#102 Akio Morita (Sony)

40 years ago a small group gathered in a burned out department store building in the war devastated downtown Tokyo. Their purpose was to found a new company and their optimistic goal was to develop the technologies that would help rebuild Japan's economy. In this early gathering was a young engineer, a Keo Marita, then just 25 years old. Today that company is one of the most powerful and respected multinational corporations in the world, Sony, and a Keo Marita is its outspoken chairman. The Sony story is one of consistently high-quality merchandise and phenomenally successful marketing strategies masterminded by Marita who realized he would have to create the markets for Sony's unprecedented products. Marita's striking departure from the traditional Japanese business practice of making decisions by committee led to the spectacular success of the Sony Walkman, which was his own idea. And perceiving that Sony's future would be intimately tied to that of the United States, Marita decided to found a US subsidiary, Sony America, and he took the highly unusual step of moving his entire family to New York during its establishment. From his global perspective, and as a friend and admirer of the US, Marita candidly discusses the differences between Japanese and American management practices, the often stormy trade relations between Japan and the West, the real reasons behind the hollowing out of American industry, and the role of technology in preserving the future of mankind. All right, so that is an excerpt from the book that I read this week and the one I'm going to talk to you about today, which is made in Japan, a Keo Marita and Sony, and it was written by a Keo Marita, and Edwin Rangold and Mitsuko Shimura. Okay, so that excerpt I just read talked about the founding of the company comes right after World War II. Tokyo has been devastated by not only the atomic bombs dropped in Nagasaki and Hiroshima, but there was a ton of fire bombing done all over Japan. And so I want to spend some time, I think that's one of the most remarkable elements to Keo and Sony's story. So I want to spend some time describing what that environment was like. Okay, so this is going to be a Keo as a young person dealing with the war, and he's in the Navy at the time. He says, "I was having lunch with my Navy colleagues when the incredible news of the atomic bombing of Hiroshima arrived. I understood what the bomb was and what a meant to Japan." He says he had a better understanding of other people because he was a he studied physics before the bombing. So I understood what the bomb was and what a meant to Japan and to me. The future had never been more uncertain. Japan had never lost a war and only a young man could be optimistic. Yet I had confidence in myself and in my future even then, I was 24. Okay, so that's one of the first personality traits I want to bring to your attention. Keo was, he had the utmost confidence in himself even when at times he shouldn't have had, and a lot of people even call him cocky. You're going to see a lot of parallels between Keo and Steve Jobs. Steve Jobs actually met a Keo. At the very beginning, if you study the early days of Apple, Steve said that he wanted Apple to be the sony of computers. And so that's one trait they share, and I'll talk a little bit more about what Steve Jobs said about Sony later on. Alright, back to the book. I had seen the terrible results of conventional fire bombing. I was in Tokyo when the incendiary bombs whipped up a firestorm that killed 100,000 people in just a few hours. Parts of all of Japan's major industrial cities were charred wastelands in 1945. Depressing heaps of black and remains were the homes of millions of Japanese. And again, I think that's one of the most remarkable parts of this entire story is that he he's going to start one of the one of the greatest companies of all time out of this kind of environment. So he says, "When I first heard of the atomic attack on Hiroshima, it struck me that American industrial might was greater than we realized. It was simply overwhelming. I for one should have been prepared for it. In fact, as a boy in high school, I had seen a film of the construction of the Ford Motor Company's River Rouge Complex in Dear War, Michigan, and was thrilled by the concept of this gigantic project. Japan had no integrated manufacturing like that at the time." So Japan's devastated. They just lost their first war in their entire history. And yet here we see the unwavering confidence of a Kyo. He says, "I don't mind saying that even then, as a young man, I felt that somehow I had a role to play in that future. I didn't know how big a role would turn out to be." So I want to tell you a little bit about his early family history, which is fascinating, because he comes from a family that had a family business for going back 300 years. And so he learns a lot from this family business, but specifically what happens to a multi-generational family business when you lose focus on the business. So I want to talk about that a little bit here. So it was born in the first son and 15th generation heir to one of Japan's finest and oldest sake-browing families. The Marita family had been making sake for 300 years. It's bananas. So they had a really prosperous, they were one of the richest families in Japan at the time, yet the two generations, excuse me, the three generations that came before him were essentially didn't focus on the business. They were extremely rich. So they spent their time buying art and find ceramics and all this other stuff that had nothing to do with the business. And so his dad, a Kyo's dad, is now going to have to run the business and he's essentially running a turnaround project. He went from a once prosperous business to one that was almost out of business and was actually restored back by his father. So it says unfortunately the taste of a couple of generations of Marita family heads was so refined and their collecting skills so acute that the business suffered while they pursued their artistic interests. Letting the business take care of itself or rather they put in other people's hands. So what does that mean? He says they relied on hired managers to run the Marita company, but to these managers the business was more no more than a life livelihood. And if the business did not do well that was to be regretted, but it was not crucial to their own personal survival. So there's a misalignment of incentives here vastly different from a multi hundred year family business, right? So he says in the end all the managers stood to lose was a job. They did not carry the responsibility of the generations of maintaining the continuity and the prosperity of the enterprise and the financial well-being of the Marita family. And so that is why when the business fell into my father's hands as the first son of the family he was faced with the immediate task of bringing the company back to profitability and restoring the Marita family fortunes. No outside manager could be counted on to do that for him. So one of the best things that ever happened to Akio is that he had a very understanding father and his father so the Japanese tradition according to Akio was, you know, the first born son has to take over the family business. That was, you know, Akio's destiny before zoning. And so as such his dad from a very young age let took Akio to work with him. He'd sit in on meetings even from the age of like 10, 12, 13. He'd be in all these meetings they'd be reviewing numbers. And Akio would talk about like after the meetings were over and after he was essentially shadowing his dad, he'd have to like think for a long time and try to interpret like what the adults were talking about. And I think that is really important that Akio later in the life says he's a big fan of the total immersion theory. And I think that has something to do with how his dad, his dad just kind of, you know, brought him in here. You're not going to understand everything but I'm going to all constantly keep you at the very edge of your capabilities. It's a very uncomfortable place but it's a place where probably all of our growth comes from. So I think it was very smart. So I want to cover a couple of things that he learned from the family business. Some traits that his family taught him. They kept his whole life tenacity, perseverance and optimism. He says this ancestor of mine had the eagerness to try something new. So this is they were in the sake of business and there's, you know, as some flows to any business and so they realize they have to diversify. So the ancestor of mine had the eagerness to try something new and the courage and strength not to give up if a single project failed. His predecessor as family head had started a beer business by hiring a Chinese brewery who had learned his trade in England. He also founded a baking company which prospered. Tenacity, perseverance and optimism are traits that have been handed down to me through my family genes. And he's going to tell us like some explicit business lessons that he learned from his father. He says I think it was very important that I was also cautioned time and time again as a young man. So now there's going to be direct quotes from his father. Don't think that because you are at the top you can boss others around. Be very clear on what you have decided to do and when you ask others to do and take full responsibility for it. Now back to Keo. He says I was taught that scolding subordinates and looking for people to blame for problems seeking scapegoats is useless. These concepts have stayed with me and helped me develop the philosophy of management that served me very well. So Jeff Baseless has this great quote where he says you don't find your passions, your passions find you. And I think that is actually completely true. It's example. Keo is another example of that. He finds his obsessions with electronics extremely early in life. So he says at this point he's a young boy. He says I begin to buy books about electronics and I subscribe to magazines that contain all the latest information about sound reproduction and radio. These are you know industries that Sony's going to build some pioneering products in a few decades later. He says, "Soon I was spending so much time on electronics that was hurting my schoolwork, I was devoting nearly all of my after-school hours to my new hobby." This reminded me of when I did the podcast on the Microsoft co-founder, Paul Allen, him and Bill Gates, you could take change some of the words in that sentence I just read to you and it's still, it was still a whole true for those two as well. So the devoted nearly all my after-school hours to my new hobby, I had to teach myself because the subjects I was really interested in were not taught in my school in those days. In fact, I became so engrossed in my electronic tinkering that I almost flunked out of school and I think it's really hard to tell what you're meant to do in life. There's so many options like you have, especially when you're younger and you don't know much about the world, it seems like there's all these possibilities are limitless and you have this paradox of choice. You know, how do you pick one thing out of millions of different options or opportunities? And I think one easy way to figure out how you want it to get an enjoyable life is just listen to your passions. What do you do for fun? I always talk about that my love of that word auto-tellic. It describes an activity that you're doing just for the sake of itself. Is there an activity that you do in your life? That's like that and if so, is there a way to make money and build a career around it? So one theme that appears over and over in the book and it also, I also mentioned it in the opening excerpt of this podcast, was the role of technology in preserving the future of mankind. He is an entire chapter. There's only like eight chapters in this book. They're all giant and one of them is called technology as a survival exercise. It's like a weird way to think about a technology, right? And I think it's an accurate way to think about it. But I think the reason he was able to think like that is because of these experiences that he had very early that most people on the planet will never, almost not only people alive today, but in human history, never had, right? And so let me read a paragraph so I can add some context to what I'm the point I'm trying to make to you. He says I had built a time clock which was attached to my radio and was set to wake me up at six o'clock every morning. I remember very clearly the morning of December 8th, 1941. It was still December 17th in the United States. When my time returned on my radio and I heard the announcement that Japanese forces had attacked Pearl Harbor. Now, okay, everybody knows that happened, right? His response was fascinating to me. Listen to what he says. I was shocked. I remember thinking that this was a dangerous thing. I had grown up believing the West was somewhat superior in technology. Knowing about America's technology, I was concerned that a mistake had been made. So what Akio is saying there is like the technologically superior country. In matters of life and death, you don't want to be fighting a war against another country that's the technologically superior, right? So my brain immediately went like, well, the same applies on a much smaller scale to companies. Like if you're competing with companies that have tech that are more technology-spirited, you're going to lose. And this is not a new idea. This week, if you happen to use Twitter, you want to follow founder's podcast on Twitter. Every so often, I just treat out like old ideas from books I've covered in the past. And this week, I treated one out from Andrew Carnegie. He talks about like, he would invest heavily in the latest technology of his day when he's building the factories, right, for still production. And a lot of the old timers in the business were like, you're wasting money. This is foolish. And so what he realized, this is the lesson that Andrew Carnegie came away with, which I think Akio understood in matters of life and death. And then later in matters of commercial interest in business Sony. But essentially Andrew Carnegie would tell us in this one excerpt that you need to invest in technology, the savings compound. It gives you an advantage over slower moving competitors and can be the difference between profit and loss in Andrew's case and in the Japanese American war in between life and death. Okay, so now Kea's going to tell us a little bit about what was like right before, right after the war ended and right before Sony was founded. So the emperor of Japan, he actually, this is the first time the Japanese people have ever heard his voice, which blew my mind. But he's going to give advice. The emperor of Japan comes on the radio and gives advice to the Japanese people. Now, the advice that he's talking about, I feel applies to any difficult challenge could also apply to building a company, right? So he says, the emperor, who until now had never spoken directly to his people, told us the immediate future would be grim. He said that we could pave the way for grand peace for all generations to come, but we had to do it by enduring the unendurable and suffering what was insufferable. He urged Japan to look ahead. You knight your total strength to be devoted to the construction for the future, he said. And he challenged the nation to keep pace with the progress of the world. Kea never says it, but Kea took these words to heart. Apparently, he took these words to heart because Kea was very like mission-driven, right? He really felt like not only do you want to build the best products at the time, but he said products made in Japan had the reputation for being crappy, poorly made. And so he's like, I want to build a company that proves that Japan can build the best products in the world. And he felt that if he was successful doing so, he'd be able to restore the industry that was destroyed. So it's like not only is he trying to build a company, or first of a build a great product and then second build a great company, but he's trying to put the troubles of his entire nation on his back. He's a very, very intense person, as you can imagine. He's got some advice for us. This section I'm going to read to you right now. It reminds me of this Charlie Munger quote, which says avoid intense ideology. It turns your brain to cabbage. If you want to learn more about like the Japanese, like ethos at this time, I'm in the middle, Dan Carlin of hardcore history, my favorite podcast that's ever existed. He's in this middle of this multi-part series on the war between Japan and China at the time, or I guess other countries in Asia as well. And he says something in that podcast where he's like, the Japanese were like everybody else, just more so. They were extreme people, fanatics. So he says, we had managed to do our duty and had come home without physical scars. He's talking about him and his brothers all served in the war. We had also avoided the fanaticism that seemed to grip so much of Japan's youth in those days. The worship of the Emperor and the idea of glorious death. In Japan, we often talk of a psychological climate or atmosphere that sometimes occurs and which seems to sweep people up into like my did activity. As though everybody is breathing the same special kind of air. So you want to avoid that. There's nothing wrong if you come to your own conclusions like that. You might be extremely passionate about your family or the work you're doing whatever case is. But you don't want to just be downloading ideology from other humans and then have this like a massacosis that occurs constantly to do human history. So this is the conditions in Japan right before Akio found Sony. He says many cities looked as though they were nothing more to there was nothing more to bomb. Flimsy houses, shops and factories made of wooden paper had burned like dry tinder under a shower of incendiary bombs. In Tokyo, less than half of the pre war population of seven million remained in the city. That is mind blowing. Only 10% of the city's street cars were running. There were only 60 buses in running condition and just a handful of automobiles and trucks. Hospitals were short of everything. Department store shelves were empty. So I want to interrupt here because there's a actually a story that's told in Walter Isaacson's book on Steve Jobs about the meeting that took place between Steve Jobs and Akio Merita. So I want to read the excerpt real quick. So he says on a trip to Japan because it's relating to the conditions in post-war Japan. On a trip to Japan in the early 1980s, Jobs asked Sony chairman Akio Merita why everyone in this company factories were wearing uniforms. And this is a quote from Jobs. He says he looked very ashamed and told me after the war no one had any clothes and companies like Sony had to give their workers something to wear each day. Over the years, the uniforms developed their own signature style, especially at companies such as Sony, and he became a way of bonding workers at the company. Another quote from Jobs. I decided that I wanted that type of bonding apple. Sony with its appreciation for style had gotten the famous designer Izumi Miyaki to create its uniforms. So Jobs had the idea. He tried to implement that apple and no one in apple wanted to wear the uniforms. So Jobs actually hired Izumi Miyaki. He's the one that, you know, everybody's Steve Jobs is infamous for wearing the same thing every day. It's like that black long sleeve shirt he would wear that he had hundreds in his closet. Those came from Izumi Miyaki. He knew he was introduced to Izumi Miyaki by Akio Merita. Okay, so back to the book. This is where Akio meets his future co-founder. His name is Masuro Ubuca. I'm probably, you know, I can barely pronounce words in English, so there's no way I'm pronouncing any of these words correctly, but, you know, just bear with me. So Ubuca is a genius, and he's also 13 years older than Akio. So I think Akio definitely benefited from meeting him. And Akio had already, our student, Akio, Masuro had already founded his own company. And so let me tell you a little bit about this. The company that Ubuca ran was called, Japan, the translation is Japan Measuring Instrument Company. It employed 1,500 people making small mechanical elements that control the frequency of radar devices. These devices had to oscillate at exactly 1,000 cycles per second, and Ubuca had the ingenious idea of hiring music students who had a fine sense of peace. rich to check the accuracy of the elements, so what he's making. I mentioned this as an example of the freshness and inventiveness of his mind, which so much impressed me and made me want to work with this man. Abuka didn't feel professionally satisfied out there in the countryside, merely producing components in large quantities, so he's working on something he's not passionate about. He wants to try to develop electronics, and so that's where they're going to wind up teaming up. And so it says, "In this empty and bare-old building set among the rubble and devastation, the burned-out homes and shops of the once prosperous downtown area of Tokyo, Abuka started the Tokyo Telecommunications Research Laboratories. This is what, that's the original name of Sony right there, okay? So Abuka is going to make some smart decisions here that I think lessons for all of us. One, he first, he starts working on what interests him, and two, at the very beginning, you know, they don't have a lot of money. He finds a way to add features to a product that a lot of people already have instead of trying to invent something new, okay? Abuka's resources were all in his own pocket and in his own head, and he had an intriguing idea. Since shortwave receivers were strictly prohibited during the war, a keen interest had developed in listening to shortwave broadcasts, so that's how they communicated messages to the Japanese population during war. Now that it was no longer illegal, perhaps the demand could be met. Because the radio was very important for hearing air raid warnings and getting other information during the war, people had taken very good care of their radios, so they had this piece of equipment, a lot of people in Japan had it, and they were functioning correctly. But they could only receive medium wave band, which is regular AM broadcasts. So Abuka designed a shortwave adapter. This could be attached to any standard radio very simply, and would convert the unit to shortwave reception. The employees had to scrounge through the black market to get the equipment they needed, but once it was finished, the product became very popular. So Abuka is doing all of this before he's going to start being partners with a Kio. So Kio sees all this is happening. He senses an opportunity and he jumps on it, which is another good idea by him. So he says, "I wrote to him immediately and said I would like to visit him in Tokyo. I said I wanted to help him in his new business and would support him in any way I could. He wrote back immediately, inviting me to come see him and the new company. But he told me that things were pretty tight, and then he was paying his people out of his own pocket, and it was looking for funding. Because I knew Abuka, they had met previously when Akio was studying physics. Because I knew Abuka was having trouble meeting his payroll, I got the idea that I could work with this new company part-time and teach part-time. So at a time, Akio, before he found Sony, he's teaching physics at the university. And what happens is the government decides, "Hey, any teachers that served in the military in the war," which since Akio was in the Navy that accounts for him, they called it purging them. And so they fired all of them because they didn't want them, like the people that fetishized war to teach the new generation. They just went through the most devastating time in Japanese history. So they didn't want any kind of repeats of that. Now Akio gets lucky break because he doesn't have to teach anymore, but he's still in the government payroll by mistake. So it says, "Monts went by without any notice that had been officially purged from a university job, and every month the school would call me to tell me to come and pick up my pay, because for some reason I remained on the payroll." So he's able to get money from the government of Japan, his normal paycheck, but work at Sony full time. This went on until October of 1946, when the Ministry of Education finally got around to issuing my personal purge notice. I welcomed the subsidy while it lasted, because our new company was not setting any records for financial success in those days. Yeah, that's an understatement. So during the early days of Sony, they had no money. Their workspace was in an old, bombed-out building, and the only employees was like a gang of misfits. So here's an example of that. It says, "When some of my relatives came to see me, they were so shocked by the shabby conditions that they thought I had become an anarchist. They could not understand how, if it was not a radical, I could choose to work in a place like that." So at this point, Ibuko and Akio are partners now, and there's a really smart move. They knew from the very beginning that they eventually had to build a differentiated product. They just had to get there in steps, because they didn't have a lot of money. So said, Ibuko and I had often spoken of the concept of our new company as an innovator, a clever company that could make new, high technology products in ingenious ways. Nearly building radios was not our idea of the way to fulfill these ideals. Okay, so they think they found the differentiated product that they want to make, right? So they want to make a wire recorder, which I don't even know what that was, but the parts makers wouldn't sell to them. So there's a bunch of lessons in here. One, this was a blessing in disguise, a reminder that big things start small, and you should always do your best work even if you're working in terrible conditions. All right, so I'm going to go right into the story. It says, "But as it sometimes happens, the refusal turned out to be a blessing in disguise. We weren't able to make a wire recorder, which was a disappointment. But the bright side was there was a recorder in our future, a much better product, the tape recorder, although we didn't know it at the time." Okay, so it says, "The occupation forces, that's essentially U.S. Army forces, had taken over the Japan broadcasting company." That's kind of like Japan's equivalent of like the BBC. And they needed a new technical equipment, such as mixing units and other studio and broadcasting equipment. Okay, so they put this call us, they say, "Hey, we need, can anybody make this for us?" So Ibuka was a familiar with mixing units and the technical equipment they needed. So he submits a bid. So then an army general comes to the early Sony, again, it's the same company, but it's not called Sony at this time. So he comes to the office to discuss the bid with him, and this is hilarious. He says, "When the general saw our shop, he was taken aback by how primitive it was, and he shook his head. He was so concerned," now this is the general. "He was so concerned about our terrible building that he recommended we keep buckets of sand and water around the place in case of fire." Now, think about that. Sony is this gigantic company today, one of the most successful companies of all time. And it started out in a bombed-out building that an American general is like, "Listen, this thing is going to either collapse or catch fire. You need to put sand and water around the place." So they get the job. He says, "When the equipment was delivered, everyone marveled at its quality." So that's another lesson. Like, you can do great work. You don't need all the things you think you need. They're able to build quality equipment in even such terrible conditions. Everyone marveled at its quality, especially the skeptical officer, who was still puzzled by the fact that a small new company in a makeshift factory could produce such a high technology product. Because of the quality, it was so high, we were able to attain further jobs. There would be no Sony today if they didn't do the absolute best job they could. The absolute best work they could on a tiny job. So one thing led to another, then they just keep the entire story of Sony. Most companies start small and they take another step and then over 30 or 40 or 50 years, whatever it is, the results that you can get and what you can accomplish in one lifetime is unpredictable. Unfathomable to us. So it says we were able to obtain further jobs. Because of the breakthrough in trust, we made on that first job by demonstrating our quality. So now they get the new job, but now Obuca has to constantly go back and forth from the early Sony factory, if you want to call it, to where the headquarters, where the American operation, where the American occupation rather not operation, occupation forces are. And that's extremely important too, because that's what's going to lead them to producing their first differentiated product. So it says, while Obuca was delivering the mixing unit, he spotted an American made tape recorder. The first tape recorder he ever laid eyes on. So they make a tape recorder, I'm going to fast forward, because the tape recorder flops. And they're going to hold, remember that quote from Warren Buffett, where he talks about, like, every time there's like a bubble pops, investors learn very old lessons, like lessons that you should have known, because if you study history, you see that happens over and over again. This, what's happening, this is what, the 19 late 1940s, maybe early in the 1950s, what they're going about to learn now, companies today are learning, and companies in the future will learn. How many people build a product, and then just expect people to just knock down their door, and sales has just come out of nowhere, and that never happens, right? So same thing happens here. And they're going to learn a lot. They learn an important lesson that you must know and then find your target customer. And so they, they launch a product that has no market. They have to go out and create their market, and they do it very intelligently. It says, "Neither Obuca nor I had any real training, the consumer end of things, or any real experience in making consumer products or selling them. I had never made anything for sale to anyone. I had no experience in merchandising or salesmanship. It never occurred to Obuca or me that there was any need for this." It's a hell of a statement, right? Obuca believes strongly that all we needed to do was make good products, and the orders would come. So did I. We both had a lesson to learn. We were engineers, and we had a big dream of success. We thought that in making a unique product, we would surely make a fortune. I then realized that having unique technology and being able to make unique products are not enough to keep a business. this going. You have to sell the products. And to do that, you have to show the potential buyer the real value of what you're selling. I was struck with the realization that I was going to have to be the merchandiser of our small company, because even though the most engineers at Buca was like the more, he was better at it. It's more qualified. And so this is the role of Kio adopts like his whole life. So in that sense, you could think of the very early days of Apple. Buca is kind of like Wozniak and a Kio is like jobs in that sense. It's not a perfect analogy, but it's close enough. So he says, so at this point, I should give you his background. They launched it. No one's buying it. It's really expensive. It's big. And so he's like, what the hell? What are we doing? So he says, a fortunate chance incident helped me see the light. I was still trying to figure out what we were doing wrong and trying but failing to sell our tape recorders. When I happened to stroll by an antique shop, I noticed a customer buying an old vase. Without hesitation, he took out his wallet and handed over a large number of bills to the antique dealer. The price was higher than we were asking for a tape recorder. Why I wondered would someone pay so much money for an old object that had no practical value, while a new and important device such as our tape recorder could attract no customers? To me, there was no contest. The tape recorder was the better bargain. But I realized that the vase had perceived value to that collector of antiques. And he had his own valid reasons for investing that much money in such an object. At that moment, I knew that I had to sell a recorder. I knew that to sell a recorder, we would have to identify the people that would be likely to recognize the value in our product. So before this, I was just trying to sell the tape recorder to general consumers. In hindsight, you can see where their mistake was. They priced the tape recorder. I forgot the exact conversion, but let's say it's like multiple months' worth of what the average worker salary was. No one's going to spend, let's say, takes half a year of your employment or your work to buy a tape recorder that's absurd. So they do something really smart here. And they realized where they go to businesses, or specifically, actually, it's the government. So it says there was an acute shortage of stenographers, because so many people had been pushed out of school and into war work. Until that shortage could be corrected, the courts of Japan were trying to cope with a small, overworked core of court stenographers. So they're like, okay, well, instead of you just typing out, why don't you just tape everything? And so he says, we were able to demonstrate our machine for the Japan Supreme Court, and we sold 20 machines almost instantly the value of the product they're making, like it was solving a very real problem they had. And so of course, they're going to buy it right away. Those people had no difficulty realizing how they could put our device to practical use. They saw the value in the tape recorder immediately. And to them, it was no toy. So they used the profits from the tape recorder to branch out into other different product ideas. And so one idea they had was they had an idea for what they call a pocket radio. And it says, we could make a very small radio powered by batteries. Minoturization and compactness have always appealed to the Japanese. Our boxes have been made to nest. Our fans fold. Our art rolls into neat scrolls. And so we set our goal of a radio small enough to fit into a shirt pocket. Not just portable, I said, but pocketable. So think about how crazy this is. 50 years later, jobs is going to, Steve Jobs is going to introduce the iPod, and he's going to say it's 10,000 songs to fit in your pocket. We see the early predecessor to the iPod coming from a key on Sony. So now they do something really smart too. And you could also see people like jobs or must doing something like this. So what do you do when your pocket size radio doesn't fit into a pocket? A keyo's idea? You make the pocket bigger. So he says it was a bit bigger than a standard men's shirt pocket. And that gave us a problem. We like the idea of a salesman being able to demonstrate how simple it would be to drop it into a shirt pocket. So we came up with a simple solution. We had some shirts made for a salesman with a slightly larger than normal pockets. Just big enough to slip the radio into. Now they're not the only ones that came up with this idea. And this next paragraph is a reminder that products don't compete companies do. So it says an American company called Regency put out a pocket size radio a few months before ours. But the company gave up without putting much effort into marketing it. As the first in the field, they might have capitalized on their position and created a tremendous market for their product as we did. But they apparently judge mistakenly that there was no future in this business and gave it up. So you could also say, Sony, what's a Sony's most famous product? The Sony Walkman. They sold hundreds of hundreds of millions. And if you're too young and if you're listening to this, it was essentially like you had a cassette player. I don't even know if you know what that is. Or later it's called a disment, a CD player. It was like a non digital iPod. Think about like that. And they sold 400 million units. It was one of the most successful consumer products of all time. And it happened before the iPod. The genius in what Steve Jobs did was make it fully integrated. In fact, he was inspired by Sony at the beginning of his career, but he learned from the stakes of Sony in the 90s. There's tons of examples of that. And I'd read Steve Jobs, the book by Walter Isaacson, where it goes into great detail about this time where how Jobs was able to, because Sony was competing with Apple at the time to be, this is pre-itunes. And Sony had all the advantages. If you would have been asked to guess who would be the first person to, first company release like a digital Walkman with a way to buy songs and everything else, you would have thought Sony. And it actually Apple was the one that was obviously exceeding that. And you see that this plays out over and over again in the case in what we're referencing in the book. It's like, okay, well, we weren't the first of the market. He had all this other company that could have had a pocket radio and yet they made the mistake. So again, that's just, that's going to happen. It happened 50 years ago. It happened 20 years ago. It's going to happen 200 years ago because the nature of humans and the nature of companies just doesn't change. And so that's why it's so valuable to study the principles in the history of entrepreneurship. We're getting to the Y, which I think is extremely important. You have to know why you're doing what you're doing. And so this is Akio and Sony's Y. They want to change the image of Japanese products as poor quality. And so he says, like, give me an idea about this. Like in the early days, this reputation was so well known that Sony printed made it Japan as small as possible. And in some cases, they had to reprint or I don't know what the proper term is. They made it so small that you couldn't read it so customs wouldn't accept it. That's how embarrassed they were. Like, that's how bad Japanese products were known at this time. And now it's weird because of, you know, so in large part of Sony, you know, other people, like, they're known to make high quality products. So he's successful. So he says, a Japanese company must export goods in order to survive. With no natural resources to accept our people's energy, Japan had no alternative. As business prospered, it became obvious to me that if we did not set our sights on marketing abroad, we would not grow to be the kind of company of Bukka and I envisioned. We wanted to change the image of Japanese goods as poor in quality. And we reasoned, if you're going to sell high quality, expensive product, you need an affluent market. And that means a rich, sophisticated country. All right. So now we get some ideas about how to run business from him. He says, he talks about marketing. You should think about marketing. He's just as communicating. So he says, marketing is really a form of communication. In the traditional Japanese system for distributing consumer products, the manufacturers are kept at an arm's length from the consumer. Communication is all but impossible. So that's a big problem for a company that's creating their creating companies or products that have no precedent. So he needs to communicate directly to them. This is also jobs in. He says, we realized that from the beginning that it could not serve the needs of our company and its new advanced technology products, the traditional way of doing things to Japan. So they have to come up with their own way, right? Third or fourth party simply could not have the same interest in our enthusiasm for our products and our ideas that we had. We had to educate our customers to the uses of our products. To do so, we had to set up our own outlets and establish our own way of getting goods into the markets. We're going to also see his other ideas. He didn't believe in market research. He didn't think the public, he believed the public doesn't actually know what is possible and that we do, meaning Sony. Then he talks about the idea of the walkman and I just referenced that they sold over 400 million units sold. And then another note I left myself, it says this is very much like Steve Jobs. In the beginning, when our track record for success was not established, our competitors would take a very cautious wait and see attitude while we marketed and developed a new product. In the early days, we would often have the market to ourselves for a year or more before other companies would be convinced that the product could be a success. So if you're able to arrive and use your own reasoning and trust your own judgment, like you're going to have a huge advantage over people who are just going to wait and copy what other companies do, right? And we made a lot of money having the market to ourselves. This gave them a huge advantage at the very beginning of the company. They're just making more profits and then they can reinvest those profits to make more products and you have this wonderful virtuous cycle. We have to keep a premium on innovation. For many years now, We have put well over 6% of sales into R&D. And some years as much as 10%. Our plan is to lead the public with new products rather than ask them what kind of products they want. That type of thinking is found all throughout history. That's a key of saying it. You could easily say Henry Ford would say the same sentence, Steve Jobs would say the same sentence. The public does not know what is possible, but we do. So instead of doing a lot of market research, we refine our thinking on a product and its use and try to create a market for it by educating and communicating with the public. So that's like just a basic business principle that worked in his days and it will work today and it will work in the future. As an example, I can cite the Walkman. The idea took shape when Abouka came into my office one day with one of our portable stereo tape recorders and a pair of our headphones. He looked unhappy and complained about the weight of the system. I asked him what was on his mind and he explained, "I like to listen to music, but I don't want to disturb others." So you need a private way to do that, right? I can't sit next to my stereo all day. So now you need to be private, but you need to be portable. This is my solution. I take the music with me, but it's too heavy. So he said, "Abouka's complaint set me into motion. I ordered our engineers to take one of our reliable, small cassette tape recorders, strip out the recording circuit and the speaker and replace them with a stereo amplifier." I outlined with other details I wanted which included very lightweight headphones. Now, so he's got an idea from a product. He sees the first, he sees the problem. I'm sure Abouka is not the only person that feels as a way, right? Humans, almost every human loves to listen to music. And he's like, "But it's too big, can we make it smaller?" So he says, "Everyone gave me a hard time. It seemed as though nobody liked the idea. It sounds like a good idea, but will people buy it? If it doesn't have any recording capability." So he's talking about the pushback he's getting from internally from the company. I don't think so. People are saying, "Hey, it's a good idea, but since you can't record on it, no one's gonna buy it." And then Akio just uses his own basic judgment. He said, "This is what he says to back to his employees because millions of people have bought car stereos without recording capability. And I think millions will buy this machine." And this is one of the best sentences in the book. The accountant's protested, "But I persisted." So let me read the back cover 'cause he talks about the walkman since it's so important. And this is his quote on it. He says, "Nobody openly laughed at me, but everybody gave me a hard time. I do not believe that any amount of market research could have told us that the Sony walkman would be successful. And again, 400 million units moved. That's amazing." So the walkman comes out and he says, "I thought we had produced a terrific item and I was full of enthusiasm for it. But our marketing people were un-enthusiastic. So he still has to fight this battle at the engineering level now at the marketing sales level and at the accounting level." They said it wouldn't sell. And it embarrassed me to be so excited about a product. Most others thought would be a dud. But this is where I always talk about like, I think we have a deficit. Like most people say, "It will be humble." Like don't, you know, you wanna air on the side of humbleness over like arrogance or maybe self-confidence. I say it's the other, like we're sitting at a 40 year low for new business creation in the United States. That is a massive, massive problem for a society that continues. And we have a generation of smart kids that for some reason don't believe in their ability to start a company. And I think one way to fix that is like, at first you see, you study stories like this where you see, you know, people with no education, no resources, doesn't matter. They build companies, you know, over and over again. I think this podcast demonstrates that over and over and over again. And yet, so what I would say is like, no, we need to teach them, be confident. You can do whatever you wanna do. Air on the side of confidence in cockiness, 'cause at least even if you fail, at least you tried, that's better than having being full of self-doubt and sitting in your ass and doing nothing. What is that gonna solve? That's ridiculous. So here's, and again, a keyo was cocky. People, that's what people said. He was too confident, too cocky. Well, this is an example where that belief in himself led to overcome all the objections into one of the greatest consumer products ever created. He needed that. That was a tool. They said it wouldn't sell, and it embarrassed me to be so excited that about a product that most others thought would be dud. But I was so confident that the product was viable, that I said it would take personal responsibility for the project. Check this out. I never had reason to regret it. The idea took hold, and from the very beginning, the Walkman was running away success. So I'm pretty sure he said, I don't know why I didn't include that in my notes, but I'm pretty sure he said that if the Walkman failed, he would resign from Sony. So everybody's telling him, no, this is a bad idea, this is a bad idea, this is a bad idea. His natural inclination is to be overconfident, right? And that he said, I will risk my career. I will resign. That's what I would see. And I'm not saying everybody has to build a company that says a Sony, but we can't have new business creation out of 40 or low. That is a huge problem we've got to do. Anything in our power to explain to new generations, like we need new small businesses. We do. That's who employs most of the people in this country. It's really important. And I think for one reason, I talked to a lot of people and a lot of people think they want to start companies. It's like, I don't think I can do it. And I don't know the solution to that problem. Like how do you convince somebody to have faith in themselves? I don't know the answer. Other than being exposed to examples of people that did not have all the benefits in life and still were able to overcome that. And actually build a company and do what they wanted in life. OK, so the Sony walk into success. I'm going to skip over that, because another thing happens to them. And again, this is-- there's two things that took away from this part, what's about to happen. First, if you know why you're doing what you're doing, then a lot of the hard decisions that you have to-- and never do you have to make-- do you come a lot easier, right? And so this is going to be an example of that. And two, this is another example of a Keo's huge belief and confidence in his judgment. So he says, I turn down what look like a chance to make big profits. The buyers thought I was crazy, but even though our company was young and I was inexperienced, time has shown that I made the right decision. He meets with this company I've never even heard of. It's called Bolova. So they like the radios that Sony's making, but they want him to private label them. And so he's like, this is ridiculous. So he says, they like the radio very much. And their purchasing officer said, very casually, we'll take 100,000 units. 100,000 units, exclamation point. I was stunned. It was an incredible order. We're at several times the total capital of our company. He told me that there was one condition. We would have to put the Bolova name on the radios. That stopped me. I had vowed that we would not be an original equipment maker for other companies. We wanted to make a name for our company on the strength of our own products. We would not produce radios under another name. When I would not brush, he got short with me. And so this guy's being kind of like a jerk to him. He says our company name is a famous brand name that has taken over 50 years to establish, he said. Nobody has ever even heard of your brand name. Why not take advantage of ours? Now this is a key. 50 years ago, I said, your brand name must have been just as unknown as our name is today. I am here with a new product, and I'm now taking the first step for the next 50 years of my company. 50 years from now, I promise you that our name will be just as famous as your company name is today. OK, so I'm going to fast forward in the book. He's got a bunch of other just explicit ideas that he feels is beneficial to building, to work, and to life. He's living in New York City. He founded the Sony American subsidiary. Now he's got to go back to Japan because his dad dies. And it's his responsibility to put the families like a ferrison order. And so at this time, he's reflecting on the end of life, and then about what can he learn from his ancestors, and then what can he teach the lessons to his kids. So one thing that he wants to teach the lessons to his kids is that they want to maintain physical and mental discipline. A key is an extreme person. He's a misfit. He's an obsessive. He talks about how-- he talks a lot about the difference between Japanese culture and American culture. And he's like, he says American cultures, the main ideal is a life of leisure. He's like, you go to America, and you see advertisements for trips to exotic lands to sit on your button, beach, and do nothing. And he's like, there's no Japanese equivalent of that. We find honor and work and work. And so you're going to see a lot of kids' extremeness in some of the advice that he has for his kids and other people. So he says, the death of the family makes you examine your life in the future of the family. Where my children were concerned, I felt very strongly that the new post-war education system in Japan lacked discipline. PTA groups had watered down the quality of education, and study for examinations was nothing but wrote application. When I attended middle school, discipline was very strict. And this included our physical, as well as a mental training. Our classrooms were very cold and winter. We didn't have a heater. And we were not allowed to wear extra clothes. In the Navy, I had hard training in boot camp. But every morning, we had to run a long way before breakfast. In those days, I did not think of myself as a physically strong person, and yet under such strict training, I found I was not so weak after all. So essentially, he's just learning about the adaptability of human beings, right? And the knowledge of my own ability gave me confidence in myself that he did not have before. It is the same with mental discipline. Unless you are forced to use your mind, you become mentally lazy. And you will never fulfill your potential. And I feel this is happening a lot. I think the advent of social media, obviously, is a problem with that. There's way less people listening to educational podcasts, audiobooks, reading books. We're scrolling through feeds, reading a bunch of essentially junk food for the mind. And I think what Akio is saying there's like, you need, just like you get up every morning hopefully and work out and discipline your body. Like what are you doing for your mental discipline? They're related. You have to do both is what Akio is telling us. It's like sharpen your mind. Just like you would sit at home all day and eat junk food because the good thing about that, I like the feedback loop for physical where I feel it's not as apparent in mental discipline. So like if you sat at home, you didn't exercise, you didn't take care of yourself, you ate a bunch of crap, you lived a sedentary lifestyle, you didn't push yourself essentially, you embraced comfort, you would see it because your body is like a physical manifestation of your will. At least that's what I believe. But there's no mental equivalent. You know what the mental equivalent is when you go to dinner, you're interact with somebody, it doesn't read, doesn't learn, basically you've got out of college or high school and just stop learning. And you're like, oh, this is a boring person. This is a person that has nothing going on, they just, they nibble on mental junk food all day. And I love Josh Wolf's, he's an investor at Lux Capital. He learned this from somebody else. I can't remember who he credits, but he has this three word aphorism that I think about all the time. And it's dual, has dual meaning, avoid boring people. Now that the first meaning is you avoid people that bore the hell out of you for good reason because your time is here is limited and there's a lot to learn into experience. But the other meaning is maybe more important that you should be doing the work and collecting the information and being an interested person, so you avoid boring other people too. I think what Akio is saying there is 100% correct, you need both physical and mental discipline. And you want to avoid areas like what he's saying, Japanese school system got extremely weak. And so he sends his kids like, I think he sends one to Switzerland to a boarding school, one to boarding school in London, they go to schools in New York City, like he's not just telling you this, he's acting on it too. He's got another unique idea moving on. This is something I've never been heard of before, hire a paid critic. This is a genius man. So he says, "Noria Oga, who had been a vocal art student at the Tokyo University of Arts, when he first started our first audio tape recorder back in 1950." So he says, "I had had my eyes on him for all those years because of his bold criticism of our first machine." He was a great champion of the tape recorder, but he was severe with us because he didn't think our early machines were good enough. Now, I'm going to finish this paragraph, but I'm going to get to the punchline now because I think I'll help you understand. This paid critic, he hires, eventually becomes the president of Sony. All right, so he was severe with us because he didn't think our early machine was good enough. So he's got somebody else. He's got an external person holding himself to even hire level quality than he did. So he says, "It had too much wow and flutter," he said. He was right, of course. Our first machine was rather primitive. We invited him to be a paid critic, even when he was still in school. His ideas were very challenging. He said then, "A ballet dancer needs a mirror to perfect her style, her technique." A singer needs the same, an oral, an oral, I don't know if that's the word, "A-U-R-A-L mirror." Olga is now the president of Sony. Okay, so now we're going to see some more glimpses into his own personal philosophy. He talks a lot about the benefits of spending time with young people, the benefits of vigorous exercise, and the benefits of maintaining self-confidence. So he says, "I like to play sports with young people because I get ideas from them and they give me a fresh lant on almost everything. I think it is good for my spirit, too, to be with young people who are enthusiastic. Since I've been playing tennis, I notice my reflexes are improving and this pleases me, because when you start to age, the reflexes and reactions tend to slow down. I noticed when I began to ski that my balance wasn't too good, but it has improved also. Every executive should be aware of the need for this kind of vigorous exercise, not only for the heart, but also for the mind and the sense of confidence it gives you. It is important to maintain confidence in yourself." Here's some example of advice that a keo gives to young people, and essentially the main point is don't work in a job that you hate, you're going to regret it. He says, "Nobody can live twice, and the next 20 or 30 years is the brightest period of your life. You only get it once. When you leave the company 30 years from now, or when your life is finished, I do not want you to regret that you spent all those years here. That would be a tragedy. I cannot stress the point too much that this is your responsibility to yourself. So I say to you, the most important thing in the next few months is for you to decide whether you will be happy or unhappy here." He comes up with a unique way to identify bad managers. I like this too, so he's talking to some young people working at Sony. He says before, and this is where the young person tells him, "Before I joined the company, I thought this was a fantastic company. It is the only place I wanted to work. But I work for this section chief, Mr. So-and-So, and in my lowly capacity, I work for this man, not for Sony. And everything I do or suggest must go through this guy. I am very disappointed that this stupid section chief is Sony as far as my career is concerned." Now we go to what a keyo is learning from this conversation. This was a sobering thought for me. I realized there might be many employees in our company with problems like this. So I started a weekly company newspaper where we could advertise job openings. This made it possible for employees to try for other jobs confidentially. We have had cases where we discovered a manager was inadequate because so many people working under him asked to be transferred. We learn a lot by listening to our employees. Optimism is not the exclusive possession of management. So this is another advice that he has for us, "Don't sacrifice the benefits of individuality for the sake of consensus." When most Japanese companies talk about cooperation or consensus, it usually means the elimination of individuality. Many Japanese companies like to use the word "cooperation" and "consensus" because they dislike individualistic employees. I say that a manager who talks too much about cooperation is one who is saying he doesn't have the ability to utilize excellent individuals and their ideas and put their ideas in harmony. If my company is successful, it is largely because our managers do have this ability. So this is more on his management philosophy. I do not like to have my managers think they are special breed of people elected by God to lead stupid people to do more act of things. The world of business has some peculiarities. The remarkable thing about management is that a manager can go on for years making a mistake that nobody is aware of, which means that management can be kind of a con job. That is because management, despite the work of Harvard Business School and others, and the increasing numbers of holders of advanced degrees in business administration, is an elusive thing that cannot always be judged by next quarter's bottom line. holders can look good on the bottom line, but at the same time maybe destroying the company by failing to invest in the future. So this is one of his main criticisms about the difference between Japanese management and American management. His American management does not invest enough in the long term, the optimized for short-term profits. So this example of what he is talking about here, that you can actually be achieving good short-term roles at the same time destroying the long-term value of the company, he says. It does not start at the bottom line of the balance sheet, which can be black one day and read the next, no matter what you do. I told my managers recently, what you are showing to your employees is not that you are an artist who performs by himself in the high wire, but you are showing them how you are attempting to attract a large number of people to follow you willingly and with the enthusiasm to contribute to the success of the company. If you can do that, the bottom line will take care of itself. And so we are going to see this actually play out. This is a story about the difference in Japanese-American management, and this has to do with Sony America. He says, "My Sony American president was reluctant to spend the money, so they were launching a new product and very, very much like Steve Jobs, Akio was huge about product launches. He wanted to educate. He wanted to make sure there was investment that people knew, like it was an event, right? And he wants to do it at the very beginning, so it pops." So this is my Sony American president was reluctant to spend the money. He said, "If we spent a lot on this promotion, and if he could not bring in enough sales, he would lose money." I told him over and over again, "You must also consider the return that comes in five or ten years, not just the immediate return." So he says, "That night I went to bed troubled. I couldn't sleep, tossing and turning until I could stand it no more. In the middle of the night, I grabbed the phone and called Harvey." That's his president or manager. He was in a meeting in New York. I got him out and yelled at him. If you're not going to spend a million or two million dollars, "Oh, this is the Betamax campaign. If you're not going to spend a million or two million dollars on the Betamax campaign in the next two months, I will fire you." I had never said anything like that. And he had never heard me sounding like that. It made an impression and I felt better. He spent the money, but it discovered later what they actually did. What they actually did was to shift the money from one part of the business so our total advertising expenditure remained the same. So he didn't actually do what he wanted to do. The trouble with American management was that profit was the main goal. So now a kid is going to lay out his, how he looks at this stuff. He says, "My argument again and again was that by saving money instead of investing in the business, you might gain profit on a short-term basis, but in actual fact, you'd be cashing in the assets that had been built up in the past." So I like this idea. the way Akio would educate customers about a new product, it was actually inspired by this Japanese tradition of Nama Washi. So let me read this part to you. One must prepare the groundwork among the customers before you can expect success in the marketplace. It is a time-honored Japanese gardening technique to prepare a tree for transplanting by slowly and carefully binding the roots over a period of time, bit by bit, to prepare the tree for the shock of the changes it's about to experience. This process takes time and patience, but it rewards you. If it is done properly, it rewards you if it is done properly with a healthy transplanted tree. Advertising and promotion for a brand new, innovative product is just as important. And the one thing that both of these approaches to not only moving trees and gardening, but to preparing customers for new products, the one thing they both have in common is that it takes time. And that was something Akio talked about over and over again. Optimize for the long term. Great things are going to take a long time. You just, you can't, what Warren Buffett was telling us, you can't make a baby in one month by getting nine women pregnant. He's like, something's just take time. More difference between, he considers it different from US and Japanese. His US partner comes over and looks at Sony's offices at the time, and he was just shocked. It was like very basic. They had everything they needed, but it wasn't like ostentatious or anything like that. So it says, this is the Japanese talking to the US. If Japanese clients come into the office of a new and struggling company and see plush carpet and private offices and too much comfort, they become suspicious that this company is not serious, that it is devoting too much thought and company resources to management's comfort and perhaps not enough to the product or the potential customers. So this is an example of this when I talked about the Ford and Ferrari series I was doing. When you look at the difference between the early days of Ford when Henry Ford was in charge compared to when his grandson Henry Ford II, Henry Ford II would eat in a private dining room with white glove staff. They'd like serve him hamburgers as if it was their own high-end restaurant. And I think there's almost like a canary in the coal mine. It's like when you see companies do this and what happened to Ford after? Had a huge like the Japanese and other constraints in the market like gutted the American, like look at Detroit today as compared in the 1960s and 1970s. And I think when you see the, like what the company spends money on, it's like actions express your priority. And so when you have white glove staff in a private dining room and all this other BS, is that making, how does that benefit the customer? Now making your product better, it's not. Why are you investing in such stupid things like this? What are you doing? Put that money into the product. Put that money into the customer. But that's, you can't do things both things at once. As soon as you start diverting resources away from what's best for the customer and what's better for management, those customers are gonna go elsewhere. Because another missionary, another misfit, another obsessive person is gonna do a better job 'cause you're not focused. I think this is exactly right. This is what Akio says about that. Exactly my sentiments. We want everybody to have the best facilities in which to work, but we do not believe in posh and impressive private offices. Generally in the Japanese industry, the investment goes into those things that relate directly to the product. I mean, this is not rocket science, but there's something about human nature that we seek, like comfort is a false god. Like we should not just be like, trying to make our lives more comfortable. If we may, you never adapt and progress and learn and comfort. You just don't, and so I think like fetishizing that. And every time I see a super nice company off, I'm like, oh, okay, well, this business is gonna last so long. It says, "Too often I've found in dealing with foreign companies "that such superfluous things as the physical structure "and office decor take up a lot more time and attention "and money than they are worth." Again, this is not, I mean, he's telling us, he's experiencing this half of a century ago, or whatever, maybe quarter of a century ago, this time we're in the book. Warren Buffett just did the same thing. He's like, listen, we spend less than 1% of our operating profit on the headquarters, corporate headquarters. We see some companies have spent in excess, we look at the books, we analyze their numbers, and they're spending in excess 10%, 10% of the company's assets on headquarters. And he's like, me and Charlie Munger have studied this. And what we found is there's no correlation between the percent of money that you're spending your company on operations, like on headquarters and everything, to performance. That's a hell of an indictment, meaning they're spending money for no increase in performance. And what happens when a company or a person is not resourceful? Eventually those resources are going to move to other people that are resourceful. Okay, so where we are in the story, Akio is visiting, he's invited to the USSR, and they want to work together. And so this part was fascinating, 'cause this is what Akio told the government in the USSR when they wanted to work with Sony. And the punchline is, if you care about the product, you're making, study the details. So he says, the Soviets were eight to 10 years behind Japan and the West in their consumer electronic technology. And so he takes a tour of the factory and they want to work together, and they're asking like, what do you think? And you know, this is, he's got a sharp tongue. He says, in Japan, we used our top talent in our best brains, and spent years seeking ways to increase the efficiency and the productivity of even such a simple thing as a screwdriver. We have racked our brains and made detailed studies and experiments to decide just what is the exact and precise temperature for a soldering iron in each particular application. You do not make any such effort here. There appears to be no need to do it because nobody seems to care. So needless to say, Sony and the USSR did not work together. Okay, I love this part. So now we're in the chapter I told you about earlier, he thinks about technology as a survival exercise. That's a very unique way of thinking, I don't think I've come across. And I think it's practically correct though. But this is gonna be a longer part where I'm gonna read you. And essentially, the main idea here is, being wasteful is the opposite of resourcefulness. And I always think like the best description of like what traits you need for entrepreneurship comes from Paul Graham. Do you think about all the people that have studied entrepreneurship? Very few probably have studied as much or to the degree that Paul Graham has, right? Meaning like multiple companies, not just your own. And that's his line, like the trait that he sees that successful entrepreneurs must have is, and I say successful people in general, and all kinds of domains is that they're relentlessly resourceful. And a keo obviously was like, you don't start Sony in a firebomb building without being resourceful, right? And so he talks a lot about this. Like he, he has a lot of criticisms for the West. Actually, you know what? Let me before I read this section to you. Let me just tell you, 'cause I took some other notes that are in the book. So this is what, these are just some of the notes I took where he just keeps rattling off what he feels. Like I like what he did, 'cause Japan, like at the beginning, he's like, he studied American industry to such a degree that eventually he knew it so well that he took what he thought were good ideas and then challenged the bad ones. And I think that's exactly like, this is what I wanna do in the podcast. Like I don't wanna just idolize these people and just accept what they're saying without my own independent thought on it. And there's gonna be areas where I disagree or areas where I think I can improve on. And that's the whole thing. You take all this collection of ideas and you combine it together and vibe it with your own personality and then you have something unique, right? And I love how a keo did this, 'cause he is huge respect for U.S. industry, but he also is like, you guys are making a lot of mistakes here in his opinion. And there's no right one right way, which is beautiful. So he says, Japan creates more engineers and less lawyers. This is comparing a contrasting Japan and America. Japan is more cooperative with government. They don't see them as allies, not adversaries. In Japan, the founder and CEO must resign if they're shame brought to the company and this is not, this is much less important in Japan or less worrisome because the management of a company is more collective. So one person can leave, it's not the end. Japan optimizes for long-term investment over short-term profits. Japan is less higher, higher-archial. And he gives an example of this. We air-condition our factories before our offices. America does a reverse. Most importantly, the most important thing for Japan, for a Japanese company is continued employment and improvement of workers. America, it's the profit of shareholders. Japan believes any type of work is honorable. They won't look down on specific jobs. He says Americans are like, they turn their nose up. They think all work, Japanese believes work is honorable in itself. He says Americans believe some type of work is honorable. And he says there's no mandatory retirement age. Companies, it's common for people in Japan to work into their 70s and 80s. All right, so now let me go back to what he feels is like more of a Japanese tendency, which obviously other people and other cultures also have these traits. But he feels it's more common in Japan and less common in America at this time. All right, so this is one of the most significant value concepts that we have cherished from ancient times. It's this concept called, geez, montanai, there's no way it's correct. So let me just describe what it is. It is a key concept. One that may help explain a great deal about Japan, the Japanese people, and our industry. It is an expression that suggests that everything in the world is a gift from the creator and that we should be grateful for it and never waste anything. All things are provided as a sacred trust and actually are only loaned to us. us to make the very best use of, to waste something is considered a kind of sin. We have developed this concept that goes beyond mere frugality or conservation. The wasting of anything was considered shameful, virtually, a crime. We have always had to practice conservation for survival, so I'm going to give some background to why they've optimized so much for this one trait. We learned, once again, the meaning of Montenai, when the oil crisis came. But we also learned how to apply the principles that underline the expression. And today, with a much expanded economy, we use less crude oil, coal and natural gas than we did in 1973 because we have learned how to be efficient. So he's saying, this has been in our culture for a while. We had to do it because Japan lacks a lot of natural resources. We rely on outside countries to produce it for that. And so in times of struggle, we get really good and really efficient. And then when we don't have time to struggle, we still maintain that advantage, right? So that's the basic idea. We looked at all of our factory up, and then this is him applying it to his company. We looked at all of our factory operations and out our products and made design changes where we could save even small amounts of energy. We also re-studied all forms of power consumption at Sony in our factories and offices as well as in our products. In 1973, every maker of home appliances went to work to cut power consumption. And in fact, they competed with each other to see you could produce products using the least power. Low power consumption then became a major selling point and a new point of competition. I was disappointed to see how little was done in redesign of products in other countries like the US that had their own oil. In the US and Britain, such a crisis did not have the heavy impact on every single citizen that it did in Japan. So it continues, when you were told from childhood, when you were told from childhood on that the metal object you hold in your hand comes from iron ore, mining countries far away, which is transported to Japan at great expense and is produced in furnaces that use gas and coal from other far away places, such objects become very valuable. Our general philosophy throughout industry in Japan is that everybody is an inspector and that the goods being made must be made correctly at every single stage of the operation. This is natural to us. I am reminded of the American expression. There's plenty more where that came from. We have no such expression. He's got more advice that he mentions a number of times extremely important to him. He says, "My point is that is unwise merely to do something different and then rest on your laurels. You have to do something to make a business out of new development and that requires you keep updating the product and staying ahead of the markets." What you learn in school only becomes useful when you add something to it that is yours and you do it yourself. And then he's got more advice. He says that again, never stopping resourceful. Some people have said that the post-industrial society is here and some predict that we cannot expect technological innovation anymore. Isn't it funny? He's writing these words in 1986. This book was published in 1986. And the reason I think it's funny because people say the exact same thing today. Oh, that's it. We're done. Some people have said that this is the post-industrial society is here and some predict that we cannot expect technological innovation anymore. And then we will have to live smaller lives with less satisfaction and luxury. I don't believe it. My prediction is that we can endure lives with less energy, less of the old materials, fewer resources, more recycling, and have more of these essentials for a happy and productive life than ever. Step by step, year by year, we must all learn how to be more skillful and efficient in using our resources economically. I love, love, love that idea. And finally, we're getting, this is the last thing I want to talk to you about and towards the very end of the book, the note I like myself is a key is full of self-confidence and belief in himself. You should be too. I'm going to, before I read his words, which I love, it like brought a smile to my face when I saw it, it's like, it's just another reminder that there is no like school of entrepreneurship, there's no, there's nobody that can stop you from making your product and makes other people's lives better, there's no school you have to go through, it's open to everybody. And the reason I bring that up is because at one time it was close to the Japanese. And just like what they did on a culture and a country level where they learn from other people, they eventually like learn the game and then realize, hey, we're just as good as it at it as you are and you're going to see his attitude here, you know, it's kind of cocky what he's about to say. But I feel like on a personal level it's the same for all of us. The stories that we see over and over again is, you know, there's no license, there's no qualifications, no degree you need before you do this. It is truly available to anybody that has an idea that makes somebody else's life better. So we're going to see this on a country level here. Americans and Europeans seem to think that their idea of how the world trading and monetary systems work and should continue to work should be universal, especially in the business world. And that since they believe they invented the game, the rule should never be amended. Moreover, some American and European businessmen still look at the Japanese as newcomers. As novices who should still be paying tuition to the school, what they don't want to face is that the fact that we are not only in the same school, but we've joined the faculty. So I'll leave the story there. If you want the full story, I recommend reading the book. It's fantastic. I really like the idea that this book is what, 30 something years old and still has knowledge that is that is very valuable today. So if you want to leave, if you want to read the book and support the podcast at the same time, use the links that are in the show notes to buy the book that helps up the podcast. You can either find those links in the show notes on your podcast player or you can go to founderspodcast.com. Thank you very much. I will talk to you next week and I'll be back with another biography of an entrepreneur.