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> how a handful of companies (like Costco[..]) have successfully been structured to resist gravity "I came to (Jim Sinegal) once and I said, ‘Jim, we can’t sel

> how a handful of companies (like Costco[..]) have successfully been structured to resist gravity "I came to (Jim Sinegal) once and I said, ‘Jim, we can’t sell this hot dog for a buck fifty," Jelineck recalled[..]. "We are losing our rear ends.’ And he said, ‘If you raise the effing hot dog, I will kill you." That's not structure, that's leadership. They were about to change the price, but one guy at the top with authority and an opinion said no. You could say "it's structure" that there was one guy at the top with authority, but it still depends on him having the right opinion. You need both a good structure and an unwaveringly idealistic (and correct) leader.

elevation 5mo ago
> That's not structure, that's leadership. [...] one guy at the top [...] said no. Yeah, there's no rule structure that can't be skirted and subverted by new owners with different objectives. The most resilient way to preserve your values is to: Only take care, and keep your soul diligently, lest you forget the things your eyes have seen, and lest they depart from your heart all the days of your life. Teach them to your children and to your children's children. Your successors don't need to be your literal children, but if you turn your company over to "strangers with money" you can't be surprised when they do what they want with their new possession.
- eries 5mo ago
  It is true that most companies fail the test of succession. Even in the comment that you've made here, we've left unanswered the question of who will decide who should be chosen as the successor? That is something that can be influenced, but only at the institutional or structural level of an organization. Obviously, more details in the book.
genxy 5mo ago
Are you using Vale? Or is this just default Fable?
- eries 5mo ago
  this made me laugh, thank you for brightening my day. this is not just humor -- it's therapy.
eries 5mo ago
I love that you asked this question, although, of course, you didn't actually phrase it as a question, because this quote is literally in the book. I addressed this particular misconception as it relates specifically to Costco, because I myself once fell victim to the same misconception. If you think Costco has endured only because of leadership, because of its strong ethos and its immense size, because you think it's just too big for Wall Street to mess with, you are not correct. My friend, nothing is too big for Wall Street to mess with. Wall Street has tried many times to dismantle Costco's ethos, and every time the unique structure of Costco is what has allowed them to resist.
- minkzilla 5mo ago
  The parent comment didn’t say anything about size or wall street. It said leadership is what has preserved it. Which it doesn’t seem you have refuted in any meaningful way. You just restated what the parent comment is responding to with no further reasoning as to why leadership doesn’t account for it.
  - eries 5mo ago
    I honestly don't understand your comment, so let me try and recapitulate what I think you're saying and what I think I was saying, and then you can tell me where I missed the mark. What I hear you saying is that the original comment simply said that leadership by itself is enough to preserve the Costco ethos. It didn't say anything about size or Wall Street or anything else. Is that right? The reason I responded the way that I did is that the claim that something by itself is enough has to explain why most companies are able to be destroyed, even though they have really good leadership. I think the common answer when people ask about Costco is that the reason why, for them, leadership was enough when it hasn't been for other people, is something like they're so large. Does that make sense? Either way, in order to say that leadership by itself is sufficient, we have to figure out why Costco has been able to endure as a gigantic public company when, for most companies, the larger they become, the more valuable they become as a target. Meaning that Wall Street or other financial forces will intervene to change their values. And the answer, which I lay out in the book (not in my original comment), is that Costco is protected by a very distinctive thing I call a "governance fortress." This fortress (and not merely their leadership) is the reason why they have been able to endure for forty years. In fact, the predecessor company of Costco, spiritually speaking, was a company called FedMart that had the leadership and ethos but did not have the fortress. I'll leave it to you to read to find out what happened to them.
raincole 5mo ago
> We are losing our rear ends.’ And he said, ‘If you raise the effing hot dog, I will kill you." It sounds like a really toxic working environment. I sincerely hope they made up this story as an ad about how cheap their hot dog is.
- smithkl42 5mo ago
  I'd be more likely to assume that it's a really great one, where folks like and trust each other enough that they can give each other crap like this and everyone understands and appreciates it, like good friends trash-talking each other on the basketball court. I've thought for years that the way you can tell acquaintances have become friends is if they start insulting each other. Or, as you say, it could be a really horrible environment - but I don't think you can tell from one anecdote.
  - eries 5mo ago
    Considering how many people love telling this story, both within and outside of Costco, I think it's more the former than the latter. One way you can tell is that the COO, who was cursed at in this story, later succeeded Sinegal as the CEO and, in fact, has gone on record defending that hot dog price many times.
    - incompatible 5mo ago
      I'm curious about how the story ends, did they cut the cost of making the hot dog, continue losing money on it, or give up and raise the price?
      - shever73 4mo ago
        They manufactured their own hot dog manufacturing plant: > "What we figured out we could do is build our own hot dog-manufacturing plant (in Los Angeles) and make our own Kirkland Signature hot dogs. Now we are doing so much hot dog business that we’ve opened up another plant in Chicago. By having the discipline to say, ‘You are not going to be able to raise your price. You have to figure it out,’ we took it over and started manufacturing our hot dogs. We keep it at $1.50 and make enough money to get a fair return." https://www.425business.com/news/costco-ceo-craig-jelinek-on-shareholders-costco-com-and-hot-dogs/article_5ff4b632-1f75-5e98-b9ff-6e02d676668b.html https://www.425business.com/news/costco-ceo-craig-jelinek-on...
gorfian_robot 5mo ago
Acquired has an excellent episode on Costco: https://www.acquired.fm/episodes/costco https://www.acquired.fm/episodes/costco
iancmceachern 5mo ago
And leadership that respects and "gets" it's customer base. Customers that feel respected and who genuinely feel like the company they are supporting is in their corner are the most rabidly loyal. If you build a customer base like that, and keep respecting them, the problem solves itself.
madaxe_again 5mo ago
So many businesspeople can’t tell the difference between a value-add and a profit centre. It isn’t about being idealistic, it’s just about understanding what makes people tick, and how to best get them to part with their money - and understanding that a business is not one dimensional.

elevation 5mo ago

> That's not structure, that's leadership. [...] one guy at the top [...] said no. Yeah, there's no rule structure that can't be skirted and subverted by new owners with different objectives. The most resilient way to preserve your values is to: Only take care, and keep your soul diligently, lest you forget the things your eyes have seen, and lest they depart from your heart all the days of your life. Teach them to your children and to your children's children. Your successors don't need to be your literal children, but if you turn your company over to "strangers with money" you can't be surprised when they do what they want with their new possession.

eries 5mo ago
It is true that most companies fail the test of succession. Even in the comment that you've made here, we've left unanswered the question of who will decide who should be chosen as the successor? That is something that can be influenced, but only at the institutional or structural level of an organization. Obviously, more details in the book.

genxy 5mo ago

Are you using Vale? Or is this just default Fable?

eries 5mo ago
this made me laugh, thank you for brightening my day. this is not just humor -- it's therapy.

eries 5mo ago

I love that you asked this question, although, of course, you didn't actually phrase it as a question, because this quote is literally in the book. I addressed this particular misconception as it relates specifically to Costco, because I myself once fell victim to the same misconception. If you think Costco has endured only because of leadership, because of its strong ethos and its immense size, because you think it's just too big for Wall Street to mess with, you are not correct. My friend, nothing is too big for Wall Street to mess with. Wall Street has tried many times to dismantle Costco's ethos, and every time the unique structure of Costco is what has allowed them to resist.

minkzilla 5mo ago
The parent comment didn’t say anything about size or wall street. It said leadership is what has preserved it. Which it doesn’t seem you have refuted in any meaningful way. You just restated what the parent comment is responding to with no further reasoning as to why leadership doesn’t account for it.
- eries 5mo ago
  I honestly don't understand your comment, so let me try and recapitulate what I think you're saying and what I think I was saying, and then you can tell me where I missed the mark. What I hear you saying is that the original comment simply said that leadership by itself is enough to preserve the Costco ethos. It didn't say anything about size or Wall Street or anything else. Is that right? The reason I responded the way that I did is that the claim that something by itself is enough has to explain why most companies are able to be destroyed, even though they have really good leadership. I think the common answer when people ask about Costco is that the reason why, for them, leadership was enough when it hasn't been for other people, is something like they're so large. Does that make sense? Either way, in order to say that leadership by itself is sufficient, we have to figure out why Costco has been able to endure as a gigantic public company when, for most companies, the larger they become, the more valuable they become as a target. Meaning that Wall Street or other financial forces will intervene to change their values. And the answer, which I lay out in the book (not in my original comment), is that Costco is protected by a very distinctive thing I call a "governance fortress." This fortress (and not merely their leadership) is the reason why they have been able to endure for forty years. In fact, the predecessor company of Costco, spiritually speaking, was a company called FedMart that had the leadership and ethos but did not have the fortress. I'll leave it to you to read to find out what happened to them.

raincole 5mo ago

> We are losing our rear ends.’ And he said, ‘If you raise the effing hot dog, I will kill you." It sounds like a really toxic working environment. I sincerely hope they made up this story as an ad about how cheap their hot dog is.

smithkl42 5mo ago
I'd be more likely to assume that it's a really great one, where folks like and trust each other enough that they can give each other crap like this and everyone understands and appreciates it, like good friends trash-talking each other on the basketball court. I've thought for years that the way you can tell acquaintances have become friends is if they start insulting each other. Or, as you say, it could be a really horrible environment - but I don't think you can tell from one anecdote.
- eries 5mo ago
  Considering how many people love telling this story, both within and outside of Costco, I think it's more the former than the latter. One way you can tell is that the COO, who was cursed at in this story, later succeeded Sinegal as the CEO and, in fact, has gone on record defending that hot dog price many times.
  - incompatible 5mo ago
    I'm curious about how the story ends, did they cut the cost of making the hot dog, continue losing money on it, or give up and raise the price?
    - shever73 4mo ago
      They manufactured their own hot dog manufacturing plant: > "What we figured out we could do is build our own hot dog-manufacturing plant (in Los Angeles) and make our own Kirkland Signature hot dogs. Now we are doing so much hot dog business that we’ve opened up another plant in Chicago. By having the discipline to say, ‘You are not going to be able to raise your price. You have to figure it out,’ we took it over and started manufacturing our hot dogs. We keep it at $1.50 and make enough money to get a fair return." https://www.425business.com/news/costco-ceo-craig-jelinek-on-shareholders-costco-com-and-hot-dogs/article_5ff4b632-1f75-5e98-b9ff-6e02d676668b.html https://www.425business.com/news/costco-ceo-craig-jelinek-on...

gorfian_robot 5mo ago

Acquired has an excellent episode on Costco: https://www.acquired.fm/episodes/costco https://www.acquired.fm/episodes/costco

iancmceachern 5mo ago

And leadership that respects and "gets" it's customer base. Customers that feel respected and who genuinely feel like the company they are supporting is in their corner are the most rabidly loyal. If you build a customer base like that, and keep respecting them, the problem solves itself.

madaxe_again 5mo ago

So many businesspeople can’t tell the difference between a value-add and a profit centre. It isn’t about being idealistic, it’s just about understanding what makes people tick, and how to best get them to part with their money - and understanding that a business is not one dimensional.