Becoming a Principle-Driven Leader | Chase Koch with Salen Churi — Austin, TX

It's awesome to be in Austin, Texas. I lived here from 2000 to 2003 and it's just such an incredible city, incredible culture, incredible vibe. You know, I'm an Aggie, so for those of you... Yeah. Yeah. And I see Jason in the back. I see you back there, buddy.

But somehow Austin accepted me right out of school. And one of the reasons I wanted to live here was because I love music and I love the power of music to unify people. And I missed this place a lot. I will tell you a quick story. So you can imagine graduating with a useless marketing degree in 2000 when the tech bubble popped, trying to find a job here. And so the only way I found a job... I was bound and determined to not use the Coke network. I wanted to do it on my own. I should have used the Coke network. But I was literally cold calling trying to find a job. I went to this little marketing firm called EQ Strategy here in Austin and I knocked on the door. There's this great guy. He's like, "Dude, I'm not hiring. Nobody's hiring, especially with a resume like yours. It's not happening." So he sat down with me anyway. I told him about my job experience as a kid. He's like, "He must have some work ethic. He's worked every summer almost all the way from 15 all the way through college." And I said, "Roger, I know you're not hiring. I will work for free because I'm not gonna sit on my ass and do nothing. I started getting jittery not doing anything. I was having a lot of fun and partying at night. I wasn't working." So he called me back two weeks later. He's like, "You got the job and I'll pay you $28,500 a year. But you got a job." So anyway, I have so many great memories of Austin, but that's my first real job in the corporate world after all my internships at KO. And I just want to say it's badass to be in Austin, Texas. I really love it here. You guys have an incredible community.

Well, yeah. I'm sure a lot of people are asking, well, this is your dad's fifth book, how did you earn the right to be part of that? And I was so excited to be pulled into the process. Just a little bit on the why we wrote it. We just want to help people. It's that simple. We've learned so much within the business over 60-some years through a lot of failures, almost two bankruptcies, of when we didn't apply principles we failed and when we did we were able to dig ourselves out of the ditch from those failures and transform ourselves. If you look over the course of history back to when my father took over the company in 1961, it's grown 9,000-fold because of those principles. At its most simple, what is different about Coke? It's the principle-based approach and principle-based management and how we try to empower people with these principles. We've had a lot of learnings. We wanted to help our own employees first so we can continue the growth and help them learn from past failure and apply principles so that they can not only transform their own lives as individuals and self-actualize and live great lives but transform the business and get results over the long term. We have a lot of stories on the social change side and the philanthropic side. Same principles apply across that. My father and I have our own personal stories that we share of where we failed and how principles pulled us out of the ditch. So back to the core question of why did you guys write this together? Why did you do it? We want to share those principles so other people can transform their lives with them at the most basic level.

But to your point on what's going on right now, unprecedented uncertainty, disruption with AI at a level we've never seen. Divisiveness in our country, all of those economic uncertainty, too. We kind of got lucky with the timing honestly. Because these were just going to be stories that we shared with KO employees and Stand Together employees. But with my role at KO, which is I had been focused on disruptive technologies and trying to invest in and help the most interesting and disruptive founders in the world. That's why I started KDT. But now I'm doing that basically broadly on any kind of partnership across KO. I'm very externally focused. I'm in market. My job is to build relationships and open new doors and get us into new areas and new flow that we haven't been in before. I talk to a lot of people and a lot of people ask the question, how did Coke do it? What's the Coke story and what's your secret sauce and all of those things? And so, people ask for it. That's why we're like, let's just make this public. And we think we can be helpful with these principles, but we got lucky with the timing. So that's why we're more excited than ever. And the last thing I'll say on your question is that without principles, what do you have to navigate all of this uncertainty? Some people just blow with the wind and like whatever the fad or trend is. Our approach is more of like whether you're in a real shitty time or whether you're in boom times, stay true to these core principles because every time we've abandoned them it's put us in the ditch. So we have such pattern analysis on this that these principles really provide that navigation tool to say no matter where the wind is blowing or how hard it's blowing, we are going to stay true to these core principles. And they also give you courage. It's hard to have courage when everything's going against you. So when you have conviction with your principles and courage to do them, you're going to stay consistent to them.

When you look at the long timeline you see the 9,000x. When you're in it though, you're up and you're down. Yeah.

This isn't the first time we've had uncertainty. Yeah.

Yeah.

Okay. So who is Coke and what is Coke? Today we are a private company based in Wichita, Kansas. We touch the majority of the economy with the various businesses that we're in. A lot of people have a misconception that Coke is an old industrial company and that's all we're involved in. It's actually a smaller and smaller portion of the classic industrial term part of Coke. We've really transformed ourselves from being an industrial company to a technology company. Yes, we're in energy, fertilizers, agriculture, but we're in wood products as well, and consumer products like toilet paper and paper towels, glass manufacturing, but also software, ERP software, and technology with Molex for example with connectors and cabling that's making all of this AI stuff work. So we're very broad. We touch the majority of the economy. We're in close to 60 countries and over 130,000 employees now. Significant scale. I think the thing that's interesting if you tie this back to principles is where Coke started relative to where it is today. There are so many stories within that. But one big takeaway to understand the business and why it's grown the way it has is that people ask, you started as a small southern Oklahoma crude oil gathering company and then all the things I mentioned, all these industries, how did you get to that? Because it doesn't really make sense if you just look at it that way. The simple way I would describe that is one of our 41 principles in the book, and that's having a capabilities focus. So thinking about things from capabilities and what you've demonstrated you're good at doing and adding value to customers, as opposed to thinking that I'm in one industry and I just want to grow market share in that and that's how I grow. A lot of companies... and being private has a huge advantage to do that because we don't have analysts down our throat all the time saying you need to focus and you need market share in this industry. If that were the case, we would have just stayed in energy and tried to grow from x% to y% and make the analysts happy short term. But we flipped that whole model on its head. We look at the world horizontally instead of vertically by industry. We say what are the core capabilities that we've demonstrated that customers will pay us for and keep building on those capabilities, and then point those at industries where maybe we can get in and add value. Those capabilities early on were running large physical plants like refineries and fertilizer plants. It was also trading and logistics. So we were good at pipelines and barges and trucking and moving product from point A to point B. And we had a lot of engineering frameworks and mindset too. So when you take those three capabilities starting in energy, we said where can those capabilities be applied that we can create value and grow that way. So that's taken us from starting in pipelines, to getting in refineries, then maybe chemicals, then fertilizers, and from there to wood products. You need those core capabilities in wood products too. So when opportunities come along you say can our capabilities add value and bring synergy to a company? Does that make sense to acquire or not? And along the way you pick up new capabilities.

On that Georgia Pacific example, we started in the building product side that we felt very comfortable with. We almost didn't get the branded products with it. We bought that back in '05 and thank God they made us take the whole thing because building products, no one was building anything anymore, so that was in the red. But the consumer products which were paper towels and toilet, all the necessities that everyone still needs even in down markets, that was ripping and doing great. So the capability that we picked up was consumer products and branding. Then we started taking branding and applying that to fertilizers. So it's that if you have a collection of capabilities and you have multiple businesses or different things you can operate in, then you can have another principle, the republic of science, where you share learning across all these businesses and then all boats rise with the tide if you can operate in a way that really is one Coke instead of a bunch of siloed companies.

Um, if my father were here he'd say I'm damn good at failure, which is a great line. He says that all the time. He sees it a little bit like a stoic philosophy: thank God for those failures because you learn a hell of a lot more from failures than from success. He talks about his personal failures, his business failures, failures in social change. And I have plenty of my own. Maybe I'll pick one business for an example from a Coke standpoint, but I can share some personal failures too. There are so many younger folks in the room, I'm sure you're looking at what your next job is and your opportunities. Just to share my personal story: I started in agriculture and spent more than a decade in our fertilizer business. But it started when I was 15 years old in the feed yards. My first job at Coke was when I was 15. I had a really bad attitude. I was a good tennis player, but I wanted to quit and party with my friends. My dad said, "You either give 100% on the tennis court or I'm going to get your ass a job." I said, "Get my ass a job then." So the next morning he had me in a pickup truck on the way to Syracuse, Kansas to work at one of the largest feed yards in the country. I went from country club rich kid to shoveling cow [manure] in 12 hours. A lot of people would say how unfortunate. But as much as I despised him at the time for forcing me to do that, I think he saved my life. I have no idea where I'd be had I not done that. The reason why: my grandfather wrote a letter to my father in 1936 when my father was three months old. He put it in his safety deposit box that when he passed away, he wanted my father and his brothers to read. It went something like this: "You're going to get what seems to be a large sum of money when I pass. You can do one of two things with it. You can either let it destroy your life and be a bum with money, or you can apply yourself and use this money to go grow and build and add value to other people's lives. And if you do that, you will feel the glorious feeling of accomplishment." That gives me chills because I feel like that feed yard experience that he sent me through did the same for me. I really felt the feeling of accomplishment by digging post holes and shoveling cow [manure], because I went from not feeling that at all to actually feeling like I earned something. I worked with a team, I proved myself. I became addicted to that feeling. I don't want to be a typical third generation rich kid. I want to add value. So from that point on, I worked every summer all the way through junior year in college across all these manual labor jobs.

So fast forward to a business failure. One would look at that as well you failed, you quit tennis, you were nationally ranked. But again that failure was a blessing in disguise. Fast forward: I had a lot of different jobs when I came back to Coke. I left Austin in 2003 because I wanted to go back to Coke. I saw such an incredible opportunity to learn from my dad, from leaders like Dave Robertson who's in the audience, co-CEO with my father today. I wanted to feel the feeling of accomplishment again. So I went back into the fertilizer business. I spent 10 years in that business. But in the late '90s, we got ourselves into a lot of trouble because we violated a principle around experimental discovery. We went all in on a vision of trying to control an entire value chain that we called the gas to bread spread. We tried to do everything from pulling natural gas out of the ground, turning it into nitrogen, applying it to farmers, turning it into wheat and corn, and then also the consumer product side with food. We got into pizza crust, for God's sakes, and ended up on shelves and wondered why we were failing across the whole thing.

We violated with that strategy, we violated all 41 principles in the book.

You have to read the book to know how bad they were at this. So we totally violated the capabilities: 'we can own the whole thing, we can do everything from consumer to pulling natural gas out of the ground to running operations.' When you think back on it, it was crazy. We violated the scientific method, which is disproving your hypothesis as much as you try to prove it. We were buying companies through that value chain just to grow without asking, 'I wonder if we should do due diligence on these hog contracts that we're buying through Purina?' Only to realize the day after we close they're out of the money by several hundred million. Something as simple as driving the scientific method can completely bankrupt you if you don't do it. That's why one of the 41 principles is experimental discovery: try a lot of things, but don't do it in a way that sinks the company if you're wrong.

No, we picked these 41 not because there's a magic number. Why wouldn't you do 40, a nice round number? But these are just the 41 that when we went through all the different learnings and principles, these were the ones that helped us most.

Well, I mean, first on your comment on culture: a lot of companies have their value system on the wall, but what you do is quite different. Employees pick up on that in the first three minutes if it's real or not. My father says about parenthood: if you don't lead by example, how do you expect your kids to? It's the same with leadership and driving a real culture based on values and principles. Living up to that, hiring based on that, firing based on that, incentivizing based on that, promoting people based on those principles. That's the only way you have a sustainable culture. The other important principle that I see as overarching is bottom-up versus top-down. Here's how I think about Coke's culture: imagine if you had a business where everyone knew what to do without being told. That's the vision. With a principled approach codified and innovated to connect with people, you get the best talent and empower from the bottom up with these principles. The alternative is top-down with the smartest guy telling everyone what to do. Our vision is to be as bottom-up as possible. That's the only way. I look at my father and Dave Robertson: they never say you shouldn't do that strategy; they ask how can I help you succeed? What barriers do you have? Are you applying the principles? That's how Coke has scaled to operate in 60 countries and take on new acquisitions, which is very hard because you're buying a different culture and trying to plug it into our culture. But to your core question, if you can apply a bottom-up approach with clear principles and lead by example, that's the competitive advantage.

Can I say one more thing? I think this is really important especially for the younger folks here. One of our principles is contribution motivated. Back to who you hire and how you empower people. So much of it is about people selection. I was talking to Carlos about how they select students here, and there are a lot of similarities. We hire first on values, second on skills, last on credentials. Most companies flip it upside down: start with credentials, Ivy League school. We don't give a damn about that. What gets results are hiring contribution motivated folks. I call it the farm team. They come with the mindset of 'I've been working since I was a kid, I'm coming with grit, I want to make a contribution.' The opposite is deficiency motivated or destructively motivated: victim mindset, entitled, 'I have this resume, therefore I'm entitled.' Or seeking just power and control.