Next up, I’ll be reading Jane Mayer’s Dark Money, on the political activism of the Koch brothers, alongside the two books on company management by Charles Koch.
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The most interesting idea from Koch’s operating playbook is that they expand according to capabilities. Most companies expand by acquiring industry adjacent companies. Like oil -> refining. Koch doesn’t. Instead, they expand by deciding what capability they want in the company.
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Koch started with oil-related capabilities. They acquired a paper company (short jump from oil due to existing chemical processing capabilities) to build consumer marketing & branding capabilities. After which they could start acquiring consumer-oriented businesses.
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Other examples: INVISTA (nylon and advanced materials) → oil pipeline technologies.
Consumer marketing and branding capability → Molex (electronic connectors+sensors) → oil pipeline monitoring
Oil futures trading → built trading capability → enabled bets on oil wells.
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Why is this interesting?
Take Warren Buffett as an example. Buffett's MO (grossly simplified) is to buy companies with high free cash flow, collect those earnings, and then use it to buy yet another company with high FCF. Rinse and repeat.
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But Buffett is all capital allocation, no operations. Koch is what you get when you combine some capital allocation ability with a crazy amount of operational excellence. Nearly all of Koch's subsidiaries contribute to each other in some way or form.
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Replying to
I re-read ur 🧵& ve some ?
Q1: In an earlier tweet, u said, Koch acq. coys for their capabilities e.g. paper firm for consumer oriented marketing. I'm wondering why they think they need that ability?
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It enables them to acquire *other* consumer oriented companies in the future. =] I think that's the coolest thing. At each point, one of the factors in their decision making is 'if we gain x capability, what other industries/companies can we go after?'