Being a founder is about responsibility

When you start a company alone, you are 100% responsible for every job it entails. You are a true generalist. This means your job consists of product strategy, customer service, development/engineering, UX design, finance, accounting, janitorial work, hiring, distribution, etc. etc.

As you bring new people into the organization, they slowly start taking responsibility from you, job by job. So you hire an engineer, and now they are responsible for 90% of product development while you take the remaining 10%. The talent base has grown but you never abdicate all responsibility for a job… you will always play at least a small role in everything.

You keep hiring people until most of the job responsibilities rest on other people. When this happens, you still play a role in everything, but it is a role more of vision, guidance and support.

So the office is dirty and nobody’s cleaning it up? Yeah, it’s not your primary concern — but you’re still responsible for it. “That’s not my job” shouldn’t be in your vocabulary whether you have 10 people working for you or 10,000.

DRI

At Apple, they assign DRIs (directly responsible individuals) for projects and tasks that need getting done. This is the go-to person that takes ultimate responsibility for the job. It is important that someone is assigned this role because otherwise responsibility may be too diffused, in which case nothing gets done.

So in my view even though the higher up the chain you are the more your responsibility, there still needs to be a specific DRI assigned for each project or job in the business. A DRI is not used to assign blame, but to assign responsibility for maintenance, improvement, and problem resolution. This could be a manager or just someone on a team that came up with a good idea.

Cross posted at the Atlastory Blog

The Innovations of Apple: Part II

Steve Jobs iPhone
Instead of further examining where Apple’s current (and future) products fit in on the “innovation scale,” in Part II I want to talk about Apple as an investment, and where its products fit in in terms of investment value.

Apple has been a fantastic investment over the past decade. In fact, since April 2003 when they launched the iTunes store (and iPod sales took off), a dollar invested in Apple would be worth over $40 today – an annualized return of almost 70%. That’s a return that would make most venture capitalists blush. Not bad for a company founded 27 years prior.

One more statistic: even if Apple stock had gone nowhere from its IPO in 1980 up to 2003, its annual return over the three decades since going public would be 13%, which still beats the S&P 500 by over 3%. In other words, almost all of Apple’s current value (~$230 billion) was created over the last seven years.

Where did that value come from? For the seven years ending 2009, sales grew from $5.7bb to $42.9bb. Over 70% of that growth came from new products: the iPod, the iPhone, media sales, and other related peripherals. On a net profit basis, even more than 70% of Apple’s growth came from new products (segment margins aren’t disclosed, but overall margins have hugely increased and most of that likely came from new products). Aside from the storied brand name, Apple is basically a startup that was funded with the cash and income from their struggling Macintosh business.

Apple and the Red Queen Run the Hedonic Treadmill

…it takes all the running you can do, to keep in the same place.” – The Red Queen, Lewis Carroll’s “Through the Looking-Glass”

So, clearly, the law of large numbers comes into effect when looking at Apple’s future growth prospects. To double revenues, Apple would have to sell an extra $43 billion a year in products – that’s over 68 million iPhones or 32 million Macs every year. Continue reading “The Innovations of Apple: Part II”

The Restaurant Investor

I wrote the following article for partners of Braewick Holdings LP and readers of this blog. The article is on the story of Steak n Shake, Sardar Biglari, and what it takes for a restaurant to succeed. I’ve included the introduction here, but the entire article is in PDF format through the link below:

“The Restaurant Investor” by Max Olson

Phil Cooley and Sardar Biglari

In March, 2008, Sardar Biglari won the most important victory of his life. In an activist campaign to gain control of the board of directors of The Steak n Shake Company, Biglari and his partner received nearly triple the number of votes of the directors they were replacing.

It hadn’t been easy—their proxy fight with incumbent management had been going on for more than six months. Biglari and the entities he controlled first purchased seven percent of Steak n Shake during the summer of 2007. In August, the initial filing was made with the S.E.C. stating that Biglari had been in discussions with management. At this point, as with many activist investors, Biglari hoped that management would be open to his suggestions and criticisms of the company. He was the third largest owner of Steak n Shake at the time, holding more shares than all executive officers and directors combined. Only days earlier, C.E.O. Peter Dunn had unexpectedly resigned, stating his intent to “pursue other interests.” It seemed like the perfect time to reform the faltering restaurant chain.

Continue reading “The Restaurant Investor”

The McDonald’s Success Story

I am currently in the process of researching and writing a long article on the restaurant industry, or more specifically Steak n Shake, McDonald’s, and In-N-Out Burger. I should have it finished in a few weeks or so. In the mean time, please enjoy the following excerpt of the article on McDonald’s:

McDonald's (courtesy of verandaparknews.com)

As Ray Kroc sat in his car, he watched a miracle unfold. The parking lot was full, the lines were long, and customers were leaving with an arm-full of food and a smile on their face. Kroc stopped a few to see what was going on: “You’ll get the best hamburger you ever ate for fifteen cents. And you don’t have to wait and mess around tipping waitresses.” He had travelled the country selling milkshake machines, visiting countless restaurants of all types. But he had never seen a merchandising operation like this. It was 1954; fourteen years after the McDonald brothers opened their small burger drive-in in the town of San Bernardino, California.

Continue reading “The McDonald’s Success Story”

“Real people” invade Amazon

Seth Godin points readers to evidence that there’s real people working at Amazon.com (::yahoo(“AMZN”)::). This is just one of the many reasons that great service is sending more and more customers to companies like Amazon.

By doing something that customers don’t expect—Amazon stands out from the crowd. One person has a good experience. They tell their friends, and their friend’s friends. By using money that would have been spent on marketing on a better experience, Amazon gets very sticky customers for a cheap price. Widening the moat, one day at a time. It’s unfortunate that the stock is a little too expensive for my taste.

Make sure to check out the Amazon reviews of the Bic Ballpoint Pen that Seth linked to. Out of all the pens I’ve tried, this one’s the best. As noted, the ink consistency is just right for a variety of different papers. (Click the “Comments” of Matt Williams’ review – I’m glad some people have a sense of humor).

The Forbes 8 Value Investor Index

Warren BuffettAfter looking over the recently released Forbes 400 list (the richest 400 people in America), I noticed the list has included more and more individuals in the “Finance/Investments” category. The growth in assets managed by Hedge Funds and Private Equity companies has been a major cause of this increase. In the Forbes 400 magazine, it shows a graphic representation of each category since the first list in 1982 (25 years ago). In 2007, Finance and Investments had the largest number of members in the list. Below I list which categories have grown or shrunk over the years:

Higher: Service, Finance/Investments, Technology, Retail

Lower: Food, Oil, Media/Communications, Real Estate, Manufacturing, Other Continue reading “The Forbes 8 Value Investor Index”

Warren Buffett & The Washington Post

By Max Olson

PDF Version of “Warren Buffett & The Washington Post”

Warren Buffett and Katherine Graham

There is no question that Warren Buffett is one of the greatest investors of all time. To study his investment methods, there are the Berkshire Hathaway annual letters, biographies, and dozens of other books written on the subject of value investing. But, Buffett’s specific investments are rarely examined within the context of the time he made the purchase—and without the benefit of hindsight. To more fully understand Buffett’s past successes, “reverse engineering” his purchases is essential. One investment in particular interested me, both because I like the business and because it is one of the only investments Buffett made where he disclosed an estimate of intrinsic value. That business is The Washington Post Company.

Background

Buffett began acquiring shares of the Washington Post in early 1973, and by the end of the year held over 10 percent of the non-controlling “B” shares. After multiple meetings with Katherine Graham (the company’s Chairman and CEO), he joined the Post’s board in the fall of 1974.

According to Buffett’s 1984 speech The Superinvestors of Graham-and-Doddsville, in 1973, Mr. Market was offering to sell the Post for $80 million. Buffett also mentioned that you could have “…sold the (Post’s) assets to any one of ten buyers for not less than $400 million, probably appreciably more.” How did Buffett come to this value? What assumptions did he make when looking at the future of the company? Note: All numbers and details in this article are from the 1971 and 1972 annual reports and “Buffett: The Making of an American Capitalist” by Roger Lowenstein.

Continue reading “Warren Buffett & The Washington Post”