#105 Les Schwab Charlie Munger recommended this book

Summary Notes


In this episode, the host delves into the autobiography "Les Schwab: Pride in Performance: Keep It Going" by Les Schwab himself, a self-made business magnate who revolutionized the tire industry with his customer-centric policies and profit-sharing model. Schwab, an orphan by 15, built his empire from the ground up, emphasizing the importance of sharing profits with employees and treating customers with utmost fairness. His unique approach, which contrasted sharply with the exploitative practices of major rubber companies, relied on incentivizing store employees by offering them a significant share of profits, thus aligning their interests with the company's success. Despite temptations to cut costs or sell out, Schwab remained committed to his long-term vision of a company that valued people over profits, a philosophy that resonated with business icons like Charlie Munger and Warren Buffett, who frequently praised Schwab's shrewd systems and recommended his book for its insights into effective business management and compensation strategies.

Summary Notes

Introduction to Les Schwab's Business Theories

  • Les Schwab wrote his book with a 40-year-old typewriter without a ghostwriter to share his business theories with his employees and others interested in business.
  • Schwab emphasizes the importance of adhering to his customer and employee policies and suggests removing his name from the business if these are not followed.
  • The book is intended for those interested in business; others may find it uninteresting.

"I did write this 100% with my 40 year old typewriter. I didn't have a ghostwriter. I wanted it in my own words. I hope to pass on some of my theories of business to our people, and I hope these theories are used in our business for as long as the Les Schwab Company continues."

The quote explains that Les Schwab personally wrote his book to communicate his business philosophies directly and ensure their longevity within his company.

Les Schwab's Influence and Recognition by Munger and Buffett

  • Les Schwab is repeatedly mentioned by Charlie Munger and Warren Buffett as a respected business figure.
  • Munger and Buffett recommend reading Schwab's autobiography for insights into effective compensation systems and business success in challenging industries.
  • Schwab's success is attributed to his understanding of human psychology, incentives, and advertising, as well as capitalizing on the rise of Japanese tires.

"If you want to read one book that will demonstrate really shrewd compensation systems in a whole chain of small businesses, read the autobiography of Les Schwab, who has a bunch of tire shops all over the northwest."

Charlie Munger highlights Schwab's book as a key resource for understanding effective compensation systems in business, emphasizing Schwab's success in a tough industry.

Les Schwab's Business Philosophy

  • Les Schwab believed in sharing knowledge and success with employees, which he saw as crucial for the company's success.
  • He implemented a profit-sharing system where employees received 50% of the profits, which was a significant factor in the company's growth.
  • Schwab's approach was rooted in the belief that building successful people contributes to the overall success of the country and the capitalist system.

"I encourage you to share profits with your employees. I encourage you in every way possible to build people. This is good for America, it is good for you, and it is good for your employees."

This quote encapsulates Schwab's core business philosophy of profit sharing and investing in employees' success as a pathway to broader success.

Les Schwab's Early Life and Work Ethic

  • Schwab grew up in a challenging environment, with an alcoholic father and a family affected by the Great Depression.
  • Despite these hardships, he developed a strong work ethic from a young age, starting with a newspaper delivery route.
  • Schwab's early experiences with hard work and self-reliance shaped his later business practices and success.

"I immediately started to deliver newspapers. I remember so well my first route. I ran the route for two months in order to get enough money to buy my first used bike."

This quote demonstrates Schwab's early initiative and work ethic, which were foundational to his later business accomplishments.

The Impact of Sharing Knowledge in Business

  • Schwab and other successful entrepreneurs, like James Sinegal of Costco, believed in sharing knowledge and best practices to improve American business overall.
  • The exchange of ideas between entrepreneurs, as exemplified by the meeting between Sinegal and Jeff Bezos, can lead to significant innovations and changes in business strategies.
  • Schwab's book is part of this tradition of knowledge sharing, with the hope that it will inspire and guide future business leaders.

"Perhaps that's because of his desire to see best practices spread throughout american business."

The quote reflects the belief in sharing business knowledge and practices for the betterment of the industry and the economy as a whole.

Schwab's Confidence and Self-Education

  • Les Schwab was confident and self-assured, which he considered an asset in business.
  • He was a self-taught expert in newspaper circulation, which later translated into his ability to analyze and understand other business sectors.
  • Schwab's self-education and confidence were key to his approach to business and his ability to innovate and succeed.

"The one thing I did know was newspaper circulation work, and I knew a lot more about it than the two minority owners."

This quote highlights Schwab's self-taught expertise and his confidence in his knowledge, which contributed to his business acumen.

Confidence and Self-Reliance

  • Les Schwab had a strong belief in himself and his abilities, which he maintained throughout his life.
  • His confidence was rooted in his work in newspaper circulation, a job often viewed as low-prestige but close to revenue generation.
  • Schwab's self-reliance was evident when he refused guardianship after his parents' death and chose to rent a room and be independent.

"Les had an abundance of confidence in himself." "He winds up saying, no, I'll just rent a room and figure it out myself."

These quotes underscore Schwab's self-assured nature and his decision to be self-reliant despite challenging circumstances, highlighting the importance of confidence and independence in his success.

Specialization and Mastery

  • Schwab focused on one area, newspaper circulation, and became extremely knowledgeable in it.
  • His expertise allowed him to outperform minority owners in the business.
  • The story emphasizes the value of deep knowledge and specialization in one's chosen field.

"I knew the one thing I did know was newspaper circulation work." "Les just said, I knew more than these guys and they owned the company."

The quotes illustrate Schwab's strategy of mastering a single area of expertise, which contributed to his professional success and set a foundation for his future endeavors.

Passion and Career Success

  • Bill Gurley's speech emphasizes the significance of passion in one's career.
  • Gurley advises choosing a profession that excites you, as it leads to greater success and satisfaction.
  • Les Schwab's story resonates with Gurley's message, as Schwab was passionate about his work.

"Pick a profession about which you have immense passion, a deep personal interest."

This quote encapsulates the essence of Gurley's speech, reinforcing the idea that passion is a critical driver of career success and personal fulfillment, as evidenced by Schwab's journey.

Continuous Learning and Information Accessibility

  • The importance of ongoing education and being the most informed in your field is stressed.
  • Bill Gurley argues that with the internet, there are no excuses for not being knowledgeable.
  • Schwab and other successful individuals like Sam Walton exemplify this principle by constantly learning and adapting.

"The good news, if you're going to research something, this is your lucky day. Information is freely available on the Internet."

This quote emphasizes the ease of access to information in the modern era and the responsibility to utilize it for self-improvement and competitive advantage, a practice Schwab adopted.

Entrepreneurial Ambition and Persistence

  • Les Schwab had a long-standing desire to become a businessman, but faced financial barriers.
  • Despite uncertainties about the type of business, he remained determined to pursue entrepreneurship.
  • Schwab's patience and persistence are highlighted, as he worked various jobs while nurturing his entrepreneurial ambition.

"I was now 28 years old. I had ambition. I wanted to go into business as I'd always wanted to be a businessman, but I didn't have any money."

The quote reflects Schwab's enduring entrepreneurial spirit and his practical approach to overcoming obstacles, illustrating the journey of many entrepreneurs.

Strategic Business Decisions and Adaptability

  • Schwab's decision to enter the tire business without prior knowledge demonstrates his willingness to learn and adapt.
  • He capitalized on his sales skills and believed in his ability to master a new industry.
  • Schwab's strategic choices, such as sharing profits with employees, contributed to his company's growth.

"I thought the tire business had a future. I remember telling my wife I thought I was a salesman."

This quote shows Schwab's strategic mindset and adaptability, as he transitioned into a new industry with confidence in his inherent skills, a move that paid off significantly.

Challenging Industry Norms and Innovation

  • Les Schwab opposed the unfair practices of American rubber companies and sought to innovate.
  • He introduced a profit-sharing model and treated his stores as individual entities, empowering his employees.
  • Schwab's approach to business was customer-centric and employee-focused, differing from the prevailing industry practices.

"Never take advantage of a customer. Never take advantage of an employee, but take all the advantage you possibly could of a rubber company because they were not being fair and honest."

This quote highlights Schwab's philosophy of fairness and integrity in business, as well as his willingness to challenge industry norms to create a more equitable and successful company.

Overcoming Early Struggles and Risk-Taking

  • Schwab faced significant challenges in the early days of his business, including legal threats and financial pressures.
  • His determination and strategic bluffing allowed him to navigate these obstacles.
  • Schwab's story is a reminder that entrepreneurship often involves high risk and the need for resilience.

"I was bluffing, but I was determined."

The quote captures Schwab's resolve in the face of adversity and his readiness to take calculated risks to protect and grow his business, a common theme among successful entrepreneurs.

Les Schwab's Business Philosophy and Practices

  • Les Schwab emphasized the importance of owning property rather than leasing to build a business with a solid foundation.
  • He implemented a "five-five" standard operating procedure: a five-year lease with an option to buy after five years.
  • Schwab also focused on customer service and maintaining control over his business dealings.
  • He was cautious about building a business on platforms owned by others, as exemplified by the pitfalls of relying on platforms like YouTube for business revenue.
  • Schwab's response to a contract breach by a tire supplier demonstrates his assertiveness and focus on fair business practices.
  • He maintained a maniacal focus on the customer, which he believed was crucial for long-term success.

"I don't want to build a business on someone else's property." This quote emphasizes Schwab's belief in the importance of owning the property on which his business operates to maintain control and stability.

"I had an escape clause in the contract that I could turn it back to him and not have to pay it off." Schwab ensured he had an exit strategy in his contracts, allowing him flexibility and protection in his business dealings.

"It's hard to comprehend today why big companies treat their dealers and employees the way they do." Schwab found it difficult to understand why companies would mistreat those who contribute to their success, highlighting his value for fair treatment in business relationships.

Advertising and Customer Service Innovations

  • Les Schwab was inspired by the advertising practices of other businesses, such as Lucky Strike cigarettes.
  • He adapted the LSMFT slogan for his own business, coining "Les Schwab Means Fine Tires."
  • Schwab introduced the practice of fixing flat tires for free, even for non-customers, which built goodwill and customer loyalty.
  • He understood the principle of reciprocity and how it could benefit his business in the long term.

"LSMFT, lucky strikes means fine tobacco. So it's an acronym. So he's watching this, and he's like, wait a minute. He's like, I told Dorothy, this is wife again. Look, LSMT, MFT, that means les schwab means fine tires." Schwab cleverly adapted a successful advertising strategy from another industry to his own business, demonstrating his innovative thinking.

"He's one of the first company, I think they still do this to this day. He decides that even if you're not his customer, he'll fix your flat tire for free." Schwab's policy of fixing flats for free was a strategic move to win over customers and create a positive reputation for his business.

Business Expansion and Product Display Strategy

  • Schwab reversed the typical tire business model by making the showroom the warehouse, impressing customers with a large selection.
  • He waited for the right opportunity to implement his vision of showcasing a wide array of products.
  • Schwab's approach was to display more products than his competitors, which set his business apart and attracted customers.

"My thinking was to reverse this to make the showroom the warehouse." This quote demonstrates Schwab's innovative approach to product display, which aimed to create a more appealing shopping experience for customers.

Diversification and Risk-Taking

  • Les Schwab attempted to diversify his business interests by starting a cattle ranch, which resulted in significant financial loss.
  • Despite the losses, Schwab did not regret the experience, emphasizing the importance of taking risks and living life to the fullest.
  • He believed in the value of pursuing diverse interests and experiences, even if they do not always lead to success.

"I probably am about the worst cattle rancher in America." This quote humorously reflects Schwab's self-awareness regarding his unsuccessful venture into cattle ranching, yet it also shows his willingness to take risks and try new things.

Cleanliness and Store Appearance

  • Schwab was obsessive about the cleanliness and appearance of his tire stores, insisting on daily cleaning and maintenance.
  • He believed that a clean and appealing store would impress customers and reflect positively on his business.
  • Schwab's attention to detail extended to internal communications, where he emphasized the importance of store presentation.

"A supermarket tire store has tires displayed, a clean showroom, tires waxed, and an appealing appearance." Schwab's description of his store concept highlights his commitment to creating a retail environment that stood out from the competition through meticulous presentation.

Leadership and Incentive Structures

  • Les Schwab encouraged the hiring of ambitious assistant managers and emphasized the importance of appealing to self-interest in leadership.
  • He implemented an incentive structure that rewarded honesty and discouraged theft among employees.
  • Schwab's business model relied on shared ownership and profit-sharing to align the interests of employees with the success of the company.

"If any one employee sees another employee steal anything, they are a weak kitten if they don't report it." Schwab's quote reflects his belief in mutual responsibility among employees and the importance of protecting the collective interests of the company.

Personal Loss and Regret

  • Les Schwab experienced personal tragedy with the death of his son, leading to reflections on kindness and the temporary nature of life.
  • He expressed regret over being too harsh with his son during a difficult time, highlighting the importance of compassion.
  • Schwab's personal loss serves as a reminder to balance business aspirations with personal relationships and empathy.

"I wonder now if maybe I was too harsh on him." This quote reveals Schwab's introspection and regret over his interactions with his son, emphasizing the human aspect behind the businessman.

Entrepreneurial Beginnings and Independence

  • Les Schwab's interest in business began with his newspaper routes during his youth.
  • He learned the value of sales and business through his early experiences, which shaped his entrepreneurial spirit.
  • Schwab's decision to go independent in the tire industry was a bold move that allowed him to control his business and offer a wide selection of products.

"I could make more in a few hours selling newspaper subscriptions than I could all week at the restaurant." This quote illustrates Schwab's early realization of the potential in sales and business, which influenced his career path.

"I decided to take down all the rubber company signs to go straight independent to buy tires." Schwab's decision to become independent in the tire industry showcases his determination to have control over his business and to innovate within the market.

Company Expansion and Financial Decisions

  • Les Schwab faced opposition from Norm and Don regarding company finances.
  • Norm and Don wanted to extract money from the company, while Les aimed for reinvestment to foster growth.
  • Les decided to buy out Norm and Don's shares to maintain control and focus on long-term expansion.
  • This decision proved beneficial as the company's value increased significantly over the years.

"So what happened is they wanted to take their money out. Les wanted to leave it in to expand and continue to grow the company, something he did the entire time he's running the company."

This quote highlights the conflict between Les Schwab and his partners about the use of company profits, showcasing Les's commitment to reinvestment for growth.

"You'll get your $225,000. Norm, you wanted money. Now you're going to get your money. You'll get around $300,000."

Les's decision to buy out his partners is underscored here, indicating his willingness to pay a significant sum to retain control over the company's growth trajectory.

"Their interest today would be worth around $12 million each."

This quote reflects the opportunity cost for Norm and Don, as their initial desire for immediate financial gratification led to missing out on a much larger future valuation.

Business Philosophy and Employee Compensation

  • Les Schwab believed in sharing profits with employees and prioritizing their well-being.
  • He criticized business practices that favored top management over frontline workers.
  • Les's motto "Unselfish for good reasons" encapsulates his approach to business and profit-sharing.

"Unselfish for good reasons has been a slogan of mine for nearly 34 years I've been in business."

Les Schwab's business slogan reflects his philosophy of profit-sharing and investing in employees as a long-term strategy for success.

"Our store managers make more money than our office people."

This quote highlights Les's belief in compensating those directly involved with customers and sales more than office personnel, emphasizing the value placed on frontline work.

Competition and Business Strategy

  • Les Schwab valued steady, methodical growth over rapid expansion.
  • He observed competitors like Neil, who expanded too quickly and eventually faced bankruptcy.
  • Les resisted the urge to cut employee wages and benefits, believing in the long-term value of maintaining a proud and well-compensated workforce.

"Life is hard for the man who thinks he can take a shortcut."

Les Schwab's reflection on competition and growth strategies underscores his belief in the pitfalls of seeking quick success over sustainable development.

"If I couldn't be proud of my company, if I couldn't pay good wages, if I couldn't have good benefits, if I couldn't have the best employees, then why would I even want to stay in business?"

This quote conveys Les's commitment to his values and the importance he placed on employee satisfaction and company pride over cost-cutting measures.

Legacy and Company Ownership

  • Les Schwab resisted going public and selling his company, preferring to keep it within the family.
  • He valued the impact of his work beyond financial gain, seeking to create a lasting and positive legacy.
  • Les prioritized building a company that would endure and provide opportunities for generations to come.

"The company isn't for sale. All stock will remain in the family."

This quote demonstrates Les Schwab's desire to maintain ownership and control over the company, ensuring its operation according to his vision and values.

"Success, in my mind, comes from having a successful business. One that is a good place to work, one that offers opportunities for people, and one you could be proud to own."

Les Schwab's definition of success extends beyond monetary gain, focusing on the creation of a positive work environment and opportunities for personal growth.

Advertising and Marketing

  • Les Schwab advocated for focused and consistent advertising efforts.
  • He believed in the power of repeated messaging to capture attention and build brand recognition.
  • His approach to marketing emphasized the need for gusto and volume to be effective.

"You must do it with gusto. You must do it in volume."

Les Schwab's marketing strategy is encapsulated in this quote, emphasizing the importance of impactful and widespread advertising to achieve business success.

Innovation and Adaptation

  • Les Schwab stressed the importance of innovation and adaptation for company survival.
  • He recognized the necessity of creating and following effective programs and policies.
  • Les believed that a company's strength lies in its ability to continually create and evolve.

"We will always remain strong as long as we have the ability to create. If we fail to create, then we will die on the vine like so many other companies have done in the past."

This quote captures Les Schwab's philosophy on the essential nature of innovation and adaptability for a company's longevity and success.

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