This post originates by a comment of reader S., who has mentioned the book „the Outsiders, Eight unconventional CEOs“. Actually the book review was my first blog post which I ever had accomplished, and MMI was so kind to publish it in his outstanding blog. As this book is really worth reading here is the old post again with some extensions which I have learnt in the year after having read the book. Especially I could recommend the links at the end of the post which will help you to achieve a deeper understanding of „Outsider thinking“. Perhaps William N. Thorndike Jr. itself is an outsider, he is the founder and managing general partner of Housatonic Partners a private equity firm. After Motley Fool Housatonic Partners has returned around 25% in the last 20 years, the approach of Thorndike is to spend 30% of his research time on the CEO and management of a company,
So first of all, let’s start with the book review and the wrap up of the idea.
I would like to recommend the book: “The Outsiders, Eight unconventional CEOs and their radically rational Blueprint for Success”. It is written by William N. Thorndike Jr. and a team of Harvard students.
I firstly heard about the Book in the Economist and after that in a write-up of the annual Meeting of the Daily Journal as a book recommendation from Charlie Munger. While reading the subtitle of the Book, I became really keen to read it as soon as possible.
My first impression is that the book, considering its high price, is fairly short. The book has only got 225 pages.
The main content of the book is:
The 8 CEOs are so successful, because they follow these simple rules:
1. Run a decentralized organization which releases entrepreneurial energy and keeps both costs and “rancor” down. They are maximizing the strengths of their teams
2. Cash flow, not reported earnings, is what determines long-term value.
3. Share buybacks increase in per share value and in the long run that is the only thing that matters – not the overall growth of the company. So buy back shares when the time is right
4. With acquisitions, patience is a virtue… as is occasional boldness. Outsiders expand their crocodile temperament by being patient and disciplined but pounce on the right opportunities.
5. Iconoclast CEO’s have a relentless focus on optimizing the long-term value of their company – per share.
6. Systematically schedule time to think independently
7. Identify a hurdle rate for projects and after that make sure that each project meets or exceeds that rate of return, therefore they are disciplined about their capital allocations.
The author of the book points out that the outsider CEOs shared an interesting set of personal characteristics: They were generally frugal and humble, analytical, and understated. They were devoted to their families, often leaving the office early to attend school events. They did not give chamber of commerce speeches, and did not attend Davos and last but not least they did not exude charisma.
The outsiders are not like Jack Welch an example of a charismatic, action-oriented leader. They are more like Ben Franklin; they avoid bankers and other advisers and prefer their own counsel and that of a select group around them. Mostly the combined fresh eyes by starting as a newcomer with a high level of energy and attract throughout their decentralized management approaches superior talents.
In the word of the author: “The outsiders are iconoclasts. The word iconoclast is derived from Greek and means ‘smasher of icons’.”
The outsiders are:
1. Tom Murphy and Capital Cities Broadcasting
2. Henry Singleton and Teledyne
3. Bill Anders and General Dynamics
4. John Malone and TCI
5. Katharine Graham and The Washington Post Company
6. Bill Stiritz and Ralston Purina
7. Dick Smith and General Cinema
8. Warren Buffett and Berkshire Hathaway
After the author companies typically failed because they acquired too rapidly and underestimated the difficulty and importance of integrating acquisitions and improving operations. Therefore be aware of this fact if you analyse a company.
It is a quite interesting read with many interesting stories about the company’s and the CEOs.
Overall the book is really easy, quick to read and there are summaries at the end of every chapter. At the end of the book, the author presents the outsiders mind frame in a simple approach and a checklist.
But I do not believe that it is as easy as it seems by reading the book. I think you always need the right time and the right place to be successful.
So if you want to enjoy a well written book about a really interesting topic which will help you figure out the right management of the company in which you like to invest you might consider buying it.
Her is a link to a podcast with the author, a written interview. And an article written by Thorndike about Warren Buffett and his Managers Tom Murphy and Dan Burke
So the question is: Have you met an outsider? If so leave a comment with the name of the manager and the company!
In my eyes Elon Musk is one of these outsiders, here is a YouTube interview with him, I think you can learn a lot about business by only listen to great people. What is your „Outsider“?