Archive for December, 2018

Stephen Hicks interviewed by Glenn Beck

Wednesday, December 19th, 2018

Dr. Stephen Hicks was interviewed by Glenn Beck for the Glenn Beck Podcast. The discussion ranged over capitalism and socialism, the ethics needed for a free society, Greek virtues, intolerance and indoctrination in education, Ayn Rand’s egoism, whether a meaningful life requires transcending failure, the differences between Antifa and Nazi Brownshirts, whether the National Socialist really were socialist, postmodernism, whether Nietzsche’s “God is dead” is nihilistic or liberating, whether World War I was the cultural breaking point, Dadaism, Sigmund Freud, Michel Foucault, Jacques Derrida, whether history repeats itself, how to return to constructive dialogue, should we be optimistic or pessimistic, and more.

The audio-only link is here, and the video versions are at YouTube and embedded here:

Interview with John French on Zen and the Art of Restaurant Franchising

Tuesday, December 11th, 2018

[This is the full interview with John French which was published in our Kaizen Newsletter.]

John French on Zen and the Art of Restaurant Franchising

John French’s business career spans decades. He is the former President development at Johnny Rockets and was the first franchisee of the restaurant group. We spoke with Mr. French about his experience building the Johnny Rockets franchise as well as his thoughts on business ethics and education.

KaizenYou grew up in Connecticut?

John French: Actually, I was born in New York, and my parents shipped me off to boarding school when I was 13 years old to a school called The Hotchkiss School, which is an elite New England boarding school. So I received what I think most people would consider to be a classical education. We had four years of required Latin and two years of required Greek. We had to take multiple philosophy courses, modern languages, classic history – so it was a very well-rounded liberal arts education.

It was also an academic pressure-cooker, and I came in from a public-school background and a middle-class family. This was in the late 1970s. Keep in mind a lot of these boarding schools were breeding grounds for the Boston Brahmin group, or the equivalent out of New York. So, for example, I graduated just after Bill Ford II, who’s now Chairman at Ford Motor Company, Wendell Mars, of the Mars Company, Tori Rockefeller. My father was a salesman. He sold adding machines in mid-town Manhattan. I started at the Hotchkiss School, went through four years of boarding school, was very grateful for my education and for my mentors, but do not have a particularly fond memory of my boarding school years.

KaizenBecause of the pressure-cooker atmosphere?

French: It wasn’t so much a pressure cooker from a cognitive standpoint, but more of a social disconnect in that my friends and background and experiences were not, shall we say, as sophisticated and as worldly and rounded as my fellow students. So I had a very lonely four years in boarding school, which was both good and bad. On the one hand—the bad part obviously—is that I felt lonely quite a bit. But on the other hand, I met one individual professor who was from Oxford and his interest was in epistemology and metaphysics. What is knowledge? What is reality? Who are you? And so I would go to his little apartment attached to my dorm and we would have conversations almost every night. And he was my favorite friend at the Hotchkiss School.

We used to call him Unkie. And Unkie was a philosopher by training, and I was always interested in what he had to say. My uncle died when I was only about 12 years old. He was probably my closest friend at the time. I was never that close to my parents. And consequently, at 12 years old, I started thinking to myself, “You know, I don’t have to be 70 years old to die. I could die at any time.” And that really got me thinking about why am I here? Can I rely on my senses? Who am I? What should I do? The fundamental questions that, it seems to me, if you don’t ask in your life you’re half dead to begin with. So to that extent I was extremely grateful, not while I was going through it, but in hindsight for the four years of rigorous cognitive training.

KaizenWhere did you go after that?

French: I went from the Hotchkiss School to Georgetown University. Frankly, I applied to Harvard, Tufts, Columbia, and Georgetown. I basically chose my university based upon the city in which it was located. So many individuals I knew from Hotchkiss were heading to Harvard, Princeton, Yale, etc. In fact, Hotchkiss was founded as a Yale preparatory school. I just wanted to get away from that whole environment.

At that point, Georgetown University was not really on the radar screen of most New England Boarding Schools (although it usually falls in the top five in terms of matriculation today). This was, again, the early 80’s. I applied to Georgetown. I loved Georgetown from the moment I saw it, and I loved Washington D.C. I found it to be an extremely vibrant community. The Reagan years. It was so different compared to being sequestered up in a small town in northwestern Connecticut. In any event, I applied to Georgetown, got in, and it was actually my worst interview. I actually thought I was going to be rejected because I remember that the interviewer had no concept that grades were relative. I only had a low “B” average at Hotchkiss, where the median average was a “C.” So Hotchkiss was old school. A “C” was good; “B’s” were great; “A’s” were non-existent. The Ivy’s and “Little Ivy’s” knew Hotchkiss; Georgetown really didn’t.

Kaizen: Hotchkiss’s average would be above average at most other places?

French: Maybe three or four people out of 135 would graduate with a low A and that was as high as it got. She looked at my transcript average, and I remember her expressly telling me, “Mr. French, we don’t normally see B students applying to Georgetown.” And I said, “Well, can I encourage you, at least, to do a little research and call our Dean of Students Arthur White to see what that actually means, because everything is relative when it comes to grades.”

Anyway, to make a long story short, I ended up at Georgetown.

KaizenAt this point, did you have career thoughts? You mentioned that you were philosophical.

French: I was philosophical, but I viewed that more as a hobby, not as a vocation. I did not see myself staying in academia because I saw what my friends had at The Hotchkiss School, and with all of their material possessions, they seemed pretty happy. I thought it would be pretty cool to have a house in the Riviera, an Aston Martin, a private plane, a sail boat or to have some of these cool toys that I never had. I said, “Well, how do I get this? How did you guys get this?” Most of their fathers earned it through managing other people’s money, or in some cases, inheritance. But I thought, “well, I don’t have the inheritance behind me, so the best way to do it is to go through business school.” And so I chose Georgetown’s McDonough School of Business – before it was prefaced by the word, “McDonough.”

KaizenSo you’re thinking business education.

French: I was thinking business education because I really liked the toys and opportunities that my friends at Hotchkiss had, and I wanted to have those same opportunities. I didn’t see anything wrong with that, and it didn’t seem to be conflicting with anything else I wanted to do.

KaizenAt this point, was money the motivation or was it tied to any particular career or just generally business?

French: Generally business. We had a saying at Georgetown that those who wanted to make money majored in finance, those who wanted to be guaranteed a job majored in accounting, and those who really didn’t know quite what they wanted to do in business majored in marketing. Hence, I was a marketing major. I decided to leave my options open until I had some idea in terms of what I wanted to do.

By the time I had reached my senior year, because I was a marketing major and had a high GPA, my Channels of Distribution Professor, Dr. Ilkka Ronkainen had said, “Why don’t you sign up to interview on campus with companies like Proctor and Gamble or General Mills? They are good brand management companies where you’ll learn a lot. You’ll start as an assistant brand manager and then work up to brand manager.” And I said, “You know, Dr. Ronkainen … I can’t really see myself being an assistant brand manager for Crest toothpaste. It just does not get my blood boiling. I’ve got to go out and do something on my own.”

KaizenSo you had an entrepreneurial streak.

French: Indeed. I’ve certainly developed one by this point. When I looked at the corporate world, I just saw myself sitting there 20 years henceforth and basically doing the same thing as when I first joined them.

Kaizen: So you want to make money, but you also want something exciting for you.

French: I want something exciting, and I want something that is new, that is cool, that’s hip. I also have somewhat of a fashion sense. Aesthetics were important to me, so I was looking in the fashion industry and in the hospitality industry. I was looking for some place that I could put some creativity and my given knowledge base—which at that time was very limited—to work. I knew people with Barnett Banks, and I came across this restaurant in southern California called Johnny Rockets.

KaizenHow were you now in California?

French: I was visiting a friend who was in law school at UCLA, and he said, “There’s this really cool restaurant that just opened up on Melrose Avenue in southern California.” Melrose Avenue at that time was a very avant garde, somewhat seedy area of Los Angeles. There was a dilapidated food store on one side and a retail store on the other side called, “Retail Slut.” This entrepreneur had opened up a restaurant called Johnny Rockets. All it had was 14 counter seats, patterned after a 1928 White Tower, not to be confused with White Castle.  It had this glistening stainless steel, open cook station. Think of a Waffle House without any booths but very upscale. Lots of chrome and 1920s – 40’s  pictures.

KaizenA very focused concept and style.

French:                 It had a very cool style. It was retro 1930s. Not ‘50s but 1930s. And when you walked in, the entrepreneur had very deliberately realized that small spaces tend to attract people because you don’t need many people in a small space to create energy. Large cavernous restaurants, if you’re not busy, if you’re not at a lunch rush or a dinner rush—

KaizenIt’s alienating.

French: Very alienating. There’s not much excitement or energy going on. He designed it very tiny because he’d rather have lines out the door waiting to sit at one of the 14 counter seats, and I instantly recognized why he did this. And so I look at the concept. I remember standing there for three hours watching people come in and out. I did eat there. He had a very limited menu. It was very tightly focused.

KaizenThis is like the Ray Kroc and McDonald’s story.

French: It is! It is very similar.

KaizenWhen is this?

French: 1989.

KaizenIs there any direct influence from Ray Kroc on the Johnny Rocket’s founder? Had he done a case study?

French: Absolutely not as far as I know. His name was Ronn Teitelbaum, and he passed away a number of years ago from brain cancer. Ronn actually came out of the fashion industry. Ronn and Ronn’s father owned Eric Ross and Company, which at that time was essentially the furrier to the stars in Beverly Hills. So their clientele were performers like Clark Gable, Rock Hudson, Doris Day, Elizabeth Taylor – the stars of the golden era of Hollywood. This is the environment in which Ronn grew up. Ronn had a certain aesthetic sense that transferred from the fashion industry easily into the restaurant industry. There are a lot of crossovers.

Kaizen: Did he have one store?

French: One.

Kaizen: This was the prototype?

French: This is the prototype. This was the first store.

KaizenSo you walk in and you’re captivated.

French:I’m captivated, and I have a tendency to look at every little tiny detail. I noticed, for example, on the edge of the counter there was a piece of extruded aluminum that was very highly polished that went all the way around the counter top. And then there was a laminate top that had these flakes in it. I looked at it and I saw that the flathead screws were all lined up with the channels inside the extruded aluminum counter trim, and I was curious if that was deliberate…because when most people turn a screw …

KaizenWherever it ends up, it ends up.

French: Exactly. Wherever it ends up, it ends up. But every screw was exactly in line with the channel. So when I finally met Ronn, I said, “Ronn, I love this concept.” I said, “Would you ever think of franchising it?” And he said, “No, not at the present moment. I’m just trying to get it going. We’ve only been open a short time.” He said, “Obviously it’s crazy here.” And I said, “Can I ask you one question?” He said, “Sure.” I said, “All the screw heads that you put in a straight line—was that deliberate or did you just happen to have an obsessive-compulsive carpenter?” He said, “You saw that?” And I said, “Yeah, I saw that.” He says, “No, that was absolutely deliberate. There isn’t one square millimeter of this restaurant that isn’t deliberate. There’s a reason behind everything in this restaurant.”

Kaizen: Like a painter or sculptor. Every square millimeter is calculated.

French: Correct. And he says, “Imagine my restaurant as this amorphous substance. If I were to push ever so slightly into this substance, it would change something else somewhere in the substance.” He says, “The fact that you recognize that actually catches my attention.”

Kaizen: Of course: “You’re my kind of guy.” How old were you at this point?

French: Mid-twenties. I said, “I noticed this, and I noticed this, and I noticed this. And then I noticed on a grander scale, you’ve kept a really tight footprint. This restaurant can’t be more than 900 square feet.” And he said, “That’s approximately correct. It’s 878 square feet.” I said, “You only have 14 counter seats, but I noticed you’re turning the diners really fast.” And I said, “That obviously has to do with your tight menu, because you don’t have that many options. You have two hamburgers, a grilled cheese sandwich, a peanut butter and jelly sandwich, four different types of shakes and malts, and fries” They were using the old Ray Kroc, Prince-Castle, five-spindle, malt and shake makers. And he said, “Yeah that’s the key.” He said, “The key to high cash flow and to high revenue and to making money is to keep the restaurant high energy, tight, always crowded, with a very limited menu and very limited stock so you don’t have very high carrying costs.”

Kaizen: When people come in they either know what they want because they’ve been there before or their decision time is quick, so there’s a faster turnaround.

French:Yes, and there was always music playing. The jukeboxes were original Seeburg 100 Wall-O-Matic jukeboxes from the 1940s.

Kaizen: So at this point do you have a job or are you looking?

French: I’m looking. I’m looking for where I want to go… and also thinking about how I am going to raise money to build one of these.

Kaizen: So he likes you because you notice things. You’re his kind of guy. You have the franchising idea, but he’s resistant at that point.

French: Yes.

Kaizen: So how did you guys work out an arrangement?

French: It took about six months. Basically all I do is keep bugging him. I would literally call him once a week, and I would ask him how business is going and all sorts of questions about his restaurant. I would just keep peppering and peppering and peppering. He called me back six months later and said, “Listen, you and I have been talking for a long time now. You get it.” And he said, “In the fashion industry, we say either someone gets it or they don’t get it. There’s no way to articulate how to create a new fashion concept from nothing. It’s an emergent. It’s something that comes from nothing and all of a sudden is something. It comes out of someone’s imagination. Either it just comes to you and it’s natural or it isn’t.” And he said, “You get it. I can tell you absolutely get it.” He said, “What are you thinking?” And I said, “I’m thinking I’d like to develop these in the state of Florida, and I’d like to develop maybe a half a dozen of them.”

Kaizen: Why Florida?

French: A number of reasons. My wife was raised in Jacksonville. I thought that Florida had a lot of great areas, Jacksonville, Orlando, Miami, many that were up and coming.

Kaizen: And the aesthetic is a fit, if you’re going with South Beach.

French: Correct. The aesthetic would be a fit. You’re looking for areas that have high foot traffic, this is not technically a destination. It can be somewhat of a destination, because of it’s coolness factor. But I was also thinking that that coolness factor wears off over time. And once that coolness factor does wear off you often see a precipitous drop off in revenue, and I didn’t want to see that. I figured we also needed high foot traffic because it was just hamburgers, shakes, malts, fries. What’s more basic than that?

So I looked for areas that had very high foot traffic, and I identified about a half a dozen sites. Ronn flew out from California and looked at them. He liked some of them and didn’t like other ones. We started with one or two that he really liked, and he gave me the plans, introduced me to his architect, and the rest was history. I started developing these restaurants in the state of Florida.

In the meantime, I wasn’t the only one who recognized the genius of the concept, and the another franchisee, Lloyd Sugarman, who still is a franchisee of the Johnny Rockets group, came in and he developed the San Francisco Bay area. Lloyd and I are still friends (I think), and we talk on occasion. Lloyd went on to develop and become CEO of The Original Soupman concept. Do you know Soupman from Seinfeld? He was the crazy Soup guy known as “The Soup Nazi.” There’s a whole line of Soups that Lloyd went on to develop. He’s also a serial entrepreneur. But Lloyd started with Johnny Rocket’s, as I did, and we developed in different markets.

This went on for probably about four or five years of development. We’re now entering early 1990 or somewhere in that range.

KaizenYou were in your late twenties or early thirties?

French: Exactly. I had one bomb of a site, and I had some home runs. So from a purely financial standpoint, a 900 square foot restaurant would gross about $1 million to $1.1 million at a good site. It would cash flow about $350,000 out of 1 million or 1.1 million, which is massive. In the restaurant industry, it’s almost unheard of. What we measure is cash on cash return. This means that if we invest $500,000 to build a restaurant and the restaurant throws off, net of operating expenses, $500,000, you’d have a 100% cash on cash return (before non-cash items like depreciation, amortization, taxes, etc.). If it throws off $250,000, you have a 50% cash on cash return. Most restaurants are 10% – 15% cash on cash returns (If they’re lucky). We were running between 40% and 60% cash on cash returns all because we are keeping a very small footprint with a very small number of seats and have a very high turnover rate. It’s always busy because we can’t fit that many people, so everyone who drives past goes, “That place is always crowded! We’ve got to try it. There’s always a line out the door!” That’s because we can’t accommodate that many people. But that’s all part of the psychological aspects of it. And it was all very deliberate on Ronn’s part.

KaizenSo you have five restaurants in Florida.

French: Yes, in Florida.

Kaizen: What happened next?

French: So what happened next is I got a call one day from Lloyd Sugarman, “Did you hear the news?” I said, “Well no, what news?” And he said, “Well, it looks like Ronn and his primary investor are going to be bought out by a group of hedge funds and private venture capitalists, as well as some individuals.” And I said, “Really? The parent company is?” And at this point they probably had 30 restaurants, including mine and maybe half a dozen franchisees. And I said, “Well, who’s involved in this whole thing?” And he said, “Well it’s being led by a guy named Mickey Drexler,” who at that time was chairman and CEO of Gap. Mickey started with Ann Taylor and turned it around. Then Don Fisher and his brother who founded The Gap in San Francisco hired Mickey, and Mickey started developing Gap, Baby Gap, Gap Kids, Banana Republic, and eventually Old Navy. The whole kit and caboodle.

When Mickey came in, he brought with him a guy by the name of Herb Simon of Simon DeBartolo. Simon at that time was the largest developer of real estate in the United States. So Herb Simon sat on the board and Mickey Drexler sat on the board. And even though he wasn’t an official board member, a good friend of Mickey Drexler’s was Steve Jobs. Steve would stop by on occasion, and he ultimately ended up advising Mickey and the Board. This was just before Steve was moving from NeXT back to Apple, so he just was reentering the Apple world. It was also about this time that Mickey hired Steve to sit on Gap’s Board – only a few years later Steve, at the request of the Fisher Brothers, asked Steve to fire Mickey from The Gap…who immediately hired Mickey to sit on Apple’s Board. And, in addition to that, we have one of the largest private equity fund managers in the world, Alan Patricof, now of Apax Partners joining the group.

KaizenSo this phone call is huge news.

French: This was huge news. This was essentially a Fortune 500 board that was joining this company that had maybe a total of $50 million in gross sales. That’s it. That’s all we had at the time. And I said, “Wow, so what kind of capital are they bringing behind them?” And Lloyd said, “Somewhere between 400 and 500 million.” And I’m thinking, “Well that’s about 700 to 800 restaurants, minimum.” And Lloyd goes, “Yeah. They are looking at taking this concept worldwide.” And I said, “That’s very interesting, who do they have as the CEO?” And Lloyd said, “They’re trying to bring on a gentleman by the name of J. Jeffery Campbell.”

Jeff Campbell is a very well-known CEO. He’s currently the William E. Brinker Executive in Residence and a Professor of hospitality at San Diego State University. But at the time, he had just come over after being CEO of Pillsbury and, prior to Pillsbury, he was CEO of Burger King. He’s the one who ran Burger King during the 1980s, when we had the burger wars—flame broiling versus frying. Remember? That was Jeff’s baby. Jeff is the one who came up with that whole concept. Jeff is a former 82nd airborne guy, very Type A, tons of testosterone, let’s-go-out-and-do-it type of guy. He also turned out to be a really great boss.

At that point I was like, “Well, okay, this is news, but it isn’t really affecting my life. I have restaurants to run.” I was trying to continue with my life. Then I got a call from Jeff Campbell, and he said, “Look, I’m just swinging around talking to the franchisees, and you’re the last one that I haven’t gotten to yet.” Because I’m here in Florida, my headquarters was in Jacksonville. Other people are in San Francisco, Atlanta, Chicago, Phoenix, and I’m in Jacksonville, Florida managing my restaurants. And he said, “I’ve spoken to the other franchisees and every single one of them said you’ve got to speak to John French.”

KaizenSo you were recommended.

French: I helped a lot of these franchisees when they were first getting going, especially on the marketing side, and I was one of the first people in the door, so to speak. As one of the pioneers, I, of course, made all the mistakes. The pioneers are the ones with all the arrows in their backs. Mistakes teach you way more than success so I was able to say, “Whatever you do, do not…” Fill in the blank.

Kaizen: At age 30 you’re the grand old man?

French: It’s nice being the pioneer because the territory is wide open, but the pioneer, and I just said, is usually the one with all the arrows in their back, right? So I made every possible mistake that can be made. I learned a lot from that by using my own money and using other people’s money, which I did eventually pay back – with nice interest. Anyway, it was a very steep learning curve, but over those five years I was really put through the wringer, worked 100-hour work weeks, and learned a lot.

So when a lot of the franchisees came on board, Teitelbaum, who had an artistic personality and was always off doing 50 different things at once, he would always say, “Call John or Lloyd.” So they would over the years. We would chat and I would help the franchisee out in certain areas, visit their stores or maybe visit a location they were thinking of putting a restaurant in and say, “Hmmm, I made that mistake. I would not recommend putting it there, and this is the reason why.”

I was starting, at about this time, to develop on my own multiple regression analysis. I was trying to figure out what were the independent variables that would effect a Johnny Rocket’s restaurant from a gross sales standpoint, because the company really had no leadership and no idea at this point of the transition. They had some people that were running it, but they were mainly salesmen. They had no quantitative background, and so I would ask them, “Do you guys have any idea what are the variables that effect Johnny Rocket’s restaurants purely from a gross sales standpoint?” In other words, I was trying to determine what makes up a good location versus a not so good location?

They had no clue. They had never done any analysis. So I had been working on trying to run a multiple regression analysis putting in as many independent variables as I could possibly think of. I had a very small population, so my confidence intervals were not particularly great. I was doing the best I could to try to at least quantify some aspect of where to put these restaurants. You can’t move them once they’re there. Anyway, to make a long story short, I was trying to help the franchisees,

Jeff Campbell came down, and I was working one of my restaurants (Jacksonville) that day and my cook didn’t show up. I walked into the restaurant at 8 a.m., was told that my cook was missing in action, and I said, “I’ll cook.” I had to go through all the training and stuff in Los Angeles, so I knew each position well. After spending eight hours on a six- foot flat top griddle cooking, I was smelly, full of grease and sweat—and in comes Jeff Campbell. Jeff asks my assistant manager, “Where’s John French?” “Oh he’s there, behind the counter.” Here I am flipping my hamburgers, and I remember this guy standing there looking at me. I had no idea who this guy was, but I knew he was coming. I’d never met him.

He and I sat down at a deuce, and I said, “I apologize for my condition, but my cook didn’t show up; I can’t just stand there. We’ve got to get the job done and take care of the customers.” Jeff gave me a little background about himself and said, “Everybody said to talk to you, and I can see why.” And I was like, “I don’t understand. What are you talking about?” And he says, “Well anyone who owns a business who is in a position that you’re in and is willing to stand behind a griddle for eight hours to keep the restaurant going, I’m all in.” He said, “Would you like to join the parent company now called The Johnny Rocket’s Group in California?” And I said, “I have restaurants. I have five of these.” He goes, “Don’t worry about it. We’ll buy them from you or help you sell them. We’ll come up with a fair market valuation and a compensation package.”

I said, “Well, my wife’s a lawyer here in Jacksonville.” By that time I’m married. And I said, “Well possibly, but what position are you contemplating?” He said, “Well I was thinking of promotions and marketing.” And I said, “Okay, but isn’t the primary objective of the company to develop restaurants? What exactly are we marketing until we have restaurants up and operating?”

He said, “Pretty much.” I said, “Well it doesn’t seem to me then that the action’s going to be in marketing. It seems the action’s going to be on the development side.” And I said, “What about a development position? I’ve built Johnny Rockets. I know how to build these things, and I know every nut and bolt, literally, in the restaurant. I know how to read quarter-scale blueprints, and I know how to build stuff. I’m also more of a field guy than an office guy.” He said, “Would you be interested in a development position?” I said, “Yes, I would.” And he said, “Well, we don’t really have any project management schedules. We haven’t put anything together in terms of a roll-out. We don’t know what kind of architects we’re going to use or who we’re going to use for designers and contractors. We have no idea. We literally have a blank slate.”

Kaizen: Just going to put that on your lap.

French: And he said, “Would you be able to work through some of that?” I said, “Absolutely. Systems work is kind of how I think.” And he said, “Well, tell me, how would you go about trying to put all this together?” And I said, “What’s the scope of the development?” He said, “Why?” And I said, “Well, every part of the world, as a matter of fact, every part of the United States has different codes and different building requirements. Everything’s going to be different. So you need to have a really big architectural firm. And so what about Gensler? Have you ever heard of a company called Gensler? They have offices worldwide.” He said, “I know of them, yes,” because he’s in the industry. I said, “Have you ever used them?” He said, “No.”

And I said, “I would first start with Gensler. They’re West Coast based. Their main offices are in San Francisco, but they have huge offices in Los Angeles and many more around the world. And then I would try to work with Gensler and try to put together some sort of a project schedule together in terms of where to start. Do we start with site selection? What goes into site selection? How are we going to handle the real estate component? Before we can even do a conceptual design, we need to know the layouts of the particular space. Are we going to use expediters to help get us through zoning issues? Where does operations get their say? What about the Board and their OK?”

And I laid out this whole long list of items that needed to be addressed. Oh, and by the way, I mentioned that it’d be kind of nice to know where we put these things. This is something I’d been working on. I went into my office, and I pulled out my multivariate analysis stuff that I was working on. He looked at that, and he said, “This is awesome. Can you do this statistical analysis?” I said, “I can.” I wasn’t a statistics major, but I know how to do multivariate analysis. And I said, “As long as you allow me to get someone to check my work.” I ended up getting a Professor Emeritus, the former Chairman of the Statistics Department at Stanford University (who also happened to have a home 60 minutes from our corporate headquarters) to review a lot of my analysis. I wanted to make sure I wasn’t missing an important independent variable, my p-value was accurate, I had a sufficient population size etc. etc.

We had this long conversation, and to make a long story short, Jeff hired me as vice- president of development for the Johnny Rockets group, reporting directly to him. I spent close to a decade developing 350-370 restaurants worldwide. I got a divorce during this time period. I was working 100-hour work weeks, as is my tradition. I was living on an airplane six days a week because I had to approve the real estate sites, check on construction, coordinate with operations. The real estate site is especially important because it, more than any other variable, determined the potential success of the restaurant.

The footprint of the restaurant fed into not only the financials of the restaurant in terms of how much money it cost to build that restaurant, but it also fed into how much cash would be generated by that restaurant and how operations was going to have to adapt to the footprint. Everything is interconnected. And when the Board of Directors was finalized, half private individuals and half institutional investors, they said, “We want a 50% cash on cash return for each restaurant opened.”

Kaizen: Otherwise it’s a no go.

French: Well, then otherwise you’re going to get fired. That was their implicit, “This is your objective. Either you meet it or you go.” These are venture capital and hedge guys. They’re only numbers guys, and they have a relatively short-term horizon with little patience or time for excuses.

KaizenThey want a big splash in a big market.

French: They want a big splash in a big market, and they want their money back quick. That’s a lot of pressure. They wanted to ramp up to opening 150 restaurants a year, so you’re talking about a restaurant every other day, basically. And I said, “Do you know how many real estate sites that takes?” And they said, “No.” I said, “It takes literally hundreds. Hundreds and hundreds and hundreds of real estate sites have to be in play because most real estate deals fall through. And they always fall through toward the end of the deal when you get to the legal aspects because that’s when the rubber hits the road. That’s when the details start coming out and you start saying, ‘Sorry, we can’t do that.’”

So I had to create all of the real estate structure. Who are we going to use for our real estate brokers? Are we going to use large companies or small companies? Are they going to be market-specific? Are we going to divide them up east of the Mississippi, west of the Mississippi, international? I had to create the entire real estate department, the entire design department, and the entire construction department. The only thing I wasn’t involved in, thank goodness, was operations and corporate accounting.

On “Key Day,” which is the day we would complete a restaurant, I would hand it over to my counterpart in operations, a gentleman by the name of Bob Holden. Then Bob Holden would be responsible for operating the restaurant. Ongoing repairs and maintenance was part of my responsibility, and I had to set up a separate department at the corporate headquarters for repairs and maintenance. I had a director of repair and maintenance who would take care of the ongoing issues with the restaurants.

KaizenAt the peak you were opening a restaurant every two to three days. That means over the course of a month you’re opening fifteen or so?

French: Yes, that’s right.

Kaizen: That would be close to 200 restaurants in the pipeline for the year.

French: Yes, many. And you’re dealing with a population of potentially 500 or more real estate sites that range from Dubai to Kuwait City to Beirut to Perth, Australia, to the Roppongi district in Japan to Canada, to Seattle to Miami to Chicago to Kansas City and to everywhere in between. We ended up developing 21 restaurants in Australia. We did Japan, London, and Spain. We did two restaurants in Kuwait and two restaurants in Beirut. We franchised a lot of our international stores and we had a person to handle that side of the development equation. I said, “Look, we can’t handle those areas. Politically, they’re hot spots.” I was in Beirut just a few years after the civil war had ended. The bullet holes were still in the walls.

We ended up hooking up with the al-Saud family, which is a totally different discussion, but they’re the Saudi royal family. When you have the Saudi royal family as your franchisee partner for the Middle East (They were also McDonald’s franchisee), things tend to move rather smoothly. I had less hiccups developing in the Middle East. Developing in Beirut and Kuwait were easier than developing with the Unions in New York.

So in any event, this is what my life was for about a decade or so.

Kaizen: So 100-hour work weeks?

French: 100-hour work weeks.

Kaizen: And this takes you to about age 40.

French: Somewhere in that range.

KaizenDid you hit your 50% return?

French: At this point I don’t even know. We had some restaurants cash flowing close to 100% cash on cash returns. And we had some stores we closed in the first six months because it wasn’t worth keeping them open. I guess the bottom line is how much money did the investors put in and how much money did the investors get back? The investors put in a total of about $320 million as far as I know. Red Zone Capital, which is a subsidiary of Dan Snyder’s empire—which owns the Washington Redskins, Six Flags America, Dick Clarke Productions—came in and bought the entire concept out at this point—hundreds of restaurants—for about $675 million. They probably doubled their money in a relatively short period of time. I think that it wasn’t quite as good as a couple of the venture capital and private equity people wanted, but it was at least sufficient so that they didn’t leave too distraught. I think that’s the fairest way to characterize it.

Kaizen: It’s more than doubling your money in that amount of time.

French: It’s not bad. It probably wasn’t the best investment they ever made, but maybe it was in the top 10% or 15% or somewhere in that range.

Kaizen: Let me come from another side of you. You were philosophical when you were younger, but now you’re a frenzied business man.

French: I am indeed.

Kaizen: What’s going on in your philosophical life? At some point you developed a strong interest in Buddhism.

French: That actually was concurrent with my building of Johnny Rockets. I found a Buddhist Master. His name was Daido Roshi. He was the abbot of Zen Mountain Monastery and founder of The Mountains and Rivers Order of Zen Buddhism up in New York State in the Catskills. I became a Zen Buddhist. I still am a Zen Buddhist. What appealed to me was I was brought up in a Christian tradition, but it was too anthropomorphic for me. I just never could quite get my head wrapped around it.

KaizenHow old were you when you were making the transition to Zen Buddhism?

French: Maybe 20 or 21?

Kaizen: College days.

French: College did this, yes. I went to Georgetown, which is a Jesuit University, but I just could not come to any sort of comfort with this anthropomorphic God in heaven and this anthropomorphic concept of Jesus up in heaven judging people on Sunday. It just made no sense to me. Why would God want to do this? It just seemed stupid to me.

Kaizen: What was the appeal of Buddhism?

French: Its reliance on rationality and empirical evidence. I have a scientific bent. I want to see it. If I can’t see it, if I can’t measure it, if I can’t at least duplicate, experientially, what you tell me, I’m not going to believe you until I’m able to do so. I asked my teacher, Daido Roshi, “Is this a religion? Is Zen a religion?” It’s a very interesting question. He says, “Well, it all depends on what you mean by the word ‘religion.’” And that’s a separate conversation.

But he said, “If you’re religious you can practice Zen. If you’re not religious you can practice Zen. If you don’t know or don’t care you can practice Zen. That’s the best way I can answer for you.”

Kaizen: You’re emphasizing the cognitive dimensions here. Rationality, evidence, replication. What about the normative dimensions? Were those attractive to you?

French: The normative dimensions were not so attractive to me. I was more so interested in what were the experiences and what were the teachings of Buddhism. Are you experiencing something when you sit on that black mat? I was on a personal growth path, obviously. I was trying to develop as many lines of multiple intelligences as possible. Howard Gardner articulated this in the early 1980s in his book Frames of Mind: Theories of Multiple Intelligences. You’re familiar with that, right?

I think that he was right in a lot of his stuff—that these lines develop more or less independently. I was trying to be as well-rounded as I possibly could, but on my spiritual side, and we can call that philosophical, I wasn’t sure where philosophy ended or began and spirituality began or ended. It was very hazy at that point, but I thought that Zen had something because Zen had very specific teachings, some of which were very hard to grasp initially. It had a technique that allowed one to take a third-person objective perspective of the self. In other words, to climb out of your ego and observe your thoughts, observe your emotions, observe your body, observe what’s going on. And by observe I don’t mean just see. I mean using all of your senses, but not as part of an embodied individual with an ego. I don’t know how to describe it. It’s something that you can only “experience.”

KaizenDetachment stance.

French: Yeah, it’s a detachment stance. And to be able to objectively look at the self. There are two schools of Zen. There is one that basically practices shikantaza or zazen, which is basically just single-minded sitting meditation. It’s simply watching the breath, watching the thoughts – meditating. That is the Soto school of Zen Buddhism. There’s another School of Zen Buddhism called the Rinzai school. The Rinzai school is very famous for its Koan’s, which are these seemingly nonsensical statements. Some of these have entered the common lexicon. You know, “You know the sound of two hands clapping; what’s the sound of one hand clapping – show me, don’t tell me.” It sounds non-sensical, but it has a very specific, concrete meaning.

But, here’s what Diado Roshi said to me on our very first meeting. He said, “John, this is what I say to every beginning student who may have an interest in joining this particular monastery.” And I said, “I have no interest, Diado Roshi, in being monastic.” And he said, “You don’t have to be monastic, you can be a lay person. Your work that you do now is Buddhism, and I can teach you how that works.” And he said, “If you believe what we tell you, if you even believe what you read in some of the sutras that we’re going to give you, you’re an idiot. I expect you to do the work. And you can either prove what I tell you by following the directions seriously, not just half-heartedly, but seriously, or disprove it. If you disprove it, don’t follow it. If you have certain experiences that have been experienced by others for millennia, maybe you may start to conclude that there is some truth to the practice if you can verify it in your own experiential awareness. If you start having the same experiences that others are having, you may start to think that maybe there’s something to this, that we’re not just a bunch of,” he used the word, “hallucinating schizophrenics.”

I don’t know if you’re familiar with the work of Ken Wilber. Do you know Ken?

Kaizen: Not personally.

French: I’ve known Ken and his work since the late 1980s / early 1990’s, and it was just after the death of his wife before he started writing Sex, Ecology and Spirituality. So Ken made the statement once that “A group of hallucinating schizophrenics couldn’t organize a trip to the bathroom, never mind the system of Zen Buddhism.” And after I started getting into Zen Buddhism, I clearly realized that was the case. Zen Buddhism came in very early in my life and has had enormous effect on my perception of the world in general, and how I conduct my everyday affairs.

Kaizen: So connect that to the decade when Johnny Rocket was huge. You’re immersed in particularities …

French: I am.

Kaizen: Was Buddhism helpful or was it sidelined?

French: It was both. I was sidelined from participating in physical Monastic week-long sessions and month-long retreats at my Monastery, but my training to that point had given me enough insights and tools from what Buddhists refer to as The Noble Eight-Fold Path to be helpful even during the constant traveling and long-work weeks. Without going into the details, there were four components of this path that I kept in the forefront of my mind: Effective Speech (i.e. be honest), Effective Action (i.e. loving, kind, and free actions), Effective Concentration (i.e. single-minded concentration with full awareness on the immediate job at hand) and Mindfulness (i.e. being lovingly aware of our breath, body, and emotions).

It’s worth noting that “mindfulness” in the west has become a common word that has entered the lexicon. Mindfulness, however, like yoga, has been completely distorted here in the west. When people talk about yoga here in the west, they’re not talking about yogic practices as they were meant to be practiced in the Rig Veda over 5,000 years ago, or in the Upanishads, or even the masterwork of The Bhagavad-Gîtâ, composed around 500 B.C.E. The objective in all these works was enlightenment. Plain and simple. While the practices may have conferred other earthier benefits, that was never the purpose of Yoga. In the West, most people associate Hatha Yoga postures with Yoga. This is fine. It does bring great benefits to both bodily and psychological health. When they talk about mindfulness, however, they’re not talking about Buddhist mindfulness. This is another discussion that would take a long time to describe. But the mindfulness here in the west is an extremely watered down, completely non-representational aspect of Buddhist mindfulness. They’re totally different things, and they take decades to develop. It’s not something that you can take in a weekend seminar. I tend to bristle when I hear the word mindfulness or yoga. Yoga in the United States is about 5,000 miles wide and about an inch deep, so I have issues with that.

The four components of the Eightfold path, including Buddhist mindfulness, helped me tremendously in terms of how I made and structured my decision-making. It reduced my stress levels enormously because I was able to put the larger picture of who I was (nothing conceivable nor perceivable), and, combined with effective speech, action, and concentration, into context at the relative level – the level where all my stress originated. Also, having rare, slight glimpses of the transpersonal levels (Kenshō in Zen Buddhism – a deeper peak into our own nature, allowed me to go inside myself and draw on that well of 10+ years of practice. And that was actually assisted by Steve Jobs. When Steve Jobs died, very few people know, he had exactly one book on his personal laptop. Are you aware of this?


French: It was Autobiography of a Yogi written by Paramahansa Yoganandaji. Steve was an incredibly spiritual individual. A great deal of Steve’s life perceptions were influenced by eastern philosophy and from calligraphy, which he had talked about numerous times in terms of his development of the aesthetics of his products. And Mickey Drexler was the other individual who also had a great interest in eastern philosophy.

We would have very lengthy, sidebar conversations, on this topic. Mickey had a beautiful house up on Nob Hill in San Francisco. Mickey was a short guy, and he would always take the highest chair in the room. Steve and I would just lay out on the floor, and a few other people would occasionally join us. It was very cool.

Our conversations would go in 80 different directions, but it was this tremendous breath of fresh air. It’s kind of like in West Texas where we raised our daughters. On a 112 degree day, a thunderstorm appears out of nowhere, comes through, and all of a sudden the winds would pick up and it would be 60 degrees, and everybody would just take this really deep breath. I can’t articulate to you what we got out of it, but we were getting a ton out of it.

Kaizen: Nice.

French:We were becoming much quieter, much more introspective. So again, all of this was part and parcel of my life. It was applicable to my daily activities, and it was applicable to my private life. At this point, as I’ve mentioned, I had gotten divorced. My wife was another workaholic, Type A person. We had met as undergraduates at Georgetown. This is just a very quick sidebar. We got married young after we graduated the same year. We’re friends today, and we used to call that our “training marriage.” She was working for a very high-pressure cooker law firm out of their California offices and traveling significantly. She focused in on mergers and acquisitions, which itself is extremely stressful.

I don’t begrudge anyone in this world for the toys they enjoy accumulating and their success in life. Because until you’ve been through it, it is really hard, it is really stressful, and it really becomes your life. I listened to Jordan Peterson have a chat once with a BBC reporter. You may have seen that little short video clip. She was complaining about the fact that only 5% of Footsie 100 CEOs in Great Britain were females. And Professor Peterson responded, “So? Maybe women are smarter than men. Why would you want the job? Because literally you have to sacrifice your life to reach that point.” And that’s precisely what I did. I sacrificed my life, and I still continue to do so to this day. My family life is rocky. I’m remarried, I have a lovely wife, but yet I still continue to work 100-hour work-weeks. It’s just part and parcel of who I am.

You do this so you can accomplish a great deal in business. What did we accomplish by building 350 restaurants? We made quite a few people, including the investors in those equity funds, wealthy. What they did with their money, I don’t know. Hopefully they went out and did something useful and productive with it and didn’t just tuck it into an investment account. Most of the people who are invested in or run those type of businesses are always looking for the next thing. They do create an enormous number of jobs. We created 3,000 of them over the years. I think that was a good accomplishment.

I got to know a lot of very wonderful people I never would have met in any other circumstance, and not just affiliated with Johnny Rockets. I was raised in New York, and my dad took me in 1977, the year Reggie Jackson hit three homers to that game… Do you remember that game? I was at that game.

Kaizen: Nice!

French: And who comes walking into our offices one day toward the latter part of my reign at the Johnny Rocket’s Group? Mr. October himself – Reggie Jackson. He became one of our franchisees. I said to him, “It’s a pleasure to meet you. I was at that game when you hit the three homers.” There were all these serendipities and things that were happening in my life at this time. Too many to remember or count.

KaizenAirplanes are another passion—you build airplanes and fly airplanes. When did that start?

French: When I was about eight years old. My parents took me on a trip to the Smithsonian Museum of Air and Space. Once I walked into that place, for three straight days, all I wanted to do was go back. My parents eventually just left me there at eight years old, because they wanted to see other things in Washington D.C., and I could spend hours just looking at, for example, the Wright flyer and trying to figure out how the wing warping works. I wanted to know how an airplane flies. That got me very interested, so I started reading about flight schools.

When I was about 13 years old, during the summer time, there was a military academy called Culver Military Academy in Culver, Indiana. Culver at that time, had a flight program, a flight squadron actually encapsulated within a military school. I liked the discipline, so my parents came up with the money to send me for three consecutive summers to Culver Military Academy where I learned to fly airplanes.

Kaizen: Wow.

French: I obtained my private pilot’s license at Culver in 1982. This was actually the year before I graduated from boarding school. There was an airport up at Hotchkiss, technically in Great Barrington, MA, and by the time you’re 18, you can have a commercial license and an instrument rating. There are a lot of different FAA ratings and licenses. And so when I was in boarding school, my second to last year there, I visited the local airport in Great Barrington, Massachusetts. I hit it off with the owner, Walter Koladza. It’s now the Walter J. Koladza Airport in Great Barrington in the Berkshires, western Massachusetts.

I met a guy there by the name of Ralph Ingersoll, of Ingersoll Rand. Ralph and I started talking. I was just a kid, and he said, “What do you do?” I said, “I attend The Hotchkiss School here in Lakeville, Connecticut.” And he said, “Are you a pilot?” I said, “Yeah, I am.” He says, “Well, I have a plane. I’m always looking for a pilot. I have a corporate plane, but I have my own plane.” I said, “What kind of plane do you have?” And he said, “I have that Cheyenne III out there.” A Cheyenne is a twin-engine turboprop executive transport vehicle. It’s got a very long range of about 1,200 miles and flies at about 300 knots or so. I said, “Well Mr. Ingersoll, I fly Cessna 172s, Cherokees and twin-engine Aztecs and Seminoles.” And he goes, “Do you have a multi-engine rating?” I said, “No, I don’t have a multi-engine rating.” He says, “Do you have an instrument rating?” I said, “Yes, I have an instrument rating.” He says, “Do you have a commercial license?” I said, “I just got it. The ink hasn’t dried on it.”

He said, “I’ll tell you what. I’ll send you down to Flight Safety International.” Flight Safety trains a lot for the airlines and corporations. And he says, “They have a Cheyenne simulator. It won’t take you more than a few weeks. I’ll pay for it. How would you like to go down and get certified on the Cheyenne?” And I said, “That sounds great!” Considering I was very lonely at Hotchkiss, I’m thinking I’ve got the opportunity of a lifetime. And I think, in hindsight, Walter Koladza, who I’ve come to befriend and who Ralph Ingersoll really admired, was the chief FAA designated check airman. At this time, Walt was about 78 years old. He was the chief test pilot for the Corsair at Grumman during World War II. Apparently, he had Ralph’s respect since I guess that Walt recommended me.

Walter went back to the stick-and-rudder old-school testing of World War II planes. He did a lot of my instructing post my commercial license for me, and I really learned how to fly an airplane from Walter, not from my younger instructors through Culver Military Academy or wherever it was. This also came back to the fact that I liked the discipline of flying—I liked being able to understand complex systems but make it seem easy. Flying an airplane can sometimes be exceedingly difficult, and you learn to navigate very difficult situations. The whole emergency landing on the Hudson River, that’s 40-some-odd years of experience, and that’s why it seems like everything’s very calm and they’re having a normal conversation as if they’re over cocktails. But that’s only developed after 40 years of trial and error.

Kaizen: A lot of experiences integrated seamlessly into one beautiful moment.

French: Indeed. Everything comes together. And they got lucky, too, but that’s a separate issue.

So I started flying for Ralph Ingersoll. I wasn’t flying his executives around New England because he knew I was in school full-time. Instead, he had a house in Freeport in the Bahamas. On Saturday mornings, I would get up at about 5:30 in the morning, and I would take a cab up to the Great Barrington Airport, which wasn’t far from Hotchkiss. I would pre-flight the aircraft. Ralph would be there, and sometimes his family would show up. They would climb on board the Cheyenne. I would fly him nonstop from Great Barrington, Massachusetts to Freeport in the Bahamas. While this required occasionally blowing off Saturday morning classes at Hotchkiss…well, I thought the trade-off worth it.

Kaizen: Not a bad high-school job.

French: He’d say, “Do you want to stay overnight or do you have to get back?” And of course Hotchkiss was a pressure cooker, so usually I had to get back. I had school and work I had to get back to. But it’s an 11- 12-hour nonstop flight in the Cheyenne. This isn’t a fan jet; this is a turboprop. It’s a jet engine but driving a propeller. Two propellers to be specific.

I spent a lot of time in that plane alone, usually on either dead-head legs going down to pick him up in Freeport or on dead-head legs coming back. But I built a lot of multi-engine hours, and I built a lot of good time in a nice airplane, so I continued with that. I even toyed with being a commercial pilot. At that point, I thought that maybe that could be fun, but unfortunately that was not to be. I have a problem with my left eye, and even though it’s correctable to 20/20, the differential between your right and left eyes has to be within a specific delta without using glasses in order to pass a first-class medical certificate, which you need to fly commercially for the airlines. We call that Part 121 or scheduled air carriers. Unfortunately, I could never pass a first-class medical certificate, so I was relegated to basically just flying myself. I ended up getting a number of flight instructor certificates, so I still do a little instructing on the side, and I’ve remained involved in aviation.

Kaizen: Putting it all together: you have huge entrepreneurial experience, philosophical interests, rich aesthetic interests, the complex engineering and physical experience of flying, but you’re now also doing business ethics.

French: My objective, my forthcoming Ph.D. research at Emory University, is as follows: The way business ethics is presently taught doesn’t work. It simply doesn’t work. I’ve had this discussion not only with Georgetown but with Penn at Wharton. I said, “Frankly, it’s most of your graduates that are causing all the problems. McDonough, Wharton, Harvard, you name it.” And I said, “These are check the box courses for these students. They don’t care. I’ve seen it for 30 years in the field. You’re way too late in the game by the time you get to them.” Ethics needs to be pushed down to the grade school level. Ethics needs to be taught at the grade school level or even elementary level.

And so when you say that, what do you actually mean? What are you going to do? What is the effective pedagogy? How are you going to go about teaching ethics? This is what my Ph.D. research is involved in. And what I’m doing is I’ve spent some time in India, and I’m planning on taking, essentially, the four noble truths along with the eight-fold path of Buddhism and incorporating that in as unthreatening a way as possible. I don’t want to bring religion into my classroom, but I want to discuss the foundational concepts of Buddhism without all the jargon.

And the way I see it is, ethical behavior comes from inside. It doesn’t come from outside. You can’t teach me to be ethical. I don’t care if you give me case studies to analyze, the philosophical underpinnings of ethics, or simply codes and laws that must be followed for a particular domain to function such as business. Ethics is how I perceive your relationship to me. Ethics is how I perceive myself. Ethics is how I perceive what I should do in my life, what’s important in my life. Ethics is how I perceive reality. Ethics is the answer to the question, “Who am I?”

Kaizen: Abstract rules or principles that are grafted onto you.

French: Yes. And this is something eastern philosophy has a significant jump on over us here in the west. Because for at least 5,000 years, or 2,500 years in the case of Tibetan Buddhism, for example, these people literally sat in caves and they examined their interiors. They examined their thoughts. They examined their feelings. They examined everything in such minute detail.

Kaizen: Eastern philosophy has the reputation for retreating to the cave, but you want to integrate that with getting out of the cave and doing something with your life.

French: That may be a perception. But in reality, in Zen Buddhism, the tradition that I am most familiar with, we say, “Before Enlightenment, sweep the floor. After Enlightenment, sweep the floor.” That little tree over there or that chair is just as real as anything I may experience in some sort of transpersonal state. There’s no distinction in my mind. They’re both equally real. And so one of the things that I’m trying to do is develop a way to teach ethics through getting people to ask the questions that I’ve just been articulating. And that needs to start at a very early age.

Kaizen: It has to be a personal engagement.

French: It has to be personal engagement, and this is what I’ve tried to do with my daughters.

I have a daughter studying in the UK, for example. I have a daughter who’s just started this year, she’s doing a joint program in philosophy at Oxford University, and she’s doing behavioral economics at Edinburgh. It’s a five-year program combined between the two of them. I’d like to think that some of her interests in these fields were stimulated from discussions we had as kids.

We would take hikes in the desert. I grew up in southwest Texas, and for the most part, raised my children completely in southwest Texas in the middle of nowhere. My home was outside of Big Bend National Park. So when I did my consulting, or took advanced classes through Texas Tech for a lot of those years, I would be gone on the road for a week or ten days at a time because the closest airport was El Paso, which was a rather long drive. I spent a year studying bio-chemistry in Midland.

Kaizen: Everything’s a long drive in Texas.

French: Everything’s a long drive in southwest Texas. I lived off-grid in a house I built myself. I would ask the kids constantly, “What is that? Who do you think made those trails in the ground?” And they’d all get down and they’d look carefully and they’d come back with sometimes even the right answer.

Kaizen: Some beautiful moments with your kids.

French: Yeah. It’s that sort of technique or mind-set that I think is necessary if you want to develop ethical decision-making; you really need to start and bring it down to the grade school level. So what I’d like to do, ultimately, is to be a grade school teacher. I’d like to be a Ph.D. level grade school teacher and experiment. And if that includes starting my own school, I have the finances to do so. Maybe that includes finding someone who is sympathetic to those ideas. I’m not sure, ultimately, how this will play out in practice.

And again, I’m in the early stages right now of my research, but I have absolute faith in the techniques I’ve learned through my entire life. I consider myself to be a moral and ethical person. I can teach. That is not very specific, I know, but that is where we’re trying to figure out what components of eastern philosophy will grade-schoolers get? So I’m working with Tibetan lamas, I’m working with Tibetan nuns, I’m working with Zen Masters.

A friend of mine is actually a translator of Buddhist sacred texts in Dharamshala, India and she is working on her dialect to be a translator for His Holiness and other Tibetan Lamas. She’s going to probably be the first female translator for him and other Lamas. Tibetan culture is, historically, very patriarchal; HH Dali Lama is trying to change that, but it is slow going. Her name is Ani Chotso. I’ve known her for decades, and she’s also friends with Ken Wilber. She and Ken have done a number of podcasts together. So a lot of things in my life have just swirled in this milieu. We’ve covered a lot of ground but there’s a lot of ground to cover – most we haven’t touched on.

Kaizen: Our primary audience at the Center for Ethics and Entrepreneurial is university students–many of them thinking business and entrepreneurial careers. So you’re arguing it starts young, and that you need to integrate a philosophical conception of life that you have developed personally—and then apply it in your day-to-day living. Is there any way you can take that and some kind of key advice to young people who are still exploring? What’s the most important thing that they need to focus on while they’re still in school?

French: I’d tell them a good place to start is think from the end. Think from your death bed. We’re all going to die, and it’s going to be a lot sooner than you think. It can be so morbid to think about for the majority of people, but that’s the truth. We live our lives. The problem, and the reason why we often have so many problems in our lives, is we live our life as if our body is going to live forever, but its not. Realize this first. We are not our body.

Kaizen: That’s a hard lesson for 20-year-olds.

French: That’s a very hard lesson for them to absorb. What I typically have them do is I have them lie in a supine position on the floor on their backs, and I have them do some deep breathing exercises, and I say, “Imagine you’re on your death bed right now. Think about that. I want you to really feel that.” Sometimes it takes 30 or 40 minutes of class time for them just to get into the state where they can feel the end of their life. Your life is behind you. You have very little time left. Hours, minutes, maybe a few days.

Kaizen: What do you want this to have been?

French: “What is it that’s going to be important to you at this moment? What are you going to be thinking about at that time, at that moment? Now many of you have probably been exposed to death. Some more than others, but most of you, not really. You have not spent a great deal of time around individuals who are dying. You haven’t had a great deal of interaction with individuals who are dying. You haven’t asked them, “What things would you have done differently in your life?” You haven’t had these conversations yet, but you will – if you’re lucky. For most of you, this will be a natural process of growing up.”

But I said, “I’d like you to think from the end.” And that’s where I start with them, is from the end. You obviously want your life to mean something. Everybody has these goals and usually these very idealistic, far-reaching goals.

Kaizen: It’s the big project of tracing it back to where you are now and what that narrative is going to be or when that top timeline is going to be.

French: Exactly. And ultimately it always comes back to you. And I would say, “Ask yourself a very simple question: Do you know who you are?” And I’m very quiet at that point. Everyone is dead silent at that point. And I say, “I know many of you are thinking right now, ‘That’s a stupid question French. I know who I am. I’m such and such a person. I was brought up here. I’m in school here, and I’m going to study this and do that.’ No. No. No. That’s not who you are at all.”

Kaizen: What’s your option?

French: Well, I say, “Look, let me give you a little hint.” And I take them through a very short exercise. And it’s an observational exercise, a pointing out exercise—Zen 101. “Can you be aware of your thoughts? Are you conscious when you’re thinking? Can you actually be aware of your thoughts?” Most people would say, “Yeah. I know when I’m thinking, I can be aware of my thoughts.” “Are you aware of your feelings?” “Yeah, I can be aware and conscious of my feelings.” “Are you aware of what you’re hearing at the moment?” “Yeah.” “Can you see the clouds in the sky?” “Yeah, I can see those?” “Can you see the tree?” “Yeah I can see that.” “Great.”

So I say, “You can see all these things. Whether they’re gross or subtle, you have the ability to consciously comprehend them, right? But that doesn’t answer anything. Because the profound question is: who or what has the capacity to observe one’s own thoughts? It’s not the thoughts observing the thoughts because you’re the observer of your thoughts. So who or what’s the observer? Who is aware of these objects? To answer, ‘I am,’ says absolutely nothing”

Kaizen: So, who are you exactly?

French: Who or what is the ultimate observer? That’s the most profound question you can ask yourself. And that dovetails back with: Who am I? I can see all these things, and I can experience all these things. Am I nothing but a bunch of neurochemicals, chemicals randomly selecting the options that I have to choose from, and then choosing the option I wish to purse influenced by other pre-conditioned choices like the philosopher Daniel Dennett at Tufts would argue – chemicals sloshing around in my head? Or is there, as David Chalmers would argue, a “hard problem” to consciousness? Namely, how do you explain the existence of the feelings of sensory awareness? What exactly is subjective conscious experience, something Chalmers calls qualia? Is consciousness ontologically autonomous of the physical properties central to Dennett’s theory? In short: What is the essence of consciousness? And so these are philosophy class 101 discussions. But again, they stem from thinking from the end. Then I bring it back to the now. I bring them back to the question of who are they now? So you cover from right now in the present, to the end, and back again.

I also throw them on occasion by saying things like, “By the way, you may have heard quantum physicists say this, and it can be proven mathematically, but there’s no such thing as time.” Time is an illusion.” And I say, “I can just quickly convey this to you using plain English. You can’t think about the past in the past. You can only think about the past in the present. You can’t imagine yourself at the end of your life in the future, right? You can only imagine yourself in the future in the present”

Kaizen: Everything is now.

French: Everything is always now. Everything is always now. And then I go into a fairly long discourse about the now and how that interfaces with who they are and awareness itself.

Kaizen: So is the bottom line that to be practical you need to be philosophical?

French: I make no distinction. Again, this is the Zen tenet. Between being productive in life, between contributing to the world, and not only just contributing to others, but also yourself. There’s nothing wrong with buying your own airplane and enjoying life. Life is also meant to be enjoyed. It’s not meant to be pure suffering. Suffering is part of life. There are Buddhist practices that address suffering, and in fact, suffering is the first Nobel Truth. But life is also full of joy. It’s full of beauty, and it’s full of many great things. Absorb it all, because there’s no ultimate distinction between a transpersonal perspective or a philosophical perspective and going flying, fishing, or feeding frogs.

I can see no distinction between the two. And so people make these artificial distinctions in life because that’s the only way they can conceptualize or compartmentalize things—to look at them one at a time. But by doing that you freeze reality in a sense. I conceive of this automatic practice like taking one snapshot of life after another. It’s not a continuous flow. I see life as a continuous flow, but this has to be taught; it’s not innate. So there is no distinction between my internal interests in various aspects of philosophy, in the transpersonal, in Zen Buddhism, and flipping hamburgers behind the flat top griddle for eight hours. Because that’s all practice. I’m not just flipping hamburgers. I’m actually thinking about the beef that I’m putting down, the cow that gave up its life, for example, to produce that beef. I’m even thinking about the grains that were harvested. They were growing perfectly fine until a harvester came along and took them up and rooted them from the ground.

So these are things that I’m thinking about and focusing on.

Kaizen: It’s that entire cycle of life, but it’s in this moment.

French: But it’s in this moment, and this hamburger is the one that counts, the one I’m currently wrapping with whatever condiments the customer has ordered based upon the check that’s hanging on the counter. And then I move onto the next, and then I move onto the next. I find that to be just as fascinating. To me that’s just as interesting as having a very deep discussion with you over some aspect of epistemology or ontology or metaphysics. To me that is just as interesting and just as fascinating. Again, I don’t make any distinction between the two.

Kaizen: If you have the right attitude about it.

French: That comes from the practice.

This interview was conducted for Kaizen by Stephen Hicks.

More Kaizen interviews with leading entrepreneurs are here at our site.

Interview with Federico Zorraquin on Entrepreneurial Resilience in Argentina

Tuesday, December 11th, 2018

[This is the full interview with Federico Zorraquin which was published in our Kaizen newsletter.]

Federico Zorraquin on Entrepreneurial Resilience in Argentina

Federico Zorraquin is President of Rheem S.A., a manufacturer of water heaters based in Buenos Aires, Argentina.

Kaizen: Zorraquin is an exotic, Spanish-sounding name—an adventurer’s name. Where were you raised?

Zorraquin: I was born in Buenos Aires in 1959. Most of my family came to this part of the world between the late 18th century and the beginning of the 19th.

Kaizen: Long time Argentinians.

Zorraquin: Most of them. About 70% of the family are French Basques and Spanish Basques. My great-grandfather and all the line that come from him—my grandfather, my father, and myself—have all been involved in business. I run today a company that was founded in the late 19th century.

Kaizen: An old company by new world standards.

Zorraquin: Yes, but it doesn’t resemble the business that it started as, though there is some spirit and tradition that comes from those times.

Kaizen: As it’s a multi-generation, family business, was there an expectation that you would go into the family business? Were you the eldest son?

Zorraquin: I was the eldest son. I have an older and younger sister, and the youngest was a boy. I was pretty much taught the business from the very beginning. I used to travel with my dad to visit different companies that we owned at the time. We had a large ranching operation, and I used to spend time in the ranches. I liked to see my dad being involved in business. I didn’t have a chance to consider becoming a doctor. I always say to my kids, I would have enjoyed being a good doctor.

Kaizen: What kind of businesses was your family involved in the time of your father? This would have been the 1960s and 70s?

Zorraquin: Yes, and the 80s. The company got various work in the steel trades in the Buenos Aires stock exchange. That started in the late 19th century. It became a publicly held company in 1946, with my grandfather and later my dad always being the controlling shareholders. From the 1960s to the 80s the business was one-third industrial companies, one-third banking, and one-third ranching. In the 80s, the chemical and petrochemical side of the companies became very big, as did the banking. The farming became relatively smaller.

In the mid-80s, we were the largest private group in petrochemicals and manufacturing of plastics in Argentina. We were probably the number one or two group in banking. We were a small player in farming.

The 80s was a very difficult time for Argentina because GDP growth was zero. The last three years with hyperinflation were very damaging for our business. By 1989, we had gotten rid of the banking business at a big loss. We came into the 90s basically without the banking business and as an industrial group with a small ranching operation.

Kaizen: Going back to your youth. You’re traveling with your father a lot, but what was your formal schooling like?

Zorraquin: I went to primary and high school in Buenos Aires. Then I went directly into industrial engineering school. Since we don’t have the liberal arts college education in Argentina, when you leave high school you have to choose if you will either be a doctor, a civil engineer, or a lawyer, and so on. You go into specific schools.

Kaizen: Professions.

Zorraquin:  Right. I decided to be an industrial engineer, because it gave me not only a technical background but also an in-road into management. I could go into the industrial companies we owned at the time and eventually get an MBA or management or financial degree.

Kaizen: Does anything stand out in your early education as especially formative or useful to you in your career and adult life?

Zorraquin:  I was probably very responsible and dedicated to anything I could learn. Every summer I would spend time at one particular large ranch that we still own. It was a very fun place to be, but I worked for most of the time in the summers.

Kaizen: In what part of Argentina is that ranch?

Zorraquin: It’s 300 miles south of the city in Buenos Aires province. I worked at the farm a few times a year. I was there during some audits that the company did in these farms, and I would travel with my dad and do the audit to work with him.

Kaizen: Was your university a blend of business and engineering education?

Zorraquin: No, with the industrial engineering school, you leave the school just knowing about how to run or optimize a manufacturing facility—logistics, organizing work, layout of factories, production. You are involved in human resources, people issues, economic issues, but this is all mostly related to the performance of a factory.

Kaizen: Was it when you finished that degree that you went to the United States to Wharton Business School?

Zorraquin: No. When I finished my degree, I worked in Argentina for two and half years.

Kaizen: This was when you were in your early 20s?

Zorraquin: Yes, and I went to the south of Argentina to work at a petrochemical complex for one year.

Kaizen: Somewhere in Patagonia?

Zorraquin: In Bahía Blanca, in the northern part of Patagonia, the tip of the province of Buenos Aires. That’s where the largest petrochemical complex of Argentina is today, as it was at that time. I worked in that facility and in Buenos Aires in finance.

Kaizen: You were just out of university at this point. What were your responsibilities?

Zorraquin: Since our business group was a very large group, I was convinced that to work my way through the ranks I would have to start from the very bottom, and I would have to learn and experience what it was to be working at a factory. This factory had shifts, and I worked in different shifts—day, night, et cetera—in different positions.

Kaizen: You had a sense for all of the aspects of the business?

Zorraquin: Yes. And what was more important for me was getting the respect of the people. The people knew that I was the son of the owner, but they also knew I was working hard to learn the basics.

Kaizen: You’re earning their respect.

Zorraquin: I think that really helped me a lot over the years. I felt confident with my work on the factory floor. And when I went up through the ranks in a fast way, there was some legitimacy on my end.

Kaizen: Now we’re into the 1980s, and your family company still has the three major divisions.

Zorraquin: Yes.

Kaizen: But it was a difficult decade—the banking and financial sector were very bad in Argentina.

Zorraquin: Very difficult.

Kaizen: You worked for a couple of years there, and then you went for the MBA? What was your motivation for that?

Zorraquin: I knew that I wanted more skills in finance. I went to Wharton.

Kaizen: Why Wharton?

Zorraquin: I wanted to start in January, and the only two of the top universities had a January admittance—Columbia in New York and Wharton. I was accepted in both schools, and I decided on Wharton because I knew a couple of people in Argentina who had gone there. Not for any other reason.

Kaizen: The Wharton MBA was a two year program?

Zorraquin: Yes. Before going to Wharton, our petrochemical operations in Argentina were run with a technology license that we got from Union Carbide Corporation. I spent time working in the Union Carbide labs in New Jersey. During that time, my wife and I lived in New York City and commuted every day to northern Jersey to work in technical labs that were doing some research on plastics.

I also got to learn that technology from the very basic aspects, and I got to know the people working in Carbide who were involved in the relationship with our company. From there, I went into business school.

Kaizen: What things did you find most valuable from your MBA experience? You mentioned finance was important.

Zorraquin: For me, finance was critical. I would say that I came out of school with a financial mind. For me, it was a big change. I really started to understand what was the P&L of a company, and not only finance and accounting. After school, I could read a balance sheet and could understand how to assess the state of a company and the value of a company.

Kaizen: Now you’re in your mid-to-late 20s. You have the hands-on experience from the ranches and working at the factory in Patagonia, both the agricultural side and now the technical side. You’ve spent some time with the research people in New Jersey. You have your MBA degree and know the financial side of things. Were there other issues of, say, leadership and human resources, being able to deal with people in a managerial way?

Zorraquin: Yes, and I took some of those courses in school. But it was interesting to know the science behind it. My training with people was more at home, because of the way I was raised, and from working with people on the factory floor.

Kaizen: Learning by dealing with your employees.

Zorraquin: Yes, becoming part of the teams. The other aspect of the school that was very rewarding was the learning from peers. Wharton was a very fun place to be in all aspects. There were a lot of very interesting people that I got to know and become friends with. The exchange of ideas was extremely powerful to me. I would say that probably the highlight of the school was the way all the MBAs interchange.

Kaizen: Nice.

Zorraquin: The social life was very rewarding.

Kaizen: After your MBA, you returned to an Argentina going though very difficult times politically and financially. Zero GDP growth and inflation. What were you doing in the company at this point, during this crisis?

Zorraquin: I had the opportunity, though I did not pursue it very strongly, to stay in the U.S. for a couple of years and work for a consulting firm. I regret not having done that, because I think the opportunity of working in a company where I was not seen as the son of the owner would have been important for my self-esteem. On the other hand, the problems that the company was facing in Argentina were very serious, and I thought that my dad needed some help. I would not say he needed my advice because he was an able and experienced business man, but I was very instrumental in a lot of things and decisions that were taken in those years with my little work experience and my MBA.

Kaizen: How old was your dad at this point?

Zorraquin: My dad was born in ’33, so he was maybe 55 or 56 years old. My age now.

Kaizen: Would he have been thinking about succession issues coming down the road?

Zorraquin: Not really in those years. He was active. I had always said my dad was never a manager and never a CEO—he was a deal maker. He was always thinking about buying this and selling that. Every time he faced major management issues—because a lot of company failures have a big management component—he would not do well in those. On the other hand, I have never seen myself as a deal maker, but mostly as a manager.

Kaizen: You complemented each other.

Zorraquin: We complemented each other very well. The fact that I came down from the U.S. after business school was important, because I helped him survive through the banking crisis. I helped him to make important decisions regarding the banking crises.

Kaizen: The decision to divest from banking and financial sector was huge. Then the company focused in petrochemicals and ranching?

Zorraquin: Yes, and other industrial activities like the one we still have today—the manufacturing of appliances: water heaters, and until recently, refrigerators. When I came home from business school, I was working with my dad in some of these strategic issues. My full-time work was the company I still run today.

Kaizen: The name of that firm is Rheem?

Zorraquin: Yes. I was involved in that company until 1993, and then in 1993 Argentina was becoming a more open country for the first time in many decades. Companies like our petrochemical company, for the first time in many years, had to compete with a much more open market.

Kaizen: Who is president of Argentina at this point?

Zorraquin: Carlos Menem. He passed a lot of interesting reforms. Argentina became a more competitive environment, and in that competitive environment, our petrochemical company started to look bad. Part of the reason was the culture of being a successful company in a closed economy with a lot of protection like most companies at the time. The company started, for the first time in 15 years, to lose money in ’93.

Kaizen: This is an adjustment to an open economy?

Zorraquin: The world petrochemical prices had come down, so margins were squeezed. We had made investment decisions that were significant, like starting a new poly property in Buenos Aires. All of those things combined. I was appointed as CEO of the petrochemical company. At the time, I was 34 or 35 years old.

Kaizen: How many people are working in the company at this point?

Zorraquin: 1000 people at the petrochemical company.

Kaizen: What is the name of the company?

Zorraquin: IPAKO. The company was initially started a U.S. chemical conglomerate.

Kaizen: In going from a closed economy with protections to a more open economy, what were the biggest challenges?

Zorraquin: Adjusting and changing the culture towards the market and the customers, because the customers now had more options to buy product from than just us. We had to get rid of the monopoly type of culture that we had. That was very important. At the same time, we needed to become a much more lean organization in all aspects. I conducted a major restructuring of the company that very rapidly provided a relief in overhead costs. In maybe a year or so, the company started to make money again. We were lucky because world prices stopped declining and started to come up. After having losses in ’93, by the end of ’94 the company was already very profitable.

Kaizen: Your peer companies in Argentina during this time—what was their overall track record of making the adjustment or going out of business?

Zorraquin: Most of the petrochemical companies at the time did very badly, and a lot went into bankruptcy. We were able to survive those two years of crisis, and in 1995 we sold the company to Dow Chemical for a very large amount of money.

Kaizen: IPAKO?

Zorraquin: Yes. At the time, it was considered the deal of the year in Argentina. It was a major success for the group.

Kaizen: And for you, as the new CEO.

Zorraquin: For me, as the CEO.

Kaizen: We’re now in the middle 90s?

Zorraquin: 95-96. We were left with all this cash, totally out of the chemicals business. We still have the appliance business, the ranching business, and a few other small operations. Those are our companies—very small and with a very healthy cash position.

Kaizen: The structure of the overall company at this point: is there one holding company for all of them?

Zorraquin: One holding company. Garovaglio. That’s still the name today.

Kaizen: You have CEOs for each major division?

Zorraquin: Yes, and I was the CEO of the holding company, overseeing everything.

Kaizen: What is your father’s position at this point?

Zorraquin: He was chairman of the board. It has been a successful partnership between him and I. Together with the board of the holding company, we started to look at investment opportunities.

Kaizen: Right, and from the sale you’ve got lots of cash?

Zorraquin: Yes. We didn’t want to liquidate the company and take the cash. We hired a consultancy firm, Bruce, Allen, and Hamilton, and we analyzed businesses in which we could be successful. There were some criteria. For example, we felt that we were not very able in the dealing with internal governments, so we would not get into very regulated industries because we felt that was not part of our culture. Also, we wanted to be in businesses in which an Argentine group could thrive locally. That’s when this very large meatpacking company came up. It was owned by a family-owned, privately held company, the largest meatpacking group in the country. In a matter of maybe six months, we negotiated a deal, and we bought 30% of that.

Kaizen: A natural fit with your ranching activities.

Zorraquin: Yes, we could fit the ranching activity with this large meat packer. The packing factories have a lot of industrial engineering and logistics, and that’s basically what we knew.

Kaizen: Right, so you had the human capital?

Zorraquin: Human capital. We took over the company in August ’97. Argentina was, for the first time in 60 years, having access to the U.S. market for fresh beef. We set up a company in the U.S., and we started to export beef.

Three years after that, the company filed for bankruptcy because, in November 2000, Argentina had a foot-and-mouth crisis. In one day, we lost all the fresh beef markets in the world. Basically, the running of the company shrunk 70% in one day.

Kaizen: Wow.

Zorraquin: We filed for bankruptcy protection in the end of 2000, and we had started to accumulate losses, and losses, and losses. To make a long story short, at the beginning of 2002, my dad could not handle the situation anymore. He didn’t want to continue, so he passed the shares on to me. I remained the controlling shareholder in the middle of the chapter 11, the negotiation with the creditors, and shutting down factories. It was a very complicated time for me personally. In the middle of 2003 we came out of the bankruptcy, and in one year or two we sold the company for $1. In five years we lost all the investments in this company.

Kaizen: That’s terrible.

Zorraquin: We lost, let’s say, $150-200 million in five years.

Kaizen: Amazing.

Zorraquin: Our money was lost, and all the shareholders lost money. But, surviving the process was very complicated, because it coincided with the largest economic crisis of Argentina in 2001. In 2002, the GDP of Argentina dropped 15%.

Kaizen: Just terrible.

Zorraquin: A terrible time.

Kaizen: Were the borders still largely open?

Zorraquin: No. The border was open, but there was a big movement to fight market economics. They said the experiment of the 90s doesn’t work, and we had to close the economy again. We had been able to kill inflation in the 90s, and we were back again. We had 60% inflation in 2002.

Kaizen: There had been the hyperinflation of the late 80s, and it’s back again.

Zorraquin: We had killed inflation; we had almost zero inflation between ’93 and ’99. Menem had the constitution changed, and he was reelected. He did all the things that you would have to do to free ride the political system. In 2003, I was able to sell the company for $1.

Kaizen: This is just the meatpacking?

Zorraquin: Well, meatpacking was, at the beginning of 2000, 80% of the assets. We took the asset out of the balance sheet, and we kept the appliance business. With the farming business that was part of the group, we were able to sell them, and they were kept in the family estate. We sat on one farm because, in late 2000 when this crisis contributed money to the company, my father was buying assets at fair market value. That was one way of bringing money into the company, and keeping some value.

That was never challenged, because it wasn’t very well. There were some open bids, and it was very cleverly put together. The farms remained in the family estate. I was left alone running what was left of the company—the bankruptcy process. By 2004, I would say I was drained. The appliance company was doing okay, but all of these processes had done quite a lot of damage to my psyche.

Kaizen: I’m sure.

Zorraquin: I decided that for two years I was going to slow down my work, and that’s what I did.

Kaizen: You took a recovery period.

Zorraquin: I went into History, did a History guide degree at the University of La Plata. Then I went into Theology and started at the Catholic University of Buenos Aires. The appliance business was run by a CEO all that time. I was involved in the meatpacking business, and it was very well run. I didn’t have to worry much. I remained the chairman of the board of the holding company until 2006.

What was left from the crisis was a legal suit from some shareholders. It was a suit I was able to win, but it took me 10 years to win. They accused me of wrongdoing and of taking money out of the company. I proved that this was not true. They were taking of a blackmail type of approach. Basically what they wanted was for me to personally buy their shares because they had lost money in it. I was out of this crisis by 2008 or 2009, but in 2006 I decided to leave the board of the holding company. I think it was a very clever move because I was being attacked by shareholders just for being the chairman of the board. I said it doesn’t make sense, so I voted on a professional chairman that took over from there on.

Kaizen: Distancing?

Zorraquin: Yes. From there the shareholders started to come to the shareholder meetings, and they started to be more polite and say, let’s think about the future. It was something personal with me.

Kaizen: That takes the personal issue out of it.

Zorraquin: Yes.

Kaizen: Looking back for a moment, the crisis of the late 1980s was largely hyperinflation. The one in early 2000 sounds like it’s a combination of natural disaster, the foot-and-mouth disease with the hyperinflation, and a political environment as well.

Zorraquin: Yes. The microeconomic collapse of the late 2000, and political. Now, Fernando de la Rúa was elected president in ’98. He only lasted two years, because the Peronist party ousted him. They made his life miserable, and he had to resign. From there on, we had five presidents in one week. First came the Vice President, and then came the President of the Senate. He resigned, and then became the President. Then came the President of the Supreme Court, and finally …

Kaizen: You have political chaos.

Zorraquin: Chaos.

Kaizen: It just becomes impossible.

Zorraquin: Impossible.

Kaizen: I believe in the U.S. there was a collapse of the NASDAQ market in 2001, so there’s turmoil at the international level as well.

Zorraquin: Yes, but Argentina was so disconnected with the national turmoil. We had so many issues at hand here.

Kaizen: What are the lessons to take away from going through that? Is there a medical lesson for the veterinarians about foot-and-mouth disease? How do you insulate yourself from the political pressures, indexing your monies to the hyperinflation problems? What would you say are the major business lessons from going through that?

Zorraquin: There are probably things I would not do again if I had to go back. I was too much involved directly with the banks and the negotiations, and the banks wanted to go after me. They wanted to secure some of their loans with personal guarantees, and a lot of them I did. This probably cannot be written, because in Argentina it would be against the law to do that, particularly in the position I was in.

But, I had no choice. If I had not done it, the company would have probably gone bankrupt and liquidated. It would have sucked the rest of the assets on the appliance business. But it was risky, so I would not do that. The other thing that I learned is that I could attract and hire someone to run the business through crisis with me who was the perfect person for a policy situation.

Kaizen: Who was that?

Zorraquin: He had previously been a manager of a bank. He was a risk taker. We had to make a lot of risky decisions while surfing through bankruptcy. We had lost most of the capital and needed to make decisions of partnering with this and that one to bring cattle into factories and to be able to put the machine to work again.

Kaizen: Can you say his name, or is that a private thing?

Zorraquin: That’s a private thing.

Kaizen: Fair enough.

Zorraquin: That was very important for me, and it helped me also to stay a little away from the front of that in some instances, not with the banks but probably with the farming sector that were the suppliers of cattle to these factories. It was just very traumatic.

Kaizen: That crisis comes to an end, and you take some years off and study some history and theology. At what point did you reenter business?

Zorraquin: I never left completely.

Kaizen: You were chairman of the board you said?

Zorraquin: I was chairman of the board, but I didn’t have a good time when I came to the office. I didn’t feel at ease, and I was a very frustrated with the process, so I wanted to stay away. I knew that the appliance business was being run well, and so I took a lot of time off and spent a lot of time on the farm. For the first time in many years, I spent time at home because I had been out of home for such a long time with my kids that were young. I regained a lot of quality of life, you could say, that I had lost through the crisis. I had always been very active in sports. In the middle of the worst part of the crisis, I was probably running 35-40 miles a week, and I felt like I could sleep for hours. I was lucky not to have a heart attack.

Kaizen: You’re in your middle 40s at this point?

Zorraquin: I was in my middle 40s, and I started to have more of a passive life, studying and reading. I didn’t need to go out and run like a kid anymore. I started to enjoy other aspects of life—going to the farms, going to pick the kids up from school, going to my theology class, and reading. I would take my finals, and when I would come home from a final exam and open the door of my house, all the kids were waiting to ask, “How did you do dad?”

Kaizen: Nice.

Zorraquin: It was a very nice time, and my self-esteem was a little shit through all of this process. But, over time I started to regain some confidence, and I started to come to the office almost every day. I started to enjoy what the company was doing and started to work with the CEO, who is still the CEO of the company, more closely.

Kaizen: Your zest for business is returning as well.

Zorraquin: Regaining more with time. I became with ESEADE University, and I joined the board of the ski club. Then I became part of the nature conservancy. But I almost left all business-type environments. I was out of the business conferences, the business groups, and the chambers. I wanted to stay out of that for a while.

Kaizen: How would you characterize the structure of the business now? What are your major operations? You’re chairman of the board, you said?

Zorraquin: I’m chairman of the board of Rheem.

Kaizen: Of Rheem.

Zorraquin: Right, not of the holding company. Rheem is an operating company that has two factories. It’s the number one manufacturer of water heaters in the region, in the southern corner of South America. Rheem U.S. is a minority partner of this company since 1947, for 70 years.

My primary job is looking more into the future and working broad development. I have a relationship with the partners in the U.S. That’s what it is best for the business, and that’s the way I feel more at ease now with what I do.

Kaizen: During your standard workweek, what range of activities do you engage in? Reading, meetings, and so forth?

Zorraquin: Yes, and I also spend some time with my personal finances. I manage the finances of a farm I have in Uruguay, for example. I typically come to the office every day. I enjoy being in my office. I read, and I write. I took a trip to New Zealand and Australia to look at the solar business that Rheem has in Australia, which is probably one of the best solar businesses in the world for water heating. We are trying to put together a business plan to make an investment in solar business. I am probably in the office if I am in Buenos Aires for the day.

Kaizen: You mentioned you work with ESEADE University, and the ski organization, and the nature conservancy. Can you say a more about ESEADE University—what is your interest in working with that university?

Zorraquin: My primary interest is to keep alive the think tank to spread ideas. That is my primary interest.

Kaizen: You’re characterizing ESEADE as a think tank?

Zorraquin: Well, it started as a tiny think tank, but it became, over time, a traditionally run university. Small, but it is a university that is involved in different careers, and not necessarily with the purpose of teaching economics. But, I still believe that’s part of the essence of ESEADE, and they should have a flag. One of my ideas is that they should have a flagship graduate program that teaches politics and economics, to make people understand what is a free society and what is a free market.

Argentina needs that more than ever. It’s very relevant for the changes that Argentina needs. There’s a lot discussion about whether this has to be the size of the state, if we need to have a very regulatory, what should be the level of protection of industries. What is the economic model that will bring more jobs and opportunity for people? Discussions are everywhere in the world. The U.S. is the same.

Kaizen: Absolutely.

Zorraquin: That’s on one hand. On the other hand, it’s an institution that has to make money to survive, so how do we improve the operation and bring more students so we can have a financially stable institution that will allow us to dedicate some resources to spreading ideas?

Kaizen: The think tank element of it as well. The nature conservancy, how long have you been involved with that?

Zorraquin: I’ve been involved for four years. Nature conservancy started in Argentina eight years ago with a group of U.S. citizens interested in protecting the grasslands of Patagonia. There are few places in the world where you have such a big extension of grasslands. Mongolia is one; Patagonia is another. That was the reason why they wanted to come here, and these eight or nine American citizens were all involved in Argentina in some capacity. Either they have a ranch in Patagonia or they came to fish in Patagonia. I have always been very active fishing in Patagonia. My family has a property in Patagonia. Just by coincidence I got to know the Nature Conservancy, and I got involved.

For the last two years, I have been the chairman of the board of the Argentine chapter in which we still have 12 members of the board. Four are Argentines, and eight are Americans. The program has grown from the grasslands to other areas of Argentina where we are actively working. Shell oil and gas is one. We’re helping to protect the biodiversity in places where you dig or rig. The riggers of Patagonia is another one. Sustainable culture in the north is another one. Those are areas where we are working.

Kaizen: Looking back on your career in business, you have said a lot of things go into being successful in business—a willingness to work hard, to learn the business and the all the business’ aspects as you rise up in the ranks, strategic thinking abilities, and leadership abilities. Particularly with the ups and downs, you mentioned a lot of psychological issues—being able to deal with really extraordinarily difficult things. Are there things you would single out as most important for young people to work on that maybe they wouldn’t be thinking about when they’re 20-25?

Zorraquin: One thing that helped me out through the process of growing a big company through a crisis was separating, in my mind, the property or the ownership from the company. Let me try to explain. I knew that the net worth was at risk, but I could not take the decisions based on that consideration because I had to think more about the survival of the company whether the shareholders would recover part of the assets or not. If I had always thought about how to recover the assets, I would have missed the business opportunity or the business aspect of the transaction. To put it in a more crude way, I knew that I could lose everything, and I was ready for it.

Kaizen: Would you characterize that as a mental toughness, a clarity of priorities, or courage in the face of risky decisions?

Zorraquin: Maybe it was prioritizing. I had no fallback position, basically. Because, if everything went wrong, then all that I have at stake there would be lost. I knew that could happen, so it’s a matter of trusting that things will develop in some way. You have to be patient, you need to know that the process is long, and you have to rush into taking decisions.

You have to be able to do something between what your lawyer suggests and what your management team suggests. Sometimes you cannot go only through your legal advice in a bankruptcy; you have to keep your business advice as well. You have to move from one chair to the other one. This is legally risky, but this is something that’s worth doing because you have some business advantages. Don’t go against the law but know that there is a fine line.

Kaizen: Exercising judgment.

Zorraquin: Right.

Kaizen: With competing values, so to speak.

Zorraquin: I would say also, now that you mention judgment, it’s relying in my judgment. Many times my wife has said, “You don’t rely on other people’s judgment, and you have to be able to get more advice.” That’s a very good point. But, on the other hand, I thought a lot and I studied a lot about the situation. In the end, I relied on my judgment.

Kaizen: That’s what a leader has to do, right?

Zorraquin: Yes.

Kaizen: I want to raise some questions about Argentina. It sounds like a lot of the business troubles and successes you’ve had are tied to what’s going on in Argentine culture, the political culture, and so forth. How would you characterize Argentina, in the international perspective, in terms of its core entrepreneurial culture? Healthy? Struggling? What would you say?

Zorraquin: I think the Argentines are very entrepreneurial, but they are trapped in a very short-term horizon because the microeconomic system of Argentina has been very unstable.

Kaizen: Argentina has great human capital, right?

Zorraquin: Yes.

Kaizen: There are lots of natural resources, but it does under perform?

Zorraquin: It under performs because there is always a very short-term horizon.

Kaizen: That’s driven by macroeconomic instability?

Zorraquin: Economic and political. But, if there is little stability, immediately what an entrepreneur knows that she or he can have a longer-term horizon elsewhere if the business can be established outside of Argentina. The idea is born here, but they immediately flourish elsewhere.

Kaizen: Outside of Argentina?

Zorraquin: Yes, immediately.

Kaizen: This ties to my next question about brain drain issues. There’s, anecdotally, so many really smart Argentines that come to the United States or Canada or wherever for University. A lot of them don’t go back to Argentina. Is that a challenge, or a problem?

Zorraquin: No, I don’t think that brain drainage is a really big problem. You could find that scientists have left for decades, but they left because there was no money put into science and research, and they wanted to be physicists, for example.

Kaizen: Physicists?

Zorraquin: If you wanted to be a physicist you had to go somewhere else, because if you stayed here you would probably starve. That’s a brain drain, but professionals have gone in and out and have come back over time.

Kaizen: Because there are opportunities.

Zorraquin: But, what is true is that a lot of Argentines that leave for some time or forever do very well because they can adapt very rapidly to different environments.

Kaizen:  Maybe the macroeconomic uncertainty trains a mindset that enables them to be adaptable wherever.

Zorraquin: Yes, to the point that they find some environments to be too slow and not very challenging because things typically work well.

Kaizen: That’s something from the entrepreneurial side of the mission. On the ethics side, Argentina also has a reputation for a high level of corruption politically. How are those challenges for doing business?

Zorraquin: That creates a very big challenge for business. You can run a company without becoming involved in any corruption, small or big, zero. You can do it, provided that you have a certain position. At Rheem we conduct business 100% transparent, and we have very good standards, but it’s probably the best brand in the market. The result is we can conduct business because we have such a grand reputation, a reputation that has been made up after many decades of consistent business philosophy.

Having said that, if you want to start a business from scratch, you will be confronted from the very beginning with a lot of ways to bypass or shorten your way through the system, and you will be confronted with corruption. I would say this is becoming less and less, thank God, because the culture is changing. People understand that corruption only benefits the corruptee and the corrupt, but it has a detrimental effect in society, very detrimental. That is coming to light and is being discussed.

But, for example, I have a friend that started a business and wanted to build a particular sophisticated device in Argentina. This was three or four years ago, and he could not import stainless steel screws that were particular for that application. He had some friend that brought the stainless steel screws in the bucket, but as the business grew…

Kaizen: It’s not sustainable.

Zorraquin: It’s not sustainable. He wasn’t going to drive; gas wasn’t efficient. He went to Uruguay and set up the factory in Uruguay. Now, he can do it here because things are changing. You can remain non corrupt, but your road will be harder.

Kaizen: Yes, good. That’s encouraging. Especially, if you say the culture is changing, and more ordinary Argentinians are aware of the corruption issues and resisting, then that’s promising.

Zorraquin: But, I have read some polls in the past that say 40% of Argentines believe that breaking the law is not so bad. That’s how high it is in the mind of people. If the law doesn’t adjust to their way of doing things, their behavior, and their idiosyncrasies, they think it’s okay to break it. That’s important, very important. How do you change that over time? Through education and leadership.

Kaizen: But, also not having corrupt laws.

Zorraquin: Yes.

Kaizen: That force people into awkward situations.

Zorraquin: Laws that are so detrimental for the functioning of society, and there’s no way to bypass the law.

Kaizen: A couple more questions, just to wrap up. You’re in your 50s now?

Zorraquin: 57.

Kaizen: You’re financially successful, but you come into the office pretty much every day, as you said.

Zorraquin: Yes.

Kaizen: You could, if you want to, just retire, read, do family time, and so forth. What, in addition to financial issues, motivates you to come to the office every day?

Zorraquin: I think that I have to close the circle. I have now, one project that will take three to four years to materialize, and I think it’s going to be a milestone for my professional career. I’m very motivated for that project.

Kaizen: Looking back to your 20-year-old self when you were preparing yourself for your career, what advice would you give to other young people who are in their early 20s? What do you need to know to get the most out of yourself?

Zorraquin: I think that the advice would be to try to experience with as much as you can with the things that you feel you like most. Out of the box thinking. One thing I regret is I was so focused on structure in the things I had to do. Looking backwards I think, what if I had considered this and that? What if I had traveled abroad after high school and spent a year? I think all of those things enrich your life, and if you can do that at an earlier stage, it’s a lot of human capital that you can then deploy over time.

Kaizen: Alright.

Zorraquin: My recommendation would be to try to come out of high school with a very open mind, and utilize trial and error. Try this, and if it doesn’t work let’s go to the other one.

Kaizen: Be aware of the structure that you need to follow, but look for ways to get outside that structure and experience as much as you can.

Zorraquin: Yes.

Kaizen: Be flexible and open, especially when you’re young.

Zorraquin: I think traveling is a phenomenal. Today, it’s so easy to travel. My children have traveled since they were very young, but today I have two who live outside of Argentina, and my daughter is getting married in three months. She has decided that she will go to Australia for two or three years.

Kaizen: Wonderful.

Zorraquin: Melbourne to work and study. Because, they have been so much immersed in this world culture, no? Travel, and see, and learn, and language. They are very open. That, not only enriches their lives, but I think it increases their potential for success, no matter where they live.

This interview was conducted for Kaizen by Stephen Hicks.

More Kaizen interviews with leading entrepreneurs are here at our site.