#56 The Biography of Herb Kelleher

In this episode, the late Herb Kelleher, founder of Southwest Airlines, is celebrated for his unconventional approach to business strategy. Rejecting rigid planning, Kelleher championed adaptability, arguing that reality's chaos is at odds with meticulous strategic plans. He emphasized action over analysis, enabling Southwest to rapidly capitalize on opportunities like taking over gates when a competitor retreated from markets. The episode also explores the airline's focus on profitability over market share, its adherence to a single aircraft model for operational efficiency, and Kelleher's personal commitment to understanding and engaging with various aspects of life and history. The discussion encapsulates Southwest's culture of simplicity, customer-centricity, and the continuous pursuit of excellence—a reflection of Kelleher's own dynamic philosophy.

• Keller criticizes traditional strategic planning for creating rigidity.
• He emphasizes the chaotic nature of reality versus the ordered nature of planning.
• Keller illustrates the issue with an example of USAir pulling out of cities in California.
• The meticulous nature of strategic planning is seen as a mental straitjacket.
• Keller's approach to planning is action-oriented, described as "doing things."

"One plan, no matter how well laid, couldn't possibly respond to all of these situations. This is why Keller does not put much stock in traditional strategic planning."

This quote explains Keller's belief that no single plan can account for every possible scenario, which is why he values flexibility over rigid planning.

"When the plan becomes gospel, it's easy for people to become rigid in their thinking and less open to new, perhaps off the wall ideas."

Keller suggests that adherence to a strict plan can hinder creativity and the ability to adapt to new opportunities.

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

Keller contrasts the unpredictable nature of reality with the structured approach of planning, indicating a mismatch between the two.

"The meticulous nitpicking that goes on in most strategic planning processes creates a mental straitjacket that becomes disabling in an industry where things change radically from one day to the next."

He criticizes the detailed and often excessive scrutiny in strategic planning that can prevent quick adaptation to industry changes.

• "Nuts: Southwest Airlines' Crazy Recipe for Business and Personal Success" provides insight into Kelleher's business philosophy.
• Kelleher's recent passing highlighted his impact and the importance of understanding his approach.
• The book is not a biography but offers a close look at Kelleher's thought process regarding business.

"So I wasn't planning on doing this book anytime soon. It kind of jumped ahead in my queue because a few weeks ago, Herb Kelleher, the founder of Southwest Airlines, just passed away, and he's one of the most fascinating people that I've ever heard give an interview."

The speaker explains the reason for prioritizing the discussion of the book due to Kelleher's recent passing and his intriguing business philosophy.

• The book "Creative Selection" by Ken Kocienda is highlighted for its insights into Apple's design process.
• Jobs' focus on speed for the Safari browser is compared to Vince Lombardi's focus on the power sweep play.
• The story emphasizes the importance of focusing on a specific goal to achieve excellence.
• The host reflects on applying this lesson to the podcast by simplifying options and focusing on delivering the best content.

"Gentlemen, this is the most important play we have. It's the play we must make go. It's the play that we will run again and again and again."

This quote from Vince Lombardi, used as a metaphor for Steve Jobs' focus on speed for Safari, emphasizes the importance of perfecting one specific aspect to achieve success.

"In any complex effort, communicating a well articulated vision of what you're trying to do is the starting point for figuring out how to do it."

The quote highlights the importance of having a clear vision as a foundation for successful execution in any complex project.

• Southwest Airlines is known for its consistent profitability and unconventional strategies.
• The airline has a history of deviating from industry norms, such as flying point-to-point and casual attire for staff.
• Southwest maintained profitability even during the airline industry's financial struggles.
• The company focuses on a conservative balance sheet and prioritizes using internally generated funds for capital spending.

"Our target is to do at least 50% of our capital spending with internally generated funds."

The quote reveals Southwest Airlines' strategy of using revenue to fund capital expenditures, showcasing a conservative fiscal approach.

"We paid for 100% of our airplanes from revenue. This means you aren't taking on debt when there are bad times, you aren't threatened by debt payments."

Kelleher's quote explains the rationale behind Southwest's strategy to avoid debt and ensure financial stability during downturns.

• Kelleher is known for engaging genuinely with everyone, regardless of their status.
• His approach reflects a level of interest and intensity that is consistent across all interactions.

"Anyone who's ever met Herb Kelleher will tell you that, whether he's talking to A-U-S. Supreme Court justice, a member of his board of directors are a hotel valet. He displays the same level of genuine interest and intensity."

This quote describes Kelleher's personal approach to interactions, demonstrating his consistent and genuine engagement with people from all walks of life.

• The airline was conceived due to the inconvenience and expense of traveling between Texas cities.
• Kelleher, initially a lawyer for one of the founders, was instrumental in the airline's creation.
• Southwest faced significant challenges before successfully launching.

"The history of Southwest Airlines is a story of courage and perseverance. It is the tale of a group of pioneers who beat incredible ods to realize their vision."

The quote encapsulates the challenging yet triumphant beginning of Southwest Airlines, highlighting the determination of its founders.

• Dallas and San Antonio were undergoing rapid economic and population growth.
• The distance between the cities made travel by bus or automobile inconvenient.

"Dallas and San Antonio were experiencing rapid economic and population growth, and they were also far enough apart to make travel by bus or automobile inconvenient."

This quote highlights the geographical and logistical factors that made air travel a more attractive option for intercity transportation in Texas.

• Herb Kelleher lived against the norms of healthy living but had a long life.
• His habits included smoking, drinking Wild Turkey bourbon, and having cheese crackers for breakfast.
• Worked approximately 100-hour weeks.

"His lifestyle basically goes against everything people think about healthy living. Yet he lived to 87."

This quote emphasizes the contrast between Kelleher's lifestyle choices and the commonly accepted principles of healthy living, while noting his longevity.

• King studied successful interstate carriers like PSA in California and Air California.
• These carriers' success suggested that a similar model could work in Texas.

"King had studied another interstate carrier, Pacific Southwest Airlines, in California."

The quote indicates that King was conducting research on existing successful airline models to inform the creation of Southwest Airlines.

• Kelleher and King discussed the airline idea over cocktails.
• The business plan was sketched on a cocktail napkin and is displayed at Southwest Airlines headquarters.
• They anticipated legal and competitive challenges, doubling their initial funding estimate.

"We initially figured we needed around $250,000, but we doubled it because I was aware that there was going to be a fight and it was going to be a prolonged fight."

This quote demonstrates the foresight Kelleher had regarding the potential legal battles and the need for additional funding to sustain the company through these challenges.

• Kelleher filed Southwest's application to fly between key Texas cities in 1967.
• The Texas Aeronautics Commission approved the application, igniting a prolonged legal battle.
• Competing airlines filed a restraining order to prevent Southwest from obtaining a certificate to fly.
• Kelleher, an attorney, represented Southwest in court, shouldering legal costs personally.
• The Texas Supreme Court eventually ruled in favor of Southwest.

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

This quote illustrates Kelleher's determination and willingness to personally invest in the fight to establish Southwest Airlines.

• Southwest identified a new market by servicing Houston's Hobby Airport, which competitors had abandoned.
• The move catered to business passengers needing to travel to downtown, doubling the passenger load factor.

"One of the biggest breakthroughs came when Southwest began service to Houston's hobby airport."

This quote signifies a strategic decision by Southwest to distinguish itself from competitors and capture a new market segment.

• Kelleher had a missionary zeal, believing in competition and consumer choice.
• His passion was reflected in his fight against anti-competitive practices.
• The concept of missionary zeal is linked to creating better products and validating the free enterprise system.

"One of the things that motivated me was to validate the free enterprise system."

The quote captures Kelleher's ideological motivation behind persisting with Southwest Airlines, emphasizing his belief in the free market.

• Southwest's lack of resources forced it to innovate and question industry assumptions.
• They targeted new customer segments by offering low fares and superior service.
• Southwest's strategy proved successful, stimulating new travel demand.

"Southwest, believing that it could stimulate a tremendous amount of new travel with low fares and superior service, challenged this assumption from day one."

This quote underlines Southwest's innovative approach to the airline industry, challenging the status quo and opening up air travel to a broader market.

• Southwest Airlines developed a two-tier fare system to cater to different types of travelers: business and leisure.
• The system offered fixed fares for "executive class" flights during business hours and lower fares for "pleasure class" flights during off-peak times.
• This pricing strategy was not the result of sophisticated planning but emerged from trial and error.
• The result was a significant increase in passenger traffic and the creation of a new marketing strategy in the airline industry, system-wide peak and off-peak pricing.

"Like many of its innovations, Southwest two tier fare system was not the outcome of a sophisticated long range planning retreat. It was the result of good old fashioned trial and error."

This quote highlights that Southwest's two-tier fare system was a product of experimentation rather than detailed strategic planning, emphasizing the value of flexibility and adaptability in business innovation.

• Braniff, a competitor, attempted to undercut Southwest with lower introductory fares.
• Southwest responded by matching Braniff's fare and offering a choice between the lower fare or a regular ticket with a complimentary bottle of liquor.
• This strategy was particularly effective with business travelers who could expense the higher fare and enjoy the free liquor.
• The result was Southwest becoming the largest liquor distributor in Texas for a short period and Braniff terminating its competing service.

"Braniff lowers their prices, and they call it an introductory fare. But Braniff had been flying for 40 years. They were not introducing themselves to the market. They were just trying to bleed out Southwest."

This quote illustrates Braniff's strategy to weaken Southwest through pricing, yet it also highlights the disingenuous nature of calling it an "introductory fare" given Braniff's long-standing presence in the market.

• Southwest Airlines had a clear understanding of its niche and maintained a focused vision.
• The company avoided diversification that did not align with its strategy, such as flying jumbo jets or international routes.
• Southwest's disciplined approach allowed it to stay true to its fundamental reason for being, which was critical for its success.

"No carrier knows its niche as well as Southwest. [...] Even at the height of its success, Southwest exercises the discipline not to stray from its strategy."

This quote underscores Southwest's deep understanding of its market niche and the disciplined approach it employed to stay focused on its core business strategy, avoiding the pitfalls of unnecessary diversification.

• Herb Kelleher, Southwest's co-founder, emphasized profitability over market share.
• Southwest prioritized keeping costs low and maximizing profitability rather than pursuing market share, which could lead to increased costs without corresponding benefits.
• This philosophy helped Southwest avoid the mistakes made by other firms in the airline industry.

"Market share has nothing to do with profitability. [...] Southwest is successful because it's willing to forego revenue generating opportunities in markets that would disproportionately increase its cost."

Kelleher's quote clarifies the misconception that market share directly correlates with profitability. He explains that Southwest's success is partly due to its willingness to pass on opportunities that would not be cost-effective, reinforcing the importance of strategic focus on profitability.

• Southwest Airlines did not see other airlines as its only competition but also considered ground transportation as a competitor.
• By keeping fares low, Southwest made flying more affordable and convenient than driving, targeting a broader market.
• Kelleher's clear thinking and focus on the actual competition allowed Southwest to capture a unique market segment.

"You don't understand, said Keller. We're not competing with other airlines. We're competing with ground transportation."

This quote from Kelleher indicates his strategic perspective on competition, where he identifies ground transportation as the real competitor, not just other airlines. This approach allowed Southwest to create a value proposition that differentiated it from traditional competitors.

• Southwest Airlines operated only one type of aircraft, the Boeing 737, to maintain simplicity and operational efficiency.
• This decision streamlined training, reduced parts inventory, simplified record-keeping, and enabled better negotiation for aircraft purchases.
• The company's focus on simplicity and reducing complexity contributed to its profitability and success.

"Flying one type of aircraft has a strong impact on the bottom line. [...] With only one type of aircraft, the company can reduce its parts inventory and simplify its record keeping, which also results in savings."

The quote explains how Southwest's choice to operate a single aircraft model positively affects the company's finances and operations, highlighting the advantages of simplicity in business practices.

• Southwest saved costs by using cash register receipts as tickets until 1989.
• When customers complained about losing or damaging these simple tickets, Southwest chose to print "This is a ticket" in bold red letters instead of investing in a multi-million dollar ticketing system.
• This decision exemplified the company's commitment to simplicity and cost-saving measures.

"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 illustrates Southwest's innovative and cost-effective solution to customer complaints about ticketing, avoiding a significant investment by making a simple change to their existing system.

• Herb Kelleher, co-founder of Southwest Airlines, emphasized the importance of knowing what you do best and focusing on that.
• He warned against complacency and various negative traits that success can breed.
• Kelleher's focus was on profitability and job security over expanding with nonessential features like international flights or larger planes.
• His philosophy was to avoid ego and empire building, which he saw as common pitfalls for decision-makers.
• Kelleher practiced hands-on leadership and didn't consider himself above any task, including handling luggage.
• The core of his message was to serve the customer, which in turn would be best for the business.

"We must not let success breed complacency, cockiness, greediness, laziness, indifference, preoccupation with nonessentials, bureaucracy, hierarchy, quarrels, or obliviousness to threats posed by the outside world. We don't care whether we fly to Paris. We don't care whether we have a 747. What we're focused on is being profitable and job secure."

This quote encapsulates Kelleher's approach to business, prioritizing core goals and avoiding distractions that can lead to a company's downfall. It's a caution against the pitfalls of success and a reminder to stay focused on what truly matters for the longevity of the business.

• The host criticizes the podcast industry's focus on advertising technology over the listener experience.
• Midroll ads, which interrupt the listening experience, are a particular point of contention.
• The host's philosophy is to provide content without interruptions, valuing the listener's experience over additional revenue from ads.
• He notes a disconnect in the industry, with some believing that advertisers and publishers are the most important players, rather than the listeners.
• The host advocates for a business model that prioritizes the end-user, believing it to be the key to long-term success.

"Every business and everything you do should focus on what's best for the most important person, which is the person in this case, the listeners in podcasting, the customers in a business, the actual person that you have to actually please because by what's doing best for that person, you are default. What is Herb saying? That you're doing what's best for the actual business."

This quote emphasizes the importance of prioritizing the needs of the customer or listener, which ultimately benefits the business. It's a critique of practices that prioritize profit over user experience and a call to align business practices with customer satisfaction.

• The host discusses adaptability and speed as crucial factors for business success, using Southwest Airlines and Bill Gates' insights as examples.
• Kelleher's approach was to move quickly and efficiently, contrasting with the slower pace of larger corporations.
• The host admires Jeff Bezos' repetition of key ideas, which he refers to as "Jeff-isms," and parallels this to Kelleher's repeated message that "success is never final."
• The importance of earning success repeatedly and the benefits of curiosity in business and personal growth are highlighted.

"If you're going to be small, you have to be fast."

This quote, attributed to Herb Kelleher, underlines the necessity for smaller businesses to operate swiftly to compete effectively. It's a principle that can give smaller companies an edge over larger, slower-moving competitors.

• Kelleher was known for his intellectual curiosity and his practice of reading extensively to understand various subjects.
• He would engage in activities like reading history books about places he was visiting to be able to converse knowledgeably on the topic.
• The host encourages intellectual curiosity and learning as a means to avoid being boring and to enrich conversations and relationships.
• The host shares a personal mantra, "avoid boring people," which serves as advice to both seek interesting company and to be an interesting person oneself.

"Life is too short and too hard and too serious not to be humorous about it."

This quote from Herb Kelleher reflects his philosophy on work and life, advocating for a balance of professionalism with a sense of humor and enjoyment. It underlines the importance of not taking life too seriously and finding joy in one's work and interactions.

• The host requests financial support from those who can afford it, offering a private podcast feed with additional content as an incentive.
• For those unable to contribute financially, the host suggests other forms of support such as sharing the podcast and leaving reviews.
• The host provides a private podcast feed as a reward for listeners who take the time to leave reviews, emphasizing the value he places on listener feedback and engagement.

"Thank you for listening, thank you for telling your friends. And I will be back very soon with another podcast about another founder."

This quote serves as a closing statement, expressing gratitude to listeners for their support and engagement with the podcast. It also teases future content, encouraging listeners to stay tuned for more insights on founders and their businesses.