I'm super excited and humbled and privileged to be here and connecting up with you all. So, let's dive into the book. Let's get into it. Charles, you've written a couple books. You know,
My bad. My bad. I don't want to short change him. Five books include New York Times bestseller. So this book, why write this book?
Well, it goes back to the fact that our principle-based framework has been responsible for KO's success going back to the early 60s. And looking around the room, I think some of you were young back then. Did I get that right? But that sounds like, oh wow, you had all this all figured out and it was a hockey stick straight up. No, hardly. It was one set of failures after another and then figuring out how to recover from them and what principles do we need, are there other principles we need to learn. So it's been, as was said earlier, it's been a constant learning journey of failure, applying principles, screwing up again, being a victim of entropy. You know what entropy is? It's considered by scientists one of the most important facts of nature, one of the most fundamental, and that is in a closed system, everything deteriorates over time, that you have waste and uselessness. And so what we have found, unless we apply energy and knowledge to a problem, we have that deterioration. So that's one of our principles that we have to keep relearning.
So anyway, we've been through that and then our most recent, I wouldn't say failure but deterioration in our performance was in 2017. And so we got together in leadership and said, okay, what do we do about this? We've obviously our principles and the way we articulate them have gotten stale and people are taking it rote, so they're not internalizing it and really applying it. So we've got to recharge it. So the first thing we did, and I'm talking for the book, there were a lot of other things we did personally, but the first thing we did is go back and identify what are all the principles that have made us successful over this period.
And then to articulate them, communicate them in a way that people would think about them differently and realize the power of. And then we realized that wasn't enough. We needed to go into or work with each of our business groups and help them tell their story on how they were failing, how they were struggling, and then what principles they found that transformed them to really be successful and contribute over time. And then as we did that, we found that worked. I was amazed and our people got recharged and our whole company greatly improved at that point. So we said, 'Wow.' I said, 'Wow, I think we may have the material for an employee manual that we can use to that.' And so I checked with Stand Together and said, 'This is what we have. Will this be helpful to you?' 'Oh my god, that'd be terrific for what we're trying to do at Stand Together.' And they said, 'But to really get the value out of this, we need to get Chase to be involved because he's helping us so much at Stand Together in getting more and more people interested across the whole spectrum of all kinds of different people from all different walks of life. And he can bring technology into the book which will improve the readership.' So Chase, you want to maybe give your perspective?
I would just add to what Pop's saying. I mean, what a cool experience for me to get invited into this. I'd never written a book before. He said he wrote two, he actually wrote five, he corrected you on that. But this is my first one. So it was a really remarkable opportunity and project for me. But just reacting to some of the things that Pop was saying on why we wrote the book. And just being on the leadership team over the last six or seven years and seeing some of that story play out. One of the key inflection points to just put a fine point on that is when, and he's in the room right now, I saw him earlier, Brad Rzook identified the need to change the name. Brad out there. Yeah, these back. So Brad identified that if we, why are we calling it market-based management? We could call it principle-based management. And it seems like a subtle name change, but when you have 130,000 employees and you change what is the articulation of our core competitive advantage and what drives our culture around principles, just to see how people wanted to understand well why did we change it and then what did we change and why, what does that mean to me? What does that mean to my business? I don't want to just gloss over that point because that was a ripple effect into a lot of transformation just beyond that. So I think for all the business leaders, organizational leaders in the room, you change your value system, you keep that fresh and updated, you're going to keep your whole team and your organization like, oh okay, leadership is actually driving transformation of our own articulation of our value system. And so that's a really big deal I think for anyone that's trying to set a culture in any organization.
But the other thing I would say is that Pop mentioned in the kind intro what I focus on for the organization is around origination and partnerships. And I was doing that really all the way back into 2017 when I started Koch Disruptive Technologies. Now I'm focused more broadly with origination and partnerships across all of Koch. But as I was, so it's a very market-facing role and I'm in market a lot, and so customers, suppliers, potential acquisitions, people, founders that we would invest in, all of them consistently ask like what is so different about Koch? How do you do it? Tell me about these principles. What is this principle-based management culture that you have? And they wanted to learn what enabled Koch to grow 9,000x back, going back to the 60s because they want to do the same.
And so just hearing that and understanding that look, every business goes through the rocky road that Pop talked about. Everyone goes through failures. Everyone goes through the upsides and downsides. And if you look at right now like what we're going through, I think everyone would agree that we're in like unprecedented uncertainty whether it's with being concerned about how fast AI is moving and what that means to their employees, to their job, to their strategies, what they need to do differently. You know, divisiveness in our country, economic uncertainty, these are all things that I think every leader, every person worries about. So back to your question of why do we write the book? I think very simply it's what we hope this book is is a framework and a guide if you will to help navigate that unprecedented uncertainty. And what I think we found is that principles give you courage. Principles give you something that you can say, 'Okay, this is going to guide me. They're consistent. I can apply them to anything and everything.' As opposed to floating with the wind and chasing the next trend that unfortunately you see so many people do in society. So if you have a core framework and a core system that enables you to really navigate this tremendous uncertainty that we're all faced with.
Yeah. Yeah. So I assume as we look at business leaders and organization leaders throughout in this audience, what would you say is a key takeaway after reading this book? What would you say is something that you would hope that they would go take away when they read this book?
Well, you want me to go to that? Well, I think just what Chase said is that we're in a time of turmoil, hatred, tribalism, and it's very scary and I think the only way out is to focus on working for a society of equal rights and mutual benefit where everybody has the opportunity to realize their potential by creating value for others and have a life of meaning. And so to me that means helping our country more fully live up to the promise in the Declaration of Independence. And I always go back to what Chase talked about courage. What my hero Frederick Douglass said. He said, 'Stand by these principles. Be true to them in all occasions and all places against all foes at whatever cost.' And you look what he was up against, the death threats, the brutality he faced, and that's where he came out. It brings tears to my eyes because that's what we all need to do if we want the country to move in the direction he hoped it would. And so that's what I've dedicated my life to as best I can. You can see that's another one of my failures. So you can mark that strike against me as well.
That is tough to follow. But what I would say is to break it down into what we each of us can do because it took me a long time to learn what he was talking about, the things that he just said. And he tried to pound this into my head as I said since I was 8 years old. I'm a slow learner. My mom has confirmed that as well. But a late bloomer.
He learned but he was sleep through all my lectures.
And he got this by osmosis.
Then one day he woke up and, oh yeah, now I this is obvious. I figured it out when I started really failing badly on things. Then you internalize principles and what he was trying to teach me for a long time. But back to the like why did you write the book and what outcomes are you hoping from this at the end of the day? Simplify, we just hope this helps people.
And these are the stories of failure and transformation that we've learned within a company of now over 130,000 employees but also what we're doing in social change with Stand Together outlines the failures there, the things we screwed up, but what we're learning and how we're seeing stories of people that are transforming their lives with these principles. And so we just want to get this out there to as many people as possible so that they can take even if it's a few principles.
To transform their life. It's daunting when you hear 41 principles. It's like, oh my gosh, this is the way we used to teach market-based management, principle-based management. There's five dimensions, there's 100 mental models, there's all the you got to learn it all. And you don't, I mean, I'm still learning and I've been around this since I was a little kid. I learn every day with these principles. But if you just take a couple of these, two or three, and I back to the what we hope the outcome is. You take one like, you know, that is something that if I apply that principle in my business or my organization, my nonprofit organization, hell my sports team, it applies to everything, right? And if I just take a couple of these, I think everyone in this room, everyone that's going to listen to this will say, I actually see an immediate change. This isn't just high-level arm-wavy principles that I want to go back to my day. It's like, no, this stuff can help me today. So that's what I think we really hope for.
So that's what I think we really hope for.
Well, then let's dive in then. Let's take a deeper dive into some of these principles. You know, one thing I like about the book is that it's framed through the lens of failures, right? So not just successes, but failures. You know, Charles, maybe you could kick us off with what are some of the failures that had shaped the principles, the 41 principles that you all write about.
Yeah. And I'll start with back mainly what I saw in the early days and I'll put it in two buckets. The first bucket is that we had leaders who weren't focused on creating value for our customers and or pursuing opportunities where we didn't have the capability to create value, sometimes both. So there were some real train wrecks in that. And then the second bucket was, and a lot of those were the same leaders, but some would rather than empowering their employees by being a bottom-up leader, they would try to control them. So our employees weren't contribution motivated, didn't practice teamwork, and didn't innovate.
And so finally, relatively early on, we need to take the principles that we use to deal with these different types of failures and package it in one. And I called that creating virtuous cycles of mutual benefit. And that starts with striving to only pursue those opportunities for which we have the capability to create superior value for customers, and then to continually improve and add to those capabilities, which then opens new opportunities which in turn call for additional capabilities. So this, when we do it right as opposed to the many times we do it wrong, when we do it right, this leads to never-ending cycles of improvement, opportunity, and success with a lot of failures sprinkled in along the way to keep us back on track.
Yeah, for sure. What about you, Chase? I mean, what failures or patterns of failures that
Oh my gosh. There's so many that I've been a part of. We could tell a lot of different stories, but one that before I came back to Koch, I started at Koch when I was 15. I had a lot of different summer jobs. But I remember the late 90s was a really difficult time for Koch. In the book we talk about two different periods of time: the early 70s during the energy crisis, that was before I was born, but then in the late 90s, I was in college and just from afar seeing what was going on. There were risks of bankruptcy, back to Pop's discussion around the volatility that Koch had. It wasn't an up and to the right story. And I remember just from afar hearing the story of what we were doing in agriculture in the late 90s. I learned a lot from it because then I went into the fertilizer business in 2006. The learnings and the stories of the late 90s, the quick story on that is back to what Pop was saying in terms of wrong leaders in the wrong role with the wrong mindset. I think there was a lot of that, but also one of the principles we have is capabilities. One of the things that has built Koch over time that we've learned through failure is focusing on where you have capability and where you don't. So the story of the fertilizer business in the late 90s is basically getting way over our skis and expanding into way too many things where we did not have capability. So we had a strategy that was called the gas to bread spread.
And basically, I'm triggering him. I'm triggering him a headache.
And yeah, I mean, it hit me viscerally and I wasn't even at Koch at the time, right? Just seeing what was going on. And hearing from him at the dinner table on this, but basically what the gas to bread spread was is pulling natural gas out of the ground, converting that into nitrogen, then distributing that to farmers. The farmers using nitrogen to grow wheat and corn, then ultimately turn that into food and then also package that and put it in grocery stores, gas to bread, pizza crust even. So we got in that entire value chain and thought we could do a good job on everything, right? So it seems crazy now, but that's what was going on. And there were examples where we bought Purina, most of you didn't know Purina like dog food, and so Purina large animal food business without doing much diligence at all on it, only to wake up after we closed the business to be several hundred million dollars underwater because we had out of the money hog contracts that we had just acquired. Wow.
So it was bankrupt like day one.
So when you don't, and this is another principle, the scientific method where you go in and you want to do an acquisition or you want to get into a new area. The principle is disprove your hypothesis as much as you prove it or more. Right? So always ask why not and go through that challenge process. And so we violated so many principles just within that story around talent, leadership, around capabilities, around scientific method. It could go on and on. Later when I was running the fertilizer business, I didn't even though I knew that story, I almost made an identical mistake. So I didn't learn from that lesson. And when we were trying to expand internationally, I was running that business and we wanted to, we had a large trading business and we were trying to distribute all the nitrogen products, phosphate, potash. We were expanding into all these different markets and we wanted to get into all the import markets, Brazil, Mexico, UK, France, Australia, we were in New Zealand. We were in all these small markets and we did all that in about two years, three years. So way over our skis, growing for the sake of growth and just, and then it was in a time where it was a boom market where margins were really high and just assume that these margins would go on forever. Stupid stuff, right? And so I mean talk about scars and thinking about the mess that we created and then thankfully we had leaders that kind of came in and we started applying the principles and we shut down the stuff that didn't make sense and went back to our core capabilities. And you look at what the team has done with the fertilizer business. It's one of our most promising long-term businesses that we have. But we went through two massive failures because we ignored these principles within that.
No doubt. Let me build on that. Could I ski that?
Uh we I I talked about some of the problems that we've had and the failures. The worst failures have come from violating our principle of hiring first on values, second on talent, and hardly at all on credentials. And then what is really bad is really cost us is when we made somebody who didn't have good values. Let's say was so far from being contribution motivated they were destructively motivated. That is they were motivated to get power control over others and in the process they would hide their failures and fabricate their successes. And so those were the most expensive things we have just this Purina thing. They knew this problem with the hogs, but they didn't tell us because they wanted to make the deal so badly. So that's what I'm talking about. The worst mistakes we made. Oh, these are really talented people. Let's leave them in, give them another chance. And then that's when we've had the worst disasters.
And let me give the other side of that coin and the pause because we're telling doom and gloom stories here. There's some really amazing stories of learning from that and then applying it. So just to repeat what my father said because I think it's so important and it's one of the most useful things in the book that all of us can apply: our talent model first on values, second on skills, last on credentials. And again, like most companies flip that on its head. Start with a fancy resume, right? And hire the person that has the best network or the best sales figures or whatever. And that's to Pop's point, that's where we've gotten in the most trouble when we focus on that. So hire great raw material, great values. I call it hire the farm team, right? Meaning kids that grew up with strong work ethic, not entitled, that want to just come in and make a contribution and they come in with fire in their belly. It doesn't mean they had to work on the farm like he made me do that when I was 15, but should have done it earlier. Yeah, I definitely should have. But let me give you one example of how that's practically applied within Koch. And I've told this story many times, but I think it's such a good example. Our CIO today, his name's Jared Benson. I don't know if he's in the audience or not today, but you've worked with him, Ski. You know him well. I know him well. He's CIO of Koch today. One of the most important leadership positions that we have at the company. He started at Koch. His first role, not as Koch employee, but being around Koch was striping the lines in the parking lot. And he just wanted to get access and figure out how can I get into Koch, but he didn't go to college. He didn't have a college degree. He had really no credentials. But he demonstrated his work ethic and his desire to get in and prove himself. And he was really good with technology and he came in and very quickly started running circles around our team that someone got him in, got us around the resume process and gave him a chance and then he quickly proved himself and then saw this wave a decade ago on cyber security and how we needed to protect ourselves from cyber attacks. Saw that very early. Built a team, built a capability. He was our CISO, our lead on cyber security and then from there continued to demonstrate himself to be the head of technology for Koch. Amazing. No college degree, right? So that story, if we can apply that at scale, we will have a huge competitive advantage. And I would encourage everyone that's running a business, if you can think that way and think about I'm hiring on raw material. I'm hiring on grit. I'm hiring on values and principles. Like you can teach people the skills and a lot of the stuff that comes in the resume. A lot of that stuff is actually counterproductive. What you learn in college, some not Wichita State of course. Oh, let me just be clear by the way. But we hire a lot from Wichita State by the way. But what we found in a lot of some of the things that and by the way I've talked to the dean a lot about this on whether they're flipping the script. In terms of what college education is relative to when you and I went to school, right? And doing it in a way that is actually you come out of there going, 'Okay, I'm more prepared.' Yeah. And so like a lot of over the years we've had to help people unlearn what they learned in business school and take it back to values and principles. And so that's why the Jared Benson story is so powerful, right, as a talent vision and a talent model.
Now I can attest because I was going to go there with Wichita State. We were just here with our son on a visit to Wichita State last week and I was sitting there thinking, yeah, my wife and I were thinking like, man, they're doing a lot of applied learning here at Wichita State across it doesn't matter what department or discipline. So shout out to Wichita State. I saw it firsthand last week. All right. So let's maybe continue this thread around successes. So a lot of the book is framed around some failures and the principles that were learned through failure, but almost everybody in this room thinks of Koch as a great success story. So where maybe we can kind of start with you Charles on question or on an answer around success stories like where have we seen applying these principles change the trajectory of a business or business unit?
Well, I would say most of our businesses have gone through and we don't have time to go through all the stories that are in the book, but I'll just pick one because it's so remarkable and that's Molex, which makes electronic connectors of various kinds. And we acquired them in 2013. And they had a what I'd call a paternalistic paradigm. And what I mean by that is if somebody was in a position, the wrong position or maybe shouldn't even be with the company, they wouldn't change that. If they were making products for a customer, they were afraid to discontinue those that were losing money, they were afraid to discontinue that. So they would keep that. If they had plants that were unprofitable, they wouldn't close them or modify them because they didn't want to of the waters. So we fooled around with word smithing. There were a lot of word smithing. Oh, yeah. We're doing all this. We were applying the principles and they weren't. So we changed the leadership and the new leadership which were Molex longtime Molex employees dug in and now they are among our leaders in applying principle-based management. And one of those was a principle we haven't talked about which is so important is marginal analysis. They call it deveraging and a rose by their name. I don't give a damn what they call it, apply it. They get results and so what are we doing that's profitable and what is not? Not just products, plants but every activity and then they say okay we don't have the right people in the right role. So they totally reorganized and applied the division of labor by comparative advantage. And then they started applying creative destruction and principled entrepreneurship and now they're growing like a hurricane if I could say. They are now earning more than 10 times what they did when we acquired.
So it just blows me away. I'll just add because with Koch Disruptive Technologies over the last years I've gotten to work closely with Molex and I still work with them on partnerships and origination and seeing, I think one key point and what Pop's saying here is that had we not made the changes that he talked about both at the leadership level, the cultural level, change paradigms, that's one thing he did not say that's a very key principle in the book is when we acquired them, they were topline thinking, grow revenue, right? Well, if you're growing revenue, but your costs are still high and that's not falling to the bottom line and you're not creating bottom line value, the revenue, that's not the thing that you should solely be focused on, right? So thinking about real long-term value creation. So that took a quite a bit of time to change that paradigm and it took leadership change to do that. But if you fast forward to today and you think about Molex as one of the most exciting, fastest growing businesses at Koch, had we not made those changes and all this AI boom has been huge for the business, we have a data solutions business where because obviously the expansion of data centers, you need more connectors, you need more cables at scale. So that business is growing the last couple years it's grown like 20x. So you think about a large business growing at that speed and to have the ability, the talent models to go hire, they're in the process of hiring 10 to 15,000 more people over the next 8 to 12 months. That's just hard to get your head around, right? To keep up with this growth. But the point I want to make is that had we not made those changes, all this growth for AI and all that, it wouldn't have mattered. We would not have been able to capture it had we not driven those transformations the last two, three, four years. Yeah.
So I think that's you know I mean for everyone that runs a business it's like you know you have that opportunity and the market's there or whatever but if you're not set up to capture it that opportunity will be gone.
Yeah. So so then I mean as I hear that I'm sitting here in amazement right? But like so if applying these principles gets those type of results then why um you know where do leaders go wrong in you know kind of in applying you know any mix of these principles? Maybe start with you Charles. I mean where do they go wrong?
Well that's what I said. It starts with somebody having the right values. I mean, if somebody doesn't have the values, if they don't want to succeed by I'll put it this way that the way to succeed in our view is to help people find their gifts and their passions and show them how to succeed by helping others succeed and have a life of meaning. And this another one of my heroes, Victor Frankl, who survived four Nazi death camps by applying these principles that if you have meaning in your life, you can do anything. And there's a great book called Man's Search for Meaning. If you haven't read it, you need it's so inspiring. So it's similar to Frederick Douglass's tale, but much later talk.
Where I've seen it, Ski, is that only through my own failure on this, as a leader is not really understanding and applying the principle of comparative advantage. And I would say, you know, we all have our top three or four principles that have meant the most to us, but that one for me is number one because I lived it and I failed in it. I misapplied it. And back to kind of the fertilizer story. In 2014 I had the awesome opportunity to be president of Koch Fertilizer only to realize nine months in that that really wasn't my comparative advantage to run and operate a large business where my heart was and where my skills were building, not operating. And so I kind of viscerally learned through, you know, imagine being the boss's son and running the third largest business at Koch only to go fire yourself from the role and walk down the halls for the night. But no, but walk down the halls of Koch with all leadership and everyone knowing that that happened like, well, you know, the boss's son failed. He didn't, he failed at that job. But thank God that I did because it set me on a whole new path of origination and building new things, getting us into new technology, building Koch Disruptive Technologies and now doing what I'm doing now for the company that I'm much more skilled in. If I would have stayed in that role because I should because I was Charles Koch's son, there's no way the fertilizer business would be where it is today and I don't know where it would be, you know. And we got great people to come in and help clean up some of my messes frankly and now it's one of the most, as I said, exciting businesses. So I go back to again, I want to make this practical for everyone in the audience. Imagine if you had a business where everyone was everyone's role and by the way your role as leader was optimized around your true gift and your gift relative to everyone else on the team and you stop doing the things, the responsibilities that you're not good at relative to everyone else and you focus on the thing that is your power alley and that you can go just crush it and then so customize roles based on the team that you have and that you're going to get. I mean, so at Koch scale, 130,000 employees, this is the thing I would be a dream like if you really had supervisors understanding how to apply comparative advantage and help people overcome the ego problems of title and how many people are reporting to me and all the BS that doesn't matter and really think about where can I create the most value to go play the best role and biggest role to advance this vision that we have a one team approach on. If you can do that, you will win.
Yeah.
And because so many other companies are worried about, you know, John's been here for 25 years, so he needs to stay president or whatever, all this stuff that it doesn't matter. So I think comparative advantage is something that I'd recommend the audience really internalize. Think about that for yourself: truly, what is my comparative advantage? But then it's like, how do I help my team think about what theirs is?
And if you do that, wow, I mean, that's a big comparison. And this is so important. What Chase said is that, okay, you fired yourself because it didn't fit your comparative advantage, and you turned it over to somebody who's comparative, and now the fertilizer business has taken off fantastically, just like Molex. And then that goes back to, to have this all work, it needs to be in the culture.
When you turn yourself in and don't pursue the shiny object and I want more people reporting or whatever, then you're contributing more. And if you want to succeed at Coke, you better do that because if you try to hang on to things you're not good at, you're going to fail and cause the company to fail. And Dave Robertson did this. I talked to 2017 when he had, we had grown tremendously and he had 415 companies reporting to him. I'm a little hyperbolic here, Dave, but it felt like it, right? And so Dave says, 'Well, we got to reorganize.' And I said, 'Well, okay, push some of these.' 'No, no, we got to fundamentally reorganize.' So promoted people. And then we've done that again as we've grown to continually reoptimize because the visual by comparative advantage is not that simple to get because it's a compound meaning. When you're really applying your comparative advantage, it's when you're in a role where you can create the most value for the team and the company given what everybody else can do. Or another way to put it, you're focused on what you can do better than anything else you can do and better than everybody else can do. And when everybody's focused on that, I mean, you go gangbusters.
