#141—Dave Whorton: The Competitive Advantages of Evergreen Businesses

Dave Whorton is a tech investor and founder who spent 20 years of his career at the highest levels of Silicon Valley venture capital and tech startups. At the preeminent tech venture capital firm Kleiner Perkins, he worked directly with John Doerr for several years. He cofounded four companies, including drugstore.com and Good Technology.  

This episode is longer than our usual shorter format—and with good reason. It's about companies that last longer. We dive deep into the world of evergreen businesses—those built to adapt and grow profitably for 100 years and more. Think of these as the direct juxtaposition to venture capital-funded enterprises—where those are built with the sole intention of selling, going public or shutting down if not performing, evergreen businesses are built to endure.  

In 2013, Dave founded Tugboat Institute to connect, support, and inspire purpose-driven leaders of these businesses, and this upcoming May 2025, Dave, with Bo Burlingham, releases Another Way: Building Companies that Last...and Last...and Last. In this episode, we uncover some of the most profound insights from his book, so many of which fly in the face of current, common, dogmas around innovation and entrepreneurship, including: 

• Why the companies VCs most often tout today as exemplars of greatness (Google, Microsoft) took very little VC funding—and why you should probably avoid VC investors as well 
• The fact that the size of venture capital market has exploded multifold since 1999 and what that means for nature of how businesses are built and operate today 
• The “Evergreen 7Ps” that characterize these companies, and specific case studies and examples of companies that live these values. Two of my favorites:  
  • They pace their growth—and avoid hyperscaling 
  • They pursue pragmatic innovation, rather than radical breakthrough innovation 

__________________________________________________________________________
Episode Timeline:
00:00—Highlight from today's episode
01:02—Introducing Dave + the topic of today’s episode
03:19—If you really know me, you know that...
06:23—What is your definition of strategy?
09:00—Explaining the evolution of venture capital in the past 50 years
12:02—The pitfalls of taking venture capital
17:39—Introducing the Evergreen '7 Ps'
24:12—How to know if a business' pace of growth is healthy
26:50—People as a critical part of your strategy
33:58—Pragmatic innovation in evergreen businesses
38:53—What public companies could adopt from the 7 Ps to behave more like evergreen businesses
45:00—How can people can keep learning from you?
______________________________________________________________
Additional Resources:
LinkedIn: https://www.linkedin.com/in/davewhorton/
Link to book: https://www.tugboatinstitute.com/anotherway/

The Tugboat Institute: https://www.tugboatinstitute.com/

Thank you to our guest. Thank you to our executive producer, Karina Reyes, our editor, Zach Ness, and the rest of the team. If you like what you heard, please follow, download, and subscribe. I'm your host, Kaihan Krippendorff. Thank you for listening.

Follow us at outthinkernetworks.com/podcast

Transcript

Kaihan Krippendorff:  Dave, thank you for being here. I am so fascinated by your work and have really enjoyed preparing for this, so I'm excited to dive in with so much to cover.

Hopefully cover all of it. But thank you for sitting down with us to share a little bit. So I'm gonna open up this same two questions. I ask all my guests. First is just for us to get to know you a little bit personally.

Could you complete the sentence for me? If you really know me, you know that.

Dave Whorton: I guess, if you really know me, you know that I was steeped in Silicon Valley for quite some time with Berkeley, with Stanford Business School, did several tech startups that was involved in a very high profile venture gap from Kleiner Perkins. But now live in Silicon Valley, Idaho, which is if you'd asked me in 02/2008, you're gonna live with your family in Sun Valley, Idaho. I would have said, I'm not sure where that is on the map. That's where our kids end up going to middle school and high school. That's where I built my business type boot in institute, and I spend a tremendous amount of time hiking in the wilderness now, which I wouldn't have imagined back in the days when I lived in Memo Park.

Kaihan Krippendorff: And you started your career at HP, and you did some time at Apple, and HP Labs, and and how did that shape your thinking and

Dave Whorton: yeah. This was this was really an opportunistic thing where I needed to get a job because it's well aware I was gonna have to put myself through college. I was one of the top kids in the in my class, and I wasn't really excited about spending a couple years at community college, which would have been an option. We had a good one in Santa Rosa. Wrote a letter looking for a janitorial job or cafeteria or gardening.

I'd never imagined they'd reach out and say, look. If you're interested in engineering, we have a established program. We bring people in, and you get a work in manufacturing. You get matched up with an engineering mentor. You spend a lunch with a general manager and a division.

I'm like, sign me up, and I did that for four summers. And it wasn't, you know, it wasn't I don't wanna overstate it. I was doing manufacturing work. I was soldering back when you soldered Prince Circuit boards. I was assembling chassis.

Once summer spent under a Microsoft, assembling gold parts into network analyzers. And I got to know the employees well. I got the sense of what the HP was WAV was about, and it really moved me. Really liked the way they treated people. In the assumption of that age is everybody treats people that way.

Correct? It's your first experience. But later I find starting at my career at Bainen Company, which is after Berkeley, that, no, there's many companies that don't view it this way at all. But it did make this indelible mark on me about this idea of really care taking care of your employees.

Kaihan Krippendorff: Yeah. Great. Just a clarification question. Are you saying that your experience at Bain was very different, or your experience experiencing other companies while at Bain? You realize that other companies are taking

Dave Whorton: So so it I love Bain. It was a San Francisco office for about a hundred people, though. It was an incredible experience. It was the clients of Bain that were struggling with strategy, struggling to kind of create a competitive advantage and often in those environments. I I was really disappointed in how they generally talked about their employees and thought about them.

Yeah. The clients.

Kaihan Krippendorff: Got you. Yeah. No. And I love I can see that Bain influence, that HP influence as you came out of client or Perkins and TPG and and kinda where you landed. So lot of experience in strategy.

And the second question for you is what is your definition of strategy?

Dave Whorton: Yeah. That's great. So I think, generally, strategy is a plan to achieve a long term objective. And that objective, hopefully, setting you apart from the competition. And also such as you continue adapting and changing to changes in the environment, changes in technology, change in customer expectations.

It requires and I think this is where people miss it requires a tremendous amount of focus. And then pars tough trade offs. And if you're not making tough trade offs, you probably have not really gotten to the essence of a differentiated strategy. And I think that's where a lot of people fall short. And then it also it has to evolve as your resources change over time.

Of course, it's a very small start up, you've got a limited number of resources. Your strategy has to be influenced by availability of those resources. But as you get to be large, as you said earlier, you know, the company is doing a billion in revenues, has tremendous access to resources. And so it allows them to do things that the smaller firm couldn't do. So it's a dynamic thing too.

It's a Andy Groove is a professor at the intel CEO at Stanford Physical when I was there, and he made this very clear. I mean, strategy is an adaptive process. You can't just set strategy and come back to it five or so late. They constantly have to be looking to see if there's major inflection points, major changes, adapt to those. And I think people struggle with this.

I think it's a great question to ask because, you know, within my membership of almost 300 CEOs, I've got one member I just love, and he just raises this over here. What really is strategy? And he's pushing this. He's read every strategy book he can. And he says, it's hard to really get people to clearly articulated what a effective strategy is and what it represents.

And I think that's why this question you're asking is so important because it really does have to be thought through very clearly, and it really does require focus and trade offs and understanding your resources, understanding how you ultimately can differentiate yourself. Now in terms of an evergreen company, which I'm sure we'll talk about more, you're thinking about a hundred year time horizon. That also impacts your strategy. If your owners have a very short term orientation, there's only certain things you can do. For example, if you have to perform against a quarterly target versus a firmware of the owners, let's say, a small group of family members of a family owned business say, look, you can take twelve years to develop this product.

Because if you do this successfully, you will change the world. And we have one of those kind of membership. They actually did a very important component of the stop start batteries that sit in every single car today. And it took them over a decade to dial in that technology. And now it's without that technology, you couldn't have that type of battery.

Kaihan Krippendorff: Wow. Wow. So, yeah, it's fascinating. I guess if strategy is something that changes over time that you adapt, you know, that would make sense because I think of, like, Microsoft or Apple or Google or Amazon, these kind of big behemoths. They took a long time to get to I think, you know, Apple took thirty years before it really hit its scale point And yet, you know, in the VC world today, you know, a lot of it's about blitz scaling and, you know, getting girly funding.

And so just, like, unpack that for you. It's, like, how much VC capital did you know, these big Microsoft Apple rays to get to where they are.

Dave Whorton: And do you mind if I just step back just a step further on on context setting on this? So one of the things people aren't really aware of is that if you look at the first forty or so years of venture capital up until, let's say, 1999 or early two thousand, the total amount of venture capital that was raised and deployed was actually 25,000,000,000, little less than $25,000,000,000. In the last eight years, the venture capital industry, every single year raised over $250,000,000,000.

Kaihan Krippendorff: What?

Dave Whorton: 10 x. Every single year for ten years. So we're seeing something has changed so fundamentally that what is happening in venture capital pre and post .com boom is, like, two completely different worlds, two completely different playbooks. It kind of perkins even in the days when we were working very close with Amazon and Google in its earliest days. I think Amazon had 50 employees, and Google had less than 20.

We talked about reasonable financings. Like, be careful. Don't raise too much money, and strength to actually drive creativity. You know, there was more money available out there. We didn't really think we needed it.

You wouldn't even have those conversations today. I mean, if you're at same stage at Google, you had raised $400,000,000, not $25,000,000. And so that brings me to this thing that you're leading into, which is Do you know how much money Microsoft raised venture capital before AOM public?

Kaihan Krippendorff: Mhmm. Okay.

Dave Whorton: A million dollars. It's a million dollars. Wow.

Kaihan Krippendorff: Before that until public. Right. Because they were already total funding until public.

Dave Whorton: They were already profitable. And Bill Gates wanted to work with Dave Markort. Wanted him and Dave said, you know, the way I work with people is I have to be an investor. So he basically sold in 10% of Microsoft for a million dollars to get Dave Markort on the board. He didn't need the money.

And then in the case of Google, It was $25,000,000.12 and a half from Kleiner Perkins, twelve and a half from Sequoia, twenty five million not 25,000,000,000. 20 5 billion is what Uber raised. 25,000,000 is what we're talking about for Google. And then for Amazon, it was $9,000,000. And most of that provided by client or Perkins, by John Doer.

Again, in that case, $9,000,000. Now they raised more money over time. They did a billion dollar debt financing out of Europe in late nineteen ninety nine. So, yes, they did raise capital But venture capital, it was $9,000,000. So if you sum it up, it's $35,000,000 was required by venture capitalists to build three companies worth over $2,000,000,000,000 each.

Kaihan Krippendorff: And so what is the danger. What's wrong with that? Like, we had John mullins on this podcast. He one of the books that he wrote is called the customer funded business. And what he showed is that there's a negative correlation between how much you raised in series a and what your success rate is.

His rationale is you take a lot of money, then you're locked into a business model, and then you have to execute that business model, you can't adapt. Is that one of the reasons or how do you what's your conversation?

Dave Whorton: Might be a little bit more nuanced. The day you take a dollar venture capital, or from an angel that's a venture capital pathway, you have set your path. You will be sold or you'll be taken public. That's just that's it. Or you're gonna be shut down.

There's only three options. You will never be an evergreen company. You will not survive a hundred years as an independent private company, your children will not run that business someday, your employees will not own a part of that business someday. That path is already set, and it's irreversible. And so now so that one is that's a path you set on you cannot back off of.

And then second, this tremendous amount of capital, we're just I think we're still gonna find out. I think it they look at Uber. Uber raised close to $30,000,000,000. Was that a well run business? Horribly run business.

Now they made a big bet. They were gonna try to take the entire world. They basically destroyed mom and pop black car services throughout the entire country, and that's destroyed. That's not told because they underpriced them based on all this investor money. It could not, as a business model, sustain the pricing they did.

Now they've raised the prices. They're quite expensive again. You know, they'll probably you know, I think they're profitable in the last year or two. But how do you return $30,000,000,000? Let's say it needs to be a three x of a 30,000,000,000.

You gotta have a hundred billion dollar return. It's just hard to imagine it. Whereas, you know, any of the three I talked about already, there were trillions of dollars, and they raised the largest amount of money raised was really Google at 25,000,000. And they didn't need the 25,000,000. Let's be clear.

They didn't need it. That's just the amount of dilution. They wanna only comfortable taking about 25% illusion, John, and Mike felt the same way, which is we'd like to own 15 to 20%, we'll go down to 12 and a half percent. So it's basically kind of put putting the pieces together saying, okay. Well, 25, 20 five million dollars, that sounds fine.

They didn't need it. They can probably take five or 10 and then just five. It's incredible. So, yeah, there's something that's fundamentally different, and then I think it it leads to overhiring, at least a sloppy practices. Back to the just the definition of strategy, it requires no focus.

Only focus you have to have is kinda raise my next round of financing. And if I can raise my next round of financing, I can continue what I'm doing. But you can have product proliferation, you can have distribution proliferation, and overhire your Salesforce. You can get really sloppy. Where is this firm?

Kaihan Krippendorff: Yeah. You're actually motivated. Right? Because you need to come up with a rationale for needing more funding.

Dave Whorton: Right. And then here's something Clayton Krish Krishas and I talked about before he passed away. As he said that you go, he his view was is for truly market creating disruptive technology. Is not efficiency innovations. So it's most are really creating a new market from a whole club.

He said the pattern is very much proven. I % agree given what I've read, researched, and experienced myself is that you take that emergent technology into a niche market. You develop the capabilities of that technology over a period of years before you go into mainstream markets and p hopefully, very successfully. VCs do not tolerate that time frame or the niche market. If you walked in and told the venture capitalists, I'm pursuing a $50,000,000 market.

Eventually, I hope you get to a multibillion dollar market. They said, I can't back. You come back to me when you decided you're ready for a big market because they have to have such large outcomes because their fund sizes are so large. And so it's changed the amount of capital that's coming to venture capital has actually changed the way venture capitalists build businesses, and I think to the worst. And the problem is the management fees are so so valuable.

I mean, if you a hundred million dollar fund, you might get 2,000,000 a year in management fees. That's not a lot to pay the bills, rent, middle of a park, have a couple of people on your staff if you only have one fund. If there is a billion dollar fund, that's twenty million years. And then you start stacking funds every two or three years, multi billion dollar funds. Selling your management fees end up being hundreds of millions of years, your base salary can be $4.05, $6.10, $15,000,000.

You haven't returned a dollar to your investors. So the entire model shifted. And it's and there's also a really unique dynamic around this is that it's kind of the GP, LP conversation, which is the GP, I'll say, look, you know, I I know venture capitalists have said this to me. I won't say names of, like, they're giving me more money than, like, general partner limited. Yeah.

General partner venture from. They're giving us more money than I can really see how to earn a good return on, but they're smart people too, and so we're not gonna refuse our capital. And so that's this thing. And then and private equity has mirrored this. I mean, private equity has raised over the last every year for the last ten years.

Again, this has slowed down to the last couple of years, but they're raising about a half a billion dollars a year for the last ten years. I mean, half a trillion, I'm sorry, half a trillion. And they match that with a trillion dollars of debt. So they have $1,500,000,000,000 of of capacity to buy companies, roll up companies, and somehow to keep screwing them up. It's just it's incredible.

And the reason is this debt with and particularly with the rising interest rates has to be paid down. You have to service those interest payments. The way you do is you do it largely on the back of future innovation and the employees. And it's tough. It's a tough business model.

Tough things.

Kaihan Krippendorff: Yeah. I think what I'm as I'm hearing, what you're saying, I'm hearing several of your piece here. Right? You you mentioned stay private, be profitable early, use persistent, pragmatic innovation, find that beachhead, and then innovate in that beachhead before you go into the open water. I'd love to, for the audience, kinda break this down because you have, I think, seven very eloquently described and sequenced up keys.

I'm just gonna read them, purpose, people first, private, profit, pace growth, pragmatic innovation, perseverance. Usually, we don't go through all of them in a podcast, but I think each one cleans on the other and is so important that I'd love to very briefly go through each one. And let's just, you know, start with purpose.

Dave Whorton: Per it has to start there first.

Kaihan Krippendorff: Why does that have to start there? And how do you know that you have an effective price?

Dave Whorton: Yes. It's really interesting is that, you know, I think of the seven piece working together as a system, and that's what you're basically saying. And so in system thinking, there are trade offs within the system to optimize the overall system. Correct? But purpose is not one of those.

Purpose has to come first because that's your North Star. That North Star. That is why your business even exists. That's why your employees are showing up. That's what's gonna get them through the toughest of periods.

Right? As knowing that what they're doing is so important to the world. The unfortunate thing, and I'll get into what authentic purpose is that if you're venture backed, you have a private equity owned, if you're a public company, your purpose is already defined for you. It's defined for you. You don't get to set your purpose.

You can go whatever you're on your website about taking care of people changing the market.

Kaihan Krippendorff: Because your investors have their purpose, which is exit in five years.

Dave Whorton: That's exactly right. That is the dominant purpose, which is you have to give me a high valued exit in a reasonable period of time. It's ultimately we will force the team and strategy to comport to that. Now maybe for a few years, when we first back, you will let you do what you wanna do. But at some point, as the source upcoming time that we need you to harvest, you will start doing a set of activities that we need you to do to get the maximum value, or you won't be running this firm anymore.

There is no connection to purpose at all there. And so if the person said, my purpose is the restructure of this industry based on this new technology. Yeah. As long as that's aligned with getting the purpose of your investors, you'll ultimately control the business. Private equity, the same thing, and then public, of course, the purpose is to maximize your shareholder value.

And I think Milton Friedman about this very eloquently back in the nineteen seventies, which is too many CEOs of public companies back then were using the purse and treasury of the corporation for personal benefit, for private planes, private cafeteria's chefs, drivers, cars, cherable donations in their name on behalf of corporations. So, look, you can't do that because you don't actually you're not really serving your distributed ownership base. You don't know what they really want. The only thing you can really do is make sure you maximize profitability. So those purposes are all set.

A private company owned by people with good values can set whatever purpose they want. They can set their North Star because they own the business. And if they want the business to be around for three hundred years, They wanted to have such x impact in a certain market. They wanna treat people a certain way. They can do those things.

And, you know, the biggest, like, foundation on companies that Europe are an example of this, whether it be Ikea, Right? Or be Allego or be Rolex. Why are those companies so special? Well, because they're privately owned by foundation. But we see the same thing in America with family owned businesses, employee owned businesses, How to go in here, a good example.

Myers, Edward Jones, White Castle, Wakeman's, I mean, c

Kaihan Krippendorff: t m

Dave Whorton: s. Oh, yeah. Mars, I mean and so the the amazing thing is ownership actually matters. And we don't talk about it in business schools. Well, you guys simply say, look, if you're gonna build a company, go raise some capital.

And it's like, no. That's not actually the right answer. The best answer, if the purpose you have in mind is building sustaining company as independent entity that serves a higher calling, than just making your investors money is not to raise that outside capital. It has to do, as you said, think about these seven p's. Set that purpose, committed to persevering, keep low debt levels, make sure the team has a strong culture, an adaptive culture, treat your people really well because that's where all the magic happens ultimately over long periods of time.

Stay private, protect that private, but also take advantage of all the governance structures you might see in the best run companies, but do them in a private context. Get profitable early, stay profitable, build a strong balance sheet over time, continue to pace your growth. Because I think that it actually absorbs most cash and businesses is growing too fast, and that's what the hypergrowth model does. But if you're willing to grow 15% a year, for the next thirty years. Your company will be 66 times larger in thirty years.

If you grow at 20%, it'll be 250 times larger. So growth rates with venture capitalists and including myself admitted, I would have laughed at somebody saying, I'm gonna grow this business to 20% a year. Forever, I'd be like, okay. Well, I'm not writing a check for you. I mean, you're not gonna give me the accident and the time frame I need.

But if you can do if you can do 20% a year and you start at $10,000,000, you're a $2,600,000,000 revenue company thirty years later. That's in your lifetime. And you know examples of this, and I know examples of it. It's awesome. I mean, look at Andy tailored it.

His dad started to enterprise rental car, got it to about 60,000,000 in revenue. Andy started well I'm sorry. It was in a leadership role before the 60,000,000, but he took it over at 60. He go to $25,000,000,000 over thirty years. No.

It's a capital at all. Zero. I mean, Warren Butler would buy his company any day of the week if he's given the opportunity. I think Warren showed up many times under doorstep. They're they're actually friends.

And and and and he just said, you know, we're we're not selling the company. You know?

Kaihan Krippendorff: Yeah. No. But I see how these interconnect. Right? Because if you have the purpose that gives you the long term, then when you're doing an NPV on five years with an exit, you need fast growth.

If you're doing an NPV on thirty years

Dave Whorton: and, like, compound,

Kaihan Krippendorff: the right answer is that pace growth. That's right. The compound

Dave Whorton: The compound and then you don't need outside capital, you maintain control. The other subtle thing for a founder, which is really important, is and I've experienced this personally. With good technology. If you're growing at 50 to a % a year, and then growth may be funded by cap outside capital versus revenues. Right?

But that's you know, those levels of hit, you are always recruiting. You're always scrambling. You're always thinking about how you raise the next round of financing. There is very little time for your for you to develop yourself as a leader. At 20% a year, you have a lot of time to develop yourself as a leader, to develop your management team, to make mistakes, and figure it out, like, how I'm really getting a sense for what a good exec looks like versus not such a good exec.

You give yourself breathing room. VCs will not give you that breathing room. What I wanna see is either you're figuring it out really fast. You're listening to our direct instruction on this or a coach will be put in place to help you. Or you just have to admit it.

You can't do this, and let's put an experienced CEO in here and get out of the way. We'll make a chairman.

Kaihan Krippendorff: So what how do you coach because you coach these 300 Evergreen cubbies. One of them, even 300 years old. How do you coach someone to know if the pace of growth that we're pursuing is healthy? Because there's that poll. Right?

If I could get 30%, twenty twelve, fifteen % this year, you know.

Dave Whorton: So I think of three things. I think of money. I think of management, and I think of culture. And if you're growing such that you're on a thin line as far as your cash, you're growing too fast. At least in the current design of your business model and how you manage your cash cycle, and I'd say pull some levers.

Look at your cash cycle, look at your pricing strategy, look, try to generate more cash. And the main cause you switch business models to find what it is actually more cash generative and less capital intensive. Second is your management team. Are they able to absorb the growth rate in which you're going the existing leadership team and the next bench below them? Because if you're outstripping them, then things really start to break from a quality standpoint.

Kaihan Krippendorff: Because either then you're replacing management or they are not yet ready to deliver again.

Dave Whorton: And you will. I mean, the truth is you will replace management. Maybe not all of the seven direct reports you have when you're doing 10,000,000 in revenue, but you'll probably buy a hundred. You'll have most of those replaced. And I learned this from John Morganridge at Cisco, and I thought it was very powerful, and celebrate the contributions of the original seven for the rest of your life leading that company because they made a incredibly important contribution.

They handed the baton successfully. To somebody who could handle the larger scale. I mean, it's all just part of growing up. I mean, it's not something you should be afraid of. Right?

And then the third is culture. Is the team starting to shake or the behavior is no longer consistent with the norms that you had seen in the past? And that happens too. So you gotta think about money, management, and culture. And if those are largely staying in balance and maybe a little tension here and there, then your growth rate is probably fine.

Different firms have different views on this. Some are like, look, we've dialed this in. I know a particular very well respected professional services firm says we think we can add about 8% to head count every year, which leads about 8% growth in revenue. Too fast. Faster on that, it's too fast.

Too slow. There's enough opportunity for the team. We've had others to say, like, no. We actually grow because of our industry, 25%. Couple of years in a row, then we'll actually slow way down, like, 5% to absorb the growth, fix our IT systems, retrain the new management team.

And so it's not this none of them have kind of a smooth up into the right curve. For sure, the one that's idealized by the public markets. But there's different ways to kinda grow to kinda make sure you stay in this bounded range where you're not breaking things on a permanent basis.

Kaihan Krippendorff: Uh-huh. Right. Right. Right. That that makes sense.

So, I mean, you're also talking leading a lot with people. This people first concept I wanna believe it. I believe my mission in life is people loving what they do. We had Stephen Meyer here in from Columbia. He said, people are your new customer.

I believe it, but convince me that people first is an important principle.

Dave Whorton: It's I'm so steeped in this now that it's almost hard to remember when I wasn't, to be honest with you, and I wasn't. Very frankly, even though seeds have been planted in me by Dave and Bill at Hewlett Packard and their culture, you know, got very much about do we have a great business model? Do we have enough capital? Do we have good product market fit? All that.

That's all when you're thinking in things in short time horizons. If you're thinking of things in twenty, thirty, forty, fifty, a hundred years, it has to be about the people. Because the firm's gonna have to adapt, and it's gonna have to change, and it's gonna have to innovate, and it's gonna have to grow into new territories, and have and there's new products and product lines over time. They have to try new processes and systems and adopt new types of technology like AI today. That's all about people.

And so if your people feel empowered, supported, well compensated, they're more creative. They're more willing to take risk. If it's an environment where it's like, hey. You make a mistake or you can really pay for it, then people pull back. And if that happens, you're dead over long periods of time.

You might get sold. You might get out. But the way you're gonna be a strong driving company a hundred years from now is because it is it will be that deep meaningful purpose and very much tied to taking care of your people. And the people will then solve the problems for adults. Handle the supplier issues, the customer issues, they'll deal with the adoption, new technology, the systems processes, whatnot.

So I I I mean, I'm I'm so steep in this now though. I I almost can't imagine why every company wouldn't wanna beat people first because kind of Jack's decks of the street. I was very wise. He said, if you can walk into the back of a factory, he's a manufacturing guy, unescorted and just passed from the back to the front, you'll know everything you need to know. You can feel it in the people working there.

And unescorted very importantly because, you know, if you go on a formalized tour, they've prepped the whole thing. They tell people what stations are gonna stop, how what they want you to say. And I I feel that I am sure you do too. You probably walk into restaurants, retail environments, manufacturing yourself, and you just feel it. You feel the joint Northgate markets, which is a Hispanic market chain down in Los Angeles.

It's an evergreen company. I've never felt the warmth I mean, our companies are exceptional and dimensional. They're at, you know, in the 1% as far as the warmth felt between the founding family, the gonsoluses, and their employed base. And that employed base will knock down brick walls for that family.

Kaihan Krippendorff: Yep. Yep.

Dave Whorton: Am I getting there? Any closer?

Kaihan Krippendorff: Yeah. No. That's great. No. That's great.

Where I'm going is where I'm going is what what it's linking to for me is this idea that I'm thinking about. We had Pete Fader on customer lifetime value guru. And I'm gonna do another session with him and Stephen Meyer, maybe you. And I wanna look at, could you measure a company based off of employee lifetime value? Are they loyal?

Do they stay? Do they add value through their creativity? You know, just as you do through a customer, and could you measure employee lifetime value?

Dave Whorton: I love it. And what I would say is that there's a real there's a couple of things that come to mind. One is, there's a professor at Stanford named Ed Lajir, and Ed spent a lot of time looking at labor practices and policies and the economics of it. And he said, I think it was back in the seventies. The deal basically was broken between employee and corporation.

And it was it came from both sides. And prior to that, companies would invest tremendous amounts of time and resource in the development of their young people. In moving through different training programs, all kinds of support, mentoring, some of the universities, employees became less loyal, companies became less loyal, and it kinda broke the model. Because if you made a heavy investment in an employee, the best thing your competitor do is hire them as soon as the training is complete. Did you get it for free?

With a slightly higher salary. Because if you're gonna do all the training, it's hard to also do a substantial increase in salary on top of that. So it needs there needs to be a element of loyalty on both sides. And so that deal is broken. In evergreen companies, that's not broken.

They make that commitment. They spend that money. Yeah. The turn rates in these companies usually are much lower than industry rates. I asked this every single person what does industry, where are you?

And it is very common to hear people say, you know, our longest tenured employees been here forty years, fifty years. It's incredible. They've spent their entire career. What is he doing now? Well, he started off, and he was actually in the parts group.

Now he actually runs one of our factories or division. Yeah. It's incredible.

Kaihan Krippendorff: Yeah. No. I love what you're saying because kinda one economic rationale is we're gonna be such a great place to work that people will just wanna work here for lower than their market salary, but that's not what you're saying. What you're saying is you they're working there because you've invested in them.

Dave Whorton: Yeah. The user Yes. You've invested them

Kaihan Krippendorff: and invested them.

Dave Whorton: And you're gonna pull the key the group on this, a biannual survey. You know, people are at median or better as far as base salaries, and usually have upside competency compensation that gets total comp up into it can be sixty, seventy, 80, ninetieth percentile. I mean, they are generous with their employees. And the reason is because their employees frankly are just more productive. They're more creative.

They're more engaged. I mean, it usually seems like, yeah, gosh. If you're lucky to get four hours of good work out of an employee, even if you're sitting at their desk for twelve hours. Mean, that is just crazy. And I see a very different thing, which is people are very respectful of the workday of their employees, and they want them to go home and experience their families and their friends in the evenings.

And but when they're there, they're working. They're committed. The only thing they do too, and this is probably not surprising is most of these companies practice open book management. Pinner, I think, the real great advocate of this has been Jack Stack, the gentleman I said earlier, I wrote a book called the Great Game of Business. And they teach the when they show the income statement to the employees on a regular basis, weekly, monthly, quarterly, whatever their process they want.

They teach them what it means. The items on that income statement, they usually do a simplification of it just so they want people to feel intimidated by it. But in doing that, they're empowering the employees to see what the leverage is to help make a more profitable cash generative business because they know that money gets reinvested back in the business, and it gets shared in profit sharing. Could you imagine venture capital back firms doing open book management with their employees when they're running towards a brick wall and they're to run out of cash in five months? Would never do it.

I I wouldn't even when I was running good, I wouldn't even consider it because I think when I scared everybody. And that but that's the model, which is we're gonna run this thing. We're gonna get that. Next run the financing. If we don't get it, we're dead because we're burning so much cash, we'll do everything in our power to raise that next round, making all kinds of commitments to try to get that done.

In these environments, because the companies are so stable, and they have low levels of debt and they're profitable, you're bringing the entire team, and it's a very people first thing to do is we're bringing you into the mindset of an owner. And of an entrepreneur. And you could decide, hey, well, love you wanna participate. If you wanna work nine to five and give us a solid days work, we love you for that. If you wanna be more entrepreneurial, if you wanna take leadership, put in the extra hours.

It will help train and develop you to do that. It's it's powerful stuff.

Kaihan Krippendorff: Yes. Yep. It is. And, like, it's also with that long term perspective of taking a long term view on on employees. So I think we've covered all of the seven, but there's one that I just wanna double click on.

Pragmatic innovation. Right? Innovation with purpose, focusing on practical incremental improvements that align with your mission. Talk to us about that because the goal of many entrepreneurs is to disrupt the industry. And many of the companies that you have studied and been with, they've disrupted the industry, but They've done it through pragmatic innovation.

Why pragmatic innovation?

Dave Whorton: Yeah. You kinda one, these companies do not have the benefit or desire to raise outside capital. So they have to do this from their own fuel, and you would think this is a negative. I will argue this as a tremendous positive. And I think at Katmul, the worth of book creativity, Inc.

Says this so well and others do too, is constraints drive creativity. And so if you're thinking about how you wanna solve a problem in the marketplace as an entrepreneur, and you say, oh, I can do the venture path, and if I'm lucky I'll raise a hundred, $200,000,000, you can be sloppy about a lot of things. If that's in our ventures, I never wanna raise outside capital. I wanna serve that need in that marketplace. What I have to do is I have to find a way to design a business model that's cache generative earlier, and I may even require me doing some things like consulting on the side to generate enough cache as I'm designing my product with a small team to get into a a niche market as we said earlier, that values of that innovation so much.

They're actually willing to pay a pretty good price for it. And then that starts generating cash for you. You can start building on that. That cash generative to start very carefully resourcing your team. And you'll see in that in this latter scenario, for example, in the venture context I used to live in, the goal is to hire a senior executive team very quickly under the founder.

Five, six, seven people might do that in an eighteen month period because then they had to kinda build out the teams underneath them. To actually deploy all that capital to secure market leadership. That was the game. In this model, the kinda the Evergreen model, you might hire one one senior person besides yourself. And then a year later or a second, and you're like, Stephanie, very disciplined about and this is back to trade offs and focus and strategy.

But the benefit is that it's challenging the beginning, but it leads to levels of innovation, creativity in the business model, in the products, in the engagement of the customers. You don't have the convenience of sitting in isolation for four years building something and never talking to a customer. You better talk to the customer. So and then, you know, there's you know, under pragmatic innovation, you have this idea of Kaizen that came out of the Japanese kind of model, which I think was really based on Deming. Know, and that's continuous improvement in all levels of organization because anybody can help save a dollar, that dollar drops to the bottom line of an evergreen company.

It can be shares profits or redeployed or reinvested. You know, you've got breakthrough innovations, invention that can be done to evergreen companies. As we discussed earlier, using kind of the Clayton Christenson model, which was the one that everybody did so successfully in Silicon Valley before all this money showed up, which is kind of we talked about before a small technical team, you know, living on ramen, building a minimum viable product into a niche market where it more than satisfies those initial customers, matures that technology, its capabilities, and then goes after mainstream markets very successfully and does it over a multi decade period. So being an evergreen company does not lead you're not an innovative company. Some would argue, and a gentleman named Spencer Burt at Olin Business School said this to me.

He said, you gotta think about this a little bit differently, Dave, given you came to Silicon Valley. Who truly are the most innovative companies? Is that the ones that have been around for five or six years that have raised a ton of venture capital, never made a dollar profit, and will only go out of business with a don't secure a round of financing. Whereas a company that's a 50 years old that was founded in the Civil War, that's doing a billion dollars in revenue today, and it's continued to introduce new innovative products every five or ten years over and over again. Like, the one you touched on earlier that's 300 years old, it's called Holly's worth Invose.

And it's back in the Boston area. One of its early customers was Ben Franklin three hundred years ago. He bought their paper products to use in his printing presses to actually write it to his newsletter. Today, one of their primary customers is Elon Musk. He sells their filtration technology membranes into SpaceX rockets and into Tesla's.

I mean, to be able to say that you were one of the greatest inventors of history with Ben Franklin, and then now with Elon, wherever current controversies around them, he's an amazing human being. He's an inventor. And what they've had to do is over three hundred years, they've had to do hundreds of s curves. If you think about product life cycles as s curves, and a lot of those didn't work. And a lot of them did work.

And as I talked about the stop start battery earlier, that took ten, eleven years for them to get that really to kick in, and now it's one of their big s curves.

Kaihan Krippendorff: Amazing. That's an innovative company as opposed to an innovative product.

Dave Whorton: Yeah. I mean, you could argue, I mean, crude here, but what does that founder do in Silicon Valley for his couple hundred million dollars? He's raised a couple hundred million dollars. He's a good salesman or she's a good salesman. That I mean, that's a sales role is raising capital.

Building a profitable business, that's an entrepreneur. That's what a true entrepreneur does.

Kaihan Krippendorff: Alright. This is fascinating. I think that our audience will understand the importance and payoff of these seven. You've been talking about companies that are born this way. But I wanna just get a little bit into what kind of company that already is public, that already is big.

What could they do to start adopting some of these things? For example, what could they do with ownership to start being able to be able to behave more privately? What can they do with purpose to be better at sticking with it? Where would they start if they wanna even if they can't go back and start from scratch, what could they do to start moving in this direction across these seven? Yeah.

Dave Whorton: That's specific to public companies. Correct?

Kaihan Krippendorff: Yeah. I think we could stick particularly with public companies. Yeah.

Dave Whorton: So so I'm gonna share a little nuance of the public markets most people are not aware of, but there's a group of public companies. And this I'll speak to them first because this is easy for them. For the rest, it's much more difficult in my opinion than I could be wrong. Have a lot to learn about public companies still. Publicly listed family control, PLFC, is a class of public company, and there's several hundred in this, where a family still owns a majority of control and ownership of these companies that are public.

This is once like Estee Lauder, and Constellation beverages, and Round Forman. So they operate in the public markets. They have access to public market capital, but they have a backbone of family ownership that provides a tremendous level of long term continuity and stability, so they don't have to be as reactionary as if they had a highly distributed ownership base. And so for them, I actually spoke to about fifty, sixty of their of all things, general councils back in New York several years ago. And kinda allow outlined the Evergreen seven piece to them.

And they loved it. They said, boy, this is a besides the private p, if you're willing to flex on that p, we think we're at Evergreen Companies. And I said, unfortunately, I don't think we can't. I I think at the end of the day, you know, being committed to being fully private is such a competitive and strategic advantage that, you know, we can't loosen the definition of Evergreen for that, but you can aspire to it. So that that would be that group.

I think it's easier for them. I think for, you know, the general public company executive, I think I'd kinda think about the way I think it was touchy, Ono, Atoto did this. He started off in his work cell with the Toto production system, and it was different, you know, just in time, combines all that stuff. He didn't try to change the entire corporate duration. He's changed his little work group, and then he got a larger work group, and he got a division, and then eventually became CEO of the company, and he adopted the assistant across the entire organization.

And so I think, you know, work within the scope of what you've got. It can never hurt to be people first. I I just promise you you can't be. So do everything in your power to really have your people feel supported, engaged, leaning towards creativity, risk taking to the best you can create kind of a safe umbrella underneath your employee group that you're responsible for. I mean, do that.

I mean and why not? I mean, just do that. Pregnant innovation, you can do that in a public company. You can do all the things we talked about. You can do invention that changes an entire marketplace.

You can actually do continuously to discuss before. You know, private is what it is. Purpose is tough. I know. I think you can create a sense of purpose around what you're doing.

But at the end of the day, if the quarter is a bad quarter, there's a little bit of an integrity issue, which if, for example, in your work group, you're saying, our deep purpose is this, and then, you know, you missed the quarter, and then you're told to lay off 15% of the employee group, and you have no say in this. And then so that you kinda everybody goes, yeah. This company doesn't really believe in that higher calling and purpose. It really believes in about serving the shareholders. So I think it's a that's a bit of a challenge.

One. Perseverance, absolutely, you know, just kind of building a high level resiliency within your team. Pager is a tough one too because that often if you're the CEO and the board, you can set that. And and I think you you make your decisions around that. I think if you're kind of an executive, you may not have less control of this.

But to the extent, you have some influence push for something that's sustainable long term growth rate versus something that's like, look, I'm gonna really impress every I'm gonna push this really hard, lean hard on my employees and have a couple really good years of growth. I think if you're a long term thinker versus just short term thinking about getting some recognition, that should serve you well. And so, again, I don't feel this is well formed in my mind, but that's where I had directionally on this.

Kaihan Krippendorff: Yeah. I'm thinking I've I've been thinking a lot that I think that we don't consider investor relations as strategic, and what I'm getting from what you're saying is that truly should be strategic because know, you can say I think it was Jack Ma when he was the CEO of Alibaba. I guess he still is, but when he was very public, he would say, in our company, it's customer first and then employees and then investors. And if you don't like that, don't invest in us. You know, Amazon was able to track long term.

So thinking strategically about that alignment of your investor base with d seven is probably a one lever.

Dave Whorton: Absolutely. And that's what that's actually what What Buffet has said forever. Right? Which is he's so grateful because he's got the he's got the shareholder base he needs. To do the things he needs to do, because he is so long term focused.

He's so focused on long term compounding. So you're right. Bezos is there, Jack Mott's there. And I think that's that's a powerful idea too, which is are you gonna signal to the marketplace? What kind of company you wanna build for the very long term?

And if it feels more evergreen, let them know that. Now you may take a little bit of a hit on your stock price. I I I can't I don't know. Maybe when things are gone going really bad, it's the best time in the world to do it. Right?

Doesn't but I like that idea quite a bit. I think that's I think that's very thoughtful about kinda communicating to your shareholders even if they are public shareholders. But, again, ownership matters greatly. You can't set your purpose without the support of ownership. You can't set your strategy without their support.

You can't be put first without their word. It's just critical, and it's overlooked. I mean, just people don't even people don't even talk about who owns it. I'm having relation conversation, Jim Collins, about this. And he's such a great work.

He's been so influential on me, but I think the thing that I may have helped shift his thinking on was, like, well, ownership matters because most companies he studied republic companies because the data is available to him. And he allows to do really deep research and analysis on it. It's hard to get that same information in the private sector because private companies are private for a reason. They don't have to one of them is as you can actually operate confidentiality. And so so I think that got his gears going too.

Like, wow. You're right. You know, there's an element of this into longevity that has to do with ultimately who the owners are.

Kaihan Krippendorff: But we've reached out. We have to bump our time together. In the meantime, you're doing a lot of stuff to help People access this. You've got your Evergreen Journal. You've got your assessment tool.

You've got your membership organization. You've got your articles. Just tell us a little bit about how someone who's listening here and wants to continue the journey and continue learning from you, what is their best path forward? Yeah.

Dave Whorton: And I I like to clarify all of the best practices, all of the wisdom that we're sharing actually comes from this community and thought leaders supporting this community. It's not for me. I'm not the expert. It's really leaning on the best ideas from 300 CEOs of all these wonderful companies across industries and sizes and generations. And so the way we unlock that is, you know, we have a certain program for CEO members of the organization, and we have about 300 of those.

But what we've done this year, and I thought what was really important as part of the book is get the book out another way, you know, when Moe and I wrote together. And that tells a lot of the history and stories and best practices. We also have made the Evergreen Journal a subscription product where you can get the free version, which is fine, and you get a weekly newsletter. If you do have the paid version, it's just, you know so I think it's 99 right now, $99 a year. You can go and see all of our content.

All of our videos all of our articles over 500 pieces of information about best practices of building these wonderful evergreen companies. And we did something, especially for kind of CEOs and owners of small businesses, mid sized businesses. I'm called Evergreen Growth Navigator. This is all on my website, tegmans2.com. You go and spend about an hour putting a bunch of information in about your company and yourself, and then we generate a report for you that says, here's how we think you're doing against each of the evergreen seven piece on relative measure.

For each of those piece, here are roughly seven to eight of the best practices we see across the entire group of companies we work with. So think about those practices, and then we then based on what you gave us, we give you five specific customized opportunities we think would do the most advance your company as an evergreen type company. And that's just uniquely to the information you provided us. And so and we charge, I think, right now, it's $1,500 for that. And I think it's worth way more than that, but the goal of Tugoda Institute is to basically try to change the way we think about business to really empower evergreen founders and leaders and people wanna be able to be more successful.

And, hopefully, I feel this very personally. I hope it actually improves the lives of millions and millions of people because more companies come more people first and have greater longevity and are a greater service to their customers. And so, you know, if people are interested in membership, if they're interested in Evergreen Journal plus, called e j plus, or the Evergreen Growth Navigator, all those things you can find us through through our website tyburinstit.com.

Kaihan Krippendorff: Great. And we'll put the links to that in the show notes as well. Dave, thank you so much for the work that you've done and, you know, you're unique in your credibility or your experience, right, going from HP to VC to now evergreen and seeing both sides and personally experiencing both sides and creating VC backed companies and creating Evergreen companies. So thank you for doing that work. Thanks for packaging it as such a nice memorable framework and for taking some time to unpack that with us here.

Dave Whorton: Yeah. I really enjoyed the conversation.

Kaihan Krippendorff: Me too.

Dave Whorton: Thank you for taking the time with me.

Kaihan Krippendorff: Thank you. Thank you to our guests. Thank you to our producers, Karina Reyes and Zach Ness. Or editor, and the rest of the team. If you like what you heard, please follow, download, and subscribe.

I'm your host, Kaihan Krippendorff. Thank you for listening. We'll catch you next time with another episode of Outpace.