September 2020

Be warned, reading Distant Force: A Memoir of Teledyne Corporation and The Man Who Created It, is like reading a 280-page Wikipedia article. That's not to discredit it, however. This is one of the most interesting business stories of the last century and often overlooked. The company accomplished so much that just making note of all these events is a tough and tedious task, but connecting the many deals and decisions to understand the strategy that drove their growth is worth working through the administrative details. Henry Singleton Jr., the founder of Teledyne, was a remarkable leader who drove a decade of acquisitions, organic growth, and optimizations while managing the challenges of scale. As a brilliant capital allocator, he delivered a 20.4% compound annual return over 27 years. Charlie Munger said of Singleton’s record, “a mile higher than anyone else…utterly ridiculous.”

I find it infinitely interesting to study how these lasting profitable enterprises, especially of a different era, were built. How did they achieve such scale well before the ventured, grow at all costs, "blitzscale" chaos that exists today?

George Roberts, Singleton’s right-hand man and the book's author, talks about how his role alongside Henry was to grow the business — mostly through acquisition. Each acquisition grew a new branch of their organization, like a new branch of a tree, as soon as the previously grown branches were deeply rooted enough.

<aside> 💰 Crazy side note: The book is out of print and fetching over $400 on Amazon. I got it for a steal on eBay for about half that. After finishing the title I can say it's worth the spend. It all depends on what value you put on the insights that come from the Teledyne story.

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While the Teledyne story can read like a list of deals — all-in there were over 150 acquisitions and in some heavy periods up to 35 deals in a single year — how these many businesses would weave together to create a powerhouse technology firm is a testament to the foresight of their founder. The acquisitions methodically and profitably established a foundation for the technical infrastructure and R&D of multiple industries. Teledyne built expertise, and in some cases, dominance, across Digital Imaging, Instrumentation, Engineered Systems, and Aerospace and Defense Electronics. Singleton's unique approach and skill set, combining a scientific understanding of the underlying technologies in these sectors with an intuitive grasp of the financial dynamics necessary to buy, integrate, and grow an acquired company, was truly extraordinary.

If you read between the lines, or in this case between the deals, the book shares numerous insights into Teledyne's success:

"Our policy of keeping our operating units small, each responsible for its own success, is something we follow throughout the organization." - Teledyne

He goes on to outline compensation strategies for group executives and their relationships with the operating company leaders. You see characteristics of this operating style elsewhere as if Buffet's Berkshire Hathaway and Welch's General Electric had a love child.

As Saltwater works to make smart majority investments, the idea of building one company through a coherent and curated group of investments in a focused industry, versus a disparate collection of more or less random investments, is appealing to an operator.

There is also something critically important one can learn from the tree analogy. Let's take Amazon, Apple, Facebook, or any other well-scaled, diversified technology company, for example. Imagine the business in the shape of a tree. Imagine profitability as the width of the trunk (or branch) and the age of the business or business unit, as the height (where it meets the original trunk). If anyone wants to create this visualization I’m happy to share :)

A palm tree, for example, would have one core business, not growing huge, but showing significant durability (tall and thin), before more recently breaking into many different business units, sprouting at the top. Using this analogy and visualization I can’t imagine that a core focus on profitability would ever be the wrong strategy if one is building for durability. Building a deeply rooted, sturdy foundation for all other endeavors to benefit from. Amazon's trunk is in selling books online, fast, with a ton of selection. They spend years invested in this business. The AWS branch wouldn't sprout until years later, but with the foundation of e-commerce, it's been able to form its own supportive trunk.

Teledyne didn't spend nearly the amount of time focused on one core business as Amazon did, but focusing each newly acquired company on profitability in its early life gave management the confidence to install or empower its leadership to operate nearly autonomously with good roots, while corporate management then moved focus toward the next acquisition. This profit focus and expertise on when it's safe to shift focus was one major reason why they were able to build shareholder value as quickly as they did.

As investors with an operating mentality, we've found ourselves at Saltwater going deep into our most recently acquired business and enjoying sharpening their operations, in the trenches with the team. We also know that as we grow our business we'll need to master the art of stepping back, empowering the new leadership to take the reigns and fully run with the business. We find the balance of both roles exciting and the partnership with our business leaders incredibly fulfilling. We'll be lucky to execute that balance as well as Singleton and Roberts did managing Teledyne. Their story will certainly be an inspiration to how we build our business at Saltwater.