This weekend, I finished reading Direct from Dell: Strategies That Revolutionized an Industry, which is the autobiography of Michael Dell. The book was first published in 1998, so it covers only Michael’s (remarkable!) early journey. Michael turned $1,000 in 1984 into a company doing over $12 billion in revenue during the fiscal year ending February 1, 1998. That’s an astonishing level of growth in 14 years.

Michael is an incredible entrepreneur. He was in his early thirties when this book was published. A lot of Dell’s success can be attributed to him as its leader. (Side note: He’s still CEO over 25 years later.) But in the book, Michael highlighted another factor that led to Dell’s success: the PC market. In 1984, Michael unknowingly stumbled into a market in its infancy that exploded in growth for various reasons (including the internet) over the next 14 years. Dell rode the wave of the personal computer market (later, servers too). Michael’s genius was in combining explosive growth in a new market with an innovative business model (selling direct). He realized what Charlie Munger calls a Lollapalooza effect. The result? Dell became a massive company that grew at a torrid pace for 14 straight years. And Michael amassed a sizeable fortune, $125 billion per Bloomberg as of this writing.

The lesson learned is that markets matter a lot. A rapidly growing market is an ideal place to build a business because it usually means the number of people experiencing the problem is growing rapidly too. In that type of market, a company’s solutions don’t have to be stellar. They need to not suck. If companies can check that box, the demand from the market will yank them along. In this type of market, there’s enough business to go around, so there likely isn’t much price competition and margins and profits are healthy.

Michael Dell built, and still runs, a juggernaut of a company. Dell is a textbook example of why entrepreneurs want to start businesses in markets that are—or will be—growing rapidly.

This week, I started reading Direct from Dell: Strategies That Revolutionized an Industry. It’s the autobiography of Michael Dell, founder of Dell. The company is famous for being the first to allow customers to order custom-made computers directly from a manufacturer.

I’m early in the book, but already one line has caught my attention: “The $1,000 required to capitalize a company in Texas was the extent of my initial start-up capital.” Michael incorporated the company in January 1984 while he was in college. He dropped out after he finished his freshman year, to his parents' chagrin.

So, Michael is super young and starts this company with $1,000. By the end of 1986, three years later, the company was doing $60 million in annual revenue. And Michael set a goal to do $1 billion in annual revenue by 1992 (which he exceeded).

In the first three years of Dell’s existence, it did $160 million in total revenue and raised zero outside capital. This is probably one of the craziest growth stories for a bootstrapped company I’ve ever read. Growing fast is expensive. You have to put people, systems, and processes in place ahead of that kind of growth. It’s very rare to grow that fast and not raise outside capital.

This is where the genius of Michael’s model shines. A lot of this can be attributed to how Dell sold computers then. It didn’t make computers ahead of time and ship from inventory. Customers paid up front, and then Dell built and shipped the computers. Getting paid up front was a stroke of genius. It allowed Dell to obtain growth capital from customer revenue instead of having to raise money from outside investors. Now, Dell did have to buy parts and other stuff to assemble the computers, but it did so as close to just in time as possible, minimizing the amount of money tied up in raw materials inventory.

In October 1987, Dell completed a private placement on Black Monday and raised $20 million, even though the stock market was crashing. The following summer, Dell went public. The company merged with EMC Corporation in 2016, so it has changed a bit. But that combined company has a market capitalization (valuation) of over $78 billion as of this writing and over 120,000 employees. And Michael Dell is still CEO, more than 40 years later.

I was impressed when I read the details of Dell’s early growth and how Michael did it. His story is a reminder that customer revenue is always the best source of growth capital, especially if you can get customers to pay up front.

I’m rereading Junk to Gold: From Salvage to the World’s Largest Online Auto Auction. It’s the autobiography of Copart founder Willis Johnson. Johnson is worth roughly $3 billion today, most of which is his stake in Copart. I listened to an interview he gave recently, and it made me want to read his book again. He founded Copart in 1982 as a salvage yard. He purchased wrecked cars and sold the parts and scrap metal for a profit. The company has expanded. It’s now a global online auction market for used and repairable vehicles. As of this writing, it has a market capitalization (i.e., valuation) of over $56 billion.

In his book, Johnson describes himself as rough around the edges. He isn’t polished and doesn’t always use the “right” words. He attended community college for one semester on the GI Bill and then dropped out. So, how did Copart become a massive company?

As I shared last year when I read the book, Johnson didn’t have a big vision for the company. He didn’t even have a plan. But he knew he wanted to grow. The key to Johnson’s success was his ability to master two things.

He was a cloner. He paid close attention to what was happening around him and what others had done. If he liked an idea and thought he could make money with it, he tried it out. He learned about a new model involving people pulling parts off cars themselves called “Pick-A-Part.” He studied it closely and copied it by creating “U-Pull-It.” The idea was a massive success. When he heard a competitor was raising capital to expand rapidly by doing an IPO, he paid attention. Two years later, Johnson’s company was trading on the stock market too.

Johnson also was an astute student and avid reader. He believed he could teach himself anything. For example, to figure out how to do an IPO, he started by trying to get a basic understanding of IPOs. He read the IPO prospectus of his competitor many times to understand what the IPO involved and to understand the Wall Street terminology. He then went to his local library to find books that explained the IPO process and all the terminology in more detail. He had trouble finding a book because nothing came up when he searched for “IPO.” He went to three different library branches. It wasn’t until someone at the third library branch told him that “IPO” stands for “initial public offering” that he found a helpful book from Ernst & Young, which he studied extensively.

Being an avid learner and reader is a great way for entrepreneurs to get ideas and strategies to grow their businesses. Some of the most successful entrepreneurs and investors didn’t invent new ideas or strategies; they copied other people’s great ideas. For example, Warren Buffett got the idea to have an insurance company (and maybe decentralization too) as part of Berkshire Hathaway from Henry Singleton and Teledyne. Henry Singleton got the idea by reading the book My Years at General Motors by former General Motors chairman Alfred Sloan.

The beauty of both of these—copying others’ good ideas and self-learning—is that anyone can do them. They don’t require permission or consent from anyone else. Not sure what to do to solve a problem? Not sure how to grow your business? No problem; start reading biographies of credible entrepreneurs. Learning about their journeys to build their companies is bound to give you some ideas about how to grow yours.

Today, I listened to an interview of Matt Mullenweg, founder of WordPress and Automattic. WordPress is an open-source content management system for websites. The platform helps you manage what your website shows. WordPress is extremely popular, powering roughly 43% of all websites (hundreds of millions of them) on the internet. Automattic is a holding company that owns several internet businesses, including WordPress. It did over $500 million in revenue in 2024.

Matt started WordPress when he was 19. One thing in the interview got my attention. WordPress is a platform that people can build businesses on. To develop his platform strategy, Matt didn’t try to reinvent the wheel. Instead, he studied another platform company—and not just any platform company, but the most successful one: Microsoft. He read about Microsoft and realized that the Windows operating system had Microsoft Office (Word, Excel, PowerPoint, etc.). For Microsoft, building its own application on top of its platform was a key strategy that turbocharged its financial performance.

Learning about Microsoft’s strategy led Matt to ponder what the WordPress equivalent of Microsoft Office would be. What application could he own that sat on top of the WordPress platform? Matt leaned into the strategy but didn’t build an application. He bought one. He ended up purchasing WooCommerce, an e-commerce plugin for WordPress. It allows people to turn a WordPress website into an e-commerce site where people can complete purchase transactions.

WooCommerce, according to Matt, has been one of his best acquisitions. Last year, $30 billion worth of transactions occurred on WooCommerce.

Matt’s a pretty sharp dude. Even so, he got his inspiration from reading about the history of another successful company. He copied its strategy (clearly, it worked, since his product is running a little less than half the internet) and modified it for his situation. He didn’t waste time trying to figure out what would work; he focused on modifying and executing a wildly successful strategy.

This resonated with me because I’ve had a comparable experience. This past summer I read about Michael Bloomberg’s strategy in a biography. After that, everything clicked, and I knew what my strategy was for my book project. I’ve been executing on it  since.

My takeaway from Matt’s interview and my experience is that there’s immense value in the biographies of founders and histories of companies. If you’re unsure about what strategy to take to grow your company, reading biographies and learning about other entrepreneurs’ strategies and why they worked is a good use of time. You might just read one that clicks and changes your business or idea, too.

If you want to see this strategy section of Matt’s interview, it’s here. If you want to watch the entire interview, which is good, see here.

I finished reading Poor Charlie’s Almanack: The Essential Wit and Wisdom of Charles T. Munger last week. It’s a memoir and collection of famous speeches by Charlie Munger. I’d put off reading it for a while. Looking back, I regret that decision. The book unlocked a different way of evaluating decisions and exposed me to new psychological concepts—some that aren’t even taught in schools. It felt like an introduction to practical psychology for entrepreneurs and investors. I made tons of highlights and notes while reading this book.

I’ll eventually create a blog series on this book, so I won’t go into everything here. But here are a few more takeaways:

• Checklists – Countless times throughout the book, Charlie mentioned using mental checklists as a way to avoid mistakes in your decision process. Checklists are also a central part of David Allen’s Getting Things Done (unrelated) framework. My takeaway is that checklists are simple tools that are available to everyone, but they’re more powerful than people realize when used consistently.
• Multidisciplinary learning – I mentioned this in my post last week (here). If you have a narrow understanding of topics or a small tool set, you increase your risk of the cognitive bias of relying too much on one tool or a limited number of tools. Mark Twain described it well: “To a man with a hammer, everything looks like a nail.” You apply tools to situations for which they’re not appropriate and increase the chances of making subpar decisions. Broad learning about topics that interest you helps prevent this. Often, you discover nonobvious relationships between topics that others have missed, which improves your decision-making and gives you an edge. Charlie mastered this, and it led to a life of curiosity-driven learning and a billion-dollar fortune from shrewd decisions.
• Hard work – Acting and getting things done is one form of hard work. But learning and thinking is another form, one that many people underestimate. Learning and thinking are preparation. Good preparation leads to better decisions and allows you to practice “extreme decisiveness,” which is valuable during extreme uncertainty. From an investing perspective, preparation allows you to identify when something is mispriced and gives you the confidence to bet heavily based on your work, even if everyone else is selling for dear life.
• Incentives – Incentives heavily influence individual decision-making. Getting them right is critical for entrepreneurs and managers. If you want to understand someone’s actions or thought process, think about how they’re being incentivized.
• Lollapalooza effect – When two or more factors work at the same time, they magnify outcomes. This works positively and negatively. This reminded me of twin tailwinds, which I’ve noticed when reading about Henry Singleton (see here), Warren Buffett (see here), and 2021’s IPO explosion (here). These are lollapalooza-effect examples that led to massive wealth creation.
• Mastering wisdom – Mastering the best things others have figured out is a discipline. It’s also a hack. Trying to figure out everything from scratch on your own is hard to do, and most people aren’t smart enough to do it (Charlie’s words, not mine). It’s better to take what others have figured out and build upon their wisdom. Everyone can do it, but many people won’t because it requires a passion for learning and curiosity and is hard work.
• Inversion – If you’re not sure what to do about a problem, think it through backward to figure out what not to do. By knowing what not to do, you’re one step closer to understanding what to do.
• Outsourcing thinking – You can’t outsource your thinking. You must think for yourself and, ideally, in a multidisciplinary manner.

Those are just some of my takeaways from this book. I’m glad I read it and will likely reread it someday.

The last book I read in 2024 was The Money Masters: Nine Great Investors: Their Winning Strategies and How You Can Apply Them by John Train. It’s an older book, first published in 1980, but I read it because the author was referenced in a book about Warren Buffett. The book is a biography but not about one person. Each chapter is a profile of an investor who achieved outsize returns. The book introduced nine investors, most of whom I’d never heard of.

I went into this book with no expectations. It didn’t have a lot of reviews, and I’ve never heard anyone talk about it or seen anything written about it. But when I read it, it reminded of The Outsiders: Eight Unconventional CEOs and Their Radically Rational Blueprint for Success, which I read in April. Outsiders was slightly different because it was highly rated, and many people suggested it. But it, too, was a series of mini-biographies with a slightly different focus—CEOs, not investors.

When I read Outsiders, I discovered people I didn’t know about and read another roughly twenty books. Each book mentioned another person or book, and I read it. This went on for a few months. And I still have a few more books I discovered because of Outsiders that I haven’t read yet. Something similar began playing out when I read Money Masters. I learned about investors who built their own investment firms and got really interested in them. I ended up buying a few books, and I’m starting one of them now.

I didn’t know what to call books in this category, but someone pointed out to me that they're biographical anthologies. These books are great discovery mechanisms. They don’t go as deep as a biography about one person would, but they go deep enough on each person for me to understand if I want to learn more about them. If I do, these books usually have a list of sources that I can read.

This type of book is helpful to me because it provides more connections to more people and companies than a normal biography. The exposure to many people and ideas in a single book is helpful. I’m excited and curious to learn more about those people, and I know exactly what books to read.

My big takeaway is that when I’m starting to learn about something new (industry, time period, etc.), I’ll likely start with a biographical anthology. It’s a great way to learn about multiple players in a space at once and find good books about them.

Last week, I finished reading At Random: The Reminiscences of Bennett Cerf. It’s Bennett Cerf’s autobiography, and it details how Cerf founded and grew book publisher Random House. Cerf was a colorful entrepreneur who lived an exciting life. Being one of the few people who influenced the distribution of knowledge by choosing what books to publish put him in a unique position. If Cerf and other publishers didn’t publish a particular book, the public never had the opportunity to read it. People were attracted to him and his influential knowledge distribution, which allowed him to build relationships with notable people, including U.S. presidents and movie stars.

Cerf founded Random House in 1927, and he died in 1971. Things have changed drastically since then. Companies such as Scribe Media and Amazon’s Kindle Direct Publishing now make it easy for authors to publish their books. More books are being published, but discovery is more challenging for books that don’t have significant marketing resources.

After reading Cerf’s book and thinking about how the industry has changed, it’s clear to me that people who curate and help others discover books can bring immense value to readers. Those who excel at this can build powerful magnets that attract others to them. By attracting others to them, they will likely also attract unique opportunities and build relationships with notable people like Cerf did. Said differently, curation and helping others with discovery is a way to create magnetic luck.

After writing about the Newhouse family’s estate tax strategy and taxes being a successful entrepreneur’s biggest expense, I wanted to share what I’ve learned about qualified small business stock (QSBS) and the tax strategy around it.

To be clear, I’m not a fan of avoiding taxes or tax scams. You can go to jail for stuff like that, and it’s never worth it. But the tax code is complicated. Many aspects of it are designed to encourage entrepreneurship, but people aren’t aware of them. I know about QSBS only because I have a few friends who sold companies and benefited from it, minimizing their taxes.

Why is QSBS a big deal?

Eligible shareholders of qualified small businesses can get up to a 100% exclusion from capital gains taxes when they sell their company. Translation: you can pay zero taxes on the gains, up to certain level, when you sell your company.

What are the criteria for a business to qualify for the QSBS tax exclusion?

• The business must be incorporated as a C corporation in the United States (LLCs and S corps don’t qualify).
• Company gross assets must be $50 million or less before and at the time the stock was issued.
• Eighty percent of the company’s assets must be used for qualified trade. Businesses such as real estate and farming are excluded.
• Stock must be purchased directly from or issued directly by the company. Secondary purchases and stock transferred from other shareholders don’t qualify.
• Stock must be held for at least five years to get the maximum benefit from QSBS tax exemption.

If a company qualifies for QSBS, how does the tax exemption work?

If the criteria are met, each shareholder is excluded from paying taxes on gains of up to $10 million or ten times their basis. The simplest example is that if you launch a company, meet the QSBS criteria, and sell it, your gains on that sale, up to $10 million, are tax free. Gains above $10 million are taxed at capital gains rates.

More complicated scenarios can result in the exclusion amount being significantly more than $10 million. In this example, the founders converted a company to a C corporation years after launching, when company assets were $40 million. This meant their stock basis was $40 million and they got an exclusion of ten times that cost basis—that is, up to a $400 million exclusion. The entire $400 million isn’t excluded, which the article covers, along with other details, but you get the idea. It can get even more complicated with stacking and other factors.

QSBS is part of the tax law and something all founders should be aware of. If your goal is to build a company and exit after more than five years, QSBS is something to consider in your tax strategy.

This isn’t tax advice, and everyone should do their own research to figure out whether QSBS applies to their situation. I just wanted to make more people aware of the exemption.

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.