Notes from Manage in Good Times So You'll Do Well in the Bad Times
Source: Stanford
When I watched it: January 2021
Why I watched it: I discovered this talk by Herb Kelleher while reading Essentialism. Herb was the co-founder and long-time CEO of Southwest Airlines. I haven’t spent much time studying Herb, so I thought I’d check him out. I’m glad I did. Herb, who passed away in 2019, was an impressive leader and storyteller. He was quite funny too. Here are my notes from the talk.
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My notes
About Herb Kelleher
Herbert David Kelleher (1931 to 2019) was an American billionaire. He was the co-founder and eventually became the CEO of Southwest Airlines.
About the talk
Herb gave this talk in 2006 to Stanford students. It’s more of a question-and-answer session about his leadership philosophy at Southwest.
Herb met Southwest co-founder Rollin King while working as an attorney at a Texas law firm, and they decided to co-found an airline that charged low fees ⇒ They founded Southwest in 1966.
At the time, airfares in the United States were not set by the free market ⇒ they were controlled by the Civil Aeronautics Board (CAB) ⇒ Airlines filed for fares regularly and generally got the fares they asked for (which started getting pretty high).
Herb and Rollin saw a loophole ⇒ The CAB only regulated fares on interstate routine ⇒ So, they decided to start Southwest and only fly within the same state (Texas).
Long story short, other airlines got mad and said that what Southwest was doing was against the law, but Southwest eventually won.
Herb and Southwest are credited with the following airline innovations:
The 15-minute turnaround
One class of service instead of two or three
No reserved seats
Serving satellite airports instead of the major airports
No meals; peanuts instead
A single aircraft type
The notion that somehow work should be fun
Low fares / low-cost carriers (LCCs)
Herb is one of the few people to successfully transition from early founder to corporate manager.
On employee ownership
Herb’s business philosophy:
Employees come first
Customers come second
Stockholders come last
No matter how big you get, taking care of your employees, being interested in your employees, communicating with your employees, and honoring your employees is still job one
You want your employees to be owners of the organization, but not controllers ⇒ employees often have tunnel vision/narrower view/constituency bias ⇒ you want people in control (e.g. board members) to have broader views
Southwest had introduced the first employee profit-sharing plan in the airline industry in 1973 ⇒ (Example: One captain retired and took eight million dollars with him from his profit-sharing plan)
On entrepreneurship
Entrepreneurs generally have a special spark in their DNA ⇒ They’re a little bit
Risk-taker
Visionary
Idealist
Studying entrepreneurship can:
ignite a fire that wasn't there
Help you avoid common pitfalls when starting something
Never score an idea
As your company gets bigger, you need to encourage and stimulate people to remain entrepreneurial and innovative ⇒ one way to do this is to never score an idea.
You have to have a culture that's friendly to risk-taking.
Never score an idea ⇒ when you score an idea you ensure that you'll never get another one from that person.
Show you have respect for people’s ideas and their thought process ⇒ Get back to people quickly (e.g. within a week) and never say “no” flat out ⇒ explain why you're not adopting the idea in detail and with proof points.
On mistakes
Thomas Watson (CEO of IBM) story ⇒ After a failed $10 million investment, an employee offered his resignation to which Wason replied: “We just spent 10 million dollars educating you! You’re not going anywhere!”
If you make a mistake ⇒ don't sit around and mourn it; don't dwell on it and destroy yourself ⇒ just correct it lickety-split as fast as you possibly can.
With mistakes, recovery time is very important ⇒ avoid ego ⇒ avoid institutional worship
On labor unions
Treat labor union leaders as partners ⇒ establish a relationship of trust and understanding ⇒ realize they have their responsibilities too ⇒ if you’re aware of their needs, they’ll reciprocate.
Have fights, but don’t hold vendettas.
On work and drive
When you enjoy your responsibilities and you’re passionate about the challenges you face in your job, you don’t have bad days at work.
Herb drive = internal desire to do right by other people and to serve them with excellence ⇒ an inner need to help people in a worthwhile way ⇒ a passion to be a servant.
Never say never
Never say never ⇒ Instead of saying “never”, say “that’s not high on our list of priorities”.
Can others imitate your business model? Yes. ⇒ Pay attention to whether they are trying to copy your tactics or your strategy.
Business advice
To preserve your sanity in business, think of it as a hobby.
You just have to be confident of what you're doing and not pay any attention to the naysayers ⇒ avoid “conventional wisdom”
In good times, manage so that you do well in bad times ⇒ (i.e. prepare for the bad times when things are going well.)
Don’t be too serious about things ⇒ this helps keep things in proportion.
To maintain quickness as your company scales ⇒ maintain simplicity and fight against bureaucracy and hierarchy
Advice to young people
Be flexible, be open, be curious, be inquisitive ⇒ always keep your mind open to new experiences / new learning ⇒ don't confine yourself ⇒ Read omnivorously.