Book Notes: DREAM BIG - How the Brazilian Trio behind 3G Capital acquired Anheuser-Busch, Burger King and Heinz by Cristiane Correa


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Book description (from Amazon)
"My friend - and now partner - Jorge Paulo and his team are among the best businessmen in the World. He is a fantastic person and his story should be an inspiration to everybody, as it is for me." - Warren Buffett

In just 40 years this Brazilian trio built the biggest empire in the history of Brazilian capitalism and launched themselves onto the world stage in an unprecedented way.

The management method they developed, which has been zealously followed by their employees, is based on meritocracy, simplicity and constant cost cutting.

Their culture is as efficient as it is merciless and leaves no room for mediocre performance. On the other hand, those who bring in exceptional results have the chance to become company partners and make a fortune.

Dream Big presents a detailed behind-the-scenes portrait of the meteoric rise of these three businessmen, from the founding of Banco Garantia in the 1970s to the present day.
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Author(s)
Cristiane Correa
Book in a tweet
3G recipe for success: meritocracy, relentless cost control, hard work and a lot of pressure that not everyone could endure. No perks or status symbols.
Top takeaways
  1. Meritocracy = remunerating and promoting employees purely on their performance without considering factors such as how long they had been in-house. Without growth, meritocracy is just a nice word. How do you create opportunities for the most talented people if a company is not expanding? How do you remunerate your most successful employees if the firm’s earnings are not increasing?
  2. Costs are like nails; they always need to be cut.
  3. Everything you do that is important in life needs to be institutionalized, if not, it’s as though you have done nothing.
Who is the intended audience?
Anyone who wants to understand the background behind the 3G way
Overall quality/satisfaction level (1-10, 10 being highest)
8
Difficulty/complexity level (1-10)
4
Top positive points
  1. Quality business porn
  2. Goes in details of where 3G comes from and where they took their ideas
Top negative points
  1. Poorly edited, different parts could have been tied a bit better
  2. Could have spent a bit more time talking about their recent acquisition

Key takeaways:
  1. On what they did to build the culture: "All we did was copy a little from Goldman Sachs and a bit from the Walmart. Nothing more than that."
  2. Image of the culture: "knife between" their teeth and "fire in their eyes."
  3. Everything you do that is important in life needs to be institutionalized, if not, it’s as though you have done nothing.
  4. On the overarching culture they are implementing
    1. Meritocracy, relentless cost control, hard work and a lot of pressure that not everyone could endure. No perks or status symbols.
    2. To be a winner, a company has to recruit good people, preserve meritocracy and share the success amongst the best performers.
  5. Meritocracy
    1. Meritocracy = remunerating and promoting employees purely on their performance without considering factors such as how long they had been in-house
    2. Without growth, meritocracy is just a nice word. How do you create opportunities for the most talented people if a company is not expanding? How do you remunerate your most successful employees if the firm’s earnings are not increasing?
    3. It is important to have talent and sweat. Friendship or blood relations had no value and could even be a problem at times. Children or spouses of partners, for example, were banned from working in the brokerage. Romantic relationships in the workplace were banned.
    4. How they implement that on the financial side: half-yearly evaluations, aggressive bonuses
    5. There is no kind of perks at all. Car? Club membership? Forget it. It was about money, get it? And you can do what you want with your own money."
    6. To sum it up: The culture valued performance, not status; achievement, not age; contribution, not position; talent, not credentials. By mixing these three ingredients – Dream + People + Culture – into a powerful concoction, they created a recipe for sustained success. The culture rewarded performance; if you could make a significant contribution, and deliver results, within the boundaries of the culture, you would do well; if you had the best credentials in the world, but could not deliver exceptional performance, you would be spit out.
    7. To Lemann and his partners’ way of thinking, those on top should not prevent those below them from rising. That was totally against their doctrine of meritocracy. The rule also applied to them. "They had this rare ability to give up things when it was necessary,"
    8. Importance of having clear principles for your culture (even if the environment is cut throat): "When you know the rules of the game, it is easy to play. If a guy managed to knock me down, this showed he was more capable and had won the game and I left to find another experience. This was a rule that everybody knew."
  6. Cost Cutting
    1. Costs are like nails; they always need to be cut.
    2. Implemented the GE model: It laid down that employees in a meritocratic environment should be split into three ranges: the 20% top performers should be rewarded, the 70% average performers retained and the 10% underperformers shown the door.
    3. Implemented the Walmart model: Squeezing suppliers to get the lowest prices was also a recurring practice. A company with scale has the firepower to negotiate better prices and payment conditions. As Brahma grew, its suppliers and the retailers that sold its drinks had to adapt to the company’s new rules. All of them were forced over the years to reduce their profit margin and be more flexible in their payment conditions. (The company would later start paying its suppliers only 120 days after buying a product or service.)
  7. People
    1. The number one ingredient in their secret sauce is an obsession with getting the right people, investing in those people, challenging those people, building around those people and watching those people experience the sheer joy and exhilaration of achieving a big dream together.
    2. Better to give talented (if unproven) people a chance, and endure a few disappointments along the way, than to not believe in people.
    3. Great people need big things to do, or they will take their creative energies elsewhere. So, the founders built a two-piston flywheel: First, get great people; second, give them big things to do; then, get more great people, and come up with the next big thing to do; then repeat, again and again.
    4. It’s like a great mountain-climbing team; on the one hand, there is inherent risk in doing one big mountain, then the next big mountain, then the next-bigger mountain after that; on the other hand, if you don’t have new big mountains to climb, you will cease to develop and grow, and you will lose your best mountain climbers. Great climbers need big mountains to climb, always and forever.
    5. They didn’t just get the right people on the bus; they got the right people on the bus for a very long time.
    6. "What is the essence of the type of person you are looking for?" The answer: "We are looking for fanatics." We live in an age when people want a quick fix, a shortcut to exceptional results. But there is no such easy path. There is only an intense, long-term, sustained effort. And the only way to build that kind of enterprise is to be fanatic.
  8. Decision making
    1. The three founders came of age during a tumultuous economic time in Brazil, and I once asked: "What did you learn about how to manage money in such uncertain and inflationary times?" The answer: "When everyone else was spending their time managing their money, we invested our time in building our company. If we built our company, then that would be the very best way in the long run to generate wealth. Managing money, by itself, never creates something great and lasting, but building something great can lead to substantial results."
    2. True genius is not making an idea complex, but just the opposite: simplifying a complex world into a very simple idea, and holding to it for a very long time. They used their increasing wealth not for opulence, but to simplify their lives, so they could focus on continuing to build the company. (I learned that the best sign of true wealth is an uncluttered calendar, with time available to focus on the most important priorities.)
    3. DISCIPLINE AND CALM, NOT SPEED, IS THE KEY TO SUCCESS IN A TIME OF POTENTIAL CRISIS. "Sure, it’s human nature to want to make the uncertainty go away," said one of the founders. "But that desire can lead you to decide quickly, sometimes too quickly. Where I come from, you soon realize that uncertainty will never go away, no matter what decisions we make or actions we take. So, if we have time to let the situation unfold, giving us more clarity before we act, we take that time. Of course, when the time comes, you need to be ready to act decisively."
  9. Board structure
    1. A STRONG AND DISCIPLINED BOARD OF DIRECTORS CAN BE A POWERFUL STRATEGIC ASSET.
    2. Everyone involved had one goal: to do what’s best to make a great and enduring company.
    3. The AB Inbev board, however, is the primary power center in the company. It exemplifies that boards can play a central role in setting BHAGs, developing strategy, sustaining culture, seizing opportunities and leading through tumultuous times. Without such a strong and unified board, AB Inbev would not have come through the 2008-09 challenges as strong as it did (and perhaps even not at all).
    4. The AB Inbev board pays constant attention to its own culture, disciplines and vibrancy, with as much fanatic attention as building and preserving the management culture of the company.
    5. Most important, it makes decisions and allocates capital for long-term shareholder value, measured in multiple decades, not in terms of quarterly moments. If more boards behaved this way, we would have better performing enterprises and lasting companies.
  10. How to develop a sustainable partnership:
    1. Their roles were clearly established right from the start.
    2. None of them interfered in the work of the other although they swapped ideas and opinions.
    3. This closeness was founded on a series of common values and same reference points.
    4. Working together would be a formula for success. "Each one has a different profile, but they recognize that this is one of the triumvirate’s strengths," he said. "They would probably not have gone so far as they have on their own."
    5. They all appreciate simplicity and have no time for hierarchy. They are more concerned about building long-lasting companies than appearing on the lists of the world’s richest entrepreneurs.
    6. Other factor: have managed to avoid battles of egos, a common trap many businessmen fall into. "You can’t compete with your own partner.
    7. Summary of this ability to get on together: "We always had a common dream... and always respected whoever was handling a business... We let him get on with it. Obviously this means that if the boat sinks, he will go down with it..."
  11. What they do when they enter a business
    1. "You and your team should do absolutely nothing in the first year that has to do with the business," he said. "Only do sensible things while you learn how the company works. If you start doing things related to the way the business operates as such, there is a good chance of making a mess of it."
    2. "There was a group of almost 100 people and I asked each one to write on a page what they felt was good about the company, what could change and what the opportunities were," Behring said. "I then spoke to each person separately, even if it was only for 20 minutes. It’s impressive how a simple exchange of information like this can show what you are faced with." The exercise showed him which employees had a business vision and were prepared to get the company on track. Those who did not fit this description were replaced.
    3. Get to know the people there first hand, select those who had talent and get rid of the others. If you want to change a culture and come up against resistance, that’s a pity...
    4. To spread this new culture through a company that had existed for over a century, Telles had to do lots of visiting. He almost had to convert new followers. "Sometimes we’ll have to behave as though we’re crazy for these people to realize that what we are saying is for real," he once told Rodrigues.
  12. Other
    1. Ups and downs of deal making: "The trip we are starting with this letter will last a long time," he said. "There will be days when we will be up and others when we will be down. The other side will do things we have not thought about and, at some point, we will have to revise our plans. Be prepared."
    2. "Jorge Paulo said the only way to kill a competitor is through the cash," former Brahma director Magim Rodrigues recalled. "The company needs to have the best marketing, best product and best people. All this is great, but if you want to liquidate your rival, you need to go for his cash. When he has no more money left, he’s dead." The game had to get a lot rougher. During the second half of the 1990s, Brahma began structuring a sales system that could analyze all its clients’ data – not by state or city, but by each of its thousands of sales points. By doing so, it would know exactly how much each bar or supermarket sold and its profit margin. Rodrigues explained the impact of the initiative: "We stopped launching atomic bombs and spending astronomical amounts of money to try and grow on some markets and started to aim with great precision for the bull’s eye. The salespeople began to learn everything about each of their clients – how much they sold and how much they had in stock. It was a system that initially cost more as it needed 20% or 30% more salespeople, but it brought an amazing result. Until then, the salesperson used to go to the bar and ask the owner how many crates he needed that day. This ended. He now knew exactly what the client needed to buy and the margin he needed to leave for the company. As the salesman was free to negotiate discounts and payment conditions, he made a big effort to beat his target."
    3. He never liked to have a lot of money lying idle or distribute such fat dividends that his partners could become complacent. "It is OK for people to buy new cars, apartments or rent houses abroad. However, at work, our brains belong to the firm, and all our time and effort should be dedicated to it. Managing your own money and wasting time with it may seem more profitable, but it just means being small-minded. It is much more important to commit our intelligence, time and effort to the firm than operating a reserve or a deposit in a saving account. We, as staff who receive commissions, are partners in the bank’s success and profits. Until today, all who got their heads down and worked hard and thought only about the firm, have been rewarded extraordinarily well over time."