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Aug 30, 2019

I've reached the point in Dark Money where I think at least 50% of Koch's writing in Good Profit is bullshit. Or at least, there's no way to take him seriously on 'values', when he very happily messes with gov regulation in order to benefit his companies.

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Koch had to reinvent his company in response to the oil shocks of the 70s. And boy did he do it.

How you do this: step one. Find a source of free cash flow. Koch found it in the Pine Bend refinery. Leonard documents this as a ‘stroke of genius’. In order to do it Koch had to crush a powerful local union. This he did over a year.

3:27 PM · Oct 1, 2019Tweetbot for iΟS

Surprisingly, Leonard is neutral on this event. He writes that the Union was bloated, unreasonable, and excessive in its demands.

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After breaking the back of the Union (which is the subject of a entire, brilliant chapter in the book) Koch promoted Bernard Paulson. Paulson began using computers to study the refinery’s production. This is very advanced, given that this was in the 70s.

This is the template, by the way, that Koch uses to expand his empire. Buy one business, use it to study the industry by taking in information about supplier markets, customer demand, and the lay of the land. And then expand where there is opportunity. More on this later.

Pine Bend provided the FCF that Koch used for his early expansion. And that wasn’t due to Paulson’s operational excellence, even though that was ground breaking. It was due to the geographical monopoly it had:

Step two: Koch created an internal private equity arm, whose job was to take that FCF and make acquisitions. With two twists: 1) use as little debt as possible (so in downturns they could act quickly to buy distressed companies) and 2) expand where they had existing capabilities.

I’ll stop here for the night. I’m still reading the book, btw. Will continue soon.