Brad Jacobs Unveils the Secret Sauce for "How to Make a Few Billion Dollars"

Speaker 1:

From the library of the New York Stock Exchange at the corner of Wall and Broad Streets in New York City, you're Inside the ICE House. Our podcast from Intercontinental Exchange on markets leadership and vision and global business. The dream drivers that have made the NYSE an indispensable institution of global growth for over 225 years.

Each week, we feature stories of those who hatch plans, create jobs, and harness the engine of capitalism right here, right now at the NYSE and at ICE's exchanges and clearinghouses around the world. And now welcome, inside the ICE House, here's your host, Josh King of Intercontinental Exchange.

Josh King:

Connecticut, where I lived from 2003 to 2009, is home to many of America's most well-known corporations and the entrepreneurs behind them. Ranked sixth in business environment with an economy inside the top 20, according to US News and World Report. The Nutmeg State has long stood as a leader of industry. Of course, a lot of those well-known companies in Connecticut are listed here at the New York Stock Exchange. Companies like Cigna, NYSE took a symbol CI. Stanley Black & Decker, SWK, Pitney Bowes, PBI and others are headquartered in our nation's fifth state.

In May of this year, Connecticut Governor Ned Lamont, six months after being reelected to a second term, joined us here inside the ICE House for our 363rd episode. It's a conversation that spanned many topics, including his political journey to the governor's mansion in Hartford, the state's business environment, and even UConn and Quinnipiac's recent NCAA Division I titles in basketball and hockey.

He put it pretty bluntly to me in that episode. He said, I'm going to quote, "Connecticut's got 1% of the population, but all of the championships." Recent college sports maybe, but I believe that maybe beside the athletic pursuits, Governor Lamont was referring to Connecticut's businesses and entrepreneurs. Few business leaders, if any, have added more to the Connecticut economy and championed the region better than today's guest, Brad Jacobs. Brad has brought just not one or two companies to the state, but three in United Rentals, that's ticker symbol URI, XPO Inc. that's ticker symbol XPO, and GXO Logistics, that's GXO.

Spanning a career of more than four decades, Brad has infused his home state with thousands of jobs and opportunities for those living within a short drive of interstates 95, 91 and 84. In total, Brad has created seven flagship companies across different industries delivering tens of billions of dollars their shareholders.

I often invoke the Intercontinental Exchange origin story into this show how Jeff Sprecher saw around corners and saw an opaque energy trading market where brokers would deal with one another on the phone and work inefficiently with a single counterparty like Enron. Jeff saw an analog process and worked to digitize it, making prices transparent and bringing buyers and sellers together. And thus, a $75 billion market cap company was born from the original investment of a dollar.

Well, Brad Jacobs has a background in oil and energy trading. And what he's done in logistics has a real parallel with what Jeff did at ICE, putting together disparate parts of an ecosystem through M&A and integrations and magnifying the multiples for shareholders many times over.

So, what sort of a mind is so wired into that kind of growth? On today's episode, we're going to go in depth on Brad's business journey from its inception in 1979 in the oil industry, to his role today spread throughout multiple corporations. In a minute, our conversation with Brad Jacobs on the wide array of industries he's touched, the passions that drive him outside the office and the lessons embedded in his new book, hot off the presses, How to Make a Few Billion Dollars, advice we can all use, unless maybe we're Steve Schwarzman or Bill Ackman. It's out now from Greenleaf Book Group Press.

All this and more with Brad Jacobs is coming up right after this.

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Josh King:

Welcome back inside the ICE House. Remember to subscribe wherever you listen and rate and review us on Apple Podcasts so other folks know where to find us. And also note on our website at ice.com, you can find all of our shows, fully transcribed so you can dive deeper into our conversations and learn more from our guests.

Our guest today, Brad Jacobs, is the chairman of XPO Inc. RXO Inc. and GXO Logistics. Those are, not surprisingly, NYSE ticker symbols, XPO, RXO and GXO respectively. Brad's also the founder and former CEO of United Rentals, that's ticker symbol URI, United Waste Systems, which eventually became part of Waste Management. That's our ticker symbol WM. And is the author of the newly released book, How to Make A Few Billion Dollars. Brad, thanks so much for joining us inside the ICE House. Welcome to the New York Stock Exchange.

Brad Jacobs:

It's great to be here.

Josh King:

So, if our listeners couldn't already tell by the ticker symbols I just rattled off, quite the regular here at 11 Wall Street, your first bell ringing came all the way back in 1997. If we're not mistaken, in just a few hours you'll be up again for the 11th time ringing the bell. Does it ever get old? Your employees most appreciate the recognition.

Brad Jacobs:

No. This will be my 11th time. Every time is still spine-tingling. It's the center of capitalism. It's just the energy, the vibration here is so strong.

Josh King:

Paint a picture of the young Brad Jacobs the first time you were here. What did you think when you walked onto that floor?

Brad Jacobs:

Quite overwhelming, but it's changed quite a bit. I mean, the old New York Stock Exchange was like Trading Places, the movie with Eddie Murphy and there's a lot of people yelling and screaming at each other. Now, everybody is just quiet. It's very electronic and it's much more advanced.

Josh King:

Sort of like those GXO warehouses that you talk about-

Brad Jacobs:

Exactly.

Josh King:

... that are used to be bustling with people running all over the place, grabbing boxes and forklifts. Now, they are models of efficiency.

Brad Jacobs:

Exactly.

Josh King:

You're a New England guy like myself. You're from Rhode Island and now Connecticut. Your career has taken you all around the globe, but even in these frigid temperatures, what keeps you back in New England?

Brad Jacobs:

Well, I'm a New England boy. I was raised in Rhode Island. I went to school in Massachusetts, Vermont, Rhode Island. And I've traveled a lot around the world and I've done business in dozens and dozens of countries. But at the end of the day, I'm a Northeasterner.

Josh King:

I want to start with a thought experiment, as you might say, the kind of thing that you might undertake to officiate at your daughter's wedding, for example, or find a love vibe as you write about. We can all buy a Renoir or a Picasso, I suppose, Brad, if we have enough money. But just so our listeners have a sense of who they're listening to, tell me about the person who buys a piece of modern art called Cluster by Lincoln Schatz, how a viewer appreciates it and about daydreaming and meditating, how that can all lead to success looking at that piece?

Brad Jacobs:

So, you mentioned two things that you talked about, my oldest daughter's wedding that I opened the book with, and you talked about the Lincoln Schatz Cluster, the video art. So, let's start with the video art. The video art, when you walk into our house and you come right in, on the left-hand side of the wall are four television monitors next to each other and there's a webcam, and it's the institutional memory of the house.

So, all of our guests, all of our friends, all of our family who visits us, I get them in front of the camera and it records them and then it plays it back in segments of 10 seconds a shot with four different at a time, two from recent and two from maybe 25 years ago. And so, it's this big montage where time is distorted, but space stays as a constant. The camera's always been in the same angle.

And so, you may be looking up there and see someone from when they were 15 years old and from when they're 40 years old, or when they were just literally a baby. I see my mom and dad there who have long passed away.

So, it is something to do with business in the sense that it puts your mind looking at that art piece in a transcendental zone where you're thinking differently. You're looking at time just differently. You're looking at it from a much larger perspective and it all blurs together. And I find doing thought experiments like that, and that's one of many, many different ones, gets me into a certain groove, gets me into a certain mindset to think in a way that is bigger and is better and is more creative. And I really enjoy that.

An example of that is my daughter's wedding. My oldest daughter, Yasmina was married, must be now about seven, eight years ago in a wonderful place in Mexico. And we were very worried about security because Mexico is Mexico. We sent our security team down there. We got there and the guy said, "No problems here. Don't worry about this." Why should we not worry about this? The place is owned by the brother of some big narco guy and the word is out. No criminals dare kidnap or harm or rob or anything at this place. So, okay, right away we found real safe.

We had a beautiful weddings, gorgeous location. They had asked me to officiate it. I'd never officiated a wedding before. So, I was a little nervous about that thinking, "Gee, I don't know if I can do it." So, before I say yes, I went on to YouTube. I looked at a bunch of weddings and I realized, "Well, you can do anything you want." It's all different types.

What I decided to do was to channel love. And I had everyone in the group who was on the beach stand up and remember all the love that's ever existed in the universe from day one till now between any two beings and feel that love, really get in touch with that love. And we just did that silently for a good minute, nice vibe.

And then I said, "Now, tune into all the love that's in the universe right this minute, right this second anywhere's between any two of eight billion people, two of the eight billion people on the planet, Another good vibration going for another minute." And I said, "Picture all the love that will ever happen in the universe from now all the way into the future. It's a really, really good love vibe going."

And then I had everyone throw love, take their hands and pantomime throwing love towards my daughter and the groom. And then they channeled it into the ring. He put the ring on her finger. It was the most beautiful moment. I really can't even explain how everyone who was there, especially my daughter and my now son-in-law, were just totally tripping in love. There's a fantastic way to start a marriage.

Josh King:

A love vibe, not the kind of officiating image you might expect from a CEO with a book, How to Make a Few Billion Dollars. I've heard you on the Odd Lots podcast, also invest the best podcast, of course, read the book and those hosts took a while to get to the book, but I want to get right to it. How to Make a Few Billion Dollars, why did you write it? Who'd you write it for? And for a person who invests that kind of time preparing to officiate at their daughter's wedding or convinces their spouse to install that kind of a video and television projection like the Lincoln Schatz piece in your foyer, what was the writing process like?

Brad Jacobs:

It was intense. It took a year and a big chunk of that year. At the same time, I was doing my day job running, being chairman of three different companies and researching and then starting another company QXO. So, it was quite a busy year for me last year.

Why did I write the book and who did I write it for? I first wrote it for myself. I first didn't even know if I was going to publish the book. I thought now that I've stepped down as CEO and I can step back a little bit, think about go back on my career all the way back to 1979, because I've been a CEO for 45 years and it's the only job I've ever had.

And all the companies I've run have done really, really well. We've outperformed every possible index you can think by a large amount. Why? Why did we create so much shareholder value, time and time and time again? What was the playbook? What were the things that we did right? And what were the things we could have done even better and created even more alpha?

And I thought that was a worthwhile use of time to contemplate what went right and what could have been improved. And the book wrote down in an organized way the main things that I thought were idiosyncratic that were specific to us that were different than other companies, different than other businesses. And as I wrote it, I started realizing this could be interesting for other people. This is not just a journal to read for myself and turned into a book and here we are.

Josh King:

United Rentals in 1997, the first of your enterprises to be listed here at the NYSE, followed by XPO in 2012, GXO 2021, RXO in 2022. Among the four, does United Rentals stand out because it was the initial listing or does any of the other three eclipse the first?

Brad Jacobs:

United Rentals was great. When we started it, we all invested at $3 and 50 cents a share, and today it's over $550 a share. So, it's been a huge return on investment for shareholders. Now, I can't take all the credit for that because I haven't been CEO for quite a number of years, but the business has performed very, very, very well.

And at the end of the day, that's your report card. Your report card in business for a New York Stock Exchange company is how much value did you create for shareholders because you're taking people's money. Other fiduciaries, people who are pension funds, people who are long only funds, people who are hedge funds, people who are endowments, retail investors, and you have a very solemn duty to give them back a lot more money than they gave you. And god forbid, you're giving back less money than they gave you. So, United Rentals was, I can't do that in my head, it's like 150 bagger or something like that.

Josh King:

150 bagger. It used to be 100 bagger, now it's 150.

Brad Jacobs:

It's going up. Yeah. So, United Rentals was certainly a success and I feel very proud when I see all the decals on the equipment all around the country.

Josh King:

Yeah. What was the big idea behind United Rentals at the time? Because I do see the decals from time to time I passed some of the locations, I passed the equipment in the field and would all love to have a scissor lift or a boom lift located in the garage when we have to decorate a Christmas tree. But there were parts of it that you tried and failed and backed out of until you got to what the core business was.

Brad Jacobs:

The main incentive to do equipment rental was I thought there was a long-term trend, which turned out to be correct, that customers would rent more equipment than they were doing already.

At the time I got into it, there's only about 15% rented and construction equipment for the most part was purchased. But so much of that 85% that was purchased was just sitting around getting rusty and dusty and depreciating and you had to pay to maintain it. It was actually costing money. So, I figured, "Gee, over time a lot more customers will see the economics of renting." And of course, that turned out to be the case. The rental penetration has gone up way over half now, and we rode that trend.

The other thing that attracted me to the quit rental business was at the time it was very fragmented. Hertz was the biggest guy and they were only a billion dollars after being in it for decades. Of course, we surpassed them in 13 months. They didn't like that. By doing M&A, we broke a billion dollars a little over a year.

And there were many, many, many small and medium-sized companies, a few public companies which we ended up buying was mostly mom and pop, or not really mom and pop, privately-owned entrepreneurs that were in the business. And I thought, "Gee, if we bought a bunch of these and put them together, we could go to the manufacturers and say, 'Guys, we're not a small company now. We're a big company. We're your largest customer.'"

We need a break on the price. And we earn a break on the price because of our consistency of long-term relationship buying. And most of them lowered their pricing roughly 20%.

Josh King:

And so, some of those manufacturers I suppose with all the feedback that you're giving them, you're helping them build a better scissor lift, a better boom lift as well. I mean, you've contributed a lot to the advent of how these pieces are designed and used out in the field.

Brad Jacobs:

No question about that. So, at the time, there were about 25 or so you mentioned aerial boom lifts, scissor lifts. There were a couple dozen of them.

And I went to all of them and said, "Look, I'm going to consolidate this industry and I'm going to buy most of the equipment rental dealers out there. And I'm not going to work with 25 different vendors here. We're going to consolidate down to two. And I'd like to do the one, but I want to have two to keep each other honest. But I want more than that. We want to standardize the mechanics and we want to be an important customer. And the rest of you guys aren't going to really survive. You're going to really shrink quite a bit."

And two of them stepped up to what was then called Genie and JLG. And today, they have the vast dominance of the market share because they bought into what my vision was and they signed up and they really thrived as a result. Even with the discount, the volume made up for that a lot. And then we went to Sir Anthony, well actually, Lord Bamford now, for that he was Sir Anthony Bamford when I knew he was just Anthony Bamford.

Josh King:

Yeah. It was up in the [inaudible 00:18:55].

Brad Jacobs:

And British company, JCB. And they came to the United States and Anthony wanted to break into the North American market because it's much bigger than the European market. And he wanted to build a big plant down in Georgia and needed a customer. And we said, "Yes, we'll do that. Give us a good price that we can pass along some of those savings to our customers and our shareholders will be happy and our vendors will be happy because we're doing big volume and consolidating it." And he bought into that and we became, I think his biggest customer.

Josh King:

So, in theaters now is the work of another Brad, Bradley Cooper who wrote, directed and starred in Maestro, the biopic of the life of Conductor Leonard Bernstein. A CEO Brad is a conductor of sorts and you want to know as a lover of music, you're a trained classical pianist back at Bennington College, what did Professor Bill Dixon teach you about jazz in the 1960s in his black music course and how does that inform getting a wide swath of employees to work together as a team?

Brad Jacobs:

I happened to watch Maestro over the holidays. Oh, it's a great movie. And it reminded me a lot of my musical training because I was first classically trained, as you said, which I think is important. You need to know structure. You need to know process. You need to have certain discipline. You have to learn what it's called chops in music. But I loved what Bill called Black music. He didn't like jazz. He didn't like the word "jazz". He said, "This is Black music. It should be called Black music." So that's fine.

And what I learned from Bill were a lot of things that applied to music and the same exact things applied to life. Those were things like how do you improvise in the moment? How do you get fully absorbed in this moment right now and zone in on that and zone out everything else in the universe, so that the whole rush of the cosmos is going on without you. It's just going, going, going. But you're just zoned in on this moment with the person you're with at this moment and the place you're at this moment, at this time in this space.

That's a great skill. This is way before the word "mindfulness" was invented and when it became very popular in psychology and so forth. So, I would credit Bill Dixon with the real original mindfulness of music is a psychological thing where the first step is to get very in tune with the present non-judgmentally, accept it just the way it is right now. You're not trying to change it. You're not trying to judge it. You're trying to be in tune with it.

And then the other thing I learned from him was how do you work with other people so that you become a super organism? In other words, it's not just me and you and a couple other people jamming. It's one. It's us. It's a team. It's a group. It's a band or it's a symphony. It's one super organism like an ant colony or a beehive. And that's a very brilliant insight that he had that applied to music but also applies to business.

In business, you want to be mindful. When you're with your team or when you're with a customer or when you're with a vendor or with your shareholder, you want to give them all your attention. You want to be fully present in the moment and make that a special meeting, a special moment knowing that that specific constellation of people will probably never happen again. Certainly not in that space, going back to the Lincoln Schatz Cluster art piece.

That'll never happen again and you should really appreciate that and be very grateful for that and say, "How lucky I am that I happen to be right this minute with this person and that person." And that creates a certain electric vibe. And in the book, I have a whole chapter on how to create an electric meeting. And part of it is being fully present in the moment and giving non-judgmental concentration is what I call it in the book to the other people that you're with.

Bill also taught me something very humbling, which is money ain't everything. I talk about in the book one time he came to my apartment about 10 years after I had left Bennington. And he was doing a gig in the city and I had been an oil guy and made some money and had this big beautiful apartment at Olympic Tower and invited him over. And I thought he was going to be really impressed. I thought he was going to say, "Wow, you really made it Brad, god."

And we're looking out over down on New York and he looks over to me, says, "You really screwed up. You could have been a really good musician. You could have made a serious contribution to music and you're chasing this money stuff. Who cares? What are you doing? Why are you wasting your life chasing money?" That was his message was like, "I just don't understand why you would go after money."

I happen to have a piece of art that hangs up in our office in Greenwich that has a quote by Frederick Kunath that says, I might get a word or two wrong that says, "I can't afford to waste my time making money." That making money is good, making money is fine. It gives you all kinds of things you don't have if you don't have it, but there's a lot of other things in life besides money.

So, if you're going to chase money, it's something I learned from Bill, took his lesson very carefully. If I'm going to chase money, I can't just chase money. I've got to enjoy the experience of chasing money. I've got in the process of doing business with all the people I come into contact with, whether it's someone's company I'm going to buy or whether it's a vendor whose equipment, whatever it is, I have to enjoy that. I have to figure out a way that I process my daily experiences in a positive way, in an uplifting way, in a meaningful way that gets me excited.

Josh King:

I mean, you think so intently sometimes about the math of what constitutes a life. If you do the actuarial calculations of how many days you have left on this planet left, do you think maybe you have about 5,000 good days left?

Brad Jacobs:

Yes.

Josh King:

And you got to make the most of every one of them.

Brad Jacobs:

Every day is so important. You have to work at it. You have to work at thinking about how you're interacting with life. Life's going to have ups and downs. Life's going to have positive stuff. Life's going to have negative stuff. That's not going to change. Life's going to have things that you are real happy about and life's going to have things that, gee, really wish that thing didn't happen.

You have to figure out a way to deal with both of those in a way that's enriching and not get too up when positive thing happens. It's good to be up, but not let your happiness be dependent on that. But also, you have to learn how not get too down when the inevitable messed up stuff's going to happen.

Josh King:

I want to stick a little bit on the time with Bill at Bennington College. Those of us who are aware of Bennington know it's a quirky little institution in Vermont. Your academic journey took you from Bennington to Brown, but you eventually decided to drop out prior to getting your degree.

And like you, Apple's founder, the late Steve Jobs, dropped out before eventually completing his degree from Reed College. In 2005, Brad, Jobs gave the commencement at Stanford and discussed his own reasons for leaving school. I want to just take a listen to a little bit of that speech.

Steve Jobs:

And 17 years later, I did go to college. But I naively chose a college that was almost as expensive as Stanford. And all of my working-class parents' savings were being spent on my college tuition. After six months, I couldn't see the value in it. I had no idea what I wanted to do with my life and no idea how college was going to help me figure it out. And here I was spending all of the money my parents had saved their entire life. So, I decided to drop out and trust that it would all work out okay. It was pretty scary at the time, but looking back, it was one of the best decisions I ever made.

Josh King:

While the reasons for leaving might be different, there are quite a few examples of business leaders like Bill Gates and Mark Zuckerberg who dropped out of college. What led you to step away from Brown and begin your entrepreneurial career without finishing your degree?

Brad Jacobs:

Look, I think on balance, it's better to go to school and I think the data shows very clearly that there's a correlation between finishing college and getting a better job and moving up in life. So, I don't want to be a poster boy for not going to school. I think education is very, very important.

In my case, I was done. I was a good student. I had studied what I wanted to study. I had more important than just learning stuff. I felt I had learned how to study. I felt I had learned how to learn. And that's what's the main thing you want to get from going to school is the curiosity and the discipline and the love for solving the mysteries of life because there's so many of them. And Bennington was a fantastic experience. It just, coincidentally, we had the book launched last night at the Rainbow Room. It was fantastic.

Josh King:

Love that place.

Brad Jacobs:

Oh, it was just wonderful. We had 375 of my best friends and it was just a really good vibe there and very good people. One of them was Laura Walker, who was the president of Bennington College and we were chatting a little bit about the Bennington experience. Bennington is still a cool school. And back in the '70s it was an ultra-cool school, maybe the coolest school in the country, only 600 kids.

It was a privileged place because it was the most expensive college in the United States. I got a scholarship. I wouldn't have been able to go otherwise, but it was $9,000. Of course, that's in 1970 dollars, of course that's much higher in today's dollars. What was beautiful about it was because it was only 600 kids and so many people were applying for it, you had a lot of talented kids. And everybody there had some special talent to them, whether it was art or whether it was humanities or whether it was music or dance. People were very serious about what they were chasing.

And the student class size was very small. Average, it was nine kids in a class. So, you got to know your professor. The professors were all practitioners. They weren't just professors. They were people who like, Bill, who was a professional musician and teaching on the side or Claude Fredericks, who was a very profound author writing all the time and teaching just because it's a nice thing to do.

And at some point, my parents wanted me to go to Brown because my father went to Brown, my brother went to Brown Medical School and I'm from Rhode Island and I had to do the Brown thing. So, I gave into it. I did Brown. I couldn't stand. Great school. One of the best Ivy League schools in the world. It wasn't for me because it had these large classes, 150 kids. People weren't really paying attention and there wasn't that interactivity with the teacher and it just didn't work for me.

So, to answer your question, I didn't feel I was moving. I didn't feel I was advancing. I didn't feel I was progressing in life. So, I says, "It's time to move on."

Josh King:

And then you had that reunion of sorts with Professor Dixon in your apartment in New York and before your success as an oil broker, you were a 23-year-old in 1979 trying to figure out what might be next. You hadn't had all this experience yet. And at the time, if our history is right, we had about 50 American diplomats held hostage in Tehran. I want to listen to then President Jimmy Carter discuss the situation on Face the Nation of CBS News back then.

Jimmy Carter:

... we've done since the very beginning is to try to protect the lives and safety of those hostages from the original threats, that they would be tried and executed to build up on a worldwide basis, support for opposition, the condemnation of Iran and the calling on the Iranian government to protect those hostages and to release them, and to have an adequate or commitment in our own nation's military strength, and otherwise, other strength to protect those hostages and to expedite their release.

Josh King:

During Carter's presidency, the crisis was driving up oil prices and had helped Exxon become the first American company to report earnings in excess of a billion dollars. On a CBS news report at the time, there was a graphic on one of those reports that said obscene profits. How did those two words "obscene profits" influence you and your first venture into the oil industry?

Brad Jacobs:

Well, I remember it very well because my goal was never to make a billion dollars. That wasn't even in my mind. My goal was to make $100,000 because interest rates really high. I remember Jimmy Carter brought this stagflation.

Josh King:

Yeah, 19% or something like that.

Brad Jacobs:

Yeah, 18, 19%. You put in a Bank of America CD, which is what I did by the way. And I figured I'll make a hundred thousand bucks. I'll put it in a Bank of America CD. I'll make a little over a grand a month after taxes. I'll meditate and play music and read, just have fun and life will be fantastic.

So, the only problem was I didn't have a company. I didn't have a business. I didn't have an industry. I had a business sense in my blood, but I didn't know how I was going to apply that. I was watching the evening news and on the screen, it was the first time that a company turned out it was Exxon, now called ExxonMobil, made a billion dollars profit in a quarter. And the headline was Obscene Profits. And I was thinking, "I could make some obscene profits, $100,000 sounds like an obscene amount of money. Maybe I should get the oil business." And it clicked right there. "I got to get in the oil business."

And I went to the library. There was no internet then. And read every book I could find on what was then called the Seven Sisters, the big oil companies and the history of the oil business. And I tried to figure out what is upstream, what is downstream, what is processing, what is shipping. Just how the whole thing worked. It was very, very fascinating.

And I found some other people who were doing oil brokering or oil brokering worked. I first wanted to do oil trading because I had read an article where a man who ended up becoming my most important business mentor, Ludwig Jesselson, the chairman of Philipp Brothers, was featured in a big article, I think it was in Businessweek, and it described how they made money by knowing what's going on all around the globe and had a photo of him with clocks from different time zones around the world.

And the article explained that by having a global network and collecting information of what's going on, remember before the internet, they could trade oil because there was no way to have universal price discovery, but they would know what the real price and value was because they would know how many buyers, how many sellers, how prices were changing, how things were moving. And I got that. I understood what that was. But I didn't have enough money to go buy and sell big cargoes of crude oil. Crude oil then was 20 to $50 million a cargo. Where was I going to get that? I was 23 years old.

I did run into the people who were doing brokerage and explained to me how brokerage was like trading, except instead of taking a position, you are matching together a buyer and a seller and taking five or 10 cents a barrel as a commission. And so, it's 25, $50,000 a pop. And we started cranking out lots of those every day. And forget about saving $100,000, you make $100,000 sometimes a week. Then it mushroomed after that.

So, if you had asked me back in those early days, "When you're 67 years old, Brad, you think you'll still be in the business world?" I would've had a big belly laugh. I said, "No way. I'm not going to waste my life making money. I'm going to go out and do music and fun stuff and discover the purpose of life and the meaning of life and answer all the big important questions that we want to answer."

But one thing led to another and I just started making a lot of money from one business to another business and I just never stopped. So, I just got onto this flow.

Josh King:

Get into this flow one business to another business. The first two companies, Amerex Oil Associates and Hamilton Resources were both in oil. Since then, you ventured into waste management, we talked about it a little bit, construction equipment rental, we talked about that, truck brokerage and other industries.

What is the alchemy of determining the next sector to target as you build your next venture? Because you eventually have not got off the track and gone into answering the big questions of life or writing music or performing. You've got into figuring out what the next thing is. So, how did it work for you after you saw the first I want to get into the oil business and read all that stuff to where we're now.

Brad Jacobs:

I've never abandoned music or trying to figure out the most important things in life and how do you deal with life. Those questions and those activities are very important to me and I've never stopped doing that, but I do it in my spare time and I multitask while I'm doing business. I'm also thinking about meditation techniques and I'm thinking about sound and those are all part of my personality.

But after I get out of the oil business, the oil business was mainly what I was just saying was an opportunity to have global organizations, whether it was brokerages and I did trading and use technology to have very rudimentary technology but advance for the time to collect information about what's going on and then capitalize on that. That was basically the basic edge that I had in the oil business for 10 years and it was a great time to be in the business.

After that, if you look at my different companies and just forget what industries they were, it was the same business plan in every industry. Every business plan, whether it was waste, whether it was equipment rental, whether it was trucking, whether it was warehouse, whether it was truck brokerage, whether it was LTL, what do we do? We found industries that had certain characteristics that we could capitalize on to create a lot of alpha and they were the same exact characteristics. And that's the playbook. And of course, I talk about that in How to Make a Few Billion Dollars.

Those are things like the size of the industry. So, I've always gone to industries that have big swaths of GDP, big swaths of the economy. Because if you're going to create a large company, which I think you need to do. You need to scale up a company in order to create significant alpha. You have to be in an industry that's big enough. You're not going to create a company that's tens of billions of dollars if the whole industry is tens of billions of dollars. You're not going to get a hundred percent market share.

So, I looked at the size of the industry, and these were typically industries that were hundreds of billions of dollars in some cases depending on how you defined it, even trillions of dollars. I looked at industries that were growing that just showing up Monday every week. There's going to be a little more wind to our back. We're going to grow a little bit more. We're going to have a little price. We're going to have a little volume. They're good businesses. They're businesses that are genuine that there is a demand for. That there are customers who will wire money from their bank accounts to yours if you do a good job and better than competition.

And I looked at not just size, not just growth, but fragmentation. I tried to find industries that there were a lot of acquisition targets where I could buy companies, and where I could buy companies at lower multiples of profit than I could reasonably assume we would trade at as a public entity.

And then I looked at industries, I have a checklist. I go down the list and I say, "Is this an industry where bigger is actually better?" Now, most of the time, bigger is better in most industries. But not always. I've looked at some industries where you become big and you are more distant from the customer and you lose sight of your cost and your customer service.

So, certain industries, you're better off having a small local business and that's got an advantage over the big guy. But that's the exception. But I want to make sure any industry I go into, there are economies of scale and that we will have advantages to lower our cost to serve, to elevate our level of service by being bigger. That's another box I have to check.

And then I look at how can I apply technology? So, all these companies, every single one that I've done, there's been a big element of using technology ahead of the other guy. So, if you look at brokerage is a perfect example. We got into brokerage in 2011. The second guy I hired was Mario Harik to be my CIO. He's now CEO of XPO and doing an amazing job. And the reason that the very second person I hired was the technology guy was that was the vision. The vision was let's take this industry of oil brokerage where people are mainly talking on phones and automate it.

Now, fast forward to today, the company we spun off that specializes in brokerage RXO is 97% of their orders are either sourced or covered digitally without human intervention, and eventually, that'll be close to 100% of everything. That's going to be all automated.

So, that vision was correct. We spotted the big trend and that's the last thing I want to mention, which is there has to be a trend long term that's favorable. And when I say long term, I mean, let's call it 10 years that if you look at the industry and you say, "What is this industry going to look like in 10 years from now?"

That your answer has to be, "It's going to be growing. Today, it's an X-sized industry. It's going to be 3x or much whatever. It's multiple of size. And is the margins going to get better. Not worse. It's not going to be disintermediated. It's not going to go into the metaverse. It's not going to be done on a computer, it's not going to be done in virtual land. It's still a real business." And that's my checklist. Many other things, too, but those are the main things that I look for when I study in industry.

And over the last year I looked at over 500 companies, over dozens of industries and I applied my checklist. Literally I have my checklist and I go over each industry and I say, "What's the size? Is it big enough? What's the growth rate? Does it grow fast enough? Are there enough things to buy? Can you buy them at a lower multiple when you integrate these things? We have a better company than this," and so forth. I go down that same list I just went over.

And then I found one that actually checked every single box. I said, "Good, I'm going to marry this industry. This is the girl I want to marry."

Josh King:

And we're going to get to that future marriage in a couple minutes. But I want to go to 2007 when you stepped down from United Rentals in search of what the next big thing. That next big thing would not be until 2011 with XPO, but you write about this four-year gap between 2007 and 2011 with all the uncertainty that came with it. Within that span of course is the global financial meltdown, but what was that period of your life like prior to XPO unsure of what the next big thing would be?

Brad Jacobs:

I forget whether it's 67 million years ago or 68 million years. There was this big meteor that crashed into the Earth and at first, obviously that's a bad thing because everything got burnt up and killed, but it ended up being a tremendous growth period after that for long periods of time. And fast forward to today, we have this wonderful biodiversity that we've got. That was for me that 67 million years ago event where I had been running a large company and it was very successful, and then I wasn't. I had stepped down and I was lost. It was the only time in my life that I was literally depressed. I was clinically depressed.

I'm a very sunny side of the mountain kind of guy or upbeat, glass half full generally. But then I was not. I sunk into a serious depression and I really lost my bearings, which was the best thing that could have happened to me, because I dealt with it and I said, "I'm not going to go depressed the rest of my life. I'm going to figure out a way to solve this. It's a great problem to solve. It's a big problem and it's a problem that, wow, if I solve, this is going to be fantastic so I can apply those skills to the rest of my life activities."

So, I discovered lots of things to do that. I discovered cognitive behavior therapy. I discovered the Beck Institute in Philadelphia. Aaron Beck was alive then and his daughter, Judy Beck now runs that institute. And I studied with them and I was fortunate and privileged to be on their board of trustees for a while, board of directors for a while.

And I studied under Albert Ellis in New York here. Both those gentlemen died a while ago, who also had just tremendous insights into the human condition and how we think and how we as human beings think so irrationally and think we have so many cognitive biases and we have so many cognitive distortions. And he identified a handful of them.

Between Beck and between Ellis, they identified called about a dozen ways that is what you could call stinking thinking is what people say, where you magnify problems way bigger than they really are. You exaggerate a crisis and catastrophize it and make it into this big huge overwhelming thing when it's really not such a big deal [inaudible 00:44:00].

Or you see things all or nothing thinking. It's dichotomous. It's black or white. Very few things are black and white. Most things are gray or most things you can change the color of them based on applying and processing certain stuff. And all kinds of self-downing thoughts. We as human beings, we criticize ourselves all day long internally. We wear a mask. We don't share that with everybody but we don't want to look weak. We don't want to look vulnerable. We don't want to look like we're not perfect, but we're not perfect.

And we tend to amplify almost everybody I know. There's a few exceptions, but almost everybody I know, if you really get to know them and confide with them, they have a lower self-worth than is actually true and what other people think about them. They may portray the opposite of that. They may seem so confident and almost even arrogant.

But really when you probe, they don't like the way they look. They don't like this defect. They don't like the way they think. They feel they're inferior or defective in this way or that way. And you have all this, what I just refer to as stinking thinking. And through cognitive therapy, you pay attention to what they call automatic thoughts. And you identify them, particularly when you're down. Why am I down? What thoughts did I just have that made me feel down? What caused that?

So, you analyze your thoughts. And then you modify those thoughts to things that are either more true and accurate. Or if they are true and accurate, they're just not good but they're true, they're accurate. Reframe how you look at that. Okay, maybe I'm bald then I don't want to be bald. Or maybe I'm chubby, I don't want to be chubby. But who cares? A lot of people are bald. A lot of people are chubby. It's not the end of the world or whatever. It depends on the person.

So, I learned a lot from cognitive therapy how to pay attention to my thoughts, particularly the rotten ones and to deal with them. And they have a bunch of techniques, a bunch of tools, like when you have a problem that seems like a disaster, you say, "Okay, look, what's the worst thing that could happen here and how am I going to cope with it?"

That second part is very important. What's the worst case scenario and how am I going to deal with it? And when you do that with a problem in business, for example, personal life or a professional life, problem comes up to you, smacks you in the face as Mike Tyson says, "Everyone has a plan until you get smacked in the face." Then you think, "Okay, what's the worst deal here and how am I going to somehow make lemonade out of these lemons?" And most problems, if you go through that process, you'll figure out a way to deal with it and you'll also minimize it.

So, I studied NLP, neuro-linguistic programming, and they have a technique where you visualize problems. You put it in an image and then you minimize it. You make them real, tiny, tiny, small. And you can even take your finger and flick them away if you want. And Tony Robbins uses a lot of those techniques.

And I enjoyed learning those techniques. I never had the time to really study those and find out masters of these little techniques when I was full-time CEO, and I did have some time there. So, I sought out a lot of those psychological gurus, so to speak.

Josh King:

You write a lot about mergers and acquisitions. You have a whole chapter dedicated to it and begin it by saying, I'm going to quote you here, "Acquisitions are the best way I know of how to scale up fast and gain the advantages that come from a large number of locations and greater market share." Those first four years of XPO, Brad, after that period that you did the introspection, you did 17 acquisitions, but looked at about 2,000 prospects. Describe the process of just determining how you sift through those thousands of prospects and arrive at the ones that make most sense to bolt onto the company.

Brad Jacobs:

I like to look at many, many, many acquisition opportunities at the same time. I want to have a plan A, plan B, a plan C, and plan D. And I want to go aggressively on same time on all fronts, so that I don't feel any pressure to do any one specific deal. If I'm only looking at one deal at a time, I kind of fall in love with it and I might lose my discipline. I might pay up too much, god forbid, because that's a terrible thing.

Or I want to pay a fair price but overpaying for an acquisition is a bad thing because that's on your balance sheet forever and that's your IC and ROIC. And in business, it's all about ROIC. Of all the metrics there are, return on invested capital is the mother of all metrics to measure how you're doing it as a business. So, the purchase price is very, very important.

I like to look at many, many companies and I learned from every single one I look at. Every single company I've ever approached to buy, it's thousands of them, it's like getting a Harvard MBA. You can't get this in B school, in business school. You just can't get it. It's the real life, real world insights into how do you make money.

And I always ask these entrepreneurs, and I fall in love with these entrepreneurs or these CEOs of companies. I just fall in love with them. I say, "Wow." I'm so impressed with entrepreneurs who've grown companies from small to big and created value by doing that. And I just want to know, "Well, what are your secrets? How did you do this? Give me the whole story."

And of course, I relate to them because I have a similar background to them. "I want to know, tell me all the great stuff that happened and tell me all the crazy stuff that happened," because we all know, a lot of crazy stuff happens when you're in the business world and doing big stuff. All kinds of stuff come out of left field. And I want to know all that. I really want to understand that.

And even if I don't end up buying the company, because most companies I don't end up buying, I benefit from that experience dramatically. I learn. I learn something new every time I hear an entrepreneur, a successful leader, how they grew that business and what they value and what emphasis do they put on?

Josh King:

Intercontinental Exchange ICE just completed its most recent acquisition, $11.9 billion for Black Knight in September, and a priority since closing, as it always is with us, is integrating their employees into the ICE community. Through your experiences, how do you ensure a smooth transition of people when making an acquisition? You've said that some of your worst deals were with people that you didn't quite click with across the bargaining table.

Brad Jacobs:

I'll never do a deal with someone I don't like. Because I've learned the hard way is when you're in the dating process of a deal, if it is going smoothly and there's mutual respect and everyone's being constructive and trying to figure out ways to find ways to be in the middle, meet in the middle, and to understand the other side's position, understand what's important to the other side, and trying to work around that, two ways, doing both ways. Much more often than not, it turns out to be a real good deal. It's a correlation to that.

I find just the opposite as well, the converse. In other words, when the dating process, when the negotiating process has been rough and disrespectful and just full of drama, there's a high correlation between later on that marriage that deal, that acquisition is also not so great. There's a reason, and I haven't fully understood it yet, but I do understand this, that regardless of why, certainly there's a correlation between those difficult negotiated deals, deals that were negotiated in a difficult environment, a lot of times they don't work out later. And so, I do like to do business.

First of all, I'm making a lot of these guys rich, so I like to have a little bit of respect because I'm giving them millions of dollars and I want to show them respect.

I find that in a relationship, in business or in personal life for that matter, the most important thing is mutual respect. Both parties have to respect the other, have to listen to the other, have to try to understand with empathy what they value, what's important. Both parties have to be committed to developing and culturing and nurturing a relationship. And if you have that basic framework, that intentionality and that mutual respect, you get a lot done.

Josh King:

Talking about respect, that 2018 short report didn't show you a lot of respect writing about XPO. XPO stock was under attack, and the culprit, as you put it, was a capital management firm that specializes in hit jobs. The stock price went into freefall. It went down 26% in a day. Disaster seemed at hand. How were you able to fight back in a way using the falling stock price to your advantage?

Brad Jacobs:

We bought back $2 billion of our stock. Because the stock had come down because of this crazy report, and it wasn't for fundamental reasons. Nothing changed in the business. The business was the same business it was when it was 26% higher just the day before. It came down just because of this weird thing out there.

So, when that happens, when something is cheap, buy, and it certainly was on sale, and we ended up buying quite a large part of the company back and so did some of our shareholders. Orbis bought a fortune of the stock, ended up quadrupling their money. They made huge amounts of money. There is a hedge fund here called Spruce House that also bought. Oh, I think they bought almost a billion dollars of stock, something in that neighborhood.

And it was so gratifying a couple of years later when I got a letter over email from Spruce House saying, "We've liquidated our position. It's been tremendous ride. I want you to know we made $500 million on this trade." And not only did we, meaning the owners, they made 20% of that. They made $100 million. God bless them. God bless America. But that other $400 million went to pension plans who had invested in their hedge fund, to endowments of schools, to retirement funds of people who-

Josh King:

Police, teachers.

Brad Jacobs:

Yeah. Anybody, just regular normal people, all these people. And that's a lot of money to be spreading around. That's a lot of love to be spreading around.

Josh King:

It's a lot of love.

Brad Jacobs:

I was very happy about that.

Josh King:

I mean, hats off to Spruce House and everyone who saw the wisdom in getting in at that point. So, after that, XPO under your leadership has received so many accolades. The stock was named one of the seventh best performer in the Fortune 500 over the last decade. Company was named the fastest growing in the Fortune 500 Forbes in 2017. In 2020 named XPO to one of America's best large employers. That's a lot of success for one enterprise.

Yet, Brad, in 2021 and 2022, you decided to spin it out, spinning off GXO Logistics and RXO multiples, multiples, multiples. What made the right time to make this move and spin off these two companies from XPO, Inc?

Brad Jacobs:

It was very simple. We were trading at about seven and a half, sometimes eight times EBITDA and our competitors were trading at in the teens. So, we dealt with that honestly and brutally and just said, "Why?"

And we called all our top 20 shareholders and said, "What are we doing wrong here?" We're a great company. We have a great contract logistics business, the only pure play in the world, the largest pure play. And it's not the only one, but it's the largest pure play and all dominates, e-commerce and a tremendous organization. We have a fantastic brokerage firm that's growing three times the rate of the industry. We've got a wonderful LTL business that we've improved quite a bit since we bought it from Conway. Why we gave this lousy multiple?

And there were two things that came back. One was people said, "You have too much debt. You have like four times leverage, and that's too much." Okay. I mean, I always liked some amount of leverage because it juiced the returns for the common shareholders, but there's a limit.

And if you're a private equity owned company, four times leverage maybe it's too small but too low. But as a publicly-traded company, there were a lot of investors who said, "Look, we can only have so much." We look at as risk that if suddenly we go into a geopolitical event that causes a recession or a market downturn, that's just too much leverage. So, we said, "Okay, we'll need to bring down our leverage."

Second thing they told us was, "You're too complicated. You've got a warehouse business. You have a trucking business. You have an asset trucking business. You have a non-asset trucking business. It's just too complicated. You have people who want to invest in the industrial play and they would want to buy your LTL stock, but they don't want your warehouse stock. They don't want your consumer base. They just want that. And people want to play an e-fulfillment bet. Well, they want your warehouse business, your supply chain business, but they don't want the other stuff."

So, we said, "Okay." People said, "Why don't you just sell this stuff off?" I said, "Well, I don't want to sell it because I think there's a lot of value still we can create."

And we had a couple of banks come in and they said, "You ought to do spins." I said, "Well, I've never done a spin, so let's get educated." I brought [inaudible 00:57:09] in. They've done a lot of spins and they gave us all kinds of memos to read. And we read them all and studied them.

And we had some tutorials and said, "Okay, I get this. It's going to be a lot of work. It's going to be a year's worth of work and it's going to be a big distraction from running the business. But if we segregate the company out into these pure plays, we're probably going to get a much bigger multiple, particularly if we make them investment grade." We made two out of three investment grade and the other one's lightly leveraged, but not too much, a little over two times.

And fast forward to today, where we have completed those spins, we trade in the low teens. So, we've improved the EBITDA and we've improved the multiple we get on that EBITDA. And in the market, that's the two big things. What's your profit and what multiple are you going to get on that profit? So, the spins while are counterintuitive for most CEOs because most CEOs are trying to grow the company and go up the ranks of the Fortune 500 in terms of the size. That was really never at all a factor for us.

The main factor for us, the only factor for us for our investors was how do we get the share price up? How do you increase shareholder value? How do we make our investors a lot of money? For that is a wonderful, satisfying feeling. There's no greater feeling that I can think of of when your stock doubles or triples over a short period of time. And you go visit your top 20 shareholders and people are standing up applauding you. It's just a great feeling.

It's very, very gratifying that people had confidence in you, people believed in you and you delivered and you delivered in spades. So, that's just a really great feeling. And the spins were a way for us to deliver the value that we weren't delivering.

Josh King:

Well, keep creating as many spins as you want, as long as they keep listed here at the New York Stock Exchange. We'll have as many XOs as you can possibly muster.

Brad Jacobs:

New York Stock Exchange has been very, very, very kind to me, and I've been up on that podium 11 times and every single time is just a thrill.

Josh King:

After the break, Brad Jacobs and I are going to continue to discuss his various companies listed here at the New York Stock Exchange as well as dive deeper into his new book, How to Make a Few Billion Dollars. That's all coming up right after this.

Speaker 6:

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Josh King:

Welcome back. If you're enjoying our conversation, want to hear more from guests like Brad Jacobs, remember to subscribe to the Inside the ICE House podcast wherever you listen and give us a five-star rating and a review on Apple Podcasts.

Before the break, Brad Jacobs and I were discussing his rise in business from Amerex Oil to XPO, Inc. and his new book, How to Make A Few Billion Dollars, out now from Greenleaf Book Group Press.

Brad, I think a lot about trash. When I'm at our place upstate, one of my favorite pastimes is separating paper from plastic from metal and preparing everything in neat bags for the recycling before I head to the transfer station. But that's not how it really works in the big city. Let's start this half of the show off with a little digression into garbage. What neat and tidy way did you see to make a few billion dollars in the messy business of waste management?

Brad Jacobs:

The oil business had a great run-in for a decade, but it was ending. I could see the trend ending because Bear Stearns and Morgan Stanley and some of the other banks got into oil trading competing for much lower margins than we were. The Japanese sogo shosha, the big trading houses, the Mitsubishis, the Marubenis, the Seitos, they were getting into it again. So, suddenly there were a lot of competitors willing to do business for much, much lower margins. Okay. Well, I need to go find another industry. This was a great run, but we did well, but it's time to find something else.

And I read a research report that I had an account, it was called a CMA account from Merrill Lynch. And it was a report by a guy who ended up covering me, Bill Janco, and it talked about how the two big industry leaders in waste management, one called Waste Management, the other one then called Browning, Ferris Industries, BFI, were making about a half a billion dollars a year.

And I remember turning to my then girlfriend, now wife and saying, "How hard can it be to pick up someone's trash, bury in a hole and send out an invoice, compared to all the very sophisticated things we were doing in oil trading, which was very, very complicated, difficult global business." I said, "I'm pretty sure we could learn that business pretty quickly and do it. And if they're making that kind of money, we probably figure out a way to make that kind of money, too."

So, I came to the United States and I interviewed about 100 people from the leading waste management companies, and I asked everyone on the interview, I said, "If you were coming into this industry and want to capitalize it at a few million dollars upfront, what would you do to make a lot of money? What would be your best idea to make a big business plan?"

As a result of all those interviews, I came up with a business plan. The business plan was to not to go head to head with the big guys in the urban areas or even the suburban areas, but go into the tertiary markets in the upper peninsula of Michigan or to the Appalachia in West Virginia, Kentucky or in rural Mississippi. Buy up all the landfill capacity we could get, and then go to the collection companies that were hauling to those landfills and buy as many of those up as possible, too, and consolidate it, integrate it, and grow the margins.

And we certainly did grow the margins and we compounded our earnings at 55% and not surprisingly, we compounded our stock price by 55% annually as well. So, it was a big hit.

Josh King:

Now fast forward from then to where we are today, GXO Logistics and RXO, were companies six and seven for you. Your eighth venture is QXO, a building products distribution company. Can you give our listeners an overview of what you're trying to do to and accomplish and the problems you're trying to solve with creation of QXO?

Brad Jacobs:

I love this industry, building products distribution. The reason I love this industry is it's nearly identical in the characteristics of the other industries that I've made a lot of money in. And it's large. It's $800 billion in size just in Western Europe and North America. It's growing. It's growing at 7% annually. That's a wonderful thing. You can make a lot of money in something that's growing 7% annually, even before acquisitions, even before improving margins, even before applying best practices. An average company, just an average company and the industry's growing at 7%, you can create some alpha there, but we can do all those extra things, too.

It's fragmented. It's $800 billion, the biggest guy is like $30 billion, 40 billion. There's no big company with huge market share in this space. Lots of opportunities to do acquisitions. There's 7,000 distributors here in the United States or North America if you include Canada. There's 13,000 in Europe. There's 20,000 relatively small companies out there competing.

So, it reminds me of equipment rental quite a bit. It reminds me of the waste industry quite a bit where it was very, very fragmented when I got into it. It wasn't when I finished, but it wasn't when I started. It's an industry that bigger is definitely better because when you look down at P&L, one of the biggest costs is procurement. You're buying stuff wholesale and you're selling at retail. I'm simplifying the business. But at core, that's a big part of the business.

Josh King:

We're talking windows. We're talking doors.

Brad Jacobs:

Anything that goes in a residential in a house, anything that goes in a commercial building, anything goes in infrastructure around the country. These are building products that are not going into the internet, that are not going to be done in the metaverse. You're still going to go 10 years from now, 20 years from now. I think it's a safe bet that you and I are going to go home to a real house with a real bed, with our real bathroom, with a real shower, with a real kitchen. And that reality was going to be ... There might be all the realities going on with virtual, but that reality is still going to be there.

And yet there's an opportunity. Again, one of the important things on my checklist that I have to check for, there's an opportunity to use technology to improve it because this industry, there's maybe a handful of companies that are actually doing some pretty cool stuff with technology, although they have a long way to go, but still they made a really good beginning.

The vast majority of companies are not using technology for pricing, for procurement, for warehouse management, for inventory management, for e-commerce, for connections with the customer. They're not doing route planning. It's just not really using technology. They're doing it all old-fashioned, kind of like the way the transportation industry was 15 years ago, kind of like the way the garbage business was 30 years ago. So, a big opportunity to be tech-forward and to apply technology to improve it.

So, it's an industry that attracts me a lot because I feel very familiar with it. I feel very familiar with it because of its characteristics, its traits. Also feel very familiar with it because a lot of the customers are similar customers of what I've had over the years. A lot of these same customers are LTL customers at XPO. A lot of these customers are United Rentals customers instead of renting, they're buying here. So, I feel at home in this industry.

Josh King:

You titled a subchapter in your book, AI is the Mothership of the Future. When we had one of the people that you talked about earlier, CEO Malcolm Wilson on for episode 314 of Inside the ICE House back in 2022, I asked Malcolm how he's deploying artificial intelligence within GXO. I want to hear a little bit of his answer.

Malcolm Wilson:

When we're in the actual warehouse, it's just a huge variety of tech, pretty cool tech that we're using. And mainly I have to say, it's the collaborative robots. It's goods-to-person robots, robotic arms. These machines do the different work streams that we're asking and putting in can be like deconsolidating, can be packing, all kind of manner of different activities, but they do it very accurately, very efficiently, and it's one of the ways in which we're able to move the relatively big volumes through the warehouse very productively.

Josh King:

Malcolm mentions using robots in a collaborative approach alongside the human employee. Is that the type of artificial intelligence you see being implemented throughout your companies and how has its presence impacted your current and future pursuits with GXO?

Brad Jacobs:

So, technology's on two levels, software and hardware. So, a lot of what Malcolm was talking about there is the hardware. It's robots. It's what we call them cobots, the collaborative robots that are doing picking and packing or assisting the pickers to do picking and packing. There's also including the warehouse business, a WMS system, a warehouse management system that uses AI to do inventory management and to figure out using predictive analytics, what's the right volumes to be storing here for the customer?

So, you're saving the customer money. They're not storing too much of stuff and tying up working capital, but they're storing enough so they can fulfill their customer's demands in a timely way. So, there's both components there, but when I was hearing Malcolm's voice here that you just played, first of all, it's heartwarming. I love Malcolm.

Josh King:

Yeah. We all love Malcolm.

Brad Jacobs:

I saw him last night at the book signing part. It's great to see him. And you hear his South English accent, was it south or north, I don't know. The English accent, strong English accent. And it just illustrates so clearly. So, the three guys that I made, I had succeed me when we divided the company up, Malcolm running GXO warehouse business, Mario running LTL, and Drew running RXO that the brokerage business.

On the superficial level, this cause couldn't be more different. I mean, you heard in Malcolm's accent. Drew comes from South Carolina and sounds like he's from South Carolina. You have to translate some of the words sometimes, a deep southern accent. Mario has this charming Lebanese accent. It's sort of French, sort of Arabic. It's just a great, really beautiful accent. They're very different. They're all different heights. Drew is six foot. He could be like six foot three, something like that. Mario is much less than that.

And their backgrounds, education levels. Drew's always proud about how he went to a school that wasn't high ranked, even though he did very well. And Mario went to MIT and got a master's degree in machine learning and so forth. So, very, very, very different demographics and very, very different demographics.

But however, at core, these guys are identical. These are exactly the kind of people I like to hire. These are the guys who have the traits that I look for when I'm putting together what's very, very important a superstar team, a team of A+ players. For me, that's the most important element to how to make a few billion dollars to go back to the book is to get a team of superstars. And that means they have to have, as they write in the book, four traits that they have to score A+ on.

They've got to be super smart. They've got to be completely honest. I mean, when I say completely honest, completely honest. They've got to be hardworking, fire in the belly, hair on fire, really want to work, really passionate, real strong desire to win but win fairly. Competitive, but a sense of pride about how they win. And this fourth one is equally important to the other three. If you have the other three, but not this fourth one, it's a no-go. They've got to be collegial. They've got to be collaborative. They've got to play well in the sandbox. They've got to get along with each other.

You've got to create a team. Going back to what we talked about at the top of the hour, we talked about creating a superorganism just like an ant colony or a beehive or like our human body, where it's all one organism that's made up of microorganisms, but it becomes one superorganism that takes on the world to win and succeed.

And for that, you have to have collegial people. They can't just be smart. They can't just be honest. They can't just have a high work ethic. They've got to work together as a team. We always say over and over again the cliché, teamwork makes the dream work. We repeat it pretty much every day, sometimes multiple times a day because if you can get a team of people who are real smart, really hardworking, really honest, and they all get along with each other, they respect each other, they love each other, they really look forward to working with each other every day, man, that's how you make billions of dollars.

Josh King:

I mean, with Malcolm, Mario and Drew, you've talked about the positive attributes needed to build a team, but as we begin to wrap up, there are a couple specific lessons in your book I want to discuss. One of which deals with effective leadership, not what makes someone great necessarily, but obstacles to their success. What are the three impediments to effective leadership that you write about and how could they get heads of industry back when they're trying to achieve their goals?

Brad Jacobs:

They all boil down to one effectively. At root, it's taking yourself too seriously and getting arrogant. This is the worst thing that can happen to a business leader. Even if they've had a great run for 10 years, 20 years, 30 years, or however many years, if they start thinking that they're invincible, if they start thinking that they're the cat's meow, they're not. I'm not. No other CEO I know is. We all have things that are great and we all have things we need to work on.

If you start blinding yourself to that balanced view of yourself, you will fail. You will fail. You will fail to detect threats to the business. I've seen this so many times in so many industries where a company's doing well, they get arrogant, they think they're entitled to be at the top of the mountain forever, and they get a little fat, old and dumb. And they let someone who's hungrier come in and chip away at them, and they suddenly are taking market share and taking the rug out from other them under them, and suddenly they're not kicking them out anymore.

Some new upstarts come in who's got more fire in the belly than they have and has found a new way to approach the market. So, arrogance, hubris is the enemy of success in business. You could say that in life, too. In life, too, in relationships. I mean, what's worse than a relationship with someone who's selfish?

Josh King:

A lot of books feature three to four blurb paragraphs at the back cover jacket, How to Make a Few Billion Dollars has, and I counted them Brad, 36 one-sentence blurbs, including one from the NYSE's President, Lynn Martin, and a lot of CEOs who are listed here at the NYSE. Before you even get to the title page, you've made a lot of investors a lot of money over the years. Is this the chorus of the Dave Jacobs Admiration Society?

Brad Jacobs:

I'm admirers of them. All the people that I asked to endorse the book were people who I admire. I admire Fred Smith. I think Fred Smith, Chairman of FedEx, is the most consequential person in the transportation industry since Henry Ford. There's no one who's had a bigger idea than Fred and then actually materialized it and created this global behemoth. The FedEx is just amazing.

Mike Moritz. Mike Moritz, way above my level in every way you possibly can measure it. This is a guy who ran Sequoia Capital for a number of years now. He's senior advisor of Sequoia Heritage, which runs the money of Sequoia partners and plus other institutional investors and is the master of taking small amounts of money and turning it into gargantuan amounts of money. I mean, he put in something like 10 or $12 million into Google and it became worth 10 or $15 billion. He got into PayPal. He got into Sun Microsystems. He got into Netscape.

The people who endorse my book are people I respect. They are my heroes. They're the people I really, really, really cherish having a relationship with.

Josh King:

I'll use the last question to touch on the first words of your book. They are directed toward your wife, Lamia, in the dedication, you extol her teaching of the three Ps, always be patient, pleasant and polite. That doesn't always go hand in hand with deal making, but how do those three Ps help make you a few billion dollars?

Brad Jacobs:

I think they do. I think in deal making, you must be patient. The other side is not on your timetable and couldn't care less about your timetable. They have their own board of directors, their own partners, or they have their own estate planning they have to do. Or if it's a corporation, they have their own corporate activities, the calendar that they're on.

So, you have to be patient. You have to understand their timetable and be respectful for that. You have to be pleasant. You have to be pleasant in all your interactions. Every interaction that you have with a potential partner, a merger partner should be a breath of fresh air. It should be a pleasant experience. You could say that for every relationship you have, every relationship you have with everyone. How wonderful would that be if every time you interacted with someone, it was a breath of fresh air? I mean, that's a very mutually nourishing relationship.

And you have to be polite. There's never an excuse to be rude. There's never an excuse to be obnoxious. Now, I forgive counterparties when they're rude because I have empathy because I've been through this so many thousands of times when people are selling their companies, they can be emotional, they can be irrational even, they can be impulsive, they can move backwards when they really should be moving forward because they're under a lot of stress and a lot of pressures, a lot of ways.

So, I give people a break on that stuff, but I'm not going to be like that. I'm not going to retaliate or be just because they're bad, I'm going to be bad. I'm going to be a nice guy.

Josh King:

I'm going to be a nice guy. Well, Brad, this hour has been a breath of fresh air. Thanks so much for joining us Inside the ICE House. You should get to ring the closing bell right now.

Brad Jacobs:

I can't wait. Thank you, sir.

Josh King:

That's our conversation for this week. Our guest was Brad Jacobs, Chairman of XPO, Inc, RXO, Inc, GXO Logistics, and now author of How to Make a Few Billion Dollars, out now from Greenleaf Book Group Press.

If you like what you heard, please rate us on Apple Podcasts so other folks know where to find us. If you've got a comment or question you'd like one of our experts to tackle on a future show or hear from a guest like Brad Jacobs, make sure to leave us a review. Email us at [email protected] or tweet at us @icehousepodcast.

Our show is produced by Lance Glynn. With production assistance, editing and engineering from Ken Abel. Pete Asch is the director of programming and production at ICE. And I'm Josh King, your host, signing off from the library of the New York Stock Exchange. Thanks for listening. Talk to you next week.

Speaker 1:

The information contained in this podcast was obtained in part from publicly available sources and not independently verified. Neither ICE nor its affiliates make any representations or warranties express or implied as to the accuracy or completeness of the information, and do not sponsor, approve or endorse any of the content herein. All of which is presented solely for informational and educational purposes.

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