The Outsiders: Eight Unconventional CEOs and Their Radically Rational Blueprint for Success

by William N. Thorndike Jr.

CEOs need to do two things well to be successful: run their operations efficiently and deploy the cash generated by those operations. Most CEOs (and the management books they write or read) focus on managing operations, which is undeniably important. Singleton, in contrast, gave most of his attention to the latter task. Basically, CEOs have five essential choices for deploying capital—investing in existing operations, acquiring other businesses, issuing dividends, paying down debt, or repurchasing stock—and three alternatives for raising it—tapping internal cash flow, issuing debt, or raising equity.

It is impossible to produce superior performance unless you do something different. —John Templeton

All were first-time CEOs, most with very little prior management experience. Not one came to the job from a high-profile position, and all but one were new to their industries and companies. Only two had MBAs. As a group, they did not attract or seek the spotlight. Rather, they labored in relative obscurity and were generally appreciated by only a handful of sophisticated investors and aficionados.

developed unusual, cash flow–based metrics; and bought back a significant amount of stock. None paid meaningful dividends

At bottom, these CEOs thought more like investors than managers.

Growth, it turns out, often doesn’t correlate with maximizing shareholder value.

“The goal is not to have the longest train, but to arrive at the station first using the least fuel.”

At no company was decentralization more central to the corporate ethos than at Capital Cities.

he relied on simple but powerful rules in evaluating transactions. For Murphy, that benchmark was a double-digit after-tax return over ten years without leverage.

“We specialized in high-margin products that were sold by the ounce, not the ton.”

as a group, they were, at their core, rational and pragmatic, agnostic and clear-eyed.

avoid cross-collateralization

‘Where’s the next dollar best applied?’

make large bets when the odds were overwhelmingly in your favor.

Smith, however, realized that a well-located theater could quickly generate predictable cash flow, and he pioneered the use of lease financing to build new theaters, dramatically reducing up-front investment.

Paul-to-Damascus-type

Berkshire’s longterm success has been its ability to “generate funds at 3 percent and invest them at 13 percent,”

be “fearful when others are greedy and greedy when they are fearful.”

“Unlike operations (which are very decentralized), capital allocation at Berkshire is highly centralized.”

that excellent investment ideas are rare,

the business world is like a high school cafeteria clouded by peer pressure. Particularly during times of crisis, the natural, instinctive reaction is to engage in what behaviorists call social proof and do what your peers are doing.