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3G background-why Buffett likes them


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I just read a book on 3G's founders and all I can say is that it is no surprise that Buffett and Munger like them. Hard charging, fair and fairly ruthless business builders.

 

They keep their word and make their partners and employees a lot of money. (Enriching your employees and giving them equity was unheard of in Brazil.)

 

The book, Dream Big is a breezy and a bit uncritical. ( Also the translation is pretty weak, e.g. sales point instead of store or store location.) but it conveys a sense of the evolution of the companies and the founders, which is, given Brazil's business culture, fairly remarkable. (I love Brazil, but the business culture was unbelievably hide bound.  And in building their businesses they violated virtually every custom and rule during a time of unbelievable inflation.)

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I just read a book on 3G's founders and all I can say is that it is no surprise that Buffett and Munger like them. Hard charging, fair and fairly ruthless business builders.

 

They keep their word and make their partners and employees a lot of money. (Enriching your employees and giving them equity was unheard of in Brazil.)

 

 

Sounds like these guys are very innovative.  I've never heard of hard charging or ruthless private equity guys in the past who are solely focused on making partners money...

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Enriching your employees and giving them equity was unheard of in Brazil.

Have you ever heard of Maverick by Ricardo Semler?  It was about his family company, the Semco Corporation, based in Brazil.  It was published around the time that the 3G guys opened their partnership, and Semler talks about how bad the business environment was in Brazil in those days.  Semler also started a profit sharing program for his employees which I suppose must also have been unusual for the time

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Profit sharing, actually raising ownership interest is a key ingredient for long term success. Notable names include: MSFT, SWA, INFY et al. Even amongst privately held companies, equity sharing is often utilized. I've an interest in studying ESOP's as a business transition model. Heard of some successes here.

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Enriching your employees and giving them equity was unheard of in Brazil.

Have you ever heard of Maverick by Ricardo Semler?  It was about his family company, the Semco Corporation, based in Brazil.  It was published around the time that the 3G guys opened their partnership, and Semler talks about how bad the business environment was in Brazil in those days.  Semler also started a profit sharing program for his employees which I suppose must also have been unusual for the time

 

I think I just heard a Ted Talk from him that was really interesting:

 

I'm working at an extremely bureaucratic company right now (run by some old GE folks) and it really resonated with me. As a side note, never invest in GE.

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I just read a book on 3G's founders and all I can say is that it is no surprise that Buffett and Munger like them. Hard charging, fair and fairly ruthless business builders.

 

They keep their word and make their partners and employees a lot of money. (Enriching your employees and giving them equity was unheard of in Brazil.)

 

 

Sounds like these guys are very innovative.  I've never heard of hard charging or ruthless private equity guys in the past who are solely focused on making partners money...

 

You got a real lol out of me.

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I just read a book on 3G's founders and all I can say is that it is no surprise that Buffett and Munger like them. Hard charging, fair and fairly ruthless business builders.

 

They keep their word and make their partners and employees a lot of money. (Enriching your employees and giving them equity was unheard of in Brazil.)

 

 

Sounds like these guys are very innovative.  I've never heard of hard charging or ruthless private equity guys in the past who are solely focused on making partners money...

They actually do have a pretty different style. They give young, relatively unproven managers a lot of power and the ability to make large amounts of money if successful. Theory being that the young managers have more drive than the old managers and they'll apply that with the right incentives. It may sound like commonsense, but most private equity firms do the exact opposite. There was a good businessweek article on the guys running Burger King... made the point that basically no other company of that size has a management team that young.

 

Have this book on kindle and slowly working my way through it. Interesting guys, but not the greatest written book.

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Just an innocent question.  From what I know of 3G, they are adept operators who know how to trim cost but have been less able to grow them.  Partly this might be due to them buying companies that have lots of fat to trim and not a lot of room to grow.  But when I think of other skilled managers or management philosophies (like Danaher), they cut cost and do things to innovate/grow, why aren't those types more attractive to Buffett? Or is PCP or BHE those type of companies?

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I think it's because it would be harder to integrate a Danaher into Berkshire. Operationally Berkshire is a bit of a mess. I don't know if it's such a good idea to integrate other mini Berkshires into it rather than than finance the acquisitions of elephants and let others to the dirty work - plausible deniability and all that.

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Just an innocent question.  From what I know of 3G, they are adept operators who know how to trim cost but have been less able to grow them.  Partly this might be due to them buying companies that have lots of fat to trim and not a lot of room to grow.  But when I think of other skilled managers or management philosophies (like Danaher), they cut cost and do things to innovate/grow, why aren't those types more attractive to Buffett? Or is PCP or BHE those type of companies?

Not sure that's 100% fair. They made their original fortune building a Brazilian investment bank from basically nothing to the biggest in Brazil. BK is growing. You're right that they seem to recently gravitate to businesses with steady revenue and outsized overhead.

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I'm suspecting that they've learned to value more highly something that Buffett and Berkshire has demonstrated for a while, namely that although organic growth can be great if it provides a good return on retained earnings, it can be just as great to use the now-healthy cash flows from one business with little growth to fund the purchase of other businesses the offer the prospect of decent returns, and that this can equally achieve compounding of net worth at substantial rates.

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Just an innocent question.  From what I know of 3G, they are adept operators who know how to trim cost but have been less able to grow them.  Partly this might be due to them buying companies that have lots of fat to trim and not a lot of room to grow.  But when I think of other skilled managers or management philosophies (like Danaher), they cut cost and do things to innovate/grow, why aren't those types more attractive to Buffett? Or is PCP or BHE those type of companies?

 

Management philosophy=active central control. This takes the form of the likes of the Danaher Business System. I used to work there. It was all about cost controls. Buffett's dislike of active centralized management doesn't mean that keeping costs low is not already a priority at the subs. Tom Murphy, Kevin Clayton, Tony Nicely and surely others practice extreme cost controls by themselves. Marmon practices the 80-20 philosophy. After reading Cunningham's Berkshire beyond Buffett, I don't think that the next CEO will be in a position to institute such a system. It may take many subs running off the rails for Omaha to change to a hands on approach. Could happen.

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Yeah, I would assume at the sub level that Berkshire managers are very 3G or DBS like.  Just that the performance or approach aren't focused on nearly as much.  I also might be too hung up on the cost cutting at the expense of innovation the press seems to be applying to 3G, plus 3G recent target industries aren't the easiest to innovate/grow. 

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http://www.cnbc.com/2017/04/11/firm-with-ties-to-buffett-reportedly-considering-topping-jabs-bid-for-panera.html

 

Article citing rumor that 3G is looking at potentially trying to outbid JAB on Panera.  Seems unlikely given Buffett's friendship with Byron Trott, who likely put the JAB deal together for that family.  But who knows

 

- article also mentions that JAB and 3G principals invest in each others' deals, making a topping bid that much more unlikely

 

Sources have told CNBC that the reports of 3G interest are untrue:

http://www.cnbc.com/2017/04/11/firm-with-ties-to-buffett-reportedly-considering-topping-jabs-bid-for-panera.html

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