Invest Like the Best with Patrick O'Shaughnessy
· Daniel Schwartz
[00:00:00] S2: Two of whom were CEOs of operating businesses themselves at relatively young ages, and who gave Alex a shot when he was 30. And they gave you some real practical advice, which you then passed on to me when I, I guess, became CFO or CEO of Burger King. Which, if you hear some of this advice, you'll be able to connect it to some of Alex's actions, which were at the time for me, deeply insightful comments that were very contra to how I behaved and acted as an investment analyst. Things like, "Manage the people, not the business." "Centralize the what, not the how." "Go around asking lots and lots of questions. Don't ever be afraid to ask people questions, even if something that seems obvious to the organization might not be as obvious to you." When we were buying Burger King, I'll never forget – to just show how naive maybe I was at the time – Alex says to me, we announced the deal, and Alex says, "Well, now it's time. We’ve got to assemble our team." I'm like, "Alex, come on. We just bought this business. It's like $4 billion. It comes with people, right?" And Alex is like, "Well, it does, but I think it's really important. We got to assemble like an A-plus, world-class leadership team." And just kind of dawned on me, which he had experienced this for years. A business is nothing more than a bunch of people kind of running around doing things. And the quality of the people is paramount to the quality of the business. In these businesses, you want to create a culture centered around ownership. And that starts with the leaders of the business who need to act like they are, and behave like they are, and be the shareholders of the business. So the leaders need to be the shareholders. The leaders can't just be, "The Management." Management and shareholders need to be one and the same. And so once you've established that, now you can go to the next step. It's like, how are you going to manage a business if you are its owner? You're going to look after all the money you spend as if it's your own. You are going to make decisions based on what is in the best interest of the business. You always have to put your business before yourself. And so typically when we come into these businesses, we love doing benchmarking exercises where we will look at expenses, costs by area within the business.
· Daniel Schwartz, Patrick O'Shaughnessy
So let's say by the North American group, the European group, the Asia Pacific group, and then we look at by category, all the ways we're spending money, we call this zero-based budgeting. And we basically give visibility on cost to everyone. And we say, look, if this one group is spending this much on this area, well, why can't we apply policies throughout the organization to benchmark, both with ourselves internally and other companies externally. And you find enormous amounts of savings in just doing kind of simple internal and external benchmarking. But you only are able to capitalize and achieve those savings if you have buy-in at the top – people who view this as owners of the business, who want to run it optimally for the business and not necessarily for themselves. [00:00:00] S0: What does "centralize the what" mean?
· Patrick O'Shaughnessy, Alex Behring
[00:00:00] S0: What does "centralize the what" mean? [00:00:00] S1: It's basically to give people freedom to figure out things and focus the discussion in terms of "what is it that we want to accomplish." Which is where I think, as the leadership of the company, that's an important discussion that you should be a real part of that discussion. And then once that's settled, then give people freedom to figure out the how. Because you really want to push decision-making close to the problems. And then, as long as we are all aligned in terms of what is it that we are trying to achieve on a more broad perspective, the actual how you're going to do it and how you're going to go about it – the teams should have a lot of autonomy on that. Really good people that Dan is alluding to – which is absolutely key to everything – they like freedom to figure out, they like to solve problems, they like to be challenged, and they like the freedom to make decisions. So you shouldn't have a culture where making mistakes is a problem. Making mistakes, trying to figure out a problem, that's part of the company's ambitious agenda. Should be something that happens where you learn something from it and you move forward. I think that's what this thing about centralizing the discussion of the what and then decentralizing the how comes in. [00:00:00] S0: What was the most stressful period for you as CEO of Burger King? What was that moment like?
· Patrick O'Shaughnessy, Daniel Schwartz
[00:00:00] S0: What was the most stressful period for you as CEO of Burger King? What was that moment like? [00:00:00] S2: I try not to get too stressed work-wise. I try to always keep things pretty even-keeled. I had this basketball coach who once said, "Pressure is something you put in a tire." I always try to keep that in the back of my head. I'd say there was one time that I was pretty stressed. This was the summer of 2014. We had bought Burger King in 2010, billion and change of equity. Within a couple of years, it was objectively a great outcome. Everyone got all their money and then some back. And by mid-2014, we were like a $10 billion company and we had owned 70% of the company. So, objectively good. And we all decided, Alex, myself, and Josh Kobza, who was our CFO, we all got really excited about buying Tim Hortons. And we were actively negotiating an acquisition, a merger of Tim Hortons. Alex was meeting with their CEO on a regular basis. Alex was our executive chairman, and I was the CEO then. And we're in the middle of doing this prolonged, negotiated deal. We get wind from the reporters at Bloomberg that they're going to run an article on us at Burger King, really centered around our ages, the ages of the management team. We're trying to buy this iconic Canadian institution, asset – Tim Hortons. And there were some probably reservations on the Tim Hortons side around us and business and Burger King. And so we're in the final stages of negotiating this deal. The article comes out. The title is "Burger King is run by children."
· Daniel Schwartz, Alex Behring
[00:00:00] S2: I try not to get too stressed work-wise. I try to always keep things pretty even-keeled. I had this basketball coach who once said, "Pressure is something you put in a tire." I always try to keep that in the back of my head. I'd say there was one time that I was pretty stressed. This was the summer of 2014. We had bought Burger King in 2010, billion and change of equity. Within a couple of years, it was objectively a great outcome. Everyone got all their money and then some back. And by mid-2014, we were like a $10 billion company and we had owned 70% of the company. So, objectively good. And we all decided, Alex, myself, and Josh Kobza, who was our CFO, we all got really excited about buying Tim Hortons. And we were actively negotiating an acquisition, a merger of Tim Hortons. Alex was meeting with their CEO on a regular basis. Alex was our executive chairman, and I was the CEO then. And we're in the middle of doing this prolonged, negotiated deal. We get wind from the reporters at Bloomberg that they're going to run an article on us at Burger King, really centered around our ages, the ages of the management team. We're trying to buy this iconic Canadian institution, asset – Tim Hortons. And there were some probably reservations on the Tim Hortons side around us and business and Burger King. And so we're in the final stages of negotiating this deal. The article comes out. The title is "Burger King is run by children." [00:00:00] S1: I wasn't a help for it.
· Alex Behring, Daniel Schwartz, Patrick O'Shaughnessy
[00:00:00] S1: I wasn't a help for it. [00:00:00] S2: I'm touring restaurants in India with our local Master Franchise joint venture partners. We're driving around. I don't know if you've spent much time in Mumbai. We're driving around stuck in bumper-to-bumper traffic. And the article comes out, I'm reading, and I'm like, "This is just the worst article that could have come out at the worst time." Meanwhile, everyone's writing us, "Oh, congrats, congrats. What a great investment. Really cool." And I was like, how are we going to get ourselves out of this? This is exhibit A for the board to not want to do a deal with us. But we worked, and Alex… [00:00:00] S1: A lot of negotiation. It took six months. [00:00:00] S2: Yeah. I was pretty stressed then. It took a lot of work to get them to be excited about us, and we had to point out all the factual inaccuracies in the article. [00:00:00] S0: I'm going to come back to the "Everyone being young" thing just in a minute, because I think it's so interesting. But when we first had lunch, you told me this story about the funny back and forth with Tim Hortons and your initial outreach to them. Can you tell that story as well?