Billionaire Red McCombs: “You Either Make Dust, Or Eat It”
This story originally appeared in my book club. Since I recently sold the company I launched at 19 years old — we did $5m in sales and raised $2.5m in VC- I’ve shifted my focus to reading a book a day. Join my book club now to see what a 26 year old with one exit under his belt is reading.
In the memoir by Red McCombs, “Big Red” the philanthropist and entrepreneur with a current net worth of $1.63 billion tells wild west stories of his ventures into automobiles, cattle, oil and gas, broadcasting, insurance, race horses, motion pictures, real estate, politics, the NBA, and pro football.
Red is the founder of Clear Channel Communications, now iHeartRadio under Bob Pittman, and former owner of the Minnesota Vikings, San Antonio Spurs, and Denver Nuggets.
Red blends high stakes business deals with common sense thinking in this quick read. He’s fiercely competitive with an unquenchable thirst for victory.
I appreciate most his ability to span dozens of lines of business, find the right people, and make great returns.
Here are 3 other lessons I took from the book:
1. Reds father, 100lbs of Peanuts, and Margin Wars
Margin is the percentage of the selling price you keep as profit. Red learned this the hard way.
Red’s idea for selling peanuts came from the “Harley Sadler Medicine Show which toured small towns peddling tonics and elixirs that would cure everything from baldness to lumbago.”
He found the Kimball wholesale grocery in Lubbock and convinced his dad to be his “banker” to help him pay for his first 100 pound bag peanut order. When Red sold out the first bag of peanuts and shared the news in a delightful manner with his father, Willie replied
“We have a little problem, honey boy. The peanuts cost more than you took in.”
Red forgot to calculate the number of his peanut bags he’d have to sell to make a profit on the 100lb larger bag he bought at wholesale. He quickly cut the number of peanuts he put in each brown paper bag in half, thus doubling his inventory and moving the business into the black.
Start at what margin you want to make and work backwards. If you want to make 50% margin and your costs are $100 per 100lb peanut bag, you need to bring in $200 bucks. Your sale price is $2.00 per 1lb bag of peanuts. Red was basically selling 50, 2lb bags of peanuts for $1.25 for revenues of $62.5 but costs of $100 — big money looser.
He quickly switched to selling 100, 1lb bag of peanuts for $1.25 for $125 in revenue, $100 in costs, and $25 in profit. How can you drive margin up in your business?
2. Studying Will Surface Deal Flow
Red realized when NFL and AFL combined there was legal monopoly that would be great business opportunity.
When the Vikings NFL team came up for sale, author Tom Chancey offered $200m, but deal fell through.
In May 1998, Red hired Chase Bank to do diligence on the NFL team. He was at a disadvantage bidding against Minnesota homeboys and local investors. These competitors gave away their plans for the NFL team in interviews which helped Red estimate what their bids would be.
Red then called then-current owners of the Vikings and asked if he bid $10m more than homeboy in Minnesota would they go homeboy or Red?
We’d sell to homeboy.
When Red asked what about $20m, owners replied, they’d probably go high bid. Red knew he needed to add $20m to what he thought the highest homeboy bid would be to win the deal.
He offered $250m. Exactly $20m above the second highest bid from a homeboy.
Study the heck out of who you are competing against — that will reveal exactly how to beat them.
3. When You See a Chance, Take It
Red wanted to buy a clear channel radio station because he saw how well radio worked for marketing his car dealerships. He set his sights on clear channel WOAI.
One day, he got a call from an investment banker friend, Lowry Mays, who was trying to unload a radio station for one of his clients called KEEZ.
Red had no interest in KEEZ because it was FM but it was way to get foot in the door so he did the deal. He knew nothing about radio, and hunted for a General Manager. He found Doug McCall, the GM of KTSA, the top rated AM station in San Antonio.
Next he bought 2 stations in Tulsa, one AM, one FM for $750k. He financed deal by selling land the transmitter tower sat on for a lot more than what they paid for the deal. He found hidden value and created more momentum. despite still loosing money and not owning his initial target: WOAI
Eventually, his target WOAI finally went up for sale, took year to do deal but closed. Changed name to Clear Channel now that they owned. Kept buying stations, took public in 1984 and brought in Alan Feld, Ted Strauss, and John Williams to serve on his board.
Red ventured into television in 1988 buying WPMI.
He continued buying aggressively:
Jacor Communications $4.4b, 230 radio stations. 2000 SFX Entertainment $3.3b deal. 2000 merger with AMFM, $23.5b deal.
The lesson in all of this is figure out a way to create momentum today, right now, in whatever space you want to be in. Momentum has a funny way of driving you to the top.
Clear Channel is now iHeartRadio and a multi billion dollar company.
If you found this summary helpful, click the little heart below and if you want to start reading it now, you can grab the book on Amazon here.
