The Exchanges

Q But to actually live them, to realize them, to hold people, not just responsible, but accountable to them. How do you, how did you do that as you develop these over the decades?

A Because at first, uh, we tried to get them to do it through sheep dipping. That is, you take everybody in, you give them a big seminar, and now go do this. And, uh, from Polanyi, we, if, if you want to read a book that's hard to read, I mean, if you want really hard one, you can read Human Action. This is even harder. It's called Personal Knowledge by Michael Polanyi, who was, um, a chemist and, and then became a philosopher. And, uh, and, and he goes through what it takes to, to, to develop personal knowledge. It's, it's, you have to rewire your brain to have it work differently, right? You have a habit, so you don't need to think about it, and then if you want to change, like, do I brush my teeth first, or do I comb my hair first? No, I want to start combing my hair first, and all of a sudden you're back brushing your teeth first, and you, because you're not thinking about it, and so, because your brain gets, I mean, you, you know your body, let's say you're, You're a weightlifter, and you want to be a marathoner. Ok, it's going to take work with intensity over time to change your body. Well, your brain's part of your body, so you've got to do the same thing. So we said, ok, we've got to start with, ok, let's find a group that's really interested in this. They're struggling, they're having problems, and here are the principles, and we'll coach them, we'll help them. Start doi…

AI assessment note: “we'll coach them, we'll help them. Start doing it, and if they work with intensity”

Q be willing to take the short term financial loss for the long term. Have you been able to get that to distill down into the organization? Because that's the thing that most public companies that are not owner operated deal with and struggle with is managers that are short term incentivized and, and aren't and can't take the big risks and the risks of failure that you're able to embrace.

A No, but I, I think it depends on the values of the owners. If, ah, like, one of our principles is that any good partnership of any kind, whether it's marriage, friend, employee, partner, requires three things. It requires shared vision, shared values, and having complementary capabilities that you use to, to make each other better. And if you'd miss any one of those, you're not going to have a lasting good partnership. And so I, I remember I was, I was to the YPO group in Wichita. I was presenting, this is like 20 years ago, presenting what we were doing and why, and one of them said, well, how do you get that to work in a private company? And And I answered, well, no, it's easier than a public company, just like I did. And then I, I thought who it was, and he was talking about his father. His father was a total dictator. And there's no way he could apply any of these principles in that, so it all matters who the owners are and what their values are.

AI assessment note: “No, but I, I think it depends on the values of the owners.”

Q When you came into the business, What was the scope of the business? What was the business operating?

A We, we had two main businesses. One was, uh, to, uh, uh, design and make, uh, fractionating trays. That is that they separate liquids by differences in boiling points. And then, uh, our largest business was a crude oil gathering system in, in Oklahoma. And, and so, So my father, ah, and I, I was, ah, I had finished, just a few years earlier, finished MIT, and I was, ah, working for Arthur D. Little, then a leading consulting firm, and I was, and you'll think this is a joke, at age 25, I was doing managing consult, management consulting. I mean, I have to laugh at the absurdity of that, but I just, I don't know. But they were paying me for it, believe it or not, so my father called me, and he said, son, uh, I want you to come back and join the business, and as tough as he had been on me, and as I say, rightly so, uh, I declined. So he called me a few weeks later, and he said, son, either you come back to run the company, or I'm gonna have to sell it, because my health is bad, and the companies aren't doing well, and, uh, And I don't have long to live. Ah, so I agreed, because, ah, I, well, for, for a number of reasons. One, the first one is, ah, I got three degrees at MIT in engineering and I sucked as an engineer. I mean, get that, and what, so how'd you get through MIT? Because I was real good at the math and the science and the theory. And I was no good at making or operating…

AI assessment note: “We had two main businesses. One was to design and make fractionating trays.”

Q What keeps most people from realizing their gift?

A Well, I, I think part of it is an education system, so the schools need to be set up Ok, we're gonna help you find your gift and what you're passionate about, and, and, and, and what is motivating to you. So, the whole system demotivates you, and that's what the way businesses are managed, you're demotivated. Our whole deal, that's why we, we have five dimensions in the, in the way we apply this. The first is vision. You gotta get the right vision. Capabilities of creating value for others. Uh, then, then it's virtue and talents. We, we've talked about that. Then it's knowledge. That's Republic of, of science, uh, creative destruction, all those things. And then the, the final one is motivation. And so that's what we need to do. And, like, Joe Lamont has created the schools. He says, 90%, or 80% motivation. And so you have games, you have other things that the kids can do that they learn from, and enjoy doing, and they want to do more, and that's, I mean, I raised our kids with these principles, and I made them do it, so I was piss poor at applying my principles in, in teaching them this, and he's doing it, he makes a game out of it, he has them reading the book, and parts of it, and then they have competition on who can do it better, and who's Who's living up to this better? Who's applying this principle better? And they're loving it.

AI assessment note: “I think part of it is an education system, so the whole system demotivates you”

Q And then, You're now running a profitable operation. You've got a European business. And at that point, did you start to think about expanding into other products and other?

A Well, that's it. And this is, so I was learning all these different principles and I, and what I saw we were doing not here, not just here, but in other things is we were building capabilities. That is, I looked at it We need to be capability-bounded, not industry-bounded. Like, okay, you could say, ah, to a certain extent, because we were in crew oil gathering, we're in the oil industry. Oh, that means, everybody would say, you need to be an integrated oil company. You need to be in everything. And I was applying to visual labor by comparative advantage. No. You need to be in the part of it Of the, of the industry and the part of the value chain where you can create more value than others. Otherwise you're going to fail. And that's what we're seeing happening now. There's more specialization by comparative advantage. And so that's what, so, so I, I, I started this, created this principle called, uh, uh, uh, uh, creating virtual cycles of mutual benefit. And what that led us to do is to, to, to start this, uh, never-ending cycle of, of, uh, of growth, uh, innovation, success, and failures, and failures that When we did it right, that we learned from, and made us better, and taught us better how to apply principles to create value, and we're still going through that. We have a lot of failures, and that's when you, when you apply creative destruction in your new things. If you're…

AI assessment note: “we need to be capability-bounded, not industry-bounded.”

Q Was it fair to say that you wouldn't consider an acquisition or a new business line if there wasn't some relatedness to an existing competency at the company?

A It depends. I mean, as you see when you read the book, we went through, uh, one chapter on, uh, creative destruction and, uh, and what Schumpeter called all the different ways to do that. And one is to create a new management approach. Okay. That's our biggest one. So the question is, when we bought Molex, uh, makes electrical connectors, which has done fantastic. And at first, it wasn't doing great, so we said, we think if we can get them to apply these principles, it will turn them around. And, and we didn't, we, and the problem when we do that, they, they, they, the tendency is to learn the lingo, And so you can call everything by these, by these names, and you still do what you always did, and that's what was going on there. And so finally we got in, no, we, we had changed the management, and, and once we did that, and, and, and, and, and they started applying these principles, they took off, and now they're knocking it out of the park. But let, let me go back to failures. I, because I'm, I mean, we're understating our, our, our great strength in failures. And that is, I'll, I'll give you our worst failures and what caused it. And it caused us by, by violating the principle of, of, of hiring people first on values and second on talent. And, and what I've, for years, I've told my people, look, if you want to hire Somebody with bad values because you like them or something. H…

AI assessment note: “It depends. I mean, as you see when you read the book”

Q How do you make the decision to shut it down or walk away at some point? A lot of entrepreneurs have this problem. They, they build something, they're too in love with it, and they don't know when to say enough is enough.

A Yeah, well, let's, when enough is enough, when we lose our ass, enough. No, it's, it's when we decide we don't have the capability to create superior value for our customers, and that we're going to be rewarded for. And sometimes it can be the structure of a, of a business. Like, uh, like, uh, uh, a company that Case found a co-disruptive technology, Insight Tech, It's been, it does tremendous things, but it is a structure that makes it hard to make it profitable. And so, so that's the other thing is, so, so that's another, these are principles that we've learned. Okay, we didn't apply that. What were the principles that we didn't apply that caused us to fail? That's what I mean we learned from failing. So the businesses where, you asked the businesses we're in now, and Jason, there's Koch people here, you, you all can catch me up if I, the ones I miss, but, uh, we have, uh, uh, Engineering projects, engineering construction. We have, ah, we build, ah, solar plants. We have commodity, ah, trading and, and distribution. Ah, we have, ah, fertilizers. We have refined products. We have chemicals and polymers. We have glass. We have, ah, ah, forest and consumer products. We have four different Uh, investment firms with different comparative advantages, uh, and we, we have, uh, electrical products, and we, we have, uh, software, uh, systems, uh, uh, for management.

AI assessment note: “So the businesses where, you asked the businesses we're in now”