Lessons from John Malone

John C. Malone, often dubbed the "Cable Cowboy," is a towering figure in the media and telecommunications landscape. His innovative, and at times controversial, strategies at the helm of Tele-Communications Inc. (TCI) and later Liberty Media, have left an indelible mark on how the industry operates. A master of financial engineering, deal-making, and long-term value creation, Malone's philosophy offers a rich source of wisdom for entrepreneurs, investors, and executives.

On Financial Strategy and Value Creation

On the primacy of cash flow: "Malone realized that maximizing earnings per share didn't work w/ the pursuit of scale." Higher net income meant higher taxes. So Malone invented EBITDA as a proxy for cash flow and ignored earnings. [1]
The mantra of leveraged cash flow: "Malone believed in building long term value through leveraged cash flow. Earnings didn't count." This philosophy prioritized sustainable growth over short-term profits. [2]
A new vocabulary for Wall Street: In lieu of EPS, Malone emphasized cash flow to lenders and investors. He explained that the important metric was how much cash the business was capable of generating. [3]
The purpose of debt: Malone believed financial leverage had two primary benefits: it magnified financial returns and sheltered cash flow from taxes through interest deductions. [3][4]
On prudent leverage: While a proponent of debt, he advocated for its careful use. He targeted a 5x Debt-to-EBITDA ratio for TCI. [4]
Taxes as a foe: "Malone hated taxes. They offended his libertarian sensibilities." He famously said he would do anything "short of breaking the law" to avoid them. [1][5]
Reinvestment over dividends: "He never paid dividends & rarely paid down debt." All extra cash flow was reinvested in more acquisitions to grow the company. [1]
Tax minimization as a core strategy: To Malone, higher net income meant higher taxes. He believed the best strategy was to use all available tools to minimize reported earnings and fund growth with pretax cash flow. [4]
The government as a silent partner: “[Taxes are] a leakage of economic value. And, to the degree it can be deferred, you get to continue to invest that component on behalf of the government. You know, there's an old saying that the government is your partner from birth, but they don't get to come to all the meetings.” [6]
The folly of focusing on earnings: “I used to go to shareholder meetings and someone would ask about earnings, and I’d say, ‘I think you’re in the wrong meeting.'" [7]

On Business Strategy and Growth

The power of scale: "The key to future profitability and success in the cable business will be the ability to control programming costs through the leverage of size." [4][7]
Horizontal acquisitions for synergy: "The easiest deals are the ones where you're buying another business or merging it with the business you're already in. Those are easy. They're easy to figure out. They're generally horizontal acquisitions and you gain scale synergies." [4]
A relentless acquisition pace: During the 1980s and 1990s, TCI was purchasing an average of one cable operator per day. [8]
Avoiding direct competition: TCI acquired 482 companies with a focus on less expensive rural and suburban subscribers to avoid bidding wars. [4]
Owning the "pipes" and the "water": Malone believed in controlling both the infrastructure (the "pipes") and the content (the "water") to dominate the cable market. [2]
Decentralized operations: Malone was a proponent of decentralized operations, giving significant power to local managers who understood their markets best. [8]
Centralized capital allocation: While operational decisions were decentralized, Malone maintained tight control over how the company's capital was spent to ensure it was used for the best possible returns. [8]
The "Roman Empire" approach to acquisitions: When acquiring companies, Malone's approach was often to "retire the guys who you made rich when you bought their company," assuming they would no longer be motivated to work hard. [9]
Strategic partnerships as a tool: No CEO has ever used joint ventures as actively, or created as much value for his shareholders through them, as John Malone. [10]
Investing in the ecosystem: By taking equity stakes in programmers and other cable companies, TCI aligned itself at the center of the industry, turning potential competitors into partners. [3]

On Leadership and Management

Hire good people and pay them well: Malone believed that "Incentives & autonomy create a strong culture." TCI's employee stock purchase program created many millionaires. [1]
The importance of management: “Management is always the key to success.” [11]
Delegation to focus on the big picture: Malone saw himself as a capital allocator first and a manager second, delegating most day-to-day responsibilities to focus on acquisitions. [1]
Fostering a culture of excellence: He is known for creating a collaborative and creative environment that rewards performance and innovation. [2]
The value of loyalty: In the first 16 years of his leadership at TCI, not a single senior executive left the company. [1]
Being a coach: Malone is described as supportive, always available, not a micromanager, and like a coach to his team. [12]
Generosity with key people: He has been extremely generous to his senior people, ensuring they have a stake in the companies they help build. [12]
You can't do it alone: Malone's career demonstrates a recognition that success requires great executives working with and beside him. [12]
Equity aligns interests: "If you give managers equity ownership, they can focus on fighting for economics rather than wasting energy fighting for control." [13]
Vision over convention: Time and again, Malone defied conventional wisdom with strategies rooted in a vision that transcended industry norms. [8]

On Deal-Making and Competition

Be opportunistic: "You just have to be opportunistic, and try to figure out what creates value... where the bottom is, what creates incremental value, and in what combinations." [6][11]
The danger of irrational competitors: "What you really are afraid of is that you're competing against somebody who is rich and irrational." [11][14]
The Murdoch rule: "Don't ever bid against Rupert Murdoch for anything Rupert wants, because if you win you lose. You will have paid way too much." [14]
The importance of due diligence: On the failed AOL-Time Warner merger, he noted the lack of diligence as a key failure. "The most important thing in these deals is plenty of time for diligence." [4]
Synergy as the driver: "Synergy is the driver. There are two levels of synergy: there are operating synergies, which, you know, you'd have to be stupid not to try to take advantage of, and then there are strategic synergies." [11]
Collaboration with competitors: "There were many deals we all put together as partners… It was a very collaborative industry and we were not really competitive with each other in most ways." [15]
Know when to walk away: The no-deal option should always be considered because not every deal is worth making. [16]
The biggest mistake: When asked about his biggest mistake, he cited "selling to AT&T. not having done the diligence to make sure that they could carry" out the plan. [17]
Execution is everything: On the failed AT&T deal: "Great strategy and terrible execution led to what I would regard, personally, as a fiasco." [15]
Consolidation as a necessity: "I think consolidation was an absolutely necessary evolution in the business." [15]

On Technology and the Future

A "settler," not a "pioneer": "Ironically, this most technically savvy of cable CEOs was typically the last to implement new technology, preferring the role of technological 'settler' to that of 'pioneer.'" [10]
The challenge of new technology: Malone appreciated how difficult and expensive it was to implement new technologies and preferred to let others prove their economic viability first. [10]
On the power of Big Tech: “Big Tech is increasingly a natural monopoly... They have this network phenomenon and they are so scale-driven that, once they get to that scale, it's very, very difficult for competition.” [1]
Three monopolistic traits of tech giants: Malone identified massive global scale, the network effect, and their internal ecosystems as the three characteristics that give Big Tech their power. [18]
The future of speed: "If speed is the killer, than speed will be a cable asset… How fast is fast enough really becomes the engineering catch phrase." [15]
On the future of direct broadcast satellite: When asked about its future, he acknowledged its limitations as not being a two-way transmit and receive system. [18]
Hardware vs. Software: Recalling a lesson from a friend: "Hardware is worthless the money's in software he said everything you can do in Hardware. I can emulate in software. and he was. right." [18]
The need for R&D: Malone urges investment in research and development to anticipate and solve future problems like climate change and pandemics. [11]
Collaboration is key to solving global issues: He believes that solving major global issues requires "mentality leaderships that are willing to solve these issues” and a firm understanding that it is “all about collaboration.” [11]
The enduring entrepreneurial spirit: "Entrepreneurs will always be able to take an asset, leverage it up, operate it tightly and make it worth money to them and get good equity returns." [6][19]

Learn more:

Lessons from John Malone

On Financial Strategy and Value Creation

On Business Strategy and Growth

On Leadership and Management

On Deal-Making and Competition

On Technology and the Future

Written by Antoine Buteau

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