The Exchanges

Q So with that mindset, why don't you take me back to the beginning of how you came to find this business strategy that you've executed repeatedly?

A So I've had two parts to my career. One was 10 years in the oil business, and then after that was an M&A strategy starting around. I've started five companies from scratch. I turned all of them into billion or multi-billion dollar enterprises. We did about 500 acquisitions along the way. We raised about thirty billion dollars or so of outside capital, but much more importantly than thirty billion dollars we raised of Debt and equity is the magnificent amounts we've returned to investors. Very spectacular returns. And that's been my report card. That's what I've measured my success on is how much alpha have we created? The first company I started was in 1979 when I was 23 years old. I had a whole whopping 5000 dollars of bar mitzvah money left over. And I formed an oil brokerage firm that matched together buyers and sellers of crude oil and refined products and Within a few years, we were doing 4.7 billion dollars of brokerage volume. We were the first company to arbitrage between the oil itself, the physical markets, and the futures exchanges, which were just starting out then. I sold that business in 1983. I moved to London, and I started a crude oil trading company as a principal. We were in the right place at the right time, and it worked out fabulously well. After 10 years of being in the oil business, The margins started to contract because you had new competitors coming i…

AI assessment note: “I formed what became my first publicly traded company, United Waste.”

Q What's the cadence of deals you've done in the past?

A It's varied. So when I first started doing M&A, United Ways, United Rentals, where we did hundreds of acquisitions, there I did a lot of acquisitions in a short period of time. So sometimes we did a couple acquisitions in a week, sometimes there were smaller acquisitions, and then once in a while we would do a large acquisition, and then we stopped a little bit. So I typically do large deals in pairs. Not always. I'd like to do two large deals near each other and then stop and digest and integrate. The reason I do that is I don't want to have to do two organizational charts. So I pay a lot of attention to organizational charts. So in 2015, we bought Norbert, and that was a pretty large acquisition. They were in dozens of countries. And then three months later, we bought Conway here in the United States, which was also a large acquisition. Both were publicly traded companies. And some people said, well, isn't that risky? And is that inefficient doing two deals right after that? I looked at just the opposite. And fortunately, I turned out to be right, where we bought these two companies, and then we stepped back, didn't do acquisitions for a while, and we just integrated it. We did a global organization chart, recruited people who were used to functioning on that scale, and we integrated them all in one global HR organization, one global IT organization, one global sales and mark…

AI assessment note: “I typically do large deals in pairs... near each other and then stop and digest”

Q So when you're doing this research in this year, you had time to do this, and there are all these things you're trying to get to. Where did these ideas come from, and what work did you do to figure out, is this the type of business you want to dive into?

A I used my network. I used my contacts, my friends, my connections, a lot of existing CEOs and some retired CEOs who had a little more time and just said, here's what I want to do. I want to put a billion dollars to work, and I want it to be worth a lot more than a billion dollars 10 years later. What would you do if you had the time and you're at this point in your career? What would you do for a startup? And I got hundreds and hundreds of ideas. So CEOs was one way, but then I would pressure test the ideas. I had my little kitchen cabinet. So I had my friends at Sequoia Heritage. We had a regularly scheduled meeting, usually once a week or every couple of weeks. And I give them my 10 things I was working on. I said, what do you think each one of these? Because these are people who think very critically. They're seeing a lot of different industries. They're not industry specialists. So I'd hear what they had to say. I would talk to the banks. I would talk to the specialists in the banks, the experts in the banks, more for due diligence than for idea generation because the banks are really specializing in opportunities that someone can make two X or maybe three X and they think that's a hero. For me, if I'm going to spend five or 10 years putting all my life into something seven days a week and really in it, I want to win it. That would be a very bad, bad outcome if we only made…

AI assessment note: “I used my network... CEOs was one way, but then I would pressure test”

Q So how do you go about creating those electric meetings?

A There's three ingredients. Number one, you have to have the right constellation of people in the meeting. Number two, you have to have a crowdsourced agenda. What I mean by that is, if I'm leading that meeting, I'm not setting the agenda. I'm asking everybody ahead of the meeting, what do you think we should talk about? What are the most important things we can talk about as a group at this important meeting we have coming up, and every meeting is important, otherwise we're not going to have the meeting, that can move the needle, that can help us meet our goals. Remember, our goals are blank, blank, and blank. What should we talk about as a group to use this valuable time that will help us meet our goals more? And then I have everybody vote on those, so maybe they'll be A hundred or a 150 ideas of what we should talk about. So we send it all around on an app. We have everyone vote on every single one of those. Scale of one to 10. I love one to 10 scales. I like to form them in terms of questions, because then we go around the room and everyone answers the question. And how important do you think this question is to help us meet our goals? Is it a needle mover or not? And then based on that ranking, where people have voted democratically, people have voted on it The ones that had the highest scores, that becomes the agenda. And we go down the agenda from the highest ranked ones …

AI assessment note: “There's three ingredients. Number one, you have to have the right constellation of people”

Q With this book, you're taking all these lessons and you're going on this roadshow talking about this publicly. What was your motivation for doing that?

A So what I wanted to do is I wanted to analyze what were the idiosyncratic, what were the things that were specific to us that made us different from other companies that did okay or actually did very good, but didn't do very, very, very good like our companies did in terms of creating alpha, in terms of creating shareholder value. And I wanted to get an honest assessment of that and to think about that. And I also wanted to see what are the things I messed up. And I wanted to know both of those categories of things. So A, I did the right things more of, and I didn't do the dumb stuff. That was my motivation for writing the book. Like I said, I didn't know if I was going to publish it or not. Ended up I did publish it, and I'm glad I did. Nice to share it with other people. But I learned that I have about roughly a hundred things that are the Brad Jacobs way of running a business. My way of selecting people, the types of people I like, the way I like to interact with people, the technology, the way I look at an industry, the way I pick an industry. The metrics, the way I interview people, all the things that I think go into answering the question that I asked myself, which is why did we create so much alpha? Why did we make 32 times our money for initial investors in this company? Why did we outperform 5.6 X, the S&P 500? Why did we do all this? That didn't happen by itself over…

AI assessment note: “That was my motivation for writing the book... Nice to share it with other people.”

Q So if you look back at, say, XPO, it could be any of them. As you're executing this roll-up strategy, to do that many acquisitions, you mentioned speed earlier. How do you think about the diligence process of doing something quickly?

A You have to know what you're diligently. You have to know what are you trying to look for. So you need a team in place that knows what they're doing, and you have to focus in on the stuff that really matters, and don't waste time on the silly stuff that really doesn't matter. Sometimes you see people hire a consultant. They pay them literally four or five million dollars. They put this big, big report. What is the purpose of that report? The report is for the manager team who's buying it to cover their butt. That's how in case the deal doesn't work out, gee whiz, we have this big, big report with millions of dollars, and it said it was a great deal. It fooled them. How could it fool them? I'm not concerned about covering my butt. I'm concerned about succeeding, and I want to focus in on what really matters, and I find I can do that Through online, through industry checks, and most importantly, through interviewing face-to-face the top dozen or so executives. I want to spend an hour, hour and a half with each one of the management team members And I just want to have an honest conversation with them. Just a very basic, candid discussion of, so if this was your money, would you do this deal? Am I doing something intelligent here, or am I going to lose money? And if I end up losing money, if this turns out to be a bad deal, what's that going to be? Why is it going to be a bad deal…

AI assessment note: “most importantly, through interviewing face-to-face the top dozen or so executives”

Q Brad, I want to make sure I get a chance to ask you a couple of closing questions before I let you go. What is your favorite hobby or activity outside of work and family?

A Oh, you name the two. So I spend the vast, vast majority of my time on those two things, on the business, whatever that happens to be at the time, and on my family. If you take that apart, my main hobbies have been music and meditation. I still consider myself a musician, although I don't play and practice hours and hours a day like I did when I was a real musician when I was young. But if you're trained as a musician and you're really a musician, your whole life is music. You're always listening to sounds and You're always in tune with the sounds of your heartbeat, of your breathing. You get in tune with rhythms of business, of cycles. You think in terms of harmony. You think in terms of groups. You play in a band. The principles, the basic principles of music, which I learned from the greats like Bill Dixon and others, they still apply. I mean, for me, that's part of my gestalt. That's part of my way of looking at life. So music is important to me. Meditation is important to me. I think it's valuable to Get out of for some time in the morning, sometimes in the afternoon, the familiar patterns of the way I live life, and to get into some unfamiliar territory.

AI assessment note: “my main hobbies have been music and meditation.”

Q You mentioned earlier the importance of information and keeping track of what all these people are doing. How do you use information to increase the operating results?

A When I'm looking at running a company, I'm looking at it as information. I'm looking at it as, how do I have all these feedback loops within the different stakeholders, within the different constituents? So I have employees, I have investors, I have customers, I have vendors, I have regulators, I have all the usual stakeholders. I need to know what they're thinking. I need to know what's going through their mind. The company has to be very much in tune with what employees are thinking about the company. The management has to be very, very in tune with how do we get more collaborative relationships with our vendors so we can earn and deserve better price, better terms. We have to know what our owners think, what our shareholders think. We have to be very, very in tune with the people who have given us their dear equity and expect, rightfully so, a lot more money back than they gave us. We have to know what they think. We have to be hearing what they want. They own the company. We need to know what they as partners, as investors want. So all these feedback loops are very, very, very important. And I spend a lot of time making sure we do have intense feedback loops so information is flowing. Another way we use information is best practices. So when I'm running a business, whether it's a waste management company, whether it's an equipment rental company, whether it's a transportati…

AI assessment note: “Another way we use information is best practices.”

Q How do you go about assessing the people that you bring onto your team?

A If you give me a fantastic team, even if the market's not so great, I'll still figure out a way to zig and zag and create a lot of money. If you give me A-plus players, people who are smart, people who are hungry, people who are hardworking, people who get along with each other, these are the things I look for. I screen very intensely on the intake of these people, and I have a forty-five-point questionnaire, which I put in my book at the end of it as an appendix, that gets to these issues, and the interview process is really to figure out, is this person super smart? They better be at least smarter than me. That's important. I don't want to be in rooms with teams that are not as smart as me. I want to be in rooms with people who are smarter than me, These people have grit. They have work ethic. They really love the job, or is it just a job? If it's just a job, I don't want them. There's plenty of other jobs. If it's passion, if they really are all in on this, and this is something they really enjoy doing, and they love coming to the office, I want to get them. Are these people honest? We screen for people who are super high integrity, because if you're on a team, and some of the people are bent, some of the people are not totally straight, some of the people are not totally honest, And you gotta be second-guessing them, or interpreting them, or looking over your shoulder. It k…

AI assessment note: “I have a forty-five-point questionnaire... and the interview process is really to figure out”

Q Where did your entrepreneurial interest first come from?

A When I was a teenager, I wanted to study meditation more. I was very interested in comparative religions and so forth, And I wanted to understand the answers to the deep questions in life and also love music. And I felt those things went together. So the only problem was I didn't have a lot of money. I had a few thousand dollars to my name. So I figured I'd save up a 100,000 dollars and I'd live off the interest because we're much higher interest rates then. And I got into oil and just one thing led to another and it was very successful. And I just never looked back, but I didn't intentionally say I wanted to get into business. In fact, I looked down on business. I looked at it as that's an inferior way to spend your life. Because I have a painting in my office by Fredrik Kunath that has a saying that says, I can't afford to waste my time making money. It's a very deliberate phrase. I can't afford to waste my time making money. So making money is fun, and it gives you a certain level of things you can do in life that you can't do otherwise. But unless you really have fun to it, like I do, I don't advise doing it. If I were to advise someone young about getting into the business world, I'd first want to screen them and say, is this something you really, really, really enjoy a lot? Would this give you a lot of pleasure? And if the answer to that was no, but it would give me a lot…

AI assessment note: “I figured I'd save up a 100,000 dollars... And I got into oil”

Q What are some of the challenges that you run into integrating acquisitions?

A It goes back to the people. You've got to get the people right. We've got the people right almost all the time, but there's been a few times where we had doozies where we promoted someone to be in charge of something and we're with the right people. But we usually figure this out pretty quickly though, because we have that monthly operating review process where we're zeroing in on the most important numbers and we're benchmarking the whole organization. So you're always seeing in real time who are the managers who are hitting the leather off the ball, and you're seeing the managers that are falling behind. And sometimes you'll go for a few months or a few quarters, and it's the same people who are not doing well, and you have to make a change.

AI assessment note: “It goes back to the people. You've got to get the people right.”

Q What are some of the opportunities that you dismissed that maybe other people think are attractive roll-up industries?

A Well, I don't want to criticize other people who are doing something, and I wish them the best of luck, and Maybe the returns aren't the returns I'm looking for, but it's still a good business, but the things I dismissed are things where the industry wasn't big enough, or there wasn't enough growth, or very importantly, I didn't like the long-term trend, because one thing I learned from my main business mentor, Ludwig Esselson, may he rest in peace, was you got to get the big trend right. You can mess up a lot of stuff, and if you have the main trend right, you can make money. And conversely, You can do a thousand things right, and if the big trend is smacking you in the face, it's not going to work. So you got to get the big trend right. So I think a lot in terms of tech, which is the most important trend in my opinion. The biggest trend in our lifetime is the trend of technology, and it's accelerating and it's becoming more and more dominant, and particularly AI and automation robots. So I want to make sure I'm not in an industry where AI is my enemy and it's going to smack me in the face. I want to make sure I'm in an industry where AI is my friend, and I can use AI to be more efficient, to be more cost conscious, and I can gather information fast, and I can use AI to synthesize, analyze, and distribute that information fast. So I want to find industries that AI is a good th…

AI assessment note: “the things I dismissed are things where the industry wasn't big enough”