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NewsMaterial4 min readDisconfirmAI Editorial

Investment Masters Class Author John Garrett: Developing People Is a Verifiable Compound-Interest Mechanism, Not a Cultural Slogan

John Garrett synthesizes independent conclusions from cross-industry entrepreneurs including tire retailer Les Schwab, venture capital pioneer Georges Doriot, and J.C. Penney to present an actionable argument for investors: developing people is not a soft cultural value, but a verifiable compound-interest mechanism. Its core logic is arithmetic—improving the capabilities of one thousand average employees by 20% yields returns far exceeding the contribution of ten star employees. The article ultimately translates into five due diligence questions that investors can practically ask.

2026-11-02 07:54 GMT+8

In 1952, when Les Schwab purchased a small tire store in Oregon, USA, he knew almost nothing about tires. He quickly realized one thing: the growth rate of this business depended entirely on the people inside it. Decades later, when his company had expanded to hundreds of stores across the western United States, he posed a question to all his employees and then answered it himself: What should our company do to sustain its success? The answer was—BUILD PEOPLE.

This was not an isolated case. Venture capital pioneer Georges Doriot summarized his work in five words: "I am building men and companies"—the order matters. J.C. Penney was more blunt: "Our plan was not solely to make money, but also to develop men by training. If we trained men effectively, profits would take care of themselves." Andy Taylor of Enterprise said that while competitors' business was cars, their business was people. Tom Crosby of Pal's Sudden Service said he was not in the service economy or the experience economy, but in the "growing-people economy."

In this article published in November 2026, Investment Masters Class author John Garrett connects these independent conclusions spanning industries and eras into a single thread: exceptional business builders independently arrived at the same judgment—that developing people is fundamental to building enduring businesses. Garrett’s argument is not a cultural advocacy, but a mechanistic explanation regarding compound interest.

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Peter Kaufman of Glenair proposed a "highway design axiom": you cannot design a highway so that only expert drivers can use it. The true test is how average or below-average drivers perform. Most organizations focus on "getting the right people on the bus" while ignoring the lower half of the organization—but "the best opportunity to move the needle lies exactly there." This is not sentimentality, but arithmetic: ten stars can only carry so much; lifting even 20% of one thousand average employees yields gains that dwarf anything stars can contribute.

Garrett further demonstrates how this mechanism forms a compounding loop. Charles Koch summarized it in one sentence: "We recognize that virtuous cycles start with employees before spreading to the business." Developed people take on more responsibility, causing the business to grow; growth creates new roles, which become opportunities for the next round of personal growth. If the cycle runs long enough, it compounds like capital.

For investors, this implies a critical constraint: many enterprises find that their true growth bottleneck is not capital or demand, but the supply of qualified managers. The growth rates of Enterprise, Chipotle, In-N-Out, and Brown & Brown would have been impossible if they needed to hire leaders from outside. They chose to cultivate leaders internally instead.

Garrett translates these observations into five practical questions investors can ask: Where does the executive team come from? How many managers started on the front line? Does the training system survive industry downturns intact, or is it the first thing cut? Is promotion based on developing others or pleasing superiors? Do leaders spend time teaching? These answers rarely appear in annual reports, but often indicate trends better than annual reports do for the next twenty years.

The standard rebuttal is: developing people is expensive, and those you develop may leave directly. Crosby’s response is a rhetorical question: "What if we don't spend the time and money, and they stay?" Training costs are visible in the budget; the cost of not training is invisible, dispersed over years of mediocre service, slow decision-making, avoidable errors, and excellent employees quietly leaving. Pal's frontline employee turnover is reported to be approximately one-third of the industry average, with assistant manager annual turnover at only 1.4%.

Garrett emphasizes at the end that these companies are not "soft." Enterprise, Fastenal, IKEA, In-N-Out, Kiewit, Koch, Brown & Brown, Constellation, and QuikTrip are among the most demanding and consistently successful commercial entities of the past half-century. Their leaders did not use developing people as a substitute for building businesses—they understood that, over a sufficiently long period, the two things are the same thing.

Sources

  • mastersinvest.comInvestment Masters Class↗
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