April 20, 2017 at 7:01 am #1203Ian CasselKeymaster
Manoj Bhargava, billionaire founder of Five Hour Energy, is an incredible entrepreneur-investor with a Warren Buffett type of whit and devotion to simplicity combined with an Elon Musk type zeal for tackling big issues. His presentation below, from TiEcon 2013, is one of the best I’ve heard on entrepreneurship, investing, innovation, leadership, and philanthropy. I stumbled upon this presentation while watching a film he created for his philanthropy called Billions in Change. Please watch or read the presentation. You won’t be disappointed.
Manoj Bhargava: Hi, folks. Usually everybody asks me the same question first, so I’ll probably try to get to that first so that we can move past it, which is how did you start this thing, and what made you want to start this thing. What happened is we, I had a company that I retired from, and then I found out the retirement was harder work than working. I went back and I decided, “Okay, if I start a company, if I don’t have the technology that I’m working by the hour,: so I said, “Okay, I’ve got to find some technology,” and then technology hopefully gives you residual income. There’s only two ways to get technology, to invent it or to find it. Inventing has about the same chance as a lottery ticket. We formed a company that looked for technology worldwide. I liked chemistry because I thought it was a really simple thing. You mix a bunch of cheap stuff together and sell it for more. That’s basically chemistry. Since I’m not that educated, that’s my understanding of it anyway. We had submissions from thousands of PhDs across the world, and actually people started hiring us, large companies started hiring us and saying, “Can you find technology for us?” We found out of course large companies, all they did was have committee meetings. They would actually never get anything done, so I dropped those contracts, and we found … The short of it is I found this technology at a trade show. We went there and somebody introduced us to this company, and we said, I had a meeting with them, and at about 2:00 in the afternoon, I thought, “Oh, my goodness, I got eight hours of meetings, and I’m not making it. I’m not going to be able to get through it.” I went back to them. I said, “Didn’t you have some energy something? Could I try that?” They gave me this thing, and I said, “Whoa, this I can sell.” For seven to eight hours, it was really great. I said, “Okay, I’ll figure it out.” I went back to them, and they were science guys, and I’m just a lowly business guy. They really didn’t talk to me and, “Just get lost, kid.” I said, “Okay.: I don’t have a whole lot of respect for most science guys anyway, because I think they don’t really do that much. They just hide behind big words. I said, “All right, I’ll figure it out. It can’t be that hard.” Fortunately, it took me about 30 days, figured it out. What I did was instead of a large drink, I made it a small one. The reason is two things. One, I thought, “Why is somebody tired and thirsty at the same time? That doesn’t make any sense, so why not make it small?” The other thing is, from the retail level, it was, “Do I have a big bottle and compete against Coke and Pepsi for cooler space?” That sounded really dumb, so I said, “Okay, let’s not do that.” If I make it small and I’m in the front of the counter, I’m competing against key chains and batteries, which, I can handle that. We made it small. We made it, actually, the first one was one ounce. Unfortunately, couldn’t read it, so we made it two ounces. We got it out there. I thought, “Okay, let me find out if this thing has legs.” We put it in the largest vitamin store. They have about, over a thousand stores. The first week it sold 200 bottles, which wasn’t very good. I said, “Okay, let me just leave it there. I’m not going to advertise, not do anything.” Within six months, at the sixth month it was selling 10,000 a week, which, for that store, that wasn’t easy, so I said, “Okay, now we know, this thing has legs.” Then we went out, and of course I had no experience in consumer products. All we were armed with was common sense and, “Hey, we can do this. This is not a big deal.” This kind of thinking is of course very familiar in this neck of the woods. We started with what are called front slammers. We had guys, in the back of their car, they’ll throw stuff in. They go from store to store pedaling stuff. We started there. Then we got into drugstores. Then we got into Walmart. Now we have four different items at checkout, at every Walmart checkout, which is the most difficult space in the world to get. We became one of the largest consumer products in the world. We are the largest dietary supplement brand in the world. Really, all of it was just common sense stuff. It wasn’t anything … People say, “Oh, my God, how did you do it? It’s amazing.” I tell people, “Look, we weren’t that smart. The only thing we did was we just didn’t do dumb stuff.” That really differentiated us from pretty much all corporations. (Applause) Even to this day, people say, “How many people do you have?” I say, “Well, in our offices and including marketing, sales, accounting, everything all together, we have 65 people, not including our plant, which has 250, which is run as a separate company. They say, “Wow, you must be really efficient.” I say, “No, no, we’re not efficient at all, to tell you the truth. We just don’t do useless stuff.” All I did was cut out everything that didn’t make money or didn’t improve the product, didn’t make the customer happy. It’s got to go. In doing that you get rid of hundreds and hundreds of potential … we don’t do strategic initiatives and … I can’t even spell that stuff. (Applause) We stayed out of jargon, partly because I’m not familiar with all the MBA stuff. There’s so much jargon, and I can’t spell most of it. I think the people that use it also don’t understand it, but they have to use it. How many times have you gotten a resume, and every second line there’s “Strategic.” We just did it differently. We said, “No, no. Just use common sense and just go, and do it now.” To give you examples, we don’t have … Our meetings last, most of the meetings last about a minute or two, because most of the time it’s like a decision of saying, “I’m on the roof. Should I take the stairs or the fast way down?” It’s really not a decision, and yet they’ll schedule a half hour or an hour meeting with 18 people. “Should we jump off the roof or take the stairs?” Most of the time, at least the people we have, would rather take the stairs. We did really, really simple stuff. Our whole job is to make the business really simple. It usually flies in the face of all experts. Experts do not like simple. There’s lots of stuff we did that was completely different, and it turned into one of the largest brands in the world. Then I thought, “Okay, this is really big,” and we were making ridiculous amounts of money. “What do I do with this thing?” Actually, what happened much later is that the Gates Foundation contacted me to be one of their giving, Pledge.org or something, whatever. He said, “Write me a letter as to why are you giving away 90% of your money?” I jotted down something in ten minutes. I wrote it to them, and they were all, like, “Okay, this is the best letter,” because what I said was, “I have two choices. I can wreck my son’s life or I can give it away.” Do really stupid stuff or do not stupid stuff? We went this way and said, “Okay, let’s not do dumb stuff.” Really, when you have this, what else are you going to do? Somebody said to me one time, “Money doesn’t buy brains,” and my reply was, “You’re right. Money doesn’t buy brains, but usually it buys stupidity.” A lot of folks that get a little bit of money tend to slide downwards in terms of intelligence area, do useless stuff. They’ll get into personal consumption, which only makes them more miserable, so we decided, “Okay, let’s just do this.” Today we are the largest charity in India that nobody knows. (Applause) The other guys are nice guys. I’m not saying that they’re not nice guys, but they tend to do more announcements than they do work. I have a simple benchmark. We don’t have big fancy how do you gauge if you did well or not. We don’t do that. I said, “The only thing we look for is how many people that are underprivileged did we significantly affect?” That’s it, because you really don’t know sitting behind a desk in a fancy air-conditioned office what they need out there. One guy I remember, when I went to this meeting of these big shots, billionaire types, and the one guy says, “Well, how should we do this so it’s sustainable?” I get a little annoyed and I said, “It’s not about you. It’s about them.” If you have a business, it’s about the customer. In the same way, you go out to the field and you find out what do they need and then do that. Don’t sit here and say, “Okay, a guy’s starving over there. I think you should give him an education.” I’m going to be dead tomorrow, but, great, I’ll have an education. People don’t really understand what to do there. I’ll give you an example of something we could never have come up with. There’s an area in Bengali that, it’s on the river, and there’s 150,000 people that live on the river. We have several boats that are clinics, and they travel from village to village constantly and serve that community of 150,000. Who would have come up with that? You had to be out there and recognize the need and then do it. What we did, because we usually, most things, I really don’t know what I’m doing. The same thing I realized in the charity that also I didn’t know what I was doing, so I said, “Okay. If I don’t know what I’m doing, why don’t I find people who do know what they’re doing?” What we do is we fund other charities that are good guys. Our job is we find guys that are doing really good work and say, “We’ll adopt you. You don’t have the worry about funding from here on. We’ll adopt you.” In India there are amazingly good people. There are amazingly bad people there also, but there are really, really amazing people that sacrifice so much. All we do is say, “Okay, we’ll adopt you.” Sometimes they’ll say, “We’re running a school for the blind. Would you take it?” We’re looking at it. “Are you kidding? We don’t want this. You run it. We’ll just support you.” That’s the charity side of it. Some of the other projects involved are going to be some of the largest projects we believe in the world. One is, the biggest problem in the world that is not very, not fashionable, is water. From what I’ve seen, not too many people are seriously doing work in that area. There’s some work going on, but it doesn’t seem very serious to me. We already have a working prototype to turn salt water into fresh water. I’ve put together a [skunk works 00:15:23], sort of a group of people that actually make stuff. I hate to tell you, I’m not much with engineers that sit in front of a … not software guys. That’s fine, but in the mechanical and whatever, in that side, guys sit in front of computers and there’s hundreds of them. One time we had a meeting with the automotive guys, and we were involved in this project, and I said, “Look, guys, I don’t get it. You have 6,000 engineers, and I open the hood next year and it looks the same. What did you do?” To me, it was, “Okay, do something. Make something. Make something better. Make something useful.” What we’ve got is also we have also launched a company that’s making gas generators, which are [inaudible 00:16:18], so these are fairly large generators. Desalination or making water pure is really about energy. It’s not about the water. It’s sort of energy, then water, then food, without which nothing else works. The time is coming when a billion people are going to die because there’s no water. The rich people will just move. The poor people will just die. There’s not much going on there. We are investing in that area. We’ve already gotten to the point where everybody keeps hounding me from all over the world saying, “Can we come? Can we come?” I said, “No, no. Let me get it done, and then we’ll call you.” There are countries calling us. The one thing that I want to do is, if you’re doing charity and you’re not … serious charity, large scale, and you’re not doing water, the rest is nonsense, because if they’re dead, you can’t really help them after that. That’s some of the areas. The other area we’re working on, which is also really large, is we’ve a medical device that we’re doing in Singapore that is going to affect overall health in a way probably the last 50 years nothing has helped. It’s a simple device that affects circulation, so it increases circulation, and that will affect almost 80% of all major diseases in a very significant way. You actually feel better. The reason nobody else came up with it, the funny part is, the technology was around for 25 years, and nobody knew what to use it for, and it was too simple. Science guys do not like simple, because you can’t write a paper. You can’t get acknowledged by your peers. None of that happens if it’s simple. Somebody’s got to do the simple stuff, so this is what we do. In these areas, we’re going to, these three, they’re businesses, but they’re also really in the end for non-profit, because the people will gain from it will be non-profit, and we will probably end up making a bunch of money too, which then will go back and donate it again. Each of these business will be look to be at least several times the size of 5-Hour, and you guys should really know this well. Every time I come to Silicon Valley, everybody talks in terms of billions. There’s no millions here. There’s only billions. At first I thought, “Wow, that’s really impressive,” until I find out they weren’t talking about profit and they weren’t talking about revenue. So I said, “What are you guys talking about then?” It was, “Okay, we just make up numbers as to what something is worth, and we discuss it, and we have a valuation.” I thought, “Wow, what a way to run a business.” (Applause) I live in the Midwest. For us, a business is something that makes a profit. In our company when we discuss sizes of business, it’s a billion-dollar business, that means net income, not a greater pool theory, like, “Okay, we’ll build this thing that makes no money, has no sales, and we’ll sell it to some idiot who’s going to pay us a billion dollars. That’s a great strategy, but I wouldn’t call it business, at least not where I’m from. Here it seems to be the norm, which is really interesting. You do a whole bunch of stuff like this. It’s sort of like what we used to call gambling, but here it’s called business, so it’s very interesting. I don’t think I want to learn from you guys. I think we’ll go to the same old stuff and say, “Okay, look, we’re just going to make good old stuff that’s useful,” and some of the things are. I’ll tell you how we work in our company. Again, we don’t have MBA speak, so if somebody comes to me with a project or something that needs to be done, the first question I ask is, “Is it useful? How is it useful?” If it’s not useful, it better be entertaining. If it’s not useful or entertaining, there’s only one other basket left, and that’s useless. (Applause) To us, business is really not rocket science. It’s just, do useful stuff, guys, and avoid useless. You came here. You did all this. Was it useful? (Applause) I have my feeling it wasn’t that entertaining. It’s just simple stuff. We’re students of simple rather than … My job, I think, is to make complex simple, whereas it seems the consultant’s job is to make simple complicated. We use some experts and consultants sometime, and usually when a science guy says it can’t be done, to me that’s validation that it can. It’s a different affect. We define stuff. Like, experts, what’s an expert? An expert is someone who knows everything that was. He’s really good at what was, and if you ask him about what will be, he’ll say, “No, no, that can’t be done, because I’m an expert on what was.” “Well, why do I need you? Because if I wanted to do what was, I don’t have a business.” We do talk to experts just to make sure that maybe they’ve thought of something or the history of that area is something that we haven’t thought of, but we really don’t rely on them for the future, because that’s just silly. Anyway, that’s our approach to business. Everything is really, really simple. People ask me about marketing, and I got to tell you some other simple philosophies that we have. We have what I call, when I hire somebody or that’s going to join our firm, we have what’s called a prime directive, which is, if any of you have ever seen Star Trek, there’s a prime directive. The prime directive in our company is, “No aggravation.” Nobody gets to give us aggravation, whether it’s customers, vendors, employees. If you aggravate, you’ve got to go. It’s that simple, and it’s really business. Usually it’s the 1%, some customer that’s got 1% of your business and he’s driving you nuts, and he’s taking up 80% of your head. How is that business? Aggravation is the largest cost in business. To me, it’s really simple. We live here at work. If an employee is such that they’re going to cause all kinds of havoc, that they’re going to aggravate, we need to go. One time one of our senior guys yelled at a receptionist. I called him in. I said, “Look, you can’t yell at her. You can fire her. If she’s that bad, they need to go, but we live here. Don’t mess up this place.” I’ve found that aggravation is, if you avoid it, not only do you have fun, but it’s a great place to work and nobody quits. We can’t get people to quit. Out of those 70 people, we lose about one a year, and it’s to a non-job. It’s like, okay, they don’t want to work anymore. They’re going to three days a week. We have almost no turnover, because there’s no aggravation there. Huge benefits come from a simple concept. Lots of concepts that we do are different. Somebody asked me, I think we were just having an interview and somebody asked me, “Well, should we have risk takers?” Entrepreneurs, risk takers. I said, “No, no, no, no.” Entrepreneurs are not risk takers. If somebody in my company wants to take risks, I’d say, I’d say, “Oh, no. Go work somewhere else.” Our job as entrepreneurs is to minimize risk, to manage risk, to give it to somebody else, not take it. If you want to take risk, go to Vegas. It’s a really simple concept, but if you tell people, “You should be risk takers,” they go out there and just blow your money. It’s really dumb. Again, like I said, our other principle is, “Please don’t do dumb.” We have our own jargon to some extent. For example, somebody comes to me in the project or a product that we’re going to go sell or some project, I ask them, “Is it slam dunk?” “No, it’s really good.” I say, “No, no. Is it slam dunk?” “But really, it’s a good product.” What it does is it totally clarifies their mind that, “Oh, no, it’s not slam dunk.” Then I say, “Well, why are we going to do it?” Our standards are high. We have these simple things which clarify the mind, not totally mess up your mind or have so much jargon that nobody knows what you’re talking about, but you’ve got all the right words, like “Ecosystem,” whatever. Everybody’s got ecosystems here or value propositions. No, no, no. Guys, just sell good stuff to people who need it. All of that jargon, all it does is bury common sense. The idea is you get simple. Somebody asked me in an interview. I said, “What does an entrepreneur really need?” I said, “Only two things. Common sense and a sense of urgency. That’s it.” They ask me, “Who should we learn this stuff for?” My answer was, “From your mom, because she’s probably done more management than your MBA professor.” (Applause) Because she’s got a budget. She’s got all these kids running around, hard to manage. All of this thing has to be done every day seven days a week. Now, that’s work. That’s hard work. That’s learning on the job. People say, “Oh, she’s just a homemaker. That’s a lowly thing.” No, it’s not. That’s great media and people say, “Oh, no, you’re saying women should be homemakers.” No, no, that’s the most … That’s the hardest work there is. It’s the most talent you need. The guys who go out there and work eight hours, any idiot can do that. It’s sort of thinking based on description. In other words, if you look at any word and you really think about it, then you understand it. Otherwise, you just use these words that everybody uses and they think, “Okay, now this guy must know something. After all, he knows what an ecosystem is.” Our approach to things, like I said, is different. You may agree with it. I’m sure I’m going to get some MBA professor to … One time the U of M, University of Michigan Law School called me to speak. I said, “Are you guys kidding?” I said, “I think those MBAs, I think it’s totally useless.” He said, “No, no, come over.” I said, “Fine. If that’s what you want.” I went over there and defined it. I said, “Look, I’m not saying that they don’t teach anything of value. I think they teach this much that is useful (indicating), then teach this much that is useless (indicating), and then they teach this much that’s harmful. Overall, averages on the useless side. You come out of school and you actually think you know something. Really? That’s dangerous, because you really don’t. I never hire people out of fancy schools for that reason. My first question usually is to an MBA, “How are you going to get over it?” (Applause) I’m really not alone in this. The good guys, I’ve met the chief executives I’ve met, of really large companies that don’t … Usually they get in front of the podium and it’s all PC, lawyer-cleared stuff, so they don’t say anything, but the good guys that I’ve met, they’re all sick of MBAs, really. They’re not really enamored of this whole thing. Look, it’s a simple thing. If you’re going to learn plumbing, go learn from a plumber that’s actually seen a pipe, has fixed a leak, not just written about pipes and lectured on pipes and researched pipes. (Applause) I’m not for theoretical plumbers. Our approach, like I said, is really very straightforward. Let me see what else. Again, there are some other words, for example, that are poorly defined out there. I listen to people sometimes on TV, and sometimes between crying and laughing, it’s difficult to figure out which one to do. They say, “All companies should innovate,” and none of these fellows know how to define the word. What is innovation? There are three things that I looked at. There’s technology. There’s invention. There’s innovation. Okay? People use those interchangeably when it’s nonsense. A technology, to give you an example, is like a … The guy who came up with lasers. That was 50 years or 60 years ago. Now, laser is a technology. It’s not really an invention yet. When you use the laser in a way that’s useful, that’s an invention. You make a product that says, “Okay, this is useful to these people.” That’s an invention. Innovation is just simply something useful that you didn’t do yesterday that you’re going to do today. It could be a process. It could be a product. If you don’t clarify this in your head, you’re going to be in trouble, because … There are so many things that about innovation, about new products or research … Take research, for example. Somehow Wall Street fellows are so enamored of companies that spend 5% of their sales on research versus 3%. What? Is this brains by the pound? It’s not about the money. Good stuff doesn’t come from money, and history tells us that, and we still chase it. Mobs of PhDs do not come up with great inventions. It’s a couple of guys in a garage that have proven that that’s not true. As soon as you get a couple people … Throughout history, it’s only been a couple of people have come out with the greatest of stuff, and yet we insist that if we have a thousand PhDs instead of 500, we’re going to do it better. It makes no sense. It’s like a corporation. People in corporations are smart. However, when you put them all together, everybody knows a mob is stupid. If you put a whole lot of smart people together, they act like a mob. They can’t get it together. They’re all worried about, “Okay, what …” We have seen people do stuff, we all have, like, “Okay, but my carpet is smaller than the other guy’s.” Really, that’s what’s going to make this company successful? Or just nominal things which, posturing internally, all of that stuff happens. It’s really the management’s fault, of course. I would say almost everything that happens in a corporation, it’s the management’s fault. It’s always the management’s fault. They motivate you one way. For example, in the sales side, they say, “We’re going to give you commission.” “Okay,” so I sell everything I can, whether the company makes money or not. Now, whose fault is that? The management’s. Then the next year I say, “Well, you sold a hundred dollars worth. You got ten dollars.” Now, next year you sold a hundred dollars worth. I’m only giving you eight, even though he knows that the company made money on that hundred dollars. The guy is looking at it, and he says, “Okay, you’re going to rip me off. Okay, fine. Now that the rules are clear, I’m going to game the system.” It’s really the management’s fault that sets it up in a way that’s really terrible. There’s so many things that people look at that are just so messed up. For example, our hiring of sales guys, all of them are over 50. Now, there’s one guy, 48. All of them pretty much are over 50. Why? I don’t like officers. I like sergeants. Officers write memos. Sergeants execute. If you shoot all the officers today in the army, the army will still run for a while. If you shoot all the sergeants, it stops right now. What we do is say, we get guys that are sergeants, who have been there, done that, and people say, “Well, you know, they don’t have the energy.” Maybe they don’t need the energy. They can do with their little finger what five 30-year-olds can do. It will take them all day. What corporate America says is, “Well, no, we can just take six weeks and just teach you that,” some kid. Never going to happen. I got guys, I got 18 guys that sell the whole country. Our competitors have 300. Now, these guys are pros. They know what they’re doing. They don’t make mistakes, and they love their job. We don’t even pay that much, and there’s a line out the door for people wanting to come and work for us at less money, because we give them respect, and we say, “Okay. You do it.” One time we were putting too many, I’m not sure what … Four, thirty-three … Am I overtime or under time? I’m over. Okay. Better end this. I can’t read. Anyway, I think there was going to be some question and answer that you may want or not. I’m not sure, again, if this was useful, but from all your laughing, I assume it was entertaining. (Applause) Naveen Bisht: Actually, thank you, Manoj. I was going to say that it was a useful and entertaining story. Let’s give you a big round of applause at that. (Applause) We have a couple of questions from the audience. One of the questions, in the morning we heard another highly successful entrepreneur, a billionaire on the Forbes list, was asked about success in planning. How do you think about that for your company? Manoj Bhargava: Usually the P word is banned. Planning is, it has to be related to something. In other words, if it’s a product, is it … You have to look at it that way. We look at it simple. If a product idea comes in, I can’t plan for a product idea to come in that’s slam dunk. If a product idea comes in, we’re ready to go execute right now. The way we do it is on the planning side of execution, a bunch of stuff, they say, “Well, this is going to take six months.” I don’t allow that, because what people do is wait five months or five and a half months and then start. I want to know, when people ask me, “When do you want this,” and my usual answer is, “Three o’clock.” Everyday my view is the next day, “What can you do today? Do your maximum right now today.” Unfortunately, some planning can actually go backwards, because they say, “Well, everybody else takes a year.” How is that relevant? To me it’s like, “No, no. Three days. Four days. Let’s go.” There’s a lot of areas which planning is actually counterproductive. Again, I’m not sure I answered the question well, because there’s some areas that probably do require some planning, like, for example, if you don’t know how much you’re going to … There was one point we were selling, we were increasing sales by 6% a week. How do you plan for that? We never missed a shipment. I think some big fancy university wanted to do a case study, and I said, “Nah.” He said, “Oh, no, it’s really prestigious.” I said, “That’s okay.” Prestigious is relatively useless. Naveen Bisht: All right, Manoj. One more last question is, one of the questions from the audience was, “There is a lot of negative talk about a lot of energy drinks, et cetera, and I’m sure you also get bombarded with that … Manoj Bhargava: Yeah, sure. Naveen Bisht: … from a few people. Manoj Bhargava: Sure. Naveen Bisht: How do you handle that? Manoj Bhargava: There’s always a disadvantage in any business. There’s problems in every business. Ours is perception. It’s perceived that caffeine is bad. Now, does anybody know that? No, no. Media said so. News people said so. Really? That’s your experts? What happened is it’s not a PC product, and they say, “Oh, my God, there’s a lot of caffeine.” Meanwhile, the people who say that are walking around with a big Starbucks, which has twice the caffeine. It’s total hype and nonsense, but it is a legitimate problem of perception. We have an ad out there that addressed that. We are never going to be more the 3, 4% market, penetration in the market, because there’s that much hype as far as, “Oh, caffeine is bad.” The funny part, such funny stuff happens. I say, “Okay, don’t mix alcohol with caffeine. It’s horrible,” right? Meanwhile, the last 50 years I remember, most everybody that has had drinks, at the end of it they have a cup of coffee. Is that similar? People just make stuff up, and that’s going to be an ongoing issue, and that’s fine. That’s part of our … Look, you guys don’t have other problems. I’ve got the FDA. I’ve got attorney generals. I’ve got news people. Everybody’s an expert and everybody’s going to come at us. That’s just part of this business.
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