The Outsiders: Eight Unconventional CEOs [đź“š review]
This book was recommended on one of the business podcasts that I listen to. It probably was Masters in Business on Bloomberg radio. Barry gets fantastic guests and always asks them for a book rec. I should write a post about the ~30 podcasts I listen to at some point soon. So much good information out there these days. One can learn and enjoy a wide range of topics — especially if you drive or go running daily. With so many to choose from, you can afford to be picky. Don’t settle for whatever’s on ESPN or on NPR.
This is a short, crisp, very enjoyable book. The premise, laid out right away, is that a significant minority of great CEOs (as measured by long term returns for their company’s stock) exhibit similar traits:
- lean, decentralized operations — including a high degree of trust in the (often young) operators running the day to day part of the business
- focus on “tight aggressive” capital allocation — lots of research, a high bar for expected returns, but the courage to bet big when it’s needed
- a general contrarian perspective — not limited to Warren Buffett’s quote about greed and fear, but very much of that spirit
“be greedy when others are fearful, and be fearful when others are greedy”
An full breakdown would be as long as the book (200 pages, and it seemed shorter) and not nearly as good. Read the book! Here are a few ideas that stood out to me.
Which was my favorite CEO? Kathrine Graham. Perhaps because I grew up in the DC suburbs, reading and for a time delivering the Washington Post on Sundays. It’s sad but not unexpected how that newspaper has fallen, to be bought up for a fraction of its former value as a political mouthpiece for Jeff Bezos. But for a time it was a good paper, and a great business. The Grahams avoided fancy HQs like the New York Times, and diversified their booming media company beyond newspapers, thus being hit less hard than newspaper-only media groups.
I also appreciate how the book explains Warren Buffett. He’s not a character whom I haven’t particularly liked, turned off perhaps by the hero worship and what struck me as a phoney aw-shucks personality. The author adores Buffett — referencing him in just about every other CEO chapter as well —and he explains the Buffett story in a way I haven’t read before. Simply the CEO as shrewd investor. He’d buy up stable businesses that make money or have a strong brand that can be leveraged to raise profitability, then selectively fund capital project and invest the cashflow in way better than others normally would. On top of that, he’d always make sure to have cash on hand (often from his insurance companies’ float), and make opportunistic investments on great terms to over-extended firms during a financial crisis. That part of the Buffett’s story I’d read a bit about before
Another great profile was Bill Stiritz of Ralston (an old company originally in the agricultural feed business, but also owners of pet foods and other packaged consumer good brands, such as Twinkies and Energizer batteries).
Stiritz himself liked capital allocation to poker, in which the key skills were an ability to calculate odds, read personalities, and make large bets when the odds were overwhelmingly in your favor. He was an active acquirer who was also comfortable selling or spinning off businesses that he felt were mature or under appreciated by Wall Street.
Indeed he bought Twinkies and Energizer when these were also-ran divisions in giant conglomerates which were not focused on packaged consumer goods. He bought them cheap, build them up, and sold them when the price was right.
Along that line, the book talks about the post Cold War restructuring at General Dynamics, where new CEO Bill Anders, a former astronaut and fighter pilot, sold their prestige F-16 business to Lockheed because the price was right, despite a deep personal attachment. I love the F-16 too, and not sure I could have let that one go, had I been in his shoes.
The book’s lessons apply most specifically to those running a business with substantial cash flow, and questions about how best to invest it. R&D? Empire-building acquisitions? Dividends or more tax-efficient way to return money to shareholders?
But at the end Thorndike brings up a good point — we all make capital allocation decisions. Definitely at a small business level. Even as startups, and certainly anyone running a store, a consultancy, or any other company. To some extend, even as individuals. Where do you invest your time and savings? What ROI do you need to expand your operations? When should you shut down a division that isn’t paying off better than saving your money, or doing something else?
On my current team we talk about opportunity cost for new projects all the time. Not only should a new project — even in AI research — clear the bar for adequate expected returns (publications, open source repositories, product demos for the company), but will we have a better project to do tomorrow instead, if pass on this project today? How much is a month of an AI researcher’s time worth?
Such is the balance for all of us. It’s nice to read a book that breaks down how some have managed this balance well, and in a public setting.
