How We Grew Koch Inc. to $150 Billion Without Going Public: Charles & Chase Koch

Koch.

Chase and I have known each other since 2013.

Yep.

When we overlapped in the agriculture industry, got to know each other.

We've been business partners, and Charles and I have gotten to know each other a few times over the years, but I'm really excited for this conversation tonight.

So Charles, thank you for being here.

Thanks for having us.

It's an honor.

I'm going all in.

Every few years, a new ad channel opens before the market catches on.

That's Axon.ai right now.

The AI ad platform behind one of the biggest runs in tech with access to over a billion daily active users.

Full-screen video ads in mobile games watched for a median of 35 seconds.

Businesses are profitably spending hundreds of thousands of dollars a day on it, and most advertisers don't even know it exists yet.

The window is open at axon.ai/allin.

In Silicon Valley, entrepreneurs and even mature company CEOs always like to learn about the story of other businesses and the success of those businesses, and I've always felt like

Koch Industries was that untold story.

Probably the most profitable private family-owned business in the world.

Maybe I'm off on a couple points, but certainly up there.

And one of the most impressive business stories because of the evolution of the business, which I'm hopeful we can hear a little bit about how that evolution came to be tonight.

And just for some statistics, if Koch were publicly traded, the revenue would put it easily in the top 25 of the Fortune 500.

It's a family-owned business based out of Wichita, founded in 1940 by Fred Koch, with businesses ranging from energy, agriculture, chemicals, building products, consumer products, even

cloud computing, and a very active minority investment portfolio with 120,000+ employees, that statistic might be off, across 60 countries.

Very unique operating model, which we'll get into today, including principles around disruptive innovation of the business, reinvesting 90% of profits in new businesses and growth,

meritocratic values, And I'm hopeful that tonight we can take an opportunity to hear about the evolution of the business and talk about some of those principles.

And maybe we can get started, Charles, if you could give us a sense of the scale of the business, what are the business lines that you operate today, and maybe, you know, provide a

little more color to those high-level statistics I shared today.

I can go back through some of the history and the failures and successes, but I'll go, through what we've grown since the early 1960s.

And then we had 300 employees.

Now we have more than 130,000 and in, in 60 countries.

And we have increased in value 9,000 times over that period.

When did you join the business?

In 1961.

Full-time, I'd been working.

Well, my father,

we lived on a farm, and he told me at age 6 he didn't want me to be a country club bum.

So he made me work in all my spare time, which I hated.

And so I was always in trouble.

And so he was kind of tough on me, rightfully so.

And thank God he did.

Years later, I asked him, "Pop, why were you so much tougher on me than you were on my younger brothers?" And he said, "Son, you plum wore me out." When you came into the business,

what was the scope of the business?

What was the business operating?

We had two main businesses.

One was to

design and make fractionating trays.

That is, that they separate separate liquids by differences in boiling points.

And then our largest business was a crude oil gathering system in Oklahoma.

And

so my father—

and I

finished just a few years earlier, finished MIT.

And I was

working for Arthur D.

Little, then a leading consulting firm.

And I was— and you'll think this is a joke— at age 24, '55, I was doing management consulting.

I have to laugh at the absurdity of that.

But they

were paying me for it, believe it or not.

So my father called me and he said, "Son,

I want you to come back and join the business." And as tough as he had been on me, and as I say, rightly so,

I declined.

So he called me a few weeks later and he said, "Son, either you come back to run the company or I'm going to have to sell it because my health is bad and the companies aren't doing

well and I don't have long to live."

So I agreed because

I— well, for a number of reasons.

One, the first one is I got 3 degrees at MIT in engineering, and I sucked as an engineer.

I mean, get that.

And what— so how'd you get through MIT?

Because I was real good at the math and the science and the theory, and I was no good at making or operating things.

So I figured out pretty quickly that I wasn't going to make it as an engineer, so I need to be an entrepreneur.

And

because I was good at principles, and that's why we led.

So I was always looking for principles that would help me

contribute and succeed.

And that's what transformed our company.

So you come into the business, couple hundred employees, you said?

300 employees.

300 employees.

And how did you think— was the mandate to grow the business?

Was it just to keep it stable?

No, no, it was— could I take a few minutes and go through those first two businesses?

Your show, I mean.

First three?

Okay, great.

Yeah, that sounds great.

Okay, the first one was

making fractionating trays, designing those.

We had a president then

who was one of our principles you don't want to be.

The negative is top-down and obsessed with controlling everybody.

So he would send out memos every week demanding they, on what they spent, how'd you spend it on, what did you do, did you do this right?

So they were frustrated.

Matter of fact, they started ignoring him.

And then the whole culture was protectionist.

That is, when they sold the internals for a fractionating tower, they wouldn't tell them the design.

"Well, we need to know the design so we can correct it." No, they wouldn't give it to

them.

Then what's even worse, to satisfy the European market, they didn't even build a plant there.

They had multiple subcontractors do parts of a tray and then bring them all together and assemble with another contractor.

Now you can imagine how that was for speed and cost.

So we were losing our ass, if you excuse the expression.

And so I changed the management and changed the philosophy.

OK, the first thing we're going to focus on is creating value for our customers.

And then the second thing, we're going to empower our employees so they want to do this.

And the third thing, we're going to do a plant.

We're going to build a plant in Italy to satisfy the European market.

We're going to do it all ourselves.

And so we became profitable.

Then we started adding

related products.

I'll get to that later.

We started growing.

Can I ask a question?

Yeah.

You come in at 25, plus or minus a little bit, and you see the problems at the business.

It's not profitable.

It's not being well managed.

And you overturned the management team.

How did you have the confidence at this age, coming with the experience you had, to take that level of action that quickly?

Well, it was life or death.

And my father said, you can run this business any way you want.

The only thing you need my approval on is to sell.

That's the way he talked me into coming back after I said I didn't want to.

Or I wasn't going to.

And then, and then in 1970, what really helped is my brother, younger brother David, joined the business, and then, and then he continued that growth.

And then you're now running a profitable operation, you've got a European business, and at that point, did you start to think about expanding into other products and other— Well, that's

it.

And this is so I was learning all these different principles.

And what I saw we were doing, not here, not just here, but in other things, is we were building capabilities.

That is, I looked at it, we need to be capability bounded, not industry bounded.

Like, OK, you could say to a certain extent, because we were in crew gathering, We're in the oil industry.

Oh, that means— everybody would say you need to be an integrated oil company, you need to be in everything.

And I was applying division of labor by comparative advantage.

No, you need to be in the part of it, of the, of the industry, in the part of the value chain where you can create more value than others.

Otherwise, you're going to fail.

And that's what we're seeing happening now.

There's more specialization by comparative advantage.

And so that's what— so I started this, created this principle called

creating virtuous cycles of mutual benefit.

And what that led us to do is

to start this never-ending cycle of

of growth,

innovation, success, and failures.

And failures that,

when we did it right, that we learned from and made us better and taught us better how to apply principles to create value.

And we're still going through that.

We have a lot of failures.

And that's when you apply creative destruction in your new things.

If you're not failing at everything, You're not doing anything new.

Where did you learn that lesson?

So what was the first major failure that, you know, they always say you got to plan until you get punched in the face.

What was the first punch in the face?

Well, I had a bunch of them with, with, with, with that company.

It was called Koch Engineering then.

And like, like I said, okay, we're— when we got into refining, we created Petroleum Coke.

So I said, well, let's come up with a a way to use that as base to make activated carbon.

And that was a fair amount of money on that.

And we had a whole bunch of those.

And we've had many more.

How did you make the decision to shut it down or walk away at some point?

A lot of entrepreneurs have this problem.

They build something, they're too in love with it, and they don't know when to say enough is enough.

Yeah, well, that's when enough is enough, when we lose our ass enough.

No, it's when we decide we We don't have the capability to create superior value for our customers and that we're going to be rewarded for.

And sometimes it can be the structure of a business.

Like the

company that Case founded called Disruptive Technology, Insightec.

It's been— it does tremendous things, but it is a structure that makes it hard to make it profitable.

And so, so that's the other thing is, so, so that's another— these are principles that we've learned.

Okay, we didn't apply that.

What were the principles that we didn't apply that caused us to fail?

That's what I mean, we learn from failure.

So the businesses where you ask the businesses we're in now, and Jason, there's Coke people here, you, you all can catch me up if I— the ones I miss.

But we have

engineered projects, engineering construction.

We have— we build solar plants.

We have commodity trading and distribution.

We have fertilizers.

We have refined products.

We have chemicals and polymers.

We have glass.

We have

forest and consumer products.

We have 4 different investment firms with different comparative advantages.

And we have electrical products, and we have software

systems

for management.

Dave, let me just hit one point.

Am I missing?

No, you got it.

You did a great job.

Basically, like, 8 wholly owned business unit platforms that he described, and then 4 investment different businesses.

But I just wanted to kind of really drill a point home, because when I came out and I started really hanging out with you and the whole tech community and trying to build that network,

a lot of people had the same question that you did about, Who is Koch?

What are you guys all about?

You know, I know it's a large private business, but being in Wichita, Kansas, we don't know that much about it.

I think this point that is so different about Koch versus almost any other company out there is what my father said on being capability bounded, not industry bounded.

And, you know, how do you get from a small crude oil gathering company in southern Oklahoma to all of those businesses that he described?

There's the principles, obviously, throughout, which we'll be talking about in this discussion, but one of the absolute core differences is that whole approach to capabilities.

I would encourage anyone that's in a business and trying to scale, think about it from that lens.

What capabilities have I demonstrated that I can add value to customers, and then point it at new industries where I can experiment.

This is one of our— One of our principles as well, experimental discovery, not trying to do everything at once and trying to conquer the world, but experiment and test.

Does the customer value my product or not?

And then along the way,

those core capabilities for us started off as operations, logistics, trading.

In the very early days of Coke, that's what we demonstrated we were good at.

We were getting great customer feedback.

But then when we had the capability approach to say, okay, we started in energy, we started in crude oil gathering pipelines and refineries.

Can we point those same capabilities into natural gas?

Can we point those into chemicals?

Let's experiment there.

Can we point those into fertilizers?

Because then we learned about natural gas.

And then, then the Georgia Pacific opportunity comes along and it's like, hey, these are wood products.

It doesn't seem similar to these other businesses, but it's the same core capabilities.

We buy Georgia-Pacific, and along the way, it was somewhat of a happy accident that we started learning about consumer products and branding.

So branding became a new capability for Coke through acquisition, but it started with, where do we think we can add value and do a good job on that, and collect new capabilities along

the way?

So I think that's like a really simple way to think about Coke, and it's, over the course of time, like, how we're different.

One other thing I'll mention too,

because I've been asked many times, it's like, well, so is it sort of like, you know, Berkshire Hathaway, where you have all these different businesses, a conglomerate?

And I would say no.

I mean, obviously Warren Buffett and his team have done an unbelievable job operating the business the way they have, but we think about our business very differently.

Instead of operating them all as independent businesses, in almost like in silos, think about it as a republic of science.

We're not a conglomerate.

We're an integrated set of capabilities.

Is it fair to say that you wouldn't consider an acquisition or a new business line if there wasn't some relatedness to an existing competency at the company?

It depends.

I mean, as you see when you read the book, we went through

one chapter on creative destruction, and what Schumpeter called all the different ways to do that.

And one is to create a new management approach.

OK, that's our biggest one.

So the question is, when we bought Molex, that makes electrical connectors, which has done fantastic.

And at first, it wasn't doing great, so we said, We think if we can get them to apply these principles, it will turn them around.

And we didn't— the problem when we do that, the tendency is to learn the lingo.

And so you can call everything by these names, and you still do what you always did.

And that's what was going on there.

And so finally, we got in.

No, we had changed the management.

And once we did that

and they started applying these principles, they took off and now they're knocking it out of the park.

But let me go back to failures, because I mean, we're understating our great strength in failures.

And that is, I'll give you our worst failures and what caused it.

And it caused us by violating

the principle of

hiring people first on values and second on talent.

And what I've, for years, I've told our people, look, if you want to hire

somebody with bad values because you like them or something, Hire them slow and stupid, and so we can catch them real quick and get them the hell out.

Maybe get them to go to work for our competitors or something.

Maybe help them get a job.

But anyway, that was huge.

And then we made that even worse

by taking people

who were had terrible values and made them leaders.

And so what we call that is rather than— we want everybody in the company to be contribution motivated.

That I want to succeed by contributing.

I want to be rewarded for my contributions, not for anything else.

And the value I create for our customers or for the future.

And so they would— some of these people were destructively motivated.

What they wanted was power or control.

And they would hide their failures

and make up their successes.

And so I'll give you two examples.

One goes back to 1973.

You remember the war in the Middle East and everything.

And they had gotten us into all kinds of wild, reckless trades.

So that could have bankrupted the company.

And then later, because I mean much later, shows you that repetition penetrates even the dullest of minds.

So I needed this to happen a bunch of times.

So it finally—

Okay, I got it.

I got it, God.

Don't punish me anymore, please, for my stupid mistakes.

So this was, we did it about the same time, our ag

group.

We put leaders in who were destructively motivated.

And in refining, we got in a leader, and they were destroying those businesses.

And

so it didn't almost bankrupt it, but it almost wiped out all of Coke's earnings in the late 1990s.

You'll appreciate— So does that give you a flavor?

Yeah.

So you'll appreciate this being an ag guy, to go a little deeper on what happened in the late '90s in our ag business.

We called it a strategy, the gas to bread spread.

So we wanted to basically be in every element of the value chain, all the way from pulling the natural gas out of the ground, converting it into fertilizer, making the nitrogen products

to grow the crops that would ultimately then end up on the grocery store shelves and be in bread.

We got in pizza crusts, all this crazy stuff.

When you look back on it, you're like, what the hell are you doing, right?

But

it was what he was saying is like, Leadership thinking about we can do anything, and if we basically kind of control the entire value chain, we can make that successful, completely

violates probably all 41 principles in the book, right?

Experimental discovery, knowing where your capabilities are, right people, right roles.

And so, yeah, we called it the gas to bread spread.

Some people called it the ass to bread spread, spread too.

And there's another one in there, integrity.

Integrity, yeah.

Because when they knew there were losses in some of these, and then they wouldn't tell us, they wanted to go ahead anyway.

We had a deal within that, like Purina dog food.

So one of the things that was acquired was the large animal feed business.

Mainly hogs.

It was mainly hogs.

Yeah, so hog feed.

And did no diligence.

And this is one of our principles, to apply the scientific method.

So disprove your hypothesis as much as you try to prove it.

And, and so we closed that acquisition, and within days we found out that we had hundreds of millions of out-of-the-money hog contracts.

We didn't, didn't even look at the contracts.

So I mean, that's when I think this is really important for founders that want to grow, right?

You have this this growth-at-all-costs mindset, and you start not asking why not, this is the kind of trouble that you get yourself in.

So let's go back to the management piece.

How do you take these principles, which you've applied successfully to— I would use the term iterate, because for me, failure is all about iteration to success and finding paths that

work, finding businesses that work, and ultimately finding people that work.

But how do you drive that culture that represents the principles?

Because you could create a book and give it to all your employees and say, guys, here's 41 principles.

We've sat down, we've thought about it, we've written them, they're gonna work.

But to actually live them, to realize them, to hold people not just responsible but accountable to them, how did you do that as you developed these over the decades?

Because at first we tried to get them to do it through sheep dipping.

That is, you take everybody in, you give them a big seminar, and now go do this.

And from Polanyi, we— if you want to read a book that's hard to read, I mean, if you want a really hard one, you can read Human Action.

This is even harder, called Personal Knowledge

by Michael Polanyi, who was

a chemist and then became a philosopher.

And

he goes through what it takes to develop personal knowledge.

It's— you have to rewire your brain to have it work differently, right?

You have a habit, so you don't need to think about it.

And then if you want to change, like, do I brush my teeth first or I comb my hair first?

No, I want to start combing my hair first.

And all of a sudden you're back brushing your teeth first, because you're not thinking about it.

And so because your brain gets— I mean, you know your body.

Let's say you're a weightlifter and you want to be a marathoner.

Okay, it's going to take work with intensity over time to change your body.

Well, your brain's part of your body, so you've got to do the same thing.

So we said, okay, we've got to start with— so okay, let's find a group group that's really interested in this.

They're struggling, they're having problems, and here are the principles, and we'll coach them, we'll help them

start doing it.

And if they work with intensity on it, and then they succeed, then we don't need Chip Tippy, because then the other

businesses and capabilities says, gosh, I'd like to do that.

So you don't need to call them in.

Then we have more demand for people who can help them.

And the hardest thing is to have our people in strategy, our principle-based management group, who are really good at helping them.

And boy, they're in more demand than anybody.

So the best thing is success will drive social mimicry.

You'll see others— That's it.

Here's another, like, take on what he's saying that I think, like, really connects about culture, to your question.

And that is like the essence of like principle-based management and all the principles in this book as well is like, what if you could have a business and a culture, small, medium,

or large, where everyone knew what to do without being told?

And so that's like hard to get your head around, right?

Because I think most businesses come at it from top-down, there's the iconic leader that's the smartest guy in the room building the strategy and then telling everyone what to do.

And so I think one of the most important principles in this that we tell a lot of stories around is to flip that on its head.

And it's about bottom-up empowerment with principles and empowering your, your talent, your team, your leaders with these principles so, so that then you use the collective knowledge

of everyone, not a couple smart guys at the top of the company.

Most people in most enterprises that aren't owner-operators don't want to fail.

They want to keep their job.

They want to move up the ladder by being repeatedly successful.

And if you want to create a culture of creative destruction, if you want to create a culture of failing and learning from failure, it's very hard to get individuals who live on an income,

on a salary, to do that, because if they make a mistake, if they fail, and then they fail again, and they fail again, I'm worried about losing my job.

So what you typically see in most scaled organizations is middle management and even senior management, when founders or owners don't operate it anymore, saying, I'm going to take the

less risky path, I'm going to do the less creatively destructive thing, I'm going to do the thing that's least likely to fail because I don't want to lose my job.

I want to keep my job, get my bonus, move on to year 2, and go home to my kids and my wife and take care of the family or whatever the family situation is.

That's my objective.

But see, and that approach creates perverse incentives.

And so we try to align our incentives that we want to reward people according to their overall contribution to Koch's future.

So for example, if they have an experiment— and that doesn't mean doing this thing in ag where you buy all these hogs and you lose hundreds of millions of dollars over what— that's

not an experiment.

It's an experiment, a good experiment is where the value you, what you learn from this is higher value from this failure than the cost of the experiment.

And So when we do that and we're evaluating what the person— you are building capability for the future.

That's why we put so much emphasis on, are you building capability?

And capability, part of it is the culture.

And what Chase did with Coke Labs when he started Coke Disruptive, he said, Coke Labs, I want every business to be a laboratory.

For what we find, both to help us source these opportunities, these tech opportunities.

And then we'll let— if they're just trying something, we'll try it out in that business.

And being in all these different businesses that touch almost every part of the economy, it gives us a big advantage in that.

So, but that affected the whole culture.

I mean, in your business, don't you want to be part of Koch Labs?

We're an experimental discovery group.

We're just not a bunch of grunts here grinding stuff out.

Yeah, I think the KDT example is a really good one because you asked about motivating and like, what if you fail?

And then what if you get fired and all that?

We tried to basically take a little bit of the Silicon Valley approach and bring —of experimental discovery.

You learn more, and you pivot and learn, have a failure.

But then now I know what I don't want to do.

I'm going to pivot my strategy to what may be working.

I'm going to keep trying, as long as you don't go sink the company with some massive bet, right?

And I think KDT was a great experience.

Like, I call—

when we did that, when we made those first investments— you know this in venture.

The losers fall out first.

And the winners take a hell of a lot longer to materialize.

So if we would have just judged it based on, okay guys, you got 3 or 4 years to figure this out, we would have shut down KDT.

But it was that experimental discovery principle and mindset that we applied to it.

And oh, by the way, we were learning so much as Coke from seeing the technologies that were coming around the corner.

Corner that might disrupt our core business.

And so we value that learning, and we rewarded the people that were bringing that knowledge in.

If you just look at it on the bottom line basis in the first couple years, you say, just shut this down, right?

But then over time, like, all these different things in there, and then the returns are starting to come because we thought long-term about it.

But it all came from that experimental discovery, one principle, and then creative destructions.

Like, if we're not in the game on technology, we don't see what's coming, something's gonna happen, especially with how fast technology's moving today.

Some of our businesses are gonna become dinosaurs.

How much of that risk were you willing to take and did you take on acquisitions?

So doing homegrown experiments on new business ideas and strategies and products can be lower cost, but if you're gonna do an acquisition, do you have less room for failure?

Well, how about this?

A much smaller company.

We bought Georgia Pacific for $20 billion.

Well, can you just tell us what Georgia Pacific is for those who don't know?

It's a wood products company, and it's got two big pieces to it, building products and consumer products.

Well, it's got a third one, but yeah.

Okay, I'm generalizing.

But go ahead.

Sorry, no, no, no, I'll shut up.

Shut up, you old guy.

No, no, no.

I don't

know.

But anyway, but on that one— So when did you buy it?

And how big of a betting the company move was that?

2005.

Well, that was, we were much smaller in 2005.

I can't remember how much smaller, but it was a lot smaller.

It was a massive bet.

How'd it come up?

Okay, we were looking, applying this virtual cycles Mutual Benefit, we were saying, okay, what's one of these

cycles are chemical process industries.

And wood creating the pulp and stuff was— matter of fact, we found in my father's thesis, he did a study in Maine on this very thing on pulping.

I mean, I found it later, but that didn't— His MIT thesis.

Yeah.

Yeah.

Wow.

So we said, OK, let's look at the— oh, and

they were saying they need to spin off some of those parts, the pulping part.

And we said, OK,

let's buy that.

And we bought that as an experiment.

And we did real well.

With it.

And so we said, wow, they have other— because that was a commodity business, and they were trying to get their price-to-earnings ratio.

It was like 6, and if they became more of a consumer products, they could get it up to 9.

So we proposed, we met with them and proposed that we

We buy

the commodity part,

and we'll pay them a high enough price that then they can be all

consumer products and get their price.

And we showed them all the economics.

And they said, that's fine, but we'll be sued for constructive fraud, because we all have all these lawsuits against us.

And so we can't do it, but we like the value.

And so we went home and says, well, okay, what if we just offered the whole thing?

And a couple of them were getting ready to retire, and the senior officers, so they were really liking it.

And they were kicked out of all the board meetings from then on.

But anyway,

so we sold them.

And that was a time when money was— tight and stuff, so nobody came in and topped us.

I'll give you just one funny story.

We sent one of our people in to be the CEO, Joe Moeller, who had been president of a company.

And he—

they had— it was totally top-down bureaucratic.

They were in Atlanta.

They had this 51-story building.

Is it 51?

You can correct me.

That's right.

Yeah, you got it.

They had a private elevator to get up there.

You didn't have to wear a coat and tie, but if you came up to visit, all the management was on this 51st floor.

You had to put on a coat and tie and get permission to come up there.

And so Joe immediately

kicked them all out.

Well, we fired a bunch of them and then set the remaining ones down to work with their groups.

On the regular floor.

And then regular floor and then turned it all into offices, I mean into meeting rooms open to anybody.

And so that, I mean, you asked about how you get culture change.

A lot of it is signals like that.

Yeah.

Much of them get fired for being so bureaucratic and hierarchical.

Would you say that that business unit operates like the rest of Koch Industries today?

Oh, absolutely.

But how long did it take?

I'll just say that is such a rare and difficult thing to pull off.

I mean, there's just countless stories of acquisitions where the acquirer thinks that they have culture, thinks that they know how to transfer culture, and literally no one seems to

be able to do it.

This was one of the insights from Warren Buffett is you find great managers, you let them continue to operate as owners of that business, and they get some profit share or whatnot.

And they've got a durable moat, so he can make a long-term investment.

And he just leaves them.

And that's what we— Yeah, but that wouldn't work for us, the stuff we buy.

No, well, let me give another one, if I could, that was even more difficult.

And that is,

sadly, my father My father died not too long after I came with the company in 1967, and we had owned an interest in a small refinery in Minnesota.

And so, but 2 years later, we were able to buy it.

And

it was not being operated very well, because the management had let the union control how it was run, and so it was run very inefficiently.

And so the first thing we tried to do is change the work rules.

So they went out on strike,

and by the way, that was at the start of my honeymoon.

Thanks a lot, guys.

And it was violent.

I mean, they ran a switch engine and tried to knock down one of our units.

They shot high-power rifles in there, and they blocked the gates.

I mean, it was impossible to get in there.

We had to take helicopter.

But we were successful in operating without the union workers

for 9 months, bringing people in from our other plants, and it operated better than they did.

So finally we got the work rules changed.

And

then we said, okay, we're gonna empower the employees.

We're gonna change the culture.

Now you think at Georgia Pacific it was tough.

This was much tougher than that.

And so we worked and worked on it to try to make their jobs better, get their opinions.

Get them to work as teams, get them to come up with innovations.

And when they did, we reward them.

And we got the unions to agree with that.

And like one, they said, a group of them said, God, we're buying all these spare parts we need.

We can, if you build a machine shop, we can do it cheaper and faster.

And they did.

And then other things, they saved a ton of money for us, made things more efficient.

And now the culture there is fantastic.

I mean, we're talking about— we're not talking about Wichita, we're talking about Minnesota.

So, I mean, we're so proud of what they've done.

And it just— it still blows me away how much they've taken these principles to heart and using them.

To make that place.

So it's— so we've increased the capacity tenfold, and it's one of the best refineries in the country.

Pop, wouldn't you say that, I mean, the common theme on all of these, because we have the same story on Molex, you know, similar but different than Georgia Pacific.

This was a technology company, a connector and cabling and connector company, one of the largest in the world that makes products in your your iPhone and medtech products, your automobile.

And when we bought that in 2013, it was a paradigm that needed to be changed.

You described Georgia-Pacific top-down versus bottom-up.

There was a lot of that too.

But it was top-line thinking versus bottom-line thinking.

It was all about revenue growth, right?

This is a technology company.

And it was also a public company for 30-plus years as well.

'Cause that's what the market rewarded them for.

And so, like, the whole— The stock price.

The public versus private discussion is interesting here.

And it just, what we've learned is it takes a hell of a lot longer than you think to change the culture.

And almost in every case, I mean, Pop, tell me if you agree with this, but in almost every case it requires changing leadership that has the paradigm of bottom-up empowerment.

And that learns and applies the principles.

Almost every time when we fail, it comes down to ignoring the principles.

You can, and that's what the book is about.

You can kind of reverse engineer these stories like, well, we missed that principle, we missed this principle.

But it comes down to talent and the right people with the right mindset.

I wanna share just one story with you that really shows like how we apply this at Coke.

He talked about our talent vision being you start with basically culture first, skills second, values first, skills second.

I always add a third dimension to that as well.

Values first, skills second, credentials last.

And that is a very different mindset than most companies, because most companies, I think, look at it and say, I want the guys that have the 4.0 from the Ivy League school and all that.

And there's some incredibly smart, obviously, folks from that, but by our

experience, and also is one of the reasons why we stayed in Wichita, Kansas, is that we can basically hire the farm team, right?

Kids that have grown up on the farm that have that contribution-motivated mindset, that work their tails off and want to come in to make a contribution as opposed to coming in expecting

seeing all this stuff and coming in with more of an entitlement mindset.

So we,

case in point, our CIO today, his name's Jared Benson,

his first interaction with Coke was they used striping lines in our parking lot.

So no college degree whatsoever, but he found his way into Coke because he demonstrated that, hey, he knows a little bit about data science and he could help us.

This is about 20 years ago.

And then ultimately he came in, he proved himself.

He was running circles around a lot of the team and like just, you know, contribution mindset, adding value.

He saw the cybersecurity risk in that wave coming, built a whole capability to protect us from cyber attacks.

And then now he's CIO of the company, guy with no college degree.

So I mean, that kind of mindset in terms of of our talent vision and that values first and someone that just wants to come in and they just love the job and they want to make a difference.

Do you actually codify these principles and everyone at the company has a handbook that lists them out and then they're part of the assessment process for quarterly or annual reviews

with people?

Yeah, I mean, obviously there's the book and this is his fifth book.

It's my first, but so good The Profit: Science of Success.

It's my best book because of Chip.

Hey Brian, the one we did is pretty good too.

Hooks won't like that.

But yeah, no, there is a discipline, right?

And really it comes down to the leaders taking it seriously and the leader's first responsibility is to help their people.

Okay, I'm gonna put my analyst hat on for a second and I'm gonna say, My observation would— I would create a theory, we could test the theory right now that being in Wichita, being

founder or owner operated, and

having this ability to be isolated from a monoculture, I just feel like Silicon Valley, a lot of companies replicate each other.

You have to kind of— there is this term that's being used a lot now, over-socialization, you have to operate like everyone around you.

Or you're not part of the— you have to fundraise in the right way and do these deals, you have to hire people this way, you have to do this sort of vesting schedule, this sort of equity

structure, everyone's the same.

And if you don't, you're kind of a weirdo, but by being in Wichita, you don't really have that problem.

You can think your own way.

You can challenge yourselves, you can debate, you can come up with your own principles without feeling like everyone else is conforming to the groups around you.

But they can, because there are a bunch in Silicon Valley that are.

Their challenge.

So they're not all that way.

They're not all.

Yeah.

But has it always been a competitive advantage?

I mean, did you ever think to move the headquarters to New York City?

No, but the main thing— we've never thought of that.

But what we've— sorry about that.

I mean, there are advantages of being in New York City.

I mean, you have a great mayor now, so we're good to go.

To go.

But anyway, so that's a competitive advantage of us.

That'll be a quote.

But the main threat we've had is we had stars that wanted to go take us public.

And I said, it'll be over my dead body.

And some of them thought, well, that would be a good idea.

Just like they're thinking that about Trump, where a lot of people thought I still think about it.

I get a lot of nice notices of my imminent death.

And they say, OK, your brother died.

We hope it was— I know this is painful, but I hope it was slow and painful.

And I hope Charles is even worse.

That's the kind of crap we get.

But anyway, what the biggest

push has been for us to go public.

God, we'll be worth so much and stuff.

And

I think our view, we never could have accomplished what we've had.

First of all, we never would have built a principle-based framework.

And then we never would have been able to pull off this

capability bounded, versus industry-bound.

Because then, I mean, people don't understand it.

Now, if you're Buffett and you've sold that long, then people, OK, but he wasn't trying to integrate them the way we do.

No one would believe it.

And so what— and that's because

you've got to have a story that people, the analysts, can understand.

Otherwise, we would, like Georgia Pacific, we would have a low price-earnings ratio.

And so being private, being in Wichita, competitive advantages.

What about being owner-operated or founder-operated?

There's this argument that the, the best Silicon Valley companies are those who are founder-led for as long as possible because the founders are willing to destroy the business creatively.

They're willing to think about what's over the hill.

Make the tough decisions, reinvent the company, hire and fire as needed, be willing to take the short-term financial loss for the long-term.

Have you been able to get that to distill down into the organization?

Because that's the thing that most public companies that are not owner-operated deal with and struggle with, is managers that are short-term incentivized and aren't and can't take the

big risks and the risks of failure that you're able to embrace.

No, but I think it depends on the values of the owners.

If, like, one of our principles is that any good partnership of any kind, whether it's marriage, friend, employee, partner, requires three things.

It requires shared vision, shared values, and having complementary capabilities that you use to make each other better.

And if you'd miss any one of those, you're not going to have a lasting good partnership.

And so I remember I was

to the YPO group in Wichita.

I was presenting— this is like 20 years ago— presenting what we were doing and why.

And one of them said, "Well, how do you get that to work in a private company?"

And I answered, "Well, no, it's easier than in a public company, just like I did." And then I thought who it was, and he was talking about his father.

His father was a total dictator.

And there's no way he could apply any of these principles in that.

So it all matters who the owners are and what their values are.

Can a public CEO that doesn't have a big ownership stake in the company adopt these principles and transform the culture of that company?

Well, if you can get a— And if you can sell it like Buffett has, but I mean, he wasn't doing these principles, but he had a different principle.

And that is, I'm going to buy companies.

I'm not going to take top price, but what's meaningful to them is they run it.

So I'm going to buy it and let them run it.

And so that was his value that he sold that made him tremendous.

Well, the other one was buying insurance companies.

So you'd have a lot of liquidity to go do all these things.

And those two things are what made him successful.

Right.

Chase, I want to just go back to your getting involved in the business.

We didn't get into that.

But how did you get started at Koch?

And were you always a believer in the principles from a young age?

Were you around the organization around your dad?

Are you kidding?

I'm a chip off the old block.

It took me a while to come around.

No, this is the most remarkable transformation.

We've been talking about them all evening.

This is the primo.

Here we go.

Unbelievable.

Do I get to tell my story?

To the absolute bottom, to the absolute top.

He'll correct me.

No, he's blown beyond me.

He's doing things I wouldn't even dream of or have the capability to do.

So he'll correct me 10 times as I tell the story.

Well, because you're too damn humble.

So I didn't start when I was 6.

I started when I was 15.

So he cut me some slack.

But it's because I was a pretty competitive tennis player.

He was nationally ranked.

Save the humility.

He was nationally ranked.

That's the first time.

But at 15, I got burned out, tennis, typical story where I wanted to hang out with my friends.

I wanted to have a good time.

I was tired of playing 6 hours a day.

So I started throwing tennis matches intentionally to get out of it, out of these tournaments.

So I'd go home and party with my friends.

And he said, look, your attitude is terrible.

You can either

give 100% on the tennis court and apply yourself, or I'm going to get you a job.

I said, I'm sick of tennis.

I'm done with it.

My, the job was figured out the next morning for me.

Yeah, but I'm going to interrupt again because this is important.

He thought he would get a nice cushy job in Wichita so he'd go out and party with his friends at night.

Yeah.

Well, you know, I'm, I may be old and slow, but I'm not that slow.

Yeah, he was kicked out of a number of schools.

I was born at night, but not last night.

But yeah, so probably a a parallel story movie that could be made.

Yeah, no, seriously.

There really is.

But basically all my shit was packed for me.

And it was thrown in the back of a truck, and 6 hours later I showed up at a feed yard.

And I lived in a single-wide trailer the whole summer with my boss.

I slept on the floor, worked 7 days a week, and just shoveled cow shit and dug post holes.

No, you're popping oil.

Let's forget about that.

You're popping oil.

Let's keep it manageable here.

So anyway, but the interesting part of that story, even though I went from literally being like kind of country club rich kid to

doing that within 24 hours, it was an absolute transformation for me, the fact that he kind of, he made me do that.

And I chose, but I didn't know what I was exactly choosing.

But after I was a month or two into this job, I started actually feeling better about myself.

I was like, I hadn't really made a contribution up till that point in life.

And then I'm actually working with a team.

I'm getting paid minimum wage.

I'm working my tail off.

I'm adding value, even though it may be just menial work.

And this is, I go back to a letter that his father

wrote to him and his other 3 brothers.

No, no, my older brother.

Your older brother.

Because I was 3 months old when he wrote it.

This letter about basically like, when I pass on,

you're going to get what seems to be a large sum of money.

I hope you don't squander it.

I hope you I hope you don't use it for— but I hope you actually apply yourself because I want you to feel the glorious feeling of accomplishment.

And it's a really amazing letter.

He has it hung in his office.

But that was the first time I felt that.

Even though I was working at a feed yard, I was like, this feels good actually.

I could have gone down the path of just kind of staying on the tennis circuit.

I have no idea where I'd end up in life.

Had I not gone down that path.

And so I basically worked every summer for Koch from that summer on.

I worked in the gas liquids plant, I worked in our refineries, all the way through junior year in college I always had a Koch kind of summer job.

But another, so that was an absolute transformation for me in my life.

Let me, may I give you one more credit?

Yeah, please.

He has great humor, which is great.

And that is, Chase has— I have this gift for abstractions.

He's like his mother.

He has a gift for people.

He understands people and can relate to them.

And he can go around like she can or Sterling Varner, who was our president in the early days, who, by the way,

was born His father had ran mules in an oilfield camp and he was born in a tent and they damn near died.

Never went to college.

And,

and

he could— whoever he met with wanted to do business with us.

And that's the way Chase is.

He goes around, meets these people, and all of a sudden They're friends and they want to do business.

And that's true for Stand Together too.

Go to people you think, oh, they don't want these capitalists or these free enterprise people to do business with them.

And he gets them on our side and shows them the value of these principles.

Well, let me make— Is that fair?

Whatever you said.

No,

I mean, that's my job.

That's what I do now, origination and partnerships.

And about the time I met you, that's when I started getting into technology and trying to build a new community so that we could get access to the most disruptive founders.

But one quick story I want to tell, because I think it'll be helpful for your audience as well, that we haven't touched on yet, is the principle of comparative advantage.

Another meaningful total shift in my job at Koch and my role at Koch, but also in my personal life,

was when I was running the ag business.

This was later on.

We talked about the late '90s, the gas to bread spread and all that.

This was a separate business with Koch Fertilizer.

I spent 10 years in that business really understanding the operations of a business.

I worked in in sales and marketing and the accounting, the finance, like every piece of it, the trading.

And I ran a lot of the smaller business units.

But at one point, my boss at the time wanted to add a whole natural gas trading business to it.

So he's like, hey, I got to— I want to put a parent company called Ag and Energy Solutions.

And I want you— I'm going to throw you the keys to the fertilizer business.

You're ready to run it.

And so I was promoted.

Promoted to president of Koch Fertilizer at that time.

And about 9 months in, I realized that I was not the guy for the job, and I walked in my boss's office and fired myself.

And humiliating, right?

It's like, especially being the boss's son, and thinking about, oh my God, I'm a failure.

I couldn't make this work.

The business was still doing fine, but I wasn't doing a good job as as a leader, and I knew there was someone else that had the comparative advantage to be a great operator CEO, president

type role.

I learned through all that, call it a failure, in that job

that I wasn't an operator, and I wasn't a good optimization type leader, and I was a builder.

All I wanted to do was go, work on the innovation stuff.

That was about the time I met you and I learned about Climate Corp and all that.

I just wanted to go focus on that and go build the stuff, you know, this whole idea of creative destruction that would disrupt the core business that I was running.

And so that whole thing around like understanding your comparative advantage, what you're good at and what you're not relative to others that could be doing that job, was a huge deal.

And like my hope was that That was a little bit of an example for other Coke leaders as well.

It's like, if you're not in the right job, you don't have to fire yourself,

but figure out what your power alley really is and where you can contribute and add the most value.

That experience for me, what was amazing, if you look at what happened after that, we got a great president to continue to transform the fertilizer business.