#322 Herb Kelleher Southwest Airlines

David, the host of Founders Podcast, shares insights on Herb Kelleher, the legendary founder of Southwest Airlines. He announces his personal email list for book highlights, his recent interview on the Invest Like the Best podcast, an upcoming live show with Patrick from Invest Like the Best, and endorses Vesto, a financial service used by his entrepreneur friends. The episode delves into Kelleher's unconventional approach to strategic planning, favoring adaptability over rigid plans, and his focus on action, encapsulated by his philosophy of "doing things." David highlights Kelleher's resilience, shaped by early personal losses, and his knack for thriving in adversity. Kelleher's commitment to low operational costs and profitability over market share, along with his innovative practices like single-model aircraft fleets and peak-off-peak pricing, are emphasized. David also touches on Kelleher's humorous and competitive spirit, his love for history and continuous learning, and his belief in nurturing a company culture driven by dedication and service.

• David maintains a personal email list where he shares his top highlights from every book he reads.
• Subscribers receive the top ten highlights, which are carefully selected from a larger set.
• Interested individuals can subscribe to the email list via a provided link or the founderspodcast.com website.

"I take somewhere between 50 to maybe 150 different highlights for my email list. I whittle those down... to my top ten highlights."

The quote explains David's process of distilling his book highlights for his email subscribers, emphasizing the effort and selectivity involved in providing this curated content.

• David was interviewed on the Invest Like the Best podcast, hosted by Patrick.
• The discussion revolved around David's experiences from the last year of doing Founders podcasts and reading biographies.
• The interview is available in a long-form format, lasting about 90 minutes.

"I was interviewed recently on the Invest like the best podcast... on what I've learned for the last year in the last twelve months of doing Founders podcasts and reading all these biographies."

This quote highlights the content of David's interview, which reflects on his learning experiences from engaging with founders' stories and biographies over the past year.

• David will be doing a live podcast show with Patrick in New York City.
• The event is scheduled for October 19, and tickets are available through a provided link.
• The event is positioned as an opportunity for New York residents and a reason for others to visit the city.

"I'm actually doing a live podcast, a live show with Patrick from Invest like the best in New York City on October 19."

The quote announces the upcoming live podcast event, indicating the collaboration with Patrick and the event's date and location.

• Vesto, the presenting sponsor of the episode, helps businesses invest in US Treasuries.
• Investing in Treasuries offers government-backed security and interest earnings.
• David shares examples of founder friends who use Vesto to extend their business runway or to achieve better returns than bank accounts.

"What vesto is really good at is helping businesses of all sizes invest their cash in us treasuries."

This quote describes the core service provided by Vesto, emphasizing the benefits of investing business cash in US Treasuries for security and interest.

• Herb Kelleher, co-founder of Southwest Airlines, did not favor traditional strategic planning.
• Kelleher believed that reality is too chaotic for rigid plans to be effective.
• He preferred swift action over prolonged analysis and debate, which he saw as a mental straitjacket.

"Reality is chaotic. Planning is ordered and logical. The two don't square well with one another."

The quote encapsulates Kelleher's view on the disconnect between the unpredictable nature of reality and the structured nature of traditional planning.

• Herb Kelleher faced significant adversity during his childhood, including the death of his brother and father.
• His mother taught him to see adversity as an opportunity rather than a setback.
• Kelleher's upbringing, including late-night discussions with his mother, shaped his problem-solving attitude and resilience.

"Adversity is a normal way of life... stress in difficult times was not debilitating, but opportunities to excel and achieve."

This quote reflects the mindset instilled in Kelleher by his mother, framing adversity as a catalyst for excellence and achievement.

• Kelleher was known for his fierce competitiveness and strong work ethic.
• His experience working in a soup factory was considered the best education he ever had.
• Kelleher's hard-driving personality and lifestyle were marked by long work hours and personal habits like smoking and drinking.

"They describe him as a fierce competitor, and they said he had a hard work ethic."

The quote summarizes the general perception of Kelleher's character, highlighting his competitive spirit and dedication to hard work.

• Kelleher prioritized keeping costs low to ensure Southwest Airlines' success.
• His approach to business emphasized fiscal conservatism, avoiding debt, and enduring through hard times.
• Kelleher believed in the power of dedication and service, which he saw as intangible assets that competitors could not replicate.

"Our indomitable dedication is the core of our success... The things that you can't buy are dedication, devotion, loyalty, the feeling that you are participating in a crusade."

The quote emphasizes the importance Kelleher placed on the collective spirit and dedication of his team, which he considered key to Southwest Airlines' success.

• Kelleher was an avid reader, particularly of history, which he used to avoid repeating mistakes in his industry.
• He questioned conventional wisdom and sought better ways to operate, leading to innovations in the airline industry.
• Kelleher's leadership style was akin to leading a crusade, not just building a company.

"Reading history kept me from making the same mistakes that was inside and outside his own industry."

This quote reveals Kelleher's strategic use of historical knowledge to inform his decision-making and avoid past industry pitfalls.

• Herb Kelleher, CEO and founder of Southwest Airlines, was known for his hands-on approach, even loading and unloading baggage on Thanksgiving Eve.
• Kelleher's presence on the tarmac symbolized his leadership style and dedication to the company.
• His actions reinforced a culture of equality and involvement within the company, regardless of position.

"On the busiest day of the year, which is Thanksgiving Eve, you would find Herb out on the tarmac loading and unloading baggage, and he would do so regardless of the weather."

This quote illustrates Kelleher's personal commitment to the company and his willingness to engage in ground-level operations, setting an example for his employees.

• Southwest Airlines was conceived by Roland King and his banker, John Parker, due to inconvenient and expensive travel in Texas.
• Herb Kelleher was King's attorney and became involved in establishing the airline, which was planned to operate within Texas (intrastate) to avoid more stringent federal regulations.
• The Golden Triangle concept on a cocktail napkin outlined the service between Dallas, Houston, and San Antonio and is a symbol of the company's origin.

"Southwest Airlines was the brainchild of Roland King, a San Antonio entrepreneur who owned a small commuter air service, and his banker, John Parker."

This quote describes the origin of Southwest Airlines as an idea sparked by the inconvenience and cost of travel in Texas, with Herb Kelleher playing a pivotal role as the attorney and later leader in the company's formation.

• Southwest faced a four-year legal battle against established airlines to secure the right to fly within Texas.
• Kelleher's competitive spirit and belief in the free enterprise system drove him to fight for the company's existence, even paying legal costs out of pocket.
• The Texas Supreme Court eventually granted Southwest the certificate to fly, validating Kelleher's persistence and vision.

"Gentlemen, let's do one more round with them. I will continue to represent the company in court, and I'll postpone any legal fees, and I will pay every cent of the court costs out of my own pocket."

This quote demonstrates Kelleher's determination and personal investment in the success of Southwest, showcasing his willingness to bear the financial burden during the company's legal struggles.

• Kelleher framed the struggle of Southwest as a grand mission, fighting against the established airlines that sought to prevent the company's launch.
• His motivation was not only to win but also to defend the principles of the free market system.
• The legal victories against unfair trade practices and antitrust violations by competitors further solidified Southwest's place in the airline industry.

"If other airlines could prevent Southwest Airlines from starting, then that means the free market system is failing."

This quote captures Kelleher's ideological stance that the success of Southwest was a matter of principle, representing a victory for the free enterprise system over anti-competitive practices.

• Southwest's limited resources forced the company to innovate and question industry assumptions.
• The airline's strategy was to stimulate new travel with low fares and superior service, challenging the notion that flying was only for those who could afford it.
• By lowering prices and maintaining low operational costs, Southwest expanded the market and proved that there was a significant untapped customer base.

"The company simply did not have the money to go head to head with the majors. They would have to outthink and outmaneuver."

This quote emphasizes the strategic approach Southwest took to compete with larger airlines, focusing on creative solutions and market disruption rather than direct competition.

• Southwest embraced trial and error as a means of innovation, understanding that errors were part of the process.
• The company's willingness to learn from mistakes without punishing employees fostered a culture of risk-taking and continuous improvement.
• Southwest's introduction of system-wide, two-tier peak and off-peak pricing revolutionized airline pricing strategies and was later adopted by the industry.

"Jeff Bezos spoke about this a lot last week. They have this commitment by trial and error, and they just realize we have to be comfortable with innovating through trial and error. That means being comfortable with the error part."

This quote highlights the importance of a culture that accepts failure as a necessary component of innovation, a principle that Southwest Airlines and other successful companies like Amazon have embraced.

• Southwest identified two main types of travelers: convenience-oriented business travelers and price-sensitive leisure travelers.
• Business travelers are more time than price sensitive, prefer business hour flights, and are willing to pay higher fares.
• Leisure travelers are more price sensitive and flexible with their travel schedules, seeking lower fares.
• Southwest implemented a two-tier fare system based on the time of travel, charging higher fares during peak business hours and lower fares during off-peak times.

"So you have the convenience oriented business traveler. This is the person that is more time than price sensitive. They want a lot of business hour flights and the price sensitive leisure traveler who primarily wanted lower fares and had more flexibility about when to fly."

This quote explains the rationale behind Southwest's fare structure, which is tailored to accommodate the distinct needs of business and leisure travelers. It highlights the airline's strategic approach to market segmentation.

• Southwest's two-tier fare system was a result of trial and error, not long-range planning.
• The airline tested a reduced fare for a necessary flight and discovered a significant untapped market.
• The success of the trial led to a permanent two-tier fare structure, doubling passenger traffic and defining a new marketing strategy in the airline industry.

"Passenger traffic skyrocketed. Southwest had first defined a special market niche consisting of short haul passengers, and then further segmented those short haul passengers by need into time sensitive business travelers and dollar sensitive leisure travelers."

This quote summarizes the impact of Southwest's two-tier fare system on passenger traffic and how it revolutionized airline marketing by segmenting customers based on their needs.

• Southwest creatively responded to Braniff's attempt to undercut their prices by offering passengers a choice between a lower fare or a regular fare with a complimentary bottle of alcohol.
• The majority of business travelers opted for the higher fare with the free alcohol, allowing Southwest to become the largest liquor distributor in Texas for a period.
• Southwest's transparent communication with customers, explaining the competitive situation, was key to their strategy.

"To Braniff's dismay, 76% of southwest passengers paid the $26 and took the gift."

This quote highlights the effectiveness of Southwest's strategic response to competition, which resulted in a majority of passengers choosing the higher fare option that included a complimentary gift.

• Herb Kelleher emphasized the importance of knowing the company's niche and sticking to its fundamental reason for being.
• Southwest maintained discipline by not straying from its strategy, avoiding jumbo jets, international routes, or direct competition with major carriers.
• Kelleher prioritized profits over market share and avoided unnecessary debt, which plagued other airlines.

"Southwest exercises the discipline not to stray from its strategy. It does not, for example, buy jumbo jets, fly international routes, or go head to head with a major carrier."

The quote illustrates Southwest's disciplined approach to business strategy, focusing on their core competencies and avoiding the pitfalls that other airlines faced.

• Southwest's focus on a single aircraft type, the Boeing 737, resulted in significant cost savings and operational efficiencies.
• The airline's cost-conscious culture extended to all aspects of the business, including ticketing practices.
• Southwest resisted industry norms by opting for a simple and cost-effective solution to a ticketing problem, reinforcing its commitment to low-cost operations.

"Flying one type of aircraft has a strong impact on the bottom line. Training requirements are simplified. Pilots, flight attendants, mechanics and provisioners concentrate their time and energy on knowing the 737 inside and out."

This quote explains how Southwest's decision to fly only one type of aircraft contributes to its low-cost structure and operational efficiency.

• Southwest's innovation extended to its problem-solving approaches, often rejecting expensive industry-standard solutions in favor of more cost-effective alternatives.
• The airline's culture encouraged employees to think creatively and stay aligned with the company's core values of low costs and simplicity.
• Southwest's adaptability and willingness to challenge industry norms were key factors in its success.

"Instead of spending $2 million to follow the rest of the industry, Southwest modified its ticket stock with the caption, and it worked."

This quote demonstrates Southwest's innovative approach to problem-solving by choosing a simple modification over an expensive industry-standard system, aligning with its cost-conscious culture.

• Herb Kelleher emphasizes the dangers of complacency in successful companies.
• Success can lead to negative traits such as cockiness, laziness, and bureaucracy.
• Kelleher advocates for maintaining focus on core strengths and avoiding distraction by nonessentials.
• Southwest Airlines' commitment to its niche and profitability over expansion into glamorous markets like Paris or acquiring 747s.

"The number one threat is us. He would say. We must not let success breed complacency, cockiness, greediness, laziness, indifference, preoccupation with nonessentials, bureaucracy, or hierarchy."

The quote is a warning against allowing success to give rise to harmful attitudes and practices that can undermine a company's achievements.

• Southwest Airlines' strategy was to know and do what they do best.
• They avoided mimicking other airlines and challenged conventional wisdom.
• The airline focused on being profitable and job secure rather than expanding into markets that did not fit their niche.

"We never try to be like other airlines, Kellerhert said. From the very beginning, we told our people, question it, challenge it."

Herb Kelleher encouraged his employees to think critically and question industry norms, which contributed to Southwest's unique and successful business model.

• Herb Kelleher hated bureaucracy and preferred maintaining flexibility.
• This flexibility allowed Southwest to seize opportunities quickly, as demonstrated by their swift action in acquiring Midway Airlines' gates.
• The company's nimbleness and quick decision-making were key to its success.

"Reality is chaotic and that planning is orderly and logical, and the two don't square well with another."

Kelleher recognized that real-world situations are unpredictable and that rigid planning could hinder the ability to capitalize on unexpected opportunities.

• Southwest Airlines engaged in future scenario generation to prepare for potential situations.
• They asked "what if" questions to formulate multiple plans, ensuring they wouldn't be caught off guard.
• The process was a strategic tool to anticipate and respond to future challenges and opportunities.

"Future scenario generation is the technical name for this process."

This quote explains the methodology Southwest used to strategize for the future, highlighting the importance of proactive planning.

• Speed and a bias for action were required traits at Southwest.
• Herb Kelleher emphasized the importance of moving quickly, especially in a smaller company.
• A story about Don Valentine illustrated the company's fast-paced expectations compared to other companies.

"Don, I hate to tell you, but we're talking about next Wednesday."

Kelleher's response to Valentine's proposed timeline underscores the urgency and speed at which Southwest operates, contrasting with slower-paced corporate environments.

• Kelleher instilled a competitive spirit in his employees, drawing inspiration from historical figures like Winston Churchill.
• He communicated the importance of continuous effort to maintain success.
• Kelleher's "Commencement of Hostilities" letter rallied employees against competition from United Airlines.

"Success must be earned over and over again, or it disappears."

Herb Kelleher's quote reinforces the idea that success is not a one-time achievement but requires ongoing dedication and effort.

• Herb Kelleher valued curiosity and continuous learning.
• He was a voracious reader and would immerse himself in subjects to gain a deeper understanding.
• Kelleher's curiosity enabled him to engage meaningfully with different people and places.

"The illiterate of the future will not be the person who cannot read. It will be the person who does not know how to learn."

This quote reflects the importance Kelleher placed on the ability to learn and adapt as a key to future success.

• Kelleher advised CEOs to spend more time with their people and less with other CEOs.
• He credited Southwest's survival to the company's strong fundamentals and the dedication of its people.
• Kelleher believed in the power of memorable language to inspire and communicate effectively.

"Spend more time with your people and less time with other ceos."

Kelleher's advice emphasizes the value of leaders being closely connected with their teams rather than isolated in executive circles.