Ask people who the best performing CEO in history was and they'll tell you "Jack Welch".
What's interesting, is that Jack Welch was far from the best performing CEO. He's not even on the map!
People tend to judge a CEO's performance based on their level of "fame" and "popularity". Not their numbers.
Jack Welch was a charismatic, extraverted CEO who made a great deal of public appearances and grew his personal fame. This is why people say his name, because they remember him and he's the popular, socially acceptable answer to the question if you want to fit in and seem smart to somebody who isn't smart.
But in reality, Jack Welches numbers suck. Probably because he was out taking photos and shaking hands instead of focusing on his business.
The best performing CEO's of all time are quiet people you've never heard of. They're quiet, humble, analytical engineers who shy away from the spotlight, have zero interest in fame and focus incessantly on adding value, allocating capital and improving efficiency. They're outsiders.
In today's video, I explain why outsiders always win. (and how you can become one). I also share some book recommendations as well as 3 companies letters to shareholders you must read if you want to succeed in business.
Check out the video and resources and let me know what you think in the comments below?
Here's what we cover:
1. Why people say that Jack Welch is the highest performing CEO of all time, but in reality, he's actually not that good.
2. Why people confuse fame and popularity with performance and how they are NOT the same thing. (you need to understand this).
3. With decisions, there's always two options: 1. The socially acceptable right way. 2. The way that the data says you should do it.
4. Why most people default all their decisions to the socially acceptable right way and follow the crowd (these people always lose).
5. Book recommendation: The Outsiders by William N. Thorndike. (you must read this).
6. Why leadership is about analysis, not charisma.
7. Why the best CEO's don't do interviews, public appearances, analyst meetings or any form of "people pleasing".
8. Book recommendation: Elon Musk: Tesla, SpaceX, and the Quest for a Fantastic Future by Ashlee Vance.
9. Three letters to shareholders you must read: Amazon 1997-2017, Google 2004-2017, Berkshire Hathaway 1970-2014.
Hey everyone, Sam Ovens here, and in today's video, I want to tell you why outsiders always win. I just finished reading this book called, "The Outsiders," and it's by William N. Thorndike. I'll put a link to this book in the resources section beneath this video on my blog so that you can find it.
This book is actually number one on Warren Buffett's reading list. It's an incredible book and I highly recommend that you buy it and you read it. You will learn a lot from this book. Now, what this book's basically about is, it's about outsiders. What an outsider really is, is it's somebody who is outside of the traditional industry. Let me give you a perfect example. Like, Elon Musk is an outsider when it comes to the auto industry. For a very long time, car manufacturers in Detroit and overseas, they've really just dominated the auto manufacturing industry, and they've had these specific ways of doing business and these specific routines and methods and processes and everything. And then someone like Elon Musk comes along and he brings radical new ideas, because he's an outsider. You know, Elon Musk is from Silicon Valley, and he comes from the software and the start-up world, and then he comes in and he starts looking at making a car.
Whenever an outsider approaches an existing industry with outside perspectives and outside views of things, they create a big ruckus. Most of the time, they win, and they change the industry forever. They completely radicalize it, turn it upside down, and shake things up.
Elon Musk has also done the same thing to the space industry. You know, he entered an industry where it was basically NASA and governments, where we hadn't seen any innovation in, like, 40 years. And he came in and started bringing his Silicon Valley views and his start-up mentality to space exploration, and he did the same there.
What this book's really about is different outsiders, and specifically outsider CEOs throughout history who have really performed at the world's best levels. What's really interesting is, if you say to someone, or if you ask most people the question, "Hey, who is one of the greatest CEOs of all time?" They will typically say, "Well, Jack Welch," right? From GE. But what's funny is that Jack Welch is most commonly known as one of the best CEOs or the best CEO of all time. And it's like a known thing, but when you really look at the numbers, it's quite different. What this book, "The Outsiders," does, is it looks to find the most successful CEOs of all time, not by their social popularity, not by their fame, or not by public opinion, but by their return on capital over the tenure of their role as CEO. So it takes a proper look at the numbers, not just the public opinion.
And if you really look at Jack Welch throughout his tenure at GE, based on the numbers and return on capital, he's actually not that good. But what Jack Welch was a master of was being out there. He would go and attend press conferences, he would fly around and network, he would make himself public. He had charisma and he was an extroverted person, and he made himself known and he made himself famous. That was what Jack Welch was good at. But when it comes to the raw numbers of it, he actually wasn't that good.
And this is something that I find very fascinating, because I see this all over the place, in every industry, all the time, constantly. There is two very separate and distinct things. There's being famous, and then there's being really good at what you do. And these two things are not the same thing. And quite often, they're in stark contrast to each other. Generally, the people that are very famous aren't very good, and the people that are very good aren't very famous. But what's funny is that most common folk mistake fame for skill or performance.
And so in this book, "The Outsiders," William, the author, he studies about eight CEOs. So the sub-headline is "Eight Unconventional CEOs and Their Radically Rational Blueprint for Success." In this book, he studies eight of them, one of which is Warren Buffett, and all of them other than Warren Buffett, you will have never heard of before, and all of them are extremely high-performing CEOs. What's funny is that all of them share pretty much the same views and the same philosophy. What that is, is it's that, he calls them outsiders, because all of them are basically outsiders to the industries that they operate in.
Being an outsider enables these people to think differently and to really throw out all of the dogmas and all of the conventional assumed truths of the industries, and all of the standard processes and best practices. These people, because they're outsiders, they come in with a fresh perspective, and they refuse to just accept the status quo. They want to analyze everything in forensic detail and ask why about everything, and really just shuffle everything around and shake things up. And to do it the way they think makes sense, regardless of what is the norm or the standard way of doing things.
One thing I find very interesting is all of these CEOs have these traits in common. The first one is that all of them believe that leadership is about analysis, not charisma, which is something I find quite interesting, because someone like Jack Welch, he's more of your charismatic CEO who was very well known to people, but when it came to the numbers, he wasn't actually that good. But these people, the eight unconventional CEOs, including Buffett, they weren't that well known, they weren't that charismatic, but they were exceptional at the numbers.
The second thing is, is they all view their businesses as if they're private companies. So even though these companies are public, all the CEOs treat them as if they're their own private businesses. They have a particular focus on cash flows. So not so much profits, but cash flows, which is another very interesting thing.
The third thing is that they have a unconventional, idiosyncratic way of thinking and way of operating. All eight of these unconventional CEOs, they will basically analyze everything, and then they will make their decisions based on what they think is right, even if that is at odds to what everyone else does and everyone else tells them to do. This is a very powerful skill. You know, whenever you go to do something, there's the socially accepted, like, right way to do it, and then there's the way that the data tells you that you should do it. And what I've observed in my life so far is that most people don't look at the data, they don't conduct their own analysis, and instead what they do is they just seek social validation and they all just follow the crowd. That is pretty much how all CEOs, believe it or not, run their businesses. Most CEOs run their businesses by just doing what everybody else is doing, and just doing what's fashionable.
But these eight unconventional CEOs, they actually take the time to break everything down, analyze it, and then do what the data says. Pretty much all of the time, what the data says is not what everybody else thinks they should be doing. Now, let me give you some examples of these things, because right now, I'm just talking about a concept, but let me give you an actual example to really bring some clarity to this point. Pretty much all of these CEOs, they decided that it was not worth their time to do press conferences, interviews, and even go and meet with analysts and investors and news channels, which is pretty interesting.
A lot of CEOs think that their job is to keep up a public appearance, to go around and meet different people, get photos with different people, do interviews on all of the different TV stations, and then to also go and meet with Wall Street and analysts and all of that to make sure that they're looking after them. And very quickly, a lot of CEOs, they become people-pleasers. They just become a face with a nice smile and a handshake, and all they're really interested in doing is keeping up appearances. As soon as a CEO starts keeping up appearances, you know that they're done. What these CEOs instead do, is they do not keep up public appearances. They don't even do any public appearances. A lot of these CEOs never attended any trade shows, never attended any events. They never met with Wall Street once, and they never did any interviews with the press or the news, ever. They didn't do any of it.
And when they were asked why, they just said, "It's simple. Our role is to run our company the best we possibly can. And running our company means focusing on the company, making sure we've got good talent, we're producing good products, and that we're keeping our eye on the ball and the numbers so that we can produce profit and grow the total market valuation of this company so that our investors make a return." That's what a good CEO does.
Now, if you're out meeting with Wall Street, and if you're out doing public appearances, and if you're out doing TV interviews, then you're not doing that. Because that isn't that. So if you're doing that, you're not doing that, and if you're not doing that, then you're not really doing your job as a CEO. I find this one fascinating because I see the same thing existing right now in business, not with public CEOs, but just with small business owners and entrepreneurs. You will have seen this one too. There's business owners these days, in 2018, with social media and all of this crap, a lot of them have confused business with being a celebrity. They think that, and they actually spend most of their time on Instagram, doing Facebook Lives, creating posts, creating blog posts, doing podcasts, doing interviews, speaking at events, writing an Amazon best-selling book, and basically doing all of this crap that is basically just keeping up public appearances and trying to look good. And none of that is actually running a good business, all right?
And so, this is a thing that I find interesting, because this is what great CEOs don't do. And I've experienced this myself. The fashionable thing to do right now, you know, if we're going to follow fashion in business, well, it's to create a YouTube channel, a Snapchat, an Instagram, a Facebook. It's to do Facebook Lives, it's to have a podcast, it's to have a blog. It's to go speak on stage, have a best-selling book on Amazon, it's to do all of this crap. That's what's fashionable right now, and Gary [Vee 00:14:00] will tell you that.
The problem is, is that a lot of business owners are doing this, and when they're doing so much of this, they don't have any time to actually work on the things that really matter. They're not improving their product, they're not hiring and maintaining great talent, and they're not improving their systems and their efficiency. They're not watching their numbers and making good capital allocation decisions. Instead, they're just trying to be famous. I noticed this one myself, and I actually followed that path for a little bit. I started trying to be this social, this entrepreneur celebrity person. It sucked. I couldn't wrap my head around why I was out there making videos of myself instead of actually just working on my business and creating great products, shipping them to customers, making sure my customers are looked after, hiring great talent, building systems, and growing.
I just couldn't handle it, so I stopped doing that completely and I started focusing on my business. That's really one of the things that's enabled me to have such massive growth in my business to date, is by being unconventional. By actually ignoring what's fashionable, which is the social media stuff, ignoring that stuff and just focusing on the business. So this book was quite fascinating for me to read, and it will be fascinating for you to read too, because it really proves that if everyone's doing it, it's probably the wrong thing to do, and all of the best CEOs of all time, and this is not my opinion, this is by the numbers. They were unconventional and they were not people that just wanted to be famous. You cannot mistake fame for success. The two are not the same thing, and they're at odds with each other.
Another thing I found very interesting about these CEOs is that a lot of them were mathematicians and engineers. So they weren't people with pedigree business MBAs or things like that. Almost none of them had that. You know, these weren't people with business degrees or Harvard MBAs or things like that. These were engineers, chemical engineers or chemists, and also mathematicians. So they were systems thinkers. They were problem solvers and systems thinkers, and they were obsessed with inputs, processes, outputs, feedback, and efficiency. They approached business in every way, shape, and form, as if they were an engineer. This is something that I've noticed to be true across pretty much all of the best business minds in history. They're not really business people. They're not what public opinion makes entrepreneurs out to be. They're not just people who want to make a lot of money and are really smooth-talking sales people or anything like this. Really, they're just problem solvers and analytical thinkers. They approach business as if it's a problem and they seek to solve it and really engineer it to be as efficient as possible.
This is something that I find very interesting, and it's also ... You know, Elon Musk is a classic example. He's an engineer that is in business and doing quite well in business. And Jeff Bezos, if you read any books about him, and actually there's only one I know of which is called, "The Everything Store." Highly recommend it, go buy it, it's an awesome book. You'll notice that Bezos approaches things the same way. He approaches things like an engineer. And most of the best business men of all times, they do this. They're idiosyncratic, they don't really care about public appearances, they focus on analysis, not charisma, and they don't worry about people-pleasing. They just focus on actually delivering results, and they also approach business as if it's an engineering problem. They have a particular focus on cash flow instead of profit, and they've also got an idiosyncratic way of thinking.
So a classic example is, a lot of these companies, in times when they didn't know where to allocate capital efficiently, they would just buy their stock back off the public. The traditional company, back in these times, they would issue dividends, so they would try to make a profit. They would try to make a profit as big as possible, because then with big profits, they could make big dividend payments to their investors, and they would try to match analysts' projections of their company and try to keep up on their earnings forecasts. They were people-pleasing with Wall Street all the time, and they never bought back their own stock. They would always try to acquire more companies and basically just grow profits and then just distribute all of those profits to their investors through dividends. That's what the typical company did.
But pretty much all of these guys, all of the eight unconventional CEOs, they bought back their own stock, which was something that no company did. Because they believed in their company so much that when they thought it was undervalued, they would buy their stock back off the public and own it themselves. They did huge share buybacks, which was very unconventional.
Another thing they did was, they didn't pay any dividends. They instead just focused on growing the valuation of the company. And so, that's another thing. Another thing they did is, they did not care for earnings projections or forecasts or matching analysts' projections for the company's earnings. Instead, what they did is, they just reported the numbers as they were and they told investors through their letters to shareholders, which are great to read as well ... I recommend reading Warren Buffett's Berkshire Hathaway letters to shareholders, all of them. It's really good reading. And they would tell investors through their letters to shareholders, "We will not smooth our financial results. If the reports, if the financials are spiky when they come through to corporate, they will be spiky when they're delivered to you."
Because what a lot of companies do is, they will look at what analysts are forecasting for their company, and then they're so obsessed about keeping up this public appearance with analysts that they will then manipulate their numbers so that they're on par with what analysts forecast for them. Because they believe, and this is delusional, but honestly, this is what most public company CEOs do. They believe that the way that their company is going to be worth more is if they continue to match analysts' forecasts for their company, which is so stupid. These people, they've become so obsessed with what the public thinks of them that they're willing to manipulate their numbers just so that the public thinks good of them. And then they think that if the public thinks good of them, then their company will be worth more money. Which is totally messed up.
If you're running a company based on public perception, you've got a ticking time bomb in your hands. At the end of the day, the only thing that really matters is value. And you can fool people for a short period of time through perception, but over time, that perception will fade away and people will always weigh you based on value. And so what good CEOs do is, they focus on value and they ignore perception, because they know that if the public just doesn't think that they're very good at the moment, it doesn't matter, because they'll eventually find out that they are good.
A classic case of this is Amazon. If you look at Amazon's early history as a public company, back ... When did Amazon IPO ... 1997. So if you look back at Amazon in its early years, 1997 to 2000, you'll see that the public markets absolutely hated them. The public markets thought Amazon was a scam. There was actually websites out there that said, like, AmazonIsAScam.com, and they all thought that Amazon was just a stupid business and a scam, and they thought that Jeff Bezos was an idiot, because he didn't want to make profits in his business. This is, again, what I'm telling you about outsiders. Unconventional thinking and unconventional CEOs.
Bezos took a different view to things. He thought making profit was inefficient, and instead, he seeked to grow the size of his company, because he knew that if he could take the market and have massive growth, that in the long term, he could then make massive profits. But that would mean that, in the short term, he would have to sacrifice profits. Investors, back in the times when he was pulling this strategy, they couldn't wrap their heads around it. Back then, investors, the only thing they knew was profits. So when Amazon didn't deliver any profits, they thought it was a scam. But just look at how much money you would have right now if you invested in Amazon back in 1997 and you still had that stock today.
Just imagine how the people who called Amazon a scam, and who called Jeff Bezos an idiot, will be feeling right now, looking at the numbers. And this is what I mean. You've got to be, if you want to be really successful in business, you have to be willing to go against the crowd, and you have to be willing to really analyze things. Look at the data, break things down to their first principles, and analyze them. Really question everything, ask why about everything, and then determine the right way that you think it should be done. If you do this correctly, you will find that pretty much the way that everyone is doing everything is wrong. What I mean by that is, pretty much the popular, common, fashionable ways of running a business and doing anything, they're wrong. And if you don't believe me, just go and read this book. Or go and study any of the most successful companies or the most successful entrepreneurs of all time, and you'll see what I'm talking about.
If you want some classic examples, well, you can read, "The Outsiders," but you can also read Amazon's letters to shareholders from 1997 through 2017. I'll include that PDF beneath, in the resources. Also, I'll include Warren Buffett's Berkshire Hathaway letters to shareholders. I'll include all of them as one PDF below. And also, you should read Google's letters to shareholders. They IPO'd in ... I can't remember the exact date, but I think it was around 2004 they IPO'd. So I'll include 2004 all the way through til 2017. I'll compile them into single PDFs and you can download them beneath in the resources section. Read those letters to shareholders from those three companies, that's Warren Buffett, Berkshire Hathaway, that's Jeff Bezos, Amazon, and Larry Page and Sergey Brin, Google.
We're looking at three pretty good companies. Google, Berkshire, and Amazon. And we're also looking at eight other unconventional CEOs. If you read this book and study those things, you will see what I'm talking about. You can also look into Elon Musk. There's a great book written about him, I think it's just called, "Musk," and it's written by a woman ... There's only one major book written about him. I'll put the link to that Elon Musk book below this video too. Read all of these things, they're incredible resources. You'll learn a lot, and it'll make you a lot smarter and a lot better businessman or businesswoman. But you'll find that all of these people are unconventional. All of them go against the crowd. All of them do things differently. All of them are outsiders. All of them were ridiculed in their early stages. So the thing about being different, and the thing about being unconventional and idiosyncratic is that you're going to piss some people off.
I'll give you an example. Imagine if you went into a church, filled with avid believers. And you just started saying things like, "God doesn't exist," or things like this. If you walked in there and started saying that to those people, you're going to cause a ruckus, an absolute ruckus. You might even get killed. And so, when you go against someone's firm beliefs, you're going to cause some drama. And so, that is why a lot of these people, Bezos, Google, Buffett, and all of these CEOs in this book, they caused ruckuses. But they didn't cause them on purpose. They caused them because they did their own analysis, and they found that the way to do things was different than the way everyone else was doing it. And they didn't really care about what they thought. Because they had so much conviction in their own analysis, and they just did it anyway.
This is another thing you've got to learn as an entrepreneur, when you have conviction about something and you've got good data that backs it up, and you do it, you're going to piss some people off. People are going to ridicule you. But you cannot back down. You can't waiver, you have to stay on that path and see it through til the end. And often it takes years, and then eventually everyone realizes that you were right and they're all like, "Oh, shit. He got that right." Just like the people who thought Bezos was an idiot and that Amazon was a scam, and then now he's the richest guy in the world and Amazon is one of the largest companies in the world. It actually had a valuation of a trillion dollars recently.
So, that's what happens. That's what happens by being unconventional. Now it's not just ... I better make this point too, being unconventional for the sake of being unconventional is stupid. So if you just see the way everyone's doing something and then you just decide, "I'm going to do something differently," that's not a good reason to do it. What you've got to do is, you've got to do your analysis, find out the way that you believe is best. And if the way that you believe is best is the way that everyone else believes is best, you still do it anyway, right?
Like, myself and the guys in these books, if the way that they believed was true was the way everyone else believed was true, they'd just do it anyway. They didn't care, they weren't trying to be unconventional and idiosyncratic. But if the way they found was true was not the way everyone else believed was true, they just did it anyway. And so you've got to actually have some evidence and grounding in your decision to do what you're going to do. But if it's not conventional, don't worry about it. You've got to be willing to take the heat and take the ridicule for doing it anyway. That's an important thing, and an important message that I would tell most entrepreneurs. Because I see a lot of people try to do things differently and then they get ridiculed or criticized, and then they back down or they change their ways and they retreat back to the standard way of doing things. You can't do this. You have to stay on the path.
So, that's it for this video. I just wanted to tell you why outsiders always win. Get this book, buy it. Link's beneath this video in the resources, as well as the Elon Musk book and those three letters to shareholders. These are incredible pieces of content. I rarely recommend books and resources and things, so if I do, they're ones that I've personally read and probably read more than three times. So go grab them.
If you liked this video, just click that like button, and also let me know what you thought in the comments section below. And also, if you liked this video, just click that subscribe button. Subscribe to my channel on YouTube, and I release a video like this, a new blog video, about once per week as well as customer interviews and other resources.
So that's it for this video, thanks for watching, and I look forward to seeing you in the next one soon.