#372: Amancio Ortega: The Genius Behind the Inditex Group

0:00 A Moncio Ortega is one of the wealthiest people in the world with a net worth around$120 billion. And as I was reading this biography of Ortega, The same idea just kept coming to my mind over and over again. The fact that Ortega Is the Henry Ford of fashion. If you go back and you read Henry Ford's autobiography or really any biography written about him.

0:18 You realize that Henry Ford's philosophy was Get rid of waste. Increase efficiency through technology. Lower your prices to increase your volume and you'll make more money overall, even though You're making less money.

0:30 or less profit per car. In the case of Ford. Or piece of clothing in the case of Ortega. Watch religiously and then bring that business process in house. So vertically integrate as much as possible. And then always focus on service.

0:44 Henry Ford was determined to concentrate on the lower end of the market, where he believed that high volume would drive his cost down. And at the same time feed even more demand for his product. It was a fundamentally different philosophy. than the rest of his industry at the time, and you could say The exact same about Ortega and his industry. Driving their costs down, watching their costs religiously is something that Ford and Ortega had in common with each other.

1:06 and in common with all of history's greatest entrepreneurs. Not only Did all of History's Gates Entrepreneurs study. History's create as entrepreneurs. But all of His Greatest Entrepreneurs also watch their costs. Like their businesses depended on it.

1:18 That ever present and recurring theme is why Ramp is now a presenting sponsor of founders. I've gotten to know all the co-founders of Ramp and have spent a ton of time with them. They all listen to the podcast and they've picked up on the fact But the main theme from the podcast is on the importance of watching your costs. in controlling your spend and how doing so gives you a massive competitive advantage. And that is the reason that ramp exists. Ramp exists to give you everything you need to control your spend. Ramp exists to give you everything you need to make cost control an obsession.

1:48 Ramp helps you run an efficient organization. In fact, I read A ramp customer review. That sums this up perfectly. They said ramp is like having a teammate who you never have to check in on because they have it handled. Ram's website is incredible. Make History's greatest entrepreneurs proud.

2:03 By going to ramp.com. to learn how they can help your business control costs. That is ramp.com. One afternoon after school I went with my mother to a store to buy food. I was the youngest of my siblings.

2:17 Many times I accompanied her for a walk while she did her errands. The store we walked into. was one of those old time grocery stores with a high counter so high That I couldn't see who my mother was talking to. But I heard something.

2:30 That despite the time that has passed. I have never forgotten. I'm sorry, ma'am. I'm very sorry. But it cannot lend you any more money.

2:40 That left me shattered. I was only twelve. At that moment, still holding his mother's hand, Ortega. Stopped being a child.

2:49 After reacting with shock to the words he had just heard, He made an irrevocable Decision. This will never Happened to my mother again.

2:58 I saw it very clearly from that day onwards. I would start working to earn money and help at home. I quit school. Left my books. And got a job as an assistant in a shirt store.

3:09 That incident marked a before and after in his life. And this is what Artega said about it. The impact of that story. cannot be overstated. That gentleman We'll never know.

3:21 That he was the cause. Of what came After that. That was an excerpt from the book that I want to talk to you about today, which is this is a Mancio Ortega. The man who created Zara.

3:32 It was written by Kova Donga O'Shea. So for years and years. Listeners to founders have been requesting an episode. about Ortega. And I had to Before this was suggested to me many many times.

3:44 I didn't even know who he was. And I was shocked to find out that Ortega is one of the wealthiest people in the world. His network today is around one hundred and twenty billion dollars. He owns Sixty percent of a publicly traded Fast fashion company called Inditex.

3:58 With Zara being uh most well known brand. And then the majority of the revenue inside of the company. And so actually One of the most interesting things I learned this week. was that he made billions of dollars manufacturing and selling clothing.

4:10 And then he invested a lot of that money into commercial real estate. He's actually one of the largest tech company landlords in the world. tech companies like Facebook, Google, Apple, Spotify, Amazon. all lease property from Ortega. In fact his commercial real estate portfolio alone.

4:25 is worth around twenty billion dollars. And The reason I brought that up now is because I thought Being a landlord to tech companies is fitting. Because I don't think This is actually a story about fashion.

4:36 Instead, it's a story about applying technology to an ancient industry. I think of Ortega as the Henry Ford of fashion and I'll explain why. But before I do that, I want to go back to his childhood and his decision to immediately start working. to help save his family. So the author of this book tells a story inside of this book. Where she's actually interviewing

4:56 This very famous bullfighter many years ago. This bullfighter in Spain named Luis Miguel. So Luis Miguel at the time that he's having the conversation With the author. Was at the peak of his career.

5:07 And they're at Luis Miguel's house and Luis Miguel and the author are watching Luis's son. play in the garden of their home. And this is what Luis says. He says, This child Will never be a bullfighter. To face a bull.

5:20 You have to go hungry. And I think the author included that story because the same applies to Ortega. He says over and over again how hearing that exchange, the fact that his Family could go hungry. made him determined to work and to be able to contribute to the family?

5:34 I would also say he never uses these words, but I would have to imagine as a twelve year old boy That it also made him afraid. And so the way I think about Ortega is he's a man on a mission. In fact, he says that over and over again in the book. So I guess I gotta back up. The reason it's taken me so long to cover Ortega, even though so many people have asked me to do so is'cause All the biographies on Artega are in Spanish. So actually my friend Cameron Priest

5:55 translated this book and he sent it to me. And after I finished reading it, I organized all the highlights and notes. By subject matter because He's remark Ortega's remarkably consistent. He knew the author for over two decades, and he repeats what's important to him because what's important to him remains consistent. So again, the way you think about Artega, he's a man on the mission. I just want to pull some of his quotes.

6:16 This is something that he repeats over and over again in the book. Across many years and nearly all the chapters. He says we are all born for something. He often repeats with an absolute conviction that he has a mission to fulfill. That mission started that day when he was twelve years old. He says, There is something deeper in me that drives me to work.

6:35 That has moved me since that day as a child. This has led me to do things tirelessly. Another way he describes the importance of having a mission. The important thing is to set goals in life and put all of your soul into fulfilling them. He is Seventy two when th this book is published. He's eighty eight now. He's seventy two years old when he says that the important thing in life

6:56 and put all of your soul into fulfilling them. He says, I have dreamed of growing this company since I was nobody. A few chapters later he says the same thing, since I was nobody and had hardly anything I dreamed of growing. We have never been complacent. Nor have we accepted easy success. Optimism

7:13 can be very negative. You have to take risks. This was something I repeated tirelessly. To all those who have joined the company. Another example of this, we gave it every day. My priority has always been the company and I have committed myself to it.

7:26 with full dedication from day one. And it's not just that he describes himself as as a man on a mission, other people literally say that Ortega is a man of mission. He is so convinced. Of what he is and what he has to do. And when Ortega's asked like what is the why behind life, he says, I am absolutely convinced That we all come to this world to fulfill a mission.

7:47 None of us are here. By chance. So the first thing he does is get a job in a shirt store. He's twelve or thirteen. And he's just a a gopher and a an errand boy. He also is responsible to cleaning the store. And when they're busy, he also has to help serve the customers.

8:03 And there's two really important parts of this. One He said from day one he took he took his work seriously and with a sense of responsibility. He was like that at thirteen, at seventy two when the book is written, he's still like that. And so even though his tasks were like minor, some people might think they weren't important, you know, just running errands or sweeping the store. You're helping like the customer overflow.

8:21 There is this maxim that tends to reappear in the history of entrepreneurship. And it's that opportunity handled well. leads to more opportunity. And you just see it over and over again, the importance of doing the best you can with the opportunity in front of you because that's going to unlock an opportunity. You couldn't possibly predict or even see at that moment.

8:38 And then the second most important part about this experience is that he just realized that customers should never be lost sight of. His main critique of the fashion industry is that they basically ignore the customer. And so what he's gonna realize is that total dedication to serving his customer in ways that other companies cannot or will not is going to be a massive edge and something strangely that no one else in his industry was doing before Ortega came along.

9:04 And so Ortega has that quote that the most important lesson he learned at the store was that customers should never be lost sight of. This is this sounds a lot like Sam Walton who would preach inside of Walmart. He would say there's only one boss. The customer. And he can fire everybody in the company from the chairman on down simply by spending his money somewhere else. So he's working in the apparel industry for about fourteen years.

9:27 before he finally quits his job and sets up his own company. So he's around twenty seven years old. He quits his job and starts his own company that's gonna manufacture clothing. This company's gonna be called Goa, which is just his initials in reverse. So He didn't have a lot of money, but he did have Some assets.

9:41 Non monetary assets, this is to say. So He's got contacts. With fabric manufacturers as a result of working in the industry for fourteen years. He had relationships with customers. And he's got the trust of his family and friends because they're gonna leave with him and help him set up the b uh the business. So

9:57 He actually gets a bank loan. of twenty five hundred pesada. That is uh in nineteen sixty three. Th this used this was the currency of Spain at the time. And so with his soon to be wife, his brother and friends of the family, they set up a modest workshop and they start manufacturing bathrobes. And these bathrobes sell much better than expected. He starts manufacturing More clothing. And at this point, he's just selling clothing to stores. He does not to other stores. He does not have his own stores. But

10:23 This I think is an insight or I guess some kind of indication that He was a gift entrepreneur even earlier it takes him a long time. Into techs. But from reading this biography, it's clear that every step along the way, he's just trying to do the best with the opportunity in front of him. So

10:37 He starts selling, he's just manufacturing clothing at this time. But within ten years, so from twenty seven to around thirty seven years old, okay? Ten years later. His company has more than five hundred employees. has absorbed the supply and distribution operations and has hired a team of designers.

10:52 But he is not satisfied with the state of affairs because something he observed in that shirt store. You're ignoring the customer. So In nineteen seventy five, this is gonna be about twelve years after he starts Goa. He's gonna open the very first Zara store. He's uh Ortega's around thirty nine years old when he does this. And it'll be obvious in the quote that I'm about to read.

11:11 to you from Orkega talking about why he did this He wanted the the trait that he shares with most of the entrepreneurs and almost all of his shoes case entrepreneurs, they want control. And if you want control, you're going to naturally vertically integrate. I loved on the James J. Hill episode last week when he's building, you know, the the most profitable, the most successful Railroad in American history. He understood the importance of controlling all aspects of his business. So he starts vertically integrating, but he didn't call it vertical integration. He called rational integration.

11:37 And I think for entrepreneurs obsessed control, that's exactly what it is. It is very rational to us. Rational integration. So this is Ortega talking about the early years at Goa and why he wanted to eventually control every single aspect of his business. So he says, when I started manufacturing, we sold to third parties. I never really like this.

11:57 We couldn't sell a nice dress no matter how nice it was. If what that customer asked for at the moment was something else. I was convinced That I had to dominate the customer. And at the same time be by their side. But I would only achieve it

12:13 If I manage to sell to them directly. The product has to be right. That is the key. That was the first hint of what I would argue is Ortega's most important insight. He realizes that it's better to start with the customer and work backwards. And he says over and over again, I'm just going to manufacture what the customer wants.

12:33 So this is the beginning of why I think that I would call Orkega the Henry Ford of fashion. And What I would share what I think Henry Ford And Ortega Share is that they really built their career. On one idea.

12:44 And so Ortega says, since I started working, I had an idea that obsessed me. Why can't I invent something different from everything else on the market? I clearly saw that I wanted to fill a gap that existed in the textile business. And I decided to follow that impulse. So Ortega's great idea. was the ability to enable what he wanted to do. He wanted to enable the entire world to dress well.

13:05 The problem that he's trying to solve is how do you make and distribute clothes That are fashionable and affordable. The existing fashion industry, when Ortega starts, right? The existing fashion industry already knew how to make clothes fashionable and expensive. Ortega is going to invent the process to make them fashionable and affordable.

13:25 Henry Ford's one big idea. was to mass produce a simple, affordable car that the average worker could buy. That was impossible at the time when Henry Ford Had that idea, so he had to invent the company and the processes to make his dream a reality.

13:39 The same is true for Ortega in nineteen seventy five when he opens his first store. He's got to invent the company and the process. Where you can make and distribute clothes that are both fashionable and affordable. And obviously do so at a profit. And so to do this, number one, he needs to work backwards from the customer. He's gonna think about his very tight and close relationship with the customer.

13:59 as a form of a competitive intelligence. And number two, he has to invent. And working backwards from the customer in the fashion industry. So think about all the episodes. Like I've read biographies of Christian Dior and Coco Chanel and Balenciaga and Ralph Lauren. They are way more like Steve Jobs in their approach.

14:19 They have a perspective. They have a point of view. They have an idea in their minds eye that they want to bring forth and make a reality. In many cases they are creating the products that they want to see in the world and then they'll educate and sell. to the customer and try to convince the customer to buy them.

14:35 Ortega is not interested in that at all. He says over and over again, it's better to start with the customer work backwards. I'm going to manufacture What the customer wants. So to do so he has to have a very tight relationship with the customer, be able to react fast. Because

14:48 When you're just a manufacturer, when he was just a manufacturer as you say. And he sold his pro his his products to other stores. What he realized is like, Oh, they're just guessing at what the customer wanted. And Ortega noticed this dislocation between Well, I go into these stores, the buyer at the stores I'm selling to, when I'm just a manufacturer, right? They're asking for products.

15:06 Then I leave the store and I go out on the street and none of the customers are wearing that. And that observation of the difference between what the buyers actually wanted in the stores and what the customers were actually Wearing on the streets. That gave him the the initial idea of hey, maybe I need to have my own stores.

15:21 And so when he opens his first door, this is not stated but reading through the line, like understanding who he is as a person is as reading R P I don't think this guy would ever I know for a fact. He would ne he His idea was like I'm just gonna have one store.

15:33 He is relentlessly dissatisfied. He is never complacent. And one hint that he was not gonna stop at one store. Is his decision to computerise the quote. That's the quote.

15:46 Computerized the company, and he does this in nineteen seventy four beha before. He has the first Zara story. This is this is one of the craziest things. So but I need to go back to this idea before I get there. That you know, he states over and over again. I'm going to make what I understand customers will demand. Just like Henry Ford said, I am going to figure out a way

16:05 To make a simple affordable car. that the average worker could buy. Henry Ford had to invent the way to mass produce automobiles to get the the price down to an average work for bike. The same exact situation as happening here with Ortega. To do what he state what his stated goal is. Un I'm going to make what customers will demand.

16:21 To do this, he has to invent the logistics and distribution system that enables responding immediately to customers' desires. Now The reason this is so important is because Unlike a car. In fashion, the desires of the customer change all the time. So the way I would think about this is he actually wants to build a company capable of responding to customer desires.

16:40 And he knew those desires will absolutely change over time. So he has to invent a logistics and distribution system that enables his company to respond. immediately to changing customer desires. And what he does next, at the time he does it. Blows. My mind. So he says the next step is to computeriz the company. So

16:59 This is nine eighteen seventy four. I'm gonna draw another parallel between Ortega and one of the fish education entrepreneurs. This could be Sam Walton who have already Uh mentioned a few times. Sam Walton does something very similar in nineteen seventy nine. Okay, the way I think about the reason this came to mind is because

17:14 They're both, Ortega and Walton were both applying the most sophisticated technology of their day to very ancient industries. Humans have been wearing clothes forever. Humans have been buying things that other people produce or selling things that other people would produce Forever. But one of the craziest ideas I heard when I just reread a biography of Sam Walton. This isn't his autobiography, this is another one called

17:35 I think it's called Sam Walton, the Richest Man in America by Vance Trimble. But what's crazy is in that book in nineteen seventy nine, if I'm not mistaken, I think Sam Walton's like sixty two years old. He's got all these executives in this company saying, you know, Walmart's ripping. It's they're growing so fast. They're having a hard time keeping up with everything. And they're coming to him like hey, we need To invest in technology.

17:53 We need computer a computerized inventory system. We're doing too many things by hand. And Sam for a few months, maybe like a year. Resisted, resisted, resisted because he says something like he thought computers were just overhead. Eventually we were able to demonstrate to Sam Walton that this is not overhead. That this is going to vastly increase our productivity and our efficiency.

18:11 And even though it has a big price tag was five hundred million dollars. it's going to be one of the best underpriced assets that we could ever apply to our company. And so in nineteen seventy nine Sam Walton gives a go ahead to invest. five hundred million dollars in nineteen seventy nine dollars in the most advanced computer system of his day.

18:28 Ortega does the same thing in nineteen seventy four. So there is a guy who's really important to the story. This is Jose Maria Casolano. He's going to work with Ortega for thirty years.

18:40 He's actually going to be uh at one point the CO, for many decades the CO. uh and deputy chairman of IDTEX. And Ortega initially tries to recruit Jose because of technology. So this is what Jose says. I joined in the year nineteen seventy four. I met Ortega when Zara did not exist. He only had the factories. In those years when nobody thought about technology within our sector

19:00 In which there was almost no computer science or mobile phones. He wanted to have a good team and technology. He anticipated The future in this regard. I had worked as an intern. at IBM and at an insurance company A Gon.

19:13 where I was the director of computing, so we installed a system That at that time it's just them inside of Or take his company, okay? And we saw the system that at the time, despite being the best that existed, was very primitive. And then this next paragraph also speaks to Ortega's patients.

19:28 Ortega asked me to stay with him, so to join his company, not just consult. But I was teaching economics at the university. And I told him no. Jose will continue advising the company part time, and then eventually ten years later. decides to join the company full time.

19:43 And so let's go back to Jose talking about the advantage of having technology that your competitors do not'cause remember Or take his goals, I'm gonna be as close as possible to the customer. All the infinite changes in fashion that can happen over a year, I'm going to know before anybody else. To do that, I have to build a one the world's most advanced Logistics. manufacturing and distribution system in the entire fashion industry.

20:05 This is what Jose talks about what he thinks is the core of the business and how this was enabled by technology. Being close to the customer was a great advantage. Over those who did not notice the changes. At that time, fashion focused on presenting two traditional collections per year. It was a very fixed.

20:21 They did not pay attention to the street. The fashion was unaware of what the customer thought of his collection, and this is how inditech turned around this approach to fashion. This is why you need technology and this is why you need a system that's this. So doing this for a single store, that can definitely be done. The tough part comes. when you want to grow and replicate that business model all over the world, which is what Inditex does today.

20:43 Then that problem of організаціation appears. and shifts from an ideology, an idea, and a a a d dedication to a mission. to technology. And later in the book they have an analyst that perfectly describes what Ortega actually built.

20:57 He said he built a groundbreaking and avant garde textile distribution company. Their business is centered around one simple premise to be quick at responding to the market. It would take almost a year for traditional fashion companies to get it products out. Zara's main advantage is an astonishing ability to detect fashion trends. Assimilate them.

21:18 Make them a reality on the hangar at a bargain price inside of a store that's conveniently located all unless Then fifty. Days. While other companies make their collection at once for the whole season.

21:30 Zara continuously modifies its products according to what people are asking for. Their secret power is they can offer up To date. Clothing. This is one of the craziest things. I gotta read this these whole two paragraphs to you'cause it's one of my favorite things.

21:45 It actually talks about the business model. Comes from the end of the book, but I wanna talk to you about it now. So says from the inception, Ortega had an obsession. to give the customer what they wanted quickly enough to meet their demand and at a price attractive enough To increase the frequency of purchases. Until Ortega, the textile process.

22:02 was on a different trajectory. Collections were thought out and designed more than a year in advance. They were m then manufactured with a three month lead time. And finally they were delivered to distributors who We're responsible for sending them to stores once or twice per season. Or take a look at that and said, That doesn't make any sense to me.

22:19 This posed three fundamental risks. A significant build up of stock. A bet on collections that might not succeed in the market. And uncompetitive prices. given the margins that had to be charged at each step of the chain. Ortega saw from the beginning a clear distance between the production process, which was too long and not dynamic enough.

22:40 And the N consumer. The founder wanted to integrate design in manufacturing first. Then complete the chain. with distribution and sales in his own Stores.

22:53 This was a holy shit moment for me when I read the following sentence turning the customer Into his source of privileged information. And not just the receiver of a commodity. Ortega was interested in what the customer asked for and was willing to adapt the entire production process to their demand.

23:11 He was convinced That if he managed to complete the cycle, meaning completely we are integrated. He could reduce the margins by between seventy and eighty percent. Which would clearly affect The price the end consumer had to pay for each.

23:25 Garment. This was always Ortega's obsession, reworked, reinvented clothes in direct connection with what the consumer expected, clothes that appear very shortly after. And so Again. People around him when he started had this idea and starts building this up and making these crazy investments to technology when other people in this industry do just don't understand this. Then nobody else does it. You know, people like, Oh, you can't do this. Nobody else does this.

23:48 Orkega did not care for that argument. He says, Even if no one else does it, I'm going to do it. This is another thing that he had in common with Henry Ford. He's the Henry Ford of fashion, I'm telling you. It's very obvious to me. Henry Ford says, I refuse to recognize that there are impossibilities. I cannot discover that anyone knows enough about anything on this earth definitively. To say what is and what is not possible. That line Jeff Donovan because it says this phenomenon, this idea, this entirely new model that Ortega invented.

24:15 has broken it's they were talking about uh compare them to other people in the fashion industry, right? It has broken schemes And as shown. That there are no mature sectors where everything is already discovered. But rather companies are managers with closed minds. Who resist innovation.

24:32 So to do all this, they need to do basically three things really well. They need to find out what customers want. They need to design and make the clothes quickly. And then the third thing is they need to distribute the clothes to their stores very fast. And so to find out what customers want. They hire a ton of young people. And then these young people go around and they actually look at what people are wearing.

24:52 So they have people dispersed in New York nightclubs and shopping areas of Paris and trendy bars and hotspots in Spain. And what they are doing is they're tracking the trend. They don't wanna know what you're gonna wear two years from now. They wanna know what you wear right now. So you have people all over the world that work for Inditex, they're actually on the street seeing what people wear, right? They also the the the author's given this tour.

25:12 At the headquarters. In Spain. And they show this huge room with these drafting tables and tons of designers. And they're surrounded by thousands of international magazines, mostly fashion and lifestyle magazines. And everybody working in that department, what their job is, they have to spot the dominant trends.

25:29 So once they identify what the customers want, they design them and then they start manufacturing and making them. And when the book starts describing not only the manufacturing process, but also also the logistics process, what you realize is that Zara or Inditex is a manufacturing logistics company. that uses technology as an advantage. And so Here's one description as they're they're touring the plants. We tour the different warehouses where the complex task of preparing the garments before they left for different destinations was carried out. Large rails crisscrossed.

25:53 The ceiling and the factory made clothes. rotating unceasingly in an orderly and repeated manner Went to the labeling. Ironing. bagging areas and finally to the point where the rails forked according to the store.

26:07 That would be their final destination in this last section. Sophisticated and effective machines Folded the jackets. blouses or pants and place them in huge cardboard bins. If the garment wasn't folded because it had to travel upright, it slid onto hangers.

26:24 That were automatically inserted into special containers. The address of the store was printed on each of the boxes. This is gonna blow your mind. Modern machines. With hardly any trace of humans operating them. Our mouths literally opened in front of the futuristic panorama that we had before us.

26:43 I didn't completely understand the complexity of what they were showing. But I did sense that a significant portion of the secrets of a company destined to be at the head of the global textile industry. were being kept and designed there. And so then it gets even crazier. So they're at the ultra modern plants.

27:00 So I guess I should point out to you the fact that Zara Or into text. It's not headquartered in a big city. Instead, it's headquartered in a rural corner of northern Spain. And I've seen this reoccur as a benefit in not only the books, but some of the world class entrepreneurs I get to meet as a result of the podcast.

27:16 Is they set their company up away from everything. And so for Inditex This ultra modern logistics facility. That the author is Taking a tour of.

27:25 She says that it's an ultra modern plant in Galicia, Spain. is connected by more than two this is a this is I this is crazy. is connected by more than two hundred kilometers of underground access to a fully automated logistics center. Located in Artexio. Another town in rural Spain.

27:44 From where trucks loaded with products depart For European stores Or for planes in the case of the rest of the world. This process combines real time information and in house production. With an efficient distribution system.

27:59 Now do you see why I keep saying that Inditex is just a manufacturing and logistics company that uses technology as an advantage? That continues. What has helped us succeed in sales the most. Is that we receive daily information about what's happening in all of our stores worldwide. And they're able to do that today.

28:16 Because Ortega investe heavily in technology. From the beginning. And they know that's a massive advantage. Logistics is a fundamental part of the circle that completes into Texas vertical integration process. Inventory control in all locations around the world is as important as getting the design right. And producing it quickly. That is why Inditex has invested time, effort, and a lot of money in establishing logistics centers

28:41 With the latest technology. And you go back to this idea of Ortega saying, Hey, I don't care for the argument that nobody else in our industry does it. I don't care. I'm going to do it. And so What happens is most apparent companies have become overly reliant on factories in in Vietnam, China, Bangladesh, right? So Zara also produces in those countries. But more than half of Zara's production.

29:03 comes from what they call proximity. And so what they mean by proximity is literally manufacturing facilities closer to headquarters. So in s in places like Spain. Portugal. Turkey and Morocco. And the reason they do that is because the closer they manufacture, the more rapid the distribution in the stores, the more rapid the distribution in the stores, the more they can turn over their inventory, the more they turn over their inventory, the more money they make.

29:24 And this is why it was so important that over fifty years ago, he's like, I want to I need to be closer to the customer. I I'm not just gonna sell to stores, I'm going to control everything because if you control everything You control the speed your company moves at. Ortega came to administer. A holding company of ninety nine companies. It's it's gotta be bigger than this now.

29:40 of ninety nine companies that guarantee complete vertical integration covering not only the textile and clothing sections But also logistics, marketing. Construction. Real estate, finance, and energy generation. Okay, so I think you got the idea of how it's structured and and why he did something. I need to bring out something else. So

29:56 I think Zara's understanding of human psychology is extremely advanced. And I don't know if Ortega knew this from the very beginning, or this was just a a positive byproduct of this rapid distribution system, you know. From idea, this is cra think about how crazy it is. The system that he built. From idea.

30:13 to on the hangar in a major city in the world in fifteen days. But one of the things that Zara taps into that is very deep in human psychology is this human desire For novelty. Ortega is the inventor of fast fashion. So Fast fashion. It's buying the latest clothes to use and discard.

30:32 without the following year. In some cases you might wear something you buy from Zara. Once, twice, five times. This idea entailed something very serious. It was a real revolution in fashion and it wasn't something that people in fashion before

30:47 didn't understand. They were just incapable of doing. And so there's a fashion designer named Paul Poirier. Most likely pr mispronouncing his French last name. And he says he has this quote in eighteen ninety where he's like clothing is an industry Whose main purpose is novelty.

31:03 Ortega spotted that exact same idea more than a century after. More than a century later. And what he did is he actually dedicated his company to making novelty To have the his company have the ability. To distribute novelty at the speed of sound. So this is really important because they can ship so fast.

31:22 Because they turn over their inventory so long. Let's say you you you want to, you know, get uh Coco Channel like a little black dress. You could have bought a black a little black dress. Fifty years ago? You can buy it today. It will probably be there fifty years from now.

31:35 That is not the case at Zara. They have trained their customers that if you see something and you even yeah, the the inkling that you might like it, you if you don't buy it now. It will not be here seven days from now. Let me read this. This is fascinating. Traditionally, the seller ensures high margins at the beginning of each season.

31:53 But endures several months of discounts to get rid of their stock. The customer knows therefore that in the long run, they will get the same items at lower prices. Ortega's company renews its clothes in stores around the world every week. And twice weekly in Europe. The buyer knows that they will always find new items, but probably won't be able to get what they tried on seven days ago in this way. Customers understand.

32:16 That if they see something they like, they have to buy it immediately. Because in a few days it will no longer be in the store. They have created an atmosphere. Of scarcity and opportunity. Okay, one more thing about his unique approach.

32:31 To the way he built his company. Um and how he runs his company compared to everybody else's industry. And then I'm gonna get into like who he is as a person. Kinda did this in reverse than I normally do. But I found this very, very fasting. So glad I read this book. Um so He v he viewed real estate as a form of marketing and advertising. So they spend like less than one percent of it it it's estimate.

32:50 Less less than one percent of their revenue on marketing and advertising. And instead they spend their money on prime. Prime retail locations. Very, very, very expensive. And this is also interesting. So, you know, I I mentioned earlier he's got, you know, this massive commercial real estate portfolio.

33:06 And at the beginning he was like buying it says over time with the growth of inditech. He actually changed his formula. Instead of buying the locations for Zara, he now rents them. And that surprised me for a second until I thought more about it. So well yeah,'cause he wants the very best store locations. And what if he doesn't own that store location? He doesn't want to sacrifice on not having the best just because he owns the source if he rents them. And then now because they become such a large tenant. developers will now tell him in advance or give him advance notice when they're, you know, opening what they think is gonna be a a prime retail location.

33:35 And so the way I thought about this is okay, well, you're spending money on prime retail locations instead of advertising. Prime relo to retail location is advertising. Because if you are just again just where the people are, where they're walking by Your stores become a demo. And as you and I know, because we've talked about and done episodes and read books about the the the greatest advertiser agency founders.

33:55 and greatest copyrighted start history, a demo is always better than an ad. And so I would argue it's just a matter of accounting. They're spending a lot more on advertising and marketing, but they're doing so in the form of prime retail locations. So I want to talk about how he learned to do this and He talks about the fact that, you know, I did not have time to study.

34:14 I had to work twenty he says twenty four hours a day when he was younger. There was just no possible chance for him to attend college. We didn't attend high school. For God's sake. He's not gonna go to college.

34:25 And he said two very fascinating things that he makes up for his lack of formal education by listening a lot to those around me and learning from them. And by treating his profession as his university, he says, My profession had to be my university. And he was so successful. This is one of my favorite lines in the entire book. It says Arcaga has created a business model that is studied in universities to which he could not access.

34:47 He says a few times that he thinks people overcomplicate things. And so for his life, he just wanted to focus on work. In fact He was very extreme about privacy. Some people call him a recluse. I don't I don't I don't think he's a recluse, but he does want to protect his privacy. So Ortega was never photographed. Only his friends, families, and co workers knew what he looked like. This is before

35:07 Into Text goes public. The author of the book has known Ortega for over twenty years. She had been trying to write a book about him over and over again and he kept say Ortega kept saying, I don't want a book written about me. He resisted for many years. This is very similar to if you listen to my episode on the founder of Ikea a few weeks ago. For a few decades, people kept trying to approach him to write books and he said no over and over again. Eventually he was Uh he agreed, just like Ortega does.

35:29 And uh in fact there's a conversation in the book. About the book. So it's a conversation between the author. And Ortega. And he is worried.

35:38 The one of the main objections he has to to having a book written about him. Was that he values his privacy and he wanted to keep his life simple. He literally just says, I just want to work. And here's what he said to her, You don't realize something very important. I am nobody. I consider myself a worker who is immensely fortunate to have done what he wanted in life and to continue doing it.

35:59 And when he finally agrees to have the book written, he just asks for two things. Number one, do not only tell good things about me. Something he repeats over and over again is that all humans, all of us, have good and bad parts to us. So don't just say the good things about me. Number two. Do not say that I created this company. There have been more than eighty thousand people. That have helped me build it.

36:19 He says Inditex is the story of many thousands of people who have given their lives to the company. And the impending IPO is the first time that he actually consented. And allowed himself to be photographed. But he would explain why this is important to him, why privacy was so important to him. He says, I only want my family, my friends, and the people who work with me to recognize me on the street. I aim to live quietly.

36:38 To be one among the many. To be able to go anywhere, to have a coffee. To take a walk with my white. Without anyone knowing who I am. And so then finally I organized my notes and this section I think is might be the most fascinating.

36:51 It's because it's how Ortega manages Spends his time and thin about his company. And a lot of this is in his own words. So he says I spend my days moving from one part of the factory to another to see how everything is going. If I'm not in the warehouse, I'm in design. I'm interested in the entire process.

37:07 He insists another way, another management technique. He will not he does not allow people To call him Mr. Ortega? He insists that everybody just call him Ortega. He has something in common with Rockefeller is the of the He talks about

37:19 The fact that he never raises his voice. Uh, he says I never raise my voice because I don't like others to suffer. So he's he's not one of these bosses that yell and scream. And part of the way he explains that he says he's always ever since he was a kid, he was just very sensitive to scorn. Th there's other I guess I I should probably tell you some of these stories because it it would it makes sense like why he has this complete and total dedication to work.

37:40 Obviously we know the story when you're twelve years old and the fact that y they were buying groceries on credit and the credit was turned off. But he was there's a lot of these examples where, you know, because of his low class, the fact that he was poor. He was just Constantly felt that he wasn't good enough. He was embarrassed at the thought that he was not good enough. So

37:59 One day a a mom comes in to the story he's working in, you know, when he's a kid. And he wanted to date This the daughter of this mother and she finds out that the this little kid

38:10 working in the store is not the son of the store owner. It's just some poor kid and she wouldn't let him Date. her daughter because He was just a simple sales assistant and he wasn't good enough.

38:23 And so by now it's probably obvious, you know he starts working at thirteen, still working at eighty eight. Look at what he's accomplished over those multiple decades. Like his Dedication to work. is complete and total. So here's an example. The author's asking Ortega Hey, what are you doing to celebrate New Year's Day? And he says he just went to work and she's having another conversation with him a few years later. What are you doing at Inditex today? Instead of quietly celebrating your birthday at home.

38:45 And she says, I receive the same answer that I've heard on other occasions. Why should I stop coming in today? I do what I want to do. I do what I always do. Work. Ortega believes in management by walking around. I don't have an office. I've never had one. My work is not among the papers, but in the whole factory and as you walk around with him.

39:03 You notice he knows the name of each worker that he sees. He had a kind word for everyone. Goes back to Not raising his voice. Wanting every single person in the company to feel that they're a valuable part of the team. Another trait of his is he always wants to know what he could be doing better.

39:19 I used the opportunity to make a series of comments about what I admired about his company and he interrupted me and said I'm gonna ask you for a favor, why don't you explain to me the things about Zara that you don't like? I highly value your opinion. I would like you to critique What could be done.

39:32 Better. That reminds me of one of my favorite quotes from Nick Saban, I've mentioned a bunch of times. Nick Sabin says average players want to be left alone. Good players. want to be coached and great players want to be told the truth. Ortega understood it. People admire him now, especially that now he's

39:48 you know, one of the wealthiest people in the world. They're only gonna say nice things to him. But that is not the truth, and great players want to be told the truth. Ortega knows it's his responsibility to mean the essence of the company. He remains a man who knows every detail. Ortega says the store is the heart of the company, that it's the protagonist in this company.

40:08 In fact, Ortega has a great quote on this and this quote I really It's what Ortega really thinks his company is. He says we are a chain of stores with a company attached. We live So that the store is focused on selling. All the rest of us are at your service. When he hired a new director of human resources.

40:25 This is what Ortega said. He only gave him one piece of advice and it was in one sentence. Love the people. Ortega says that IndeTechs is the most beautiful company in the world. He said he wanted a company with a soul. About fifteen years after opening his first Zara store, he opens the first Zara store in New York. There were so many people.

40:45 waiting outside that it made him cry. He literally Went inside the store. Locked himself in the bathroom and cried his eyes out and thought about his parents. He thought about how proud they would be of their son. And then the next year he opens his first store in Paris and again

41:02 There were people waiting in line to get in and this time he cried in the front door like a child, he says. He says I couldn't even hide it, I couldn't even make it in the store, I just start crying. He was so happy. He insisted that the author ask people that working for him what his faults were. These are some of the faults. They tribute to him. They say he has an excessive amount of ambition.

41:19 That he insists on placing his company at all costs on the highest step of the podium. They say he's very stubborn. And that he has a habit of fostering competitiveness among his teams. He believes that there should always be a desire for improvement and a consistent capacity for criticism. He says, I've always thought. That to succeed, we had to turn the organization upside down every day.

41:41 He has an aversion to the term exclusivity, in fact. There's a bunch of other fashion brands throughout the book. that approach him to buy their company and he always declines. Because he doesn't like luxury or the exclusivity that it implies. This isn't a fault. This is a huge asset.

41:56 is the fact that he stayed focused on his one great objective, which was to enable the entire world to dress well. This is a little uh how stubborn and headstrong as you can imagine. You don't accidentally build a hundred and sixty billion dollar company, I think, without those. Ortega always likes to have his own way. If experts advise against the opening of Csar in Venezuela, for example, and he is convinced that they need to be there, he will purchase the most expensive building in the company's history up until that time. Ortega really aims not to settle halfway to excellence.

42:26 And he loves the satisfaction of a job well done. I really think about that as excellence for excellence sake. If you think about James Shahill, Ingbor Camprad. Ortega the last few weeks. The they all all of them, what they share in common, they wanted to build and design the best business in their category. Not just make the most money, and I think all three of those cases, they might have made the most money, but their main goal was like they want to build and design the best business in their industry.

42:50 Let's go back to this idea that Ortega is never complacent. He believes that complacency is the worst if you want to achieve something significant. He said In this company we have never been complacent. Not in those years when we were taking our first steps and not nor Now that we have stores all over the world. He says

43:08 Gross. is a mechanism of survival. another insight into Ortega from a person that works for him. that knows him well. He says he's a man with a lot of personal charm Because he's not false.

43:21 He does not have ulterior motives. He can be very tough. Impulsive. very sure of himself, but he's very truthful. He is open to suggestions from those who know more than him.

43:31 And he listens to everyone and absorbs everything like a sponge. In fact There's a great example of this where The founder of the company and the CO of the company, so Jose and Ortega, okay. They almost bought Sephora before LVMH buys it.

43:47 This is this is very fascinating. So The way I would describe this, he's he's he's stubborn, but he's willing to listen and be persuaded to go in another direction. So The CO of Index Jose at the time is describing, you know, him and Ortega wanting to buy Sephora.

44:01 I recall a moment when the owner of the company Sephora wanted to sell it to us. This was Before Elf it wind up. W with L VM H. where Teg and I were in total agreement that it was important to buy it. But the rest of the company did not see it that way.

44:13 We thought it could be effective to combine clothing and something else. But most people believed that it was a distraction and that we should continue to invest in Zara. That cosmetics and perfume were a business that we didn't know and we didn't control. And the final result was that we didn't buy it.

44:30 This is what I call a form of intelligent flexibility in leading a major growing business. And so I think the fact that he's stubborn, but he's willing to listen and we've just waited to go in another direction and combine that with also the fact that he is listening, he's absorbing everything with a sponge. I think it fuels one of his superpowers, which people believe that one of his superpowers is that he has the ability to synthesize the most complex ideas. As if they were simple. And that he has used that ability throughout his entire life.

44:57 Another example of him allowing himself to be persuaded he was not very fond of going public. Uh made him doubtful. He did not like the dependents of this external opinion. But he was finally persuaded because he decided going public was a way to impose a certain discipline on the company. They had to run it tighter. And he thought it safeguarded the company. The company's future for when he's no longer around.

45:17 And it's so it's during the section of the book where they're talking about the IPO. talking about should we do it, should we not do it, how they got ready for it. I got I found one of the most interesting ideas. This is the most unique, interesting idea that I've learned in the past week from anything. And it's the idea that commissioning case studies in business schools before going public as a way to make your brand or company more familiar. So

45:38 The author is is interviewing Jose, again the CO. And she says I was I was intrigued to know. How the situation's That have come.

45:47 because case studies in business schools And keep in mind it's translated from Spanish, so it kinda reads a little funny, but Jose says the explanation is evident. I thought because of the policy that had been followed up until that point.

45:59 That they were very secretive, they kinda kept to themselves. Okay, that's what you talk about. that when we were in public, we would be great unknowns. Case studies. were the way for potential investors to know who we were. And so there was a Harvard case study written about Inditex before they went public that two million people read

46:17 And so he says this helped us. make ourselves known in the business world. So then back to Ortega. He eats in the same cafeteria as his employees. He continues to walk through the halls of the headquarters to lend a hand. He does not like to lead sitting in a chair.

46:33 He doesn't raise his voice. He says you always have to speak in plural when referring to our work. Не верід. He has never liked praise. More than once I've told him what a beautiful collection, how happy the customers are, and he always interrupts me and asks me.

46:49 Now tell me what's wrong. When he was asked for advice for future generations of entrepreneurs, he said the first thing is that you like what you are doing. That you are passionate about your work. I insist on this idea.

47:01 Because it is very important. It has to be something that you would almost pay to do. you get the sense that he would pay to do what he's doing. That's why that's why he's working for decades after He needed the money. That's why he's working on birthdays and that's why he's working on holidays. He just loves it. He says more advice for future generations of entrepreneurs.

47:20 You also have to aim to achieve something different, something creative. It is a satisfaction to dedicate yourself. to what you really believe you should do. So keep in mind. You know, people might read that and like, Oh yeah, but he copies his product, he Sees what high end fashion does and then

47:34 creates a version, like a cheaper, less expensive version. The product may be comp copied. But his company is not. He definitely achieved something creative, something different, something nobody else could do. He has a love of simplicity. He says there's a lack of common sense in managing life. He says multiple times. that he thinks people overcomplicate things, that the simple things in life are the great things in life. In fact there's a line in the book

47:56 That says simplicity is the heritage of geniuses. This part is excellent. I ask him if he's bothered by other people's opinions. This is what he says. I don't think it's important to know how other people see me. I never cared. Also, there are thousands of entrepreneurs who have done the same as me.

48:12 If I'm somewhat different. since I don't go to parties or I don't accept awards, it's because all of my life I've tried to do what I like the most. I would almost say I've been selfish in that sense. Because I didn't just do what I had to do. But what I wanted to do.

48:28 I turned seventy two last march. And I feel that my growth can't stop. What keeps me going after all these years is to learn and to grow. I continue observing what happens in the world and I listen.

48:40 Work. Is what I enjoy most. And then the author gives us a great summary of Artego's career. He is a person who will die with his boots on. His life Is the company.

48:50 And that is where I'll leave it for the full story. Highly recommend reading the book. I guess the only way you could read the book this book is if you read Spanish. So if you buy the book using the link in your podcast player or available founderspodcast.com, you'll be supporting the podcast at the same time. Make sure you join my personal email list and if you do that, I email you the top my top ten highlights for every book that I read. You can get that. Link down below and also available at DavidCenter.com.

49:12 That is three hundred and seventy two books down, one thousand to go. And I'll talk to you again soon.

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