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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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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Q2: as u said, Buffett MO is FCF to acquire more FCF. Then what's Koch's?
FCF to acquire more operational knowledge that then 🔼 current FCF?
Whenever got excess CF, how to decide to go after more FCF or more operational knowledge? How to evaluate the opportunity costs?
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This is the most maddening thing about the book. He doesn't say! I'm 60% through and I'm hoping that he reveals the decision making models later. But I suspect he won't (because it's too company-specific).
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Which begs the question then why write the book? for ego? To act as manifesto on company culture ala netflix culture slide deck?
Just thinking out loud here btw
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I'd give anything for a dinner with their internal development group, to be honest. That's the internal team that acts as a 'consulting arm', that builds the knowledge capture processes/tech, and goes into newly acquired companies to integrate into the rest of Koch.
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Using the Koch way of looking at things, I guess, I'd give something too to learn more from their internal dev group. But it won't be an infinite anything. :D
Jokes aside, that internal team setup sounds like they're methodical. which i admire. disregarding their politics
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