Why Real Ownership Outperforms Experience, Capital, and Credentials [The Knowledge Project Ep. #237]

Charlie Munger once asked me: ‘How can someone give away fifty percent of profits and make billions more than if he’d kept it all?’ Before I could answer, he told me about Les Schwab, a tire shop owner who understood incentives better than almost anyone. 

What Schwab discovered will change how you think about business.

Public Release: July 15.
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8 Lessons from Les Schwab:

1. Win Win – The Math of Generosity: Les discovered that splitting profits 50/50 with store managers didn’t cut his wealth in half, it multiplied it. His reasoning was pure math: “If I share half the profits, I still have half. And if Frank makes more money, he’ll work harder to make the store successful. If the store is more successful, my half is worth more than my whole used to be.” He gave away billions to make billions more. You get rich by making others rich.

2. Skin in the Game – Make Them Owners, Not Employees: Les didn’t just share profits, he made managers earn their ownership. The deal: manage the store, take your salary, and get 50% of profits. But here’s the catch: you can’t withdraw your profit share until it equals the initial investment. The result? Zero manager turnover. Don’t pay people to care. Make them actual owners with skin in the game and real money on the line and they can’t help but care.

3. Think in Decades, Act Today: Investment bankers offered Les astronomical sums to buy his company, enough to make him one of America’s wealthiest men overnight. He refused every offer. “What would I do with the money?” The real answer: selling would destroy the profit-sharing culture that made thousands of employees wealthy. New owners would “fix” his inverted pay structure. Les thought in decades while acting with daily urgency. By 2020, that patience paid off, the company sold for $3 billion, preserving the culture even after his death. Build something worth keeping, not just worth selling.

4. All-In or All-Out: At 34, Les sold his house, borrowed against his life insurance, and scraped together $11,000 to buy a failing tire shop with no running water. He’d never changed a tire. His competitors had decades of experience. But Les had something they didn’t: no backup plan. That total commitment forced him to figure it out. One year later, he’d quintupled revenue. Half-measures guarantee half-results. 

5. High Agency: Everything is your job. Les bought his first tire shop having never fixed a flat in his life. Day one, a customer needs tires mounted. Les fumbles with hand tools on the cold concrete, making a complete mess until his employee arrives. He insisted on being taught so the situation never repeated.. Within a year, sales jumped from $32,000 to $150,000. He treated every problem as his problem, whether he knew the solution or not. Sometimes, the only qualification you need is the willingness to figure it out.

6. Reputation Works While You Sleep: In the 1960s, Les made a decision that seemed insane: he removed all tire manufacturer signs from his stores. Back then, tire shops were essentially Goodyear or Firestone franchises, the signs meant manufacturer support and co-op advertising money. Les gave that up to put his own name on every store. He bet customers would buy based on who sold them, not who made them. Within a decade, “Les Schwab” became more powerful than any manufacturer brand in the Northwest. Your name is either making you money or costing you money. There’s no neutral.

7. Go Positive, Go First: Les instituted free flat repairs for anyone, customer or not. Competitors called him crazy. Why fix flats for people who bought tires elsewhere? But Les understood reciprocity: humans are biologically wired to return favors, even unearned ones. Those free repairs created a loop, strangers who owed him nothing suddenly owed him something. Most businesses wait for the transaction before the service. Consistently going positive and going first is the most powerful force in the universe. 

8. Dark Hours: Every morning before dawn, teenage Les ran his paper route. Not biked, ran. For two months, he sprinted through dark streets on foot, saving the for a bicycle. His classmates were asleep. He was earning. By senior year, Les owned all nine routes in town. He’d wake at 4 AM, deliver hundreds of papers, then show up to school. Your competition is asleep from 4 to 7 AM. That’s three free hours to build your lead.