I hope everyone had a great Easter!

I finished reading The Davis Dynasty: Fifty Years of Successful Investing on Wall Street this week. The book chronicles three generations of the Davis family and how an initial $50,000 investment in stocks by the patriarch has turned into more than $2 billion for the family and an investment firm that manages over $25 billion in total assets.

This book caught my eye because I enjoy learning about “investor entrepreneurs” —investors by profession who don’t want to work for someone else, so they choose to become entrepreneurs by starting companies that invest capital

In the 1940s, the Davis family patriarch had a unique insight about insurance companies. He realized that (1) the companies had hidden investment portfolios that would compound for long periods until claims were paid out, but they were disguised as unprofitable companies because of accounting rules, and (2) the market for life insurance was exploding because of World War II. He quit his job in 1947 and became a full-time investor specializing in the stocks of insurance companies. His timing proved ideal: his portfolio ballooned from $50,000 to roughly $10 million by 1959.

One key takeaway from this book is the patriarch’s insistence on writing and distributing a weekly bulletin about the insurance industry. In the early 1990s, his grandson began helping him write this newsletter. He asked why they should bother when the lack of feedback suggested that no one was reading it. The patriarch’s response? “It’s not for the readers. It’s for us. We write it for ourselves. Putting ideas on paper forces you to think things through.”

The patriarch used the weekly bulletin as a tool for reflection and learning. Distributing it to others added accountability to the process.

When I read this, I thought about a few successful founder friends with a similar habit—which I remembered because it’s rare. They’ve built companies worth hundreds of millions of dollars or more. Each sends a weekly email update to their investors and/or team. They’ve kept up with this habit for years, since their earliest days. I asked one of them why he keeps doing it. He does it for himself, he said, not the recipients. It forces him to reflect on the past seven days and plan for the next seven.

I’m a proponent of founders sending update emails. It’s a habit with superpower potential. Everyone can do it, and because few people do, it gives those who take the time for it an edge.

This is my two-hundred-ninth weekly reflection. Here are my takeaways from this week:

• Superpower – I finished a good book about a dynasty family of investor entrepreneurs. The patriarch was adamant about writing weekly. It became an advantage for him and the two generations after him. His articulation of the value derived from that activity got me thinking about how it can be a superpower for entrepreneurs.
• Learning survey – I began casually surveying friends and family about learning habits in late January. Those conversations morphed into customer discovery but were still sporadic and among people close to me. This week, I tested having discovery meetings with entrepreneurs I don’t know (or don’t know well). The insights this week were valuable. I’m considering committing to doing a few discovery meetings one day a week for a few weeks with entrepreneurs and investors I don’t know.

Week two hundred nine was another week of learning. Looking forward to next week!

Last week I shared my takeaways from reading Built from Scratch: How a Couple of Regular Guys Grew The Home Depot from Nothing to $30 Billion, a book about Home Depot’s founding. One thing I learned is that Home Depot’s founders rethought their market, which changed their growth strategy.

They initially went after the do-it-yourself market, which was consumer focused. Then they realized they were serving the home-improvement market. This change in how they thought about and defined their market was important because home improvement included contractors too. Home improvement was a much bigger and more fragmented market than do-it-yourself. This decision played a role in Home Depot’s annual revenue increasing from $20 billion in 1996 to $135 billion in 2023.

Today it was announced that Home Depot is acquiring SRS Distribution Inc., a “distributor of building products . . . serving the professional roofing contractor’s business.” The deal is for about $18.25 billion. The stated logic behind the deal is that it will help Home Depot grow its business with contractors.

The Home Depot’s founders haven’t run the company for over twenty years. But their insight about what their market is and what customers they serve is still driving the growth strategy today, even if it’s growth through acquisition rather than organic growth.

Markets matter a lot more than some entrepreneurs realize. I’d say it’s one of the most important factors that impact business success and growth potential. Building a big business in a small market is hard because there aren’t enough people willing to buy your product or solution. Home Depot’s realization about its market roughly thirty years ago has allowed it to build a massive business, and it still provides growth opportunities, as shown by today’s announcement.

Today I caught up with a friend who told me about his job. He talks to his employer’s biggest customers to understand their problems. He puts together events where the company’s biggest customers share the problems they’re encountering and expecting to encounter and how these problems are painful. He then makes these customers aware of solutions offered by his company that can solve their problems and connects them to the appropriate person who can close the deal (sometimes he can).

The interesting part of his job is hearing from various large customers in a single setting where he’s able to see across entire industries. He can identify trends and problems his customers are having early. As I listened, I thought, His job is to do customer discovery.

This got me thinking. Not all companies offer this kind of role. But if you’re an aspiring entrepreneur working at a company that does, it’s a great opportunity. Doing this job is a terrific way to identify problems and quantify how painful they are before you make the full-time leap. It helps you thoroughly understand problems, which should help you build a better solution, and lets you build deep relationships with potential future customers. All while still collecting a salary (and hopefully saving too).

I’m continuing with my learning survey, which turned into a customer discovery exercise. I’ve been intentional about talking with entrepreneurs and investors who provide early-stage entrepreneurs with capital to build businesses.

Today I spoke with someone who has founded multiple companies and is now a venture capital investor. After I finished asking him questions, I shared what I’ve learned so far and some of my insights. As we chatted more about learning, he shared personal stories about how learning the right things at the right time changed the trajectory of his life. The more he spoke, the more excited he became.

As I reflected on this conversation, I realized that most people who’ve been part of my survey have shown similar excitement. The conversations have illuminated lots of friction for people learning outside of structured learning environments like school. But even with this friction, entrepreneurs and investors have a thirst for wisdom and are excited about learning. My conversations have led me to believe that that thirst isn’t being quenched in a way that suits their on-the-go, digital lifestyle.

An early-stage founder chatted with me about an idea he’s considering. He wants to start a second business. The second business will be in a space adjacent to that of his current business. He plans to have a partner who will handle a fair amount of the daily execution, and he’ll be the strategy, vision, and go-to-market person. He asked for my thoughts.

My gut reaction was that it’s a bad idea, but I thought more about it. I thought about the entrepreneurs I know personally and others I’ve read about. I ended up landing on two key areas to consider:

• Know yourself – Entrepreneurs come in various personality types. Some founders do their best work when they obsess about a single thing. They’re thrown off when they’re asked to focus on multiple unrelated things. These founders tend to do one thing extremely well. Conversely, some founders are action junkies. They couldn’t sit still if their life depended on it. They thrive in environments where they have to juggle multiple unrelated balls. They’re bored with the idea of focusing on one thing and get excited by new things. These founders get lots of things done, but the quality of the execution isn’t as high as it could be. They want to check the box and move to the next thing on their to-do list. These are just two types of founders. There are others. I’d want to be honest with myself about how I’m wired and whether another business is a good fit for my personality.  
• Define the end game – What’s the end game for the second company? Is it to build a small lifestyle company for cash flow? Or to build a high-growth rocket ship to eventually sell or IPO? Or something in between? All are great paths, but they require different levels of energy and execution. For example, if your first company is a high-growth start-up and you plan for your second company to also be one, that’s going to require a lot of energy and be difficult (not impossible) for most people to execute. Elon Musk does it, so it’s possible, but it’s not easy. Alternatively, if you want to build a lifestyle business to enhance your lifestyle, it’ll require good execution but less effort than a high-growth company. Having a clear idea of what I want to build with the second company is something I’d get clarity on before I dig in.

The answer to whether starting a second company is a good idea is, It depends. It depends on what that second company will look like if successful and on whether the founder can successfully juggle more than one business.

I’ve been listening to more podcasts recently. I’m usually doing something else at the same time (e.g., exercising), so the time feels more productive. One of the problems I’ve had is noting important things I hear in podcasts. It’s inconvenient (and sometimes dangerous) to abruptly stop what I’m doing to note what I heard and when I heard it.

I figured I’m not the only person having this problem, so I did some research. I came across the Snipd app. It’s a podcast player that generates transcripts using AI. As you listen to a podcast episode, the app allows you to highlight and save parts you want to revisit with the simple tap of a button. You can even export the highlights to other systems, such as notetaking apps.

I began testing the free version of Snipd recently. I haven’t tried all its features, but so far it’s materially better than what I was doing before. The friction to record podcast insights has been reduced drastically.

I’m going to continue testing the app, but so far I like it and plan to add it to my list of learning tools.

Earlier this week, I shared how Pat Farrah became a Home Depot cofounder. Farrah was an entrepreneur who started Homeco, a concept similar to what Home Depot would become.

The language of business (i.e., accounting) is critical for entrepreneurs, but Farrah didn’t speak it. Equally as important, Farrah didn’t know what his costs were. His bank accounts had money in them, so he thought he was doing well. He and his top lieutenants even bought Porsches and Cadillacs. While Homeco was going through due diligence to be acquired, Farrah shared that he had no idea what his margins were or how much money he was making. When his suitors asked him, he guessed that his margins were 23% and he was solidly profitable. After the suitors cleaned up his books and audited them, they learned that the true margin was half Farrah’s estimate. And Homeco wasn’t just unprofitable, it was bleeding so much money that it was already insolvent by the conclusion of the audit. The acquisition was canceled. Homeco failed. Farrah was forced to file for personal and business bankruptcy.

The most successful entrepreneurs running profitable companies have the wisdom to get a handle on costs. Their focus on generating a profit usually leads them to learn basic accounting concepts (or hire someone knowledgeable about them). Their understanding of their costs leads to better decision-making and a company that generates cash (i.e., profits) instead of consuming cash.

Understanding costs served me well as a bootstrapped entrepreneur. I remember watching a competitor sell a popular automotive part for less than our cost. Customers loved the item, and it drove a significant amount of revenue to this competitor. Our team wanted me to compete on price so we could capture some of that revenue, but I declined. It didn’t make sense to lose a material amount of money on each transaction. Selling below cost is unsustainable. We didn’t have outside investors, so every dollar mattered. I reasoned, Why play a game we know we can’t win? Over time, I started to see other decisions this competitor made, and I suspected its leaders didn’t have a good grasp of its costs. A year or so later, it went out of business. I suspect that not tracking its costs caught up with it.

This is my two-hundred-eighth weekly reflection. Here are my takeaways from this week:

• Entrepreneurship – Some of the most successful companies are built by people who experience a problem firsthand and set out to solve it. Living the pain of the problem gives them unique insights and passion that increase their chances of success.
• Investing – Just because something is cheap, that doesn’t make it a good buy. Quality still matters more.
• Reddit – This IPO was completed yesterday. I’m curious to see how the stock performs in the next week or so. Its performance will likely have a significant impact on technology companies’ decisions about whether to pursue an IPO this year.

Week two hundred eight was another week of learning. Looking forward to next week!