Posts Tagged ‘Entrepreneurship’

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?

KaizenNo.

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.

Kaizen 33: Krzysztof Jurek and Laura Niklason

Thursday, December 14th, 2017

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

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

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

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

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.

William Kline on entrepreneurship and liberty

Friday, November 20th, 2015

University of Illinois, Springfield Professor William Kline’s 14-minute video lecture on “Entrepreneurship and Liberty.” Professor Kline discusses the relationship between liberty and entrepreneurship. He explains how laws, culture, and economic regulation can infringe upon the freedom of entrepreneurs and inhibit their abilities to be innovative. He stresses the importance of economic liberty in particular in providing the right environment for entrepreneurship to flourish.

Professor Kline’s lecture is part of the ongoing Entrepreneurship and Values series, recorded and produced by the Center for Ethics and Entrepreneurship. Other lecturers in the six-part series include Alexei Marcoux, Stephen Hicks, Terry Noel, and Robert Salvino.

Robert Salvino on entrepreneurship and public policy

Friday, November 6th, 2015

Coastal Carolina University Professor Robert Salvino’s 15-minute video lecture on “Entrepreneurship and Public Policy.” Professor Salvino discusses public policy and its effect on entrepreneurship. He contrasts active public policy methods (e.g., subsidies) and passive public policy methods (e.g., lowering taxes) and hypothesizes that passive approaches to public policy often result in more innovation and entrepreneurship.

Professor Salvino’s lecture is part of the ongoing Entrepreneurship and Values series, recorded and produced by the Center for Ethics and Entrepreneurship. Other lecturers in the six-part series include Alexei Marcoux, Stephen Hicks, William Kline, and Terry Noel.

The Capitalist Heart Surgeon, Silicon Valley’s Start-up Machine, Advice for Success, Censorship and Business, Hicks on Poverty to Prosperity, Defining Competition

Friday, August 9th, 2013

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Kaizen Weekly Review highlights activities of The Center for Ethics and Entrepreneurship and recent business ethics and entrepreneurship news.
Editor
: Virginia Murr

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The Capitalist Heart Surgeon
Dr.-Devi-ShettyDubbed “India’s Walmart of Heart Surgery,” Devi Shetty is a heart surgeon-turned-businessman who has cut the cost of heart surgery by 98 percent to just US$1,555. The same procedure costs US$106,385 at Ohio’s Cleveland Clinic. This article explains that Shetty keeps the costs low in his 21 medical centers by buying cheaper scrubs, using air conditioning only in the most essential rooms, and through other efficiencies..
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Silicon Valley’s Start-up Machine
silicon-valleys-most-important-startup-factory-y-combinator-is-shrinkingY Combinator is an organization founded by Paul Graham that accelerates the early phases for start-ups. Its first graduating class in 2005 included Reddit, Infogami, Dropbox, Airbnb, and Stripe. Y Combinator holds two three-month sessions every year. During that time, start-up founders receive mentoring at regular meetings with each of Y Combinator’s partners. Read more.

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Censorship Inhibiting Entrepreneurship in Quebec
censorshipAccording to the province of Quebec’s censors, “Wellarc” is too English to be used as a business name. The entrepreneur who proposed the name is Xavier Menard, a 17 year old from Quebec. Menard is up against Quebec’s Bill 101, which requires that businesses in Quebec have French names and signs. According to this article, Menard responded to the government with a video in which he argues that it doesn’t make sense to limit the choices of Quebec businesses when the province has a high unemployment rate..
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Essential Advice for Success
bob-lefsetzAccording to Bob Lefsetz, embracing individuality is an essential cornerstone to success. Other factors include: the personal touch, quality over quantity, and understanding that talent is not god-given. According to Lefstez, “None of us are perfect, we can all improve, we all make mistakes. But let me be clear, ignore the haters, ignore advice unless you’re asking for it.” Read the article..

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From Poverty to Prosperity
saupload_poverty_to_prosperityIn this post, Stephen Hicks enthusiastically reviews Arnold Kling and Nick Schulz’s From Poverty to Prosperity: Intangible Assets, Hidden Liabilities and the Lasting Triumph over Scarcity. Hicks likes the authors’ emphasis on the foundational economic role of entrepreneurs, their insistence upon the study of real human agents, and their assumption that “win-win social relations are normal and the proper benchmark, not the usual expectation of zero-sum.”.

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Defining Competition
sports ethicistAs part of a recent seminar, Shawn Klein (a.k.a. the Sports Ethicist), developed a genus-species definition of competition. What do competition in business and sports have in common? Is war properly described as a competition? Are two animals fighting over mates or food competing? Klein elaborates on why certain aspects of competition were rejected and others included. Read more.

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See you in two weeks!

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Previous Issues of Kaizen Weekly Review.


Weighing Privacy Rights, Monsanto’s Seed Patents, Teen Innovators, Entrepreneurship for School Reform, The Crisis of Socialism, and Debating Hockey Fights

Friday, June 14th, 2013

KWR title15a
Kaizen Weekly Review highlights activities of The Center for Ethics and Entrepreneurship and recent business ethics and entrepreneurship news.
Editor
: Virginia Murr

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Do Privacy Rights Matter?
cellphonellAmericans have had a lot to digest lately. Not only was it reported that phone companies have been selling customers’ personal information to third parties, but Americans have also learned that their government has been tracking their metadata through their phones. Do Americans care? According to this summation of several surveys from the Electronic Privacy Information Center, “the importance of privacy has steadily trended upward over seven years.”.

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The Future is Bright: Amazing Teen Innovators
Teen-Phone Capacitor-2Worried about the ingenuity of our next generation? Consider this: An 18-year-old has developed a capacitor that charges cellphones in under 30 seconds. In the booming market of apps, a teen has contributed an emergency-notification app. One teen designed a low-cost, self-driving car. Another teen has created a single-person submarine. And this 15-year-old budding scientist has developed a fast, low-cost blood test to detect pancreatic cancer..

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Big Win for Monsanto’s Intellectual Property Rights
Monsanto Seeds 3Would innovation happen without intellectual property rights and the profit-motive? In a major win for intellectual property rights, the Supreme Court recently decided in Bowman v. Monsanto Co. that the farmer, Vernon Bowman, had infringed on Monsanto’s patent rights when he copied and used the seeds he yielded from a crop of Monsanto, patent-protected seeds. Read more about the case and decision.

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Is Entrepreneurship the Key to School Reform?
Student Voice Live 2At a recent event in New York, Dell and a student advocacy group, StudentVoice, hosted a day-long conference devoted to exploring ways schools can introduce entrepreneurship in the classroom. According to Zak Malamed, co-founder of StudentVoice, “Research shows that it’s entrepreneurial innovation that will lead to global economic recovery, and it’s important to nurture this entrepreneurial spirit from a young age.” Read more about the event and panelists.

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New Chapters from Audiobook Version of Explaining Postmodernism
explaining postmodernismTwo more chapters from Stephen Hicks’s Explaining Postmodernism audiobook have been released. Chapter Four takes an in-depth look at “The Climate of Collectivism” in nineteenth- and twentieth-century political thought, and Chapter Five explores how the “The Crisis of Socialism” led to Postmodernism.

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Five for Fighting: Is Hockey Fighting Justified?
sports ethicistFor many hockey fans, fights are a natural and enjoyable part of the game. But is the fighting justified? The Sports Ethicist, Shawn Klein, takes a look at the most common justifications for hockey fights. In his assessment, Klein opines that “it is a lack of sportsmanship and self-control, and overall does more harm to the sport than any purported benefits.”

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See you in two weeks!

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Previous Issues of Kaizen Weekly Review.