Alex Behring and Daniel Schwartz - Inside 3G Capital - [Invest Like the Best, EP.458]

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To learn more, visit psum.phc. My guests today are Alex Beering and Daniel Schwartz, co-managing partners of 3G Capital. 3G's built one of the most distinctive firms in investing around a simple idea. They're only a handful of truly great businesses and even fewer great CEOs. So instead of diversifying broadly, they concentrate deeply.

Their model is to raise capital with the intention of making just one investment per fund, commit meaningful amounts of their own money alongside their partners and focus all their time in the best people on that single opportunity. What sets them apart is that they come to investing as operators. Alex previously ran the largest railroad in Latin America and Daniel served as the CEO of Burger King and many of their partners have spent years as CEOs, CFOs, or senior operators

inside of complex organizations. When 3G buys a company, they step in as operators, align incentives with ownership and work alongside management to improve the business. That approach has produced a series of iconic deals including Burger King, Tim Horton's Hunter Douglas and Sketchers. Along the way, they've also become known for developing talent, giving young leaders real responsibility and ownership and holding an unusually high bar.

Please enjoy this great conversation with Alex and Daniel. Once you've heard from Alex and Daniel, I highly recommend you also read our in-depth profile on them and 3G capital. They gave our managing editor Dom Cook unprecedented access and the outcome is an excellent profile about the 50 year history of 3G and how the model began with Georgia Palo Lamont in Brazil. I want to start with this one investment per fund concept because

first of all, I just think it's extremely cool to think about having a big pool of capital

to deploy into one thing and all the work that goes into that. What ends up being that one thing despite looking at countless other businesses, where did that concept come from? Because it must dictate so much about the nature and culture of investment strategy, firm people. One investment

“per fund is sounds interesting and I know it is from our past discussions. Where did that come from?”

So that comes from our Brazilian roots where my co-founders had done this bearing investment that had worked really well and then as the branched off into private equity and a predecessor firm of this firm in Brazil, they attempted a bit the more traditional approach also. That went okay. But then we understood a couple of lessons from that. One was that really, really great businesses

they're not often actionable. So therefore, if you were going to be in the business of putting

a lot of your own capital to work and if you're going to be very involved, the people that you're going to need to deploy there and the time are also a scarce resource. So when I started the firm in New York in 2004, we already had those things pretty clearly understood and that was a premise to the extent that we would get involved with businesses on a strategic loan term basis, it would be one at a time. We have this luxury of only having to find one great business at

a time and if you're investing your own capital and if that's the lens through which you're looking at in the investment, you want to be really patient and wait until you find that great business.

The other way to look at is it's so hard for us to find a great business to invest in.

How are we going to find 10? It's so hard to find great people to be great CEOs. So how we're going

“to find 10? So I think it's great to be able to buy one business every once in a while and send in”

your A++ players to get involved. Is there any psychological fear pressure associated with knowing that it's just one, all eggs in one basket and watch the basket very closely? Like what psychology does that feel like? This much is this psychology. I think it drives the investment process of very rigorous analysis of what the downside can be and in our case the downside has to be capital preservation with some small return of sorts and that drives business sort of decisions

and they also drives capital structure decisions. I think that's where it manifests itself the most. If you were to look at businesses that we didn't buy or deals that we didn't do over a long period of time, I think more often than not that would be a function of us not be uncomfortable with a potential downside scenario or a downside case as opposed to us not finding a path to a

“great case. I think it's a healthy pressure that we put on ourselves to make sure that we're not”

compromising on business quality and we're only rather do nothing and our capital structure being yeah. Exactly. Yeah. Like we're going to buy a great business. We're going to lever it appropriately not too much. It definitely makes it harder to price risk if you think about like the traditional portfolio approach. Yeah. It's the portfolio construction part of the world. Yeah, we have 10 businesses in with one has some serious credit risk. It's harder to price risk. So we take that into consideration.

But then on the other hand, you have this team here who they're really excited to do a great deal and oftentimes they're going to bet their own careers as is the case with Alex and a railroad that he bought in Brazil as is the case with Burger King that we bought here for me. And so when you're betting your reputation on something, you want to hold it to the highest possible standard. If you

think back to that the very first days, 2004, they're about through to today, 20 years. How has your

idea of what constitutes a great business changed the most through all of these investigations and running the five six businesses? What's most changed about your views? We over the years have the refinery investment process in terms of making that determination whether a business is greater or not as a function of how the world changed because of technology. The possibilities of a business being disrupted in this day and age has compared to maybe 20 years ago are significantly higher

and therefore the investment process and the investment discussion around this rupture needs to be significantly more detailed and thorough. Yeah, I agree with that disruption and disintermediation.

“I think we have a greater appreciation today for businesses that own the relationship with their”

end customers. If you have that, you're less likely, I mean, it seems obvious, but less likely to be disintermediated through some new disruptive force. How did you most learn that specific lesson? The disintermediation lesson? Since 2004, we followed restaurant businesses, we followed package food and consumer package goods business. And there is this ongoing shift. You've seen society of the share gain of private label. If you're a large retailer, be they Walmart and Amazon

Costco, if you own the relationship with your customers, you have this ability to disintermediate the company selling to you. And current one happens. So current one is a fantastic brand. It's one of the largest in the country. You and I probably both have plenty of current products in our

Popeyes or Firehouse stuff. I mean, there's just a few great brands. And we have it to be involved

in them. Each of those brands owns their relationship with our end customers. And so if you want to offer your coming to a Burger King, or in the case of our hundred Douglas business, if you want

“blinds, you're coming to a hundred Douglas dealer or a shop at home dealers. And so I think we have a”

much better appreciation for that. If I think about just the businesses themselves, we're jerking before about this simplicity of the business and maybe you're talking to Buffett about one of these businesses. Don't make the business description complicated. And it's interesting how burgers choose shades. You can actually do it in a word. In many cases with your business, you don't even need a whole

paragraph. Maybe say a little bit more about that. We're not well-suited to manage businesses that

require a high IQ. Be honest with you. We have some mutual friends who are much better suited to invest in the next technology. The AI, the AI. Exactly. We're just not that. We've managed to stay pretty disciplined to stick to good, relatively easy to understand well-moded businesses that we, in our partners here, could kind of wrap our heads around businesses that I've ideally been around for a long time with strong brand franchises that we could own and grow and maybe improve a little

bit. As Munger used to say, show me the incentives. I'll show you the outcome. In addition to the one investment per fund, I'd love to understand the other distinguishing features of how the capital is set up. Who the LPs are, what the incentives are, how the fees work. Because almost everything you do is a little bit different than the traditional model. Maybe you could walk us through what those are because those so then determine the outcomes. Two of the things that are different

two or three of the things one is the proportion of house capital. We and our group of co-founders and partners and whatnot are the largest investors on each and every deal that we do. Number one, number two, the balance of the capital that's not ours is different from a traditional P firm in the sense that that's a much higher component of high net worth in the visuals and families around the world. Some sovereigns. Also, but a very different LP base and also the fact that

we over the years have devised mechanisms that allow us to be invested for a long period of time

“we've invested in our BI for 15 years in county and so on. So I think those are the three main differences.”

One additional large difference in our case is the folks here have largely all been in both investing roles and operating roles. And so in Alex's case, he was the CEO of the largest Brazilian rail and logistics company. The largest Latin American rail and logistics company. I was this CFO in CEO of what was Burger King and now is to a restaurant brands international that applies to some of our other partners here as well. I think this experience of being an operator and an investor

allows us to ultimately be a better investor and allows us when we get involved in these businesses

to be able to send our own people in who are partners of ours here who have also been CEOs and CFOs and operators of businesses and who are well incentivized to create value at the company that's directly linked and aligned with us and our limited partners. If you think about this unique nature of it being so much house capital, you're on the line with all of your LPs and you think about the search for let's say $100 which was a transaction three four years ago. Talk about the length

of time that you're willing to engage with a company maybe in that specific case how long it took you to get to know that business and how the transaction came together. These are very unique ways and long durations and I'd love just like put some meat on those bones. I've met Ralph in the mid 2000s versus Switzerland and then we got also close to his family here to two sons one residing ground to recently and the other one resided here near the city and had a good

“relationship going for a long time. I think that not until few years ago was Ralph aged and he was”

trying to organize his family affairs and he was trying to carve a solution for the fact that one of his sons wanted to remain involved in the business which is David or partner and he also cared what happened to Hunter though was following 100 years in the family and that's the context in which we started a conversation but that was already 2000 and then 20 one mid year. I visited him in Switzerland and he's home and had a conversation about it and he was then brainstorming what to

where they proposal and then if you liked that proposal we would move forward that sort of how it started. So sort of a 15 year investment of time to get that wind up in this case that's right. I like that we're inserting a word window here many times but maybe just some additional color. You had a

longstanding relationship with Ralph. I'd first met David in 2007. David is Ralph's son who is now

our partner in Hunter Douglas. He rolled his shares into the transaction a few years ago. They invested alongside us in Burger King. We built a good relationship. Lots of mutual respect. David came down Alex. Alex I guess and I organized to have some of our partners come visit us in Burger King in 2011 or 2012 and we gave a presentation of what we were

“doing and remember spending time with David and he said this reminds me in some respects of Hunter”

Douglas is kind of entrepreneurial startup type culture in a traditional business and we kept tabs on their business through the years as well and we watched David do some transformational acquisitions

along the way to evolve that Hunter Douglas business to become even more direct to consumer. So to

go to both selling through dealer and direct to consumer we were big admirers of that business for many, many years and we had the history of following the business for many, many, many, many years prior to Alex and Ralph chatting about succession and next steps for the business. So we played the real long game. David did really sort of shape the company through those deals I've been. He did. David evolved Hunter Douglas into a business that we had an even greater appreciation for

15 years after meeting him. Maybe since it's a company that probably people have seen kind of imagine as a product that's accessible and simple to understand. Use it as an example to explain the criteria that you love in a business. Describe the business and put more importantly what it is about it when you did the transaction that was so opion. The business basically owns the relationships and doesn't have a concentrated customer or a concentrated supplier.

So as a business that's really well positioned in an industry purchasing windows, covering products is not a frequent thing. It's not something that you do every week.

“Or every year even. So I think that really sort of said itself well what a business.”

So I understand that last piece meaning because you do it in frequently brand and familiarity matter a lot. If you're not going to do it often, you'd rather just go, also a lot of times you do it

in the context of a renovation, for instance, where it's never a big part of that, also. So I think

it lands itself. Quality matters are qualities almost in a way to what a wish people would replace the product sooner. The tan for the interior and exterior window coverings is around $70 billion. HD is far and away the largest player. We have this combination of scaled manufacturing coupled with scale distribution and that allows us to either through our own sales force or through our exclusive dealer network to deliver the product within week two weeks, which is typically

“what people would expect their window coverings to be delivered. Every product is largely custom-made”

to measure. So there's no one single skew. And so we have billions of permutations of styles, colors, patterns, sizes. And the business was around prior to us buying it for about a hundred years. And we talk about all the things that can change in the world and disruption risks. But we're highly confident about the sun rising and the sun setting. And you see houses are being built with larger and larger windows because people like natural light. And so it's a product that's here

to stay where the number one leader. There's some volume growth. There's a little bit of price growth. And as I mentioned, as we mentioned earlier, there's this historical roll-up element of the business where you're buying small players in the industry. And we are the natural home for many these small players. Also, climb to change and increase the awareness of the risks associated with that and the need to save energy. And what not, I mean, that's a positive driver for this business.

A lot of companies brag about all their ESG initiatives and energy savings are window coverings actually save people tons of energy. It's a natural way to keep your house cool. I mean, it sounds like sort of the ultimate example of like there are no two kids in a garage and Silicon Valley

things where the term is large, but it's not so large. And we really have this scaled manufacturing

“coupled with the scale distribution. And so I think gaining distribution is hard. It's quite hard”

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RBI is a 30x, small one capital or something, and going, why do you think there are not more firms like 3G that do serial single investment extreme focused style? Why are you the one that I'm aware of? I have a few thoughts on this. You've seen how much value and enterprise values been created in the alternative investments like lands brought or landscape. And so how often do people Alex tell you why don't you guys buy more businesses, why don't you raise larger funds, why don't

“you get more diversified? So I think there is this poll to do all that for a reasonably good reason.”

I don't presume that our model superior to others, they're incredibly successful firms that have very different model, very different way to go in about their business than us. And I think what's important for every successful firm, I mean, we're no exception to that is find out what works well for you. And for us, for a very long for decades now, that's the model that works really well for us, the investor or capital to compound the capital of the people that are closed and invest with us.

And I think we should stick to that and not try to emulate other people's models. And that's probably true vice versa. And most successful firms have their own model that they develop the works for them for their culture, for their people for their capital. I think also staying quote unquote small allows us to attract some of the best best best people on the investment side here, because we could still offer people founder like economics, a path to partnership, a path to

taking on responsibility, much, much faster than those people might have if they take a kind of traditional investment path. Yes, and this is a place where we think that over time the firm should

always be owned by the people driving it. And historically that has been the case of my co-founders

and me and then I'm still here, my co-founders over time become more on the capital side. Daniel was an analyst and sitting here today. I wasn't analyst early on in the predecessor firm of this. So we do have a demonstrated culture that attracts people that way. I love the notion that both of you ran businesses as the CEO and the especially curious about the forged and fire moments for running a Brazilian relay. What were the aspects of operating as the CEO that

“you most remember that most shaped how you think about running a business swell or investing all?”

Within a few weeks in the business, it was apparent that it was an operations challenge, meaning the customers around the railroad all wanted to be serviced by the railroad and they couldn't because the service wasn't good enough. And the focus on basically turning the assets faster and more safely was really the driver of the company's success, which drove me in turn to spend a week a month in overalls driving trains and going around the country.

Dad allowed me first to get close to the engineers in the business basically which were crucial

that people that run the trains and given an understanding how important they were in that business in every respect and do things to improve their lives that you could only do if you were out there with them. For instance, I was young and athletic and sitting in a locomotive for eight hours and

So all of that was not expensive to address. We didn't have the money to buy brand new

“general electric locomotives, but we could fix that. And we could also fix all the engineering”

quarters where people sleep between chain drovers, which were also in dire straits. Conditions and we were able to get them all fixed, get new beds, get satellite TV for sports and get them all that. Then that really drove a lot of support from the engineers. We were able to then capitalize on that by having on board computers, rank people on their fuel and safety performance nationwide. I mean real-worlders are very proud people and that drove

30% production fuel. For example, which was a number one cost in the company that drove much higher asset turns because we then did the same thing in the yards and there were all these ideas and participation. And these people all had the solutions for things. They just needed to be engaged and to address this operating challenge, which was the biggest value creation driver. So that taught me a little bit about managing by walking around and not sitting in an office and getting

savvy information through powerpoint. It seems like that's one critical lesson in the general category

of finding hygiene and inefficiencies within the businesses that you buy to make them a lot better. This is like an obvious thing to say. Of course, one of the businesses to be more efficient,

“how else have you learned to do that effectively across several different kinds of businesses?”

What are the playbooks that you've most enjoyed rolling out business to business? Not just a fix, but to find the inefficiencies in the first place. One of the things that's interesting, you hear Alex's story in the railroad and a lot of these initiatives he outlined were his, but he benefited from some great advice from co-founders and co-fowards, who, who, who, who, or CEOs of operating businesses themselves at relatively young ages and who gave Alex a shot when he was 30.

And they gave you some real practical advice, which you then passed on to me when I, I guess became CFO or CEO of Burger King, which if you hear some of this advice, you'll be able to connect it to some of Alex's actions, which were, at the time for me, deeply insightful comments that were very contrary to how I behaved and acted as an investment analyst, things like manage the people, not the business, centralize the what, not the how, go around asking lots and

lots of questions, don't ever be afraid to ask people questions, even if something that seems obvious to the organization might not be as obvious to you. When we were buying Burger King,

“I'll never forget that just show how naive maybe I was at the time. Alex says to me,”

we announced the deal, and Alex is, when now it's time, we out of a symbol our team, like Alex,

come on, we're just about this business, it's like $4 billion, it comes with people, right?

And Alex is like, wow, it does, but I think it's really important in it. We got to assemble like an A+ world class leadership team and just kind of dawned on me, which he had experienced this and years, a business is nothing more than a bunch of people kind of running around doing things, and quality of the people is paramount to the quality of the business. In these businesses, you want to create a culture centered around ownership, and that starts with the

leaders of the business who need to act like they are and behave like they are and be the shareholders of the business. So the leaders need to be the shareholders, the leaders can't just be the management management and shareholders need to be one in the same. And so once you've established that, now you can go to the next step, it's like, how are you going to manage a business, if you are its owner? You're going to look after all the money you spend, as if it's your own,

you are going to make decisions based on what is in the best interest of the business. You always

have to put your business before yourself. And so typically, when we come into these businesses, we love doing benchmarking exercises where we will look at expenses cost by area within the business. So let's say by the North American group, the European group, the Asia Pacific group, and then we look at by category, all the way we're spending money. We call this zero-based budgeting. And we basically give visibility on cost to everyone. And we say, look, if this one group

is spending this much on this area, well, why can't we apply policies throughout the organization to benchmark both with ourselves internally and other companies externally? And you find enormous amounts of savings and just doing kind of simple internal and external benchmarking, but you only are able to capitalize and achieve those savings. If you have buy-in at the top of people who view

for themselves. For the centralised of what need, specifically to give people freedom to figure out

things and focus the discussion in terms of what is it that we want to accomplish, which is where

“I think as a leadership of the company, that's an important discussion that should be a real”

their part of that discussion. And then once that's settled, then give people freedom to figure out the how. Because you really want to push the decision-making close to the problems. And then as long as we are all aligned in terms of what is it that we are trying to achieve on a more broad perspective, the actual how you're going to do it and how you're going to go about it, the teams should have a lot of autonomy on that. Really good people that then is alluding to

which absolutely key to everything. They like freedom to figure out, they like to solve problems, they like to be challenged and they like to freedom to make decisions. So you shouldn't have a culture where making mistakes is a problem. Making mistakes trying to figure out a problem that 's part of the company's ambitious agenda should be something that happens where you learn something

“from it and you move forward. I think that's what this thing about centralizing the discussion”

of the what and then decentralizing the how it comes in. What was the most stressful period for US CEO of Burger King? What was that moment like? I try not to get too stressed, workwise,

trying to always keep things pretty even killed. I had this basketball coach who once said

pressure is something you put in a tire. I always try to keep that in the back of my head. I'd say there was one time that I was pretty stressed was this was this summer of 2014. We had bought Burger King in 2010, billion in change of equity. Within a couple years it was objectively, a great outcome. Everyone got all their money and then some back and by mid-2014, we were like a $10 billion company and we had owned 70% of the company. So objectively good.

And we all decided Alex myself and Josh Cobb's who is in our CFO. We all got really excited about buying Tim Horton's and we were actively negotiating an acquisition merger of Tim Horton's Alex was meeting with their CEO and a regular basis. Alex was our executive chairman. I was a CEO then. And we're in the middle of doing this prolonged negotiated deal. We get wind from the reporters at Bloomberg that they're going to run an article on US at Burger King, really centered around

our ages, the ages of the management team. Or trying to buy this iconic Canadian institution, has that dim hortens and there were some probably reservations on the Tim Horton side and around us in business and Burger King. And so we're in the final stages of new going to deal. The article comes out. The title is Burger King is run by children. I wasn't a help for it. I'm touring restaurants in India with our local master franchise

joint venture partners. We're driving around on a few spent much time in Mumbai. We're driving around stuck in bumper to bumper traffic. And the article comes out. I'm reading and I like this is just the worst article that could have come out at the worst time. Meanwhile, everyone's writing us, oh congrats. Congrats. What a great investment. And I was like, how are we going to get ourselves out of this? This is exhibit A for the board to do a deal with us. But we worked in Alex and along

the negotiation for six months. Yeah. I was pretty stressed then. It took a lot of work to get them to be excited about us. And we had to point out all the factual inaccuracies in the article.

“I'm going to come back to the everyone being young thing just in a minute. Because I think it's”

so interesting. But when we first had lunch, you told me this story about the funny back and forth with Tim Horton's and your initial outreach to them. Can you tell that story as well? Sure. I was able to a common friend to get a dinner with the CEO near Toronto. And I flew out there. We had a great dinner. Really hit it off. And he was open to potentially receiving a proposition to put the companies together, which we maybe a week later, two weeks later, went

to Warren and Warren was super, super reassuring. As we talked about in a nearly endless, I mean, I remember 10 seconds into the call with Warren. He really, really praised the quality of the business.

And then and I always go back to dad and saying how right he was. And we didn't even fully

appreciate how good a business it ultimately was, which we do now. But anyways, so that went

together and we presented to him. Then there was radio silence for a week. We felt radio

“silence for a week is normal. This big deal. They're deliberating about it. But then that became two”

weeks and three weeks before weeks. I only bought one company at that point. So I'm in a house. Is this normal? I'm the fore saying that it is. I don't worry. He's like, he's going to be to focus on the business. I don't worry. It's totally normal. Totally normal. Totally normal. It's

eight weeks or seven months or six weeks into it or something. I got an email back basically

saying, listen, thank you so much for your proposal. We're not prepared to move forward and something like best of luck with your future endeavors. I really had two lines, maybe a what I have like at which point I picked up the phone and called this guy who my head hit it off. So well with. And I said, listen, thank you for your email. I mean, we see. Can you elaborate a little

“further to which he answered, no. I can't. I mean, what else do you say? No, I hanged up. I called him.”

I said, how did it go? Was it? Well, sure. Not so well. Kind of short. And then we did some more work and made improvements to our offer. And then we send it to him, revise it offer to that in the hopes that that would be enticing. And then we were prepared again to sit and wait for an extended period of time only to be surprised and get a response back in hours. Yeah. Yeah. Yeah. We were within a day. I think I want to see less than a day saying thank you for your offer. We are not prepared to move

forward and we wish you again the best of luck with your future endeavors. The good news is neither of us are shy and both of us are persistent. So now you really scrambling and trying to find every possible way of engaging in the dialogue and figuring out what is it that we had to do

with anything to get a conversation going then ultimately we found ways by means of which we're able to

meet with him and his chief financial officer and was able to then direct down with me again and engage into a conversation and gain some insight in terms of what is it exactly that we would need to do to get this company together and then after sometime in that conversation we're able to have a revised offer that they thought was then enticing enough. We then moved onto the usual drafting and legal when the village in space of it only to receive a call in a Sunday afternoon

from the Wall Street Journal saying listen we know you guys are about to announce the deal we're going to go live with it and you guys have studied me on us to decide whether you want to say something. It was delicate at the time because Tim Hortons is a brand of a magnitude that I almost want to say that I'm unsure whether exists in the U.S. terms of a consumer. Yeah, it's just so large the brand they can't have been so important for the Canadians that this information about a deal coming out

the wrong way at the wrong time could have killed it after all this six month. So you asked then when is it that he was nervous but this is when I, despite of my den already abundant main

gray hair was nervous. How did it ultimately get done and what was the reason that he was slow and

quick in his initial two responses? So apparently, I mean we were not previewed all the details but the board dynamic there between him and the prior seal that was sharing the board and whatnot. There was some genuine doubt about the deal and they were discussing it intensively. Yeah, I think if you were aligned a bunch of years earlier, it was a subsidiary of Wendy's and

“that's right. That's what drove them. Yeah, like did we really want to be attached to Burger”

Brand again? But ultimately, I think we were able to convince them that this was going to be great for everybody that this was going to be a portfolio of brands that we would take Tim Horton's international and that most importantly, the brand would retain its independence and independent management and focus in Canada. I also think that what sealed the deal for them, of course, the financial proposal, but it was also the reassurance on our part that our owners in Canada are

Tim Horton's owners, which were their hard and the core of the brand, would really thrive on their ownership. That was key for them. They really cared about that. There were thousands of owners in Canada. They made the brand into what it is. Since the franchise is the franchise, which in the case of Tim's they called them owners. I think that was key for them.

one is so far. That went a long way with them as well. Does that help? This mystified is concerns

about what happened in the past. This wouldn't repeat itself. You mentioned the call with Warren on this one in particular. Over the years, what have those calls been like? What could we all learn from the sorts of interactions you have with him at the really high level about the potential asset of potential investment? We learned a lot just by virtue of spending so much time with him.

“And I think Warren had this uncanny ability to quickly identify whether a business is good or not.”

And really, really have clarity around that. A little bit, doesn't cyclopedic knowledge of business that he has. He's something that, of course, we're in the world near. Having here at the firm, but we do try to emulate some of that around the stable of companies that we follow over a long period of time and the relationships that we build. That's the other thing we learned from him. He really sought a value of the relationships. He builds them. Often when there's no

business to talk about. And he's always respectful and mindful and great around that. And I think

those are the two things I took personally, the heart from all this interactions with him. Anything you'd add? Warren never compromises on business quality and takes discipline. And I think what we do here and we like to think that we emulate him in that capacity, that we will never compromise on business quality rather do nothing than buy a business. We don't think it's great. I want to come back to this young talent thing. I have a 3G story that I don't think I've told either of you, which is

in my prior investing business when I was running a quantitative investing firm. We'd be pitching pension funds all the time. And I actually pitched the craft times that we ended up managing money for the pension. You know, it picks like a money. And I remember going to the finals meeting, it's like this formal bake-off between us and others. And thinking at the time, like, wow, these guys are like my age. I was late 20s or something like this. And they were all late 20s. And I'm

like, well, who are you guys? And it was like the CFO, the treasurer, and whatever, you know, it's run by children. Did they? Let's run back at you. But the throwback at you. You were qualified in your late 20s to finish the money. So why wouldn't they be qualified? I want to hear about the roots of how you built this empowering, very talented, younger people into positions of, not just

“importance, but control and ownership. And all these things, what is the legacy of this feature?”

It's predicated first and foremost on this desire to be a great place for the best talent.

And one of the things that we think is appealing to this sort of cohort of people is that go to a place where they know that there's a decent chance that someone's going to make a bat on them early, earlier than probably anywhere else. Then, of course, just making a bat on them earlier than anywhere else is not good enough if they don't have a real chance of succeeding. And the real chance of succeeding comes from surrounding them well. When you make this bat

for instance, as Dan said, when he was running Burger King, I was there as active chair for him. I had done it before and it's trying to help him everywhere. Each and every way, I could. And also, we brought people on the team at Burger King that have been involved in prior instances at the Brewery and the Railroad and other places in senior operating functions on sort of the same processes or things that we wanted to implement there. So that sort of

that combination of things set you up for success. Nothing important to keep your success.

“And you have to be prepared, but some of the things will not succeed. Some of these”

risky promotions won't succeed. But you have to maximize the chances that they work. So Michael Fowler is one of the board of the Railroad and was helping me. One of them was at a board that taught me a lot in the period of time. And my other co-founder Marcel gave me all the people from the brewery that were well trained. That could help me. So that's a key element into attracting some of the very best people that you can make this early best and you're going to

maximize the chances that they will succeed. And from there, so then we'll have to actually chat at becoming investors again. Some won't. Some will prefer to be at a company. But that's a key element of our mold is operandi, you will. We're lucky because I need we both grew up workwise in these extremely pure meritocracies that genuinely valued talent over tenure. And I think Alex benefited from that when he led the acquisition of the Railroad and the co-founders

gave him a shot to be the CEO of the largest railroad company in all Latin America at age 30. So that was normal to him. And after working together for I guess what five plus years we

let Burger King fail, which is why he was comfortable similarly giving me a shot as CFO and CEO

because someone gave him a shot. And when I was in that role, I spent a disproportionate amount

“of my time focused on recruiting and recruiting who I believe would be the best best best best people.”

Not the best people who would be willing to go to work in a burger chain in South Florida, but just the best people period. And whether it's like the rising star at the McKinsey or a blackstone or a Goldman Sachs or at another company, I'd want the best best best people. And I similarly was willing to give them shots way earlier than they get elsewhere, both more responsibility and more economics. And one of the early examples of that was Josh Cobsa. Josh

was 25 and when Alex promoted me to be CEO at 32, I think Josh became CFO at 26. Over time, people like some of you said you're Sammy, who was the next year in Tiago and David. All this guys. All these guys. And I remember at the time when I was going to promote at CEO Alex asked me Josh was kind of young. He said, okay, I'm like he's much better and more mature than I was at that age. And so you guys gave me a shot. I'd like to give him a shot. So when you grow up in this

environment, you get more comfortable making a bet on someone who has a little less experience, but who you genuinely believe in. And we're not just shooting from the hip. Alex, I worked for you from six years before you let me go beat CFO. And again, you set people up for success through people to mentor them and people on the team to help them. The stuff that they don't yet know.

“So you have to set it up for success as well. I'm thinking about your mentors and your co-founders.”

I'd be curious if you go one each from Beto Marcel and Georgia, what lessons stands out that each of

them tie it? So Georgia has this incredible ability to see very far. So he really understands

the potential of a business, the potential of a person. And his vision, I think, is unique. He's unique that way. He thinks very clearly and is able to chart a path out of any situation. Beto has incredible ability to relates to people and lead people and get people even at the drop floor, quote unquote, of a business excited and enthusiastic. And is someone that's completely fearless. And Marcel is probably of the three of them, the one that really honed this business model that

we all like the most after brewery when he ran it. And he was able to basically create so many good people over the years and a very clear process. Of course, what we do and what the companies do would have their own different flavors that evolved from it. But he was the most involved in creating that operating model. They're all very complimentary through put the three things I said together. Sure. Super complimentary. I had the benefit that I was with Alex. So I got all three. And then

sometimes I say one of the things that Alex brought to me and this was when you get to the company having this massive sense of urgency, because companies have a tendency of moving slowly. And it don't operate maybe as quickly as things operate on the investment side. But if you're going to do something, just do it this quarter or do it this quarter, do it this month or do this month, why can't you do it now? And that sense of urgency getting stuff done fast really, really matters.

Because companies, I think, are five, 10% strategy and 90, 95% execution. And execution is getting stuff done quickly right. How do you inject that? Very tactically. How do you constantly inject a sense of urgency into a company? It comes out to two things. One, hiring the right people who want to get everything done yesterday. People that are wired that way already.

“People who you have to hold back and not push forward, you yourself as the leader,”

constantly keeping this expectation of wanting to move quickly, never showing any level of

complacency whatsoever. Wanted to get stuff done very, very quickly. My guess is you see that you Patrick see that in the tech startups that you invest in. They're building new products that are disrupting new categories that every minute hour a day count. And they need to move quickly to either get to the next round or get to the next customer. And you try to bring that same sense of urgency that exists if you're a tech startup with finite amount of cash to a mature

business that's highly cash flow generative. If I were to ask everyone that worked directly for you,

operating system of this method? Coupled with extreme levels of transparency, which I also learned from Alex and the guys, you set these big hairy ambitious goals for the company and you're constantly letting everyone know how you as senior leaders and the company as a whole is tracking. Because if you're not giving people visibility into this, they might not understand why you're

“asking for it and acting with such a sense of urgency. The other piece that's crucial to this is”

making sure everyone's incentives are aligned. And that matters a lot. So as leaders in the company, one level down and two levels down and three levels down, everybody having stock or stock options, knowing that the way that we're going to create value here, the value creation will cascade itself down throughout the organization and having everyone's incentives and goals systems aligned. What do people screw up about that incentive piece? What have either you yourself done wrong

or seen others do wrong that don't unleash that power? It comes a lot more, can you based then achievement based? That's when you have issues. It's not simple, but you want to have very talented people, somebody who hired from the outside, a lot that grew in the system, they did have clarity first of all in terms of what is it you trying to achieve and then they need to have freedom to act to achieve that on their respective teams should have them in the

pendants to basically decide the how and that everybody's tied into the fortunes of the shareholders altogether. I think that's the system in a nutshell and if you have all those components in place, you tend to do well, but of course I mean Patrick, this is the degree of difficulty of doing this increases with the company size, like to do this in an investment firm with 20 people that we have here,

much easier than in a five billion dollar company, a little harder, a billion dollar, $30,

$50, but you just gets harder. Anya goes or I, when Jowax's point, he's going out stock awards to everybody and it becomes an expectation. It also goes or I, when you try to be fair and this concept

“to fair is really tricky because if you want to operate as a meritocracy, definitely a lot of”

people aren't going to think you're being fair, is there going to think that they're being underpaid and other people are getting overpaid and I learned this from the folks here at 3G that I felt I was being fair. I was doing what was right by the people, but I did not allocate stock equally to people. I gave certain people multiples of what other people got based on our thoughts of people's existing and potential future contribution. And not everyone does that. Even at CEOs, there's a lot

of pressure to, and if you get cool on that, it's cool on that. It's cool on that. I always tried,

learn from these guys, just never be political. If you genuinely think certain people can contribute more, give them outsized grants or outsized equity awards. One of the things that learned from this compensation arena that's tough, but it's true is whatever it is that you ultimately do one compensation, you're not going to make everyone happy. So you shouldn't try to do that because

“it's quasi impossible. You should try to do what you think is fair from a meritocratic standpoint”

and explain it as well as you can. I think it's a common mistake a lot of CEOs make and I think because we don't do that, I think that allows us to get some of the best people, especially in the early days that allow me to attract some of the best best people because I was willing to pay people outside of the normal, whatever preset, pay curve and preset systems that we had, if there was a superstar and make an exception, I reserve that right as CEO to do that. Can you talk about the very

top of that talent funnel and the things that you have done and still do that are the most effective at finding people when they're very young? I'm interested down to the granular level of

what questions are you asking them when you first meet them? What is that very top of funnel for the

early mid 20 something? I'm a step before you, the question is how do you meet them? And it's generally speaking word of mouth and being willing to open as many doors as you can. Someone made an off hand comment to me when I was in Hong Kong passing through an investment firm about this superstar analyst who had just left, whose name is Josh Cobb's a took note and then Cold Cold Josh and Josh like I get my number and don't worry about that Josh is fine. Anyway,

brought him to Miami hired him on the spot and I would and I've said this in the past we'd go to Wharton and HPS and get the resume book, Cold email people who had impressive resumes and if they seemed like they were really passionate and they were looking for like a project and not just a job, I'd offer people jobs in the spot which again was unheard of and I'm sure you have some examples

to people you try to identify the people that achieved the lot for the rage. On the young,

Coldheart, because that's indicative of then being hardworking and ambitious in a positive way, I find that speaks volumes in terms of them having a chance of really succeeding because I look here at the format called Harts of Ballas and yeah people that we recruited over a long time and then I try to think what is it that makes in hindsight some of the better ones what made

“them stand out from the rest. I think they really, really, really, really, really wanted it.”

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enabling faster growth, smarter operations and a competitive edge. Visit RidgelineApps.com to see what they can unlock for your firm. One of the comments I heard on the why I was reminded of this, and maybe there's somewhat relation here, which is the concept that when you bought BK originally, that the brand was way bigger than the business. I just thought that was like an interesting framing, and I'm curious for you to say a little bit more about that insight or that

concept, and whether or not that's become something that you keep your eye out for where a brand is bigger than a business. Listen, I grew up in Brazil as you know. I used to come to the US as it was seven years old, and I was just crazy for Burger King and for Woppers, which every time I mentioned that people thought I was being untruthful about it, just because our investment was so successful, and I found proof on this letter that I just gave you that shows that I wrote

“this in 1975, meaning it was seven years old. You can see my handwriting. Some nice handwriting.”

Yeah, right. Right into my dad saying I ate this place called Burger King, and that I walk for every single day. And then I worked growing up, drawing colleges, a chore guide for Brazilians that came to business in the US, and people just walked Burger King. It was a well-known brand in Brazil. Everyone had talked to them. They were accustomed to what Burger King was. There were no Burger King in Brazil, and then eventually, by the time we bought the company,

there were like maybe a dozen. So, this is the restrictive of the fact that Burger King, not only in the United States, but globally, the brand was much bigger than the business, which was a unique opportunity. Because to grow a brand like that, it's very hard. A lot of time and dollars. In the case of Burger King, yes, we can grow the brand further, but it was about these are to grow burgers in brand. Is it open stores of a brand that everybody already wants? When we

found the company on one of our screening exercises, and we ran some math, we concluded it would

take a billion and changed dollars of equity capital to buy Burger King. But the time McDonald's

was, I don't know, say like an 80, 90 billion dollar company, yum was a 30 billion dollar company, Burger King. Just felt like there was this mismatch. Obviously, we did a lot of work to justify and support this thesis that the brand was bigger than the business. But even just the very first glance, we both said, it doesn't make sense wrong. It sounds wrong. Of course, Alex is like, you sure the share counts, right? You missed some shares or something. And didn't look right, but you

made sure we got the share count, right? And it didn't meet the smell test. And we asked some people around us and I said in the past, I asked my then fiancé. It was like a doctor and my mom was a lawyer who were directly smart, but not in finance. And McDonald's is 90 billion dollars. We think Burger King's

worth. No one said the bill. No one said the bill. You know, like 20 billion, 30 billion. And so

even at that smell test, and we did a lot of work to support the view that we would be able to run the business much, much, much more profitably from EBITDA standpoint, from a cash flow standpoint. And if we got a few things right, we can grow it much faster too. Well, was wrong. So obviously, something had to contribute to the fact that it only took a billion dollars factory capital to buy the thing. What was the issue? And then more of the early levers that you use once you own. Well,

there are two or three things where one of them was we were not focused on being a great franchise

not a great source of focus and it muddled your organizational structure and muddled the clarity of what we were trying to do. That's something that we fixed, but it had all two thousand restaurants around different go to market. Some master franchise, some multi franchise, some company. That's not entirely. We didn't have the partners, the right partners in the different parts of the world where the potential was the greatest, namely Brazil, China, France, France was a huge

opportunity for us. It was zero and now it's the second two billion year in sales,

largest market in the world for us. And so on and so Turkey, we have had right partners around the world to grow the business. And domestically, the issues that the company was having with

“its franchisees. It's a great business, quick service for us in franchising, but you need to never”

lose sight of the fact that it's a good business. If you make money, long-term in your franchise, you make money on term and there were some things going on the US back in the day where the promotions were sales grew because of a dollar double cheeseburger, but the franchisees were unhappy and losing money on that and there were so in the company, those real issues around tension around this that we had to fix. I mean, those are the three, I think, main lovers that I

ended early on. From an outside end, we felt that the company could be running a lot more efficiently. I think there was a 400 in change of EBITDA, the 400 came even more apparent once we

simplified the business exactly. And they were basically spending overhead exceeded EBITDA and

CapX was about half the EBITDA despite the fact that it was 90% franchise at the time. And so we felt like we would be able to run the business more efficiently, fix some of these problems, and we could create a lot of value. And look at hindsight, yes, it was a great deal and

“mentions like 25 times return. But at the time, these were real issues. And I think we had an early”

appreciation for the strength of the franchise business model that the broader market subsequently more greatly appreciated in the years to come. But look at the time, no one else showed up. And there was a go shop, window shop, whatever they call it, and no other private equity firm showed up. And I said it consensus at the time was that we overpaid as the new Sprit for headlines. Yeah, community kids. We bought it from extremely savvy investors who had made a great return

on their investment, too. I think maybe five plus times there are money on the acquisition of Burger King that they did a decade prior. Maybe the same question asked, I like how you gave such a simple elegant explanation of Hunter Douglas. Why is Burger King in the franchise model a good business in the first place? Because if you happen to own a brand that is large and meaningful enough that you can have the entrepreneurs around the world, put their capital and their

work into growing the business, investing the growth of the business, help finance the marketing

“to maintain the brand, sharp and current. I think to the extent you won't such a business,”

it's just a great business model and something that can grow in a very efficient way globally. However, many businesses you look at, it's hard to find those traits in the business. It's a highly free cash flow generative royalty-based model centered around these iconic brands that we get to own. And again, you have entrepreneurs online with you. Yeah, all over the world, really. 140 countries that are great operators who are going to

grow the brand and they will earn their profits and they'll grow the size of the brand for us as the brand owners. Maybe it just says like a little bit yet in this story. How did you take it from

zero to two billion in France? What was the literal story? What happened? Obviously, everything starts

with, oh, what do we work to found the partner that we did? But Amelia Olivia Bertrand is being an incredible partner of ours. And that was someone that had some affiliation of the Stella Archwav business, get some point in terrace, had a record of buying restaurants in France and turning them around and understood how to operate with excellence in France. It was involved with the quick brand for years. And someone that knew two course skills of a franchisee, which is

to find the best locations and to find the best managers. So he had a demonstrated record of that. I think it's just worth talking about our model though. So as Alex mentioned, we bought the business and some countries had company stores, some countries had multi franchise stores, some countries had master franchise partnerships and we developed this master franchise joint venture model where we said, look, the best way for us to run the best restaurants, manage the brand in a way that

local entrepreneurs as our partners. And we proved that out through the creation of these master franchise joint ventures in places like Brazil and in China and in India and in France, which is

“one of the best burger markets in the world. I think we had opened our first restaurant in an airport”

in the South of France and it was an absolute hit overnight. And so we went to France to look to find a partner to manage that country. And as time went by, we found Olivier Bertrand

and he's an incredible restaurant operator and collaborating with him. We built this

2 billion euro plus business. I was going to talk about craft hines and the lessons learned from it. It's an interesting one because as we've talked about before, if you just looked on a piece of paper, you'd be like, I was going to other investment you made didn't do as well as our BI was fine. Everything underneath the surface is far more interesting. So I'm curious for your perspective on the story now looking back on it. But most especially for just what you take away from the experience

that altered how you think about your business, investing or anything else. If you look at the craft hines story for us, the hines investment turned out to be a pretty decent one we make almost three times or money on it and we're able to return our investors capital

“and the craft investment, which it didn't do obviously as well. And Patrick, I think the lesson for”

us there is basically, I don't know that we underwrote the quality of the business. Well, meaning

I mean, there were significant portions of the craft portfolio, which were relatively commoditized and therefore overly exposed to dischanging dynamic where private label and the big retailers were essentially getting into the business and taking share. And I think we didn't fully understand that from the GACO looking at past financials would not show you that really. And I think that was the main issue with it. Did we have some execution issues? Yes, but we fixed those and I don't think those

were determined to the investment, not having been so well. In fact, we have many years ago already at February or so left. Our involvement there, I think the company has decent people working there and doing a good job managing it, but it's not like the stock did particularly better, frankly. The lesson for us is again, the how much more difficult and how much more diligent,

“therefore we need to be in evaluating business quality on the investment process, which I think”

helped us beef up the process to make both the hunter dogglers and its investment and then subsequently the sketches investment. Even if the business has great historical financials, I think today we likely wouldn't be willing to take the customer concentration risk. And then that goes back to that likelihood of our potential of being disintermediated and an inability to price risk. Well, there's the concentration issue in that in specific case,

pretty much any in CPG company in the US is going to have a third of the business or so, sometimes more with Walmart or another big chunk with Costco or, and it's short. Another country says, well, we're between one and three retailers are going to help the bulk of the business. Is it ever fair to just apply like nothing you did with McDonald's, Mark and Cav versus Burger King's and just say, I was didn't Spotify. It's like, I pay X

for Spotify. I think I'd pay it. Reacts. Really easy. And that's pricing power. With sketches, you could do something similar to that. I mean, sketches is the third largest sneaker company in the world. And surprise people. I bet it surprised many people, including us the first time we first to being netty and. And the numbers are a little skewed in it. I'm referred to sneakers only in a lot of these companies like Nike and it is have a parallel business and

the sketches is 99% footwear. It's also surprising the distance because

sketches sells nine billion a year in sneakers and a data sales 14.

Yeah, I would not have gotten that in most people's minds. I mean, back to the McDonald's, Burger King analogy, most people would be surprised by those figures. Yeah. Is this the case where the businesses ahead of the brand? No, it's going so fast. Two thirds of the business is already outside of the US. And when you look at who is buying the brand and the market share that company has within those customer cohorts, it's actually pretty good. Broadly speaking,

we like footwear. We like athletic footwear. We believe there is a casualization and an athlete or trend within society. That's what is growing 7% of the year. Yeah, that's largely

this mid-dicing, or digits growth. There's not a lot of private label. The same Arnold seven or eight sneaker companies are the same seven or eight sneaker companies in most countries. We like the industry backdrop. This first came up on our screen as a fast growing, good business, sometime around 2018, 2019. And we just followed it. We researched the sneaker industry. We followed the company in 2021 prior to our acquisition of Hunter Douglas. We visited the company.

We visited the sketchers company and the team out there. And we introduced ourselves through a mutual friend. As long-term business owner operators, we talked a lot about the global franchise restaurant business because they're also selling a lot of their footwear through global franchise

“network as well. And we were really impressed with what they were building. I think they were”

pretty impressed by our businesses and the fact that we had also been in operating roles. And we stayed in touch and we visited them a couple times a year and we tore their DC and we meet them when they'd come to New York for that fall and spring buying seasons and tell us each year earlier.

We're going to add a billion dollars in sales next year. And every time the year later,

it's like, wow, they didn't. They had to building that and sure enough in the handful of years, we knew them. They doubled the size of the business. It's one of these things where to your point, maybe some people, especially maybe in New York, some people would know that the brand is as big as it is. But when you start looking into the numbers, if you look back over the last and I'm not going to cherry pick years. So you two to your three year, five year, ten year, seven year, eight

year, they would cater sales and volume in the double digits. And they had the second highest

“loyalty rate amongst customers, I think, only after Nike, they were the most diversified,”

they have the highest scoop count, most diversified across all categories of athletic footwear. They're by reducing the risk. There's no hero skew. There's no air Jordan or easy or somber equivalent. This growth has basically been anchored by great product development. The product is really good and is developing such a way that is accessible. It provides great value for a consumer. And then the second thing is you basically have a great distribution on this business where you

don't rely on big boxes or retailers to get your product out there. The bulk of the sales are done through your own five thousand plus stores and your sites. That's a big difference. Basically you have a highly experienced management who essentially founded the business 30

plus years ago and Robert and his product team coming up with incredible innovation and

Michael and his store team building big beautiful stores and David and the supply chain team making sure that they can delay the shoes to the store. We probably should put the scum on the other less. How would you start from scratch and be reaching out and holding on to him. Yeah. It's really the team built over the last 30 plus years. And so it's the transaction came together. What was the motivation of the other side to sell equity in the business? They saw that we have been involved

in businesses for decades, not years, that we don't buy businesses and then flip them and that we ourselves have operating experience running our businesses. And so I think that owner operator and long-term nature of 3G was something they found attractive and I think given where they were in their life cycle and succession planning and whatnot, it made sense to explore. They stay involved both personally. They'll keep running the business and they will have significant equity

in the business because they liked it. This mix goes to the racing election that allows them to stay invested. From the sounds of it, it sounds pretty well run. It sounds a little different than the Burger King story. And I'm so curious, sounds like so much of the return happened in Burger King happened because you did a lot of clean up work. You made it efficient and then grow it. In this specific case, is it much more oriented towards less just making a little more efficient

and focus on growth? What's the balance of consideration? You got it. I mean, I need to keep this thing

“growing is the first and second and third order of business for us because that's what got the”

company to where it is and that's where you will get the company to where it needs to go. And, of course, there are efficiency opportunities. Yes, there are. And we try or

best to address as much of that as possible. Yes, never at the expense of outuring that trajectory

create that trajectory. It wasn't there. Each transaction is different. I think they're all BK, this talking about 100 August. They're all great businesses and they're different ways we're able to kind of help in each and this business is certainly growing faster than any of the other businesses that we've been involved in. How much do you care that an acquisition has what I'll call like platform potential? BKBKM RBI, you've got Tim Hortonson, Popeyes and Firehouse and these

other great franchises that are inside of the original purchase. Is that something that you think about a lot ahead of time, whether or not within Hunter or Sketchers, you can go do a bunch of other stuff by virtue of the platform? As Dan said, this is all different deals in the case of Hunter,

the company in fact has always been doing consolidation like acquisitions in this space and I think

that continues under our ownership. But here, it's a little bit different. I think that if you look at the footwear sneaker leading companies for the most part, they're not Mutai brand. They're largely monobrand, but their monobrand, which but are we is great in this case? Well, I'd like to sit here and say the investment memo for Burrking said that it was going to be a platform company and we're great visionaries. I know such memo. Well, there was a memo, just didn't say that. And there

isn't the case where we would make a lot of data. After five years, I still do work every time. Yeah. So getting into Burrking, we didn't know that was going to be the case. But they haven't

“said that's a different nature here. With all these businesses, you have to from an outside”

and do enough work that you get comfortable, that you believe they're going to be a good business. And you have to hope to own it forever. But this came up in your interview with Matt Alex that you only really know and understand a business once you own it and you're inside of it. You only know if it's a forever business once you're really part of it. And we do as much work as we can to maximize the chance that the business we get involved with is going to be the next forever

business for us. The first time I ever heard of your business was probably 16, 17 years ago.

I was in my early 20s doing like a reading tour through investing. And I came across that wager profits and six months or less book about zero-based budgeting. And obviously 3G is well-known for this method. But I want to ask the good, the bad and the ugly question about zero-based budgeting. Give us your impression first of how important the concept is to your success or not. But also where it works well, where it doesn't considerations that people listening should have,

if they want to apply a method like this to a business that they on. So I think that it's a great way for you to understand a business and to learn a business and to make it more efficient.

“Because you basically, as the name indicates, you have to think the business from the grounds up.”

So you learn a lot and you undergo that intellectual exercise and you freeze up some expenses and you freeze up some margin for you to invest and you grow in the business and for you to take it to the next level. Having said all of what I just said, I think the importance people assigned it to this process in terms of what our investment success has been is a bit exaggerated. If you look at them out of money, we've made an RBI and then you tried to decompose that. Okay,

how much of it was because we did zero-based budget successfully in a couple of instances and how much of it is because we grew the businesses originally. We had 12,000 restaurants.

Now we have north for 30,000 restaurants. So how much of it has to do with that second growth piece of it?

The bulk of it. So again, I find it to be a great process. I think it's a helpful process.

“Doesn't probably deserve as much credit on our case as the guests. Would you agree?”

For us, it's like we try to bring this ownership mentality where the folks running the business are large shareholders and they're acting like owners and not management. And then that ownership mentality then needs to be applied both to cost and to revenue to growth. And when you apply it to cost, as Alex said, you do this bottoms up analysis. And in many cases, it enables you to extract meaningful amount of value in companies. But I wouldn't recommend one of

your listeners by a lousy business with a big zero-based budgeting overhead opportunity because you're just going to have a slightly more profitable lousy business. The ownership mentality and linking goals to compensation to results that apply equally to cost and to revenue. And so in the case of the cost, it's let's have a zero-based budget and have a budget of cost that you have to adhere to. If you spend more than your cost budget, there's consequences. And let's also have

goals to revenue. And the goal with restaurant brands or burrking, the number of restaurants

it just comes back to ownership mindset and ownership management. Yeah, so interesting that your reputation for doing this so well. Because it's such a nice sounding idea. I've been told about your profits in six months or less, the good book title, maybe less to you. It doesn't want to read an article about zero-based budgeting, cost-cutting, whatever. I'm really curious for both your very broad perspective on capital markets today. How does the world feel to you? It's

conditions. It's opportunity sad. It's asset prices. How does it feel to you thinking back

“on today versus their whole careers operating in the business and capital markets world?”

I should profess this by saying that I don't know that we made a lot of money by virtue of being great macho analysts or predictors. And I know that we didn't. Yeah, I'm people I didn't make any money by being that. And having said that I find that we probably are in a moment where valuations are more stretched where there is a lot of capital out there trying to do things where debt is through abandoned and less cheap now, but still pretty attractively priced. So

not necessarily the easiest investment environment that I have seen over a long period of time. I agree with Alex. It does feel like businesses the world markets are more expensive today than they were in the past and therefore it's harder to buy a good business or a great business

at a reasonable price. With that said, this thing's never been easy. It's easy to look back

“in hindsight and say, oh, in 2010, you bought Burger King and it was so inexpensive. Like I said,”

no one else showed up. By that you happy that we have this business model that we only have to buy one versus we have to buy it. Yeah, of course. It's so hard to buy one letter. It's one. Never five. They're letter one by like five or ten of them. And if you're going to be disciplined on business quality and pride, it's always difficult. It really is. It's easy to look back in hindsight and say, oh, it's so easy. It wasn't. It was always, always very difficult to buy a great

business at a fair price regardless of kind of what was going on in the world or whatever time period it was. It's interesting to say that some people have conversations with their younger partners and case discussions and they're like, look, when you guys did this and this deal in the past, it was much easier. We kind of look at each other. What are you talking about? I was there. I don't think about the broader world again today and the sorts of business models that have become

the most exciting to people. How do you think about technology and its role in the businesses that you buy and in the opportunity to set in general? It's probably not an accident that all of these have a large hard physical component to them. Part of these rough atoms that's for sure. But in the most market headlines are about bits. How do you think about using it, ignoring it, how do you think about the restaurant business, which you would think in principle,

it's all about burgers or pizza or other types of sandwiches and whatnot and look at what Patrick do I accomplish that? Look at what drove there. It's one of the most successful stories of all time and you were lucky to have Patrick with us now as exact chair at RBI and

he basically took so much share of the talk. There was a big bit of that business. That's exactly

right and he took so much share from the other large players and from this small mum and pop players because he built a tech platform. So that's probably the best example you're going to find and that's true for every other consumer business. Yeah. We like businesses as I mentioned before, well-moted businesses where technology can help improve the business, not disrupt the business. So if it's the case of sketches having a better e-commerce experience or case of 100

Douglas having AI tie in to decide when the blinds should go up or down, depend on the weather and things like that or with the restaurant businesses, several of the restaurant businesses are now experimenting with AI enabled voice drive through. So we like types of businesses that could be improved by technology and we and our teams embrace that. Just not the businesses that a new technology is going to completely change and remove. You're going to wear sneakers tomorrow.

Regardless of whatever technology that is. We're assuming they need a burger of nothing. Yeah. Of course, block it off in minuscatchers. One of the most misunderstood or surprising

“things about 3GD think from that side. I think people again may not perceive how”

focus we are on business quality. First and foremost, if you were to participate on investment

discussions here, for instance, what proportion of those meetings is dedicated to determining whether a business is really good or not at the bulk of it versus talking about what the cost

growth potential. I mean, that may surprise some people, frankly, that look at us from the outside

“in. I think they might be surprised how lean we are as a group of people given the size and global”

footprint of some of the businesses. I don't know what else them. Maybe just to compound an ounce sensor a few years ago, we had hired a new person to come into our restaurant brands. And we do this annual team off sites where each of the brands goes through and talks about the plans for the next year or the big strategic projects that they're focused on. And I remember after the meeting that person came up to me and said, look, you know, I didn't know what to expect here.

Everybody talks about you guys. You've got a bunch of cost cutters. They were like 800 pages of content at this off site. 10 of them covered the costs. And the other 790 were related to growth and bettering operations and group of new restaurants. And I think kind of on us to maybe tell our story

“and get the truth out there. The other thing that I really think would surprise people here”

is the level of some combination of groundedness and humility that exists within this organization that starts with the co-founders and Alex and myself and our team here. Everyone is deeply intellectually curious and wants to grow, wants to learn and despite some of the success that senior partners and co-founders have had here, they are some of the most humble people you will ever be around. And they are not afraid to ask anyone, pace and questions. And there's zero arrogance,

zero. And just this ultra ultra high level of humility. There's nothing you hope that 3G becomes that it's not yet. The last two transactions that we did were essentially family businesses. We reviewed as a great home, a great long-term home. For iconic founder,

“led family businesses. And so I like over time with this success of those two investments for us”

to hopefully be known as a great home for founder, led and family control businesses. That's very above it coded. Is that by design or is it just the nature of what's worked for you and what you enjoy? It's also a function of the kinds of businesses that we like, which are successful businesses that have been around for a long time. And more often than not, you find that those are still owned or somewhat controlled or influenced or managed by the

founding family. And it's linked because if you have an owner who really cares about his or her business and will make the right long-term decisions, as opposed to maybe the public company, quarter, quarter, quarter, those decisions positively compound on themselves over decades. And so that's one of the reasons why some of the times these family businesses tend to be much much better than their public company equivalents. I love to say one more word about that.

So everyone says thank long-term. What does everyone says it? Right, no one does it. What are the features of businesses that make them better when they're built very slow ly over time and they could be if the same business had been built quickly? If you're a long-term and you're thinking long-term and the decisions that you're making are around long-term, you will make different decisions than if you are short-term. And a couple very simple examples

would be with our restaurant business on people. We spent a disproportionate amount of time

recruiting, developing, growing some of this young special talent, who in the first many years

with us, if we were in it for a two, three, four, five-year flip this time. It's negative bay back. You're giving them a lot more than they're giving you. Those people 15 years in now run the business or France, the first couple of few years in France, the amount of money we had to invest to get things going, the amount of time we had to spend, as I mentioned before, there was one restaurant in the south of the bread that was open. You only do that if you're taking

a long-term view. Even though it wouldn't pay back in the next six months or year or a few years, we knew if we're going to be long-term owners of this business, fast-forward 10, 15 years,

we'll be well off having this 2 billion plus euro sales business. And you see this in the family

businesses, especially in the multi-generational family businesses, where you could say it's on a bird buying small businesses 10, 15 years ago, which wouldn't make a dent on the size of overall $100 less back then, but today contribute hundreds and hundreds and millions of dollars

My friend David Centro, who runs the Founders Podcasts, is obsessed with this style of entrepreneurship,

this lifelong commitment. Exit strategy is death. Type builders, what are these people like as people? You engage with so many of them, not just the ones that you bought their businesses, but thousands and hundreds more probably that you haven't bought the business. How are the people themselves characteristically most different from other people on entrepreneurs? Just how deeply care about the business? Businesses borrow their lives, their persona, their families, their pride,

their aura, everything. They really have that relationship with the business that they created,

“that they developed. And I think it's something you need to understand. If you're going to”

engage with them, you need to understand what they're coming from on that. Yeah, well said,

I mean, they're passionate about the business, they genuinely care. You hear this in Centro's podcast all the time. Do you feel like there's anything major that we missed about what makes 3G 3G that's important to cover or do you feel like we've covered it well? There's a lot of patience as well that's required here, because we're only buying one business every many years and so for those of us who had a little bit more experience that's fine for some of the junior people,

it's a little bit harder and so we definitely have to work with them and over communicating the benefits of being patient, establishing real trust with everyone we work with as well. I mean,

“we talk about this trust is being a scarce asset in this world and building trust with”

everyone we work with. Be it our partners here, people with whom we'll transact in the future, knowing that we're going to be good partners. What keeps you guys motivated to keep working as hard as you feel? You could easily have stopped while I keep going. I love what we do here and proud of it and I'm highly focused on making sure the firm continues. We wanted this to really be something that has a long, long, long life and that's something that brings me great satisfaction

to see all this younger partners growing, taking more and more responsibility and the business, something that's something I'm highly focused on and that highly motivates me still. Yes, saying one of the most filling parts of this job and of running a restaurant business was

“seeing the growth of so many of these people throughout the organization inside the organization and”

now on many on to doing other things as well and I want to see that continue here at 3G with next generation under us successfully running our businesses and down the road successfully running the firm. Thank you to my traditional closing question for everybody. What is the kindest thing that anyone's ever done for both of you? Lots of people did kind things to me. If I had the highlight one, I would highlight my co-founders having given me the opportunity to go and run that railroad

in Brazil. I was better years old, had then really had more than a couple of people reporting to me in an investment office and making a bet that I could go and run a company with thousands of people that needed a very deep operations driven turnaround was a big bet and boat that to make and of course they helped me in every way they could but that was something that we did well as an investment in but why I've learned from that enabled me to come out to New York and start this firm

and I must thank them for that. You could substitute railroad for Burger King and apply the rest of

everything he said. Simple and beautiful. It's amazing how this is the most common answer. Someone

did a quant study of it. We got like 500 people that have answered this now and by far the most common is someone that made a bet on me before there was evidence that they should. It's exactly it kind of beautiful. You guys do that a lot of the firm and we find ourselves strongly encouraging people and the businesses that we're involved with to similarly do that in their organizations. A beautiful place to end. Thank you guys so much your time. Thanks Pedro. If you enjoyed this episode, visit

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