The Wisdom of Charles Koch
Posted on September 18, 2014 by Robert Ringer
Here’s a great excerpt from a book I’m reading that I think you’ll want to pay close attention to:
This brief company history may leave the impression that our experience has been one of ever-improving results, with one success after another, each building on the one before. Nothing could be further from the truth. Progress, whether in business, an economy or science, comes through experimentation and failure. Given that a market economy is an experimental discovery process, business failures are inevitable and any attempt to eliminate them only insures overall failure. The key is to recognize when we are experimenting and limit the bet accordingly.
The reason you should think about the above words long and hard is because they were written by a man who has built his business into the second largest (some say the largest) and most profitable privately held company in America. The company I’m talking about is Koch Industries, which most people have never even heard of. The company has annual revenues of $115 billion —more than most giant public companies that are household names.
I suppose at one time, I, too, was one of those people who assumed that a huge corporation such as Koch Industries had experienced nothing but success, with each success “building on the one before.” After all, how many failures can you possibly have on your way to building a company with $115 billion in revenues?
Answer: Plenty. In his book The Science of Success, Charles Koch describes one misstep after another that he and his team have made over the past forty years, mistakes that cost his company tens of millions of dollars. But mistakes and losses are part and parcel to the free-market, entrepreneurial model upon which Koch Industries has been built.
This entrepreneurial model requires Koch Industries to go into each new venture as an experiment. If the experiment appears to be working, the company increases its bet as it goes along. If it isn’t working, it cuts its losses and moves on.
Koch’s main point is that failure is not a bad thing. It’s actually is a good thing, so long as it does not become a self-fulfilling prophecy. Failure is, in fact, the supreme teacher, and action is the matriculation fee that allows you to enroll in the supreme teacher’s class.
Most people harbor such a fear of failure that they can’t bring themselves to supply the action needed to participate in the class. There can be many reasons for this fear, and one that I believe plays a more prominent role than most people might suspect is the stigma attached to failure.Society tends to treat failure with disdain, and most people harbor a great fear of being frowned upon by the conventional-wisdom types who make up the bulk of the business-world population.
I doubt that one in a hundred people believe that “business failures are inevitable, and any attempt to eliminate them only insures overall failure.” But these are not the words of a Harvard Business School professor. Again, they were written by Charles Koch himself, a forty-year veteran of the entrepreneurial wars, who sits at the top of the food chain.
It’s important to understand that Koch is not telling us that we might fail. He’s telling us that we must fail, and that if we try to eliminate failure, we are guaranteed to experience overall failure — as in long-term failure. Quite an interesting paradox.
The next time you feel a fear of failure coming over you, remember the words of Charles Koch and don’t allow the potential stigma of failure to cause you to be timid. When someone with Koch’s track record speaks, wise folks listen. How wrong can a guy worth $53 billion be?
So failing is good so long as you learn from it. Refusing to try is a bad form of failure, as well as repeating the same failure over & over and then blaming someone else.
Robert, I once read that Ludwig Erhard, West Germany's postwar finance minister, who is often credited with the West German "Wirtschaftswunder" or "Economic Miracle" after WWII, was once asked how he will know that his free market economics plan will be working, to which he replied, that he'll know it's working when Germany experiences it's first bankruptcies!! The rest is history! Basically the same as Charles Koch's outlook on failure! Good stuff!!
Thanks for sharing the excellent insight by Ludwig Erhard. Unfortunately, anti-capitalists are incapable of comprehending the positive and important role of creative destruction in the marketplace.
But thye sure understand and seem to approve of the mindless destruction of the marketplace by the State!
I like to use the analogy that a great shortstop doesn't necessarily have the best fielding percentage. He's the one that tries the impossible and sometimes makes that spectacular play…or misses and is charged with an error.
Right. And don't forget that Reggie Jackson struck out more times than any other hitter.
During the Clinton years I developed a tabloid format advertiser and made enough money in half a year to live well enough the other half in Asia. In retrospect I called my philosophy, THINK SMALL AND WIN BIG, the apparent opposite of what the hyper Motivators try to sell people in their seminars. There are many ways, I found, to accomplish what I "needed", including keeping overhead as low as possible, and price below the competition. Friends suggested employing and training other sales-folk to grow and increase business, but that would have limited my lifestyle that included NOT WORKING half the year. I was a one-man business and WON ENOUGH to insure personal freedom which has always been very important to me. I guess I was the opposite of the Koch type.
This is interesting. Many times over the year I have had people advise to price products and services as high as the market allows, with the thought that people will think what you are offering is inferior otherwise, but this seems counter-intuitive to me. Common sense says that keeping overhead low and prices below those of the competition is more likely lead to success in building a client base.
What are your thoughts on this?
This is an ongoing debate to which there is no firm answer. Both can be made to work depending upon the product, the business model, and, above all, the marketing skills of the business owner(s).
This is really no different than the Koch brothers' approach; both of you are successful at what you do, although your definitions of success (or more specifically, what to do with the freedom that success allows). You are free not to "work" in the way your business requires half the year, and they are free to pursue their business (which they obviously enjoy) and finance their other interests as they wish.
That's the great thing about freedom; it's personal.
James, exactly! Excellent point!
What a great post! Thank you Robert.
Robert, I agree. This book is one of the best business books I've ever read. I just looked up the amazon rankings for the book and they are only at 8,032. I've check in the past and the book doesn't usually even sell *that* well. The fact that a book written by such a hugely successful business person – who happens to be writing about a market-based management/leadership style – isn't a sought-after and highly-acclaimed read by the mainstream business community says all too much.
Bob, you are so right. Even more disconcerting is how so many inferior "business" books are hugely successful. I shall refrain from naming titles, but I will say that I have never been able to read more than a few pages of one of the biggest-selling business books of all time. Bores me to death every time I try reading it.
Fortunately, Charles Koch doesn't need the royalties.
No surprises here.
This is analogous to the stock market. The best stock buys in the market are the stocks to which most people don't pay attention. The stocks that everyone gawks over are typically over-priced
This is indeed a red letter day for me as I get to comment on not one but two of the gentlemen whose writings I follow and business acumen I admire and try to emulate: Mr. Ringer and Mr. Burg.
I do wish it were happier circumstances.
Let’s begin with Mr. Ringer comment that reads: “Society tends to treat failure with disdain, and most people harbor a great fear of being frowned upon by the conventional-wisdom types who make up the bulk of the business-world population.”
Together with the comment from Mr. Burg that states:
“The fact that a book written by such a hugely successful business person – who happens to be writing about a market-based management/leadership style – isn't a sought-after and highly-acclaimed read by the mainstream business community says all too much.”
I’m going out on the proverbial limb here and assuming that most of the readers of this blog are not people that some refer to as “low information voters.” It is sad indeed that we watch another generation being indoctrinated with the philosophy of ‘poverty is the new normal’. Additionally disheartening is that this is coupled with the belief that wealth accumulation is only allowed and tolerated, when accomplished by individuals within one particular political ideology.
Mr. Burg is dead on… it does say all too much.
Brent (and, please call me Bob), thank you for sharing your thoughts, and thank you so much for your very kind words. Honored to know you've enjoyed my work!
Brent, I'm intrigued by your comment–"…the belief that wealth accumulation is only allowed and tolerated, when accomplished by individuals within one particular political ideology…."
I confess that I don't fully understand what you mean. Are you saying that some people believe you have to be a conservative or a progressive to accumulate wealth? Which "one particular political ideology" are you referring to. And who promotes this–to my mind–outrageous belief? For example, is there a book that promotes this idea? Or a political party?
I'd really appreciate your saying a few more words. Even simply defining the "one particular political ideology" would be clarifying. Thanks.
I'm guessing it goes something like this:
Steven Spielberg's wealth is acceptable to "liberals" because he shares/espouses the liberal ideal, however you choose to define such.
Charles Koch's wealth is acceptable to "conservatives" because he shares/espouses the conservative ideal, however you choose to define such.
To the best of my knowledge, Spielberg and Koch both amassed their wealth legally via free market, capitalism.
However, Spielberg's wealth is not acceptable to conservatives and Koch's wealth is not acceptable to liberals because . . . well . . . acceptability is in the eye of the beholder, I guess.
Kinda like the "It's not what you said, it's how you said it" argument.
Actually, conservatives don't care a whit whether Stephen Spielberg is wealthy. What irks them is that Spielberg isn't demonized for his wealth, whereas Koch is. Spielberg donates a few million to a charity and is lauded. Koch builds an entire wing on a hospital and is called every name in the book for his efforts. The only difference between the two is that Koch doesn't apologize for enriching himself via the free market system and Spielberg acts as though his wealth were either an accident or an entitlement. The BS factor and blatant intellectual dishonesty is what rankles conservatives, not that Spielberg – or Barbra Streisand, Rosie O'Donnell, etc. – have money. Funny that left-leaning ideologues (who claim to be so terribly open minded) can't say the same thing.
Societies opinion of how wealth is arrived at will indeed vary according to how that wealth is arrived at. If the wealth is made by hardworking businessmen, I would respect that as one who would want a strong economy and as its employees would appreciate. A rap singer will probably be appreciated by a totally different crowd. All and all the entrepreneur has been the heartbeat of America.
Failing "forward" is ultimately a goal. Doesn't seem possible for some of us. It gets extremely discouraging when your experience involves fail after fail after fail and never reveals progress or benefit. Whether it's computer support, media production, telecom, stock market investments, medical system sales and support, or a variety of other ventures, the last twenty years sure haven't provided any encouragement to pursue the next twenty.
Two mentality's in this world – the "scrimp and save" crowd, which clips discount coupons from newspapers looking to get a buck off on this week's Fritos corn chips special, etc. These people look for discount travel packages, too, and never really come to grips with the fact that when you travel steerage class though life, you are treated like garbage class. These people think tipping generously is highway robbery against them. These people think buying convenience store lotto scratch off cards are the key to their financial fortune, etc. These people drink diet soda and beer, and cannot even spell the word "wine."
Just one way to travel through life, to get somewhere in life: travel first class, dine at 4 and 5 star restaurants, embellish your wardrobe at Brooks Brothers, drive something more snobbish than the Mercedes all your upscale neighbors and business associates drive. Own a lavish home. Stay at the best hotels, vacation in Cannes or Villefranche, not Nice, in Palm Beach, not West Palm Beach, in Miami Beach, not Miami, in Aspen, not Denver, etc. These people are willing to go on strike for the union for six weeks to six months, to get a buck and a half raise, per hour. Not exactly collective financial genius at work, here.
Image is everything, and is doubly impressive when you ARE the image you project and are not "faking" it.
Our education system and culutre does not encourage "failure", which is a necessary element for long term and creative success. Wealth, no matter how it is accomplished seems to trump all. I care not what one's political affiliation is, but rather are they providing a product or service that both benefits others and is VOLUNTARILY purchased (not engineered by the cons in govt.!!). In any endeavor, we have to fail before we succeed (much like the shortstop example above), but most are paralyzed at the starting gate while a ready group of critics seems eager to pounce on anyone's misstep.
I GUESS I AM THE NICKEL-AND-DIMER -SAVER CLASS; I HAVE THE FIRST DOLLAR I EVER EARNED. NOT FILTHY RICH, BUT, YOU KNOW,….
I FORGOT TO MENTION MY COMMENT REFERS TO WHAT ROOBY BENSON SAID….
"You pay for your education". Without failures there is no education. With only success's, you may think you know it all, have no defense ready for the inevitable slide, and the whole thing may continue to fall to the bottom floor.
It's in the mistakes that you learn and refine your game to the point of minimizing the mistakes, and actually developing a prescience to know what will and will not work, further cutting down the amount of wasted effort and time.
The "mistakes" are the most important part of learning, just don't make them a habit unless you are "sure" you can end up with a positive result; in that case Edison comes to mind – and there is always something to be learned from perseverance and a well placed positive action oriented attitude…
Scruffy, your post reminds me of a statement a mentor frequently made: " It's OK to make a mistake as long as you keep making new ones".