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Joe Mansueto: Founder Of Morningstar And Self-Made Billionaire | E79 · In Search Of Excellence

• 0:00
  Joe Mansueto: So my roommate and I just opened up our own soda service in our dorm room. We called it the room 607 Soda service. And we just bought two large refrigerators, put them in our living room and sold soda from our dorm room. I didn't come from a business background.
• 0:13
  Joe Mansueto: So I just thought was very interesting that you could kind of make money by finding a price discrepancy. And so that was kind of one little entrepreneurial moment. In my background, even when I started a business, you're never gonna hit a home run. If you don't step up to the plate, you know, to hit a home run, you gotta be willing to go into the batter's box and give it a try. And you know, it's kind of the old saying, it's better to ask for forgiveness than permission.
• 0:43
  Randall Kaplan: Welcome to a search of excellence where we meet entrepreneurs, CEOs, entertainers, athletes, motivational speakers, and trailblazers of excellence with incredible stories from all walks of life. My name is Randall Kaplan. I'm a serial entrepreneur, venture capitalist and a host of In Search of Excellence, which I started to inspire motivate us to achieve excellence in all areas of our lives. My guest today is Joe Mansueto. Joe is the founder and former CEO of Morningstar, a financial services and investment research firm that is one of the most recognized companies and finance, which provides investment research and investment management services to many millions of people around the world. Morningstar today has 8556 employees and operations in 29 countries manages over $290 billion in assets, or in $1.9 billion in revenue over the last five months. And it has a market value of $9.2 billion, all of which is earned Joe a spot on the Forbes 400 with a reported net worth of $5 billion. Joe also owns a magazines Inc and Fast Company as well as to professional soccer teams, the Chicago Fire in the Major League Soccer League, and sc Lugano and the Swiss Super League. Join us why Freekeh are also active in general philanthropists who have signed the giving pledge, which promises they will give away half of their net worth during or after their lifetime. Joe, it's a true pleasure to have you on my show. Welcome to In Search of Excellence.
• 2:09
  Joe Mansueto: Thank you so much, Randy, I'm delighted to be here.
• 2:11
  Randall Kaplan: Let's start with your family. You were born in Munster, Indiana, a small town near the Indiana Illinois border. Your parents met at a hospital your dad Mario was an ear nose and throat doctor and your mom Sarah was a nurse who later became a stay at home mom to take care of you, your brothers and sister. You've described your childhood as classic suburban Adeleke. Can you please tell us about the influence your parents had on your future and your success?
• 2:36
  Randall Kaplan: Yeah, my
• 2:37
  Joe Mansueto: parents were a huge influence. I think like most people, you know, I was blessed to be born into a very loving, supportive family. And great moral models. As you mentioned, my dad was a doctor, my mom was a nurse, and just very supportive of all of us kids. And, you know, whatever we wanted to do, they they found a way to support our dreams and aspirations. And I think more than anything, you know, in terms of advice, they gave us just watching them, you know, get up go to work every day, how they approach their lives, their values, the way they treated people. All of that I think rubbed off on myself and my siblings,
• 3:20
  Randall Kaplan: and you instill the same values in your kids today? Do you actually talk to them about these values? And say, these are the values I want you to have? Is that the kind of parent you are? Or do they just watch you and rica by example and follow all the great things that you do?
• 3:34
  Joe Mansueto: You know, it's more the latter. It's also my leadership style. In a rather than preaching a lot. And I know as a child, I think when people gave me advice, I tended to maybe discount it a bit, I thought I knew a little better.
• 3:48
  Joe Mansueto: And so I always, you know, look to others to learn from success.
• 3:54
  Joe Mansueto: But when people would tell me directly what to do, it wasn't as effective for me as watching what they did. And so I tried to set a good example for my kids.
• 4:03
  Joe Mansueto: And so just as my parents did for me, I think it's more by example, than telling them, oh, you should work hard, or you should do this or that. Because if the actions don't align with the words, you know, it becomes apparent very quickly to someone. And so, you know, I try and weave life lessons, you know, into dinner conversations where I can, but without being overly preachy, but I think it's more by the example, watching us. You know, how we look, my wife and I live our lives, treat people. You know that the kids see that? And hopefully pick up on that. And so far, you know, I've got three kids in college.
• 4:42
  Joe Mansueto: I think we're pretty pleased with the way they've turned out.
• 4:46
  Randall Kaplan: Let's talk about when you were a kid, you rode your bike around the neighborhood. You'd like to do things building model airplanes.
• 4:52
  Randall Kaplan: Can you tell us about your trips to the walnut room and the theater production you had in high school?
• 4:59
  Joe Mansueto: Yeah, you know, it as you may know, for someone who my age, childhood was very different than it is today, there was a lot of unstructured time. You know, if I ever said to my mom, hand board, she would say, life is figuring out how to deal with boredom, you know, go figure it out. And so we ride our bikes around and figure it out. And so, you know, we always like to, you know, do projects, whether it was you know, you know, a puppet show or theater, you know, I did theater in high school, putting things together.
• 5:30
  Joe Mansueto: But yeah, we used to love to come to downtown Chicago. You know, at Christmas time, the walnut room was a big place for people to go to at Marshall Field's the big department store downtown. And that was a pretty, pretty special moment to go downtown. We didn't always do that in Indiana. But it was a special trip to do that. And so but yeah, you know, just a really wonderful childhood, a lot of children in my neighborhood. So a lot of close friends. And a lot of unstructured time where, you know, we had to figure out what to do. You know, one of the activities I loved was amateur radio, what is called ham radio, building transmitters, receivers, and doing that with a group of kids and trying to figure it out. And I did that in grade school and, you know, wiring up antennas and using Morse code to talk to people around the world. I thought it was great fun. But I always like to do projects, we had to figure out I mean, this this, there was no internet, you know, there's not a lot of things to entertain us. So we had to make up our own entertainment.
• 6:33
  Randall Kaplan: He talked about the ham radio, your first entrepreneurial experience came in the sixth grade. Tell us about the ham radio, how much money you made? And what kind of impression it left on you. And what do you do with the money you made? Yeah, so
• 6:45
  Joe Mansueto: it's part of, you know, being a ham radio, we would go to these things called ham fests where people would sell their used ham equipment, transmitters, receivers, electronic parts. And I was pretty young, I probably was in like, fourth grade. And I went to one of these ham fest with a good friend of mine, who was also a ham radio operator, his parents took us and we were going through, you know, all of the, you know, the people with all their equipment. And I noticed there was a guy selling a Drake to V receiver, which is a top end, you know, very high end receiver normally sold for about $400, he was selling it for $200, or maybe a little less. And so somehow I asked, or convinced my friend's father to lend me $200 To buy this because I knew it was worth a lot more than that. And I ended up buying it. And then I put an ad in the ham radio publication and sold it for $400. Within the next year. And so I made $200, which is a fourth grader, you know, back then was, you know, a wealth of riches. But, you know, it taught me about, you know, that with some creativity, or just, I don't know, thinking and that you can figure out ways to make money, which, again, my father was a doctor, Mom was a nurse, I didn't come from a business background. So I just thought it's very interesting that you could kind of make money by finding a price discrepancy. And so that was kind of one little entrepreneurial moment, in my background.
• 8:24
  Randall Kaplan: As a fourth grader, how do you know even where to go on how to place an ad in a magazine? It's not like you can just go online today?
• 8:29
  Randall Kaplan: Did you? Look in the phonebook?
• 8:33
  Randall Kaplan: Did you look in the magazine and just call somebody up? I think that's pretty remarkable. I don't know another fourth grader or sixth grader? Who has ever done that before?
• 9:34
  Joe Mansueto: Well, there was a very popular magazine, Q SL, which is the greeting ham radio operators use when they talk to each other. There's three letters Q SL, published by the A RRL, the American Radio Relay League, and it was the Bible that everybody read every month.
• 9:49
  Joe Mansueto: And so this thing would come out every month. And I would read it from cover to cover. I don't have you know, articles on, you know, schematics to make transmitters, receivers, but in the back were all these ads that you could place to buy and sell equipment. And so it was in this journal that magazine that everyone read that I placed an ad.
• 10:11
  Randall Kaplan: You have the entrepreneurial DNA, it sounds like you. You had the ham radio sale. Tell us about the 607 Soda service in the shoreland dorm at the University of Chicago.
• 10:24
  Joe Mansueto: And that was another entrepreneurial experience in my background is you know, I was a student at the University of Chicago and the university just purchased a new dormitory, the shoreland hotel, converted it into a dorm and I was the first class to move into this dorm. And there was no place since it was a brand new dorm, no place to buy soda or snacks. And so my roommate and I I just opened up our own soda service in our dorm room. We called it the room 607 Soda service, because our room was room 607. And we just bought two large refrigerators, put them in our living room, called up the coke distributor, the Pepsi Pepsi distributor, and got lots of soda and sold soda from our dorm room. And it was it was a great way to meet everybody in the dorm, it was a self service model, we'd sit at our desk and study and there was a change dispenser people would come in, we'd leave our door remote, the dorm room door open people to come and help themselves from the refrigerator, get their own leave the money take their own change, while we studied. And we would both make about $500 A quarter from this little enterprise. And, you know, I did it as a curiosity, a way to make a little money. But also just, you know, I was just curious about business, how does this work. And so I found I really enjoyed it, it was a great way to meet people, people were happy, there was a place to buy soda. So you got that sense of fulfilling a customer's, you know, desires, their wants, and I just thought it was fun. And, and so that was a another entrepreneurial experience at a young age that I think came around, you know, be meaningful to me,
• 12:12
  Randall Kaplan: so many successful entrepreneurs that I know I think of Brad Keywell, who comes to mind, who's a very good friend who I'm sure you know, from Chicago, create a greeting, who created greeting cards at six years old, and he sold them. I think the nitty gritty of going and calling a magazine to place an ad in the magazine or calling a coke distributorship as a student, and convincing them to somehow sell you soda in a dorm room is really incredible. The entrepreneurs that I mentor out there, I tell them, one of my sayings is go get it. And it sounds like that's yours as well. How important is it to look beyond the first curtain and go to the third, fourth, or fifth or sixth step, to really get that relationship that you want to need to be successful going that extra mile that people don't really do.
• 13:08
  Joe Mansueto: Yeah, it's really important is to be proactive, and try. You know, there is a sense of when you do those things of being audacious, you know, this really work, you know, when the coke distributor first walked into our dorm room, you know, he kind of sighs and says, okay, like surprise, it's not a business, you know, a couple of kids in their dorm room, and you kind of get over that moment, and you think, Hey, this is going to work, you know, that he didn't just turn around and, and leave. And so there's that moment of, you know, boldness, you know, you know, there's a saying, from Gurkha, that, I like that, whatever you think you can do, or dream, you can do begin it, that Boldness has a, you know, a magic about it. And it's true, a little boldness does have a magic about it. And every time I've taken a step word, whether it was with Morningstar, taking out that first ad, there's that sense of WoW, or, you know, I sold Christmas trees at one point and putting up a sign on the street, you know, as a kid, and, you know, there's a feeling of a bit of audaciousness, that you're not sure if it's gonna work and but you find you're rewarded, you know, for that little courageous step of trying. And so, you know, for would be entrepreneurs, somebody who's thinking about, you know, starting a business, give it a try, you know, it feels a bit audacious it, you know, you're going a bit beyond your comfort zone. But that's how you grow, you know, by pushing yourself a little bit, and going a little beyond what you would normally do. And, as I say, it feels a little audacious to do these things. You know, I'm not normally allowed demonstrative person, so maybe for my personality, it feels even more, you know, audacious. But yeah, you're rewarded for those those steps, those little courageous moments of, you know, just starting it and giving it a try.
• 15:01
  Randall Kaplan: What I tell my mentees is what do you have to lose? If you don't ask, you're not going to get it? Is that your advice as well? And how do people get over the fear of doing all this? As you know, I have a summer, intern class shout out to Nick Skoch, for making the introduction to us today. Thank you, Nick. They're often wondering, and they often say, Gosh, I'm afraid to do that. Or it's too bold, as you said, what's your advice to them? If you don't shoot, you're not gonna score?
• 15:31
  Joe Mansueto: Yeah, I've always thought of that. Even when I started a business, you're never going to hit a homerun. If you don't step up to the plate, you know, to hit a homerun, you've got to be willing to go into the batter's box and give it a try.
• 15:43
  Joe Mansueto: And, you know, it's kind of the old saying, it's better to ask for forgiveness than permission.
• 15:45
  Joe Mansueto: You know, if you wait and kind of, you know, make sure everything's okay. A, you may have missed the moment. So just give it a try, as you say, what did you got to lose? When you think about it, you know, more, you know, in a cold clear way, there is really not a lot of downside. And so I think you've got to be willing to be, you know, to stand out and it's not always going to work. But you'll learn something by the experience. And you know, it's not going to be fatal. It's not going to be terrible, you know, and I think people often let their imagination get away with them a bit. And they think you know, of the downside too much.
• 16:27
  Joe Mansueto: And I think you have to be a little more convinced of the opportunity, what you're trying to build, and have a passion about something and think of what you're wanting to accomplish. And let that be the focus and not that negativity of what could go wrong.
• 16:42
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• 17:00
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• 17:50
  Joe Mansueto: You have to remind me of this Randy, my slogan as a young market tear. Yeah, and so one one December, you know, I just decided to, you know, make a little money. And so, back in my hometown of Munster, Indiana, actually was the neighboring town of Hammond, Indiana, there was an empty lot that I knew about. And so I just, you know, I rented a flatbed truck, I went down to the Water Street Market, bought a, you know, a truckload of Christmas trees, brought him down to Hammond, Indiana, and set up shop, you know, I cajoled a cousin of mine to help me out.
• 18:27
  Joe Mansueto: Because it was kind of long hours, it was cold, I needed a little help. And yeah, just painted a sign, you know, fine pines and awesome blossoms. And people would stop by. And it was a great experience, you know, it lasts a month. But I quickly learned, you know, I kind of broke even on this, that managing your inventory is the key to success, that I earned enough money to pay for the electric lights, the fencing, the inventory. But my profit was really the inventory that was leftover, maybe about you know, 3040 trees, I miscalculated a bit, you can sell your very last tree, you've got to have, you know, some inventory. And so inventory management not having too many trees, not having too few trees. I mentioned it's the same in car dealerships a lot of businesses, but managing that inventory is is going to be a key to turning a profit. And so I broke even, you know, I learned a lot. But to me, it was a more of a learning experience, too. I'd hoped to make some money. My profit was really the leftover Christmas lights that lit up the lot, you know, the fencing, all of this equipment that I had purchased, I guess that was my profit, too. But we had so much fun, you know, it's hard to you know, to underestimate the joy. You know, when you sell a family with young kids a Christmas tree, the kids are just so excited, delighted. And so really seeing the light in the customers eyes as they take away one of the trees that you that you have set up in your lat you know, it was just a lot of fun, and the snow is lightly falling. And it never seemed cold to me, but I'm sure it was very cold. It was just a very warm, you know, fun experience that I did for a month. But you know, another data point and kind of this entrepreneurial journey that I found myself, not consciously just kind of out of curiosity kind of going down.
• 20:29
  Randall Kaplan: So Christmas time it's a fun time as you mentioned family happy times.
• 20:31
  Randall Kaplan: You said that one of the reasons why you did the Christmas trees and sold them was to make the world a better place. You've also mentioned that it was fun.
• 20:43
  Randall Kaplan: Should starting a company be fun and if it's not, and you see a huge business opportunity in front of you should you do it anyway.
• 20:49
  Joe Mansueto: I don't think you should. I think Should be fun, it should be something you're extremely passionate about.
• 20:57
  Joe Mansueto: You're going to spend most of your waking hours at this endeavor, so you better like it.
• 21:00
  Joe Mansueto: You know, if it's a big opportunity, but you don't like it, I don't see the point in pursuing it. You know, you better find something you really enjoy. You know, I've been fortunate, I don't think I've worked a day in my life, you know, at Morningstar. I've enjoyed every minute of it.
• 21:16
  Joe Mansueto: Yeah, there's ups and downs.
• 21:20
  Joe Mansueto: But, you know, it's a journey of building something. And so I think like most entrepreneurs, I would counsel you know, would be entrepreneurs to find something they're passionate about something they enjoy doing.
• 21:32
  Joe Mansueto: Otherwise, I think you're nuts.
• 21:35
  Joe Mansueto: I don't know why you'd want to pursue something that you don't enjoy doing. And so find something where you can kind of turn your passion, you know, into a business opportunity, or find an opportunity around something you're passionate about, then you'll throw yourself into it hook line, and sinker. And your odds of success, I think, will, will dramatically escalate.
• 21:56
  Randall Kaplan: When you graduated, you and your roommate, Kirk started a firm called strategic Media Research, which conducted market research for radio stations, you didn't like that. You're not passionate about that. So you laughed. And as you mentioned, passion has been one of the keys and the important ingredients of things that you've wanted to do in your success. How important is perseverance is part of the passion. And are they closely related first cousins? Are they brothers and sisters?
• 22:24
  Joe Mansueto: No, that's right.
• 22:24
  Joe Mansueto: So right at a business school, my college and Business School roommate and I started a business, doing research for radio stations. And that was his passion. He had worked for radio stations in downtown Chicago through college and Business School. And we had an idea around that, that we both worked on for a couple of years, but not for a couple of years. That was his passion, not mine. And so we're still great friends today. He's still one of my best friends. He's still doing that, that business. And but I left and wanted to pursue something an entrepreneurial business around my passion, which is investing. But it was still an important experience for me, I saw in a little more and more depth how to put a business together through that experience. So that was a very important for formational experience for me, was starting that business. But then, you know, that I guess the second part of your question, perseverance is huge for entrepreneurs, you know, that you're gonna have ups and downs.
• 23:31
  Joe Mansueto: And it's interesting, I do a lot of a fair amount of venture investing today. And I often debate with the person who helps me with this venture portfolio, you know, is it the business idea, or the, the entrepreneur that makes the difference? And we kind of look at, you know, our history of investing, and invariably, it's the entrepreneur. And if there's somebody at the helm, who just does not want to give up, will not give up, and will iterate, you know, and revise and find ways to make it work. And the original business plan is typically not what works, but never rains. And it's something else that works. And the entrepreneurs who fail are the ones where the initial plan doesn't work. And then they say, well, that's just business, you know, not all of these work. And they've kind of close up shop and move on. But the successful ones iterate and find a way to make it work. You know, I remember I worked with, after the radio business, a venture capital firm, a guy named Carl Toma, who has a very successful venture firm today, Thoma Bravo.
• 24:44
  Joe Mansueto: And, you know, Carl would often say, there must be some way to make this work. There's got to be some way to make this work.
• 24:51
  Joe Mansueto: And that always stuck with me, you know that there's got to be some way that if you think about a problem long enough, hard enough, it's kind of like a physics problem or something you the problem, the answer isn't apparent. In the first couple of minutes you look at it, but if you noodle on it, and keep at it and keep chipping away, it keep peeling away. Eventually you come up with a solution. And so it's that perseverance, that things that seem very daunting, impossible. At first blush, if you keep at it, and keep chipping away you keep chipping away and you refuse to give up take no for an answer that it can't be done. I think ultimately you'll find some level asst success.
• 25:36
  Randall Kaplan: We look at it the exact same way as an entrepreneur when we started our first tech company. And even before then I had the mentality that if someone dropped me off in the middle of the Pacific Ocean, with a wrath I was going to find land, no matter what That's the mentality I always had never gonna give up. And that's exactly what we look for in founders for companies that we look at and put money into.
• 26:02
  Randall Kaplan: Like you I've gone back, I've looked at the deals that I've worked, look at the deals that have not worked. And to use your exact words, it's invariably, the founder or founding team that makes the difference here when funding companies 100% of the time, and like you said, it almost never ends up how you started. So every business plan we look at, we say, Okay, well, what can go wrong here? And the answer is tons of things and things you can't even think of, as you think of all the things that go wrong. And it's been fun to coach and mentor and watch people iterate on their business, and just go through all the bumps and the bruises that every single one of us go through when we build companies.
• 26:47
  Randall Kaplan: And I think
• 26:49
  Joe Mansueto: it's much easier to do that, if you're really passionate about the area that you started the business in. If you started it, just because it's a big opportunity, you're more likely to, you know, give up on the downturn. But if it's something you're passionate about, I think you'll see the odds of you sticking with it, and pushing. But I think you're absolutely right, Randy, that mindset should be there that I'm gonna find a way to make this work. And now there's got to be some way to make it work. And like you in the rock life raft, you'll find land eventually.
• 27:19
  Randall Kaplan: So many entrepreneurs, for lots of reasons, don't they start companies and they don't work, they go bankrupt. They do try to try different things to work, sometimes they just don't work.
• 27:30
  Randall Kaplan: Do you find entrepreneurs who have failed before? And if so, what do you look for when they come back a second time?
• 27:39
  Joe Mansueto: Yeah, I wouldn't find an entrepreneur who has failed before. I mean, I think that's a great education for somebody. You know, I've done that. And, you know, I asked them what they learned with their failure. And, you know, one common thing that people have learned who do it a second time, is that, you know, they spent money to freely make, they raise money. And then they ended up divorced, they went out of business, so they ran out of money. And the second time around, they're much, much more frugal. Right. And, and I do think it is often the second business that really succeeds even for me, you know, we mentioned the radio business.
• 28:17
  Joe Mansueto: And I did that for a year or two. And that was never really a home run. You know, it survived, but it never flourished. You know, I love my co founder there. But I think we had different attitudes about spending money. And we would often argue about, you know, ways to spend money and, and so it was really liberating for me, once I started my own business, I could spend money or not spend money, you know, in ways that made sense to me. And so I learned something through that experience. And so I think somebody who's gone through that, you know, the odds of success actually go up. Somebody who's failed before, to me, it's not a black mark on somebody.
• 28:57
  Joe Mansueto: And it's almost the reverse. I think it's a positive.
• 29:00
  Randall Kaplan: I've been saying for years, again, as part of my mentorship program, and to my mentees, if you're going to be buying McDonald's, Go, get behind the counter for two months, and go work in the kitchen, and do your own due diligence that way. And I think due diligence is so important in deciding not only what we want to do in life, but just to learn it's true. And the venture deals we do some of our biggest mistakes, have been relying on big venture firms who are investors in the deal that they've done all of the due diligence, so we don't have to do our own. And that's been a disaster at times. You had a stint at Arby's, which for those of us, for those of you who don't know, out there, it's a fast food sandwich chain with 3300 stores around the country.
• 29:45
  Randall Kaplan: Tell us about Arby's, and your experiences the night manager, and what you learned in that job.
• 29:52
  Joe Mansueto: Yeah, so one of the ideas, I had crazy ideas.
• 29:57
  Joe Mansueto: After I wound down the left the radio business was a concept for healthy fast food. And so I like to take care of my health. I like to eat right, I like to exercise. And I looked around at the food options, the fast food and was dismayed. This is pre Whole Foods and, you know, and I thought, you know, there could be an opportunity with healthier, fast food. I'd worked at a few restaurants, you know, in high school, dishwasher, kitchen prep, but I've never really managed one. So I thought you know, before I embark on this, it's a big endeavor to start a business. I better go see what managing a restaurant is all about. So I went and I worked as a night manager at an Arby's in Chicago and I've found I absolutely hated it. It's, you know, God bless those who work in restaurants, I found restaurants kind of the hardest work for the least amount of money. But you've really got to manage the personnel tightly.
• 31:05
  Joe Mansueto: It's tough to turn a profit.
• 31:05
  Joe Mansueto: It's hard, exhausting work, you do a swing, shift your work, you're up late, you've got to be up early the next morning. And then I just found I wasn't that passionate about it. And so after a couple of months, I said, Hey, this isn't for me.
• 31:19
  Joe Mansueto: And that's when I pivoted, but it was a great learning experience. And you know, thank goodness, I didn't put any capital into actually starting something. But I think like your advice to would be entrepreneurs, It's spot on, I give the same advice. You know, to somebody very young, if you've never worked in that area that you're thinking of starting a business, by all means, go work in that area for a year or two, maybe not too long, but a year or two, and learn on someone else's dime, you'll get invaluable experience that trust me, will be extremely valuable to you, when you go to start your business in that field.
• 31:57
  Joe Mansueto: Even if it's you find out hey, I don't want to do this. I know many would be lawyers, you know, before they go to law school, they work as a paralegal and they think, Hey, this is not what I thought law was. It's not like I saw on television. And then they scrapped the whole law school plan. And so to, you know, have that experience of you know, try it a little bit, get some experience, because it might not sound like it looks reads in the brochure. And so you really need to go try it.
• 32:25
  Joe Mansueto: And I think your advice is, is really really valuable.
• 32:28
  Randall Kaplan: Are you looking for your next great gift to surprise a friend colleague or loved one bliss beaches makes the perfect gift. This best selling bright and beautiful coffee table book by Randall Kaplan features stunning drone photography from exotic beach locations around the world is the perfect housewarming gift a great addition to any home or office. And a fun and creative alternative to bringing a bottle of wine to somebody's house for dinner bliss speeches is available for purchase on Amazon, where it has glowing reviews and a five star rating get your next amazing gift and order a copy of bliss beaches by clicking the link in our show notes. I worked at a restaurant.
• 32:58
  Randall Kaplan: Also in high school and college I was a waiter at CHI cheese.
• 33:02
  Randall Kaplan: And I learned so much about customer service, serving people who some are nice, some are mean some are generous, some are cheap, and just the constant need to please people and beyond your game all the time. How important is customer satisfaction and customer service to our success, and building companies or in just being professional in a regular company?
• 33:29
  Joe Mansueto: Well, it's huge.
• 33:29
  Joe Mansueto: It's what it's all about in our satisfying a customer. You see it when you sell a Christmas treat as someone you sell them soda from your dorm room. You know, you can look in the customer's eyes, are they happy or not. And it's at a very granular level, you experience it just as you did when you were a waiter it teaches. And so everyone should have that experience. If you're too far removed from that customer experience, you know, your back coding and the back room, you don't see how customers interact with your software, I think it's gonna be really hard to understand, you know, if the product you're or service you're delivering really resonates with your audience. And so I think you've got to get up close, and have that experience on a very personal level. And, and I always counsel you know, people at Morningstar, get out, you know, meet with advisors go to their space, see how they use our products, I think you have to experience it, and not just, you know, look at feedback forms and surveys. And to me, business is very personal, you know, one at a time. You know, people vote with their dollars, you have to get their dollar to win. And so you've got to get out there and see it firsthand. And so having some experience like that learning to deal with people, hugely valuable. So I wouldn't, you know, have learned something from every job I've had good or bad of what to do or what not to do. And just like you, in your restaurant experience, super valuable to get any work experience. I tell that to my kids, you'll learn something from every job.
• 35:10
  Randall Kaplan: So many of us who have had some success in our life have experienced the moment where something ignites us. We said, Ah, gosh, that's incredible. I want to do that. I know what I want to do. I know that I want to be in this business. As we move through your career. Can you tell us about the acorn fund and Roger Langer and Ralph Langer and the book the money masters by John train, and this really obscure money manager whose stock was trading at $300 A share at the time.
• 35:41
  Joe Mansueto: Yeah, that was my epiphany. And so, as you mentioned earlier, you know, I went to business school after college, then versus Chicago, and I learned all about efficient markets. I understood it, I got it. But the message I learned was You can't beat the market. So fire your stock analysts invest in passive index funds, which was a bit revolutionary at the time today, it's kind of common, accepted practice. But fortunately, I read a book called The money masters, as you noted by John train, which is a fantastic book, if you're interested in investing, I would recommend it.
• 36:17
  Joe Mansueto: And the first chapter is on Warren Buffett, the obscure money manager who you referenced. And when I read that, you know, the light bulb went off in my head, that here was an approach to investing.
• 36:26
  Joe Mansueto: That made a lot of sense to me.
• 36:32
  Joe Mansueto: And moreover, here was somebody who did it with integrity. love doing it, did it with humor and zest enthusiasm. And that's when I really, really got interested in investing. And you're right Buffett at the time. He's a household world household name today, but at the time was very obscure. Berkshire Hathaway.
• 36:56
  Joe Mansueto: Today, it's in the hundreds of 1000s of dollars as a 500,530 $1,000
• 37:02
  Randall Kaplan: as of yesterday, 31,000. That's 1770 times where it was trading. Back in the day when when you were a Warren Buffett, devotee for the first time.
• 37:18
  Joe Mansueto: Yeah, it was $300 a share. Buffett own half of it, his net worth was $150 million.
• 37:21
  Joe Mansueto: And yeah, it was obscure. But again, this was it was more the reasoning, the approach that really resonated with me. And that's what got me super excited about investing. Again, I learned about it at the University of Chicago. It didn't excite me, but reading about Buffett his approach. So then I was like a sponge. I went read all the Berkshire Hathaway annual reports. He describes his philosophy and more depth. I ended up you know, working at an investment firm in Chicago Harris associates, which practiced a warren buffett style of investing. And I got to know that firm because I would do my research on companies that, you know, were kind of in the Warren Buffett, mold, you know, the types of companies he liked to invest in, and often looked down, and I saw that the largest shareholder was Harris associates. And I kept, oh, who is this firm? So I went and I did my research on this firm.
• 38:21
  Joe Mansueto: And I saw that, you know, they were the largest institutional shareholder in Berkshire Hathaway. And so I went to work there. And they had a fund at the time the acorn fund, run by Well, Franco Langer. So I got on the inside of an institutional money manager, but also got an inside peek into a mutual fund and how that worked. For those
• 38:46
  Randall Kaplan: of our listeners and viewers who don't know what a mutual fund is, can you explain what it is? And how many there were back in the day?
• 38:54
  Joe Mansueto: Yeah, so a mutual fund is a pooled investment vehicle. So investing in stocks, instead of investing in stocks directly, you buy a mutual fund, and you'll get a whole portfolio. It could be 50 100 stocks. So you have instant diversification, you have low cost, and you have professional management with one purchase.
• 39:14
  Joe Mansueto: And so these are the best way, I think, for most investors to go about investing in the stock market, and to take advantage of the capital markets. So if you love investing and want to do your own research, it's perfectly fine to invest directly in stocks. But if you want to delegate that to a professional money manager, that's what mutual funds are for.
• 39:39
  Randall Kaplan: So we talked about the ignition moment that many of us have on our path of success. For many of us. There's also an aha moment. Can you tell us about the type of research you did sending away for prospectuses the problems that people had accessing good informations, and then one night, your one bedroom apartment on Clark and Wrightwood Avenue what happened that night?
• 40:04
  Joe Mansueto: Yeah, so one of the things I would do to teach myself about investing is to right away to mutual funds run by great money managers. People like John Templeton, Kurt lidner, Albert Nicholas, there's a whole host of really terrific money managers who ran mutual funds. And I'd right away to get their materials to get their quarterly reports, their prospectus is and I would look at their holdings to see what they were buying. And then try and reverse engineer the thought process. So John Templeton is buying HSBC bank. Why is he buying that bank? What did he find attractive about it? And then I would go research HSBC.
• 40:47
  Joe Mansueto: And so I did this to teach myself about stock investing.
• 40:51
  Joe Mansueto: But as I did that, and I had all of these mutual fund reports, you know, on my dining room table in my, on my apartment, in my apartment, it occurred to me, there's a lot of great data, it's a huge hassle to send away, you know, to right away to all these mutual funds, call them up every quarter to get their materials, that there's a lot of good information here for investors. And if you are investing in these funds, there's not a lot of good sources of information that you could turn to to make an intelligent choice. And so the light bulb went off that, hey, if I could compile all of this information into a compendium, I could help investors and mutual funds make better investment decisions. And that was the aha moment. And I started to look more deeply at the mutual fund industry. And I could see it was growing. You know, there was about 400, equity mutual funds in the country at this time. You know, it was, you know, very small, you know, maybe a few 100 billion dollars today, it's in the, you know, in the US probably 25 $30 trillion double that globally. And so it was a very small, obscure industry, the mutual fund industry, but I was really enamored with the concept of a mutual fund. Again, I thought it was the best way for the average investor to go about investing. To me, it was very, very democratic notion that, you know, Joe sixpack, the guy working at a steel mill could have the very best money managers managing his investment savings for pennies on the dollar, before mutual funds, that was only open to the Morgans, the Rockefellers, people with a lot of investment assets, who could hire great money managers. But with a mutual fund, you know, the average person could get the very best money management talent at very, very low cost, and get instant diversification.
• 43:02
  Joe Mansueto: And so I felt evangelical about these things that more people should know about them. And people should be able to find the right ones to meet their, their needs and their risk tolerances.
• 43:16
  Randall Kaplan: I think there's great opportunity for individuals and start companies to compile data that's very, very difficult to do. It's very manually intensive. And as a founder, you need a large team to do it. Morningstar motivated me and when I saw what you were doing, to start Sandy, my beaches company, we have created the largest beach resource in the world. The beach travel industry, tourism industry is $5 trillion a year. Most people don't realize that when they think about the beach business, they don't think about it that way. And we started out eight years ago, saying, Okay, this is interesting. I was on a trip with my wife, Madison, then my girlfriend, and we were looking for a black sand beach and Santorini. And we were staying in a nice hotel, I only mentioned the fact that it's a nice hotel, because the concierge there should know a lot more about what to do and where to go and beaches, especially in Greece than a regular person. And she got out of paper map and unfolded it and drew with a sharpie, a place on the map where it looked like there was nothing there. There was no longer the line to the road. She said I think there's an old Barnhouse out here so we drive out there and a Mini Cooper Fiat convertible, I don't remember was a hot day convertible down 90 degrees, no water, a bathroom and a shower.
• 44:34
  Randall Kaplan: We get out there. There's tons of old barns out there. We don't see a road but we saw something that could be a road with weeds taller than the car, a Field of Dreams moment where the the cornfields are taller than the person and you can't really see so we said all right, you know, she said, I think that's it. I said I really don't want to go.
• 44:55
  Randall Kaplan: I was thinking of the movie Taken where people get kidnapped in a foreign country. And I'm thinking there's no Wi Fi and of course no cell service or body's not going to be found or we're going to be held for ransom and killed. And we ended up I didn't want to go my wife is younger than I am more adventurous. And she said let's go so wanting to be a good boyfriend and curry favor with her. I said alright, we'll go and we were driving for a mile. Joe on this road. It didn't even look like a road it was divots and potholes. And we get to this clearing and that was the aha moment where we said okay, there's this beautiful black sand beach with this beautiful light read slate that we laid out on and we said Gosh, this is this incredible. This was really hard to get to so I went back to my hotel I google old Greek beaches. And of course it was in Greek dodgy RSI change it to.us. And I thought, okay, and there were just Mom and Pop websites. So I thought, Okay, this this, there's got to be something more than this, I went back to check the US there was nothing like this. And so I thought, jeez, this is this is a really difficult problem.
• 46:11
  Randall Kaplan: There's 212 countries throughout the world, you can't really google how many beaches there are, no one's going to give you that we have over 100,000 beaches in the database. And we had to do things similar to what you did is we had to say, Okay, what's the information people want, but the information they care about the most. So we came up with 100 categories of data.
• 46:31
  Randall Kaplan: And it's taken us eight years to compile the data. As I said, we have over 100,000 beaches and 100 categories of data for 212 countries. And when people go to book, a vacation, or a beach vacation, they check on average 40 different websites. And if you're looking at beaches, you can't get everything on one page and one website. Some of these are usually blogs, their TripAdvisor their reviews. So we said are we want to make a one stop shop here. And as I thought about the problem, I thought, well, Morningstar did this. And I knew Morningstar. Well, I don't know if you know this, but when I was working at Sun America, all the bankers would come in, you know, the Goldman bankers and the Morgan Stanley bankers. And I was technically in the corp dev group, although I reported to the CEO and our founder. And we were looking at companies to buy and Morningstar was on the list. And so I was the research guy, it's something I was very good at, I could find things that people couldn't find. It's been one of the hallmarks of my success, but it's really your company. And then there was also a company called Saving for college.com, which you probably know, when 529 plans came out. It was the same thing, you know, 50, states regulated, some had mutual funds, you looked at fees, and they created a huge business from that. So I said, Geez, you know, this is another similar problem to Morningstar, where it's a huge business, no one's done it, why haven't they done it is difficult to do. And that's what we created at at Sandia. And it's been, like you said, a ton of fun, you're passionate about the financial business. I love beaches, it's my happy place. And it's been so fun to create something where you tell them what you're doing.
• 48:27
  Randall Kaplan: And they said, That's a great idea. It's not like one of our venture portfolio companies where we have a new water with new pH levels, or vitamins or whatever that is, or pips i Yeah. Okay. It's fun to say, here's what we're doing here, Sandy, and every single person says, I love the beach. That's a great idea. So I'm going to give you some thank you to being worthy of starting my company, Sandy, and I'm hopeful we'll have a successful resolve similar to what you've done at Morningstar. It's taken you I know, more than 20 years to build a very successful business, but one step at a time.
• 49:09
  Joe Mansueto: I love your idea, Randy. And, you know, kudos to you for pursuing it. And I'm glad we had a very small part and inspiring you to, to build a database and get it done. And, you know, you were you were smart, you know, you had an area that you're passionate about beaches, and, you know, you've found that there was a void of information. And it's not easy to compile the data, you found a way around that you got over the obstacles, you got it done, and you're having a great time doing it. And that's exactly been my experience at Morningstar. And so, you know, it's a double edged sword, if it was easy, would already be done. Right.
• 49:45
  Joe Mansueto: And so the fact that it's hard, you know, that's the opportunity. And so it shouldn't bother somebody that it's hard to do. It may take a little brute force to compile the data in a little manual key stroking in and, you know, paper copies of this and that, and it's not all efficient from day one. But you get started, and you build it and you get customer reaction. So I love your idea.
• 50:11
  Joe Mansueto: You know, I wish you all the best and I will use your site after this conversation. That sounds fantastic.
• 50:19
  Randall Kaplan: Thank you. We talked about research something that you did very well something I've done very well. I think it's a lost art. How important is it to dive into the nitty gritty and do your own research when starting a company or even thinking about going and finding a new job because a lot of time the grass is not greener on the other side. You just haven't done your research to know what it's like when you're gonna get there. Yeah, it's hugely
• 50:43
  Joe Mansueto: important to do your research. I wouldn't rely solely on research. It's got to be researched plus your instincts and your you know, your Your judgment. But, you know, I know when I interview somebody at Morningstar, if they haven't done the research on our company, you know, the odds of them getting a job go way down.
• 51:02
  Joe Mansueto: It's over. It's like if you haven't done your research, and so it's kind of table stakes these days to do the research, you've got to do the research.
• 51:14
  Joe Mansueto: And today, there's no excuse, the data is out there. It's not that difficult. But you know, when I started, as I mentioned, you know, the investment company Institute has a lot of data on mutual funds, how many there are, are they growing, you know, who's buying them. And so, you know, you want to immerse yourself and all of that data, and it's a mosaic, you don't want it, you want to pull it in from wherever you can get it.
• 51:37
  Joe Mansueto: And the more data you can have from different sources, quantitative data, talking to people, you know, and getting their judgment. You know, you know, hugely important and so anything that ups your odds of success, you know, it's going to be time well spent, it'll have a high return on investment. And so, yeah, you've got to do your research. And, you know, that's just the beginning. But you've got to lay that foundation.
• 52:05
  Randall Kaplan: Thanks for listening to part one of my amazing conversation with Joe Mansueto, the CEO of Morningstar, be sure to tune in next week to part two of my awesome conversation with Joe