I had lunch with an entrepreneur friend. We talked about what his next company will look like. He isn’t sure what the company will do or the space it will be in, but he’s crystal clear on the kind of people he wants to work with: people he calls “grinders.” They work hard, create no drama, and win. Their goal isn’t to be praised regardless of the quality of their work; it’s to do great work and win by making customers happy.

I thought about this more later in the day and texted him some thoughts about also wanting people who are learners. His replies went deeper than I was thinking. He wants people who have a “diverse track record of success” that “shows they can figure things out.” And then he made a sports analogy that I love. Alluding to a successful recruiting strategy that college football coach Urban Meyer used to win three national championships at two schools, he said he wants to work with multisport athletes.

“Diverse track record of success” stuck with me. To have one, a person has to do several things. First, put in the work to learn new things: learn the rules of a new game, learn new skills required to compete, etc. Second, figure out how to apply what they’ve learned. Learning is nice but not valuable if you can’t apply it. Last, compete at a high level. To my friend’s point, anyone who demonstrates this is someone I want to work with.

I was thinking about yesterday’s post and the Newhouse family’s strategy for reducing their estate tax liability. The fact that they had a tax strategy, and the results, stuck with me and reminded me of a tax conversation I had.

A successful entrepreneur once pointed out that taxes are a successful entrepreneur’s biggest expense, yet most spend less than 1% of their time thinking about them. They don’t have a strategy or defined actions around taxes. Most entrepreneurs spend time scrutinizing and optimizing their biggest business expenses on their profit-and-loss statement but don’t do the same with taxes. He believes this is a big mistake and that founders should spend some percentage of their time, say 5%, on their tax strategy every year. Doing so can have a material impact on business finances and the ability to reinvest in growth opportunities.

Regardless of how you feel about Newhouse's estate tax strategy, the result highlights that an effective tax strategy can indeed have a material impact on a business. To be clear, I don’t believe in tax dodging or doing shady things to avoid paying taxes. That’s just silly and can land you in jail. But I think there’s something to be said about having more of the capital your company generated available to reinvest in growth.

I finished reading Newspaperman: S.I. Newhouse and the Business of News by Richard H. Meeker. The biography is about Samuel Irving Newhouse Sr., who founded Advance Publications. At Sr.’s death, Advance Publications owned multiple newspapers and Condé Nast, which publishes famous magazines such as Vogue, Vanity Fair, GQ, and The New Yorker. Since then the company has grown rapidly, and it owned 26.5% of Reddit when Reddit began trading on the public stock market this year (see here, page 194). Reddit’s market capitalization (i.e., valuation) is just under $12 billion as of this writing.

This book and Newhouse: All the Glitter, Power, & Glory of America's Richest Media Empire & the Secretive Man Behind It by Thomas Maier detail one key strategy the Newhouse family used to grow their wealth: they optimized their tax liability and maximized the compounding of their wealth. The family studied the tax laws and implemented strategies that reduced their tax liability. This gave them more capital to reinvest in growing their companies or acquiring new companies.

Both books contain numerous examples. Their estate tax strategy especially caught my attention. When someone dies, their estate is transferred to heirs and a tax is due on the value of the estate being transferred if it exceeds that year’s federal threshold. When Sr. died in 1979, his sons filed a return valuing his ownership in Advance Publications at roughly $182 million and showing an estate tax due of roughly $49 million. The IRS said his estate was worth somewhere between $1 billion and $2 billion and that the estate tax due was, at a minimum, $600 million, and as high as $1.2 billion. At the time, Advance Publication owned thirty newspapers and various magazines. Its two most prosperous newspaper properties alone were worth more than $182 million.

Sr. had studied other publishing families to understand how death and estate taxes negatively impacted their family empires. Families often had to sell all or some of the company’s assets to pay the estate tax upon the founder’s death. Sr. developed a dual-share-class strategy to avoid that outcome. Sr. owned common shares in Advance Publications but issued preferred shares to his siblings, wife, and sons. His common shares carried voting rights and, essentially, control of company decision-making, but the preferred shares gave holders the right to vote on a company liquidation or sale. Said differently, if a buyer wanted control of the company, the buyer had to get the approval of the preferred shareholders first. The result was a gray area in the tax law. It could be argued that the fair market value of the company—the price a willing buyer and seller would transact at—was significantly lower than the IRS’s figure because there would be fewer buyers willing to buy a minority stake in a family-owned company that had such a bizarre ownership structure. Most buyers spending that kind of money would want majority ownership so they could have control. To gain control, they’d have to convince multiple family members to sell, a prospect many buyers would rather avoid. There’s more to this, but that’s the gist of it.

The IRS took the family to court, and the family prevailed. The result was that the family paid an estate tax bill that was a fraction of what it would have been if Sr. hadn’t planned so carefully. It wasn’t a material amount for the company, so it didn’t have to sell any assets to pay the tax. The Newhouse family’s empire could continue compounding for another generation and grow exponentially under Samuel “Si” Newhouse Jr.’s leadership for the next forty years.

I’m continuing to read a biography of Samuel Irving Newhouse Sr. that describes the empire he founded with Advance Publications. Newhouse was in the media business. He started with newspapers but expanded into magazines, broadcast television, and cable systems before he died in 1979.

Newhouse was in the business of providing information to people, but he was adamant that the information must be unrelated to him. He went to great lengths to make sure there was no reporting on him. Sr. had a “genuine, abiding mistrust of the press,” according to the book.  

I’m sure he had his reasons. I’d imagine a big one was that he didn’t want to be perceived negatively, as most people don’t. Negative publicity could have made his empire-building difficult and his family uncomfortable. Maybe Sr. realized it’s easier to manage public perception if it doesn’t exist. If people don’t know who you are, there’s nothing to manage.

We’ll never know why Sr. was adamant about avoiding publicity, but given his business, I found his disdain for the press noteworthy. And it may have been influential, since his son Samuel “Si” Newhouse Jr. and other descendants felt the same way.

I’m learning a lot from Newspaperman: S.I. Newhouse and the Business of News by Richard H. Meeker. This biography is about Samuel Irving Newhouse Sr., who founded Advance Publications. His son Samuel “Si” Newhouse Jr. led the company after his father’s death. It’s interesting to compare father and son. They led their family business using very different styles, but both were successful.

One difference that stood out to me was how detail-oriented Sr. was. He was happy to get into the weeds on the business side of his newspaper operation (mostly leaving the editorial side alone). He wanted a weekly report for each newspaper detailing metrics, department by department. He walked through each department weekly checking the operations. He even monitored the cost per page to produce each paper every week. He’d notice if the cost went up a thousandth of a cent and ask why.

I wondered why he was such an operationally focused leader and landed on several possible reasons. When Sr. started in the newspaper business, he had to do everything himself. He learned from the ground up and knew every part of the business inside out. He knew what a smooth-running operation looked like and ensured that all his papers ran smoothly. Sr. also understood that local newspapers weren’t a high-growth business. There were only so many people his local papers could reach. Each daily edition had to turn a profit. Knowing this, he focused on maximizing profitability by watching his costs closely and maximizing advertisements in each newspaper. These factors, combined with growing up in a poor household, likely led to his operationally focused management style.

Jr.’s management style was different. When he ran the family empire, he focused on growing the circulation of magazines, which were distributed more broadly than local newspapers. He was aware of costs, but not to the extent his father had been, and some of his magazines ran unprofitably for years if Jr. saw potential. He didn’t get into the specifics of printing operations; he left that to others. Jr.’s upbringing was also different than his father’s. Because of their dad’s success, Jr. and his brother Donald were raised in luxury and encountered minimal challenges early in life.

Both men led Advance Publications, albeit at different times, and both successfully grew the company—but they went about it in very different ways. I’m curious to learn more about Sr. as I continue reading the biography about him.

Last week, I read Newhouse: All the Glitter, Power, & Glory of America’s Richest Media Empire & the Secretive Man Behind It by Thomas Maier. It was about the Newhouse family’s media empire but mainly focused on Samuel “Si” Newhouse Jr. I enjoyed the book, but I didn’t get a good grasp of the empire’s origin story. I’m also curious about the man who founded the empire, Si’s father Samuel Irving Newhouse Sr.

I decided to learn more about Sr., so I started reading Newspaperman: S.I. Newhouse and the Business of News by Richard H. Meeker. I’m still early in the book, but I already see clear differences between how Jr. and Sr. thought and acted as teenagers and young men. Both were great entrepreneurs, but Sr. had a founder’s and hustler’s mentality as a teen, which led him to found Advance Publications. Jr. didn’t really start to excel in the family business until he was in his 40s.

I’m sure there are way more differences between the two. I’m looking forward to finishing this book to compare the two further and understand how each achieved outsize success leading the same company.

As I understand Newhouse: All the Glitter, Power, & Glory of America’s Richest Media Empire & the Secretive Man Behind It, its author, Thomas Maier, said the Newhouse family was in the business of providing information to Americans. They owned magazines, newspapers, and cable systems, but newspapers were the empire's backbone. Growth potential was capped, but profit margins and cash flow were fat.

For many years, newspapers were the best way to distribute localized information, so they captured the attention of many readers. The Newhouses recognized this and executed a local monopoly strategy. Newhouse newspapers were often the only paper in town—the only way consumers could read local news. The papers, which had the attention of an entire community, were a microphone with which to talk to it. Companies paid a premium for the right to use the microphone to speak to the community, which drove highly profitable advertising revenue. Once a local monopoly was established, it was hard to compete with. It would generate predictable revenues and cash flows for years and wouldn’t require much reinvestment from the Newhouse family. The result was an annual stream of cash that the family invested into other businesses.

The book was first published in 1994 so it doesn’t capture how the internet disrupted their local monopoly strategy, but I’d imagine it negatively impacted their newspapers as it did the rest of the industry. The internet made information more readily available and made it easier for companies to reach consumers in a specific community. Meta (Facebook), Alphabet (Google), and others are now enormous companies and still growing quickly. Much of their revenue comes from advertising, which went to newspapers before the internet era.

The Newhouse family still has an empire, but I’m pretty sure that newspapers are no longer its backbone. I’m curious about how the family adjusted their strategy to respond to the internet’s impact and about what business is now the empire’s backbone. The Newhouse family’s companies aren’t publicly traded so information isn’t available via the SEC, but I’ll do some research and see what I can find.

Last week, I shared a post about Roy Thomson’s strategy for growing his media empire. It focused on cash flow. He bought small-town newspapers, many of them monopolies in their communities, that had strong cash flows. The newspapers were low to no growth in some cases but generated healthy cash. Roy then used those yearly cash flows to purchase more cash-flowing newspapers and other media assets.

I’m now reading Newhouse: All the Glitter, Power, & Glory of America's Richest Media Empire & the Secretive Man Behind It by Thomas Maier. It’s about Samuel “Si” Newhouse Jr. and his family’s media empire. This billionaire family owns numerous newspapers through Advance Publications and also owns Condé Nast, which publishes famous magazines like Vogue, Vanity Fair, GQ, and The New Yorker. Advance Publications owned 26.5% of Reddit when it began trading on the public stock market this year (see here, page 194). As of this writing, Reddit’s market capitalization (i.e., valuation) is just under $12 billion.

As I read more about Si and his family’s growth strategy for their media empire, I see that it’s similar to that of the Thomson family and others, including Warren Buffett and Mark Leonard of Constellation Software. The Newhouse family initially purchased cash-flowing newspapers and used the cash from those businesses to buy more businesses. They’ve done this over decades and built a sizable empire.

It’s notable that several people (and families) who’ve achieved outsize business success have used a similar strategy.

I’m curious to learn more about the Newhouse empire and family members, especially the patriarch, Samuel Irving Newhouse Sr.

I’m reading The Thomson Empire by Susan Goldenberg. It’s a biography about Roy Thomson and his son Kenneth Thomson, but it also describes the inner workings of the Thomson empire and its reinvestment strategy through 1984, when the book was published. The books about Roy Thomson that I’ve already read, as well as this one, highlight Roy’s and his company’s focus on growth through acquisition.

Roy and his son heavily emphasized maintaining high profit margins and strong cash flows by tightly controlling costs. That was more important than revenue growth. In fact, they owned dozens of newspapers in small communities where they knew revenue-growth potential was limited but margins and cash flow could be favorable because they were the only paper in town.

Every acquisition of a company was based on its cash flow, not what it could be if they grew it. The Thomson empire typically used that cash flow to acquire more cash-flowing businesses. With this blueprint, they grew their company into a massive empire.

Other entrepreneurs, such as John Malone of TCI and Henry Singleton of Teledyne, have used this strategy. It works well and is the foundation of Warren Buffett’s strategy with Berkshire Hathaway.

The entrepreneurs I’ve read about who embraced this growth strategy weren’t customer focused. They weren’t obsessed with a customer’s problem. They didn’t aim to provide the best solution for a customer’s problem and grow by scaling the solution. They were okay with offering a decent or subpar solution if it provided the cash flow needed to acquire more companies. The result was the ownership and decentralized management of many companies. Some companies didn’t provide good products or services and didn’t have a good reputation with customers. Some did, and did have good reputations. But all of them generated good cash flow.

If growth is an entrepreneur’s goal, these examples highlight different ways to check that box:

• Solve a single problem well and scale it to as many people as possible
• Find businesses that generate cash and use it to buy more businesses
• Take a hybrid approach

The right approach depends on the entrepreneur.

I published a six-part podcast series on Ted Turner, the visionary entrepreneur who created CNN and other cable channels like Cartoon Network and TNT under Turner Broadcasting System. He also owned the NBA’s Atlanta Hawks and MLB’s Atlanta Braves, and had a fortune of $10 billion at its peak. I really enjoyed his autobiography and learned a lot from it. If you're interested in learning more about Ted and his remarkable journey, you can start listening to part one in this series on Apple Podcasts here or Spotify here. Ted's journey is covered in episodes 98 through 103.