Yvon Chouinard (Founder of Patagonia)

1. 0:00 – 3:02

   A Reluctant Businessman on His Own Terms

   1. SPSpeaker0:00

      I had always avoided thinking of myself as a businessman. I was a climber, a surfer, a kayaker, a skier, and a blacksmith. We simply enjoyed making good tools and functional clothes that we and our friends wanted. And one day it dawned on me that I was a businessman and would probably be one for a long time. It was also clear that in order to survive at this game, we had to get serious. I also knew that I would never be happy playing by the normal rules of business. I wanted to distance myself as far as possible from those pasty-faced corpses in suits that I saw on airline magazine ads. If I had to be a businessman, I was going to do it on my own terms. One of my favorite sayings about entrepreneurship is, if you wanna understand the entrepreneur, study the juvenile delinquent. The delinquent is saying with his actions, "This sucks. I'm gonna go do my own thing." Since I had never wanted to be a businessman, I needed a few good reasons to be one. One thing I did not wanna change, even if we got serious, work had to be enjoyable on a daily basis. We all had to come to work on the balls of our feet and go up the stairs two steps at a time. We needed to be surrounded by friends who could dress whatever way they wanted, and even be barefoot. We all needed to have flex time to surf the waves when they were good, or to ski the powder after a big snowstorm, or to stay home and take care of a sick child. Breaking the rules and making my own system work are the creative parts of management that is particularly satisfying for me. The original intent for writing Let My People Go Surfing was for it to be a philosophical manual for the employees of Patagonia. We have always considered Patagonia an experiment in doing business in unconventional ways. None of us were certain it was going to be successful, but we did know that we were not interested in doing business as usual. We have survived and even thrived for close to half a century. Ironically, we have become the large company that we never dreamed of nor wanted to become. It took 15 years to write this book because it took that long to prove to ourselves that we can break the rules of traditional business and make it not just work, but work even better, especially for a company that wants to be here for the next 100 years. That was an excerpt from the book that I just reread, and the one that I'm gonna talk to you about today, which is Let My People Go Surfing: The Education of a Reluctant Businessman, and it was written by Yvon Chouinard. I first read this book over five years ago. It was originally in, uh, episode 18 of Founders. Out of the hundreds of founders, uh, that I've studied so far for the podcast, Yvon is definitely one of, uh, my favorite founders. You could tell just from that excerpt, like his insistence on living life and building a company that reflects his personality and his philosophies regardless of what other people think he should be doing, is one of the most admirable traits that a founder can have. So I wanna jump right into his early life. Most of the book is, and I hope I can convince you to, to buy the book. It's absolutely excellent. Most of the book is really his philosophy of building the company, the history of the company. So that's where I'm gonna spend most of my time today.

2. 3:02 – 7:36

   Lessons from His Father and a Rebellious Youth

   1. SPSpeaker3:02

      I do wanna pull out a couple ideas from his very early life before we jump into the beginning of, uh, like the prehistory of Patagonia, which is gonna be him starting, uh, the Chouinard Equipment Company. Uh, but I want... He talks about his dad, and we see the things that he admired about his dad influence his approach to his work, that he still continues to this day. He's 83, I think, at this time, and he's still working. He says, "My father was a tough French, French Canadian from Quebec. Papa completed only three years of schooling before he had to beg- begin working on the family farm at the age of nine. In later years, he worked as a carpenter, electrician, and a plumber." In addition to reading this book for the second time, and I probably read my highlights in this book, I don't even know, maybe 20, 30, 50 times over the years. I also re-listened to... He d- Yvon did this fantastic interview on the Mediator podcast. Uh, it's ep- I'll leave a link down below, but it's the Mediator episode, I think 188, Yvon Chouinard on Belonging to Nature. I've listened to that episode, uh, four or five times at, at minimum. And the reason it goes so well together is because there's so... He gives added context in that, that interview, that podcast interview, of stories that are in the book. But what he said in that interview was interesting, and something he admired from his father. He says, "My old man was a tradesman. He could build a whole house himself." So this like relentless extreme lev- Uh, Yvon has like this relentless extreme levels of self-reliance and resourcefulness. He had it from an early age, and he definitely used his high levels of resourcefulness to build a successful company, which is gonna come out multiple times in the book. So he says, you know, "My dad could build a whole house himself," and this is what he bu- uh, what he learned from his father. "I believe I inherited his love of hard physical work and an appreciation of quality, particularly of fine tools." So that word quality appears over and over again. But I would say Yvon's north star is the quality of the product that you're making. It's what he spends the most time in the book talking about. That is a goal and a path that he refuses to deviate from. In fact, later in the book, there's this great quote, I think I'll share it later, but I'm gonna read it to you now as well. He says, "The first part of our mission statement, make the best product, is the cornerstone of our business philosophy. Make the best is a difficult goal. It doesn't mean among the best or the best at a particular price point. It means make the best, period." And so we go back to where we were in the story. We're saying, hey, this, this deep appreciation for our, for quality actually came from my father, the love of physical hard work, and then he shares this crazy story. "One of the most profound memories of my early childhood was seeing him sitting in the kitchen, drinking a bottle of whiskey, and proceeding to pull out some of his teeth with his pliers. He needed dentures, but thought the local dentist was asking too much money for the part of the job he could just do as easily himself." And then the writing of this book is very simple and easy to understand. I'm just gonna pull out like three sentences from his high school years that tells you everything about [chuckles] who he was in high school. "High school was the worst. I was often det- I was always in detention. I often had to write lines like, 'I will not...' 500 times or so." So, you know, I will not curse, or I will not, you know, skip school, whatever it is. But this goes back to his resourcefulness. "As a budding entrepreneur, I would take three pencils and line them up with sticks and rubber bands so I could do three lines at once. I learned at an early age that it's better..." So he's talking about he never or- played-- he was never interested in playing organized sports like baseball and football Uh, you know, he'd rather be out in nature climbing rocks, uh, cl- uh, climbing mountains, kayaking, surfing. And he says, "I learned at an early age that it's better to invent your own game, then you can always be the winner." And when I got to this section of the book, it reminded me of... M- it might be the best [laughs] ... It is probably the best paragraph in the entire book. If you really wanna know who he is as a person, I'm gonna read it later, but I'm just gonna read it now 'cause it's hilarious. Um, I, I'm [laughs] actually quoting. So usually when I read these books, you know, like, uh, I read something and it's like, "Oh, it makes me think of this other book." And it's like, I'm reading this and it made me think of other things he says later in the book. [laughs] But I've read this paragraph, I don't even know, 50 times, something like that. It's hilarious, and this is really gonna tie into what he says. It's like, you know, I'm just gonna invent my own game. Uh, he does not b- believe in building an undifferentiated commodity product by any means, right? And so he says, "When I die and go to hell, the devil's gonna make me the marketing director for a cola company. I'll be in charge of trying to sell a product that no one needs, is identical to its competition, and can't be sold on its merits. I'd be competing head-on in the cola wars on price, distribution, advertising, and promotion, which would indeed be hell for me." And this is the punchline. "I'd much rather design and sell products so good and so unique that they have no competition." And so now we fast-forward, he's 19 years old. Remember the s- the, the subtitle of the book, The Education of a Reluctant Businessman. He becomes an entrepreneur at 19 reluctantly

3. 7:36 – 13:41

   Blacksmithing, Pitons, and Leaving No Trace

   1. SPSpeaker7:36

      because he didn't think the quality, tied back to that word, the quality of the products that were on the market were good enough. So he is a mountain climber. This is in the very, very early days. And so essentially he realizes, "Hey, I can't find high quality products. My life literally depends on these products. I need to make my own." And then we f- we see what I mentioned earlier. It's like, I just love these people where it's like, "No, I have a philosophy, I have a point of view, and I have a personality. I'm going to inject that into my company. I'm not going to deviate from that." In 1957, I started teaching myself blacksmithing. I wanted to make my own climbing hardware. To this day, if people me- when, when he meets people that don't know who he is and they say, "Hey," like, "What, like, what do you do?" He sa- he calls himself a blacksmith. He f- he thinks of himself as a craftsman, and he thought his trade and his craft was blacksmithing. He just got into clothing because black- the blacksmithing at the quality levels he did was not profitable. So he's like, "I gotta sell clothes just so I can make equipment." Uh, so he says, "I started teaching myself blacksmithing. I wanted to make my own climbing hardware." At the time, this is the philosophical difference, though, and speaks to another thing that I love about Yvon, is that he reads. He's very well-read. He reads all the time. And he says, "At the time, all climbing gear was European, and the soft iron pitons..." Or I think it's pitons, actually. Pitons. Uh, "Were meant to be placed once and left in position." So that's what the European way of doing things. He found this way completely disgusting. He had a philosophical difference of the Europeans, and it came from the authors that he was re- that he was reading. Uh, the European attitude toward climbing mountains was, quote-unquote, "to conquer them." All the gear was left in place to make it easier for others to follow. We American climbers were brought up on reading the transcendental writers like Emerson, Thoreau, and John Muir. You climb the mountain or visit the wilderness, but you leave no trace of having been there. That idea right there, this, like, the fact that he has a philosophical difference, is going to ripple throughout his entire career. He's like, "I don't like the way other businesses are built, so I'll find a different way to do it." And the, the, the really, the, like, the, the, the lesson behind that lesson is, like, why you do something. Why you're doing it affects every other decision that comes after. And so it's in the first year of his career, in the very early days of him being an entrepreneur, that he realizes, oh wait, people will always pay for quality. His product is seven times more expensive than the, the leading, the leaders in the market, and people still line up to the point where, like, he, he'll automatically sell out everything that he's able to make. "I made these pitons for myself, uh, and a few friends. Then friends of friends wanted some. I started selling them for $1.50 each. You could buy European pi- pitons for 20 cents. You had to have my new gear if you wanted to do the state-of-the-art climbs that we were doing." And so at this time in his life, he's nomadic. He's just finding, he's like, "Where's the best mountain climbing? We're gonna go there. Where's the best surfing?" And what was hilarious is now, you know, I've read, what, 280 books since I read this for the first time, and I was like, oh, this is another billionaire who started out by selling his product out of his trunk, just like Phil Knight. Uh, "Most of my tools were portable, so I could load up my car and travel up and down the California coast from Big Sur to San Diego. I would surf, and then I would haul my anvil down to the beach, and I'd start making, uh, pitons before mor- moving on to another surfing beach. I supported myself by selling the equipment from the back of my car." He is unbelievably poor at this time, and there's just one sentence that illustrates that. "We ate cat food." But living and surviving and then thriving like this actually taught him this. There's a lot of, uh, he takes a lot of lessons from nature. I actually went back and read my show notes, uh, for the first time that I did this book, and I was like, oh, this is actually really good. I liked what young David [laughs] said f- over five years, so I'm just gonna read it. He says, "Throughout the book..." Or I guess I said. [laughs] "Throughout the book, he has a really beautiful idea of comparing business and organizing human labor to nature." Part of this idea is he intentionally puts Patagonia through a lot of stress because he feels you need stress to grow. Uh, evolution is another name for change, only happens under stress. So he says, he's talking about who he was as a, a very young man. "We were like a wild species living on the edge of an ecosystem, adaptable, resilient, and tough." And so I already mentioned the fact that Yvon has this, like, handful of philosophies and ideas that he just repeats over and over again and applies to all aspects of e- really everything that he's doing, whether it's work or play. He says, "I believe the way towards mastery of any endeavor is to work towards simplicity. The more you know, the less you need." And so we're getting, again, this is, you know, we're probably two decades, maybe a decade and a half from the beginning of Patagonia. Actually, let's see. He starts his equipment company in 1957, and then Patagonia 1973. So okay, so yeah, it was about 15 years. But the, the point here is that he has- been, always been, and still is obsessed with simplicity and quality. And so he says, "Quality control was always foremost in our minds because if a tool failed, it could kill someone, and since we were our own best customers, there was a good chance that it would be us." And this goes back to what he is reading is influencing the building of his company, which I love. It literally gives me goosebumps. He says, "Our guiding principle design stem from..." I'm going to actually not even attempt to pronounce this person's name. I actually have one of his books. He's a writer, and also one of like the, like a pioneering aviator actually. Uh, he wrote The Little Prince, and this is a quote from him, "In anything at all, perfection is finally attained, not when there is no longer anything to add, but when there is no longer anything to take away. When a body has been stripped down to its nakedness." Now we go back to Yvon. "Studying Zen has taught me to simplify. To simplify yields a richer result." And so it goes back to this idea that simplicity is complexity resolved. It's not complexity ignored, right? "At the base of a mountain wall, where you spread out all of your gear to organize for a climb, it was easy to spot the tools made by Chouinard Equipment. Our tools stood out because they had the cleanest lines. They were also the lightest, the strongest, and most versatile tools in use. They were also the most expensive. When other desi- designers would work to improve a tool's performance by adding on, I would achieve the same ends by taking away, by reducing weight and bulk without sacrificing strength or the level of protection." So the... Then when I, uh, the second time I read the book, as I, when I got to that section, I quoted another quote that's later on in the book that Yvon says,

4. 13:41 – 17:50

   Simplicity, Function, and the Rugby Shirt

   1. SPSpeaker13:41

      "I believe the way towards mastery of any endeavor is to work towards simplicity." And then Yvon goes back to this idea that he was a reluctant businessman, that he was, he never started out to start a business, right? That was not his aim. "None of us saw the business as an end to itself. It was just a way to pay bills so we could go off climbing trips." The reason I'm reading that to you is because this is all, this is the prehistory of Patagonia. Patagonia is the company that, you know, he's been do- I think he's, it's been around for what, 50 years now, produced like this cult-like following, and wind up m- making him, uh, you know, if he's a reluctant businessman, he's definitely a reluctant billionaire as well. But this is the point. Chouinard Equipment operated at a 1% profit margin, and so he realized that was unsustainable, and then he has a great line here. "Then came my first idea for clothing." And so he's like, "Okay, I'll start making clothing just so it can pay for the equipment," and then his, some of his clothing takes off. He has this, this... I'm gonna read it to you now. In fact, I'm not even gonna to wait till later. He has this idea that the functional needs of the product should be a design guidepost. And so the first thing that he makes is this rugby shirt. People just like the way it looks. He u- used it because it actually protected his neck and upper body from all the climbing he was doing. So I'm gonna go back to the rugby shirt in a minute, but when I got to the rugby shirt, it made me think of what he said the difference between a Cadillac and a Ferrari. And he says, "Complexity is often a sure sign that the functional needs have not been solved. Complexity is often a sure sign that functional needs have not been solved. Take the difference between the Ferrari and the Cadillac of the 1960s. The Ferrari's clean lines suited its high performance aim." So he clearly is admiring the Ferrari, and he hates the Cadillac, okay? "The Cadillac didn't even have any functional aims. It didn't have the steering, suspension, torque, aerodynamics, or brakes appropriate to its immense horsepower. But then nothing about its design really had to work. All it had to do was convey the idea of power and creature comfort," this made me laugh, "of a living room floating down the highway to the golf course. [laughs] So, uh, so to a basically ugly shape were added all manner of useless chrome gingerbreads like fins at the back and breasts at the front." And this is the punchline, and really speaks to what he discovered with the very first successful, uh, piece of Patagonia clothing, but it also ties into his love of the Ferrari's design and his distaste for the Cadillac design in the 1960s. "Once you lose the discipline of functionality as a design guidepost, the imagination runs amok. Once you design a monster, it tends to look like one too." And so the year is 1970. He's in Scotland. He's on a winter climbing, uh, trip, and he says, "Hey, I bought myself a regulation team rugby shirt to wear, thinking it would make a great shirt for rock climbing. Overbuilt to withstand the rigors of rugby, it had a collar that would keep the hardware slings from cutting into my neck." So this, the hardware equipment that he has roped around his neck, right, as he climbs up the mountain, that usually would result these giant cuts and abrasions on the back. And this also speaks to the fact that he has this inner clock. Let's go back to what Charlie Munger said to me at dinner, right? He's just like, "I just did whatever I wanted to. I didn't care what other people thought. Uh, if I thought it was a good path for my life, then, you know, te- everybody else be damned." He calls that inner clock. Uh, Warren Buffett calls it inner scorecard. Yvon has that. He's had it his whole life. And still he's ha- uh, he still has it to this day. But his whole point is just like, no one else was wearing the rugby shirt mountain climbing. He didn't say, "Oh, you know, what's ha- what happens, like if I put this on? What will other people think?" He doesn't give a shit what other people thinks, or what other people think. So he says, "I wore it around climbing, and then all my friends asked where they could get one." So he starts ordering these shirts. He's like, "I could, I could not keep them in s- in stock. They just c- they sold out immediately every time I got them." And then this is where he realizes, oh, I have a business here. "I began to see clothing as a way to help support the marginally profitable hardware business. At the time, we had about 75% of the climbing hardware market, but we still weren't making much of a profit." And so remember at the very beginning of the book, he's like, "Listen, this book took 15 years to write because I was insistent on running a business my own way. It took time for me to prove that my ideas were actually valid." And so a lot of this, like the book is not that long, so maybe not a lot, but there's several pages of detail of like they're just in pain, uh, 'cause they're like, "I've never run a clothing company before." And so I just wanna pull out a couple quotes to give you a g- good idea of what's happening.

5. 17:50 – 23:45

   Cash Crunches, Kris McDivitt, and Asking for Help

   1. SPSpeaker17:50

      It's funny how much, uh, like he's fi- wrote down fighting with the bankers, like Phil Knight and Walt Disney, and then [laughs] getting an offer from the mafia, which is hilarious. So they start the clothing company, and they're gonna run, uh, Chouinard Equipment at the exact same time. I think there's an overlap of like 10... I think he said he sells off the, he starts Patagonia in 1973 and then sells off the equipment company, I think, in the late '80s, so maybe 15, almost 20 years there. But what happens is the clothing is so popular and so differentiated, and it sells so quickly that they can't keep up with the demand, and their bankers aren't helping them. This is exactly like if you read Shoe Dog. Phil Knight talks about this a lot in the early days of Nike. Uh, so he says, "Because we've been growing so quickly and we were still not very profitable, we had a severe cash flow problem. We learned the hard way that there was a big difference between running a blacksmith shop and being in the rag business, the clothing business. At one point, our accountant even introduced us to the, to a mafia connection who wanted 28% interest." So they're, they're striking out trying to get banks to lend them money is what he's talking about. And this one line is a great summary to give you an idea of what's happening. "There were a lot of acid stomachs and sleepless nights." So something that he did forever is he'd just hire a CEO, um, and he, he, 'cause he believes in this, in, in, in MBAs, which is management by absence, [laughs] and I'll get to that in a minute. And so I think over their 40-year cr- history, I think they've had seven different CEOs. And so one of the first CEOs is c- Kris McDivitt Tompkins, and she has this great, [laughs] great description of Yvon, right? Where he just essentially says, "Okay, you're hired. I'm going off," because he would go off constantly. He would never wanna be in the office. He's constantly surfing, climbing mountains, going on these extreme risk sports, going all over the, the, the world, but he's his own first customer, so he's the one that says, "Hey, I need equipment to survive in the cold," or, "I need equipment to, you know, climb this mountain." And so he uses, like, his first-person experience and then goes back to the team, and they design... Like, he's the first customer, so they design the highest quality gear for the, the risk, he calls them risk sports, for what he's doing. But there's something that's happening at this point. This is in 197- uh, the 1970s. And so she's hired, but they're ha- at the same, same time he puts her in charge, they're having all this, like, difficult financing issue. They don't know what to do, and she does something that's really smart. This is also something I learned from Steve Jobs as well, and this is what Kris says. She goes, uh, "Yvon didn't want to run the company. He wanted to climb and surf, so he gave me the companies and said, 'Here's Patagonia. Here's Chouinard Equipment. Do with them what you will. I'm going climbing.'" And so the, what she does here is exactly what Steve Jobs did when he was a kid and throughout his entire life. The way I would summarize this quote I'm, uh, this quote that I'm about to read to you is that Steve Jobs believed that asking for help is a superpower. And so Steve said, "I've never found anybody that didn't wanna help me if I asked them for help. I called up Bill Hewlett, the founder of HP, when I was 12 years old. He answered the phone himself. I told him I wanted to build a frequency counter. I asked him if he had any spare parts I could have. He laughed and laughed and laughed. He gave me the parts, and he gave me a summer job working at HP on the assembly line putting together frequency counters." This is the punchline. "I have never found anyone who said no or hung up the phone. I just ask. Most people never pick up the phone and call, and that is what separates the people who do things versus the people who just dream about them. You have to act." Kris acted. So she gets the, the... She has no experience. Th- they don't hire anybody. They, they, he calls them dirtbags, which, like, it's, uh, not a pejorative. It's like a compliment. Like, they're all dirtbags. They're like people that just love to be outdoors, and they're just doing it for the... They're, they're missionaries, right? And so these people have no business training at all, and they're just like, "Okay, well, what do I do here?" And this is what Kris says. Uh, she says, "I had no business experience, so I started asking people for free advice. I just called up presidents of banks and said, 'I've been given these companies to run, and I have no idea what I'm doing. I think someone should help me.' And they did. If you just ask people for help, if you just admit that you don't know something, they will fall all over themselves trying to help." That is exactly... Kris is discovering in the 1970s, this is exactly what Steve Jobs said when he was a kid, and I think he was, uh, this is, this quote actually was transcribing from an interview that he did. It's called, like, the Lost Interview, and it was right before he came back to Apple in the late 1990s. And so before I go back to this idea about the importance of the founder being the first company, like the first customer, right? And there's so many innovations. The book is full of innovations that come directly from Yvon's experience, right? He, like, he loves what he's doing. There's a fantastic quote I w- or a fantastic little story that's just in this, uh... The book is, is... He didn't even, he not only did he not run a business like anybody else, he didn't write a book like anybody else. Uh, there's all these, like, random stories interspersed through the pa- uh, the pages. The picture, the pictures in this book are absolutely incredible. Again, I really hope you, you buy the book. But [laughs] you stumble upon these random stories of Yvon from friends, and this is from, uh, Tom Brokaw, who was, like, this legendary... I don't even know if Tom's still alive, but he's, like, this legendary anchorman that is also, like, an outdoor enthusiast, and he goes ice climbing with Yvon. And listen, this is just really trying to give you [laughs] Yvon's personality, which I just personally love 'cause he's just a curmudgeon, but he's a lovable curmudgeon. He's not trying to hurt anybody else. He was prompted with the question, Tom was prompted with the question, you know, "What was your single toughest climb?" He says, "Probably with my friends, including Patagonia founder, Yvon Chouinard. We did a glacier on Mount Rainier. I had never really done ice climbing before, and they gave me a 30-second, [laughs] and they gave me a 30-second lesson in crampons and ice axe use. At one point, we were going across a very steep patch of black ice, and if you slipped, you would've gone down about 1,000 feet. I said to Yvon, 'We should rope up here,' and he said, 'No way. If you go, then I go, and I don't wanna do that.' This is like catching a taxi in New York City on a rainy day. It's every man for himself." [laughs] And then now Tom says, "It's been helpful for me," [laughs] "It's been helpful to me, uh, to be Yvon's friend. He makes me think about things in new ways." And so then we go

6. 23:45 – 26:48

   Being Your Own First Customer and Teaching the Market

   1. SPSpeaker23:45

      back to this idea about the importance of being your own best customer. Uh, Y- Yvon [laughs] is there, like, now they have a very sophisticated R&D department, but at this point, he is the R&D department. This is what I mentioned. The book is full of innovations like this. They all originate from the same place. Be your own first customer. That's a note. This is what prompted that thought. "It does no good, though, to wear a quick-drying insulation layer over cotton underwear, which absorbs body moisture and then freezes. So in ni- so in 1980, we came out with insulating long underwear made of polypropylene, a synthetic fiber that has a very low specific gravity and absorbs no water." And the reason that's so interesting to me is because he says, "I'm a confirmed Luddite." He doesn't, not only does he not have a phone, he doesn't use a computer. He doesn't like electricity. He like literally is caught, like scared of electricity. And yet he, his company, because of the need to be able to develop... Like, they are forced to innovate. Like, you're not gonna survive in these harsh environments where he is without innovation. And so he's actually created a technology company [laughs] even though he hates, you know, e- electronics. It's just really funny to me. This is, he's, this is still the same page, so it just continues on. But he, it do- they do something smart. It's like, okay, so I'm innovating because I'm my own first cust- my own best customer. That's smart. And then you teach everything you know. This is, Trader Joe's did this exact same thing. If you listen to the episode, I think it was 188, of Trader Joe. The, the, the main driver was not advertising saying, "Hey, we're Trader Joe's, you can buy stuff here." It's this thing called the Fearless Flyer, which essentially just like goes into deep detail about the things they sell. It's, it's educational, informational. And then therefore if you're reading, the people that finish that and read the whole thing, they're gonna buy the products. And so you see Patagonia uses that exact same, uh, idea here. "Using the capabilities of this new underwear as the basis of a system, we became the first company to teach the outdoor community through essays in our catalog, in our catalog the concept of layering." And very much like Steve Jobs used his own personal taste to decide what products Apple should manufacture, uh, Yvon does the same thing with Patagonia. He's like, "Listen, you cannot wait until you have all the answers before you act. I had faith that the product was good, and I knew the market." And that concept, that idea, he repeats throughout the book. Let me read, this is, this is something that comes o- comes along, uh, later as well that's just absolutely fantastic. He says, "There are different ways to address a new idea or a project. If you take the conservative scientific route, you study the problem in your head or on paper until you're sure there's no chance of failure." [scoffs] He's not gonna do that. "However, you have taken so long that the competition has already beaten you to market. The entrepreneurial way is to immediately take a step, and if that feels good, take another. If not, step back. Learn by doing. It is a faster process." And what I love here is this is a feeling that you and I have probably both experienced, right? Where he's a reluctant businessman. He never [laughs] wanted to start a business. But when you start something and people start loving it, that is like the high- the greatest high in the world, and there's like this excitement around growth, right? The fact that the idea is working, and he's experiencing that here. "From the mid 1980s to 1990s, uh, our sales grew from $20 million a year to $100 million a year. Melinda," that's his wife and co-founder, "and I were not personally any wealthier because we kept the profits in the company, but the growth was exciting."

7. 26:48 – 30:51

   Growth, Family Values, and the Billion-Dollar Question

   1. SPSpeaker26:48

      And so one of the way they kept the profits in the company was by insisting on doing things their own way. So his wife is like, "Hey, I know what it's like to have children. Like, we are going to pay for and provide childcare in our company." So if you're working, I think they give, uh, both maternity and paternity leave, and they did this like decades before other people did. But then not only that, when you come back with your baby, like you could be working and it's on-site. So if you wanna come down and like breastfeed, or if you wanna come down and read a story, or take a nap with your son, or whatever the case is, they do that. And they just do it because like no one else was doing it at the time. They said now a lot of, uh, their suggestions have actually been like put into law. But they're just like, "We- we're doing this because we believe that it's right, and we trust our own judgment. Uh, we opened, at Melinda's assi- in- insistence, an on-site childcare center. At the time, it was one of only 120 in the country. Today, there are more than 8,000. The presence of children playing in the yard or having lunch with their mothers and fathers in the cafeteria helped keep the company atmosphere more familiar, more familial" More like a family. I can't even pronounce that word. "More like a family than a corporation." And so as a result of all this growth, we see one of... This is one of my favorite parts of the book. He's like, he's really, he's been in business for like two decades now, and he's still like, "Do I actually know? Do I truly know why I'm doing what I'm doing?" And we see that. Like, it takes a, a lot of self-reflection to realize like, "Oh, maybe I, I say I do, but maybe I actually don't." So it says, uh, "We were growing, the company was growing at a rate that if it, we sustained it, it would make us a billion-dollar company in a decade. To reach that theoretical billion-dollar mark, we would have to begin, begin selling to mass merchants or department stores. This challenged the basic design principles that we had established for ourselves as the maker of the best hardware. Can a company that wants to make the best quality outdoor clothing in the world..." Remember, his North Star is all about not the best at a price point, not one of the best, like the best period, right? So that's what he's talking about here. Uh, "Can we actually make the best outdoor c- uh, clothing in the world be the size of Nike?" Can... This is one of my favorite sentences I've never forgotten in the five years since I've read the book the first time. "Can a 10-table, three-star French restaurant retain its third star when it adds 50 tables? Can you have it all? This question haunted me throughout the 1980s as Patagonia evolved." He's also being changed because he's a father. He's got two children, and he's realizing, he's like, "Oh, wait." He, he's got a ton of friends, uh, that have died in these risk sp- sports, uh, up until this point. But once he had... He has the company, and he has his family. He's like, "Oh, I, I should, I have to readjust what I'm doing here." So he's like, "I continue to practice my MBA theory of management, management by absence. While I wear-tested our clothing and equipment in the most extreme conditions of the Himalayas, in 1981, three friends and I set off an avalanche while trying to climb a 23,000-foot-high mountain in Tibet. We were carried for 1,500 feet and stopped 30 feet from an edge of a 300-foot, uh, vertical cliff. One of my friends died from a broken neck. Another had a broken back. I had a concussion and broken wib- ribs. I had never had much interest in climbing mountains over 25,000 feet, and now with this accident, having two young children, my interest waned even more. I was the outside guy, responsible for bringing back new ideas. A company needs someone to go out and get the temperature of the world. So for years, I would come home excited about ideas for products, new markets, or new materials." And so what I realized by reading the book the second time is like this, this constant repetition of simplify, simplify, simplify. Comes because it was a mistake that he made by letting it get complicated. So all this, what I'm describing to you, is happening at the exact same time, and he's like, "Okay, I need to find out, like, I need to know my why. Like, we're growing too fast. This is getting too complicated. I could build a business that I don't wanna be in anymore." And his whole thing is just like, "I just wanna be in Patagonia forever. And not only do I want it to be in forever," it's like, "I want it to live and survive after I'm dead." He ends the, he start, ends the introduction saying, "Hey, I hope the company's here for another 100 more years after I'm gone."

8. 30:51 – 35:21

   Crisis, the Consultant, and Finding His Why

   1. SPSpeaker30:51

      Looking back now, I see that we made all the classic mistakes of a growing company. We failed to provide the proper training for our new company leaders. The strain, and the strain of managing a company with eight autonomous product divisions and three channels of distribution exceeded our management skills. Our organization chart looked like a Sunday crossword puzzle. This is about the pain, right? The pain and the struggle and the sleepless nights and the acid stomachs. The company was restructured five times in five years, and no plan worked better than the last one. And so then he realizes, let's, let's try to get a different perspective. They go and talk to this guy. They hire a consultant, and this is actually funny 'cause he's like, "Okay, we're gonna fly down to Florida. We're gonna see this guy named Dr. Michael Kami," who actually ran strategic planning for IBM and was credited with help turning, uh, Harvey Davidson around. That's how Yvon had heard about him. So they fly down, and they actually meet him, and he's this small man in his 70s with a lot of restless energy, and he lives on an enormous yacht, and he wears a captain's hat. [laughs] And so he's like, "Okay, before I can help you, I, I need to know, like, why you're in business." I told him the history of the company and how I consider myself a craftsman who just happened to grow a successful business. I told him I'd always had a dream that when I had enough money I'd sail off to the South Seas looking for the perfect wave. We told him the reason that we hadn't sold out yet, and they got a bunch of, like, acquisition offers and retired, was that we were pessimistic about the fate of the world and felt a responsibility to use our resources to do something about it. Dr. Kami thought for a while and then said, "I think that's bullshit. If you're really service, serious about giving your money away, you'd sell the company for $100 million, keep a couple million for yourselves, and then you'd put the rest in a foundation. That foundation could then give away six or eight million dollars every year." I then told him I was worried about what would happen to the company if I sold out, and then he said, "So maybe you're kidding yourself about why you're in business." It was as if the Zen master had hit us over the head with a stick, but instead of finding enlightenment, we walked away more confused than ever. And so this goes on page after page after page, but this is one sentence I double underlined because it's essentially what he's searching for. I was still wondering why I was really in business. And the crazy, unexpected, surprising way he finds, in case he finds the answer to, like, his why, he actually decides to involve the rest of the people in his company. He decides, okay, we need to write down... This is very common. Uh, you probably have already done this in, in your wor- in your business as well. But, like, you write down, like, you need, like, written wor- wr- written, the written word on what your philosophy is. Like, what are important to you, and what are, like, the, the cornerstones of the bus- of your business building philosophy, right? So you can share with other people in the company. So that is a very, like, un-Yv- un-Yvon-like thing to do, and yet he got such great value out of, out of it. 'Cause I think some people hear that, like, oh, it's like really skeptical, like how helpful could that be? And so what he does is they start writing it down. He said, "Okay, well, that, that's not good enough. Like, we're gonna write it down. That's like the first step. That's the least we can do. But then we're gonna teach, and we're gonna teach, and we're gonna teach, and we're gonna teach philosophy classes, company philosophy classes to everybody else in the company." Now why is that important? Because in teaching his employees his company philosophy, he learned it himself. And of course, it's in his own unique way. I began to lead week-long employee seminars in these newly written philosophies. I realize now that what I was trying to do was to instill in my company at a critical time lessons that I had already learned as an individual, as a climber and a surfer and a kayaker and a fisherman. I had always tried to live my life fairly simple, uh, simply. But remember, he just talked about our, our freaking organizational structure looks like a Sunday crossword puzzle. Like, how did we let this happen? Doing risk sports had taught me another important lesson. Never exceed your limits. You push the envelope, and you live for those moments when you're right on the edge, but you do not go over. You have to be true to yourself. The same is true for business. The sooner a company tries to be what it is not, the sooner it tries to have it all, the sooner it will die. I, it was, it was time to apply a bit of Zen philosophy to our business. And so at these company meetings, this is something I never even would think to do. He says, "I did know that we had become unsustainable, and that we had to look to the Iroquois," so the Iroquois Native Americans, "and their seven generational plan- seven-generation planning." And so again, his whole thing is, like, he looks for the long term, and he wants his company to last. So at these meetings, uh, he says, uh, we're gonna look to the Iroquois and their seven-generational planning and not to corporate America as models of stewardship and sustainability. As part of their decision process, the Iroquois had a person who represented the seventh generation in the future. If Patagonia could survive this crisis, we had to begin to make all of our decisions as though we would be in business for 100 years.

9. 35:21 – 40:17

   A Mission Bigger Than the Company and the Idea of Yarak

   1. SPSpeaker35:21

      Teaching the classes also gave me the real answer to Dr. Kami's question. I knew after 35 years why I was in business. True, I wanted to give money to environmental causes, but even more I wanted to create in Patagonia a model other businesses could look to in their own searches for environmental stewardship and sustainability, just as our pitons and ice axes were models for other equipment manufacturers. I'm going to interrupt this paragraph because when I got there, it made me think of something I heard Jeff Bezos say one time that I think is absolutely fantastic. I talked about Akio Morita, which is the founder of Sony, I think it's episode 102. Both Jeff Bezos and Steve Jobs, among a bunch of other entrepreneurs, but both Jeff and Steve are on record about learning from Akio and actually studying his career and using those ideas in building their company, right? Which is the entire thesis of what you and I are doing every week on Founders. Je- uh, so this is Jeff Bezos on what he learned from Akio Morita and how it influenced the building of Amazon. This is what Jeff said. Right after World War II, Akio Morita, the guy who founded Sony, made the mission for Sony that they were gonna make Japan known for quality. And you have to remember that this, at this time, uh, this was a time when Japan was known for cheap copycat products, and Morita, uh, didn't say that he was gonna make Sony known for quality. He said, "We're gonna make Japan known for quality." He chose a mission for Sony that was bigger than Sony. Is that not... And now I'm interrupting an interruption [laughs] to tie this back to what he just said. He's like, he, he just picked a mission bigger than Patagonia. Let's go back to what Jeff is saying. Uh, "He chose a mission for Sony that was bigger than Sony. And when we talk about the Earth's most customer-centric company, we have a similar idea in mind. We want other companies to look at Amazon and see us as a standard-bearer for obsessive focus on the customer, as obs- as opposed to obsessive focus on the competitor." Back to where we were in the book. "I remembered again how I had become a businessman in the first place, that I had come home from the mountains with ideas spinning in my head on how to improve each piece of clothing and equipment I used. Teaching the classes, I realized how much Patagonia as a business was driven by its high-quality standards and classic design principles. Having our philosophies in writing, as well as the shared cultural experience of the classes, played a critical role in our turnaround." And so during this crisis, I think this is the last, like, serious crisis the company had had. I don't think they've had, like, another serious crisis like this in the next, like, 25 years. But what he realized is like, oh, we have to... L- like, this was... The, the lessons and the learnings and the improvement of our capabilities that came out of this crisis were so important, like, we have to maintain this. Like, we need to in- if there's no stress, we're going to create stress. We're going to induce stress. He has this concept I've never heard of before, which is excellent. It's called yarak. I'm gonna read it to you. Before I read to you, I'm gonna tell you, like, I'm gonna quote Yvon later in the book. And he talks about, he says this at the beginning of the book, he says this towards the end, "The lesson to be learned is that evolution," what he calls change, right, "does not happen. Change does not happen without stress, and it can happen quickly. Just as doing risk sports will create stresses that lead to a bettering of one's self," which is why he climbs mountains, does all the crazy stuff he does to begin with, right? "So should a company constantly stress itself in order to grow." And so that, he talks about it's the leader's, the, the founder and the leader's role to create stress even if there isn't, so your company's constantly evolving and changing and growing. He took this concept because when he was, like, a young boy, he was, like, 12 years old, 13 years old in California, he, he was obsessed with falconry. I didn't even know falconry was a thing before I read this book, to be honest with you [laughs] . And so he then takes this idea, just like he took an idea from the Iroquois, the Native Americans, and applied it to his business. He's like, "Oh, well, I have a lesson from falconry that we can apply to the company." And so I just wrote, I love this concept, yarak. It is Y-A-R-A-K. And so it says, "For the most part, the big problems have been solved, and there were no crisis except those that were invented by management to keep the company in yarak. For the most part, the big problems have been solved, and there were no crisis after what we just went through, except what was invented by the management to keep the company in yarak." What is yarak? Yarak is a falconry term, meaning when your falcon is super alert, hungry, but not weak, and ready to hunt. So Yvon is telling us, keep your company super alert, hungry, but not weak, and ready to hunt. That is one of my favorite ideas in this entire book, and it was something I missed. I missed the importance of that the first time reading the book. And in a few weeks for episode 300, I'm gonna reread James Dyson's autobiography, still the number one book recommendation, the first autobiography he wrote when he was a younger man, uh, when he was, like, 45, not the one he wrote when he was, like, 75 or 70. But the, the... what's fascinating to me is that, uh, the organization of Yvon's book is very similar to James, where he'll, like, line out, and, and some of these sections are s- s- specifically titled, like, hey, this is my production philosophy. This is my marketing philosophy. This is my distribution philosophy. This is my financial philosophy. This is why it's so important to not just listen to, you know, this podcast about it, but actually read the book and, and buy the book and use it as a reference.

10. 40:17 – 46:33

    Make the Best Product and Keep It Simple

    1. SPSpeaker40:17

       And so this goes back to where I just have to repeat a bunch of things that are really, really important to me. Um, they've stuck out to me for years, something I wanna keep in my mind. It just goes back to quality is number one. Quality, simplicity, long-term thinking, uh, being a misfit, uh, you know, being a pirate. These are very important lessons from the book that c- think can be applied, uh, in, like, in infinite situations and forever. "Make the best product is a cornerstone of our business philosophy. Striving to make the best quality product is the reason we got into business in the first place. We are a product-driven company. We are not satisfied making second-best clothing. Make the best is a difficult goal. Does not mean among the best or best at the particular price point. It means make the best, period." I actually have a reminder of that saved on my phone. It's actually a, a GIF of, uh, Jay-Z doing this interview probably 10 years ago, and he says, "What am I here for? To be second best? I don't think so." And then Yvon just has fantastic one-liners. This is one of my favorite lines, one of the best lines in the book. "The more you know, the less you need." Talks about the importance of keeping your product line simple. "Few of us have the time, patience, or knowledge to order from a 12-page Chinese restaurant menu or to choose among 50 pairs of seemingly identical skis in a ski shop. People have too many choices these days. They are tired of constantly having to make decisions, particularly when it takes major effort to make intelligent decisions. Too much choice brings unhappiness." And really what he's saying is part of the value that you're providing is making the decision for the customer. You have the time and the knowledge and the specific knowledge to make intelligent decisions. They do not. They're busy with other things. They're busy with their own work. They're busy with raising their kids. They're busy with their own life. Part of the value that you provide is making the decision for your customer. And I know I've already said this one time, but it is really important to repeat it. I wrote when I read this the second time, "I feel this in my soul." "Difference and retention of total control," that is a quote from James Dyson. "I feel this in my soul" is a quote from me. "When I die and go to hell, the devil's gonna make me marketing director for a cola company. I'll be in charge of trying to sell a product that no one needs, is identical to its competition, and can't be sold on its merits. I'll be competing head-on in the cola wars on price, distribution, advertising, and promotion, which would indeed be hell for me. Remember, I'm the kid who couldn't play competitive games. I'd much rather design and sell products so good and so unique that they have no competition." And so even though Yvon definitely marches to the beat of his own drummer and is dancing to music most of us can't even hear- He's still, one thing he shares with, oh, I would say everybody that you and I study on this podcast is like when you listen to the podcast or you read the books, it's like these people are gonna hold you to unbelievably high standards. And so he is not with any kind of excuses. Reading this book, it, like, when I'm on this page and I'm thinking about this and I'm actually, like, making, I'm underlining and I'm taking the notes, and I'm, like, not skipping to the next page and trying to get through the book as, as quick as possible, I'm thinking. It's like, "Do I do any of this? Are there parts of my life, whether it's professional, personal, any, otherwise, it's like where I am listening to bullshit excuses, where I would be better served having Yvon's, uh, perspective on this than my own?" And this is an example. He just talks about some common examples and excuses that he hears from other companies. He's like, "This is not good enough. Your quality level is too low. It is not acceptable." Uh, so it says, or you hear something like, "I wish I could help you with that, but, you know, I wish we could do it, but our insurance policy just won't allow it." And so he's gonna say, he's gonna give you an example of what you would hear, and then he's gonna say what he would say. Uh, so, "I wish we could do that, but our insurance policy won't allow it. Why not just do it anyways? Or get another insurance policy? Or don't even have insurance. Get out of the kitchen if you cannot stand the heat." Here's another example. "We can't get any more fabric or aluminum or whatever, so substitute another material. Try another mill or 50 or 100 other mills. Try mills in other countries. Call a competitor and find out where they get their fabric." Another example, "I've called and called and called, and I can't get through. How many times have you really called? Three or four times? Call 20 times. Try an email or a registered letter, or catch them at home with a 5:00 AM wake-up call." Here's another example of an excuse. "I didn't have the time," or, "I've been too busy to answer your letter," or, "to return your call," or, "to write a weekly report," or, "to clean my desk," whatever. These are dishonest excuses. What the person really means is that the job didn't get done because it had the lowest priority, and in fact, he may never return your call because he really doesn't want to. People do what they want to do. And lastly, impossible. This is the lamest of the lame excuses. Difficult maybe, or impractical, or too expensive, but rarely is anything impossible. And then another reason I recommend this book so highly is because he just conveys these ideas, and he doesn't take a long time. He's not... If, if he can convey the idea in a sentence or a paragraph, he's gonna be able to convey that idea in a sentence or a paragraph and not take an entire chapter. And so this jumped out at me. This is something I missed the first time, where he's like, "Oh, high-quality people," who he's targeting with his, his products, right? He's like, "High-quality people want specialization." This is gonna echo what, uh, Jony Ive learned, uh, about Steve Jobs when Steve Jobs came back to Apple, uh, in the late 1990s. He says, uh, "By carrying a little bit of this and a little bit of that, these stores," meaning his competitors, "have evolved into non-specialty stores. That would be okay if your average outdoor store customer had average taste and an average mentality, but we are talking about smart people with money and not much free time. In most cases, the, the consumer has far outgrown the capabilities of average outdoor stores to service them." And you can summarize that entire idea with high-quality people want specialization. This is a quote from the biography of Jony Ive that I read back on Founders one, uh, episode 178. Jobs didn't want to compete in the broader market for personal computers. Yvon does not want to compete in the broader market for outdoor wear or outdoor activities. He is specialized, right? Uh, these companies competed on price, not features or ease of use. Jobs figured theirs was a race to the bottom. Instead, Steve argued there was no reason that well-designed, well-made computers, just like Yvon is arguing here, that well-designed, well-made clothing couldn't command the same market share and margins as a luxury automobile. A BMW might get you to where you're going in the same way a Chevy that costs half the price does, but there will always be those who will pay for a better ride and a sexier car. Why not make only first-class products with high margins so that Apple could continue to develop even better first-class products?

11. 46:33 – 51:04

    Nonfiction Marketing: Teach, Inform, Inspire

    1. SPSpeaker46:33

       And then he talks about his marketing philosophy, and I actually realized, like, there's ideas spread over probably 50 different pages that all kind of relate to each other. So I'm gonna get into nonfiction marketing in a minute, and really I think a s- like, a important part of the nonfiction marketing is that teaching. Like, if you teach the sales... If you focus on teaching, uh, your customers, sales will take care of themselves. Uh, I mentioned this is exactly what Trader Joe's did earlier with the Fearless Flyer. They took ideas, in fact, in that, uh, they talked about they took ideas from David Ogilvy, like, 20 years earlier and just used his ideas in that. Like, uh, the more you teach, the more you sell, or the more you tell, the more you sell, I think is the, the, uh, the Ogilvy quote. So he talk, he's talking about the mail order catalog, but he says, "The mail order catalog has always been our soapbox and enables us to transmit information about Patagonia's philosophies and products directly. My first principle argues that selling ourselves and our philosophy is equally important to selling the product." So he's, uh, his m- form of selling there is education. And so they're doing that not only on their own properties, on their website, on their catalogs, in their stores, but then they go and spend money, uh, like en, en, uh, enabling other people to teach their customers. Patagonia catalogs have printed field reports. These are brief essays about experiences in the wild by writers and friends, and these are, like, some famous writers and, and outdoorsmen. There's like six listed here. And in addition to that, we have commissioned and printed environmental essays and doc- and documentaries, and then he lists another six or seven other people as well. He's just like, okay, that is a form of education. It, you could also, a- also argue it's a form of, you know, advertising and public relations, but the education and the teaching comes first, and if you do the education and teaching first, then the sales will come naturally. Later on, this is all spread over many, many pages. I did not understand this the first time I read the book, but you see that pop up, and I'm glad I, I left notes on all these different pages and then reread them last night before I sat down to talk to you today, and I was like, "Oh, shit, there's a pattern I missed." Our approach to public relations is aggressive. Advertising, as I mentioned, rates dead last as credible source of information. His whole point is just don't advertise, say, "Hey, this is what I have. Buy it from me." His point is if you teach, inform, and inspire, and you do so relentlessly, the sales will follow. Teach, inform, and inspire, do so relentlessly, and the sales will follow. That's an excellent idea, and it ties back to how he opens the marketing philosophy asp- uh, portion of the book. On this is a, an idea I did not miss the first time, and I love it. It's called nonfiction marketing, and I, uh, I bet everything on this, that people crave authenticity. We hate this fake shit that companies do. Our branding efforts are simple. Tell people who we are. We don't have to create some fictional character like the Marlboro Man or a fake responsible caring campaign like Chevron's We Agree advertising campaign. Writing fic- this is so good. Writing fiction is so mu- writing fiction is so much more difficult than nonfiction. Fiction requires creativity and imagination. Nonfiction deals with simple truths. Patagonia's image arises directly from our values and passions of its founders and employees. It's not, you cannot make it into a formula. In fact, because so much of the image relies on authenticity, a formula would destroy it. Amen. Without a formula, the only way to sustain an image is to live up to it. Our image is a direct relation of who we are and what we believe. And I would also argue this authenticity, right, is a form of resourcefulness. When they started doing this, they would take, like, pictures, like you, you know, he's producing clothing for God's sake. So you take pictures or you get models, you hire people or in, in a case where you didn't have any money, it'd be friends, and they would just snap a picture. And he's like, "Yeah, but that's like, it's a staged photo. This doesn't make any sense." And so there's, the form of resourcefulness is the fact that be- that, that humans crave authenticity. They respond to it. And then they're not necessarily just identifying with the company, but they're like, oh, like they're cr- your customers if you have, like if you, you are actually an authentic brand and, and company, your customers wanna help you. And so the form of resourcefulness, how this all ties together, is the fact that, like he, Yvon had an idea one day. It just popped into his head. He's like, "Well, we're spending all this money. We're, we're hiring models, and we're taking photos and everything, and this doesn't really look good. It's not really authentic. What if we just put a line?" They put a line in their catalog and says, uh, "We're gonna collect photos from our customers of real people doing real things." We put a notice in our catalog for our customers to capture a Patagoniac. Uh, [chuckles] I guess that's a line for the people that really love Patago- uh, Patagonia the brand. And we were inundated with photo submissions from our customers and photographers, photos of real people doing real things that they gave you for free. So that's what I mean about the resourcefulness. I mean, he might have 2,000, and he only needs four or five, so they're gon- you know they're gonna be high quality 'cause he gets so much inbound from that. It's free, and it's, your customers wanna do that because they're responding to your authenticity and your nonfiction marketing.

12. 51:04 – 54:59

    Financial Philosophy: Profit Follows Quality

    1. SPSpeaker51:04

       So then Yvon takes his love of simplicity and applies it to his financial philosophy for running the business, and he says, "Our mission statement says..." And this is also gonna remind me of something that Steve Jobs said as well. "Our mission statement said nothing about making a profit. In fact, our family considers our bottom line to be the, the amount of good that the business has accomplished over the years." It's still family business. I think he just gave it, uh, ownership to, like, a trust. I'm not sure if that takes place, uh, or if it had already has taken place or if it happens when he dies. Uh, but he says, "However, a company needs to be profitable in order to stay in business and to accomplish all its other goals, and we do consider profit to be a vote of confidence, that our customers approve of what we are doing. We have to be profitable," 'cause the profit keeps the company in business, right? And he has a funny line here. It's okay to be eccentric, and he knows his, his ideas on business are eccentric. So he says, "It's okay to, it is okay to be eccentric as long as you're rich. Otherwise, you're just crazy. [chuckles] At Patagonia, making a profit is not the goal, but as the Zen master would say, 'Profits happen when you do everything else right.'" There's this fantastic book called In the Company of Giants. I think it's episode 208 of Founders. It's printed in 1987. It's, like, an interview with, like, 16 technology company founders, and Steve Jobs said in that book, "I was taught by some wise people that if you manage the top line of your company, that's your customers, your products, your strategy, the bottom line will follow. But if you manage the bottom line of the company, meaning finance first, and forget about the rest, you'll eventually hit the wall because you take your eyes off the prize." And so then he ties in the fact that if you have a high-quality product and you control your cost, then you can't help but make a profit. Our profits are directly tied to the quality of our work and our product. A company that doesn't take quality seriously will attempt to maximize profits by cost-cutting, increasing sales by creating artificial demand for goods, and hammering the rank and file to work harder. Quality, not price, has the highest correlation with business success. That's so important. Let's repeat it twice. Quality, not price, has the highest correlation with business success. Companies with high products and services, high product and service quality reputations, excuse me, have an average return on investment rates 12 times higher than their lower quality and low price competitors. Whenever we are faced with a serious business decision, this is the most important sentence in this entire section in my opinion. Whenever we are faced with a serious business decision, the answer almost always is to increase quality. And to prove the point that repetition is the mother of all learning, he says it again. We never wanted to be a big company. We want to be the best company, and it is easier to try to be the best small company than the best big company. We have to practice self-control. Our goal is to have no debt, which we have achieved. A company with little debt or with cash in the kitty can take advantage of opportunities as they come up or invest in startups without having to go further in debt or found, uh, or find outside investors. That reminded me of what Charlie said, uh, when I had, Charlie Munger said when, uh, I had dinner with him. He said that him and Warren and Berkshire in general had made a ton of money because they always had cash and they could act fast. And then just to wrap up this section, this importance of quality, I actually underlined this and I text my friend Rob Moore, who's the co-founder of the Human Lab Podcast, because I'm always thinking about, like, who are the smartest players on the board, and in terms of quality and, and execution, not only the, the quality of their product but also how they think about their business. Those, they're in the, they're leading in this, in this profession. And this is, I've talked to them enough that it's just like, oh, like this is clearly how I'm trying to think, and this is how they already think. I cannot imagine any company that wants to make the best product of its kind being staffed by people who do not care passionately about the product. Amen. At the top of this page is one of my all-time favorite quotes in general. Um, this, you know, could be a, a, a... If you had to choose a North Star, a quote as a North Star, this is a fantastic one to get the most out of life. A master in the art of living draws no sharp distinction between his work and his play, his labor and his leisure, his mind and his body, his education and his recreation. He hardly knows which is which. He simply pursues his vision of excellence through whatever he is doing and leaves others to determine whether he is working or playing. To himself, he always appears to being doing both. That's how I feel about Yvon. I think Yvon nailed that.

13. 54:59 – 59:54

    Stress, Adaptation, and Adapt or Die

    1. SPSpeaker54:59

       And then we go back to this idea, which I absolutely love, is the fact that he gets all these lessons on how to run his business, uh, uh, uh, from reading books, and they're not even books about business. So he's reading this book called The, The Beak of the Finch by this guy named Jo- Jonathan Weiner, and it has this idea where, which is like a theme throughout the book, where he feels change is opportunity and that if your company isn't going, undergoing, uh, stress, you actually need to induce it because that's how you grow. Uh, so he says, "In his book, Jonathan Weiner talks about an insect that was found preserved in amber. This specimen is millions of years old and is id- identical in appearance to that specimen or that species living today with one big difference. The present-day insect has developed the ability to shed its legs and regenerate new ones after touching plants covered with pesticides. The lesson to be learned is that evolution," and he puts in parentheses, "change." "The lesson to be learned is that change does not happen without stress, and it can happen quickly. You should not see change as a threat, rather as an opportunity to grow and evolve to a higher level. A company needs to constantly stress itself in order to grow. Our company's always done its best work whenever we had a crisis. When there is no crisis, the wise leader or CEO will invent one, not by crying wolf, but by challenging the employees with a change. If you don't move now, then you might not be able to move when a real crisis happens. Teddy Roosevelt said, 'In a, in pleasant peace and security, how quickly the soul in a man begins to die.'" And then he reiterates that they're doing so to make the highest quality product, to make a business that lasts over 100 years, and to use the resources to fight this, uh, global ecological crisis that is, that he goes into much detail in the book. And then there's just this excellent quote that I've never heard before, and wait till you get to the last line. "If you wanna die the richest man, then just stay sharp. Keep investing. Don't spend anything. Don't eat any capital. Don't have a good time. Don't get to know yourself. Don't give anything away. Keep it all. Die as rich as you can. But you know what? I heard an expression that puts it well. There's no pocket on that last shirt." And then Yvon leaves us with some parting advice, "Adapt or die. When I look at my business today, I realize one of the biggest challenges I have is combating complacency. I always say we're running Patagonia as if it's gonna be here 100 years from now, but that doesn't mean we have 100 years to get there. Our success and longevity lie in our ability to change quickly. Continuous change and innovation requires maintaining a sense of urgency. This is a tall order, especially in Patagonia's seeming laid-back corporate culture. In fact, one of the biggest mandates I have for managers as the company is, uh, at the company is to instigate change. It is the only way we're gonna survive in the long run. It's the same in nature. Nature is constantly evolving, and the ecosystems support species that adapt either through catastrophic events or through natural selection. A healthy environment operates with the same need for diversity and variety evident in successful businesses, and that diversity evolves out of a commitment to constant change. Our current landscape is filled with complacency, be it in the corporate world or in the environmental front. Only on the fridges of, fringes of an ecosystem, those outer rings, do evolution and adaptation occur at a furious pace. The inner center of the system is where the entrenched, non-adapting species die off," same for startups and older businesses, older unchanging businesses, "doomed to failure by maintaining the status quo. Businesses go through the same cycles. Conventional corporations are at the center of the ring, and eventually they will die off, throu- through either their own misdeeds or catastrophic events such as dismal economic climates or unforeseen competition. Only those businesses operating with a sense of urgency, dancing on the fringe, constantly evolving, open to diversity and new ways of doing things, are going to be here 100 years from now. Adapt or die." And that is where I'll leave it for the full story. Highly recommend buying the book. People always ask me to make like a top 10 list, which is so hard to do, 'cause I love all the b- all books in general, but all the books that I cover. I would, I'd have to imagine if I did ever have, uh, have like a permanent top 10, I think this book is, would be in it. That's how much I, um, I recommend. There's just a ton of interesting ideas and, uh, prompts for your own thinking in the book. So if you buy the book using the link that's in the show notes, uh, on your podcast player, all right, it's also available at founderspodcast.com, you'll be supporting the podcast at the same time. If you wanna join my free email newsletter, I'll email you the top 10 highlights from every book that I read. That link is down below. And finally, another way you can support the podcast is by joining Founders Premium, where I make episodes on questions that I receive from subscribers. That link is down below and available at founderspodcast.com along with everything else. That is 297 books down, 1,000 to go, and I'll talk to you again soon.

Episode duration: 59:55