CaptiveAire, the number one firm of its kind in America, turns 40 this Sunday, October 30. In honor of that milestone we like to reintroduce you to the courageous capitalist who founded and has led this company to its success, Bob Luddy. — Ed.
This is the thing about unsung heroes: almost nobody has heard of them, almost nobody appreciates what they’ve done. The fact that their lives benefit the rest of us is a happy accident that we should be grateful for, and would be if we knew…
Every once in a while you have a chance to meet such a person. Those conversations can literally change your life. And even if they don’t, they’ll renew an optimism about this great experiment in liberty and free market capitalism which we call the United States of America.
I had a chance to speak with such a man: Bob Luddy, the CEO and founder of CaptiveAire, the nation’s leading manufacturer and supplier of commercial kitchen ventilation systems. Mr. Luddy is an unapologetic capitalist, a man of deep principle whose second-greatest satisfaction in his professional life comes from creating a successful group of private schools to offer an affordable high-quality alternative to the low-quality “education” and incessant indoctrination that pollute today’s public school systems. His greatest satisfaction comes from continuing to grow his business, now at over $300 million in sales annually.
For those of you who have read Atlas Shrugged and know that my son’s middle name is Rand, you will understand how high a compliment it is for me to say that Bob Luddy is the closest embodiment I’ve ever known to Hank Rearden. That Mr. Luddy exists is reason enough to believe all is not lost for America.
I began by asking Mr. Luddy to introduce himself…
Bob Luddy: I’m Bob Luddy, the CEO of CaptiveAire Systems. The company was founded in 1976, initially as an installer of fire suppression systems, and eventually we got into the business of manufacturing commercial kitchen ventilation systems.
Ross Kaminsky: What drew you into the original business and what caused you to believe you could evolve it into what it is now?
BL: In 1974, I moved from Los Angeles to Raleigh (NC). I found a job selling fire suppression systems to restaurants. I worked there for two years — small business, second generation. The owners were fine people, maybe not the best business people in the world, and after two years they decided that they had to cut everybody’s salary by one third. They weren’t going to lay anybody off but they were cutting salaries pretty severely. That was on Sunday. And I decided Tuesday night that I would resign and basically compete with them, which was Mission Impossible but I made it work.
RK: So your goal all along was not to be a small business, but to start something and build it into something big and substantial?
BL: No, my initial goal was just to make a living. But in year one, I did really well so my aspirations grew. So even though at first our cash flow was terrible, and we had many many struggles, business grew from nothing to about $2 million in a four-to-five-year period. And that’s when I decided, OK, let’s see if we can really grow this business.
RK: I’ve seen small businesses that ended up failing because management couldn’t handle unexpected early success. How did you manage that kind of success as someone who really hadn’t been in that situation before and what would your advice be to someone who starts a new business and finds it doing well, maybe better than they were prepared for?
BL: There was a point in time, let’s say 1980, when I said to myself, “Look, you know a certain amount about business but you don’t really know how to run a top-flight business. You don’t know how to grow.” So a recognition that my skills needed to improve dramatically and continuously — I think that was the key point. Many times, small business people — or even big business people — pretend that they know what they’re doing. I think the correct way for an entrepreneur is to say, “I know what I want to accomplish. I don’t know how to do it. I’m going to be on the fastest learning curve I possibly can to figure out how to do it.” I think it’s humility and a learning curve, because as soon as you start feeling good about yourself or cocky, you’re dead meat.
BL (cont.): One caveat I’d add to that: As CEO you need tremendous listening skills. And it doesn’t mean that you always act on what you hear but you give it a fair hearing. Very often people volunteer information that you need to make a better decision, or just tell you you’re making a wrong decision. You need to think it through carefully and still be yourself, but if you ignore those prompts you’re going to make a lot of mistakes you would not have made otherwise.
RK: When you realized there was a lot you didn’t know, did you try to hire experienced people for CaptiveAire?
BL: Here’s the issue: I had virtually no success with experienced people in sales, engineering, and management. And it took me a long time to figure out why and the reason is that what we’re doing is all new, all creative, and as Professor Clayton Christensen said, creating the future is about new theories. So you have an experienced guy and you give him a new theory, he says, “You’re wrong. I know how to do this.” In my view, conventional thinking is the first step on the path to failure.
RK: What does CaptiveAire do that sets it apart so dramatically from your competition?
BL: We’re looking for new methodologies constantly. One example: In 1981, we were darned near broke and I began our own sales force, because at that time I was the only salesman. And today, starting from three people, we now have 185 sales people. Pretty much anybody in this industry will tell you that you can’t make it hiring your own sales people. Well, that decision made the whole company in terms of sales and marketing.
RK: One of the things that differentiates libertarians and, to some degree, conservatives from liberals is that liberals have a very dim view of what people are capable of on their own. Liberals think that they need to tell us what to do and make our lives better. It seems to me that in your management style, even though you’re not managing out of a political manual, there’s a certain aspect that is libertarian in the sense of it being optimistic about what individuals can do if given a chance.
BL: I went to all Catholic schools, including LaSalle University. I think a basic tenet of Christianity is you trust your fellow man; you take them at their word. And you believe in the personal development of everybody; we all have talent that can be developed. So I try to utilize those talents and I trust people and it works 99 percent of the time. And so I like to empower people, but they have to be empowered in terms of what you want to accomplish. I’ll give you an example: I did some commissions for the government, and this is when “empowerment” was a big deal in the mid-’90s, and what they meant by that was for employees to do whatever the heck they wanted because they were empowered as individuals. For us, empowerment means you use your personal resources and brains to accomplish the mission assigned to you. So the assignment of the mission is as specific as I can make it.
RK: What is the hierarchy (or lack of hierarchy) in your company management, and how is it different from most other companies?
BL: There’s no real hierarchy. In manufacturing now, we look a little more normal because we’re many years down the line. We have six manufacturing plants. We have two leaders — one’s in charge of East Coast, one West Coast — so it looks more normal but what’s not normal is that every employee in this plant, in the whole company, receives a monthly bonus based on personal performance and profits. They’re very empowered within their own positions. We have 90 sales divisions. They all report to me and we have no other sales manager, no marketing manager, no infrastructure whatsoever for 90 sales offices. Have you ever heard of a company with 90 sales offices and no infrastructure? They don’t exist.
RK: No, they don’t. So I think you’re a little humble when you minimize the differences between how your company runs and how most other companies run. I think there’s more to it. It sounds like, even after all these years, you still really enjoy what you do. Why do you still love it so much?
BL: I turned 70 last summer. It’s interesting, when I turned 65 people started asking me, “Well, who’s taking over?” Nobody’s taking over. I’m still running the company. At 70, nobody asked. It’s kind of ironic but I guess they acclimated. Here’s how I look at it: I spent this whole career developing the company to a higher level. We’re on track as a company: we’re growing, our technologies are growing. I like what I’m doing. We’re progressing, it’s fun, and I don’t know what the heck else I would do.
RK: Do you still feel that you’re learning more and growing every day?
BL: Absolutely! I learned a heck of a lot more after college than I learned in college. One of my mentors was Dr. Bill Peterson, a student of Mises, and he taught me Austrian economics. We didn’t learn any economics worth a darn in finance school. What we did learn was Galbraith which, thankfully, I forgot immediately.
RK: You have a document that you circulate among your employees which describes the Top 10 Principles of CaptiveAire. Could you please talk about two or three, and how they’ve changed the outcome of your business?
BL: “Begin with the end in mind.” Look at the greater picture. So we have an account that we began with in ’75. In ’77 we began to install their hoods. It’s called Golden Corral. It’s now a very successful chain. And I told our staff at that time, 25 years from now I want to be servicing this account. You make every decision based on this 25-year horizon. If you get in some petty dispute and lose this account, you don’t need to work here because that’s not our philosophy. It’s about long-term vision.
RK: I really like, from your list of principles, not only for the purposes of managing business, but managing life, number nine.
BL: “Factor opportunity cost into every decision.” That’s a Bill Peterson/Mises concept. I read an article one time which says that if you’re 80 or 90 percent optimized and you begin to spend too much time on optimization, you’ll be a major loser because there’s no bang for the buck. It’s that 80/20 rule. There are some things that have to be absolutely perfect so you have to optimize them continuously. But every one of those decisions has to be weighed and tested, bottom to top. For example, should you make it yourself? One of our competitors says “we make every single component ourselves.” Well, obviously that’s a lack of opportunity cost understanding because you can’t be better than everybody at everything. If somebody is better at making a component than we are, we’d love to have them produce it.
RK: If Adam Smith were consulting to that company, he’d tell them they’re making a big mistake.
BL: Absolutely, but they were really proud of it. They thought they were doing something really special. But when I looked at it, I thought “that’s just plain ignorant.”
RK: I think you can imagine that appealing to a customer in the same way that “hand-made” or “made in the USA” or something like that might appeal.
BL: That doesn’t compute in my little brain.
RK: I get it. Did you have more you wanted to add about how to be the best in your business?
BL: Execution. Lawrence Bossidy wrote a book about execution. What he said is that most often we know our business but we fail by failing to execute. So we’re fanatics on execution. We’re also fanatics on Kaizen. Innovation and creativity don’t happen every day. They happen from time to time. But Kaizen literally can happen every single day.
RK: So what is Kaizen?
BL: It’s continuous improvement. You’ve heard this thing about “best practices”? Well, here’s how bad “best practices” can be: I was at a meeting of a major supplier and I asked the guy to do something. He said, “I’ll have to look it up and see if it’s allowed in my ‘best practices’ book.” I said, “Oh my gosh! There it is!” There’s the era of best practices. It’s a terrific idea but it becomes ingrained and you can’t change it. Kaizen says you’re constantly relooking to make improvements. And even the smallest of improvements can make a big difference. My son says I repeat myself over and over and over again when talking to employees. I said, you know, you’re right. And I’ll repeat myself until we execute perfectly.
RK: So many people do things out of risk avoidance. He wants to look something up in a book so if he does it and it doesn’t work out, he can say “it was in the best practices book.” And if he does something that isn’t in the book then he feels like he’s taking a risk. So this kind of stuff talks people out of taking prudent risks — which happens to be another item in your list of principles.
BL: That’s a non-empowered individual. And here’s a highly intelligent person who could make a good decision but either doesn’t or can’t.
RK: Have you ever been in a situation where government, such as through regulation of you or your customers, made your business unnecessarily more difficult or otherwise made things worse, not just for you but for your customers or for the end-consumer, such as people eating at restaurants?
BL: Absolutely. I gave a presentation to an economic group in Hawaii. Essentially what I said is that building codes restrict innovation and product improvement. Here’s what happens: Every professional engineer says, “OK you want me to design a building, I’ll design it to code.” That’s his highest and most important value. For us, it’s “OK we have to meet this code. But we can be better than the code.” So we function with what we call brand standards. These are essentially quality and engineering standards that far exceed the code but are also in compliance with the code. Customers are demanding CaptiveAire because they know we’re meeting these very high and important standards for their restaurants.
RK: Have you ever tried to get governments to change something, such as bad regulation or building codes, and made the argument to them that they’re stifling innovation?
BL: No, because it’s a waste of time. I’ll give you an example. The Department of Energy is going to regulate exhaust fans, to make them more efficient. But the government can’t make them more efficient. They can just set arbitrary standards, like they do with car fuel efficiency. That’s what they’re going to do with fans. So the industry organization, AMCA, is putting a delegation together to meet with the DOE because they want to be on a friendly basis. They asked me if I would come and I said heck no, I’m not going to come. I don’t have that much time to waste. My attitude is: go ahead and cook up any regulations you want. We’ll figure out how to deal with those better than anybody else has.
RK: Let’s move into politics. How would you describe your personal political philosophy?
BL: Pretty close to libertarian, Austrian economics… yes, basically libertarian.
RK: Do you spend much time, when you’re thinking about a candidate you’d want to support, considering social issues or are you primarily an economics voter?
BL: Some time on the social issues but they’re almost unwinnable today. I wouldn’t vote for someone who was a rabid pro-choice type; I understand pro-life with exceptions but I’d never support a strong Planned Parenthood advocate. So pro-life is top priority, and then economics comes second.
RK: Can you give me an example of what your political activity looks like?
BL: There’s a guy who is the chief of appropriations for the North Carolina House of Representatives. He proposed a budget with half a billion dollars more spending than the governor proposed and delayed the assembly for three months. So I’m working with some people to take him out in a primary.
RK: Is he a Republican?
BL: Yes, so establishment Republicans are mad at me. And I supported this guy but he just got too much power and he’s been there too long. Last summer when the budget came out, I sent every member of the House a letter that said “I was going to send money to your caucus but now I’m going to send money to people who oppose your excessive spending.” It got a lot of press, even in a liberal local newspaper, because I took a principled stand.
RK: So do you think you caused something to happen and didn’t just make yourself feel better?
BL: Absolutely. I don’t waste my time on minor or unwinnable issues. They cut their $600 million spending increase in half when it went to the conference committee. That’s a big deal.
RK: You are a strong supporter of The American Spectator, which I’m grateful for. Why is that important to you?
BL: You need to have people out there influencing those in positions of power. And obviously those who want something out of government are so numerous that it tends to overwhelm even a reasonably good elected official. I think what Bob (Tyrrell) and Spectator do is, they’re bringing information to them on a timely basis that helps influence better decisions.
RK: Among the candidates who remain in the Republican presidential field — and I’m assuming there’s no Democrat you would support — who do you like best and why, and who do you like least and why?
BL: I like (Senator Ted) Cruz the best because he’s not afraid to really confront these guys and wrestle them to the ground. He doesn’t necessarily have the best style or maybe the best approach but we need a tough smart guy to make some headway in this country. Least, I would say is Rubio because he’s an establishment Republican and I think what came out of the New Hampshire debate showed Rubio as exactly what he is: rhetorically he’s the best in the race but beyond that I don’t think he’s much.
RK: I wonder how a guy who knocked off Charlie Crist, politically speaking, is suddenly perceived as the establishment. Is it just because he tried to do immigration reform working with Democrats? What is it about Marco Rubio that makes you feel that he’s “establishment”?
BL: Well, he’s a spokesperson for the military-industrial complex. That’s a continuous theme of his: we don’t have any money to defend our nation. Even though we’re spending $600 billion a year. He’s a neo-con when you get right down to it.
RK: What if I told you that you could decide on the nominee and the choices are Cruz and Rubio but Cruz has a 20% chance of beating the Democrat and Rubio has an 80% chance of beating the Democrat. Who would you choose?
BL: I’d take Cruz. My son and I went through this debate when George Bush was elected in 2000. I think we’d have been better off had Gore been elected and then hope for a better Republican the next time around.
RK: I understand. I said publicly that I would not support John McCain, for a lot of similar reasons — and I got a lot of pushback. To me, McCain was just a slower version of socialism than Barack Obama. I said, let the people get their socialism good and hard and then maybe they’ll figure it out. Or you could use the “boiling the frog” metaphor.
BL: I agree with that. If we have an opponent in there, we know we have to fight him. If our guy is in there (with bad ideas), Republicans become lap dogs. People get suckered so badly with these establishment politicians who undermine the Republic because they don’t have the guts to make hard decisions.
RK: Would you be more likely to pick Rubio, given the assumption of his being more likely to beat a Democrat, if I added that the next president will likely appoint at least two Supreme Court justices?
BL: No, Republicans often fail to pick good justices anyway.
RK: What are your thoughts on Donald Trump?
BL: I like a lot of things about him but he’s a scary guy when it comes to free trade and he’s a bully. So he’s a scary guy. I wouldn’t say it’s a slam dunk that he will be bad, but it’s a high risk.
RK: So if your choices were Trump and Rubio?
BL: You’re killing me! I’d probably go with Trump.
RK: Wow, you really don’t like Rubio very much.
BL: I actually do like him. I just don’t like his politics. In North Carolina my establishment buddies all went for Rubio. I did go to a meeting with his campaign manager and I asked him questions and then got to ask questions of one of his senior policy advisers and it just confirmed for me everything that I already know. It’s George Bush the third.
BL (cont.): Have you ever heard of the “American System” — going back to about 1820? What they wanted was for business and industry and government to collaborate. The Founders didn’t want any part of that. Once business and industry realized they can work with government and undermine the consumer, they loved it. So you take that in the late 19th century and you combine it with the Progressives who, as you’ve already described, want to run our lives, they’ve undermined the intention of the Founders. So what I want government to be is just what the Founders wanted: small… what my hero Calvin Coolidge supported.
RK: Is it possible for America to return to something even close to that, and if it is possible what does the path look like and do things have to get much worse before the American people realize that’s the path we need to get back to?
BL: Yes, that’s correct. First you’d have to educate America. I’d refer you to a book called Average Is Over by (George Mason University professor of economics) Tyler Cowen. It essentially says we pour so many people out of our public school system who can’t do anything that you would not employ them at minimum wage; even at free you would not want them in your shop. So what’s going to happen to those people? Somebody’s going to have to take care of them. So you have to reverse that trend. In my opinion, every American should have to learn how to do something. If they are handicapped, those one or two percent, we’d take care of those folks. If you’re able-bodied you’d have to work or you’d get no check. Now obviously you can’t do that in the United States today but we have to move closer to that, and colleges are not teaching necessary skills. College loans have destroyed the colleges and people understand it now but they’re not empowered to do anything about it.
RK: That answer, in terms of translating a political philosophy and principle into a practical realization of education as a fundamental problem that feeds many of our other larger problems, explains a lot about why you’re so deeply involved in education. Tell us a little about what you’re doing in that area.
BL: Let’s start with a basic point: The educational system fundamentally undermines the American system by not only failing to educate but by propagandizing students for the entire time K-16. They’re being propagandized by the greenies, the statists, and the Progressives. So what I’m doing… initially I founded a public charter school, it’s the largest in North Carolina. Then I decided, well I don’t want to do any more of those so I opened a small Catholic boutique school under a contract with the bishop. Decided it’s not scalable; it’s a fine school, 200 students, and that’s all it’s going to be. And it’s all academic, college-bound. Then I thought, well what about a low-cost high-quality private school, and we opened Thales Academy, named for the Greek scholar. (Ross’s reaction: Notice how Bob Luddy simply glides from thinking about it to accomplishing it. How many others have that level of confidence in their ability to have the right idea and execute a plan to bring it to fruition that they essentially assume success?)
BL (cont.): Currently we have six campuses with nearly 2,000 students. The initial goal is to get to 5,000 students. If possible, if I have the resources and time and it’s working, I’d like to expand it to 25,000 students. So you create this big model so that nobody can deny it can be done, and then hope that another 25 people do the same thing so gradually we change the way people think about education. If you look at northern Wake County, which includes Raleigh, 22 percent of the students are no longer in the traditional public school system. They’re in charters, private, Christian, what have you. That’s a powerful number.
RK: How much personal satisfaction do you get from Thales and your involvement in education more broadly? Obviously, your goal is not to make money; I assume these are non-profit endeavors.
BL: Yes, they’re non-profit. Actually, they consume money, they don’t make money. As far as satisfaction goes, for anything beyond CaptiveAire, building these schools has given me the most satisfaction of anything I’ve done in my lifetime out in the public sphere. Because I see the impact on the students. I have families who write me letters which say you didn’t just change our son or daughter, you changed our whole family. I get that routinely.
RK: That’s remarkable. I noticed in your answer that you described it as outside of building CaptiveAire. And I love your answer. It’s so rare. You know who you remind me of, if I can compare you to a fictional character: Hank Rearden. (Rearden is the single-minded metal-manufacturing magnate in Atlas Shrugged.) So often in recent years, we hear about Bill Gates or Mark Zuckerberg or some other big shot giving away a huge amount of money and everybody calls him a hero. They never called him a hero for making the money. But really the heroic thing is making the money. That’s the only reason they’re able to give any of it away.
BL: Absolutely. I’m totally into that concept. I don’t believe in this idea of “giving back.” I believe we’re called by God to do things according to our capabilities, and we go do them. I don’t call that giving back; I just say “this is what I do.”
RK: Thanks so much for your time and for being such an inspiration. And thanks again for your support of The American Spectator.