Thursday, June 25, 2015

Dream Big

3G Capital has become a well-known outfit thanks to its buyouts of some large American firms and its partnership with Warren Buffett's Berkshire Hathaway in some of its purchases. While this company may appear to be an overnight success, it is actually the result of decades of the blood, sweat and tears of its Brazilian founders. Cristiane Correa's book Dream Big tells the story of this firm and its predecessors.

I really enjoyed the book, as it provided the interesting history of how 3G Capital came to be what it is today. The company's original founder was running a fledgling broker in his 30s, but had a world class US education and managed to grow the company into an investment bank and eventually started buying Brazilian companies outright.

Originally, when these companies were taken over, US best-practices were instituted in a country where this wasn't the norm. For example, pay that was based on performance, frugality, and flat management structures led to dramatic improvements that shook up companies and industries. This led to a cycle of high performance as the high (potential) salaries attracted the best while those who couldn't cut it left. Eventually, 3G became an innovator itself, with the now-famous implementation of zero-based budgeting.

I was surprised at how free from government interference these guys were to change the rules at the Brazilian companies which they operated. In emerging markets, I would expect them to run up against corrupt governments that seek to hold to the status quo lest they lose power, but that rarely seemed to be the case. There were some crazy incidents, however. For example, price increases for a whole slew of products (including beer) in Brazil are subject to government approval, and yet the approval is in part based on the cost of producing the product. This really messes up the incentives as producers then have little reason to look for ways to cut costs, which is bad news for society.

It got a little confusing as everyone in Brazil seems to have anywhere between 3 and 6 names, and the author seemingly uses any of these names to refer to the same person. I also could have used some more specifics or examples on what exactly was changed to increase productivity at the various firms the company took over; instead, the focus was more on how productivity was improved (e.g. incentives, flat management, frugality).

Warren Buffett's views are also incorporated in the book, as he spent an hour with the author providing his viewpoint of the company and its main founder.

If you're into business books, I think it's a must read.

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