Archive for the ‘Interviews’ Category

Interview with Leslie Marsh on Entrepreneurship in Canada

Thursday, May 9th, 2019

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

Leslie Marsh on Entrepreneurship in Canada

Leslie Marsh is a research associate in the Dean’s Office at the University of British Columbia and Founding Editor of Cosmos + Taxis, a journal focused on studies in emergent order and organization.

Kaizen: Where you were born and how did you get to Canada?

Leslie Marsh: I was born in London, England.

KaizenAs we can tell from your accent.

Marsh:  So I was born in London, England, and I spent some of my early years in the Dominions—what was then Southern Rhodesia and South Africa—but that was forty years ago. I went back to the UK in the 70s. The early 70s were pretty grim. Musically it was fantastic, but economically it was pretty grim.

I didn’t know what I was going to do, but my mother—not an educated woman—always said, “Son, whatever you do, get a liberal arts education.” How she knew that, I don’t know. She said, “Whatever you do, don’t become a freaking accountant at 23 or 24. Don’t do that. Go and get a classical liberal arts education, and find out who you are, what you’re interested in, what you’re suited for. You might discount things, and you might discover things.”

But liberal arts education then in the UK was pretty much under stress. It was in North America, in the U.S., where you had small liberal arts colleges. And guess where I landed up?

Kaizen At one of them?

Marsh:  Yes, Evergreen College in Olympia, Washington.

Kaizen: How did you find your education there?

Marsh:  I had a ball. It took a while for the pennies to drop. It was very much the early days of what we now call SJWs.

Kaizen:  Social justice warriors?

Marsh:  That’s what I’m saying. It was there, but it wasn’t. I got on well with people. They had individualized study there, which suited me perfect because I don’t follow anything. I do what I want. In point of fact, I’m so embarrassed about what universities have become these days. I consider myself an autodidactic.

But anyway, they let me be, and I followed what I wanted. I did mathematics, early computer programming, literature, and Harvard Business School-style case studies. I let it rip and had a ball socially as well. It was in the days of sex, drugs, and rock-and-roll.

KaizenAfter Evergreen what happened?

Marsh:  I went back to the UK, and very naively. I didn’t know what I was going to do with my life. I didn’t have a clue, but I’ve always been lucky. I’ve never had to plan.

I went into merchant banking at Chemical Bank. And the fact that Chemical Bank no longer exists is not down to me. It might have been the seeds of its downfall. It might have started with me. Anyway, I was there doing arbitrage eurobonds.

Kaizen:  This is your math and computing background coming in handy, right?

Marsh:  Yeah, but I had absolutely no interest in it. It was silly money basically, and I hated the office culture. I really wasn’t interested in the water cooler conversation there, but I struck it lucky. The guy that hired me was, in his early days, a student. He was what you would call a committed socialist, but a very, very thoughtful one. I mean, he spoke Russian and loved Russian literature. And I said to him, “Simon, why did you hire me? You know how disinterested I am in all this.” And he said, “Well, at least I’ve got someone to speak to over lunch.” We’re still great chums these days, but he said, “You know you’ve got to get out of this. You’ve got to do something else.”

Kaizen: So he could see that it wasn’t your thing.

Marsh:  Yeah. I got lucky, and he said, “Well, go out and just bloody well do something else.” And he knew I was philosophically inclined, but I didn’t really know that. I couldn’t articulate that, because I love philosophical literature. So I went out and I did my Master’s at Birkbeck, which is the evening college at the University of London. I just continued studying, and I’ve never really stopped. I found philosophy very unsatisfactory, especially because I made the mistake a lot of people make. I wanted to go into philosophy via literature, because of course that is where the rubber hits the ground, and I had to be educated. You’re vulgarizing it if you look at it purely in those terms. That’s how I snuffed out of that way of thinking, but then I saw the failings in the syllabus— no conservative stroke. The syllabus was liberal thinking as we understand it.

Kaizen:  So this is a Master’s degree. After Birkbeck, what was the next step?

Marsh:  Now bear in mind I was in community college, but I was working during the day. I did part-time in classics, but not for linguists because I just felt that my classical education on mainstream philosophy was somewhat underserved. I needed to look at Plato and Aristotle much more closely. I taught myself elementary Greek, and I worked again independently. And then after that I moved into sociology for my sins, also at Birkbeck.

Kaizen:  Okay. Let’s jump ahead to your position at the University of British Columbia. You work in the offices of the Dean at the medical school. What’s the nature of your position there?

Marsh: I work with a guy called David Hardwick. I work with him for the International Academy of Pathology, which is an educative thing in underserved areas of the world. It’s a big, big outfit. But he’s also interested in open systems and the Scottish tradition of liberality as we understand it.

Between us, we set up Cosmos+Taxis, which is an open access journal. It’s with Simon Fraser University as well. I don’t know if you’ve seen the journal, but it’s open access and it’s beautifully done. It started off under different guys as basically PDFs.

Kaizen: So, actually, you’re part of the evolution of publishing from the traditional style into contemporary media.

Marsh:  Yeah, and it’s thriving. Of course it’s free, but we’re not in it for money. We’re in it to get knowledge out there. We don’t have careers riding on it.

Kaizen:  What’s the scope of this particular publication now?

Marsh:  Studies in spontaneous order, which basically covers the liberal tradition as we understand it.

Kaizen: You’re also involved in another start up you mentioned in distributing video content.

Marsh:  Yeah.

Kaizen:  This is in Canada, of course. The current heavy hitters are Netflix, Amazon, and so on. Your idea was to do a Canadian entrepreneurial start up that would distribute video content based on that model. Can you say more about that project and some of the central problems that you’ve run into?

Marsh:  Well, Dave’s nephew Doug is a big player in the film industry in Vancouver. He’s spent probably the best part of 30, maybe 40, years with that same open systems mentality. He was an Oscar nominee, but he doesn’t buy into the, pardon my French, bullshit of Hollywood. But, of course, he had this idea because you could see where Hollywood was going. Basically, he was tired of the circus-type stuff coming up to Vancouver because of the tax credits.

Kaizen:  Right.

Marsh:  But anyways, he had this idea. He’d been thinking about it for a good fifteen years, and he started building it. And then when we met, we got to talking about it. We said, well, let’s bring this to market. So we had a good crowd of people that understood what we were doing, but not people with deep pockets. We put together what you’d call a crowdfunded group, and we built it out. It’s online. It’s finished, but there was a snag: we need the content.

Now, it’s not so much the content. Anyone can come to it and put up their content, but we needed a kick-start by having all the free content that the National Film Board, which the taxpayer is paying for in Canada, has. It’s paid for. The National Film Board really should have given us the content or should have used our platform to distribute our content. We’re not profiteering; it’s run like a utility. We only have a markup on the bandwidth, simple as that. The whole back is Amazon technology. The technology is there, but because of governmental faffing around and not understanding the way that the digital world has gone, they just failed us.

So we didn’t have that kick-start, we don’t have the content, and it’s just been mothballed. Well, it’s there and running and functional, but it’s not doing any business.

Kaizen: Okay. So, Canada is a 35-million-person market, and they are accessing digital content. Where are they getting it from? Is it all from Amazon and Netflix?

Marsh: That’s exactly what they’re doing.

Kaizen: So it’s all American distribution. American companies succeed, whereas Canadian companies, in effect, got mothballed?

Marsh:  But the whole point of the World Wide Web is not that we’re serving Canadian content to Canadians. The rest of the world are interested. Can you imagine indigenous populations in New Zealand or Australia being able to hook into indigenous populations generating content in Canada? There could be a whole thing going, and it can be monetized so easily. The problem is, it’s not on a level playing field. Netflix and Amazon and any of these U.S.-based mega entities do not pay tax, whereas a Canadian entity has to pay tax. It would’ve cost us over $300,000, probably a lot more, to have all the programming and the mechanics involved to be able to do the regional Canadian tax. And there’s this whole harmonization problem in Canada between the two tax tariffs, for want of a better word.

Kaizen: Is it a tax differential at the national or the international level? Amazon and Netflix pay taxes domestically back in the U.S. on their profits, but they’re not paying on the Canadian tax.

Marsh: They’re not paying Canadian.

KaizenIf you’re a Canadian company you’re not paying the American taxes, but you would be paying Canadian taxes, so where is the tax differential?

Marsh:  Well, there are maybe a dozen small entities with platforms in Canada, but they’re not doing a large volume. No one’s making money. Netflix is basically cannibalizing already existing content. Just because they have their loss leaders—their big things that they’re financing—doesn’t mean they are contributing any content. So what’s happened is that…

Kaizen: They’re denying rights to broadcast.

Marsh: That’s exactly it. And if you’re a struggling independent and someone comes to you and says, “I’ll give you $15,000 for your one-hour documentary,” the temptation is enormous. You take that, but afterwards you can barely afford a cup of coffee. There’s no serious money.

Kaizen: How would the model that your company was proposing do that differently?

Marsh:  Well, you would have to go online to see it, but let’s just take an example. When you go on to Netflix, what have you got? Thumbnails. What we offer is deep search—the ontology. We work hard on the ontology of categorization of documentary, performance, and theatrical. We had the idea of referrals that had some substance. In other words, not anyone can just come on the site and skew the referral system. Everyone on the site is answerable. You couldn’t rate anything until you’ve actually viewed it. You could drop something in someone else’s box and say, “Hey Stephen, I saw this show. I think you might like it.” And you’d build up community. You could put your own playlists on. So on the viewer’s side there is a lot of engagement.

On the provider side, you’ve got so much flexibility. You can brand it yourself, so when I come to Joe Blog’s filmmaker, it’s all Joe Blog. It’s all branded by Joe Blog. We’re just operating in the background. They’ve got complete flexibility, and they’ve got access to their accounts.

Kaizen: So different treatment than from, say, the YouTube model.

Marsh: Yeah. It has some similarities, but we don’t do everyone’s cat video. You’ve got to have stuff of substance that people obviously want to monetize.

Kaizen: So if you have a registration fee to be a part of your site, then you can put up whatever you want and brand it, market it, and so forth. And it becomes open source?

Marsh: Totally. You market it yourself. You do not need a film distributor. In this day and age, if you’ve got access to the distribution you do not need the traditional middleman, which is what screwed the film industry over—especially the independents—historically.

Kaizen: So what do you need the Canadian government to do if it’s essentially the YouTube model? Why does the tax differentiation matter at this point? It sounds like you’re doing is different from Netflix. You’re not going out and paying $20,000 for the film rights or whatever. That’s what Netflix is doing.

Marsh: Right.

Kaizen: If you’re not competing in that market, why is there a problem?

Marsh: Well, because they don’t have to pay tax. We do. And not only that, there’s a very complicated technological way to collect the tax.

Kaizen: It’s not just a matter of, say, here’s how many registration fees we have and here’s our twenty percent tax or whatever.

Marsh: Yeah.

Kaizen: Okay, so you have byzantine tax structure.

Marsh: Not only do we have to collect tax that way, but we also have the corporate tax that Netflix and the others are not paying, so it’s all going south of the border.

Kaizen: Since the government is interested in long term revenue, why are they not more on top of this? If they recognize Netflix and Amazon as huge entities—there’s going to be billions of dollars in the coming years—why are they not leveling the playing field or having a more rational tax policy?

Marsh: I think it’s traditional political short-termism. Right now 500 million dollars might seem like a lot of money.

Kaizen: That was the Netflix offer to the Canadian government?

Marsh: That was what they, the government, sold out to Netflix for.

Kaizen: So it’s about 400 or 500 million U.S. dollars.

Marsh: It’s over five years; it’s peanuts. You know, a government in the normal course of operations can blow that. So it’s short-termism, but it’s also a lack of political leadership and insight.

And the whole point of the platform is we’re content neutral. So long as it’s not the obvious hate, it’s content neutral politically.

One of the guys that did use us as an experiment, and it worked quite well, went on a bicycle and made a documentary following the famous pipeline that they were going to build.

Kaizen: The Keystone controversy?

Marsh: Something like that. He’s a documentary filmmaker, and he went out on a bicycle with his damn camera and did show the exact area. I thought, well, he’s an environmentalist, but there’s also political aspect to it—a policy thing. But this is good stuff whether or not you subscribe to his political ideas. Why aren’t people taking any notice? Because you can’t get his stuff out there.

Kaizen: Sure.

Marsh: And it’s a wonderful thing to get people with localized knowledge creating content. In this day and age, with an iPhone you can do interesting things.

Kaizen: What about YouTube? Why is not advantageous for him to say, “Here’s my 50 minute documentary. I put it up on YouTube, and I’ve got my subscribers and word of mouth, and people vote it up and down.” So it’s already distributed, a public domain thing.

Marsh: Because we offer him a lot more flexibility behind the scenes in terms of marketing and branding. For all intents and purposes, everyone comes to him thinking this is his whole operation.

Kaizen: I see. So, one more question and we’ll wrap up. If the Canadian political jurisdiction doesn’t work, is there anything to stop your company, or the idea of your company, just being in some other jurisdiction?

Marsh: Well, there are two options. We’re putting together a video and a letter, because I’ve been in correspondence with the previous minister of heritage or culture or whatever they call themselves. We can locate to south of the border, but then what’s the point? There are others, and they’re giants. The whole point is to give the Canadians a break, a Canadian entity, Canadian jobs, and Canadian content, but not just for Canadians. Canadians are not interested in Canadian content because most of it is crap. It really is.

Kaizen: In every country 80 percent of it is crap, but the world market is huge.

Marsh: Exactly. If you wanted to do a woodworking video, you’d only need a hundred thousand nerds around the world who would willingly pay the price of a cup of coffee—99 cents—and you’re sitting on $100,000. That is the point. You can find your niche.

Kaizen: You’re looking for the long tail.

Marsh: The long tail, exactly.

Kaizen: It sounds like a work in progress, but this is also wide-open technology to a large extent. We’re in the early days of all of this.

Marsh: Well, I’m afraid nothing is going to happen with this company. I’ve been making inquiries to see if we could sell it. At the very least, maybe we’ll just mothball it. It’s not wasted, but it hurt because people who are set builders—and not on the glossy side of things—put their money in it. I think each put in $10,000, and we put together about $300,000. And though these people knew the risk, it still left a bad taste in our mouths, especially because these are people who know the industry. They’re in the industry. They’re not people sitting up on high saying, “Oh, wouldn’t it be nice?”

Kaizen: Would you then say the lesson for you, the entrepreneurial strategist, was that you needed better understanding of the political process before committing the capital? Were you too idealistic about how that would go?

Marsh: I think I had misplaced expectations in the political process. It’s all lip service; we live in an age where we’re young, hip, and tech savvy—but not really. Underneath all that you need a politically sensible, ethically sensible, long-term view. You need some substance, and you also need to understand the dynamics of a market.

Kaizen: Right.

Marsh: These people just don’t understand the dynamics of a market.

Kaizen: So political value-structures set cross-purposes in this case.

Marsh: Yeah.

Kaizen: Fascinating stuff. We’ll stop there.

This interview was conducted for Kaizen by Stephen Hicks.

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

Stephen Hicks interviewed by Glenn Beck

Wednesday, December 19th, 2018

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

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

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

Tuesday, December 11th, 2018

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

John French on Zen and the Art of Restaurant Franchising

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

KaizenYou grew up in Connecticut?

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

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

KaizenBecause of the pressure-cooker atmosphere?

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

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

KaizenWhere did you go after that?

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

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

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

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

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

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

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

KaizenSo you’re thinking business education.

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

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

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

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

KaizenSo you had an entrepreneurial streak.

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

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

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

KaizenHow were you now in California?

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

KaizenA very focused concept and style.

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

KaizenIt’s alienating.

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

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

French: It is! It is very similar.

KaizenWhen is this?

French: 1989.

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

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

Kaizen: Did he have one store?

French: One.

Kaizen: This was the prototype?

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

KaizenSo you walk in and you’re captivated.

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

KaizenWherever it ends up, it ends up.

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

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

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

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

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

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

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

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

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

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

French: Yes.

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

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

Kaizen: Why Florida?

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

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

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

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

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

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

KaizenYou were in your late twenties or early thirties?

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

KaizenSo you have five restaurants in Florida.

French: Yes, in Florida.

Kaizen: What happened next?

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

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

KaizenSo this phone call is huge news.

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

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

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

KaizenSo you were recommended.

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

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

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

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

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

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

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

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

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

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

Kaizen: Just going to put that on your lap.

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

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

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

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

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

Kaizen: Otherwise it’s a no go.

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

KaizenThey want a big splash in a big market.

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

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

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

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

French: Yes, that’s right.

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

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

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

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

Kaizen: So 100-hour work weeks?

French: 100-hour work weeks.

Kaizen: And this takes you to about age 40.

French: Somewhere in that range.

KaizenDid you hit your 50% return?

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

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

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

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

French: I am indeed.

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

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

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

French: Maybe 20 or 21?

Kaizen: College days.

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

Kaizen: What was the appeal of Buddhism?

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

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

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

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

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

KaizenDetachment stance.

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

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

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

Kaizen: Not personally.

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

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

French: I am.

Kaizen: Was Buddhism helpful or was it sidelined?

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

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

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


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

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

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

Kaizen: Nice.

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

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

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

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

Kaizen: Nice!

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

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

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

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

Kaizen: Wow.

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

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

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

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

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

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

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

Kaizen: Not a bad high-school job.

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

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

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

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

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

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

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

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

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

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

Kaizen: It has to be a personal engagement.

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

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

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

Kaizen: Everything’s a long drive in Texas.

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

Kaizen: Some beautiful moments with your kids.

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

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

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

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

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

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

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

Kaizen: What do you want this to have been?

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

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

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

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

Kaizen: What’s your option?

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

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

Kaizen: So, who are you exactly?

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

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

Kaizen: Everything is now.

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

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

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

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

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

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

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

Kaizen: If you have the right attitude about it.

French: That comes from the practice.

This interview was conducted for Kaizen by Stephen Hicks.

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

Interview with Federico Zorraquin on Entrepreneurial Resilience in Argentina

Tuesday, December 11th, 2018

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

Federico Zorraquin on Entrepreneurial Resilience in Argentina

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

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

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

Kaizen: Long time Argentinians.

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

Kaizen: An old company by new world standards.

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

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

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

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

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

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

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

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

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

Kaizen: Professions.

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

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

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

Kaizen: In what part of Argentina is that ranch?

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

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

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

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

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

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

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

Kaizen: Somewhere in Patagonia?

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

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

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

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

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

Kaizen: You’re earning their respect.

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

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

Zorraquin: Yes.

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

Zorraquin: Very difficult.

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

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

Kaizen: Why Wharton?

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

Kaizen: The Wharton MBA was a two year program?

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

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

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

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

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

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

Kaizen: Learning by dealing with your employees.

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

Kaizen: Nice.

Zorraquin: The social life was very rewarding.

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

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

Kaizen: How old was your dad at this point?

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

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

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

Kaizen: You complemented each other.

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

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

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

Kaizen: The name of that firm is Rheem?

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

Kaizen: Who is president of Argentina at this point?

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

Kaizen: This is an adjustment to an open economy?

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

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

Zorraquin: 1000 people at the petrochemical company.

Kaizen: What is the name of the company?

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

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

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

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

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

Kaizen: IPAKO?

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

Kaizen: And for you, as the new CEO.

Zorraquin: For me, as the CEO.

Kaizen: We’re now in the middle 90s?

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

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

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

Kaizen: You have CEOs for each major division?

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

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

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

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

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

Kaizen: A natural fit with your ranching activities.

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

Kaizen: Right, so you had the human capital?

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

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

Kaizen: Wow.

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

Kaizen: That’s terrible.

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

Kaizen: Amazing.

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

Kaizen: Just terrible.

Zorraquin: A terrible time.

Kaizen: Were the borders still largely open?

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

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

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

Kaizen: This is just the meatpacking?

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

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

Kaizen: I’m sure.

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

Kaizen: You took a recovery period.

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

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

Kaizen: Distancing?

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

Kaizen: That takes the personal issue out of it.

Zorraquin: Yes.

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

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

Kaizen: You have political chaos.

Zorraquin: Chaos.

Kaizen: It just becomes impossible.

Zorraquin: Impossible.

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

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

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

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

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

Kaizen: Who was that?

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

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

Zorraquin: That’s a private thing.

Kaizen: Fair enough.

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

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

Zorraquin: I never left completely.

Kaizen: You were chairman of the board you said?

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

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

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

Kaizen: Nice.

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

Kaizen: Your zest for business is returning as well.

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

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

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

Kaizen: Of Rheem.

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

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

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

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

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

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

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

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

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

Kaizen: Absolutely.

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

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

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

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

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

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

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

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

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

Kaizen: Exercising judgment.

Zorraquin: Right.

Kaizen: With competing values, so to speak.

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

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

Zorraquin: Yes.

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

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

Kaizen: Argentina has great human capital, right?

Zorraquin: Yes.

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

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

Kaizen: That’s driven by macroeconomic instability?

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

Kaizen: Outside of Argentina?

Zorraquin: Yes, immediately.

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

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

Kaizen: Physicists?

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

Kaizen: Because there are opportunities.

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

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

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

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

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

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

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

Kaizen: It’s not sustainable.

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

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

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

Kaizen: But, also not having corrupt laws.

Zorraquin: Yes.

Kaizen: That force people into awkward situations.

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

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

Zorraquin: 57.

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

Zorraquin: Yes.

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

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

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

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

Kaizen: Alright.

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

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

Zorraquin: Yes.

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

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

Kaizen: Wonderful.

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

This interview was conducted for Kaizen by Stephen Hicks.

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

Interview with Laura Niklason on Entrepreneurial Biotechnology

Thursday, December 14th, 2017

[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

Thursday, December 14th, 2017

[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.

Interview with Tom Tropp on Business Ethics and Corporate Culture

Thursday, September 28th, 2017

[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

Thursday, September 28th, 2017

[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.

Coffee entrepreneur Phyllis Johnson — video interview transcript

Friday, May 19th, 2017

Interview conducted at Rockford University by Stephen Hicks and sponsored by the Center for Ethics and Entrepreneurship.

Part I

Hicks: I’m Stephen Hicks. My guest today is Phyllis Johnson, who spoke in the Business and Economics Ethics class today on the theme of Coffee, Entrepreneurship, and Women in Africa. Ms. Johnson is the founder and president coffee-women-2of BD Imports, a Rockford-based entrepreneurial firm. They do wholesaling and retailing coffee all over the world.

I like your story about how you came to entrepreneurship. You got a university degree and a very nice-sounding job, but it wasn’t enough for you. Why did you become an entrepreneur?

Johnson: It’s funny because you always want to leave where you come from and what I realized after getting an university degree in microbiology, I realized that it was my family upbringing, working together on a farm in Arkansas as a family doing odd jobs, you know, throughout different seasons, that really made me want to start my own business. It created something inside me that said, you know, it’s okay to work for someone else, you can do that, but it’s also an opportunity to do something on your own, you can be a bit more creative.

Hicks: At the same time, you mentioned it was quite scary, the first steps. What was scary about it, and how did you handle that?

Johnson: Oh, gosh. It was scary for a lot of reasons. It took a long time, it was a process. I remember looking for a message, either in church or in conversations with friends that would help to persuade me to take the steps that I really wanted to take but I was afraid to take. I was afraid that my livelihood would be threatened. I was afraid of failure. I think I was afraid that what if I failed? What if it didn’t work? What if I lost financial income? And some people say we are afraid of success and I think that there could be some truth in that that we don’t quite understand. What if I could work beyond what I think is possible for me? And it’s safe to stay in a space where other people are and you don’t fit in quite so much anymore because you step outside of that realm of where you think you fit in. You spent your whole life developing friendships, relationships with people who have things in common with you, so your family know you to be who you are, so stepping into entrepreneurship really creates a different person that you might be afraid of.

Hicks: You could’ve gone on to a lot of things, but you ended putting yourself into the coffee business. There might be a connection to the family farm, something in agriculture. Why coffee in particular?

Johnson: It’s interesting because, as soon as I thought about coffee, I knew that was where I was supposed to be.

Hicks: Even though you hadn’t been a big coffee drinker up to that point.

Johnson: Even though I hadn’t been a big coffee drinker. You know, I rely a lot on intuition. I know for some business people it can sound really strange, but a lot of it is gut feeling. What feels right is what I like to go with. And, for me, I am very comfortable being on a farm. I can really appreciate the open air, the hard work, the attitude of people who work on a farm. The attitude of people who work on a farm is pretty simple. It’s not very complex a lot of times. It gives joy to see a woman carrying materials on her head, straw, whatever, to go build her house. She is not bound with ‘I do this to make a living’. She is physically making a home for herself. And so, there is a true connection sometimes with people who work on farms that keep them grounded and why they do what they do, and I think that’s very attractive for me.

Hicks: Now, when you’re getting into the coffee business as an importer-exporter, this is a worldwide business, very complicated, many major players. So you are embarking in a process of self-education to learn the business. You also mentioned you got some literature from one of the coffee organizations, in effect, warning you off: ‘Don’t try to do this.’

Johnson: Right, exactly.

Hicks: What were the obstacles they were pointing out to you and that you did have to grapple with?

Johnson: Yeah, you know, there were very realistic obstacles. I am the eighth CoffeeVillagechild of eight children, and I chose to study microbiology in college, which you don’t find women traditionally studying science and math courses. For some strange reason, I always saw myself as doing the hard stuff. Not because it was easy, but because I wanted to do the hard stuff. Why do I have to do the mamsy-pamsy stuff just because I am a girl? That has been my attitude through life. I love coffee shops. I love coffee shop owners. I just thought that I want to go a bit deeper; I want to get a bit closer to where all this comes together and be able to make impact. And, of course, you can make some sort of impact locally or nationally, but I wanted to get close to the place where it all began because I felt the intuition that I could make a difference on large scale.

But the organization that made this wonderful article when I asked about information on becoming an importer, and they sent me an article on why you should never become an importer. I became a member of the organization, I sat in the board of directors for the organization, and I still volunteer my time with the organization. I think the information was valuable, but it was also a motivator. So, it’s up to me to determine how I took that information and what it has taken to survive 12 years in this business, living through probably one of the most economic downturns in our history, for certain. It took having that sort of information about what I was embarking on to get through it.

Hicks: You mentioned that part of your drive is that you wanted to be closer to the action and you like the agricultural rootedness of coffee, so that took you to Africa. And there you found that the majority of the work in raising the coffee is done by women. But, to put it mildly, that is very challenging in a number of fronts. What were the major problems or things that bothered you when you got close to how the coffee was actually produced in Africa?

Johnson: Yeah, years ago, probably on my first trip, it was bothersome to watch a group of women sorting coffee cherries, which is what you do with part of the processing. And then, to take them to be weighed. And I remember I asked the person who was recording the weights, how, just to see this one lady’s tally sheet of what the coffee cherries she had been bringing in for weight. And so he showed it to me and he showed me about a 1,000 pounds of coffee that she had brought over a period of three, four, five months and I asked, What is her pay going to be? And he said “20 dollars” or something equivalent to 20 dollars. And I just thought about the amount of physically backbreaking labor involved in picking 1,000 pounds of coffee cherries for 20 dollars. I literally walked away in tears thinking, “I’ve got 20 dollars in my purse right now, why don’t I just give it to her?” But that would not have been the thing to do. And that was back in 2003. Luckily, today, I work with the United Nations International Trade Center to do things in a global level, in several African countries, to work with national leaders and organizations and women of all levels to make a difference. And that was the way to do it.

Part II

Hicks: One of the problems is that women are doing enormous amounts of backbreaking work, but also they are getting very little pay for it. You also mentioned that typically it is women who are doing this kind of work and men don’t do that work. Why is that?

Johnson: Well, for a couple of reasons. Women are more meticulous and they are very good at doing things that are more, you know, hand sort of work: picking stuff. But, again, a lot of time, culturally, it is the women who will go out and do a lot of the labor. So, it can be, culturally, just the way things are. But they are not in decision-making roles. And they are not comfortable in decision-making roles. They don’t feel qualified, they don’t have a history, they don’t have role models that had been in that position in the past. So, working with the International Women’s Coffee Alliance provides the network of women globally, so that women in Africa will get a chance to work with women in El Salvador and Costa Rica and Guatemala to see how these women have reason throughout the supply chain and be encouraged by that and be able to create roadmaps within their own country as how they can move up to higher levels.

Hicks: Part of the solution, then, is business education for the women. They are forming co-ops or learning how to put business structures together so that they feel comfortable in assuming the leadership roles.

Johnson: Part of the solution in the women in coffee program that I am working on with the International Trade Center we see as leadership training. We have a leadership training program that we will be working with the woman leaders, the women who had been a part of this program from the start. And they are women who are concerned about helping other women; they are community-builders. So we are having a leadership training program that will expand throughout a year for these women. We are also investigating this idea of “branding” and putting a mark on a product potentially that signifies women’s empowerment in coffee. For some corporations, having a brand or a mark isn’t so important, but it is important that women are being compensated fairly in the supply chain. So finding ways to figure out how we may approach the market with such a product is interesting, but, you know, just announced mid-September that they will be introducing coffee that shows empowerment for women for one of the groups of women that we work with in Costa Rica, so we are excited to see how that relationship might work.

Hicks: So, one element is the compensation level for the work that is done. The coffee-women-3other is the decision-making and the empowering so that they have the knowledge and confidence to take on leadership roles. I believe you also mentioned the issue of landownership, that, in many cases, women don’t own the land that they are working. They are not in a position to share in the profits or to grow or to mortgage the property to do various things. Why are women traditionally not owning any of land or why is that difficult for them?

Johnson: Well, you know, there has always been gender discrimination. And, in a lot of cultures, it’s better to have a male child than a female child. If you are going to educate a child, you educate the son not the daughter. So, women have just not been held in high regard. Few opportunities are given to women, but I feel that with several initiatives, global initiatives, things are changing. Women are being pushed more into the forefront. And it’s not just because women need to be women, but it’s for economic reasons. The UN global compact recently signed on to the Women Empowered principles and this is the first piece of information that allows women to be considered from an economic standpoint. We always talk about women when it comes to health and education, but, economically, how in business are women fairing? How in ownership? I don’t know the numbers off of the top of my head, but less than one percent of land ownership globally belongs to women. So we, as women, are way behind economically. As I said, of the world’s 1 billion poor, 78 percent are women. So, until the world considers women as being a part of this economic engine, we won’t get ahead. Women are working hard for less pay. They are putting up long hours, and they really need to be compensated because what they are doing with the dollars will make a difference globally. They are taking care of their children, they are educating their children, and that’s a benefit globally. So there is great value.

Hicks: So, the additional business knowledge and the changing attitude so women can own land, that will help them get a leg up the economic ladder. There are also traditional, cultural reasons, family reasons, praising boys more than praising girls. Are there also religious obstacles to be overcome or legal obstacles that just say “Women are not allowed to own property”? Do those also have to be dealt with?

Johnson: Yeah, it’s funny. When I was in Uganda, one lady — she was a Muslim lady from far region where her family worked in coffee. And she said, for religious reasons, you know, that we don’t own land from where I am from. And the laws are very confusing, you know. And we had some great discussions around that. But, what was interesting was her perspective on all of that and the lack of land-ownership, which is what is perceived to be the number 1 problem for women if you talk to them when it comes to agriculture. They don’t own land, they don’t own what’s produced in the lands, and they are just, you know, peasant workers on the land. She said, “My attitude is, while I am here,” and I kept asking what does that mean, and she said, “while I am here, I am not going to fight the things that I can’t change, but I am going to work as hard as I can to make a difference in what I do have control over.” So, you know, women are creative and they know that if change is going to happen they have to lead it. I can say that leaders of countries, leaders of industries start to pay attention when issues have been raised by different organizations, people in power. So bringing recognition and light to organizations is critical. The East African fine coffee organization, a trade support organization in East Africa that makes up several different countries that work in coffee, they have never had an indigenous women on their board in their 10-year history. They now have a gender program that they’ve developed in the last year since this program has started to bring women on board, to give them a seat at the table in all the countries where they operate. Up until now, they never considered it.

Hicks: So they are now part of the decision-making issues.

Johnson: So things are changing.

Hicks: You mentioned various organizations that you volunteer for and work for, and the United Nation’s initiative in at least five countries in Africa. Where can people go for more information about this, to follow the progress of these initiatives?

Johnson: You can go to the International Trade Center website, which is or you can visit the International Women’s Coffee Alliance, just, or our website,, which talks about the work we do.

Hicks: Thanks for being with us today.

Johnson: Thank you, my pleasure.

[The video interview with Phyllis Johnson follows.]

Interview with Lall Singh on Entrepreneurial Finance in England

Wednesday, November 30th, 2016

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

Lall Singh on Entrepreneurial Finance in England


Lall Singh is CEO of Capital Instruments based in London, England. Capital Instruments is an investment consulting firm that provides finance, management, and marketing expertise in several European companies as well as projects in Canada and Dubai.  

Education and early career

Kaizen: Where were you born?Singh-Lall-8

Singh: I was born in England in a little town called Solihull back in 1969. That makes me 44 this year.

Kaizen: Where is Solihull?

Singh: It’s near Birmingham, which is the second largest city after London. It’s between there and Manchester  —  there is always a competition Birmingham and Manchester about which is the second largest city. But both are growing cities. Solihull is just on the outskirts of Birmingham, which is located in the west midlands. We aren’t too far from Meriden, which marks the center of England.

Kaizen: Your parents came from India?

Singh: That’s right. They emigrated back in 1960 from Punjab, which is north India, from a little town called Jalandhar.

Kaizen: What brought them here?

Singh: Partly it was the farming communities and partly the attraction of increased income, the ability to work and make a living. And with the prospect of returning to India after retiring, which was the case. My parents did indeed decide to retire early and head back to India. You know, you always heard the old record that once you come here, you’re stuck here. This isn’t the case, of course. There’s nothing stopping them from going back. We suggested that they take an early retirement and go back to India. The funny thing is that they stayed there for about nine months and decided that “home” is where the heart is. They decided that they would spend most of their time here in England and perhaps two or three months a year in India.

Kaizen: What was your schooling like?

Singh: My schooling was predominantly here in England — in and around Birmingham, the major city. You start with nursery here, equivalent to your kindergarten; then junior school, and then secondary education.

Kaizen: By the time you were into secondary education,, did you have some career ideas? Or were your parents nudging you in a direction?

Singh: At that stage, I would say about the age of 11, I wasn’t probably thinking about any career or definite decisions about them. But business in general or some money-making aspect were attracting me. We came from a very poor family here in England — general working class. And, obviously, with my parents being immigrants and starting off on the first rung of the ladder, so to speak. My father worked as a dress welder, as it’s called, for one of the aerospace companies here in England. It was really economizing and watching the pennies. So in those days, I suppose, I was attracted more toward business as a means of making good money and living a lifestyle most people cherish.

Kaizen: Were particular types of businesses attractive?

Singh: Originally I was interested in economics. It was essentially looking at current affairs and looking at the micro and macro perspectives.

Kaizen: This would have been when you were a little older?

Singh: A little older, from age 12 and into my teenage years  —  when you are really trying to decide what it is you really want to do. I suppose the people around me were more interested in the sciences. I was a bit different. I remember that of most of the options that you have when you are about 14, the ones I leaned toward were more of the mathematical type, probably at that stage heading more toward a career in accounting.

Kaizen: You were good at math from a young age?

Singh: That’s right. Yes.

Kaizen: You went to King Edward VI grammar school in Birmingham. What kind of school was that?

Singh: It’s referred to as a select education. So it is endowed with quite generous funds. However, they tend to restrict the number of entrants, and they have an entrance test. In those days, it attracted about 2,000 people, but they could only offer 200 places. So if you were in the top 200, you would get in.

Kaizen: Did you get a good, basic education?

Singh: I was very privileged to have made the place. It was rated something like fourth-top in the U.K. It is still, I believe, one of the top schools in the country.

Kaizen: You went through A-levels, which the equivalent of high school in the U.S.?

Singh: It’s actually the continuation of secondary education, which is referred to here as sixth form college.

Kaizen: College prep years.

Singh: That’s right.

Kaizen: Then you went to Birmingham University. How old were you when you started university?

Singh: About 18.

Kaizen: You mentioned an interest in business and economics in your teens. Did you go in with a firm major in mind?

Singh: I had done economics and accounting at A-level, so at that stage I opted for a broad major in accounting and finance. With the view to perhaps combining with economics at a later stage. But my major was essentially in finance.

Kaizen: Accounting and finance?

Singh: That’s correct.

birmingham university campusKaizen: What was the attraction of accounting?

Singh: At that stage, it was one way to get into looking at businesses from an accounting perspective. It gives you an appreciation for how businesses function. My attraction was more toward management accounting as opposed to accounting in practice. The difference being that accountants in practice tend to compile numbers in order to fulfill statutory obligations of compliance; whereas management accounting has more to do with management decisions, where you are looking at investments, ways to reduce costs, and it is essentially looking at a business and how better it can function in terms of productivity, operations, how it can utilize its own funds better.

Kaizen: So using the accounting as a set of tools for management decisions?

Singh: Accounting as a feedback tool as well as looking at what options are available given to you given the financial restrictions.

Kaizen: The other side was finance. What was the attraction of finance as a major?

Singh: I was interested in capital markets, looking at ways of leveraging different types of gearing ratios, and how businesses can function and grow through the use of finance.

Kaizen: Is “gearing ratio” a technical term?

Singh: It’s the debt-to-equity ratio. You look at your own capital you are putting into the business, or shareholders are putting in, in proportion to what sort of debts the businesses are taking on. And over the years, you find different gearing ratios tend to be better given high interest rates — you want to have high debt with low equity; given low economic times, such as now, you tend to have a high gearing ratio, which is easily at one or two percent.

Kaizen: At university, did you take courses in the science, arts, or humanities? Or was it a more narrow education?

Singh: When you are in England, up until the age of about 14, you take a very broad range of subjects, which tend to cover what is called O-levels, which is the precursor to A-levels. Across those, in fact, I took a lot of the sciences: chemistry, physics, math, English, of course, and geography. After that, with the A-levels you can start specializing. So at A-level I went for more of a math, accounting, economics route. But we also do a general studies course as well at that stage. So that was my combination. I suppose it gave me the platform to look towards specializing further in accounting and finance. At that stage, I chose accounting and finance, but later on I decided to undertake an MBA where I got more interested on the marketing side. And that’s once you actually work for companies, you get an appreciation for it.

Kaizen: What was your first job after graduating from Birmingham?

Singh: My first job was actually for a publishing company. In fact, before then, I did work for an accountancy practice, Coopers and Lybrand, which is now part of PwC (PricewaterhouseCoopers). I had shied away from that, knowing that practice accounting would meant laborious three-year contract, looking at mainly statute reporting. Instead, I looked to publishing as a training accountant, and I specialized in management accounting as opposed to practice accounting.

Kaizen: Then you decided to go for an MBA?

Singh: That’s correct. I worked for a few years and then I opted to go for an MBA at Aston Business School. Given that I had already experienced accounting and finance, I decided — I was self-funding at this stage — I was going to make the most of the whole course and decided to specialize in marketing, which was something I didn’t have that much exposure to. I became particularly interested in market segmentation.

Kaizen: What was interesting about marketing to you?

Singh: I have always felt that accountants are shielded from looking at ways to moving business forward in terms of how to innovate and how to generate more business. Yet they’re more in-tune with costs and how to reduce costs. And I think accountants sometimes get blinkered, but combine it with a marketing approach, where you know it is essential for a company to breathe and grow by looking at different markets, how to nurture them, how to grow them, how to invest money in order to get returns on your capital. I think that’s a skill where you find that any company with corporate governors you have a board, you find that the accountants and the marketers are always at loggerheads given that accountants want to reduce costs and keep everything contained and marketers want to spend more and have a marketing campaign in order to generate business. I think what that gave me was a unique insight into both areas where you could actually have a cross between knowing the accounting function as well as the marketing function.

Kaizen: At this point, still in your twenties, were you thinking that you would be working independently or within existing firms?

Singh: I couldn’t imagine myself, at least at that stage, working independently. I was really trying to build a career and to align myself with better qualifications so I could offer that little bit more in general management for some of the larger corporations.

After my MBA, I ended up working for a conglomerate, which was looking to create companies from the old East European block where, for instance, in Romania they were privatizing a lot of the state-owned assets. Some of them were quite large: pharmaceutical companies, aviation companies, engineering companies, etc. We looked to acquire these companies and put Western-style management in there. For instance, we looked to bring a pharmaceuticals company we bought up to Good Manufacturing Practice (GMP) status. That allowed us to subcontract to some of the majors like SmithKline Beecham, producing some drugs in a very cost-effective way.

Kaizen: What years were you working in Romania?

Singh: That was from about 1998 onward. I worked for a company called Litchfield Continental. Eventually it was reversed into a shell company on NASDAQ, and we floated the whole structure. That gave us access to capital markets and a shareholder structure with institutional investors, which allowed us to expand and continue to the next stage.

Kaizen: At the poSingh-Lall-20int that you were working for the conglomerate, what was your function, in particular in the Romanian operation?

Singh: I originally was the head of finance, but then it became more of a strategic role as the Chief Financial Officer. I oversaw all of the subsidiaries and I was responsible for raising the financing in order to continue to acquire other companies. Also, we were restructuring a lot of those companies in terms of making them more efficient and making sure that we could produce goods, such as aircraft, at a price that was quite competitive.

Kaizen: That requires a number of skills, including finance and management. How did you acquire the management skills?

Singh: With Energy Publishing, once I qualified, I moved as an accountant to general management. That’s when I felt that I needed to sort of prop up my skills with an MBA to get more broad experience in operations. It was after the exposure to a lot of the conglomerates and looking at turning around some of those companies that I actually learned some general management. In fact, I also studied a qualification we have here in England, which is an economic chartered director, which is mainly corporate governance. It was quite a new qualification in those days, but now it is quite popular here in the U.K. as a means of showing that you have the corporate governance skills that is required to govern from a private to a public company. I was one of the first handful of chartered directors in the U.K.

Kaizen: What is a chartered director?

Singh: It’s a qualification. Anyone can start their own company as director of the company; but to standardize the qualification, they put together the program. We have a well-established institution here in the U.K. called the Institute of Directors. They decided to produce a qualification very much like being a chartered accountant or chartered engineer. To be chartered means you have your own set of by-laws.

Kaizen: This would be like a managing director’s position — acquiring the skills and knowledge to do that?

Singh: Yes. It gives you the whole breadth of skills. There is also a panel interview where they assess whether you have the skills.

Kaizen: How does that compare to being a company president in the United States? Or a CEO?

Singh: A company president or CEO would give you the basic skills in corporate governance required for people management, managing a board, finance, operations, and marketing. This would bring them together in coordinating activities.

Kaizen: To go back to the Romanian operation — in addition to the management and finance skills, there were also cultural issues.

Singh: Yes. Also language barriers.

Kaizen: Also political issues: dealing with people who have been trained under a communist regime and trying to change their culture to be more market-friendly. How did you handle that?

Singh: In fact, we had nuclear scientists who were working on the shop floor because hard currency was hard to get in those days in Romania. We had a surplus of skilled labor. To manage that, we had our own operations people. Most were from London and some of our own people in Bucharest. We had translators to assist with the cultural differences.

In terms of dealing with the politicians, at that stage, Romania wanted to become part of the EU, so it was obligated to privatize a number of their industries. In fact, that is one time where the state was actually trying to help us. [Laughs] They helped us with introducing Western-style management and practices, making the companies competitive, and embracing Europe as an open-market. It was really introducing a capitalistic extension into Romania, which helped the economic circumstances by employing a lot of people.

One of the engineering companies we took over had something like 4,000 employees. It was almost a town in itself with its own little railway station. They made clutch parts for Mercedes-Benz and, obviously, Mercedes-Benz controlled the quality. They rubber-stamped them as Mercedes parts, but they were actually manufactured in Romania. So we were quite impressed with the quality they were bringing out.

It was essentially turning that from a communist regime to where they have the normal more profit-oriented objectives: generating profits, keeping business goals in sight, having a vision of the company in terms of quality, where they position themselves in the market, and looking at values that they deliver and how they are going to deliver that. The people are a huge aspect, and for them it was quite a privilege working for a Western company — and one of the forefront companies, especially in the pharmaceutical buyer’s market. It was one of the more prestigious pharmaceuticals that had been long-established. We also bought Romero, which is part of the aerospace company and that was part of Bucharest Airport at that time. That brought in a lot of joint-ventures. For instance, we had an Israeli company that was interested in importing MiGs from the Russians, putting in an electronic platform, and then selling them off to the Romanian Air Force.

Kaizen: Did you say Russian MiG airplanes?

Singh: Yes. Obviously, putting in a lot more technology. And they sort of bought in to Bucharest Airport and some of the hangars there in order to process the orders.

Kaizen: So the British conglomerate that you are working for is running a number of operations in Romania: pharmaceuticals, some biological enterprises, Mercedes parts, and so forth.

Singh: That’s correct. It was also a U.K. operation that was mainly insurance-oriented. Lloyd’s of London, a subsidiary we bought called McCall’s, and also biotechnology, which was more in Manchester and included looking at different ways to use innovative biotechnology.

Kaizen: And the overall company was Litchfield?

Singh: It was originally Litchfield that bought the assets; but once it was floated, we used a NASDAQ shell, which essentially is a company that was called — in those days — Global. You can buy a shell on NASDAQ where you can actually clean up and then you can get that to take over your company, which was Litchfield. And what Litchfield would do in exchange is to have a convertible debentures over the stock of the company and eventually it buys out. The debenture is converted into stock. So we had a controlling stake in the shell company, which is a little easier to list on NASDAQ than having to go to the traditional IPO structure, which means you have extensive up-front costs in terms of producing the prospectives and complying with all of that.

Kaizen: How many years were you with this organization?

Singh: A good four years.

Kaizen: In the late 1990s?

Singh: That’s correct. Into 2000.

Kaizen: At some point you left there. Is that because the Romanian operations were finished? Did other opportunities come along?


Singh: There were a lot of opportunities that I was faced with, and a lot of them were smaller projects that got me really interested. Many of my colleagues left to look at financing different projects, and I saw their success mushroom. I thought that I should try a hand at it. So I left that company to move on to Capital Instruments.

Kaizen: In 2001?

Singh: That’s correct.

Kaizen: Is this an entrepreneurial firm?

Singh: Yes. We specialized in raising funds for small-to-medium size companies looking to grow. We have a number of investors that we have who are looking for investing into small-to-medium size enterprises with the prospect of growth. We essentially marry the two.

Kaizen: Who is the “we” early on?

Singh: A network of financiers I work with. They all have their specific expertises. If there is a project, for instance, a biofuel plant or a harbor project or an aviation project, we can assemble a team and relative expertise and look to champion either raising finance or find certain investments.

For example, one of my earlier projects when I started off as a financier was to look at insurance assessors. This was a small-size English company, which had insurance assessors up and down the country who would go out and value your vehicle after you’ve had an accident. This was very early on when we had in England the third party loss-recovery market beginning to take hold. What we did was develop that company and combine it with in-house assessors that the insurance company was wanting to off-load to reduce their costs. So we created a national, insurance assessing business, which in itself was quite innovative in those days.

We could quite easily use IT and technology. Our team had a certain number of people who were more IT-literate. The way we grew the company was the insurance assessors had in those days what would probably be equivalent to an iPad. A gadget with its own cradle in his car. They would do off their report when they would see a vehicle. It was similar to the internet in that the cradle sent a signal through the phone back to the mainframe; it would turn around the reports quite quickly. We combined that for what we called the litigation departments and with the insurance companies as well; so we could actually cover both markets. Before it was bought out, it became a key player in the British insurance market.

Kaizen: At Capital Instruments, you came in as CEO in 2001 and put together financing for small-to-medium size companies. Your value-added is your network of people who have the financing available and how to structure finance for these organizations. In some cases, you implemented the management practices — putting together a team of people to make the company better-financed and better-operated.

Singh: That’s correct.

Kaizen: So it’s actually a combination of financial and management consulting.

Singh-Lall-22Singh: Yes. And the marketing aspect as well because in order to attract investment, investors are really looking to companies that are in the growth phase; they are looking to grow. So it is essentially marrying the two. You have a very good project; you have management in place; you’re overseeing their investment; they are looking to grow their investment. So it was quite a mutually-beneficial relationship that we were brokering.

Kaizen: How would the compensation work? Would it be a percentage of the overall financing deal? Or are you taking investment positions yourself?

Singh: Sometimes a combination. Sometimes we could negotiate a private placement ourselves and sometimes we would get paid in equity as well as cash compensation. And sometimes it was a case that we would see two or three companies in the same field and see ways that we could create synergy by combining the companies. So we would look to approach venture capitalists and banking relationships ourselves to put together a financing package to buy two or three companies. Then we would be the nominees to the board to oversee the company. Once it was where we wanted it, we would spin it off for sale or continue having some sort of a stake in it.

Kaizen: A small-to-medium size company — can you put some numbers to that?

Singh: Anything from a £2 million turnover to £10-15 million.

Those were the initial-sized companies; later on the numbers got a lot bigger. We had hotel developments, such as the Brussels Sheraton. That was getting the investors to finance a purpose-built structure for the likes of Sheraton or the CORE Group, which do InterContinental Hotels, and then lease it back.

Kaizen: How do deals come along? You did insurance-adjusting in Britain and then a hotel in Belgium. How do you find projects as diverse as that?

Singh: Essentially, we built up good relationships with lawyers, bankers, venture capitalists, and private equity. And there were a lot of opportunities — like one of the key developments in Brussels in the Prince Royal area, which was essentially a strategic plot of land; it was a sale on a bankruptcy where we identified the site. It was in the right location where we thought this could actually be built. It was a case of us putting together the deal. This came to us by way of one of the bankers looking to refinance the site because they were struggling. We took the problem away from the bank and made it profitable ourselves.

Kaizen: So through the grapevine?

Singh: Yes. Through the bankers who made the referral to us. In early 2000 a lot of companies had over-expanded and the banks were looking to foreclose; so it gave us opportunities to go in with our management and successful track record. That was quite unusual because while the banks were willing to foreclose on existing proprietors, they were willing to lend to you to make that a success operation. It was really quite interesting in that a lot of deals could be picked up like that.

Kaizen: So the banks are making a judgment about your management and business skills. They don’t think that the existing people can pull it off. Fresh ideas and so on.

Singh: That’s right.

Kaizen: So even though you have no hotel experience per se, it’s the general business experience that is important.

Singh: Yes. Absolutely. Also, certain expertise can be brought in. Like in this case with the hotel experience.

Kaizen: That can be a commodity that you bring in.

Singh: There was a colleague I worked for who was part of a property development company that had already done small-size hotels, so he had the mechanics already in place as an expertise. Once we brought him onto the property, he was looking to create a purpose-built hotel, but the problem was financing. In fact, we got Kuwaiti funds. They were willing to finance the structure of the hotels, then this leads obviously to an operator, in which case he would share in some of that.

Since then we’ve acquired, as well, hotels back in Nottingham, leased to CORE Group, which again has very successful operations. We have other recent developments that are revolving structures — 55-story skyscrapers in Dubai. We also have an Indian company interested in doing something similar in India; that is an exciting type of project.

Kaizen: So the first decade of this century, what other projects were you involved in?

Singh: Some of the larger ones included a biofuels plant in Canada that was producing ethanol from biomass, which is very innovative.

Kaizen: In northern Ontario?

Singh: That’s correct.

Kaizen: How did that one come across your horizon from all the way across the Atlantic?

Singh: We built a lot of relationships in New York, having had a listed company on the NASDAQ exchange. We knew a lot of the banks and consultants there. I also had to be familiar with the federal security laws and the SEC practices. So we came across the project in Canada by way of a referral. At that stage, you in the U.S. had started feeling the pinch in 2006 and 2007. Capital was drying up. So they were looking towards European banks and they saw me as someone they already had a relationship with who had an established relationship with European banks. They signed me on a retainer to say that if I was able to finance this project in Europe, then they would be willing to compensate us. However, we actually felt that the engineering company that had actually designed it wasn’t actually capable of seeing the plans come to fruition.

Kaizen: So Americans were financing this project in Ontario, but American funds were drying up in the lead-up to the financial crisis. So they came to you in Europe.

You mentioned the engineering expertise. You need to get other consultants who have the engineering expertise because you don’t know biofuels personally, right? Although, you can read up on it.

Singh: Absolutely. I was quite fortunate that one of my colleagues had a Ph.D. She was an expert in sustainability. She went on tour for one of the major fuel companies. They were very interested in the project. I have another colleague of mine from a capital fund, who were interested in the project itself given that it was a sustainable project.

We had U.S. and European banks because they saw this as a way of  legislation, because at one stage 10 percent of ethanol formed a part of the fuel pumps — most Americans don’t know that, but they actually pump 10 percent ethanol and they were looking to increase that to 20 percent. So they knew that there was a huge market for it. Corn prices — ethanol being from corn — were going through the roof in the Corn Belt. So that was very unpopular. But here we had innovation and technology, and we had Foster Wheeler at the forefront of developing commercial processes in order to convert biomass into ethanol, which is a tricky process.

Kaizen: What do you mean by “biomass”? Tree bark and whatever is left over from lumbering operations?

Singh: That’s right. Whatever is left from lumbering operations or from natural waste in the forest that needs to be cleaned up. Also some woodchip derivative parts. In Canada there are huge sites accumulated over years and years. We inspected one site that was something like 100 hectares. They were seen as dump sites and they didn’t understand why we were interested in them. [Laughs]

Kaizen: Free raw materials.

Singh: Yes. Free raw materials. That’s one of the reasons the pension funds were interested: we were getting our raw materials free and producing a product.

Kaizen: Were these U.S. or British pension funds?

Singh: Canadian. And we had one of the Netherlands banks.

Kaizen: What dollar value is this operation?

Singh: That was about $320 million (USD).

Kaizen: Much larger. What years were you working on this one?

Singh: 2006.

Kaizen: Was it an R&D project primarily, or was the R&D done and it was more an engineering issue to make it happen?

Singh: The R&D was completed. However, upscaling to mass production was a problem that needed specific expertise. That came from a British company, in fact, Foster Wheeler. Wheeler is known more in the petroleum industry for resolving problems using mass furnaces.

Kaizen: When did this project come to completion?

Singh: It’s still partly financed because we had a project that was taken over by a drawback of Scotland. Things pretty much came to a halt at that stage. Now with financing again becoming more available, we are hoping to move again.

Kaizen: You are working on a project in Ireland involving a port?

Singh: Yes. That’s correct.

Kaizen: How did you hear about this one?

Singh: This came from one of my clients who looked to finance this development and thought that it was far too large for them in Ireland — he’s based in Dublin himself. He asked whether this would interest me; it was a marine project at that stage. While I was in London, I floated the idea to the banks, one of the banks being the European Bank of Reconstruction and Development. It was quite fascinating because it qualified in the European Union grants for an infrastructure project since we were developing a port. But the scale of it didn’t actually allow it to qualify for some of the larger grants; I was told at that stage that it was probably easier to procure larger numbers from European investment as opposed to going for something smaller.

Kaizen: Is this Euros? Sterling?

Singh: Sterling. So instead of trying to finance something for about £25 million, they were asking us to look to upscale the project.

Kaizen: So they can loan you more money. [Laughs]

Singh-Lall-15Singh: That’s right. And here in Europe it qualifies as a sort of private-public partnership, where private money is being matched by public grants and loan financing. This was essentially driven by EU legislation: mandated fishing vessels — mainly Spanish fishing vessels — shipping in the Irish waters have to dock for a certain number of hours after each fishing trip, which meant that they would have to travel all the way back to Spain; but here they could put a facility that was localized. On top of that, we had a wind farm and rigs off-shore, near the facility, without having to go to Dublin or Cork. This would justify having a base there. Also, on the West Coast there is a lot of tourism, which attracts cruise liners and so on. So it mushroomed into a much larger project.

Kaizen: The projects you’ve worked on are quite geographically diverse: Romania, Belgium, Britain, Ireland, and even Canada.

Singh: [Laughs] There are a few developments in France as well.

Kaizen: Fair enough. [Laughs] There doesn’t seem to be a pattern there. It seems it is more of the matter of when and where a deal comes up.

Singh: That’s right.

Kaizen: The projects are also in all sorts of different areas: insurance, hotels, biomass, and so on. Of all of the deals that are possible, what makes one attractive to you? It doesn’t seem to be geography or industry specific. What are the features that interest you?

Singh: I’m quite privileged to receive more projects than I could possibly allocate my time to. The projects that attract my interest … it really is about the people I’m working with. I have a great admiration for our management; it’s really the people who make the projects happen. I tend to pick and choose projects with people I can really work with and see their passion. Also, I even find that even though it’s across different industries, the mechanics of making a project work are quite fundamental. The mechanics distill down to good marketing, good numbers, an eye on the numbers, good productivity, a business plan that is realistic, and so on.

Kaizen: That is more abstract than the particular product or place.

Singh: Yes. I’ve developed those fundamentals having come from a management background, combined with marketing and corporate governance. It’s about how to oversee a project and how to take that “pilot” or strategic view. You can make it happen from start to finish and you have the people and elements in place.

Kaizen: The first thing you mentioned was the people that you get to work with. You deal with a wide range of people in many different countries. It’s not always the same financiers from private equity and venture capitalists. Is it people that you know and you’ve worked with before?

Singh: Actually, you look at the merits of the project and you know your own resources of people. Also, with some projects you look at the existing management already in place. What’s their passion? Where are things going wrong? Where do they lack the skills to do it themselves? And where can we make it a mutually-beneficial relationship? So I’m very interested in who actually spearheads the project itself.

For instance, we were quite fortunate in the Ireland project. We have someone who has 25 years of experience in the industry. He’s built up a family business, which has gone pretty much as far as it can go, because you can’t break the threshold of a family business into a more corporate structure, which takes structured financing and attracting the likes of what we would call “merging capital.” It would be highly capital-intensive and then dealing with a lot of the blue chips to get relationships to make a support development work. It’s beyond their agreement. But you have the people on the ground at the local level who are there and willing to see it through with you at the end of the day.

Kaizen: How much of this can you do from your home office? How much of it requires you to travel — boots on the ground?

Singh: In the early days, I used to travel a lot. But now I try to manage remotely, being a family man. [Laughs] But it is difficult; I’m still traveling.

Kaizen: Do you have more junior people whom you can farm the travel out to in order to do the leg work?

Singh: Yes, we do. We have a lot of junior people who’ve come through the ranks who have worked with us on several projects. Also, technologies such as Skype and so on make it so much easier.

Kaizen: The company is still Capital Instruments?

Singh: It certainly is, yes.

Kaizen: How many people work at Capital Instruments?

Singh: About 25 people.

Kaizen: You’re CEO of the organization?

Singh: Yes.

Kaizen: With 25 people, how many projects in an average year?

Singh: We take on a variety of projects. Some years it may be like 12 projects, which might be fairly small. And some years we may take as little as two or three projects in a year because they take a lot of time and are a lot more involved. It really depends. Some of the companies may be in high-growth fields, like biotechnology, which doesn’t really need too much key-input, but they do want the ability to raise financing. We’re pretty much putting together their business plan and pitching for them to banks and helping them in an almost hand-holding approach that isn’t so resource intensive. Whereas if you are developing a completely new project, like with the port development, for instance, we have to sort of scrap the original plan to look at something far bigger that involves some key players that we have to resource or to incentivize to work with us in order to bring to fruition.

Kaizen: So the 25 people who are part of your staff, how many of those people would be finance? How many would be marketing? How many would be management? Or does that breakdown even make sense?

Singh: Most of us are all-rounders. Either we have a financial background or a marketing background, and sometimes an operations background. We come from a particular industry where we’ve managed either to grow a company or projects within a larger company where we’ve had hands-on experience. We’ve been through the “mill,” as we say, having experienced capital-rationing problems, problems with not having enough resources — human resources and so on. So most of the people are quite experienced.

Kaizen: You mostly hire people who’ve been through the fire.

Singh: Yes.

Kaizen: Do you recruit out of universities for junior people?

Singh: We do recruit from universities. A lot of the younger chaps are post-graduates. Some of the research, especially the desk-based research, we do resort to Ph.D.-level students who we can contract.

Kaizen: Speaking of a Ph.D., you spent some time at Warwick Business School pursuing a Ph.D. while you were also doing your full-time career. What was your motivation for pursuing the Ph.D.?

Singh: I had a professor who was very interested in my MBA dissertation who convinced me that I should develop it more and make a dissertation that would be worthy of a Ph.D.

Kaizen: What was your thesis?

Singh: I was looking at specific market segmentation in the leisure industry. In order to motivate myself, the subject had to be marketing, some aspect of segmentation, and it would also have to involve an area that I really haven’t looked at, but interested me. It ended up being the leisure segment. I went through the academic side of it, but I was still very much working and I was pulled away by certain projects. Unfortunately, that has been shelved for the time being. I would love to go back to that.

Later Career and Advice

Singh-Lall-17Kaizen: So when you have some leisure, you can finish up your Ph.D.

Singh: Yes. That’s right.

Kaizen: You are in a good situation now. You are in your middle 40s; you have a prosperous company; you have more deals in front of you than you can handle, so you can be choosy. What do you see yourself working on for the next few years?

Singh: I think the mix of projects at the moment with the port development, the new, revolving skyscraper …

Kaizen: Yes, we do need to come back to the revolving skyscraper. [Laughs]

Singh: [Laughs] That’s kind of interesting, yes.

Kaizen: So the port project in Ireland, a revolving skyscraper in Dubai, and a project in India, is that right?

Singh: Yes.

Kaizen: Those will keep you busy for a couple of years.

Singh: Yes. Those are the immediate projects. The biofuel project is also coming back on-stream. So those will keep me busy for a while. I’ll have to light a candle to try to fit my Ph.D. in between.

Kaizen: Let’s talk about Dubai, where all kinds of engineering marvels are happening. How did you get involved in this project?

Singh: This was from an old business associate who went out to Dubai. He had been there for a number of years and sold something to the tune of $200-$300 million in property there; so he became quite a significant property dealer there in Dubai. He was involved in Jumeirah Beach Resorts, which is one of the prime lands in Dubai. We had a very good relationship there. He based himself in Dubai and is looking at a way of presenting something at the height of the highest structure in Dubai at the moment, Burj Khalifa.

Dubai was priming itself to be one of the major hubs that you can actually stopover when you are flying from, for example, Birmingham to the East. So when I take a trip to India, I have a chance to stop off in Dubai and have a chance to enjoy a lot of the 5-star and even 6-star and 7-star hotels they have there. As well as some of the water parks — they even have a ski resort there. It is a very exciting place. Obviously, they took a battering during the financial crisis and everything almost came to a halt. My business colleague there is struggling, having had a lot of boom years in property sales.

However, there is still a niche market of those interested in innovative property ideas. He’s working with Atkins Engineering to develop a revolving structure. What became popular is what is called “villas in the sky,” where people buy whole floors of a building in order to have an apartment that stretched across a whole floor.

Kaizen: So the idea for this one is that the entire building rotates?

Singh: It rotates, yes. He got the technology and wants to build on prime land as its first prototype. He approached me for the financing aspect because we have the hotel experience and the type of investors who may be interested being that it is at the forefront of innovation — that’s always a risky venture. He was having a difficult time financing, which is why he approached me.

Kaizen: How much is it to finance this project?

Singh: About $200 million. It’s a 55-story skyscraper.

Kaizen: Part hotel and part villas in the sky?

Singh: His idea initially was to have all residential. We changed to thinking that you are perhaps better off selling the first 15 or 20 floors to a hotel. At the moment we are working with the Core Group, who are quite interested in the first 15 floors.

Kaizen: This project is still relatively early and you are still working on the financing?

Singh: Yes. We have a Swiss group and an Indian group interested. We’ve acquired the land where it is going to be built, so we can put those stages together to satisfy both of the criteria and maybe bridge debt to finance the difference.

Kaizen: The engineering is a “go?”

Singh: Yes. Apparently the technology has been patented as a joint patent between Atkins and my business colleague.

Kaizen: Does the property have a name so we can keep our ears open for it?

Singh: Yes. You can look at the website; it’s Time 55. It’s very exciting. I can very easily imagine somewhere like Las Vegas having a revolving structure like that. It would be quite unique. Perhaps New York as well. In fact, the company itself, Time 55, wants to put a building on each timeline. I think that’s quite ambitious; at this stage we are focusing on getting the initial one off of the ground.

Kaizen: It could serve as a prototype for lots of others.

Singh: That’s right. So we are trying to get the prototype off of the ground, and once we know that’s done, to replicate it will be easier. Right now it’s about getting the prototype financed and workable and to make it a worthwhile hotel — to make it successful by having full sale on the residential as well.

Kaizen: So your major projects currently are a revolving skyscraper in Dubai, the biomass case in Canada, and a large port structure in Ireland. Your plate is quite full.

Singh: Yes. [Laughs] Of course, I’m not the only one working on these. We have a number of people involved.

Kaizen: Yes, a whole team of people. Of your 25 permanent people, are they divided among these three projects? Or is everybody doing a little bit on each?

Singh: They are pretty much divided. Each of them has their expertise.

Kaizen: And there would be a smaller group of you who are in a general oversight position — or perhaps just you?

Singh: The oversight I’m heading on each of those major projects; so I need to coordinate and orchestrate who’s working on those to make sure that we are still on target and things get done.

Kaizen: Over the twenty years or so since you finished schooling, what’s the thing you’ve enjoyed the most about all of the projects you’ve worked on? Is there one element you’ve liked the most?

Singh: The fact of the achievement. You see a very small company that grows. Like Biofarm Conglomerate has grown into something that has become very exciting because we started from a pharmaceutical company and then acquired a whole sequence of opportunistic acquisitions and ended up the life of the group at that stage. It was very fast, in a couple of years. And I enjoyed the bounce in our stock price — we went from $0.20 to $8.00.

Kaizen: Wow. That’s forty times the original price.

Singh: Yes. So the shareholders benefited — it made a lot of money for a lot of people and they were very happy. It was a very exciting time; reflecting back on it is very pleasant. But also seeing some of the smaller projects come to fruition are very good. The insurance assessors — when we became a major player in the market on a very small concern. A $2 million turnover went up to about $40 million. It was quite good. The growth is what I tend to reflect on.

Kaizen: It’s a happy measure.

Singh: That’s right.

Kaizen: Have you had any projects that ended in failure, projects that just didn’t work out?

Singh: Oh yes. I’ve had my fair share of deals that didn’t work out. Sometimes you do reflect on them and think, “Maybe if I had done it differently.” But that is part of the learning process.

Kaizen: Are there any common threads, things you’ve learned from those deals that fall through that inform your decision-making the next time around?

Singh: Sometimes it comes down to negotiations. Sometimes it’s best to try to find a common platform in order to make projects work. I’ve lost out on a fair share of projects where you try to get your shareholders the best deal, but it wasn’t quite right for everyone.

Kaizen: Over-extended? Too pushy?

Singh-Lall-10Singh: Maybe “over-extensive” is more appropriate. [Laughs]

Kaizen: So it has to be win-win. Though, going into negotiations, you’re both in a separate ballpark.

Singh: It’s usually very complicated and difficult to keep all of the connections.

I’ll give you an example. We owned an aviation subsidiary in the Isle of Wight and that was one of three manufacturers of aircraft here in the U.K. What we wanted to do was to take over a small concern in Yorkshire, where they produced single-pilot, two-seater aircraft. So you get these ex-military pilots to buy the fuselage first … this is a very nice plane where you can detach the wings, put them on the back of a trailer and reverse it into your garage. That really interested me.

Given that we had the production line in Romania and the Isle of Wight, we could actually put those into full production. And we had the usual federal licenses and CAA licenses for production. But in negotiations, it meant buying the company outright; we had some very tough negotiations there. Obviously, you are concerned about the risks you are taking. But upon reflection, I often think perhaps that would have come around. And those aircraft are still around, but not manufactured and not as popular if they were in full production, which would have lowered the price quite drastically. At that time we were looking at something like $10 million for the company, which was a lot of money at that time. But I wish we had acquired it at that time. That would have been a different story. So there are always difficult negotiations because you have lawyers there to represent your interests and you are almost negotiating with a whole team across the board. It’s very difficult. You wonder sometimes if maybe you could orchestrate a board that would do a little better. But it depends on timing and a lot of other issues as well.

Kaizen: Juggling a lot of balls.

Singh: And blades at that time, yes. [Laughs]

Kaizen: Thinking about younger people still in school. How important was your formal education was in enabling you to do what you have done? If someone has smarts and ambition but not the formal schooling, can he do what you did? Or is the formal schooling important?

Singh: You know, I think I ride the learning curve a lot faster. Formal education is the way to go. You have to load yourself with the key thinking. I found that originally — and this was having qualified as an accountant — you’ll still find yourself blinkered in the market because you don’t understand the marketing aspects; you don’t understand the operations; you’ll also get pigeon-holed in a specialization that is self-restricted. I broadened my horizons and tried to get better perspectives by looking at other areas and I became interested by accident in marketing; it wasn’t a subject that really appealed to me.

Kaizen: And that wasn’t until your MBA level.

Singh: Right. Nowadays in business to get ahead of the game, you need to be more of a generalist, but see the woods from the trees by having enough knowledge in the various aspects: numbers, accounting, managing operations, managing people, as well as being able to see a vision for the company in terms of goal setting and where you are positioning your company relative to the competition.

Kaizen: Two other things come to mind here. You consistently mentioned knowing people — having people bring things to you and having your own network of people you can call on. What goes into being the kind of person who can be a part of a network like that? Are personality and character important? And can they be taught?

Singh: I think in business your reputation is extremely important as well as your ability to deliver. And more importantly, as we say in England, an old phrase that is, unfortunately, being emptied of meaning: “Your word is your bond.” Integrity. Loyalty to your principles.

Kaizen: Developing a reputation as being someone who can deliver but also being a person who delivers what he says he’s going to deliver.

Singh: That’s correct.

Kaizen: Part of that is the skill- and knowledge-set, and part of that is being smart enough to have the formal schooling.

Singh: Yes.

Kaizen: You mentioned that most of the deals you’ve put together have had common elements — you are able to see certain, abstract patterns. But in each case, since the industries you are so different, you have to plunge into the particulars of that industry. It strikes me that you’d have to be a pretty quick self-starter to learn about biomass, ports, pharmaceuticals, airplanes, and so forth.

Singh: Yes. That’s correct. That’s the interesting aspect. In terms of brokering a deal in order to make something grow, to make it appealing to shareholders, to make it appealing to the people who are going to buy the products, and to any stakeholders who are in the business — putting those elements together. The only term I can think of is cross-functional integration. You have to see the woods from the trees. You make everyone strategically coordinate in the same way. And sometimes it’s like marketing to move the company forward, but then you know the numbers fed back to you to see how you perform. I think I have a good mix of the two.

Kaizen: Some questions about Britain’s business climate and the European climate, more broadly speaking. From your perspective, there are opportunities all over the place.

Singh: There are always opportunities, yes.

Kaizen: Do you get the sense that Britain now has an entrepreneurial culture? In one sense, Britain is the birthplace of modern economics and has a strong entrepreneurial history. Is the climate healthy? In decline?

Singh: I think the entrepreneurial spirit in Britain has always been quite strong. It’s weathered the recessions and the booms that we experience here. We have a very good entrepreneurial structure here where people are given the freedom to look at developing and incubating new businesses. We are probably more risk-averse than the Americans are. When you are in New York and pitching a road show and people are buying your stock — the Americans are more risk-seekers. Obviously, you have to speculate to accumulate, but the British tend to be more conservative. We see that through venture capitalists.

The recessions and so on tend to polarize people. You get those who are looking for opportunities and are more risk-seeking, and you have some people looking at the austerity measures going on at the moment and are risk-averse. They draw their funds in more and securitize them in gold and silver and not be willing to invest at this stage. But there is still an entrepreneurial culture that has weathered the differences in available financing.

Kaizen: Britain traditionally has strong ties with North America and more broadly the Commonwealth. But also, due to geography, close connections with Europe. Are the American connections more important now, or the European?

Singh: The American relationship has always been great. For Britain, I think, that is a huge market that is readily available. The European market is a little more fragmented; it’s always been a little more difficult because it has essential differences all across Europe. But, again, it’s an open market, which will continue despite differences in the currencies or whether the Euro dies or whatever.

Kaizen: Europe’s temporary troubles. Britain is in some ways part of the European Union, but it does have its independent currency and it guards its sovereignty. To what extent do current troubles with the Euro affect business in Britain?

Singh: The Euro is a fluctuating market at the moment with the economic climate. But the British Pound is still really relatively strong. Although, for exports, it makes your price a bit more expensive across the continent.

Kaizen: Zeroing in on the so-called “PIGS countries” [Portugal, Italy, Greece, Spain], there is a current instability. Does that impact your decision-making about whether you take on investments there?

Singh: We certainly do because of the political instability. I would certainly be an advocate, but if all the debt was actually liquidated, it would be a lot easier to get the next generation to have it fall on their shoulders the burden to liquidate this debt bubble. Inflating each time isn’t the solution. 

Kaizen: So solve the problem now?

Singh: I certainly would. In some ways it will come to the crunch because Greece is a recurring problem. You saw the problem with Cyprus, which is the first time 30 percent was just wiped off of accounts. It may well be that at this stage that Germany is not willing to further inflate and dilute their own currency, the Euro. This would create a domino effect where Portugal, Italy, Ireland, Spain, and Greece are all impacted, which might be the best thing that’s ever happened to Europe. But I think the most likely scenario is that they will hop-along. The austerity measures will be quite drawn out. I mean, we are having riots and so on in the various countries about this, including the U.K. We are, obviously, not sheltered from it here. It’s quite unfair. A lot of assets are being depreciated due to this bubble. And business perceptions are impacted. It’s a shame that it has to come to this. But this is the result if you want these cycles — and quantitative easing is actually adding to the problem and deferring the solution as opposed to offering a long-term solution.

Kaizen: Younger people. What advice would you give to those starting out in business? Do they need to work on personality issues? Character? Or acquiring formal knowledge? You also mentioned being able to see the forest through the trees, so cultivating a big-picture, abstract ability? Understanding markets? Politics?

Singh: I think people in college now have a lot more opportunities these days, especially with the information age where we have the internet.

Kaizen: Research costs are way down.

Singh: Absolutely. And we have readily available information through the internet. Researching opportunities and social networks are developing and have changed marketing in of itself. And communication can happen almost instantly across the globe. And we can almost travel anywhere in the world. I think it is a very exciting time for someone in college.

Kaizen: What from your college experience has stood the test of time?

Singh: I would certainly invest in knowledge-development by gearing yourself up through formal education. Also by looking at the common denominators of what make businesses work.

Kaizen: So lots of case studies.

Singh: A lot of case studies, which are, again, readily available. It’s almost gaining experience through someone else’s eyes without actually doing it. Because the best experience, I always say, is experience.

Kaizen: Also learning from failure cases?

Singh: Absolutely. Failure cases as well as successful cases. One of the big things I enjoyed in my MBA looking at was real companies that either got it right or wrong. And even some live cases. Or even simulations where you are designing a product  —  I think that is a very good way of learning. In those days we competed against each other in a marketing simulation and we had a product that was the equivalent of, let’s say, a 3D gadget like a navigation device. It gives you a good taste of business given that you can never have perfect information; you’ve got to make guesses sometimes. The other thing that you do learn is to follow reason through  —  everything has a cause and effect. To understand that and to build your character in terms of experiencing all the virtues we derive from reason.

Kaizen: So lots of experience whether through case studies or simulations, and getting internships and actual jobs as you can. Then combining that with high-level knowledge and judgment skills as well.

Singh: Yes.

Kaizen: The internet is a boon in making tons of information available, but one still must sort through that information and say what counts and what doesn’t and then exercise good judgment.

Singh: Yes. You have to be able to make that meaningful to your own goals. The other aspect, which is very essential in the earlier part, is combining your personal goals with the goals of your organization. And self-development is something that you really have to invest in from the outset. Putting time aside to look at your weaknesses and how you can improve them. There is  a lot of talk about positive thinking, but I always promote what I call “negative thinking.”

Kaizen: Objective self-evaluation is part of the process.

Singh: Yes. In terms of constructive negative thinking. With negatives, sometimes we have to overcome them. The positive things look after themselves.

Kaizen: When you were younger and your family was poor and working class, a big part of your motivation for going into business was to earn money. Now you are comfortable financially and wouldn’t have to work anymore if you didn’t want to. So the money is part of your motivation, but what also is motivating you to continue to work hard?

Singh: I think it gives you the emotional fuel in terms of knowing that you are valuable, that you can contribute and make a difference. I’m happy to grow businesses  —  to see our starting position and where we could make a contribution towards that business and make it grow. And if anything is attractive, it is probably the achievement from having done it — moving companies and making a difference. That excites me.

Sometimes you have a project that gets me thinking about how we could do it. I always find that if there are complicated financial project, many people don’t want to get into the messy details of finding a solution. But I’m wired in the way that it gets me excited to find a solution to it. From an early age, I tend to think about how I can make things work. Perhaps I can get certain investors or banks interested and maybe partly venture-capital financed. If I can break that project down to phases, then …

Kaizen: So you enjoy the process of problem-solving, seeing the problem solved and watching as the business grows.

Singh: Well, not always is it growing! [Laughs] Sometimes it is something you didn’t envisage and I think, “Why didn’t I think of that at the time!” But it is all part of the learning curve. You get better as you experience more.

This interview was conducted for Kaizen by Stephen Hicks.