Navigating Small Business Dynamics

What I learned from reading Constellation Software Inc. President's Letters by Mark Leonard.

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[1:10] Business lessons from Mark Leonard by Tren Griffin

[2:11] Newsletter: Liberty’s Highlights The Serendipity Engine: Investing & business, science & technology, and the arts.

[2:59] I don’t like anyone telling me what to do. I don’t like anyone saying I am an authority figure and you will do it this way. I can’t think of anything that annoys me more. I was stuck by the principal. I challenged teachers. I left home early. I had a bootleg radio license. I built a flamethrower. I did things that weren’t accepted by lots of people. That ability to choose what I think is right is something I prize highly.

[4:49] Distant Force: A Memoir of the Teledyne Corporation and the Man Who Created It (Founders #110) and   The Outsiders: Eight Unconventional CEOs and Their Radically Rational Blueprint for Success (Founders #94)

[4:53] Teledyne grows bigger by dividing businesses into smaller parts wherever possible. Singleton claims that this keeps his managers creative and not wasteful.

[5:12] Our preference is to acquire businesses in their entirety and to own them forever.

[8:57]  The Fish That Ate the Whale: The Life and Times of America's Banana King (Founders #37)

[9:18] There are times when certain cards sit unclaimed in the common pile, when certain properties become available that will never be available again. A good businessman feels these moments like a fall in the barometric pressure. A great businessman is dumb enough to act on them even when he cannot afford to.

[12:20] Customer relationships that endure for more than two decades are valuable.

[13:08] The longer we have owned a small software business, the larger and better it has become.

[15:32] Jeff Bezos’s Shareholder Letters. All of them! (Founders #71)

[23:22] We didn't get to that point with central edicts or grand plans. We just had a hunch that our internal ventures could be better managed, and started measuring them. The people involved in the Initiatives generated the data, and with measurement came adjustment and adaptation. It took 6 years, but we have fundamentally changed the mental models of a generation of our managers and employees.

[23:56]  A Man for All Markets: From Las Vegas to Wall Street, How I Beat the Dealer and the Market (Founders #93 and #222)

[28:06] Our business units rarely get large.

[28:26] This suggests that the size and performance of our business units are almost totally unrelated. I believe that these business units are small for a reason...that the advantages of being agile and tight far outweigh economies of scale. I’m not a proponent of handling our “complexity problem” by creating a bunch of 400 employee business units to replace our 40 employee units. I’m looking for ways of “achieving scale” elsewhere.

[29:06] Debt is cheap right now, so it is pretty tempting to use it. Unfortunately, it has a nasty habit of going away when you need it most.

[30:42] The Essays of Warren Buffett (Founders #227)

[32:51] Book recommendation from Mark: Thinking Fast and Slow

[34:53] I love what I'm doing and don't want to stop unless my health deteriorates or the board figures it's time for me to go.

[36:42] My personal preference is to instead focus on keeping our business units small, and the majority of the decision making down at the business level. Partly this is a function of my experience with small high performance teams when I was a venture capitalist, and partly it is a function of seeing that most vertical markets have several viable competitors who exhibit little correlation between their profitability and relative scale. (TRUST IN SMALL GROUPS OF SMART PEOPLE)

[37:35] There are a number of implications if you share my view: We should

a) regularly divide our largest business units into smaller, more focused business units unless there is an overwhelmingly obvious reason to keep them whole,

b) operate the majority of the businesses that we acquire as separate units rather than merge them with existing CSI businesses, and

c) drive down cost at the head office and Operating Group level.

[38:11] I want you to bear with me because I really do think this is a very clear description of what he's building, the advantages the strategy provides, and why he's going to be hard to compete with over the longterm.

[40:13] We have 199 business units. We can run a test in 5, 10, 6, 24, whatever it is —we find what works and we can spread it throughout the entire company and spreading best business practices makes those businesses better. The longer it goes, the more businesses we have, the stronger they get over the time. And it's nice you have a checkbook and a phone but I'm way too far ahead— you'll never catch me is essentially what he's saying.

[42:00] Copy This!: How I turned Dyslexia, ADHD, and 100 square feet into a company called Kinkos (Founders #181)

[43:19] Book recommendation from Mark: The Evolution of Cooperation

[44:52] You Don't Know Jack... or Jerry by Robert O. Babcock.

Jack Henry and Jerry Hall launched a software company in theh back of a small engine repair shop. Thirty years later, Jack Henry and Associates, Inc., is a thriving operation with over 3,700 employees in close to 50 locations around the United States.

[47:22] Book Recommendations from Mark: One Man's Medicine: An Autobiography of Professor Archie Cochrane and Effectiveness and Efficiency, Random Reflections on Health Services by Archie Cochrane

The first book is a moving, idiosyncratic and dryly amusing autobiography of a brilliant and erudite outsider that makes you wish you’d known the man firsthand.

The second is a stinging critique of a well-meaning but entrenched medical establishment, for their ineffective and dangerous medical practices.

[48:23] We spend time on non-randomized observational studies trying to spot business practices that actually add value rather than just adding overhead.

[48:34] My favorite part of Mark’s letters

[51:09] A huge body of academic research confirms that complexity and coordination effort increases at a much faster rate than head count in a growing organization.

[51:50] The business manager needs to be asked why employees and customers wouldn't be better served by splitting that business into smaller units. Our favorite outcome in this sort of situation is that the original business manager runs a large piece of the original business and spins off a new business unit run by one of his or her proteges.

[53:39] Something wonderful happens when you spin off a new business unit.

[54:16] When you get big you lose entrepreneurship.

[54:43] If I were advising my 35 or 40-year-old self on where to go, I would tell him to stay put. Become a master Craftsman in the art of managing your VMS business. It is the most satisfying job in Constellation and will generate more than enough wealth for you to live very comfortably and provide for your family.

[55:30] You can't be normal and expect abnormal results.

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“I have listened to every episode released and look forward to every episode that comes out. The only criticism I would have is that after each podcast I usually want to buy the book because I am interested so my poor wallet suffers. ” — Gareth

Be like Gareth. Buy a book: All the books featured on Founders Podcast