Current Project: Reading books about entrepreneurs and sharing what I learned from them

Mission: Create a library of wisdom from notable entrepreneurs that current entrepreneurs can leverage to increase their chances of success

What I struggled with:

• Figuring out what my technical team needs to look like has been a challenge. Evaluating technical talent as a nontechnical person in a landscape that’s rapidly changing because of AI hasn’t been easy. I’ve leaned into a balance of leveraging technical people in my network to evaluate technical skill sets and trusting my gut based on past team-building experiences. Making progress, but slower than I want.

What I learned:

• Finding the right engineer has been a process, but I’ve learned there are a couple of paths I could take: a two-engineer team with a full-stack engineer leading an ML/AI engineer, or a single engineer who’s a full-stack engineer experienced in AI retrieval.
• I’m learning a ton about building a community of people around a particular topic. These tend to be niche, and the members need to add value so churn is minimized. Filtering people on the front end is a mechanism that paid communities use with strict criteria.
• Podcasts and sharing results from member surveys are great marketing strategies to generate leads for communities.

That’s what I learned and struggled with last week.

This week I chatted with a founder about his fundraise and his longer-term goal. He told me his goal is to build and sell his company. I thought, his company will be built to sell. I asked him a few clarifying questions and learned that his true goal is to have a large enough cash position that he can pursue his other passions and ideas.

Selling a company isn’t a guarantee. A lot of external factors determine if (1) a transaction is possible and (2) if it’s financially feasible to sell the company.

Since 1981, we’ve been in an environment heavy in acquisitions, and it’s all some founders know. However, I’d argue that this is largely a function of interest rates on 10-year U.S. Treasuries, which dropped from almost 16% to 0.5% in 2020 and have since risen to about 4.25% today. Said differently, interest rates were falling, or historically low, for roughly 40 years, which contributed to more borrowing, which led to more acquisitions. People borrowed money, and some of them bought companies with it.

I can’t predict what rates will do going forward, but 40 more years of declining rates seems highly unlikely.

That having been said, I believe that building a company that’s self-sustaining and that generates positive cash flow is a more effective strategy. If customers love the product and it’s generating cash flow, the owner has several options. He can keep the company and reinvest the profits inside or outside the company. If the environment is right for acquisitions, the company likely is more attractive and can command a premium from a buyer because the owner doesn’t “need” to sell.

When you build a company focused on creating sustainable value for customers and cash flow for the long term, your decision process is a lot different. You’re more likely to build something that can withstand whatever external factors the world throws at it. If you build something to sell, you can do everything “right” but still fail to sell simply because outside factors, such as interest rates, create poor market conditions and timing.

This week, I listened to an entrepreneur share how he took out a loan to buy out his cofounder about a year ago. The good news is that the founder now owns 100% of the company and all its upside. The bad news is that revenue has declined slightly, the company is breakeven (no profit), and the monthly debt payments are affecting the founder’s decision-making. He’s now worried about what will happen if the business can no longer generate enough cash to service the debt payments.

I don’t have enough context to say whether debt was right for that founder, but I think about taking on debt in a business using a simple framework. Here are the steps:

• Do I have a clear plan to invest the proceeds, and can that investment generate a return? If not, I won’t take on the debt. For example, I’m not comfortable taking on debt for consumption, but I’ll take on debt to invest in a project that will allow the business to generate more revenue and cash flow.
• If I use the proceeds to invest in something that generates a return, will the percentage return be higher than the interest rate on the debt? If not, I won’t take on the debt. For example, the loan has a 10% interest rate, but the project I’m planning will likely generate a 5% return. That’s not something I’d take on debt for because the return isn’t sufficient to service the debt payments.  
• Can the current business cash flows support the debt payments? If not, I’d think harder about taking on debt and be less inclined to do so if my conviction about my plan to invest the proceeds isn’t strong.

Debt is a form of leverage and a tool. It provides you with more financial resources than you typically would have from customer revenue alone. Like any tool, it’s not good or bad. How you apply the tool makes all the difference.

This week, I caught up with a friend who’s an investor at a VC fund. We talked about what’s new and what we think about the state of entrepreneurship. But then the conversation turned to what we’ve learned lately. We shared not only what books we’ve read but also why they added value and what we learned.

The conversation struck a chord with me because sharing what we’ve learned through reading added depth to it. I felt like I walked away smarter and excited to read some of the books he mentioned. Hopefully, he felt the same.

I haven’t had many conversations like this, and I want to have more of them. Talking is different when two people who are avid about learning from reading share with each other. It’s hard to explain, but it’s different. I want to explore this to see if I can have more of these conversations and to gauge whether others are interested in having more of them. Maybe this could be the basis for a niche community?

In 2024, I challenged myself to accelerate my learning by reading a book (usually a biography) a week. To date, I’ve done it for 68 consecutive weeks. I wanted to share what I was reading and also keep track for myself, which was difficult (see here), so I created a Library section on this site. I added to it all the books I’ve read since my book-a-week habit began in March 2024, and I’ve committed to adding my latest read to the Library every Sunday (see the latest here).

That left the books I’d read before 2024 unshared and untracked. I set a goal to add my old reading to the Library over time. It began with a Memorial Day Challenge to add five books (see here) and continued with my challenging myself to add two books every weekend until my backlog is gone. This past weekend was my fourth weekend, and I added two more books:

• Where the Money Is: Value Investing in the Digital Age by Adam Seessel
• Investing for Growth: How to Make Money by Only Buying the Best Companies in the World by Terry Smith

That’s the latest update on my weekend goal. I hope that sharing these books will add value to others.

I’m a first-generation entrepreneur committed to learning as much about entrepreneurship as I can. The best way I’ve found to do that is to study entrepreneurs. So, every week, I share a book that I’ve read about an entrepreneur; most are biographies. I post my latest read every Sunday in the Library on this site.

Last month, I read A Short History of Financial Euphoria by John Kenneth Galbraith. It mentioned Ivar Kreuger and the scandal surrounding the loans he made to governments in exchange for national match monopolies. I was curious, so I read a biography about Kreuger, The Match King.

The biography is well-researched with a thorough bibliography and notes section. It’s somewhat dense because of the complexity of Kreuger’s empire, but the complexity is fascinating because it gave me context. It does a great job of detailing Krueger’s rise from working construction jobs to being one of the wealthiest men in the world to being one of the biggest manufacturers of matches (this was before most homes were wired for electricity), and also mastering finance and loaning money to foreign nations (with string attached).

I enjoyed learning more about how governments financed their deficits before central banks by borrowing from financiers like Kreuger, J. P. Morgan Jr. (Jack), and the Rothschild family. Learning about the massive debt of Germany and other nations after WWI, the boom of the stock market in the roaring 1920s, its bust in the 1930s, and the impact of all this was eye opening.

Kreuger’s story was pretty wild and full of cautionary tales. Anyone interested in Kreuger or the 1920s and 1930s might enjoy The Match King.

Current Project: Reading books about entrepreneurs and sharing what I learned from them

Mission: Create a library of wisdom from notable entrepreneurs that current entrepreneurs can leverage to increase their chances of success

Cumulative metrics (since 4/1/24):

• Total books read: 68
• Total blog posts published: 441

This week’s metrics:

• Books read: 1
• Blog posts published: 7

What I completed this week (link to last week’s commitments):

• Read The Match King, a biography of entrepreneur and banker to governments Ivar Kreuger, whose international empire crumbled and was considered by many a fraud  
• Added two more books that I read in 2023, these from Phil Fisher and Edward Chancellor, to the library on this site—see more here

What I’ll do next week:

• Read a biography, autobiography, or framework book
• Add two more books that I read in 2023 to the library on this site—see more here

Asks:

• If you know any senior full-stack developers interested in working on the software for my current project, please introduce us!

Week two hundred seventy-three was another week of learning. Looking forward to next week!

Current Project: Reading books about entrepreneurs and sharing what I learned from them

Mission: Create a library of wisdom from notable entrepreneurs that current entrepreneurs can leverage to increase their chances of success

What I struggled with:

• No material struggles last week

What I learned:

• No material learnings this week

That’s what I learned and struggled with last week.

A few days ago, I posted about the Los Angeles Lakers being sold for $10 billion (see here). The team was bought in 1965 for $5.175 million by Jack Kent Cooke (see here). What a crazy increase in value: $5.175 million to $10 billion over 60 years. Looking at the average rate of growth in team value per year, or compound annual growth rate (CAGR), it’s roughly 13.5%—over 60 years.

I wanted to see how this compares to the returns of great investors. The easiest comparative is Warren Buffett, since he began investing professionally in the 1950s and just retired. According to CNBC, Buffett took over Berkshire in 1965, and from then through the end of 2024, Berkshire shares rose 5,502,284%. CNBC says that equates that to a CAGR of 19.9%. See the details here.

So, owning the Lakers turned $5.175 million into $10 billion, and that was amazing, but investing with Buffett in Berkshire would have far outpaced that, assuming you invested $5.175 million and held the entire time.

Using a reverse CAGR calculator (see here), if you invested $5.175 million in 1965 and got Buffett’s 19.9% CAGR, you’d have $277.3 billion by the end of 2024.

Ten billion dollars and $277.3 billion. That’s the difference between compounding at 13.5% and compounding at 19.9% over 60 years. That 6.4 percentage-point difference is a $267.3 billion difference!

I recently listened to an interview clip with Sam Altman, co-founder of OpenAI and ChatGPT, in which he talks about his ideas on thinking more clearly. Given the success he’s had as a start-up founder, president and partner at Y Combinator, VC investor, and CEO of OpenAI, I was curious to hear his opinions. Here are a few takeaways:

• Altman, a big fan of spiral notebooks, takes tons of notes. He’s particular about the type of notebook he uses. The notebook is a way for him to capture things, and ripping pages out allows him to easily compare and think about what he’s captured. He creates piles of crumpled notebook pages as part of his process and goes through a notebook every two to three weeks.
• Writing is important to Altman because it’s a tool that helps him think more clearly. It’s important for people to learn to write so they can learn to think more clearly.
• Altman is better at generating ideas when he’s sitting alone and writing than when he’s conversing with others.
• Anytime he gets 11 minutes or more free, often in the back of a car, he writes and thinks.
• Figuring out the balance between being with people, getting ideas, and having time alone to think and write is important. His thoughts on this reminded me of the framework I read about in A Technique for Producing Ideas.
• His weekends, with long, quiet blocks of time to think and write, are important to him.

Altman’s process is surprisingly simple and low tech: a good pen (he recommends his favorites), a spiral notebook, and time to think and write.

Given OpenAI’s dominance in the AI market, it stood out to me that he believes writing is still critical as a thinking tool and he writes regularly using pen and paper, not ChatGPT.

The interview clip with Altman is short. If you’re interested in listening to or watching it, go here.