The Story of Les Schwab and His Pride in Performance

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Photo by ocad123

Business often comes down to a core set of principles.  And the story of Les Schwab is no exception.  Keeping things in their simplest form (Reductionism) is what allows us to arrive at a core set of principles, but this is often difficult to do. Reductionism is a key aspect of understanding anything.  If we apply this concept to business, it always comes down to people.  It really comes down to decisions, but decisions are made by people.  And what I love about the Les Schwab story is that he so clearly understood the importance of this.  He loved people.  And if you’re in business, it really helps to love people – no matter how weird, how exotic, how aloof, or how awkward. 

Although the name Les Schwab is better known in the Pacific Northwest, his story is not all that uncommon across the United States.  Les was born in 1917, with very little money.  His father died almost to the day of his sixteenth birthday, in the middle of the Depression.  Les was always a prideful man, but had to teach himself much of the way of doing business.  He was always looking for ways to be a businessman, but just never had the money to do so.  Finally, at the age of 34, Les made it a reality by opening a tire shop.

Great companies are often the result of one uniquely talented person leading the way.  And Les is a perfect example.  He purchased a small tire shop on January 1, 1952.  1951 sales under the previous owner = $32,000.  1952 sales under Les Schwab = $150,000.  The difference?  Les Schwab.  Now Les acknowledged that he was a talented marketer, but that kind of improvement requires more than talented marketing.  So what made Les so good?

Very early in his business career, Les made it a priority to surround himself with good people, and to establish trust with those people.  Within two years, this simple concept put him in a position to consider growth in locations.

Businesses grow through an understanding of three concepts: Comparative Advantage, Scaling, and Geometry.  Comparative Advantage is the idea that even if one person is the best at every aspect of a business, the organization is still better off by dividing up tasks amongst members of the group.  Les alone couldn’t manage every store, so he was better off giving that responsibility to someone else.  But in order for comparative advantage to work within his business framework, he had to be able to trust the people he put in charge.  So he built up people from within.

Once the comparative advantage aspect is addressed, the business then has to understand how both Scaling and Geometry impact the sustainability of growth.  Scaling can include all kinds of benefits to an organization: cost reductions through experience, branding advantages through awareness, specializations within the organization, etc.  Scaling explains the benefits of growth.  Geometry, on the other hand, explains the drawbacks.  Its straightforward geometry to say that as you build a circular tank larger, the amount of steel used on the surface increases with the square and the cubic volume goes up with cube (do the math if you’re suspect).  In other words, you get a whole lot more on the inside for each little bit you add to the outside.  The same principle is at work in an organization.  As the size of any organization increases, more of its energy will be needed to keep the “insides” together.  In other words, costs to administer increase and become more complex.  Every organization constantly weighs the benefits of scaling against the costs of geometry as it grows.  And every business must answer the question: Are the benefits associated with scaling going to outweigh the natural drawbacks of geometry?  For Les Schwab, they did.  And that is because he understood at the outset how to fight the inherent bureaucracy that accompanies growth: trust and empowerment of employees, which leads to pride in performance.

Les Schwab employed a core set of principles in his company that contributed to the environment he wanted to create:

  • Cognitive Misjudgment: Understanding people, Les immediately established both a fair and remunerative compensation system for his new branches.  This takes advantage of certain cognitive misjudgments that all humans are subject to: Kantian Fairness (people like to be treated fairly) and Punishment and Reward Superresponse (people will act according to how they are incentivized to act).  Combining these two cognitive misjudgments allowed Les to rid his organization of another: Twaddle Tendency (the tendency all humans have to waste time).  Les motivated through trust, empowerment and enthusiasm.
  • Maslow’s Hierarchy of Needs: Les also took into account Maslow’s Hierarchy of Needs.  As Les said, “The one thing that drives a person is need.  It may be the need to be recognized, the need to compete, the need to win, the need for security, the need of a challenge, or just the need to belong.  Every man has a need at times.  One man has it for 30 minutes, another for 30 days.  But it is the man who has it for 30 years who makes a success out of life.  And that is the man that we attempt to mold our employment programs around, that man who wants to be successful for his whole life.”  In other words, Les molded his programs around the higher level needs of Maslow’s Hierarchy.
  • Decision Trees:  Because Les thought in terms of Decision Trees, he always wanted options.  Many of the real estate deals he made were for a five year lease, a five year option and an option to buy at a definite price.  He did this simply for the flexibility.
  • Absolute vs. Relative: Les was very clear to tell the managers of each store to think about the store in both Relative and Absolute terms.  The first thing he told each store manager was the absolute sales figure that they must reach to break even, and then once that was attained, he explained the relative importance of gross revenues to operating costs.  There was a constant focus on the ability to see situations from both an Absolute and Relative position.  This allowed managers to better identify problems and their causes.

Even though Les sold tires, he was really in the business of building people.  He viewed it as the single most important job of any business.  “I don’t have any way of really knowing, but I don’t think our percentage wage cost was any higher than the competition because our people just plain ‘put out’ more.  People don’t understand tires so they buy from someone they trust.  Tires, if not properly sold and properly serviced, can be a danger to the buyer.  Our people were becoming the ‘Tire Professionals’ and people liked to buy tires from these men.  Again, we were growing through people.  It’s the right way to run a business.”

And Les realized additional benefits from viewing his organization in this way.  This is because, as Les says, his employees wanted to give right back to him what he gave to them.  “The more I’ve done for my employees, the more successful our company has been.  It does take discipline, though.  It is a harder way to run a business because it takes so much motivation.  And you can’t pass on enthusiasm unless you are enthusiastic.  But it is the fun way, and a person gets more pride from the business.  The success of any company is in direct proportion to the ability and motivation of its people, and that fits anything.”

Les admitted that he had many lucky breaks, but he felt those breaks came as a result of tremendous thinking efforts.  Thought was at the center of his lucky breaks, and so he created an environment where thought was rewarded.  Thought often resulted in innovation, and innovation resulted in making money.  The office existed to support the retail stores, and if the retail stores had thoughts and ideas, it was the central office’s responsibility to find ways of making them work.  Again, Les was truly people first.

Les Schwab built a following, not based on price, but on quality and service.  He grew his company by taking care of his customers.  And he did that by first taking care of his employees, who then had no choice but to take care of the customers.  This is the beauty of reductionism.