one plan no matter how well laid out couldn't possibly respond to all of these situations this is why kellerer does not put much stock in traditional strategic planning he explains it this way reality is chaotic planning is ordered and logical the two don't Square well with one another when US Air pulls out of six cities in California they don't call me and tell me they're going
to do that now if we had established a big strategic plan that is approved by our officers and the board of directors I would have to go to the officers and the board and tell them that we want to deviate from this plan they would want to know why I want to buy six more airplanes the problem is we'd analyze it and debate its merits for 3 months instead of getting the airplanes taking
over the gates and dominating California the meticulous nitpicking that goes on in most strategic planning processes creates a mental straight jacket that becomes disabling in an industry where things change radically from one day to the next when a financial analyst chided her about not having a strategic plan he said we do have a plan it's called doing things that is an excerpt from one of
the two books that I'm going to talk to you about today that is from nuts Southwest Airlines crazy recipe for business and personal success that was written by Kevin and Jackie freeberg the other book is called herbs Heroes and it was written by a pilot that worked at Southwest for 37 years I have not been able to find a comprehensive biography on herb kellerer I think one should exist I think he's an he was an
extraordinary person A Gifted entrepreneur he built the most successful airline in history which we'll get into today so to make this episode I used these two books uh I reread this is the second time I read uh the nuts book but I used these two books and I took notes on interviews that herb did when he was alive so what I'm going to do first is I summarized all of my
notes from the book herbs Heroes I just want to go over that outline which I think will give you a good overview as to the type of person herb was and why he was that way so he's born during the Great Depression his father worked in a soup factory Herb's older brother was killed in World War II herb is 10 years old at this time after his brother dies his father dies unexpectedly the year
after and then within a few years of that happening herbs two surviving older siblings move away for college so now herb grows up the second half of his childhood is just him and his widowed mom and so her influence and the lessons that his mom taught him he uses his entire life including in building his company so they would have late night talks almost every night at the kitchen
table and even when he was a kid they're staying up to like 2:00 in the morning and she's teaching her about life and one of the most important things that she did was she taught him that adversity is a normal way of life this is a woman that lost her son lost her husband and yet there was no self-pity whatsoever she said that stress and difficult times was not dehab but opportunities to Excel and Achieve and
so even from a young age he starts to find problems solving invigorating the reason I've always admired admired herb I've tried to consume as much information about him as possible and the reason it came to the top of my mind to make an episode about him right now is because I was reminded of something that he said during a talk and this came many years later in his life he's
already been working on Southwest for multiple decades at the time and he was asked you undergo a lot of stress all the time how do you handle it and his response is perfect he said I don't handle it I like it and so that's a maximum that I want to repeat to myself as we're building our companies difficulties and hard times are inevitable and I'm just going to remind
myself I don't handle my stress I like it it completely changes your mindset until like this isn't something I have to do it's something I get to do back to his early life he was a gifted athlete in high school he ran track played basketball and football and lettered in all three Sports before College he works at the very same Soup Factory that his dad had worked at and he works there for
six years he did every single job at the factory this is something he's going to continue to do at Southwest which will talk about later but this is why I'm telling you this he called his six years working in a soup factory right this is a guy that's going to go on to to he's really gifted at everything he does gifted at Athletics he's really good at College gets a law degree clerks for the
Supreme Court has a successful law practice and at 35 with four kids decides hey I'm going to be an entrepreneur I'm going to try to run I'm going to try to start an interstate airline in Texas and so with all that the fact that he said the six years at the soup factory doing every single job he called it the best education he ever had and so even when he was younger and
then throughout his entire career people say the same thing about him over and over again they describe him as a fierce competitor and they said he had a hard work ethic that is a quote a hard work ethic he was working 100h hour weeks at the beginning of Southwest because he still had to practice law to pay the bills it took them four and a half years between the time they raised money for
the company they start the company and then they're actually allowed to fly their first flight another thing about herb he was old school he was hard driving hard drinking fast living Texan he started every day early regardless of how late he was out the night before drinking this is going to come up over and over again another crazy thing he smoked five packs of cigarettes a day
and drank Wild Turkey Bourbon every day he said wild turkey and Philip mois cigarettes are essential to the maintenance of human life when he was in his 60s he fought and beat prostate cancer and then he was asked if he thought his smoking habit contributed to his cancer and he said I do not smoke smoke with my prostate he lived until he was 87 he felt he was born to be an entrepreneur he thought the spirit of an
entrepreneur was within him and he had a great line about this he says if you're crazy enough to do what you love for a living then you're bound to create a life that matters he designed his entire business model to keep costs at the lowest possible level he built the most successful airline in history Southwest was profitable for 47 straight years to put into context about how outrageous
that accomplishment is relative to his competitors and peers he was profitable for 47 straight years the next uh most successful Airline was profitable for five and when you read about herb or if you listen to his interviews like he's hilarious so and he says like I don't take myself too seriously but I take competition very seriously unsurprisingly one of Herb's favorite
people was Winston Churchill he'll quote Churchill all the time he'll use Churchill's ideas in talks and speeches to his employees and to his team one of his innate talents that jumps out if you read a book about him is the fact that he was able to operate on very little sleep there's a lot of stories in both books about the fact that he'll be out drinking till like 3:00 in the morning
and then he'll be at the office at like 7: a.m. he also talks a lot about and repeats the importance of having a business model that endures the hard times talks about most of the airlines are set up they'll reap a bunch of profits in good times and then yet they give it all back when the inevitable downturn happens and so one thing he talks about he like listen we'll joke around we'll have a lot of fun we're
very extravagant in our marketing but we're very FIS fiscally conservative were conservative with debt they paid for 80% of their planes out of earnings most other airlines are borrowing that money they owned the largest amount of planes outright than any other Airline and the quote that came to mind when I was reading about Herb's Financial approach to building his company is this
fantastic quote from Charles the gal where he said all that matters is to survive the rest is just words herb was also a gifted Storyteller and he was very persuasive he was not building a company he was leading people on a crusade he was not hiring employees he was converting missionaries he says our indomitable dedication is the core of our success that is the most difficult
thing for a competitor to imitate they can buy all the physical things that we have the things that you can't buy are dedication devotion loyalty the feeling that you are participating in a crusade and the one thing that herb was insistent that they do better than anybody else was served listen to what he said we are a service company we just happen to fly airplanes herb read all
the time last week on the working with Bezos episode I mentioned this text I got a from a friend where he noticed he had raised a bunch of money for his company he noticed like every single billionaire that he interacts with reads a ton and they usually read a lot of history and biography herb was the same thing you know he starts off as an attorney before he dies he's a billionaire he read all the time he did
it when he was younger did it when he was older history was his favorite subject he said this is why he said he read history this is fantastic he says reading history kept me from making the same mistakes that was inside and outside his own industry he definitely knew the the history of the airline industry he talked about over and over again that you should read the history
of the airline industry as a cautionary tale that's why the main thing I'm going to talked about today is the fact that this guy very obviously capable of independent thought his main advantage was the ability to question every single conventional quote unquote conventional wisdom in his industry and ask like does this make sense or not some of it did make sense so he would do that but in
many cases he realized there was a better way and so he would pursue that regardless of what people around him were doing and then finally before I jump into the other book he led from the front this is one of the most one the most admirable things about him on the busiest day of the year which is Thanksgiving Eve you would find herb out on the tarmac loading an unloading
baggage and he would do so regardless of the weather there's a great story in the book where somebody walks up to him they just see this really tall guy in a yellow Poncho loading and unloading bags it's not until he turned around they realize that's the CEO and the founder of the company okay so now I'm going to put up the book called nuts and I'm going to go right into the founding of
Southwest at the time remember herb is 35 he's an attorney in San Antonio and he's got four kids Southwest Airlines was the brainchild of Roland King a San Antonio entrepreneur who owned a small commuter Air Service and his Banker John Parker Parker had complained to King that it was inconvenient and inexpensive to travel between Houston Dallas and San Antonio and suggested starting an inate
airline and so herb gets involved because he's Roland King's attorney and so Roland King goes to Herb and he draws this thing called the Golden Triangle which goes Dallas Houston and San Antonio this is on a cocktail napkin that cocktail napkin is still framed inside of Southwest headquarters this is happening during the late 1960s this is why they think there's an opportunity
first of all they use the word inate Airline which is fascinating so they're the main goal is okay there's different regulations you have state regulations if you're only flying within the states and then obviously Federal Regulations once you go state to state getting approved to fly inside of state is easier than at the federal level at this time in history although it was still
very difficult getting approved prove this is this like four-year battle but the reason what I found fascinating is Roland King had this idea by seeing California already had a successful Interstate Airline and he thought there was a lot of similarities between California and Texas obviously the size of the states but the fact that there was hubs of cities that were experiencing rapid economic and
population growth but they're also far enough apart to make travel by bus or car very inconvenient and so at the beginning their idea is like well why don't we just take what's obviously working in California and do the Texas version of this and in one of his interviews her talks about this time he's like why would you want to do something like take this big of a risk when you're 35 years old you have four
kids you're married and he said the allore of doing something different I wanted to do something exciting I was curious also most adults in the US had never flown because it was too expensive I believe there was a huge untapped Market out there and his assumption that there's a huge untapped Market out there was proved correct he had to go through 4 and a half years that's to to prove
that assumption he had the first fight through 4 and a half years of a legal battle and unfair Trade Practices uh in the state of Texas so he files Southwest application on November 27th 1967 and he does so with the TAC which is the te Texas Aeronautics commission they approve it they say yes you can fly between Dallas Houston and San Antonio what he didn't know at that time was
that he inadvertently started a war that would last for years and almost Drive Southwest Airlines out of business before it put a plane in the air so he had three main competitors braniff trans Texas and Continental n Al and they immediately Sue and they get a temporary restraining order that prohibits the TAC from issuing Southwest a certificate to fly this case goes to trial they argue
hey these markets that Southwest wants to serve they're already saturated there's no room for another carrier the TR the court that they bring it to agrees this immediately Sparks herbs and Nate like competitive half to win personality and so he appeals that appell at court also says no you cannot do this so they lose that case too it this point they had raised so it says the original investors
$543,000 remember that's a 1970 M that's a lot of money had been eaten up in legal expenses the corporation's liabilities grossly exceeded its assets and there was no Prospect of raising New Capital without the TAC certificate in hand which two courts have both denied them and so this is Herb's response some members of the board thought it was wise to cut their losses and close down at
this point Keller her's street fighting spirit surfaced Gentlemen let's do one more round with them I will continue to represent the company in court and I'll postpone any legal fees and I will pay every cent of the court cost out of my own pocket the directors agreed to give it one more shot and kellerer argues this case all the way up to the Texas Supreme Court and he convinces them to
overturn the lower appell at Court's decision and Southwest gets its certificate to fly and so we go back to this idea that herb framed life and everything he did is this Grand epic right we're not building a company we're on a crusade together it's always a mission bigger than himself and he talks about like he was asked in an interview like why would you do this like why
would you willing to fight for years for free and he said it's because these other airlines were trying to offend one of his ideals he said if other airlines could prevent Southwest Airlines from starting then that means the free market system is failing and one of the things that motivated him was to validate the free enterprise system and the other reason and he said was that it was very
hot competition and I like to win so then they're able to raise more money they buy planes they wind up start starting to sell tickets two days before their first flight their competitors wind up getting another injunction and they get another restraining order this time from a different regulatory body that would prevent Southwest from beginning service and this was Kell
her's response he went straight to the law library and worked all night to decide how to proceed he found a president and presented his argument to the court the next morning the Texas Supreme Court ruled in Southwest favor again and ordered the lower court judge not to enforce the injunction kellerer then telephoned Muse so at the very beginning he was not running Southwest
he is still gonna for the first few years he's going to be a founder and a board member of Southwest and he's still running his law practice it's not until the CEO that the founders hire this guy named Lamar Muse he's going to leave to start a competitor against Southwest the co that comes after Muse doesn't work out and so the board's like herb if this is going to like you have to do this and
here's an interesting side note for you Lamar Muse who I'm about to introduce you to here winds up when he leaves and starts Muse Airlines many years later when he's about to go bankrupt herb buys his airline but that's many years into the Future Let's go back to this so the Texas Supreme Court says hey you know you cannot enforce this injunction kellerer then calls Muse on the F phone
and says put the planes in the air when Muse confided to kellerer that he was still concerned about a sheriff showing up to enforce the injunction kellerer didn't mince any words I told him you roll right over that son of a and leave our tire tracks on his uniform if you have to the very next day June 18th 1971 Southwest Airlines was finally off the ground and so this
is the first mention of something that repeats over and over again the fact that herb was a master at turning things into a cause so it says the seemingly insurmountable obstacles thrown at Southwest are what created Ker's passionate love for the airline they would put 12 or 15 lawyers on a case and on our side there was just herb they almost wore him down to the ground but the more arrogant they were the more
determined herb got this Airline was going to go into the air and stay there he said herb is a master at turning things into a cause it was an affront to my idealism he said if you're going to let these guys get away with this it is a radically different type of country than the one I want to believe in and he wasn't making all this up his competitors were out to get Southwest
and they were willing to break the law to do so 4 years later both both braniff and Texas International were actually indicted by the US government for conspiring to put Southwest out of business and for violating the Sherman Antitrust Act in addition to suing them in every single Court they also would behind the scenes would Chase Southwest invas investment bankers uh out of their
underwriting Syndicate when they were trying to IPO they would go to Southwest V vendors and uh convince them to boycott and not sell to Southwest they tried to keep Southwest from using the fuel hydrant system at Houston's airport and they successfully got Southwest blackballed from membership in the Airline credit card system to all of these charges both companies pleaded no
contest okay so once Southwest is up and running you'll see that a lot of the Innovations were forced upon them uh necessi is the mother of all invention kind of thing they're just severely resource constrained and so if you're severely resource constrained you are forced to innovate and the way they do that is like well just question assumptions and if you keep doing that successfully you'll lead to finding new
markets and new ways to make money and so remember one of Herb's initial hypothesis is that there's this huge untapped Market out there because most Americans had never been on a plane yet so it says the company's creative roots go back to its early days employees came up with clever ideas for keeping the business alive because Southwest had no choice but to become inventive in order
to compete with the established carriers the company simply did not have the money to go head-to-head with the majors they would have to outthink and outmaneuver and so anytime I read that word outthink I always think of Jeff BAS was talking about [Music] the airlines operated as though there were only two market segments so this is going to be one of the main uh Innovations or one of the first
innovations that Southwest does so the airlines operated as though there were only two market segments those who could afford to fly and those who couldn't this assumption remember severely resource constrained you're forced to innovate and the way you innovate you question assumptions in this industry this assumption guided the operating strategy of the major carriers Southwest
believed that it could stimulate a tremendous amount of new travel with low fairs and Superior Service and they were challenging this assumption from day one remember herb designed this entire business model to keep costs at the lowest possible level those low costs allow them to charge less prices and so they started running this experiment by flying into the Rio Grand Valley at
cheaper than every single other competitor in this region this is the result the year before Southwest initiated this low cost service 123,000 passengers flew into the Rio Grand Valley less than 11 months later the market expanded to 325,000 so from 123,000 people right at this higher price they drop the price because they have a low obviously low cost structure lower cost structure I
should say and that expands the market by more than double gives them another 200,000 people flying so the increase was larger than the entire Market was before and they only discovered this because they have this commitment to trial and error this is Jeff bz speak spoke about this a lot last week they have this commitment by trial and error and they just realize we have to be
comfortable with innovating through trial and error that means being comfortable with the error part there's a bunch of examples in the book where people make mistakes sometimes cost a company $400,000 $500,000 and Herb refuses to fire them because he's like that's the point we have to be comfortable with the error part of trial and error so they take this they they extend this idea they're like okay all
signs are pointing to the fact that people are price sensitive that if we keep lowering the price we expand the amount of customers that we have is there another way we can continue to segment our existing and then potential customer base and so they come up with something that is going to be copied by every single other Airline it's crazy that no one use this at this point so
they perfect systemwide two-tier Peak and off peak Airline pricing they start off knowing their base is the frequent business traveler the person that is in Houston but needs to get to San Antonio in a meeting and then can be back home in time for dinner right they are less price sensitive what they didn't know is how big is the Leer traveler segment of this Market because you can't know that
because it's too expensive for the leiser traveler keep that in mind as we get to this like many of its Innovations Southwest two-tier Fair system was not the outcome of a sophisticated longrange planning Retreat it was a result of good oldfashioned trial and error just 5 months into operations one of Southwest planes was in Houston but needed to get to Dallas for routine maintenance over
the weekend normally they would just fly the plane with a crew but no passengers and so they're like let's test this idea normally a flight at this time is like let's say $26 they're like what if we just cut it to like a third what if we say it's if you fly out on this Friday night flight that has to fly anyways if you're not on the plane or not it's 10 bucks worst case scenario we generate
some Revenue that hopefully helps offset the the cost of fairing in a completely empty plane and immediately it works passengers quickly caught on and Southwest has had to start turning people away only two weeks into the offer and so this is when they realize wait there's not one type of traveler there's really two types of Travelers that Southwest has to satisfy so you have the convenience oriented business
traveler this is the person that is more time than price sensitive they want a a lot of business hour flights and the price sensitive Leisure traveler who primarily wanted lower fairs and had more flexibility about when to fly so they immediately have two Fair structures they say listen if you're flying during the weekday up until 7:00 p.m. you're likely a business traveler
we're going to charge you $26 if you fly after 700 p.m. or if you fly on the weekends it's half that it's $13 and this is the result passenger traffic skyrocketed Southwest had first defined a special Market Niche consisting of short Hall passengers and then further segmented those short Hall passengers by need into time sensitive business Travelers and dollar sensitive
Leisure Travelers this idea would become one of the most widely emulated marketing Innovations in Airline history systemwide Peak and off peak pricing and so this idea was so successful that their main competitor branth immediately copied them right and this was hilarious cuz in uh in his one of his interviews he talked about the fact that uh one of his competitors lowered prices and called it
an introductory Fair even though they had been in business for 40 years and serving the exact same markets for 40 years and so this is what I mean about being forced like they're just unbelievably creative and open to all kinds of new ideas so they wind up keeping their prices the same and then told customers if you pay a higher Fair we'll give you a free bottle of whiskey
and so for a few months they became the largest liquor distributor in the state of Texas oh so and this is important part they T they went directly to their customers and explained to them what was going on the fact that hey this bigger existing competitor with a lot more resources they're trying to put us out of business this is not going to be good for you this if you ever studied David
ogy he talks about this over and over again and Claude Hopkins probably the best copywriter in history that tell the truth in your ads speak one person to another tell the people why you're doing what you're doing the truth will resonate with the buying public and they may act in ways that surprise you here is an example of that so it says the ad explain how BR was trying to put
Southwest out of business and then went on to say that Southwest would not only match br's Fair it would also every offer every passenger a choice Travelers could choose the $13 fair so this is during the week right they're taking their off peak price and temporarily putting it during Peak right so it says Hey listen that's fine we'll match them but here's why they're doing what they're doing now we also have an idea
for you Travelers could choose the $13 fair or buy a regular $26 ticket and receive a complimentary bottle of alcohol so you could choose from Scotch whiskey or vodka now why is this going to work who is traveling during the week these are business Travelers they are not paying for their own ticket business Travelers loved it they could charge a $26 fair to their expense accounts and
go home with a free bottle of liquor for a few month period Southwest was the largest distributor of alcohol in the state of Texas to brf's dismay 76% of Southwest passengers paid the $26 and took the gift tell the truth in your ads communicate person to person tell them what you're doing this is a result two years later bran if terminated it's Dallas Houston Hobby Airport Service
this is the the route that they were competing on brand thought they were going to run Southwest out of business off this route and in turn they ran themselves out of business off this route and so now we go into more principles that her built Southwest with first is you you should know your Niche better than anybody else so he starts this with asking and making sure
everybody in your company asks and knows what is your fundamental reason for being why does your company exist when you identify that make sure everybody else knows it and then stick to it and here's why when you have a vision and someone comes to you with some convoluted idea you can hold it up to the vision and ask does it fit if not don't bother me Southwest exercises the discipline not to stray from its
strategy it does not for example buy jumbo jets fly International routes or go head-to-head with a major carrier so he's talking about the difference in their behavior compared with every single at this point every single other uh competitor that they have while other carriers have been lured by the Temptation to step outside their Niche Southwest Airlines has maintained the discipline to stay focused on its
fundamental reason for being and one thing that herb repeated from the very beginning he's like I don't give a damn about market share I want profits in fact let me put the book down for one second I want to read some of the ideas he has and like why he was thinking about this and this is when he was a much older man looking back at this time and so he says we may be flamboyant from
a marketing perspect itive but we are very conservative from a fiscal standpoint this is when he talked about paying for the majority of his airplanes out of Revenue and the Reon this is why he says this means that you're not taking on debt when there are bad times you aren't threatened by debt payments and debt payments are what put other airlines in and out of bankruptcy forever again study the history of the
industry is like why do you guys keep making the same mistake over and over again let me just avoid that do not worry about market share worry about profit I told any anybody if they mentioned market share I'd punch them in the nose just look at what's going on in the industry these Big Industry these big companies are fighting over market share and they are losing money they
were firing their employees let's focus on profits if we have 4% of the market and we are profitable that is better than having 90% of the market and being unprofitable and that kind of thinking leads us into this Southwest Airlines is obsessed with keeping cost lows to maximize profitability instead of being concerned with increasing market share kellerer believes that confusing these
two concepts has derailed many other airlines market share has nothing to do with profitability says market shares says we just want to be big we don't care if we make money doing it that is what misled much of the airline industry the past 15 years in order to get an additional 5% of the market some of these companies increase their costs by 25% that is really in congruous if
profitability is your purpose Southwest is willing to forgo Revenue generating opportunities in markets that would disproportionately increase its costs and so we're going to get into a few ideas that helps them keep their costs low before I get there I came across something else that's that I love that you need to know what you compete with not just who from the very beginning if
you go back to the Golden Triangle they're like hey driving between these two these three destinations is a pain in the ass he knew from the jump the fact that most people are not flying that ground transportation is his competitor not other airlines when brand price between Dallas and San Antonio was $62 Southwest charged 15 one of Southwest shareholders approached Kell and asked don't you think we could raise
our prices just $2 or3 you don't understand said kellerer we're not competing with other airlines we're competing with ground transportation at $15 you're going to fly maybe at 20 or 22 or 24 which is still way less than 62 right maybe you don't the calculus changed kellerer had the discipline to know what he was competing with not just who and so one of their main ideas that
differentiated them from uh many of their other competitors is the fact that they refuse to diversify on what kind of plane they would only fly the Boeing 737 other airlines had multiple different aircrafts and this is why this idea was so valuable to them I guess before I read this to you what was fascinating is if you compare how many employees does Southwest need for every aircraft that
they own so the rest of the airline industry this is not just people that work on the plane obviously administrators everybody else in the company right the rest of the airline industry ranges from 115 to 160 so 115 to 160 employees per aircraft Southwest had 84 employees per aircraft at the high end of their industry 160 that means they're half they need half the amount of employees so it says
flying one type of aircraft has a strong impact on the bottom line training requirements are simplified Pilots flight attendants mechanics and provisioners concentrate their time and energy on knowing the 737 inside and out all Southwest Pilots are qual qualified to fly all flight attendants are qualified to serve in all maintenance people are qualified to work on and all
provisioning crews are qualified to stock every plane in their Fleet this makes it easy for them to substitute aircraft reschedule flight Crews or transfer mechanics quickly and efficiently with only one type of aircraft the company can reduce its parts inventory and simplify its recordkeeping which also results in savings it also helps the co company negotiate better deals when acquiring
new planes cuz they're only going to buy the Boeing 737 and so this commitment to being cost conscious to watching their cost is preached up and down the organization and so this is it happening in 1989 at this point you actually got like physical receipts right or physical tickets and so for the last 15 years of their existence or something like that they would just issue your ticket was
your receipt so Southwest issued cash register receipts as tickets now here's the problem it's growing more people they're getting uh they're spending the more Market they're getting more new customers that are unfamiliar with the Way Southwest does things and since no other Airline was using the receipt as the ticket sometimes these customers would throw accidentally throw away
their receipt therefore accidentally throw away their ticket and so they're having a meeting like oh what are we going to do and again it's amazing how much the behavior of peer companies is just going to be imitated in fact there's a great line about this in Warren Buffett's shareholder letters let me read it to you real quick he says the behavior of peer companies whether they are
expanding acquiring setting executive compensation or whatever will be mindlessly imitated you have to remember that because what happens they have a problem oh man we have PE people are throwing away their their tickets what's the solution and so they go around like what is everybody else doing they're using these super expensive multi-layered airline ticket systems we'll just go out and buy one of that
that is our solution so it says an obvious alternative we should buy a multi-million dollar system that produced a traditional multi-layered airline ticket in other words let's mindlessly imitate the behavior of our peer companies somebody spoke up in the in the meeting they're like that doesn't make any sense there has to be a cheaper way to solve the problem than spending
$2 million and so he said why don't we just print this is a ticket in big bold red letters on the receipt instead of spending $2 million to follow the rest of the industry Southwest modified its ticket stock with the caption and it worked and the people inside and outside your company come up with this because they all know what they do best they know their Niche they know the
importance of having the lowest cost structure possible and so this is something that Keller will repeat over and over again the way I think about this is like the maximum I use in my own life is if you go to sleep on a win you'll wake up with a loss kellerer has said on many occasions a company is never more vulnerable to complacency than when it's at the height of its success the number one threat is us he
would say we must not let success breed complacency Cockiness greediness laziness indifference preoccupation with nonessentials bureaucracy or hierarchy we will let our Niche Define how we operate and this is what he says we don't care whether we fly to Paris we don't care whether we have a 747 what we're focused on is being profitable and job secure if people didn't pay much
attention to Southwest Airlines because it appeared to be a much smaller Regional carrier it was just immaterial to us we set ourselves up to go into a specific Niche and the heading he uses to describe the idea of what he's talking about is know what you do best he elaborates on this idea a few pages later we never try to be like other airlines Keller her said from the very
beginning we told our people question it challenge it remember Decades of conventional wisdom has led the airline industry into massive losses so you and I talked at the very beginning if you looked at how herb Keller ran his company he was individual opportunity driven to use another line from Buffett and he said that reality is chaotic and that planning is orderly and logical and
the two don't Square well with another and the fact that US Air you know if they're going to go out of business and have six planes for sale and some gates that Southwest can take over they don't call him and tell them before him so Keller has this like Fierce hate uh and dislike for bureaucracy and he prefers flexibility and maintaining that flexibility is what allows him to to go
after these individual opportunities as they appear and so here's another example of that the Southwest team arrived at midnight they just flown into Chicago from Texas and turned on the televisions in their hotel rooms just in time to hear Midway Airlines announce that it was out of cash and closing its doors confirming the rumors that had brought them to Chicago on this sudden
trip speed another thing that herb would optimize for they pounce on deals quickly and they close deals quickly so that happens the night before at midnight the night before the rumors confirmed 9:00 a.m. the next morning Southwest team started negotiating with city of officials in Chicago for the use of the bankrupt Airlines gates by 2:30 that afternoon they hammered out a deal they agreed they'd give them $20 million
to have immediate use of the gates by 300 p.m. there's a press conference with the mayor of Chicago to announce the deal with Southwest and there's a great question that happens at this press conference a reporter asks when Chicago could expect to see some sign of Southwest commitment to the expansion the reply go to the airport you'll see it right now Southwest had already gone
to the gates started installing their computers started rebuilding the podiums and then started putting up their signs right over the top of the Midway Airlines signs the company was able to capitalize on this opportunity because Southwest was in their words of their coo Nimble quick and opportunistic and so this next quote from Bill Gates actually combines two of these ideas that is a main reoccurring
theme in the life and the career and in this book of herb Keller the fact that he wants to be flexible so he can adapt to new opport unities as they arise and he wants to spend time learning from history so he can avoid their mistakes and this is what Bill Gates says in this book when we look back at the last 20 years it is obvious that a number of large companies were so set in their
ways that they did not adapt properly and lost out as a result 20 years from now we'll look back and we'll see the same pattern and so one practice that helps Southwest be opportunistic and be individual opportunity driven is they have these meetings that they call Future scenario generation and essentially just getting a bunch of people a room and just asking a bunch of
what if questions and trying to say Hey what if this hypothetical scenario happens how would we respond Southwest prepares for the future by practicing the art of what if future scenario generation is the technical name for this process they create future scenarios in which the airline could find itself these situations include of a lot of what if questions what if we
open one or two new cities in the New England area how will the competition respond what if Chicago builds a new airport how many airplanes will we need and where will we get them how will this affect the business the result of these discussions is a set of multiple plans that reduces the likelihood that Southwest would get caught off guard so a love of speed and a bias fraction are
traits that herb would require from everybody working in Southwest sometimes people would come in from large companies and not realize the pace that he wanted to push and the way to think about this is if you're going to be small which they're much smaller than most other Airlines at this point you have to be fast so it says kellerer illustrates the speed with which Southwest moves by telling a story about
Don Valentine a former vice president of of marketing Valentine had just joined Southwest from Dr Pepper when the Marketing Group met in January remember the word January to discuss a new television campaign Valentine was ready with his timeline for producing these spots for these new tv ads right the commercial could be scripted by March they're in January for God's sake so
they're having this meeting in January he's saying the commercial could be scripted by March script approval could be completed in April 30 days to approve a script good God the casting would happen in June I don't know what the hell they did for those two months and the company could start shooting in September what are you doing when Valentine finished outlining his
schedule kellerer said Don I hate to tell you but we're talking about next Wednesday the new vice president quickly became accustomed to the speed with which Southwest operates this guy came in and thought 9 months away was fine and Kell is like no dude you got six days nine months is way too slow and so let's go back to another reoccurring belief that herb Keller had the fact that you should take your
competition very seriously in fact he would embibe his company directors with a lot of like Winston Churchill uh references he talked about wanting a his company to have a Battle of Britain kind of mentality and he was constantly hammering this fact that success must be earned over and over again or it disappears if you go to sleep on a win you will wake up with a loss and so they
have this giant the biggest airline in the world now taking aim at them and so he writes this letter to all of his employees and he and he called it commenc of hostilities and it says these excerpts show the intensity with which he can create a sense of urgency now this is Herb talking United Airlines has become the largest airline in the world seven times the size of Southwest the
world's largest airline has recently announced that it will launch its initial direct assault against Southwest in the western part of our route system the initial attack will utilize 25 new planes an additional 100 airplanes are in reserve to be hurled against us at a later date United has on hand over a billion dollars in cash Southwest has nowhere near that at this point so he says our
stock price our wages our benefits our job security our expansion opportunities and foremost our pride of accomplishment as one of the nation's best airlines are all on the line at its beginning Southwest routed branth trans Texas and Continental with three airplanes Southwest can thwart United's actions against us with our 20 airplanes The crucial elements are the Vigor the
dedication the energy the unity and the Devotion to warm hospitable caring and loving customer service of all of our people Winston Churchill stated success is never final indeed success must be earned over and over again or it disappears I am betting on your minds your hearts your souls your spirits to continue our success let's win this one and make aviation history again and you
see that Keller realizes that it's really important to use memorable language I'm sure you've read a bunch of letters from the CEO or the founder that's boring as hell that that letter is a lot of things but it's not boring so he constantly over and over again there's a ton of examples of herb intentionally using memorable language and I just love this story really talks about the benefits of curiosity the fact
that the benefits of curiosity are unpredictable and if you read a lot your life will just be more interesting as a result you also be better at your job I don't it's such low hanging fruit it's amazing uh kellerer is a voracious reader who digs deeply into issues to understand them thoroughly it is not unlike him to go on a book buying binge and spend $4 or $500 at his favorite
bookstore when his son David was studying physics in college ker started reading up on the subject so the two of them could Converse kellerer once bought a 300 page history of Richmond Virginia and read it before speaking there so he's going to speak in an event what does he do he reads an entire 300 Page history before he goes to this area and this is the result he ends up having
dinner at some old line Virginia Home talking about the history of Richmond they go around the city and herb is pointing out places of historical importance he didn't do it to show off he did it because he was going to a new place and he loves history and on the very same page there a great quote the illiterate of the future will not be the person who cannot read it will be the person who does not know how to
learn and after more than 20 years of running a successful profitable company Keller was asked if he had any advice for other chief executive officers his reply spend more time with your people and less time with other CEOs our motto was Only the Strong Survive because our balance sheet was conservative because our operating costs were low because our customer service was legendary and
because our people have the hearts of lions the strength of elephants and the determination of water buffalos we did indeed survive and that is where I'll leave it for the full story you can read both books I don't think there is a perfect I think there's a gap in the market there yet to be and there should be a comprehensive book on herb kellerer but if you do want more and you're willing
to read a lot to get it I will leave links for both books down below if you buy the books using the links in the show notes on your podcast player or at Founders podcast.com you'll be supporting the podcast at the same time another great way to support the podcast is join my email newsletter for every book that I read I send you my top 10 highlights that is the entire email if
you haven't already joined that that link is down below and available at Founders podcast.com that is 3 22 books down 1,000 too and I'll talk to you again soon I'm glad you made it to the end Founders listeners are not quitters if you have not already signed up for the founders AMA private feed I highly recommend doing that right now I will leave a link down below but it's also
always available at Founders podcast.com because of the insane amount of research that I have done over the last seven years for this podcast I have a very unique set data set that's available nowhere else there's over 20 thou I've read over 100,000 Pages we're at like 300 what 15 books something like that I have somewhere between like 20 and 21,000 highlights and notes from this project
90% probably over 90% of my highlights and notes never make it on to the podcast yet the information contained in them is excessively valuable so what I what I did is like I'm constantly getting questions all the time right and I look at them like their unique prompts to try to get some of this information out of my head and out into the world so it's actually useful to you and one way
to do this so every Body Benefits is by actually making a private AMA feed so if you become a member you'll be able to ask me questions directly there's a private email address that you get in the confirmation email after you sign up do not share that email address because I read every single one of these emails myself I don't have an assistant doing it I'm the only one that has access to
that email so I read every single one myself now the questions that I get from these emails I turn I answer and I turn them into short AMA episodes so that allows other members to learn from the questions of other members you can also add a name and link to your website with your question so that other members can check out what you're working on I've already got I've already heard from uh
subscribers to the AMA feed that they've actually got new paying customers from people that discovered their business from an AMA question I plan on making several new episodes every week if you are an Enthusiast to Founders podcast I highly recommend that you become a member you can join by using the link that's in the show notes on your podcast play player or we going to Founders podcast.com