Les Schwab went from orphan at 15 to tire billionaire by doing what "smart" MBAs wouldn't—giving employees 50% of profits. Warren Buffett wanted to buy him. Charlie Munger called him a genius. Learn why giving away 50% of profits made Les richer than keeping 100% in this Les Schwab Pride in Performance book summary.
- Book: Les Schwab Pride in Performance
- Author: Les Schwab
- Pages: 280
- Rating: 4.5 out of 5 Stars
- Recommended for: Founders who want to build lasting companies, managers seeking better incentive systems, anyone interested in how underdogs beat monopolies
The 30-Second Summary
Les Schwab turned a single $17,000 tire shop into a multi-billion dollar empire by doing the exact opposite of what Harvard MBAs would recommend: he gave away 50% of profits to employees, cleaned tires daily with a dust cloth, and refused to build on anyone else's property. Charlie Munger studied his success and concluded that this 8th-grade dropout understood human psychology better than any business school professor—especially the superpower of incentives. His most radical insight: treat rubber companies like enemies, employees like partners, and never forget that "life is hard for the man who thinks he can take a shortcut."
In a nutshell: An orphaned newspaper boy built America's most successful independent tire chain by sharing profits fanatically and understanding that you win by helping the people who actually touch the customer.
About the Author
Les Schwab was born in 1917, orphaned at 15, and never finished high school—living in a railroad boxcar that served as his classroom where all three 8th graders failed their state exams. He delivered newspapers on foot for two months to buy his first used bike, eventually making more than his high school principal during the Depression. After 18 years in the newspaper business, he bought a tiny tire shop at 33 with borrowed money, having "never fixed a flat tire in my life."
The 3 Big Ideas
1. The 50% Solution: Why Giving Away Half Made Him Rich
Most business owners guard profits jealously. Les discovered that giving away 50% of profits to store employees created a self-policing, self-motivating machine that ran better than any policy manual ever could. Each store operated as its own business with employees sharing only in their store's profits—meaning a lazy coworker was literally stealing from your kids' college fund.
The core insight: When employees act like owners because they get owner-like rewards, you don't need thick policy books or layers of management.
Think about the genius here: if someone steals from the till, they're not stealing from some distant corporation—they're stealing from their coworkers' retirement funds. Les noted that for a company with hundreds of stores, they had "very little dishonesty" because, as he put it, if an employee sees theft and doesn't report it, "they're a weak kitten... this man is stealing from their children."
Key takeaway: Structure incentives so that individual success directly creates collective success—then get out of the way.
2. Ride the Wave While Fighting the Establishment
When Les started, five American tire companies operated as a cartel, "milking dealers of their profit" through price-fixing they called "meeting a competitive situation." Rather than accept this, Les became one of the first to embrace Japanese tire imports when they had 0% market share. While established dealers stayed loyal to companies that abused them, Les's philosophy was brutal: "Never take advantage of a customer, never take advantage of an employee, but take all the advantage you possibly could of a rubber company."
The core insight: Your biggest competitors' arrogance and unfair practices create your biggest opportunities.
The American tire companies thought they were invincible, squeezing dealers on price while favoring their own stores. Les saw this as them "earning their failure." By the time he wrote his book, two of the five had dropped truck tires entirely and the other three were struggling—while the Japanese companies he partnered with dominated the market.
Key takeaway: When established players abuse their position, be the first to embrace the disruption that will destroy them.
3. Stay Out of Your Damn Office
Les believed most companies fail because decision-makers lose touch with reality. His rule: "Stay out of a store for 30 days and you've forgotten 50% of what you know." While competitors sent executives to country clubs, Les drove 600 miles a day visiting stores. He insisted the most important people weren't in headquarters but "on the firing line"—the ones actually changing tires and talking to customers.
The core insight: The further you get from where money is actually made, the more worthless your opinions become.
He'd regularly tell MBAs making fancy reports: "If it weren't for those men in the stores working their butts off in all kinds of weather, missing meals, God awful hours, you wouldn't even have a job." Store managers made more than office executives, and if office people complained, his response was withering: "You want more money? Start at the bottom changing tires."
Key takeaway: Make operational decisions at the lowest possible level and ensure your highest-paid people are closest to customers, not furthest from them.
Key Frameworks
The Supermarket Tire Store Model
What it is: Instead of hiding tires in a warehouse with a small showroom (industry standard), display all inventory in a massive, clean showroom where customers can see the selection—like a grocery store.
How to apply it:
- Invert the standard model (showroom becomes warehouse)
- Display maximum selection to impress customers
- Clean products daily to show pride and care
- Create abundance psychology through visible inventory
- Make the buying experience about choice, not scarcity
When to use it: When your industry hides its products and makes shopping feel restrictive rather than abundant.
The Profit-Sharing Partnership System
What it is: Each store operates as an independent business with employees sharing 50% of that specific store's profits, creating hundreds of mini-entrepreneurs instead of wage slaves.
How to apply it:
- Structure locations as separate profit centers
- Share 50% of profits with all store employees
- Tie profit-sharing to honesty clauses (theft = forfeiture)
- Promote only from within—everyone starts at the bottom
- Make store managers wealthier than headquarters executives
When to use it: When you need maximum motivation at the point of customer contact and minimal supervision costs.
The "Unselfish for Good Reasons" Philosophy
What it is: A systematic approach to building wealth by enriching others first, based on the belief that helping employees succeed guarantees your own success.
How to apply it:
- Share profits before taking them yourself
- Promote and develop people relentlessly
- Put decision-making at the lowest level
- Pay the highest wages to get the best people
- Think in decades, not quarters
When to use it: When building a business meant to last generations rather than flip quickly.
Notable Quotes
"I had never fixed a flat tire in my life."
Why this matters: Starting with zero experience in an industry means you're not constrained by "how things are done"—often your greatest advantage.
"Never take advantage of a customer, never take advantage of an employee, but take all the advantage you possibly could of a rubber company because they were not being fair and honest."
Why this matters: Know who deserves loyalty and who's trying to screw you—then act accordingly without apology.
"Life is hard for the man who thinks he can take a shortcut."
Why this matters: There's no substitute for doing the work—shortcuts that seem clever usually lead to bankruptcy.
"I love you, but I love a supermarket tire store even more."
Why this matters: Great businesses require fanatical dedication that sometimes borders on the absurd—embrace it.
"If it weren't for those men in the stores working their butts off in all kinds of weather, missing meals, God awful hours, you wouldn't even have a job."
Why this matters: Never let headquarters forget who actually generates the revenue.
"Stay out of a store for 30 days and you've forgotten 50% of what you know."
Why this matters: Competence has a half-life—stay in the field or become useless.
"Should we fail to follow these policies toward customers and employees, I would prefer that my name be taken off the business."
Why this matters: Your name on something means your values in it—if the values die, kill the name.
"Their interest today would be worth around $12 million each."
Why this matters: His partners took $525,000 combined instead of waiting—impatience is the most expensive luxury in business.
"I was sometimes cocky; but this same cockiness helped me a lot in going through life."
Why this matters: Justified arrogance based on outworking everyone isn't a weakness—it's fuel.
"The five major American rubber companies have received their just awards as two of them have dropped truck tires entirely. And the other three aren't doing very well with truck tire sales. It serves them right. They earned their failure."
Why this matters: When you abuse your partners long enough, disruption isn't just possible—it's deserved.
"What nicer thing can you do with your life than to help young people build their lives into successful people."
Why this matters: Building people builds businesses—the money is just a side effect.
"If we become complacent, brother, it's all over with."
Why this matters: Success is more dangerous than struggle because it makes you soft.
"I'm one of the very best tire dealers in America, but without a doubt, I probably am the worst cattle rancher in America."
Why this matters: Knowing your circle of competence—and staying inside it—matters more than ego.
"We have never hired a manager from the outside, nor have we ever hired an assistant manager directly to that job. Every single one started at the bottom changing tires."
Why this matters: Competence can't be imported—it must be grown from the ground up.
"I could come out with an astronomical bundle of money if I sold the company. But what would I do with it? What good is money beyond a certain point?"
Why this matters: Once you have enough, more money becomes meaningless—but building something that lasts matters forever.
Related Ideas
Charlie Munger on Les Schwab's genius: Munger identified Les as a "talented fanatic" who succeeded through four factors: extreme maximization of incentives, combining multiple success factors for nonlinear results, excellence across many dimensions, and riding the Japanese import wave. Munger specifically said Les understood the "superpower of incentives" better than any MBA: "He can tell you a lot better than we can."
Sam Walton's parallel philosophy: Like Les driving 600 miles daily between stores, Sam visited competitors even on family vacations. Both men believed fanaticism plus scale equals unstoppable force. Walton's rule—"If you're not serving customers or supporting those who do, we don't need you"—mirrors Les's contempt for office workers who forgot where money was actually made.
Warren Buffett's attempt to buy Les Schwab: Buffett tried acquiring the company but Les refused, choosing legacy over liquidity. This mirrors James Sinegal of Costco telling Sam Walton: "We're entrepreneurs. We want to build a company that will be here 50 years from now"—the same long-term thinking that made Les give up millions to maintain control.
Henry Ford's partnership disaster: Ford's early investor put in $10,000, cashed out for $175,000 after three years. Had he waited a decade, it would've been worth $100 million. Les's partners made the same mistake—taking $525,000 combined instead of waiting for $12 million each, proving that impatience in business partnerships is insanely expensive.
The McDonald's Brothers' billion-dollar mistake: Ray Kroc bought out the McDonald's Brothers for a one-time payment when their contract entitled them to 0.5% of all sales forever. By the time Kroc wrote his book, they'd have been making $15 million annually. Les's partners made the identical error, choosing swimming pools over wealth that would've supported their grandchildren's grandchildren.
Steve Jobs on building to last: Jobs hated "entrepreneurs" who just wanted to flip companies: "You build a company that will still stand for something a generation or two from now. That's what Walt Disney did." Les embodied this perfectly—turning down Buffett, KKR, and Michelin to keep building something that would outlive him.
Natural Next Reads
- Made in America by Sam Walton: Another fanatical retailer who drove thousands of miles visiting stores and built an empire through relentless focus on customers
- Grinding It Out by Ray Kroc: The McDonald's story shows how operational excellence and franchising systems create unstoppable businesses
- Poor Charlie's Almanack by Charlie Munger: Contains Munger's detailed analysis of why Les Schwab succeeded plus dozens of similar business case studies. Read my book summary →
- The Fish That Ate the Whale by Rich Cohen: Sam Zemurray's banana empire story—another uneducated immigrant who demolished established players through superior operations
- Cable Cowboy by Mark Robichaux: John Malone's story of building wealth through aggressive deal-making and long-term thinking in a capital-intensive industry. Read my book summary →
Reflection Questions
- Where in your business are you treating symptoms instead of aligning incentives to prevent problems?
- What "cartel-like" behavior in your industry creates opportunity for someone willing to fight back?
- How many days has it been since you were actually where your company makes money?
- What shortcuts are you taking that Les would say guarantee eventual failure?
- If you gave away 50% of profits to employees tomorrow, what would change—and why aren't you doing it?
Practical Applications
For Founders
- Strategic Planning: Design ownership-like incentives from day one—it's harder to add them later
- Team Building: Promote exclusively from within to build deep competence and loyalty
- Decision Making: Push all operational decisions to the lowest possible level
- Resource Allocation: Invest in locations you own, never build value on others' property
For Investors
- Due Diligence: Look for founders who understand incentive design better than financial engineering
- Portfolio Construction: Seek companies where employees act like owners because they're paid like them
- Risk Assessment: Beware of companies where decision-makers are far from revenue generation
- Value Creation: Find industries where incumbents abuse partners—disruption is inevitable
The Bottom Line
Les Schwab proved that an 8th-grade education plus fanatical dedication beats Harvard MBAs playing it safe. By sharing 50% of profits, fighting monopolists, and keeping decision-making close to customers, he built a multi-billion dollar empire from a $17,000 tire shop where he'd "never fixed a flat in my life." The real lesson isn't about tires—it's that sustainable success comes from aligning everyone's interests so completely that supervision becomes unnecessary. As Les would say: life is hard for those seeking shortcuts, but it's remarkably generous to those who help others succeed.
Charlie Munger's Analysis: Why Les Schwab Was a Business Genius
Charlie Munger didn't just recommend Les Schwab's book—he used it as a masterclass case study at both Berkshire Hathaway meetings and university lectures. At the 2004 Berkshire Annual Meeting, when asked about effective compensation systems, Munger's response was immediate and emphatic:
"If you want to read one book that will demonstrate really shrewd compensation systems in a whole chain of small businesses, read the autobiography of Les Schwab, who has a bunch of tire shops all over the Northwest. And he made a huge fortune in one of the world's really difficult businesses by having shrewd systems. And he can tell you a lot better than we can."
But it was in his 2003 speech at the University of California, Santa Barbara, that Munger revealed the depth of his analysis. He posed Les Schwab as a puzzle for the audience to solve:
"There's a tire store chain in the Northwest, which has slowly succeeded over 50 years, the Les Schwab tire store chain. It just ground ahead. It started competing with the stores that were owned by the big tire companies that made all the tires, the Goodyears and so forth. And, of course, the manufacturers favored their own stores. Their 'tied stores' had a big cost advantage. Later, Les Schwab rose in competition with the huge price discounters like Costco and Sam's Club and before that Sears Roebuck and so forth. And yet here is Schwab now, with hundreds of millions of dollars in sales. And here's Les Schwab in his 80s, with no education, having done the whole thing. How did he do it?"
When the audience struggled to answer, Munger revealed his framework for understanding Les's success—what he called a "lollapalooza result" from multiple factors working together:
First, riding the wave: "The Japanese had a zero position in tires and they got big. So this guy must have ridden that wave some in the early times."
Second, the superpower of incentives: "He must have harnessed what Mankiw calls the superpower of incentives. He must have a very clever incentive structure driving his people. And a clever personnel selection system."
Third, artistic talent: "He must be pretty good at advertising. Which he is. He's an artist."
The synthesis: "A talented fanatic had to get a hell of a lot of things right, and keep them right with clever systems."
Munger's fascination with Les Schwab went beyond mere business success. He saw in this 8th-grade dropout something that eluded Harvard MBAs—an intuitive understanding of human psychology applied to business. As Munger explained, extreme success like Les Schwab's comes from four key factors: extreme maximization of one or two variables (profit-sharing), adding success factors that compound nonlinearly, excellence across many dimensions, and catching a major wave (Japanese imports).
Warren Buffett added his own color commentary: "It's an interesting book, and, you know, selling tires, how do you make any money doing that?" The answer, as both Buffett and Munger understood, was that Les didn't just sell tires—he created a system where every employee acted like an owner because they were rewarded like one. In Munger's words, this orphan from a railroad boxcar understood the "superpower of incentives" better than any business school could teach.
