Samuel I. Newhouse Sr.

Sam Newhouse ran a $1B media empire from a briefcase, with no execs

Samuel Newhouse dropped out at 13 to support his family, turned around a small newspaper by 17, and then bought a new paper about every three years for six decades, building Advance Publications. Even at $1B in revenue he had no office, no partners and no executive team. He did handshake deals and drove from paper to paper to check on his publishers.

“But what's interesting is this little guy named Sam Newhouse. He never had an office. He worked out of a briefcase. All he had was a briefcase. Most of the deals that he did was handshake agreements. He had zero partners. He had zero executive management team. And by the time the company was doing $1 billion in revenue, it was literally just him, like just him making these decisions.”

Newhouse's acquisition rule: what profit can it make in 10 years?

Sam Newhouse valued each newspaper by the profit it could produce over the next decade. If a paper could earn $8M over 10 years, paying $4M was easy, which meant he was comfortable paying roughly 6-8x annual earnings.

“Basically the way that he thought about it, he was like, his whole thing was like, how much profit can I make in 10 years off of this particular newspaper? That's how he would value things. So he was like, okay, I can make $8 million in profit over the next 10 years off this newspaper. I have no problem buying it for $4 million, which is like, I think at the time that like he would buy them for 6 to 8 times annual earnings because he was like, I'm looking for 10 years at a time. That's how I measure it.”

Steal thisValue an acquisition by its total profit over 10 years and pay no more than about half of that.

Buying multiple businesses? Don't consolidate the back office

Sam's takeaway from Newhouse (and Warren Buffett): merging back offices across acquisitions seems smart but backfires. Each business should be fully independent so it can move fast on local decisions without a central HQ. His second lesson was to know what business you're in, which for Newhouse was ads first, and stick to it.

“So something that he did that I believe Warren Buffett did, when you're buying multiple businesses, something that you tell yourself that's cool is to consolidate the back end, the back office, It's counterintuitive. That is not the way to do it. Every entity should be its own thing that can run itself and is completely independent. That is the best way to make sure that they can move fast and act on what's good for their local business, as opposed to having like some HR or sorry, some HQ that's helping make decisions.”

Steal thisWhen you roll up businesses, leave each one running on its own instead of centralizing HR and ops at HQ.