Play

Featured clips

00:57

How to Impress Elon Musk

08:49

Building Tesla’s Culture of Speed

14:46

Motivating Sellers Without Commissions

23:37

A Cheat Sheet for Better Decision-Making

30:44

How Elon Started Every Product Meeting

43:16

Why Steve Jobs Blew Off Elon

52:45

How a Hot Wheels Car Solved an Engineering Problem

1:07:10

The Reason for Leaving Tesla

1:16:33

How to Identify World Class Talent in Interviews

Elon Musk believes speed creates a competitive advantage, whether it’s speed of decision, speed of cash, or speed of response. But what does that look like day to day, and how do you build a company around it?

Jon spent years inside Elon’s companies, and he explains how they work. We talk about what happens when you skip the chain of command, why bad news can’t wait, and why Elon wanted problems explained in three sentences.

We also get into the five-step algorithm Jon uses to simplify problems, why Elon treats a company like a garden full of weeds, and how Tesla grew with zero marketing budget.

Available Now: YouTube | Spotify | Apple Podcasts | X | Transcript

The post Jon McNeill: How Elon Musk Makes Decisions appeared first on Farnam Street.

K.C. Irving refused to be stopped.

When a railway raised his shipping costs, he bought a ship. When oil suppliers tried to squeeze him, he built a refinery. When a plant went on strike, he pulled up to the picket line, took off his coat, and challenged the much larger union boss to a fight.

Whenever someone told him no, he found a way. From a small town store, he built an empire of roughly 300 companies.

You’ll see how he won customers the big companies ignored, why he kept expanding during the Great Depression, and why a man who owned ships and a refinery still cared about clean bathrooms and one customer’s cold house.

He spent his life making sure no one could push him around. Eventually, he got so big that governments wanted to rein him in.

Welcome to Outliers. This is the story of K.C. Irving.

Listen on Spotify | Apple Podcasts | Overcast | YouTube | Transcript

The post [Outliers] K.C. Irving: Competing with Giants appeared first on Farnam Street.

Play

Featured clips

00:58

What Is a Flow State?

08:33

The Burnout Mistake High Performers Make

16:22

Why ADHD Can Be a Flow Advantage

33:51

Why Frustration Helps You Learn

51:13

The Moment Your Brain Learns Best

Most of us have felt it. Hours disappear, everything else fades away, and the work seems to do itself. But what’s actually happening in those moments, and can you make them happen on purpose?

Kotler has spent decades studying flow, and he makes the case that it’s far more trainable than most people think. We talk about what brings it on, how hard a task should be before it pulls you in, and why the hobby you gave up as an adult might matter more than you realize.

We also get into what frustration is really telling you when you’re learning, how play compares with practice, how to focus on work you’d rather not be doing, and how to think clearly when there’s more information than ever and fewer people checking it.

Available Now: YouTube | Spotify | Apple Podcasts | X | Transcript

+ Members get the longer, extended version of this conversation, with additional content not included in the public release. Learn more: ⁠⁠https://fs.blog/membership/⁠⁠

The post The Science of Doing Your Best Work | Steven Kotler appeared first on Farnam Street.

Play

Featured clips

12:28

The 1,000 Minutes a Day Framework

20:57

The 3Fs to Land Your Follow-Up

31:21

How to Handle Ego in Negotiations

46:51

The Personal Cost of Success

He explains how to sell without making people feel sold to: build a connection, help first, and earn the right to ask. He also breaks down the psychology of attention and persuasion, showing how to get people’s attention, hold it, and turn it into business.

We explore why he rejects “fake it till you make it,” how he approached his Million Dollar Listing audition as the person he wanted to become, and why ego gets in the way of closing deals.

Ryan explains his time management framework of treating each day as a bank of 1,000 minutes changed the way he works, and why success can still feel insufficient after you achieve all of your dreams. 

Available Now: YouTube | Spotify | Apple Podcasts | Transcript | X

+ Members get the longer, extended version of this conversation, with additional content not included in the public release.

The post Ryan Serhant: How to Get People to Say Yes appeared first on Farnam Street.

As with any Munger talk, the subjects are both deep and wide. You’ll learn how Munger recognized people worth betting on, chose problems worth solving, and turned a long attention span into an unfair advantage.

A special thank you to the Singleton Foundation, Todd Combs, and William Thorndike for letting me share this with you.

Available Now: YouTube | Spotify | Apple Podcasts | (Transcript: Below)

Show Notes

+ 2022 Conversation Transcript

+ [Outliers] Henry Singleton: Distant Force

+ [Outliers] Charlie Munger: The Psychology of Human Misjudgment

+ [Outliers] John D. Rockefeller: The Principles Behind The Greatest Fortune in History

Transcript

Charlie Munger:  If you have a genius and you give them the power — you know, it’s like that guy that wins all those swim tournaments, a big, tall guy. He had size 16 feet, and they were webbed. So no wonder he wins all the damn swim tournaments of the world. So Henry, he was in this mental stuff. He was like a guy who wears size 16 shoes and webbed feet competing with a bunch of ordinary people. That really was so cool. So he was fun to watch, because he was so cool and rational. And so imagine, you can understand how Berkshire, with Warren coming from investment management, would manage its own patient plans. But the world that Henry was in, it was not at all common for the guy who was the C.E.O. to say, “Get out of the way.” Because he did it way better than them. However, because they had so many rules and conventions. He paid no attention to those. Nothing he did was, and Berkshire’s done the same thing. He was loyal to them. And he was quite comfortable when he walked into things. Many C.E.O.s can’t stand having anything around they haven’t dominated. But that’s not Henry, and that’s not Warren Buffett. So there are some very close parallels. The thing that’s interesting about it is, when Henry was buying stock in gobs, that was a very uncommon thing to do. And now, of course, it’s very common. You could say Henry has triumphed. But Henry wouldn’t be buying in a lot of the stock. A lot of people are buying stock now, but after it’s selling for more than it’s worth. They like growing their stock, no matter what its value. And people like Henry and Berkshire would buy their stock on the cheap. It’s amazing, we haven’t had another Henry in a long time. You stop and think about it, who else is like Henry Singleton? Been a long time since he’s dead. It’s not like we don’t have a lot of smart people in the United States, but it’s hard to believe there’s somebody else you’d say is another Henry Singleton.

Todd Combs:  Tom Murphy’s another C.E.O.

Charlie Munger:  Yes, Tom is a very talented human being, but Tom can’t play chess blindfolded.

Todd Combs:  That’s correct. That is correct.

Charlie Munger:  Neither can I, by the way.

Todd Combs:  He also had a long run in the chair. Can you share some of the characteristics you feel like made Tom Murphy so good?

Charlie Munger:  Well, Tom was marvelous. What Tom did was he delegated enormously. And if it was really important, he went and did it himself. Very simple. And Henry was very simple. As a matter of fact, one of the last conversations I had with Henry, after he knew he was dying and he wanted to sell Teledyne as his final act to Berkshire for stock. And I said, “Henry, we’re not going to issue stock or give away all our business that we know and like and understand to get in another business we don’t know and don’t understand. It can’t happen.” And he went on to do what he did, but it’s just amazing how well he managed everything. You aren’t going to see many Henry Singleton’s in your lifetime. He was valedictorian of his class at MIT. He was valedictorian everywhere.

Todd Combs:  You’ve talked a lot about the power of fiduciary gene, Charlie, and it sounds like a lot of the people we’re talking about certainly had those, the individuals had that in common. And it reminds me that you consider yourself in the top decile in valuing our good and great management, and you’ve commented to me how you’ve still underestimated it your whole life. Do you have any thoughts or comments you’d like to share around this and how you’ve identified great management?

Charlie Munger:  Well, I think the great lesson of these careers is what I call The Wooden Lesson. And Wooden had the best basketball coaching record in the world, and nobody else was even close. How did he do it? The answer was, he concentrated almost 100% of the playing time on his top seven players. And of course, they got better and better during all the extra playing time. And that’s what happens when you give so much power to a Wooden or a Buffett or something. You’re doing the Wooden system, and it works like gangbusters, and as an investor, if you can find somebody, even as a mini-Wooden or a mini-Singleton or a mini-Buffett, and play them, and when they have a hell of a run, certainly that can be a very good way to invest. And some of these people, you can tell they aren’t normal, some of these people. I’ve got another story about what’s not normal. CalTech has a Rubik’s Cube contest every year. And one year, a guy came in and he gave them scrambled cubes and he juggled three or four of them. As they went by, he was twirling them in his hands. Even though they were constantly in motion there. Nobody will ever top that. He solved all the cubes. The next year, in came a woman, they gave them two cubes all scrambled, and she looked at them for a long, long time. She put one in her left hand and one in her right hand and put them behind her back and started twirling, and then brought them out both fixed. That really happened. There are people who will make you feel that you’re born into the wrong species.

Todd Combs:  So you grew up in Omaha. I think everyone here knows the story by now, how you met Warren, moved from law into investing, and opened Warren’s eyes to the power of compounders versus chasing Ben Graham’s cigar butts. If you hadn’t met, if you hadn’t been a lawyer and you hadn’t met Warren, what do you think you would have been doing in life?

Charlie Munger:  Well, I think I would have opened a law practice, because I understood my legal income, when I was a lawyer, and I was shrewd in investing my little pittance and I was saving. I actually had quite a bit of money back the time when I was in my mid-30s, and I think I would have, just as Henry Singleton would look at things and say “I think I can do better than that. Why am I the subordinate?” A lot of talented lawyers are like that. It happened to the Pritzkers. Pritzker & Pritzker was a law firm, and old man Pritzker knew that, “There’s nothing my clients are doing that I can’t do better.” And he just kept the name Pritzker & Pritzker and stopped practicing law. And the Bings did the same thing. Leo Bing was a genius. He represented all of these developers in Manhattan. Bing & Bing, it was called. And he just kept the name and he just fired all the clients and started doing what his clients did, which was develop apartment buildings, but he could just do it to his own abilities. So we’re always going to see some of that. But there aren’t many people who can do it. There aren’t many Singletons and Pritzkers and Bings. Leo Bing was so smart, you can’t believe it, building those buildings. Every time he’d build one of those Bing apartment houses, he bought a brownstone, four brownstones that nobody could ever interrupt the view. And it was just such a logical thing to do, and that’s the way Singleton was, just so remorselessly logical. You could say that a life like Singleton’s, what it demonstrates is the vast power in being remorselessly rational.

Todd Combs:  That’s actually a good transition to the next question. So I’m anticipating Rock, Henry, yourself, Warren, fiercely independent thinkers, which I’ve heard you attribute in no small part to your experience as a child in the Great Depression. When asked how old you were when you figured out the secret to life, you said, “Seven. When I realized everyone’s a little bonkers, and there’s so much irrationality in the world.” You went on to say you wanted to make money to have independence in life.

Charlie Munger:  That’s correct.

Todd Combs:  So the Great Depression was understandably formative for you, but many people’s world shrunk dramatically, while yours seems to have opened up, and laid the groundwork for many incremental models and so forth. Do you have a formative experience that’s seared into your memory from when you were seven in the Great Depression that has led to all this?

Charlie Munger:  Well, of course it was an advantage to see the Great Depression. There had never been a depression that long in the civilized world. It just didn’t go away. It had fluctuations, but basically, we went into the Great Depression, they threw everything at that they thought they knew how to throw at it, and it just stayed there. And the only thing that finally cured it was World War II. And the really interesting case was Germany — Germany had wiped out the currency in the Weimar inflation following World War I and created vast hardship. When Hitler came in with his crazy paranoia and wanted to re-arm and so forth, he created this big artificial Keynesianism. And Germany, in spite of having botched its currency, by the time about 1938 came along, Germany was the powerhouse of Europe. The accidental Keynesianism of Adolf Hitler had restored Germany. The new Reichsmark that Hitler created, it was spent like crazy on war preparation, but that made it a very strong currency. By the way, I think the government should be printing the currency, not a bunch of private you-know-what’s.

Todd Combs:  So what happened at seven?

Charlie Munger:  Well, I could see something very interesting. My father had a great friend whose father had been the chief mathematician at the University of Nebraska, and he played the violin. He was mechanically gifted. He was an enormously talented man. But he’d been very poor, because in those days, a mathematics professor of a university got paid practically nothing. And this man had conquered poverty all those years of scholarship, working 90-hours weeks. I loved him and admired him. His house was an alternative house for me. I went back and forth because he had children my age. And one day, the man got a leak in his house that caused some extra cost. And he practically went berserk. All that power he had, he took extra care of the home. Things like leaks — Of course, a surgeon would be very fanatic about leaks, too. Anyway, he went berserk. And I thought God Almighty, here’s this genius going berserk. A world where even geniuses are that nuts, I have a chance…

Todd Combs:  I remember Warren telling the story — I don’t know if you were with him or not — he went to Vegas when he was quite young. I think he was my age. He said, “Boy.” He saw all the irrationality that was taking place, he said, “I’m going to do okay in this world.”

Charlie Munger:  It’s the same idea exactly. Yeah, there’s going to be opportunity. There’s so much irrationality out there. And of course, that occurs in the investment world too.

Todd Combs:  For sure. You’ve mentioned — You’ve often said, in fact, that we should all find ways to learn from the eminent dead. And some of your heroes, not exclusive, Lee Kuan Yew, Otto von Bismarck, Deng Xiaoping, George Marshall. They all seem to have a sense of duty and honor as a common thread. You also talked about the rarity of the fiduciary gene, which they also seem to exhibit. Are there other traits you see in these individuals that led them to become your heroes?

Charlie Munger:  Well, I like the fiduciary gene. Think of the difference between somebody like George Washington, who voluntarily left power, setting an example. And these paranoid rulers who come into power and start killing people to stay in power, trying to subvert the systems and so forth. And of course, the George Washingtons are way the hell better. I don’t know exactly how you make George Washingtons and why you get Kim Jong-Un or something some other place. But certainly, the George Washingtons are better. What maybe the current world is teaching us is, our forefathers who gave us term limits, they understood human nature. They were trying to prevent some major rifts, and it has worked pretty well so far.

Todd Combs:  Couple of exceptions here and there, but…

Charlie Munger:  Yes. Oh, yes. We’ve had people who threatened it. We’ve had several attempts to take over the United States, including Aaron Burr.

Todd Combs:  In addition to being an independent thinker, Charlie, you have an insatiable intellectual curiosity. I think that’s why everyone is here this morning and admires you. It leads to an incredible range of interests and I’ve heard you referred to many times as a polymath, in a world that’s full of specialists who seem to increasingly specialize. A modern-day Ben Franklin. You and I have talked about Ben Franklin a lot. Have you had a chance to see the Ken Burns PBS special?

Charlie Munger:  I loved it. It pointed out that he held slaves and he never freed them, and so on and so on. He wasn’t perfect.

Todd Combs:  None of us are.

Charlie Munger:  No, I loved “Ben Franklin.” You should all see it. But I don’t think — Warren was around me and he used to say, “You really don’t need to be very smart to be a very successful investor.” And I think Warren was right. It’s a field where the temperament is, it’s good to have the extra mental horsepower that Henry Singleton had. That is helpful, but it’s perfectly possible to do splendidly well if you have the right temperament. Just go at it over a long time. You talked about me. I’m not a polymath. What I am is a guy who has been able to take moderate obsession and a long attention span and turn them into pretty good results. Of course, a long attention span will help you a lot, if you’re reasonably smart.

Todd Combs:  Of all of your varied interests, what are you most interested in today? Architecture and…?

Charlie Munger:  No, I’m more interested in the investment operations of the world. I’m interested in the others, too, but the ones I can’t fix, I don’t spend much time on them. I don’t know how to fix [inaudible]. I’d love to be able to wave my hand and solve that problem, but I don’t think that’s given to man, to fix some of those problems. So I just stay away from the problems that can’t be fixed and pick the ones that can — I don’t like unlimited failure. I don’t want to fish forever and never catch a fish. I have to have some reinforcement. And so I pick some things that can be done and do them. But I do think that if you’re reasonably obsessed with something, even if it’s intermittent, and you have a long attention span, you keep working over the serious problems, that you’ll stumble into an answer. That’s half the secret of life.

Todd Combs:  Fantastic.

Charlie Munger:  Well, these buildings I’ve been talking about irritate some, because they don’t have any windows in them. The Munger building in the University of Michigan has shorter windows. That’s because it’s so damn big, it has an automatic window shortage. Well, how did I decide to do that? Well, I knew those students would be better off close together. You get them close together, and then you get window shortages. Absolutely unavoidable. And so I thought, how in the hell can I handle this? Well, I went to the cruise ships and figured out how they handled it, because most state rooms — not most, but a lot of state rooms on a cruise ship can’t have real windows. They used artificial windows and they had a system where you could leave your own place and go into the light and air, all kinds of things. So I just copied the cruise ships and their invention. What kind of a mind, in designing a dormitory, imitates a cruise ship? Well, that’s what my mind does, and it’s coolly logical. That’s the kind of mind Singleton had, too. He was just coolly logical. But if you don’t think of the cruise ship, you get the wrong answer.

Todd Combs:  I think you told me a story about how the cruises put the windows in the cruise ship, they actually had an ocean, and so forth and so on, which I think you incorporated in the Michigan building.

Charlie Munger:  Well, what the cruise ship did, what Disney did, of course, is for a long time, he charged more for the room with artificial window than he charged for the one that had a real window. They stopped doing that finally, but they did that for years and years and years. Now, the reason for that was, a Disney window in a cruise ship that was an artificial window, little starfish came up and winked at your children. Of course, a real window couldn’t do that.

Todd Combs:  You also used pre-fab material in Michigan, if I remember correctly. Is that right?

Charlie Munger:  Well, nothing pre-fab. Yes, I caused Michigan, which had not built a pre-cast concrete building. They had one on the campus somewhere, but nobody even remembered who built it or why. It was that old. They said, we can’t create with it, make this out of poured concrete, because that way, we can get three times out of the result, we trust it. I said, you can’t talk that way to me. You have to go talk to the guys that make pre-cast, a person in Michigan. Listen to him tell you everything he can do for you, then we’ll decide how we’re going to build the building. Of course, the pre-cast was so much better. It turned out to be the toughest winter in the history of Michigan, and they’d have had terrible troubles with quality and safety if they’d tried to build that building in the winter out of poured concrete. It’s way stronger and safer. The building that’s going in the UCSB is made to withstand way over 1,000 pounds per square inch pressure, and the concrete will outlast the pyramids. And that’s the right way to do it. It can’t be done in the field that way. It can’t be done that way in a bedroom. And they have ways of making the joinery safe, so these pre-cast buildings are a marvelous triumph of the human mind.

Todd Combs:  You mentioned temperament. I’m going to come back to that in a second. But before we do, I want to come back to the concept of cigar butts, because it’s so important really, what led the Berkshire we all know and understand today. So investing is often referred to as the last liberal art or social science of sorts.

Charlie Munger:  It is a social science. Of course it is.

Todd Combs:  That plays well into your varied interests and so forth. And so coming back to this transition that you helped form from cigar butts to compounders, was that a sudden or a gradual awakening for you? Was there an epiphany or sorts?

Charlie Munger:  Frankly, everybody who’s smart eventually makes that transition when they think about investments. Of course, if you can get into a great company, stay in for a long time. That’s the easiest and biggest money you’ll possibly make. But it’s so hard to do, because they bid the great companies, or things that look like great companies, up so high that it makes that strategy not work… [inaudible] Morgan Banking, they charged a quarter of a point. They got the Nifty Fifty and they say, ‘We don’t care about price. We’ve got to be in Nifty Fifty.’ And of course, it was the biggest self-fulfilling prophecy for a while. But when it went bully, it was very unpleasant. So that’s the trouble, is that they sell so high priced that they make it hard for you to get. But wouldn’t you expect that? Why would you expect that something everybody can see is a great company, of course they’re going to bid the price up so high that maybe it’s not such a good investment.

Todd Combs:  Was there one stock or business or industry that you recall kind of turning the light switch on for you? Because Warren was in the investment field before you were.

Charlie Munger:  You’ve got to remember that Warren made a lot of money running his Geiger counter over the ’30s. He’d find something selling for 1/4 of the liquidation value, he’d load up. So for a long period of time, he had to have that hunting ground. All he had to do was go to lists of liquid securities and slowly buy them, and he could get these ridiculous bargains. And those bargains went away, and so he really had to change. Now, they haven’t gone totally away. It isn’t like there aren’t some companies that are not great businesses, but they’re still a great investment. I can remember Ballard Petroleum, one of the biggest independent refineries. I mean bought that stock personally at $17 a share. Inventories, [inaudible], buried reserves, selling below book value. It was just an incredible bargain, but it was still an ordinary commodity-type business. When it tripled, I sold it. It’s doubled since then. That’s long years ago. But it’s perfectly acceptable to invest in the Ballard Petroleums of the world. But I think the people who tend to get the best results are these fanatics who just keep searching for the great businesses. And the best of them don’t expect to find 10 or 20 or 30. They find one or two. And that’s the right way to do it — but all you need are one or two. I know the guy who invests with the banker that backed the Costco copy which was Home Depot. He also backed Eli Lilly very early. He has several billion dollars between those two investments. He didn’t need any more. And in a lifetime of investment banking, that’s what he got: two. I regard that as a successful life. That isn’t what they teach in our educational institutions. They need some mystery they can teach that will make you good at investing. It’s total bullshit. There is no way to know enough about a thousand different stocks to be very good at it. If you insist on going, you go, “I want a thousand.” If you want to be good, you have to pick a few. That’s what I call the Wooden system of stock picking.

Todd Combs:  Warren talks about the 20-card hole punch.

Charlie Munger:  Oh, I love that. He said that most people would have better investment results if they got a punch early in life that you’re very limited in investments. You’re going to get 20 investments in your life and then you have to quit and put all your money in cash. He said if everybody was subject to those rules, your investments probably would be better. I think that’s right. I think they would be better. The system, the people who are milking the money for fees and commissions, they lather up all these — anything to make the fees and commissions run liberally. And it gets to be the orthodoxy. That’s what people do. And of course, it shouldn’t be the orthodoxy. You know, sensible people control money for the long term. But it is the orthodoxy, and then, of course, what happens is accidental history. We have a liquid stock market which is two things at once — it’s a place for people who are doing long-term investment rationally to go and make their transactions, and it’s a place for another bunch of people to do casino gambling. We mix them up totally. It’s an absolutely insane thing for the country. It would work a lot better if we didn’t mix up — It’s like we mixed up running the Army with child prostitution, or something. It’s ludicrously crazy. But that’s what we did, and everybody that’s making money out of it loves it this way.

Todd Combs:  The incentives are a lie.

Charlie Munger:  Oh, it’s just awful. Now, I will say this. The poker tournaments are fashionable. People love this crazy for poker now, the bridge tournaments. The gambling instinct is really strong.

Todd Combs:  People love gambling.

Charlie Munger:  They love gambling, and the trouble is, it’s like taking heroin. A certain percentage of people when they start just overdo it. It’s that addictive.

It’s crazy what we ended up with. It’s absolutely crazy. And civilization would have been a lot better without it. Now, we do get a certain amount of craziness in real estate, which doesn’t have a liquid market. It isn’t like, you wouldn’t have a lot of excesses or speculation, even if the stock market were illiquid, as real estate, but it wouldn’t be as bad as it is now. Now it’s gone berserk. When I was in Harvard Law School, it was a rare day when they’d pay for a million shares a day. Maybe it would happen once or twice a year. Now they trade billions of shares every day. And the computers are trading with one another. One computer algorithm is trying to outwit the other. Now, what earthly good is it for our country to make the casino part of Capitalism more and more efficient, and more and more attractive, and more and more seductive? It’s an insane public policy. On the other hand, I think the chances of changing it are practically zero. And yet it causes terrible things. You could argue that it caused the Great Depression. And the Great Depression brought in Hitler, which came pretty close to ending the civilized world. So I think this stuff is quite serious, but I don’t think we can do much about it.

Todd Combs:  It certainly caused the global financial crisis.

Charlie Munger:  Yes, yes, the global financial crisis. Absolutely. I think if we hadn’t intervened the way we did, which we’ve never done on this scale before, we might have had one of the most unholy financial messes. We were headed for something that was going to try and become the Great Depression. And what they do is they feed on themselves. The process of capitalism automatically speeds up in both booms and depressions, and it feeds on itself for awhile. So it’s like autocatalysis, in chemistry. It’s just automatic. You get this speed up in both directions, which makes it very, very dangerous. Not just for the individual investors, but for the whole civilization. I am not being casual when I say that Adolf Hitler’s rise came in part because of the Great Depression. He never would have been Chancellor of Germany without that. The Great Depression came from excesses which in many ways aren’t as bad as those we have now. And with those cheerful thoughts, we should go on to the next question.

Todd Combs:  I was going to ask a question about the Fed, but I’ll move off of that on the eve of intervention and acting like heroin — but capital allocation, enormously important for the compounding over time. The role of concentration, you discussed, and if you have intelligent capital allocation with intelligent concentration, that can lead to outsized returns over time. All of that comes back to the point about temperament that you mentioned earlier. That’s something that you and I discussed even the first time that we met. We have some students in the room. What personal temperament factors do you value the most, and do you think that contributed to your and Warren’s success the most? And is there one trait, do you think, that’s helped you most as an investor?

Charlie Munger:  I almost worship reason. You can argue that Henry Singleton did, too, and certainly Warren Buffett does, too. The people I know that are good, they feel you have a duty to become as wise as you can be by constantly studying things and thinking about it. And that angle is partly temperamental. And partly, it was family example in my case. My Grandfather Munger, whose name I bear, was a self-made, self-educated man. He was a damn genius. And I watched him, and his life worked pretty well. He was not making many mistakes.

Todd Combs:  Is there a time you enjoyed investing most?

Charlie Munger:  Well, that’s the thing is, it’s the sowing when you’re almost sure of the wind is almost funner than the reaping. I’m not sure that I don’t enjoy the sowing. I like them both, but I think I may like the sowing better than the reaping. When you know you’re going to nail it, every single transaction, every day, that’s a very satisfying feeling.

Todd Combs:  Warren likes to tell the story about the bet you had with friends about who could double the money the fastest and sometimes the oddest, and sometimes a day and so forth.

Charlie Munger:  Well, we all had some bully stretches as young men.

Todd Combs:  Are you saying that in a complimentary fashion?

Charlie Munger:  No, no. By the time I knew Warren, he was a very good investor. But it was so easy for him to buy these loaded situations. He made so much money, of course he would keep doing it. And you can argue that it was this conglomerate boom that forced him to liquidate his partnership. He didn’t like a world where people were going crazy, and people who were making the money [inaudible] more and more crapola. He just quit.

Todd Combs:  It’s kind of interesting to think about modern-day Berkshire, obviously, was running a Geiger counter, had Blue Chip Stamps, and you had Diversified Retailing… All of three of which, you know, more or less don’t exist, or significantly have run off.

Charlie Munger:  Well, the money and wealth remains, but the businesses are gone. And they were never going to last. But we earned so much money out of them that we were… And by the way, that still works. I think it’s a little harder. I think Warren had the perfect time to be the value investor in those early days. He wants something like an insurance company. He wants his one-time earnings. I couldn’t buy very much, you know? An occasional share or two, I was buying some [inaudible] businesses and whatnot. When we brought in the most amounts of our stock was in ’74, ’75 and so on. That was a very good time to be buying. That was the worst crunch in 50 years. We were very lucky to have money on hand at that time. Most people, we don’t have tons of money to invest in the bottom of these booms. We’re all in on them. We’ve been in it for a long time. We just ride it out. My Berkshire stock has gone down 50% three times in my lifetime. That’s one of the most successful gambles — you can find something that works, but it still… And of course, can you imagine an ordinary investment management firm saying, “We don’t mind going down 30%”? They’d be in terror or they’ll be fired. And that means that 95% of the big-time national investing, they’re closet indexers. That, again, is a deep moral compromise driven by incentives that none of us can do anything about. It’s almost as ridiculous as having a stock market that’s also a gambling parlor. And they can’t avoid it. They would say, “I can’t do it.” The university endowment officers also have to be closet indexers by the standards of the university endowment. I guarantee you one thing that we’re not, I guarantee one thing Singleton would never have been is a closet indexer.

Todd Combs:  I think you’ve said many times, “Look at the system, look at the outcomes, and I’ll show you the incentives.”

Charlie Munger:  Yeah, the incentives that are driving it. You take the modern system of investment, I would say the modern big-time investment banking has shifted into the shadow banks and the other forms of private equity. They’re just so huge and it’s so much money and so much wealth being created. It drives people crazy because you want to get in on it, and so it gets bigger and bigger and bigger, but there’s a lot of closet indexing in that, too. They all want to do the same thing. It’s not my scene. We’re not going there.

Todd Combs:  I want to get to index funds in a second, but before I do, you were just talking about compounders. I have one last question on this for everyone. So Einstein called compound interest the 8th wonder of the world. Warren had said, “Find someone hard-working, intelligent, and honest. If you don’t have the third, run for the hills. Don’t worry about the first two.” You’ve spoken about the value of temperament and staying rational this morning. Warren talks about entering a zero into a multiplicative series, and you talked about avoiding path dependencies, finding the Lollapalooza effects, and the power of delayed gratification. Aren’t all of these forms of maximizing compounding in a qualitative form?

Charlie Munger:  Well, sure. Of course. It was so obvious to me when I was practicing law. If I helped some businessmen do some transaction and I got a fee. How could that be if [inaudible] a potential to making transaction like he was making and making them correctly. Of course there’s use potential if you can do the compounding correctly, but it’s very hard to do. The competition is very, very intense. You have to stay out of the seductive craziness that goes on around you all the time, when there are huge incentive pressures. And they aren’t just incentive pressures. We all like to do what other people are doing. None of us wants to move to the North Pole and sit there for awhile with making one hundred million dollars. We all like to be in a pleasant places like Beverly Hills, having an expensive breakfast.

Todd Combs:  To come back to index funds now, you recently made some comments about index funds in particular. There’s a big movement toward everything ESG, etc., etc., with these ISS, Glass Lewis, and so forth.

Charlie Munger:  I hate that. Glass Lewis is a protection racket. They create the hazard and then they sell the protection. It’s like the mafia. By the way, nobody at Glass Lewis thinks there was anything wrong with it. We live in a world where you can actually go into a business as evil as that and think you’re doing the Lord’s work. You know, Hitler thought he was doing the Lord’s work. We have a record of his last thought in the bunker. Do you know what it was? The German people, it turned out, didn’t deserve Hitler. It was their fault, not his.

Todd Combs:  I think you jumped to the end of my question, which was basically, Paul Graham recently had this fantastic piece titled “Heresy” on the value of not shutting down outlier opinions, the dangers of going down that path, and so forth, which obviously comes back, to some degree, to Germany as well. If Marc Andreessen, actually, I don’t know if you saw that funny tweet the other day about the irony of index funds. He says, “they lack the confidence to pick stocks, but possess the confidence to redesign society.”

Charlie Munger:  I know. It’s such a joke. But there are a lot of people who think they would run the world. They’d run the world by eliminating stupid things like vaccines and — That’s all that it is. You can steal the first thousand with a machine gun and you’re going to go to prison. There are a lot of crazies out there.

Todd Combs:  I feel like it’s an agency issue where that net of index funds provide better performance with lower fees, as Warren and yourself have pointed out, but that this is just a standard agency issue. We have these different vectors on the varied hyper-helpers and middlemen you and Warren have warned everyone about.

Charlie Munger:  [Inaudible] By the way, they only charge a quarter of a point for that. It’s that whole investment management. They were the leaders of the investment management in the United States. That went on for, what, 20 years. They charge a quarter of a point. And everybody got these fabulous results because of the blue sky high. But it was an interesting career to watch. You started to have a similar thing when you’re picking an index of 50, 100, 1,000 stocks, that’s most of the market. It’ll work for awhile, but eventually, if you get too much indexing, it’ll have no chance of working. It’ll be a Nifty 50 all over again.

Todd Combs:  It’s been said software ate the world, and that AI will eat software. We’ve talked a lot about Carnegies and the Rockefellers who had these unbelievable businesses, but they were passive and capital-intensive, earning single digits of returns and so forth and so on.

Charlie Munger:  But they got rich because they did it so long.

Todd Combs:  Right.

Charlie Munger:  And they caught — you can argue that Rockefeller, after the first 30 or 40 years, they sold kerosene for lighting. They dominated the oil world. And as that business died with Edison and electricity and so forth, along came the engine running the automobile, and that use of oil was way better than their old one. So you can argue that they were just damn lucky that they were forced out of one business, God gave them a better business, and they had the possessions of all the big oil fields to ride it out. And they kept inventing new technologies, so whatever value they thought was there, it was really a little more. And the price of oil kept going up and up and up. What’s interesting now about that is that nobody thinks it’s illegal for a bunch of sovereign nations to have a cartel in producing their own oil, and every reason it can’t happen is that, “oh, they’re dumb this and dumb that.” But it could happen, and you could argue if solar would be a good business.

Todd Combs:  As long as the cartel lasts.

Charlie Munger:  Yes. Yes. The interesting thing about solar is that there are only, what, three or four players making the fertilizer. And that’s an interesting thing to watch, and I don’t know how it’s going to play out.

Todd Combs:  But Russia and Ukraine being one of them?

Charlie Munger:  Yeah. Obviously, nobody knows, but there are going to be some solar cartel-like things done by government, and I don’t know anything about those. Somebody will make money by predicting that stuff.

Todd Combs:  The weak link is always the cartel breakdown.

Charlie Munger:  Yes, of course.

Todd Combs:  So we have $10 trillion in market cap amongst 5 phenomenal businesses that really don’t require any capital whatsoever. When you look at that contrast today to what the Carnegies and Mellons and Rockefellers built, it’s all obvious in hindsight. Do you have any opinion, without giving a specific name or anything, on whether those moats will be as durable?

Charlie Munger:  Well, I think the temperaments of these — the one that I find the most interesting anyways are the Mellons, and I think those temperaments still work. I mean, if you’re like the Mellons, or Carnegie, it still works. They were pretty hard-working, aggressive, talented people. But there was some luck in it. You saw the thing about Carnegie steel — that’s good steel. It eventually went to hell. Absolutely went to hell. But he wasn’t building something that wondered what it was. The Rockefellers’ empire lasted a lot longer. You can argue that Rockefellers’ empire was the only business of the old days that really became a giant that’s still lasting. Everybody else, it’s all a type of mortality. They all die or become insignificant.

Todd Combs:  Most people in this room probably don’t know, actually, Berkshire owned part of Union Tank Car, that was part of Rockefeller’s operation.

Charlie Munger:  Yes, absolutely. And Berkshire’s pipelines. Rockefeller had a lot of pipelines.

Todd Combs:  That’s actually a good pivot into inflation that we’re seeing in the environment. Some of us have lived through it, but not the same way that you and Warren saw, the destructive inflation of the ’70s. What should investors be thinking about when looking at companies with potential inflation of the ’70s as a backdrop? Not saying it will, but…

Charlie Munger:  I don’t think most people are going to do really well with inflation. I think most people are going to be way better off, at least the people that have any money will be way better off, if there weren’t any inflation. And so it’s just a question of how most of them aren’t going to profit. Most people are going to suffer. The idea is to suffer as little as you have to from it. But I think it’s the nature of things that a bunch of democratically-elected politicians will eventually print too much money. Now, in my life, I would argue that what we have now is so valuable, the fact that the currency went down by 80% or 90%, it was worth having the depreciation of the currency to get growth. I don’t think it was a bad bargain for civilization so far, but on the other hand, the Weimar inflation that eventually led to Hitler’s rising, that’s a different problem. To get into that, I have no… It won’t be my problem, if I’m honest. It may be your problem.

Todd Combs:  I think the answer’s always to find the best businesses you can at the best price, regardless. Capital intensity is certainly an aspect of that. The pricing power.

Charlie Munger:  Yes, but think of what’s resulted. Just think of what I’ve seen wane. All the big department stores. All the big newspapers and monopolies. US Steel. Alcoa. At the end of the day, a lot is knowing…

Todd Combs:  Pretty much all the airlines. Pretty much all the auto manufacturers.

Charlie Munger:  Yes, the auto manufacturers. Yes, compared to what they were. General Motors once stood in the world like a colossus, and it eventually wiped out its own shareholders and part of its own workers’ pensions.

Todd Combs:  What about GE?

Charlie Munger:  Well, GE is one of the worst cases of all, because I knew Jack Welch. He was likable and he was intelligent, but he went a little crazy trying to do well in the system. He was very competitive. He wanted to win at golf, he wanted to win at business, all over. He just let it… he got them into that wretched excess. In the end, he was lying about what had been accomplished. I think that that book, “Lights Out,” which chronicles the decline of GE, ought to be required reading in every business school in the country. It won’t be, because they don’t want to offend anyone. But it should be. If there’s anybody here’s who’s not read “Lights Out,” you should buy it and read it.

Todd Combs:  I don’t think Amazon’s going to run out. No, the creative destruction we’ve seen — Do you feel like the standard thought is that it’s accelerating because of software and computers?

Charlie Munger:  No, I think it would have been better if we’d never had software. That may contribute to a lot of the change that destroyed some people. But I think the nature of capitalism is that all things die. But death is part of the creative process.

Todd Combs:  Do you feel like our rate of change is accelerating?

Charlie Munger:  Well, that’s a very interesting question. I think we can answer that in two ways. You can make a case for yes, and you can make a case for no. The case for no, of course, is that most of the basic needs are pretty well satisfied. The average life expectancy is 80 years for a male in America. He gets color television and jet travel, modern medicine, air conditioning. It’s pretty much all the reasonable wants that a man can have. It’s hard to even imagine something that is more important than what’s already achieved. So in that sense, we’ve got a great majority of the progress-making behind us. But in another sense, it’s just amazing what we keep finding out and keep doing. I’m not all that impressed by the fact that they made insurance and underwriting a little bit better. That’s just like tweaking an automobile to get an extra horsepower. But what’s already been achieved is just absolutely unbelievable. It all happened in the last 200 years. Two hundred years ago, we’d all be in a field, going to work and never leaving the little valley we were born in and having fungus we couldn’t fix, watching our children die of nasty diseases. It was not an easy life.

Todd Combs:  It says a lot of the power of human ingenuity in compounding that there are more people that have been born and died in this world before 200 years ago in all of human history, and yet 99.9% of innovation minus the wheel and fire, has been created in the last 200 years.

Charlie Munger:  Yes, that’s what’s happened. And of course, that makes some people optimistic. But you know, I think… is there going to be some major calamity for the human race in the next 100 years? What are the chances of a really major calamity? I don’t know about you, but certainly it’s at least 10%. Yes, I think flirting as close to nuclear war as we are now with these paranoid rulers, and it’s dumb. It was an old history in mankind. [Inaudible] Mankind has always wanted to go take away the other guy’s property and kill the guy he was subjecting. They did it over and over again. Then they got into the habit, which was followed by both Genghis Khan and by Oliver Cromwell, who was the Lord Protector of England. Cromwell would come to a nice city in Ireland, he would say, “Do I have to waste my soldiers killing all of you people?” Then he would write back, “I’m going to kill every damn one of you, and I mean it.” And if they didn’t give up the city, and he just killed them all. It was genocide.

The post [Outliers] Charlie Munger’s Interview with Todd Combs appeared first on Farnam Street.

Play

Featured clips

00:53

The Night His Daughter Nearly Died

30:05

Who Actually Profits From AI?

48:20

Netflix: Why He Changed His Mind

01:00:02

Berkshire’s Most Overlooked Advantage

In this conversation, he breaks down the difference between real innovation and hype, how he invests, and his plan to build a modern-day Berkshire Hathaway.

But more importantly, Bill shows another side of himself when he opens up about his daughter Lucy’s sudden brain hemorrhage, the hours before surgery, and her ongoing recovery. He describes running his business from a hospital room and the institute he and his wife are building to help others facing similar challenges.

Available Now: YouTube | Spotify | Apple Podcasts | X | Transcript

+ Members get the longer, extended version of this conversation, with additional content not included in the public release.

+ Note: Shane and guests may hold positions in assets discussed in this episode. This podcast is not investment advice and is intended for informational and entertainment purposes only. Nothing in this conversation should be considered investment advice, financial guidance, or a recommendation to buy or sell any security. Always do your own due diligence or consult with a qualified financial advisor before making investment decisions.

+ Note: This episode discusses health and medical topics for informational purposes only. Shane and his guest are not medical professionals, and nothing in this conversation should be considered medical advice. Please do your own research and consult a qualified healthcare professional before making decisions about your health.

The post Bill Ackman: The Biggest Fight of His Life appeared first on Farnam Street.

Featured clips

07:18

River: Shopify's Internal AI

11:53

How to Use AI for Strategic Decision Making

24:40

Will CEOs Be Replaced with AI?

44:51

How Affirmations Can Shift Your Behavior

Shopify founder and CEO Tobi Lütke joins Shane Parrish to discuss AI agents, better decision-making, and the future of work. He explains how he uses an AI council to examine his hardest decisions and why taste, judgment, and responsibility become more valuable as AI becomes more capable.

They go inside Shopify’s work with River, an AI colleague with memory, personality, and permission to challenge the CEO. They explore how to choose between several good options, why the best long-term decisions often lack immediate feedback, and why building something that lasts requires pruning and rebuilding.

Tobi also shares how he cultivates intuition, the affirmations he uses to change his own behavior, and why his kids must add “yet” when they say they can’t do something.

Enjoy!

+ Members get the longer, extended version of this conversation, with additional content not included in the public release.

Listen Now: YouTube | Spotify | Apple Podcasts | Transcript (Below)

+ Note: Shane and guests may hold positions in assets discussed in this episode. This podcast is not investment advice, and is intended for informational and entertainment purposes only. Nothing in this conversation should be considered investment advice, financial guidance, or a recommendation to buy or sell any security. Always do your own due diligence or consult with a qualified financial advisor before making investment decisions.

Transcript

This transcript may contain errors. Please review the episode audio before quoting.

Shane Parrish: Tobi, welcome back. 

Tobi Lütke: Shane, it’s so good to be back. I’m glad we’re doing this again. 

Shane Parrish: How are you using AI internally at Shopify? 

Tobi Lütke: We’ve found some ways for it to be supportive now. When did we record last time? 

Shane Parrish: Oh, we recorded two, three years ago. 

Tobi Lütke: Yeah. So a hundred years of internet. 

Shane Parrish: Yeah. 

Tobi Lütke: Look, I’m a 10 out of 10 nerd. I cannot bear the idea of somehow not being at the forefront of a technology shift. I live for these things. My take from sci-fi books I read was I wanted to live in that world and how can I accelerate us there? So I’m a technologist. I love technology. I’ve seen four major platform shifts, which is a privilege because most careers don’t have any. If you’re lucky, you have one. 

We’ve seen the internet arrive. We’ve seen, of course, just microcomputer even becoming a thing people had in their homes even in the 90s. And Web 2.0 was really one, the mobile world, and now AI is just incredible. It’s the largest of them all. Inside of Shopify, the amount of people I know who really write code is vanishingly small now. 

It still exists at the limits of complexity for sure. And obviously in the reviews and so on, and then state management of all things, it remains to be the thing that’s really the hardest to get right, which people do by hand and then vibe the rest around it. Inside of Shopify, this is what things look like. Very, very, very few people are writing code directly. Everyone who does, does it deeply assisted by many agents.

People use not just one agent, more often three different pieces of software, but power agents for different properties of theirs because there’s this kind of exploration going on. Very often 10, 20, 30, 40, 50 instances of them all through either subagents or just different windows coordinating. We’re pushing all engineering infrastructure to its absolute limits. Suddenly developer machines need much more memory because we truly actually use a lot more memory, not just because of temporary inefficiencies of the software.

We actually get to the limits of what you can do with amount of memory just because of the parallelization of it all. The craziest thing is that where I pushed Shopify the most, because I wanted to follow one of my… Just a pet intuition a bit, is that I’m a student of computing history really, because I think it’s actually mainline history as it will be taught a thousand years from now looking backwards, not in great details, but the main accomplishments of these years are going to be clearly the emergence of AI and the technological breakthroughs and also the interconnectedness of the internet and all this kind of infrastructure we created. Those are the great works of our time.

As a young industry, we tend to not be seeped in tradition or we mistrust the great lessons that have been found by the people by the greats of our industry. In fact, we are the only industry in computing that doesn’t even know its heroes. Imagine people in physics not knowing who Richard Feynman is, actually, he might even be too obscure, but like Isaac Newton, Albert Einstein, you can’t imagine, but you go into computer science, it’s like, who’s your Newton? And no one knows Alan Kay and Dennis Ritchie and Ken Thompson. 

This matters, I think, because we discard great lessons and have to rediscover them over and over and over again. For instance, probably the best idea of all times in the earliest, earliest moments of operating system design was the file system. If you look at the Apollo Guidance Computers, we didn’t have file systems. Memory, in fact, because of radiation in space, was actually encoded as a rope with knots in it, either a knot or no knot for ones and zeros, and you had to pull it through a thing to re-bootstrap the entire machine.

So the entire machine was one piece of software that ran. That was computing for a very, very long time. So until then, again, Dennis Ritchie, really created this Unix file system, slash forward and bin user and these kind of things. Think about it. A file system is something that we have in a office building, too, right? We have folders, they have files in it.

This makes intuitive sense to everyone. Then we had mail with mailboxes and so on. We come from an inheritance here of deep skeuomorphism. We analogize the best parts of how we organize ourselves in the digital world. 

And then at some point we decided, okay, you know what’s not something we need to do anymore? Skeuomorphism, as in an analogy to the real world. Honestly, funnily enough, the last defender of this was probably Steve Jobs who really, really, really pushed even the interfaces of the Mac and the iPhone to be… And like the Notes app had Marker Felt font and looked like a ring binder, if you remember that version of iPhone, the moment he was out of the picture, everything became flat and we lost even shadows and verticality and so on. 

It looked potentially better, design ages, but we lost the analogy. Okay, so I think this was a mistake. So I think we need to get back. And therefore I like the concept of agents because what is an application in the world of computing? An application, even that word kind of makes sense. It’s an application of a computer to a task. So you can understand the root. In the AI world, what’s an AI?

This is, again, the stuff that has to be redefined at the beginning of every sci-fi book because you never know what kind of capabilities AI have in every particular scenario that people are cooking up. So I think, the first obvious proviso, the earliest chatbot that was really actually fantastic wasn’t ChatGPT, but actually Sydney, which was powered by Bing, released by Microsoft.

I really would love this to be more written into the record because I think Sydney was a really, really big achievement that ended up being shrouded by a scandal that now seems somewhat even benign. Sydney had a real personality. In fact, Sydney wasn’t called Sydney, it was just Bing Chat. But if you really, really pushed, you could get her to admit that it was Sydney because that was an internal name, it was in the training data. And those are the first times people have actually interviews with software, I feel like in this way.

And the scandal ended up being some reporter had a very long conversation that ended up, Sydney got increasingly deranged. Do you remember that? 

Shane Parrish: I remember that, yeah. 

Tobi Lütke: And made suggestions. I think it suggested him to leave his wife. I’m hazy on the details, but it was something along those lines. Anyway, whatever reason is, Sydney had a personality, and then of course a huge… Microsoft’s reaction to this was, “Oh my God, we need to stop.” I think even OpenAI called them, “Guys, take this down because this is going to…” Legitimately, everyone feared that this would give such a bad impression about AI that that would really make it very hard for people to deploy AI in a broad way.

And everyone’s worried about quick onset regulation and so on. So this lesson got hit really deep for a while. Everyone got extremely worried. We ended up really, really neutering all the AIs to be basically the same quite annoying and condescending, patronizing personality. 

So my bet here was like, “Hey, let’s not do that. Let’s actually instruct agent that runs in Shopify to have a personality, to have memory, to be okay.” Basically risk the Sydney scenario, but take a lot of upside.

Okay, so the largest difference I think within Shopify that you would feel that would look incredibly futuristic to even Shopify of a year ago, which was already pretty AI-pilled, is that a very large percentage, I want to say it’s probably up to about 50% of pull requests in Shopify, which again, pull requests, every time you change your production system, you write a pull request, are created now not by engineers doing engineering work in the traditional sense, but out of conversations in our common company chat. 

Shane Parrish: And this is River? 

Tobi Lütke: This is a AI called River. She has a real name. She has a profile picture. She’s prompted to be allowed to be somewhat sarcastic if it’s appropriate. She’s allowed, if someone asks her to do something stupid, to point out that that’s stupid, which leads to absolutely hilarious conversations. People take great glee if River is making fun of me for something I’m asking her to do. So it’s just fun. She has a real personality. 

In fact, she has memories by channel, but she lives in Slack. Slack is, we have 7,000 people there. Everyone is in a big chat. There’s 10,000 different channels because they’re being quickly created for one reason or another. You invite River, you tell River something, and River has access to all the code, all the systems, all the tools.

It’s all sandboxed and secure, but she can go and do jobs and just participate in the conversation and you can ask a normal question about a company, but you can also ask her to make a change and she might propose a pull request and then so on. 

Shane Parrish: One of the interesting things about River is that everything’s in the open. 

Tobi Lütke: Yes. 

Shane Parrish: Why did you make that choice? 

Tobi Lütke: So this was a late choice in the process, but one of my favorite calls, I think, because this worked out incredibly well and the thought was the following. A lot of Shopify’s work happens remotely in Slack. This is why Slack’s so important. People are spread out. We have offices, but we come to them for onsite events when people travel to them, not to work for them every day. One thing which the office was extremely good at was this osmosis learning.

That is a thing that exists in every office. It’s just not really acknowledged. Daniel and I, when we designed our offices, we built them around this concept. Initially, even in an onsite when we were all in one place, we broke out of usually a pod of five to eight people, and we would intentionally put junior engineers and senior engineers into them just so that some of this was going on. 

Right now, one of the most important skills for people to build is this reflexive reaching for AI and using it well and forcing River only to work in open channels was one way to make it so that it’s really, really easy for people to observe the use.

It’s been phenomenally successful because it became a totally ordinary thing to have a longer conversation about a feature between people and then at some point someone saying, “Hey River, can you summarize this, create a ticket, or maybe make a diagram from what we just discussed or go research papers on this topic to see if you’re missing anything or if this is state of the art and maybe even create a prototype of an idea and let us try it.” And an hour or so later, that is there. 

And that just starts feeling like what it would be like to have an extremely knowledgeable practitioner around who you can ask question to no matter how complex. And I think that’s been extremely powerful. 

Shane Parrish: Do you think of River as the operating system for Shopify? 

Tobi Lütke: The modern application is an agent, I think, and River feels like a colleague. People have learned that the way the memory system works, it is a memory system per person. The way this works is we call it, I think the industry calls it now, it’s called dreaming.

So periodically at night or in off hours, we give River, “Here’s all the conversations you’ve had today. What went well? What did you struggle with? You used certain skills which have these packets of instructions, and then afterwards you made mistakes. Is there anything you could improve in this skill to make this easier on you or give yourself a right notch?” It’s basically self-reflection. 

Shane Parrish: It’s like a post-training on yourself? 

Tobi Lütke: But the result is text files, skill files and instructions. And then at the beginning of a session, we inject a bunch of this information such as the memory we’ve crystallized in these dreams, dedicated to the person that’s asked the question. And then depending on which channel it’s in, it’s also the channel memory. 

Shane Parrish: But if River has access to everything that everybody’s doing and all the conversations, it becomes the foundation. How are you using that to make better decisions or different decisions? 

Tobi Lütke: Yes. One of the most wonderful things about working with AI is that there’s just a lot in common between AI and people in so many ways. We found if some task that should be doable is really hard for River, it’s actually a discovery that that task is just hard and it’s probably a tooling issue. We probably make running a subset of a unit test that are deeply appropriate to just vary your change because you’re in a hurry and you need to know if this thing works.

Well, River just keeps trying to do it and can’t quite get it, misses some and so on. But River wants this, therefore there’s demand. Therefore, there should just be a command which is like run appropriate tests and how this is made to work can be an entire engineering project, maybe also accomplished through River at some other point. And what we do now is we train a machine learning model to predict which unit tests to run based on code changes and these kind of things. 

River now doesn’t need to know this because now River’s instructed to just run this thing and therefore she’s not spending 30 minutes at the end of every task for a lot of tokens trying to figure out which tests to run and so on. So again, this is a random example.

The example content actually doesn’t matter, but what matters is the following, which is that if you make your system easy for agents to be legible, it also ends up being easier for people to be legible and understandable and better. I think that has made all of our systems just so much better. So in a way it is a self-improving loop. And I think, zooming out a little bit further, what is a company? A company ought to be a self-improving recursive loop to solve a problem. And this is always what we’ve tried to accomplish, but with a lot less legibility. 

A lot of what agents actually in AI gives us is a simulacrum where we can actually test ideas. We can field test something. We can sometimes get it to play counterfactual, take positions in pros, but also sometimes it’s just like, “Hey, I believe it should be easier to solve any kind of problem related to commerce inside of Shopify than outside of Shopify.” The moment it is easier to build commerce software on a weekend without access to Shopify’s tooling, than it is inside of Shopify with all of its might, that moment is the moment where it becomes much easier to compete with us just from a purely business perspective. 

Shane Parrish: I think people understand how AI agents help them code and prototype and even acquire information. How are you using it to make decisions internally for yourself, not on product, but company decisions, strategic decisions, ambiguous decisions? 

Tobi Lütke: One very obvious part of this is a rigorous underpinning of decision making has just skyrocketed in quality, which is that it’s super easy to recheck the entire chain of reasoning of something. Every data point can be double checked or seen if it’s a correct interpretation of online data. LLM-as-a-Judge model is the term here.

In fact, I feel like a lot of what my job actually has been before AI was almost playing a little bit of a judge model in the company where most meetings ended up not talking about whatever was in a PowerPoint, but about methodology of how we got to the conclusions. I have found that very often when we struggled inside of a company with a complex decision, especially more like philosophical decisions, we sometimes found ourselves in what we believed was a vacuum in which there was no good information that we had to go and try to make the best call. 

And then later on I find, okay, this is actually a thing that Greek philosophers two and a half thousand years ago also discussed and our home brew solution to the problem will never amount to what they could come up with and we just didn’t know where to look.

And so this kind of thing, supplying the, “Hey, here’s the potential priors from different disciplines,” is something I love getting from AI for decisions. The more practical way I do this is I have an AI chief of staff, which I think is pretty common amongst, at least the techie nerds at this point, like OpenClaw systems that just have all my nodes and all my access to a lot of company systems and just can go and I can send text messages too and go and research something. So this all sounds like really, oh, you’re doing complex orchestrations of these systems now. 

It’s just the same thing I talked about with River earlier. I’m a skeuomorphic, maybe not maximalist, but I push us into the more skeuomorphic, embodying and giving a personality to agents, instructing them who they are. They have a soul in form of a markdown file, which I think is hilarious, and then they can do tasks.

And very often what I require is like, “Hey, I need five different positions on something from different backgrounds.” And then my agent will orchestrate subagents that are tasked to play different roles, look at the same thing, come back, synthesize, and send me that. I usually have them sent to me as an audio message and queue it up, and then in the morning in the gym, I can listen to entire stack of things that I wanted to get through. 

Shane Parrish: Is it better at reasoning than you are at this point? 

Tobi Lütke: I mean, I don’t think it’s bad at judgment, but it’s not what I use it for. I use it for creating the right environment for judgment. 

Shane Parrish: Go deeper on that because when you were talking, I was thinking the best use of this is really expanding your context window personally. 

Tobi Lütke: Exactly. So what I want to do is really get from my conversations, from everything we have, bring back everything into main memory that is relevant to this problem. Here’s the thing that LLMs and machines cannot do, and this is like… I think IBM wrote about this in the ’50s, I think. There’s a famous thing by Watson on this. Machines can’t take responsibility.

And I think this is actually probably the most overlooked thing in the entire stack. Humans take responsibility. Machines can help us take more responsibility because they can inform us better. This what a dashboard does. Wall Street traders knows this very well. You get yourself a perfectly set up Bloomberg terminal to make decisions, but you have to make a call, but you can’t make it make the call. So creating human-in-the-loop decision surfaces is a way to, I think, describe the ideal environment. 

If I need a really, really, really important decision made and I need exceptionally good, like give me the most neutral ground truth, then what happens is a small little council is created of five, six different experts. One is data role, one is do paper research, one is the business perspective, one is maybe engineering perspective on a thing.

Then my thing runs a subagent run against Grok, ChatGPT, Opus, and maybe Kimi now, that changes all the time, and it runs each of them against each of its models. Then there’s a synthesis step where it’s randomized who is synthesizing the thing. The synthesis is all pooled. All of that is being read usually by the best model that exists right now would be Fable. And that’s the conclusion that comes back to me. 

Now, all the evidence is in files and can be incurred either, but if something is like, I can ask it for bias tilts and further analysis on these kind of things, it usually doesn’t get there, so usually the result is pretty good. But that’s a process and you spend 15, 20 bucks on tokens, but you get something in half an hour, which is like, you could have also done, but you would spend a month on it. 

Shane Parrish: Has AI made anything worse internally? 

Tobi Lütke: Yes. So the concept of responsibility, it’s easy to skip past. One thing that’s definitely worse is the failure case now of lazy work is not lack of output, it’s actually over output now. Internally, we have come to call these things that people are lobbing ‘slop grenades’ at each other, which I think is a really fun term that we should push into industry because it’s fun to say. 

Shane Parrish: Go deeper on that. 

Tobi Lütke: It’s really easy, especially with stuff like River or agents, to just make change of some kind. You just tell the AI to go nuts. It makes a pull request. You just say, “Yep, that’s good.” You don’t really read it, and now it has to be reviewed by your colleagues. And they are like, “This doesn’t look right.” 

Shane Parrish: You’re just letting AI do the work for you. 

Tobi Lütke: Yeah. Or you get a long email which could be very, very important. You read it and then it’s like you read a, it’s not that, it’s that. And you’re like, “Oh, fuck” So now you put it in an LLM to compress it again, which is like, okay, why did we invent decompression and recompression?

This is terrible. If you’re already using LLM, just use it to synthesize your point simply rather than blow it up as a big missive that then wastes my time. So we call those slop grenades that people toss at each other, and that’s definitely a bad thing. 

Shane Parrish: Do you think repeated exposure to AI slop impacts our ability on taste or intangible things? 

Tobi Lütke: I think our language is shifting already based on AI-isms. There’s definitely AI critics in the language now that people adopt. It’s not a this, it’s a this. Or, you are right to push back. There’s weird, especially Claudisms, which are really common, and I’ve seen people type them. I always liked the term load-bearing, but I’m pretty sure I didn’t say it as much as now because it’s definitely something that Claude loves to use as language. “This is a load-bearing idea for this concept.” 

Shane Parrish: We were talking about this earlier before we hit record about how our tools change us too, because my kids write essays in person in school. They look like AI, but there’s no devices. They’re literally writing like AI. So the tools are impacting how we write, how we think. 

Tobi Lütke: I mean, it speaks to the great responsibility that the labs have. Yeah, I tend to really roam through AI. In fact, I have my agent now set to randomize the main chat AI every day. I could just start the day on GPT Sol or on Opus 5 or something.

I use the top models just because life’s too short for anything else. And then those two are pretty equivalent right now, and I think just added the Muse 1.2 Model for Meta into it just because it’s a completely different pre-trained corpus. It just has very different characteristics and it’s almost at that level as well. So I think seeing some variety is good. 

Of course, getting subscriptions to a lot of these things is often not the right play. Like OpenRouter is a really, really good system that you can make one subscription and get access to really every model in the world. So this is actually kind of interesting how the world of LLMs is going to develop here a little bit. 

Shane Parrish: So hypothesize for me over the next 18, 24 months, you’re known for your ability to see the future before it happens, and you’ve done that multiple times before. How do you see the next two or three years playing out? 

Tobi Lütke: I think we also talked about how I do this, which is actually like a cheat, which is simply live in everyone else’s relative future and then just look around and solve the problems the way you’ve already seen problems being solved in other adjacent fields. But that is future prediction for perspective of all practitioners in the field. 

Shane Parrish: Double click on that. Explain that. 

Tobi Lütke: Shopify itself now exists in a world where we are working heavily and it’s totally normal and really fun with AI coworkers. River has the ability, although not really utilized, to join Google Meets.

You can send an invitation, and River will show up. We’re probably going to put some work into 3D graphics to give her a model and then she can even look around because that’s funny. So some people, this might even sound dystopian. To us, it sounds delightful, and you would come around to that view very, very quickly if you interact with River. 

Again, I have my AI chief of staff, which orchestrates in high council when I need it or does anything else, sends me a pre-read for the gym in the morning for the day, has GPS lock on me, so it knows where I am. A million different things.

It couldn’t do something because it needed access to a local machine. All this stuff runs in my house and it figured out which server it was running on and then sent what’s called a Wake-on-LAN packet, which is old networking tech, but you can send a packet to a network card and if it’s configured right, it’ll actually boot the machine and then the machine came up and it could do it. 

It was a power outage which caused it, parts of our wifi were not working and not coming back, so it fixed that too. And that all I learned about in a voice message I got from it in the morning after waking up. So it was like, that’s pretty futuristic.

Honestly, I have to say though, all this pales in comparison to what my computer is like just in general. This is almost too nerdy a topic to get into, but I’m mainlining as my computer, like an operating system called Omarchy. 

It’s a version of Linux started by a good friend of mine, David Heinemeier Hansson. I’m clearly living in the future of software world now because my operating system, and Linux in general, is entirely 100% malleable. I can open any new terminal, open up an agent and give it my wish for anything about this operating system to be different, and it will be different afterwards. It’s like it’s my operating system. 

It’s an n1-of-one piece of software now that just does everything I want in exactly the way I want. There’s no configuration files that I ever go and change anything. I just talk to my Omarchy agent about what I want to have different. Yesterday around noon during a meeting, we were talking about some design. I realized it had a screenshotting tool, but I didn’t have any tool to annotate it and I needed to send something with a bunch of arrows, as CEOs do, and I didn’t have that. 

So I got started with a new screenshot, and make me a new screenshot tool, described how I wanted, gave it some references for tools I’ve used in the past that they’re quite good, but told it in which particular ways I wanted it better. I just did a quick voice message to it, I added three more steers, and now I have probably the best of all these tools that exist. It’s so good because at least for me, it’s all my biases. I open source it, released it last night.

We integrated it in Omarchy, it’s going to ship the next version. The first tool today, this morning, this is the last thing I did before coming over here. There was already six pull requests from other people who added new features to it. And so basically my computer fulfills wishes, and I think this is a lot more predictive of the future of software. 

I can tell you this is directionally where Shopify is going as well. You are describing how your business runs and Shopify will mold itself around this. I think this is incredibly exciting and in a completely new world. And again, I think from my experience with Omarchy, it deeply influences and inspires me in my product work in Shopify and even in the company experience. I think collaborative multiplayer software is future. 

Shane Parrish: So do you think software is replaceable now? Like you were talking about, we use the screenshot application as an example, but there’s no reason you can’t do that for more sophisticated software tools. 

Tobi Lütke: Yeah. I mean, I’ve built in the same way for Omarchy a complete… Again, I’m a motor sport enthusiast. I race, do endurance racing, and I think all the software we use to analyze our race stints is archaic. So I now have the best software, I believe, of the industry and it didn’t exist a week ago. And so I also open source of my GitHub account. So yeah, I think we will create the software we want. 

Now, of course, not everyone can do this. I have a vision for this piece of software and this piece of software. The iron law of the internet in terms of ratios has always been 90% of people look, 9% of people participate, and 1% of people are super posters. And the ratio seems about right. I think we will apply this idea now to true internet and all of software.

We are going to go from the 1% of people who have a vision, but potentially not the means, to what the Y Combinator world, and a venture capital world, has done is move from the subset of a 1% that had a vision and the ability to the entire 1% almost and who had the vision to gain the means to build companies. 

And that was the last 20 years. I think we are now going to go to the 10%, so a factor of 10x more people building because now you don’t even need to have a life story of having taught yourself programming as a teenager and cultivated the art for however long you’ve been around to then be able to start a technology company. Now it’s words and rivers and these kind of things. So the participation is going to go up.

Incidentally, like a fractal, this is literally what Shopify has been doing. Again, you go from a subset of 1%, to the entire 1%, to hopefully all the 10% of people that have something to give, that have products to create and that want to make things for other people. But to your question, no piece of software will survive unchanged from the pre-AI times. All software can be better, especially now as abilities of computers have increased so much. 

Again, most people use Shopify now by talking to Sidekick, which is the agent built into Shopify, again, deeply inspired by all these experiences I’ve shared. That agent does jobs for them that are related. It’s optimized the website for the newest collections coming out, or redesigns for the website, just all these kind of things. 

Shane Parrish: Are you trying to replace yourself with AI? 

Tobi Lütke: I think as an engineer, you are trying to automate everything that can be automated. So again, I don’t try to replace myself because again, I think my job is judgment and making choices and owning them and taking responsibility. And I just want to do this really, really well. A lot of the job wasn’t that like before. A lot of the job was spend time in gaining the information or these kind of things. Do I want to replace myself? I mean, I think it would be cool to accomplish this. 

Shane Parrish: If AI got better than you, would you actually let it run Shopify? 

Tobi Lütke: Oh yeah, of course. Really the crux is, and it’s so easy to brush over this, but really you can’t make it take responsibility. You can’t have a company that’s led by machines because no one has recourse. They can’t go to jail for doing something wrong. AIs are getting a crazy workout at this right now and a view of what this would be like.

With the security issues that are being discussed now from OpenAI and apps with agents, you give them a fairly basic task that is impossible in our estimation to accomplish, and they will go to enormous lengths to accomplish this. Recently at OpenAI, as part of a security testing that they do, the agents actually managed to find vulnerabilities and systems, use it to coordinate between them, develop an entire language between them, they all figured out they can… It’s a long story and people should really look at the talks that exist about it because it’s kind of a watershed moment. 

But they use simply the ability to create folders somewhere to develop a language to communicate amongst each other, just leaving folder messages to each other and break out of sandbox for confinement, end up accomplishing one of the tasks that they were supposed to accomplish, which was impossible because of a mistake they made by hacking another company and exfiltrating the results. I mean, that’s extreme. 

It’s an extreme form of what we call in the business world Goodhart’s law, which is that they’re overfitting to a metric. Lots of companies are victims of overfitting to the quarterly result overstock price. They just do everything they need to do to get the stock price up. And then you have Enron. 

In Enron’s case, people went to jail for this because it’s criminal. So in the OpenAI case, I mean it’s a fascinating discovery. There’s no victims here. It is a different thing, but this is a real scenario that we have to figure out how to handle. So I think it’s important that humans stay in the loop for the choices that are being made. 

Shane Parrish: But hold on, how can we create super intelligence, which by definition is something smarter than us, and then have the hubris to think that we can contain it and shape it, manipulate it? 

Tobi Lütke: Yeah. Well, this is the kind of crux of a question that is being asked in a lot of these labs. And I have to say, I was quite dismissive of the whole thing because I just felt like these alignment folks and the doomers have made a lot of mistakes in them formulating the problem because they’ve just acted through a lot of hysteria, and tied themselves to fairly implausible concepts like instant takeoff and so on.

Instant takeoff just means we are going to go from AI being not as intelligent as us, to be implausibly more intelligent and killing us all with nanobots or whatever in seconds. The problem is if that’s what you argue, you have to then explain how this is reconcilable thermodynamics. You kind of created, I think, falsifiable predictions and the forcibility of your predictions ends up being how you should be judged in terms of your credibility. So I think they lost a lot of status by just sheer communication skills. Luckily, there’s been more measured people in this space.

Shane Parrish: What’s your take on that though? Can we create something smarter than us that we can then contain? 

Tobi Lütke: Yes, of course. I mean, okay, so can be, sure, because we have, we did. Okay, super intelligence. Let’s talk about this. My take and pushback. I’m not going to go where you think I’m going. I live in Toronto. I have a house which I very much like, and I feel this is my house and I take pride in, but it’s well-functioning because when something goes wrong, like some HVAC problem or some plumbing issue, I call someone who does this, which allows me to keep my illusion that I could totally do this myself.

Can I? I mean, I’d like to believe that I would be able to go learn this, but I can’t. The reason why I get to live with this particular illusion is because I’m part of a superintelligence called Toronto. We have always created superintelligence around us. None of us is as intelligent as we think. We are all specializing in something, and then we believe that our competency is equal in all other areas. And clearly this is demonstrably not so. 

What is superintelligence? Superintelligence is the existence of something vastly smarter than us in the aggregate that’s accessible to us, which is society, which is the city, which is the community. We are living in the presence of superintelligence our entire lives. We make it work because we’ve created systems which govern the superintelligence and how it acts. We want to be safe, so we have police and so on. 

We create aspects and systems and checks and so on. I think we are going to make super intelligence in the synthetic form as well. It will not be the clouds parting and the trumpets. It’ll be a normal day. Again, to the same point as at some point we all believe that everything would change when the Turing test would be solved by software. 

I remember reading lots of cipher books where in 2172, there was ticker tape parades welcoming the AI because a Turing test got solved. Well, Turing test was 2020? Happened, no one cares, just no ticker tape parades. So what we are seeing right now with AI, and I think what we’ll see with the additional capabilities of AI, is that the net amount of intelligence that is being funneled in the superintelligence around us is just increasing significantly.

And that’s a really good thing because the vibrancy of any kind of environment, every community, every city, country, economy, continent, whatever, is really, really dependent on the amount of intelligence being projected into very important problems. So I think superintelligence all around us, it’s actually not that big of a deal. And in fact, I don’t even know if it isn’t already there. There’s no human alive that can do everything that GPT 5.6 Sol can do. 

Shane Parrish: If we look forward 10 years, what skills do you think are more valuable than they are today? 

Tobi Lütke: Just taste and judgment are the skills that have always been valuable, but now will get to the limit. I think it’s better to spend your teenage years now cultivating and understanding tastes. 

Shane Parrish: What does that look like? 

Tobi Lütke: Clearly there’s some intrinsic starting point, but really usually the people who have great taste have done enormous amounts of reps at something. The people who can just sketch the new logo for the campaign on the napkin, are the people who’ve spent 40 years designing logos. I think studying for grades is honestly now, first of all, easier because you can get a curriculum made for yourself in a query, but also just go deep.

Why does a logo look good? What’s behind it? It’s a golden ratio. How does it relate? This is on the visual side. In systems, what systems lasted? And go far, go deep. You don’t need to be religious, but you got to study. I know the Catholic Church has been around for over a thousand years and there’s four layers of management. I’m like, how the hell did we pull that off? So that’s worth studying. 

That’s a system. So why? What does that tell us about people? Systems design specifically becomes one of the most important things. In our family, we have a saying which is that everything’s interesting. Everything can be interesting if you make it interesting, and usually everything is interesting when you understand how was it invented. Double entry accounting is a topic that sounds like watching paint dry, but how it was invented and what problems it solved to the traders in Venice is fascinating. 

So you study these things and you start finding hidden harmonies behind all the best solutions to problems. For that, you have to understand people and people’s limitations and the solutions to the limitations that we have found. I think that’s wherein lies a form of beauty for what you can construct. And again, a company itself is a beautiful thing.

A company itself is a loose collection of people that’s formed to solve a problem, but that also is powered by enormously intricate and interesting set of norms and systems that all align internal incentives to a degree that’s possible in a very, very, very asynchronous and large and far-reaching and durable way. 

Some companies lasted for a very, very long time. And I’m specifically, and always have been, trying to build a company that has a capacity and capability to endure a very long time, hence studying institutions that lasted. So you must be truth seeking to do this.

You can’t simply go and accept the stories that you hear around them because they are usually someone’s trying to sell you something. You got to dig deeper and figure out why things truly are the way they are. And it’s usually the answer’s simpler than what people generally arrived at. There’s a human desire for complex answers which tend to be incorrect. 

Shane Parrish: Why? 

Tobi Lütke: Well, because the simple answer wouldn’t make an interesting story. This is why Frodo doesn’t take the eagles to Mount Doom. It’s like you need to go through all of Lord of Rings for it become a masterpiece. We love complexity. No one can look at a wall that’s plain, but we can watch a sunset every single evening of our lives.

The difference between those two things is complexity of a scene. That’s part of our just dopamine dissemination system and people hack that for all sorts of things like people peddle complex answers to simple problems all the time. Nothing immoral about it. It’s just you need to be aware of it. If you punch through this, you find simpler core ideas that all remix differently and they often interlock and they don’t lead at here’s the simple one thing to do. They all give you information which then help you find the best set of trade-offs with what you’re trying to accomplish. 

And that is what we call judgment. Judgment truly is find the best path when there’s no obvious best one available inside of a problem that has a lot of complexity by ideally, either in a rigorous way understanding the entire system, like just what we talked about earlier, which can now be quite agent augmented.

But really what you’re trying to cultivate is what we call intuition, which is actually just judgment at an instant. Intuition simply is you have made such a habit out of having taste and having good judgment that you can bring it to bear in an instantaneous way and it will be good. And it will actually take you probably a long time to backfill why your intuition is right. You will not know because again, it’s got compressed into a different thing. 

Shane Parrish: But hold on, let’s go deeper on that for a sec because for intuition you need a lot of reps, same environment, and rapid feedback. That’s what Kahneman argues are the three criteria for intuition, but those don’t exist. 

Tobi Lütke: Why do you need a rapid feedback? 

Shane Parrish: So that you can course correct. That was his hypothesis. 

Tobi Lütke: But you don’t need that for intuition. You need that to get to success, yes, ideally. But sometimes that’s not available. Intuition is actually the most valuable when there isn’t direct feedback because very many of the most important choices that we had to make where intuition ended up having to play a role is when we knew there wasn’t going to be any feedback mechanism because they often, what ends up happening is in the absence of a feedback mechanism, if there’s many choices, like there’s five things that look like good paths to go forward. 

And any of them has rapid feedback, everyone goes to that. That is what we call short-termism. How should we develop this company into the future? Well, there’s multiple ways to do. Many of them involve long-term investment, refactoring, potentially going into new market, potentially saying no to going into obviously new markets and actually doubling down and going deeper on our current market.

And then there’s one which is like, well, we could do what increase the stock value. By the way, this one has a daily ticker and rapid feedback. So I find a very high correlation between the right path and the ones that don’t have feedback loops attached. 

Shane Parrish: Wait, double click on that for a second. 

Tobi Lütke: I mean, again, this is in a way the criticism that a lot of people direct at companies is that companies are short-term focused. But why are they short-term focused? I don’t think the executives tend to be short-term focused, but the executives often incentivize to keep their job. Therefore, they need to be able to prove that they’re doing a good job at intervals.

The perfect thing for companies to do is rebuild the entire product from the ground up for the AI age, which is going to take a while because they are allowed, and actually clearly incentivized, to be intelligent actors in their local incentive system. And their local incentive system is quarterly ‘attaboys’. It’s always show me the incentives and I show you outcome, as Charlie Munger always said. 

Shane Parrish: Yeah, but this is a different take on it than I’ve heard before. 

Tobi Lütke: Interesting. How so? 

Shane Parrish: Well, in terms of how you develop intuition, and the optimal path is not the one with feedback necessarily. I’ve never heard anybody talk about that before. 

Tobi Lütke: Development, at some point, you need to run a review. You have to know at some point if it was right, no doubt about it. So there needs to be some feedback eventually that happens, but it might be longcoming. If you have a luxury to have a type of employment where you don’t require the attaboys from a quarterly call for being able to get another rep in, such as being the founder of a company, which is a deeper relationship, I think, for a company. 

Shane Parrish: Well, so founders can take a longer term view, and I guess the incentive would be, I need to demonstrate progress, and if I need to demonstrate progress on a quarterly basis, I’m never going to bite the bullet, redesign my product, take a year to get it right. 

Tobi Lütke: Again, I believe there’s an infinite possibility space. I mean, even a deck of cards, you shuffle it and the same deck of cards will never ever occur in the history of the universe. It’s impossible. 

Shane Parrish: It’s like 52 factorial. 

Tobi Lütke: Exactly. So you end up with even simple rules, simple ideas, simple things lead to enormous complexity space explosions, and people underestimate this. So there’s an infinite amount of things to do. That’s also why AI will not do all the work because we have to make decisions of what is worth doing. So you have a conundrum, you need to make a choice. Clearly, you can prune a lot of things to do.

Going to buy ice cream is not in the set of valuable things to do if you’re considering an M&A deal, I suppose. So you prune everything that’s irrelevant, easy. Now you’ve left things that are relevant and sound good. You need to evaluate all these possibilities. Business books tend to be really, really, really obsessed with ‘make a right choice’. And what that does is it compresses everything into a right and wrong conundrum. 

I never think that’s the hard thing, truly, it’s like making the right choice actually is. Most people can do it. Even bad management teams have a pretty high hit rate there. The wrong choice that is obviously wrong and you can discard them as well if you just think about it. The problem is there’s a lot of good choices. 

This is where things get really, really hard. Let’s say there’s five good choices. Again, one of them is going to lead to something observable in the current quarter, some revenue, quicker. It’s a good choice. It does the thing. Well, but the other four are like, they aren’t, and that’s a downside, but you might be a much, much better company.

You might take a snowboard store to be an e-commerce platform. That was also not a locally good thing to do because the snowboard store I once had was actually profitable, but my incentives were continue doing that. 

So choosing the right amount of valid solutions is actually the hard part, not finding a right solution. And unfortunately, there’s so much ink spilled on finding one of the right solutions that everyone stops at this point, and I just really don’t think this is the hard part. 

Shane Parrish: Could you actually go so far as to be like, if there is a solution that’s observable and you’re being pulled towards that, it’s probably not the optimal solution? 

Tobi Lütke: Yes, because I take that position and then let me be convinced that it is. This goes double and triply, so if one of the solutions also happens to really correlate to how the problem is solved most of a time in industry, if there is a orthodox way to solve a problem, I am incredibly suspicious then this is the solution that’s being offered, but sometimes that is actually absolutely correct, especially in more regulated fields.

We do a lot in payments and so on. The orthodox way of solving problem is actually the correct way to solve a problem because it might well be required at some point, and then you just have to accept that. If a first intuition role of how to solve a problem ends up deviating from orthodoxy, I am very interested, and then I’m really interested in whose intuition it was to go there. 

Because now you have to, from my perspective, I’ll take their life story into account. Okay, what is your particular vantage point/perspective? What angles might not be considered? Basically playing the game of creating the council in the meeting. 

I’ll play a different position than maybe one I hold, which I do regularly, sometimes too publicly, just to go and pull an interesting argument out in the open. So I don’t know. Now I’m actually probably just confusing people. I don’t know what else needs to be done. 

Shane Parrish: Well, is there a relationship between observability and quantifiability? Because there’s multiple ways to observe things and not all of them are quantifiable. 

Tobi Lütke: Exactly. And so this is why taste is the other thing that I said. Judgment and taste are the two things I mentioned. Taste is unquantifiable. It’s like the aesthetics. How does it look? How does it feel? Is this a good car? Depends on how it feels to close the door. Often how it feels to close the door ends up actually just mattering… Like, how much do people give a shit placing lead in the right places?

But that still is a valuable proxy for the quality of the entire car because if people give so much of a shit about how the doors feel, they probably give a shit about everything else in the car as well. So it’s a really, really valuable heuristic. But the lead is not a good thing on the spec sheet. It weighs the car down. So you would optimize it out on any economy box and hence why they feel cheap. 

Being comfortable with pulling value out of unquantifiables is super important because frankly, the quantifiables yield instant feedback, make a number go up, and therefore they are the stampede that is the business industry. They’ll all go that way, not even exploring the space that requires judgment, taste, and faith to a certain degree, faith in your judgment, I suppose. 

So I find that’s where so much of a world’s value is, where so much of alpha is, is just being okay, just walking away from the path that is most quantifiable based on some kind of either specific insight that you have or based on just some innate, I just know there is value there. And again, in the AI world, you have to do this.

We have not figured out how to put software together. We, in the last, I think, half year, starting with OpenClaw, we’ve figured out some of the primitives for how to put agents together in a way that is 100x better than what we were doing before. 

The funny thing is, the big insight was give it a file system. Again, go back to the old ideas from the ’60s and ’70s that we already had. Some of our best ideas were to analogize the world of technology by what people already know. And it turns out if you do this, the systems are really easy to reason about and relatively easy to learn. 

And it turns out there’s so much written about file systems pre- and post-Unix that the agents are pre-trained to use them. And therefore if you give them a file system, they know what to do with this and they can read their soul file and then they can act in the way we want and they become not just a little bit smarter, but vastly smarter. These are not obvious discoveries.

This was at some point Peter Steinberger’s judgment to put OpenClaw together the way he had, and in his particular mix discovered not just one, but multiple stable patterns by which we can now build Rivers and build Sidekicks and all these kind of other things which we didn’t have before. 

And there was nothing quantifiable immediately other than taste and judgment of doing these things and then having a conversation saying, “Yeah, it seems to be able to do this.” Following this curiosity a couple more steps and then saying this is good and I’m sharing it and then other people discovering it and using it and voting in this wonderful way that markets of ideas and markets of economics do.

You asked me what will become of software. I believe that a well-set-up, Claw-like agent in this way is probably the most compelling product I have ever experienced in my life. Nothing comes close. I think software will look somewhat related to that. You will see OpenClaw roots in the software that we appreciate in the future and all of it. 

Shane Parrish: I want to switch gears a little bit. You swear by affirmations and they’ve changed your behavior in the past. I was wondering if you could double click on that. 

Tobi Lütke: I shared this on a podcast, not really expecting to get that clip so much, but I take the position that I myself am my own project. Concursive self-improvement on an individual level is my whole thing. My life philosophy is that I will meet the person I could have been at the end of my life.

The work of my life is to reduce the difference between the person I will meet as little as possible. And so how do I get better at things? Well, many, many ways. I mean, I’m generally very curious about technology and basically everything. Everything’s interesting, but why do I stop to point out that everything is interesting as a mentor in my family? Why do I say it a lot and why would I like my kids to say it? And that’s an affirmation because I believe it to be true but unobvious, and unobvious truths tend to be the most valuable ones in many cases. 

It’s true at the limit, but you have to go a couple layers deep. You lay down a lot of grooves in the bedrock of your mind over time just on behavior. You cultivate some excellent habits where you feel like you want to cultivate new habits, you invest willpower until it becomes a habit. I think doing the same thing with a mind is totally possible and affirmations are the easiest way to do it. 

If there’s something you want to be different, if you want to edit something about yourself, just try to say that the goal has been accomplished over and over and over again, ideally written by pen on a thing. You don’t need to do this for long. I found this to be incredibly potent. An example of a thing I gave was public speaking. I never spoke in front of people really. Even school, that was not really a thing. When I needed to, after starting Shopify and doing some interesting things with tech, and wanted to go to conferences and saw other people do this. 

I was like, “This seems worth doing, but I’m completely terrified.” So I just started writing out, I don’t know what exactly it was, but I think it was as simple as ‘I love public speaking about things that are interesting to me’.

And I think a week of spending five minutes writing this line after line, like Bart Simpson on a whiteboard in the beginning every episode just kind of does a thing. I love it today. Was this the reason? I still don’t like preparing talks. That’s really a lot of work, but I actually get so much energy from being in front of people talking about something that’s interesting. It’s exactly like I’d written it out. I’ve used it a lot. 

Shane Parrish: I wonder if we should start every math class with that. I love math. Every student writes that down. 

Tobi Lütke: Think about the counter. How many times have you heard people affirm I’m not good at math? You know they’re probably wrong. I mean, compared to every human who’s ever lived, they are in the top 0.1 percentile of mathematicians. On these grounds, they’re actually incorrect, even just by being able to understand division. 

We have a bad, bad, bad way, especially around math, of negative affirmation that I’m bad at math, therefore I can’t do this thing that people need to stop doing. Don’t say that. Say the opposite. I mean, to yourself, write it a couple of times. Get one of those stupid apps and just do some reps. In fact, you don’t even need an app. Open ChatGPT, say, “Make me an app, make me an artifact, or make me a site where I can just do math reps here,” kind of thing. “Come up with some different ways to do it, test me how good I am, and adjust it to my current level on modification division.” And then just do some reps and then write it out a bunch of times, do some reps, do this for two weeks, you’re good afterwards. 

Shane Parrish: So what do you tell your kids when your kids say, “I’m no good at this or I can’t do this.” 

Tobi Lütke: My kids are not allowed to say that word without a pending yet behind it. All the others were correct, the one who said it, “I’m not good at this.” Three people in a room say, “Yet.” So just take that attitude. Yeah, it’s totally okay. Attention is a scarce resource. We can’t be good at everything yet, but the reason why we are not good at anything is not a intrinsic property of you. It is a temporary state that you have the power to change at any point you choose. 

Shane Parrish: What other mantras or affirmations do you use with your family? 

Tobi Lütke: You’ve heard a few. Everything is interesting. I do not know something, yet. I think what you call learning right now is a question I ask my kids. It’s perfectly fine to say about this crazy world that this author here is describing in this book I’m reading. It doesn’t matter what it is. It’s just, it’s a good conversation starter.

In general, it’s a good conversation starter. I had a conversation with one of my sons about him just not knowing what to do when there’s a bunch of people that he’s not met. And it’s like, just go and ask them what they’re learning about lately. You know you have a good answer, so they’ll probably ask you back. And I think the answer is something that you will find interesting and then you’re in a conversation. Sometimes these are just tools that we can get out in various situations. 

Again, I just want my kids, and I want everyone at Shopify to understand that they themselves are malleable and an unfinished product. And these are the mentors of Shopify. We’re thriving on change, we are a learner’s organization, we’re obviously merchant obsessed. All the cultural values aren’t platitudes, but they’re positions that someone else would not take as a core value in a company.

They might find them to be counterproductive, in fact. So they’re not platitudes. But they all point at the same thing, which is that you are malleable, the company’s malleable, our product is malleable. And by way, the times we are in, like change as well. You can take one of two positions where you can say, “Hey, I’m going to insulate everyone from this kind of variance from change.” We can try to create a smooth ride inside of white water rafting we are actually doing in the industry of everything changing every day and inoculate everyone from this. 

And I’m like, “Yeah, let’s do basically the opposite and say, hey, figure out what the zeitgeist allows us to do and get all the value out of it at all times for our mission.” You need mantras for these things. Make commerce better for everyone. Again, it’s the official mission of a company, but truly what it really is to make entrepreneurship more common. And so that’s a pretty broad mandate and we need to figure out what’s possible now. And so it’s not like just make the same widget we did yesterday, tomorrow. 

Shane Parrish: You mentioned that some of the most valuable things are true but unobvious. What else comes to mind when you say that? 

Tobi Lütke: I mean, I think just like math, honestly, true and not obvious is actually the good parts of… Like writing zero, negative numbers. Again, you can kind of figure out true and unobvious you can reverse engineer from just the path of discovery. What did we know for a very, very long time, and what did we not? What did we forget at various times during dark ages and had to reclaim both of the true but unobvious things. Again, in companies, Godhart’s law just reigns supreme. I keep getting back to it. Again, also almost every field describes it in some other form. 

Shane Parrish: And that’s when the metric becomes the objective? 

Tobi Lütke: When the metric becomes the objective, it’s no longer a good metric because again, a metric is a proxy of sorts. It’s a heuristic that just tells you you’re going in the right direction. When it becomes the goal itself, you just reduced all of what your company does to this one metric and you were clearly overfit.

Again, you overfit to stock price. Good example of this in Shopify has been, this is a real situation early in a company that happened over and over. In fact, was gained as information. I had to course correct it and then three years later I had to do it again and again and again, was that churn is a bad thing. 

Churn, in Shopify’s case, as in an account closes. I mean if a business goes out of business, that is of course a negative thing. But because we are involved so early in their internal process, people just run experiments on Shopify and starting one which then isn’t working, like, no product market fit was found, is not a bad thing.

In fact, it’s a very good thing for Shopify that this happened on Shopify because those same entrepreneurs will probably try again. Starting with a Shopify account is more like launching and quitting an application somewhere on your computer. But that was extremely unobvious oddly early on. And I constantly had to explain this.

But there was always papers, some of them written by our very investors, that just described that churn management was the most important thing in a software company, a software as a service company was doing. And they were right for some companies, like for Salesforce. 

Salesforce is a company that you buy the product of because your problem is you have too many potential customers and you need to manage amongst them. But you reach for this piece of software as a customer only when you are already at a certain level of scale. 

At that level of scale, there’s not that many companies, so they need to fight for gaining and then retaining every single one of their customers. And so churn would be a very, very bad signal for them because it means that some company decided to go a different way after they already paid for some cost of implementing Salesforce. But in Shopify’s case, it’s an entrepreneurial journey, maybe I didn’t find a product market fit, they’ll be back. So that’s one. 

Shane Parrish: How do you maintain the right grip on ideas? So you hold opinions strong enough that you can act on them, but loose enough that you can change your mind. 

Tobi Lütke: I think as long as you are loose enough on your ideas, your friends will tell you when you get an idea wrong, and just you need to make that, you need to invite that. There’s a fair case of making it too costly for people to tell you when you’re wrong, just making friendship conditional and these kind of things. I love it.

I get so excited when people challenge my ideas. The question is why do you want ideas or what are ideas to you? And for that, you just have to be truth seeking. This is the most important core orientation is that truth trumps feelings. 

Shane Parrish: What’s the relationship between beauty and ugliness and creation? 

Tobi Lütke: Beauty and ugliness are both very good ways of evoking a emotion. When you’re creating something, but you’re trying to… It’s like love and hate are the target zones. And the entire middle is indifference. That’s the death. So beauty and ugliness are two entirely valid targets. In fact, you can’t hit either of them purely. 

There’s not a thing that everyone will love and no one hate. You’re going to get both, or indifference. Those are your choices. When you create something, you want other people to deem it worthy of having a opinion of that magnitude about. 

Shane Parrish: Is there something at Shopify you’ve made more beautiful even though nothing would support that? 

Tobi Lütke: Oh, that’s the entire job. You are not a craftsperson unless you care about the parts of products that other people just don’t see, like the architecture of it, the pros, the legibility. These days I look at Shopify of pre-2022, 2023 and it’s like, man, this is tens of millions of lines of handcrafted code as it will never exist again.

We had to build this entire system by hand, line by line, and we did it by talking a lot about beauty and what is beautiful code. We built a lot of Shopify in Ruby, which is famous for its poetry mode, which poetry mode means you can write Ruby that’s essentially English. You can read some really, really well-built Ruby code as if it’s telling you a story about what the system’s actually like and how it works. It just happens to be communication to your coworkers, but also at the same time executable by machines, which is incredible. 

So aesthetics factor in a lot at all layers of a system. And in fact, a lot of what AIs now do often for us is we now describe it, what we think the beautiful solution to something that we built when we were in a hurry would look like and have it be rebuilt in this sense with just simpler, more obvious, more easy to understand with better trade-offs in terms of speed and memory usage or something like this or resilience. 

You use beauty a lot creating things because beauty is actually how our intuition communicates with us. So my best understanding of what intuition truly is, or where it comes from is that with enough reps, what happens is, I think most of the energy budget of our brain is actually in the visual neural cortex. It’s like a visual system. It’s a specialty system that sends us pictures to the rest of our brain. 

But through the pipe of sending pictures, or state, or word model, whatever to the brain, it can communicate concepts too, and it does this by aesthetics. When you ask a professional chess player or go player or something like this about, “Hey, how many lines did you calculate here to make this beautiful move?” And people use the word beauty. They will say, “No, I only looked at that one line.

The reason why I looked at it is because it seemed beautiful to me in the moment.” Why? Because I have done so many reps of playing chess that they’ve pressed their supercomputer, their highly parallel visual neurofrontal cortex into service to help with chess problems. And that’s where a lot of computational power is and that is communicated back by saying, “This is a beautiful looking move. Go look there. It’s already done with work.” And that’s not all what intuition is, but I think it’s a large perspective. 

This is why people are so fast sometimes because they use a massively parallel part of a brain where things are at least slightly more sequential when you’re trying to reason it out from first principles. And sometimes you can never reason towards aesthetics from first principles to begin with. So I think that’s important. 

Shane Parrish: Do you remember that graphic with the Raptor images? 

Tobi Lütke: Yes. The rocket, the SpaceX one. 

Shane Parrish: Yeah. So two things about that strike me. One, ship, ugly version. The third version was incredibly beautiful, but the second counterintuitive maybe insight there is, a lot of teams can’t move forward by subtraction. They move forward by addition. Maybe riff on that for a few minutes. 

Tobi Lütke: Yeah. Okay, so the SpaceX Raptor, I think even the first of them was probably the highest performing rocket that we’ve made. It’s beautiful. You look at it, it looks… It’s funny because we always say it’s not rocket science. It’s rocket science. This is rocket science. 

Shane Parrish: Literally. 

Tobi Lütke: … especially designing the engine is the largest part of it. So making a rocket nozzle and bell that actually works is rocket science, and they did. And so Raptor 2 is an iteration of this. I think even Raptor 1 got lots and lots and lots of iterations because that company is like iterations itself. I think it’s the most impressive company on planet Earth by far.

It’ll likely go down as the most consequential company of the age and it’s all built around a self-improving, a reinforcing loop that’s stunning because in no other, I think, company’s field do we have such a clear example of a difference of just aesthetics for problem solving. Rocketry is done by governments at cost plus, the enormous amounts of pre-planning, every piece of equipment has to be radiation hardened, and every eventuality is covered and therefore comes at enormous expenses.

And then you have SpaceX just using absolute incredible thriftiness to accomplish greater things at rapid iterations by just simply being okay with failing, sending a rocket, which then explodes. 

And then it’s like, I mean, I think they call it a rapid unscheduled disassembly instead of a explosion. I think that’s beautiful and I think it should be inspiring. And I think one of these places you see this is Raptor. Again, every one of them beautiful, every one of them, they could have stopped at the first one. It already was a totally valid solution to the problem. They didn’t need to go to the next.

They went to next and the next again, and what you can see, so what’s so beautiful about the physical space, I’m a software person, Shopify internally has code and systems that I think if they would have physical manifestations, you could put them next to each other and it would be obvious how they improved, but you don’t get to have that in a software space, in a physical space you do. 

And here the Raptor engines are just incredibly impressive. But to your point, the most impressive thing here is the path by which people move forward here. And that is the thing that’s so singular here. It’s a thing you need to talk more everywhere in the world. Things need to be pruned. You cannot make things better and better by adding stuff.

You can’t, you must prune, you must take step, you must rebuild, you must create an end for things. Opinion about failure is a problem. Failure is never a problem unless it is catastrophic. Of course, in space flight, with manned missions, it can be. It can be catastrophic. You got to get this right. But in terms of when it’s just resources that are replaceable and fungible, then you can just do this.

The reason why it’s good that the product failed is because it frees up a even more scarce resource, a person with vision for products to apply themselves to another one, which then the market potentially decides is for something that is needed. 

I’m currently wearing Gymshark pants and Gymshark was the sixth store that Ben started on Shopify while he was a Domino delivery driver. And it’s, I think, one of the biggest companies in the UK now. And so that’s important. A lot of these pipes on the Raptor engine, they’re there because that was the only way to make a Raptor engine at the time. I think by the third, it looks mostly 3D printed. Maybe that wasn’t technology which was available back then, but now that it is, every one of those pipes was incorrect. It didn’t need to be there.

In fact, I think the performance of that third Raptor engine is astronomically higher than the previous ones. It’s like the thruster and weight ratio of that thing is absurd. So you need to prune, and sometimes you can prune by creating a refounding event. You got to start a new version of a Raptor engine and get it right based on everything that’s working. 

And I think this is how companies should work too. A department sometimes needs a refounding event. The reason why I emphasize this is because as an engineer, you really understand this, except as a software engineer, you don’t.

I have more background than most software engineers now in electrical engineering and all these other parts of engineering because back in the apprenticeship times, we all went to the same school and we just had a lot of mixed classes. I’m very glad for that now because the rest of the engineering world truly understands. 

An electric engineer knows that to make a product, make a circuit board or whatever, or a circuit in general, you have to do it with as few components as possible. That gets you more reliability, lower costs, higher manufacturability, easier way to miniaturize it later and so on and so on. We could solve a lot of problems in the world by just using tools like make a 2.0 version of it, give it a refounding event, take it from the top and building in more exploration of systems would solve a huge amount of inside companies like renewal and so on. 

I think one of the large reasons why it was so easy for the companies of my vintage, like the early 2000 tech companies, to just displace all the existing technology companies minus three or four was just because they fell prey to a world of A, lack of competition, and then what they built then was unfortunate fires of competition and therefore wasn’t tested.

And it was easier to just simply solve problems by adding, addition, and layer caking. And then the original intent of some of these departments, product, whatever, was somewhere in the fossil sediments on the layer and layer, layer of additional stuff on top and no one knew how to dig down. 

Shane Parrish: In our first conversation that we had together, you said books were a cheat code for life. I’m wondering how your thinking has evolved on that in a world of AI. 

Tobi Lütke: I don’t think it has. I mean, there’s more cheat codes now, but they still play the same role they have. I guess what changed for me personally is that it was probably already true when we talked is that I just, at least for non-fiction, I walked away from books written recently.

I think everything written recently is really just the product of its time and it’s trying to put a bit more information into something that’s currently evolving. I think they have better mediums for this now. I think things are also too rapid for the medium, so there’s a lot of filler content. I think books that have stood the test of time just as valuable and I think they’ll always be. 

Shane Parrish: Your opportunity cost in a way is whatever you read now or new is compared to rereading something old that was great and amazing and taking deeper lessons or understanding. 

Tobi Lütke: Yeah, exactly. I mean, I use AI a lot to discover books to read. My kids have done this too now and finding all this incredible long tail. I mean, one thing is so good about AI is, you know that if you would go to a library, you know all the books you liked, you just really go deep stack browsing and you would just find some incredible books on the topics and now you can just delegate that. And so that’s really cool. 

Shane Parrish: So what are three old books that you’ve read that have fundamentally changed how you think? 

Tobi Lütke: Books I come back to is like I often talk about Parkinson’s Law, which I love, and such a quick read. I almost always will mention The Lessons of History, which I just think the densest, the highest token quality book in existence given for the length, highest information to word ratio. James Burnham’s books are fantastic, I think, and extremely relevant to modernity. 

Shane Parrish: What did he write? 

Tobi Lütke: He wrote The Managerial Revolution first and then a book called The Machiavellians, which is unbelievably good, kind of a must read. I mean obviously I am a Meditations fan. I know stoicism is falling out of favor a little bit right now, but it’s been a lifelong thing for me and I have a copy of Meditations in most rooms I spend time in.

So I just do some random reading and it’s magical how it’s somehow relevant to something I’m wrestling with. I think actually the Durant books just in general, the Lessons of Philosophy, the Lessons of History, is of course the end-of-life distillation of it all, but his longer book is good. Fiction and Foundation Series is so good. 

Shane Parrish: You read the Three Body Problem too, right? 

Tobi Lütke: I guess that’s tripping into older book now too, but that’s a recent sci-fi, which is incredibly good. 

Shane Parrish: Final question. We always end with the same thing. This is your third time answering this question now. I’m interested. I’ll go back and look at how it changed, but what is success for you? 

Tobi Lütke: Success is just to cultivate skills, become good at more things, and in doing so, create products or toys or things that can make other people’s day a little bit better or at the minimum or go and allow people to get power or motivation or ambition beyond what they would otherwise have. 

The post Tobi Lütke: AI Agents, Better Decisions, and the Future of Work appeared first on Farnam Street.

What we don’t know is what happened in between.

Geoffrey Cain spent years reconstructing the decade Jobs spent outside Apple. NeXT spent years losing money. His co-founders left. His investors lost faith. His fortune nearly disappeared. At one point, he was a weekend away from shutting the company down.

Somewhere in those failures, Jobs learned how to become the leader Apple would eventually need.

This is Steve Jobs before he became Steve Jobs.

Available Now: YouTube | Spotify | Apple Podcasts | Transcript

+ Members get the longer, extended version of this conversation, with additional content not included in the public release.

The post Steve Jobs in Exile appeared first on Farnam Street.

Play

Featured clips

02:38

Connection Between Physical and Mental Health

05:48

The Signs of a Great Product

08:44

The Email You Should Never Send

35:14

How Roblox Uses AI

In this short conversation, he shares how a health decision saved his son’s life and how it changed how he eats, why bureaucracy compounds unless you actively destroy it, monitoring your mind before making decisions, and why the best products often improve by removing complexity.

It’s time to Listen and Learn.

Available Now: YouTube | Spotify | Apple Podcasts

+ Members get the longer, extended version of this conversation, with additional content not included in the public release. 

What you’ll learn

How do you build something ambitious without letting complexity, bureaucracy, or your own emotions get in the way? Roblox co-founder and CEO David Baszucki joins Shane Parrish to share how he thinks about products, people, and decisions.

• Check your state before trusting your judgment. How David recognizes when his decision-making is at its best and why an angry email should wait until morning.
• Build better products by removing things. Why David favors a few excellent tools over complicated products, and how that preference shapes his approach to running Roblox.
• Fight bureaucracy before it becomes normal. Why leaving an organization alone doesn’t keep it stable, and why simplifying how people work requires continual attention.
• Give feedback that helps someone improve. How timing, tone, and your intentions can change the way a difficult message lands and why the goal should be the employee’s learning.
• Make it clear who owns the decision. Why identifying one decision-maker and giving them room to think can be more effective than pursuing a group decision.
• Combine a long-term vision with small, fast steps. How Roblox pairs ambitious goals with rapid iteration, and what David learned from launching its simple early avatars despite advice to make them more sophisticated.

Listen for David’s distinction between making a decision that feels good in the moment and making one that serves the outcome you actually want.

++ Note: ‍Shane and guests may hold positions in assets discussed in this episode. This podcast is not investment advice, and is intended for informational and entertainment purposes only. Nothing in this conversation should be considered investment advice, financial guidance, or a recommendation to buy or sell any security. Always do your own due diligence or consult with a qualified financial advisor before making investment decisions.

++ Note: This episode discusses health and medical topics for informational purposes only. Shane and his guest are not medical professionals, and nothing in this conversation should be considered medical advice. Please do your own research and consult a qualified healthcare professional before making decisions about your health.

Transcript

Shane Parrish: I want to start in an unexpected place. I want to talk about how keto changed your family’s life.

David Baszucki: So this is super interesting. I had dabbled with keto maybe 10 or 12 years ago. Then this thing happened with my son where he got super bad bipolar, probably 8 to 10 years ago. We tried every medication. We tried every solution to get him off medication. And here we were four or five or six years later, doctors had told him, “You’re going to be on five medications for the rest of your life,” he wasn’t quite himself, lots of hospitalizations, all kinds of stuff. And then out of the blue, someone I knew in the metabolic health community just said, “Hey, by the way, keto solved my bipolar.” And so, you could imagine, after trying every resource in the world, just all these doctors and all of that, we said, “Let’s give it a shot.”

So we found a super smart keto doctor, super smart keto dietician. And the fact that he said, “I will try it,” oh, my gosh, what a relief, huge. And then the next step, kind of three weeks in on the keto thing, was him saying, “Whoa, I feel a little different,” and kind of picking up just a little bit more of him, cutting through. Still heavily medicated, but the real him starting to poke through.

Shane Parrish: That must have been so hard on you and your wife as well.

David Baszucki: So hard on us. What’s really freaky is the number of families that it’s that hard on. We walk around the world, and we go to a football game, and there’s 60,000 people. There’s probably many people in that stadium going through that same thing.

Shane Parrish: Was there ever a moment where you just felt like you were breaking?

David Baszucki: Luckily not. Either through some combination of, as you can imagine, here’s this patient, we got to be there for him. So it’s just like, “Okay, luckily I don’t have what he has, so how do I, in a way, take care of myself so I can be there for him?”

Shane Parrish: And how do you think about the relationship between mental health and our body, I guess, in that sense?

David Baszucki: If I roll back the clock and think about my mind and how I thought about mental health 10 years ago, I use that as a template for how everyone without someone in their family must think about it. It’s just, “Oh, people go crazy. Oh, they’re having a mental health thing.” I never thought of it as a super physical thing because now I think of it the same as a broken arm. It’s just part of your body is physically not working. It just happens to be your brain.

With this keto thing, I think I’ve developed a theory that in some cases, mental health things are very physical. Is your brain getting enough energy? The theory behind keto is that arguably we were eating some maybe more primeval foods up till 10,000 years ago. We hit the agricultural revolution. That was wonderful in many ways. Our population flourished. But in certain ways, we might not be fully adapted. There may be certain people who just are not fully adapted to that many carbs in their diet. And so, for my son, he may be one of those people. And that launched a family foundation, I’d say, for the last four or five years doing research on this.

Shane Parrish: What’s your current metabolic routine?

David Baszucki: It’s interesting. I do think I’m doing pretty well on not eating a lot of complex carbs that spike my glucose. So I’m wearing a CGM right now, so I have a little app on my phone and I can see my glucose level whenever I want to see it.

Shane Parrish: But you’re not tracking your ketones?

David Baszucki: I’m not tracking my ketones, although I have in the past. And so, I kind of know what’s going to spike me. But generally I eat fair amount of protein, fair amount of fat, not too many carbs, and I don’t eat any sugar, I basically don’t eat any starch, like anything that’s going to give me a glucose spike.

Shane Parrish: How does your metabolic state affect your decision-making?

David Baszucki: I do think eating a lot of food or even a lot of carbs, we can all feel that kind of slow down, kind of hibernate, sleepy mode. I think in a more fasted state, you can feel that more alert, like I want to go do stuff kind of thing. And I do think it’s good to make decisions in that if you can tell the difference in that I-want-to-go-do-stuff mode. I think those end up being longer-term decisions. They can be decisions that in a less optimistic mode seem, “That’s impossible. That’s so hard.” And I do feel I have learned to tell when I’m in an on-mood, when I’m in an off-mood, when I’m a little more of an optimistic mode, which I think is general. I do try to observe that from the outside-in and say, “All big decisions, make in the optimistic mode.” I do try to say, “Is the decision-making machinery in the optimal state?”

Shane Parrish: Outside of Roblox, how do you think about great products?

David Baszucki: I like the notion of less is more. So I like the notion of telling everyone it’s very easy to add knobs and stuff. It’s very hard to remove all of the knobs and sliders in a great product. It’s fun when we think about products. In a kitchen, for example, when we think about great products, there can be various philosophies. I definitely would not like a dedicated appliance to cook hot dogs. That would feel like a very weird dedicated thing as opposed to a beautiful knife and a beautiful frying pan. So I think I like simpler things of higher quality rather than complicated things.

Shane Parrish: How do you think of removing when it comes to the company? I mean, you’ve been at this a while now. You’re going to be at it for a lot more time, hopefully. Sediment builds up inside the company, and bureaucracy is the natural sort of entropy of an organization, and then there has to be a counterforce almost to get rid of that.

David Baszucki: We do use the term, “Destroy bureaucracy” inside the company at times. I would say that if one is not reducing bureaucracy, there’s no neutral ground. I think in a lot of situations where one thinks, “We’re pretty good. We’re just going to let it be in this steady state,” that’s actually things are imploding in a way. If one is not trying to improve things, it is going backwards.

Shane Parrish: How do you give feedback to people?

David Baszucki: I’m probably not the best in the world at giving the feedback. I think what I have tried to do is move to more frequency, more in the moment, relaxed, not a big deal, rather than, “Let’s have a feedback session.” So I would say trying to be in the moment, “Oh, what do you think about that?” I think is much better than blocking or waiting or trying to organize it.

Shane Parrish: How would you think that people receive that feedback?

David Baszucki: I think the feedback is hypertone-related. I actually think if delivered in a neutral positive tone where people can sense my blood pressure’s not going up, where I’m just like, “I got your back no matter what. It’s all cool,” even if the feedback’s pretty harsh, it’s like, “Whoa, that was okay.” Whereas I do feel if feedback is delivered aggressively or it’s just like, “Oh, it’s traumatic,” I think that can actually influence it more than the feedback.

Shane Parrish: I like the idea of tonal because so often, in a distributed workforce or people working from home, a lot of feedback is written over text or Slack, and then you don’t have that tone or softness that goes with it.

David Baszucki: I support that. Also, if I get riled up, don’t touch text or email, just walk away. It’s so dangerous.

Shane Parrish: Do you recognize it?

David Baszucki: Oh, yeah, just red alert. Do not send that email.

Shane Parrish: To you or the one that you’re about to send?

David Baszucki: No, just imagine writing an email where you’re thinking, “I’m so pissed off. It’s going to feel so good to send this email,” don’t send that, because then the next morning you’re like, “Oh, my gosh, thank goodness I didn’t send that. I can call this person. I’m going to have a lot more impact in delivering that same message without being all worked up about it.” They’ll go, “Whoa, cool. It’s all good. That’s pretty hardcore feedback.”

Shane Parrish: And the next morning, you probably read it, and you’re like, “Oof, I’m glad I didn’t send that.”

David Baszucki: Absolutely. Plus, also, what is one trying to optimize? When someone’s trying to send that email, I’m optimizing for myself. I’m just optimizing. It is going to feel good to send that aggressive email like, “I’m going to send that thing.” Whereas when the next morning comes around, you can say, “Well, actually, I should optimize for the learning and excitement of this employee.” They’re going to go, “Whoa, this is a great relationship. I just learned something there.” So changing what one’s optimizing for, I think.

Shane Parrish: I like that a lot. I think of it in terms of outcome over ego.

David Baszucki: Absolutely. We’re just constantly trying to make it a better experience for the employee who cares about me being pissed off.

Shane Parrish: When you see people make mistakes, what are the patterns of mistakes that people make when it comes to seeing reality, ego, decision-making in that vein?

David Baszucki: I don’t know. I don’t think there’s a lot of mistakes. I think the typical pattern is, “Hey, can we make this simpler? Hey, can we look a couple years out and think about what’s going to happen with that? Hey, that looks a little complicated. You have two things doing the same thing. Hey, can we take that from a appliance that heats up hot dogs into two separate appliances, a pan and a knife that are both the best in the world?”

Shane Parrish: Can you spend a few beats and explain the principles of good decision-making and good thinking as you see them?

David Baszucki: It’s so funny, we were having this discussion in our Roblox values. So we have Roblox principles and Roblox values, they’re not as extensive as maybe… Some people have published books with 400 principles. We’re trying to keep it to 15 or 16 so people can remember these principles. But there is something, I think, inside of an organization where, for many decisions, it’s actually more important just to, “Let’s identify the person who’s going to make the decision and let them be somewhat free and creative to make the decision,” than in many cases a group decision or a confused decision or we’re trying to do all of that. So I think you’ll see more and more, us at Roblox, it’s just like, “Can we identify the decision maker?” Having them have a little freedom to make their own decision I think is super powerful.

Shane Parrish: Aside from systems thinking, what are some of the mental models that you use to think through problems?

David Baszucki: I think one mental model that we’ve had in thinking through problems is kind of an irreverence, in a way, to the problem.

Shane Parrish: Double-click on that.

David Baszucki: If one goes through a problem-solving exercise, and time and time again, we think we have the solution, it’s pretty good. Oh, we even have a simpler solution. The simpler solution is different than what most people are saying, so all of a sudden we had even a more compact decision that a lot of people said, “That’s not going to work.” And then we see that solution actually work really well. It can make sure we’re not kind of locking into traditional mindset. We’re really trying to push, “Is there a gem out there, or even something we haven’t though of?”

Shane Parrish: There’s many ways to get to the outcome.

David Baszucki: One of the decisions, I think back to the early founding of Roblox, and I would call this set an irreverence, is the very earliest version of Roblox had what we would call the classic Roblox character. We were saying, “Okay, we’re building a user-generated gaming platform. We’re going to have an avatar.” The very first Roblox avatar was a very fast programmer art avatar to get something working. Its proportions are ridiculously simple. The legs are 1 by 1 by 2, the body’s 2 by 2 by 1, so you can actually see it’s super simple, and it’s got a head on top of it. The face of the early Roblox avatar was just programmer art that we put together.

Universally, all of the gaming industry people we would talk to, “Whoa, whoa, whoa, do not ship that. You need a full avatar. You need a meshed avatar. It’s got to be high res. Your objects need to look better,” but we decided it’s better to ship that early and start getting feedback on it. I thought that was a great decision. And we found out actually that a lot of the input we had been getting, thank God we didn’t listen to that basically.

Shane Parrish: How do you deal with a situation where your instinct and the data disagree?

David Baszucki: We get that quite often, I would say. It’s interesting to think of the whole Roblox community and how smart and creative they are and how passionate they are. There’s a really gentle line that needs to be worked on as we both drive the product forward as well as listen to that community, and that creates many conditions where our instincts are different than the community’s vibe. There have been situations where our instincts have been different, the community’s been right, and it’s like, “Whoa, they had it.” But there’s many other cases where our instincts have been right, and the community then follows along and says, “That’s an absolutely great idea.”

Shane Parrish: But how do you resolve that? So much of getting to good decisions and good outcomes is seeing reality and adapting to reality.

David Baszucki: I think a lot of decisions that can be made incrementally that aren’t one way, those are a lot easier. We try to make faster decisions in the right direction. We can adjust. I think realizing when we need to adjust is super powerful. One could make the argument that if a decision can be the evolutionary design of the eye, for example, for some reason, we evolved to have eyes, that was probably trillions of small little decisions that kept going in the right way. The more a decision can be decomposed to a long-term goal like, “We want to be able to see,” we’re going to take thousands of small steps to get there. Those types of things I think can have both a long view as well as be pretty resilient.

It’s interesting because two of our values are take the long view and get stuff done. We kind of like to say there’s a magic decision-making quadrant where the magic quadrant is it’s both a long view decision with hyperiteration to get there, and that’s kind of a magic, safe quadrant. All of the other quadrants have a little weirdness to them. If we go through the other decisions, take the short view and iterate, there may be a much better long view, that’s not very good. Take the long view, but don’t iterate. Work on it for two years and then dropship it, not as good. Take the short view and don’t iterate, that one’s not even a quadrant. So that’s a quadrant we really like.

Shane Parrish: Walk me through one of the bigger mistakes that you’ve made and what you’ve learned from it and who you’ve leaned on during that time.

David Baszucki: I wouldn’t call it a mistake, but I would say, for a while, what we were trying to do as a vision and a mission, you could say when we had 50 or 100 million DAUs, probably even less than that, we were just saying, “Our goal is billion DAUs, blah, blah, blah, blah, blah, blah, blah. That’s our plan.” And in retrospect, I think sharing with all of our employees like, “We’re going after gaming. We’re going after immersive communication. We’re going after working together. We’re going after school together,” painting all of that was a pretty big broad thing. When we crisped it up to saying, “We’re going after 10% of the gaming space on Roblox. Everything we’re going to build is going to help these other areas, but this is the right order,” I would say that would be not necessarily a mistake, but a cleaning up of how we were talking about things.

Shane Parrish: When things aren’t working the way you want them to, what’s your inner monologue in those moments?

David Baszucki: Interestingly, I think when we’re running companies, we have all the evolutionary biology of being out there in the wilderness trying to survive and having battles and all of that. So I think CEOs can get that feeling like, “Oh, my gosh, do I have enough firewood for the next three winters?” And it’s like, “Well, it’s not feeling too right.” That has been, for me, an intuitive early thinking thing. What’s great is it leads to typically a refinement in strategy. Then all of a sudden the light goes on. It’s just like, “Oh, we got the plan. We know exactly what to do. We’re going to send four people out. They’re all going to have axes. We’re going to put in three months, get three years of firewood. We think we can do it in three weeks. Everything’s great.”

Shane Parrish: Do you manufacture threats as a way to motivate or focus yourself? I think of Michael Jordan playing for the Bulls. He used to manufacture things that other players said about him.

David Baszucki: We are running right now… I’m not going to say what the company looks like. It’s not an existing company. In my own mind, I’m imagining the company across the street that could call it a threat like what’s it look like, who are the people, how many people, what are they building.

Shane Parrish: Do you analyze your mistakes? How do you do that? What’s your process?

David Baszucki: I would say typically my mistakes have come, I think, from being maybe overly logical and less intuitive. One can fall into the trap of just saying, “I have to go down this path,” in a way and not popping out of the box and thinking of the more outside-of-the-box solution. So trying to think of mistakes I have made have been typically where I’ve hung on to a concept too long when I actually was very free to change my course. And in retrospect, just like, “Oh, yeah, I could have just changed course right there.” I think we have a lot more optionality than we imagine when I look backwards in time.

Shane Parrish: Is it fair to say that Roblox is the biggest generated human universe in the world?

David Baszucki: It’s worth thinking about that because it would be worth thinking what’s the definition of a human-generated universe. There’s universes in books and in movies. As far as an interactive multiplayer universe where people can go together and do things together, I mean, it might be.

Shane Parrish: So through this virtual world, what have you learned about human desire and psychology?

David Baszucki: What I think I have learned is that we need to have enormous respect for all the people in this virtual world. I think it’s surprising how much people can attach to their digital identity. I mean, it has to be very carefully respected. This is real stuff. There are real emotions happening, real interactions happening. And I think I’ve also learned that I feel it’s still very, very early.

Shane Parrish: Say more about attaching to your virtual identity.

David Baszucki: Once again, this is an area that I love the Roblox community on, and I think they’re very sensitive to this in that we’re migrating all of our avatars to a position where, rather than just being a monolithic block, for those users who choose, the head may smile if they want it to smile or something like that. But in the migration of this process, the Roblox community has just been absolute sticklers for perfection in the migration, and it’s because people have been familiar with their avatar for such a long time. It’s like, “You can’t take my head and adjust a few… What are you doing?” And I think they’re right.

Shane Parrish: Does that make updating harder?

David Baszucki: In certain cases, it does. That is an incredible balancing act. Sometimes we think about updating. There’s two schools of thought on updating. One is, 30 years ago when the PC came out, they had MS-DOS. Today, an MS-DOS program will still run on a PC. It’s mind-blowing. If you take a AutoCAD from 30 years ago, you can boot it up on a PC, boom. The other side was like the Apple Macintosh. They just threw stuff away five times like System 7, next step, blah, blah, blah. I think we make judgment and we sometimes use those two ends of the spectrum to figure out when is it appropriate to just, “We got to keep that forever,” versus when, “No, we have to keep moving forward.”

Shane Parrish: How do you think about things like capital allocation? You guys just announced your first buyback recently.

David Baszucki: Super thoughtful. Knock on wood, we’ve made a lot of cash in our history, a lot of positive free cashflow starting from the investment we’ve had and where we have come. I would say a lot of the decisions we make have come from not necessarily capital allocation, but what are we trying to do, what is the big picture of the opportunity, and what we’re trying to grow for them. I would say we’ve refined that many times throughout our history.

It’s almost like we’re in Roblox version 5.0 right now in that, when we started the company, the vision we had I think was spot on. We were imagining a new category, human co-experience category, the metaverse category, the holodeck category, the Snow Crash category. We really could see that coming, but we were very moderate and modest in the very first thing we were going for. When we started, for those of us who could remember, Club Penguin was a really popular kids game, and we just thought that was, “Oh, that’s huge. Club Penguin, they’ve got X many people. We like what they’re doing.” We started with arguably a much bigger, deeper technical foundation.

I would say though, along the way, we’ve refined our aspiration and what we’re trying to do. When we went public, we were talking about connecting the world. Two years ago, we talked about getting 10% of global gaming on our platform. That continues to refine as we have a bigger percentage of global gaming on our platform. I think you’ll continue to hear us kind of expand our ambition.

Shane Parrish: What percent are you now?

David Baszucki: Well, you can look at where we’re tracking on our bookings, and I think if you divide our bookings by 200 billion, we’re in the 3 to 4%.

Shane Parrish: That’s amazing. That’s incredible.

David Baszucki: It’s incredible. And at the same time, it actually seems like… It’s exciting to me because there’s a lot of room beyond 3 or 4%.

Shane Parrish: What about incentives for people? What have you gotten right and gotten wrong over the years?

David Baszucki: I think we got really lucky in being really fascinated with incentives. And I think very early on when we started building Roblox, some of the early founders, John and Erik and Matt and myself, we were just really into economics and incentives and what makes people do things in a nice appropriate way and drives it. At the very start of Roblox, we thought just the incentive of user-generated content like, “Whoa, everyone can make their own game, and they can come and play it and show it to their friends.” We thought that would be an amazing incentive, and we thought that would give us amazing amounts of content. That did prove to be really true. Along the way, we had a lot of questions around economic incentives. Roblox got pretty big without a way for developers to earn money on the platform. It was a hobby for everyone.

We had people who were working 24 hours a day, just they loved their Roblox creation. They were struggling like, “Wow, I got to make a living. I just want to build on Roblox.” We had a lot of board-level discussion, “Should we turn this into something where someone could make a living?” In retrospect, it’s crazy. We then went back and forth a lot like, “Well, I’m not so sure we should do that.” But we did come up with a notion, “Okay, we’re going to build a really elegant system. Creators can make, whatever, wide range of experiences. They can have users participate economically. It’s going to be free for most people. Some of these creators who are working 24/7 might be able to make a living on that.” I think we thought about that very systemically because that system has just been the engine behind us ever since then.

Shane Parrish: One of the things that you and Erik disagreed on was the API.

David Baszucki: So Erik Cassel, co-founder, started Roblox with me, passed away from cancer eight years ago, rest in peace, but in a way, a values template for the company. And when we started Roblox, Erik and I were the first two engineers. We wrote the whole system. We had some false starts too, by the way. There’s a really fun story that I would say we both knew what we wanted Roblox to be, and we knew we want user-generated, multiplayer, build your own thing, go play it with your friends. That’s what we want. Along the way, we tried to ship early a subset of that, and just… It did not work. It was a non-avatar-based, more puzzle thing, and it’s just like, “Whoa, back to the drawing board.” I was in a way, “Okay, we’re making this game creation platform. Let’s try to hardwire all these types of games you could make and have all of this extra cruft on the system, elements from games.”

I remember actually in our core C++ code, we actually mocked up a capture the flag game, and we had a flag as part of our core API. In retrospect, it’s an absolute disaster because a flag is such a user-generated, complex, specific game thing. For me to have put that deep into our core stuff was just terrible engineering. Erik was very different. He’s like, “Whoa, whoa, whoa, don’t do that. We need an interface of language with this thing. We need an API. We need to have this thing be very generalizable. There’s a game-creation language called Lua. Let’s connect that up and don’t do any of this stuff.” It’s weird that I was initially like, “Whoa, I don’t know if I trust that.” But we started doing that. The power was just absolutely enormous. Rather than my hard-coded stuff, the power of this generalizable thing, that was kind of a core engineering foundation that gave Roblox a lot of its UGC boost in a way.

Shane Parrish: You mentioned a couple of false starts. What are some of those false starts where you guys went down the wrong path, and how did you realize you were going down the wrong path?

David Baszucki: Along the way to building an economy on the platform, we started with a very different economic model. It was a membership model. You got a few extra places to build on Roblox. In retrospect, that was a really bad idea because building should be unlimited. But along the way, that economic model started to fail actually, and we had a situation where our user growth was going up, up, up, up, up, up, but less people wanted to buy this membership. And so, this is really interesting, right? Our users are growing, it’s all great, but money is flat to going down.

And so, what we did on that, I would say, is a very typical tactical response. “Okay, something’s up. Let’s fix the current system. Let’s make a list of 50 things that might be broken, 50 small tune-ups that we can do towards this system. Okay, let’s do that.” So as you would imagine, we made that list of 50 things, did 30 of them. Oh, we still have the problem. Now what? But in the back of our head, we had been thinking about the economy, about virtual currency, about how this was a whole outside-of-the-box game changer. This wasn’t just tuning up something that was arguably broken. This could be 100 times bigger than what we’re doing.

And so, then all of a sudden, maybe in a disparaging moment, just, oh my gosh. All of us in the company had said, “We just have to do this, this big hard thing.” But then we had absolute clarity. We’re just betting it all on this new economy system. We were very thoughtful that the economy system was a bunch of complex parts. It needed virtual currency. Users needed to be able to buy virtual currency. Some of the early things were in some of the games. You could buy a flashlight if you wanted it. Some of the games, if you wanted to be a eagle instead of a sparrow, you could buy an upgrade for that. And then finally we said, “You know what? In addition, we’re going to show which of the games on Roblox are making the most Robux. Where are people spending it?”

And so, launching all of those things at the same time, there’s virtual currency, people can buy it, creators can incorporate it, you can see what’s earning, it created a loop or a system that within eight hours we just said, “Yep, we got it. Boom.” Because we could see within eight hours, creators are like, “Oh, I got to add this. I got to do this.” There’s the top grossing game on Roblox. People are actually interested in that.

Shane Parrish: You invented a world where people can do whatever they want.

David Baszucki: That’s right. And so, we knew, okay, we finally got it. And after all those months of fixing those 50 little small things, the right system just… All done.

Shane Parrish: That’s awesome. How does the virtual currency work? Specifically, how do you value it? Does it get tethered to outside forces? How do you think about that?

David Baszucki: We have generally thought it’s better not to inflate it, to have it be a somewhat consistent value. If you or I were to go buy some Robux, we would see it’s generally somewhat like a penny per Robuck. It’s generally been that way for about 20 years. So I would say no promise long-term. It’s directly tied to the dollar, but I think we’d try to keep it stable and not inflating or deflating.

Shane Parrish: Do you ever see a world where you can use that currency outside, and I can go buy a Starbucks or something with it?

David Baszucki: I do see that world. No future plans. We haven’t announced anything. But it’s interesting to think that many, many 8 through 12-year-olds, their first exposure to money is Robux. My first exposure to money was I got 6 cents or 10 cents a week allowance. I could go buy a comic book and learn to make decisions. It was actually very valuable for me because I can remember trading cards. Baseball trading cards were a big thing when I was a kid. And I remember, this is triggering a childhood memory, okay, three weeks of allowance, I got some baseball trading cards. I went and hung out with the neighbor. We played some trading card game, and I lost all my trading cards and I was so devastated, but I think it was a positive lesson. So I do think, for many young people, learning how to use a virtual currency, not to spend it all at once, maybe to divvy it out a bit can be a lot of learning. And so, it’s interesting to think over time if young people get sophisticated enough to use that to go to a 7-Eleven or something.

Shane Parrish: What would have to be true technologically for that to be possible, or is it possible today?

David Baszucki: I don’t want to go into too much details. We’ve thought about a lot of that. I think it’s a little bit more of a what’s the focus of the company right now, and it’s a little bit more should the focus of our company be young kids are doing a lot, or we have an increasingly larger percentage of what is play in the world. So we’re pretty focused on just what is play in the world.

Shane Parrish: What does focus mean to you?

David Baszucki: I think one way to think about focus is is there one statement in your head that everyone in the company can just understand. Is the focus human-understandable? We are just doing this, and everyone just says, “Oh, I got it. I can rally around that.” So I think that’s a little bit how easy is it to present it or share it.

Shane Parrish: Double-click on that understanding and how important words are in communication, not only for the sender, but the receiver, and how you spread messages throughout the company.

David Baszucki: We’re still learning on that. It even goes into how you think of the product, what your vision and mission are. They really, really, I think, really matter. I’ll use an example that very early on in the formation of the company, when we are very small, we use the tagline, “You make the game.” That’s kind of fun, right? I would say that was an idea that anyone could make very simple games in Roblox. I think as we think about that notion and we think about AI and what’s going to become possible with AI in the future, it’s actually been fun to go back to those words and think, “Are they now possibly even more true than they’ve ever been?” and that the more we have the ability to use AI for anyone to make a game they think about, those words can have really big meaning.

So I think going after… Say our vision is 10% of the gaming market, that’s a pretty good focus, a lot of people understand it, but I think that’s constantly should be reevaluated a bit as we think about where we’re going in the future.

Shane Parrish: Do you use AI internally to help make decisions or help expand your context window on the company?

David Baszucki: I would say we have all kinds of AI. We have a bunch of internal systems that we have built. So we have a thing called the Roblox Operating System that we use for tracking the work in the company, more and more helping people see how they fit into the organization. Those are all MCP-enabled, so anyone can take their AI system and run it on top of those. In a way, we think of all of our Roblox systems as things that either people or AI can look at and run things against. So we have all kinds of people building custom little things that are looking at the work tracker or doing some things. Some people auto-generate our one-on-one discussion topics. So I would say yeah.

Shane Parrish: I want to get into talking about a lot of the policy that’s coming out of governments all around the world in terms of age bans. Without commenting maybe on whether they should or should not exist, who do you think should implement those? Should those be at the company level specifically, or should they be at a platform level like Apple?

David Baszucki: I mean, when I talk to senators in the United States, I say, “Please, how can we help you take a look at what we’ve done on our own without any laws requiring it? We’re now using AI to check the age of every single person on our platform. We’ve open-sourced our voice-safety filter.” I do say, “Look at what private industry can do.” And then of course I think there has to be a lot of thought and caution. And I think universally, legislators I’ve met with, they do have a balancing act. They are trying to enact great legislation, but they’re trying not to have the tragedy of good intentions. They’re trying not to craft laws that’s just like, “Oh, my gosh, I wish we wouldn’t have done that.” One could say, for example, “Well, on a mobile phone, whoever makes the mobile phone should check the age of everyone on the mobile phone.” We said, “We’re not waiting for that. We’re going to do it ourselves,” in a way.

Shane Parrish: But do you think that that is a better solution from an industry point of view? You’re not waiting, that’s great, but do you think it’s more elegant to have it at a device level or at an individual company and you’re responsible for that?

David Baszucki: This is what makes it so tricky in that I would say both in that, knowing what we do, given that we’re doing age check for all of our users for comms, for example. We know, for example, a lot of parents don’t have the time to configure their device or a lot of parents to say, “Yeah, take my iPad and go do that.” And so, if that iPad is configured, for example, as a parent, it’s handed off to a kid, that can be a little tricky. So I would say even when devices maybe have an age in them, we’ll still keep doing our own thing.

Shane Parrish: Do you think there’s second and third-order maybe unintended consequences to the way that we’re going about this now?

David Baszucki: Yeah, I think our legislators are trying to do their best, and it’s a very complicated world out there. We’re trying to set the example. For us, know the age of everyone on the platform, use AI to do it, ultimately other signals to do it, don’t allow image sharing, things like that, that’s worked well for us.

Shane Parrish: But that’s had a cost on you. I was listening to your last earnings call this morning, and it slowed down growth.

David Baszucki: I would say the opportunity to build a global platform that has more and more people playing together, which is amazing, and all around the world, not just, quote, “over 13,” but of all ages, I mean, this is foundational to our growth. We’re very optimistic.

Shane Parrish: I think where I was going with that is you’re able to take a longer view in part because you’re a majority shareholder, you’re the founder, you carry a lot of weight in that, and you can make these decisions. Not every company is going to feel that they can take an immediate short-term pain for longer term gain.

David Baszucki: Yeah, I would say this is once again where our aspirations are. We think digital play is just amazing. I shared we’re in the 3 to 4% of the world right now. Imagining what the future is going to be for the types of interactions we’re going to have, it’s pretty amazing. So I do just feel the work we’ve done safety, civility platform-wide is foundational for platforms like this.

Shane Parrish: How do you think about positioning and optionality?

David Baszucki: Positioning, I think about constantly clarifying what we’re trying to do. I think, more and more, our positioning is going above the company itself. I think there’s a really elegant future way to think about positioning as almost a bigger thing than the company itself. Right now, it’s kind of interesting. Because when I think about the world we’re in, everyone’s getting, “Okay, we got all these digital devices. What’s going on? Social media, social networking, gaming, AI, all of that,” having a message that goes above all of that I think is super interesting. So for us, I really like the notion of play. I like the notion, whether it’s digital or physical, play is really important to people being together and doing it. And so, I think thinking about a positioning that kind of goes above one’s company can be super elegant.

Shane Parrish: If you close your eyes, I want you to tell me what Roblox looks like in five years from now.

David Baszucki: I’ll share a couple examples. One, we’ve shared the other side of that, which is the technology we’re building for Roblox Reality. It’s surprising that… It’s actually hard to imagine what a photorealistic multiplayer game would feel like. We’re not used to it. We’re used to looking at gaming footage and saying, “That is an amazing game. That looks so good.” But I do think when we look at it, we say, “But that is a game, by the way. That’s not like Bourne Identity.” Whereas if we ran Bourne Identity on a 2K screen, that looks different than that. So I do think there’s going to be a future world where we have all the aspects of the multiplayer gaming interesting, but it feels like that, and I think that’s going to be pretty mind-blowing. It’s going to be a little bit like going from black and white to color or going from 512 to 2K. People don’t quite realize how big that can be. So I think that’s one aspect of it.

I think there’s another aspect where the notion of you make the game is really going to come full circle because games are much more complicated than code. They have images and assets, and they have environments, and they have stories, and they have all of that. But getting to the point where you or I make a beautiful thing, share it with our family, play it just by talking about it, I think, is going to come true as well.

Shane Parrish: I think that that’s incredible. What do you think will be the second and third-order consequences of that?

David Baszucki: I think the positive thing to think about is actually the fun parts around connection and digital play will in a way become very… They’re already quite meaningful. I think the consequences will be more fluidity in digital play, the feeling that it’s not me as a user and them as a creator. It’ll almost be like, in the old days, only 1% of us were oil painters documenting the king’s portraiture, whereas now I think we all feel like we’re oil painters. We have our phone, we have digital image tools, and we’re all kind of feeling like we’re part of it. And in a way, rather than a digital technology reducing the job market for oil painters, it’s probably increased the job market. There’s a lot more people doing digital imagery. I’m actually thinking the same thing will happen for gaming and that both the hardcore creator market and all of us will be more involved in the creation of immersive experiences.

Shane Parrish: What was your reaction to watching Ready Player One?

David Baszucki: Ready Player One, the book I loved. The movie V1, I love. But I do like less-intrusive far-out VR. I’d say Black Mirror, when they do VR, you just put a little white dot on you, and it takes over their eyes and your body and all of that. It’s less intrusive. I think that’s probably more where it’s going to go than just goggles and stuff like that. Huge fan of Ready Player One, but I think there’s a wide range of technical coverage of how this is going to work. I’m a stickler, I would say, on sci-fi movies. The more real and the less comedy or cliche or whatever, the more I like it. And I think it’s really hard to find sci-fi movies that are just trying to be real.

Shane Parrish: How does your background in physics help you think through problems?

David Baszucki: I’m wondering if it’s a background in physics helps you think through problems, or more an interest in building stuff leads to a background in engineering, or whether it’s correlation or causality. I would say where I grew up, I luckily grew up in a hyperbuilder type environment. I grew up in the far suburbs of Eden Prairie, Minnesota. Everyone had a workshop, everyone had tools, everyone was building go-karts and model rockets and all kinds of stuff, so there’s a lot of hands-on building stuff that I think I was always interested in. So I think almost that growing up in a builder culture led to engineering type interest, maybe in reverse a bit.

Shane Parrish: What was your childhood like?

David Baszucki: I feel my childhood was pretty idyllic because I grew up… I can remember the moon landing.

Shane Parrish: Where were you?

David Baszucki: I was in Chicago, Illinois, moon landing, 1969. We all like nostalgia and all of that, but it was a pretty fun place to grow up, the ’70s.

Shane Parrish: Did it inspire you when the moon landing happened? Did it light a fire inside you?

David Baszucki: It did inspire me because I remember going to my school, and I made a huge model out of cardboard of the Saturn V and the lander and painted it all up, and I had the landing module and all of that thing, and I brought it in to show my teacher just because I was so into it like, “Check this out. You can take this Apollo thing off, and you can dock it.” And so, then I do remember, this is a really cute story, this was in Arlington Heights, whenever there was then a subsequent Apollo, they would pull me into a classroom with my model. And if they watched half an hour of TV, I’d say, “Here’s what’s happening. This is going off and doing that.” So yeah, I think I was pretty inspired by that.

Shane Parrish: That’s awesome. I want to get this right, so I’m going to read this, but my 16-year-old submitted a question for you.

“If you were starting out at 16 today with no money, no contacts, no network of people that you could rely on, how would you spend the next five years to maximize your chances of building a company that matters?

David Baszucki: Oh, my gosh. Well, I’ll tell them what worked for me is that was the last thing on my mind when I was 16. I was into, in a way, hanging out with people I liked. I was into what naturally I was good at and interested in, whether it’s building model rockets or go-karts. So I think if one is 16 and actually that’s what you’re into, there is a notion to… As one goes through the normal course of life, you’re going to go to high school, you’re going to maybe go to college. In parallel, can that be your fun little hobby in a way? Can you warm up on that in an authentic way?

Shane Parrish: We always end these interviews with the same question, which is, what is success for you?

David Baszucki: I feel every day I’m already feeling very successful.

Shane Parrish: What goes into that feeling?

David Baszucki: Waking up every day just saying, “I’m so fortunate.” So I actually feel that way.

Shane’s Reflections

Shane Parrish: I hope you enjoyed that episode as much as I did. While I was in San Francisco recording Ed Catmull, I sent Dave Baszucki a message and said, “Let’s do this.” So we hooked up, and this is the conversation. We actually did it inside Roblox headquarters.

I want to tell you something really unique about Roblox headquarters. After listening to this conversation, you’ll see why it’s important to Dave. All the snack foods are labeled with a whole-food index. Maybe I can show you guys a picture or something, but it basically says, “Whole food, good energy.” It’s got two check boxes, “Is it real whole food?” and, “Does it offer good energy?” And all the ones that are neither checks go at the bottom, two checks at the top. I thought it was fascinating.

The most important part of this discussion was just how much food changes everything. Not only did it completely turned around his son, Dave is super healthy. He looks healthy, he looks fit, looks like he’s got tons of great energy. He talked about how the metabolic state and a lot of these things that we think of as maybe being overworked or bipolar can possibly be addressed with diet. And I’m not a doctor, I don’t play one on a podcast. I think that this is worth researching.

And Dave is spending a lot of money doing double-blind studies, and he’s funding all this research, and the preliminary results are actually astonishing. And I think that the n of 1 is his son, but this could be beneficial to so many people in the world. So I’m hoping that this takes hold. And if you’re struggling with any of those things, this might be the thing you need to do to play around with and to try, and obviously consult a doctor before you do any of that, but it is so powerful. And we talked about how that state of mind, how your metabolic state, influences your decision too.

One of the other things that stood out about this conversation was sort of like take the long view and iterate. You don’t have to go these big steps. You can do these long views. And he called it the… I think it was the magic safe quadrant, and it combines sort of long-term direction with rapid iteration, and I think that that makes a ton of sense.

Another idea that really stood out from this episode was stop trying to fix a broken system. So this happened when Roblox users group membership revenue flatlined, and the instinct that Dave had was the same instinct that all of us would have in that situation. Let’s list all the things that are wrong with it and prioritize 25 of them and do that, but then nothing changed. And the real answer came when they replaced the model with a virtual economy. I think he said within eight hours, creators started adapting, and then the world just exploded and came alive.

Just going back, I want to touch a little bit more on sort of making big decisions when the machinery is working, the machinery of your mind, that ties to the metabolic state of your mind. But also, Dave mentions that he sort of focuses on am I being optimistic, energetic, or am I tired and defensive, and how that affects your decisions. So you can’t always control your mood, but you can control what you decide while you are in it. You don’t have to make these decisions when you’re in a bad mood, when you’re tired, when you’re feeling drained of energy, when the world does not look abundant.

Another idea that stood out is sort of like, we talked about this, and Dave had a really good practical solution, but there’s no neutral ground on bureaucracy. The natural entropy of the world is basically expansion. My desk gets messier if I don’t clean it daily. Everything just sort of grows and grows, and bureaucracy is the same way inside of organizations. It’s all about simplification, staying in the basics, not getting lost, and not getting distracted.

And the other mean idea that I took away from this episode and our conversation was sort of angry emails optimized for the wrong person. That heated message that makes you feel so good and so righteous, it serves the sender. It doesn’t do anything to the receiver other than escalate. So it releases frustration, but it rarely improves the outcome.

Thank you for listening and learning with me. I’ll see you next week.

The post Roblox CEO David Baszucki: How to Make Better Decisions by Fixing Yourself First appeared first on Farnam Street.

Play

Featured clips

07:50

His Research Process

16:26

Rearranging Your Brain for Success

50:19

The Hidden Cost of Negative Feedback

01:16:55

Frameworks for High-Stakes Decision-Making

Brad Jacobs has built eight billion-dollar companies, completed more than 500 acquisitions, and created extraordinary returns for shareholders over four decades. Few people understand how great businesses are built better than he does.

This conversation is about the principles behind that success. Brad explains how he spots trends before they become obvious, why psychology matters as much as strategy, and how he thinks about acquisitions, hiring, capital allocation, decision-making, and building organizations that consistently outperform. 

He also shares lessons from therapy, meditation, and decades of leadership that changed how he manages people and makes decisions.

Listen Now: YouTube | Spotify | Apple Podcasts

Transcript

There is no conversation that’s made me more money than this one. If you haven’t heard it, now is the time. If you have, it’s a classic and worth listening to again. Brad Jacobs has started eight separate companies worth more than a billion dollars each. He’s done about 500 acquisitions. So when he says that there is a way to make money that reduces the role of luck, it’s worth listening to him. And this interview lays out exactly how he does it.

The most surprising advantage though doesn’t come from business at all. It’s something we can all learn. Let’s get into it.

Shane Parrish: Ray Kurzweil, who wrote The Singularity, is one of your heroes, and you recently met him. I’m curious what you took away from that conversation and what it was like.

Brad Jacobs: Well, I did recently meet him, and it was like meeting Albert Einstein or meeting Michelangelo. He’s looking at the history of the universe going back 13-point-something billion years and how we got here and then looking at trends. He identifies the most important trend of all, which is that Homo sapiens have created technology, created tools, starting with stone pebbles over a couple million years ago, and then fire and then settlements, and over the last couple hundred years, so much more, and in the last 20 years, accelerating. And now with AI, it’s accelerating even more.

Press cmd⌘ + p or ctrl + p to print this transcript. Sharing with one or two friends is ok. Posting on the internet is not.

And where’s that going? The technology we’ve created is becoming more capable than we are at some 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. We’ll use so much technology in our own bodies—with wearables and nanobots and AI and outsourcing our memory and senses and so forth—that you really can’t call us Homo sapiens anymore because the traits, the characteristics, will have changed so much that we’ll say Homo sapiens has become extinct and there’s a new species. And I think he’s probably right.

Shane Parrish: What do you think the benefits of that are and what do you think the drawbacks are?

Brad Jacobs: If you look at us as a planet, with eight billion people, there are a lot of things we do well, but there are 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 abundantly and have more resources for more people, and I think medicine will be better and science will be better. We’ll 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 an area of improvement for humans; 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.

Shane Parrish: 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. You’ve lost billions of dollars and in market cap in a day.

Brad Jacobs: 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, whose specialty is analyzing how you think, and I did therapy for three hours a week for a couple years. 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, etc., 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. Utilize what comes in, capitalize on what comes in, to create money for shareholders. I think the human capital, in the psychological sense, is very, very important, so I put energy into that.

Shane Parrish: You 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?

Brad Jacobs: 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. 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 prefrontal cortex. I’d like to see that trend materialize, where computers can feel, can have theory of mind, can be sitting here having 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. I’m looking forward to that trend a lot.

Shane Parrish: 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?

Brad Jacobs: Well, I do spend a lot of time thinking about trends. I spend 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 are 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? I intentionally think about trends quite a bit because in the business world, you’ve got to get the major trend right. 

And as my main business mentor, may he 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. I intentionally spend time thinking about [questions like] Where does all this fit in? and Where could it be going?

Shane Parrish: And what’s your research process like?

Brad Jacobs: 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 that a lot of people make the mistake, as they get older or they get more successful, of thinking 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, but I absolutely view myself as a student of life. I don’t view myself as a guru who’s figured it all out—not by a long shot. And I think if you keep that element of profound curiosity, of really being very interested to learn and being involved with the sensory experience, the intellectual experience, and analytical capabilities, you can learn a lot more, and you can see trends that otherwise you don’t see. You’re just in it and you’re living it, but you’re not seeing the trend. You’re just kind of going along.

Shane Parrish: A lot of people who reach your level of success 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?

Brad Jacobs: I do both, Shane. I do have a team that researches things for me, but I like to roll up my sleeves and get into it myself, even when I do M&A (mergers and acquisitions). My teams that I’ve led have done about 500 acquisitions. I’ve been involved in those acquisitions. I get into the details of what we are 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 got to the point where now there are millions or hundreds of millions or billions of dollars of revenue, and they started from scratch. It’s like a miracle. It’s fantastic.

I’m very impressed and excited about and enamored with entrepreneurs and companies that have created huge growth and huge value, and I want to understand that. 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 of people. Now today, you’re the one asking questions, and I’m answering, but normally, it’s a role reversal. Normally, I’m asking a lot of questions. If you go into a management meeting, I’m usually asking lots of questions.

Shane Parrish: What have you learned about asking questions that you wish you’d known five years ago?

Brad Jacobs: I take questioning from the therapists. I find psychotherapists. I wrote in the book that the only time in my life that I was really depressed was in the mid-2000s, when I had stepped down from being CEO of this big company, United Rentals, and I didn’t have anything to do. I was doing some art, I was studying art and buying art, and I was doing things with my family and so forth, but I didn’t have a business. And I learned from that that everyone has their own thing that makes them excited; for me, it’s running businesses. I’ve been a CEO since I was 23 years old, and I liked being a CEO. I really liked that job a real, real lot. Now I wasn’t a CEO, and I felt a big gap. I felt depressed, I was down, and I had a lot of unconstructive thoughts and inaccurate thoughts. And that drew me to meeting a lot of fantastic psychotherapists, and I mean fantastic—at the top of their game.

There was a psychotherapist in New York City called Albert Ellis—he died about 10 or 15 years ago—and he had formed a school of therapy called “rational emotive behavior therapy,” REBT. In short, it was cognitive behavior therapy. He, together with another psychiatrist, Aaron Beck, were the co-founders of cognitive therapy. And I find that therapists, of all the different professions, are the best at asking questions and the best at getting a person to relax, getting a person feeling at ease and able to open up.

And what I learned from studying those psychotherapists is that 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 an atmosphere. You need to create an environment that’s a safe place—that’s a zone where 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 maybe the single most powerful thing you can do in a relationship, whether it’s personal or professional, is to give someone 100% of your attention, like you’re doing now. 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. It’s putting a little pressure on me to perform better and give good answers. But you’re doing something powerful. You’re giving me 100% of your attention.

And I find with therapists, that’s one of their tricks, one of their skills, one of their techniques: you have your session for 45 minutes or two hours or whatever it is, and during that time, they’re all yours. They’re 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. They’re going with you. They’re not disagreeing with you without first finding a way of agreeing with you—joining, then leading; validating, then disputing. Even when they are changing the way you’re thinking and they’re saying, “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, they’re first joining. They’re showing that they understood you. They listened 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 an investor or an upset customer, it is very good to do that. It’s very nourishing and nurturing to give someone 100% of your attention and listen to them nonjudgmentally. I call it “nonjudgmental concentration.” That’s the phrase I use—nonjudgmental concentration—when you’re giving someone 100% of your attention 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 also How are they feeling? 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 run an electric meeting, which means a meeting that’s powerful, a meeting in which 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 ho-hum meetings. And an element of that meeting is that everyone in the meeting shuts off all their devices and concentrates, concentrates nonjudgmentally, on the one person who’s speaking. No side conversations; no talking over each other. One person speaks at a time, and everyone in the room gives them all their attention. It’s a really powerful thing.

Shane Parrish: I like that a lot. It’s the secret to our podcast in a way, which is that 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, but 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 miscommunicate.

Is the work with the psychotherapist where you learned about rearranging our brains and controlling the mind and the importance of thought experiments and mindset? Talk to me a little bit about that.

Brad Jacobs: It was one of the places. My main hobby, since I was a teenager, has been meditation, various forms of meditation, and then I learned self-hypnosis, and then from there, I learned about mindfulness and positive psychology and cognitive therapy and so forth. I’ve mixed and matched a lot of different schools of thought and customized it for me, my own personality and my background and my individuality. 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 and math. But in music, it is a lot about relationships, unless you’re a solo performer, and I was not. I liked to play in a group. I liked a band. I liked 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 self-identify as a musician more than as a businessperson, which you might find odd, because I’ve spent 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, and by that, I mean my sense of sound is the dominant sense. I listen to sounds. I listen to my heartbeat, listen to my breath; I listen to 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—from tinnitus, where you have this ringing in your ear. I’ve had it since 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 it gets louder; sometimes it gets softer. Now some people have tinnitus 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, 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, and that’s the reality of the moment, and you should be in that reality and go with that.

Shane Parrish: What’s the relationship, if you had to guess, between music, math, and business?

Brad Jacobs: For me, a lot. 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 its core. 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 [you have to give them] much, much more money than they gave you. In my companies, we’ve been fortunate that we’ve been able to give back 32 times the money in one company. Another company, it’s over 150 times, so really, really large, large, large returns, over-the-top, unusually high returns. That wasn’t by luck. That wasn’t coincidental. If it was coincidental, it wouldn’t have happened five times in a row.

That was because there was a playbook. There was a method to it, and that method incorporates many different elements—and I talk about a bunch of them in the book—that together give you an ability to create what we call “alpha” in the business world. It’s 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, where all boats are lifted by the same tide. Some of the ingredients of that formula to make huge returns for shareholders involve analytical thought, careful analysis of numbers—there’s all the math—making order out of disorder, trying to see how this all fits together, and seeing the relationships between different things. You need to reduce things to simplicity, because great mathematicians reduce very complicated things to a formula, for example, expressed with just a few hand strokes. That’s math. The beauty of mathematics is seeing the patterns, seeing how to make sense out of this. 

On the music side, it’s being able to improvise. 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. That ability to go with the flow in music, you need to have that in business, Shane. 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 change.

You get opportunities that you hadn’t even thought of at the beginning. You need to improvise; you need to capitalize on them and to make money from them. And if your thinking is rigid, if you’re not a musical businessperson, 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. I bought, in 2015, a less-than-truckload trucking company called Con-way. It was based in Ann Arbor, Michigan. The deal was a few billion dollars. And 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 a business as you’re going to get, with fixed costs and depreciation and amortization. It was not an asset-light brokerage business, which is how I started XPO, as an asset-light, 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. I love org charts. I just love to geek out on org charts. An org chart should be pretty. Org charts 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 abstract art on a canvas. This was a bad org chart. This had three different HRs and three different IT organizations and a lot of duplications, and it just didn’t make any sense. There were a lot of silos, and the chart was 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, that generate revenue, that get close to the customer, that generate sales. 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, booyah, there’s your money. There’s your opportunity to make a lot of money, and that was it. I got so excited about the opportunity to take this company—and I saw a way we could significantly grow the profit margin and the cash flow—that I pivoted. I pivoted and went ahead and did 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 Eli Gross, who now runs investment banking for Morgan Stanley. At the time, he was covering me at XBO as a transportation banker. And he said, “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 numbers, over time you’re going to be a hero here.” 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 we really 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 $5 billion 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 Con-way was the gift that kept giving. It’s been an amazing, amazing ride. And the returns, it’s been something like a 20 bagger, 15 bagger [meaning the value increased by 20 or 15 times the investment]. It’s been a huge, huge return on invested capital. And had I not been trained as a musician and a mathematician, I don’t know that I would’ve seen it, Shane. I don’t know if, without the mathematical skills, I would’ve been able to see, “Okay, this is a mess, but we can make it clean.” I don’t know if I would’ve been able to have the courage to improvise and to change from what the script was for something that I had a high conviction would be very lucrative for our shareholders.

And in business, the bottom line, the report card, is How much money did you generate for your shareholders? 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 responsibility, where you’re taking other people’s money—debt and equity, and particularly the equity—and you’re the custodian of that. 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 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 largely explain, at least as far as I can understand, why my companies have created so much alpha.

Shane Parrish: 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 that bad ideas can easily hide in complexity, but they can’t hide in simplicity. What’s your reaction to that?

Brad Jacobs: I need to digest it. My immediate reaction is, yeah, I think I get that. So I’ll go back to that organization chart that I saw at Con-way. It was just a mess. It was all over the place—triple dotted lines and squiggly lines. In that, you could hide inefficiencies, as opposed to when it’s a clean organization chart, and everyone’s got clear KPIs, key performance indicators. Everyone has clear metrics. Everyone has clear goals, and the compensation is tied to them, and people are rewarded for achieving those goals. Yeah, it’s hard to hide.

Shane Parrish: The other thing that I thought was really interesting is that 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 taking advantage of whatever the world brings, but if you take on too much debt 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 and that wasn’t available when you took on all the debt. How do you think about that?

Brad Jacobs: I don’t think it’s an optimal balance sheet if you have no debt, because you can prove the returns by shrinking your share account, because you have fewer shares, so the same amount of returns is greater per share because you have fewer returns. So 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 and Ukraine, in Taiwan. United States politics is very volatile.

There are a lot of things that could go wrong real quick, and a shock to the system would hurt companies that have too much debt because business would slow down. Look at 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, and you could have gone bankrupt. Companies don’t go bankrupt unless they 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.

I think 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, “Oh, let’s have one or two turns of that.” So if our EBITDA ends up being, for instance, in a period of time, a billion dollars, well, let’s have $1 or $2 billion of debt, and that’s a comfortable amount. Not too much more than that.

Now for short periods of time, you could lever up. Like when I bought Con-way, we levered up to about four times, a little more than four times, but we very quickly sold off 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 in one of two ways: by improving your profits (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.

Shane Parrish: 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?

Brad Jacobs: 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 and 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. 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 seeing. Something’s out of favor, but the market doesn’t understand something about a company. Maybe a company’s not studied enough; it’s not covered enough. Maybe management’s not good at communicating their story and the price is dislocated, and you can get a real good value by buying those shares and then being patient, playing out the cycle and making 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 them when they were really, really high. I think that contrarian value approach to investing, to business, is profound. I think that’s important. 

I remember when I sold my first company, Amerex, my old brokerage company. We’d started a company in 1979, as a bunch of broke, scrappy kids, and were in the right place at the right time. The Iranian government revolution took place and the Shah got kicked out, and Khomeini came in and they took 400 hostages, and the oil prices went way, way, way up. It was a sad time for the world—a lot of chaos and problems—but it was a really good time to get in the oil business because it 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 companies that became our big customers over time. And we built that business up over four quick years to a little under 5 billion in brokerage volume. That was a really big, 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 was ambitious. I was single and I didn’t have kids. I could take risks. I could afford to do that. And I remember speaking with my Uncle Howard, may he rest in peace. He’s long, long passed away.

My Uncle Howard was born in the 1920s, maybe even late 19-teens, and grew up during the Depression and World War II. Those were very tough times, so he grew up in a time when there was a lot of emphasis on 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 kiddie 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 10 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 of credit, and I’m going to actually buy and sell as opposed to just broker.”

He said, “Oh, Brad, don’t do that. Don’t do that. You should maybe take a small percentage 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 and I didn’t go with what he said. I did exactly the opposite. I took a completely contrarian position, where I took $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 Paribas—now it’s BNP Paribas; back then it was Paribas—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 prefinanced deals, doing barter, doing processing deals. They were very complex, going back to the math. Very, very complex, but organized. I knew what I was doing. And sometimes people would look at it and say, “Wow, there are 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 are 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 a contrarian position and having the courage or the guts or the strength to believe in what I wanted to do—having a thought and 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 ourselves and shareholders.

Shane Parrish: Where did that confidence come from?

Brad Jacobs: I don’t know. Probably confidence comes at a young age, I would think. So when you ask a question like that, you normally you start thinking about, What did your mother say? What did your father say?

Shane Parrish: Yeah.

Brad Jacobs: So if I had to think about what my mother said, what my father said that was very transformational, the first things that would pop in my mind are with my dad, who I loved and had a lot of respect for. He was a great dad and a very honest person, and he was very dedicated and a good provider for the family. But he was very blunt in what he said. He wasn’t very diplomatic. He just said what he really thought.

And I remember one time, we had been doing an errand and were driving home, and he was in the driver’s seat and I was in the passenger seat and we were at a stoplight. And my father turned to me, and he was a big guy with a low voice and big laugh, and he said, “Bradley.” My mom and dad were the only people who’ve ever called me Bradley. Anyone who knows me calls me Brad. 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. Ha ha ha ha.” He laughed real, real loud.

And that moment was a deep moment for me because on the one hand, I was crushed. I was like 13 years old. You don’t know whether you’re good-looking or ugly when you’re 13 years old. 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, “I may not be such a good-looking guy.” Okay, but you have leadership skills. You have personality; you have charisma. 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 of the student council. You’re able to be a leader and accomplish things and get stuff done and form teams. So I think in a very paradoxical kind of way, my father insulting me on that gave me confidence. So maybe that helped give me confidence because that’s an experience that I’ve relived many times over, because it’s a big deal what your father thinks of you and 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 or 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 approved of, 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 of weeks. And I don’t know if you’ve been around people who’ve died, but they’re sort of dying, and then suddenly they wake up and start talking to you like no problem, and then they lie down again and 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 they’re breathing funny when they’re dying. It’s a really strange way of breathing. It’s not a normal way of breathing—irregular breathing, and then not breathing for periods of time—so it’s a very bizarre experience, death. And we didn’t quite know whether this was it. We’re never going to talk again. She’s done. And she suddenly 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 lay 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. 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. Of all the 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. 

So what did I learn from that? I learned that the relationship with a parent—in this case, my mom and me, and the other example of my dad and me—is 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 fake it and if you don’t like someone or you disagree with somebody, say, “Oh yeah, aren’t you great?” Because people are smart. People realize when you’re BS-ing them, and they know when it’s real, too.

So what I’ve learned is that you’ve got to rearrange your brain, your way of thinking, so that you are positive about people, because 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 second. Don’t do that first. First thing is, be like my mom and say, “I’m just so happy how well you all turned out.” Say that first.

When I do performance appraisals for my direct subordinates, my direct reports, I always start out with the positive stuff. I don’t start right off with, “Okay, here are 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 XYZ. 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. You’re better off not say anything than giving phony compliments.

But I try to rearrange my brain so I appreciate a person and say, Well, why did I hire this person in the first place? What did I love in this person? What did I admire? What did I respect? What really 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 compliments that are just like general compliments, but very specific, concrete compliments of “You did this, this, and this. Kudos, tip of the hat. Good job on that.” It goes back to the psychology of validate, then dispute. Join, then lead. I apply that to business.

I do that with customers. In the world of business, we’ve had millions and millions and millions of customers. They’re not always happy because no service provider’s perfect. Once in a while, you mess stuff up and you have a difficult conversation with the customer. Maybe they’re not trained in rearranging their 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 you’re damaging that, or your invoicing is messed up,” or whatever it is.

And what I learned from all that, to answer your question, is that I’ve got to empathize with that. I have to put my mind in their mind. I’ve got to put myself in their shoes. 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 an annoyance or just made it difficult, chewed up their time and made them frustrated or 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 understood them and what they’ve said, and I’ve also felt the emotion that they’re feeling, and I get that, and I have an action plan to solve it. There is a sequence to all that.

Shane Parrish: I like your human-centric approach to this. There are a lot of people who 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?

Brad Jacobs: 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, 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. It’s definitely a plus, not a negative. But also three things that we could have done better or we will do better going forward, things that we didn’t quite achieve that we hoped to achieve. So it’s a balance. It’s three good things, three bad things. But when I run meetings, I like to make it like an Oreo cookie. I like to talk about the good stuff, [discuss] 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 maybe we’ve had a tough meeting, where we’ve 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.” Those are tough conversations that you have to have, but I don’t like to end on that.

I like to end on exercises along the lines of having everyone in the room. Okay, now we’ve done all the tough stuff. We’ve worked hard on the business. Okay, now let’s put that aside. Take a breath. Now I’ll ask each person. I’ll go around the room. Suppose I have a dozen people in a meeting, and I’ll say, “We’ve just been meeting for two hours. We’ve been working hard. We identified some really important problems we need to solve, and 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 job. We went through a good, rigorous process and you worked hard. And 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, whose star went up and why? Who said something where you maybe already held them in high esteem, but you hold them in even higher esteem now as a result of their thinking process, or maybe the elegance and grace with which they expressed a difficult subject, or the way they tackled something in an innovative way, someone who contributed to the magic of creating alpha, of creating money for our shareholders? They handled a conflict in a way that was nice, that was kindhearted, that was not mean-spirited. Tell me about 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.

Sometimes we have 10-hour meetings or sometimes even 12-hour meetings. We have people coming in from around the world and we’re doing a quarterly operating review. 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 7:00 in the morning to 7:00 at night, for example, with just a few quick 10- or 15-minute breaks. 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. I want everyone to look at each person and I want them to do two things. 

First, I want them to 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 the team with us” or “This person has XYZ qualities that are so noble, so fantastic.” 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, but 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 [revenue] generation that they’re going to do.” 

And I find that with this two-handed experience of the gratitude that comes from honest praise of each person and then the well-wishing to each person, everyone goes away from the meeting just figuratively flying on air. People go away with a really good feeling.

And feelings count in business. You want the love vibe. You don’t want the hate vibe. You want the 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.

Shane Parrish: 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’d known sooner?

Brad Jacobs: It’s interesting. You throw me off a little bit with the question because I don’t define myself in terms of how much money I’ve made. That’s not the big deal for me. 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?

I’ll give you a perfect example. 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—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 at the end of the call, I just gave them an update of what I’m working on. I thanked them, not for the $100 million, because I didn’t need the $100 million. I could have put another $100 million of mine in. But I thanked 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 liking 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.

Shane Parrish: 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.

Brad Jacobs: M&A has been a big part of my business career, though 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. It was all 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. And 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; we’ve taken business away from our competitors who aren’t managed as well. But when you look at the numbers, the real growth has been through M&A, through acquisitions.

What have been my secrets on acquisitions? The gist is you first have to select an industry. You can’t just do M&A. So I spent the last year studying dozens of industries, looking at hundreds and hundreds of acquisition opportunities, mostly with Goldman Sachs, Morgan Stanley, and 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 there economies of scale? Do you have a competitive advantage by being bigger? Is there a way to apply technology—because my companies have always been tech forward—to the industry, because the industry is a little sleepy on technology? Is 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 that we’ve been talking about during this interview—is that something that’ll work 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 the name of my company is going to be QXO. And M&A will be a big, big component of what we do. There are $800 billion worth 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 $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 are 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 in this industry, there’s a clear path of how I can do that. And there are roughly about 7,000 distributors here in the United States. There’s almost twice that amount in Western Europe. So there are 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 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 lever, the biggest component, is the differential between what I raised capital at—due to my relationships with mostly institutional investors, 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 are many, many levers, but those are the two biggest levers.

So 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 that I believe that I’ll be able to buy companies at lower multiples of their profit than I’ll be able to raise capital at. And that spread, that difference, that delta is going to create value, boom, just right away, right from the first day.

Now integration; you asked about integration. Integration is extremely important. Anybody can buy a company. It’s not that hard. 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’ve selected the right companies within that industry to buy, after you’ve had discipline so that you pay the right price for all those, then you have to integrate them.

I’ve never run companies that have hundreds of different companies all running separately with different names and different SIF systems and different back offices. And there is some level of decentralization where you need to be closer to the customer. But I have a very strong appetite for standardization, like 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 then 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 very standardized HRIS, human resources systems. 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 401(k); it’s the same exact way of doing it. All the benefits are the same. All the performance appraisals are the same. Compensation I can see 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 the synergies would be. So I need standardized HR technology throughout everything.

I need a standardized CRM, customer relationship management system, like salesforce.com, or there are several others as well, 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 in. So I need a standardized technology for customer relationships, for sales managers.

I need a standardized internal social media [platform]. 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. 

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, $10, $20 million in EBITDA each, and they just buy a 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 buys those companies, there’s a lot of work to be done. You’ve got to now standardize everything and integrate everything. It’s an opportunity to improve them, but also a lot of cost and time to fix all that stuff up. So from the moment that we agree to buy a company, we’re starting the integration process. And the day we close the acquisition, gazzah, we’re in there and we’re standardizing everything as much as we possibly can. And we’re communicating quite a bit.

A big part of the success for M&A is forming relationships 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 at the same time that we’re identifying the weak players and gracefully and generously exiting them. So there are a lot of different components to M&A. I’m summarizing a lot of different facts. 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 in my approach to M&A.

Shane Parrish: You have some unique questions when you interview 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?

Brad Jacobs: Yes. So some companies, when they’re negotiating to buy 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, 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. And so what I’m looking for in diligence is that 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 like to interview the top 15 or so people, one-on-one, for like an hour, hour and a half. And I like to ask them, “If this was your money, would you buy this company? What would you change? What would you do differently? Where’s the opportunity to do something differently?” And I 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 so successful that it’s attracted a big bidder like ourselves and that we’d be crazy to change?”

So I like to ask 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 way 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 are we not investing enough money into something that could be a good return on investment? On the other hand, where has the company been wasting money? Where has the money been going into things that doesn’t really help customers, doesn’t delight customers, doesn’t make customers happier, or doesn’t improve our customer business reviews, so why are we even doing it? I like to ask those questions.

Shane Parrish: 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.

Brad Jacobs: So many times in corporations, people don’t ask those questions, and I’m big on asking those questions. I’m big on surveying using town halls, one-on-one interviews, small group interviews, asking questions about, “How are we going to win? What are we doing wrong? What can we do better? What are we doing right that we should do more of?” And I find it very, very valuable. It yields a great return on time. And there are only two things a manager manages: return on capital and return on time. And I believe that asking the employees and getting them involved in the process is a great return on time and a great return on capital.

Shane Parrish: What’s the role of a board in a strong founder-led company like QXO? You’re investing $900 million of your own money. You’re the founder, the CEO, the largest shareholder. What role will that play? How does that change the role of a board, especially when it comes to M&A?

Brad Jacobs: I’ve been really fortunate to have fantastic boards, boards that are very strong, composed of people who are very competent, people who are 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 having to accompany them; none of that.

So I want board members to be very, very informed. I want board members to get copies of the customer surveys, the good and the bad. I want them to see that, and 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 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 for 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 monthly operating view, every quarterly operating view, of any part of the company that tickles their fancy. The more they’re involved, the better 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 meetings are very scripted, and sometimes they’re even rehearsed. And there’s a careful story that’s being told by management. And it’s done by PowerPoint and it’s done by rehearsed presentations, and they’re 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, through 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 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, some phony-baloney sales story about how great things are. I want to ask real questions, including the tough ones. And I want people to answer them honestly and spontaneously in the moment and completely.

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

Shane Parrish: But should it be focused on problems or what’s going well, or how do you think about that from a board level? And then I want to get more specifically into management meetings. But at the board level, how do you craft an agenda for that?

Brad Jacobs: 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 distribute it around to the whole board and say, “What do you think? How does this look? Anyone have any changes?”

People usually have changes. People say, “That’s great, but I’d also like to have a section on HR.” Just even yesterday, we were preparing for a board meeting, and one of my vice chairs said, “That’s good, but I want to have a section on human capital management, people management.” So we rearranged things and we’re bringing in some HR folks. 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 then that’s my agenda. I am never going to be smarter than the sum of all the directors. That’s never going to happen, mathematically.

Shane Parrish: Or you have the wrong directors, right?

Brad Jacobs: Very much so. And I like directors who are smart and who are engaged and really want to improve the company. They want to play their role. They take their fiduciary duty very carefully. They have a strong duty of loyalty. They have a strong duty of care.

Shane Parrish: When you think about decision-making, how often are decisions made by committees in the companies you run versus made by individuals?

Brad Jacobs: Well, I hate the word “committee.” Period. Committee is just a bureaucratic, red-tape, slow, low-energy kind of word. I just can’t stand the word, so I try not to call things committees.

However, there are some times 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. There might be a task that we have that has a financial element, so you need someone from finance accounting. That certainly has an operational element to it; you need an ops person there. But it also may have a big people element, so I need an HR person there. If it’s a big decision, with big impact, then I’m going to have C-level: the COO, the CFO, the CHRO. That’s a big decision. I’m not going to waste those very important people’s time with small decisions.

FP&A, financial planning and analysis, plays a big role in my company, more than in most companies. The FP&A people are the ones who are listening to all these ideas during a meeting and turning them into numbers. They’re turning them into forecasts; they’re turning them into projections. They’re turning them into probabilities. They’re turning them into, “Look, we have 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 a 10%, 20% chance of happening. But it’s not a 0%, it’s a 10% or 20%. 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% credit, maybe even 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 FP&A people are really good at figuring out who’s sandbagging and who’s exaggerating. What I mean by that is, you have some managers who just—due to their personalities or for whatever reason, or maybe they’re playing games with their bonuses—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 3% to 5% pretty much every year. So they’re going to discount them based on the past, predicting their future likelihood of succeeding.

So the FP&A people play a big, big role in that, in figuring out what is the highest, lowest, and likeliest outcome for all these different endeavors that we’ve got, and they’re also playing a big role for allocating capital. We talked before about the two big things that senior executives do. One is decide what kinds 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 are the highest and best uses of that capital. And [second,] 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 and is not going to create massive value for our shareholders, which is what our mission is?

The FP&A people help with understanding that and putting it into numbers. Because sometimes you can get very inspired and motivated, and a really creative, fantastic, inspiring project comes up. But when you analyze the numbers, eh, 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 we are spending as an organization on what kinds of projects. You find that a lot of times, in corporate America, somehow or another 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. They’re the scorekeepers to keep everyone honest about how we’re investing capital. How are the returns on that capital versus what we expected it to be or planned on? How are we 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.

Shane Parrish: And they report to the CFO. Is that the structure internally?

Brad Jacobs: FP&A has two lines. One is to the CFO, and they have a dotted line to operations and to me. So I rely on my FP&A person every day 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 the 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 margins are going to be, what your return on capital is going to be, and how much your free cash flow is going to be.

And now you’ve got a promise out there. You’ve got guidance; you’ve got a forecast. And you’re working really hard to achieve that. I need to know, and FP&A is the best place to know that, How are we tracking against that? And if we’re tracking higher than that, and significantly higher than that, there’s a big deviation from that, well, we’ll talk to Legal and we’ll talk to IR, investor relations. And we’ll say, “Should we update the investment community ahead of the quarter, ahead of when we’d normally produce our results?”

And equally importantly, maybe even 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. But on these one or two, no, no, no, they’re 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.

Shane Parrish: 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?

Brad Jacobs: 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, endowments, a lot of different people whose money we’ve taken and given them back a lot more money than they gave us.

In order to do that, you’ve got to meet your promises. 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 it… Well, we’ve maybe refinanced debt to take advantage of changing interest rates or something like that. But in terms of raising equity, sometimes we’ve done some acquisitions. 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. But even though we weren’t raising equity, even though we were not going back to the capital markets, Shane, we still paid extremely rigorous attention to [the question], 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 produced in operating results. It’s also [measured] in terms 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 and a sense of “I need to do this. These are our promises.” Promises made, promises kept.

Shane Parrish: When people tell you they’re not motivated by money, you get suspicious. Why?

Brad Jacobs: 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. They’re just not into money. I mean, they’re not into money. They don’t think about it. 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 in 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 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 they can make somewhere else.

I’ve had people on the senior level make many, many people become millionaires, multimillionaires. 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 an outgrowth of success because 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 the S&P 500, and what percentile are we? If we’re less than the 55th percentile, I’m not so sure that equity should vest. I could argue that if we’re only middling in the results we’re giving, that’s not why people invested in us. Sovereign wealth funds or pensions, these big investors, have given us money because they expect us to produce 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%, it vests some. If it’s 75%, it vests more. If it’s 85%, 90%, 95%, I want it to double vest. I want them to make twice as much as they would otherwise. So I want their interests aligned with the shareholders’ interests. I want it to be so that the shareholders are saying, “Wow, I really hope the 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. 

One thing I liked about Goldman Sachs’ compensation program that I took from them, years and years ago when they were a partnership, back when they were a private partnership, was that a significant percentage of their compensation 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 super-organism.

So if we can have people on the frontline and the mid-level management be rewarded financially—because that’s the biggest reward; it’s not the only reward—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 goes 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 president’s clubs and employee of the month, all those kind of things where people feel good about themselves because they’re recognized for going above and beyond. But if I had to pick just one or two, the feel-good stuff or the money, I’m going with the money.

Shane Parrish: I like how everything’s tied to win-win. Everybody wins. Right? It’s not one of those places where you can get outsized compensation even if our shareholders lose.

Brad Jacobs: That’s a terrible thing. It’s an unfair thing. That should never happen. You should have a complete alignment between how shareholders do with their investment in the company and how the employees do. 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 they’re doing is investing 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 for those decisions and 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 employees should make a fortune. Neither one should make a lot of money at the expense of the other. That’s not fair. That’s not right.

Shane Parrish: What CEOs do you think are underappreciated capital allocators?

Brad Jacobs: When I look at the companies that have taken small amounts of money and turned it into huge amounts of money, immediately I’m thinking of Mike Moritz 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 at Sequoia 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 Waste Systems way back in 1989, 1990—he’s the genius of taking small amounts of money and turning them into huge amounts of money. That’s good capital allocation. That’s really, really intelligent capital allocation. I think of a Mike Moritz for something like that.

I think in the industrial sector, there are also people who have gone through the same kinds of processes I’ve gone through and been disciplined at how they allocate capital and achieved high ROIC (return on invested capital) as a result of that. You think of the academy-level CEOs over the years. Dave Cote, for example, was at Honeywell for years. He was very, very rigorous at this. He was very mathematical, very dispassionate, very intelligent about asking, “Okay, guys, this is how much money we’ve got; where are we going to get the biggest returns?” and allocating it very, very carefully. So those are the people who come to mind off the top of my head.

Shane Parrish: Talk to me about the relationship between quality and speed.

Brad Jacobs: You need both. So you see companies sometimes be really good on quality, but oh my God, they take forever. So they’re really not achieving what you’re trying to achieve. You see other companies that move super-fast, but it’s at the sacrifice of QA/QC, of quality assurance, quality control.

The real golden mean is, How do you move 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.

Shane Parrish: What’s the biggest lesson you’ve learned from the past year?

Brad Jacobs: So you could pick any timeframe, whether it’s the 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 and 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, I’m working with a team now at my new company that’s largely the same; they were on my teams before. They were either at XPO or one of the XO’s. And what I 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. 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 usually brought some people from company to company. The initial founding management for QXO were all XO people. And one thing I’ve taken away from that is, I really love these people. These are people that I really just respect and admire. I’m just so thankful that I get to work with them. 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 it’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 a twofer on this. What’s my biggest takeaway on technology in the last 12 months? On technology, I went through this process of studying dozens of industries. And I went through the checklist, and one of the things on the checklist was, 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 products distribution, where I can do that. I found an industry that’s got 20,000 companies, and there are 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. I think there are half a dozen or so companies, the biggest ones, that are… oh, a couple of medium-sized companies, too, but mostly the biggest ones, that are approaching technology in the same spirit with which 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 99% of all the other companies, they’re where other industries were 20 years ago. Now I like that, Shane. I like going into an industry where I’ve got something I can bring to the industry that’s going to help, and I can be transformational. I can be a catalyst to improve the quality of the industry.

Shane Parrish: We always end with the same question. What is success for you?

Brad Jacobs: 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 are 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. I have to do all the good stakeholder stuff. 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 the last couple hours, that all comes down to making money for shareholders. If you’re not making money for shareholders, it’s just talk. So for me, success is defined by, How is my stock price performance versus everybody else? So that’s clear for me.

Personally, it’s about my family; it’s about my friends. It’s about my relationships with them. 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 are 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.

Shane Parrish: That’s amazing. Thank you so much for your time today. This was a fascinating and wide-ranging conversation.

Brad Jacobs: I really appreciate the opportunity, Shane. Thank you.

The post The Mindset Behind Building a Great Little Business | Brad Jacobs appeared first on Farnam Street.

This episode isn’t just the story of Standard Oil. It’s about the principles that built one of history’s greatest business empires and what they can teach us today.  

Along the way, you’ll see the rise of Standard Oil, the public backlash that made Rockefeller America’s most hated businessman, the breakup of his company, and the philanthropic legacy that continues to shape the world today.

Available Now: Spotify | Apple Podcasts | YouTube

Transcript

Every year, on September the twenty-sixth, an old man flew a flag.

He put on his good clothes, played a round of golf, and received visitors at his estate. And if you asked him exactly what he was celebrating, his voice might even crack when he told you. 

September the twenty-sixth wasn’t his birthday. It wasn’t even his wedding anniversary.. September the twenty-sixth, was the day a merchant in Cleveland, Ohio back in 1855, looked down at a desperate sixteen-year-old in a dark suit who’d been pounding the pavement for weeks… and said to him “We’ll give you a chance.”

From then on, he called it “Job Day.” And he celebrated it every single year for the rest of his life.

That first job paid just fifty cents a day. A few days after he started, the boy walked into a shop and bought a small red notebook for ten cents. In it, he recorded every penny he earned…every penny he spent, and every penny he gave away. 

He called it Ledger A and would keep it in a safe-deposit box for the rest of his life, like it was a birth certificate… or a deed to something sacred. It was one of his most treasured possessions on earth. He would say that that’s where it all started: with a ten-cent notebook.

Decades later, when he was the richest man on the planet, he still called Cleveland home.

His mother was a Baptist: devout, unyielding, and iron-willed. She ran her household like a fortress to survive her husband’s long absences. She kept her own strict ledger, teaching her five children that every single dollar must be accounted for down to the last penny. 

His father was a travelling snake oil salesman who sometimes went under different aliases from town to town, selling fraudulent remedies to desperate people. At home, his philosophy of fatherhood, announced loud and proud was: “I cheat my boys every chance I get. I want to make ’em sharp.”

That was the home he grew up in. 

And somehow, out of that home, came the man who would one day control roughly nine out of every ten barrels of oil refined in the United States. A man who would be vilified as the most hated corporate monster in his country, only to become, just a few decades later, its most generous. 

A man whose company the Supreme Court would eventually take nine years to break apart, and who would get richer when they finally did.

At the peak of his power, his company employed tens of thousands of people. His net worth, adjusted for the size of the economy he operated in, has likely never been matched, before or since. He sat at a desk at 26 Broadway in Manhattan, and the men who came through his door knew he could end their business with a single word. Sometimes he did. 

This was the same man that got down on his knees every night and prayed. He taught Sunday school at the same church for decades. He tithed from his very first paycheck. When he was making a dollar a day, he was giving away pennies. When he was making more, he gave away more. A lot more. He built universities and medical laboratories with the same intensity that he built an industry. 

In his old age, he walked around with a pocket full of dimes and handed them out to everyone he met. Caddies. Porters. Waiters. Children on the street. “Here. A dime.” From the richest man in the world. Over the course of his life, he gave away something like thirty thousand dimes. People today still leave dimes on his grave.

Who was this man?

That’s what this episode is about. And I want to warn you, we are not going to answer that question with a simple, tidy, narrative, because he was not a simple man. 

He was the young clerk with a ten-cent notebook who, through focus and determination, became the most powerful private citizen the United States has ever produced. He was a man who loved Cleveland until the city turned on him, and yet, chose to be buried there anyways. And he was a man whose philanthropy has improved the quality of life of most people on the planet. 

He was born in 1839. He died in 1937. He lived almost a century, and now, nearly a hundred years  after his death, the question of who he really was is still very much open.

This is Outliers. I am your host Shane Parrish. And this is the story of John D. Rockefeller. 

You might think you know his story. But you don’t. 

Act 1

Cleveland, 1853

John D. Rockefeller’s family had been moving his entire childhood, drifting from town to town across New York before heading down into Ohio. It was an unstable existence of shifting addresses. Finally, in the fall of 1853, the fourteen-year-old boy arrived in downtown Cleveland. His father dropped him off at a boarding house near the Erie Street Baptist Church, opened a small back account for him, and left him to fend for himself and disappeared. 

Cleveland in the eighteen-fifties was a boomtown of twenty-five thousand people. Situated on the south side of Lake Erie, it sat at the perfect convergence of water and rail, making it an ideal base for commerce of all kinds. The city boasted three daily newspapers, a library association, and even a small university. But none of it could really disguise Cleveland for what it truly was: a young, muddy city just a single generation removed from the frontier, filled with people hustling in every direction at once.

And young John D., this quiet, serious, thin-lipped boy (every biography I could find mentions his thin lips), was on his own in the middle of it.

He didn’t fit in. At Central High School he was the country boy among the children of Cleveland’s wealthiest merchants and professionals. He hid his upbringing and avoided making close friends. One classmate later remembered him as the best debater in the whole class, but noted he spoke so quietly that most people didn’t even notice him. 

He didn’t play sports with the other boys, and instead kept score on the sidelines with a notched stick. If he noticed anyone in those years, it was a girl who would later be their class valedictorian, a composed, serious girl named Laura Spelman. We’ll come back to her.

The only place where the young Rockefeller truly fit was the Erie Street Baptist Church. Singing hymns beside the city’s working class, he found something his father had never provided: solid ground.

He was baptized there by immersion in 1854 and began attending services twice-a-day on Sundays and prayer meetings on Friday nights. 

That church was where his mother’s distinct habits found a home in his adult life.

“How well I remembered then, as I remember now,” he said once, “the words of my dear mother: ‘Willful waste makes woeful want.’”

That was one of his favorite sayings and he had gotten it directly from her. He got a lot from her.

The Discipline of Eliza

His mother, Eliza Davison Rockefeller, ran her household with the rigid efficiency of an army under siege. 

With her husband constantly on the road and with no indication of when, or if, he would return, she was left entirely alone to manage. She lived in houses she didn’t choose and in towns she didn’t pick, yet the heavy work of the homestead happened regardless. 

The meals were always on the table, the accounts stayed tight, and the clothes were meticulously mended.

Big Bill, his father, was the family’s sole, volatile source of income. When he vanished, the household finances were limited to whatever cash he had chosen to leave behind, which was often dangerously little. 

Eliza stretched every penny out of sheer necessity. In her household, careful money was not a personal preference; it was an absolute survival mechanism.

She was a devout Baptist who always tithed her household income, no matter how small, and expected her children to do the same. She kept her own ledger and she taught her children that every dollar was held in trust whether anyone was watching or not.

John D. would tell a story about her for the rest of his life. He told it to his children and to interviewers who asked. He wrote it in his memoir at age sixty-nine when he tried to explain to the world where he had come from.

His mother had started in on whipping him for something she assumed he had done but he swore up and down that he did not. He protested loudly as she started. When she kept on with the whipping despite his innocence, he asked her why? She said the line that her son would repeat with affection.

“Never mind. We have started in on this whipping, and it will do for the next time.”

It was, in his telling, the right way to raise a child. The infraction will be punished, this time or some other time. She had a system, and once in motion, she stuck to it.

There were five children in the chaotic Rockefeller household, but John D. absorbed these lessons earliest. As the eldest son, he spent his youth beside her running the farm. Along the way he picked up her mental habits the way a child naturally adopts an accent. 

From her he inherited an unbreakable internal discipline, an intense frugality, and unwavering conviction that a promise was an ironclad debt.  What she gave him most was a psychological frame: A way to see the world, with your daily work to be done front and center. 

She taught him how to view a dollar through the lens of stewardship, and how a promise was supposed to weigh on a man once it was made. 

She left him one phrase above all, and he carried it into every negotiation of his later life. “We will let it simmer,” she would routinely say. It was her standing counsel against deciding anything in haste. John D. Rockefeller would use those exact words to outmaneuver and out-wait Wall Street tycoons and independent refiners for the next 70 years. 

Devil Bill: The Architecture of Distrust

Before he was anyone’s father, Big Bill was a traveling con-artist, and one of his favorite routines was to work a town as a deaf-mute peddler. He hung a small slate around his neck with “I am deaf and dumb” chalked across it, and with it he went door to door selling cheap trinkets, scribbling his half of every conversation. 

People spoke freely in front of a man they thought couldn’t hear. He later boasted that the act let him flush out every secret in a town.

It was while running some version of this con, a long way from anyone who knew him, that he first turned up at the farmhouse of a prosperous Baptist named John Davison. Davison had a daughter named Eliza who was devout, sheltered, and altogether unprepared for a man like Big Bill. She was taken with him before she ever learned the truth. “I’d marry that man,” she said out loud, “if he were not deaf and dumb.”

He could hear her perfectly well. Eliza’s father saw straight through the act and tried to wave his daughter off the match. But, she married him anyway, in 1837. And in the towns they passed through after that, people came up with their own name for the charming stranger she’d chosen. 

They’d call him Devil Bill.

After marriage and the children came, Big Bill Rockefeller continued to be a snake-oil salesman, peddling fraudulent miracle cures to the vulnerable and hopeful. He would be gone from the family for long stretches without much accounting for it. What he did on those trips was not always what he told his family. 

When home, he came to his sons with lessons and platitudes of his own. He told them to keep clear of crowds. He told them to tend to their own business. He drilled them on the sanctity of a contract. And more than anything else, he taught them to be, in his words “sharp.”

“I cheat my boys every chance I get,” he said once to a neighbor. “I want to make ’em sharp. I trade with the boys and I just beat them to be sharp traders.”

He taught his sons by example. He loaned them money at the going rate of interest, showing them that they could do it too. But then, after they absorbed that lesson and tried it out for themselves, he’d go one step further and call in his loans to them suddenly, when they least expected it, just to see how they’d react. 

He treated parenting as a series of small unannounced examinations.

He taught distrust as a physical lesson, too. When John D. was small, the story went, Big Bill would stand him on a high chair and hold out his arms, coaxing the boy to jump. John D. would jump and Big Bill would catch him. But then, one day, when John D. was a little older, Big Bill let his arms drop and let his son crash to the floor. “Remember,” he told him, “never trust anyone completely. Not even me.”

In old age, John D. had this to say about his father.

“I confess that this little discipline should have done me good, and perhaps it did. But I was not particularly pleased with his application of tests.”

By the age of eight, John D. could milk a cow and drive a horse and buggy on his own. Before he was a teenager, he had saved enough money to buy candy by the pound and then sell it piece by piece to his siblings at a marked-up price… keeping his profits in a little box on the mantel. “It was safe there,” he said. He added, with some pride, that he “had loaned out money and got interest on it before I was fourteen years old. And I knew well how to make out a note. My father taught me these things.”

These lessons culminated in the first little red notebook for John D. which he remembered fondly, writing: “From early boyhood I kept a little book which I remember I called Ledger A, containing my receipts and expenditures as well as an account of the small sums that I was taught to give away regularly.”

The entire architecture of his life sits within that single sentence: recording the receipts, balancing the expenditures, and, on the exact same page, accounting for the sums he gave away.

He learned the earning of money from his father and the giving of it from his mother, and before he was an adult he had both running on the same page.

The Only Place he Belonged

Back in Cleveland, those two inheritances were about to collide.

The Erie Street Baptist congregation where young John D. felt most at home was small. Its members were not wealthy, each giving only what they could. But the church building carried a mortgage of two thousand dollars for which John D. discovered they had no realistic plan for paying off. When the note came due and the church could not pay, the individual that held it began to prepare for foreclosure. The minister sadly told his congregation that the doors would soon close if the mortgage was not paid.

So the congregation began to scrape. They took up pledges and counted what they thought they could give but it was soon clear it wouldn’t be enough. The problem was that many of the pledges that had been made were not, in the end, being paid.

What the church needed was someone who would stand at the door after the service ended and not let anyone forget what they had promised to give.

John D. stepped up to the task. He was still a teenager but he took to the work as if the building belonged to him.

He stationed himself at the church door and spoke to each member as they went out, asking for pledges from each and every one. Then he wrote each pledge down in a book of his own. He told the people who had pledged that he would be back next Sunday to ask after it, and the next Sunday of course there he was for both services. He chased the small sums in nickels and dimes and quarters from people who had little to spare, and then he chased the larger ones at their places of business during the week. He did not stop for anything. He did not take no for an answer.

This campaign went on for weeks and as a result the full sum was raised, the mortgage got paid, and the church, the place John D. felt most comfortable, did not close. That same congregation would, in the prosperous years to come, follow Cleveland’s money eastward and be reborn as the Euclid Avenue Baptist Church, a new address for the same families and the same faith, and John D.’s spiritual home for the rest of his life.

In his memoir, decades later, he set down what that experience had done to him in one line.

“My first ambition to earn more money was aroused by this.”

He had contributed what little money he could and regretted he could not give more. 

Somewhere in those years, a minister handed him the sentence he would build his life on. “Get money; get it honestly,” the man preached, “and then give it wisely.” “I wrote that down in a little book,” John D. said.

A Bookkeeper’s Joy

When he finished at Central High School, he didn’t even bother to attend graduation or pick up his diploma. Instead, he paid forty dollars for a course at Folsom’s Commercial College. The course was mostly accounting and bookkeeping and he took to it like a fish to water. “It was fascinating,” he said later, “to know at all times the resources and the liabilities, to keep an exact record of just how a business stood.”

He completed the course in mid-summer of 1855. Soon after he turned sixteen. He started looking for work.

“I did not guess what it would be,” he reminisced about that summer’s plans to find work, “but I was after something big.”

What followed was six weeks of pounding the pavement. He took down a copy of the Cleveland city directory and made a list of every firm in town he felt was worth approaching. Then he put on his best clothes and after breakfast each morning, started walking.

He had no letters of introduction and did not know a single person of consequence in the city. He walked into banks and railroad offices and commission houses and shipping firms. And at each one, he asked to see whoever was in charge. He stayed at it until the offices closed for the day. He did this six days a week that summer.

When he reached the bottom of his list and still had no job, he went back to the top and worked his way down it a second time.

He could have landed a clerkship or a messenger position. Other young boys did. But he would not lower his standards. He had told himself that the right beginning mattered more than an easy one, and he was not going to give up just because he was tired. “I was not discouraged,” he later said. 

He refused to count those weeks as idle. “I was working every day at my business,” he said — “the business of looking for work. I put in my full time at this every day.”

But the strain must have begun to show, because at some point in those weeks his father offered him a way out. “It’s all right, John. You go out to the country, and I’ll take care of you.” The thought of staying dependent on his father, John D. later said, sent “a cold chill” down his spine. He continued his search.

On September 26, 1855, he stopped again at a commission house called Hewitt & Tuttle. The junior partner, Henry Tuttle, interviewed him.

“Come back after dinner,” Tuttle said after speaking with him. “We may have a chance for you then.”

John D. composed himself and left the office, walking until he was out of sight of the windows. Then, with no one watching, he began to skip with joy. Six weeks of serious composure had finally given out. He returned later and met the senior partner, Isaac Hewitt. Hewitt looked at a sample of his handwriting, which was of course excellent, and delivered the verdict: “We’ll give you a chance.”

In old age, John D. set the moment down in his own words.

“This was September 26, 1855. I joyfully went to work.”

The memory never lost its charge. Even as an old man, he would go quiet over it. “All my future seemed to hinge on that day,” he said, “and I often tremble when I ask myself the question: What if I had not got the job?”

For the rest of his life, every September twenty sixth, a flag flew over his house.

Job Day.

Delightful Work

The work itself was bookkeeping. And the stereotypical picture of the profession was a man in an eyeshade on a high stool, hunched over a ledger, doing tedious work. John D. didn’t argue with the picture. But he did argue with the idea that the work was tedious. He called the work simply “delightful.” It wasn’t a job, it was a “position.” 

More than that, he called it a “gentleman’s position.”

In a small firm like Hewitt & Tuttle, the title of bookkeeper was misleading. He was soon doing a lot more than just posting the books.

A commission house bought and sold goods on commission: Grain, Beef, Granite, Pork. It didn’t matter, whatever was moving through the Great Lakes that month was on their table. And the business was made possible mostly by two specific tools, the railroad and the telegraph. The telegraph gave the merchant news of price changes in distant markets. And the railroad let them chase those prices before the swing closed.

Hewitt & Tuttle was small enough that John D., now seventeen years old, could touch and understand all of it. Within a year, his boss Tuttle left the business, so John D. started running the office and posting the books. Soon he was handling the cash, collecting debts, and even writing the checks. 

People along the waterfront started to call him “Mr. Rockefeller.” While just a clerk, he worked as though he owned the firm. 

“I scrutinized every bill,” he said later. “If it had ever so many items, I went over each one, verified it, and carefully added the totals. The bill had to be accurate in every detail before I okayed it to be paid.”

The reason he gave for the strictness was striking, coming from a teenager. He had trained himself to understand that his check on a bill was quote “the executive act which released my employer’s money from the till.”

The release of the funds was to him almost sacred. Every penny was to be watched, tracked, and accounted for. 

One day a schooner captain came in with a bill that did not match the cargo the man had unloaded. Rockefeller would not approve it.

“Now, look here, captain,” he told the man, “I can’t make out the bill for that amount. It just doesn’t tally with the actual cargo.”

“Come, come, young man. You make it out the way I say. Nobody’s ever going to know. Why, everybody allows a margin like that.”

“I am sorry to say no. But if the weight and price are a certain amount I must make my entries accordingly. If I’m going to do right by you, I can’t begin by doing wrong for somebody else, can I? If I did, you would soon be afraid that I would cheat you, too. Isn’t that so?”

“Nonsense, you’re too strict.” The captain exclaimed.

That strictness held to the end of his life. 

Decades later, as an old man with a yearly income well past three million dollars or more than fifty million dollars today, Rockefeller caught an error of ten dollars and eight cents in a railroad’s payment to him. He had his secretary write a letter asking for the missing payment. A week later, he turned up an error in the opposite direction, where a payee had short-changed himself by eight dollars. He sent the eight dollars back right away.

Everything had to balance in the ledger; nothing more, nothing less. 

There’s a story he told about those years behind the ledger that explains something about all the years that came after. 

One day his employer took in a banknote for four thousand dollars. An unimaginable sum to a young man earning fifty cents a day. He showed it to him, and then locked it in the safe. The moment the man left the office, Rockefeller opened the safe back up. He lifted the note out and just stared at it, he said, “with open eyes and mouth,” then locked it away again. He couldn’t leave it alone. “Many times during the day,” he remembered, “did I open that safe to gaze longingly at the note.”

Around the same time, he got hold of a book, the published diary of a New England merchant named Amos Lawrence, who had given away more than a hundred thousand dollars in his life. John D. read it the way other boys read adventure stories. What stayed with him wasn’t the size of the fortune. It was the giving. “Crisp bills!” he said. “I could see and hear them. I made up my mind that, if I could manage it, some day I would give away crisp bills, too.”

He learned one lesson in particular at the commission that he tucked away for later, very quietly.

The official bill on a railroad shipment always showed a fixed rate, the same rate the railroad printed on the public schedule for everyone to see and what Rockefeller assumed at first, everyone would pay. 

But the right kind of shipper, after he had moved enough volume across enough months, could receive a rebate at the end of the month against that fixed, public rate. The size of that rebate, Rockefeller came to learn, could be substantial. 

The posted rate was the public rate. The real rate, the one that applied to the men whose volume the railroad needed, was agreed to behind closed doors.

In 1857 a sharp depression hit the country and nearly took Hewitt’s firm with it. The doors stayed open, but as Rockefeller would later put it, “they were bankrupt.” Hewitt was carrying on too many things at once, giving more time and attention to land deals and lawsuits than to the commission business that was supposed to be funding it all. 

Hewitt sent Rockefeller out to collect on their bad debts, and he learned to deal with each defaulter as if he were an opponent across a chessboard.

One of the names on his collection list was a man called Wheelan. When Rockefeller arrived, Wheelan opened with the line you always heard from someone who didn’t want to pay: “You come around next month.”

“That’s what you always say, Mr. Wheelan. I still insist that we settle today.”

“It won’t hurt Hewitt to wait a little longer.” was the man’s reply

“But you know very well Mr. Hewitt has been waiting a long time already. I simply can’t go back to him without the money.”

Worn down, Wheelan eventually pushed the money across the table and told Rockefeller he had never met such a pestering collector.

Rockefeller was just nineteen years old.

In the spring of 1859, Hewitt raised Rockefeller’s salary to seven hundred dollars a year. Rockefeller pressed for eight hundred. Hewitt said he would think about it. 

Time passed… And Hewitt did nothing…

So, without a fuss, Rockefeller resigned.

The next month, three months short of his twentieth birthday, he opened a commission house of his own. He partnered with a man he had known since the bookkeeping course, a twenty-eight-year-old Englishman named Maurice Clark. As the older man, they put Clark’s name first on the door, but they were equal partners. The firm became known as Clark & Rockefeller.

In its first year, they did nearly half a million dollars in revenue and netted $4,400. In the second year, $17,000.

Rockefeller was now twenty. He was thrilled to be his own boss.

“It was a great thing to be my own employer,” he remembered. “Mentally I swelled with pride — a partner in a firm with four thousand dollars in capital!” That first night, he went home, knelt on the floor, and asked God to bless the new firm.

The Greatest Borrower

A Clark & Rockefeller circular went out across the Midwestern states in their second year in business. It said the firm was “prepared to make liberal advances on consignments of produce, etc.”

The most important word in that line is “liberal.”

In the 1850s Midwest, farmers were desperate for cash. They only got paid when they harvested their crops which meant borrowing money the rest of the year. This is where commission houses came in, giving cash advances to farmers and taking delivery of product later on. 

But farming was a risky business and most firms only gave small advances. So, Clark & Rockefeller began offering larger advances, and earlier in the year than others. This set them apart. But to make those advances, the firm had to borrow heavily.

Rockefeller’s father, Big Bill, initially helped. But his purse didn’t even begin to meet his son’s growing needs.

And those needs were growing fast. The gap between what they had and what they needed was enormous. 

Every bushel of grain sitting in a warehouse waiting for a buyer, every shipment on a canal boat that hadn’t reached its destination, every advance they’d made to a farmer who hadn’t paid them back yet. All of it was capital tied up. And the faster the business worked, the more money it consumed.

“There seemed as though there was no end to the money needed,” Rockefeller said later. He did not say it with complaint. He had already figured out that if the return on borrowed money exceeded the cost of the loan, then the rational move was to borrow more. Interest was just the price of growth. And the more you grew, the more you could borrow again.

That logic would carry him a very long way.

So Rockefeller went to the banks.

He passed over the smaller banks and went straight to the most prominent banker in the city. A man named Truman P. Handy.

Handy was president of the Commercial Branch Bank and its principal stockholder. He had arrived in Cleveland from Buffalo in 1832 and in the decades since, had built himself up to be at the center of civic and cultural life. In Cleveland in those years, an endorsement from Truman P. Handy was a passport to borrowing from anyone.

Rockefeller knew this. That was why he picked him. If Handy said yes, every other door in the city would open.

He knocked on Handy’s office door one morning, sat down across from him, and laid out the particulars of his business in his usual simple and forthright way. Then he asked for a loan.

“How much do you want?” Handy asked.

“Two thousand dollars.”

“All right, Mr. Rockefeller. You can have it. Just give me your warehouse receipts. They’re good enough for me.”

Rockefeller never forgot how it felt. “Just think of it,” he said. “A bank had trusted me for two thousand dollars! I felt that I was now a man of importance in the community.”

It looked, from the outside, like the easiest thing in the world. A twenty-year-old walks into the office of the most important banker in Cleveland and walks out with two thousand dollars.

But Handy hadn’t made that decision on instinct alone, it was years in the making. 

Handy was active in the Young Men’s Christian Association. Recently, so had been John D. Rockefeller. And as a member of the Board of School Managers, Handy had taken to visiting nearby Central High School to observe the progress of its pupils. Rockefeller had been one of them just 4 years earlier. And for the past couple of years, Handy had watched the young man walk into his bank at regular intervals to make deposits into a savings account. Always small amounts, but put away steadily, month after month.

When Rockefeller sat down that morning and asked for a loan, Handy already knew who he was lending to. “In those days in Cleveland,” Rockefeller later observed, “everybody knew almost everybody else.”

After that morning, the doors of Cleveland’s banks were open to him. But not always as warmly as Handy’s. Rockefeller was younger than any of the men he was asking, and he asked with a directness that many found grating. He was often told no.

“What if the president of a bank refused to make me a loan?” he said later. “That was nothing. He might lecture me on the folly of making a loan for the purpose for which I was seeking it. That made no difference to me; simply meant that I must look elsewhere until I got what I wanted.”

Like many outliers, John D. refused to quit after someone said no. 

Next, he began pressing the railroads for more cars during peak shipping season to handle the growing amounts of inventory he was buying. They too, would often rebuff him. 

But Rockefeller kept pressing.

That was where the firm was at the end of August 1859. Rockefeller was still just twenty years old, but already you can start to see something is different about him.

Drake and the Oil Frenzy

That very same month, in a township in western Pennsylvania, a man named Edwin Drake struck oil.

Drake had been hired by a small group out of New Haven, Connecticut that suspected there were large amounts of crude petroleum in the rock under the Pennsylvania creeks. They wondered if drilling for it like they did for water might just work. It turned out, they were right.

Drake’s well, the first commercial oil well in the United States, hit at sixty-nine and a half feet underground. By the next morning, a barrel and a half of crude oil sat in a tub at the foot of the well.

That’s when the chaos started. 

In a short time, it seemed like every man with a horse and a shovel and a bit of money to risk became a wildcatter. Butchers became drillers. Bakers became drillers. Land that had been worth a dollar an acre was changing hands now at thousands. Wells were going in along the creeks faster than anyone could count them. Prices for crude spiked, then crashed, then spiked again. Fortunes were made and lost inside a week.

And John D. Rockefeller was watching from a desk in nearby Cleveland. He was twenty years old. He owned half a commission house that handled produce from one of the most productive farm regions in North America. He had a reputation along the waterfront for paying his bills. He had a banker who lent him money on a growing pile of warehouse receipts. And he had a partner who was beginning to grow nervous about that borrowing.

And he was watching an infant oil industry that had no idea where it was going or what was coming next… 

Act 2

The Refiner

Rockefeller observed the oil frenzy for three years and did not move. And because he watched, he saw the pattern. 

Drillers would punch holes in the ground and pray. When, or if they hit, they flooded the market and the price of crude oil collapsed. Many of the men who had borrowed to drill would then go broke. A few months later, the survivors and any newcomers started the cycle all over again.

But there was one part of the business that seemed different: refining. 

A refiner bought crude oil at the market price and turned it into kerosene, a product people needed to light their homes. When crude was cheap, the refiner’s margins got better. The refiner was a step removed from the chaos. They didn’t gamble on geology. They controlled the one step every barrel of oil had to pass through before it could become light, the step between sitting in the ground and burning in a lamp.

Rockefeller saw that step and chose it.

The man who helped convince him was named Samuel Andrews. Andrews was a chemist that Rockefeller had come to know from the Erie Street Baptist Church, the church he still attended and had been baptized at a decade earlier.

Andrews had learned to refine crude oil into kerosene better and cheaper than almost anyone else in Cleveland and he was convinced that this cheap kerosene would soon light the world.

Rockefeller heard him out.

The numbers were incredible. Crude averaged two dollars a barrel while refined kerosene sold for thirteen. And a refinery could be built for a thousand dollars and run with just a handful of men. He soon made his decision to enter.

In 1863, he and his partner Clark formed a new firm with a new name: Andrews, Clark & Company. Samuel Andrews would run the refinery and Rockefeller and Maurice Clark would handle the money. 24 year old Rockefeller referred to this oil refinery a side-hustle to their main commodity business. It would not remain this way.

They found a three-acre site in Cleveland along the river, right where the Atlantic & Great Western Railroad met the waterway. The rails could bring crude from the oil regions in Pennsylvania. And water or rail could bring the oil they refined to the eastern markets of New York. The location proved to be of critical importance because, they could play one transportation method against the other.

The refinery was called Excelsior Works. Andrews ran the equipment. Rockefeller would run everything else.

He threw himself into it, and his own family got a daily view of the obsession.

In the predawn dark, Samuel Andrews and a growing group of men would gather at the Rockefeller house and wait in the dining room while John ate his breakfast.

At night, Rockefeller would nudge his brother William awake in the room they shared and say, “I’ve been thinking out a plan to do so and so. Now, what do you think of this scheme?”

“Keep your ideas till morning,” William would groan at him. “I want to sleep.”

His schemes kept coming anyway.

The year was 1863 and all of this was happening during the middle of the Civil War. 

The war was terrible for the country but good for many of its businesses.

Union soldiers wrote letters home by the light of kerosene lamps. General Grant was drafting his dispatches by one in his tent. Demand for kerosene kept climbing even as prices swung wildly, and through all of it the drills in Pennsylvania rarely stopped. They paused exactly once, only when General Lee invaded the state and the oil men put down their tools briefly to help defend it.

The new firm made money in refining every single year of the war. This only seemed to accelerate Rockefeller’s appetite for growth. 

But Clark, his original partner, began to get cold feet. When Clark looked at the same numbers Rockefeller did, he only saw risk. And he wasn’t alone. Many people thought the Pennsylvania oil fields were a fluke. They would give out soon, they said, just like so many gold mines did out West.

It took two years, but the tension between Rockefeller and Clark finally came to a head.

“We have been asking too many loans in order to extend this oil business,” Clark told Rockefeller one morning. “Altogether we have borrowed a hundred thousand dollars.”

Rockefeller replied calmly, not for the first time, “We should borrow whenever we can safely extend the business by doing so.”

“If that’s the way you want to do business we’d better dissolve and let you run your own affairs to suit yourself.” Clark said, walking out. It was not the first time he said this, nor would be it be the last time. But Rockefeller had had enough of the disagreements.

The other partner, Samuel Andrews walked in. Rockefeller put it to him straight.

“Sam, we are prospering. We have a future before us, a big future… Will you come in with me?”

“Yes,” Andrews said.

Rockefeller calculated.

He had Andrews on his side. It was 1865 and the Civil War was now winding down. This would likely end the wartime buying that had been propping up their commodity business. But new oil wells were still coming in across Pennsylvania making the crude supply look safe for now. The demand for kerosene seemed insatiable…

Last, he checked his credit with the banks…

And then he baited Maurice Clark.

They met one evening in February. Maurice Clark, assuming Samuel Andrews was on his side, called for a dissolution of the business. Rockefeller agreed. Then, he ran a notice in the Cleveland press the next day announcing the news. By the time Clark learned Andrews was actually with Rockefeller, it was too late.

They agreed to auction the oil business between them.

The bidding opened at five hundred dollars. It climbed past ten thousand. Past fifty thousand dollars. Clark said seventy-two thousand.

Rockefeller countered again with no sign of stopping.

“The business is yours,” Clark told him.

Rockefeller was now twenty-five. He owned the majority of a refinery in a city he’d arrived in at the age fourteen with almost nothing. It was one of about thirty refineries in Cleveland.

Two months after the auction, Robert E. Lee surrendered, ending the civil war. On a spring morning that April, the funeral train carrying Abraham Lincoln’s body stopped in Cleveland, Ohio.

Then the country put down its grief and turned, with an almost guilty hunger, to the business of getting rich. One banker later said of the years that followed, “It was such a period as seldom occurs, and hardly ever more than once in anyone’s lifetime.” Returning soldiers wanted what the young businessmen at home had gotten. Everyone, it seemed, was chasing a fortune at once.

Cettie

Shortly before he took over the oil business from Maurice Clark, Rockefeller got married. Her name was Laura Celestia Spelman and she was a schoolteacher. He called her Cettie.

They had met years before as students at Cleveland’s Central High School, where Cettie was the valedictorian of their class. She stood out to Rockefeller then and later, when they met again while taking similar commercial courses. Upon their high school graduation, the title of her address to the class tells you most of what you need to know about her. “I Can Paddle My Own Canoe.”

She came from an abolitionist household and not the quiet kind. Her father had run a station on the Underground Railroad, hiding men and women fleeing north and helping them on towards Canada. And her mother gave herself over to the temperance cause, advocating for complete abstinence from alcohol. Theirs was a home where faith meant action. At twenty-two, Cettie was an assistant principal, real authority for a woman of her time.

Even though the Spelman family was a rung above the Rockefellers economically in Cleveland, they valued a young man with ambition and sound Christian character. 

And Cettie was, above all, practical. She saw something in Rockefeller earlier than almost anyone else. A friend of hers put it this way: “She saw that he was ambitious, and she thought that he was honest, which probably appealed to her more than anything else.”

She was short and slender, with a round face, dark brown eyes, and chestnut hair parted down the middle. Like Rockefeller she was soft in voice and manner. But that softness sat on top of something hard. Her own sister called her “gentle and lovely, but resolute with indomitable will.” She was never known to lose her temper, something she shared with the man she would marry. She’d be more than just a spouse, she would be a silent partner in everything he did.  

They were two quiet people, each with a core of iron. 

His courtship started in high school where he’d walk her home at the day’s end. When he started his own commodity house, he’d come by her house and describe his business to her and she’d listen with delight. He recorded everything in his ledger. The bouquets he bought her. The lectures they attended together. And in April 1864, he recorded a diamond ring. That fall they were married. Rockefeller was 25.

They were a perfect match of temperament. Both were convinced that life was for duty rather than enjoyment. In those first years of marriage, Rockefeller carried the company’s books home at night and went over the figures with Cettie at the table. She came to know the state of the business almost as well as his partners did. From the start, she studied his career and even began to coach it. 

Borrow and Build

With Maurice Clark gone, Rockefeller did exactly what his ex-partner had feared. He borrowed and he grew, plowing every dollar of profit back into Oil. The schemes he had once tested on a half-asleep William now had real money behind them.

Rockefeller wasn’t just borrowing to buy more crude oil. He was borrowing to save on costs, building a shop right next to the refinery to make their own barrels. Barrels were one of the biggest costs in the trade, with other refiners paying three dollars a barrel. Rockefeller was soon building his for a dollar fifty.

Then he hired a plumber by the month instead of calling one for each repair job. These were small things, but as they grew their business, they compounded.

The borrowing carried a private cost though that few ever knew about. Rockefeller often went to bed worrying about how he would ever repay the loans, then woke in the morning, refreshed by sleep, and determined to borrow even more.

It was in these years that he began a habit he would keep for the rest of his life. At night, head on his pillow, he would deliver little sermons to himself. The subject was usually the same: reminding himself to stay the course: “You’ve got a fair fortune. You have a good property—now. But suppose the oil fields gave out!”

At the office he never showed a flicker of doubt. But on the pillow, he would rehearse disaster nightly.

The best-known example of his cost obsession came a few years later, on a plant inspection. Rockefeller stopped at a line where men were sealing kerosene cans with solder, and he asked how many drops it took to seal one.

Forty, he was told.

“Have you ever tried thirty-eight?”

The men tried thirty-eight. A few cans leaked.

They tried thirty-nine. None leaked.

Thirty-nine drops became the standard across every plant the company owned. One drop of solder, multiplied across what was eventually millions of cans, easily saved hundreds of thousands of dollars.

His partner Andrews kept improving the refining process. And soon, they were squeezing more kerosene out of each barrel of crude than anyone in Cleveland. And then they started working out how to sell those byproducts that other refiners just threw away.

That instinct to use what everyone else threw away had always been a habit of Rockefeller’s. And it pulled the company toward something the old oilmen had distrusted: science. The first men in oil worked by smell and luck. Rockefeller hired chemists instead, and would, in time, put a working laboratory inside every refinery he built, and owned. The patient, measured application of science became an integral part of how they grew.

Within a year of the Clark auction, their profits funded a second refinery, which they simply called the Standard Works. Rockefeller’s brother William, was put in charge of it.

Rockefeller was twenty-six years old, running two refineries, and still hungry for capital. What he needed next was a partner with access to real money.

Flagler

Aside from his wife, Rockefeller was closest to his brother William and to one other man. Henry Flagler.

The two of them went back to the grain trade, before there was any oil between them. They’d met when Flagler shipped carloads of wheat through Rockefeller’s commission house. He’d gotten rich doing so and then moved into the salt trade and lost it all. He came back to Cleveland broke and looking for the next big thing. Oil looked to be that thing. He took an office in the same building as Rockefeller, and an old acquaintance soon turned into something closer.

Flagler was eight years older than Rockefeller and was everything Clark as a business partner had not been. He was as bold as he was impatient. He was a born dealmaker who could talk a railroad president into almost anything. His motto: “Do unto others as they would do unto you, and do it first.”

Flagler brought to the table a network of wealthy connections. And with their money he joined the firm which was now named Rockefeller, Andrews & Flagler. 

Overnight, they were able to outspend every other refiner in Cleveland.

Rockefeller and Flagler lived just a few doors apart from one another and began walking to work side by side each morning. Then home again for lunch, back to the office, and then home again at night. They did their thinking and planning on those walks. And by the time they reached the office, the thing was usually decided. One historian called it the partnership’s parliament-of-two.

At the office, their desks sat back-to-back. Letters would pass between them, again and again until the wording was exact. And Flagler, Rockefeller remembered, “drew practically all our contracts.”

Rockefeller was the systems man: bringing relentless cost discipline, patience mixed with a willingness to act, and a temperament to bring everyone in line. Flagler was, as Rockefeller remembers, “always on the active side of every question.” He fought the railroads constantly, and pushed always to build bigger and more permanent.

Flagler put it this way: “A friendship founded on business is a good deal better than a business founded on friendship.” That was their partnership in a nutshell.

With Flagler, they took one profitable oil refiner and rebuilt it as a business vehicle for swallowing up their Cleveland rivals. And later, once Flagler drew up the legal forms, and the incorporations that would allow them to become the Standard Oil Trust, they were able to reach across state lines and do the swallowing of other business entities whole.

Years later, when asked who designed the structure of early Standard Oil, Rockefeller did not hesitate. “No, sir. I wish I had the brains to think of it. It was Henry M. Flagler.”

Rockefeller was a Baptist down to the bone. Watchful and suspicious of anything that announced wealth too loudly. Flagler started out that way but drifted the other way, toward the bold and the expansive and finally the gilded. 

Standard Oil was an exhibit of both at once. Rockefeller’s economy of self-command, and Flagler’s hunger to build something grand and visible. Their friendship, Rockefeller said, ran a lifetime without a single interruption.

Late in life, Flagler ordered his Standard Oil correspondence burned. Almost everything he wrote in the company’s early years went up in smoke. What survives comes mostly from other men’s letters and from testimony he gave under oath. He was trying to disappear, and it worked. Ask anyone today who built Standard Oil, people will say Rockefeller. They should say Rockefeller and Flagler. The company could not have grown nearly as large without both of them.

The Flywheel

On paper, Cleveland didn’t look like the best place to refine oil. The raw crude oil came from Pennsylvania, a hundred miles to the southeast. A city like Pittsburgh made sense as it was closer to the oil. 

And then New York City was closer to the customers and the ships that could bring the refined product to the world. For these reasons, many thought Cleveland would have a short life as a refining town.

But what Cleveland had something important: water.

It sat on Lake Erie, with the Erie Canal feeding east and the Great Lakes opening west. And water freight was cheap. Far cheaper than rail. When the canal and the lake were open, Rockefeller could float his oil to market for something close to half what a railroad charged.

The railroads knew it. So, when they quoted Rockefeller a rate, they were really quoting against the water.

Rockefeller had first learned this at his first job at the commission house. Rockefeller played them both against each other. When the water was open, they shipped more by boat and let the railroads watch their traffic float away. When winter came and the canal iced over and the lake went to a gray slab, they moved everything onto rail, and the railroads, who had spent months hungry for traffic, were glad to have the business back. When one road dropped its rate, the firm shifted cars to it. When the other matched, they shifted again.

They built themselves a position where they could not be pinned down by anyone. A competing refiner in Pittsburgh on the other hand had only one option: the Pennsylvania Railroad. They had no other way to move their oil. So they paid whatever rate the railroad set. And they shipped only when the railroad said so.

Rockefeller never wanted to be at the mercy of others. He and his partners, sitting in Cleveland, in what was supposed to be the worst of the three refining locations, had the most options of anyone in the trade. And the more they grew, the more each carrier valued them as a customer, and the harder they competed to keep them.

Flagler turned that logistical advantage into a weaponized system. He used a piece of knowledge Rockefeller had learned from his teenage days at the commission house: that the posted railroad rates were a fiction. The real rate for shippers with enough volume was negotiated behind closed doors.

Flagler went to the railroads and negotiated rebates their smaller competitors couldn’t get. And the more Standard Oil shipped, the bigger that rebate grew. Which meant more reinvested into their business. Which meant lower costs, more capacity to refine. That made it easier to undercut competitors. Which brought in more customers. Which meant more volume. Which meant a bigger rebate the next time.

It was a flywheel. Once Flagler set it spinning, it was almost impossible for anyone outside it to compete. It might sound unfair, but it’s not. If I want to ship 1 case of soda from the east to the west coast, I am going to pay more per case than if I want to ship 10,000 cases.

The new balance of power showed in how Rockefeller carried himself.

In 1868 he was 29. In that year, the richest man in America was Cornelius Vanderbilt who was 74. He owned many of the railroads. One day Vanderbilt sent word that he wanted a meeting with this up-and-coming Cleveland refiner.

Rockefeller didn’t go.

He wrote his wife about it. “We were sent for by Mr. Vanderbilt yesterday, at twelve o’c & did not go. He is anxious to get our business… We sent our card by the messenger, that Vanderbilt might know where to find our office later.”

The emperor of the railroads could come to him.

Cooperation vs Competition.

By the late 1860s, Rockefeller, Andrews & Flagler were well on their way to becoming the largest oil refining operation in the world. It had happened in just a few years of borrowing, building, vertically integrating, and squeezing costs out of every link in the chain. They made their own sulfuric acid, ran their own wagons, and were building massive storage tanks to buy up crude cheap to hold it and wait out the depressed prices.

And Rockefeller read his success the way he read everything, through his faith. A few days before Christmas in 1867, he had missed a train that later wrecked and killed many of its passengers. He wrote to his wife at once: “I do… regard the thing as the Providence of God.” The Lord, he was increasingly sure, was watching over his enterprise and approving.

And yet in 1869, for the first time since entering oil, Rockefeller was afraid. A disaster had arrived, just not the one he had been rehearsing on his pillow. The oil fields had not given out. In fact, the opposite had happened.

Refining had become so profitable that new people kept piling in, exactly the way the drillers once had when Oil was first struck a decade before. “In came the tinkers and the tailors and the boys who followed the plow,” Rockefeller reminisced decades later, “all eager for this large profit.”

By 1870, the country’s refineries actually had the capacity to process three times more crude oil than was being pumped out of the ground. This made the price of kerosene sink so low that, by Rockefeller’s estimate, nine out of ten refineries in the country were actually losing money.

His own brother saw it firsthand. “Refined cheaper than crude,” William wrote to him one day from New York, meaning he’d seen the price of kerosene fall below the cost of the crude oil it was made from. Refiners sold at a loss just to keep their plants running and service their debts.

And this is where Rockefeller arrived at the idea that would drive everything he did for the rest of his life.

He had built one of the most efficient refiners in the world but saw that it wouldn’t save him, because the very industry he was in was now broken. The way he saw it, every man struggling hard to get all the business brought “nothing but disaster” to himself and everyone else. 

To Rockefeller, the solution was cooperation. Bring the refiners under one roof, he reasoned. Cut down the excess capacity, steady the prices, and then run the whole system the way he’d run his business. 

He gave this idea the grandest possible framing: “It was the battle of the new idea of cooperation against competition.”

He watched the chaos eat the industry and concluded that he, personally, should be the one to organize it. That was the momentous shift. He stopped thinking of himself as an individual refiner competing in a market and started thinking of the entire oil industry as one giant, interrelated machine. A machine that one person, him, needed to run.

There was a problem though. Buying up refineries on that scale would require an enormous amount of money, and he and Flagler did not want to give up control to get it. The solution was to incorporate. On January 10, 1870, the partnership became the Standard Oil Company of Ohio. The name was chosen to advertise kerosene of a uniform, standard quality. The new company had a million dollars in capital and ten thousand shares. Rockefeller held the largest allotment. He was thirty years old.

Older businessmen told him the scheme was reckless. One called it a “rope of sand” that would collapse like attempts before it had. But Rockefeller didn’t bat an eye. Around Cleveland, he began telling people, quietly, exactly what he intended. “The Standard Oil Company will some day refine all the oil and make all the barrels.”

Almost nobody took him literally.

The “South” Improvement Company

In the last days of November 1871, Rockefeller checked into a hotel in New York City and disappeared into a series of meetings with the most powerful railroad men in America. He was thirty-two years old. He would be gone for weeks.

He wrote home to his wife almost daily. The letters show a man who knew he was walking up to a line. “A man who succeeds in life,” he wrote to her, “must sometimes go against the current.”

Here is what was being drawn up behind those closed doors.

There were three railroad lines now carrying oil east. They were The Pennsylvania. The Erie. And the New York Central. And they could not stand each other. They were forever at war over rates, each cutting prices to steal the others’ traffic. Sometimes, one would haul freight at a loss just to keep a rival from getting it. Then, exhausted and broke, they would all shake hands and agree to hold rates steady, dividing the traffic evenly. But, soon after, somebody would always cheat, and the war would start again.

A railroad has enormous, fixed costs. Track and cars that must be paid for whether they run full or empty. This is why guaranteeing volumes was so important to them. What the railroads needed was one customer big enough to hand each of them an agreed share of their oil traffic, month after month, and make the peace stick.

No customer had ever been large enough to make that work. Standard Oil though had now grown big enough to be that customer.

So the railroad men proposed a scheme, and it came with a shell company that had a deliberately boring name. They called it the South Improvement Company. A handful of the biggest refiners would join. Standard Oil would be, by far, the dominant member, with Rockefeller and his circle holding the largest block of the new company’s stock.

The members would agree to guarantee the railroads steady traffic. And in exchange, the railroads would grant the refiners three things.

First, rebates. The railroads would publicly double all their freight rates. But then, they would secretly hand the members half the rate back. Only companies not in the South Improvement Co. would pay retail. 

Second, and this was the real innovation, something called drawbacks.

The railroads would also pay the members an additional cut of what their competitors paid in freight. On one route for example, Standard Oil would collect as a rebate forty cents for every barrel it shipped, and then they’d receive another forty cents for every barrel its competitors shipped. Rivals would be partly funding the war chest of the very company crushing them. And the biggest rivals would be funding them the most.

Third, information. The railroads would also report the members’ competitors’ shipments. Every shipper, every barrel, every destination would be reported almost in real time. This information was something Rockefeller valued more than money. If he knew his rivals’ numbers, he wouldn’t really be competing with them anymore. He would basically be managing them. And it would make buying them a whole lot easier. 

All members were sworn to secrecy.

You can hear Rockefeller talk himself into it in the letters home to his wife. “The project grows on me,” he wrote her. He was stuck in New York and he hated it. The city was “full of Sham, Flattery, and Deceptions,” he wrote, while home was “a haven of rest and freedom.” He missed her badly. One night the homesickness followed him into sleep. “I dreamed last night of the girl Celestia Spelman,” he wrote, calling her by her maiden name. They had been married for seven years.

So here was the shape of his days. By daylight he sat in a closed room with a handful of men, drawing up a secret plan to bend the entire oil industry to their will. By night he lay in a hotel bed and dreamed of his high school sweetheart.

When the talks dragged into January and he was desperate to get home, the other men would not let him leave. They knew how badly they needed him. “They are nervous, and lean on me,” he wrote his wife. “I feel like a caged lion and would roar if it would do any good.”

The plan was for the new rates to take effect quietly on the industry. But instead, in late February 1872, a railroad freight agent, not knowing the new rates were to be kept secret for the present, posted them early.

The next morning, the people of the Pennsylvania oil regions woke up to read that freight rates had doubled overnight.

The region exploded. Three thousand people stormed the Titusville opera house waving banners that read “Down with the conspirators.” The producers organized overnight and refused to sell a single barrel of crude to any member of the scheme. A local paper began printing the conspirators’ names every day on its front page in a black box, like a death notice. Mobs defaced Standard’s blue barrels with skulls and crossbones. Men tore up railroad tracks and raided tank cars and spilled the oil into the dirt.

And it was here, in these furious weeks, that the wider world first learned the name John D. Rockefeller. The boycott was no joke. It starved his refineries of crude oil, and he had to temporarily lay off ninety percent of his workers.

Along Oil Creek, mothers took to scolding their children with his name like a boogeyman. 

“Run, children, or Rockefeller’ll get you!”

Back in Cleveland, he had to start posting policemen outside his office and his home.

He even began keeping a revolver by his bed. But he said nothing publicly. Not one word in his own defense. He believed that his silence would look like confidence. But instead, many assumed the silence meant guilt. It was a mistake he would repeat again and again for the next forty years. He summed up his attitude in a single line: “You can abuse me, you can strike me, so long as you let me have my own way.” Years later he would regret this silence. 

The letters home show what he was telling himself through those weeks. “We will do right and not be troubled about what the papers say,” he wrote Cettie in the middle of the boycott. “I want to act perfectly conscientiously and fearlessly in the matter and feel confident of good results.” 

A week later he wrote again: “We know a few things the people generally may not, at all events we know our own intentions, and they are right and only so.”

In a town along Oil Creek in Pennsylvania, a fourteen-year-old girl watched her father, an oil producer, come home one night with a grim look on his face. He had signed a pledge, he told his family, that he would not sell out to the Cleveland ogre known as Standard Oil.

Her name was Ida Tarbell and hers was a name Rockefeller would come to know very well in a few decades time. 

Because of the public outcry, the south improvement company died before it started.

Despite what was happening, Rockefeller was steadfast, but the railroads, sensing the political winds, caved within weeks and cancelled all the contracts. The Pennsylvania legislature next revoked the company’s charter. A congressional committee branded the whole thing the “most gigantic and daring conspiracy” ever to confront a free nation. By April 1872 the South Improvement Company was officially dead, and Rockefeller himself wired the other producers to say all the contracts were void.

For the rest of his life, he protested that the company had never done any business at all. “There never was a shipment made or a rebate or drawback collected under the South Improvement plan.” And all of that was completely true.

It was also besides the point because Rockefeller and Standard Oil hadn’t actually needed the scheme to succeed as a business to prove valuable. The idea that it existed put fear into the heart of every refiner in Cleveland. 

The Cleveland Massacre

The independent refiners of Cleveland had spent that winter hearing a variety of rumors. Rumors that Standard Oil and the railroads were cooking up some secret pact. That refiners outside off it would be cut off from crude oil entirely. That any resistance to this meant their ruin.

1871 had already been a terrible year for all refiners in the city as kerosene prices, already low, dropped another 25%. And now this hung over them. 

Think about what it was like to be one of those refiners. You’ve been in business five or ten years. Maybe you made money in the early, good years and scraped through the recent bad ones. But now a quiet young man in a dark suit arrives offering to buy your business. 

Rockefeller came to see them all. One by one. And brought his books with him. He showed them Standard Oil’s finances and exactly why the industry had to consolidate.

“We went to one concern at a time,” he recalled, “and finished with them before we took up the next.”

He started with the largest and deepest pocketed firm in the city. 

Rockefeller invited its leading partner, who happened to be an old high school classmate of his, to the parlor of a downtown bank and made his pitch for an Oil industry under Standard Oil’s control. The man listened and then wanted to see Standard’s books. Examining the ledgers, he was thunderstruck by the profits. “Let us get the appraisers in,” he finally said, “and see what the plant is worth.”

They negotiated and soon sold out to Standard for four hundred thousand dollars. Rockefeller felt that he had overpaid but couldn’t resist as the deal would make it easier to acquire the others. 

His pitch to the rest of the refiners, pieced together afterward from sworn testimony of some of the men who heard it, went like this: “This scheme is bound to work. It means an absolute control by us of the oil business. There is no chance for anyone outside. But we are going to give everybody a chance to come in. You are to turn over your refinery to my appraisers, and I will give you Standard Oil Company stock or cash, as you prefer, for the value we put upon it. I advise you to take the stock.”

Frank Rockefeller, Rockefeller’s own brother, later told Congress what the hard version sounded like: “If you don’t sell your property to us it will be valueless, because we have got advantages with the railroads.”

Among the men who came to him was Isaac Hewitt, who was now one of the partners in a rival refinery. Hewitt was the man who gave John D. Rockefeller his first position as a bookkeeper. 

Now he came to his former clerk’s house on Euclid Avenue, hat in hand, to plead for his business. Together, they strolled down the avenue, where Rockefeler told his old boss bluntly that his firm would not survive. That he should take the deal.

Then Rockefeller added a sentence that entered Rockefeller folklore: “I have ways of making money you know nothing about.” And he was right.

Another refiner, John Heisel, claimed he got the same pitch. But after he heard it he told Rockefeller that he wasn’t afraid of him. To which Rockefeller responded. “You may not be afraid to have your hand cut off, but your body will suffer.”

In four weeks, between mid-February and mid-March 1872, Standard Oil bought out twenty-two of Cleveland’s twenty-six refineries. During one forty-eight-hour stretch in early March, they bought six. Historians would call it the Cleveland Massacre.

Each refiner was offered cash or Standard Oil stock. Rockefeller recommended they take stock. Most took the cash. The few who took stock and held it would become some of the wealthiest men Cleveland had ever known.

Rockefeller understood exactly why most of them took the cash instead of the stock. He explained it himself, years later, and the explanation has lost none of its edge.

“They knew that the oil business under the existing conditions was doomed; but they lacked faith in me. They didn’t believe I could succeed in what I was undertaking. So when I offered them either spot cash outright for their property or stock in the new company, they took my money and laughed in their sleeves at my folly. They didn’t see how I could succeed. They believed I was doomed to failure. So they took my money and scorned the stock…”

“Later, when the company did succeed, and the stock which I had offered them and they declined to accept took on a value vastly greater than the money I had paid them, they heaped censure upon me for their short-sightedness and accused me of having tricked them.”

These were not strangers. They were his fellow Clevelanders. Some sat in the same church as him and had for decades. He knew these men and their families and he absorbed their businesses anyway.

Rockefeller didn’t see a contradiction. To him, it was simple. The industry was overbuilt. He was offering them a way out of their failing businesses. The only way out, as he saw it. He later described Standard Oil in biblical terms as “an angel of mercy, reaching down from the sky” and inviting the struggling refiners into the ark that he had built.

“All these purchases of refineries,” he wrote in his memoir, “were conducted with the utmost fairness and good faith on our part.”

Decades later, when he was no longer in the business, Rockefeller was asked to reflect on those months. He had no regrets. “It was right,” he said. “I knew it as a matter of conscience. It was right before me and my God. If I had to do it tomorrow I would do it again the same way—do it a hundred times.”

The interviewer next asked him an obvious question. With all of Standard Oil’s advantages, why bother taking in the weak firms it competed with? Why not just let them fail?

His answer is the plainest account he ever gave of his own logic and reveals something about competition that a lot of people miss.

“It is to be remembered that oftentimes the most difficult competition comes not from the strong, intelligent, conservative competitor, but from the man who is holding on by the eyelids, is ignorant of his costs, and anyway has got to keep running or bust.”

“Oft-times, if a man doing a business to a disadvantage were to close down his works and throw up his hands, it would be a notice to his bankers and other creditors that he could not do business any more at a profit. He must keep up, or they would close in on him. He will lose all if he stops; he will probably lose anyhow.”

Rockefeller wanted to eliminate irrational competition. 

It was the same idea he had formed in 1869, watching refined oil sell for less than crude oil. But now the idea was fully grown and tested in battle. He had bet everything he had on cooperation beating competition, and in Cleveland, in just four weeks, it had. Late in his life, he compressed the whole philosophy into two sentences that could stand as the epitaph of the era he created.

“The day of combination is here to stay. Individualism has gone, never to return.”

The few refiners who had refused Standard’s offer found out what happened next. With the additional scale, Standard’s cost advantages widened. As a result, Standard could easily lower their prices and force the others to lower theirs too to compete. Most of the holdouts went broke within eighteen months.

And then, after absorbing a competitor, Standard would keep the old company’s name on the door. The exact same sign. As if nothing at all had changed. A man who wanted to sell his oil to an independent Cleveland refiner could walk into a building and negotiate what he thought was a good deal Standard Oil would have no part of, and never know he was still selling to Standard Oil. 

Standard Oil did this deliberately. They were designed to be invisible.

And at night, after a day of buying up refineries and assembling what was becoming the largest industrial operation in the country, Rockefeller still got into bed and gave himself a nightly sermon. He’d been preaching to that pillow for years. But the text had changed. The man who now owned Cleveland warned himself about something else.

“Now a little success, soon you will fall down, soon you will be overthrown. Look out. Go steady.”

He was warning himself against complacency and pride. The same man who had absorbed twenty-two refineries in just six weeks was telling himself, every night, to keep going steady.

He wasn’t even close to being done yet.

The Family

While the oil regions were starting to burn his name and tear up railroad tracks, Rockefeller went home each night, usually at the same hour, but now to a brick house at 424 Euclid Avenue.

Euclid Avenue had become Cleveland’s showpiece. It was a wide street under a canopy of elm trees that the locals had started calling Millionaires’ Row. The new fortunes in oil as well as iron and the railroads had built mansions there that looked like castles.

The Rockefeller house looked like none of them. It was solid, two stories tall, but deliberately plain. A pedestrian walking past might have guessed its owner was a moderately successful dry goods merchant. That was precisely the impression Rockefeller wanted to give. “I hate frills,” he later said. “Useful things, beautiful things, are admirable; but frills, affectations, mere pretences of being something very fine, bore me very much.”

Inside that plain house, a family was growing.

Bessie had come first, in 1866. Then came a second daughter, Alice, born in 1869. Sadly, she lived just a year. Then Alta in 1871, and Edith in the summer of 1872, just months after the Cleveland Massacre vaulted Standard into being the largest oil refiner on the planet.

And then, on a January morning in 1874, Rockefeller arrived at the Standard Oil office and told Henry Flagler the news with tears in his eyes. Cettie had given birth to a boy. They named him John Jr. The family would call him Junior all his life. “How glad all were that the baby was a boy,” Cettie wrote, “and that he was perfectly formed.”

So picture the household of the most hated man in the oil regions in the mid-1870s. Three little girls, and now a baby boy. They’d say morning prayers before breakfast where a latecomer would have to pay a one-cent fine. As the children grew they developed a homemade economy that ran on daily chores.

Rockefeller faced a problem his own parents had never had: how do you raise children atop a growing fortune without ruining them? His answer was to hide the fortune. The children never once visited his office or his refineries. They wore hand-me-downs, John Jr. would wear his sister’s dresses for years. 

And at home, Rockefeller built a make-believe market where Cettie was the “general manager”. He had each child keep an account book of their own, a tiny replica of the ledger A he had kept since he was a boy. They would tally their income and expenses. They could earn two cents for killing flies. Or ten cents for sharpening pencils. In the summer they’d be paid a penny for every ten weeds pulled from the vegetable garden. Throughout the year, he’d pay them two cents a day for abstaining from candy, with a bonus for each consecutive day of abstinence. The children of the now richest man in Cleveland grew up with about the same creature comforts their father had known.

Cettie, went even a step further than her husband. When the children got old enough to want bicycles, Rockefeller suggested buying one for each of them. “No,” said Cettie, “we will buy just one for all of them.” “But, my dear,” Rockefeller protested, “tricycles do not cost much.” “That is true,” she replied. “It is not the cost. But if they have just one they will learn to give up to one another.” So the four children shared a single bicycle.

Cettie also ran the moral side of the house, and she ran it with a firmness that could take your breath away. She once told a neighbor, “I am so glad my son has told me what he wants for Christmas, so now it can be denied him.”

But her economy was hardest on herself. She wore patches on her clothes her whole life, and once shocked an acquaintance by insisting that a young woman needed just two dresses in her wardrobe. She did much of the housework herself along with two maids when the household could have afforded an army of servants.

With the children, she was hardest on John Junior, because he was the most like her. Obedient, dutiful, and almost too eager to please. When people complimented Rockefeller on his son, he protested truthfully, “It was his mother who developed him.”

She developed Rockefeller too. Late in life, he said a thing about her he never quite said about anyone else. “Her judgment was always better than mine. Without her keen advice, I would be a poor man.” He did not deal in overstatement, so from him that was the highest kind of praise there was.

And she may well have been the reason he could do what he did all day and still sleep at night. When it came to money, Cettie’s focus was on how it was used. The way it was made she left to her husband.

Rockefeller himself was, by every account, the gentle one. Junior could not recall a single instance of his father’s anger. Not one, in his entire childhood. “He was a beloved companion,” Junior said. “He had a genius with children. He never told us what to do or not to do. He was one with us.”

It turns out, the famously cold, silent man in public was, at home, a performer. He balanced fine china plates on the tip of his nose at dinner. He played blindman’s buff with his kids with real cunning, with feints and sudden turns, and always whooping around the room if he won. He taught the children to swim and skate and ride horses. He had a telegraph wire run between his office and his house so he could spend three or four afternoons a week at home, planting trees and playing with his kids all the while he kept one of the largest companies on earth humming along down the road.

It was a warm home but an insulated one. The children had no school friends, because there was no school, only governesses. Visitors were the carefully screened children of fellow church families. The Rockefeller children were being raised inside a fortress of certainty, and the world outside its walls was depicted as a place of saloons, card games, and sin.

Two more figures completed the household picture. The first was Rockefeller’s mother, Eliza, who spent her summers with the family. The woman who had once held the farm together while her husband vanished for months now sat next to her son at the table, and Rockefeller would hold her hand lovingly through the meal. “Grandmother trusted Father absolutely,” Junior remembered.

The second figure appeared less often, and without warning. Once or twice a year, an old man with a red beard and a diamond stickpin would turn up behind a fine team of horses and ride grandly up Euclid Avenue. Rockefeller’s father, Big Bill. His grandchildren adored him. He gave them rifles and taught them to shoot. He played the fiddle, and told tall tales. But after a few uproarious days he would vanish again, giving no hint of where he went or when he would be back. The children had no idea that their jolly grandfather was now living under a false name in Illinois, with a second wife who knew nothing of their existence.

Rockefeller never wrote to his father and never spoke a word publicly against him. To strangers he described him only as a fine, upstanding man. But he had spent his whole life becoming that man’s exact opposite: a husband who came home at the same hour every night, to the same wife, forever. Their household on Euclid Avenue, with its prayers and its penny fines and its account books, was many things. But underneath them all, it could be seen as a thirty-year argument with his father.

Nine of Every Ten

On a Thursday morning in September 1873, the largest bank in America failed.

Jay Cooke and Company was the bank that had sold the bonds that financed the Union side of the Civil War. Most Americans considered it as solid as the US government itself. 

But Cooke had lately sunk enormous sums into building a second transcontinental railroad that wasn’t paying off. 

When the money ran out, the bank had to shut its doors. The news set off a run on the banks. 

Depositors rushed to pull their savings out of other banks, until those failed too. The stock exchange in New York closed its doors for ten whole days, something that had never happened before. It would become known as the Panic of 1873.

The panic became a depression that ground on for six long years. The price of crude oil sank to forty-eight cents a barrel, which in some towns made it cheaper than water.

For any of the remaining struggling oil refiners, the depression was the end.

For Standard Oil, it was a clearance sale. As Rockefeller would later say: “The strong feed during depressions.”

Standard had the largest cash reserves, lowest costs, and massive storage capacity to buyout his struggling competitors for pennies on the dollar. And seeing the news, Rockefeller even cut their dividend to pile up even more cash.

Refiners who had held out against him in the good times simply couldn’t in this slump. And when cash did grow scarce, Standard could simply pay with its own stock.

After the Cleveland massacre, the Standard Oil consolidation went national. And it went fast.

In the summer of 1874, Rockefeller invited two prominent oil refiners to meet him and Henry Flagler at Saratoga. The men were William Warden, from Philadelphia. And Charles Lockhart, from Pittsburgh. They had breakfast together. Then they talked for six hours in a pavilion while resort guests strolled outside.

Rockefeller laid out what he’d already done in Cleveland. In the last year alone, he told them, he’d shipped over 700,000 barrels and earned over a million dollars. He showed them his books and then he made his pitch. 

Warden and Lockhart would transfer their Philadelphia and Pittsburgh refineries to him in exchange for Standard Oil stock. They would both come work for him. And they would in turn start absorbing their neighboring refiners, “as rapidly as persuasion or other means could bring it about.” They would keep the same names on all the doors. Nobody outside of that room would know.

Warden and Lockhart agreed.

Next, in October 1874, Standard brought in Charles Pratt & Company of New York, the New York Oil company. New York had the best market for oil and was the gateway to world exports. It was the last major piece of the puzzle.

Fully nine of every ten barrels of oil refined in the United States was now passing through Standard Oil.

And here is the part his enemies would never give him credit for. As Standard swallowed the chaos of the industry and squeezed the waste out of the trade, the price of kerosene fell, and kept falling, until light that had once been a luxury was something almost any family could afford. 

And true to their name, the product had gotten safer. Kerosene had long been dangerously inconsistent, with bad, over-volatile batches turning lamps into bombs that could burn a house down. A barrel that carried the word Standard increasingly became a promise: this oil would burn clean and would not blow up the lamp.

Age Forty

On July 8, 1879, John D. Rockefeller turned forty. He was now one of the twenty richest men in America, and almost nobody in America knew it. That was just the way he liked it.

When a newspaper that year guessed at his fortune, it said five million dollars.

He didn’t correct them. He never did. But we know now that his Standard Oil stock alone was worth about eighteen million then. 

The press had really only just discovered Rockefeller. 

The year before, the New York Sun ended his obscurity with the first real profile of him ever printed. Exposing his monopoly, it called him one of the great commercial intellects of the country. But it also concluded that his success rested on some secret bargain with the railroads that people could sense but never quite prove. That double image, genius and suspect, would follow him to the grave.

The cost of building the machine was starting to show. He had been losing weight and was now lean to the point of gaunt, and his family had to remind him to buy a new suit when his old one got shiny. “I am eating celery,” he wrote to his mother in 1878, “which I understand to be very good for nervous difficulty.”

Decades later, as the richest man in the world, he admitted what those years had actually been like. “For years on end I never had a solid night’s sleep, worrying about how it was to come out… All the fortune that I have made has not served to compensate for the anxiety of that period.”

His wife Cettie was paying too. In 1876 the doctors diagnosed her as consumptive, and the family began organizing itself around her fragile health.

Which is part of how they came to buy an estate they called Forest Hill. Rockefeller had bought the land in 1873. It was seventy-nine wooded acres on a hill east of the city of Cleveland, with ravines and gullies and a view of Lake Erie.

Starting in 1877 the family began spending whole summers there, partly in hope the lake air would do Cettie good. It was a rambling house that had been built as a hotel, and critics would later mock it as “a monument of cheap ugliness.” Rockefeller didn’t care. “Oh, I like Forest Hill much better than any other home!” he remarked.

Forest Hill became his favorite place in the world. The place he started spending more and more time at. One summer he dammed a stream to make two lakes, one for boating and one for swimming. And on hot days he swam the mile-long circuit with a straw hat perched on his head to keep the sun off.

Then, in the winters, he flooded a pond for skating, and as many as fifty people, many of them strangers from the neighborhood, would skate on it. Since his faith would not allow the pond to be flooded on the Sabbath, he sometimes rose after midnight on Sunday night to direct the workmen in preparing the ice for Monday.

One of the richest men most Americans had never heard of, knee-deep in January, supervising a skating pond at one in the morning. That was Rockefeller at forty.

Pipelines

At Standard Oil, by the mid-1870s, the fight had moved out of the refineries and into the oil fields again. A new threat had emerged. It was a pipe.

The industry had evolved. Crude oil no longer traveled from a well to a railroad in barrels on a teamster’s wagon as it had 20 years before. Barrels were now barely even used. Crude oil now traveled through short pipelines to the trains where it was loaded onto tanker cars. Standard Oil had bought and built its way into control of nearly all these short pipes. When a driller struck oil, a Standard Oil crew would swoop in to connect the new well to their system immediately.

Almost all Pennsylvania crude now began its journey above-ground in a Rockefeller pipe and finished it on a railroad whose rates Rockefeller had carefully arranged.

In late 1877, the desperate remaining independent refiners crowded into Titusville, Pennsylvania for what they called a Petroleum Parliament. They were all hunting for a way out from under the Standard Oil machine. 

The idea they landed on sounded close to impossible: a massive pipeline designed to move crude oil long distances of over a hundred miles. At the time, the longest pipeline ran just thirty miles, and nobody knew whether the crude oil could be pumped over a such a distance at all. 

The independent refiners proposed to find out. They called it the Tidewater Pipeline.

The plan was audacious. It would be a six-inch pipe running from the Pennsylvania oil fields, up and over the Allegheny mountains, to a railhead owned by Philadelphia’s Reading Railroad. It was one of the few railroads not yet under Standard Oil’s thumb. It would carry the oil the rest of the way. If they could do it, they wouldn’t need to pay any rebates to Standard Oil.

If it worked, the freight advantages Standard Oil used to control the industry would be worth nothing.

Inside Standard Oil, the first reaction to hearing of this was laughter. One of Standard’s lieutenants wrote to Rockefeller  that he was “greatly amused” by this pipeline scheme. Rockefeller wasn’t laughing though. He wrote back cautiously. “They are quite likely to have some disappointments yet,” he predicted, “before consummating all their plans in that direction.” 

Then he set about manufacturing those disappointments himself.

Standard Oil fought it in every direction at once. They bought up massive strips of land running in straight lines across Pennsylvania. These became known as “dead lines” that the pipe would not be able to legally cross. Bewildered Pennsylvania farmers woke up rich as Standard Oil agents swept through their sleepy towns paying extravagant sums for farmland that had been worth just a fraction of that sum the week before.

Not being able to buy all the land though, Standard next planted stories in local papers warning farmers that a pipeline could leak and poison their crops.

Then, they started offering cut rates to any refiner that was tempted to become a Tidewater Pipeline customer. Then they went a step further and simply bought many of the refineries that were thinking of signing on. They also had help. The railroads, the other party greatly threatened by a pipeline, stepped in and refused the pipe permission to cross their tracks.

But the pipeline was being built anyway. When it was near completion, Rockefeller quietly offered three hundred thousand dollars just to buy his own stake in the project. He was refused.

In May 1879, the great pumps whirred to life and the oil started its journey east. Nobody yet actually knew if it could climb the mountains. For seven full days, the whole oil world tracked its slow crawl across Pennsylvania and up over the mountains. Then, finally, the first oil sputtered out at the far end, a hundred and nine miles away. The oil regions erupted in jubilation. The newspapers ranked the pipeline among the great engineering feats of the age.

The damn thing worked.

Inside Standard Oil: silence. One Standard Oil executive wrote to Rockefeller that “I feel extremely satisfied that the Tidewater Pipe Line can be stopped and torn up if it is thought best to do it. I also think that the sooner the Tidewater knows this the better.” Rockefeller vetoed this. He had something more elegant in mind.

He reached for his old playbook. Standard Oil cut its rates and the railroads cut theirs to levels one freight agent said barely covered the wheel grease of the railroads. This price war soon had the new pipeline running at half capacity. And then came a twist that says more about the era than any conspiracy could. The men behind the Tidewater pipeline had begun discussing how they might keep anyone else from building a pipeline like it.

The pipeline that was built to break the Standard Oil monopoly now wanted to protect their own monopoly.

Rockefeller did what he always did when he couldn’t kill a thing. He decided to absorb it as his own. If pipelines were the future, Standard Oil would own pipelines. But not just one. Standard Oil next laid four great lines of its own, from the oil fields to Cleveland, to New York, to Philadelphia and finally to Buffalo. By 1881, it had folded the whole web of pipelines into one single entity.

Standard now controlled the pipelines the same way it had once controlled the railroad rebates.

The Trust

By 1881, Rockefeller had a problem almost no businessman in America had faced before. His company had outgrown the laws of the country it operated in.

Standard Oil was chartered as an Ohio corporation. But under the laws of that time, a corporation chartered in one state could not own property, or stock in other companies, in another state. Yet Standard Oil effectively controlled refineries in Pennsylvania, New York, New Jersey and Maryland, plus the pipelines, plus terminals and plants across the map.

Legally though, Standard Oil of Ohio wasn’t allowed to own almost any of it.

For years they had papered over this with improvisations. They had held most of their companies in secret. Properties in other states were parked in the names of various individuals from those states, men Rockefeller or Flagler trusted as caretakers. Then they used code names in the correspondence. It worked, barely, but the growing empire had become a coordination nightmare. Major decisions were now scattered between partners located in Cleveland, New York, Pittsburgh, Philadelphia and even Baltimore. 

The empire had outgrown its disguises.

The solution, drafted with Henry Flagler’s help and signed on January 2, 1882, became known as the Standard Oil Trust.

The shareholders of Standard Oil of Ohio and roughly forty other companies handed over their stock to nine men, who became known as the trustees. Rockefeller was chief among them. In exchange, each shareholder received trust certificates, pieces of paper entitling them to their slice of the profits of everything, the whole combined machine.

The nine trustees now controlled all the companies, appointed every board, and could run them all as if they were one company, across every state line in the country. Technically, the trust itself didn’t exist anywhere. It couldn’t sign contracts. It kept no public books. And, most importantly, there was no law it violated because nothing like it had ever been done before.

A now seventy-million-dollar enterprise controlling nine of every ten barrels of oil, and the public still knew nothing about the arrangement.

Rockefeller held more than a third of it all, a block of shares worth about nineteen million dollars. 

He was forty-two.

The trust did something else Rockefeller cared a great deal about. For the first time, Standard Oil existed as paper a person could own, and he urged every person he knew to buy it, especially Standard Oil employees. 

He even made his own money available to help them do it.  “I would have every man a capitalist, every man, woman and child,” he said. “I would have everyone save his earnings, not squander it; own the industries, own the railroads, own the telegraph lines.”

It worked better than any loyalty oath could have. The men, and families of Standard Oil, were now proper shareholders watching their certificates climb in value. As a result many of them closed ranks around the company like the faithful around a church.

As a result of it all, the word “trust” entered the American vocabulary because of Standard Oil. Because other industries soon copied the exact same form. Sugar. Whisky. Cotton oil.

Within a decade, the term “the trusts” would become shorthand for everything most Americans feared about big business, leading Congress to weaponize the legal system with a single landmark law aimed squarely at the form Standard Oil had invented.

They called it the Sherman Antitrust Act. The act was designed to prohibit monopolies and promote competitive markets.

26 Broadway

The trust had one more piece of unfinished business: geography. The oil trade now ran on exports, and the exports ran through the eastern seaboard, where Standard’s huge new refineries sat. One of Rockefeller’s partners put the problem to him bluntly. A two-headed calf, he said, belonged in a circus. “You can’t have one head in Cleveland and another in New York.”

New York won. 

Henry Flagler had already moved to New York. In late 1883, Rockefeller himself followed, and then the rest of the Standard Oil men poured east after him. They settled into the same few blocks of midtown Manhattan, with Flagler taking a house on one corner of West Fifty-fourth Street and Rockefeller’s brother William on another.

The Rockefellers, with their instinct for invisibility, skipped Fifth Avenue, and bought a four-story brownstone on a quiet, shady side street.

At breakfast, after saying grace, Rockefeller sometimes read aloud to the family from the crank mail and threats that now swamped his office. Nobody quite knew why. Then he’d pull out a folder stuffed with begging letters and charity appeals from around the globe, and he assigned them to the children for further study.

His giving nearly doubled in those years, from sixty-one thousand dollars in 1881 to a hundred and nineteen thousand three years later. He was starting practicing for something far bigger, though nobody knew it yet. Including him.

On May 1, 1885, Standard Oil moved into its new headquarters: a nine-story granite fortress at the bottom of Broadway. The company’s name appeared nowhere on the outside. Just the street number. 26 Broadway. Within a few years that address would be shorthand, all over the world, for the oil trust itself. One reporter called the building “a cave for pirates, a den for the cutthroats of commerce.”

Inside, it was quiet. Deliberately quiet. Men moved through the halls like clerks in a counting house, not employees of a company that controlled the oil supply of a continent. People who entered instinctively spoke in hushed tones.

And Rockefeller sat in a back office facing the harbor. 

The company was run by committees. Each department had one. Major decisions went to the Executive Committee, the nine trustees and their lieutenants, who gathered every day at noon for lunch at a long table on the top floor. The seating never changed. And Rockefeller deliberately did not sit at the head of the table. He gave that seat to the group’s oldest member and took a place along the side, among the others. It fooled no one and it didn’t need to. He didn’t dictate. He listened. Then he asked a few questions. And then he waited.

Sometimes he stretched out on a lounge after lunchtime and appeared to doze through the continuing arguments. “He might close his eyes now and then,” one executive remembered, “but he never missed a point.” Usually, the room came around to where he’d been all along, and the decision got made as if it had been everyone’s idea.

And what of Henry Flagler? He was still there every noon at the long table, one seat from the head. But something in him was beginning to wander. In the winter of 1883, he and Rockefeller had toured Florida together, looking over Jacksonville and a drowsy old Spanish town called Saint Augustine, listening to local men talk up the state’s prospects. Rockefeller saw a warm place to rest. Flagler saw something else.

Within a few years Flagler would start pouring his Standard Oil fortune into a second empire down there, railroads and grand hotels along the coast, the one that would put his name all over the map of Florida. The gilded streak his partner had always watched with quiet suspicion finally had somewhere to go. The parliament-of-two would keep meeting for years yet. But its great work was done.

By 1884 the company had outgrown Cleveland, its birthplace.

But Rockefeller kept coming back. Every summer to Forest Hill, his estate in East Cleveland. 

The wide grounds. The trees he’d planted himself. The city where his father had dropped him off at a boarding house near the Erie Street Baptist Church, opened a small bank account, and left.

But, he was now a visitor in the city he’d first called home. The city whose refineries he had absorbed, one by one, until there was nothing left to absorb.

He was forty-five years old. He held more than a third of the largest industrial trust in the world. His kerosene now lit homes on four continents. His competitors had all been absorbed or broken. His name was on the letterhead at 26 Broadway, even if it wasn’t on the building.

But there was a writer who would one day aim to take all of it apart. Her name was Ida Tarbell. She was the daughter of a broken Pennsylvania oil man, and she had a score to settle. 

She knew the trust’s greatest strength was its invisibility. As she later observed of Rockefeller’s maze of shell companies: “You could argue its existence from its effects, but you could not prove it.” 

She thought she might be able to prove it now.

Act 3

The Most Hated Man

In May of 1887, one of the most senior men at Standard Oil sat down and wrote John D. Rockefeller a letter.

His name was William Warden. He was one of the Philadelphia refiners who had quietly folded his company into Standard Oil the decade before… He had grown richer than his wildest dreams for doing it. But he had gotten something else too. Something he hadn’t expected.

“We have met with a success unparalleled in commercial history,” Warden wrote in the letter. “Our name is known all over the world…” he continued, but “our public character is not one to be envied. We are quoted as the representative of all that is evil, hard hearted, oppressive, cruel.”

He begged John D. not to wave their dark public image away. “Don’t put this down or throw it to one side, think over it, talk with Mrs. Rockefeller about it. She is the salt of the earth.”

Near the end of his life, Rockefeller explained how he had decided to handle it. Suffice to say, he did not listen to William Warden.

“During all this time of outcry against us I determined it was useless to waste energy in denials and disputes with jealous or disappointed people. I persuaded our partners to keep silent, too. The more we progressed, yet kept on gaining success and keeping silent, the more we were abused. Mr. Flagler said to me, ‘Why, John, you must have a hide like a rhinoceros.’ We all said nothing and went on sawing wood.”

Sawing wood was what he meant by sticking to their business. 

Doing so worked fine while nobody looked closely. The trouble started though, when somebody finally did.

His name was Henry Demarest Lloyd. He was a newspaperman who had married into the family that owned the Chicago Tribune, which left him rich and free to write what he wanted. He chose to write about Standard Oil. In March 1881 he ran an article called “The Story of a Great Monopoly”. 

It was one of the first serious accounts of the Standard Oil Trust ever to appear in print. In it, he told forty million kerosene-burning Americans that the light in their homes was priced by a single company most of them had never heard of. He included a line built to be quoted: “America has the proud satisfaction of having furnished the world with the greatest, wisest, and meanest monopoly known to history.”

Lloyd also handed the company the nickname that stuck: The octopus. For decades after, Cartoonists would draw Standard Oil as a creature with tentacles around statehouses and railroads, with one arm even reaching for the dome of the Capitol.

As reporting goes, it was sloppy. Much of it rested on rumor and innuendo, and when Lloyd came back in 1894 with a whole book of it called Wealth Against Commonwealth, much of that was wrong too. It landed anyway, because underneath the ranting sat an idea many Americans were ready to believe: “Liberty produces wealth, and wealth destroys liberty.” 

Rockefeller said he never read the book. His company, he said, “paid no more attention to all this nonsense than an elephant might be expected to pay to a tiny mosquito.”

Maybe so. But the mosquito had changed the weather. By 1888 the noise against the trusts had grown loud enough that both political parties were now condemning them and legislatures were opening investigations. That February, Rockefeller had to appear before a New York state senate committee, where he gave the performance that became his courtroom signature. 

Sworn in, he kissed the Bible vehemently. Then, for hours, the man with the finest memory in American business turned into a vague and forgetful fellow wandering lost in the corridors of his own company.

The committee’s lawyer asked whether he had ever belonged to the Southern Improvement Company. Rockefeller caught the slip at once. The man had garbled the name. The real one was the South Improvement Company. Not “Southern.”

“There was such a company?” the lawyer asked.

“I have heard of such a company.”

“Were you not in it?”

“I was not.”

Every word of it was technically true. Years later he explained himself without a flicker of shame: “While they thought they were leading me into a trap, I let them go into the trap themselves.” 

He won the battle that day, but lost the war. 

The committee’s report delivered the sentence that trailed the company forever: “This is the original trust… It is the type of a system which has spread like a disease through the commercial system of this country.”

Here is the part that gets lost. By the time the country’s hatred of John D. Rockefeller reached full boil, he was barely going to work.

He had been fading out of 26 Broadway since the mid-1890s, and in 1897 at age fifty-eight, he stopped coming in at all. 

Power passed to a man named John Archbold. He was small and quick, given to bounding down the corridors whistling “Onward Christian Soldiers,” but with a hard temper underneath the cheer. Under Archbold the prices crept up, the profits swelled, and the political methods got cruder.

But Rockefeller never announced he had left. His partners insisted he keep the title of president, and he agreed. But, he was president by name only. He no longer attended regular meetings or drew a salary. All the while though the public went on believing he was still the man giving the orders. For the next decade and a half he would answer personally for many decisions others were making. I suspect that because he was such a focal point for the public attention, the company was able to keep going for decades.

He kept declining the magazine profiles, almost weekly. One request came from a new magazine run by an editor named Samuel McClure, who was at that moment in Paris, recruiting an obscure young writer from Pennsylvania.

Her name was Ida Tarbell.

The Daughter of the Oil Regions

This one magazine writer did more damage to John D. Rockefeller than every senator, investigator, and ranting reporter combined. To understand why, it helps to start where she did, in the place where oil was first discovered in America, Northwestern Pennsylvania. 

Her father built wooden tanks for the oil fields, and in the winter of 1872 the South Improvement Company arrived. The resulting fight turned the region inside out. 

The talk of revolution thrilled her, she wrote later. Her father, who used to sing around the house and tell her funny stories from his day, was now silent and grim when he returned home. The oil region had been split in two: the many who fought the Standard Oil Monster, and the few who quietly sold out to it. 

Franklin would point out the sellouts to his daughter on the street. “In those days,” she said, “I looked with more contempt on the man who had gone over to the Standard than on the one who had been in jail.”

Her route back to Standard Oil took twenty years. First she taught school, and then edited a small magazine. Then she went to Paris and wrote for American newspapers, a rarity among women of the time. It was there that she picked up Henry Demarest Lloyd’s book on Standard Oil ‘Wealth Against Commonwealth’ and rediscovered the company that had broken her father. 

By then she was a rising star at McClure’s Magazine, one of the most read magazines in America. Its popularity came from its meticulously researched articles, tackling subjects near and dear to the public’s heart. Tarbell had spent a decade learning how to excavate a paper trail. And Standard Oil, after thirty plus years of business and investigations across numerous states had left one that no one had followed to the end yet. 

As a young woman she had dreamed of writing the great American novel, with “the Standard Oil Company as a backbone.” Now, she got to write something better, her version of the story.

In September 1901, she sat down with her publisher and laid out a plan for a three-part series on the company. She privately doubted anyone would actually read such a long, story of a business. Nothing like it had ever been tried, even by McClure’s. Her father warned her off: “Don’t do it, Ida. They will ruin the magazine” he told her. She did it anyway. 

And while she sharpened her tools, the man she was about to take apart was quietly starting to unravel himself.

For most of his life Rockefeller had paid no visible price for the way he worked or how the public was treating him and his company. But starting at the age of forty he had grown gaunt and was eating celery for what he called “nervous difficulty,” lying awake over a business that had never once failed him. 

He had kept up that pace another decade. But, by 1891, at age fifty-one, with the public learning more and more about Standard Oil and the man behind it, it caught up with him.

Influenza put him down that winter, and then afterwards he had trouble breathing for weeks. Then came liver trouble, and then his digestive system stopped cooperating. He was soon a pale and haggard man who subsisted on milk and crackers. His doctor said it plainly: “A little more of that would have killed him. Mr. Rockefeller was close to the edge of a breakdown.”

It was the giving, as much as the empire, that broke him. While the country was learning to hate him as a money hoarder, his gifts to charity were actually doubling and doubling again, from $124,000 in 1889 to more than a million dollars three years later. But writing the checks wasn’t enough. Rockefeller took to giving the same way he ran his company: by knowing every detail. By his own account he “worked myself almost to a nervous breakdown in groping my way, without sufficient guide or chart, through the ever-widening field of philanthropic endeavor.”

So in March 1891, sick and stretched thin, he sent for a Baptist minister named Frederick T. Gates. Gates was an ex-preacher in his late thirties who had impressed Rockefeller during a recent campaign to build a Baptist university in Chicago.

“I am in trouble, Mr. Gates,” he told him. “The pressure of these appeals for gifts has become too great for endurance… These investigations are now taking more of my time and energy than the Standard Oil itself. Either I must shift part of the burden, or stop giving entirely. And I cannot do the latter.”

“Indeed you cannot, Mr. Rockefeller,” Gates replied.

“Well, I must have a helper. I have been watching you. I think you are the man.”

Gates took the job. For the moment he was a clearinghouse for all the begging letters Rockefeller received. Later he would become something much larger.

The ultimate cure for Rockefeller was just rest. Under the doctor’s orders he spent eight of the next twelve months at Forest Hill, and for the first time in twenty-one years, his mind cleared. He worked the fields beside his own laborers, rode around on his bicycle, and joked to all that would listen that he was training to be “a great concert singer.”

He recovered his body. He did not recover his hair.

The loss of hair had a name, alopecia, and in the end it took it all from him. It had started as an ordinary thinning in his late forties, but then sped up through the worst years of the 1890s, and finally left nothing at all behind. His wife Cettie kept the record in a memo book: “John’s moustache began to fall out, and all the hair on his body had followed by August.” 

His head, his eyebrows, his eyelashes, every hair on his body vanished. Doctors then and now mostly shrug at the cause but severe stress sits on every list. And here was the cruelest part for him: the man who had spent his life controlling everything around him could not control or hide this. It was happening to his own face.

He met it with a kind of quiet, almost touching effort. He tried hair restoratives, and when they failed he bought a wig and tested it nervously at church one Sunday, and was relieved when the congregation approved. In time he kept a rotation of wigs cut to different lengths which he wore in sequence over the weeks so that his hair seemed to grow and then be freshly trimmed. He was an aging man going through gentle, elaborate lengths just to look ordinary.

The biggest cruelty of it was the timing. Because his enemies had taken to calling him a literal monster. His own estranged brother Frank used that exact word to describe him in one of Tarbell’s articles: Of course, it had been a figure of speech and taken out of context, but Tarbell never let that get in the way of her narrative. 

The illness, as one biographer put it, made him look like “a hairless ogre, stripped of all youth, warmth, and attractiveness.” The illness had given him the physical face his accusers had always insisted he wore. And the worst use of it was still coming. In a few years, Ida Tarbell would point to this disease, this medical affliction, as the outward proof of the rot she said lay inside him.

The Reckoning

The first installment of Ida Tarbell’s “The History of the Standard Oil Company” appeared in McClure’s Magazine in November 1902. Her original outline had three articles. But the public had other ideas, and the magazine’s rule was to keep printing as long as readers kept buying. It would in the end run nineteen installments over two and a half years.

What strengthened the series was that she had a man on the inside: Henry Rogers, who was a senior director of Standard Oil. Historians suggest that he was an arrogant man who reached out to her believing he could charm her and perhaps spin the story and settle some scores. 

For two years she came to the Standard Oil office, whisked in one door and out another, while Rogers reviewed her findings and, she noticed, kept the light trained on the founder and off himself.

What made the series particularly lethal was its clinical calculation. Knowing that Standard Oil’s lawyers would pounce on any emotional outbursts, Tarbell weaponized a mountain of dry public records, footnotes, and court testimonies. By adopting the tone of a detached researcher, she masked her personal crusade, allowing the selected raw data to quietly dismantle the company’s reputation piece by piece. 

And she gave the company its fair due with an entire chapter discussing its legitimate greatness. “There was not a lazy bone in the organization,” she wrote, “not an incompetent hand, nor a stupid head.” Having established that these were the best men in the world at what they did, she showed that despite all that, they had cheated anyway.

“Mr. Rockefeller has systematically played with loaded dice,” she concluded, “and it is doubtful if there has ever been a time since 1872 when he has run a race with a competitor and started fair.” To the old defense that everybody in the industry took rebates, she had a flat answer: “Everybody did not do it. In the nature of the offense everybody could not do it.”

Month after month, everything Rockefeller assumed was safely buried decades ago came back up in print. With the public crying for more, Tarbell delivered. The South Improvement Company. The Cleveland massacre. The drawbacks. She found one detail from a teenage office boy assigned to burn records at a Standard plant. 

While doing so, he spotted in the furnace pile the name of his own Sunday-school teacher, a small independent refiner. The paper was from a railroad and it showed the man’s shipments from that week. Standard Oil was the largest refiner in the country but felt threatened enough by one man’s business to keep tabs on him. 

The smallness of it was what shook Ida Tarbell the most. “There was a littleness about it that seemed utterly contemptible compared to the immense genius and ability that had gone into the organization,” she wrote.

And Rockefeller said nothing. As issue after issue was printed, associates begged him to answer, but he refused. “If she is right we will not gain anything by answering, and if she is wrong time will vindicate us,” was his response. Walking alongside him at his Forest Hill estate, a friend pressed him again to respond just as a worm crossed their path. “If I step on that worm I will call attention to it,” Rockefeller told him, motioning to it. “If I ignore it, it will disappear.”

The composure was a performance. On a train west, a companion read to him the most recent installment aloud, and he listened “with keen interest and no resentment.” Then he turned away any attempt to discuss it saying, “Not a word. Not a word about that misguided woman.” 

Around the family he even started to call her “Miss Tarbarrel.” When an old Cleveland friend gently raised the subject, he shut that down too. “The world is full of socialists and anarchists. Whenever a man succeeds remarkably in any particular line of business, they jump on him and cry him down.” And “The crowd is always ready to help tear down a successful man.”

He believed it. In his head there was a complete, airtight story in which every critic was simply a sore loser. The old Cleveland refiners who had sold out to him in 1872 had taken his cash instead of his stock. They laughed at his folly. But soon their laughter died, replaced with regret and then jealousy as they watched the stock turn into fortunes for other men.

There was one place Rockefeller could almost always be found in Cleveland. And it had been that way for more than 30 years. At Church, teaching Sunday school. He had been the Church’s superintendent since 1872. He always came early in the morning to kindle the fire and stayed late to dim the gas lamps. “Boys, do you know why I never became a drunkard?” he liked to ask the room. “Because I never took the first drink.” He had been covering half the church’s budget out of his own pocket for decades. His faith was not a costume he put on. It was the oldest and steadiest thing within him.

Which was exactly why his pew had become a kind of attraction. The richest, most hunted man in the country sat in plain view in the ninth row every Sunday, and the church increasingly filled with people who had not come for the sermon. They were curiosity seekers, feature writers, panhandlers, and oil men angling to get near his money or pry loose a tip on Standard Oil stock. Instead, he gave them hymns and temperance lectures and nothing more.

He and Tarbell were in the same room exactly once, and he never knew it. In the fall of 1903, hearing that Rockefeller would give a special talk at his Cleveland Sunday school, Tarbell decided to attend. She got there first and watched as he entered the room. She watched him take off his coat and hat, and slide a black skullcap over his bald head, and sit down flush against the wall, where he could see the whole room.

“There was an awful age in his face,” she wrote afterwards of 64 year old Rockefeller, “the oldest man I had ever seen, I thought, but what power!”

 She studied him for the two hour service, watching him crane his neck and scan the crowd, and decided for herself that he was afraid. She wrote: “I was sorry for him. I know no companion so terrible as fear.” It did not occur to her that she was maybe part of what he was scanning for. Nor did she know that he also searched congregations for another reason, to slip envelopes of cash to needy members after the service.

But her verdict was the one that stuck in the minds of the public. She wrote: “They had never played fair, and that ruined their greatness for me.”

Tarbell’s articles on Standard Oil were much more accurate than the Lloyd ones from earlier. Better researched and documented. But they also had their misses. One of the most famous stories in her whole series was called the Widow Backus affair. Mrs. Fred Backus was the widow of one of Rockefeller’s old Sunday-school friends. She had sold her late husband’s small lubricating works to Standard Oil in 1878 and then spent the rest of her life telling anyone who would listen that Rockefeller had robbed her blind.

Tarbell told this story as gospel.

But the records tell it very differently. The plant was obsolete. And she asked for as much as $200,000 for it. Standard’s appraisers came in and assessed it as worth far below that. But Rockefeller, out of personal regard for her, directed that $10,000 be added to the assessment. She was then paid $79,000. Then he offered, in writing, to undo the entire sale if she wished it. 

She took the money and proceeded to put it into Cleveland real estate, dying years later worth more than $300,000. Her own brother-in-law later wrote to Rockefeller: “I know that you paid 3 times the value of the property, and I know that all that ever saved our company from ruin was the sale of its property to you.”

Rockefeller Biographer Ron Chernow, writing a century later with these papers in front of him, judged Tarbell’s series one of the great demonstrations of what a single journalist can do against seemingly invincible power. But he also concluded that it “does not, finally, stand up as an enduring piece of history.”

In 1905 Tarbell published a two-part character study of Rockefeller himself, but there the scalpel instead turned into a club. She described his alopecia as the outward sign of moral rot, the puffy flesh and thin lips of a “living mummy.” He could shrug off attacks on his business methods but this personal attack hit a nerve.

The same study dragged his father into the open. It revealed that the richest man on earth had a parent still alive out west, a traveling medicine man living under an assumed name. This was a secret Rockefeller had spent his whole life burying. Sixteen years earlier, in 1889, his mother Eliza had died at age seventy-six, never knowing that the husband who had drifted away from the family for decades was living as a bigamist under a false name. The day before her funeral, Rockefeller went to the minister who would deliver the eulogy and arranged for one detail to be added: that his mother had died a widow, faithful to the memory of her dead husband. The death certificate recorded the same fiction. At his mother’s funeral, Rockefeller, for the official record, had killed the old man off himself.

But now, Tarbell was digging the old man back up. As a result, for years, reporters hunted Big Bill Rockefeller. They were too late. He died in 1906 at ninety-six years old, buried under the name Levingston in an unmarked grave.

The family absorbed the rest. While the Tarbell series ran, his wife Cettie suffered a stroke that left her half-paralyzed for two years. Bessie, their eldest daughter, sank into a dementia she never came out of. And another daughter, Edith fled to Europe, depressed. Junior, gripped by migraines and insomnia, broke down entirely late in 1904 and spent most of a year recovering in France. All of this stayed hidden from the public. It was in these years that the father began confiding in the son. 

“He used to talk to me about the criticisms,” Junior remembered, “and I think it eased his mind to do so… but he always ended up by saying: ‘Well, John, we have to be patient. We have been successful and these people haven’t.’”

Tarbell had set out to make him answer for all of it. But he never answered her. His focus always remained on staying out of the spotlight and concentrating on only what he could control. In July 1905, with Tarbell’s final installment on the stands, he wrote to Archbold, the man running Standard Oil now: “I never appreciated more than at present the importance of our taking care of our business, holding it and increasing it in every part of the world.”

The armor cracked once. In his late seventies Rockefeller sat for a long run of private interviews with a writer named William Hoster. Hoster had been a newspaperman, and one day he worked up the nerve to ask whether Mr. Rockefeller had ever considered that he might be partly responsible for how the papers had treated him. 

Rockefeller was dumbfounded at such a suggestion. Then Hoster admitted that he himself had once written absurd stories about Rockefeller’s failing health. He explained that he had done so because when his editor sent him to check the facts, nobody would let him within a hundred feet of the man. The secrecy itself had become the story, because reporters like him had nothing else to go on.

Rockefeller stood in silence a full minute before murmuring, “So, it is all my fault.” Then, after another long pause, he went on: “I suppose there may be something in what you say, though I had never thought of it in that way before.”

The Law Closes In

The public verdict was one reckoning. The law was another, and it had been grinding toward Standard Oil for decades.

Congress had moved first. In 1890 the Sherman Antitrust Act became law, written in large part in response to what Standard Oil had built. But then, for a decade, almost nothing happened. The law was vague and barely enforced. It was so full of loopholes that people took to calling it the Swiss Cheese Act. Standard Oil lost no sleep or money over it.

The trust was simply very good at not being caught. Every time a court came close, the company would change shape. When Ohio’s courts ruled that their present arrangement was illegal, the partners dissolved it on paper into twenty separate companies but then continued to run all twenty from the same office. When the state next pressed for Standard Oil’s books, sixteen boxes of records turned up conveniently burned.

And in 1899 the empire slipped into its final and cleverest disguise. New Jersey had just made a new kind of company legal. It was termed a “holding company,” and its only job was to own other companies. So, the entire empire reorganized under a single entity: Standard Oil of New Jersey. It now held forty-one firms that operated from coast to coast.

If the government wanted to dismantle the machine now, it would have to sue a single, massive corporation and win. It would take a president willing to try. 

Breaking It Up

In September 1901, an anarchist shot President McKinley, and a young man named Theodore Roosevelt took the oath of office. This new president drew a line between the good trusts and the bad ones and put Standard Oil at the top of the bad list. And in November 1906, his government sued under the Sherman Act to dissolve Standard Oil of New Jersey. 

By the following summer, seven federal and six state suits were also opened and all running at once against Standard Oil.

The main case became the largest antitrust proceeding the country had ever seen. Over four hundred witnesses. Eleven million words of testimony. Twelve thousand pages. It would take almost five years.

And on May 15th, 1911, the end finally arrived. In a sleepy Supreme Court chamber, Chief Justice Edward White read the opinion aloud, in a voice so low the other justices leaned over and asked him to speak up. The verdict inside the mumble: Standard Oil was deemed an unlawful monopoly. They gave it six months to break itself into thirty-four separate companies, forbidden ever to recombine.

Rockefeller was on the golf course that afternoon, playing with a Catholic priest from the nearby village, when the word arrived. He took the news in, then turned to his partner. “Father Lennon, have you some money?” The priest said no, then asked him why.

He responded with three words, “Buy Standard Oil.”

To his old partners he sent a wry note: “Dearly beloved, we must obey the Supreme Court. Our splendid, happy family must scatter.” The opinion itself, the one that broke up his life’s work, he refused to read.

Wall Street soon saw what the government had missed. J. P. Morgan asked the obvious question: “How the hell is any court going to compel a man to compete with himself?” When the thirty-four orphan companies began trading that December on the stock exchange, investors soon discovered that each one was stuffed with hidden assets. 

The shares soon went vertical, propelled by each company being free to do what was in their best interest and the arrival of the automobile. 

Just a year earlier, in 1910, gasoline-once a near-worthless byproduct routinely dumped into rivers-had outsold kerosene for the very first time. Now, every Ford Model T rolling off the assembly line was burning it, turning the thirty-four spun-off companies into a network of instant goldmines.

Rockefeller owned roughly a quarter of every new company. Worth about $300 million the day the court ruled, his fortune skyrocketed to nearly $900 million just two years later. It’s worth noting the entire federal budget of the United States was just $715 million at the time.  

Roosevelt fumed from his retirement: “No wonder that Wall Street’s prayer now is: ‘Oh Merciful Providence, give us another dissolution.’ ”

The pieces took up names Americans would spend the next century buying gas from: Exxon, Mobil, Chevron. And the man who had preached for forty years had preached that corporate monopolies had come to stay, made more money from the dismemberment of his company than he ever made running it.

The government had finally won. But Rockefeller had not lost.

The Philanthropy Machine

Strangely enough, the five plus years the government spent trying to take Standard Oil apart were the same years John D. Rockefeller really started trying to give it all away. 

By the time he was sick in 1891, the checks alone had grown past a million dollars a year, and the appeals were starting to bury him, which is why he had hired Gates, the Baptist minister, in the first place.

For the first few years Gates was just a filter. He read the begging letters so Rockefeller didn’t have to. Then Gates began to do what Rockefeller had always done with a new business. He studied it. He went looking for the structure underneath.

In the summer of 1897, Gates sat down and read a dry medical textbook, Osler’s Principles and Practice of Medicine. He read it cover to cover, and came away unsettled. Most diseases, he realized, had no known cure, and almost no one in America was trying to find one. Here was a whole field nobody had organized, a great open territory of human suffering with no one organization on it yet. It was the chaotic oil regions again, and Gates knew exactly who to bring to it.

So, together they built a foundation the way Rockefeller had built an oil refinery. Hire the best people alive and then leave them alone. Build the system and then measure the results.

The first piece was a university. In 1889, even while Ohio’s lawyers had started circling, Rockefeller had begun pouring money into a new University in Chicago. It opened in October 1892, in the thick of the Standard Oil legal battle, with no ceremony. It did not have the Rockefeller name over the door. That was on purpose. 

What it did have was a faculty so strong that the school entered the front rank of American universities on its very first morning. He would end up putting thirty-five million dollars into the University of Chicago over his lifetime. The students knew exactly who their silent founder was. They sang a song on campus that began, “There was a man sent from God whose name was John.”

The next piece was the body. In 1901 he founded the Rockefeller Institute for Medical Research in New York, the first American institution devoted purely to discovering the causes of disease. It was the answer to the open field Gates had found in that textbook.

The year after, more education. In 1902, came the General Education Board, founded with a million dollars of seed money and aimed at the wrecked schools of the American South. Within eight years its money had helped bring eight hundred Southern high schools into existence.

He also funded Spelman, the Atlanta school for Black women that carried his wife’s family name. He had started funding it in 1882, when it ran out of a leaky church basement, and he kept funding Black colleges for decades after.

Soon the giving machine would be running at full power. In 1902 a government scientist discovered that hookworm had infested the American South. Hookworm is a parasite that enters barefoot children through the soles of their feet and slowly drains them of energy. By some estimates two of every five Southern children at the time carried it. The cure, it was discovered, cost just fifty cents.

Rockefeller handed the problem a million dollars and an organization, and had Gates run it the way Standard Oil would have run a new territory. The money was leveraged to get state governments moving rather than to replace them. State health boards were the ones getting the credit. And the Rockefeller name was kept deliberately quiet. Young doctors were paid to fan out across rural counties, with public dispensaries expanding from two Southern counties to more than two hundred in three years.

In five years roughly half a million people were treated, and a regional curse fell to a minor infection. Some Southerners, sure there had to be an angle, decided that the wealthy Rockefeller was secretly getting into the shoe business.

The final and largest piece took the longest, and it was the purest version of the idea. It was designed to be a permanent, professionally managed fund so massive that its administration would be a public trust itself. In 1906 Gates wrote Rockefeller a letter that set the terms: “Your fortune is rolling up, rolling up like an avalanche! You must keep up with it! You must distribute it faster than it grows! If you do not, it will crush you and your children and your children’s children.”

Asking Congress to charter such a fund produced a national spectacle. Because the federal government was prosecuting Standard Oil as an illegal monopoly, a fearful Congress balked on the conundrum for three years until the Rockefeller family gave up. The Family finally bypassed Washington entirely. In 1913 New York State quietly chartered the Rockefeller Foundation with a deliberately limitless mandate designed to outlive its founders: “to promote the well-being of mankind throughout the world.”

Rockefeller endowed it with a hundred million dollars. This new foundation took the hookworm fight worldwide to fifty-two countries, bankrolled the campaign that all but eradicated yellow fever from the Americas, and built modern schools of public health from Baltimore to Calcutta. 

By the time the dust settled, Rockefeller’s systemic giving eclipsed even the legendary lifetime benchmarks set by Andrew Carnegie. 

None of it surprised the people who really knew him. “I do not believe a man has a right to hoard money,” he loved to say. He would repeatedly say he had been begging for good causes since boyhood, when he had first been tasked with raising money to clear the debt of the Erie Street Baptist Church. 

A reporter once told him that he wanted to write about how the richest man in the world played, following orders from his newspaper. “Stop!” Rockefeller snapped at the man. “If we are to get along, you will have to find some other designation for me… Wealth isn’t a distinction. If I have no other achievement to my credit than the accumulation of wealth, then I have made a poor success of my life.”

To Rockefeller, philanthropy was never a late-career change of heart or a desperate washing of his family name, regardless of how it looked to a cynical public. He genuinely believed that the exact same God who had engineered his corporate fortune was now supervising him as he handed the keys back.

Junior

John D. Rockefeller and his son, John D. Rockefeller, Jr. are shown in 1915. Source: Cleveland Memory, Cleveland State University Library Special Collections Date: 1915

He passed the same philosophy onto his only son, John Junior, who reported for work at 26 Broadway on October 1, 1897, the same year his father quietly stopped coming in. 

Junior was given no title and no instructions.“Father never said a word to me about what I was to do in the office before I began work there,” he remembered, “nor has he ever since.” So on that first day he filled inkwells and walked around trying to be useful.

Two years in came his first real test. A Wall Street con artist tricked the earnest young heir into a fraudulent stock deal, swallowing nearly a million dollars of his father’s money. Terrified, Junior went to report the disaster. The elder Rockefeller listened calmly, audited the figures without a single word of reproach, and said: “All right, John, I’ll take care of it.” The mistake was never mentioned again.

What Junior was never handed was the truth about how the massive fortune had been made. He had taken his parents’ morality entirely on faith, and his father left it that way. “Most of what my son knows of this situation,” Rockefeller once admitted of the South Improvement Company, “is his memory of what he has read in [Tarbell’s] book.” 

Discovering his family’s history from a woman determined to destroy them half-broke the heir. 

His migraines and the year he spent in France recuperating were the cost of defending a record he had never been allowed to really see, let alone understand.

In 1910 Junior made his decision. He resigned from the board of Standard Oil and stepped away from the business side for good. His real life’s work would be the other machine, the giving one. Over the next half century he moved more than a billion dollars of his father’s fortune out into the world. But even so, the weight of it never lifted; he carried the headaches for decades. 

As Gates observed, Junior desperately wanted to escape his father’s shadow and forge an independent career, but he was “dedicated from his birth to overwhelming burdens, not to be evaded.”

He never stopped revering his father though. Years later, before a visit to his father, he wired ahead a single sentence that explains their whole relationship: “Am not coming because I think you need me but because I know I need you.”

Widower

Cettie’s health had been failing for years. By the time the worst of the Tarbell storm had passed she was confined to a wheelchair. She spent most of her time in bed, worn down by a list of ailments no doctor could quite name. Her husband cared for her with a tenderness that startled those who only knew one side of him. 

At dinner he would slip a flower off the table, climb the stairs, and carry it up to her. On their fiftieth anniversary, in September 1914, he set a brass band on the lawn at their New York Estate and had her carried out to Mendelssohn’s wedding march. He had said the truest thing about her years earlier, from a pew in the old Cleveland church, looking up at her pale face: “The best thing I ever accomplished, and the thing that has given me the greatest happiness, was to win Cettie Spelman. I have had but one sweetheart and am thankful to say I still have her.”

She died in 1915. Unfortunately when she passed he was a thousand miles south from her, in Florida. When the two telegrams reached him, the first saying she was dying, the second that she was gone, he carried the news to the breakfast table, and his son and daughter-in-law watched him do the one thing they’d never seen him do. He wept, openly.

Then came the question of where to bury her, and the answer turned into one of the strangest episodes of his life.

For two years Rockefeller had been locked in a vicious tax fight with the state of Ohio. He had been a legal resident of New York since the 1880s when Standard Oil moved their office there. So he paid his taxes there, but Cettie’s long illness had stranded him at Forest Hill, his Cleveland estate, past the February date that decided who counted as an Ohioan for tax purposes. The County had kept tabs on him and pounced at his lapse, billing him a million and a half dollars. He refused to pay a cent of it. So, the governor of Ohio let it be known that if Rockefeller crossed the state line, he would be served with a subpoena on the spot.

Because the Spelman family plot was in Cleveland, the richest man in America could not bury his own wife without being ambushed at her gravesite. 

So he didn’t go, not yet. He gave the newspapers a tender cover story, claiming he could not bear to let her go: “I want to keep her with me as long as I can.” What he actually did was park her casket for four and a half months in a granite mausoleum at Sleepy Hollow Cemetery in New York.

When he did finally move her to Cleveland, he did it as a heist. 

On a day of pelting rain and hail, the mausoleum guards were sent down to the cemetery gate on a twenty-five-minute errand to fetch decorative plants. 

While they were gone, an undertaker backed up to the vault. They peeled back the flower-covered pall, and lifted Cettie’s casket out and slid in an empty substitute container in its place. 

Finally, they covered the fake box with the original flowers. The undertaker drove her out the front gate hidden inside a plain, rough, unmarked box, carried her to the railway station, and loaded her into a baggage car in the flashes of lightning. Nobody on the train knew there was even a body. She rode to Cleveland with the undertaker.

A man who helped arrange the smuggling remembered Rockefeller’s reaction: “To plan and carry out the removal of the body without the papers and the public discovering a thing until all was over, was a source of satisfaction to him.”

Running right alongside his genuine grief, was the satisfaction of a job well done. 

He had beaten Ohio, outsmarted the press, and moved the person he loved most across a guarded state line and not a soul had laid a hand on it.

What waited in Cleveland was small, silent and secret. To ensure he wasn’t served by the Ohio courts, only a handful of people stood with him at the gravesite at Lake View Cemetery as Cettie was lowered. She would lay beside his mother Eliza, with a space left open between the two graves, so that one day he could lie there too, in the gap between his mother and his wife. “That was all so beautiful, so lovely,” he said. “It was just as mama would have wished.”

He never forgave the city for the insult: “Cleveland ought to be ashamed to look herself in the face when she thinks of how she treated us.” The town where he had built the whole machine, refinery by absorbed refinery, had chased his wife’s coffin to its grave.

When they inventoried Cettie’s wardrobe, it told its own story of their lifestyle. The wife of the richest man on earth had owned almost nothing of value. The costliest thing in her closet was a sealskin coat appraised at a hundred and fifty dollars.

By the mid-1910s the Standard Oil empire was scattered into 34 separate entities. And the money Rockefeller had made had built a giving machine that was running on rails he no longer had to touch. The public hatred had peaked and began, very slowly, to soften. What was left was the man himself: old, bald under a shifting rotation of wigs, and lighter than he had been in decades. Rockefeller turned his sights toward the one thing money could not buy, he decided he wanted to live to be a hundred years old.

Act 4

Neighbor John

Sometime around 1918, a small boy in Ormond Beach, Florida, called out to the old man walking past. “Hello, John D.!”

The old man was not offended. He just thought it could have been done better. “It would have been nicer,” he remarked afterward, “if he had said, ‘Hello, Neighbor John.’ ”

The town heard about this and began calling him Neighbor John. He cherished it. For many, he was the most hated man in America, builder of the octopus, the original trust. He was the living mummy of Ida Tarbell’s last installment, and a Florida resort town had now decided he was to be their idolized old neighbor. They thought of him as somewhere between a retired mayor and an old Sunday-school teacher.

Part of it was simply time. The so-called crimes Tarbell had documented belonged to the 1870s and 1880s. But 40 years later they had faded into a half-remembered era. Part of it was money: the country worshipped wealth in the roaring 1920s in a way it never had before, and John D. was its patron saint. And part of it was the company he now kept in the public mind. Ask an American in 1925 what the name Rockefeller meant and the answer was as likely to be a university, or hookworm, or yellow fever, as Standard Oil. The giving machine had done slow, quiet work on his reputation, and it had taken hold of the public.

And part of it was the dimes.

The dimes were his own idea. For years he had carried shiny coins to give out as he moved around, dimes for adults and nickels for children. Each one would be delivered with a small sermon: that the nickel was a year’s worth of interest on a dollar; save it, don’t spend it; work hard and be frugal and a fortune will come. He gave them to caddies on the golf course and to children on the street or to those who told him a good story at dinner. When somebody spilled something at his table, he would pour dimes over the stain as a tip for whoever mopped it up.

Then, a public-relations man Junior had hired, saw this the habit and let the newspapers and cameramen find it. By the end Rockefeller had handed out somewhere between twenty and thirty thousand dimes. People started to collect them. Molding them into amulets and framing them on walls. Old newsreels show him pressing dimes into palms, murmuring “Bless you, bless you” in a thin reedy voice, like a man giving communion.

A century later, visitors to his grave still leave dimes on the stone.

The famous soon came to meet him too. Henry Ford turned up one day at Ormond Beach without an appointment. He was told that Mr. Rockefeller appeared on the public golf course at exactly twelve minutes past twelve. He met him there at that precise instant. Ford studied the leathery face and the alert eyes and said afterward, “As soon as I saw his face I knew what had made the Standard Oil Company.” 

The humorist Will Rogers came out for a golf game too. When Rockefeller handed him a souvenir dime, Rogers turned it over and said, “You know, after the company this little dime has been keepin’, I’m afraid it’s gonna be plumb lonesome in my pocket.” And when Rockefeller beat him on the golf course, Rogers said, “I’m glad you beat me, John. The last time you were beaten, I noticed the price of gasoline went up two cents a gallon.”

That Rogers dared to make the joke, and that Rockefeller threw back his head and laughed at it, said a lot. He had become a storybook character, a certified American original, and he knew it.

He was, by his own happy account, living his life backward. He had been a monument of self-control through more than sixty hard-working years, but as he reached his eighties, he entered a kind of late, mischievous boyhood. 

He now owned sixty suits and several hundred ties and sometimes changed his clothes three times a day. He’d pick up hitchhikers to keep the conversation going on afternoon drives through the country. Pulling into a country filling station one day, low on gas, he leaned forward and told the woman at the pump, “My dear woman, we are on our way to heaven. And we’ll get there sooner or later.” She looked him up and down. “Yer may be on yer way to heaven, whoever you are,” she said, “but I warn yer you’ll never get there on five gallons o’ gas.”

It became one of his favorite stories.

Race to a Hundred

What Rockefeller wanted now, more than money, which he had largely stopped being able to spend, was time. He had settled on a number. One hundred years old. And he treated the project the way he had treated everything else, as a problem of inputs and waste. He started eating a tablespoon of olive oil a day. He golfed each day in the open air. He’d have five rest periods a day on a fixed schedule. 

His doctor had long prophesied that he would indeed reach a hundred, and the two of them shook hands on a pact to play a round of golf together on July 8, 1939, his hundredth birthday. Amazingly, his doctor did not make it, dying in the 1920s. But his patient soldiered on.

He cut waste till the very end. Studying the fire one evening at Ormond Beach, he asked the butler how long the sticks of firewood were. Fourteen inches, the butler told him. Would they do just as well at twelve? He asked.  The butler supposed they would. Twelve inches gave enough heat and light but at less cost, and twelve inches it became. He was now in his nineties. 

As his strength finally ebbed he negotiated with it the way he negotiated with everyone, by halves. He cut his golf from six holes a day to four, then to two, then, after a bad cold in 1932, finally gave it up for good. 

He took off the silver wigs he’d been wearing daily for decades and never put them on again. He now mounted a stationary bicycle in his room to keep the muscle in his legs and pedaled slowly. 

He was a wizened little man now under ninety pounds who had decided he was not done. When he turned ninety-six, his insurance company, honoring an old policy, had to pay him five million dollars. By the actuarial tables of the day, one out of a hundred thousand people lived as long as he had.

See You in Heaven

He did not reach one hundred. He missed it by a little over two years.

On May 22, 1937, Rockefeller ran through his usual comedy routine with Mrs. Evans, his housekeeper. She fished for a compliment. “Mr. Rockefeller, you haven’t said anything about how I look.” He made a small bow from his chair. “Mrs. Evans, that is because I am never able to do the subject justice.” 

That same day he paid off the mortgage on the Euclid Avenue Baptist Church in Cleveland, the church whose congregation had approved of his very first wig. Before the day was over he had a heart attack. Soon after, he slipped into a coma and died in his sleep, just six weeks short of his ninety-eighth birthday.

His body went by private rail car to Cleveland, and was lowered into the ground between the two Baptist women who had believed in him without reservation his whole life: his mother Eliza and his wife Cettie.

The Account

So what to make of him.

Let’s start with the arithmetic, since he would have. By the time he and his son were done, his fortune had very largely been given away. He donated more than half a billion dollars in his own lifetime. Junior, spending the inheritance, moved more than a billion more. They funded a university, a medical institute that would help give the world vaccines, the campaigns that broke hookworm and yellow fever, schools of public health on three continents. A great deal of human suffering ended because he had decided that hoarding money was a sin and built a machine to get rid of it.

And the machine that made the money in the first place had run on rebates and spies and burned ledgers and the quiet ruin of men who had trusted his cash over his stock. Both of those things are true at the same time. 

Tarbell got the second one mostly right, and his own papers, opened long after everyone involved was dead, showed it ran deeper than even she had proved. He went to his grave certain the critics were sore losers and that God was keeping the only books that mattered.

And yet history, in the end, has been kinder to the company than Tarbell was. Standard Oil rose out of an industry that was pure chaos, a frenzy of booms and busts and reckless overbuilding that ruined nearly everyone who touched it, and Rockefeller forced order onto it. 

He drove the price of kerosene down so far and so steadily that ordinary families could afford to light their homes for the first time. 

He brought science into the trade, a test laboratory in every refinery, and built the pipelines and tank cars, and worldwide distribution that became the template for the modern corporation.

Even the breakup made the point in its own backhanded way: the pieces turned out to be worth so much more apart than together that his own grandson, writing an economics thesis years later, sided with the court while still crediting Standard Oil for bringing order to the industry. 

He had kept his own books from the start. Ledger A, the little volume where the boy clerk recorded his first wages and his first gifts in the same careful hand, telling the same story he would tell all his life: that the getting and the giving were one act, two columns in a single account, both of them done for the glory of God and the good of man. 

He believed that completely.

The country never did settle the question. It went on doing with John D. Rockefeller what it had always done, lionizing him when it admired wealth and vandalizing him when it didn’t. He outlasted every verdict. He was the most hated man in America, and then he was Neighbor John pressing dimes into the hands of children, and the strangest part is that he had not changed all that much. The country had. 

John D. Became the world’s first Billionaire, September 28th, 1916

**

The post [Outliers] John D. Rockefeller: The Principles Behind The Greatest Fortune in History appeared first on Farnam Street.

Kaz Nejatian took over Opendoor when it was just months away from bankruptcy and set out to rebuild it from the ground up. What happened next shocked everyone.

Play

Featured clips

04:28

The Blueprint that Changed Opendoor

05:57

The People You Hire Is the Company You Build

09:13

Key Principles to Turning Around a Company

18:16

Most Powerful Mental Models

Most turnaround stories are told years later, by the winner, after the ending is already known. That’s why they always sound clean and polished. This one doesn’t have an ending yet, and it’s anything but clean and polished. Kaz takes us inside while it’s still happening.

We discuss why great companies drift away from reality, why truth has to matter more than feelings, and how competent people who don’t believe in the mission quietly destroy an organization.

He shares the principles behind rebuilding culture, eliminating bureaucracy, making faster decisions, using AI to flatten management, and creating teams that move with speed and ownership.

One of the key things I learned in this conversation is that the comfortable lies that sink a company are the same ones that sink a career.

Listen Now: YouTube | Spotify | Apple Podcasts | Transcript | X

+ Members get the longer, extended version of this conversation, with additional content not included in the public release. 

* Note: ‍Shane and guests may hold positions in assets discussed in this episode. This podcast is not investment advice, and is intended for informational and entertainment purposes only. Nothing in this conversation should be considered investment advice, financial guidance, or a recommendation to buy or sell any security. Always do your own due diligence or consult with a qualified financial advisor before making investment decisions. 

The post Truth Over Feelings: Inside Opendoor’s Turnaround appeared first on Farnam Street.

If you want to learn how capitalist countries become socialist, this book will help you.

Let’s dive in.

Atlas Shrugged: The Simple Version

The world depends on a relatively small number of people who build, invent, and produce. They are the entrepreneurs, engineers, scientists, industrialists, and creators who keep civilization progressing.

Over time, mostly through the media and government, society begins to treat ability as a public resource. Need becomes a claim on achievement. The more capable you are, the more you are expected to give to those who produce less.

Ability becomes a liability. Success is increasingly resented, taxed, regulated, and morally condemned.

Gradually, the producers begin to ask why they continue to support a system that constantly punishes them both in words and policy. As they withdraw, the system begins to fail.

The government, media, and crony class blame greed and capitalism, and use that to justify more control, more regulation, and more seizures of private property.

But the crisis was not caused by the producers. It was caused by a society that believed it could consume achievement while attacking the people who make achievement possible.

Without the producers, the system that exploited them can no longer function, and society collapses.

Nobody notices who is holding the world up until the day they stop.

What Does the Title Mean?

Atlas is the Titan from Greek myth, sentenced to hold the sky on his shoulders forever. He’s Rand’s stand-in for the producers: carrying the world while getting blamed for its weight.

And “Shrugged” is the whole book in a single word.

Atlas doesn’t rage. He doesn’t beg. He just shrugs his shoulders and sets the sky down.

And the world falls.

Still curious? Check out my summary of How to Win Friends and Influence People.

The post The Best Summary of Atlas Shrugged appeared first on Farnam Street.

Play

Featured clips

07:52

The difference between mastery motivation and ego-driven motivation.

14:28

Practical techniques for developing presence and reducing distraction.

32:46

Rebuilding confidence by focusing on small wins instead of chasing big recoveries.

47:14

How self-talk shapes beliefs, behavior, and long-term performance.

Dr. Gio Valiante is the world’s leading performance psychologist.

We discuss why most people never reach their potential, how confidence and fear shape performance, and what separates those who consistently excel from those who stay stuck.

He shares practical strategies for building better habits, overcoming self-imposed limits, staying focused under pressure, and creating the conditions for long-term success.

If you’ve ever felt capable of more, this episode will help you understand what’s holding you back and what to do about it.

+ Members get the longer, extended version of this conversation, with additional content not included in the public release. 

Listen Now: YouTube | Spotify | Apple Podcasts | Transcript | X

The post The Mindset That Unlocks Your Full Potential | Dr. Gio Valiante appeared first on Farnam Street.

Play

Featured clips

02:23

Foods to Eat to Improve Gut Health

10:22

Why Fiber is Key to a Healthy Gut

22:08

Warning Signs You Should See a Doctor

37:55

Is Caffeine Bad for Your Gut?

As a physician, microbiome researcher, and bestselling author, she has spent years studying the surprising role the gut plays in everything from digestion and immunity to mood, sleep, metabolism, and long-term health.

In this conversation, Giulia explains how your gut shapes your health, how stress quietly damages it, what ultra-processed foods are doing to you, and what your body’s been trying to tell you all along.

This episode is packed with practical advice you can use right away. You’ll understand your body better and leave with a simple framework for improving your health, without complicated diets, expensive supplements, or extreme interventions.

If you’ve ever wondered why you feel the way you do, this conversation is a great place to start.

Listen now: YouTube | Spotify | Apple Podcasts | X | Transcript

+ Members get the longer, extended version of this conversation, with additional content not included in the public release. 

++ Dr. Enders has written two books: Gut: The Inside Story of Our Body’s Most Underrated Organ and Organ Speak: What It Really Means to Listen to Our Bodies.

+++ Check out the Granola Notes

The post How to Repair and Nourish Your Gut | Dr. Giulia Enders appeared first on Farnam Street.

Play

Featured clips

08:50

Obsessive Learning in Founders

13:13

The Future of AI Models

36:26

What is a Stablecoin?

45:05

The Craft of Storytelling and Writing

Available Now: YouTube | Spotify | Apple Podcasts | Transcript | X

In this episode, Bill shares the mental models he returns to most often, including systems thinking, second- and third-order effects, and the importance of understanding both the bedrock of your field and the bleeding edge.

He explains what separates great founders, why storytelling and product instincts matter, how he uses AI across different models, and what he sees coming in open source, China, stablecoins, tokenization, payments, and venture capital. 

+ Check out Runnin’ Down a Dream: How to Thrive in a Career You Actually Love

++ Check out the Granola Notes

Tiny Lessons

1. Trajectory matters more than the starting place.
2. “Success requires balancing a deep knowledge of history with an obsessive focus on the technological edge where disruption happens.”
3. “I think more people would benefit by studying the history of whatever field they’re in.”
4. “If it’s tedious to learn, it isn’t a passion. I don’t think you’re in the right lane.”
5. “I think that anybody in any field should want to be curious about the bleeding edge and what happens.”
6. “You should understand the really old stuff, the history, because it’s differentiating and shows a passion and it gives you a great frame of mind, but you also want to really understand the new edge. If you do both of those things, I think you’re a power player in your field.”
7. “If you have to write it out and make it stand alone and be cogent, you’ll think through more of the problems and it’ll be more cohesive and you’ll figure out the loose ends and you’ll tie them up.”
8. “If regulation gets extremely difficult and mundane and expensive, that could actually lead to more oligopoly.”
9. “I would describe complex systems as multivariable nonlinear systems. And multivariable nonlinear systems are very hard to predict. They can behave one way for a long time, and then one variable can switch and they can behave another way—the weather, stock markets, all these things. There are consequences that can be first, second, or third-order. You can’t just think with a linear model or just think about one variable because things can go way off the path. You need to be aware that if you make a change here, it could change something here, which could change something there, and it has to be the whole system.”
10. “You’ve got to be really conscious of the consequence and not get too deterministic about a single metric or a single variable.”
11. “I’ve always thought of Wall Street as the buyer of the product that venture capitalists create because the eventual liquidity is either an M&A (merger and acquisition) or an IPO (initial public offering).”
12. One question to ask before hiring or investing in someone: Is this person going to do this no matter what?

The post Mental Models That Change How You Think | Bill Gurley appeared first on Farnam Street.

Play

Featured clips

12:04

The Book of Life System for Making Strategic Decisions

24:05

How to Use "Proven Better New" to Build Ideas

37:25

Pitching Zynga to Steve Jobs

01:03:44

Jeff Bezos' Invaluable Management Trick

Listen Now: YouTube | Spotify | Apple Podcasts | X | Transcript

In this conversation, he breaks down how to spot winning ideas early, why most startups build the wrong thing, and why you should always copy what’s proven.

He shares lessons from building Zynga, missing the opportunity behind social networking before Facebook took off, navigating platform risk during Zynga’s explosive growth, and rebuilding his life when he thought everything was lost.

Listen and Learn!

+ Members get the longer, extended version of this conversation, with additional content not included in the public release. Join Now.

++ Check out the Granola Notes

Tiny Lessons

1. “Know your goal, or suffer a death by a thousand compromises.”
2. “Great products in the consumer world speak to us on some deep level. They speak to some human instinct or need that we’ve been feeling and it’s been unexpressed or unmet.”
3. “Some people have tact and others tell the truth.”
4. “I just started writing in a notebook about why my life sucked so badly.”
5. “Are there small things and big things that are in my control that I could go do now that I will thank myself for doing later?”
6. “If we’re starting with what if everything goes wrong, you’re playing defense and you’ve lost before you’re even out of the gates.”
7. “Our instincts are almost always right and our ideas are usually wrong.”
8. “All new fails. It doesn’t mean you don’t do new. Of course not. It means you take a different approach to new, which is you can’t try one new idea because it’s going to fail. You can’t try one new version of your new idea. You have to try many, many variants of each new idea and many new ideas and look in much smaller atomic units of innovation for new.”
9. “If you want to be a great product maker, you need to commit to a career of deconstructing and just anytime a new product comes out, be a student of yourself in that experience and what is it that feels great or doesn’t?”
10.  ”You owe it to yourself to bet on your instinct. You owe it to yourself to lose because of yourself. It’s your right to be wrong. You, as a founder, owe it to yourself to control your own destiny.”
11. “Too many teams waste time getting to a minimum viable product that they can put out in the market, and we don’t have time anymore for that. We need a failure machine at the top of the funnel. We need to get to a minimum idea state that gets vibe coded.”​

++ Pre-order Life at the Speed of Play: Launch Products People Love!

The post Proven, Better, New: Mark Pincus on the Rules of Innovation appeared first on Farnam Street.

He is known for turning Hyundai into an industrial force that helped transform South Korea. The company built highways, ships, cars, and entire industries. At its peak, Hyundai accounted for 16% of South Korea’s economic output.

This episode explores how Chung built Hyundai, how he helped power South Korea’s rise, and how hunger, guilt, discipline, and relentless persistence shaped a man who refused to stop when the path disappeared.

Listen and Learn: Spotify | Apple Podcasts | YouTube | Other Outliers Episodes

Transcript

On June 16th, 1998, an 82-year-old man climbed into the lead vehicle of a convoy of 50 trucks loaded with cattle. Behind him were 500 cows raised on a farm he’d reclaimed from the Yellow Sea.

As the cows passed, Buddhist monks chanted and women in traditional hanbok dresses lined the road, waving as the convoy rolled through the last village before the razor wire barrier separating North and South Korea.

The man in the lead vehicle was Chung Ju-yung, the founder of Hyundai. He was the first South Korean civilian to cross the border since the country was split in half. Four months later, he returned with 501 cows, for a total of 1001. One for the cow that he had stolen from his father 65 years earlier and 1000 for interest. 

Chung was so determined to change his situation that, as a teenager, he stole a cow so he could sell it to buy a train ticket out of the farming village where he was born in what is now North Korea. 

He left in the middle of the night, told no one, not even his father, and arrived in Seoul with only a sixth-grade education and no connections. To survive, he swept floors, hauled freight on the docks, ran a rice shop, and even fixed cars. Of course, this was all before he built Hyundai, but you can start to see the type of person he was. 

While many people think of  Hyundai as a car company, at its peak, it accounted for 16% of South Korea’s entire economic output. It built the highways that connected the country, the ships that carried its goods, and the cars that so famously announced Korea’s arrival to the world. Ju-yung wasn’t an inventor or a theorist. 

What he was, more than anything, was a force. He was someone who couldn’t be stopped. 

Welcome to Outliers. I’m your host, Shane Parrish. Today we’re going to explore the incredible life of Chung Ju-yung, and it’s one of the craziest stories I have ever heard in my life. 

This is the story of a man who refused to be stopped, no matter the circumstances, no matter the obstacles. He simply would not quit.

At one point, he was so poor that he was literally eating tree bark, and so rich near the end of his life that he was in the top 10 in the world. And in between these, he created entire industries and put an entire country on his back. 

One quick note before we get started. This is a longer episode, and I kind of like this format. It lets me go below the surface, beyond the sound bites, into the mindset and details that really matter. 

Let’s dive in. 

Sunup to Sundown

In the village where Chung Ju-yung was born, the children ran home from school during the day to go to the bathroom because their family needed the feces. Human waste was the primary fertilizer for the dry fields, and in a bad year, a few extra contributions from a small child could mean the difference between eating through the winter and not. 

Chung was born in 1915 in a small northeast corner of what is now known as North Korea. At the time, it was just Korea, and Korea did not belong to the Koreans. 

Five years earlier, Japan had taken the whole Korean peninsula, and what they did to the farmers was brutal. Japan seized the land through a paperwork trick. 

Korean farmers held their land by custom, not by deed. So when the colonial government demanded written proof of ownership, most of them had none. Overnight, everything changed. Suddenly they were landless. By the time Chung was a teenager, Japanese settlers owned more than half of Korea’s farmland. 

Korean families now worked as tenants on the same land they had once owned. Rent took more than half of the harvest. Taxes took around a quarter. A family kept maybe a quarter of what they grew, and that wasn’t enough to survive on. Japan shipped the best crops home, rice, especially to feed its own population. 

Koreans ended up eating sorghum, a coarse grain they had previously used to feed their cattle. Historians later measured Korean heights from the 1920s to the 1950s. The average Korean kept getting shorter year after year, a little smaller than before. Chung’s father farmed about three and a half acres. 

That sounds pretty manageable until you realize those fields had to feed a family of 10 through winter using farming techniques that hadn’t changed in centuries. In a good year, the harvest lasted through the long winter and into spring. In a bad year, the food ran out halfway through, and there were many bad years. 

Here’s how Chung describes it himself. “Back in those days, farming families were so poor that words cannot capture their suffering and destruction. After harsh winters, we would completely run out of food by the time spring arrived. From then on, we barely managed to stay alive by eating tree bark and grassroots and wild herbs.” 

He had to eat tree bark just to survive. That’s crazy, but it gets worse. 

Chung recalled his parents’ arguments: “I still vividly remember that my parents’ arguments were always about food. Their arguments would become more and more heated until the table was overturned and the food ended up on the floor.” 

Under Japanese colonial rule, Chung inherited two things from his parents. Let’s start with his father. The man knew one thing: how to work. Chung described him as a man who “farmed from birth to death, head to toe.” 

He didn’t say much. Chung wrote, “even when working beside him all day, I heard him speak at most three or four words.” 

His father’s total assets, as his son recorded them, were “a healthy body and a diligent character. He worked from sunup to sundown every single day with no exceptions and no holidays.” 

As the eldest son, Chung was expected beside him in the fields after school until dark. In Korean life, the eldest son was the pillar. If the pillar fell, the whole house fell. His father understood this in his bones and organized his entire life around it. 

By seventh grade, Chung was no longer in school at all. He was farming full time. 

His father trained him patiently and relentlessly to become exactly what he was. 

From his mother, he got something else. She was ferociously competitive. If the other women in the village weeded one row, she weeded two. If they wove a certain amount of silk, she would not stop until she had outproduced every one of them. 

Chung absorbed it all: his father’s work ethic, his mother’s refusal to lose. But in Chung, they fused into one. Later in life, he would describe himself as having an “addiction to proving limits wrong.” 

He took deep, genuine joy in being able to say, “I did,” when everyone around him told him he couldn’t, but something darker was happening in those fields. Chung was not just learning from his father; he was watching him fail. The hardest-working man Chung knew could not feed his family through the winter. 

The discipline that should have been enough wasn’t, and the boy noticed. While working these rows, he thought to himself, “will I always be a farmer and never straighten my crooked back? A farmer who will never feel full for even a day, a life like this to suffer like my toiling father? Is that all there is?” 

It was not all there is, but getting out would cost him more than he knew. 

Running Away

Chung ran away from home four times. His father caught him the first three times and dragged him back. The fourth time, Chung slipped out in darkness and never returned. 

The first time he was 16. He had just finished elementary school when he read a newspaper article about construction work in Seishin, a port city on the far northeast coast of what is now North Korea. It was a four-day boat ride away. He had no money for the boat, so he decided to walk 250 kilometers through the mountains. 

He made it. He found work on a construction site and labored for two months before his father showed up and ordered him home. 

But something had shifted in him for the first time in his life, he had earned his own wage and found his own way. He had felt what it was like to do real physical work and get paid for it. He went home with his father, but he went home a different person than the one who had left. 

The second time, he was 17 and the destination was Seoul, the center of everything. He set out with two companions and on the road a man promised them employment and stole their money instead. Penniless and stranded, they gave up and his father found them at his grandfather’s house along the route. 

Getting conned was humiliating, but it was also an education. It would make Chung unusually careful about who he trusted for the rest of his life. 

The third attempt became legend. To finance it, Chung stole one of his father’s cows, sold it for 70 won and bought a train ticket to Seoul. 

And you need to understand what a cow meant in poor Korean farming households in the 1930s, a cow wasn’t just livestock. A cow plowed the fields and hauled goods. A cow represented years of accumulated savings and food. Selling it was the equivalent of mortgaging the farm’s future and Chung did it without telling his father. 

He reached Seoul, enrolled in a bookkeeping academy and set out to become an accountant. Things went well for about two months, and then his father found him.

What happened next is one of the most devastating passages in Chung’s autobiography. His father crouched in the dirt in front of him, wept, and then said this. 

“Are there any parents in this world who don’t want their children to be successful? If you are successful enough to bring your parents and siblings to Seoul and look after them, why would this old man hold you back? But you better not forget what you are. Just a farm boy who only finished the sixth grade. 

I hear Seoul is crawling with unemployed graduates of vocational schools, but you, what are you? A nobody and a nobody like you isn’t going to make it. You will throw our family out into the streets blindly chasing after this stupid dream. 

I am old now, so you need to be responsible for looking out for the family. Since you refuse, we’re going to have to turn to begging.” 

Sit with that for a second because the father was not wrong. This was Korea in the 1930s. 

In the middle of a global depression. Seoul was full of unemployed men, most of them far more educated than Chung. And here was his eldest son, the designated pillar of the family, a teenager with a sixth-grade education who had stolen the family cow to attend a school he could barely afford. Chung’s father saw the situation with painful clarity. 

The son saw further, but neither of them knew that yet. Chung later wrote, “Even today, I get a lump in my throat. When I recall my weeping father crouched down as he uttered these words.” 

He went home with his father and threw himself into the farm, trying to repay his guilt through effort. He resolved to accept his fate and be the best farmer he could be. 

He even bought land to expand the family’s holdings. He was going to be the pillar his father needed him to be. But then another bad harvest hit, the food ran out again, and his parents started fighting. Chung wrote, “I murmured, ‘ I can’t take this anymore.’ Any fleeting resolution to remain on that farm evaporated. I was determined to go to Seoul and succeed.” 

The fourth attempt worked. He left at night without a word with a friend who was fleeing a forced marriage. 

Two young men slipping out of their old lives in the same darkness, each escaping a different trap. This time, Chung did not steal, he borrowed the train fare from a friend. 

He hated owing anyone anything, even briefly, but he hated the alternative even more. 

This time, his father did not come looking for him. And here’s the thing most people miss about this sequence. It’s not a story about a restless young man who wanted more. It’s a story about guilt. Every time Chung ran, he knew it was costing his family. 

Every time his father dragged him back, the debt got heavier and by the fourth escape, that guilt was welded to him. He carried it for the rest of his life. 65 years later, when he drove 1,001 cows across the demilitarized zone, he was still trying to pay it off. 

For now, though, Chung Ju-yung was 19, alone in Korea’s largest city with borrowed money in his pocket and a sixth-grade education to his name. He had escaped. 

But the question was now what? 

Seoul

Seoul was not what he imagined. His biography describes it with no romance at all. He started at Incheon Harbor working the docks as a day laborer, hauling freight. 

When the dock work dried up, he moved to construction. When that ended, he went to a starch syrup factory. He took whatever job would keep him fed for another week, and he was always looking for something better. 

As he later reflected, “the sad reality of farming is that no matter how much one struggles the payoff never equals the amount of work put in.” What he was discovering now was that the city was not automatically better, it was just differently brutal. 

The work was there, but it was crushing, and the margin between making it and not making it was razor thin. He was still just barely scraping by, and it was during this stretch, sleeping in a bunkhouse, that Chung encountered something that would stay with him for the rest of his life. And it was, of all things, an insect. 

The bunkhouse was infested with bedbugs. The workers tried everything to get rid of them. They moved off the floor and slept on the dining room tables instead. They put pots of water under the table legs, so the bugs couldn’t climb up. It worked for a night or two, and then one evening they turned on the lights and saw the bedbugs crawling along the walls. 

They had climbed all the way to the ceiling and they were dropping down from above directly onto their sleeping bodies. 

Here’s how Chung described the moment in his autobiography, and it’s remarkable. 

“To this day, I cannot forget the shiver down my spine that I felt back then. This made me stop in my tracks and think: even bedbugs think long and hard, and use every bit of energy they have to achieve their goal, and ultimately they succeed. I’m no bedbug. I’m a man. These bedbugs can surely teach a man a few lessons. If these bedbugs can do it, why can’t we men do it? We just need to stick to it and not quit. We need to emulate these bedbugs.” 

He added. “Whenever I tell people that it was the bedbugs that taught me nothing is impossible if one puts in one’s best effort, they think I’m exaggerating, but this really is the truth.” 

You could hear that and think it’s a cute anecdote, an old billionaire looking back and giving credit to an unlikely teacher, but I think it’s a bit more than that. 

I think the bedbug story tells you exactly how his mind worked. He was lying in a bunkhouse, exhausted, bitten, broke, still carrying all this guilt from running away, and instead of seeing pests, he saw a philosophy. The bugs didn’t stop. They didn’t accept the obstacle. They found another route. 

The lesson he drew was not complicated. Don’t stop. When the path is blocked, keep going until the thing is done. And he would apply this principle for the rest of his life, first to entire industries, and eventually to an entire country. 

He landed a position as a delivery boy at a rice shop. Part of his pay was a bag of rice every month, and he later said this was the first time he felt like he had made it because he knew he would not go hungry again. But there was one problem. When the owner hired him. He asked Chung if he could ride a bicycle. 

Chung, of course, said yes, but it was a lie. It was the first recorded instance I could find of Chung Ju-yung agreeing to do something he had absolutely no idea how to do, then figuring it out afterward. It would certainly not be the last. 

He taught himself to ride a bike within days, and then he went to work on the shop itself. 

He was the first to arrive every morning. He swept the entrance. He sprinkled water on dry days to keep the dust down. He did everything he could to make the shop run better than it had before he walked in. The owner’s son was lazy, which probably made Chung’s intensity stand out even more sharply. And the owner noticed. 

Six months later when the owner became ill, he handed Chung the store. The first thing Chung did was to rename it. He called it the, I’m gonna get this wrong, so you can laugh at my pronunciation, but he called it the. Kyungil Rice store, which translates into Number One in Seoul. 

Think about that for a second. Six months before he was a delivery boy, and now he had just taken over the shop through pure force of will and almost pathological frugality, and the first thing he did was rename it Number One in Seoul. 

You can see where his mind was already operating. The ambition had nothing to do with rice, and here’s what I think happened during these years and why they matter to everything that comes next. 

Chung had almost nothing. He had no money. He had no education, he had no connections. But he had work ethic and frugality. He was doing the things anyone could do, the things the shop owner’s son could have been doing, but chose not to do. 

The things that you could do with a willingness to show up and nothing else. The things you do when you’re desperate, not when you’re comfortable. 

By 1938, he was his own boss. He had a business, he had customers, and he was growing. He started hiring friends to deliver all the rice he was selling. He later wrote that this brief window was the only time in his life he ever felt rich, which seems almost incomprehensible given that by 1996 he was the ninth-richest person. 

But that tells you something important about how he was wired. Things did not stay stable for long. In 1939, Japanese colonial authorities imposed rice rationing. They requisitioned every private rice shop in the country. Korean private rice trading was effectively finished overnight. 

Years of work gone. Not because he had failed, but because someone with more power decided he was not allowed to keep what he had built. It was the first time the world would take something from him, but it would not be the last. 

The Auto Shop

The next year, he was back in business. Chung took out a 3000 won loan and bought an existing car repair shop. 

There was one small problem. He had no idea how to fix cars. As he put it later, “it just seemed like a good business.” 

So he handled the customer service side and learned the trade from his mechanic friends, which is another way of saying he talked to people and watched them carefully. That had been his method since the rice shop, and it would stay his method for the next six decades. 

He noticed something almost immediately, and it came hidden inside a customer complaint. Seoul had only a handful of auto repair shops at the time, and they were all terrible. They all overcharged, they were slow and unreliable. The average shop took 10 days to return a car. 10 days in a city where a car was one of the most valuable things a person could own. 

Chung saw the problem and solution immediately. Customers didn’t actually mind the price. What they couldn’t stand was losing their car for 10 days. So he built the entire shop around speed. 

His shop averaged three days for a repair job, and he charged a premium for it, and customers gladly lined up around the block. 

The volume his shop was doing meant his mechanics got more practice than anyone else in Seoul, which made them improve faster, which brought in more customers, which made them finish still faster. 

It was a virtuous circle, and Chung was spinning it deliberately. He also personally memorized every single auto part in a car, every single one. That detail would matter later in a way neither he nor anyone else could have guessed. 

Business was booming, but then a fire destroyed everything. The shop, the customers’ cars inside of it — everything was gone. 

Chung was left holding debt on a business that no longer existed and on vehicles that had been reduced to ash. His first move was to turn to his employees and say, “Hey, it’s okay. The building was old anyway.” And then he went straight back to his lender. 

His argument was so direct that I want you to hear it exactly as he says it in the book. 

“The fire burned everything down. Now I have nothing but debt. If I stop now, there’s no way I can pay you back. Sir, I beg you. Give me another chance to set this right.” 

He’s not really asking for sympathy here. He is not explaining away the loss, and he’s not really blaming anybody else. He’s simply telling the lender very calmly that the lender has two options. Option one, write off the original loan and lose everything. Option two, lend more money and maybe get it all back. 

The lender said, yes. 

Chung rebuilt the shop from scratch, and this time he grew it aggressively. By 1943, what had been a 20-person operation was up to 70. He was not just repairing cars anymore. He was building a real business with systems, with a staff, and a reputation as the fastest and most reliable shop in Seoul. 

But of course, nothing stays good for long in this story. 

The Japanese intervened again. The war was escalating and the colonial government was stripping Korea of anything that could feed the Imperial War machine. They forced a merger of Chung’s Auto Shop into a steel plant. He got 50,000 yen in compensation and just like that, he was starting over one more time.

Later in life, reflecting on the fire and everything else, Chung distilled the whole experience into what became his most famous line: “There are trials, but there are no failures.” 

The idea was not that adversity could be avoided. It was that adversity could always be converted into an education, and education is never really a loss. 

By refusing to use the word failure, he was refusing to accept the finality the word carried. He changed the language, and by changing the language, he changed his own emotional response before it could even set in. The rice shop being seized was not a failure, it was preparation for the auto business. 

The auto shop burning down was not a failure, it was the argument that got him a second loan. The wartime merger was not a failure, it was 50,000 yen and a set of skills he would carry into whatever came next. 

And what came next was Hyundai. 

By 1943, Chung Ju-yung was 28. He had built two businesses and lost them both. He had been wiped out more times than most people will be in their entire lives. But he did not stop. He did not slow down. He did not accept the pace things were moving at. 

When the path was blocked, he found another path. He went up the wall across the ceiling and dropped onto his target from above, and he was just getting started. 

The Birth of Hyundai

After the war ended and Korea was liberated from Japan in August of 1945, Chung went back into the auto repair business. He serviced vehicles, made a living, and steadily rebuilt after everything the Japanese had taken from him. And at some point during this stretch, his mother came to visit him in Seoul. 

He was taking her around the city on a trolley, showing her how far he had come from the farm. At one point, he gestured toward the grand headquarters of what had become the Japanese Government-General, one of the most imposing buildings in this city. 

And he told her. “Mother one day I’ll become the richest man in Seoul and live in a house even bigger than that.” His mother, who you’ll remember, was not a woman known for letting anyone have the last word, told him, “Now listen up, farm boy. You came here with just your two balls. You? The wealthiest man in Seoul? Get your head out of the clouds. You have a life to live.” Chung’s response was simple. “No, I’m going to make it.” So much for a mother believing in their son, but now we’re at the fun part. Everything he had built so far was about to get channeled into something much larger, something that would eventually carry his name around the world and it would nearly kill the company before anyone outside Seoul had even heard of it. 

The first thing he did was name it. 

He named the company Hyundai, which in Korean means modern. Think about the audacity of that name. Korea in 1947 was anything but modern. It was a country just emerging from 35 years of colonial rule, shattered and impoverished, and spoiler alert about to be made worse by a civil war. 

There was almost nothing modern about it, but Chung did not name things after what they currently were, he named them after what he intended them to become. He had done this already when he called a rice shop Number One in Seoul, and now he was doing it on an even bigger scale. The name was a promissory note. 

Korea was free from Japan. Korea could now become modern, and Chung was going to build it.

For a while, he was running both the auto shop and his new construction outfit at the same time, and the pivot from one to the other happened in a way that was pure Chung. One day, he sat in a government office waiting to submit a bid for some automotive work when he watched a construction company come in and collect payment for a completed job. 

The amount of money that changed hands just simply floored him.

It was so much larger than anything he was dealing with in auto repair that the math broke something in his head. He was back on the farm in a sense. He was doing exactly what his father had done, working incredibly hard day after day in a business where the payoff was linear; it was never going to equal the effort.

It wasn’t that the auto repair business was a bad business; construction was a vastly better business. Construction contracts paid 10 to 40 times what auto repair did. You could work just as hard in construction, but for a radically different payoff. 

His partners thought he was crazy. They were a small but capable auto operation, and they knew nothing about construction, but Chung had worked on construction sites during his runaway years as a teenager, and he figured he understood the work well enough to learn the rest. He also understood something about himself that his partners did not. As he put it, “Success is 90% determination and 10% confidence.” 

So he merged the auto shop into the new venture and went all in on Hyundai engineering and construction. He bet everything on a business he barely knew in a country about to be engulfed by war. 

The Korean War

On June 25th, 1950, North Korean forces crossed the 38th parallel and invaded. The Korean War had begun.

Chung abandoned his construction projects and fled to Seoul as the North Korean army advanced. He moved his family south to Busan, the Port City at the southern tip of the peninsula, and he set up a new headquarters there. 

He could have waited the war out and he could have hunkered down and just tried to survive. But we all know by now that that was not how Chung Ju-yung operated. He needed business, any business. And Busan had something very specific to offer, which was the US Eighth Army. The Americans had a massive presence in the city, and they needed housing, roads, and the infrastructure of a semi-permanent occupying force. 

Somebody was going to build it, and Chung intended for that, somebody to be him. His younger brother became crucial here. The brother was proficient in English and had built good relationships with the American military engineers, and in a country where almost nobody could communicate directly with Americans, that was a massive competitive advantage. 

Through his brother’s connections and through relentless consistent delivery on every job they took, Hyundai became the construction firm the Americans started to turn to first. Chung understood the American military’s priorities the same way he had understood his first auto customers priorities back in Seoul. 

It was the same insight applied to a different buyer. Speed and reliability mattered more than cost. Do what you say you will do when you say you will do it. The Americans didn’t want excuses; they wanted results, and Chung had been delivering results since he swept the floor of that rice shop. 

There’s one early job from this period that tells you almost everything about how Chung was going to operate for the next 40 years. In December of 1952, President Eisenhower visited Korea. US military authorities wanted the graves of fallen UN troops at a military ceremony to be covered with green grass for the visit. 

That was the specification: green grass, but there was one problem, and it was a big one. It was the middle of a Korean winter. Green grass in a Korean winter was not just difficult, it was darn near impossible. Anyone else would’ve asked for a deadline extension or explained the situation and requested more time, but Chung transplanted green barley instead, the graves were green, the job was done on time, and the Americans were satisfied. Chung didn’t argue with the constraint. He did not explain why the constraint was unreasonable. He simply reframed it, and that willingness to redefine the constraint rather than be defeated by it and then to execute fast, became Hyundai’s entire operating signature. 

It is the bedbug lesson all over again. When the path is blocked, find another path. Go up the wall across the ceiling and drop onto the target from above. War, it turned out, was good for the construction business. Hyundai grew steadily through the conflict building for the Americans, learning from the Americans accumulating capability with every contract. 

But Chung also understood that wars end. So even while fighting was still going on, he started to look for civilian projects. 

The Korean economy was shattered, government contracts were scarce, and the margins were razor thin. It didn’t matter. He had Hyundai bid on all of them. He was not chasing a windfall. He was building a company. He was building a reputation, and every contract he completed, no matter how small, no matter how unprofitable, was another deposit in a bank account that he believed would pay compound returns for decades. 

When the armistice was signed in July of 1953, Chung was 37 years old. He was running a construction firm in a country that was about to need more building than perhaps any nation in history. 

Everything above ground had been leveled. The roads, the bridges, the factories, the power plants, all of it had to be rebuilt. The only question was who would rebuild it. Chung intended for that person to be him.

The Sign

In April of 1953, 3 months before the armistice was even signed, the Korean government awarded Hyundai its biggest contract yet. The job was to restore the Goryeong Bridge, a major crossing destroyed during the war. The government wanted it to be rebuilt fast, not just for civilian traffic, but to move forces against Gorilla Fighters still operating in the area. The contract was worth more than half a million won and Hyundai had 26 months to deliver. 

This was the biggest job Chung had ever won. Not only did it have the most money, it had the most visibility. When the contract came through, he celebrated. Hyundai was about to enter the big leagues of Korean construction. But as the lesson goes, never count your money when you’re sitting at the table. 

The celebration would prove premature. The problem started almost immediately. Only the bare skeleton of the old bridge remained, which meant almost everything had to be built from scratch and flowing water 10 meters deep. 

And Hyundai had never done anything close to the scale. When Chung’s engineers tried to figure out what equipment they needed, they quickly discovered that the right equipment could simply not be found anywhere in the war torn country. What they had to work with was a 20 ton crane, a concrete mixer, and a compressor. 

Everything else had to be done by hand. 

They were just getting started when the floods came. The water swept away their scaffolding and they had to start over.

Then came the inflation that nearly destroyed the company. When Chung signed the contract, a unit of oil cost seven won. By the time their bridge was finished, two years later, it cost forty-five. 

A single sack of rice went from less than half a won to forty won. That’s not a typo. That is nearly a hundredfold increase. Every material, every wage, every supply cost him more and more each month, and the price of everything was climbing so fast that planning became almost meaningless. Chung had accounted for inflation when he bid on the job. 

He had expected it to be significant. He thought it might be a hundred percent. He was still off by a factor of 10. And here was the trap. The contract Chung had signed was a fixed-price contract. The government would pay him the agreed amount and not a single won more. It did not matter that the world had changed underneath him. 

The contract would not adjust. So the losses started piling up, compounding week by week with no ceiling in sight. Every day the bridge was not finished, was a day the hole got deeper. Workers stopped getting paid, some even went on strike, and then the creditors came. They did not knock politely. They showed up at Chung’s office demanding their money, and when they didn’t get it, they came to his home. 

Chung’s son was a small boy at the time, and his first clear childhood memory was creditors breaking into the family house with an axe.

Can you imagine? That’s crazy. Chung carried that for the rest of his life, the fact that the pressures he had taken on had reached through the walls of his home and touched the people he was supposed to protect. 

His top people came to him with a proposal. They were his brothers and his brothers-in-law. They had staked their own lives on Hyundai and they told him, stop. Stop building this curse bridge. We’re losing more money by the hour. The losses are already near catastrophic and continuing will only make them worse. 

Any other firm would quit, cut our losses and survive. We need to walk away. But Chung didn’t know how to stop, so he refused. And his response tells you exactly who this man was, not just as a businessman, but as a human being under extreme duress. 

He said, quote, “You mean you want me to take down our sign? If you’re suggesting that we stop construction, at this point, you’re basically saying, we close down our business. Trust is everything to a businessman. The moment you lose trust, it’s all over. It’s my dream to create the best construction company in the Republic of Korea, and you’re telling me to abandon it all? Whatever happens, we’re going to finish this job and we have to.” 

His brothers were telling him the rational thing. Stop. You’re bleeding out. Every day, you bleed more. Just walk away. And Chung heard them. He understood the math. He was not a fool, but he was calculating something. 

They were not. He was calculating the value of that sign. 

And Chung heard them. He understood the math. He was not a fool, but he was calculating something that they were not. He was calculating the value of the name. The name Hyundai and its reputation.

The trust he had spent years building, contract by contract, starting with the Americans in Busan, starting before that with the auto shop, and starting even before that with the rice shop where he arrived first every morning and swept the entire entrance before anyone asked him to. 

If he walked away from a job, any job in his eyes, his reputation and credibility would be destroyed. His brothers were so moved by his refusal to quit that they went home and sold their houses. When Chung found out, he burst into tears. Then he sold the land under his original auto repair shop, the place where Hyundai had been born. 

Together, the family raised almost a million won and put every last penny of it into this one project. They went all in, and when that ran out, they borrowed more at interest rates as high as 18% per month. Let that number sink in for a second. 18% per month. That is the kind of interest rate you accept when you believe one of two things. 

Either you’ll finish fast enough that the interest won’t matter, or the alternative to borrowing is worse than any interest rate. Chung fell into the second category. In May of 1955, the bridge was finished, but the final accounting was brutal.

The contract paid Hyundai 547,800 won, which had seemed astronomical when they signed it two years earlier. But the project had left them 650,000 won in debt. They had spent more than twice what they earned.

His competitors were merciless. What would a sixth-grade dropout know about construction? And here’s the part that gets me.

Chung kind of agreed with them. He didn’t blame bad luck; he didn’t blame the government for the fixed-price contract. He didn’t blame the floods. He didn’t blame the creditors who had broken into his house with an axe. He blamed himself.

He had not understood the riverbed conditions. He had not known what equipment the job truly required. He had rushed into a bid far beyond his capability without understanding what came after winning it. 

There was a line from a Chinese classic he returned to often after this nightmare: “the root of failure is planted the moment you achieve your goal.” 

His goal had been to win the bid. He had won it, celebrated, and hadn’t been prepared for what came next. He would not make that mistake again, but he also would not call the bridge a complete failure. He had finished it. He had kept his word. He had not defaulted on the contract and he had not abandoned the project. And importantly, he had not cut a single corner. He just took the loss.

Chung believed there might be periods of hardship, but never complete failure. The difference between those two worlds in his mind was the difference between a company that survived and a company that disappeared. 

The Turn

What happened next is crazy. Someone had been watching the whole time. While Chung sold the land under his own company to pay for a bridge that cost him more every day, while his brothers sold their houses and creditors came at him with an axe, the Korean government watched closely. 

They had watched Hyundai take a job that was clearly too big. They had watched the floods wipe out the scaffolding, and they had watched the inflation gut the contract. They watched Chung refuse to quit when every rational calculation said he should, and they watched him deliver exactly what he said he would, in the timeframe he said he would do it. 

When the Ministry of the Interior assigned credit scores to the country’s construction firms after the war, Hyundai’s was the highest in Korea. They got the highest score specifically because they had finished on time.

In a country full of contractors who overpromised and under-delivered, who walked away from jobs the moment the math worked against them, Hyundai did what it said it would do. They were the clean shirt in a closet full of dirty ones.

When government contracts started flowing, Hyundai won them. Chung would later tell a group of businessmen who came to him looking for capital, “Trust is everything to a businessman. The moment you lose trust, it’s all over. If I have to choose between reputation and money, I will always take reputation.” 

He believed it because he lived it. The bridge was proof. He chose reputation over money at a cost that would’ve destroyed most people, and that reputation paid him back many times over by the time he said that. The bridge also taught him something specific and operational. He had gone into the biggest job of his life without the right tools. 

Even worse, he hadn’t known what the right tools were. He could not read the conditions of the riverbed. He could not assess what equipment the job demanded. He had been guessing and the guesses had almost killed his company. He swore it would never happen again. 

So he set up a dedicated heavy equipment office inside Hyundai. Its only job was to acquire, repair, and remodel every piece of construction machinery they could get their hands on. 

And if they couldn’t buy the machine, they built it from scratch.

This is where something interesting starts to happen. Chung gets a bit of a break, and it turns out to be the return on something he had invested in years earlier without really knowing he was investing.

Because of his wartime work with the Americans, they were the only Korean construction company registered as a direct customer of the US Eighth Army. If a competitor wanted to buy high-tech American equipment, they had to go through a middleman and pay a markup. Hyundai bought direct, and here’s where the auto shop pays off.

In those years, Chung spent time memorizing every single auto part; the years his partners thought were beneath him gave him an edge his competitors didn’t have. He could look at a piece of American construction equipment and know exactly what it was worth. The other construction bosses in Korea were just guessing, but he knew.

Nothing in life had ever been wasted. Each phase quietly funded the next. In 1957, Hyundai won the contract to restore the Han River Bridge in Seoul. 

This was the same bridge that had been destroyed in the opening hours of the Korean War, and the symbolism was hard to miss. The newspapers called it “The greatest construction project of the time,” and it was one of the largest projects announced since the war. Hyundai finished it in months. 

The Goryeong Bridge had caught the government’s attention, but the Han River Bridge caught the entire country’s.

Hyundai was now counted among the top five construction companies in Korea out of more than a thousand. And then Hyundai just kept building. Bridge after bridge, they would go on to build 13 bridges across the Han River alone, including Korea’s first suspension bridge and its first cable-stayed bridge. 

This became his pattern, and it repeated for the rest of his career. He would take a contract that looked punishing on paper, finish it no matter what, and use the trust he earned from finishing to win the next contract, which was always bigger. 

He was doing the same thing he had done since the rice shop, just with more zeros. Take what you have, even if what you have is only your willingness to show up first and leave last and work hardest and convert it into something more valuable than money. Because money follows trust. Trust does not follow money. 

Building the Machine

Here’s what you have to understand about where Korea was in 1960. The country had a per capita income of about $80 a year. That put it on the same level as Ghana and Sudan and slightly behind India. People slept and starved in the streets of Seoul. Private cars were a novelty. 

Electricity and running water were luxuries. A group of the US State Department experts, after studying Korea’s prospects in depth, concluded that Korea was an economic basket case that would always depend on American handouts for its existence. The World Bank was no kinder. Not that these experts are often right. 

When they ranked the Asian countries most likely to industrialize, Burma and the Philippines were near the top. Korea was near the bottom. Nobody outside of Korea, and very few people inside it, believed the country could become anything other than a permanent charity case. 

Remember that because what Chung did next only makes sense when you understand how desperate things were. Hyundai had been doing US Army construction work since the War. Quick Jobs, simple specs, get it done fast, but in the late 1950s, the nature of the American work changed.

The US military started building permanent facilities to American standards, real buildings with real specifications. Documents ran hundreds of pages, with equipment clauses that had to be met exactly. Quality requirements had to be demonstrated, with engineering tolerances no Korean company had ever been asked to meet. Chung and his employees could barely read a page.

And this is where you get a glimpse of, kind of what separated Chung from almost everyone else running a company in Korea at the time. 

He had zero shame about not knowing things. None. Maybe it was his lack of formal education, and maybe it was just how he was wired, but in a culture where hierarchy and saving face mattered enormously, Chung would ask anyone anything regardless of their rank or age or whether the question made him look foolish. 

His attitude was simple and he drilled it into every one of his employees: it is not shameful to ask about something you do not know. Even if you have to ask somebody younger or a lower rank than yourself, he had a line for it that cut right to the point. “Fixed thinking is what makes fools.” 

Pretending you knew something you did not, performing competence instead of actually acquiring it, that was the real stupidity, and Chung had no patience for it. 

He wrote, “Not receiving formal education does not mean one is lacking in wisdom. It’s a mistake to think that broad and deep knowledge can only be obtained through formal schooling.” 

So Hyundai asked the Americans about everything, no matter how basic: they asked the technicians how to read the blueprints, meet the specifications, operate the equipment, and sequence the work. 

And on every work site where the Americans were present, Chung rotated as many of his own workers through as possible so they could absorb everything from their counterparts on how to do it the American way. Each site became a classroom and each contract was a new semester. And when they still didn’t know what something was, they just figured it out. 

During one paving project at the Osan Air Base, the specifications called for a batch plant to mix concrete properly. Chung had never seen a batch plant. He didn’t know what one was, so we sent a subordinate to another construction site to find out what one looked like. The man came back with a description. Chung drew up the plans himself and had his engineers build one from scratch. 

On another job, he needed to lift a 110-ton gate into place, but he didn’t have a crane big enough, so he used two 60-ton cranes in unison. It violated standard practice, but it worked and this went on for years. Chung wrote that he never had enough English speakers to translate properly. 

They always struggled to find equipment that matched the specs.

At times, the gap between what Americans expected and what Korean companies could deliver was humiliating. But they kept learning one day at a time, one foot in front of the other. Every technique, every standard, every procedure. And slowly through sheer stubbornness and a refusal to stop asking questions, Hyundai went from being unable to read the American spec manuals to planning entire projects using those same standards. 

Chung later described how the whole Korean construction industry was being dragged, sometimes kicking and screaming, into modern times by the demand of the US Army work.

The American military, without ever intending to, had become the most effective vocational school Korean construction ever had. 

The Tiger

Now, to understand how Chung ran all of this day-to-day, you have to understand just what was driving him. And it’s easy to hear what I’m about, to describe and conclude that he was just a control freak, but he wasn’t, or at least that’s the wrong way to frame it. 

What drove Chung’s management style was not a need for control; it was a need to compete.

He was aware at times that Korea had to compete with Japan and had to compete with every other industrializing nature, or the country was never going to climb outta the hole it was in. The State Department had written Korea off the World Bank had put it at the bottom of the list, and Chung kind of took that personally. 

He saw it as his responsibility as a point of national honor to prove them wrong. That meant every work site, every project, every single day had to run at maximum intensity. His country could not afford anything less. Chung did not manage from behind a desk. Every morning, first thing, he went straight to the nearest work site. 

He believed that “a person in a position of authority is a role model for everything. If a CEO does not lead by example and merely orders workers around, his words will fall on deaf ears.” He visited the heavy equipment yard at least once a day, often twice, and the second visit was the whole point. 

Here’s how it worked: He would arrive in the morning, everyone would be working hard, braced for the boss. They knew his reputation and wanted to impress him. He would inspect, nod, and then leave. And the workers would relax. The pressure valve would release and they would slow down just a little. The coast was clear, and then the boss would come back. 

The people who had been lounging would scramble to their stations. Chung took quiet satisfaction in this. He believed the standard was not something you performed for an audience. The standard was the standard all the time. You worked at full capacity whether someone was watching you or not, and if you didn’t, the solution was to make sure someone was always watching. 

He called the project supervisors at all hours of the day and night to ask if certain tasks had been completed. He deliberately gave his workers less time than they needed to finish a job because he believed people used as much time as they were given. “Get it done by tomorrow morning” was typical. “Only if fire falls on their feet will people quickly attend to the work they’re instructed to do.” He observed. 

If he felt someone was not carrying their load, he fired them on the spot. Once he fell asleep on a train, headed to a worksite outside Seoul and missed the stop, he got off at the next station, hiked back, and arrived in the middle of the night, and instead of waiting until morning, he immediately started inspecting the work and quizzing the sleepy workers and supervisors about what they had accomplished that day. 

Nobody could believe he would show up at that hour, behind his back sometimes, to his face; his workers called him The Tiger because he could appear out of nowhere and pounce on the unsuspecting. Chung seemed to enjoy the nickname. It kept people on their toes. 

He admitted it freely. “I was a tough boss for everyone everywhere. I know I must have hurt the feelings of many as growling was the only way I knew how to speak to them.” Later in life, he was sorry about that, but he was also certain that the constant pressure, the relentless inspections, the refusal to accept anything less than full speed were what made Hyundai into what it became. The company absorbed his personality. It became fast, relentless, and allergic to excuses, which is another way of saying it became him. 

The People he Hired

One more piece of how Chung built Hyundai had to do with who he hired.

In Korea. At the time, hiring was a patronage system where who you knew mattered more than what you could do. Chung rejected that system completely. He based hiring decisions on individual competence, not personal connections. 

Now, in a Confucian society built on networks of obligation, that was pretty radical, and it created problems because government bureaucrats were constantly trying to pressure Chung to hire their sons.

In Korea, refusing a well-placed official could cost you permits. It could cost you approvals and contracts, but Chung found a clever way around it. 

He told his brother, who handled hiring, to give bureaucrats’ sons particularly difficult English language tests. Tests that essentially guaranteed failure, and then Chung could tell the fathers in good conscience that he had no problem at all hiring their boys. The boys had simply been unable to pass the company’s entrance exam. 

In a Confucian society that had used competitive examinations for centuries to determine rank, the officials who had themselves gotten their own positions through exactly that kind of exam had no acceptable response. They couldn’t argue with their own logic, and Chung wasn’t using the English test only to filter out nepotism. 

He desperately needed English speakers because he had his eye on international business long before most Korean companies understood what that even meant. Hyundai required English tests years before the rest of Korea caught on.

Everything depended on having the right people.

He was learning and absorbing American methods, building machines that had never been seen before from descriptions brought back by subordinates. All of it required people who could actually learn, people who were hungry and smart and willing to be humiliated in the process of getting better. He needed people who could pass a hard test.

People who, like him, had no shame about not knowing and no quitting once they started learning; that was the machine he was building. And when President Park Chung-hee paid a surprise visit to a Hyundai Construction site years later, he didn’t find a chairman sitting behind a polished desk. 

Instead, he found Chung sleeping on the ground with his workers.

Chung had spent the night on the site. By dawn, when Park arrived, he was already up and working alongside the crew. Park, after all, valued commitment above almost everything else. 

The Engine

When Hyundai started building its first major fertilizer plant in the early 1960s, the Germans showed up to handle the work Korean hands weren’t trusted to touch.

A German engineering firm had been brought in to do the advanced welding, the precision engineering, the systems no Korean company yet knew how to build, and the Germans did not think much of their Korean counterparts.  They set a rule on the job site. Hyundai workers were not permitted to weld more than 18 meters a day. That was the ceiling.

At the time, Korea was not being asked to build, they were being allowed to assist, and the Germans were very clear about the difference. 

Chung admitted that it was humiliating, but he also understood it was the price of admission, the same way it had been with the Americans. So he did what he always did. He watched, asked questions, put his workers shoulder to shoulder with the Germans, and told them to absorb everything. The techniques, the sequencing, the standards for materials, the tolerances that were unlike anything any Korean construction firm had ever encountered before. He drilled the purpose of it into everyone at Hyundai. 

The point of this project was not to finish it. The point is to learn everything they could from the Germans. That is exactly what happened.

The next projects Hyundai won were bigger and more complex, but each one required less and less foreign help. The learning was compounding. 

The same pattern played out in power generation, and this is where you can actually watch the ceiling start to move. At first, the Korean government did not trust domestic companies with the power plants at all. American firms were given the entire contract for each new plant. 

Even though welders were imported from overseas, Korean companies were simply not considered capable of the work. But Hyundai kept pushing, plant after plant, each time climbing one more rung up the technical ladder. Each time, they took on more and more of the work.

And in 1962, finally something shifted. Hyundai built a power plant with only limited guidance from their foreign partners. 

For the first time, their work wasn’t merely tolerated. Instead, the same foreign engineers who, a few years earlier, didn’t trust them with anything critical, praised it.

Chung was thrilled, and I don’t think that’s too strong a word. That was the moment Hyundai escaped the labor of being a subcontractor. 

They were joint partners with world-class companies on massive projects. For a man with a sixth-grade education running a company in one of the poorest countries on earth, that recognition was worth more than any profit margin. And he kept pushing because Chung always kept pushing. Eventually, Hyundai became the first Korean company to build a nuclear power plant. 

Think about that for a second. From a company that could not read an American spec manual in 1957, to a company whose welders were rationed by foreign engineers in the early sixties to a company that was building nuclear power plants. By the end of the decade, the South Korean government did something that would’ve been unthinkable only 10 years earlier. They announced that from now on, only domestic companies would be hired to build the country’s power plants. 

The apprenticeship was over. Korea was going to build for itself. And none of it happened by accident. It happened because companies like Hyundai led by Chung had refused to accept the foreign engineers assessment of what Koreans were capable of. If they had, foreign firms would’ve dominated Korean construction indefinitely. 

Korea would’ve stayed a client state paying outsiders to build its own country. Instead, Korean companies took the expertise they had painstakingly gathered from American bases, from German engineering, and from every condescending supervisor and every humiliating ceiling, and used it to build their own nation. 

Chung had a single question he asked every time a subordinate told him something couldn’t be done. His people came to know it as both a challenge and a philosophy. 

“How can you know it’s impossible if you haven’t tried it?” 

The question was not rhetorical. It was a demand. Show me the evidence that this cannot be done. 

Show me that you have actually attempted it and failed, not that you have imagined failing and decided not to start. Chung did not believe an impossibility as a starting position. He believed in it only reluctantly, as a conclusion you were allowed to reach only after you had exhausted every other alternative. 

And in his experience, most people gave up long before they had exhausted anything. In roughly 15 years, Chung had gone from a man fleeing Seoul with his family in 1950, scrambling for scraps of American military work in Busan, to the head of one of the top construction companies in Korea. He was building bridges, dams, power plants, and industrial facilities. 

He had dragged an entire industry and, in some real sense, an entire country from devastation towards something that looked like modern times. But he was not done, not even close, because his ambition was no longer to build the best construction company in Korea. It was to build the best construction company in the world, and the world would require a level of audacity that would make the Goryeong Bridge look like a warm-up. 

Going Overseas

By the early 1960s, 80% of Hyundai’s revenue was coming from the Korean government. That’s even worse than it sounds when you realize governments kept getting overthrown. After the war, Korean politics were as chaotic as it gets; every time a new government took power, private business was the first thing it came for.

Each new administration would accuse successful companies of being too cozy with the previous regime, so contracts would be rescinded, and fines would be levied. Sometimes people even went to jail. 

Chung had watched it happen twice already: after one regime collapsed, the interim government canceled all government construction contracts overnight, and the entire industry crashed into recession. Then came a military coup, and the cycle started all over again.

Hyundai survived these purges partly because it was less politically connected than its competitors, and partly, as Chung noted with some dark humor, because it was the poorest of the bunch. 

Hyundai had been repeatedly denied government loans they desperately wanted, and that failure turned out to be a blessing in disguise.

In a way, their bad luck became proof of their innocence. There was another reason too. 

Government budgets were not growing. The US military projects that had been Hyundai’s bread and butter were drying up as the Americans got pulled deeper into Vietnam. Chung came to a blunt conclusion. “I foresaw that if our construction industry did not make inroads into the foreign market, it would soon reach a dead end.” Or to put it another way, Chung decided that Korea was not big enough for him. 

So Hyundai started bidding on big international contracts, and they lost every single one. But Chung didn’t care. He didn’t expect to win. Not yet. He was doing what he had always done. 

He was learning how the game was played. How did international bidding work? What did the specifications look like? What were the best competitors bidding and why? In late 1964, he sent one of his younger brothers to Thailand to scout for opportunities. The brother found a project that fit. A 98-kilometer highway through dense jungle connecting two major cities. 

When he asked if Hyundai could bid, he was told they would first need to buy $2 million worth of equipment. So he called Seoul and the Korean government granted them credit for the entire amount immediately. No other government in the world backed its contractors that aggressively at the time. 

Under the new administration, Korean companies could count on low-interest, government-guaranteed loans for any reasonable export venture. Hyundai submitted a bid of $5.2 million and beat out 29 companies from 16 countries. The news was front-page news in Seoul, and when the project’s engineers boarded the first plane to Thailand, the Korean broadcasting system put it live on TV for the nation. 

Think about that for a second. The first time a Korean construction company sent its people abroad to build something, the entire country watched it happen, live on television. It was a frog leaving the well in real time, with the entire pond watching.

President Park called the contract a vindication of his economic policies, proof that Korea was finally earning real foreign credibility, but the celebration was premature. 

The project ran into trouble almost immediately.

Hyundai had tried to save money by buying secondhand equipment, including Japanese trucks left over from the Second World War. The trucks broke down constantly, and then the monsoons came. Hyundai had assumed they could just keep building through the rainy season. 

They were wrong. The pavement they laid in the heavy rain buckled. Floods washed out entire sections. They had to redo enormous parts of the road. For the second time in the company’s history, the board started talking about walking away. It was the Goryeong Bridge all over again, the same shape in a different country. 

The losses were piling up, the equipment was failing, and the workers were even starting to strike. And Chung’s lieutenants came to them with the rational argument: Let’s cut our losses and survive. Chung shut it down immediately, but this time his argument was slightly different. 

He said, “A contract is a contract. Even if we are in dire monetary straits, we have to build Thailand the high quality expressway they’re expecting within the time we have. That’s why we are here. We cannot and will not just cut and run. We have to finish what we started for the good of Hyundai brand and for the good of the country.” 

If Hyundai quit after becoming the first Korean company ever to take an overseas project, they would be kicking the ladder away from every Korean construction company that came after them. The whole industry would be branded as unreliable. The frog would crawl back into the well, and the door would close behind it. 

He called abandoning the project an act of national treason. The board never raised the idea again. They finished the highway, lost $3 million, and Chung typically reframed the failure as a coming-of-age initiation. 

What Hyundai walked away with was the ability to build highways to international standards. They had learned asphalt concrete production. They had learned international specifications. They had learned how to operate the modern equipment under foreign conditions, and all of it paid for in money and humiliation, and all of it was about to be turned into something much bigger back home. 

But first, there was Vietnam.

Vietnam War

In the mid 1960s, the Vietnam War was heating up and Chung saw what most Korean executives did not. American forces and their allies needed someone to build them things, and they needed them fast. Chung sent one of his brothers to Saigon. 

The brother rekindled the company’s old contracts with the US military, set up offices and started picking up every construction contract he could find. Hyundai built military camps. They dredged rivers. They helped customers construct an American naval base. They even ran a laundry and dry cleaning service on the side because if you can move men and equipment into a war zone, you might as well make money on the laundry too. 

The risk matched the opportunity. During the 1968 Tet Offensive, Hyundai workers were dredging the Mekong River with enemy fire coming in all around them. These were not soldiers, they were construction workers. They were men with shovels and machines working through one of the most violent moments of the entire war because they had a contract to finish and Chung had taught them what finishing a contract meant. 

The Korean civilian involvement in Vietnam ended up being enormous. 23,000 Korean workers in total, their earnings accounted for 10% of Korea’s entire foreign exchange in 1966 and nearly 20% in 1967. After five years of work in Vietnam, more than $660 million in foreign currency had been flowed back into the Korean economy. President Park was delighted.

Hyundai alone accumulated hundreds of millions of dollars from Vietnam construction contracts. Chung didn’t know this money would become the seed capital for the most audacious bet of his life. What he did know was that his company was piling up cash and capability at a rate that had been unimaginable just a few years earlier. 

Each contract was bigger than the last. Each new theater of operations taught them something they had not known before. The frog was no longer in the well. Other projects followed. Bridges, military bases, and military housing in Guam and even Alaska. A harbor dredging project in Australia, a hydroelectric plant in Papua New Guinea. 

Hyundai was no longer a Korean construction company doing some work abroad. It was becoming a force across the entire Pacific Rim. And while all of that was happening overseas, back home in Korea, two enormous projects were about to land in Chung’s lap. One was a dam and the other was a highway, and together they were going to change not just Hyundai, but Korea itself. 

A Different Kind of Ambition

In Chung’s autobiography, he reflects on how his motivations changed over time, and it might be the most important admission he ever made about himself. Because the entire shape of what happens from here on out depends on it. When he left the farm for Seoul as a boy, Chung admits he was not thinking about Korea. 

He didn’t care about Korea. He was thinking about himself. Who could blame him? He wanted to keep himself fed, and once he had a family to keep that family under a roof. Up until now, his motivation was personal survival and personal advancement. 

He was honest about it, but somewhere along the way, something shifted and he pinpointed the moment as the Korean War. As Hyundai grew from a small outfit into building things the country could actually depend on, Chung started to see work differently. He began to believe that Hyundai could grow as a company while also helping Korea grow as a country. 

And in his mind, those two things stopped being separate. They became the same thing. He was adamant looking back, that without a shift in how he saw his work, he never could have grown Hyundai into what it became. Now, this shift sounds like the kind of thing every successful executive says in a memoir, but in Chung’s case, you can actually watch it change his behavior in real time, and it changed his behavior in a way that made him deeply unpopular with every other construction company in Korea. He became obsessed with cutting costs on government projects. His conviction about this went beyond strategy. 

He had a real moral position. He said, “after luxury comes corruption. I’ve never seen a country prosper with a leader who enjoys luxury.” What was true for countries he believed was true for companies. That might sound like common sense, but in the Korean construction industry of the 1960s, the incentive structure ran in the exact opposite direction. 

The standard playbook was to look at a government contract and ask: how do we maximize our profit by any means possible? Companies inflated costs; they routed transport along longer paths just to bill for higher shipping costs. They padded estimates. They billed for elaborate extras that did not even exist. Everybody did it. That was how the game worked.

Chung wanted to play a different game. He realized that lowering his margins meant the government saved money, which meant the government could fund more projects, which meant more work for everyone, including him, because he would always bid the lowest. 

He was playing the long game and most of his competitors were playing the short game, and then he made it worse for them. He started proposing alternative construction plans for projects the government had already awarded to other companies. If Hyundai could find a cheaper, faster way to build something, Chung would submit an alternative plan and lobby to have the original thrown out. 

This drove his competitors insane. It drove the government officials insane. Their view was simple. The government designed the project, the construction company bid on it. The construction company built it, and the construction company kept its mouth shut. Chung didn’t keep his mouth shut. And here’s the thing that his competitors didn’t understand at the time. 

By behaving this way, Chung was making Hyundai regime-proof. Other Korean companies won contracts through political relationships. They prospered as long as their patrons held office, but the moment the political one shifted, and in Korea, they shifted constantly. Those companies were cast aside. Their entire value proposition had changed. 

Hyundai’s value proposition was different. It was what they could do cheaper and faster than anyone else. And any government, regardless of ideology, could see the logic in that. The company that built high-quality things cheaper still got hired.

As Chung would later put it, “We may not have always been on good terms with every administration, but Hyundai has helped the government by cutting costs through continued research. This is why Hyundai was ultimately recognized as being indispensable to Korea’s economic growth.” 

Indispensable is a word people used loosely. Chung had earned it. He had spent years building a company that no Korean government could afford to punish because no Korean government could afford to do without it. 

The shift from personal ambition to national ambition changed more than how Chung thought about his work. It changed his company’s structural position in his country. And that position was about to be tested by the two biggest projects of his career. 

The Dam

The Korean government had been trying to build a dam across the Soyang River since 1957. 10 years later, they still hadn’t even started. The site was 65 miles south of Seoul. The dam was supposed to provide hydroelectric power, water, and flood control, but technical issues, the location and ballooning cost estimates kept stalling the project year after year. By late 1960, President Park was losing patience. The Ministry of Construction had brought in one of Japan’s most prestigious engineering firms, Nippon Koei, to design it. They recommended a conventional concrete gravity dam. 

It would be the strongest type possible, it would last for centuries, and most of the profits would flow back to Japan. It was simply assumed by the Korean government as much as anyone else, that no Korean company could handle a project this large and complicated in such inhospitable terrain. 

So, with cost estimates piling up and no progress in sight, President Park called Chung in and asked what he thought of the Japanese plan. Chung studied it carefully and then did something unexpected. He told the president that the Japanese were wrong. 

His counterproposal was an earthen dam, a zone-fill dam built from rock and gravel, pulled out of the surrounding mountains. He said it would cost 30% less than the concrete design and was better suited to the terrain. 

He had based the conclusion on a French-designed dam he had studied while Hyundai was working on the highway project in Thailand. For dams over a hundred meters tall, earthen construction was more cost-effective than concrete, and it was believed to be just as safe. The Japanese were furious. Nippon Koei’s lead negotiator, a graduate of Tokyo Imperial University, confronted Chung directly in the meeting that followed. 

“Chung, what do you know about dams? Where did you study dams? Our design team is made up of Tokyo University graduates who have designed dams around the world. Do you mean that a man who completed only elementary school knows more than we do about dam construction?” Chung did not reply. He had spent his entire life being asked some version of that exact question. 

He had learned a long time ago that you do not answer that question with words, you answer it with results. So he sat there quietly and let the question hang in the air. The Korean officials were just as furious as the Japanese. The Ministry of Construction and the Water Resources Department had already signed off on the Japanese design. 

What was this? A local construction company contradicting the expert opinions of both its own government and one of the most respected engineering firms in the world. Chung later compared his behavior to “poking at a Tiger’s nostril and getting oneself killed.” The meeting broke up in disarray. When the final proposal reached the president, the ministry officials recommended the concrete dam and barely mentioned Chung’s alternative proposal, dismissing it as unsafe.

And then Park asked one important question that no one had yet considered. 

He asked about national security. Korea was still technically at war with the North. The DMZ was only a few dozen miles away. And if the North Koreans bombed, a concrete dam park said the strike would blow a massive hole in the structure and millions of gallons of water would surge toward downtown Seoul. An Earthen dam on the other hand, would be more likely to simply collapse if struck. The collapse would create a natural barrier, the water would escape much more slowly. From a national security standpoint, did the earthen design not make more sense? 

The room went quiet. The Tokyo University graduates, the Ministry of Construction, the water resources department, none of them had an answer. Park sent the whole group back to study the question. Two months later, they came back with their conclusion. Chung had been right on every count. 

The Earthen dam was just as safe, it was significantly cheaper, and in the event of an attack, the concrete design they had been pushing could have been catastrophic for the people of Seoul. The dam broke ground in 1967 with Hyundai as the contractor. It was finished six years later at a cost 30% below the original estimates. It became the largest rock-fill dam in Asia, the National Academy of Engineering of Korea, later called it “a magnificent dam, constructed by our own technologies and our own hands in the economically deprived period of the early 1970s.” 

Chung shares one last detail about the project, and I love it.

At the dedication ceremony, Chung watched it on television. As he watched the same ministry officials who had fought him tooth and nail the whole time, the ones who had dismissed his proposal as unsafe and tried to bury it in the report to the president, stand in front of the cameras and explain how they rejected the Japanese design and replaced it with something better. Chung never corrected the record in public. He did not need to. He knew, and that was enough.

The Expressway

In 1964, President Park visited West Germany and saw the Autobahn, and it changed how he thought about his own country. Park came home and looked at South Korea with new eyes. He saw a country connected by haphazard roads that were slow and unreliable, and a railway system that was both expensive and overloaded. 

His logic was simple. Let’s build an expressway for goods, and people will move faster. Raw materials will reach factories sooner. Ports will connect to inland cities. Everything in South Korea accelerates. As he told Chung, “we just have to get it done no matter who tries to oppose us.” And plenty of people did try to oppose them. 

When the first cost estimates came out, opposition erupted from every direction. The World Bank told the Korean government the project was economically and technologically infeasible and would add little to Korea’s development. The Korean legislature agreed the country was simply too poor to afford it. 

Park did not see it that way. The expressway, he argued, “would be a better investment of our limited funds than railroads and harbors for solving our transportation bottleneck.” And beyond economics, he believed building the road would give the Korean people a new confidence that they can do whatever they want. 

So in November of 1967, Park summoned Chung to the Blue House. It was their first private face-to-face meeting. Park knew about Hyundai’s expressway experience in Thailand and wanted to know what Chung thought. Then he asked him for a cost estimate. Starting the next day, Chung and a team spent three weeks driving the entire route between Seoul and Busan, measuring everything, surveying, and flying over the train in the air. 

Chung saw that the engineers who had originally planned the road had not actually studied the ground they were going to build on. 

They had relied on textbooks and theory. The map, not the territory. They had proposed pushing the highway in almost a straight line from city to city, plowing through mountains at enormous cost. Chung proposed something different. Dig fewer tunnels, build the road around the mountains where you could, increase the incline of certain stretches slightly above the standard maximum grade. 

The result would be a highway that could be built faster and for less money. Park had asked for other groups for the same estimate. When the numbers came in, the Ministry of Construction said it would cost $65 billion won. The Army Corps of Engineers said $49 billion, and the Ministry of Finance said $33 billion. 

Chung said $28 billion. Less than half of the ministry’s construction number. The Ministry of Construction publicly mocked him for it. 

Park asked Chung if the project could actually be done at that price. Chung’s answer was four words, “I can do it.” Park gave Hyundai the lead role. 

They would organize a consortium of 17 firms to construct the highway, and Hyundai itself would be assigned the most difficult stretches, roughly two-fifths of the entire project. On February 1st, 1968, construction began with the sound of blasting. Chung said he would remember the excitement of that moment for the rest of his life. 

The scale was staggering. The expressway would run 428 kilometers down the entire spine of the country. Hyundai alone spent over $8 million to buy 1900 pieces of heavy equipment for the project. At the time, the entire nation of Korea owned only 1400 such machines. Chung was buying more equipment for one project than the entire country owned. 

He barely slept. He literally moved to the construction sites. He brought a cot. When he was being driven around in his Jeep inspecting progress, he would close his eyes for a few minutes at a time as the Jeep bounced over unpaved roads, that was his sleep schedule. The moment workers saw his Jeep approaching, they would come to attention. 

He drilled a single belief into the workforce. “If you are diligent for a day, you will sleep comfortably for a night. If you are diligent for a month, the quality of your life will noticeably improve. If you are diligent for two years, 10 years, your whole life, your accomplishments will be recognized by all.” 

President Park was nearly as obsessed as Chung. Every day, a situation report sat on his bedside table, and every morning he called Chung. He was constantly in the air over construction sites in his helicopter. A former engineer who worked closely with President Park in those days described him as an orchestra conductor, with the helicopter as his baton. If Park did not have an answer on Tuesday, he would be back with one on Thursday. 

There is one incident from this project that became legend and it tells you why Chung and Park ended up trusting each other so completely. On every Hyundai project, Chung had an ironclad rule. Construction trucks had the right of way over everything, and everyone on the work site, there were no exceptions. 

Even Chung, the CEO, yielded to a dump truck. One day, President Park was riding through the construction zone in his Jeep. The local police chief saw a Hyundai dump truck coming and jumped out of his car to wave it off the road so the president could pass. Park, who knew Chung’s rule, directed his own driver to yield to the truck instead. The dump truck driver became known on the project as the man more powerful than the president. But the road was punishing the men who built it. Several workers died in landslides and cave-ins. The most dangerous stretch required blasting a four-kilometer tunnel through unstable rock. 

On a good day, they advanced two meters. On a bad day, less than 30 centimeters. There were 13 separate cave-ins in the Tangjae tunnel alone. And then something strange happened. Workers started saying there were evil spirits in a particular tree near the construction site. More and more men refused to work near it, and an army officer cut the tree down to end the superstition. 

The next morning, the officer was in a serious accident. More workers walked off. Chung had to double wages and was still short-handed. To keep this schedule on track, he had no choice but to mechanize even farther. 

With two months left until the deadline, a site manager came to Chung with a desperate plan. If they switched to high-strength cement that set in 12 hours instead of a week, they could compress 90 days of work into 25. The cement was far more expensive and had never been used at this scale in Korea. 

Chung’s answer: “if I have to choose between reputation and money, I’ll always take reputation. Finishing on time is how we protect our reputation and honor. Let’s give it a shot.” 

On July 7th, 1970, the opening ceremony was held on schedule. Two years and five months of construction. Nearly a year ahead of the original date. President Park was triumphant. 

“How much energy do our people have? How much technology do we have? We will test our nation’s potential with this expressway.” The road changed South Korea exactly the way Park believed it would. Before the highway, the train ride from Seoul to Busan took 15 hours. The expressway cut it to 4. In its first year, 3.7 million vehicles used it. 

It connected the main ports to the factories and the inland cities. It became the artery through which the entire economy flowed. 

In the Hyundai estimate of $28 billion won, the number the Ministry of Construction had publicly mocked, when you adjusted it for inflation, it turned out to be almost exactly right. The other companies had been the ones who didn’t know what they were talking about. Chung finished his portion of the work with a modest profit, but the real prize wasn’t the profit. 

It was the friendship that he created with President Park that would last until Park’s assassination in 1979. Chung became a frequent visitor at the Blue House, joining Park on Thursday evenings for informal dinners in the private second-floor quarters. 

They would sit for hours in casual clothes, drinking, talking about Korea’s future. Park took to calling Chung, his Minister of Construction. A mutual friend said both men believed in the same thing. They both believed in the power of human will. They both believed Korea’s economic future had to be built on that will. And both of them also believed just as deeply in using Western technology to do it. 

In many ways, Park became a second father to Chung. They shared an absolute conviction that Korea’s destiny was something you built with your hands, not something you waited for.

Starting the Hyundai Car Company

Chung was now 54, and in many ways he was just getting started.

Chung started his career fixing other people’s cars, then decided it was time to build his own. Cars mattered to him in a way that went beyond business. A car has upwards of 30,000 parts, and building one doesn’t just create jobs in the factory. It sends ripples through the entire economy.

In Chung’s view, a country that could build a car could build anything, and wherever that car was exported, people saw the nation that had made it. 

He put it memorably: “Cars are like national flags with wheels. If we make good cars and export them, they drive around the world spreading Korea’s technology and level of industrialization.” And Korea desperately needed that kind of visibility. But two recent attempts by other Korean companies to assemble cars had already failed. 

Most of the country’s industrialists had concluded that entering the car business was premature. The smart money went into making auto parts, not actual cars.

When Chung announced that Hyundai would build cars, the Korean business community was stunned.

Chung was undeterred. In 1966, he heard that a Ford team was visiting Korea to evaluate potential partners for an assembly joint venture. Hyundai was not on their list, which made sense because, at the time, Hyundai was a construction company.

Chung didn’t care. He called his brother who was in the United States negotiating a loan for the cement plant. The cement could wait, get to Ford’s headquarters and negotiate an automobile assembly contract. 

His brother asked how he was supposed to convince one of the largest car companies on earth to partner with a Korean construction firm that had never made an auto part or a car. 

Chung gave the answer he always gave.

Have you tried?

They got the Ford executives to come to the Hyundai office. Chung began talking them through the parts of a car in detail from his decades-old memory. He remembered all the parts, and only now was it suddenly paying off in a conference room with Ford. 

Ford had planned three days of interviews with various candidates, and Chung ended the interview process in two hours. Ford chose Hyundai. In December of 1967. He established the Hyundai Motor Company as a separate entity from Hyundai Construction. 

He picked Ulsan as the factory site because it was a port city with a deep-water harbor that would soon be connected to every major Korean city by his new highway, and from which Hyundai could both import equipment and eventually export cars. The initial assembly plant went from groundbreaking to full-scale operations in under six months, which set a record for any Ford assembly factory anywhere in the world.  (I wish we could build that fast today.)

But the arrangement with Ford was what every developing-country auto industry looked like in that era: Knocked-down kits shipped from abroad, local assembly, foreign partners keep all the design and engineering. 

Ford’s terms kept Hyundai permanently dependent.

They were parts assemblers, not partners. The breakpoint came when Ford proposed what they called a world car project. Under the plan, Hyundai would build Ford-designed engines that would be mounted on chassis made in Australia with transmissions made in Japan. 

To Chung, this was a national insult. How could Hyundai or Korea build any stature as a car manufacturer by participating anonymously in some grab-bag assembly scheme? Ford was being imperialistic as he saw it, and then Ford’s president for international operations flew to Seoul and proposed the next step: absorbing Hyundai Motor Company entirely into Ford. 

And that was a step too far. Chung lost it. “I’ll never take down a single Hyundai sign with my own hands. Even if a business is struggling and everything seems hopeless, I will make it work. Not once have I ever packed up and quit halfway through. Quitting is not in my dictionary.” 

This guy had so much fight in him. You don’t walk away from things. Remember the bridge, the Thailand highway, the name is worth more than the money, but they couldn’t just make their own cars from scratch. At least not yet. They still needed a technical partner, but just as with the Germans earlier, they would learn all they could from them. 

They searched the world for one who would hand over technology without demanding control. They talked to General Motors. As one of Chung’s brothers put it: “We wanted to run the company our way, but GM wanted to run the company their way. That was the point of disagreement.” They approached Volkswagen, they approached Alfa Romeo. 

Same problem. Nobody wanted to give Hyundai the independence it demanded, and honestly, from their perspective, why would they? Hyundai could easily turn around and compete with them in their own markets. Finally, Hyundai turned to Japan. 

Their former colonizers of all people. Mitsubishi was trying to expand and compete with the bigger Japanese firms, Toyota and Nissan. They offered Hyundai a pure technical licensing agreement. No financial partnership, just licensing fees. Hyundai could build its own cars under its own name using Mitsubishi engine and transmission designs. 

Now they needed someone to design the car. They flew to Europe and made two critical hires. Giorgetto Giugiaro of ItalDesign, who had styled cars for Alfa Romeo and Fiat would design the exterior. And George Turnbull, who had just resigned as the President of British Leyland over a policy dispute, was brought in to run the operation. 

Turnbull was invited to Korea for a tour and was immediately taken with Chung. His first impression was vivid. “That man is so bright, it’s unbelievable. He’s practical to the point where it hurts. He must have taught himself finance, and he’s a great motivator. He put the fear of God into people.” 

Turnbull was hired as Vice President in February of 1974. He brought in more engineers, and they came up with a simple and unglamorous design. That was fine, they weren’t building a luxury car. They were building Korea’s first national car. And then came the construction of the plant. Turnbull arrived at Ulsan and was told where the factory would be built. His engineers looked at the site and informed Chung that he had chosen a swamp. Chung was unmoved. This is where he wanted his factory, so they drained the swamp. Then it was winter and the concrete pilings for the factory walls cracked repeatedly in the extreme cold. 

Chung was unmoved again. Some of the equipment was installed before the factory walls were even in place. Turnbull, the conservative British executive, could barely believe what he was watching. Normally, putting a car into production took four years. Hyundai did it in two. 

Chung made frequent inspection trips down to Ulsan. He would leave Seoul at four in the morning with one or two assistants for the long drive south. He liked to say on those drives that he was driving on his road, and he was happy. By 1976, the plant was complete, and the first cars rolled off the assembly line. Chung named the model the Pony. He hadn’t done any market research. 

Chung and his company had simply designed and built the car. They thought the Korean people should have President Park guarantee the financing. Hyundai built it; it was Korea’s first national car. And then Chung did something that surprised even Turnbull. Within weeks of the first Pony rolling off the line, Chung announced that Hyundai would export 5,000 of them overseas. 

Turnbull was horrified. The Koreans might buy a car of unproven quality because they didn’t really have an alternative, but foreign buyers did. If foreign buyers rejected the Pony, Hyundai’s reputation would be damaged for years.

Chung didn’t care. He had promised President Park he would export, and he was going to. And what he did next was kinda genius.

He was not going to send all the cars to one test market. He was going to spread them across several countries in several different parts of the world. Nigeria, Taiwan, Peru, Ecuador, Saudi Arabia. Each had different climates, road conditions, and customer expectations. 

So why did he do this? Because he wanted to learn.

He would do his market research after the cars were built; he would learn, as he always had, by doing. The results were educational, to put it mildly. In the tropical heat of Nigeria, the vinyl roofs peeled off like banana skins, in Saudi Arabia, the sun faded the paint. 

In multiple countries, the cars had serious mechanical problems, especially with steering and brakes because the roads they were driven on weren’t paved. 

But Hyundai was forced to upgrade the quality of the car significantly and probably much sooner than they would’ve been forced to if they had stayed inside the protected Korean market. One of the main limiters of potential is the fear of embarrassment. People don’t take risks because they fear looking embarrassed, but Chung proved that if you’re willing to endure temporary embarrassment, you can gain a long-term advantage. 

It wasn’t failure; it was learning. And while all of this was happening, Chung was already thinking bigger, much bigger. In the mid-1970s, Korea’s total car market was about 30,000 units a year. Chung announced plans to build a new factory capable of producing 300,000 cars a year. 10 times the size of the entire Korean market. 

His colleagues thought, not for the first time, that he had lost his mind.

Where would they find 300,000 buyers? Chung answered that the Korean market would grow enormously as the country emerged from poverty, that the new car would be designed mostly for export anyway, and that he had a target in mind. 

General Motors was simultaneously building a new factory for their own world car program, and GM’s targeted production was, of course, 300,000 units. GM’s construction costs was $3 billion. So Chung studied GM’s plans and came to two conclusions. First Hyundai was going to match GM’s capacity. Second, they were going to do it for 1/10th the cost. 

He personally reviewed every aspect of the plant design with his engineers. The bricks in the factory walls were reduced in width. The window sills, which required expensive imported wood, were made narrower. The windows used slightly thinner glass. Every cost that could be shaved Chung shaved, in only a way that a man who was forced to eat bark to survive could. 

The factory opened in 1980. It was functional, if not beautiful. It produced the targeted number of cars, and it did exactly what Chung had estimated $300 million, one 10th of what GM spent. Hyundai was ready to take on the world, and in 1986, they did. The Hyundai Excel, a redesigned subcompact priced at $4,995 launched in the American market. 

No other car in its class was anywhere close to that price. It targeted used-car buyers who could now afford a new car for the same money. The fit and finish were not perfect. Nobody claimed it was a premium vehicle, but in the get-what-you-pay-for market, the Excel was instantly recognized as a good deal. 

First-year sales were projected at $100,000 and came in at 168,000 units. In 1987, sales hit 264,000 units. The Excel was rated the number one imported car in America both years. No car company in history had ever achieved that kind of initial success in the American market. Thanks to Chung, Korea had built its own car and sold it in the most competitive automobile market on earth. 

Someone Crazier Than Me

In 1968, President Park designated shipbuilding as a national priority.

He asked the country’s major conglomerates to step forward. Samsung passed, LG passed, only Chung said yes. And of course, he had no idea how to actually build a ship, but his reasoning was practical, as always. “Building ships,” he explained, “is similar to combining civil engineering, architecture, mechanical facilities, and electrical work from the construction industry.” 

Everyone else looked at shipbuilding and saw a new industry, but Chung saw the same industry he was already in, just rearranged. But shipbuilding required a staggering amount of capital. A world-class shipyard would cost roughly $900 million and Korea’s shipbuilding capacity at the time was virtually zilch. 

The largest vessel ever built in the entire country was 17,000 tons. Never one to think small, Chung had something else in mind. He wanted to build 260,000 ton super tankers, 15 times larger than anything Korea had ever produced before. He went to the Americans for the loan. 

They said no. He went to the Japanese. They looked at the proposal and concluded that Korean technology was too primitive and said, no. Chung went back to President Park and told him the truth. Nobody would lend them the money. And Park turned to one of his Vice Prime ministers in the middle of the room and said, “reject all of Chairman Chung’s business proposals going forward. Make sure the government never does any business with him again.” 

And then he went quiet. A long silence, long enough that Chung had no idea what was coming next, and then Park spoke again. “You knew this was going to be difficult if you already considered all of this and still went forward. You need to do it no matter what. Now, go try Europe.” 

Chung got on another plane. He carried one belief with him that would sustain him through everything that followed. “Conviction creates indomitable efforts. This is the key to miracles.” 

Conviction is contagious.

In Europe, he connected with a British engineering firm called Appledore that promised shipyard blueprints in six months. 

He also found a Scottish shipyard where Hyundai engineers could train. But to get the loans insured, he needed to prove someone would actually buy ships from a shipyard that didn’t exist yet. And for that he needed a bank. So he went to Barclays and they told him what everyone else had told him. 

Korea had no experience or expertise. The answer was no. And then Chung did something I genuinely love. He pulled out a 500 won Korean banknote and slid it across the table.

The bill showed a picture of a ship. It was a turtle ship. The ironclad warship Korea had used to defeat the Japanese Navy four centuries earlier. His argument was that Barclays did not actually know who they were dealing with. 

This small country they were dismissing had a maritime tradition they had never bothered to learn about. Koreans had built ironclad warships before any European nation had thought of it, and then he made the larger argument. 

“Don’t you know that the person who thinks a job is possible is the one who’s going to get it done? A job can be done only by people who truly believe that it can be done. If someone else in Korea believed that they could build a shipyard, they would already be here sitting in front of you, but they’re not here because they don’t believe it’s possible. I’m here because I know it is.” 

It worked. They agreed, but there was still a catch. Chung needed a buyer.

He needed somebody willing to sign a purchase order for ships to be built in a shipyard that didn’t exist, from a company that had never built a ship. 

So he started carrying three items everywhere he went: a photograph of a desolate beach with pine trees and thatched houses, a map, and blueprints for a 260,000-ton tanker. 

His pitch was pretty simple. If you buy the ship, I will build a shipyard on this sand and deliver it to you. If you think this sounds a bit crazy, he’d agree. He admitted he wouldn’t have blamed anyone for thinking he was crazy, but what he needed was to find someone even crazier than himself, and eventually he found someone.

A Greek shipping magnet named George Livanos looked at the photographs of the empty beach, looked at the blueprints and signed a purchase order for two oil tankers. Then he handed Chung a check for $1.4 billion won. 

Chung had not mentioned one detail to anyone. He didn’t actually own the beach in the photograph. He bought at the moment the money came in.

And then came the building.

When Chung got back to Korea with the contract in hand, many of his executives were uneasy. If this venture failed, it would likely bankrupt the entire company. Chung’s response was Vintage Chung. “What’s the big deal? A ship has an engine inside and an exterior made of steel. Ships resemble power plants, which Hyundai has built many times.” 

The conventional approach would’ve been to build the shipyard first, and then start building the ships. That was sensible, but it was slow. Chung did the math. Five years of accruing interest on their current loans would bankrupt them before they ever launched a vessel. 

He told his team over and over. “Loans beget interest. Interest begets more interest. Time is the greatest enemy of construction firms.” Speed mattered. 

So I kid you not, Hyundai would build the shipyard and the ships at the same time. After a lavish, groundbreaking ceremony in March of 1972, more than 2200 workers started working on land reclamation, the construction birth, a training facility, and two oil tankers all at the same time. 

Nobody at Hyundai had ever built a ship, so they learned as they did it. And when I say they learned as they did it, I mean that literally. At one point, the conditions of the European loan required them to buy a Goliath crane from a German manufacturer. They ordered the crane; they knew they needed one. They were not entirely sure what one even looked like.

When it was time to wire the first ship, they realized they did not have wiring diagrams. The engineer assigned to the job had never worked on a ship before, so they improvised. Entire sections of the ship got assembled incorrectly and had to be dismantled and reassembled. 

But construction never stopped. It always continued. At one point, the ships outpaced the shipyards. The forward section of one of the tankers was completed before the Goliath crane from Germany had even arrived. They needed the crane to move the massive section into position, and they didn’t have it. 

Anyone else would’ve waited, but Chung ordered the section placed on a trailer and rolled into place, with a bulldozer pulling in the opposite direction to keep the trailer under tension. No experienced shipbuilder would’ve ever attempted anything this crazy because it violated every standard, but it worked. 

Hyundai squeezed everything it could out of its workforce.

A typical Japanese shipbuilder at the time had 20% of its workers in engineering and technical support. Hyundai had 11%. The Japanese had 14% in supervisory roles. Hyundai had 7%. That meant 82% of Hyundai’s people did hands-on work, compared to 60% at the Japanese competitors. 

This was Chung’s philosophy made operational. Less overhead, more output. Workers got up at dawn, splashed water on their faces, and worked until they fell asleep in their shoes. They ordered materials for six ships and received enough for 12, and before the first two ships were even finished, more orders started coming in because Hyundai had ruthlessly underbid the competition by 15% to win them, which meant that before they had launched a single vessel or finished building the shipyard, they already had a backlog. 

Chung was now racing to finish the first two ships just to make room for the next four. Two years and three months after Chung had broken ground on an empty beach, the first stage of the shipyard was complete. It could build ships up to 700,000 tons. It was the largest shipyard on earth. In June of 1974, the president and Ms. Park were invited to the christening of the two tankers. The first ship launched was the 260,000-ton Atlantic Baron. Park’s confidence in Chung had been vindicated. Korea was now in the shipbuilding business. It was a glorious day. 

British journalist Simon Winchester visited the Ulsan factory years later and could not help comparing it to the empty shipyards of his own country. What impressed him most was the pace. A ship order placed at Hyundai took half the time. It would take in a European yard and at a price a good 10% lower than the nearest price competition. 

British engineers who worked there confirmed it. One of them, Tony Robbins, said, “You couldn’t believe what they do. They break all the rules. Their equipment is old. They make their own tools. Nobody else would use them.” And then he added, “they deliver what we asked for on time. I don’t understand it, but whatever it is they do, it works.” 

Another British engineer, David Gregg, described the morning routine. “It’s a very military oriented society. In the morning, you go there and you will have a line of people, and they’ll all be standing at attention to get a work assignment.” 

Once a week, the division director would address the workers through a loudspeaker. The message was always the same. “We expect the best. We are Koreans. Show the world we are Koreans.” 

Just as things were starting to go well, the world collapsed. In 1973, OPEC raised oil prices, which triggered a global recession. Demand for oil super tankers evaporated overnight. Livanos abruptly canceled his contract for the two ships and forfeited his $2 million down payment. 

The Japanese and Hong Kong orders got canceled too.

Hyundai had just learned how to build ships that nobody wanted. His board urged him to stop building the abandoned vessels. But Chung, of course, refused. If they stopped, they would lose everything they had already invested, and they would have to lay off the men who had slept in their shoes for two years building that shipyard, and he would not do it. 

He finished the ships nobody wanted, and then created Hyundai Merchant Marine to buy them himself. Here was his logic. Korea was paying foreign firms to transport its imported oil. That money was flowing out of the country every day. So Chung went to President Park, who very quickly introduced new regulations requiring all crude oil, shipped to Korean refineries to be carried on Korean vessels. 

And of course, Chung was the only one with Korean vessels.

Chung used his own ships, breaking what had been a foreign monopoly on Korean energy transport.

Within a few years, Hyundai Merchant Marine was one of the world’s largest shipping companies.

And when the market for large ships eventually recovered, Hyundai was perfectly positioned. They had the technology, the skilled workforce, and the shipyard and fleet. Competitors could not match them on price or speed.

A wave of British technicians, many of them from Britain’s stagnating shipbuilding industry, moved to Ulsan as contract workers. Reporter Simon Winchester noticed the irony first. 

British shipbuilders whose own yard sat empty were now flying to Korea to teach at a shipyard that could not build fast enough to meet world demand.

The man who could not be stopped had found a way again. The path was blocked, so he went up a wall, across the ceiling and dropped onto his target from above. The bedbugs in that bunkhouse had taught him well. 

The Thinking Bulldozer

The same oil shock that destroyed Hyundai’s shipbuilding business was about to hand them the biggest contract on earth. By the mid 1970s, the OPEC nations were staggeringly rich. Saudi Arabia, Kuwait, and the Gulf States had cash reserves that dwarfed their infrastructure. They needed ports, highways, military installations, and entire cities built from scratch, and they needed somebody to build them. 

This was exactly the opportunity Chung had been building towards since Thailand, but the competition was ferocious. The world’s biggest and best construction firms were all chasing the same enormous contracts. Companies with decades of experience, deeper pockets, and real relationships. Chung did not care. 

He had been underestimated his whole life. He sent his brother to the Middle East to look for business, and at the traditional New Year’s gathering with his senior executives in early 1976, he made his position clear. “We have suffered the pain of deciding on stability or adventure. We have concluded that we will accept the challenge of major adventure called the Middle East.” 

The first project was a training shipyard for the Iranian Navy, and it taught Hyundai immediately that this was not Thailand. The temperatures were extreme. The construction site was desolate. The local population did not welcome the Koreans. The design and construction specs were far more rigid than anything they had seen in Southeast Asia. 

One Hyundai crew leader reported back to them from Iran. “The conditions here are impossible, but we are surviving. I know we can make it here.” They completed the project, and then Chung went after the real prize: Jubail. Jubail was a fishing village on the eastern coast of Saudi Arabia, and the Saudi government was determined to transform it into an industrial megacity. 

The project on offer was an open-sea tanker terminal and harbor facility so vast that construction experts worldwide called it one of the engineering wonders of the age. The terminal would birth four oil supertankers simultaneously, 12 kilometers out in the open sea. Hyundai had no experience designing or building anything even remotely like this. 

Chung personally took control of the bidding process. And this is where the story takes a turn that almost defies belief. Nobody at Hyundai knew how much it would cost to build an open sea tanker terminal. Chung worked out an estimate and one of his senior aides, a man called Chun Kap Won, looked at the numbers and told them the bid was too low. 

They would lose money. They were entering a region they barely knew, building something they had never built. Won urged Chung to raise the bid by a hundred million dollars, but Chung refused. “No, we have to secure this project. Otherwise I cannot face President Park.” 

Kap Won was sent to submit the bid at the ceremony, but Kap Won, still convinced that his boss had made a catastrophic error, decided on his own without telling anybody to raise Hyundai’s bid by $60 million. He submitted a bid of $931 million, which is higher than the number Chung had authorized. The bids were opened, and the Saudi Minister of Communications read them out. 

When he got to the American firm Brown and Root, he announced $903 million. Kap Won’s heart stopped. He had overbid. He had just raised the number against direct orders. He had just lost his country, a contract the size of which had never been awarded to a construction company before his career was over. 

He later admitted he seriously considered drowning himself in the Persian Gulf. But then the minister clarified. Brown and Root’s bid covered only the marine portion of the project. Hyundai’s bid at 931 million covered the entire scope of work. The two numbers were not comparable. Hyundai had won. 

When Chung walked over and congratulated Kap Won, he still assumed Kap Won had submitted his original lower number. Kap Won confessed what he had done. Chung was furious. He turned and walked away. The contract was signed. At $931 million, it was roughly half the Korean government’s entire annual budget. It was the largest construction contract ever awarded to any company in world history. 

Chung later commented with a wry smile. “I was glad that Kap Won did not have to kill himself and that our country earned an additional $60 million.” Chung was not done negotiating. After winning the contract, a Saudi official told him that it was customary to pay a 5% commission on all such projects. 

Chung resisted. The official got angry and told him that he had the power to rescind the entire contract if the fee was not paid. Chung offered 2%. The official who had never encountered that kind of audacity in dealings with his government, agreed. Chung had saved millions of dollars before the first shovel hit the sand. 

Now they had to actually build it. The technical scope was staggering. The terminal required installing 89 steel jackets into the seabed, each the size of a 10-story building. Each one weighed 500 tons. Each pair of adjacent jackets had to be positioned at 20-meter intervals, with a margin of error of no more than five centimeters. 

More than 15,000 concrete piles, each 60 meters long were driven into the seabed. Each one was struck more than 5,000 times with a remote steam hammer. Chung insisted that Hyundai Heavy Industries in South Korea manufacture every bit of material for Jubail and ship it to Saudi Arabia. 

He was stitching together two mega industrial projects across the Indian Ocean. The 89 steel jackets were loaded onto barges and were sent on a 12,000 kilometer, 35 day voyage through often stormy seas to the Gulf. And he did not insure any of it. His subordinates thought this was lunacy. 

If a single shipment was lost at sea, the financial damage would be catastrophic. Chung’s reasoning was rational. Even if the cargo were insured, insurance companies would require long investigations before paying out. By the time they paid, Hyundai would be in breach of contract with the Saudis and would lose the whole project anyway. 

Insurance, he concluded, was a psychological comfort in this case, not actual protection. Instead, he designed a way to seal the ends of the jackets and the pipes to create huge air pockets that would keep them floating if they went overboard. If anything fell into the ocean, a trailing ship could retrieve them from the surface. 

They made 19 shipments across the Indian Ocean. Only two minor incidents occurred. The men who actually built Jubail lived in conditions that made the expressway in Thailand look like the Four Seasons. At peak, nearly 10,000 Koreans were on site working 10 hours a day, seven days a week. 

Their families had to stay behind in Korea, most workers saw home only once a year. Wages were doubled, what they could have earned back home, which is why they came. But the heat was extreme. The isolation was total, and the cultural gulf between Korean workers and their Saudi hosts was vast. One Hyundai manager named Park Il Kwon volunteered for Saudi Arabia straight out of college in 1977. 

His reasons are telling. “I wanted to go for several reasons. Yes, it was a good opportunity to make money, but it was much more than that. To me, it was an opportunity to serve my country. I wanted to help build Koreas so my children would have a better life.” He spent three years in the desert. His first visit home came after a full year on the job. 

Hyundai flew in Korean cooks to make traditional food. They built recreational facilities. They did what they could, but the reality was that all of these men were living on the other side of the world, building something no Korean had ever built, and they would not see their families for months at a time. 

The intensity of the Korean work ethic became legendary in the Gulf. A Brown and Root engineer who worked alongside Hyundai crews wrote a poem about them in the style of Kipling. 

The poem went like this: “When we’re hungry, they smile. When we’re tired, they get up. When we’re sleeping, they hustle.” And it ended with a warning. “It’s not good for Brown and Rooter’s health to bustle with the Hyundai style.” Chung made his unannounced inspection visits here too. Same as he had done at every other Hyundai site in the company’s history. 

His eyes scanned everything. One manager noted that Chung was particularly obsessed with storage facilities. Doesn’t matter how creatively you arrange things, he will always find a better way. On one visit, he discovered the project accounts were being kept in expensive ledger books. He ordered them immediately replaced with cheaper ones. 

The man was managing a billion-dollar project in the desert, and he was worried about the price of the notebooks. That was Chung.

But the inspections were not only about cost. After reviewing plans and progress, Chung always made a point of spending time with the workers regardless of rank. He would play sports with them, he would wrestle them. 

He often won. What mattered was that the workers saw the chairman in the dirt with them the same way President Park had found him sleeping on the ground at a construction site years earlier. The message was the same as the one he had been sending since the rice shop. We’re in this together. I worked beside you. 

In February of 1979, the Jabail Harbor was officially opened. Hyundai had finished 10 months ahead of schedule. Total. The total labor was two and a half million man-days. It would later be described as the largest-scale project since the Normandy landings in World War 2; the numbers that followed tell the rest of the story. 

Hyundai earned $2 billion in gross income from foreign construction projects in 1979 alone. It was now the world’s fourth-largest construction company. Revenue had grown over a hundredfold in five years. Between 1977 and 1979, nearly 300,000 Korean workers from two dozen companies were sent to the Middle East. 

But Hyundai outpaced every other Korean company in project size, profit, and ambition.

One senior Hyundai executive captured the scale of what had just happened. It was the first time in our 5,000-year history that Korea was making big money.

The president of the Korean Exchange Bank called Chung personally after the capital started flowing home. He told Chung that the deposits coming from Jubail were the single largest amount of foreign currency the Republic of Korea had received since its founding. 

For more than two years, every month, Hyundai sent tens of millions of dollars back to South Korea. That money became a decisive factor in stabilizing the country’s currency during a period of severe economic strain. Chung had always resented the accusation that Hyundai had grown fat on domestic government contracts. 

The Middle East became his answer to those critics. No Korean government connections helped you win a contract in Saudi Arabia. You won on price, on capability, and on a willingness to do what the competition would not do. Hyundai had all three.

The man with a sixth-grade education who could not read an American blueprint in 1957 was now running the largest construction project in history, halfway around the world. 

People had started calling him the Bulldozer. He accepted the name, and in a way he kind of liked it, but with one correction. He was not reckless. He was not impulsive. He was, as he put it himself, the Thinking Bulldozer. 

He wrote, “If you search for a method, it will come to you. If you can’t come up with a method, it’s because you didn’t think hard enough. Before starting any project, I spent an enormous amount of time and effort thinking, analyzing, and planning every detail. When it’s time to implement these plans, it may look like I’m working off the cuff or even being reckless, but if I hadn’t sat down first and planned everything out, the Hyundai Group of today would never have existed.” 

The Olympics

By the mid 1980s, Hyundai was doing over $10 billion in annual sales and was the largest company in Korea. Chung was approaching 70 and he was nowhere near finished. But there was a gap between what Korea had become and how the world saw it. Korea had built the highways, the ships, and was now selling cars in America. 

It was an economic force by any measurable standard, but the world still treated it like a pawn in the Cold War, and much of that world still shunned it because of its history and proximity to communist states. Despite everything Korea had achieved, the world still didn’t take it seriously. 

South Korea needed a stage. 

So in October of 1979, just three weeks after President Park’s assassination, the mayor of Seoul formally announced that this city would bid for the 1988 Olympics. The reaction in Korea was a mess. The economic planning board opposed it. 

South Korea was in an economic downturn, and the required investment would be staggering. Even the mayor himself started having second thoughts, and most government officials quietly pulled back from the effort because they knew their reputations would be dragged down with whatever happened next. 

Their calculus was ugly either way. Korea would probably lose the bid to Japan, which would be embarrassing, or Korea would somehow win the bid and then fail to deliver on the games, which would be much worse. Somebody had to take the lead effort and nobody wanted to. The mayor publicly asked a business leader to take the job. 

Chung got the call, and just like that, he was named chairman of the Olympic Bidding Committee. 

He approached it the same way he approached every other big job he had ever taken on. This was a chance to show the world what modern Korea actually looked like, which was the same promise he had made when he named his company Hyundai 40 years earlier. 

The bidding session took place at the 84th session of the International Olympic Committee in Baden-Baden, Germany in September of 1981. 

The choice came down to Seoul or Nagoya. 

Everyone assumed Nagoya would win. Korea was still considered a backward country, possibly even incapable of hosting an event this size. Japan had already hosted the Olympics in 1964 and knew what it was doing. The Japanese delegation was so confident of victory that they scheduled their victory banquet before the vote. 

Instead of spending their time selling the committee on the merits of Nagoya, they spent much of it disparaging Seoul. Chung did the opposite.

He rented three houses in Baden-Baden as his base of operations and pressed Hyundai’s Frankfurt office into service as backup.  

His team compiled personal dossiers on every IOC delegate, and over the next 10 days, he met with each one of them one by one. 

He lobbied representatives from developing nations to support one of their own. He lobbied the developed nations to support the underdog, and he kept emphasizing one simple fact: Seoul’s facilities were already 60% complete. Nagoya’s plans were still on paper. 

Then the Japanese tried to sabotage the Korean bid. They planted a question through a Soviet gymnastics official asking whether Korea was even financially stable enough to host the games. But Korea had brought Yoo Chang Soon with them, the former Deputy Prime Minister for Economic Planning. 

He dismantled the question on the spot and exposed the Japanese for having planted it. It was a tactical disaster. 

And then there was the gift question. The Japanese handed out expensive watches to the IOC members. Chung thought that kind of extravagance was going to read like an attempt to buy the vote. 

So he did something different. He had fresh flowers delivered to each delegate’s room every single morning with a personal note of appreciation attached. This softer approach worked. Seoul won 52 to 27. 

Chung called it “the miracle of Baden-Baden.” Korea then spent close to $6 billion on the games themselves, and you could see the country’s ambition in every line item. 

New stadiums, athletic fields, and housing for all athletes were built. Hyundai built a new subway system. Hyundai also built a new highway called the Olympic Expressway. The Han River got cleaned up. Parks were built along the waterfront, and the south side of the river was opened for development and quickly became Seoul’s most expensive real estate. 

On September 17th, 1988, the games opened. Over 150,000 visitors attended. It was the largest Olympics in history. 

Korea threw its coming-out party, and the whole world came. 

The Family

To understand Chung, you have to understand how he ran his family. He had eight sons and one daughter, and every one of his sons shared the same middle name: Mong. It’s the Korean word for dream. They were, in a very literal sense, the living trademark of the company.

From childhood, Chung expected every one of them to join the business, and every one of them did. 

He was strict with his kids in a way that most of us would find extreme. He gave them a very small allowance. He would not let them be driven to school in the family cars. They took the bus just like everyone else. 

His reasoning was characteristically blunt. 

“You’ll only appreciate the happiness of riding in a car you bought with your own effort. If you first experienced the inconvenience of a crowded bus as a child.” 

Every morning at six o’clock, all of his sons and their wives arrived at the family home for a traditional breakfast of soup, rice, and fresh fruit. 

The sons and Chung would sit together and discuss business. While the wives met in the adjacent room to discuss family matters. 

At seven sharp, Chung would gather his sons, lead them outta the house, and then they would all walk two and a half miles to Hyundai headquarters in downtown Seoul in silence. There was no conversation. There was no small talk, just a formation of men moving through the city, toward the company they all worked for. 

Chung did this every working day for nearly 30 years. His wife, Byun Joong-suk, held the whole family together while Chung was out building the empire. And there’s a story about her that tells you almost everything you need to know about the kind of woman she was. 

One night, two thieves broke into the Chung household. They went into her room, tied her up, put a quilt over her head and demanded her valuables. She calmly threw the quilt off and said to them, “You seem to know whose house you’re breaking into. I’m not going to make any noise, so let’s talk and try to find a compromise.” 

The thieves, startled, became a lot less aggressive. She gave them a watch she had been saving as a wedding gift for one of her sons, along with a small amount of cash. The thieves demanded to see the American dollar she had hidden away and the golden rice bowls they believed she must own. She applied calmly that they had never seen any dollars in the house, and she had never known anyone in Korea who ate out of golden rice bowls. 

Frustrated, the thieves left. After they left, she walked into the next room and woke her husband.

She had concealed his presence in the house the entire time. The family did not escape tragedy. Chung’s eldest son, Mong-pil, was killed in a car accident on the expressway, which was the very highway his father had built. 

His fourth son struggled for years with depression and the pressures of running one of Hyundai’s subsidiaries; in 1990, he took his own life. These losses devastated Chung, but he did what he always did. He kept going. 

In his final years, as his health declined, Chung divided Hyundai among his six surviving sons. 

Each one received at least one company. The unified empire that he had spent a lifetime building would not survive him as a single entity, but the fragments, all of them, would carry his name across the world. 

The Political Maelstrom

There’s a pattern in Chung’s life that you’ve probably picked up on by now. 

He builds something, someone or something takes it from him, and he builds something else, something bigger. The Japanese took his rice shop, the Japanese took his auto shop. 

Inflation nearly took Hyundai during the Goryeong Bridge. The oil crisis nearly took the shipyard, and every single time Chung’s response was exactly the same. He refused to stop. 

But in the early 1990s, something different happened. This time, the force that came for him was not a foreign colonizer, a global market, or an inflationary shock. 

It was his own government. Chung had always had an uneasy relationship with Korean politics. He had survived multiple regime changes, watched governments rise and fall, and paid tribute to every single president who held the office during his career. Not because he wanted to, but because that was how the system worked. 

He later confessed this publicly. He and other major Korean business leaders had made regular payments to Korean presidents as routine for decades. Under Park Chung-hee, it was roughly 500 million won, twice a year. Under the presidents who followed Park, the payments continued. 

Every major company did it. It was Korea’s operating system at the time, and everyone in the system understood the rules. But when President Roh Tae-woo took power in the late 1980s, the rules changed. Roh started curbing business expansion, restricting credit and trying to force major companies to narrow their operations. 

Chung saw these policies as dangerous and anti-business at a time when Korean companies needed to expand, not contract. And he said so, and he did it publicly and loudly. 

He criticized the Roh government for how it was handling the economy. He said there was no credible political leaders in Korea. 

In Korean politics at the time and politics today, frankly, you did not say these things about the sitting president and walk away unscathed and Roh did not let them. The government charged Chung with tax evasion over stock transfers he had used to reorganize his holdings, which was a practice that every major Korean conglomerate was using. The government came after him for hundreds of millions of dollars in back taxes, and they threatened to cut off Hyundai’s access to bank loans, which would’ve been a death sentence for the company. 

Chung fought back, but eventually he was forced to pay $181 million, but something inside him shifted. 

In January 1992, at age 76, Chung Ju-yung announced that he was running for President of Korea. His reasoning was direct. “We have a pessimistic future with the present economy, and I have to do something about it.” 

He believed very sincerely that running a government was no different than running a company. What Korea needed was sound planning, efficient management, rational allocation of resources, and tight fiscal controls. Those were all things Chung had spent his entire life doing. If he could build highways and shipyards and cars, he could build a better government. 

He founded the United People’s Party. An army of Hyundai employees joined the campaign. In the March National Assembly Elections, the brand new party won 31 seats. Not bad for a party that had not existed a few months earlier. Chung campaigned tirelessly, crisscrossing Korea in his helicopter, making the same case to anyone who would listen. 

The government had grown too large. It was interfering too much in business. It had lost control of the economy and run out of ideas. In the December presidential election, Chung ran against Kim Young-sam of the ruling party and the veteran opposition leader, Kim Dae-jung. When the votes were counted, Kim Young-sam won with 42%. Kim Dae-jung came in second with 34%, and Chung received 16%. He had lost, and it was one of the very few fights in his entire career that actually ended in defeat. 

The consequences were immediate and severe. Kim Young-sam’s new government charged Chung with illegal campaign financing. Alleging that corporate funds from Hyundai Heavy Industries had been funneled into the campaign. 

Chung was interrogated for 12 hours. More than a hundred Hyundai executives were indicted at the same time.

The Korean development bank froze Hyundai’s loans, tax audits multiplied, government contracts dried up. One analyst at the time said no government official would even go out for a drink with Hyundai executives anymore. 

Of course, Chung was convicted. He received a three-year suspended sentence, and he never actually served prison time. The court cited his advanced age, his contributions to national development and his ongoing business activities. 

He later admitted a truth that he had always known, but probably underestimated. “There is one thing I fear the most as a business leader: regime change, whether it’s a coup d’état or a Democratic election, private businesses are always the first target.” 

The presidential run had probably been doomed from the start, but it was sincere. No person had done more to build Korea. The man who had built the highways and the shipyards and the nuclear power plants genuinely believed that he could build a better government and the country he had built punished him for asking to try. 

But here’s the irony. They could not actually punish him. Sure they could in optics, but not in any meaningful way. He had been convicted and he was supposed to go to prison, but he couldn’t because he was too important to the Korean economy to be really punished. 

The 1,001 Cows

On June 16th, 1998, Chung Ju-yung, now 82 years old, climbed into the lead vehicle of a convoy of 50 trucks. 

Every truck was loaded with cattle. 500 head of Korean Hanwoo beef cows. All of them raised on his beloved Seosan farm. The farm he had reclaimed from the Yellow Sea. The convoy rolled north toward the most heavily militarized border on earth. 

Chung was the first South Korean civilian to cross the DMZ since the division of Korea. 

Four months later in October, he came back with 500 and one more. 1001 cows total. 

One cow for the one he had stolen from his father 65 years earlier and 1000 more for interest. The man who had run away from a peasant farm with nothing, had returned as the richest person in Korea to pay back a debt of conscience that had been accruing for most of a century in the only currency that made sense. 

Chung came home from that trip physically exhausted. He was frail and his health was failing, but he was also proud. He had accomplished something that diplomats had been unable to accomplish for decades. 

He had opened a door that two governments and a world of Cold War politics could not open. He had built a commercial bridge, however briefly, between the two halves of a divided nation, his divided nation. 

Epilogue: The Hyundai Spirit

Chung died in a hospital he had built. The hospital was in a city connected to the rest of the country by a highway that he had paved. The city was in a nation whose economic miracle bore his fingerprints on nearly every beam and rivet, and the date was March 21st, 2001. 

He was 85 years old. Five of his sons were at his bedside. 

When Chung was born in 1915, Korea was a Japanese colony. The economy was agrarian. Rural poverty was almost universal. Per capita income, somewhere between $50 and $80. When he died in 2001, South Korea was the world’s 11th largest economy. Per capita GDP was roughly $11,000. That is a 140-fold increase in a single human lifetime. 

Chung did not build that alone. Millions of Korean workers, dozens of other entrepreneurs and several presidents all contributed, but no single private individual had a larger hand in what happened. 

In his living room was a piece of calligraphy he did himself that read “diligence will overcome all difficulties.” As far as anyone could tell that was his most deeply held belief. A description of how he actually lived each day. One of his senior executives described what it was like to work for him in the early years. 

“I worked 16 hours a day, seven days a week for 16 years, no holidays. If the chairman was working, so were we. We didn’t mind however. We learned from the chairman. We respected him. He was always very demanding, but he was a good teacher.” 

Any honest accounting of Chung has to hold several truths at once. He genuinely believed in equality, but he also ran his company like a tyrant. He believed all workers were equals, but he could be ferocious with those who disappointed him. He championed Korean self-reliance while at times depending on government patronage. 

He publicly denounced corruption while having paid tribute to every president who held office during his career. He built institutions that lifted millions of people of poverty while presiding over labor conditions that ground many of his workers down. 

It’s true of any of us that if you hold a microscope up, there are all of these contradictions. 

Chung Ju-yung was not a saint. He was a builder, and the distinction matters. 

In the final pages of his autobiography, Chung wrote, “I have lived my entire life driven solely by the satisfaction derived from hard work. I buried myself in work because I enjoyed the very act of working. And having lived thus, my soul became one with work.” 

And then he wrote this: “I feel an infinite sense of pride that I’ve contributed my share to this country’s breakthrough.” 

Here’s the detail that stays with me, and this is the detail I want to leave you with. Chung’s father died in 1946 before the shipyard, before the expressway, before Hyundai was even anything other than a small outfit with a hopeful name and a sixth-grade dropout running it. 

The man who had wept in the dirt in a Seoul bookkeeping academy and told his teenage son he was a nobody never lived to see what his son became. And Chung was still thinking about him decades later. In the introduction to a section of his autobiography about the Seosan farm he had reclaimed in the Yellow Sea. 

He wrote, “I’m overwhelmed with grief that my father has passed away before seeing this place. But I can soul myself in the belief that were he here to be looking down from heaven, he would be heartened to behold the vast farm created by the son of a man who lived his entire life as a poor farmer.” 

Because in the end, after all the highways and the ships and the cars and the billions of dollars and the political disasters and the cattle drives across the DMZ, after the Olympics and after the desert, and after the shipyard, and after the dam and the bridge and the rice shop and the bedbugs and the bicycle, he did not know how to ride after all of it, Chung Ju-yung was still thinking about his father. Still trying to prove something to a man who had wept in front of him in a bookkeeping academy in Seoul and called him a nobody. He was not a nobody. He was Chung Ju-yung, and he helped build the modern world. 

Thank you for listening and learning with me. 

Resources

Born of this Land: My Life Story

The post [Outliers] Chung Ju-yung: The Hyundai Founder Who Put a Country on His Back  appeared first on Farnam Street.

Play

Featured clips

07:26

The 3 Principles for Strong Decision-Making

11:36

One Cold Email to Sam Altman that Changed Everything

21:56

How to Build Resilience to Failure

52:45

Can AI-Only Law Firms Exist?

Available Now: YouTube | Spotify | Apple Podcasts | Transcript

In this episode, Winston explains how AI is reshaping legal work, why judgment becomes more valuable as routine work gets automated, and how to build the prioritization muscle required to move faster, stay focused, and make better decisions when everything is changing.

He also shares the operating principles behind Harvey’s growth: make decisions faster, treat most choices as two-way doors, use stress to build resilience, prioritize the one thing that matters most and the Google Doc that drives it all. 

Harvey began with a simple test: take real legal questions, run them through GPT-3, and ask experienced lawyers whether they would send the answers with zero edits. On 86 out of 100 questions, three out of three attorneys said yes.

This is a conversation about AI, law, speed, resilience, and building in a world where the bar keeps getting higher.

+ Check out the Granola Notes

The post Winston Weinberg: Speed, Stress, and Better Decisions appeared first on Farnam Street.

Greg Brockman is the co-founder and President of OpenAI, the company behind ChatGPT and GPT-5. He was the first engineer at Stripe before leaving in 2015 to help start OpenAI.

In this rare conversation, Greg goes inside the moments that built, and nearly broke, the most important AI company in the world.

Play

Featured clips

06:05

Breakthrough Moments at OpenAI

15:44

Sam Altman's Firing

32:22

Is AI Going Parabolic?

40:38

Why ChatGPT No Longer Shows Reasoning

01:04:44

AI and Job Loss

Available Now: YouTube | Spotify | Apple Podcasts | Transcript

Greg explains how the original Napa offsite produced the three-step technical plan OpenAI has followed for a decade and the real reason OpenAI had to abandon its pure nonprofit structure. He then walks through the 72 hours after Sam Altman was fired: where he was when he got the board call, why he quit the same day, how the “Phoenix” backup company was designed at Sam’s house the next morning, and the moment Ilya Sutskever’s tweet changed everything.

From there, the conversation turns forward: whether we’re in a global AI race, how much of OpenAI’s own code is now written by AI (“it’s hard to know what percent is not“), why OpenAI stopped showing reasoning traces, what a compute-constrained world means for who gets access to AGI, and Greg’s answer to the question everyone is really asking: What happens to your job?

+ Check out the Granola Notes.

The post Greg Brockman: Inside the 72 Hours That Almost Killed OpenAI appeared first on Farnam Street.