#328 Tom Murphy (Buffett’s favorite manager)

What I learned from reading The Outsiders: Eight Unconventional CEOs and Their Radically Rational Blueprint for Success by William Thorndike. 

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(5:00) Tom Murphy] gave me one of the best pieces of advice I've ever received. He said, 'Warren, you can always tell someone to go to hell tomorrow'...You haven't missed the opportunity. Just forget about if for a day. If you feel the same way tomorrow, tell them then-but don't spout off in a moment of anger." All I Want To Know Is Where I'm Going To Die So I'll Never Go There: Buffett & Munger – A Study in Simplicity and Uncommon, Common Sense by Peter Bevelin. (Founders #286)

(5:15) Thirty years ago Tom Murphy, then CEO of Cap Cities, drove this point home to me with a hypothetical tale about an employee who asked his boss for permission to hire an assistant.

The employee assumed that adding $20,000 to the annual payroll would be inconsequential.

But his boss told him the proposal should be evaluated as a $3 million decision, given that an additional person would probably cost at least that amount over his lifetime, factoring in raises, benefits and other expenses (more people, more toilet paper).

And unless the company fell on very hard times, the employee added would be unlikely to be dismissed, however marginal his contribution to the business.

— A Few Lessons for Investors and Managers From Warren Buffett by Warren Buffett and Peter Bevelin. (Founders #202)

(7:30) The autobiography of the founder of CBS: As It Happened A Memoir by Bill Paley 

(9:00) The goal is not to have the longest train, but to arrive at the station first, using the least fuel.

(10:00) Tom Murphy’s simple formula:

1. Focus on industries with attractive economic characteristics.

2. Selectively use leverage to buy occasional large properties.

3. Improve operations.

4. Pay down debt.

5. Repeat.

(13:00) The business of business is a lot of little decisions every day, mixed up with a few big decisions.

(16:00) He quickly indoctrinated Burke into the company's lean, decentralized operating philosophy.

(17:00) I had an appetite for and a willingness to do things that Murphy was not interested in doing. Burke believed his job was to create the free cashflow and Murphy's job was to spend it.

(19:30) Stay in the game long enough to get lucky. The most important thing that he does happens 30 years into his career.

(21:30)

Q: Is this a case of leading by example?

Murphy: Is there any other way?

(23:30) Decentralization is the cornerstone of our philosophy. Our goal is to hire the best people we can and give them the responsibility and authority. They need to perform their jobs. We expect our managers to be forever cost conscious.

(24:00) Repeated by Murphy: Hire the best people and leave them alone.

(24:00) An extreme decentralized approach keeps both costs and rancor down.

(25:00) Murphy delegates to the point of anarchy.

(26:00) The best defense against the revenue lumpiness inherent in advertising supported businesses was a constant vigilance on costs.

(30:00) Why Capital Cities had low turnover: The system in place corrupts you with so much autonomy and authority that you can't imagine leaving.

(35:00) To learn more about a Capital Cities like company listen to The 50X Podcast.

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