I finished reading Distant Force: A Memoir of the Teledyne Corporation and the Man Who Created It. The book didn’t give me as much detail about Henry Singleton’s struggles as a founder as a biography would have. But it did provide details of strategies that made him a great master capital allocator and entrepreneur and that made Teledyne successful during his tenure as CEO.

Here are a few things about Singleton that stood out to me:

• Age – Singleton didn’t found Teledyne until he was 43.
• Missionary founder – From the start, Singleton was very clear about what he wanted to build. When asked, he replied, “I’m trying to create another GE.” Singleton was solely focused on creating a conglomerate that rivaled General Electric. That mission informed his decision-making over the next thirty years.
• Growing market – Singleton recognized the importance of semiconductors when the technology was still new and unknown. Because of the growth potential of the semiconductor market, he made it the base of Teledyne. In Teledyne’s early days, he bought small companies with growth potential in the semiconductor space. As the semiconductor market grew, Teledyne’s market grew rapidly, too.
• Cloning – Singleton knew that a lot could be learned from others. He was open to borrowing ideas. His foray into insurance was borrowed from a book written by GM’s chairman. The chairman learned, through a painful experience involving failed financing, that a growing public company with a strong financial base needs an internal finance company. Singleton borrowed this idea and expanded by building a massive insurance operation. Years later, Warren Buffett apparently borrowed from Singleton’s insurance playbook for Berkshire Hathaway.
• Zigzagging – Singleton was a first-principles, independent thinker. He was flexible in his thinking and execution. As market conditions changed, so did his thinking and strategy. He quickly adapted to new realities and often took actions others considered abnormal. For example, when the P/E multiple of Teledyne’s stock went from a range of thirty to seventy times earnings (overvalued) in the 1960s to roughly nine times earnings (undervalued) in the ’70s and ’80s, he stopped acquiring companies with Teledyne stock beginning in 1969. He began aggressively repurchasing shares in the ’70s and ’80s. This was unheard of at the time, but eventually it was mimicked.
• Twin tailwinds – Singleton recognized and took advantage of two simultaneous forces. More details on this here.
• Cash flow and profits – Singleton focused on making sure revenue was profitable and that customers were paying promptly. He created a metric to measure this consistently across Teledyne’s hundreds of operating companies. More detail on this here.

I enjoyed learning about Singleton and Teledyne. I’m glad I was able to locate a copy of this hard-to-find book.

I’m finishing Distant Force: A Memoir of the Teledyne Corporation and the Man Who Created It. The book details Teledyne’s rise from inception to conglomerate with billions in revenue and hundreds of operating companies. This book interested me because I was curious to learn the specifics of how Henry Singleton developed and executed his capital allocation strategy—the same strategy Warren Buffett likely borrowed from to build Berkshire Hathaway.

The book details how Teledyne managed its sprawling operations and evaluated the performance of each operating company. I assumed that Singleton used free cash flow or something similar to measure each operating company’s financial performance. I was wrong. Singleton created his own metric, the Teledyne return, which measured profitability and net cash flow in a single number.

The Teledyne return was an average of net cash flow and profit. The book gives the following example:

• Reported profit: $1,000,000
• Reported cash flow: $500,000
• Teledyne return: $750,000 = ($1,000,000 + $500,000)/2

The company’s thinking was this: Your profit was $1,000,000, but you received only $500,000 in cash. We’ll credit you fully for profits booked and received as cash. We’ll give you credit for some of the profit booked but not yet collected.

This single metric forced company presidents to focus on profit and cash flow simultaneously. It also allowed Teledyne corporate to standardize its comparison of operating company results.

I’ve seen profits or cash flow used to evaluate financial performance, but I never thought a singular focus on either made sense. When I ran my company, I kept a close eye on free cash flow and net income. By looking at both, I was ensuring that we were generating profitable revenue and that we collected revenue faster than we had to pay our expenses.

Singleton’s Teledyne return is a creative way to force managers to focus on what matters most. For entrepreneurs it’s a financial metric worth considering if it makes sense for their specific business.

Today, I finished reading The Almanack of Naval Ravikant by Eric Jorgenson. The section on wisdom and judgment caught my attention. He starts by defining the two:

• Wisdom – Knowing the long-term consequences of your actions
• Judgment – Wisdom applied to external problems

Then he says they’re tightly linked. You need to know the long-term consequences of your actions and then capitalize on that understanding by making the right decision to get the desired outcome.

Naval says judgment is underrated but most important in the modern leverage age. One correct decision can lead to a massive win.

Entrepreneurs learn from experience—their own or others’. Experience gives them the wisdom to understand what actions are available and the likely outcomes of each.

Wisdom is helpful in itself, but as Naval says, applying it is most important. How to apply wisdom to your situation isn’t always obvious or easy, but the most successful entrepreneurs I know have mastered applying wisdom to get the outcome they want.

Your ability to apply wisdom—what Naval calls judgment—is the key to outsize entrepreneurial success.

Leverage is the ability to multiply the output of your efforts. You achieve more with the same level of effort. Leverage allows you to 10x or more your outcome.

Today I started reading The Almanack of Naval Ravikant by Eric Jorgenson. You can download the e-book file or PDF for free here. Naval thinks about leverage in three classes:

• Labor – Having other humans work for you. You can get more accomplished if others are working on something than you could by yourself. This is the oldest form of leverage and likely the hardest to use. Managing people isn’t easy.
• Capital – Having money work for you. You can magnify your decisions with money. Entrepreneurs use capital leverage by borrowing money to help their company grow, while investors borrow money to purchase investments. More on this type of leverage here. This is likely the most dominant form of leverage used to accumulate wealth over the last century.
• Products with zero cost of marginal replication – Having your product work for you. Duplication of these products costs little or nothing. Think software or media. You write the code once (assuming you don’t update it) or record the video once. Your cost is the same whether one person or one million people buy the software or watch the video. This is the newest form of leverage and has been used by the new billionaires.

Naval also shares why the last of these forms of leverage is so powerful and the most democratic, accessible by all.

Labor and capital leverage require someone else’s permission before you can use them. People must agree to work for you or agree to give you capital. This limits who can take advantage of these forms of leverage. You can have the best business idea, but if people won’t work for you or give you money, the size of the business is capped.

Products with zero cost of marginal replication are permissionless. You can write software, create a video game, write a book, or record a YouTube video and share it anytime. If your product resonates with others, they can buy or consume it without your incurring additional costs. The upside potential of these types of products is hypothetically unlimited.

The book says we now live in an age of limitless leverage where the economic rewards have never been higher.

Naval’s thinking about leverage is simple and thought-provoking, especially for entrepreneurs.

If you're interested in hearing Naval discuss leverage in more detail, you can listen here.

I’m looking forward to finishing this book and sharing my takeaways.

Over the last two or three weeks, I’ve learned about mercenary builders like John Malone, Robert “Bob” Johnson, and Willis Johnson by reading books about their journeys. I’ve also spent time thinking about my own journey and the journeys of friends who are entrepreneurs. I’m starting to adjust my thinking on mercenary builders.

I used to give more weight to missionary founders, likely because they have a clear idea about what problem they’re solving and what the end game looks like (they have a vision). How they’ll get there isn’t known, but where they want to go is.

My criteria for evaluating mercenary and missionary founders were the same. I was dinging mercenary founders because they hadn’t figured “it” out. I was subconsciously saying, I want to know where the ride’s going before I agree to get on. That was a mistake and ignored my own experience and that of others around me who were wildly successful mercenaries.

Going forward, my criteria will be different. I’ll spend time developing a framework to evaluate mercenaries, but one thing is crystal clear: working with mercenaries with questionable values or ethics isn’t something I want to do.

Where mercenaries end up can be unpredictable, and that’s okay. They’re shaking trees, seeing what falls, and picking up and running with the best opportunity until they find “the one.” How mercenaries go about this journey matters—they’ll often be presented with questionable paths or choices that could be lucrative. Strong values and ethics will guide mercenaries and stop them from engaging in questionable behavior that could be financially rewarding. I’m happy to be part of the ride, but not if by-any-means-necessary methods power it. I want to win the right way, not any way, and I want to work with people who think that way. The end never justifies questionable means.

Many years ago, I heard this statistic: only four percent of businesses in the United States have annual revenue of more than $1 million. If true, that means that most businesses are truly small businesses. I remember when my company had less than $1 million in revenue (it was painful) and when we were larger, with $10 million in revenue. From a resource perspective, $10 million was better, but still inadequate. I was always looking for ways to do more with less.

I regularly think about how many entrepreneurs run small businesses in the U.S. and the tough position they’re in. With their limited resources, they need all the help they can get. Anything that helps them do something they couldn’t do before or more of what they were already doing with the same resources is valuable.

My experience as one of these entrepreneurs informs my investment thesis about enabling small and midsize businesses (SMBs). The thesis is broad, but so are the types of business SMB entrepreneurs run.

Lately, I’ve gotten more excited about this thesis. I think some people overlook something when they’re evaluating the market of SMB entrepreneurs: A rapidly growing number of people want more control over their lives. They view owning a business as the path to getting it and the path to economic freedom. They don’t have a specific problem in mind; rather, they’re open to entrepreneurial opportunities that check this box. I think that in turn, this group of entrepreneurs present an opportunity for others. Entrepreneurs who remove friction and make it easier for these aspiring founders to start and run businesses will create massive value for this group—and in the process, build large businesses with big, loyal customer bases.

I think the SMB market is bigger than some realize and likely poised for growth. From my reading of history, helping other people build businesses and achieve economic freedom has been a great playbook for building one’s own rapidly growing and massive business with passionate, loyal customers.

My first two posts about Sheila Johnson’s autobiography (here and here) didn’t do her journey justice. After entrepreneurs achieve success or wealth, they often struggle less. Not Johnson, to my surprise:

Age 0 to 21

• Moved thirteen times as a child.
• Her mother had a nervous breakdown and struggled financially when her father left.
• Kicked out of the University of Illinois orchestra and lost her scholarship because she pursued cheerleading.

Age 22 to 50

• Struggled with infertility for years.
• Newborn son died one hour after birth.
• Sister-in-law embezzled from BET.
• Learned of husband’s affair with an early BET employee when served with a lawsuit.
• BET’s CFO embezzled $2 million.
• Husband had an affair with a BET executive.
• Fired from BET after questioning husband’s affair.
• Relocated from DC to Middleburg, Virginia, to escape public humiliation.
• Divorced.

Age 51 to 75 (today)

• Two years of depression after selling BET.
• Thrown from a horse and nearly killed when the horse stomped on her chest, narrowly missing her heart.
• Received death threats and verbal attacks for years from Middleburg residents opposed to her planned resort.
• Denied bank funding for resort projects; forced to personally fund them.
• Global financial crisis forced a two-year construction pause on resorts.
• Endured nightmares and panic attacks for years.

The above list isn’t comprehensive, but you get the idea. What stood out to me was what she still managed to accomplish:

Age 0 to 21

• First-chair violinist for Illinois All-State Orchestra.
• University of Illinois’s first Black cheerleader.
• Graduated from the University of Illinois.

Age 22 to 50

• Started a youth orchestra, which performed internationally.  
• Started a full-time private music instruction business, which operated for seventeen years.
• Landed acting roles for extra income.
• Flipped a home with money made from acting.
• Wrote music textbooks for income.
• Traveled internationally with the University of Illinois String Research Project.
• Adopted two children.
• Cofounded BET.
• Helped launch and raise funding for the National Music Conservatory in Jordan.
• Became full-time executive vice president of corporate affairs to help prepare BET for an IPO.
• Launched and raised funding for BET’s Teen Summit, an Emmy-nominated show.
• Completed successful BET IPO in 1991 at roughly $500 million valuation.
• Sold BET to Viacom in 2000 for $2.3 billion in stock.

Age 51 to 75 (today)

• Founded Salamander Hospitality.
• Opened a French-style café in Middleburg in 2004.
• Won a multiyear battle with Middleburg city council in 2005 to build resort on 340 acres purchased years earlier.
• Remarried in 2005.
• Purchased ownership in an NBA team, NHL team, and WNBA team in 2005.
• Acquired resort in Summerville, South Carolina, in 2006, renovated the property, and sold it in 2010.
• Acquired resort and golf club in Palm Harbor, Florida, in 2007 and renovated the property.
• Opened Salamander Resort & Spa in Middleburg in 2013.
• Launched Middleburg Film Festival in 2013.
• Built or renovated properties in Jamaica, Colorado, and DC.

Sheila’s life has been full of personal and professional struggles. Her ability to march forward is amazing. No matter what happened in her life, she gained wisdom and kept moving forward.

Struggle is inevitable for entrepreneurs. Johnson’s story demonstrates the importance of not being paralyzed by circumstances and what’s possible when you focus on moving forward.  

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 book, 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.

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.

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.