Last week I learned about John Malone while reading The Outsiders: Eight Unconventional CEOs and Their Radically Rational Blueprint for Success. This inspired me to buy and begin reading Cable Cowboy: John Malone and the Rise of the Modern Cable-TV Business.

Tele-Communications Inc. (TCI) was a cable company founded by rancher and cottonseed salesman Bob Magness. TCI laid wires to allow cable to reach homes and charged monthly fees for access to its infrastructure and programming.

Magness used debt to expand TCI and got in over his head. In 1972, he recruited Malone to get the company’s finances in order and take it to the next level.

Malone focused on increasing the long-term value of TCI, not short-term profits. He ignored reported profits and concentrated on the company’s cash flows, not net income. He reinvested cash flow in ways that would generate a high return and increase TCI’s market capitalization (i.e., valuation). Here are two key things I noticed Malone did:

• Depreciation – Cable systems were depreciable assets. Once a system was acquired, TCI depreciated this cost over time, which minimized (and often eliminated) TCI’s tax bill. The lower the tax bill, the more cash TCI had to buy more cable systems. The more cable systems TCI purchased, the more cash flow Malone had to reinvest and the more depreciation lowered TCI’s tax bill. The bigger the system became, the more subscribers Malone had to use as leverage in negotiations.  
• Programming – Cable system operators thought programming was a commodity they had to pay for. Malone realized programming companies were valuable because they had two revenue streams: advertising and payments from cable systems (like TCI) based on subscribers. New channels increased fees to cable systems as popularity increased. Malone realized that owning part of new programming (i.e., new cable channels) would allow TCI to profit twice by owning “both the pipe and the water flowing through it.” He could offer new channels broad distribution early and negotiate lower programming rates for TCI, a win-win. Malone started seeding new cable networks. He provided capital and access to subscribers in his system in exchange for 20% of new programming channels.

Malone ended up building a powerful flywheel that increased TCI’s long-term value. The more cable systems he bought, the more cash flow and subscribers he had. The more subscribers and cash he had, the more leverage he had with new cable channels. The more these new channels succeeded, the more revenue they had and the more valuable they became. The more valuable new programmers became, the more valuable TCI became.

Using this approach, Malone ended up owning stakes in BET, the Discovery Channel, the Family Channel, and others.

I haven’t finished the book yet, but I can already see why Malone is considered one of the best capital allocators.

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Today, I finished reading Junk to Gold: From Salvage to the World’s Largest Online Auto Auction, an autobiography of Copart founder Willis Johnson. Johnson founded Copart in 1982. It started as a salvage yard. He purchased wrecked cars and sold the parts and scrap metal for a profit.

Johnson picked the salvage market because it was supported by two larger industries. Car manufacturers had to produce cars or they’d go out of business. Insurance companies had to write car insurance policies or they’d go out of business. “They’re always gonna make cars, and they’re always gonna insure them. We’re the guy in between.” The salvage business was important because it sat between the two and helped dispose of wrecked or inoperable cars, which are inevitable.

Johnson started with a salvage yard but was always scanning the landscape, paying attention to what was happening around him and searching for the next thing. He started a pick-your-own-parts yard and other businesses as opportunities cropped up. Over the years, he realized that providing a place to auction salvaged cars helped insurance companies recoup more money—and insurance companies were great repeat customers.

He continued to iterate on the auction model. In 2003, Copart rolled out an online auction platform. The platform was a tremendous success. Johnson realized he was on to something big and began to ask himself, What is our job? which I translate to What’s our mission? Up to this point, he’d been chasing anything that could make money. But now, the online platform’s success changed his thinking. He’d found product–market fit but wasn’t sure what to do with the in-person auctions and other businesses. Where should he spend his time? What was the biggest opportunity? He realized that his mission was to “streamline and simplify the auction process.” With a clear mission, his decisions were easy. He ended in-person auctions. All auctions would be online going forward.

Having a clear mission and product–market fit took Copart on an unprecedented run. The company is now a global online auction market and has a market capitalization (i.e., valuation) of over $52 billion as of this writing.

I enjoyed learning about Johnson’s journey. The distance he traveled was impressive. He doesn’t have a college degree and isn’t technical, but he nevertheless built a massive company centered on technology. Johnson’s business was founded in 1982 and started trading on the NASDAQ stock exchange in 1994. It took nine more years for him to crystallize his mission and focus on a single solution with massive potential in 2003.

Johnson hustled in the salvage industry for twenty years before he found product–market fit. When that happened, he switched from hustling to being laser focused.

Johnson’s journey is unconventional, even by entrepreneurial standards, but his success is outsize and undeniable. His story reminds us that there are many paths to success as an entrepreneur, including unsexy paths like the salvage industry. In the end, it boils down to finding a painful problem, solving that problem well, and providing the solution to a large pool of people or businesses.

Today, I began reading Junk to Gold: From Salvage to the World’s Largest Online Auto Auction. It’s by, and about, Willis Johnson, the founder of the online wholesale and salvage vehicle auction Copart. He tells readers about his life from childhood on and shares a series of stories from each point in his life and the lessons he learned.

Copart is a publicly traded company with a market capitalization (i.e., valuation) of roughly $52 billion as of this writing. The company’s core offering appears to be an online auction.

Given what the company is today, I expected Johnson to have had a big vision. I haven’t finished the book, but it’s clear that he didn’t. Instead, he built his company in what I’d consider a reactive manner.

He was constantly scanning his surroundings for opportunities and reading the newspaper (yes, the newspaper) to look for new ideas. When he saw an opportunity that seemed like a good deal, he pulled the trigger quickly. He was always shaking the trees, seeing what fell out, and snatching up the best option. Some of his biggest decisions were opportunistic plays that presented themselves. Often, he wasn’t even considering them the day before he committed.

When he saw a competitor doing something he liked, he promptly cloned it. For example, Johnson knew nothing about IPOs or the stock market. But when a competitor completed its IPO, Johnson decided to copy the move. Keep in mind that he didn’t even know what “IPO” stood for at the time. Roughly two years later, his company was publicly traded.

From what I can tell, junkyards (this is how Copart started) and auction businesses are highly unpredictable. You never know what’s going to roll through your doors. You have to react to whatever happens and try to turn a profit with whatever shows up. Johnson not only thrived in this environment but figured out how to build a massive business one reactive decision at a time.

I’m someone who likes to start with the end in mind and then figure out the best path to that goal. Johnson’s operating style isn’t something I’d be able to adopt, but I’m fascinated by how successful he was. I’m curious to finish the rest of Johnson’s unusual story.

Reviewing my notes on The Outsiders: Eight Unconventional CEOs and Their Radically Rational Blueprint for Success, I spotted a few patterns. Most of the CEOs displayed the following traits:

• Daily operations – These CEOs hired strong lieutenants who managed day-to-day operations. This time-management hack allowed them to focus on whatever the most pressing issue was at any given time and strategic things like capital allocation. Finding the right number two took years in some cases, but when it happened, it freed these CEOs from the weeds of the business and gave them more control of their time.  
• Frugal – There’s an old saying: “If you watch the pennies, the dollars will take care of themselves.” All these CEOs took this to heart and watched their costs. They were happy to spend, but only when the return was clear. They avoided unnecessary layers of people and the associated costs. Most avoided expensive class A offices, opting for modest, unassuming offices instead. Tom Murphy of Capital Cities Broadcasting used frugality as a defense to his company’s inconsistent ad revenue. He recognized that he couldn’t control revenue but he could control his costs.
• Independent thinking – These CEOs didn’t believe in mimicking others. They didn’t follow their peers or conventional thinking. Instead, they spent time doing their own thinking to arrive at rational and pragmatic decisions. These decisions were often the opposite of what peers were doing and led to returns that exceeded those of their peers.
• Free cash flow – Free cash flow is a recurring focus among these CEOs. They didn’t pay attention to reported profits (i.e., net income); rather, they wanted to know how much cash the business generated that they could allocate. The distinction between free cash flow and net income is an important one. Many entrepreneurs don’t understand that difference, and it shows in their decision-making.

These CEOs ran large public companies, but these are traits that founders of almost any stage company can embrace and benefit from.

Today I finished reading The Outsiders: Eight Unconventional CEOs and Their Radically Rational Blueprint for Success. William N. Thorndike, Jr. profiled these CEOs:

• Tom Murphy, Capital Cities Broadcasting
• Henry Singleton, Teledyne
• Bill Anders, General Dynamics
• John Malone, TCI
• Katharine Graham, The Washington Post
• Bill Stiritz, Ralston Purina
• Dick Smith, General Cinema
• Warren Buffett, Berkshire Hathaway

The book describes how CEOs generated capital and executed creative approaches to capital allocation, and it reports their returns over a long period. I was familiar with Buffett but less so with the others. I took many notes on Murphy, Singleton, Malone, and Graham.

It was interesting to learn about Singleton’s strategy. It was the same as Buffett’s playbook, and Singleton was older than Buffett and deployed his strategies before Buffett did. Buffett has praised Singleton as one of the best businessmen ever, and I’d imagine many strategies that make Berkshire Hathaway successful were borrowed from Singleton’s playbook.

John Malone is the CEO I’m most unfamiliar with and most excited to learn more about. Malone recognized the predictability and high growth rate of the cable industry early. He used various strategies to build one of the largest cable distribution companies. He also helped seed various cable programming entrepreneurs, such as Bob Johnson of BET, and partnered with other cable entrepreneurs, including Ted Turner.

This book chronicles CEOs of publicly traded companies, so most examples don’t apply to early-stage entrepreneurs. But it does a good job of explaining capital allocation, including why it’s the most important job of a CEO, and quantifying the results of superior capital allocation by talented CEOs.

Capital allocation is a mindset and a skill all entrepreneurs should be aware of. For entrepreneurs seeking to grow their companies, capital allocation is a critical skill to master.

I started reading The Outsiders: Eight Unconventional CEOs and Their Radically Rational Blueprint for Success this weekend. The book, written by William N. Thorndike, Jr., and published in 2012, details eight CEOs' methods and why they led to outsize returns for their shareholders over a long period.

The central concept of this book is that capital allocation is the CEO’s most important job. Capital allocation is “the process of deciding how to deploy the firm’s resources to earn the best possible return for shareholders.” It’s investing to get the highest return, so CEOs are both capital allocators and investors.

CEOs need capital before they can deploy it. They can acquire capital in three ways:

• Generating cash from company operations
• Issuing debt (i.e., bank loans or bonds)
• Selling equity (i.e., selling part of the company to VC, PE, or public investors)

When CEOs have capital, they can deploy it in several ways:

• Investing in the company’s existing operations
• Acquiring other businesses
• Issuing dividends
• Paying down debt
• Repurchasing equity (i.e., buying back part of the company)
• Launching new businesses (as the sole owner or in partnership with others)

These options make up a CEO's capital allocation toolkit. Figuring out what tools to use, if any, and when, is the skill of capital allocation. The book emphasizes that no courses are taught on capital allocation (as of 2012), so it’s a skill many CEOs lack. Now, though, Columbia Business School apparently covers this topic in its Security Analysis course.

Core to gauging the effectiveness of a CEO’s capital allocation in the long run “is the increase in per share value, not overall growth or size.” Long-term per share value essentially measures long-term value creation.

When I ran my company, I was focused on two things: running the company efficiently and generating cash. Getting the operations right consumed much of my time, and I didn’t think in terms of being a capital allocator.

So far, the stories of how these CEOs thought about and executed capital allocation strategies to generate high returns have been thought provoking. I’m looking forward to finishing this book.

I finished reading The Perfect Store: Inside eBay, a detailed recount of eBay’s early days (through 2001). Pierre Omidyar worked in Silicon Valley in the early 1990s. He saw technology creating wealth rapidly. But that wealth didn’t accrue to the average person—market inefficiencies concentrated it with the well-connected. This bothered Omidyar. He believed the internet has the power to connect everyone on Earth, which would not only accelerate wealth creation but also distribute it more equitably.

Omidyar had a vision: an efficient market that empowers the average person financially, allowing them to take control of their lives. On Labor Day weekend in 1995, his vision for what the world could look like compelled him to act. His mission was clear: create a community-driven online auction.

Jeff Bezos famously said, “Be stubborn on vision and flexible on details.”

Omidyar was stubborn on vision and flexible along the way. He made numerous decisions others would not have but that supported his vision:

• eBay was a cash register. It was profitable the first month. It raised $5 million in venture capital funding (which it never touched). Despite the abundant capital, Omidyar insisted on everyone being frugal and spending money like it was their own. He called this being “ebaysian.” This was during a time when unprofitable venture-backed companies spent $250,000 on launch parties. Omidyar didn’t spend lavishly because he wasn’t building eBay to flip or be acquired (though he came close to selling a few times). Omidyar wanted an ebaysian team to ensure that everyone focused on the goal: building a company that would last so his vision could become reality.
• Omidyar was technical and recognized that his business gaps could hinder his mission. He brought on Jeff Skoll in 1996 as cofounder a year after he’d launched. They were polar opposites, but Omidyar respected what Skoll’s skills contributed to the mission. Omidyar assumed that his year’s worth of work was worth 15% of the total company value. He split the remaining equity evenly with Skoll, which surprised Skoll. Omidyar was generous in issuing title and equity, something many founders would not have done.
• In 1997, two years after launching, eBay grew so quickly that Omidyar realized he himself couldn’t (or didn’t want to) level up fast enough to take the company to the next level. That fall, the decision was made to hire a CEO. Meg Whitman was the most ebaysian and qualified candidate. She started as CEO in February 1998. Omidyar moved aside and let Whitman take charge. He cared about the company reaching its full potential, not his title.

Omidyar’s focus on vision and flexibility in details led him to make decisions most hard-charging CEOs wouldn’t have made. eBay is almost thirty years old and has been a public company for over two decades. It has over 130 million active users globally in 190 markets. Users create 2 billion auctions/listings, which resulted in a transaction volume of $18.6 billion in Q4 of 2023. I’d say his vision is now a reality, and his approach worked well.

I’m wrapping up reading The Perfect Store: Inside eBay, which describes eBay’s early days (through 2001) in great detail. eBay’s growth was astonishing. In September 1999, four years after Pierre Omidyar created an online auction in his spare time, the company had 1,500 employees (half of whom had been hired in the last six months) and hosted $5 billion in annual auctions.

International growth was a significant growth strategy, and lessons can be learned from eBay’s experiences:

Germany

• In March 1999, six friends studied eBay and decided to launch a German version. They called it Alando.
• Alando acquired 50,000 users and 250,000 listings in two months, which indicates that Germans were adopting the internet rapidly.
• eBay took notice. In June 1999, eBay bought Alando for $42 million in stock.

United Kingdom (UK)

• UK consumers paid their phone company to surf the web by the minute, an expensive proposition.
• eBay decided to hire UK talent and build a site from scratch. It launched eBay UK in July 1999.
• Within a year, eBay UK surpassed its main competition, QXL.

Japan

• Japan was the second-biggest internet market in the world and growing.
• In 1999, Yahoo offered to partner with eBay on a Japanese auction site. Softbank, a Japanese telecommunications company, was a major Yahoo investor and understood Japan. eBay declined to partner, perceiving the terms as unfavorable.  
• In the fall of 1999, Yahoo Japan launched its auction site.
• In February 2000, eBay launched its auction site.
• In 2001, eBay Japan had 4,000 listings and was ranked fourth in the country, while Yahoo Japan had 2 million listings and ranked first.

By the first quarter of 2000, eBay UK and Germany realized $87 million in combined auction volume, double the volume of European rivals. eBay deemed its upstart European sites successes. Japan, however, was a disappointment and a missed opportunity.

When a company expands outside its core geography, it often evaluates building versus buying. Cultural and other factors must be considered. One that’s important is the growth rate in the target geography: how fast is the number of people experiencing the problem growing?

The UK market grew slowly, so eBay could afford to build a solution from scratch. But in the rapid-internet-adoption markets of Germany and Japan, building from scratch meant ceding market share to competitors who had closely watched eBay’s success in the U.S. and understood their home markets better.

eBay learned from its Japan experience and, in 2001, bought the majority of Internet Auction Ltd, South Korea’s largest online auction. This gave eBay a dominant position in Asia’s second-largest internet economy—but even that couldn’t make up for eBay’s decision in Japan. Without that country, the second-largest internet market in the world, eBay couldn’t have a dominant position in Asia when the book was written. That title went to Yahoo, and so did the revenue and profits associated with it.

eBay CEO Meg Whitman openly regretted not partnering with Yahoo. Opting to build rather than buy meant that competitors satisfied consumers’ needs while eBay was building and figuring out cultural norms. Convincing them to switch after their needs were already being met proved difficult and cost eBay revenue and profits.

I’m reading The Perfect Store: Inside eBay by Adam Cohen. The book, which was published in 2002, recounts eBay’s early days through 2001. eBay’s story is a remarkable example of the power of product–market fit.

Frustrated that markets favored the elite and weren’t efficient, Pierre Omidyar created an online auction in his spare time. Over a long Labor Day weekend in 1995, he wrote the code for AuctionWeb and launched the site as a free service. To keep costs down, the site was hosted as part of a website dedicated to Omidyar’s freelance consulting company, Echo Bay Technology Group—eBay for short—for $30 a month.

By the end of 1995, traffic was increasing quickly. In February 1996, his hosting provider forced him to upgrade to a business account for $250 per month. His fun hobby was becoming expensive, so he started charging sellers a percentage of each sale (i.e., a take rate). Envelopes of dollars and coins began showing up at his house, and by the end of that month, customers had sent him more than $250. He was profitable his first month!

In March, Omidyar took in $1,000; in April, $2,500; in May, $5,000, and in June, $10,000. His hobby was bringing in more than his day job, so he quit. So many envelopes were coming in that Omidyar hired someone to open them and make deposits. Think about that: his first hire was someone to help him count the money.

In 1996, the first full year of existence, AuctionWeb recorded $350,000 in revenue. In 1997, the name was officially changed to eBay, and revenue reached $5.3 million. In 1998, revenue soared to $41.7 million, and the company held an IPO that September. In just three years, the company went from a side project to a publicly traded company with tens of millions in annual revenue and millions in annual profit.

eBay was cash-flow positive immediately and never needed capital to grow, but Omidyar lacked experience in scaling rapidly and struggled to recruit talented people despite the company’s remarkable growth and financial success. In June 1997, the company raised $5 million from Benchmark Capital. But eBay never touched Benchmark’s money; it just sat in the bank account. Benchmark acted as a behind-the-scenes partner, filling the eBay founder’s gaps with its own relationships and wisdom accumulated from a portfolio of investments and years of experience.

Omidyar stumbled onto a painful problem and solved it in a way that was tremendously valuable to consumers and businesses. Customers rewarded him by happily paying for the value they received. eBay made many mistakes along the way, but the problem was so painful, and the market grew so quickly, that the company was wildly successful. eBay’s first few years are an example of the best thing that could happen when you find product–market fit: customers rip the solution out of your hands!

eBay is almost thirty years old and has been a public company for two-and-a-half decades. As of this writing, its market capitalization (i.e., valuation) is roughly $26 billion.

Today I finished reading Getting Things Done: The Art of Stress-Free Productivity. Here are some high-level thoughts:

• À la carte – Allen’s complete system, as described in the book, isn’t something I’d fully implement given my digital workstyle and other factors. However, as an à la carte framework, I see lots of value. Allen details several concepts that can add immediate value. I implemented his 2-minute rule years ago and will implement others now.
• Locus of control – People who want to drive the direction and outcome of their life (rather than having life happen to them) may see immediate value in several concepts in Allen’s framework.
• Brain – Allen believes the brain is better suited to making connections between ideas and creating new ideas than to storing information. He cites a study to support this. I agree. I’m more creative and insightful when I’m not worrying about everything I’m managing. Allen’s framework is good for generating more ideas and insights.
• Wisdom – Wisdom is the ability to apply knowledge in a manner that aligns with the desired outcome. Wisdom means changed behavior and improved decision-making—knowing what to do and when to do it. President Hoover once said, “Wisdom consists not so much in knowing what to do in the ultimate as knowing what to do next.” Allen’s ideas around continuously and quickly identifying next actions can be powerful and accelerate the acquisition of wisdom.

I’m glad I revisited this book. I’m looking forward to testing ideas it triggered.

This book contains ideas that are useful for anyone looking to be highly productive and approach work in a disciplined way.

For founders looking for a better way to manage the inevitable chaos of company building, wanting more creative or strategic time, or wanting to be more in the driver’s seat of their life, the ideas in this book are a great starting point, and many are worth cloning.