The Mindset Behind Building a Great Little Business | Brad Jacobs

This summer, I’m revisiting one of my favorite episodes. If you haven’t heard it, now is the time. If you have, it’s a classic and worth listening to again.

Brad Jacobs has built eight billion-dollar companies, completed more than 500 acquisitions, and created extraordinary returns for shareholders over four decades. Few people understand how great businesses are built better than he does.

This conversation is about the principles behind that success. Brad explains how he spots trends before they become obvious, why psychology matters as much as strategy, and how he thinks about acquisitions, hiring, capital allocation, decision-making, and building organizations that consistently outperform. 

He also shares lessons from therapy, meditation, and decades of leadership that changed how he manages people and makes decisions.

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Transcript

There is no conversation that’s made me more money than this one. If you haven’t heard it, now is the time. If you have, it’s a classic and worth listening to again. Brad Jacobs has started eight separate companies worth more than a billion dollars each. He’s done about 500 acquisitions. So when he says that there is a way to make money that reduces the role of luck, it’s worth listening to him. And this interview lays out exactly how he does it.

The most surprising advantage though doesn’t come from business at all. It’s something we can all learn. Let’s get into it.

Shane Parrish: Ray Kurzweil, who wrote The Singularity, is one of your heroes, and you recently met him. I’m curious what you took away from that conversation and what it was like.

Brad Jacobs: Well, I did recently meet him, and it was like meeting Albert Einstein or meeting Michelangelo. He’s looking at the history of the universe going back 13-point-something billion years and how we got here and then looking at trends. He identifies the most important trend of all, which is that Homo sapiens have created technology, created tools, starting with stone pebbles over a couple million years ago, and then fire and then settlements, and over the last couple hundred years, so much more, and in the last 20 years, accelerating. And now with AI, it’s accelerating even more.

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And where’s that going? The technology we’ve created is becoming more capable than we are at some of our traits, and we’re able to outsource a lot of our activities to our own technology. And Ray predicts a singularity whereby technology becomes more intelligent, more capable, than humans and we merge with technology. We’ll use so much technology in our own bodies—with wearables and nanobots and AI and outsourcing our memory and senses and so forth—that you really can’t call us Homo sapiens anymore because the traits, the characteristics, will have changed so much that we’ll say Homo sapiens has become extinct and there’s a new species. And I think he’s probably right.

Shane Parrish: What do you think the benefits of that are and what do you think the drawbacks are?

Brad Jacobs: If you look at us as a planet, with eight billion people, there are a lot of things we do well, but there are a lot of things we don’t do well—primarily, get along with each other. And information sharing is not there. Resource sharing is not there. I think, with advances in technology, we will be able to distribute resources more intelligently and abundantly and have more resources for more people, and I think medicine will be better and science will be better. We’ll be able to live longer. We’ll be able to be more in touch with the way we think and to be able to think more constructively, because that’s an area of improvement for humans; we don’t think rationally a lot of times. And I think, with technology and AI advancements, that we will think more rationally, so it’ll be nonstop therapy, so to speak.

Shane Parrish: How do you think rationally when you have all this information coming at you from all over the world? You’re emotional. You have big swings. You’ve lost billions of dollars and in market cap in a day.

Brad Jacobs: I don’t always think perfectly rationally. I’m not a perfect person. I’ve paid attention to the way I think over the course of my life, and I’ve studied with various people, whose specialty is analyzing how you think, and I did therapy for three hours a week for a couple years. I have spent a lot of time reflecting on how I think, what my automatic thoughts are, what my biases are, what my cognitive distortions are, and I’m aware of those. And I apply various techniques and tools in the toolkit that you learn from cognitive therapy, dialectical behavior therapy, positive psychology, etc., to think more rationally and more constructively and more accurately, and I think that helps me in business quite a bit.

In business, you need to keep your head on your shoulders. You need to be calm. You need to be cool; you need to be collected. You need to be dealing with lots of changing unplanned circumstances and then capitalizing on those and not being overwhelmed by those, not being beat up. Utilize what comes in, capitalize on what comes in, to create money for shareholders. I think the human capital, in the psychological sense, is very, very important, so I put energy into that.

Shane Parrish: You said you can get a lot of things wrong if you get the big trend right. What major trend are you most interested in right now?

Brad Jacobs: I’m most interested in AI because it is the trend. It is the number-one trend whereby our technology, software, that intelligence, will be able to consume so much information—much more than we human beings can, even with 100 billion brain cells. Eventually, I’m looking forward to the point where computers become emotional, where they do have emotion, where they do have empathy, just like we have mirror neurons in the prefrontal cortex. I’d like to see that trend materialize, where computers can feel, can have theory of mind, can be sitting here having a conversation with Shane Parrish and feeling what you’re feeling and feeling happy about what you’re feeling happy about and feeling sad about something you’re not feeling happy about. I’m looking forward to that trend a lot.

Shane Parrish: Everybody recognizes AI as being a trend, but you’ve spotted several trends well before people recognize them, and you were way ahead on the AI curve, too, as I understand it. How do you spot those trends before they become mainstream?

Brad Jacobs: Well, I do spend a lot of time thinking about trends. I spend a lot of time thinking about the wider context of things, like, okay, here’s a situation. What’s the context of that situation? What’s its origin? What are its present conditions and characteristics? What are the ways it could go, and what would be the catalyst to make it go right or straight or left? I intentionally think about trends quite a bit because in the business world, you’ve got to get the major trend right. 

And as my main business mentor, may he rest in peace, Ludwig Jesselson, used to say, you can mess up a lot of things, but if you get the main trend right, you’re going to make a lot of money. And conversely, if you don’t get the main trend right, you’re swimming upstream. You can do a lot of other things right, but you’re not going to make a lot of money. I intentionally spend time thinking about [questions like] Where does all this fit in? and Where could it be going?

Shane Parrish: And what’s your research process like?

Brad Jacobs: I like people and I like picking people’s brains, and I’m shameless about asking people their opinions, and I like to be a student more than a teacher. I find that a lot of people make the mistake, as they get older or they get more successful, of thinking they know everything, and they start teaching all the time. I’m sharing, through the book I wrote and through podcasts like this and so forth, the few little things that I think I have insights that I can give back, but I absolutely view myself as a student of life. I don’t view myself as a guru who’s figured it all out—not by a long shot. And I think if you keep that element of profound curiosity, of really being very interested to learn and being involved with the sensory experience, the intellectual experience, and analytical capabilities, you can learn a lot more, and you can see trends that otherwise you don’t see. You’re just in it and you’re living it, but you’re not seeing the trend. You’re just kind of going along.

Shane Parrish: A lot of people who reach your level of success outsource a lot of this work to other people, and by that I mean, “Do research on this, come back to me, give me these points,” but you seem very hands-on, in the weeds, very involved in the detail. Why is that important to you?

Brad Jacobs: I do both, Shane. I do have a team that researches things for me, but I like to roll up my sleeves and get into it myself, even when I do M&A (mergers and acquisitions). My teams that I’ve led have done about 500 acquisitions. I’ve been involved in those acquisitions. I get into the details of what we are buying, and to buy those 500 companies, we looked at thousands and thousands of other companies that we didn’t buy. And I love the process. I love studying each company, figuring out how they got to the point where now there are millions or hundreds of millions or billions of dollars of revenue, and they started from scratch. It’s like a miracle. It’s fantastic.

I’m very impressed and excited about and enamored with entrepreneurs and companies that have created huge growth and huge value, and I want to understand that. I want to get into the detail of it. I want to pick their brains. I see a big value in asking lots of questions of people. Now today, you’re the one asking questions, and I’m answering, but normally, it’s a role reversal. Normally, I’m asking a lot of questions. If you go into a management meeting, I’m usually asking lots of questions.

Shane Parrish: What have you learned about asking questions that you wish you’d known five years ago?

Brad Jacobs: I take questioning from the therapists. I find psychotherapists. I wrote in the book that the only time in my life that I was really depressed was in the mid-2000s, when I had stepped down from being CEO of this big company, United Rentals, and I didn’t have anything to do. I was doing some art, I was studying art and buying art, and I was doing things with my family and so forth, but I didn’t have a business. And I learned from that that everyone has their own thing that makes them excited; for me, it’s running businesses. I’ve been a CEO since I was 23 years old, and I liked being a CEO. I really liked that job a real, real lot. Now I wasn’t a CEO, and I felt a big gap. I felt depressed, I was down, and I had a lot of unconstructive thoughts and inaccurate thoughts. And that drew me to meeting a lot of fantastic psychotherapists, and I mean fantastic—at the top of their game.

There was a psychotherapist in New York City called Albert Ellis—he died about 10 or 15 years ago—and he had formed a school of therapy called “rational emotive behavior therapy,” REBT. In short, it was cognitive behavior therapy. He, together with another psychiatrist, Aaron Beck, were the co-founders of cognitive therapy. And I find that therapists, of all the different professions, are the best at asking questions and the best at getting a person to relax, getting a person feeling at ease and able to open up.

And what I learned from studying those psychotherapists is that before you start badgering someone with questions and inquiring and asking them all these important things, sometimes personal things, sometimes intimate things, private things, you need to create an atmosphere. You need to create an environment that’s a safe place—that’s a zone where it’s okay to be vulnerable; it’s okay to say what you really feel. It’s okay to take off your mask and show who you really are, warts and all. And that’s really, really important, and to do that, you need to be listening.

And I learned from studying them that maybe the single most powerful thing you can do in a relationship, whether it’s personal or professional, is to give someone 100% of your attention, like you’re doing now. You’re giving me 100% of your attention. I can see it. You’re looking at me. You’re listening to me. You’re actually paying attention to what I’m saying. And that feels good, by the way. It’s putting a little pressure on me to perform better and give good answers. But you’re doing something powerful. You’re giving me 100% of your attention.

And I find with therapists, that’s one of their tricks, one of their skills, one of their techniques: you have your session for 45 minutes or two hours or whatever it is, and during that time, they’re all yours. They’re listening to you and they’ve got all their attention on you, and that has a certain effect on the person speaking. And secondly, they’re not being judgmental. They’re going with you. They’re not disagreeing with you without first finding a way of agreeing with you—joining, then leading; validating, then disputing. Even when they are changing the way you’re thinking and they’re saying, “Gee, is there a better way to look at that? Is there another way we can look at that? Be more constructive,” before doing that, before that disputing, before that changing, that transforming, they’re first joining. They’re showing that they understood you. They listened to you, they got you, they got what you said, message received.

And I find that’s really powerful in business. Whether you’re dealing with employees or whether you’re dealing with someone whose business you’re trying to buy or you’re dealing with a vendor or you’re dealing with an investor or an upset customer, it is very good to do that. It’s very nourishing and nurturing to give someone 100% of your attention and listen to them nonjudgmentally. I call it “nonjudgmental concentration.” That’s the phrase I use—nonjudgmental concentration—when you’re giving someone 100% of your attention and not judging them, but going with them, trying to get into their way of thinking, their way of feeling even. So not just What are they thinking? but also How are they feeling? What’s the emotion that’s underlying that? And I use that quite a bit.

In the book, I have a chapter on how to run an electric meeting, which means a meeting that’s powerful, a meeting in which everyone goes away exhilarated, everyone goes away with lots of things to do that can create a lot of value for the shareholders, not just one of these ho-hum meetings. And an element of that meeting is that everyone in the meeting shuts off all their devices and concentrates, concentrates nonjudgmentally, on the one person who’s speaking. No side conversations; no talking over each other. One person speaks at a time, and everyone in the room gives them all their attention. It’s a really powerful thing.

Shane Parrish: I like that a lot. It’s the secret to our podcast in a way, which is that I want to see the world through your eyes. I don’t have to agree or disagree. That’s not my job. I just want to see what you see, think what you think, smell what you smell, and then that way, I can truly understand where you’re coming from. And I think that so often listening is transactional, in the sense of I’m waiting for you to stop so I can just say something, or I have this point, but you don’t understand it, so I’m not really listening to you because you’re talking about something else now. And I think it’s one of the biggest reasons we miscommunicate.

Is the work with the psychotherapist where you learned about rearranging our brains and controlling the mind and the importance of thought experiments and mindset? Talk to me a little bit about that.

Brad Jacobs: It was one of the places. My main hobby, since I was a teenager, has been meditation, various forms of meditation, and then I learned self-hypnosis, and then from there, I learned about mindfulness and positive psychology and cognitive therapy and so forth. I’ve mixed and matched a lot of different schools of thought and customized it for me, my own personality and my background and my individuality. It’s not just one thing. I’ve had many different influences that have created the way I look at life and the way I deal with reality. And a lot of that was my education when I was a kid. I studied music and math. But in music, it is a lot about relationships, unless you’re a solo performer, and I was not. I liked to play in a group. I liked a band. I liked playing with other people. Interacting with the other folks is part of the magic of making really great music. That’s had a big influence on me, too.

I self-identify as a musician more than as a businessperson, which you might find odd, because I’ve spent a lot of time building big businesses and running large enterprises. But when I think about myself, I think about myself as a musician who happens to be doing a lot of business and has done well at business, but I feel like a musician, and by that, I mean my sense of sound is the dominant sense. I listen to sounds. I listen to my heartbeat, listen to my breath; I listen to sounds in this room going on right now. I “suffer,” quote-unquote—and I put air quotes on it because I don’t consider it suffering; I consider it fantastic—from tinnitus, where you have this ringing in your ear. I’ve had it since I was a teenager, probably from listening to music too loud.

And I have it right now. I’m hearing very high-pitched sounds. I love it. It keeps it interesting. It’s my friend. It keeps me in tune. Sometimes it gets louder; sometimes it gets softer. Now some people have tinnitus and they say, “Oh my God, it’s a terrible thing; it drives me crazy,” and they get all upset about the thing. I have just the opposite attitude. I feel I’m lucky to have that, and I wouldn’t know what life would be like without it. And that’s part of being a musician. Part of being a musician is embracing sounds no matter what they are, and that’s the reality of the moment, and you should be in that reality and go with that.

Shane Parrish: What’s the relationship, if you had to guess, between music, math, and business?

Brad Jacobs: For me, a lot. Let’s start with the business and then that’ll show how those other two things relate to it. Business is about making money for shareholders, at its core. You take money from other people in the form of equity—the debt you pay back, but the equity is dear—and people invest equity into the business, and now you have to give them back that money when they sell their shares, but [you have to give them] much, much more money than they gave you. In my companies, we’ve been fortunate that we’ve been able to give back 32 times the money in one company. Another company, it’s over 150 times, so really, really large, large, large returns, over-the-top, unusually high returns. That wasn’t by luck. That wasn’t coincidental. If it was coincidental, it wouldn’t have happened five times in a row.

That was because there was a playbook. There was a method to it, and that method incorporates many different elements—and I talk about a bunch of them in the book—that together give you an ability to create what we call “alpha” in the business world. It’s not just beta, which is “the market’s going up, so you’re going together with the market,” but alpha, which exceeds the beta, exceeds the overall uplift, where all boats are lifted by the same tide. Some of the ingredients of that formula to make huge returns for shareholders involve analytical thought, careful analysis of numbers—there’s all the math—making order out of disorder, trying to see how this all fits together, and seeing the relationships between different things. You need to reduce things to simplicity, because great mathematicians reduce very complicated things to a formula, for example, expressed with just a few hand strokes. That’s math. The beauty of mathematics is seeing the patterns, seeing how to make sense out of this. 

On the music side, it’s being able to improvise. My training was originally classical, but then I had the fortune to study with African-American musicians in Bennington College—Milford Graves, Bill Dixon—and part of that whole training was to be spontaneous and to be improvising and to be in the moment. And there is no wrong note. If someone plays a note, that’s just a new note; it’s not the wrong note. That ability to go with the flow in music, you need to have that in business, Shane. A lot of people have a rigid business plan that’s spelled out for many years and that’s it, and it’s very non-flexible. That doesn’t usually work. Why? Because life changes, markets change, economies change, people change, results change.

You get opportunities that you hadn’t even thought of at the beginning. You need to improvise; you need to capitalize on them and to make money from them. And if your thinking is rigid, if you’re not a musical businessperson, you’re going to lose opportunities. You’re going to have things come your way to make money for shareholders and feel, “Well, it’s nice, it’s great, but it’s really not our thing.” Well, that’s a bad way of thinking. 

I’ll share with you one of the best business deals I did in my life. I bought, in 2015, a less-than-truckload trucking company called Con-way. It was based in Ann Arbor, Michigan. The deal was a few billion dollars. And it was a pivot because this was a hard-asset business. It had tens of thousands of trucks and drivers. It was as asset-heavy a business as you’re going to get, with fixed costs and depreciation and amortization. It was not an asset-light brokerage business, which is how I started XPO, as an asset-light, non-asset-based business. But here was an opportunity to buy something really, really cheaply at a small fraction of what it was worth and even a smaller, tiny fraction of what I knew we could make it be worth within a few short years. This is a company that had a lot of excess overhead. 

The organization chart was not mathematical. I love org charts. I just love to geek out on org charts. An org chart should be pretty. Org charts should be simple. They should be elegant. They should be geometrical. They should not be really complicated, like you took some spaghetti and threw it like abstract art on a canvas. This was a bad org chart. This had three different HRs and three different IT organizations and a lot of duplications, and it just didn’t make any sense. There were a lot of silos, and the chart was heavy on the non-revenue-generating top part of the organization, which should be the lightest part of any organization. The heaviest part should be parts of the organization that make money, that generate revenue, that get close to the customer, that generate sales. I looked at that org chart and said, “This is a messed-up org chart,” which is great for making money. If you can find something that’s messed up and easy to un-mess up, booyah, there’s your money. There’s your opportunity to make a lot of money, and that was it. I got so excited about the opportunity to take this company—and I saw a way we could significantly grow the profit margin and the cash flow—that I pivoted. I pivoted and went ahead and did the deal. 

I got beat up real bad by the market. They said, “Oh, it’s a change,” and I said, “Give me some time.” And I remember Eli Gross, who now runs investment banking for Morgan Stanley. At the time, he was covering me at XBO as a transportation banker. And he said, “You’re going to be in the doghouse here for a little while because it’s a pivot and markets don’t like pivots, but assuming you’re right, and I know you have high conviction and you deliver the numbers, over time you’re going to be a hero here.” Fortunately, he and I were right, and you look at that deal, even though it was a pivot, it was a change. It was an improvisation. We bought it for about $3 billion. Roughly half of it was equity, so we really bought it for a billion and a half dollars plus some leverage. Today, it’s worth something like $15 billion, and that’s after having taken out $5 billion of net cash from it. That’s after selling off $550 million of the truckload business. That’s after taking its warehouse business, its supply chain business, which was called Menlo, and putting that into our GXO subsidiary. That was after taking the brokerage business and putting that with our RXO brokerage business.

So Con-way was the gift that kept giving. It’s been an amazing, amazing ride. And the returns, it’s been something like a 20 bagger, 15 bagger [meaning the value increased by 20 or 15 times the investment]. It’s been a huge, huge return on invested capital. And had I not been trained as a musician and a mathematician, I don’t know that I would’ve seen it, Shane. I don’t know if, without the mathematical skills, I would’ve been able to see, “Okay, this is a mess, but we can make it clean.” I don’t know if I would’ve been able to have the courage to improvise and to change from what the script was for something that I had a high conviction would be very lucrative for our shareholders.

And in business, the bottom line, the report card, is How much money did you generate for your shareholders? How much bliss did you give to your investors in terms of return on their capital they invested in you, they trusted you with? You’re a fiduciary in business. You have a solemn, sacred responsibility, where you’re taking other people’s money—debt and equity, and particularly the equity—and you’re the custodian of that. You’re temporarily using their money, and your job is to multiply that. They have a thousand other places they could put that money. They picked you. Now you’ve got a big, big responsibility. And I think the training of a mathematician, the training of a musician, and then all these experimentations I’ve done in meditation and therapy and so forth largely explain, at least as far as I can understand, why my companies have created so much alpha.

Shane Parrish: I have so many rabbit holes I want to go down there. I think the opportunity hiding in complexity is really interesting because the way that I think about this, and correct me if you see it differently, is that bad ideas can easily hide in complexity, but they can’t hide in simplicity. What’s your reaction to that?

Brad Jacobs: I need to digest it. My immediate reaction is, yeah, I think I get that. So I’ll go back to that organization chart that I saw at Con-way. It was just a mess. It was all over the place—triple dotted lines and squiggly lines. In that, you could hide inefficiencies, as opposed to when it’s a clean organization chart, and everyone’s got clear KPIs, key performance indicators. Everyone has clear metrics. Everyone has clear goals, and the compensation is tied to them, and people are rewarded for achieving those goals. Yeah, it’s hard to hide.

Shane Parrish: The other thing that I thought was really interesting is that you brought up the leverage point. How do you think about leverage and debt and employing it? And at what point does it become too risky? And at what point do you think of future opportunity costs? You mentioned taking advantage of whatever the world brings, but if you take on too much debt now for an acquisition, you’re reducing your ability to adapt in the future should interest rates rise, should a company become available that you really want that’s a dream and that wasn’t available when you took on all the debt. How do you think about that?

Brad Jacobs: I don’t think it’s an optimal balance sheet if you have no debt, because you can prove the returns by shrinking your share account, because you have fewer shares, so the same amount of returns is greater per share because you have fewer returns. So I think it’s good to have a little bit of leverage. I don’t think you should have a lot of leverage. Particularly in today’s world, I don’t think you should have a lot of leverage because there’s significant geopolitical risk. There’s geopolitical risk in the Middle East and Ukraine, in Taiwan. United States politics is very volatile.

There are a lot of things that could go wrong real quick, and a shock to the system would hurt companies that have too much debt because business would slow down. Look at what happened during COVID. If you were very highly levered during COVID, if you had way too much debt, and then everything slowed down and your revenues went down, you might not have been able to make your interest payments or your debt repayment payments, and you could have gone bankrupt. Companies don’t go bankrupt unless they have too much debt. You go bankrupt from not being able to repay your debt. So I don’t think you should have too much debt.

I think a healthy target should be one to two turns of debt. By that, I mean we take our EBITDA, which is a measure of our cash flow, and we say, “Oh, let’s have one or two turns of that.” So if our EBITDA ends up being, for instance, in a period of time, a billion dollars, well, let’s have $1 or $2 billion of debt, and that’s a comfortable amount. Not too much more than that.

Now for short periods of time, you could lever up. Like when I bought Con-way, we levered up to about four times, a little more than four times, but we very quickly sold off that truckload division for $550 million. Boom, we paid down a whole bunch of debt right from that. We generated a lot of free cash flow. We took that free cash flow. Instead of doing more acquisitions, we paid down debt. So you can get your leverage under control in one of two ways: by improving your profits (increasing your EBITDA), or by paying down your actual gross amount of debt. And I think you can manage that, and that’s something a good CFO does.

Shane Parrish: You’ve said in the past that you need to be liked and loved, and yet you’re quite contrarian at times in your approach to things. How do you reconcile these two things?

Brad Jacobs: I think you have to be contrarian. I think if you want to make a lot of money in business, you can’t just be a conformist and do what is in fashion and what everybody else thinks. If you’re going to do what everyone else thinks, you’re going to get returns that everyone else gets, which is by definition average. So my companies have not made average returns. My companies have outperformed their indexes not by one or two hundred basis points, but sometimes by five or six times what the index was. You have to think differently and take things that are from a different point of view.

So one of my favorite investors in my companies has been Orbis, out in California and in Bermuda, and they’re contrarians. They’re willing to make a bet, and a significant bet if they have a high conviction about a trend or a company that the market’s not seeing. Something’s out of favor, but the market doesn’t understand something about a company. Maybe a company’s not studied enough; it’s not covered enough. Maybe management’s not good at communicating their story and the price is dislocated, and you can get a real good value by buying those shares and then being patient, playing out the cycle and making real good returns. And I’ve seen them do that with my companies. When something happened in the marketplace that made us a cheap stock for a short period of time, boom, they came in and they bought a lot of shares and wrote them up and then sold them when they were really, really high. I think that contrarian value approach to investing, to business, is profound. I think that’s important. 

I remember when I sold my first company, Amerex, my old brokerage company. We’d started a company in 1979, as a bunch of broke, scrappy kids, and were in the right place at the right time. The Iranian government revolution took place and the Shah got kicked out, and Khomeini came in and they took 400 hostages, and the oil prices went way, way, way up. It was a sad time for the world—a lot of chaos and problems—but it was a really good time to get in the oil business because it was really volatile, and some young whippersnappers like us could come in and be taken seriously by Exxon and Mobile and Texaco and Shell and Gulf and BP and all the companies that became our big customers over time. And we built that business up over four quick years to a little under 5 billion in brokerage volume. That was a really big, rapid growth curve, and I had a good team doing that around the world. And then I sold it and I wanted to start a new business, and I was ambitious. I was single and I didn’t have kids. I could take risks. I could afford to do that. And I remember speaking with my Uncle Howard, may he rest in peace. He’s long, long passed away.

My Uncle Howard was born in the 1920s, maybe even late 19-teens, and grew up during the Depression and World War II. Those were very tough times, so he grew up in a time when there was a lot of emphasis on being very frugal and very risk-averse. He became an accountant and worked for the government. And I remember talking to him and saying, “Yeah, I’m going to start another company. Instead of being an oil broker, I’m going to go to the adult table instead of the kiddie table. I’m going to be an oil trader. Because I’ve been making all this money for my clients, where they’re making three, four, five dollars a barrel and I’m making five or 10 cents a barrel.” Of course, I had no risk, but they were taking positions. I said, “Now, I’m going to put my money where my mouth is. I’m going to put my money into a bank, I’m going to get a letter of credit, and I’m going to actually buy and sell as opposed to just broker.”

He said, “Oh, Brad, don’t do that. Don’t do that. You should maybe take a small percentage of your savings and put it into your new business, but take the vast majority of your money and just tuck it away, just in case the next thing doesn’t work out.” And fortunately, I overruled my Uncle Howard and I didn’t go with what he said. I did exactly the opposite. I took a completely contrarian position, where I took $100,000, or maybe at most $200,000, and I tucked that away. I took all the rest of my money, I deposited it with Paribas—now it’s BNP Paribas; back then it was Paribas—they gave me a billion-dollar line of credit, and I swung for the fences.

I used sometimes up to $990 million of that line of credit doing counter-trade deals, doing prefinanced deals, doing barter, doing processing deals. They were very complex, going back to the math. Very, very complex, but organized. I knew what I was doing. And sometimes people would look at it and say, “Wow, there are a lot of elements to what you’re doing there. You’re buying it; you’re shipping it; you’re refining it; you’re hedging it. There are a lot of moving parts there.” I said, “Yeah, but I understand each one of these parts and it’s just math to me, and I actually feel this is low risk. This is basically just execution risk, and I’m comfortable taking on the execution risk part of it. I don’t have market risk,” even though it looked like I did, but I really didn’t. And as a result of not taking his advice and taking a contrarian position and having the courage or the guts or the strength to believe in what I wanted to do—having a thought and the courage to say, “Okay, I’m going to run with this thought; I’m going to go with this; I’m going to bet on myself; I’m going to bet on this idea”—we built a really nice oil trading company and did very, very well for ourselves and shareholders.

Shane Parrish: Where did that confidence come from?

Brad Jacobs: I don’t know. Probably confidence comes at a young age, I would think. So when you ask a question like that, you normally you start thinking about, What did your mother say? What did your father say?

Shane Parrish: Yeah.

Brad Jacobs: So if I had to think about what my mother said, what my father said that was very transformational, the first things that would pop in my mind are with my dad, who I loved and had a lot of respect for. He was a great dad and a very honest person, and he was very dedicated and a good provider for the family. But he was very blunt in what he said. He wasn’t very diplomatic. He just said what he really thought.

And I remember one time, we had been doing an errand and were driving home, and he was in the driver’s seat and I was in the passenger seat and we were at a stoplight. And my father turned to me, and he was a big guy with a low voice and big laugh, and he said, “Bradley.” My mom and dad were the only people who’ve ever called me Bradley. Anyone who knows me calls me Brad. He said, “Bradley, it’s really good that you have a really good personality, because you’re certainly not going to get anywhere with those looks. Ha ha ha ha.” He laughed real, real loud.

And that moment was a deep moment for me because on the one hand, I was crushed. I was like 13 years old. You don’t know whether you’re good-looking or ugly when you’re 13 years old. You just are what you are and you just don’t even think about that. But the message I was getting from my father was, “I may not be such a good-looking guy.” Okay, but you have leadership skills. You have personality; you have charisma. You can get people to follow you. You can become the president of your class. You can become your group leader. You can be the leader of your band and so forth. You can be president of the student council. You’re able to be a leader and accomplish things and get stuff done and form teams. So I think in a very paradoxical kind of way, my father insulting me on that gave me confidence. So maybe that helped give me confidence because that’s an experience that I’ve relived many times over, because it’s a big deal what your father thinks of you and what your mother thinks of you.

On my mother’s side, if I had to think, What was something that gave me a lot of confidence from my mother? Okay, so my mom passed away about 10 or 11 years ago. And you know from the book, one of the questions I like to ask people, because I learned this from Marty Seligman, the father of positive psychology, is, What’s the happiest moment of your day? As opposed to, How did your day go? And just have a little different angle to that question. And we like to be validated. We like to feel we’re appreciated, we’re recognized, we’re understood, we’re approved of, particularly from our parents.

And my mom was on her deathbed and my brother and sister and I were hanging out on her deathbed for a good couple of weeks. And I don’t know if you’ve been around people who’ve died, but they’re sort of dying, and then suddenly they wake up and start talking to you like no problem, and then they lie down again and start dying again. And they go in and out, and it’s kind of half dying and half not dying. And my mother had been lying there, and they’re breathing funny when they’re dying. It’s a really strange way of breathing. It’s not a normal way of breathing—irregular breathing, and then not breathing for periods of time—so it’s a very bizarre experience, death. And we didn’t quite know whether this was it. We’re never going to talk again. She’s done. And she suddenly sat up, she looked all three of us in the eye and said, “I’m really happy each of you turned out so well,” and smiled with a mother’s love, and then just kind of gracefully lay down and continued the dying process.

But that moment, that might be the happiest moment of my life, when my mother, my mom, the person whose body I came out of, the person who took care of me right from day one, even before day one, nine months before day one, approved of me. That’s given me confidence. Even though that’s later in life, that gave me a boost. That was right at the beginning of starting XPO Logistics. Of all the different companies I’ve started, that was the one that was the biggest so far, the most successful. So I would say that confidence later in life came from that boost that my mother gave me of just approving of us. 

So what did I learn from that? I learned that the relationship with a parent—in this case, my mom and me, and the other example of my dad and me—is a real important experience. It has a big influence on the person, what the authority figure thinks about the person. And when you’re in business, particularly if you’re the CEO, you’re the authority figure. You are kind of like the dad. You’re kind of like the mom of, in my case, 150,000 employees, and you have to be careful what you say. And it’s not just what you say, Shane. You can’t fake it and if you don’t like someone or you disagree with somebody, say, “Oh yeah, aren’t you great?” Because people are smart. People realize when you’re BS-ing them, and they know when it’s real, too.

So what I’ve learned is that you’ve got to rearrange your brain, your way of thinking, so that you are positive about people, because nobody’s all good and nobody’s all bad. No one I know at least. And if you can train yourself to see the real good in someone and to reflect that to them, and to make sure when you’re doing the change part, the improvement part, when you’re giving them constructive feedback of how they could be doing a better job, do that second. Don’t do that first. First thing is, be like my mom and say, “I’m just so happy how well you all turned out.” Say that first.

When I do performance appraisals for my direct subordinates, my direct reports, I always start out with the positive stuff. I don’t start right off with, “Okay, here are some things that you’re messing up that you need to be doing better.” It’s important to have that part of the conversation, too, because you need to help the person achieve more and do better, but you want to start the conversation with, “I really want to congratulate you for XYZ. I want to express my appreciation because you’ve done one, two, and three.” But it’s got to be sincere. It can’t be phony-baloney false flattery. You’re better off not say anything than giving phony compliments.

But I try to rearrange my brain so I appreciate a person and say, Well, why did I hire this person in the first place? What did I love in this person? What did I admire? What did I respect? What really made them real high in my estimation? And then translate that to, Okay, how is that materialized in what they’ve done, and what concrete things have they done? Not compliments that are just like general compliments, but very specific, concrete compliments of “You did this, this, and this. Kudos, tip of the hat. Good job on that.” It goes back to the psychology of validate, then dispute. Join, then lead. I apply that to business.

I do that with customers. In the world of business, we’ve had millions and millions and millions of customers. They’re not always happy because no service provider’s perfect. Once in a while, you mess stuff up and you have a difficult conversation with the customer. Maybe they’re not trained in rearranging their brain and they go right into the insults and they skip the whole part about “Hey, we really like what you’re doing here.” They just go right to “Darn it, you’ve been late on this or you’re damaging that, or your invoicing is messed up,” or whatever it is.

And what I learned from all that, to answer your question, is that I’ve got to empathize with that. I have to put my mind in their mind. I’ve got to put myself in their shoes. I’ve got to picture clearly how much what we did messed up their supply chain or cost them money or cost someone a job or whatever, or just cost someone an annoyance or just made it difficult, chewed up their time and made them frustrated or whatever. I have to figure out, What’s upsetting them? Going back to What are they saying and what are they feeling? So I’ve got to get in tune with how they’re feeling and I’ve got to show them that I’ve heard them. I’ve understood them and what they’ve said, and I’ve also felt the emotion that they’re feeling, and I get that, and I have an action plan to solve it. There is a sequence to all that.

Shane Parrish: I like your human-centric approach to this. There are a lot of people who take for granted maybe positive feedback, and so they offer negative-only feedback to the people who they work with. Is that a blind spot, or what do you think of that?

Brad Jacobs: I think it’s a mistake. I think it’s a mistake to give only positive feedback or only negative feedback. So for example, right now, I’m in the middle of performance appraisals, where each person is writing three things that they’re really proud of that they’ve accomplished in the last few months and that they really feel good about. It’s definitely a plus, not a negative. But also three things that we could have done better or we will do better going forward, things that we didn’t quite achieve that we hoped to achieve. So it’s a balance. It’s three good things, three bad things. But when I run meetings, I like to make it like an Oreo cookie. I like to talk about the good stuff, [discuss] the negative stuff, but then end on the good stuff. It’s very important how you end a meeting.

For whatever reason, psychologically, how you end a meeting makes a big difference in how that person leaves the meeting. So maybe we’ve had a tough meeting, where we’ve said, “Look, these numbers are in the red; they’re not in the black. These numbers are down, they’re not up, and we need to up our game. And here’s our action plan and here’s how we’re going to hold ourselves accountable, and here’s how we’re going to tinker with compensation in order to reward people for doing better and to hit their bonuses, and maybe eliminate their bonuses if they don’t get better fast.” Those are tough conversations that you have to have, but I don’t like to end on that.

I like to end on exercises along the lines of having everyone in the room. Okay, now we’ve done all the tough stuff. We’ve worked hard on the business. Okay, now let’s put that aside. Take a breath. Now I’ll ask each person. I’ll go around the room. Suppose I have a dozen people in a meeting, and I’ll say, “We’ve just been meeting for two hours. We’ve been working hard. We identified some really important problems we need to solve, and if we solve them, we’re going to create a lot of money for our shareholders. So good job, team. It was tough, but good job. We went through a good, rigorous process and you worked hard. And a lot of imperfections came up during the meeting, and that was humbling in a lot of ways. But now I want to ask you something. After working two hours collaboratively in a meeting like this, difficult meeting, whose star went up and why? Who said something where you maybe already held them in high esteem, but you hold them in even higher esteem now as a result of their thinking process, or maybe the elegance and grace with which they expressed a difficult subject, or the way they tackled something in an innovative way, someone who contributed to the magic of creating alpha, of creating money for our shareholders? They handled a conflict in a way that was nice, that was kindhearted, that was not mean-spirited. Tell me about someone in this room who said something or did something or didn’t say something or didn’t do something that made their star go up, and why.” And people feel really good about that. And I have a whole series of exercises and questions that I do like that.

Sometimes we have 10-hour meetings or sometimes even 12-hour meetings. We have people coming in from around the world and we’re doing a quarterly operating review. We’re really covering lots and lots of material. We take just a few breaks. We just keep going at it, going at it. So people are tired at the end of that. It’s been a long, long day. We’ve been going from 7:00 in the morning to 7:00 at night, for example, with just a few quick 10- or 15-minute breaks. At the end of all that, we stand in a circle. And I don’t want to say anything. I just want to spend five full minutes. Five minutes is a long time to be standing in a circle with 15 or 20 other people not saying a word. I want everyone to look at each person and I want them to do two things. 

First, I want them to think to themselves, “I really respect this person because” or “I really admire this person” or “I’m so grateful that this person is on the team with us” or “This person has XYZ qualities that are so noble, so fantastic.” Each person, one by one, I want them to look around the circle.

And the second thing I want them to do is, I want them to say, “Not only am I grateful for being on the same team with this person, but I really wish this person a lot of success. I hope this person has a fantastic future at this company. I hope this person has a fantastic career. I hope they knock it out of the park in terms of their numbers, in terms of profit, the [revenue] generation that they’re going to do.” 

And I find that with this two-handed experience of the gratitude that comes from honest praise of each person and then the well-wishing to each person, everyone goes away from the meeting just figuratively flying on air. People go away with a really good feeling.

And feelings count in business. You want the love vibe. You don’t want the hate vibe. You want the good vibration going around in the company. You want people feeling good about themselves, good about the company, good about the people they’re working with, good about the customers, good about the vendors. You want them to be like one big, happy family. And you have to work at that. That doesn’t happen just by itself. That’s not a natural event. That’s something that requires effort, that requires intentionality, that requires some skill.

Shane Parrish: You’ve made a few billion dollars. What lessons have you learned about money, and spending money and living with money, that you wish you’d known sooner?

Brad Jacobs: It’s interesting. You throw me off a little bit with the question because I don’t define myself in terms of how much money I’ve made. That’s not the big deal for me. It’s a report card, but it’s not who I am, and it’s not my be-all and end-all. I happen to be in a business that makes a lot of money, so I make a lot of money. My occupation is making money for shareholders. When I look at my motivation, if you want to understand my gestalt, how I look at the world, how I look at myself, it’s really… If you take those psychological tests, I score very high on “need to be appreciated.” So how does that translate into being a CEO?

I’ll give you a perfect example. Last week we had a call with my 75 co-investors in my new company, QXO. So my wife and I are putting in $900 million and then Sequoia and a few dozen friends and family—really friends and family, like my sister and my brother and my niece and nephew—are putting in another $100 million. So we’ll have a cool $1 billion even putting into this company. And at the end of the call, I just gave them an update of what I’m working on. I thanked them, not for the $100 million, because I didn’t need the $100 million. I could have put another $100 million of mine in. But I thanked them for giving me motivation, giving me inspiration, giving me a purpose, because I want to please them. I want to make them happy. I want to make them a lot of money. I like being happy. I like feeling good about myself. I like looking in a mirror and liking who I’m seeing. And how I define that is pleasing the people that I love. And those are my investors, my co-investors, my close friends and family, and the people who have been good to me over the years, and I give back to them.

Shane Parrish: Let’s deep dive on M&A. How do you think about it at a high level? And then specifically walk me through your process for not only evaluating companies but beginning to end, including integration.

Brad Jacobs: M&A has been a big part of my business career, though not in the first 10 years. In the first 10 years, from 1979 to 1989, I was in the oil business. It was all organic. We didn’t do one single acquisition. It was all just trading and brokering and building up a business organically. But since 1989, I’ve been doing roughly about 500 acquisitions. I’ve done a lot of M&A. I love M&A. I love M&A as a way to create value for shareholders because I don’t know of another way on a risk-adjusted basis, on a certainty level, that is more likely to create massive shareholder value than doing sensible M&A. And in order to understand how to create value, I have to understand, How am I going to scale up the business?

I only know how to create tremendous shareholder value by growing a business tremendously. That’s how I know how to do it. And of course it’s organic. And I’ve had very good organic growth. The companies I’ve led have been well-performing companies that have had good market share and growing market share. And we’ve taken customers away; we’ve taken business away from our competitors who aren’t managed as well. But when you look at the numbers, the real growth has been through M&A, through acquisitions.

What have been my secrets on acquisitions? The gist is you first have to select an industry. You can’t just do M&A. So I spent the last year studying dozens of industries, looking at hundreds and hundreds of acquisition opportunities, mostly with Goldman Sachs, Morgan Stanley, and Sequoia and some friends, figuring out, Could I apply my playbook to this industry? Is the industry big enough? Is the industry fragmented enough? Is there M&A to do? Is bigger better? That’s not always the case. Are there economies of scale? Do you have a competitive advantage by being bigger? Is there a way to apply technology—because my companies have always been tech forward—to the industry, because the industry is a little sleepy on technology? Is the way I run a business, the way I do the intake of people and the culture and the way we interact with each other and so forth that we’ve been talking about during this interview—is that something that’ll work in this industry? Is it something related to something I know about? Industrial services, for example. Most of my companies since 1989 have been industrial services.

And I looked at many, many different industries and I settled on the one that checked every single box, which was building products distribution, and the name of my company is going to be QXO. And M&A will be a big, big component of what we do. There are $800 billion worth of distributors in Western Europe and in North America, which is where I want to plant my flag. I want to build a company that’s $50 billion. I can do that. If there’s an $800 billion size, I can take 6% of that through acquisition and through organic growth. I can get to $50 billion. There are many other industries that are nice, but I’m not going to be able to get to $50 billion. I want to get to $50 billion.

So in this industry, there’s a clear path of how I can do that. And there are roughly about 7,000 distributors here in the United States. There’s almost twice that amount in Western Europe. So there are roughly about 20,000 distributors. You’ve got to be very careful about who you buy. There has to be a reason why you’re buying that company. There has to be a compelling strategic reason of why you’re buying that company. What makes sense for that? Why is that good for customers? Why is that going to make our business a better business? Why does that fit with the other things that we’ve already bought and put together? How’s it going to integrate well?

I like to look at the multiples that I pay for an acquisition. The price that I pay an acquisition is very, very important because when I look at the levers of how we create shareholder value, what contributes to that? The biggest lever, the biggest component, is the differential between what I raised capital at—due to my relationships with mostly institutional investors, because of the track record—and what I can deploy that at on doing acquisitions. The second-biggest lever is, How much can I improve the businesses that I buy? There are many, many levers, but those are the two biggest levers.

So when I’ve studied all these different industries, I’ve studied historical acquisition multiples. And one of the reasons I like building products distribution is that I believe that I’ll be able to buy companies at lower multiples of their profit than I’ll be able to raise capital at. And that spread, that difference, that delta is going to create value, boom, just right away, right from the first day.

Now integration; you asked about integration. Integration is extremely important. Anybody can buy a company. It’s not that hard. You sign a document, it’s a few dozen pages, lawyers have gone over it, and you wire the money, and you own it. So that’s not the hard part. The hard part is after you’ve selected the right industry, after you’ve selected the right companies within that industry to buy, after you’ve had discipline so that you pay the right price for all those, then you have to integrate them.

I’ve never run companies that have hundreds of different companies all running separately with different names and different SIF systems and different back offices. And there is some level of decentralization where you need to be closer to the customer. But I have a very strong appetite for standardization, like standardization of the ERP system that you close the books with, so you close the books promptly right after the close of the month. And then you can have standardized dashboards so all the managers have the same format of the numbers they’re looking at—the KPIs—and they see them graphically—very easy to understand. I like to see so they can benchmark every location to every other location, every district to other districts, every region to other regions. And for that, you need standardization. 

I like to have very standardized HRIS, human resources systems. And we’ll build this company up; we’ll have hundreds of thousands of employees. I need to have a standardized data system for all of our employees. Everyone’s on the 401(k); it’s the same exact way of doing it. All the benefits are the same. All the performance appraisals are the same. Compensation I can see right away. And every time we do an acquisition, I need to pull that information up right away while we’re studying it quickly so we have a competitive advantage against other bidders to see what the synergies would be. So I need standardized HR technology throughout everything.

I need a standardized CRM, customer relationship management system, like salesforce.com, or there are several others as well, to make sure we’re looking at customers, the attractiveness of those customers, the profitability of those customers, the size of their spend, so therefore the potential of those customers going forward, all the interactions we’ve had with those customers. I need to see that in a standardized way all across the globe, everywhere, in every country we’re functioning in. So I need a standardized technology for customer relationships, for sales managers.

I need a standardized internal social media [platform]. I’ve used Workplace by Facebook. It’s not the only one, but I like that one really well. It’s nice and the interface is really, really good. So I like to have everyone on the same one because I like to have one company with one culture where everybody can ping each other. I don’t want to have these silos of companies. 

Sometimes you see these companies roll up many different companies, but it’s all a mishmash. It’s all separate. I don’t like that at all. You see a lot of these middle-market private equity firms do that. They roll up these small companies. They’re doing $5, $10, $20 million in EBITDA each, and they just buy a bunch of them, and now they’re up to $100 million or $200 million EBITDA. And they just get a bigger multiple because they’re bigger. But it’s a mess. Whoever buys those companies, there’s a lot of work to be done. You’ve got to now standardize everything and integrate everything. It’s an opportunity to improve them, but also a lot of cost and time to fix all that stuff up. So from the moment that we agree to buy a company, we’re starting the integration process. And the day we close the acquisition, gazzah, we’re in there and we’re standardizing everything as much as we possibly can. And we’re communicating quite a bit.

A big part of the success for M&A is forming relationships with people and making sure we get off on the right foot and making sure that we don’t lose the great talent, and making sure at the same time that we’re identifying the weak players and gracefully and generously exiting them. So there are a lot of different components to M&A. I’m summarizing a lot of different facts. Each one of those things, we could talk for an hour just on that block. But those are the kinds of things that go through my mind in my approach to M&A.

Shane Parrish: You have some unique questions when you interview the top 10 to 15 people as part of the diligence process. Can you walk me through what at least two or three of those questions are where you get the most useful information?

Brad Jacobs: Yes. So some companies, when they’re negotiating to buy a company, do this very lengthy and detailed and bureaucratic diligence process. And they hire a firm and they write this big, huge memo that nobody ever reads, or some wonk reads it, but nobody important reads it. And it’s basically just to cover their butt. I’m not trying to cover butts. I’m trying to make money for shareholders. And so what I’m looking for in diligence is that I want to know how they make money. I want to know the history of this company. I want to know the current state of this company.

I like to interview the top 15 or so people, one-on-one, for like an hour, hour and a half. And I like to ask them, “If this was your money, would you buy this company? What would you change? What would you do differently? Where’s the opportunity to do something differently?” And I like to ask them, “Okay, if you were buying this company, what would you not change? What is so good about this company that’s making it so successful that it’s attracted a big bidder like ourselves and that we’d be crazy to change?”

So I like to ask questions that give me insights into how the business got to where it is. What’s the future of this company? How could we improve the company going forward? Where are the things that have been blind spots of the current way the company’s been run that we could fix? And what are the things that are working well that maybe we could put more resources into? Where have we not been spending enough money? Where are we not investing enough money into something that could be a good return on investment? On the other hand, where has the company been wasting money? Where has the money been going into things that doesn’t really help customers, doesn’t delight customers, doesn’t make customers happier, or doesn’t improve our customer business reviews, so why are we even doing it? I like to ask those questions.

Shane Parrish: And they’re really revealing. The first person who I talked to who had questions like that was Kat Cole, who is the vice president now at Athletic Greens. When she turned around Cinnabon, that’s what she would do. She went and worked in the stores and asked the employees what they would do differently. And it was so revealing in terms of what they ended up changing.

Brad Jacobs: So many times in corporations, people don’t ask those questions, and I’m big on asking those questions. I’m big on surveying using town halls, one-on-one interviews, small group interviews, asking questions about, “How are we going to win? What are we doing wrong? What can we do better? What are we doing right that we should do more of?” And I find it very, very valuable. It yields a great return on time. And there are only two things a manager manages: return on capital and return on time. And I believe that asking the employees and getting them involved in the process is a great return on time and a great return on capital.

Shane Parrish: What’s the role of a board in a strong founder-led company like QXO? You’re investing $900 million of your own money. You’re the founder, the CEO, the largest shareholder. What role will that play? How does that change the role of a board, especially when it comes to M&A?

Brad Jacobs: I’ve been really fortunate to have fantastic boards, boards that are very strong, composed of people who are very competent, people who are invested in the company. They’re leaning in; they take the job seriously. They’re passionate about the company. And my relationship with the board is a little bit different than most boards. We’re completely transparent, completely open. Any board member can reach out to any person in the company anytime they want and ask them anything they want. And there’s no supervision or people having to accompany them; none of that.

So I want board members to be very, very informed. I want board members to get copies of the customer surveys, the good and the bad. I want them to see that, and I want them to see the analysis. I want them to see the analysis of the customer surveys of where we’re doing well and where we’re falling short. I want the board members to have all the employee surveys and see all the word cloud analysis that we do, all the trend analysis and all the benchmarking we do. I want them to see where the pain points are for employees. I want them to see where employees are happy. I want them to see the trends of employees. I want the directors to be invited to every monthly operating view, every quarterly operating view, of any part of the company that tickles their fancy. The more they’re involved, the better we’re benefiting from them.

So I like to have board members that are very involved, very knowledgeable, and we have good conversations about the important stuff. And I don’t run board meetings the way most Fortune 500 company boards are run. Most Fortune 500 company board meetings are very scripted, and sometimes they’re even rehearsed. And there’s a careful story that’s being told by management. And it’s done by PowerPoint and it’s done by rehearsed presentations, and they’re almost a complete waste of time. You could do that whole thing just by sending them a document. There’s no reason to convene a meeting for that. It’s just a kabuki dance.

I like to have real board meetings where ahead of time, everyone’s read all that data. And between board meetings, they’ve been in the business, through what I’ve been talking about. And they come to the meeting and we bring in, over the course of a day, somewhere between 10 and 20 managers, executives, sometimes senior ones, sometimes mid-level managers, sometimes front-level managers, employees. And I go around the room and I like every single director to ask whatever they want to ask. I don’t want them to tell me ahead of time what they’re going to ask, and I don’t want them to tell the managers who they’re interviewing to know what the questions are ahead of time. I don’t want our executives or our frontline employees to waste time, and I’m using the word “waste” deliberately, preparing for the meeting some speech, some script, some phony-baloney sales story about how great things are. I want to ask real questions, including the tough ones. And I want people to answer them honestly and spontaneously in the moment and completely.

I love our board meeting. So I’m now chairman of three different companies: XPO, GXO, and RXO. And so we tend to have our board meetings every three months around the same time, around the same two-week period. They are some of my favorite meetings of the whole year because I have highly engaged directors who are knowledgeable about the business and who ask really good questions. I learn a lot at the board meetings. I don’t dominate the board meeting by being the person speaking all the time. A lot of times you find that the chairman or the CEO is making a whole big deal about themselves. Board meetings should not be about the chair and the CEO. The board meeting should be about the directors getting the information they need to get, they want to get, they should be getting.

Shane Parrish: But should it be focused on problems or what’s going well, or how do you think about that from a board level? And then I want to get more specifically into management meetings. But at the board level, how do you craft an agenda for that?

Brad Jacobs: I don’t craft the agenda. So what I craft is, I figure out, Who are the right people to bring in? But even that, in terms of the management we should bring in, I don’t do that all by myself. I get input from the lead independent director. I get input from the vice chair. We come up with something together with the CEO. And then I distribute it around to the whole board and say, “What do you think? How does this look? Anyone have any changes?”

People usually have changes. People say, “That’s great, but I’d also like to have a section on HR.” Just even yesterday, we were preparing for a board meeting, and one of my vice chairs said, “That’s good, but I want to have a section on human capital management, people management.” So we rearranged things and we’re bringing in some HR folks. My goal is to get the right people in the room in front of the directors, and then let the directors ask what they feel is right to ask. I don’t want to micromanage the agenda, because then that’s my agenda. I am never going to be smarter than the sum of all the directors. That’s never going to happen, mathematically.

Shane Parrish: Or you have the wrong directors, right?

Brad Jacobs: Very much so. And I like directors who are smart and who are engaged and really want to improve the company. They want to play their role. They take their fiduciary duty very carefully. They have a strong duty of loyalty. They have a strong duty of care.

Shane Parrish: When you think about decision-making, how often are decisions made by committees in the companies you run versus made by individuals?

Brad Jacobs: Well, I hate the word “committee.” Period. Committee is just a bureaucratic, red-tape, slow, low-energy kind of word. I just can’t stand the word, so I try not to call things committees.

However, there are some times when a group of people will have to make a decision because it’s more than one discipline that’s required to get to the right decision. There might be a task that we have that has a financial element, so you need someone from finance accounting. That certainly has an operational element to it; you need an ops person there. But it also may have a big people element, so I need an HR person there. If it’s a big decision, with big impact, then I’m going to have C-level: the COO, the CFO, the CHRO. That’s a big decision. I’m not going to waste those very important people’s time with small decisions.

FP&A, financial planning and analysis, plays a big role in my company, more than in most companies. The FP&A people are the ones who are listening to all these ideas during a meeting and turning them into numbers. They’re turning them into forecasts; they’re turning them into projections. They’re turning them into probabilities. They’re turning them into, “Look, we have these 10 things we’re going to work on to create alpha for our shareholders.” They’re attaching probabilities to each one of those. “I got a 90% chance of ‘this is in the bag; this is going to happen.’ This is a long shot; this is a 10%, 20% chance of happening. But it’s not a 0%, it’s a 10% or 20%. And it’s got a high return if we achieve it, so it’s worth putting the effort in, but I’m only going to give 10% or 20% credit, maybe even less credit than that.”

And they’re also doing budgeting—constant, iterative budgeting. We don’t do budgeting once in a while. We do budgeting every day. Every single day, where we’ve got our numbers, that is our plan, and where are we tracking versus the plan? And the FP&A people are really good at figuring out who’s sandbagging and who’s exaggerating. What I mean by that is, you have some managers who just—due to their personalities or for whatever reason, or maybe they’re playing games with their bonuses—want to lower expectations so they come out looking like heroes. Well, that’s not good, because we want to know the real likely outcome so we can plan around that.

On the other hand, you have some people who are overly self-confident and they think, “This is definitely going to happen and I’m going to grow this.” But if you look at their history, if you look over the last three years, they’ve missed their predictions by 3% to 5% pretty much every year. So they’re going to discount them based on the past, predicting their future likelihood of succeeding.

So the FP&A people play a big, big role in that, in figuring out what is the highest, lowest, and likeliest outcome for all these different endeavors that we’ve got, and they’re also playing a big role for allocating capital. We talked before about the two big things that senior executives do. One is decide what kinds of ways we’re going to spend money, allocate capital, because it’s finite. Even if it’s billions of dollars, it’s not trillions or gazillions; it’s billions. It’s finite capital. How are we going to invest that capital? Of all the different ways we can invest, what are the highest and best uses of that capital. And [second,] how are we going to manage time? How are we going to get everyone focused on the things that really matter and not waste their time on the silly stuff that really doesn’t matter and is not going to create massive value for our shareholders, which is what our mission is?

The FP&A people help with understanding that and putting it into numbers. Because sometimes you can get very inspired and motivated, and a really creative, fantastic, inspiring project comes up. But when you analyze the numbers, eh, it’s really not a really good return on time or return on capital. So maybe we shouldn’t be spending so much time on that.

So we’re also managing how much time we are spending as an organization on what kinds of projects. You find that a lot of times, in corporate America, somehow or another management gets lost on these tangents that are not central to their main mission of creating value for shareholders. And the FP&A people keep track of that. They’re the scorekeepers to keep everyone honest about how we’re investing capital. How are the returns on that capital versus what we expected it to be or planned on? How are we spending our time? Is how we’re spending our time proportionate to what has the highest impact of how we’re spending our time?

And this is a very important role. So FP&A ends up being kind of omnipresent throughout the organization anytime we’re making big decisions, because they’re really good at getting all this down to reality, to real numbers.

Shane Parrish: And they report to the CFO. Is that the structure internally?

Brad Jacobs: FP&A has two lines. One is to the CFO, and they have a dotted line to operations and to me. So I rely on my FP&A person every day for two reasons. I want to know, internally, How are we doing on the projects that we’re attaching high priority to? I also want to know, How are we doing on our commitments to shareholders, to investors? When you’re the CEO of a public company, you have a really important mission in that you’ve promised what your numbers are going to be in the future, how much your profit’s going to be, how much your organic revenue growth is going to be, how much your margins are going to be, what your return on capital is going to be, and how much your free cash flow is going to be.

And now you’ve got a promise out there. You’ve got guidance; you’ve got a forecast. And you’re working really hard to achieve that. I need to know, and FP&A is the best place to know that, How are we tracking against that? And if we’re tracking higher than that, and significantly higher than that, there’s a big deviation from that, well, we’ll talk to Legal and we’ll talk to IR, investor relations. And we’ll say, “Should we update the investment community ahead of the quarter, ahead of when we’d normally produce our results?”

And equally importantly, maybe even more importantly, I want to know, God forbid, if we’re tracking below our estimates. And once I know that, then I have a meeting and I say, “Whoa! Of our six or seven top metrics that we’ve promised to our investors, we’re doing well on these five or six. But on these one or two, no, no, no, they’re not doing very well. What are we going to do to get back on track?” So constantly using our sensing, information gathering, and then getting back on track.

Shane Parrish: Do you do the forecasting because you’re going to be going to the capital markets for capital at some point in the future with an acquisition strategy, or would you not do that if you knew you weren’t going to raise additional capital?

Brad Jacobs: Well, I am a big user of capital markets because all my companies have grown through acquisitions, and I’ve needed capital to grow those acquisitions. We’ve raised money from the largest sovereign wealth funds in the world and some of the largest pension funds in the world, some of the largest long-only funds, endowments, a lot of different people whose money we’ve taken and given them back a lot more money than they gave us.

In order to do that, you’ve got to meet your promises. Results matter. They’re very, very important. So even if we weren’t raising capital, the fact that we’ve taken capital, and sometimes we’ve gone for years without raising it… Well, we’ve maybe refinanced debt to take advantage of changing interest rates or something like that. But in terms of raising equity, sometimes we’ve done some acquisitions. In 2015, we did two big acquisitions, and then we digested them and we integrated and optimized and doubled and tripled the profit without doing any acquisitions.

During that period of time, we didn’t need to raise equity and we didn’t. But even though we weren’t raising equity, even though we were not going back to the capital markets, Shane, we still paid extremely rigorous attention to [the question], How are we doing on the numbers? That’s our job. Our job as executives, as managers, custodians of this business, is to produce results. And that’s measured, ultimately, in financial results. It’s also produced in operating results. It’s also [measured] in terms of customer satisfaction, employee satisfaction. But all those things lead to financial metrics.

And you’ve got to stay focused. You have to have the whole organization focused on delivering those financial metrics, and that’s how you deliver them. It’s a conscious intention and a sense of honor and a sense of “I need to do this. These are our promises.” Promises made, promises kept.

Shane Parrish: When people tell you they’re not motivated by money, you get suspicious. Why?

Brad Jacobs: Well, I actually respect people highly if they’re not motivated by money. I know a lot of artists; I know a lot of musicians. I have friends and relatives who are professors or retired professors in academia. They’re just not into money. I mean, they’re not into money. They don’t think about it. They don’t read the Wall Street Journal; they’re not interested in that whatsoever. And I respect that. They have a higher calling in a way. They’re focused on some deeper parts of life.

But that’s not who I want in my company. I want in my company people who are absolutely motivated by money, who are raw capitalists, people who want to make money for themselves and their families. And we can figure out a way that, by being part of our company, they can help us make money for shareholders so that we can pay them more money here than they can make somewhere else.

I’ve had people on the senior level make many, many people become millionaires, multimillionaires. I’ve had people become tens of millionaires. I had one person who made over $100 million. I have a couple of people now who are on track to make very large amounts of money. This is a good thing. This is an outgrowth of success because we’ve been very thoughtful about compensation plans. We’ve tied their compensation to contributing to our big goals. And the only way they can make all this money is if they’re making money for shareholders.

So I love compensation plans for the senior executives that have a big component of equity that’s dependent on TSR, total shareholder return. So we look at, How does our stock perform versus the S&P 500, and what percentile are we? If we’re less than the 55th percentile, I’m not so sure that equity should vest. I could argue that if we’re only middling in the results we’re giving, that’s not why people invested in us. Sovereign wealth funds or pensions, these big investors, have given us money because they expect us to produce much, much higher returns than the average company.

So I like to have people bet on themselves, so that if our shareholder returns are less than 55% or so, I don’t want it to vest. If it’s 65%, it vests some. If it’s 75%, it vests more. If it’s 85%, 90%, 95%, I want it to double vest. I want them to make twice as much as they would otherwise. So I want their interests aligned with the shareholders’ interests. I want it to be so that the shareholders are saying, “Wow, I really hope the senior management team makes a fortune,” because the only way they’re going to make a fortune is if we’re beating all the competition in terms of the returns with our investment. 

One thing I liked about Goldman Sachs’ compensation program that I took from them, years and years ago when they were a partnership, back when they were a private partnership, was that a significant percentage of their compensation was based on how many other partners said that they helped them with what they were working on. In other words, I didn’t just work on what I was trying to work on, but I helped you, Shane, with your client and that group effort, going back to being a super-organism.

So if we can have people on the frontline and the mid-level management be rewarded financially—because that’s the biggest reward; it’s not the only reward—for helping other people achieve their goals, that’s a good thing, too. So we have all these bespoke compensation plans that are well designed, that a lot of thought goes into, that result in the magic, meaning creating outsized returns for shareholders. That’s how we do it.

Now we also do just general recognition. That’s not as powerful as financial rewards, but it’s still a good thing. So we have all the usual things of people getting awards and rewards and trips to places, and president’s clubs and employee of the month, all those kind of things where people feel good about themselves because they’re recognized for going above and beyond. But if I had to pick just one or two, the feel-good stuff or the money, I’m going with the money.

Shane Parrish: I like how everything’s tied to win-win. Everybody wins. Right? It’s not one of those places where you can get outsized compensation even if our shareholders lose.

Brad Jacobs: That’s a terrible thing. It’s an unfair thing. That should never happen. You should have a complete alignment between how shareholders do with their investment in the company and how the employees do. Both of those groups should be making a lot of money or not a lot of money.

Now the shareholders can’t control that. All they’re doing is investing their money. The employees control that. If the employees are selected well, are working together in a good culture well, are using technology or using ways that they can succeed, or have good feedback loops, and they’re making good decisions and being held accountable for those decisions and they’re exceeding them and delivering the numbers, and the share price reflects that, the share price goes up, that’s great. The shareholders should make a fortune and the employees should make a fortune. Neither one should make a lot of money at the expense of the other. That’s not fair. That’s not right.

Shane Parrish: What CEOs do you think are underappreciated capital allocators?

Brad Jacobs: When I look at the companies that have taken small amounts of money and turned it into huge amounts of money, immediately I’m thinking of Mike Moritz at Sequoia. He was chairman of Sequoia Capital; now he’s retired from that and he’s at Sequoia Heritage. He’s a senior advisor at Sequoia Heritage. But if you look at his career, everything he’s done over the decades—and I’ve studied Mike very, very well for many, many decades; he was one of my first outside investors; Sequoia Capital came into my United Waste Systems way back in 1989, 1990—he’s the genius of taking small amounts of money and turning them into huge amounts of money. That’s good capital allocation. That’s really, really intelligent capital allocation. I think of a Mike Moritz for something like that.

I think in the industrial sector, there are also people who have gone through the same kinds of processes I’ve gone through and been disciplined at how they allocate capital and achieved high ROIC (return on invested capital) as a result of that. You think of the academy-level CEOs over the years. Dave Cote, for example, was at Honeywell for years. He was very, very rigorous at this. He was very mathematical, very dispassionate, very intelligent about asking, “Okay, guys, this is how much money we’ve got; where are we going to get the biggest returns?” and allocating it very, very carefully. So those are the people who come to mind off the top of my head.

Shane Parrish: Talk to me about the relationship between quality and speed.

Brad Jacobs: You need both. So you see companies sometimes be really good on quality, but oh my God, they take forever. So they’re really not achieving what you’re trying to achieve. You see other companies that move super-fast, but it’s at the sacrifice of QA/QC, of quality assurance, quality control.

The real golden mean is, How do you move fast but move fast intelligently so that you’re not sacrificing quality? In fact, you’re moving fast and improving quality at the same time. That goes back to mathematics. That goes back to engineering. That goes back to planning, understanding the lay of the land, understanding what exactly is the inefficiency that we’re trying to take out of the system.

Shane Parrish: What’s the biggest lesson you’ve learned from the past year?

Brad Jacobs: So you could pick any timeframe, whether it’s the last 12 months, last 10 years, my whole life, and ask me, What’s the biggest lesson I’ve learned? For sure, I’m going to immediately default to something with people. First, I’m going to default to people and then I’m going to default to technology. These are the two things because these are the two biggest needle-movers. These are the two biggest categories of things that make a difference.

So in the last year, what have I learned about people? Okay, I’m working with a team now at my new company that’s largely the same; they were on my teams before. They were either at XPO or one of the XO’s. And what I learned is, it’s great to have the band back together. It’s great to work with people that you know, that you’ve been in the battles with. You’ve shared the glories; you’ve shared the pain. We’ve been in the dark days together; we’ve been in the strong days together. We’ve won together; we’ve been victorious together. We can complete each other’s sentences. We get each other. We know each other’s spouses; we know each other’s kids. That’s a beautiful thing.

I haven’t always had that. I have usually brought some people from company to company. The initial founding management for QXO were all XO people. And one thing I’ve taken away from that is, I really love these people. These are people that I really just respect and admire. I’m just so thankful that I get to work with them. And I think we all feel this way. I think all of us feel that each of us is getting the long end of the stick by working with the rest of this team—that it’s very hard to find a team, a group of people this size, that all love each other, that all respect each other, that all admire each other’s professional and personal characteristics and traits. And that’s a beautiful thing. So that’s a big takeaway for me.

Now I’m going to go for a twofer on this. What’s my biggest takeaway on technology in the last 12 months? On technology, I went through this process of studying dozens of industries. And I went through the checklist, and one of the things on the checklist was, Can I take technology and apply our tech-forward mentality and our willingness to invest in technology and put our money where our mouth is, and put money in technology in an industry where we’ll get a competitive advantage?

And I found an industry, building products distribution, where I can do that. I found an industry that’s got 20,000 companies, and there are about six or seven that are doing really cool things in technology. And that’s pretty much it. And I hate to say that so negatively, but I think that’s an objective assessment. I think there are half a dozen or so companies, the biggest ones, that are… oh, a couple of medium-sized companies, too, but mostly the biggest ones, that are approaching technology in the same spirit with which we approach technology.

Now we’re going to double-down on that and spend a lot more money and have the best technologists involved, like we always have in our companies. But if you look at 99% of all the other companies, they’re where other industries were 20 years ago. Now I like that, Shane. I like going into an industry where I’ve got something I can bring to the industry that’s going to help, and I can be transformational. I can be a catalyst to improve the quality of the industry.

Shane Parrish: We always end with the same question. What is success for you?

Brad Jacobs: On the professional level, it’s very simple. It’s continuing my tradition of generating superlative shareholder returns. Like off-the-charts great returns for investors. That’s my report card; that is success. Period.

There are a lot of other things that build up to that. I have to have an engaged workplace. I have to have good relations with my local communities. I have to do all the good stakeholder stuff. But at the end of the day, the report card is one question: what is my share price performance versus the benchmark? And not only relative, but absolute terms as well. So it’s about stockholder appreciation, for sure, professionally.

All the things I’m doing of hiring people and putting in technology, all the things we’ve been talking about for the last couple hours, that all comes down to making money for shareholders. If you’re not making money for shareholders, it’s just talk. So for me, success is defined by, How is my stock price performance versus everybody else? So that’s clear for me.

Personally, it’s about my family; it’s about my friends. It’s about my relationships with them. I don’t have as much time as most people because I’m really into the business, but in the limited time that I do have, can I make those enriching experiences? Can I make those experiences where there’s a lot of love in the room, there’s a lot of good stuff going on, there are a lot of positive vibes? And they’re very symbiotic, wonderful relationships where I’m helping the people I love and they’re helping me. And if I can achieve that, that’s success.

Shane Parrish: That’s amazing. Thank you so much for your time today. This was a fascinating and wide-ranging conversation.

Brad Jacobs: I really appreciate the opportunity, Shane. Thank you.