The CEE Web Log

Interview with Laura Niklason on Entrepreneurial Biotechnology

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

Laura Niklason on Entrepreneurial Biotechnology

Dr. Laura Niklason is the Nicholas M. Greene Professor at Yale University in Anesthesia and Biomedical Engineering. She co-founded Humacyte, a company which grows tissue replacements that could provide lifesaving improvements in treatments for vascular conditions.

Kaizen: Here we are here in Chicago. You were born and raised in Chicago?

Niklason: I was born actually in Evanston. I grew up in the south suburbs of Chicago. I went to college when I was sixteen at the University of Illinois and then I went to graduate school and medical school at the University of Chicago. I’m originally an Illinois girl, for sure.

Kaizen: Before you went to university, how would you characterize your schooling or your education?

Niklason: By and large, I went to public school. I had a couple of years stint at a private school during seventh and eighth grade, but, by and large, it was public school education. I would say it was a fairly good educational experience, with some exceptions, but I generally had enough challenges and enough opportunities to learn the things I wanted to learn. I did finish high school early, after three years because I had run out of stuff to take.

Kaizen: Were you strongly academically-oriented then?

Niklason: Well, there were some times early in high school where I had bad behavior, but we’re glossing over that period of time.

Kaizen: Despite the bad behavior, you learned what you needed to do to get your degree done.

Niklason: Yes.

Kaizen: Where do you think your academic motivation and focus came from?

Niklason: I think the expectation came from both of my parents. I think the assumption and the expectation was that all of their children, me included, would become very good at something. From the time I was very young, I had really good aptitude for quantitative things and scientific things. Those things were exciting and interesting to me and came easily.

Kaizen: Would you say it was broad-ranging into sciences or some sciences more than others?

Niklason: I would say fairly broad-ranging. Throughout life, I’ve come to be fairly good at biology and physics and math. I’m not as good a chemist, but I can cross across several disciplines, and that’s actually been really helpful and it’s actually been instructive and it’s provided direction actually in the ultimate research areas that I’ve chosen, because I’ve chosen a research area in adulthood that actually relies upon being able to draw inferences from multiple different disciplines.

I decided in college I was probably a jack-of-all-trades and a master of none. I could do any kind of science pretty well. I sought an area where I could put all that together.

Kaizen: It was back in secondary school when you were focusing on a career area?

Niklason: I always assumed I was going to go to medical school. I always assumed I was going to be a physician, and I always assumed I was going to be a research physician. I didn’t know what kind of physician or research physician I would be, but I always had a sense that I wanted to have impact and change the way the world worked. I felt that from a fairly young age.

Kaizen: You mentioned University of Illinois in Champaign-Urbana. How did you choose that for your university?

Niklason: I only applied to two schools. I applied to the University of Illinois and University of Chicago. Didn’t get into the University of Chicago, probably in part because of my bad behavior. University of Illinois was a great school and it didn’t cost very much, and so that’s where I went.

Kaizen: Then at the University of Illinois, what did you focus on there?

Niklason: I started off majoring in chemistry. I did that primarily because both of my parents were chemists, and I assumed I would be good at chemistry. I discovered midway through my freshman year that I actually wasn’t terribly good at chemistry, but I discovered, much to my surprise, that I was very good at physics, and I honestly did not know I was good at physics in high school. I’d taken physics, I didn’t feel like I was particularly good at it, but I think something about my brain changed.

All of the neuroscience that people talk about as far as your brain changing in its abilities during teenage years and even during age 20 to 25, I think that’s all actually true. I think that I was intellectually capable of understanding things at age seventeen and eighteen that I simply could not understand at age fifteen and sixteen. It wasn’t just a maturity thing; it was an increase in aptitude.

Kaizen: Because the brain continues to grow and develop too.

Niklason: Right.

Kaizen: Then your interests are shifting more towards physics in university time. Either of interest or as part of university requirements did you take courses in humanities and social sciences and arts and so on?

Niklason: I took several courses in philosophy. I actually tried to do a minor in philosophy, but I couldn’t quite pull all the course work together. I enjoyed philosophy very much. I took one or two literature classes. Those were mostly English requirements. I did not take really many courses in the arts or the social sciences very much. It was mostly philosophy, literature, and then the sciences.

Kaizen: At the graduate level, I know you got a Ph.D. at the University of Chicago and then a medical degree at Michigan. In what order did you do those?

Niklason: Well, I was in a combined M.D.-Ph.D. program at the University of Chicago. The way that works is you do two years of medical school and then you step away from the medical school curriculum and you become a graduate student, and you finish your Ph.D. and then you return for the last two years of medical school. I did the first two parts of that, I finished my Ph.D., but then I met a man who later became my husband while I was in graduate school, and he was at Michigan. I then transferred to Michigan after I got my Ph.D. and completed medical school at Michigan. My transcript reads a little funny in terms of time, but it was because of that move in the middle.

Kaizen: Your Ph.D. work—what did it focus on?

Niklason: My Ph.D. work was in biophysics in a very quantitative area. I was interested in developing new methods of X-ray imaging at the time to try to understand the physical dimensions and the degree of disease that’s present in blood vessels, for example, in arteries that supply your brain or supply your heart. I was interested in developing imaging methods and quantitative analysis to tell the physician how sick these blood vessels were.

Kaizen: That was the focus of your Ph.D. work at …

Niklason: Chicago.

Kaizen: Chicago, okay. Then when you transferred to Michigan, you had two more years of medical school there. Is this still general training or does one start to specialize at that point?

Niklason: I didn’t specialize then. This is just general medical training. When I finished my medical training at Michigan, I realized that I was very interested in work that involved taking care of the very ill, very ill patients either in the intensive care unit or in the operating room. I developed a passion for that specialty during medical school.

Kaizen: Could you say what made that so attractive to you and interesting?

Niklason: Very ill patients are always very complicated. They’ve always got a lot going on. There’s no two that are identical. Understanding how to take care of a very sick patient often involves bringing together a lot of information from a lot of different quarters and synthesizing it and then making a plan. That differs from the mental processes that underlie much of the rest of medicine.

For example, I can’t remember if I said this to you before … If I’m repeating myself, please stop me … but for much of medicine, you might walk into the doctor’s office and you have a single symptom. “My symptom is diarrhea or whatever.” The good internist will then automatically generate a list in his head of the top twenty things that might be your problem. Then he will go down and check off that list one by one.

My brain was never very good at that. I could never begin with a single fact and generate a list. What my brain was very good at was taking a bunch of information, some of which was coherent and some of which was conflicting, and synthesizing that and coming up with one or two or three possibilities and directions to go. That’s what I see medicine is. It’s assembling a lot of information in real time and making choices.

Kaizen: That’s a challenge, right?

Niklason: That’s a challenge, and every patient’s different.

Kaizen: Especially with the people who are very sick, as you were saying.

Niklason: Yes, because things change sometimes very rapidly in real time, and you have to respond in real time. Taking information and then modify your plans as necessary.

Kaizen: What year was it when you finished med school at Michigan then?

Niklason: I finished medical school in Michigan in ’91.

Kaizen: You became a professor at Yale in 2006?

Niklason: I went there as an associate professor in 2006 and was promoted to full professor, I don’t know, three years later or something.

Kaizen: Okay, 2009. Between 1991 and 2006, what did you do in those fifteen years?

Niklason: I finished training, my clinical training, at Michigan and then Mass General. I did a year of internship at Michigan in medicine until ’92 then I did residency and fellowship in anesthesia and intensive care unit medicine at Mass General. I finished that up in ’96.

Kaizen: Again, that’s in Boston.

Niklason: In Boston. During that time, I also became interested in my current research area, which is regenerative medicine and using cells to create functional tissues that might be used to help patients. I started that research interest around ’95, and that overlapped with my clinical training. I worked in that area as a post-doc trainee at MIT until ’98. Then in ’98, I went to Duke University, and I was there until ’05.

Kaizen: Your time in Mass General is more practicing internship and then the time at MIT is more research-oriented?

Niklason: Yes.

Kaizen: Then you went to Duke University in North Carolina for a number of years. What was your position there?

Niklason: I was jointly appointed between the department of anesthesia and the department of biomedical engineering at Duke. I was a tenure-track assistant professor there and was promoted to associate professor with tenure after five or six years. I spent about 30% of my time working in the intensive care unit, taking care of the very ill, and then about two-thirds of my time running a research laboratory in biomedical engineering and teaching courses.

Kaizen: Running a lab side is an expensive operation. How does the funding go? Are you responsible for raising the funding, or is it a joint thing with the university or the department?

Niklason: In general, for most tenure-track professors at research institutions, there’s what’s called a startup package where they might provide you with a certain amount of money in order for you to get your operation running. My startup package was comparatively small, only because I wasn’t smart enough to ask for one that was suitably sized.

Kaizen: A learning experience.

Niklason: It was a learning experience, yes. I started with $50,000 a year for three years, which is actually, by today’s standards, obscenely small. Thereafter, any tenure-track faculty person in the sciences is responsible for getting grant money to support their own salary and also to support the salaries of the people who work for them and their research reagents.

I spent the first three years as an assistant professor working really diligently, desperately to try to get research funding. I probably wrote ten research grants a year without exaggeration for the first three years. I was writing grants, at the time, this very novel area of tissue engineering, this was in the late 1990s, and everybody pretty much thought it was just silly work and couldn’t be taken seriously. I had a very hard time getting funded. I came very, very close to bowing out of academia entirely after about three to three and a half years because I was simply not successful in getting funding.

Kaizen: What kind of organizations are you seeking funding from?

Niklason: Many. National Institute of Health—which is a federal agency, National Science Foundation—another federal agency, private foundations, American Heart Foundation, various anesthesia research societies, societies of aging research. These are private foundations. I managed to get small grants from private foundations that kept me alive, kept me on a minimum oxygen level for a number of years, but typically the large grants that can sustain a laboratory operation for a number of years are provided by federal agencies. It took me three and a half years to really land one or two of those and really have solid financial support.

Kaizen: Right. There’s like an entrepreneurial bootstrapping right here where you’re young and you have a lot of ideas and you’re hopefully working in a new area, but because you’re young you don’t have the track record yet of publications or the big name. If you’re working in a new area it seems speculative. What is the thing that, so to speak, enables you to leverage your way up?

Niklason: There’s a couple of things. I think your perception is exactly right. I think all young people who are trying to fund their research organizations, they’re all viewed as inherently risky because they are, and I was working in a risky area.

For me, in order to finally get some traction, it was dependent on a few things. One, and probably most importantly, was learning to partner with more senior people who were working not in my area, because nobody was working in my area, but who were working in related areas. By teaming up with them, I looked like I was a better bet, that I was a little bit less risky because I was viewed as having somebody more senior upon whom I could rely. In reality, I didn’t rely on these more senior people very much, but it certainly helped with the appearance of the thing.

Kaizen: It’s a seal of approval.

Niklason: Yes. In addition, I finally learned that what I wanted to work on was not necessarily what these research entities wanted to fund. I had to modify my research plans somewhat to be more palatable to my audience. I had to learn to be less of a Don Quixote jousting at the windmills, trying to get exactly what I wanted to do, and instead bend a little bit and understand what the funding agencies thought would be reasonable to support.

Kaizen: Then at about the three-and-a-half-year point you mentioned that’s when you got a big grant.

Niklason: Yes, I got two big grants.

Kaizen: Two big grants. What does big mean in this context?

Niklason: Big means roughly $250,000 a year in direct costs to my laboratory for four or five years. In addition to that, all universities charge what’s called overhead. For example, Duke charged 65% overhead. If I would get $250,000 in a year, Duke would get 65% of that in addition. That would just go to funding the building and the electricity and administration and whatever.

Kaizen: How much administration support would they be giving you?

Niklason: Almost none.

Kaizen: You still had to do all your own books and…

Niklason: Oh, absolutely.

Kaizen: The overhead really is a very high tax.

Niklason: Well, it’s a high tax, but it pays for the laboratories. If the roof-

Kaizen: Oh, all of the fixed capital, they’re providing that? I see.

Niklason: Yes, but the equipment I have to purchase. But, for example, there are facilities with microscopes in them that costs a million dollars. I can go over to that facility and I can use that microscope for $100 an hour. That support is distributed within the institution, but there’s not a lot of direct support that comes to me via that.

Kaizen: Out of that, you’re paying your salary and any research assistance that you hire and then…

Niklason: Pipettes and chemicals.

Kaizen: All of the those things…

Niklason: All those things.

Kaizen: All right, on 45% of the money that you bring in.

Niklason:  I would bring in $250,000.

Kaizen: Or 35%, sorry. 35%.

Niklason: I would bring in $250,000. That’s what I would write the grant for, and NIH would write a check to me for $250,000. They would then also write a check to the university for $170,000.

Kaizen: The overhead will be on top of that?

Niklason: Yes.

Kaizen: Okay, good. I was going to say you’re getting down below $100,000, and that’s…

Niklason: It doesn’t sound like very much money.

Kaizen: Yes. You have $250,000. You can live on that and get some stuff done.

Niklason: Right.

Kaizen: Then you’re in a position to publish as the research is coming out and going to conferences and build up your name and get some traction that way. Moving to Yale in 2006, you were working on the blood vessels at this point.

Niklason: I’ve been working on engineered blood vessels. When I went to Yale, I’ve been working on engineer blood vessels for a decade, or eleven or twelve years.

Kaizen: How did the idea of that particular engineering blood vessels come to you and what were your main steps, or what hurdles did you have to overcome and new knowledge that you need to acquire?

Niklason: That’s a very, very big question, and I could answer that for a very long time, but I won’t burden you with that.

Kaizen: But the two-minute version?

Niklason: The two-minute version. The two-minute version of where I got the idea was that, well, first of all, I’d been interested in blood vessels and their diseases since my graduate work. My graduate work had been in that area. I had a particular case when I was training in anesthesia where I was taking care of a heart bypass patient who needed a new artery for his heart. Typically, surgeons take a vein out of the leg to do that operation. They take a vein from the patient’s leg and they sew it onto the heart.

In this patient’s case, they opened up both of his legs and looked at his veins and they decided that they didn’t like them, so they sewed up both legs. They then opened up his arm, his whole forearm, looking at his radial artery, because they wanted to take one of the radial arteries, one of the arteries out of his arms and sew it into his heart. They decided that that would lead to complications, and so they sewed his arm back up and didn’t use it.

They then made a third incision and they cut into his abdomen. They peeled an artery off the surface of his stomach and swung it up into his chest to serve as a bypass artery for his heart. This all took many hours and looked really barbaric. In watching all of that, I thought there’s got to be a better way.

This was in the mid-’90s, but even at that time, twenty years ago, we really understood a lot, scientifically, about the cues that go into healing of an artery, growing new arteries, arteries as they develop in the embryo. My decision then was to try to leverage what we knew at the time about how arteries grow, try to bring those lessons into the laboratory and apply them so that we could grow new blood vessels essentially from scratch.

As time went along, I had to leverage other insights about certain biochemicals that we needed to apply that really weren’t appreciated at the time. Our work really clarified the importance of mechanical input. We learned that if we stretch these arteries while they’re growing in a way that mimics the heartbeat, that had a profound impact on how they developed. That wasn’t really very well understood before we did that. There were things that we learned about the basic under workings of how new blood vessels grow and assemble themselves. We had to learn those things along the way so that we could pull that trick off in the lab.

Kaizen: Are there synthetic competitors or alternatives here? I was thinking about some sort of engineered plastic tubes, for example.

Niklason: Sure. There are several types of engineered plastic tubes. There are plastic tubes made out of Teflon, plastic tubes made out of Dacron, and even some tubes made out of materials called polyurethanes. Primarily, Teflon and Dacron tubes are what are used now clinically when a patient needs a new blood vessel, but they don’t have a vein of their own, for example, to use as a replacement.

One of the big drawbacks with all of these forms of plastic is that when you sew a piece of plastic into the body, your body’s immediately aware that it’s not your own tissue. The body reacts by forming scar tissue around the implant, creating a lot of inflammation. Oftentimes, these synthetic blood vessels will clot because blood is running through them, but it’s running through a piece of plastic rather than your own blood vessel. That stimulates clot formation. The failure rates of these plastic tubes are actually quite high.

Kaizen: Was that an additional motivation for you?

Niklason: Yes, that was absolutely a motivation.

Kaizen: From that conception in the middle ’90s, at what point would you say you’ve solved enough of the science and the lab processes to be able to develop blood vessels realistically for medical application?

Niklason: Well, that’s also an interesting question because I believed I could do it after ten years of work.

Kaizen: This was around 2005?

Niklason: Around 2005. Indeed, that’s when I spun out my biotech company, Humacyte, in 2005. It turns out we couldn’t really pull it off for another four or five years after that because I think, as a scientist, you have to be very optimistic about your ability to solve problems and venture into new research areas that have never been done before.

I think I took that inherently optimistic mindset with me when we started up the company. I think that’s necessary. I think if you’re pessimistic you’ll never start a company in the first place. But I optimistically thought that getting the technology to a point, we were very much in a pilot-scale phase after ten years, and I thought that it would take us really only three years to get the technology to a point where it would be ready for first-in-man trials. In fact, we were eight years away.

Kaizen: Oh, okay.

Niklason: I can remember telling people when I started the company in 2005 that I would be able to mostly pull away at around 2008 or 2009, because, frankly, most of the problems would be solved by that time, and it would just be blocking and tackling. I can tell you for sure that twelve years later, most of the problems are still not solved, and it’s not blocking and tackling even yet.

Kaizen: All right. At this stage, 2005 or so, how many people are working in your lab?

Niklason: At my lab at Duke at that time, I had probably twelve or fourteen people. I took three of these people out of my lab when I started the company, and they moved over because they were wanting to. They were excited about it. I took two Ph.D.s and one technician out of my lab and moved them to this little tiny startup space, in a tiny incubator about twenty-minute drive from the university.

These folks started up. I begged some money from my parents and one of my first employees begged some money from her parents. We hung up the shingle. They walked into this room, and there were no pencils. I mean there was nothing.

Kaizen: That was your startup capital?

Niklason: Yes.

Kaizen: A lot of sweat equity, so to speak, a little bit of startup capital.

Niklason: Yes.

Kaizen: Was it the same thing then with Humacyte starting to seek venture capital?

Niklason: Yes. Humacyte has sought venture capital at several different points during its development, but we actually have never taken venture capital officially per se. As it turns out, Humacyte was funded by a combination of angel investors, friends and family, and various grants both from the National Institutes of Health, but also from the Defense Department, because the Defense Department is interested in our technology. It was cobbling together angel investors, friends and family, and grants for, frankly, the first nine or ten years of the company’s existence.

Kaizen: That would take you through about ’13 or ’14 or ’15?

Niklason: Yes, about 2015. We had our first really substantive external raise of capital in 2015, after the company had been in existence for ten years.

Kaizen: Wow! That’s still research and solving all the blocking and tackling and other science issues that crop up.

Niklason: Well, yes. The way Humacyte was developed is we basically spent the first two or three years developing robust methods to culture human arteries from human cells in the laboratory. The additional twist that we added was that after we cultured the arteries from human cells, we developed a way to treat the tissues and essentially wash the cells out of the tissue that we had grown in the lab. The reason we did that is because by removing the cells, we made the tissue non-immunogenic, which means that we could take the tissue and implant it into person A, B, C, or D.

Kaizen: It’d be a more generic tissue.

Niklason: Yes. It was a generic, universal donor tissue, and we expected that patients would not reject this tissue. It became a tissue that we could generate in the lab and then we could ship anywhere, and it could be implanted into any patient at any time without fear of rejection. That really became our product. We spent three or four years developing that.

Kaizen: At the same you were starting the company, you were making a transition from Duke to Yale University. How did that come about?

Niklason: That was by accident. I spun out the company in January of 2005. A few months later, I was asked to go up to Yale to give a seminar. Professors are asked to give seminars at different universities all the time. I went up to give a seminar and was really struck by the quality of the intellectual environment and the clinical environment. By late 2005, I had signed a contract to move from Duke to Yale. I got wooed away very shortly after I started the company. Note to self: do not start a company and then immediately move away, all you future entrepreneurs. That is not a life lesson that I would repeat.

Kaizen: Well, how portable is your company? It’s based in North Carolina, but you have people working there with families and so forth.

Niklason: About a year or two after I went to Yale, we looked very seriously at moving the company to New Haven, Connecticut. We went so far as to sign a lease on some new space in New Haven.

At that time, the company was only five, six, seven people, and the key people would have moved. The problem was their spouses because their spouses couldn’t find jobs in the New Haven area. I would have lost a high fraction of my key people in my then tiny company, so I decided not to do that. We backed away from that. That means that for the last twelve years now, I’ve been flying from New York to Raleigh almost once a week.

Kaizen: That’s quite a commute.

Niklason: Yes.

Kaizen: What is the business work when you are a faculty at Yale, but you’re also running a business, and there’s obviously a strong overlap in the research and funding issues and so forth. How is all that sorted out?

Niklason: There are several aspects to that. As a professor, it’s true of Yale and it’s true of many universities, tenure-track professors are allowed to carve out up to 20% of their time to function as consultants with outside entities. My official title at my company is as consultant or founder. I’m not an officer of the company. I have no people at the company directly reporting to me. I consult for the company and advise them.

Kaizen: I see.

Niklason: I do not directly run the company per se. We have a management structure, we have a CEO who runs the company. That said, with respect to inventions and intellectual property and patents, I have to be very, very careful and I have to draw very bright lines between work that’s done at my company and work that’s done at Yale, because Yale is a nonprofit institution. Professors get fired, if it’s discovered that they’re using their NIH-funded laboratory at a nonprofit institution to generate intellectual property, which they then take for their own enrichment in their own company.

I take that very seriously. The work that gets done at my company, at Humacyte, is physically separated. It’s in North Carolina. It’s its own free-standing thing. In my laboratory at Yale, if I invent anything at Yale, by definition, according to my employment contract, Yale owns the intellectual property. Anytime I invent anything, I fill out an invention disclosure and I carry it over to the Office of Technology Transfer and they file a patent and Yale owns that patent. I’m an inventor on that patent and my students might also be inventors, but Yale owns the intellectual property.

Kaizen: Does that hold even if you wrote the grant and brought in the money for that idea?

Niklason: Absolutely.

Kaizen: Okay.

Niklason: Absolutely. Anything I do on university soil is owned by the university and/or with university resources. However, if the invention would be useful to my company, then it’s in everyone’s best interest, including Yale’s best interest, to turn around once the patent is filed, they turn 90 degrees and pick up the phone and call Humacyte and they say, “Do you want to license this patent?” Often Humacyte says yes. When that happens, Humacyte then has to pay to Yale all of the costs of prosecuting the patent, but they also pay royalty fees and milestone fees.

Kaizen: Are there standard percentages that are worked out?

Niklason: There are semi-standard percentages; however, each negotiation is independent and new because the value of different patents can vary.

Kaizen: Sure. Everybody wants as much as they can get depending on the anticipated value of that patent.

Niklason: Yes.

Kaizen: Around 2015 you said it was another milestone. You got more significant funding.

Niklason: Yes, we got a lot of funding. We started our clinical trials in late 2012, and…

Kaizen: This is clinical trials to work with FDA?

Niklason: We got permission from the FDA in 2012 to begin implanting our engineered blood vessels in patients and to begin testing them in patients. Our first implants into human beings was in December of 2012. We implanted a total of sixty patients in six hospitals in Europe and the US. We followed those patients for several years. It was on the basis of that data that we raised a significant round of funding in 2015.

Kaizen: The patients in Europe, is that with an eye to getting approval to market the blood vessels in Europe?

Niklason: Yes, absolutely. The initial clinical trials that we did in sixty patients were really just to establish initial function and safety, but it was not any sort of comparative trial. We just finished enrolling a large trial, which was funded in part by this $150 million that we raised in 2015. We just completed enrolling a 350-patient trial where we’re comparing our blood vessel against the plastic blood vessel made out of Teflon. This trial has been underway in six countries in thirty-eight different hospitals.

Kaizen: Wow! $150 million in funding.

Niklason: But the trial really costs $20 million or $30 million. The $150 million pays for a lot of things, but part of the $150 million goes to that trial.

Kaizen: Is that from one source or a series of sources?

Niklason: There were multiple investors who came in with the $150 million. In fact, that was from a total of about twenty-five different investors.

Kaizen: Is there a venture capital firm that puts this all together, or how does that work?

Niklason: We work with an investment banking firm who specializes in helping small private companies raise money from wealthy individuals or from hedge funds or private equity funds. With the help of this bank, this bank functioned as a yenta or as a matchmaker, we were introduced to various investors who were interested in investing in this space. The investors were from all over the world.

Kaizen: That’s in 2015. Then what’s the anticipated timeline? Now we’re substantially through 2017 until the next milestone is reached.

Niklason: Yes. Our first milestone … The $150 million actually came in two pieces, in two tranches. We got the first seventy-five in 2015. We had to largely complete enrollment of this phase three clinical trial in order to get the second half. We recently secured the second half of funding based on our enrollment of this large trial.

We now have to follow all of the patients in this large trial for at least a year. In late 2018, we’ll have an initial read on, first of all, whether our product works and whether it’s safe, I fully expect it will be, but also will have the read on whether or not our product works better than a piece of plastic and, if so, by how much.

Kaizen: That’s a year and a bit by a larger number of patients, the initial sixty. How many patients are we talking about now?

Niklason: The total trial that we just completed enrollment in is 350 patients. Half of those patients got plastic that’s already on the market and half of those patients got our blood vessels.

Kaizen: Now this is to satisfy investors and your own personal goals. There’s also the regulatory agencies in the US and Europe. What’s the anticipated timeline for them, supposing you get the results you want by the end of 2018?

Niklason: When you design a trial like this, it’s always in very close cooperation with the FDA, and we also work closely with the European regulators, because you want to get some assurance from the FDA that if you complete the trial and spend the $30 million to do this, once you have your answer two or three years later, you would hope that if the data is good, the FDA would view the data as sufficiently strong so that they could give you approval based on that data. The trial was designed absolutely working in lockstep with the regulators on both sides of the Atlantic.

We’ll get results in late 2018. We’ll then have to do some filings with the regulators and hope to get approval in late ’19.

Kaizen: Then that means going into production in ’20?

Niklason: We will be in production in 2019, gearing up for an anticipated approval.

Kaizen: The math almost works perfectly then, if you started around 1995 down this road, twenty-five years later, finally, you have a marketable product.

Niklason: Yes.

Kaizen: Okay, wonderful.

Niklason: Yes, a big chunk of your adult life.

Kaizen: Yes, that is substantial. Then there are issues of scaling up in mass production, hopefully. It’s one thing to do things in the lab and then with even a few hundred patients working with industrial engineers who specialize in this. What was that process like?

Niklason: The process of scaling and making something very, very rigorous and reproducible and very highly documented is an almost orthogonal skill set compared to the research and discovery and pilot-scale processes that I’ve done as a university researcher. I can tell you that it takes absolutely a team of people who have been working in manufacturing and in pharmaceuticals for many years, and I can tell you that we’ve been working on the science and the engineering of scaling up our process for the last five or six years, and we’ve still got another two years of really intensive work ahead of us to be ready in 2019.

As with all cutting-edge drugs or biologic treatments, or even new complex medical devices, the scale up, and the reliable, consistent scale up, is one of the hardest pieces of the puzzle. It’s always much harder than people anticipate. It just takes a long time to get it right.

Kaizen: You mentioned when you started Humacyte, it was you and a few people who you took out of your lab at Duke.

Niklason: At Duke, yes.

Kaizen: On the Humacyte side, how many people are officially with the company?

Niklason: Ninety-five.

Kaizen: Ninety-five in your labs at Yale?

Niklason: Twenty.

Kaizen: That’s a total of 115 people that you work with?

Niklason: Yes, it’s a lot of people.

Kaizen: It sure is. You’re still back and forth significantly between Raleigh and Yale?

Niklason: Yes.

Kaizen: This might not be a fair question, but if you’re anticipating, say 2020, things would be in operation, are you thinking about what you will work on next or what you will be doing in those years?

Niklason: Well, I mean the beauty of being able to have one foot in academia and one foot in the private sector is that I’ve been able to maintain my research interests and my new R&D interests in my Yale lab all along. I’ve actually been commenting to several people, in my academic life, my research work is probably as exciting right now as it’s ever been. We have four or five projects that we’re working on in my lab at Yale that I’m very excited about. Only one or two are related to engineered blood vessels, most of them are on completely different topics, but they’re very exciting and compelling to me.

I’m also very fortunate now that I happen to have a really good team working for me. We’ve got great ideas and I’ve got great people. It doesn’t get a lot better than that. We’re working on cell therapies for lung disease, we’re working on cell therapies for diabetes. We’re working on engineering a new trachea, a new wind pipe.

Kaizen: Wow!

Niklason: I even have one project, it’s a crazy project that I’ve been working on for a number of years now, but trying to find molecules that might slow down cellular aging. It’s a very, very exciting time.

Kaizen: Wow!

Niklason: I will have no shortage of things to do.

Kaizen: That’s great.

Niklason: Yes.

Kaizen: We’ll get more philosophical about your career as a scientist. Looking back over the years, obviously a lot of knowledge, a lot of intelligence goes into being a successful scientist, things like perseverance or a question of the courage to be able to ask new questions or a willingness to fail a number of times and come back. Are there character things that stand out for you as essential to becoming successful in the sciences?

Niklason: I think success in the sciences is related to success in entrepreneurship. They’re not the same thing, but they do have some similarities. If I look at the similar qualities that bridge both, I would say they fall into three categories. The first is optimism, and I started with that earlier.

I think if you’re going to start a company or if you’re going to start research in a new area that nobody understands at all, you have to be imbued with some level of optimism that you’re going to find something that works or you’re going to figure out something positive, and it’s not all going to be a failure. One thing that people say about working in scientific research labs is that you have good days and bad months.

Kaizen: That a new one to me.

Niklason: That’s about the ratio. That’s about the ratio. If we knew what we were doing, it wouldn’t be called research. There’s a lot of stuff that doesn’t work. The only people who can stick with that ratio are people who are inherently optimistic that they’re going to get to a good outcome eventually. I think optimism is really fundamental.

Kaizen: That drives the perseverance.

Niklason: That drives the perseverance. That’s a part of the perseverance, yes, but going along with that, the optimism and the perseverance have to be coupled with realism, and that’s at least as important as the other two things, because being mindlessly optimistic doesn’t actually get you there. You have to temper your optimism with an unflinching willingness to look at the data in front of you and to interpret that in a clear-eyed fashion and to believe what nature is telling you and not have your optimism or your preconceived notions impinge on that and skew your view of what’s real.

Kaizen: A ruthless objectivity has to work with that optimism.

Niklason: Those two can exist in the same head more easily than one might think, but having them both there all the time is very important.

Kaizen: On that clear-eyed look at the data, we do know there’s a temptation among many scientists, they want to get the publication, they want to get the grant to fudge things or to set things aside, especially if you’ve been having a bad month, so to speak. How do you deal with those moments when they come up?

Niklason: I think it’s more of a temptation for people who are younger and who are more insecure and more desperate. The concept of scientists making up data and falsifying results, I’m sure that happens. I think that doesn’t happen very often.

What happens far, far, far more often is what I was referring to earlier, is a bias or a fervent belief that your theory is what’s operative in the universe. If you do six experiments and five of them “fail” because they didn’t give you the answer you were expecting, mentally you feel comfortable with throwing out those five results and publishing the sixth. Is that forgery and dishonesty and lying? Not quite …

Kaizen: Right.

Niklason: But it’s getting carried away with your own belief system, but what it leads to is the same thing. What it leads to is the fact that a very high fraction of publications out there cannot be repeated by independent laboratories.

Kaizen: You get built-in confirmation bias.

Niklason: Yes, it’s more confirmation bias than it is outright lying.

Kaizen: How about issues of social pressures? In many cases, you have to raise the questions that are new, and sometimes those can challenge existing big names in the field, sometimes it can challenge the general public notions of stem cells or various sorts of things. Did you run into those social pressures?

Niklason: Sure. I mean, interestingly, different scientific fields have different subcultures and different levels of social pressure. It’s remarkable. The social pressure in the vascular engineering space is actually not that high. There’s tremendous competition among scientists, but the social pressure to just conform to one intellectual view of the universe is not that high. In contrast, in some areas of lung biology, the social pressure to conform to a particular view of the universe is incredibly high. It can be incredibly difficult to publish in that area if your results conflict with the current dictum.

Kaizen: That’s by the leading editors or the main researchers in the field or the big names?

Niklason: The big researchers in the field who drive scientific opinion.

Kaizen: Okay.

Niklason: I’ve often had to … Not water down my results. I’ve had to underplay results that conflict with what people want to believe and want to read. I’ve had to take publication in much, much lower quality journals than I would otherwise have chosen or been able to publish because my results don’t conform with what people want to see out there.

Kaizen: Many young people who are interested in the sciences don’t necessarily think of themselves as entrepreneurs or even have a realistic sense of the business end of writing grants and managing people and managing money and so forth. Is there advice you would give to younger people who are in the sciences and they’re attracted to the sciences because they love science, but to be aware that they might very realistically be business professionals and/or entrepreneurs at some point in their career, especially in hot fields like biotech?

Niklason: I think that, again, there’s two parts to the answer to that question. Running any scientific laboratory, whether it’s in the private sector or in the university, involves two things that people don’t think of all the time with science. It involves managing people and getting teams of people to work on the experiments that you want to see done. It also involves writing so that you can tell people about what you did and so that you can raise money to do more of what you’re doing.

Kaizen: That’s a kind of salesmanship there.

Niklason: It’s salesmanship and telling a very clear and compelling story to a diverse audience, even a scientifically diverse audience. Management and writing are two things without which, at a minimum, you must become a compelling writer. If you’re not a compelling writer, you will fail as a scientist no matter where you are, full stop.

Kaizen: That will be a surprise, I think, to many of them.

Niklason: Yes. It takes time to become a compelling writer, and it’s painful. It’s like what Benjamin Franklin used to say about the amount of pain and suffering it took him in order to become a good writer and about how he had to write every day. There was no getting around it.

Kaizen: Yes, he’s right.

Niklason: Young scientists need to learn that even though writing is almost universally painful for them, because if they were verbal, they wouldn’t be in the laboratory. They have to learn that that’s really important, but also managing people is very important, and that’s a soft skill.

I tell people I think there are born leaders. I think it’s possible to be a born leader. There are very few born managers. There’s a few, but not many. Most people learn how to manage. It’s an acquired skill, and watching how other people do it and learning how to speak directly with people, but also to speak with them in a way that’s acknowledging what their motivations are. Being both direct and directive but also sympathetic, that takes time and maturity, but it’s critical to running your own operation.

Kaizen: Looking back on your own college education, is there anything you would have done differently with an eye to the writing skills, the people management skills on top of the science that you needed to learn that’s indirectly …

Niklason: I probably would have written more. I wrote as little as I humanly could in college. I took my one writing course, and I hated it. I got through it. It was fine. I probably would have written more. As far as being a manager, I’m not sure that’s something that a young person at that age should really focus on because, frankly, I think you’re still busy becoming your own person. I think in order to manage well, you have to know who you are first.

Kaizen: That’s nice. A huge amount of it is going to be just having a lot of social interactions. That’s not going to happen until you’re in a professional environment.

Niklason: Until you’re later and older.

Kaizen: Fair enough. Was there any advice from a mentor when you were younger that has stuck with you over the years?

Niklason: One thing is one mentor who really shaped what I’m doing said to me … He said basically all the easy stuff has been done. If you want to have a really satisfying career and if you want to do something that matters, then pick a big, important problem and spend ten or fifteen years and solve it. I took that very much to heart, and that’s exactly how I lived my professional life since that time.

Kaizen: Wonderful. Think big and be ambitious.

Niklason: Yes, and do not expect to be Mark Zuckerberg. Do not expect to become a billionaire in thirty-six months because that’s really not how it works 99.999% of the time.

Kaizen: Right. It might be twenty-five years.

Niklason: Yes, or more.

Kaizen: Yes, absolutely. Why don’t we stop there? Because that’s actually a really good ending point with that.

Niklason: Okay.

Kaizen: Great.That’s a lot of good stuff.

Niklason: Good. I’m glad.


This interview was conducted for Kaizen by Stephen Hicks. for more information on Laura Niklason and Humacyte, visit their website.

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

Interview with Krzysztof Jurek on Entrepreneurship in Poland

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

Krzysztof Jurek on Entrepreneurship in Poland

Krzysztof Jurek is CEO of Logon SA, Logonet, Ltd. and LED Lighting Poland, as well as the President of the Bydgoszcz IT cluster, an association of IT companies and universities in central Poland. He’s also a board member of Pracodawcy Pomorza i Kujaw, a local employers’ union with 270 entities and is actively involved with Faith and Light.

Kaizen: Where were you raised?

Jurek: I was born in Bydgoszcz, Poland in the 1960s. When I was in school, it became pretty clear to my family that I had a thing for science, mathematics, physics, and playing chess with my grandmother’s brother who would reminisce about the war. These were the things I enjoyed. I would also dismantle things and put them back together.

I studied electronics in high school. It was also at that time that I learned to really be with people and became more open. It was mainly related to youth religious communities (the Oasis Movement).

In the years 1980-1986, I studied engineering at the University of Gdańsk. I was engaged in charity work at the same time. After my graduation I decided that I would like to do something that would combine my interests and allow me to do some good. This is why I applied to medical university.

Kaizen: When you were a child did you expect to be an entrepreneur?

Jurek: Definitely not. I didn’t think about entrepreneurship during my childhood, and I didn’t think about it even after I started working as an employee. I thought about finding an interesting job and devoting myself to other social activities.

Besides, there weren’t many private companies in Poland at that time. Small farmers, gardeners, and craftsman were the only entrepreneurs. I didn’t even think that I could become some kind of manager. My idea of a career was to work as an engineer on the technical side of things. However, everyday reality in communist Poland was, to some extent, a preparation course for being an entrepreneur. People had to make so many things on their own with very limited access to materials. It allowed them to develop creativity and independence.

I spent my childhood in communist Poland. What it meant for us was that our country remained under the Soviet Union’s control, and because of that freedom, private property, and enterprise were virtually nonexistent. There was no free speech, and you weren’t allowed to say what you thought. However, 1980, which is when I was in college, brought about some big changes. It was a big spring in Poland with the great Solidarity movement and the victory without violence. There were strikes, but there was no talk about free enterprise yet. Civil rights and freedom were often mentioned during these protests. Unfortunately, martial law was introduced in 1981, and the Communist regime stopped all of that. The Polish economy really struggled until 1989. In 1988, the government had introduced “Wilczek’s law,” which included business-friendly regulation. The Polish Round Table talks and negotiations between the Communists and the opposition, which had the support of the nation’s population, radically changed everything. That year Poland got to partially free elections.

Kaizen: Why did you decide to become an entrepreneur instead of working in an already established company?

Jurek: I like challenges, and entrepreneurship allows me to be creative and independent. Also, I find it easier to devote more of my time to work when I know that I work for myself.

On the other hand, I have to deal with high risk and responsibility, and you can’t just quit when things go wrong.

Kaizen: When did you start?

Jurek: We founded our company in 1991.

Kaizen: How did you make your first steps?

Jurek: After I graduated from college I went to a medical university, and I was able to organize a little IT cell there. In the meantime, Poland had changed and people were finally able to found their own companies. My friends from university had an idea, and they talked me into going into business with them. What convinced me was that I knew this industry very well. They just wanted to try this new thing, but I really got into it and tried to solve problems as well as I could. After a while I quit my job at the university.

My partners decided to keep their jobs, so I bought their shares.

Kaizen: What is the importance of business planning?

Jurek: When we were starting out we didn’t have any specific plans. We just knew that we would do something related to IT. We thought, let’s try to do something, and we will see how things go. After all, there is little risk here.

Even after all this time I am still a bad role model when it comes to planning things out. I am self-taught, which means that over time I developed a certain system that allows me to verify my plans and adapt to the current situation. I think it might result from the nature of the IT industry, as it is changing all the time. Very often, I use simple cost-and-risk planning as a substitute for more comprehensive blueprints. It is close to agile project management.

Kaizen: How much research and planning did you do?

Jurek: There was no need for research and planning when we were starting out. We didn’t even know what an entrepreneur really does, so we had to learn everything from the scratch; bureaucracy, law—we were finding out about these things step by step. Our first tax audit was very enlightening.

That being said, so many things are based on intuition and using common sense to create new rules. Even these days I try to make some kind of first step or a test before every major project.

Kaizen: How did you raise the initial money?

Jurek: It was all bootstrapped from the start. I had a job at my university that paid a modest salary and supported us for a short while.

We saved as much capital as we could, and after some time banks introduced reasonably priced loans.

There were a few merger or buyout proposals in the meantime, but none of them materialized. I have always been very cautious about going public, as it would mean taking responsibility for investors’ money.

Kaizen: How important is belief in yourself and your product?

Jurek: It really helps. Customers and business partners want to work with someone who is convinced about his or her product. But when this conviction is not real and made up just for marketing purposes, it might have an opposite outcome.

Kaizen: About salesmanship—how do you get past the awkwardness?

Jurek: Not everyone is a salesman, but it is a very useful skillset. Putting yourself in the customers’ shoes and putting in a genuine effort to solve their problems might be really helpful. You have to understand their needs, and when you are competitive and have fun solving these problems it is even better.

There are so many things that you just can’t learn from a lecture. Some corporations undergo sales training where salesman are taught that it is good to be honest, fair, and to respect your customer, but at the same time people who clean their offices are treated like objects. In my company, both my employees and I say good morning to cleaning ladies.

Kaizen: What has been your biggest challenge and how did you overcome it?

Jurek: Finding a balance between my professional and private life. Passion requires great commitments, and it is important not to ignore uneasiness that arises when you neglect your family. It is in these moments when you have to fix things and compensate for it.

Kaizen: How do you recover from setbacks?

Jurek: This is touching a little bit on psychology and psychological resistance. What works for me is to distance myself from the materialistic side of things and to try to patch things up when I have done something wrong. Sometimes you just have to let things happen their own way. That being said, I found that often setbacks are what motivates me and helps me focus on my work.

Kaizen: How do you maintain your optimism when times are tough or you’re facing disappointments?

Jurek: You need something apart from your company. Something that gives you a strong foundation in these changing times. For me this is my family and my faith. Moreover, I am fortunate to have people in my company that I can depend on. Also, going to work on a bicycle throughout the year, in all weather, has been one of my small pleasures.

Kaizen: How important is the value of perseverance?

Jurek: Perseverance is very important. Every project is bound to encounter problems, and only by tackling them are we able to move forward. My colleagues often come to me with different ideas. Regardless of whether are we pursuing them or not they just keep coming in with new ideas. This is when I tell them, “Let’s do something; let’s focus on execution. We won’t achieve anything by simply thinking about new ideas. We need to take action and be persistent.”

Kaizen: Not all successful entrepreneurs are also able to manage larger businesses. What additional or supplemental skills do you see as necessary?

Jurek: It is very common among small business owners to treat a company as if it was their wallet. It is important to distinguish between your assets and your company’s assets. Even when you own your business, you need to set some boundaries.

Of course, you also need the ability to delegate work, cooperate, and define rules that are clear for everyone.

Kaizen: What about the temptation to compromise?

Jurek: I am not a guy who sets tough goals and tries to achieve them at any cost. I like to have fun doing what I do. It is style that is more important to me. This approach also provides challenges. It would be a compromise to give someone a bribe. It would be taking an easy way, doing something I do not enjoy. I think it is far better to be uncompromising.

Kaizen: How do you think about your role as a leader?

Jurek: Even when, in theory, you decide to take a teamwork route, it is easier when there are leaders around. Sometimes I would prefer to avoid it, but there is a need for a certain hierarchy. On the other hand, mature leadership means pulling back at the right moment and letting others develop.

You can build your authority in many different ways, from a position of strength, your competence, or relationships.

Leadership should be natural. What I mean by that is working together with your team, not running away from problems, and being an example of commitment. When it comes to me, I try to understand most of the processes that go on in my company, all the way from accounting to technical solutions.

Kaizen: What is your greatest reward your business accomplishments have brought you?

Jurek: You can perceive my company as a kind of tangible creation, which you can either be happy about or be dissatisfied that it has not developed more.

In 2016, a regional newspaper chose me as the manager of the year in the voivodeship. I really like what I do even though I have to deal with very serious problems. On the one hand I appreciate huge independence, but on the other hand I must deal with the consequences.

Kaizen: How have you managed to fit or balance your career goals with other life goals, e.g., relationships and family?

Jurek: Eventually I managed to find a balance, although it was not always easy. I regret a lot of moments, especially when the children were little and I was consumed by the company. There were times when I had to send a replacement to school when the parents’ presence was required because I was busy with a meeting or an official trip.

We have five children. I feel happy about them, and I am also connected with my family. My wife was at the same time understanding and fighting for my time for the family. She was not giving up. For a long time we were leading a support group for mentally ill. Someone could say that it was just a waste of time, but for us it was a source of experiences which gave us perspective on ourselves and the work. It can be said that those experiences helped us to get through.

Kaizen: Are there special challenges for entrepreneurship in Poland?

Jurek: In a lot of industries, the domestic market is so big that we don’t have to think about exports even though we should. We manufacture many products which are sold under foreign brands. We could really use more Polish brands. The location of Poland gives us a lot of opportunities. We also have well-educated youth. What is more, people are hard-working.

Kaizen: Now that Poland is much more open, how has its relation to western Europe changed?

Jurek: Many years ago, when Poles went to Germany they admired the houses in small towns—so tidy and trim. Today we have more beautiful ones in our country. We do not need anything but more freedom and equal opportunities. Poles, in the majority, are hard working and very flexible. We can adapt to a new environment very quickly.

Our first governments in the nineties got excited about the idea of a liberal market but opened the unprepared market too fast. Thus, our banks were quickly taken over by foreign banks. Foreign supermarkets were opened, where foreign products are warmly welcomed while our regional products were not. Freeing Polish enterprises from our government’s influence came with selling our national telecommunications monopolist to co-partnership France Telecom, controlled by the French Government.

Our apparent free market isn’t entirely free. When selling Polish products to Germany or France one encounters many difficulties. In the industries that we are very good at there are many restrictions. In other industrial branches, we are colonized.

Despite having a common market, western markets are more protected than ours.

Kaizen: Is it overall a positive?

Jurek: There are more advantages of this opening than drawbacks, but it could have been done better.

Nevertheless, we are happy to be a part of Europe, as we have many relationships and economic connections. Finally, we have a normal, humane relationship with the Germans! We can travel freely. In winter, on Italian or Austrian slopes, Poles are often the most numerous foreign group.

Also, Poland is the sixth largest European country by population and has the fourth largest number of students (after Germany, France, and Italy), so we have much potential.

Kaizen: What do you think of Poland’s relation to Russia and the east, given the long, complicated history there?

Jurek: Many people from Ukraine live, work, or study in my city. Poland supported the independence of Ukraine, and we paid for that through the nose. We produce excellent food, but in Russia its harmfulness was immediately descried. As a result, we were forbidden to export. We suffered huge losses but we can handle it. For example, colleagues who produce apples found new trade areas in Arabic countries.

When on the 9th of June, 2006, Poles bought a refinery in Lithuania, Russians, who also felt inclined to buy it, were trying to make us back out of it. On the 26th of July they announced a failure of a pipeline delivering the raw material, and for ten years nothing can be fixed. In the meantime, they have built a new pipeline with Germany through the Baltic Sea, and that enabled the attack on Ukraine.

Personally, I don’t have much experience with Russia. My colleagues are trading with them. Lately on a congress I engaged myself in a conversation with a Russian. At the beginning it was quite interesting, but when we were discussing freedom of speech and information in Russia he started to divagate about different countenances of truth.

In contacts with Russians, Poles are torn. We do understand Russia and their history. We have a lot in common, and we also like them. But at the same time, we regret their attitude towards hypocrisy and obvious propaganda, which they acknowledge as their own opinion. Such phenomena are present all over the world, even in Poland, but in Russia they seem to be escalated. Thus, we have ups and downs, but we also are able to do business with each other independently from the governments’ help. The development of contacts with Belarus is also noticeable.

Kaizen: Does increasing globalization present more opportunities or more challenges for Poland?

Jurek: Globalization means that we use the same technology, watch the same movies, and we have similar knowledge and opportunities.

Once I was going by ferry from Sweden to Estonia. I looked at a window, and I saw the letters “Bohamet.” It turns out my client, who is almost a neighbor, is the world’s leader in ship’s window production. There is a well-developed industry of plastics in my city. Many plastic elements in cars all over the world are manufactured here. These are examples of taking advantage of the opportunities. There are a lot of such examples of taking part in global technologies.

Friends of my children work in the big Intel development center in Gdańsk. Here in Bydgoszcz, almost one thousand people work for Nokia (formerly Lucent).

At the same time, the quick access to all information provided by globalization can also paralyze development. Whenever you create something or figure something out, you check on the internet and find that somebody has already done it. You lose your motivation to try and to gain new experiences.

Kaizen: What projects are you working on next?

Jurek: In my city, Bydgoszcz, IT companies ensure about seven thousand workplaces. We succeeded in creating a cluster of companies, that is, an association of companies cooperating with each other of which I am the chairman. Lately, we boosted our cooperation with universities to increase IT specialists’ education. The project is based on the cooperation of two universities and businesses.

Kaizen: What do you think is the role of passion and dreams in entrepreneurship?

Jurek: Creating anything requires a lot of work and energy from the creator. Passion and dreams are very good sources of energy. These factors let us accomplish more than it could be expected during the phase of creation. However, passion is not only assigned to entrepreneurs. Earlier, when I was designing computer programs, I was equally engaged.

Kaizen: What is the best advice you’ve been given?

In the first years of my company, during a bad economic situation, a partner from China visited us. He pointed out that the economic situation will not last eternally and that it is the natural sine wave; sometimes it is better and sometimes it is not. Here is his advice: Even if the business goes perfectly, get ready for worse times.

Kaizen: What is the most important piece of advice you would give to new entrepreneurs?

Jurek: Other people’s advice can be heard but is rarely taken, especially when you become independent. For fresh entrepreneurs, maybe this: Adjust consumption not to one’s needs and whims but to the possibilities of making money. If I see a new entrepreneur who starts his or her activity with buying a luxury car on account, I keep a great distance. I encourage young people to collect various life experiences and to be active both professionally and extra-professionally.


This interview was conducted for Kaizen by Stephen Hicks. For more information about Mr. Jurek and Logon, please visit the company’s website© 2017.

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

Kaizen 33: Krzysztof Jurek and Laura Niklason

The latest issue of Kaizen [pdf] features our interview with Krzysztof Jurek on the theme of Entrepreneurship in Poland as well as our interview with Laura Niklason on the theme of Entrepreneurial Biotechnology.

Also featured in this issue of Kaizen are guest speakers Gregory Sadler, Chip Hessenflow, and Zach Meiberg, as well as our Entrepreneurial Education conference.

Print copies of Kaizen are in the mail to CEE’s supporters and are available at Rockford University. Our next issue will feature an interview with Federico Zorraquin on the theme of Entrepreneurship in Argentina.

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

CEE Review: Amazon and corporate social responsibility | Women in Silicon Valley, and more

News and Opinion

Business ethics & pride in a job well done. The Business Ethics Blog.

Successful solo founders. Medium.

A woman Silicon Valley insider on sexual abuse thresholds. Business Insider.

Increasing entrepreneurial aspiration in Britain? Mirror.

Amazon has a chance to redefine corporate responsibility. Bloomberg.

Amazon patents price comparison blocking over WiFi. Business Ethics Highlights.

Map: Economic might by U.S. metro area. Visual Capitalist.

Limited liability does not mean what you think it means. FEE.

Does political “optics” drive the minimum wage discussion? Related: Stephen Hicks’s detailed presentation of the ethical, economic, and political arguments for and against minimum wages.

Idea: “Always tell the truth. That way you don’t have to remember what you said.” — Mark Twain

See you next time with our digest of new and interesting items in entrepreneurship, ethics, and political economy. Here are the previous editions of CEE Review.

Interview with Tom Tropp on Business Ethics and Corporate Culture

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

Tom Tropp on Business Ethics and Corporate Culture

Tom Tropp is the Vice President for Ethics and Corporate Culture at the AJ Gallagher Corporation based in Chicago, an international insurance firm with over $5 billion in revenue annually.

Kaizen: Thanks for being here to talk about how you do ethics and corporate culture at Gallagher.

Tropp: You’re welcome.

Kaizen: Insurance provides a valuable service to people, but is an industry that sometimes has a shady public reputation. What steps do you take at Gallagher to counteract that notion?

Tropp: The insurance industry has that image. There’s a joke about how solitary confinement for a month is punishment, but worse than that is to be locked in the cell with a life insurance salesman for a month.

Kaizen: It would feel like eternal punishment?

Tropp: Right. The business does have that impression because people don’t like to buy insurance, but they know they have to. And a huge percentage of people that buy insurance never claim, so they look at that money as going out the door and of no value.

The actual fact is no business in existence can operate without insurance. It’s not a matter of if you’ll have a claim, it’s when you’ll have a claim. Businesses simply always have claims of various types, whether it’s worker’s compensation or fire damage or liability suits.

One thing you assume in our business is that you will have some negative feelings toward what you do, but then it’s offset when the claim happens. If you have good coverage, and the broker has done a good job, and you’re brought back to whole again, then you appreciate it.

Kaizen: Absolutely. You work for AJ Gallagher, the third largest insurance brokerage firm in the world. Tell me about the company.

Tropp: The company is publicly traded, New York Stock Exchange. 25,000 employees in 34 countries. We have four divisions in the company. One division does property casualty insurance. One does employee benefits insurance, health insurance, life insurance. One does surplus lines insurance, which is a term that means secondary market, so insuring a dynamite factory. Normal insurance companies don’t do that. Surplus lines carriers do. Then, that group moves into things like Lloyd’s Coverage, Lloyd’s Brokers in London. We have about a thousand people in our London office doing nothing but Lloyd’s Brokerage throughout the world.

Then, the fourth division is a claim handling division called Gallagher Basset. Gallagher Bassett handles claims for captive insurance programs, for self-insured programs, very large companies that actually form their own insurance company and then hire Gallagher Bassett to do the claims. Structured in that fashion, 90 years old. Started in 1927 and still going strong.

Kaizen: About $5.6 billion in revenue?

Tropp: We’ll be five billion in revenue this year.

Kaizen: You threw out a market capitalization number.

Tropp: $9.9 billion market cap as of 3:00 this afternoon.

Kaizen: Moving into 10 billion.

Tropp: It’s going to need a couple more points and we’ll be there.

Kaizen: A couple of interesting things about Gallagher. One is Gallagher is unique in how it handles ethics within the corporate context. Another is that you are a unique individual. You came to Gallagher through the insurance business but you also have the formal ethics background. Tell me your insurance story. How did you get your start in the business?

Tropp: After college I taught school for four years and then went to work for an insurance brokerage firm for seven years.

Kaizen: In Illinois?

Tropp: Yes, Chicago.

Kaizen: You went to Loras?

Tropp: I went to Loras College in Dubuque, Iowa, as an undergraduate.

Kaizen: What was your major?

Tropp: Speech and Drama.

Kaizen: Ah, a natural fit.

Tropp: Yes. Works perfectly for the insurance business.

Kaizen: You can be a sales guy.

Tropp: Right. After teaching, I went to work for an insurance brokerage firm in Evanston, Illinois. I worked there for about seven years and then left in 1981 to start my own company from zero.

Kaizen: You were in your 30s?

Tropp: Thirty-five, I guess. I was at that company for 26 years and built it up. In 2007, I sold the company to  Gallagher, but five years before that, in 2002, I went back to school at the University of Chicago.

Kaizen: This is the ethics side.

Tropp: Yeah. I worked on a Masters of Religious Ethics from the Divinity School. I think it’s important studying ethics that you study theologians as well as philosophers because for so many years, in the Middle Ages, there were no philosophers. There were only theologians writing about thinking and values. I spent five years, part-time, at Chicago. I finished that degree in June of 2007 and, at that same time, sold the company to Gallagher. Pat Gallagher, our CEO and Chairman of the Board, and I had been friends for many years. We grew up in the business together. He knew the work I was doing, the writing and the speaking I was doing on corporate ethics, the work I was doing at the university.

He did not have an ethics officer. He had a legal officer and that’s where ethics was handled. He and I really experimented with this. We created the job that I have, but we didn’t know what it was going to do. I started out by just going around visiting some offices and talking to people about ethics and listening.

Kaizen: This is around 2007?

Tropp: Yes. By 2008 we were pretty much in full swing. What happened was when I would sit people in a room and ask them about ethics and are we an ethical company and then talk a little bit about what that means. All kinds of other issues were coming up. Things that don’t fall into the area of ethics.

Problems about our computer system: “You know what? The computer system, they didn’t give us good training on it so we don’t know how to use it,” or, “We don’t have good vacation,” or, “Our vacation packages are confusing. They’re difficult to deal with,” or, “My supervisor is incredibly rude to the other employees and that shouldn’t be.” These things were surfacing in these meetings in the offices. I would go back and sit down with Pat and say, “Here’s what’s going on out there.” It was intriguing because communication in a big company—vertical communication—is not good. There are roadblocks.

Here was an opportunity for someone representing the CEO to come and sit in the office and have people talk to me. The thing that tipped it over more than anything else was, at about that same time, we began a small backroom service operation in India to do backroom processing for various different parts of the company. That had just gotten started, and I began hearing in probably 50 to 70% of the offices people say to me, “I think it’s unethical that you’re sending jobs to India.” That’s not what we were doing. We weren’t sending jobs to India. We were enhancing the work that folks could do to raise the level of what they were doing, taking that processing stuff off their hands. As I would come back and share that with Pat, he would say, “Really? Unethical?” Yeah. What that told us was that it wasn’t being communicated properly.

Kaizen: It’s an optics issue.

Tropp: Yeah. All of a sudden, the things I was hearing in the field went way beyond what we originally thought they would.

Kaizen: May I interrupt you? In 2007 and 2008, you’re feeling your way around what the position might be, and what you’re doing is a lot of listening.  You don’t have a top-down agenda for how you’re going to do ethics. You’re exploring the territory, seeing what kinds of issues there are.

Tropp: Yeah.

Kaizen: That’s interesting.

Tropp: The job began to form itself. The first thing we realized was that people would talk to me when I went out. There are several reasons why they would. Number one, I’m not a hired person to talk to. Number two, I was coming from the Chairman’s office, so people figured this is a guy you better talk to because it’s getting straight to the top of the company. We determined this is valuable to have someone out there, and not just some person buried in the HR Department. Someone from the Chairman’s Office coming in and saying to people, “I want to hear what we’re doing well but I also want to hear what we’re doing poorly.” An interesting thing began to happen. The company was half the size of what it is now.

Word spreads quickly in companies no matter how big they are. I would go to an office in the early years and people would say, “Well, this is a real problem for us. Is there any way we can get this fixed?” I would say, “Let me look into it.” Two weeks later, it was fixed.

Kaizen: You’re an expediter.

Tropp: That’s right. Now, I’m scheduled to go to an office in Oklahoma City. Someone in Oklahoma City talks to someone in Boston who will say, “He’s coming out? Hey, when he was here, he fixed that problem for us in two weeks.” “Really?” Now, all of a sudden, credibility begins to build. Then you get a little bit of a backlash from certain managers who say, “Wait a minute. He’s coming in here and stirring up dust.”

Kaizen: A turf issue.

Tropp: Yes. As a matter of fact, I am coming in to disturb dust. If you don’t like it, call Pat. It began to build on its own.

The next thing we did was to try to see what other companies were doing. I started looking out to see what’s out there, resources that are out there, and began to find different organizations that were studying and publishing in the subject of corporate ethics. Your own Kaizen here, good example—Boston College for Corporate Citizenship, big resource—the Ethisphere Institute.

As I found these other outside organizations and began listening to them and reading their material, it did became obvious that we could do more in the business community than we were doing to reinforce what we were doing in-house.

Kaizen: The position was evolving. Initially you said that a lot of the stuff wasn’t necessarily ethics-related. It was computer system training, the vacation package, and so forth. The position you ended up creating was partly business ethics but also sounds a bit like cultural builder or troubleshooter.

Tropp: It’s an ombudsman. One of the questions on the Ethisphere survey that we complete every year, asks is: Do you have a corporate ombudsman? They always answer that “No, but yes” because we don’t use that title but it’s basically what I do.

I’ll give an example of this still moving forward from 10 years ago. We have an 800 number that employees can call and make anonymous ethics reports. We got about half-a-dozen calls a year in the beginning. After 10 years of doing this, I get somewhere between 20 to 30 contacts from people around the world every week.

Kaizen: Email?

Tropp: Emails from somebody. Emails that say, “Tom, you were here six months ago. You said if we have an issue, we could contact you. Here’s something I’m dealing with and I don’t think it’s fair the way I’m being treated.” When I’m in offices, I always tell people, “Anybody can contact me at anytime on any subject, and there’d be no political fallout. If you want it to be confidential, it will remain confidential.”

Maybe half of the contacts I am asked to please keep this confidential. Don’t tell anybody I talked to you but this particular manager is being rude to his employees. That’s something that then we need to look into. Someone says, “I have a very specific complaint about this, and it’s me and I don’t think I’m being treated fairly.” That’s something that I will go back to the person and say, “May I carry this further for you with your name on it?” They’ll typically say yeah, and then we get involved. If there’s something illegal going on, I bring in the compliance people. If it’s not an illegal thing, I may talk to the HR people in that area and try to orchestrate a solution to the thing.

Kaizen: Maybe a natural question here would be to say why is it not then just already handled through, say, the legal department if it’s a compliance issue or through the HR department if it’s a culture issue and so forth? They also get stuff directly?

Tropp: Very often it comes to me because the people don’t know who else to go to, and they know me because they’ve met me in their office and I’ve invited them to contact me. They will contact me and say, “This is a problem we’re having.” I’ll go back to them and say, “Look that particular issue, we need to talk to HR about this. May I have permission to bring this to them?” I will then bring it to the HR people and then step out.

If it’s a legal issue, we’ve had several examples just recently of something going on in the field that an employee or an outside third party will contact me. I had a contact from a competitive broker not long ago who said to me, “You’re the Chief Ethics Officer for Gallagher and your sales people here are selling a product that I invented, and they’re infringing on my rights there. They shouldn’t be doing that because it’s my product.” That’s clearly a legal issue so, in that particular case, I brought in our general council or head council, but I also then brought in the legal counsel from the country where that was taking place and monitored it as they dealt with it. When it was resolved, I stepped out of it obviously. It’s almost like being an air traffic controller in many ways, bringing concerns and sending them to the right department.

Kaizen: Routing and re-routing and so forth. It sounds like after a couple of years of exploring and lots of conversations and travel and meeting with people, you then formalized what is your current position. Explain to me the organizational structure at Gallagher and why you decided to have your position be positioned where it is.

Tropp: Well, one of the problems that I perceived in dealing with these outside organizations and how they handle ethics is the confusion between thinking that ethics and compliance are the same thing, and they’re not. They’re different. Compliance tells us what we must to. Ethics tells us what we should do. Very often, every complaint that would come in would go to the legal department in companies. It’s not that way in our company now, but I’m sure at some point in time it was because they assume that’s how it should be. If there is nothing illegal going on, the legal department should step back and say, “That’s okay. There’s nothing illegal about that.”

Kaizen: Discretion.

Tropp: Yes, or refer it over to the HR Department. The most popular thing and most consistent thing that becomes the crossover is a difficult manager—a manager who’s being difficult with people, rude to employees, insulting to employees, or those types of things. Is that a sexual harassment claim, in which case goes to legal department? Or is this someone who just needs some counseling as to how to be a better manager? That’s HR.

All those things in these other companies were going to the legal department and maybe to HR. No one exclusively looked at the concept of culture and values and the atmosphere at our company. What is our reputation in the market place? What do our competitors think about us? Do they respect us? That’s ethics. That’s a cultural thing. It’s a different layer.

Kaizen: We distinguish ethics from compliance. Compliance is just the law. It’s the things that you have to do. Ethics is broader and you are forming it into culture. Is there a distinction between ethics and culture?

Tropp: I think your culture demonstrates your ethics.

Kaizen: Culture is the embodiment of your ethics and your values?

Tropp: I think so. The type of company you are comes from your ethical stance. It’s demonstrated to people when they see your culture. What’s the feel when you walk into an office? What’s the feel when you work there? Is it a place that has a positive feel or a negative feel?

Kaizen: Companies make a commitment or not to follow the law, but you also want to create your own particular company with your goals, your values, and your kind of corporate culture. You mentioned, I think, a 25-point list for the Gallagher Way that identifies the key values of Gallagher. What is unique about that?

Tropp: You know, a lot of companies have these statements of values. If you look on their website, they all have statements of value. The thing that’s unique about the Gallagher Way, first of all, is that it’s specific. There are 25 items or tenets in the Gallagher Way, and it’s not all based on what we would call ethical issues. Number one in the Gallagher Way is we are a sales and marketing company. That’s what we do for a living. Number two is respect for each other.

Kaizen: Purpose or mission statement.

Tropp: Yeah. One of the tenets talks about giving absolute, great value to our customer. The customer is important, the person we must serve with excellence. They’re business goals and cultural goals. Empathy for the other person is not a weakness. That’s a cultural thing. That’s got nothing to do with the correct way to do business but certainly enhances business. The unique thing about the Gallagher Way is, first of all, it’s been around since 1984. Not one word has changed in the document since it was written … I take that back. One word was changed.

It was written in 1984. Somewhere in 1989 or ’90, Bob Gallagher, who was the son of one of the founders of the company, had a very smart executive assistant who walked into his office one day and said, “Bob, number seven in the Gallagher Way says ‘Empathy for the other guy is not a weakness.’ It’s better to say person.” That word changed. That was the only one, but it’s been around in its exact form since 1984.

The second thing is that it’s so broad. It covers many different things, not just what we would call basic values. Then, another other thing is it so successfully permeates the company. It hangs around every office everywhere in the world and, literally, every one of our 25,000 employees knows about it and could probably quote four or five of them. We use it all the time. We actually use it to run the company so that makes it a little different.

Kaizen: Of the 25, if you set aside the ones that are about business purpose and general mission statement. In your judgment, what would be, say, the top three ethical values?

Tropp: I think, number two, which talks about respecting each other and respecting each other’s capability is critically important.

Kaizen: “Each other” means what?

Tropp: Internally.

Kaizen: Internal organization.

Tropp: Yeah. Then, the one that I just mentioned, empathy for the other person is not a weakness, is critically important. Our people know that they can worry about each other. They know that we will reinforce that. If an employee has an issue, personal issue, other people will worry about that person and will care for that person, and we will reinforce that and support it. There’s another one that says ‘Never ask someone to do something you wouldn’t do yourself.’ I think it’s a simple statement but it says a great deal.

Kaizen: An integrity point.

Tropp: Yeah. If you read it, first of all, the grammar isn’t perfect. It was written by a guy who was a relatively simple man, who was pouring out his heart about the company that he and his brother created taking over from their father. When you read it, it reads that way. It’s just real. You know a journalist didn’t write it. There are grammar errors. The spelling is all correct, although my understanding is that initially there were a lot of misspelled words that they fixed.

Kaizen: Sure. An issue that sometimes comes up is corporate ethics statements can be ineffective. Even if they are not just meant to be pretty words on a web page but taken seriously, there’s a challenge of actually making a working donkey but making it a part of the culture. How, at Gallagher, do you take the words on a page and make it heart of the fabric of the culture?

Tropp: Well, it’s interesting. I like to say we use it to run the company, and we do. People chuckle at that. Sometimes they’ll say, “Well, it’s a cute document to hang on the wall, but you can’t run a five-billion dollar, publicly-traded, global corporation on that basis.” They’re wrong. We do. Actually, there’s not a decision that’s made by our executive team in that company unless that document is lying on the table. When people are told to execute a project, they are told to not violate that document.

I will get emails from employees who say, “Listen, number such and such in the Gallagher Way says this. I’m here to tell you we’re not doing that in this office.” Whoa! That’s a big deal. We jump about that. When people are arguing their position on something, if there’s a disagreement on whether to go this way or that way, you will hear them quoting the Gallagher Way.

They’ll say, “You can’t do that because number 17 says … ”

Kaizen: Also, when you have the arguments, the respect principle will then say we will argue respectfully.

Tropp: Yeah.

Kaizen: That will solve some problems. The empathy issue, that’s hard. Do you have examples of how you would, from a top-down document, get out to thousands of people around the world that empathy is a value and this is what it means?

Tropp: You have to work at that. You can’t just assume people are going to understand. First of all, top management has to buy into it, and there’s a selection process for top management. Most of the people that are running the company we promote from within the company. We generally don’t go outside to bring someone in unless it’s a very unique skill that we need, an attorney or IT people, that type of thing. But general management is usually promoted from within, so we know these people.

They get promoted because they buy into the culture and that field, but it’s very difficult. Empathy is a classic example of that. Just because we are all in the senior management and just because we all are conscious of being empathetic, doesn’t mean other people will understand it so you must reinforce it and demonstrate it. For example, we’re not always able to find this out but when we know that an employee’s spouse has passed away, the way we find out typically is they will make a claim under the Life Insurance with the Human Resource Department. HR Department is instructed whenever you hear of an employee who loses an immediate family member, a child or a spouse or whatever, to notify me that that has happened. Typically, I’ll send a letter or an email to the employee saying, “So sorry to hear about this. What can we do for you?” Pat Gallagher, our Chairman and CEO, sends a letter to the person, and in some cases, will call. We don’t always hear about this until sometimes three or four weeks later or a month later. If it’s later we’ll call. You don’t want to call the day after the lady’s husband died but a month later, we’ll call and say, “Hey, this is Tom Tropp calling from the headquarters. I know your husband passed away last month. How are you doing? Is there anything we can do for you? Is everything processing through okay?” The word spreads quickly when that happens. Now people get the idea. These people really care about me. It takes work to find this stuff out, but when an employee has a serious illness, same thing.

Kaizen: You mentioned to me one special case.

Tropp: Yeah. We had an employee, a 35-year old single mom with two children who was diagnosed with breast cancer. The treatment was going to be every other Monday. She would have to go in for chemotherapy and radiation. She would recover on Tuesday and then be back at work Wednesday, Thursday, and Friday. She could not afford to go on disability and had to get her full salary, so she sat down with our branch manager and said, “Is there anything we can do here?”

The branch manager didn’t know what to do so he made another appointment with her. In the meanwhile, he called up to the home office and talked to the HR people. The response he got was, “Why are you calling me with this? Can’t you work this out yourself there to help her?” He said, “Well, I don’t know how to do that.” The answer was, “Treat her whatever way you would treat her if she were your sister.” They worked it out. He sat down with her and worked out an arrangement.

Kaizen: Like she’s your sister.

Tropp: Yes. Assume she’s like your sister. They worked out an arrangement. She was going to work Saturdays to keep herself on schedule and a little shorter lunch hour and catch up. They agreed.

Kaizen: She was very proactive.

Tropp: Yeah, she was looking for solution. It turned out, during first week she was out she was out on Monday, and on Tuesday she stayed home recovered. Wednesday morning she came in, sat down at her desk, and all of her work was done. Her inbox was empty. All of her suspense list was finished. There was just one pink rose lying across her desk. Her fellow employees had come in early, stayed late, skipped lunch, and gotten all of her work done. That went on for six months. Every other week when she did that there was a pink rose, and no one would tell her who did it. It was obviously the whole office who’ was pitching in and helping her. That’s empathy, and it was supported and celebrated by us.

Kaizen: That story spreads around the culture.

Tropp: Absolutely.

Kaizen: That’s how you build a culture.

Tropp: Yes. When I tell that story in a branch office, almost without exception, the people will say, “Oh, that happened here. So and so had this happen to him. Yeah, we all just pitched in and helped.” When a top executive says, “That’s good. I’m glad you did that.” That means it’s okay to do it and you can keep doing it. If someday, someone wants to do that and a branch manager says, “Well, you can’t do that.” “Wait a minute! They did it here. They did it there. Besides, Tom Tropp said you could do that.” It just reinforces it.

Kaizen: Gallagher has grown significantly in the last ten years. You mentioned a lot of mergers and acquisitions. When you’re doing your due diligence ahead of time, you said you only acquire firms that you think you can change or make fit your sense of ethics and culture? How does that go?

Tropp: We’re very, very cautious. We very cautiously guard our culture. We walk away from five or six deals every month and not because the numbers aren’t good. We don’t even look at them if the numbers are good but the culture doesn’t fit. When our folks in the due diligence teams go in there, they pick up anything at all that they feel would be a problem.

Kaizen: What would be a problem?

Tropp: Well, the attitude in the office, a surly manager, employees who are obviously unhappy and complaining about things, certainly any sort of favoritism being shown to certain people and others. You don’t always see this in the due diligence, but if it’s prevalent you will pick it up in the due diligence. When that happens they put a hold on things, and they will ask a senior person in the region or beyond to come in and spend time in the office. They’ll go to dinner with the manager or with the owners, and spend a little time in the office, and, if they feel like this is not working, they’ll walk away.

Now, the other thing that happens is reputation in the field. The merger people, they bring us a new merger, say this is the one that we’re interested in and they are interested in talking to us. One of the first things we do is research that firm. It’s not hard to do. You call a few of the insurance companies and ask questions about that particular brokerage firm. You start to hear things about their reputation. If their reputation is negative, we’ll say no, we’re not interested.

If we do walk away from one after we’ve gotten into due diligence, which we’ve done, we tell them why we’re walking away. We say, “Look, we’re looking at your employee absentee. Your employee turnover is huge. You got 35% turnover in your staff. We see that as a potential problem.” There may be three or four things like that, say, “Because of these things, we really are not interested in proceeding at this point. However, if you can fix those, come on back to us and then we’ll see if we can talk about it.” From time to time, we get people to come back to us. They’ll say, “Hey, we talked to you guys three years ago. We had this, this, and this problem. We think we fixed them.”

Kaizen: It’s cultural consulting for them.

Tropp: Exactly, or you see things like their sales expense is way high off the charts. Well, what’s that mean? That means they’re probably taking people to the beach or to play golf, and they’re spending money on things that we don’t value. If we see those signals, we’re going to walk away or at least going to question them.

Kaizen: The way you do ethics at Gallagher, with your position reporting directly to CEO and the Chairman of the Board and no one reports to you and the autonomy that you have, to what extent is that unique to you as an individual, Tom Tropp, and to Pat Gallagher, who’s the Chairman? If, for example, you were to try to convince other organizations that they should do things this way, what things would you say? It’s not just your personal values that works for you, that this really is a valuable way to do ethics in any business.

Tropp: We’re in business to make a profit, and all companies, unless you’re a 501(c)(3), are in business to make a profit. That’s critically important. We believe that our margin has to be at a very specific point. If our margin gets too low our stock price goes down, and we could be gobbled up by somebody. If our margin gets too high, if we’re making too much profit, it means we’re squeezing somewhere in area that we shouldn’t be squeezing. The right margin for us to be at is somewhere between 25 to 28 points. That’s about where we should be. If, all of a sudden, we see ourselves at 35 to 40 points, something’s going on that isn’t right.

We’re in business to make a profit within that range. We believe that part of the reason that our stock price is as high as it is relative to earnings is the fact that we have a unique culture. Our culture didn’t start because of the arrangement we have with ethics but it is certainly reinforced, and it’s recognized outside the company as being a company of high integrity. The system we have clearly enhances that.

The fact that we’ve got someone who is completely independent of all departments and all divisions and yet reports to the highest authority of the company and has the ability to draw resources from any of those sources, puts us in a whole different position for transparency, for looking for issues and solving issues. It’s just a very effective way to do it. As I speak and interact with other companies on this, more and more companies are starting to say, “Well, that seems to make sense.” We know that because in many cases they’ve called and said, “Hey, Tom. I know you’re doing this. We’d like to, at least, look into setting up this way. Could you give us some time for that?”

Kaizen: Nice. I’ve got two more questions, one for you personally. Out of that long, successful business career, you mentioned you sold your business 10 years ago. Presumably you could have retired and done whatever it is that you like to do, but you are now, 10 years later, still working hard and circumnavigating the globe a couple of times a year. I know you enjoy the travel right up to a certain point and you enjoy the insurance business, but what’s motivating you to work so hard on this?

Tropp: I don’t look at it as work in the sense that I’m not building a career. I’m not building a business. I’m doing something that I enjoy doing, and I love doing it, and I believe I’m making a contribution. When I sold the company to Gallagher 10 years ago, it I hadn’t moved into the role that I’m doing working for Pat, I probably would have stayed a couple of years and then would have retired and done something else. My thinking initially was that, after I finished the Masters in ’07, I was going to then finish the couple of years with Gallagher and then go back to Chicago and do my Ph.D. and teach. That would’ve been fine; I would’ve enjoyed that. I would’ve loved it, but this is so rewarding and so satisfying.

I just came back from Australia as I mentioned to you, and I received an email. I get a lot of emails after I’ve been at offices, but this was one was just so sweet. This is from a manager in an office. “Hi, Tom. Again, it was great to spend quality time with you last week. I would like to thank you for leaving such a positive vibe in the office. Post your meeting, I sat down with each section of the business to seek feedback on your visit and to encourage any concerns to be raised. I got 100% amazing feedback on how normal and approachable and natural you are in the way you interacted and spoke with the team, et cetera.” I get these all the time.

Once in a while, I forward it to Pat Gallagher and say, “Hey, man, look at this. It was fun.” He actually saves them in a file and, every once in a while at a board meeting, he’ll bring a couple of these in. He’ll say, “Alright, let me just read you a few … ” Because the board says, “You spend a lot of money on this project. Are you really getting results?” He says, “Let me read you a few of these emails.” They’re just very, very sweet emails. That was a manager of an office. Someone sitting in a work station talking to insurance companies all day will say, “I’ve never felt as good about our company as I do now after you were here.” When you get that type of feedback on a regular basis, that’s a nice stroke. It makes it worthwhile.

Kaizen: Last question. We focus a lot here on students, undergraduate and graduate as well. Soon they’ll be starting out in their business career. You’ve just spoken about what has made your work in the last 10 years meaningful or worthwhile to you. To younger people who are just starting out, who don’t have a sense for what’s going to happen over the next 30, 40, 50 years for them but they want their business career to be significant, what advice would you give to them on how to approach that?

Tropp: My advice is completely out of date with what people are doing now, but I’m still absolutely convinced that it’s the right way to approach a career. I believe you should find a company that you … First of all, you should do something that you love if you possibly can. Then, people say, “Well, I don’t know. I love to play golf, but I’m not going to make it in the PGA.” That’s fine.

I give young people a couple pieces of advice because we have big intern program, and these kids ask me these questions. I say, “The first thing I want you to do is I want you to take a little notebook and a pen, and I want you to put it on the nightstand next to your bed. Every morning for ten days when you wake up think, if I could have any job at all today, what would it be—any job at all? I don’t care what the education requirement is. It could be a brain surgeon or a space pilot or whatever it is. If you could have any job at all what would it be? When you’ve made that decision, get up and write it down in the notebook. Close the notebook. Forget about it. Do that for ten days in a row. Then, go back and read the notebook and think about every day. Was there any consistency? Find something that, even if you don’t have a passion for it, you can develop a passion for it.”

When I was in that position, I had Vietnam to worry about. I didn’t have any option but to go get a job. Then, pick a company whose values you can trust. And how do you find that out? Well, two ways. The first thing you do is research the company before you go to the interview. If you’ve gotten an interview with a company, get on the internet and research that company. Look at Glassdoor. Find out what the employees are saying. Now, that’s going to be all be negative, so you got to be careful with that, but find out what the things are.

Look on their website. Read their corporate governance page. Do they talk about ethics? Do they talk about values? Do they say people are important to us? Then, in the interview, ask more questions than they do. Ask them about those things say, “I read on your website that people are your most important asset. What does that mean?” Listen to their answer and then when you pick a good company, and you will know this quickly after you go to work for them, and you have confidence in them, work for them for the rest of your life. Don’t move. Stay there. Grow in the company.

This moving from company to company, it changes your approach to your job. It makes you more important than the job because what you’re saying is it doesn’t matter what I built up here. I could go over there and I could move a step up. I’m there for a couple of years, and then I can move over to this company. Be consistent. Stay with a good company and work for it. We are retiring people today from our company. We retired not long ago a woman who had worked for us for 40 years as a receptionist.

Now, receptionists don’t make a lot of money, right? She worked for us for over 40 years as a receptionist. I won’t tell you the city she was in, but it was in the Midwest. She retired with well over a million dollars in savings between her 401(k) and company stock. She got into our stock-buying program through the years, she retired with over a million dollars, and she had never made more than $40,000 a year. She was long-term and consistent. She’s the sweetest lady. About twice a year I get a postcard from this lady. Nobody sends postcards anymore. She does.

She’s 70-some years old. I used to get postcards from her. She’s a widow, her sister’s also a widow, and they’re traveling the world. I get a postcard saying, “Dear Mr. Tropp,” she won’t call me Tom. “Dear Mr. Tropp, I’m having a wonderful time in Paris.” Then, the second sentence is always the same. “Still have a whole bunch of money left.” She signs it.

Kaizen: Charming.

Tropp: Yeah. Have long-term loyalty to a company if it’s good company. That’s the way to go.

Kaizen: That fits your values.

Tropp: Yeah. I really believe that.

Kaizen: Alright, thanks.

Tropp: Thank you. This was fun.

This interview was conducted for Kaizen by Stephen Hicks.

Interview with Roberto Salinas-León on Entrepreneurship in Mexico

[This is the full interview with Roberto Salinas-León which was published in our Kaizen newsletter.]

Roberto Salinas-León on Entrepreneurship in Mexico

Kaizen: To start, tell us about your schooling, please. Did you grow up in Mexico City?

Roberto Salinas-León: Yes, in Mexico City. I went to high school here and studied under a British system at a school called Green Gates, which still exists. It’s a very fine school.

Kaizen: What do you mean by the British system?

Salinas-León: Very challenging from an academic standpoint, with great teachers. O-levels and A-levels. When I graduated I was uncertain as to what I wanted to do. In my junior year my father interested me in the philosophy of freedom. The first book he gave me was The Epistemological Problems of Economics by Ludwig von Mises, and to this day I have yet to understand most of it.

Kaizen: Is there a business background in your family?

Salinas-León: Strong business background. We’re from Monterrey originally. My grandfather became a very important figure in Mexican business. He was basically the man who introduced popular retail here in Mexico through a chain store called Salinas y Rocha, with the Salinas and Rocha families.

He also happened to be interested in Austrian economics and philosophy, and he financed a center that was copied straight from Leonard Read’s Foundation for Economic Education. My father also became involved, as did my uncle, and they were able to discover an intellectual called Agustin Navarro Vasquez who was the equivalent of Manuel Ayau from Guatemala. He was close friends with Manuel Ayau and had the dream of establishing a university of freedom here in Mexico.

He was a very brave man—he ran a series of almost-secret seminars, because it was very unpopular in the late 70s and early 80s to be talking about these ideas when the banks were nationalized.

Kaizen: How repressed was the political environment then?

Salinas-León: It was the perfect dictatorship, because it was repression without seeming to be so—an indirect and sophisticated form of repression. If you said anything against the president or something they didn’t like, it could be anything from a tax audit—to being kidnapped for three days without knowing why—to outright violence.

Kaizen: So the political “Keep quiet” message would be sent.

You said your family was originally in Monterrey but you’re now located in Mexico City.

Salinas-León: My grandfather came to close one of the stores that was not doing well in Mexico City. Instead of closing it, he started opening a bunch more. He had  an out-of-the-box entrepreneurial spirit. Like I said, the idea of selling household goods to the popular levels of society seemed counterintuitive, but he was able to discover an important niche.

Kaizen: Let’s return to you. As a teenager, you had come from a family that was very intellectual and had a business background as well. Was your idea to go into the business?

Salinas-León: I had no idea. Originally I wanted to study Geography or History. My education was then geared toward the liberal arts. I didn’t want to leave Mexico, but I also wanted to enjoy the opportunities the USA afforded, or perhaps stay one more year and apply to a university in Britain. I didn’t do badly in my advanced level examinations.

I ended up applying only to two places, one of them because of my father’s  insistence. One was Hillsdale College in Michigan and the other was Colorado College in Boulder, and I got accepted to both. I wanted to go to Colorado, which was an outstanding school. My father wanted me to go to Hillsdale. He said to give Hillsdale one year, and if you don’t like it you can go to Colorado or come back to Mexico.

So I went to Hillsdale in 1979, wanting to study Austrian economics and political economy. Actually at that time Hillsdale was going through a slump in the economics department. A lot of turnaround but the lecture series was unbelievable. The only time I ever heard Tom Sowell speak was at Hillsdale. I was two weeks into my freshman year when I heard Bill Buckley debate Jesse Jackson on the Palestinian issue.

Kaizen: Wow, so it was a happening place in many respects.

Salinas-León: Oh my goodness. I got to see and meet Leonard Read. I stayed at Hillsdale not because of the Economics program but because their liberal arts program back then was spectacular. Their History program and Political Science program was taught by former students of Leo Strauss, so we learned politics through literature. Instead of James Q. Wilson’s American Government it was reading Shakespeare and Plato at the freshman level. Very challenging. And of course the teacher-to-student ratio was terrific. I was very much into studying and academic performance.

By my sophomore year the cultural shock had waned, and I became very fond of the institution. In my junior year I applied to the Washington Hillsdale Internship program. So in the winter of 1982 I went to work in Washington for six months as a part of my college credit with none other than Ron Paul, who back then was a freshman congressman. I met Rand Paul when he was just a teenager. It was a small office so it was terrific. I met Roger Ream, who was my actual boss. And I remember listening to Ron Paul having conversation with Friedrich Hayek and Henry Hazlitt and with the people at FEE. And for me this was a tremendous eye-opener.

This was the time of the Gold Commission in Washington, so I got to meet people involved in monetary policy when the Cato Institute first started its monetary policy seminars. It was an unbelievable experience to become involved with all of these institutions and the networking. This was during the Reagan years, which was a very exciting time to be in Washington. And I graduated in 1983.

Kaizen: So you had a solid liberal arts background, but you kept up your interest in monetary economics and broader economic policy?

Salinas-León: It was a degree in Political Economy and History. In my senior year I became very involved in Philosophy. I had the benefit of having a very good teacher.

Kaizen: You got your Ph.D. in Philosophy from Purdue University, Indiana.

Salinas-León: That was also an unusual episode. I wanted to go to law school, but I was never good at standardized testing. And despite having an excellent academic record, some of my targets did not accept me or put me on a waiting list. I thought I would give myself a chance since I was already involved in Philosophy. I got a scholarship at Vanderbilt and a scholarship at Purdue, which had a very unusual faculty. Purdue also had the benefit of being close to Hillsdale. I thought I would be able to still come back and forth during the weekends, but I later found out that was impossible with the academic load that they gave me.

Purdue then, and I believe still now, was a very unusual place because they had a young and upcoming faculty and they had outstanding Analytical philosophers and outstanding Continental philosophers. And the best part was that they actually got together. There was a camaraderie and a spirit of exchange. I ended up writing papers on Quine and Gadamer on the indeterminacy of translation. So it was a lovely place to be in. I had a professor that was a professed Sartraen Marxist, who gave a seminar on Rawls, Nozick, and Rorty. Rawls was accused of being a horrendous, ultra-right, capitalist pig, so I couldn’t imagine what I would do if I defended Mill  again. I just kept quiet. But people knew about my classical liberal background and my strong libertarian leanings back then, and I guess they were tolerated.

Purdue also had the great benefit that part of your training was not just to be a teaching assistant. After the first year, they assigned you an outright class. You were an instructor and part of the faculty, and you got paid as a part of the faculty as a graduate instructor. And my supervisors could walk into my class unannounced, so they kept us in check and I couldn’t just drivel my way out of a class.

Kaizen: So you were working hard on your teaching skills and getting a first-rate philosophy education?

Salinas-León: Yes. I had some phenomenal teachers.

Kaizen: Was your motivation just an interest in philosophy?

Salinas-León: I wanted to get a Masters and go back to law school. I was pursuing an interest. This was the time that Kripke had just shocked the world with Naming and Necessity, and there were these new theories and breakthroughs in semantics and philosophy of language. I became immersed and obsessed with these topics. And then later when I had to take Continental philosophy, my biases were quickly stripped away because I had such remarkable teachers who taught Heidegger and Sartre and Gadamer. And so it was a tremendous eye-opener. And I became obsessed with the topics. I wasn’t specializing though. I would go from one topic to another and sort of dance around. One semester it was the ontological arguments, another semester is was Rorty and Philosophy and the Mirror of Nature, and another semester it was postmodernism and its impact.

Kaizen: So you wound up getting a comprehensive education?

Salinas-León: It was like a liberal arts education. I applied to law school. I was accepted to Georgetown and George Mason, but I wanted to go to Texas because my family and my buddies were in Texas. After my Masters I was burned out. This was 1985.

Kaizen: So you had a Masters from Purdue at this point?

Salinas-León: Yes. At Purdue they were not happy that I had left. I went to law school in Texas. I was going to do one year at St. Mary’s Law School and then transfer to the University of Texas Law School, but my heart was not in it.

By a very unfortunate coincidence, this was the year of the Mexican earthquake in 1985. I went back home. I missed two weeks of law school, and I thought I might as well get my tuition back because there’s no way I was going to recover from missing two weeks. And so I took a year off and worked for my father. Purdue found out and called and said to come back. You’ll be 27 by the time you finish your Ph.D. You can still go to law school after that. I didn’t want to go back, and my parents actually sat me down and told me to go back and finish. And so I did, and again I did the same thing. I got involved in liberalism versus communitarianism, and I ended up staying only two years. I was offered an extra year, but by this time I was already published in journals.

Kaizen: What happens after the Ph.D.? Did you return to Mexico?

Salinas-León: When I finished I had not written my thesis, and I was offered another year to stay 1988-89 at Purdue and continue teaching. I would get help polishing some of my papers to try and get them published. I was given the red-carpet treatment.

At that time I was teaching critical thinking—basically logic—and the one class I had tremendous difficulty with was advanced symbolic logic. It’s curious that I had troubles taking the LSAT, and I wound up giving classes on how to take the LSAT because of the background in critical thinking. At that point I used to talk to my father about this idea that everyone would say there is nothing you can do with a Philosophy degree. Well, first of all, I would do what I wanted with it. I wanted to write papers on Kant and Hume and Rorty and naturalized epistemology or whatever. And I bet you that I could find a job in Mexico as a teacher in a Philosophy department.

And at that time Luis Pazos, probably the most important classical liberal in Mexico, had become a superstar because of his predictions about what would happen if you nationalized the banks and controlled the exchange rate and printed money. All of those catastrophes came true, and he became a source of wisdom. And he was an absolutely incredible communicator. He was the envy of many professional economists. The called him a supermarket economist because he is. That’s a title that I’m very honored to be known as. His retailing skills were amazing and still are. He had a think tank in Mexico, the Center for Free Enterprise Research, and he desperately needed someone to take the academic program and revamp and renew it and begin to do new things. So my grandfather and my father called me and asked me to come home. I hadn’t finished my thesis yet, but they said I should finish it in here in Mexico. So I went back just at the time that the Salinas de Gortari administration is coming into power, and instead of talking about nationalizing industries they were talking about privatizing industries. And instead of talking about regulating industries, they were talking about deregulation. And instead of protectionism, they were talking about NAFTA and free trade. I wasn’t prepared in economics at the time. I was a quick study, and I had to reread some of the stuff I read before and read all of the ideas on liberty and Friedman and all of the literature that was out there. But because the tide in Mexico turned, I quickly became very involved with the global think tank community—with the Universidad Francisco Marroquín, the Heritage Foundation in the United States, the Cato Institute, the American Enterprise Institute, and the Council for the Americas in New York.

But you won’t believe that what marked my difference was that I grew up bilingual. I was the only one at the institute with command of the English language. So NAFTA comes along and CNN and Time wanted interviews, and I was the guy. So my name started getting quoted in all these places, and I started getting all these interesting invitations to lecture in Dallas and Washington. It was a steep learning curve. With Cato I developed a phenomenal relationship with my dear friend Ed Crane, who has been an unbelievable supporter throughout the years. When Ian Vasquez came to work at the Cato Institute his very first job was to coordinate a massive conference that Cato and our center was putting together in Mexico City, and this was the last time Milton Friedman spoke in Mexico City. It was Friedman and fifty-three other outstanding scholars. The conference was called Liberty in the Americas.

Kaizen: What year was that?

Salinas-León: It was 1992. People still remember that conference.

Kaizen: So let’s pause at this moment. You had a number of strains in your upbringing and choices that you made that came together beautifully to position you for what you wound up doing after your Ph.D. What would you advise young people when they’re thinking about their education experience?

Salinas-León: I would strongly advise them not to predefine interests and to let the course of trial and error take place and learn what you like.

Kaizen: You gave us sort of a combination of advice from your parents, knowing people, following your own interests.

Salinas-León: It was very paternalistic advice. I didn’t have much choice. It was good advice, but if they were going to pay for it they wanted me to try what they wanted me to do for at least one year. And they were right. It was very good advice. But the reason for me going to Hillsdale was to learn Austrian Economics and the whole movement and the literature and what not. And actually what happened was that to me the great benefit of Hillsdale was that it had a very strong classical liberal arts program. At least two history professors were outstanding teachers. My English teacher, James King, is the best teacher I ever had.

Kaizen: The one who you learned Shakespeare from?

Salinas-León: Yes. That was the hardest class I ever took—and also the most fun class I ever took. An absolutely amazing intellectual experience. My philosophy professor was fabulous, an expert on the Parmenides of Plato. But the whole atmosphere was great. Even our accounting teacher was not mechanical. It was fun. I was very lucky to have these phenomenal teachers, and I was a very devoted student.

So my recommendation would be to try to broaden your horizons. If you want to be a doctor or a lawyer or be a professional economist, schools are going to take notice more of your broad-based background than they are of pre-law or pre-med. Broaden your horizons as much as possible. And enjoy the college experience. That’s something that perhaps I didn’t do.

I very much believe in the ancient lore that sports is an important part of your education. I told my kids that they need to engage in a sport. That’s part of their formation and their discipline.

Kaizen: Our center’s emphasis is on entrepreneurship. Is it fair to say that your advice is to have students think of their education as entrepreneurs?

Salinas-León: I would say that to be a successful entrepreneur today, you do have to have a broad scope. I have a son studying entrepreneurial science at Babson, and his focus is on managerial accounting and operations management and financial accounting and foundations of entrepreneurial sciences.

But I’ve got to say that a course on Shakespeare’s political plays can also teach you a great deal. A course on the philosophy of Lao Tzu can also teach you a great deal. Learning how to read Hume, whether or not you are a sympathizer, can also teach you a great deal because it broadens your mind.

Today’s entrepreneurial spirit has to be very out of the box and innovative. Think of the impossible. Think of the heroes of today, whether it’s Steve Jobs and the magic he created, or Elon Musk wanting to travel to Mars and everyone laughing at him. Those are the people who today are changing the world. And that requires not just an open mind but also an understanding, in my opinion, of the nature of an open society.

For instance, when studying Karl Popper at first I was adamantly opposed to his approach of scientific methodology and whatnot, but his whole idea of falsifiability that he talks about in The Logic of Scientific Discovery fits with, let’s say, Google’s fail forward philosophy. Many people think of philosophy as something that’s abstract and that you’re in another world.

Kaizen: For Popper’s abstract theory of scientific methodology, how would you summarize the falsifiability point for students who haven’t read it and connect it to the fail-forward philosophy?

Salinas-León: Well, you have an idea and the first thing you have to do is to refute it. It’s not confirm, confirm, confirm. It’s refute, refute, refute. The more I refute it, the more I learn that there was something that was flawed in my original idea, and I begin to polish it. And I refute it again, and how does it resist refutation? A business model is very much based on that philosophy.

Kaizen: Going out of your way to find a problem or flaw or weakness.

Salinas-León: It’s a problem-finding spirit. It will enhance your credibility.

Kaizen: Is this just a heuristic issue? Because we tend to come up with an idea and tend to follow up with our own ideas and then put the blinders on.

Salinas-León: I don’t think it’s just a heuristic issue. It’s both heuristic and substantive.

Kaizen: Is it about the limitations of knowledge, the fact that we don’t know very much?

Salinas-León: You have to be very humble. One speech I greatly admire was given by J.K. Rowling as a commencement address at Harvard in 2008, just before the financial crisis. It was called The Fringe Benefits of Failure. It was about failure and imagination. I think that’s what defines not just the entrepreneurial spirit, but a good part of the core of classical liberal philosophy: learning how to listen, keeping an open mind despite the idiocies and fallacies that surround us and day by day having to refute them and repeat the same old things over again—things that household mothers know better than any Ph.D. from MIT about the benefits of fiscal discipline and stability.

Kaizen: In formal education you unlearn some very good lessons.

Salinas-León: Yes, unfortunately, sometimes that happens. It’s the Keynesian pretense or the pretense of knowledge. I think Hayek’s Nobel lecture is one of the most magnificent pieces of classical liberal thought. Despite the zealotry of his other writings, I think he really caught onto something important that many classical liberals have underappreciated—the importance of a spontaneous order, little bits of knowledge lying all over the place and how they coordinate themselves. Sure you need the institutions and sure you may need the occasional helping hand and it’s good to have those debates, but the fact that there is no single mind that can amass all those bits of knowledge. I think the fatal conceit perhaps comes as too generous a characterization of that phenomenon that is so common in our politicians, whether it be Obamacare or our finance minister here in Mexico or Hugo Chavez who thinks he can erase history and start anew.

Kaizen: This highlights a difference between the way business leaders and political leaders run their organizations. Do you think it’s primarily a pretense of knowledge or a desire to control? Because if you want to control people you might pretend you know more than you do, or it might be that you actually think you do know and reluctantly think that you need to be in control.

Salinas-León: The character of a very successful businessman or businesswoman is difficult to appreciate. I think it’s a curious sociological phenomenon. Clearly you cannot contest their success. Despite the fact here in Mexico that Carlos Slim has been accused of running a monopoly, you have to appreciate his entrepreneurial genius. And he responded beautifully to incentives. The incentives of a fragile institutional framework were there, and he took advantage of them. So yeah it’s his fault, but it’s also the fault of our institutions. There’s a vicious circle here. But that doesn’t mean that being successful as a businessman or businesswoman entitles you to be the source of all wisdom and truth.

I’ve noticed this other sociological phenomenon in business leaders, and Donald Trump is the perfect example of this. All of a sudden they can talk about trade or the balance of payments or fiscal policy or even how to interpret Heidegger. There is a very strong element of hubris. You see this in Davos every year. It’s so pretentious.

Kaizen: The fatal conceit.

Salinas-León: That is the fatal conceit. You see these programs and they’re so pretentious. “We’re also experts in music and in the philosophy of life and how to take a yoga class.” Come on. The original was a semi-off-the-record exchange between leaders to contemplate what happens with the world and how we move forward.

Kaizen: What kind of conceit is it? Do you think it’s a pretense or genuinely held?

Salinas-León: Maybe a combination of the two. I think some people really believe it. Curiously enough, and you won’t believe this, but one person who denounced this was Paul Krugman. He wrote a book called Pop Internationalism before he became famous, a rock star, and was given a Nobel laureate for something he preaches against today. But in that book he even tells us that the end of trade is to import, not to export. So this whole nonsense with competitiveness he calls a dangerous obsession. And I completely agree with that. He even cited Frédéric Bastiat. If you really want to export the hell out of your nation, the easiest thing to do would be to generate a huge depression, and he has an article where he says that it’s a sorry state of affairs that businessmen think that because they can read a balance sheet, that means that entitles them to read a balance of payments or national income.

So many, like Trump today, tell us that America has a trade deficit and that’s automatically bad. Krugman himself plays with a nice idea. New York city imports everything and exports what? Entertainment, tourism, and financial services, for the sake of argument. That’s what New York does. Because of its special circumstances as a global city, if we take it out of the calculation of the balance of payments, our macroeconomics would look beautiful. People would feel a lot better even though nothing changes in the real economy. People would continue to trade the way they do every single day. I thought that was a very insightful example of how to demonstrate the miserable understanding that some business leaders show in terms of economics.

Kaizen: Even more so the politicians.

Salinas-León: Yes. And that’s not pretense. That can be genuine hubris. Even some free-market economists, Chicago trained or MIT trained. And I’m not an economist, but I do a lot of economic policy. Most people think I’m an economist here in Mexico. But in exchanges or debates I’ve been told that you can’t speak of this because you’re not an economist. My response is that I was a logic professor, and if you took a 101 logic class with me you’d get a zero for such a blatant ad hominem fallacy. Credentialism is the cheapest way to win an argument. And there’s a lot of credentialism among economists.

Kaizen: Let’s go back to the pretense of knowledge and motivation. In many cases people who express an interest in politics, and they recognize that they don’t necessarily know much about science or economics and so forth, but what attracts them is the idea of being a politician, which for them means being in control of things that are important. Do you find this also in the business sector?

Salinas-León: Yes, it happens. It’s what you may can an imperial design, wanting to micromanage every part. My grandfather was a little bit like that.

Kaizen: But he had the entrepreneurial chops to back it up to a large extent it sounds like.

Salinas-León: He did. And you didn’t have the right to question him because of his success. But there are also many others, especially younger generations of entrepreneurs in Mexico, where some of the people in the states at local levels, you would marvel at what they were able to achieve.

I almost think that Leonard Read was wrong in describing I, Pencil as a miracle because of the spontaneous order. I, Pencil continues to survive in spite of the worst institutional settings. I wrote an article about this saying that I, Pencil continues to thrive despite our labor and tax laws and our regulations that were made to extort.

You practically cannot survive in the business world today without falling prey to some form of corruption. Corruption becomes the price you pay to simply get ahead. It’s a tax.

Kaizen: Let me use that to transition to the Mexico Business Forum. You were president of that organization. What’s its function?

Salinas-León: The Mexico Business Forum was part of the Economist corporate network.

Kaizen: This is affiliated with the magazine?

Salinas-León: Yes, and the Economist Intelligence Union. I worked very closely with the Economist Intelligence Union. For thirteen years I ran their conference program here in Mexico. And the vehicle through which I ran it was the Mexico Business Forum. The corporate network before had the Estonia Business Forum, the Argentina Business Forum, and the Brazil Business Forum. In Latin America they all started dying down for different reasons. The business model was outdated. It was sort of like a corporate club. I was in television at the time doing a lot of media journalism. What I tried to do was use, let’s say, a powerful brand to open doors and plant the seed of classical liberal ideas all over the place. With the conferences we held, the president always came and the finance minister and central bank governor and all the business leaders. We got a tremendous amount of exposure. I had a chance to develop a session on simple rules for a complex world and a session on the benefits of free exchange.

Kaizen: So a certain amount of a healthy business culture has to do with political economy. It sounds like a large part of what you were doing was political economy.

Salinas-León: Back then it was political economy. Later I left the Economist. I got tired, basically.

Kaizen: So part of it is working toward a healthy political and economic environment.

Salinas-León: That was the idea, to basically use this as a vehicle to transmit ideas that would consolidate or fortify messages and themes that we wanted to permeate policy action, whether it was a flat tax being a good idea or a sound currency or central bank independence or a flexible or fixed exchange rates. We had these healthy debates and a tremendous amount of exposure.

Now, a lot of people mistakenly think that if you’re an economist that you’re a financial analyst. That’s one of the great fallacies. Many economists should learn a lot more about what traders actually do, and traders should learn more about economics. But I quietly started getting into being an investment advisor, and I found that I had a certain knack for it, especially in putting together the right team and dealing with the deal breakers. And you know what, that comes from philosophical training.  And today eight percent of my time is devoted to that. My policy and my engagement in the Association of Private Enterprise and Education and Liberty Fund and so on are very good public relations vehicles to be able to expand business opportunities. I’ve had to be a quick study and learn about finance and corporate law and tax law.

Kaizen: So you’re a Renaissance man.

Salinas-León: I don’t pretend to be, but it’s been fun. Some operations have been very successful, and some have been a disaster. There is a very steep learning curve. I can’t think that because the first three or four things I did were successful that everything I would do would turn into gold. The lesson in humility was strong, and it was not intellectual. It was financial. Ouch. You have to be a quick study.

Kaizen: So you go from high philosophical and political and economic theory to dealing with political and economic infrastructure in Mexico and abroad and then down to particular high-level financial investments, and so on.

What about grassroots entrepreneurship? Does the Business Forum talk about developing the entrepreneurial culture?

Salinas-León: Very much so. We talked about this much more in the past, especially the small-sized entrepreneur. One project I have for the future is to develop a whole series of cases and show anecdotally, not with a big theorem or whatever, why Mexico does not grow at the rate that it has the capacity to do so. We are a country that should be growing at seven or eight or nine percent a year on a sustained basis. We have that potential.

So part of the vitriol that we get from Trump and his supporters today is probably a little deserved because we haven’t done the full homework and we haven’t gone full circle. We started a program of structural reforms, but we didn’t do the second wave of reforms. You need to go back to the local property registry and make sure those titles are clear and easily available, because that’s what makes the difference between trading your property and not being able to trade it or it being caught in legal limbo.

So a deep capital market very much depends on the transparency and the reliability of your institutional framework that is governing. With banks today that is happening. Why? Because we’ve imported our laws. It’s an international banking system. We have HSBC, and this beautiful new building we’re in right now is a Spanish bank. It’s not a Mexican bank.

Kaizen: So you’re importing everything, but what about the homegrown?

Salinas-León: The homegrown still needs a lot of work. It’s gotten better, but in some places its gotten worse. I believe that Hernando de Soto with his work touched the tip of the iceberg of a much deeper and pervasive phenomenon in Mexico and in Latin America. I worked with him on the project that he launched here in Mexico ten years ago. Many of the young men and women here that go out into the streets and sell you entertainment, or if it’s raining sell you an umbrella, or if it’s September, the month that we celebrate our independence, they’ll sell you flags. Right now it’s Halloween so they’ll sell you masks of Donald Trump or Dracula or Batman or whatever. They’re extremely innovative and inventive, and they do it at the margin of the law. Even cars that park here and sell taquitos and cerveza, and in instead of going to the Four Seasons restaurant you want to come here and have a beer and a paper plate of taquitos.

But those people need light and water and police protection. The police protect them. The agent from the federal electricity commission will come and illegally make sure they have the electricity that they need. And, of course, everything is based on bribing those people. What are you doing? You’re taxing. And it’s an efficient form of taxing because you are getting the service that you’re expecting.

Now, the tragedy of an informal economy is that it’s incredibly innovative and has a tremendous entrepreneurial spirit, but it’s necessarily local. It will never expand from that immediate universe. You can’t capture economies of scale. And if you get into a dispute, you can’t have access to contracts or to the legal system. You’re always going to remain in that circle. There’s a real need, as Hume would say, for a system of justice.

Kaizen: So you say the entrepreneurial spirit and the ingenuity and the energy is there at the grassroots level, but what you need is reforms at the local political level—access to the legal system, accesses to the utilities.

Salinas-León: Something as simple as, for instance, why are the 3,800 local municipalities in Mexico the ones that have the right to issue construction permits? That’s become a medium of extortion. All of the stories that you’ve heard about Wal-Mart engaging in bribes here in Mexico are absolutely true. And it wasn’t just one, it was every single one of them. Otherwise you cannot get ahead. It’s pervasive.

Kaizen: It’s systemic corruption at the local level.

Salinas-León: It’s systemic. Construction permits should be issued by an independent and credible decentralized or non-profit organization with very specific tracking mechanisms. I know in the United States there are cities in Georgia today where you can go online and track permits like you can track a package being shipped. We need that technology in Mexico. And that’s just one example of countless examples.

There’s this program in the United States called American Horror Story. One day I’d like to publish Mexican Horror Story. And I can tell you from a real life point of view that I’ve been a victim of this in my business engagements. Time and time again the number one problem is the regulatory exchange with the powers that be.

Today I’m trying to broker deals with people wanting to come into the energy sector in Mexico because of the very ambitious, market-oriented transformation opening of the energy sector at long last. It will take many years, but the number one problem whether it’s a fund or a company or group of investors is the regulatory environment. They’re sick of it. They’re absolutely sick of it. You need to hire a first-class lawyer or somebody who is respected as a godfather-like figure that you won’t want to mess with. And, of course, he or she will charge you a large amount. That transaction cost inhibits Mexican growth.

Kaizen: It’s a lot higher than in places that have cleaned up the corruption.

Salinas-León: Like Chile, for instance.

KaizenOr Uruguay.

Salinas-León: Or Uruguay.

Argentina is another sad case in point. A friend of mine used to be the representative of a company that sells billboard advertisement. He would say that it’s amazing that there’s nothing that can get done here without a kickback or a bribe.

Kaizen: This is in Argentina?

Salinas-León: No, here in Mexico. And then he goes and lives in Argentina and he says that it’s worse here. It’s almost like it’s permeated in the system. So one policy challenge is: How do you get rid of that corruption? It’s not by pointing the finger.

Kaizen: You need case studies about how other countries have dealt with this.

Salinas-León: Not case studies but anecdotal examples. It’s happened to me, and I’d like to describe it.

Kaizen: So corruption certainly is an issue, and the regulatory environment goes hand in hand.

About Mexico’s ties to the United States: From our perspective we get a lot of entrepreneurial Mexicans who are ambitious and work hard and have good ideas. From the Mexican perspective, is that a brain drain problem?

Salinas-León: No question about it. A former partner of mine and former candidate to the presidency, Josefina Vásquez Mota, recently published twenty-four interviews with Mexicans who have crossed the border. It’s something similar to what I’d like to do with my Mexican horror stories, but hers are more positive.

Despite the odds and the hostilities and having to cross the border illegally and swim across the river and having to go through the coyote industry, which is extremely dangerous like the mafia that cross you over the border. You have the danger of suffocating in the 120-degree heat in the Arizona desert because you’re left alone inside of a truck when the coyote escapes to save his own skin. Despite all of this, there are these case studies of twenty-four Mexicans, and what would you want? You would want those people back home.

One of them took himself and the lore of his mother and grandmother’s recipes into the United States and he ended up in Chicago. I forget the details of the story, but he started off as a dishwasher. Chicago has a huge Mexican population.  Mexico City and then L.A. and then Guadalajara, and then the fourth largest Mexican populated city is Chicago. So he started off as a dishwasher and later on became a cook and discovered he has a flare for it. Years later he gets a group of investors and starts his own restaurant called Mexique, and it’s the only Mexican restaurant in the world with a one-star Michelin.

Kaizen: Wow. Nice.

Salinas-León: We have restaurants here that have one or two stars in Mexico City, but they’re not necessarily Mexican. This is the only Mexican restaurant with a Michelin star.

Another example is a man they call Dr. Q. He was basically a tomato picker who went from Mexico where he picked tomatoes to California where he picked tomatoes. Turns out that this man had an enormous knowledge of neuroscience and medicine, and today he is a globally famous expert at a hospital in San Diego where those same hands that used to pick tomatoes are now going into brains to operate and take out cancer.

Tell me, do I want that human capital in my country? We don’t need a wall. We need incentives to bring them back.

Kaizen: So the incentives go the other way. We get many of the best Mexicans.

Salinas-León: You go to New York on lower Park Avenue where a lot of the big banks are and a lot of the up and coming bankers there are Mexicans—extremely well trained, extremely hard working.

Kaizen: So they need the incentives to come back to Mexico or to not leave in the first place. That’s going to mean less crime, less corruption, and a healthier regulatory environment.

Salinas-León: Yes. I would emphasize a healthier regulatory environment. What we call derecho facilitador, derecho as in law. We need a more facilitating environment.

I love Richard Epstein’s Simple Rules for a Complex World. I think he hit it right on the mark. We tend to think of very complicated rules to try and make our lives more simple. That’s the hubris of a politician or an economist who wants to mold you and determine the future in accordance with the law. All you do is you end up making our lives miserable.

Now, crime is a different phenomenon. It definitely affects business decisions. A dear friend of mine has been very successful exploiting trade between Mexico and Canada, which by the way has gone up exponentially in the past twenty years. Canadians don’t know it, but the mangos and the flowers they buy come from ranches in Mexico. My friend has gone to all theses states that have basically been abandoned by the federal government and are fragile and have been taken over by either the cartels or by paramilitary groups that devote their lives to extorting you. Of course, all the municipal president does is steal the money from the coffers or use the permits to extort you, so their popularity is not great. So these people think of themselves as Robin Hoods.

Now, they come and they tax my friend. That’s money that could have been used for other things, but you know what, he’s still prosperous. That’s what’s so amazing about these stories. These people are still able to find a way to get ahead. At the end of the day it’s real cost reduction. You need entrepreneurial inventiveness and new technology for real cost reduction, but you also need the help of the government for real cost reduction. These people are able to do real cost reduction and remain competitive despite the setbacks of a very fragile and sometimes nonexistent institutional framework.

Kaizen: You talked about Mexicans going to the United States and Canada for business opportunities. What about business opportunities for young American and Canadian entrepreneurs coming to Mexico looking for opportunities? Do you recommend finding a local partner?

Salinas-León: Most definitely. I would say two things. Don’t listen to what you hear, and study the facts. Mexico is the second largest trading partner of the United States. Mexico is the number one supplier of auto parts to the United States in the world. Mexico trades more with the United States than Germany, Britain, and Japan put together. You can’t treat your second largest trading partner the way that Donald Trump wants to treat us. That’s just bad business. Probably the NFL would have to be abolished because NFL helmets are produced here in Mexico.

And instead of thinking of North America as three different countries, think of it as one integrated zone. That’s what NAFTA was supposed to be like. We could have an integrated energy corridor that today could supply the rest of the world energy for the next 150 years. Mexico is not just in oil. We have vast potential in shale gas. We don’t have the technology and we don’t have the resources and investment, but at least now we have the open regime that can invite that type of investment. Ford has this remarkable establishment in Mexico, one of the best Ford plants in the world. They depend on the intellectual knowledge that they get from Detroit and even from Windsor, Canada, so it’s going to affect the entire supply chain. You’re going to kill the entire supply chain.

So that mentality of integration eventually has to expand to all factors of production. It would be much more intelligent than calling us rapists and wanting to build a wall to think of a legal framework and forge cultural partnerships. We need leadership for that.

Now, you need to understand that there is this very close tie between the United States and Mexico vis-à-vis trade. It’s a vast amount of trade. Mexico exports one billion dollars of manufactured goods to the United States per day.  That’s more than China. And that involves a lot of transportation. So instead of having all of these bottlenecks at the border we should be thinking of bridges and technologies that could supervise and track the trucks and whether they are misbehaving or not.

Kaizen: So, in addition to all the market entrepreneurs, we need some healthy political entrepreneurs.

Salinas-León: Leadership and political entrepreneurs, but it’s difficult in this political environment.

If you want to come to Mexico, there are wonderful opportunities. There are opportunities in the service sectors, in technology, and tremendous opportunities in retail. The purchasing power here because of the stabilization of the currency is far better than it used to be. There’s been a decoupling of the exchange rate and the inflation rate, so despite volatility to the exchange rate people here still command very much of a dollar mentality.

But in some of the business ventures that I’ve done, I’ve known some very smart people who have come into Mexico without a local partner. That is a potential for suicide. I know of some of these horror stories where someone comes in and buys a lot of land and wants to develop it. It turns out that the same notary public that notarized that land in your name also notarized it in the name of his compadre. And his compadre is the compadre of the local state judge. So unless you have a local partner that can strong arm and get you out of messes like that, you’re going to lose.

Kaizen: So don’t be an idiot.

Salinas-León: It’s very unfortunate that in Mexico you have to do that, but you do need a strong advisor and especially a strong local partner.

Kaizen: So the transaction costs are going to be higher than you think.

Salinas-León: They could. You’re running an unnecessary risk. So why not share the wealth with your local partner? You can still retain a majority but you have someone here with the skills and the PR network. We call it the tropicalization of your business model because it really is a jungle. You need to know the ins and outs.

Kaizen: So you need the local knowledge.

Salinas-León: The local knowledge.

Kaizen: To bring things to a close, you’ve been working in the intellectual world, business world, and political world for many years now. Is there anything that has really stuck with you from your education time? Is there a lesson that you learned that has been useful to you over the course of the years?

Salinas-León: I guess I would come back to first principles. The mental clarity about economic principles, for instance, has been incredibly useful. Excuse my French, but it really sharpens your nose for bullshit, and you can detect immediately if this is wrong or right. Sticking to first principles, but not because I know more than everyone else. On the contrary.

Kaizen: It keeps you reality oriented.

Salinas-León: I like to say that taxi drivers, housemothers, and people from the informal economy know more about economics than the most highbrow, enlightened bureaucrat.

Kaizen:  In most cases it’s tacit for them.

Salinas-León: In most cases it is tacit but it is very responsive. It’s almost automatic. So that’s one. And then the value of trial and error and with it learning the limits of knowledge. And humility doesn’t mean silence. You can be very active and very engaged, but learning how to listen is key.

And I would say this to some of my dear classical liberal friends as well that sometimes do not want to listen to other points of view because it’s not 100% Austrian or 100% Chicago. Learn to listen to other disciplines, and recognize the fact that we don’t have a monopoly on truth. My father and I used to talk about this day in and day out. It was a common theme and not just a theme in academia or the policy world, but a theme in the real world as well.

This interview was conducted for Kaizen by Stephen Hicks.

Kaizen 32: Roberto Salinas Leon and Tom Tropp

The latest issue of Kaizen [pdf] features our interview with Roberto Salinas-Leon on the theme of Entrepreneurship in Mexico as well as our interview with Tom Tropp on the theme of Business Ethics and Corporate Culture.

Also featured in this issue of Kaizen are guest speakers Gregory Sadler and Laura Grube and our Entrepreneurial Education conference.

Print copies of Kaizen are in the mail to CEE’s supporters and are available at Rockford University. Our next issue will feature an interview with Krzysztof Jurek on the theme of Entrepreneurship in Poland and an interview with Laura Niklason on the theme of Entrepreneurial Biotech.

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

CEE Review: How the Netherlands feeds the world | On the job brain injuries for football players, and more

News and Opinion

Video: How barefooted Indians inspired Bata to set up shop in India.

French fashion firms pledge to stop using underage and size zero models. The Guardian.

How Chicago’s Loop came to be. Chicago Tribune.

Automation replaced 800,000 workers… then created 3.5 million new jobs. Venture Beat.

On-the-job brain injuries (for football players). Business Ethics Highlights.

LePage signs food sovereignty law, the first of its kind in the nation. Bangor Daily News.

“The Netherlands is a small, densely populated country, with more than 1,300 inhabitants per square mile. It’s bereft of almost every resource long thought to be necessary for large-scale agriculture. Yet it’s the globe’s number two exporter of food as measured by value, second only to the United States, which has 270 times its landmass.”​ How the Netherlands feeds the world at National Geographic.

Podcast: Stephen Hicks on what entrepreneurship can teach us about life. Based on his article originally published in The Wall Street Journal.

Is it really commercial activity that civilizes? Library of Law and Liberty.

T. J. Rodgers, hi-tech chips, and a board battle over national security. MarketWatch.

Idea:  “The game of life is a lot like football. You have to tackle your problems, block your fears, and score your points when you get the opportunity.” — Lewis Grizzard

See you next time with our digest of new and interesting items in entrepreneurship, ethics, and political economy. Here are the previous editions of CEE Review.

CEE Review: Can Entrepreneurship Save A Generation From Anxiety? | The Myth of Technological Unemployment, and more

News and Opinion

The Myth of Technological Unemployment. Reason.

Doing Well… for the Greater Good. Business Ethics Highlights.

Entrepreneurship Is for Everybody. FEE.

Samsung Argentina – Samsung Safety Truck. Video at YouTube.

24 Industries Other Than Auto That Driverless Cars Could Turn Upside Down. CB Insights.

Can private employers fire employees for going to a white supremacist rally? The Washington Post.

Steve Mariotti: Can Entrepreneurship Save A Generation From Anxiety? Huffington Post. Read our interview with Steve at our site.

Beloit, a small town in Wisconsin, is becoming an incubator for tech start-ups. Video by The New York Times.

Is the free market anti-capitalist? CAPX.

Reid Hoffman on sexual harassment, VCs, and women entrepreneurs. Medium.

Announcements

Northern Illinois University EIGERlab is hosting its annual FastPitch business start-up competition in Rockford, Illinois, on October 4, 2017. More information is available at their website.

Idea: “Above all . . . learn to disagree without being disagreeable.” — Ted Galen Carpenter

See you next time with our digest of new and interesting items in entrepreneurship, ethics, and political economy. Here are the previous editions of CEE Review.

Professor R. Paul Drake won the Teller Medal

R. Paul Drake, Professor of Space Science at the University of Michigan, Ann Arbor has won the the 2017 American Nuclear Society Fusion Energy Division’s Teller Medal. This medal is given for his seminal work in radiation hydrodynamics and laser-plasma interactions, and for educational contributions, advancing fundamental high-energy-density physics and its applications to astrophysics.  The medal recognizes pioneering research and leadership in the use of laser and ion-particle beams to produce unique high-temperature and high-density matter for scientific research and for controlled thermonuclear fusion.

Read our interview with Professor Drake here.