Open Strategist: September 2015

I've been reading:
DREAM BIG: How the Brazilian Trio behind 3G Capital - Jorge Paulo Lemann, Marcel Telles and Beto Sicupira - acquired Anheuser-Busch, Burger King and Heinz by Cristiane Correa

Here's some notes:Having studied the development of some of the most extraordinary business stories of all time, and the entrepreneurs and leaders who built them, I can say definitively that this story – rising from such humble beginnings to global prominence – is one of which Brazilians should be immensely proud. It stands in the same league as great business visionaries like Walt Disney, Henry Ford, Sam Walton, Akio Morita and Steve Jobs. And it is a story that leaders from around the world should know, as a source of learning and inspiration.Read more at location 130
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Acquiring such a symbol of American capitalism would not only be the biggest deal the three cariocas, as natives of Rio de Janeiro are called, had ever made, but turn them into the most powerful Brazilian businessmen ever, and with the greatest global reach.Read more at location 209
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Even though he was “lost” in the middle of the largest desert in Asia, ignoring a leak that could jeopardize the whole plan was simply not an option for Lemann.Read more at location 215
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This bank made history by emphasizing meritocracy (remunerating and promoting employees purely on their performance without considering factors such as how long they had been in-house) and partnership (giving the top performers the chance to become partners in the firm), concepts that had never been heard about in Brazil.Read more at location 227
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Every member of the family was introduced to the brewer, literally, in the cradle. The male heirs of the clan were traditionallyRead more at location 247
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given five drops of Budweiser a few hours after they were born.Read more at location 248
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Busch IV, a former playboy who had recently taken charge and only rarely appeared at the head office, did not realize the danger he was running, and opened the door to the InBev CEO, Carlos Brito.Read more at location 265
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“The trip we are starting with this letter will last a long time,” he said. “There will be days when we will be up and others when we will be down. The other side will do things we have not thought about and, at some point, we will have to revise our plans. Be prepared.”Read more at location 299
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earlier. I had never spoken to them by phone or had any relationship. This happens sometimes with companies in which we invest.Read more at location 365
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He attributes his early athletic success to strict adherence to a sportsman’s lifestyle: no dances, alcohol or heavy food.Read more at location 456
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The tennis court was where he learned a lesson he still follows. One of his coaches told him that nobody ever won a game by playing to the crowd. In other words, rather than show off his skills to the audience, he should concentrate on improving his game. This advice was worth its weight in gold to a disciplined boy who already seemed to favor discretion.Read more at location 460
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My adrenalin was at its highest...I liked that feeling, but I didn’t want to feel it again... You have to take risks in life and the only way is to practice... I practiced in the waves, at tennis and later in business... IRead more at location 471
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Haegler went to study at Harvard, where he became captain of the tennis team. Lemann, who was elected the “most likely to succeed” by his classmates at the American School, decided to follow the same path and enrolled in an economics course at Harvard – a decision that would change forever the way he looked at the world.Read more at location 476
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Charles River. Gaining access to Harvard means the student has to overcome two hurdles. The first is to be accepted by the university, a distinction reserved for only 7% of its applicants. The next is to be able to afford the annual undergraduate fee, which, including credits, meals and accommodations, came to about US$ 80,000 in 2012.Read more at location 485
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incident, he received a letter from Harvard recommending that he take leave of absence for a year in order to mature.Read more at location 495
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Lemann, who regarded Harvard as a nuisance, was initially tempted to take advantage of the chance to abandon his studies. But he ultimately returned to Cambridge, as the letter had only “recommended” and not forced him to accept a hiatus.Read more at location 496
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His grades drastically improved, and within a short time, Lemann changed from being a problem student to the rector’s favorite, concluding his course when he was 20 – the age he had set for himself.Read more at location 503
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I began to read Plato, Socrates, things I had never thought of giving a glance. This changed my view of the world... My dreams, which had been to win a tennis championship or surf bigger waves, became larger. People who know me and my companies know that I always say that, ‘having a big dream brings as much work as having a small dream’... The other thing I learned at Harvard, and has become part of my nature, was the importance of choosing people.Read more at location 507
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goals... Doing something simply is always better than doing it in a complicated way.”Read more at location 514
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Thanks to his father, he had double nationality and decided to try his luck in Switzerland and obtained an internship at Credit Suisse in Geneva.Read more at location 532
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The problem, as Lemann discovered too late, was that more money was going out than coming in. The result was that Invesco went bust in 1966 as it did not have strict enough credit controls and its management was haphazard.Read more at location 563
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The first was that it is as important to look after revenues as expenses – a maxim that became an obsession with him and his partners in the following decades.Read more at location 567
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The second was that a business needed good, well-remunerated people, evenRead more at location 568
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in those departments that were unglamorous or did not turn a profit.Read more at location 569
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the more the brokerage grew, the more dissatisfied Lemann felt. His shareholding, despite Libra’s excellent results, remained the same. To make things worse, under the regulations set by the brokerage’s controlling shareholders, he could not offer any stake in the business to anyone else. This was a “carrot” Lemann believed was the best way of winning over talented youngsters.Read more at location 593
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agree. To his surprise, the family made a counter offer and forced Lemann and Ramos da Silva to sell their stakes and leave the firm.Read more at location 600
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them. He would often repeat in the future, always in a loud voice and extending the vowels, as he does: “Good people, working together, make the firm great.”Read more at location 605
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Lemann and his partners saw their main brokerage business decline gradually by the day. Furthermore, they became known as the investors who had paid most for a brokerage permit – a title they bore shamefacedly for almost two decades. It was not exactly a promising start.Read more at location 644
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Friendship or blood relations had no value and could even be a problem at times. Children or spouses of partners, for example, were banned from working in the brokerage. Romantic relationships in the workplace were banned.Read more at location 650
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The secret for doing well in the Brazilian financial market in the 1970s was to operate at the very limit, and the PSDs Lemann recruited outdid the others under these circumstances.Read more at location 669
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One use of that power was to keep payouts to partners low, forcing them to build up equity in the firm.Read more at location 688
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As they were all assessed on a half-yearly basis by their bosses, peers and subordinates, any one of them could have their commission reduced if their performance during that period was below expectations. Furthermore, if someone increased his commission (or a new worker on commission was chosen), someone else had to lose.Read more at location 720
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This simplicity once saved him from what could have been a dangerous situation in 1991. He was driving along the Rio-Santos highway and stopped at a filling station. While he was filling the tank, the place was robbed, but his car, a Passat with more than 10 years on the clock, was of no interest to the thieves and Lemann was able to continue his journey unscathed.Read more at location 768
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Obviously not everyone could stand this kind of set-up. A legendary story arose about a lawyer who was hired by Garantia and walked out on his first day. He went out to lunch and never came back.Read more at location 807
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Another strategy the Salomon Brothers interviewers used was to remain silent. The candidate would enter the room and the interviewer said nothing. The candidate greeted him but he said nothing.Read more at location 825
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For Garantia, being an associate of the American bank would not only represent an injection of capital for the brokerage, but it would also be a kind of international quality seal. Above all, it would be a chance for quick growth.Read more at location 934
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But Lemann was always a person with his eyes focused on the future and his enthusiasm evaporated when he began to think about the effect of the deal in the long term. He would end up losing control of the firm – the culture he had created being swallowed up by the giant corporation. The experience of his internship in bureaucratic Credit Suisse was still fresh in his memory, and he did not want to undergo a similar developmentRead more at location 936
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But no episode was as embarrassing as when Packard was trying on a suit in a meeting room at the bank and had his trousers stolen by colleagues. Right after the theft, one of his main clients, the owner of a Coca-Cola bottling plant in upstate São Paulo, entered. Packard was astonished and, having no time to hunt down the culprit – or, more importantly, another pair of trousers – hunched down on the chair at the head of the table, wearing only a shirt, jacket and underpants. The client thought it odd that the Englishman, who was usually so polite, did not get up to greet him, but he went off without knowing that Packard had been semi-naked during the important business discussions.Read more at location 1000
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With this cash in hand, Lemann went to Banco Itaú’s head office in São Paulo to talk to its owner, Olavo Setúbal, an engineer and former mayor of the city. He explained that he needed the block of shares Itaú held in Lojas Americanas to obtain control of the retailer and get it back on the right track. Setúbal was won over by his enthusiasm and agreed to the offer. This move not only marked the transformation of Jorge Paulo Lemann the banker into Jorge Paulo Lemann the businessman,Read more at location 1062
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A favorite story tells of the day when a worker who was unloading a truck filled with diapers asked a colleague who was passing to help him without knowing who he was. The “colleague,” who turned out to be Sicupira, did not think twice, rolled up his sleeves and helped lift the goods into the store.Read more at location 1098
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The CEO of one of the companies Sicupira contacted went further and phoned him directly. He said he would be happy to receive him and show him the operations of his company, a chain he had founded in Arkansas in 1962.Read more at location 1108
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His name was Sam Walton and the company he ran was called Walmart.Read more at location 1110
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stores. And in Walton, the Brazilians could not have met a better teacher to show them how to operate in the retail business. They became so close that Walton visited Brazil twice.Read more at location 1130
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At one of these meetings in the mid-80s, Walton threw down a challenge to his executives: if the company’s pre-tax profit margin was higher than 8% (the sector average was half this amount), he would dance the hula-hula in Wall Street. The company beat the target and he was forced to pay the bet.Read more at location 1137
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As Walmart knew nothing about Brazilians’ consumption habits, it just repeated what it did in the US. This led, for example, to it trying to sell bags for golf clubs, live fish and life-saving vests in its stores. Lojas Americanas, the minority shareholder, was unable to warn the Americans off.Read more at location 1205
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By the time the separation from Walmart was formalized, Sicupira was no longer involved in the daily running of Lojas Americanas. He gave up the CEO position in 1993 to dedicate his time to setting up GP Investimentos, the first private equity company in Brazil, but remained chairman of the board of directors. Amaral succeeded him.Read more at location 1216
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“With Brahma, I used to give a telephone token to every trainee, but said it was a one-off opportunity... I am more up to date now and everyone can send me an e-mail whenever they want,” he said.Read more at location 1717
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A bottle was taken from the production line every hour throughout the entire day. When it was analyzed, it was shown that the characteristics of the bottled beer differed considerably over a single day even in the same plant. When he learned the results of the surveys, Telles was puzzled. “What am I going to do with this mess?” he asked Falconi. The consultant said the answer was to establish standards for each plant activity and measure everything. Only products that met the standards would go to the market. Telles quickly realized that many people would be against these changes. To convince the management to embrace Falconi’s commandments, he decided to link the quality indices to their wallets. “Marcel set a target for everyone who worked in the plant, from shop floor workers to the directors: if the plant did not meet 50% of the quality targets in the first year, no-one would earn a bonus,” Falconi said. “He raised the target to 75% in the second year and to 95% in the third. This was enough to end any resistance to our work.”Read more at location 1765
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He formed a working group with the main Ambev executives in mid-2011 to reduce the staff turnover in the plants. The ratio was around 20% in 2010, and Falconi’s target is to slash this to 6% within five years. “We are creating new processes so that the workers feel they are better appreciated, as variable remuneration, on its own, has not been enough,”Read more at location 1786
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It was said at the time that Lemann, who until then had been the market’s model banker, seemed to have lost his “Midas touch.” The man who had been admired, respected and even feared now had to give explanations and find ways out of the crisis.Read more at location 2018
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Under Brazilian law, when a bank collapses, all the personal assets of its owners may be used to cover the debt. In other words, if Garantia were to go bust, the three partners could lose much more than the bank. The problem with Lemann’s proposal was thatRead more at location 2053
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Sicupira repeated what he had recommended Telles to do when he took over Brahma: “You and your team should do absolutely nothing in the first year that has to do with the business,” he said. “Only do sensible things while you learn how the company works. If you start doing things related to the way the business operatesRead more at location 2166
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as such, there is a good chance of making a mess of it.”Read more at location 2168
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Money invested in the former Booknet increased tenfold. However, the effort GP made to transform the aspiring virtual retailer into a solid business was felt to be too much. The experience with Submarino led to a rule within GP: no more investments in start-ups.Read more at location 2208
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The deal was not a great success. If GP had invested its initial R$ 350 million in a fixed-income fund, it would have gained a higher return than it did from Telemar. It learned a second lesson: no more involvement in businesses where GP is not free to impose its own culture.Read more at location 2222
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Bonchristiano is known for his diplomatic style and good contacts in the international financial community. Years earlier, he was chosen by the World Economic Forum as one of the 100 leaders of the future. He was cold and rarely raised his voice or became heated during a discussion. He is a marathon runner and had earlier built a summer home in Capri, in southern Italy, where he would stay with his wife and children.Read more at location 2255
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Letting Antarctica win ground was unthinkable for the Brahma people. A saying in the office was, “A penguin’s place is in the refrigerator,” a sarcastic reference to the penguin illustration that appeared on the Antarctica label.Read more at location 2299
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“This is a business. The invitations are for those who help me gain money, famous people and beautiful women. In what category are you?” Cooper had to watch the samba parades on television. Fischer’s campaign enjoyed one of its greatest moments during the 1994 World Cup.Read more at location 2315
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Brito came from an upper middle class family in Rio and studied at the Colégio Santo Inácio. He then studied engineering at the Universidade Federal do Rio de Janeiro. His first job after graduating was at Mercedes-Benz. He quickly drew the attention of his bosses and was transferred to head office where he could practice the German he had learned as a teenager, because his mother had believed that being fluent in English would not be enough to boost her son’s career.Read more at location 2349
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Lemann: “Brito, I spoke to some people I know at Shell and they said you were doing well. Come over and I will give you a grant and pay for the first year.” Brito: “Jorge, how will I pay you all this back? I don’t have this money [US$ 22,000 at that time].” Lemann: “We’ll talk about that later. I only want you to promise me three things: The first is that you will keep me informed. I want to know how the course is going. If you read any interesting articles about finance, send them to me. The second is that if you can help someone else in the future as I am helping you now, you should. The third is that when you finish the course, come and talk to us before accepting any jobRead more at location 2367
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In any case, the gains for those who exceeded their goals were exceptional. The brewery always paid salaries that were slightly lower than the market rate, but the variable remuneration, which could reach 18 extra salaries a year, easily offset this.Read more at location 2615
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Wednesday, September 16, 2015

Malcolm Gladwell & Brian Grazer: Genius and curiosity(video)

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Notes from Dream Big: The story of Inbev

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