2007 Mises Entrepreneurship Award

0:00I want to welcome everybody to hear Mr. Robert Luddy, who's going to receive today the Mises Mises Institute's Award for Entrepreneurship. This is a new award that we've established this year that's going to go to a business leader who's shown forth his success as an entrepreneur and also his support of the sorts of ideas that undergird the free economy and enable entrepreneurship to take place.

0:51And we're going to start by doing a short talk by Dr. Mark Thornton about the importance Thank you, Lew. We are here to celebrate the entrepreneur, the most necessary and unsung hero of the market economy. I'd like to begin by noting that we're all acting entrepreneurial in our lives. We all make decisions which the future is going to affect, and that future is uncertain. So all of our decisions about the future have risk associated with it and and certain types of profits and losses. So we can all kind of understand what the entrepreneur is about, but of course the burden on the entrepreneur is much greater than on most of us in society.

1:42When you think about the entrepreneur has to not only form a vision of the future, but also take on a lot of risk associated with that future. The entrepreneur has to make contracts, has to buy capital, has to hire labor, has to design products, and has to pay for all of this in advance. Labor has to be paid, capital has to be paid before any product is produced, before any product is sold, and before any revenue actually is accrued. So it's a tremendous burden on the entrepreneur and the economy. And also, it's very important to note how dependent we are on entrepreneurs for our standard of living. They are the ones that are producing products.

2:27They are the ones that are driving the cost of production lower. They are the ones that are inventing new products. And really, that is the system of the market economy, this web of thousands, millions of entrepreneurs out there acting in their own self-interest, but doing the bidding of consumers. So we are tremendously dependent upon entrepreneurs for our standard of living and in the absence of them our standard of living would plummet. It's very important to understand that there's no alternative to this system. There's just no other way of doing things. We can't use socialism, we can't use communism because those things don't work and that's The great contribution of Ludwig von Mises is that those means of allocating resources simply don't work.

3:19We can think of other ways of allocating resources, but ultimately if we work through them we'll find that it's either socialism or communism on the one hand, or something that very much approaches entrepreneurship as we currently have it. So there's no alternative. This is a point that Austrian economics tries to emphasize and around which we build economic theory and our understanding of the market economy. Now things of course are much different in the educational system. The entrepreneur simply isn't taught. Entrepreneurship and its role in society simply is ignored. I was an undergraduate business major, majoring in economics, and entrepreneurship was only mentioned on one page of one of my textbooks, okay?

4:10That's how much entrepreneurship was discussed. As a matter of fact, it really wasn't discussed in class. There was just the phrase, the entrepreneur gets to keep all the profits. That's all the entrepreneur does, is keep profits. Even in graduate school, I had a professor who wrote a book on entrepreneurship and that was basically it, the entrepreneur keeps all the profits and of course we never discussed new products, quality of product, advertising, things of that nature, after that one word on the entrepreneurship, everything else after that is the firm does this and the firm does that, nothing about entrepreneurship, I taught undergraduate principles and one of the lectures is about Post Office and the Problem of Monopoly and one year after that lecture a student came up to me and said that his management professor told him that the post office was the ideal form of business and I was actually so shocked that I couldn't respond to the student but when you think about it in the management academic mentality of things you know the post office has a monopoly they have a 100 percent market share they can exploit their consumers

5:25Entrepreneurs without any disadvantage to themselves and no one ever gets fired, okay? It's the perfect realm for the management professor academic and the key thing is that there's no entrepreneur, there's no boss and that's what is so important. We get the same bad treatment of the entrepreneur in the media, in Hollywood, in the justice system and in government, they all treat the idea of entrepreneurship and the entrepreneur badly. The real story is that millions of people around the world start entrepreneurial adventures every year. Most of them fail. Most of those people who risk all that they have, they fail. The ones that succeed, most of them have modest incomes, modest rewards, and modest benefits as a result. It's only a few star entrepreneurs that actually get to become multi-billionaires or multi-millionaires, the stars of entrepreneurs and of course those ultimately become the villains as portrayed in these various other areas.

6:40But the same is true for any leader in an area, the best golfer in the world, the best actor in the world, the best baseball player in the world, all make extremely high rewards. That's the way the market works. And how do those stars in all of those various professions, but particularly the entrepreneur, how are they chosen? Was Sam Walton of Walmart, was he chosen by some congressional subcommittee? Was he chosen by the Governor of Arkansas to become this wealthy, great entrepreneur who changed everybody's lives? No, Sam Walton was chosen by us, by people like us, thousands of people and then eventually millions of people who decided that the best use of their money was to spend it at Walmart.

7:31So when we look around at these entrepreneurs who have done great things and who have gotten great rewards, it's we that have chosen them. And it's the mission of the Ludwig von Mises Institute to teach these lessons about entrepreneurs. If people don't understand them, if we lose that connection to entrepreneurship and try to change the system and eliminate the entrepreneur or harm the entrepreneur in a systematic way, we do so at our own harm and economic demise. Thank you very much.

8:10Well, I'm very pleased to be here speaking in honor of Mr. Luddy, because we're talking about entrepreneurship, which is something that I'm happy to theorize about, but that I myself would be absolutely terrified to engage in. I'm extremely, for all my radical ideas, I'm extremely conservative when it comes to my own property. I'm terrified of losing it or what if I make the wrong decision? But these are the types of burdens that the entrepreneur bears. He risks his own property, puts his own wherewithal at risk in the service of an idea, in the service of some new good or service that he can provide to people and that he believes people will want. Now, it happens to be the case, unfortunately, that in our society there are certain people who are held up as models for us, and the entrepreneur, as Mark Thornton indicated, is not one of them.

9:00Everybody else, you can think of, is held up for our emulation, but not the entrepreneur. Some of this, as Mises suggests, is just a simple result of envy. A typical school teacher does not want to point to the entrepreneur as the great hero. The school teacher is often bitter and envious of the fact that he's got a sophisticated education degree that it took him years to get and he's earning X number of dollars, but yet look at all the money Bill Gates is earning and he didn't get as good an education as I did and so on and so forth. Oftentimes we have base and disreputable motives at the heart of why it is that the entrepreneur is not honored in our society. But the fact is, as Mark Thornton says, without the entrepreneur, where would we be? At what material level would we be living?

9:46How can we deny, how can we even question the moral foundations of entrepreneurship when we realize that the standard of living that we enjoy today would be impossible without it? That the life expectancy we enjoy, the fact that so many of our children live and survive to age five, all these things are due to people who took risks and who employed their resources in ways that have benefited their fellow man. nearly always to a degree greater than those who claim that they're benefiting their fellow man through the mechanisms of the state. Now the entrepreneur is a steward of the things of the earth and if he's a good steward he's rewarded. If he's a poor steward he is punished. This is one of the great aspects of entrepreneurship because it guarantees that the resources we have in this world which are scarce and that have to be employed to the most urgent ends are in fact so employed.

10:45This is no small matter. The entrepreneur likewise uses the talents that he has been given in a way that is not merely self-indulgent, but that permits him to share his gifts with others, improving their lives through the good or service that he brings to the market. and the fruits of his work also give him the wherewithal with which to be generous toward his fellow man and to engage in works of philanthropy, as indeed our honoree today has done. He shows us that the way to wealth and higher standards of living is not through looting each other by means of the state, but through creativity and through intelligent risk bearing. There has developed over the past generation what one might call a theology of entrepreneurship.

11:36For a long time there has been, even in circles that engage in moral reasoning and moral philosophy and in religious circles, there has been a tendency to disparage the entrepreneur, to disparage the business community, and to make the businessman feel when he is in church that he can redeem himself from his iniquity only by putting a large contribution in the Collection Plate. Well, it is a nice thing to put a large contribution in the collection plate, of course, but he has nothing to redeem himself from, if in fact he has not engaged in any disreputable activity. And there is nothing inherently disreputable about entrepreneurship. To the contrary, there is much that is moral and to be admired. We should recall from the parable of the talents that God wishes to reward those who do not simply take what has who multiply it through their intelligence and through their application of their resources to some greater end.

12:36These are things that should be admired. As I say, thanks to this development of a kind of theology of entrepreneurship that recognizes the morality and the justice of what the entrepreneur is engaged in, perhaps only in our recent years is the entrepreneur beginning to get the recognition he deserves. I actually presented this award to Mr. Luddie at the wonderful celebration of the anniversary of his company, but this beautiful medal was not ready at that point, and I offered to take it to North Carolina.

13:23He was very kind to offer to come here to receive him. We've been blessed to have him at the Institute many times. He's the founder and the CEO of Captive Air, which is the leading producer and very creative and innovative producer of commercial kitchen ventilation systems. I know we have some of them, in fact, installed in some of the restaurants in our own area. He's done a great job with this company. He's going to tell us a little bit about the job he's done with his company. He's also been a great philanthropist, both in education, the charter school he runs, a Catholic private school, and all that he's done for other organizations, and of course for the Mises Institute as well. So because of his, again, his success as an entrepreneur and all he's done for society by being a successful entrepreneur, and because of his generosity and his charity, I'm very We're glad to present to him this medal, the first one, the Mises Entrepreneur Medal, and

14:25Bob come up and take it and give us a talk. Thank you very much. It's a great honor and a privilege to receive that first medal, and I'll always treasure it and treasure my association with the Mises Institute, and I also want to commend the and the Mises Institute for the noble work you do. It takes courage, tenacity and vigilance in this world to stake out the positions that you do uncompromisingly over a long period of time. But I will say this, that having been associated with many organizations, as my friend Dr. William Peterson would say, they're mostly ephemeral. And in times like this, that are so turbulent when the welfare state is growing, we can and only look to the Mises Institute for real, good, solid thinking, which they've always had and often been ignored.

15:25Going back to Dr. Mises and his understanding of entrepreneurship, and I commend Dr. Woods and Dr. Thornton for your talks today, I wish we could record those. If every high school student knew that much, it would be a hundred times fold over what

16:14It's evident what they produce, just traveling around the country this week, and you see this abundance of buildings and people and productivities and more technologies than we could ever personally understand, and you see this huge benefit for society and personal growth. I want to go through just a short history of Captivir, which is a little different entrepreneurial story than some. We think in terms of entrepreneurs and venture capitalists marrying and having an IPO and living happily ever after. Captivir was started originally as Atlantic Fire Systems back in 1979 and my total invested capital was $1,300. And at no time in the history of the company was there any other money invested in the company, no vulture capital, venture capital.

17:04So it was the grinded out type entrepreneurial experience which in many ways I recommend primarily because as a young person in a new industry you certainly don't have all the answers. And if you have a lot of capital you're going to go down a lot of incorrect roads. But having no capital you can't afford to go down any wrong roads or you'll not come back. I initially was a distributor for the Ansel company and I used to have this discussion with the comptroller because we were always late paying our bill and he says you should have been properly capitalized and we wouldn't have to go through these discussions and I said I'm going to prove to you that this is the right way to do it.

17:50It's maybe not the recommended way but I don't have any more capital and this is the way it has to be done and we've turned out to be the largest customer of Ansel I think in their history for commercial restaurant systems. So it did work out in the long term. By 1979, this little company that I really started to make a living, hoping to be a little bit more than that, was a million dollars in sales and still had cash flow problems as we moved into 1981, anybody that can remember that year, 1980 were pretty tough years for the economy, very austere. We were able to borrow some money from a bank at that time, but the problem was the interest rate was 24%. So it was pretty tough, but I think these are all important parts of the entrepreneurial experience is that you must go through gut-wrenching, difficult experiences because they're going to prepare you for future experiences.

18:47And if it's too easy, you're going to make too many mistakes, and in the long run, you might not make it. By the early 80s, we were installing some kitchen hoods and decided that maybe this would be the route to go, not just do the fire system but integrate the whole kitchen hood systems. So we bought a little sheet metal shop, started to make some little hoods, crude as they were, I actually believed that we could be a big player in this industry. Stupid thought, but I kept it for a long period of time and it worked out. So I think, thinking high minded, knowing that you're only a speck on the horizon, you can accomplish amazing things if you're willing to stay with them over a very long period of time. So by 1984, we got rid of the fire system company, we continued to install fire systems in restaurants, and actually by 1984 had some financial stability, which was very unusual for the company.

19:43If we got to that period at the end of 1981, I think this is instructive. Five years after the company was started, it was in terrible financial shape, because people weren't paying their bills on time, cash flow was a problem, and basically we just hung on and waited for better times, which began in 1982, if you remember the end of the recession, we started to move upward. But by 1984 we were stabilized, we had a normal bank loan, and by 1989 we were able to buy by a little technology company called Aquamatic that makes water wash hoods. It still has not emerged as the leading technology, but it was another piece of technology that we had that we could compete for larger projects.

20:29And basically most all of the growth of Captivir has been organic growth, which is typically of growth companies. But in 1997, we acquired a small company called Rupp Industries that made makeup air systems. So now we're not only in kitchen ventilation, makeup air systems, we were gaining more technologies. So most of our acquisitions were not for sales but for technologies. And that helped advance the company more quickly than it would have gone otherwise. One of the things that I do for our salespeople periodically is I list the most important Decisions over the last 20 years. And then I bring it to their attention, if you had voted on that day in whatever year it was to go with this decision, would have you done it? And universally, I know that they would have all voted no. So one of the things I think we did successfully is said, we don't really want to be part of this industry, we want to change the industry. And we're going to think differently. So we never associated with industry associations or industry norms, basically totally

21:36In the long run, it proved to be correct, because the more you get in tune with the industry, you become like in the movie Tucker, where the executive said, well, why would we want to do anything competition hasn't done? That's the mentality of bureaucrats and industry thinkers. So by thinking differently and slowly grinding it out and being, on one hand, On one hand trying to be high growth, on another hand being fairly cautious in those decisions because one wrong decision essentially is going to take you out. After we bought Rupp Industries, by 2001 we had achieved $100 million in sales. What's very interesting, if you went back to 1984 when we were $4 million in sales, I told our sales team we were going to be a $25 million company and then a $50 million company and they literally thought it was so funny they couldn't contain themselves.

22:34So what you find along the way is that very few people are going to have the vision, and then those who have the vision, very few will have the tenacity and basically the courage to keep going. And I think those are important lessons for anybody that wants to become an entrepreneur. It's not going to be easy, but it's fun and it's rewarding. You see your own growth, you see the growth of your people, and to me that's the most In 2002 we achieved $100 million in sales, and so as I had always done in the past without any real strategic plan or game plan, I said, well, we're going to double the size of the company, we're going to be $200 million five years out.

23:19And that was another little chuckle because they said, okay, well, you know, you made it to $100 million, there's not that much business left out there, you're not going to make it to $200 million unless you acquire a company. and now we're going to do it through organic growth well this year we anticipate achieving 200 million in sales and guess what there's still a lot more out there because we continue to gain more technologies we have more expertise in the meanwhile most of the inefficient competitors good economic lesson they're all out of business they're all gone so who's coming up tougher competitions coming up which gives us the opportunity to train our people and be better so you can actually see that process within the industry in the industry, working exactly as the professors would state it in the textbook. I've witnessed it. So entrepreneurial growth is a lot of fun. It's very difficult. It's not for the faint hearted. But I think that that personal development is so rewarding. And I've seen

24:19it with people in the company where they come in at a low level and they grow and they grow and they're so proud of themselves, how far they've come. And yet I see the other side where they say you're too tough, you're too demanding, you're asking us things that nobody would ask us to do and they say well this is the process, this is how it works, it's not easy. I also wanted to cover a couple of the top ten things that I think are important to continue to grow the business. Our economic professors are probably going to recognize some, so I believe that economic principles are very important to growing a business and the average business person does Most of them are not schooled in economics. Number one is supply creates demand.

25:06If we have the right offering, we're going to have a lot of sales. And if we don't, we're not going to have sales. It's just about that simple. So we have to focus on creating the right offering. And one of the things that I do around the country is study what will be the emerging Management is doing things right. Leadership is doing the right things. Well, if your leadership is not picking the right things to do, you're not going to be successful. But there's also an equal challenge, is if you're doing the right things, can you consistently execute? And if you look at the great companies like Starbucks, they consistently In order to efficiently execute, if you look at McDonald's, 50 years later, everybody would have thought McDonald's is down for the count, they're gone.

25:59Because of execution, McDonald's is on top. They're doing better than they've ever done before. And they don't have any really serious competitors in their class, even though you could argue, well, you can get a better hamburger anywhere. But most cheap people choose to go to McDonald's. So it shows the enormous execution capabilities that they have. Focus on the primary idea and avoid diversions. Entrepreneurs sometimes get a little heady and they think they can do everything better than anybody else, and that's the prescription for failure. So again, economic specialization is very critical. We try to refocus constantly to make sure that we don't get off on tangents. We've gotten off on a few over the years. But that specialization is the only thing that's going to allow you to compete in the real long term.

26:46term. Kaizen, which is the Japanese word for cost and improvement, and most people don't relish it because they want to come to work, get their coffee, everything's okay, you know, we're doing good here, we're Captivir, we're Starbucks, whatever, but your competitor is thinking and coming into work saying, I want to get that business, I want to take down Starbucks, I want to take down Captivir, and if you're not engaged in that Kaizen and the New Year's Resolution.

28:11If we hit that mark correct, our sales are going to continue to grow at a very rapid pace. Risk Calculation We spend a lot of time with spreadsheets so that we understand our costs very well. And we price from cost up, oftentimes not from market opportunities. So in a particular market that may put us way under on price, but we drive the business to that cost structure so that we consistently are able to have good, consistent, growing earnings over the years. and the customers over time realize this is a company to go with because they're going to give you a fair price. They're going to cut price based on cost, which yields enormously good returns over the long term. You may give up these short term ephemeral opportunities, but the customer knows and they remember who takes care of them.

29:01Be responsible. We try to train everybody to be responsible. Everybody tries to shed the responsibility. Well, it's not my fault, it's this guy or the other guy. And hitting people in the face every day, you need to be fully and completely responsible for what you do, is what makes it happen. And anybody who's not in any given day is going to cause a system fault, you go to Starbucks and you get a cup of coffee that's not right, you recognize it immediately. Somebody is not being responsible for what they're doing. And that's a battle we continue to fight. Communications with employees and customers I think is critical. We do seminars around the country and essentially we paint a vision where the industry is at, where it's going to go, how we're going to get there, what are the good technologies, what are the bad technologies.

29:47So both communicating to our employees and also to our customers, we paint the vision and people want to go where there's a vision. Opportunity cost, obviously allocation of capital which you guys covered so well, is critical to any entrepreneurial success. If you misallocate your capital, you're out of business. We see it with government operations daily where they misallocate all capital essentially. And then lastly, execution is the key to success. We haven't done a sales meeting for about three years. We're going to do one later this month. And the focus is going to be on execution. Lawrence Bossidy, who was a great manager with GE and well recognized around the world, wrote a book called Execution, and he said most people know their trade, they know what they're doing, but the question is do they do it and can they consistently get it done well.

30:42So execution is a very, very important part to business, never to be overlooked in any minute of every day. Creativity depends on the ability to step outside the boundaries of a given problem and by viewing it in a different light, reconfigure it along here through unexamined lines. The creative science, for example, dips into the unknown with a firm footing on the known. These are concerns for the long term. The primary concern is hiring and finding good people, because with the current educational system in this country, any engineer, any teacher that comes out that's good out of the university, out of the college, is going to have a job instantly. Not only a job, a good job, providing that they have a good attitude, they're a good thinker, and they have the other requisite skills. Unfortunately, we're producing too few talented people, and when you get involved with industrial Federal companies, they need a lot of talented people, there's a lot of technologies involved.

31:53So probably the major concern for the long term is people. We spend a lot of time trying to develop our people and it's not easy, a comment made earlier I think by Dr. Thornton that they're not used to taking on complicated tasks. You teach them, you go through these technologies which essentially they're only learning, they're not inventing, they're learning them. They're very challenged to learn these technologies and to remember them three months later. Converse to my father and my background, who was a mathematician, a bit of a scientist and engineer, that learning was what you did in your life. That was all you did, was you learned and you grew. So that's going to be a big challenge in the future. In closing, entrepreneurship, it's a great adventure, it's a challenge, there's many obstacles, there's huge risks, but it's worth every second of it.

32:42And if you go around this country and you see the technologies and the people gainfully employed and the strength of our economy, it's totally mind-boggling. And it tells us, it confirms that the Mises Austrian School is right, that free markets produce abundance. If we got rid of our government, trimmed it down to one-tenth its size, we would have so much in this abundance in this country, we could support half the world. We're literally that good at producing. producing. American people are hard workers, they're good people. So I'd like to close in again thanking the Mises Institute. You're a very bright light in a very dark area, particularly when we start talking about government and free trade. And you're really the salvation in terms of free market and free trade, because everybody else is waffling. They're not quite with the program. They're not even close, as a matter of fact. So the work you do, even know you may be attacked often and be told often that you're wrong and you're radical.

33:45It's the right way and it's the way our forefathers envisioned this country. Someone once told me that their country was formed by geniuses and run by idiots. And if you look at the current, we're talking about the government, if you look at the current state of times and you read the papers and the amount of money that's being stolen or are misallocated and the bureaucracy over bureaucracy or bureaucracy can say, is this insanity? So my hope for the future is that we can educate our children in a much better way, that we can grow the Mises Institute so they have an opportunity to hear this message. I'm thankful that I heard the message. Many people never have that opportunity so they're wallowing in ignorance. It's a pleasure to be with you here today and thank you very much.

34:37Thank you very much.