Rational Polishing

In the view of many managers, the most important thing that a corporate CEO needs to have is the ability to manage, while this book argues that the most important thing a CEO should have is the ability to allocate capital, as this ability can help the company to gain more profit. Do you recognize this argument? Why?

The Outsider in Business: The Eight Entrepreneurial Traits Warren Buffett Values: They are frugal, humble, and keep their distance from the media, sometimes acting like an "outsider".

A Concept

First, let's meet Henry Singleton. The name is probably unfamiliar to most people. Only a handful of investors and connoisseurs now realize what a remarkable figure Henry Singleton is. Especially for the position of CEO, Henry Singleton's background seems unusual.

He is a mathematician, and a world-class one at that. But before he became a mathematician, he pursued a doctorate in electrical engineering and also wrote the program for the first computer at MIT. During World War II, he developed a demagnetization technique that allowed Allied warships to evade radar, and in the 1950s he developed software for an inertial navigation system that is still used on most military and civilian aircraft. He also had a hobby of playing chess blindfolded.

And all of this happened before he became CEO, in the 1960s, when Singleton founded Trittan, an internationally recognized analytical instrumentation company headquartered in California. Long before Trittan became famous, Singleton was very active in buying back his own stock, eventually buying back more than 90% of Trittan's stock. In addition, he shunned dividends, placing a greater emphasis on cash flow than on reporting period surpluses; and he actively pursued the decentralization of the entire organization, never splitting the company's stock.

All of these initiatives made Trillium the highest-priced company on the New York Stock Exchange for most of the 1970s and 1980s. If you invested $1 in Singleton in 1963, that $1 would have appreciated to $180 by 1990 when he stepped down at the cusp of a severe bear market. From that alone, his performance is 3.7 times that of Welch's. It's also worth noting that during Singleton's 28-year tenure, the stock market went through several lengthy bear markets; by contrast, Welch's tenure nearly coincided with an epic bull market.

But Singleton is low-key, reluctant to talk to analysts or reporters, and has never been on the cover of Fortune magazine. So he's not in the same category as Welch at all. Compared to Singleton's low-key and steady, Welch appears to have a lively personality, aggressive and keen to deal with Wall Street and the business media, and during his tenure as CEO of General Electric, he was a regular on the cover of Fortune magazine. Even in retirement, he would occasionally make very controversial statements that would lead to front-page headlines.

Unlike Jack Welch, the eight CEOs chosen for this book are usually so frugal that their thriftiness is often the subject of ridicule. In addition, each of these eight CEOs has an average track record that is seven times greater than that of Jack Welch's, is good at analyzing, and is modest and low-key. In fact, their situation best represents the typical American corporate CEO.

In addition to Singleton, who is a world-class mathematician, the remaining seven CEOs in the book have a variety of backgrounds, including astronauts who once flew around the moon, widows who had no business skills, and wealthy second-generation entrepreneurs who took over businesses and had no experience in investing, and so on. It is fair to say that most of them had only very limited management experience before becoming CEOs, and almost all of them were new to their industries and companies.

So the term "business outsider" actually has two meanings:

1. They are new to the business and are not familiar enough with the industry and the company; 2. They are calm and low-profile, keep a distance from the media, and maintain an objective and sensible bystander's attitude, which sometimes makes them look like an "outsider". "outsider".

But it was their "outsider" status and "outsider" perspective that brought unexpected results for the company. The author argues that a business needs to be managed from a new "outsider" perspective, such as from an investment perspective, in order to create amazing results. It's not just in entrepreneurship that you need to be as original as Zuckerberg or Jobs; in mature business management, the CEOs who really excel are also "outsiders".

The reason these great CEOs aren't well known to the public is that the business media simply aren't interested in defining in precise terms who the real performers are. Instead, they typically focus only on the prestigious companies that provide the news buzz.

The four dimensions

Almost all business outsiders follow the same rules: streamline and decentralize.

On the inside cover of every Metro Broadcasting annual report is a quote that reads: "Decentralization is a cornerstone of our business philosophy. Our goal is to hire the best people we can and give them the responsibility and authority they need to do their jobs." The man who laid down that rule is Tom Murphy, CEO of Metro Broadcasting, and he's a classic "outsider".

Before he became CEO of Metro Broadcasting, Tom Murphy was working for a New York-based FMCG giant, leading a glamorous life with a bright future. But one day, he suddenly received a headhunter position, inviting him to do management in the broadcasting company, and before that, he had never been exposed to the media industry, in addition to listening to the radio and watching TV, and the radio and television industry contact is almost zero. But he hesitated and accepted the challenge.

Unexpectedly, Tom Murphy, who was 29 years old and parachuted into the broadcaster as an amateur, ended up generating 204 times the company's revenue! How did he do it? His answer is: 1. as the CEO, just keep an eye on the company's profitability; 2. as for the business, find a deputy who focuses on operational management, as well as a group of smart and energetic business managers, and fully decentralize their autonomy to do.

He swept away the rules and systems of the traditional media industry, first of all, in the business to train a group of smart and capable business managers, to give these managers full freedom and power, let them find things to do, and do not have to report every three days, as long as they can complete the target on the line.

The operations team of 60 people, at one point, he cut down to just eight. As for Tom Murphy himself, he only does one thing, that is, keep a close eye on the company's profitability, cost control if you can't make ends meet, and buy out your peers if you can make money. In short, his principle is to use the fewest number of people to do the most valuable things, and to improve efficiency at all costs. This is "streamlining" and "decentralization".

It is with these two simple but unique methods that Tom Murphy has created an unprecedented success in the field of modern business management. Warren Buffett regards Tom Murphy as his mentor in management and says, "Tom Murphy is the best business manager I've ever had."

And this decentralized, efficiency-seeking approach has been put to good use with Buffett. Buffett's Berkshire is the 5th largest company in the U.S., operating across a wide range of industries and employing more than 270,000 people around the world. But guess how many people it takes to manage 270,000 people at the headquarters of this company? The answer is, only 23! In other words, this crazy company has 23 people at its headquarters giving orders to 270,000 people all over the world! So it seems that Buffett's money is not only earned by investing, but also by saving a lot of money on the salaries of the managers. Buffett summed up this management principle as "hire well, manage less", and is convinced that this extreme form of decentralization can cut management costs, release the vitality of the enterprise, so as to improve the overall efficiency of the organization.

People who do business generally want to make their companies bigger and stronger. Therefore, it has also become the pursuit of many corporate CEOs to develop a few more markets and build a few more production lines a year. Indeed, it is easier for large companies to make a name for themselves, and the media report on them every now and then, which is also a kind of publicity for the company's brand. So the vast majority of companies are reluctant to take the initiative to cut their size.

But our business outsiders think differently. In this book, most of the outsiders have cut back on their initial operations. Bill Anders, CEO of General Dynamics, was a lunar module pilot on Apollo 8, and took the iconic photo of him looking at the Earth from the Moon, making him the only CEO in the world to have walked on the surface of the Moon.

But when Bill Anders joined General Dynamics as CEO, he had virtually no experience in business management. . In his first year on the job, he replaced 21 of the company's entire top 25 executives. Within two years, he had replaced 85% of the executives, laid off 60% of the workforce, and sold off half of the company's corporate and business units. It looked as if things were going badly. But by its third year, General Dynamics had not only paid off $600 million in debt, but also had $5 billion in cash!

On the face of it, cutting the business in half and laying off a big chunk of the workforce was very bad for the company. But in reality, business outsiders like Bill Anders are looking at the long-term value of the company, not whether it has grown in size or opened up two more markets.

Most of the eight CEOs listed in this book have cut back on their businesses. Inefficient factories, cut! Unpromising departments, sell! Instead of hiding them and letting them deplete the company's resources. This requires CEOs to think independently, make decisions when it's time, and focus on the value of the company itself, which is truly responsible to shareholders. Coincidentally, these "business outsiders" have abandoned the blind pursuit of short-term profitability. They are pragmatic by nature, agnostic, and focused on long-term rather than short-term value. They're ready to sell their main business and downsize if it's in the company's long-term interest and the price is right.

They stay true to the essence of their business, shielding it from many of their peers and the media. The "business outsiders" believe in absolute rationality and independent thinking, focusing on book value per share rather than growth, and optimizing free cash flow rather than market size and shareholding, and it is this unique business philosophy that has made them so incredibly successful in the business world.

Business outsiders argue that it takes time for a company's core business to mature, and that investing cash in existing core businesses may not always be a good option. In essence, these "business outsiders" are thinking more like investors than managers.

The authors call this "efficient use of leverage," which means buying stock in other companies as opposed to buying stock in your own. For example, John Malone, CEO of TCI Cable , has a business sense that's second to none, and is an acquisition freak. With a relatively regular cash flow from the television industry and tax benefits, John Malone's TCI Cable was quite wealthy, which supported his ambitions. Over a five-year period, he made 482 acquisition sprees, which, on average, amounted to almost two acquisitions a week! So it seems like John Malone didn't have time for anything else but acquisitions. Still: In a little over 20 years, TCI Cable's stock price has increased 900-fold.

The best "business outsiders" have this sense of investing, and they've all made major acquisitions. The logic is that when the market environment is bad, the share prices of many high-quality companies are undervalued by the market, such as the financial crisis that broke out in 2008, when many stocks fell horribly, and low-key "business outsiders" instantly become active, actively acquiring those undervalued companies, to add bricks and mortar to their own companies.

At the same time, when these CEOs realize that their companies' stocks have been in the doldrums for a long time, they also make bold moves to buy back their companies' shares. For example, the aforementioned Henry Singleton, who bought back 90 percent of his company's outstanding shares from the open market over a 12-year period; in addition, the Washington Post Co. shrank its total stock by 20 percent through buybacks in two years alone, from 2009 to 2011; and Cisco, Apple, IBM, and Oracle, which were the four companies that had once bought back a total of $90 billion in one year of stock.

The rationale for this is that they believe it hurts a company if its stock price is chronically lower than the company's real value, so they prefer to buy back the stock.

Another notable phenomenon is that the eight companies discussed in the book have either had their total number of shares greatly reduced or stayed the same over the decades, and they are reluctant to issue new shares until they have to. Dick Smith, the CEO of Mass Cinema, for one, said that issuing additional new stock was so painful to him that it felt like digging up his family's ancestral grave! As for why they are reluctant to issue new stock? Probably because they are afraid that the value of each share will drop if there are too many shares, which will hurt the company, and in the end, they may have to buy back the company's stock. In short, as "business outsiders," they look at the long-term value of each share.

Next, the fourth ****ness, we will not talk about the specific business tools, but to say a few words about these excellent CEOs, their ****common characteristics as human beings. As mentioned earlier, their backgrounds can be as varied as a PhD in math with a proficiency in science, an astronaut who once orbited the moon, a widow with no business skills, and a manager with no investment experience ...... Most of them have only very limited prior managerial experience, and almost all of them are industry and company newcomers to the industry and the company.

But in this case, they are not bound by inherent preconceptions about what it means to be a CEO. There are many myths in business. Whether they're stuck in a rut or going with the flow, once a manager gets stuck, it's hard to get back out. Managers who have the potential to reap huge rewards are those who keep themselves on the "outside" of the box. They will never follow the rules and regulations, and will always look at management from a new "outsider" point of view and from a long-term investment perspective.

In the book, the author borrowed the fox and the hedgehog fable to interpret the qualities of these CEOs: the fox knows a lot of things, while the hedgehog knows only one thing, but understands very thoroughly. And according to the author, the vast majority of CEOs are hedgehogs. They have grown up in a particular industry and by the time they reach the top position, they know the company and the industry very well. They are skilled, professional in their actions, and undoubtedly talented. But foxes also have many attractive characteristics, including the ability to create and innovate across different sectors. The "business outsiders" we talk about are foxes in every sense of the word. They use their breadth to develop new perspectives, switching skillfully and casually between investing and managing, and ultimately producing outstanding results.

" Conclusion

Despite different backgrounds, industries, and approaches, the 8 CEOs in Business Outsiders are not only managers of companies, but also investors, whose most important function is not just business management, but rather, cutting through the fog of day-to-day minutiae, focusing on the planning of the company's capital allocation, and looking at the management from the perspective of investment, focusing on the maximization of the company's returns. Recall the dimensions of the book we are unpacking today:

A concept: Why "outsiders"?

The four management **** nature:

1. in management as lean as possible

2. valuing long-term value

3. maintaining rational investment

4. maintaining the general nature of the fox

From this, we can find that these outstanding "business outsiders These outstanding "business outsiders" are always discovering new opportunities from an "outside" perspective, and are passionate about understanding business from a new perspective, and improving the effectiveness of business operations in a new way. These characteristics are essential for today's and tomorrow's innovative companies ■