Reading about John Malone’s and Shelia Johnson’s journeys gave me perspective on two great company builders and the rise of Black Entertainment Television (BET). Two things stood out about the company’s early days.

BET was founded in 1979, when the cable programming market was young. New satellite technology and outlawing pirated broadcast signals caused demand for programming to explode.

Per Johnson’s autobiography, Malone acquired a cable system in Memphis, Tennessee, which had a roughly 40% Black population at the time. He needed cheap programming that resonated with the city’s Black audience. Bob Johnson, BET’s cofounder, knew Malone. Bob got permission to repurpose a proposal for a cable channel targeting elderly people. He then changed “elderly” to “Black” and pitched Malone. Malone loved the idea. He invested $180,000 for 20% ownership and loaned an additional $320,000.

At launch in January 1980, BET broadcast movie reruns during a two-hour time slot every Friday. It was a start, but not enough. Programming hours had to expand for the company to survive, and reruns couldn’t be the only programming.  

Entertainment and Sports Programming Network (ESPN) launched in 1979 and had early success broadcasting college basketball games. BET noticed that ESPN didn’t broadcast the games of Black colleges. BET decided to fill this gap and began broadcasting Black colleges’ basketball and football games. Programming expanded to six hours per week, but that still wasn’t enough.

In 1981, MTV launched. Consumer demand for music videos skyrocketed. Every artist wanted their video on cable TV. But MTV executives wouldn’t play videos from most Black artists. BET saw this “big cultural gap” in music videos as an opportunity. Artists’ desire for exposure on cable TV made creating music video programming cheap. And strong consumer demand for videos translated into strong viewership. BET saw filling the music video gap as a win for BET, artists, and consumers. In 1981, BET launched Video Soul, which aired for fifteen years.

Music videos and college sports helped BET find product–market fit. Things were going so well that in 1982, BET sold 20% of the company to Taft Broadcasting Company for $1 million. By the fall of 1984, less than four years after launching, BET had 24-hour-a-day programming, 18 million subscribers, and more than 36 employees.

BET’s early success boiled down to two strategic things:

• Cloning – BET didn’t try to reinvent the wheel. Instead, it took ideas that others had proven were viable, cloned them, and applied them to market gaps.
• Market – BET was early in the cable programming market, which grew rapidly. A rising tide lifts all boats. In BET’s case, the market was moving so fast that it yanked BET along. BET made a lot of mistakes early on, but being early in a growing market meant those mistakes weren’t deadly.

BET was a massive financial success for John Malone and Sheila Johnson. It’s interesting to see how two simple strategies, taken seriously, were central to their early success.

You can listen to audio versions of my blog posts on Apple here and Spotify here.

Today I finished reading Sheila Johnson’s autobiography, Walk Through Fire: A Memoir of Love, Loss, and Triumph. Johnson is the cofounder of Black Entertainment Television (BET).  She became the first Black, female billionaire in 2000 when the company was sold for $3.2 billion to Viacom.

Johnson was the lesser-known BET cofounder, but she’s a serial entrepreneur. She was an accomplished violinist, and before going full-time at BET, she built a music business. She taught music and founded a youth orchestra that performed globally, including for royalty. After BET, Johnson founded Salamander Hospitality, a five-star hospitality company with properties in Jamaica, Virginia, DC, South Carolina, Florida, and Colorado.

Johnson has had outsize success, but her book doesn’t focus on that. Johnson is candid about dealing with insecurities, feeling like an outsider, and experiencing infertility, betrayal, public humiliation, and self-doubt. She’s open about her internal and external struggles, their impact on her, and how she overcame them. Johnson is 75 and has struggled at every life stage since adolescence. She still struggles today, despite being successful beyond her wildest dreams.

Her openness about her struggles and her wisdom are valuable, especially to entrepreneurs. Here are my takeaways:

• Partner alignment – Johnson is guided by her values. Her BET cofounder, who was her husband, didn’t operate with ethics or values. His words, acts, and decisions created a difficult culture at BET and problems in their relationship. Alignment of values is critical. If you’re setting out to do the impossible with others and aren’t aligned on values, your journey will become orders of magnitude more challenging.
• Everything starts small – Each of Johnson’s businesses started off tiny. For example, only ten people attended BET’s launch party, and they ate potato chips because they were “pretty broke.” Starting small is part of the journey.
• Don’t give up – In each business, Johnson encountered massive setbacks. Some of them sent her into deep depression. When things looked bleak and there was no clear path to success, she didn’t give up. She kept moving forward, and continual progress prevented her from getting stuck in her troughs and ultimately led to outsize successes. Survival is often a big factor separating winners from losers—figure out how to keep moving forward so you can stay in the game long enough to win.
• Experience – Johnson had no media or hospitality experience, but she didn’t let that stop her. She created large companies in both industries by learning as she went along and finding people she could work with who filled her industry knowledge gaps. You don’t always need personal experience to win in a space.

Greatness doesn’t come easy.  Struggle is an inevitable part of the journey. In Johnson’s case, the struggles were sometimes deep and dark. But surviving struggle often leads to outsize success. You learn resiliency and that you’re capable of more than you thought.

I’m glad I found this book. Johnson is a great entrepreneur, and I’m glad she shared her struggles publicly.

You can listen to audio versions of my blog posts on Apple here and Spotify here.

One of John Malone’s lucrative investments was a seed investment in Black Entertainment Television (BET). In 1979, he invested $180,000 for a 20% equity stake in BET. He loaned another $320,000, which could be drawn down over time. In 2000, Viacom purchased BET for $3.2 billion in stock. Malone received $850 million, an amazing return.

The founders of BET, Robert “Bob” Johnson and Sheila Johnson, received stock worth $1.4 billion. I was intrigued to learn more about their journeys as founders, especially since they were a husband–wife team with no prior media experience.

Sheila’s autobiography, Walk Through Fire: A Memoir of Love, Loss, and Triumph, came out last year, and I started reading it yesterday. She was an entrepreneur before starting BET with Bob, and she went on to start and buy into several businesses after BET. I’m not finished with the book yet, but I can already see that Shelia provides her unique perspective on what happened behind the scenes as she built a billion-dollar company with her husband.

Sheila talks extensively about how Bob, as CEO, didn’t have a vision for BET and lacked values. He focused on generating profits and revenue by any means necessary. While the company was successful financially, BET’s programming wasn’t something she was proud of. The company’s culture was also less than stellar. The misalignment between Sheila and Bob around culture and values is what led to the company being sold. In the end, the outcome was financially rewarding, but the journey to get there was rough on Shelia and her family and left lasting scars on them.

This autobiography is different from others I’ve read. Sheila is candid and raw about the extreme highs and lows she encountered before and after BET. I’m looking forward to finishing it this weekend.

You can listen to audio versions of my blog posts on Apple here and Spotify here.

I finished reading Cable Cowboy: John Malone and the Rise of the Modern Cable-TV Business. I learned a ton about Malone as well as the cable industry and its importance in technological evolution.

Cable systems own and are responsible for the wires that deliver digital information to and from consumers’ homes. This book illuminated the impact that cable companies have had on life as we know it, how valuable their last-mile delivery service has been over the years, and why they made John Malone a billionaire.

Cable has gone through three periods:

• Antenna extension – In the 1950s, the big three broadcast networks (ABC, NBC, and CBS) ruled television, but their signals didn’t reach rural areas. Rural residents couldn’t watch the evening news or shows enjoyed by large and medium-sized towns. Cable entrepreneurs erected large antennas to pull down broadcast signals from TV stations in larger cities nearby. They ran wires to rural homes to pump the pirated broadcast signals to rural residents. These entrepreneurs charged a monthly fee but paid nothing for programming. Cable systems were antenna extensions that made broadcast networks more accessible.
• Programming – Regulators outlawed the pirating of broadcast signals in the 1970s. In 1975, the upstart HBO and cable system owner Time Inc. used satellites to broadcast to consumers the Ali–Frazier boxing match live from the Philippines. This was revolutionary then and something the big three broadcasters couldn’t pull off. Satellites transformed cable economics. Programming exploded, with channels such as ESPN, Showtime, WGN, CNN, and BET launching. Demand for cable service in urban areas also exploded, kicking off a rush to wire every home in America for cable.
• Internet – By the 1990s, it was internet usage that was exploding in America. The internet was the future, but accessing it was still painful. Dial-up services, such as America Online (AOL), were slow. Cable became the best option for delivering fast internet access to homes. Internet entrepreneurs, including Microsoft’s Bill Gates and Paul Allen, each spent several billion dollars buying into cable companies so they could own part of the infrastructure delivering the products and services tech entrepreneurs created. Cable companies went from mainly providing access to unique programming to also providing access to the World Wide Web.

Malone was recruited to TCI in 1972, at the end of the antenna extension era, and was CEO until the company was sold to AT&T for $48 billion in 1998. While Malone couldn't have predicted how technology would evolve over his decades as CEO, he recognized the value in what TCI had. A direct line into American homes. A way to get data and information in and out of homes. His genius was keeping a finger on the pulse of where technology was going and partnering with the entrepreneurs building technology that improved consumers’ lives. Over the years, TCI partnered with and owned stakes in programming channels, satellite companies, cable box manufacturers, internet companies, and others while continually building its cable system and increasing the number of subscribers.

Malone’s career highlights to me that to have outsize success, predicting where technology is going isn’t necessary. Sometimes, owning the infrastructure that new technologies will likely rely on for distribution will be lucrative and allow you to continually benefit through numerous technology cycles.

Listen to the audio versions of my blog on Apple Podcasts and Spotify. Tune in here and here!

As I’ve been reading Cable Cowboy: John Malone and the Rise of the Modern Cable-TV Business, I’ve gotten a clearer picture of John Malone. Malone is brilliant and shrewd. I’d consider him more of a financial engineer than anything else. He excelled at deal making, strategy, and capital allocation—but not at building a cable service customers loved or a company that was sustainable long-term.

Between 1973 and 1989, he completed 482 deals, or one every two weeks or so. From the company’s low in 1974, not long after Malone joined, through mid 1989, the stock rose 55,000 percent, a spectacular return.

Malone’s constant deal making created remarkable shareholder value. But it came at a cost. Customers hated TCI. Malone’s goal was to charge as much as possible for his service but spend as little providing it as he could get away with. This strategy maximized cash flow but resulted in notoriously poor customer service, massive rate hikes, unreliable service technicians, and inconsistent cable service. TCI’s poor reputation with customers and its business practices (including others not mentioned here) led to Malone being forced to appear before Congress to defend himself and TCI’s business practices. He and various state and federal politicians became enemies. TCI’s shareholders were happy, but Malone and the company were under constant attack.

Malone was in a service-oriented business selling to consumers, but he didn’t approach it that way. He focused on engineering financial outcomes, not making customers happy. He got the financial returns he wanted, but he and TCI were vilified by customers, politicians, and competitors. It all took a toll on Malone over the years. As I read this part of the book, I couldn’t help but wonder if all the hate he encountered was worth it. Couldn’t he have gotten a similar outcome if he built something people loved, not hated?

Listen to the audio versions of my blog on Apple Podcasts and Spotify. Tune in here and here!

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.

Listen to the audio versions of my blog on Apple Podcasts and Spotify. Tune in here and here!

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.