How to Make a Few Billion Dollars
By Brad Jacobs
Introduction
Brad Jacobs, a seasoned entrepreneur, shares his experiences and insights on how to create spectacular shareholder returns. This book is a playbook for entrepreneurs and business leaders who want to build successful companies.
Praise for the Book
Many successful entrepreneurs and business leaders have praised Jacobs' book, including:
Ken Langone, Co-founder of The Home Depot: "Jacobs talks about how truly smart people are humble, not arrogant, and how everyone needs to be open to learning from others."
Michael Moritz, former Chairman of Sequoia Capital: "A compelling playbook by one of America's greatest contemporary entrepreneurs."
Laura Alber, President and CEO of Williams-Sonoma: "A practical and inspiring read for anyone who wants to build something great."
Key Takeaways
Here are some key takeaways from the book:
Humble Leadership: Jacobs emphasizes the importance of humility in leadership. He believes that truly smart people are humble and open to learning from others.
Psychology of Success: The book explores the psychology of success and how to combine psychology, science, and business acumen to achieve success.
M&A Strategies: Jacobs shares his experiences with mergers and acquisitions, including how to integrate companies and build a talented team.
Innovation and Risk-Taking: The book encourages entrepreneurs to think differently and take calculated risks to achieve success.
Table of Contents
Here is a brief overview of the book's contents:
How to Rearrange Your Brain: Business lessons from a destination wedding
How to Get the Major Trend Right: Learn from the two-million-year technology trend
How to Do Lots of High-Quality M&A without Imploding: Make sure your rationale holds true on the downside
How to Build an Outrageously Talented Team: Use multiple sources for assessment
How to Run Electric Meetings: Bennington College
How to Kill the Competition Instead of Killing Each Other: Of superorganisms and saxophones
Acknowledgments
Jacobs acknowledges the many friends and mentors who have shaped his personal philosophy, including:
Michelle Adams: Listening is very important
Aaron Beck: What's the worst thing that could happen and how would I cope with it?
Josephine Berisha: Smarts and effort are a powerful combination
About the Author
Brad Jacobs is a seasoned entrepreneur and CEO with 44 years of experience. He has started five companies from scratch and turned them all into billion-dollar or multibillion-dollar enterprises.
Entrepreneurial Journey 🚀
Early Beginnings
Jacobs started his entrepreneurial journey in 1979 with a privately owned oil brokerage company called Amerex Oil Associates. At just 23 years old, he had limited experience and only a few thousand dollars in hand. However, within four years, he and his partners had achieved an impressive $4.7 billion in annual brokerage volume, with offices worldwide.
Arbitrage Opportunities
Jacobs identified an opportunity to arbitrage between the futures markets based in New York and Chicago, and the cash markets in Houston, London, and elsewhere. The futures and cash markets dealt in the same oil commodities but seemed largely oblivious to each other. As a result, the price for an identical barrel of oil often varied between the markets, allowing Jacobs and his team to buy on behalf of clients in one market, sell in the other, and make money on the difference.
Expansion and Diversification
After selling Amerex in 1983, Jacobs moved to London to start an oil trading company, Hamilton Resources, also privately owned. Hamilton generated about $1 billion a year in revenue through a combination of:
Crude oil trading
Countertrade
Pre-finance
Refinery-processing deals
Entry into Solid Waste Management
In 1989, Jacobs moved back to the United States and entered the rapidly expanding field of solid waste management. He called his new venture United Waste Systems and took it public with his team in 1992. They became the industry's fifth-largest player, and in 1997, they sold United Waste for $2.5 billion to the company now known as Waste Management.
United Waste Systems' Success
Over those five years, the percent increase in United Waste's share price outperformed the increase in the S&P 500 share price by 5.6 times, reflecting a 55% compounded annual growth rate (CAGR). And not coincidentally, United Waste had a 55% CAGR on profit.
Philanthropy and Personal Fulfillment
Jacobs believes that free markets value companies correctly over the long term, so it's gratifying to have successes validated by Adam Smith's invisible hand of free-market economics. Public equity also allows for raising capital, creating vibrant corporate cultures, and building brands on a grand scale. Personally, he gets a lot of satisfaction from knowing that the shareholder value created ultimately benefits individuals and their families who are pursuing their own version of the American Dream.
Thought Experiments and Rearranging Your Brain 💡
What is a Thought Experiment?
"A thought experiment is a mind exercise that stimulates the imagination to create expansive experiences. It can rearrange your brain to look at information from unusual perspectives, allowing you to think more freely."
Throwing Love Vibes
One technique Jacobs uses to create a love vibe is to imagine all the instances of love between two people that have occurred from the beginning of time until now. Then, he builds on that and gets in touch with feeling all the love that exists on earth right at this moment. This exercise helps him make good decisions and neutralize conflict in business environments.
Gratitude Conversations
Jacobs also uses one-on-one gratitude conversations to create a durable love vibe in his company. This involves writing notes to himself detailing why he's grateful to a particular person and then verbalizing those reasons in a direct, personal manner. This simple act of giving and receiving gratitude can produce an overwhelming sense of happiness that can last for weeks or even months.
Expect Positive Outcomes
"Stop beating yourself up mentally. Successful people don't."
Overcoming Negative Thoughts 🤔
Humans have a natural tendency to think negatively, which can lead to catastrophic thinking patterns. This is because our ancestors needed to be vigilant about potential threats to survive. However, this mindset can be limiting and affect mental well-being.
Recognizing Negative Automatic Thoughts
Imposter Syndrome: Feelings of inadequacy, self-doubt, and fear of being found out
Catastrophizing: Thinking of small problems as enormous impediments
Perfectionism: Anything less than perfect execution causes intense frustration
Dichotomous Thinking: Having rigid or all-or-nothing views
Refuting Negative Thoughts with Cognitive Behavior Therapy (CBT)
"Each of us can choose the mental lens we use to frame our life." - Aaron Beck and Albert Ellis
CBT emphasizes recognizing and challenging negative thought patterns. By doing so, one can:
Reframe negative thoughts in a positive light
Acknowledge the negativity as a natural reaction, rather than objective reality
Course-correct thinking to achieve a calmer, more rational state of mind
Practicing Self-Awareness and Reframing
When feeling anxious or negative, ask:
What's the worst that can happen, and how would I cope with that?
If a friend had a similar worry, how would I advise them to handle it?
By putting distance between oneself and the source of anxiety, one can think more objectively about positive outcomes.
Embracing Imperfection and Expanding Awareness
"If we accept that life is imperfect, we'll make fewer self-defeating demands for perfection on ourselves and others."
Acknowledge that life is imperfect
Practice self-compassion and understanding
Expand awareness through thought experiments, meditation, and intentional daydreaming
Thought Experiments for Expanded Awareness
Visualize space getting bigger and bigger, or contracting to fit in the palm of your hand
Imagine the evolution of the universe from the Big Bang to the present
Retrieve long-forgotten memories from your subconscious
These exercises can help:
Feel a sense of calmness and awe at the magnificence of the universe
Think creatively and make better decisions
Access positive emotions and reduce anxiety
Feeling the Brain 🧠
The technique of feeling the brain is based on how the brain communicates with different parts of the body. This technique can help rejuvenate and unleash creativity.
The Brain Talks to the Body
The brain talks to the elbow through electro-chemical signals, but not as much as it talks to the hands, which are extraordinarily complex. There is a ton of back-and-forth dialogue between the hands and the brain to make fine motor skills possible.
Feeling the Brain Technique
Close your eyes and allow your attention to gently float in your brain.
Put your mind on your brain, and feel it like a tactile sensation.
The effect is a spontaneous explosion of rich and unusual experiences.
Synesthesia
A neurological phenomenon in which the boundaries of the senses get mixed up, and one sense is stimulated, another sense is experienced.
See sounds, or hear colors, or smell emotions.
Feeling the brain is a powerful technique that can help rejuvenate and be more creative.
Embrace the Problem 💪
Problems are an asset, not something to avoid. Big ambitions often beget even bigger problems.
Mr. Jesselson's Wisdom
"If you want to make money in the business world, you need to get used to problems, because that's what business is. It's actually about finding problems, embracing, and even enjoying them—because each problem is an opportunity to remove an obstacle and get closer to success."
Reframing Problems
Life can be uncomfortable, but one can accomplish a lot if they can figure out how to reframe the uncomfortable things in ways that allow them to utilize them.
Once over the initial reaction, pivot toward success: "Great! This is an opportunity for me to create a lot of value. If I can just figure out how to solve this problem, I'll be much closer to my goal."
Dealing with Problems
Recognize mistakes as soon as they surface and course-correct with no ego.
Tackle problems head-on: Where are the inefficiencies in the process that created this problem?
Do I have the right people in place in key positions?
Acknowledge You're Not Perfect 🙏
Successful people are self-aware enough to avoid three impediments to effective leadership:
Rigid Thinking: The belief that you're right, no matter what.
Assuming Others Think Like You: The belief that other people must hold the same opinions you do.
Analysis Paralysis: The belief that every inch of a potential course of action must be analyzed before acting.
Dialectical Thinking
"We are trying to prove ourselves wrong as quickly as possible, because only in that way can we find progress." - Richard Feynman
Look at something from different perspectives and interpret it in multiple ways that are all valid.
Implement strong feedback loops and a work culture where everyone accepts that there's more than one valid way to look at an issue.
Practice Radical Acceptance 🙏
Accepting one's own imperfections is the gateway to an even more daring mindset: accepting the world as it is, not as one wishes it would be.
Radical Acceptance
"Being fully present in the moment and accepting reality. It requires letting go of the illusion of control by acknowledging the facts as they are, even though one may want them to be different." - Marsha Linehan
Practical Applications
Block out how much was won or lost on a trade and focus on the best thing to do right now.
If thinking the market is going up, buy more. If thinking the market is going down, sell—and ensure to quantify the risk involved in each action.
A Story of Radical Acceptance
Jacobs once lost $500 million on a deal but radically accepted the situation and moved forward. Radical acceptance quiets the noise created by yesterday's decisions and today's wishful thinking. It allows logical, forward-looking decisions based on what's likely to happen next—that and risk management are the big, relevant considerations.
Leave Judgment at the Door 🚪
Non-judgmental concentration is the first step to radical acceptance. It's a part of mindfulness that allows one to be fully present in the moment, focusing on one thing to the exclusion of everything else. One can direct awareness to the body, mind, emotions, or feelings.
"Non-judgmental concentration keeps me in the present and quickly lowers my stress level. I'm not brooding over what happened or worrying about what might happen. I'm not thinking about the past or the future or anything at all except what's in my mental crosshairs."
When using this technique, it's essential to refrain from projecting bias onto the subject of concentration. If choosing to focus attention on a person, don't rush to judge that person as being good or bad.
Think Huge 🚀
If one wants to earn huge, they need to think huge. Goals should be bigger than what one currently thinks they can accomplish because that can actually help achieve those goals.
Picture what success will look like: Be specific about how much money one wants to make, by when, and how they'll feel when they have it.
Narrow focus: Tune out everything else and focus on the most important dreams.
Envision what a few billion dollars actually looks like: What goods and services can one bring to the world that will make that room theirs?
The Why Behind the What 🤔
Practical Application: In 2018, XPO, Jacobs' third public company, faced a disaster when a short report from a capital management firm caused their stock to dive 26% in one day.
What Happened: Short report with misinformation
Our Response: Concentrated on the situation without judgment
Stock price plummeted: Focus on achieving a good outcome
Investors panicked: Bought back $2 billion worth of stock
By thinking huge and focusing on the present, they turned a potential disaster into a $4 billion profit.
Stay Humble 🙏
Humility: Coming out on top when a company is under attack feels thrilling, but nothing could be worse for decision-making skills than feeling invincible.
"Even if you do make a few billion dollars, some of the people you care about most may be unimpressed."
Remember to stay humble and focused on goals, and success is more likely to be achieved.
Humility and the Relative Value of Money 💸
The importance of keeping life in balance was highlighted by a comment from Bill Dixon, a music mentor who said, "You know, you're wasting your life. You could have been a good musician. You had talent. You could have made a difference in the music world. What are you chasing this silly money stuff for?" This comment served as a reminder that making money is not the only thing that's important in life.
In Jacobs' office, he has artwork by Friedrich Kunath, which features a quote by Jean Louis Agassiz: "I can't afford to waste my time making money." To him, this doesn't mean that one shouldn't make billions of dollars, but they should only do it if they truly enjoy it, and only if it gives more satisfaction than using time some other way.
The Relative Value of Knowledge 🧠
Jacobs has taken the lesson of relativity to heart in other parts of his life, for example, his pursuit of knowledge. Once he learned to step outside himself mentally, he realized that the knowledge in his brain, or in anyone's brain, is an insignificant rounding error compared to all the knowledge that's out there.
"Thinking you know it all is a trap because you don't - at least I don't. If you stay humble, you'll keep advancing."
The Universe and Our Place in It ⭐️
If one takes a really long view, they'll see that they're all rounding errors in the sheer magnitude of the universe. There are about 400 billion stars in the Milky Way galaxy, which is our little cosmic neighborhood. Multiplied by all the galaxies in the observable universe, this equates to an estimated septillion stars.
The truth is, you and I have a lot to be humble about. At the same time, our connection to the universe is exhilarating. As Carl Sagan coined, "We are all star stuff" - all atoms were formed from stardust as the universe cooled after the Big Bang.
Trendspotting and Success 📈
The Importance of Getting the Major Trend Right 🔥
One of the most valuable pieces of advice Jacobs received from his mentor, Ludwig Jesselson, is, "You can mess up a lot of things in business and still do well as long as you get the big trend right." He has taken these words to heart, and with each new company he starts, he ensures to understand the major trends that could threaten the business or help it soar.
Trendspotting
Learn from the Two-Million-Year Technology Trend
The evolution of technology may sound far removed from making a few billion dollars, but Jacobs found it integral to every major goal he's ever pursued - and now more than ever.
Be a Futurist
Figure out the bullish and bearish trends driving your industry. If one gets the major trends right, they can make mistakes and still succeed.
The Accelerating Frequency of Culture-Shifting Innovation ⏱️
Time Period: Major Innovations
2,000,000 years ago: First stone tools made from pebbles
1,000,000 years ago: Mastery of fire
500,000 years ago: Building of the first shelters
Past 2,000 years: Inventions including the abacus, coins, compass, gunpowder, and printing press
Researching an Industry 🔍
Jacobs' research methodology involves:
Educating himself on the industry as thoroughly as possible
Compiling a list of questions that matter
Getting in front of the most knowledgeable experts he can find on each topic
Sources include:
Journals and periodicals
Newspapers and trade publications
Employee reviews on web-based recruiting sites
Websites and social media of major players and up-and-comers in the industry
Google Alerts for industry CEO names or other keywords
YouTube interviews with CEOs
Paid services like Bloomberg, AlphaSense, and Thomson Reuters
Industry conferences and events
Industry Research and Analysis 📊
Sources of Information
The following sources are valuable for industry research and analysis:
The Future of Everything Festival and the Consumer Electronics Show (CES) in Las Vegas
Sell-side conferences sponsored by banks
Trade associations
Digital information from online sources
Expert interviews with management teams, CEOs, investment bankers, venture capital firms, buy-side institutions, industry vendors, shareholder activists, and journalists
Research Process
The research process involves:
Absorbing data and arming oneself with questions
Expert interviews to gain insights from industry experts
Note-taking and preparation for the next step
Analysis of data and identification of trends and patterns
Industry Trends and Analysis
Trend-Spotting
Objectivity and open-mindedness are essential for trend-spotting
Macro themes are identified through detailed lists of pros and cons and word clouds
Industry strengths and defects are assessed from the standpoint of making money for investors
AI: The Mothership of the Future 🤖
Artificial Intelligence (AI) is the central determining factor in whether businesses and industries will collapse or prosper
AI is emerging as the key driver of industry trends and growth
Tech trends are critical to understanding industry trends
AI Impact on Industries
Spotting Tech Trends
Discounting technological and social change is a common pitfall
Mental grasp of implications can be difficult due to the scale of technological changes
Trend-spotting failures can result from myopic statements and lack of vision
Definition
Trend-spotting: The process of identifying and understanding industry trends and their implications for businesses and investments.
The Singularity and Emerging Tech Trends 🤖
The Concept of Singularity
Ray Kurzweil, a renowned futurist, inventor, and computer scientist at Google, introduces the concept of the Singularity, where machines and humans merge. This idea has significantly impacted Jacobs' vision of the future.
The Impact of Technology on Human Evolution
Humans are no longer evolving faster than technology. Today, technology is advancing more rapidly and innovatively than humans, potentially leading to a new species or granting humans superpowers. Alternatively, it may result in human extinction.
Human Extinction: Consider that about 99.9% of all species that lived on Earth no longer exist. Are humans well-adapted to the environment, or will they become the first eternal species? The trend is shifting from carbon-based humans to silicon-based technology.
Tapping into Emerging Trends
To spot new trends, ask customers what their dream tech would look like, assuming anything is feasible and cost isn't a factor. This produces an avalanche of ideas, which are evaluated for impact, cost, and returns.
Dream Tech: Capabilities that customers would go ga-ga over, including:
Data they would want to push or pull
How it would help them succeed
Supply Chain Disruptions 🚨
3D Printing (Industrial Additive Manufacturing):
Will drive seismic change in supply chains in the long term. Currently being adopted for various purposes, including medicine.
Examples of 3D Printing:
Dentists printing crowns
Hearing aids and prostheses
Sophisticated industrial products, including structurally critical parts for jets
Impact on Supply Chains:
Reduces complexity, time, and cost
De-risks links in the process
Enables local autonomous manufacturing
Changes the transportation industry, global supply chain, and geopolitical balance
Electric Vehicles (EVs) 🚗
Benefits:
Quiet, safe, clean-running, and powerful
Challenges:
Currently expensive (three times the price of diesel trucks)
Requires huge government subsidies
Questions about environmental impact, including increased electricity production and battery disposal
Autonomous Vehicles 🚚
Advantages:
Safer and lower cost to operate than combustion engines
Challenges:
Regulatory environment not yet in place for mainstream adoption
Logistics Trends 📦
Automation: Industry will become increasingly automated, with:
AI-driven software dominating route-planning
3D printers fulfilling digital orders through on-demand manufacturing
Autonomous vehicles moving the majority of transported goods
Leveraging Trends in Industries 📈
Amerex and Hamilton Resources: Oil brokerage company that successfully leveraged trends in the oil industry by:
Capturing and sharing information more quickly
Being the first to adapt to emerging tech trends
Amerex: Capturing and sharing information more quickly
Hamilton Resourcess: dapting to emerging tech trends
Amerex was founded to create a database of buyer/seller activity and oil prices, allowing for faster information sharing with brokers worldwide. This process took hours, not days, giving Amerex a leg up on its competition.
Key Features of Amerex:
Centralized database of buyer/seller activity and oil prices
Faster information sharing with brokers worldwide
Objective insights into global oil supply and demand, and pricing trends
In 1984, Hamilton Resources was founded, leveraging information sharing in the oil industry to create a data advantage. The company reached $1 billion in annual revenue by:
Creating a data advantage in the oil trading business
Leveraging information sharing in the oil industry
Engaging in trading contracts, pre-financings, countertrade, barter, and refinery processing deals
The Rise of Hamilton Resources
Hamilton Resources' clients were primarily major oil companies and oil-producing countries. However, in 1989, well-capitalized players from Wall Street investment banks and Japanese trading houses entered the market, chasing the same tech-related opportunity.
Competition in the Oil Industry:
United Waste Systems
United Waste Systems was founded in 1989, capitalizing on two big trends in the waste management industry:
Trends in Waste Management:
Landfill capacity was becoming precious due to government regulations
Integration of hauling and disposal created an opportunity for end-to-end consolidation
Tech-Based Truck Routing:
"I could see a trend in the making, and we moved quickly to put United Waste on the correct side of that trend."
United Waste Systems used off-the-shelf software in combination with pushpins on a physical map to optimize truck routes, reducing costs and increasing profit margins.
Benefits of Tech-Based Truck Routing:
Increased efficiency
Improved profit margins
Ability to adapt to changes in day-to-day situations
United Rentals
United Rentals was founded after identifying an opportunity in the construction equipment rental industry.
Key Features of the Construction Equipment Rental Industry:
Low rental penetration (15%)
Growing organically
One national provider (Hertz)
Thousands of potential acquisitions
Lack of computerization and standardization
United Rentals capitalized on this opportunity by:
Hiring expert salespeople
Creating standardized training programs
Building brand equity with superior service
Acquiring Wynne Systems to gain access to aggregated, anonymized data on macro-trends across the industry
Benefits of Acquiring Wynne Systems:
Industry-best platform for managing equipment rentals
Access to aggregated, anonymized data on macro-trends across the industry
Ability to proactively adjust pricing and asset management
Dynamic Pricing and Automation in Business 📈
XPO's experience in the truck brokerage sector demonstrates the importance of dynamic pricing and automation in business. By leveraging these concepts, XPO was able to capitalize on a big trend in the industry and achieve significant growth.
Understanding Dynamic Pricing
"Dynamic pricing is a pricing strategy in which flexible prices are adjusted in real-time in response to changing market conditions. The goal is to maximize revenue by exploiting differences in customers' willingness to pay."
In the context of the truck brokerage sector, dynamic pricing allowed XPO to optimize its rental rates based on equipment utilization, resulting in higher returns.
The Benefits of Automation
Automation played a crucial role in XPO's success, enabling the company to:
Streamline processes and reduce costs
Enhance customer experience through digital services
Increase efficiency and productivity
Gain a competitive edge in the market
XPO's Tech Advantage
XPO's investment in technology, including the hiring of experts like Mario Harik, a machine learning and artificial intelligence specialist, enabled the company to:
Develop a fully automated, digitally enabled transportation network
Create a virtual freight marketplace with real-time data visibility
Achieve a high level of automation, resulting in touchless transactions and increased efficiency
The Importance of Tech Organization in Business
XPO's experience highlights the importance of having a tech organization in direct contact with customers and employees to:
Prioritize innovations with the highest impact
Drive business growth through technology
The Genesis of XPO, GXO, and RXO 👥
XPO's vision of automating everything possible has been instrumental in its success. By capitalizing on the intersection of two big trends – the shift towards using truck brokers as middlemen and the efficiencies of automated services – XPO has established itself as a leading innovator in the industry.
Key Takeaways
Automate wherever possible to increase efficiency and reduce costs
Leverage technology to drive business growth and innovation
Identify and capitalize on big trends in the industry
Mergers and Acquisitions: A Strategic Growth Driver 📈
Mergers and Acquisitions (M&A) have been instrumental in XPO's growth and expansion. By acquiring companies at a lower profit multiple than XPO's own stock, the company has been able to:
Create significant shareholder value
Scale up quickly and gain market share
Professionalize operations by integrating best practices
The Mechanics of M&A
The M&A process involves:
Identifying potential targets
Evaluating the target's financials and operations
Negotiating the deal
Integrating the acquired company into XPO's operations
Key Principles of M&A
Create shareholder value through strategic acquisitions
Scale up quickly to gain market share and economies of scale
Professionalize operations by integrating best practices
XPO's M&A Strategy
XPO's approach to M&A involves:
The Risks and Rewards of M&A
By following these principles and strategies, XPO has been able to successfully execute a robust M&A program, driving growth and profitability.
M&A Strategy 📈
When evaluating a potential acquisition, Jacobs considers the following key factors:
Revenue Growth Rate: Estimate the organic revenue growth rate the business can achieve over ten years.
Margin Realization: Project the margin the business can realize over ten years.
Cash Flow Projections: Estimate the annual and cumulative cash flow the operation will generate or consume over ten years.
Clear Path to Growth: Ensure there is a clear path to significant growth.
Stress Testing: Stress-test every element of the projections, including the underlying assumptions.
Risk Assessment: Only do deals where the downside scenario is still good for the company, the base case is excellent, and the upside case is off the charts.
Management Consultants
Experience is a big factor in mitigating M&A risk. Jacobs only hires consultants for M&A when the value he expects them to add is at least ten times their fee.
Focus on Value Creation
The rationale for any acquisition should be, "How will doing this deal contribute to the two main drivers of shareholder value, which are pleasing customers and propelling financial results?" If an acquisition doesn't create shareholder value by producing a high return on invested capital, it will just make the company bigger, not better.
Understanding Customer Reaction
Jacobs likes to ask key salespeople how they think existing customers will react if they hear the company bought Company X. Will they be happy because it adds value to what they offer? Or will they see little or no benefit to them and worry that the company will be distracted?
Avoiding M&A Risk ⚠️
Cover Your Flank
Ensure to cover the flank, whether buying or selling. It's the stuff that comes out of left field that can take a deal down.
Speed and Efficiency
Speed has been one of Jacobs' sharpest edges in winning competitive deals. He can typically cut the due diligence and negotiation period from two or three months to a matter of weeks.
Systematic Evaluation Process
Jacobs' team has created a systematic evaluation process that lets them move quickly, with less risk. They answer the following questions as thoroughly as possible before contacting a prospective seller:
Operational Execution
Jacobs expects to own the business for a long time, so he searches for hidden flaws that may surface down the road and cause harm. He focuses on operational execution as the primary risk in each case. He has faith in his team's ability to fix most flawed operations because he has recruited the best possible operating talent for his companies.
Disciplined Analysis
Jacobs' team works as hard as the most diligent junior analyst at an investment fund, doing disciplined, meticulous, bottom-up analysis. They want to be confident they understand the target's strengths and weaknesses.
Removing Vanity from M&A Processes 💰
Vanity-free acquisitions are essential to ensure that deals are made for the right reasons, not just to boost a company's image or gain media coverage.
"I've never done an acquisition, even a small one, merely to boost my company's image or get coverage in the financial press."
Dilutive vs. Accretive Deals
Dilutive: A deal that reduces the company's earnings. A company acquiring another company with a higher P/E (Price to Earnings) ratio than itself.
Accretive: A deal that increases the company's earnings. A company acquiring another company with a lower P/E (Price to Earnings) ratio than itself.
99% of the time, Jacobs' deals were accretive and had nice synergies. However, there were instances where deals didn't go according to plan and ended up being dilutive.
Integration Playbook
Before finalizing an acquisition, Jacobs' team creates an integration playbook, which includes:
Hundreds of prescribed action points
Room for creativity in response to the human part of the integration
A visualized process to harmonize the acquired operation within the company
Respect the Seller 🙏
Seller psychology is crucial in M&A deals. Sellers are often under stress and not at their best.
"Sellers are usually under a lot of stress and not at their best."
To build trust with sellers, Jacobs suggests:
Being honest and transparent
Communicating excitement and genuine interest in the deal
Explaining the negotiation and post-sale processes
Being patient, pleasant, and polite
Figuring out what matters most to the seller
Must-Haves and Nice-to-Haves
During negotiations, Jacobs' team focuses on:
Must-haves: Price and certain terms
Nice-to-haves: Everything else the seller requests, as long as it's legal
Retaining Key Employees 👥
Reaching out to high-caliber A-players in the prospect organization is essential to retain them. This helps to:
Express commitment to retaining key employees
Build trust with the seller
Cultural Compatibility 🌈
Cultural compatibility is crucial in M&A deals. It's hard to make wholesale changes to a business culture. The goal is to buy companies with cultures compatible with one's own.
"Two cultures can be dissimilar and still be compatible."
Cultural incompatibility can lead to:
Energy drain during integration
Push-back from employees for years
Face-to-Face Talks and Due Diligence 📝
Face-to-face talks with top employees in the company being acquired are essential to:
Get a sense of what's going on inside the company
Identify potential improvement initiatives
Build trust with key employees
Buckle Up for Integration 🥊
Integration is a complex process that requires flexibility and adaptability. Count on unexpected challenges and be ready to take them in stride.
"Everyone has a plan until they get punched in the face." - Mike Tyson
Mergers and Acquisitions Strategy 📈
The Roll-Up: Buying Up Businesses at Speed
The roll-up strategy involves integrating multiple independent businesses into a single branch network. United Rentals successfully implemented this strategy, including the landmark purchase of U.S. Rentals in 1998, which was the largest acquisition in the industry at that time.
Key Takeaways from M&A
Set priorities upfront
Don't stretch your team too thin, or service levels could deteriorate
Celebrate with a high-five and then get back to work
There's a ton of stuff to do after the deal is signed
Cultural Integration 🌈
Cultural integration is the single most important thing to get right after the deal is signed. It's the foremost reason why companies have been able to do so many high-speed acquisitions without blowing up.
Cultural Intelligence: Leverage the cultural intelligence gathered during due diligence to communicate credibly with employees, customers, and other stakeholders.
Respectful Approach: Don't come in with a heavy hand and an arrogant attitude, causing employees to feel disrespected. Be respectful towards new team members through words, actions, and thoughts.
Gratitude: Cultivate a mindset of feeling grateful towards the people who sustained the company that was just bought.
Operational Integration 💻
Operational integration is close in importance to cultural integration.
Overorganize 📝
Assign tasks to individuals, not working groups, to ensure accountability and success. Establish a regular cadence for monitoring progress throughout the integration.
Set Up Early Feedback Loops 💬
Ask frontline employees, middle managers, and senior executives for input on how to improve the company. Use surveys, town halls, one-on-one interviews, group meetings, and internal social media to gather feedback. This helps to show respect, dispel insecurity, and unleash an outpouring of ideas about how to improve the company.
Don't Promise What You Can't Deliver 🙅♂️
Be honest and transparent in communications. Don't make promises you can't keep. Build trust by being straightforward and competent.
"I only make one promise to you, and I promise this 100 percent: Despite trying my best, I'm going to mess up some things. So, let's work together to fix them."
The Art of M&A: Leadership Lessons 💼
Forget Sleep 🔴
When committing to high-level M&A, consider the personal toll it will take on you and your team. Between 2014 and 2015, Jacobs signed agreements for XPO's three largest acquisitions, requiring an immense amount of time and effort. He averaged 14-hour workdays during that period, and they managed the integrations simultaneously to avoid undoing and redoing tasks.
Acquisitions and EBITDA Growth:
The Takeaway? 💡
If one plans to make a few billion dollars, they'll likely find that sleep is overrated—and that it's actually more fun to be awake.
My Lunch with Hertz 🍴
A cautionary tale about not letting ego intrude into M&A. When Jacobs got into the construction equipment rental business, Hertz was the undisputed leader. United Rentals surpassed $1 billion in 13 months, and Hertz's CEO invited him to lunch to discuss slowing down.
"You made me change one of my taglines! I had the largest car rental company and the largest equipment rental company in the world, and now I've got the largest car rental company and the second-largest equipment rental company. I don't want to be second in anything!"
Building an Outrageously Talented Team 🌟
When hiring key people, aim to achieve a two-part goal: accomplish big things and have fun doing it.
Key Traits:
Talent
Quality people capable of constructive interactions
Intelligence
Hunger
Integrity
Collegiality
Use Multiple Sources for Assessment 📊
Hiring the wrong person is expensive on every front. Jacobs' companies interview management candidates with more-than-typical rigor as a matter of policy.
Assessment Method:
Collaborative Hiring 🤝
Guard against personal biases by involving trusted colleagues in the interview process. Respectfully disagree with one another to maintain a strong filter for who's allowed into the organization.
Leadership and Hiring 🤝
The Ideal Candidate
To create billions of dollars of value, Jacobs needs a team of people who are smart, hardworking, honest, and kindhearted. The ideal candidate possesses four essential qualities:
Intelligence 💡
Intelligence is a must-have for any candidate. Superior intelligence eliminates 90% of all candidates. It is essential to look for candidates who:
Are well adapted to problem-solving
Can use their solutions to grow the business and wow customers
Possess a high IQ (Intelligence Quotient)
"I want people on my team who enjoy problem-solving, and who can use their solutions to grow the business and wow our customers."
Assessing Intelligence
When interviewing candidates, ask objective questions related to intelligence, such as:
Grade point average in college
IQ score (if known)
However, be aware of the risks of:
Confusing pedigree with ability
Overlooking brilliant people who didn't attend top-ranked schools
Plenty of great talent outside of what we deem as prestige
Hunger 🔥
The second quality Jacobs seeks in every candidate is hunger. Hungry people have tenacity and want to work hard. They are motivated by big projects and are resilient when problems emerge.
Compensation is a key motivator; Jacobs only hires people who are motivated to make a lot of money.
He expects ambition from everyone he hires; they want to accomplish big things and make a lot of money.
Integrity 🤝
Integrity is a vital trait in any candidate. Hiring trustworthy people makes it easier for others to focus on their jobs.
Oversight is essential to provide strategic direction and remove roadblocks.
A culture of teamwork takes trust; it's management's job to set the tone.
"The success of any company depends on its people fulfilling their obligations. Everyone must do what they say they'll do."
Tables for Comparison
Here's a table comparing the three essential qualities Jacobs looks for in a candidate:
And here's a table highlighting the benefits of hiring the right candidate:
Honesty and Integrity 💯
Honest people are more successful in the long term than dishonest people. They don't have to tell you how honest they are; instead, they show integrity through their actions. Reputations for integrity come from the cumulative effect of someone doing what they say they'll do and being straightforward in how they speak.
Collegiality 🤝
Collegial teammates are usually more successful than nasty ones. Collegiality is partly good business and partly selfish. It's essential to achieving big goals, and it makes work more productive and enjoyable.
The Four Qualities 🎯
When hiring, Jacobs looks for four qualities:
A, B, and C Players 🏀
Jacobs uses a simple thought experiment to evaluate an employee and categorize them as an A, B, or C player:
His goal is to have every position in the company filled by an A player. Jacobs uses a comprehensive process to categorize every manager-level employee and above as an A, B, or C player, considering both performance and potential.
Firing C Players, but Being Nice 👋
When an employee consistently has performance issues, it's time to graciously exit them from the company. Act decisively but compassionately, and show them kindness, regardless of the circumstances leading to their dismissal. Let them go with their head held high, and don't be cheap on severance.
Effective Incentive Structures 💸
Aligning Incentives with Company Goals
A well-designed incentive structure is crucial for motivating employees to create value for the company. Incentivizing employees to make outsized contributions to value creation leads to a win-win situation for both the company and its people.
"The only way to earn windfall money in my companies is to make outsized contributions to value creation."
The Importance of Fair Compensation
Paying employees well is essential for attracting and retaining top talent.
Fair compensation includes not just base pay but also incentives that align with company goals.
Skimping on salary and incentives can lead to significant losses in profit.
Designing Effective Incentive Plans
Participate in the intentional design of incentive plans, don't delegate them to HR or talent management.
Customize plans for different roles within the organization, considering the domino effect.
Tie compensation to performance, but avoid capping incentive compensation.
Sales Commission Structure
A sales commission should depend on both top-line results and profit.
This motivates the sales team to partner with the operations team in determining the best customers for the company.
Equity Incentives
Equity has an important part to play in total compensation for publicly traded companies.
Offer above-market equity incentives to attract and retain top talent.
Equity incentives are most effective when they reflect an employee's value, which can change with vesting over time.
Extending Equity Deeper into the Organization
Extend equity to as many employees as possible, not just top leaders.
This motivates employees to work hard and feel part of something exciting.
Running Electric Meetings 💻
The Problem with Traditional Meetings
Many meetings suffer from big company-itis, prioritizing predictability over effective communication. These meetings are often boring, with rehearsed speeches and passive listeners.
Ingredients for Electric Meetings
The right people in attendance
A crowdsourced agenda
An atmosphere where everyone feels safe to respectfully disagree
Personal Experience: Bennington College
Jacobs' experience at Bennington College, where small class sizes and practitioner-teachers encouraged fast-paced, challenging discussions, shaped his view of meetings as the mainstay of collaboration.
Learning Style Matters 📚
Jacobs reflects on his educational experience, highlighting the contrast between Bennington College, where he thrived in a dynamic, discussion-based environment, and Brown University, where he struggled with large, lecture-style classes. This experience taught him the importance of adapting learning styles to suit individual needs.
Keep It Small, but Large Enough 📊
Jacobs shares his approach to effective meetings, which include:
Keeping the group size small, ideally between 15-20 attendees
Inviting a mix of people, including senior leadership and subject matter experts
Ensuring that participants have added context and visibility across the company
This approach fosters a collaborative mindset, encourages problem-solving, and enriches the productivity of the team.
MOR (Monthly Operating Review) for Your Money 📈
Jacobs explains the concept of MORs, which are regular meetings that review company performance and define opportunities for the upcoming month. These meetings are crucial to the success of his businesses.
MOR Structure:
Pre-Meeting Preparation:
Distribute MOR slides in advance to allow attendees to review and absorb the information at their own pace
Request attendees to submit their top takeaways and questions in advance
Meeting Agenda:
Review takeaways that scored 7 or higher on the survey
Discuss highest-ranked questions and move through them as time allows
Assign a moderator to manage the tempo and guide the conversation
Effective Communication:
"Resist the urge to flood communications with nonessential information."
Become a Better Communicator 📞
Attaining a Forthright Bond with the Company's Directors
A strong commitment to open communication is crucial to establishing a forthright bond with a company's directors. This commitment starts at the top and is supported by everyone who comes in contact with the board.
The Importance of Listening
Listening is a critical dimension of communication, and it's more challenging than outbound messaging. Deep listening involves non-judgmental concentration, a form of mindfulness, and is essential for building a profound connection with others.
Example: Marina Abramovic's "The Artist Is Present"
In 2010, performance artist Marina Abramovic sat in a chair in the middle of a roped-off area surrounded by a crowd of people. Visitors came in one by one and sat opposite Abramovic in an empty chair. She looked directly into the eyes of the other person without saying anything, but was completely present with that person.
The Ability to Truly Hear Another Person
The ability to truly hear another person is a kind of superpower. It's essential to give someone your complete attention, especially in business. When you do, you can make a real connection.
Key Benefits of Deep Listening:
Opening Up a Listening Channel
Opening up a listening channel at the top of the company can be a powerful way to signal that leadership values the free flow of ideas and information.
Be Sincere about Improving the Business
A company that listens to its employees creates a more connective culture, one in which information can flow unobstructed across the organization. This is a prerequisite to realizing synergies within the operations, particularly those that come with acquisitions, such as cross-fertilization of best practices and cross-selling.
GXO: A Good Example
GXO is a good example of a company that listens to its employees. The contract logistics business has about 1,000 warehouses across 27 countries. Some of these facilities are among the best in the industry globally, in terms of productivity, efficiency, safety, and customer satisfaction.
Key Benefits of Listening to Employees:
Respectful Disagreement
Respectful disagreement is an essential part of the communication process. People need to feel safe communicating tentative ideas that may be a little underbaked but contain important insights.
Quote:
"People need to feel safe communicating tentative ideas that may be a little underbaked but contain important insights."
Feedback Loops
Feedback loops are essential for instilling a culture of candid communications company-wide. Processes for listening and feedback must be embedded across the organization.
Key Feedback Loops at XPO:
Conclusion
Effective communication is critical to the success of any organization. By becoming a better communicator, you can build stronger relationships, improve business outcomes, and create a more connective culture.
Widen the Circle 🌐
When establishing a culture of communicating and listening, it's essential to broaden the circle to include external audiences.
Customers 👥
XPO has established feedback loops with each enterprise customer to stay on top of customer expectations. Collaborative feedback loops can be used to gather details about equipment usage and audit the units of equipment owned by customers.
"A customer relationship is like any other relationship – for it to succeed, you have to be clear about how much you value it, and continually work on improving it."
Investors 📊
Proper handling of crisis situations is critical in maintaining trust with the investor community. Radical acceptance of bad news can help manage crises with minimal fallout. Scheduled interactions around quarterly earnings reports and other announcements are essential for maintaining transparency.
The Competition 🏆
A strong culture of communication ensures that important competitive information flows from the field organization and sales back to senior management. Monthly operating reviews can help identify potential competitive threats and opportunities.
Effective Communication in Crisis Situations 🚨
Key Takeaways 📚
Prioritize collaboration and open communication to build a strong team culture.
Balance unity and individuality to create a high-performing organization.
Focus on creating value and materializing big concepts to achieve success.
The All-Important Entrepreneurial Spirit 🌟
The entrepreneurial spirit is embodied by individuals like Steve, a small business owner who exemplifies a strong work ethic and customer focus.
Definition:
Entrepreneurial spirit refers to the mindset and attitude of entrepreneurs, characterized by creativity, enthusiasm for change, and a willingness to take risks.
Steve's story highlights the importance of:
Hard work: Steve's dedication to his customers and his business is essential to his success.
Pride in one's work: Steve takes pride in his job and strives to do it well, which reflects positively on his self-esteem.
Customer satisfaction: Steve's focus on customer satisfaction is key to building a successful business.
Profit-seeking: Steve is comfortable with the idea of making a profit and understands its importance in supporting his family.
Lifelong Enrichment Program 📚
Jacobs' experience at the Rhode Island Governors School for the Gifted in Art and Music highlights the importance of:
Definition:
Lifelong enrichment refers to the continuous pursuit of learning and self-improvement, leading to personal growth and fulfillment.
The program taught Jacobs valuable lessons, including:
Creativity: Jacobs learned to tap into his creativity and take risks with it.
Time management: Jacobs developed skills to manage time effectively and prioritize tasks.
Motivation: Jacobs learned to find motivation and care about the quality of his work.
Going all in: Jacobs discovered the importance of fully committing to a project and putting his heart and soul into it.
Thought Experiments 🧠
The following thought experiments are designed to open your mind to thinking in novel ways:
These thought experiments are designed to inspire creative thinking, challenge your perspectives, and open your mind to new ideas.
The Evolution of Technology 🚀
The Big Picture
The frequency of technological development is accelerating, and humans are merging with the technologies we create.
History of Technology Timeline
To understand the most important trends in business, let's explore the evolution of technology over the last two million years:
More Innovations
The Future of Technology
As we accelerate into the future, we'll continue to see new innovations and advancements in technology. What will come next? 🤔
Interview Preparation 📚
Career Reflection
Accomplishments:
What do you consider to be your biggest career accomplishments so far?
What are your strengths, and how have they contributed to your success?
Professional Highlights:
What has been the high point of your career so far?
What parts of your job have you liked the most?
Professional Gaps:
What are some of your biggest professional weaknesses or areas for improvement?
What have been some of the biggest frustrations or failures in your career?
Lessons Learned
Positive Feedback:
What is the most significant praise you've received in a performance appraisal in the last five years?
What do your subordinates think are your strengths?
Constructive Criticism:
What is the most significant criticism you've received in a performance appraisal in the last five years?
What do your subordinates think are your weaknesses?
Goals and Aspirations
Ideal Job:
In an ideal world, describe your perfect job.
Success Factors:
What do you think it takes to be successful in the job you're applying for?
Personal Growth:
What would it take to make your skills match the job requirements?
What would it take to make this job a 10 for you?
Electric Meetings 💻
Meeting Guidelines
Turn off all devices
Only one person talks at a time. No side conversations.
Give the speaker your full attention and keep an open, receptive mind.
Disagree, but disagree respectfully.
Morale-Boosting Exercises
Sources and Further Reading 📖
Consciousness
"Breathe, You Are Alive: The Sutra on the Full Awareness of Breathing" by Thich Nhat Hanh
"Cognitive Behavior Therapy: Basics and Beyond" by Judith S. Beck
Big History
"Big History: From the Big Bang to the Present" by Cynthia Stokes Brown
"The Feynman Lectures on Physics" by Richard Feynman, Robert Leighton, and Matthew Sands
Evolution
"The Ants" by Bert Hölldobler and Edward O. Wilson
"Evolution for Everyone: How Darwin's Theory Can Change the Way We Think about Our Lives" by David Sloan Wilson
Mergers and Acquisitions 📈
Definition
Mergers and Acquisitions (M&A) refers to the consolidation of companies or assets through various types of financial transactions, including mergers, acquisitions, consolidations, tender offers, and management acquisitions.
Types of M&A Deals
Horizontal M&A: a merger or acquisition between two companies that operate in the same industry or produce similar products or services.
Vertical M&A: a merger or acquisition between two companies that operate in different stages of the production or distribution process.
Conglomerate M&A: a merger or acquisition between two companies that operate in unrelated industries.
Benefits of M&A
Increased Market Share: M&A can help companies increase their market share and become more competitive in their industry.
Cost Savings: M&A can help companies eliminate redundant costs and improve operational efficiency.
Access to New Markets: M&A can provide companies with access to new markets, customers, and geographies.
Challenges of M&A
Integration: integrating the operations, systems, and cultures of two companies can be a complex and time-consuming process.
Cultural Differences: merging companies with different cultures can lead to conflicts and integration challenges.
Financial Risks: M&A transactions can involve significant financial risks, including the potential for debt and integration costs to exceed expectations.
M&A Process
M&A Examples
XPO Logistics: a logistics company that has completed several M&A transactions to expand its capabilities and increase its market share.
United Rentals: a construction equipment rental company that has completed several M&A transactions to expand its fleet and increase its market share.
Leadership and Communication 📢
Definition
Leadership and communication refer to the process of inspiring and influencing others to achieve a common goal or vision.
Importance of Leadership and Communication
Effective Communication: effective communication is critical to the success of any organization, as it helps to ensure that all stakeholders are aligned and working towards a common goal.
Leadership: leadership is essential to the success of any organization, as it helps to inspire and motivate others to achieve their full potential.
Leadership Styles
Transformational Leadership: a leadership style that involves inspiring and motivating others to achieve a common goal or vision.
Transactional Leadership: a leadership style that involves exchanging rewards or benefits for performance or results.
Communication Strategies
Open Communication: a communication strategy that involves being transparent and open with all stakeholders.
Active Listening: a communication strategy that involves actively listening to and responding to the needs and concerns of others.
Leadership and Communication in M&A
Communication Plan: a plan for communicating with all stakeholders, including employees, customers, and investors, during the M&A process.
Leadership Team: a team of leaders who are responsible for leading the M&A process and integrating the two companies.
Culture and Integration 🌐
Definition
Culture and integration refer to the process of combining the cultures and operations of two companies into a single, unified organization.
Importance of Culture and Integration
Cultural Alignment: cultural alignment is critical to the success of any M&A transaction, as it helps to ensure that all employees are working towards a common goal or vision.
Operational Efficiency: operational efficiency is essential to the success of any organization, as it helps to reduce costs and improve productivity.
Integration Strategies
Cultural Integration: a strategy that involves combining the cultures of the two companies into a single, unified culture.
Operational Integration: a strategy that involves combining the operations of the two companies into a single, unified operation.
Integration Challenges
Cultural Differences: merging companies with different cultures can lead to conflicts and integration challenges.
Operational Differences: merging companies with different operations can lead to integration challenges and conflicts.
Integration Best Practices
Establish a Clear Vision: establish a clear vision for the integrated organization and communicate it to all stakeholders.
Develop a Comprehensive Integration Plan: develop a comprehensive integration plan that addresses all aspects of the integration process.
Assign a Dedicated Integration Team: assign a dedicated integration team to lead the integration process and ensure its success.
