Cut to What Counts

Think like a cost-cutter and streamline your financial life

The Monkey Sculptor, Teniers the Younger, David, 1660. Image.

Welcome back to Quests, where we probe the minds of the obsessed, the fixated, the driven.

This week we’re visiting the Bank, the hub and heart of the Quests economy. Here we’ll meet a few private equity (PE) investors—regulars who linger just outside, ready to call their banker friends to orchestrate a leveraged buyout.

The prevailing narrative today paints private equity as a force of ruin. PE investors are Grim Reapers in Patagonia vests; their scythes are in-house data models, sharpened by deal after arcane deal; the dead are the laid-off millions, the victims of cruel euphemisms: downsizing, realignment, cutbacks, and redundancies. 

Just this week Blackstone, the world’s largest private equity firm, acquired the sandwich chain Jersey Mike’s for $8 billion. The internet has responded predictably: RIP Jersey Mike’s, reads a top comment on Reddit. But this gut reaction misunderstands how quietly pervasive—and, frankly, successful—PE has become.

Private equity revels in and profits by complexity. I promise there’s someone at Blackstone who could speak at length about where Jersey Mike’s sources its mayonnaise ingredients. 

The private equity market is now worth upwards of $8 trillion; it touches everything: vet offices, car washes, hospitals, grocery stores.  Your town—every town—is becoming a PE playground.

No doubt, the classic business-flipping move—buy, strip, and flip—has left in its wake droves of carved-out, debt-saddled companies. (By design, PE targets troubled businesses, so the failure rate isn’t altogether surprising). Some of the most infamous failures are detailed by Brendan Ballou in Plunder: Private Equity’s Plan to Pillage America. 

Worst of all is when PE firms target critical industries like healthcare, housing, and emergency services, where aggressive cost-cutting can lead to real harm. The fallout leaves communities struggling with reduced access and stability, while the investment firms walk away mostly unscathed.

And yet, as Sachin Khajuria writes in Two and Twenty: How the Masters of Private Equity Always Win, “One way or another, we are all customers of private equity, whether in the form of buying goods and services from private capital–backed companies to investing in private capital through retirement systems or both.”

In short, PE is coldly efficient and morally murky. But whether you see firm managers as financial wizards or greedy villains, I want to suggest there are valuable lessons to be learned from the PE mindset, principles that may indeed be problematic for the broader economy but nevertheless cohere as sound financial thinking in a vacuum.

Let’s enter the headspace of the cost-cutters and explore how their relentless pursuits might inspire our own financial decisions. What can we learn from these money-minded sharks?

Count your coins, and catalog your gear. It’s time to get lean

The Return of the King

No one embodies the philosophy of ruthless reduction quite like 3G Capital, a Brazilian investment firm. 

“Costs are like fingernails: they always have to be cut,” says Alberto Sicupira, partner at 3G. According to their philosophy of zero-based budgeting, every penny must justify its existence. 

A second pair of eyes—whether it’s an editor, a sports instructor, a therapist, or indeed an investor—can often see what we, inured to our own unconscious patterns and calcified processes, cannot.

No deal better exemplifies 3G’s cost-cutting playbook than their acquisition of Burger King in 2010.

Jorgo Paulo Lemann, the “Warren Buffett of Brazil,” and his team at 3G, including partner and eventual Burger King CFO/CEO Daniel Schwartz, saw an opportunity in the multinational burger joint. 

The Burger King. Image.

Chloe Sorvino, writing at Forbes, recounts the value-oriented approach that led to the initial acquisition: 

Schwartz went hunting for deals. Burger King looked intriguing. “I’d ask my wife or my mom, ‘If McDonald’s is worth $70 billion, what do you think Burger King is worth?’ They’d say, ‘$30 billion?’ ” Schwartz recalls. 

Paying a 46% premium for the publicly traded shares, 3G acquired the chain for $4 billion, ­including debt. Schwartz then raised his hand to help run it. ‘I wanted to be part of this. And I didn’t want to just sit in an office and get monthly reports.’

The 3G Capital team quickly went to work slashing costs. No burger was left unflipped.

Sorvino writes, “At 29, Schwartz became BK’s chief financial ­officer. He sold the corporate jet. He told employees to use Skype to make free international calls. And to get a feel for the whole business, he worked shifts off and on at Miami Burger Kings, cleaning toilets, cooking burgers and manning the drive-thru.”

After a few years, thanks in large part to 3G’s lean and mean approach and consummate dealmaking, Burger King became Restaurant Brand International, acquiring Tim Horton’s, Popeyes, and Firehouse Subs. It’s now worth over $22 billion. 

Cost-cutting doesn’t require reinventing the wheel. Burger King’s turnaround wasn’t about grand innovation as much as it was disciplined, unsentimental decision making. 

The Whopper stayed the Whopper, and the zesty sauce remained…zesty—though I’m pretty sure BK axed a few other sauces around this time. 

(Kung Pao sauce, anyone?). 

Every Dollar Counts

Another PE giant known for its ruthless efficiency is KKR, or Kohlberg Kravis Roberts, the OGs of private equity.

Founded in 1976 and led by Henry Kravis and his partners, KKR pioneered the leveraged buyout— a process where firms use borrowed money to acquire a company, then improve its finances (i.e., cut costs) and make the business pay down its debt while it’s spruced up for resale. It’s a risky strategy that can prove lucrative or disastrous.

KKR are the nominal Barbarians at the Gate, immortalized in the 1989 book chronicling their $25 billion buyout of RJR Nabisco. The deal established KKR as a powerhouse. Today KKR stands alongside Blackstone and Carlyle as one of the “big three” private equity firms. 

One of KKR’s big wins came in 2007 when they acquired Dollar General for $7.3 billion.

If you’ve ever frequented a Dollar General, as I did growing up in rural East Texas, then you’ll understand that this was far from a glamorous move. But KKR’s timing was ideal, picking up the discount retailer just as the economy nosedived, when Americans were looking to save every possible penny.

Your friendly neighborhood Dollar General. Image.

Under CEO Rick Dreilling and alongside KKR retail experts like Michael Calbert, Dollar General streamlined their inventory. A simple but brilliant change was to trade Pepsi for Coke products in the South, where Coke is literally a synonym for soda.

Knowing your audience matters.

What’s more, the management team eliminated underperforming items, tightening their product offering. The goal was to create a leaner, more focused version of the Dollar General store, like a miniature Wal-Mart. It worked: sales grew, and the company successfully IPO’d in 2009. 

In his report on Dollar General’s impressive turnaround, Jim Frederick shares CEO Dreilling’s perspective looking back:

“When I came to this channel, this was the last wild frontier of discount retailing,” Dreiling recalled. What was critically needed to restore the company’s momentum, he told DSN, was to apply “all of that discipline that you learn in the grocery business and drug business and big box [retailing]” in areas like “labor control and category management.”

So: another buy-strip-and-flip success for private equity. But Henry Kravis, the patriarch of KKR, is hesitant to embrace his industry’s cost-cutting reputation: 

The reality is that you cannot create value and profitability by cutting costs -- you have to put money into the business for it to progress, for example by investing in research and development, creating new products, making the business more competitive globally or locally. We are investors who help improve companies by pouring human and financial resources into them.

Kravis has also said that “it’s not possible to create long-term value by simply loading a company with debt and cutting costs. Nobody will partner with you or entrust you with their valuable capital if that is your business model.” 

Now a skeptical take might be that Kravis is begging forgiveness for the sins of his younger self, that loading companies with debt and cutting costs (and jobs) is exactly what KKR did for years. 

But it’s also true that KKR employs some of the smartest people in the room. They’ve built genuine value—if they didn’t, no one would work with them. Yet deal after deal, buyers, sellers, and investors continue to show up at the table.

The truth is, no successful firm just cuts costs and expects a win. You eliminate, but you also build. You carve away, but you sharpen. The art isn’t in the sheer profit-hungry frenzy of cutting like a madman—it’s in knowing what to leave behind.

Get Rid of It

So how can we put these ideas to work?

For most people, the easiest cost cuts often come from subscriptions and recurring expenses. An app like Rocket Money, which syncs with your bank accounts, is legitimately helpful—and potentially eye-opening—in getting a bird’s eye view of hidden, insidious costs. I paid for  Peacock for months, thanks to one exclusively-streamed football game I had to watch. (Couldn’t even tell you who played.)

But digital subscriptions are just the low-hanging fruit. If you’re scrupulous, there’s probably much more to renegotiate (I call up the Wall Street Journal every year, threaten to cancel, and they extend the discount) or eliminate altogether. Do you really need that meal delivery subscription?

You can also sell off assets. This one’s tough for people. There’s a strong psychological tendency to overvalue something simply because you own it—it’s called the endowment effect. (I am chronically guilty of this in fantasy football, where I have kept Kyle Pitts, tight end for the Atlanta Falcons, on my team year after painful year.) But be honest: do you need the jon boat you use twice a summer? The treadmill-turned-coat-rack? The espresso machine gathering dust?

What’s the cliche? Addition by subtraction. Get rid of the clutter and free up some cash.

The sun is setting and the private equity investors—spreadsheets in hand, smartphone buzzing—are leaving the Bank. We’re impressed by their acumen, a little wary of their intentions, but, in any case, we’ve learned from these profit-margin sculptors as we embark on our own quests.

Here’s Quest 6:

Streamline your personal finances

Key Details

• Share your wins in the comments or @ the Quests community with an example of how you’ve optimized your finances

• General details are fine (no need to get too deep into specifics): let’s crowdsource simple hacks and make our own playbook for financial streamlining

• The Quests community is still in its alpha stage, but badges go live soon. Complete this quest, and you’ll earn The Bank badge on your adventure profile. This bag of gold could be yours.

Upon completion: LOG YOUR QUEST

It’s dangerous to go alone—find a quest partner, and party up. 

Recommended Reading:

Plunder: Private Equity’s Plan to Pillage America (Ballou’s overall assessment is overly harsh IMO, but he raises important points about better regulating PE)

Two and Twenty: How the Masters of Private Equity Always Win

Barbarians at the Gate: The Fall of RJR Nabisco

The Private Equity Playbook

NEXT ON QUESTS

We’ll take a break on Thanksgiving Day and return on 12/5. Have a great holiday everyone. Eat some turkey, stay warm by the hearth, and quest on.