Host: So, 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 unsess, booyah, there's your money. There's your opportunity to make a lot of money.

Host: 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 knew sooner?

Brad Jacobs: You know, it's interesting. You throw me off a little bit with the question cuz when you look at the numbers, the real growth has been through M&A, through acquisitions. What's been my secrets on acquisitions? Here's the gist. A lot of people have a rigid business plan that's spelled out for many years and that's it. And it's very that doesn't usually work. Why? Because life changes, markets change, economies change, and if you're rigid, if you're just rigid thinking, 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. That's a bad way of thinking.

Host: You've 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?

Narrator: Listen, 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 watching 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.

Host: 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: I did recently meet him and it was like meeting Albert Einstein or meeting someone Michelangelo because when you look at his context, his wide context, 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 those trends and where are we going? He identifies the most important trend of all which is homo sapiens have created technology have created tools starting with stone pebbles and over a couple million years ago and then fire and then settlements and over the last couple hundred years so much more so much more in the last 20 years accelerating accelerating and now with AI it's accelerating even more and where's that going? The tools that we've created, the technology we've created, is becoming more capable than we are at certain 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 that we use so much technology in our own bodies with wearables and nanobots and so forth and AI and outsourcing our memory and sensory and so forth that you really can't call it homo sapiens anymore because the traits characteristics 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.

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

Brad Jacobs: Well the benefits are we should be able to accomplish a lot more. So if you look at us as a planet, 8 billion people, there's a lot of things we do well but there's 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 more 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 one of the places, it's an area of improvement for humans, is we don't think rationally a lot of times. And I think with technology and AI advancements that we will think more rationally. So there'll be non-stop therapy, so to speak.

Host: 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. I mean, you've lost billions of dollars 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 who that's their specialty is analyzing how you think. And I did a couple years of therapy for three hours a week for a couple years. So 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 but utilize what comes in, capitalize on what comes in to create money for shareholders. So I think the human capital in the psychological sense is very very important. So I put energy into that.

Host: You've 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. The power of computing is so much greater and be able to then analyze that and be able to spit things out and be able to 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 front of our brain 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 in a conversation with Shane Parish and feeling what you're feeling, 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.

Host: Everybody recognizes AI as being a trend, but you've spotted several trends well before people recognize them and you are 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's 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? So I intentionally think about trends quite a bit because in business, in the business world, you got to get the major trend right. You've got to get the major trend right. And as my main business mentor, may rest in peace, Ludicon, 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 gonna make a lot of money. So I intentionally spend time thinking about where does all this fit in and where could it be going?

Host: What's your research process like?

Brad Jacobs: I…

Shane: 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 a lot of people make the mistake as they get older or they get more successful, they think 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 to, but I absolutely view myself as a student of life. I don't view myself as a guru who's figured it all out by a long shot. And I think if you keep that element of profound curiosity, of really interesting and being very interested to learn and being involved with the sensory experience, be involved in the intellectual experience, be involved in an analytical capabilities, I think you can learn a lot more and you can see trends that otherwise you don't see it. 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: A lot of people who reach your level of success sort of 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?

Speaker A: I do both, Shane. I do have a team that researches things for me, but I also like to roll up my sleeves and get into it myself. I like to find, even like when I do M&A. So, you know, 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 are we 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 get to the point where now there are millions or hundreds of millions or billions of dollars of revenue, and they started from scratch. And how do they do that? It's like a miracle. It's fantastic. I'm very impressed and excited and enamored with entrepreneurs and companies that have created huge growth and huge value, and I want to understand that. So 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 to people. Now today you're the one asking questions, 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: What have you learned about asking questions that you wish you knew 5 years ago?

Speaker A: I take questioning from the therapist. So, I wrote in the book that the only time in my life that I've been depressed, but I was really depressed, was in the mid 2000s when I had stepped down from being CEO of this big company, United Rentals. And now I didn't have anything to do. I was doing some art. I was studying art and buying art. 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. Me is running businesses. I've been a CEO since I've been 23 years old. And I like being a CEO. I really like that job. Now, I wasn't a CEO and I felt a big gap. I felt depressed. I was down and had a lot of unconstructive thoughts and inaccurate thoughts and so forth. And that drew me to meeting a lot of fantastic psychotherapists, and I mean fantastic at the top of their game. So there was a psychotherapist in New York City called Albert Ellis. He died about 10, 15 years ago, and he had formed a school of therapy called rational emotive behavior therapy, REBT, but in short it was cognitive therapy. It was cognitive behavior therapy. He, together with another psychiatrist, actually Aaron Beck, whose family and friends called him Tim. I got the privilege of meeting him too and spending time with him and his family. Tim Beck, or Aaron Beck, and Albert Ellis 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 at ease and to open up. And what I learned from studying those psychotherapists first is you need, before you start badging someone with questions and inquiring and asking them all these important things—sometimes personal things, sometimes intimate things, sometimes 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 the most, maybe the single most powerful thing you can do in a relationship, whether it's personal, whether it's professional, is to give someone your 100%, 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, give me good answers, but you're doing something powerful. You're giving me your attention. 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 all 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.

Shane: So they're not—in other words, they're not disagreeing with you without first finding a way of agreeing with you. Joining then leading, validating than disputing. So even when they are changing the way you're thinking and say, 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 listen 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's very good to do that. It's very nourishing and nurturing to give someone 100% of your attention and listen to them non-judgmentally. I call it non-judgmental concentration. I think I made up that phrase. Maybe I didn't. I forgot, and I should have attributed to someone else. But that's a phrase I use. Non-judgmental concentration—when you're really taking all your consciousness and giving it to someone, 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 how are they feeling? So what's the emotion that's underlying that? And I use that quite a bit. And in the book I have a chapter on how to have an electric meeting—how to run an electric meeting, which means a meeting that's powerful. A meeting that 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 whole-home meetings. And an element of that meeting is everyone in the meeting shuts off all their devices and concentrates non-judgmentally—non-judgmental concentration—on the one person who's speaking at a time. No side conversations, no talking over each other. One person speaks at a time, but everyone in the room gives them all their attention. It's really powerful thing. I like that a lot. It's sort of the secret to our podcast in a—

Shane Parrish: That way, which is I want to see the world through your eyes. I don't have to agree or disagree. That's not my job is 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, 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.

Shane Parrish: Yeah.

Shane Parrish: Is the work with the psychotherapist is that where you learned about rearranging our brain and controlling the mind and the importance of sort of thought experiments and mindset or talk to me a little bit about that.

Speaker A: That was one of the places you know for my main hobby since I was a teenager has been meditation and various forms of meditation and then from meditation into learned self hypnosis and then from there I learned all the mindfulness and the positive psychology and cognitive therapy and so forth. So I've mixed and matched a lot of different schools of thought and customized it for me for my own personality and my background and my individuality. So 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 was I studied music. 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 playing in a group. I like I liked a band. I like 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 define myself I self-identify as a musician more than a business person 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 and I listen very 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. Tinnitus where you have this ringing in your ear from when I was a teenager probably from listening to music too loud and I have it right now. I'm hearing very high pitch sounds. I love it. It keeps it interesting. It's my friend. It keeps me in tune. Sometimes they get louder, sometimes they get softer.

Shane Parrish: Now, some people have tinnitus and they—and I might be mispronouncing that, but you know what I'm talking about. Yeah. Ringing there. 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. I really am lucky 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.

Speaker A: No matter what they are and that's that's the reality of the moment and you should be in that reality and and go with that.

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

Speaker A: A lot. For me, it a lot. So, 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 core. The report card for a business is 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 much much more money than they gave you. So in my companies we've been fortunate that we've been able to give back 32 times their money in one and other companies over 150 times. So really really large large large large returns like over the top unusually high returns. That wasn't by luck. That wasn't coincidental. If it was coincidental it wouldn't happened five times in a row in large amounts. That was because there was a playbook. That was because there was a method to it. And that method incorporates many many different elements. And I talk about quite a bunch of them in the book that together give you an ability to create what we call alpha in the business world, which is 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 that pretty much all boats are lifting by the same tide. And part of the ingredients to that formula to make huge returns for shareholders involve analytical thought, careful analysis of numbers is all the math. Making order out of disorder, trying to see where how does this all fit together and seeing the relationships between different things. How to reduce things to simplicity because a great mathematicians reduce very complicated things to a formula for example. Yeah. Expressed with just a few handstrokes. So that's math. That's mathematics. That's the beauty of mathematics is seeing the patterns.

Shane Parrish: Seeing the patterns, seeing how to make sense out of this.

Speaker A: And on the music side, it's being able to improvise because 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.

Shane Parrish: And there is no wrong note. If someone plays a note, that's just a new note. It's not the wrong note. It's like, okay, we changed key. Let's go with that. Come on, let's get going now. Now we're on. So, 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 nonflexible. 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. So you need to improvise. You need to capitalize on that and to make money from that. And if you're rigid, if you're just rigid thinking, if you're not a musician, if you're not a musical business person, you're going to lose.

Brad Jacobs: 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.

Brad Jacobs: 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 Conway, based in Ann Arbor, Michigan. It was a few billion dollar deal. It was a pivot because this was a hard asset business, had tens of thousands of trucks and drivers. It was as asset heavy as asset heavy 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. Going back to symmetry and formula things, that relationship makes sense. 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 an 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. A lot of silos and heavy, heavy on the nonrevenue 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 close to the customer, that generate sales. So 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 unmess 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, the cash flow, that I pivoted. I pivoted and go ahead and do 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 from Morgan Stanley. But at the time he was covering XPO as a transportation banker, and he said, "You know, 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 and everyone's going to understand what you did." And 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 really bought it for a billion and a half dollars plus with some leverage. Today it's worth something like $15 billion. And that's after having taken out many like $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 Menllo, and putting that into our GXO subsidiary. That was after taking the brokerage business and putting that with our RXO brokerage business. So this was the gift they kept giving, Conway. It's been an amazing, amazing ride. And the returns, it's been something like a 20 bagger, 15 bagger. There would be 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 have saw it, Shane. I don't know if I didn't have the mathematical skills, I would have been able to see, okay, this is a mess but we can make it clean. I don't know if I would have 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, very lucrative for our shareholders. And in business, the bottom line, the report card, is how much money did you generate for your shareholders? That's the one. It's an examination with one question on it. It's how much did you make your stockholders? How much money did you make for your stockholders? 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 obligation, responsibility, where you're taking other people's money, debt and equity, particularly the equity, and you're the custodian for that. You're a custodian of it, 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've picked you.

Shane: Yeah.

Brad Jacobs: 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, I think that's been what largely explains, at least as far as I can understand, why my companies have created so much alpha.

Shane: 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 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, because when it's... so I'll go back to that organization chart that I saw at Conway. It was just a mess. It was like, "Wow, it's all over the place. Triple dotted lines and squiggly lines and you had to have different colors and different." It's like, that's not real elegant. Yeah, I think I see what you're saying. In that you could hide inefficiencies, as opposed to when it's a clean organization chart. Everyone's got clear KPIs, key performance indicators. Everyone has clear metrics, everyone has clear goals, and the compensation is tied to that, and people are rewarded for achieving those goals. Yeah, it's hard to hide.

Shane: The other thing that I thought was really interesting is 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 sort of taking advantage of whatever the world brings, but if you take on too much debt at 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 that wasn't available when you took on all the debt. How do you think about that?

Brad Jacobs: I have a Zen Buddhist approach to debt. Not too much, not too little. I don't think it's an optimal balance sheet if you have no debt, because you can improve 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 shares. 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, in Ukraine, in Taiwan. There's the United States politics is very volatile. There's a lot of things that could go wrong real quick, and a kind of shock to the system would hurt companies that have too much debt, because business would slow down. Look 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...

Speaker A: Debt repayment payments and could have gone bankrupt. Companies don't go bankrupt unless they have too much debt.

Speaker B: You go bankrupt from not being able to repay your debt. So I don't think you should have too much debt. In my new company that I'm forming at QXO, we're going to have I think our target a healthy target should be one to two turns of debt. By that I mean we take our our our EBIDA which is a measure of our cash flow and and we say let's have one or two turns of that. So if our EBIDA ends up being for instance in a period of time for example a billion dollars well let's have one or two billion dollars of debt. That's that's a comfortable amount. Not too much more than that. Now, you could have for short periods of time, you could lever up like when I bought Conway, we levered up to about four times, a little more than four times, but we very quickly sold off. I mentioned 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 by one of two ways. By improving your profits, by increasing your IBIDA, or by paying down your actual gross amount of debt. And I I think you can manage that. And that's uh that's something a good CFO does.

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Speaker A: 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?

Speaker B: 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 to do what is in 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 200 basis points, but sometimes by five or six times what what the index was. So you have to do 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 Orbus uh out in California and 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 maybe a company's not studied enough. It's not covered enough. Maybe management is not good at communicating their story and and it's dislocated. The price is dislocated and you can get a real good value by buying those shares and then being patient, playing it out the cycle and make real good returns. And I've seen them do that with my companies when something happened in the marketplace that made us uh a cheap stock for for a short period of time. Boom. They came in, they bought a lot of shares and wrote them up and then sold there really really high. I think that contrarian value approach to investing to business is is profound. I think that's important. And I remember I remember when I sold my first company, Amarax, my old brokerage company. We' started a company in 1979. Bunch of broke scrappy kids. And we're in the right place at the right time. and the Iranian revolution took place and the shah got kicked out and Khomeini came in and they took 400 hostages and and the oil prices went way way way up. So it was a great time. It was sad time for the world. There's a lot of lot of chaos and pro problems. But it was really good to get in the oil business because oil business was really volatile and some young whippersnappers like us could come in and be taken seriously by Exxon and Mobil and Texaco and Shell and Gulf and BP and all the customers that became our big customers over time. And we built that business up over four quick years to about a little under five billion dollars in brokerage volume. So that's it was really big rapid rapid growth curve and I had good team doing that around the world. And then I sold it and I wanted to start a new business and I wanted and I was ambitious. I was single. I wasn't married. Didn't have kids. I could take risk. I could afford to do that. And I was remember speaking with my my uncle Howard and uh may he rest in peace. He's long long passed away. uh and of course my uncle Howard was born in the 1920s maybe even late late 19s and grew up in the depression obviously and uh during world during World War II and so forth and it was very tough times. So he's very you know he grew up in a time when there's a lot of emphasis towards 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 I'm going to start another company. Instead of being an oil broker, I'm going to I'm going to go to the I'm going to go to the adult table instead of the kitty table. I'm going to I'm going to be an oil trader because I've been 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 I'm going to put my money where my mouth is. I'm gonna put my money into into a bank. I'm gonna get a letter of credit and I'm gonna actually buy and sell as opposed to just broker." You say, "Oh, Brad, don't do that. Don't do that." You should maybe take a small percent 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 and I had to go with what he said. I did exactly the opposite. I took a completely contrarian position where I took I think it was like $100,000 or maybe at most $200,000 and I took that away. I took all the rest of my money. I deposited with Bank Perry and now it's BMP Perry Bar. Back then it was Perry and they gave me a billion dollar line of credit and I swung for the fences. I I used sometimes up to $990 million of that line of credit doing counter trade deals, doing pre-finance deals, doing barter, doing processing deals, deals that I 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's 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's a lot a lot of moving parts there." 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 and as a result of not taking his advice and taking contrarian position and having the courage or the guts and the the strength to

Brad (Interviewee): I believe in what I wanted to do, that I had a thought and I had 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 for our shareholders.

Shane (Interviewer): Where did that confidence come from?

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

Shane (Interviewer): Yeah.

Brad (Interviewee): So, if I had to think about what did my mother say, what did my father say, that was very transformational. The first things that would pop my mind are with my dad who I loved and I had a lot of respect for and he was a great dad and a very honest person and he was a very dedicated and good provider for the family. But he was very blunt in what he said. He wasn't very diplomatic what he say. He just said what he really thought. And I remember one time when we were doing an errand. We're driving home and he was in the driver's seat. And I was in the passenger seat and we're at a stoplight and my father turned to me and said and he was a big guy with a low voice and you know big laugh and said Bradley and my mom and dad were the only people ever called me Bradley but anyone who knows me calls me Brad but 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. I 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. You just are what you are. You just don't even think about that. But the message I was getting from my father was, you know, I may not be such a good-looking guy. Okay. On the other hand, the other message he was giving me was, "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. And somehow or another despite your what he considered bad not pretty appearances, not beautiful appearance, you were able to be a leader and accomplish things and get stuff done and get form teams and get people." So I think in a very paradoxical kind of way my father insulting me on that gave me confidence. It gave me confidence of okay so maybe I don't have great all-American good looks. Who cares? I've got something else. I've got something in terms of being able to lead. So maybe that helped give me confidence because that's an experience that I've relived many times over my life. My father because it's a big deal what your father thinks of you what your mother thinks of you.

Brad (Interviewee): On my mother's side, if I had to think what was something that gave me a lot of confidence, my mother. Okay, so my mom passed away about 10, 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.

Shane (Interviewer): 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.

Brad (Interviewee): And my mom was on her deathbed. And my brother and sister and I were hanging out on her deathbed for a good couple weeks. And I don't know if you've been around people who have died, but you know they're sort of dying and then suddenly they wake up and like talking to you like nothing's going 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 so forth. And my mother had been lying there and like breathing funny when they're dying. It's like really strange way of breathing. It's not normal way of breathing, irregular breathing. And then not breathing for periods of time. And it was a very bizarre experience, death. And we didn't quite know whether this was it. Like we're never going to talk again. She's done. And she suddenly like sat up. She looked all three of us in the eye and said, "I'm really happy each of you turned out so well."

Brad (Interviewee): And smiled with a mother's love. And then just kind of gracefully lied 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 from young right from day one, even before day one, nine months before day one, approved of me and validated me and gave me a stamp of approval and 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 XP Logistics, which 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.

Brad (Interviewee): By the way, I've learned something from that. I've learned something from that. And I try to learn from all these things how I can apply this to business because I'm a business person. I'm trying to make money for shareholders. That's my goal in life. So all these things that I'm going through life learning about, I'm then trying to take them and apply them to business to make money for shareholders. So what did I learn from that? I learned that the relationship between a parent, in this case, my mom and me or in the other example, my dad and me, it's a real important experience. 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 are 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 just be you can't fake it. And if you don't like someone or disagree with somebody, like say, "Oh, yeah. Aren't you great?" Because people are smart. People realize when you're BSing them. They just know that. They know when it's phony and they know when it's real, too. So, what I've learned is you've got to rearrange your brain. Going back to the book, you 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, you know, I'm just so happy how well you all turned out. Say that first. You know, when I do performance appraisals, when I do performance reviews, my direct subordinates, my reports, my direct reports, I always start out with the positive stuff. I don't start right off with, okay, here's 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 really want to appreciate. 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. That is like you're better off not saying anything than giving phony compliments. But you should I try to rearrange my brain so I appreciate a person and...

Host: 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 got me 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 have compliments that are just like general compliments, but have very specific concrete compliments of, you know, "You did this, this, and this. Kudos, tip of the hat. Good. Good job on that."

Host: And uh, I, I, 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. You know, we've had millions and millions of customers. They're not always happy because we're not—no service provider is perfect. Once in a while, you mess stuff up and you have a difficult conversation with a customer. Maybe they're not trained in rearranging your brain and they go right into the insults. They skip the whole part about, "Hey, we really like what you were doing here." They just go right to, "Darn it, you've been late on this" or "You've been damaging that" or "Your invoicing is messed up" or whatever it is. And what I learned from all that, to answer your question, is I've got to empathize with that. I've got to first—I have to put my mind in their mind. I've got to put myself in their shoes. I've got to really 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 annoyance, or just made it difficult, shot 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 felt them. I've both heard and understood what they said, and I've also felt the emotion that they're feeling, and that I get that, and that I have an action plan to solve it. So that is a sequence to all that.

Host: I like your human centric approach to this. There's a lot of people who sort of 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?

Guest: 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, and 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, and it's an achievement. It's definitely a plus, not a negative. But also three things that, you know, we could have done better or we will do better going forward. Things that we didn't quite achieve that we hope to achieve. So, it's a balance. It's three good things, it's three bad things. But when I run meetings, I like to make it like an Oreo cookie. I like to make the good stuff, 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, ideally, even if we've had a tough meeting where we 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 not—and take hit their bonuses and maybe eliminate their bonuses if they don't get better fast." There's tough conversations that you have to have. But I don't like to end on that.

Host: Yeah.

Guest: 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 let's just talk about—who I'll ask each. I'll go around the room, supposed to have a dozen people in a meeting, and I'll say, "Tell me some—" So we've just been meeting for two hours. We've been working hard. We came up with—we identified some really important problems we need to solve, and that 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, a difficult meeting, whose star went up and why? Who said something that—maybe they already held them in high esteem, but you hold them in even higher esteem now as a result of the way that they thought, their thinking process, or maybe the elegance and grace with which they expressed a difficult subject, or the way they tackled something from an innovative way. Someone who contributed to the magic of creating alpha, creating money for our shareholders. How did they do? Oh, they handled a situation of conflict—because you have conflict in business—in a way that was nice, that was kind-hearted, that was not mean-spirited. So, whatever. Why? Tell me. I go around the whole room. I say, "Tell me 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.

Guest: And I have a whole series of exercises and questions that I do like that. One of them I do is when we have long meetings—or sometimes we have like 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 in the morning to 7 at night, for example, with just a few quick 10- or 15-minute breaks. We work right through lunch, right through dinner. I like to end with sometimes getting everyone—at the end of all that, we stand in a circle, and I don't want to say anything. I just want every—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. And I want everyone to look at each person, and I want them to do two things. I want them to think to themselves, 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 my team, is on this team with us." Or "This person has XYZ qualities that are so noble, so fantastic." So positive regard of each person, 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, 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 generations they're going to do." And I find those that two-handed experience of gratitude, of praise—the gratitude that comes from honest praise of each person, and then the well-wishing to each person—it just everyone goes away from the meeting just figuratively flying on air. People go away with a really good feeling. And feelings count in business. In business, I write about this in the book, the love vibe that 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.

Host: Good about the company, good about the people they're working with, good about the customers, good about the vendors. You want them there 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. 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 knew sooner?

Brad Jacobs: You know, it's interesting. You throw me off a little bit with the question because I don't define myself as in terms of how much money I made. Like that's just not like the big deal for me. But 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 you 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? Well, 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, like really friends and family, like my sister, my brother, my niece and nephew, are putting in another $100 million. So, I have a cool $1 billion even putting into this company. And I told them at the end of the call—it was an hour call just to give them an update of what I'm working on—I thank them not for the $100 million because I didn't need the $100 million. I could have put another hundred million of mine in. But I thank 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.

Host: 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. 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. 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, taken business away from our competitors who aren't managed as well. But the real—when you look at the numbers—the real growth has been through M&A, through acquisitions.

What's been my secrets on acquisitions? I'll try to be concise because I did an hour and a half podcast with McKinsey a couple years ago with Andy West. That was the only question. Asked one question, I babbled on for an hour and a half. It's still—people still watch that podcast because I really told everything about it. Here's the gist. The gist is you first have to select an industry. You can't just do M&A. So I spent the last year going around studying dozens of industries, looking at hundreds and hundreds of acquisition opportunities, mostly with Goldman Sachs, Morgan Stanley and some other, 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? 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, 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 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, call it, $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's 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, this industry, there's a clear path of how I can do that.

Now, I can't just buy—and there's roughly about 7,000 distributors here in the United States. There's about almost twice that amount in Western Europe. So 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 that going to integrate?

Well, I like to look at the multiples that I pay for an acquisition. The price that I pay for 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 raise capital at—due to my relationships with mostly institutional investors and 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. Those are the—there's many, many levers but those are the two biggest levers.

So I pay close—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 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's going to be a big—that spread, that difference, that delta—is going to create value boom just right away, right from the first day.

Now you asked about integration. Integration is extremely important. Anybody can buy a company. It's not that hard. You send a wire. 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 like hundreds of different—

Speaker A: Companies running separately with different names and different 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, 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 that you can have standardized dashboard 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 comp, 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 system where all the people in the organization 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 for 401k. It's the same exact way of doing all the benefits are the same. All the performance appraisals are the same. Compensation I can see right away. I need to have transparency to the information about I need to have the organization charts very accessible 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 would the synergies be. So I need standardized HR technology throughout everything.

I need a standardized CRM, customer relationship management system like Salesforce.com or there's several others as well. And for that to be able 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, every country we're functioning in. So, I need a standardized technology for customer relationship for sales management.

So, I need a standardized internal social media. I happen to like 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. Like 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 five, 10, 20 million 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 and opportunity to improve them, but it's a lot of cost and time to fix all that stuff up.

So, I integrate from the moment that we agree to buy a company, we're starting the integration process. And the day we close the acquisition, bam, we're in there and we're standardizing everything as much as we possibly can. And we're communicating and communicating quite a bit. A big part of the success for M&A is forming the relationship 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 we at the same time we're identifying the weak players and gracefully and generously exiting them. So there's a lot of different components to M&A. I'm summarizing a lot of different factors 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.

Speaker B: You have some unique questions when you interview sort of 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?

Speaker A: Yes. So you see some companies when they're negotiating by 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 and some wonk reads it but nobody important reads it and it's basically just to cover their butt. Now I'm not trying to cover butts. I'm trying to make money for shareholders. My goal is to make money for shareholders period. And so what I'm looking for in diligence is 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 want to ask those people. I like to interview the top 15 or so people one-on-one, like an hour, hour and a half. And I like to ask them, if this was your money, would you buy this company? And what would if you did buy it, what would you change? What would you do differently? Where's the opportunity to do something differently than it's been done? 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 successful that's attracted a big bidder like ourselves that we should make sure we'd be crazy to change that? So, I like to ask questions like that. 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 have we been 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 gone into things that why are we doing that? Doesn't really help customers. It doesn't delight customers. Doesn't make customers happier or doesn't improve our customer business reviews. So, why are we even doing it? That's what I like to ask those questions and they're really revealing.

The first person who I talked to who had questions like that was Cat 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.

Speaker B: I find so many times in corporations, people don't ask those questions.

Speaker A: Yeah.

Speaker B: And I'm big on asking those questions. I'm big at surveying using town halls, one-on-one interviews, small group interviews, asking questions about how are we going to win? How are we going to win? What are we doing wrong? What can we be doing better? What are we doing right that we should do more of? And I find it very valuable, very very valuable. It yields a great return on time. And as I write about in my book, there's 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.

Speaker B: 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, largest shareholder. What role will that play? How does that change the role of a board? Especially when it comes to M&A.

Speaker A: I've been really fortunate to have fantastic boards. Boards that are very strong comprised of people who are really competent people have they're invested in the company. They're leaning in. They take the job seriously. They are 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……

Speaker A: Any person in the company can reach out to any board member anytime they want and ask them anything they want, and there's no supervision or people have to accompany them or none of that. So, I want board members to be very, very informed. I want board members to get copies of the customer surveys. I want 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 them to know that. 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 of 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 operating view and every monthly operating view, every quarterly operating view of any part of the company that tickles their fancy. I want them, the more they're involved, the better off we're benefiting from them.

Speaker A: 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 members, board meetings are kind of they're very scripted and they sometimes even rehearsed and there's a careful story that's being told by management and it's done by PowerPoint, it's done by rehearsed presentations that come up and it's complete waste 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. This is it. 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 sometimes phony bologoney sales story about how great things are. I want to ask real questions. I want to include in the tough questions and I want people to answer them honestly and spontaneously in the moment and completely so that those I love our board meetings.

Speaker A: So I'm now chairman at the moment 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 period. Some of my favorite meetings the whole year because I had highly engaged directors who are knowledgeable about the business and who ask really good questions. I learn a lot. I learn a lot at the board meetings. I don't dominate the board meeting with I'm the person speaking all the time. A lot of times you find that the chairman or the CEO is like making a whole big deal about themselves. Board meetings should not be about the chairman and the CEO or the chair and CEO. The board meeting should be about the directors getting the information they need to get, that they want to get, they should be getting. Should it be focused on problems or what's going well or how do you think about that from a board level.

Speaker A: And then I want to get into more specifically management meetings but like at the board level how would you organize that around how do you craft an agenda for that. I don't craft the agenda. 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. So, 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're preparing for a board meeting and one of my vice chairs said, you know, that's good, but I want to have a section on human capital management, people management. So, we rearranged things and we're bringing some HR folks. So 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 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.

Speaker B: Or you have the wrong directors. Right.

Speaker A: Very much so. Yeah. 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 very carefully. They have a strong duty of loyalty. They have a strong duty of care.

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

Speaker A: Well, I hate the word committee period. Committee is just like a bureaucratic red tape slow kind of low energy kind of word. I just can't stand the word. So I try not to call things committees just to nomenclature. However, there are sometimes 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 ops person there. But also have a big people element. So I need an HR person there. And so I could have if it's a big decision with big impact then I'm going to have the CEO, the COO, the CFO, CHRO, that's a big decision. I'm not going to waste those very important people's time with small decisions.

Speaker A: FP&A, financial planning analysis, plays a big role in my company more than in most companies. The FP&A people are the ones who are turning all these. They're in a meeting. They're listening to all these ideas and they're 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 the 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 like a 10 20 percent chance of happening, but it's not a zero percent. It's a 10 or 20 percent 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 going to give 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 our plan 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. By that what I mean is you have some managers who just due to their personalities or for whatever reason or maybe they're playing games with their bonus they 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...

Speaker A: If you look over the last three years, they've missed their predictions by 3 to 5% like pretty much every year. So they're going to discount them based on the past predicting their future likelihood of succeeding. So the FPNA 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. So, we talked before about the two big things that senior executives do is is decide what kind 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 gazillion, it's billions. It's finite capital. How are we going to sp invest that capital of all the different ways we can invest? What's the highest and best uses of that capital? And 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? It's not going to create massive value for our shareholders, which is what our mission is. The FBANA people help with understanding that putting it into numbers because sometimes you can get very inspired and motivated and it's a really really creative fantastic uh inspiring project comes up but when you analyze the numbers 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 we're also managing how much time are we spending as an organization on what kind of projects. You find a lot of time in corporate America somehow or another they get lost. Management gets lost on these tangents that are not central to their main mission of creating value for shareholders. And the FPNA people keep track of that. They're the scorekeepers to keep everyone honest of how we're investing capital. How are the returns on that capital versus what we expected it to be? We planned on how 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 FPNA ends up being kind of omniresent throughout the organization anytime we're making big decisions because they're really good at getting all this down to to reality to real numbers.

Speaker B: And they report to the CFO. Is that the structure internally?

Speaker A: Uh FPNA has has a two lines. one is to the CFO on the and they have a dotted line to operations and to me. So I I rely on my FPNA person like every day. I want to know for two reasons. I want to know internally how are we doing on the projects that we're we're 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 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, how much your free cash flow is going to be. And now you've got a you've got a promise out there. You've got a guidance. You've got a forecast. And and you're working really hard to achieve that. I need to know and FPNA 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 to legal and we'll talk to IR and the investor relations and we'll say, should we update the the investment community ahead of the quarter, ahead of when we normally produce our results? And equally importantly, maybe even 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, we're of our 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, it's 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. Getting back on track.

Speaker B: Do you do the forecasting because you're going to be going to the capital markets for 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?

Speaker A: Well, I I am a big user of capital markets because all my companies have grown through uh acquisitions and I' 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 and you know all endowments and a lot of different people whose money we've taken and given them back a lot more money than they than they gave us. In order to do that, you've got to hit the you've got to meet your promises. Your results matter. 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 cap well we've maybe refinanced debt to take advantage of changing interest rates or something like that. But in terms of raising equity, which is the deer thing, raising equity, sometimes we've done some acquisitions like 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. So, but even though we weren't raising equity, even though we were not going to the back of the capital market chain, we still paid extremely rigorous attention to how 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 fin in operating results. It's also concerned 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 it's a conscious intention and a sense of honor and a sense of I need to do this. This is this is what we need to do. This is our promises. Promises made, promises kept.

Speaker B: When people tell you they're not motivated by money, you get suspicious. Why?

Speaker A: Well, I actually respect people highly if they're not motivated by money. Uh, I know a lot of artists. I know a lot of musicians. I have um friends and relatives who are professors or retired professors in academia. Musicians not into money. I mean, they're not into money. They don't think about they don't read the Wall Street Journal. They're not interested in that whatsoever. And and I respect that. They're they have a higher calling in a way. They're they're focused on some deeper parts of life. Um, but that's not who I want in my company. I want my company people who are absolutely motivated by money, who are raw capitalists, who people who want to make money for themselves and their families, and that 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 they can make somewhere else. I've had people on the senior level make many, many, many people make become millionaires, multi-millionaires. I've had people become tens of millionaires. I had one person who made over hundred million dollars. I have couple people now who are on track to make very very large amounts of money. This is a good thing. This is a this is a outgrowth of success because we've tied everybody's compensation. 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 tied that's dependent on TSR, total shareholder return. So we look at what are the how does our stock perform versus called S&P

Brad Jacobs: If we're the 500th, what percentile are we? If we're less than, call it, the 55th percentile, I'm not so sure they should get any, I don't think equity should vest. I could argue that if we're only getting roughly half, roughly, we're very middling in the results we're giving. That's not why people invested in us. People gave us, the sovereign wealth funds or pension, these big investors, they've given us money because they expect us to be 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%, vest some. If it's 75%, vest 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 interest aligned with the shareholders. I want it to be so that the shareholders are saying, "Wow, I really hope 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." So, I like that to happen.

One thing I liked about Goldman Sachs's compensation plan that I consulted for them, uh, years and years ago, when they were a partnership — a big chunk of their compensation plan, I'm not up to date on their compensation plan now, but back when they were a private partnership, a big chunk, like a significant percent of their comp, was based on how many other partners said that they helped them with what they were working on.

Speaker B: Yeah.

Brad Jacobs: 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 goes back to being a super organism. So if we can have people on the front line and the mid-level management be rewarded financially — that's the biggest reward, not the only reward, but financially rewarded 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, which is 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.

Speaker B: Powerful motivator.

Speaker B: I like how everything's tied to sort of like 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. That'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. Either 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, are using ways that they can succeed, have good feedback loops, and they're making good decisions and being held accountable for those decisions, they're exceeding them and delivering the numbers, and the share price reflects that. The share price goes up. That's great. The shareholder should make a fortune and the employee should make a fortune. Neither one should make a lot of money at the expense of the other. That's not fair. That's just not right.

Speaker B: What CEOs do you think are underappreciated capital allocators?

Brad Jacobs: When I look at the companies that have taken money and had small amounts of money and turned it into huge amounts of money, immediately I'm thinking 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 adviser 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. Capital came into my United Waste Systems way back in 1989, 1990. And what is he the genius of? He's the genius of taking small amounts of money and turning them into huge amounts of money. So you look at Google, at Yahoo, at Netscape, at Sun Microsystems, all these companies that he invested relatively small amounts of money in and ended up being worth like 10 billion bucks. That's good capital allocation. That's really, really intelligent capital allocation. So I immediately think of Mike Moritz for something like that.

I think in the industrial sector, there's also people who have gone through the same kind of processes I've gone through and been disciplined at how they allocate capital and achieved high ROIC as a result of that. You think of the academy-level CEOs over the years. Dave Cote, for example, when he was at Honeywell for years, he was very, very rigorous at this, very mathematical, very dispassionate, very intelligent about "okay guys, this is how much money we've got, where we're 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.

Speaker B: 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 it's really not achieving what you're trying to achieve. You see other companies that move real 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.

Speaker B: What's the biggest lesson you've learned from the past year?

Brad Jacobs: You could pick any time frame, whether it's last 12 months, last 10 years, or 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. One thing I've learned about people is 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 XPO or one of the ex-companies. And what I've 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. It's great to work with people who 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 brought some people from company to company. Usually the initial founding management for QXO were all ex-company people. And one thing I've taken away from that is I really love these people. These are people I really just respect and admire, and I'm just so thankful that I get to work with them. Like I feel — 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.

Speaker A: 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.

Speaker A: 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. What I learned was I went through this process of studying dozens of industries and I went through the checklist and one of the checklists, one of the things on the checklist was can I play, 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 product distribution, that I can do that. I found a company, an industry that's got 20,000 companies and there's 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 of it. I think there's half a dozen or so companies, the biggest ones, that are a couple of medium-sized companies too, but mostly the biggest ones who are approaching technology in the same spirit that 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 the 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 got something I can bring to the industry that's going to help, that I can be transformational. I can be a catalyst to improve the quality of the industry. I'm happy to get everyone all excited and share the vision about investing in technology.

Speaker B: But we always, or I guess I always end with the same question. What is success for you?

Speaker A: 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's 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 those 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 the last couple hours, that all comes down to making money for shareholders. If you're not making money for shareholders, it's just jabber, it's just talk. So for me, success is defined by how is my stock price performance versus everybody else's. So that's clear for me. It's very clear in my mind. Personally, you know, it's about my family. It's about my friends. It's about my relationships with them. It's about can I create ways where in the limited times 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's 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.

Speaker B: That's amazing. Thank you so much for your time today. This was a fascinating and wide-ranging conversation.

Speaker A: I really appreciate the opportunity, Shane.