Transcript

How to build your company to last, w/Fiat's John Elkann

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Join us at masters of scale dot com slash apply twenty six. That's mastersofscom slash apply. Twenty six. One of the first things he made was a little wagon that he used to haul tool around in the workshop. That's Robert Passon.

The CO Radio Flyer. He's talking about his grandfather, Antonio Passim, who came from a long line of Italian cabinet makers. He started making little red wagons for his workshop in Chicago. Mostly just to cart around tools, but then he noticed. Those wagons were selling better than any of his other products.

Like any good entrepreneur. He pivoted. При сун he was out of the furniture business and in the wagon business. And that was really the birth of the iconic little red wagon. From these metal stamped wagons.

Antonia grew a family business that remains a heavyweight in toys a full century later. We had a year long celebration of the hundredth anniversary. The Capstone event was a big event that we had uh here in Chicago. We brought the world's largest wagon down to Michigan Avenue for a birthday celebration. The w world's largest wagon is an exact replica of the original little red wagon, but it's nine times the size. It weigh fifteen thousand pounds. Uh the wheels are eight feet in diameter. Radio Flyer's brand is so recognizable that the giant wagon stopped everyone on Michigan Avenue.

In their tracks. We had lots of you know busy commuters going to work. kind of heads down, looking at their phone and then suddenly they realize They were walking past the world's largest wagon and they looked up and smiled and started laughing and you know, taking pictures and texting it to their family and friends. So it was just a day of, you know, lots of smiles. The thing is

It wasn't always all smiles for Robert and his company. In fact, the very first year that Robert took the reins, he faced a company in crisis. The company had been doing well for 70 plus years, but a lot of things were changing, and we had to change too. And one of the crisis moments that happened in my first year was that competitors came out with plastic wagons. And we didn't really see it coming. Plastic wagons are an existential threat.

When your company makes wagons from wood and steel. Those materials were part of Radio Flyers heritage and identity. They had defined the company for decades. But time stops for no one, and it brings with it a never ending parade of new threats. Robert knew he would have to take a new look at his family's company.

You would have to distinguish between the essential elements that were truly core to the company's soul. And the traditions that were holding them back. And he would have to do this again and again. Because even the most successful companies face setbacks and stumbles as they inch their way towards a centennial celebration.

In studying with humility, these companies that have staying power. I believe this is the secret to longevity in business. You can skill a business. That last a century or more. But you have to learn to rise and fall.

And rise again. Forget being a unicorn. And learn to be a Phoenix. You gotta have incredible talent at every position.

There are fires burning when you're going out. Can you believe it? Such an idiot. And then you go back to this is totally gonna be amazing. There are so many easy ways. I have no idea what to do. Sorry, we made a mistake. But you have to time it right. Oops. It just seems absolutely nutball. Ten years later, I'm like, well, that's just how you do it. We haven't made just how you do it. This is masters of scale. I'm Reed Hoffman, co founder of LinkedIn, investor at Graylock.

And your host. And I believe you can scale a business that lasts a century or more, but you have to learn to rise and fall. And rise again. Forget being a unicorn. Learn to be a phoenix.

In my world. We talk a lot about unicorns, startups valued at one billion dollars or more. but there's another measure of exceptional greatness and rarity. A company. Let's call it a phoenix.

That last a hundred years or more. And to be that kind of company. You have to plan for the long term. You have to build resilience. Like a Phoenix, you'll inevitably soar upward and crash, and then reinvent yourself from your own burning ashes.

To be clear, Phoenix companies don't actually die, but they do suffer the inevitable slings and arrows of outrageous fortune. They last. because they demonstrate an extraordinary ability To bounce back. We don't talk about this much in Silicon Valley, where I've spent my career.

We tend to champion the pioneers, the inventors who build a crazy idea from scratch and create their own market as they scale wildly. You might hear founders say they want to build a brand with impact, a brand that endures. But most of them say that as they throw themselves off a cliff. and try to build an airplane on the way down. Planning for longevity. Just isn't the top priority when the ground is hurtling towards you.

In short That's the next game. Not the first game. And there are almost no founders in Silicon Valley. У хав ані релевинт експерс.

In the long game. I would argue Bill Gates is in that game right now. Along with Microsoft CEO Sacha Nandella. They're figuring out how you transition from a founder led company. To the leadership that will make Microsoft an enduring institution.

The most iconic companies in tech right now. They're all still founder led. Larry Page and Sergey Bryn are still leading Google. Jeff Bezos is still running Amazon. Mark Zuckerberg is still leading Facebook. We in tech are only just beginning to ask ourselves. How do you build a business that thrives for a century or more?

You have to go outside of Silicon Valley to answer that question. Which is why we started the episode with Radio Flyer in Chicago. But to really understand how companies last a hundred years or more, it helps to leave the US all together. So for this episode, I talked at length with John Elkin. John comes from a long line of Italian industrialists.

Who knew a thing or two about manufacturing. His great great grandfather, Giovanni Agneli, founded Fiat, the legendary Italian car company. in eighteen ninety nine. It was initially called a horseless carriage project. His grandfather Gianni later scaled the company until it single-handedly accounted for nearly 5% of Italy's GDP.

As the fourth generation leader John knows firsthand that Just how unlikely it is. For a company to survive and thrive for this long.

He shares some fascinating statistics about the rate of failure amongst companies as a whole. First of all, is if you look at The companies in the US. from the nineteen fifties which were listed It's really close to twenty nine thousand. Of those 29,000 companies, 78% today don't exist anymore.

Now half of those were merged and acquired. but the other half really just ended their existences. If you look at companies who have lasted more than a hundred years. It's forty five companies for one million.

And if you look at companies who've lasted two hundred years. It's one company out of a billion. So the likelihood of survival is really very very low. It gives you a new perspective on the word unicorn, right? And tech, that's what we call a startup valued at a billion dollars.

There are dozens of them right now, and I can name lots of them off the top of my head. But a company that lasts two hundred plus years. Now that's an almost mythical creature. Perhaps we should call these companies Phoenixes.

And to better understand the anomalous phenomena of this particular century old company, you have to follow winding path. to the executive suite. My family wanted me to study business. My grandfather and my uncle who was Eкономіx професор. and had been in the leading business core in Italy called Buconi.

And they were very much Trying to persuade me. Somehow I just felt engineering was harder. and that I'd rather do something harder and more complicated and more difficult. I always enjoyed like solving problems. I still do enjoy that. It's a good thing John likes solving problems. He was about to be handed one.

VI chairman. Invited John to sit on Fiat's board of directors. John was only twenty one years old. That that came

That came with a shock. John's grandfather. Gianni Agnelli. was no stranger to dramatic gestures. Esquire magazine named him one of the five best dressed men in the history of the world.

Jackie Kennedy reportedly wanted to marry him. He was charismatic, vivacious, and the sort of person who crashes at 120 miles an hour into a meat truck in Monte Carlo. And live to tell the tale. So offering a board seat to a soft spoken twenty-one year old grandson was just another ordinary day in Gianni's life. For John, however.

It was life altering. It also felt Eerily familiar. Uh funnily that was the same age. My grandfather became a director fiat, which was asked by his grandfather, who was the founder of Fiat.

we have the same age difference, so they had fifty six years of difference and I had fifty six years of difference with my grandfather. But it was unexpected and a big shock. If anyone had asked me to join a board at age twenty one, I think I would have been completely lost. А ні со литха бізнес вор. Or how markets worked.

I think I would have been worse than useless. I think I would have been dangerous because I would have been thinking too easily, well I can learn this. One of the great things about John is he knew even at an early age to ask aloud. Oh my God.

How can I learn this? Which is exactly the right question for a twenty one year old board member to ask. In fact It's the question that ensures knowledge gets transmitted from one generation to the next for more than a century. John was welcomed into the board on one condition.

He couldn't conceal his ignorance. His grandfather was insistent. Let it all hang out. The advice my grandfather gave to me.

No one's expecting you to No. Or understand or contribute. So the most important thing is for you to listen, but

Really ask questions. And If you don't understand that is абсолютні норма. And in parallel to that He organized for me to start working.

spending time in the accounting department, in the finance department. In the legal department. Just to learn the basic

And I got incredible Teachers. And was very, very fortunate to go for that. Apprenticeship. So this young apprentice now had a first rate education in all things accounting.

but he wanted to drill even further down into the company. He wanted to know how everything actually got made. I've always enjoyed being able to be close to where things happen. The experience I had the opportunity to have as an intern. in a headlamp factory in the suburbs of Birmingham.

was really about understanding how A manufacturing process worked. Forget Fiat's headquarters. Forget the assembly lines with those big robotic arms. John wanted to make a headlight.

Or a headlamp, as they say in England. For a very specific reason. And the reason why it was very compelling is because it was a supplier to Japanese car manufacturers, which have been leading edge. and quality fru how

They organized their manufacturing processes. And we were a supplier of Toyota, which is famous for the Toyota production system. And so I was able to Really participate. In understanding

from inputs of materials to the finished which was a headlamp. working Turns out, John was in exactly the right place at the right time to understand manufacturing at its deepest level. А целула лево.

His apprenticeship culminated in an insight that was critical to Fiat's arrival. He noticed a persistent gap. between what happens on the factory floor of, say, a headlight plant in Birmingham And what information filters up to headquarters.

You are quite far away. in a board setting from where the actual life of the business is happening. And how that information gets distilled. And the way it gets filtered for an organization. So how does information filter through an organization?

That depends on the organization size. Startups have it easy. The whole founding team sits in one room together. They're all talking together, having dinner together, and so forth. Then you get big enough to create a common infrastructure. Where newcomers can search for information from one big data dump that's passing for our company archive. Does anybody know my password? Maybe it's a general Slack channel, or maybe a shared Microsoft OneDrive.

Then as you get to the next level of scale. You have to start pushing information. So you actually have to start holding team meetings and broadcasting your decisions from the top. And getting intentional about what you broadcast. Then you have to go beyond the team meetings and create a dedicated channel of communication for each team.

You're broadcasting information to select groups of people. In addition to that, you're gleaning selected information from them. You're trying to form a heat map for the company and you're constantly asking yourself What are the burning questions? What haven't I asked? In short.

Information doesn't naturally flow to the majority of people. Including the people at the top. The bigger the organization gets The more vigilantly you have to know how and where the information flows and whether you've been left out of the loop. It's lucky that John had a natural curiosity in this sort of information theory of the organization.

Because he would soon have to pressure test Fiat's entire system of communication on his own. At age twenty nine He still considered himself an apprentice. His family, on the other hand, gave him a sudden and unexpected promotion. And as I was doing the apprenticeship

Sadly, my grandfather started to not be well. And the business also was in difficulties. So I quit my job and in two thousand two I came back to

Sharin. To be close to him. To be close to the business. And He passed away in two thousand and three, but

And then my great uncle, his younger brother, who was his successor. passed away in uh Two thousand and four. And so The historica family лідер.

Within a year And I ended up despite To be

within the family the person closest to the business. And so that's how I the cane. А венгся. Which was really a combination of being

The more involved. And also Sadly because there was really no nobody else. I often compare starting a company to jumping off a cliff and assembling the plane on the way down.

And you might think that John, as heir to a multi billion dollar company has it far easier than a startup founder. He gets the plane fully assembled. All he has to do is keep it at cruising altitude.

But here's the thing. I know how to build a plane from scratch. I thrive on that adrenaline rush. I wouldn't be too thrilled if I was force marched into a cockpit of an aging 747 and told to fly while seeing every warning light flashing red. My instinct. Would be to grab the parachute, jump.

And build a new plane. John, on the other hand. has no escape plan. It got very dark. It got very dark.

That first year and a half was terrible. The company was doing Badly. It had a lot of that And we were mainly indebted with commercial banks, Italian commercial banks, which were worried.

about ді instability that lack of leadership had. We had changed four CEOs. From two thousand two to two thousand four.

And The last CO When my Great uncle passed away. Wanted to do a deal with the banks diluting us.

and in effect taking control. of the company. So the first thing I had to deal with was really Face that. How do you face that?

First. You need a founding team that's prepared for evasive maneuvers. Luckily Our family was very strongly. Committed to the business.

And had no intentions. of being Taken out. This commitment to the business. To finding a solution and doing whatever it takes to navigate your way through.

That commitment is hard to measure as an organizational attribute. but it's essential for any company that wants to go the distance. You will rise. and you will inevitably fall. Things may get ugly along the way.

If you're going to rise again. You need this commitment. It's one of the unique advantages of a family run company. Success and failure

It's both a law physique. And a law of business. What goes up? Must eventually come down. And when you're in a deep downturn.

And you intend to rise again, you're going to need a specific kind of person on your side. Nearly every great turnaround story begins with the same heroic figure. The truth teller. We were very lucky. That Sergio Marchone, who was running one of the businesses we owned.

agreed to come in and join the company as the CO. Convincing Sergio. after a very long night that we had and Mm many grappas.

And that really Allowed us to go through A completely new start. When you build substantial wealth through your business, it's often tied up in a single equity position.

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Learn more at creative planning dot com slash masters of scale. Hey listeners, Bob here. If you listen to Rapid Response on Masters of Scale, you may be missing half the show. Because every Friday we release a second rapid response exclusively in the Rapid Response feed. The guests and topics are just as compelling and timely from Ford's CEO to NASA's administrator to the lessons from The Devil Wears Prada. It takes about 10 seconds to find, just search rapid response wherever you listen to podcasts and hit follow to make sure you never miss an episode. I hope to see you there.

Humans will never be more intelligent than AI. There can be two types of companies. Those are great at AI and those that went out of business because they weren't. How do we build a future? That is human centered.

I'm Rana El Calyubi. On my podcast Pioneers of AI, we answer that question and so many more. As an AI scientist, entrepreneur, and investor, I know what it takes to build AI that works for everyone. Every week, I sit down with the pioneers shaping our future. And we take you behind the scenes of the AI that's transforming our lives. Find pioneers of AI wherever you tune in. How did you know that Sergio like you're young

You know, you have must have an instinct for these things, but how did you know Sergio was the right Guy. And then In addition to lots of grappas and a very long night. How did you decide to go into this battle together?

So Sergio had run SGS. Which is a company we owned. And had been very successful in turning it around. Prior to that he had run Alu Swiss, which was a

conglomerate that he had turned around. So he had very successful experiences in turning around Complex organizations. Secondly,

Sergio was a truth teller and for the amount of problems we had Having someone who was a truth teller. was a brief of fresh air. Заптичу

And being very honest. really led to the extraordinary turnaround from two thousand four to two thousand eight. That fear went through. And I think the grapers helped convincing him.

In Grapas? Veritas. And Sergio almost embodies the archetype running through every great story of a company turnaround. But this figure isn't required in turnarounds alone. In fact.

Any key executive who's grown a startup to massive scale must be by nature a truth teller. Your organization can adapt and cannot survive for long unless you have a truth teller the top. And that executive team must also tell the truth to the people around them, and so on. Up and down the chain of command.

Hard truths should fly like an electric charge throughout the organization. And Sergio hit fiat. Like a defibrillator. Clear. Sergio has always

Being someone who Likes. Challenges. And also has a profound There's like

of situations which are not working well. When things don't go well in organizations. It's quite revealing in how people behave and What is incredible

is the amount of abuse you have. mean how much money we ended up spending in consultants in investment banks and lawyers, I mean F by then was definitely very dysfunctional.

To root out the dysfunction. Fiat first had to sever its relationships with the banks. So who would finance the company instead? John convinces family to reach into their own pockets. And fund his turn around plan.

It was risky to be sure, but the family didn't hesitate to put their savings on the line. As a family Investing a big chunk. Of money. In the company.

as bank loans were converted into equity. And to make sure that the company would stabilize. That's really when we realized that The company was viable. that w it had a great leader

And we committed putting a big chunk of our money into it. Usually hairpin turns like this are delayed by turf wars, fights in the boardroom, activist shareholders circling in and calling everyone morons. And I thought

If you add family to the mix. You have a downright combustible situation. On the contrary, John tells me family is precisely the reason Fiat was able to make such a daring maneuver. I think it was very straightforward, Reed, because the older generations who ultimately have the moral authority. Subsequent to dos.

We organized ourselves as a family. In what I think is an effective way. Where we have Family members were responsible. And these family members meet.

A couple of times a year. And then we have a broader Family meeting once a year. And we've made sure that Communication is very clear.

And then within the companies We've made sure that we have very good directors. And that has so far worked. Very well. As John explained how his family came together to back this move, it occurred to me that the presence of these family members holding moral authority.

can be a real strategic advantage. It can provide you the certainty and believability you need to navigate a perilous shift. And allow you to rise again. There's an interesting corollary in startup culture. You'll find a widespread preference among investors in Silicon Valley for any startup that's founder led.

With the same s top. From the first higher onward. And you might mistake this for some vague, almost mythical belief that the CO embodies the DNA of the organization. Not quite. In fact, the CO has a duty to set a strong culture that scales with the organization.

You never want the culture encoded in only one person's head. The real benefit of having the founders stick around is their ability to take a big risk to say, we must take this risk. We must adapt to the future. We can't just preserve what we've built. And let's not just say it. But have the whole company believe in it and rally to their cause. The willingness to take that risk and the moral authority to drive it is actually quite hard to replace once the founder steps down.

And that's why I find Fiat's family run business so fascinating. The family, in a sense, reflects the authority of the founder. Down through the generations. They've solved what Silicon Valley's iconic companies Only now just beginning to figure out.

How to create the long term moral backbone of an organization. That will naturally tend to grow big and complacent. With his traditions. And so the existence of the managing family may be one of the keys to becoming a phoenix. The fact of having so many enemies

Unified very, very much the family. I'm very grateful to my grandfather's generation. And my cousins Everyone was very supportive, and everyone put

Personal money. for the company to be stronger and really to make sure that it had the necessary capital to go through this turnaround. So the family was an incredible plus. Fiat, now a family concern, broke free of its financial burdens, and began a process of reinvention.

working on the launch of the Fiat five hundred which was launched in two thousand and seven. which was then the fifty anniversary of when it was first launched, and that was really the moment where things start to really tick and be positive. And two thousand eight was the record earning year And fear's history. Two thousand eight also happened to be the year of global financial meltdown, as I pointed out to John.

out of one frying pan into another. Exactly. Exactly. So two thousand eight. Which should have been Fiat's banner year.

was instead the year of Fiat's fire sale. We went through a massive exercise of simplifying. We had too many companies. We want to be in less companies and we want to be in global businesses that can compete in a global scale.

And the reduction of complexity Definitely was of immense help. You had your own global upbringing. I mean Many countries, many languages

Many cultures. How did you kind of map between which are the global opportunities Which are the right businesses of the future to focus on within the family portfolio. So I'll answer you in two ways.

The first one is the reality is when you need to sell companies. You generally sell the good ones. And so there are many businesses that we had to sell. Because you're in no positions of choosing.

The ones which we were left with. We then prioritz on the one which we had the fair chance. of competing on a global basis. If you're an enthusiastic listener of the show, you may recall our episode with PayPal co-founder Peter Thiel. He encourages entrepreneurs to escape the competition by pursuing a wildly original idea. And you really should do that to the extent you can. But to be clear.

Even the most innovative companies must imitate their competitors. In fact, Silicon Valley companies study their competitors quite intently. How do you build a good server infrastructure? How do you build good data centers? What are you doing in terms of emerging technologies? your competitors can give you a clue. So that kind of engagement with the competition is actually, I think, true for everybody. Those competitors can spur your own team to take surprising leaps, and it can be disorienting.

To travel forward. You must travel backward in time. and rediscover the traditions that really constitute the core of your business. John has an interesting term for this experience. He calls it

A return to the essence. I think it's important to stick to The core and the essence of what the organization is. Try and listen to

very limited number of people because everyone ends up having his opinion. So as you go back to the essence You somehow find a lot of the answers. And I think the truth telling. Being very candid about The problems.

Being very open about the issues. And then Building the confidence that you know you can overcome it. Things get resolved. So one of the issues that had occurred was really that

Global. Markets opened up. And so Viet, which we we were really a diversified conglomerate. with very strong market positions in Italy.

faced incredible competition from Outside. And the big change was really to open up to competition. And not to fear competition.

But really to engage with it. And that's where Sergio. Being a Truth teller.

was incredibly important. In еlain the conversation To happen. And having

the organization Be willing to engage and get the confidence that it could engage. And I think We that's really the big

Change her. Engaging with the competition will be key to any company that wants to rise again. You can only ignore the outside world for so long. And as John says This takes organizational confidence.

You have to believe in your abilities. And importantly You have to know who you are. This often takes explicitly returning to the essence. of the company.

Radio Flyer is another example of how a legacy company can return to its essence. Remember Robert Passon? He is the third generation CO of Radio Flyer, another Phoenix company. They've been making little red wagons. For a century.

When I came in the business about twenty five years ago. The company was kind of at a crossroads. We were more of an inwardly focused manufacturer, which had worked great for a long time. But we missed the fact that consumer tastes had changed and these plastic wagons started taking away sales from our traditional steel and and wood wagons. And so it was really a moment of beginning to redefine and reinvent the company.

So there are two ways Robert might have responded to this competitive threat. He could have raced to catch up with the competition and rush into the plastic red wagon market. Instead, he asked himself a much deeper question. What are we? Are we a manufacturer? Are we a brand? Are we a design company? Think about that. Seven.

Decades. Of making little red wagons, and this CO has to ask himself. What are we? And what can we be the best in the world at? And ultimately we decided that the thing that we had that was the most value was The relationship the consumers have with Radio Flyer.

when we asked people to describe what does radiofire mean to them, all these wonderful images would come up like You know, I was playing outside, the sun was in my face, the wind was in my hair, I was playing with friends and family that I loved. I was imagining that I could go anywhere, that my wagon was a race car or a spaceship. And so we really focus in on the fact that Radio Flyer is a vehicle of the imagination. It can be anything you imagine it to be and it can take you anywhere you want to go. And so then we said, Well let's really focus in on vehicles. And one of the things we found when we started asking people.

To describe the radio flyer they had as a kid, they would often describe a wagon, of course, but they'd many times say I had a radio flyer tricycle when I was a kid. And we'd ask them to describe the tricycle and they'd say, Well, the tricycle was shiny and red and it had chrome handlebars and it had a big bell on it. And it was radio flyer and we said, Wow, that's crazy'cause we never made a tricycle. So we came out with it and people point to it and say, I had that rate of fire tricycle when I was a kid. And it quickly became one of our best sellers. And then we leveraged that product into becoming the number one brand in tricycles. Radio flyer sales have quintupled since Robert took the helm.

And they've gone on to make everything from little red scooters To little red Teslas? But only after Robert decoupled the wagon from the deeper idea of their essential design. Little red shiny vehicles. One of the things that really my grandpa baked into the DNA of this company as a designer and a craftsman was that

Anything that we put the radiofire name on has to be beautiful design and it has to be really good quality. And I think those are the enduring values that have caused us to be able to not only survive for a hundred years but to thrive. It's a story of renewal echoed by Polit Cole, CEO of ABC Carpet and Home and ABC Kitchen. Her father opened an iconic carpet store in Manhattan in the nineteen sixties, and when Paulette decided to join the company twenty years later, she started asking that question too. What are we?

I mean literally the store was a carpet store across the street with twenty seven inch carpet. Cut up samples and all the windows with Dust three inches thick. We hadn't really quite reached

the creativity and design DNA of the world yet. It was really about like getting value and price and selection and quantity and like lower east side kind of energy merchant, all about value, value, value. But Paulette. Did have a foundation. Quality was there. And she knew that she could take that foundation of quality

And evolve it. over and over to align with her values. Paulette left the company for about three years in two thousand, and when she came back. She had a vision. That vision was

A large progressive step left with the business where it felt really, really clear to me that The only way forward is to really plug in to that passion, uh, purpose and you know, why are we here? You know, w how can ABC serve at its highest? And what is it that is deeply, deeply inspiring me? What do I feel called to speak to and to create and to be a catalyst for? And every time she asked herself those questions, Paulette thought of a new way to heighten the retail experience. ABC Carpet Home is a standard bearer in the industry.

Known for its unmatched curatorial eye. There are ABC stores in Manhattan, Brooklyn, and Florida. It was a tumultuous Journey. And very very challenging to change what is.

I think always remembering where you came from and having deep love, reverence and respect for what was, but also really pushing Forward. and appreciating evolution and being part of evolution. The more you think about this question. What are we?

The more you'll question the very foundations of your business. That's a very hard question to entertain. Over the course of decades. And harder still, when you're trying to grow the business. In fact.

Very few companies have managed both scale tremendously And age gracefully. John has some sobering statistics to share with today's fast growing fast hiring companies. You may be a unicorn. But unless you succeed in hiring the next generations of managers to ask

What are we? Then odds are You'll never be a Phoenix. Now another interesting fact which I didn't know is that of the oldest companies in the world

Ninety percent have less than three hundred employees. And the oldest company in the world is a Japanese hotel, which was founded in seven hundred five. Which is still family owned. In the fifty second generation.

And the actual business, the oldest business, is a winery in Germany. Which again is family owned. was founded in eight hundred sixty two. And funnily enough, these are very small business. It's interesting to think that

The businesses that survive the longest. Niche business. Rather businesses that grow very quickly. So the more you grow, the more money you make, the more people you have, the more money you end up making as an organization. But at some point.

Like metabolisms. They end up Being weaker. As they grow. And by being weaker

They get affected and disappear quickly. I wanna pause a moment to acknowledge this focus on the long term. This heralding of the Phoenix isn't exactly what my profession is known for. In truth, the vast majority of investors today aren't particularly looking for longevity. They're looking for instant gratification, for quick returns.

My friend Tony Chan thinks deeply about this. The greatest concern in our capital markets right now is shortterm. Tony's the CEO and managing partner at Cuball Group, a venture capital firm based in Boston, and he sees shorttermism as a real risk. To the future Phoenix.

short termism is causing great great risk. to the capital markets and it is not allowing Great quality to grow. We're in a period of microwave capitalism.

And most things that come out of the microwave don't taste very good. I don't recall anything in Greek mythology about a phoenixing from the microwave. the structural pressures of how capital funds have been put to work for compensation. and the culture

that we are breeding. Especially in many of the technology based firms that I love and embrace. that the only way to win is to think fast, scale fast. Tony's right.

How many times have I said start sprinting on this show? He is a great counterpoint to the speed first mentality that we champion in Silicon Valley. We joked that look, while a lot of people are looking for unicorns, we're in search of sea turtles. He says sea turtle, I say Phoenix. Potato potato.

The idea is the same. To last. You need the capacity to rebound and reinvent. look at the companies that have really, really lasted. They've needed times to stop Reflect.

Readjust. And that's what building great durable businesses and durable brands has, you know, been about. We have to go back to recognizing That

Companies and capitalism. have a perpass Much more than just capturing value. They are out there to do more.

than just making profit. And ironically Even if that was your objective. Which was just to make as much money as possible. The way to do it.

is to focus on what will create Durable. Cultures. That's the only long term. Competitive advantage.

Unicorn companies tend to be mission driven. The founder articulates a vision of the future. The employees rally around that vision, which is translated into a mission statement. Which is printed on posters and drummed into every new hire's head until it's borderline irritating. It's a powerful and somewhat predictable process.

But the Phoenix companies The ones that can go the distance. They rise out of and soar beyond the founder's vision. And part of the rebirth needs to happen organically across the business. There have to be enough diverse centers of strength and enough decentralized lines of communication between them to enable a rebirth to come from any direction.

And this is a far more unpredictable process inside a company. John. Compares it to the evolution of a city. Well CTs As they scale.

develop and develop and develop into much stronger. Entities. And one of the reasons for this Is that

are multi dimensional. Which companies Tend not to be. And so as I was thinking about that. One of the secrets that we've had

is that we've somehow been m multi dimensional in the sense that we've been in Multiple businesses and multiple geographies. Think about it. Radio Flyer went from little red wagons to little red Teslas and tricycles and any vehicle imaginable. ABC carpet went from carpets to home furnishing to a general feeling of hominess.

It may sound like these s are losing focus. In fact. By rebuilding in new ways from the ashes of what came before. They're securing the founder's legacy. And you could argue that you have some

No, very strong decentralized Organizations. Where they end up being multi dimensional And within each dimension their focus.

And somehow they're able to be more innovative. And be able to Be less rigid. Like somehow cities tend to be, at least the ones that actually scale.

Well the interesting thing about the cities parallel is on one hand, cities are robust. I mean the The oldest organizations tend to be or society entities tend to be cities Universities, religions But one of the things that's interesting when you think about that is cities tend to be generally strong and vibrant, but when they get into trouble, they get into serious trouble. I mean Detroit right.

other kinds of places where all of a sudden the city gets Like If the robustness breaks Then it's in real trouble. Yeah. But what's interesting about that

Those cities. Only on one point of strength. But the ones that scale А до вони за ар ебал торіз темселс, а сам.

That is the multi-dimensional notion. But if you rely only on one dimension, and the Detroit example is is a good one. then you have one point of weakness. At some point. That will lead to

Trouble. There's a good Quote from the founder. my great great grandfather, which I think is very telling, which I'll just Uh

Weed. Above all We must always look to the future. Forse the future of new інвенtions. Be unafraid of the new

Delete from our vocabulary the world. Impossible. He went through two world wars. Communism. Fascism.

And in those incredibly difficult periods of times. Building. A incredibly Стронг бізнес да диа хуже амаунтов. for the people working in it and also for the communities in which it operated.

And I think that That really stayed. with the family and and with the company, read, as we went through that turmoil. I'm Reed Hoffman. Thank you for listening.

Masters of Scale is a Wait What original. Our executive producers are June Cohen and Darren Triff. Our producers are Dan Kedmi, Chris McLeod, Natalie Chang, Jenny Cotaldo, and Ben Manilla. Our supervising producer is Jay Punjabi. Original music and sound design is by the Holiday Brothers. Mixing and Mastering by Brian Pew. Special thanks to Chris Shay, Elisa Schreiber, David Sanford, Saida Sepieva, and Stephanie Kent.

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