Tilman Fertitta's 95/5 rule: go after the 5 percent that is not working
Tilman Fertitta owns the Houston Rockets and a large restaurant group. In Richard C. Wilson's Billionaire Insights talk, his book is one of the first Richard tells the room to buy. The idea he pulls from it is simple. Look at the small share of the business that is going badly and attack it.
Well capitalized is not enough
Richard notes that Fertitta wants to be well capitalized and aggressive even in a strong market. Capital is not the edge on its own. Fertitta wants to be the best operator too.
The 95/5 habit
Most of a business may be going fine. Fertitta looks for the 5 percent that is not and fixes it hard. Done over and over, that is how he beats competitors who stopped looking at the details.
Who he is really competing with
Richard is careful to say this does not mean beating up on small, less capitalized owners. It means outrunning operators who got sloppy. One example Richard gives is a private equity owner who bought a basket of assets and got distracted.
Know your numbers
Fertitta's book has many stories about knowing your numbers. Richard quotes one line: you're out if you don't know your numbers.
In Richard's words
"So he talks about looking at the 95 % that's going well, and what 5 % is not going well, and then attack that vigorously and make it better." (Richard C. Wilson, Billionaire Insights talk)
"It just means someone who's not operating at the level that he does." (Billionaire Insights talk)
"He talks about worrying about every detail and then many examples about knowing your numbers" (Billionaire Insights talk)
How to use this
- Once a week, list what is not working in your business. Pick one item and fix it all the way.
- Ask your team for their numbers in meetings. If they do not know them, that is your 5 percent.
- When you buy an asset, look for an owner who stopped paying attention. That gap is where operators make money.
- Raise enough capital to stay strong in good markets as well as bad ones.
Questions and answers
What is Tilman Fertitta's 95/5 approach?
As Richard C. Wilson describes it from Fertitta's book, you accept that most of the business is going well and you aggressively fix the small part that is not. Repeating that keeps you ahead of competitors who ignore details.
Does 'eat the weak' mean going after small businesses?
No. Richard says it means outperforming operators who are not running at a high level, such as a distracted owner. It does not mean beating smaller, less capitalized family businesses.
Why does Richard recommend Fertitta's book?
He lists it among the billionaire books he says everyone in the room should read, because it is full of practical examples about operations and knowing your numbers.