Reading about John Malone’s and Shelia Johnson’s journeys gave me perspective on two great company builders and the rise of Black Entertainment Television (BET). Two things stood out about the company’s early days.

BET was founded in 1979, when the cable programming market was young. New satellite technology and outlawing pirated broadcast signals caused demand for programming to explode.

Per Johnson’s autobiography, Malone acquired a cable system in Memphis, Tennessee, which had a roughly 40% Black population at the time. He needed cheap programming that resonated with the city’s Black audience. Bob Johnson, BET’s cofounder, knew Malone. Bob got permission to repurpose a proposal for a cable channel targeting elderly people. He then changed “elderly” to “Black” and pitched Malone. Malone loved the idea. He invested $180,000 for 20% ownership and loaned an additional $320,000.

At launch in January 1980, BET broadcast movie reruns during a two-hour time slot every Friday. It was a start, but not enough. Programming hours had to expand for the company to survive, and reruns couldn’t be the only programming.  

Entertainment and Sports Programming Network (ESPN) launched in 1979 and had early success broadcasting college basketball games. BET noticed that ESPN didn’t broadcast the games of Black colleges. BET decided to fill this gap and began broadcasting Black colleges’ basketball and football games. Programming expanded to six hours per week, but that still wasn’t enough.

In 1981, MTV launched. Consumer demand for music videos skyrocketed. Every artist wanted their video on cable TV. But MTV executives wouldn’t play videos from most Black artists. BET saw this “big cultural gap” in music videos as an opportunity. Artists’ desire for exposure on cable TV made creating music video programming cheap. And strong consumer demand for videos translated into strong viewership. BET saw filling the music video gap as a win for BET, artists, and consumers. In 1981, BET launched Video Soul, which aired for fifteen years.

Music videos and college sports helped BET find product–market fit. Things were going so well that in 1982, BET sold 20% of the company to Taft Broadcasting Company for $1 million. By the fall of 1984, less than four years after launching, BET had 24-hour-a-day programming, 18 million subscribers, and more than 36 employees.

BET’s early success boiled down to two strategic things:

• Cloning – BET didn’t try to reinvent the wheel. Instead, it took ideas that others had proven were viable, cloned them, and applied them to market gaps.
• Market – BET was early in the cable programming market, which grew rapidly. A rising tide lifts all boats. In BET’s case, the market was moving so fast that it yanked BET along. BET made a lot of mistakes early on, but being early in a growing market meant those mistakes weren’t deadly.

BET was a massive financial success for John Malone and Sheila Johnson. It’s interesting to see how two simple strategies, taken seriously, were central to their early success.

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Today I finished reading Sheila Johnson’s autobiography, Walk Through Fire: A Memoir of Love, Loss, and Triumph. Johnson is the cofounder of Black Entertainment Television (BET).  She became the first Black, female billionaire in 2000 when the company was sold for $3.2 billion to Viacom.

Johnson was the lesser-known BET cofounder, but she’s a serial entrepreneur. She was an accomplished violinist, and before going full-time at BET, she built a music business. She taught music and founded a youth orchestra that performed globally, including for royalty. After BET, Johnson founded Salamander Hospitality, a five-star hospitality company with properties in Jamaica, Virginia, DC, South Carolina, Florida, and Colorado.

Johnson has had outsize success, but her book doesn’t focus on that. Johnson is candid about dealing with insecurities, feeling like an outsider, and experiencing infertility, betrayal, public humiliation, and self-doubt. She’s open about her internal and external struggles, their impact on her, and how she overcame them. Johnson is 75 and has struggled at every life stage since adolescence. She still struggles today, despite being successful beyond her wildest dreams.

Her openness about her struggles and her wisdom are valuable, especially to entrepreneurs. Here are my takeaways:

• Partner alignment – Johnson is guided by her values. Her BET cofounder, who was her husband, didn’t operate with ethics or values. His words, acts, and decisions created a difficult culture at BET and problems in their relationship. Alignment of values is critical. If you’re setting out to do the impossible with others and aren’t aligned on values, your journey will become orders of magnitude more challenging.
• Everything starts small – Each of Johnson’s businesses started off tiny. For example, only ten people attended BET’s launch party, and they ate potato chips because they were “pretty broke.” Starting small is part of the journey.
• Don’t give up – In each business, Johnson encountered massive setbacks. Some of them sent her into deep depression. When things looked bleak and there was no clear path to success, she didn’t give up. She kept moving forward, and continual progress prevented her from getting stuck in her troughs and ultimately led to outsize successes. Survival is often a big factor separating winners from losers—figure out how to keep moving forward so you can stay in the game long enough to win.
• Experience – Johnson had no media or hospitality experience, but she didn’t let that stop her. She created large companies in both industries by learning as she went along and finding people she could work with who filled her industry knowledge gaps. You don’t always need personal experience to win in a space.

Greatness doesn’t come easy.  Struggle is an inevitable part of the journey. In Johnson’s case, the struggles were sometimes deep and dark. But surviving struggle often leads to outsize success. You learn resiliency and that you’re capable of more than you thought.

I’m glad I found this book. Johnson is a great entrepreneur, and I’m glad she shared her struggles publicly.

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One of John Malone’s lucrative investments was a seed investment in Black Entertainment Television (BET). In 1979, he invested $180,000 for a 20% equity stake in BET. He loaned another $320,000, which could be drawn down over time. In 2000, Viacom purchased BET for $3.2 billion in stock. Malone received $850 million, an amazing return.

The founders of BET, Robert “Bob” Johnson and Sheila Johnson, received stock worth $1.4 billion. I was intrigued to learn more about their journeys as founders, especially since they were a husband–wife team with no prior media experience.

Sheila’s autobiography, Walk Through Fire: A Memoir of Love, Loss, and Triumph, came out last year, and I started reading it yesterday. She was an entrepreneur before starting BET with Bob, and she went on to start and buy into several businesses after BET. I’m not finished with the book yet, but I can already see that Shelia provides her unique perspective on what happened behind the scenes as she built a billion-dollar company with her husband.

Sheila talks extensively about how Bob, as CEO, didn’t have a vision for BET and lacked values. He focused on generating profits and revenue by any means necessary. While the company was successful financially, BET’s programming wasn’t something she was proud of. The company’s culture was also less than stellar. The misalignment between Sheila and Bob around culture and values is what led to the company being sold. In the end, the outcome was financially rewarding, but the journey to get there was rough on Shelia and her family and left lasting scars on them.

This autobiography is different from others I’ve read. Sheila is candid and raw about the extreme highs and lows she encountered before and after BET. I’m looking forward to finishing it this weekend.

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I caught up with a friend who’s seasoned in the restaurant industry. He’s helped build some of the most successful restaurants in Atlanta. He’s now taking his experience and opening a consultancy focused on helping restaurateurs run their restaurants efficiently and profitably.

During our chat, he told me he encounters a problem with some clients: they won’t share their costs with him. Their explanations vary, but the result is the same. Without seeing all the costs, he can’t tell whether the restaurant is profitable or how efficient it is. His ability to add value is severely hampered.

Many years ago, when I was an early-stage founder, I was lucky enough to land a meeting with someone who had a $300+ million-annual-revenue business. He was busy, and I wanted to make the most of the meeting. I prepared my financials and presented them to him as soon as we sat down. He looked at the numbers, peppered me with questions, and started sharing relevant experiences and making suggestions. Seeing the numbers helped him quickly understand the current state of my business and identify where he could add value. The meeting was transformative for my business. The seasoned entrepreneur thanked me for being transparent, trusting him, and coming prepared. We remained friends for years after that.

Entrepreneurs are sometimes reluctant to share their financial data. Often, that’s the right decision. You don’t want your numbers floating around. You also don’t want to take advice from people without relevant experience. But when you’re seeking input from credible people who want to help your business succeed, the risk/reward ratio changes. The upside to sharing your data dwarfs the downside. In those cases, it’s often worth being an open book (after your adviser has assured you that they won’t share your data). One idea or comment from a credible person can propel your business forward or help it avoid trouble you didn’t see coming.

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I’ve recently read books about two founders who founded massive publicly traded companies, but in different ways: Pierre Omidyar, founder of eBay, and Willis Johnson, founder of Copart. Both companies offer online auctions. As of this writing, eBay has a market capitalization of roughly $27 billion, while the Copart valuation is roughly $53 billion.

Omidyar worked in Silicon Valley and was financially comfortable after a previous employer was acquired. He thought the world was unnecessarily unfair economically. He envisioned an efficient market that empowered people financially so they could control their own lives. His mission was to create an online auction with a strong community. His vision- and mission-first approach led to his nailing product–market fit straight out of the gate. The company went from zero to $41.7 million in revenue and was publicly traded on the stock market in three short years.

Johnson didn’t want to work for anyone but needed to support his family. He knew the salvage industry and started a salvage yard because he knew he could make money. As more problems presented themselves and money-making opportunities arose, he took them on too. After twenty years of opportunistically solving various problems, the rapid success of his online auction market in 2003 caused him to question his “job.” He shifted his mission from solving various salvage problems for profit to “streamline and simplify the auction process.” Johnson’s twenty-year transition from mercenary to missionary led to unprecedented growth at Copart. It’s now a global online auction market.

I, too, began as a mercenary when I started my company. I wanted more control over my life and needed to replace the salary from the job I’d had. I went from problem to problem with a focus on profitability. Years later, after I had financial breathing room, I started to focus on the painful problems. I became something of a missionary. This led to $10 million in annual revenue, but that could have been $300 million if I’d gone full missionary. I should have been laser-focused on our customers’ most painful problem.  

As I thought about my founder friends and myself, I realized that Johnson’s journey is most common among my peers. Most of them picked a market and focused on making money to support themselves. They often attempted to solve various problems. But my friends who had outsize success didn’t stick with that approach. When their companies began to grow rapidly, it was because they were laser-focused on a single problem and mission. Their outsize success was the result of converting to being missionary founders, often after they had financial breathing room.

Entrepreneurs wanting financial independence and control of their lives can accomplish these goals as mercenaries, but if they aspire to have a bigger impact or build something significant, crystallizing a vision and mission is likely the key.

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Today, I finished reading Junk to Gold: From Salvage to the World’s Largest Online Auto Auction, an autobiography of Copart founder Willis Johnson. Johnson founded Copart in 1982. It started as a salvage yard. He purchased wrecked cars and sold the parts and scrap metal for a profit.

Johnson picked the salvage market because it was supported by two larger industries. Car manufacturers had to produce cars or they’d go out of business. Insurance companies had to write car insurance policies or they’d go out of business. “They’re always gonna make cars, and they’re always gonna insure them. We’re the guy in between.” The salvage business was important because it sat between the two and helped dispose of wrecked or inoperable cars, which are inevitable.

Johnson started with a salvage yard but was always scanning the landscape, paying attention to what was happening around him and searching for the next thing. He started a pick-your-own-parts yard and other businesses as opportunities cropped up. Over the years, he realized that providing a place to auction salvaged cars helped insurance companies recoup more money—and insurance companies were great repeat customers.

He continued to iterate on the auction model. In 2003, Copart rolled out an online auction platform. The platform was a tremendous success. Johnson realized he was on to something big and began to ask himself, What is our job? which I translate to What’s our mission? Up to this point, he’d been chasing anything that could make money. But now, the online platform’s success changed his thinking. He’d found product–market fit but wasn’t sure what to do with the in-person auctions and other businesses. Where should he spend his time? What was the biggest opportunity? He realized that his mission was to “streamline and simplify the auction process.” With a clear mission, his decisions were easy. He ended in-person auctions. All auctions would be online going forward.

Having a clear mission and product–market fit took Copart on an unprecedented run. The company is now a global online auction market and has a market capitalization (i.e., valuation) of over $52 billion as of this writing.

I enjoyed learning about Johnson’s journey. The distance he traveled was impressive. He doesn’t have a college degree and isn’t technical, but he nevertheless built a massive company centered on technology. Johnson’s business was founded in 1982 and started trading on the NASDAQ stock exchange in 1994. It took nine more years for him to crystallize his mission and focus on a single solution with massive potential in 2003.

Johnson hustled in the salvage industry for twenty years before he found product–market fit. When that happened, he switched from hustling to being laser focused.

Johnson’s journey is unconventional, even by entrepreneurial standards, but his success is outsize and undeniable. His story reminds us that there are many paths to success as an entrepreneur, including unsexy paths like the salvage industry. In the end, it boils down to finding a painful problem, solving that problem well, and providing the solution to a large pool of people or businesses.

Today, I began reading Junk to Gold: From Salvage to the World’s Largest Online Auto Auction. It’s by, and about, Willis Johnson, the founder of the online wholesale and salvage vehicle auction Copart. He tells readers about his life from childhood on and shares a series of stories from each point in his life and the lessons he learned.

Copart is a publicly traded company with a market capitalization (i.e., valuation) of roughly $52 billion as of this writing. The company’s core offering appears to be an online auction.

Given what the company is today, I expected Johnson to have had a big vision. I haven’t finished the book, but it’s clear that he didn’t. Instead, he built his company in what I’d consider a reactive manner.

He was constantly scanning his surroundings for opportunities and reading the newspaper (yes, the newspaper) to look for new ideas. When he saw an opportunity that seemed like a good deal, he pulled the trigger quickly. He was always shaking the trees, seeing what fell out, and snatching up the best option. Some of his biggest decisions were opportunistic plays that presented themselves. Often, he wasn’t even considering them the day before he committed.

When he saw a competitor doing something he liked, he promptly cloned it. For example, Johnson knew nothing about IPOs or the stock market. But when a competitor completed its IPO, Johnson decided to copy the move. Keep in mind that he didn’t even know what “IPO” stood for at the time. Roughly two years later, his company was publicly traded.

From what I can tell, junkyards (this is how Copart started) and auction businesses are highly unpredictable. You never know what’s going to roll through your doors. You have to react to whatever happens and try to turn a profit with whatever shows up. Johnson not only thrived in this environment but figured out how to build a massive business one reactive decision at a time.

I’m someone who likes to start with the end in mind and then figure out the best path to that goal. Johnson’s operating style isn’t something I’d be able to adopt, but I’m fascinated by how successful he was. I’m curious to finish the rest of Johnson’s unusual story.

Reviewing my notes on The Outsiders: Eight Unconventional CEOs and Their Radically Rational Blueprint for Success, I spotted a few patterns. Most of the CEOs displayed the following traits:

• Daily operations – These CEOs hired strong lieutenants who managed day-to-day operations. This time-management hack allowed them to focus on whatever the most pressing issue was at any given time and strategic things like capital allocation. Finding the right number two took years in some cases, but when it happened, it freed these CEOs from the weeds of the business and gave them more control of their time.  
• Frugal – There’s an old saying: “If you watch the pennies, the dollars will take care of themselves.” All these CEOs took this to heart and watched their costs. They were happy to spend, but only when the return was clear. They avoided unnecessary layers of people and the associated costs. Most avoided expensive class A offices, opting for modest, unassuming offices instead. Tom Murphy of Capital Cities Broadcasting used frugality as a defense to his company’s inconsistent ad revenue. He recognized that he couldn’t control revenue but he could control his costs.
• Independent thinking – These CEOs didn’t believe in mimicking others. They didn’t follow their peers or conventional thinking. Instead, they spent time doing their own thinking to arrive at rational and pragmatic decisions. These decisions were often the opposite of what peers were doing and led to returns that exceeded those of their peers.
• Free cash flow – Free cash flow is a recurring focus among these CEOs. They didn’t pay attention to reported profits (i.e., net income); rather, they wanted to know how much cash the business generated that they could allocate. The distinction between free cash flow and net income is an important one. Many entrepreneurs don’t understand that difference, and it shows in their decision-making.

These CEOs ran large public companies, but these are traits that founders of almost any stage company can embrace and benefit from.

Today I finished reading The Outsiders: Eight Unconventional CEOs and Their Radically Rational Blueprint for Success. William N. Thorndike, Jr. profiled these CEOs:

• Tom Murphy, Capital Cities Broadcasting
• Henry Singleton, Teledyne
• Bill Anders, General Dynamics
• John Malone, TCI
• Katharine Graham, The Washington Post
• Bill Stiritz, Ralston Purina
• Dick Smith, General Cinema
• Warren Buffett, Berkshire Hathaway

The book describes how CEOs generated capital and executed creative approaches to capital allocation, and it reports their returns over a long period. I was familiar with Buffett but less so with the others. I took many notes on Murphy, Singleton, Malone, and Graham.

It was interesting to learn about Singleton’s strategy. It was the same as Buffett’s playbook, and Singleton was older than Buffett and deployed his strategies before Buffett did. Buffett has praised Singleton as one of the best businessmen ever, and I’d imagine many strategies that make Berkshire Hathaway successful were borrowed from Singleton’s playbook.

John Malone is the CEO I’m most unfamiliar with and most excited to learn more about. Malone recognized the predictability and high growth rate of the cable industry early. He used various strategies to build one of the largest cable distribution companies. He also helped seed various cable programming entrepreneurs, such as Bob Johnson of BET, and partnered with other cable entrepreneurs, including Ted Turner.

This book chronicles CEOs of publicly traded companies, so most examples don’t apply to early-stage entrepreneurs. But it does a good job of explaining capital allocation, including why it’s the most important job of a CEO, and quantifying the results of superior capital allocation by talented CEOs.

Capital allocation is a mindset and a skill all entrepreneurs should be aware of. For entrepreneurs seeking to grow their companies, capital allocation is a critical skill to master.

I started reading The Outsiders: Eight Unconventional CEOs and Their Radically Rational Blueprint for Success this weekend. The book, written by William N. Thorndike, Jr., and published in 2012, details eight CEOs' methods and why they led to outsize returns for their shareholders over a long period.

The central concept of this book is that capital allocation is the CEO’s most important job. Capital allocation is “the process of deciding how to deploy the firm’s resources to earn the best possible return for shareholders.” It’s investing to get the highest return, so CEOs are both capital allocators and investors.

CEOs need capital before they can deploy it. They can acquire capital in three ways:

• Generating cash from company operations
• Issuing debt (i.e., bank loans or bonds)
• Selling equity (i.e., selling part of the company to VC, PE, or public investors)

When CEOs have capital, they can deploy it in several ways:

• Investing in the company’s existing operations
• Acquiring other businesses
• Issuing dividends
• Paying down debt
• Repurchasing equity (i.e., buying back part of the company)
• Launching new businesses (as the sole owner or in partnership with others)

These options make up a CEO's capital allocation toolkit. Figuring out what tools to use, if any, and when, is the skill of capital allocation. The book emphasizes that no courses are taught on capital allocation (as of 2012), so it’s a skill many CEOs lack. Now, though, Columbia Business School apparently covers this topic in its Security Analysis course.

Core to gauging the effectiveness of a CEO’s capital allocation in the long run “is the increase in per share value, not overall growth or size.” Long-term per share value essentially measures long-term value creation.

When I ran my company, I was focused on two things: running the company efficiently and generating cash. Getting the operations right consumed much of my time, and I didn’t think in terms of being a capital allocator.

So far, the stories of how these CEOs thought about and executed capital allocation strategies to generate high returns have been thought provoking. I’m looking forward to finishing this book.