How to Make a Few Billion Dollars - Brad Jacobs
Note: While reading a book whenever I come across something interesting, I highlight it on my Kindle. Later I turn those highlights into a blogpost. It is not a complete summary of the book. These are my notes which I intend to go back to later. Let’s start!
The question, “What was the happiest part of your day?” has a more uplifting effect than “How was your day?”
When I have negative automatic thoughts, I use a two-step process to achieve a calmer, more rational state of mind and make better business decisions. First, I acknowledge the negativity as my natural, self-critical psychology kicking in. Then I challenge the validity of that perspective because, millions of years ago, our human psyche was programmed to default to anxiety and fear as a survival mechanism. We’ve been slow to evolve. Automatic negative thoughts are a knee-jerk mental reaction to a situation that almost always can be reframed in a positive light.
At one memorable lunch, I arrived burdened with problems that I began to unload on him. Mr. Jesselson listened carefully—he was good at that—and waited until I had run out my string. Then he put down his fork, turned to me, and in his thick German accent said, “Look, Brad, if you want to make money in the business world, you need to get used to problems, because that’s what business is. It’s actually about finding problems, embracing and even enjoying them—because each problem is an opportunity to remove an obstacle and get closer to success.”
Life can be uncomfortable, but you can accomplish a lot if you can figure out how to reframe the uncomfortable things in ways that allow you to utilize them.
A fellow CEO laid this out for me graphically once when we were talking about M&A deals. “Think of M&A as having four quadrants defined by size and risk,” he said. “Big, low-risk deals are the ones everyone wants, but they don’t exist. Small, low-risk deals do exist, but you can’t make much money from them because of their size. Small, hairy deals are the worst quadrant, because the reward is limited and the odds are stacked against you, so why bother? The bingo quadrant is the big, hairy deals. If you can find a big, hairy deal with solvable problems, that’s where the real money is.” If you plan to do M&A, you have to rearrange your brain to lean into those big, hairy deals and figure out how to cut off the hair and de-risk. You’ll need to be flexible, fearless, and open-minded, and stay attuned to your internal chatter. This is where your rearranged brain is going to kick in and look for solvable problems in big, hairy deals. Figure out whether these are problems you can address, either by removing them or by quantifying them and living with them. If not, move on.
Being dialectical means looking at something from different perspectives and interpreting it in multiple ways that are all valid.
Keep in mind that cosmic history is littered with imperfections and extinction events, things that went terribly wrong over and over again. And yet, here we humans are, with all the flaws that cosmic and terrestrial evolution baked into our cells. We’re products of imbalance, asymmetry, and imperfection, starting 380,000 years after the Big Bang. That’s when scientists believe that the first atoms formed from irregular densities in primordial gas. The stars that were produced by those irregularities exploded as supernovas, seeding the universe with heavy elements that are the basis for all matter. And here’s another thing to remember when you get frustrated by a disordered day in the C-suite. Entropy, a measure of disorder, increases with time. Your high school physics teacher probably explained that entropy is why metal rusts, ice cubes melt, and milk spoils. For the purpose of this discussion, you can expect that problems, by nature, will get increasingly bigger.
Sometimes I’m wrong when I think I’m right. So, I’m always ready to change my beliefs based on new information.
Radical acceptance quiets the noise created by yesterday’s decisions and today’s wishful thinking. It allows you to make a logical, forward-looking decision based on what’s likely to happen next—that and risk management are the big, relevant considerations. Otherwise, you’re just gambling, and most gamblers lose. Here’s a story about radically accepting a $500 million loss from when I ran United Rentals. It was the late 1990s, and my ears perked way up when Congress enacted TEA-21, the Transportation Equity Act for the 21st Century. In theory, this legislation was going to allocate about $600 billion to rebuild the nation’s infrastructure, beginning with roads, bridges, and tunnels. That’s a lot of money, even for the federal government. Seeing such profuse funding up for grabs, I started scooping up big road-rental companies—the ones that provide barricades, cones, striping, and the like. Then I waited for the market to come to me, which in an ideal world would have happened in short order. But this was the real world, and only about a third of the allocated government funding was spent, and that was in dribs and drabs over time.
As I mature, I look back on all the times I thought I had life figured out and realize I got some big things wrong. That’s growth.
My decision turned out to be a huge mistake, and there was no point in compounding it. We ended up selling those road-rental companies at a half-a-billion-dollar loss because it was the best way forward under the circumstances.
If you want to earn huge, you need to think huge. Your goals should be bigger than what you currently think you can accomplish, because that can actually help you achieve those goals. Picture what success will look like for you, and be specific. You want to make a lot of money, sure. But exactly how much money do you want to make? By when? How will you feel when you have all that money in hand? What will you spend it on? Invest in? Donate to? Whose lives will you improve?
If I had tried to do everything I wanted to, I never would have accomplished anything big. Narrow your focus to your most important dreams and tune out everything else.
Then, just for fun, envision what a few billion dollars actually looks like—a ballroom stacked to the ceiling with $100 bills. What goods and services can you bring to the world that will make that room yours? Resolve to make it happen.
ONE OF THE MOST valuable pieces of advice I received from my mentor, Ludwig Jesselson, is, “You can mess up a lot of things in business and still do well as long as you get the big trend right.” I’ve taken his words to heart, and with each new company I start, I make sure I understand the major trends that could threaten the business or help it soar. I’m obsessive when learning about an industry, and trendspotting is a big part of that process. I discovered early in my career that tech is always a consideration in one form or another, sometimes dramatically so. As a result, a great deal of my success has come from innovating traditional business practices, whether it’s through automation, robotics, data science, or information sharing.
One of the first things I look for in an industry is scalability. I want to be able to envision how I’ll take a business from a few million dollars to tens of billions of dollars. What will be the path to do that, and how fast can we move along that path? Is the industry growing much faster than GDP so that we’ll probably generate top-line growth each year just by showing up and can build from there? What’s the base price/volume combination we need to be profitable, and how realistic is it to significantly increase our profit margin over time? What could prevent us from doing that?
If you want to make a lot of money in almost any industry, plan to invest heavily in tech.
Structurally, is it an industry where companies have advantages of size and economies of scale? Are there ways to grow the business organically or through M&A? What multiples will I likely have to pay for companies I acquire, and is that number a large enough discount from the multiple I’d expect my company to trade at? This is important because the arbitrage between our cost of capital and what multiple we’re able to buy companies at is the biggest value-creation lever in a roll-up. Improving the actual profitability of the business is the second-biggest lever. Is there a technology threat or opportunity or both? For example, are there ways to automate business processes and drive customer service higher at a lower cost of labor? How could AI impact the industry, both positively and negatively? Armed with a short list of promising industries that satisfy these fundamental criteria, I’m ready to look below the surface.
I use a three-part methodology for my research: I educate myself on the industry as thoroughly as possible, compile a list of questions that matter, and then do my best to get in front of the most knowledgeable experts I can find on each topic. It’s not a perfectly linear process, because more questions arise as I continue my research, but that’s the basic structure. I start by reading everything I can get my hands on—journals, periodicals, newspapers, trade publications, employee reviews on web-based recruiting sites, you name it. I look at all the websites and social media of the major players and the up-and-comers in the industry. I set Google Alerts for industry CEO names or other keywords, and I watch lots of YouTube interviews with CEOs. I also use paid services like Bloomberg, AlphaSense, and Thomson Reuters. In addition, I look at analyses from sell-side and buy-side analysts and search the SEC database—www.sec.gov/edgar—which has large amounts of information on every publicly traded U.S. company, including IPO documents, financial reports, and proxies.
I also scope out the most valuable industry conferences and attend them if I can. Events like the Wall Street Journal’s The Future of Everything Festival and the Consumer Electronics Show (CES®) in Las Vegas have valuable content, with a lot of it online. Sell-side conferences sponsored by the banks are an opportunity to meet management teams face-to-face and hear the questions investors are asking. Trade associations have a wealth of industry data and typically make their research available online. The most time-consuming task in my methodology is processing all the digital information that I accumulate; it’s a far cry from 44 years ago, when I physically went to the library to start researching industries. But I’ve got a team of super smart people who are good at distilling tons of source information. As I go through the material, I note my observations in preparation for the next step—my interviews with experts. After absorbing a lot of data and arming myself with questions, I seek out people who live and breathe the industry I’m considering. Some of this can be done with video chats, but this phase is more about getting face-to-face and listening intently.
I love talking to CEOs who have a track record of successfully growing businesses and creating substantial shareholder value. We share a similar language combined with experiences that are unique to our respective industries, which tends to make the meetings mutually beneficial. I also belong to the Business Council and the Economic Club of New York, which are valuable networking resources for me. They give me an entrée to CEOs in almost any industry I’m interested in learning more about. In addition to CEOs, I seek out investment bankers who are most active in the industry and who know it deeply—bankers who have close relationships with management teams, have advised on lots of acquisitions in the space, and have raised billions of dollars of capital for these clients. I also talk to venture capital firms, because they spend a lot of time looking at the big trends in different industries. And, I tap buy-side institutions, like Fidelity, Invesco, Orbis, and Cercano, and successful fund managers who have battle scars from investing in the industry. They know the leading players—companies and customers—as well as the risks and growth factors. They’ve already made and lost money in the industry, so I want to know what lessons they learned from those experiences. Industry vendors are also a good source; they have a sense of the trends that could drive changes in the market environment. Shareholder activists often have important insights as well. And I reach out to journalists who know the industry because, by nature, they’re a skeptical bunch, and I want to hear their perspectives.
Trend-spotting an industry requires objectivity and open-minded analysis. I don’t pick an industry just because it’s in vogue. My team and I make detailed lists of pros and cons and create word clouds to illuminate macro themes from the information we’ve gathered. This helps to uncover an industry’s strengths and defects from the standpoint of making money for investors, which is the prime mission of a public company. After completing these steps, I know a great deal about the industry I’m considering, and I can detach myself from distracting details to lock on to the big questions. What direction do I think the industry will move in over the next five years? Ten years? Inevitably, those answers will be affected by tech, and especially by artificial intelligence.
One effective way to spot new trends is to ask your customers what their dream tech would look like, assuming anything is feasible and cost isn’t a factor. That removes any psychological blocks. I want to know what my customers would go ga-ga over, no matter how fantastical it sounds. What capabilities would it have, what data would they want to push or pull, how would it help them succeed? This produces an avalanche of ideas, which we evaluate for impact, cost, and returns. The ones that make it to the short list are the projects with the greatest value and highest potential return. We stack rank them and then set a budget that’s affordable. It’s a disciplined process that also allows for innovation. We make similar requests of our employees and vendors, because we want them to be satisfied and productive. A lot of these dream technologies have undertones of AI, as you might expect.
It’s also good to pay attention to tech trends that have the potential to disrupt economic models but haven’t hit their stride yet. Two examples relate specifically to the supply chain industry, where I’ve spent the past 13 years. 3D printing (also called industrial additive manufacturing) will drive seismic change in supply chains in the long term. It’s had a slow start—in the ’80s and ’90s, there was a joke that 3D printing was endlessly ten years away from being viable. Now, it’s being adopted for all kinds of purposes, especially in medicine. Ten years ago, dentists were giving patients a temporary tooth for a couple of weeks while a crown was made from an impression of the tooth. The last time I went to the dentist, he took measurements and told me to hang out for an hour while the office printed my crown. Hearing aids are 3D printed now, too; so are a lot of prostheses. Sophisticated industrial products, including structurally critical parts for jets, are 3D printed out of metal. As the cost continues to go down, I expect that 3D printing will be a growing part of local autonomous manufacturing. That will change the transportation industry, the global supply chain, and the entire geopolitical balance. Currently, the global economy is still based on an outdated model of sourcing cheap labor overseas, especially from China, and then paying a high price to get it transported to the consumer. For example, the goods travel on a plane or ship from Shanghai to Los Angeles, and then the dray containers go by rail to Chicago, where they’re put on a truck and driven to a warehouse in Kansas City. Eventually, the product is trucked the “last mile” to a consumer’s home or to a retail or manufacturing location. It’s a complex and expensive process, and there are plenty of opportunities for disruptions. This became painfully obvious to everyone during the COVID-19 pandemic.
3D printing can reduce the complexity, time, and cost of supply chains and de-risk links in the process. For example, certain goods could be manufactured in your basement or at the local Costco. Many low-cost items that are currently imported could be made domestically, with the digital specifications transmitted rather than the goods themselves. In this scenario, logistics will evolve into more of an information industry instead of bricks and mortar. Geopolitically, this nolabor, low-transport production model will weaken China, because the demand for cheap labor will begin to evaporate. The second trend that could impact supply chains in the long term is electric vehicles, or EVs. A major truck manufacturer asked XPO to test its EV trucks, and it turns out our drivers love them. They’re quiet, safe, clean-running, and powerful. But they currently cost about three times the price of diesel trucks. They’re not going to be competitive without huge government subsidies. But with the U.S. currently in debt by tens of trillions of dollars, and Europe as a whole not far behind, it’s difficult to see where that money would come from. Regarding EVs overall (consumer and commercial vehicles), I still don’t understand whether EVs are good or bad for the environment. Buying an electric vehicle is emotionally satisfying, but there are some significant downsides. As more EVs are put into use, they’ll require a lot more electricity, including electricity produced by coal- and natural gas-fired power plants that emit high levels of pollutants. And currently, the old batteries are ending up in landfills, where they don’t biodegrade.
The biggest trend in logistics, which touches the entire economy, is that the industry will become increasingly automated. Shippers already communicate with carriers electronically, and soon there will be no human intervention. AI-driven software already dominates route-planning, and that tech will only become more nimble over time. 3D printers will fulfill digital orders through on-demand manufacturing. Autonomous vehicles will move the majority of transported goods. And no doubt many other technological changes will make supply chains more efficient.
Soon after selling United Waste Systems, I started the process of researching new opportunities, and that’s when I met Dan Tully, who was chairman and CEO of Merrill Lynch at the time. I liked Dan a lot; he was outgoing and good-natured, and he lived not far from me in Connecticut. I told him I was looking to roll up another industry, and he kindly set up half-day meetings for me with nine different groups of bankers and analysts at Merrill Lynch. I was discussing the construction industry with one of the analysts when he asked me what I thought about going into construction equipment rental. I hadn’t heard of it, but I kept an open mind. It turned out to be exactly what it sounds like: Companies buy machines like boom lifts and backhoes and rent them out to contractors who need the equipment but don’t need to own it. My team and I moved fast to scrutinize the industry before concluding the big trend was the most exciting we’d come across so far. The addressable market had only 15 percent rental penetration, which didn’t make any commercial sense. A lot of the equipment in the remaining 85 percent was sitting idle on worksites getting rusty and dusty. We could capitalize on that disconnect.
In addition, the equipment rental industry was growing organically; had only one national provider, a subsidiary of Hertz; and offered thousands of potential acquisitions, without widespread computerization or standardization. It was a big, juicy opportunity, and only a matter of time before economist Adam Smith’s “invisible hand of capitalism” swooped in. United Rentals was born. Equipment rental is a service business: A rental company’s credibility is tied to how reliably it can meet its commitments to customers. I was certain that data science was the answer to market penetration—it would enable us to manage pricing and asset utilization efficiently across the many hundreds of locations we intended to acquire. We hired expert salespeople who knew everything about construction equipment, created standardized training programs across our network, and started building brand equity with superior service. Now was the time to move decisively on technology. While the rental industry overall was slow to computerize, the larger regional players were more tech-savvy. By 1997, nearly all of them, including Hertz, were running on software developed by a company called Wynne Systems. This told me that the software was capable of managing hundreds of thousands of pieces of equipment flowing on and off jobsites. I bought Wynne.
Owning Wynne accomplished two things. We had an industry-best platform that we could continue to develop internally for our own use, and the acquisition gave us access to aggregated, anonymized data on macro-trends across the industry. This gave us a high-level view of emerging market trends, such as equipment gluts or shortages in the making. We could proactively adjust our pricing and asset management, while the rest of the industry was being reactive. For example, if our data flagged an instance of too much equipment of a certain type in the Southeast, we’d lower the rental rate there and target customers who wanted the machine for several months, rather than just days or weeks. In other words, we were able to manage our rental rates efficiently based on equipment utilization to get the best return.
WHEN IT COMES TO making a few billion dollars, I’ve got a bias toward industries that are ripe for consolidation. Acquisitions are the best way I know of to scale up fast and gain the advantages that come from a large number of locations and greater market share. With scale, I can professionalize the operations by integrating best practices, spread my cost base over a larger revenue base, and attract desirable customers and management talent. Even though the companies I’ve built had different business models in unrelated industries, each one felt comfortable to me because the opportunity was similar: “obscene profits.”
I like big industries because even a small chunk of a huge, growing industry is still big.
Scalability is one of the first things I study in a business plan.
The easiest way I know to create tremendous shareholder value is to buy businesses at profit multiples lower than the multiple our stock trades at, and then significantly improve those businesses.
I started United Waste Systems with my own money, followed by outside capital from placements with friends and family about a year later. I ran the company privately until 1992, when our IPO launched with the two leading banks in the waste management sector at the time: Paine Webber and Alex Brown. The public capital markets were a whole new world to me, and it allowed me to go full throttle on acquisitions, beyond the initial deals we’d completed. The timing could not have been better. Environmental regulations were forcing municipal dumps to transform into state-of-the-art landfills, and the new bond requirements alone cost millions of dollars. A lot of small landfill owners were eager to sell out and let us shoulder the capital investments. There was also an opportunity to integrate vertically with trash collection companies strapped by rising disposal fees. Our M&A game plan from the start was to avoid going head-to-head with the largest waste management companies. Instead, we went into tertiary markets like rural Mississippi and the Upper Peninsula of Michigan, places that the big incumbents overlooked, where we could be a big fish in a small pond. We rolled up landfills, then bought the collection companies that were hauling waste to those sites. In short order, we had geographic density and economies of scale. Eight years in, we sold United Waste for $2.5 billion. I loved making “obscene profits” for the shareholders of United Waste, and again with United Rentals, and again with XPO. It meant that my team and I were doing our jobs in creating the most value for the investors who trusted us with their money.
A good M&A deal should drive stockholder appreciation over the next five or ten years. Here’s how my team runs the numbers to look at a potential return, calculated on the most recent available earnings of the acquisition target. We use ten years of earnings at zero growth as a baseline. From there, we make assumptions about what kind of organic revenue growth rate we can achieve in the business over ten years, and what kind of margin we can realize. We also estimate how much annual and cumulative cash flow the operation will generate or consume over ten years. For us, these projections need to be substantially higher than what the target is generating now, either because of the synergies inherent in being part of our larger company, or because we’re more accomplished operators, or both. There’s no such thing as a sweet deal without a clear path to significant growth.
When I look at companies to buy, I soak up every piece of information I can find. The more data from a variety of legitimate sources, the better.
We also stress-test every element of our projections, including the underlying assumptions. How likely are we to hit the base-case projected numbers? What is the upside scenario? The downside scenario? I’ll only do deals where the downside scenario is still good for the company, the base case is excellent, and the upside case is off the charts. And I’m not willing to accept any significant chance that an acquisition won’t hit at least its base-case projections. If our analysis shows more risk than that, I’ll move on. So, why do most companies fail at M&A deals, sometimes spectacularly? And why do most board members who see acquisitions as an easy road to value creation end up regretting signing off on these transactions? Experience is a big factor. Until you gain enough experience to mitigate M&A risk yourself, you’ll want to weigh the pros and cons of using a management consultant. As a general rule, I only hire consultants for M&A when the value I expect them to add is at least ten times their fee. I can control this to a large degree by utilizing their resources in high-impact areas, like salesforce effectiveness, procurement, SG&A rationalization, and pricing. Consultants can also add value by analyzing large amounts of data or lending people to help with the workload. Their support lets our acquisition team move more quickly when multiple opportunities are under review.
I’ve been asked how we avoid getting bogged down in data murk when analyzing a target, particularly when it’s a large, complex acquisition. It helps to be clear up front about what the rationale is for buying the business, and then focus on whether that holds up during analysis. In its most fundamental form, the rationale for any acquisition should be, “How will doing this deal contribute to the two main drivers of shareholder value, which are pleasing customers and propelling financial results?” Put another way, “How will doing this deal convince more customers to wire money from their bank account to ours?”
If customers see immense value in doing business with your company, they’ll happily wire money from their bank accounts to yours.
Some companies struggle to clarify this basic rationale for allocating M&A capital. There are ways to start getting a handle on it before you even run the math—including common-sense conversations with your team. For example, in advance of doing a deal, I like to ask my key salespeople how they think our existing customers will react if they hear we bought Company X. Will they be happy because it adds value to what we offer? Or will they see little or no benefit to them, and worry that we’ll be distracted?
For me, the decision is unequivocal: If an acquisition doesn’t create shareholder value by producing a high return on invested capital, if it doesn’t help us thrill our customers, or differentiate our offering, or fill a strategic gap, then it will just make us bigger, not better. All of these expected payoffs must be present in the rationale for choosing a particular prospect to begin with. In fact, at XPO, we feel so passionately about driving better results that, for a few years, our tagline was Results Matter.
Bigger is better in business most of the time, but not always. Understand the pros and cons of size. Some service industries are better off local.
A final comment on M&A risk: Be sure to cover your flank, whether you’re buying or selling. It’s the stuff that comes out of left field that can take a deal down. In 2007, I sold United Rentals to the private equity firm Cerberus for what I considered to be an attractive deal: $7 billion, including the assumption of $2.6 billion in debt. Highly satisfied, I stepped down as chairman and wandered off to my private investment firm to begin planning my next venture. Then, the Great Financial Crisis arrived. Private equity firms began welching on deals, and Cerberus led the pack by defaulting on the United Rentals agreement on November 14, 2007. Our stock plunged 31 percent in 24 hours, and the perfect storm raged on for a while, fueled by uncertainty about what our plan would look like going forward. Over the course of the following year, the stock fell to $5. We collected a $100 million breakup fee from Cerberus, decided not to seek another buyer, and eventually got things righted. Today the stock trades at well over $350 a share.
Speed has been one of our sharpest edges in winning competitive deals. We can typically cut the due diligence and negotiation period from two or three months to a matter of weeks. To achieve this, we do a lot of research before we make our initial contact with the target business. As a result, our first or second meeting with a seller often goes something like this: “This is what we’re prepared to pay for your business, on these terms. If this is acceptable, we can be signing a definitive agreement in two weeks.” That’s going to get their attention. When I created XPO in 2011, we did “only” 17 acquisitions in the first four years, but we looked at about 2,000 prospects. We passed on abysmal deals, as well as on “okay, but not great” deals, and sometimes that meant waiting when we would have preferred to be signing. The deals I’ve avoided have contributed more to my success than the deals I’ve done. When we buy a business, we expect to own it for a long time, so we search for hidden flaws that may surface down the road and cause harm. I like acquisitions where the primary risk in each case is operational execution. I have faith in my team’s ability to fix most flawed operations, because I’ve recruited the best possible operating talent for my companies. The most effective way to understand not just the company but also their operating environment is by working as hard as the most diligent junior analyst at an investment fund—do disciplined, meticulous, bottom-up analysis. I want to be confident I understand the target’s strengths and weaknesses. We’ve created a systematic evaluation process that lets us move quickly, with less risk. And while there’s no one-speed-fits-all in M&A, faster is almost always better.
Here are some of the specific questions my team and I answer as thoroughly as possible before we contact a prospective seller: What will be the big drivers of profitable growth in this business over the next five to ten years? What do we have to believe in order to be confident we’re going to achieve that growth? Are the assumptions underlying these beliefs reasonable or easily derailed? Are there big hockey sticks to the growth of revenue and margin without credible explanations for them? Can we accelerate scale more rapidly and at a much lower cost base by deploying AI, automation, or robotics? What are the synergies we can expect from the integration? If the operational execution isn’t up to par, is this something we have the capability to rectify through training and/or our technology? What are the redundant positions, overhead, and real estate costs? What procurement savings can we realize from the added scale? Is there an opportunity for cross-selling to the rest of our company? What’s the level of morale in the organization? Are the right people in place, with an effective organizational chart? Where might they be overstaffed or understaffed? Is the salesforce top-notch, or is there an opportunity to train them to be more effective? The same question holds for the human resources and financial planning and analysis staff. Are the compensation plans properly structured to motivate people to contribute to the business plan, or is that another opportunity to improve? And externally, how do customers regard this business? Is pricing too high or too low to be optimal for the market? Are there any trends in government regulations or political policies that could help or hurt the business? Questions like these apply to almost every potential acquisition and help to keep the process on track. My team is both thorough and fast during the evaluation phase—telegraphing the seriousness of our intent.
You’ll find it’s much easier to succeed at M&A if your acquisition process is aligned with your business plan and your high-level strategy for creating value. With United Rentals, for example, I could clearly envision what companies I wanted to buy and why—the list was right there, hundreds of small companies doing the things we intended to do on a grand scale. I also knew what I would do with them once I bought them. I could see the synergy of managing hundreds of these branches as geographic groups on a single technology platform, consolidating the shared services functions, rationalizing SG&A costs, sharing equipment among branches to improve utilization, implementing a more professional approach to pricing, and, above all, serving customers better and using that loyalty to continue to drive revenue. In addition, I knew that I’d be able to relate to the people I’d be negotiating with in these deals, because rental business owners on the whole are entrepreneurial, and so am I. The tenor of negotiations has a major influence on controlling the transactional outcomes. With the United Rentals acquisitions, I knew that a compatible mindset across the negotiating table gave me a high chance of success. Another tenet of my M&A philosophy—and one that I’ve impressed on my teams—is the importance of removing every trace of vanity from the process. I’ve never done an acquisition, even a small one, merely to boost my company’s image or get coverage in the financial press. I can’t think of anything less appealing than expending capital, taking on cost, and disrupting operations for no compelling advantage to my shareholders and customers.
I’ve also never knowingly done a deal that was dilutive to my company’s earnings. There were four or five times where an acquisition didn’t go according to plan and ended up being dilutive. But I’d estimate that 99 percent of the time our deals were accretive and had nice synergies to them. If you can’t nail down the benefits of acquiring Company X today, then you can’t envision how that dovetails with the big trends going forward, and the deal is too aspirational to be worth doing. “Going forward” is more important than “today” in terms of value creation—you don’t want to buy something right before it falls off a cliff. Consider Time Warner, which famously paid over $183 billion for AOL in 2000 to get into the dial-up internet business, just as that big trend was beginning to die. Lastly, before I finalize an acquisition, my team puts together an integration playbook that’s a combination of “math and music”—hundreds of prescribed action points, but with room to be creative in response to the human part of the integration. Well in advance of closing, we’ve visualized every aspect of the process that will harmonize the acquired operation within our company. Every integration is an abstraction until you make it a reality, and there’s a great deal of satisfaction to be found in seeing that outcome come to fruition.
A psychologist in my extended family once told me there are two times when an otherwise perfectly sane individual is vulnerable to becoming temporarily insane. One is when their spouse tells them they want a divorce, and the other is when their employer tells them they’re fired. I would add a third category, which is when people are selling their companies. Sellers are usually under a lot of stress and not at their best. With the first hundred or so M&A deals I did, I wasted a lot of time trying not to seem overly eager as a buyer. I sometimes went so far as to not return a seller’s phone call to maintain an aloof posturing. Wrong! By foolishly playing hard to get, I ended up causing anxiety, even mistrust, with some sellers. I learned that the last thing I want to do is anger a seller to the point where it permanently kills the deal. I can picture some of those early sellers saying, “Dammit! I’ll sell my business to anyone except Brad.” Once I understood that most private sellers are understandably concerned about their legacies, it became easier to put myself in their shoes: Will we, the buyer, retain their employees and treat them well? How will we treat their customers and vendors, some of whom have become their friends? How will its sale affect the communities they serve? When it’s a public company, the board has a fiduciary duty to maximize the price and legally shouldn’t take social issues like this into consideration, but in my experience, they often do. And if the board doesn’t, management does. So, one way or another, emotional and psychological elements can represent big stumbling blocks to closing a deal, and they tend to rear up between the time a business owner decides to sell and the signing.
I wasted a lot of time early in my M&A career because I thought I could pay less by playing hard to get. I learned it’s better to let sellers know how excited I am to do a deal and the price and terms that work for me.
I find that the more I communicate with the seller in a genuine manner, the more I can ease the tension. For example, if I admire what they’ve done with the business, I’ll tell them that. If I’m eager to buy it, and not just on the fence, I’ll tell them that, too. It also helps to explain how the negotiation and post-sale processes will work. These statements can’t be false flattery—if I can’t say something authentic to the seller, I’ll stay quiet. That’s not the traditional advice people get from M&A advisors. They’ll tell you how important it is to maintain a poker face and not seem overeager, but I find that to be counterproductive. It’s a little like dating—if you want someone to marry you, why play it cool? Tell them how much you love them. That’s more likely to get a ring on their finger.
Always be 100 percent honest with sellers. Don’t play games.
Do everything you can to develop mutually respectful relationships with sellers. My wife has a saying she used a lot when our kids were growing up: Always be patient, pleasant, and polite. I think of her “3 Ps” frequently when I’m dealing with sellers—inevitably they lead to better dialogue, and dialogue leads to trust. Another thing that works well for my team and me is to figure out in advance what things are must-haves, like price and certain terms—then, during negotiations, we try to say yes to everything else the seller requests, as long as it’s legal. It doesn’t matter if something strikes us as off-market or just plain silly; it only matters what the seller thinks is important. It’s the big priorities we set, not the small stuff, that will determine whether we make it to the finish line. In the period between the handshake and the signing, we’re careful about what we promise and empathetic about any anxiety the seller is feeling. This is the period when all the cards have been played and the seller is sizing up our integrity. If we renege on a promise, all the work it took to get to that point may be for nothing. That’s why I don’t renegotiate a price once we have a handshake, except in the extremely rare circumstance when the seller has misrepresented something big. We also reach out to the high-caliber A-players in the prospect organization as soon as we’re permitted to do so and express our commitment to retaining them. I like to use Dick Houston for this—Dick was a 25-year investigator and polygraph examiner with the CIA. He’s been a friend of mine for many years, and he’s screened nearly every senior employee I’ve hired since I met him. He’s also been involved in most, maybe all, of the M&A deals I’ve done in the last decade and a half. At one point, when we were looking at buying a publicly traded freight transportation company, Dick pulled me aside after some of the due diligence meetings with management. He said there were neon-red flags all over their behavior when they talked about their accounting, so we didn’t do the deal. Later, the company ended up being charged with criminal accounting irregularities. We dodged a bullet there.
A fundamental mistake I made early in my M&A career was not attaching enough priority to understanding the culture of a prospective acquisition. It’s hard, if not impossible, to make wholesale changes to a business culture. The goal is to buy companies with cultures compatible with yours so that change can happen naturally, and for the benefit of everyone, as the integration proceeds. I want to draw an important distinction here—two cultures can be dissimilar and still be compatible. When XPO bought New Breed and Norbert Dentressangle, these companies had different cultures driving their success, but both cultures were compatible with our own. The combination of our organizations created a new and more dynamic culture at XPO. Cultural incompatibility can suck all the energy out of the integration process and generate push-back from employees for years. If you’re a fast-moving company and you buy a sleepy company, you might be able to get them pumped up over time, assuming you can figure out what made them snooze—but why invite that extra effort? Or if your culture is results-oriented with a high level of accountability, and you buy a company that stops answering emails at 4:59 p.m., it’s going to be an uneasy fit. Similarly, an operation with a dishonest culture won’t turn honest just because you give them a link to your code of business ethics.
One of the best uses of my time in the due diligence process is to do face-to-face talks with the top 15 or so people in the company we’re in the process of buying. I give these interviews an extra-high priority. They take about 90 minutes each, and I get the gist of what’s going on inside the company, the positive and the negative. I also get a sense of whether these are straightforward people I can trust. As a bonus, some of the information shared during these talks can help my team anticipate the improvement initiatives that will be needed for the integration playbook and start executing on them right away.
Mike Tyson gets credit for one of my favorite one-liners: “Everyone has a plan until they get punched in the face.” It’s as true of M&A as it is of boxing—particularly when it comes to integrations. Count on unexpected left hooks and be ready to take them in stride. United Rentals is a good example of an integration process that proved it could go round after round. In the three months after I founded the company, we acquired six equipment rental businesses to give our concept a physical presence. From there, we began to execute a methodical M&A strategy that integrated about 250 independent rental businesses into our branch network, including our landmark purchase of U.S. Rentals in 1998. U.S. Rentals was the second-biggest equipment rental provider, and the largest acquisition in the industry up to that point. That’s the part of United Rentals’ history people tend to remember: the roll-up. What’s less apparent is the hard work and the loads of humility it took behind the scenes to buy up businesses at speed and emerge as one cohesive company with a shared culture. My first piece of advice is simple—set your priorities up front and don’t stretch your team too thin, or your service levels could deteriorate in the business you bought, or your legacy business, or both. Competitors will try to poach customers and personnel when changes are underway, and any slipup leaves you vulnerable. My second piece of advice is even more simple: Celebrate with a high five and then get back to work. There’s a ton of stuff to do.
Cultural integration is the single most important thing to get right after the deal is signed. It’s the foremost reason why my companies have been able to do so many high-speed acquisitions without blowing up. We address it like this: First, we leverage the cultural intelligence we gathered during due diligence. This becomes the basis for our ability to communicate credibly with employees, customers, and other stakeholders. Second, we don’t come in with a heavy hand and an arrogant, my-way-or-the-highway attitude, causing the employees to feel disrespected. A lot of acquirers get an “F” for internal communications. That’s not our style. With every acquisition we undertake, we’re careful to be respectful toward our new team members through our words, our actions, and even how we think. This can’t be faked—people can tell if you’re giving them baloney. We cultivate a mindset of feeling grateful toward the people who sustained the company we just bought.
We’re extremely respectful to the people we onboard from a company we buy. We’re all on the same team.
And we don’t buy companies with the intention of upending their practices wholesale. This doesn’t mean we’re blindly loyal to everything we inherited with the acquisition. If an employee can’t meet the numbers required by our business plan, we have to let them go. The same goes for the inevitable organizational disruptions that are part of M&A. I don’t know of any way to unlock huge amounts of value without creating a lot of change, but most of it can be positive and all of it can be fair. From a cross-fertilization perspective, we look for ways to benefit from the qualities that make a deal attractive in the first place. We happily accept that our own culture is not and never will be perfectly formed, and we open our minds and ears and listen.
Operational integration is so close in importance to cultural integration that I hesitate to rank them. But they do need to be discussed separately. Operational integration depends on speed and standardization. The sooner we can bring an acquired business into our technology ecosystem, the better. We want one enterprise platform, one human resources system, one CRM (customer relationship management) database for salesforce management, one business intelligence database, one internal social media community, one KPI (key performance indicator) dashboard, one training curriculum, and one email system. In addition, every new employee gets our procedures and policies manual, including our code of business ethics. We place a priority on closing the acquisition books cleanly and standardizing the financial statements, monthly operating reviews, and budget so everyone is using the same format to present the numbers. We also move everyone to our incentive compensation plans and benefits programs. That way, we can benchmark people and locations, and instill accountability. Operational integration also applies to the brand. I like to update the branding of an acquisition as soon as possible after signing the deal so that we’re presenting a uniform image internally and to the world. For example, there’s nothing that looks more amateur than salespeople going to meetings with different business cards and without standardized job titles. We also set internal and vendor deployment schedules for rebranding the acquired operations with our company’s name and logo, including the installation of new signage. Ideally, a visitor to any one of our sites won’t be able to tell whether we opened that location from the ground up or we acquired it ten years ago, or one year ago. Those are the big, chunky objectives at the top of our integration list. From there, we move on to the rest of the operations, including shared services like IT, finance, accounting, sales, marketing, procurement, and HR. And we strive to do it all seamlessly, because we also acquired customers in the deal, and they’re watching us daily to see how we perform. We’ve never gone wrong by leading into an integration with the big, mission-critical parts of the operations. We don’t want to be operating two different businesses—we want clean numbers, fast data, and channels that allow us to share information consistently, to lever the high-caliber management team I’ve put in place.
A lot of mystique surrounds M&A integrations, but experience has taught me that it’s all quantifiable. When we acquire a company, the to-do list can stretch to hundreds or even thousands of tasks needed to make the integration work. My strong preference is to assign these tasks to individuals, not working groups. If we have one person owning each task and being accountable for achieving it on time, we’re more likely to succeed than if the task is owned by a group. I also establish a regular cadence for monitoring progress throughout the integration, typically daily or weekly, or less frequently for tasks that take time to implement. With the cadence set, there’s less confusion about progress against the plan, or who has the wheel on a given task. Every time we do an integration, we’re updating our playbook with new ways to become more efficient in preparation for the next deal. It gives us the benefit of organic continuous improvement, bringing us closer to where we can “wash, rinse, repeat.” Our United Rentals integrations were far easier than the ones for United Waste, and XPO integrations were easier still. This is partly because we’re careful not to repeat the mistakes of earlier efforts, and partly because advances in technology have made integrations easier. But mostly it’s because we’ve lived and learned and been there and done that.
Often, when we buy a company, we discover that the frontline employees, middle managers, even some senior executives have never been asked, “What would you do to improve the company?” You’d think owners would want to know that! We do just the opposite through multiple feedback loops: surveys, town halls, one-on-one interviews, group meetings, internal social media—whatever best fits the size of the acquired employee base and the time frame. Asking for input is a way to show respect, and we find it pays dividends on both sides. If body language was audible, we’d hear the people at these gatherings saying, “Okay, they value me. I’m going to give it a shot. I want to be part of this, because it sounds like there’s some real momentum here and this could be a good company to work for.” They may still reserve judgment, but we’ve helped to dispel the insecurity employees naturally feel when their company is acquired.
A lot of employees who join us through M&A have never been asked, “What do you think the business could be doing better?” Ask them!
Feedback loops are also powerful tools for cultural integration. They give us an opportunity to communicate in the clearest possible terms that we’re a results-focused company. Everyone is accountable; we all succeed or fail together. This sets us up to get buy-in from the new employees. Typically, we start with a series of questions that go to the heart of their own observations: “What’s the business doing well, that we’d be crazy to change? What’s the business doing not so well, that we’d be crazy not to change? What’s your best idea to improve the business? What’s something that could be made more profitable? Or more customer-friendly? Or improve the workplace environment?”
We never shoot from the hip with big changes when we integrate an acquisition. We listen intently to our new employees about what’s working well and what needs improvement.
We get an avalanche of responses every time we do this at the start of an integration, and we document it and discuss it at length as a senior leadership team. We make sure everybody knows this isn’t a one-and-done HR/PR stunt. Feedback loops can unleash an outpouring of ideas about how to improve the company, generated within its beating heart. Another important benefit of early feedback loops is that they give us a good look at the talent pool injected into our organization by the deal. Sometimes, the talent is the major coup of the acquisition.
It’s important to keep the key talent in an acquisition. Also, be bold about identifying people who aren’t moving the company forward and offer them a generous exit package.
People get nervous when their employer changes because they don’t know what to expect from this company they’ve suddenly joined. It’s essential that we don’t say or do anything that prevents us from building strong relationships, because the integration can’t succeed without trust. After we buy a business, its people are watching us closely to size us up. Are we honest? Are we for real? Can they trust us? Do we care about them? Are we competent? Are we winners? Do we know how to run their kind of business? Do we want them to succeed? Do we understand why each person is valuable to our business plan? What is the new CEO like? Based on first impressions, many of these employees will already be deciding whether they want to hitch their wagon to our star or find a new job. It’s critically important that we get the messaging exactly right. I address this by being straightforward in my communications. At some point in the integration process, I tell new team members, “I’m only going to make one promise to you, and I promise this 100 percent: Despite trying my best, I’m going to mess up some things. So, give me a break, please, and give me some time to get it right. Also, feel free to tell me when I’m messing stuff up, and I’ll listen to you. We’re all on the same team now. And if we work together constructively on the basis of mutual trust, we can create something magnificent.” Note that I don’t promise to take every piece of advice people give me. My promise is simpler and, I think, more meaningful: “I’m going to take what you tell me seriously. I’m going to think hard about it. I’m going to share it with the rest of the team.” That shows a genuine commitment without overpromising, and it’s something I look forward to delivering. Some crowdsourced ideas will make it to the finish line and some won’t. When I float a question like, “What do you think about our pricing?” to a group of employees, I always get competing answers—raise pricing, lower pricing, pricing is just fine the way it is. Everyone has a perspective, often driven by how change or inertia serves their needs for volume, revenue, margin, and so on. That’s another reason why I don’t promise to take everyone’s advice; it leads to nothing but quicksand.
Lastly, before you commit to doing high-level M&A, think about what it will require of you on a personal level to do rapid-fire operational, corporate, and cultural integrations, and get them done as efficiently and humanely as possible. Between 2014 and 2015, I signed agreements for XPO’s three largest acquisitions, and we put more than $7 billion of M&A capital on the line in the span of 13 months. All three acquisitions were foundational building blocks for XPO services: Norbert Dentressangle in Europe, and New Breed and Con-way in North America. We completed those three deals in rapid succession, and the integration process for each business started the next day after closing. By late 2015, we were intentionally managing all three integrations in harmony. Our thought process was that we didn’t want to do the integrations sequentially, because that would mean continually doing, and then undoing, things like shared services, IT systems, and branding. Instead, we managed the integrations simultaneously. It was an intense, expansive, multinational process, and we came out of it with one cohesive company and a single organization chart that combined our management and operating structures. I averaged 14-hour workdays during that period, and for the entirety of the process, my company knew we couldn’t take our eyes off customer service, sales, IT, and all the day-to-day initiatives that create shareholder value. For those of us in senior management, the triple tracks of strategic execution, M&A integration, and daily operations were all-consuming, and also exhilarating. The three acquisitions have delivered stellar results. New Breed, which we regarded as the best-run contract logistics company in the world, became a cornerstone for our successful GXO spin-off. Con-way was a smashing success: We nearly tripled the EBITDA of its less-than-truckload business from 2015 to 2022, and generated about $4 billion of net cash from the operations over the same period. Norbert became our European platform, and we doubled its profit in three years. Later, we undertook another big endeavor with the launch of our two spin-offs, GXO and RXO. This was made more challenging by the macro instability caused by COVID-19, which called for constant agility on our part. I’m proud that we accomplished a landmark event in American public-company history: two successive spin-offs—a $7 billion business and a $5 billion business—in the span of about 15 months. It required enormous grit from the team, and an astounding brain trust of collective wisdom. I’m sharing these experiences because they exemplify the intense work ethic we instilled at the heart of XPO’s culture in the company’s first decade. Josephine Berisha, our chief human resources officer at the time of the two spin-offs, slept just a few hours a night during the most demanding stretches, and told me she still thoroughly enjoyed the ride. This is the kind of culture you need to achieve big things. The takeaway? If you plan to make a few billion dollars, you’ll likely find that sleep is overrated—and that it’s actually more fun to be awake.
WHEN I HIRE KEY PEOPLE, I’m trying to achieve a two-part goal: accomplish big things and have fun doing it. There’s nothing contradictory about this when you have the right people in place—and if you can do it at scale, you’ll have an organization that can pursue big goals. CEOs tend to get credit for the accomplishments of the teams they lead, but in reality, the most important thing a CEO does is recruit superlative people who have a combination of impressive traits. Talent is a must of course, but it’s equally important to hire quality people who are capable of constructive interactions with others.
Good is usually good enough. But if you’re going to break that rule for one thing in business, break it for people. Make your hiring choices as perfect as they can be because there are few mistakes costlier than hiring the wrong person.
Hiring the wrong person is expensive on every front: money, time, energy, and the well-being of your employees. Even if you hire the right people 90 percent of the time, one in ten people is too much misalignment—especially at the senior level—and it can be disastrous. My companies interview management candidates with more-than-typical rigor as a matter of policy. A prospective executive will go through seven or eight interviews, sometimes more, before joining the team. We’ll take all the time we need to find the right person, and we’ll leave a position open rather than hire someone we’re unsure about. An empty seat is less damaging than a poor fit. When I was running XPO, I interviewed every one of the people who worked at our Greenwich, Connecticut, headquarters, from the front desk to the C-suite. I wanted to know what it felt like to be in the same office with someone who might be working with me for years to come. I didn’t vet these candidates for their job skills; I was interested in whether the candidate was someone who could connect with me and with our team. I still do these one-on-one interviews with key hires in my role as executive chairman. When I’m sitting across from a candidate, I’m actively monitoring my thoughts and feelings: Do I feel relaxed and strong in this person’s presence? Am I inspired by them? On a more procedural level, we ask each candidate to complete a form with 45 questions before being interviewed. The answers give us a lot of basic information up front so that we can devote more of the interview to getting to know the person behind the resume.
For example, three of the 45 questions are as follows:
What quality do you admire most in people? What do your subordinates think are your weaknesses? What have been one or two of the happiest moments of your professional life?
There’s a certain subjectivity involved in getting to know a candidate, and it’s important for everyone involved to guard against personal biases. I rely on trusted colleagues to interview the candidate and share their honest assessment of the person’s qualifications and cultural compatibility. When we meet to discuss whether to go ahead with the hire, I expect my team to respectfully disagree with me and with one another if they hold different views. By working collaboratively, we maintain a strong filter for who’s allowed into the organization.
While there’s little about these three leaders that seems to connect them on the surface, they’re nearly identical in possessing the four qualities I seek in every hire: intelligence, hunger, integrity, and collegiality. If a candidate is deficient in any one of these four, that’s a risk I don’t take. If I find someone who scores high in all four qualities, and has the skills for the role, I snap them up.
Screening for superior intelligence eliminates 90 percent of all candidates, so it’s the first thing I look at. Intelligence is a must-have for me, especially as I operate in industries that are multidimensional and evolving. There’s just no substitute for smarts.
On one hand, I want go-getters with big egos on my team—self-confident winners who are out to conquer the market and make a bundle. At the same time, they need to genuinely respect others. Even a hint of arrogance can be a red flag. To guard against it, I ask myself two questions when assessing a candidate in my one-on-one interviews. First, “Can this person think dialectically?” That is, are they capable of thinking from multiple perspectives, and reconciling streams of information that seem to flow in different directions? And second, “Are they capable of changing their opinion?” Rigid thinkers, at any level of intelligence, are less valuable to the team because they’re mired in their own points of view.
The second quality I seek in every candidate is hunger. Hungry people have tenacity and want to work hard. They get motivated by big projects and work nights and weekends, whatever it takes to succeed. They’re resilient and don’t give up when problems emerge. Hunger is a vital trait, and I expect it from everyone I hire. Also, I only hire people who are motivated to make a lot of money. CEOs can give their employees experience and advice, but you can’t pay the mortgage with advice. Compensation is the most effective tool I have to motivate employees. If a candidate says to me, “I’m not motivated by money,” I suspect either they’re not being candid or they lack the hunger that’s necessary to succeed in what is, after all, a profit-driven enterprise.
The success of any company depends on its people fulfilling their obligations. Everyone must do what they say they’ll do. It’s management’s job to provide oversight by setting the strategic direction and removing any roadblocks, but the whole machine works better when the culture is defined by teamwork, and that takes trust. Apart from the obvious benefits of integrity, hiring trustworthy people makes it easier for others around them to focus on their jobs. It only takes one integrity-impaired person to disrupt a workplace, so it’s far more efficient to filter that person out in the hiring process. Otherwise, the other employees will be wasting time looking over their shoulders to protect themselves, the company, or its customers from their unscrupulous colleague.
I’ve learned three important lessons about integrity over the course of my career. First, if someone’s willing to lie about small things, they’re usually willing to lie about big things. It’s a lot of work to communicate with someone you don’t trust to speak truthfully, where you have to constantly wonder whether they’re lying, and why. And more critically, trustworthy employees are leadership’s eyes and ears in business operations. Dishonest employees blind management to the reality of what’s going on. The second thing I’ve learned is that, sooner or later, liars get caught. That’s why I believe honest people are more successful in the long term than dishonest people. I’m chasing success on a massive scale, so I can’t afford to have liars on the team. They pose an existential threat to the entire company, and the team can sense that, even if they don’t know anything specific. Honest employees make it easier for everyone to relax. And third, honest people don’t have to tell you how honest they are. Instead, they show integrity through their actions. Most reputations for integrity come from the cumulative effect of someone doing what they say they’ll do, and being straightforward in how they speak. These are the kinds of cues we look for as someone moves through the hiring process.
My team and I spend a lot of time together, so it’s a big deal that we like one another. Work becomes more productive when it’s with people who bring up the vibe.
I don’t think cutthroat people help an organization in the long run. Collegial teammates are usually more successful than nasty ones.
Collegiality is partly good business, because I believe it’s essential to achieving big goals, and it’s partly selfish. I went to get a life insurance policy the other day, and the agent told me that, from an actuarial perspective, I probably have 20 years of life left—7,300 days. I assume the last 1,000 or 2,000 days might not be my healthiest, so I probably have only about 5,000 good days left. I don’t want to spend even one hour with people who are unkind.
Everyone who gets a job at XPO’s headquarters in Greenwich is vetted on the basis of objective competency and the four qualities I’ve just described: intelligence, hunger, integrity, and collegiality. The office is a creative nerve center, and a fun place to be—although not the kind of fun that inexperienced leaders use to distract their employees from the realities of hard work. There are no pool tables or bean bags or beer kegs. There’s a feeling of quiet intensity as people go about their work, and there’s also an emotional warmth. People admire and trust one another and enjoy spending time together. For the 12 years I was CEO, the Greenwich workplace typically scored between 9.0 and 9.5 on a ten-point scale of self-reported job satisfaction on XPO’s anonymous employee surveys.
When a company fails to pay attention to performance and attitude, good employees and mediocre employees may coexist for months or years without management taking action. This is a lose-lose situation that can stifle the good employee and hurt the organization, because a mediocre teammate can drag down team spirit. To make sure that doesn’t happen, my companies use three different techniques to evaluate talent and elevate the caliber of the organization. The first technique is a simple thought experiment I use to evaluate an employee. I imagine that person coming into my office and quitting without warning: “Hey, Brad. Don’t try to talk me out of this. I’ve already got another job in another city. We bought a house. So, I’m not here to negotiate a counteroffer. I’m here to talk about a transition plan and leave in a responsible way so everyone’s happy.” Just by imagining this scenario, I can immediately tell from my own inner response whether the person is an A, B, or C player. If my first thought is, “I was going to fire this person sooner or later anyway, so no big deal and now we won’t have to pay severance,” that’s a C player. If my reaction is, “I don’t like this, but I can live with it. The transition period might be a little bumpy, but we’ll run a search and find someone else, maybe even someone better,” we’re talking about a B player.
But if my reaction is an internal dialogue of panic along the lines of, “We’re so screwed! How did we get into this situation? There’s no way we’re going to find somebody as fantastic as this person!”—and I’m so freaked out I can’t even hear what else they’re saying—that’s an A player. In this case, the thought experiment serves as a wake-up call, and I’ll have HR check that person’s comp package and promotion timeline to make sure we’re doing everything we can to retain them before they ever think about leaving. Losing an A player is a cardinal sin. The second technique is the way we use this same coding system to distinguish between employees in our companywide organization as A, B, or C players. My goal is to have every position in the company filled by an A player. Inevitably, we’ll have some Bs, but we don’t want any Cs at all. We’re a C-free zone.
If you hire a B player, they’ll probably hire C players. Then you’ll have C players led by B players. Yikes.
Our HR team uses an objective coding system to categorize every manager-level employee and above as an A, B, or C. The management coding uses a comprehensive process that considers both performance and potential. In a results-oriented culture like XPO’s, if someone in management is hitting their numbers, they’re likely an A player or a B player, depending on how impressive their targets are. The third technique is a form of performance appraisal I like to do with my direct reports. It’s more of a relationship appraisal. We meet one-on-one and ask each other to rate the quality of our professional relationship on a scale of one to ten. Then, if it’s not a ten, there’s a follow-up question: “What would make our professional relationship a ten?” These two simple steps are likely to surface ways to easily improve the relationship.
An employee who consistently has performance issues is probably a C player, and their manager has a choice to make. Unless there’s an external factor over which the employee clearly has little control, the best advice I can offer is to graciously, immediately exit that person from the company. Otherwise, today’s bad results will likely be repeated over and over again in the future.
Act decisively but compassionately once it becomes evident that an employee isn’t a match for the company. This is a difficult moment for the employee being terminated. Show them kindness, regardless of the circumstances leading to their dismissal. Let them go with their head held high and don’t be cheap on severance. Don’t create a situation where, a decade from now, you still avoid them in the supermarket. I believe that the decision to fire someone must not be made lightly, but it also shouldn’t be reserved solely for the worst acts of misconduct. Management has a responsibility to identify employees who may not be causing any overt trouble, but who are weakening the enterprise with quiet, chronic underperformance. If they don’t make enough headway after a 60-day improvement plan, it’s time to let them go. That can be a hard lesson for the employee to learn, but it’s an experience they can leverage when they move on. The reality is that people change jobs every day, and while being terminated may sting in the short term, the traits that got that employee hired in the first place will lead them to a situation that’s hopefully a better fit.
The three companies I currently chair have a total of about 174,000 employees. Not a single one of them shows up to work because they want to make money for Brad Jacobs. They come because they want to make money for themselves and their families—to buy a house or put their kids through college, or fulfill an even bigger dream. I love that. The freedom to pursue dreams is a big part of what’s made the United States the most prosperous nation in the world for more than two centuries. It isn’t just an American desire, though—I do business in dozens of countries, and money animates people everywhere. That’s why I’ve “overpaid” almost every direct report I’ve ever had to ensure I had top-tier people in place. When I pay someone a big bonus or see the value of their equity keep rising, I have the satisfaction of knowing it’s a twofer, because I’ve been careful to align that person’s incentive structure with the company’s goals. The only way to earn windfall money in my companies is to make outsized contributions to value creation.
Most people aren’t making money for themselves—they’re making money for the people they love.
If you aim to make a few billion dollars, put together an amazingly talented management team and be prepared to pay them well. For example, a typical contract logistics warehouse can generate tens of millions of dollars in annual revenue, and the most important role in that operation is that of the warehouse manager. There might be 100 other people staffing the facility, and dozens of people higher than the warehouse manager on the company’s organizational chart. While everyone’s work certainly matters, it’s the quality of that one manager that has the strongest influence on how the warehouse will perform. It makes no financial sense to skimp on salary and incentives to save $100,000 a year, when hiring a second-best candidate may cost you millions of dollars in lost profit. Getting the compensation right means paying attention to every aspect of it—not just base pay, but also incentives. When I was leading United Rentals, the jewel in our acquisition crown was the purchase of U.S. Rentals from a wildly successful entrepreneur named Dick Colburn. He was a multibillionaire and musician who had been married ten times to nine wives. Despite his quirks, I regarded Dick as a brilliant businessperson, so I asked him the same things that many college students now ask me: “How did you make all that money? What are the actual steps to get to billions of dollars?” Dick felt strongly that success in business is mainly about compensating your people—namely, designing a profit-sharing formula that marries their personal interests with those of the company. I agree with Dick on this. One of the reasons XPO attracts world-class people is because we recruit from top-performing, high-paying enterprises like Alphabet, Amazon, and Goldman Sachs. This is a strategic decision I made as CEO—to pay like the big corporations and break out of the “penny wise and pound foolish” mentality that has kept the transportation industry at the lower end of the compensation scale. This has allowed XPO to compete at the highest level for talent.
I’m usually not in favor of putting a cap on incentive compensation. I want my people to feel encouraged to run as far and fast as they can. Caps can have the opposite effect—in many cases, a salesperson who hits their commission cap six or eight months into the year is only motivated to wait for the incentive to turn while they collect their base pay. But if they know their incentive comp is open-ended in correlation with their performance, they’ll find ways to keep signing profitable business. This ethos can be applied throughout the workforce, including hourly employees. At XPO, we try to keep base salaries within general industry parameters, but offer above-market levels of incentive compensation. RXO, which is nearing its first anniversary as a spin-off, has adopted a similar structure: RXO pays reasonable base salaries to its brokerage sales and carrier teams, and offers big incentive packages. I recently visited their headquarters in North Carolina, and the RXO teams work extremely hard. A strong work ethic, combined with the ability to earn a lot of money, is a powerful personal tailwind. In publicly traded companies, equity has an important part to play in total compensation. My companies offer above-market equity incentives because we want true believers—people who are aligned with our vision and share our drive to create shareholder value. Equity comes with a built-in incentive to stick around and help the company perform at its best.
Equity incentives are most effective when they reflect an employee’s value, which can change with vesting over time. I continually work with XPO’s human resources team to evaluate the vested and unvested stock holdings of the company’s top 200 employees. We review these values four or five times a year, and if someone’s holdings are insufficient relative to the value they’re adding to the company, we’ll give them a spot equity bonus. If a top performer’s stake is almost completely vested—meaning they’ve stayed with the company long enough for their equity compensation to become fully theirs—we typically give them more equity over an extended period of time to encourage retention. I also like to extend equity far deeper into the organizational chart than is typical in the business world. Many companies don’t start offering meaningful amounts of equity until employees have advanced to higher levels of leadership, but we want as many of our people as possible to feel that they’re part of something exciting. And that’s the bottom line of a compensation structure that aligns the interests of the people in your organization with the interests of your company and its shareholders. Employees are happier and have more reason to work hard. Managers are more motivated to devise creative solutions to challenges. The company is better positioned to make gains in operational excellence, market share, and profitability. All because you’ve committed resources to generate ongoing returns through compensation, one of the smartest investments you can make.
There are three ingredients for electric meetings: the right people, a crowdsourced agenda, and an atmosphere where everyone feels safe to respectfully disagree.
When it comes to deciding who should be at a meeting, one thing I do differently than most CEOs is invite a mix of people to the party. I want my senior leadership team to know what’s going on across the company, not just within their own jurisdictions. This gives them added context they can keep in mind, beyond their scope of responsibility. Instead of making decisions in a silo, they’re more likely to consider the impact on the broader organization. In addition, the productivity of the whole team is enriched when executives have visibility into what’s going on across the company. This goes to the shared mindset of a collaborative team: Be prepared to help solve a problem if you can, no matter where it sits in the business. At any given moment, the top few dozen or so people in my company know everything that’s going on, good and bad. I try to include the core C-suite group in our most important meetings, along with a handful of subject matter experts or rising stars—people who can add value and benefit from the exposure. I’ve found an inclusionary approach to be effective in defining challenges and brainstorming solutions.
In my companies, monthly and quarterly operating reviews—MORs and QORs—are the most important meetings on the agenda. MORs happen every 30 days or so; we discuss the results of the prior month and define the opportunities of the coming month. In addition, we hold a QOR every third month to discuss the prior quarter as a whole before publicly reporting our earnings. This meeting cadence is the backbone of how I run my businesses, and the main catalyst behind the value my teams have created. The concept of the MOR is that each unit of the company, such as a core service operation or a corporate function, gets their turn in the spotlight with a separate MOR that involves unit and corporate leadership, as well as other invitees. Unit leaders work with the financial planning and analysis team to produce the MOR slides, timed to be distributed to the group in advance of the meeting. The deck communicates the most relevant information—typically, concise financial and operational KPIs, customer and employee satisfaction scores, financial comparisons to the prior month/quarter and to the same period the prior year, and projections of future performance, with assumptions. I’ve seen a mountain of slide presentations from various sources in my career, and my teams produce some of the best slides in terms of communication. Nine times out of ten, that means less content per page—I can immediately understand the what, when, and why of each takeaway. This aligns with a key tenet of our communication style: Resist the urge to flood communications with nonessential information.
With the slide deck in hand, everyone who will attend the MOR is expected to read the presentation from cover to cover before the meeting and absorb it at their own pace and learning style. In 30 minutes of advance reading, most people are able to review what would take a couple of hours if it was being presented live to a bored audience.
As each attendee finishes reading the deck, they send me their top one or two most important takeaways and their top one or two questions. This is a form of crowdsourcing the agenda—one of the three pivotal ingredients of electric meetings. No one phones this part in; they’re expected to submit questions that are incisive and cut straight to the results they’ve just seen. Some of the questions that have come my way are as follows: Why is revenue with a top customer trending down, and what can we do to course-correct it? Why didn’t the IT team launch the tool they said would go live last week? How can we improve the forecasting process for seasonal demand?
MOR attendees tend to use their questions to zero in on problems, because solving problems is how a company creates shareholder value. But it could also be a question about leveraging success, such as: How did a strategic account manager turn around a customer relationship that was in the dumps, and can we replicate that in the future? Once all the questions and takeaways have been submitted, I have my team create a digital survey that lists them in random order. The lists are then sent to the meeting attendees, who rank each item on a scale from one to ten: one being “This isn’t worth discussing” and ten being “Discussing this should be the highest priority.” It’s a methodical process that guarantees everyone who walks into that meeting has had to have read the deck, thought through the takeaways, formulated their questions, and let us know how they rank the submissions from the group. We’re ready to jump immediately into a productive conversation.
We start the MOR by reading the takeaways that scored seven or higher on the survey. Then we dive into the questions, starting with the highest-ranked questions and moving through them as far as we can before time runs out. An assigned moderator ushers the group from question to question and manages the tempo in real time, deciding whether to pause on a certain topic for follow-up questions or move on. The tempo is largely governed by how productive each discussion is. The quality of the moderating is critical to the success of the meeting. With MORs and QORs, it frequently makes sense to have the unit leader act as moderator, but I also like to assign unexpected choices. Sometimes, for example, I’ve assigned someone from outside the unit to be a “surprise moderator,” tapping people who have a neutral point of view and don’t feel compelled to put a positive spin on things. I’ve also asked meeting attendees to step up and be moderators, choosing someone senior enough to be invited, but not so experienced that they’re an obvious choice to lead the meeting. I want that person to benefit from hands-on experience shepherding a group of executives with strong personalities.
There’s a method to my emphasis on spontaneity. I’ll do everything I can to avoid a situation where an attendee comes to an MOR with a script they’ve crafted, determined to present a curated narrative. Everyone at the meeting needs to know the real deal on the unit’s performance, and senior management needs an unobstructed view to meet our fiduciary obligation and create as much shareholder value as we responsibly can. Also, because people can sense when a narrative doesn’t ring true, I don’t want the meeting to be soured by suspicion that something’s not being said; put it all on the table, good and bad. I especially want to hear the bad stuff, because, many times, things that are going wrong can be turned into moneymaking opportunities. The operating review practice is also an important part of our succession planning strategy, and it reflects our preference to promote executive talent in-house whenever possible. These meetings build bench strength for succession by exposing executives to all parts of the company, and they give leadership a way to spot the rising stars in the organization and observe them in action. When opportunities for promotion open up, a track record of consistently adding value in operating reviews can tip the scales in an individual’s favor.
I’m impressed when someone shows they can run an amazing MOR early in their career, because not only have they gained that valuable experience, but it also tells me they can lead a team of intelligent, financially savvy executives who put a premium on their time.
High-powered people who know what they’re talking about tend to have strong opinions, and in a group setting, that can mean conflicting opinions. Rather than shy away from that, I believe conflicting opinions are the purpose of the meeting in the first place. I get nervous when I’m in a meeting where everyone is in unanimous agreement that things are copacetic. There are almost always alternative ways to look at the same set of facts, and if those differences aren’t emerging in a plainspoken discussion during the operating review, something may be wrong. When two individuals explore their differences together in constructive dialogue, it elevates the debate beyond speaking style to the gist—what is the value, what is the risk, what is the domino effect?—and the answers can lead to lots of money being made.
That’s why it’s important to push every attendee in a meeting to speak up. Listening is important, but someone who only listens is taking without giving, and doing a disservice to the group. In my operating reviews, the moderator will go around the room multiple times during the meeting and pose the same question to every participant. Technically, video meetings are well designed for Q&A because participants can type their answers into the group chat. By the end of the MOR, everyone in attendance should have a clear understanding of how their unit has performed relative to plan, what the opportunities for improvement are, and what the tactical steps are that can help the team achieve its targets. It warms my heart to hear things like, “We’ll put our heads together tomorrow and get to the bottom of it” as the meeting wraps. It tells me that real connections were made.
I run board meetings the same way I run corporate meetings: with an emphasis on collaboration and open communication. Our board members have a standing invitation to all operating reviews and can ask whatever questions they want. When they sit in on an MOR, they see a meeting that follows the same structure used with the board. It’s a formulaic approach designed to make the meetings anything but formulaic once the dialogue starts. My philosophy is to take every opportunity to engage with the independent members of the boards I chair, all of whom have impressive credentials in their areas of expertise. Not surprisingly, our directors respond with their own high level of engagement. For example, they log far more hours and provide far more service than most corporate board members do. Several of our directors have expressed their relief, and even their astonishment, that our interactions are so free of the constraints many of them experience on other public company boards. These activities build trust between the board and our executive team. Some corporations have rubber-stamp boards that don’t know much about what’s going on within the organization—they show up four times a year for choreographed meetings and then disappear. I view this as a missed opportunity. Why not make the most of having access to experienced, intelligent professionals? The final parallel between board meetings and operating review meetings is the importance of undistorted information, and the trust that engenders in the meeting participants. Directors don’t want to spend time trying to figure out what a company’s real story is or second-guessing what they’re hearing from management. My companies’ boards have been sophisticated enough to understand that the business world can be a crazy place, and they trust me to bring them any information they should know about.
The tenor and the structure of a well-run meeting are inseparable. The goal is an environment in which everyone can speak freely, but considerately. Side conversations, snarky comments, multitasking on phones—these are distractions that disrupt the vibe and cause participants to disengage. These four simple guidelines foster respectful communication in the meeting environment:
Turn off all devices. Only one person talks at a time. No side conversations. Give the speaker your full attention and keep an open, receptive mind. Disagree, but disagree respectfully.
At XPO, I worked with a fantastic chief customer officer with an ebullient personality. He loved people and people loved him. His charisma is part of why I put him in charge of our most important customer relationships. However, when it came to internal meetings, he couldn’t stop himself from engaging in side conversations. It was disruptive and unproductive, and eventually it forced my hand. I banned him from all operating reviews for a full year. That’s 12 rounds of meetings where he was in the awkward position of having to send representatives to sit in and brief him after the fact. Once he’d completed his exile, he became a model meeting attendee. It was a tough hammer to bring down on a member of the C-suite, but he accepted it with his characteristic charm and the rest of the team got the message: Follow the rules!
For a group discussion to be productive, the option to be wrong must be fair game, and so should the option to disagree. There needs to be friendly back-and-forth to get the dialectical process rolling. Disagreement makes many people uncomfortable, and criticism, even well-meaning criticism, can be incorrectly interpreted as a personal attack. The tenor of the meeting should discourage snark and encourage respectful critique. A solution that’s worked well for me is to pair correction with validation. It can be as simple as saying, “I see your point, but I think the projections might be off.” Or, “I agree with you directionally, but I want to make sure we’re working with the right assumptions.” People appreciate receiving validation, and it should be expressed first, before the correction. It lowers the temperature and makes the other person less defensive. I do the same thing on the occasions when I have to overrule the group’s consensus. I might say, “I get what everyone is saying.” Then I’ll list the main points underlying the group consensus, which shows I’ve listened, followed by, “But I’m coming out in a different place than the group.” I’ll explain what that place is and why I differ, and ask them to support me as I make the executive decision. I don’t need to do this frequently, because most of the time, I find that the group lands in the right place. And finally, I’m not apologetic about pulling rank. I’m using my position to lead the group to the best decision. As CEO, I have the widest view and the most access to information from the largest number of sources. I may know things of strategic import that the group doesn’t know, or have relevant experience from an earlier part of my career. Also—and this is important—I’m pulling rank only after I’ve listened carefully to everyone and considered their opinions. My seniority gives me not just the right but also the responsibility to exercise leadership in arriving at a different conclusion.
People want to be part of something big and exciting—and they want to know how they fit into it. Tell them!
I’m a big advocate of communication in all its forms. It makes it possible for me to convey my vision to employees in ways that can inspire them, like a rallying cry. I may send a communication to express gratitude, or share news, or request input. The message may be dense with data, or a simple, friendly touching base—but it’s never meaningless, because it’s a human-to-human connection. And in a large organization, that matters.
I don’t believe there’s such a thing as over-communicating. Every employee survey I’ve ever seen has indicated that employees want to hear more from management about what’s going on within the company. “Communication” perennially ranks high in XPO’s survey results—sometimes even outpolling compensation.
In my CEO roles, I engage as actively as I can through whatever channels I think will work best at the time: emails, social media, site visits, town halls, phone calls, and video chats. For example, at XPO, I would regularly have onscreen meetings with groups of frontline employees, like our LTL truck drivers. Another thing I try to do is keep a consistent cadence to the internal communications, to reinforce a spirit of openness. I believe most people care deeply about whether people are up front with them. A CEO who communicates once every week or two weeks and then goes silent is inviting speculation that the company is in some kind of a jam.
Every company faces challenges from time to time, and when that occurs, employees want leadership to be clear about what happened. I respect that, and if there’s a plan to resolve the issue, I’ll share it if I can. Some employees may decide they don’t like the plan, but they can see you’re not trying to hide things from them, and you have a better chance of getting their buy-in.
The board of directors is another key audience for internal communications. When I was in the CEO role at XPO, I’d remind my team that we work for the board, because the directors are fiduciaries for the shareholders, who own the business. The boards of each of my companies performed their duties well, and continue to do so under my successor CEOs, in part because information is shared so freely with them. The steady stream of emails our directors would receive from my office was just the beginning. We made sure the board had access to the company’s internal social media community, my Brad’s Club newsletter, and the most important operating and financial reports. We also shared meaningful data with the board on virtually every aspect of the company’s performance.
Being “all in” is energizing; it’s also highly contagious.
My communication strategy for board members is similar to the one I use for employees: connect as often as reasonably possible, with as much openness as possible. I view the board as my boss, so I speak to directors the way I require my employees speak to me—with 100 percent unvarnished honesty.
Another thing that sets my boards apart is that I give directors full access to the organization. A lot of companies don’t want their board members talking to executives, but I’ve taken the opposite approach. If a director wants to speak to someone, they pick up the phone and call them. There have been many times when this has proved mutually beneficial for our directors and managers. Attaining a forthright bond with the company’s directors may sound simple, but it requires a strong commitment to open communication that starts at the top and is supported by everyone who comes in contact with the board.
Most people, regardless of temperament or circumstances, appreciate receiving focused, positive attention from others. I try to honor this whenever I can. If I’m checking my phone during a conversation, I’m wasting the time of the person I’m speaking with, and my own time as well. But if I can be fully present and listening to that person, even for a minute or two, I can make a real connection. The ability to truly hear another person is a kind of superpower. I’ve taken many training courses on active listening and related skills, because I’m a big believer in its importance. Deep listening, for example, is when your complete attention is directed at another person. It involves non-judgmental concentration, a form of mindfulness. If this sounds like overcomplicating an everyday action, consider how we’ve all become accustomed to getting just a tiny fraction of another person’s attention. When we do get their complete attention, it’s a rarity, and we feel a profound connection with that person from deep within ourselves. From a practical standpoint in business, when I give someone my complete attention, it’s because I believe they have something time-sensitive or especially meaningful to tell me. The demands on my time can make it difficult to use face-to-face interactions for frequent communications, but that doesn’t mean I’m hard to reach. Each time I’ve served as CEO, for example, I’ve made sure employees knew that I wanted to hear from them. I shared my phone number and my email, and I invited them to tell me whatever they thought I should know. Opening up a listening channel at the top of the company can be a powerful way to signal that leadership values the free flow of ideas and information. But a word of caution—if you fail to give the inbound messages your attention, your credibility will take a bigger hit than if you hadn’t established the channel at all.
A company that listens to its employees creates a more connective culture, one in which information can flow unobstructed across the organization. This is a prerequisite to realizing synergies within the operations, particularly those that come with acquisitions, such as cross-fertilization of best practices and cross-selling. GXO is a good example of this. The contract logistics business has about 1,000 warehouses across 27 countries. Some of these facilities are among the best in the industry globally, in terms of productivity, efficiency, safety, and customer satisfaction. I want to listen to what the employees at those locations have to say—deeply listen to them—so that I can figure out what they’re doing that’s superior to the network overall. Then I want to apply those lessons to improving the rest of the organization. I could spend hundreds of thousands of consulting dollars to get to the same place, or I can devote my time and attention to figuring it out myself. Experience has taught me that employees usually have the answers and will share them with you—if they believe you’ll listen and be respectful.
People need to feel safe communicating tentative ideas that may be a little underbaked but contain important insights. This doesn’t mean everyone present has to blindly take each suggestion as gospel. People should feel free to not only share their ideas but also respectfully dissent when they disagree. Dissent in a group setting should preferably be backed up by evidence and sound reasoning. That’s part of the scientific method, and it helps to preserve one of the most important assets your company has: the collaborative environment that allows your team to capitalize on collective expertise. One way I condition managers to embrace open communication is to go around the room at the end of a meeting and ask each attendee to call out two statements made by others—one they agreed with, and one they disagreed with—and the reasons why they agree or disagree. By making disagreement a routine part of an open group exercise, it depersonalizes it in a constructive manner. That’s a specific example in a closed-meeting setting. To instill the same culture of candid communications companywide requires that processes for listening and feedback be embedded across the organization. I expect companywide feedback loops to garner a mix of input, not all of it positive, and that’s good—the last thing I want are communications that paint some kind of optimistic mirage, where the sun always shines and people tacitly agree to overlook problems. The cultures I’ve sought to create are capable of facing hard realities, assessing them honestly, and then triumphing over them.
We rolled out our own all-employee survey that asks straightforward questions. We just want to know if our employees are happy in their jobs, and how we can fix the situation for those who aren’t happy. Those are the first two questions. The final two are, “What’s your single best idea to improve our company?” and “What’s the stupidest thing we’re doing as a company?” This survey goes out every 90 days as an electronic transmission to every employee who has a corporate email address, as well as to frontline workers through an app.
The senior management team at XPO reads every response, usually tens of thousands of responses, within ten days. This is something I put in place while I was CEO. We also process the responses using word cloud analysis to detect macrotrends about how sentiment is changing in the company overall, or how certain ideas are clustering in different parts of the company. What’s more, XPO sends summaries of the survey findings to every employee in the company, favorable and unfavorable results alike. Nothing is held back. Most companies wouldn’t dream of making internal survey results available to the full workforce, at least not without a lot of pruning beforehand. But our attitude is that criticism from employees isn’t dirty laundry—it’s gold. When someone goes to the trouble of pointing out an imperfection, they’re providing a valuable insight into something that can be improved. Whether you decide that route is right for you or not, you’ll want to make that decision within the context of the culture you create. Many CEOs prefer not to be that open about their organization’s shortcomings. And it’s true that there are some risks. We’ve had several cases where employee feedback has found its way outside the company, creating misunderstandings among people who didn’t know the full story about something they read. My perspective is that if you’re confident in your leadership team and sincere about wanting to improve, the merits of this approach are far more compelling than the hazards.
XPO has established feedback loops with each enterprise customer and uses them proactively to stay on top of customer expectations. These are national companies with complex freight needs, and they appreciate the simplicity of connecting with XPO.
In order to make lots of money for our shareholders, we have to make our customers giddy with the quality of the service we provide.
In addition to the usual input, customer feedback loops can be used in creative ways. When I was CEO of United Rentals, we used the loops to collaborate with the customers and gather details about their equipment usage. We had the data on their rental history in our system, and we would work with them to audit the units of equipment they owned. When we found inefficiencies in their equipment utilization, we’d complete the feedback loop by communicating our perspective on the situation. In some cases, we would actually advise them to buy a machine rather than keep renting from us, because they needed it nine or ten months a year. In other cases, we could save them money by advising that they sell certain underutilized assets to get the depreciation off the books and rent from us for the few months a year they needed those machines. We were basically conducting free audits for our customers, using rich feedback loops to deepen relationships that could lead to more business later on. Eventually, United Rentals developed its Total Control® system to automate this analysis, but at the time, as far as I know, we were the only rental provider of any scale using feedback loops to consult with customers on their equipment inventories.
In some businesses, there’s a perceived conflict between quality and speed. A world-class organization figures out how to achieve both.