Rich Karlgaard: An interview by Bob Morris

imagesRich Karlgaard is an angel investor, board director and Wall Street Journal best-selling author as well as the longtime publisher (since 1998) of Forbes magazine. He also writes the Forbes column, “Innovation Rules,” which is known for its witty assessment of business and technology. He has been a regular panelist on television’s Forbes on FOX show since its inception in 2001. Rich really is a serial entrepreneur and has launched two magazines (Upside and Forbes ASAP), the venture capital firm Garage Technology Ventures (with his friend, Guy Kawasaki), and Silicon Valley’s premier business and technology forum, 7500-member Churchill Club. He is a past Northern California winner of the Ernst & Young “Entrepreneur of the Year” award. Rich speaks 50 to 60 times a year on economic, business and investment themes. He was raised in Bismarck, North Dakota, and graduated from Stanford University. He lives with his family in Silicon Valley. His latest book, The Soft Edge
: Where Great Companies Find Lasting Success, was published by Jossey-Bass/A Wiley Brand (April 2014).

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Morris:
Before discussing The Soft Edge, a few general questions. First, who has had the greatest influence on your personal growth? How so?

Karlgaard:
 That would be my dad, Dick, who died in 2012. Dick was the athletic director of the Bismarck, N.D. public school system. He hired and fired high school coaches. He also ran state tournaments in every sport and had a big deep voice and did the public address at football and basketball games and at track meets. He was a mythic figure around Bismarck. He absolutely loved his job. He did what he wanted to do, and he excelled at it. He was twice named the national high school athletic director of the year. My dad invented his own job and he was happy. That’s what I learned from him.

Morris: Years ago, was there a turning point (if not an epiphany) that set you on the career course you continue to follow? Please explain.

Karlgaard:
 When I bought my first Apple Macintosh in 1985. I bought a Mac, then a copy of Aldus PageMaker (I had serial number 443), then a laser printer. Suddenly I had the tools to be a publisher. No longer was I limited to being a low-level technical writer. Liberation! Desktop publishing let me create Upside magazine, which let me interview people like Bill Gates, which caught the eye of Steve Forbes. The Mac began a marvelous chain of events.

Morris: To what extent has your formal education been invaluable to what you have accomplished in life thus far?

Karlgaard:
 Zip. Stanford looks good on anyone’s resume, but I learned nothing of value in classes. College taught me to hate reading. I used to hide in the library and pour through old issues of Sports Illustrated rather than study political science textbooks. I fell in love with reading, beyond sports writing, two years after finishing college. I became interested in business, markets and finance only after I figured out that business was just another kind of sport. As editor of Upside and Forbes ASAP, I tried to inject a sports-writing vigor and wit and human truth to business. That’s what I strive for in my Forbes Innovation Rules columns. That was my goal in writing The Soft Edge.

Morris: What do you know now about the business world that you wish you knew when you when to work full-time for the first time? Why?

Karlgaard:

 Well, I knew absolutely nothing about business when I graduated from college. I was able to catch up fast once I learned that business was like sports, but, alas, I didn’t figure that out until my late twenties. In Search of Excellence by Tom Peters and Bob Waterman was another eye-opener. They wrote about business as if it could be … fun. Which it can be.

Morris: Of all the films that you have seen, which – in your opinion – best dramatizes important business principles? Please explain.

Karlgaard:
 Movies about business are almost always boring. They always feel forced. Ashton Kutcher did in fact resemble Steve Jobs – spoke like him, walked like him — and that was amazing for, oh, the first five minutes. But the story was wooden. Great movies, on the other hand, teach us about human truth. Insights about human truth are what matter in business.

Morris: From which non-business book have you learned the most valuable lessons about business? Please explain.

Karlgaard:

I am now immensely enjoying Scott Eyman’s biography of John Wayne. This book is not primarily about the movie business, but Eyman in great detail shows how Wayne managed his career and brand and how he worked with different directors and studios. Wayne’s collaboration, in particular, with director John Ford is deeply illuminating.

Morris: Here are several of my favorite quotations to which I ask you to respond. From Howard Aiken: “Don’t worry about people stealing your ideas. If your ideas are any good, you’ll have to ram them down people’s throats.”

Karlgaard: 
True in science and philosophy. But note that Apple did not have to ram the iPhone down people’s throats.

Morris: From Richard Dawkins: “Yesterday’s dangerous idea is today’s orthodoxy and tomorrow’s cliché.”

Karlgaard:
 Only true when evolution is at work. Certainly business innovation follows this course. But the Dawkins dictum fails to explain, say, deeper human nature, which is timeless.

Morris: From Isaac Asimov: “The most exciting phrase to hear in science, the one that heralds the most discoveries, is not “Eureka!” (I found it!) but ‘That’s odd….’”

Karlgaard:
 I love this quote! The analogy in business would be, “Odd that our product generates more buzz when we advertise less.” Or, “Odd that Mary, who is such an introvert, is our best salesperson.”

Morris: Finally, from Peter Drucker: “There is surely nothing quite so useless as doing with great efficiency what should not be done at all.”

Karlgaard:
I was lucky to interview Drucker on two occasions at his home in Claremont, Calif. He told me the most difficult thing for any CEO was to figure out what not to do.

Morris: In one of Tom Davenport’s recent books, Judgment Calls, he and co-author Brooke Manville offer “an antidote for the Great Man theory of decision making and organizational performance”:  organizational judgment. That is, “the collective capacity to make good calls and wise moves when the need for them exceeds the scope of any single leader’s direct control.” What do you think?

Karlgaard:

I know Tom Davenport and consider him brilliant. But I wouldn’t be so quick to toss out the Great Man. Apple lost something vital with the death of Steve Jobs. Amazon needs Jeff Bezos. Tesla needs Elon Musk. Professor Davenport’s idea of a Great Man sounds more like Downton Abbey’s Lord Crawley – a caricature of a pompous know-it-all – than it does of actual great leaders you see in business today. Today’s great leaders are data driven, yes, but they are far, far more than that. You can’t inspire people with data.

Morris:
In your opinion, why do so many C-level executives seem to have such a difficult time delegating work to others?

Karlgaard:

 To my eye, it is below C-level where you see this at work. C-level executives rise to that level because, generally, they are good at delegation. Too many mid-level managers get stuck or burn out because they are not. They don’t know how. Or they are afraid to.

Morris:
The greatest leaders throughout history (with rare exception) were great storytellers. What do you make of that?

Karlgaard:
The job of a great leader is to put conviction in people’s hearts. Stories do that because they give us meaning and purpose. Which, in turn, leads to conviction.

Morris: In recent years, there has been criticism, sometimes severe criticism of M.B.A. programs, even those offered by the most prestigious business schools. In your opinion, in which area is there the greatest need for immediate improvement? Any suggestions?

Karlgaard:
The value of a Harvard MBA is that, (1) it proves you were smart enough, driven enough, to get into Harvard Business School, and (2) you now have great contacts. The actual education is the least of it. Simulation technology will radically transform teaching and learning in business. I’m convinced that all but the very top business schools will decline. The investment in time and money won’t be worth it. What employer is going to pay a premium salary for an MBA that isn’t from a top school? But there will always be Harvard, Stanford and Wharton.

Morris: Looking ahead (let’s say) 3-5 years, what do you think will be the greatest challenge that CEOs will face? Any Advice?

Karlgaard:
 I honestly can’t figure out why any company would want to be public. The scrutiny is only going to get worse. The happiest CEOs I know run private companies. Jim Goodnight of SAS Institute is a happy man. I recently spent a day with Michael Dell in Austin. He is ten times happier now than when Dell was public.

Morris: Now please shift your attention to The Soft Edge. When and why did you decide to write it?

Karlgaard:


The Great Recession ended, statistically, in June 2009. But the recovery has been very uneven. Some 70 percent of Americans, in 2014 – five years into the recovery – believe the recession is still here. Those 70 percent are unemployed, or they are stuck in their careers, or they are working for companies that are stuck. I wanted to find out what the 30 percent – the unstuck – were doing that was different.

Morris: Were there any head-snapping revelations while writing it? Please explain.

Karlgaard:

 Yes – and it became the book’s premise. The best and most enduring companies see themselves as a triangle of forces. They are great in strategy, execution (the hard edge) and culture (the soft edge). They don’t skip on any of those.

Morris: In the Foreword, Tom Peters says that he has been fighting the “soft edge war” since 1977, “a war that cannot be won.” What do you think?

Karlgaard:

 Any reader of Tom’s canon knows what he means. He means that shareholders, boards, CEOs and CFOs – the hard edgers – will hold the power in most organizations. But if one hasn’t read Tom, one might miss the context. Tom’s not arguing that the soft edge should vanquish the hard edge. Rather, he’s saying that the soft edge should be treated as importantly as strategy and the hard edge.

Morris: Please elaborate a bit more on your core thesis that — as you just indicated — all great companies have a hard edge, a soft edge, and a strategic base…and must have all three rather than only one or two.

Karlgaard:

 The metaphor is organizational health. A healthy person has good physical health, good mental health, and good social health. Remove any of those three sides, and health is jeopardized. Same goes for a company. Healthy companies are good at strategy, execution and culture. The temptation, particularly for young cocky companies, is to skip culture. Dell in the 1990s is an example. Dell was all about strategy and execution. It was the fastest growing stock in the 1990s. If an employee burned out well, at least they had owned Dell stock. That suited Dell just fine, but then Dell’s stock went down and stayed down, demoralizing shareholders and employees. The culture had been centered on stock performance, and now that was busted. So Dell did the right thing by going private. Now Michael Dell more fully appreciates the value of culture. The company is performing well again.

Morris: I commend you on your two-part chapter titles. They are rich in explicit substance and implicit significance. Please discuss the suffix of each of these. First, Trust: “The Force Multiplier of all Things Good.”

Karlgaard:
 Trust is the foundation to any healthy company culture. Do customers trust the company? Do employees trust the company? Trust buys grace when you screw up, which you will, because you are human. Trust turns men into supermen, a story I told through a Northwestern Mutual insurance salesman who came to trust the noble purpose of his career.

Morris: Next, Smarts: “How Fast Can You and Your Company Adapt?”

Karlgaard:
 Every employer would love to have teams of superstars in the company. But few companies can afford to pay superstars, so it comes down to, how can we make the people we have smarter, better and more effective.

Morris: Then, Teams: “Great Things Come to the Lean and Diverse”

Karlgaard:
 
The best teams are small – no more than eight to twelve people. Jeff Bezos calls it the “two pizza rule.” Your team is too bloated if it takes more than two pizzas to feed them. The diversity I refer to includes race and gender diversity to include age diversity, experience diversity and cognitive diversity. Nest Labs likes to mash up different thinking styles on all of its important projects. Managing diverse teams is hard, which is why most companies default to hiring people who look and think like themselves. That’s the path to mediocrity in today’s global economy.

Morris: Also, Taste: “Beauty Made Practical, Magic Made Profitable”

Karlgaard:
 What is it about an Apple iPad, a Ducati motorcycle, a Specialized bicycle, or a Nest thermostat, that makes us feel so excited … so smart … so satisfied? I used the word “taste” because that’s the word Steve Jobs liked to use. Jobs certainly knew how to put magic into his products. In doing so, he built the most valuable company in the history of commerce.

Morris: Finally, Story: “The Power of Story, Ancient and New”

Karlgaard:

 Story creates an emotional bond with customers and employers. Good stories are sticky in an increasingly ephemeral and fickle world. The best stories draw on principles that have been around for millennia – the hero’s journey being an example. What’s new is that social media lets customers become storytellers, too. In The Soft Edge, I tell the story about Cirrus Aircraft and its customers. Cirrus had invented a seriously cool technology – a parachute for the whole airplane. If your engine blew up over rocky terrain, or you became disoriented in the clouds, you could pull the parachute and float down. But then Cirrus became nervous about promoting its parachute. The damn lawyers – sorry to be redundant — trumped the good sense of the founders and marketing folks. So the Cirrus owners, knowing use of the parachute was a life or death issue, took over and started promoting the heck out the parachute. More than a hundred lives have been saved that might have been lost had Cirrus listened to its lawyers.

Morris: Do all organizations have — or at least could  have — a “sweet spot” of high performance?

Karlgaard:
 No, all organizations don’t. Nor will they. But more could.

Morris: If an organization doesn’t, how to create one? What are the most important do’s and don’ts to keep in mind when doing so?

Karlgaard:
 The sweet spot is that place between analytics-driven decisions and intuition-driven decisions – between data truth and human truth, as the lead designer for Specialized Bicycles told me. The best products and services have a touch of the irrational about them. Think Apple, Ducati, Nest, Starbucks, a great movie, rapturous music. They hint at an idealized world.

Morris: Which question had you hoped to be asked during this interview – but weren’t – and what is your response to it?

Karlgaard: Do the lessons in The Soft Edge have relevance to investors? They do. Since March 2014, the stock market has pivoted from growth stocks to value stocks. What is a value stock? Warren Buffett, who knows a thing or two about stocks, says it’s a stock you’d want to own forever, provided you can buy it at a favorable price. What I attempted to do in The Soft Edge was take readers inside of companies that are built for lasting success – the kinds of companies Buffett likes to own. Such companies are strong in strategy, execution and cultural values. That’s really it.

Speaking of Buffett, at the recent Berkshire annual meeting he was asked about the secret to Berkshire’s extraordinary success and his longtime investing partnership with Charles Munger. Buffett answered in one word: Trust. It is indeed the force multiplier of all good things, and the foundational soft edge.

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Rich cordially invites you to check out the resources at his website.

Also here’s his Forbes link.

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