We recently finished reading, Dream Big – Cristiane Correa. (Disclaimer – These are Amazon Affiliate links and pay a small commission to me for the referral) Originally published only in Brazil, Dream Big is the story of 3G Capital, the now owners of Budweiser, Burger King, Heinz, etc.

3G’s operating model of extreme cost discipline to drive free cash flow, driving further investment in brands and growth is garnering, rightfully so, a lot of attention in the private equity world. Our view is all managers should look at their lessons and see how they can apply them best to their operating businesses.

A common misconception is that 3G is only about cost control – but as Dream Big shows, that really isn’t true.  The cost controls are about freeing ‘stored capital’ that is sitting in an unproductive format and using it to drive results where it really matters.  This approach is reminiscent of Sam Walton’s cost discipline which he used to drive the Wal-Mart economic model.

A few salient notes / thoughts from the book are below:

• 3G’s start – Jorge Paulo Lemann, his partners were Marcel Herrmann Telles and Carlos Alberto Sicupira, and their company was the investment bank Garantia.
• From the very beginning, their primary investments have been in people, especially young and talented leaders
• 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
• First, get great people; second, give them big things to do
  • 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
• We built our company, then that would be the very best way in the long run to generate wealth.
• I learned that the best sign of true wealth is an uncluttered calendar, with time available to focus on the most important priorities.
• Get great people, give them big things to do and sustain a meritocratic ownership culture
• Understand how much time you have to make decisions, use that time to make the best decisions possible and maintain a sense of calm.
• Not only that, he found ways to connect great people with other great people
• People who know me and my companies know that I always say that, “having a big dream brings as much work as having a small ones”
• The second was that a business needed good, well-remunerated people, even in those departments that were unglamorous or did not turn a profit.
  • But the bonus could amount to four or five extra salaries, a potentially huge amount of money at that time.  To encourage people even more, the bonus was paid twice a year.
• Garantia –
  • Commission workers received a small percentage of the company’s total profit.
  • “From the bank’s earnings, 25% was distributed as profit sharing, 15% as dividends and 60% was capitalized,” said Baptista. “It was a doctrine that could not be changed.”
  • While Garantia staff could become owners, reaching the top came at high price. The bank did not give an equity stake to the new partner but sold it.
• Lojas
  • Its market value at that time did not even amount to US$ 30 million – a fraction of the company’s real estate holdings of almost US$ 100 million alone.
  • Also gave all the Garantia partners the chance to become owners of Lojas Americanas, regardless of whether they were involved in the business.
  • “It’s easier to rein in a guy who’s crazy than push someone who is slow,” is one of his favorite phrases.
  • Garantia had spent US$ 24 million to acquire 70% of the retailer. Six months after the purchase, as the operation improved, it had attracted investors who were prepared to pay US$ 20 million for a stake of only 20% of the company.
  • The three believe that to be a winner, a company has to recruit good people, preserve meritocracy and share the success amongst the best performers.
• Beer
  • “Tropical country, hot climate, good brand, young population and poor management…
  • Prior to 3G’s involvement
    • The company’s administrative expenses jumped from 12% to 17% of its net operating revenues between 1988 and 1989,
    • Executives spent most of their time preparing overblown reports and taking part in meetings that rarely decided anything.
  • After 3G:
    • The walls of the directors’ offices were torn down and gave way to a big table they all shared.
  • One of the initiatives put into practice straight away was to hold speeches in prestigious universities to try and hook young people before they graduated.
  • “This hiring of 40 to 50 young people every year is what made the difference,” said Rodrigues. “When you take a boy of 25 and make him a manager, this inspires all the younger ones.”
  • 35% of its employees (the best, obviously) received a bonus of three to nine extra salaries,
  • Establish standards for each plant activity and measure everything. Only products that met the standards would go to the market.
  • if the plant did not meet 50% of the quality targets in the first year, no-one would earn a bonus,”
  • “We are creating new processes so that the workers feel they are better appreciated, as variable remuneration, on its own, has not been enough,” he said. “Now we are doing everything to celebrate. If the guy has completed 10 years with the firm, you have to mark the occasion in some way. We have learned that we need to celebrate.”
  • “You and your team should do absolutely nothing in the first year that has to do with the business,”
  • “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.”
  • Within four years, the cash generation expanded by 18 times and the company started making a profit.