December 28, 2023 • 44 mins
Brad Jacobs has founded multiple multi-billion dollar companies in his career. He turned United Waste into part of a major trash collection conglomerate. United Rentals has been a massive winner in equipment rental for the construction industry. And XPO Logistics (which has spun out GXO and RXO) is a freight behemoth. Now, he's planning on doing it again. His new company, QXO, wants to be a billion-dollar player in the area of building products distribution. On this episode, we speak to Jacobs — who is the author of the new book, How To Make A Few Billion Dollars — about why he chose to go into this industry, his philosophy of building businesses, and how he plans to win in this space.
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Speaker 1 (00:10):
Hello, and welcome to another episode of the Odd Lots podcast.
Speaker 2 (00:15):
I'm Joe Wisenthal and I'm Tracy Alloway.
Speaker 1 (00:17):
Tracy Obviously, over the last few years we've done tons
of episodes about freight logistics, trucking, warehousing, etc. And one
of the things that has always struck me is just,
you know, all of this crucial stuff, how sort of
chaotic and help together with tape and glue. These industries
(00:39):
often seem.
Speaker 2 (00:39):
To me, Can I tell you something. My husband and
I are rebuilding the shed in Connecticut and just getting
the lumber for the shed. Is this massive production that
involves us like renting a truck and having to like
negotiate it from some lumberyard and then like bring it
back and forth piece by piece. The industry of all
the movement of these physical goods and products, it seems
(01:03):
so difficult at times, and it also seems sort of
ripe for opportunity. But then you also hear stuff like
Convoy going out of business, right, the freight broker that
was supposed to be using new technology to revolutionize trucking
and things like that, And so I don't know, there's
like this tension between moving physical products and then using
tech to make the whole space more efficient totally.
Speaker 1 (01:26):
It's one of these areas where it seems like, oh, yeah,
there must be more simple. Like I remember one of
our first sort of eye opening episodes with Stinson Deane
talk about how lumber is distributed and so much of
these communications just on sort of message boards or boards
that might resemble Craigslist. And then you know, we've talked
about it with Craig Fuller and Rachel Kremac and freight
waves and the idea that you know, you look at
(01:47):
how trucking brokerage works, these load boards and this is
all this crucial stuff that's sort of at the center
of how the economy works. And it's like they're in
WhatsApp groups. Yes, anyone can anyone pick up a load
in Akron and bring it to El Paso next week,
and this is how it all works.
Speaker 2 (02:05):
It seems so informal, and then of course it leads
to these inefficiencies like trucks running around empty basically what's
it called dead heading? Basically yeah, yeah, and things like that,
And I guess the question is, like, what is the
sticking point here? Is there something like fundamental about moving
physical goods? That is, I guess, resistant to new technology,
(02:25):
or is there maybe something about the industry where you
know people are making while they were people are making
lots of money from lack of transparency in the industry,
and so they themselves are resistant to new technology. It
kind of reminds me of the bond market sometimes and.
Speaker 1 (02:40):
Stocks absolutely tracy. It sounds like, given the headaches you've
had with your new shed, that you could really use
some efficiency gains in the world of building products distribution,
could you.
Speaker 2 (02:52):
Not, Yes, especially since I keep messing up the ridgeboard
on the roof. I can't get it straight, and then
every time I mess it up, we have to go
and get more lumber. So yes, yes, please.
Speaker 1 (03:04):
Well, we do literally have the perfect guest, someone whose
career I think almost is so odd. Lotsye, in all
of the topics that we discuss. Over the years, he
has started, depending on how you count, between five and
seven companies, started an oil brokerage, the founder of United
Waste Systems, which rolled up waste collection companies sold to
(03:27):
Waste Management, United Rentals, and then the creator of the
logistics conglomerate XPO, which also spun off a freight brokerage,
A logistics company, et cetera. We are speaking, obviously to
Brad Jacobs, who just a few days before this recording
announced the creation of a new company called QXO, which
(03:48):
intends to be a market leader in the space of
building products distribution. He plans to make billions of dollars,
and he's the author of a new book, how to
make a few billion dollars.
Speaker 2 (03:58):
I like how in the press least for the new
company in qx so he basically says he aims to
make billions of dollars. So it connects very well with
the book.
Speaker 1 (04:07):
Well, he has a track record of making billions of dollars.
I would love to make billions of dollars. So maybe
we'll learn something. Brad, Thank you so much for coming
on out laws.
Speaker 3 (04:16):
The pleasure's mind.
Speaker 4 (04:17):
Look, some people think in millions, some people think in trillions.
Speaker 3 (04:20):
I think of billions.
Speaker 1 (04:21):
That's it's a very very reasonable middle ground middle graund here.
So you say you're going to build a market leader
in building products distribution. There's a lot to get into,
but let's just start here. When you look at the
industry right now of building products distribution in the pre
QXO world, what does it look like to you. What
do you see when you look at that industry.
Speaker 4 (04:42):
Something that's really big. First of all, it's eight hundred
billion dollars between North America and Europe, so it's large,
and it's very fragmented. You've got seven thousand distributors here
in North America, you have thirteen thousand in Europe, so
that's a lot a lot of independent companies and a
handful of the companies it's mostly privately owned companies. I
(05:02):
see an industry that's growing. It's been growing at seven
percent compounded annual growth on the top line for the
last five years. I see an industry that is rich
with acquisition targets, so it's an opportunity to scale up.
And I also see an industry that could use more technology.
There's a handful of companies doing some cool things in technology,
(05:23):
but by and large, the industry as a whole is
behind where logistics is. It's not where the logistics industry is.
Speaker 2 (05:30):
This is exactly what I wanted to talk to you about.
So in the press release you say I think tech
enabled company or something like that. What does that mean
exactly in this context? What is the technological opportunity that
you see here.
Speaker 4 (05:44):
It's a few things. Number one, it's how you interact
with the customer. And right now mid single digits percent
is done over digitally and ninety something percent is done
face to face, and that really should be reversed eventually,
over time, not right away. You should see more and
more penetration of digital on that. So that's number one
(06:06):
the e commerce penetration. Number two pricing. Pricing could be
more methodical, could be done electronically, could be done by AI,
could be done by machine learning, and be interactive and continuous.
And thirdly, the inventory, so this is a business has
a big transportation logistics element to it because you're buying
(06:27):
a bunch of products wholesale, you're storing them in dcs,
and then you'll distribution side like warehouses fancy word for warehouses,
and then you're delivering them in delivery trucks to the
end user. So there's a lot of transportational logistics here.
And the dcs or warehouses that I visited so far
(06:48):
not a whole lot of automation, and there they should
be highly automated. Now handful of companies aren't doing automation,
but they're the exception, not the rule, and it really
should be the rule, because as we know from Jexo
Logistics where we have a couple hundred million square feet
of warehouses around the world, automation is where it's at,
that's where it's going, and that's what customers want. It
(07:08):
takes out costs and increase safety, it's faster, it's more accurate.
Speaker 3 (07:13):
There is a.
Speaker 4 (07:13):
Thousand reasons why automation makes perfect sense for the inventory part.
And then it's not just the picking and packing that
needs to be automated, it's the actual inventory management. So
these distributors have lots and lots of skews and getting
it just right of not having too much and then
tying up capital but not having too little and then
disappointing customers so you can fulfill their demand. This has
(07:36):
to get right. And GXO, for example, has had a
client Boeing for years and years and years. It went
back to a new breed before we bought them, and
they do the parts management for that all around the
world on a global basis, and that's done technologically. That's
done not by people fraging out.
Speaker 3 (07:54):
You know, I think we.
Speaker 4 (07:55):
Need this many parts of this year, and we need
that many parts there, it's doing it methodically, using lots
and lots of data and using algorithms to understand that
to get the inventory just right. And here in the
billing products distribution space, I think there's a big opportunity
to optimize the inventory management. And then the last component
of technology that excites me is basic route optimization, meaning
(08:18):
you've got delivery trucks and it's still being done the
way it was done in trucking like fifteen years ago.
For the most part. There's again there's exceptions to the
rules and find companies doing good stuff, but by and
large it's not optimized in a typical distribution company you
have right now, and I think we can bring that
to the table pretty quickly.
Speaker 2 (08:35):
So I have a billion questions already, not a million
or a trillion, just a billion. But just so we
understand the business. What part of the supply chain are
you actually targeting here?
Speaker 4 (08:46):
Is it the.
Speaker 2 (08:47):
Wholesalers who supply lumber yards or lumber yards that supply
builders or both.
Speaker 4 (08:52):
We're buying wholesale selling retail. But there's three different categories
and markets. There's residential, it's non residential, and it's infrastructure.
So residential is like you like your apartments, your houses.
People who need floors and windows and doors and roofing,
tile and so forth, HVAC. Then there's commercial. Commercial can
(09:14):
be any kind of building that's not a house.
Speaker 3 (09:15):
It could be a school, could be a church.
Speaker 4 (09:18):
It could be a factory, it could be a town hall.
It could be just anything that's not people living in
it but has a roof protecting from the elements. And
the third category would be infrastructure. So infrastructure is roads, bridges, tunnels,
all the pipes underneath the ground. And if you look
(09:39):
at these three sectors, one thing that excites me about
this is all categories there are old. Houses are over
forty years old. Commercial facilities are over fifty years old.
A lot of the infrastructure underneath America is over a
century old. I mean it really needs to be repaired
and lots of activity has to be done here. This
is an industry that's not going to go into the metaverse.
(10:03):
This is an industry that's not going to be disrupted
by AI. It's can be enabled by AI. And that
was important for me when I looked at five hundred
different opportunities, because quite a lot of them I have
serious questions about whether they'll still exist in five.
Speaker 3 (10:16):
Or ten years.
Speaker 1 (10:16):
Can I ask a question? So with the XPO and
that family of companies, I guess, why is QXO a
separate company that needs to be Okay, it's in building
supply distribution. If you have a freight company, if you
have a logistics company, if you have a freight broker.
Why can't your existing companies simply move deeper into this space?
(10:38):
Why is it important for it to be focused on
its own Because when you describe, you say, okay, well,
the transportation system is like where trucking was fifteen years ago,
and I want to we'll get into sort of this
date of trucking. Why is it not that existing logistics
related companies can just offer services to this industry.
Speaker 4 (10:58):
I mean, we couldn't be a real pure play focused company.
Speaker 3 (11:02):
So the XOS, the GXO, RXO, XPO, they're very focused.
Speaker 4 (11:07):
Now we divided the company up into three very carefully
designed units. You got GXO being supply chain, being warehouses
around the world. It's got a thousand warehouses and that's
all it does. Really, it really does warehouse warehouse warehousing.
It's an inch wide and a mile deep on warehousing
does it really, really, really well. And then you have
on RXO it's the asset light transportations, the tech enabled
(11:29):
brokerage model, and it also has the last mile delivering
right people's houses. And then thirdly you have XPO, which
is primarily an LTL carrier less than truckload carrier that's
mostly in North America. And we divided the company up
into those three categories because that's what our owners told us.
Speaker 3 (11:47):
That's what our shareholders told us. Our shareholders told us.
Speaker 4 (11:49):
Look, we don't want all these things altogether. We want
to have more defined pure plays that we can invest
in the industrial comeback and then we'll invest in XPO
for LTL or want to go more consumer, or we
want to go make a play on e commerce, which
we'll go more with with GXO. And that's worked really well.
I mean, we were getting a conglomerate discount for our multiple.
(12:09):
We were trading like eight times Ebada. Today those three
different companies trade at double digit multiples of Ibada, and
that in addition to improving the Ebadah, the multiple on
Ebadah improved too, so it made sense to split those up.
So I don't I think we would be going backwards
from a shareholder perspective if we if we started becoming
more multifaceted and blended distribution together with the xos.
Speaker 1 (12:48):
Let's talk a little bit more about your plans for QXO.
And so you mentioned it in the US there's seven
thousand companies and in Europe there's thirteen thousand, and you
know you're gonna hit their grown running have billions of revenues.
You're gonna buy up a bunch of companies and.
Speaker 3 (13:03):
Roll it up.
Speaker 1 (13:04):
My understanding, you know, going back to the United Waste
days and when you sort of started building that up,
it was acquiring different types of assets, so distribution but
also landfills, et cetera. You know, and I think when
people think about roll ups in the traditional Pe sense,
they're like, Oh, I'm gonna go out and I'm gonna
buy twenty you know, h VAC companies and we're gonna
(13:27):
unify their back end and take out some dead and
make them all leaner and operation and six sigma and
all that stuff. It feels like you're thinking much more
holistically in terms of buying different parts of the supply
chain to work together. Can you talk a little bit
about what assets you need to buy to make QXO work.
Speaker 3 (13:46):
So you mentioned it correctly.
Speaker 4 (13:47):
At United Waste, we bought landfills, we bought transfer stations,
we bought collection companies, and that became one integrated supply chain. Yeah,
and it worked really well because we took out a
lot of cost as of doing that. We had an
end to end solution for customers and they loved it,
and that's why our earnings compounded a fifty five percent
kager and not coincidentally, so did our stock price. So
(14:10):
I get that. So you have to create a company
that works for the customer, that the customer appreciates the
service that you're providing so they wire money from their
bank accounts to yours. So it's very very important to
do that here in QXO. In our building products distribution company,
we're going to stay very focused on distribution, meaning distributing
(14:34):
building materials to the three segments that I was just
talking about with Tracy in terms of residential, non residential,
and infrastructure. And I'm going to stay right on those
three things and I'm going to toggle between them depending
on opportunities as they arise. Attractive opportunities, We're going to
be opportunistic, and how we think the five to ten
year outlook looks for each one of those.
Speaker 2 (14:55):
So you mentioned infrastructure and just connecting this back to
the landfill business that we were just discussing. Reading your book,
one of the things you talk about is the reason
you were able to buy up landfills at that time
was partly because of new environmental regulations that made them
more costly for the existing owners to actually run, and
(15:16):
so a lot of people wanted to get rid of
their landfills. I guess, at reasonable prices and you snap
them up. When you talk about infrastructure spending, it seems
like part of your mo is maybe looking at what
the government is doing, what the government is spending its
money on, and taking that opportunity into account. How much
(15:37):
does that figure into your planning? And the other story
you tell in the book is at one point you
bought up a bunch of road rental companies in anticipation
of six hundred billion dollars of infrastructure funding, but that
didn't really work out. So I guess, like, how are
you evaluating the opportunity and the risk here?
Speaker 4 (15:55):
I'm not counting on government handouts, the government handouts or
the cherry on top. It's extra and it's great and
we'll take it. But that's not what the business plan
is based on. The business plan is based on that
the infrastructure is very aging and there's got to be
spent about two trillion dollars in order to fix it up.
Whether that happens at this pace or that pace, or
(16:15):
from this pocket or this pocket, it doesn't really matter.
It's going to have to happen. Because so you mentioned
you have a house in Connecticut, so you know what
I'm talking about. Driving from Connecticut to the city is
a bumpy ride. Says these things have to get fixed
and or later. And then on residential, you look at residential,
the average house is forty two years old. I mean
when I was a kid, it was ten years old.
That was an old house. So it's a lot of
(16:37):
repair and modeling is going to happen. There nothing to
do with the government, the governments. I don't think the
government's not going to pay Tracey Alloway to repair and
remodel your house.
Speaker 1 (16:46):
They might pair to install heat pumps, insulation and other
sort of you know, clean energy advances.
Speaker 4 (16:54):
Yeah, and there is one company, Watsco, who specializes in HVAC.
That's capitalizing on that and making it a ton of
money doing that. But I'm not counting on that. I'm
not building a business plan based on government large ass.
That's nice and it's an extra kicker, but that's.
Speaker 3 (17:07):
Not the guts of the business plan. You know.
Speaker 1 (17:09):
I mentioned in the beginning that one of the big
eye opening things is Tracy and I have learned more
about these industries is how load tech communication is, and
you know, freight brokerages where it's still based on phone
I think we heard right right, Maybe facts is still
or maybe in the last few years there's no more facts.
I'm not sure. These websites and WhatsApp groups that you
(17:31):
know super retro in building supply distribution. When you talk
about how load tech it still is, you know, let's
say Tracy works with some local provider of lumber or
whatever she needs, Like, what is the process by which
the current status quo these these goods are delivered to
a regional distribution center or to her house.
Speaker 4 (17:53):
So a couple things there. Let's start with the beginning
part of your question about truck brokerage. Truck brokerage is
not as old fuddy duddy as you may think it's
evolved quite a bit in the last ten years.
Speaker 3 (18:04):
Now.
Speaker 4 (18:04):
In twenty eleven, when I got into the truck brokerage business,
it was just as you described. It wasn't low tech,
it was no tech. It was one hundred percent people
talking on phones to each other and in very slow
book way. We didn't have factors. It was still email,
but it was not very machine to machine. Fast forward
to today, OURXO which was the truck brokerage spin off
(18:25):
of XPO that Drew Wicklinson runs that business. Now ninety
seven percent of their orders are either sourced or covered
electronically digitally, So that's come a long long way.
Speaker 3 (18:38):
Now. Rxo's at the forefront of that.
Speaker 4 (18:40):
It's been the leader of technology because we invested in
that right from the beginning.
Speaker 3 (18:43):
That was our vision.
Speaker 4 (18:44):
But even the whole industry, it's not ninety seven percent,
but it's over half. Over half now he's done electronically.
So that's brokerage. That's where brokerage has gone. Now. Distribution
is kind of where brokerage was ten years ago, maybe
eight years ago, because there are, like I said, there
are a handful of companies are starting to do this digitally,
but overall, it's an industry. It's still single digits percent,
so it's going to penetrate much much more than that.
(19:06):
There's so many things depending on the type of product
we're talking about that it should just be ordered on
your phone or on your website. You should not have
to go somewhere and stand in line.
Speaker 3 (19:16):
It's not necessary.
Speaker 2 (19:17):
What are the sticking points to technology adoption in distribution?
Because I imagine, you know, if you went to a
company and you said, I can make your inventory management
a lot more efficient using technology, it seems like a
slam dunk for them. Maybe it costs a lot of
money and that's the issue. Maybe on pricing, if you
say I can make your pricing a lot more transparent,
(19:38):
maybe there's less of an incentive for them to improve that.
But like, what are the major hurdles that you see here?
Speaker 4 (19:45):
It's really just doing it. It's a question of companies
putting money there. This is a very low capex business,
very very low capex. The conversion from EBIDATA free cash
flow is enormous. In some companies, the cashual is more
than an income, so there's very little investment in capex.
I don't mind investing in CAPEX for technology. In fact,
(20:06):
I want to and I will because that was the
big driving force of our success at XPO, was being
ahead of the curve on technology. So we're definitely going
to do that there, and that's all that's required.
Speaker 3 (20:17):
Now.
Speaker 4 (20:17):
You have a lot of companies that are private equity
owned private equity because of their structure, their nature, and
they have to give them money back to their investors
after seven or so years. Sometimes it doesn't make sense
for them to invest hundreds of millions of dollars into
technology because they're gonna be flipping it, so why should
they do that? I get that, And sometimes companies have
a lot of pressure on short term earnings the quarter
(20:40):
of the year and they don't have an investor base
that's got a long term view of So my investors
always have been the ones looking for the big kill.
We're not looking for just like two hundred basis points
more than.
Speaker 3 (20:50):
We're in the market.
Speaker 4 (20:51):
We're looking for big, big, big returns. So XPO is
thirty two X and rentals today is more than one
hundred xs of.
Speaker 2 (20:58):
One hundred bagger, pretty one hundred.
Speaker 4 (21:00):
Plus bagger actually, And that's the kind of investors that
invest in me ones that want big, big returns and
are patient money that can hold a stock for a
few years and make a big bet on that. And
those kind of investors totally get it that you've got
to invest in technology in order to have the J curve,
so that in years three, four five, you're a category
(21:22):
killer and you have a big competitive advantage against companies
who haven't been investing in technology. So I'm definitely going
to invest significantly in technology.
Speaker 1 (21:31):
The United Rentals chart is absolutely insane. There's a four
dollars stock in two thousand and nine. It looks like
it's basically an all time high right now, but over
five close, So extremely well done on that.
Speaker 4 (21:43):
You know, well, I can't take full critical because I've
been gone for a while.
Speaker 1 (21:46):
But your original investors, the ones that just help buy
and hold, very pleased with you. I'm sure I'm freight brokerage, though,
I will. You know, I want to. I want to
get back to that because you know, I know there's
like different models and you mentioned that. Okay, it's way
more digital than it used to be. But on the
other hand, there are still big basically freight trading floors
(22:08):
or things that resemble a trading floor. And I went
to the headquarters of a Arrived Logistics in Austin, Texas,
and there's a lot of you know, and we talked
to their CEO, and you know, there's a lot of
X Big ten or Big twelve or sec athletes working
the phones. In those places. It looks like kind of
a stock brokerage. And the one side of the room
(22:30):
they're talking to shippers and the other side they're talking
to carriers, et cetera. Like there's still a lot of
humans involved in the process of freight brokerage.
Speaker 3 (22:39):
And then when.
Speaker 1 (22:39):
People think, it's like, oh, why can't we just have Uber?
And Uber of course also is a freight business. And
then Tracy mentioned Convoy, which I think was going to
try and uberize the industry and it recently failed, didn't.
I recently had to sell for basically nothing. Is my understanding,
why are there still so many humans involved in the
business of connecting shippers and carriers.
Speaker 4 (23:02):
There's fewer number of humans now per revenue, per dollars
per shipment than there were two years ago, and five
years ago and ten years ago, and that's the trend.
I bought a company called NLM from land Start back
in must have been twenty fourteen or so, and it
specialized in freight brokers, mostly for the automobile industry, but
(23:23):
other industries too that had expedited requirements, like they needed
like a factory floor was going to close down unless
they had a machine or a part, and they needed
it like in two hours, like right away, and they
were willing to pay premium prices for that because the
cost of not getting it was really quickly. This business
blew my mind because I went.
Speaker 3 (23:41):
Out to go and visit it.
Speaker 4 (23:42):
It was moving over billion dollars for fready a year,
a pretty sizable firm.
Speaker 3 (23:47):
And it was totally quiet.
Speaker 4 (23:49):
They were like a few dozen people there and they
were basically taking care of the computers.
Speaker 3 (23:55):
And there was none of what you just described.
Speaker 4 (23:56):
There was no It wasn't like the old fashioned New
York's docking steeing trading floor from trading places thirty years ago.
It was very automated. And I said, this is the
future of brokerage. This is where brokerage is going, where
it's more machine to machine and automatic, automated tech driven
tech forward, not dependent on human beings. Now, there still
(24:17):
is a role for human beings in in almost any
business because of human relationships, and that's important, but the
actual transactions, increasingly in almost every industry and including truck brokerage,
should be done digitally.
Speaker 1 (24:30):
That's what they're not right now, right. I mean, there's
a lot of email and they say like, hey, we
need this in North Carolina, and I mean I see
it all the time, or I mean it may be digital,
but it's email and a human reading the email XO.
Speaker 4 (24:42):
Ninety seven percent of the shipments are either covered or
sourced digitally, and they are growing at three times the
industry average. And that's why they're growing at three times
the industry averages because it's tech power. It's done by technology,
not by us mere mortals.
Speaker 2 (25:12):
How much does pricing power matter, for instance, in the
new distribution business that you're starting, Like, how much of
the strategy depends on consolidating and then being able to
get pricing power in the market. And the reason I
ask is because if you look at something like freight brokerage,
I mean one of the criticisms of that market was
(25:33):
a lot of people lowered their prices in order to
get market share, so get people using their apps or whatever.
And then when they started raising prices in order to
actually make money. People just switched platforms right like. It
was very easy to switch. So I guess how do
you manage those things? You know, the scale and the
pricing power in.
Speaker 4 (25:52):
Building products distribution. The business plan is not to raise
prices to the end customer. However, the business plan is
to low are a cost of sourcing of procurement. And
that's not a difficult thing because as you get bigger
and scale up, you're a bigger buyer, you're a bigger customer,
and you had a better break. A lot of these
(26:12):
products are sold on a rate card. Basically, it's not
much negotiated. It's a rate card. If you buy this price,
this amount, this is what your price is. You buy
a larger amount, you get a lower price. You buy
an even larger amount, you get an even lower amount.
And that's part of the business model, is to scale
up and get the procurement savings and then to actually
pass along some of that to the end user and
(26:33):
keep some of that for ourselves.
Speaker 1 (26:35):
How big do you have to get then, so again
going back to your ambition to be a multi billion
dollar company in Europe and the US, and to have
that sort of power to get good prices from the
original list sellers, Like, how much do you have to
buy in order to get the scale that you want
to sort of hit the trajectory you're aiming for.
Speaker 3 (26:54):
We're going to buy. We're also going to grow.
Speaker 4 (26:56):
So the industry is growing at seven percent, so I
would hope to go more than the industry orically, but
you're right, the main growth is going to come from
M and A. And we've already put out revenue targets.
We should be at a billion dollar at least a
billion dollars revenue run rate after year one the end
of year one, we should be at least five billion
dollars revenue run rate after.
Speaker 3 (27:16):
Two or three years.
Speaker 4 (27:18):
And my vision is to be at tens of billions
of dollars in revenue over the next decade. And I
see a very clear path to do those numbers.
Speaker 2 (27:25):
So Joe and I both read your book How to
Make a Few Billion Dollars, and I enjoyed it, and
I have to say, it's not what I was expecting.
I was expecting a biography, but like, actually it's sort
of conceptual in many ways. So at the very end,
for instance, you have a list of thought experiments, including
one that's very similar to imagine yourself as a banana,
(27:46):
or imagine that you're related to a banana. Human DNA
is fifty percent related to banana DNA, right, Like, what
inspired that direction in the book, because again, it seems
kind of unusual. You don't get many billionaires writing, you know,
lists of thought experiments, and there's also a timeline of
technology advancement.
Speaker 4 (28:05):
Okay, so let's start with the thought experiments. The purpose
of the book, as you can tell from the title,
is how to make a few billion dollars. And in
my experience, I've met so many very successful people, many
people who are much more successful than I am, and
they're very different from each other in many many different ways,
(28:26):
and they're identical in one trait. They think differently than
most people do. And I think that's a big insight
that if you want to create something big, something amazing,
something very successful, and it doesn't have to be just
making money, by the way, making money is just one
thing in life. But if you want to accomplish anything huge
(28:47):
in life or in business, you got to figure out
a way to think differently, because if you think the
same way everyone else thinks you're going to get the
same results that everyone gets, which is like the average results.
If you want super average results, you need to think differently.
And I've made it my discipline, my hobby, my passion,
my pastime to think differently and use different techniques of
(29:10):
self hypnosis and meditation and cognitive therapy and mindfulness and
thought experiments. And I come up with all these things.
I mix and match all these different schools of consciousness,
so to speak, and I come up with my own thing.
And it helps me get out of my little way
of thinking, and it helps me think in a more
unbounded way, and that helps me think big and move fast,
(29:33):
which is the mantra of making a lot of money
in business.
Speaker 2 (29:37):
So, speaking of thinking differently, there was one part of
your book where you talk about doing due diligence on companies.
And you've spoken about this a lot before. You do
a lot of research before you make these decisions. But
you also mentioned that you have been working or have
worked with a guy who was a twenty five year
investigator and polygraph examiner for the CIA. So you have
(30:00):
him interviewing the executives of companies that you're going to
take over.
Speaker 4 (30:05):
Absolutely and so we could have a whole podcast just
on Philly. He is the world's expert in detecting deception,
so yes, he was, come on, I think he'll do it.
I think he'll do it. He's actually written two books
on it, and it's right out. There's right there and
(30:26):
how to Spy the Lie and I Find the Truth.
I think the other want to get the truth? And
very interesting books. So he was a polygrapher. He was
the most senior polygrapher in the CIA, and everyone in
the CIA has to get wired up every year make
sure they're not a spy. And he learned that you
asked the question, which is the stimulus, and then there
(30:47):
was a response. Now the polygraphy measures your galvanic skin response,
your stress response, your heartbeat, your sweating, and so forth.
He also noticed that there were other things besides that.
There was body language, There was language. Language was the
language that people used in order to answer a question.
There were clusters of traits that were the hallmarks of deception.
(31:10):
And he created a whole method of detecting deception and
it's a very disarming technique. A great conversationalist.
Speaker 3 (31:20):
You would never think he's not.
Speaker 4 (31:21):
A difficult guy or an interrogate or anything like that.
And I've studied him very carefully, and I've worked with
him for oh decade and a half.
Speaker 3 (31:29):
Now I'm still not as good as he is on that, but.
Speaker 4 (31:31):
I've studied how to detect deception, and so is my
senior management team. They've all taken his courses. They've all
taken his training, and we find it so beneficial. We
find it beneficial in due diligence on companies because guess what,
sometimes people don't tell you the truth when they're selling
their companies. They exagger a little bit. And guess what
in job interviews, we're interviewing people. You know, people sometimes
(31:53):
spend they don't tell you the straight story. And if
you can figure out what's blogny and what's true, wow,
you can save a lot of aggravation and a lot
of money and a lot of you can avoid a
lot of mistakes. So I do believe that learning the
art and science of detecting deception, and and we've used
Phil Houston, he goes his nickname is Dick to Houston
(32:15):
to do that.
Speaker 3 (32:15):
To teach us. That's really helped us a huge amount.
Speaker 1 (32:19):
So all of these industries that you've worked in, Like
I don't know if it was always the case, but
these days there's something like I guess I would say
sexy about a lot of these sort of you know,
like I see people on Twitter like talking about like.
Speaker 2 (32:32):
Self high chain so hard, no, like for real, like.
Speaker 1 (32:34):
Self storage, or I want to buy up h vacs
and you hear stories about x ex Wharton MBAs and
the first thing they want to do is get some
friends together and roll up in the local pool management
company or hvac or whatever, or you know, a chain
of laundromat to whatever. These physical things that exist in
the world that aren't going to disappear or go anywhere.
You spent a year figuring out which industry you'd attack next,
(32:57):
building products distribution? Is there a system for identifying industries
or types of companies that you use to go after next.
Speaker 4 (33:07):
I have a system, and I read about it in
the book I put the process that I use in
order to study an industry and in order to study
a specific company, and to make a long story short.
Speaker 3 (33:17):
I get a lot of the.
Speaker 4 (33:19):
Important information and I don't waste time on the unimportant information.
And I've been doing this long enough I know what's
important what's not important. And we do a lot of
diligence online before we even meet people, and then we
try to use the time of the people we're talking
to very politely, very judicially, so we're not wasting their
time and asking them things that we can find out
from other sources. But we want to know all the
(33:41):
important stuff. And when we're looking at an industry, we're
looking at a company, what are we trying to figure out?
Speaker 3 (33:46):
At core?
Speaker 4 (33:47):
We're trying to figure out whether it's an industry or
a company fast forward five years, seven years, ten years,
what's the revenue going to be, what's the profit going
to be? And what's the cash flow whether it's inflows
or outflows over that period of time. All the hundreds
of other questions that we're using for due diligence are
all important, but they distill down to those three questions,
(34:10):
how do I figure out over the next half a decade, decade,
what's the revenue going to grow, what's the profit going
to grow? And how much cash is it going to
generate or use up? And in the end, it comes
down to how much money would we put in and
how much money would we get back, and it's no
more complicated than that. And if you stick to that
(34:30):
basic concept that I just mentioned, you will make a
lot of money, you will create alpha. If you deviate
from that, if you don't pay attention to that, you say, well, yeah,
the return on capital's not so great, but no, there's
no butt. You're gonna have a finite amount of money
and then five ten years later you're going to have
created a revenue stream and a profit stream, and you'll
(34:51):
have generating cash flow between now and then.
Speaker 3 (34:53):
That's gonna determine.
Speaker 4 (34:54):
What your stock price is and how valuable your company is,
and all the due diligence ends up being about that.
Speaker 2 (35:00):
You do seem to have a connection with the physical space, though,
which I mean Joe and I clearly.
Speaker 4 (35:07):
Share, and I take issue that it's not sexy.
Speaker 2 (35:09):
Oh no, we agree.
Speaker 1 (35:11):
We agree. That's why we spent the last three years
talking about.
Speaker 3 (35:14):
Yes.
Speaker 2 (35:14):
And the other thing I was going to say is,
when I first went into financial journalism, I wanted to
be a commodities correspondent because there was like a romanticism
with this idea of like moving large amounts of stuff
around the world. So I guess my question is what
is the attraction there, Like, is there something innate about
the physical space that attracts you to it, or is
(35:35):
it more about the market opportunity. You mentioned this earlier,
the idea that you know, like people are always going
to have to move things. This isn't a business that
is going to disappear overnight.
Speaker 4 (35:46):
It's more opportunistic than conceptual and abstracts, more concrete. It's
here are industries that my playbook, the Brad Jacob's Playbook,
is applicable. And that playbook involves a lot of M
and A and a lot of and a lot of
optimization of what we buy, and those techniques apply to
(36:06):
the industries I've been in some of the industries that's
really not the play that's not fragmented enough. You really
can't buy enough. Bigger isn't necessarily better. Maybe the long
term trend is not so so fantastic. So I looked
into many, many, many other things, but I dismissed them
because they didn't check all the boxes. That's one happened
to check all the boxes. But I looked at many
other things. I looked at many other industries that well,
(36:28):
I looked at I spent a lot of time going.
Speaker 3 (36:29):
Back to my roots.
Speaker 4 (36:30):
As you probably know, my first ten years in business
were in energy, was in oil and gas. So I
spent a lot of time down in Texas looking at
oil and gas properties. And there are some really cheap
properties for sale and like two or three times cash flow,
and they have twenty thirty year lives, so you can
get your money back in a couple of years for years,
and then you have just pure profit year after year
(36:50):
after year for a long long time. So I got
really excited about that. As a generally, I'm a value person,
so I said, Wow, this is really really deep value.
Speaker 3 (36:59):
But I I.
Speaker 4 (37:00):
Talked to the seventeen or so sovereign wealth funds and
pension plans that have invested in XPO in the past,
we have a great relationship with, and almost all of
them said, hey, I get it, but we're not going
to invest in that. And because ESG and because the
oil and gas business went through a bad patch there
for a while. But I like going industries that have
(37:22):
gone through a bad patch and get better values there.
But I couldn't see a way that I could raise
many billions of dollars to finance energy. In fact, I
even read in the lobby waiting to come up here
in Bloomberg, I saw a new fund is being raised
by a couple of guys, talented guys who left Warburg
and they were in their energy department, and they're they're
raising a seven hundred and fifty million dollar fund. They
(37:43):
could probably deploy twenty billion dollars. They're not going to
raise twenty billion dollars. They're gonna raise seven to fifty
million dollars. That's my point. So part of my strategy
is to go to my good old friends in Singapore
and Canada and Middle East and get funding to go
out and do M and A. And I don't see
how I could do that in energy, for example.
Speaker 1 (38:02):
Last question for me, so you mentioned that you have
to start with the nuts and bolts. What is the
cash that this company is going to throw off over
the next three, five, ten years, et cetera. And then
you said people come up with a button to justify
something that's not. What are the lies that investors tell
themselves or entrepreneurs tell themselves that cause them to make mistakes.
Speaker 4 (38:23):
They go for the shiny object of the moment. What
happens to be to go back to the sexy thing
sexy at the moment, and what's sexy the moment may
not be very sexy in five or ten years. You
have to look at what's the real business here, and
what's the demand going to be over time, and what's
the supply of that service or product over that period
(38:44):
of time. And you have just look at it in
a very elementary, fundamental way like that, and then you
can predict how much value going to create. Many many
investors and many many business people, many boards even don't
even think like that. And it's shocking, really because it's
so fundamental to value creation.
Speaker 2 (39:03):
I have a completely self interested topic as my last question.
Speaker 1 (39:07):
It's going to be about the shed that you're building.
Speaker 2 (39:09):
No, actually, it was going to be about journalism, which
is you know, the book and a lot of your
businesses today have been about technological opportunity and disruption, and
you have a sort of throwaway line in the book
about AI and how it's going to mean that many
jobs in journalism are likely to become obsolete, which you know,
(39:30):
fair enough, I won't necessarily argue with that, But as
a thought experiment, what would be your play on AI's
impact on journalism, Like if you had to do something
in the journalism space, right now, what would it be?
Speaker 3 (39:45):
I looked at media.
Speaker 4 (39:47):
I looked at it, couldn't find the right thing. I
looked at a number, a handful of companies actually that
were doing media ads, advertising in media.
Speaker 3 (39:56):
But I got nervous.
Speaker 4 (39:57):
About what's going to happen from a regulatory front when
some of the European rules, which are much more stringent
about the advertising, the cookies and sharing the information, when
that comes over here, and maybe that business would get disrupted.
So I get nervous about that. I didn't didn't see
the right ending for that.
Speaker 2 (40:14):
Okay, can I have the lumber?
Speaker 3 (40:16):
Yes?
Speaker 4 (40:16):
I will, definitely, You're going to be customer number one, Chase,
I probably will.
Speaker 1 (40:21):
Brad Jacobs, thank you so much for coming on ovlogs.
That was a bladder my pleasure. Thank you, Tracy. I
think I know how to make a billion dollars.
Speaker 3 (40:39):
Now.
Speaker 1 (40:40):
I'm going to call up my friends in Singapore. I'm
going to call up my friends at some Middle East
sovereign wealth funds, and I'm gonna talk to the people
that I know who have built incredible software technology for
the world of physical distribution, and then find a new
industry to take over. Okay, I got the playbook.
Speaker 2 (40:58):
Now you have to do it, and you're gonna are
a CIA investigator as well.
Speaker 3 (41:02):
Right, I got it.
Speaker 1 (41:03):
I feel this is it.
Speaker 2 (41:04):
Okay, well great, I'm glad we've solved that. No, that
was such a fun conversation and it is interesting. Like, Okay,
Brad has clearly done a lot of businesses, five or
seven depending on how you count, as you mentioned, but
there does seem to be this common thread throughout all
of them, so like a a lot of them have
been in the physical space, and again, like it seems
(41:27):
like there is that perpetual opportunity there in that the
business of moving stuff getting rid of stuff isn't going
to go away, and Brad was talking about that. But
also the idea of all of that, I guess because
of the way it developed, is just so fractured to
the point and like localized, so that that's a place
in the economy where there are still opportunities for scale
(41:49):
and efficiencies. So even though the businesses sort of range
across a large variety of things, like it does seem
there is this commonality.
Speaker 1 (41:58):
It's super interesting too to think about. Again, Yes, the
unequal distribution of technology today, the idea that there are
some warehouses around the country that are very automated and
very up to date, and others that have never felt
perhaps the competitive pressure to need to do so. Or
even in freight brokers, the idea that there are some
brokers that resemble giant trading floors and some not. I
(42:20):
find that to be really fascinating. Also this idea of
just like, Okay, if you have access to the capital,
you can get scale from day one. And obviously so
many entrepreneurs like are what is going to take to
get scale? Well, in theory, if you have the money,
you can be big from day one and get the
best prices from the vendors.
Speaker 2 (42:37):
Yeah, and we have to have what was his name,
Dick Houston on the show.
Speaker 1 (42:41):
Also, just one other thing that is interesting is just
this idea that there's some businesses that are very attractive
but the capital isn't there. And so that comment at
the end about certain energy assets being cheap but no
one wants to put up the money for them, like
someone is going to capture that alphas.
Speaker 2 (42:57):
Yes, except in the media business, I guess there's no hope. Okay,
shall we leave it there?
Speaker 1 (43:05):
Let's leave it there, all right.
Speaker 2 (43:06):
This has been another episode of the Oudlots podcast. I'm
Tracy Alloway. You can follow me at Tracy Alloway.
Speaker 1 (43:11):
And I'm Joe Wisenthal. You can follow me at the Stalwart.
Speaker 3 (43:15):
Check out our.
Speaker 1 (43:15):
Guests Brad Jacobs's new book How to Make a Few
Billion Dollars. You can have the playbook to Make a
Few Billion Dollars yourself. Follow our producers Kerman Rodriguez at
Kerman armand dash O Bennett at Dashbot and Kelbrooks at Kelbrooks.
From our odd Lots content, go to Bloomberg dot com
slash odd Lots, where we have a blog transcript and
a newsletter. And check out our discord discord dot gg
(43:38):
slash odd Lots, where listeners are chatting twenty four to
seven about these topics, including lots of a transportation channel,
which I suspect there will be much a much discussion
of this episode.
Speaker 2 (43:49):
And if you enjoy odd Lots, if you want us
to record more episodes on how to do due diligence
with the help of polygraph examiners for the CIA, then
please leave us a positive review on your favorite podcast platform.
Thanks for listening.
Hello, and welcome to another episode of the Odd Lots podcast.
Speaker 2 (00:15):
I'm Joe Wisenthal and I'm Tracy Alloway.
Speaker 1 (00:17):
Tracy Obviously, over the last few years we've done tons
of episodes about freight logistics, trucking, warehousing, etc. And one
of the things that has always struck me is just,
you know, all of this crucial stuff, how sort of
chaotic and help together with tape and glue. These industries
(00:39):
often seem.
Speaker 2 (00:39):
To me, Can I tell you something. My husband and
I are rebuilding the shed in Connecticut and just getting
the lumber for the shed. Is this massive production that
involves us like renting a truck and having to like
negotiate it from some lumberyard and then like bring it
back and forth piece by piece. The industry of all
the movement of these physical goods and products, it seems
(01:03):
so difficult at times, and it also seems sort of
ripe for opportunity. But then you also hear stuff like
Convoy going out of business, right, the freight broker that
was supposed to be using new technology to revolutionize trucking
and things like that, And so I don't know, there's
like this tension between moving physical products and then using
tech to make the whole space more efficient totally.
Speaker 1 (01:26):
It's one of these areas where it seems like, oh, yeah,
there must be more simple. Like I remember one of
our first sort of eye opening episodes with Stinson Deane
talk about how lumber is distributed and so much of
these communications just on sort of message boards or boards
that might resemble Craigslist. And then you know, we've talked
about it with Craig Fuller and Rachel Kremac and freight
waves and the idea that you know, you look at
(01:47):
how trucking brokerage works, these load boards and this is
all this crucial stuff that's sort of at the center
of how the economy works. And it's like they're in
WhatsApp groups. Yes, anyone can anyone pick up a load
in Akron and bring it to El Paso next week,
and this is how it all works.
Speaker 2 (02:05):
It seems so informal, and then of course it leads
to these inefficiencies like trucks running around empty basically what's
it called dead heading? Basically yeah, yeah, and things like that,
And I guess the question is, like, what is the
sticking point here? Is there something like fundamental about moving
physical goods? That is, I guess, resistant to new technology,
(02:25):
or is there maybe something about the industry where you
know people are making while they were people are making
lots of money from lack of transparency in the industry,
and so they themselves are resistant to new technology. It
kind of reminds me of the bond market sometimes and.
Speaker 1 (02:40):
Stocks absolutely tracy. It sounds like, given the headaches you've
had with your new shed, that you could really use
some efficiency gains in the world of building products distribution,
could you.
Speaker 2 (02:52):
Not, Yes, especially since I keep messing up the ridgeboard
on the roof. I can't get it straight, and then
every time I mess it up, we have to go
and get more lumber. So yes, yes, please.
Speaker 1 (03:04):
Well, we do literally have the perfect guest, someone whose
career I think almost is so odd. Lotsye, in all
of the topics that we discuss. Over the years, he
has started, depending on how you count, between five and
seven companies, started an oil brokerage, the founder of United
Waste Systems, which rolled up waste collection companies sold to
(03:27):
Waste Management, United Rentals, and then the creator of the
logistics conglomerate XPO, which also spun off a freight brokerage,
A logistics company, et cetera. We are speaking, obviously to
Brad Jacobs, who just a few days before this recording
announced the creation of a new company called QXO, which
(03:48):
intends to be a market leader in the space of
building products distribution. He plans to make billions of dollars,
and he's the author of a new book, how to
make a few billion dollars.
Speaker 2 (03:58):
I like how in the press least for the new
company in qx so he basically says he aims to
make billions of dollars. So it connects very well with
the book.
Speaker 1 (04:07):
Well, he has a track record of making billions of dollars.
I would love to make billions of dollars. So maybe
we'll learn something. Brad, Thank you so much for coming
on out laws.
Speaker 3 (04:16):
The pleasure's mind.
Speaker 4 (04:17):
Look, some people think in millions, some people think in trillions.
Speaker 3 (04:20):
I think of billions.
Speaker 1 (04:21):
That's it's a very very reasonable middle ground middle graund here.
So you say you're going to build a market leader
in building products distribution. There's a lot to get into,
but let's just start here. When you look at the
industry right now of building products distribution in the pre
QXO world, what does it look like to you. What
do you see when you look at that industry.
Speaker 4 (04:42):
Something that's really big. First of all, it's eight hundred
billion dollars between North America and Europe, so it's large,
and it's very fragmented. You've got seven thousand distributors here
in North America, you have thirteen thousand in Europe, so
that's a lot a lot of independent companies and a
handful of the companies it's mostly privately owned companies. I
(05:02):
see an industry that's growing. It's been growing at seven
percent compounded annual growth on the top line for the
last five years. I see an industry that is rich
with acquisition targets, so it's an opportunity to scale up.
And I also see an industry that could use more technology.
There's a handful of companies doing some cool things in technology,
(05:23):
but by and large, the industry as a whole is
behind where logistics is. It's not where the logistics industry is.
Speaker 2 (05:30):
This is exactly what I wanted to talk to you about.
So in the press release you say I think tech
enabled company or something like that. What does that mean
exactly in this context? What is the technological opportunity that
you see here.
Speaker 4 (05:44):
It's a few things. Number one, it's how you interact
with the customer. And right now mid single digits percent
is done over digitally and ninety something percent is done
face to face, and that really should be reversed eventually,
over time, not right away. You should see more and
more penetration of digital on that. So that's number one
(06:06):
the e commerce penetration. Number two pricing. Pricing could be
more methodical, could be done electronically, could be done by AI,
could be done by machine learning, and be interactive and continuous.
And thirdly, the inventory, so this is a business has
a big transportation logistics element to it because you're buying
(06:27):
a bunch of products wholesale, you're storing them in dcs,
and then you'll distribution side like warehouses fancy word for warehouses,
and then you're delivering them in delivery trucks to the
end user. So there's a lot of transportational logistics here.
And the dcs or warehouses that I visited so far
(06:48):
not a whole lot of automation, and there they should
be highly automated. Now handful of companies aren't doing automation,
but they're the exception, not the rule, and it really
should be the rule, because as we know from Jexo
Logistics where we have a couple hundred million square feet
of warehouses around the world, automation is where it's at,
that's where it's going, and that's what customers want. It
(07:08):
takes out costs and increase safety, it's faster, it's more accurate.
Speaker 3 (07:13):
There is a.
Speaker 4 (07:13):
Thousand reasons why automation makes perfect sense for the inventory part.
And then it's not just the picking and packing that
needs to be automated, it's the actual inventory management. So
these distributors have lots and lots of skews and getting
it just right of not having too much and then
tying up capital but not having too little and then
disappointing customers so you can fulfill their demand. This has
(07:36):
to get right. And GXO, for example, has had a
client Boeing for years and years and years. It went
back to a new breed before we bought them, and
they do the parts management for that all around the
world on a global basis, and that's done technologically. That's
done not by people fraging out.
Speaker 3 (07:54):
You know, I think we.
Speaker 4 (07:55):
Need this many parts of this year, and we need
that many parts there, it's doing it methodically, using lots
and lots of data and using algorithms to understand that
to get the inventory just right. And here in the
billing products distribution space, I think there's a big opportunity
to optimize the inventory management. And then the last component
of technology that excites me is basic route optimization, meaning
(08:18):
you've got delivery trucks and it's still being done the
way it was done in trucking like fifteen years ago.
For the most part. There's again there's exceptions to the
rules and find companies doing good stuff, but by and
large it's not optimized in a typical distribution company you
have right now, and I think we can bring that
to the table pretty quickly.
Speaker 2 (08:35):
So I have a billion questions already, not a million
or a trillion, just a billion. But just so we
understand the business. What part of the supply chain are
you actually targeting here?
Speaker 4 (08:46):
Is it the.
Speaker 2 (08:47):
Wholesalers who supply lumber yards or lumber yards that supply
builders or both.
Speaker 4 (08:52):
We're buying wholesale selling retail. But there's three different categories
and markets. There's residential, it's non residential, and it's infrastructure.
So residential is like you like your apartments, your houses.
People who need floors and windows and doors and roofing,
tile and so forth, HVAC. Then there's commercial. Commercial can
(09:14):
be any kind of building that's not a house.
Speaker 3 (09:15):
It could be a school, could be a church.
Speaker 4 (09:18):
It could be a factory, it could be a town hall.
It could be just anything that's not people living in
it but has a roof protecting from the elements. And
the third category would be infrastructure. So infrastructure is roads, bridges, tunnels,
all the pipes underneath the ground. And if you look
(09:39):
at these three sectors, one thing that excites me about
this is all categories there are old. Houses are over
forty years old. Commercial facilities are over fifty years old.
A lot of the infrastructure underneath America is over a
century old. I mean it really needs to be repaired
and lots of activity has to be done here. This
is an industry that's not going to go into the metaverse.
(10:03):
This is an industry that's not going to be disrupted
by AI. It's can be enabled by AI. And that
was important for me when I looked at five hundred
different opportunities, because quite a lot of them I have
serious questions about whether they'll still exist in five.
Speaker 3 (10:16):
Or ten years.
Speaker 1 (10:16):
Can I ask a question? So with the XPO and
that family of companies, I guess, why is QXO a
separate company that needs to be Okay, it's in building
supply distribution. If you have a freight company, if you
have a logistics company, if you have a freight broker.
Why can't your existing companies simply move deeper into this space?
(10:38):
Why is it important for it to be focused on
its own Because when you describe, you say, okay, well,
the transportation system is like where trucking was fifteen years ago,
and I want to we'll get into sort of this
date of trucking. Why is it not that existing logistics
related companies can just offer services to this industry.
Speaker 4 (10:58):
I mean, we couldn't be a real pure play focused company.
Speaker 3 (11:02):
So the XOS, the GXO, RXO, XPO, they're very focused.
Speaker 4 (11:07):
Now we divided the company up into three very carefully
designed units. You got GXO being supply chain, being warehouses
around the world. It's got a thousand warehouses and that's
all it does. Really, it really does warehouse warehouse warehousing.
It's an inch wide and a mile deep on warehousing
does it really, really, really well. And then you have
on RXO it's the asset light transportations, the tech enabled
(11:29):
brokerage model, and it also has the last mile delivering
right people's houses. And then thirdly you have XPO, which
is primarily an LTL carrier less than truckload carrier that's
mostly in North America. And we divided the company up
into those three categories because that's what our owners told us.
Speaker 3 (11:47):
That's what our shareholders told us. Our shareholders told us.
Speaker 4 (11:49):
Look, we don't want all these things altogether. We want
to have more defined pure plays that we can invest
in the industrial comeback and then we'll invest in XPO
for LTL or want to go more consumer, or we
want to go make a play on e commerce, which
we'll go more with with GXO. And that's worked really well.
I mean, we were getting a conglomerate discount for our multiple.
(12:09):
We were trading like eight times Ebada. Today those three
different companies trade at double digit multiples of Ibada, and
that in addition to improving the Ebadah, the multiple on
Ebadah improved too, so it made sense to split those up.
So I don't I think we would be going backwards
from a shareholder perspective if we if we started becoming
more multifaceted and blended distribution together with the xos.
Speaker 1 (12:48):
Let's talk a little bit more about your plans for QXO.
And so you mentioned it in the US there's seven
thousand companies and in Europe there's thirteen thousand, and you
know you're gonna hit their grown running have billions of revenues.
You're gonna buy up a bunch of companies and.
Speaker 3 (13:03):
Roll it up.
Speaker 1 (13:04):
My understanding, you know, going back to the United Waste
days and when you sort of started building that up,
it was acquiring different types of assets, so distribution but
also landfills, et cetera. You know, and I think when
people think about roll ups in the traditional Pe sense,
they're like, Oh, I'm gonna go out and I'm gonna
buy twenty you know, h VAC companies and we're gonna
(13:27):
unify their back end and take out some dead and
make them all leaner and operation and six sigma and
all that stuff. It feels like you're thinking much more
holistically in terms of buying different parts of the supply
chain to work together. Can you talk a little bit
about what assets you need to buy to make QXO work.
Speaker 3 (13:46):
So you mentioned it correctly.
Speaker 4 (13:47):
At United Waste, we bought landfills, we bought transfer stations,
we bought collection companies, and that became one integrated supply chain. Yeah,
and it worked really well because we took out a
lot of cost as of doing that. We had an
end to end solution for customers and they loved it,
and that's why our earnings compounded a fifty five percent
kager and not coincidentally, so did our stock price. So
(14:10):
I get that. So you have to create a company
that works for the customer, that the customer appreciates the
service that you're providing so they wire money from their
bank accounts to yours. So it's very very important to
do that here in QXO. In our building products distribution company,
we're going to stay very focused on distribution, meaning distributing
(14:34):
building materials to the three segments that I was just
talking about with Tracy in terms of residential, non residential,
and infrastructure. And I'm going to stay right on those
three things and I'm going to toggle between them depending
on opportunities as they arise. Attractive opportunities, We're going to
be opportunistic, and how we think the five to ten
year outlook looks for each one of those.
Speaker 2 (14:55):
So you mentioned infrastructure and just connecting this back to
the landfill business that we were just discussing. Reading your book,
one of the things you talk about is the reason
you were able to buy up landfills at that time
was partly because of new environmental regulations that made them
more costly for the existing owners to actually run, and
(15:16):
so a lot of people wanted to get rid of
their landfills. I guess, at reasonable prices and you snap
them up. When you talk about infrastructure spending, it seems
like part of your mo is maybe looking at what
the government is doing, what the government is spending its
money on, and taking that opportunity into account. How much
(15:37):
does that figure into your planning? And the other story
you tell in the book is at one point you
bought up a bunch of road rental companies in anticipation
of six hundred billion dollars of infrastructure funding, but that
didn't really work out. So I guess, like, how are
you evaluating the opportunity and the risk here?
Speaker 4 (15:55):
I'm not counting on government handouts, the government handouts or
the cherry on top. It's extra and it's great and
we'll take it. But that's not what the business plan
is based on. The business plan is based on that
the infrastructure is very aging and there's got to be
spent about two trillion dollars in order to fix it up.
Whether that happens at this pace or that pace, or
(16:15):
from this pocket or this pocket, it doesn't really matter.
It's going to have to happen. Because so you mentioned
you have a house in Connecticut, so you know what
I'm talking about. Driving from Connecticut to the city is
a bumpy ride. Says these things have to get fixed
and or later. And then on residential, you look at residential,
the average house is forty two years old. I mean
when I was a kid, it was ten years old.
That was an old house. So it's a lot of
(16:37):
repair and modeling is going to happen. There nothing to
do with the government, the governments. I don't think the
government's not going to pay Tracey Alloway to repair and
remodel your house.
Speaker 1 (16:46):
They might pair to install heat pumps, insulation and other
sort of you know, clean energy advances.
Speaker 4 (16:54):
Yeah, and there is one company, Watsco, who specializes in HVAC.
That's capitalizing on that and making it a ton of
money doing that. But I'm not counting on that. I'm
not building a business plan based on government large ass.
That's nice and it's an extra kicker, but that's.
Speaker 3 (17:07):
Not the guts of the business plan. You know.
Speaker 1 (17:09):
I mentioned in the beginning that one of the big
eye opening things is Tracy and I have learned more
about these industries is how load tech communication is, and
you know, freight brokerages where it's still based on phone
I think we heard right right, Maybe facts is still
or maybe in the last few years there's no more facts.
I'm not sure. These websites and WhatsApp groups that you
(17:31):
know super retro in building supply distribution. When you talk
about how load tech it still is, you know, let's
say Tracy works with some local provider of lumber or
whatever she needs, Like, what is the process by which
the current status quo these these goods are delivered to
a regional distribution center or to her house.
Speaker 4 (17:53):
So a couple things there. Let's start with the beginning
part of your question about truck brokerage. Truck brokerage is
not as old fuddy duddy as you may think it's
evolved quite a bit in the last ten years.
Speaker 3 (18:04):
Now.
Speaker 4 (18:04):
In twenty eleven, when I got into the truck brokerage business,
it was just as you described. It wasn't low tech,
it was no tech. It was one hundred percent people
talking on phones to each other and in very slow
book way. We didn't have factors. It was still email,
but it was not very machine to machine. Fast forward
to today, OURXO which was the truck brokerage spin off
(18:25):
of XPO that Drew Wicklinson runs that business. Now ninety
seven percent of their orders are either sourced or covered
electronically digitally, So that's come a long long way.
Speaker 3 (18:38):
Now. Rxo's at the forefront of that.
Speaker 4 (18:40):
It's been the leader of technology because we invested in
that right from the beginning.
Speaker 3 (18:43):
That was our vision.
Speaker 4 (18:44):
But even the whole industry, it's not ninety seven percent,
but it's over half. Over half now he's done electronically.
So that's brokerage. That's where brokerage has gone. Now. Distribution
is kind of where brokerage was ten years ago, maybe
eight years ago, because there are, like I said, there
are a handful of companies are starting to do this digitally,
but overall, it's an industry. It's still single digits percent,
so it's going to penetrate much much more than that.
(19:06):
There's so many things depending on the type of product
we're talking about that it should just be ordered on
your phone or on your website. You should not have
to go somewhere and stand in line.
Speaker 3 (19:16):
It's not necessary.
Speaker 2 (19:17):
What are the sticking points to technology adoption in distribution?
Because I imagine, you know, if you went to a
company and you said, I can make your inventory management
a lot more efficient using technology, it seems like a
slam dunk for them. Maybe it costs a lot of
money and that's the issue. Maybe on pricing, if you
say I can make your pricing a lot more transparent,
(19:38):
maybe there's less of an incentive for them to improve that.
But like, what are the major hurdles that you see here?
Speaker 4 (19:45):
It's really just doing it. It's a question of companies
putting money there. This is a very low capex business,
very very low capex. The conversion from EBIDATA free cash
flow is enormous. In some companies, the cashual is more
than an income, so there's very little investment in capex.
I don't mind investing in CAPEX for technology. In fact,
(20:06):
I want to and I will because that was the
big driving force of our success at XPO, was being
ahead of the curve on technology. So we're definitely going
to do that there, and that's all that's required.
Speaker 3 (20:17):
Now.
Speaker 4 (20:17):
You have a lot of companies that are private equity
owned private equity because of their structure, their nature, and
they have to give them money back to their investors
after seven or so years. Sometimes it doesn't make sense
for them to invest hundreds of millions of dollars into
technology because they're gonna be flipping it, so why should
they do that? I get that, And sometimes companies have
a lot of pressure on short term earnings the quarter
(20:40):
of the year and they don't have an investor base
that's got a long term view of So my investors
always have been the ones looking for the big kill.
We're not looking for just like two hundred basis points
more than.
Speaker 3 (20:50):
We're in the market.
Speaker 4 (20:51):
We're looking for big, big, big returns. So XPO is
thirty two X and rentals today is more than one
hundred xs of.
Speaker 2 (20:58):
One hundred bagger, pretty one hundred.
Speaker 4 (21:00):
Plus bagger actually, And that's the kind of investors that
invest in me ones that want big, big returns and
are patient money that can hold a stock for a
few years and make a big bet on that. And
those kind of investors totally get it that you've got
to invest in technology in order to have the J curve,
so that in years three, four five, you're a category
(21:22):
killer and you have a big competitive advantage against companies
who haven't been investing in technology. So I'm definitely going
to invest significantly in technology.
Speaker 1 (21:31):
The United Rentals chart is absolutely insane. There's a four
dollars stock in two thousand and nine. It looks like
it's basically an all time high right now, but over
five close, So extremely well done on that.
Speaker 4 (21:43):
You know, well, I can't take full critical because I've
been gone for a while.
Speaker 1 (21:46):
But your original investors, the ones that just help buy
and hold, very pleased with you. I'm sure I'm freight brokerage, though,
I will. You know, I want to. I want to
get back to that because you know, I know there's
like different models and you mentioned that. Okay, it's way
more digital than it used to be. But on the
other hand, there are still big basically freight trading floors
(22:08):
or things that resemble a trading floor. And I went
to the headquarters of a Arrived Logistics in Austin, Texas,
and there's a lot of you know, and we talked
to their CEO, and you know, there's a lot of
X Big ten or Big twelve or sec athletes working
the phones. In those places. It looks like kind of
a stock brokerage. And the one side of the room
(22:30):
they're talking to shippers and the other side they're talking
to carriers, et cetera. Like there's still a lot of
humans involved in the process of freight brokerage.
Speaker 3 (22:39):
And then when.
Speaker 1 (22:39):
People think, it's like, oh, why can't we just have Uber?
And Uber of course also is a freight business. And
then Tracy mentioned Convoy, which I think was going to
try and uberize the industry and it recently failed, didn't.
I recently had to sell for basically nothing. Is my understanding,
why are there still so many humans involved in the
business of connecting shippers and carriers.
Speaker 4 (23:02):
There's fewer number of humans now per revenue, per dollars
per shipment than there were two years ago, and five
years ago and ten years ago, and that's the trend.
I bought a company called NLM from land Start back
in must have been twenty fourteen or so, and it
specialized in freight brokers, mostly for the automobile industry, but
(23:23):
other industries too that had expedited requirements, like they needed
like a factory floor was going to close down unless
they had a machine or a part, and they needed
it like in two hours, like right away, and they
were willing to pay premium prices for that because the
cost of not getting it was really quickly. This business
blew my mind because I went.
Speaker 3 (23:41):
Out to go and visit it.
Speaker 4 (23:42):
It was moving over billion dollars for fready a year,
a pretty sizable firm.
Speaker 3 (23:47):
And it was totally quiet.
Speaker 4 (23:49):
They were like a few dozen people there and they
were basically taking care of the computers.
Speaker 3 (23:55):
And there was none of what you just described.
Speaker 4 (23:56):
There was no It wasn't like the old fashioned New
York's docking steeing trading floor from trading places thirty years ago.
It was very automated. And I said, this is the
future of brokerage. This is where brokerage is going, where
it's more machine to machine and automatic, automated tech driven
tech forward, not dependent on human beings. Now, there still
(24:17):
is a role for human beings in in almost any
business because of human relationships, and that's important, but the
actual transactions, increasingly in almost every industry and including truck brokerage,
should be done digitally.
Speaker 1 (24:30):
That's what they're not right now, right. I mean, there's
a lot of email and they say like, hey, we
need this in North Carolina, and I mean I see
it all the time, or I mean it may be digital,
but it's email and a human reading the email XO.
Speaker 4 (24:42):
Ninety seven percent of the shipments are either covered or
sourced digitally, and they are growing at three times the
industry average. And that's why they're growing at three times
the industry averages because it's tech power. It's done by technology,
not by us mere mortals.
Speaker 2 (25:12):
How much does pricing power matter, for instance, in the
new distribution business that you're starting, Like, how much of
the strategy depends on consolidating and then being able to
get pricing power in the market. And the reason I
ask is because if you look at something like freight brokerage,
I mean one of the criticisms of that market was
(25:33):
a lot of people lowered their prices in order to
get market share, so get people using their apps or whatever.
And then when they started raising prices in order to
actually make money. People just switched platforms right like. It
was very easy to switch. So I guess how do
you manage those things? You know, the scale and the
pricing power in.
Speaker 4 (25:52):
Building products distribution. The business plan is not to raise
prices to the end customer. However, the business plan is
to low are a cost of sourcing of procurement. And
that's not a difficult thing because as you get bigger
and scale up, you're a bigger buyer, you're a bigger customer,
and you had a better break. A lot of these
(26:12):
products are sold on a rate card. Basically, it's not
much negotiated. It's a rate card. If you buy this price,
this amount, this is what your price is. You buy
a larger amount, you get a lower price. You buy
an even larger amount, you get an even lower amount.
And that's part of the business model, is to scale
up and get the procurement savings and then to actually
pass along some of that to the end user and
(26:33):
keep some of that for ourselves.
Speaker 1 (26:35):
How big do you have to get then, so again
going back to your ambition to be a multi billion
dollar company in Europe and the US, and to have
that sort of power to get good prices from the
original list sellers, Like, how much do you have to
buy in order to get the scale that you want
to sort of hit the trajectory you're aiming for.
Speaker 3 (26:54):
We're going to buy. We're also going to grow.
Speaker 4 (26:56):
So the industry is growing at seven percent, so I
would hope to go more than the industry orically, but
you're right, the main growth is going to come from
M and A. And we've already put out revenue targets.
We should be at a billion dollar at least a
billion dollars revenue run rate after year one the end
of year one, we should be at least five billion
dollars revenue run rate after.
Speaker 3 (27:16):
Two or three years.
Speaker 4 (27:18):
And my vision is to be at tens of billions
of dollars in revenue over the next decade. And I
see a very clear path to do those numbers.
Speaker 2 (27:25):
So Joe and I both read your book How to
Make a Few Billion Dollars, and I enjoyed it, and
I have to say, it's not what I was expecting.
I was expecting a biography, but like, actually it's sort
of conceptual in many ways. So at the very end,
for instance, you have a list of thought experiments, including
one that's very similar to imagine yourself as a banana,
(27:46):
or imagine that you're related to a banana. Human DNA
is fifty percent related to banana DNA, right, Like, what
inspired that direction in the book, because again, it seems
kind of unusual. You don't get many billionaires writing, you know,
lists of thought experiments, and there's also a timeline of
technology advancement.
Speaker 4 (28:05):
Okay, so let's start with the thought experiments. The purpose
of the book, as you can tell from the title,
is how to make a few billion dollars. And in
my experience, I've met so many very successful people, many
people who are much more successful than I am, and
they're very different from each other in many many different ways,
(28:26):
and they're identical in one trait. They think differently than
most people do. And I think that's a big insight
that if you want to create something big, something amazing,
something very successful, and it doesn't have to be just
making money, by the way, making money is just one
thing in life. But if you want to accomplish anything huge
(28:47):
in life or in business, you got to figure out
a way to think differently, because if you think the
same way everyone else thinks you're going to get the
same results that everyone gets, which is like the average results.
If you want super average results, you need to think differently.
And I've made it my discipline, my hobby, my passion,
my pastime to think differently and use different techniques of
(29:10):
self hypnosis and meditation and cognitive therapy and mindfulness and
thought experiments. And I come up with all these things.
I mix and match all these different schools of consciousness,
so to speak, and I come up with my own thing.
And it helps me get out of my little way
of thinking, and it helps me think in a more
unbounded way, and that helps me think big and move fast,
(29:33):
which is the mantra of making a lot of money
in business.
Speaker 2 (29:37):
So, speaking of thinking differently, there was one part of
your book where you talk about doing due diligence on companies.
And you've spoken about this a lot before. You do
a lot of research before you make these decisions. But
you also mentioned that you have been working or have
worked with a guy who was a twenty five year
investigator and polygraph examiner for the CIA. So you have
(30:00):
him interviewing the executives of companies that you're going to
take over.
Speaker 4 (30:05):
Absolutely and so we could have a whole podcast just
on Philly. He is the world's expert in detecting deception,
so yes, he was, come on, I think he'll do it.
I think he'll do it. He's actually written two books
on it, and it's right out. There's right there and
(30:26):
how to Spy the Lie and I Find the Truth.
I think the other want to get the truth? And
very interesting books. So he was a polygrapher. He was
the most senior polygrapher in the CIA, and everyone in
the CIA has to get wired up every year make
sure they're not a spy. And he learned that you
asked the question, which is the stimulus, and then there
(30:47):
was a response. Now the polygraphy measures your galvanic skin response,
your stress response, your heartbeat, your sweating, and so forth.
He also noticed that there were other things besides that.
There was body language, There was language. Language was the
language that people used in order to answer a question.
There were clusters of traits that were the hallmarks of deception.
(31:10):
And he created a whole method of detecting deception and
it's a very disarming technique. A great conversationalist.
Speaker 3 (31:20):
You would never think he's not.
Speaker 4 (31:21):
A difficult guy or an interrogate or anything like that.
And I've studied him very carefully, and I've worked with
him for oh decade and a half.
Speaker 3 (31:29):
Now I'm still not as good as he is on that, but.
Speaker 4 (31:31):
I've studied how to detect deception, and so is my
senior management team. They've all taken his courses. They've all
taken his training, and we find it so beneficial. We
find it beneficial in due diligence on companies because guess what,
sometimes people don't tell you the truth when they're selling
their companies. They exagger a little bit. And guess what
in job interviews, we're interviewing people. You know, people sometimes
(31:53):
spend they don't tell you the straight story. And if
you can figure out what's blogny and what's true, wow,
you can save a lot of aggravation and a lot
of money and a lot of you can avoid a
lot of mistakes. So I do believe that learning the
art and science of detecting deception, and and we've used
Phil Houston, he goes his nickname is Dick to Houston
(32:15):
to do that.
Speaker 3 (32:15):
To teach us. That's really helped us a huge amount.
Speaker 1 (32:19):
So all of these industries that you've worked in, Like
I don't know if it was always the case, but
these days there's something like I guess I would say
sexy about a lot of these sort of you know,
like I see people on Twitter like talking about like.
Speaker 2 (32:32):
Self high chain so hard, no, like for real, like.
Speaker 1 (32:34):
Self storage, or I want to buy up h vacs
and you hear stories about x ex Wharton MBAs and
the first thing they want to do is get some
friends together and roll up in the local pool management
company or hvac or whatever, or you know, a chain
of laundromat to whatever. These physical things that exist in
the world that aren't going to disappear or go anywhere.
You spent a year figuring out which industry you'd attack next,
(32:57):
building products distribution? Is there a system for identifying industries
or types of companies that you use to go after next.
Speaker 4 (33:07):
I have a system, and I read about it in
the book I put the process that I use in
order to study an industry and in order to study
a specific company, and to make a long story short.
Speaker 3 (33:17):
I get a lot of the.
Speaker 4 (33:19):
Important information and I don't waste time on the unimportant information.
And I've been doing this long enough I know what's
important what's not important. And we do a lot of
diligence online before we even meet people, and then we
try to use the time of the people we're talking
to very politely, very judicially, so we're not wasting their
time and asking them things that we can find out
from other sources. But we want to know all the
(33:41):
important stuff. And when we're looking at an industry, we're
looking at a company, what are we trying to figure out?
Speaker 3 (33:46):
At core?
Speaker 4 (33:47):
We're trying to figure out whether it's an industry or
a company fast forward five years, seven years, ten years,
what's the revenue going to be, what's the profit going
to be? And what's the cash flow whether it's inflows
or outflows over that period of time. All the hundreds
of other questions that we're using for due diligence are
all important, but they distill down to those three questions,
(34:10):
how do I figure out over the next half a decade, decade,
what's the revenue going to grow, what's the profit going
to grow? And how much cash is it going to
generate or use up? And in the end, it comes
down to how much money would we put in and
how much money would we get back, and it's no
more complicated than that. And if you stick to that
(34:30):
basic concept that I just mentioned, you will make a
lot of money, you will create alpha. If you deviate
from that, if you don't pay attention to that, you say, well, yeah,
the return on capital's not so great, but no, there's
no butt. You're gonna have a finite amount of money
and then five ten years later you're going to have
created a revenue stream and a profit stream, and you'll
(34:51):
have generating cash flow between now and then.
Speaker 3 (34:53):
That's gonna determine.
Speaker 4 (34:54):
What your stock price is and how valuable your company is,
and all the due diligence ends up being about that.
Speaker 2 (35:00):
You do seem to have a connection with the physical space, though,
which I mean Joe and I clearly.
Speaker 4 (35:07):
Share, and I take issue that it's not sexy.
Speaker 2 (35:09):
Oh no, we agree.
Speaker 1 (35:11):
We agree. That's why we spent the last three years
talking about.
Speaker 3 (35:14):
Yes.
Speaker 2 (35:14):
And the other thing I was going to say is,
when I first went into financial journalism, I wanted to
be a commodities correspondent because there was like a romanticism
with this idea of like moving large amounts of stuff
around the world. So I guess my question is what
is the attraction there, Like, is there something innate about
the physical space that attracts you to it, or is
(35:35):
it more about the market opportunity. You mentioned this earlier,
the idea that you know, like people are always going
to have to move things. This isn't a business that
is going to disappear overnight.
Speaker 4 (35:46):
It's more opportunistic than conceptual and abstracts, more concrete. It's
here are industries that my playbook, the Brad Jacob's Playbook,
is applicable. And that playbook involves a lot of M
and A and a lot of and a lot of
optimization of what we buy, and those techniques apply to
(36:06):
the industries I've been in some of the industries that's
really not the play that's not fragmented enough. You really
can't buy enough. Bigger isn't necessarily better. Maybe the long
term trend is not so so fantastic. So I looked
into many, many, many other things, but I dismissed them
because they didn't check all the boxes. That's one happened
to check all the boxes. But I looked at many
other things. I looked at many other industries that well,
(36:28):
I looked at I spent a lot of time going.
Speaker 3 (36:29):
Back to my roots.
Speaker 4 (36:30):
As you probably know, my first ten years in business
were in energy, was in oil and gas. So I
spent a lot of time down in Texas looking at
oil and gas properties. And there are some really cheap
properties for sale and like two or three times cash flow,
and they have twenty thirty year lives, so you can
get your money back in a couple of years for years,
and then you have just pure profit year after year
(36:50):
after year for a long long time. So I got
really excited about that. As a generally, I'm a value person,
so I said, Wow, this is really really deep value.
Speaker 3 (36:59):
But I I.
Speaker 4 (37:00):
Talked to the seventeen or so sovereign wealth funds and
pension plans that have invested in XPO in the past,
we have a great relationship with, and almost all of
them said, hey, I get it, but we're not going
to invest in that. And because ESG and because the
oil and gas business went through a bad patch there
for a while. But I like going industries that have
(37:22):
gone through a bad patch and get better values there.
But I couldn't see a way that I could raise
many billions of dollars to finance energy. In fact, I
even read in the lobby waiting to come up here
in Bloomberg, I saw a new fund is being raised
by a couple of guys, talented guys who left Warburg
and they were in their energy department, and they're they're
raising a seven hundred and fifty million dollar fund. They
(37:43):
could probably deploy twenty billion dollars. They're not going to
raise twenty billion dollars. They're gonna raise seven to fifty
million dollars. That's my point. So part of my strategy
is to go to my good old friends in Singapore
and Canada and Middle East and get funding to go
out and do M and A. And I don't see
how I could do that in energy, for example.
Speaker 1 (38:02):
Last question for me, so you mentioned that you have
to start with the nuts and bolts. What is the
cash that this company is going to throw off over
the next three, five, ten years, et cetera. And then
you said people come up with a button to justify
something that's not. What are the lies that investors tell
themselves or entrepreneurs tell themselves that cause them to make mistakes.
Speaker 4 (38:23):
They go for the shiny object of the moment. What
happens to be to go back to the sexy thing
sexy at the moment, and what's sexy the moment may
not be very sexy in five or ten years. You
have to look at what's the real business here, and
what's the demand going to be over time, and what's
the supply of that service or product over that period
(38:44):
of time. And you have just look at it in
a very elementary, fundamental way like that, and then you
can predict how much value going to create. Many many
investors and many many business people, many boards even don't
even think like that. And it's shocking, really because it's
so fundamental to value creation.
Speaker 2 (39:03):
I have a completely self interested topic as my last question.
Speaker 1 (39:07):
It's going to be about the shed that you're building.
Speaker 2 (39:09):
No, actually, it was going to be about journalism, which
is you know, the book and a lot of your
businesses today have been about technological opportunity and disruption, and
you have a sort of throwaway line in the book
about AI and how it's going to mean that many
jobs in journalism are likely to become obsolete, which you know,
(39:30):
fair enough, I won't necessarily argue with that, But as
a thought experiment, what would be your play on AI's
impact on journalism, Like if you had to do something
in the journalism space, right now, what would it be?
Speaker 3 (39:45):
I looked at media.
Speaker 4 (39:47):
I looked at it, couldn't find the right thing. I
looked at a number, a handful of companies actually that
were doing media ads, advertising in media.
Speaker 3 (39:56):
But I got nervous.
Speaker 4 (39:57):
About what's going to happen from a regulatory front when
some of the European rules, which are much more stringent
about the advertising, the cookies and sharing the information, when
that comes over here, and maybe that business would get disrupted.
So I get nervous about that. I didn't didn't see
the right ending for that.
Speaker 2 (40:14):
Okay, can I have the lumber?
Speaker 3 (40:16):
Yes?
Speaker 4 (40:16):
I will, definitely, You're going to be customer number one, Chase,
I probably will.
Speaker 1 (40:21):
Brad Jacobs, thank you so much for coming on ovlogs.
That was a bladder my pleasure. Thank you, Tracy. I
think I know how to make a billion dollars.
Speaker 3 (40:39):
Now.
Speaker 1 (40:40):
I'm going to call up my friends in Singapore. I'm
going to call up my friends at some Middle East
sovereign wealth funds, and I'm gonna talk to the people
that I know who have built incredible software technology for
the world of physical distribution, and then find a new
industry to take over. Okay, I got the playbook.
Speaker 2 (40:58):
Now you have to do it, and you're gonna are
a CIA investigator as well.
Speaker 3 (41:02):
Right, I got it.
Speaker 1 (41:03):
I feel this is it.
Speaker 2 (41:04):
Okay, well great, I'm glad we've solved that. No, that
was such a fun conversation and it is interesting. Like, Okay,
Brad has clearly done a lot of businesses, five or
seven depending on how you count, as you mentioned, but
there does seem to be this common thread throughout all
of them, so like a a lot of them have
been in the physical space, and again, like it seems
(41:27):
like there is that perpetual opportunity there in that the
business of moving stuff getting rid of stuff isn't going
to go away, and Brad was talking about that. But
also the idea of all of that, I guess because
of the way it developed, is just so fractured to
the point and like localized, so that that's a place
in the economy where there are still opportunities for scale
(41:49):
and efficiencies. So even though the businesses sort of range
across a large variety of things, like it does seem
there is this commonality.
Speaker 1 (41:58):
It's super interesting too to think about. Again, Yes, the
unequal distribution of technology today, the idea that there are
some warehouses around the country that are very automated and
very up to date, and others that have never felt
perhaps the competitive pressure to need to do so. Or
even in freight brokers, the idea that there are some
brokers that resemble giant trading floors and some not. I
(42:20):
find that to be really fascinating. Also this idea of
just like, Okay, if you have access to the capital,
you can get scale from day one. And obviously so
many entrepreneurs like are what is going to take to
get scale? Well, in theory, if you have the money,
you can be big from day one and get the
best prices from the vendors.
Speaker 2 (42:37):
Yeah, and we have to have what was his name,
Dick Houston on the show.
Speaker 1 (42:41):
Also, just one other thing that is interesting is just
this idea that there's some businesses that are very attractive
but the capital isn't there. And so that comment at
the end about certain energy assets being cheap but no
one wants to put up the money for them, like
someone is going to capture that alphas.
Speaker 2 (42:57):
Yes, except in the media business, I guess there's no hope. Okay,
shall we leave it there?
Speaker 1 (43:05):
Let's leave it there, all right.
Speaker 2 (43:06):
This has been another episode of the Oudlots podcast. I'm
Tracy Alloway. You can follow me at Tracy Alloway.
Speaker 1 (43:11):
And I'm Joe Wisenthal. You can follow me at the Stalwart.
Speaker 3 (43:15):
Check out our.
Speaker 1 (43:15):
Guests Brad Jacobs's new book How to Make a Few
Billion Dollars. You can have the playbook to Make a
Few Billion Dollars yourself. Follow our producers Kerman Rodriguez at
Kerman armand dash O Bennett at Dashbot and Kelbrooks at Kelbrooks.
From our odd Lots content, go to Bloomberg dot com
slash odd Lots, where we have a blog transcript and
a newsletter. And check out our discord discord dot gg
(43:38):
slash odd Lots, where listeners are chatting twenty four to
seven about these topics, including lots of a transportation channel,
which I suspect there will be much a much discussion
of this episode.
Speaker 2 (43:49):
And if you enjoy odd Lots, if you want us
to record more episodes on how to do due diligence
with the help of polygraph examiners for the CIA, then
please leave us a positive review on your favorite podcast platform.
Thanks for listening.
Hosts And Creators
Joe Weisenthal
Tracy Alloway
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