value and opportunity

This book was a recommendation of the editor of Poor Charlie’s Almanack and is the Autobiography of legendary US Tire sales guru Les Schwab.

Les Schwab created one of the biggest independent Tire Dealerships in the US from scratch. The book is a mixture of Autobiography, short stories and lots and lots of business wisdom.

The story of Les Schwab is to a certain point very similar with Sam Walton (Walmart). A no BS guy starts with a small shop in a rural area in the US and then branches out all over the country.

However, the biggest difference with Wal Mart is the fact, that from the beginning, Les Schwab shared almost 50% of his profits with the employees. Although he seems to have been one tough cookie, he didn’t want to keep all the profit but actively included employees in the profit-sharing to align them and the interest of the company.

The system is quite simple: Overall, a little less than 50% of the profits of each store is shared with employees. When a new shop opens, employees have to keep their profits in the store, until the store has positive net worth. If they then want to take out money, the head office takes out the same amount of money. If someone retires, the stake will be bought out by the company.

This employee profit-sharing system with clear communication, target setting etc. seems to have been one of the major “competitive” advantages for Les Schwab within an extremely competitive market.

Compared to stock or option programs,this program has the advantage that it better aligns the long-term goals of employes and company. For further promotions for instance, the amount of money that an employee has kept in the company is an important factor. Compare this with stock option programs for listed companies…..

I have never been to a LEs Schwab tire station but this picture seems to be the reality:

This is a quote from the same blog:

For those of you not from the Great Northwest, Les Schwab is the bomb-dot-com for all things automotive. They don’t require an appointment, they come running out to greet you like you’ve just returned from a tour in ‘Nam, they have complimentary popcorn and espresso, and every year they give away a shit ton of free beef if you spend over $500. Free. Beef. There is so much majesty in those two words that I am in overwhelming awe. Oh, Les Schwab. . .you had me at rump roast.

Back to the book: He describes in great detail, how he was able to expand the business despite the fact that he had to deal with those tire producers which run their own tire centers and how he improved the business step by step.-

The special thing about this book is the fact that Les Schwab has written it without the help of an editor directly for his employees. What it lacks in “polish”, it makes up with very interesting insights from the unfiltered perspective of a succesful hands-on entrepreneur.

It is fascinating to see how Les Schwab thinks about motivation and management. On top, there are a lot of gems in the book. For instance why it makes a lot of sense to run one giant warehouse despite large distances. In one chapter, he describes how he was approached several times by Private Equity buyers. In a few lines he describes the private equity business better than I have ever read before.

From a “theoretical” perspective it is interesting to see that competitive advantages exist which are outside the “typical competitive” advantages (barrier to entry, size, network effects). Great management and employee motivation in combination can create a “moat” even in a business with low barriers to entry.

Summary:

All in all, I think this is an outstanding book for anyone remotely interested in how business are run or should be run. One of the best business books / Autobiographies that I had ever read. HIGHLY RECOMMENDED !!!!

For anyone interested, there is an interesting article about Les Schwab to be found here which was written in 1997, 10 years after he wrote his book.