I enjoyed listening to this old interview with the late Sir James Goldsmith, in which he shared some of his thoughts on business and success. He was a fascinating man with many interests and his website is a great resource for those interested in learning more about him. Some of my notes from the interview are included below (these are for personal reference only and any mistakes in transcription are mine).
Introduction: Sir James Goldsmith founded his first small company in France in 1953. He came to prominence in the 1960s, when he founded and built up Cavenham Foods into one of the biggest food conglomerates in the UK and Europe. In parallel, he founded Générale Occidentale, which grew into one of the biggest public companies in France. In the 1970s, and particularly in the 1980s, his field of operation switched to the US, first with Grand Union Supermarkets, and then with General Oriental, into his biggest success of all, with the acquisition of timberland, paper mills and associated factories.
On his greatest learning experience: that you learn by trying things. He started with a small business and, from there, went on to a larger business. Running a larger business is much more complex than running a smaller one. When he started the larger business, he had to attract good management, people who had been used to running big businesses as opposed to smaller ones. He pitched his ideas in a magazine called Cavenham News. In that magazine, he wrote down all of the ideas he had, including everything he firmly believed in terms of managing the company. That was the platform on which he was able to recruit a first class group of people. It turned out, however, that every single idea was wrong, almost without exception. So what happened was that as you tested the ideas, if you have a sense of survival, you changed them if they turned out to be wrong.
On theory vs. practice: the most important lesson from above is why people in business schools, or in any kind of school, are structurally bound to be wrong. Because if he had been teaching as opposed to running a business, he would have come in with a certain set of ideas. And he was sufficiently persuasive to be able to get good people to adopt those ideas and, when it turned out all the ideas were wrong, they changed them. If he had been a teacher in a business school, he would have stuck to the ideas, teaching total nonsense all his life. Therefore, he is completely satisfied in his own mind that you can only have someone who knows anything if they can mix both theory and practice, so that you are constantly testing your ideas in the marketplace, in real life, and then adapting your ideas as you go along. As far as he is concerned, the biggest handicap a person can have is to go to university.
On education: the old system of apprenticeship was perhaps the best. If you want to learn something, you learn from it in reality, you don’t learn from it in theory. It doesn’t mean you can’t add theory as a part of the curriculum. Theory is a necessary element, but theory on its own is thoroughly misleading and damaging. It has got to be tested. You should be learning theory but testing it constantly, as one used to do in an apprenticeship. Unfortunately, practice is nowadays is considered less noble than theory and therefore you are supposed to go to university and listen to theory. You listen to absolute tripe and then it takes 10-15 years to get rid of it, if you ever do, it’s like a hideous virus.
On what he looks for in hiring: when you are running a small business, you run every aspect yourself. He designed the products, the packaging, the advertising, handled sales etc. You are looking for assistance in a small business because it is a total hands-on operation. As the company grows bigger, however, you can no longer can do that and you have to delegate. So it is a great transformation from wanting to do everything yourself to being able to trust people and delegate to them without abandoning control of the strategy. You are delegating the execution of the strategy. You are no longer looking for people who can assist you, you are looking for people who can do things on their own, who can assume responsibility and who are willing to participate in determining a strategy. So you are looking for quite different qualities when you go from a smaller business to a larger one.
On recruiting: again, there is theory, then there is an impression, and then there is practice. Theory is what you look at on paper, when someone sends in a CV. Then there is the person you meet and that is a judgement, which is really based on instinct, no more. Finally, there is the practice when the person is in action, you have to see how he or she reacts. But if you start with theory, he wanted people who had made it on their own, preferred that they had no family background or great privilege. He also preferred people who hadn’t been polluted by theoretical education. On the whole, he took people who left school at 16-17, made it on their own, fought their way up and had proven themselves in this way. Those were the most successful people who worked in his companies. Once he picked them, he would then have to see intuitively whether they would be good and then they would be tried. In terms of the best way to motivate people, it is to make them capitalists. The people who have run his businesses have always had a significant stake of ownership. That has been wonderful for them and for the businesses.
On identifying the right businesses: it really depends, as everyone has their particular set of skills. The businesses he has been successful with have been relatively simple businesses. Supermarkets and food, for example, which he was in for 30 years. And while one can think of them as simple, they are in fact a huge task. They had a workforce of about 60,000 people and they are businesses which have a vast number of products to be sold. They succeeded by creating a new formula. In the US in the late 1970s, supermarkets were seen almost as a utility. They were a conduit of distribution, no great imagination had to be used as to the products to be sold there. You had television sets being sold next to tuna fish because they were alphabetically correct in that order. There was also no concept of quality. If you have a Campbell’s Soup can, it is the manufacturer who guarantees the quality, not the retailer. The result was you had totally disembodied stores and it was a terrible experience. Whereas, if you look at a healthy community, the center is a marketplace. Go throughout the world and, wherever you see healthy communities, the marketplace occupies a central spot. So he took the executives of Grand Union with him and they visited tribal marketplaces in Central America, Indian bazaars as well as other marketplaces through the Far East and Europe. They decided to convert their stores into marketplaces, bringing in bakers, butchers, fishmongers, green grocers etc. These were all things that had disappeared behind plastic packs, cans and frozen foods. They had to reteach and train everyone in creating this new formula and in the first year, they promptly lost US$100m. Eventually, however, it turned around and became a huge success. It was converting an old formula and it worked not just in LA, New York but right down to the American provincial towns.
On luck, timing and fear: all are necessary elements for success in business. Strip away any one and you are in real trouble. Take timing, with his previous example of the supermarkets. Their timing happened to coincide with a social need in America where people become more aware of food. Food went from sustenance to a leisure activity, something to be enjoyed. If they had done the same thing ~10 years before, they would have failed. And if they did the same thing ~10 years later, they would have been too late. So timing is extremely important. That is also true in the financial markets. If you take on debt at the wrong time and interest rates go up, you get into trouble. Timing is a mixture of experience and intuition. But experience is probably the single most important ingredient.
On risk: you have to take risk, but you have also got to be able to work through it. There are no shortcuts in terms of the amount of work or worry you have to put into it. But some people become addicted to risk. Gamblers, for example. A lot of businessmen also get a thrill by being overextended. He personally hates risk. He is willing to take risk for a particular purpose and for a particular period of time. But once he is at risk, he wants to get out of risk as soon as possible.
On gambling and business: if you cast aside the sick, psychopathic gambler and just take a person who is a gambler, he has some advantages in business. If there is one thing that a gambler learns, it is that luck goes in streaks. All of a sudden, the light goes on and everything goes well. And then, all of a sudden, it turns off like an electricity switch and you can’t get a thing right, you are stumbling around in the dark. A good gambler presses his luck and, when it turns, he feels it and goes home. The best gamblers he has ever met are those who press their luck and cut out and go home when they are unlucky. Human nature often urges you to do the opposite.
On good vs bad managers: there is nothing more destructive or dangerous than a really good, efficient, hardworking, dedicated and effective person going in the wrong direction. They will destroy you with incredible speed. If someone is going in the wrong direction (in other words, they are pursuing the wrong strategy), what you want is an idle, slothful wastrel who does nothing and is wholly ineffective. At least they won’t go too far and damage too much. That is why usually inactive governments are the best. Insofar as business is concerned, if you have a really effective manager going in the right direction, that means many things – namely, being able to identify the objectives, being able to delegate, being able to motivate the people working for them, being able to control them without taking away their sense of responsibility, giving them a sense of pride in terms of what they are doing and trying to achieve etc.
On management as a pyramid: in terms of responsibility, it’s an inverse pyramid. The person on the factory line packaging the product is interested in packaging that product. The foreman is interested in keeping the production line efficient. The person above them will be thinking of the factory. The person above that will be thinking about industrial processes, capital investment etc. So you need to laser beam as you go down, like an inverse pyramid. The people at the top should not be intervening in day to day matters. They should be thinking strategically – where do we want to go, what are we doing, why are we doing it. People often don’t ask themselves the very obvious and fundamental questions. As you go up, and the area of responsibility is broader, that person has to be more strategic and must avoid getting tied up in daily tasks that prevent him from doing his task, which is being strategic. As people get promoted, they have to be able to extend their vision and learn how to delegate. You become more strategic, less tactical.
On spotting trends: if you can see a bandwagon, it is too late to get on it. Take the financial markets. If you speak to 10 investment managers, and 9 or 10 of them are optimistic, then it means they are all invested. So there is no further room to go – no tide or impetus to push things further. But, if you now phone 10 investment managers and you find unanimity amongst them that the market is going to hell, you know they have pulled out of the market and have cash. The slightest turn and you have a huge flood of money coming in, as was the case in 1982. So there is a structural reason why, if you can find quasi-unanimity in the stock market, you can do the opposite and be almost certain of success.
On economic Darwinism: success is a phase. No one is going to succeed forever, for the very simple reason that with success comes the seeds of destruction, by the very fact that people get satisfied, they get older, no longer have the same ambition etc. So automatically there are cycles in individuals, families, companies, communities and nations. It is part of life. If you look at the supposedly great commercial empires, many of the companies have already disappeared. Business isn’t supposed to be a monument, it is supposed to be a living thing, groping for the future and trying to move forward.
On the conflict of interest between shareholders and management: a shareholder wants value, he wants to see the business grow in value. In other words, he invests for profit. The manager, if he has no shares, quite often manages for size and not for value. This is because if he can create a vast empire, he gets the trappings of an emperor. He gets private planes, cars, assistants etc. and is treated by the community with great importance. As far as he is concerned, size is more important than value. Shareholders who are intelligent will motivate management by making them owners, so as to align interests. If they don’t, however, companies can grow for no logical reason other than to satisfy the ego of management.
On ambition: he recalls when Lord Beaverbrook hosted a dinner for his 85th birthday. He hobbled in and made a speech saying all his life “[he has] been an apprentice.” First he was at school, then he was an apprentice businessman, then he was an apprentice journalist and then an apprentice politician. Then, before he left the room, he said now “it is time for me to become an apprentice once more.” And he died a few weeks later. What a wise thing. You should be constantly finding new things to learn and do. The Chinese have a saying, those who the gods hate, they satisfy their ambitions. Which means you have to keep finding new ambitions, there can be nothing worse than the person whose ambitions have been satisfied.