Chapter 34 - Iacocca: An Autobiography
Today’s Chapter is based on the book “Iacocca: An Autobiography”, by Lee Iacocca, who was famous for being the former CEO of Chrysler, where he revived the company.
Buy it on Amazon here:
https://www.amazon.com/Iacocca-Autobiography-Lee-ebook/dp/B004G8P2OG?ref_=ast_author_mpb
Here’s what I have learned from the book:
Lessons From Father
“One father is more than a hundred schoolmasters.”
— George Herbert
Lee Iacocca explains that there has been two big influences in his early life that transformed him into such a successful businessman: his father and the Great Depression. In fact, from his father’s experience with the Great Depression, his father drilled two things into Iacocca:
1. Never get into a capital-intensive business;
2. When times are tough, be in the food business;
While Iaccoca never ended up working in the food industry, it did made him hate wasting food and clothes no matter how he was doing financially. Iacocca also took his father’s advice to never forget to pay back any loans he took. In fact, his father used to tell him: “if you borrow anything, even twenty cents from a kid at school, be sure to write it down so you won’t forget to pay it back.”
Another thing his father transmitted to Iaccoca was the persistence at the sight of any obstacles. As we have learned previously, In the Book “Obstacle is the Way”, Ryan Holiday goes over how we can face obstacles and failures in life and how to turn them into an advantage or an opportunity. Holiday explains that all obstacles can be overcome through a discipline of three critical steps:
“It begins with how we look at our specific problems, your attitude or approach; then the energy and creative with which we actively break them down and turn them into opportunities; finally, the cultivation and maintenance of an inner will that allows us to handle defeat and difficulty.”
— Ryan Holiday
Similarly to a stoic philosopher, Iaccoca’s father would often tell his son that life always has its up and downs and that each person has to come to terms with his own share of misery. In fact, he would teach his son how to face obstacles by telling him that “you’ve got to accept a little sorrow in life. You’ll never really know what happiness is unless you have something to compare it to.”
“Whenever I was worried about anything, he’d say: “Tell me, Lido, what were you so upset about last month? Or last year? See—you don’t even remember! So maybe whatever you’re so worried about today isn’t really all that bad. Forget it, and move on to tomorrow.””
— Lee Iaccoca
Finally, and more importantly, the biggest influence from his father was the concept of being the best at what you do. As a matter of fact, Iaccoca mentions that his father truly hated when one did not perform up to their potential, no matter what they were doing. Once at a restaurant, Iaccoca recalls that the waitress was being rude and his father gave her the following speech:
““I’m going to give you a real tip,” he’d say. “Why are you so unhappy in this job? Is anyone forcing you to be a waitress? When you act surly, you’re telling everybody you don’t like what you’re doing. We’re out for a nice time and you’re wrecking it. If you really want to be a waitress, then you should work at being the best damn waitress in the world. Otherwise, find yourself another line of work.””
— Lee Iaccoca
This reminds me of the concept of “destiny” that we’ve learned previously from Napoleon. For him, nothing was more humiliating than for one to not achieve his destiny. Napoleon once said that to have lived without glory, without leaving a trace of one’s existence is to not have lived at all. To do so, Napoleon believes that one need to exploit every opportunities or accidents that are presented to him. As such, if you are going to do something, you better do it at the best of your abilities!
"There is no immortality but the memory that is left in the minds of men."
— Napoleon
Liberal Education
“The source of better ideas is wisdom. The surest path to wisdom is a liberal education.”
— Alfred Whitney Griswold
It is often mentioned that skills are not learned through formal education and Lee Iacocca is another perfect example of this. As a matter of fact, Iacocca believes that getting a good liberal arts education is more than sufficient. He mentions that by having a solid background in the fundamentals (reading, writing and public speaking), you can go pretty far with good teachers and the ability to concentrate.
“The ability to concentrate and to use your time well is everything if you want to succeed in business—or almost anywhere else, for that matter.”
— Lee Iacocca
Furthermore, Iacocca explains that it is essential to learn early how to establish priorities as it is the key in becoming a problem-solver in business. He further elaborates that, unfortunately, “Establishing priorities and using your time well aren’t things you can pick up at the Harvard Business School. Formal learning can teach you a great deal, but many of the essential skills in life are the ones you have to develop on your own.”
So where did Iaccoca learn his required skills to become a great businessman? Well for one, he was an avid book reader. In fact, he mentioned that he read like crazy and would read anything that he could get his hands on. Second, he loves to play poker and believes that it is a great game for learning when to exploit an advantage, when to back off, and when to bluff. These skills came to in quite handy when he was going through tough union negotiations later on. And third, he also learned the valuable skill of learning how to read people in a psychology class which is quite important in salesmanship and in managing individuals.
“The focus of the course was nothing less than the fundamentals of human behavior. What motivates that guy? How did this woman develop her problems? What makes Sammy run? What led Joe over there to act like an adolescent at the age of fifty? For our final exam we were introduced to a group of new patients. Our assignment was to make a diagnostic analysis of each one within a few minutes. As a result of this training, I learned to figure people out pretty quickly. To this day, I can usually tell a fair amount about somebody from our first meeting. That’s an important skill to have, because the most important thing a manager can do is to hire the right new people.”
— Lee Iaccoca
Finally, it is fair to say that Iaccoca learned quite a bit through his working experience. While it is often mentioned that sales skills are innate, Iacocca believes the opposite. He explains that learning the skills of a salesmanship takes time and effort. You need to practice them over and over again until they become second nature and along the way, you will make mistakes. The easiest way to get better is to learn from your mistakes. In fact, Iacocca says that “Mistakes are a part of life; you can’t avoid them. All you can hope is that they won’t be too expensive and that you don’t make the same mistake twice.”
And obviously, it is without saying that Iacocca learned tremendously from his mentors on how to improve his salesmanship skills. In fact, he learned a lot from Murray, one of his mentor, who would often call up every customer thirty days after the purchase of a new car and ask: “How do your friends like it?” The reasoning behind this was simple. If you asked the customer how his friends liked his car, “he would have to tell you how great the car was. Even if his friends didn’t like his car, he wouldn’t be able to admit it. At least not so soon! He still needed to justify in his own mind that he had made a smart buy. If you were really on the ball, you would ask the customer for the names and phone numbers of his friends. After all, they might be interested in buying a similar car. Remember this: Anybody who ever buys anything—a house, a car, or stocks and bonds—will rationalize his purchase for a few weeks, even if he made a mistake.”
Another tip he learned from Murray was to learn to ask the right questions to the customers that might lead to a sale:
“If a guy wanted a red convertible, of course that’s what you sold him. But many customers didn’t really know what they wanted, and part of the salesman’s job was to help them find out. I would say that buying a car isn’t all that different from buying a pair of shoes. If you work in a shoe store, first you measure the guy’s foot and then you ask whether he’s interested in something sporty or dressy. The same thing applies to cars. You’ve got to learn what he wants to use the car for and who else in his family will be driving it.You’ve also got to figure out how much he can afford, so that you can put together the best finance plan.”
— Lee Iacocca
Iacocca also learned from Charlie Beacham, whom he considers his first mentor at Ford, on the importance of using basic reasoning and common sense. In fact, Beacham would often remind him that “the only thing you’ve got going for you as a human being is your ability to reason and your common sense. That’s the only real advantage we’ve got over apes.”
Beacham also taught him that it is okay to forgive people for mistakes, provided that they took responsibility for them. He once reminded Iacocca that “everybody make mistakes. The trouble is that most people just won’t own up to them. When a guy screws up, he will never admit it was his fault, not if he can help it. He will try to blame it on his wife, his mistress, his kids, his dog, the weather—but never himself. So if you screw up, don’t give me any excuses—go look at yourself in the mirror. Then come see me.”
Finally, Iacocca also learned from Robert McNamara the importance of putting all ideas into writing. In fact, he explains that the discipline of writing something down is the first step toward making it happen. If you do not put it down on writing, you can get away with unclarity and nonsense, often without you even realizing it. But once you have to put your thoughts on paper, it forces you to go into details and that way, it is much harder to deceive yourself with what you really know.
“Nevertheless, he taught me to put all my ideas into writing. “You’re so effective one on one,” he used to tell me. “You could sell anybody anything. But we’re about to spend one hundred million dollars here. Go home tonight and put your great idea on paper. If you can’t do that, then you haven’t really thought it out.” It was a valuable lesson, and I’ve followed his lead ever since. Whenever one of my people has an idea, I ask him to lay it out in writing. I don’t want anybody to sell me on a plan just by the melodiousness of his voice or force of personality. You really can’t afford that.”
— Lee Iacocca
This reminds me of how writing a great tool for better decision making. In fact, by keeping a decision journal at hand, you will be able to collect feedbacks from your previous decisions in the hope of making better decisions in the future. Writing it down on a journal is crucial as it allows you to review all the circumstances and accessible knowledge you had at the time of your decision and to truly evaluate it without being obstructed by hindsight bias.
“Go down to a local drugstore and buy a very cheap notebook and start keeping track of your decisions. And the specific idea is whenever you’re making a consequential decision, something going in or out of the portfolio, just take a moment to think, write down what you expect to happen, why you expect it to happen and then actually, and this is optional, but probably a great idea, is write down how you feel about the situation, both physically and even emotionally. Just, how do you feel? I feel tired. I feel good, or this stock is really draining me. Whatever you think.
The key to doing this is that it prevents something called hindsight bias, which is no matter what happens in the world, we tend to look back on our decision-making process, and we tilt it in a way that looks more favorable to us, right? So we have a bias to explain what has happened.”
— Daniel Kahneman
Key to Management
“Good management consists of showing average people how to do the work of superior people.”
— John D. Rockefeller
Iacocca mentions that if he had to choose one word to describe a good manager, he would say that it all comes down to decisiveness. As a matter of fact, he explains that it is far too common for business leaders to want all the facts at hand before making any decisions. This is obviously reasonable especially in the situation where you are about to spend a lot of money and resources based of that decision.
However, Iacocca says that in real life, things do not usually work that way:
“Obviously, you’re responsible for gathering as many relevant facts and projections as you possibly can. But at some point you’ve got to take that leap of faith. First, because even the right decision is wrong if it’s made too late. Second, because in most cases there’s no such thing as certainty. There are times when even the best manager is like the little boy with the big dog waiting to see where the dog wants to go so he can take him there.”
— Lee Iacocca
In fact, while it is understandable for entrepreneurs to want to take an extra month or two to make extra research before releasing a product, for example, Iacocca explains that after a certain point, when most of the relevant facts are in, you will find yourself a victim of the law of diminishing returns. As such, it is essential to have a certain amount of risk-taking to be a successful businessman.
This is eerily similar to Bezos’ advice that most decisions should be made with 70% of the data you wish you had: If you need to wait for more information before making a decision, you are probably being too slow. Furthermore, if these decisions are two-way doors, meaning they are reversible, you will always have the chance to course correct a bad decision. As Bezos once said, “If you’re good at course correcting, being wrong may be less costly than you think, whereas being slow is going to be expensive for sure.”
Furthermore, Iacocca believes that management is nothing more than motivating other people. In fact, he explains that a good manager will do more listening than talking. Iacocca says that “you have to encourage all your people to make a contribution to the common good and to come up with better ways of doing things. You don’t have to accept every single suggestion, but if you don’t get back to the guy and say, “Hey, that idea was terrific,” and pat him on the back, he’ll never give you another one. That kind of communication lets people know they really count.”
For Iacocca, there is nothing more fulfilling for him as a manager than to watch a system that was labeled as average or mediocre really come into his own by listening and solving the problems mentioned by an employee.And for this, Iacocca believes that he has to be as direct and as straightforward as possible with his own people about the game plan so that they can all be a part of it. It is fair to say that communicating and motivating employees are primordial skills to learn to become a good manager. Here’s how Iacocca would approach it:
“Always hit him with more while he’s up, and never be too tough on him when he’s down. When he’s upset over his own failure, you run the risk of hurting him badly and taking away his incentive to improve. Or, as Charlie Beacham used to say, “If you want to give a man credit, put it in writing. If you want to give him hell, do it on the phone.””
— Lee Iacocca
“I’ve always felt that a manager has achieved a great deal when he’s able to motivate one other person. When it comes to making the place run, motivation is everything. You might be able to do the work of two people, but you can’t be two people. Instead, you have to inspire the next guy down the line and get him to inspire his people.”
— Lee Iacocca
As we have previously learned from Lee Kuan Yew, a leader’s job is notably to communicate his or her feelings to others and to be a great motivator. That is the key to lead people in the right direction. Lee once said that “to be a leader, you must be able to communicate your feelings and move the other fellow.”.
“At the same time, he accepts that motivating people to move forward in the right direction is the leader's job. He is clear on that. In some way, shape or form—whatever the system, voting or no voting—a true leader takes people with him, and doesn't try to beat them back.”
— Tom Plate on Lee Kuan Yew
Finally, Iacocca believes that the key to success is not information but people. The kind of people that he looks for are the ones that try to do more than they’re expected to, the ones that are never satisfied. But more importantly, Iacocca understands that no matter how talented individuals are, the role of the leader is to have the team work together and pulling towards the same goal. This is eerily similar to team success in sports. As a matter of fact, Iacocca was once advised by Vince Lombardi on how running a company is the same as running a football team.
““You have to start by teaching the fundamentals,” Lombardi said. “A player’s got to know the basics of the game and how to play his position. Next, you’ve got to keep him in line. That’s discipline. The men have to play as a team, not as a bunch of individuals. There’s no room for prima donnas.” He continued: “But there have been a lot of coaches with good ball clubs who know the fundamentals and have plenty of discipline but still don’t win the game. Then you come to the third ingredient: if you’re going to play together as a team, you’ve got to care for one another. You’ve got to love each other. Each player has to be thinking about the next guy and saying to himself: ‘If I don’t block that man, Paul is going to get his legs broken. I have to do my job well in order that he can do his.’ “The difference between mediocrity and greatness,” Lombardi said that night, “is the feeling these guys have for each other. Most people call it team spirit. When the players are imbued with that special feeling, you know you’ve got yourself a winning team.” Then he blurted out almost self-consciously: “But Lee, what am I telling you for? You run a company. It’s the same thing, whether you’re running a ball club or a corporation. After all, does one man build a car all by himself?””
— Lee Iacocca
Rebuilding Chrysler
“You never change a system by taking the existing thing and reworking it. I’ve been in Silicon Valley and tech business long enough to know that you’re better off changing it just by creating something brand new.”
— Naval Ravikant
While Lee Iacocca is well-known for his tenure at Ford with the development of the Ford Mustang and the Continental Mark III, he is even more famous for reviving Chrysler. In my opinion, seeing the steps he took to rebuild the Chrysler is a perfect way to identify the required elements for a successful car company.
The first thing Iacocca noticed at Chrysler was that there was no system in place for financial controls. Even worse, when he first came to Chrysler, nobody in the company fully understood what was going in terms of financial planning and projecting. For Iacocca, it was primordial for any car company to know the rate of return on investments for each car plants under Chrysler’s control.
As such, the first thing Iacocca had to do to start solving these problems at Chrysler was to surround himself with a good team to turn around the company.
“In the end, all business operations can be reduced to three words: people, product, and profits. People come first. Unless you’ve got a good team, you can’t do much with the other two.”
— Lee Iacocca
Secondly, he realized there was an issue with the relationship Chrysler had with their dealers. While it is common for car companies to have fire sales when inventories got too large, this became the standard at Chrysler. In fact, Iacocca mentioned that “like Pavlov’s dogs, the dealers became dependent on these sales. They knew the day was coming, and they waited. They’d hear that bell ring and their hearts would start to beat faster because now they could buy their cars a little cheaper.”
It would be impossible for Chrysler to be profitable in these circumstances unless Iacocca managed to get rid of this system. To make it worse, there were bad feelings between the dealers and Chrysler headquarters where each sides were sending angry and insulting letters to each others. This was a big matter for Iacocca who truly believes that what’s good for Chrysler is good for the dealers, and vice versa.
By consequence, he hired Gar Laux to change the relationship between dealers and Chrysler by creating “ an environment where somebody from top management could sit down with the dealers and go over all of their complaints and problems, one by one.”
“So I sent Gar to hold seminars with the dealers and remind them of a few fundamentals: when a guy comes through your door, love him. Talk to him. Give him the information he needs to make a $10,000 purchase. He’s not always too sure of what he wants. He might not know what a transaxle is or what front-wheel-drive does for him. And the hims have now given way to the hers. Over 50 percent of cars are now bought by women, and they don’t always know about the technical side of things. They need some courteous help. Dealing with customers takes knowledge, time, and patience—after all, if salespeople don’t have that, they should look for another line of work.”
— Lee Iacocca
Thirdly, Iacocca had to build back Chrysler’s perception with the public. And for that, the only solution was to start building good products, and to price them competitively. For Iacocca, Quality is the best advertising you can do. Furthermore, while it is counterintuitive, Iacocca mentions that quality and productivity are two sides of the same coin. He says that “everything you do for quality improves your productivity. When you improve quality, warranty costs go down, and so do inspection and repair costs. If you’re doing the job right the first time, engineering and tooling costs go down, too, and owner loyalty starts to rise.”
“The public has become pretty cynical about big business and for good reason. Sometimes our cars were so bad, they felt we built them that way on purpose. Most people don’t realize that it’s in the company’s interest to build cars right the first time. If we catch a problem at the factory, it might cost us $20 an hour to fix it. But if we let that problem go and the dealer has to fix it, it’s going to cost us $30 an hour under warranty. As much as I hate paying $20 an hour, it sure as hell beats paying $30. Good design always involves a delicate balance: what does a customer want, and how can we give it to him without compromising the other things he wants?”
— Lee Iacocca
Finally, it was important for Chrysler to innovate if it wanted to win against its bigger competitors. Lee Iacocca says that “if you’re not number one then you’ve got to innovate. (…) You’ve got to find market niches that they haven’t even thought of. You can’t go head to head with them — they’re just too big. You’ve got to outflank them.”
This is eerily similar to what we have learned from the former CEO of General Motors, Alfred Sloan. When he was put in charge of General Motors, he realized that the company did not have a clear business concept set in place. At the time, the car industry was dominated by Ford who had a concept of a static model at the lowest price in the car market with the Model T. Meanwhile, General Motors’ divisions, without a clear and rational business concept in place, were producing cars in identical price positions that were competing among each other, without relationship to the interest of the enterprise as a whole.
“General Motors was in need not only of a concept of management but equally of a concept of the automobile business. Every enterprise needs a concept of its industry. There is a logical way of doing business in accordance with the facts and circumstances of an industry, if you can figure it out. If there are different concepts among the enterprises involved, these concepts are likely to express competitive forces in their most vigorous and most decisive form.”
— Alfred Sloan
As such, to differentiate General Motors from other cars manufacturers, Sloan decided to implement a “quality car at a fair price” policy. To do so, the company will have to produce a line of cars in each price area, from the lowest price up. More importantly, it should not leave any wide gaps in the line in terms of price and it should avoid any duplication by the corporation in the price fields.
Beyond the Book
Listen to "Michael Lombardi: Leadership on the Field" by The Knowledge Project
Read "Turning Adversity Into Advantage" by Farnam Street
Read "Creating a Decision Journal: Template And Example Included" by Farnam Street