Burger King、Tim Hortons、Skechers 与 Hunter Douglas 背后的隐秘私募股权公司（3G Capital）

1. The “One Investment Per Fund” Model

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 determining what ends up being that one thing, despite looking at countless other businesses. Where did that concept come from? It must dictate so much about the nature and culture of the investment strategy, the firm, and the people.

One investment per fund sounds interesting, and I know it is from our past discussions. Where did that come from?

That comes from our Brazilian roots, where my co-founders had done this beer investment that had worked really well. Then, as they branched off into private equity at a predecessor firm to this firm in Brazil, they attempted a bit of the more traditional approach as well, which went okay.

But then we understood a couple of lessons from that. One was that really, really great businesses are rare. There are not that many of them to begin with. Secondly, the ones that exist are not often actionable.

Therefore, if you're 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 you're going to need to deploy there—and the time—are also scarce resources. So when I started the firm in New York in 2004, we already had those things pretty clearly understood. That was a premise: to the extent that we would get involved with businesses on a strategic, long-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 I think if you're investing your own capital, and that's the lens through which you're looking at the investment, you want to be really patient and wait until you find that great business.

The other way to look at it 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. How are we 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 or pressure associated with knowing that it's just one—all eggs in one basket—and watching the basket very closely? What psychology does that feel like?

I think it drives the investment process toward a very rigorous analysis of what the downside can be. In our case, the downside has to be capital preservation with some small return of sorts, and that drives business decisions and 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 being comfortable with a potential downside scenario or 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'd rather do nothing than compromise on our capital structure.

Exactly. Yeah. We're going to buy a great business. We're going to leverage it appropriately, not too much.

It definitely makes it harder to price risk if you think about the traditional portfolio approach and portfolio construction.

Yeah, you have 10 businesses, and if one has some idiosyncratic risk or whatever, it's harder to price risk. So we take that into consideration.

But on the other hand, you have this team here that's 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, and as is the case with Burger King that we bought here for me. When you're betting your reputation on something, you want to hold it to the highest possible standard.

2. Great Businesses Own the Relationship With Their Customers

If you think back to the very first days, 2004 or thereabouts, 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 5 or 6 businesses? What's changed most about your views?

Over the years, we had to refine our investment process in terms of making that determination of whether a business is great 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, compared to maybe 20 years ago, are significantly higher. Therefore, the investment process and the investment discussion around disruption need 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 packaged-food and consumer-packaged-goods businesses. There is this ongoing shift we see in society in the share gain of private label. If you're a large retailer, be it Walmart, Amazon, or Costco, if you own the relationship with your customers, you have this ability to disintermediate the company selling to you.

Kirkland happens. Yeah.

Kirkland's a fantastic brand. It's one of the largest in the country, and you and I probably both have plenty of Kirkland products in our households. Compare and contrast that with the restaurant business. Burger King, Tim Hortons, Popeyes, or Firehouse Subs—I mean, those are just a few great brands. We happen to be involved in them. Each of those brands owns the relationship with our end customers. If you want a Whopper, you're coming to a Burger King.

In the case of our Hunter Douglas business, if you want blinds, you're coming to a Hunter Douglas dealer or one of our shop-at-home dealers. So I think we have a much better appreciation for that.

If I think about just the businesses themselves, we were joking before about the simplicity of the business. Maybe when you're talking to Buffett about one of these businesses, don't make the business description complicated. It's interesting how burgers, shoes, and shades—you could 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, to be honest with you.

We have some mutual friends who are much better suited to invest in the next technological frontier.

3. From Zero to $2 Billion in France

Exactly. We're just not that. We've managed to stay pretty disciplined and stick to good, relatively easy-to-understand, well-moated businesses that we and our partners here could wrap our heads around. Businesses that have ideally been around for a long time, with strong brand franchises that we could own and grow and maybe improve a little bit.

4. The Unique Structure of 3G Capital

As Munger used to say, “Show me the incentives, I'll show you the outcome.” In addition to the one-investment-per-fund structure, I'd love to understand the other distinguishing features of how the capital is set up, who the LPs are, what the incentives are, and how the fees work, because almost everything you do is a little bit different from the traditional model. Maybe you could walk us through what those are, because those then determine the outcomes.

Two or three of the things that are different: 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 two, the balance of the capital that's not ours is different from a traditional private-equity firm, in the sense that it has a much higher component of high-net-worth individuals and families around the world, as well as some sovereigns, but it's a very different LP base.

And also, over the years, we've devised mechanisms that allow us to be invested for a long period of time. We invested in RBI for 15 years and counting, and so on. I think those are the 3 main differences.

One additional large difference in our case is that the folks here have largely all been in both investing roles and operating roles. 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 the CFO and CEO of what was Burger King and is today 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. It allows us, when we get involved in these businesses, to send our own people in—partners of ours here who have also been CEOs, CFOs, and operators of businesses—who are well incentivized to create value at the company, directly linked and aligned with us and our limited partners.

5. How Daniel & Alex View Technology

If you think about this unique nature of it being so much house capital, you’re on the line with all of your LPs. Think about the search for, let’s say, Hunter Douglas, which was a transaction 3 or 4 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 to put some meat on those bones.

I met Ralph in the mid-2000s, first in Switzerland, and then we also got close to his family here. The 2 sons—1 resided in Greenwich until recently, and the other one resided here near the city—and we had a good relationship going for a long time. I think it was not until a few years ago, when Ralph had aged and was trying to organize his family affairs, that he was trying to craft a solution for the fact that 1 of his sons wanted to remain involved in the business, which is David, our partner. He also cared what happened to Hunter Douglas, which had been in the family for 100 years. That’s the context in which we started a conversation.

But that was already mid-2021. I visited him in Switzerland, in his home, and had a conversation about it. He was then brainstorming what to do, and I think the outcome of that conversation was that he would give us a window to present him with a proposal. If he liked that proposal, we would move forward. That’s sort of how it started.

So, sort of a 15-year investment of time to get that window in this case.

That’s right. I like that we’re inserting the word “window” here many times. [Laughter] But maybe just some additional color: You had a long-standing relationship with Ralph. I had 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, and we built a good relationship, with lots of mutual respect.

David came down, and Alex and I organized to have some of our partners come visit us at Burger King in 2011 or 2012. We gave a presentation on what we were doing. I remember spending time with David, and he said, “This reminds me in some respects of Hunter Douglas, this kind of entrepreneurial, startup-type culture in a traditional business.”

We kept tabs on their business through the years as well. We watched David do some transformational acquisitions along the way to evolve the Hunter Douglas business to become even more direct-to-consumer—to go from selling through dealers to selling directly to consumers. We were big admirers of that business for many, many years, and we had the history of following the business for 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 shape the company through those deals, I think.

He did. David evolved Hunter Douglas into a business that we had an even greater appreciation for 15 years after meeting him.

6. Why Hunter Douglas Was Appealing

Maybe since it’s a company that people have probably seen and can imagine, and the product is accessible and simple to understand, use it as an example to explain the criteria that you love in a business. Describe the business, but more importantly, what was it about the business, when you did the transaction, that was so appealing?

The business basically owns the relationships. It doesn’t have a concentrated customer or a concentrated supplier. So it’s a business that’s really well positioned in an industry where purchasing window-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 set itself up well as a business.

So I understand that last piece, meaning because you do it infrequently, 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. So I think it lends itself to the idea that quality matters. Our quality is almost, in a way, too good. I wish people would replace the product sooner.

The TAM for interior and exterior window coverings is around $70 billion. Hunter Douglas is far and away the largest player. We have this combination of scaled manufacturing coupled with scale distribution, and that allows us, either through our own sales force or through our exclusive dealer network, to deliver the product within 1 or 2 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 SKU. We have billions of permutations of styles, colors, patterns, and sizes. The business had been around for about 100 years before we bought it. 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. You see houses being built with larger and larger windows because people like natural light, and so it’s a product that’s here to stay.

We’re the No. 1 leader. There’s some volume growth, and there’s a little bit of price growth. 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 of these small players. Also, climate change, the increased awareness of the risks associated with that, and the need to save energy are positive drivers for this business.

A lot of companies brag about all their ESG initiatives and energy savings. Your window coverings actually save people tons of energy. It’s a natural way to keep your house cool. It sounds like the ultimate example of there being no 2 kids in a garage in Silicon Valley wondering how to disrupt Hunter Douglas. It would just be a senseless endeavor.

I think it’s one of these things where the TAM is large, but it’s not so large, and we really have this scaled manufacturing coupled with scale distribution. I think gaining distribution is hard. It’s quite hard given the way you go to market, because there’s a service component and an installation component to this product and this process.

Given the returns that you’ve demonstrated are possible—RBI is up 30x on capital or something and counting—why do you think there are not more firms like 3G that do a serial, single-investment, extremely focused style? Why are you the only one that I’m aware of?

I have a few thoughts on this. You’ve seen how much value and enterprise value has been created in the alternative investments landscape broadly. 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?” I think there is this pull to do all that for a reasonably good reason.

I don’t presume that our model is superior to others. There are incredibly successful firms that have a very different model, a very different way of going about their business than us. I think what’s important for every successful firm—I mean, we’re no exception to that—is to find out what works well for you.

For us, for decades now, that’s the model that works really well: to invest our capital and to compound the capital of the people that are close to us and invest with us. I think we should stick to that and not try to emulate other people’s models. That’s probably true vice versa. Most successful firms have their own model that they develop that works for them—for their culture, their people, and their capital.

I think staying “small” also allows us to attract some of the best people on the investment side here, because we can still offer people founder-like economics, a path to partnership, and a path to taking on responsibility much faster than those people might have if they took a traditional investment path.

7. Forged in Fire: Alex’s Railroad Story

Yes, this is a place where we think that, over time, the firm should always be owned by the people driving it. Historically, that has been the case. My co-founders and I are still here, although my co-founders over time became more involved on the capital side. Daniel was an analyst, and he’s sitting here today. I was an 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 I’m especially curious about the forged-in-fire moments from running the Brazilian railway. What were the aspects of operating as the CEO that you most remember and that most shaped how you think about running a business well or investing well?

Within a few weeks of being in the business, it was apparent that it was an operations challenge. The customers around the railroad all wanted to be serviced by the railroad, and they couldn’t because the service wasn’t good enough.

[Snorts]

The focus on turning the assets faster and more safely was really the driver of the company’s success, which drove me, in turn, to spend 1 week a month in overalls, driving trains and going around the country.

That allowed me first to get close to the engineers in the business—the crucial people who run the trains—and understand 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 8 hours in those really old chairs was really tough, and the cabins were cold because they were not sealed properly.

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. We could also fix all the engineering quarters where people sleep between changeovers, which were also in dire condition. We were able to get them all fixed, get new beds, get satellite TV for sports, and get all that done. That really drove a lot of support from the engineers.

We were then able to capitalize on that by having onboard computers rank people on their fuel and safety performance nationwide. Real railroaders are very proud people, and that drove a 30% reduction in fuel, for example, which was the 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 the ideas and participation, and these people all had the solutions for things. They just needed to be engaged 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 fed information through PowerPoint.

8. The Efficiency Playbook: Ownership is Key

It seems like that's one critical lesson in the general category of finding hidden inefficiencies within the businesses that you buy to make them a lot better. This seems like an obvious thing to say: Of course you want the business 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 to fix, but to find the inefficiencies in the first place?

One of the things that's interesting is, 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 our co-founders—absolutely, two of whom were CEOs of operating businesses themselves at relatively young ages. They 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 became CFO and CEO of Burger King.

If you hear some of this advice, you'll be able to connect it to some of Alex's actions. At the time, for me, these were 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—to just show how naive maybe I was at the time—Alex says to me, “We announced the deal, and, well, now it's time we've got to assemble our team.” I'm like, “Alex, come on. We just bought this business. It's like $4 billion. It comes with people, right?” And Alex is like, “Well, it does, but I think it's really important, and we've got to assemble an A-plus, world-class leadership team.”

It just kind of dawned on me, as he had experienced this for years: a business is nothing more than a bunch of people running around doing things. The quality of the people is paramount to the quality of the business. In these businesses, you want to create a culture centered around ownership. That starts with the leaders of the business, who need to act like they are, behave like they are, and be the shareholders of the business.

The leaders need to be the shareholders. The leaders can't just be, quote-unquote, the management. Management and shareholders need to be one and the same. Once you've established that, now you can go to the next step. 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.

Typically, when we come into these businesses, we love doing benchmarking exercises where we will look at expenses and costs by area within the business. Let's say by the North American group, the European group, and the Asia-Pacific group. Then we look by category at all the ways we're spending money. We call this zero-based budgeting, and we basically give visibility on costs to everyone.

We say, “Look, if this one group is spending this much on this area, why can't we apply policies throughout the organization to benchmark both with ourselves internally and with other companies externally?” You find enormous amounts of savings by just doing simple internal and external benchmarking. But you're only able to capitalize on and achieve those savings if you have buy-in at the top from people who view themselves as owners of the business, who want to run it optimally for the business and not necessarily for themselves.

9. Centralize the What, Decentralize the How

What does “centralize the what” mean?

It's basically to give people freedom to figure things out and focus the discussion in terms of what it is that we want to accomplish. As the leadership of the company, that's an important discussion that you should really be a part of. Once that's settled, give people freedom to figure out the how, because you really want to push decision-making close to the problems.

As long as we're all aligned in terms of what it is that we're trying to achieve from a broader perspective, the actual how you're going to do it and how you're going to go about it—the team should have a lot of autonomy on that. Really good people, as Dan is alluding to, are absolutely key to everything. They like freedom to figure things out, they like to solve problems, they like to be challenged, and they like the freedom to make decisions.

You shouldn't have a culture where making mistakes is a problem. Making mistakes while 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 move forward. I think that's what this thing about centralizing the discussion of the what and then decentralizing the how comes in.

10. The “Burger King is Run by Children” Story

What was the most stressful period for you as CEO of Burger King? What was that moment like?

I try not to get too stressed work-wise. I try to always keep things pretty even-keeled. I had this basketball coach who once said, “Pressure is something you put in a tire.” So I always try to keep that in the back of my head.

I'd say there was one time that I was pretty stressed. This was the summer of 2014. We had bought Burger King in 2010 with a billion and change of equity. Within a couple of 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. We had owned 70% of the company, so objectively good.

Alex, myself, and Josh Kobza, who was our CFO, all got really excited about buying Tim Hortons. We were actively negotiating an acquisition, a merger with Tim Hortons. Alex was meeting with their CEO on a regular basis. Alex was our executive chairman, and I was CEO then. We were in the middle of doing this prolonged negotiated deal.

We got word from reporters at Bloomberg that they were going to run an article on us at Burger King, really centered around our ages—the ages of the management team that was trying to buy this iconic Canadian institution, Tim Hortons. There were probably some reservations on the Tim Hortons side about us and Burger King. So we were in the final stages of negotiating this deal when the article came out. The title was “Burger King Is Run by Children.”

That wasn't helpful.

11. Negotiating with Tim Hortons: A Complicated Endeavor

I'm touring restaurants in India with our local master franchise joint-venture partners. We're driving around. I don't know if you've spent much time in Mumbai, but we're stuck in bumper-to-bumper traffic, and the article comes out. I'm reading it, and I'm 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. Really cool.” And I was like, “How are we going to get ourselves out of this? This is Exhibit A for the board not to want to do a deal with us?”

A lot of negotiation—it took 6 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 Hortons and your initial outreach to them. Can you tell that story as well?

Sure. I was able, through a common friend, to get 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 took to Warren maybe a week or two later.

Warren was super, super reassuring, as we talked about in a previous instance. I remember 10 seconds into the call with Warren, he really, really praised the quality of the business. I always go back to that and say how right he was. We didn't even fully appreciate how good a business it ultimately was, which we do now.

But anyway, that went really well. We had the financing lined up, he was open to receiving a proposition, and we put a proposal together and presented it to him. Then there was radio silence for a week. We felt that radio silence for a week was normal. This was a big deal; they were deliberating about it. But then that became 2 weeks, 3 weeks, and 4 weeks.

I had only bought 1 company at that point. So I was like, “Alex, is this normal?”

I was like, “I would say that it kind of is.”

But he was like, “Don’t worry.” He wanted me to focus on the—“No, don’t worry. It’s totally normal. Totally normal. Totally normal. It takes 8 weeks or 7 weeks.”

So 6 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.” It was really 2 lines, maybe 2 and a half lines, at which point I picked up the phone and called this guy whom I had hit it off so well with.

“How did it go?”

I said, “Well, it was short. Not so well. Kind of short.” Then we did some more work and made improvements to our offer. We sent them a revised offer in the hopes that it 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—2, or maybe within a day.

I think I want to say less than a day. It said, “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 we were really scrambling and trying to find every possible way of engaging in a dialogue and figuring out what it was that we had to do, if anything, to get a conversation going. Ultimately, we found ways by means of which we were able to meet with him and his chief financial officer, and I was able to track him down again and engage in a conversation and gain some insight in terms of what exactly we would need to do—

Exactly.

—to get these companies together. Then, after some time in that conversation, we were able to have a revised offer that they thought was enticing enough. We moved on to the usual drafting, legal, and due diligence phase of it, only to receive a call on 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 30 minutes 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 I’m unsure whether exists in the United States in terms of a consumer brand.

It’s ubiquitous in Canada.

It’s just so large, the brand in Canada, and so important for Canadians, that this information about a deal coming out the wrong way at the wrong time could have killed it after all this—6 months.

So you asked him when it was that he was nervous?

This is when I, in spite of my then already abundant gray hair, was nervous.

How did it ultimately get done, and what was the reason that he was slow and then quick in his initial 2 responses?

Apparently—we were not privy to all the details—but the board dynamic there, between him and the prior CEO who was chairing the board and whatnot, involved some genuine doubt about the deal. They were discussing it intensively.

I think if you rewind a bunch of years earlier, it was a subsidiary of Wendy’s.

That’s right. That’s what drove the—

“You’re like, do we really want to be attached to a burger brand again?”

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 Hortons international, and that, most importantly, the brand would retain its independence, independent management, and focus in Canada.

I also think that what sealed the deal for them, of course, was the financial proposal, but it was also the reassurance on our part that the owners of Tim Hortons in Canada, who were the heart and the core of the brand, would really drive it under our ownership. That was key for them. They really cared about the fact that there were thousands of owners in Canada. They made the brand into what it is.

The franchisees—the franchises—which, in the case of Tim Hortons, they call “owners.”

I think that was key for them. Once we disclosed what our plans were and why we thought they would work out, that went a long way with them as well because that helped demystify it.

12. Never Compromise on Quality

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 a potential asset or a potential investment?

We learned a lot just by virtue of spending so much time with him. I think Warren had this uncanny ability to quickly identify whether a business is good or not and really have clarity around that. A little bit of this encyclopedic knowledge of business that he has is something that, of course, we’re nowhere near having here at the firm, but we do try to emulate some of that around this table 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 values his relationships. He builds them often when there’s no business to talk about, and he’s always respectful, mindful, and great around that. I think those are the 2 things I took personally to heart from all my interactions with him.

Anything you’d add?

Warren never compromises on business quality and stays disciplined. I think what we do here—and we like to think that we emulate him in that capacity—is that we will never compromise on business quality. We’d rather do nothing than buy a business we don’t think is great.

13. Talent Over Tenure

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 that, in my prior investing business, when I was running a quantitative investing firm, we’d be pitching pension funds all the time. I actually pitched Kraft Heinz, and then we ended up managing money for the pension—a big slug of money.

I remember going to the finals meeting, which is this formal bake-off between us and others, and thinking at the time, “Wow, these guys are my age.” I was in my late 20s or something like this, and they were all in their late 20s. I was like, “Well, who are you guys?” It was the CFO, the treasurer, and whoever else. It was run by children. I’ll throw it back at you.

But to throw it back at you, you were qualified in your late 20s to manage the money. So why wouldn’t they be qualified to do it?

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. One of the things that we think is appealing to this sort of cohort of people is that they go to a place where they know there’s a decent chance that someone’s going to make a bet on them early—earlier than probably anywhere else.

Of course, just making a bet on them earlier than anywhere else is not good enough if they don’t have a real chance of succeeding. The real chance of succeeding comes from surrounding them well when you make this bet. 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 I was trying to help him in every way I could.

We also brought people onto the team at Burger King who had been involved in prior experiences at the brewery and the railroad and other places in senior operating functions, working on the same processes or things that we wanted to implement there. That combination of things set you up for success.

Nothing guarantees your success, and you have to be prepared. Some of these things will not succeed. Some of these risky promotions won’t succeed, but you have to maximize the chances that they work.

One of my co-founders was on the board of the railroad and was helping me. One of them was on the board and taught me a lot during that period of time, and my other co-founder, Marcel, gave me all those people from the brewery who were well trained and could help me.

That’s a key element in attracting some of the very best people: you’re going to make this early bet, and you’re going to maximize the chances that they will succeed. From there, some of them will actually become investors again, some won’t, and some will prefer to be at a company. That’s a key element of our modus operandi, if you will.

We’re lucky because I think we both grew up, work-wise, in these extremely pure meritocracies that genuinely valued talent over tenure. 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 of Latin America at age 30.

So that was normal to him. After working together for, I guess, 5 or 6 years, he knew me, he trusted me, and he knew I’d give everything that I had and wouldn’t let Burger King fail, which is why he was similarly comfortable giving me a shot as CFO and CEO. Someone gave him a shot.

When I was in that role, I spent a disproportionate amount of my time focused on recruiting—recruiting who I believed would be the 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. Whether it was the rising star at McKinsey, Blackstone, Goldman Sachs, or another company, I'd want the best people. And I was similarly willing to give them shots way earlier than they get elsewhere—both more responsibility and more economics.

1 of the early examples of that was Josh Kobza. Josh was 25, and when Alex promoted me to be CEO at 32, I think Josh became CFO at 26. Over time, people like Sammy Cersosimo, who was the next hire, and Thiago and David—all these guys. I remember at the time when I was getting promoted to CEO, Alex asked me, “Josh is kind of young. Is it okay?” I said, “He's much better and more mature than I was at that age. You guys gave me a shot, so 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. We're not just shooting from the hip. Alex, I worked for you for 6 years before you let me go be CFO.

Again, you set people up for success through people to mentor them and people on the team to help them with the stuff that they don't yet know. So you have to set it up for success as well.

14. Be Wired for Urgency

I'm thinking about your mentors and your co-founders. I'd be curious if you go 1 each from Beto, Marcel, and Jorge. What lesson stands out that each of them taught you?

Jorge has this incredible ability to see very far. 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 this incredible ability to relate to people and lead people, and get people, even at the shop floor, quote unquote, of a business, excited and enthusiastic. He's someone that's completely fearless.

Marcel is probably, of the 3 of them, the one that really honed this business model that we all like the most at the 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 other companies do have their own different flavors that evolved from it, but he was the most involved in creating that operating model. They're all very complementary if you put the 3 things I said together.

Yeah, sure. Super complementary.

I had the benefit that I was with Alex, so I got all 3, and then some, I'd say. 1 of the things that Alex brought to me was, when you get to the company, having this massive sense of urgency, because companies have a tendency of moving slowly and 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. If you're going to do it this quarter, do it this month. If you're going to do it this month, why can't you do it now? That sense of urgency, getting stuff done fast, really matters, because companies, I think, are 5–10% strategy and 90–95% execution. 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?

I think it comes down to 2 things. 1, hiring the right people who want to get everything done yesterday.

People who are wired that way already.

People who you have to hold back and not push forward. You yourself, as the leader, constantly keep this expectation of wanting to move quickly, never showing any level of complacency whatsoever, wanting to get stuff done 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, where every minute, hour, and day count, and they need to move quickly to either get to the next round or get to the next customer. You try to bring that same sense of urgency that exists if you're a tech startup with a finite amount of cash to a mature business that's highly cash-flow generative.

15. 3G’s Operating System: Clear Communication & Transparency

If I were to ask everyone that worked directly for you how you did this, would it round to clear strategic communication and constant check-ins? Is that the 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 are 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. As leaders in the company, 1 level down, 2 levels down, and 3 levels down, everybody has stock or stock options, knowing that the way we're going to create value here—the value creation will cascade itself down throughout the organization—and having everyone's incentives and goals and systems aligned.

16. What People Get Wrong About Incentives

What do people screw up about that incentive piece? What have either you yourself done wrong or seen others do wrong that doesn't unleash that power?

It becomes a lot more tenure-based than achievement-based. That's when you have issues. It's not simple, but you want to have very talented people, some that you hire from the outside and a lot that grow in the system. They need to have clarity, first of all, in terms of what it is you're trying to achieve, and then they need to have freedom to act to achieve that. Their respective teams should have that independence to basically decide the how, and then everybody's tied into the fortunes of the shareholders, all together.

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, Patrick, the degree of difficulty of doing this increases with company size. To do this in an investment firm with 20 people, like we have here, is much easier than in a $5 billion company—a little harder. A $10 billion or $30 billion company, it just gets harder.

I think it goes awry when, to Alex's point, he's giving out stock awards to everybody and it becomes an expectation. It also goes awry when you try to be fair, and this concept of fair is really tricky, because if you want to operate as a meritocracy, definitionally, a lot of people aren't going to think you're being fair. They're going to think that they're being underpaid and other people are getting overpaid.

I learned this from the folks here at 3G. I felt I was being fair. I think 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. Not everyone does that. Even as CEOs, there's a lot of pressure to give equal amounts. It gets political at times.

I always tried to 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.

1 of the things you learn from these guys in this compensation arena, which is tough but true, is that whatever you ultimately do on 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 this is a common mistake a lot of CEOs make. And because we don't do that, I think that allows us to get some of the best people. Especially in the early days, that allowed me to attract some of the best people, because I was willing to pay people outside of the normal preset pay curve and preset systems that we had. If there was a superstar, I'd make an exception. I reserved that right as CEO to do that.

17. How 3G Recruits

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: What questions are you asking them when you first meet them? What does that very top of the funnel for early-to-mid-20-something talent look like?

I'm a step before you. The question is: How do you meet them? Generally speaking, it's word of mouth and being willing to open as many doors as you can.

Someone made an offhand comment to me when I was in Hong Kong, passing through an investment firm, about this superstar analyst who had just left. His name was Josh Kobza. I took note and then cold-called Josh. Josh said, “How did you get my number?” I said, “Don't worry about that, Josh,” which is fine. Anyway, I brought him to Miami and hired him on the spot.

I've said this in the past: We'd go to Wharton and HBS and get the résumé book, cold-email people who had impressive résumés, and if they seemed like they were really passionate and looking for a project and not just a job, I'd offer people jobs on the spot, which again was unheard of. I'm sure you have some examples in your world like this.

2 comments I would make are: when you look at those résumés and when you talk to people, you try to identify the people who achieved a lot for their age in the young cohort, because that's indicative of them being hardworking and ambitious in a positive way. I find that speaks volumes in terms of them having a chance of really succeeding.

I look here at the firm, at cohorts of analysts and young 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 wanted it.

18. When a Brand is Bigger than the Business

One of the comments I heard—I don't know why I was reminded of this, maybe there's some relation here—is the concept that when you bought Burger King originally, the brand was way bigger than the business. I just thought that was 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 started coming to the U.S. when I was 7 years old, and I was just crazy for Burger King and Whoppers. Every time I mentioned that, people thought I was being untruthful about it, just because our investment was so successful. I found proof on this letter that I just gave you that shows I wrote this in 1975, meaning I was 7 years old. You can see my handwriting.

Some nice handwriting.

Nice handwriting. Yeah, yeah. Writing to my dad, saying I ate in this place called Burger King and that I ate Whoppers every single day.

And then I worked during college as a tour guide for Brazilians who came to Disney World in the U.S., and people just loved Burger King. It was a well-known brand in Brazil. Everyone you talked to and their cousin knew what Burger King was. There were no Burger Kings in Brazil, and then eventually, by the time we bought the company, there were maybe a dozen.

This is illustrative of the fact that, working not only in the United States but globally, the brand was much bigger than the business, which was a unique opportunity. To grow a brand like that is very hard and takes a lot of time and dollars. In the case of Burger King, yes, we could grow the brand further, but it was about—

Easier to grow burgers than a brand. [laughter]

Easy to open stores of a brand that everybody already wants.

When we found the company on one of our screening exercises and ran some math, we concluded it would take $1 billion and change of equity capital to buy Burger King. At the time, McDonald's was, I'd say, an $80–90 billion company. Yum was a $30 billion company. Burger King just felt like there was this mismatch.

Obviously, we did a lot of work to justify and support the thesis that the brand was bigger than the business. Even at the very first glance, we both said, "It doesn't make sense. It sounds wrong." Of course, Alex was like, "Are you sure the share count's right? Did you miss some shares or something?" But we made sure we got the share count right, and it didn't pass the smell test.

We asked some people around us. I asked my then-fiancée, who was a doctor, and my mom, who was a lawyer—both objectively smart but not in finance. I said, "McDonald's is $90 billion. What do you think Burger King's worth?" No one said a billion. They said, "I don't know, $20 billion, $30 billion." So it met that smell test, and we did a lot of work to support the view that we would be able to run the business much more profitably from an EBITDA standpoint and from a cash flow standpoint. If we got a few things right, we could grow it much faster, too.

19. Why Burger King Was Undervalued

What was wrong? Obviously, something had to contribute to the fact that it only took $1 billion of equity capital to buy the thing. What was the issue, and then what were the early levers that you used once you owned it?

There were 2 or 3 things. One of them was that we were not focused on being a great franchisor. We were operating too many restaurants in too many places in too many countries, and that was not a great source of focus. It muddled the organizational structure and the clarity of what we were trying to do. That's something that we fixed.

They had almost 2,000 restaurants around the world, with different go-to-market models—some master franchise, some multi-franchise, and some company-owned. Secondly, we didn't have the right partners in the different parts of the world where the potential was the greatest, namely Brazil, China, and France. France was a huge opportunity for us.

Zero, right? With zero, and now it's the second-largest market in the world for us, with €2 billion in sales, and so on. We have to have the right partners around the world to grow the business.

Domestically, the company was having issues with its franchisees. It's a great business—quick-service restaurant franchising—but you need to never lose sight of the fact that it's a good business if you make money long term and your franchisees make money long term.

There were some things going on in the U.S. back in the day where there were promotions and sales grew because of a $1 double cheeseburger, but the franchisees were unhappy and losing money on that, and they were suing the company. There were real issues and tension around this that we had to fix. Those were the 3 main levers early on, I think.

From an outside-in perspective, we felt that the company could be run a lot more efficiently. I think there was $400 million and change of EBITDA.

It became even more apparent once we simplified the business. They were basically spending on overhead that exceeded EBITDA, and capex was about half the EBITDA, despite the fact that it was 90% franchised at the time. We felt like we would be able to run the business more efficiently, fix some of these problems, and create a lot of value.

Look, in hindsight, yes, it was a great deal. It was something like a 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.

At the time, no one else showed up. There was a go-shop window—whatever they call it—and no other private equity firm showed up. I'd say the consensus at the time was that we overpaid.

As the newspaper headlines communicated.

Yeah. We bought it from extremely savvy investors who had made a great return on their investment, too. I think they made 5-plus times their money on the acquisition of Burger King that they had done a decade prior.

Maybe the same question I asked: I liked how you gave such a simple, elegant explanation of Hunter Douglas. Why is Burger King and the franchise model a good business in the first place?

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 aligned with you.

Yeah, all over the world—really, 140 countries—with great operators who are going to grow the brand. They will earn their profits, and they'll grow the size of the brand for us as the brand owners.

Maybe just as a little vignette in this story, how did you take it from 0 to €2 billion in France? What was the literal story of what happened?

Obviously, everything starts with how lucky we were to find the partner that we did. Olivier Bertrand has been an incredible partner of ours. He had some affiliation with the Stella Artois business at some point in Paris, had a record of buying restaurants in France and turning them around, and understood how to operate with excellence in France.

He was involved with the Quick brand for years and knew the 2 core skills of a franchisee, which are to find the best locations and to find the best managers. He had a demonstrated record of that.

I think it's just worth talking about our model, though. As Alex mentioned, we bought the business and some countries had company stores, some countries had multi-franchise stores, and some countries had master-franchise partnerships. 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's going to be great for the guests, and grow the brand the fastest would be to have well-capitalized local entrepreneurs as our partners."

We proved that out through the creation of these master-franchise joint ventures in places like Brazil, China, India, and 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. So we went to France to find a partner to manage that country, and as time went by, we found Olivier Bertrand. He's an incredible restaurant operator, and collaborating with him, we built this €2 billion-plus business.

20. Kraft Heinz: A Case Study in Concentration Risk

I'd love to talk about Kraft Heinz and the lessons learned from it. It's an interesting one because, if you just looked on a piece of paper, you'd be like, "Ah, it was another investment you made that didn't do as well as RBI. It was fine." Everything underneath the surface is far more interesting.

I'm curious for your perspective on the story now, looking back on it, but most especially what you take away from the experience that altered how you think about your business investing or anything else.

If you look at the Kraft Heinz story for us, the Heinz investment turned out to be a pretty decent one. We made almost 3 times our money on it and were able to return our investors' capital. The Kraft investment didn't do as well.

Patrick, I think the lesson for us there is basically that I don't know that we underwrote the quality of the business well. There were significant portions of the Kraft portfolio that were relatively commoditized and therefore overly exposed to this changing dynamic in which private label and the big retailers were essentially getting into the business and taking share. I think we didn't fully understand that from the get-go.

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 determinant to the investment not having been as successful.

In fact, we left our involvement there several years ago. 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, how much more difficult—and how much more diligent—we need to be in evaluating business quality in the investment process, which I think helped us beef up the process to make both the Hunter Douglas investment and, subsequently, the Skechers investment.

Even if a business has great historical financials, I think today we likely wouldn't be willing to take big customer-concentration risk. And that goes back to the likelihood or potential of being disintermediated and the inability to price risk.

What was the concentration issue in that specific case?

Pretty much any 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, sure, in other countries as well—where between 1 and 3 retailers, you're going to have the bulk of the business.

21. Skechers: Great Product Meets Great Distribution

Is it ever fair to just apply the thing you did with McDonald's—market cap versus Burger King's—and just say, "I always did this with Spotify. I pay X for Spotify. I think I'd pay 3X really easily." And that's pricing power.

With Skechers, you could do something similar to that. I mean, Skechers is the 3rd-largest sneaker company in the world.

It surprised people, I bet. The first 2 being Nike and Adidas.

It surprised many people, including us. The numbers are a little skewed in that I'm referring to sneakers only, and a lot of these companies, like Nike and Adidas, have apparel businesses, while Skechers is 99% footwear. It's also surprising, the distance, because Skechers sells $9 billion a year in sneakers and Adidas sells $14 billion.

Yeah. I would not have gotten that right.

In most people's minds, going back to the McDonald's-Burger King analogy, most people would be surprised by those figures.

Is this a case where the business is ahead of the brand?

No. Because it's growing 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 the 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 athleisure trend within society.

That's why the industry is growing 7% a year.

Yeah. That's largely here to stay. It's a multi-hundred-billion-dollar category. As Alex said, these trends are driving this mid- to high-single-digits growth. There's not a lot of private label. It's the same 7 or 8 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 or 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 Skechers 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 a global franchise network. 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.

We stayed in touch. We'd visit them a couple of times a year, and we'd tour their distribution center. We'd meet them when they'd come to New York for the fall and spring buying seasons, and they'd tell us each year, "Oh, yeah, we're going to add $1 billion in sales next year." Every time, a year later, it was like, "Wow, they did. They added $1 billion."

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 in New York—wouldn't 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—I’m not going to cherry-pick years, so you choose the year: 3-year, 5-year, 7-year, 8-year, or 10-year—they would compound sales and volume in the double digits.

They had the 2nd-highest loyalty rate among customers, I think only after Nike. They were the most diversified. They had the highest SKU count and were most diversified across all categories of athletic footwear, thereby reducing the risk. There's no hero SKU. There's no Air Jordan, Yeezy, Samba, or equivalent.

The growth has basically been anchored by great product development. The product is really good and is developed in such a way that it's accessible and provides great value for the consumer. And then the 2nd thing is you basically have great distribution in this business, where you don't rely on big-box retailers to get your product out there.

The bulk of the sales are done through your own 5,000-plus stores and your sites. That's a big difference. Basically, you have highly experienced management who essentially founded the business 30-plus years ago: Robert and his product team coming up with incredible innovation, Michael and his store team building big, beautiful stores, and David and the supply-chain team making sure that they can deliver the shoes to the stores.

Great leadership at this company. Otherwise, how would you start from scratch and be reaching, closing in on $10 billion? It's really impressive what the team built over the last 30-plus years.

And so, as the transaction came together, what was the motivation of the other side to sell equity in the business?

I think they saw that we've 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 the owner-operator and long-term nature of 3G was something they found attractive.

Given where they were in their life cycle and succession planning and whatnot, it made sense to explore. At least they told us both personally they'll keep running the business, and they will have significant equity in the business because they elected this mixed-consideration election that allows them to stay invested.

From the sounds of it, it sounds pretty well run. It sounds a little different from the Burger King story, and I'm so curious. It sounds like so much of the return that happened in Burger King happened because you did a lot of cleanup work, made it efficient, and then grew it.

In this specific case, is it much more oriented toward, "Let's just make it a little more efficient and focus on growth"? What's the balance of consideration?

You got it. I mean, I think to keep this thing growing is the 1st, 2nd, and 3rd order of business for us, because that's what got the company to where it is and that's what will get the company to where it needs to go.

And, of course, there are efficiency opportunities. Yes, there are, and we try our best to address as much of that as possible—never at the expense of altering that trajectory in any way, shape, or form. It's different from the situation where we had a Burger King, where we needed to actually create that trajectory. It wasn't there.

Each transaction is different. I think whether you're talking about Burger King or Hunter Douglas, they're all great businesses, and I think there are different ways we were able to help in each. This business is certainly growing faster than any of the other businesses that we've been involved in.

22. Finding Forever Businesses

How much do you care that an acquisition has what I'll call platform potential? Burger King became RBI. You've got Tim Hortons, Popeyes, 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 Douglas or Skechers you can go do a bunch of other stuff by virtue of the platform?

As Dan said, these are 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 leading footwear and sneaker companies, for the most part, they're not multibrand.

They're largely mono-brand footwear.

They're mono-brand, which, by the way, is great in this case.

Well, I'd like to sit here and say the investment memo for Burger King said that it was going to be a platform company and that we're great visionaries.

I have no such memo.

Well, there was a memo. It just didn't say that. And there isn't a case where we would make, I don't know, 20 times our money—

After 5 years, this will be worth 3 times.

Yeah. So getting into Burger King, we didn't know that was going to be the case.

But having said that, that's a different nature here. With all these businesses, you have to, from an outside-in perspective, 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 and Alex: 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.

23. Zero-Based Budgeting & When It Works

The first time I ever heard of your business was probably 16 or 17 years ago. I was in my early 20s, doing a reading tour through investing, and I came across that Double Your Profits in Six Months or Less book about zero-based budgeting. 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 all, of how important the concept is to your success—or not—but also where it works well, where it doesn't, and what considerations people listening should have if they want to apply a method like this to a business that they own.

I think that it's a great way for you to understand a business, learn a business, and make it more efficient, because, as the name indicates, you have to think about the business from the ground up. So you learn a lot, and if you undergo that intellectual exercise, it frees up some expenses and some margin for you to invest and grow in the business and take it to the next level.

Having said all of that, I think the importance people assign to this process in terms of what our investment success has been is a bit exaggerated. If you look at the amount of money we made at RBI and then try to decompose that—how much of it was because we did zero-based budgeting successfully in a couple of instances, and how much of it was because we grew the businesses? Originally, we had 12,000 restaurants; now we have north of 30,000 restaurants. So how much of it has to do with that second growth piece? The bulk of it. So, again, I find it to be a great process. I think it's a helpful process. It probably doesn't deserve as much credit in our case as it gets. Would you agree?

For us, we try to bring this ownership mentality, where the folks running the business are large shareholders and they're acting like owners, not management. That ownership mentality needs to be applied both to cost and to revenue—to growth. When you apply it to cost, as Alex said, you do this bottoms-up analysis. In many cases, it enables you to extract a meaningful amount of value in companies, but I wouldn't recommend that one of your listeners buy a lousy business with a big zero-based-budgeting opportunity, because you're just going to have a slightly more profitable lousy business.

The ownership mentality and linking goals to compensation and results applies equally to cost and to revenue. In the case of cost, it's, "Let's have a zero-based budget and have a budget of costs that you have to adhere to. If you spend more than your cost budget, there are consequences." Let's also have goals linked to revenue: with Restaurant Brands or Burger King, the number of restaurants we need to open this year and the target profitability for our franchisees this year. I think it just comes back to ownership mindset and ownership management.

Yeah. It's so interesting that your reputation for doing this so well can be because it's such a nice-sounding idea: Double Your Profits in Six Months or Less. A good book title, maybe less.

Who doesn't want to read an article about zero-based budgeting or cost-cutting, whatever?

24. The Current State of Capital Markets

I'm really curious to get both of your very broad perspectives on capital markets today. How does the world feel to you—its conditions, its opportunity set, its asset prices? How does it feel to you, thinking back on today versus your whole careers operating in the business and capital markets world?

I should preface this by saying that I don't know that we made a lot of money by virtue of being great macro analysts or predictors, and I know that we didn't. 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, and where debt is still abundant and less cheap now but still pretty attractively priced. So it's not necessarily the easiest investment environment that I have seen over a long period of time.

Yeah, yeah. I'm being polite. I didn't make any money by being a macro analyst.

I agree with Alex. It does feel like businesses in 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, things have 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.

Why aren't you happy that we have this business model where we only have to buy one?

Yeah, of course. It's so hard to buy one, let alone take one every 5 years, let alone buy 5 or 10 of them. If you're going to be disciplined on business quality and price, it's always difficult. It really is. It's easy to look back in hindsight and say, "Oh, it was so easy."

Wasn't.

It wasn't. It was always very difficult to buy a great business at a fair price, regardless of what was going on in the world or whatever time period it was.

As you 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 set in general? It's probably not by accident that all of these have a large, hard, physical component to them—harder to disrupt atoms, for sure—but most market headlines are about bits. How do you think about using it, ignoring it? How do you relate to it?

Take the restaurant business, which you would think in principle is all about burgers or pizza or other types of sandwiches and whatnot, and look at what Patrick Doyle accomplished at Domino's.

Look at what he drove there. It's one of the most successful stories of all time. I mean, we're lucky to have Patrick with us now as executive chair at RBI, and he basically took so much share from other large players and from the small mom-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, I'd say we like businesses, as we mentioned before, that are well-moated, where technology can help improve the business, not disrupt the business. Whether it's Skechers having a better e-commerce experience, Hunter Douglas having AI tied in to decide when the blinds should go up or down depending on the weather, or restaurant businesses experimenting with AI-enabled voice drive-thrus, we like types of businesses that could be improved by technology, and we and our teams embrace that. We just don't like businesses that a new technology is going to completely change and remove. You're going to wear sneakers tomorrow regardless of whatever technology is out there.

You're going to eat a burger every now and then.

25. Misconceptions About 3G

Yeah, of course. I'll walk it off in my new Skechers.

What are the most misunderstood or surprising things about 3G, do you think, from the outside?

I think people, again, may not perceive how focused we are on business quality, first and foremost. If you were to participate in investment discussions here, for instance, what proportion of those meetings is dedicated to determining whether a business is really good or not? The bulk of it is dedicated to that, versus talking about what the cost opportunity is. That's secondary to the quality of the business and the growth potential. That may surprise some people, frankly, who look at us from the outside in.

I think they might be surprised by how lean we are as a group of people, given the size and global footprint of some of these businesses. I don't know what else.

Then, just to complement Alex's answer, a few years ago we hired a new person to come into Restaurant Brands, and we do these annual team off-sites where each of the brands goes through and talks about the plans for the next year and the big strategic projects that they're focused on. I remember after the meeting, the person came up to me and said, "Look, I didn't know what to expect here. Everybody talks about you guys. You got a bunch of cost-cutters."

There were about 800 pages of content at this off-site. 10 of them covered costs, and the other 790 were related to growth, bettering operations, and opening up new restaurants. I think it's 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 combination of groundedness and humility that exists within this organization. That starts with the co-founders, Alex, myself, and our team here. Everyone is deeply intellectually curious and wants to grow and learn. 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. They are not afraid to ask anyone basic questions. There's zero arrogance. Zero. Just an ultra-high level of humility.

Is there anything you hope that 3G becomes that it's not yet?

The last 2 transactions that we did were essentially family businesses. We were viewed as a great home, a great long-term home, for iconic founder-family businesses. So I'd like, over time, with the success of those 2 investments, for us to hopefully be known as a great home for founder- and family-controlled businesses.

That's very Buffett-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. More often than not, you find that those are still owned, somewhat controlled, 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 to quarter, those decisions positively compound on themselves over decades. That's one of the reasons why sometimes these family businesses tend to be much, much better than their public-company equivalent.

26. Characteristics of Businesses Built for the Long-Term

I'd love to say one more word about that. So everyone says, “Think long term.”

Everyone says it.

Right. No one does it.

Very few people do it.

What are the features of businesses that make them better when they're built very slowly over time than they could be if the same business had been built quickly?

If you are long-term and you're thinking long term, and the decisions that you're making are around the long term, you will make different decisions than if you are short-term. A couple of very simple examples would be with our restaurant business and people. We spent a disproportionate amount of time recruiting, developing, and growing some of this young, special talent who, in the first many years with us, if we were in it for a 2-, 3-, 4-, or 5-year flip—

Just don't bother. Yeah.

It's negative payback. 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 years in France, the amount of money we had to invest to get things going, and the amount of time we had to spend—as I mentioned before, there was one restaurant in the south of France 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 6 months or year, or even a few years, we knew that if we were going to be long-term owners of this business, fast-forward 10 or 15 years, we'd be well off having this €2 billion-plus sales business.

And you see this in the family businesses, especially these multigenerational family businesses, where you look at David Sonnenberg buying small businesses 10 or 15 years ago, which wouldn't make a dent in the overall size of Hunter Douglas back then, but today contribute hundreds and hundreds of millions of dollars in sales. Those are some very tangible examples of the benefits of thinking long term.

My friend David Senra, who runs the Founders podcast, is obsessed with this style of entrepreneurship—these lifelong-commitment, exit-strategy-is-death-type builders. What are these people like as people? You've engaged with so many of them, not just the ones whose businesses you've bought, but dozens and hundreds more, probably, whose businesses you haven't bought. How are the people themselves characteristically most different from other people and entrepreneurs?

Just how deeply they care about the business. The business is part of their lives, their persona, their families, their pride, their aura—everything. They really have that relationship with the business that they created and developed. And I think it's something you need to understand if you're going to engage with them. You need to understand where they're coming from on that.

Yeah, well said. They're passionate about the business. They genuinely care. You hear this in Senra's podcast all the time.

27. The Power of Patience

Do you feel like there's anything major that we've 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. For those of us who have 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 overcommunicate the benefits of being patient, establishing real trust with everyone we work with as well.

We talk about this trust as being a scarce asset in this world and building trust with everyone we work with, be it our partners here or 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 do? You could easily have stopped.

Why will I keep going? I love what we do here. I'm 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 these younger partners growing and taking more and more responsibility in the business. I think that's something I'm highly focused on and that highly motivates me still.

Yeah, same. One of the most fulfilling parts of this job and of running a restaurant business was seeing the growth of so many of these people throughout the organization, and now many of them on to doing other things as well. I want to see that continue here at 3G, with the next generation under us successfully running our businesses and then, down the road, successfully running the firm.

28. The Kindest Thing

I think you know 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 to highlight one, I would highlight my cofounders giving me the opportunity to go and run that railroad in Brazil. I was 30 years old and hadn't really had more than a couple of people reporting to me in an investment office. 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 a bold bet to make.

Of course, they helped me in every way they could, but that was something that we did well as an investment. What 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've got 500 people that have answered this now, and by far the most common is someone who made a bet on me before there was evidence that they should. That's exactly it. Kind of beautiful—and you guys do that a lot as a 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 for your time.

Thanks, Patrick.