Podcast Summary
Streamlining Investment Process with Technology: Pass Thru simplifies subscription documents, saving LPs time. TEGIS offers a unified research platform for informed decisions. Mitch Rails shares insights on building successful businesses with a long-term perspective, learning agility, and continuous improvement.
Technology solutions like Pass Thru and TEGIS can significantly streamline and improve the investment process for both firms and Limited Partners (LPs). Pass Thru simplifies the subscription document process, reducing the time it takes for LPs to complete their documents from days or weeks to just minutes. TEGIS, on the other hand, offers a unified end-to-end research platform that helps investors make informed decisions more efficiently. Meanwhile, in this episode, we had the pleasure of interviewing Mitch Rails, co-founder of Danaher, who shared his business philosophy and insights on building successful organizations. He emphasized the importance of a long-term perspective, learning agility, and continuous improvement. Mitch's story serves as an inspiration for anyone looking to build and grow impactful businesses.
A unique art institution integrating art, architecture, and nature: The Glenstone Museum, inspired by Jim Collins' books, aims to create a revered museum with a long-term endowment, integrating continuous improvement, commitment to excellence, and customer satisfaction
The Glenstone Museum, co-founded by Mitch and Emily Rales, is a unique art institution that integrates art, architecture, and nature on a 400-acre campus. Their vision was to create a place where visitors can engage with art in a meaningful way, free from the hustle and bustle of everyday life. They've dedicated significant space per visitor, allowing for a slow, calm experience. From the start, they've been inspired by Jim Collins' books and have built their institution around a clear purpose statement, core values, and a big, hairy, audacious goal. They aim to create a revered museum around the world, with a long-term endowment to sustain it in perpetuity. The ethos of continuous improvement, commitment to excellence, and customer satisfaction, which have been important to Danaher, are also being integrated into Glenstone. After 15 years, they're not yet great, but they're on a mission to get there, one decision at a time.
Learning from the best practices of other institutions: Benchmarking from over 50 museums led to valuable insights and improvements in Glenstone's architecture, acoustics, and use of space.
The process of building something great, whether it's a business or an art collection, involves learning from the experiences of others. The founders of Glenstone, Emily and Gordon Rauchbaechler, emphasized the importance of benchmarking, or studying the best practices of other institutions, in the development of their museum. They visited and learned from over 50 museums around the world, asking the teams what they would do differently if they could start over. This process led to valuable insights and improvements in areas such as architecture, acoustics, and use of space. This commitment to continuous learning and improvement, which was also a key principle of Danaher Business Systems, has been instrumental in the success and uniqueness of Glenstone.
Adopting Quality Improvement Principles from Toyota: Danaher's success from importing quality improvement principles from Toyota and applying them consistently over time.
The principles of quality improvement, popularized by Edward Deming and adopted by Toyota in the late 1950s, were later imported back into the United States by Danaher in the 1980s. This led to the creation of Danaher Business Systems, which went beyond just manufacturing and applied these principles to various aspects of the business. The commitment to continuous improvement, as demonstrated by visiting the "gemba" or workplace, has been a significant part of Danaher's culture and has contributed to its success over the past 40 years. A key lesson from this story is the importance of adopting and advancing great ideas, and the compounding impact of making small improvements consistently over time. My father's experiences, including growing up in poverty and eventually starting a successful business, also played a formative role in my personal development.
Unexpected sources of entrepreneurship and resilience: Entrepreneurship and resilience can stem from personal hardships and lack of formal education. Identifying and harnessing talent within an organization is crucial for growth.
Entrepreneurship and resilience can come from unexpected places, including personal hardships and the "school of hard knocks." The story of the speaker's father, who built and sold a successful business to his employees through an ESOP despite lacking a formal education, is a testament to this. His experiences in an orphanage early in life shaped him in significant ways, instilling a strong entrepreneurial spirit and a sense of determination, while also leaving him with feelings of abandonment. This combination of experiences likely contributed to his success as a businessman and his ability to teach his son valuable street smarts. Another key lesson from the speaker's experience is the importance of identifying and harnessing talent within an organization. For instance, when Steve and the speaker recognized their limitations as operators, they brought in George Sherman to professionalize the business and focus on the details. This decentralization of leadership and identification of talent allowed Danaher to continue growing and spreading the Kaizen gospel under strong leadership.
Embracing change and long-term vision: Long-term vision, investing in talent, and being open to change are key drivers for growth and success.
Danaher's success story is rooted in their long-term vision and their ability to pivot when necessary. In 1990, they made a pivotal decision to hire an outside CEO, George Sherman, who transformed the business and set the stage for a decade of growth. This long-term perspective allowed them to invest time and resources in the business, leading to compounding returns over the next 40 years. The power of patience and ambition, combined with a commitment to pivoting when needed, has been a key driver of Danaher's success. For individuals and organizations seeking similar results, it's essential to have a long-term vision, invest in talent with a 20-30 year time horizon, and be open to making pivots when the market or business landscape shifts. Change is inevitable, and embracing it can lead to significant growth and success.
Continuous transformation and long-term thinking: Successful businesses need intellectual agility from CEOs and long-term thinking from the board and investors. Danaher's culture of continuous improvement and long-term thinking, fostered by its co-founders, has been key to its success.
Successful businesses, like Danaher, need to continuously transform and adapt to the changing world. This requires intellectual agility from CEOs and long-term thinking from the board and investors. The deeply ingrained culture of continuous improvement and long-term thinking at Danaher has been instrumental in its success, but it's often overlooked by investors focused on short-term gains. Steve and the board's role as chief stewards has provided CEOs with the air cover they need to focus on the long-term vision for the company. Building alongside a co-founder, like Steve, has been a valuable experience for Danaher's success. Their partnership, which began in 1980, has been instrumental in the company's founding in 1984 and its continuous transformation through multiple pivots. The importance of this culture and the role of co-founders in fostering it cannot be overstated.
A successful partnership founded on mutual respect and a shared vision: Steve Rowe and Booth Martin's partnership, built on respect and a shared vision, led to the creation of Danaher, a $71 billion industrial manufacturing company.
Respect for each other's opinions and a shared long-term vision have been key to the success of Danaher. Founded by Steve Rowe and Booth Martin in 1981, their partnership began with a goal to create a $250 million business with a 10% operating profit margin. They started with a vinyl siding company, MasterShield, and used creative financing to acquire it, borrowing almost the entire purchase price. Their first deal was just the beginning, and they continued to grow by acquiring more industrial manufacturing assets. The division of labor between them evolved over time, with Steve focusing on strategy and the big picture, and Booth handling the operational prowess of the businesses. Despite living in different parts of the country, they remained aligned and communicated frequently. Their focus on the next 10-year journey and the growth of their teams has been instrumental in Danaher's continued success. Their story began with a handshake and a dream, and through determination, creativity, and mutual respect, they built a business that has stood the test of time.
Danaher's Transformation into a Healthcare and Life Sciences Powerhouse: From an industrial manufacturing company to a healthcare leader, Danaher evolved through strategic focus on professionalization, diversification, and a shift towards less cyclical industries. Key acquisitions and pivots towards healthcare led to a comprehensive product portfolio in the biologics manufacturing space.
Danaher Corporation's evolution from an industrial manufacturing company to a healthcare and life sciences powerhouse was driven by a strategic focus on professionalizing the business, diversification, and a shift towards less cyclical industries. During the first era, led by George, the company built a strong operating foundation and expanded into new areas like motors and controls. In the second era, under Larry, Danaher made significant acquisitions in the industrial sector and dipped its toe into healthcare with the purchase of Radiometer. The third era, under Tom Joyce, saw a pivot towards simplification and a focus on healthcare through strategic acquisitions like Cepheid, IDT, and Cytiva, and the spin-off of heavy industrial businesses. This transformation allowed Danaher to become a leader in the biologics manufacturing space, with a comprehensive product portfolio covering 80-85% of the necessary workflow.
Tom's selfless leadership led to strategic vision and growth: Effective leaders make tough decisions, have strategic vision, give credit, experiment, self-discover, hire talent, and ensure strong integration in acquisitions for business growth.
Effective leadership involves making tough decisions, having strategic vision, and giving credit to others. Tom, a level 5 leader at Danaher, embodied these qualities by stepping down to allow Reiner Blair to lead the company's strategic vision in life science and diagnostics. Collins's framework of experimentation and self-discovery was also highlighted, as well as the importance of hiring from within and outside the company for talent and fresh perspectives. Successful acquisitions are led by strategy and require a strong integration process, as learned through Danaher's experiences with Nanoher and ESAB. Overall, the discussion emphasizes the importance of strong leadership, talent acquisition, and strategic alignment in driving business growth.
Focusing on vital few things for short and long term success: Identify crucial initiatives for short term preservation and long term growth, implement tools like SMED, have strong leadership, seek recurring revenues, and consider philanthropy for positive impact.
Focusing on the vital few things that preserve and protect a business in the short term, while also identifying and investing in those that can turbocharge it for the long term, is crucial for business success. This can be achieved through strategic initiatives like policy deployment and the implementation of tools like SMED, which can increase capacity without significant investment. Additionally, strong leadership with intellectual agility, a long-term vision, and a passion for creating something great is essential. Recurring revenues are also a desirable business characteristic, providing a steady stream of income and allowing for strategic thinking and growth. The inspiration for philanthropy can come from various sources, such as personal experiences or a desire to make a positive impact on society.
A dangerous fishing trip in Russia sparks a new perspective on life and philanthropy for Mitch Rales: An unexpected helicopter accident in Russia led Mitch Rales to question the purpose of wealth and inspire him to donate 98% of his fortune to charitable causes, emphasizing effective and impactful giving.
Even in the face of adversity and danger, Mitch's experience in Russia sparked a new perspective on life and philanthropy. During a fishing trip, their helicopter caught fire due to an accident during refueling, leaving them stranded. With no modern communication methods, they managed to send an SOS using a World War 2 radio. The incident led Mitch to question the purpose of wealth and motivated him to give back to society. He started the Glenstone Museum and became a signatory of The Giving Pledge, committing to donate 98% of his wealth to charitable causes. This incident also highlighted the importance of effective and impactful giving, which Mitch and his brothers have prioritized in their philanthropic efforts. Despite the danger and loss, Mitch's experience in Russia served as a turning point in his life, leading him to make a significant impact on the world through art and education.
Investing in what you believe in can be rewarding: Focusing on long-term, concentrated investments in passionate founders and growing businesses can yield higher returns than diversification, despite fees and short-term pressures of public markets.
Maintaining a long-term, concentrated investment in a company like Danaher, which has delivered extraordinary returns over the past 40 years, can be highly rewarding, despite the advice of some to diversify. The speaker believes that investing in what one believes and convicts oneself in, such as Danaher, is a better strategy than diversifying and dealing with high fees and short-termism that can come with other investment methods. The speaker also identified issues with the traditional asset allocation methodology, which he believes has become broken due to short-termism and high fees. Instead, he advocates for finding passionate and dedicated founders, investing in businesses with the potential for significant long-term growth, and staying the course in private companies to avoid the short-term pressures of public markets.
Long-term perspective and avoiding mistakes in selling during downturns: Maintaining a long-term perspective and avoiding selling during market downturns can lead to compounding returns and securing 'duration models' of 20-30 years for great outcomes.
Selling during market downturns can be detrimental to long-term growth, as many missed out on Danaher's post-COVID growth. Being private has its benefits, such as making higher quality decisions, but public markets offer access to large capital dollars when needed. The value of a long-term perspective, or "time horizon arbitrage," was emphasized, and the importance of avoiding mistakes and supporting young entrepreneurs in their growth was highlighted. The example of Arcadia, a company Sequoia invested in, illustrates the potential for compounding returns over long periods. The ultimate goal is to secure a handful of "duration models" of 20 to 30 years to achieve great outcomes.
Buying growthy vertical market software businesses and fostering organic growth for a more durable Constellation Software: Constellation Software's long-term success involves acquiring growthy vertical market software businesses, focusing on mission-critical platforms, fostering organic growth, and understanding synergies to create significant value. This approach requires paying a premium and adjusting priorities based on environmental conditions and team capabilities.
Creating a more durable and valuable version of Constellation Software for the long term involves buying growthy vertical market software businesses, focusing on mission-critical platforms, and fostering organic growth. This approach not only requires paying a premium for these businesses but also understanding how they can synergize within a platform to create significant value. The success of this strategy relies on the ability to adjust priorities based on various environmental conditions and team capabilities. By bringing seasoned operator knowledge and expertise to these situations, founders can build impactful companies that surpass the achievements of industry giants like Constellation. This approach allows for greater flexibility and the ability to turn on a dime, making it an exciting and rewarding journey.
Balancing Perspective, Support, and Deference in Investing: Engage with young entrepreneurs, have a clear point of view, provide ideas, identify secular trends, match with talent, get involved early, and expand into near adjacencies for successful investing.
Successful investing involves a balance of strong perspective, support, and deference. The speaker, who has a background in long-term, owner-oriented investing, emphasizes the importance of engaging with young entrepreneurs, having a clear point of view, and providing ideas while allowing room for the team to develop their own insights. He also highlights the importance of identifying secular trends, such as healthcare efficiency and digitalization, and matching them with the right talent and business structures. Additionally, the speaker believes that the earlier an investor can get involved with a competent company, the better, and that expanding into near adjacencies can lead to increased importance and success. Overall, a successful investment strategy requires a combination of strategic vision, flexibility, and trust in the capabilities of the teams being invested in.
The value of a long-term, open-ended investor: Long-term investors provide ongoing support, eliminate complexity, and offer potential for significant returns without massive risks. Founders and investors should align in long-term focus and comfort with illiquidity for successful, secular trend-focused businesses.
Having a long-term, open-ended capital provider is invaluable for founders looking to build businesses for the long term. This type of investor not only supports the project as it continues to grow but also eliminates the complexity and inefficiencies that come with multiple investors at different stages. The ideal situation is for an investor to be involved from day one, acting as a partner and providing ongoing support. This approach allows for the potential for significant returns, such as 100 baggers, without taking on massive risks. It's essential for founders and investors to align in terms of their long-term focus and comfort with illiquidity. This mindset and structure can lead to successful, secular trend-focused businesses.
Long-term focus on essential businesses with secular growth and societal impact: Focusing on long-term investments in essential businesses with secular growth and societal impact can lead to significant returns. Examples include healthcare, software, and ESG companies. Scaling these businesses, bringing in the right talent, and learning from industry experts can lead to extraordinary outcomes.
Having a long-term investment horizon and focusing on businesses with secular growth and mission-critical impact can lead to significant returns. The convergence of sectors like healthcare, software, and ESG is not a coincidence, but rather an embedded component of these businesses. Companies like Summit Health and Cine are great examples, as they provide essential services and products while also addressing societal needs. The importance of scaling these businesses and bringing in the right talent cannot be overstated. Furthermore, focusing on specific areas of expertise, such as vertical market software, and learning from industry experts can lead to extraordinary outcomes. Additionally, applying lessons learned from various experiences, such as Danaher's focus on realizing life's full potential, can be valuable for an NFL franchise like the Washington Commanders. Investing in a team with a personal connection and a clear vision for the future can lead to both financial and emotional rewards.
New Commanders ownership focused on rebuilding and rehabilitating franchise: New ownership attracting top talent, building team with strong leadership, and aiming to make Commanders perennial playoff contenders
The new ownership of the Washington Commanders, Josh Harris and his team, are deeply passionate about rebuilding and rehabilitating the franchise, which has faced challenges for the last 24 years. They see themselves as stewards of the iconic NFL team, which has a strong fan base and demographics. The first step in their strategy was to attract top talent, starting with hiring General Manager Adam Peters and former NFL head coach Dan Quinn. These hires have already proven to be successful in attracting other talented individuals to the team. The focus is on building a team with strong leadership and a winning mentality, both on and off the field. The long-term goal is to make the Commanders perennial playoff contenders, and the team is making significant moves in the draft and free agency to achieve this goal. Ultimately, the investment in the Commanders is not just about financial returns, but also about giving the 10 million fans in the DMV region a reason to reengage with football. The team's headquarters in Ashburn, Virginia, already shows a different energy level, and the excitement is building as the team prepares for the upcoming season.
Revitalizing fan support and player morale: Effective sports leadership involves addressing player concerns, selling out games, and creating a better fan experience to build a winning culture and attract fans for years
Effective leadership in sports involves truly understanding and responding to the needs and desires of both fans and players. The new general manager, Adam, has made it a priority to listen to the athletes and address their concerns, such as the lack of fan support at home games. By committing to selling out every game and creating a better fan experience, Adam aims to bring back the excitement and unity around the team that has been missing for decades. Additionally, small improvements, like providing better shampoo in the locker room, can lead to significant positive reactions from players and fans alike. Ultimately, this approach is about building a winning culture that will attract and retain fans for years to come.
Bringing people together for a common cause: Effective leadership inspires diverse groups to work towards a shared goal, fostering learning and collaboration for long-term community investments.
Effective leadership involves bringing people together for a common cause, fostering an environment of learning and collaboration, and making long-term investments in the community. Mitch's experiences at stadiums and museums illustrate the power of gathering diverse groups of people and inspiring them to work towards a shared goal. The new coaching approach at the Commanders, which emphasizes teamwork and cross-functional relationships, is a step in the right direction. Mitch's passion for learning and curiosity have been instrumental in his success and have inspired those around him. By continuously seeking new knowledge and insights, leaders can make a positive impact on their organizations and society as a whole.
