Lessons in management 02 — Dream, People, Culture: The 3G Doctrine
A collection of my notes on hiring great people, doing big things in business and sustaining a culture of meritocratic ownership by Jorge Paulo Lemann, Marcel Herrmann Telles, and Carlos Alberto Sicupira of 3G Capital.
“.. Going on to our Brazilian friends, they are very smart, very focused, they are very hardworking and determined, they are never satisfied and as I said earlier when you make a deal with them you make a deal with them. They don’t overreach, they don’t over-promise, they’ve got a lot of good qualities.” — Warren Buffett
An incredible track record
Jorge Paulo Lemann, Marcel Herman Telles, and Alberto “Beto” Sicupira are businessmen from Brazil who started their careers at Banco Garantia, a local brokerage. From their humble beginnings in Brazil, they have gone on to form one of the world’s most successful business legacies. The trio currently controls some of the largest and well-known companies in the world including the world’s largest beer producer AB Inbev, American icons Kraft Heinz, and Burger King.
What sets this trio apart from other great partnerships and business success stories is the remarkable global success of their management philosophy, rooted in common sense and simplicity.
This philosophy has brought consistent results to every company they have operated since the 1980s, scaling to an unprecedented global level, allowing them to acquire and grow some of the biggest brands in the world such as Anheuser-Busch (owner of the most valuable brand of beer in the world — Budweiser) and Heinz.
“In the end, I am a teacher; that is really how I see myself.” — Jorge Paulo Lemann
This article will elaborate on these time-tested principles, broken down into 5 sections, which include a combination of different management theories, cultures, and practices.
The management philosophy of the 3G partners should prove valuable to anyone interested in building long-term businesses with sustainable competitive advantages.
“Everything that you do that is important needs to be institutionalized, if not, it’s as though you have done nothing” — Beto Sicupira
Introduction
In order to understand the 3G Capital doctrine, we’ll need to begin with how the founders think.
A mindset of building wealth over the long term
“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.”
From the beginning, the three founders have been guided by a fundamental belief in creating wealth by building sustainable businesses with real competitive advantages that last over the long term, rather than a focus on short-term gain.
Despite their immense success, they continue to focus on the sustainability of their businesses over the long term and remaining humble. Shortly after Jorge Lemann became the richest man in Brazil, he had this to this say:
“When Sam Walton appeared on the list of the world’s richest people, we asked what he thought and he said that lists changed nothing because they were only paper, he said other things were really important. That’s how I feel.” — Jorge Paulo Lemann
This long-term mindset can be easily observed in the length of the relationship the original partners have kept for over five decades. Nurturing their best interns over decades into homegrown superstar CEOs.
As a consequence of this mindset, they believe it is just as important to keep your proven people challenged and stick with them over the long term. As you will see below, they got the right people and grew with them over the long term to build businesses that last.
The 3G Doctrine
Here are the principles that make up the 3G doctrine.
1. Investing above all else in people
“Better to give talented (if unproven) people a chance, and endure a few disappointments along the way, than to not believe in people.”
At the very core of 3G’s philosophy is the fundamental belief that talented and energetic people are the most valuable assets in a company. It is easy to forget that people are ‘the company’ and ‘the company’ is not some mystical entity that can solve problems on its own. Initiatives have to be taken by people to solve problems. From the beginning, the company has primarily invested in people, paying particular attention to young and talented leaders.
“If people are learning, solving problems, growing, knowing what it wants to do, aligned, inspired, attracting better people than who previously existed. The company is growing.” —
Carlos Brito, AB InBev CEO, View from the top, Stanford University, 2010
As Jim Collins notes in his foreword to ‘Dream Big’, the biggest sustainable competitive advantage that 3G possesses is an obsession with hiring the right people, investing in those people, challenging those people, building those people, and watching those people experience the sheer joy and exhilaration of achieving a big dream together. This is what makes 3G Capital one of the best companies in the world.
So how do they achieve this?
a). Pay serious attention to hiring
“Could you imagine a professional sports coach outsourcing the selection of his first XI team?”- AB InBev CEO Carlos Brito, View from the top, Stanford University, 2010
CEO Carlos Brito likes to compare the process of hiring to being a coach in a high-performance professional sports team. Could you imagine a top-performing professional sports team, where the coach outsources its prep talk, selection of his final team, and strategy, etc to someone else? While the coach is off managing paperwork? No, as a manager they believe it is your responsibility to build your best team.
He uses this analogy to illustrate how higher management at companies outsources hiring to HR when they should be the ones paying much more attention to the process from the beginning.
b). Homegrown management
3G doesn’t believe they can just pick an ‘ideal CEO or executive’ from the market, instead, they have an internship program, that takes the best young graduates into an internal talent factory, always promoting in-house talent to management and eventually the very top positions in the company.
This is what Jim Collins calls “homegrown management,” and as we will see below, it ensures that the company’s leaders are ambassadors who will perpetuate the company’s culture.
c). Choosing fanatics
They like looking for fanatics and like letting them run businesses. Fanatics are individuals who bring a relentless sense of focus, energy, and passion to the business and may not have necessarily have had experience in that particular job prior to getting the role.
2. Dreaming big
“We want to be the best in what we do in a better world”- Carlos Brito, AB InBev CEO, View from the top, Stanford University, 2010
Talented and energetic people need big things to do! The idea of a dream comes naturally to these people and if they don’t have big things to do they will focus their attention elsewhere, so 3G Capital built their management philosophy on a continuous feedback loop.
The continuous feedback loop is as follows: 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.
Jim Collins noted that this is how they sustained momentum over time. They always resonated with the idea of BHAGs — Big Hairy Audacious Goals — and built a culture that grew to achieve them.
It is important that their people feel like they have at least 80% of the skills needed to make the dream achievable so people buy into it, commit to it and bring their passion to it.
“Dreaming big or dreaming small takes the same amount of energy .. so why not dream big?” — Carlos Brito
If you don’t have a new big dream to work towards, you will cease to develop and grow, and you will lose your best people. Great people dream big and want big challenges.
3. Culture
“Culture is not about supporting strategy, culture is the strategy.”
“We only have one ‘trick’, which is to put in good people and our management system to change a company’s results.” — Alexandre Behring, Managing Partner of 3G Capital
Culture is key to 3G’s competitive advantage. 3G begins its emphasis on culture by first defining 2 types of culture. National culture and company culture. As a diverse global company that operates in cities all over the world, it observes local culture and traditions and does not try to change the overall national culture in the organization (eg. what people eat or how they eat).
However, it has a strict modus of operations for company culture, irrespective of national boundaries. This is because the company fundamentally believes in giving people the opportunity to share the rewards of achieving a big dream.
“A company’s biggest asset is good people working as a team, growing in proportion to their talent and being recognized for that. Employee compensation has to be aligned with shareholders’ interests.”
-The 3G Commandments
3G Capital believes that energetic and talented people (irrespective of national boundaries) should be operating in a company environment with the following attributes in place:
a). Meritocracy
“The three partners believed that the very best people crave meritocracy, and mediocre people fear it.”
A meritocracy is at the heart of 3G Capital’s culture. 3G Capital has worked incredibly hard for decades to create a culture that values and rewards the following:
- Performance and not status
- Achievement and not age
- Contribution and not position
- Talent and not credentials
“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.” — Jim Collins
b). Performance reviews and candid feedback
The company uses performance reviews as a tool to enforce meritocracy. Aligning an employee’s incentive structure to performance while having an honest two-way conversation to discuss the assessment of performance. Effort is great but the company rewards results from the performance reviews, not effort.
c). Compensation tied to shareholder interests
Performance evaluations also ensure compensation is tied to shareholder interests. Ensuring an alignment of all stakeholder's interests to the benefit of everyone.
d). Ownership mentality
3G likes people who tackle problems with their ‘bare hands’ and look for ways to solve them. The company gives authority and autonomy to employees to find solutions to their problems, while holding them accountable for their decisions, learning from the outcomes.
e). Simplicity
AB InBev CEO Carlos Brito has noted the company has informal open offices, he himself sits at an open table with his fellow executives. He flies commercial, as the company has no corporate jets or extravagant company luxuries.
This example is led from the top as all 3G founders exemplify simplicity in the way they behave and operate.
“They (3G Capital founders) used their increasing wealth, not for opulence, but to simplify their lives, so they could focus on continuing to build the company.” — Jim Collins
f). Keeping costs low and staying lean
Being paranoid about costs and expenses — the only variables under our control — helps ensure long-term survival.
— The 3G Commandments
3G Capital has a relentless focus on keeping costs low and the usage of zero-based budgets. Managers need to justify their plans from the ground up, with no reference whatsoever to the previous period’s benchmarks. This ties in to the company trying to be as lean as possible, minizing any form of waste at every turn.
g). A focus on the customer
AB InBev CEO Carlos Brito notes that customers don’t pay you for effort, they pay you for the value derived from the product they consume. The money you receive for your product belongs to the customer, and they believe they are responsible for ensuring as much value is given back to the consumer to ensure his/her loyalty.
h). Continuous improvement (Kaizen)
Also deeply rooted in their culture is the idea that you can never be perfect, but you must constantly try to achieve it, by continuous improvement. A philosophy heavily inspired by ‘The Toyota Production System’, where employees are encouraged to supply improvement ideas to their leaders in a never-ending process.
Conclusion
How it all comes together: A pragmatic view of leadership
“A leader is someone who leads a team to reach their goals in the right way” Carlos Brito
Carlos Brito makes the definition of what it means to be a leader in the organization easy to define but hard to live. It is about delivering results on a sustainable basis through a team the right way.
To understand what that exactly means, Professor Vicente Falconi, a longtime mentor for the partners, mapped out leadership the following way.
A simple formula with no shortcuts
3G Capital have a no compromise simple set of rules. Get great people, give them big things to do, and sustain a meritocratic ownership culture.
As Jim Collins notes, ‘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.’
By mixing these three ingredients — Dream + People + Culture — into a powerful concoction, they created a recipe for sustained success.
If you enjoyed what you read, be sure to check out my other article on the management philosophy of Capital Cities ‘here’ or if you are interested in business and investing you can check out my article on avoiding human misjudgment the ‘Charlie Munger way’ here or my review of Ben Graham’s ‘The Intelligent Investor’ here.
You can find me on LinkedIn or contact me at https://www.chrisquyn.com/contact/
References
This article was derived in large part from the material and inspiration listed below
- AB InBev CEO Carlos Brito: View from the top, Stanford University, 2009
- AB InBev CEO Carlos Brito: View from the top, Stanford University, 2010
- AB InBev CEO Carlos Brito: View from the top, Stanford University, 2013
- ‘Dream Big’ by Cristiane Correa
- The FT: The lean and mean approach of 3G Capital
- ‘The 3G Way’ by Francisco Souza Homem de Mello
- The New York Times: A Q.&A. With the Author of a Buffett-Praised Book on 3G Capital
- HBS: Digital Initiative: 3G Capital’s playbook for success
- Fortune: Here’s what happens when 3G Capital buys your company
Appendix
The 18 commandments of 3G Capital
- A big and challenging dream makes everyone row in the same direction.
- A company’s biggest asset is good people working as a team, growing in proportion to their talent, and being recognized for that. Employee compensation has to be aligned with shareholders’ interests.
- Profits are what attract investors, people, and opportunities, and keep the wheel spinning.
- Focus is of the essence. It’s impossible to be excellent in everything, so concentrate on the few things that really matter.
- Everything has to have an owner with authority and accountability. Debate is good, but in the end, someone has to decide.
- Common sense is as good as fancy concepts. Simple is better than complicated.
- Transparency and information flow ease decision-making and minimize conflicts.
- Hiring people that are better than yourself, training them, challenging them, and retaining them is the main attribution of a manager.
- Leading through example is vital, in both heroic gestures and the simple actions of the company’s day-to-day.
- Luck is always a function of sweat. Work hard, but with joy.
- Things happen in the operation and in the market. You have to pound the pavement.
- Being paranoid about costs and expenses — the only variables under our control — helps ensure long-term survival.
- Constant discontent, a sense of urgency, and zero complacencies help ensure a sustainable competitive advantage.
- Innovations that add value are useful, but copying practices that already work is usually easier.
- Corporate and personal discretion is helpful. Showing off is only allowed when done with concrete objectives.
- Constant training and improvement have to be ongoing efforts and should permeate our routine.
- Name, reputation, and brands are precious assets that take decades to build and days to lose.
- Trickery and cheating can rot the company from the inside. Ethics pay off in the long run.
