The Biography of John Malone (Cable Cowboy)

1. 0:00 – 3:36

   Redstone's Lawsuit and Malone's Core Philosophy

   1. DSDavid Senra0:00

      In the American cable industry, one man has, over the last several years, seized monopoly power. Using bully boy tactics and strong-arming competitors, suppliers, and customers, that man has inflicted antitrust injury on my company and virtually every American consumer of cable services and technologies. That man is John C. Malone. Malone seeks to exert monopoly power over key stages of the delivery of cable programming to the American consumer, control over the creation of programming in studios, control over cable programming services, control over the mechanics of transmitting programming by satellite, and control over the delivery of programming to the home. At every stage in this process, the consumer has paid and will continue to pay a monopoly tax to John Malone. That was an excerpt from a lawsuit that Malone's one-time rival, Summer Redstone, filed, and it is found in the book that I'm gonna talk to you about today, which is Cable Cowboy: John Malone and the Rise of the Modern Cable Business, and it was written by Mark Robichaux. So before I go to the actual book, I wanna read some highlights from this fantastic Twitter thread written by this anonymous account called Loadline Finance. It was written a few years ago, and I think it gives a fantastic overview of John Malone's philosophy on company building, and I think knowing this before we go into the, some of the highlights, it'll actually enhance your understanding of the highlights as we go through. So the first idea, Malone believed in building long-term value through leveraged cash flow. Earnings didn't count. He was not constrained by quarterly expectations. The entire time that he runs TCI, it's a public company. And so he would tell his stockholders, "If you're going to ask about quarterly earnings, you're at the wrong meeting, and you probably own the wrong stock." I'll go into a lot more detail about his philosophy once we get to the book. Malone built the pipes, then bought the water that flows through them. So he wanted to own the cable lines going directly into the house and the parts of the programming that, that flowed through those lines. This is why. By becoming the gatekeeper with access to subscribers, he could negotiate equity stakes in the channels, gaining huge financial upside. Third idea, Malone took Spartan operations to another level. Absolutely no bureaucracy, no waste. And, uh, this is a quote from Malone, "We don't believe in staff. Staff are people who second-guess people." Fourth idea, always protect the mothership. He used a web of subsidiaries to spread risk, so if one went down, it didn't sink the whole ship. Here's idea number five. This one actually made me laugh, and it gives insight into how Malone viewed himself. He was not really interested in operating a company. He thought of himself as a deal maker. Malone averaged one merger and acquisition deal every two weeks for over 15 years. That's insane. These guys were slinging billion-dollar deals like bowls of breakfast cereal. Oh, and TCI shares rose fifty-five thousand percent. And then the sixth idea is exactly what I read at the very beginning, which was Redstone's description of Malone. And this says, "One of the best parts of this book is the exploration of Malone's complex personality. It is not a fawning glow piece. Malone is cast as a monster as much as maven, an isolated sociopath as much as a loving family man." And the final idea that I wanna include from this thread is, if you give managers equity ownership, they can focus on fighting for economics rather than wasting energy fighting for control. And I'll go into more detail about that specific highlight later on. At the time, Malone was critiquing the difference between, like, a professional manager with no skin in the game and the way they think and the way entrepreneurs think.

2. 3:36 – 8:05

   Cowboys, Pirates and Misfits: The Book's Introduction

   1. DSDavid Senra3:36

      So I wanna jump to the introduction of the book where the author is telling us why he is writing the book. This is one of my favorite things to study, which is the beginning of industries. And the reason it's one of my favorite things to study is because the beginning, the very beginning of industries are always filled with cowboys, pirates, and misfits. And so the author says, "I had studied the bumpy odyssey of the industry for six of my 12 years at The Wall Street Journal. I was fascinated by the cast of underfunded cowboys who had m- wanted merely to make a buck by building a rural antenna service." So that is how the cable, the modern cable industry in its infancy was essentially just a bunch of young entrepreneurs with no money in the middle of nowhere trying to build an antenna service, which I'll get to in more detail. Their vision always seemed just beyond their grasp, and they often stumbled in running to reach it. Now, this same spider's web of copper lines across the country was suddenly the single fastest route to the internet. So the difference between what he's describing there, a rural antenna network morphs into the way Americans get high-speed internet for the first time. That process that he's describing took over fifty years to happen. The tapestry of events that led to cable's dominance was connected by a single thread, John Malone. And before I read this description of Malone and where he's g- he's gonna be compared and contrasted with a bunch of robber barons that you and I have talked about, the way to think about Malone is he's one of these dominant personalities that you and I see, have seen over and over and over again. And what's interesting to me is he's still living. This book is written about 20 years ago. He's still living, and he's got this, like, cult-like following. This book, by far, has been the most requested book for me to cover on Founders for years. I was finally pushed over the edge by my friend Sam Hinkie, who's actually sponsoring this episode, and he told me a few weeks ago, he's like, "You gotta read Cable Cowboy. Malone was a monster." And to me, that was an unintended double entendre because Malone's competitors definitely [chuckles] saw him as a monster, but he was also a monster and a formidable individual at company building. And so this is a little bit about that. Malone symbolized a much more ominous side of business to critics, consumers, and competitors. They saw a monopoly run by a Machiavellian bully who lived up to his many nicknames, including Darth Vader, Genghis Khan, and The Godfather. He had skated very close to security law violations, and like industrial powers Andrew Carnegie or J.P. Morgan before him, he had extracted a price for the progress that he offered. As his power grew, he decided which cable networks survived, and he crushed competitors. And all of this he did openly and brazenly. So on the next page, there's an overview of what he did. Malone did not found TCI. He is actually hired and recruited by the founder named Bob Magness. And I'll get into Bob's story in a little bit because that's fascinating. I was actually disappointed I could not find a biography on Bob. It makes sense when you get to know him because he very much believed that bad boys move in silence. And so he didn't seem like the personality type that would cooperate with an author, actually. So it says TCI was born in western Texas in 1952 when Bob Magness, a part-time rancher with a weakness for whiskey and gambling, gleaned from a couple of hitchhikers a nifty investment idea that almost bankrupted him. That's that rural antenna service that morphed into cable. He sought help from Malone, and by 1990, Malone had expanded TCI's reach and assets more than tenfold, making nearly 500 acquisitions in that time. That is bananas. At an average of one deal every two weeks. The structures of his deals were exotic, and his financial alchemy often befuddled Wall Street and investors and befuddled the hell out of me. I had to read several sections of this book over and over again, and I still have no idea what the hell is going on. And that was intentional, by the way, because the author points out at one point they had like a 350-page prospectus of some investment deal that, that, uh, that Malone was pushing through. And it's extremely unlikely that anybody other than Malone actually understood the deal completely. So in addition to reading the book, I also watched this lecture, uh, that took place about 10 years ago. And it's John Malone, and he's actually speaking to a strategic finance class. And I'll leave the link down below because it's very fascinating. It's like, uh, just under two hours long. But strategic finance, I feel, was, uh, Malone's superpower. So back to the book. It says the structures of the deals were exotic, and his financial alchemy often befuddled Wall Street, uh, and Wall Street and investors. The flurry of complex mergers, acquisitions, stock dividends, and spinoffs clouded the picture of the company's true performance. That too I also think was intentional. His-- This is really about his belief. It reminded me. Remember a couple podcasts

3. 8:05 – 9:35

   Wealth as a Moral Achievement

   1. DSDavid Senra8:05

      ago, I can't remember if it was-- Uh, I did two Rockefeller podcasts recently. One 250-- 248 on Titan, and another one on 254 on this like very obscure 40-year-old biography of Rockefeller. But what was interesting is I talked about probably in both those podcasts is the fact that to understand Rockefeller, you had to understand that he literally believed, literally believed this as if like as clear as day to him that he was sent here by God to make as much money as possible so then he could give it away. And I thought the reason that was important to emphasize is because when you-- when-- if, if you're operating with that belief, like you and I may think that, okay, that's a little ridiculous, John, but to him it wasn't. It was actually real. And so then you understand what is mo-- like what's his motivation behind what he's doing. And it stems from that belief. Malone had almost like a-- To me it was like he, he repeats this several times in the book, and he thought it was like a moral like achievement to build wealth. And the part where his philosophy conflicts with mine is the fact that he would build wealth. He'd put the achievement of building wealth over service to customers. So it says his shareholders got rich along with him. For Malone, it was a noble, if not moral achievement, the fruit of his enormous capacity to deduce and strategize. That is repeated. Variations of that idea, that it's a moral-- building wealth is something good, something, uh, you know, moral achievement is repeated. D-d-different variations of that is repeated over and over again in the book. Okay, so before I go into Bob and the starting of the company, which is really [chuckles] one of my favorite parts of the book, we gotta go to the fact that Malone, in some ways it was irrational for him to, to... This is so important for

4. 9:35 – 12:40

   Turning Down Steve Ross to Join TCI

   1. DSDavid Senra9:35

      me and you to understand. Maybe the greatest opportunity that's ever gonna be presented to you and I, like it's going to be irrational that we chose to do it. And what I mean by that is Malone is an extremely gifted, I think he graduated from Yale, had all these credentials. He's getting recruited by all these other super smart rich people, right? And he's-- I think he's in his late twenties. I think he's like twenty-nine at this point in the story, right? And he turns it down. Like this pers- To-- Let me just read this and it's crazy. So it says weeks earlier, Malone had spurned a far more lucrative job offer in New York from Steve Ross, who was the chairman of Warner Communications. Ross had promised the twenty-nine-year-old Malone a limo and a hundred and fifty thousand dollar salary. This is probably in the 19... This is-- I think this is 197-- early 1970s. I think we're right, right around 1972. So this is a, a lot of money. Ross had promised the twenty-nine-year-old Malone a limo and a hundred and fifty thousand dollar salary, even pledging to relocate the new cable headquarters to Connecticut, where Malone lived, so it would shorten his commute. So I wanna pause there before I go into him turning down this offer and going into the, the details of an offer, what is that, less than half of the salary he's gonna accept from Bob. But I, I think I need to point something out to you is like every single person in the book, whether it's a young version of John Malone or an older version of John Malone, makes the same point. Malone is just smarter than everybody else. And I think you're seeing shades of that here, where Ross is already a formidable individual in his own right. It's like, "Hey, I need to get this guy, this young kid, on my team, and I'm willing to go to great lengths to do so." So it says instead, Malone had chosen, uh, hardship. This is what I mean about it's almost like an ir-- The be- This is going to wind up being the best opportunity he ever has, the foundation in which he's going to build his multi-billion dollar wealth on. And it didn't look like that at the time. Instead, Malone had chosen hardship, to take a pay cut and join TCI, which is an obscure cable company that had lurched from crisis to crisis for the preceding twenty years. And this is a little bit why Malone made this decision. Malone had picked TCI because Bob Magness was fatigued and running out of luck and was ready to relinquish power and let a new man run the entire show. And because if Malone could make it work, he might become extremely wealthy. "I can't pay you very much," Bob told him one day, "but you've got a great future here if you can create it." Such a great line. Malone found the challenge irresistible. So he's gonna make sixty thousand dollars. Okay, so he turns down a limo, relocating [chuckles] the, the headquarters so I can-- it's a short drive from my house, and a hundred and fifty thousand dollar salary, and all Bob can give him is sixty thousand dollars of salary and a bunch of stock options. So they agree-- It says they agreed upon a salary of sixty thousand dollars, and then Malone had seen fit to buy seventy-five hundred shares of TCI stock, which he helped pay for with a sixty thousand dollar personal loan from a local bank. Oh, and I forgot to mention, he's got to move him and his wife from the Northeast all the way to Colorado. And that might have been part of the appeal. It says Malone had taken a liking to the informal Western setting in Colorado. It was scenic and unhurried. Malone's top executives were rough riders. They were not the MBA types that Malone knew back on the East Coast.

5. 12:40 – 21:45

   Bob Magness and the License to Steal

   1. DSDavid Senra12:40

      And so let's go into the culture that Bob built. It was very much a cowboy, rough rider, heavy drinking, extreme behavior culture. And it is wild how it started. For two decades, Bob had relentlessly driven himself and his wife, Betsy. So this is right before he goes and recruits. I need to give you background into why up until the point where he's looking at the numbers, he's in such despair and pain, and he realizes he's in a really shitty situation. And he says, there's a great line I'll get to in a little bit. He's like, damn it, I need to find the smartest man I can and recruit him to run this company for me. And so we'll get there. So his wife is also his business partner. So that's Betsy. They had started out with a single cable system in Memphis, Texas, that they had built themselves. And they had ultimately assembled a company with more than 200 cable systems in the top 100 markets. So that's what Bob's been up to for the last 20 years, okay? Bob had done it by constantly doubling. This is so crazy. He had done it by constantly doubling down on his bets and accumulating a mountain of debt. He was always gambling that Americans' hunger for this new thing called television would permit his company to grow fast enough to stay ahead of the bill collectors. What the hell does that mean? That means at this point in the story, 1972, TCI had $19 million in annual revenue. That's fantastic, right? Its debt load was an obscene $132 million. This is irrational that Malone saw this as an opportunity and he was right. Bob had discovered this fledgling industry in a chance encounter in 1952, so 20 years earlier than we were in the story, when he gave two strangers a ride after meeting them in a cotton gin. Bob was then a 28-year-old cotton seed buyer at the time. And then it gives us background on his life, just some highlights. He had grown up during the Great Depression and he came from a family of farmers and ranchers. After serving in World War II, he pursued a college degree and he was looking for the prosperity that the post-war American economy could offer. He also worked in oil fields during the summers. That's when he meets his wife and it says he would gain more than a country girl. She would also prove to be an astute business partner. And a trait that Bob had early in his life that he kept his entire life was he kept his mouth shut. He hated that Malone would tell competitors like their strategies and stuff. So it says Malone learned to listen instead of talk. And within a short time, he could read a customer like a poker player, anticipating what that person wanted from the deal moments into the negotiation. And when I got to that part, it made me think of one of my favorite lines from when I read Michael Jordan's autobiography on episode 213. And I've never forgot this line since then. He says, successful people listen. Those who don't listen don't survive long. And we're seeing the same thing from a young Bob Magnus here. And then this is how he found the opportunity. So he's giving these two hitchhikers a ride. And he says the two men told him that they had just built a big community antenna system. And what did this system do? It helped folks in tiny towns get broadcast TV signals from bigger markets far away. So again, Magnus is listening to him, thinks that's interesting, drops him off, doesn't think about it anymore. A few days later, a business partner brings this up. And so the name of the chapter that I'm reading from is called License to Steal. And that's why. This is why right here. Days later, a business partner mentioned to Bob that if you knew how to get into something called the CATV business, I understand that's a license to steal. To which Bob replied, hell, I know how to get in. And so Bob decides to build one of these systems in this tiny town that he's in. And this is why they call it a license to steal. If he could raise the money to pull it off, Bob would be able to charge his neighbors a monthly fee for the television service, which he would get free of charge, basically pirating the programming from the TV stations themselves without paying them a cent. So you can think about he's extending the range of these TV networks from bigger markets into smaller markets they're not currently serving. And this next part, you and I have seen over and over again, the importance of having a supportive spouse for entrepreneurs and founders. So it says Betsy told Bob that she would do anything to support his idea. So they decided to bet the ranch literally on cable. They owned like some cattle. So they wound up selling it. Bob then sold his cattle, mortgaged the house. This guy, they called him a gambler. Now you'll see why. He literally bet the ranch on cable, right? And what's crazy is how early it is. Up until this point, Bob and Betsy had rarely even seen a TV set and they certainly didn't own one. That is how early they are in this industry. So it says they decided to bet the ranch literally on cable. Bob sold his cattle, mortgaged the house and borrowed $2,500 from his father. That last line about borrowing $2,500 from his father is crazy if you think about what's going to happen, let's say 50 years, a little less than 50 years from where we are in the story. If you think about the decisions that you make today and how they reverberate past your lifetime to your kids and grandkids, this is a perfect example of that. The reason I bring that up is because I think you'll make decisions differently if you think like that really long-term perspective. But that $2,500 turns into hundreds of millions for his grandsons. There's no way he could have known by lending $2,500 to his son. I'm pretty sure his grandsons aren't even born yet. That his son is going to take that $2,500 along with the money he got from selling his ranch or selling his cattle and mortgaging his house and turn it into, this is literal, this is not an exaggeration, hundreds of millions of dollars that are going to flow to his grandsons when his son dies. At that point, I think his son dies when he's 72 years old. So this is many, I think he's 28 when he's doing this. So this is 50 years into the future. That note on this page is crazy. That $2,500 turns into hundreds of millions for his grandsons. So once Bob and Betsy start in one market, they keep expanding over the next, uh, 20 years. They're gonna expand to, expand to over 200 different markets. I just wanna pull out one or two sentences here. Extreme behavior is found at the very beginning of the industries. They are trying to run wires in very rural areas. This, I think, is in Montana. It says, "New employees were asked, 'Can you walk 10 miles in 10-below-zero weather?'" That is the requirement to get the job. This is how Bob managed, and a little bit about the company culture at this point. "Every evening, a handful of the TCI cowboys would sit around Bob's desk, and he would open the bar and review the day's events." Alcohol is a supporting character in this story, for sure. This is about 10 years into the business. "Bob likened the cable to the oil rush days in his native Oklahoma and Texas. Cable TV systems generated bundles of cash from the installation charges, which were $100 to $300 a customer in the 1970s, and monthly service fees of $5 to $20. This high cash flow could service..." This is important because this, what Bob is describing here, the economics of the early cable industry, is what, is, like, the weapon that Malone wields [chuckles] uh, uh, like, about a decade from now. So it says, "This high cash flow could service an immense amount of debt, which was used to buy more systems. The companies hardly paid any taxes because of the high depreciation on the equipment. The average cable system enjoyed a profit margin of 57%, far fatter than most businesses at the time." And this rush to constantly grow and stay ahead of the debt collectors took its toll. Bob's just under an, an intense amount of stress and pain as he's building his company. This is when he finally snaps and goes and gets Malone. "Bob drank almost daily. Alcohol, however poisonous to his body, dulled the anxiety that gnawed at him. The weight of T..." This is so crazy because he doesn't know. This guy's gonna be a billionaire off of what's about to happen here, and he's doing well. This is the early 1970s now. He's doing well, but not nearly. This is, like, 1/10, maybe 1/20 of the wealth that Malone's gonna help build for him. So it says that he dr- he drank almost daily. Uh, "Alcohol was however poisonous to his body, dulled the anxiety that gnawed at him." The reason I bring that up is 'cause imagine, you and I talk about the, maybe the best maxim from the history of entrepreneurship is that excellence is the capacity to take pain. Imagine if Bob did not have the capacity to take pain, to deal with anxiety for decade after decade, and if he stopped here, how different is his life? Not only his life. I just got done saying when he dies, his two sons are each gonna inherit, like, 200, I think 200 or $250 million each. How different is their life if he cannot take the pain and he stops here? He dulled the anxiety that gnawed at him. "The weight of TCI's debt threatened to topple the empire that he and Betsy had worked so slavishly to build. After 20 years of struggling, the scrutiny was unbearable. The complexities of running a public company and tracking the performance of more than 200 cable franchises in 21 states, all the while fighting regulators and lawyers, was becoming too much. He skimmed the company's numbers, looked up at Betsy, and blurted out, 'I'm gonna hire the smartest son of a bitch I can find.'" Enter John Malone. Malone's first year at running the company is the company's worst. So not only did Bob have to demonstrate that excellence is the capacity to take pain, listen to

6. 21:45 – 23:35

   Malone's Brutal First Years at TCI

   1. DSDavid Senra21:45

      what Malone has to go through in the early days. "Malone had the dubious pleasure of presiding over the first loss that TCI ever had a- reported: $2.1 million. TCI..." And this is also important to understand Malone's strategy in growing TCI into one of, into the largest. I think it was the largest cable operator when he sold it to AT&T. "TCI would hardly ever again report a profitable year. Forever after, it would reinvest cash flows to grow the business ever larger. For Malone, all this was painful to his pride and a blow to his personal finances." The fact that he takes this job, turns down other, more lucrative options, and then presides over the worst year in TCI history. That's what they're talking about there. So it, it was a blow to his personal finances, finances, and it stunned him. "The value of his stock options had sunk by more than half, and instead of reaping great riches as he had envisioned, Malone was now cash-strapped and deeply in debt. At home, his wife, Leslie, was patient but clearly unhappy." Remember, he moved her across the country. They, they lived in the Northeast. Now they're living in Denver. "She was the love of his life and deserved so much more from him, but they were barely scrimping by. Malone had to cut his own pay to help meet expenses at TCI. They did not eat out. They had no new furniture for their home, and the company," or, uh, and the couple, excuse me, "had to go nine months without telephone service because they couldn't afford it." This part was hilarious. "Each day on his drive to the office, Malone passed a feedlot that was filled with cattle, and each day he saw the same bull standing on a pile of dung. 'That's me,' Malone told himself, 'on top of a pile of bullshit.' In the quiet few moments he had to himself in the drive, a single question tugged at him: Have I made the biggest mistake of my life?"

7. 23:35 – 28:17

   Malone's Father and the Path to Cable

   1. DSDavid Senra23:35

      So let's rewind in the life story of John Malone and try to figure out, okay, why is this guy who is a rare combination of incredibly intelligent and unbelievably driven? And as you and I have seen before, it's amazing how many of these ideas just repeat over and over again. So back on Founders 242, I read the biography of, uh, the legendary director Francis Ford Coppola, and there's a line in that book that says, "You can always understand the son by the story of his father. The story of the father is embedded in the son." Long after John's father dies, he talks about his relentless drive being a result of trying to gain his father's approval. "John Malone's father preached hard work and personal sacrifice. 'If you didn't try your best, work the hardest, you're a failure. That's what people are put on this earth to do,' Dan Malone would tell his kids. More than anyone, Dan Malone would shape his son's destiny." That's just another way of saying the story of the father is embedded in the son. It's crazy that this repeats over and over again. "More than anyone, Dan s- Malone would shape his son's destiny. His father's rigid expectations and private tutorials seemed to inspire John, who would spend a lifetime struggling to prove his worth." Dan was laconic in doling out anything approaching praise. He set a very high bar. When John came home from school with a report card of all A's and one B, he asked about the B. Malone would internalize this model and become very demanding of himself. That part was very interesting because well after Malone is independently wealthy, he is still pushing the limit. He's still working incredibly hard. And I go and listen to that talk, uh, that he gave, the one I- I'll put in the show notes, uh, if you wanna watch it on YouTube. And he says something interesting how, like, sometimes you're, you're buying all these companies and sometimes you have, like, good managers but a lot of times you have to, like, you, you have to yank out the management that's in there because you just made them extremely rich. And he said a line that I think is really a reflection on how abnormal and unusual he is. And he says, "Once you make a guy rich, don't expect him to work hard. Very unusual people do that." John is one of those very unusual people. So I wanna fast-forward past college. I wanna go to when he's about 29 years old and he's working as a consultant for McKinsey & Company. And I found it very fascinating how he accidentally stumbles into the-- what's gonna turn into the cable industry. And he's consulting for a cable equipment maker and he's talking to this guy named Shapiro who just bought the company and he says, "After several weeks, Malone laid out a plan to Shapiro to fix Jerrold," which is the, the company. But Shapiro surprised him with his reply: "I've got a better idea. If you're so smart, why don't you come and do it yourself?" Malone was 29 and he accepted the offer. This is important because we t- we talked about this recently where j- I think it was last week in the Edison, uh, number 267 in the Edison biography and number 258 which was about Jay Gould. And it was the fact that Jay Gould winds up spotting the telegraph opportunity through his work in railroads. And I think this is a very powerful idea to think about. It's the idea that you can actually identify an opportunity because you have deep knowledge about one industry and then you see an- another industry developing parallel to the industry that you know about. Malone's career is another example of that because he goes for McKinsey, right? He's working at McKinsey for a cable equipment operator. Then the guy's like, "Hey, come run the cable equipment operator." But not only do they make cable equipment but they also were the third largest cable operator at the time. Then through these meetings selling and running this cable equipment maker, he's going to meet-- One of his customers is Bob Magnus. So it says, "In the process of studying Jerrold, Malone saw for the first time the potential of cable TV. Jerrold was a com-- it was a cable equipment maker that happened to be the third largest cable operator in America and they're growing fast." And so what's happening is he's seeing the difference, that scale. He, he uses very-- You, you could think of Malone very much s- to me he's very similar to, like, another Rockefeller and just like Rockefeller was intent on getting as big as possible as fast as possible, so was Malone and this is part of the reason. "Slowly efficiencies of scale stretched out before him. The bigger you are, the more parts you order." Remember, he's focused just on the cable equipment making at this point, okay? "The more parts you order, the cheaper the parts. Before Malone arrived at Jerrold, the company was paying eight cents for each of these tiny connectors they needed in this equipment," right? "Malone, as they started to grow, started buying them for one-tenth of one cent." Remember this part for later. He literally uses the same idea when he's buying programming from people like CNN and HBO. When we were small, we paid eight cents. Now we're big, we pay one-tenth of one cent.

8. 28:17 – 32:50

   Ruthless Efficiency and Frugality: Rockefeller, Buffett and NTA

   1. DSDavid Senra28:17

      I'm gonna read something I said 47 minutes into f- the episode 254. This is-- If you haven't listened to episode 254 you gotta go back and listen to it 'cause it's gonna give you an advantage. How many people have read a 40-year-old obscure biography on Rockefeller, right? And so w- I got to somewhere in the book and I re-re-- like, you really can break down what Rockefeller was trying to do and this is very similar to what Malone's doing. So I'm gonna read from 47 minutes into episode 254, okay? And so this is, uh, f- what I said trying to summarize what Rockefeller's doing. "Step one, you raise money so you can increase production. Step two, use your increased production to get better rates on transportation than other refiners. Step three, use your increased profits because you have better transportation rates to buy your competitors. Step four, continue to find secret sources of income." And it described Rockefeller's approach at building his company and absolutely destroying his competitors as ruthless efficiency and hyper competence. Those same five words can be described for what Malone is about to do. It is ruth-- it was ruthless efficiency and hyper competence. If you read this book it's obvious how more-- how much more advanced Malone was and some of it is, I think, is, like, natural intelligence but then there's several times I left this note to myself 'cause there'd be different examples throughout the book and I just wrote, "Oh, Malone thinks about his industry more than anyone else." And I think that was true for Rockefeller too. So now Malone is 32 years old. He's running TCI and TCI's got this v-very complex web of, like, subsidiaries it owns and all kinds of crazy stuff that Malone is trying to figure out. But this part, this actually took me some time because I had to go and read through all of, uh... I couldn't find the highlight for, uh, that I knew was there in, in Buffett's shareholder letter so it took me, like, 20 minutes to find it. I'll read the whole thing to you after I get to this part. But Malone's going crazy because he is watching every single dollar and rather frugal. He did not like-- He hated wasting money on taxes and inefficiencies. Later on he's, like, yelling at the, the CEO of AT&T 'cause he's like, "You guys don't know what you're doing." And so he runs into somebody that as good as Malone is at his job, this person was bad at theirs if that makes sense. And so this guy is running this subsidiary of TCI, so technically Malone is, you know, this guy's boss and the, the, this subsidiary is called N- uh, NTA. And so it says, "NTA was bleeding money. It lost a million dollars in s- in 1973 and then four million in 1974." And this is how they described it: "NTA is like a cancer on the tail of a beautiful dog." Nobody sees the beauty of the dog. So he's trying to find a way to get it out of TCI. And the way they run the company makes John furious. So it says, "NTA executives flew first class and spent lavishly, and this only annoyed Malone further." So I wrote underneath, beneath this, "This is sloppy bullshit." Jeff Bezos's vein would be popping. There's a great story that I covered back on Founders number 179 in the book, The Everything Store, where at the very beginning of Amazon, they're in a meeting and this guy's like, "Hey, Jeff, why don't you let Amazon executives, uh, fly business class? Like, why do I have to fly coach?" And Jeff went buck. He starts like... I think hitting the, the, the table. He's like, "That's the dumbest thing I ever heard of, that you don't think like an owner." And everybody says when Jeff would get mad, there'd be like a vein in his forehead that would just absolutely pop out and like come say hello. [laughs] It was actually pretty funny. So that's what I meant about this is sloppy bullshit and that Jeff Bezos's vein would be, uh, popping. So it says, "Malone t- uh, called Bob. 'Bob, you're gonna have to find two new top executives,' he said through clenched teeth, ' 'cause I'm gonna throw the NTA president out of the fucking window, and then he'll be dead and I'll be in jail.'" And so as the author was just describing this like really sloppy way of running businesses on NTA's part, I thought of what Buffett said in his shareholder letters, which, which I thought was fantastic. And he says, "Our experience has been that the manager of an already high-cost operation frequently is uncommonly resourceful in finding new ways to add overhead, while the manager of a tightly run operation usually continues to find additional methods to curtail costs, even when his costs are already well below those of his competitors." So Buffett is describing two polar opposite ways of running a business, and that's exactly how to think about what's taking place in this b- th-this book right now. Malone is clearly who Buffett w- would wanna invest with, while Buffett is describing the silliness of people like the guy running NTA. So I just wanna reiterate the point. At this point in TCI's history, the first few years that Malone is there, it's looking like he made a giant mistake. They're having to start-- They're in terrible economic, um,

9. 32:50 – 36:56

   Surviving Debt and Finding the Tax-Sheltered Cash Flow Blueprint

   1. DSDavid Senra32:50

      situations. It's like this is during stagflation and everything. But it's also like they're... there's just no way that they're gonna be able to keep ahead of how much money they have in debt. Remember, I think when he takes over, they had $19 million in revenue, you know, 100 and... what, $160-$150 million in debt, whatever it was. And so you literally have Bob having to like run away when people collecting money comes to the office. If a bill collector showed up unexpectedly at TCI's door, secretaries would stall the visitor while Bob made a getaway from his office to the parking lot. You and I have come across something like this before, all the way back on Founders number 151, which is, is this crazy book about how difficult it was to start FedEx. In the early days of FedEx, I went and found the, the actual highlight in the book. The FedEx planes were heavily mortgaged, and they were terrified that they would actually seize the mortgage planes, and if the bank seized the planes, then FedEx would be out of business. And so the bank had a young bank officer that was keeping track of like the debt and financial situation in the early days of FedEx. And they said every time he would show up at the airport, where it's just... uh, where FedEx was, was headquartered, we would radio the Falcons, which was the kind of plans-- uh, kind of planes they owned, not to land. That's how tenuous the situation was. Malone would spend his first five years at TCI acting more like a treasurer than a president. He would be fending off lenders, raising money, and sniffing out any angle that would give TCI breathing room. This is a hilarious way that John describes this point in his career. [laughs] "I'm the head of a little pipsqueak company in debt up to its ass, a couple million dollars in revenue, and not credit worthy to borrow from a bank. We're barely making it." But Malone's not the type to give up. He says while he could still see an upside in TCI, the bigger motivator that pulled Malone out of bed in the morning was the fear of failure. If TCI failed, Malone felt that he would lose much more than the company. He would lose the respect of his colleagues, the trust of his family, and the approval of his father. And so what he does is he stops trying to grow so fast and then just ruthlessly controls every single expense. The way out was simple: stop expanding so quickly. To meet budgets, Malone cut back office hours and salaries and took to personally signing any company expense over $500. And this is where he comes up with the blueprint that he's gonna use to make TCI the biggest cable op- cable operator. "Think about it," he'd say. Because TCI had high interest payments and big write-offs on cable equipment, it produced losses. And because it produced losses, it paid hardly any taxes to the government. As long as cable operators collected predictable monopoly rent from customers, met interest payments, and grew from acquisitions, why worry? Malone liked the mathematics of it. Tax-sheltered cash flow could be leveraged to land more loans to create more tax-sheltered cash flow. A standing joke around TCI was that if TCI ever did report a profit, Malone would fire the accountants. Malone's theory of value was anathema to many investors, but it was a result of months and months of turning the issue over in his mind. "There's a big difference between creating wealth and reporting income," Malone liked to say. Investors who held a long view rather than focusing on quarterly earnings would be rewarded handsomely. And this is where he starts to repeat what I was mentioning earlier, uh, in that Twitter thread. "If you're gonna ask about quarterly earnings, you're at the wrong meeting, and you probably own the wrong stock," he told one group of TCI investors. "What we care about is value. We want to create value for our shareholders." So it takes him a while to find the right shareholders for his business, but once it does, it changes forever 'cause then he doesn't have to borrow from banks anymore. A few-- A year later, institutional investors discovered the company stock and started to take the price up. TCI was finally able to go to the equity markets to raise capital. From that point forward, Malone never looked back. This is 1978, so he's six years into the job. And then something that I think about all the time, and I think is very obvious if you read a bunch of these biographies with me, uh, I wrote down on this page, "Stay in the game long enough to get lucky."

10. 36:56 – 44:39

    Owning the Pipe and the Water: Programming Equity and Bargain Hunting

    1. DSDavid Senra36:56

       Now I wanna move ahead to one of his main ideas. This actually becomes really controversial, [laughs] and then a lot of this is where he becomes accused of, rightly pr- most likely, uh, to be a monopolist. So this is where he decides, like, "We're not just gonna make money on the piping and owning the wires. We're gonna make money on the content, too." And part of this is what I mentioned earlier. Like, I really do believe that Malone thought about his industry much more than anybody else in the, inside the industry. Rather than just owning the cable that delivered the new programming, TCI needed to own a piece of the cable channels themselves, thereby sharing in a whole extra upside. Malone thought that TCI could own both the pipe and the water flowing through it. Eventually, this gets him into some antitrust s- uh, a- antitrust trouble, and he actually does something smart. He pr- he preempts that by breaking himself up. So it says Malone thought that TCI could own both the pipe and the water flowing through it, the cable wire and the cable programming. He started out small in 1979 with a bet on a company called Black Entertainment Television, BET. The founder of BET is this guy named Robert Johnson. Robert has a meeting with, uh, meeting with Malone, and this goes to what I said, uh, what we mentioned earlier is the fact that he did... What did he do? Like, 500 acquisitions, like, one deal every two weeks for f- more than 15 years, something like that. If you're gonna do that, you have to act really, really fast, and this is an example of that. So Johnson wants some money to start this, uh, to start, uh, to start BET. So it says Johnson replied that he thought it would take $500,000 to get it started. Uh, this is what Malone said. "I'll buy 20% of your company for $180,000, and I'll loan you the rest," Malone offered. The entire transaction took about 45 minutes. And not only he, since he owns equity, he can participate in the upside of all these investments, but he also can guarantee. He just comes, uh, with immediate distributions, like, "Hey, do you wanna be in two million d- in two million homes? I can do that right now." Uh, the channel in- investment deals would eventually make Malone vulnerable to charges of extortion and anti-competitive behavior. This is why everybody says he's a monster, right? He's a, just... I would not wanna, I would not have wanted to compete with this guy. Uh, his TCI system reached two million viewers by 1981. So when John Malone came calling, did the, did these channels really have any choice but to hand over a piece of the action? If they didn't let him become a partner, he might not allow TCI's cable system to offer the new channel. For a small equity stake in the channel, usually well below a majority share, TCI would add the new service to its cable systems and give that channel a fast start in gaining critical mass. Malone also had a bit of an ego and, and an arrogance in him, and what he would do is he would be convinced that, and he usually was right about what he's about to say, the fact that in, there's, like, these peaks and valleys in his industry like every other industry. And in the, the, when they're at their peak, he would abstain from doing any kind of deal-making. And his thought process was like, "I know you're overpaying for that. You're, you don't know you're overpaying for that, so I'm just gonna wait a few years till you realize that you overpay, pay for it, and then you sell it to me at a hefty discount." And so he would grow in these economic downturns by, by buying assets that were, you know, maybe 50 or 100% higher. And it says Malone relished the role of bargain hunter amid the spoils of bad deals made by his competitors. I have no idea when I read that sentence, but it made me think of something I learned from the co-founder of Nike, or about the co-founder of Nike, Bill Bowerman, back on episode 153. And h- what he would notice is he was one of the first, uh, track coaches to actually emphasize the importance of rest and recovery in his athletes. And so his athletes would actually perform better by not beating up their bodies, and his competitors, Bowerman's other fellow track coaches, were really late to that same realization. And so this was Bowerman's response about other coaches, which I feel is very similar to Malone's response to other cable operators. "As a coach, my heart is always divided between pity for the men that they wreck," meaning their, their, the actual track athletes that they're supposed to be coaching, "and scorn for how easy they are to beat." The history of entrepreneurship is very clear on the benefits to frugality. People that are not resourceful usually don't stay entrepreneurs too long. Their wastefulness eliminates them from competition. Malone was extremely frugal and lean. TCI was a lean company. When they flew from Colorado to New York, they slept in the company's spartan two-bedroom apartment, doubling up two to a room. They shared secretaries, and an automated service answered the phone. "We do not believe in staff," John said. "Staff are people who second-guess people." Malone also refused the conventional thinking that TCI needed to have a brand name or a Madison Avenue image. The company had no human resources department. So this is very frugal, very lean. Spartan is actually a great way to describe the way Malone built his business. That's also the way that you would describe Jim Casey, who was the founder of UPS, spartan and disciplined. Uh, the men who reined, who ran TCI, uh, cultivated a Wild West image. In the eyes of John Malone, they were nothing like the, the effete East Coasters who ran bigger cable companies. The C- the TCI men were cable cowboys. That's where the book, [laughs] the book gets its title, obviously. Though the term was repeated in derision by the bankers and politicians who coined it, so they meant it as an insult, John and his team take it as a compliment. The TCI team wore the nickname like a badge. This is Malone's philosophy on building wealth. I've already mentioned it once to you, but it's, uh, appears over and over again in the book, and I think it's central to understanding him. All the while, TCI had consistently failed to report any earnings. As the stock continued to climb, Malone pointed out that it was the accumulation of valuable assets over time, not the flow of reported after-tax earnings, that was making TCI shareholders so wealthy. "Forget about earnings. That's a priesthood of the accounting profession," he would preach unrelentingly. "What you're really after is appreciating assets." Malone also built an extremely tight-knit, uh, inner circle and management group. I don't think he lost one... I don't think one main executive left for the first, like, 16 years he was in charge. They say stuff like this: "Malone's the kinda guy that you wanna run through walls for." Uh, this is an emphasis of Malone's-- Malone put on, uh, decentralization. TCI was beginning to run the way Malone had wanted it to run, highly decentralized. He had cut the company into six separate operating divisions. Each was nearly autonomous, with its own accounting and engineering departments. What-- This is now him describing why he's doing this. Uh, "When you've got it running right, when you've got it decentralized, when you've got it structured properly, it's like flying the most powerful fighter jet in the world," he liked to say. So last time we checked in on his idea of, hey, if you control distribution, you get equity in return. He's controlling the distribution for cable companies, right? He would, he would be able to jumpstart your channel and put you in front of two million people. In return, you're gonna give him equity in the upside, right? But now he's got eight million subscribers. Malone controlled lines into eight million homes. In exchange for that distribution, TCI drove up a tough bargain. He demanded that cable networks allow TCI to invest in them directly. TCI gave any programmer immediate access to nearly one-fifth of all US subscribers in a single stroke. I would summarize that idea that if you control distribution, then you get equity in return. I mentioned earlier that I thought when I was reading this book, I was like, "Oh, I'm just reading Rockefeller strategy in cable." This is, uh, an example of that. TCI was the largest cable operator. It paid ninety cents a subscriber for HBO. A small cable operation paid five dollars per subscriber, and that's on a monthly basis. John is paying ninety cents, you're paying five dollars, and you're doing that every month for every one of your subscribers. CNN cost two cents a subscriber to-- for John. It cost twenty-nine cents per subscriber for cable operators that had fewer than five hundred thousand subscribers.

11. 44:39 – 46:59

    Customer Abuse, Monopoly and the Henry Ford Contrast

    1. DSDavid Senra44:39

       So at this point, Bob is still alive. He's gonna pass away a few years before, uh, before John sells the company, uh, to AT&T. But this is what I was mentioning ear-earlier, that, that no wonder I can't find a biography on him 'cause bad boys move in silence. Bob liked to keep his life as private as his poker hand, and he felt the same way about TCI's business affairs. "Keep your cards to yourself," he would mutter to Malone. Whenever Malone, uh, shared a tactic with a fellow cabro-- cable operator, Magnus would admonish, "Hell, we've got it figured out. Why are you sharing it with these guys for?" This is one part of a strategy I think actually serves as, like, an anti-model. I think Henry Ford's maximum service at minimum cost is actually a better framework to use. And this is why, you know, everybody hated their cable operator. And Malone didn't-- Again, it goes back to why I said that earlier, I spent so much time talking about, hey, you really gotta think about why he believes the way-- what he believes, that he thinks, like, the building of wealth is a moral achievement. Dude, the problem is a lot-- some of that wealth came at the expense of his customers instead of in service of his customers. So it says, "To Malone, the outcry over lousy customer relations and price increases was merely a byproduct of good business. Charge as much as you can for a product or service and spend as little as you can get away with in providing it." Now, that's not a direct quote. That's the author's description of his philosophy, but that's terrible. The reason I think Henry Ford had it right, because what I mentioned on the, the-- a couple episodes ago when I reread his autobiography, is because you want the c-- Like, we're only building one company, right? But we're patrons or customers of thousands over our life. And clearly, it would be beneficial for us if the companies that we're giving our money to actually had Henry Ford's philosophy and not John Malone's. This idea was like, oh, the outcry over lousy customer relations and price increases was merely a byproduct of good business. Charge as much as you can for a product or service and spend as little as you can get away with in providing it. That's how you know that he owned a monopoly. And this idea was actually picked up, uh... 'Cause I, I had stopped paying for cable, what, over ten years ago. And I think cord cutters were usually younger people because they're like, "Oh, I can just use the internet. Why would I pay for cable?" And it's this abuse of the customer that, that carried on for decade after decade in the cable industry because they had a essentially a government-regulated monopoly. You're not gonna have two different companies run wires underneath the, the ground into your house, right? So at this point, TCI's so large

12. 46:59 – 53:33

    Liberty Media and Designing a Life Around Goals

    1. DSDavid Senra46:59

       that he has the idea. He's like, "Okay, well, I should break myself up because I know this is coming." This is also gonna be extremely good financially for him because he's gonna get a higher equity upside in this spinoff called Liberty than he had with TCI. So it says, "Malone suspected that government regulators would try to force him to split TCI in two, a distribution company owning all of TCI's cable systems and a content company owning interest in cable channels. So Ma- Malone decided to do it for them. In 1991, he formed a new company, Liberty Media, and planned to stock it with more than six hundred million worth of assets from TCI." And so not only is he trying to dodge being broken up, but this is also y-you know, he realized, "Hey, I'm, uh, the most advanced player in this industry, and I'm making the least amount of money." And it has to do with the fact that the only path to wealth is ownership. And Ted Turner actually gets him started thinking in this direction. Ted Turner's, like, a huge character in this book. I've, I've, uh, skipped over most of those parts. I will eventually read his autobiography 'cause he's kind of this crazy character. But I do wanna fill you in on this conversation that they're having. Uh, his equity investment in the company he built into the biggest cable operator was puny. It was a tiny fraction of one percent in 1991. Oddly, it was Ted Turner who forced Malone to sit up and take notice that he was lagging behind his peers in personal wealth. "Gee, John," uh, Turner told Malone, "I'm getting rich, and Bob's getting rich, and the only one that's not getting rich is you." Turner's words stung more than Malone cared to admit. His contemporaries were accumulating vast wealth, and he wasn't. And in his mind, he was working harder and contributing more than anyone else. So not only is Liberty gonna provide him more upside, but he wants to get out of the cable operating business because that job comes with all kinds of things that he doesn't like, like lobbying and being forced to-- called in front of, uh, Congress and t- uh, forced to testify, villainized in the media. So for, like, 50, maybe 75 pages, you can see it coming, where he's like, "I gotta get the hell outta here." And this is a little preview of why he's gonna want out eventually. As he put it years later to an interviewer, "Any kind of regulatory decision that went against us could be enormously damaging to our economics, and it could be imposed on us by politicians who don't understand or who don't give a shit I always felt that we never had the political power in our industry to protect ourselves, that we were always small fish in a big pond, and that our survival was always a function of our being dragged along behind other big fish. So he does something that's smart, of course. Malone is incredibly intelligent. But what he does is he's like, figure, like, this is another one of myself. Figure out what you want your life to be, and then work backwards from that. Steve Jobs quote about looking in the mirror, which I'll get to in a minute. So he weighed his life at 52. Here he was, leaving his family in Maine, hemorrhaging inside over the draconian regulation of the cable industry under a new law, and not enjoying any of it. What he really liked was liberty. And what I, liberty, I guess that's a dual meaning of the word. He wants the freedom to choose how to live his life, but also liberty, the company that he started. And what I really don't enjoy, what I really hate, is this politically based, regulatory afflicted cable business he told himself. Maybe he should just take liberty and go run it, arranging an exit from Bob and TCI. He pulled out a yellow legal pad, and at the top wrote, John and Leslie's goals and objectives. And then he makes a list. I'm just going to pull out a couple ones. To reduce stress. He's obviously under an insane amount of pain. To have more fun. Remember that for later when his partner's dying. To have more fun. That's important. To reduce government, media, and legal exposure by taking myself out of the public eye. He then started a second list. There's other things on the list, but those to me were the most important. He then started a second list, reciting actions to reach those goals. At the top of that list was retire from TCI, which he's going to have to wind up selling. Remain chairman and controlling shareholder in Liberty, which is the business that he really likes. Stay on the Turner Broadcasting Board because it was a big TCI investment and because the old cable gang was in it with him. What he did not like is as he's a few years younger than the like the Cable Cowboy, the original cable entrepreneurs. And so all of these dudes that survived got stupid wealthy and they start getting bought out by these giant conglomerates. And so then he starts having meetings and going even to his own office and like other industry functions. And it's like there's no more cowboys. There's no pirates. They're all gone. And so we see that here where he's like, hey, I want to stay with this. I want to keep this in my life because it's the old cable gang. These are my guys. So it says he studied the list and knew the conclusion was inevitable. He must sell TCI. And part of this is understanding like what do you actually like to do? A great life is just a string of great days. And if you go to work every day hating what you do, don't be surprised that you get to the end of your life like, oh, I fucked this up. I am filled with regret because my days were filled with things I didn't want to do. And so that's when he's like, I'm a deal maker. I'm not a manager. And he realizes this because IBM tries to get him to come be CEO. So it says IBM approached Malone about the job. He responded that he had his fill of running big corporations. Malone had known something about himself all along, that he was a deal maker, a strategist, a fund manager, anything but an operator. He loathed simply running a company. He could not handle the duress of running a regulated monopoly for years to come. And so that's why I said this part when he's 52, he's on the plane and that's where the story is taking place. And he's like, I'm going to write down like, what the hell do I want out of life? And then make a list of the things that he wants. And it was like, let me compare how I'm spending my time. None of this shit is matching up. So therefore I have to make a change. So why did I say at the very beginning Steve Jobs quote? Because in his commencement address at Stanford, Steve gave a great framework in dealing with this. And he says, if you live each day as if it was your last, someday you'll most certainly be right. That quote made an impression on me. And since then, for the past 33 years, I have looked in the mirror every morning and asked myself, if today were the last day of my life, would I want to do what I'm about to go do today? And whenever the answer has been no for too many days in a row, I know I need to change something. That is exactly what is happening in John Malone's life at this point in the story. And so he goes

13. 53:33 – 57:05

    Failed Sale, Bob's Death and the Inheritance

    1. DSDavid Senra53:33

       and sells TCI and the deal falls through. And this is his response. John Malone fell into a deep depression in the months after the collapse of the biggest deal of his career. Malone couldn't shake an oppressive cloud of disappointment. He did something he hadn't done in 20 years of running TCI. He took his eye off the ball. He let his number two, Brendan Clauston, run things day to day and came to view TCI as an anchor around his neck. In his mind, he had already sold TCI. And when the deal unraveled, he seemed to avoid the responsibility of control. Malone dropped out of sight and stopped coming into the office. So in between the first failed attempt at selling the company, there's several years and then they eventually are successful selling it to AT&T. There is this, he's having this interview with Tom Brokaw and it goes back to this idea from the very beginning of the book. The story of the father is embedded in the son. I am driven by my desire to please my dad. In a one-on-one interview, anchor Tom Brokaw asked Malone, Brokaw, did you always think that you privately had an edge on those you competed against and were you always driven to win? Malone, you know, I think I'm primarily driven by insecurities. You? Insecurities? Yes, me. Any psychologist would tell you that I suffer from the inability to please my now dead father. So his real dad is dead. He comes to view Bob as like another father and another mentor and Bob is dying too. And so I think there's two lessons on this page. Let me read this first. "John Malone struggled to quell the queasy feeling of going it alone without Bob to bounce things off and tell him that everything would be okay." And so lesson number one there is like Malone isn't some weak guy. He, he isn't soft. It is incredibly normal to have extreme negative and depressive feelings about work and people that you've put a lot of energy into. So this idea where he's like, "I don't know if I can make it without Bob," from the outside, that may seem crazy, but it's very real. He's experiencing the death of somebody that he loves. And then the second part is the last day of Bob's life. He had a stroke, and then he's sent to the hospital. "Everything that constituted Bob had left the man's body, the sharp wit, the sense of humor, the sheer appetite for life. In his last hours, he greeted visitors in the hospital silently with eyes which now conveyed his profound sense of loss. The 72-year-old surely felt that he was taken too soon." And the note I left myself when I got to this part is, "No one gets out of this alive. Enjoy it before it's too late." And so once he dies, we see the contents of his will. Remember what I said about his grandfather. So his dad, which is obviously the grandfather of the kids that are about to inherit a ton of money, right? That $2,500 loan turns into hundreds of millions of dollars for his grandson. And I wrote, "Holy shit, that is one rich cowboy." Bob had left the lion's share of his estate to his two sons, who got about $225 million each. And so Bob dies. John's gonna run TCI for a few more years before he sells it to AT&T, and he takes this 14-hour flight with the CEO of Comcast,

14. 57:05 – 1:01:14

    Owners vs. Managers and Malone's Legacy After AT&T

    1. DSDavid Senra57:05

       his major competitor, who I think, if I remember correctly, is the son of the original founder of Comcast, and so a couple years younger than Malone is. And so they take this 14-hour flight to Asia together, and this is what I meant that Bob just knew. He just thought about his industry much more than anybody else. And so it says, uh, "From the time they took off, neither man took a nap, watched a movie, or had a drink of anything other than coffee. Malone gave Roberts an earful, sometimes in excruciating detail. The tax logic of Liberty, where cable stocks were headed, and a strategic analysis of the DBS industry. It was the kind of high-level briefing that would have driven Bob crazy. Why let our rivals know all this sophisticated stuff? He discovered in Malone a shrewd mentor." This is what he said. "He's giving you a lot of theories, and a lot of them are conflicting, and you get the idea that he's working them out with you while he's talking to you, and that's part of the engaging style that he has. It is also the knowledge that there's a lot going on inside his brain that you're not totally on the same plane with. People say John has a three-dimensional chess type of mind, and it's true. And a lotta time, you feel like you're still playing in one dimension." And so after he sells TCI to AT&T, he realizes the difference between the way A- AT&T is gonna run the company than he would. And really what Malone's talking about here is the difference between owners and managers and control and economics. I thought this part was fantastic. "Malone believed that the much of the core problem with the company was that the managers of AT&T were not owners. 'A guy who rises to the top...'" This is now a direct quote from Malone. "'A guy who rises to the top of a big corporation and owns none of it is much more interested in control than he is in economics. It is just the nature of humanity. A guy who owns his business is already used to control. He never has to fight for control. What he has to fight for is economics. But a bunch of entrepreneurs find it much easier to collaborate and create economic value. They have something beyond control. They have economics.'" So I already mentioned this earlier, how he star- started disliking the industry more and more, the cable operating industry more and more because the cable cowboys were out, out of there. I'm gonna read two sentences, and this made me think of advice that I read in Marc Andreessen's blog one time. So it says, "The cable industry was an industry where few original cable, uh, cable entrepreneurs were still around. Corporate-- They were now owned by corporations with no ties to the first generation of cable cowboys." So all the way back on Founders number 50. I read Marc Andreessen's 200-page blog archive, which you can get it for free online. It's actually, the, the link's in, uh, the show notes for episode 50. But he thought, I thought it was interesting. He said the rule of thumb for young people when picking an industry to work in, you should look for an industry where the founders of the important companies of that industry are still actively involved. At this point in the story, that is no longer the case in the cable industry. And so after he sells TCI to AT&T, there's speculation, is he gonna retire? People that knew Malone well were like, "That's a ridiculous assertion." "True to form, Malone wanted nothing more than to build Liberty. Sailing past retirement age, he was still hell-bent on finding the right combination of partners, currencies, and desperation to put together another showstopper transaction. John Malone was nowhere near done yet. The work of Malone's mind, the never-ending days, the negotiation, the clashes, the fat profits, and the losses had been fueled by nothing less than absolute passion. Twenty-five years in the public spotlight had been enough. John Malone was finally ready to be alone." And that is where I'll leave it. For the full story, buy the book. I think this book should be in every entrepreneur's library. If you buy the book using the link that's in the show notes and also available at founderspodcast.com, you'll be supporting the podcast at the same time. If you wanna remember more of what you read and you wanna use the app that I use to save all my highlights and all my notes, go to readwise.io/founders, and you can get 60 days free. That is 268 books down, 1,000 to go, and I'll talk to you again soon.

Episode duration: 1:01:15