192:Įvery Koch business leader was expected to create their own Value Creation Strategy. There's a trap if you push too much for it. Koch Industries made some mistakes along the way.

Think entrepreneurially and suggest improvements when they see itīy decentralizing the ability to observe and suggest improvements, you get the people close to the markets to make decisions and react quickly.

Understand how what they are doing adds business value.

Every company should make it clear to everyone, that it's their duty to: One tenet under Charles Koch's school of thought called Market-Based Management (MBM) is “principled entrepreneurship”, meaning let everyone in the company think about their job as a business owner. Accountability+agency can work extremely well. … BUT, I've also seen several success stories when you put a smart person in charge of a key metric (say acquisition costs) and tell them from now on, they own it, and they need to do whatever they can to get it down.

Startups need to invest in crazy ideas with low chance but high expected outcome.

Startup teams are too entangled to have their own P&L.

The vast majority of all startups make no money.

There are many caveats applying this to startups, since: This creates essentially 100% alignment with the management of those units/plants and what the company wants (maximize profits)! If you also give those managers full freedom to pursue their objective in any way you want, then you have both full accountability and agency. Koch's approach to a lot of this boils down to holding business units and even individual plants accountable for their profits and losses. Ideally, you want measure (and reward) the performance of individuals in a way that's 100% correlated with business value. A lot of it comes down to how you measure results.

Let's go through a few ways I think startups (and any companies) can take notes from what Charles Koch has accomplished.Īligning incentives with what's in the long term interest of the business is an extremely hard thing to get perfect, especially at a large scale. But my curiosity tells me there's something worth learning from most notable people, despite what I may think of their opinions and Koch Industries turns out ot be a particularly interesting case study. I don't understand this disconnect between being so brilliant in one field, and extremely ignorant in another. You may know the Koch brothers as the climate deniers who funded the Tea Party. That's impressive! Just a quick disclaimer just to get it out of the way.

This isn't my first interest in Koch-I read The Science of Success by Charles Koch himself a couple of years ago.Ĭharles Koch inherited a tiny company in 1967 and turned it into one of the world's largest ones. I recently finished the excellent book Kochland.

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