stuff, but then end on the good stuff. It's very important how you end a meeting. For whatever reason

psychologically, how you end a meeting makes a big difference in how that person leaves the meeting. So ideally, even if we've had a tough meeting, we said, look, these numbers are in the red, they're not in the black. These numbers are down, they're not up, and we need to up our game. And here's our action plan, and here's how we're going to hold ourselves accountable, and here's how we're going to tinker with compensation in order to reward people for doing better and to hit their bonuses and maybe eliminate their bonuses if they don't get better fast. There's tough conversations that you have to have.

But I don't like to end on that. Yeah. I like to end on exercises along the lines of having everyone in the room. Okay, now we've done all the, all the, all the tough stuff. We've worked hard on the business. Okay, now let's put that aside. Take a breath. Now let's just talk about who, I'll ask you, if I'll go around the room,

suppose I have a dozen people in a meeting, and I'll say, tell me some, so we've just been meeting for two hours, we've been working hard. We identified some really important problems we need to solve, and that if we solve them, we're going to, create a lot of money for our shareholders. So, good job team. It was tough, but good, good job. We were a good rigorous process. And you worked hard. And a lot of, a lot of imperfections came up during the meeting, and that was humbling in a lot of ways. But now I want to ask you something. After working two hours collaboratively in a meeting like this, difficult meeting,

who star went up and why? Who said something that they maybe already held them in high esteem, but you hold them in even higher steam now as a result of the way that they thought their thinking process or maybe the elegance and grace with which they expressed a difficult subject or the way they tackled something from an innovative way someone who contributed to the magic of creating alpha creating money for our shareholders how did they do oh they they handled a situation of conflict because you have conflict in business in a way that was nice that was kind-hearted That was not mean-spirited. So whatever.

Tell me, I go around the whole room and say, tell me someone in this room who said something or did something or didn't say something or didn't do something that made their star go up and why. And people feel really good about that. And I have a whole series of exercises and questions that I do like that. One of them I do is when we have long meetings,

sometimes we have like 10-hour meetings, sometimes even 12-hour meetings. We have people coming in from around the world and we're doing a quarterly operating of you. We're really covering lots and lots of material. We take just a few breaks. We just keep going at it, going at it. So people are tired at the end of that.

It's been a long, long day. We've been going from seven in the morning to seven at night, for example, with just a few quick 10 or 15 minute breaks. We work right through lunch. We'll work right through dinner. I like to end with sometimes, with getting everyone at the end of all that,

we stand in a circle, and I don't want to say anything. I just want to spend five full minutes. Five minutes is a long time. to be standing in a circle with 15 or 20 other people not saying a word. And I want, I want everyone to look at each person. And I want them to do two things. I want them to think to themselves, think to themselves, I really respect this person because, or I really admire this person, or I'm so grateful that this person is on my team, is on the team with us. This, or these, this person has

X, Y, Z qualities that are so noble, so fantastic. So positive regard of each person. Each person, one by one, I want them to look around the circle. And the second thing I want them to do is, I want them to say, not only am I grateful for being on the same team with this person, I really wish this person a lot of success. I hope this person has a fantastic future at this company. I hope this person has a fantastic career. I hope they knock it out of the park in terms of their numbers in terms of profit, the generation that they're going to do. And I find that two-handed experience of gratitude of praise, the gratitude that comes from honest praise of each person, and then the well-wishing to each person, it just, everyone

goes away from the meeting, just figuratively flying on air. People go away with a really good feeling. Feelings count in business. In business, I have, I write about this in the book, the love vibe. that you want the love vibe. You don't want the hate vibe. You want that good vibration going around in the company. You want people feeling good about themselves, good about the company, good about the people

they're working with, good about the customers, good about the vendors. You want them to be like one big, happy family. And you have to work at that. That doesn't happen just by itself. That's not a natural event. That's something that requires effort, that requires intentionality, that requires some skill. You've made a few billion dollars. What lessons have you learned about money and spending money and living with money that you wish you knew sooner? You know, essentially, you throw me off

a little bit with the question because I don't define myself as in terms of how much money I've made. Like, that's like just not like the big deal for me. But it's a report card, but it's not who I am. and it's not my be-all and end-all. I happen to be in a business that makes a lot of money, so I make a lot of money. My occupation is making money for shareholders. When I look at my motivation, if you want to understand my gestalt,

how I look at the world, how I look at myself, it's really, if you take those psychological tests, I score very high on need to be appreciated. So how does that translate into being a CEO? Well, I can be a perfect example. So last week we had a call with my 75 co-investors in my new company, QXO. So my wife and I are putting in $900 million and then Sequoia and a few dozen friends and family,

like really friends and family, like my sister and my brother and my niece and nephew, are putting in another $100 million. So we'll have a cool $1 billion even putting into this company. And I told them at the end of the call, it was an hour call. I just give him an update of what I'm working on. I thank them, not for the $100 million, because I didn't need the $100 million. I could put another $100 million in, but I thank them for giving me motivation, giving me inspiration, giving me a purpose, because I want to please them.

I want to make them happy. I want to make them a lot of money. I like being happy. I like feeling good about myself. I like looking in a mirror and like who I'm seeing. And how I define that is pleasing the people that I love. And those are my investors, my co-investors, my close friends. and family and the people who have been good to me over the years, and I give back to them.

Let's deep dive on M&A. How do you think about it at a high level and then specifically walk me through your process for not only evaluating companies, but beginning to end, including integration? M&A has been a big part of my business career. Not in the first 10 years. In the first 10 years from 1979 to 1989, I was in the oil business. It was all organic. We didn't do one single acquisition so just trading and brokering and building up a business organically but since 1989 I've been doing roughly about 500 acquisitions I've done a lot of M&A I love M&A I love M&A as a way to create value for shareholders because I don't know of another way on a risk-adjusted basis on a

certainty level that is more likely to create massive shareholder value than doing sensible M&A in order to understand how to create value, I have to understand how am I going to scale up the business. I only know how to create tremendous shareholder value by growing a business tremendously. That's how I know how to do it. And of course it's organic. And I've had very good organic growth. The companies I've led have been well-performing companies that have had good market share and growing market share. And we've taken customers away, have taken business away from or not as, our competitors who aren't managed as well. But the real, when you look at the numbers,

the real growth has been through M&A, through acquisitions. What's been my secrets on acquisitions? I'll try to be concise because I did a hour and a half podcast McKinsey a couple of years ago, Andy West. That was the only question. That's one question. I babbled on for an hour and a half. It's still a big,

and people still watch that podcast because I really told everything about it. Here's the gist. The gist is, you first have to select in industry. You can't just do M&A. So I spent the last year going around studying dozens of industries, looking at hundreds and hundreds of acquisition opportunities, mostly with Goldman Sachs, Morgan Stanley and some other, Sequoia, and some friends figuring out, could I apply my playbook to this industry? Is the industry big enough? Is the industry fragmented enough? Is there

M&A to do? Is bigger, better? That's not always the case. Are the economies of scale? Do you I'm a competitive advantage by being bigger. Is there a way to apply technology? My companies have always been tech forward to the industry because the industry is a little sleepy on technology. As the way I run a business, the way I do the intake of people and the culture and the way we interact with each other and so forth,

is that something that will work in this industry, is applied in this industry? Is it something related to something I know about? Industrial services, for example. Most of my companies since 1989 have been industrial services. And I looked at many, many different industries, and I settled on the one that checked every single box, which was building products distribution. And then in my company is going to be QXO. And M&A will be a big, big component of what we do. There are, is $800 billion of distributors in Western Europe and

in North America, which is where I want to plant my flag. I want to build a company that's called $50 billion. I can do that. If there's an $800 billion size, I can take 6% of that through acquisition and through organic growth. I can get to $50 billion. There's many other industries that are nice, but I'm not going to be able to get to $50 billion. I want to get to $50 billion. So this industry, there's a clear path of how I can do that.

Now, I can't just, and there's roughly about 7,000 distributors here in the United States. There's about almost twice that amount in Western Europe. So it's roughly about 20,000 distributors. You've got to be very careful about who you buy. There has to be a reason why you're buying that company. There has to be a compelling strategic reason of why you're buying that company. What makes sense for that? Why is that good for customers?

Why is that going to make our business a better business? Why does that fit with the other things that we've already bought and put together? How's it going to integrate well? I like to look at the multiples that I pay for an acquisition. The price that I pay for an acquisition is very, very important. because when I look at the levers of how we create shareholder value, what contributes to that? The biggest level, the biggest component is the differential between what I raised capital at due to my relationships with mostly institutional investors and, because of the track record,

and what I can deploy that at on doing acquisitions. The second biggest lever is, how much can I improve the businesses that I buy? There's many, many levers, but those are the two biggest levers. I pay close, when I've studied all these different industries, I've studied historical acquisition multiples. And one of the reasons I like building products distribution is, I believe that I'll be able to buy companies at lower multiples of their profit, then I'll be able to raise capital at. And that's going to be a big, that DeSaggio, that spread, that difference, that delta, is going to create value, boom, just right away, right from the first day. Now, you asked about integration.

integration is extremely important anybody can buy a company it's not that hard you write you send a wire you sign a document it's a few dozen pages lawyers have gone over it and you wire the money and you own it so that's not the hard part the hard part is after you've selected the right industry after you selected the right companies within that industry to buy after you had disciplined so that you don't, so that you pay the right price for all those, then you have to integrate them. I've never run companies that have like hundreds of different companies

all running separately with different names and different systems and different back offices. There is some level of decentralization where you need to be closer to the customer, but I have a very strong appetite for standardization, standardization of the ERP system that you close the books with. So you close the books promptly right after the close of the month. And that you can have standardized dashboards.

So all the managers have the same format of the numbers they're looking at, the KPIs, and they see them graphically, very easy to understand. I like to see so they can benchmark every location to every other location, every district to other districts, every region to other regions. and for that you need standardization. I like to have a very standardized HRIS human resources system where all the people in the organization and we'll build this company up,

we'll have hundreds of thousands of employees. I need to have a standardized data system for all of our employees. Everyone's on the, for 401K, it's the same exact way of doing all the benefits are the same, all the performance appraisers are the same, compensation I can see right away. I need to have transparency to the information

information about I need to have the organization charts, very accessible right away. And every time we do an acquisition, I need to pull that information up right away while we're studying it quickly. So we have a competitive advantage against other bidders to see what would the synergies be. So I need standardized HR technology about everything. I need a standardized CRM, customer relationship management system like Salesforce.com or this several others as well. And for that to be able to make sure we're looking at customers, the attractiveness of those customers, the profitability of those customers,

the size of their spend, so therefore the potential of those customers going forward, all the interactions we've had with those customers. I need to see that in a standardized way all across the globe, everywhere, in every country we're functioning it. So I need to standardize technology for customer relationship, for sales manager.

So I'm giving, I need a standardized internal social media. I happen to like I've used Workplace by Facebook. It's not the only one, but I like that one really well. It's nice and the interface is really, really good. So I like to have everyone on the same one because I like to have one company with one culture where everybody can ping each other. I don't want to have these silos of companies.

Like sometimes you see these companies roll up many different companies, but it's all a mishmash. It's all separate. I don't like that at all. You see a lot of these middle market private equity firms do that. They roll up these small companies. They're doing $5, $20 million each, and they just buy a budget.

bunch of them and now they're up to 100 million or 200 million EBITDA and they just get a bigger multiple because they're bigger but it's a mess whoever buy those whoever buys those companies is a lot of work to be done you've got to now standardize everything and integrate everything and opportunity to improve them plus a lot of cost and time to fix all that stuff up so i i integrate from the moment that we agree to buy a company we're starting the integration process and the day we close the acquisition gazam we're in there and and we're standardizing everything as much as we possibly can. And we're communicating and communicating quite a bit. A big part of the success for M&A is forming the relationship with people and making sure we get off on the right foot and making

sure that we don't lose the great talent and making sure we, on the same time, we're identifying the weak players and gracefully and generously exiting them. So there's a lot of different components to M&A. I'm summarizing a lot of different factions, each. one of those things, we could talk for an hour just on that block. But those are the kinds of things that go through my mind and my approach to M&A. You have some unique questions when you interview sort of the top 10 to 15 people as part of the diligence process. Can you walk me through what at least two or three of those questions are where you get the most useful information? Yes. So you see some companies, when they're negotiated by a company, do this very lengthy

and detailed and bureaucratic diligence process. And they hire a firm and they write this big huge memo that nobody ever reads and or some wonk reads it, but nobody important reads it. And it's basically just to cover their butt. I'm not trying to cover butts. I'm trying to make money for shareholders. My goal is to make money for shareholders, period. And so what I'm looking for in diligence is I want to know how they make money. I want to know the history of this company.

I want to know the current state of this company. I want to ask those people. I like to interview the top 15 or so people one-on-one, like an hour, hour and a half. I'd like to ask them, if this was your money, would you buy this company? And if you did buy it, what would you change? What would you do differently? Where's the opportunity to do something differently than it's been done? And I'd like to ask them, okay, if you were buying this company, what would you not change?

What is so good about this company that's making it successful, that's attracted to a big bidder like ourselves, that we should make sure we'd be crazy to change that. So I like to ask questions like that, questions that give me insights into how the business got to where it is. What's the future of this company? How could we improve the company going forward? Where are the things that have been blind spots of the current where the company's been run that we could fix? And what are the things that are working well that maybe we could put more resources into? Where have we not been spending enough money? Where we're not investing enough money into something that could be a good return on investment? On the other hand, where have we've been, where has the company been wasting money? Where has the money been

gone into things that, why are we doing that? Doesn't really help customers. It doesn't delight customers. It doesn't make customers happier or doesn't improve our, our customer business reviews. So why are we even doing it? That's a, I like to ask those questions. And they're really revealing. The first person who I talked to who had questions like that was Kat Cole, who is the vice president now at Athletic Greens, when she turned around Cinnabon, that's what she would do. She went and worked in the stores and asked the employees what they would do differently. And it was so revealing in terms of what they ended up changing.

I find so many times in corporations, people don't ask those questions. And I'm big in asking those questions. I'm big at surveying using town hall. one-on-one-on-one-interview, small group interviews, asking questions about how are we going to win? How are we going to win? What are we doing wrong? What can we be doing better?

What are we doing right that we should do more of? And I find it very valuable, very, very valuable. It yields a great return on time. And as I write about in my book, there's only two things the manager-manages. Return on capital and return on time. And I believe that asking the employees and getting I'm involved in the process is a great return on time, a great return on capital.

What's the role of a board in a strong founder-led company like QXO? Well, you're investing 900 million of your own money. You're the founder, the CEO, largest shareholder. What role will that play? How does that change the role of a board, especially when it comes to MNA? I've been really fortunate to have fantastic boards, boards that are very strong, comprised to people who are really competent, people who have, they're invested in the company, they're leaning in, they take the job seriously. They're passionate about the company. And my relationship

with the board is a little bit different than most boards. We're completely transparent, completely open. Any board member can reach out to any person in the company anytime they want and ask them anything they want. And there's no supervision or people have to accompany them or none of that. So I want board members to be very, very informed. I want board members to get copies, of the customer surveys. I want the good and the bad. I want them to see that. I want them to see the analysis.

I want them to see the analysis of the customer surveys of where we're doing well and where we're falling short. I want them to know that. I want the board members to have all the employee surveys and see all the word cloud analysis

that we do, all the trend analysis and all the benchmarking we do. I want them to see where the pain points are of employees. I want them to see where employees are happy. I want them to see the trends of employees. I want the,

directors to be invited to every operating view and every monthly operating view, every quarterly operating view of any part of the company that tickles their fancy. I want them, the more they're involved, the better off we're benefiting from them. So I like to have board members that are very involved, very knowledgeable, and we have good conversations about the important stuff. And I don't run board meetings the way most Fortune 500 company boards are run. Most Fortune 500 company board members, board meetings, are kind of, they're very scripted and sometimes they even rehearsed. And there's a careful store that's being told by management and it's done by PowerPoint, it's done by rehearsed presentations that come up. And it's a complete waste, almost a complete

waste of time. You could do that whole thing just by sending them a document. There's no reason to convene a meeting for that. It's just a kabuki dance. I like to have real board meetings where ahead of time, everyone's read all that data and between board meetings, they've been in the business who, what I've been talking about. And they come to the meeting and we bring in over the course of a day

somewhere between 10 and 20 managers, executives, sometimes senior ones, sometimes mid-level managers, sometimes front-level managers, employees. And I go around the room and I like every single director to ask, whatever they want to ask. I don't want to ask.

I don't want them to tell me ahead of time what they're going to ask. And I don't want them to tell the managers who they're interviewing to know what the questions are ahead of time. I don't want our executives or our frontline employees to waste time. And I'm using the word waste deliberately, preparing for the meeting some speech, some script, sometimes phony baloney sales story about how great things are. I want to ask real questions. I want to include in the tough ones. And I want people to answer them honestly and spontaneously in the moment. and completely. So that those, I love our board meetings. So I'm now chairman at the moment of three

different companies, XPO, GXO, and RXO. And so we tend to have our board meetings every three months around the same time, on the same two week period. It's some of my favorite meetings the whole year because I had highly engaged directors who are knowledgeable about the business and who ask really good questions. I learn a lot. I learn a lot at the board meetings. I don't dominate the board meeting with I'm the person speaking all the time. A lot of times you find that the chairman or the CEO is like making a whole big deal about themselves. Board meetings should not be about the chairman and the CEO or the chair and the CEO.

The board meeting should be about the directors getting the information they need to get, they want to get, they should be getting. Should it be focused on problems or what's going well? How do you think about that from a board level? And then I want to get into more specifically management meetings. But like at the board level, how would you organize that around? And how do you craft an agenda for that? I don't craft the agenda.

So what I craft is I figure out who are the right people to bring in. But even that, in terms of the management we should bring in, I don't do that all by myself. I get input from the lead independent director. I get input from the vice chair. We come up with something together with the CEO. And then I distributed around to the whole board. What do you think?

How does this look? I don't have any changes. People usually have changes. People say, that's great. But I'd also like to have a section of, on HR, just even yesterday. We're preparing for a board meeting and one of my vice chair said, you know, that's good, but I want to have a section on human capital management, on people management. So we rearrange things and we're bringing some HR folks. So my goal is to get the right

people in the room in front of the directors and then let the directors ask what they feel is right to ask. I don't want to micromanage the agenda because that's my agenda. I want, I am never going to be smarter than the sum of all the directors. That's never going to happen, mathematical. Or you have the wrong directors, right? Very much so, yeah. And I like directors who are smart and who are engaged and really want to prove the company. They want to play their role.

They take their fiduciary duty very, very carefully. They have a strong duty of loyalty. They have a strong duty of care. When you think about decision-making, how often are decisions made by committees in the companies you run versus made by individuals? Well, I hate the word committee, period. Committee is just like a bureaucratic red tape, slow, kind of, low energy kind of word. I just can't stand the word.

So I try not to call things committees, just to a nomenclature. However, there are sometimes when a group of people will have to make a decision because it's more than one discipline that's required to get to the right decision. They might be a task that we have that has a financial element. You need someone from finance accounting that certainly has an operational element to it. You need an ops person there. But also have a big people element, so I need an HR person there. And so I could have, if it's a big decision with big impact, then I'm going to have C-level,

the C-O, the CFO, the C-H-R-O. That's a big decision. I'm not going to waste those very important people's time with small decisions. FP&A, financial planning analysis, plays a big role in my company, more than in most companies. The FP&A people are the ones who are turning all these ideas, they're in a meeting, they're listening to all these ideas, and they're turning them into numbers. They're turning them into forecasts, they're turning them into projections, they're turning them into the, look, we have this, these 10 things we're going to work on

to create alpha for our shareholders, they're attaching probabilities to each one of those. I got a 90% chance of this is in the bag, this is going to happen. This is a long shot. This is like a 10, 20% chance of happening, but it's not a 0%. It's a 10 or 20 percent, and it's got a high return if we achieve it, so it's worth putting the effort in, but I'm only going to give 10 or 20 percent credit, maybe even going to give less credit than that. And they're also doing budgeting, constant iterative budgeting. We don't do budgeting once in a while. We do budgeting every day, every single day where we've got our numbers, that is our plan, and where are we tracking versus the plan. and the FPA people are are really good at figuring out who's sandbagging and who's exaggerate.

By that, what I mean by that is you have some managers who just do their personalities or for whatever reason, or maybe they're playing games with their bonus, they want to lower expectations so they come out looking like heroes. Well, that's not good because we want to know the real likely outcome so we can plan around that. On the other hand, you have some people who are overly self-confident, and they think this is definitely going to happen and I'm going to grow this, but if you look at their history, if you look over the last three years, they've missed their predictions by three to five percent, like pretty much every year. So they're going to discount them based on the past, predicting their future, likely to succeeding. So the FP&A people play a big, big role in that and figuring out what is the highest, lowest, and likliest outcome. for all these different endeavors that we've got. And they're also playing a big role for allocating capital.

So we talked before about the two big things that senior executives do is decide what kind of ways we're going to spend money, allocate capital, because it's finite. Even if it's billions of dollars, it's not trillions or gazillions, it's billions, it's finite capital. How are we going to invest that capital? Of all the different ways we can invest, what's the highest and best uses of that capital? and how are we going to manage time? How are we going to get everyone focused on the things that really matter

and not waste their time on the silly stuff that really doesn't matter? It's not going to create massive value for our shareholders, which is what our mission is. The FPA people help with understanding that and putting it into numbers. Because sometimes you can get very inspired and motivated and it's a really creative, fantastic, inspiring project comes up. But when you analyze the numbers, it's really not a really good return on time or return on capital.

So maybe we shouldn't be spending so much time on that. So we're also managing how much time are we spending as an organization on what kind of projects. You find a lot of time in corporate America, somehow or another, they get lost. Management gets lost on these tangents that are not central to their main mission of creating value for shareholders. And the FP&A people keep track of that.

the scorekeepers to keep everyone honest of how we're investing capital, how are the returns on that capital versus what we expected it to be, what we planned on, how we're spending our time, is how we're spending our time proportionate to what has the highest impact of how we're spending our time. And this is a very important role. So FP&A ends up being kind of omnipresent throughout the organization anytime we're making big decisions because they're really good at getting all this

down to reality, to real numbers. And they report to the CFO. Is that the structure internally? FPNA has two lines. One is to the CFO and they have a dotted line to operations and to me. So I rely on my FPNA person like every day. I want to know for two reasons. I want to know internally how are we doing on the projects that we're attaching high priority to.

I also want to know how are we doing on our commitments to shareholders, to investors. When you're a CEO of a public company, you have a really important mission. in that you've promised what your numbers are going to be in the future, how much your profit's going to be, how much your organic revenue growth is going to be, how much your margin is going to be, what your return in capital is going to be, how much your free cash flow is going to be. And now you've got a promise out there. You've got a guidance. You've got a forecast. And you're working really hard to achieve that. I need to know, an FPA is the best place to know that. How are we tracking against that? And if we're tracking higher than that and significantly

higher net. There's a big deviation from that. Well, we'll talk to legal and we'll talk to IR and the investor relations and we'll say, should we update the investment community ahead of the quarter, ahead of when we normally produce our results. And equally importantly, maybe even, maybe more importantly, I want to know, God forbid, if we're tracking below our estimates. And once I know that, then I have a meeting. And I say, whoa, of our six or seven top metrics that we've promised to our investors, we're doing well on these five or six. From these one or two, no, no, no, it's not doing very well. What are we going to do to get back on track? So constantly using our sensing, information gathering, and then getting back on track, getting back on track.

Do you do the forecasting because you're going to be going to the capital markets for capital at some point in the future with an acquisition strategy? Or would you not do that if you knew you weren't going to raise additional capital? Well, I am a big user of capital markets because all my companies have grown through acquisitions and I've needed capital to grow those acquisitions. We've raised money from the largest sovereign wealth funds in the world and some of the largest pension funds in the world,

some of the largest long-only funds and, you know, endowments and a lot of different people who's money we've taken and given them back a lot more money than they gave us. So in order to do that, you've got to hit that, you've got to meet your promises. Your results matter. Results matter.

They're very, very important. So even if we weren't raising capital, the fact that we've taken capital, and sometimes we've gone for years without raising capital, well, we've maybe refinanced debt to take advantage of changing interest rates or something like that. But in terms of raising equity, which is the dear thing, raising equity, sometimes we've done some acquisitions, like in 2015, we did two big acquisitions, and then we digested them, and we integrated and optimized and doubled and tripled the profit without doing any acquisitions. During that period of time, we didn't need to raise equity, and we didn't.

So, but even though we weren't raising equity, even though we were not going to the back to the capital market chain, we still paid extremely rigorous attention to how are we doing on the numbers. That's our job. Our job as executives, as managers, custodians of this business, is to produce results. And that's measured ultimately in financial results. It's also produce in operating results. It's also concerned of customer satisfaction, employee satisfaction, but all those things lead to financial metrics. And you've got to stay focused. You have to have the whole organization focused on delivering those financial metrics. And that's how you deliver them. It's a conscious intention and a sense of honor in a sense of, I need to do this. This is

what we need to do. This is our promises, promises made, promises kept. When people tell you, they're not motivated by money, you get suspicious. Why? Well, I actually respect people highly if they're not motivated by money. I know a lot of artists. I know a lot of musicians. I have friends and relatives who are professors or retired professors in academia. This is not into money. I mean, there's not into money. They don't think about, they don't read the Wall Street Journal. They're not interested in that whatsoever. And I respect that. They have a higher calling in a way. They're focused on some deeper parts of life. But that's not who I want in my company.

I want my company people who are absolutely motivated by money, who are raw capitalists, people who want to make money for themselves and their families, and that we can figure out a way that by being part of our company, they can help us make money for shareholders so that we can pay them more money here than can make somewhere else. I've had people on the senior level make many, many, make people become millionaires, multi-millionaires.

I've had people become tens of millionaires. I had one person who made over $100 million. I have a couple of people now who are on track to make very large amounts of money. This is a good thing. This is a outgrowth of success because we've tied everybody's compensation. We've been very thoughtful about compensation plans.

We've tied their compensation to contributing to our big goals. And the only way they can make all this money is if they're making money for shareholders. So I love compensation plans for the senior executives that have a big component of equity that's dependent on TSR, total shareholder return. So we look at how does our stock perform versus called S&P 500

and what percentile are we? If we're less than call it the 55th percentile, I'm not so sure they should get any, I'm not sure the equity should vest. I could argue that if we're only getting roughly half, roughly, we're very middling in the results we're giving, that's not why people invested in us. People gave us the sovereign wealth funds or pension, these big investors, they've given us money because they expect us to be much, much higher returns than the average company.

So I like to have people bet on themselves so that if our shareholder returns are less than 55% or so, I don't want it to vest. If it's 65%, invests some. If it's 75%, invests more. If it's 85%, 90%, 95%, I want it to, I want it to make, I want it to double vest. I want them to make twice as much as they would otherwise. So I want their interest aligned with the shareholders. I want it to be so that the shareholders are saying, wow, I really hope senior management

team makes a fortune because the only way they're going to make a fortune is if we're beating all the competition in terms of the returns with our investment. So I like to happen. One thing I liked about Goldman Sachs' compensation premium that I took for them years and years ago when they were a partnership, a big chunk of their compensation plan. I'm not up to date in their

compensation plan now, but back when they were a private partnership, a big chunk, like a significant percent of their comp, was based on how many other partners said that they helped them with what they were working on. In other words, I didn't just work on what I was

trying to work on. But I helped you, Shane, with your client and that group effort going back to being a superorganism. So if we can have people on the front line and the mid-level management be rewarded financially, because that's the biggest reward, not the only reward, but financially, financially rewarded for helping other people achieve their goals, that's a good thing too. So we have all these bespoke compensation plans that are well designed that a lot of thought go into that result in the magic, meaning creating outsized returns for shareholders. That's how we do it. Now, we also do just general recognition. That's not as powerful as financial rewards, but it's still a good thing. So we have all the usual things of people getting awards and rewards and trips to

places and presidents clubs and employee a month, all those kind of things where people feel good about themselves because they're recognized for going above and beyond. But if I have to pick just one or two. The feel good stuff or the money, I'm going with the money. It's a powerful motivator. I like how everything's tied to sort of like win-win, everybody wins, right? It's not one of those places where you're, you can get outsized compensation, even if our shareholders lose. That's a terrible thing. That's an unfair thing. That's, that should never happen. You shouldn't, you should have a complete alignment between how shareholders do with their investment in the company and how the employees do.

either both of those groups should be making a lot of money or not a lot of money. Now, the shareholders can't control that. All their doing is invest in their money. The employees control that. If the employees are selected well, are working together in a good culture well, are using technology, or using ways that they can succeed, or have good feedback loops, and they're making good decisions and being held accountable to those decisions. They're exceeding them and delivering the numbers.

And the share price reflects that. The share price goes up. That's great. The shareholders should make a fortune and the employee should make a fortune. Neither one should make a lot of money at the expense of the other. That's not fair. That's just not right. What CEOs do you think are underappreciated capital allocators?

When I look at the companies that have taken money and had small amounts of money and turned it into huge amounts of money, immediately I'm thinking Mike Moore at Sequoia. He was chairman of Sequoia Capital. Now, he's retired from that, and he's at Sequoia Heritage, he's a senior advisor, Skoroy Heritage. But if you look at his career, everything he's done over the decades,

and I've studied Mike very, very well for many, many decades. He was one of my first outside investors, Sequoia Capital came into my United Way system, way back in 1989, 1990. And what is he the genius of? He's the genius of taking small amounts of money and turning them into huge amounts of money. So you look at Google, at Yahoo, at Netscape, at Sun Micros,

all these companies that he invested relatively small amounts of money and ended up being worth like $10 billion. That's good capital allocation. That's really, really intelligent capital allocation. So I immediately think of, I think of a Mike Moritz for something like that. I think in the industrial sector, there's also people who have gone through the same kind of processes I've gone through and been disciplined at how to allocate capital and achieved high RIC as a result of that.

You think of the academy level CEOs over the years. Dave Cody, for example, when he was at Honeywell for years, he was very, very rigorous at this, very mathematical, very dispassionate, very intelligent about, okay, guys, this is how much money we've got, where we're going to get the biggest returns, allocating it very, very carefully there. So those are the people who come to mine off top of my head. about the relationship between quality and speed. You need both.

So you see companies sometimes be really good on quality, but oh my God, they take forever. So it's really not achieving what you're trying to achieve. You see other companies that move real super fast, but it's at the sacrifice of QAQC, of quality assurance, quality control. The real golden mean is how do you move fast, fast, but move fast intelligently so that you're not sacrificing quality. In fact, you're moving fast

and improving quality at the same time. That goes back to mathematics. That goes back to engineering. That goes back to planning, understanding the lay of the land, understanding what exactly is the inefficiency that we're trying to take out of the system. What's the biggest lesson you've learned from the past year? You could pick any time frame with this last 12 months, last 10 years, my whole life, and ask me what's the biggest lesson I've learned? For sure, I'm going to immediately default to something with people. First I'm going to default to people, then I'm going to default to technology. These are the two things, because these are the two biggest needle movers. These are the two biggest categories of things that make a difference. So in the last year,

what have I learned about people? Okay, one thing I've learned about people is, I'm working with a team now at my new company that's largely the same. They were on my team's report. They were either XPO or one of the exos. And what I've learned is, it's great to have the band back together. It's great to work with people that you know that you've been in the battles with. You've shared the glories. You've shared the pain.

It's great to work with people who we've been in the dark days together. We've been in the strong days together. We've won together. We've been victorious together. we can complete each other's sentences. We get each other. We know each other's spouses. We know each other's kids.

That's a beautiful thing. I haven't always had that. I have brought some people from company to company, usually. Initial founding management for QXO or all XO people. And one thing I've taken away from that is I really love these people. These are people I really just respect and admire and I just I'm just so thankful that I get to work with them. Like, I feel, and I think we all feel this way. I think all of us feel that each of us is getting the long end of the stick by working

with the rest of this team. That's very hard to find a team, a group of people this size, that all love each other, that all respect each other, that all admire each other's professional and personal characteristics and traits. And that's a beautiful thing. So that's a big takeaway for me. Now, I'm going to go for two-for on this. What's my biggest takeaway on technology in last 12 months?

on technology, what I learned was I went through this process of studying dozens of industries and I went through the checklist and one of the checklist, one of the things on the checklist was can I play, can I take technology and apply our tech forward mentality and our willingness to invest in technology and put our money where our mouth is and put money in technology in an industry where we'll get a competitive advantage? And I found an industry building product's distribution, that I can do that. I found a company, an industry that's got 20,000 companies, and there's about six or seven that are doing really cool things in technology. And that's pretty much it. And I hate to say that so negatively, but I think that's an objective assessment

of it. I think there's half a dozen or so companies, the biggest ones, that are a couple of medium-sized companies, too, but mostly the biggest ones, who are approaching technology in the same spirit that we approach technology. Now, we're going to double down on that and spend a lot more money and have the best technologists involved like we always have in our companies. But if you look at the 99% of all the other companies,

there where other industries were 20 years ago. Now, I like that, Shane. I like going into an industry where I got something I can bring to the industry that's going to help. I can be transformational. I can be a catalyst to improve the quality of the industry. I'm happy to get everyone all excited

and share the vision about investing in technology, but we always, or I guess I always end with the same question. What is success for you? On the professional level, it's very simple. It's continuing my tradition of generating superlative shareholder returns, like off the charts, great returns for investors. That's my report card. That is success. Period. There's a lot of other things that build up to that. I have to have an engaged workplace. I have to have good relations with my local communities, have to do all those good stakeholders still. But at the end of the day, the report card is one question. What is my share price performance versus the benchmark and not

only relative, but absolute terms as well? So it's about stockholder appreciation for sure, professionally. All the things I'm doing of hiring people and putting in technology, all the things we've been talking about for last couple hours, that all comes down to making money for shareholders. If you're not making money for shareholders, it's just jabber, jabber. It's just talk. So, for me, success is defined by how is my stock price performance versus everybody else's. So that's clear for me. It's very clear in my mind. Personally, it's about my family, it's about my friends. It's about my relationships with them. It's about can I create ways where in the limited times, I don't have as much time as most people because I'm really into the business.

But in the limited time that I do have, can I make those enriching experiences? Can I make those experiences where there's a lot of love in the room? There's a lot of good stuff going on. There's a lot of positive vibes. And they're very symbiotic, wonderful relationships where I'm helping the people I love and they're helping me. And if I can achieve that, that's success. That's

amazing. Thank you so much for your time today. This was a fascinating and wide-ranging conversation. I really appreciate the opportunity, Shane. Thanks for listening and learning with us. For a complete list of episodes show notes, transcripts, and more, go to fs.blog slash podcast, or just Google the Knowledge Project. Recently, I've started to record my reflections and thoughts about the interview after the interview.

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