And so if you look at Koch like macro, high level, one of the largest private companies in the country today, we touch the majority of the economy as I mentioned and operate in about 60 countries, 145,000 employees and growing. I would say the biggest differentiator of Koch and why we've been able to grow now over 10,000x since the early 60s is because
Ladies and gentlemen, we have a very special treat today. I'm going to sit down with Chase Koch. He's a member of the Koch family which owns Koch Industries. They're one of the largest private companies in America. Chase recently wrote a book with his father, Charles. It's called Becoming a Principal-Driven Leader: 41 Principles to Build an Enduring Business. In this conversation, Chase and I go through what is it like to build Koch Industries. How do they apply these 41 principles? What exactly can you use these principles to transform your life, your business, and broader society? This conversation is fascinating because it takes us behind the scenes. We understand not only the business deals they've done, the failures that they've had, but also how they apply these principles in their business, in their investments, and into technology. And I think that you're going to take away a lot from this conversation. It's one of my favorite conversations I've had on the podcast in a very long time. Chase is an incredible person and it's very fun hanging out with him. And so here's my conversation with Chase Koch.
All right, Chase, I thought a great place to start is Koch Disruptive Technologies. I think has kind of been your baby inside of the organization and really it to me is a microcosm of so much of the principles that has made this business amazing. What was the original idea for creating this disruptive technology group?
Well, the original idea, we hadn't really, we had dabbled in venture capital back in the early 2000s, but we went away from it. But this was 2016, 2017, and it started with like where my passion was really. And I've always been kind of cut out of this cloth of innovation and this principle that we actually talk about in our book called creative destruction, which is Joseph Schumpeter's principle of you've got to disrupt yourself from within, otherwise the market will do it to you and you'll become a dinosaur. And since I was a little kid, I always wanted to be working on the next thing, the next curve, not like what was right in front of me. And I've been working in the operating businesses since I was 15 years old. And so again back 2016, 2017, this is when technology really started taking off and reshaping industries. And I was in our business at the time, in our fertilizer business, and I saw an opportunity to, well first of all I saw what technology was doing to our value chain.
And there were two companies and two founders that really kind of rocked me back and I was like something is happening to us and we need to be paying attention. We need to understand the creative destruction that's happening in our industry. One was Climate Corp, which was David Friedberg, who ended up really looking at data science for the first time in agriculture and looking at weather data, looking at soil data and he built a company around that and sold data analytics to farmers. And I remember having a relationship with him because we were working on actually swapping data. I was working on enhanced efficiency fertilizers and the uptake of nitrogen for farmers and how to optimize that so they could do more with less. And he was all the data science behind it. So we started working on doing data exchanges to help each other. And then he calls me one day and says, actually Monsanto just bought the company. I was like, you're just getting started. You got like 10, 20 million of revenue, you know. And he said, 'Yeah, but they paid me $1.1 billion for it.' And that was like the first shot across the bow, I think, in technology and agriculture. And that just woke me up.
Because you were like, 'That's crazy. They paid so much money for our company.'
I think it was that, but also just the wake up of the value that was being created with data science and we hadn't really been focused on that. And so that one and then another friend of mine, Amol Deshpande, that created Farmers Business Network, which was basically the model of the Amazon of agriculture and being able to go direct to farmer and some of the services that he was providing I thought was really, really interesting and he could only do that because of where the technology was going to enable that business model. So I just basically went to the team and went to Koch leadership and said we have to be a part of these companies. We have to because that is going to enable us to see what is going to disrupt our core business with our nitrogen production assets and our global trading business. But also just be a part of that next curve whatever it's going to be. And so that was the birth of Koch Disruptive Technologies. We started looking at it from just an ag perspective, but we talked as a leadership team. We said, if we're going to really invest in companies like Climate Corp and Farmers Business Network, we should be doing that across all of Koch.
So, what are the companies that are going to disrupt Koch long term? And we need to see those early and we need to actually have skin in the game and invest in them in a meaningful way.
And so that was the birth of Koch Disruptive Technologies. But I would say back to the principles at play and why I wanted to do that. One, I talked about creative destruction and how important that is for the future of Koch, but two, mutual benefit. And that I felt that we could offer Koch as a laboratory because we, Koch touches the majority of the economy. We're like 80% of the various industries. We're because we're very, very broad and so when you look at that from a technology founder's perspective. So that, you know, many imagine a software company they want to sell to all these industries, right. So to be able to have one phone call into Koch and be able to sell 10 different operating companies across the economy, that's pretty valuable to a new startup. And so we can help them as a customer like that, as a supplier, as a subject matter expert. We have 140,000 employees. We're in 60 countries. So I was like, that is a laboratory for a founder.
And so the benefit that we can bring them by being that capability provider, not just money and capital, but by really bringing capability to them in a differentiated way. That was the benefit to them. But the benefit to us, the mutual benefit side of that was we're going to see around corners in ways that other companies can't.
What is Koch Industries? I think that's like a question, you know, I asked a couple of friends before we did this and I said, what do you want to know? And that was probably the number one question was just like, I know it's successful. I know it's, you know, the first or second largest private company in America. I know they do 125 plus billion dollars of revenue and this like amazing thing. How, what is it? Maybe let's start there.
Yeah. Well, I mean, I think because we're private, that is probably the number one question because we don't report publicly. And I think also there's a learning there. You roll back the clock 15, 20 years ago, we didn't do a good job of getting our story out. And so that's one of the reasons why I'm excited to be here talking with you is like I want to get the story out. Who is Koch? What do we do? Why do we do it? What are our principles? And so if you look at Koch like macro, high level, one of the largest private companies in the country, my grandfather started the company, the predecessor company to Koch back in the '40s. My father took over in 1961. Today we touch the majority of the economy as I mentioned and operate in about 60 countries. 145,000 employees and growing and I would say the biggest differentiator of Koch and why we've been able to grow now over 10,000x since the early 60s is because of our principle-based management framework that my father basically kind of founded and had the help of many, many leaders at Koch really comes down to empowering people from the bottom up with principles, not top down telling people what to do. And the only way you can scale a company in our view and in our experience is when you have a principle-based framework that you can empower people with, help them understand the principles and let them run.
It's interesting the way that we originally got connected was I read your father's one of his books, Good Profit, and I wrote this kind of notes that I took on it and in the book he one, he defines what good profit is, this idea of actually being able to derive it based on these principles versus, you know, kind of political advantage or regulatory capture. But the second piece that I think if I had to take one thing away from it and I've just almost like, you know, you find like a kindred soul, right, or you find like somebody who has this idea and you're like, oh my god I can't believe somebody else thinks this way, is he had gone back and he had studied all the great civilizations and basically said what made these civilizations or these economies work, he did. And in the book he outlines here's, you know, a couple of core principles that he had identified and then he's like, well how do we take these and put them inside of a company and I don't, I think a lot of people think of a business the same way they think of an economy or a civilization. But when I was reading about maybe your personal experience, sounds like he in that process also would sit you down every Sunday and like give you, you know, a version of Sunday school, but kind of the economic version.
You're exactly right. Yeah. You want me to get into that?
I would love to hear what was going on in these conversations.
Yeah, it's fascinating and it's been such a journey for me as Charles Koch's son and my sister would say the same. But to your point, he studied, he's so intellectually curious, he always wanted to know how does the world work and what drives human progress. And he studied everyone, this started, you know, mid to late 20s he got the bug and he just went down the rabbit hole and read all the philosophers, Hayek, von Mises, Milton Friedman, you know, economics, philosophy, history. But he also, he studied, this is what a lot of people probably miss, he applied the scientific method to his own learning.
Which means you try to disprove your hypothesis as much as you try to prove it.
So I mean he studied Mao, he studied Lenin, Hitler, and like why did they make the decisions that they did? But then you're right from there, understand these principles, good principles and bad principles, the ones that drove human progress and the ones that made us go into decline. And then said, okay, now let's look at different countries. Why did Venezuela not succeed and why did Chile as a comparison? Hong Kong versus China, North Korea, South Korea and just studied that and then pulled out the principles that drove the most human progress to your point and then brought those and said does this work inside a company, the same principles of what has driven human progress can they work inside a firm and that was early '80s were the first experiments on what is now principle-based management. But as a kid back to your point, I don't know, I must have been 10, 11 years old. My sister's two years older than me. He wanted us to learn the same things that he was learning that he was passionate about. So we'd have Sunday philosophy, economics lessons. And you can imagine like my sister is a much better student than I was. She's still way smarter than I am, but she would be like kind of front of the classroom taking it all in and just nailing it back. Oh, because he would quiz us every 15 minutes. Okay, what did I just talk about? There was always accountability. Always.
And I'd be there, you know, with my hat kind of pulled over my eyes, half asleep, you know, and I'd be the failing 12-year-old, the failing student in the philosophy course. But what I would tell you going from that as a kid, to when the light bulb actually went off, it was probably my late 20s and it was I was running one of the business units of the fertilizer business. I spent about a decade in our Koch fertilizer and I was running our international business and we were building a fertilizer terminal in Brazil and Brazil's one of the biggest import markets. Agriculture is their biggest industry. And I went in with a few other leaders very naively into Brazil thinking, oh, we're going to build this high-speed terminal. It's going to be great. Farmers are going to get their product faster. We're going to run a more efficient system at the port. It was in Paranagua, Brazil. And we spent a year working on this. And we got the deal done with a local partner. Very excited. We thought we'd have the terminal built within 9 months, ended up taking us 4 years.
And so, you know, bureaucracy, red tape, protectionism.
All the principles that my father was telling me about when I was 10, 11, 12 years old. You don't get it until you actually live it.
I experienced it myself. I felt it. I felt the pain of that. I felt the pain for those that worked in that value chain, the farmer, the terminal operators, and like there's not progress, there's not innovation, there's not creative destruction if you put all these barriers around a business. It can't advance, it won't get better. And so I lived that. And that's when I was like, light bulbs going off. Mutual benefit, openness, creative destruction, you know, a number of other principles at play there. But then I was like, okay, I'm going to start to really pay attention. I'm going to start to study this. I'm going to see how that applies to my job and my life. The other thing that was really interesting I think about, you know, my sister and I growing up and the family of Charles and Liz Koch was the focus on values and principles at the dinner table. So yeah, there's the economics and the philosophy part of it, but just the accountability when he, and amazingly he'd be home from work at 6 p.m. every day, he's building this amazing company, but his focus on developing us as kids was, I look back on it now with, you know, three kids myself, I'm like, how did you do that? But he did it and he did it by consistency and accountability of values and principles. We'd come home, you know, 6:00, he'd sit down and say, 'Okay, what are the five things?' as love, courage, faith, honor, and loyalty. That was our, you know, we were little kids, right? And those were five like almost, it's like our value system that we started with. Now, it would evolve over time into economic principles and that sort of thing, you know, a lot of fun. A lot of fun. Let me tell you about good profit versus bad profit. But my point being is that we'd sit down and Elizabeth and I would both have to articulate a story from that day on how we exemplified one of those principles.
So I share that because it's these principles. They're not just business principles to build a great business. You can apply them to anything and everything. You're building a nonprofit, you're running a sports team, you're raising your kids. These principles apply to everything. And what was amazing about my father was his consistency to apply it to everything. I would say consistency but also courage. Because, you know, I mean when he applied them more broadly outside of business, he caught a lot of hell for it, you know. And there's a lot of folks in the media that pounded him for what he believed. But if you have courage and conviction over something that you've studied, something about, you know, what drives the most human progress over time and I want to help the most people that I can, you'll take the arrows for it. And that's what he did. And I think this goes to why we wrote this book. I think what the 41 principles in Becoming a Principal-Driven Leader that we have in there is really a navigation tool for someone that's building a business or like I said hopefully help them in every aspect of their life because we are living in a time of unprecedented uncertainty, whether it's economic uncertainty, whether it's, you know, are we going to lose our jobs to AI or, you know, a lot of divisiveness in our culture.
We believe that a clear principles framework, it doesn't have to be our 41. These are just the ones that have helped us the most. But if you don't have a clear framework or tool set, how are you going to navigate all this uncertainty? If you don't, you're just going to blow with the wind. And like whatever, you know, especially the next generation, what's trending, what's cool, what people are liking on social media. So we feel like we got lucky with the timing of putting this out, like we are in a time of unprecedented uncertainty, how do we get these principles out to as many people as we can to help them with that framework.
You know what's interesting is tolerance is the virtue of those who don't stand for anything is a famous quote and you know you mentioned I think that your father but really the business and I think, you know, it's very obvious talking with you, you almost start with like what do you believe as an individual and then what do you believe that a company stands for which is just a collection of individuals and then what does society stand for and a lot of that divisiveness etc I think is there's a clash of ideas right at the societal level which frankly I don't think that there is like a one-size-fits-all solution, people always disagree, they disagreed for centuries, they will disagree well after we were all gone, right? But in an individual level, I'm always surprised at, you know, even if you're just interviewing a candidate for a job and you're like, you know, what do you want to do with your life? Like the intentionality is, you know, sometimes not there or, you know, what type of company do you want to work at and they're kind of like, you know, one that pays me well.
Whereas I feel like you guys almost are so clear in what you individually believe and what the company believes that it does probably serve as a huge magnet for talent. You got 145,000 people that work for you.
But I wouldn't be surprised if it actually repels away some people, too. But my guess is that you guys aren't upset about that. Like it's kind of like, hey, we want the right people to come here and work here, right?
Yeah. No, I mean, so one of our principles that we really frame up, spend a lot of time on in the book is talent. And I would say, you know, what principle-based management is our biggest competitive advantage that we have in the market. It's our operating system. It's how we do business and one really critical element of that is our talent vision and how we apply the principle of talent. And that is we hire on values first, skills second, and credentials last. I would say that's one of our biggest differentiators as a company.
What does that mean? Like most
So I'll give you some examples. So most companies I think are the opposite. Credentials first. Where'd you go to school? What companies did you work at before? What was your GPA and all that? And we feel like all that's nonsense. I mean, yes, you have to have a gift. You have to have an intelligence that the company needs, you know, and fill a gap that we have, but we look at it as we want someone that is contribution motivated. This is another principle in the book, very, very important. Someone's contribution motivated. They want to come in. They don't think they know everything. They're humble. They're open to a challenge process. And it's all, I call it like we want the farm team kids. The kids that they didn't have to work on a farm, but they come with that grit and that value system of work ethic and that they've got to earn their position. They have to earn the money that they're, that, you know, their base salary and their bonus. Just because they came from an Ivy League school and they have a 4.0 doesn't entitle them to anything, right? And so that has served us very, very well. And honestly, that's one of the reasons why we like being in Wichita, Kansas in the Midwest. And because we feel like we have access to a lot of that talent and some of these overlooked universities maybe that some of the other big companies don't focus on, like we want the cream of the crop, the kids that have the work ethic that are contribution motivated and bring them in and again I would say that is probably the biggest differentiator that we have. I mean, it's all about your team, you know, we all know that. And it's who you hire, but also who you fire.
And you know, when you have people that come in that are the opposite of contribution motivated, and you're wrong. I mean, in a company ours, we're wrong a lot. Hopefully, our numbers are getting better in terms of how many times we miss this. But if you hire someone that's more destructively motivated or deficiency motivated and comes in with that entitlement mindset or victim mentality or even worse yet destructively motivated where it's all about power and control. If my father were here, he would say the biggest failures that we've had across the company is where we let a destructively motivated leader, really smart individual end up being at the top of the company and we leave them there too long because what that does to the culture of the entire, because everyone looks at the leader.
It eats away, right? Everyone looks at the leader and reflection of the leader's behaviors and the expectations of the leader and how he or she holds themselves. So everything downstream of a destructively motivated leader is going to be a problem, right? It takes years to clean that up.
So, it was interesting. We had our board meeting last week and I was looking around the room. We have 12 different business units and five of the 12 were basically, I call them kids, but kids that I grew up with when I came back from, I graduated from Texas A&M and then came back in and was finding my way around Koch. These were young guys that I worked with. They were right out of school, 21 to 24 years old, and they're now running five of the 12 businesses at Koch. So, that speaks just to our talent model.
It's like not only values first, skills second, credentials last, but then once they're in, if they make a contribution, there's no corporate ladder.
They can go from this business to that business running supply chain to being CEO of a company. I'll give you one example. The gentleman that I worked with in business development when we bought Georgia-Pacific back in 2005, largest acquisition Koch has ever done still to this day. I think he was 20 years old, 21 and he was the lead finance and analysis on that entire acquisition at 21 and now he's the CEO of Guardian Glass which is a global glass manufacturer.
I'm just like looking around the room going this is amazing. It's an incredible story and like looking at the boardroom was a reflection of our talent model.
Today's episode is brought to you by Figure Markets. All right, everyone. Who wants a slice of $160,000? Our partner Figure is running a promo where they're giving back to their community. From July 27th to August 27th, any user who has never completed a crypto-backed loan with them can qualify for this giveaway. Check out the link in my bio for more information. We're living in a world of higher for longer rates, tighter credit, and fewer places to earn real yield. That's why Figure is interesting. Figure is the largest non-bank HELOC lender in the United States with over $22 billion unlocked for homeowners. They're now applying that same concept and innovation to crypto-backed loans and real-world asset yield. If you're holding crypto, Figure lets you borrow against it at 8.91% interest, which is 9.999% APR with a 50% loan to value, giving you liquidity without selling, without triggering taxes, and without stepping out of the market. They use a decentralized MPC custody so assets stay in segregated wallets, protected from rug pulls, and they've introduced liquidation protection to help manage downside volatility. And for investors looking for yield, Democratized Prime offers up to 9% APY paid hourly backed by real-world private credit, real cash flows, and not speculative token emissions. Figure is building a new capital market on blockchain, and now you have access to the upside. Check them out using the link below.
When you're going through the like interview process, right? It's I think the way you get at like what are your values is very unique because what you guys aren't screening for from at least my understanding is like you're not really like, hey, who's woke, who's not, like that's kind of like high level very simple stuff but it's actually this like contribution mindset, right? It's understanding almost of like, hey, do you understand what a comparative advantage is and how you implement it and the ability to do some of this, what are you doing in the interview to kind of sus this out?
Great question. We're learning all the time. Yeah.
Yeah. And I'm asking from the perspective of people who are watching this are, you know, people who run tech companies. They may be small business owners. Some of them may even be big business owners. And like I think that's one of the big questions people always have is like how do I get better at analyzing the person sitting across from me as to whether they will be a good fit for my company or not.
Well, and the downside of getting that wrong is huge, right? Just like we talked about the wrong destructively motivated leader or if you miss on a hire, it basically costs you 2 years because you're going to wait 9 to 12 months to actually make a decision, give that person a chance and it doesn't work out. Go back into the market to try to refill that, you know, that role. That's another 6 months probably and then there's another 12 months of development of that person. So the real cost of a bad hire is significant. So to your point having a great capability on how you do that up front is a huge competitive advantage if you can figure it out. So the way we do that is, I mean each business has their own, you know, kind of HR capability and the business leaders are responsible for their own process and how they do that. So this is not a cookie cutter approach. But what we try to apply is an interview-based model. Well let me start with the pipeline of talent as well back to where you, what pond are you fishing in matters, right? And if you have a values first mindset you want to be fishing in the right pond that fits your business. So we do that. But then the second thing is the interview process itself is we try to get a lot of different people that are skilled at different principles. So whether it's respect, humility, challenge process, innovation and creative destruction. You may be very good at asking questions around innovation and how thoughtful they are. Give me examples when you've transformed a product or a system, a process, improved a plant, whatever. But I may be better at sussing out whether it's humility or integrity or respect and some of these very squishy kind of subjective principles. So what we try to do is get a team of seven or eight people to all hit the interview process from different angles.
And then we have like a 360 review process where, you know, everyone raised their hand. Would you hire this person or not and why? And give me the examples that you went through on why you're confident this individual is strong on the value side. It's a lot more about the values than the actual skills. Because we believe once you get them in if they're contribution motivated and they have the right raw material to learn that they can come in and learn and we can teach them. We take a, and this is also like you have to take, it's long-term thinking versus short-term thinking even on the talent development side.
So that's what I would say is and now what we're doing is applying AI to this. And so we're working with a company called Happy Robot.
Okay. That is what a name.
Yeah, exactly. I can't explain why it's called that. But it's pretty interesting. I just got a review on this and some examples of how we're leveraging AI because when you're doing it at scale, I mean, think about what I just described that takes a lot of human capital and time and it's the most important decision you make who you're going to bring into the company. But if you can complement that with artificial intelligence and automate some of these things to where the top of the filter you're getting to who are the contribution motivated of these candidates and these are the top 10 of the hundred that we've talked to, you can make it a lot more efficient and hopefully improve your batting averages as well.
Yeah, when I was at Facebook the product manager interview track is very similar. They have three people who interview. One is more of a technical interview, one's more kind of an analytics interview, and then one is just pure company culture interview. They do not tell the candidate, you know, who's doing what. And then afterwards, I forget the exact details, but I think it was all three have to go into the room and has to be at least two strong hires and no one can be a, you know, weak to a strong no hire.
And when you're like going through the interview process, you're kind of just like, hey, I'm talking to these people, you know, I'm meeting whatever. When you're on the other side, like, oh, this is way more analytical. This is way more intense than I thought. You know, how the hell did I get in here? You know, type almost like when you're doing the interview, ignorance is bliss.
You don't want to know. 100%, 100%. But, you know, one of the things that I think is really interesting is you mentioned AI and, you know, we started the conversation with this disruptive technologies, but I think when most people think of Koch Industries, they think of the very hardcore agricultural stuff and probably things that they historically have to the business. I think I understand that you guys are starting to push in like from an actual product standpoint and service standpoint. You guys are starting to touch more of like the AI industry and it's related from a capability perspective. It's probably not industries that people would expect you guys to be showing up in.
Yeah, absolutely. I would say there's a big misperception and you started there so I'm glad you came back to this of who Koch is. A lot of people think of Koch as like where we started as a large private industrial company.
You were out pumping oil yourself.
Well, I did do a lot of that. I had all the teenage jobs every summer working in refineries and feed yards and gas liquids plants. So, I cut my teeth on that. That is true. But if you look at Koch today, I mentioned we touch the majority of the economy. We're in everything from wood products to glass manufacturing to agriculture. But we're more of a technology company than an industrial company. I think that's a better framing for what reality is today. We've invested 50 billion over the last 8-ish years. And those are in technology. And two examples would be that are two of our 12 different business platforms that we have are just pure technology companies. One would be Infor that's actually been based here in New York City but that's ERP software, right? So when we acquired Infor, that brought us north of 30,000 software engineers overnight so you can imagine from a capability lens what that did to teach us technology and how we should be applying it.
Why would Koch buy an ERP software platform like again, you know, oil, hay, cattle.
You said it in your question, capabilities. We recognized that we were behind in software and how our businesses were running. We had some old, you know, a lot of different software systems that were kind of holding some of the companies together with bubble gum and bailing wire. We just were underinvested there. So I think when the Infor opportunity came around, we saw that that could be a new capability for Koch, not just a new business, but it could teach the rest of the companies about how to run a business more efficiently, how to understand our customer better, how to have better analytics in our supply chain, right? And so that's kind of getting into our business development approach as well. And if you look at the history of Koch, I think this could be helpful to your audience as well. And the evolution of it, one of the biggest differentiators was our application of the principle of capabilities.
So, how did Koch go from being a small southern Oklahoma crude oil gathering company to one that touches the majority of the economy? A lot of people like, how does all that make sense? And it is these principles that we're talking about, but one in particular is capabilities. We have looked at the growth of Koch through the lens almost like of horizontal capabilities as opposed to vertical industries. So when you think about business that way of like where am I strongest? What have I demonstrated to customers where I can add unique value and build competitive advantage? Koch started around engineering, heavy operations. So you know, refineries, pipelines, things that required significant investment that were difficult to operate. We had a strong capability there and then trading and logistics. We're pretty good at moving product from point A to point B and really optimizing that for the customer. So when you combine those three things, those were our core capabilities that we looked at and said, okay, instead of, well, we want to get bigger in pipelines. We want to go from whatever 20% market share to 40% market share or the same in refining where we started. We looked at it and said where can we apply those three capabilities across other industries that are maybe slightly depressed where we can get in at a reasonable valuation, test and learn and bring those capabilities horizontally into new industries.
Whether it was in fertilizers and agriculture like we got into that in 2003 buying farmland out of bankruptcy. Georgia-Pacific 2005, wood products, how does pipelines and refineries relate to that? Well those three capabilities I described we could bring that value to wood products. We could bring that to agriculture. So I would say that's a very different way to look at business development where you want to grow because a lot of companies and I think public companies fall into this trap as well. It's just how do I just get more market share in my vertical industry whereas we look at it horizontally.
I've heard your dad Charles and you both talk about this where this like capability component it almost prevents you from thinking of we're an oil company, we're an agriculture business. It is very much, hey, we're really good at moving things, right? After we move
Right. And I think that some of the great businesses have done that and you know you could even look at something like a Berkshire, like what is their, you know, kind of competitive advantage? It's like they're really good at allocating capital and it kind of doesn't matter what the underlying business is. They're in everything from candy to, you know, Apple, right? But they're really good at understanding business and underwriting, you know, risk and downside and then allocating capital. You guys, I think do that. But what I think people probably don't understand is a lot of these opportunities, my understanding is some of them are offensive where you guys are going out. But you guys also have become so large and so well respected that I think you guys get a lot of phone calls.
Yes.
And people are like, 'Hey, you know, there's this thing in bankruptcy, you know, are you guys interested?' It sounds like maybe even the ERP software was more of like somebody brings it to you rather than you guys are hunting for ERP software. And so having that framework of like we know what we stand for, we know kind of what we want to be in. We understand what our capabilities are, but we also understand where we're weak. When those opportunities come up, I'm assuming it makes the decision-making much more efficient in terms of do we want to spend time on this or not.
It does. But we are, a lot of people would think, okay, we've got some five-year plan to grow the company and which industries we want to be in. We're much more reactive and opportunistic.
And so Molex is a great example of this. We acquired Molex in 2013. Molex is one of the largest connector companies in the world. Connectors and cables. They're in everything from your iPhone to healthcare devices. They've got a whole healthcare with Philips Medical. They're in automobiles as well with autos, they're basically computers on wheels. And then we're in data centers as well the connectors and the cabling. So when we got that opportunity and that was owned by the Krehbiel family and that was a public company for 30, 40 years but the Krehbiel family had majority control over that but they wanted to, they didn't have a succession plan and they wanted the ability to maintain the brand and the legacy over time and look at a company that would continue to invest in it and would be a great long-term home. So, that opportunity came about because I think we had built that brand over time and the Molex story is amazing because we ended up acquiring that. We convinced the Krehbiel family that Koch would be a good home for it. We acquired it and but we didn't know a lot of, we didn't know anything about cabling and connectors at the time but we have a team that is within the Koch Equity Development team that is excellent at analysis, looking at industries but also being a capital solution provider and understanding the family in terms of what are their goals and then how do we wrap a capital solution around that. There's a lot of different examples that we've done there in family-owned businesses specifically. But with Molex we looked at that and that team said like look, the future is IoT, like this room right, it's going to be connected, there's going to be data so you can optimize it but whether it's a plant, a product, IoT is the way of the future and we don't really understand that, that is a capability gap for Koch.
So when you look at the mutual benefit of the Molex deal, we could help the Krehbiel family but they could help us by getting into IoT but then applying our principles to that to help it grow, stay private, you know, get into new areas like data centers that we got into. And that's been one of the most interesting stories I think of any acquisition that we've done. And there's more I could say there but I would say when we bought that one of the most important principles was changing paradigms because that as a public company going private and going from top-line thinking and worrying about revenue and revenue growth to bottom-line value creation and then also shifting from there was a lot of top-down decision making as well where we've tried to move that culture over time to bottom-up empowerment and it's a case study in terms of transforming the return on capital of a business with principles and so there's more I could say there but both on the business like how we think about growth at Koch that's a great example filling a capability gap with technology but then also having to change a paradigm culturally really within the organization.
So how do you take a business? Let's use this example or another business. You acquire the business. They're giving you the business and selling it to you because reputation, you've got the capital, you understand what they need, etc. But then I'm assuming that the operating principles and the operating, you know, kind of day-to-day tempo is very different, especially for a public company versus going to the private, top-line revenue versus profit oriented. And you said something to me one time which I just keep thinking about is like the holy grail of every business owner is what if your people knew what to do without you having to tell them.
Yeah. Well, I'm glad that was memorable for you. But
I was like, 'Oh, this guy, if he could teach people to do that, that'd be amazing.'
But like how do you implement or get to that end result with whether it's Molex or another business that you guys acquire? Because I think it's different. If you're starting a company, you get to handpick. Okay, here's the people we're going to put into it. They already come with our operating principles. They already understand how we do things.
That's the DNA of the company from day one is Koch.
Yeah. It's different when you buy a company and you bring it in. Now you almost have to, you know, kind of change the plane or build the plane while you're in midair. And so you're trying to get all of those people now have to go from maybe top-down leadership to no, you're going to know what to do without us telling you what to do, but we're not going to change many of the people.
Yeah. I mean, your statement is right on. And when people have never heard of Koch, never heard of principle-based management, I always say, imagine a business where people at scale, people know what to do without being told. And people like, well, that sounds wild, right? Just like your reaction to me on that. But, to be clear, that's a vision. That's not reality. But you have to start with like what is the culture that you're aspiring to have? And so if
If you have that as a mindset, then you truly have you're moving towards bottom-up empowerment as opposed to top-down control and dependency. Because let's take the other side of that where you have the smartest guy in the room. The leader that is setting all the strategies, that is making all the big calls, and then telling the 10 other leaders around the table, you do this, you do that, you need to go get this customer, and that you're missing out on all of the knowledge downstream of that leader to empower those other 10 leaders to say you're closest to the opportunity. You're closest to the customer. You're closest to the problem. Go figure out and innovate the best way to create the most value.
I'll give you an example of this. So this is my father's approach, and as we talked about before, the culture is downstream of the leader. If my father ran Koch top-down and he wanted to make every decision, well, you're going to have that throughout all the supervisors within Koch. But his approach is more, my comparative advantage is around these abstract concepts and principles, and how do I teach leaders this to carry it into the business and then let them run. Right? So the rest of the leaders see that and like, oh, wow, I have permission. He's empowering me now. I have permission to empower my people. Am I running my business top-down? Am I telling everyone what to do? Am I acting like the smartest guy in the room? And so, that is I think one of the biggest differences culturally.
But to your point, doing an acquisition and where you bring in one that was run more from top-down and there's a lot of dependency on the leader to make call the shots, it takes years. It takes many, many years to do that. And you have to change out talent. You got to get the right leaders in the right roles. But I think once you have the leaders that really have a principle-based approach, you see the results almost immediately.
And also the results from the water cooler talk in the company. What do the employees really say about their... do they love what they're doing? Are they self-actualizing? Do they feel like they're empowered? Do they have the flexibility to innovate? And so, but yeah, that growth is a challenge from an acquisition standpoint.
I don't know why I never thought of this before, but do you think that Charles got some of this idea because his father, your grandfather, said to him, come back and run the company and you can do whatever you want except for you got to get my permission to sell it.
Yeah. I mean, Fred leading by example there.
And he said, come back and run Koch Engineering.
And he knew my dad didn't have a lot of experience in it, but and he started him on a really hard business.
For context for those that don't know, Fred Koch is your grandfather and he had Koch Engineering. Your father, Charles, probably was not that interested in coming and running the business and basically your grandfather convinced him to come back by saying here's the keys to the kingdom. It's not a huge business, but you know, we got something started.
Go knock yourself out, do whatever you want except for sell the company.
Yeah. I mean, case in point, this was a time when my father came into the company, my grandfather asked him to do that. There was only 300 employees at Koch.
Today I mentioned there's 145,000. So I remember my first job, I was 15 years old. I was employee 8,548.
Yeah. Right. But it just goes to we've seen so much in terms of both failures and successes of the company and like just high-level message from the book and all the learnings and all the stories that we tell, we learn a hell of a lot more from failure than we do success.
It's interesting this idea of failure because one of the themes that I take out of the multiple books I've read now, I think even actually I've read some of the... I don't know if you know this, I've read some of the books that I would say the critics have written and I always like reading. There's a book that was written about one of the Murdochs, there was a book that was written about Peter Thiel, and it's like very much like the negative slant. And what I find interesting about them is like one, you kind of get both sides of the story, right? But the anecdotes from the critics are always like the most absurd kind of things, whatever.
But throughout every single book, one through line and even in some of the public commentary is we almost went bankrupt. We almost went bankrupt. And it's like, you know, Purina, and like we can go through like there's four or five of these examples that are constantly talked about. And so like how much of the success that the business has today was you had to be willing to take the risk of almost putting the business out of, you know, almost going out of business in order to drive, you know, 10,000 or 10,000x growth.
Yeah. Well, we didn't have to make those dumb decisions. But the way we describe it is that we learned a lot from those failures and we learned what principle we missed or probably set of principles that we missed to basically dig ourselves out of the ditch and transform and started applying the principles.
So Purina is a great example and we tried to basically in the ag world basically be part of the entire value chain. It was called the gas-to-bread spread, everything, you know, pulling natural gas out of the ground to make the nitrogen that was then planted to grow the food and then pizza crust on the grocery store. And what you realize is that we had very quickly in a short period of time completely violated almost all of our principles. Where are your true capabilities? Where can you add value? We violated experimental discovery. We plunged into things and made huge bets without really understanding them. And yeah, I mean like that Purina was bankrupt the day we bought it because we didn't apply the scientific method, another one of our principles, to the diligence process and said what are all the reasons we should not do this deal.
And so when you have that mindset and everyone's full board, we got to get this deal done. We got to have this whole gas-to-bread spread vision, then what you're going to do is like look the other way on some of the diligence. And so we find ourselves day one out of the gate that we acquired a bunch of out-of-the-money hog contracts that were hundreds of millions of dollars underwater.
So I mean just think about two principles I went through there. Where are your true capabilities? Focus on that. Don't try to overgrow into all these different value chains that you have no business being in. But then also experimental discovery. It's okay to fail. But make a responsible-sized bet that is close to or equal to the size of your knowledge.
Right, and we talk about failure as it's not a failure if you're really driving experimental discovery and the value of the learning exceeds the cost of the loss or the failure.
And so I think that's being a private company thinking very long-term. If you're worried about, you know, it's like we got a little red ink in the next 3 months, you're not going to be driving those experiments, right? And so we try to have a very robust experimental discovery culture to where every capability, every individual, every business, they're coming to the quarterly business reviews with here's where I'm experimenting. Here's where I'm innovating. And they're not beat down because they're like, hey, we shut this experiment down and this one and this one. It's like, well, what'd you learn? How are you going to apply that to your future strategy?
Today's episode is brought to you by Arch Public. Arch Public has just expanded its agentic trading platform beyond crypto. So pay attention. This is a big one. Now they are automating strategies across stocks, commodities, and ETFs. And I think that this is going to be huge. You can now automatically take profits when one market hits new all-time highs and rotate that capital into other markets showing more opportunity. Whether you're rotating capital into AI stocks, gold, if you're investing in the S&P 500, or you're accumulating Bitcoin, Arch Public brings real discipline and automation to your investment strategy. Additionally, they've launched a powerful new tax loss harvesting tool. With crypto being so volatile and its exemption from the wash sale rule, Arch Public can offset gains with losses without compromising your long-term positions. It's exactly what every serious investor does. Institutional grade automation that works across every major asset class. There's no more emotional trading, no more missing tax opportunities, just smarter, hands-free execution of your preferred strategies. Go to archpub.com right now. Connect with their team. Set up a time. Bring your accountant if you'd like. Then you can learn what automated trading can do for you. archpub.com.
Today's episode is brought to you by Uphold. Are you someone who's tired of juggling multiple apps just to trade, earn, stake, or spend your crypto? Then listen up because Uphold does all of that in one single unified platform. You can access 300 plus crypto and fiat currencies with an interface that works for you. Whether you're a beginner or an expert, Uphold also features any-to-any swaps where you can swap crypto to fiat, fiat to metals, and tokens to tokens directly in the app. If you prefer self-custody, Uphold's vault gives you multi-sig security, key recovery, direct trading access, and peace of mind without giving up convenience. Uphold is also 100% reserved, meaning no fractional practices, and proof of reserves are updated every 30 seconds, so you can verify your assets anytime. For US users, you can even earn yield on dollars with a USD interest account. No fees, no minimums, and funds are insured up to $2.5 million through the Atomic Cash Suite program. If you want one app for your entire digital asset life, check out Uphold today. Go to uphold.com to learn more. uphold.com. Go check them out today.
I read a book that talks a lot about legacy and one of the things that it talks about is the rise of meritocracy has a lot of benefits. But there are certain examples throughout history where actually meritocracy is a negative. And one of the examples is like take a farmer. If you're like the fifth generation farmer, you're not like who's the single best farmer who can go get 10% better yield out of this farm. You're like hey I want this to continue to provide for my kids and grandkids and great grandkids etc. You train your kids to take this thing over.
When it comes to failure, do you have an advantage because there's this element of like you are part of the Koch family and if somebody else was, you know, in that disruptive technology like in a weird way, 6 months, 9 months, 12 months, two years of losses, like at some point do they kind of get whacked, right? And it's like, hey, this isn't working. But almost in a weird way, maybe there's some genius to, you know, you and your father etc saying like, no, let's put the person who actually has the intestinal fortitude to be able to see this very long term and know that the losses are going to come early in disruptive technology like is that an advantage?
I mean, I think the outcome of that could be that wasn't part of the thought process. It was just more of there's a market opportunity we need to be in venture to see. You were talking Koch Disruptive Technologies and why I started that and that aligned with my comparative advantage and my passion of where I could add the most value.
That now I'm not running that anymore because it had been built up and it was growing and it was in a position where I know where my weaknesses are and you know you mentioned like I don't know if we're happy about our failures or not, but I learned a hell of a lot from being in roles that I shouldn't have been because what I realized is I'm a builder, not an operator. I'm not a good operator.
And what is... you've said this a couple times. I've seen like what is the difference between those in your mind?
