¶ Introduction
Welcome to The Knowledge Project. I'm your host, Shane Parrish. For the past year, I've been sharing the stories of history's greatest outliers. These are the people who quietly build empires that transform industries. People like... James Dyson, Harvey Firestone, Rose Blumpkin, Henry Singleton, Saul Price and Estee Lauder. These are names that deserve to be studied, but rarely are. Today, we're stepping back and looking at a few patterns they have in common.
While many people think that outliers are just lucky or extremely talented, if you're listening to this podcast, you know that's not true. There's something deeper going on. through 15 years of reading biographies, I've discovered patterns that set people apart. And we're going to talk about a few of them today. First,
They relish the hard times. I call this a taste for salt water. And Rockefeller noted the strong feed during depressions. Second, they have a bias towards action. The motto is summed up in... do it now. Three, they keep things really simple and they remember what they set out to do. Four, they understood what they were really selling and it was rarely just a product.
there was always something else, something invisible. This episode offers valuable lessons from their life, showing how these outliers navigated challenges and built legacies that last not for quarters, but for generations. Let's dive into the core mindset that enables true excellence. It's time to listen and learn. Welcome to Outliers. I'm your host, Shane Parrish.
This show is all about learning from others, mastering the best of what they've figured out so you can use their lessons in your life. Every outlier we studied faced some form of catastrophe in their lives, partial or total bankruptcy.
¶ Part 1: A Taste for Saltwater
panics, financial crises, and depressions, even personal betrayal. The list goes on. And when things get uncomfortable, it's human nature to retreat, to stop, to quit. But outliers don't stop. They don't avoid hard times. In fact, they seem to thrive the most when the conditions are at their worst. It focuses them. It locks them in.
hard times aren't obstacles to overcome they're the raw material from which greatness is forged this capacity to keep going to bounce not break or to cultivate a taste for salt water is necessary for extraordinary success let's take a look at this with harvey firestone the founder of firestone tires and one of the most underrated businessmen of the last century you have to imagine the walk down the gangplank it's 1920 and
Harvey Firestone is coming home from his summer vacation in Europe. He's probably feeling rested, maybe thinking about the future. And he sees them on the dock. All of his executives, his top guys, they're standing there in this little cluster and their faces are... as he put it, doleful. Looking at them, he just knows before anyone says a word.
that the world has changed while he was gone. And this is an era of ships and you're not getting much communication. And then they lay it out to him. It's not just bad. It's really, really bad. Sales of tires in the U.S. haven't just slowed. They've gone to a halt. The whole country is entering a recession and their factories are still running, piling up tires. Nobody is buying. And the banks have cut them off. Firestone Tire is $43 million in debt and it's over.
None of them knows what to do. They're scared. They have families to feed. But Harvey Firestone, he's not scared. In fact, it makes him feel alive. He wrote, the situation did not frighten me. It put new life into me. I saw the opportunity to do more business than we had ever done before. While everyone else was paralyzed by this disaster, Harvey was energized by the clarity it gave him.
The old way was dead. He was now free. His solution was immediate. And it was insane. Slash prices, he orders. 25% across the board now. His sales team panics. They resist. They strongly recommend trying half measures first. But Harvey doesn't negotiate. He doesn't have time. He needs to act right now.
He later writes, this was no time for half-hearted work. He fires all the sales managers and walks into the office himself and personally takes over the department. He abandons all corporate dignity. He plasters the whole country with giant... desperate looking red banners announcing a fire sale of Firestone tires. The first sale of its kind. The infant tire industry, which is barely decades old at this point, had never seen anything like this.
and it works. Within two months, their debt is cut by nearly 13 million but the real transformation wasn't that sale it was what he did next he totally simplified the company he slashed the sales force by 75 he cut the ad department from 105 people down to seven seven he wrote that he was looking for one thing for people in the company who could thrive in hard times they were he said the only men we wanted that moment on the dock coming home from his vacation that wasn't a failure to harvey
it was a filter the catastrophic pressure revealed to harvey what really mattered and he burned everything else that didn't Next up, we'll jump to James Dyson and his story is phenomenal. And the company he founded is still creating its incredible products every single day. If you're like me, you have a Dyson vacuum at home. Now, let's go back to 1982. James Dyson is...
is covered in fine dust. He can even taste it. He's staring at the prototype in front of him, made of cardboard and plastic, and it's held together with tape. And he flips the switch. There's a high-pitched whirr, and then a whine, and then a... A cloud of fine dust shoots out the back right into his face. He coughs. It's another failure. From the house, he can hear his wife getting their young kids ready.
Her modest teacher salary is the only thing at this point paying their bills. It's the only thing keeping the bank from taking the house. And he has thousands of failures at this point deep into a vacuum cleaner and the debt is starting to mount. Now think about this for a second. There are so many amazing ideas that people have, but they stop. And so the world never sees them because it's too hard to keep going. You need persistence. You need obsession. You need a taste for salt.
So James Dyson wipes the dust from his face and starts working on the next prototype He keeps going in the end. He will build 5127 prototypes of a vacuum 5126 failures several years of nothing but failure i don't mind failure he'd finally write more than a decade after the fact i learned from each one those 5126 failures weren't
the end of his story when he finally had it he took it to hoover and electrolux and they scoffed at him if a better vacuum were possible they told him it would have been invented already But James Dyson knew they were wrong and he would keep going even if he had to do it himself. And then there's Estee Lauder. It's 9 a.m. at the American Merchandising Corporation. Estee is sitting in the waiting room to see a buying agent. This is the big one. This is the...
big moment she's been waiting for. This is the office that can get her creams into department stores across the country. She's the only woman. in a room full of men and she walks up to the receptionist and she's like i'd like to see the cosmetics buyer please and the receptionist doesn't even look up she's very very busy come back another time
Okay, that's the first no. This is the moment most people turn around. But Estee just smiles. I don't mind waiting, she says. Really, I don't. I'll just sit here quietly. And so she waits. A man in a suit is called in. And Estee waits. Another man gets called in. And Estee waits. It's lunchtime now. And the receptionist looks over, annoyed. We're all going to lunch. Really, I think he'd better come back another day. Monday would be perfect.
This is the second no. She's being told, we don't have time for you. Well, thank you, Estee says, but I'll try waiting a little longer. It's 2 o'clock, then 3 o'clock, then 4 o'clock, and finally 5 o'clock. She's close to tears at 5.15 p.m. The buying agent herself walks out. She stops, stares at Estee. Are you still here? Estee looks up. Well, do come in, the buyer says in disbelief. Let's have a look at what you have. Such patience must be rewarded. In two minutes.
Este has the jars open. She's demonstrating her brilliant creams, a demonstration she knows none of the men can do. She knows that product inside and out. She's made it. She knows every ingredient in it. The buyer is impressed, but she has no store opening. Not right now. That night, Este goes home and weeps with despair, feeling like it was all for nothing. But the next morning she gets up, she picks up the phone and she calls the buyer. Not to ask again, not to give her an earful.
She calls to thank her for her time. And eventually, the store started opening up for Este. That is persistence. Este called it the immovable stubbornness that will not allow you to cave in when everyone else says give up.
¶ Part 2: Do it now
Outliers excel through a relentless bias towards action. Waiting for the perfect moment, the perfect information or even permission is the silent killer of ambition. This bias toward doing over planning is a recurring pattern observed throughout history. History is written by people who build, not by people who talk. Telling yourself you'll do something tomorrow kills more dreams than failure.
Without action, you have nothing. No amount of planning, meeting, or thinking can replace it. Slow and steady progress can overcome any challenge. The lesson here is clear. Progress isn't something that happens to you. It's something you create.
And there was a tweet recently by Brian Armstrong that I really liked. He's the CEO of Coinbase and he said, action produces information. If you're unsure of what to do, just do anything. Even if it's the wrong thing, this will give you information about what you should actually be doing. It sounds simple on the surface. The hard part is making it part of your everyday working process. In other words, action solves everything.
We'll start with Rose Blumpkin, and her story starts in a moment of absolute despair. Rose Blumpkin's husband comes home one night from their little store. It's the middle of the Great Depression. And he looks at Rose, a homemaker, a mother of four, and his face is broken. We'll starve to death, he tells her. Nobody walks in the store. What will we do? And Rose looks at him and she makes a different choice.
you buy a pair of shoes for three dollars she says you sell them for 3 30. let's sell 10 over cost i'll come to the store and help she didn't write a business plan she didn't form a committee she didn't have a meeting she just did it a few days later she sees the shotguns in the store window and they're gathering dust nobody these days can afford to buy a shotgun so rose runs an ad in the paper shotguns for rent the next day there's a line around the block
This was Rose's superpower. She acted. When she opened Nebraska Furniture Mart in 1937 with a borrowed $500, another store nearby was opened on the same day. They had an orchestra. They had Hollywood stars. Rose had a little three line text only one to add. She did big business anywhere.
When the established retailers got furious and kicked her out of their wholesale market, she didn't sue. She just found retailers in other cities and bootlegged the furniture herself. When they called her out for it, she replied, you betcha, and I'm the best bootlegger in town. But then came the real test in 1961. There was a three alarm fire. Half the store was just gone. Smoke, ash, ruin. An ordinary person would just sit and cry.
but not Rose. She shows up, looks at the smoldering wreckage, and makes one announcement. We're opening tomorrow. And she does. She runs a fire sale. We tell the customers the truth. She told her stuff. All this furniture downtown was in a fire. If you want to buy it, buy it. Hundreds of people lined up. 14 years later a tornado levels the entire building.
she rebuilds it again bigger at the age of 97 she drives her motorized cart into a metal post and breaks her ankle she doesn't even go to the doctor until the next day she wants to finish her shift. And she was back at work the day after that. Her daughter explained it best. My mother always says, I've been through a revolution. I've been through a war. I survived that. I'll survive this. A normal individual would sit and cry, not my mother.
fires lawsuits tornadoes broken bones nothing stopped rose blumpkin she didn't have an action imperative she was the action imperative but not All adversity is a slow burn. Sometimes it's a gut punch. Just ask Jim Clayton. In 1961, Clayton was on top of the world. At 27, he was just named Volvo's top dealer in all of America. He's flying back from his two week award trip to Sweden.
probably thinking about the future, about expansion. And the sky is the limit. When he steps off the plane and he sees his brother, Joe, and Joe's face is devastation. We have a problem at the bank. They get to the meeting. The bank is calling all of Jim and Joe's loans immediately for no reason. The bank president isn't listening. He's fidgeting. He keeps looking at his watch. As Jim's lawyers scramble to save the company, the president stands up.
Let's bankrupt these little SOBs, he says. I can't be late for my tennis match. And while they're still in that meeting, bank representatives show up at their car dealership. They start seizing everything, every car. Every tool. They even take customers' cars while they are there for an oil change. And the next day, it's on the front page of the Knoxville newspaper. Clayton Auto is gone. That night, Jim goes to bed thinking his life is over.
And then he wakes up the next day at 5 a.m. By 6.30, he's at a local restaurant with his best employees. They aren't in mourning. Not anymore. They're planning a comeback. They form a new company, Clayton. motors incorporated and they show up at the bank's own liquidation auction the auction of the stuff that they had seized from joe and jim and they start winning bid after bid buying back their own inventory at bargain prices they even
sold many of the cars before the auction started, taking cash from customers and using that cash to buy the car from the bank and pocketing the profit on the spot. The bank watched in horror. The creditors all got 41% on the dollar. Jim and Joe made a vow. They would pay back every creditor 100 cents on the dollar. It took them five years, but they did it.
Jim went on to create the largest mobile home company in America. Jim knew that all the time he spent bemoaning his situation came at the expense of moving forward. His grandfather's advice when you're in a crappy situation and this line. Sticks with me all the time though. If you have to swallow a frog, don't look at it too long. And if you have to swallow two frogs, swallow the big scutter first. That brings us to Saul Price.
It's December 1975. Imagine you're 60 years old. You've just been fired from Fedmark, the company you built for the past 21 years from nothing. They changed the locks on your office door. They've embarrassed you, but you're wealthy. You could retire. You could go play golf and spend the rest of your life being bitter. A lot of people would do that, but not outliers. They have a fire that you can't.
put out. Saul Price goes to the same building and he signs a lease for a new office one floor up and every single morning Saul gets in that elevator that door closes he presses that button and he rides past the floor of his old company you can imagine the fire the passion that's going on in him every single day past the office where they change the locks he feels that sting every single
day he gets to his new empty office he hangs two signs on the wall one for the door which says the price company and one above his desk which is the motto of this do it now. And he and his son start walking the San Diego pavement. They're dissecting 20 years of lessons from Fedmark. Six months later, using what they've learned, they've opened a new store. They call it Price Club. And it was a total
disaster. He needs $200,000 a week in sales to break even. But in his first week, he only did $32,000. He's hemorrhaging cash. He's telling employees to park in the customer lot just to make the place look busy. He's facing bankruptcy before Christmas. This is the second moment of failure. This is when the world is telling you, you lost, now stay down. But Saul, he doesn't panic. He diagnoses. The San Diego City Credit Union calls and they ask if their members can shop, even though it's a...
business only store. And his team says now it would break the whole model. They were only selling to businesses at the time. Businesses would be furious if regular people could go in. But Saul is desperate so he's still riding that elevator every morning and he breaks his own rule he says yes
And it works. By January, their cash flow positive. Their membership is booming. And Sol Price understood that getting locked out at 60 wasn't the end. It was fuel. Riding that elevator wasn't torture. It was motivation to do it now. If you're a founder, you know naming your startup takes forever. You finally land on the perfect name only to find out that Peter from Delaware got to the dot-com first.
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¶ Part 3: Systems to Scale
systems to scale as businesses expand they inevitably become more complex think of meetings memos and layers of bureaucracy that slow down thinking distort information flow and reduce accountability Outliers understand that scaling is not about adding complexity. It's about keeping things simple and remembering what you set out to do. Harvey Firestone codified this intellectual honesty by demanding managers ask to...
brutal questions to dismantle bloat. Is it necessary? Can it be simplified? In this section, we'll be looking at the systems they use to scale their business, sticking with the godfather of retail himself, Saul Price. When Price opened FedBurn in 1954, his competitors were just baffled. How was he selling everything so cheaply? The answer was a system he called the intelligent laws of sales.
Every other retailer believed you had to carry every item in every size. You couldn't miss a single sale. So I looked at that and said, that's completely backwards. Let's take three in one oil, for example. It comes in three formats, small, medium, and large. And every hardware store stocks all three sizes. But Sol does the math.
The eight ounce bottle is the best value. So that's the only one that Fedmark carries. Now, people would ask him, what about the customer who doesn't want to buy eight ounces? They just want two ounces. And Saul would reply, that's the intelligent loss of sales. He chose to deliberately lose that sale because the simplicity and efficiency gained by not making it. His son, Robert, explained the math in a book later on. He said 80% of a retailer's cost is payroll. Fewer items means less labor.
less time ordering, less time stocking, less time checking out. Put simply, Robert said, the cost to deal with 4,500 items is a lot less than the cost to deal with 50,000 items. Let's look at an example. Your cashier rings up a 20-pound box of detergent just as fast as a 5-pound box, but you moved four times the product.
That was one system. And here was another one of his favorites. And this is a great way to look at things. He just say, put yourself in the place of a cranky, demanding customer. See your business through their eyes. Every policy you make, every price you set, everything you do.
all looked at it like the world's crankiest customer and if it passed that test it stayed. If not, it was gone. As I like to say, simple scales and fancy fails. Action isn't always about building though sometimes the most profound action is working with what you've got when building no longer makes sense the next outlier was basically in a league of his own henry singleton started teledyne in the early 1960s at the age of
43. By the end of the decade, he's bought 130 companies. He's using Teledyne's high flying stock, which is trading at 25 or more times earnings to buy solid, boring companies trading at 10 times or lower earnings. working wall street loves him and then 1972 hits the market crashes the conglomerate party is over although it takes years of pain for some others to realize that singleton realizes that immediately
He walks into the president's office one morning and he says, George, we're going to make a bid for our stock at $20 a share. And you have to realize how insane this sounded. Nobody in those days did buybacks. Buybacks were for dying companies. the men you were giving up. It meant you had no more ideas. Wall Street was horrified. He stopped acquiring. He's shrinking the company. He's lost his mind. But Singleton didn't care. The math was rational and it was irrefutable.
He'd spent the 60s issuing Teledyne stock at 20 to 40 times earnings or higher. And now in the crash, he could buy it all back at 8 to 12 times the same earnings. It was the same trade, just in reverse. And so he acted. He started the most aggressive stock buyback program in corporate history. Over the next 12 years, he bought back 90% of Teledyne shares.
The result, earnings per share exploded, a 311% increase in just five years. There was no acquisition. He was just focusing on the company he had and buying shares back. ruthlessly this was the system at work While everyone else was building empires, Singleton was building a rational cash generating machine. He had 160 independent presidents running their own shows, all reporting cash, not accounting profit, back to his lean HQ of fewer.
than 50 people. And he'd tell them, you reported a profit of a million dollars, but you only had half a million dollars of cash. So tell us about the rest of the profit when you've kept it. When the acquisition game ended his cash machine was just getting started. He didn't need Wall Street's approval. He didn't need to do what everyone else was doing. His philosophy was simple.
And it's one you should follow. And I love this. And I think about it constantly all the time. I believe in maximum flexibility. So I reserve the right to change my position on any subject when the external environment relating to any. topic changes too. How wise is that? okay let's go back to jim clayton we start in an old greasy body shop this is jim clayton's first mobile home factory they have just finished building their very first mobile home and it's beautiful it's 12 feet wide but
The factory door is 11 feet and 10 inches wide. They have to use a sledgehammer to knock out the building's wall just to get the first product out the door. It's a moment of humiliation, a ridiculous cost. failure. But Jim Clayton isn't embarrassed. He's an engineer and he's just had an epiphany. In that moment, he realizes why the entire mobile home industry has such a terrible reputation. It's because nobody measures anything. Homes were built to be about.
12 feet wide dealers would get two halves of a double wide to sight and they wouldn't fit together they'd literally use sledgehammers and skill saws to pound them together in that moment watching his own wall come down jim decides he's not
just going to build mobile homes. He's going to build a system. His competitors were all in the deal business they would buy something or make it and mark it up sell it and get it off the lot do whatever it takes jim was going to be in the quality business he instituted systematic quality they would measure to the inch he insisted
build double wides as one single unit in the factory getting everything perfect and then saw them in half for shipping when those homes arrived they fed perfectly this new way was crazy expensive the factory lost money for six straight years bankers shook their heads the whole time nobody in the mobile home industry measured but jim saw what they didn't he was investing in customers who would tell their friends he didn't even stop
there he thought the whole system was broken he became the bank too starting vanderbilt mortgage when customers missed a payment he didn't foreclose he worked with them and found them a smaller unit now it's worth a brief aside here i had dinner with jim a few weeks ago and he mentioned why they were so good at underwriting they would keep the very last payments the most risky payments this gave them every incentive to be very conservative with who they were lending money
too he created insurance companies to protect people he bought mobile home parks to control the placement of his homes he even fixed customer service when a customer threatened to sue jim would visit them personally he'd bring a camera a notepad and the clayton homes manager
caused the problem and he'd tell the customer, show me everything. Halfway through the visit, the customer's anger would just dissolve. They'd see that he actually cared and by the end, they'd be laughing and patting each other on the back. Jim realized that 80% of legal claims weren't about the product. They were about a failure to deliver customer satisfaction. His genius was building a system that delivered it. In 1974, the crash hit and the entire...
industry collapsed 60%. Everyone else fired their salespeople. They closed their factories to stay afloat. But Jim kept every factory open. He kept every salesperson. In fact, he increased advertising. He was playing offense his company had a saying the country is in a recession and we have elected not to participate and when the economy recovered Clayton was stronger than ever the system was an advantage he hadn't just built a better product
He had built a better company. Jim Clayton's system was loud. You could see it and touch it. But not all systems are built on noise. Some are built on silence. And that brings us to the ghost of Pittsburgh, Andrew Mellon. The year is 1889, and we're at T. Mellon & Sons, a small but growing bank in Pittsburgh. Andrew Mellon is sitting at his desk. He's not like Andrew Carnegie or Henry Flick, already household names and all noise.
He's quiet. He's thin voiced. He just watches. In Pittsburgh, they say if you needed $5,000, you saw his brother Dick. But if you needed $25,000, you saw Andrew. And when you got in, what you would find is this quiet man. He'd just sit there. His eyes, described as sharp blue daggers, would just fixate on your balance sheet. You wouldn't talk. He'd just listen. The silence was his weapon while you nervously filled the void.
He'd just wait. Then he'd break the silence with a single laser precise question. What makes you think so? can this be owned and one day these three men walk in an mit metallurgist a chemist and a kid just out of amherst they're all so nervous they have this thing a new metal it's called aluminum They're making 475 pounds a day of this stuff and selling it for $2 a pound, but nobody wants it. They're desperate.
And they ask Andrew Mellon for $4,000. They figure that's what they need to stay alive. But Andrew Mellon just sits there. He's silent. He's listening. He's calculating. And he's not seeing a $4,000 problem. He's seeing... an entire ecosystem. He sees a new factory on his own real estate. He sees cheap hydroelectric power now available at nearby Niagara Falls to drive costs down. He sees the whole board where these men just see what's in front of them. He looks at the three nervous men.
Instead of giving them $4,000 that they asked for, he offers them $25,000. Not enough to survive, enough to grow. Remember, $25,000. This is $18.89. This was the Mellon system, that little startup. It became Alcoa. And soon Alcoa workers were living in houses financed by Mellon's Union Trust, built on Mellon lots, heated by Mellon coal, lit by Mellon utilities and writing.
Mellon streetcars to work. Mellon didn't need to master aluminum. He mastered people. He built a cadre of tough, competent operators to be his eyes and ears. He knew this system only worked if they got rich too. Real success, he observed, comes from making other people successful. While everyone else chased headlines, the ghost of Pittsburgh just kept building the machine.
¶ Part 4: Understand What Really Matters
So, you're about to make a trade based on a friend's text. But which you do you listen to? Is it... We could buy a house in Tulum! Get optioning those options! We could lose everything. Or let's do a little research. Get your head in the trade and make the investment decision that's right for you. Learn more at finra.org slash trade smart.
Okay, and the final one we're going to talk about today, which is understanding what really matters. The most successful outliers don't actually sell the product they're known for. They sell something else entirely, something invisible. I'll start this next one with a riddle I heard from Trelly Munger. How can someone give away 50% of the profits and still make billions more?
than if they'd kept it all. And before I could answer, he told me about Les Schwab. Les Schwab built a $3 billion tire company in the mud and gravel towns of the Pacific Northwest. And he did it while charging higher prices than his competitors. And he did it while giving away.
half of his profits it makes no sense until you realize that les schwab wasn't really selling tires tires are a commodity they're black they're round you forget about them the second you drive away you know les was selling service to his customers but ownership to his employees. Let's jump to a man named Gordon Pryday. He works for less and he's standing.
in a bankrupt fruit stand in oregon it's a dump and he says to his wife we're moving in he moves his family his wife his kids into this tiny apartment in the back of this fruit stand The family kitchen table is just steps away from what are about to become tire rocks.
Why would anyone do this? Why would you live where you work breathing in rubber and grease with your kids right there? Because of the deal that Les Schwab had made him. Les couldn't manage all of his new stores on his own. So he found the best people. like Gordon, and made them a deal. You manage the store, you get a salary, and we split the profits 50-50. But you have to leave your half in the business until you've earned your stake. This wasn't a job for Gordon. This was his mission.
This was his path to ownership. And he knew every single tire he sold wasn't just making less rich. It was building his own wealth. So he became obsessed with serving his customers. A competitor opened just down the street with a... tiny new building and equipment that gave them every advantage that Gordon lacked. Well, they went out of business within two years. Why? Because that competitor just had employees. Gordon was an owner.
He cared more and he was obsessed. Les gave people skin in the game and everyone told him he was crazy. but less saw the math if i share half the profits i still have half he would say and if frank his first partner manager makes more money he'll work harder and my half is worth more than my whole used to be Okay, let's talk about Jimmy Patterson. It's 7 a.m. on May 8th, 1945, and Germany has just surrendered.
A teenage Jim Pattison is standing there holding a massive stack of 350 newspapers. His entire life savings at the time, it was $15. tied up in these papers. This was supposed to be the easiest $10 profit he ever made, but nobody is buying. Not one. person because the radio has already told everyone the news. Jim is literally standing in the street trying to sell yesterday's
news today. At this moment, some people would cut their losses in frustration and go home, but not outliers. Jim loads these worthless papers into a car and he drives to the suburbs and he walks to the first door. Only now. He's not selling newspapers anymore. He's selling souvenir editions of the day the war ended. He sells every last copy. One copy of that newspaper, however, still hangs in his office wall. Not just because of the war ending.
But because it taught him a lesson, he wasn't selling ink on paper. He was selling history. He was selling a story. And that was the invisible product. Decades later, Jim forgot this lesson. It's the 1960s. He's building a conglomerate. glamour at Neonex International. He buys 13 companies in one year. His stock is soaring. He's playing what he called the magic game of the 1960s finance. He was selling Wall Street the story of endless growth.
And then the music stops. The conglomerate bubble bursts. The same thing that Henry Singleton was partaking in and taking advantage of. And Jim watches the ticker tape as Neonext shares collapse from $45 each to $80. sense his companies are falling like dominoes the banks are calling in his loans jim is nearly wiped out he's back on that street corner only this time he can't change the story he realizes he's been selling the wrong thing again
He was selling the stock price, the magic of anticipated earnings growth. He wasn't actually selling a business. He survives, but just... Barely. But he's a different man now. He gathers his remaining team. The only thing that's going to count, he slams on the table, is solid earnings quarter by quarter. He becomes obsessed with operations and return on invested capital. And then in 1977, he made his final move. He buys back all the public stock. He takes the company private again.
He escapes the tyranny of the stock market. And for the last 48 years, he has run his company with the philosophy, no partners, no shareholders, no relatives. Let's go to Estee Lauder again. She's standing at the house of ash blondes and the whir of hair dryers are going all around her. Her heart is pounding. In her hands are four jars of cream. She's cooked up in her own kitchen. She has no sales.
this point at all this is it this is her first break the salon owner mrs morris glances at the jars and then at her watch ah would you mind leaving them with me she says i'm so busy right now i'll try them when i have time this is the polite no the brush off we've all done it you want the person to just say okay thank you and walk away but este understood what she was
really selling, what customers really wanted, even if they didn't know they wanted it themselves. She wasn't selling a cream. You can leave cream on a counter. She was selling a transformation. She refuses Mrs. Morris. requests just let me show you how they work she replies instead already opening a jar give me just five minutes and you'll see the right way to use them
Five minutes later, Ms. Morris is staring at herself in the mirror looking incredible. Estée knew the product wasn't the stuff in the jar. The product was the experience. Nobody buys cream. They buy what cream does for them. They buy the... transformation it was that feeling that a woman had when she looked in the mirror that was the invisible
And that was what launched Estee Lauder. That and you two. A few years later, Estee is at a party. She's looking at her friend's dresser and she sees them. Three unopened bottles of very expensive perfume, literally gathering dust. And Essay doesn't just see bottles, she sees a mistake.
She asked the question that would change the entire industry. Why don't women use their perfume? And the answer was because they couldn't. Society had trapped perfume in this gilded cage. It was something you received as a gift. usually from a man. It was almost always scandalous for a woman to buy it for herself. And so it just sat there evaporating, waiting to see a rare special occasion that never arrived.
To Estée, this was nonsense. But she knew you couldn't just change the product. You had to change how women thought about themselves. So she didn't sell them perfume. She created what she called Youth Do and she called it a bathrobe. which was particularly clever. Something a woman could buy for herself. Something new. A personal, luxurious ritual. A bath oil that just happened to double as a skin perfume. The genius wasn't the scent. The genius was permission.
With it, she created an entirely new market. When women bought Youth Dew, they were buying independence. They were buying the right to make themselves feel beautiful without waiting for somebody else's permission. was the invisible product and that was what mattered. Thank you for listening and learning with me to this outlier series in 2025. There is so much more to learn next year and I will see you next week.
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