David SenraFrom a $27,500 Charter Company to a $4 Billion Private Jet Giant | Kenn Ricci, Flexjet
EVERY SPOKEN WORD
80 min read · 16,249 words- 0:00 – 2:34
Kenn's son had never flown commercial
- DSDavid Senra
[typewriter clacking] I just interrupt you before we start recording.
- KRKenn Ricci
Yeah.
- DSDavid Senra
I wanted-
- KRKenn Ricci
Well-
- DSDavid Senra
You brought up your kids
- KRKenn Ricci
... you were talking about the addiction of flying privately.
- DSDavid Senra
Okay. [laughs]
- KRKenn Ricci
And, and, and, and I, um, I have three children, and they're six years apart, so there's 12 years from the oldest to the youngest. And when I was building the business, and of course, remember, I started the business, I was flying, too. So I would fly and run the business. When you raise a child, you start on braille, and you start to figure out, like, you know, what's the relationship gonna be like? Did I spend enough time? Did I miss little league games? But I decided I was gonna give them a love of travel, so I had them all skip eighth grade, and we traveled during their eighth grade year. And we didn't leave for, for the whole year. We'd go on six three-week trips, and during that time, w- I would homeschool them.
- DSDavid Senra
Mm-hmm.
- KRKenn Ricci
And I'd make them build a curriculum around where they wanted to go, and we didn't take them to Paris and London. I mean, we took them to places around curriculum. Who wanted World War II? Who wanted to go to India? Who was fascinated with Asia? So we built these curriculums around. Actually, the, the two places I made them all go was Auschwitz and North Korea, so I'm probably the only person that's been three times to, to North Korea. But, you know, life changed, so starting in 2005 to 2017, think of the, the, the 12 years between. The youngest one, who w- when he did his trip in 2017, I realized had never been on an airline. And I, I-
- DSDavid Senra
Oh, an airl- you mean a private jet?
- KRKenn Ricci
No, no, no. He'd never been on an airliner because life for me had changed.
- DSDavid Senra
Oh, he'd never been on... [laughs]
- KRKenn Ricci
Life for me-
- DSDavid Senra
He'd never flown commercial.
- KRKenn Ricci
He'd never flown commercial.
- DSDavid Senra
Okay. [laughs]
- KRKenn Ricci
And so I deci- that's a bad way to raise a child. [laughs] So I decided, his name's Austin. So I said to Austin, um, "We're gonna go, we're gonna go commercial." We were going to Tokyo, and we get, we, we go to the airport. Never done this before. We wait in line, check our baggage, uh, you know, wait for our seat to be called. You, you know, sit down. Don't take your shoes off. But, but all the things you do, right? Security and so on. We, we sit down and finally we're getting ready to take off, and I look over at Austin. I go, "Austin, what do you, what do you think?" He goes, "Hey, Dad, there's people on this plane I don't know."
- DSDavid Senra
[laughs] Oh.
- KRKenn Ricci
So what he didn't get was, like, the commercial, the public, public part of pub- of commercial transit.
- DSDavid Senra
It's funny that you, you... We were talking about this right before we started recording. I was like, "We gotta hit play," 'cause I'm, I'm so interested in, like, you started talking about, you know, a lot of people that build successful companies like you do, uh, there, there's this, this huge doubt in their mind. Like I, you know, I'm hugely driven. I have a goal in my life, but, like, there's has to be things that are sacrificed for that goal. Obviously, time with the children is one thing that, that people do. But I, w- one of the things you didn't even know I was gonna ask you first was I heard you talk about something that's interesting to me.
- 2:34 – 7:03
Giving your kids their wealth while you're alive
- DSDavid Senra
It, that is you- you decided to share your wealth with your kids, not when you die, not when they're older, but right now. You have a very interesting perspective on this. Can you explain what you're doing?
- KRKenn Ricci
I became to believe that we have the wrong perspective on raising children. We seem to think it's about this time we spend with them, so therefore we kinda raise this helicopter mentality, right? We go everywhere with the kids. We don't want them out of our sight anymore. When I, when I was growing up, I left at n- nine in the morning on my bike, and I just had to be home for dinner.
- DSDavid Senra
[laughs]
- KRKenn Ricci
And Mom didn't chase me around-
- DSDavid Senra
Me too
- KRKenn Ricci
... Cleveland, Ohio, right? Those days are gone. We tend to think that we put time into them, that's the essential, when what we really need to put with them is we need to show them that we trust them, and they can trust us. Think about wealth transfer, and if you don't tell your kids about their financial arrangement, you're saying you don't trust them. And, uh, I, I, I told my wife girl, well, you know, when the kids were young, I go, "You know, we're, we're thought, we're thought as parents to talk more about sex than we are about money, and the reality is money will get you in a lot more trouble than sex will." So I had three observations about wealth transfer. One is that, um, there's a whole cottage industry around trusts and the management of generational wealth transfer, and there's big money in it. The system wants you to think you have to control wealth, because that brings in the trustees.
- DSDavid Senra
Mm-hmm.
- KRKenn Ricci
That brings in the law firms and the banking firms and all those necessary professionals to kinda skim away your, your wealth. Second of all, the Chinese have a saying, the, the, the, "The son of a lion is a lamb." And so, uh, the, uh, I think people that create a lot of wealth, particularly if it's entrepreneurial wealth, tend to have, they're very, they're lions.
- DSDavid Senra
Yeah.
- KRKenn Ricci
And lions are control things, and so why not buy into the system where you control your children? And so this, this is why these trusts are set up. At twenty-five, they get this. At thirty-five, they get that. At forty-five, we get, they get this, right? A- and this is kind of a, a way to control from, from the grave or for the patriarch or matriarch of the wealth to still be influential even when they're not around because-
- DSDavid Senra
They're used to being in control
- KRKenn Ricci
... egocentric-
- DSDavid Senra
Yeah
- KRKenn Ricci
... they wanna be in charge. They wanna be important. They don't wanna lose their, their relevancy. And then finally, there's the most bizarre one to me is if we tell our kids, if we give our kids wealth and we tell them about wealth and they know about this, they'll become lazy. Well, man, does that say a... You were, must have been an awful parent if that was the one thing that, that, that flips the switch. You couldn't parent through that? So I decided, A, past, number one, most importantly, I love my children and I love watching them be happy. I wanna watch them spend their money. I wanna watch them be wealthy, but most importantly, I wanna help them. I know a little bit about re- about wealth. I knew a little bit about... Now, I'm accidentally wealthy. I didn't get here with some strategic, you know, some monetary plan, financial plan.
- DSDavid Senra
Hold on. We're gonna, we're gonna g- dive deeper on that, but give me some background. Did you grow up middle class? Poor? Like, what was your childhood like?
- KRKenn Ricci
Oh, my father was a grade 12, worked for the US government. He's actually a spy. Uh, he had a fascinating background. He came out of World War II, worked in the OSS, worked in naval intelligence, and then, um, had a, a, a, the, the, uh, in the '60s, early '60s, Bobby Kennedy- Set up the OCD, the organized crime drive through the Treasury Department. My dad was a part of that, a part of that, that group, uh, that investigated, uh, investigated domestic, mostly, um, mafia, mostly organized-
- DSDavid Senra
Yeah
- KRKenn Ricci
... crime in those, in that era. His undercover name was Richard Dill. Don't get... He was investigating, in a lot of cases, Italian. He's, was Italian.
- DSDavid Senra
Yeah.
- KRKenn Ricci
They changed his name to Dill.
- DSDavid Senra
[laughs]
- KRKenn Ricci
Think of... That's, that's the government at work. [laughs] I remember one time he... By the way, he only, in 17 years of undercover work, he only worked on three cases, so shows you the time it takes, right, to be an-
- DSDavid Senra
So his undercover name was Dick Dill?
- KRKenn Ricci
Richard Dill.
- DSDavid Senra
[laughs] Dick Dill. [laughs]
- KRKenn Ricci
[laughs]
- DSDavid Senra
Richard's always short for Dick.
- KRKenn Ricci
Yeah, yeah, yeah. He was investigating the police chief of Lincoln, Nebraska. And-
- DSDavid Senra
For ties to the ma- organized crime.
- KRKenn Ricci
I, I'm seven years old at this time.
- 7:03 – 15:57
Charlie Munger: "You give them the money"
- DSDavid Senra
People struggle with this all the time. It's in these books for going back 200 years. They're like, "I was..." Essentially, the, the, the problem is, "I was the son of a poor man. My kids are the son of a rich man. What do I do here?" And so I had the, the luck of a lifetime to be able to go and have dinner at Charlie Munger's house right before he died.
- KRKenn Ricci
Mm-hmm.
- DSDavid Senra
Probably six months before he died. And one of the questions I asked him was, 'cause me and him had run a... He read, you know, hundreds of biographies. I was doing the same. That was the, the, the, my, my, like, craft and the main, uh, uh, before I started this show, like, all I was focused on. And I was just like, "What's the a- your answer to that? Like, you read the same books I do. What, what's your answer?" You know, he grew up, he wasn't poor, but he, they were in Homosock. It was like a normal life. And he goes, "You give them the money."
- KRKenn Ricci
[laughs]
- DSDavid Senra
And, you know, 'cause Munger is just no bullshit.
- KRKenn Ricci
Right.
- DSDavid Senra
Like, straight to everything.
- KRKenn Ricci
Yeah.
- DSDavid Senra
And I go, "Why?" He goes, "'Cause what?" He goes, "They'll hate you if you don't." And he goes, "And what's the point of building a relationship and making all this money and then a- at the end of your life, your kids hate you?"
- KRKenn Ricci
Right.
- DSDavid Senra
And that was his very simple way of looking at this.
- KRKenn Ricci
Fantastic. Fantastic insight, right? Uh, like I said, I wanna watch them enjoy their wealth.
- DSDavid Senra
He did say one funny thing, though, uh, 'cause somebo- I think I, I may have asked him a follow-up, so either me or somebody else, a follow-up. And I go, "Yeah, but won't that make them a little less ambitious?" He goes, "Yes."
- KRKenn Ricci
[laughs]
- DSDavid Senra
And in his case, I think he gave, he gave a couple hundred million to, I think, nine kids or something like that.
- KRKenn Ricci
Yeah.
- DSDavid Senra
And he's like, "Yeah, some of them have $250 million and they're not as ambitious."
- KRKenn Ricci
Right.
- DSDavid Senra
Like, so what?
- KRKenn Ricci
They're different. Every kid is different.
- DSDavid Senra
Yeah. [laughs]
- KRKenn Ricci
In fact, one of the things, we have these family meetings once a year where we talk about wealth, and one of the things I start out with each project, 'cause when I look at why families rip apart over wealth, right? It's really in two areas. One of them is that they feel somehow they're entitled to be equal, but they're not. I have a child that started inheriting wealth 12 years before the youngest one. You don't think his estate, you don't think what he has appreciated at different rates than the youngest one? So I start every meeting by going, "Look, guys, you're not equal. It doesn't mean I don't love you, doesn't mean... It's just, it's just how things are. And the sooner you get over that fact, the happier you'll be. It's just what w- w- it wasn't set out that way."
- DSDavid Senra
S- so have you already given all the wealth you're gonna give to them, or they, you keep... How do you, like, how do you, how does that-
- KRKenn Ricci
Well, um, well, yes, pretty much so, because we gifted shares of a family limited partnership when they were very young.
- DSDavid Senra
Did you get this idea from Sam Walton?
- KRKenn Ricci
Uh, no. Uh-uh.
- DSDavid Senra
Do you know that's how Sam Walton avoided a lot of... He, he, he didn't do it to avoid estate tax.
- KRKenn Ricci
Yeah.
- DSDavid Senra
He would wind up... He's like, "Well, if you wanna avoid estate tax, you give the-
- KRKenn Ricci
Very early
- 15:57 – 25:36
The rule his kids made to avoid jealousy
- DSDavid Senra
to other people.
- KRKenn Ricci
Oh, I'm sorry. Let me finish what I, what I learned.
- DSDavid Senra
Go for it.
- KRKenn Ricci
Okay. So number one, this amazing trust that they got amongst themselves, right? They started investigating and reading about biographies and families that blew it-
- DSDavid Senra
Yeah
- KRKenn Ricci
... and they came to realize that the third transfer of wealth, the third generator's ration's the tough one. And so they've started to talk amongst-
- DSDavid Senra
Shirt sleeves to shirt sleeves in three generations.
- KRKenn Ricci
Right. They're the ones that talk about that.
- DSDavid Senra
This is something very durable throughout human history.
- KRKenn Ricci
So they've come together to talk about the next passing of wealth and generational, and two, two things that they, they've come up in the last year. One is they decided not to include spouses in these meetings. They decided that each one of them, two of them have spouses, one doesn't, they decided in these meetings that each one of them will decide how to share financial information in their own family.
- DSDavid Senra
Hmm.
- KRKenn Ricci
That this isn't a group share. This is us five, and we've been doing this for 10 years, 12 years, and it's not something, we're actually not gonna toss people into the middle of it, 'cause we don't know their personalities. We didn't have 10, 12 years of grooming to un- to get them to this point. So that was number one. Number two was when they look at generational wealth transfer and why families come apart, one of the things that happens, other than they all feel like they weren't treated equal, they're mad at the patriarch for not treating them all equal, which we've gotten over. But the other thing that, that, that happens is one of them does really well, takes the money, and makes a great investment, and the other ones do less, and then there becomes a little jealousy amongst them. So they decided, they came to the idea that any investments they all make, they're gonna share, and the person who has the investment-
- DSDavid Senra
The three kids.
- KRKenn Ricci
The three kids.
- DSDavid Senra
Between the three kids. Wow, okay.
- KRKenn Ricci
The person that has the investment can put 60% of it in, but has to offer, but not required, 20% to each of the other siblings, and they can participate or not, thereby alleviating the, the opportunity for them to be jealous. Look, y- I gave you the opportunity to come in. You came in or you didn't, or we share the upside together. That was their idea, not my idea.
- DSDavid Senra
That's really interesting.
- KRKenn Ricci
Okay.
- DSDavid Senra
Okay. So let's go to the source-
- KRKenn Ricci
Yeah
- DSDavid Senra
... of the wealth.
- KRKenn Ricci
Yeah.
- DSDavid Senra
You were a pilot, okay?
- KRKenn Ricci
Mm-hmm.
- DSDavid Senra
Take me back to like, well, first of all, how old were you when you learned how to fly planes?
- KRKenn Ricci
You talked about my upbringing with my parents a little bit. My dad was a government employee, and, um, I went to a, a, a Jesuit high school, St. Ignatius, and they sent, at, at the time in the '70s, they sent 30 people to Notre Dame. They moved them [laughs] right from there to, to Notre Dame, and I loved it. I wanted to go there, and I was, uh, I got, I got, I got admitted, and then I'm going up for a visit. And I grew up in a, you know how houses have two-by-fours? Ours has one-by-twos. [laughs] So I could hear my parents. I'm an only child, and I could hear my parents talking the night before I'm going to Notre Dame and they say, "You have to tell him we shouldn't let him go. Because what if he goes up there and he likes it, and then he wants to go, and we tell him we can't afford to send him?" My mom was saying, "I wouldn't let him go," and my dad would go, "Let him go. Maybe he doesn't like it. And then he comes back and says, 'I don't wanna go anyhow,' and then we don't have to have the subject." But I knew going up for that class visit that didn't matter how much I liked it, I knew it was coming when I came home and said whether I wanted to go or not, so I was inclined not to go and put my parents in a bad position. When I get there, I ask them on campus, "Is there a, um, is there financial avai- aid available?" "Well, you, you missed the deadline. This is March." They... But the Vietnam War, this is 1974, the Vietnam War was still very ripe, very raw, and, uh, people did not like the military. And so they said, "If you're willing to go into ROTC, they're a- always short of the candidates. They're never fulfilling their quota." So for some reason, don't ask me why, I decided I wanted to be a Navy pilot. Maybe I liked the double-breasted suits. [laughs]
- DSDavid Senra
[laughs]
- KRKenn Ricci
Whatever. So I go down to the ROTC building, and there are no cell phones, and I'm lo- looking through the glass window, I'm trying to read upside down on the phone what number to call on Monday morning to tell them they had a new Naval aviator.
- DSDavid Senra
Why'd you pick aviation? You had never flown a plane or anything? You just said-
- KRKenn Ricci
No, I had to go in the military.
- 25:36 – 35:05
Buying a failed charter company for $27,500
- DSDavid Senra
Got it.
- KRKenn Ricci
The only job I can have in law school is a part-time pilot, so I'm a fill-in pilot for a company called J&J Aviation, and J&J Aviation was a, was a fraud. I mean, I'm just an employee there, but what they did was in the early '80s they had investment tax credit of 10%, and if you bought an aircraft you got an immediate 10% credit. So they would sell these Citation jets for $750,000. So they had about a fleet of about six airplanes, and then they'd, they'd sell these Citation jets to investors on the West Coast, a long way from Cleveland. And they would, they'd get this $75,000 investment tax credit, and then they'd pay the $750,000 for the plane, and then the head of J&J was a guy named Jeff Tolk, and every month he would pretend that these aircraft were on lease. But they weren't. The aircraft didn't even exist. He would make up a dummy statement. He would say, "It flew 40 hours this month. The revenue was, was $90,000. The expenses were $78,000. Here's your $12,000 check." So he simply put the 70, the, the million five, the two aircraft-
- DSDavid Senra
Mm
- KRKenn Ricci
... he put the million five in the bank and kinda dribbled out the interest in a fake statement. Well, finally, after about a year and a half, the owner said, "We gotta see our jets," and they were never, they were always in the air. They were never around. But one day they, they caught him, and he flew the coop. So this little company, J&J Aviation, had, like, three employees, you know, a secretary, a dispatcher.
- DSDavid Senra
And is it just charter? What's the-
- KRKenn Ricci
Yeah
- DSDavid Senra
... just, okay, just charter.
- KRKenn Ricci
It was charter.
- DSDavid Senra
Okay.
- KRKenn Ricci
It was using these managed airplanes-
- DSDavid Senra
Yeah
- KRKenn Ricci
... or these, these phantom airplanes.
- DSDavid Senra
Yeah.
- KRKenn Ricci
But there were six of them. There were Navajos and these little tiny piston engine aircraft. And the dispatcher, dispatcher there, Rick Michaels, calls me up, and he says, uh, he said, "You know, nobody here wants to do this, and, and I don't have the, I'm not smart enough to do it, but, but you seem to know a little about aviation. You should buy the company." So I call my dad.
- DSDavid Senra
And you're h- how old at the time?
- KRKenn Ricci
26.
- DSDavid Senra
And you never thought you were gonna be an entrepreneur?
- KRKenn Ricci
No. In fact, I didn't even buy this company to be an entrepreneur. I bought it so I could still have a job.
- DSDavid Senra
[laughs]
- KRKenn Ricci
Like, I needed to make sure these airplanes didn't go away so I could keep flying.
- DSDavid Senra
[laughs]
- KRKenn Ricci
I mean, that was the whole goal. And Rick said he could do it by himself, so I left, I kept, I knew I had to employ the dispatcher-
- DSDavid Senra
[laughs]
- KRKenn Ricci
... and run w- it ended up two of the planes left, so I had four airplanes when I started. And I called my dad and I said, "Dad, I, I'm gonna b- I wanna buy this company, uh, J&J Aviation. I'm actually gonna name it Corporate Wings." And he goes, "Oh," he goes, um ... I go, "It's, it's $27,500." And he said, "Well, how are you gonna pay for it?" And I said, "Well, the company has 27,000 in the bank, so I think I can just use their own money to buy them." And he goes, "Oh," he goes, "Well, what are you, what are you doing for the other $500?" I said, "Well, why do you think I called you?" [laughs]
- DSDavid Senra
[laughs]
- KRKenn Ricci
So that was really how I bought Corporate Wings, and that company's still here today.
- DSDavid Senra
Explain how you get from Corporate Wings to FlexJets.
- KRKenn Ricci
Right away, I decided where's the, where's the niche for this Corporate Wings? Like, everybody has a charter plane. Like, but how do I get bigger niches and so on? And I, you know, life is timing. I met into ... I, I met someone who worked for Chapman Freeborn. I don't know if you know this company.
- DSDavid Senra
No.
- KRKenn Ricci
They move all the rock stars around. So they move the freight. You know, every rock star comes with a stage.
- 35:05 – 39:33
Turned down by every bank until Buffett bought NetJets
- KRKenn Ricci
I would be buying them used at, at half price. So the service is the same. It's still you can fly. You only pay for it when you're on board. It's just the buy-in is, is gonna be 50%. That was my vision. But unlike him, I couldn't buy these on consignment. I had to have capital to do it. So in 1996, I put together the... This is my first time really starting to look at a business. It's the first time I kinda understand the deck that I have to present, the presentation, how, you know, looking at cash flow and projections. And I go out to different banks, probably 35 or 40 of them, with this idea of fund me the amount of money I need to start the business. I think I needed $30 or $40 million to borrow. I wanted to borrow it. And they look at me, and the banks were like, "We don't get it. Like, where's our collateral? We have the tail of the airplane you're selling." I'm like, "How do I have a quarter of a plane?" Uh, so none of them were a buyer. I think at the end of, of, of 12 months or 15 months of being on the road, I had maybe 7 million of opportunities if I put up assets equivalent to 7 million. It was the worst financing ever. In June of, of 19, uh, 98, Warren Buffett buys NetJets for $750 million, and he christens the industry, and I just happened to be the guy who saw the banks last, and that summer, I got almost $300 million of debt financing. So again, accidentally wealthy.
- DSDavid Senra
Because they're like, "Well, Warren is-
- KRKenn Ricci
If Warren's doing what he's doing-
- DSDavid Senra
... he's enjoying it. It's a good idea if Warren's doing it
- KRKenn Ricci
... that Ken had a good idea.
- DSDavid Senra
Yes.
- KRKenn Ricci
Yep, and all of a sudden, Bombardier Capital, Boeing Capital, Fleet Bank, all 50 million here, 50 million there, gave me these lines of credit. That allowed me to buy the initial fleet, which I went active October 13th, 1998.
- DSDavid Senra
But what is the company? Is it still Corporate Wings?
- KRKenn Ricci
No, I formed a comp... I, I, I, I branded that product Flight Options.
- DSDavid Senra
Okay.
- KRKenn Ricci
That was the brand.
- DSDavid Senra
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- KRKenn Ricci
Well, once I get the financing-
- DSDavid Senra
Yeah
- KRKenn Ricci
... probably twenty-five.
- DSDavid Senra
Okay, why'd you pick a number like that?
- KRKenn Ricci
There were three different fleets.
- DSDavid Senra
Mm-hmm.
- KRKenn Ricci
Okay? A, a, a two a, a two light jets and a, and a medium jet, and you need about eight aircraft to be your core fleet. In other words, if, if you and me are both gonna buy a share of an aircraft, we recognize there can only be one, because if you and I wanna fly the same day, who gets the plane?
- DSDavid Senra
Yeah.
- KRKenn Ricci
So you had to show the potential prospect that you had a fleet, and eight was about the number that people, "Well, oh, you have, you have eight Citations. I'll buy one, and then you have... You can service us."
- DSDavid Senra
So if you had twenty-five planes to start out, how many customers? Well, like what-- w-when do you hit your limit? Like-
- KRKenn Ricci
Well-
- DSDavid Senra
... we had-- hundred people's too much? Like, what's the-
- KRKenn Ricci
No, because remember, these are core fleet. These planes never get sold. What I do from this point on is if four people buy a, buy the Citation, I buy another Citation.
- DSDavid Senra
Okay.
- KRKenn Ricci
So these twenty-four aircraft were always-
- DSDavid Senra
So you don't stay with twenty-four, twenty-five for very long.
- KRKenn Ricci
Yeah, and you know what? That kinda-- that, that's still a model we use today. If we look at our fleet of 365 aircraft, we would tell you that about seventy of them are core fleet. They don't get sold. They're just there to support your, uh, our customers' ownership in a share of a jet.
- DSDavid Senra
Okay.
- 39:33 – 41:36
$100 million in sales in 3 months
- DSDavid Senra
Flexjet?
- KRKenn Ricci
Okay. So, uh, there-- it's, it's a little longer than you probably hoped, but $100 million in sales between October and December. 400-
- DSDavid Senra
Wait, wait, wait. First three months of-
- KRKenn Ricci
David, this was the most amazing thing I've ever seen in my life. People thought it was such a great bargain that they would send me a check for-- Uh, I think the buy-in at that time was, like, $800,000. People would send a check for $800,000 and say, "Send me the paperwork. I wanna fly tomorrow." In other words, they loved it so much, they knew they couldn't fly till I had the money, they'd send me the, the checks, and they'd go, "Send me the paperwork. We'll get to that stuff later. Just let me fly."
- DSDavid Senra
Yeah.
- KRKenn Ricci
So 100 million in the first three months, 400 million in the next year, and now all of a sudden, I have no-- I've got a tiger by the tail and no clue, right? Because a business that grows that fast is immensely complicated, particularly for cash flow. And I think at that time I didn't really realize that, you know, in capital-intensive industries, particularly like aviation, the balance sheet is the whole game. It's not the income statement, it's the balance sheet. You know, forget income, forget EBITDA. It's free cash flow and w- how strong is your balance sheet. That, that's what drives that bu-- I didn't know that. I didn't know that in 1998. I hadn't figured that all out yet. I'm in my early 40s when this is happening, and so then I bring in, I bring in an equity partner, so now I have some equity partners around the table. 2000, we have the dot-com bomb.
- DSDavid Senra
Uh-huh.
- KRKenn Ricci
So I've been through, I've been through four recessions. That wa- that was number three. So now the business is struggling a little bit, uh, cash flow's struggling, not, not volume struggling. And we decide, you know, when a business is in trouble, you, you-- there's, there's two things you can really do. Well, three things, I guess. You could close it down. Two is, like, you can sell it for a song. Or, or three, y-y-you, you strategically change direction. So you, you go to the bankers, 'cause your problem is always the credit markets. It's always w-who's, who's out there for you. And you say, "Oh, I have a new strategy. I'm gonna merge with this company. Here's the projections." And you buy yourself time to see if you can put these companies together. Acquisitions, mergers are in-incredibly difficult. I hate them. I don't do them very often. I think they're immensely... Culturally, they're damaging.
- 41:36 – 42:58
Why he hates mergers
- DSDavid Senra
Why do you hate mergers?
- KRKenn Ricci
I, I hate them for me, because, uh, for me, I think they're a sign of weakness because you can't build your business on your own. You can't-- Whatever this company is offering you in terms of, let's say it's market share. Let's say they have a part of the market and you have a mar- part of the market, and you say, "Gosh, we'll capture the market." Well, do you really need to spend twelve, ten times cash flow to grab the market? Would you invest that money yourself and get, grab the market share, or do you not have a good enough product to do it? So I think we don't analyze enough what it costs for whatever your logic is for bringing that in. W- Give me the logic for why you're doing that, and I would tell you 90% of the time you could probably do this yourself without the acquisition. Now, once you do the acquisition, culturally, if you have a business built on culture, which is essential for me, it's essential for us, it's impossible. Building a cul- Bringing it in, in-- You know, you can integrate a culture if 10% of the workforce is being added. Adding 30%, 40%, culturally impossible, and then you're gonna destroy your culture. So you probably had a-- you probably overpaid. You-- I don't know if your business, if the business re-reasoning is sound, and you, you really put your culture at risk. So that's why I don't like them.
- DSDavid Senra
Okay
- KRKenn Ricci
Yeah
- DSDavid Senra
So, but you were, this was the, the-
- KRKenn Ricci
I'm in trouble. I'm in trouble financially
- DSDavid Senra
So you have to
- KRKenn Ricci
Yeah, I haven't figured this out yet.
- DSDavid Senra
Okay
- KRKenn Ricci
You're, you're asking me, this was, this was 26 years
- 42:58 – 52:15
Losing his company: the worst day of his life
- KRKenn Ricci
ago.
- DSDavid Senra
Yeah.
- KRKenn Ricci
I have knowledge that's accumulated since then. [laughs]
- DSDavid Senra
[laughs]
- KRKenn Ricci
Um, so we merged with a company that's also in trouble called Traveler. It's a division of Raytheon. And we do the d- we slap it together 50/50.
- DSDavid Senra
Are they in the same business? What are they-
- KRKenn Ricci
Yes. They have a company called Traveler-
- DSDavid Senra
Mm-hmm
- KRKenn Ricci
... that has a s- a brand-new product line, but also fractional ownership.
- DSDavid Senra
Okay
- KRKenn Ricci
And Raytheon owned Beechjet at the time, Beechcraft-
- DSDavid Senra
Mm-hmm
- KRKenn Ricci
... Beech Aircraft. And, and, and they had merged it with Hawker Beech. It became Hawker Beech. And so they were trying to see... Th- they had Traveler as a distribution channel for their aircraft. So they, th- it's not making money. It's losing $30 million a year. They, they slap it together with Flight Options, which was marginally breaking even. We were making money, but not free cash flow.
- DSDavid Senra
Mm.
- KRKenn Ricci
So we put these two company, consolidate, get rid of the back office. Uh, uh, Raytheon wants to focus on missiles and submarines. And in the concept of putting these two together 50/50, we come up with shareholders' roulette. Are you familiar with that term?
- DSDavid Senra
Yeah, where you have to-
- KRKenn Ricci
You, you have to make an offer to buy-
- DSDavid Senra
Either you buy or sell at-
- KRKenn Ricci
At the same price
- DSDavid Senra
... yes
- KRKenn Ricci
So I had 18 months to underwrite the transaction. I go to Warburg Pincus. I need a, I need an outside, I need an investment partner to do this. They see the model. They value the business at $360 million. I go running up to Lexington, Massachusetts to go into Raytheon to tell them, "I'm here with your $180 million. This company was a piece of shit, and now I'm here. I figure, where are you putting the Ken Ricci statue that I found? Like, I found all this money for you." And they looked at me, and they thought I was stealing the business, and they bought me out.
- DSDavid Senra
Oh.
- KRKenn Ricci
And I'm gone. 2002, I've lost my throne. It was the worst day of my life. I had, I was passionate. I love this business. My friends were in the business. Right?
- DSDavid Senra
Hold on. We gotta, we gotta pause here-
- KRKenn Ricci
Yeah
- DSDavid Senra
... 'cause it's very interesting. How much of the 180 goes to you personally?
- KRKenn Ricci
You hit the nail on the head. You have, you have a knack for asking the exact right question. I own 16% of the company.
- DSDavid Senra
Okay.
- KRKenn Ricci
Fast-forward today, the punchline's gonna be I bought this company back, and now I have a controlling interest. So who thought the worst day of my life-
- DSDavid Senra
But still, like, you thought, let's go back to, like, you were, you learned how s- to be a pilot when you were in college. You grow up, you know, middle class in Ohio.
- 52:15 – 56:08
Buying his company back in the financial crisis
- DSDavid Senra
Right.
- KRKenn Ricci
Right? I see none of this coming. But that's where I get the capital, and what do you think happens next? Raytheon's had enough fun with, with Flight Options. They've lost $600 million in the, in the years they've owned it. The company's become unionized, and it's a problem, and it's, it's going to crap. So who do they call, Ken? You wanna take this piece of shit off our hands? And what do I say? Of course, I do. [laughs]
- DSDavid Senra
[laughs]
- KRKenn Ricci
I want my company back.
- DSDavid Senra
[laughs]
- KRKenn Ricci
I don't care which shitty position it's in. I want my company back. Think about this one. Financial crisis happens in September. I buy it in December.
- DSDavid Senra
[laughs]
- KRKenn Ricci
So how dumb am I? [laughs] I'm the dumbest guy in the world. I buy this company back in the, in the, n- nadir of the financial crisis.
- DSDavid Senra
And what do you have to pay for it?
- KRKenn Ricci
135 million.
- DSDavid Senra
Okay.
- KRKenn Ricci
Okay? Of which r- the reality is the, the, because there's li- there's payables, there's liabilities-
- DSDavid Senra
Mm
- KRKenn Ricci
... we're assuming, the reality is it was, it was around, it was around, uh, 42 million, and I borrowed a 27-- I gave a $27 million personal note and 15 million in cash.
- DSDavid Senra
What'd you back up that personal note with?
- KRKenn Ricci
Just me.
- DSDavid Senra
How'd you do that?
- KRKenn Ricci
Uh, the seller took a note-
- DSDavid Senra
Oh, okay, okay
- KRKenn Ricci
... for 27 million.
- DSDavid Senra
Okay.
- KRKenn Ricci
Not a long note. I think three year.
- DSDavid Senra
Okay.
- KRKenn Ricci
A three-year note, but I o- you know, uh, there w- I had, I had invested in a couple other small businesses at the time. I had, I had assets. I had a home. I had, I hadn't s-
- DSDavid Senra
Did you have to pledge the home or no?
- KRKenn Ricci
Oh, yeah.
- DSDavid Senra
Okay. That's what I was-
- KRKenn Ricci
Oh, yeah
- DSDavid Senra
... gonna ask you too.
- KRKenn Ricci
Personal guarantee of everything.
- 56:08 – 1:03:01
The $600 million problem that led to Gulfstream
- DSDavid Senra
Mm-hmm.
- KRKenn Ricci
By the way, with the deal, they made me expand the order to have Globals, which I had no idea how I was gonna pay for. I had to buy 15 Globals, and they were 40 million apiece, and I did not have that $600 million.
- DSDavid Senra
So where'd you come up with that 600?
- KRKenn Ricci
Well, that's, uh, that's again, life is, life is funny. So we sign the deal, we're gonna buy Flexjet.
- DSDavid Senra
Sign the deal not knowing how you're gonna pay for the Globals? [laughs]
- KRKenn Ricci
Well, I knew how to pay the 180. No.
- DSDavid Senra
[laughs]
- KRKenn Ricci
Like I, I did not know how I was gonna pay for the Globals.
- DSDavid Senra
[laughs]
- KRKenn Ricci
I did not know how to ... So with, with the buying of 180 million, I placed a billion dollar order for Challenger 300s and Globals, and, and actually some Learjets, which they owned at the time, too. So I buy the ... I- I placed the order, fingers crossed that we'll ever be able... We'll figure out how to pay for those airplanes later. I gotta get Flexjet in here. They call me up, it's ... We're gonna close like in October. They call me up in September, and I get the, "By the way, I need to come see you." And I'm like, "I'm toasted. I'm, I'm fucked on this deal," because they're coming, they're coming to tell me NetJets has beaten my offer. 'Cause there's only three companies left at the time. There's Flexjet, Flight Options, and NetJets. These are the ... Or there's Citation Shares too, but there's three big companies.
- DSDavid Senra
Yeah.
- KRKenn Ricci
And the number two and number three are about to merge, and I figure Warren Buffett isn't gonna let this happen. He's gonna-
- DSDavid Senra
[laughs]
- KRKenn Ricci
He's, he's in there, he's coming in to up to, up take my bid. So I know they're coming to tell me, and they sure enough, they sit down and they go, "We have a problem with NetJets." And I'm like, "Oh, no." They had Globals there also, and they were not... And, and Bombardier claims they were not aware that in the contract when they sold the Globals to NetJets, it prohibited them selling them to me, so the message they had to [laughs] convey was, "We can't sell you the Globals."
- DSDavid Senra
That's not a bad-
- KRKenn Ricci
Whoa, 600 million I didn't have to worry about. [laughs]
- DSDavid Senra
[laughs]
- KRKenn Ricci
And of course I went, "Oh, that sucks."
- DSDavid Senra
"Oh." [laughs]
- KRKenn Ricci
Are you kidding me? This destroys everything I've made a vision of. [laughs]
- DSDavid Senra
[laughs]
- KRKenn Ricci
And now fast-forward, right? Two years later, we do the Gulfstream-
- DSDavid Senra
Yeah
- KRKenn Ricci
... and part of that deal we get exclusivity, so now we're the only people that can operate Gulfstreams.
- DSDavid Senra
Oh, I didn't know this.
- KRKenn Ricci
Yeah.
- DSDavid Senra
So wait, Flexjets had... So, so NetJets uses Globals to this day?
- KRKenn Ricci
Well, see, what would've happened if, if they didn't pull that card on me-
- DSDavid Senra
Yeah
- KRKenn Ricci
... I would've had to be committed in each category, light jet, mid jet, and heavy jet, to buying the Bombardier product.
- 1:03:01 – 1:05:47
Father Hesburgh's 3 rules for a life of significance
- DSDavid Senra
other people?
- KRKenn Ricci
Yeah. In fact, probably, you know, if you were to ask me, like, some of the most influential people in my life, one of the most influential was Father Ted Hesburgh, who le- who led the University of Notre Dame for 35 years. You know, he ran this amazing institution. He grew it from going broke during World War II 'cause they had no students to becoming one of the most prominent universities in the, in the world today, right? And he did that over a 35-year tenure as president, and he had an amazing business sense as well as being a priest. So w- you know, he, he was an amazing resource and had amazing insights, and I remember going to him a- at a time, he, he retired from president, so he was very available. I ran the student government when I was there, so I knew him from my days at Notre Dame.
- DSDavid Senra
And so you go to him.
- KRKenn Ricci
And I ask him a question. I asked him, I said, um, "You know, I'm, I'm, I'm pretty sure that, that, I'm pretty sure that Jesus was not a capitalist. I'm pretty sure he had to be a socialist, 'cause I don't recognize anything in what I was taught about why we are here in the life of capitalism. I don't see that. I, I'm not finding that." And I said that to him, and he looked at me and he said, "I have two thoughts for you. Number one, it can be if it consumes you." I actually said to him, I said, "You know, I got a shitty gift. You know, I, if I could cure cancer, that would be a great gift. If I could, like, heal the poor, I mean, there's a lot of good gifts. There's a lot of very altruistic gifts. I don't have that gift. I got the gift for looking at a balance sheet and understanding how the business can translate to the balance sheet. I, I understand that. That, that's my special gift." And he said to me, um, "Yeah, you can, you, God thought enough of you to give you that gift. You're gonna be tempted your whole life with being selfish with this gift or thinking about how to continuously use this gift for others. But God had enough confidence in you to give you that gift, and so run with it. And number two," he told me, "don't overthink this." He goes, "Life is really simple. We wanna make it, we wanna make it so complicated. To have a life of significance, you only have to do three things: be true to your God, be as good as your parents, and champion the causes of underdogs." He didn't say be a Catholic. He didn't say be a Christian. He said be true to whatever you think is why you're here in existence. Be as good as your parents. Our parents are flawed in so many ways. He didn't say be the perfect parent, but parents come with a genuine acceptance that they wanna give life, right? So he said, "Be as, be as g- and then champion the cause of underdogs. Always look around the room, find the underdog, and go to them."
- DSDavid Senra
Okay, so you're having these conversations, you're, with people you trust and yourself for several years, and then you said you didn't really figure out why you're here till you're two, until 2018.
- KRKenn Ricci
Yeah.
- DSDavid Senra
What was the answer that arrived in
- 1:05:47 – 1:09:57
Why he gave away everything he owned
- DSDavid Senra
2018?
- KRKenn Ricci
I will tell you, you wanna know my immediate, my immediate reaction? So remember, I'm still doing a little bit of flying. I'm flying these rock stars. I'm flying Bill Clinton at the time, actually, and, um, and I'm, and I'm reading, 'cause when you're a pilot, you have a lot of time to read. You're, you're waiting a lot. And I read a biography about an Indian chief, and in order to become head of his tribe, to become chief, he had to prove that he was worthy of the tribe, and that meant giving away all his worldly possessions. Somehow this sticks with me. I have the conversation, and in 1992 I decide to give away everything. To prove to myself... I saw one of your guests talk about, I think it was about, um, having a, having a tooth procedure without Novocaine to prove he had courage.
- DSDavid Senra
Everybody's seen this.
- KRKenn Ricci
[laughs]
- DSDavid Senra
That clip got tens of millions of views.
- KRKenn Ricci
Okay, that's how I know it. That wasn't my courage. My courage was to give away all of my assets.
- DSDavid Senra
And then to build them back up?
- KRKenn Ricci
Well, it didn't matter. I, I had to prove to myself that my, that, that that wasn't what ran my life, that the accumulation of wealth wasn't w- wasn't gonna be what ran my life, that I had the courage to use the talent I had not for self-accumulation.
- DSDavid Senra
Okay, so this is kind of what we were talking about before, um, we were recording. I told you this fantastic lunch I had with Sam Zell, and his whole thing was just, like, he's like, "I know all the rich guys. They're, you'd be surprised how miserable most of them are. They have more money than they'll ever spend. They trade time, which they can't get more of, uh, doing things they don't like for more money they can never spend." He's like, "There's only one true luxury in life, and that's, like, get-to-private-jet money." That's what-
- KRKenn Ricci
Yeah
- DSDavid Senra
... that's the advice that he gave me-
- KRKenn Ricci
Right
- DSDavid Senra
... 'cause he's like, you know, he's bought everything in the world and he's just like, "It doesn't matter."
- KRKenn Ricci
Yeah.
- DSDavid Senra
He's just like, the thing that made him the happiest wasn't his compound in Malibu or his place in Chicago. It was that every year, I think between Thanksgiving and, uh, Christmas, he took his entire family, his extended family and everything, and he was able, it was like 35 people, and he would take them to this, like, little village in France for a few weeks-
- KRKenn Ricci
Yeah
- DSDavid Senra
... and be able to pay and, and provide that experience for every single person.
- KRKenn Ricci
Yeah.
- DSDavid Senra
Right?
- KRKenn Ricci
Yeah.
- DSDavid Senra
And his whole thing was just, like, y- you're not, like, going to be happy on the things that you consume. It's the things you do for other-
- KRKenn Ricci
You're happy on what you give away.
- DSDavid Senra
Exactly, what you do for other people.
- KRKenn Ricci
You're happy on what you give away, not what you take in.
- DSDavid Senra
So, so, but, but bring me to this, like, realization. So you did that in '92, but to bring me to this realization in 2018 where you're just like-
- KRKenn Ricci
Well-
- DSDavid Senra
... now I know for sure.
- KRKenn Ricci
Well, let's, let's, let's say two things, right? In '92, even though, you know, now I'm, now I'm giving away everything.
- DSDavid Senra
Yeah.
- KRKenn Ricci
So I, I have noth- you know, that was a, that was a proof of Ken. But I, again, I, I didn't have a lot of wealth. I, I had that nice event.
- 1:09:57 – 1:11:08
Why any employee can comp a $300,000 trip
- DSDavid Senra
of Flexjets.
- KRKenn Ricci
Let me say one thing about customer service, 'cause you brought it up. Um, one of the keys to customer service is, you know, if there's a problem, 'cause customer service is about what you do when things go to hell. It's not about what you do when things are going well. Within our organization, there is no approval process. The person you talk to on the phone when you call and schedule your trip, and you say, "We had a breakdown. I gotta get this," that person has all the authority to comp your trip, to give you whatever money they... They don't have to call a supervisor to say, "David needs help." So I empower everyone in the organization at whatever level. First of all, it says trust, which is the foundation. I've said I trust us throughout the organization. That carries trust to that person, but this is a person making $80,000 a year that could comp you a $300,000 trip. So that's how we think about customer service.
- DSDavid Senra
I love it. Thanks.
- KRKenn Ricci
Great. Great.
- DSDavid Senra
I hope you enjoyed this episode. Please remember to subscribe wherever you're listening and leave a review, and make sure you listen to my other podcast, Founders. For almost a decade, I've obsessively read over 400 biographies of history's greatest entrepreneurs, searching for ideas that you can use in your work. Most of the guests you hear on this show first found me through Founders. [upbeat music]
Episode duration: 1:11:08
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Transcript of episode D76BdIPTfGw
