How to Make a Few Billion Dollars By Brad Jacobs

Something big, because I can't do something small next, otherwise people would be very disappointed. Very high expectations. So I'm going to do the same thing I've always done. I'm a one-trick pony. It's a good trick, but it's one trick. I know how to take an industry that's big, something that's preferably hundreds of billions of dollars in size, and consolidate it. Go out and find the best companies to buy, ones that make sense to put together, ones that have growth, synergy, where customers will be served better with that integrated organization, and go off to the races.

The title is a provocative title. It's called 'How to Make a Few Billion Dollars.' The reason I had to come up with a crazy title is because I learned from this book that came out like 20 years ago that was an instant bestseller. Every guy in an airport bought it, gave it to his wife, she promptly threw it away and got upset, but it was a bestseller because the title was 'How to Make Love Like a Porn Star' by Jenna Jameson. Everybody bought this book and nobody read it because it had nothing to do with what the title says. Now my book actually has to do with the title. The title of my book, 'How to Make a Few Billion Dollars,' is actually a manual of what's worked at all the companies that I've started that have turned out to create a huge amount of alpha. What do we do differently? What do we do idiosyncratically that was specific to us, that was different?

Pretty much played out the way I expected. If you go back and read the first proxy statement that we made in 2011, and you can still get it on SEC Edgar, it shows what our plan was: to grow a multi-billion dollar company through acquisition and internal growth. What changed was we originally thought we were going to do primarily the first one, which was Express-1, which is where XPO's name came from, Express-1, XPO. They were doing three things: expedite, forwarding, and brokerage. If you read the first proclamation, we said we were going to do those three things plus intermodal. Now what changed, to answer the second part of your question, is we came across LS de Joy and his New Breed company that did contract logistics and said, 'Wow, this is a nice business, let's get into this.' And we came across the Conway guys because we were looking to buy Menlo, and then the conversation turned into, 'Why just Menlo? Let's buy the whole thing.' So we added logistics and we added LTL. But it pretty much played out as we expected.

I split it into three separate things because I take my fiduciary duty to shareholders very seriously. We were not getting the multiple that was optimal. We were about eight times EBITDA. When we asked investors why, they said, 'Well, I'd really like to buy a brokerage company, but I want to buy something that's got this and that.' So we divided. We heard the same story about the other parts. We drew circles around the three parts of the company that we turned it into, and those were the logical things for investors. Turns out they were logical for customers too, but customers also benefited from keeping them together. But shareholders were not interested in a conglomerate. It just didn't resonate with shareholders. They want pure plays, they want easy to understand stuff. We were trading at a little over eight times EBITDA before the split. Today, all three of those companies trade at 11, 12 times EBITDA. So it worked, and it's worked very well.

We're certainly honored to have our audience and very proud of what the team has built. This is a fascinating industry that has not been transparent. We have the opportunity to deliver high frequency data and market intelligence. We're certainly honored to have our audience here. This is your conversation with our audience. I'm now going to step off stage and give you the chance to have a direct interaction. Everyone, give Brad Jacobs a hand.

Thank you, Craig. Thank you for coming to my town hall. I have no idea what we're going to talk about because I don't give speeches. I stopped giving speeches years and years ago because it's boring for me and it's boring for the audience. What I like to do is have you set the agenda, have you ask the questions. There is no question that's off limits. Ask about anything whatsoever on any subject, and I'll try my best to answer it. Who's going to break the ice and ask the first question? I guess there's a mic there and there's a mic. Where's the second mic? Up there. Okay, you can ask. I'll repeat it. Go ahead.

Okay, I'm not going to comment on that, but okay.

For those who couldn't hear him in back, the question was from a trucker. Let's have a big round of applause for truckers. The question was, if you come from his words 'nothing,' which I'm going to dispute that, but okay, I'm just repeating the question, can you still make a few billion dollars? The odds are against anybody making a few billion dollars because only a tiny percent of people make a few billion dollars. But you don't have to make a few billion dollars. That was a provocative title. You can make a much smaller amount of money and still be a hero to your family and your grandkids, enjoy life, and be able to retire early or whatever you want to do. The book will help. What I put in the book was everything I know about making money. I don't know anything else. Someone asked me, 'Are you going to do another book? Are you going to do a sequel?' I said, 'I don't have anything else. That's it. I put everything in that book. I'm out of things.' So yeah, the book could help you not necessarily make a few billion, but make whatever you want to make, whatever your goal is. It's also not just about money, because money is interesting but it's not the whole story. It's about how do you accomplish big stuff in life? How do you think big? How do you get out of your rut of just thinking the same old same old and go for it? And then how do you execute on that? So how do you make your mind expansive and big and dream really big goals and have the courage to go after that, be bold? And then what are some practical steps that you can do to create an organization that will be likely to materialize that? Does that answer your question?

Thank you. The first chapter is titled, what is it? 'How to Get Your Head in the Right Place' or something along those lines. 'How to Rearrange Your Brain.' And it's a controversial chapter. A lot of people said, 'You can't put that in a book.' I said, 'I have to put that in the book because that's me. That's what I feel is in order to honestly answer the question of how do you go out there and accomplish something really big. You got to figure out a way to rearrange your brain. If you keep your mind functioning the same way, like is typical, then you're going to just achieve typical results. So you got to find ways to get out of the same old same old. I put a bunch of things that work for me. Some of them will resonate, some of them won't. People come up with their own things. But the gist of it is, you got to figure out some way to keep your head in a good place because if you're going to accomplish something big, whether it's in business or not, you're going to have a lot of problems. That's just the way it works. You have to figure out some way that you own the problems rather than the problems own you. I talk about cognitive therapy, which I did for a couple of years about 15 years ago. It was extraordinarily beneficial to me. I talk about mindfulness, a way to be in the moment and just be with the people that you're with at the time, not be in the past, not be in the future. I talk about meditation techniques, self-hypnosis techniques, the things that I've dabbled in over the years that have worked for me. I think it's really important. Making money is not just about money. It's about a mindset.

The first company I did, I had no investors. It was just us. We bootstrapped it. We never took outside capital for a dollar. I started with my bar mitzvah money, which was $5,000. I cashed in my Israeli bonds and I took the $5,000 and that helped pay for the phones and working capital, to pay salaries and rent and so forth. Then we were positive cash flow right from the beginning. It was a brokerage business, so we had very little overhead and we were on 100% commission, so people were real hungry. We just started. We were in the right place at the right time. This is 1979 and Iran had just gone through a transition from the Shah to Khomeini, and they kidnapped 400 Americans from the embassy in Tehran. The oil markets went nuts. So little guys like us who were in our early 20s were actually able to get our phone calls taken in return from Exxon, Mobil, Texaco, and Chevron. We went out there and hustled. We didn't really take any outside capital because we didn't need it. Now the next company I started, which was an oil trading company, not brokerage but as a principal, we were taking title, actually buying and selling and chartering ships and so forth. There we needed outside capital, but we didn't take any equity. I did that all with debt. A guy who actually introduced me to my wife subsequently, a guy called Christian Weyer, was the president of BNP Paribas at the time, and he gave me a billion dollar line of credit. I put up a relatively small amount of money compared to a billion dollars, but he had confidence in me and he structured the deals in a way that the bank was fairly collateralized in the oil. So I never took any outside equity investors from there. Now United Waste was the first company I took public. I started it in '89 and we IPO'd it in '92. That was a whole new world for me. I knew nothing about the public markets. I knew nothing about Wall Street at all. I never took a finance course, never took an accounting course, never took any economics. It was a whole new thing for me. But I got into it really fast. I just started meeting people and talking to people and told them what I was doing and how we were going to make money. If you have an idea in a business that really will make money, there's money out there. There's trillions of dollars out there. There's more money out there than there are ideas and businesses to invest in, which is why the stock market, despite all the craziness in the world right now, still just stubbornly doesn't go down much. Does that answer your question?

Two things. First of all, congratulations on your success. This is America, God bless America. That's the American dream. Really, really happy to see people doing that. Fantastic. So a couple things. One, as you mentioned, going to bed at night having the fear of failure, that's a good thing. It's good to have that anxiety. It's good not to feel invincible, because you're not. There are going to be setbacks, there's going to be bad years, there's going to be people let you down, whatever. There's going to be problems along the way. So that fear, that vigilance for problems coming up, it's actually your friend. That's probably one of the reasons you're successful, is you're thinking about what could go wrong and then dealing with that proactively. Second thing, the more important part of your question, was about how do you scale up and not blow up. That is the challenge. Because as you grow, you're adding new people, new systems, new locations, new customers, new vendors, and you want to keep the quality up. If you don't keep the quality up on all those things, you're not going to succeed. You're not going to please your customers and they're not going to send you money and use your services. So my approach to that has always started with the people. I've had a huge emphasis on the people, making sure that I'm really careful who I bring into the company. They got to be super honest, they got to be really hardworking, have fire in the belly, really hungry to work hard and really want to succeed. They got to get along with other people, they got to be humble, collegial, and collaborative with other folks. They have to have integrity. They have to be substantive people, even from whatever the job is, whether it's the receptionist or a COO or CFO, anybody. They just have to be good people, people that you really enjoy, you really respect, you admire, that you want to spend time with, that you feel you're getting the long end of the stick bringing them into the organization. I've always tried to hire people who are smarter than me, and I have for the most part. I've always tried to hire people who are super honest, because you can't be always looking over your shoulder at your own teammates. Your teammates have to be a team. That cliche, I use it all the time: teamwork makes the dream work. Your team is everything, because things can change and problems can happen, but if you got a great team that has those qualities I just mentioned, and you all like each other, you all have each other's back, you're a group, a tribe, a gang, you're one, you can accomplish so much. You can't accomplish anything by yourself. I'm sure I'm not telling you anything you don't know. You wouldn't have had that success if you didn't know that. But I want to share that with everybody, the importance of the people, getting the right people, the right culture with those people respectfully, and have a culture where people are encouraged to disagree respectfully, not disagree like a bully or name calling or labeling, all that kind of nonsense. That's toxic. But being free and actually encouraged to present different ways of looking at situations so you get to the right answer, you identify problems, people speak up when they see problems, you come up with different ways to solve it, and you get to the right solution. It's all about the people in the end, in my opinion.

Thank you.

I want hardball questions. I don't want softballs.

How can I say no? See, okay. Thank you. We'll see you in May.

I don't know about May, but I'll see you next year. I'll come back. Craig actually invited me for something. And you know who else did? Ted Alling, my old buddy Ted, who sold his company to Coyote instead of me, but that's okay. I forgive him. He's a great guy. He said he'd do a book signing, anything he could do here too. Maybe we can do it together.

My pleasure.

I have another industry in mind. I haven't announced it yet, and I'm not going to do it today, but I will before the end of the year in all likelihood. It's not in transportation because I'm still chairman of RXO, GXO, XPO. I'm still very deeply involved. I'm not going to compete with myself or my people. I'm not going to do that. So I'm not going to do something in transportation or logistics other than continue my involvement with those three companies. But I'm going to do something in another industry that's industrial, that is large, hundreds of billions of dollars in size, where there's an opportunity to consolidate because that's my thing. Where I can buy, buy, buy and I can start a company from zero and get it up to tens of billions of dollars in revenue within a few years. That's what I want to do. That's what makes me excited. That's what gets me to wake up in the morning and go tackle. And that's what I'm going to do.

In the book, I do talk about failures as much as successes. I talk about how in some ways you learn more from the failures than you do from the successes. It causes reflection, it causes humbleness and humility, which are all important traits to have to be successful. I talk about one of the biggest mistakes I ever made, which was when I was at United Rentals. I foolishly and naively thought that the government was going to actually follow through with this T21 bill, the Transportation Equity Act for the 21st Century bill. You may remember this was 1999, I think, where they were going to spend what at the time was a lot of money. Today, it's not even a trillion dollars, but $600 billion to repair the infrastructure, the roads, the bridges, the tunnels. So I went out and bought like half a dozen leaders in barricades and cones and striping and all that orange stuff, waiting for this $600 billion to get spent. Turns out they spent like $200 billion, and a lot of it went to enterprises that we didn't qualify for. I ended up reselling those businesses for a loss of $500 million. So I actually lost half a billion dollars. If you're going to measure your failures and successes by money, not the only way to measure them, but if you are, that was a pretty big whopper, a pretty big failure. But you got to keep swinging. You're not going to hit them all. You're going to hit some foul balls, but you got to keep swinging. You just got to keep going and going and going and get up again every time you fall down. I was not happy when that didn't work out, but it's okay. Life went on.

I get a lot of opinions from a lot of people whose opinions I respect, and then I let go of that and I make my own decision. I can't go by the consensus all the time because you're not going to do extraordinary stuff if you go by the consensus. But I do listen very, very carefully to the voices of the people that I've surrounded myself with who I respect, who know a lot more about certain parts of the business than I do. I want to hear what they have to say for themselves. But at the end of the day, you got to search your intuition, you got to search your gut, and you got to have confidence in yourself. You have to figure out some way to get into that quiet zone and just think about, try to picture what's going to happen if I do this. If I buy this company, is this going to work out or is this going to be a disaster? I kind of picture it. I see it in my mind what it's going to be. If it doesn't look good, I don't do it. If it looks great, I do it. So at the end of the day, it's about what my instinct tells me, how this is going to go. But it's not just woo-woo. I do listen to the people who are experts. I have a lot of, people call me a numbers guy. I'm not a numbers guy. I'm really not a numbers guy. I have fantastic numbers people around me who can slice and dice the numbers in a thousand different ways and talk about return on capital and margins and EBITDA growth and all that kind of stuff. But I pick their brains. They don't pick my brains because I can't help them. I pick their brains with questions. I hear what they have to say, and then I step back and I just search my feelings about it. So in the last instance in the decision-making process, it's not emotional, it's intuitive. Just getting in touch with that feeling of how your instincts are strong. As human beings, we're programmed with these subconscious powers that we never pay attention to, but they're there. We have instincts. If you just kind of go inwards and just feel, it feels bad, I don't do it. Feels good, I do it.

Welcome.

Yeah, I mean, there is a large degree of randomness in life. I agree with that. I guess you can call that luck. I mean, where you're born is lucky. If you're born in certain places, you got bad luck. It's going to be real tough if you're born in Zimbabwe to really succeed. You're likely just being born there to live a shorter life, get sicker, not get a great education, and not be as comfortable. It's just luck you happen to be born in Zimbabwe. There's other luck in life. I had a lot of luck, a real lot of luck. I got in the oil business and the oil business went crazy. I got in the garbage business and there were all these regulations passed that got rid of all the small dumps and the big ones really succeeded. I got in the rental business and all the customers started renting equipment instead of buying equipment. I had a lot of luck there. We built up the XPO organizations in a time when there was global synchronized growth all around the world, where there were almost no interest rates, you could get money for free almost on borrowing. It was a really good time to make money. It was hard not to make money during that time. So we had a lot of luck. But I don't think luck is the main thing that determines whether you're going to be successful or not. I certainly don't think luck has almost any influence on whether you're going to be happy or not. Happiness is, I think, more important than being rich. I think it's more of a, so the facts are the facts, circumstances are the circumstances. The world is as it is. You got to radically accept that. You can't be like, you see people always complaining and whining about this and that, they're a victim of this, this is unfair. Just chill. It is what it is. It's not going to be perfect. It never has been perfect. It's never going to be perfect. Just embrace that. That's okay. Find ways in that imperfection that are actually cool and ways that you can be happy and ways that you can, if your goal is to make money, make money. So I think luck does help a lot, but I don't think it's the prime factor. I think the prime factor is skill. Well, you say skill and opportunity. Yeah, well, opportunity, you got to take the opportunity. A lot of people get opportunities and they're scared. They're just too scared. They're frightened to take the risk and they don't take the opportunity. So yeah, I agree with that equation to some extent, but I don't think luck is the main thing in life.

Well, the brokerage market is a very cyclical market. There's good times and there's bad times. The big mistake is when you're in the good part of the cycle, think it's going to last forever because it's not. If you overstaff and overinvest money, and the same mistake is when it's down to think, 'Oh, it's always going to be down now. This time is different. It's not going to go back up.' It is going to go back up. So we happen to be in part of the brokerage cycle where it's hard to make money. It's very hard to make money. That's okay. That's part of the cycle. That's why it's a good business. It's not a flat business. The fact that it is volatile over the course of the years, that's why brokers exist. Brokers exist to fulfill the needs of shippers and of carriers because there's uncertainty. If it was really clear how to find a truck or how to find a load, no one would need brokers. So it's good that there's volatility there. I think long-term, the prospects of brokerage are really strong, really, really strong. In fact, the brokers that are kind of going out of business now and leaving the industry, that'll make when the industry comes back, the remaining brokers much, much stronger. So I am actually bullish on the long-term of brokerage. Short-term, it's tough.

And to add to that, I think on brokerage, it's going to all be about technology. When we started XPO back in 2011, there really wasn't a whole lot of technology. It was mainly just people talking on the phones. Today, look at RXO, which is the brokerage spin-off from XPO. It's 97% of their orders are either originated or covered electronically. I think that'll go to almost 100% in both. I think the ultimate situation in brokerage is going to be machine to machine communication with very little human intervention. I think the volume will be huge. I think there'll be the same phenomenon that happened back in the oil business when I was in it, where a futures market developed, a derivatives market developed, and then there was a merging between those two. I think that's going to happen in freight brokerage as well. There'll be a Wall Street phenomenon where people will be able to buy phantom freight, so to speak, and lock in rates and hedges. Wall Street guys will do that, and then the physical markets will play off of that. So I think the brokerage market is going to be much, much bigger in due course, but it's going to be all AI-based. I don't think it's going to be a lot of human involvement. I wouldn't have my kids, you know, when you have your kids get into brokerage, I think it's a good job, but it's more of a technology play in the coming decades.

There's no gongs involved. I do celebrate victories for a very short period of time and then move on. I don't spend a whole lot of time patting myself on the back because I don't think that's a real good recipe for success. I think the biggest enemy, you got to do something. What do you do? I jump up and down and say 'yay' for about 10 minutes, move on. Your biggest win, like what did you do? I don't. Maybe I'm on the spectrum or something because I don't get really, I don't get like that. I don't get really super down when we have problems, when things aren't great. I really don't. I get a little down, but really not perceptively. And I don't get really up when we're winning something in business because these things are just one of many, many things. It's not like one thing that changes the whole everything. So it's just one. I think arrogance is your biggest enemy in making money. It's actually your biggest enemy in life, in relationships, and just enjoying life. Just get full of yourself, just think you're the, I mean, that's what it says, 'Pride comes before the fall.' So it's not good to take yourself too seriously because at the end of the day, we all die. So how seriously are you taking yourself then? The only thing that's for certain is every single person in this room, including me, we're going to be dead sooner or later, and probably not as later. It's decades, not long. I'm 67. My folks lived to 85 and 90. So let's say I lived to 87. My wife keeps reminding me we probably have 20 summer vacations left, Brad. That's not a lot. So I take every day seriously, and I don't get bent out of shape when we succeed at something. I feel good about it, but I don't get extraordinarily self-congratulatory.

Your gong or your bong? What'd you say? Gong? You go, funny. Funny you mentioned that. No, FreightGang.com, you can check us out. But anyway, no, I have a software business. I was in the brokerage for a while. I sell some hats. So I appreciate your response. Thank you.

In transportation, I acquired them because I bought Express-1. They were up in Buchanan. I think a lot of them were pretty skeptical actually. They had no idea who it was and they were scratching their heads a little bit, but they gave me a chance. They weren't going to just fire me the first day. As they saw after keeping doing the business for a few months that we actually didn't mess it up, we didn't make it worse, we didn't do what a lot of private equity guys come in and do, cut all the costs and suddenly the service goes down and they disrespect the customer. We didn't do any of that. They kept doing business with us and gave us more business. We gained share of wallet. So that's why I like M&A. I like M&A because it's a shortcut to growth. Instead of doing it purely organically, just bootstrap it like I did my first two companies and just go customer by customer, it takes a long time. If you want to get big, and I want to get big as I have and as I will my next one, I got to do M&A. There's no faster way that I know of to grow, grow, grow, scale a business up to something that's tens of billions of dollars in size other than M&A. M&A is like the cheat code for me.

I'm on the one hand so excited about AI and where these developments are going. I can't wait to the day where we're outsourcing our cognitive functions, our sensory capabilities, our memory, and everything, and we're just sitting back and enjoying and cruising on life. We're in a world where we can have relationships that are so intimate but they're not physical, they're metaverse. That's going to be really, really cool. On the other hand, I'm really scared of AI. I'm really scared of AI because AI is a tool, it's a technology. This is a trend. In the book, I have a two million year history of the biggest inventions in technology, and AI is the biggest of them all. The tools are created by people who have intentions, who have motives, who have values, who have ethics or the lack thereof, and they customize the tool for that matter. The problem we got is there's a large swath of the globe that's under the thumb of dictators who are just evil. They're bad dudes. They're controlling billions of people for their own personal benefit and pinning them all down. They want to do all kinds of nasty stuff. They're investing in AI as well. I don't think their AI is going to be as benevolent as our AI. I think our AI is going to reflect the values of the West, of freedom, of democracy, all the things that we stand for. I think the AI in the autocratic countries is going to be used for surveillance and for oppression and for holding people down and for spying on people and eliminating the opposition and influencing people's minds and cult indoctrination to support the regime. So I'm scared of that. I'm really, really scared of that. I'm scared that the AI from the bad guys is going to somehow infect the AI from the West. I'm also afraid that AI itself, we human beings even in the West, we're not perfect. We have a lot of biases, a lot of prejudices, a lot of funny ways of thinking, a lot of lack of tolerance. We're not really perfect yet by a long shot. You can see, I just open the newspaper and we're not getting along very well. We don't get an A for that. I'm afraid AI may reflect those bad parts of our character as well. So I'm a little scared of AI, but I'm really excited about it too. I'm hoping that AI and all the fast dispersion of information and knowledge around the globe will be a positive thing because people will not be able to get away with bad stuff in darkness. The whole world will see the good stuff that's going on and want to do more of that, and they'll see the bad stuff that's going on and want to get rid of that. But I don't know. It's a whole new world. I have a granddaughter who turned one-year-old. I'm tempted to make a singing Happy Birthday video, but I'm not going to do that. She's one years old. When she gets to be our age, it's a different world. She's not going to come to conferences like this. She's going to have a contact lens or a goggle or something where she experiences this and knows everything about everybody in the room just by having those contact lens or that neural implant. She'll be making connections with everybody. She'll have so much information, so much knowledge about what's going on in the world, and will have the benefit of having read every book that exists and the summaries of all those. It's just an interesting world we're going into. I just wish I was a lot younger.

Mid-level management. Yeah, oh yeah. In the transportation business and logistics business, it's not the C-suite that determines the success of the company. The C-suite raises all the money and keeps it all together, but in the warehouse business, the warehouse manager is definitely the most important person. If you have a really strong warehouse manager, you're going to have a profitable, safe, thriving warehouse. If you have a mediocre warehouse manager, you're going to have a fantastic everything else in the organization, but you're still going to have a very mediocre and maybe not perfectly safe and not a customer-pleasing warehouse. So the mid-level management is where it's at. In an LTL organization, in my opinion, who's the most important person? It's the freight operational supervisor. It's the person on the dock watching the freight, getting it loaded, making sure it's loaded without being damaged, loaded properly, making sure everyone's safe, people not tripping into each other, keeping it flowing in a fast but orderly way. It's the FOS. So mid-level management is really what it's all about. In the brokerage business, it's not the big shots on the top of the pecking order who make a brokerage successful. It's the people on the phones, the people running the computers, the people designing the tech, the people who are the mid-level people. Those are the people who make it all happen. I think in every business, the mid-level person is really, really critically important. That's why I go back to what I said half an hour ago: you got to be really careful who you bring into the organization. I worship the HR organization, the human resources organization, because they're in charge of interviewing properly and having good measures in place that we only attract people who have the values and have the qualities that will make us successful. We have time for one more question. Who's going to give us a zinger?

People. It was always the people. Second to people was technology, close second. But people was always the most important thing. It's been huge. My office is right next to the CHRO's office, and we walk into each other's office many times a day talking about our people. Are we paying them right? Is their head in a good place? Are the employee surveys coming up? Is engagement going up? What problems do we have? How do we improve retention? We're always about the people, people, people. But right after that is technology. Technology makes you better than the competition. That's why I've always spent huge amounts of money on technology. We're plum out of time. I want to thank you very much for giving me this opportunity. I really appreciate it. Good luck. Good luck. Good luck.