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My guest today is Joel Peterson. Joel is the founder and chairman of Peterson Partners, a private equity, venture, and search investment firm, and the former CEO of Trammell Crow. He is also the former Chairman of JetBlue AIrways and is currently in his 31st year teaching at Stanford GSB. Finally, Joel has published two books, The Ten Laws of Trust and Entrepreneurial Leadership.
This in-person episode goes far and wide into building and maintaining trust, designing a fulfilling life, skills growing CEOs need, leadership transitions, lavish communication, and building value focused organizations as CEO.
Learn more about Alex and Think Like an Owner at https://tlaopodcast.com/
Ravix Group — Ravix Group is the leading outsourced accounting, fractional CFO, advisory & orderly wind down, and HR consulting firm in Silicon Valley. Whether you are a startup, a mid-sized business, are ready to go public, or are a nonprofit, when it comes to finance, accounting and HR, Ravix will prepare you for the journey ahead. To learn more, please visit their website at https://ravixgroup.com/
Hood & Strong, LLP — Hood & Strong is a CPA firm with a long history of working with search funds and private equity firms on diligence, assurance, tax services, and more. Hood & Strong is highly skilled in working with search funds, providing quality of earnings and due diligence services during the search, along with assurance and tax services post-acquisition. They offer a unique way to approach acquisition diligence and manage costs effectively. To learn more about how Hood & Strong can help your search, acquisition, and beyond, please email one of their partners Jerry Zhou at [email protected].
Oberle Risk Strategies– Oberle is the leading specialty insurance brokerage catering to search funds and the broader ETA community, providing complimentary due diligence assessments of the target company’s commercial insurance and employee benefits programs. Over the past decade, August Felker and his team have engaged with hundreds of searchers to provide due diligence and ultimately place the most competitive insurance program at closing. Given August’s experience as a searcher himself, he and his team understand all that goes into buying a business and pride themselves on making the insurance portion of closing seamless and hassle-free.
(00:00:00) – Intro
(00:04:02) – Joel’s favorite classes to teach at Stanford
(00:05:36) – Engineering a remarkable life
(00:10:21) – Joel’s Values-driven leadership and companies class
(00:13:03) – Hindsight on running Trammell Crow
(00:20:32) – Launching Peterson Partners
(00:23:14) – Characteristics of high-performing CEOs
(00:33:48) – Measuring trust of an organization with their CEO
(00:38:22) – Joel’s time at JetBlue
(00:39:48) – CEO audits
(00:41:01) – Navigating tough situations
(00:46:02) – Adaptability in Founders
(00:49:16) – Insights on Recruiting Talent
(01:00:00) – Getting over betrayal
Alex Bridgeman: I always love coming here too. It’s just a beautiful campus. Whenever you see a campus or Stanford in a movie, it looks exactly the same as it does in real life. So, I enjoy coming here. I imagine you do too. It’s definitely a fun place to be. So, thank you for sharing the time in person to do this.
Joel Peterson: My pleasure. It is a beautiful campus.
Alex Bridgeman: Yeah, it certainly is. We were talking about the different classes that you teach earlier. Is there a class in particular that you feel like you really specialize in and most people- you feel the most engaged in and the most excited by?
Joel Peterson: Well, it’s interesting, I’ve kind of grown over the years, I’ve been here 31 years, so you change over 31 years. So when I first started, I had been in the real estate industry for 20 years. And so I taught a real estate finance class, and I really loved that. But over the next 15 or 20 years, it became clear that I was no longer really that current in real estate. So, I dropped out of that, and I started buying companies. So I began teaching a class on buying companies and holding difficult conversations and managing growing enterprises. And then students came to me and wanted me to teach a class on values based leadership. So I started to do that. And I taught this first year class that they asked me to teach. And I’m now teaching a class I’m calling Engineering a Remarkable Life, which is kind of looking back on life, what are the difficult periods you go through and the amazing periods you go through, and how can you apply the principles that you learned in business school to managing the most important product you’ll ever deliver, which is you. So, you’re the product, and how do you then manage and organize your own life so that it ends up where you’d like it to be? So, it’s kind of how to be intentional about your own life, how to be deliberate about your decision making, and use those things that you learned in business school to have a really remarkable life.
Alex Bridgeman: That class on engineering a remarkable life, are there certain insights or steps that you recommend to 20-year-olds, 30-year-olds that prepare them? Because I’m 26 currently, so thinking about what my life will be like at 40 or 50 feels inconceivable. I don’t know how I could have a realistic idea of what my life will look like on a day to day basis. So, with kind of that like overhanging uncertainty of what’s going to happen, how do you plan for it hopefully going well?
Joel Peterson: Well, I start with really the basics, which is to say let’s start with your balance sheet. What are your assets and your liabilities, and how much net equity do you have as a human being? And can you increase that? Can you increase it best by increasing your assets or by decreasing your liabilities or doing some of both? And think about that. Then let’s talk about your family history because that’s fed into who you are. And then let’s think about your values. And then your goals. What goals do you have? What would you like to see happen? And most people who are 26 years old have wishes, they have hopes, they have dreams, but they’ve not learned how to translate them into goals. And in business, you actually learn how do you turn a goal into an objective with measurement, timeframes, accountability, et cetera, et cetera. So, we kind of go through goals, and I have students write a short paper for each class. And so you go through that. And then you say, okay, what are we really solving for? What’s the end objective? And I offer them a notion that comes from Frederick Buechner where he said, you really only need three things in life to be happy – a person to be, someone to love, and a work to do. And so, then we talk about what do those look like? How do you think about each of those? How do you measure each of those? How do you imagine each of those? And then when you get through that, what you’re actually solving for, I talk about are you solving for pleasure, happiness, joy, or peace. And those are quite different in their dimensions. And so we talk about that. And then we look at how are you going to deal with reversals? How are you going to- because reversals are going to happen in your life. There’s going to be bad stuff that happens. So, what are the things you’re worried about? Are they health things or loss of job or family crises or marriage stresses and strains or with children or whatever? But what are all the bad things that could happen? And think about them ahead of time. And then we say, how do you then thrive? If things are going well, what do you do to thrive with your life? And then I say, at the end of the class, I want you to write up an 8 or 9, 10 page family plan or plan for your life in pencil. In pencil is the important part because it’s not going to be what you do. You’re going to erase it. And you don’t want to feel under pressure because you’ve got a plan. There’s some advantages to serendipity. So, we talk a little bit about what’s the advantages to being intentional versus using serendipity to decide what it is you’re going to do.
Alex Bridgeman: And that serendipity is, of course, really important. How do you factor that in and allow your life to have serendipity and give yourself more shots on goal with serendipity?
Joel Peterson: Yeah, well, I think you want to be sensitized to what’s going on in the market and with other people. But there’s this notion, Dwight Eisenhower, who led the D Day invasion, said, plans are nothing. Planning is everything. So, the notion is the plan isn’t the end objective. You want serendipity to intervene and you want to respond to whatever it is. But the planning process is really important. So this idea of being deliberate, being intentional. And by the way, business students learn a lot of those sorts of skills here. So, I want them to take those skills that they would apply to a startup or to running a division of a company and apply it to themselves, apply it to their own lives. So, I just try to challenge them with different concepts. I try to provoke or prompt them to think about things in new ways. And so that’s the one, I’ve only taught it now- I’m part of the way into teaching it the second time, so I’m still developing it. I always tell students that the first time through anything is like the first pancake, you throw it away, and then you do the one you can eat. So, I’m part of the way through the second pancake now.
Alex Bridgeman: It’s funny, I went through a pancake phase this year and learned how to make them well with buttermilk and all that. So, I’ve ruined a lot of first pancakes. We talked about a class also about values driven leadership in companies and how that came from a couple students who were curious about that or folks on your faculty. What were some of the original ideas for that class coming together? I also spoke with Ann Rhoades recently, and, of course, she’s very experienced in lots of different values driven cultures, so I imagine some of her ideas may have come into it, too.
Joel Peterson: Yeah, Ann was on the board with me at JetBlue. And so we’re good friends. And she’s an amazing woman. And she was, of course, the Head of People at Southwest Airlines and then helped found Jet Blue. She was an important management member and important board member, so she’s great, and you can learn a lot from her. But she really does get the idea of culture, that really, the job of a manager, of a leader is to create a great culture. I always used to say to people that what you want to do is have people feel like respected members of a winning team doing something meaningful. And if you can get those three things built into your culture, you’re going to be able to build a great company. And Ann’s kind of the, I don’t know if she’s the author of that phrase, but she certainly exemplifies it. But yeah, students, there’s a course around here called Leading with Power or something like that, and it’s all about power. And one of the concepts that people learn is people will forget, once you become the leader, they’ll forget how you got there. And some of the students said to me, is that really true? And I said, I don’t think so. I think actually people remember. If you get there by stepping on people, they will never forget it. And so, they said, well, could you teach a class on values-based leadership? And I said, there is no other kind of leadership. Values are priorities. That’s what values mean. So, leaders set priorities, and they measure against priorities. They set objectives, strategies, tactics, and controls based on their priorities. So there’s nothing else but that. And so, it’s very hard for a lecturer or an adjunct professor to initiate a new course. And so, I went to Charles O’Reilly who’s a tenure line faculty member and asked him if he would co teach this with me, and he jumped all over it, and we put together this class. We’re now in our 19th year, I think, teaching this class. And fundamentally, we basically- we called it Leadership Perspectives. So we bring in amazing leaders, big name leaders, amazing leaders from all over all kinds of industries, all kinds of organizations. And they basically talk about how did they learn leadership, what were their experiences, what were their challenges, and then the students are free to ask them any questions. It’s all off the record. It’s all confidential. And so it’s an amazing experience. And students meet in small groups and talk about that. And so they’re exposed to these value based leaders. And I think that’s the best way to learn.
Alex Bridgeman: Is there something from your time teaching this class and speaking with other value driven CEOs and leaders that would have changed how you ran Trammell Crow as CEO? Is there anything from today that would have impacted how you ran the company?
Joel Peterson: A lot of things. I mean, I’m more experienced, I have better judgment, I’m more patient. When you’re young, you’re really quite impatient. There’s this notion that they’re strivers and thrivers in the world, and I was a striver. I just always had- I was always in a hurry. And I married a woman who’s a thriver. And she’s never in a hurry. So it’s been a source of conflict for us over the years. But I’ve learned from her how to thrive. And I don’t think I was as eager to thrive as I am today. And so, I think I would have been better at that. All of my skills have gotten better. And I’ve been involved in hundreds of companies since then. And so, I’ve learned from each one of them. I’ve learned from entrepreneurs. But any one thing, I think I would have probably been more aggressive when I was Chief Financial Officer. I wrote a memo to say we need to slow down our development. And I said the office buildings are going to become idle oil rigs. And I wrote a white paper on it. And then I didn’t really do much with it other than just publish that. I went off to run Trammell Crow Residential for six months or so and then replaced myself with somebody else. But I wasn’t as aggressive I think as I would be today. So that’s maybe one thing. You just get older and better and have better judgment and you’re wiser.
Alex Bridgeman: What do you think more aggression would have looked like? If you wanted to be more aggressive as CFO, maybe taking the white paper for example or that notion of slowing down development, what would have changed with a more aggressive look?
Joel Peterson: I think I would have recruited a bunch of partners to basically get on board with me. I was in a company that was founded by Trammell Crow himself, who was a legendary developer and a big personality. It would be a little bit like having a nice Donald Trump in charge. I mean, you didn’t- it was hard to be aggressive over Trammell’s wishes. And so he was very demanding and interested in growing things rapidly. So, we had what was called a grow fast organization. In fact, there was a biographer that wrote and said that he had built a company that was like a Ferrari with six forward gears, no brakes, and no reverse. And so, it’s hard to slow that down. I think I could have done a better job had I basically gone around and recruited the partners to slow things down. But I ended up having to go back in and try to turn the company around.
Alex Bridgeman: So, turning the company around, what happened that forced you to turn things around? What was changing?
Joel Peterson: I left. I came out to California. I started buying companies. But I wanted to help the company in the last few months that I was around. And so I flew back in from time to time. And then Trammell said, will you come back to Dallas and run the company? I said, no, I can’t do that. And he came out and stayed with us. He stayed overnight with the family. He played with the kids and charmed my wife and said, I need you. And once he said that, I loved the man, I honored the man, I admired the man. And so I felt like I need to run back into the fire. And so, I committed to not move back to Dallas, but I committed to take the red eye for three years back to Dallas to turn it around. And we did a bunch of things. We raised a lot of cash, we sold a lot of properties, we restructured debt, we eliminated 700 jobs. We did a whole bunch of things that saved the company. But it was it was miserable. And then I got fired and sued in county, state and federal court because I wouldn’t go along with a roll up that they wanted to do. They wanted to roll up partners’ interests. And I said I don’t want to make money that way. So it was a great experience. It was a great two decades. I went all the way to the top. I learned a lot. I had a lot of great relationships. And then it all blew up because I wouldn’t do this final deal.
Alex Bridgeman: In terms of challenging times in your career, where does that experience rank for you?
Joel Peterson: Number one.
Alex Bridgeman: What was your ongoing emotion day to day? What was that experience like? Can you talk more about it?
Joel Peterson: Well, it was frustrating in the moment because I had basically to convince everybody, and I basically said we want three things – we want to become shipshape, which meant balance sheet surgery, we want to become profitable, which meant income statement surgery, and we want to be well run, which meant getting incentives right, getting governance right, etc. So those were the three watchwords, and we made great progress on those. So I felt a lot of pressure. Because I was flying in at midnight, I was flying in on the red eye every Sunday night, and then I would just work straight on through. I mean, as early as I got up and as late as I was awake, I worked until Friday night. And then Friday night, I’d fly home and then play with my kids and be with my wife all weekend, and then start it all over. So, I think exhaustion was my first feeling. And then I think frustration was my second feeling in that I couldn’t convince people not to do this roll up of partners’ interests because I thought this will destroy the company. And I was trying to build what I called an evergreen enduring enterprise, turn it around and create that, and they wanted to just roll assets. Trammell had gotten to the stage that his family was his legacy, not the company. And once that changed, then it was getting assets to his children. And I thought that will destroy the company. Once they wanted to start rolling up partners’ assets to themselves, I just said, I’m not up for that. And so that’s when they got mad at me and fired me and sued me. And so, my feelings during that were first of all, fear and panic and questioning, did I do the right thing? Should I have just gone along? Should I have figured out a way to compromise my values and just go along? I could have become quite wealthy in the rollup. And I thought uh. So, there was a time there where I was just agonized over that. And then I spent two years in litigation. And that’s mind numbing, difficult, discouraging. So there were a lot of feelings during that. So, when you take that whole period of him coming to stay overnight with us, getting us to come back, that was kind of I didn’t want to do it. I demurred. I said, I’m not going to do it. But then once he said I need you, I thought I owe the man so much, and I so admire him that I’ll do that. So the feelings, I guess, to answer that question, Alex, I would say the feelings went all the way from pride and elation and determination, all the way to depression and discouragement.
Alex Bridgeman: And how did Peterson Partners come out of that? Was there a connection between that experience you had in real estate and then buying companies yourself?
Joel Peterson: Well, I’d started to buy companies. When I left Crow, I bought three companies. And so I had a controlling interest in three companies. That was going to be my life. I’d left. So, I kind of knew that that was what I was interested in. But once the litigation was settled and over and everything, then I had to decide, do I go back into real estate where I have a lot of connections and relationships, but I’d already been to the mountaintop there, or do I go back to buying companies. And so, I thought I think I’ll go back to buying companies and help entrepreneurs, and really, my expertise wasn’t so much real estate as it was helping entrepreneurs be successful, giving the hard news, coaching them, et cetera. So I helped buy companies. And one thing led to another. One day, somebody came to me and said, so you’re in the private equity business. And I said, what’s private equity? I had no idea. I was just investing in entrepreneurs and helping them build great companies. But I learned I was in the private equity business. And then when I started teaching here at Stanford, there were a lot of people who wanted to start companies, and so I would back them. I would give them pre seed capital. And so, people said, well, you’re in the ventures business. So then I organized a ventures company. So, then I was in private equity and ventures. And then there was this notion of search. And I started to back a couple of searchers. And so I became a founder of a search enterprise. So we had search funds, venture funds, and private equity funds. And then when Trammell himself died, I went down to his funeral in Dallas, and I was on the plane with the Chief Financial Officer, and we happened to sit next to each other. We were both flying in. And I said, Bob, have you ever thought about going back into real estate? And he said, I’ve just been thinking the same thing. Because that was when all the banks were getting rid of their real estate. It was the meltdown in 2008 or 2009. It was just a mess. And we both said this does seem like the time to get back in when everybody’s getting out. So we formed another company. So we started raising funds for real estate. So now we do these four things. So one thing led to another. So, I talked to you a minute ago about being deliberate and intentional and planning things, whereas in my own life, serendipity has had a lot to- one thing led to another. I’ve always had a plan, I’ve always had broad based goals, but I’ve always been open to what’s going on in the market.
Alex Bridgeman: So you’ve worked with, of course, a lot of different CEOs across all of those different asset classes. Are there any characteristics in particular that you really admire in some of the highest performing CEOs?
Joel Peterson: Yeah, in fact, that’s what I wrote this book about, Entrepreneurial Leadership. I started out by thinking these entrepreneurial leaders are so much better than some of the big corporate leaders and way better than our political leaders. They’re terrible leaders. They just hold their finger to the wind and then do whatever the wind tells them to do. And I thought that’s not the way to do things. Your podcast about thinking like an owner was what they did. And I thought, wow, this is really important. So I started to break down what it is that people who are wired that way do. And I said, first of all, they typically build high trust. Trust is table stakes for them. And they do that by making and delivering on promises. And they do that over and over. They do it a conversation at a time, a promise at a time. And that becomes the currency of the enterprise. So that’s one of the things I observed. The second thing I observed was they’re typically very clear about what it is they’re trying to do. Their objectives are not vague. They have a mission, they have an objective, et cetera. So, they do that. The third thing they tend to do really well is assemble a team. So, these teams these entrepreneurs assemble are typically amazing people. They’re able to go do things without a lot of direction because they think like owners. And so that’s the third thing. And then the final thing that they do typically more or less well is execute. Now, when I was writing the book, I came away saying, what are the things that they execute well on? And they came up with 10 things that they tend to do well, not all of them. But I started thinking about how do you execute on raising capital, running meetings, dealing with adversity, dealing with rapid growth, those kinds of things. So, those became the four pillars that I kind of observed working with and coaching entrepreneurs.
Alex Bridgeman: When you talk about having a set of vision and priorities that are very clear, there’s almost an element of predictability there. So your team can predict and have an idea of, if I ask Joel this question about something we’re trying to do or an idea, I should ideally know roughly what he’s going to say before I ask him and having that even goes to energy level or emotion, like having a consistent energy level or emotion throughout the day and set of values and priorities we’re all working towards, and they don’t change. That has to be really helpful for the rest of your team too.
Joel Peterson: Very much so. My view is I don’t want to ever surprise anyone. In fact, I want my team to be so confident of what I would do that they can make decisions. Stan McChrystal used to say when he was leading JSOC, Joint Special Operations Command, that what he did was he pushed decisions into the field as far as they could go until it hurt. And the idea was that the decisions are made closest to the market, closest to the customer. And so, I didn’t want, as a CEO, I didn’t want any 70/30 decisions. I only wanted to make 51/49 decisions. All those other decisions they didn’t need to bring to me because they were so confident, I was predictable enough, they could trust themselves to make those decisions. To me, that’s really efficient. And that’s thinking like an owner. It’s being an entrepreneurial leader. That differentiates it from being a political leader, or an administrator, or a manager, or even a pure entrepreneur.
Alex Bridgeman: And how do you keep that consistency throughout weeks and months as things, in the back of your head, you’re juggling all these ideas or fears and hopes for the company, how do you keep your outward appearance and conversation consistent?
Joel Peterson: Well, what I call communicate lavishly. In other words, there’s no- nothing is hidden. You give feedback, you receive feedback, you share things, you have standing meetings. There’s a lot of communication that goes on. And it’s clear and it’s crisp. And so, getting better at that. I remember when I first was writing memos, they were 10 and 14 pages long and I started out with the whereases, the way a legal document does, and then finally come to the conclusion at the end. I learned to flip that on its head, start with a conclusion and have kind of the McKinsey approach, which Barbara Minto called the Pyramid Principle, and she taught all the McKinsey consultants to think that way. So you start with the conclusion, and you get three supporting elements to it. And if you get people used to that- Another thing I used to do, Alex, was when people would bring me a decision they’d made, I’d say, what are the things you considered when you came to that conclusion? The first time they didn’t consider anything else. But from then on, they always said, well, you eliminated these two other things. And so, you’re training people all the time, every conversation. As a leader, people are watching everything you do, and they’re measuring everything you do. And so, to me, the whole idea of managing by fear and reward, carrot and stick, is really a primitive, brutal, awful way to manage, and you don’t get people who think like owners when you do that. And so, I always said get it so that you’re leading by a sense of duty, fiduciary duty, duty to the mission, and love, that people really care about each other and about what they’re doing. That matters. And so, if you can ever get a culture so it’s built around that, then they tend to almost manage themselves. Now they don’t really, but you can kind of tell yourself that’s what’s happening.
Alex Bridgeman: Yeah, you can get closer. So, it sounds like in terms of different tactics that you’ve seen lavishly communicative CEOs take, companywide emails is a popular one. I listened to different podcasts of yours, or maybe it was Ann too, about JetBlue having a weekly email. And then within that email, there will be one example from the team of one person going above and beyond for a customer. And every week, there’d be something. And so having that style of communication where you’re recognizing, appraising, but also updating felt like a really good tool. But what other tools have you found really successful CEOs doing to lavishly communicate to their teams?
Joel Peterson: Well, I think one of the most powerful things you can do is tell stories. People learn inductively. Here in the business school, everybody, these brilliant scholars create these theories that boil all this experience up to a final conclusion. And then they deliver these conclusions. But people don’t remember that. They remember the story that got there. And so, from time to time, I would open a board meeting with a story. So, I’ll tell you one here just so you get the feeling for it. There was a woman who is an Associate Dean here at Stanford who flew on a JetBlue flight from San Francisco to Boston. She sat in the last seat with a baby. And when she got- she was obviously the last person off the plane at the end. And she got up with her baby and got to the carousel. And the stroller was broken. And so, George Force who was the captain, a left seat captain, happened to see her there struggling with this baby and the stroller, and he came over and put the stroller together for her. And she said, she wrote me a note and said, I’ll never fly anybody but JetBlue from now on. And so, I opened the board meeting with the story of George Force. And then I wrote an article for Forbes magazine about Captain George Force. And that is the kind of thing that people remember. Whereas you just say treat your customers well, we care about safety, we care about treating people well, et cetera, that’s the big idea, the concept, and it’s important. But the story is what- so to me, gathering stories. I think a lot of great leaders are great storytellers. Not only are they great storytellers, but they care about collecting stories. That’s important to them. They want the specific. They want to go from the specific to the general.
Alex Bridgeman: And stories about individual people too are really, I think, much more powerful than a story about a group or an entire team doing something. For whatever reason, the story of one person, so your mind can focus on the story of this person or maybe two people connects a lot better.
Joel Peterson: For sure. And I think just the idea of recognizing people, letting people know that you’re paying attention, making heroes. A lot of people do a lot of heroic things in the life of an enterprise or a company, a family, whatever, and recognizing them matters to them. And so, it’s not that hard to do either, just to say, wow, you really did a great job on that. Or you did a great job on that, why don’t you think about this, so you can combine it with feedback, too. But it’s a great way to teach. Great leaders are great teachers.
Alex Bridgeman: How can leaders tell their teams to look for these stories and send them to you? They may not do it automatically, but how do you encourage these stories to get bubbled up through teams not just to you but to the rest of the team so that others have examples of these?
Joel Peterson: You do it yourself. I mean, I think there’s nothing quite like example. I used to say that if the leader was a triathlete, you’d have a lot of runners that would show up in the company. If the leader was a smoker, you’d have a lot of people who became chain smokers. I mean, the leader really sets a bunch of standards. So, to me, if the leader collects stories and tells stories and opens meetings with a story, recognizes people, celebrates others, reflects credit, absorbs blame, everybody will start to do that, and you start to get a healthier and healthier culture. But the power of example is way better than the power of sermonizing.
Alex Bridgeman: And, of course, that also builds trust too across an organization.
Joel Peterson: Totally.
Alex Bridgeman: And so you talk about having measurable goals and plans. Is there a measurable way to measure the trust that an organization has with you as the CEO?
Joel Peterson: Yeah, I mean, there’s a lot of ways to do it. But again, go back to the original definition I gave, making and keeping promises. So, what happens in a high trust organization is people aren’t afraid to make promises, and they’re not afraid to adjust them if they need to, and they stay in real time on them. But it becomes the currency of how you run the business. And so, they don’t sandbag goals. They don’t lie to each other about something. They don’t hide things. Because trust is precious. And everybody regards it as precious. So to me, if you do that, and then if you give feedback on your feedback, so if I say to you, Alex, tell me the things that I’m not doing well, and you give me four or five things, and then I go out and I say, okay, I want you as a group to know that I’ve had this feedback, here’s what I’m working on, let me know if I’m doing any better, that builds trust. People say, gosh, he’s recognizing where he’s got deficiencies, and he’s working on it, and he wants us to give him feedback. And if you embrace the areas that you’ve been given feedback on, people will help you. They’ll hold you accountable. They may criticize you a bit on that. But if you embrace that, feedback is the breakfast of champions. So if you can get a feedback organization going, it’s really, really powerful.
Alex Bridgeman: And where does that go awry? So, if that goes wrong, for some reason, what are common reasons that it doesn’t come together?
Joel Peterson: If you get really defensive people, if you get people who lash out if they get negative feedback, if you get selfish people who are just looking out for themselves. You have to become a team. It’s really interesting, the power of teamwork. There are a lot of professional teams who’ve won not because they’ve had all the best players, but because they’ve had the best locker room. There was a baseball player, an infielder named Dustin Pedroia that played for the Boston Red Sox. The Red Sox, they talked about the Curse of the Bambino, they hadn’t won for 100 years a World Series or something. And Dustin Pedroia, who’s a little five foot five inch second baseman, but when they interviewed him and recruited him, they found that every team he’d ever been on won. Every locker room was great where he was there. He was the glue. And I think he had a huge influence. He and Big Papi had a huge influence on creating a culture of winning as a team. And so you get the team spirit right, and things just go better.
Alex Bridgeman: What else about trust has been eye opening for you to learn over the last couple of decades of investing in companies and being a part of companies and teaching? Are there any things that have been a surprise to you?
Joel Peterson: I was a bit naïve. I saw trust going into business as something that was kind of a warm, fuzzy feeling thing – I trust you, you trust me. And I didn’t treat it as a serious, hard edged concept that was a precious asset that you had to maintain. And so, I allowed myself to be betrayed on a number of situations because it wasn’t smart trust. It was a loose fuzzy trust. I really had to learn how to use trust in a smart way. I had to learn who to trust, how to trust them, what to do if I were betrayed. So, you can be betrayed. So, I think one of the downsides of trust is it can lead to betrayal. And betrayal can be very hard to overcome. A lot of people just can never let go of a betrayal. And you really can’t live in the future unless you leave that past. It’s like Cortes burning the ships at Veracruz so people wouldn’t get back on the ship. Well, that’s kind of what you have to do with a betrayal. You have to burn that ship and move on. You have to forgive, forget, and move on. But that’s the downside of trust.
Alex Bridgeman: Yeah, I can’t remember who it was but someone was talking about forgiveness not being about forgiving the other person. It’s about forgiving yourself and being able to let go of that burden and being able to think about the future again.
Joel Peterson: There’s a lot to that.
Alex Bridgeman: Yeah. In talking about or thinking about some of the not necessarily betrayals specifically but just challenges you’ve had with trust, maybe we talked a lot about JetBlue off microphone, so any examples from your time at JetBlue that stand out to you as trust being tested a lot?
Joel Peterson: At JetBlue, I think we developed this high trust culture. I mean, I have a note from the CEO on my last day there where he said something like, you came in when we were losing money, and the company was at risk, and you’ve created this high trust culture. And it’s really been amazing to see what’s happened to the company. So, I think we built little on little on little, a little bit at a time on trust. I had an experience on the board which nearly violated that trust that we had to manage our way through. So that was one. But mostly it was upward. And mostly at Crow, it was upward. And mostly at Peterson Partners, it was upward. But there were some things there. In every case, you have to be aware. I always feel like you owe it to people to audit them. It’s not fair not to pay attention to what’s going on with them. So it kind of feels like it’s a measure of mistrust. I actually think it’s a measure of we’re a high trust organization – we do audits, and we account for our output to each other.
Alex Bridgeman: Can you talk more about that? What does an audit look like for a CEO or on a board?
Joel Peterson: Well, there’s a financial audit. But I think there are things like cultural audits. There are things like human capital audits. I think great companies do organizational charts three to five years in the future. So they’re kind of planning their organization out and they’re saying, what do we need to bring on? And if we’re going to do that, what are we going to have to do? They’re constantly auditing, measuring, imagining the future and then holding themselves accountable for it. So, to me, those build trust. Those are high trust disciplines. That’s the kind of hygiene that builds for trust. And I think I made mistakes of just trusting people, I just thought, well, I wouldn’t do that, so they won’t either. Well, that’s not true. You find a lot of people, if they see daylight, they’ll kind of run through the daylight and they’ll take advantage of things, and you can’t let that happen and build a high trust organization.
Alex Bridgeman: Yeah, that’s certainly challenging. And thinking about David Neeleman being replaced at JetBlue, you, of course, invested in Azul and Breeze after JetBlue. Can you talk a little about navigating that relationship, being on the board during that really challenging time for JetBlue but also David as a person in his career? I imagine that’s challenging and pushes trust all the way around. How do you navigate that while remaining, obviously, close professional- that close professional relationship?
Joel Peterson: It’s a real challenge. So David is a phenomenal human being. He’s really a great visionary. I think he’s the greatest kind of entrepreneur in the commercial airline space of all time. He’s really created a lot of airlines and everything. But he was the CEO at JetBlue for a decade. That is a long time. And being a CEO is a high stress thing. And I think JetBlue had just gotten to the point where it needed new leadership. David didn’t realize that. And so he didn’t really accept the idea. So I invited him to stay on as chairman for a year. And after a year, he came to me and said, why don’t you take the chairman role at JetBlue? I want to form a new airline in Brazil where he’d grown up through the age of five or six, something like that. And so, I gave him money to buy his first plane down there and then stayed close to him. He’s come to a lot of our LP meetings. I love the guy. I think he’s fantastic, and I respect him. But that change had to be made in the judgment of the board. And because I was the lead director, I had to be the point of the spear on that. And it was the right decision, although David today would say it wasn’t the right decision. So, we agree to disagree on that. But then I backed him again on Breeze when he went to start Breeze. Now, I don’t think our relationship will ever quite be the same because of that. We disagree on that one matter. But he knows I respect him. And I think he respects me, or he wouldn’t be coming back and having us back him. But so, to me, you have to separate the business decisions and the things that need to be done from how you feel about people. I think showing them respect and honor and graceful ways of doing things is always right and always important. But you still have to do what you have to do. And if not, you’re not really a leader. You’re not really probably even a manager.
Alex Bridgeman: What skills from that CEO position do you think JetBlue needed to get to the next level in its growth?
Joel Peterson: I think it needed a level of focus and discipline. David is kind of the pure entrepreneur. He’s the kind of guy who could walk into a room and think about how he could produce whatever items are in the room cheaper and better and deliver them better into the marketplace. He just is always thinking about it. So in the airline business, he was thinking about how can he get fuel in a more efficient way? How could he back the farmers that were doing corn and create the ethanol solution for kerosene? I mean, so he’s just thinking about things. And he would interrupt meetings with these ideas and everything. It was fabulous when you’re starting and generating all these new ideas, when you’re getting to the point where you are operationally dense and you need to be predictable and everything, it just wasn’t his power ally. And so I don’t think he recognized that, but we did as board members. So we needed that kind of discipline in there. And by the way, I just think companies need changes. They talk about this thing called the founders trap where in companies, a lot of times, the founder is good for founding the company, not so great for growing it and not so great for creating the governance structures that need to come into play. So there’s a role for the founder, but it’s not often as long term CEO. In some cases, it is, but not always.
Alex Bridgeman: Yeah. And you see that all the time with your search investing and private equity work, too. There’s almost this emotional sunk cost that an entrepreneur or the founder will have that that second CEO isn’t coming in with that sunk cost and feels almost more free to change things and adjust the business how they need to.
Joel Peterson: Yeah, for sure. Well, it’s funny because at Peterson Partners, I said we started out with private equity, then went to ventures and then to search and then to real estate. As the founder, it was hard for me to bring in people to take over my role. But since I’d seen it happen so many times, I effectively had to fire myself and step back and then not interrupt the people making the decision. Even if I saw them making a decision I wouldn’t make, I had to zip my lip, just shut up and let them do it. Because there’s a lot of good ways about going about things, and I didn’t want to hold them back. So I’ve had to apply the medicine to myself, too, which is hard when you’re my age.
Alex Bridgeman: What other entrepreneurs or founders you’ve gotten to meet who are really good at that, who are good at letting go of the way they’ve done things before and adopting new processes or bringing new team members on to handle certain parts of their role? Is there anyone that comes to mind who’s done that really well?
Joel Peterson: Well, I think Kevin Taweel who founded Asurion did that. He brought in Bret Comolli who was an army captain and had the discipline of the military and a fabulous guy. And Bret came in and became the CEO and Kevin stepped back, stepped into the role as chairman, and let Bret really run things. And that was the right move for everybody. So he’s a great example of that.
Alex Bridgeman: Yeah, I was listening to that podcast this week that you had with him, and especially interesting hearing about building his team. And the director of sales was an example they gave where it took a few tries to get that right person in there. And as a CEO or founder of that growing business, you haven’t necessarily- you’ve never seen what that A player looks like at your company’s level of scale before. So, it could be a harder hire to make. Are there ways that have been effective for that CEO who’s making a hire for the first time, to help them recognize what that right person looks like?
Joel Peterson: I think there are other CEOs who are willing to coach and listen. Board members are often quite helpful. I would involve board members in the interview process because often they come from lots of backgrounds and having done many of these things. There’s no reason not to have that experience brought in. But then I think you have to get used to the idea that the odds are fairly good that you won’t get it right the first time. And with a growing company, right the first time isn’t right down the road. So, you have to be willing to grow and change. But just keep remembering that your job as a CEO is to get the very best team on the field at all times. So that means you have to keep evaluating the team. At the end of the season, you reevaluate the team, and you put some people on the bench and you plug some other new people in. But you have to- I mean, it sounds ruthless, but it’s really in everybody’s interest. And if you get that idea going, that we keep the best team on the field at all times and that becomes a common value, people will help you do that. Ross Perot founded Perot Systems and George HW Bush from being president a second term. Ross Perot had this notion where you could go up, down, and sideways in Perot Systems. EDS was actually his founding company, which ultimately was bought by GM. But so, I know some of the executives there in Dallas who had been at one level and then moved to the side and then back and then down and then back up again. But the job was always to keep the best possible person in each slot at all times so that you win.
Alex Bridgeman: There’s a different CEO I spoke with this week who spoke about recruiting almost as like a college football coach, you’re recruiting your team, different players to join your team. What are some effective ways to balance having this constant recruiting element and focus to your role and finding those key people at other companies who might be doing really well and keeping tabs on how well they’re doing, building these long term relationships that maybe a few years in the future might pay off?
Joel Peterson: I think you can do it yourself. You can do it with your own people being on the prowl for good folks. But the most powerful thing to me is to get this kind of viral marketing going where people say, what a great place to work. It’s almost like if you’ve heard of the Net Promoter Score. It’s almost like you get a Net Promoter Score in the marketplace as a great place to work. And if you get that- For a number of years, Trammell Crow was the leading recruiter at Harvard Business School, Stanford Business School, and a bunch of other top business schools because the word of mouth was so great – what a great company this is. And ultimately in 1984, a couple of authors wrote a book, The 100 Best Companies to Work For in America, and Trammell Crow and Goldman Sachs were listed as the two best companies. So, when that happens, people start issuing invites to friends and neighbors and anybody they know, and top people want to come work for you. So, in a way, it’s kind of creating that brand. What are your brand attributes you want out in the marketplace? And those will actually sell the company in many ways. I wouldn’t dismiss headhunters, especially if you can bring a headhunter in where you really get them imbued with the notion of what this company is and what it’s about, so they become a serial recruiter for you. But you have to source people, you have to interview them, you have to onboard them, hire them, onboard them, promote them, demote them. I mean, it’s a whole long process. People think of hire/fire as a moment in time. It’s not. It’s a 10-year process. And so, I think the more that you get in the mindset that this is the business we’re in. As a CEO, I always felt like the most important deal I ever made was the recruiting deal, the hiring deal. I used to recruit at the business schools. When we had a multibillion dollar company, I would still come and do the on campus recruiting because I felt like that’s the most important thing we do. And so, I think you have to realize you’re in the people business. Human capital is the most important capital you’ll ever deploy.
Alex Bridgeman: I imagine that gives you a lot of shots on goal, and you build pattern recognition pretty quickly, too, especially if you’re the one talking to all the business schools, even as a large company, keeping yourself sharp in the market I imagine is immensely helpful.
Joel Peterson: It is. You get better and better at it. Your percentages go up over time. But I had a guy a few years back who was helping me do some recruiting. And I said, could you just check me out on this guy? And he said, well, I’ll come into town. I said, no, just do it by phone. He said, no, I need to come into town. And I said, okay, well, I’ll see if I can get an hour with him. He says, no, I need four hours. And he did a four hour interview. He started with first grade when he changed schools and what made him change this, that, and the other. And at every decision point, he asked how he made this choice, what he’d learned from it, what he wished he’d done differently. And he went through his entire life. And at the end of the day, he came back and said you should not hire the guy you are about to hire. And he was right. So I think while you do get better, I think there is a real science to it as well.
Alex Bridgeman: So, let’s say you were doing the four hour interview yourself, when you get to the end of the four hours, you’ve spent four hours of your day talking with this person, to have all of that end with no hire and you’re back at square one or maybe square two if you had other folks, how do you maintain that ability or that emotional separation to say it’s actually not a good fit?
Joel Peterson: I think if it’s going to be a four hour thing, you probably hire an expert to do that kind of in depth thing. But I do think you can do- I’ve done a lot of one hour interviews; I’ve done some half hour ones and a lot of one hour ones. And I always say my objective is to make a friend. I want this person to come away saying I really respect this, I really understand what this person is looking for. And I always tell them, I’m looking for fit as much as technical expertise, track record, all the things that you bring, you have an amazing resume, you’re obviously an accomplished person. And so what I need to do is figure out the fit. And I don’t want to get that wrong, not just for the company, but for you. If the fit isn’t right for you, that’s not a win for anybody. So, I’m going to be looking for fit, and I want you to do the same. I want you to interview me. I want you to ask the hard questions of me. Because you’re interviewing me, too. For you to decide to take this job, you need to feel great about it. So it becomes a mutual interview. So, if you do decide- in fact, I just had this happen with somebody that was a phenomenal human being and a great addition to our board and everything about them. And I didn’t- so I was a little bit nervous about saying, well, we’ve made another decision. But it turned out remaining friends, and we stayed in contact and who knows if that isn’t the right person down the road. So you always think life is long. We’re running marathons. We’re not running sprints. Everything’s a marathon.
Alex Bridgeman: How do you maintain contact? So, let’s say that person was a really good fit, but they’re a better fit for when your company is X million bigger in revenue or what have you, what’s a cadence or what are some ways that you’ve found successful in maintaining contact and that relationship and just keeping it open as life goes on?
Joel Peterson: I think it can’t be contrived. I think you find a moment when something you talked about comes up, when there’s something in the news, when something about their company or their industry happens, you send them a note, you send them an article. You just stay in touch in a wholly natural way. You can’t have an agenda. If people feel like you’ve got an agenda with everything you do, you’re actually destroying that trust element. I would give an interview for the New York Times one time, and the guy when he was done, it was the corner office column, I’ve forgotten the name of the guy that put that together, but he interviewed me for 90 minutes on all- it was all over the map. And at the end of the thing, he wrote something about listening without agenda was how he entitled the article. So out of a 90 minute interview, listening without an agenda was what he took away from our discussion, that I was authentically listening because I was interested in the other person. I was relating to them. I didn’t have an agenda. And I think this idea of I’m not manipulating you, I’m not trying to get something out of you, I’m trying to solve for fit, I think that’s a really important mindset to have going into these interviews. And then I don’t think- I think you do make friends out of it.
Alex Bridgeman: What are some ways to evaluate that fit during the interview? Any questions you found that are most helpful or discussions to go through? I love the like go through key life decisions and evaluate, why’d you do this? How did it work out? What did you learn? That’s a seems like a great framing for one way to do that in an interview.
Joel Peterson: Well, I think what you’re really solving for are what are people’s values, and values are priorities because that’s where- if you think about the alignment between values, objectives, strategy, tactics, and controls, and getting those aligned, people will compromise on all of them until they get to values. Once you get to values or priorities, people don’t compromise on those. So you really are trying to get at this sense of values – what matters most to them? And I’ve always felt like people’s behavior is their most articulate value expression. What do they do? And so, I always am interested in where do they spend their time? Where does their mind go when they’re not working? What’s the mind share? And where do they spend their money? What do they invest in? Those are really the measures of value – time, money, and mindshare. And so, if I can kind of get a sense of that, then I can get a sense of, can we align on values, will we be able to do that. And then I look for experience, technical expertise, personality, ability to listen, a caring heart, competence, track record, all those other things. But values is a really important one that people don’t know how to get at often.
Alex Bridgeman: Yeah, and I like the story you gave of the four hour interview, like coming in person and being able to do it in person. Of course, we’re in person here, and that in person time and you get so much more body language communication back and forth that you miss virtual. Even if we can see each other, there’s so many different things that you’re not going to pick up on if you’re not in person with that person and being with them and spending time with them. Especially if this is going to be someone who may join your team, who’s going to have a big role, it’s important to get that right.
Joel Peterson: Yeah, well, they say 90% of communication is nonverbal, it’s a huge thing. And so one of the ways that you can extend that is give people a project. I’ve actually done that in important roles, say why don’t you help us with this, or why don’t you review something, so that you actually get a sense of their work. And if it’s a really important slot, some people are willing to come in and take on a project, do something where you can really work together. Often you can pick people off that you’ve worked with in another company or something where you’ve worked shoulder to shoulder. You spot great people. It’s not just through the interview process. But you’re really, again, think about all the ways that you can assemble a great team. And then I think observing not just what they say but what they do over time.
Alex Bridgeman: That project example’s a really good one. I can imagine, especially with CFOs or Head of Revenue, Chief Revenue Officer, those types of hires, having a project and being able to sit down with the rest of your team so you can all see how you work together. That seems powerful. If you had to add one law to 10 Laws of Trust, and you rewrote the book today, what would you add?
Joel Peterson: Be ready to overcome betrayal.
Alex Bridgeman: What would the chapter be like? We’ve talked a little bit about it so far today. But any other nuances that you’ve learned from either your own experience or others on quickly getting over a betrayal?
Joel Peterson: I don’t think there is a quick way to do it. I think you have to- it’s easier if the other party recognizes that they betrayed you and apologizes. That rarely happens. But that would be really helpful. But most of the time, that’s not going to happen. So, I think a lot of times, it is getting involved in something else, trusting somebody else, having a good project you could work on, figuring out what lessons you could- What did I do? How did I contribute to that betrayal? That’s what has helped me. I realized in a case of betrayal I had, I realized that I had not done the audits. I had not checked up. I had relied blindly. I had trusted blindly and stupidly in somebody. And so I was to blame for some of that. And so that helped me overcome the sense of betrayal because I said I joint ventured this. I was a party to this thing. I contributed to it. In one case, I had my wife come to me and say is so and so honest? And I said, well, of course he’s honest. He’s got all these characteristics. Of course, he’s honest. And it turned out he was doing bad things. And so, I realized, oh, my gosh, I had a chance to check into it, and I dismissed my wife’s intuition. She had this brilliant intuition that there was something wrong, and I dismissed it. Well, that’s on me. And so, I think the more that you understand that your responsible- for the bad things that happen to you, you’ve got some accountability and some responsibility, that helps you overcome the sense of betrayal is shoot, I contributed to that.
Alex Bridgeman: Wives are a uniquely suited advisor, I think. My wife, Michelle, has shared similar things here and there, like this story sounds weird. Like I’m telling her about something that happened at work or this person I met today. And she’ll say, oh, it’s kind of weird, I think this feels weird. And I’m like, oh, no, it’s fine. It’s normal. And then a couple months go by, and sure enough, all these signs start coming up. But she saw it months ago, and she was telling me about it. And so, I’ve been trying to- I’ve been really focusing more and more on like she knows, she’s picking up on things that I’m going to miss. And having her input on more and more things is actually really helpful to catch those things.
Joel Peterson: It’s really helpful. We can’t say it anymore, but in the day we used to talk about women’s intuition, that they have this sense that men just don’t seem to have. We can’t talk that way anymore about gender differences. But I do. In my private moments, I just see my wife does several things that I don’t do well. She’s able to manage a whole series of things. She can move 10 balls down the field. I can do one, and I’ll do it fast, and I’ll do it hard, and I’ll get the one ball down the field. She moves all 10 down the field. And she also picks up on things way before I do. She just senses things. It’s almost like there’s something in the ether that she picks up on that I just don’t pick up on. I just don’t see it. So that’s probably- that doesn’t necessarily need to be a gender thing. It’s just my experience has been married to somebody who’s really good at that, this thriver that I’m married to, who’s slow at everything. She’s incredible at it, and I’m terrible at it. So, we recognize that in each other. This notion of diversity is powerful. When you say, here are my weaknesses, when you can have a joint balance sheet where assets can cover for each other, and liabilities can be reduced by the other. You can have a balance sheet that has a lot more equity as a couple than you have, and that’s in business partnerships, too.
Alex Bridgeman: And we’ve come full circle with the balance sheet discussion from the start of the conversation. Joel, thank you so much for coming on the podcast. It’s been really great to meet you and have this conversation today.
Joel Peterson: My pleasure, and I’m so glad to have been able to do it face to face.