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 going to talk to you about today which is cable Cowboy John Malone in the rise of the modern Cable business and it was written by Mark
robishaw so before I go to the actual book I want to 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 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 this 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 SN 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 dealmaker Malone averaged one merger and acquisition deal
every 2 weeks for over 15 years that's insane these guys were slinging billion doll deals like bowls of breakfast cereal oh and TCI shares Rose 55,000 per. and then the sixth idea is exactly what I read at the very beginning which was redstone description
of Malone and it 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 want to 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 so I want to 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 cowboy boys who had 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 grass and they often stumbled in running to reach it now this same spiders 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 aenna Network morphs into the way Americans get high-speed internet for the first time that process that he's describing took over 50 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 he's going to be compared and contrasted which 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 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 hinku who's actually sponsoring this episode and he told me a few weeks ago he's like you got to read cable Cowboys Malone was a monster and to me that was an
unintended double on tandre because Malone's competitors definitely saw him as a monster but he was also a monster in 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 makavelian bully who lived up to his many nicknames including Darth Vader genas Khan and The Godfather he had skated very close to security law violations and like industrial Powers
Andrew Carnegie or JP Morgan before him he had extracted a price for the progress that he offered as his power grew he decided which cable network survived and he crushed competitors and all of this he did openly and brazenly so on the next page is's an overview of
what he did Malone did not found TCI he is actually hired and recruited by the founder named Bob Magnus 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 Magnus 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 morphs into into cable he sought help from Malone and by 1990 Malone had expanded tci's reach and
assets more than tfold 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 perspectus 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 just under two hours long but strategic Finance I feel was uh Malone superpower
so back to the book it says the structures of the deals were exotic and his financial Alchemy often befed Wall Street uh and Wall Street and investors the flurry of complex mergers Acquisitions stock dividends and spin-offs 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 ago I can't remember if it was uh I did two Rockefeller podcasts recently one 250 248 on Titan and the another one on 254
on this like very obscure 40-year-old biography of Rockefeller but what was interesting as I talked about probably in both those podcasts is the fact that to understand Rockefeller you had to understand that he literally believed literally believe 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 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 from loan 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 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 one of my favorite birs of the book we got to go
to the fact that Malone in some ways it was irrational for him to this is so important for me and you understand maybe the greatest opportunity that's ever going to 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
20s I think he's like 29 at this point in the story right and he turns it down like this p to let me just read this and it's crazy says was 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 29-year-old Malone a limo and $150,000 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 a a lot of money Ross had promised the 29-year-old Malone a limo
and $150,000 salary even pledging to relocate the new cable headquarters to Connecticut where Malone lived so it would shorten his commute so I want to pause there before I go into him turning down this offer and going into the details of an offer what is that less
than half of the salary he's going to accept from Bob but 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 who's already a formidable individual in his own right it's like hey I need to get this guy guy this young kid on my team and I'm willing to go to Great Lengths
to do so as it says instead Malone had chosen a hardship this is what I mean about it's almost like an the 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 doll 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 20 years and this is a little bit why Malone made this decision Malone had
picked TCI because Bob Magnus 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 going to make $60,000 okay so he turns down a limo relocating the the headquarters so I can it's a short drive from my house and
$150,000 salary and all Bob can give him is $60,000 of salary and a bunch of stock options so they agreed it says they agreed upon a salary of $60,000 and then Malone had seen fit to buy 7500 shares of TCI stock which he helped pay
for with a $660,000 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 says Malone taking 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 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 to why up until till the point where he he puts 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 market 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 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 it had its debt load was an obscene 100 32 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 genin 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 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 the 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 T in this Tiny Town that he's in and this is why they call 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 wind up selling it Bob then sold his cattle mortgaged the house this this guy they call him a gambler now you'll see why he literally bet the ranch on
cable right and what's crazy is how early 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 uh they decided to bet the ranch L on cable Bob sold his
cattle mortgaged the house and borrowed $2500 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
this story if you think about the decisions you make today and how they verbate past your lifetime to your kids and grandkids this is a perfect example of that you you the reason I bring that up is because I think you'll make decisions differently if you if you
think like that a really long-term perspective but that $2500 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 that that his son is going
to take that $2500 $100 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 and 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 $2500 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 going to expand to expand to over 200 different markets I just want to 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 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 collector c s took his toll Bob's just under an intense amount of stress and pain as he's building his company this is when he finally snaps and goes and gets him alone Bob drank almost daily
alcohol however poisonous to his body do the anxiety that nod at him the weight of te this is so crazy because he doesn't know this guy's going to 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 it's like oneth maybe 12th of the wealth that Malone's going to help build for him so it says that he drank almost daily uh alcohol was however poisonous his body D the anxiety that noded at him the reason I bring that up
is because 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 going to 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 doled the anxiety that noded 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 blurt it out I'm going to hire the smartest son of a [ __ ] 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 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 reported $2.1 million TC hot and this is also important to understand Malone's strategy in growing TCI into one into the largest I think it was the largest cap 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
his 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 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 lesie 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 deserves 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 and the couple excuse me had to go 9 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 feed lot 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 [ __ ] 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 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
of the legendary director Francis Ford Copa 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 doing 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 be 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 want to watch it on YouTube and he said 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 have to yank out the management that's in there because 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 in a fast forward past college I want to go to when he's about 29 years
old and he's working as a consultant for Mackenzie and Company and I found it very fascinating how he accidentally stumbles into the which going to 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 Gerald 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 we talked about this recently where I think it was last week in the Edison uh number 267 in the Edison biography and number two 58 which was about J gold and it was the fact that J gold 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 another industry developing
parallel to the industry that you know about Malone's career is another example of that because he goes from Mackenzie right he's working at Mackenzie for a cable equipment operator then the guy's like hey come run the cable equipment operator but not only did they make
cable equipment but they also were the third largest cable operator at the time then through his 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 Gerald Malone saw for the first time the potential of cable TV Gerald was a 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 can think of Malone very to me is very similar to like another Rockefeller and just like Rockefeller was intent on getting as big as possible as fast as possible so 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 Gerald the company was paying 8 cents for each of these tiny
connectors they needed in this equipment right Malone as they start to grow started buying them for oneth of 1 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 8 cents now we're big we pay oneth of one cent I'm going to read something I said 47 minutes into the episode 254 this is if you haven't listen to episode 254 you got to go back and listen to it because it's Gonna Give You Advantage
how many people have read a 40-year-old obscure biography on Rockefeller right and so I got to somewhere in the book and I really 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 going to read from
47 minutes into episode 254 okay and so this is uh what I said trying to summarize what Rockefeller is 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
finers 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 hypercompetence 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 this I think is like natural intelligence but then there's several times I left this note to myself because there 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 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 that I knew was there in in Buffett shodo letters 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 CU 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 this
subsidiary is called NTA and so it says NTA was bleeding money it lost a million dollars in 1973 and then 4 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 this this is sloppy [ __ ] Jeff basos his vain 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 it's 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' be like a vein in
his forehead that would just absolutely pop out and like come say hello it was actually pretty funny so that's what I meant about this is sloppy [ __ ] and that Jeff basis' vein would be uh popping so it says Malone called Bob Bob you're gonna have to find two new top
Executives he said through clench teeth cuz I'm going to throw the NTA president out of the [ __ ] 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 n's part I thought of what Buffett said in his shareholder letters 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 poll opposite ways of running a business and that's exactly how to think
about what's taking place in this this book right now Malone is clearly who Buffett would want to invest with while Buffett is describing the silliness of people like the guy running NTA so I just want to reiterate the point at this
point in tci's history the first few years the Malone is there it's looking like he made a giant mistake they're having a start they're in terrible economic um situations like this is during stagflation everything but it's also like there there's just no way that
they're going to be able to keep ahead of how how much money they have in debt remember I think when he takes over they had 19 million in Revenue you know 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 seiz the planes then FedEx would be out of business and so the bank had a young Bank officer that were 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 which is where FedEx was was headquartered we would radio the Falcons which was the kind of plans kind of planes they owned not to land that's how tenuous the situation was Malone would spend his
first 5 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 I'm the head of a little Pips company in debt up to its ass a couple million dollars in revenue and not creditworthy to borrow from a bank we're barely making it but Malone's not the type to give up he says why he could still 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 cutback 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 going to use to make TCI the biggest C cable operator think about it he'd say because TCI had high interest payments and big writeoffs 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 like 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 Mal like 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 in that Twitter thread if you're going to 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 because then he doesn't have to borrow from Banks anymore a few a year
later institutional investors discovered the company's 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 it's 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 now I want to move ahead head to one of his main ideas
this actually becomes really controversial and a lot of this is where he becomes accused of rightly most likely uh to be a monopolist so this is where he decides like we're not just going to make money on the piping and owning the wires we're going to 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 uh antitrust trouble and he actually does something
smart he he preempts that by breaking himself up so it says milone thought the 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 you do like
500 Acquisitions like one deal every two weeks for more than 15 years something like that if you're going to do that you have to act really really fast this is example of that so Johnson wants some money to start this uh to start the to start bet so 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 since
he owns Equity he can participate in the upside of all these Investments but he also can guarantee he just comes with immediate distribution like hey do you want to be in2 million in two million homes I can do that right now uh the channel 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 want to I would not have wanted to compete with this guy uh his TCI system reached 2 million viewers
by 1981 so when John Malone Came Calling did the did these channels really have any 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 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 going to 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 relish the role of Bargain Hunter amid The Spoils of bad deals made 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 what he would notice is he was one of the first uh track coaches to actually
emphasize the importance of rest and recovery on his athletes and so his athletes would actually perform better by not beating up their bodies and his competitors Bowman's other fellow track coaches were really late to that same realization and so this was Bowman's
response about other coach 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 they're they're 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 to apartment 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 R who ran TCI cultivated a wild west image in the eyes of John
Malone they were nothing like the the aat East Coasters who ran bigger cable companies the TCI men were cable Cowboys that's where the book the book gets title obviously though the term was repeated in derision by the bankers and
politicians who coined it so they meant it as an insult Jon 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 appears over and over 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 kind of guy that you want to run through walls for uh this is an emphasis of Malone's Malone
put on uh decent centralization TCI was beginning to run the way Malone had wanted it to run highly decentralized he had cut the company to 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 could be able to jump start your channel and put you in front of 2 million people
in return you're going to give them equity in the upside right but now he's got 8 million subscribers Malone controlled lines into 8 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 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 and cable this is an example of that TCI was the largest cable operator it paid 90 cents a subscriber for HBO a small cable operation paid $5 per subscriber and that's on a monthly basis
John is paying 90 you're paying $5 and you're doing that every month for every one of your subscribers CNN cost 2 cents a subscriber to for John it cost 29 cents per subscriber for cable operators that had fewer than 500,000 subscribers so at this point Bob is still alive he's
going to pass away a few years before uh before John Sells the company uh to AT&T but this is what I was mentioning earlier that that no wonder I can't find a biography on him because 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 shared a tactic with a fellow Cable 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 goes back to why I said that earlier I spent so much time talking about hey you really got to think about why he believes the way what he believes he thinks like the building of wealth is a moral achievement 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 the author's description of his philosophy but that's terrible the reason I think Henry Ford had it write
because what I mentioned on the the a couple episodes ago when I reread his autobiography is because you want the 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 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 him providing it that's how you know that he owned a monopoly and this idea was actually picked up because I I had stopped paying for cable what over 10 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 essentially a government regulated
Monopoly you're not going to have two different companies run wires underneath the ground into your house right so at this point TCI is so large that he has the idea is like okay well I should break myself up because I know this is coming this is also going to be
extremely good financially for him because he's going to get a higher Equity upside in this spin-off called Liberty than he had of 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 Malone decided to do it for them in 1991 he formed a new company Liberty Media and planned to stock it with more than 600 million worth of assets from
TCI and so not only is he trying to dodge being broken up but this is also 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 is like a huge character in this book i' I've skipped over most of those parts I will eventually read his autobiography because he's kind of this crazy character but I do want to fill you in
on this conversation that they're having uh his Equity investment in the company he built into the biggest Cape operator was puny it was a tiny fraction of 1% in 1991 oddly it was Ted Turner who forced Malone to sit up and take notice that he
was lagging behind his peers and 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 going to 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 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 got to get the hell out of here and this is a little
preview of why he's going to 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 [ __ ] 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 the not 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 in the the Dual meaning of the word he wants the freedom to choose to 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 put 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 uh 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 the like the cable Cowboy uh the original cable entrepreneurs and so all of these dudes that survived got stupid wealthy and they start getting B bought out by these giant conglomerates and so
then he starts having meetings and going even to his own office and 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 [ __ ] 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 dealmaker I'm not a manager and he realizes this because IBM tries to to get him to come be coo so it says IBO 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 dealmaker 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 in this 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 like let me compare how I'm spending
my time none of this [ __ ] 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 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 Brandon Clauson 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 broa 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 101 interview anchor Tom brool asked Malone brool 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 uh 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 and 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 in 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 sent to the hospital everything that constituted Bob had left the man man of 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 to soon and the know 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 are about to inherit a ton of money right that $2500 loan turns into hundreds of millions of dollars for his grandson and
I wrote holy [ __ ] that is one rich Cowboy Bob had left the Lion Share of his estate to his two sons who got about $225 million each so Bob dies John's going to run TCI for a few more years before sells it to AT&T and he takes his 14-hour flight
with the CEO of Comcast 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
an 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 highlevel briefing that would have driven Bob crazy why let our Rivals know all this sophisticated stuff he discovered him
alone 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 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 JN has a three-dimensional chess type of mind and it's true and a lot of 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 AT&T is going to 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 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 start 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 going to read two sentences and this made me think of advice that I read in Mark Andre's blog one time so it says the cable industry was an industry where few original cable entrepreneurs were
still around corporate they were now owned by corporations with no ties to the first generation of cable Cowboy so all the way back on Founders number 50 I read Mark Andre's 200 Page blog archive which you can get it for free online it's actually the links in 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 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 AT&T there speculation is he going to 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 hellbent 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 NeverEnding days the negotiation the clashes the fat profits and the losses had been fueled by nothing less than absolute passion 25 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 in the show notes and also available at Founders podcast.com you'll be supporting the
podcast at the same time if you want to remember more of what you read and you want to use the app that I use to save all my highlights and all my notes go to readwise doio Founders and you can get 60 days free that is 268 books down 1,000 AO and I'll talk to you again soon