#381: Charles Koch — CEO of Koch Industries
The Tim Ferriss Show
“When goods don't cross borders, soldiers will.” — Charles Koch, quoting Frédéric BastiatThis episode will no doubt surprise people, and my guest came to me through channels I wouldn't have expected.---Charles Koch received a bachelor’s degree in general engineering and two master’s degrees, in nuclear and chemical engineering, from the Massachusetts Institute of Technology. He is chairman of the board and CEO of Koch Industries Inc., a position he has held since 1967. He is renowned for growing Koch Industries from a company worth $21 million in the early 1960s to one with revenues estimated as high as $110 billion by Forbes. It’s one of the largest privately held companies in the world, and by revenue, it’s larger than both Boeing and Disney. He has transformed the business into a diverse group of companies that employ nearly 130,000 people—making everything from Dixie cups to components in your cell phone. Charles credits the success of Koch Industries to applying proven principles of social and scientific progress, which led to the development and implementation of his Market-Based Management® (MBM®) business philosophy. He describes MBM and its applications in two of his books, The Science of Success and Good Profit.Charles is now using those principles in philanthropy, as the founder of Stand Together, to tackle some of the biggest challenges in the U.S. Stand Together is partnering with thousands of social entrepreneurs to help them improve their effectiveness and scale at tackling poverty, improving K-12 education, bringing justice to our criminal justice system, and more.This episode is brought to you by ExpressVPN. ExpressVPN is an app you run on your computer or mobile device that easily secures your Internet connection, hides your public IP address, and lets you bypass regional restrictions on content. ExpressVPN is consistently rated the fastest VPN service on the market, and it's incredibly simple to use. Just download the app, tap one button, and you're connected to a secure VPN server. Visit my special link ExpressVPN.com/TIM, and you'll get an extra three months of ExpressVPN protection for free!This episode is also brought to you by ShipStation. Do you sell stuff online? Then you know what a pain the shipping process is. ShipStation was created to make your life easier -- whether you're selling on eBay, Amazon, Shopify, or over 100 other popular selling channels. ShipStation lets you access all of your orders from one simple dashboard, it works with all of the major shipping carriers, locally and globally, including FedEx, UPS, and USPS. Tim Ferriss Show listeners get to try ShipStation free for 60 days by using promo code TIM. There's no risk and you can start your free trial without even entering your credit card info. Just visit ShipStation.com, click on the microphone at the top of the homepage, and type in TIM!
In this episode
- 06:01 - Who is Charles Koch?
- 09:10 - Why does Ferriss deliberately polarize his audience for this podcast episode?
- 11:41 - In Ferris’ opinion, who are the people that miss a lot of things?
- 13:39 - How did digging dandelions affect Charles?
- 20:21 - What was one piece of advice Charles’ father gave to his son?
- 22:51 - How do you switch from instant gratification to focusing on the long-term?
- 27:35 - How can people successfully live and work together?
- 29:52 - What is the first thing to do when constructing an idea?
- 31:02 - Why has the scientific community become so productive and innovative?
- 32:26 - What is considered to be “the kiss of death”?
- 39:48 - What are the two ways to create superior value?
- 41:55 - What are examples of bad profit?
- 45:14 - How do you handle comments that claim your company gives bad profit?
- 50:54 - Why is Koch Industries so successful?
- 55:00 - What are principles or lessons that have inspired Koch?
- 56:19 - What is the flaw in our education system?
- 01:00:48 - How do you get people to act on a problem?
- 01:02:50 - What has been the demise of so many companies?
- 01:04:32 - What are necessary requirements for a good partnership?
- 01:10:22 - How do we get policy changes?
- 01:12:40 - What happens when you encounter someone you disagree with?
- 01:19:50 - What inspired Koch to start Youth Entrepreneurs?
- 01:23:08 - What does Charles look for in the social entrepreneurs?
- 01:31:30 - Why doesn’t Koch like the word, “capitalism”?
- 01:33:37 - What are the two systems?
- 01:35:50 - What is Charles and his company working on to eliminate?
- 01:39:45 - Does Charles fund propaganda to confuse people about global warming ?
- 01:45:14 - Why does Charles work with social entrepreneurs?
- 01:46:47 - What are some worries that we need to pay attention to?
- 01:49:05 - Is there anything you would risk your personal fortune on?
- 01:51:18 - Where does Charles get his first name?
- 01:55:33 - Is “Koch” a Dutch pronunciation?
Smash Notes summary for this episode
Who is Charles Koch?
Charles Koch has received three engineering degrees. He is chairman of the board and CEO of Koch Industries Inc., which he has held the position since 1967. The company is one of the largest privately held companies in the world. By revenue, it’s larger than both Boeing and Disney. He has founded and built many organizations throughout his career.
Why does Ferriss deliberately polarize his audience for this podcast episode?
Ferriss believes that the more labels you apply to yourself, the stupider you become. You are also more prone to groupthink, which is incredibly dangerous. His role in this episode is not to get you to like or dislike Charles, but to pay attention to his thinking.
In Ferris’ opinion, who are the people that miss a lot of things?
Those who love Charles Koch miss a lot. He means those who have the most intense views about Charles and his company. Those who hate Charles Koch also miss a lot. Ferriss hopes that he can add some nuance and texture to this person who's evaluated in headlines. Also, he wants to encourage people to attack the problems, not the people.
How did digging dandelions affect Charles?
Charles states how his father loved to experiment with various things, and he had Charles dig up dandelions, roots and all. As Charles' jobs became more difficult, he learned the value of work. He realized that he needed to develop skills that other people would value or else he’d be shoveling and digging for the rest of his life.
What was one piece of advice Charles’ father gave to his son?
That, “I hope your first deal is a loser. Otherwise, you’ll think you’re a lot smarter than you are.” It seems as if his dad wanted to preservice Charles’ initiative and drive so the wealth wouldn't become a curse.
How do you switch from instant gratification to focusing on the long-term?
For Charles, he contributes to his father always giving his dirty jobs. He would put minimum effort into them, and at some point, he realized these jobs were a dead end for him. After receiving three engineering degrees, he grasped the concept of them, but not on how to apply them. When working in business, he found that the concepts came naturally to him.
How can people successfully live and work together?
Charles states that people can live and work together in peace and to their mutual advantage under generalized rules of conduct. These rules enable people to succeed whenever they are assisting one another, rather than undermining them.
What is the first thing to do when constructing an idea?
Find out what can go wrong. Think of the key drivers for the idea to lead to success. Then, find people to brainstorm ways that it can go wrong with each of the key drivers.
Why has the scientific community become so productive and innovative?
Koch says that it’s due to nobody being in charge. Things are decided by consensus, debate, and knowledge sharing. Innovations occur by taking various ideas and combining them into novel ways.
What is considered to be “the kiss of death”?
It’s when people have an idea or have learned something that they don’t want to share because they may not get credit for it is considered as the kiss of death. Koch’s company wants to encourage building knowledge networks and sharing.
What are the two ways to create superior value?
One component is to become the preferred partner for all your key constituencies, which include customers, employees, suppliers, and society as a whole. The second component is to continually transform yourself. You will become obsolete if you don’t continuously transform.
What are examples of bad profit?
Bad profit is finding ways to cheat your customers, misrepresent what you’re doing, and rig the system, and many other ways to hurt customers and your business altogether. Koch states that good profit is to produce products and services that customers will value more than their best alternatives.
How do you handle comments that claim your company gives bad profit?
You can’t avoid it. Charles asks the question, what is a company doing if their goal is to provide bad profit? It does not benefit society or the company to have bad profit. Businesses are supposed to improve people’s lives, not make them worse.
Why is Koch Industries so successful?
The question is always, will this enable to fulfill our obligation as a business? The principles of human flourishing, the capabilities to create value, and the ability to transform in order to contribute are the values the company upholds to remain successful.
What are principles or lessons that have inspired Koch?
Koch states that there is a big difference between personal knowledge and conceptual knowledge. Another principle is division of labor by comparative advantage. Creative destruction is when you don’t want to be a pretentious and protective in your own shop. Self-actualization is another concept, which is a state where the selfish and unselfish merge.
What is the flaw in our education system?
It’s not education, but it’s schooling: teach to test. Real education should be three dimensional instead of one. The three dimensions are: discover your gifts and aptitudes, do whatever you can to follow develop those, then learn how to apply them. When people utilize their potential, it moves society.
How do you get people to act on a problem?
People will only act if the action satisfies three requirements: you become dissatisfied with your current state, you have a better vision of your current state, and you have a path to get there.
What has been the demise of so many companies?
Some of the principles are neglected because they don’t fit a company’s priority. Also, it’s when companies are short-term oriented rather than long-term, which is why a great majority of top companies have declined.
What are necessary requirements for a good partnership?
Successful and good partnerships require a shared vision, shared values, and those who have complementary capabilities.
How do we get policy changes?
Charles says that we need to mobilize the people who are interested in them and help them have a voice. The next was to get politicians that wanted to help the country in the long-term, rather than focus on getting re-elected.
What happens when you encounter someone you disagree with?
Instead of being hostile toward them, find something you disagree on, or fight and attack them, search for something you both can work together on to contribute and help people improve their lives. This creates an unexpected ally.
What inspired Koch to start Youth Entrepreneurs?
Charles and his wife started the organization 28 years ago in Wichita. They were inspired to meet so many kids that had abilities, but had received terrible advice and grew up in poor upbringings. The Kochs wanted to teach these kids about principle entrepreneurship by offering a three dimensional education where they could change their mindsets with support from the Kochs.
What does Charles look for in the social entrepreneurs?
He looks for which social entrepreneurs that his company can help scale and capture natural imagination, which can cause change in the way people think about topics. He uses the example of criminal justice reform.
Why doesn’t Koch like the word, “capitalism”?
Because the word assumes that what his company is after is a system where certain people have a lot of capital. His company is after a system where everyone has the opportunity to realize their potential, including those who start with nothing. He feels that businesses should only profit to the extent of them helping improve people’s lives.
What are the two systems?
We should decide if we want a system that empowers people or one that controls them. We should want to move toward the system that creates a mutual benefit.
What is Charles and his company working on to eliminate?
They are working on eliminating the aspects of all these injustices that are haunting the country. Charles says that people who are liberated and empowered succeed. He states that the world used to be utilitarian and people weren’t allowed to think differently, which stifled the progress. America was once the most successful country in the world, but some people had limited or partial rights.
Does Charles fund propaganda to confuse people about global warming ?
Charles says that he hopes not. He is dedicated to the scientific method and good science. What he is trying to do is get several open-minded groups together. He wants them to listen and join together in order to find policies that will do something about man-made emissions and prevent making people’s lives worse.
Why does Charles work with social entrepreneurs?
Because they tend to have good solutions, microsolutions. They have lived through problems and worked their way out of them. They know what works and are striving to improve every day. Charles says that this is the type of society that we need, one that enables people to pursue their interests in a mutually beneficial way that leads to peace and harmony.
What are some worries that we need to pay attention to?
Charles thinks that trade, immigration, and foreign policies should be paid closer attention to. He states that if goods don’t cross the borders, soldiers will.
Is there anything you would risk your personal fortune on?
Charles says that he’s investing in all of the liquidity he has in Stand Together.
Where does Charles get his first name?
His first and middle is is Charles de Ganahl. He is named after an entrepreneur that his father worked for. They became lifelong friends and admired one another.